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What would be the Impact of the Trans Pacific Partnership Agreement?

Monday, April 20th, 2015

Last Thursday, Senators Hatch, Wyden, and Ryan introduced “The Bipartisan Congressional Trade Priorities and Accountability Act of 2015,” which is the Trade Promotion Authority bill that would grant President Obama “fast track” authority for the Trans Pacific Partnership Agreement.

The TPP agreement has been in negotiation since 2010 between the United States and 11 other countries around the Pacific Rim: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The TPP would cover 792 million people and 40% of world’s economic activity. It is a “docking agreement” so other countries could be added, and India, China, and Korea have expressed interest in joining the TPP.

There has been no involvement by Congress in the writing of the Agreement; instead, 600 corporate advisors have worked with the U. S. Trade Representative and his staff to write the more than 1,000 pages of the Agreement. Members of Congress did not even have access to view the Agreement until last year, and they cannot take any staff with them and are not allowed to take pen, pencil, paper, or a camera when they go view it at the U. S. T. R.’s office.

This Act would give Constitutional power over trade to the President and take it away from Congress. It would allow the Executive Branch to conclude negotiations and sign the Agreement before a vote by Congress. It allows only 45 days for committee analysis and only 15 days to bring it up for floor vote. It allows only 20 hours of debate by Congress and eliminates amendments, filibuster, and cloture. It requires only simple majority vote in the Senate and House whereas the U.S. Constitution Article 1, Section 8 Treaty clause requires 2/3 vote of Senate. The TPP would remain in effect until 2018, but could be extended to 2021.

What is missing in the TPP

 The TPP does not address any of the “predatory mercantilist” actions that our current trading partners are using that have created the enormous trade deficit that I wrote about a few weeks ago. These policies are: currency manipulation, “border adjustable” taxes called Value Added Taxes (VATs), which are a tariff by another name, government subsidies for State-Owned Enterprises, and “product dumping” by manufacturers in one country at below their cost to produce to destroy competition in another country.

“Over 20 countries, representing 1/3 of global GDP, are engaged in currency wars” by undervaluing their currency. These governments work with their central banks to manipulate the currency value in order to provide a competitive advantage to boost exports and impede imports. China’s currency is estimated to be 25-40% undervalued. As Paul Volcker, former Secretary of the Treasury, has explained, “In five minutes, exchange rates can wipe out what it took trade negotiators ten years to accomplish.” Foreign government intervention in foreign exchange markets is manipulation, not free trade.

Value Added Taxes (VATs) range from a low of 10% to a high of 24%, averaging 17% worldwide. The U. S. is one of a handful of 159 other countries that do not charge a VAT. This means that American products that are exported are an average of 17% more expensive when imported by a country that adds a VAT. In reverse, foreign imports are an average of 17% less expensive because the U. S. does not charge a VAT. Thus, we reduce tariffs through our trade agreements only to have our trading partners add a tariff by another name to the cost of our products that we export. This gives other countries an unfair competitive advantage in the global marketplace.

We have all read news stories about “product dumping” cases against U. S. industries, such as the tires, steel, and solar panel industries. With regard to government subsidies, the best example is how Foxconn was able to get Apple’s business for manufacturing the iPhone, iPad and now the iWatch because the Chinese government gave them the land and built the building for them.

What is wrong with the TPP?

 The TPP overrules prior acts of Congress and destroys our national sovereignty. For example:

 Buy American Act made Null and Void: For the manufacturing industry for which I play a role, the most adverse effect would be that the U.S. would have to agree to waive Buy America procurement policies for all companies operating in TPP countries. What this means is that the TPP’s procurement chapter would require that all companies operating in any country signing the agreement be provided access equal to domestic firms to bid on government procurement contracts at the local, state, and federal level. There are many companies that survived the recession and continue in business today because of the Buy American provisions for defense and military procurement. The TPP could be a deathblow for companies that rely on defense and military contracts, such as the U. S. printed circuit board industry. Most of the commercial printed circuit manufacturing was already offshored to China and South Korea years ago.

Product Labeling: Country of Origin Labeling, labeling of GMO products, and “organic” labeling could be made illegal because of being viewed as an “illegal trade barrier.” Even the health warnings on tobacco products could be viewed as an “illegal trade barrier.”

Many TPP countries are farm-raising seafood using chemicals and antibiotics that are prohibited in the U. S. and farmed seafood from China is being raised in water quality equivalent to U. S. sewers. According to Food & Water Watch, around 90% of the shrimp and catfish that Americans eat are imported. They warn, “The TPP will increase imports of potentially unsafe and minimally inspected fish and seafood products, exposing consumers to more and more dangerous seafood.”

Bill Bullard, CEO of R-CALF USA (Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America) has stated “that fast food restaurants are not required to disclose the origins of their beef and even when restaurants say the beef is “U.S. Inspected,” it is as likely as not to be imported.” When we were in Washington, D. C. together last month, Mr. Bullard told me that the increased importation of sheep and lamb from Australia and New Zealand could wipe out the American sheep ranching industry.

The California Farmers Union recently sent a letter to Rep. Davis Valadao (R-CA) stating, “Passage of the TPP would lead to a flood of dairy imports from New Zealand chronically depressing U. S. dairy producer prices…Agricultural imports will rise dramatically under the proposed agreement…The Agreement further poses a threat to the food security that we have long enjoyed as a nation because imports will replace U. S. produced agricultural products.”

Investor State Dispute Resolution: ISDR is designed to allow foreign corporations to bypass the domestic legal system to use to fight laws they don’t like. International Tribunals, not U.S. courts, would decide on lawsuits between “investor” companies in member countries and the U. S. Foreign “investors” could file lawsuits against city, state, and federal agencies for laws and regulations that may infringe on their “expected future profits.” They can also sue for compensation for the loss of these “expected future profits.” Thus, the TPP would infringe upon states’ rights as state and local governments have the constitutional authority to enact rules governing many areas covered by the TPP. But, they will no longer have the freedom to do so in the many regulatory areas covered by the TPP.

The TPP includes hundreds of pages that govern the policies of states concerning non-trade domestic policy and state and local officials would be bound to comply with much of the Agreement’s rules and regulations.

Space doesn’t allow me to cover all of the things that are wrong with the TPP with regard to non-trade issues, such as patent and copyright laws, land use, as well as policies concerning natural resources, the environment, labor laws, health care, energy and telecommunications.

Except for the large multinational corporations that participated in writing the Agreement and are its beneficiaries, there is something for everyone to hate. Opposition to the TPP cuts across party lines ? there are Democrats, Republicans, and Libertarians opposed to many of the “leaked” provisions of the TPP. Organizations from the left to the right are opposed to the TPP as negotiated. It will hurt the 98-99% of American manufacturers who had no place at the table in writing the Agreement. It will hurt American consumers and American workers of all ages. It will harm our environment and put our food and water safety at risk. But, most of all it will destroy our national sovereignty. Now is the time for you to write, call, or email your Senator and Congressional representative to urge them to vote “no” on granting Fast Track authority.

Posted in Country of Origin, Economy, Manufacturing, National security, Taxes/Regulations, Trade, Trade Policy | 1 Comment »

Looking Back at 2014 and Ahead to 2015

Tuesday, January 20th, 2015

Most economists are predicting a rosy forecast of more than 3 percent expansion for the U.S. economy in 2015, up from 2.3% in 2014. If it does, this “would mark the first time in a decade that growth has reached that level for a full calendar year.” The unemployment rate is also predicted to drop from the current 5.6 percent to 5.3 percent. The questions are: How much will American manufacturing benefit from this expansion and how many manufacturing jobs will be created?

While the country gained 252,000 jobs in December, only 17,000 were manufacturing jobs according the monthly report from the Bureau of Labor Statistics ? “In December, …Manufacturing added an average of 16,000 jobs per month in 2014, compared with an average gain of 7,000 jobs per month in 2013.”

This was a significant increase over the previous year, but notice that President Obama recently stated that “more than 764,000 manufacturing jobs have been gained since the end of the recession.” This means that we still have a long way to go to recoup the 5.8 million manufacturing jobs that we lost between the years 2000 – 2009. According to Scott Paul, President of the Alliance for American Manufacturing, “…December’s manufacturing job gains were behind the previous month, and that halfway through the president’s second term, the country is just over one-quarter of the way to his pledge to create 1 million new manufacturing jobs in that four-year span.”

While the U3 unemployment rate dropped to 5.6 percent, the U6 rate is double at11.2 percent. The U-6 rate includes “Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.”

In a recent article, business reporter Jonathan Horn of the San Diego Union-Tribune noted, “the unemployment rate fell in part because people dropped out of the labor force ? they either retired or left the labor force. Last month, the number of unemployed persons fell 383,000 to 8.7 million. However, less than one-third of people out of work found jobs; the rest stopped looking. The percentage of Americans who are either working or looking for work fell back to a 37-year low last touched in September.”

The January 6-11, 2015 edition of the San Diego Business Journal’s reported that manufacturing jobs in San Diego increased by 3.3 percent from November 2013 through November 2014, for a total of 97,400 industry jobs, up by 3,100 jobs. However, we still have a long way to go to get back to the 122,600 manufacturing jobs in the San Diego region we had at the end of 1999.

