Trade Drive -- Paccar Is Lobbying For Limits In New North American Pact

The "Buy American" slogan is taking on a whole new meaning at Paccar Inc.

Forget the image of angry American workers smashing Japanese cars. For Paccar, it's officials with suits and briefcases flying to Washington to fend off European-owned competitors.

At stake is the market for heavy trucks in what could become the world's biggest free-trade bloc: Canada, the United States and Mexico.

Paccar, the Fortune 500 maker of Kenworth and Peterbilt trucks, says its position on the North American Free Trade Agreement will save truck-component companies and jobs in the three nations. But two of its biggest competitors say the Bellevue company wants stiff trade barriers simply to protect its markets in the U.S., and particularly in Mexico.

If its competitors take further market share from Paccar, jobs at its Kenworth plant in Tukwila, and the plant it is building in Renton, could be in jeopardy.

"Paccar is working to exclude as many companies from assembling (trucks) in Mexico as possible," said a spokesman for Volvo GM Heavy Truck Corp. "They want to get into the regulation-writing as early as they can."

Paccar has plenty to worry about and much to protect: Volvo GM and Mercedes-Benz subsidiary Freightliner Corp. (based in Portland), already are taking U.S. market share from Paccar for the big 18-wheelers the companies build. And they are chipping away at Paccar's virtual lock on heavy truck sales in Mexico.

Until now, Paccar has enjoyed nearly a free rein in Mexico. Its Kenworth Mexicana plant, in Mexicali, has between 50 percent and 60 percent of the Mexican market for 18-wheeler trucks.

The free trade agreement now being negotiated among U.S., Canadian and Mexican officials would tear down trade barriers by eliminating import duties among the three nations. President Bush and Mexican President Carlos Salinas de Gortari want the talks to conclude soon, so the pact can take effect next year. But disagreements remain, and once finished, the pact still must be ratified by the U.S. Congress.

Companies such as Paccar and Freightliner are working behind the scenes of the high-level talks, pushing their own agendas on trade negotiators.

The main issue for Paccar and its European-owned competitors is so-called "rules of origin." The rules seem arcane but will have a big influence on who gets factories, jobs and investments.

Top Paccar officials have already lobbied U.S. trade representatives to set strict limits on rules of origin. To qualify for duty-free status, the company wants 75 percent of a truck's value to originate from North American labor and parts.

Paccar says the 75 percent figure will protect truck-component manufacturers in Canada, the U.S. and Mexico from assault by European component companies. Paccar is especially concerned that European-owned truck companies, with access to worldwide parts networks, could bring in low-cost parts from Brazil, Europe or other countries to make trucks in Mexico.

Those low-cost parts could undercut the price of North American parts and result in cheaper Mexican-made trucks that could then be shipped duty-free to the U.S. Paccar isn't as concerned about the Japanese, who do not have a major presence in the North American heavy truck market.

"If Mexico becomes a conduit for offshore components, it could severely impact the manufacturing base in North America," said Paccar's spokesman, Jack McRae.

"We have to be very cautious that we don't put barriers around North America. We support the free trade agreement, but we have to protect jobs, McRae said."

Freightliner's president and chief executive, Jim Hebe, says Paccar is just out to protect itself. Hebe, who once worked for Paccar, says his company supports a 50 percent rules-of-origin amount, a view it has pushed on U.S. trade negotiators.

Freightliner makes trucks in Portland, North Carolina and Mexico through its sister company, Mercedes-Benz Mexico. Freightliners built in North America are made mostly from North American parts; often 95 percent. But the company wants the lower limit on rules of origin so it can take advantage in the future of its worldwide Mercedes parts sources and include more of them in Mexican-made trucks.

"If I was Paccar, looking at Volvo and Freightliner with their ability to source from different points in the world, I'd be worried those companies could become the lower-cost producer, Hebe said."

Hebe also said a 75 percent rules-of-origin figure would hurt Mexico by limiting its access to low-cost parts from other countries.

"High rules of origin are an impediment to free trade," he said. "Our Mexican customers want access to reasonable-cost technology from around the world."

Protecting its Mexican market is probably uppermost in Paccar's logic for pushing the 75 percent figure for rules of origin, said Rudolph Spik, spokesman for Volvo GM, which makes Volvo and WHITEGMC brand trucks.

The Mexicali plant has been very profitable for Paccar, contributing nearly half of its $55 million in net income last year, said Steven Colbert, an analyst with Prudential Securities Research. Paccar and its Mexican partner, Vilpac, are so bullish on the plant, and the Mexican economy, that they are spending $65 million to double the factory's size.

But Freightliner and Volvo are making inroads in Mexico, and Paccar's chairman and chief executive, Charles Piggott, acknowledged recently that his company is not expected to retain its high market share there.