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June 1, 2004

22 Min Read
Government  and regulation  Friend, foe, or a little of both?

Government policy and regulation: A proverbial double-edged sword—advocating and promoting while imposing costs and impediments. Politics, terrorism, environmentalism, and insurance costs are among the drivers of recent initiatives that have some saying ''About time,'' and others shaking their heads.

Manufacturing gets political in the U.S.

Long before it permeated political stump speeches or crept into the headlines of mainstream media, the struggles of U.S. manufacturing became a bitter reality for folks in places like Rockford, IL, who immediately picked up the phones and dialed their local congressperson.

In the case of Rockford, it was Don Manzullo, the Republican chair for the House of Representative''s Small Business Committee, who has the foreboding figures at his fingertips.

"[Rockford] is still at 10.6% unemployment," Manzullo explains. "We''re leading the state, and it''s one of the highest unemployment areas in the country."

Manzullo took over the chair for the Small Business Committee in 2001, a year when the job losses in manufacturing accelerated to 1.3 million. The position gave Manzullo a platform to raise the profile of the problems in industry, and he took advantage, conducting almost 60 hearings to investigate the causes of the free fall and attempt to formulate solutions.

Voices like Manzullo''s soon joined a chorus of displaced workers and trade associations like the Society of the Plastics Industry (SPI), the American Mold Builders Assn. (AMBA), and the National Assn. of Manufacturers (NAM), all of whose primary weapon in their battle for regulatory attention was the harrowing statistics of American manufacturing''s steady decline:

