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

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

Quarterly Review Staff

Larry Brookhart

Karl S. Tsuji

assisted by

Zema Tucker

Sharon Greenfield

Contributing Authors

Laura V. Rodriguez

Robert Randall

Kara Olson

Vincent DeSapio

Robert A. Rogowsky

Director of Operations

Vern Simpson

Director of Industries
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Industry Trade and Technology Review
MARCH 2001

Industry Trade and Technology Review Index of Articles

i

Listing of Published Articles

(October 1997 - March 2001)

October 1997

The Uruguay Round elimination of duties on pharmaceuticals: Developments 

in the 2 years since implementation

Alternative materials in the U.S. automotive industry promote development of 

joining and bonding technology

Electronic trade transforms delivery of audiovisual services

January 1998

Free trade in information technology goods 

Factors affecting the commercialization of new manufacturing processes

for materials

Thermoplastic elastomers in the auto industry: Increasing use and the potential

implications

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
MARCH 2001

Index of Articles Industry Trade and Technology Review

ii

Listing of Published Articles—Continued

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

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
MARCH 2001

Industry Trade and Technology Review Contents

iii

CONTENTS

Page

Apparel: Andean countries seek parity with Caribbean

Basin countries to remain competitive in the 

U.S. market .......................................................... 1

The ATPA textile and apparel sector ........................................ 2

Colombia ......................................................... 4

Peru ............................................................. 5

Bolivia ........................................................... 6

Ecuador .......................................................... 7

Implications of CBTPA for trade, employment, and foreign investment in

beneficiary countries ................................................. 7

Legislation: Concerns about competitive disadvantages .......................... 9

Outlook .............................................................. 12

Chemical trade by the Central European countries:

Difficulties of sector transition ................................. 15

Transition to private enterprise in the CE chemical industry ....................... 17

CE trade deficits widen in chemical products .................................. 19

Czech Republic ..................................................... 19

Hungary .......................................................... 22

Poland ........................................................... 22

Slovakia .......................................................... 22

Global trade patterns for CE chemicals ...................................... 23

Outlook ............................................................. 25

Commercialization of hybrid automobiles: Prospective

demand for light metals........................................... 27

U.S. and Japanese hybrid vehicle efforts ..................................... 28

The potential demand for light metals in hybrid vehicles .......................... 29

Aluminum ......................................................... 32

Magnesium ........................................................ 33

Titanium .......................................................... 34

Outlook for lowering the cost of light metals .................................. 35
MARCH 2001

Contents Industry Trade and Technology Review

iv

CONTENTS—Continued

Page

Appendix A: Key performance indicators of selected

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

Steel:

Figure A-1 Steel industry’s profitability turns down as the U.S. economy

slows in fourth quarter 2000 ......................................... A-2

Table A-1 Slightly less semifinished (ingots, blooms, and slabs) but more

finished steel imported in 2000 compared with 1999 ....................... A-2

Table A-2 Continued decline in shipments, inventory shifts mixed 

 for service centers ................................................ A-3

Figure A-2 Steel mill products, all grades: Imports and penetration down, 

despite lower domestic output as reflected in lower capacity utilization ......... A-3

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 1999-December 2000 ................. A-4

Figure A-3 U.S. sales of new passenger automobiles decrease in fourth quarter

2000; sales of imports as a percentage of the U.S. market increase from

previous quarter .................................................. A-4

Aluminum:

Figure A-4 U.S. aluminum prices and trade flows slip in fourth quarter 2000 ..... A-5

Table A-4 Lower import penetration in fourth quarter 2000 for U.S. aluminum,

as production cutbacks were overshadowed by declining import levels and

continued drawdown of inventories .................................... A-5

Flat glass:

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

Services:

Figure A-6 Balance on U.S. service trade accounts, by quarter, 1999-2000 ....... A-7

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

selected trading partners, by quarter, 1998-2000 .......................... A-7

North American trade:

Table A-5 North American trade, 1995-2000 ............................. A-9

#
MARCH 2001

Industry Trade and Technology Review U.S. Andean Apparel Trade 

 

1

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

U.S. International Trade Commission as a whole or of any individual Commissioner.

 

2

 For more information on this legislation, see later section, “Legislation: Concerns About

Competitive Disadvantages.”

1

Apparel: Andean Countries Seek Parity

with Caribbean Basin Countries to Remain

Competitive in the U.S. Market

Laura V. Rodriguez1

lrodriguez@usitc.gov

202-205-3499

The Andean Trade Preference Act (ATPA) beneficiary countries are a

small, but growing source of textile and apparel articles for the United

States despite lacking duty-free entry under the ATPA program. The

increased importance of “time to market” has prompted many U.S. apparel

producers with global operating strategies to source more from the

Western Hemisphere rather than Asia. Colombia and Peru, the leading

ATPA suppliers of textiles and apparel to the United States, have expressed

concern that the newly enacted United States-Caribbean Basin Trade

Partnership Act (CBTPA), which essentially granted NAFTA-equivalent

trade preferences to certain textile and apparel articles of the Caribbean

Basin countries, may weaken their ability to compete in exporting apparel

to the United States, their most important market. This article examines

U.S.-ATPA trade; recent developments in the ATPA countries’ textile and

apparel sectors; the implications of the CBTPA for trade, employment, and

foreign investment in ATPA countries; and recently introduced legislation

that would allow the ATPA countries to compete more effectively with

Mexico and the Caribbean Basin countries.

The ATPA was enacted in 1991 to expand economic alternatives for the four beneficiary

countries--Bolivia, Colombia, Ecuador, and Peru--in their fight against drug production and

trafficking. This 10-year program, scheduled to expire on December 4, 2001, provides most

goods originating in the ATPA countries with duty-free access to the U.S. market and reduced

duties on leather apparel and certain other leather goods such as luggage and flat goods (e.g.,

wallets). However, most textile and apparel articles are ineligible for ATPA tariff

preferences. On March 13, 2001, the Andean Trade Preference Expansion Act (S. 525) was

introduced to provide duty-free treatment to imports of certain apparel from the Andean

countries similar to that granted to beneficiary countries under the Caribbean Basin Economic

Recovery Act (CBERA), as amended by the newly enacted CBTPA.2

U.S. imports of all merchandise from the ATPA countries have grown significantly since the

implementation of the ATPA, by 124 percent, from $5.0 billion in 1991 to $11.1 billion in

2000. Some 60 percent of the imports in 2000 from ATPA-eligible countries were goods that

entered free of duty. Imports of textiles and apparel (sector goods) from the ATPA countries
MARCH 2001

U.S. Andean Apparel Trade Industry Trade and Technology Review

 

3

 HTS provision 9802.00.80 was formerly the “807" provision.

2

also grew rapidly (despite their ineligibility for preferential tariff treatment), rising by 157

percent during 1991-2000 to $892 million.

The ATPA Textile and Apparel Sector

The ATPA countries are relatively small suppliers of textiles and apparel to the United States,

accounting for 1.4 percent of total U.S. imports of sector goods by value in 2000. In contrast,

the United States is the principal market for their exports of such goods that are concentrated

in apparel, and accounted for 93 percent of U.S. sector imports from the region in 2000.

Since almost all U.S. apparel imports from the region are from Colombia and Peru, this article

focuses primarily on recent developments in U.S. apparel trade with these countries.

U.S. apparel imports from Colombia and Peru exhibit significantly different patterns of

growth and product composition. Between 1996 and 2000, imports from Colombia rose by

31 percent to $409 million (table 1) and the country’s share of U.S. apparel imports from

ATPA countries fell from 65 percent to 49 percent (figure 1). In contrast, imports from Peru

during the period grew much faster, by 161 percent, to $383 million, and from a 31 percent

share in 1996 to a 46-percent share in 2000. On a product basis, the majority of apparel

imports from Colombia are assembled from U.S.-made and-cut components whereas apparel

imports from Peru are almost entirely of non-U.S. parts, most likely Peruvian-made fabrics.

About 56 percent of U.S. apparel imports from Colombia in 2000 entered under the

9802.00.80 provision3 of the Harmonized Tariff Schedule of the United States (HTS) (table

2), which provides a duty exemption for U.S. components that are returned to the United

States as parts of goods assembled abroad. Of the $227 million in apparel imports from

Colombia that entered under HTS provision 9802.00.80 in 2000, the U.S. content accounted

for 55 percent of the total value of these imports. In contrast, 0.4 percent of U.S. imports

from Peru entered under HTS provision in 2000, and the U.S. content (accounting for just

2 percent of the total value of these imports) comprised primarily minor trimmings such as

buttons or labels. 

Table 1

Apparel: U.S. imports from Andean Trade Preference Act countries, 1996-2000

(1,000 dollars)

Country 1996 1997 1998 1999 2000

Colombia ..................................... 317,713 347,433 360,173 369,700 409,451

Peru ........................................ 146,798 193,235 222,542 305,773 382,866

Ecuador ...................................... 9,807 12,527 13,048 16,624 19,834

Bolivia ....................................... 12,104 12,337 17,066 15,592 18,982

Total ..................................... 480,422 565,532 612,829 707,689 831,133

Source: Compiled from official statistics of the U.S. Department of Commerce.
MARCH 2001

Industry Trade and Technology Review U.S. Andean Apparel Trade 

3

Colombia 65%

Peru 31%

Bolivia 2%

Ecuador 2%

Colombia 49%

Peru 46%

Bolivia 2%

Ecuador 2%

1996 = $481 million 2000 = $831 million

Note.--Calculation based on rounded data; figures may not add to 100 percent.

Source: Compiled from official statistics of the U.S. Department of Commerce.

Figure 1

Apparel: Percentage distribution of U.S. imports from Andean Trade Preference Act

countries, 1996 and 2000

Table 2

Apparel: U.S. imports for consumption1 from ATPA beneficiary countries, by customs value and

value of U.S. components, 2000

Country

Total

customs

value

HTS 9802 trade

Customs

 value

Value

 of U.S.

 content

Share of

 U.S.

content

----------------1,000 dollars---------------- Percent

Bolivia ........................................... 18,766 1,441 402 28

Colombia ......................................... 407,268 226,756 124,362 55

Ecuador .......................................... 18,962 7,165 5,475 76

Peru ............................................ 382,381 1,601 29 2

Total ......................................... 827,377 236,963 130,267 55

1

 Articles of apparel and clothing accessories, knitted or crocheted (HTS ch. 61) and not knitted or crocheted

(HTS ch. 62).

Source: Compiled from official statistics of the U.S. Department of Commerce.
MARCH 2001

U.S. Andean Apparel Trade Industry Trade and Technology Review

 

4

 Jordan K. Speer, “17th Annual Comparative Analysis: Sourcing-Latin America,” Bobbin,

Nov. 2000, special insert. For more information, see www.bobbin.com.

 

5

 Edward Alden and James Wilson, “Bogota Jobs Plea to U.S. Trade Preferences Special

Treatment for Caribbean May Penalize Colombia,” Financial Times, Sept. 21, 2000, p. 5.

 

6

 Representative of Proexport-Colombia, Miami, FL, Email communication to Commission

staff, Nov. 13, 2000. 

 

7

 Colombia’s shipping costs are higher than those of CBERA countries; most goods from

Colombia are shipped by air. Representative of a leading U.S. apparel producer, telephone

interview by Commission staff, Nov. 20, 2000.

 

8

 Representative of Proexport-Colombia, Email communication to Commission staff Nov. 13,

2000.

 

9

 See the next section for information on these trade benefits. See also “Bogota Jobs Plea,”

Financial Times, Sept. 21, 2000. 

 

10 In 1995, the United States established quotas and “special access limits” (SALs) for

underwear and women’s suits from Colombia. The SALs were established under HTS

9802.00.80 and provided, in addition to reduced duties, greater market access for such garments

that were assembled from U.S.-made and -cut fabric. The quotas and SALs for the underwear

and women’s suits expired in Dec. 1997.

4

Colombia

Colombia’s apparel industry employs an estimated 300,000 workers.4 A number of U.S.

apparel firms have production-sharing arrangements with “maquilas” in Colombia, which

reportedly assemble about $250 million of garments annually for U.S. firms.5 The maquilas,

almost all of which are Colombian-owned, offer cost-competitive goods, low labor costs

(wages estimated to be 90 cents per hour),6 competitive lead times, lower shipping costs than

Asian suppliers, quality needlework, modern technological capabilities, and production

flexibility.7 Some 90 maquilas that assemble apparel are concentrated in free-trade zones

(FTZs) in Medellin, Cali, Bogota, and the Atlantic Coastal region of Barranquilla (where

about six new plants have been established in the past 3 years).8 

The relatively slow growth in U.S. apparel imports from Colombia during 1996-2000 is

reportedly attributable to several factors, including domestic political and economic unrest;

increased price competition from Asian countries following the 1997-98 East Asian financial

crisis; and greater competition from Mexico, which benefits from unfettered access to the U.S.

apparel market under NAFTA. Recently, a few U.S. apparel firms reportedly announced

plans to move apparel assembly work from Colombia to the CBERA countries because of the

new trade benefits for these countries.9

Colombia is the only ATPA country currently subject to U.S. import quotas on textiles and

apparel.10 In 2000, Colombia filled only 57 percent of its quota on men’s and boys’ wool

suits and none of its quota on printcloth; these two products represented just 1 percent of U.S.

textile and apparel imports from Colombia that year. The major apparel imports from

Colombia in 2000 were cotton trousers and slacks (31 percent of the total) and wool apparel

(13 percent) (figure 2).
MARCH 2001

Industry Trade and Technology Review U.S. Andean Apparel Trade 

 

11 EXPORAMERICA, “Inclusion of Textiles and Apparel in the Andean Trade Preference

Act: Contribution to the Battle Against Coca Production and Illegal Drug Trafficking,” Sept.

2000.

 

12 The EXPORAMERICA report states that 1995 is the most recent year for which textile and

apparel employment data are available; however, it indicates that the labor situation in 1999 was

similar to that in 1995, based on production levels. 

 

13 U.S. Department of State telegram No. 704, “Peruvian Aide Memoire on Bilateral Trade

Issues,” prepared by U.S. Embassy, Lima, Nov. 29, 2000; and “Peru Moda: The Second

International Business Roundtable of the Peruvian Textiles and Apparel Industry,” Apparel

Industry Internacional, May 1999, found at Internet address http://www.aiimag.com/aiieng/

archives/0599/May99stor5.html, retrieved Nov. 1, 2000.

