PREFACE

The Industry Trade and Technology Review (ITTR) is a quarterly staff publication of the

Office of Industries, U.S. International Trade Commission. The opinions and conclusions

contained in this report are those of the authors and are not the views of the Commission as

a whole or of any individual Commissioner. The report is intended to provide analysis of

important issues and insights into the global position of U.S. industries, the technological

competitiveness of the United States, and implications of trade and policy developments.

The information and analysis in this series are for the purpose of this report only. Nothing

in this report should be construed to indicate how the Commission would find in an

investigation conducted under any statutory authority.

Inquiries or comments on items in this report may be made directly to the author, or to:

Director of Industries

Industry Trade and Technology Review

U. S. International Trade Commission

500 E Street, SW

Washington, DC 20436

Fax: 202-205-3161

Requests for copies of the ITTR, or to be added to the mailing list, should be addressed to the

Office of the Secretary, U.S. International Trade Commission, 500 E Street SW, Washington,

DC 20436, or by fax: 202-205-2104

Quarterly Review Staff

Larry Brookhart

assisted by

Zema Tucker

Sharon Greenfield

Contributing Authors

Vincent DeSapio

Laura Bloodgood

Robert A. Rogowsky

Director of Operations

Vern Simpson

Director of Industries
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43234
OCTOBER 2001

Industry Trade and Technology Review Index of Articles

i

Listing of Published Articles

(March 1998 - October 2001)

March 1998

Textiles and apparel: New U.S. trade program likely to spur imports from

Israel and Jordan

The assembly industry in Hungary: Favorable business climate creates new

opportunities for U.S. industries

Indian market reforms attract U.S. investment and trade in capital goods

and equipment

June 1998

China's evolving automotive industry and market

Canadian involvement in Mexico's Maquiladora industry

September 1998

Internet advertising

Progress in recognizing and regulating global professional service providers

Deregulation fosters globalization of the electric power industry

December 1998

Impediments to competitiveness in Russia’s minerals and metals sector

Nonstore retailing: Alternative retailers attracting customers

Apparel sourcing strategies for competing in the U.S. market

March 1999

Korea’s foreign exchange crisis and its implications for U.S.-Korean trade

Advanced structural ceramics: Vast potential has yet to be realized

June 1999

Energy services: Recent trends and future prospects

Market trends affecting the U.S. environmental services sector

Health care services: Strong fundamentals and innovations foreshadow growth in 

U.S. exports and foreign direct investment

October 1999

Outsourcing by the pharmaceutical industry provides opportunities for fine chemical

producers worldwide 

Thailand’s financial crisis and progress towards recovery—Implications for

U.S. trade
OCTOBER 2001

Index of Articles Industry Trade and Technology Review

ii

Listing of Published Articles—Continued

December 1999

Air transport services: International regulation and future prospects for liberalization

Renewed services trade negotiations in the WTO

March 2000

Machine vision: Vital technology for manufacturing industries

Agriculture in the WTO: The Seattle Ministerial and beyond

July 2000

Express services: Issues for negotiation in the World Trade Organization

Production-sharing update: Developments in 1999

Apparel market: New U.S. legislation places CBERA countries on a more equal

competitive basis with Mexico

October 2000

WTO agricultural trade negotiations: An update

Steel sector explores E-Commerce although wary of quick transition

Mexico’s emergence as a global automotive production center drives 

trade and investment

January 2001

U.S. metal mining: Recent trends and uncertainty discourage domestic

exploration and investment

Factors affecting the competitive position of the Indian software industry

Manufacturing strategies of the North American major household appliance industry

March 2001

Apparel: Andean countries seek parity with Caribbean Basin countries

to remain competitive in the U.S. market

Chemical trade by the Central European countries: Difficulties of sector transition

Commercialization of hybrid automobiles: Prospective demand for light metals

July 2001

Trends in China’s steel consumption

Production-sharing update: Developments in 2000

October 2001

E-commerce and nonferrous metals: Despite potential, adoption has been slow

Foreign direct investment in infrastructure services in OECD countries
OCTOBER 2001

Industry Trade and Technology Review Contents

iii

CONTENTS

Page

E-commerce and nonferrous metals: Despite potential, 

adoption has been slow ........................................... 1

E-commerce and its potential benefits ....................................... 4

Current and near-term E-commerce applications ............................... 5

Metals futures markets ............................................... 5

London Metal Exchange ........................................... 6

Spectron Futures Ltd. ............................................. 7

Emetra Ltd. .................................................... 7

Supply-chain management ............................................. 8

Transactions management ............................................. 8

Private exchanges ................................................... 9

Conclusion ........................................................... 10

Foreign direct investment in infrastructure services in

OECD countries .................................................... 11

Direct investment in OECD service sectors ................................... 12

Telecommunication services ........................................... 16

Electric, gas, and water utilities ......................................... 19

Financial services ................................................... 22

Outlook 26

Appendix A: Key performance indicators of selected

industries and regions ............................................. A-1

Steel:

Figure A-1 Steel industry’s profitability improves during second

quarter 2001 ..................................................... A-2

Table A-1 Significant reductions in finished and semifinished steel 

imports compared with Q2 2000 and YTD 2000 .......................... A-2

Table A-2 Increase in shipments, decrease in inventories for steel

 service centers during second quarter 2001 .............................. A-3

Figure A-2 Steel mill products, all grades: Capacity utilization and import

penetration rise slightly as imports increase during second quarter 2001 ........ A-3
OCTOBER 2001

Contents Industry Trade and Technology Review

iv

CONTENTS—Continued

Page

Appendix A: Key performance indicators of selected

industries and regions—Continued ............................ A-1

Automobiles:

Table A-3 U.S. sales of new automobiles, domestic and imported, and

share of U.S. market accounted for by sales of total imports and Japanese

imports, by specified periods, January 2000-June 2001 ..................... A-4

Figure A-3 U.S. sales of new passenger automobiles increased in second quarter

2001; 2nd quarter sales of imports registered a slightly larger percentage

increase over 1st quarter sales as compared with sales of domestically

produced autos ................................................... A-4

Aluminum:

Figure A-4 Despite aluminum prices at a 54 week low, U.S. aluminum imports

and exports declined in the second quarter as demand weakened .............. A-5

Table A-4 Import penetration fell slightly in the second quarter, reflecting

lower import levels and aluminum surpluses in LME warehouses at

14 month highs ................................................... A-5

Flat glass:

Figure A-5 Japanese imports decline from all sources ....................... A-6

Services:

Figure A-6 Balance on U.S. service trade accounts, by selected quarters,

2000-01 ....................................................... A-7

Figure A-7 Surpluses on cross-border U.S. services transactions with

selected trading partners, by quarter, 1999-2001 .......................... A-7

North American trade:

Table A-5 North American trade, 1996-2000, January-June 2000,

and January-June 2001 ............................................ A-9
OCTOBER 2001

Industry Trade and Technology Review Nonferrous Metals E-Commerce

 

1

 The views expressed in this article are those of the author. They are not the views of the U.S.

International Trade Commission (USITC) as a whole or of any individual Commissioner.

 

2

 “How are E-Marketplaces Changing the Copper Industry Supply Chain Infrastructure?,”

International Copper Study Group, Nov. 2000, p. 2.

 

3

 Andersen Consulting (now Accenture) as reported in “How are E-Marketplaces Changing,”

p. 6.

 

4

 Inefficiencies include high transactions/costs, excess shipping costs, and suboptimal prices to

users of metal.

 

5

 Emetra and McKinsey Co., as reported in “How are E-Marketplaces Changing,” p. 6.

 

6

 Goldman Sachs, as reported, ibid., p. 6.

1

E-Commerce and Nonferrous Metals: Despite

Potential, Adoption Has Been Slow

Vincent DeSapio1

desapio@usitc.gov

(202) 205-3435

The nonferrous metals industry has been evaluating the use of E-commerce

in its global market, where annual sales are estimated to range from $200

to $300 billion. Optimistic observers have suggested that an electronic

marketplace for trading physical metals has the potential to reduce

industry costs from a traditional range of 10 to 40 percent of revenues to

as little as 2 percent, chiefly by reducing the prices paid for raw material

inputs and associated costs.2 Other analysis has suggested that from 40 to

60 percent of total metal production could be sold through electronic

marketplaces by 2005, and that by 2010, 95 percent of current transaction

costs could be eliminated.3 However, industry participants indicate that

these forecasts may be too optimistic because many segments of the

industry have been slow to adopt E-commerce and not all segments of the

nonferrous marketplace are equally suited to benefit from E-commerce.

This article examines the obstacles to persuading firms to abandon

traditional transaction methods, the potential benefits of E-commerce, and

the areas of the nonferrous market in which E-commerce technology

appears better suited and where opportunities for application exist.

Inefficiencies4 in the market for nonferrous ore, concentrate, primary metal, and scrap

reportedly result in an estimated annual cost to the industry of nearly $600 million, while

inefficiencies in the metals futures markets total an additional estimated annual cost of $260

million.5 However, another assessment indicates that once E-commerce marketplaces are fully

integrated, cost savings could result in a 10-percent productivity increase for the metals

industry.6

Despite its potential to reduce costs associated with the physical trading of metals, on-line

metals trading has lagged far behind initial expectations. In fact, the number of E-commerce

sites serving the nonferrous metals industry has declined from nearly 100 only 2 years ago to
OCTOBER 2001

Nonferrous Metals E-Commerce Industry Trade and Technology Review

 

7

 Emetra Ltd. is the only known major electronic platform continuing to trade physical

nonferrous metal. 

 

8

 Such firms include MetalOrigins, MetalSmart, and Metal-Pages, which principally provide

supply chain management services to the ferroalloys industry.

 

9

 Based upon USITC staff conversations with various industry sources, June-July 2001.

2

just a current handful7 (table 1). Many firms have ceased operations entirely. Some other

firms have abandoned their physical trading operations for other market niches.8

Table 1

Nonferrous and related E-commerce exchanges

Organization Type of E-commerce

trading activity

Metals or metals

contracts traded

Year E-commerce

trading activity began

Spectron Futures Ltd. Futures metals contracts All LME metals 2000

Emetra Ltd. Physical metal Copper rod, aluminum rod

and all LME metals 

2000

London Metal Exchange

(LME)–LME Select

Futures metals contracts

and small amounts of

physical metal 

Primary high-grade

aluminum, aluminum alloy,

copper grade A, special

high-grade zinc, standard

lead, primary nickel, tin,

and silver

2001

New York Mercantile

Exchange (NYMEX)

Futures metals contracts

and small amounts of

physical metal

Gold, silver, copper,

platinum group metals, and

aluminum

1999

Note.—A number of organizations have ceased operating public nonferrous metal in E-commerce exchanges since 2000. 

