The Impact of the North American Free 

Trade Agreement on the U.S. Economy 

and Industries: A Three-Year Review 

Investigation No. 332 -381 

Publication 3045 June 1997 

U.S. International Trade Commission 

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Washington, DC 20436 
U.S. International Trade Commission 

COMMISSIONERS 

Marcia E. Miller, Chairman 

Lynn M. Bragg, Vice Chairman 

Don E. Newquist 

Carol T. Crawford 

Robert A. Rogowsky 

Director of Operations 

Acting Director, Office of Economics 

Address all communications to 

Secretary to the Commission 

United States International Trade Commission 

Washington, DC 20436 

www.usitc.gov 
U.S. International Trade Commission 

Washington, DC 20436 

The Impact of the North American Free 

Trade Agreement on the U.S. Economy 

and Industries: A Three-Year Review 

Publication 3045 June 1997 
This report was prepared by 

Project Leader 

Kyle Johnson 

Deputy Project Leaden Office of Industries 

Dennis Fravel 

Deputy Project Leaden Office of Economics 

Hugh Arce 

Primary Reviewers 

Karen Laney-Cummings 

Keith Hall • 

Major Contributors 

Office of Economics 

Gerry Benedick, Arona Butcher, William Deese, William Donnelly, Michael Ferrantino, Joseph Flynn, 

Kim Frankena, Michael Gallaway, Tom Jennings, Magda Kornis, Joshua Levy, Sandra Rivera, 

Robert Rogowsky, James Tsao, Clark Workman 

Office of Industries 

Peder Andersen, Ron Babula, Larry Brookhart, Elizabeth Howlett, Ed Matusik, Mark Paulson, 

Rick Rhodes, Cheryl Badra Qassis, Chris Twarok 

Sector Authors 

Peder Andersen, Scott Baker, Felix Bello, Jim Brandon, Raymond Cantrell, Robert Carr, Heidi Colby, 

Roger Corey, John Cutchin, John Davitt, Alfred Dennis, Cynthia Foreso, Michel Frippel, 

Jack Greenblatt, Jean Harman, Bill Hoffmeier, Elizabeth Howlett, Chris Johnson, Lawrence Johnson, 

Jackie Jones, Aimison Jonnard, Scott Ki, John Kitzmiller, Sharon Kosco, Danielle Kriz, Kathy Lahey, 

Eric Land, Stacy Linn, James Lukes, David Lundy, Dennis Luther, Ruben Mata, Edward Matusik, 

Deb McNay, Christopher Melly, David Michels, John Pierre-Benoist, Laura Polly, Cheryl Badra Qassis, 

Tracy Quilter, John Reeder, Rick Rhodes, Jennifer Rorke, Josephine Spalding, Mary Elizabeth Sweet, 

Sundar Shetty, Cynthia Trainor, Adam Topolansky, Karl Tsuji, Linda White, Marie Wold, Charles Yost 

With the assistance of 

Judy Bryant, Trade Information Specialist 

Sharon Greenfield, Trade Information Specialist 

Dean Moore, Information Specialist 

Zema Tucker, Office Automation Assistant 

Supporting assistance was provided by: 

Diane Bennett, Brenda Carroll, Patricia M. Thomas, Angelia Jones and Paula Wells, Secretarial Services 

David Colin, David Flynn, Greg Neichin, and Seta Pillsbury, Interns 
PREFACE 

Following receipt on April 23, 1997, of a request from the United States Trade Representative 

(appendix A), the U.S. International Trade Commission instituted investigation No. 332-381, The Impact of 

the North American Free Trade Agreement on the US. Economy and Industries: A Three-Year Review, 

under section 332 (g) of the Tariff Act of 1930 (19 U.S.C. 1332 (g)) on April 23, 1997. The purpose of this 

report is to assess the effects of the North American Free Trade Agreement (NAFTA) on the U.S. economy, 

and on industries affected by NAFTA. 

Copies of the notice of investigation and public hearing were posted in the Office of the Secretary, 

U.S. International Trade Commission, Washington, DC 20436, and the notice was published in the Federal 

Register (97-11181) on April 29, 1997 (appendix B). The Commission held a public hearing in connection 

with the investigation on May 15-16, 1997. All persons were allowed to appear by counsel or in person, to 

present information, and to be heard. In addition, interested parties were invited to submit written statements 

concerning the investigation. 

The information in this report is 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 other statutory 

authority covering the same or similar matter. 

v
vi
CONTENTS 

Page 

Preface 

Executive Summary xvii 

Chapter 1. Introduction 1-1 

Purpose and organization of the report 1-1 

Review of recent research on the impact of NAFTA 1-1 

Post-NAFTA retrospective analysis 1-2 

Pre-NAFTA prospective analysis 1-4 

Methodology 1-6 

Econometric methodologies 1-8 

GDP analysis 1-8 

Effects of NAFTA on industries: Trade flows and labor 1-9 

Productivity 1-10 

Sector-by-Sector analysis 1-10 

Structure of the report 1-11 

Chapter 2. Overview of NAFTA 2-1 

Introduction 2-1 

Historical context 2-1 

Key provisions 2-3 

Phase-in 2-7 

Status of implementation 2-8 

Integation with the Uruguay Round Negotiations 2-8 

Chapter 3. The North American Economies 3-1 

Introduction 3-1 

United States 3-3 

Economy 3-3 

Foreign trade 3-13 

Mexico 3-17 

Economy 3-17 

Foreign trade 3-25 

U.S. trade with Mexico 3-27 

U.S. exports 3-29 

U.S. imports 3-29 

Production sharing trade 3-29 

U.S. foreign direct investment in Mexico 3-33 

vii vii
CONTENTS 

Chapter 3. The North American Economies--continued 

Rug 

Third-country FDI flows to Mexico 3-37 

Economic policy 3-38 

Foreign investment policy 3-38 

Privatization 3-41 

Protection of intellectual property rights 3-42 

Canada 3-43 

Economy 3-44 

Foreign trade 3-46 

Trade with the United States 3-48 

Canadian-Mexican trade 3-51 

Direct investment between the United States and Canada 3-53 

Economic policy 3-54 

FTA with Chile 3-54 

Other policy developments 3-55 

Chapter 4. Effects of NAFTA on U.S. Industry Performance: Trade, Labor, and Productivity 4-1 

Introduction 4-1 

The effects of NAFTA on trade flows 4-1 

Industry level results 4-2 

Aggregate bilateral trade flows 4-13 

The effects of NAFTA on the U.S. labor market 4-14 

Studies of NAFTA and employment 4-15 

Results and interpretation 4-16 

Price effects 4-19 

Effects of NAFTA on the aggregate labor force 4-19 

The effects of trade on labor productivity 4-21 

Chapter 5. Industry Analysis 5-1 

Industry selection 5-1 

Analytical approach 5-2 

NAFTA effects 5-4 

Micro-and macroeconomic factors 5-5 

Foreign exchange rate fluctuations 5-5 

Economic growth 5-6 

Other trade agreements 5-6 

NAFTA-specific trade and tarriff actions 5-7 

Sector performance indicators examined 5-7 

Employment, wages, and labor productivity 5-8 

viii viii
CONTENTS 

Page 

Chapter 5. Industry Analysis--continued 

Investment 5-8 

Changes in U.S. trade with third countries 5-9 

Total trade, trade balance measures, and trade specialization 5-9 

Chapter 6. Sector-by-Sector Analysis 6-1 

Comparison of analytical results 6-1 

Sectors with significant NAFTA effects 6-2 

Sectors with negligible NAFTA effects 6-3 

Total NAFTA trade for sectors examined 6-4 

ITC Group No. 1: Grain and oilseeds 6-6 

ITC Group No. 2: Raw cotton 6-11 

ITC Group No. 18: Textile mill products 6-16 

ITC Group No. 19: Apparel and other finished textile products 6-22 

ITC Group No. 34: Leather tanning and finishing 6-31 

ITC Group No. 35: Women's footwear, except athletic 6-36 

ITC Group No. 48: Household appliances 6-40 

ITC Group No. 54: Motor vehicles 6-47 

ITC Group No. 55: Motor vehicle parts 6-53 

ITC Group No. 3: Field crops 6-61 

ITC Group No. 4: Fresh vegetables, and canned and frozen fruits and vegetables 6-64 

ITC Group No. 5: Ornamental floriculture and nursery products 6-72 

ITC Group No. 6: Meats and livestock 6-75 

ITC Group No. 7: Fish and shellfish 6-78 

ITC Group No. 8: Iron ore 6-81 

ITC Group No. 9: Coal 6-83 

ITC Group No. 10: Crude petroleum, natural gas, and natural gas liquids 6-86 

ITC Group No. 11: Animal feeds 6-88 

ITC Group No. 12: Bakery products 6-91 

ITC Group No. 13: Chocolate and cocoa products 6-94 

ITC Group No. 14: Fats and oils 6-97 

ITC Group No. 15: Malt beverages 6-99 

ITC Group No. 16: Bottled and canned soft drinks and carbonated waters 6-102 

ITC Group No. 17: Miscellaneous food preparations 6-104 

ITC Group No. 20: Solid wood products 6-107 

ITC Group No. 21: Furniture 6-110 

ITC Group No. 22: Paper products 6-114 

ITC Group No. 23: Printed matter 6-117 

ITC Group No. 24: Alkalies and chlorine 6-120 

ITC Group No. 25: Industrial inorganic chemicals 6-123 

ITC Group No. 26: Synthetic plastics, resins, and rubber 6-126 

ix ix
CONTENTS 

Laze 

Chapter 6. Sector-by-Sector Analysis--continued 

ITC Group No. 27: Pharmaceutical preparations 6-129 

ITC Group No. 28: Soaps, detergents, toiletries 6-131 

ITC Group No. 29: Paints and allied products 6-133 

ITC Group No. 30: Industrial organic chemicals 6-135 

ITC Group No. 31: Fertilizers, pesticides, and agricultural chemicals 6-138 

ITC Group No. 32: Petroleum refinery products 6-140 

ITC Group No. 33: Plastic and rubber products 6-143 

ITC Group No. 36: Flat glass and glassware 6-145 

ITC Group No. 37: Cement 6-148 

ITC Group No. 38: Vitreous china plumbing fixtures 6-151 

ITC Group No. 39: Gypsum building products 6-154 

ITC Group No. 40: Mineral wool 6-156 

ITC Group No. 41: Steel products 6-158 

ITC Group No. 42: Nonferrous metals, unwrought 6-162 

ITC Group No. 43: Nonferrous metals, wrought 6-164 

ITC Group No. 44: Fabricated metal products 6-167 

ITC Group No. 45: Industrial machinery 6-170 

ITC Group No. 46: Computers and computer peripheral equipment 6-173 

ITC Group No. 47: Heavy electrical equipment 6-176 

ITC Group No. 49: Electric lighting and wiring equipment 6-178 

ITC Group No. 50: Radio and television equipment 6-180 

ITC Group No. 51: Communications equipment . 6-183 

ITC Group No. 52: Electronic components and accessories 6-186 

ITC Group No. 53: Miscellaneous electrical machinery, equipment, and supplies 6-189 

ITC Group No. 56: Aircraft and aircraft parts 6-192 

ITC Group No. 57: Boatbuilding and repairing 6-194 

ITC Group No. 58: Railroad equipment and parts 6-196 

ITC Group No. 59: Transportation equipment. 6-198 

ITC Group No. 60: Measuring, analyzing, and controlling instruments 6-200 

ITC Group No. 61: Medical equipment 6-202 

ITC Group No. 62: Photographic equipment and supplies 6-205 

ITC Group No. 63: Jewelry, precious metals 6-207 

ITC Group No. 64: Games, toys, and children's vehicles 6-210 

ITC Group No. 65: Sporting goods 6-213 

ITC Group No. 66: Miscellaneous industries, n.e.c. 6-216 

ITC Group No. 67: Waste and scrap 6-219 

ITC Group No. 68: Miscellaneous trade 6-221 

Services 6-224 

x
CONTENTS 

Page 

Appendices 

A. Request Letter A-1 

B. Notice of initiation and public hearing B-1 

C. Technical appendix C-1 

D. Hearing calendar, docket report and summaries of written submissions D-1 

E. Trip notes of Vice Chairman Bragg and Commissioner Newquist E-1 

F. Addtional Comments of Commissioners F-1 

Tables 

2-1. NAFTA time line 2-4 

2-2. NAFTA: Summary of key trade provisions and status of implementation 2-9 

2-3. Summary of Uruguay Round Agreements, time frame for implementation, and overlap 

with NAFTA 2-23 

3-1. Key economic indicators for the United States 3-5 

3-2. Key economic indicators for Mexico 3-19 

3-3. Mexico's overall foreign merchandise trade and the U.S. and Canadian share 3-26 

3-4. U.S. merchandise trade with Mexico, by SITC nos. (revision 3), 1994-96 3-30 

3-5. U.S.-Mexico production sharing trade, 1991-96 3-31 

3-6. Growth of U.S. direct investment capital outflows, by region 3-37 

3-7. Key Canadian economic indicators and projections 3-44 

3-8. Canada's overall foreign trade and the U.S. and Mexican share 3-48 

3-9. U.S. merchandise trade with Canada, by SITC nos. (revision 3), 1994-96 3-50 

4-1. Impact of NAFTA on the number of 4-digit SIC study sectors, by country, by ITC group . . 4-3 

4-2. 1996 share of total bilateral commodity trade in analyzed industries having conclusive 

shifts in trade growth, by country, by ITC group 4-9 

4-3. 1996 share of total bilateral commodity trade is analyzed industries having no statistically 

significant shifts in trade growth, by country, by ITC group 4-11 

4-4. Number of 4-digit SIC study sectors, by ITC group that have a significant 3-year NAFTA 

coefficient at the 5 percent significance level, for hours or hourly earnings equations . . . . 4-17 

4-5. Elasticities of earnings and hours with respect to price of imports from Mexico 4-20 

4-6. Leading 4-digit SIC manufacturing sectors that might experience gains in labor 

productivity as a result of NAFTA 4-24 

5-1. Total trade covered by the Commission analysis for U.S. imports for consumption and 

exports of domestic merchandise from Mexico and Canada, market share, change in 

value, and percentage change, 1993-96 5-3 

5-2. Sectors and industries selected for analysis with trade increases over $50 million from 

1993 to 1996 indicated by trade flow 5-11 

xi xi
CONTENTS 

Page 

6-1. Total trade for each sector (ITC Group nos. 1-66 and services) aggregated by major 

sector groupings, 1993 and 1996, absolute and percentage change 1993-96, for 

Mexico, Canada, and rest-of-world 6-5 

6-1-1. Grain and oilseeds.Summary of NAFTA effects on selected U.S. indicators, 1993-96 . . 6-6 

6-1-2. Grains and oilseeds: Selected U.S. sector data, 1993-96 6-10 

6-2-1. Raw cotton: Summary of NAFTA effects on selected U S indicators, 1993-96 6-11 

6-2-2. Raw cotton: Selected U.S. sector data, 1993-96 6-15 

6-18-1. Textile mill products: Summary of NAFTA effects on selected U.S. indicators, 1993-96 6-16 

6-18-2. Textile mill products: Selected U.S. sector data, 1993-96 6-21 

6-19-1. Apparel and other finished textile products: Summary of NAFTA effects on selected 

U.S. indicators, 1993-96 6-22 

6-19-2. Cost comparison for a man's cotton dress shirt made in the United States of U.S. fabric, 

in India of Indian fabric, and assembled in Mexico of U.S.-made and -cut fabric 6-25 

6-19-3 Apparel and other finished textile products: Selected U.S. sector data, 1993-96 6-30 

6-34-1 Leather tanning and finishing: Summary of NAFTA effects on selected U.S. 

indicators, 1993-96 6-31 

6-34-2 Leather tanning and finishing: Selected U.S. sector data, 1993-96 6-35 

6-35-1 Women's footwear, except athletic: Summary of NAFTA effects on selected U.S. 

indicators, 1993-96 6-36 

6-35-2. Women's footwear, except athletic: Selected U.S. sector data, 1993-96 6-39 

6-48-1. Household appliances: Summary of NAFTA effects on selected U.S. indicators, 1993-96 6-40 

6-48-2. Household appliances: Selected U.S. sector data, 1993-96 6-46 

6-54-1. Motor vehicles: Summary of NAFTA effects on selected U.S. indicators, 1993-96 6-47 

6-54-2. Motor vehicles: Selected U.S. sector data, 1993-96 6-52 

6-55-1. Motor vehicle parts: Summary of NAFTA effects on selected U.S. indicators, 1993-96 6-53 

6-55-2. Motor vehicle parts: Selected U.S. sector data, 1993-96 6-60 

6-3-1. Field crops: Selected U.S. sector data, 1993-96 6-61 

6-4-1. Fresh vegetables, and canned and frozen fruits and vegetables: Selected U.S. sector data, 

1993-96 6-64 

6-4-2. U.S. fresh vegetable imports from Mexico, by volume 1993- 1996 6-65 

6-4-3. U.S. tariff rate quotas for Mexican vegetables, tariff rate quota volume or actual trade 

if quota was not filled 6-66 

6-4-4. U.S. tariffs on imports of fresh vegetables from Mexico 6-67 

6-5-1. Ornamental floriculture and nursery products: Selected U.S. sector data, 1993-96 6-72 

6-6-1. Meats and livestock: Selected U.S. sector data, 1993-96 6-75 

6-7-1. Fish and shellfish: Selected U.S. sector data, 1993-96 6-78 

6-8-1. Iron ore: Selected U.S. sector data, 1993-96 6-81 

6-9-1. Coal: Selected U.S. sector data, 1993-96 6-83 

6-10-1. Crude petroleum, natural gas, and natural gas liquids: Selected U.S. sector data, 1993-96 6-85 

xii xii
CONTENTS 

Tables--Continued 

Page 

6-11-1. Animal feeds: Selected U.S. sector data, 1993-96 6-88 

6-12-1. Bakery products: Selected U.S. sector data, 1993-96 6-91 

6-13-1. Chocolate and cocoa products: Selected U.S. sector data, 1993-96 6-94 

6-14-1. Fats and oils: Selected U.S. sector data, 1993-96 6-97 

6-15-1. Malt beverages: Selected U.S. sector data, 1993-96 6-99 

6-16-1. Bottled and canned soft drinks: Selected U.S. sector data, 1993-96 6-102 

6-17-1. Miscellaneous food preparations: Selected U.S. sector data, 1993-96 6-104 

6-20-1. Solid wood products: Selected U.S. sector data, 1993-96 6-107 

6-21-1. Furniture: Selected U.S. sector data, 1993-96 6-110 

6-22-1. Paper products: Selected U.S. sector data, 1993-96 6-114 

6-23-1. Printed matter: Selected U.S. sector data, 1993-96 6-117 

6-24-1. Alkalies and chlorine: Selected U.S. sector data, 1993-96 6-120 

6-25-1. Industrial inorganic chemicals: Selected U.S. sector data, 1993-96 6-123 

6-26-1. Synthetic plastics, resins, and rubber: Selected U.S. sector data, 1993-96 6-126 

6-27-1. Pharmaceutical preparations: Selected U.S. sector data, 1993-96 6-129 

6-28-1. Soaps, detergents, toiletries: Selected U.S. sector data, 1993-96 6-131 

6-29-1. Paints and allied products: Selected U.S. sector data, 1993-96 6-133 

6-30-1. Industrial organic chemicals: Selected U.S. sector data, 1993-96 6-135 

6-31-1. Fertilizers, pesticides, and agricultural chemicals: Selected U.S. sector data, 1993-96 . . . . 6-138 

6-32-1. Petroleum refinery products: Selected U.S. sector data, 1993-96 6-140 

6-33-1. Plastic and rubber products: Selected U.S. sector data, 1993-96 6-143 

6-36-1. Flat glass and glassware: Selected U.S. sector data, 1993-96 6-145 

6-37-1. Cement: Selected U.S. sector data, 1993-96 6-148 

6-38-1. Vitreous china plumbing fixtures: Selected U.S. sector data, 1993-96 6-151 

