The International Steel Agreement was an international steel cartel from 1926 to 1939.[1][2][3] Its purpose was to sustain prices, and to equitably divide up quotas amongst member states and companies, which represented around two-thirds of the world's steel exports,[4] as well as to secure the member states' supplies of iron ore and coke, which were indispensable to their steel industries. It faced difficulties due to Nazi Germany's desire to re-arm and increased British and American exports after the Wall Street crash of 1929.[4]
The cartel was largely unsuccessfui in price fixing.[5]
Background
Economic context
At the beginning of the 20th century, German steel production was four times greater than that of France. While it was reduced to half its pre-war amount after the defeat of 1918, by 1929 it had once again attained its 1913 level. Meanwhile, France almost tripled its pre-war level, but still could not reach German levels.[4] It was highly dependent on German coke: due to its low quality and carbon level, French coal (from the North and North-East) was only partly usable as coke, and coal from Lorraine was not usable at all.[4]
The Germans had flooded the mine shafts of 18 out of 19 French mining companies during the war.[6] The Allied occupation of the Rhineland after World War I was followed by the occupation of the Ruhr from 1923 to 1925, Dawes Plan of 16 August 1924 regulated German post-war reparations payments, which would henceforth be indexed to Germany's economic performance. In 1925, the Northern French mining basin once again reached its 1913 level, and the French grip on German coal was loosened.
Creation
Organisation
The International Steel Agreement was created on 20 September 1926. Its foundational text used the term "european economic union", in the euphoria that accompanied Germany's accession to the League of Nations. It received abundant commentary in the French press. L'Humanité denounced the return of German imperialism on the international scene.
The cartel operated under the direction of a Council composed of industry representatives from Germany, France, Belgium and Luxembourg. Its members were joined a year later by Austria, Czechoslovakia, and Hungary, each with their own production quota.[7] The European agreement took on a truly global dimension in 1929, through an agreement with American, British and Canadian companies, and later with the accession of Japanese and Swedish producers.
Operation
The cartel determined production quotas trimestrially via a rigorous measurement of national quotas, derived from the total quantity produced by cartel members. A Swiss trust company was responsible for monitoring the production statistics provided by the companies.
The system was supplemented with sanctions: each national group was declared accountable for its country's adherence to production quotas. They were obliged to pay to the cartel 4 dollars per ton exceeding its quota, even if was produced by a company that was not a member.
Challenges
Initial German misgivings
From late 1924, with the return of monetary stability, there was a significant upturn in investments in Germany, and economic growth returned.[4] The country had become a major borrower on the international financial markets in the years 1925–1929, mostly with American, British and Dutch funds, to the tune of more than 25 billion francs.[4] All companies had borrowed in Germany,[4] where after 1927, only 1,3% of corporations owned 46% of total capital.[4]
From September to December 1926, Germany was particularly productive after the restructuring of its steel industry, and systematically surpassed its quota by 9 to 25%. For this, it had to pay 2,7 million dollars in penalties.[4]
New formula of 1933
Its successor, established on 25 February 1933, was less ambitious but more stable, and was limited to regulating exports.[7] The first version had disappeared due to a more pronounced export trend, as it seemed ill-suited to it. However, during the summer of 1931, the collapse of prices, dropping from 6 to 2 pounds sterling per ton, forced a return to negotiations at the end of 1931.[7]
The cartel with the new formula disappeared with the onset of the Second World War, during which numerous studies conducted in the United States call for the prohibition of international cartels, presented as the basis for German expansion and a possible risk to the security of America.[7]
World War II and post-war period
During World War II, Alexis Aron, the former head of Forges et Aciéries du Nord et de l'Est,[8] who had taken refuge in the Alps, drafted plans in 1943 for the future European steel industry: documents describing a peace based on reconciliation, drawing primarily from the experience of the International Steel Agreement.[8] Alexis Aron proposed to rebuild this by modifying certain aspects.[9] His plan closely resembled the one developed by Pierre Mendès France,[8] but it faced opposition from several industry leaders who saw it as a first step towards nationalization, a solution adopted in England, a country where the steel industry did not, unlike France, have significant iron ore mines.
See also
- Swedish iron-ore industry during World War II
- Minette (ore)
Further reading
References
- Ervin Hexner. American Participation in the International Steel Cartel Southern Economic Journal, 1941^
- Daniel Barbezat. International Cooperation and Domestic Cartel Control: The International Steel Cartel, 1926-1938 The Journal of Economic History, 1990^
- Ervin Paul Hexner. The international steel cartel