U.S. Office of Manufacturing and Services on unfair pricing, global competition

VentureOutsource.com shares this exclusive interview with Rear Admiral William G. Sutton, CAE, U.S. Navy (Ret.), Assistant Secretary, Manufacturing and Services, U.S. Commerce Department, International Trade Administration.

Read what Assistant Secretary Sutton says about sustainable manufacturing; America's competitiveness, what executives should do if they suspect unfair foreign pricing and illegal subsidy practices, offshoring, and more. Transcripts from that discussion follow.

VentureOutsource.com: The subject of sustainable manufacturing is becoming more prominent in manufacturing company board rooms across the U.S. There is more driving this shift toward sustainability than manufacturing companies simply incorporating eco-efficient technologies and engineering practices. What are five (5) ways the Office of Manufacturing and Services currently sees electronics manufacturing companies, in particular, moving their companies toward achieving sustainable manufacturing?

Asst. Secretary Sutton: Manufacturing and Services (MAS) has initiated the Sustainable Manufacturing Initiative. This initiative is designed to identify U.S. industries' most pressing sustainable manufacturing challenges and to coordinate public / private sector efforts to address those challenges.

Recently, we held a public / private workshop to obtain industry input for sustainable manufacturing. More than 70 U.S. companies and industry associations shared their experiences and knowledge of the issue.

Based on these discussions, one of the most interesting discoveries was that sustainable manufacturing remains difficult to define.

Industry experts, manufacturers, and policy makers still don't have a unified, agreed-upon definition of sustainable manufacturing.

But we're getting closer and MAS is directing a number of efforts that respond to U.S. industry suggestions and help to define the issue.

For example, MAS has created this Website, which is the first online clearinghouse of U.S. government programs and resources that support sustainable business.

William G. Sutton, CAE Rear Admiral, U.S. Navy (Ret.) Assistant Secretary Manufacturing and Services International Trade Administration U.S. Commerce Department

Regarding what can companies do to move toward more sustainable manufacturing, the U.S. semiconductor industry, for example, is taking the following steps:

• Reducing energy and water consumption

• Utilizing the Leadership in Energy and Environmental Design (LEED) rating system

• Working with the Environmental Protection Agency (EPA) Green Partners Program

• Helping the application of solar energy by leveraging their knowledge of silicon materials and manufacturing processes

VentureOutsource.com: Several decades ago, foreign governments sought help from the U.S. on how to become competitive in their regional markets and abroad. Many of these governments executed what they learned and now U.S. companies / industries face real competition abroad. Can you please discuss, in general, three (3) things you feel every U.S. manufacturing company (electronics or otherwise) should be doing to effectively navigate global markets and remain competitive?

Asst. Secretary Sutton: U.S. manufacturers are succeeding in the global marketplace, but they shouldn't retreat at the first sign of competition from other countries.

I've visited plants of all shapes, sizes, and levels of sophistication; from mom and pop operations to large highly productive global conglomerates. I always see one common thread: U.S manufacturers can compete with anybody, given a level playing field.

Based on what I've seen, I would say manufacturers have to adapt to challenges posed by the domestic and global marketplace. One critical way to adapt to these challenges is through innovation. Manufacturers that continue to innovate often find themselves leading the world in their particular sector(s).

I would also encourage manufacturers to enter foreign markets; engage in the global economy, and take advantage of opportunities opened through free trade. Although the countries that we have Free Trade Agreements with make up roughly 7.5 percent of world GDP, they purchase more than 42 percent of our exports.

Foreign markets are sources of both competition and opportunity. With roughly 300 million American citizens living in a world of almost seven billion people, 95 percent of potential customers for American goods and services live outside the United States.

VentureOutsource.com: What is the Office of Manufacturing and Services doing to help promote free trade with Korea as such relates to Korean electronics companies engaging U.S. electronics companies? How will such actions by the Office benefit U.S. technology companies? What challenges are the rising Korean won and declining U.S. dollar adding to all of this?

Asst. Secretary Sutton: Manufacturing and Services industry analysts worked with colleagues throughout the International Trade Administration and in the Office of the United States Trade Representative (USTR) to ensure U.S. industry views were taken into consideration during negotiation of the U.S. - Korea Free Trade Agreement (KORUS FTA).

MAS is now involved in a number of outreach efforts to promote the benefits of free trade with Korea, including company visits, participation at industry events and, working with trade associations to highlight the benefit to the U.S. economy of the KORUS FTA and to build support for its passage by the Congress.

The KORUS FTA will provide several benefits for U.S. electronics manufacturers. Tariffs on high-priority U.S. exports will be eliminated immediately upon its implementation. Many of these products are not covered by the multilateral Information Technology Agreement, signed by both countries in 1996.