6-39-1. Gypsum building products: Selected U.S. sector data, 1993-96 6-154 

6-40-1. Mineral wool: Selected U.S. sector data, 1993-96 6-156 

6-41-1. Steel products: Selected U.S. sector data, 1993-96 6-158 

6-42-1. Nonferrous metals, unwrought: Selected U.S. sector data, 1993-96 6-162 

6-43-1. Nonferrous metals, wrought: Selected U.S. sector data, 1993-96 6-164 

6-44-1. Fabricated metal products: Selected U.S. sector data, 1993-96 6-167 

6-45-1. Industrial machinery: Selected U.S. sector data, 1993-96 6-170 

6-46-1. Computers and computer peripheral equipment: Selected U.S. sector data, 1993-96 6-173 

6-47-1. Heavy electrical equipment: Selected U.S. sector data, 1993-96 6-176 

6-49-1. Electric lighting and wiring equipment: Selected U.S. sector data, 1993-96 6-178 

6-50-1. Radio and television equipment: Selected U.S. sector data, 1993-96 6-180 

6-51-1. Communications equipment: Selected U.S. sector data, 1993-96 6-183 

6-52-1. Electronic components and accessories: Selected U.S. sector data, 1993-96 6-186 

xiii
CONTENTS 

Page 

Tables--Continued 

6-53-1. Miscellaneous electrical machinery, equipment, and supplies: Selected U.S. sector 

data, 1993-96 6-189 

6-56-1. Aircraft and aircraft parts: Selected U.S. sector data, 1993-96 6-192 

6-57-1. Boatbuilding and repairing: Selected U.S. sector data, 1993-96 6-194 

6-58-1. Railroad equipment and parts: Selected U.S. sector data, 1993-96 6-196 

6-59-1. Transportation equipment, n.e.c.: Selected U.S. sector data, 1993-96 6-198 

6-60-1. Measuring, analyzing, and controlling instruments: Selected U.S. sector data, 1993-96 . . 6-200 

6-61-1. Medical equipment Selected U.S. sector data, 1993-96 6-202 

6-62-1. Photographic equipment and supplies: Selected U.S. sector data, 1993-96 6-205 

6-63-1. Jewelry, precious metal: Selected U.S. sector data, 1993-96 6-207 

6-64-1. Games, toys, and children's vehicles: Selected U.S. sector data, 1993-96 6-210 

6-65-1. Sporting goods: Selected U.S. sector data, 1993-96 6-213 

6-66-1. Miscellaneous industries, n.e.c.: Selected U.S. sector data, 1993-96 6-216 

6-67-1. Waste and scrap: Selected U.S. sector data, 1993-96 6-219 

6-68-1. Miscellaneous trade: Selected U.S. sector data, 1993-96 6-221 

6-69-1. U.S. cross-border trade in services: Exports to Canada and Mexico, 1990-95 6-226 

6-69-2. U.S. cross-border trade in services: Imports from Canada and Mexico, 1990-95 6-228 

6-69-3. U.S. cross-border trade in services: Trade balance with Canada and Mexico, 1990-95 . . . 6-230 

Figures 

3-1. 1996 GDP for Canada, Mexico, and the United States, actual and as a share of NAFTA 

members' combined GDP (total North American GDP) 3-2 

3-2. Real GDP growth, Canada, Mexico, and the United States, 1980-96 3-4 

3-3. Inflation (change in consumer prices) for the U.S., 1980-96 3-7 

3-4. Unemployment rate for the United States, 1980-96 3-7 

3-5. Current account balance, percent of GDP, for the U.S., 1980-96 3-10 

3-6. General government stuctural balance for the U.S., 1980-96 3-12 

3-7. Real private consumption expenditure, percent of GDP, for the U.S., 1980-96 3-12 

3-8. U.S. merchandise trade balance overall, and with Canada and Mexico, 1989-96 3-15 

3-9. Real GDP growth, for Mexico, 1980-96 3-18 

3-10. Inflation (change in consumer prices) for Mexico, 1980-96 3-20 

3-11. Real private consumption expenditure for Mexico, 1980-96 3-20 

3-12. Trade weighted nominal exchange rates versus the U.S. dollar for Canada and Mexico, 

1984-96 3-22 

3-13. Unemployment rate for Mexico, 1980-96 3-22 

3-14. Current account balances as a percentage of GDP for Mexico, 1980-96 3-24 

3-15. U.S. trade with Mexico: exports, imports, and trade balance, 1989-96 3-28 

3-16. Foreign direct investment in Mexico: inflows from world and the United States, 1980-96 3-35 

3-17. Real GDP growth, for Canada, 1980-96 3-45 

3-18. Inflation rate (change in consumer prices) for Canada, 1980-96 3-45 

3-19. Unemployment rate, for Canada, 1980-96 3-47 

3-20. Current account balance as a percentage of GDP, Canada, 1980-96 3-47 

xiv xiv
3-21. U.S. trade with Canada: exports, imports, and trade balance, 1989-96 3-49 

3-22. Canada-Mexico, merchandise trade, 1995-96 3-52 

6-11-1. Animal feeds imports from Canada , price and consumption 6-89 

xv
xvi
EXECUTIVE SUMMARY' 

On April 23, 1997 the United States Trade Representative (USTR) asked the United States 

International Trade Commission (ITC) to conduct a study analyzing the actual impact of the first 3 years of 

the North American Free Trade Agreement (NAFTA) on the U.S. economy as a whole, and on industries 

particularly affected by the Agreement. The USTR requested that the ITC use formal empirical tools as well 

as in-depth industry expertise to evaluate NAFTA, while taking account of economic effects associated with 

other events occurring during the phase-in of the Agreement. The Administration is required to provide to 

Congress by July 1, 1997 a comprehensive study of the Agreement during its first 3 years. 

The ITC was asked to identify effects of NAFTA, to the extent possible, on trade, wages, 

employment, productivity, investment, and national output. The ITC was also requested to present a review 

of literature addressing the effects of NAFTA in its first 3 years, and to identify areas in which inadequate 

data, the incomplete implementation of NAFTA, or other technical constraints complicate the analysis of 

NAFTA and its effects. The study conducted quantitative, econometric analyses of over 200 industries to 

identify NAFTA effects. Separately, the Commission examined industry data on 68 aggregate industry 

sectors to identify qualitatively any specific effects that would not be covered by the econometric results. The 

different approaches do not in all cases pick up the same effects of NAFTA on given industries, or find the 

same relative importance of the effects of NAFTA on the industry compared to other influences. This is to be 

expected, and is, in fact, an important reason to conduct the two analyses. Together, they give a more 

complete and balanced picture of NAFTA's effects than would either approach in isolation. 

On May 15 and 16, the ITC held a public hearing on this study, and in addition invited written 

submissions from the public to comment on the subject of the investigation. Over 40 individuals or groups 

appeared at the hearing, and over 100 written statements have been presented to the ITC. A summary of the 

written submissions appears in Appendix D to this report. 

Overview of NAFTA and Its Effects 

NAFTA took effect on January 1, 1994, after nearly a decade of rapidly growing U.S.-Mexican trade 

ties, and 5 years after the U.S.-Canada Free Trade Agreement (CFTA) entered into force. Three years later 

most of its tariff provisions are substantially in place, and their effects can be analyzed. NAFTA provided 

for immediate tariff reductions on 68 percent of U.S. exports to Mexico, and 49 percent of U.S. imports from 

Mexico. With respect to U.S.-Canada trade, virtually all tariffs on U.S.-Canadian trade have been eliminated 

as a result of the CFTA and NAFTA. 

NAFTA also provides for reductions in nontariff barriers, including import prohibitions, quantitative 

restrictions, and import licensing requirements. For example, over a 10-year period Mexico will phase out 

trade and investment restrictions on autos and trucks. Upon implementing NAFTA, the United States 

immediately eliminated quotas for Mexican textile and apparel products that meet NAFTA rules of origin. 

Trade in energy is being liberalized. Numerous nontariff barriers on U.S.-Mexico agricultural trade have 

been replaced by tariff-rate quotas, which are being phased out by 2009. Most such reductions in nontariff 

barriers are proceeding on schedule. 

1 For additional comments of individual Commissioners, see Appendix F. For "trip notes" of Vice Chairman 

Bragg and Commissioner Newquist, see Appendix E. 

xvii xvii
In addition to reducing traditional trade barriers, NAFTA went beyond any previous trade agreement 

in obligating the NAFTA countries to establish rules governing the conduct of trade among the NAFTA 

partners. Nearly all of these "rulemaking" obligations are now in force. They govern such areas as the 

protection of direct investment, intellectual property, services trade, and government procurement. 

Furthermore, NAFTA includes dispute settlement provisions aimed at resolving conflicts over trade issues. 

Pursuant to the request from USTR, the ITC's analysis of the impact of NAFTA has focused 

primarily on the effects that can be clearly attributed to specific provisions of the NAFTA. The results of this 

analysis are discussed in detail below. In general, the ITC found positive, although modest, effects on the 

U.S. economy after 3 years of the NAFTA. However, based on the hearing testimony and other information 

collected during the course of this study, it has also become clear that many of the NAFTA's most important 

effects are not easily quantified or observed, and the full effects of the Agreement will take many more years 

to make themselves known. 

Among the least tangible results of NAFTA are those that might be described as effects 

on the general business climate in North America. As Richard Heckman, President of U.S. Filter 

Corporation, testified to the ITC, " New treaty partners and new trade partners tend to go out of their way to 

do business with each other." Numerous witnesses at the ITC's hearing confirmed that NAFTA had resulted 

in companies paying new attention to business opportunities within North America. 

The ITC also heard testimony to the effect that NAFTA safeguarded U.S. exporters and investors 

from changes in Mexico's trade policy regime announced in the wake of the 1994 peso crisis. Because of 

NAFTA commitments, Mexico did not apply to U.S. goods the high tariffs and quotas imposed on certain 

imports. Thus, U.S. exports to Mexico fell by a smaller margin in the wake of the peso crisis than did 

exports from Asia and Europe. 

NAFTA and the North American Economies 

The three economies linked by NAFTA are driven largely by the economy of the United States, both 

in terms of its size and its current state of continuing robust growth and consequent strong demand for 

imports. The size of the U.S. economy makes its output, employment, and investment levels less sensitive 

than those of its partners to changes in the trade environment. Current rates of growth in U.S. output and 

employment would tend to absorb many downside effects of NAFTA, but also would provide fewer 

opportunities for additional growth due to upside effects. 

United States 

The gross domestic product (GDP) of the United States is 10 times the size of Mexico's or Canada's, 

and the United States is well into its sixth year of economic expansion. Job creation has remained robust 

since the institution of NAFTA. The unemployment rate reached about 7.5 percent in 1992, and has been 

declining since then to the 1996 rate of about 5.4 percent. Distinguishing any effect of NAFTA on these 

trends would be difficult. 

The continued growth of the U.S. economy, particularly compared to those of its trading partners, 

has caused U.S. consumption of imports to rise and has increased its trade deficit with the world, including 

with North American trading partners. The United States posted a merchandise trade surplus with Mexico 

from 1991 through 1994, then fell into a deficit in 1995 and 1996, due principally to the collapse of the pesodollar exchange rate and the resulting recession in Mexico. The United States has had a consistent 

xviii xviii
merchandise trade deficit with Canada since 1989. The deficit has widened in each year of the current U.S. 

economic expansion. 

Since 1993, total U.S. trade has increased, with NAFTA partners and with the rest of the world 

(Table ES-1). Imports from Canada and Mexico have grown more rapidly than imports from the rest of the 

world, as did exports to Mexico when compared to other trading partners, including Canada. Canada and 

Mexico are the largest and third-largest trading partners of the United States, with Mexico projected to move 

past Japan to become this country's second-largest trading partner by year end 1997. Nonetheless, U.S. trade 

with Mexico represents less than 10 percent of total U.S. trade, and trade with Canada represents about 20 

percent of total U.S. trade. 

Canada 

The Canadian economy has been generally strong and stable for the past several years. However, 

unemployment peaked at a rate of over 11 percent in 1992 and eased to just under 10 percent in 1995 and 

1996. Canadian GDP declined by almost 2 percent in 1991, but since then has grown at rates ranging from 

0.8 to 4.1 percent. Canada's trade with the United States accounted for about 80 percent of Canadian exports 

in each of the last 3 years, and 66 to 68 percent of Canadian imports. Canada has maintained a growing 

surplus in its trade with the United States and the world. In 1996, the Canadian bilateral surplus with the 

United States was $37.2 billion. 

Mexico 

During the first NAFTA year, the Mexican GDP grew by 3.5 percent, and inflation was a modest 7 

percent. However, serious macroeconomic imbalances led to the devaluation of the peso at the end of 1994, 

to a subsequent austerity regime, and a serious recession during the second and part of the third NAFTA 

years. In 1995, GDP declined by 6.9 percent, and the rate of inflation was 35 percent. There were signs of a 

strong recovery during the third NAFTA year, marked by 4.0 percept growth of the GDP, increasing 

employment, and declining interest rates. 

Following a $18.5 billion trade deficit with the world in 1994, the first NAFTA year, Mexico 

posted a $7.1 billion global trade surplus in 1995 and a $6.3 billion surplus in 1996. In order to fulfill its 

NAFTA commitments, Mexico did not increase its overall tariffs on imports from North America 

following the peso devaluation. Thus, while the 1982 debt crisis in Mexico was accompanied by a 50 percent 

decline in U.S. exports from 1981 to 1983, the 1994 devaluation witnessed an increase in U.S. exports to 

Mexico of 11 percent between 1993 and 1995. 

NAFTA's tariff provisions protected U.S. exporters from Mexico's decision in 1995 to raise tariffs 

from 20 to 35 percent on products, such as textiles, apparel, and footwear articles imported from countries 

with which Mexico did not have free trade agreements. Compared to European and Asian exporters, North 

American exporters were less adversely affected by shrinking Mexican imports in 1995 and profited more 

from resurging Mexican imports in 1996. 

xix xix
Table ES-1: Total trade: U.S. imports for consumption and exports of domestic merchandise for 

Mexico, Canada, All Others, and the World, change in value, percentage change, and percentages of 

total trade, 1993-96 

Trade flow/supplier 1993 1994 1995 1996 

Absolute 

change 

1993-96 

Percentage 

change, 

1993-96 

Value (million dollars) Percent 

U.S. trade: 

U.S. imports from: 

World 574,863 657,885 739,660 790,470 215,607 37.5 

Mexico 38,668 48,605 61,721 74,179 35,511 91.8 

Canada 110,482 128,753 144,882 156,299 45,817 41.5 

All others 425,713 480,526 533,057 559,992 134,279 31.5 

U.S. exports to: 

World 439,295 481,887 546,465 582,137 142,842 32.5 

Mexico 40,265 49,136 44,881 54,686 14,420 35.8 

Canada 91,866 103,643 113,261 119,123 27,257 29.7 

All others 307,164 329,108 388,323 408,328 101,165 32.9 

Percent of Total 

U.S. trade: 

U.S. imports from: 

World 100.00 100.00 100.00 100.00 

Mexico 6.73 7.39 8.34 9.38 

Canada 19.22 19.57 19.58 19.77 

All others 74.05 73.04 72.07 70.84 

U.S. exports to: 

World 100.00 100.00 100.00 100.00 

Mexico 9.17 10.20 8.21 9.39 

Canada 20.91 21.51 20.73 20.46 

All others 69.92 68.30 71.06 70.14 

Source: Compiled by the staff of the U.S. International Trade Commission 

Quantitative Findings 

The ITC was requested to analyze empirically the aggregate effects of NAFTA on the U.S. economy, 

including GDP, total manufacturing employment and earnings, and investment, independent of the many 

other factors affecting the U.S. economy since NAFTA's inception. The challenges the ITC faced in 

measuring NAFTA's impact to date were several. 

Perhaps most problematic for conducting an empirical assessment is the short timeframe during which 

NAFTA has been in effect and the data constraints thus presented. Trade, expenditure, and output data, 

commonly used measures for assessing economic impact, are not available in sufficient quantity to allow the 

volume of observable phenomena on which economists seek to rely. 

xx
Moreover, the difference in the size of the NAFTA partners' economies, and their divergent economic 

performances during these 3 NAFTA years, also complicates the analysis. Not only does the sheer size of the 

U.S. economy dominate its partners, the U.S. rate of economic growth and its employment levels during this 

period have exceeded both those of Mexico and Canada. Because of its size, the United States is also less 

sensitive to shocks to its economy, such as entry into force of a multilateral trade agreement. 

Finally, the effort to isolate the effects of NAFTA from any effects of other economic occurrences since 

the start of NAFTA in January 1994 is difficult. The sharp devaluation of the Mexican peso and that 

country's resulting recession is widely acknowledged to have been a dominant factor in U.S.-Mexico trade 

flows. Also, the World Trade Organization (WTO) Agreements entered into force in January 1995. The 

WTO Agreements liberalized trade in goods and services among its members, reducing the value of the 

preferences received among NAFTA partners. 

Despite these complicating factors, the ITC estimated that NAFTA has had, on balance, positive, 

although modest, effects on the U.S. economy and individual industry sectors. 

Aggregate Effects of NAFTA 

GDP, aggregate employment, and investment 

The ITC found no effects of NAFTA on either GDP levels or growth rates in the United States, in large 

part due to the limited time period in which NAFTA has been in effect and the size of the U.S. economy 

compared to Mexico and Canada. Aggregate domestic employment effects of NAFTA were also not 

discernible, which was not an unexpected result considering the state of almost full employment prevailing in 

the United States during the duration of NAFTA. Finally, the ITC found no effects of NAFTA on aggregate 

investment. 

Aggregate trade 

Looking at more direct effects of NAFTA on the U.S. economy, the study found that NAFTA has 

significantly affected the levels of U.S. trade with Mexico. No significant effects of NAFTA on aggregate 

trade with Canada were found. 

Results from the aggregate analysis indicate that the volume of U.S. imports from Mexico increased by 

1.0 percent in 1994 as a result of NAFTA. In addition, the volume of U.S. imports from Mexico are 

estimated to be 5.7 and 6.4 percent higher in 1995 and 1996, respectively, than they would have been absent 

the Agreement. Similarly, the results indicate that, as a result of NAFTA, the volume of U.S. exports to 

Mexico increased by 1.3 percent in 1994 and by 3.8 and 3.2 percent in 1995 and 1996, respectively. In 1994, 

the only year in which NAFTA was in place and the peso devaluation does not confound the estimates, the 

implied increase in the volume of U.S. exports to Mexico outpaced the increased volume of U.S. imports 

from Mexico. 

Industry trade 

Econometric analysis of nearly 200 industries, accounting for over 85 percent of trade between the 

United States and its NAFTA partners, offers some conclusive industry-specific effects of NAFTA. The 

criteria applied were conservative, requiring "affected industries" to show statistically significant changes in 

trade in each of the 3 NAFTA years. 

7ad xxi
The ITC's estimates found that NAFTA has resulted in significant changes in the volume of bilateral 

trade for a modest number of industries. However, for most industries analyzed, there has been no consistent 

discernible impact of NAFTA on changes in the volume of bilateral trade between the United States and its 

NAFTA partners. With respect to U.S.-Mexico trade, U.S. exports to Mexico increased significantly due to 

NAFTA in 13 industries. No industries showed decreased exports to Mexico because of NAFTA. U.S. 

imports from Mexico increased significantly in 16 industries, while decreasing significantly in 7 industries. 

With respect to U.S.-Canada trade, U.S. exports to Canada increased significantly due to NAFTA in 10 

industries, while decreasing significantly in 8 industries. U.S. imports from Canada increased significantly in 

13 industries, while decreasing significantly in 8 industries. These results are shown in Table ES-2. 

