Industry Insight

June 2008

Business Groups to Oppose Carbon Dioxide Petition 

A coalition consisting of Audubon Arkansas, the Sierra Club and the Environmental Integrity Project of Texas has filed a third-party petition with the Arkansas Pollution Control and Ecology (PC&E) Commission to amend Regulations 18 and 26 by deleting “carbon dioxide” from the current exemption in the definition of “air contaminant” in those regulations.
 
The stated purpose of the petition is to “update the definition” to comply with the U.S. Supreme Court ruling in the case of Massachusetts versus Environmental Protection Agency (EPA) and to recognize the international scientific consensus on the cause of global warming. The filings can be found here . To date, the EPA has taken no action since the Supreme Court’s decision.
 
The PC&E is holding a hearing on June 27 that will include the petition to initiate rulemaking. The purpose of the hearing is only to “initiate rulemaking,” not a hearing to adopt the rule changes. 

If the petition is approved, the Arkansas Department of Environmental Quality (ADEQ) and the PC&E will then conduct a public comment process, including publication, hearings and a period for written comments, before the Legislative Council reviews the rulemaking and the PC&E hears it again for final adoption. This is normally a five-to-six-month process at best.

The Arkansas Environmental Federation (AEF) has adopted a position to oppose the third-party petition to initiate rulemaking. The AEF will submit written and oral comments at the June 27 PC&E meeting. AEF is inviting other likeminded associations, businesses and industries to add their names to the comments as a sign of support for the AEF’s position.

The Executive Committee of the State Chamber/AIA has given its approval for the State Chamber and AIA to sign on to the AEF petition.

State Chamber/AIA Files Amicus Brief in Workers’ Compensation Case

The State Chamber/AIA filed an amicus brief with the state Supreme Court on Monday, June 16, in the case of Singleton, employee v. City of Pine Bluff, employer and the Municipal League, workers’ comp trust carrier.

This case involved a police officer who was shot in the course of duty. His medical and temporary disability were not disputed and paid by the employer/carrier. However, when the employee asked for permanent disability benefits he was denied and the Worker’s Compensation Commission agreed because they did not find that the employee sustained a permanent anatomical impairment or permanent wage loss disability.

The employee appealed to the state Court of Appeals who found that the Commission had improperly denied the employee permanent relief by “rejecting all subjective evidence that would have supported the finding of anatomical impairment.” The Commission then reconsidered all of the medical evidence and again found that the employee had failed to establish any permanent impairment.

The Commission relied upon Act 796 and the opinions of two of the claimant's physicians who both opined that the claimant had no objective basis for any permanent impairment rating related to the claimant's left ankle and rejected the opinion of a third doctor who based an impairment upon the claimant's subjective gait which is a result of the claimant's subjective and transitory pain.

Act 796 prohibits the consideration of pain when assessing an impairment rating. In addition, the AMA Impairment Rating Guide, which the Commission adopted to use in the assessment of anatomical impairment as mandated to do under Act 796, did not provide for an impairment rating for the claimant's ankle injury. The claimant appealed again to the Court of Appeals. Again, the court ruled in favor of the claimant. In so doing, it questioned the use of the AMA Guides, and stated that the Commission was not authorized to adopt a guide that changes the definition of compensable injury.  

Our brief asks the Supreme Court to review the case because the Court of Appeals erred in issuing an opinion contrary to prior opinions of that court, it is a case that involves substantial public interest, and the Court of Appeals’ opinion apparently fundamentally misinterprets the difference between a “compensable incident” and a “permanent impairment.”

This case involved substantial questions of law concerning the construction and interpretation of Act 796 of 1993, which compelled the State Chamber/AIA to join the employer in seeking review by the state Supreme Court. 

Manufacturers See Gains From NAFTA, NAM Survey Finds

Earlier this month the Washington Times reported that a Deloitte LLP survey sponsored by the National Association of Manufacturers (NAM) and several other trade associations found that "41 percent of U.S. manufacturers think they are more competitive today than their global rivals" due to the North American Free Trade Agreement (NAFTA). The survey of more than 300 manufacturing executives from the United States, Canada and Mexico also found that "57 percent of U.S. manufacturers expect to become more competitive over the next five years; only 11 percent worry they will become less competitive."

Frank Vargo, the vice president for international economic affairs at NAM, said that the survey shows that "most companies feel that NAFTA has been beneficial to them in terms of improving their competitiveness in North America and globally." In fact, "five times as many executives (49 percent) said NAFTA had a positive impact as said it had a negative effect (10 percent)." Craig Giffi of Deloitte LLP, a principal author of the report, added, "North American executives have not abandoned North America and have a fairly strong plan for continuing to build their manufacturing businesses around operations in North America."

