IMPACT OF NAFTA VICTORY : Winners, Losers Assess Future : One Firm’s Tale of Gain Is Another Firm’s Tale of Pain
Solar Turbines, a San Diego-based heavy-equipment manufacturer, illustrates how passage of the North American Free Trade Agreement is great news to many Southern California businesses.
Tariffs of up to 20% that Mexican customers pay for Solar’s oil field transmission engines and generators will be eliminated, giving Solar a significant pricing advantage over European and Japanese competitors whose products are still subject to those charges, Solar Vice President James D. Lutton said.
But the story is different at U.S. Pottery Manufacturing, a Paramount-based manufacturer of ceramic flower pots. NAFTA will eliminate the 11% tariff on Mexican ceramic flower pots that have protected Robert Diulio’s business, possibly forcing the company to relocate to Mexico and jeopardizing 42 jobs, Diulio said.
The disparate reactions of the two Southern California businesses illustrate the collective ambivalence that many regional companies have toward NAFTA.
Producers of high-technology electronics and manufactured goods, such as those made by Solar Turbines, are prime examples of firms that generally are expected to benefit from the trade agreement.
But low-technology, labor-intensive manufacturers--such as Diulio’s company, as well as those in clothing, concrete and furniture industries--are among those businesses generally expected to be hurt. Many have already moved operations to Mexico or other countries with lower labor costs.
For its part, Solar expects to see huge price advantages in Mexico for its cogeneration and gas compression units--just as new markets for power generation and oil exploration equipment are opening up south of the border. The elimination of tariffs could reduce the price on one of the company’s $4-million, 14,000-horsepower power generators by up to $800,000, Solar’s Lutton said.
So great is that advantage that Lutton promises that none of his company’s 3,000 San Diego-area jobs will be moved to Mexico as a result of NAFTA’s passage--even if business booms south of the border.
Solar, which relies on exports for two-thirds of its annual sales of about $750 million, maintains maintenance facilities in Veracruz and Tijuana. But Lutton insists that it can keep its San Diego-area manufacturing jobs from moving because of productivity gains among its U.S. work force in recent years.
“This is not going to create a flood of new jobs on either side of the border,” Lutton said. “We expect the benefits to take two to three years to come through.”
Lutton has been a visible proponent of NAFTA over the last several months, making the case for the trade bill on industry and legislative panels from South Carolina to La Jolla. He has stressed the benefits for the Mexican economy and environment as well.
But at U.S. Pottery Manufacturing, which posts annual sales of about $3 million, Diulio sees passage of NAFTA as more “handwriting on the wall” about the grim future of American blue-collar workers. He is convinced that the trade bill will accelerate the flight of low-wage, low-skill jobs to Mexico.
“Guess what--not everyone wants to go to college and be a teacher, an accountant or reporter,” he said. “There are people very happy being a punch press operator, a welder or a shipping clerk or working in a gas station. And I fear for these people. We’ve been losing these jobs for 20 years, and there is nothing to replace them.”
When Diulio bought the company in 1981, U.S. Pottery Manufacturing made all its ceramic pots, which are sold mainly to nurseries and store chains. Now it imports much of what it sells from China and Italy because of competitive pressures that even protective tariffs could not alleviate. His payroll has dropped to 42 employees from 100 in the last six years.
Anticipating the passage of NAFTA, Diulio has already scouted possible relocation sites in Tecate and Mexicali, Mexico, where he could pay workers an average $48 a week, a fraction of starting wages at his 64,000-square-foot plant in Paramount. But he will wait a year or more before deciding on a possible move, depending on NAFTA’s effects.
“It’s hard to beat the President. I hope he’s done his homework and gotten us a fair deal,” Diulio said.
