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Volume 41,   Issue 1      January 2006

    The Effects of NAFTA on the Glass Industry and Where do We Go Next

by Ellen Giard

Editor’s note: This article is the first in a feature series that will look at the glass industry and international markets. Here, we explore the impact that NAFTA had on the industry in North America. In our next installment we will look closer at the impending effects of the growing Chinese glass industry.

Twelve years ago North America saw the implementation of the North American Free Trade Agreement (NAFTA). NAFTA promised many things: more jobs, a better standard of living and environmental conditions. It also promised to make Mexico the “it” market for U.S. exports. Still, NAFTA had its fair share of opponents, who argued that NAFTA would lower labor and environmental standards and take away numerous U.S. jobs. Twelve years later, you may wonder: did NAFTA work for the glass industry and was Mexico really our biggest concern?

According to the U.S. Department of Commerce (DOC)/International Trade Administration (ITA), NAFTA did, in fact, work. According to the DOC “NAFTA-related trade and investment liberalization allowed U.S. firms to maximize efficiencies, remain globally competitive and increase sales and exports.” In fact, DOC statistics show that between 1993 and 2003 U.S. exports to NAFTA partners were greater than U.S. exports to other countries worldwide. The DOC reported that in 2003 U.S. exports totaled $651.4 billion. This figured included $83.1 billion to Mexico and $148.7 billion to Canada. The DOC/ITA also reported that in 2002, United States firms captured 63 percent of Mexico’s total imports and 61 percent of Canada’s. 

So yes, based on these figures, it would seem that NAFTA was a success; it opened the doors of free trade and provided many business opportunities for North America. But what did it do for the glass industry?

The Home Front 

For glass companies, NAFTA’s effects were minimal.

“NAFTA was not really a plus or minus for wholesale/distribution type companies,” says René Bergero, export sales manager for Sommer & Maca Industries in Cicero, Ill. “It was more for those who are always searching for the lowest manufacturing cost.” He adds that if glass companies benefited from NAFTA, they, most likely, were those that bring some kind of added value to the product; companies such as float manufacturers, fabricators and mirror producers. 

Fred Wallin, vice president of marketing for AFG Industries in Kingsport, Tenn., says NAFTA had a negligible affect on his company’s operations.

“With two float plants in Canada (one is now closed), we have always had a close relationship with our Canadian customers, employees and vendors,” says Wallin. “Mexico is the largest exporter of float glass to the United States and since we have been trading partners for years, the effect on the general market has been mitigated over the years. The major effect has been the moving of manufacturing from the United States to Mexico. As labor intensive manufacturing entities search for lower labor costs, Mexico will feel many of the same pressures United States manufacturers have felt from competition from China.”

Joe Effertz, business developer for international markets for Viracon out of Owatonna, Minn., also says NAFTA did not greatly affect their business as a high-performance glass fabricator. 

“NAFTA opened up and reduced the tariffs. Before, tariffs were 10 to 15 percent, now they are .5 percent,” says Effertz. Despite this opportunity, he adds, the demand for high-performance glass in Mexico is minimal. “The economy [in Mexico] is really not that strong for value-added glass … there’s not much business going on there; there’s construction, but it’s just not as value-added as it is here.

Business in the mirror/furniture sector is also in alignment with what the float manufacturers and fabricators are seeing.

“Glasscraft moved its plant from Memphis, Tenn., to Mexico, and became a bit more aggressive on prices for heavy glass tabletops,” says Drew Mayberry, president of Lenoir Mirror Co. of Lenoir, N.C. “Sentek, out of Monterrey, Mexico, captured a portion of the fabricated mirror business, selling to medicine cabinet producers. Occasionally, there have been reports of stock sheet mirrors coming from Central America, but none of these developments have had near the impact on our segment of the glass business as the more recent China syndrome.” 

Was it Good For You?

While NAFTA promised (and delivered to some industries) many great benefits, the benefits for glass businesses were minimal.