Two manufacturing sectors led the job growth in San Diego: shipbuilding and Unmanned Aerial Vehicles (drones.) General Dynamics’ Nassco division has contracts for five commercial tankers and one Navy ship and plans to “add about 300 additional jobs to the shipbuilder’s staff, bringing the total workforce to about 3,500.” General Atomics Aeronautical Systems Inc’s “local employment grew 9 percent year over year to 4,843 as of June 2014.”

In this same article, I was quoted as saying, “For those with skills and experience in a particular industry, things were definitely trending up in 2014…This (2014) has been a year when people could find jobs.” I’m also quoted as saying, “San Diego greatly diversified its economy following the previous major recession in the early 1990s, and that’s made a huge difference in the past several years…One of our strengths is that we’re not hurt as much from the lack of new defense programs.”

Looking Back at 2014

The R&D tax credit that had expired December 31, 2013 was extended for 2014, but has now expired again as of December 31, 2014. The R&D Tax Credit was originally introduced in the Economic Recovery Tax Act of 1981 sponsored by Rep. Jack Kemp and Senator William Roth. The credit has expired eight times and has been extended fifteen times. The frequent expiration of this tax credit creates unnecessary uncertainty for business investment planning. The R&D Credit Coalition, National Association of Manufacturers, and many other business groups recommend that this tax credit be made permanent.

One bright spot on the national scene is that a bill requiring a National Strategic Plan for Manufacturing authored by Rep. Daniel Lipinski (D-IL) and Rep. Adam Kinzinger (R-IL) became law right before Christmas. Three of Lipinski’s previously authored bills had passed the House three times over the past five years, but failed to either pass or be considered in the Senate. This bill was included in legislation that passed both houses and was signed into law by the President. U.S. Senators Mark Kirk (R-IL) and Chris Coons (D-DE) and Mark Pryor (D-AK) introduced the language in the Commerce, Science and Justice Appropriations bill passed by the Senate.

Rep. Lipinski stated, “After many years of hard work, my bipartisan legislation to boost domestic manufacturing and American jobs by. The bill requires that at least every four years the president works with public and private stakeholders to produce and publish a plan to promote American manufacturing. In addition, every year the president’s budget blueprint will have to contain an explanation of how it promotes the most recent manufacturing strategy. This bill guarantees that Washington has to pay attention to what can be done to help manufacturers and workers. Getting this provision into law can really make a difference by leading to economic growth, increased American security, and more middle class jobs that pay hard-working Americans a good wage. I look forward to finding many more “Made in USA” labels on products we see in our stores and online.”

In June 2013, I wrote an article criticizing an earlier version of this bill, H.R. 2447, the American Manufacturing Competitiveness Act of 2013, and was contacted by Rep. Lipinski’s Chief of Staff to discuss my criticisms. I am anxious to see whether or not the current language included in the Commerce, Science and Justice Appropriations bill addressed these criticisms.

In his 2014 State of the Union address, President Obama pledged to launch four new manufacturing institutes this year, for a total of eight institutes launched so far on an original goal of creating 15 manufacturing innovation institutes. On December 11th, President Obama announced that” the government will invest more than $290 million in public-private investment for two new Manufacturing Innovation Hub Competitions.

One will be in smart manufacturing at the Department of Energy and one in flexible hybrid electronics at the Department of Defense. Each institute will receive $70 million or more of federal investment to be matched by at least $70 million from the private sector for a total of more than $290 million in new investment.”

“The Department of Defense will lead a competition for a new public-private manufacturing innovation institute in flexible hybrid electronics…The Department of Energy will lead a competition for a new public-private manufacturing innovation institute focused on smart manufacturing, including advanced sensors, control, platforms, and models for manufacturing…” The press release invites interested applicants to find more information on the manufacturing innovation institute competitions at www.manufacturing.gov.

While funding manufacturing institutes may have a long-term benefit similar to funding research at other government institutions, there are actions that President Obama and Congress could take that would have a more immediate benefit on the manufacturing industry and create more jobs, such as making the R&D tax credit permanent, addressing currency manipulation by our foreign trading partners, easing taxes to repatriate corporate profits, and actually doing comprehensive tax reform. Let us hope that the economic predictions of a better 2015 than 2014 will come true and that more manufacturing jobs will be created by even more companies returning manufacturing to America.

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Posted in Economy, Jobs, Manufacturing, Reshoring, Taxes/Regulations | No Comments »

Idea Jam Explores Future of Jobs in San Diego

Tuesday, December 2nd, 2014

On November 7, 2014, I attended the “Idea Jam – Innovating for the Future” session put on by the Pacific Center for Workforce Innovation in San Diego. The purpose of the session was to identify the major challenges to the San Diego workforce in the coming years and to generate audience participation in visioning exercises to explore new and innovative workforce development ideas. The event was held at Colman University, and major sponsors were SDG&E, Qualcomm, the Eastridge Group, Point Loma Nazarene College, and Cal State University, San Marcos.

To get our creative juices flowing, Master of Ceremonies, Susan Taylor, San Diego’s TV news icon, introduced Futurist Speaker, Thomas Frey, of the DaVinci Institute as the keynote speaker. It is difficult to do justice to his very visual presentation of images of break-through technologies, but his statements alone created much food for thought about the future. He stated, “We are a backward-looking society…the future gets created in the mind. The future creates the present…Visions of the future affect the way people act today.” He rhetorically asked, “What are the big things that need to be accomplished today?

He continued, “Catalytic innovation creates entirely new industries, like electricity did…Most successful companies today are in the second half of the bell curve…the steel industry had its peak employment in the 1980s.”

It was a shock to hear him state that “Two billion jobs will disappear by 2030…Every time you download a mobile app, you are eliminating a piece of a job.” In answer to his own rhetorical question, “Where will our next generation’s jobs come from, he answered, “from new industries that don’t exist now.” He added, “As you raise the bar for our achievement, we create the new norm.”

“Software is heating the world,” he proclaimed. “In 2030, there will be 100 trillion sensors in the world. Information is being parsed into small things.” He cited some of the new enhanced objects such as: Amazon’s Track Car, the Asteroid Moon Micro-imager Experiment (amie) For Smart-1 Mission, the Vitality Glow Cap for medication management, the Ambient Umbrella by Ambient Devices, Mimo’s Baby monitor, the flying Nixie camera (a tiny wearable camera on a wrist band in which the wrist straps unfold to create a quadcopter that flies, takes photos or video, then comes back to you), the Philips biometrics coffee maker that can recognize users via their fingerprint and make coffee just the way that individual likes it, and the Pintofeed, calling itself the “first intelligent pet feeder”

He explained that “we are entering the age of hyperawareness and the quantified self with products such as printable skin sensors, smart body watches, brain hacking, transcranial brain stimulation.”

Frey stated, “3D printing is changing the world. The new HP 3D printer has 30,000 spray nozzles and can utilize over 200 materials. The iBox Nano is now the world’s smallest, least expensive 3D resin printer. Even shoes can be 3D printed, and Contour Crafting has developed a type of ceramics printing that could be used in construction. Whole walls can now be made by 3D printing, and a company in China was the first company to print a small house for under $5,000. The goal is to print an entire house in one day. In the future, you may live in a printed house…Bio printing can now print skin, veins, organs like a liver, limbs, and an exo skeleton, and there is a pill printer that chemprints antibiotics.” He quoted Chris Anderson, former editor of WIRED magazine and now cofounder and CEO of 3DRobotics, as saying, “3D printing is going to be bigger than the internet.”

“We need to prepare our children for jobs that don’t exist and technology that hasn’t been invented, he declared…By 2030, the average person will have to ‘reboot’ their career six times in their lifetime. To do this, we need to frame our work to train people in a faster way…By 2020, half of all traditional colleges will disappear.”

To facilitate this rapid training, he shared that the DaVinci Institute now offers 11-13-week courses in such topics as 3D printing, web design, game design and development and becoming a drone pilot.” He concluded by saying, “The fastest way to create new jobs is to eliminate the old ones out of existence.”

In California, the community college system is already providing this type of accelerated, focused training through their certificate programs in such subjects as multimedia, web design, web server maintenance and security, and culinary arts. It will be relatively easy to add new training topics to the curriculum to meet future needs.

After Mr. Frey’s predictions of the future, a panel of business leaders discussed what is happening in their industries and what new industries should we focus on. Jeff Nichols from Sempra Energy stated that “San Diego is the nexus of cyber security…Delivering electricity and water is synergistic, so there are opportunities to putting these two together.”

Dr. Ed Abeyta from the University of California, San Diego said, “We need to teach skill sets in a non-university setting but he hasn’t seen an online program that successfully replaces teaching in person.” He added, “We need micro-credentials that you could earn rapidly.”

Matt Grob of Qualcomm said, “The companies that change fastest are the small, startup companies. San Diego is very well placed in the robotics industry…UCSD is starting an incubator for robotics” With regard to training, he said, “A combination of a person and a computer are better than a computer or a person alone.”

In answer to the question, how do we prepare for the change and foster the culture of change in others? Dr. Abeyta responded, “Humanity had its core values before technology came, and we must instill those in our children. We need to marry the technology with our core values. It is not about getting the answer; it is Are we asking the right questions?” Dr. Smith of West Health commented, “We can teach how to think and not what to know.”