Nearly 3 million jobs lost since June 2000 43 straight months of job losses within manufacturing A $541.8-billion trade deficit in 2003 (up 12.7% from $480.9 bil- lion in 2002) A decrease in total manufacturing GDP from 17.4% of total GDP in 1995 to 14.1% in 2001 The numbers within the plastics industry were equally damning, as employment fell 9% from 2001 to 2002, with Illinois'' dropping 10%, according to the SPI. The trade association also says an $894 million trade surplus in plastic products as recently as 2002 has turned into a $1.4 billion deficit. The harder question, in an environment where outsourcing has become a bad word and China feeds fears in a manner not seen since Japan''s exporting rise in the ''80s, is what should the government do, if anything, to come to the aid of manufacturing? Some would argue this issue is thornier given America''s free-market mantle, which says government should not interfere with business. "That statement would be true," Manzullo explains, "if our competitors also followed the same rules; but we don''t have a free-market economy anymore internationally. It''s all managed trade. Like it or not, that''s the way it is, and either you try to compete with an economics book, or you get in there, battle it out, draw your sword, and go nose-to-nose with these guys." Before going nose-to-nose with foreign competition, the government has acted on several fronts, which could ultimately affect plastics processors. First, it has formed a new council within the Department of Commerce (DOC) to monitor manufacturing. Second, it has instituted a sweeping review of regulations affecting industry to see which are unnecessarily punitive and review recommendations for changes. Finally, Manzullo and other members of Congress have authored reams of legislation designed to benefit manufacturers. Government aid Using a series of roundtables with manufacturers across the U.S. last year, the DOC authored a report that offers manufacturing-friendly policy and contains more than 50 recommendations from manufacturers themselves. The Bush administration has nominated Al Frink to serve as the new Assistant Secretary of Manufacturing and Services, who is tasked with finding ways to expand manufacturing, create jobs, and improve competitiveness in the global economy. In addition, a Manufacturing Council to the President is being created, as well as an Office of Industry Analysis, which will monitor trends and address tax laws, health care costs, and R&D funding. An Unfair Trade Task Force within the Import Administration will investigate foreign government practices, with the ultimate goal of assisting U.S. manufacturers before they''re irreparably harmed. The group is currently monitoring the top 30 import categories from China to determine possible injury. Finally, a Trade Agreement Enforcement Unit will examine unfair trade practices and work to protect intellectual property rights. To assess the economic impact of current regulations on manufacturing, the Office of Management and Budget (OMB) has created a draft report entitled 2004 Report to Congress on the Costs and Benefits of Regulation. A final report with reform initiatives will be published later this year after public comment and peer and interagency review. The draft report separated regulations into three categories: economic, tax, and social. The latter includes environmental and workplace rules subcategories. Manufacturing was found to bear the highest regulatory burden, with environmental regulations annually costing an average of $206,000 per firm, or $3700 per employee. The study examined a 17-year period from 1987 to 1993, finding that social regulations used to improve public health, safety, and the environment added a total cost burden of $95 billion industry wide, which breaks down to $5.6 billion per year. Along these same lines, NAM conducted a study last year, which found that external, nonproduction costs added approximately 22% to unit labor costs for U.S. manufacturers, or almost $5 per hour worked relative to foreign competition. The extra costs derived from corporate taxes, employee benefits, tort litigation, regulatory compliance, and energy pricing. (Editor''s note: Look for more coverage of NAM''s report in the July issue.) In spite of these data, the OMB found that compared to 130 other countries, the U.S. was among the 10 least-regulated economies, along with Hong Kong, Singapore, New Zealand, England, Canada, Switzerland, Ireland, Australia, and the Netherlands. On the legislative front, Manzullo has created an American Jobs Agenda, which consists of 17 points of emphasis and supports seven existing bills within the House of Representatives. The bills touch on a variety of issues, including health care costs, regulatory burdens, corporate tax relief, countervailing trade actions, and currency manipulation. As far as the chances of getting anything passed, Manzullo says, "In this atmosphere, tying to get more exports overseas and less of the impact of cheap imports, anything''s possible." According to The Wall Street Journal, there are now more than 100 anti-outsourcing bills before Congress and state legislatures, as politicians from 33 states work to pass "Buy American" laws. The voting booth Things are likely to reach a fever pitch as November and the presidential election near. President Bush has made numerous stops in Rust Belt states like Pennsylvania, Michigan, Ohio, and Illinois, which have all seen their strong plastics industries suffer. His challenger, Senator John Kerry of Massachusetts, has joined the fray, promising to place a 120-day moratorium on existing free-trade agreements the U.S. is involved in to investigate for damages. Little of this will matter, Manzullo says, if things continue the way they have. "People still vote with their pocketbooks," Manzullo says, "and you can have all the presidential appearances you want, but unless people are working, they''re not going to have any incentive to try to keep an incumbent president. It''s going to have a huge impact." TD German processors balk at regulatory red tape ''Out of control'' is how many processors view the current state of government regulation. In Europe''s plastics processing powerhouse, there is plenty to complain about, even if, as many admit, Germans often like to complain about their lot. But their situation may resemble conditions for processors in other countries. Take, for example, compulsory workmen''s compensation covering on-the-job safety. The current law stems from the Bismarck