The survey found that "44 percent of North American companies plan to expand production in the U.S." over the next three years,” IndustryWeek noted. Furthermore, Emily DeRocco, president of the Manufacturing Institute and NAM senior vice president, pointed out that "nearly 80 percent of respondents identified tax cuts for manufacturers as the key factor promoting innovation and research & development (R&D)." She said, "Clearly, Congress needs to extend the R&D credit that expired at the end of last year."

Focusing on Canada, Reuters added that the survey "showed that a majority of Canadian respondents credited the North American Free Trade Agreement with helping them access new markets and expand production." Currently, many Canadian "manufacturers sell over 80 percent of their total production to the U.S. market," as "over half the goods produced in Canadian factories are sold to the United States or through it to other countries."

Vargo told the AFP that these results are "a clarion call to negotiate and approve free trade agreements that will knock down barriers to U.S. exports." He added, "Congress should heed the news in this report and vote to strengthen the ability of North American-based manufacturers to compete effectively in the global economy."

A radio report from American Public Media pointed out that rising wages in India and China "and the weak dollar" are adding to increases in U.S. competitiveness. Vargo said that the rising "cost of transportation across the Pacific" is also "further moving the balance back our way" by "raising the cost of those imports."

Jayson Myers, president of Canadian Manufacturers and Exporters, told the Canadian Press , "In order to be successful on the global stage and to compete and win against the rest of the world, our main priority is to strengthen the North American market even further."

NAM issued a press release on the study. In it, DeRocco noted, "Manufacturers cited controlling labor costs, enacting favorable tax policies and assisting with the severe shortage of skilled manufacturing workers, including engineers, scientists and technicians, as the top three areas that policymakers should address to help improve their global competitiveness."

Manufacturers Can Save Money by Deploying Virtual Infrastructure, CTO Says

In IndustryWeek on June 13, Vincent Biddlecombe, chief technology officer at Transplace, suggests that "deploying a virtual infrastructure offers universal benefits that appeal to businesses across all industries but even more so for manufacturing firms," because of "the environments that typically exist inside a manufacturing facility."

A virtual platform enables "companies to consolidate between five and 10 physical servers into one physical server" and "makes it easier to maintain servers since there are far fewer to monitor." Airborne dust and chemicals could "shorten the life of servers and desktops. These environmental conditions mean that manufacturing firms usually have to replace their computers more often than non-manufacturing firms." Virtualization could "reduce the overall number of required computers," which could lead to "significant cost savings," Biddlecombe wrote.

EPA Accepting Comments on Proposed Lead Standards

Since lead emissions have dropped by 98 percent nationwide – due primarily to the phase-out of lead from gasoline – the Environmental Protection Agency (EPA) is proposing to tighten the 1978 lead standard by an additional 80 to 93 percent. Lead in the air today comes from a variety of sources, including metal smelting facilities, iron and steel foundries and general aviation gasoline. The National Association of Manufacturers encourages manufacturers to submit comments to the EPA on how this new standard may affect business operations. For details concerning the proposal, visit www.epa.gov/air/lead. For more information, contact Bryan Brendle at (202) 637-3176.

Manufacturers Should Be Aware of EU’s REACH Regulations

If you are exporting products or components anywhere in the 27-member European Union (EU), or if you are supplying someone who is exporting to the EU, you need to be aware of the EU's new REACH regulations. "REACH" stands for Registration, Evaluation, and Authorization of Chemicals. The EU's REACH regulations were promulgated one year ago and their effects will be felt in the business community, starting this month through November 30, 2008, during the "simplified pre-registration" period.  The REACH regulations are detailed and complex and cover many products that have long been used safely in the market and might not intuitively be recognized as "chemicals."  The pre-registration period affords an opportunity for manufacturers to get registered under the new system and to minimize the potential for disruption to your business with Europe.

This paper provides some useful background material and includes helpful
links to more detailed information. The U.S. Department of Commerce has been making a major effort in Washington and in Brussels to help U.S. companies, especially small and medium-sized exporters, to understand and come into compliance with REACH. 
                         
Indonesia Plans Trade Expo in Jakarta

The Hon. Consul General Kria Fahmi Pasaribu of Indonesia visited Little Rock in May, promoting trade and goodwill between his country and Arkansas. His stops included the State Chamber/AIA, and he provided information on the upcoming 23rd Trade Expo Indonesia.

Trade Expo Indonesia 2008 is set for October 21-25 at the Jakarta Fairground, Kemayoran, Jakarta. It will showcase Indonesian exports ranging from industrial, mining and agricultural products to craft sectors. Last year’s show attracted more than 7,333 buyers from 109 countries.

For more information on the Expo or trade opportunities, contact the Consulate General of the Republic of Indonesia, 10900 Richmond Ave., Houston, Texas 77042; phone (713) 785-1691; fax (713) 780-9644.