The last half of the morning was spent in an idea jam session by small table groups to come up with two ideas: most innovative and most likely to succeed. After lunch, the following panel of judges discussed the ideas developed by the audience: Molly Cartmill, Sempra Energy, Michael Alston, Qualcomm, and Mary Walter-Brown, Voice of San Diego. After presenting all of the ideas for the 17 different tables, the audience voted on the best ideas for both categories. The best ideas were:

Most Likely to Succeed

“Tinder, but for networking and mentoring.” (Note: Tinder is a matchmaking mobile app that uses GPS technology, in which users can set a specific radius have the option to match with anyone that is within that distance.)

“Industry developed after school programs to build skill sets and networking for specific career areas.”

“Change the hiring process from resumes to problem solving practices.”

“Retool community centers and libraries to be career path hubs.” (my idea at my table)

Most Innovative:

“Programmer boot camps for under-served communities integrated with soft and life skills.”

“Establish a mentoring program for retired professionals to share advice and knowledge to persons in transition”

“Implement playgrounds of interests at schools to help students see the possibilities i.e. Maker Spacers & digital playgrounds.”

“Geolocation app that reveals available parking, especially in downtown SD via satellite, with timer alerts”

When I think of the fact that I am now on my fourth career path, I can see that six career paths is a realistic prediction for the future. Just like continuous improvement is one of the tools for becoming a Lean company, continuous learning will be a prerequisite for everyone who wants to keep working during their even longer productive lifetime in the future. My definition of success has been to learn something new to the point of proficiency, so I can highly recommend continuous learning to others. It’s what makes life interesting, challenging, and fun!

Posted in Economy, Education, Innovation, Jobs, Manufacturing, Technology | No Comments »

How Multinational Agribusinesses are Attacking Country of Origin Labeling

Tuesday, August 5th, 2014

If you have bought any packaged meat recently, you may have noticed a new type labe:  a Country of Origin label that may list up to three countries under the categories of “born, raised, and slaughtered.” Consumer groups have long advocated for Country of Origin labeling, but not everyone in the food supply chain is pleased.

On July 22, 2014, Bill Bullard, CEO, R-CALF USA presented a webinar, titled “Country of Origin Labeling: How Multinational Agribusinesses Are Attacking This Law” to members of the Coalition for a Prosperous America (CPA) and sponsoring organizations.

He explained that County of Origin Labeling is not new. The Federal Meat Inspection Act of 1906 was passed by Congress to prevent adulterated or misbranded meat and meat products from being sold and to ensure that meat and meat products are slaughtered and processed under sanitary conditions. It required labels on imported meat, but the USDA considered imports of non-retail-ready meat products to be of domestic origin once they passed a U.S. safety inspection, so origin markings were not maintained. The USDA also considered imported livestock to be domestic after its Animal and Plant Health Inspection Service inspects and releases these animals. USDA inspection of poultry was added by the Poultry Products Inspection Act of 1957.

The Tariff Act of 1930 required that every imported item must be conspicuously and indelibly marked to indicate to the “ultimate purchaser” its country of origin. Products were exempt if they were too difficult or economically prohibitive to mark. The list of exemptions included livestock, “natural” or raw agriculture products such as vegetables, fruits, nuts, and berries.

Mr. Bullard stated that Country of Origin Labeling (COOL) was included in 2002 Farm Bill. It covered muscle cuts of beef, lamb, and pork; ground beef, ground lamb, and ground pork; farm-raised fish and wild fish; perishable agricultural commodities (fruits and vegetables); peanuts.

However, Mr. Bullard explained that this requirement applies to retailers (grocery stores), but not restaurants or if sold by retailer not required to be licensed under PACA (Perishable Agriculture Commodities Act), such as specialty markets, fish markets, butcher shops or roadside stands.

The USDA rules for COOL exempt “processed” versions of the foods, so that the following are exempt:

  • cooked, roasted, smoked or cured (even teriyaki flavored meat)
  • combined with one other ingredient

Most nuts sold in grocery stores are roasted, so they aren’t labeled. Ham, bacon, sausage and other products in the pork section of the meat case are exempt because they are smoked or cured.

However, he started that there was an 11-year delay in writing the rules for USA Label for USA-born, raised, and slaughtered beef. The multinational agribusinesses and their trade organizations like the American Meat Institute (AMI) and the National Cattlemen’s Beef Association (NCBA) fought hard to stop Implementation of this label. They convinced then Secretary of Agriculture Ann Veneman to support their efforts to keep consumers in the dark.

Congress’ FY 2004 appropriations bill delayed COOL for everything except wild and farm-raised fish and shellfish until Sept. 30, 2006. Congress’ FY 2006 appropriations bill further delayed COOL for everything except wild and farm-raised fish and shellfish until Sept. 30, 2008.

Just days before the 2009 presidential inauguration, on Jan. 15, 2009, USDA issued its final rule on COOL. It allowed packers to commingle a single foreign animal during a day’s production and then label the entire day’s production as “Product of U.S. and Canada and/or Mexico.”

Despite the quid pro quo, on May 7, 2009, both Canada and Mexico filed actions with the World Trade Organization (WTO) alleging COOL violated U.S. obligations under various WTO agreements.

In 2012, the WTO faulted COOL and ruled (in part):

  • Violates Article 2.1 of the WTO TBT Agreement because COOL’s recordkeeping and verification requirements impose a disproportionate burden on upstream producers and processors, because the level of information conveyed to consumers through the mandatory labeling requirements is far less detailed and accurate than the information required to be tracked and transmitted by these producers and processors.
  • These same recordkeeping and verification requirements “necessitate” segregation, meaning that the associated compliance costs are higher for entities that process livestock of different origins resulting in a detrimental impact on the competitive opportunities of imported livestock.
  • The COOL labels contain confusing and inaccurate information.
  • The regulatory distinctions imposed by the COOL measure amount to arbitrary and unjustifiable discrimination against imported livestock, such that they cannot be said to be applied in an even-handed manner. Accordingly, we find that the detrimental impact on imported livestock does not stem exclusively from a legitimate regulatory distinction but, instead, reflects discrimination in violation of Article 2.1 of the TBT Agreement.

On May 24, 2013, the U.S. informed the Dispute Settlement Board that on 23 May 2013, the USDA had issued a final rule that made certain changes to the COOL labeling requirements that had been found to be inconsistent with Article 2.1 of the TBT Agreement. The U.S. was of the view that the final rule had brought it into compliance with the DSB recommendations and rulings.

This rule reversed their concession of 2009 to consider comingled livestock as a U.S. product. The new implementing regulations require the label to show the Country of Origin for the production steps of born, raised, and slaughtered in the U.S.

This effectively ended the deceptive practice of commingling that previously allowed meat exclusively from U.S. animals to be mislabeled as if it were meat from multiple origins, such as the inaccurate label: “Product of the Canada, Mexico and the U.S.

Mr. Bullard said that the benefits of this regulation are:

  • Optimizes U.S. Value-Added Supply Chains
  • Prevents industry consolidation
  • Prevents consumer deception
  • Enhances competition
  • Provides synchronous information (between consumer and packer/retailer)
  • Facilitates more accurate price discovery
  • Provides consumers with more choices
  • Empowers consumers to make informed decisions
  • Provides food safety proxy for expression of nationalism/patriotism

However, Canada did not agree that the changes brought the U.S. into full compliance. In its view, the changes were more restrictive and caused further harm. On August 19, 2013, Canada requested the establishment of a compliance panel. Brazil, China, the European Union, India, Japan, Korea and New Zealand reserved their third-party rights, followed by Australia, Colombia, Guatemala and Mexico. On September 27, 2013, the compliance panel was composed. On 26 March 2014, the Chair of the compliance panel informed the DSB that the compliance panel expects to issue its final report to the parties towards the end of July 2014 (not issued as of this date.)

In the meantime, the WTO and multinational Agribusinesses continued to promote global supply chains. The World Trade Organization has been working on the “Made in the World” initiative for years. The WTO’s Made in the World initiative is part of a process of “re-engineering global governance.” On February 26, 2013, Former WTO Director General Pascal Lamy, said, “Fewer and fewer products are actually ‘Made in the UK’ or ‘Made in Switzerland’, and more and more are ‘Made in the World.’”

According to Mr. Bullard, the multinational agribusinesses and their allies have used every front to defeat COOL: U.S. Federal Courts, the U.S. Congress, industry propaganda, and the WTO.

COOL has been attacked in Federal Court by the American Meat Institute (AMI), National Cattlemen’s Beef Association (NCBA), National Pork Producers Council, American Association of Meat Processors, North American Meat Association, Southwest Meat Association, Canadian Cattlemen’s Association, Canadian Pork Council, and the Confederacion Nacional De Organizaciones Ganaderas.

The arguments they used were:

  • COOL violates their constitutionally protected rights to freedom of speech.
  • COOL improperly prohibits them from “commingling.”
  • The “Born, Raised, and Slaughtered” labels are not authorized by the 2002 COOL statute amended in 2008.
  • There is no substantial governmental interest in informing consumers where the meat they buy for their families was born, raised and slaughtered.

Thus far, the U. S. Courts have upheld COOL: the U.S. District Court for District of Columbia denied the Preliminary Injunction request, and the U.S. Court of Appeals for District of Columbia Circuit affirmed the District Court judgment. However, on April 4, 2014, the appeals court vacated its judgment and issued an order for the case to be heard en banc regarding the narrow issue related to the First Amendment, and a decision is pending.

