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It's about markets, stupid.

Opponents of the North American Free Trade Agreement, including those from organized labor and environmental groups, are missing the point NAFTA is about markets, growth, and an improved standard of living, not just jobs

To Asian and European business and political leaders the debate in the U.S. over the merits of the planned North American Free Trade Agreement is bizarre. Regional economic integration is a global phenomenon. Beyond the EC, there are the recently formed African Economic Community the Black Sea Economic Cooperation Zone, the Mercosur (a common market among Argentina, Brazil Paraguay, and Uruguay), to name only a few. While some initiatives are more advanced than others, the benefits are clear to most: lower transaction costs, greater efficiencies, and the opportunity to improve overall competitiveness in a world market. So whats the fuss?

"Our nation is wrestling with the idea of a world marketplace in which the U.S. is one player among many," says Cooper Tire & Rubber Chairman and CEO Ivan W. Gorr, 63. The soft-spoken former CPA with a homespun manner is also the 1993-94 chairman of the U.S. Chamber of Commerce, the Washington business group that represents some 215,000 members at small, medium, and large companies nationwide. Gorr and the chamber attach great urgency to NAFTA as well as to capital formation issues such as a lower capital gains tax. The G7 countries, on average devote 16. 5 percent of their GDP to exports. By contrast, the U.S. exports 75 percent of GDP. The chamber says it is committed to close the difference by the end of this century. This means U.S. companies must more than double present levels in six years. (With only 5 percent of Cooper's $1.2 billion annual revenues coming from outside the U.S., Gorr has some catching up to do himself:)

NAFTA, Gorr argues is an important step in this process. But it s one the Clinton Administration is trying not to trip over given the opposition from organized labor, environmental groups, and special interests to whom Clinton owes political debts. Gorr sees the chamber s task as having to satisfy the agreements critics without creating new problems. Labor unions want a trilateral commission to enforce union rights beyond existing US. law. Environmental groups want to impose trade sanctions if environmental laws are not adequately enforced. And a Federal District judge ruled that an environmental impact statement must be completed before NAFTA can be ratified. Sanctions and labor commissions, in effect become nontariff barriers that defeat the agreement's essential purpose. Then there's Ross Perot's opposition, which Gorr finds inscrutable.

"When Perot and his 5011 asked the Commerce Department in 1991 for tariff breaks on goods passing through their airport in Fort Worth they had nothing but good to say about NAFTA," Gorrscoffs. "In fact, the Perot application said NAFTA would benefit the U.S. economy by, #expanding trade opportunities, lowering prices, increasing competition, and improving the ability of U.S. companies- to exploit economies of scale.'"

Gorr reckons that side agreements focusing on the enforcement of labor issues and environmental cleanup soon will be resolved. (CE's J.P. Donlon caught 21p with him directly after a private meeting with U.S. Trade Representative Mickey Kantor, Mexican Trade Secretary Jaime Serra Puche, Canadian Trade Minister Thomas Hockin, and National Economic Council Chairman Rohert Rubin.)

Gorr, a Michigan-born farm boy and champion skeet shooter, joined Findlay, OH-based Cooper in 1972 as controller, rising to CFO, then president in 1982, and chairman and CEO in 1989. He is very much aware of the rigors of international competition: Cooper and Goodyear are the only two US.-owned tiremakers left. After several high-performance years, replacement tire sales have softened, while costs have climbed, squeezing margins industrywide. As a result, the company's operating income, which surged 163.4 percent between 1988 and 1992, is expected to flatten this year Investors who had become accustomed to several years of straight stellar gains, reacted unforgivingly, shaving off more than 30 percent of Cooper market value during a bumpy second quarter.

"A flight of speculative investors," Gorr rationalizes. "What we have here is a good company with excellent returns." (Total five-year annualized return to investors between 1986 and 1991 was 44 percent.) Gorr hopes to patch Coopers capitalization leak, and there are several factors working in his favor. The company doesn't own stores and instead relies on a nationwide dealership network. Dealers usually are accommodating, because the margins on Cooper's tires and engineered products are better than those on competing brands. The company's low-cost operation may be a net plus in an integrated North American automotive industry, even if it lags in one visible area: no blimp.


NAFTA seems to have stalled in the face of deadlocks on side issues such us labor and environment agreements. Why can't a consensus be reached?

Probably because of the negative, adversarial tone of the initial drafts. The labor unions and environmentalists donned their boxing gloves upon entering the ring, and weren't ready to compromise. I think the labor unions would just as soon not have a NAFTA agreement. Labor has its own narrow, shortsighted view: It's worried about the loss of jobs. People point to GM closing down its Flint, MI. operations and moving them to Mexico. If you say there will he a loss of 145,000 jobs and a gain of 461,000, you net 316,000 jobs. The opposition, on the other hand, only focuses on the loss of 145,000 jobs.

The Chamber of Commerce and business believe there will he a net increase in jobs. We are carrying this message via media to the congressional and trade representatives. We've also used our magazine, Nation's Business, to try to move the debate from perceptions to facts.

But you're preaching to the converted: larger businesses. The American people need to be converted, as do smaller businesses.

First of all, this is a grass-roots matter. Ninety-six percent of companies that comprise the Chamber of Commerce are smaller businesses. They,re not international traders, and so they are fearful of what NAFTA will mean.

