Rep. Phil English, R-Pa., has been in the forefront of the effort to address economic woes in the tooling industry. Nearly a year ago English and the House Ways and Means Committee asked the U.S. International Trade Commission to study the problem, and ITC delivered its report Oct. 28 to Congress.
Plastics News' Washington-based staff reporter Steve Toloken interviewed English by telephone Oct. 30 from Pennsylvania about the report, the tooling industry, and what role the government may play in coming months.
Q. The report offers a picture of a troubled industry in a pretty complicated world economy. What do you see as the tooling industry's biggest challenges?
A. The biggest challenge is the ability of a group of small manufacturers and entrepreneurs to come together and come up with a coherent game plan to address a very difficult issue. What the report emphasizes clearly is there is no single cause for the downturn in this industry. It's being driven by a variety of factors, including but not exclusively direct imports, including a slowdown in the economy, including a significant part of the customer base moving offshore, and a variety of other burdens that the companies are now experiencing.
Unlike an industry where you have a few large players, like the steel industry, this strategic industry has got to work in concert and really engage the [Bush] administration. Because they're not in a position individually to go out and have an army of trade lawyers in their employ, these companies need to bring the administration into a partnership, get the [U.S. Trade Representative] negotiating on their behalf, get on the radar screen at the Commerce Department and be a priority at the White House.
Q. How effectively are they organized right now, and how should they go about doing that?
A. I think they're headed in the right direction. When these problems first started to surface, I sent a survey around to every tool and die shop in my district and I only got a handful of responses. We even attracted local editorials criticizing the shop owners for not responding. My sense is they have gone from being not very focused as a group and not participating in collective efforts to being much more willing to sit down and try to find common ground to move forward. Because they are a large number of small businesses, albeit ones that have good-paying jobs in a manufacturing sector that is really strategic, they have to learn to work much more closely together.
Q. Many firms are struggling simply to stay alive.
A. I think that's right. The report repeats testimony that suggests as many as half of these producers may be [going] out of business and that there is overcapacity in the range of 25-30 percent. I don't think it's realistic for us to talk about this industry negotiating solutions to overcapacity the way steel is trying to. But I do think they can promote within the federal government an agenda that helps them as small businesses level some of the playing field on trade issues.
Q. A number of trade groups have looked at the report and said, `Gee, it doesn't really offer us much in the way of an obvious solution.'
A. That's the problem. Traditionally trade groups have looked for a silver bullet like an anti-surge mechanism. I don't think there is a silver bullet here because we are talking about products that are extremely diverse and are very difficult to code. Simple adjustment of the tariff schedules is not going to effectively deal with the problem, given how easy circumvention would be with products like these.
Q. So you don't see enough evidence for an unfair trade complaint?
A. I didn't say that. I just think that utilizing some of those mechanisms is difficult. I don't want to get too far out in front of the industry because I'm really looking to them to give us feedback on where they want us to go. But, clearly, we could seek relief for them under mechanisms available to strategic industries. That's point one. Point two: I think they could realistically, for at least part of the problem, invoke some relief under the China-[World Trade Organization] ascension agreement.
But I don't think either of those by themselves provides a very thorough solution. My sense is what is going to really help the industry is, one, a much more aggressive, pro-growth economic policy, but, two, at the same time, tax reform. The kind of tax reform we've talked about but haven't really been able to ramp up in Washington, which would address some of the international tax issues that are rattling around. In the process, if we adopted a border-adjustable, reformed, international tax regime, I think it would go a distance to encouraging some of their customers to stay onshore.
The problem is that some of the most important relief for this industry is going to come through indirect action. That's something that we may even have to sell to the industry.
Q. The report discussed in great depth the problem of companies moving operations to Asia and other low-cost locations. Is there much that can be done to keep that from happening?
A. There is a feeling in the Ways and Means Committee that this is an issue whose time is ripe. We've seen a merger that led to DaimlerChrysler, rather than a Chrysler-Daimler. We need to put in place an international tax regime that encourages capital-intensive companies to stay onshore. I have some ideas on that score on my Web site [www.house.gov/english]. I've featured a simplified USA Tax that I think would take care of a significant part of this problem. I don't think there is a single solution to manufacturing moving offshore. But there are certainly some incentives we can change that would make it a lot easier to make the case.