Table ES-2: Industry-Level Trade Results: Number of industry sectors showing statistically 

significant increase, decrease, or no evident impact in trade flows during 1994-96, and corresponding 

share of bilateral trade in these sectors. 

Number of industries' Share of aggregate bilateral trade 2 

Significantly 

Increase 

Significantly 

Decrease 

Not 

Significantly 

Affected 

Significantly 

Increase 

Significantly 

Decrease 

Not 

Significantly 

Affected 

U.S. exports to 

Mexico 

13 0 78 8.67% 0.00% 43.88% 

U.S. imports from 

Mexico 

16 7 92 14.54% 1.02% 36.84% 

U.S. exports to 

Canada 

10 8 95 3.01% 4.99% 35.04% 

U.S. imports from 

Canada 

13 8 94 1.95% 0.77% 53.99% 

Number of 4-digit SIC sectors found to satisfy the criteria of statistically significant increasing, decreasing, or 

unaffected trade flows in each of the 3 NAFTA years. 

2Percentages represent the share of aggregate bilateral trade flow between the United States and its NAFTA partner for 

the sectors that were judged to have statistically significant increasing, decreasing, and unaffected trade flows. 

The ITC also estimated whether industries were significantly affected by NAFTA in trade in any 1- or 2-

year NAFTA period. Although this analysis presents less statistical confidence than the 3-year standard 

discussed above, the results suggest that a greater number of U.S. industries may have been affected by 

NAFTA in these shorter time periods. Most notably, 36 of 78 domestic industries significantly increased 

their volume of exports in 1994 because of NAFTA, but did not sustain this increase in either 1995 or 1996. 

This result highlights the likely impact on U.S. exports of the peso devaluation in December 1994. 

Labor 

Although the ITC did not fmd any significant overall effects on aggregate employment or earnings, 

econometric analysis of labor market data at the industry level indicates that 29 of the 120 manufacturing 

industries analyzed experienced some NAFTA-related change in hourly earnings or hours worked as shown 

xxii
by the binary variable analysis. In addition, 7 industries showed employment effects that are adversely 

sensitive to lower prices for imports from Mexico, meaning that a reduction in import prices, due either to 

NAFTA or other causes, may cause job displacement. Four industries showed a positive relationship to 

import prices, such that decreases in import prices may raise the employment level in related U.S. industries. 

This may be due to market complementarities between imports and domestic production in certain industries, 

or perhaps to enhanced productivity due to imports. The remaining industries show no evident relationship 

between employment and import prices. 

Productivity 

No direct analysis of productivity changes due to NAFTA was possible, due to a lack of data. However, 

indirect evidence on productivity effects of the Agreement indicates that for those industries experiencing 

particularly strong import competition, productivity may have been enhanced since NAFTA. In general, the 

effects that were estimated were relatively modest: in certain sectors where imports were increasing, a 

1-percent increase in the market share of total imports was associated with a 0.2-percent increase in labor 

productivity. Therefore, to the extent that NAFTA induced total imports to increase (i.e., overall trade 

creation) in those sectors experiencing substantial market penetration over the period 1993-96, the results of 

this analysis imply that U.S. manufacturing labor productivity likely increased. 

Qualitative Findings: Analysis of Industry Sectors 

For 59 of 68 sectors analyzed by the ITC, NAFTA was determined to have had a negligible effect. The 

trade-weighted average rates of duty on U.S. imports from Mexico were relatively low prior to the 

implementation of NAFTA because of low most-favored-nation (MFN) rates, Generalized System of 

Preferences (GSP) eligibility, or duty-free treatment on the U.S. content of imports from Mexico's 

maquiladora industry. With regard to U.S.-Canada trade, the removal of many tariff and nontariff barriers 

had already taken place under the CFTA. Consequently, the effects of NAFTA tariff reductions in many 

sectors were largely negligible. 

Factors having a greater effect on U.S.-Mexico trade were the rationalization of production within 

industries in North America (particularly between the United States and Canada) and the peso devaluation 

which reduced Mexico's demand for U.S. exports in 1995. At the same time, U.S. imports increased because 

of expanded use of assembly plants in Mexico as both U.S. and Asian companies responded to lower labor 

costs in Mexico. 

The ITC's analysis of individual industries and groups indicates that NAFTA had a significant effect on 

the increase in U.S. trade in 9 of 68 sectors, including grains and oilseeds, raw cotton, textile mill products, 

apparel, women's footwear, leather tanning and finishing, household appliances, motor vehicles, and motor 

vehicle parts. Important findings include the following: 

Agriculture 

Grains — Mexican tariff reductions on grains, and the conversion of import licensing to a tariff-rate 

quota, were largely responsible for the increased U.S. exports of grains to Mexico. In spite of 

increased exports due to NAFTA, employment on U.S. farms continued a long-term decline. 

Cotton — The growth in U.S. exports of raw cotton to Mexico partly reflected increased Mexican 

demand for the fiber used in the production of textile mill products (such as fabrics) for shipment to 

xxiii
the United States under NAFTA. Data on changes in employment were not available, nor were 

investment data other than acreage planted in cotton, which increased by 24.6 percent between 1993 

and 1996. 

Manufactured Products 

Apparel — Increased U.S. apparel imports from Mexico were primarily due to NAFTA provisions that 

enable duty-free and quota-free entry for apparel (and other made-up textile goods) assembled in 

Mexico wholly from fabric that was both formed and cut in the United States; the increase likely came 

at the expense of imports from Asian and Caribbean Basin Initiative countries. Employment in U.S. 

apparel manufacturing has declined since NAFTA, most likely reflecting in part a shift of some 

operations to Mexico. 

Textiles — NAFTA rules of origin stimulated demand in both Mexico and Canada for fabrics 

produced by U.S. textile mills to make apparel for the U.S. market. Job losses, possibly attributable 

to increased imports, have been at least partly offset by gains due to increased exports. 

Women's footwear — Increases in women's footwear imports from Mexico, mostly under productionsharing provisions, largely reflected uncertainty over MFN renewal for China, as well as preferential 

U.S. tariffs under NAFTA. U.S. employment decreased from 1993 to 1996. 

Appliances — Some leading U.S. appliance producers chose to expand production in Mexico to 

supply the growing Latin American market, with increased U.S. imports from Mexico reflecting 

rationalized production. Changes in Mexican investment laws made it attractive to expand U.S.-

Mexican joint ventures producing household appliances, and changes in the Maquiladora Decree 

enabled a phased-in increase in shipments from maquiladoras to the Mexican domestic market. Since 

employment grew in this sector, it is difficult to qualitatively discern a negative employment effect. 

Vehicles — U.S. exports of motor vehicles to Mexico increased as a result of NAFTA-related 

reductions in trade balancing requirements and tariffs. NAFTA has had a positive effect on the 

increase in industry employment. 

Vehicle parts — The sustained growth of the U.S. and Canadian motor vehicle markets, and 

investments in new plants and capacity, have supported employment growth in the U.S. auto parts 

industry. U.S. imports of motor vehicle parts from Mexico rose in part because of NAFTA rules of 

origin requirements and a more liberalized foreign investment climate. 

Leather — The increase in U.S. exports of leather (principally for use in motor vehicle seats) resulted, 

in part, from NAFTA changes in rules of origin related to motor vehicle export performance 

requirements and changes in Mexico's Maquiladora Decree that allowed shipments of car seats and/or 

car seat covers directly from maquiladora operations to vehicle assembly plants in Mexico. 

Employment in the leather tanning and finishing industry has declined despite increased exports as a 

result of the cyclical nature of the cattle/beef industry, closures in the face of environmental standards, 

and relocation of some facilities to low wage-rate countries. 

xxiv xxiv
Services 

The effects of NAFTA on U.S. services trade are believed to be negligible. Data on services 

industries are available only through the second year of NAFTA implementation (1995), and largely 

reflect the effects of the peso devaluation on Mexico's economy. The effect of NAFTA on U.S. 

investment is believed to be negligible in nearly all service industries, except in financial services, 

where it is regarded as significant. NAFTA has raised foreign investment ceilings, thereby facilitating 

greater investment by U.S. banking and security firms in Mexico. 

xxv
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CHAPTER 1 

INTRODUCTION 

Purpose and Organization of Report 

The North American Free Trade Agreement (NAFTA, or the Agreement) took effect on January 1, 

1994, after nearly a decade of expanded U.S.-Mexican trade ties, and 5 years after the U.S.-Canada Free 

Trade Agreement entered into force in 1989. Most, but not all, of its tariff provisions have been 

implemented, and nearly all of its "rule making" obligations (in customs administration, standards, and 

investment, for example) are in force. The Agreement represented a breakthrough in trade policy, liberalizing 

North American commerce and serving as a model for subsequent agreements in the Uruguay Round of trade 

negotiations and elsewhere. 

This report has been prepared in response to a letter from the United States Trade Representative 

(USTR) received on April 23, 1997, requesting an investigation and report on the impact of NAFTA on the 

U.S. economy and industries. The request was made under section 332(g) of the Tariff Act of 1930 (19 

U.S.C. 1332(g)). The USTR asked that the Commission provide in its report both quantitative and 

qualitative analyses of NAFTA, specifically including the following: (1) a review and analysis of existing 

studies that have assessed the impact on the United States of NAFTA in its first 3 years; (2) a discussion of 

the technical issues involved in formal economic assessment of the impact of a partially implemented free 

trade agreement; and (3) to the extent feasible, an analysis of the aggregate effects on the economy of the 

Agreement in its first 3 years. Where possible, the report is also to include an analysis of trade, employment, 

investment, and productivity in industries affected by NAFTA. Copies of the request letter and the 

Commission's notice announcing institution of the investigation and the scheduling of a public hearing are 

reproduced in appendix A and B. 

The request letter noted that section 512 of the NAFTA Implementation Act (19 U.S.C. 3462) 

requires the President to provide to the Congress by July 1, 1997, a comprehensive study of the operation and 

effects of NAFTA during the first 3 years. The letter stated that the information in the report would serve as 

a resource which the administration can draw upon in preparing its report to Congress. 

This chapter will do three things First, it will briefly review some of the research that has attempted 

to assess and evaluate NAFTA in its first three years of operation. Second, it will describe the methodology 

used in this study to assess the effect of NAFTA on the U.S. economy and industries. Finally, it will describe 

the structure of the remainder of the report. 

Review of Recent Research on the Impact of NAFTA 

Although many of the trade liberalizing provisions of NAFTA are not scheduled to be fully 

implemented until 2009, several researchers have attempted to quantify the effects of the Agreement on each 

member economy. Since the Agreement was not implemented in a vacuum, a major challenge of this and all 

such research endeavors is to isolate the effects of the Agreement from other major events. Presidential 

elections, other political changes, and such significant macroeconomic events as the large Mexican peso 

devaluation ("peso crisis") of December 1994 make accurate analysis difficult. In addition to tariff 

reductions, the Agreement contains other significant provisions, relating to non-tariff barriers, border 

measures, and dispute resolution mechanisms, that are likely to generate changes of the types that are the 

most difficult to quantify. Indeed, the recency of the Agreement, the staging of its many rules and 

1-1 

1-1
regulations, and the disparate sizes of the United States and Mexican economies suggest minimal impacts on 

the U.S. economy during the first three years of NAFTA.' 

The discussion in this section briefly reviews recent empirical work that has attempted to isolate the 

impact of NAFTA to date on the economies of its signatories. Subsections will cover the literature that has 

attempted to evaluate NAFTA retrospectively, with evidence taken from post-implementation experience, 

followed by a brief review of prospective work that evaluates NAFTA (regardless of its publication date) 

from the perspective of data and expectations available at its inception. 

NAFTA's recent implementation allows only a few retrospective analyses. Researchers have 

primarily used limited trend or qualitative analysis. Clearly, using computable general equilibrium (CGE) 2 

 modeling to quantify "what if NAFTA were implemented" has been the methodology of choice in prospective 

analyses, and remains the choice of many analysts for retrospective work, given the lack of historical data. 

Furthermore, the Agreement addresses many subjects beyond tariff reductions, including rules of origin, 

technical standards, government procurement, competition policy, and intellectual property rights protection; 

these further complicate the problem of isolating and quantifying NAFTA effects. 

Post-NAFTA Retrospective Analysis 

David Gould3explored the effect of NAFTA on trade flows between Mexico and the United States. 

He compared actual trade under NAFTA with what trade might have been without an agreement. In addition, 

he examined what would likely have happened to U.S.-Mexico bilateral trade had there not been a peso crisis. 

Gould analyzed the period' when Mexico began trade liberalizations, the period when Mexico 

instituted macroeconomic stabilization policies, and the period in which NAFTA was implemented, to 

estimate U.S. imports from and exports to Mexico. 5Using binary variables to account for Mexico's 1982 

debt crisis, the 1985 recession, and the 1994 peso crisis, Gould also estimates the effects of the peso crisis 

on Mexican industrial production, the real peso/dollar exchange rate, and total U.S. imports from and exports 

to the rest of the world except Mexico. These results are subsequently used to evaluate the impact of the peso 

Professor Joseph McKinney remarked at the Commission's public hearing on May 15, 1997, that "Almost 5 years 

ago at hearings such as these, several other economists and I testified that in our professional judgments, the effects of 

incorporating Mexico into a North American Free Trade Agreement should be on balance positive, but relatively 

modest ...While the effects of the NAFTA agreement certainly have not been fully realized [in] its first three years of 

operation, my current assessment is that despite the economic difficulties encountered by Mexico, the effects of NAFTA 

thus far on the U.S. economy have been on balance positive and relatively modest." 

2The designations "computable general equilibrium modeling" (CGE) and "applied general equilibrium" (AGE) 

modeling are used interchangeably throughout this report 

David Gould, "Distinguishing NAFTA from the Peso Crisis," Southwest Economy (Sept/Oct.1996), pp. 6-10. 

A binary (on-oft) variable was used to isolate each of these periods. Such variables are designed to take into 

account exogenous shifts in an econometric relationship, and are particularly useful when dealing with data that cannot 

be explicitly quantified, but can only be located in time. Here, the binary variable is equal to one during the event, be it 

the peso crisis or the implementation of NAFTA and is equal to zero otherwise. For more information on binary or 

"dummy" variables, see William H. Greene, Econometric Analysis, (New York: MacMillan Publishing Company, 

1993). In the context of this report, a binary variable helps to determine whether, for example, trade is discernibly 

different after NAFTA than before NAFTA, effectively breaking the data into two sets of observations, hence "binary." 

Note that Gould uses import and export values (price times quantity) rather than actual quantities. Price and 

quantity can move inversely, making it difficult to assess what is actually causing trade values to rise or fall. 

1-2 

1-2
crisis on U.S.-Mexico bilateral trade flows. The large devaluation of the Mexican peso occurred just 11 

months after the trade agreement's implementation, and Gould estimated the effects of the peso crisis to be 

significant. 

Indeed, he found that the dramatic decline in U.S. exports to Mexico during 1995 could be traced to 

the peso devaluation, the contraction in Mexican income, and the subsequent Mexican recession. Gould 

reported that although U.S. exports to Mexico fell more than 10 percent in 1995, "on average, U.S. export 

growth is about seven percentage points higher per year with NAFTA."' His results are even more extreme 

regarding the effects of the peso devaluation; Gould reported that "exports would have grown 22 percent 

without the peso crisis, rather than decline by 11 percent, as happened with the crisis?' From his limited 

technical discussion, it is not clear that he appropriately distinguished the peso crisis from NAFTA because 

both events may not have been simultaneously specified in his regression analysis to allow them to interact 

appropriately. 

Sidney Weintraub' attempted to put NAFTA and its assessment into context, using descriptive 

analyses of recent trade, growth trends, and political events of the last few years. He noted that "it would 

have been preferable to wait a number of years before reaching conclusions about NAFTA."' Weintraub's 

assessment of NAFTA specifically described: (1) the "incorrect criteria" (merchandise trade balance, jobs 

and wages); and (2) the "correct criteria" (increases in total trade, intra-industry trade/specialization, 

productivity and wages, effects on competitive position of industries, environmental effects, and institution 

building) for making such an assessment. 

Weintraub concluded that with respect to trade, the main "correct" criterion under which NAFTA 

should be evaluated, NAFTA is performing as expected. Bilateral trade is higher than before implementation 

and increasing. Furthermore, growth in intra-industry trade illustrates that firm competitiveness is growing.' 

Regarding jobs, he asserted that the profound fear that there would be a massive loss of jobs has turned out to 

be unfounded." Moreover, Weintraub pointed out that by some accounts, NAFTA is working "too well." In 

fact, the increased competition has produced a protectionist backlash on both sides in some key sectors.' 

Hinojosa et al. 13 used a computable partial equilibrium (CPE) simulation modeling framework to 

analyze what has occurred in the 3 years since NAFTA's start. Their report is preliminary, and outlines a 

6Gould (1996), p. 7. 

7Gould (1996), p. 8. 

Weintraub, Sidney NAFTA at Three: A Progress Report (Washington, D.C.: The Center for Strategic and 

International Studies, 1997). 

Weintraub (1997), p. 3. 

Weintraub (1997), p. 84. 

11Although there have been losses with trade and production changes, the reality is that since NAFTA's 

implementation, there has been "a massive increase in U.S. job-creation and if anything a shortage in qualified labor." 

Weintraub (1997), p. 84. 

12Examples cited by Weintraub (1997) include tomato and avocado trade as well as truck transportation rules. 

However, he notes that one significant benefit from NAFTA is its dispute settlement mechanism. 

13Raul Hinojosa Ojeda, Curt Dowds, Robert McCleery, Sherman Robinson, David Runsten, Craig Wolff, and 

Goetz Wolff, North American Integration Three Years After NAFTA: A Framework for Tracking, Modeling and 

Internet Accessing the National and Regional Labor Market Impacts (Los Angeles, C.A.: University of California 

School of Public Policy and Social Research, Dec. 1996). 

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1-3
research agenda that might be developed to address the dynamic and subnational/sectoral impacts of trade 

agreements.' 

 authors conclude that the tariff reductions associated with NAFTA did not significantly affect 

the rate of growth of U.S. imports or exports, nor the composition of trade between the United States and 

Mexico. Instead, they assert that established production sharing relationships and the growth rate of the 

Mexican economy have been among the primary determinants of trade and investment flows between the 

United States and Mexico in recent years. Their discussion focuses attention on the important structural 

changes that occurred in Mexico's economy and trade regime in the 10-year period prior to NAFTA's 

implementation. Specifically, the authors draw the conclusion that these earlier structural changes in Mexico, 

and macroeconomic conditions in Mexico and the United States, were the main factors explaining why 

changes in trade after NAFTA's implementation were not larger. According to the authors, this is also why 

U.S. exports to Mexico were able to recover more quickly after the peso crisis in 1994 than was the case in 

previous peso devaluations. 

While the authors provide large amounts of trade and investment data that are suggestive, neither the 

trend analysis nor the CPE simulation analysis provides convincing support for their claims. For example, 

they do not explain how employment effects resulting from increased imports are derived from their partial 

equilibrium model. If changes in employment were directly estimated from changes in import trade flows 

using some type of multiplier effect, it is unclear why a model that estimated changes in U.S. output was 

needed at all in the first steps of this analysis. The effects of this historical event require a much more 

rigorous analysis of the available data than Hinojosa et al. provide before their assertions can be accepted as 

valid. 