Historically, U.S. firms have had difficulty entering the Korean market because of government policies that limit technology choice, contributing to a $6 billion deficit in telecommunications equipment trade. Export opportunities continue to exist, especially as South Korea invests in next generation wireless networks and devices.

Implementation of the KORUS FTA will benefit U.S. telecommunications companies by establishing greater market access to, and use of, telecom networks thus promoting the build-out of communications infrastructure, and encouraging further bilateral investment. The Agreement has additional provisions covering services delivered in connection with, or by means of, the networks.

As for the currency issue, I won't go into great detail because it's more appropriately addressed by Treasury and the White House. But I'd like to underscore the increased exports to Korea of U.S. manufactured goods, including electronics. The value of the U.S. dollar certainly doesn't hurt this.

Korea is one of our largest markets for semiconductors and semiconductor manufacturing equipment. The United States exported more than $4.5 billion worth of semiconductors and $2.2 billion in semiconductor equipment to Korea in 2006. Furthermore, dollar-denominated assets become cheaper for foreign investors. Korean semiconductor companies have also made several investments in the United States.

VentureOutsource.com: Some countries are accused of unfair foreign pricing and unfair government subsidies. Such actions can distort the free flow of goods and adversely impact U.S. manufacturers competing in global markets. How prevalent are such practices? What are some ways U.S. manufacturing executives can identify whether or not a foreign government might be influencing unfair pricing practices? When spotted, what should U.S. manufacturing executives do?

Asst. Secretary Sutton: Unfortunately, unfair foreign pricing and government subsidies are common and may hinder the competitiveness of American companies. These practices impact the free flow of goods and can adversely affect the global marketplace.

When U.S. manufacturing companies suspect they are being harmed by unfair pricing and subsidies, they should report it to the International Trade Administration's (ITA) Import Administration (IA).

IA enforces trade laws and agreements to prevent unfairly traded imports, safeguard jobs, and ensure the competitiveness of our industries. Their staff can assist U.S. companies regarding the potential filing of a petition requesting the initiation of an antidumping or countervailing duty investigation under U.S. law.

Reports of other unfair practices can be made to ITA's Trade Compliance Center (TCC). The TCC is the federal government's focal point for monitoring foreign compliance with trade agreements to see that U.S. firms and workers get the maximum benefits from these agreements. It provides U.S. government assistance in resolving the trade barriers or unfair situations American companies may encounter in foreign markets.

VentureOutsource.com: What two (2) changes would you like to see in domestic regulations or domestic policy that could further benefit U.S. electronics manufacturing companies, and the U.S. manufacturing sector, in general? What is the Office of Manufacturing and Services doing to help promote these changes?

Asst. Secretary Sutton: Regulatory agencies don't always take into account the economic impact of their regulations nor do they always reevaluate existing ones. So, I would like to see increased attention by rulemaking agencies on the competitive impacts of existing and proposed regulations. This would help ensure fewer unintended consequences when developing regulations to comply with statutory requirements.

This would greatly benefit U.S. manufacturing and MAS is working to promote these changes.

Our team of industry experts and analysts is currently reviewing nearly two dozen rules that affect manufacturing competitiveness. One example is our contribution to the Occupational Safety and Health Administration's (OSHA) hexavalent chromium rule. Our economic analysis is expected to save industry $287 million per year under this rule. We are engaged on several other rules that may save U.S. industries considerably more.

A domestic policy I would like to see implemented is the full funding of the American Competitiveness Initiative (ACI). This legislation would greatly benefit America's manufacturers, including electronics manufacturers.

Last year, Congress passed legislation that supported ACI. However, lawmakers never followed through with the funding, which is essential to keeping our competitive edge and ensuring that we remain the most dynamic, innovative, and entrepreneurial nation on Earth.

VentureOutsource.com: What are your thoughts when you see U.S. manufacturing companies offshoring some, or all, of their manufacturing overseas once they've determined they can save money by doing so? Are there ways the Office of Manufacturing and Services is working to convince some of these companies offshoring might not be the best way to save money? Please explain.

Asst. Secretary Sutton: I would never tell a company where to invest. Each company is unique: with its own business plan and practices. With that said, offshoring is a complex issue. It can help some companies grow, save money, and become more efficient. Unfortunately, offshoring can also have negative costs, not measured in dollars, but in the price our U.S. workforce pays.

Meanwhile, the practice of offshoring can also provide tremendous opportunities for companies and create more jobs here at home.

I visited one manufacturer outside of Pittsburgh that has grown tremendously because of its decision to offshore. Opening facilities overseas hasn't caused them to reduce their workforce, but just the opposite. They've actually created more jobs here at home by shifting some of their operations to China.

Our goal is to create a domestic environment that causes companies to make smart business decisions, invest here, and think twice before offshoring. We can counter the offshoring trend by correcting domestic policies and regulations that have unintended, negative consequences on our companies.

VentureOutsource.com, March 2008