era in 1884, and mandates that each German plant obtain coverage from a single state-regulated organization, which in the case of plastics processors is an insurance association for the chemical industry: the BG Chemie. Michael Trapp, managing director of engineering for plastics compounder Sattler KunststoffWerk (Muhlheim am Main), has had a taste of how the rules work for his company. In 2001, the BG Chemie collected an annual premium of €14,128.17 to cover the safety of his 16 employees. This was almost 75% more than in 2000. Trapp says the BG Chemie based the increase on a single, work-related injury, which occurred when a Sattler worker tried to disassemble a machine part. The crowbar he was using ricocheted and hit him on the head, causing a cut that required three days bed rest on doctor''s orders. Trapp says he sees no relationship between the magnitude of the accident and its consequences. "Only in a situation where a monopoly dictates the outcome of a trifle costing no more than €300 in medical charges could such an extreme premium increase from one year to the next take place," contends Trapp. "This is endangering the operations of small- to medium-sized processors throughout the country." Erwin Radek, head of the BG Chemie, counters by saying that privately operated plans would not necessarily guarantee lower rates or more efficiency. He points to privately financed workers'' accident insurance plans in the U.S., which saw a 50% increase in premiums over the last three years. Trapp''s request to the BG Chemie to reconsider the increase was rejected. He has since appealed to a Frankfurt court in a test case, seeking to be freed from compulsory participation in the BG Chemie''s insurance program and instead seek worker''s compensation on the open market. Processors canvassed for this report said they believe the BG Chemie fears losing its monopoly power to dictate accident premiums. As Modern Plastics went to press, the court''s decision was pending. Good trainees hard to find German processors also may be facing new laws that put the pinch on their operations. Their processor association, GKV (Frankfurt), has taken up the battle against a proposal to slap a compulsory charge on operations if the government believes they do not recruit and train enough new workers. The country was stung two years ago by results of the worldwide PISA (Program for International Student Assessment) study of pupils'' learning ability. Germany, which has long prided itself on its education and apprenticeship systems, came in at 22 out of a total of 43 countries studied. Suddenly something had to be done and GKV president Reinhard Proske feels that the country''s business community was made a scapegoat. Politicians started claiming companies were failing to do their fair share of training; parents complained that there were inadequate apprenticeships available for their children. Consequently, the government has proposed taxing companies that fail to train young people for new jobs. At press time, the measure was still in discussion. Processors see themselves unfairly treated by the new measure. Ulf Kelterborn, spokesman for the GKV, says that if processors are unable to find enough young people with adequate qualifications, or a youth starts a program but quits after a few months, the companies are taxed as if they have not fulfilled their obligations. Sattler KunststoffWerk''s Trapp says he has had plenty of experience training young people, and it has not always been good. "Often the pupils we get have downright awful qualifications in spelling, grammar, and simple math. I''ve even had to teach some of them how to use a dictionary," Trapp says. "How are we supposed to train young people in our trade when the schools can''t provide us with young people who have a minimum of qualifications needed for work in the real world?" GKV''s Proske says the country''s processors are sinking in a sea of over-regulation, making them less competitive than their counterparts abroad. BC Seaport security measures threaten to squeeze trade With an implementation deadline of July 1 looming, America''s seaports are scrambling to meet the heightened security standards called for by the Maritime Transportation Security Act of 2002 (MTSA). The legislation, which was signed by President Bush in November 2002 in response to the Sept. 11 attacks, threatens to create a giant kink in the global supply chain; ports that are not in compliance could face fines, while vessels having visited those ports risk expulsion or denial of entry. Even a mild interruption would reverberate throughout the global economy: Each year, America''s 361 seaports process 9 million containers, accounting for 95% of overseas trade. More than 8000 foreign vessels make 50,000 port calls carrying import and export cargo. Calling for more security officers, screening equipment, and security infrastructure at ports, the measure requires sensitive areas to have restricted access—granting clearance only to individuals who have undergone background checks—and states that seafarers will be required to carry internationally acceptable identification. The American Assn. of Port Authorities (AAPA) estimates that implementing the measure during the next 10 years will cost $5.4 billion, and without full funding secured, a July 1 shutdown of non-complying ports could affect an estimated 10,000 vessels, 5000 facilities, and 40 outer-continental shelf areas. Homeland Security Secretary Tom Ridge tried to allay funding and logistics fears at an AAPA conference in March, telling members that the government has hired hundreds of new inspectors and equipped them with new equipment like gamma-ray inspection machines that can scan a container in 2 to 3 minutes. "To ensure that the flow of commerce is not impeded by these new measures," Ridge told the conference, "more than 5000 companies have partnered with us under our Customs-Trade Partnership Against Terrorism. We work with them to the reach a higher degree of security across their entire supply chain." As part of the program, companies can qualify for "FAST" lane access at ports, and reduced inspections. Overall cost of implementation for the act remains a concern—despite $8 billion in grants the federal government has supplied—with the AAPA campaigning to secure $400 million in funding in the 2005 federal budget. Beyond those costs, Ridge acknowledged to the AAPA audience the complexity of the task, with a quip about the globally integrated nature of shipping, and the potential hang-ups it