U.S. Chemical Industry Trade Group Urges Caution in NAFTA Trade Talks

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Researched by Industrial Info Resources (Sugar Land, Texas)--As negotiations continue over the North American Free Trade Agreement (NAFTA), the American Chemistry Council (ACC) says modifying the trade pact could help boost U.S. chemical exports to Canada and Mexico. On the other hand, shelving NAFTA could reduce U.S. chemical exports to its neighboring countries by as much as $22 billion, the ACC warns.

Negotiations between the U.S., Canada and Mexico have been underway since President Donald Trump charged that the U.S. manufacturing sector has greatly suffered under the trade agreement, which entered into force in 1994.

According to the ACC, however, NAFTA has been very good for the U.S. Chemical Processing Industry. U.S. chemical exports to Canada and Mexico have grown from $13 billion in 1994 to $44 billion in 2018, according to a newly released ACC report. Those exports are projected to increase to $59 billion by 2025. New exports of shale-derived, cost-advantaged chemicals and plastics will reach $30 billion by 2025, $13 billion of which will go to Canada and Mexico, according to the report.

In 2016, the chemical industry saved $700 million in tariff relief on exports, and $800 million in tariff relief on imports, as a result of NAFTA, ACC President and Chief Executive Officer Cal Dooley said in a press release last week.

"NAFTA has worked for American chemistry, and in return, ACC members have made NAFTA work for Americans," Dooley added. "46,000 chemical industry jobs now depend on chemicals trade with Canada and Mexico."

Among other things, the chemical industry trade group is calling for maintenance of duty-free trade for all qualifying chemical products in the NAFTA region. The ACC's NAFTA modernization recommendations include bringing rules of origin (which are used to determine the country of origin) into line with rules adopted in more recent U.S. trade agreements in order to promote more trade transparency. The ACC is also calling for promotion of digital trade to reduce paperwork and protect data flows as well as to modernize transport and security.

Scrapping NAFTA, however, could reduce U.S. chemical exports to Canada and Mexico by as much as $22 billion, or 45% of the current exports, as tariffs would make exports more expensive and cause U.S. manufacturers to lose their competitive advantage, according to the ACC. A U.S. withdrawal from the trade agreement would create a tariff of up to $9 billion on U.S. chemical exports to Canada and Mexico, the report said.

Scrapping the trade agreement also would open the door for low-cost producers in China to import more material to Canada and Mexico, according to the report.

Industrial Info is tracking more than $167 billion in active chemical industry capital projects in North America, including $147.7 billion in the U.S., $13.7 billion in Canada and $5.6 billion in Mexico. Forty-seven of the projects are each valued at $1 billion or more. More than $31.7 billion in project activity is in the construction stage, with the remaining amount in planning or engineering.

In the U.S., one of the highest-valued chemical projects under construction is the Lake Charles Chemical Project (LCCP) in Louisiana. Sasol Limited (NYSE:SSL) (Johannesburg, South Africa) recently reported it has so far spent $8.8 billion on the $11.2 billion project, which includes an ethane cracker and several downstream units. For more information, see February 27, 2018, article - Sasol Maintains Focus on Louisiana Petchem Project, 81% Complete.

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