Among the prominent sites to exit the industry are Aluminium.com, ECopper, MetalSpectrum, and CoreMarkets.

Source: Compiled by Commission staff.

Market participants have revealed the following difficulties in replacing the complex current

system of trading relations in which mills, brokers, and end-users attempt to match sellers’

products with buyers’ exact product specifications, principally through a series phone and fax

messages.9

• The community of nonferrous producers, brokers, and customers is often

considered by participants as too small to justify conversion to an Ecommerce platform. In the nonferrous metals industry, mills typically buy

from a limited number of primary metals suppliers and sell to a limited

number of easily identified end-users and brokers. A successful participant

in the metals industry has likely already identified his potential supplier and

customer base. 

• Much of nonferrous metals trade is dominated by specialty, made-to-order

items that have typically been handled through personal relationships

between the mill and the customer, or between the mill and trading

companies. Firms specializing in products that are significantly different in

terms of product specification, quality, mode of delivery, and payment terms,

reported that such products are generally not easy to trade on a centralized
OCTOBER 2001

Industry Trade and Technology Review Nonferrous Metals E-Commerce

 

10 In an auction process, a seller will post an item for sale and buyers compete by making bids

for the item. The auction ends when prices bid no longer rise. In a reverse auction, a buyer posts

a request for an item and sellers make offers, competing against each other to offer the best price

to the buyer. The auction ends when prices offered stop declining. In an auction, competition

among buyers tends to bid prices higher while in a reverse auction competition among sellers

tends to bid prices lower.

 

11 Bernard H. Cherry, “E-Commerce Still Offers Benefits to Ferroalloys,” American Metal

Market, July 2, 2001, p. 10. 

3

exchange. This is particularly true of firms selling lower volume nonferrous

metals such as cobalt, nickel, titanium, and magnesium.

• Some market participants contend that a reverse auction10 model is not

appropriate in nonferrous metal markets, characterized by limited numbers

of sellers, where trade has been largely standardized by relatively welldefined specifications and prices are already widely reported in trade

journals.11

• Sellers reportedly often feel vulnerable in posting a price for metal on a

public electronic site out of concern that a buyer could use this public price

as a wedge to extract lower prices from suppliers, potentially leading to

general suppression of prices. In addition, suppliers often indicate their

reluctance to enter into a contract, if their price is met, with an unfamiliar

entity whose credit history is unknown, preferring instead to deal with

traditional customers. 

• Similarly, buyers of metal reportedly have been reluctant to use an electronic

exchange because the anonymity of such an exchange often means that a

contract to purchase is entered with an unknown entity whose ability to

manufacture a quality product and deliver in a timely manner may be

questionable. At this point, nonferrous metals firms have stated a preference

to deal with firms with which they have established relationships built on

experience and trust. 

• Inasmuch as most transactions in metals require some customer service, the

more extensive or specialized the product, the greater is the need for

customer service. This is particularly true of company proprietary products,

which often require specialized technical support for proper application. Ecommerce platforms reportedly have generally failed to integrate such

proprietary customer support requirements into the electronic transaction

process.

• Market participants have stated that transaction fees, often as high as $8 per

metric ton, charged by electronic trading sites are a deterrent to their use,

adding an additional layer of expense in markets where profit margins are

already very thin. 
OCTOBER 2001

Nonferrous Metals E-Commerce Industry Trade and Technology Review

 

12 See also Tracy Quilter, “Steel Sector Explores E-Commerce Although Wary of Quick

Transition, “ Industry Trade and Technology Review, Oct. 2000, p. 7.

 

13 “How are E-Marketplaces Changing,” p. 1.

 

14 Published sources estimate that raw material expenditures are often the largest segment of

corporate expenditures, representing approximately 35 percent of an average company’s total

revenues. 

 

15 See explanation of auction and reverse auction in footnote 10.

 

16 Betty L. Gibbs, “E-Commerce: The Mining Journey Begins,” Mining Engineering,

Jan. 2001, p. 18.

4

E-Commerce and Its Potential Benefits12

An E-commerce approach to metals transactions is designed to facilitate the exchange of

products, services or information, and to cut or eliminate unnecessary expenses involved in

buying and selling metals. Technology has been developed to facilitate the requirements of online business transactions—from warehousing of material through price negotiations to sales

contract, and to final payment and delivery of material. Potential advantages13 for metals

buyers include efficiencies--

• To improve market transparency by creating an open marketplace where

suppliers can publicly compete on the basis of price. 

• To streamline procurement processes, reduce paperwork, and reduce

operating and sales costs associated with procurement and trading

activities.14

• To allow buyers to attract bids from a larger supplier base than they could

handle manually and to allow better supervision of the bidding process. 

• To save time by allowing purchasing departments to instantly compare

prices, terms and specifications for products from various suppliers.

• To improve financial control as other departments within the buying

organization can track purchasing decisions in real time and reduce

unnecessary purchases.

• To allow closer synchronization of the supply chain between sale of final

product and procurement of raw material inputs, resulting in cost savings

from reduced inventory levels.

On-line trading services have incorporated a number of methods to buy and sell metals,

including formal Electronic Requests for Quotes (ERFQs) and Electronic Offers to Sell

(EOTS), on-line product catalogs, and, in particular, electronic auction and reverse auction15

transactions that encompass the following processes:16

• A seller publicly posts information about an item for sale, including price,

quantity, delivery location and date, payment terms, etc., or a buyer posts

information about an item needed for purchase.
OCTOBER 2001

Industry Trade and Technology Review Nonferrous Metals E-Commerce

 

17 Ibid, p. 19.

 

18 U.S. staff telephone interviews with officials of London Metal Exchange and Spectron

Futures Ltd., July 23 and July 24, 2001.

 

19 The LME offers futures contracts in the following nonferrous metals: primary high-grade

aluminum, aluminum alloy, copper grade A, special high-grade zinc, standard lead, primary

nickel, tin, and silver.

5

• The service site initiates an auction-type process enabling buyers and sellers

to exchange bids and offers.

• Sellers and buyers negotiate over bids and offers until a final decision to

accept or reject is made.

• Some electronic sites offer the options of insurance, certification, on-site

inspection, sampling, payment and shipping services. 

On some sites, the buyer and seller do not know each other’s identity until the transaction is

completed. On other sites, an invitation list is used to initiate the bidding. Auctions are

typically held at a specific time and can cover several days. The existing metals trading sites

all require registration as a participating member of the auction and also verify a company’s

ability or authorization to buy or sell metal, including ability to pay for the metal.17

Current and Near-Term E-Commerce Applications

Metals Futures Markets

The segment of the nonferrous metals market where E-commerce is clearly seen by industry

sources as having a significant potential role is the commodities futures markets. E-commerce

platforms are reported to be more ideally suited for this segment of the market for the

following reasons:18

• Standard, undifferentiated market products are sold; 

• Contract terms tend to be standard; 

• Terms for the physical delivery of metal rarely need to be established; 

• Margins per transaction tend to be low; and 

• Trades are cleared by well-capitalized member firms through a clearing

house, thereby eliminating/reducing credit risk for participants in the trade.

In fact, aggressive efforts are being made by the major global futures exchanges and emerging

competitors to introduce E-commerce features into the trading activities of commodities

futures exchanges (see highlights that follow). The London Metal Exchange (LME)19 and the

New York Mercantile Exchange (NYMEX) are currently the major exchanges dealing in
OCTOBER 2001

Nonferrous Metals E-Commerce Industry Trade and Technology Review

 

20 The essential difference between the LME and the NYMEX is that the LME is a cash and

short-term futures exchange while the NYME is oriented more toward longer-term contracts. In

addition, the NYMEX owns its own central clearing house facility while the LME clears trades

through the London Clearing House, an independently owned entity. The NYMEX is also a more

regional market with its warehouses concentrated in the United States, while the LME is a more

global market with warehouses worldwide.

 

21 A futures contract is a legally binding obligation for the holder of the contract to buy or sell

a particular commodity at a specific price and location at a specific date in the future. Contracts

are standard in terms of quality, quantity, and delivery terms to assure understanding among all

parties to the contract. 

 

22 The NYMEX began using an electronic order entry and matching system with the 

implementation of its ACCESS system in 1993. The LME is the more active market for

nonferrous metals, and is the focus of this article.

 

23 According to officials of the LME, the LME differs in one important aspect from

unregulated futures exchanges such as Spectron Futures. The LME is a recognized exchange

under British financial law and can therefore offer to brokers and their customers certain

financial protections and safeguards that are not available to clients of unregulated exchanges.

6

metals futures.20 The LME currently accounts for more than 90 percent of global base metals

futures trade, transacting nearly $10 billion of business daily. These exchanges serve the

metals industry in four basic roles. 

• Pricing. By providing reference prices for the worldwide contract pricing of

nonferrous metals. Closing LME prices form the basis for the physical

trading of metal.

• Liquidity. By matching suppliers of metal with ultimate users of metal, these

exchanges assure a ready market for products produced and a certain volume

of transactions that assist in supporting price stability, thereby benefitting

both producers and consumers. 

• Hedging. By enabling metals producers and consumers to protect themselves

against the potential risks associated with volatile movements in base metals

prices and guarantee an acceptable final delivery price, through the buying

and selling of financial futures contracts.21

• Delivery. By providing for appropriately located storage facilities or

warehouses to enable producers and consumers to physically exchange metal

and to permit physical delivery of metal in fulfillment of the terms of a

futures contract. 

The established metals commodities futures markets have been adopting electronic trading

methods due to the emergence of certain E-commerce sites that have begun to trade metals

futures and physical metal.22 In particular, Spectron Futures Ltd. and Emetra Ltd. have

emerged to challenge certain trading activities of the LME. 

London Metal Exchange23

The LME has responded to the needs of market users and members by introducing, in

February 2001, phase 1 of an electronic screen trading capability to complement its traditional
OCTOBER 2001

Industry Trade and Technology Review Nonferrous Metals E-Commerce

 

24 Open outcry describes a system to trade metals and determine metals prices through an

open and continuous auction process on an exchange floor, or “ring,” by exchange members who

act on behalf of their customers to buy and sell futures contracts.

 

25 Frank Haflich, “LME Screen Trading Debut said Imminent, American Metal Market,

Feb. 7, 2001, p. 

 

26 Clearing houses are essential in the monitoring and controlling of risk in futures trading,

including adequate margin procedures and the assurance of adequate financial resources among

market participants.

 

27 Since Spectron is a broker and not an exchange, it operates under somewhat different legal

and financial guidelines than does the LME.

 

28 Roberta C. Yafie, “Online Brokerage Spectron Offers Commission ‘Rebate,’” American

Metal Market, Feb. 6, 2001, p. 6.