5

Peru

The textile and apparel industry is Peru’s largest source of export earnings and manufacturing

employment, according to a report of the Peruvian-based Association of Apparel Exporters

to the United States (EXPORAMERICA).11 In 1999, Peru’s exports of textiles and apparel

(including fibers) of $580 million accounted for almost 10 percent of its total exports and 31

percent of its manufactures exports. The textile and apparel industry employed about 180,500

workers, or 32 percent of the Peruvian manufacturing workforce,12 and the cotton-growing

sector employed an estimated 144,000 workers. The EXPORAMERICA report notes that the

textile and apparel industry is one of Peru’s most developed sectors and that the industry is

vertically integrated from the production of raw materials (mostly cotton and also alpaca

fibers) and intermediate textiles (yarns and fabrics) to the manufacture of finished goods,

mainly apparel.13 The reports indicates that the industry could easily expand output because

of a relatively high level of idle plant capacity, which averaged 26 percent in textiles and 30
MARCH 2001

U.S. Andean Apparel Trade Industry Trade and Technology Review

 

14 Mercedes Cortazar, “Economic Crisis Strangles Peru’s Industry,” Apparel Industry

Internacional, July 1999, found at Internet address

http://www.aiimag.com/aiieng/archives/0799/jul99stor5.html, retrieved Nov. 1, 2000.

 

15 Eduardo Orozco, “Peru’s Prized Cotton Industry Unravels,” Reuters, Mar. 2, 2001, found at

Internet address http://just-style.com, retrieved Mar. 2, 2001.

 

16 U.S. Department of State telegram No. 3788, “Bolivians Propose Tariff and Quota-Free

Access to U.S. Textiles Market,” prepared by U.S. Embassy, La Paz, Aug. 11, 2000.

 

17 Ibid; and Ursula Arguedas, “Bolivia,” Apparel Industry Internacional, Oct. 1998, found at

Internet address http://www.aiimag.com/aiieng/archives/1098/ ostor9.html, retrieved Sept. 19,

2000.

6

percent in apparel in 1997. Preliminary data for 1999, however, show that average idle plant

capacity in the textile and apparel industry declined by about 15 percent. 

The Peruvian textile and apparel industry consists of many small, primarily apparel assembly

operations and several large producers of apparel for export that are integrated back to the

production of fabric and, in some cases, yarn. The industry has access to large quantities of

locally grown quality cotton--namely, tanquis cotton (a long fiber) and pima cotton (a fine,

extra-long fiber). The availability of pima cotton (the finer and longer the fiber, the finer

generally is the yarn) is an important competitive advantage for Peru, which reportedly

exports 60 percent of its apparel production. About 80 percent of Peru’s apparel exports goes

to the United States and 14 percent goes to the European Union. Several U.S. firms, including

apparel merchandiser Liz Claiborne Inc. and catalog merchant Land’s End, have developed

niche markets in the United States for knit tops made in Peru from pima cotton. Cotton knit

shirts accounted for 82 percent of U.S. apparel imports from Peru in 2000 (see figure 2).

The textile and apparel industry in Peru faces several major competitive challenges in the U.S.

market, including rising production costs and growing competition from Asia and Mexico.14

The average trade-weighted tariff on U.S. apparel imports from Peru is 18 percent ad valorem

whereas Mexico benefits from duty-free access to the U.S. market under NAFTA for

qualifying goods. In addition, Peru’s cotton production has been shrinking because of a

switch to more profitable crops such as asparagus and tomatoes, a lack of technical support

and financing, and because of the damage caused to a number of Peru’s cotton fields by the

recent El Nino weather conditions.15 These economic factors have contributed to the concerns

raised by Peru’s textile and apparel industry representatives about the potential for diversion

of apparel trade from Peru to the CBERA countries as a result of the implementation of new

U.S. trade benefits for those countries. 

Bolivia

The textile and apparel industry is a major economic sector and source of employment in

Bolivia. Concentrated in La Paz, Santa Cruz, and Cochabamba, the industry reportedly

employs an estimated 22 percent of Bolivia’s workforce and consists of about 10,000

companies, the majority of which are small, family-run operations.16 The industry is based

on cotton textiles, although it uses significant quantities of locally produced specialty wool

and other fine animal hairs from Bolivia’s indigenous llamas and alpaca sheep. Bolivia’s

relatively nascent textile and apparel industry reportedly lacks leading-edge technology but

is making efforts to enhance worker training.17 Bolivia’s apparel sector reportedly grew by
MARCH 2001

Industry Trade and Technology Review U.S. Andean Apparel Trade 

 

18 U.S. Department of State telegram No. 3788, “Bolivians Propose Tariff and Quota-Free

Access.”

 

19 “Ecuador’s Trade,” found at Internet address http://www.ecuador.org/ecuadortrade.html,

retrieved Dec. 21, 2000.

 

20 U.S. Department of State telegram No. 143925, “Input for Draft 2000 Triennial Report to

Congress for Ecuador,” prepared by U.S. Embassy, Quito, Aug. 31, 2000.

 

21 Thomas G. Travis, “The 28-Minute Brief: Understanding and Complying with Trade

Regulations Key to Successful Global Sourcing Strategy,” DNR, Oct. 6, 2000, p. 21; and Brenda

(continued...)

7

20 percent during 1991-99; however, the country’s 1999 economic crisis has led to job losses

in the manufacturing sector and lower output in the apparel industry.18

U.S. apparel imports from Bolivia increased by 57 percent during 1996-2000 to $19.0 million

(see table 1). Some 62 percent of U.S. imports from Bolivia in 2000 consisted of cotton knit

shirts; the remainder were mostly of wool apparel. Garments from Bolivia that entered the

United States under HTS provision 9802.00.80 accounted for 8 percent of total apparel

imports from that country in 2000. 

Ecuador

Ecuador’s textile and apparel industry is relatively small, accounting for 1 percent of the

country’s total exports in 1997.19 The apparel assembly operations in Ecuador are located

in the FTZs.20 U.S. apparel imports from Ecuador doubled during 1996-2000 to $19.8

million (see table 1); they consisted of cotton knit shirts, cotton trousers, manmade-fiber

apparel, and wool sweaters. About 40 percent of the imports in 2000, or $7.2 million, entered

under HTS provision 9802.00.80 (see table 2); the U.S. content represented 76 percent of the

total value of these imports. 

Implications of CBTPA for Trade, Employment, and Foreign

Investment in Beneficiary Countries

The CBTPA, implemented by Presidential Proclamation 7351 of October 2, 2000, provides

duty-free and quota-free treatment for U.S. imports of apparel assembled in CBERA countries

from fabrics produced in the United States from U.S. yarns. Such preferential treatment is

also available for certain knit apparel assembled in CBERA countries from “regional knit

fabrics,” provided that these fabrics are produced from U.S. yarns. The trade preferences are

capped at 4.2 million dozen for outerwear T-shirts and 250 million square meter equivalents

for other knit apparel (e.g., underwear) for the 1-year period beginning on October 1. Both

caps are to be increased by 16 percent annually through September 30, 2004 and remain at

those levels through September 30, 2008, or by such other amounts as may be provided by

law. 

As narrowing profit margins force U.S. apparel producers to offer lower prices, faster

turnaround time, and better quality in order to compete, industry representatives anticipate

that the new trade benefits will lead to cost savings for U.S. apparel firms and create more

business opportunities for U.S. apparel importers, retailers, consumers, and foreign trading

partners.21 Trade sources project that the potential duty savings will range from $700 million
MARCH 2001

U.S. Andean Apparel Trade Industry Trade and Technology Review

 

21 (...continued)

Lloyd, “Global Sourcing Focus of Less-Attended Bobbin Americas,” DNR, Sept. 20, 2000.

 

22 Lisa C. Rabon, Bobbin, “CBI Trade Enhancements: Landmark Victory Signals Start of

Investment Race,” July 2000, pp. 24-30, and “CBI Apparel Outlook: The Shape of Things to

Come,” Aug. 2000; and Holly Welling, “Carribean Boon: Lurching After NAFTA,” Apparel

Industry Magazine, Aug. 2000, found at Internet address http://www.aimagazine.com/archives,

retrieved Aug. 11, 2000.

 

23 Gail A. Raiman, “North Carolina Textile Leaders Briefed on Industry Opportunities in the

Caribbean,” American Textile Manufacturers Institute, news release, Oct. 13, 2000, found at

Internet address http://www.atmi.org, retrieved Mar. 12, 2001.

 

24 According to a trade source, U.S. apparel producers are considering bringing more of their

production back to the Western Hemisphere. See Stan Gellers, “With CBI, the Price is Right in

the Caribbean,” DNR, Oct. 2, 2000, p. 6; and Cotton Incorporated, “The Caribbean Basin

Initiative: What Will it Mean for U.S. Cotton Apparel Trade?” Nov. 27, 2000, found at Internet

address http://www.textileweb...09027D EO8293+, retrieved Dec. 7, 2000.

 

25 Country sources reported that a loss of competitiveness to Mexico because of NAFTA likely

contributed to the closing of six maquila factories in Honduras, two of which were U.S.-owned. 

See U.S. Department of State telegram No. 1919, “Honduras Ecstatic Over CBI Enhancement

Law,” prepared by U.S. Embassy, Tegucigalpa, May 3, 2000.

 

26 Country sources report that the CBERA program helped stimulate significant investment in

the CBERA countries. They attribute an estimated $1.05 billion in both national and foreign

investment in the Honduran maquila sector in 1998 to CBERA benefits. See U.S. Department of

State telegram No. 2023, “Tegucigalpa - USITC Annual Caribbean Investment Survey,” prepared

by U.S. Embassy, Tegucigalpa, June 15, 1999.

 

27 U.S. investment in the Honduran textile and apparel sector at the end of 1999 totaled an

estimated $322 million. See U.S. Department of State telegram No. 2559, “Investment Climate

Statement for Honduras,” prepared by U.S. Embassy, Tegucigalpa, July 25, 2000.

8

to $1.4 billion over the next 5 years.22 U.S. textile producers would benefit as new trade

benefits help to stimulate real growth for U.S. exports of yarns and fabrics to CBERA

countries. According to one report, U.S. yarn and fabric makers could experience annual

sales increases in CBERA countries of as much as $8.5 billion over the next few years.23 U.S.

apparel producers reportedly expect to gain a stronger sourcing foothold in the Western

Hemisphere and to establish operations and business relationships with CBERA

manufacturers in order to compete more effectively with Asian producers, who seldom use

U.S. materials and who will gain access to the U.S. market free of quota restrictions in 2005.24

Likewise, the CBERA countries anticipate the new trade benefits to spur apparel investment

in their textile and apparel industries. For example, Honduras expects its maquila industry

to resume its rapid growth, following a slowdown resulting from increased competition from

Mexico under NAFTA.25 Sources in Honduras indicate that their textile and apparel industry,

which currently numbers about 200 companies (of which 92 are U.S. firms)26 expects factory

output and production capacity to double, new factories to be built as more investment flows

into the country,27 and existing factories to expand as manufacturing operations such as

cutting and stone washing are added. Apparel employment in Honduras reportedly is

projected to double from 120,000 to 240,000 workers over the next 5 years. 

Sources in the Dominican Republic, the second-largest CBERA apparel exporter to the United

States with more than 300 textile, apparel, and footwear companies and 200,000 apparel

workers, anticipate that the CBTPA will boost the country’s textile and apparel trade by 20
MARCH 2001

Industry Trade and Technology Review U.S. Andean Apparel Trade 

 

28 “The Dominican Republic Expects New Growth in Apparel Production,” Emerging

Textiles, Oct. 11, 2000, found at Internet address http://www.emergingtextiles.com/cgibin/more.cgi/garments11100.html, retrieved Oct. 13, 2000; and U.S. Department of State

telegram No. 1979, “Dominican Republic Expects Major Impact from CBI Enhancement,”

prepared by U.S. Embassy, Santo Domingo, May 19, 2000.

 

29 U.S. Department of State telegram No. 1663, “Salvadorans Pleased with CBI Passage: See

It as an Opportunity to Compete in Their Most Important Market,” prepared by U.S. Embassy,

San Salvador, May 17, 2000.

 

30 U.S. Department of State telegram No. 92865, “Impact of CBI Enhancement,” prepared by

U.S. Embassy, Guatemala City, May 23, 2000.

 

31 Lisa C. Rabon, “CBI Apparel Outlook,” Bobbin, Aug. 2000; and “Taiwan’s Textile

Companies to Massively Invest in Central America,” Emerging Textiles, Sept. 14, 2000, found at

Internet address http://www.emergingtextiles.com/cgi-bin/more.cgi/garments140900A.html,

retrieved Sept. 15, 2000. 

 

32 Some industry representatives in Colombia have alleged that certain apparel producers have

been attempting to stay competitive by absorbing duty costs, but cannot continue to do so and pay

salaries for much longer. See U.S. Department of State telegram No. 10235, “Time Running Out

for Colombian Garment Industry,” U.S. Embassy, Bogota, Nov. 20, 2000.

 

33 Sources in Colombia reported that no new orders were placed at the Colombia booth at the

2000 Bobbin Americas Show (a major apparel trade show held annually in Atlanta). They also

alleged that workers who are being laid off in anticipation of an industry slowdown are being

recruited by illegal narcotrafficing organizations. See U.S. Department of State telegram No.

10235, “Time Running Out for Colombian Garment Industry;” and Republic of Colombia,

(continued...)

9

to 25 percent and create 35,000 new jobs.28 Foreign investment in El Salvador’s maquila

industry is expected to grow by $750 million in the next 3 years and its apparel industry is

anticipated to gain 150,000 jobs over the next 5 years.29 In Guatemala, the CBTPA will

reportedly help create 15,000 new jobs, boost exports by 20 percent, attract increased

investment in the maquiladora sector, and encourage some companies to transfer apparel

operations from Mexico to Guatemala.30 Industry sources also believe that the CBTPA will

encourage additional Asian textile investment in the CBERA region to expand their access to

the U.S. market. A number of Asian firms have already established or invested in apparel

producing facilities in the CBERA countries because of their proximity to the United States.31

It is uncertain at this point whether Asian investors would begin to use U.S. components to

produce apparel for export to the U.S. market.