raises. "Not long after I became the President''s Homeland Security Adviser, I boarded a ship in New Orleans Harbor," Ridge said. "The vessel was registered in Singapore; the crew was from India; and the cargo was American grain, on its way to Japan." The extent to which this remains the case will soon be seen. TD Fighting the good fight for the EU''s processors Lobbying for plastics processing in the multilingual, multicultural European Union is tough, admits Alexandre Dangis, managing director of the European Plastics Converters association (EuPC; Brussels, Belgium). But changes to the draft REACH legislation are a recent, significant success. "The European political carousel is very hard to keep track of," Dangis explains. "When you talk to the [European] Commission you can have solid discussions and use facts and figures. But in the Parliament it is much more political, so obviously it''s much more critical to ensure efficient lobbying is taking place there." New Parliamentary legislators have just been elected, so he does not yet hazard a guess whether current political winds blow for or against processors. The REACH legislation itself calls for application risk assessments on a wide range of new and existing chemicals produced or imported into the European Union before a chemical can be used, or, if already existing, before it can continue to be used. What remains uncertain is who along the supply and use chain will be responsible for this risk assessment, and whether or not plastic materials fall within the scope of the legislation. Despite the difficulty of changing lawmakers'' minds, Dangis says his organization more than punches its weight and points to changes in the REACH legislation as a recent victory. "We''ve influenced previous drafts that were never publicized. There was real improvement between the earlier Internet consultation report and the final draft [October 2003]," he says. "The major concern of the EuPC was to shift responsibility [for proving materials'' safety] to the suppliers of chemicals" and to ensure a level playing field for plastics (compared to other materials) in EU waste management targets, goals that he says are realized in the current draft. One significant change in REACH has been the deletion of polymers from the list of materials whose assessment is mandated. Still, Dangis notes the issue is not settled yet as the Commission left wording in the draft allowing it to later add polymers, once it has had time to consider its decision. Dangis says the current draft, being evaluated at the Parliament and by member states, still has significant issues for processors. These include ensuring that costs of the certification process do not cascade from suppliers onto processors in the form of higher material pricing, making processors less competitive "and essentially favoring imported semi-finished goods over ones made in the EU," he notes. The EuPC is also concerned that suppliers may simply stop supplying some materials to avoid assessing them, forcing processors to find alternatives that may be more costly, less effective, or simply nonexistent. A major concern also is the inclusion of a definition of compounds, masterbatches, and recyclate, and wording specifically exempting recyclate from testing requirements. "Now it''s not clear if recyclate is in or out of the legislation. If they are not specifically exempted, that will be the end of the plastics recycling market in Europe," he says. A significant portion of the EuPC''s efforts still involve teaching legislators what plastics processing is, and making clear to them that it involves about 1.5 million employees. Most legislators, he notes, rarely give a thought to where plastic parts and products come from; they are somewhat familiar with the chemicals and plastics supply industries, and the end-use industries such as packaging and automotive, but do not have a clear picture of the intermediate processing that is required. "It''s certainly not easy," Dangis explains. "They only think of plastics when they see it on the street as litter. We need to convince them that we are working toward sustainability." To that end, the EuPC, in concert with its members, intends to develop more projects like the PVC industry''s Vinyl 2010 effort. "We don''t just want communications and PR campaigns; we need real projects with real targets, because if we don''t set them, then they [legislators] will." MD Coming soon: An updated ANSI standard for HIMMs Revisions also address newer technologies such as all-electric, two-platen, and processing equipment with more than one injection unit. The Society of the Plastics Industry (SPI; Washington, DC) is at work, revising a significant injection molding machine safety standard to address designs not covered in the current version. "The standard calls out appropriate guarding measures for the hazards that have been identified," says Walt Bishop, executive director, SPI Machinery, Molders & Moldmakers Divs. SPI''s Injection Molding Section, Standards Development Committee of the Machinery Div., and Safety Committee of the Molders Div. are drafting the revised ANSI/SPI B151.1 standard, created to minimize hazards to personnel associated with the manufacture, care, and use of horizontal injection molding machines (HIMMs) operated in the United States. Newer technologies, such as all-electric, two-platen, and equipment with more than one injection unit will be specifically addressed for the first time. (ANSI stands for the American National Standards Institute, a Washington, DC-based nonprofit organization that administers and coordinates the U.S. voluntary standardization and conformity assessment system.) The revision would set minimum safety requirements for HIMMs, primarily focused on access guarding and machine safety interlocks for units built on or before 2004. When a final draft is complete, it will be circulated by SPI to the injection molding community for its input. "Once the input from the molding community is received, the SPI standards development committee will review the comments and respond and adjust as required," Bishop says. Safety requirements for the manufacture, care, and use of ancillary equipment for HIMMs are not covered. Revising the standard is no easy task, considering the wide variety and sizes of machines manufactured and in use, and by the virtually infinite combinations of parts being produced, the production methods used, and operating conditions. Several key sections have yet to be finalized and are subject to change