7

open outcry24 and 24-hour telephone market systems of trading. Under LME Select, member

firms could trade cash contracts and 3-month contracts on-line, in addition to the usual open

outcry ring trading and telephone trading systems. LME Select enables users to view price

information, best bids, volumes available, and the trader’s personal order book for all metals

traded on the LME. Phase 2 of LME Select, implemented in September 2001, permits

members to trade all existing LME futures contracts and options, with automatic matching

and clearing of trades, and will enable member firms to find a quote for specific futures

contracts.25 Under LME Select, orders are placed through an order window. A special trade

ticker acts as a continuous market update to information outlets such as the Reuters news

service. The system is anonymous and parties only discover each other’s identities when the

trade is completed and the clearing trades window is displayed. Final clearing of the trade is

done through the official LME clearing house.26 According to an LME official, transaction

fees for electronic transactions are based on a number of factors, including volume of trading

activity and exchange-client relationships. The LME estimates that 10 percent of base metals

futures is presently traded on-line. 

Spectron Futures Ltd.

In June 2000, London-based Spectron Futures Ltd. (SF), a privately owned commodities

brokerage firm,27 inaugurated its on-line trading system to allow LME clearing house

members to trade LME metal futures contracts and options on-line through its platform. As

with LME trading, the system is anonymous, with the identity of the parties made available

to each other only when the trade has been matched. Matched trades are cleared through the

London Clearing House, as is now done by LME members. A transaction fee of 0.5 percent,

typically $5 per metric ton, is assessed by charging dealers who accept offers posted on-line.

SF competes with LME Select in providing an electronic platform for dealers, reportedly

adding to market liquidity and transparency, but is dependent on the LME in that the contracts

it trades are LME contracts. SF reportedly competes successfully with the LME only by

offering the services of a more complete trading platform to dealers, including lower

commissions and greater ease in executing the trading of contracts. From June 2000 through

January 2001, the value of all metals futures traded via SF exceeded $9 billion, with

aluminum accounting for nearly 50 percent of total volume traded.28 

Emetra Ltd.

In October 2000, London-based Emetra Ltd. launched its platform for the physical trading of

nonferrous metals on the LME. The platform allows members to trade nonferrous metals
OCTOBER 2001

Nonferrous Metals E-Commerce Industry Trade and Technology Review

 

29 “Online Exchange: Emetra Denies Buying LME Stocks,” Metals Week, Oct. 16, 2000, p.1.

 

30 USITC staff telephone interview with James Van Bregt, Emetra Ltd., June 29, 2001.

 

31 For example, MetalOrigins Inc., West Palm Beach, Florida, claims that it is the only firm

building websites capable of offering nonferrous metals customers complete supply chain and

transactions management services, including the ability to manage contracts, release goods, track

deliveries, and create invoices in real time. It has been reported that other firms are building web

sites that provide various aspects of supply management services.

 

32 Bernard H. Cherry, “E-Commerce Still Offers Benefits to Ferroalloys,” American Metal

Market, July 2, 2001, p. 20.

 

33 USITC staff telephone interview with Alec Miller, MetalOrigins Inc., July 18, 2001.

8

through negotiation offers between principals, through tender offers between principals, and

through auction or reverse auction of metals. A transaction fee of 0.5 percent, typically $5 per

metric ton, is charged to respondents who accept offers. Emetra’s goal is for its trading

system to eliminate current market inefficiencies, estimated at $1 billion annually,29 by

allowing buyers and sellers of physical metal to be linked electronically, thereby reducing

paperwork. According to Emetra, the biggest obstacles to the physical trading of metals are

related to lack of electronic access by all market buyers and sellers worldwide and the

resistance of market participants to alter their traditional patterns of trading metals, whether

through telephone or fax machine. Emetra allows member firms to offer and bid for all

standard LME-traded metals, as well as copper rod and aluminum rod, two non-LME metals.

Emetra competes with the LME in the physical trading of LME metals, but contends it has

an advantage, at present, by concentrating exclusively on trading of physical metals whereas

LME physical metals trading is a small portion of its total metals volume.30 In addition,

Emetra’s platform reportedly has the capability to trade odd-lot sizes of metals while the LME

only allows trading in standard contract sizes of metal.

Supply-Chain Management

A limited number of E-commerce firms31 have survived by modifying their original intention

of the physical trading of metals and have instead concentrated on creating efficiencies

through improvements in “supply-chain management.” These firms offer software systems

that seek to improve the efficiency of an organization through automating many of the

complex day-to-day operations of the business and by integrating these processes with data

reporting.32 The reference box illustrates a typical transaction in the metals industry

compared with the same transaction using an E-commerce supply-chain management system.

The goal of a supply-chain management system is to substitute electronic communication for

the series of fax, phone, and traditional mail communication, thereby achieving significant

time and resource savings for the buyer and seller, fewer data entry errors, better inventory

control, and better information available for business managers, all reported to contribute to

cost savings and productivity improvements.33

Transactions Management

In addition to supply chain management, another small but growing area of nonferrous Ecommerce involvement is in transactions management. A small number of firms has emerged

to offer customers software that makes available on-line Requests for Quotes
OCTOBER 2001

Industry Trade and Technology Review Nonferrous Metals E-Commerce

 

34 On-line catalogs enable sellers to post available materials and to maintain and control

access to multiple catalogs and allow buyers to view product supply and specifications and to

facilitate direct purchasing. MetalOrigins Inc., website at http://www.metalorigins.com/asp/

Home.asp?

 

35 USITC staff telephone interview with Alec Miller, MetalOrigins Inc., July 24, 2001.

9

(ERFQs), on-line Offers to Sell (EOTS), and on-line product catalogs.34 The on-line process

is reported to be similar to the processes buyers and sellers have traditionally used to request

and offer metal, in that all transactions are private and confidential with only the buyer and

seller having knowledge of the details of the transaction. After the ERFQ and EOTS have

been exchanged, sellers and buyers can use the new systems to communicate back and forth

until a transaction is completed. In addition to price, factors such as quality, quantity, delivery

terms, payment terms, material size, chemistry requirements, and customer service can be

negotiated on-line.35

Private Exchanges

A private exchange is a new type of electronic marketplace that is just now emerging and has

not yet found an application in nonferrous metals, although it is being used by certain steel

companies. An on-line private exchange differs significantly from a public exchange in that

a private exchange is maintained by a single company with a select group of suppliers and

customers that are regulated by the owner of the exchange. In addition, private exchanges can

be tailored to serve specific projects and customers, unlike public exchanges, which are

A Comparison of Typical versus E-Commerce Transactions

In a typical metals transaction, a buyer and a seller of metal agree upon the terms of a

contract, including price and payment terms, through a process of negotiation. The seller then waits for

the buyer to request, usually by fax or phone, delivery of the goods. The seller then checks inventory

and phones or faxes a trucking company and the warehouse to set up a delivery schedule. The

warehouse ships the goods, then faxes the bill of lading to the seller. The seller takes the fax of the bill

of lading, enters the information into their accounting system, and generates an invoice which is sent by

mail to the buyer with the bill of lading. The seller updates their inventory to reflect the delivery. 

In an E-commerce supply-chain management system, once a sale has been made, the seller

records the sale electronically into the system. The buyer logs into the secure website and requests

delivery of the goods from a list of contracts logged in the system. The seller is alerted via Email of the

request, reviews the request, and can approve the request by issuing an electronic alert to the warehouse.

The warehouse receives the alert, reviews the request, ships the goods, and records the bill of lading

electronically into the system. Both buyer and seller are alerted that the goods have been shipped and the

seller’s inventory is automatically deducted with the exact amount shipped in real time.

Source: Cherry, “E-Commerce still offers Benefits to Ferroalloys,” p. 20 and USITC staff telephone interview

with representative of MetalOrigins Inc., July 18, 2001.
OCTOBER 2001

Nonferrous Metals E-Commerce Industry Trade and Technology Review

 

36 Pimm Fox, “Private Exchanges Drive B2B Success,” Computerworld, May 7, 2001, at

http://www.itworld.com/Tech/3478/CWD010507ST.

 

37 Jennifer Caplan, “Private Exchanges Reinvent B2B: Private E-Marketplaces May Improve

upon the Model Created by Public B2B Sites,” CFO.com, Apr. 2, 2001, at http://www.cfo.com/

pr...1,4580,87%7C88% 7CAD%7C2484,00.html.

 

38 Ibid.

10

generic in nature in order to accommodate all users.36 As presently constituted, private

exchanges permit customers to enter orders, check order status, get chemical analysis

information, and acquire information on delivery of the product. The material that is traded

is done so through a bidding process. A customer will bid on material listed on the exchange

and is notified through the exchange if they have been awarded the material. The customer can

then submit a purchase order via E-mail or fax.

A principal advantage attributed to a private exchange is that it does not force participants to

give up sensitive information to competitors or to suppliers serving those competitors, whereas

the initial public exchanges reportedly encountered resistance because they required the

public sharing of price information.37 By encouraging suppliers and customers to exchange

information on a secure site, one industry observer notes that a private exchange gives

suppliers a more accurate picture of customer needs, resulting in reductions in excess

inventories and better management of distribution channels. With real-time access to trends

in product demand, manufacturers are reported to be able to tailor production cycles to better

match demand requirements. Another advantage attributed to a private electronic exchange

is that it permits aggregation of transactions when a customer orders a variety of products

from a company with multiple product lines or when a supplier sells to different divisions of

a company, resulting in cost and time savings.38 Presently, these situations typically require

separate purchase orders. 

Conclusion

Although the use of E-commerce platforms in the public trading of nonferrous metals is

unlikely to meet the original highly optimistic projections for their application and achievable

cost savings, the industry is slowly beginning to use on-line-trading systems in various market

segments. Conversations with market participants indicate that the pace of adoption will

greatly depend on the market segment and the ability of these software systems to provide

sustained value for customers. It now appears that the use of on-line trading systems that

focus on the public trading of physical metal will continue to lag behind their use in other

markets because of the unique nature of the nonferrous metals industry. However,

opportunities clearly exist for the spread of electronic technology in futures markets, for

example, where it is quickly expanding; in facilitating the sale and delivery of goods; and in

providing important management information on shipments, inventories, and billing to better

aid managers in their decision-making.#
OCTOBER 2001

Industry Trade and Technology Review FDI in Infrastructure Services

 

1

 The views expressed in this article are those of the author. They are not the views of the U.S.

International Trade Commission (USITC) as a whole or of any individual Commissioner.

 

2

 Data on services investment outside of the OECD member countries are not available.

Belgium, Ireland, Japan, Korea, Luxembourg, New Zealand, Spain, and Turkey do not report

inbound direct investment by industry (see box) to the OECD, and are therefore not included in

this report.

