June 20, 2005

VIA E-MAIL
Sarah E. Aker
Deputy Chief of Staff
Office of the Asst. Secretary
   for Manufacturing and Services
U.S. Department of Commerce
14th & Constitution Avenue
Room 3822
Washington, D.C. 20230

Re: Comments to the Interagency Working Group on Manufacturing

The Society of the Plastics Industry, Inc. (SPI) hereby responds to the Federal Register notice of June 15, 2005 (70 Fed. Reg. 34745). SPI appreciates the opportunity to submit these comments in preparation for the first meeting of the Interagency Working Group on Manufacturing (IWGM).

Founded in 1937, SPI is the only plastics industry trade association with members operating in every segment of the supply chain. Our more than 1,000 members include raw material suppliers, processors, moldmakers, machinery and equipment manufacturers. They vary in size from large multinational corporations to small family-owned businesses, all playing a vital role in the delivery of myriad plastic products that enhance every aspect of our lives. Despite this diverse group of member companies, with interests that are not always aligned, the conviction that plastics manufacturing is vital to the U.S. economy unites our members and drives SPI's activities.

The U.S. plastics industry is the fourth largest manufacturing industry in the country. In 2002, the industry had domestic shipments valued at $310 billion and employed 1.4 million workers in facilities in every state¹. While at first glance, these data appear indicative of stable conditions, the data, in fact, reflect industry-wide losses. Domestic shipments in 2002 decreased by 6.6 percent from 1999 levels. Employment levels in 2002 dropped by 8.4 percent from levels in 1999. Unfortunately, SPI expects that more recent industry-wide data will show similar declines in shipment values and employment even though the industry is coming out of the manufacturing recession of the past few years. This is because we have observed certain alarming shifts that impede the stability and growth of plastics manufacturing in the United States.

Raw material suppliers have chosen to invest in overseas markets rather than build new resin capacity in the United States. Many processors (the industry segment that accounts for the bulk of domestic shipments) have lost significant business as their OEM customers have moved off-shore, forcing these companies to either shut down their operations or also relocate overseas. Some processors have been compelled to shift some of their manufacturing units overseas, not to supply a foreign market, but to take advantage of a low-cost manufacturing structure in another country. Losses in the processing segment have dampened demand for plastics machinery and equipment. All of these trends threaten the viability of plastics manufacturing in the U.S. by creating a climate of uncertainty and fear among industry participants.

First, the 22.4% cost disadvantage that U.S. manufacturers face vis-à-vis their counterparts in other industrialized countries is well-documented². The MAPI/NAM commissioned study demonstrated that the cost of doing business in the United States is a competitive impediment for U.S. manufacturers. While recent legislative initiatives have made progress in reducing tort litigation costs, much work remains to be done to reduce other external and structural costs that burden U.S. manufacturers. SPI urges the IWGM to examine and develop initiatives to address:

• Excessive corporate tax rates
• Healthcare costs and other mandated employee benefits
• Regulatory compliance costs
• Energy and natural gas costs³

As the MAPI/NAM study shows, the structural costs that burden U.S. manufacturers make it far more expensive to maintain operations in the U.S. versus relocating to lower-cost foreign markets. Importantly, those cost advantages are not simply a matter of cheaper labor costs, but reflect the disparity between doing business in the United States as compared to other industrialized countries. Thus, it is imperative that the IWGM conduct a thorough and extensive analysis of the structural costs imposed by the federal government that make it more expensive for manufacturers to sustain their operations in the United States.

Second, with respect to regulatory compliance costs, SPI notes the ongoing streamlining initiative administered by the Office of Management and Budget⁴. As OMB recently reported, many of the specific proposals submitted by industry participants were directed at addressing programs administered by the Environmental Protection Agency and Department of Labor, involving various environmental and worker health and safety regulations. SPI urges the IWGM to work expeditiously to implement meritorious proposals submitted in OMB's process. In conjunction with streamlining, SPI believes the IWGM should also closely examine existing environmental regulations to ensure that manufacturers are subject to a regulatory regime based on sound science that also protects our workers and the environment.

Third, the IWGM should carefully consider how governmental agencies can help contribute to manufacturing growth in this country. For example, while reduction of excessive corporate taxes will reduce the cost of doing business in the United States, tax policies can also be used to stimulate R&D and capital investment. The U.S. plastics industry has historically been at the forefront of developing technologies and new applications for plastic products. The constant drive to innovate and create new niche markets is a business strategy that has made the U.S. plastics industry strong worldwide. We are not an industry that seeks protection or isolation from global competition. Rather, our companies confront those challenges head-on by relying on innovation to strengthen their competitiveness. The industry is currently forging new frontiers through nanotechnology, fuel cells, and RFID (radio frequency identification). To this end, the IWGM should consider developing a private/public sector initiative aimed at maintaining the United States' competitive edge in terms of innovation.

Fourth, any examination of policies and regulatory costs must consider the impact on small and medium-sized manufacturers (SMMs). Too often, these costs fall disproportionately on SMMs. SPI understands that the specific needs of SMMs is a mandate of the Manufacturing

Council and implores the IWGM to ensure that this consideration remains an important component of its work.

Finally, SPI urges the IWGM to involve state legislatures and regulatory bodies in the important task before it. As SPI's members are acutely aware, state and local governments can both exacerbate and help diminish cost burdens on manufacturers. States and local legislatures should be commended to ensure that their regulations are consistent with federal requirements, they follow transparent rule-making procedures, and they are committed to working with industry participants to ensure a balanced approach to public health, safety, and environmental concerns.

* * * * * *

In conclusion, SPI appreciates the opportunity to submit these comments for the IWGM's consideration and would welcome the opportunity to work further with the IWGM on issues specific to the plastic industry's concerns. If you have any questions or need additional information, please do not hesitate to contact Karen Toliver at (202) 974-5333 or myself at (202) 974-5222.

Respectfully submitted,

William R. Carteaux
President, SPI

¹ "The Size and Impact of the Plastics Industry," 2003, a study commission by The Society of the Plastics Industry, Inc. SPI's Size and Impact study that will contain more recent industry-wide data is scheduled to be released later this year.

²See "How Structural Costs Imposed on U.S. Manufacturers Harm Workers and Threaten Competitiveness," Manufacturing Alliance/MAPI, Prepared for the Manufacturing Institute of the National Association of Manufacturers.

³ SPI fully supports the conservation, energy efficiency, and other elements contained in the comprehensive energy bill currently being considered in Congress. While many of these proposed measures will help reduce overall energy costs, for the plastics industry, the high cost of natural gas has had a devastating impact on the industry. For this reason, SPI has advocated remedies that will significantly increase natural gas production and supply as a means of decreasing natural gas prices. SPI strongly believes that access to natural gas reserves in the Outer Continental Shelf is the only short-term remedy that will significantly boost natural gas supplies to address the supply-demand imbalance. Therefore, regardless of whether such provisions are enacted into law, SPI urges the Departments of Interior, Energy, and other relevant agencies to consider reasonable and environmentally sound options to increase natural gas production, whether in the Outer Continental Shelf or other areas subject to agency jurisdiction.

⁴See Office of Management and Budget, "Regulatory Reform of the U.S. Manufacturing Sector," 2005.

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