Q. How might those incentives help mold-making companies?
A. By allowing them to keep more customers here within the United States. I think the point the report made, whatever the tool and die companies do, if their customers are moving offshore, that means lost orders.
Q. During the ITC review Black & Decker Corp. said it did not see any evidence of unfair trade. It said, in fact, that protection for tool shops could increase its costs and make it more likely to move manufacturing out of the United States. Will changes in U.S. tax policies encounter resistance from original equipment manufacturers?
A. It depends on their production patterns. If these are companies that have already taken a lot of manufacturing offshore, they may resist because they may find they've made the wrong decision long term - and they may have to move back onshore. Any time you do something like fundamental tax reform you have immediate winners and losers. You ultimately have to sell it by its long-term impact on the national economy.
I do think that any solution to the tool and die crisis has to take into account the concerns of tool and die customers. The best we can do is lay out the case for change.
My main point, and I don't think it is exclusive of the tool and die issue, if we don't have some fairly fundamental changes, including in our tax code, we are going to see a continued loss of our manufacturing base. This is not all about wages, this is not all about regulatory costs. There are some other factors that we have control over that are driving some of these location decisions that we can legitimately change.
Q. How big a threat is the Asian tool-building industry? Certainly, anecdotally, the industry feels that it is a big threat.
A. I was very interested in the results of the study, which acknowledge that there has been growth in direct imports from the Pacific Rim, but also documents that the leading source of imports is Canada, the second largest is Japan and the third largest is the European Union. I think some of the tool and die people who have probably broader experience acknowledge to me that if there were no problems with China right now there would still be a problem with Portugal. There is no shortage of low-cost competitors. Our companies need to be able to compete based on quality, not just on low prices.
Q. The report mentions U.S. labor-cost disadvantage vs. China, Taiwan, Portugal and others, and it also talks about the growth of technology in the industry that reduces the need for skilled labor, which has been a U.S. advantage for years. How should the industry tackle those problems?
A. I think the answer is to encourage capital investment. That's something that the tax code can play a significant role in. The way that we pay a small number of skilled workers to do the work of 20 or 25 workers in the Pacific Rim is by increasing their investment in plant and equipment that allows those workers to have the highest level of productivity in the world. Clearly, tool and die is a capital-intensive industry, and reforms that make it easier to make capital investments allow our companies to compete, notwithstanding the wage differentials. I feel very comfortable saying that because we compete based on quality and because we invest in productivity, notwithstanding differences in compensation scales, we're in a very strong position to compete with anyone in the world. Where we have legitimate concerns is when China creates a system of tax incentives to lure foreign investment that are WTO inconsistent. That is an issue that I'm looking forward to discussing with the U.S. Trade Representative.
Q. Do you see a role for the existing congressional machine-tool caucus, or some sort of new caucus?
A. I need to talk to [Rep.] Don Manzullo [R-Ill., and head of the tooling caucus]. I haven't had the opportunity to do that. I think he's gotten very active in this issue, and I'd want to talk to him before I answer that. I do think the existing caucus structure has played a role in raising the visibility of this issue.
Q. What is your time frame for the industry to present its solutions?
A. As soon as possible. What I'm going to be doing now - and this is in the wake of Don Manzullo and [Rep.] Marcy Kaptur [D-Ohio] having sent a letter to the president urging that he set up a task force on this issue; I think that's a very good initiative - I've requested meetings with the White House, the Secretary of Commerce and the USTR, specifically to discuss this report.
I feel passionately that this administration, if it puts the same focus on tool and die that it did on the steel industry, is going to be able to come up with some creative ways of providing some breathing space to our producers and giving them the opportunity to retool and position themselves to compete long term. We don't have to see half of the tool and die shops wiped out. I think we have it within our power to come up with a creative strategy for keeping them.