 

3

 See Rudolf Adlung, “Services Trade Liberalization from Developed and Developing Country

Perspectives,” in Pierre Sauvé and Robert M. Stern, eds., GATS 2000: New Directions in Services

Trade Liberalization (Washington, DC: The Brookings Institution, 2000), pp. 112-131.

 

4

 The GATS is a multilateral treaty signed in 1994, under the auspices of the World Trade

Organization’s Uruguay Round. 

11

Foreign Direct Investment in Infrastructure

Services in OECD Countries

Laura Bloodgood1

lbloodgood@usitc.gov

(202) 708-4726

In recent years, the service sector has accounted for an increasingly larger

share of GDP in most countries. Prominent among service-sector industries

are the infrastructure services, such as finance, telecommunications, and

utilities, which provide most other businesses with efficient and low-cost

services that they need in order to compete in global markets. Regulatory

and technological changes in the 1990s have all encouraged foreign direct

investment (FDI) to play a more significant role in the provision of such

services in many countries. This article examines the extent of inbound

FDI in the service sectors of the member countries of the Organization for

Economic Co-operation and Development (OECD),2 with special attention

to investment trends in infrastructure industries.

FDI in OECD infrastructure industries has increased for several reasons. First, in an effort

to attract capital and increase efficiency, many countries have unilaterally removed

burdensome investment regulations, especially those pertaining to foreign firms. Second, some

countries have also undergone the large-scale privatization of state-owned enterprises in these

industries, many of which have been purchased by foreign investors.3 Third, technological

advances in telecommunication services and electricity and gas services have encouraged

profound changes in the market structures that characterize these industries. And fourth,

upgrading existing infrastructure to take advantage of these new technologies requires

substantial capital, much of which has also had to come from FDI. These combined

developments have generated new private-sector competition in many countries. Much of this

liberalization has been formalized through the General Agreement on Trade in Services

(GATS).4 For instance, special protocols to the GATS have been concluded for the financial

services and telecommunication services industries. Energy-related services may well be on

the agenda for the impending World Trade Organization (WTO) negotiations. 
OCTOBER 2001

FDI in Infrastructure Services Industry Trade and Technology Review

 

5

 Nineteen OECD member countries reported data on their inbound direct investment position

for 1998. Belgium, Denmark, Greece, Ireland, Japan, Korea, Luxembourg, New Zealand, Spain,

and Turkey did not report such data.

 

6

 Calculations by the Commission, from OECD data. OECD, International Direct Investment

Statistics Yearbook 2000 (Paris: OECD, 2001).

 

7

 Average annual growth rates calculated by USITC staff from available OECD data. The

Czech Republic reported service sector investment data from 1991-98, Poland reported data from

1994-98, and Hungary reported data from 1992-98.

 

8

 See Swiss Re, Sigma, No. 1/2001, pp. 19-22, for details on preparation for EU membership

specific to the insurance industry.

12

Direct Investment in OECD Service Sectors

Among the member countries of

the OECD, the service sector

accounted for 56 percent of total

inbound direct investment stock,

on average, in 1998. This

reflected average annual growth

of 22 percent in service sector

investment stock during 1990-98,

compared to 19-percent average

annual growth in all industries.5

The United States held the

greatest amount of service-sector

investment in 1998, with $401.7

billion in direct investment stock.

Germany and the United

Kingdom followed with $188.1

billion and $179.4 billion,

respectively (table 1). The

investment levels reflect both the

importance of the service sector

in each country, and the relative

size of each economy. The share

of service-sector investment was

highest in Switzerland, Germany,

and Denmark, where 80 percent

of inbound direct investment stock resided in service industries (figure 1).6

The Czech Republic, Poland, and Hungary appeared to experience the most rapid growth in

inbound service-sector investment stock during 1990-98, with average annual growth rates

of 88 percent, 63 percent, and 43 percent, respectively.7 These rapid growth rates principally

reflect a wave of privatization in the infrastructure service industries during the 1990s, along

with the liberalization of foreign investment rules designed to meet standards for entry into the

European Union.8

Direct Investment

Direct investment is a significant investment by a

parent company in a foreign-based affiliate, such

that the parent has substantial influence in the

management of the affiliate company. For statistical

purposes, the International Monetary Fund (IMF)

recognizes direct investment to be ownership of 10

percent or more of the voting securities of a foreign

business enterprise. This is the same standard

applied by U.S. statistical agencies and most other

OECD member countries. The data presented in

this paper are derived from direct investment

position, or stock data, which is a cumulative

statistic. Direct investment position measures the

sum of parents’ equity holdings in their foreign

affiliates, plus the net value of loans from parents to

their affiliates. Direct investment can take place in

two ways: through foreign investment in new firms

or production facilities (greenfield investment), or

through cross-border mergers with and acquisitions

of existing facilities (brownfield investment).
OCTOBER 2001

Industry Trade and Technology Review FDI in Infrastructure Services

 

9

 U.S. Department of State telegram No. 06302, “Czech Privatization Revisited,” prepared by

U.S. Embassy, Prague, Oct. 4, 1996.

 

10 U.S. Department of State telegram No. 00306, “Czech Telecoms: Mobile Phones and 3G

Licenses,” U.S. Embassy, Prague, Feb. 1, 2001.

13

Table 1

Inbound direct investment position in services, 1990-98

Country

Inbound direct

investment, 1998

Share of total inbound

direct investment,

1998

Average annual growth

of direct investment,

1990-98

Million U.S. dollars —————————Percent—————————

Australia ................... 52,324.9 53.8 6.7

Austria ..................... 14,719.3 72.8 15.3

Canada .................... 93,092.0 63.0 18.9

Czech Republic .............. 7,072.1 53.2 88.4

Denmark ................... 23,207.9 79.6 13.7

Finland .................... 7,089.2 45.2 20.7

France ..................... 94,215.0 58.3 10.7

Germany ................... 188,085.1 80.7 14.3

Greece1.................... 8,708.0 50.5 (

2

)

Hungary .................... 6,640.5 60.2 42.8

Italy ....................... 58,778.5 59.9 13.1

Mexico3.................... 19,641.0 35.2 14.4

Netherlands ................. 88,683.6 55.2 15.9

Norway .................... 9,694.2 36.9 12.1

Poland ..................... 7,221.0 32.1 63.4

Portugal .................... 13,799.3 66.9 13.2

Sweden .................... 20,259.2 38.7 21.5

Switzerland ................. 54,946.9 83.1 9.2

United Kingdom .............. 179,367.1 59.0 12.3

United States ................ 401,652.0 50.6 10.1

 

1

 Data are for 1999.

 

2

 Not available.

 

3

 Data are for 1997.

Note.—Data are not available for Belgium, Ireland, Japan, Korea, Luxembourg, New Zealand, Spain, and Turkey.

Source: Calculations by Commission staff, based on OECD data.

In the Czech Republic, the largest shares of inbound direct investment in service industries

went to financial services, along with wholesale/retail trade and repair services, followed by

the communications and utilities industries. During 1991-96, more than 4,700 state-owned

firms with $32 billion in assets were sold to the private sector. New FDI accounted for $6

billion of this total.9 Investment in the communications industry during 1990-98 primarily

targeted the mobile telephone industry.10 FDI in Czech infrastructure services is likely to

show continued strong growth in subsequent years. In 1998, the country launched a

privatization program for its four largest banks, which finished on schedule in June 2001, with

the sale of a 48-percent stake in KomerÖní Banka to Société Générale (France) for
Figure 1

Inbound direct investment position, by country and sector, 1998

OCTOBER 2001

FDI in Infrastructure Services Industry Trade and Technology Review

14
OCTOBER 2001

Industry Trade and Technology Review FDI in Infrastructure Services

 

11 “The End of the Beginning,” The Daily Deal, June 11, 2001, p. 4; and “Czech Republic:

Focus on Privatization Deals,” Acquisitions Monthly, July 31, 2001, found at Internet address

http://www.acquisitions-monthly.com/, retrieved Aug. 1, 2001.

 

12 U.S. Department of State telegram No. 00277, “Czech Banking Sector on Road to

Recovery,” U.S. Embassy, Prague, Jan. 31, 2001.

 

13 U.S. Department of State telegrams, No. 00248, “Czech Telecoms: Privatization and

Interconnectivity,” prepared by U.S. Embassy, Prague, Jan. 29, 2001; and No. 00306 “Czech

Telecoms: Mobile Phones and 3G Licenses,” prepared by U.S. Embassy, Prague, Feb. 1, 2001;

and “Vivendi and Telefonica Interested in Cesky Telecom,” Kagan World Media, June 4, 2001,

found at Internet Address http://www.kagan.com/archive/, retrieved July 18, 2001.

 

14 “Foreigners Buy Up Poland’s Banks,” Euromoney, Sept. 2000, found at Internet address

http://www.euromoney.com/, retrieved Mar. 1, 2001.

 

15 Swiss Re, Sigma, No. 1/2001, table A3, p. 34.

 

16 Polish Agency for Foreign Investment, found at Internet address http://www.paiz.gov.pl/,

retrieved July 19, 2001.

 

17 “Polish Treasury Selects Power Partner,” Acquisitions Monthly, May 24, 2001; “Europe

Looks Ahead to the US,” Acquisitions Monthly, Jan. 1, 2000; and “EdF and EnBW Acquire

Rybnik Power Plant,” Acquisitions Monthly, July 30, 2001, all found at Internet address

http://www.acquisitions-monthly.com/, retrieved Aug. 1, 2001.

 

18 U.S. Department of State, Energy Information Administration, Hungary: Country Analysis

Brief, found at Internet address http://www.eia.doe.gov/emeu/international/hungary.html,

retrieved Feb. 28, 2001.

 

19 Individual company websites: http://www.dedasz.hu/angol.htm; http://www.demasz.hu/;

http://www.edasz.hu/eng/index_e.html, all retrieved Mar. 1, 2001.