“After NAFTA we noticed a lessening of paperwork,” says Bergero. “The ease to import into the United States is much less complicated than it is to import into Mexico.” He continues, “One reason is that Mexico has the VAT tax, which means about a 15-percent tax is added on to anything brought in to the country.” He adds that NAFTA did make small, day-to-day exports easier, because before [NAFTA] anything and everything being shipped had to have an exemption certificate.

“Now if the value of the goods is below $1000 it just needs the NAFTA declaration that it is exempt from the taxes.”

Wallin says the greatest benefit he has seen has been the support and growth of the Mexican economy.

“GDP, inflation, employment and currency stability all improved. These are key factors in making Mexico an important partner for U.S. manufacturers and service providers,” Wallin says. “A strong, growing Mexico is essential for stability and growth in North America. The one thing NAFTA has not solved, though, is the difficulty in getting trucks through the border. This has never been a problem with Canada, and it raises the cost of doing business and the level of frustration in trying to work together.”

Wallin continued, “Currently, trucks shipping products from Mexico to the United States must be inspected at a border crossing, which can take 4-8 hours per truck. The Department of Homeland Security has initiated a certification program that includes both senders and receivers of shipments called ‘C-TPAT,’ which allows certified shippers to use expedited lanes. This process takes about a year to be completed. It is also complicated because Mexican truck drivers are not licensed in the United States and the truck must be transferred to a U.S.-licensed driver at the border. We certainly support the security efforts of our government, but there is a cost and service can suffer.”

Did Business Change?

NAFTA did lead some companies to open plants and factories in Mexico. This is one change, many agree, that lead to an increase in competition. 

“As NAFTA took effect during the mid 1990s we had to compete with new developments [i.e. aggressive pricing],” says Mayberry. “We lost a portion of our heavy glass fabrication we had been supplying,” he says, but adds that he does not consider the impact significant. 

Another business practice that flourished after NAFTA was the start-up of maquiladoras. Located in the Mexican towns that near the U.S. boarder, a maquiladora is an assembly or manufacturing operation, partly or entirely owned and managed by non-Mexicans. Maquiladoras use Mexican labor to assemble, process or perform manufacturing operations; they temporarily import component parts and then export the finished product. In other words, no finished product stays in Mexico.

“A maquiladora does the value-added operations for a company,” explains Bergero. “It is a back-and-forth flow that was covered under NAFTA. Companies only had to pay the transportation costs,” adding, “The maquiladora had a good run until the Asian boom five or six years ago; Asia killed that business.”

As far as glass products, Bergero explains that those companies focused on the consumer products industry were the ones who benefited most from the maquiladora operation—picture frames, sconces, appliance parts (i.e. refrigerators shelves). “That’s all pretty much done in Asia now.” 

While the majority of this work may have moved offshore, the concept is still there. According to sources, some of the United States’ large glazing contractors are starting to partner with Mexican firms to set-up unitized fabrication plants there where materials will be fabricated and then shipped back to the States for installation. (Editor’s note: at press time, USGlass was unable to find glazing contractors willing to confirm such operations.)

One Word: China

With not only the glass industry, but industries across the board suffering today, it’s impossible to speak of imports and exports and not mention China. 

And this Chinese growth is not only affecting U.S. manufacturers, but those in Mexico, as well.

“I think the mirror and fabricated glass producers in Mexico are suffering as much from the advent of Chinese products as we [in the United States] are,” says Mayberry. “Prior to 2000, some companies that marketed framed mirrors were out-sourcing them to Mexico; now they are out-sourcing them to China.” He continues, “The labor advantage that the Mexican producers have compared to the those of us in the United States is small compared to the Chinese.”

What Next?

North America has known NAFTA for 12 years now. Some of what NAFTA brought has been good and some not so good. If there was ever a fear of losing jobs to Mexico, that fear has subsided. China is today’s concern, as manufacturing continues to move there, thanks to cheap labor and minimal costs.

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