July 21, 2004    Volume 11, No. 14

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Former Marine Tells It Like It Is:
U.S. Is Losing Its Strategic Electronics Industries
And The U.S. Government Encourages Their Departure



BY RICHARD McCORMACK


The United States will soon lose an industry that forms the basic underpinnings of all electronics. Isola Laminate Systems Corp., the last domestic producer of rigid laminate, the basic building block of the printed circuit board industry, has informed its customers that it will be closing its U.S. production by the end of this year, says Douglas Bartlett, president of Bartlett Manufacturing Co. in Cary, Ill. By the end of this year, virtually all rigid laminate will be imported from Asia.

"It will be the end of the electronics industry as we know it today, as far as our ability to rely on our supply lines," Bartlett told the House Small Business Committee on July 15. "It is a bad situation for the military and homeland security."

But publicity concerning the loss of a vital U.S. electronics industry is being stifled by reactionary forces that are benefiting from the shift of jobs and industries overseas, Bartlett charges. Large multinational companies like General Electric that have moved to China have cut their production costs and are earning bigger profits. Senior executives are rolling in the dough.

"There are a lot of powerful forces at play to stop any type of political or economic reaction to the large companies that are manufacturing in China and selling in the United States," Bartlett told Manufacturing & Technology News after the Small Business Committee hearing. "Other countries are providing all types of subsidies and are playing under one set of rules and weıre playing under another and our businesses donıt stand a chance."

The multinationals "reap a double benefit" from this dual set of rules by manufacturing in a country that supports manufacturing and selling in one that doesnıt, says Bartlett, a former captain in the United States Marine Corp and a graduate of the U.S. Naval Academy.

Ten years ago, there were 10 major U.S. producers of rigid laminate used by the printed circuit board industry. U.S. facilities dominated the market. But U.S. production from such companies as Westinghouse, General Electric and Norplex was not competitive with subsidized Chinese suppliers, said Bartlett. Because there is no domestic production, U.S. producers of printed circuit boards will pay a 10 percent increase per month for the remainder of the year for their laminate, Bartlett predicts.

"As if Chinese government subsidies are not enough, weıre in a squeeze play with our primary supply line," Bartlett said. "The implications are clear: China is using predatory trade practices to distort the PCB market."

The multi-layer laminate sector is also under attack "as the Chinese work their way up the technology ladder, thus destroying the foundation of high technology," Bartlett said. "Specialty materials are also falling victim to these trends, as foreign shipments are already penetrating the U.S. market. With Chinaıs demand for rigid laminate material nearly exceeding the available global supply, U.S. high-tech electronics manufactures will soon experience the effects of losing their domestic mid-technology laminate industry."

Bartlett, who is running the company his father founded in 1952, says the entire printed circuit board industry is on course to suffer the same fate as the laminate industry. As the foundation of the U.S. electronics industry, the PCB industry "is under attack from abroad and is being soundly defeated at home," he told the committee.

Revenues for the U.S. PCB industry have dropped from about $10 billion a year in the late 1990s to about $5 billion in 2003. The real figure might be as low as $4 billion, due to U.S. manufacturers reselling offshore production and booking it as production revenue instead of commission. Employment in the U.S. PCB industry has fallen from 78,000 to 42,000.

U.S. printed circuit board makers didnıt suddenly forget how to compete, said Bartlett, whose companyıs revenues have declined from $20 million in 2000 to $9 million in 2003. Instead, Chinese companies have been able to produce comparable products at half the price due to unfair export subsidies and currency manipulation. "In high-tech industries, low-cost labor alone cannot create such price advantages," Bartlett said. "The implications are clear: China is using predatory trade practices to destroy our PCB market and because of Washingtonıs indifference -- and sometimes encouragement -- China is succeeding."

One glaring example of the military cost of this indifference is in the production of sonabuoys, which are used to detect submarines. Bartlett Manufacturing has been making the printed circuit boards used in this military product for 15 years, but the company was told recently by its customer USSI in Ft. Wayne, Ind., that its prices were not competitive.

"My long experience in the business tells me that these prices could be established only in China or [another] similar Southeast Asian country," Bartlett told the Small Business Committee. "It should be obvious to members [of Congress] that it does not make sense to have the Chinese build products that go into the products for our national defense. The implications for national security and homeland defense should be obvious." (When adjusted for Chinese currency rates and export subsidies, Bartlett says his companyıs prices are competitive.)

But the Pentagon and Washington policy makers donıt want to hear anything about it. "The Defense Department is not an ally of American manufacturing," Bartlett charges. "I was a graduate of the United States Naval Academy and we were taught about leadership. There are many levels of leadership -- leadership on the battlefield and leadership in society and thatıs a big chunk of whatıs missing."

Bartlett feels itıs his duty to stand up and voice his concerns, even though he expects retaliation from the Defense Department. "Iım going to lose the [sonabuoy] contract anyway so whatıs the difference?" He says. "I need to get the story out."

There is nothing wrong with international companies looking out for the interest of their stockholders by moving offshore, "but itıs not in the best interest of the United States and that is where the U.S. government has to come into play," Bartlett said. The U.S. government "needs to protect the longer term health of the country and the current path doesnıt do that."

The trade deficit is approaching $600 billion this year, or $12 billion a week. Few people in power seem to care. "Their eyes glaze over when you talk about the trade deficit," said Bartlett. "I wonder why I waste my time going to Washington and speaking, but I think itıs going to eventually happen that somebody is going to figure out that this is not good." The U.S. cannot remain a superpower without having a manufacturing base to sustain it.

The U.S. government still doesnıt understand that industry is under attack. "At a time when the U.S. government is rapidly and carelessly opening the U.S. market to any and all foreign competition, the Chinese government is targeting electronics manufacturing with brazenly protectionist policies and effectively destroying the industry in the United States," Bartlett said in his testimony. "Thoughtless U.S. trade policies are forcing our private sector industry to compete against heavily subsidized competition -- i.e., a foreign treasury. And let me remind you -- Chinese foreign currency reserves have risen to nearly $500 billion. How can any U.S. company or industry keep its production in the United States and win? The answer is, we canıt."

U.S. trade policy has been a "dismal failure," said Bartlett. The impact on industry, American workers and national security has been "dreadful."

"In preparation for this testimony, I was asked to identify what U.S. trade law has actually benefited our industry or could benefit. My answer: I am not aware of any."

In order to strengthen the printed circuit board industry, the U.S. government needs to get serious about fighting unfair trade subsidies. Government agencies spending American taxpayer money should be forced to buy American-made products. The "Buy American" requirement should be increased from 50 percent for PCB components to 80 percent in two years to 90 percent in three years, said Bartlett. The waiver provisions in the current Buy American laws should be eliminated.

The government must quickly develop a comprehensive approach aimed at eliminating Chinese subsidies. "Small business does not have the time or the money to ask for help in the current system," Bartlett said. "Your system you have today isnıt working." The government must simplify its trade laws so that it doesnıt take a battery of high-priced lawyers years to pursue unfair foreign trade practices.

"My industry is divided between big companies and little companies. The big companies have packed up and gone to China and the little companies remain here and are waiting to see what our government is going to do to help provide security to our country and protect this most vital industry," said Bartlett. "At this time, the fix is on and we cannot win."



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