EMBARGOED: Until Tuesday, February 1, 2000
News Release 00-016
Inv. No. 332-237
ITC REPORT EXAMINES INTERDEPENDENCE OF SELECTED NORTH AMERICAN INDUSTRIES
The interdependence among manufacturing facilities in the United States, Canada, Mexico, and the
Caribbean Basin region is growing, reports the U.S. International Trade Commission (ITC) in its report
Production Sharing: Use of U.S. Components and Materials in Foreign Assembly Operations, 1995-1998.
The ITC, an independent, nonpartisan, factfinding federal agency, has published the report annually since
1986. This year's report focuses on the motor vehicle, television receiver, and apparel industries and examines
cross-border rationalization of production and other strategies employed by those industries to reduce
costs or to achieve other competitive advantages in U.S. and third-country markets. Highlights follow.
The ITC is changing its method of reporting on production sharing and related topics, and this will be its
last formal annual report on production sharing. Data on imports entered under the production-sharing
provisions (HTS 9802.00.60 - .90) now significantly understate production-sharing activity and the use of
U.S. components in foreign assembly operations. These reporting limitations will likely become more
pronounced for 1999 because most goods imported from production-sharing operations now qualify for
duty-free treatment under other agreements or trade preference programs. The ITC will continue to report
informally on cross-border integration of manufacturing and related topics in other publications, as
appropriate, and plans to report annual statistics on trade under the production-sharing provisions in
Industry Trade and Technology Review, a quarterly publication of the ITC's Office of Industries. The
ITC will also provide expanded coverage for these data by late spring on its Internet-based interactive
tariff and trade database, the DataWeb http://dataweb.usitc.gov).
- Collectively, U.S. exports of all products to Canada, Mexico, and the Caribbean Basin rose by
5 percent ($11.3 billion) in 1998 to $232.3 billion, whereas exports to other regions of the world
fell by 5 percent ($19.9 billion) to $402.4 billion. U.S. trade with these North American partners
accounted for 37 percent of total U.S. exports and 31 percent of U.S. imports in 1998.
- Imports under the production-sharing provisions of the Harmonized Tariff Schedule of the United
States (HTS) continue to account for an important portion of U.S. trade with its North American
partners despite a shift by some firms to enter imports free of duty under the North American Free
Trade Agreement (NAFTA), the Caribbean Basin Economic Recovery Act (CBERA), or the
Information Technology Agreement. The official reported value of products entered under the
production-sharing provisions declined by $5.1 billion (6 percent) in 1998 to $74.1 billion.
Similarly, the reported value of U.S. content in such imports from all countries decreased by
5 percent ($1.4 billion) in 1998 to $25.2 billion.
- Increased investment in maquiladora plants during the past five years can largely be attributed to
currency devaluations in Mexico that have further lowered the cost of Mexican labor; provisions
for duty-free U.S. imports of apparel from Mexico under HTS heading 9802.00.90 (created by
NAFTA); expansion of assembly operations in Mexico (using U.S. components) instead of
importing from Asia, which allows firms to take advantage of preferential tariff treatment under
NAFTA; and sustained demand in the U.S. market.
- U.S. and foreign automakers have accelerated the degree to which their product lines are
rationalized between Mexico and their other North American operations in response to the
NAFTA's market access provisions. Although the level of integration between Mexican and U.S.
operations has not reached that of the U.S. and Canadian industries, Mexico's expansion of
preferential trade agreements with non-NAFTA trade partners provides automakers with duty-free
access to more countries from their assembly facilities in Mexico than from their plants in the
United States, encouraging further investment in Mexico.
- Production-sharing operations for smaller screen color television receivers, located almost
exclusively in Mexico, have evolved from simple component assembly to highly integrated
operations that produced $3.5 billion of finished receivers in 1998, of which 90 percent was
exported to the United States. These operations have permitted North American-made televisions
to maintain price competitiveness with imports from Asia (especially Malaysia and China).
- U.S. color picture tube production is likely to remain strong and continue growing as long as
cathode-ray tubes (CRT) remain the dominant display technology. CRT technology will likely
remain the choice for smaller screen television receivers where price is the key factor. The rising
trend toward larger screen sizes will benefit U.S. production of large screen television receivers
vis-a-vis production in Mexico until new flat-panel display technologies become dominant.
- U.S. imports of apparel from Mexico and the Caribbean Basin exceeded the growth of such
imports from Asia, in large part due to the elimination of tariffs and quotas under NAFTA on
garments and other textile articles assembled in Mexico from "fabric wholly formed and cut in the
United States." Such apparel imports from Mexico rose by $983 million (23 percent) to
$5.2 billion during 1998 as the value of U.S. fabric employed in the Mexican assembly process
increased by $519 million (18 percent) to $3.4 billion.
- In contrast to Mexico, apparel from certain Caribbean Basin countries qualify for guaranteed access
levels (GALs) in the U.S. market, but importers must pay duty on the value added to garments
outside the United States. Nonetheless, imports of apparel under the production-sharing provisions
from the Caribbean Basin also continued to expand, rising by $529 million (8 percent) to $6.9 billion
in 1998. The U.S. content of these entries increased by $306 million (7 percent) to $4.4 billion.
- The phase-out of U.S. import quotas by 2005 under the World Trade Organization textile agreement
will gradually erode the preferences of CBERA countries under the GALs, possibly resulting in a
gradual shift of some assembly operations from CBERA countries to Mexico. Major textile
manufacturers also indicate that the establishment of vertically integrated operations, as well as
integrated manufacturing networks, in Mexico is likely to help those firms recapture some of the
business previously lost to Asian competitors in the North American market.
Production Sharing: Use of U.S. Components and Materials in Foreign Assembly Operations, 1995-1998
(Inv. No. 332-237, USITC Publication 3265, December 1999) will be posted on the ITC's Internet server at
www.usitc.gov/reports.htm (search by title or publication number). A printed copy may be requested by
calling 202-205-1809 or by writing to the Secretary, U.S. International Trade Commission, 500 E Street,
SW, Washington, DC 20436. Requests may also be faxed to 202-205-2104.
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