Positive change or greater cost?

13 July 2009

Susan Mucha

The US manufacturing community has much to watch over the next few months as politicians in the US and abroad enact changes that may have significant implications on the cost of doing business. Two less obvious items I’ve been watching are health care reform and cap and trade carbon permits.

There is no question the US healthcare system is broken. Walk into a room full of CEOs from EMS providers or any other manufacturing segment and ask them if they are concerned about the cost of employee health insurance premiums and you won’t get a single person who says ‘no’. Premiums can jump by millions of dollars year-to-year even for small regional manufacturers. Talk to employees who are being asked to pay a larger and larger share of their healthcare, or worse getting laid off with no affordable option and you’ll hear the same comments.

The current system has virtually no cost cap on insurance premiums and little cost visibility to doctors, patients or employers until after services are rendered. Insurers can also cherry-pick the individually insured and screen out those with chronic conditions either through higher premiums or refusal of coverage, which is part of what drives the large percentage of uninsured who create additional healthcare costs when they are unable to pay their bills for treatment. Does Washington have the right answers? Probably not. Politicians and lobbyists tend not to be the best problem solvers, but the fact that the discussion is starting to look at the impact on employers and the middle class is good. When companies make a decision to move offshore, it generally isn’t because of labour cost differential alone. Issues like taxes (or tax relief) and costs of employee benefits do get significant attention. Failure to find a cost effective way to fix the healthcare system will drive more jobs offshore because the end result will be both higher healthcare costs and taxes for US employers and their employees. This is definitely an area of legislation to watch.

Cap and trade is another area where legislation is moving forward. This legislation would impose an overall limit on carbon dioxide emissions from fossil fuel use. Permits to emit carbon would be bought and sold. The US House of Representatives passed a cap and trade bill in June. It must still pass the US Senate. While a focus on limiting carbon emissions by raising the cost of energy to the point where people conserve more may be noble, it is also foolhardy if China and India aren’t also participants. From a manufacturing perspective, this is another cost incentive to move manufacturing to parts of the world that have less stringent pollution controls, which defeats the intent of the legislation. European readers can currently assess the effectiveness of cap and trade, since the EU has an emissions trading scheme in place.

A recent visit to IPC—Association Connecting Electronics Industries, highlighted two more potential cost drivers to watch which may have significant implications to electronics manufacturers.

US Senate Bill S.891, known as the Congo Conflict Minerals Act of 2009, was recently introduced. This bill requires annual disclosure to the Securities and Exchange Commission of activities involving columbite-tantalite, cassiterite, and wolframite from the Democratic Republic of Congo. Cassiterite is a tin ore and can be used in solder.

According to Tony Hilvers, IPC’s Vice President of Industry Programmes, the Electronic Industries Citizenship Coalition (EICC) – made up of Flextronics, Jabil, Foxconn, Dell, Intel, Cisco, Sun and others – are concerned about the Senate bill ‘initiating research on a transparency model for the electronics industry supply chain, as well as existing supplier codes of conduct addressing labour, ethics, environmental, and/or health and safety issues.’ IPC’s Government Relations staff in Washington are monitoring the progress of the bill.

“The bill and its impact on the solder industry are still not well understood,” Hilvers added.

IPC is also mounting an advocacy campaign encouraging its members in Germany and Sweden to contact their respective environmental agencies and government officials, urging that they resist a ban of Tetrabromobisphenol(a) (TBBPA) – (Contention over TBBPA).

TBBPA is a popular flame retardant used in more than 80% of the world’s PCBs. A comprehensive EU Risk Assessment found TBBPA not harmful to the environment or to human health.

According to IPC, as discussions of the proposed revisions to the RoHS Directive proceed among members of the European Union Council, the environmental agencies from the governments of Germany and Sweden are calling for the restriction of TBBPA under RoHS – a substance not currently on the list of proposed restrictions.

Recently, Germany’s federal environmental agency, Umwelt Bundes Amt (UBA), published a newsletter calling for the restriction of TBBPA under RoHS). IPC notes that the basis for UBA’s position is the faulty and unscientific report published last year by the Öko Institut. Information about the electronics manufacturing industry’s concerns with the Öko Institut report is available here. Growing pressure from the government of Sweden is spurred by a report from the Swedish chemicals agency, Kemikalieinspektionen.

“As we continue to monitor global environmental activities, it is imperative that we engage the support of IPC members in affected regions. We continue to lobby governments directly, but we also recognise that government officials respond best to companies located in their country. Our strategic advocacy efforts are always strengthened with the active support of industry members,” said Fern Abrams, IPC Director of Environmental Policy and Government Relations.

There is no question that change can be good. All of these issues deal with problems that need to be appropriately explored and addressed. But change motivated by a need to look politically correct to win votes or to reward supporters who present a slanted view of the issues can have a hugely negative effect as manufacturers try to recover from a brutal recession. Manufacturers in the US and other highly industrialised nations need a level playing field. There is definitely value in exploring all sides of these issues and making sure that voices representing the manufacturing perspective are heard as these debates continue. As China keeps reminding us, manufacturing can be an engine of significant economic growth. The real question is do we want to legislate that engine of economic growth out of existence with poorly thought out policy decisions?

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