15

$1.01 billion.11 The banks have been sold primarily to foreign investors.12 Four new mobile

telecommunication licenses were also scheduled for auction in 2001. Cesky Telecom, the

state-owned landline telephone company, is scheduled to be privatized during the second half

of 2001, but as of July 2001, the Czech Government had not announced final details of the

privatization process.13

In Poland, the financial services industry attracted the largest share of infrastructure services

investment. The majority of Poland’s banks have been privatized, and approximately 70

percent of the country’s commercial banking sector is now controlled by foreign investors,

most prominently from Germany, Italy, and the United States.14 In the insurance industry,

foreign-controlled firms accounted for 99 percent of the nonlife market and 78 percent of the

life insurance market in 1999.15 More recently, foreigners have invested in Poland’s

telecommunications and utilities industries as well. France Telecom invested $3.2 billion and

Sweden’s Telia invested $300 million in the telecommunications industry during 2000.16

Several French and German firms have acquired stakes in Polish electric and gas utilities since

2000. The Polish Government is planning to find strategic investors, most likely large global

companies, for more than 60 electric power generation and distribution firms by the end of

2002.17

In Hungary, the largest share of service-sector direct investment (23 percent) has been

concentrated in the electric, gas, and water industries. Much of this investment went to

finance the privatization of Hungary’s electric power sector during the 1990s.18 Electricité

de France holds substantial shares in several Hungarian electricity distribution companies.19

Other industries receiving significant direct investment include financial services and
OCTOBER 2001

FDI in Infrastructure Services Industry Trade and Technology Review

 

20 Swiss Re, Sigma, No. 1/2001, Table A3, p. 34.

 

21 Compiled by KPMG from press reports. It is possible that some mergers are not included, or

that the value of the transactions changed between the press announcement and the concluded 

transaction. When no value for a merger is reported in the press, KPMG records the value as

zero, so total values for broad industry categories are most likely understated. KPMG Corporate

Finance, Cross-Border Mergers and Acquisitions database, received Nov. 2000.

16

communications. For example, foreign insurance firms accounted for approximately 90

percent of market share in both the Hungarian life and nonlife insurance markets in 1999.20

Since cross-border mergers and acquisitions are one of the primary sources of FDI, the service

industries that register the highest proportions of inbound direct investment stock are also the

industries which registered the highest number of cross-border mergers and acquisitions in

recent years. In 1999, a total of 5,232 cross-border mergers took place worldwide, valued at

$804 billion. Service sector firms were involved in 2,999, or 57 percent, of these mergers, and

accounted for $452 billion (56 percent) of the total value (table 2). The infrastructure services

addressed herein jointly accounted for 71 percent of cross-border mergers and acquisitions in

the service sector by value, but only 29 percent of the number of such mergers.21 The

remainder of the article addresses three infrastructure service industries in greater detail:

financial services; telecommunication services; and electric, gas, and water utilities.

Table 2

Worldwide cross-border mergers and acquisitions in the service sector, 1999

Industry Number of mergers Value of mergers

Billion U.S. dollars

Communications ...................... 220 167.1

Financial services ..................... 481 95.9

Electric, gas & water ................... 174 56.9

Real estate and business services ......... 1,199 45.6

Trade and repairs ..................... 320 29.7

Transport ............................ 180 15.1

Hotel and restaurant services ............. 73 6.5

Construction ......................... 78 3.6

Other services ........................ 274 31.2

 Total service sector .................. 2,999 451.5

 Total all industries .................. 5,232 804.0

Source: Calculations by Commission staff, based on data provided by KPMG Corporate Finance.

Telecommunication Services

Technological and regulatory changes in the telecommunication service industry in recent

years have encouraged a significant increase in FDI. Traditionally, telephone services have

been provided by monopoly telephone companies, either government-owned, or privately

owned and highly regulated. The high infrastructure costs required to provide universal

telephone coverage resulted in natural monopolies in most countries. More recently, however,

new technologies have lowered infrastructure costs and permitted increased competition,

including foreign competition. In wireless telecommunications, the infrastructure costs are

so much lower than for landline systems, that it is economically feasible for competing

telephone companies to invest in competing networks. Governments have embraced this newly
OCTOBER 2001

Industry Trade and Technology Review FDI in Infrastructure Services

 

22 Includes data for Australia, France, Germany, Hungary, Italy, Mexico, the Netherlands,

Norway, Poland, Portugal, the United Kingdom, and the United States. No data are available for

other OECD members.

 

23 The remainder of British Telecom was sold off in two sales in 1991 and 1993, with the

three sales raising a total of $22.9 billion. See International Telecommunication Union (ITU),

World Telecommunication Development Report 1996/97 (Geneva: International

Telecommunication Union, 1997), p. 52.

17

competitive system as a way to increase efficiency in the market, thus lowering prices for

consumers. To this end, many governments have reformed their telecommunications

regulations, issuing new licenses and permitting foreign investment. The result has been very

rapid growth in FDI in the telecommunications industry.

During 1990-98, inbound direct investment in telecommunications increased at an average

annual rate of 75 percent in OECD member countries.22 The United States was the largest

recipient of such investment, with $32.5 billion, followed by the United Kingdom, with $19.1

billion (table 3 and figure 2).23 The United Kingdom began the process of privatizing its

telecommunications industry with the sale of a 50-percent stake in British Telecom, for $6.4

billion, in 1984.

Table 3

Inbound direct investment position in telecommunications in OECD countries, 1998

Country Inbound position 

Telecommunications/total

inbound services position

Million U.S. dollars Percent

Australia ................ (

1

) (

1

)

Austria .................. 1,534.8 10.4

Canada ................. (

1

) (

1

)

Czech Republic ........... 1,131.0 16.0

Denmark ................ 6,496.0 28.0

Finland ................. (

1

) (

1

)

France .................. 2,342.3 2.5

Germany ................ 372.9 0.2

Greece ................. (

1

) (

1

)

Hungary ................. 677.2 10.2

Italy2................... 2,228.7 4.4

Mexico2................. 1,191.0 6.1

Netherlands .............. 2,653.4 3.0

Norway2................. 59.4 0.5

Poland .................. 162.0 2.2

Portugal ................. 135.6 1.0

Sweden ................. (

1

) (

1

)

Switzerland .............. (

1

) (

1

)

United Kingdom ........... 19,112.0 10.7

United States ............. 32,468.0 8.1

 

1

 Not available.

 

2

 Data are for 1997.

Note.—Data are not available for Belgium, Ireland, Japan, Korea, Luxembourg, New Zealand, Spain,

and Turkey.

Source: Calculations by Commission staff, based on OECD data.
OCTOBER 2001

FDI in Infrastructure Services Industry Trade and Technology Review

 

24 Ameritech was purchased by U.S.-based SBC Communications Corporation in 1999. 

“Europe’s Incumbents Learn the American Way,” Communications Week International, May 4,

1998; “SBC Bid May Boost Ameritech in Europe,” Bloomberg News, May 11, 1998; and

“Telecom Italia Outbids Ameritech to Win Telekom Austria Stake,” Bloomberg News, Oct. 20,

1998, all found at Internet address http://www.totaltele.com/, retrieved July 31, 2001.

 

25 ITU, p. 51.

 

26 Privatisation International, database of completed mergers and acquisitions, found at

Internet address http://www.privatisationintle.com/, retrieved Feb. 28, 2001; and ITU, p. 51.

18

Figure 2

Inbound direct investment position: Telecommunications investment, by country, 1998

In five OECD countries, telecommunication services accounted for large shares of all inbound

direct investment in the service sector: Denmark, the Czech Republic, the United Kingdom,

Austria, and Hungary. In 1998, telecommunications accounted for 28 percent of inbound

direct investment in services in Denmark; 16 percent in the Czech Republic; 11 percent in the

United Kingdom; and 10 percent in both Austria and Hungary (see table 3). In Denmark,

U.S.-based Ameritech purchased 42 percent of former monopoly provider Tele Danmark for

$3.1 billion in 1998, and in Austria, Telecom Italia paid $2.3 billion for a 25-percent stake

in former monopoly Post und Telekom Austria in 1998.24 In 1994 and 1995, the Czech

Republic sold a total of 49 percent of SPT Telecom for $1.3 billion, with Swiss Telecom and

Netherlands PTT purchasing the largest shares.25 Deutsche Telekom and Ameritech

purchased two-thirds of Hungary’s Matav for $1.7 billion, in two separate transactions in

1993 and 1996.26

Privatization, often accompanying regulatory reform, has opened many new markets to foreign

investment. By the end of 1998, at least 69 state-owned telephone and postal
OCTOBER 2001

Industry Trade and Technology Review FDI in Infrastructure Services

 

27 Calculations by Commission staff, based on data from ITU, pp. 45-54; and USITC, Global

Privatization Initiatives database.

 

28 ITU, pp. 45-54

 

29 USITC, Global Privatization Initiatives database.

 

30 KPMG Corporate Finance.

 

31 When the merger was first proposed in late 1999, it was valued at approximately $136

billion. Due to changes in the share prices of both Mannesmann and Vodafone after the bid was

announced, the merger was valued at over $180 billion by the time it was completed. See

Michael Murphy, “Much done, more to come,” Acquisitions Monthly, Jan. 1, 2000, found at

Internet address http://www.acquisitions-monthly.com/, retrieved Mar. 2, 2001; and

“Mannesmann Board OKs Vodafone Merger Bid,” Reuters, Feb. 4, 2000, found at Internet

address http://www.totaltele.com/, retrieved Feb. 26, 2001.

 

32 UNCTAD, World Investment Report 1999 (Geneva: United Nations, 1999), p. 96.

 

33 “The Waiting Game,” Jan. 2001, and “Much Done, More to Come,” Jan. 2000, Acquisitions

Monthly, found at Internet address http://www.acquisitions-monthly.com/, retrieved Mar. 2, 2001.

19

companies had been privatized worldwide, in deals valued at over $240.5 billion, with foreign

investors playing an active role in the process.27 Firms in Japan, the United Kingdom,

Germany, Brazil, and Mexico accounted for over $123 billion of this total, with Japan’s NTT

alone raising $70.5 billion.28 Foreign interests have also invested large sums in many countries

to acquire mobile telephone licenses, and to set up the infrastructure necessary to offer mobile

telephone services. Extensive cross-border investment in the industry has continued through

2001. For example, Telecom Italia paid $700 million for 25 percent of the Austrian

telecommunications firm Mobilkom in 1997, Sweden’s Telia raised $8.6 billion from foreign

investors for a 29-percent stake in the company, and Deutsche Telekom (Germany) paid $939

million for 51 percent of the Slovak Republic’s telephone company in 2000.29

Considerable amounts of FDI in the industry also stem from cross-border mergers and

acquisitions between private companies in the United States and Europe. In 1998, for

example, there were 232 cross-border mergers or acquisitions in the telecommunication

services industry, valued at $40.4 billion. This was followed in 1999 by 227 cross-border 

mergers, with a sharply increased value of at least $167 billion.30 The higher 1999 value was

largely driven by British-based Vodafone AirTouch’s purchase of Mannesmann, a German

telecommunications company, for $136 billion.31 Vodafone AirTouch is itself a product of

a $65.9 billion merger of a British and a U.S. firm in 1999.32 Among many other recent

cross-border mergers in the industry were Deutsche Telekom’s $53.9-billion acquisition of

U.S.-based Voicestream Wireless Corporation and its $7.2-billion takeover of U.S. mobile

operator PowerTel, both during 2000. Deutsche Telekom also acquired British-based One

2 One for $13 billion during 1999. In a separate merger, British Telecommunications acquired

Viag Interkom of Germany for $13 billion during 2000.33

Electric, Gas, and Water Utilities

Direct investment trends in the electric, gas, and water utilities industry once again illustrate

the impact that technological developments and regulatory reforms can have on investment

growth. As in the case of the telecommunications industry, the utilities industries have

traditionally operated as highly regulated natural monopolies, whether government-owned or

privately owned. Electric power, gas, and water utilities were characterized by high
OCTOBER 2001

FDI in Infrastructure Services Industry Trade and Technology Review

 

34 USITC, Electric Power Services: Recent Reforms in Selected Foreign Markets, publication

No. 3370, Nov. 2000, pp. 2-6 - 2-7.

