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July 09, 2020 09:45 AM

USMCA may be a plus for North American plastics industry

Don Loepp
Editor
Plastics News Editor
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    In the 1990s, ratification of the North American Free Trade Agreement was politically controversial.

    Remember the "giant sucking sound"? That sound bite may be the most enduring memory of Ross Perot's failed 1992 presidential campaign. It was a warning to voters that if NAFTA was ratified, American manufacturing jobs would head to Mexico.

    Both of his opponents supported NAFTA. Perot lost, and so did incumbent George Bush. In the end, it was Bill Clinton who was able to convince the Democratic-controlled Congress to ratify the treaty.

    Whether you consider NAFTA a success or a failure may depend on your personal experience. Obviously it did have an impact on the economies of Mexico, Canada and the United States — especially on manufacturing jobs, in the auto industry and elsewhere.

    I looked back at Plastics News' coverage of NAFTA in the mid-1990s and found mostly positive stories. Machinery makers expected processors in Mexico to invest in new equipment. Resin and tooling suppliers liked lower tariffs on their products. Some processors invested in plants closer to the U.S./Mexico border to take advantage of the changes.

    When Donald Trump was elected president in 2016, he threatened to pull the United States out of NAFTA, and negotiations started on a replacement treaty. Plastics industry leaders in all three countries were cautiously optimistic that NAFTA could be modernized without disrupting the complex supply chains that have developed in the previous two decades.

    Now, as of July 1, the new U.S.-Mexico-Canada Agreement, or USMCA, is finally official. This time the occasion is marked by barely a murmur. It's not the biggest issue in the 2020 U.S. election. It's not really an issue at all.

    Plastics industry leaders in the U.S., Canada and Mexico expect USMCA to benefit the economies and plastics sectors of all three member nations. Plastics Industry Association President and CEO Tony Radoszewski predicted economic growth and "a new era of balanced, reciprocal trade."

    "Smooth implementation of the agreement bolsters the confidence of businesses to make plans and enter agreements to promote trade and production between our three nations," Radoszewski said.

    Some processors that I've talked to in the past year expect USMCA will help their bottom lines, especially companies with plants in Mexico.

    In addition to updating rules on intellectual property, the biggest impact on plastics will probably be the new automobile rules of origin (ROO) mandate, which requires that 75 percent of a vehicle's value must be from within the region, up from 62.5 percent under NAFTA.

    The U.S. resin sector, which enjoys a low-cost feedstock advantage from shale gas, also looks to Mexico to continue to be a big customer.

    With international borders closed to nonessential traffic right now, it seems like an odd time to tout the benefits of free trade. But, post-COVID, the economies of the U.S., Mexico and Canada will get back to something we'll call normal. Manufacturers can breathe a sigh of relief that USMCA is in place, and they can count on the predictability that will bring, at least for the next six years.

    Loepp is editor of Plastics News and author of the Plastics Blog. Follow him on Twitter @donloepp.

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