Legislation: Concerns About Competitive Disadvantages

The ATPA countries have expressed concern that the implementation of the CBTPA in

October 2000 will weaken their competitiveness in the U.S. apparel market and lead to a loss

of apparel trade to the CBERA countries. At a minimum, absent equivalent tariff benefits,

the ATPA countries will have a price disadvantage for their goods. The average tradeweighted U.S. duty on apparel from the ATPA countries was 17.6 percent ad valorem in

2000.32

Apparel industry sources in Colombia have expressed concern about the potential loss of

contracts, and plant closures, and production cutbacks attributable to trade preferences now

granted to the CBERA countries.33 Motivated by the tariff benefits under the CBTPA, some
MARCH 2001

U.S. Andean Apparel Trade Industry Trade and Technology Review

 

33 (...continued)

“Colombia’s Apparel Industry Faces Devastation Without CBI Parity Legislation,” press release,

Oct. 10, 2000.

 

34 Liz Claiborne Inc. indicated that it may relocate production from Colombia to CBERA

countries because of lower costs made possible by the CBTPA. Official of Liz Claiborne,

telephone interview by Commission staff, Nov. 20, 2000. Land’s End claimed that it does not

plan to terminate its sourcing from Peru at this time, because it has developed close working

relationships with its suppliers there and is reluctant to terminate such relationships on the basis

of price alone. Import manager for Land’s End, telephone interview by Commission staff, Dec.

6, 2000.

 

35 Representative of the American Apparel and Footwear Manufacturers Association, Email

communication to Commission staff, Jan. 26, 2001.

 

36 Representatives of Colombian Trade Bureau, Washington, DC, draft of a talking points

paper, facsimile to Commission staff, Dec. 19, 2000.

 

37 Representative of Proexport-Colombia, Email communication to Commission staff.

 

38 U.S. Department of State telegram No. 2462, “ExporAmerica Renews Push for Apparel in

ATPA,” prepared by U.S. Embassy, Lima, Apr. 24, 2000.

 

39 U.S. Department of State telegram No. 5903, “Report on ATPA and Peru,” prepared by

U.S. Embassy, Lima, Oct. 4, 2000.

10

U.S. apparel producers have announced plans to switch their apparel sourcing from ATPA

suppliers to CBERA contractors.34 Among the most immediate potential impacts that could

occur from Colombia’s loss of competitiveness with the CBERA countries are (1) a decline

in foreign investment and a diminished alternative to drug production in Colombia and (2) a

further decline in production-sharing trade with the United States that has occurred since

1997. U.S. imports of apparel from Colombia under HTS provision 9802.00.80 in 1997

declined 12 percent from $257 million in 1997 to $227 million in 2000. U.S. exports of

apparel to Colombia (the majority of which are believed to be cut parts for apparel assembly)

decreased by 40 percent from 1997 to 2000. According to a U.S. industry source, these

declines can be attributed to a shift in production-sharing trade to Mexico and the Caribbean

Basin countries.35 Some apparel industry sources in Colombia claim that increased

competition from the CBERA countries could jeopardize thousands of apparel jobs in the

Colombian industry and lead to a loss of $250 million in apparel exports to the United

States.36 Such losses would exacerbate Colombia’s recent economic difficulties, reflected in

an unemployment rate of almost 20 percent and the worst recession in 20 years.37

Industry sources in Peru claim that the CBTPA now puts their textile and apparel industry at

a competitive disadvantage with the CBERA countries in the U.S. market, and they support

adding preferential treatment for textiles and apparel to the ATPA. The Peruvian industry

sources assert that investment in the textile and apparel sector generates more jobs than any

other sector in Peru and that having CBTPA-equivalent access to the U.S. apparel market is

vital to Peru’s ability to compete with other Latin American and Asian exporters.38 Industry

sources in Peru also estimate that if the ATPA included duty-free treatment for textiles and

apparel, Peru’s textile and apparel sector would grow by 40 percent and would generate

32,000 direct new jobs and 78,000 indirect new jobs.39

On June 29, 2000, the Plan Colombia Trade Act (S. 2823) was introduced in the United

States Senate to amend the ATPA by granting preferential treatment to apparel articles from

the ATPA countries. This bill would have provided for 1 year of duty-free and quota-free

treatment to imports of apparel (1) assembled in ATPA countries from fabrics wholly made

and cut in the United States of U.S. yarns or (2) cut and assembled in ATPA countries from
MARCH 2001

Industry Trade and Technology Review U.S. Andean Apparel Trade 

 

40 Representative of the Colombian Trade Bureau, Washington, DC, Email communication to

Commission staff, Jan. 20, 2001.

 

41 White House,“Remarks by President Bush and President Pastrana of Colombia,” press

release, Feb. 27, 2001, found at Internet address

http://www.whitehouse.gov/news/releases/2001/02/20010227.html, retrieved Mar. 12, 2001.

 

42 “Andean Trade Bill a Likely Target of Efforts to Amend CBI Trade Law,” found at Internet

address http://www.insidetrade.com/sec-cgi/as_web.exe?SEC_current+B+trade011111, retrieved

Mar. 16, 2001.

 

43 U.S. Senate, Andean Trade Preference Expansion Act, 107th Cong., 1st sess., S. 525, Mar.

13, 2001.

11

fabrics wholly made in the United States of U.S. yarns, and sewn together with U.S. thread.

No action was taken on this legislation, however, before the 106th Congress adjourned in

November 2000.

Representatives of the Colombian Trade Bureau initiated efforts in January 2001 to encourage

reintroduction of the legislation into the 107th Congress that would grant trade preferences to

textiles and apparel for the ATPA countries.40 Discussions between the presidents of

Colombia and the United States at their February 27, 2001, meeting included how to improve

access to the U.S. market for Colombia’s exports of textiles and apparel and renewal and

enhancement of the ATPA beyond its December 2001 expiration.41 

On March 13, 2001, the Andean Trade Preference Expansion Act (ATPEA), S. 525, was

introduced to renew trade benefits for 5 years for products currently covered by the ATPA and

to expand the preferences to cover apparel and other products currently excluded from

benefits. Because drug trafficking remains a concern of the Andean countries, particularly

Colombia, the bill sponsors have reportedly framed the bill as an “important part of U.S.

efforts to combat the Colombian drug trade, because the expansion of industries spurred by

the trade benefits will provide jobs for former drug workers.”42

Under the ATPEA, quota-free and duty-free treatment is granted to apparel items from the

Andean countries that meet the following criteria:43

! Apparel articles assembled in one or more ATPEA beneficiary countries from fabrics

wholly formed and cut in the United States, from yarns wholly formed in the United

States, that are - (i) entered under subheading 9802.00.80 of the HTS; or (ii) entered

under chapter 61 or 62 of the HTS, even if such articles were subject to certain

finishing operations such as stone-washing, enzyme-washing, perma-pressing, etc.

! Apparel articles cut and assembled in one or more ATPEA beneficiary countries from

fabric wholly formed in the United States from yarns wholly formed in the United

States, if such articles are assembled in one or more such countries with thread formed

in the United States.

! Apparel articles (i) knit-to-shape from U.S. yarns; or (ii) assembled in an ATPEA

beneficiary country from components knit-to-shape in an ATPEA beneficiary country

from U.S. yarns; or (iii) assembled in an ATPEA beneficiary country from

components knit-to-shape in the United States. 
MARCH 2001

U.S. Andean Apparel Trade Industry Trade and Technology Review

 

44 U.S. Department of State telegram No. 170, “ATPA IPR, BIT Top Peru’s Trade Agenda,”

prepared by U.S. Embassy, Lima, Jan. 10, 2001.

 

45 U.S. Department of State telegram No. 7041, “Peruvian Aide Memoire on Bilateral Trade

Issues.”

 

46 U.S. Department of State telegram No. 001044, “Bolivia Will Consider U.S. Proposal on

FTAA Financial Services Negotiating Group,” prepared by U.S. Embassy, La Paz, Mar. 9, 2001.

 

47 Since 1990, Colombia has substantially reduced trade and investment barriers under its

“Apertura” (Opening) Economic Liberalization Plan followed by the Colombia Government. See

U.S. Department of State telegram No. 008239, “USTR Report to Congress on Andean Trade

Preferences Act-Colombia,” prepared by U.S. Embassy, Bogota, Sept. 19, 2000.

12

! A limited amount of apparel assembled from regional fabric, up to 70 million square

meter equivalents in the first year and increasing each year by 16 percent, compounded

annually, from fabric made from U.S. yarns;

Although Peru’s textile and apparel industry supports adding textiles and apparel to the

ATPA, the industry opposed the legislation introduced in 2000 to renew and enhance the

ATPA because of the requirement that the garments be assembled of U.S. materials.44 Since

the recently introduced legislation, S. 525, contains the same requirements concerning the use

of U.S. fabric and yarn, it is likely that Peru’s textile and apparel industry will voice the same

concerns as it did in the previous Congress. Whereas Colombia uses large quantities of U.S.

components in the production of apparel for export to the United States, Peru uses very little

U.S. content in its apparel production.45 Similar sentiments have been expressed by the

Government of Bolivia. According to a government representative, Bolivia “would like

apparel and textile tariff preferences to be included in the Andean Trade Preference Act” and

is concerned that S. 2823 is “heavily tilted toward maquila regimes which. . . would benefit

Colombia more than Bolivia.”46 Although the ATPEA allows duty-free access for a limited

amount of apparel assembled from regional fabric, the fabric must still be made from U.S.

yarn. 

Outlook

During the past several years, U.S. apparel companies with global operating strategies have

viewed the ATPA countries as an attractive sourcing alternative to Asian countries. Like

Mexico and the CBERA countries, the ATPA countries offer low labor costs and an ample

supply of skilled workers, as well as competitive shipping costs and rapid delivery times to

the port of Miami. The ATPA countries offer government incentives (substantial reduction

of tariffs and the elimination of most import license requirements, simplified import and export

procedures to attract foreign investment)47 and have the capability to produce high valueadded garments in a range of styles and fashions. Increased investment in apparel and textile

manufacturing and information technology in the ATPA countries in recent years has also

yielded higher productivity and enhanced product quality. 
MARCH 2001

Industry Trade and Technology Review U.S. Andean Apparel Trade 

 

48 Representative of the American Apparel and Footwear Manufacturers Association, Email

communication sent to Commission staff, Jan. 26, 2001.

 

49 Some CBERA producers began offering full-package programs (these typically refer to the

type of sourcing arrangements that can provide the entire range of garment manufacturing from

apparel design to all steps of textile production to distribution of the finished garment or any

combination of these operations) to compete more effectively with Asian suppliers who have

provided such programs for years, and to enhance their competitive advantage after NAFTA. See

Lisa C. Rabon, “CBI Trade Enhancements.”

 

50 Republic of Colombia, “Colombia’s Apparel Industry Faces Devastation Without CBI Parity

Legislation;” and Senator Bob Graham, summary of the “Plan Colombia Trade Act,” July, 6,

2000, p. 3.

 

51 Representative of Proexport-Colombia, Email communication to Commission staff.

13

Despite the above positive developments, however, U.S. and ATPA industry sources note that

the competitive position of the textile and apparel industries in the ATPA countries could be

weakened if they are not granted CBTPA-equivalent trade preferences and there could be

further shifts in U.S. imports of apparel from Colombia to the CBERA and to Mexico.48 In

addition, industry sources contend that the expected expanded offering of full-package

programs49 by CBERA suppliers would likely further widen the competitive gap between the

ATPA countries and their CBERA neighbors, increasing concerns about a loss of apparel

trade, foreign investment, and employment, and vulnerability to rising drug trafficking and

drug-related violence.50 For example, sources in Colombia have estimated that without

CBTPA-parity, Colombia could lose as many as 50,000 direct and 120,000 indirect jobs as

well as lose as much as $370 million in sales of apparel goods.51 Similarly,

EXPORAMERICA in Peru states that Peru’s ability to export textiles and apparel to the

United States will be at risk because apparel goods from its competitors in Mexico, the

Caribbean, and Central America will receive U.S. duty-free entry and also because U.S.

quotas for China and other Asian countries will be eliminated in 2005 as part of World Trade

Organization commitments.#

MARCH 2001

Industry Trade and Technology Review Central European Chemical Trade 

 

1

 The views expressed in this article are those of the authors. They are not the views of the

U.S. International Trade Commission as a whole or of any individual Commissioner.

 

2

 The former Czechoslovakia split into the Czech Republic and the Slovak Republic

(Slovakia) pursuant to a referendum of the citizenry on Jan. 1, 1993.

 

3

 The focus is on Central European external trade in chemicals rather than trade among the

four Visograd countries, which is not particularly large, inasmuch as their industries are not

integrated across national boundaries.

 

4

 Under central planning, industries that consumed chemicals were not required to locate

suppliers of inputs for their production processes, nor did customers have a choice of chemicalproduct providers.

15

Chemical Trade by the Central European

Countries: Difficulties of Sector Transition

Robert Randall1

Kara Olson1

randall@usitc.gov

(202) 205-3366

Following liberation from Soviet domination after the fall of the Berlin

Wall in 1989, the Visograd countries (the Czech Republic,2 Poland,

Hungary, and Slovakia2) of Central Europe quickly decided to adopt

multiparty democratic forms of government, to abandon central planning,

and to undertake the transition to market economies. Privatization was the

centerpiece of transition programs developed to reform the industrial

sectors of Central Europe. An important component of the industrial base

of these countries under communist rule was the chemical industry.

Privatization of the chemical industry sectors is nearly completed in the

Czech Republic and Hungary, but is still progressing in Poland and

Slovakia. Although the bilateral global trade flows in chemical products by

the Visograd countries have increased considerably in recent years, to

$19.5 billion, a growing trend for each country has been larger trade

deficits in this sector. This article examines progress and problems

associated with the transition to privatization of these principal producers

in Central Europe,3 impacts on trade in chemical products by these

countries, and their prospects for the future.

Prior to World War II, Czechoslovakia, Hungary, and Poland had thriving chemical

industries. However, their chemical industries stagnated during the years 1940-90, owing to

centralized control exerted initially by German and Soviet occupation forces and later by

domestic governments. During this period, economic planners and plant managers were

concerned with meeting externally established production requirements rather than the forces

of a competitive market environment. As a result, industrial production of chemicals by these

Central European (CE) countries fell sharply, following the general economic collapse

associated with the rapid dismantling of communism. The early period of transition to market

economies and general economic restructuring disrupted existing markets as established

consuming industries declined or even disappeared,4 and as downstream production found no
MARCH 2001

Central European Chemical Trade Industry Trade and Technology Review

 

5

 European Chemical Industry Council (CEFIC), “Survey of the Polish Chemical Industry,”

Economic Bulletin, June 1996; and Organization for Economic Cooperation and Development

(OECD), Designing New Trade Policies in the Transition Economies, Paris: OECD, 1997,

pp. 143-145.