 

35 See International Energy Agency, Natural Gas Pricing in Competitive Markets (OECD:

Paris, 1998), pp. 13-52; and World Bank, “Private Participation in the Water and Sewerage

Sector - Recent Trends,” Note No. 147, Aug. 1998.

 

36 Includes data for Australia, Austria, the Czech Republic, France, Germany, Hungary,

Mexico, the Netherlands, Poland, Portugal, Sweden, the United Kingdom, and the United States.

No data available for other OECD members.

 

37 Electricity Supply Association of Australia, Electricity Australia 1999 (Sydney: ESAA,

1999), pp. 21 and 24; and U.S. Department of Energy, Energy Information Administration,

Country Analysis Brief: Australia, June 1999, found at Internet address

http://www.eia.doc.gov/emeu/cabs/, retrieved Feb. 2, 2000.

20

infrastructure costs, making it too expensive to replicate the infrastructure in order to

introduce competition. Beginning in the early 1990s, new technologies offered increased

efficiencies, particularly in the electric power industry. The two most important technological

innovations in electric power were Combined Cycle Gas Turbine technology (CCGT), and

improved communication and control methods for electric power network systems. CCGT is

a highly efficient gas turbine system used in electricity generation. The new technology has

greatly reduced the fixed costs of generating electricity, permitting additional generators to

enter the market, thus creating increased competition in the electric power industry. At the

same time, the innovations in network communication have allowed effective coordination

between an increased number of electric power generation and distribution firms in a single

electricity network, again increasing the overall efficiency of the system.34

In the natural gas and water industries, reforms have introduced greater efficiency into the

systems by separating the production, transmission and distribution functions of vertically

integrated utility companies, and facilitating market competition where possible. For example,

many countries have introduced competition in both the production and distribution segments

of the natural gas industry. In the water industry, privatization of water companies has

reportedly increased operational efficiency through the introduction of a profit motive, without

launching a system of market competition.35 In response to these changing conditions, a

number of countries have opened their electric power, natural gas, and water industries to FDI

as a means to pay for necessary infrastructure development. Inbound direct investment stock

in the utilities industry increased at an average annual rate of 37 percent during 1990-98,36

compared with 19 percent for all industries, and 22 percent for the service sector as a whole.

The United Kingdom was the largest destination for inbound investment in the utilities

industries during the 1990s, with total inbound direct investment stock of $19.5 billion in

1998 (figure 3). Australia ranks second, with $5.1 billion. In the United Kingdom and

Australia, electric, gas, and water services account for 6 percent and 5 percent, respectively,

of total inbound direct investment in the service sector. Both of these countries have recently

completed significant privatization programs involving their electricity and gas industries,

which attracted large foreign investments during the 1990s. In Australia, for example, the

State of Victoria privatized its six major generating companies between 1996 and 1999. The

sales yielded $23.5 billion, primarily from U.S. and British investors.37 In the
OCTOBER 2001

Industry Trade and Technology Review FDI in Infrastructure Services

 

38 “Summary of Who Owns Whom,” Business Information Center, Electricity Association,

Apr. 9, 2001, found at Internet address http://www.electricity.org.uk/, retrieved July 18, 2001.

 

39 Hungarian Investment and Trade Development Agency, “Doing Business in Hungary,” at

Internet address http://www.itd.hu/guide/aaguide.htm#Countryprofile, retrieved Jan. 4, 2001.

 

40 USITC, “Electric Power Services,” pp. 14-18.

 

41 Pacificorp, 8-K report filed with the Securities and Exchange Commission (SEC), Dec. 8,

1998; United States Filter, 8-K report filed with the SEC, May 10, 1999; United Water

Resources, 8-K report filed with the SEC, July 31, 2000; all found at Internet address

http://www.sec.gov/Archives/edgar/data, retrieved July 18, 2001.

21

Figure 3

Inbound direct investment position: Utilities investment, by country, 1998

In the United Kingdom, U.S.-based power companies owned seven electric power firms, and

state-owned Electricité de France owned another as of April 2001.38

In Hungary and Sweden, the utilities industries accounted for 25 percent ($1.6 billion) and 18

percent ($3.6 billion), respectively, of total inbound service sector investment stock (table 4).

Hungary privatized its public utility companies during the 1990s. As part of the process,

foreign investors acquired shares in gas and electricity distribution firms and two electric

power plants.39 Since 1992, market reforms in Sweden’s electricity industry have opened up

the electricity generation segment of the industry to foreign investment, and firms from

Germany, Norway, France, Finland, and the United States have subsequently invested in the

Swedish electric power market.40

The United States has also benefitted from significant foreign investment in its electricity and

water industries. Most notably, Scottish Power purchased Pacificorp for $7.9 billion in 1998;

Vivendi (France) purchased U.S. Filter for $5.5 billion in 1999; and Suez Lyonnaise des Eaux

(France) purchased United Water Resources for $1.02 billion in 2000.41
OCTOBER 2001

FDI in Infrastructure Services Industry Trade and Technology Review

 

42 Allen N. Berger, et. al., “Globalization of Financial Institutions: Evidence form CrossBorder Banking Performance,” in Papers on Financial Services (Washington, DC: Brookings

Institution Press, 2000), pp. 30-31.

22

Table 4

Inbound direct investment position in electricity, gas, and water services in OECD

countries, 1998

Country Inbound position 

Utilities/total inbound

services position

 Million U.S. dollars Percent

Australia ................. 5,065.0 9.7

Austria ................... 34.0 0.2

Canada .................. (

1

) (

1

)

Czech Republic ............ 594.7 8.4

Denmark ................. 283.8 1.2

Finland .................. (

1

) (

1

)

France ................... 2,124.1 2.3

Germany ................. 640.0 0.3

Greece .................. (

1

) (

1

)

Hungary .................. 1,629.8 24.5

Italy ..................... (

1

) (

1

)

Mexico ................... 69.0 0.4

Netherlands ............... 588.4 0.7

Norway .................. (

1

) (

1

)

Poland ................... 31.0 0.4

Portugal .................. 661.3 4.8

Sweden .................. 3,649.2 18.0

Switzerland ............... (

1

) (

1

)

United Kingdom ............ 19,539.4 10.9

United States .............. 2,558.0 0.6

 

1

 Not available.

Note.—Data are not available for Belgium, Ireland, Japan, Korea, Luxembourg, New Zealand, Spain,

and Turkey.

Source: Calculations by Commission staff, based on OECD data.

Financial Services

Recent regulatory reforms and technological innovations have created incentives for financial

services firms to consolidate both domestically and across borders, leading to increased FDI

in the industry. Two key regulatory changes have eliminated rules which prevented financial

services firms from operating across state and country borders, and which maintained legal

barriers between the banking, insurance, and securities industries. In the United States, the

Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 eliminated most

restrictions on interstate banking, and the Gramm-Leach-Bliley Act of 1999 removed most

restrictions separating the financial services industries. In the European Union, the First and

Second Banking Co-ordination Directives (1977 and 1989) created a single European

financial services market, and likewise permitted European firms to engage in all aspects of

financial services.42
OCTOBER 2001

Industry Trade and Technology Review FDI in Infrastructure Services

 

43 Charles W. Calomiris and Robert E. Litan, “Financial Regulation in a Global Marketplace,”

in Papers on Financial Services, pp. 283-285.

 

44 See James Essinger, The High-Tech Retail Financial Services Revolution (Datamonitor

PLC: London, 1999), pp. 40-41.

 

45 Investment statistics for the finance industry include holding companies, set up primarily

for tax reasons, which are designed to channel funds to operating companies in a wide variety of

industries. Unlike direct investment in other financial service areas such as commercial banks or

insurance companies, it is unlikely that funds invested in holding companies will remain in the

financial services industry. Consequently, these statistics may overstate the proportion of total

direct investment in financial services.

23

Technological innovations have changed the industry in a number of important ways. For

example, improved global telecommunications systems have helped to reshape the financial

services industry by permitting multinational firms to closely coordinate their widespread

operations, greatly improving efficiency. Heavy investment in computer technology has

greatly improved the back-office processing capabilities of banks, insurance companies, and

securities firms, adding to revenue generation and increasing economies of scale. The Internet

has given retail and wholesale consumers unprecedented access to information, creating new

competitive pressures on financial intermediaries as varied as stock brokers, insurance agents,

and bank loan officers, and promising to reshape those industries.43 

Innovations such as automatic teller machines, debit cards, and telephone banking have

permitted customers to access their funds more easily, and have made it possible for banks to

compete in overseas markets with smaller initial investments.44 By permitting financial

services firms to grow both in terms of function and geographic reach, these changes have

encouraged the finance industry to consolidate into more efficient, multinational, and multifunctional financial services firms. The consolidation process has increased FDI financial

services, both through greenfield investment and through cross-border mergers and

acquisitions.

For all reporting countries, the financial services industry accounted for the largest share of

inbound direct investment stock in OECD services markets, 31 percent, on average, in 1998.45

The United States and the United Kingdom are the largest recipients of inbound direct

investment in financial services, with direct investment stock in the industry totaling $167.5

billion and $80.5 billion, respectively (table 5), reflecting the fact that these countries possess

the world’s largest financial markets, and that many financial firms consider a presence in one

or both markets to be essential. In Switzerland, financial services accounted for 74 percent

of total inbound service sector investment stock, the highest of any country. Financial services

investment in Italy was also high, compared to investment in other industries, having

accounted for 67 percent of 1998 inbound service sector stock. By contrast, direct investment

stock in Germany’s financial services sector represented only 11 percent of total service sector

investment, well below the average for all reporting countries. 
OCTOBER 2001

FDI in Infrastructure Services Industry Trade and Technology Review

 

46 Beginning in 1994, corporate members have been permitted in the Lloyd’s market. See, for

example, D.S. Hansell, Introduction to Insurance, 2

d

 ed. (London: LLP Reference Publishing,

1999), ch. 12.

