Unions, environmentalists and other anti-globalization activists have a beef with the movement toward an Americas free trade agreement. President Bush and other pro-big business politicians favor it.
Where does that leave the rubber industry? In a mixed situation.
Economists have varying views about the details, but agree the overall impact of a Western Hemisphere free trade zone to the U.S. would be positive. The removal of trade barriers within North and South America would foster trade between the nations, and many economists feel developed nations like the U.S. and Canada would be the major beneficiaries.
For the rubber business, an extended NAFTA-like agreement is bound to help larger companies constricted by trade policies designed to protect local businesses. The largest tire and automotive goods, synthetic rubber and chemical concerns already have a presence in Latin America. These businesses serve the local markets, but the companies also take advantage of lower labor rates to export goods to North America, as has been the case particularly with tire companies.
The other side of the coin for the rubber industry is that when tariff protection is lifted, North American industries that can't compete on cost will lose. The historical example for rubber companies is what happened to the footwear business in the early 1980s. As cheaper-made imports flooded the U.S. market—often produced by U.S.-based companies—the Reagan administration refused to impose protective duties, preferring to sacrifice American footwear manufacturing to free trade.
For globalized rubber companies, such a scenario is hardly threatening. But for a small company that makes a rubber product that can be duplicated at lower cost in Latin America, the result could be devastating.
A hemispheric free trade zone seems inevitable, although at minimum several years off. Smaller North American rubber companies had best ensure their uniqueness, in products, service or price, or else face a bleak future.