(Oct. 31, 2005) — The Society of the Plastics Industry Inc.'s latest trade initiative, to seek tariff negotiations on plastics machinery as part of broader talks at the World Trade Organization, bears close watching.
The initiative would mark the first time that plastics machinery has been singled out for special treatment at the WTO, and could pave the way for steep reductions in tariffs on plastics. SPI sees it as a way to help open foreign markets to U.S. machinery sales.
Basically, the proposal would set up “sectoral talks” for plastics machinery that would take place parallel to broader negotiations set to start next year on revamping WTO rules.
Those broad talks would seek to lower tariff and nontariff trade barriers on all kinds of manufactured products, agricultural goods and services. The plastics sectoral talks would lower tariffs on machinery even more between countries that agree to participant in them.
Sectorals are common. The chemical industry, including plastic resins, negotiated a sectoral at the last round of WTO talks, and it lowered tariffs on chemical products to about 6 percent.
SPI sees its proposal as boosting U.S. machinery sales by lowering barriers in developing countries, particularly China, India and Brazil. Of course, those countries would have to participate, and that's where a delicate political dance begins.
Processors in those countries would benefit from cheaper access to machines, and that's certainly a benefit to the U.S. plastics industry. These economies are going to modernize, and it's better to be part of the trend, rather than leaving those markets to machinery suppliers from Europe or Asia.
But domestic machinery makers in those countries may object, unless they see opportunities for themselves to make more export sales.
In the United States, we can see similar questions. U.S. tariffs are low, and the deal certainly would be good for U.S. machinery makers that export, but what would it mean for the processing companies?
If the effect is only to make better-quality machines cheaper for processors in other countries to compete against U.S. firms, it's not clear that's a benefit to the U.S. processing industry.
We don't know the answer. It's admittedly a complicated question, and you could argue that machinery tariffs are not a significant factor when comparing costs between countries. Things like currency, labor, the sky-high cost of U.S. natural gas and being where the market is probably loom much larger.
But it is clear that the U.S. processing industry's trade picture is worsening. Last year's global deficit was more than $3 billion, and has been getting worse at a pace of about a $1 billion a year for the past few years.
SPI officials say it's much harder to craft a sectoral for plastics processing, because plastic products wind up as components of so many other products. SPI thinks that would be a significant factor in the case of machinery, meaning that lowering machinery tariffs would benefit U.S.-based processors with a global footprint.
Looking at the whole picture, on balance this plan seems to offer more benefit than harm to the U.S. industry.