 

6 Chemical & Engineering News, Dec. 13, 1999, p. 25.

 

7

 See the following sections on CE chemicals trade.

 

8

 The Czech Republic, Hungary, and Poland were accepted into the “first tier” of countries

applying for EU membership, whereas Slovakia is among the “second tier” of countries that are

not as far along in reaching EU standards for admission of new members.

 

9

 Economic Commission for Europe, Structural and Ownership Changes in the Chemical

Industry of Countries in Transition, Geneva: Economic Commission for Europe, Nov. 1997,

pp. 1-3.

16

ready markets.5 Even in more recent years, production of chemicals by the CE countries has

been characterized by industry observers as “erratic”6 (table 1), partly due to the transition

problems and to long-established global trade links for these countries.7

Table 1

Annual change in chemical production for Central European countries, 1996-2000

(Percent)

Country 1996 1997 1998 1999 20001

Czech Republic ....................... 9.8 3.9 - 1.9 - 2.0 2.0

Hungary ............................. 0.9 3.4 - 8.0 - 5.0 3.0

Poland .............................. 6.7 12.0 - 2.8 0 3.0

Slovakia ............................ 2.4 - 3.2 0 - 2.0 0

 1 Estimate.

Source: Chemical & Engineering News, Dec. 13, 1999, p. 25.

Each CE country applied to join the European Union (EU) to stimulate and reinforce its

conversion to market-based, free-enterprise economies.8 In 1997, the Economic Commission

for Europe summarized the major challenges facing the CE chemical industries as follows:9

• Centralized planning led to a chemical industry structure based on large-scale

production enterprises with little innovation, and research lacking integration with

production goals.

• Performance was measured in tonnage produced rather than income generated,

which provided little incentive to develop marketing techniques, after-sales service,

or direct assistance to customers. 

• From a technical standpoint, the industry is characterized by obsolete production

technology; poor environmental protection; high energy waste; and lack of new

investment for maintenance, modernization, pollution abatement, and

environmental remediation.

• From a commercial standpoint, there is widespread lack of market knowledge,

marketing skills, and marketing infrastructure. Likewise, there is widespread lack
MARCH 2001

Industry Trade and Technology Review Central European Chemical Trade 

 

10 U.S. Agency for International Development, Environmental Conditions in Central Europe,

U.S. Department of Commerce, Central and Eastern Europe Business Information Center,

May 1998; and Patricia Layman, “Environment in Central, Eastern Europe Improves, But

Problems Remain,” Chemical & Engineering News, Nov. 29, 1999, p. 18f.

 

11 Centre for Co-operation with Non-Members, Environment in the Transition to a Market

Economy: Progress in Central and Eastern Europe and the New Independent States, Paris:

OECD, 1999.

 

12 Specialty chemical products principally comprise low-technology formulated products

(“package goods”), often with substantial consumer usage (e.g., paints and varnishes, soaps and

detergents, cosmetics, etc.). Fine chemical products are generally of complex molecular structure,

must be of high purity for most applications (e.g., perfumery ingredients, pharmaceutical active

ingredients or intermediates, dyes, etc.), or both.

 

13 Generally, the small chemical plants (the preponderance in terms of numbers, but

representing considerably less than one-half the national value of chemicals output and

employment) have been successfully privatized. Various trade sources.

17

of understanding of the need to satisfy customers, the importance of developing

new products, and the need to cultivate new customers. Moreover, very few CE

companies have a commercial image or a reputation for product quality,

reliability, customer service, or innovative solutions to customers’ problems and

requirements.

• From a management standpoint, the imperative did not exist to develop anything

other than technical and production management skills, resulting in deficient

marketing, financial, and general management skills and experience–all vital

attributes in a competitive market economy.

Industry sources suggest that the conditions cited above continue to present major hurdles.

Although the CE chemical industries are beginning to make some progress in upgrading

facilities, closing obsolete plants, installing pollution-abatement equipment, and adopting less

polluting production processes, all have a considerable way to go in meeting EU standards.10

A recent Organization for Economic Cooperation and Development (OECD) report indicates

that it may take 20 years or more to meet current EU environmental standards which,

notwithstanding, are themselves still evolving and advancing.11

Transition to Private Enterprise in the CE Chemical

Industry

The transition from central planning of state-controlled chemical plants to private marketoriented operations has been a mixed picture in the CE countries. The chemical industries in

the Czech Republic and Hungary were fairly rapidly privatized. These industries consist

predominantly of small and medium-sized factories, producing a variety of relatively highvalued specialty and fine chemical products12 in small lots by batch processes. Firms with less

than 50 employees were readily privatized,13 inasmuch as the required capital could be raised

from personal savings, loans, and deferred payment plans, while production and marketing

could follow their course from before privatization with few changes. In Hungary, the process

was reported to be a relatively easy transition as domestic entrepreneurs were successful in
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Central European Chemical Trade Industry Trade and Technology Review

 

14 Various trade sources.

 

15 “Eastern Europe–a Mixed Bag of Results,” European Chemical News, Jan. 10-16, 2000,

p. 24.

 

16 Basic chemicals, accounting for more than one-half (for example, about 60 percent in the

EU) of all chemical products, are used as raw materials, ingredients in formulated products, or as

processing reagents for other products that are subject to derived demand over which chemical

producers have little influence or control. Production scale, market size, and technological

efficiency are extremely important competitive considerations for basic chemicals. CEFIC, Facts

& Figures 1998, p. A-1.4.

 

17 Various trade sources.

 

18 Social costs associated with any major restructuring (particularly downsizing of the

workforce) would be particularly significant for a facility that is the economic mainstay of a

community.

 

19 Industrial gases are mostly derived by liquefaction and fractional distillation of air to

produce nitrogen, oxygen, and argon, among others.

 

20 Various trade sources.

18

attracting capital, improvising marketing and management skills, and guiding companies to

concentrate on their most saleable products.14

The chemical industries in the other CE countries, which industry sources generally

characterize by large-scale production works without associated marketing, financing, or

management expertise, are still in various stages of transition to private ownership, secondary

reorganization, or both, following difficulties in their initial privatization.15 A large proportion

of the output of chemicals in Poland and Slovakia were lower value basic chemicals.16 These

chemicals typically were produced in large quantities by antiquated, integrated continuousprocess plants and obsolete production technologies which were not cost-competitive.17 These

large chemical plants pose a number of severe hurdles to successful privatization, particularly

difficulties in raising capital not only for the purchase of the facilities but also for process

upgrades, pollution control, environmental remediation, pension liabilities, and other social

costs.18 Raising the hundreds of millions or even billions of dollars needed is extremely

difficult in a fledgling market economy with more pressing demands on capital and minimal

established financial institutions.

With a few exceptions, the CE chemical industries have not attracted much foreign investment

interest partly because of their questionable long-term viability and potential liability issues,

but also because the manufacture of basic chemicals is not in the current strategic business

plans of many international companies. Notable among the exceptions are the production of

industrial gases, pharmaceuticals, and pesticides. Industrial gasses19 do not pose pollution

problems and were viewed as having excellent future growth prospects serving the CE metalsworking industries. Pharmaceuticals and pesticides are produced in small batches by

specialized facilities, and some international firms preferred to source certain types of these

products from outside their home territories for environmental and public-relations reasons.20

Moreover, the questionable long-term profitability of many plants and the difficulty of

integrating these facilities into current corporate business strategies pose significant

disincentives to prospective foreign investors who have more attractive investment

alternatives.
MARCH 2001

Industry Trade and Technology Review Central European Chemical Trade 

 

21 Compiled from official statistics of the United Nations Statistics Division.

 

22 The SITC chemical statistical categories shown in table 2 are quite broad, so the product

rankings cannot be more precise.

19

CE Trade Deficits Widen in Chemical Products

The CE chemical producers, with the exception of those in Slovakia, increased their exports

during 1994-99 (figure 1) at an average annual rate ranging from 4 percent to 7 percent;

exports of all four producers totaled more than $5.7 billion in 1999. However, a greater

reliance on chemical product imports by each country caused a growing trade deficit during

the period. Imports of chemical products by each country increased by a range from 6 percent

to 15 percent, reaching a total of $13.9 billion in 1999. The combined trade deficit for these

countries during 1994-99 rose from over $3.2 billion to $8.2 billion in 1999.21

Both imports and exports by CE countries in almost all major product categories of chemicals

have increased during 1994-99 (table 2);22 however, the balance of trade for each country in

nearly all the product categories in 1999 was negative. Exceptions include organic chemicals

from the Czech Republic, fertilizers from Poland, and fertilizers and plastics in primary forms

from Slovakia. These trends reflect, with few exceptions, the increasing difficulty of the CE

chemical industry in meeting its own needs for modern chemical products while achieving only

limited success in exporting the more basic chemical products that they manufacture (such as

those toward the top of each product listing in table 2). An exception to the deficit trend is

fertilizers, principally in Poland; although important, fertilizers do not generate a high value

of exports as compared with many other product categories. The relatively higher value of

trade in medicinal and pharmaceutical products, however, registers a large deficit for all CE

countries despite some success by Hungary in exporting certain types of these products.

Czech Republic

Chemical exports from the Czech Republic during the years 1994-99 increased by

approximately 7 percent annually. Although organic chemicals are the country’s largest

product category for exports, the growth during the period was driven primarily by exports

of plastics in nonprimary forms and of detergents and cosmetics. Plastics in nonprimary forms

were also a major chemical product imported into the Czech Republic in 1999, accounting for

16 percent of all chemical imports. Imports of plastics in nonprimary form are predominantly

of the newer, more sophisticated modern polymers, whereas exports are of older plastics such

as polyvinyl chloride (PVC) that pose significant environmental problems in their manufacture

and disposal. Chemical imports into the Czech Republic increased by approximately

10 percent annually during the years 1994-99, led by growth in imports of plastics. Medicinal

and pharmaceutical products, however, remained the largest product category for imports

during this period. In 1999, the Czech Republic’s trade deficit in chemical products reached

nearly $1.6 billion, up from only $565 million in 1994, representing an average annual growth

in the deficit of more than 19 percent over the period.
MARCH 2001

Central European Chemical Trade Industry Trade and Technology Review

20
MARCH 2001

Industry Trade and Technology Review Central European Chemical Trade 

21

Table 2

Trade in chemical categories for the CE countries, 1999, and average annual change, 1994-99

Country/category2

19991 Average annual change, 1994-991

Exports Imports Balance Exports3Imports3 Balance3

---------Million dollars----------- -------------Percent-------------------

Czech Republic:

Fertilizers ......................... 45 55 (10) - 6.7 - 3.1 (74.8)

Inorganic chemicals ................. 148 253 (105) 4.1 5.4 (7.5)

Detergents and cosmetics ............ 279 345 (66) 14.9 11.9 - (2.5)

Plastics, nonprimary forms ........... 259 566 (307) 22.8 16.7 - (12.9)

Plastics, primary forms .............. 265 478 (213) - 0.8 15.4 (551.4)

Organic chemicals .................. 473 269 204 0.8 - 0.2 2.1

Chemicals materials, miscellaneous .... 105 401 (296) 5.7 11.3 (13.7)

Dyes and colorants ................. 156 321 (165) 1.4 8.7 (19 3)

Medicinal and pharmaceutical products . . 202 776 (574) 5.0 9.4 (11.3)

Hungary:

Fertilizers ......................... 16 51 (35) - 1.5 3.0 (6.7)

Inorganic chemicals ................. 100 109 (9) 2.5 0.8 - (39.9)

Detergents and cosmetics ............ 87 277 (190) 41.3 9.9 - (3.3)

Plastics, nonprimary forms ........... 125 308 (184) 11.0 16.4 (21.2)

Plastics, primary forms .............. 343 365 (22) - 1.6 12.9 (84.2)

Organic chemicals .................. 261 365 (104) - 2.5 - 1.3 (4.5)

Chemicals materials, miscellaneous .... 161 382 (221) 9.6 7.7 - (6.7)

Dyes and colorants ................. 42 210 (168) 19.9 10.4 - (8.5)

Medicinal and pharmaceutical products . . 290 597 (307) 2.8 6.5 (10.9)

Poland:

Fertilizers ........................ 186 137 49 - 1.4 15.8 - 16.2

Inorganic chemicals ................ 179 214 (35) - 2.6 13.3 (82.6)

Detergents and cosmetics ............ 314 664 (350) 35.4 15.7 - (5.3)

Plastics, nonprimary forms ........... 135 879 (744) 31.5 19.3 - (17.6)

Plastics, primary forms .............. 156 992 (836) 9.2 19.7 (22.5)

Organic chemicals ................. 318 587 (269) - (4) 1.1 (3.4)

Chemicals materials, miscellaneous .... 123 895 (772) 11.1 16.2 (17.0)

Dyes and colorants ................. 80 628 (548) 12.3 17.6 (18.5)

Medicinal and pharmaceutical products . . 145 1,504 (1,360) - 5.2 16.4 (21.6)

Slovakia:

Fertilizers ........................ 35 14 21 - 17.9 - 8.5 - 22.9

Inorganic chemicals ................ 40 71 (31) - 7.5 - 1.7 (14.2)

Detergents and cosmetics ............ 43 113 (70) 1.1 7.0 (11.4)

Plastics, nonprimary forms ........... 102 131 (30) - 3.0 12.9 (74.4)

Plastics, primary forms .............. 184 116 67 - 1.1 4.8 - 7.9

Organic chemicals ................. 123 152 (30) - 2.2 -4.5 - (15.2)

Chemicals materials, miscellaneous .... 47 159 (112) - 13.1 9.6 (68.7)

Dyes and colorants ................. 13 109 (96) - 15.3 7.8 (16.0)

Medicinal and pharmaceutical products . . 85 350 (265) - 8.9 14.1 (38.6)

1

 Calculated from unrounded data. A trade deficit is indicated by parentheses.

2

 Major chemical categories based on 2-digit SITC classifications. For each country, commodity and inorganic chemicals

are nearer to the top and fine chemicals, that are more difficult to synthesize, are nearer to the bottom.

3

 A declining trend is shown by a minus sign. A trade surplus or deficit (parentheses) trend is either growing or shrinking

(minus sign) by the average annual change indicated. Trends were estimated by log-linear regression; data were rescaled to

estimate the trend in periods where the trade flow reversed sign.