Pre-NAFTA Prospective Analysis [3] 

Michael A. Kouparitsasisused a dynamic computable general equilibrium model with 

macroeconomic components to analyze the potential effects of NAFTA on the three North American 

economies and a composite of their trading partners.' He noted that insufficient international data make it 

impossible to estimate all preferences, production, and trade parameters. However, three trade liberalization 

simulations were performed using his North American trade model. The first experiment looked at a limited 

North American free trade agreement (the "LNAFTA" experiment), where only explicit tariffs between 

Canada, the United States, and Mexico are liberalized. The second experiment examined the removal of all 

North American tariffs and non-tariff barriers (the "NAFTA" experiment). The third experiment focused on 

"For future research, the authors propose adopting CGE simulation modeling for retrospectively analyzing what 

has occurred in the three years since NAFTA implementation. These types of models are parameter-driven structural 

relationships that are most appropriately used ex ante, as a prospective analytical tool for providing "what-if' analyses, 

or for analyzing long-term effects; these models are less useful in isolating what has already occurred. They do not test 

whether the hypothetical relationships implied by the model parameters are in fact consistent with observed data. 

In testimony before a hearing of the Commission on this investigation, Michael Kouparitsas gave as his opinion that 

CGE analysis (such as his own) is more appropriate for analysis of medium- to long-term effects, "...and [he thinks] 

three years is very much the short run." Hearing before the International Trade Commission, May 15, 1997, transcript, 

p. 109. 

15Michael A. Kouparitsas, "A Dynamic Macroeconomic Analysis of NAFTA" Economic Perspectives (Jan./Feb. 

1997), pp. 14-35. 

16The model's base year is 1992 and is simulated over a 30-year period. The dynamic model has four 

countries/regions (Canada, Mexico, the United States and the rest of the world) and five sectors (primary raw materials, 

nondurable manufacturing, durable manufacturing, construction, and services). 

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a hub-and-spoke arrangement where the United States is the hub; both Canada and Mexico are spokes, each 

having a free trade agreement with only the United States. The third experiment is essentially a Free Trade 

Agreement (FTA) between the United States and Mexico, with few changes in trade between the United 

States and Canada. He used several parameters estimated for NAFTA analysis at the USITC 17and, 

consistent with other modelers using static multisector, multicountry computable general equilibrium models, 

Kouparitsas calibrated the model to the 1992 base period. 

These results suggest that NAFTA will generate welfare gains for all North American participants, 

with the greatest gains accruing to Mexico. Under the NAFTA experiment, Mexico's steady state gross 

domestic product (GDP) was predicted to increase by 3.2 percent, but the effects on the United States and 

Canada were negligible. The dynamic analysis also suggests that NAFTA generates real output and trade 

flow increases that are roughly twice as large as those predicted by other researchers, whose results generally 

rely on static trade models. 

Kouparitsas' results are largely driven by the model's infusion of capital flows into Mexico from 

outside the NAFTA region. This assumption explains over two-thirds of the output changes. Allowance for 

an increase in labor effort explains the remaining third. In such model simulations, the results are sensitive to 

the amount of increase in the supply of productive factors. The amount of increase in factor supplies may be 

modeled by other methods with different results, but the models that Kouparitsas cites are not able to model 

such factor supply changes. 

The Congressional Budget Office (CBO)' 8also uses a general equilibrium economic simulation 

model to generate various scenarios. In particular, they employ the McKibbin, Sachs Global (MSG) 

simulation model.' Since this type of model is based on developed country growth patterns, CBO modified 

the model explicitly to include Mexico. NAFTA encompasses several economic liberalization reforms, and 

CBO's simulations model the impact of all such reforms since the mid-1980s including, but not limited to, 

NAFTA.' 

Results from the CBO study suggest that although net welfare would improve for each country, some 

sectoral winners and losers will exist. The larger gains to Mexico would most likely come from increased 

foreign direct investment into Mexico. Short-term gains to the United States are expected to come from 

greater exports to Mexico. Projected GDP growth for Mexico is between 6 and 12 percent by the time 

NAFTA is fully enacted. Effects on the United States are much smaller, with CBO's model projecting 

growth attributed to the trade agreement to be less than 1 percent.' 

" See David W. Roland-Holst, Kenneth A. Reinert and Clinton R Shiells, "North American trade liberalization and 

the roll of non-tariff barriers," in Economy-wide Modeling of the Economic Implications of an FTA with Mexico and 

NAFTA with Canada and Mexico, USITC publication No. 2508, May 1992, pp. 523-580. This computable general 

equilibrium (CGE) model was a prospective analysis of the potential impact of NAFTA utilizing 1982 input-output 

relationships benchmarked to 1990 national income statistics. These CGE model results of the potential impact of 

NAFTA are static and address the question: What would be the impact on the three economies in 1990 of NAFTA 

changes? 

Congressional Budget Office, A Budgetary and Economic Analysis of the North American Free Trade 

Agreement (Washington, DC: CBO, July 1993). 

19CBO's MSG model is based on work done by Warwick J. McKibbin and Jeffery D. Sachs, Global Linkages: 

Macroeconomic Interdependence and Cooperation in the World Economy (Washington, DC: Brookings Institute, 

1991). 

20For more information, see "Macroeconomic Simulations of NAFTA" in CBO, pp. 113-117. 

21 CBO (1993), p. 14. 

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The CBO simulations also imply that Mexico's current account deficit would continue for a 

substantial period, which means that Mexico should attract substantial net inflows of private capital during 

the several years following NAFTA's implementation. In addition, the 1993 study suggested that the peso 

would become stronger, making U.S. goods more attractive to Mexican consumers and Mexican goods less 

attractive to U.S. consumers. 

P.J. Kehoe and T.J. Kehoe summarized the work of four prospective general equilibrium studies 

presented at the USITC's "Economy-wide Effects of NAFTA" conference held in February 1991' The 

authors include: (1) Brown, Deardorff, and Stem, who modeled NAFTA's impact on all three national 

economies; (2) Cox and Harris, whose model focused on Canada; (3) Sobarzo, whose model concentrated on 

Mexico; and (4) Markusen, Rutherford and Hunter, whose model focused on the automobile industry. 

The four research teams used static applied general equilibrium models that emphasized increasing 

returns to scale and imperfect competition. Although each model made different assumptions and 

emphasized different countries or industries, they are relatively consistent in their agreement on the impact of 

NAFTA. Specifically, the four works found that because Mexico's economy is the smallest in North America 

and had the highest levels of protection, it will enjoy the largest NAFTA increase in economic welfare when 

measured as a percentage of GDP. The studies expect that the positive effect on Mexico's GDP will range 

from 2 to 5 percent, with a scant increase in U.S. welfare of around 0.1 percent of U.S. GDP. Canada was 

not expected to experience any gains beyond the benefits it experienced from the U.S.-Canada FTA. 

G. Hufbauer and J. Schott' gave a thorough pre-implementation assessment of the Agreement, 

examining its impacts on energy, automobiles, agriculture, textiles and apparel, financial services, 

transportation, and telecommunications. The authors also analyzed the effect of NAFTA on U.S. jobs and 

adjustment programs, occupational employment, long-term efficiency benefits, and migration. Their analysis 

was primarily conjectural in nature, on how NAFTA should be expected to affect certain sectors. 

Although little time was spent assessing the macroeconomic effects of the Agreement, Hufbauer and 

Schott characterized some of the expected benefits for each country. For Canada, the Agreement provides 

improved access to the Mexican market, while maintaining Canada's preferential treatment in the U.S. market 

as established under the U.S.-Canada FTA. Mexican exporters are expected to benefit, given relatively 

unfettered access to the U.S. market, and the few remaining U.S. trade bathers will be liberalized. Finally, 

U.S. suppliers of intermediate, capital goods, and high-technology products should continue to reap large 

benefits as prime suppliers to the growing Mexican market. 

Methodology 

The empirical analysis of NAFTA effects follows two approaches. The first is a statistical or 

econometric approach, which is designed to discern systematic relationships between NAFTA and aggregate 

measures of economic performance on the one hand, and between NAFTA and industry performance on the 

other. The other basic approach is the industry, or sector-by-sector, analysis, in which specific industry 

sectors are examined, in terms of a wide variety of trade, regulatory, tariff, nontariff, and other factors, to 

n Patrick J. Kehoe and Timothy J. Kehoe, "Capturing NAFTA's Impact with Applied General Equilibrium 

Models," Federal Reserve Bank of Minneapolis' Quarterly Review (Spring 1994), 17-34. 

'3See USITC publication No. 2508, 1992. 

Gary C. Hufbauer and Jeffrey J. Schott, NAFTA: An Assessment (Washington, DC: Institute for International 

Economics, 1993). 

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provide a qualitative assessment of NAFTA effects which might escape the econometric approach. The 

different approaches do not in all cases pick up the same effects of NAFTA on given industries, or fmd the 

same relative importance of the effects of NAFTA on the industry compared to other influences. This is to be 

expected, and is in fact an important reason to conduct the two analyses, since together they give a more 

complete and balanced picture of NAFTA's effects than would either approach in isolation. 

Following the guidance given by the USTR's request letter, specific sectors were selected based on 

increases in the level of trade between the United States and its NAFTA partners.' The selection process is 

described most fully in chapter 5, but the essence of the procedure is as follows. 

Trade in commodities as classified by the Standard Industrial Classification (SIC) system at the 

4-digit level was examined for the years 1993 to 1996. Those 4-digit SIC industries for which trade (either 

imports or exports) with either NAFTA partner increased by $50 million or more over that 3-year interval 

were selected for analysis.' The SIC system was chosen to classify industries in the U.S. economy because 

most data on sectoral economic activity in the United States are based on this system, and because the SIC 

specifically describes industries (the object of the analysis) rather than products. Nevertheless, for 

convenience this report often refers to "SIC commodities" where it would more accurately discuss 

"commodities produced primarily by particular SIC industries."' Trade data are based on the Harmonized 

Tariff System of classification (HTS), but standard concordances exist for translating data from the HTS to 

the SIC system. The selection procedure identified about one-half the industries listed in the SIC 

classification system, while accounting for about 85 to 90 percent of the value of all trade between the U.S. 

and its NAFTA partners. 

As stated, the 204 industries selected by this procedure were subjected to two types of analysis. In 

different econometric analyses the industries' were examined to determine the extent to which NAFTA had 

statistically measurable effects on industry trade and labor markets. At an aggregate level, data on the overall 

performance of the economy were also examined in order to discern possible effects of NAFTA on GDP and 

aggregate consumption; productivity; overall trade balances with NAFTA partners; and employment and 

wages. In the "sector by sector analysis," the industries were aggregated into 68 industry sectors, or groups. 

Industry specialists on the staff of the ITC gathered trade, production, employment, tariffs, and other data on 

these aggregations, in order to arrive at an informed qualitative assessment of the effects of NAFTA on them. 

For this analysis, the criterion for determining a significant effect of NAFTA was based on a standard of 

NAFTA's importance relative to other factors, rather than on a standard of statistical significance. 

The request letter is attached to this report as appendix A. 

zc The letter from USTR requesting this study calls for an analysis of the "U.S. industries in which U.S. exports to 

Mexico or Canada or imports into the United States from Canada or Mexico have increased significantly." In the 

absence of a standard for "significance" in this context, several alternative criteria were examined before selecting the 

$50 million threshold. 

The SIC is generally a production-based classification scheme, i.e. it considers how resources are organized and 

used to produce output and accordingly classifies industries by these processes. The HTS is a commodity-based scheme 

that identifies what is being marketed. Because of the underlying conceptual differences between the two types of 

classifications, the mapping (or concordance) between the two will necessarily be imperfect. One or more SIC 

industries can produce a given product, and a given industry can produce several widely different products. 

For the econometric analyses in chapter 4, a slightly different set of 198 4-digit SIC industries was used. These 

industries were selected at the beginning of the data collection process for this study, using the same $50 million 

increase in trade criterion discussed above, but applied to annunlized incomplete data for 1996 trade. 

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Econometric Methodologies 

The first approach to the analysis of NAFTA's effects on industries, and the approach to the 

assessment of effects on the economy as a whole, is econometric. A variety of techniques were applied, as 

appropriate to specific topics. 

GDP Analysis 

The U.S. economy is roughly ten times the size of Mexico's, and trade with Mexico, while large 

compared with most individual trading partners, constitutes only about 10 percent of U.S. foreign trade. 

Given the size of the U.S. economy, particularly in the context of its ongoing robustness over the past 6 years, 

one would not expect to find considerable effects of NAFTA.' 

Nevertheless, an attempt to model the effects of NAFTA on U.S. GDP was made using both 

quarterly and annual data from 1959 to 1996 by estimating a traditional production function of the U.S. 

economy.' Many specifications were estimated, and no consistent, theoretically-reliable results were 

obtained. 

Several approaches may be taken to estimate the effects of a policy change on GDP. Based on 

national accounting identities, GDP can be separated into distinctive components (aggregate consumption, 

investment, government spending, and net exports). Analysis can then examine the effects of the policy 

change on the components individually. Alternatively, because GDP also represents aggregate income, 

income components can be separately identified to detect the impact of a policy change. Finally, since GDP 

represents gross economic output or production, a third approach would try to detect the effect of a policy 

change on total production (or on production inputs).' 

In isolation, the fact that actual GDP growth rates are relatively large compared with the total 

expected effects of NAFTA would not preclude estimation of the Agreement's effects. Presumably, small 

deviations from the trend of the GDP growth rate could be empirically detected, assuming there were a 

sufficient number of data observations, and few or relatively insignificant events occurring during the period 

being examined Unfortunately, neither of these two conditions holds during NAFTA's first 3 years. At 

most, twelve quarterly observations of GDP are available for the period following NAFTA implementation, 

and these are considered too few observations for reliable statistical inference. Several important shocks also 

occurred in the economy that are difficult to separate from the impacts of NAFTA. Shocks that significantly 

cloud empirical estimates of NAFTA's effects on the U.S. economy include: the 1994 peso crisis, the 

assassination of Luis Donaldo Colosio,' news of the bailout agreement, and, more importantly, domestic 

events that directly affected the U.S. economy, such as defense downsizing and government budget cuts. 

'9In testimony before the Commission on this investigation, Michael Kouparitsas indicated that, on the one hand, it 

is far too early to observe significant effects of NAFTA, and on the other, that even in the long run, his work suggests 

that the effect of the Agreement on U.S. GDP is that it will cause an expansion of one-fourth of a percentage point, 

"roughly twice as large [an effect] as previous findings from static models." Hearing transcript, p. 80. 

" A closer examination of the data also revealed significant statistical characteristics associated with time-ordered 

data The technical appendix formally addresses time-series issues and correction techniques in more detail. 

31If appropriate adjustments are made to compensate for problematic macroeconomic data properties, this approach 

would most likely be converted into estimates of the effect of the policy change on the growth rate of GDP. 

32Luis Donaldo Colosio was the presidential candidate of Mexico's ruling Institutional Revolutionary Party (PRI) 

during the 1994 election campaign. He was assassinated in March 1994. 

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Most of the empirical work connecting trade policy with growth in GDP has been done in the context 

of developing economies, generally attempting to find connections between openness to trade and economic 

development. One strand of empirical testing looks at cross section data, analyzing differences among 

countries in GDP growth and its connection to trade policies;' most such analyses focus on long-run growth 

and are not helpful in identifying short-run effects of trade liberalization agreements. Other studies that look 

at linkages between exports and growth with time series data for single countries often find that there is a 

lagged effect, that major increases in exports are associated with increases in growth of GDP after several 

quarters or years.' While none of this work indicated that impacts for a trade liberalization might be 

discovered empirically for data covering a short period of time, the Commission did adopt and estimate 

several models, based on some of those described in the literature. A variety of time-series techniques were 

applied, looking for effects on GDP levels and on growth rates. In no cases were significant links found 

between NAFTA and changes in U.S. GDP. 

Effects of NAFTA on Industries: Trade Flows and Labor 

For each of the 4-digit SIC industries, data were collected on imports, exports, domestic production, 

wages, employment, and other variables. Data constraints were a limitation in some cases. Trade data for 

service industries do not exist on a monthly basis, and labor force data for agricultural products are very 

inconsistent, where they exist. Further, the Bureau of Labor Statistics combines a small number of SIC 

classifications with others in their data. Thus the econometric analysis of labor market data, in particular, is 

limited to 120 industries. Specific econometric methodologies are described in chapter 4, where results are 

presented. Briefly, all of the econometric analyses attempt to answer the following two questions: How does 

one identify formally the effects NAFTA might have on economic activity? And, how does one measure 

those effects? The first question is one of modeling, and the second is one of econometric inference. 

Besides being a tariff reduction agreement, NAFTA addresses many other subjects, including 

intellectual property rights, trade in services, government procurement, investment, and various customs 

matters. Separately negotiated side agreements address labor and environmental issues. Furthermore, a 

series of policy actions were taken in anticipation of the Agreement, principally the privatization of various 

parastatal enterprises in Mexico. Investment regulations were not only liberalized, but the amount of 

investment increased in the months prior to implementation of NAFTA in anticipation of its passage. 

To model the effects of the various NAFTA provisions, in a way generally applicable to about 200 

industries, requires simplification. The analyses attempt to capture NAFTA effects through price effects and 

binary variable analysis. A binary variable is a variable that, in the context of this analysis, captures the 

market effects that occur in a given period, whether a year or a sequence of years, that are not captured by 

other observed variables. The tariff effects are modeled as price effects; the prices of imports are entered 

into modeling specifications to capture the impact of the cheaper imports (and exports) due to NAFTA tariff 

reductions. These import prices in fact reflect not only import price changes due to NAFTA tariff reductions, 

but also those due to other changes in duties attributable to the Uruguay Round, changes in Mexico's GSP 

n Ross Levine and David Renelt, "A Sensitivity Analysis of Cross-Country Growth Regressions," American 

Economic Review 82:4 (September 1992), pp. 942-963. 

Examples of such time series analyses include M.O. Odedolcun, "Alternative Econometric Approaches for 

Analyzing the Role of the Financial Sector in Economic Growth: Time-Series Evidence from LDCs," Journal of 

Development Economics 50 (1996), pp. 119-146, and Woo S. Jung and Peyton J. Marshall, "Exports, Growth, and 

Causality in Developing Countries," Journal of Development Economics 18 (1985), pp. 1-12. 

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status,' and changes in prices due to other market forces. In the scope of this study NAFTA tariff reductions 

could not be applied directly at the SIC industry level because changes in the composition of items traded 

within a given SIC industry have not been fully analyzed, nor have the relationships between NAFTA and 

other tariff provisions. 

In order to capture the other effects of NAFTA besides those due to tariffs, one or more binary 

variables corresponding to the implementation of NAFTA are included in the analysis. Among the influences 

explained by these variables, one might expect to find the effects of NAFTA that arise from changes in the 

market or investment environments, regulatory changes, or other dimensions of the Agreement that do not 

directly flow into price changes. In analyzing the data covering 1995 and 1996 one would also expect to find 

the effects of the large peso devaluation and subsequent policy responses. 

Neither the price (unit value) variable nor the binary variables can fully succeed in capturing the full 

effects of NAFTA or in isolating these effects from other changes in the North American economies and 

trading environment. However, they can serve as indications of those areas in which the Agreement has had 

its strongest effects so far. Chapter 4 and the technical appendix, on the econometric analysis of the effects 

of NAFTA on trade flows, discuss these techniques in more detail, together with their interpretation, 

implications, and limitations Chapter 4 also presents an analysis of the effects of NAFTA on industry 

employment and earnings, using a similar methodology. 

Productivity 

The analysis of productivity, appearing in chapter 4, takes a very different approach, relying on the 

analysis of cross section data rather than time series data. There are no good data on sectoral productivity 

over time, nor is there a single definition of productivity itself. After discussing definitional issues, the 

method used here is to analyze the differences in productivity in industries that face different levels of import 

competition. From the results, one may then infer the effect that increased trade from a particular country, 

such as Mexico, may have on productivity. 

