NAFTA crucial for US chemicals growth - ACC report

Source: ICIS News

2018/02/28

HOUSTON (ICIS)--Withdrawing from the North American Free Trade Agreement could create a tariff burden of up to $9bn on US chemical exports to Canada and Mexico, while potentially lowering chemical exports to these countries by $22bn, the American Chemistry Council (ACC) said on Wednesday.

US President Donald Trump has repeatedly threatened to withdraw from the trade agreement, and the three countries are now in the midst of renegotiating the terms of the trade deal.

Instead of abandoning NAFTA, the three countries should update the trade deal to take into account changes that have taken place since its adoption in 1994, the ACC said.

The ACC's report pointed to the benefits that the US chemical industry has enjoyed since NAFTA went into effect.

US exports to Canada and Mexico will likely reach $44bn this year, up from $13bn in 1994. They could reach $59bn by 2025.

In the US, 46,000 chemical jobs now depend on this trade with Canada and Mexico, the ACC said.

Jobs and trade volume are not the only benefit that the US chemical industry enjoys from NAFTA, the report said, adding that the free trade agreement had saved US chemical companies $700m in tariffs on exports and $800m on tariffs on imports.

"The cost savings have helped drive economic growth throughout the manufacturing supply chain and lowered prices for manufacturers and consumers," the ACC said.

US chemical trade with Canada and Mexico will become more important as the new wave of plants start up along the Gulf Coast, which will take advantage of low-cost feedstock made possible by the advent of shale gas.

By 2025, Canada and Mexico will account for $13bn of the $30bn in US exports of chemicals and plastics derived from shale gas, the ACC said.

Withdrawing from NAFTA will hurt US manufacturing as a whole, and lead to a further loss in the chemicals used to make these final goods, the ACC said.

Since NAFTA's adoption in 1994, US, Canadian and Mexican manufacturers have become tightly integrated, and leaving the trade deal would cut these ties, causing manufacturers to lose economies of scale while paying more in tariffs.

Manufacturers would face the additional expense of developing new supply chains and acquiring new sources of materials as they react to the higher tariffs, the ACC said.

The ACC warned about the threats of leaving NAFTA earlier this year, when its president, Cal Dooley, explained how the trade deal has benefited the industry in an opinion piece.

Likewise, the president of the American Fuel & Petrochemical Manufacturers (AFPM), Chet Thompson, stressed the importance of Canada and Mexico to US refiners during a speech to the US Energy Association (USEA).

Both countries provide nearly half of the 8m bbl/day of oil that US refiners import, and Mexico is the largest export market for US refined products.

More recently, Thompson wrote an editorial piece to the Houston Chronicle newspaper emphasising the importance of NAFTA to petrochemical producers and refiners.

He called the deal "one of the most important pro-growth policies” of the last three decades.

The plastic trade groups of the US, Canada and Mexico have been coordinating their efforts to maintain and update NAFTA.

Any updates to NAFTA could address developments caused by the widespread use of the internet and the opening up of Mexico's energy market.

Back in 1994, the internet played a small role in commerce, and Mexico's oil and gas industry was closed to all companies except for Pemex, the state-owned energy producer.