4

 Less than 0.05 percent.

Source: Compiled from official statistics of the United Nations Statistical Division.
MARCH 2001

Central European Chemical Trade Industry Trade and Technology Review

 

23 RU-486 (mifepristone, U.S. trade name Mifeprex) has been popular in France and Italy,

although it has been controversial in the United States and is not readily available, despite Food

and Drug Administration (FDA) approval. According to the British Broadcasting Corporation

(BBC), the French Government is making the drug available through school nurses to deal with

an alarming rise in adolescent-age pregnancies. BBC News transcript, found at

http://news.bbc.co.uk/hi/english/world/europe/ newsid_542000/542470.stm, retrieved Nov. 30,

1999.

 

24 Margaret Talbot, “The Little White Bombshell,” New York Times Magazine, July 11, 1999,

p. 39ff.

 

25 More recently, the FDA has proposed restrictive labeling requirements which industry

observers indicate could result in further rounds of litigation, delaying widespread marketing.

The FDA is also considering withdrawal of approval for misoprostol, normally used with

mifepristone, potentially inhibiting U.S. market development of RU-486. Various trade sources.

22

Hungary

Exports of chemical products from Hungary increased by 4 percent per year during 1994-99,

reaching $1.4 billion in 1999. Producers registered their strongest export growth during the

5-year period in both the cosmetic and dyestuffs industries. Hungary’s most important

chemical exports in 1999, however, were plastics in primary forms, medicinal and

pharmaceutical products, and organic chemicals. Although unlikely to serve as a model for

widespread replication, the Hungarian chemical and pharmaceutical company, Gedeon

Richter, reportedly agreed to manufacture the French abortifacient drug, RU-48623 for

distribution in the United States.24 U.S. firms were reluctant to provide the controversial drug,

being concerned about impacts on sales of other products; Planned Parenthood, the U.S.

licensee, sought a foreign manufacturer.25 Hungary’s imports during 1994-99 increased at

an annual rate of 7 percent, led by a 16-percent increase in imports of plastics in nonprimary

forms. Hungary’s trade deficit in chemical products grew to $1.2 billion in 1999, averaging

nearly 14 percent annually during this period.

Poland

Polish exports of chemical products increased by 6 percent per year during 1994-99, primarily

due to strong growth in detergents and cosmetics, which annually increased by 35 percent. In

1999, organic chemicals ranked as the leading chemical export from Poland, followed closely

by detergents and cosmetics. Like Hungary and the Czech Republic, Poland’s imports grew

faster than its exports and averaged 15 percent per year during this period, causing its total

chemical trade deficit to reach nearly $5 billion in 1999. Leading chemical imports include

medicinal and pharmaceutical products, plastics (primary and nonprimary forms), and

miscellaneous chemical materials.

Slovakia

Slovakia experienced the most disappointing performance in chemical export trade among the

CE countries during 1994-99. Exports from Slovakia declined by 2 percent annually during

this period to $671 million. Only one product category showed export growth during this

period–detergents and cosmetics. At the same time, chemical imports by Slovakia during

1994-99, increased at a rate of 6 percent per year. Medicinal and pharmaceutical products

was the leading Slovak chemical import by value in 1999. These trends largely reflect the
MARCH 2001

Industry Trade and Technology Review Central European Chemical Trade 

 

26 Economic Commission for Europe, Structural and Ownership Changes in the Chemical

Industry, p. 124.

 

27 “Demand Grows in Central Europe for EU Output,” Chemical Marketing Reporter,

Nov. 1997, p. 8.

 

28 Natasha Alperowicz, “The European Union Takes Five,” Chemical Week, Mar. 24, 1999,

pp. 56-58.

 

29 Patricia L. Layman, “Western Europe: Cycle Turns Upward Once Again for Chemical

Industry,” Chemical & Engineering News, Dec. 13, 1999, p. 25.

23

industry structure in place before the partition of the former Czechoslovakia. Most of the

basic-chemical plants were located in Slovakia and were in poor condition as well as poorly

engineered by modern standards, whereas the more economically viable fine-chemicals and

consumer-products plants were mainly located in the Czech Republic.26 Moreover, Slovakia’s

markets for chemicals are primarily in Eastern European countries, which have fared far

worse in their transition to market economies than did the CE countries, thereby reducing both

their demand for chemical imports and their ability to pay with hard currency. Partly in

consequence, Slovakia’s trade deficit for chemical products increased at an annual rate of

more than 100 percent during 1994-99, by far the largest deficit trend in the period among the

four CE countries.

Global Trade Patterns for CE Chemicals

Although details differ for each country, common patterns of global trade are evident among

the four prominent countries comprising the chemical industrial base in Central Europe

(table 3). For each country, the EU is its most important source of chemical imports–in the

60-75 percent range. On the export side, except for Slovakia, the EU is also the most

important export destination although the EU share is much smaller (less than 50 percent);

however, Eastern Europe and the former Soviet Union still remain major destinations for

chemical products exported from the CE countries. More distant regions are much less

important by value of chemicals trade than nearer trade partners, as would be expected for

undifferentiated commodity products; however, in some cases, such regions show high rates

of growth from their small historical bases.

Prominence of the EU as the leading source of chemical imports for the CE market is due to

a number of factors, including a more modern chemical product mix than the CE chemical

industries, excess capacity to meet export demand, and close proximity with fairly good

transportation facilities. As a result, the EU is the most economically competitive supplier.27

In contrast, chemical exports from the CE countries to the EU are constrained by the CE

industry’s more basic chemical product mix of commodities readily available in the EU; by

a lack of sustained, sophisticated marketing efforts; and by the inability of CE chemical

producers to modernize their industry because the limited investment funds available must be

directed to overcoming environmental deficits that require correction if the countries are to

become members of the EU according to schedule.28 Further, CE chemical exports directed

eastward exhibit limited opportunity for growth because of the limited progress in industrial

reform in Eastern Europe and Russia, the Eastern European reliance on state trading

enterprises, and their stagnant national economies that do not generate reliable and growing

demand for chemical products or the foreign exchange to pay for anything but the most vital

imports.29
MARCH 2001

Central European Chemical Trade Industry Trade and Technology Review

24

Table 3

International trade in chemicals, by principal Central Europe source and global destination,

1999

Country/region

Exports Imports

1999

Ratio

to total

Growth

rate1 1999

Ratio

to total

Growth

rate1

Million

dollars -------Percent------- Million

dollars -------Percent-------

Czech Republic

 European Union-15 .............. 895 46 3 2,455 70 13

 Eastern Europe (excluding FSU) .... 729 38 4 506 14 - 1

 Former Soviet Union (FSU) ........ 129 7 13 55 2 - 3

 Non-EU Western Europe2......... 38 2 4 153 4 3

 North and South America ......... 71 4 32 177 5 24

 Asia (excluding Oceania)3......... 39 2 3 88 3 20

 Middle East4................... 18 1 9 15 (

5

) 16

 World total6................. 1,934 100 7 3,494 100 10

Hungary

 European Union-15 .............. 604 42 (

5

) 1,918 72 9

 Eastern Europe (excluding FSU) .... 411 29 12 245 9 8

 Former Soviet Union (FSU) ........ 165 12 3 88 3 - 10

 Non-EU Western Europe2......... 47 3 25 153 6 - 5

 North and South America ......... 69 5 7 135 5 23

 Asia (excluding Oceania)3......... 58 4 - 13 105 4 19

 Middle East4................... 58 4 3 19 (

5

) 10

 World total6................. 1,424 100 4 2,664 100 7

Poland

 European Union-15 .............. 778 48 4 4,848 75 17

 Eastern Europe (excluding FSU) .... 249 15 14 605 9 12

 Former Soviet Union (FSU) ........ 400 24 15 206 3 - 1

 Non-EU Western Europe2......... 23 1 3 294 5 12

 North and South America ......... 72 4 - 8 316 5 19

 Asia (excluding Oceania)3......... 92 6 - 2 194 3 23

 Middle East4................... 9 1 8 32 (

5

) 9

 World total6................. 1,636 100 6 6,500 100 15

Slovakia

 European Union-15 .............. 217 32 - 5 708 58 13

 Eastern Europe (excluding FSU) .... 400 60 - 6 341 28 - 1

 Former Soviet Union (FSU) ........ 28 4 - 4 34 3 - 14

 Non-EU Western Europe2......... 6 1 - 5 55 5 8

 North and South America ......... 11 2 (

5

) 43 4 - 4

 Asia (excluding Oceania)3......... 4 1 - 22 22 2 21

 Middle East4................... 2 (

5

) - 8 6 (

5

) - 3

 World total6................. 671 100 - 2 1,216 100 6

 

1

 For the period 1994-99.

 

2

 Principally trade with Switzerland which has a significant fine chemicals industry.

 

3

 Asian-Pacific Rim and South Asia.

 

4

 Primarily trade with Saudi Arabia which has a large petrochemical industry.

 

5

 Less than 0.5 percent.

 

6

 Columns do not add to totals shown due to omission of other countries and regions, such as Oceania and the

Baltic States, which tend to have relatively insignificant trade in chemical products with Central Europe.

Source: United Nations Statistical Division.
MARCH 2001

Industry Trade and Technology Review Central European Chemical Trade 

 

30 These are important competitive considerations, as many chemicals are commodity

products, in which scale of production, size of markets, and technological efficiency are

extremely important. Alperowicz, “The European Union Takes Five.”

 

31 “Demand Grows in Central Europe for EU Output,” Chemical Marketing Reporter.

 

32 Ibid. This observation is reflected by trade data shown in table 2, as the highest valued

import category for all CE countries is medicinal and pharmaceutical products.

25

Outlook 

According to several European chemical analysts, the CE countries’ trade in chemicals will

continue to be in deficit for the foreseeable future, given their older plants, lesser production

efficiencies, and smaller domestic markets than those in Western Europe.30 In the words of one

strategist at an EU chemical company, “Europe is becoming a single market in which the

relatively small Central and Eastern European producers will always have difficulties

competing against the large Western European producers. Instead, Eastern European chemical

companies will have to concentrate on dealing with specific regional needs or specialty

products.”31 Further, an executive at a Polish chemical manufacturer noted, “the more

advanced and specialized the chemical, the greater the tendency for it to be imported.”32

Chemical firms producing specialty chemicals or serving niche markets in the CE countries

are less affected by the scale and efficiency of the operation than are those producing

commodity chemicals. These specialty-product firms are more concerned with the ability to

incorporate the rapid technological advance in products (versus production processes) and to

form closer ties with customers, particularly communicating effectively with customer’s

technical staff (diverse European languages make technical exchanges more difficult). In

general, most CE chemical industries do not yet possess all these qualities, although the Czech

Republic and Hungary, with more specialty and niche-market chemical industries, are in a

better position than Poland and Slovakia, which have more commodity-oriented chemical

industries.

In the short run, it appears that chemical firms in the CE countries must become more

specialized and responsive to customer requirements if they are to remain a major force in the

economic future of their countries. These companies must also overcome numerous technical,

commercial, and managerial deficiencies if they are to prosper and be competitive with

Western European firms in export markets.#

MARCH 2001

Industry Trade and Technology Review Light Metals for Hybrid Vehicles 

 

1

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

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

 

2

 U.S. automakers are scheduled to enter the domestic market in 2003 with added versions of

hybrid vehicles: DaimlerChrysler’s Durango SUV and Citadel, Ford’s Escape SUV, and General

Motors’ Chevrolet Triax. These vehicles are not discussed in this article because they are not

anticipated to make extensive use of light-weight metals.

 

3

 Automotive demand presently accounts for a small, but growing percentage of total

consumption of aluminum and magnesium, whereas no titanium is presently used in automobiles. 

 

4

 The industry makes a distinction between “mild hybrid” and “full” hybrid vehicles. Mild

hybrids have the ratio of on-board electric power to total power supplied lower than 23 percent,

whereas full hybrid vehicles have the fraction of on-board electric power as high as 39 percent.

27

Commercialization of Hybrid Automobiles:

Prospective Demand for Light Metals

Vincent DeSapio1

desapio@usitc.gov

(202) 205-3435 

Hybrid automobiles`2 represent a major market-growth opportunity for

manufacturers of light-weight nonferrous metals. These vehicles are

designed to be much more fuel-efficient than current automobiles. Fuel

efficiency requires lowering vehicle weight by substituting aluminum,

magnesium, titanium, carbon- and glass-reinforced polymer composites,

and ultra-light steel for traditional, heavier materials such as iron and

steel. Wider acceptance of the light-weight metals in automotive

applications could significantly increase overall demand for these metals,

by nearly 20 percent of present consumption of aluminum to more than 100

percent of present consumption for magnesium and titanium.3 However, the

commercial success of hybrid automobiles will be affected by the price

premium under which they will likely enter the market, and the difficult

challenge of meeting fuel economy and tighter emissions standards. This

article examines the progress made by U.S. and Japanese automakers in

designing and producing hybrid vehicles, the problems and potential

associated with increased use of light metals, and efforts underway to

reduce production costs of light metals used in making hybrid vehicles.

Hybrid vehicle technology combines conventional and electrical propulsion systems4 to reduce

emission of greenhouse gases and improve fuel consumption, and offers consumers an

extended mileage range and convenient refueling options. Most hybrid vehicles on the market

or in development use a parallel configuration. Both a conventional engine and an electric

propulsion system can be used to power the vehicle. An electric-only power mode can be used

for short trips whereas the conventional engine provides power to the vehicle on longer trips,

supplemented by an electric motor for additional power in climbing hills, rapid acceleration,

and other periods of high demand. During acceleration, the two power sources operate in

tandem for optimal performance.
MARCH 2001

Light Metals for Hybrid Vehicles Industry Trade and Technology Review

 

5 Program Plan, PNGV, Partnership For a New Generation of Vehicles, document released by

Vice President Gore, Nov. 29, 1995.

 

6

 The target mass of a PNGV vehicle was set at 1,960 pounds, compared to an average 1994

vehicle weighing 3,240 pounds.

 

7 Program Plan, pp. ES-1-ES-2.

 

8

 “U.S. Petroleum Consumption, Imports and Exports,” Energy Information Administration,

U.S. Department of Energy, Washington, DC, found at http://www.eia.doe.gov/oil_gas/

petroleum/info/, retrieved April 4, 2001.

