Status of Manufacturing in NAFTA Region

November 2010*

American Iron and Steel Institute (AISI)Steel Manufacturers Association (SMA)

Specialty Steel Industry of North America (SSINA)Canadian Steel Producers Association (CSPA)

Mexican Steel Producers Association (CANACERO)

USA’s Manufacturing Sector

U. S. Manufacturing Growing Slowly Again, ButManufacturing Trade Deficit Increasing Significantly in 2010

August 2010 Year-to-Date U.S. Trade Deficit in Goods was $ 425 billion

U.S. Trade in Goods DeficitJan.-August 2010 vs. 2009

(252)

(170)

(143) (173)

(450)

(400)(350)

(300)(250)

(200)(150)

(100)(50)

-

2010 2009

$ bi

llions

CHINA ROW

U.S. Manufacturing OutputIndustrial Production

Source: Federal Reserve Board

75

80

85

90

95

JAN

FEB

MAR AP

R

MAY JU

N

JUL

AUG

SEP

OCT

NOV

DEC

JAN

FEB

MAR AP

R

MAY JU

N

JUL

AUG

SEP

2009 2010

Inde

x %

- M

onth

ly

75

80

85

90

95

Manufacturing Output Index

Durable Goods

Source: US Dept of Census

-850

-700

-550

-400

-250

-100

50

200

350

500

Mon

thly

Em

ploy

ee L

oss

(tho

usan

ds)

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH 1ST 2ND 3rd

2008 2009 2010

U.S. Employment monthly +/ -

Manufacturing Employment monthly +/ -

U. S. Manufacturing Workforce Suffered Major Losses in Great Recession

• 26% of job losses in 2008 and 2009 were manufacturing jobs

• 2010 has seen addition of only small number of jobs•U.S. manufacturing lost jobs in August-October period

Source: US Bureau of Labor Statistics

Government Initiatives Directed at Manufacturing Sector

Congressional Actions that Became Law:• The American Reinvestment and Recovery Act (ARRA)• Cash for Clunkers (H.R. 2751)• Miscellaneous Tariff Bills (H.R. 4380)• Small Business Jobs Act (H.R. 5297) – included 50 percent

depreciation bonus for 2010 Pending Congressional Legislation• Multi-Year Transportation and Infrastructure Reauthorization• Tax Extenders (including extension of R&D tax credit)• Extension of 2001, 2003 Bush Tax Cuts• Domestic Manufacturing & Energy Tax Credit Legislation• The Manufacturing Strategy Act of 2010

Government Initiatives Directed at Manufacturing Sector

Administration Programs:• Department of Commerce

• Hollings Manufacturing Extension Partnership (MEP) • Commerce Connect• U.S. export assistance centers• Sustainable Manufacturing Initiative

• Department of Energy• Industrial Technologies Program (R&D funding)

• American Competitiveness Initiative• Sustainable Development Partnerships (SDP)

Manufacturing Industry’s Advocacy

• Establish and enforce trade policies that level international playing field for all manufacturers

• Develop national energy policy that creates low carbon, affordable, abundant energy sources

• Pass multi-year transportation and infrastructure bill and invest in upgrading America’s infrastructure needs through long-term strategy

• Expand the size of collaborative (government and industry) R&D programs that develop “breakthrough” manufacturing processes and invest in R&D programs that promote domestic production of commodities and materials using clean energy technologies

• Eliminate anti-competitive tax policies that inhibit new investment and eliminate domestic regulations that impose excessive, unnecessary-cost burdens on U.S. manufacturers

• Promote greater investment in manufacturing plant and equipment through investment tax credits, accelerated depreciation and more predictable government policies

Canada’s Manufacturing Sector

Current Manufacturing Performance Weak

Source: Statistics Canada

M

AL

RT

FI

WT

Manufacturing Growth will Slow, Unemployment Near National Average (8%)

Government Initiatives Directed at Manufacturing Sector

Federal Government Policy, Program , & Tax Measures

• Infrastructure Stimulus Fund - $4 billion (2009/10-2010/11)

• Significant tax relief for Canadian businesses - $60 billion over 2008-09 to 2012-2013• Lowering of the federal general corporate income tax rate from 22.12% (including the

corporate surtax) in 2007 to 15% in 2012•

• Accelerated Capital Cost Allowance (2-years; expires in 2011)• Recently expand for clean energy generation

• Elimination of remaining tariffs on manufacturing inputs and machinery: creating a ‘Tariff-free Zone’

• Review of Research and Development assistance to business

• Harmonization of federal and provincial sales taxes

• Limited increase in Employment Insurance premiums

Manufacturing Industry’s Advocacy

• Extend 2-year Accelerated Capital Cost Allowance to 2016 and consider making permanent

• Make Scientific Research and Experimental (SR&ED) tax credit refundable and improve administration of program

• Introduce refundable tax credit for investments required for regulatory compliance

• Introduce refundable tax credit for workplace training to offset rising payroll taxes

• Follow through on planned reductions in federal corporate income tax rates and bring average combined federal and provincial rates to 25% by 2010

Mexico’s Manufacturing Sector

14

GDP Recovery: Explained by Manufactured Goods’ Exports

Mexico: Gross Domestic Product, Quarterly, 2008 – 2010 (II)(Annual rate of growth - %)

Source: INEGI

Mexico: Manufactured Exports, 2005 – 2010 (August)(Annual rate of growth - %)

15

But Manufacturing Reaching Inflection Pointand Investment and Employment Not Returning to 2008 Levels

Source: INEGI

Manufacturing Sector, 2006 – 2010 (August)Index 2003 = 100

Mexico: Investment, 2006 – 2010 (July)(Index: 2003 = 100)

Employment in Manufacturing Sector, 2006 – 2010 (July)Index 2003 = 100

Main Government Initiatives Directed at Manufacturing Sector

• Customs and trade facilitation: To reduce time and cost of moving goods across NAFTA borders:

• Investment in infrastructure and technology• Improvement of regulations and requirements• Standards harmonization

• Intellectual property rights protection

• Infrastructure and services: New legislation to facilitate public and private sector collaboration for investment in infrastructure

Manufacturing Industry’s Advocacy

• Energy: Need to lower costs for electricity

• China Imports: Policies to address low-priced, unfairly traded steel-related imports from Asia competing with domestic manufacturing production

• Custom fraud and circumvention• Custom facilitation• Effective use and application of trade law

• Transport: Need to lower costs for freight and railroad transportation

• Climate Change: Monitoring international negotiations and working in steel program with government