Sector-by-Sector Analysis 

The general approach to the industry sector analyses is described in chapter 5. The results of these 

assessments, and the data underlying them, are presented in chapter 6. For each of the 68 sectors aggregated 

from the SIC industries, data were assessed to determine whether NAFTA had a significant effect on 

increases in trade flows in the sector. In this context, "significant" is defined in chapter 5 to mean that the 

change in specified performance indicators from 1993 to 1996 is due in considerable measure to the NAFTA 

as compared with any other economic factor or industry development occurring during the period. It should 

be noted that these analyses were made considering the sector as a whole, focusing on the effect that NAFTA 

had on the observed changes in the trade flows. 

Nine industry sectors of the 68 were found to be significantly affected by NAFTA in this sense, 36 

 although there may be industries or products within these sectors where increased trade may not have been 

' The change in Mexico's GSP status was part of the NAFTA implementation bill. Items from Mexico, previously 

eligible for duty-free entry under GSP, became duty free under NAFTA, and Mexico was removed from eligibility for 

GSP benefits. 

36These sectors are grains and oilseeds, raw cotton, textile mill products, apparel, leather tanning and finishing, 

women's non-rubber footwear, household appliances, motor vehicles, and motor vehicle parts. 

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significantly affected by NAFTA. The alternative finding, that NAFTA had a "negligible" effect on the 

observed increases changes in trade flows in the remaining 59 sectors, indicates that the change in trade flows 

from 1993 to 1996 was due primarily to economic factors or industry developments occurring during the 

period other than the NAFTA. Such a finding, therefore, does not necessarily mean that NAFTA had no 

influence on the changes in the trade flows or other industry indicators, but rather that some other factor was 

the predominant cause of such trade shifts. Again, because such determinations were made at the sectoral 

level, there may be products or industries within these sectors for which NAFTA may have had a 

"significant" effect on changes in trade flows or other industry measures. 

In formulating a conclusion, this methodology relies primarily on assessing measurable changes in 

the trade and economic environment, such as declines in tariffs, NAFTA rules, investment liberalization, 

sectoral arrangements under NAFTA, and other factors as appropriate. The analyses cannot fully distinguish 

the effects that NAFTA has had on the psychological climate of doing business with NAFTA partners, 

especially Mexico, due to any real or perceived lowering of business risk brought about by the Agreement. 

However, changes in business relationships as a result of NAFTA may have been an important factor in the 

decisions of North American businesses; 37in some cases such changes may have been an important factor 

influencing decisions to shift production, procurement, or assembly functions. 

Structure of the Report 

Following this introductory chapter, chapter 2 provides an overview of the North American Free 

Trade Agreement, including its historical context, key provisions, and issues that have arisen during the first 

3 years of implementation. Chapter 3 presents the economic context for analyzing the Agreement's impact. 

It includes reviews of the performance of the three national economies and their increasing integration in the 

years leading up to the Agreement, and discusses economic policy changes and the events surrounding the 

implementation of the Agreement in the three countries. 

The remaining chapters will present the analyses described above. Chapter 4 provides a quantitative 

analysis of the impact of NAFTA on U.S. trade with its North American partners, conducted at the level of 

specific industries. It also assesses the effect of the Agreement on the labor force in the industries affected 

by trade, and then looks at the overall effect of the Agreement on U.S. productivity, to the extent that this can 

be measured. 

Chapters 5 and 6 examine the effects the Agreement has had on specific industry sectors. Chapter 5 

provides an overview, describing in detail how industries were selected for analysis and the approach taken to 

the industrial analyses. 

37See, for example, the statement of Richard J. Heckman, president and chief executive officer, U.S. Filter 

Corporation, transcript of hearing, p. 37. 

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CHAPTER 2 

OVERVIEW OF NAFTA 

Introduction 

Before embarking on a rigorous examination of NAFTA's impact on the United States, some 

background on NAFTA's genesis, key provisions, status of implementation, and relationship to the Uruguay 

Round is presented in this chapter. This background details NAFTA's coverage. It also highlights changes 

in trade policy by the three NAFTA partners in the 1994-96 period that may have affected the preferential 

access of NAFTA partners. 

NAFTA is a far-reaching and precedent-setting international trade agreement. Its numerous 

provisions address far more than tariffs on goods. Many of the barriers being removed by NAFTA are 

Mexican and Canadian policies that held back U.S. exports and investment. Considerable liberalization of 

U.S. trade with NAFTA partners has already been achieved as a result of NAFTA, but some key provisions 

have yet to be implemented. Implementation of those provisions that were to be in place during the period 

1993-96 has generally been smooth.' 

The Uruguay Round of multilateral trade negotiations concluded shortly after NAFTA's passage. 

The resulting agreements go beyond NAFTA in some respects, notably in agriculture and telecommunications 

services, but fall short of NAFTA in such areas as investment and state trading. U.S. and Canadian tariffs 

were reduced as a result of the Uruguay Round, slightly lowering the margin of preference enjoyed by 

NAFTA suppliers. According to some sources, Mexico's average applied MFN tariffs actually rose during 

the 1993-96 period,' widening the advantage U.S. and Canadian goods enjoy in the Mexican market. On the 

other hand, Mexico has signed free-trade agreements with several Latin American partners in the period 

leading up to and after NAFTA, providing them benefits similar to NAFTA. It has also unilaterally lowered 

tariffs on some goods. A fuller discussion follows. 

Historical Context 

NAFTA entered into force on January 1, 1994, capping nearly a decade of improved and expanded 

U.S.-Mexican trade ties, and bolstering the scope of the U.S.-Canada Free Trade Agreement (CFTA) that 

entered into effect in 1989. NAFTA represented a breakthrough in trade agreements, with key provisions 

liberalizing North American commerce and serving as models for subsequent agreements in the Uruguay 

Round of multilateral trade negotiations and elsewhere.' 

For a fuller discussion of NAFTA implementation, see, U.S. International Trade Commission, The Year in 

Trade, 1994 and 1996 editions, USITC publications 2894 and 3024, July 1995 and Apr. 1997. 

2Pacific Economic Cooperation Council, Perspectives on the Manila Action Plan for APEC, Nov. 1996, p. 8, 

simple averages, based on UNCTAD data and Individual Action Plans. According to this source, Mexico's simple 

average tariff was 10.6 percent in 1988, 12.8 percent in 1993, and 12.5 percent in 1996. 

3See discussion on "Interaction with the Uruguay Round Negotiations" later in this chapter for examples. 

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The implementation of the CFTA had already further integrated the U.S. and Canadian economies 

and spurred global trade liberalization even before NAFTA began.' Less than 3 years into the 10-year phasein of the CFTA, the United States responded to a Mexican overture by embarking on an effort to conclude a 

U.S.-Mexico free-trade agreement (FTA). 5The U.S. response reflected a recognition of the substantial trade 

and investment reforms undertaken by Mexico since the mid-1980s, and was billed as a first step toward the 

eventual economic integration of all of the Americas. NAFTA was also identified as a way to boost U.S. 

competitiveness relative to emerging trade blocs in Europe and Asia.' 

In the years leading up to NAFTA, Mexico reversed long-standing statist, import substitutionoriented development policies that had restrained imports and foreign investment opportunities. Austerity 

programs requested by the International Monetary Fund in the early 1980s in the wake of Mexico's 1982 

debt crisis, and the progressive dismantling of many trade and investment restrictions transformed Mexico 

into one of the world's fastest-growing markets, and resulted in dramatic success in reducing inflation, which 

fell from an annual rate of 159 percent in 1987 to 11 percent in 1992. Such measures also sparked a surge 

of foreign investment in Mexico and a return of capital. 

Mexico's economic reforms included liberalizing foreign trade, easing rules on foreign investment, 

improving intellectual property rights protection, privatizing state enterprises, deregulating domestic 

economic activity, reforming agriculture, and strengthening infrastructure.' Mexico joined the General 

Agreement on Tariffs and Trade (GATT) in 1986, and as part of its accession agreement reduced and bound 

its tariffs and undertook additional trade-enhancing commitments U.S.-Mexico trade ties were further 

strengthened by the implementation of a series of trade and investment agreements starting in 1987. 8 

By 1992, U.S. trade with Mexico had doubled from its 1986 level. U.S. exports to Mexico were 

increasing faster than U.S. imports from Mexico and the United States recorded a slight surplus in bilateral 

trade. Indeed, between 1978 and 1995, U.S. exports to Mexico grew by a substantially larger margin than 

Mexican GDP, with the exception of 1982, 1983, 1986, and 1995. The importance of U.S. trade to the 

Mexican economy, meanwhile, increased markedly.' 

4The CFTA covered services, for example, bolstering U.S. efforts to have services addressed in the 

multilateral trading system that preceded NAFTA. See "Interaction with the Uruguay Round Negotiations" section, 

below, for a further discussion. 

5On August 21, 1990, President Carlos Salinas wrote to President Bush proposing that the United States and 

Mexico negotiate a free-trade agreement, a step required by U.S. law. Then-existing U.S. presidential negotiating 

authority only permitted the President to enter into negotiations towards an FTA if such negotiations were formally 

proposed by the prospective partner and required the President to notify Congress of his intent to enter into FTA 

negotiations in advance of formally launching them. The Authority, since expired, is found at Section 1102(c) of the 

Omnibus Trade and Competitiveness Act of 1988. 

6See, for example, "The Administration's Case for NAFTA," Testimony of Ambassador Michael Kantor, 

United States Trade Representative, Before the Senate Commerce Committee, Oct 21, 1993. 

7For a discussion of these reforms, see, U.S. International Trade Commission, Potential Impact on the U.S. 

Economy and Selected Industries of the North American Free-Trade Agreement, USITC publication 2596, Jan. 1992, 

ch. 1. 

8For a description of these accords, see U.S. International Trade Commission, Review of Trade and 

Investment Liberalization by Mexico and Prospects for Future United States Mexican Relations, USITC publication 

2275, Apr. 1990, ch. 2. 

9 J.F. Hombeck, NAFTA, Mexican Trade Policy, and U.S.-Mexico Trade, A Longer-Term Perspective, CRS 

Report for Congress, No. 96-225 E, Mar. 11, 1996; pp. 3, 5, and 12 contain supporting data derived from U.S. 

Department of Commerce and International Monetary Fund statistics. The data show that the value of U.S.-Mexico 

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With the exception of certain sectors such as agriculture and textiles and apparel, U.S. barriers to 

Mexican and Canadian goods were already relatively low. U.S. tariffs had been progressively reduced as a 

result of multilateral rounds of liberalization under the GATT, the CFTA, and the U.S.-Canada Automotive 

Agreement. Mexico was the leading beneficiary of the U.S. Generalized System of Preferences. Also, a 

growing quantity of Mexico's exports entered at reduced duties under so-called production-sharing 

provisions of the U.S. tariff schedule.' By 1993, over half of U.S. imports from Mexico in terms of value 

entered the United States free of duty. Average U.S. tariffs on dutiable imports were just over 4 percent." 

Mexico and, to a lesser extent, Canada both retained barriers to U.S. exports and investment. Even 

with the extensive liberalization of trade and investment policies it had undertaken since 1986, Mexico 

continued to maintain relatively high barriers to imports of goods and services, imposed numerous 

restrictions on foreign investment, and had serious deficiencies in its intellectual property regime. The CFTA 

had put in place a phased elimination of tariffs on U.S.-Canada trade by January 1, 1998, removed some 

nontariff obstacles to manufactured products, opened services trade to two-way competition, and established 

new disciplines on foreign direct investment. However, the CFTA largely deferred to multilateral efforts in 

the Uruguay Round negotiations to address subsidies and policies distorting agricultural trade. The CFTA 

also offered few advances in such areas as customs administration and intellectual property. 

In June 1990, U.S. President Bush and Mexican President Salinas formally endorsed the concept of a 

comprehensive trade agreement between the United States and Mexico.' Canada signaled that it wished to 

participate in the negotiations. Negotiations towards a trilateral accord among the United States, Canadn, and 

Mexico were formally launched in June 1991. A final text was signed in December 1992 and approved by 

the legislatures of the three countries in late 1993. Table 2-1 provides a time line of NAFTA developments. 

Key Provisions 

NAFTA is more comprehensive in scope than the CFTA. In addition to removing tariffs on North 

American trade among the partners over a 15-year period, NAFTA's 22 chapters and 10 annexes establish 

disciplines that cover a broad range of nontariff barriers, commit each party to high levels of security and 

openness for foreign direct investors and owners of intellectual property rights, liberalize trade in services, 

and create dispute settlement mechanisms. These include several unique dispute settlement mechanisms 

dealing with such matters as appeals of antidumping (AD) and countervailing duty (CVD) determinations, 

resolution of investor-state disputes, and alternate dispute resolution (e.g., mediation) in private commercial 

disputes. NAFTA also commits the parties to undertake educational and cooperative steps on such matters 

trade turnover relative to Mexican GDP increased from 15.8 percent in 1982 to 28.3 percent in 1994. 

10 U.S. imports of goods assembled or processed abroad from U.S.-made components or materials are eligible 

for partial exemption from duty under subheadings 9802.00.60 and 9802.00.80 of the Harmonized Tariff Schedule 

(HTS) of the United States. These provisions provide a partial duty exemption for U.S.-made components that are 

returned to the United States as parts of articles assembled abroad, or imported articles using U.S.-origin metal that are 

returned to the United States for further processing. For a more detailed explanation see, U.S. International Trade 

Commission, Production Sharing: Use of U.S. Components and Materials in Foreign Assembly Operations, 1992-

1995, USITC publication 3020, Apr. 1997. 

11Calculated by the staff of the U.S. International Trade Commission. 

12 USTR, "Key Points in NAFTA Negotiations to Date," NAKLA Source Book, 1993. 

2-3 

2-3
Table 2-1 

NAFTA Time line 

Date Event 

June 17, 1986 Negotiations towards a U.S.-Canada Free Trade Agreement (CFTA) launched. 

August 24, 1986 Mexico joins the General Agreement on Tariffs and Trade (GATT). 

September 15-20, 1986 Punta del Este GATT Ministerial held, launching the Uruguay Round of multilateral 

trade negotiations. 

November 6, 1987 

December 9, 1987 

January 1, 1989 

June 10, 1990 

February 5, 1991 

U.S. and Mexico reach landmark accord improving economic relations. The socalled "framework understanding" creates a consultative mechanism and affirms the 

need to work together to eliminate barriers to goods and services. 

U.S. and Canadian negotiators initial final text of CFTA. 

CFTA enters into effect. 

President Bush and Mexican President Salinas endorse comprehensive trade 

agreement between the United States and Mexico; launch preparatory work. 

President Bush, Mexican President Salinas, and Canadian Prime Minister Mulroney 

announce their intention to pursue a North American Free Trade Agreement 

(NAFTA). 

May 23-24, 1991 Congress votes to extend fast track authority for 2 years for NAFTA and other 

purposes, notably concluding the Uruguay Round. 

June 12, 1991 NAFTA negotiations formally launched. 

October 7, 1992 NAFTA text initialed by three trade ministers in San Antonio, Texas. 

December 17, 1992 President Bush signs NAFTA in ceremony at the Organization of American States. 

Simultaneous signing by Prime Minister Mulroney and President Salinas in 

respective capitals. 

August 13, 1993 Conclusion of negotiations on NAFTA supplemental agreements on labor and 

environmental cooperation and import surges. 

November 1993 On November 17 and November 20 respectively, the U.S. House and Senate pass 

NAFTA implementation legislation. 

December 13, 1993 Uruguay Round negotiations conclude. 

2-4 

2-4
Table 2-1--Continued 

NAFTA Time line 

Date 

January 1, 1994 

January 14, 1994 

Event 

NAFTA enters into force. 

Inaugural meeting of NAFTA Free Trade Commission held, launching work by 

specialized NAFTA committees and working groups, including those on Trade 

Remedies requested by Canada in late 1993. 

April 12-15, 1994 Marrakesh GATT Ministerial; Final Act Embodying the Results of the Uruguay 

Round of Multilateral Trade Negotiations signed by 111 countries. 

August 2, 1994 U.S.-Canada agreement on wheat announced; tariff rate quotas imposed by United 

States from September 1994 to September 1995. 

December 20, 1994 Peso crisis erupts. 

January 1, 1995 Agreement establishing the WTO enters into force and WTO formally comes into 

existence. 

January 31, 1995 President Clinton announces $20 billion loan package for Mexico. 

May 30, 1995 Mexico announces that it will raise tariffs up to the rates bound in the WTO on 502 

footwear, leather, textile and apparel products, and impose quotas on textiles and 

apparel. The higher tariffs and quotas do not apply to goods that meet requirements 

for preferential treatment under Mexico's free-trade agreements, including NAFTA. 

June 7, 1995 NAFTA Free Trade Commission meets to review implementation. United States, 

Canada, and Mexico launch formal negotiations with Chile on accession to NAFTA. 

December 18, 1995 U.S. Secretary of Transportation Federico Pena announces deferred U.S. 

implementation of NAFTA provisions providing Mexican truckers full access to 

four U.S. border states. 

April 1, 1996 Five-year agreement on U.S.-Canada lumber trade enters into effect. 

April 3, 1996 Mexico cited by USTR for failing to comply with telecommunications portions of 

NAFTA; failure to accept U.S. test data and overly strict standards are at issue. 

June 28, 1996 NAFTA Free Trade Commission convenes via teleconference to discuss complaints 

by Canada and Mexico that portions of the "Helms-Burton" bill violate NAFTA. 

October 28, 1996 The U.S. Department of Commerce signs 5-year accord with Mexican producers 

and exporters of fresh or chilled tomatoes committing them to sell at or above 

reference prices; the action suspends an antidumping investigation initiated against 

Mexican suppliers at the request of U.S. tomato growers. 

2-5 

2-5
Table 2-1--Continued 

NAFTA Time line 

Date 

November 28, 1996 

December 2, 1996 

December 12, 1996 

March 20, 1997 

Event 

President Clinton takes a global safeguard action and imposes tariff rate quotas 

(TRQs) on imports of broom corn brooms, including brooms from Mexico (as a 

result of USITC determination in Inv. Nos. 201-TA-15 and NAFTA-302-1). 

First NAFTA Chapter 20 general dispute settlement panel report issued in response 

to U.S. complaint over high post-Uruguay Round Canadian tariffs on dairy and 

poultry products; it finds the Canadian tariff increases consistent with NAFTA and 

WTO obligations. 

Mexico raises tariffs on U.S. fructose, alcoholic beverages, notebooks, flat glass, 

and wood furniture in retaliation for U.S. TRQs on broom corn brooms. 

NAFTA Free Trade Commission meets; accelerates tariff elimination on certain 

products. 

2-6
as customs administration, product standards, antitrust, and telecommunications aimed at facilitating trade 

among NAFTA partners. NAFTA was accompanied by so-called side agreements on environmental and 

labor cooperation, the first U.S. trade accord to be formally linked with such issues. 

Phase-in 

Many of NAFTA's provisions were implemented during NAFTA's first 3 years. In the tariff area, 

for example, the ITC estimated that slightly more than two-thirds of the value of U.S. imports from Mexico, 

and slightly under half of U.S. exports to Mexico would be accorded duty-free entry upon NAFTA's entry 

into force in 1994; an additional 8.5 and 17.4 percent, respectively, were estimated to become duty free by 

1998, with 20-percent annual reductions in tariffs beginning on Jan. 1, 104. 1 ' Thus, based on these 

estimates, 76.2 percent of U.S. imports from Mexico and 66.3 percent of U.S. exports to Mexico were 

already well on the way to duty-free treatment by the end of 1996. 14Key U.S. sectors--notably aerospace 

equipment, semiconductors, computers, telecommunications and electronic equipment, medical devices, rail 

locomotives, most auto parts, machine tools, and paper products--that had previously faced Mexican tariffs in 

the 10-20 percent range became eligible for duty free treatment on January 1, 1994; furniture, steam turbines, 

light trucks, and beer are among the U.S. products whose Mexican tariffs were phased down by 60 percent as 

of Jan. 1, 1996. 15With the implementation of the fourth annual round of NAFTA tariff cuts on January 1, 

1997, Mexico's average tariff on NAFTA qualifying goods was reduced to an estimated 2.9 percent.' The 

average U.S. duty collected on all U.S. imports from Mexico, meanwhile, fell to 0.6 percent in 1996. Threefourths of U.S. imports from Mexico were actually accorded duty-free treatment and average U.S. duties on 

the remainder were 2.6 percent." 