The multinational agribusinesses have tried to eliminate or weaken COOL in each of the past three U.S. Farm Bills, but failed in their effort to include language to weaken COOL by allowing a “North American” label. They did succeed in adding anti-COOL language in House Agriculture Appropriations Committee report language.

In conclusion, Mr. Bullard explained that the main reason why COOL is under attack is the fact that the U.S. Department of Justice and USDA have failed to enforce U.S. antitrust laws and market competition laws against multinational meatpackers. In addition, unrestrained mergers and acquisitions, and the lack of enforcement of anticompetitive practices have accorded U.S. multinational meatpackers oligopolistic market power in U.S. meat markets (four firms control about 85% of beef market). As a result of this market power, meatpackers can and do discriminate against whomever they choose, including the countries of Canada and Mexico.

He said that COOL is the most pro-producer, pro-consumer, and pro-competition legislation to be passed by Congress in a long, long time, and it must be preserved.

 

Posted in Country of Origin, Economy | No Comments »

Trade Deficit Would Shrink with Stroke of a Pen

Tuesday, July 15th, 2014

Since NAFTA went into effect in 1994, the U. S. has generated the highest trade deficit in the world and the largest in the world’s recorded history. If you add the annual trade deficit in goods as shown on the Census Bureau website, the total is a staggering figure of -$10.347 trillion.

The United States now has a trade deficit with 88 countries according to data in the book, Buying Back America. Some deficits are small, but some are enormous. Our top six trading partners of Canada, China, Mexico, Japan, Germany, and South Korea represent 64% of our total trade deficit. In 2013, our total trade deficit in goods was $688.4 billion, of which China represented 46% at $318.4 billion. However, our 20-year total trade deficit with China since 1994 is a staggering -$3.287 trillion.

Now, the current Administration wants to cover up the evidence of the damage to our economy by changing the rules of how a manufacturer is defined instead of responding to the American public’s demand to know where products are manufactured so they can have the freedom to choose whether or not to buy “Made in USA” products.

On June 24, 2014, Robert E. Scott, Director of Trade and Manufacturing Policy Research for the Economic Policy Institute, conducted a webinar for the Coalition for a Prosperous America: “The Factoryless Goods Production Controversy (Foreign Goods Production) – How proposed government rule changes would classify foreign goods as U.S.-made.”

He explained that an Economic Policy Classification Committee (ECPC) formed by the Office of Management and Budget is proposing a Factoryless Goods Production (FGP) and Global Value Chain (GVC) rule to artificially inflate manufacturing production and reduce the trade deficit. This change would result in shrinking our trade deficit and growing our manufacturing output with the stroke of a pen, without adding any more real jobs or production.

The ECPC was formed to make recommendations for revising the North American Industrial Classification System (NAICS), created in 1997 as a unified Industrial classification system for the U.S., Mexico and Canada.

Traditionally, all production chain tasks were performed in one factory, in multiple factories of one firm, or by subcontract suppliers to that firm, as is the case for companies like Northrop Grumman that makes Unmanned Aircraft Systems in San Diego.

In the last 20 years, improvements in communications, technology and transportation, as well as global trade agreements and foreign investment in plants haveallowed product design, development, and manufacturing to be performed in different locations, including offshore in China and other Asian countries.

This has enabled a company to control production without directly performing any manufacturing process or transformation task in one of their facilities; e.g. Apple, Nike, AMD, and fabless semiconductor manufacturing. In fact, the top five semiconductor firms in 2013 were fabless companies: Qualcomm, Broadcom, AMD, Mediatek, and Nvidia. These companies focus on innovation, product development, marketing, and sales rather than manufacturing tasks.

There are currently three types of establishment classifications:

Type of Establishment Characteristics  
Integrated Manufacturer (IM)  Performs all the tasks of the production chain
Manufacturing Service Provider (MSP) Performs transformation tasks but does not perform production management tasks (may purchase inputs) 
Factoryless Goods Producer (FGP) Does not perform transformation tasks but performs all production management tasks (may or may not own parts)

These current classifications require the statisticians to choose where to put the FGPs and how to count production. They now have the choice of classifying them as wholesalers, manufacturers, or split based on the location of the transforming company.

Currently, Apple and Nike are classified as wholesalers since they do not perform any manufacturing transformation tasks in the U.S. This accurately reflects the fact that both Apple and Nike have offshored their manufacturing to China.

Under current policy, when a company like Apple ships component parts to China to be assembled in a Chinese factory (e.g. Foxconn) and then sends the product back to the U.S. to be sold here, the value of the imported iPhone minus the value of the exported parts counts as a net U.S. import of manufactured goods.

Under the ECPC proposal, Foxconn, now called a “manufacturing services provider,” would not be described as having manufactured the iPhones but as having provided services to Apple.

An additional concern is that the ECPC proposes to treat some goods exported by foreign factories as U.S. manufactured exports. For example, currently, when Apple ships iPhone parts to China to be assembled by Foxconn and then ships the finished product to another county, Apple’s export of these parts to China counts as the only U.S. export.

But, the ECPC proposed rule would classify the engineering, marketing and profit to Apple as U.S. production. A fully assembled iPhone sale to another country, such as Japan or a European Union country, would count as a “U.S. manufactured goods export,” less the cost of any imported parts.

The justification for this is that while China manufactured and exported the iPhones, they count as U.S. manufactured exports because they were under the control of a U.S. brand. This would create an artificial increase in U.S. manufactured exports and cover up the real U.S. manufacturing trade deficit.

Thus, if a U.S. based company offshores manufacturing work, much of it would be classified as U.S. production. Further, imported products from foreign contract manufacturers hired by a U.S. company will no longer be a “goods import” but rather a “manufacturing services import.” This means that products from Flextronics in Mexico, which makes components in Mexico for U.S. firms that are shipped to the U.S., would no longer be considered a “goods import” but a “services import.”

In addition, the ECPC proposal would result in a miraculous overnight increase in the number of U.S. “manufacturing” jobs. White-collar employees in firms like Apple would be re-branded as “factoryless goods producers” and counted as “manufacturing” workers. The change would also create a false increase in manufacturing wages, as many of the new-to-be-counted “manufacturing” jobs would be designers, programmers and brand managers at “factoryless goods producers” like Apple. As a result, reported manufacturing output would jump, as revenues from firms like Apple would be lumped in with the output of actual U.S. manufacturers.

This proposal would deceptively shrink the size of the reported U.S. manufacturing trade deficit while artificially inflating the number of U.S. manufacturing jobs. It would obscure the erosion of U.S. manufacturing, undermining efforts to improve the trade and economic policies for our country.

This proposal is fraudulent and would distort U.S. trade, labor, and gross domestic product statistics that show the need for a developing a manufacturing strategy in the U.S. The offshoring of U.S. manufacturing under years of bad trade policies should not be undone with a data trick.

The proposal from the Economic Classification Policy Committee (ECPC) to redefine U.S. manufacturing and trade statistics must be stopped. Only manufacturing performed within the U.S. should be considered U.S. goods production. If manufacturing occurs in another country, it simply is not U.S. production.

On May 22, 2014 the Office of Management & Budget solicited comments on these proposed revisions. You also can view the notice for this proposal in the Federal Register. The comment period ends July 21, 2014. You may email your comments today to John.Burns.Murphy@census.gov to keep the “factoryless goods” proposal from becoming a reality. Or, to make taking action even easier, you can click here to customize and submit a pre-drafted comment provided by the Coalition for a Prosperous America.

Posted in Economy, Manufacturing, Outsourcing, Trade | 1 Comment »

Free Trade is the source of our Trade Deficit and National debt

Tuesday, June 3rd, 2014

We all like to get something for free, so free trade sounds good. The question is: do we even have free trade? No, we do not. What we call free trade isn’t “free,” and it isn’t “good,” at least for most Americans. At best, it benefits large, multinational global corporations that have manufacturing facilities located in other countries. At its worst, it is the primary source of our trade deficit and loss of good paying manufacturing jobs, leading to an escalation of our national debt.

Brian Sullivan, Director of Sales, Marketing and Communications of the Tooling, Manufacturing & Technologies Association says, “We should rename ‘free trade’ because it isn’t free and it isn’t fair. Since it’s trade that’s regulated in favor of multinational special interest groups, why don’t we call it for what it is: How about ‘rigged market trade’ or ‘turn your back on your fellow countrymen trade’ or ‘throw American workers out on the street trade.’”

For more than the first 150 years of its history, the United States was a protectionist country in order to protect its fledgling manufacturing industries and then gain preeminence as an industrial nation in the 20th century.

After World War II, the U.S. switched from protectionism to free trade in order to rebuild the economies of Europe and Japan through the Marshall Plan and bind the economies of the non-Communist world to the United States for geopolitical reasons.

To accomplish these objectives, the General Agreement on Tariffs and Trade (GATT) was negotiated during the UN Conference on Trade and Employment, reflecting the failure of negotiating governments to create a proposed International Trade Organization. Originally signed by 23 countries at Geneva in 1947, GATT became the most effective instrument in the massive expansion of world trade in the second half of the 20th century.

GATT’s most important principle was trade without discrimination, in which member nations opened their markets equally to one another. Once a country and one of its trading partners agreed to reduce a tariff, that tariff cut was automatically extended to all GATT members. GATT also established uniform customs regulations and sought to eliminate import quotas. By 1995, when the World Trade Organization replaced GATT, 125 nations had signed its agreements, governing 90 percent of world trade.

