July 7, 2006    Volume 13, No. 13

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Domestic Manufacturers Force The National Association of Manufacturers' Big Members To Take A Stand On China; Multinationals Lose Vote And Are Accused Of Defending Chinese 'Protectionism'

BY RICHARD McCORMACK richard@manufacturingnews.com

The simmering conflict within the National Association of Manufacturers between smaller domestic manufacturers and large multinational companies with production throughout the world and especially in China came to a head during a two-hour meeting of representatives from the two groups on June 27. On that day, NAM's International Economic Policy Committee (IEPC) held a vote on whether NAM should endorse legislation that would allow U.S. companies to petition the U.S. government for relief under trade laws due to foreign governments subsidizing their currencies. NAM president Gov. John Engler tried to avert a showdown by offering a compromise, but the domestic manufacturers were well organized and ready to vote. Ironically, it was the multinationals who, perhaps overestimating their own strength, called for a vote and thereby ended the possibility of a compromise, according to those in attendance.

Manufacturers with most of their production in the United States strongly support the measure (HR 1498) sponsored by Reps. Duncan Hunter (R-Calif.) and Tim Ryan (D-Ohio). Those with production in China -- mostly the big multinationals -- were strongly opposed. The domestic manufacturers won, 75 to 46 with five abstentions. (See accompanying story for final tally of votes for and against.) The majority of companies voting against the measure were large multinational firms.

The vote "is a good wakeup call that this is still a problem and a wakeup call for the administration and China that this is a still a problem that needs to be addressed," said Pat Mears, NAM's director of international commercial affairs.

Among those who were in attendance from both large and small companies, the vote has raised fundamental issues about whether NAM can play an effective role in policy debates over trade. It has left some of the larger members feeling uncertain about the future of NAM and its governance. There are also questions about the process by which NAM's Executive Committee and Board of Directors will ratify -- or not ratify -- the vote of the committee, and have it stand as an official NAM policy position.

Those who backed the measure are now circulating copies of NAM's constitution to determine whether there are procedures by which the vote can be overturned. Pat Mears says NAM's Executive Committee will decide on the policy when it meets in September. "If it is determined by the Executive Committee that this is what our policy is going to be, then that is what our policy is going to be," she says. "We really do stand by the fact that we're member driven."

The majority of NAM's membership is made up of smaller domestic manufacturers, some of whom have questioned whether NAM represents their interests when it comes to trade with China. Yet after the vote on the Hunter-Ryan resolution, those who seem most perplexed are the big companies. Some are questioning whether NAM as it is currently structured is an organization worthy of their participation.

The vote "runs a serious risk of hurting NAM," said one large company representative who voted against the resolution. "We have a split membership and it's hard for an organization where all the large members are on one side and the small members are on the other."

Other large members say they are considering quitting NAM if the vote stands. They say the process of voting on policy issues does not work in a trade association and is like the dysfunctionality that exists at the United Nations. "The big guys now have to reassess their own position in NAM," says another person who was in attendance and voted against endorsing Hunter-Ryan.

But those representing the smaller, domestic manufacturers say NAM faces no such challenge and that discord in a trade group is normal. The large companies' threat to leave NAM is a scare tactic and the vote "isn't going to blow up NAM," says one small company president involved in the June debate. "There is a group of people who disagree about an issue. Do you think you're going to have this many people in an association and agree on everything?"

The domestic manufacturers interviewed by MTN say they feel the vote was enlightening. It placed their interests starkly in contrast to those of global manufacturers who are seen as defending "protectionist" policies of China, at the demise of U.S. industry. At the same time, their ire is raised even more by the global corporations describing them as being "protectionist" for their support of legislation that could force China to allow its currency to be set by market forces. "Who are the protectionists here?" the domestic manufacturers ask. The global companies operating in China "are only getting sales because they can simply cheat on the system," says the president of one small company who helped write the resolution. "Why would the big companies defend that?" Added another representative for a small company: "You have a situation where Beijing has co-opted a number of [multinational] companies and turned them into their lobbyists in Washington."

The disagreement was in full view during the two-hour debate at NAM headquarters. Domestic manufacturers felt compelled to ask NAM's president John Engler to describe the mission statement of NAM. According to those in the room, John Hoskins of Curtis Screw, on speakerphone from his office in Buffalo -- one person described him as having the "voice of God" -- asked Engler if NAM was a "national" organization for manufacturers that work in the United States. Engler said that was correct.

This argument bothers the multinational companies. "It implies that only companies that manufacture in the United States should have standing in this debate," says one large company representative who spoke after the meeting. "So if you have a plant in Canada or Mexico, you don't have standing to be a NAM member? A lot of people found that offensive."

According to those in attendance, Devry Boughner of Cargill said that manufacturers need to stick together on tax, labor law and legal reform, and that the trade debate could fracture NAM. She said the small manufacturers should not be forcing this divisive issue on NAM and that those who favor the Hunter-Ryan bill should form their own coalition.

Other big companies agree with that assessment, saying that NAM was in a similar position in the late 1980s with regard to steel tariffs. The steel companies that were members of NAM were at odds with those members that used steel. With a divided membership, steel users created the Coalition of American Steel Using Manufacturers, and NAM did not take a position on the issue, according to those who were involved. The same should happen now, they argue.

The domestic manufacturers contend that they are in no position to form their own coalition. "We're not going to go off on our own," said one of the principals in the NAM debate. "The bottom line is if you have a disagreement with an organization the worst thing you can do is quit. So screw it. We'll fight from the inside." Besides, others note, a coalition already exists -- the China Currency Coalition -- but it has little firepower because it does not have a broad enough base of support. Thus the need to gain NAM's endorsement of the Hunter-Ryan bill.

