August 15, 2003

The Honorable Grant Aldonas
Under Secretary for International Trade
U.S. Department of Commerce
Room 3850
Washington, D.C. 20230

Dear Mr. Aldonas:

The Society of the Plastics Industry, Inc. (SPI) is pleased to provide comments to the U.S. Department of Commerce in response to its series of Manufacturing Roundtables held this summer. SPI commends the Department for holding these hearings to discuss factors that are affecting the manufacturing sector, a critical component of the U.S. economy.

Founded in 1937, The Society of the Plastics Industry, Inc., is the trade association representing one of the largest manufacturing industries in the United States. SPI's 1,300 members represent the entire plastics industry supply chain, including processors, machinery and equipment manufacturers and raw materials suppliers. The U.S. plastics industry employs 1.5 million workers and provides more than $320 billion in annual shipments. For more information on our organization and the industry we represent, we invite you to visit SPI on the Web at www.plasticsindustry.org.

SPI believes that the U.S. plastics industry is in trouble and, unless something is done, the ramifications will permeate the entire U.S. economy.

The plastics processing sector - the nation's fourth-largest manufacturing industry - is at risk, a situation directly tied to the devastating economic conditions and deleterious domestic and international policies that have coalesced within just the past few years to drive plastics processors out of business or offshore and force workers into unemployment.

According to government statistics on plastics product trade, the industry's $894-million trade surplus in products in 2000 plummeted to a $1.4-billion trade deficit in only two years. But that doesn't begin to tell the whole story about what is happening with plastics trade. Plastics are what we call "hidden in plain sight." Or, in other words, people often don't realize how much they use plastics in their daily lives and the positive impact of plastics on the quality of life and the significant U.S. industry plastics has become.

Plastics impact our quality of life through such diverse applications as automobiles, appliances, medical devices, computers and phones. However, these products are not included in any government data on plastics trade. In order to determine the "true" plastics deficit, therefore, SPI examined the export and import of plastics contained in products Americans use to make their lives better each and every day. According to preliminary analysis of this soon-to-be released SPI trade study, this "true" deficit for plastics increased by 229 percent to a whopping $14 billion in the past five years. If this 26.9-percent annual deficit growth continues in the future, thousands more jobs will be lost, cutting across the spectrum of virtually all manufacturing sectors.

SPI asked several SPI member companies to respond to the Department's request for industry comments for the Manufacturing Roundtables. The responses are summarized below (in italicized text) and include comments from injection molders, moldmakers and blown film manufacturers.

Please keep in mind that the comments below may not reflect official, current SPI policies or positions. Nevertheless, they do indicate the growing economic strain facing the entire plastics industry in this country today.

The Current Status of the U.S. Plastics Industry

How competitive is the plastics industry? What is giving you a competitive edge and is it sustainable? Where are you losing? The blown film industry is very competitive and has a technological advantage over most competitors. However, any competitive and technological advancement is negated by off shore manufacturers using unfair trade practices to gain market share. Our products are not labor intensive, but capital and raw material intensive. Energy is a major component of our cost structure and the North American energy situation is making us non-competitive with other countries, particularly those in Asia.

The injection molding and tooling sectors are very competitive. However, international tooling sources consistently bid jobs lower by some 60-70 percent and raw material costs are often 10 percent or more less than in the United States. There is tremendous overcapacity due to global outsourcing. Many companies are forced to bid below variable costs in an effort to reduce losses.

How would you describe the trends in your industry/sector? The trends are in domestic consolidation and global strategic alliances. The trend is to offshore as much work as feasible to China and other Asian countries. Some foreign countries subsidize their raw materials while they simultaneously devalue their currency. While U.S. companies may be gaining ground technologically, they cannot win the battle through technology alone.

What elements of U.S business environment are influencing your ability to compete in world markets, negatively or positively? The drive to reduce costs has forced many to source overseas. The slow manufacturing economy also has reduced the number of new projects. The high cost of medical insurance, workers compensation and other government regulations make us less competitive. This injection molder believes that most plastics processing will disappear in the United States if current tends continue.

As a blown film manufacturer, I believe that some Asian countries subsidize their basic raw material used to manufacture plastics products. Our company's raw material costs represent more than 70 percent of our total costs.

Have you modernized manufacturing and production management practices? How did these steps make you more competitive? My company's tooling room is less than five years old and is state-of-the-art. We are ISO certified and have incorporated lean manufacturing principles top to bottom. Even with all of this, we are still in a losing battle given the current economic situation facing manufacturing.

My blown film company is one of the newest, technologically advanced facilities in the world, utilizing the latest production and management practices. Even though we are very competitive, we are being harmed globally because our major costs are in the raw material, which is often cheaper in other countries.

Are outsourcing and off-shoring trends making you more or less competitive? Offshore outsourcing is one of the major problems with our economy. "Big box" stores strive for cheaper prices from domestic and offshore suppliers using volume as the carrot. Meanwhile, U.S. manufacturers (former suppliers), unable to compete against imports, layoff or shut down, creating an additional burden for taxpayers.

As a toolmaker and molder, I am forced to offshore simply to survive.

Anticipating Future Competitiveness in the Plastics Industry

What will the U.S. and global manufacturing environment look like in your industry in the next two decades? What will successful U.S. manufacturers look like? The U.S. may not have a manufacturing industry in a decade. Small U.S. regional manufacturing will fundamentally disappear in the next two decades, probably much sooner. The smaller manufacturer is being forced to move off shore or close.

Small manufacturers have typically supported free trade. However, under current trading regimes the burden of proof falls to private industry to monitor and report compliance. Small business owners simply cannot afford to go to Washington to fight for their interests. We must aggressively defend and enforce this country's dumping laws. We cannot compete with countries that control their natural resources, subsidize their manufacturing base and are allowed unencumbered entry to U.S. markets.

How will outsourcing and off-shoring factor into the future of your industry? The plastics industry will soon get most tooling off shore, and a large quantity of molding will be done off shore.

What competitive advantages can your U.S. manufacturers leverage in a global environment? It is particularly difficult given the advantages foreign producers have with tariffs and their tax structures, such as the valued added tax, that hurt U.S. manufacturers. Other than experience and political stability, I see few competitive advantages at this time for U.S. manufacturers.

A significant obstacle is corporate America itself. Corporations have rushed offshore to reduce costs. It also will be difficult to deal with our reliance on cheap imports, which has contributed to moderating the inflation rate.

What technologies and business processes are likely to distinguish winners and losers in your industry? Just because we have outstanding technology does not make us the long-term winner. Technology loses to lower prices most every time. In addition, our intellectual property is currently being pirated. U.S. manufacturing will never increase technology at rates to offset the massive layoffs that have occurred in the past three years in manufacturing. Nor will it offset the approximate 50-percent cost advantage in raw material costs. Nevertheless, to be a winner, companies must source offshore, move offshore or partner offshore for a major part of their work.