In 1994, GATT was updated to include new obligations upon its signatories. One of the most significant changes was the creation of the World Trade Organization (WTO.) The 75 existing GATT members and the European Community became the founding members of the WTO on January 1, 1995. The other 52 GATT members rejoined the WTO in the following two years, the last being Congo in 1997. Since the founding of the WTO, a number of non-GATT members have joined, and there are now 157 members, including China. The main countries still outside it are Iran, North Korea, and some nations in Central Asia and North Africa.

A major benefit for GATT and WTO members was the reduction or elimination of tariffs. However, while the U. S. and other member countries complied with this provision, over the years, the other 156 members have replaced their tariffs with Value Added Taxes (VAT), which range from a low of 10% to a high of 24%, averaging 17%. The U. S. is the only member country that doesn’t have a VAT.

A VAT is a border adjustable consumption tax on goods and services. This means that virtually all of our trading partners tax our exports with their VATs, when our goods cross into their country, and rebate their VATs when their companies export. VATs are essentially a tariff by another name. Our trade agreements, such as NAFTA, CAFTA, and KORUS do not address VATs, and the WTO rules allow VATs. This means that U. S. companies are at a disadvantage in the global marketplace, so that so-called free trade has become “unfair trade” for U. S. companies.

According to Alan Uke’s book, Buying Back America, the United States now has a trade deficit with 88 countries. Of course, some deficits are small, but some are enormous, such as China. Our top six trading partners are: Canada, China, Mexico, Japan, Germany, and South Korea. These six countries represent 64% of our total trade deficit, but China alone represents 46% of the U. S. trade deficit of $688.4 billion. Our 2013 trade deficit with China was $318.4 billion, and we are on track to equal that in 2014.

Some may claim that we are still the leader in advanced technology products, but this is no longer true. The U. S. has been running a trade deficit in these products since 2002, which has grown to an astonishing average of $90 billion per year since 2010.

So how do our trade deficits add to the national debt? One way is that many products, especially consumer products, which were previously made in the U. S., are now made in China or other Asian countries, so we are importing these products instead of exporting them to other countries. The offshoring of manufacturing of so many products has resulted in the loss 5.8 million American manufacturing jobs and the closure of over 57,000 of manufacturing firms. These American workers and companies paid taxes that provided revenue to our government, so now we have less tax revenue and pay out benefits to unemployed workers, resulting in an escalating national debt.

Let us consider whether or not our most recent trade agreements have been beneficial to the U. S. The Korea U. S. Free Trade Agreement (KORUS FTA) went into effect on Mach 2012. The Office of the   U. S. Trade Representative for the Obama Administration touts, “Since the Korea agreement went into effect, U.S. exports to Korea are up for our manufactured goods, including autos, exports are up for a wide range of our agricultural products, and exports are up for our services.” However, the reality is that our imports continued to exceed our exports, and the U. S. trade deficit with Korea jumped from -$13.62 billion in 2011 to -$20.67 billion in 2013, which is a 64% increase in only one full year.

The U. S. has fared better with CAFTA-DR, the Central America-Dominican Republic trade agreement, which was signed on August 5, 2004. The trade balance with Costa Rica went from a plus of $188.2 million in 2005 to a deficit of $4.7 billion in 2013, but the Guatemala and Honduras trade balance went from deficits of $302 and 495 million to surpluses of $1.642 billion and $2.97 billion. The Dominican Republic trade balance stayed positive, growing from $115 million to 1.97 billion. If you balance out the deficits and surpluses, the U. S. comes out ahead for these countries.

Now we are faced with the prospects of an even more encompassing trade agreement, the Trans-Pacific Partnership (TPP), for which the Obama administration has conducted negotiations behind closed doors through the offices of U.S. Trade Representative Ron Kirk without any involvement with Congress.

Eleven nations have participated in the negotiations: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. Japan announced its intention to join the agreement last spring. Because the TPP is intended as a “docking agreement,” other Pacific Rim countries could join over time, and the Philippines, Thailand, Colombia, and others have expressed interest.

What makes this agreement of even greater concern is that President Obama is seeking Fast Track Authority under the Trade Promotion Authority. Both Democrat and Republican Representatives in the House have expressed concern over delegating Congress’ constitutional authority over trade policy to the Executive Branch. I won’t repeat the points I have already made in my previous blog articles published last year on the dangers of the Trans-Pacific Partnership agreement and granting the president Fast Track Authority; however, I urge you to read my January article, “We Must Stop Fast Track Trade Authority from Being Granted!”

Beyond stopping Fast Track Authority and the Trans-Pacific Partnership from being approved, we need to focus on achieving “balanced trade” in any future trade agreements. Until we change the goal of trade agreements, we should refrain from negotiating any trade agreement. The last thing we need is to increase our trade deficit more than it already is. In addition, we need to pass legislation addressing the predatory mercantilist activities of our current trading partners, such as currency manipulation, product dumping, and government subsidies. We should consider comprehensive tax reform that includes a border adjustable tax to address the unfair advantage caused by the rebate of VAT taxes. We should enact countervailing duty laws and County of Origin labeling on all manufactured products, including food.

I urge you to call your Congressional representative and Senators now to urge them to oppose granting Fast Track Authority and approving the Trans-Pacific Partnership Agreement.

Posted in Economy, Jobs, Manufacturing, Trade Policy | No Comments »

Columbus Castings has learned how to survive and thrive in challenging marketl

Tuesday, May 20th, 2014

The metal casting industry has been one of the hardest hit by competition from China and India, but some companies have been able to survive and even prosper despite the combined onslaught of intense offshore competition and the Great Recession. That has now put them in the position to benefit from reshoring trend. I recently had the pleasure of interviewing Megan McCuan, Communications and Development Coordinator, of Columbus Castings in Columbus, Ohio, which is the largest single site steel foundry in North America.

Columbus Castings manufactures steel castings for the freight and passenger rail cars, locomotives, mining equipment, industrial magnets, construction equipment, agricultural equipment, and other heavy industrial industries. They produce high-quality industrial castings from 100 to70, 000 pounds. The company has about one million sq. ft. of space in 14-15 buildings, covering an area of 90 + acres, including 22 acres under roof, with access to 19 miles of rail. Columbus Castings currently has 695 employees, and most employees have long time experience. Some of their employees have been there for as long as 30-50 years.

The company’s roots date back to 1881 when the Murray-Hayden Foundry, a small iron foundry, served a growing agricultural based economy. The business flourished when it began manufacturing iron couplers for the infant rail industry and in 1891, the name was changed to the Buckeye Automatic Car Coupler Company.

As the American rail industry expanded, the operation was relocated to a larger facility, and the name was changed to the Buckeye Malleable Iron and Coupler Company to reflect its new emphasis on iron couplers. As the American rail industry growth boomed through the early 1900’s, the demand for iron couplers soon exceeded capacity, and the business moved to the present day location in 1902.

As the industry demand for stronger, tougher products, the foundry changed to steelmaking and the name of the business was changed to the Buckeye Steel Castings Company. In 1967, Buckeye Steel became the flagship company of Buckeye International Inc., which was formed as a parent company for purchasing other non-foundry related businesses. Buckeye International was acquired by Worthington Industries Inc. in 1980, in a stock for stock merger. Buckeye Steel remained an operating subsidiary of Worthington Industries until 1999, when it was sold to Key Equity Capital in a leveraged buy-out. Buckeye Steel operated as a stand-alone entity until December 2002, when bankruptcy was filed after the double blow of a weak freight rail market in 2000 followed by the devastating economic effects of 9/11 and the intense competition from China, which proved too much for the debt burdened business.

That could have been the end of the story, but the former President of Worthington Industries, Don Malenick, had different idea. Don had recently retired after 40 plus years from Worthington, where he had held the position of President for the final 26 years. He had an in-depth understanding of the potential value of the facility and also maintained his love for the steel industry in the Central Ohio area. He assembled a team of investors to purchase the assets of the business out of bankruptcy, as well as a team of veteran railroad foundry men to start the new business.

The new entity, Columbus Steel Castings, was based on a business model designed to be the lowest cost and highest integrity supplier of cast steel products in the industries it serves. The business was formed with a “pro-employee”, “union-free” philosophy, created to engage its employee’s talents to the fullest. When the business does well and makes a profit, then all eligible employees share in the success. As a “Pay for Performance” company, the wage and salary compensation is based on an employee’s contribution to the bottom line. Employees are incited to work hard as a team and find ways to do their jobs better, faster and safer.

The company experienced a slight upturn in their rail business from 2004 to 2007, while their industrial market was slow and steady. In 2008, Protostar Partners, LLC purchased Columbus Steel Castings and renamed the company Columbus Castings.

Their rail business slowed in the fall of 2008 after the economic crash that led to the Great Recession in 2009-2010. The demand for freight cars dropped during the recession, and they had to lay off employees.

In 2011, they implemented a new sales plan and focused on their quality and on-time delivery. They responded to the shift of their customers from coal cars to tankers for natural gas in 2012 when the natural gas industry boomed in the upper Midwest. They are currently marketing more to tank car customers and featuring new materials for sand castings for this market.

