Industry weighs in as NAFTA rewrite begins

Washington — If U.S. manufacturers had their way, the renegotiation of the NAFTA trade pact with Mexico and Canada would be a limited affair, and would reject controversial measures President Trump has floated like border taxes.

Manufacturing groups, including for plastics, came out in force to several days of U.S. government hearings beginning June 27, urging caution and taking a pro-NAFTA line as the Trump administration starts work on renegotiating the North American Free Trade Agreement.

Not everyone in the plastics industry was on the pro-NAFTA page. The CEO of a small plastics processing company in Illinois, for example, complained in written comments about "American manufacturing businesses that were decimated due to NAFTA."

But, for the most part, industry came before the hearing called by the U.S. Trade Representative to argue in favor of NAFTA, which was signed by the three nations in 1994.

The Washington-based American Chemistry Council, for example, said NAFTA and free trade deals in general are key for the plastics industry to fully realize export benefits from the shale gas boom.

In testimony June 28, an ACC executive said NAFTA has created a deep and cost effective economic integration of supply chains between the three countries — trade within the same or closely related companies makes up 50 percent of U.S. chemical exports and 70 percent of chemical imports.

"Imposing tariffs or other trade barriers on trade in chemicals would be like putting a wall in the middle of a factory," said Greg Skelton, senior director of regulatory and technical affairs with ACC.

Likewise, the Plastics Industry Association said in written comments that its member companies want to keep the agreement in place, but they did say they are looking for help in more technical areas.

"In a survey of our members, members indicated their support for the continuation of NAFTA, however many shared their concerns about non-tariff barriers and technical barriers to trade," according to comments from Perc Pineda, the association's chief economist.

The Washington-based association said, for example, that its members noted that each of the three countries have different machinery safety codes. That leads to confusion in compliance.

And it said its members reported "no transparency in the frequent rulemakings made by the Mexican and Canadian governments on importing requirements."

The association said the U.S. plastics industry had a trade surplus of $12.26 billion with Mexico last year, and a $1.15 billion surplus with Canada.

It also argued that while plastics trade with Mexico has been favorable, some parts of the relationship with Canada should be improved: "The NAFTA modernization negotiations must address the seemingly inaccessible parts of the Canadian market for some plastic products."

Skeptics of NAFTA within the plastics industry were also making their voices heard.

Ken Cooley, CEO of small plastics processor ShapeMaster in Ogden, Ill., told the USTR in written comments that rethinking trade agreements would help the U.S. economy.

"The 'hollowed out cities' that Hillary Clinton talked about were due to the loss of manufacturing," he wrote. "I do not blame any one person or group but a global push to make Asia and those nations the manufacturing hub along with countries like Mexico."

In a follow up interview, he said he's skeptical of trade agreements because other countries have less stringent safety and environmental rules, and because they have more state involvement to help their companies. Both those allow other nations to cut manufacturing costs and gain an advantage, he said.

ShapeMaster employs 20, with several thermoforming machines and one injection press. It exports products worldwide. Cooley said assessing NAFTA is complex, but on balance it has hurt the United States.

"I don't like generalized answers but I'm going to say it's overall negative," he said.

One flashpoint of debate centered on how much of a car built in the NAFTA region should be made from components, including plastic parts, from within NAFTA for the car to qualify for NAFTA trade benefits.

A panel of five auto industry groups testifying all urged caution around increasing the amount, called the rules of origin. It's currently at 62.5 percent.

The AFL-CIO and other unions, along with the domestically-focused Alliance for American Manufacturing, argued for the level to be higher, so that, AAM said, "workers in signatory countries can enjoy more of the benefits" from the trade pact.

But auto industry groups argued that 62.5 percent is the right level. The American Automotive Policy Council, which represents Ford, GM and Fiat Chrysler, said the 62.5 percent is the highest of any trade agreement in the world.

"Altering the rules of origin can have lots of unintended consequences," said Matt Blunt, president of Washington-based AAPC. "It could make us less competitive as compared to our international peers."

Blunt said there are three main centers of auto production globally that compete against other — North America, Europe and northeast Asia — with each having a mix of developed and developing economies.

"We certainly rely on Mexico to help keep us more competitive," he said.

Governments should be very cautious in making changes to that 62.5 percent "rule of origin" because it could hurt the complex auto industry supply chain, said Leigh Merino, senior director of regulatory affairs with the Washington-based Motor and Equipment Manufacturers Association, which represents 1,000 vehicle parts suppliers.

"It's really an ecosystem," she said. "What disrupts the ecosystem even in the most small ways can be extremely disruptive — particularly on the component manufacturers side."

Others in the auto components supply industry were more open to something above 62.5 percent.

Mexican auto part maker Rassini SAB de CV, which employs 6,900 at factories in Mexico, the United States and Brazil, urged USTR to "maintain or increase the NAFTA rules of origin to limit input from non-NAFTA countries."

Rassini said it "strongly opposed" moves in the Trans Pacific Partnership agreement to set TPP rules of origin at a lower level than in NAFTA.

All the industry groups were pushing various technical changes under the NAFTA renegotiations.

ACC, for example, said it wanted upgrades to reflect the digitization of commerce — NAFTA was signed before the internet was part of daily life — and it wanted changes in "regulatory coherence" between the three countries.

ACC's Skelton told the government panel that expanding free trade agreements is vital for the U.S. plastics industry to realize the economic benefits of shale gas, and the dramatic increase in domestic plastics production that is creating. And he urged the government negotiators to be cautious.

"I think we would align ourselves with the view that others have said that we should first do no harm," Skelton said. "NAFTA has been overall of great benefit to the three economies."

'Imposing tariffs or other trade barriers on trade in chemicals would be like putting a wall in the middle of a factory."