24

Table 5

Inbound direct investment position in financial services in OECD countries, 1998

Country Inbound position

Financial services/ total

inbound services position

Million U.S. dollars Percent

Australia ................. 15,837.5 30.3

Austria ................... 2,726.6 18.5

Canada .................. 31,902.9 34.3

Czech Republic ............ 1,962.0 27.7

Denmark ................. 2,374.6 10.2

Finland .................. 3,948.0 55.7

France ................... 37,355.1 39.6

Germany ................. 20,493.4 10.9

Greece1................. 233.0 2.7

Hungary .................. 1,205.1 18.1

Italy ..................... 39,230.0 66.7

Mexico2.................. 4,425.0 22.5

Netherlands ............... 34,589.9 39.0

Norway .................. 1,304.3 13.5

Poland ................... 3,053.0 42.3

Portugal .................. 3,843.1 27.8

Sweden .................. 2,768.3 13.7

Switzerland ............... 40,711.0 74.1

United Kingdom ............ 80,507.0 44.9

United States .............. 167,484.0 41.7

 

1

 Data are for 1999.

 

2

 Data are for 1997.

Source: Calculations by Commission staff, based on OECD data.

Countries within the OECD show different patterns of investment within the financial services

industry (table 6). In France, Germany, Mexico, and the United Kingdom, the largest share

of direct investment stock in the industry was invested in monetary institutions (banks). The

Lloyd’s market, which remains an important player in the British nonlife insurance market,

has traditionally been organized as a cooperative venture between individual investors, leaving

a smaller investment arena for large, multinational insurance companies in the United

Kingdom as compared with some other markets.46 In the United States, by contrast, a much

larger percentage of total financial services stock is invested in the insurance industry (46

percent) than in commercial banks (26 percent). In Switzerland, almost one-third of total

inbound investment in financial services was directed to monetary institutions, reflecting the

positive global reputation of Switzerland’s banking industry, with 6 percent of inbound

financial services investment in Swiss insurance firms (figure 4).
OCTOBER 2001

Industry Trade and Technology Review FDI in Infrastructure Services

25

Figure 4

Inbound direct investment position: Financial services, by country, 1998

Table 6 

Inbound direct investment position in financial services, industry breakdown for selected countries,

1998

Country

Total

finance sector Banks Insurance

Other

finance1

Million U.S. dollars ———————––––––Percent––––––———————

France ................ 37,355.1 57.0 22.2 20.8

Germany .............. 20,493.4 45.1 15.9 39.0

Mexico ................ 4,425.0 69.2 18.8 12.0

Netherlands ............ 34,589.9 8.7 20.7 70.7

Switzerland ............ 40,711.0 28.4 6.2 65.4

United Kingdom ......... 80,507.0 45.1 18.7 25.2

United States ........... 167,484.0 26.2 46.4 27.4

 1 Includes securities and commodities brokerage and holding companies.

Source: Calculations by Commission staff, based on OECD data.
OCTOBER 2001

FDI in Infrastructure Services Industry Trade and Technology Review

26

Outlook

Due to record flows of direct investment in the 1990s, infrastructure services are among the

most globalized of industries. Although future investment trends in individual countries may

not keep pace with recent levels, there is no reason to anticipate that the overall pace of

investment in these industries will slow significantly. In the emerging economies of Poland,

Hungary, and the Czech Republic, for example, much of the inbound direct investment during

the 1990s was driven by the privatization of state-owned power, telecommunications, and

financial firms, a process which has largely run its course. However, the introduction of

competition into infrastructure service industries in these and many other countries, and the

removal of numerous restrictions on foreign investment, have increased incentives and

opportunities for private-sector firms to invest overseas, through both greenfield investment

and acquisitions. Additionally, bringing these infrastructure industries under the WTO

General Agreement on Trade in Services (GATS) has served to assure foreign investors of

transparent national regulations and nondiscriminatory treatment by regulators, thus

promoting additional investment. 

The continued globalization of infrastructure service industries has implications for the entire

global economy. First, global competition among intensive users of these services is expected

to increase, as factor costs decline and the reliability of telecommunications and energy

services improve, and the availability of financing increases. Second, to the extent that

globalization brings about the harmonization of regulatory principles, industries which

intensively consume infrastructure services will be better able to focus on their core

businesses, thereby improving economic efficiency and consumer welfare.#
OCTOBER 2001

Industry Trade and Technology Review Key Performance Indicators

A-1

APPENDIX A

KEY PERFORMANCE INDICATORS OF SELECTED

INDUSTRIES AND REGIONS1

~ STEEL (Harry Lenchitz,1 202-205-2737/lenchitz@usitc.gov)

~ AUTOMOBILES (Laura A. Polly,1 202-205-3408/polly@usitc.gov)

~ ALUMINUM (Judith-Ann Webster,1 202-205-3489/webster@usitc.gov)

~ FLAT GLASS (James Lukes,1 202-205-3426/lukes@usitc.gov)

~ SERVICES (Tsedale Assefa,1 202-205-2374/assefa@usitc.gov) 

~ NORTH AMERICAN TRADE (Ruben Mata,1 202-205-3403/mata@usitc.gov)

1 The data and views presented for the following indicators are those of the industry sources noted and of the authors.

They are not the views of the United States International Trade Commission as a whole or of any individual Commissioner.

Nothing contained in this information based on published sources should be construed to indicate how the Commission

would find in an investigation conducted under any statutory authority.
OCTOBER 2001

Key Performance Indicators Industry Trade and Technology Review

A-2

STEEL

• According to steel company financial statements, U.S. steel industry profitability improved somewhat during the second

quarter 2001 from its first quarter low. Integrated producers’ losses were reduced while minimill and specialty producers

experienced a slight increase in profits, although profitability remained below levels of recent periods.

 

• Officials of the United States Trade Representative and the U.S. Department of Commerce, steel industry executives,

and union leaders joined representatives from more than 30 other countries in a September meeting at the Organization

for Economic Co-operation and Development in Paris, to address immediate and longer-term issues in steel, including

measures that could be taken to reduce global steelmaking capacity (for added details, see http://www.oecd.org/highlevelsteelmeeting).

 

• The U.S. Customs Service issued rules in September for domestic steel producers seeking financial compensation from

the U.S. government for expenses incurred after a dumping or subsidy order on foreign imports

(http://www.customs.gov/news/fed-reg/notices/9146701.pdf). Customs has decided that the amount requested and the

amount paid out will be made available to the public in the Continued Dumping and Offset Annual Report.

 

Table A-1

Significant reductions in finished and semifinished steel imports compared with Q2 2000 and

YTD 2000

Item Q2 2001

Percentage

change, Q2

2001 from 

Q2 20001 YTD 2001

Percentage

change, YTD

2001 from 

YTD 20001

Producers’ shipments (1,000 short tons) ........... 26,360 -13.7 51,038 -11.8

Finished imports (1,000 short tons) ............... 6,177 -24.2 11,580 -25.1

Ingots, blooms, billets, and slabs (1,000 short tons) ... 1,285 -45.9 2,741 -43.1

Exports (1,000 short tons) ...................... 1,475 -7.8 3,125 -5.4

Apparent supply, finished (1,000 short tons) ........ 31,062 -13.1 59,493 -15.1

Ratio of finished imports to apparent supply (percent) . 19.9 2

-2.9 19.5 2-1.6

1

 Based on unrounded numbers.

2

 Percentage point change.

Note.–Because of rounding, figures may not add to the totals shown.

Source: American Iron and Steel Institute.
OCTOBER 2001

Industry Trade and Technology Review Key Performance Indicators

A-3

STEEL

Table A-2

Increase in shipments, decrease in inventories for steel service centers during second quarter 2001

Item Mar. 2001 Jun. 2001

Percentage

change, Jun.

2001 from

 Mar. 20001 Q2 2000 Q2 2001

Percentage

change, Q2

2001 from

 Q2 20001

Shipments (1,000 short tons) .......... 2,368 2,175 -8.2 7,696 6,636 -13.8

Ending inventories (1,000 short tons) .... 8,032 8,163 1.6 8,898 8,163 -8.3

Inventories on hand (months) .......... 3.6 3.8 (

2

) 3.6 3.8 (

2

)

 

1

 Based on unrounded numbers.

 

2

 Not applicable.

Source: Steel Service Center Institute.

 

• According to the Steel Service Center Institute, U.S. service centers shipped 6.6 million tons of finished steel products

during the second quarter 2001, a decline of 14 percent from second quarter 2000. Service center inventories were

slightly higher at the end of the second quarter (Jun. 2001) compared with the end of first quarter, but were 8.3 percent

lower for the entire second quarter 2001 than the comparable quarter one year ago.

 

• During the second quarter 2001, according to American Iron & Steel Institute data, imports of finished products increased

slightly compared with the previous quarter, but were down 24 percent compared with second quarter 2000. 

Semifinished imports (table A-1) declined from the previous quarter level of 1,456 million tons, and were down 46 percent

compared with second quarter 2000.

 

• The most recent survey (August 2001) by the Steel Buyers Forum of the National Association of Purchasing

Management (http://www.napmsbf.org) projected either no change or a decrease in orders, receipts and inventories for

the period September to November 2001.
OCTOBER 2001

Key Performance Indicators Industry Trade and Technology Review

A-4

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3

0

500

1000

1500

2000

2500

Total sales-consumption Domestic sales

Import sales

Note.–Domestic automobile sales include U.S.-, Canadian-, and Mexican-built automobiles sold in the United

States; these same units are not included in import sales.

Source: Automotive News; prepared by the Office of Industries.

2,486,495

1,938,059

548,436

 1997 1998 1999 2000 2001

Figure A-3

U.S. sales of new passenger automobiles increased in second quarter 2001; 2nd quarter

sales of imports registered a slightly larger percentage increase over 1st quarter sales as

compared with sales of domestically produced autos

AUTOMOBILES

Table A-3

U.S. sales of new automobiles, domestic and imported, and share of U.S. market accounted for

by sales of total imports and Japanese imports, by specified periods, January 2000-June 2001

 Percentage change 

Item

Apr.-Jun.

2001

Jan-Jun.

2001

Apr.-Jun. 2001

from 

Jan.-Mar. 2001

Jan.-Jun. 2001

from 

Jan.-Jun. 2000

U.S. sales of domestic autos

(1,000 units)

1

.......................... 1,938 3,445 10.9 -6.5

U.S. sales of imported autos

(1,000 units)

2

........................... 548 1,067 11.4 2.6

Total U.S. sales (1,000 units)

1, 2

............... 2,486 4,513 11.0 -4.5

Ratio of U.S. sales of imported autos to 

total U.S. sales (percent)

1, 2

................ 22.1 23.7 0.4 7.5

U.S. sales of Japanese imports as a 

share of the total U.S. market (percent)

1, 2

...... 9.1 9.8 -11.3 -1.7

1

 Domestic automobile sales include U.S.-, Canadian-, and Mexican-built automobiles sold in the United States.