As far as organized labor is concerned, the question should he: Why does labor always seem to hack an adversarial role with an employer, when, in fact, it is a stakeholder in business, and should be willing to cooperate?

The reality is that if we don't bring productivity up to speed, then with or without NAFTA, jobs will move out of the U.S. The labor unions have a role in this, too. They overprice their product, jeopardizing the interests of workers, because others--Mexicans--have begun to corner the labor market.


Your company devotes a fair amount of time and money to training and is high on team and employee empowerment schemes. Will you continue that approach?

Basically we seek to motivate employees. If a worker is empowered to do more, he will rise to the challenge. In a team environment, those who can't or won't never survive.

In the U.S., there is a problem with work force skills in many areas. They often don't meet global competitive standards. This problem probably will take us a generation to fix, starting with pre-school and kindergarten education.

As currently stated, the labor side agreement commits all three countries to "upwardly mobile minimum wages." Will this increase the U.S. minimum wage?

Our minimum wage standard shouldn't be changed, and I don't believe it will be. If the product is overpriced here, the labor unions want to make sure it's overpriced in Mexico in order to nullify the competition.

There has been talk of establishing an expended border authority to oversee NAFTA's regulations. Will we see yet an other bureaucracy created?

I don't think we're going to see an almighty commission. I think that suggestion was made to reassure lobbyists that the environmental and labor standards in NAFTA will be upheld. And, by the way, environmental standards should improve under NAFTA. By contrast, a world without NAFTA will prevent Mexico from attaining a better economic position, one that will allow the country to afford environmental standards.


What advantages or opportunities would e U.S. chief executive have under NAFTA?

The biggest boon to business is tariff reduction. On the first day NAFTA goes into effect, 58 percent of them will go to zero. Five years from now, that number will he 65 percent. Within 15 years, we'll see the first quota-free, tariff-free textiles in the world. The government loses $3 billion in tariff revenues over 10 years, but the potential gain is incredible.

The proximity of U.S. companies to the developing market--Mexico--would be another benefit. Transportation would be a lot easier, faster, and cheaper. In addition, a broader range of resources would be available, including raw materials and labor. Mexico has been a good trading partner. It needs our products. Right now, it doesn't have enough facilities in place to produce what it's going to consume. So it will be an expanding market for U.S. products.

I'd like to think NAFTA will be a reality; the opportunities are there.

How will NAFTA impact Cooper Tire & Rubber over the next five or 10 years?

As the border costs are minimized and finally eliminated, we will be able to ship more of our products to Mexico and Canada. Now that the tariffs have been relaxed in Canada, we,re shipping some products, such as replacement tires, there. However, as yet, we have no manufacturing or distribution operations in Canada.

Overall, the U.S. has already increased trade with Mexico. It's been one of our largest customers. For approximately eight years, Cooper has operated in Mexico a small manufacturing facility, Rio Grande Servaas in Piedras Negras, that produced inner tubes. Originally, it was part of a maquiladora. But we've expanded it into a national supply company that's begun to produce engineered rubber parts for the Mexican automotive industry. Eventually, we will phase the whole operation into engineered products, because the inner tube market is diminishing and will be obsolete soon. In the future, we expect to ship some of those products to the U.S. instead confining them to Mexican customers.

Our tire business also should benefit from NAFTA. Today, any car over two years old is a candidate for replacement tires. Cars are more durable and efficient these days, and people are keeping them longer. That fact probably will widen our market slightly.

Can you put a number on such an expansion? It's hard to quantify the profits to he made in Mexico, because even as border costs are eroded and protectionism eliminated, other players will get involved, creating. more competition and slimmer profit margins.


How might investment flows be changed in a post NAFTA world?

It won't be any different than a world without NAFTA. Capital goes where it's wanted. If the U.S. doesn't create a competitive environment, the capital will flow to other countries. The Clinton Administration appears to have lost sight of this reality as it continues to penalize savings.

If it's more economical to produce tires in Mexico, that's where we'll produce them. Or if it's more economical in Japan that's where we will go. Right now, only about 5 percent of our business is non U.S. That figure won't change dramatically in 10 to 15 years, but it will in a longer time frame.


How do you amount for Ross Perot's opposition to NAFTA, considering he once ran a fairly sizable business?

Ross Perot will say whatever is expedient to increase his political impact. He supported NAFTA when he was promoting his airport. He changes colors to further his political ambitions. He uses sound bites to grab attention but never gives real answers or comes to any conclusions.

We thought we had him at a banking committee hearing recently. But when a senator asked Perot what he didn't like about NAFTA and pointedly requested him to be specific, Perot replied: "I was accused of not being specific enough in my last testimony, so let me be more specific. Just don't do it."

When will we see a final resolution on GATT and NAFTA?

I don't have a crystal ball. But if it doesn't get done, the world and economic activity will go on.

What about the effects of regional consolidation, under which the world is aligning itself intruding blocs? How will trade patterns for your business differ once the European, North American, and Asian communities define themselves as integrated markets?

We will be in a stronger bargaining position than if everyone was fragmented. Organization and cooperative partnership in Mexico are key.
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Title Annotation:Cooper Tire & Rubber CEO Ivan Gorr's views on the North American Free Trade Agreement
Author:Donlon, J.P.
Publication:Chief Executive (U.S.)
Article Type:Cover Story
Date:Sep 1, 1993
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