 

9

 PNGV, draft executive summary, U.S. Department of Commerce, p. 4.

 

10 The remaining expenditures related to activity, such as fuel cell research, which is not

directly related to PNGV but may be of long-term benefit to the program.

28

U.S. and Japanese Hybrid Vehicle Efforts

In September 1993, President Clinton and the chief executive officers of the major U.S.

automakers announced the formation of the Partnership for a New Generation of Vehicles

(PNGV). Involving the 3 major U.S. automakers (Ford Motor Co., General Motors, and

DaimlerChrysler), 7 government agencies, and 20 national research laboratories, the

announced long-term goals of the partnership are as follows:5

• To improve the productivity of the U.S. manufacturing base by upgraded

manufacturing technology, including agile and flexible manufacturing and the

reduction of cost and lead times, while reducing the environmental impact, or

improving product quality, or both; 

• To pursue and implement technology advances that lead to improved fuel

efficiency and reduced emissions of standard vehicle designs, as well as better

safety performance; and

• To develop a new generation of vehicles with fuel economies three times as

efficient as now (80 miles per gallon of gasoline) while comparable in terms of

size, utility and performance standards to vehicles on the market when the PNGV

was formed (Chrysler Concorde, Ford Taurus, and Chevrolet Lumina).6 

This program was expected to provide significant energy savings, environmental protection,

and economic benefits to the nation. A significant improvement in vehicle fuel efficiency

would represent major progress toward lessening U.S. reliance on foreign oil supplies, which

accounted for nearly 50 percent of U.S. oil consumption at a cost of more than $40 billion in

1993.7 Today, U.S. reliance on foreign oil supplies accounts for more than 50 percent of U.S.

oil consumption at a cost of $80 to 90 billion.8 The PNGV anticipated that “concept” vehicles

would be introduced in the year 2000, while prototype commercial vehicles would enter the

market in 2004. The three U.S. automakers spent approximately $980 million in 1999 on

PNGV-related research.9 In fiscal year 1999, the U.S. Government spent $232 million for

PNGV-related research, of which $160 million was for research and development directly

related to PNGV and coordinated by the technical teams.10

Early in the program, U.S. automakers decided that the best engine design available to achieve

the PNGV fuel economy goal would be a hybrid-electric drive train design with a
MARCH 2001

Industry Trade and Technology Review Light Metals for Hybrid Vehicles 

 

11 U.S. hybrid vehicles under development use a CIDI engine which has the highest thermal

efficiency of existing internal combustion engines. Disadvantages of the CIDI engine include

emission levels of particulate matter and nitrous oxides exceeding EPA standards.

 

12 Review of the Research Program of the Partnership for a New Generation of Vehicles,

Sixth Report, National Research Council, 2000, p. 2. 

 

13 Although the Japanese Government does not have a program comparable to the U.S.

PNGV, the Japanese Government does provide extensive financial support in the form of R&D

tax credits, and direct and local subsidies to automakers for the manufacture of hybrid vehicles. 

 

14 Feng An, Anant Vyas, John Anderson, and Danilo Santini, “Evaluating Commercial and

Prototype HEVs,” Argonne National Laboratory, 2000, p. 3.

 

15 Sujit Das, T. Randall Curlee, Stanton W. Hadley, Donald W. Jones, Bruce E. Tonn, Amy K.

Wolfe, Supporting Infrastructure and Acceptability Issues Associated With Two New Generation

Vehicles: P2000 and ESX2, Oak Ridge National Laboratory, May 2000.

 

16 Differences between material use in earlier and later versions of these PNGV cars are not

significant.

29

compression-ignition direct injection (CIDI or diesel) engine.11 A major program goal was

achieved in 2000 with the unveiling of the PNGV-concept cars--Ford’s Prodigy, General

Motor’s Precept, and DaimlerChrysler’s ESX3 (table 1). These concept cars demonstrated

the technical feasibility of combining advanced hybrid engine technologies and innovative use

of light materials (table 2) to achieve the fuel economy goals of the program. However, these

vehicles do not necessarily represent the final versions scheduled for commercial production

in 2004. Rather, they serve as an interim stage between company research program and final

commercial design, for these vehicles may include components with no thus-far demonstrated

and validated manufacturing processes and affordable costs.12

Japanese automakers Honda and Toyota introduced commercial versions of their hybrid

vehicles in 200013 (see table 1). A principal difference with the U.S. PNGV hybrid cars is that

the Japanese hybrid cars use a gasoline engine. Because of the lower thermal efficiency of the

gasoline engine, the fuel consumption of these vehicles is slightly higher than for hybrid

vehicles using a CIDI design. The Japanese hybrids tend to achieve less fuel economy than

their diesel U.S. counterparts. On the other hand, the use of a gasoline engine makes it easier

for Japanese hybrids to meet the more stringent U.S. Environmental Protection Agency (EPA)

emissions standards without having to resort to expensive emissions-control equipment to

clean the diesel emissions.14 

U.S. sales of Honda’s Insight, since its introduction, totaled 4,863 by April 200l, with average

monthly sales in 2001 of between 300-400 vehicles. Toyota’s sales of the Prius in the United

States has been estimated at between 5,000-6,000 for the same period while worldwide sales

of the Prius has topped 50,000 during the same period, with 90 percent of the vehicles having

been sold in Japan. 

The Potential Demand for Light Metals in Hybrid Vehicles

Projected annual material requirements were estimated by Oak Ridge National Laboratory

(ORNL)15 for various materials in the Ford P2000 (the predecessor of Ford Prodigy) and the

Daimler-Chrysler ESX2 (the predecessor of the ESX3) (table 3).16 ORNL concluded that
MARCH 2001

Light Metals for Hybrid Vehicles Industry Trade and Technology Review

30

Table 1

Comparison of hybrid automobile models`

Features

Ford Prodigy

(U.S.)

General Motors

 Precept (U.S.)

DaimlerChrysler

ESX3 (U.S.)

Honda Insight

(Japan)

Toyota Prius

(Japan)

Type Mild hybrid Full hybrid Mild hybrid Mild hybrid Full hybrid

Engines Diesel/electric Diesel/electric Diesel/electric Gasoline/electric Gasoline/electric

Weight (pounds) 2,387 2,587 2,250 1,856 2,765

Fuel economy (mpg) 170 180 172 176 158

Other Regenerative

braking

Regenerative

braking

Regenerative

braking

Regenerative

braking

Regenerative

braking

Commercialization Prototype only Prototype only Prototype only Available Spring

2000

List price:

$20,080

Available Spring

2000

List price:

$20,450

Materials used:

 Aluminum Engine and

car body

Engine, chassis

and body

Engine and

chassis

Engine, body,

frame,

suspension

Engine, frame,

suspension

 Magnesium Engine and

transmission

parts, seat

assemblies,

chassis

Minor amounts Engine and

transmission

parts, seat

assemblies,

chassis

(

2

 ) (

2

 )

 Titanium Exhaust

system

components,

fasteners

Exhaust system

components,

fasteners

Exhaust system

components, coil

suspension

springs, fasteners

(

2

 ) (

2

 )

 Other materials Conventional Conventional Thermoplastic

body panels and

conventional

Conventional Conventional

 

1

 Gasoline equivalent.

 

2

 Not available.

Sources: USITC staff telephone conversations with automobile industry officials; “More Details on Precept, GM’s

PNGV,” Automotive Engineering International Online, found at http://www.sae.org/automag/globalview_01-

00/11.htm, retrieved Jan. 18, 2001; “Dodge’s Mild Hybrid,” Global Viewpoints, Automotive Engineering International

Online, found at http://www.sae.org/automag/globalview, retrieved Jan. 30, 2001; “Global Concepts, Dodge ESX3,

“Automotive Engineering International Online, found at http://www.sae.org/ automag/ globalconcepts-2/36.htm,

retrieved Jan. 18, 2001; and Will Ryu, “Honda Insight; Hybrid Gasoline-Electric Car,” found at

http://arstechnica.com, retrieved Jan. 22, 2001.
MARCH 2001

Industry Trade and Technology Review Light Metals for Hybrid Vehicles 

31

Table 2

Material composition for PNGV concept cars and for average year-1994 vehicle

Material

Average

1994 vehicle Ford Prodigy

General Motors

Precept

DaimlerChrysler

ESX2

Wrought Aluminum ................ 47 462 1 512 330

Cast Aluminum ................... 159 271 (

1

) 120

Magnesium ...................... 6 86 7 122

Titanium ........................ 0 11 18 40

Ferrous ......................... 2,168 480 185 528

Plastics ......................... 223 270 110 485

Rubber ......................... 139 123 30 148

Glass ........................... 97 36 25 70

Lexan .......................... 0 30 (

2

) 20

Glass Fiber ...................... 19 (

2

) (

2

) 60

Carbon Fiber ..................... 0 8 10 24

Lithium ......................... 0 (

2

) (

2

) 30

Other ........................... 391 223 (

2

) 303

 Total (weight per pound) ......... 3,248 2,387 2,587 2,250

 1 Cast aluminum and aluminum sheet combined.

 2 Not available.

Sources: Sujit Das, T. Randall Curlee, Stanton W. Hadley, Donald W. Jones, Bruce E. Tonn, and Amy K. Wolfe,

Supporting Infrastructure and Acceptability Issues Associated With Two New Generation Vehicles: P2000 and

ESX2, Oak Ridge National Laboratory, Oak Ridge, TN, May 2000, p. 7; and from information supplied by U.S.

automakers. 

Table 3

Projected light-weight material requirements for PNGV hybrid vehicles, 2010, 2020 and total U.S.

consumption (all uses) of light-weight materials, 1999

(Thousand metric tons)

Material 2010 2020

Total U.S.

 consumption, 1999

Aluminum ...................... 154-501 527-1,199 7,090

Magnesium ..................... 39-127 137-312 183

Titanium ....................... 10-33 36-82 71

Source: Sujit Das, T. Randall Curlee, Stanton W. Hadley, Donald W. Jones, Bruce E. Tonn, Amy K. Wolfe,

Supporting Infrastructure and Acceptability Issues Associated With Two New Generation Vehicles: P2000 and

ESX2, Oak Ridge National Laboratory, Oak Ridge, TN, May 2000, p. 8.

success of PNGV automobiles could represent a significant increase in demand for certain

light metals. They further suggested more significant gains for these metals in the later years,

as light-weight material requirements are initially low because of the low market penetration

rates of PNGV automobiles but may be anticipated to account for increasing shares of the

automobile market over time.

The accuracy of these forecasts depend on a number of variables related to the success of

PNGV cars in penetrating the commercial market, not the least of which is the existing cost

premium of light-weight material (table 4). Much of this success will depend on reducing the

cost of producing the automobiles by reducing the cost of light-weight components, inasmuch

as use of light-weight materials is also critical to meet the weight reduction and fuel
MARCH 2001

Light Metals for Hybrid Vehicles Industry Trade and Technology Review

 

17 Review of the Research Program of the Partnership for a New Generation of Vehicles,

Sixth Report, National Research Council, 2000, p. 70.

 

18 It must be noted that although raw material cost is an important factor in final component

cost, it is not the only factor. Manufacturing cost of converting the raw material to finished

component is also essential in determining final component cost.

32

Table 4

Comparative costs of alloy aluminum, magnesium, and titanium and steel, by item

(Price per pound)

Item

Light-weight

material

Estimated price

of light-weight

material

Conventional

material

replaced

Estimated price of

conventional

material replaced

Automotive body Aluminum sheet $1.50-1.60 Steel sheet Less than $0.50

Power train (including

engine and transmission)

Aluminum castings

Magnesium

castings

$0.70-0.80

 

$1.30-1.50

Iron and steel

castings

Less than $0.50

Chassis (including suspension,

brakes, and mounts)

Aluminum castings

Magnesium

castings

$0.70-0.80

$1.30-1.50

Steel castings Less than $0.50

Exhaust system Titanium sheet $15.00-20.00 Aluminum

sheet 

$1.50-1.60 

Note–When comparing the prices of these metals it should be noted that because of their reduced weight, fewer

pounds of light-weight metals are needed to equal the same volume of iron or steel. Thus, these figures may

somewhat overstate the cost differentials between lighter and heavier weight metals.

Source: USITC staff telephone conversations with automobile industry officials.

economy goals of the program.17 However, it appears that potential automotive demand could

represent a substantial increase in the consumption of titanium and magnesium metal, given

the relatively small present sizes of the overall market for these metals. Potential PNGVrelated demand in 2020 could equal or surpass total present demand for these metals (figure

1). In the case of aluminum, which represents a much larger market with a more diversified

end-user base, PNGV-related demand could still account for a significant increase in demand,

representing 7 to 17 percent of present aluminum consumption by the year 2020. The

following is a discussion of some of the cost problems related to the substitution of aluminum,

magnesium, and titanium in automobiles.

Aluminum

Having one-third the density of steel, aluminum is viewed as a promising material for PNGV

vehicles, given the 50-percent reduction in the weight of both the body structure and chassis

sought by design engineers. Average aluminum content in the year 2000 was nearly 280

pounds per vehicle, principally in the form of castings. The automobile body, accounting for

nearly 25 percent of the total weight of a typical vehicle, offers the greatest potential for

weight reductions. Since aluminum is lighter weight and widely available, the largest potential

for growth is its use as sheet for body structures and closure panels (hoods, deck lids, fenders,

heat exchangers, heat shields, and trim). A major factor presently limiting the use of aluminum

sheet is that it costs at least three times as much as steel sheet18 (see table 4). Another major

factor limiting its use in body panels is that aluminum is more difficult
MARCH 2001

Industry Trade and Technology Review Light Metals for Hybrid Vehicles 

 

19 “The Battle of the Metals,” Automotive Engineering International Online, found at

http://www. sae.org/automag/metals/10.htm, retrieved Jan. 17, 2001.