Richard T. Ruebusch took over as President and CEO in 2012 after having held numerous senior level executive level positions that included 14 years experience at global foundries. In order to be more competitive in the global economy, the company became ISO 9001:2008 Certified. They also started lean manufacturing training as both Mr. Ruebusch and their V. P. of Operations, Randy Parish, have extensive lean manufacturing backgrounds. As a result of implementing lean, the company has achieved a 30% improvement in cycle times and reduced their lead times. Columbus can now produce and ship average components in less than 12 days, ad large components take only around nine weeks.

While, China is still a big competitor for rail car components, the company is getting some work back from offshore. As oil prices increased, costs to ship massive steel castings from China reduced profit margins for their customers and long deliveries became a disadvantage. Columbus can produce and deliver high-quality steel castings in less time than it would take to ship them from overseas. Ms. McCuan said that Caterpillar had a factory in India and brought the work back to the U.S. in 2012, and Columbus was able to get part of the reshored business.

In November 2013, Columbus landed the largest order in its 130-year history. The deal with Nippon Sharyo USA Inc. for railcar undercarriages could be worth up to $70 million to the manufacturer and added more than 50 jobs at the foundry. Nippon’s end customer is Amtrak, which is in the midst of an extensive replacement of its passenger railcars. “If they exercise all their options, this will keep us at full capacity until 2021,” CEO Rick Ruebusch said. “In addition to the Nippon deal, the manufacturer also has orders from additional Amtrak suppliers CAF USA and Hyundai Rote Co. for the same railcar components.”

Columbus utilizes “green” practices, such as thermal sand reclamation, and the company has two new design projects: one of which is a new “knuckle” that is a rail component that goes on the end of rail car to fasten it to another car. They are also working on reducing the weight of parts without reducing performance.

Their “Open Door” policy assures every employee an opportunity to voice his or her concerns about the business and their employment. The company’s management knows that their business is only as good as their people, and the development and recognition of the best people will assure continued growth and improvement of the company in the future.

Mr. Ruebush said, “The main factor contributing to the success of our company since recovering from the Great Recession was becoming a diverse manufacturer. In past times, our company was too focused on freight rail. We are building business levels in our industrial business unit, as well as in our mass transit (passenger rail) business as demonstrated with the recent largest order in the company’s history with the announcement of our $72MM contract with Amtrak and Nippon Sharyo.”

It certainly looks like Columbus Casting is well on its way to achieving its goal of being the best large steel casting company in the world. If the U. S. had a national manufacturing strategy that supported American manufacturers to help them become winners in the global trade wars, more American companies would be able to achieve the same kind of worthy goal for their industry. We need a strategy for prosperity for American-owned businesses and not just the large multinational corporations. It’s time for our elected leaders to address the predatory mercantilist trade policies of foreign countries, such as currency manipulation, product dumping, government subsidies, and intellectual property theft that put American manufacturers at a disadvantage in the global marketplace. This is the only way we will be able to create the higher paying manufacturing jobs we need to grow our middle class and reduce our trade deficit and national debt.

Posted in Economy, Jobs, Manufacturing, Reshoring, Trade Policy | 1 Comment »

California’s Metalworking Industry is a Leader in Technology and Environmental Consciousness

Tuesday, May 13th, 2014

The California Metals Coalition (CMC) held their 41st annual meeting in Anaheim on May 8-9th, 2013. Over 150 business leaders from metalworking companies and the industry’s service providers attended the meeting. The California Metals Coalition membership is a diverse representation of the state’s metals industry. Membership in CMC is corporate, and the employees of each facility are individual members of the organization. The member companies are small businesses ? the average number of employees per company is only 50, so without an organization to be the voice and advocate for the metalworking industry in California, these companies and this industry would have no influence on statewide policies affecting them.

California’s metalworking industry began when metalworking facilities were established in1848 to manufacture the tools that led to the start of the gold rush and birth of our state in 1850. Today, California is home to 6,100 metalworking facilities, employing approximately 213,500 Californians, providing high-paying manufacturing jobs, health benefits, and a solid economic foundation to the Golden State. This level of employment represents 18% of California’s 1.2 million manufacturing jobs. This industry generates $12.2 billion in goods and services and $7.9 billion in wages for the economy.

The types of services provided by member companies includes: sand, permanent mold, investment, rubber/plaster mold, and die casting, machining, forging, metal fabrication and welding, metal stamping, metal finishing, metal raw materials, metal recycling, and tools and dies.

According to CMC data, in the metalworking industry, 8 out of 10 employees are considered ethnic minorities or reside in communities of concern. Living-wage employment for this diverse workforce can be found in working-class communities throughout the state because the average full-time hourly wage is $18.00 (not including benefits) or $37,000 per year. Jobs provided by this industry are the path to the middle class for many Californians.

What do these companies make? Metal manufacturers make the parts that go into solar panels, electric cars, medical devices, airplanes, unmanned vehicles, ships for the Navy and private companies, products for the military and defense industry, and thousands of other applications. Metalworking products and services are a direct reflection of the innovation and hard work put forth by California’s workforce and business owners.

Californians discard enough aluminum each day to build five Boeing 737 jets, and California metalworking companies recycle millions of tons of discarded metal each year. Metal is recycled and used as the primary material source to build components that fly our planes, housings that spin renewable-energy windmills, medical devices that keep our families safe, and defense items used by our troops. California metalworking companies recycle about 1,830,000 tons of metal per year, and every ton of waste that is recycled rather than disposed in landfill produces $275 more in goods and services.

The keynote speaker of the conference was Jerome Horton, Chairman of the Board of Equalization, who acknowledged the importance of this industry to the economy of California by mentioning some of the above data. He said that the BOE is helping California companies grow and had worked with the California Metals Coalition and other organizations to obtain the new manufacturers exemption tax credit that was signed into law by Governor Brown as part of Assembly Bill 93 and Senate Bill 90. This exemption will become effective July 1, 2014 and expires on July 1, 2022. It applies to specified NAICS codes, applicable to the whole metalworking industry and has a $200 million limitation. Tax-exempt property must be used 50% or more in one of the following activities:

  • Manufacturing, processing, refining, fabrication, or recycling tangible property
  • Research and development
  • Maintaining, repairing, measuring, or testing any qualified property
  • As a special purpose building and/or foundation

The BOE expanded the meaning of this tax credit to apply to tooling, whether it is retained or sold. Tooling must be either manufacturing by a company or purchased, be used in the manufacturing process, and have a life of over one year.

He also outlined the benefits of the new employee hiring credit that replaces the tax credits offered by Enterprise Zones that have been eliminated. This tax credit is based on wages of $12-$28/hour. There is a maximum of $56,000 per employee over five years, and the credit is equal to 35% each year.

The BOE has a much larger reserve than they need and are starting to refund monies to California companies. Last year the sales tax revenue increased from $52 billion to $56 billion, which helped enable the state budget to be balanced, but the State still has $300 billion in debt.

Kimberly Ritter-Martinez, Chief Economist for the Kyser Center for Economic Research at the Los Angeles Economic Development Corporation was the next speaker. She provided an overview and comparison of the national economy and the state economy. If California were a country, it would be the 9th largest economy measured by Gross Regional Product in the world. However, California is lagging the national average in creating jobs, so that the unemployment rate in March was 8.1% compared to 6.7% nationwide. Jobs in durable goods manufacturing only increased by .8% for the state. She predicted 2.4% growth in the State GRG in 2014, and 2.9% in 2015.

Although California is losing businesses to other states, the LAEDC has helped companies such as Space X and American Apparel stay in California.

Jack Broadbent, Executive Office of the Bay Area Air Quality Management District, was added to Thursday’s schedule of speakers as he had a conflict with attending on Friday as originally scheduled. The Bay area District was established in 1955, includes 9 counties with a population of seven million, and covers 5,540 square miles. The purpose of the Bay Area District was to improve air quality by reducing particulate matter, noxious odors, reduce visible emissions, and reduce future emissions. The California Air Pollution Control Officers Association (CAPCOA) was formed to coordinate the rules of many local and statewide agencies involved in air quality.

In 2013, two new rules were adopted after extensive consultation with industry and other stakeholders. Rule 12-13 applies to foundries and forges, and Rule 6-4 applies to metal recycling operations. The Bay Area District led the state in creating an Emissions Minimization Plan to focus on fugitive emissions by reducing particulate matter, toxics, and odors. It incorporates continuous improvement via on-going facility assessments and Plan updates. All the draft plans have been received, and the next step will be a determination of District completeness, a public review period, District review and approval, followed by facility implementation.

In the Q & A period, I asked if the air pollution being transported by the trade winds from China is being taken into consideration, and he said that they have had to adjust the base of the ambient air quality because of the transported pollution. He has been to China five times in the past three years, and he said that China’s particulate matter in their air is more than 10 times the U. S. standard.

Brian Johnson, Deputy Director of the Department of Toxic Substances Control (DTSC) was the next speaker. He briefly described the Hazardous Waste Management program and the new Policy and Program Support Division that was formed after restructuring last year. The metalworking industry is getting a great deal of attention by the legislature, regulators, and the community around specific metals sites. A Hazardous Waste Reduction Initiative was introduced into the legislature last year, and a Safer Emissions Products Initiative is on the horizon. The Department is using 17 categories of pollution burden data of Census Track ratings to prioritize their response to community complaints for specific metals sites.

