Reason for optimism on NAFTA talks

25 January 2018 15:23 Source:ICIS Chemical Business

Wagering that US President Trump can still reach a deal on North American free trade isn’t for the faint of heart. But this former House Democrat believes there is reason to be optimistic. The president’s top trade envoy will head to Montreal, Canada to further negotiations with Canada and Mexico on how to best update the North American Free Trade Agreement (NAFTA).

Back at home, American chemical manufacturers are growing increasingly confident that the administration will modernise the 25-year old trade pact so that, like the president’s new tax plan, it can promote growth and enable industries like ours to create jobs.

Given the tough talk from all sides on the trade agreement so far, where does our industry find such confidence? It’s a fair question.

Cal Dooley

I was in Congress in December 1993 when President Clinton first signed NAFTA into law. Since that time, NAFTA has proven to be a boon for a lot of businesses – but no industry has illustrated the promise of free trade and regional economic integration better than US chemical manufacturing. Trade in chemicals among the US, Canada and Mexico has more than tripled under NAFTA, from $20bn in 1994, to $62bn in 2016. The agreement helped reduce US manufacturing costs, create jobs, increase customers abroad and lower costs for US consumers.

Since chemistry touches more than 96% of all manufactured goods, the chemical industry has had a multiplier effect on job creation and economic growth throughout North America.

Today, thanks to the shale gas revolution, US chemical manufacturing has entered a new golden age. The relatively low price of natural gas has strengthened our competitive advantage and brought unprecedented foreign investment to US shores. According to the Census Bureau, expenditures on chemical plants accounted for half of all US manufacturing construction spending in 2016, up from just 20% in 2009.

The chemical industry as a whole has announced 300 projects valued at $185bn. An impressive 62% of that investment is from overseas. Many projects are aimed at supplying not only the North American market, but also the global market.

RECORD CHEMICAL TRADE SURPLUS

By the end of this decade, the US chemical sector is positioned to post record trade surpluses. But for that to happen, we have to keep trade alive with Canada and Mexico, the two leading foreign markets for US chemicals exports.

Withdrawing from NAFTA, and reintroducing tariffs into the North American supply chain, would erode US manufacturing competitiveness and extinguish a renaissance that is expected to peak within the next decade.

Tariffs artificially inflate the price of chemical industry goods. They also hike up the costs of the inputs that businesses purchase to produce those goods. Operating margins would take a significant hit – and with them, jobs. That’s because US chemical industry jobs are high-paying, and 30% of them depend on exports.

When the price of chemical products goes up, customers begin to look for cheaper substitutes and China will be well-positioned to meet their demand. Shuttering chemical facilities or propping up China’s economy at America’s expense is hardly in our country’s best interest.

MODERNISING NAFTA

Although NAFTA has worked well, it isn’t perfect. I believe the pact should be modernised to ensure that its benefits can flow more freely across the US economy. For instance, NAFTA negotiators are considering a chapter on Regulatory Cooperation, which would enable all three governments to better coordinate regulatory activity and avoid unnecessary barriers that have hindered trade between our countries.

Still, 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. On the other hand, the president understands what he can do to continue to support our nation’s booming chemical manufacturing industry and knows what the industry can continue to do for our country – drive economic growth, boost exports, and create jobs.

The chemical industry is betting on the president to negotiate sound NAFTA reform, but we’re also betting on ourselves. We know the value we bring to the table and the impact we have on other sectors. And that should give manufacturers across North America, and the countless businesses that depend on our products, reason to be optimistic.

Cal Dooley is president and CEO of the American Chemistry Council (ACC). Dooley represented the 20th District of California as a Democratic member of the House from 1991 until 2004. He served on the House Agriculture Committee, as well as the House Resources Committee.

By Cal Dooley