Other large company representatives said that support for the Hunter-Ryan bill is mostly from the steel producing sector of NAM, and that steel companies are exceedingly healthy because of China's increased consumption. The Hunter-Ryan bill is a form of "procedural protectionism" supported by lawyers who "believe the road to prosperity is through litigation," argued one of the participants in the debate.

According to large company representatives, the loser in the fight was NAM president John Engler, who proposed a compromise that would keep the schism from unfolding in a public manner. But domestic manufacturers didn't see it that way. "We were deeply impressed with the fair way in which NAM conducted the meeting and the risk that Gov. Engler took in making his offer to raise possible solutions with the administration," said one participant. Another added: "Frankly, Engler did a very good job of putting this meeting together. I have been to a lot of these meetings. I've never been given as much background material prior to a meeting like this, especially when NAM is on the fence on an issue. It proves that democracy exists in the NAM and that's why it's a great organization."

Engler admitted that persistent currency undervaluation was a problem and that NAM has worked diligently with the Bush administration to convince China to float its currency. But he said Hunter-Ryan could potentially create a trade war and that even if it passes Congress there is no guarantee the administration will use it to take on the Chinese in the WTO. Engler said he wanted members of the committee to vote on language that would empower him to meet with recently confirmed Treasury Secretary Henry Paulson, the new USTR Susan Schwab and with Commerce Secretary Carlos Gutierrez. He would propose that they consider adopting new tools in the trade laws to address countries that manipulate their currency. Engler said he wanted to avoid a "penultimate fight" that could take place within NAM's Executive Committee and its board if there was an affirmative vote to support Hunter-Ryan, and that it's better to reach a compromise or risk getting nothing, according to people attending the meeting.

But those who were pushing the resolution felt that discussions with the Bush administration had run their course. Last March, they had withdrawn the resolution at NAM's Board of Directors meeting when they were asked to give it more time due to the fact that the Bush administration seemed to be on the verge of a breakthrough. At the time, Chinese Premier Hu was scheduled to come to Washington to meet with Bush; the U.S.-China Joint Commission on Commerce and Trade (JCCT) was preparing a meeting, and the Treasury Department was preparing its biannual report on currency manipulation. At the time, Treasury Department officials were floating the idea that China would be cited for manipulating its currency. NAM's board agreed to schedule a special meeting of the IEPC for June if these major events did not lead to progress.

Hu came on a buying mission, and left with no commitment to un-peg the currency, even though Bush raised the issue with him in private talks. The JCCT met, without much progress with regard to the currency; and the Treasury Department issued its report without citing China.

So a special meeting of the IEPC was scheduled. The small guys worked to organize their votes. NAM put together fact sheets on the pros and cons of various pieces of legislation that have been introduced to address countries manipulating their currency. Voting instructions were issued to those who signed up to attend, detailing specifically who could represent a company -- "a retained lawyer or consultant or an employee of an affiliated trade association." A letter describing the event said that "NAM attempts to make policy decisions based on consensus and there is not a vote scheduled for this meeting, but in the event that a vote takes place, we have included voting instructions."

The debate ebbed and flowed, according to more than a dozen people in attendance. Bill Lane of Caterpillar said that the Hunter-Ryan bill would hurt U.S. manufacturers because China is a growth engine for the world economy. These are the best of times for manufacturers, he said, not the worst of times. Caterpillar hired 5,000 workers last year and the most pressing issue facing manufacturers isn't China but finding qualified workers. Forcing China to revalue its currency could result in a 40 percent tariff on imported goods. It is the wrong time for the wrong legislation, Lane argued.

Other large company members and trade association representatives did not favor the measure because they sought to maintain NAM unity. There was also a sense among those who voted against that even if NAM were to endorse the Hunter-Ryan bill, nothing would be done about it in Congress. The House leadership has not expressed any interest in taking up the legislation during the remainder of a lame-duck session. It would be better to wait until after the results of the November election to see who will be chairing the key congressional committees. There was also a sense that provoking China would create a trade war, which should be avoided.

Brian O'Shaughnessy of Revere Copper, a company he noted was created by Paul Revere, said during the IEPC meeting that the United States was already in a trade war. He said a delay would be costly to the U.S. manufacturing base, and that the Hunter-Ryan legislation could become an issue in the upcoming congressional election campaign. Republicans run the risk of losing Congress if they did not address the concerns raised by the legislation. He noted that Rep. Tom Reynolds (R-N.Y.), chairman of the National Republican Campaign Committee, is the latest co-sponsor of the Hunter-Ryan bill, which now includes 80 Republicans and 89 Democrats.

After almost two hours of discussion, Devry Boughner of Cargill made a motion to table the draft resolution, which was seconded by Doug Goudie of the Automotive Trade Policy Council. That motion, which was considered to be a tactical error, forced the committee to take a vote on whether it should be tabled. It failed 72 to 49. That forced a vote on whether NAM should approve the resolution to endorse HR 1498. Each voting member held up a placard with their company name on it. It passed by a margin of 75 to 46.

What surprised many of the domestic manufacturers in the room was the fact that the three domestic auto companies -- GM, Ford and Chrysler -- voted with Honda and Toyota in rejecting the resolution. The legislation would make Japan's under-valuation of the yen an immediately countervailable offense, something the Big Three have been complaining about for decades.

Now the jockeying has started to see how NAM follows up on the vote. "I'm not sure what NAM's constitution says about all of this stuff," says one of the sponsors of the resolution. "And ordinary Robert's Rules of Order means that it eventually has to go to the membership. If it goes to the members, that's going to be huge."

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