The next topic was workmen’s compensation insurance, and State Senator Ted Gaines (R) who is a candidate for Insurance Commissioner described how his long experience as an insurance agent would be beneficial to working with the metalworking industry to improve this insurance program. A panel of five members of CMC shared their experiences with regard to this issue. Of note, is the fact that California has some of the highest workmen’s compensation rates of any other state for certain industries. For example, the California rate for die casting companies is 5 times the rate in Mississippi.

The issues discussed at this conference demonstrate why the metalworking industry is challenged in doing business in California. However, many of these companies, especially foundries and forgers, cannot easily pick up stakes and move to other states. The high cost of doing business in California has resulted in more companies going out of business rather than moving to another state.

Adding to these challenges has been the fierce competition this industry has experienced from China in the past decade. CMC Executive Director, James Simonelli, told me that in the year 2000, the industry had about 325,000 employees. This means that the current employment of 213,500 is 40% less than it was 14 years ago. The good news is that all of the attendees to whom I spoke were experiencing some “reshoring” of parts coming back from China.

When compared to manufacturing facilities around the world, California is the place to find the most technologically advanced, and environmentally conscious metal manufacturers. California’s metalworking industry is arguably the world’s leader for efficient, clean, and safe metal manufacturing.

Posted in Economy, Environment, Jobs, Manufacturing, Reshoring, Taxes/Regulations | No Comments »

San Diego’s Maritime Industry is Becoming Increasingly Important to the Region

Tuesday, April 15th, 2014

While we all know that San Diego has a world-class port that is the gateway to the Pacific and the growing markets of Asia and Latin America, most don’t realize that its maritime industry “represents one of the most unique regional economies in the world with more than 1,400 companies producing over $14 billion of direct sales and a workforce of almost 46,000 spread across an array of traditional and technology-oriented sectors.” The knowledge of how important that the maritime industry clusters has become to the regional economy was made clear to me when  I recently came across a report that was released in 2012:  the San Diego Maritime Industry Report, sponsored by the San Diego Workforce Partnership, (SDWP) San Diego Regional Economic Development Corporation (SDREDC), and The Maritime Alliance (TMA).

The survey portion of the project was conducted over a period of four weeks during May and June 2012. It involved quantitative economic analysis of data from proprietary business resources (such as Info-USA and Dun and Bradstreet), standard data from the BLS and Census Bureau, and first-hand information from San Diego-based ERISS Corporation through numerous in-person and telephone interviews and both a telephone and an online survey of more than 230 companies.

San Diego’s Maritime Industry and related economic activity comprise what is being called the “Blue Economy.” The maritime technology or “Blue Tech” cluster  “includes nearly 200 separate NAICS (North American Industry Classification System) codes and includes businesses in sectors as obvious as fishing and as surprising as metal forging.”

The 84-page report divides the Blue Economy into three general categories of the functional organization of San Diego’s Maritime Industry:

  • The traditional maritime space, in which industries are exclusively maritime, such as fishing and ship building
  • The traditional maritime space, in which an industry includes maritime and non-maritime activity, such as construction industries capable of working on ports
  • The maritime technology space, or “Blue Tech”

The analysis suggests an estimated 46,000 employees work in San Diego’s Maritime Industry:

  • Total employment (September, 2011) 45,778
  • Traditional maritime exclusive industries 8,176
  • Maritime technology industries “Blue Tech” 18,948
  • Other maritime 18,654  (in traditional industries that include maritime activities but are not exclusively maritime)

Shipbuilding and ship repair provide the most jobs, 6,127, followed by Testing Laboratories, 3,689, R&D in Physical, Engineering, & Life Sciences (exc. Biotechnology), 3,376, and Engineering services, 3,228.

Based on the survey, “the projected total employment growth between 2011 and 2020 is for nearly 6,000 new jobs, or 12 percent of the current total (though fast growth, new technologies, and new opportunities could yield significantly higher numbers.)”

Total revenue was estimated at slightly more than $14 billion (direct spend only) in 2011:

  • Traditional maritime exclusive industries $ 1,403,082,257
  • Maritime technology industries   $ 6,165,840,257
  • Other maritime   $ 6,465,162,848

Source: ERISS; Info-USA; U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages; Dun and Bradstreet; Corporation Wiki

The report states, “The region’s focus on the high-technology aspects of the Blue Economy is increasingly well-placed. Technology is becoming ever more enmeshed in even the most traditional maritime activities…The role of technology in San Diego’s maritime economy is also unique because of the close relationship with the U.S. Navy and the need for innovation for the Defense Department and defense industries.”

The Maritime Alliance undertook “yeomen’s efforts to define the totality of the Maritime Technology Cluster – really a sub-set of the larger Blue Economy – similar to how maritime technology clusters around the world seem to identify their industry activity as an innovation industry with close and overlapping relationships to the spheres of traditional maritime activity. Their efforts resulted in 14 sectors for the San Diego Maritime Technology Cluster map with many sub-sectors:”

  • Aquaculture and Fishing
  • Biomedicine
  • Boat and Shipbuilding
  • Cables and Connectors
  • Defense and Security
  • Desalination and Water Treatment
  • Marine Recreation
  • Ocean Energy and Minerals
  • Ocean Science and Observation
  • Ports and Marine Transportation
  • Robotics and Submarines
  • Telecommunications
  • Very Large Floating Platforms
  • Weather and Climate Science

The report made the following general observations about San Diego’s “Blue Tech” industry:

  • Highly differentiated  – 14 sectors in San Diego; 71 sub-sectors
  • Prevalence of multi-use technologies from small, specialized firms
  • Typically high gross margins
  • Largely self-reliant – traditionally modest users of bank debt and outside equity
  • Largely invisible in local markets / limited public & government awareness
  • Little baseline economic data due to non-specific NAICS codes
  • Highly export-oriented – typically 40-60 percent for most companies
  • Markets exist in virtually every country around the world
  • Growth in most sectors strongly outpaces world economic growth

These sectors can largely be used to describe the overall Maritime Industry and doing so “ helps to emphasize the increasing connectedness and overlap between the traditional and technology dimensions of San Diego’s maritime businesses…to leverage shared assets and opportunities, from formal investments all the way to informal instances of collaboration among stakeholders. “

While commercial fishing in the region is much smaller than in its heyday, the industry has the potential to double in size over the next decade. Plans have been made to provide ongoing support for commercial fishing, and recommendations have been incorporated in the Commercial Fisheries Revitalization and Coastal Public Access Plan that took three years to complete. The Port of San Diego staff has begun implementation. Implementation will take several years and cost several million dollars.

For about “one-third of the 22 companies that participated in live interviews, energy, especially offshore oil and gas, directly or indirectly, represented major, if not dominant customers. Most of these firms have few or no local customers. Their customers are either foreign firms or, if U.S. firms, located in either the Gulf of Mexico or foreign waters.” This sector has a high-growth potential market.

San Diego is the world leader in desalination and reverse osmosis technology, which was patented in San Diego in 1964. “More than 3,000 professionals and workers are employed by companies in the region which includes two of the three global market-share leaders in membrane supply.”

“San Diego has a long history in underwater vehicles and maritime robotics, initially driven by the Navy’s needs. The major Navy lab in San Diego (SPAWAR Systems Center Pacific) developed ten manned underwater vehicles and nearly two dozen unmanned vehicles.” Private companies have developed various kinds of UUVs (Unmanned Underwater Vehicles), such as the underwater vehicle models of SeaBotix Inc., the world’s leading MiniROV manufacturer.

The report states, “Workforce development has a critical role to play when cluster strategies consider the practical challenges and opportunities within any region…workers at the top of the income and education spectrum are no longer a central facet of what cluster strategies can offer a region…An occupational strategy for the Maritime Industry must be necessarily unique. On the one hand, the industry composition is too diverse to look for industry-driven occupational patterns as a driving rationale. On the other hand, that diversity includes both the kinds of firms that headline The Maritime Alliance’s membership and those that rely critically on workers who are skilled but unlikely to hold a bachelor’s degree.”

Most of the small, high-tech firms interviewed primarily recruited individuals with college or advanced degrees, with very high concentrations of various engineering disciplines. They reported considerable talent availability, particularly due to the recession. “The primary recruiting concern was lack of maritime-specific experience and training. Lack of undersea experience was especially noted by several firms. A few firms expressed concern about a growing shortage of software developers and programmers.”

The company interviews revealed the following common trends and challenges:

  •  Firms saw considerable opportunity, especially in offshore markets, but some of the most attractive deals are seen as too large or too complex for small companies to pursue effectively by themselves.
  • Strong global competition is emerging, especially from firms with considerable foreign government support or from large firms with access to significant private or public capital resources.
  • A large number expressed concerns about California’s regulatory burden, as well as that of the U.S. Environmental Protection Agency (EPA).
  • Many were very concerned about threats to the working waterfront and saw residential and tourism interests eating away at industrial and commercial uses of the waterfront.

Many supported strong local advocacy in support of reducing the state burden on maritime activity, easing commercial regulation on surveying and mapping activity and on recreational yachts over 300 tons, as well as harmonizing California ballast water regulations with those promulgated by the International Maritime Organization, until a common suite of U.S. regulations are issued. Shipyards claimed that they face overlapping and sometimes conflicting regulations and oversight from multiple agencies and that San Diego is worse than the rest of California.