within the working committee. A copy of the working draft obtained by Modern Plastics indicates the standard is being revised to: Address machine designs not specifically covered in the current version Better describe the requirements by addressing each of the "Requests for Interpretation" generated by the current standard Quantify requirements, where possible, to facilitate compliance by equipment manufacturer and user Add additional safety information in an appendix Harmonize standards for HIMMs Consequences, disagreement Although ANSI standards are not government mandates, U.S. Occupational, Safety & Health Administration (OSHA) inspectors frequently refer to them during plant inspections and accident investigations. "OSHA field inspectors use the safety standards that are developed by SPI as a supplement to the OSHA General Guarding Requirements," Bishop explains. "Typically, when a revision to a new standard is issued, it is expected that existing installations have been brought into compliance with previous iterations of the document." All remanufactured/rebuilt machines are expected to comply with the prevailing standards. When it comes to whether the latest ANSI safety standard for molding machines merits the cost of compliance, many agree to disagree, which comes as no surprise given the potential impacts on the bottom line. "Existing machines 20 to 25 years old and running have been performing admirably for many years," notes Carl Irick, director of engineering at Epco LLC (Fremont, OH), a machinery and engineering services firm for injection molding, blowmolding, thermoforming, extrusion, and die casting. "The argument is, do we have the right and authority in the U.S. in what we call ''suggestive standards,'' which are not part of any law, to do that?" The 1997 standard reportedly cost OEMs more to build conformity into new presses. At the same time, bringing existing presses into compliance added to the cost by slowing production, a disastrous consequence considering ever-shrinking lead times. "It can be awfully expensive to comply with some of the proposals," Irick explains. He serves on the Standards Development Committee. Bishop contends that the 2004 standard will have minimal impact on users and therefore require very small adjustments to bring machinery into compliance. "The 1997 version was much more sweeping and therefore the costs associated with that edition were significantly higher," he says. The proposed draft contains an added section for electric IMMs."Concerns are addressed regarding dynamics of the clamp drive mechanisms, such as sudden stopping by an operator opening the safety gate, which would deploy a mechanical device required in the 1997 version," Irick says. "One solution discussed is for a latch keeping the gate closed until motion is stopped [time-delay/sensor interlocked] and deploy the ratchet mechanical device to obstruct mold closing." The committee is addressing whether additional safeguards are necessary when making mold changes, an area situated behind the movable platen on large two-platen machines. "We could see as a standards group there is access behind the movable platens, whereas on other machines, you either have hydraulic motors, a big hydraulic cylinder, or other components back there," observes Loren Mills, manager, product safety, Demag Plastics Group (Strongsville, OH) and a member of the committees drafting the revised ANSI/SPI B151.1 standard. "You have to address how a person can get into a two-platen machine and whether you need emergency stop buttons." Recognizing the impossibility of updating equipment and changing operation methods allied with existing machines immediately after approval date of this document, a period will be provided to employers for updating machines. Machinery makers will have one year to start producing machines compliant with the standard, and existing installations have three years to bring them up to compliance, Bishop says. SPI hopes to have the document completed and ready for submittal to ANSI for review by the end of the summer. GV In practice, REACH proves problematic A test case in the German state of North Rhein-Westfalia (NRW) has shown how problematic the European Union''s REACH program may prove for plastics processors. NRW, one of Germany''s most industrialized states, asked to be a test case for the REACH program and was helped in conducting the test by a group of governmental and non-governmental agencies, as well as manufacturing firms in four industries, among them plastics processing. The state chose plastics because of its importance to the local economy, explains Rudiger Baunemann, director the German plastics suppliers association VKE (Frankfurt). With the test, he says, "We wanted to see what REACH would really do to the industry." The project received the sort of priority uncommon to many government projects, facilitating organization and completion in a short time span: September to December 2003. The goal was for industry and agencies to "play REACH," and by so doing, qualitatively discern what the real-world effects might be. They were near catastrophic. HT Troplast (Troisdorf), one of Europe''s largest plastics processors serving the building and construction industries, was the plastics guinea pig. Even a firm of this size, notes Baunemann, was swamped by both the level of work and the investment in personnel and tracking systems that would be entailed to implement REACH. For the NRW state government the results were just as bleak as it realized by test''s end that it would need to add masses of agency employees to handle the additional work created by REACH applications, a difficult step in times of budget cuts, notes Baunemann. Now CEFIC, the trade group representing Europe''s chemical supply industry, hopes to run a pan-European test similar to the one conducted by NRW. Baunemann says he spends much of his time visiting German processors to encourage them to speak with their government representatives about REACH. "Many processors are not showing concern yet. They''ve heard that polymers will not be covered by REACH and stopped worrying," he explains. But in fact many will be affected, primarily by the legislation''s close look at numerous additives used in the plastics industry, he says. According to the VKE, additive sales in the European plastics industry totaled €3.72 billion in 2001, the last year for which data is available. European additive use accounted for about 25% of global use. MD

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