Nearly all of the "rulemaking" obligations of NAFTA came into force immediately upon NAFTA's 

implementation or shortly thereafter. For example,. NAFTA obligations on customs administration, 

standards, investment, most services and intellectual property rights (IPR) are now fully in effect. Other 

liberalization commitments are being phased in over time, notably obligations found in the nontariff barrier 

provisions of NAFTA including automotive, textiles and apparel, agriculture, government procurement, 

telecommunications, transportation services, and financial services. Even so, considerable liberalization in 

these areas has already been attained under NAFTA provisions. For example, Mexico's import licensing 

requirements for agricultural products no longer apply to NAFTA partners, having been replaced with tariffrate quotas that will become progressively more liberal until they are phased out by Jan. 1, 2004. 

13 U.S. International Trade Commission, Potential Impact on the U.S. Economy and Selected Industries of the 

North American Free-Trade Agreement, USITC Publication 2596, Jan. 1993, p. ix. Specifically, the ITC estimated that 

13.9 percent of U.S. imports from Mexico and 17.9 percent of U.S. exports to Mexico were already free of duty and that 

53.8 percent of U.S. imports from Mexico and 31.0 percent of U.S. exports to Mexico would become duty free 

immediately upon NAFTA's entry into force. An appendix to the report provides industry-by-industry breakdowns of 

the value of trade falling into each tariff staging category. 

14 While the Commission did not redo similar calculations for the present study based on present trade 

composition, changes in tariffs required by NAFTA have been implemented according to the originally-agreed 

schedules, which were the basis for the ITC's 1993 estimates. 

15 USTR, "Market Access," NAFTA Source Book, 1993, p. 1. 

16 USTR, 1997 National Trade Estimate Report on Foreign Trade Barriers, p. 250. 

17 Compiled by the staff of the U.S. International Trade Commission. 

2-7 

2-7
Status of Implementation 

NAFTA's various liberalization and facilitation commitments continue to be implemented, generally 

in a smooth fashion. Mexico, in particular, has continued to make a number of changes in its trade and 

investment regimes as a result of NAFTA disciplines. lsMexico has, in fact, undertaken additional unilateral 

liberalization since NAFTA inception, notably in the investment area.' The NAFTA partners themselves 

have also found it possible to accelerate the implementation of NAFTA. At its March 20, 1997, meeting, for 

example, the NAFTA Free-Trade Commission announced that elimination of tariffs under NAFTA on several 

dozen products would be accelerated, effective July 1, 1997. 

However, the United States has expressed dissatisfaction with certain aspects of Mexico's NAFTA 

implementation, notably in the areas of standards, telecommunications, intellectual property, and small 

package delivery services." Canada's high post-Uruguay Round tariffs on agricultural goods, perceived 

subsidies for lumber and wheat, and protection of cultural industries remain sources of U.S. concern. 

Mexico and Canada, meanwhile, have their own frustrations, including delays in U.S. implementation of 

NAFTA trucking provisions, remaining animal and plant health restrictions, and aspects of U.S. sugar policy. 

Table 2-2 reviews the pre-NAFTA situation, highlights key provisions of NAFTA, and summarizes the status 

of implementation. 

Interaction With the Uruguay Round Negotiations 

Evaluating NAFTA's effect on U.S. trade is made more complex by the phase-in of a host of marketopening and rule-making agreements negotiated during the Uruguay Round of multilateral trade negotiations. 

The obligations are now embodied in the Agreement establishing the World Trade Organization (WTO) and 

the final Act of the Uruguay Round (hereafter, WTO Agreements). Indeed, the relationship between the two 

accords is a long and complex one, dating back to the launching of negotiations towards a CFTA in June 

1986, which was widely seen as a U.S. effort to revive stalled efforts to launch an ambitious round of 

multilateral trade negotiations. Agreement to launch such a round quickly followed at the September 1986 

Punta del Este GATT ministerial meeting. The Uruguay Round concluded on December 15, 1993, a year 

after NAFTA was signed. The WTO Agreements thus were being negotiated prior to, during, and after 

NAFTA's negotiation. 

To a significant degree, NAFTA disciplines were both modeled on, and served as models for, the 

final WTO Agreements. Draft Uruguay Round texts were available on some topics when NAFTA 

negotiations were formally launched on June 12, 1991. In December 1991, GATT Director General Arthur 

18 Changes in Mexico's trade and economic regime that will result from NAFTA are highlighted in recent 

Congressional testimony. See, "Written Testimony by Ambassador Ira Shapiro before the Subcommittee on 

International Economic Policy and Trade of the House International Relations Committee," Mar. 5, 1997, p. 2 and 

"Written Testimony of Regina K. Vargo, Deputy Assistant Secretary of Commerce for the Western Hemisphere before 

the Subcommittee on International Economic Policy and Trade, House International Relations Committee," Mar. 5, 

1997, p. 2. 

19 See chapter 3 for details. 

20 USTR, 1997 Trade Policy Agenda and 1996 Annual Report, p. 198. 

2-8 

2-8
Statusof Impleme

ntation 

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2 -9 

2-9
Statusof Implementation 

Phase-outscontinueonschedule,resulting in 

improved U.S.marketaccess.Mexico imposed 

additional requirementsregardingcertificatesof 

origin forgoods fromseveral countries. While 

not directlyapplicableto NAFTA goods,this requirement hasaffected U.S. firms,most notablythosethat distributegoodsmade in 

several countriesto Mexico from distribution centers intheUnitedStates. The United States 

haschallenged intheWTO someCanadian restrictionsonU. S.magazinesthatCanada 

justifiesoncultural grounds. 

Implementationproceedsonschedule. Implementationproceedsonschedule. A sharp 

rise in U.S. imports from Canadaof men'sand boys' wool suitsprompted complaints from U.S. 

industryoverNAFTA TPLs forwool suits. 

KeyNAFTA Provisions Prohibitions,quantitativerestrictions,and 

import licensingrequirementsapplied atthe 

borderare beingphased out.(Mexico retained licensing forbasicpetrochemicals.) 

Duringthephase-outperiod,tariff-rate quotas(TRQs)apply.Canada's "cultural exemption" remains ineffectunderNAFTA. Mexico istophaseoutovera1 0-year 

transitionperiod itstradeand investment restrictionsassociated with its Autoand 

Truck Decrees, including local contentand 

trade balancingrequirements forlocal 

assemblers,and itspolicyofonlypermitting 

firmsassembling inMexicoto import 

vehicles.Local contentrequirementswere reducedto 34 percent(from 36 percent) in the first 5 model years,and will then decline by1 percentannuallythereafteruntil being 

eliminated entirelyafter 10 years. 

NAFTA obligatestheUnited Statesto 

immediatelyeliminatequotasontextilesand 

apparel imports from Mexicomeeting 

NAFTA rulesof origin,and tophaseoutover 

10 yearsquotasontextilesand apparel from 

Mexiconotmeetingsuch rules. Specific quantitiesof goodsthat donotmeetNAFTA 

rulesof origin, knownas Tariff Preference 

Levels(TPLs),arepermitted toenterat 

NAFTA preferential tariff rates. 

Pre-NAFTA situation Mexicoand Canadamaintained 

import licensingrequirementson 

both agricultural and industrial 

goods.Cultural industries-- 

publication, distribution,orsaleof booksmagazines,newspapers,film 

and videorecordings;audioorvisual 

musicrecordings;and radio, television,and cable broadcasting--wereexempted fromthenontariff 

barrierprovisionsof theCFTA. 

U.S.-Canadaautomotivetradewas 

alreadysubstantially freeof dutyasa 

resultof the 1965 U. S.-Canada Auto 

Pactand 1 988 CFTA.Mexico 

maintained numeroustariff, 

nontariff,andinvestmentrestrictions 

intheautosector. 

The United Statesmaintained quotas 

on importsof Mexicantextilesand 

apparel, but began liberalizing quotas in1988,particularly for 

garmentsmade from U.S. components. 

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2-10 

2-10
StatusofImplementation 

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dramatically inrecentyears,' and a lawpassed in 

1996should furtherincreasetransparency in 

customsadministration, improveclarity 

regarding importerresponsibilities,andpermit 

greater flexibility in dutypayments. Some U.S. exporters,particularly inconsumerproduct 

sectors,continuetocomplainaboutcertain 

aspectsof Mexicancustomsadministration. 

KeyNAFTA Provisions 

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NAFTA establishesprocedures foreach 

customsadministrationtofollow inthe treatmentof goodstraded amongthethree partners. Theproceduresaredesigned to provideuniform,effective,and efficient 

applicationof NAFTA rulesof originand to 

facilitatethe flowof tradeacrossnational 

boundaries. Bindingadvancerulings,rights 

of reviewand appeal,and otherprocedural 

advancesare included. 

Pre-NAFTAsituation 

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See footnotesatend of table. 

2-11 

2-11
Statusof Implementation 

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T., -.0 -0 0 0 . 0 = .0 0 - 0 o. 

. 5 'A 7-. '''' 4. 1° 

_ 

- 0 0 0 

›, 0 .. az 6. 

OA 0 . 0, ,-, 

.1. 31 03 4.4 

N a 

0 0 

. • 0• -, 

... .-o 

0 Eo- -4 b0 

-14 "" d 0 e. 

4.) u) 

S 42' 

g 0 o 

0 cr. -5 

.0 2, rtz P a5 

g .4 

KeyNAFTA Provisions 

 . 00' 

. - . 7ci 0 

. . 

- 

0 

ni" 

a) .2 t:

54 ') ' 05 op . o 

. 0 8 

0. 0 o 5 c,.): 

o • , ,.. 0 0 o ... 040 .9, o ,••. 0 0., „, 0 ° oz y •,... 5 us cn '-',0 - ... 0 4.).‘0 --, h 0 2 P 8 g 0 03 = & 7:1 C13 .0 

. = 0g 

0 0., mead)... 

4, o .,...0 

y u 0 0 . 0 .g 5 ti 

0 ces cn • .2 0 1

-.7, to 

,,,, cn - -.. 

.5,...0 .c.30=5 --4. 0 ., ,...4 .0 .., 5 0 .0 .e, 

0 vi 2 T.') ° i a 5 vi r) R's i'

z's1 .- o) 

1 

.0 V2 a 40 8 E w g RI 

c.) ' " C) 

4, 0 .P" 42 0 5 0 0,, r.4 

r, 0 .0 

• .. 0 I. 00 4. 

us="i,40 0t:1444.0v1 11)

(2.CS 1154' 2 2 .2 cli cl..49. [-. .2 -cs ---' 70_, u,• S 

"...I' tc.1.2 E ,' co 8 ' g 8 ., a --z, •

-0 0 

0 90.n.,.., cl c-,3 

., 0 0, 0 ,4-. .0 0 

,....,-.4 0 •-. • , .g .4 

.4:4 ., CA t 10 8 F, 1-3 8 smo t a) '''' es I:4 

Z 0 .E p. g u Ts 8 to, O c162) -8 .5., 42 

Pre-NAFTA situation 

a) •c) 4 

5 I= cs" 4 a) 

,:t . ... . 

0 0 ...) 0 0 . C.) = 6) 0 

"0 ° cn" <4 tr:1 9 g

La. ...) [..., C.) tt 1-4 8 

= . ,.r.., -0 0 ca -' U 

8 •P 

74 ci .2 e, .2 8 

S t .5 - V.■ l'

-' b' 8 

rs a 6 v) ai o -- 

= = 9, 4.,)1:1 0 ces ri, .... 

.5 o .z x .2 t., .:1 i

8 = - 

Et 3 :-.. z 4 ., 

Topic 

0 

o W 

See footnotesatend of table. 

2-12 

2-12
uopoluoutoidtui Jo snms 

2 s -c 

. 

ba 

E. a 

w 0 a.) I..0 16 c 

..= 

0.,r.) -e 4 0 

ci) 0 ct 

0 -0 0 Ti ... 

y e. ers' o 1... nts -.. .E 

e) e0 

z - 5 0 .= - =-. 5 cd ..0 r.., •• wel =I = 

0 bo4 ct 0 ow>4)0 .... IS cul > ;5 0ca o 

 c7) 7:: .3 

.0 

0 0 .‹ 

4>,)-' IN t' u. 0 o c's .0 I-, , 

0 0. • 63 0 0 

›, 5 8 0 To 0 .

4ci •=0) A *5 * 4 0 , L , 4 = os a, vj 0.. r. os = 0 

73 as ..., no S .s I-,,.2 0 ;12, 2 ... ...., as 8 

h) ..; ¢ E .1 ,.., 

0 0as,,.., 0 1.l

o ns o,...° ,.., 0 us .- . ■ 71, a) 2 0 !..- 

.0 ,... .o 0 o .04 0 '1 a.) 2 = Gra,0208 , "az 0 as 

0 as 0- w . • = 

0.0 74 on .1- 0 9 

ta) o "(7) as 0 ..9 

9) c..) 2 C4 0 

.7) 0 c4 g; 44 ba b„ ,...cd 

„ r , g ra, 4-, .> 

Al, .::4 ei 2 0 ›. 0 0 .2 c 

= = o -8 o ,...• .2 0 -0 4 c.) 

cd N -4; C.) CeS ... -8 

-5 7. I. g ,...7 0 "5 ce) 0 S....s"gss °• 

 . 

,.., E-■ sa, _ o a 00S0 

az 1/4,„) 1-, as e..) 1:1 N '4 F., v,.° 

4' .° *•I w1-1 "-' cri 

2 2'-' vi 4) 4).',P-1 •g 01 4 ° ca 2 0 ci 

It :1 2 a to 2 4 ° 4 8 .--; 

ca .... 

,-..: > cn ,g . . . g. 2 ,... . 4 t

2 ^ -. •-' ,-- 

7. . 4).°0. 1.4 4) 6)>V17:j 

0 4) ZED

.w2r26/ 4)

0.00= 41' 

5 ,_, 2 

rcit13) 1-, 2 --. "s 0. 0 ° •S 6) VI 3 I. CtS ^ ■9 .-4 

" = 7'1 '° ti).-a' Z

4 et 

10 5 8 10 -0 o .. 0 cs 0. to .,e 

E ct .8 E. 

4 : v, '-' 0 .<" 0 0 .... .,,, r4 ,. .:4 4- .0 o ,... 

E-■ ',-, 4 'to c. m c Ed- 

 F -- cj'. Es, .2 V .... . ri P.)Q $-. 

g o 

Q. f., "

-1„, ' g g as ..., g .rVI :.+4 0 0 8 .2 at In .0 0 

vs 

,'..0 

0at o ‘, 0, ° U -0 >a ,c 5 . 4'.3c-

,1 f, 

Z .1 at `.41Z o O o S . 4 Z Z ,2 .5, cn .3 -. -5 .5 :5 .3 o., 

Key NAFTA Provisions 

rAs , _,t3o oo .4- ai 1-' go -F.; -o .-'. g . .E 0 ,S, 4) g ,n .....s. - . , -0 - 

1 -g g .z `' '8 ,15, 

, _, t ...3 ..:4 a. „, -0 g "%I c,r O6 23 0 a Cl) ..o „, 

-ra 0 E-. mo

w; S.; fo cil 6O = ,-- 0' a. g 

b -20 4.. 2 rs ..t c-) 4ti - g 9 c 3ai g 0 a.) 

el • ,,._ 03

0 =' z• - 

• n 5 

4' VI 1114 2 LI B 

-5 an" cii n r_, 

0 8 8 '%8 21 - -1 w § 'Ll "'' 8 -0 IS 

,4-' ... .5 D ) '44 vi •p 2 0 o 

., 4... 0 IA 

,i" r-: i., .e, ?., z „,- .5 a '4 ?,., 

-g- pi 7,6. . . . : 4 4E. .. ... . 1. 4 .„,..., , . 8 

..... ..., 4.) a. k .r... 0 ,... •= = a u. b rn 8 8 . 0 as ,..) .3..)0 [_,...,,,,,0..-. 

0 C) .) ..2?0 -0 ,510 0 c., 0 

500-' .:.-4 .5 cn ott " ' 

--t -0- 'a; 

, E.... i...1 0 61 rA.. 0 ..t:j ..1 ..... CZ •g w co :- c) 

.1., 2 •- 4 2 - - ezt Ill . p 2 ra. vl ..., a .5 5 0o 

Pre-NAFTA situation 

0 <4 0 71.5 

-a E-.. 2 ,,r, [T,_, o •o 5 0 .-. - - w 0 ,.0 

s -,... = 0 .0 =I 

g14)til 

63 "0 46) 

8 

. 

.

0 0 cl) 

0

3 

4O ca

f..., .. ci. " "4: 

"0 ,.., 

g

0 

rn 

o 0 

40 & E.-. .... 

cn,o1 

= a - w .0 40 .E as 

'-' i•-. 

q•=1 cn "ft. 

0 c) 

. & _ 0 • „,^ po ,..,., 

F-L, 0 .., 

00 0 0 ... a .. E-4 .z4 an 0 

Ndoi, 

a.) -a* c.) 

. go 

..' 

See footnotesatend of table. 

2-13 

2-13
Statusof Impleme

ntation 

Ai -0, ti E-1 to9 

, M 2 ' 5 0 40 L-a Q8 

-- ,... O 0 0 0 0-0-.<400-. 0 40 0 - ,.., 03 0.0 0 -= ..40,, a> Z 0 3 8 Vs c2 .0 E-' ^ °'' 2 0 ul 

>1 • ›, ,r, 8 4.1■1 4 E t:1 o • -. Fa ,103 ,... 41 P rzl '-. o 4. 

.. 2 73 2 

..... 0 0 •••w 4.4 41) 

05 . 5. §C . 1 ) /4 y 8 ,A -g 0 °s -5 g .,,.., 

 

- p 2 g .2, 

.0 e9 4 

= 6 'V a> •- 

v, at) ct =

: 

ezt 

O 00rm.80x-csoviso.75.1 

'Z3 c. g 1 

. 

t9 .2 'A. 21 

. 

, ca 

:: : .. ; . . 

a 

4 v2 : ti 74:45, , : 0: : = ; 

0 

• 

ra 0 4 12 8 

I a 1 1:1 Z1. 4 ,5 .) ><w 8rn LI ".81 "-H.,(73'.§ ,8 c -. a 01 X ", -..:M ....-.....r) 

'a Vi ti0 co) C72..tC4g5EU2'-' 

a 8 2 .8 44 CLI COI c' s to-i (..) 0 C.) 04 ..0 x ° ..10 'N 

KeyNAFTA Provisions 

C/3 t 04 • 24) I

a) 

N

0 t. 

:.E 2 - 3 

• 0 cC g 

2 

o 8 a,. 

1 73 • ca (t) e40 

• OoolV•4.) 

cnu2 E ;.15 cn 0 

.g 2 -„, g 

H co cn 

2 .2 48 "8 0 ,,,41 

.72 0 P 2 o p. -o 

• E-0 2 0 a) .c..n■ g 

"ta `4 2 ;9 w nOgo=w0..=t1 

2.0G8 -0 70 -5w> 

PreNAFTAsituation 

2 0 "C$ cd . 

1-■ "0 -0 ICA 

ti5 1 i m A 0 izst + ou j .ED -la 0 H 

74 "" 

:.0 .0 

I o 5 

1 

04 Q:1 = ' 0 

-!•+ 

 

rn 'r :.p) . . i 0 8 

04 "r. .1 ..,,, - .d 73A ,,.., 0 ..liF, 

EC,C ON 00 C.) 