 

20 USITC staff telephone conversation with Tom Lobkovich, General Motors, Jan. 12, 2001.

 

21 Ibid.

33

to weld and stamp than steel, and behaves differently when stressed, requiring the reengineering of the body structure to meet safety and stiffness requirements, thereby adding to

cost.19 

The use of aluminum castings in PNGV cars faces similar cost-competitive problems. General

Motors, in particular, makes extensive use of aluminum castings in the propulsion system and

chassis of the Precept. However, the cost of aluminum cast parts is likely to remain higher

than the steel castings or stampings they would replace because the physical infrastructure

does not currently exist to produce them in great volume. In addition, because aluminum is

a structurally weaker material than steel, certain “process enhancements” must be performed,

such as increasing wall thickness or reducing porosity, before it can be used in certain

structural components.20 The capital investment in such production facilities is not likely

without an indication that PNGV cars will do well enough in the market. At this point,

investors have not appeared confident enough of the sales volumes of PNGV cars to justify

the additional investment.21 

Magnesium

Magnesium is the lightest of the structural metals; magnesium alloys are 75 percent lighter

in weight than steel, 30 percent lighter than aluminum, and 20 percent lighter than polymer

composites. In addition, due to outstanding castability, magnesium components can be cast

closer to near-net-shape with thinner wall thicknesses, thereby reducing the amount of material

used. Finally, magnesium is also easily machined, resulting in productivity increases. As a
MARCH 2001

Light Metals for Hybrid Vehicles Industry Trade and Technology Review

 

22 USITC staff telephone conversation with Gerald Cole, Ford Motor Co., Jan. 25, 2001.

 

23 Ibid.

 

24 Ford Motor Co. uses small amounts of titanium in nuts and bolts for the Prodigy,

DaimlerChrysler uses nearly 40 pounds of titanium in the exhaust system and valve springs of

the ESX3 and General Motors uses most of its titanium in the exhaust system of the Precept (see

table 1).

 

25 Titanium cannot presently be produced at competitive prices for automobiles under the

existing Kroll process for sponge-making and the vacuum-arc-remelting (VAR) process for

ingot-making. 

 

26 A.M. Sherman, C.J. Sommer, and F.H. Froes, “The Use of Titanium in Production

Automobiles: Potential and Challenges,” Journal of Metals, May 1997, p. 41.

 

27 A.D. Hartman, S.J. Gerdemann, and J.S. Hansen, “Producing Lower-Cost Titanium for

Automotive Applications,” Journal of Metals, Sept. 1998, p. 16.

34

result, automotive manufacturers have sought to use more of the metal in PNGV applications.

DaimlerChrysler and Ford have so far the most ambitious plans to use magnesium alloys.

Major applications include interior components (seat back assembly and cross car beam), the

power train (engine and transmission assembly), and suspension components (wheel

assembly). 

However, magnesium alloys are presently too expensive to compete with aluminum alloy

castings in most applications (see table 4). The goal of the automotive industry is to bring the

price of magnesium alloy ingot down to the level of aluminum alloy ingot.22 Other obstacles

to increased magnesium use include lack of component-relevant data on physical and

mechanical properties of magnesium castings; lack of information on manufacturing cost for

use by component producers, die casters, and raw material suppliers; high cost of component

prototypes; and delays in the introduction of production quality prototypes for design and

testing purposes.23 Such obstacles are likely to be resolved as the automotive industry gains

greater experience in the use of magnesium in components. 

Titanium

Because of its high strength, low density, excellent corrosion resistance, and the relative

worldwide abundance of titanium ores, titanium alloy mill products (bar, sheet, and powder)

are being considered as a light-weight alternative to steel in engine and body/chassis

applications (in connecting rods, valves, valve spring retainers, coil suspension springs,

exhaust system components, and high-performance fasteners). Because of its high corrosion

resistance at elevated temperatures, titanium is the only light-weight metal substitute for

stainless steel in exhaust systems. At present, the use of titanium alloys in hybrid applications

has been somewhat limited due to the high cost of the metal.24 Titanium products are more

expensive than both aluminum and steel (see table 4). Extensive use of titanium would raise

the vehicle cost beyond the PNGV target price. The high cost of titanium components is

related both to the high cost of raw materials (primarily ingot and bar) and the high cost of

fabricating titanium components from raw materials, due to lack of high-volume production

facilities that could reduce the average unit price.25 For such components to be competitive

with most steel components, titanium raw material would need to sell at $1 to $2 per pound26

compared to nearly $8 per pound at present; and the price of titanium mill products would

need to sell at $6 to $9 per pound for engine applications, and no more than $4 per pound for

most other applications.27
MARCH 2001

Industry Trade and Technology Review Light Metals for Hybrid Vehicles 

 

28 Successful achievements of the PNGV program to date include rapid increases in average

fuel economy; improvements in the efficiency and performance of hybrid engines; the fabrication

and testing of light-weight automobile bodies; and the advancement of fuel cell, battery, and

power electronics technologies.

 

29 Review of the Research Program of the Partnership for a New Generation of Vehicles,

Sixth Report, National Research Council, 2000, p. 79. 

 

30 Another major obstacle to emerge is the announcement of the new, tougher EPA Tier 2

emissions standards, which will make it unlikely that these vehicles will achieve the 80 mile per

gallon standard established by the PNGV. These standards, announced at the end of 1999, are

significantly more stringent than the standards that were in place when the PNGV program was

launched. The initial design targets for nitrous oxide (NOx) and PM emissions at the start of the

PNGV were 0.2 grams/mile NOx and 0.04 grams/mile PM. The new EPA Tier 2 standards

mandate fleet averages of 0.07 grams/mile NOx and 0.01 grams/mile PM. The compressionignition engine design, adopted by U.S. automakers as part of the hybrid vehicle concept to

achieve the original PNGV fuel economy goal, is the least efficient for meeting the new EPA

standards (due to the formation of certain exhaust gases related to the high compression pressures

and temperatures required in the compression-ignition combustion process) without substantial

exhaust gas treatment systems. These exhaust gas treatment systems are presently the subject of

extensive PNGV research. Review of the Research Program of the Partnership for a New

Generation of Vehicles, Sixth Report, National Research Council, 2000, p. 79.

 

31 USITC staff telephone conversation with A.M. Sherman, USCAR, Jan. 11, 2001.

 

32 USITC staff telephone conversation with Gerald Cole, Ford Motor Co., Jan. 25, 2001.

 

33 Ibid.

35

Outlook for Lowering the Cost of Light Metals

Despite the successful achievement of a number of PNGV technical goals,28 a number of

significant barriers to commercialization of hybrid cars remain.29 A principal obstacle is

vehicle cost, a serious problem in virtually every area of hybrid vehicle production, inasmuch

as the cost of most components is higher than the target costs established by manufacturers.30

 The PNGV is making a major research effort to reduce the cost of producing aluminum by

developing continuous slab-casting technology. Industry experts estimate that implementation

of such technology could eventually reduce the cost of aluminum sheet to a target price of

$0.90-$1.10 per pound. However, the capital investment in such technology for the aluminum

industry is not likely to occur without the likelihood of sufficient demand for aluminum sheet

to justify the capital investment. At this point, investors do not appear confident enough of

the anticipated sales volumes of PNGV cars to justify the investment in this technology.31 

At present, China is the only country with the potential to produce magnesium ingot in large

volumes at price levels competitive with aluminum.32 However, much of the Chinese material

reportedly is not yet certified for use by automakers due to lack of structural integrity. Capital

investment to increase Chinese capacity and improve product quality has been contemplated

by automakers eager to use more magnesium in their operations. However, the U.S. and

Canadian magnesium producers are at present strongly opposed to permitting more imports

of magnesium into the United States, and potential investors are not eager to invest in China

until they can be assured that the product can be imported into the United States.33 At this

point, Norway’s Hydro Magnesium is the only foreign magnesium company that has made

a commitment to invest in the Chinese market. Hydro has begun to build a foundry to convert

pure magnesium produced by Chinese smelters into automotive-grade magnesium alloy for
MARCH 2001

Light Metals for Hybrid Vehicles Industry Trade and Technology Review

 

34 Sandra Buchanan, “Magnesium Geared up for Growth,” Metal Bulleting Monthly, Dec.

2000, p. 49.

 

35 The ATP is administered by the National Institute of Standards and Technology (NIST).

 

36 Cost-Reduced Magnesium Die Castings Using Heated Runners (CORMAG), Advanced

Technology Program (ATP), Project Brief 00-00-4334, National Institute of Standards and

Technology (NIST), U.S. Department of Commerce, Oct. 2000.

 

37 The Advanced Magnetherm Project for Production of Primary Magnesium is jointly

financed by the U.S. Department of Energy and Alcoa, Inc. Since the beginning of the project in

fiscal 1999, total expenditures have amounted to $1.6 million. 

 

38 Advanced Magnetherm Process for Production of Primary Magnesium, Fiscal Year 2000

Progress Report, U.S. Department of Energy, Office of Advanced Automotive Technologies.

 

39 Electronic controls move an electron heat beam from one point to another over the surface

of the furnace while loose feed material in the form of titanium sponge or scrap is fed through the

furnace. 

36

the export market. Annual ingot capacity is expected to be just over 10,000 metric tons and

the new foundry is expected to begin producing by early 2001.34

A major industry process technology initiative focusing on magnesium is the subject of an

Advanced Technology Program35 (ATP) grant. Led by Ford, and involving five nonrelated

engineering and research organizations, the initiative seeks to develop low-cost magnesium

die casting technology for automobiles. The 4-year, $7 million project will address many of

the technical barriers to the use of magnesium in high-volume applications. The central goal

of the program is to develop a multipoint injection system for introducing molten magnesium

into die cavities at a controlled temperature and flow rate. In this way, component quality can

be made more consistent and die casting yields can be improved beyond the current 60 percent

rate, thereby reducing scrap generation by at least 10 percent. If successfully developed and

commercialized, the technology is expected to cut the cost of magnesium automotive parts in

half.36

In a project sponsored by USCAR through the U.S. Department of Energy,37 Alcoa Corp. is

researching a plasma heating technology to produce magnesium at its Northwest Alloys

magnesium production facility in Addy, WA. The project seeks to reduce the cost of

thermally produced pure magnesium by increasing the temperature to permit the process

pressure to be raised to atmospheric pressure, rather than at below-atmospheric pressure,

enabling a change in the blend of the raw materials used to reduce the cost of overall raw

material feed. Data collected from Northwest Alloy’s pilot plant operation in South Africa

indicates a modest potential cost reduction of $0.03 per pound due to reduced consumption

of dolomite, ferrosilicon, and aluminum raw materials.38 

Probably the best technology currently available for eventually producing automotive-grade

titanium ingot in large volumes is Electron-Beam (EB) processing. Electron-beam furnaces

consist of a water-cooled copper hearth.39 The resulting molten metal flows into a watercooled copper mold at the other end of the furnace. Unlike the more costly vacuum-arcremelting (VAR) process, both rectangular and round ingot molds can be used with an

electron-beam furnace, eliminating the cost associated with converting round ingots into a

form that can be rolled into titanium sheet. Additional advantages of the EB process

compared to the VAR process include elimination of the highly labor- and capital-intensive

electrode fabrication process; the ability of the EB process to use less expensive scrap

feedstocks; the elimination of several costly arc-melting steps associated with VAR; and the
MARCH 2001

Industry Trade and Technology Review Light Metals for Hybrid Vehicles 

 

40 A.D. Hartman, S.J. Gerdemann, and J.S. Hansen, “Producing Lower-Cost Titanium for

Automotive Applications,” Journal of Metals, Sept. 1998, p. 16-19.

 

41 USITC staff telephone conversation with Kurt Faller, TIMET, Corp., Feb. 23, 2001.

 

42 USITC staff telephone conversation with A.M. Sherman, USCAR, Jan. 31, 2001.

 

43 Vicki Reynolds, “Researchers find way to slash titanium production costs,” American Metal

Market, Feb. 12, 2001, p. 14.,

 

44 In particular, the fuel cell energy converter, the subject of intense research efforts, has been

advanced as a technology that promises high fuel economy and produces very low emissions.

Review of the Research Program of the Partnership for a New Generation of Vehicles, Sixth

Report, National Research Council, 2000, p. 70.

37

ability to produce a purer ingot, free of the inclusions (impurities potentially causing quality

problems) that occur in the VAR process.40 In a non-hybrid-related development, General

Motors announced that titanium, produced using EB technology, will be used for the first time

commercially in the Corvette Z06 exhaust system.41 

An exploratory project sponsored by USCAR is currently underway to solicit proposals from

research institutions for possible funding of research projects designed to reduce the costs of

titanium.42 One recently announced technology that has attracted considerable attention,

promising to cut the cost to one-fourth of the current amount, is an electrochemical process

to produce titanium sponge.43

Despite the above developments, the costs of light-weight metals and composite materials are

not projected to reach levels competitive with steel components by 2004. These higher costs

are directly related to the lack of a technological process breakthrough that would enable these

materials to be produced less expensively, and to insufficient demand that would justify the

creation of the physical infrastructure to produce components in volumes sufficient to reduce

their average production cost. In its annual review of the PNGV, the National Research

Council concluded that the trade-offs between achieving maximum fuel economy and meeting

the newer EPA emissions standards may eventually force the extension of the deadline for

meeting the PNGV goals, allowing more time for the development of new cost-reducing

materials technologies and new fuel economy technologies.44#

MARCH 2001

Industry Trade and Technology Review Key Performance Indicators

A-1

APPENDIX A

KEY PERFORMANCE INDICATORS OF SELECTED

INDUSTRIES AND REGIONS

~ STEEL (Karl Tsuji, 202-205-3434/tsuji@usitc.gov)

~ AUTOMOBILES (Laura A. Polly, 202-205-3408/polly@usitc.gov)

~ ALUMINUM (Karl Tsuji, 202-205-3434/tsuji@usitc.gov)

~ FLAT GLASS (James Lukes, 202-205-3426/lukes@usitc.gov)

~ SERVICES (Tsedale Assefa, 202-205-2374/assefa@usitc.gov) 

~ NORTH AMERICAN TRADE (Ruben Mata, 202-205-3403/mata@usitc.gov)
MARCH 2001

Key Performance Indicators Industry Trade and Technology Review

A-2

STEEL

• The U.S. steel industry’s fourth quarter 2000 profit margins were adversely affected by declining order volumes,

as economic activity slowed; falling steel prices to the lowest levels in 2 decades (which companies attributed to

high domestic inventories and import competition); and escalating energy costs. Operating losses of integrated

producers were particularly affected, as steelmaking was scaled-back below efficient production levels.

 

• The latest steel mill products firms to file for Chapter 11 bankruptcy protection include CSC, a specialty steel

bar producer (January); Heartland Steel, a cold-rolling operation (January); and GS Industries, a producer of

wire rod and grinding media (February). Nine other steel producers are currently operating under federal

bankruptcy protection. Trico, a hot-rolled sheet producer, announced (March) plans to file for bankruptcy

protection.

