Plastics industry leaders nervous as NAFTA talks restart

Washington — As NAFTA negotiations reopened Jan. 23 in Montreal, plastics industry officials were nervous that the Trump administration may exit the trade deal.

The head of Dow Chemical Co.'s Washington office, for example, warned in an unusually direct tweet that while NAFTA needs to be updated, “withdrawing will have a large and harmful impact on the chemical, & therefore, manufacturing sector.”

Underscoring the delicate stakes, senior leaders of the plastics industry's trade associations in Canada, Mexico and the United States all met in Montreal — the first time they have jointly attended a round of talks. The Montreal talks are the sixth and possibly last round of negotiations.

The Plastics Industry Association, the Canadian Plastics Industry Association and Mexico's 
Asociacion Nacional de Industrias del Plastico A.C. made clear they believe uncertainty is hurting the industry.

“A signal to the manufacturing community that progress is being made would calm the market's nerves and give businesses the certainty they need to begin making new investments,” said Patty Long, executive vice president of the U.S. group, in a Jan. 25 statement.

The mood was not entirely gloom. The head of the American Chemistry Council, Cal Dooley, wrote Jan. 25 that he had significant concerns, but he also expressed hope that NAFTA could be modernized without being scrapped.

Industry groups have been pushing NAFTA “modernization,” by which they mean updating the language to cover topics that barely existed when it was signed in 1993, like e-commerce.

Dooley bluntly warned that leaving NAFTA would pose sizable risks to the shale-gas led boom in U.S. plastics and chemical exports.

“Withdrawing from NAFTA, and reintroducing tariffs into the North American supply chain, would erode U.S. manufacturing competitiveness and extinguish a renaissance that is expected to peak within the next decade,” he wrote in an essay published by ICIS News.

Dooley said higher tariffs would be a “significant hit” to operating margins.

“When the president talks about withdrawing from NAFTA, inserting highly controversial proposals or removing investor protections from a new agreement, he makes it difficult for his most steadfast supporters to back any reform effort,” Dooley said.

Some analysts say that in the end, canceling NAFTA is a change the U.S. resin industry could probably handle without major harm.

Joel Morales, executive director polyolefins Americas with consulting firm IHS Markit, suggested at the recent Plastics in Automotive conference that renegotiating or scrapping NAFTA would not have a major impact on plastics materials.

Resin from the United States would still be exported, and new duties would not make a big difference, he said at the conference, sponsored by Plastics News and held Jan. 16 in Detroit.

Mexico and Canada are the largest export markets for the U.S. plastics industry, according to the Plastics Industry Association. And the current plastics trade balance favors the United States.

The U.S. had a $10.7 billion surplus in plastics with Mexico in 2016, its largest with any country, and a $719 million surplus with Canada, its fifth-largest.

The trade advantage for the United States with Mexico was across the board: all four major industry subcategories of resins, plastic products, molds and machinery had surpluses with Mexico. Resins lead with a $6 billion surplus.

For industry overall, outside of plastics, the United States has a trade deficit with Mexico. In 2016, it hit $63.2 billion.

But the very different picture within plastics led a prominent executive in Mexico's industry to say that the U.S. polymers sector is more at risk than Mexico.

“Americans have a lot more to lose than us in the plastics industry,” said Angel Oria, director general of Mexico City-based resin distributor Polimero y Materias Primas Internacionales SA de CV. He's also a former leader of Anipac.

Mexico sends more finished goods like automobiles north, but the U.S. has an advantage in plastics products because it supplies components needed for final assembly in Mexican factories, Oria said in a November interview.

U.S. government statistics show the plastics products segment had a $4 billion surplus with Mexico in 2016.

Oria said NAFTA helps North American manufacturing compete with other major regions, like East Asia or Europe.

The head of the Canadian Plastics Industry Association called on negotiators to send clear signals so companies can make investment decisions.

“Right now many businesses are waiting to see how the negotiations conclude before making new investments,” said Carol Hochu, president of the Mississauga, Ontario-based CPIA, in the Jan. 25 statement. “A show of progress would give them the green light to plan for future growth.”

Plastics News Editor Don Loepp contributed to this report.