¢ 

i•■••• E...4 , ri, a) %.)0 g ez 0 g.), 11 ') "t . g 7i ' ad •-■ aN40 E--■ 3 

Q

„ = .., 4 0-,E .., g 0 C' 0 4 

.‹ 4:-. 0 --, 0 0., 0 ..5 0 

z ,,,,$) -.4 ccE- I i -a- .stu)0 0,,i .1 2 °.... 

) . Z g "g 0 13 5 

,c)

40 0 1-0 0 P . 

. . 

c.) 4:5° 8 ' ° r) is 

,.. .= 2 6 -0 

o 

,.., g . • : 4 --, "r) 

rn S " E4.-I0@ .'d 44-■ 0 0 „.," 0 o 4... 0 0 03 .6 •S tr4 . 4 C4 40 1: 2c c s ' 1)0 f n„ ci) 0 ..0 g g 3 0 cc?, .2 

-8 ,t' E-c.)c.) .-.2). : 'a. 

E

 

EC >Q --,A .4 -0 -0 0-3 s4 ccd -8 8 

g r, ,.. 0 . g .tz . to ci..1 

az - z o E ^. 6' 0 'iv E 0 cl E 0 -ts 01)o 7, 0 -.4 -0 -.. a) E Es, Q .4 E -o 0 co 4, 0 .2 0..t..2 0 0 

5Et12.>8g082 

<4 0. 2 8 s ii. 73 U' Seefootnotesatend of table. 

a 4 

0 0 

2-14 

2-14
Statusof Implementation 

o a -4 ... 

5 2 

0 

0 0" 

4,,, .F,1 -9, 5,.. a ■ At 5 

.. •_, Il = ., 0.) ... ;.... - ,,:i c. c3 6. .0 .., U 2 .7,,,, VI ligi 

6 6) ,,z ON 

co ci-■ ,.., = =1 

- ..rz0 A = cti ON .10 "."' o 2 2 m cc = co ._, . . ba ,, -0 ..0 in. , NI 5 .0 t,.0w ng = P ti)''-' • IZ" 

4) a 

4 ..g 

CtS .;§. az -- a ..- 

4 Ts 0 :a as g to - di 4 ;.., 

0 1-• 0 c/a ces 11 is 

1:3 

w 0 *4 1 ur . I 0 ca ,T;.,..

0 = B e., = . e, .5 2 4 .10 N1...1 ;. as ., to o o -. ..= i„., o r., ,g c,) 2 .0., a .. 

- ca 0 e 0 ES 1... i... 

`CI '-'5 2 5 as 4, 0 u, > 0 -.0 0 =I d) 0 0 „, t) .... 2 0 -.01 u., 0. 0 •- 0 '0 4 

as 

a: p-, .0 . ... • ta. ,..) co as a, 0 . o "-E .p., 8 ra 44,1 8 150 ,-, .1-ii 0 

- 1.1 0 VI In 

& -a F.0 Q1 

4'1 

z. 

4,..N4,,,,12 =o c1..!0= 

a :.., c„ a ,„ 

. ba 

0.

y., c" . .3 

0 0 ca 0 0 .0 ,. 

no 0 a '0•• {6'''' Ttt ti < • •-. -a 0 ..-. ch. 0 ":$ ba 0 

cuo3 = 0 03 0 t. C.) ..m E-, (DO „.., 0 0 .12 -p v. 0 2o a c. u. a - 0 a 0 0. . to ON .41 4' .g •< - 2 6, . 0 E as ON a 30 .0 ,,,, 0 0 

r-i .4 ••

,-.4 i-I 4 0 14 .5 Z a t..... ri. = u 

KeyNAFTA Provisions 

.2 'a' a 

0 a CA 4) ....' 0 

a 

. 0 

) 2 o 5 a. ..- 

•.0 

.. a •F; 0 .I-, 4.0-4 . .1-) 4) $-■ ,--, ,.., .73 o 4:1 .z ,, 014 ... Clj 0 CU 0 = 0 

44 'I) 1., 0 4) la■ 0 a ms C4■I 0 vi 0 

° " - 

4) ° 5 1 

.- c, , 

4 N 

4"4 ti) 4 ID 0 , 61 . 00 ;LA ..' e.. a) 0 0 ID ' 0 

0 = 0 oo 0 .0 a, 0 0 _., • 1-4 .0 4 

tol cr) 0 

.,.., •,0 sa, ..-. - • , 2 > ,_. • o Is 0 .5 > 

• K .o 

o - = .... -i 4) • 4) '-' X) 5 0 .4., rid. E a) 

u, 

., , 

•._, - ...0 2 ;15 u, 0 0 -4:1 t..-, 2 a ¢ Ia.,- t; .),.. .5 _0 sa 74. 

a 2 ,,t 8 at .2 -0 2 °,„ '

21 Z 0042 Pr o .§ .5 8 9E 0 .t4 a, „ .. 0 1.;., 1-rs , •-■ 4> ,•0 • 0 0 0 g E . a .,),... w 4..) 1.., 0 -2 s.) ›-, 

a • 2 74 3 "a :76° 0 -g 0 ch -gf. 73-0 0 0 

,„ - 0 0 4.4 • . 0 ., . 

. o 2-). . 

4_, 0... 4•• = > 

 ..., I..' ° f ',.; •d 

10! 00 ?, 

CA •■■• LI ). .M. .

 0 a • 4 .,■1 •FA . I. 'al 

cr ;-. 0 col ,sz E 4 8 

t; 0 -0" 4.,) 

1... VI ..., -- . CSI gfa,.,'-.'t" . `'' 

4.4 w .9 

 03 E 0 g 0 g 

-.4... ...) "En 0 0 to 

0 0 

a a., 

a

0j • ,.■ C.) Z 73It pA>N 

., fa. = ,2, 2 

0 a .<4 wz 0 a'..... 

'6. 

, 4 

2 

c u, r 4- . i 4 vi i-. t i . , 2 2 lz i ,..0 

E-t4 1 . _, z0 § 1.8 r; fg :5 ' • 0- ° .-4 E_, 6. . . ..si 0 o 4.), v 0 0 .T.., .2 to = ,.., 0..., 0. F.' +4, c.irl.., 5 

u.. • r. -5 , 4 8 ca z 0. -E 1'3 cc/ 0 = = .4 '12 t3)c4C ' 0 • .2 

g› oesosgmE-0`V,E)gisia $... 0 . ca )11) 38 >1 

Z ,0 .5 5 fa. ra, -b .5 •O 2 2 tt 'S 0, 'cil 5 0 .5 ;6 rz4 5 o o u.1 g E 

Pre-NAFTA situation 

CI) 

E •0 "ci 

-g 

0 -o 15 5 ,.. 

• g .w • g 0 

0) 

o 2 0 0 0 -0 -2 2 ; 6,, ,, 0 0 

0 c.) t•• 73cn 740 .2 cD co) '0 ° • = . (I) ti) "0 [...I ..5 , 

z.-. o = „, ..e, ,

,.. ,_, 

E go; . g ... . °d am = = gi •P .0a .4- : 

..0.- .- 0 .4 ui - 

„as cs 5.b ...0 0 

%,r, 0 i .,,, ..'-g = 

...,

• L.,) 0 -; - t), ., - 0 '4- E- .= ,:, ..o 0-0. 03 ,,,, 00 c -2 "0 cL) 0 ,-, • ,-, > - -fl . = . 0 O1

4-. 

ID ,4 .2 E

-4, 2 

ra, E ;) -pi, ,, ,5 

•

. 0) ..,. .04 va 

• 5 i ,•-:, A 03 5 

'1) "' ig 8 0. 2 0 ., to a) = 4., 

03 ...I ... /". > 0 

". 0 0 . g 0 .5 a 8 - - .. '44 5 'S .'a4VI a t 0 e. . 0 -, .5. t3 2 0 

0 

„,- o " is., , 0 00,,,,g 

'NI g s' -4- = -- 2 78 ccl c%, -ie., 2 ° x 2 0 FA 0 4-■ RI UT . 

...' ..1...". .7.3 • ,... g - •-• 0 0 3 c ct 6 a) el) t c I> 2 lts 

. g g B .o ,.., c._ 4.) o 

-0 

cz 

 - • -to > ,I.L, -. 5 0 

-sa, t4.1 , ...- -• 

45 rn 

Q. 11..) 0 • . EL, . 0 • In . Oa cn . .. , • g . a LI ,..1 0 0 0 0 4..)0 01.0 = 0 C) C) 0 0 • = = a, ‘... 

czt 04 - tn. a. co) 4) 0 ,.0 03 .-. - 0 0 ,-. ›. 15. 0 .. c.) u) . 

(...) 2 .5 0 51. ',2 .5 '-S -b 2 8 

6 .5 ;01 f5L,' A -,2... E 2 .1 •S 'S 

Topic 

.'4 

CPI 

o 

..., > 

4 

See footnotesatend of table. 

2-15 

2-15
Statusof Impleme

ntation A 

CA 2. cc • co" . o 

••: = 0 c, 0 to 0.,04 4 o --- ..E I. c, C/) eln 0 9. 1.4 a ° *-, jj C, tli • 2 CI .• CO MI 4.4 

0 = 0 s

l'a' a> E-i 2. E c•1-0 o' -,-. ° It 

as 0 > r: o ,.. o ‘,.., . „, _, g 0 • .-. ..-. 15 w. v, ›, a 0 a to -0 o a' a) 0 

. 6 E $1.)Z C.) 0 0Z 6 04 ' '"' •JD ^ 

9 

E 0 o 1, .73. t_01) VS 

. I. CA ... 

CO •U 

- 

0 1,4 .,_, CFI 4..t I ,,) 0-B. i. •4 >0---, ,,,aot c.9 2 w 16 .., 0 0 ,.. o v) ...00ad.w>u) ct 4.• to 0 ›. ''' 0 "0 -s 5 co 0 o 0 • 0 4.) -- 0 a 0 o .4 8 .5 e 

0e V) C4-4 CA • •••• . 0 , c.) - 

, CFI 0 rn '4 = ,.t., 5 0" g . . in r. 0 w - 0 . ti, •E 0 2 0,.,= -a. _i ...b 0 ,4++-, s 0 cz 0 0 

E (.9, 0 

In Q 

t)r) tI) - 

- 

'`1-4) 74 e0 'S 03 C.) C13 C.) 6, 0 8 0 c... CA .5 03 0 0) "8 °-) 0 0 o ..... •.-. ... _ _ 0 • ....0- 0 

en 0 0 0 , = a

3 5 t ,g- v . g i i- ., i." 

0 . 0 • .-1 . CA 41 .6., - 0.) 5 . 

8

0 , 8 2 g to g 

v, 8 0. 0°) g ... 0 4 0 = O .E 

;.. ---- 

clig u rnorn.,.., >. 

,., c1. .2 x'-

' 

0 0 to o tO tb 

..-. , . 4.6. ..,.:,., 4... 5 . E Vs 0 " t, it En 2'. 0 0 4 

C .) IrC1 0 CC 2 az 

0 

k 0 0 1.' ° "Q = 0 04 ti) "t:$ 4) a) ° C.) ° "g 7:3 

1.. 0 t g 

,7), .2 - .,.., -0 • - - x ›, 0 -4,.1 ,,, . -0 „; = ..- .0 W _....■ 0 0 .2 "8 w 0 ,_I.. . P ' *.•1CO 0 '` ' '''' C.) ''' 2 • e.' -E c; 42 ia-a th 0 g g .--, E „ .0 E. •

t. --4, a)Lam" 

,. a) o ,., 11 . 1.. - en^ .-- en ''''' rx. •t - -0 7:4) -.., ›. ca _. "450 414 0 ' '1) c”4 0 '-' - a\ ,.., 0 o■ ›' - :us. a> •.-.. 0 El 

I. 

0 0 to, to .4 u) _. •- , -0 

0 (.., _. ,... 0 8. 0 00•■ •-'••• 0) 1.4 ,...,.. 0 0 -9 0 . 0 e-n ..... "" 

)•••"- 04 h4 0 '0 C.) 04 I. 0.4 'W 4-• 40°. .--1 E-1 ,-1 04 4., 1..• CA .0 PO4 C.) "0 . = 5 

KeyNAFTA Provisions 

CS cn' 0 "v) Tt 0 

›, 2 

4-■ 4.1 

C.) nS 0 C) • .-.1 

• ...I .1.. 

.... +., 1 

• 

0 -8 4-9 

 .,.. .-ia• g i 2. N. vi 2 .4:1 a) .■ ..g r0 ,... • t .5 _. O 0 a) o 2 g w. 0, 0 1-, ../.. 0., mi 2 0 0 6N ,,- • 0 • N 7 

a. e,..■ .4 1 `1.) ' a> en , E f.) 71, R ec9, 0 ,) 

..t o w 0 (,, . a .Li cno8 1) - o ^.,,_, cL) .... cz 0. t ..?:. -8 o 43. 01" g .0 .h a) 0, •.° -to .ib ,-.4 '`" 0 cr 4-• CA • ....1 ° - ° 0,-

•

0 0., 

, <4 o o .11- ,p,,, h.. c., • c0 0 0 . 

. 

, ..0 0 74 •.. -- 0 ;... ti 0 43 1--. 0 ...... --- .0 4 112 .5 "0 4 '-u, .9., -°,, g o. °) 4 8 

,- 0 .,,, .... -0 c) ,.. 1.4 '45' .5 = a 00 8 tg r,, g 0 •"2 -ia. p, 0 

2" 4 . . . 22 6

°I) 4 

 ) to° - o9 c r„3 -ig' q9. .2 ' 8 I m I ad • s a ca &)2 - 2 t g 8 u to "c Ki ..... 0 0 -1, 0 ..,›, a) o ... 9. t ui 2. ■2 '7' 0 

.,, ,c 0 ca ,.., 42 • .4 t x I 4.) 

-,EL .2, ,.., ..:4 -; s. 0,...0 .m. -- 0 - 6--. E 0 --6 p .0..0 .0 -.- . 0 ,., 0 1:, .-, 01 ..-a. c':.1 at 1-, 0 ' et 0.. - 0 7:1 '''

. 

0 sal 4) 

- 

rn `..) -. .14 g '-. .. cl O' "o n, 

0 cd .2 E-1 ''''' 413 Ir's 0 8 --E .0 o., 1 4 :'. ..2 E • Er x - 0 s 

, 

U ,.., . 0 ,-, s 5 en 4-' r-T-1 8 .- U al ' vi 1 . 0 .... ° "0 15 0 ti 1-.)' w a> a.1 9 • "- -to a> l .0 <4 43 . ■-.1 ° .2. 1 ,-. cl-,0 V-,•■-• • 0 ›N g ,. .0 .•,. ... to t 

co ..... CI) " 8 0. h. Z o- „9 ,. 04 8 -9 g 8 Q., 40 2 3 174 0a .1)12.04'3 Yd. 74 "td ' ' I: 3 4 6: 261 ) . tE."' .*'-' 0 a 0 0 Ct•-•. 0 c," 

)r

n sr 

. ,s cn,_ [-. • , - -.0 • cs 0 CI) 0 E-1 0 . si ,§ . G. c..) •,4 .9, . - • - . • 0., Ei" V1 2 E o ..co • 9. g t CC ., •■ 0 > Na 0 > 0 Is 0 0 0 0 v2 0 

-, 1.4 t tt o" E '1, 8 t -d 8 0 :xi cr. 0 8 :S . .2 g 0 :$ +U+"c' 'vs & g Q ,47. ." .2 8 1=1 2, 8 g g z ;::: 8. 6 2 a.c..... R ;8 <4 1=1 le-)' g.5 grn 0.4 0 oZ 

° 0cn 

,...., cn Q 

et 0 

•i- CCS 

. ES t/ C].) 

0 

-0 p 

, 

ac) "8 

1 .1 1 1 g. 

7) * g a) _ -,-.. ° E,s..) ,, 

' cn -E 8 2 0, 0 

.. c) cl) .0 0 (•) -• 

= 0 

. 6 I 1 

a) .1 ca E CA 0 

- P g 15 :=4-. 0 .0 

Pre-NAFTA situation 

cn "g e 

 .... o 0 

s.1-.4 i. it:I vi -0 a pcn i -0 1 ,s0, ..0.2. ;_. . o 

° ° g 2 4') ° CI gb ... 0 "a "5 

0 

.2 

t 

Le-4 a) t h' .5 "5 0 ¢' a) E'.1 • . .5 ...N4 ' ,S was I••■ 0.■ 

.,.. ° 0 0 C.)V).= co 0 0 2 la 0 ...4 E 

 g Ca 03 

a CU . 5 e2 4 0 i. c.)-■ 0 

en •-• 0 0 0 ice,. ...4 ... (1.),',8 •,-, 0 CA ... 

>1 cn .z.s' 

-S 8 "c' .;, „_ c., , - 8 5 > 0050g.,..8.=•-a. 0 .,.., .. .., c.) • c.3 a) 0 a li o ' )4 ti-4 - CA .. in 4..• et et ° 5 

2 

.. g .0 0 o 'P 3 .- 4 •t' a 0 0 E --. . a) a1-, .= = .z ›; =I 0 0 ..o .0,. 0 -, o., .,., , 3.) 0 • 

... 

E. .2 5 to ed 2 4 a 0 •-t; . 0. 2 _, C) A -I a- 2= rs . 2 g to 0. .4..b - g z.,* = .s .4 4... c) d, 

V E 4 i . -,z 0 0 ,.00 s c.) ..... - 0 ,2, , 0., 5 . 2 ..w 2 0a. is 0 tn ..0 c`t 0;7, vl 

a _,0 lz 

E-,. 1:1. " ,.ci cg 1=4 0,. E . .5 .5 2 •S .5 8 .--.4 R o 10. 

Topic 

..-„. 

73 1... CA 0 

0 . 

C.) ....4 0 

?• ed) 

0- ).).5 

See footnotesatend of table. 

2-16 

2-16
Statusof Implementation I 

rn 

4.) 0. cl 

m 

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.F. w 

0 ,4_, ii 5 .6 0 • E 

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0

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• 

0 ••• 

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414 

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ell ° ...5 0 \ 41) tA 0 0 0 I 0 43 C1) s 

w ° E a) a) •-, s 0 •0 -.7.1 v .■.. ..... 0 = gd 5 E .4' 2 a 

• 0° ° i...0 •••••••••. 5..4 C) ° 0 

gi 0 

C.)g 01°0U) CU•t .° 0 S § ° 0 ' "' 2 

.... 

73 an 

a0, _... a. ,- 0 E °) VI 5 

45. ° 4.> 0-..... , b. g a, z 2 o 75 0 , 0c, - I 

M II 

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ci, CA es 4... 0 CI) . 0 C.) x4.4 

t..100{,1 

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- 1- 9;

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legs' c',:i --'

. 

M. ." .aL. - *P 

rs ,.. oN cgs- .2 ... 04 -o .0 ,,, 

a ..,4.0 ,; .a ..

as ,.,., -0 F., ,0 .0 0 ciN 3 0 ..5 g 

8- c.: 0. ,,i 

0 Z `0 

4. i-). 

,...., 0 g E oN k•,, -0 .9. g . ,-. 0 0 -4- ,- 

.0 

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E .13 0 -f' 0.9" - = ":' u, g 16 0 g .5 o■ cs. 1).8 2 -5 

'. E - • 5 et 1.41 cn 1) ..8 § 

0 •=, 1 cv, ..0 e. c) s Q., __ ci., • f ° ,-, z .:.-- • .-. En 

3 1-. <4 , "0 O. 

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KeyNAFTA Provisions 

i?, 0 0 t to IDrn 

•• . * g . 2-, -8 

P cvs 12 O 

= 0 :a 2 

.. 4 •---. .2' 0 = 0 rn 

ed 0 .:4 10 2 • '. s 0..0 8 0 0 cn 0 0. at 

2 2 -Li cn g X' -•-■ ,:,, -a = ar. g 0° 4_, 0 0 

- 2 0 

z 

-0 a) .-0 

>,... i2 

. 