2

 Imports do not include automobiles imported from Canada and Mexico.

Source: Compiled from data obtained from Automotive News.
OCTOBER 2001

Industry Trade and Technology Review Key Performance Indicators

A-5

ALUMINUM

 

• The aluminum industry continues to feel the effects of high energy prices worldwide in the second quarter, as companies

idle smelter capacity in Brazil and Russia. This follows numerous smelter shutdowns in the United States and a significant

decrease in U.S. production (year-to-year-quarterly comparison), leading to the lowest U.S. production levels in 33 years. 

According to industry sources, Alcoa has estimated its idled capacity at the end of the second quarter to be about 700,000

annual tons, or 17 percent of its global capacity. 

 

• Despite recent production cuts, prices fell and primary aluminum stocks accumulated in commodity-exchange warehouses. 

This was attributable to weakened demand due to the slowing economy. 

 

• The aluminum industry is expected to come under increased pressure in an already difficult year due to the impact of

recent terrorist attacks affecting the airline industry. Airlines have cut expenditures to counter dwindling profits (Boeing

recently announced a cut of 30,000 jobs), and jet deliveries are expected to decline. The aerospace market is one of the

most profitable for the aluminum industry due to the prevalent use of high-value-added products such as plate and sheet.

 

Table A-4

Import penetration fell slightly in the second quarter, reflecting lower import levels and aluminum

surpluses in LME warehouses at 14 month highs

 Percentage change

Item Q2 2000 Q1 2000 Q2 2001

Q2 2001

from 

 Q2 2000

Q2 2001

from 

Q1 2000

Primary production (1,000 metric tons) .......... 941 708 669 -29.0 -5.5

Secondary recovery (1,000 metric tons) .......... 916r 761 770 -15.0 1.2

Imports (1,000 metric tons) ................... 880 811 760 -13.6 -6.3

Import penetration (percent)

1

.................. 34.8r 40 38.4 23.6 2

-1.8

Exports (1,000 metric tons) ................... 307 273 256 -16.6 -6.2

Average nominal price (¢/lb) .................. 71.4 74.6 71.2 -0.3 -4.6

LME inventory level (1,000 metric tons) .......... 515 474 629 22.1 32.1

1

 Calculations based on unrounded data

2

 Percentage point change

Note: Revised data indicated by “r.”

Sources: Compiled from data obtained from U.S. Geological Survey and World Bureau of Metal Statistics.
OCTOBER 2001

Key Performance Indicators Industry Trade and Technology Review

A-6

FLAT GLASS

Background

• The U.S.-Japanese agreement on Japanese market access for imports of flat glass sought to increase access and

sales of foreign flat glass in Japan through such means as increased adoption of nondiscriminatory standards and

expanded promotion of safety and insulating glass. The agreement covered the 1995-99 period and expired on

December 31, 1999.1

 

• Japanese demand for imported glass improved in 2000. The average monthly quantity of Japanese imports from

all countries increased by 57 percent during 2000 to 2.9 million square meters, while the average monthly value of

such imports increased by 89 percent to $25.7 million. Imports from the United States increased by 30 percent to

561,000 square meters and by 93 percent to $13.7 million, respectively, but the U.S. share of the market declined.

 

Current

 

• The Japanese economy has slowed in 2001, as has demand for imported flat glass. The average monthly

quantity of Japanese imports from all countries decreased by 3 percent during the first seven months of 2001 to

2.8 million square meters, while the average monthly value of such imports decreased by 10 percent to $23.1

million. However, imports from the United States decreased by 15 percent to 479,000 square meters and by 3

percent to $12.5 million, respectively, and the U.S. share of the market has further declined in terms of quantity;

imports from the United States lost market share to less expensive imports from Thailand and Korea during this

period.

 

• The U.S. Government remains concerned about the closed distribution channels in the flat glass sector in Japan

and has proposed, under the bilateral Enhanced Initiative on Deregulation and Competition Policy, that the

Japanese Government take further steps to promote competition in wholesale and retail distribution channels for

flat glass.2 The Government of Japan (GOJ) recognizes the economic benefits of increasing competition in the 

distribution sector and confirms that making agreements among distributors or groups of distributors for the

purpose of excluding imported or other competitors’ products is detrimental to competition.3 The GOJ suggests

that enterprises or foreign governments notify the Japan Fair Trade Commission with specific information on any

anticompetitive practices in any highly oligopolistic markets, including the flat glass sector.4

 

1 Office of the U.S. Trade Representative (USTR), The President’s 1999 Annual Report on the Trade Agreements Program, p. 227,

downloaded from http://www.ustr.gov/reports/tpa/2000/index.html on Mar. 3, 2000.

2

 USTR, Identification of Trade Expansion Priorities Pursuant to Executive Order 13116 April 30, 2001, p. 26, downloaded from

http://www.ustr.gov/enforcement/super301.pdf on May 18, 2001.

3

 United States Trade Representative, Fourth Joint Status Report on the U.S.-Japan Enhanced Initiative on Deregulation and

Competition Policy, downloaded from http://192.239.92.165/regions/japan/2001-07-02_joint_status.pdf, Sept. 19, 2001, p. 36.

4

 Ibid.
OCTOBER 2001

Industry Trade and Technology Review Key Performance Indicators

A-7

SERVICES
OCTOBER 2001

Key Performance Indicators Industry Trade and Technology Review

A-8

North American Trade

U.S. trade with its North American partners is highlighted in table A-5. The following is a summary of

key developments during the first half of 2001.

• During January-June 2001, total U.S. trade with its NAFTA partners ($305 billion) decreased by 1.1

percent ($3.4 billion) over the comparable period of 2000. The U.S. merchandise trade deficits with

Canada ($-39 billion) and Mexico ($-19 billion) in the first half of the year continued an upward trend

which began in 1998, increasing by 15 percent and 16 percent, respectively. This upward trend could

moderate by year end with deceleration of the U.S. economy, reflected by GDP that grew by just 0.3

percent during the second quarter 2001. 

• Two-way trade with Canada decreased 1.4 percent ($2.7 billion) to $193 billion during January-June

2001, as exports to Canada fell by 5 percent ($2.7 billion). The principal reason for the decline was a

Canadian economy that fell by 0.1 percent during the second quarter of 2001. Canada’s

manufacturing sector slowed as producers of electronic, transportation, and forestry products were

reported to have aggressively scaled back production. However, Canada’s exports to the United

States totaled $116 billion in the first half of 2001, a marginal increase of 1 percent ($1.2 billion) over

the corresponding period in 2000. U.S. demand for certain Canadian manufactured products such as

home furniture and motor-vehicle parts increased as robust U.S. consumer demand for motorvehicles and housing rose by 2.5 percent during the second-quarter, largely as a result of lower

interest rates in the United States.

• Mexico’s second quarter GDP remained flat compared with April-June 2000, ending a streak of 21

consecutive quarters of economic growth that began in 1995–an abrupt slowdown after a buoyant

year of 6.9 percent growth in GDP in 2000. The slowdown is generally attributed to the downturn in

the U.S. economy and more specifically to lower demand for Mexican products in the U.S. market.

Shipments to the United States accounted for 88 percent of Mexico’s total exports and for 25 percent

of Mexico’s GDP.

• During January-June 2001, U.S. imports from Mexico increased by 2 percent ($991 million) over the

corresponding 2000 period. Finished vehicles, auto parts, electrical machinery, and crude petroleum

were the leading imports from Mexico. During the same period, U.S. exports to Mexico decreased by

3 percent ($1.7 billion). Capital goods and intermediate goods accounted for 89 percent of Mexico’s

imports from the United States. The majority of these products are destined for assembly plants

operating under Mexico’s two temporary import programs: the Maquiladora Program and PITEX.

• Employment under Mexico’s Maquiladora Program decreased by 5.8 percent between June 2000 and

June 2001.1 During the same period, manufacturing employment fell by 4.1 percent in the United

States and by 0.2 percent in Canada.2 Maquiladora employment losses were concentrated in the

electronics sector, especially computer and telecommunications equipment. Reduced automobile

prices and lower financing costs sustained auto sales in the U.S. as well as employment levels in

motor-vehicle assembly plants in Mexico.

1Maquiladora employment amounted to 1.2 million in June 2001. Although official employment data is not

available for companies operating under PITEX, USITC staff estimates that PITEX companies employed nearly

800,000 workers in December 2000, based on the ratio of PITEX exports to Maquiladora exports in 2000 and applying

that ratio to Maquiladora employment in December 2000.

2Manufacturing employment data in the United States and Canada is seasonally adjusted.
OCTOBER 2001

Industry Trade and Technology Review Key Performance Indicators

A-9

 

NORTH AMERICAN TRADE

Table A-5

North American trade, 1996-2000, January-June 2000, and January-June 2001

 Percent

January-June change

Item 1996 1997 1998 1999 2000 2000 2001 2000/01

---------------------------Value (million dollars)------------------------------

U.S.-Mexico trade:

Total imports from Mexico .... 74,179 85,005 93,017 109,018 134,734 64,868 65,859 2

U.S. imports under NAFTA

Total value ............. 55,076 62,837 68,326 71,317 83,995 41,232 40,763 -1

Percent of total imports .... 74 74 73 65 62 64 62 -

Total exports to Mexico .... 54,686 68,393 75,369 81,381 100,442 48,118 46,455 -3

U.S. merchandise trade balance

with Mexico1............ -19,493 -16,612 -17,648 -27,637 -34,292 -16,750 -19,403 -16

U.S. -Canada trade:

Total imports from Canada .... 156,299 167,881 174,685 198,242 229,060 114,503 115,706 1

U.S. imports under NAFTA

Total value ............. 84,245 88,949 111,675 115,715 123,052 63,931 59,438 -7

Percent of total imports .... 54 53 64 58 54 56 51 -

Total exports to Canada ...... 119,123 134,794 137,768 145,731 155,601 80,912 76,978 -5

U.S. merchandise trade balance 

with Canada2 ....................... -37,176 -33,087 -36,918 -52,511 -73,459 -33,591 -38,728 -15

1

 The hyphen (-) symbol indicates a loss or trade deficit, or not applicable. The $34.2 billion deficit in U.S.

merchandise trade with Mexico in 2000 was partially offset by a $2.9 billion U.S. surplus in bilateral services

trade.

2

 The $73.5 billion deficit in U.S. merchandise trade with Canada in 2000 was partially offset by a $6.0 billion

U.S. surplus in bilateral services trade.

Source: Compiled by U.S. International Trade Commission staff from official statistics of the U.S. Department of

Commerce. Statistics in footnote 2 on U.S. services trade with Mexico are based on preliminary data provided

in U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, July 2000, Vol. 

80, No.7.