 

• Laclede emerged from 2 years of Chapter 11 bankruptcy (January) after securing a new revolving credit and

term-loan program. Qualitech’s special-bar quality operations were closed down in February, as its owners were

unwilling to provide further financial backing, after the firms was previously (October) denied additional

government-guaranteed loans for mill upgrades.

 

• Nucor signed a purchase agreement (March) for Auburn Steel’s production facilities in Auburn, NY, to supply

Nucor’s Vulcraft joist mill in Chemung, NY, as part of its strategy to expand capacity in markets with a history of

solid returns. Auburn’s other bar mill in Lemont, IL, was closed down in February.

 

Table A-1

Slightly less semifinished (ingots, blooms, billets, and slabs) but more finished steel imported in

2000 compared with 1999

Item Q4 2000

Percentage

change, Q4

2000 from 

Q4 19991 YTD 2000

Percentage

change, YTD

2000 from 

YTD 19991

Producers’ shipments (1,000 short tons) ........... 24,902 -9.2 108,702 4.6

Finished imports (1,000 short tons) ............... 6,013 -12.2 29,401 8.3

Ingots, blooms, billets, and slabs (1,000 short tons) ... 1,471 -38.4 8,556 -0.3

Exports (1,000 short tons) ...................... 1,610 -0.2 6,529 20.3

Apparent supply, finished (1,000 short tons) ........ 29,305 -10.3 131,574 4.7

Ratio of finished imports to apparent supply (percent) . 20.5 2

-0.4 22.3 20.7

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.
MARCH 2001

Industry Trade and Technology Review Key Performance Indicators

A-3

STEEL

Table A-2

Continued decline in shipments, inventory shifts mixed for service centers

Item Sept. 2000 Dec. 2000

Percentage

change, Dec.

2000 from

 Sept. 20001 Q4 1999 Q4 2000

Shipments (1,000 short tons) ............... 2,327 1,882 -19.1 7,229 6,601

Ending inventories (1,000 short tons) ......... 8,954 8,557 -4.4 8,443 8,557

Inventories on hand (months) ............... 3.7 3.9 (

2

) 3.8 3.9

 

1

 Based on unrounded numbers.

 

2

 Not applicable.

Source: Steel Service Center Institute.

 

• According to the Steel Service Center Institute (SSCI), service centers shipped a total of 29.6 million tons of

finished steel products in 2000, despite declining shipments for a third consecutive quarter. The 2000 shipment

level was just above the 29.4 million tons shipped in 1999 and just short of the record 29.8 million tons shipped

in 1998. Inventories at service centers declined from the previous quarter’s record-setting level, although roughly

65 percent of surveyed SSCI members indicated that current inventories were still too high compared to current

shipment volumes.

 

• During the final quarter of 2000, import penetration of finished products fell, as lower imports of both

semifinished and finished steel products overshadowed reductions in shipments and lower capacity utilization by

domestic producers. However, the amount of finished products imported during full-year 2000 exceeded the

previous year’s total by nearly 2.3 million short tons (8.3 percent higher).

 

• According to the American Institute for International Steel (AIIS) March 2001 survey, a majority of AIIS member

steel-importing companies in nearly every product group responded that their import levels would remain the

same in the next 3-5 months, based on orders currently being placed. However, imports of semifinished steel

and merchant bar were expected to be up in the next 3-5 months, according to a majority of surveyed AIIS

members.
MARCH 2001

Key Performance Indicators Industry Trade and Technology Review

A-4

I II III IV I II III IV I II III IV I II III IV I II III IV

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.

1,931,515

1,455,702

475,813

1996 1997 1998 1999 2000

Figure A-3

U.S. sales of new passenger automobiles decrease in fourth quarter 2000; sales of imports

as a percentage of the U.S. market increase from previous quarter

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 1999-December

2000

 Percentage change 

Item

Oct.-Dec.

2000

Jan.-Dec.

2000

Oct.-Dec. 2000

from 

Jul.-Sep. 2000

Jan.-Dec. 2000

from 

Jan.-Dec. 1999

U.S. sales of domestic autos

(1,000 units)

1

...........................

1,456 6,937 -18.9 -0.7

U.S. sales of imported autos

(1,000 units)

2

........................... 476 2,069 -14.0 17.4

Total U.S. sales (1,000 units)

1, 2

............... 1,932 9,006 -17.7 2.9

Ratio of U.S. sales of imported autos to 

total U.S. sales (percent)

1, 2

................ 24.6 23.0 4.6 14.1

U.S. sales of Japanese imports as a 

share of the total U.S. market (percent)

1, 2

...... 11.0 10.5 0.6 9.8

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.
MARCH 2001

Industry Trade and Technology Review Key Performance Indicators

A-5

ALUMINUM

 

• Dampened demand due to slower economic growth in fourth quarter 2000, particularly in the United States,

overshadowed concerns about exceptionally low inventory levels and producer cutbacks, as the quarterly price

of primary aluminum fell by 3.7 cents per pound. Continued drawdown over the past 2 years has reduced

London Metal Exchange inventories to the lowest levels since first quarter 1991.

 

• In the United States, as the manufacturing sector weakened in the second half of the year, shipments of

unwrought aluminum and aluminum mill products dropped to 4-year lows by year’s end. Moreover, high

electricity prices encouraged Pacific Northwest smelters to cutback production and sell-off electricity allotments.

By the end of 2000, almost two-thirds (just over 1 million metric tons) of the region’s primary smelting capacity

had been idled.

 

• Kaiser Aluminum Corp. idled the last of its U.S. smelting capacity by mid-December. Resales of electricity 

($103.2 million net gain) provided Kaiser with a profitable fourth quarter 2000, by offsetting $14.5 million in net

operating losses. However, following the late-September settlement of a 2-year labor dispute, organized labor

began a campaign in February 2001 to seek a share of the sales proceeds.

 

Table A-4

Lower import penetration in fourth quarter 2000 for U.S. aluminum, as production cutbacks were

overshadowed by declining import levels and continued drawdown of inventories

 Percentage change

Item Q4 1999 Q3 2000 Q4 2000

Q4 2000

from 

 Q4 1999

Q4 2000

from 

Q3 2000

Primary production (1,000 metric tons) .......... 967 883 880 -9.0 -0.3

Secondary recovery (1,000 metric tons) .......... 867r 875r 765 -11.8 -12.6

Imports (1,000 metric tons) ................... 739 859 682 -7.7 -20.6

Import penetration (percent)

1

.................. 33.0 36.6r 32.7 2

-0.3 2-3.9

Exports (1,000 metric tons) ................... 324 303 277 -14.5 -8.6

Average nominal price (¢/lb) .................. 72.0 75.9 72.2 0.3 -4.9

LME inventory level (1,000 metric tons) .......... 775 361 322 -58.5 -10.8

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.
MARCH 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 Although Japanese demand for

imported glass improved in 1999, the U.S. share of the Japanese market declined as the quantity of

imports from the United States fell by 2 percent.

 

Current

 

• Japanese demand for imported glass has continued to improve in 2000 (year-to-date). The average

monthly quantity of Japanese imports from all countries increased by 56 percent during 2000 to 2.9

million square meters, while the average monthly value of such imports increased by 84 percent to

$25.1 million. However, while imports from the United States increased by 30 percent to 561,000

square meters and by 87 percent to $13.3 million, respectively, the U.S. share of the market has

declined; imports from the United States lost market share to less expensive imports from China,

Thailand, Korea, China, Indonesia, and Malaysia. 

 

• There has been no indication that the Japanese Government has moderated its opposition to a

renewal of the flat glass agreement. The United States has urged the Ministry of International Trade

and Industry and the Japan Fair Trade Commission (JFTC) to actively take additional steps to monitor

and promote competition in the flat glass sector and to prevent discriminatory barriers in the

distribution system; and has called on the JFTC to examine the extent and form of financial

interrelationships linking manufacturers and distributors.2

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

 U.S. 2000 deregulation submission under the Enhanced Initiative, as reported in USTR “The President’s 2000

Annual Report on the Trade Agreements Program,” pp. 167-168, located at www.ustr.gov/reports/2001.html.
MARCH 2001

Industry Trade and Technology Review Key Performance Indicators

A-7

SERVICES
MARCH 2001

Key Performance Indicators Industry Trade and Technology Review

A-8

North American Trade

U.S. trade with its North American partners, and the use of U.S.-made components in Mexican assembly

plants based on imports under the production-sharing tariff provisions of HTS chapter 98, are highlighted

in table A-5. The following is a summary of key developments during 2000.

• As total 2000 U.S. trade with its NAFTA partners ($619 billion) increased by 16 percent ($84 billion)

over 1999 levels, the U.S. merchandise trade deficit with Canada (-$73.5 billion) and Mexico 

(-$34.3 billion) together, expanded by 34 percent; and accounted for 22 percent of the U.S.

merchandise trade deficit with all countries (-$493.1 billion). These trends reflect sustained demand

for imported merchandise given the strong U.S. economy through the first 3 quarters of the year, and

a sustained strong dollar contributing to weaker foreign demand for U.S. exports. The rate of increase

in the trade deficit decelerated in the fourth quarter as real U.S. GDP growth slowed to 1 percent (on

an annual basis) compared with 8.3 percent in the fourth quarter of 1999.

• Relatively high world petroleum prices contributed to the growth in the U.S. trade deficits with Canada

and Mexico in 2000, as the average price per barrel increased from $17 in 1999 to $28 in 2000.

Canada supplied 13 percent of total U.S. imports of crude petroleum in 2000 and 18 percent of U.S.

imports of petroleum products. Mexico supplied 13 percent of the crude petroleum and 2 percent of

the petroleum products. The rise in the value of crude petroleum imported from Mexico ($4.6 billion)

accounted for 63 percent of the increase in the U.S. trade deficit with Mexico in 2000. For trade with

Canada, the rise in crude petroleum imports ($6.1 billion) accounted for 29 percent of the deficit

expansion.

• The increased integration of the North American economy, including cross-border rationalization of

production, has contributed to the growth in the U.S. trade deficit with its NAFTA partners. Typically,

capital-intensive parts and materials are exported from the United States to Canada and Mexico

whereas more labor-intensive operations are performed in Mexico (and, to some extent, Canada

where labor costs for manufacturing workers were 19 percent lower than U.S. costs in 1999 according

to BLS). The value added to U.S.-origin parts and materials through foreign assembly and finishing

operations amplifies the U.S. merchandise trade deficit.

• U.S. exports to Mexico rose by 23 percent ($19.1 billion) in 2000 compared with a 7 percent ($9.9

billion) increase in exports to Canada. Exports benefitted from continued foreign investment in

Mexico’s export processing (maquiladora) industry, which created additional demand for U.S. capital

goods and components, and a 7 percent GDP growth in Mexico that spurred U.S. exports of

consumer and business-oriented technology products. Categories with the largest increases in exports

to Mexico in 2000 were petroleum products and plastics; motor vehicles and parts; computers and

telecommunications equipment; semiconductors and other integrated circuit apparatus; and fabrics.

Top export increases to Canada were in semifabricated copper articles, computers, semiconductors,

and telephone equipment.

• U.S. imports from Mexico rose by 24 percent ($25.7 billion) in 2000 whereas imports from Canada

were up by 16 percent ($29.8 billion). Leading the growth in imports from Mexico were motor vehicles

and parts; petroleum; apparel; and telephone, computer, and radio and television broadcast

equipment. Top import increases from Canada were in crude petroleum, petroleum products, natural

gas, and electrical energy; telephone equipment; aircraft; furniture; wood pulp; optical goods;

computers; and precious metals.

 
MARCH 2001

Industry Trade and Technology Review Key Performance Indicators

A-9

NORTH AMERICAN TRADE

Table A-5

North American trade, 1995-2000

 Percent

 change

Item 1995 1996 1997 1998 1999 2000 1999/00

---------------------Value (million dollars)----------------------------

--

U.S.-Mexico trade:

Total imports from Mexico .... 61,721 74,179 85,005 93,017 109,018 134,734 24

U.S. imports under productionsharing provisions (PSP) of

HTS Chapter 98:1

Total value .............. 24,962 27,925 28,883 27,162 25,875 19,430 -25

Percent of total imports ..... 40 38 34 29 24 14 -

U.S. components in HTS PSP

imports:

Total value .............. 12,833 14,649 15,483 14,484 13,928 10,271 -26

Percent of HTS PSP imports 51 52 54 53 54 53 -

Percent of total imports ..... 21 20 18 16 13 8 -

U.S. imports under NAFTA:2

Total value .............. 43,927 55,076 62,837 68,326 71,318 83,995 18

Percent of total imports ..... 71 74 74 73 65 62 -

Total exports to Mexico ....... 44,881 54,686 68,393 75,369 81,381 100,442 23

U.S. exports of components3 to

HTS Chapter 98 productionsharing operations as a

percent of total U.S. exports 29 27 23 19 17 10 -

U.S. merchandise trade balance

with Mexico4............. -16,840 -19,493 -16,612 -17,648 -27,637 -34,292 -24

U.S.-Canada trade:

Total imports from Canada .... 144,882 156,299 167,881 174,685 198,242 228,060 16

Total exports to Canada ...... 113,261 119,123 134,794 137,768 145,731 155,601 7

U.S. merchandise trade balance 

with Canada5 ....................... -31,621 -37,176 -33,087 -36,918 -52,511 -73,459 -40

1The production-sharing provisions of HTS Chapter 98 are 9802.00.60, 9802.00.80, and 9802.00.90.

2Some import entries from Mexico declare eligibility for preferential tariff treatment under both NAFTA

and the HTS production-sharing provisions (PSP); such entries are reported in the totals for both imports

under HTS PSP (and U.S.-made components in HTS PSP imports) as well as imports under NAFTA.

3Represents the total value of U.S. components in HTS production-sharing provision imports.

4The hyphen (-) symbol indicates a loss or trade deficit, or not applicable. The $27.6 billion deficit in

U.S. merchandise trade with Mexico in 1999 was partially offset by a $2.6 billion U.S. surplus in bilateral

services trade. (2000 data for services trade with Mexico will be available by July 15, 2000)

5The $52.5 billion deficit in U.S. merchandise trade with Canada in 1999 was partially offset by a $5.8

billion U.S. surplus in bilateral services trade. (2000 data for services trade with Canada will be available

April 15, 2000)

Source: Compiled by U.S. International Trade Commission staff from official statistics of the U.S.

Department of Commerce. Statistics in footnote 4 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.