Transportation Costs Forcing Manufacturers to Bring Production Back to U.S.

On its June 13 front page, the Wall Street Journal reported that "the rising cost of shipping everything ... is forcing some manufacturers to bring production back to North America and freeze plans to send even more work overseas." According to Claude Hayes, of DESA LLC, the "cost of getting a shipping container" in the U.S. from China "has jumped about 15 percent, to about $5,300, since January and is set to increase again next month to $5,600." DESA "recently moved most of its production back to Bowling Green, Ky., from China."

But, the Journal notes, "moving production closer to markets won't avoid all the problems associated with rising transportation costs. Manufacturers face hefty surcharges on domestic shipments by truck and train." And, moving production to the U.S. will likely increase traffic on the country's "already congested domestic transportation systems." The number of jobs that can come back to the U.S. may also be limited because "much of the basic infrastructure needed to support many industries... has dwindled or disappeared." Basically, "every job added as a result of companies pulling work back home is being more than offset by others reeling from the domestic slump."

U.S. Productivity Rose 2.6 Percent in First Quarter

The Wall Street Journal reported this month that "U.S. productivity rose sharply in the first quarter despite a weak economy." Revised government data suggested that "companies have responded quickly to soft demand by shedding workers and cutting back on hours." Meanwhile, "labor costs... grew at their slowest annual pace since 2004, which should provide some relief to Federal Reserve policymakers that soaring food and energy prices aren't leading to a wage-price spiral."

The New York Times /Reuters added that productivity's annual growth rate was 2.6 percent "during the first quarter on stronger output," while "worker hours shrank 1.8 percent." Furthermore, "unit labor costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, rose by 2.2 percent at an annual pace, faster than the 2.0 percent rate forecast by analysts."

The Financial Times noted that "U.S. companies laid off 260,000 workers in the first four months of this year." Even though "some economists fear that record oil and raw materials prices will eat into company profit margins, many analysts are confident that productivity gains will help offset some of these problems."

OECD Forecasts Flat U.S. Economic Growth Through 2009

According to the New York Times , the Organization for Economic Cooperation and Development (OECD) has predicted that "growth among the leading industrialized countries will slip this year and next, with activity flat in the United States, but a serious recession or inflation spiral should be avoided." Overall, "economic growth in the organization's 30 members will slow to 1.8 percent this year and 1.7 percent next year," while the U.S. "economy will grow just 1.2 percent this year and 1.1 percent in 2009."

The AFP adds that the U.S. "economy is forecast to contract 0.5 percent in the second quarter, pick up to 0.7 percent growth in the third and weaken to 0.2 percent in the final quarter." And, on "inflation, the organization forecast a rise of 3.2 percent this year and 2.0 percent in 2009."

Producer Price Index Up in May

The Labor Department reported earlier this month that the producer price index increased by 1.4 percent in May, the largest monthly advance in six months. A 4.9 percent rise in energy prices and a 0.8 percent increase in food prices were responsible for much of the acceleration in producer prices last month. Excluding food and energy, core producer prices edged up just 0.2 percent, which was half the pace during the first four months of the year.

May Manufacturing Production Remained Steady

The Federal Reserve reported this week that manufacturing production remained unchanged in May, after decreasing two of the prior three months. Within the 19 major manufacturing industries, nine posted declines in production (led by wood products and machinery), eight posted increases in production (led by electrical equipment and motor vehicles – which posted the first rise in production in six months), while production was unchanged in two (printing and primary metals). During the three months ending in May, manufacturing production declined at an annual rate of 2.4 percent, while over the past 12 months, production is down 0.1 percent.

Employer Healthcare Costs Expected to Rise 9.9 Percent in 2008

The AP reported on June 17 that "employer healthcare costs are poised to rise" 9.9 percent in 2008 – "more than double the annual inflation rate," according to a study released by PricewaterhouseCoopers (PwC). The study also predicts costs will rise again in 2009, by an additional 9.6 percent. For the study, PwC surveyed more than 500 employers and health plans, with total coverage of more than 11 million people. One of the two main factors "driving the increase," the study states, is cost-shifting – those with insurance paying more to cover the uninsured.

The study claimed expanded cost-shifting is due to "the federal government... under-funding public programs while the number of uninsured" continues to grow, according to Bloomberg . The second factor said to be responsible for high healthcare costs is that hospitals are "charging greater fees to pay for facility upgrades." And, "if there is a recession in 2009, healthcare spending will account for a greater share of the overall economy as medical costs will grow and overall spending will decline." Bloomberg noted, "To control costs and focus on keeping their large corporate clients, health plans may increase co-payments and deductibles or offer bonuses to employees who take steps to stay healthy, such as undergoing regular medical exams."