Policy Recommendations

While these are too numerous and detailed to consider in depth in this brief article one of the most important was that it was recommended that the SDREDC focus on attracting and promoting high wage, high value-added, capital and R&D intensive firms and operations, with five focus areas for initial priority attention:

  1. Target offshore energy, and potentially offshore minerals extraction, as a priority cluster strategy effort. The range of companies in the San Diego region with deep expertise and technologies focused on operations in hostile ocean environments face an exciting array of opportunities.
  2. Launch a focused effort to take advantage of (and protect San Diego from) changing DoD strategy and restructuring.
  3. Strengthen organizational participation in the existing TMA Seafood (Aquaculture and Fishing) Working Group that brings together the fishing, processing, aquaculture, and other related interests to determine if the strong mutual interests identified can be leveraged into a seafood strategy for the region or the state.
  4. Aggressively promote shipbuilding, repair, and refit as this is a relatively robust local industry.
  5. Enhance seaborne trade and the associated land-based, logistics infrastructure.

The respondents expressed strong concerns that the various maritime organizations were not doing enough collectively to “protect the working waterfront.” Some of the recommendations included:

  •   Create joint-use facilities such as a world-class testing facility that firms could access
  •  Create incubator space for young firms, which would include access to shared equipment and facilities
  • Create a network of existing specialized facilities, equipment, and other assets that could be made available to smaller firms (for a fee)
  • Create a core marine biology facility for joint use (similar to an existing North Carolina initiative)

Finally, there was strong interest in more networking and collaboration between the Navy and private industry, between large firms and small firms, and among the many maritime-related organizations in the San Diego region. The consensus was that that the San Diego community does not think big enough in the maritime space. A clear recommendation was made for the San Diego maritime community to come up with a big idea and make it happen (such as the Maritime Center of Excellence).

Posted in Economy, Jobs, Manufacturing | No Comments »

We are in danger of losing our country’s assets!

Tuesday, April 8th, 2014

We Americans blithely ignore the long-term effects of allowing foreign corporations to purchase the assets of our country in the form of companies, land, and resources. We are selling off our ability to produce wealth by allowing so many American corporations to be purchased by foreign corporations. It is not just foreign companies buying our assets that is the problem ? it is the state-owned and massively subsidized companies of China that are dangerous because China uses its state-owned enterprises as a strategic tool of the state. By pretending they are private companies abiding by free-market rules to our detriment makes us the biggest chumps on the planet. German economist Fredrich List, wrote, “The power of producing wealth is…infinitely more important than wealth itself.”

How many Americans paid attention to the news last year that Smithfield Foods was acquired by a Chinese corporation? Last September, shareholders approved the sale of the company to Shuanghui International Holdings Limited, the biggest meat processor in China. Smithfield Foods is the world’s largest pork producer, and Americans must now face the danger of polluted Chinese food since our FDA only inspects 2% of our food imports.

In the December 15, 2013, New York Post, Diane Francis, author of “Merger of the Century: Why Canada and America Should Become One Country” wrote “Currently, American authorities only evaluate foreign takeovers on the basis of national-security issues or shareholder rights and securities laws. But these criteria are inadequate. A fairer test in the case of Smithfield, and future buyout attempts by China, should also require reciprocity: Only corporations from countries that allow Americans to buy large companies should be allowed to buy large American companies. That is why Washington must impose new foreign ownership restrictions based on the principle of reciprocity. The rule must be that foreigners can only buy companies if Americans can make similar buyouts in their countries”.

How many are aware that the chain of AMC Theaters is now owned by Chinese Corporation? Dalian Wanda Group Company owned by China’s richest man, billionaire real estate developer, Wang Jianlin, bought AMC Theatres in May 2012, creating the world’s largest theater chain. This means that the Chinese will now be in a position to shape public opinion and mold the minds of our children through entertainment media.

In January 2014, Motorola Mobility was sold by Google to Chinese corporation, Lenovo, which means that the nation that invented smart phones is just about entirely out of the business of producing smart phones in America. Lenovo is the same company that bought IBM’s line of personal computers in 2004. This acquisition will give one of China’s most prominent technology companies a broader foothold in the U. S.

Through strategic purchases, China is positioning itself to be our energy supplier as well. Since 2009, Chinese companies have invested billions of dollars acquiring significant percentages of shares of energy companies, such as The AES Corporation, Chesapeake Energy, and Oil & Gas Assets. In 2010, China Communications Construction Company bought 100% of Friede Goldman United, and in 2012, A-Tech Wind Power (Jiangxi) bought 100% of Cirrus Wind Energy.

Chinese companies are even acquiring healthcare companies:  WuXiu Pharma Tech bought AppTec Laboratory Services, and Mindray Medical International bought Datascope Corporation in 2008; BGI-Shenzhen bought Complete Genomics in 2012, and Mindray Medical International bought Zonare Medical Systems in 2013.

Wall Street and the finance industry are not immune from acquisitions by Chinese corporations:  Shenzhen New World Group bought Sheraton Universal Hotel in 2011; China Aviation Industrial Fund bought International Lease Finance Corporation in 2012; and Fosun bought One Chase Manhattan Plaza in 2013.

One of the earliest acquisitions by a Chinese corporation was when the Hoover brand was sold to Hong Kong, China-based firm Techtronic Industries after Maytag that owned Hoover was acquired by Whirlpool in 2006.

The acquisition of American companies by foreign corporations isn’t something new. Many prominent companies founded in America have been bought by corporations from the United Kingdom, France, Germany, Italy, and other European countries in the latter half of the 20th Century. Most American don’t realize that such iconic American companies as BF Goodrich and RCA are now owned by French corporations, and that Carnation and Gerber are now owned by Swiss corporations.

Most foreign countries don’t allow 100% foreign ownership of their businesses, but sadly, the United States does not exercise the same prudence. We sell our companies to them, and they almost never sell theirs to us. This tilted playing field has gutted America’s economic power.

What is enabling Chinese companies to go on a buying spree of American assets? Trade deficits – our ever-increasing trade deficit with China over the past 20 years is transferring America’s wealth to China and making millionaires out of many Chinese. In 1994, our trade deficit with China was $29.5 billion, and it grew to $83.8 by 2001 when China was granted “Most Favored Nation” status and admitted to the World Trade Organization. By 2004, it had doubled to $162.3 billion. After a slight dip in 2009 during the depths of the Great Recession, the trade deficit grew to $318.4 billion in 2013. If you add the annual trade deficits for the past 20 years, it totals $3.15 trillion. China now has over one billion serious savers and more than a million millionaires whose assets when combined provide billions to spend to buy our assets.

In addition, it is our trade deficit with Japan that has enabled Japanese corporations to go a buying spree of American assets since the 1980s when such companies as Columbia Pictures Entertainment was acquired by the Sony Corporation of Japan in 1989, and Bridgestone Corporation of Japan bought Firestone in 1988. However, our highest trade deficit with Japan of $84.3 billion in 2007 was nearly one third of our current trade deficit with China. While we are still transferring wealth to Japan, it is a democracy and doesn’t have armed missiles pointed in our direction.

In theory, we have the means to protect ourselves from this. CFIUS, the Committee on Foreign Investment in the United States, has the power to regulate, approve and deny these purchases. However, it is rare for the CFIUS to block deals. “During 2011, the most recent year with data available, the CFIUS was notified 111 times of deals that fell under its purview. Of those 111 covered deals, 40 were investigated and just five were withdrawn during that investigation…This year, Chinese companies have bought 10 companies worth $10.5 billion, says Thomson Reuters. That’s more than 20% of the 484 U.S. companies that have been bought by foreign companies this year worth $43.6 billion, Thomson Reuters says.”

The 2013 Annual Report to Congress by the U.S.-China Economic and Security Review Commission states, “China presents new challenges for CFIUS, because investment by SOEs can blur the line between national security and economic security. The possibility of government intent or coordinated strategy behind Chinese investments raises national security concerns. For example, Chinese companies’ attempts to acquire technology track closely the government’s plan to move up the value-added chain. There is also an inherent tension among state and federal agencies in the United States regarding FDI from China. The federal government tends to be concerned with maintaining national security and protecting a rules-based, nondiscriminatory investment regime. The state governments are more concerned with local economic benefits, such as an expanded tax base and increased local employment, rather than a national strategic issue, especially as job growth has stagnated.”

The report, continues, “China has amassed the world’s largest trove of dollar-denominated assets. Although the true composition of China’s foreign exchange reserves, valued at $3.66 trillion, is a state secret, outside observers estimate that about 70 percent is in dollars. In recent years, China has become less risk averse and more willing to invest directly in U.S. land, factories, and businesses.”

Did we let the USSR buy our companies during the Cold War? No, we didn’t! We realized that we would be helping our enemy. This was pretty simple, common sense, but we don’t seem to have this same common sense when dealing with China.

China has a written plan to become the Super Power of the 21st Century. With regard to China’s military buildup, the report states, “PLA modernization is altering the security balance in the Asia Pacific, challenging decades of U.S. military preeminence in the region…The PLA is rapidly expanding and diversifying its ability to strike U.S. bases, ships, and aircraft throughout the Asia Pacific region, including those that it previously could not reach, such as U.S. military facilities on Guam.

It is time to wake up to the real dangers of our dangerously high trade deficits with China. The Communist Chinese government is not our friend. They are a geopolitical rival that is striving to replace the United States as the global hegemony. We should not let Chinese corporations acquire any more of our energy companies or technology-based companies if we want to maintain our national sovereignty.

Posted in Economy, National security, Trade Policy | No Comments »

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