CC ba CA C.) • al a.) 1_, = 0 '4- 0 o. ,s 0 

Ja

- c. 

.5 0 a --, 

0. 4 ,.a) c... ,_, 0 1., 0 ›, "8 

u," 0 

... ..., ='. -0 0 

a 

 8 a . . § 0 0 0 2 to es 0 g E-. 8 o. 0 40 0 c.,, tit...... 0.s cl, = 1-. a0'-78u. ..° t.p. 

p .2 ,,y, - co) - c•-■ os .A.,... 0 r, . 74..,4 0 .2 . E /3D g at • 

Ig 0.:4 0 .0 ..... .... rn 0 

it) 

.'' 0 4.) C4

'4 • `1•4 ° 

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• 0 

li) 0 ,S 0 0 

. 5. 44 Q. 5., 

`48

62^5

0 0b00.3- 0 g.-.8. 00,4g

E o Cl) 0 0 ta. . .s c's 1 " cri "-■ -5 0 0 -V C.) 4) C.) . 5.., tn., C.) • . - 4_, 0 ,.0 el)m u „.„ ri, •S 5 00° ° o o 

.4 ° t ri, .«..) • 

c 5....1 11) ...,,, .....5 ..§ E 

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4.9 I. Cn 14 • 1 '••• ' I" -.4. tat ,, 45j 

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4644E i0 5 

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Z 2 g eti 'Ca' 'Fs/ gti' at l'..,) ° 2 .s 0 2 0 0 0 9 ›. 0 z0 o 0 0 0, 0 ,... •*. 0 I-1 

Pre-NAFTA situation 

Cl) 

0 4-> __g . 0 CA • 0 „C 01 

el ••'• Z 4" 0 -0 3 ct) 0 "CS 9 

8 

0, vs.,.. 2 -., -a) 0 

,•I 4..) p. • ..-zi ad -0 I-, 

a .2 eii ..., 0 

,c, 43 4 0 

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..- 0 ._ 

8 • g 0 E ;..1 V. 4.' 0 cn -0 0-- 0 4.„ ;La B 'Z rn c'''' • 

tu '''' .= - 0 0 41 

41..4 CO, 

1.• V 0 •-■ ---, 11) 0 ...14 

E i g tb 1. 

,.. 0 cl..... = 

-= 

. _ A P 

-„,m t-J.g. 

.. ›-,0 . .,:, 0 

es -^1, 5-■ -p

. .- 0 

_IS vs 

owess...5t

0 os. 

2 ucl, 'Irei z 0 0. 

3!doi 

t 

i e. 0 0 

C.) a) 2 

-„, 

N

et 

E-, .9, 

See footnotesatend of table. 

2 - 1 7 

2-17
Statusof Implementation 

U 

to c 0 ..0 .4 

•E .'s., . ..-. ›.., 

5 E. bli -1-. 

0.) V..■ . c••■ ,..s4 "a 2-. 

6; z "4 E 

-a 0 

>000 = 0 

0 ,.0 w2 -' 0 

•5 .s t' a 2 

r, •E g 0 -0 ... 

8 0cn 8 L513 2 -0 2 ,.. 0 ...., ti a ,I ,.., -0 2 g 

..0 ., = 0 0 y 0,,0 cn et. 5 g 

N.5 rte . 5 74 

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5.7' ›. •.... 

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,.= - 

0 01) ,.. .9 0 ^i,.., '.. 

. ..1 

•P r, O. ,- § 8 

- 8 

2') .0P 4 st ell El 

Mexicoadopted acompetition lawand established an independentagencytooversee its operation. A NAFTA workinggroupontrade 

and competition has beenestablished toreview 

issuesconcerningtherelationshipbetween competitionpoliciesandtrade,and tomake 

recommendationsasappropriatebyJan. 1, 

1999.Thusfar,thegroup hasexamined legal 

standardsand enforcementprocedures inthe 

threeparties. TheWorkingGroup hasalso 

begunto discussenforcementcooperation inthe 

contextof cross-bordercompetitiveconduct. 

KeyNAFTA Provisions 

... .0 

C o 

. I .5 0 

vi

8 

 . 0 • 74 - 'P ... . cid 

p 1, 0 0 ., 8 g .2 .0 • a) 

.. 0 cr 5 

Ul e. •■■ = • 0 

4.4v• ..0 , g u, g .0 .0 v, .z...., 

.. n .m cn 

=

'5 '4-- 0 ... °) C19 

4".• 4.7. • C:•)■ ^ 8 

"Ct 0 Ca. g 2 (1=1 0 ,,,, 0 41 •.,0 t 2 

0 tr3 , - ,.., 

trl ,-, • 4-■ 1.F.12 1) ;-, U)VI VI PA I-4 0310 

Q t .75 0"S 0.< 0) 2 0.) 0 ,.. ,,, .,_, 

„. 

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eet e. o ...v ,,_, es ..-5 g „ a ,. 0 ... 

., 0 ..e, 

. , , 

0 -- .-, .... 0 .. = .... 

-0 go .0 ,.., r) 8 I ,„ t .5 0 [•■•■ O° 0 a 0 ... vr) C4■4 0 3. :1 U) 440 pL, ,,,..., E 1... RC

S , 0 0 0 '...1 0 .... 0 4) 0 04 g 44$ 16 U) 0 0 ).4 0 ..w 

 

0 t•-. .0 to ec 4- 

0,, 

es 

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L. 

1-. c's „., (-) 2 g 0 .0 -00 

..0 r°+-6. "0....= 0 • s - e•A " -

■-• Q.0 4-,.... CD 0 t7.1 coI. 0 '3 tn 

1-4 8 4-. 0 - g a) g 

,° .., ..,) -0 ,.., 0 c0 -• 0., ...., V: co 0 .-“'"' CI, 0.) ,W cz) 4) Tr. ,.15 

:5P O' 0 (.3 . •. 3 E ° . a (-4 tb (=> II 0 0 x s0

,,.. 0 '„g 0 0 -z 0 lib g .. to o to U c/a 0 0r 0 2:1 = 0. 0 3 8 0 4= --. cs csi a) 

NAFTA requireseach countrytoadoptor maintainmeasuresagainstanticompetitive businesspracticesand tocooperateon issues 

of competition lawand enforcement. 

Existingand newstateenterprises(those 

owned orcontrolledbyNAFTA parties)are required toact inamannerconsistentwith 

thatcountry'sNAFTA obligationswhen 

exercisingregulatory,administrative,orother 

governmental authority. Government-owned orsanctioned monopoliesaresubjectto disciplinesovertheirconduct. 

Pre-NAFTA situation 

cn -0 cli ei 

DA 0 cti 1-. 

5 50 gtnwost, 6. a.) 

cg '-.64 8 

g-8 0 • 

cs . 0 74 

012 8 g a a 

„.... ,... 

;

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-•-• 0 cra 03 as 0 - • .-1 = 1... 0 0 

g a T to § ts ..0 ^-0 .2 0 .,., 

 .,.., A-• 0 g t. Cel '4 • 

,_. • .., 1••• 

.0 r; C+.1 '10 ' r. ``' $ 

'11 0 - 5 (.0. 10 0c.o. "1:$ u) ° 

10 0 g 3 4 

3" 8 14°) g cr 0 5 " "0 0 a 7). 8 u ((s 0 ,,, u) 4-- et 1" cl. o .03 g .0 t,., -0 0 4) va c, -g :a. F.:, Ist, -.4 ue. , 0 c

. = = .. 0 . •••■ 0 wil. •IZ u) 4 pa 0 2 cl 

8-goott.

o tgs0 0.5 - 

..::c - . to = . = _ E_, ,J0 310. 0 ,._, rn .;:,•, .1 6 

.1 it u..E. u e 

610 -A 

,.., , ..- N.5 3 ...,em .5 a) tes 8 g .s - -- ;•5 f1 

C.) '5' 2 ••-`2, .1-4 2 2 .S = -p .°

3 1 0 „ 46%5 47; 

-48 F4 ,... 0 gw.S0.. 4.4 • 5 5g ° 0 44-I -0 ° gg`n 0' ..-. 0.1, 

TheUnited Statesand Canada had strongcompetitionpolicyregimes. Mexico'sregimewasrelatively 

undeveloped, butof increasing 

importance,givenextensive 

privatizationand deregulationof its 

economyandthestill-dominantrole 

of statemonopoliesinkeysectors. 

a!doI 

. 

es c/a 

• •-• 0 

C.) 2 

.E 6) 4.., v) 

0 

o 

.... 4... 

.... 4.. 

0.) 

C:1•• t+ 

o 75 

L.) 0., 

Seefootnotesatend of table. 

2-18 

2-18
Statusof Implementation 

Implementationproceedsonschedule.Mexico's 

proceduresforgrantingtemporaryentryhave 

beensimplified and theiroperationmademore predictable.TheUnited States hasrestricted 

entryof certainexecutivesof Mexicanand 

Canadianfirms inaccordancewith theHelmsBurton law.' 

,.., ,,, 0 0 0 - o as 0 0 0 . 

4.?, 

'.. 

0 w ...p...4 63 04 g 0 0 -0 ui 7., . .- 0 _ 0. ,...., s . .2 5 • • c., 

ia. a) • Z 0 .... cz -4-. .-.■ rn ,,,, 4-■ 

-8 tii. • 'a t - 6 E -el! 0 ,..., 9 2 t- , v., 

te. 8 

61 8 O Ell E R . o .c93 8 8 8 0 2 5 .. e, 8 cg - t 

5 0,0.5 5 '1 ') 7:I= 

44 Z S • 4-. .. cn 

rg I§ "

0- ° '''' 

rcs:R 4'2 'D ''') 3 el 03 oN -,-6, •b 8 .5 .,_ ■0 13 . .4 0 ,:i 8 0 .14...2 .2 . - 5, ...= -ics - ,4-4 --. 

4.4 ly .. ...., *I.. • ". u2 

.5 0. 0 ul 1 :1-_-, , g -5 Ff3, . ,.c, 

 m 0 4) 1.1 •-, CS 0 

t1.4 .. C..) ON • 6rn Z 4.. ..: 34 03 

° • "° P. • CLEr 8 °N--. I's ." 

6, 8 ›.' . 5 .g) vl 

= 

E " 2 ,_, 0 -8 •..... ,. 

'8 - t.-, -8 • 04 • i• 0 8 • '0 .

ci., .s .... 

j:) 

w° 8 4 c2 1

1' 2 ° 8 § la' 2 

1 13 * 5 g 2 g >. °) t t 8 vi 0 8 • 4cn c" 2 .5, 

0 CA 112 C.) ,,v cd 0 0. = • = ° 110 10. 

0 RS :•• 4. .4 ..0 VI 0 • a E 0t) . a N. , , U .4 --',4 vel to) = 

CA ›... 6. 

0 E.° C)= I° C3 c4 .= 0 0 0 -■-• -q9 rn el 7:4 -,-. 0 

D l' ,,,, 4 - P .8 E-1 t 6 E I 0 ..5, . k <4 0 t ....., 0 ,,, vi •z .1 0., 0 g -0 00 ., col 8 .." 

KeyNAFTA Provisions 

NAFTAcommitspartiesto facilitatethe temporaryentryofbusinesspersonswhoare 

citizensof otherNAFTA countries ina 

mannersimilartothat found inthe CFTA. 

TheUnited States isauthorized to imposea 

numerical limitonthenumberof Mexican professionalsenteringthe United Statesuntil 

December31,2004. 

oo C4 "8 

,.= •o .2 

0- -8 . - to 

Oa cn g 0 VI .8 

ur „9 g ;15. :.a 1.) yt.) 6. o op 0 ,.. 0 0 .:.12 0 = ..§) 8 o 

.!.,..) , 8 8 -S rj (') 12., - 

cs-',goe ut-s' 0 

.5 

0., 0 

,t, _ 2, 7:1 .. ,., 

2 

4., 

g § ,.,,2.• 1 2 1 00 0 0 

0 0 -. 0.74 c-) o cts E es 0 6. ..... c..) 0 $.. 0 r4. 4.) 1.-4 

'-) 21, 'es ..5 ri3 4,' 0 = E 

-4- 4, '5 0 u, . .2 ' ?. 9. 4) ,ii 4-' 

w

a tt to rn .5 1 1 t t •c •E 

4-. ) ° 8 .s .). tu .-' <4 > g cs 6.g 0 -,:s • 0. ¢,

Z .12 cn CI. ""•.4 .0 .E, .' 4% A 8 . 

Pre-NAFTAsituation TheCFTA containedprovisionson 

thetemporaryentryofbusiness persons. 

a, 

c4 

o c4 06:. b 0 

a g t-,... -o ›, p 0 0 g 4:,.0 

= 1-4 ,,, 

• 

m 

2 1... l... . 0 al a 000 gonz. o- 

'; 'a ' . -a 46 .5 g o 0 o 1.1 0k. 

st, . 4. ,4. 

N. 4). ,,,"§° ;, 

<4 -8 8 ° 41 Ta o ..-, 

Ei ,... 

• . 

w

(1 -8 g c) .s "0 a ,..., C 8 1... 'pc ›.., ..... 

1) 

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--4 ,,.> , cn 0 . K 6 (t) 0 g 0 

 E- szt, cn • -. 00 ,--4 

co 8 a\ ril E-i g) 0 .2 fL...', 3 -o ,-. 

Topic 

0

0. 

E 0 5 

E-1 14 

2 k, 

8 f, 

15 va. 

A di: 

See footnotesatend oftable. 

2-19 

2-19
0 0 0 

u. 0 

o " •a 5 .... _, 

0 . .■ g tr.) 

4 Tai g 0 0

04 t4-t 

'II r/)" o -a 

c0 

• C)° ° 2.. 2 .,.,9 ...„_ a ui --= 

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,.--• -.e 4 l5 S A ..•403 .7.•035: up.e ct 5,Ir'e R /.0 

2, 

x It .0 0 CZ 1••••• c,.. 0 0 .1.. 0CA 2 - t 0 as CA 04 4305 0 . 5 -0,, 2 ....0 %.0 .... 0 0 o. ; 0 ..g c=, .,.- .4- 

-8 -5, • c,.., c.) -g 

2 11)"t °- 1 L3i 1 i -1 § i r-! • CO E osi„ 

.., 0 to. 0 U2••••• C0 a .9 o 5 3 

cl 

0

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;■I 0 hO 0 0 r4 . C) C ) . 2 -oo '' '22 .0 r„ r,i _., C1-1 >`■ ° 

.7 • e••• . 8 -a ,., a. = -,s• g , .:.) o § ,,:s ...'", •71 .3 4 a g 0 .4,2 .... CP) . = 4.) . ,... 

°0 g •■ g 5w - 0 „I CA ,--. " .6.,1 0 ., CS 0 

A, , 1"' .• '4•"' ›. 5 

0 0D E 0 2 .1-> .. 0 r."' "0 

.0 4 5 8 4 0, 8 . g r. d --E. ' 1 (0,3 

.. a g.t. ..0 ogrnr,,,,, ,•••›•„. 

1 . . sti . ) , , ) . - . 75 .e,0 F..)..-, . g4 .1A § ... au , . ) . . . g 

Sta0. c.-.ii, 8 t A 2 -2 2 6-1 ; 2 E kt)8 ca. 

tusof Impleme

ntation 

U) 

0 c:o E' le o 

E-.. es) 0 c) g 8 a V/ 

Ltr) . 0 -, 0 0 . g w'g ,,,, a. 44 g. cn "5 0 2 0 0 CA 1-. ›. - -. al Et) t5 o 2 'et ? 0.0 v; .5 -1:2 oz .,.. .5 2 

44 v, -to2 CO . 0 ..... g 0.-. -, os 

0 ,..., .2 6 

0..,, 

0 -a 

g 4 es • _ 

E 0 _ 1 ..%" I. 5 0 r> - 0 *5 :, as < ..; 70 - o 

-a ..t 0 c. E. ---. 0 

-..„ 50 2.. u, <4 ,,,0 z -.... 0 , 0 

› 0 u.' .. " rn 0 5° Z S Ti Q .0 

CA 0. 0 ... re "t8 

'85 w? 

.0 

15 5 Ts' , g 0 4 ba1 ti.14.' /:)4 

 ..., 

4:2 g o 

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"0

0 

0 a> -a a °., E L. 5. 

_, = 0 CO 1 0.0 .5 f '1'4.?.; .v) .-cs0 

•-cr., -.2 owte. 0 .E • "' :.. t: 10 "

Ee -IE •e ,., > >. I g o .61 CA 

0 0 CZ .0 0 1 ., < VI 0 5., i°> 8 a L. 0 .i..1 

CA 0 lt 0 

Key 

Z 2 ms- cno 2 .5 .5 .0 .2 ,2i 5 

 NAFTA Provisions 

g 74 g 0 -co ..1 

= 0 "0 0 0-' 

28 

.. -5 Ts 

g'-s C4 1 0 =.1 C...1 iL)g i ". r1 • ...i 

E

... g c.) 4.g 0._,-. 

• > .2 

rn .• 0 „R.,- 2 - 

0 

0 CO 2 0 5.. CO c*. a U - ° 

,.n 0 ....• -o -1, 4. CA CA = .0 

"g °. ° 8 e'l.2 . E CS ;€s" g 0 ..o., as Z, 4,-,,,-0 as 0 ;-- ea -2, •-• „, 

0 0 "• .0 OD 0 P 0 

''' bp .E 0 '`'' u)0 [.., 5 0to CA) . .0 .E 0 = 49 0 00 ,,, I.. = 

"' 

. 

0 ..4c12 0 

3 

0 •----- " ,... 5 c..) ...s4 

"E:5-

Pre-

. :s, 70 `'' t 8el ° c.1) 8 ca.. 24.1 

NAFTA situation 

cn 

0 

E sza• .112 

1.., 0- 0 0 0 •' '5 t's .°..? c;) .0o 

.1.. 01 0 0 ..0 0 4 eat .4 -c0 

 a.) CI v) o /..-1 CO FE 0 

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oc. •54 • >, (NI 

* a ct a.)0 g 8 ."' 2 g 0 1 g 

 40 <I4 ..T) Vi 0 OA .r) "41:3 mi0 :CS1 CO t 

'2 42g i g t, t-E„, ..3,-_,, -1.s 

°0 " tip GO ,,, 0. y0 0 0.0 0 - 0 (11.0 '' 74 

g u2 ci:4° -i -I ui CA 

•...." 0/3 •-1 • 0 

0 = 0 C3 M to ai 0 kl 

0 0• .9 • 2 I" 0 5 cli .5 5, C,15) 10 "0 

•-• ›. CN ..0 0 • ett ci2 g -o •,,,, 03 0 -0 cti 

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43 g Q - vi at :§b°1 c:- 5-'8 u 1 to I .,§ 

•. N t--.

. 

a . 

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OA 0• 

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co ••••• 'P u3 8 0 2 -4. - .-E :4 

CO 0 o 2 1..) a.) a E ° n0 g .0 

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0\ 

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17, "t,„ •S 

— -6 rn 

2-21
Dunkel introduced the first comprehensive text on all topics under negotiation in the Uruguay Round, though 

participants were still far from consensus on the most controversial issues, such as agriculture, subsidies, and 

antidumping measures. This text generally served as a starting point for NAFTA negotiators since all three 

countries agreed that the Uruguay Round and the CFTA were the "floor" for NAFTA and strove to go 

beyond these accords to the greatest extent practicable. 

The WTO Agreements entered into force on January 1, 1995. They address many of the same topics 

addressed by NAFTA. In addition, they address customs valuation and preshipment inspection, two areas not 

addressed in NAFTA, but which are not major issues in terms of market access in North America.' NAFTA 

coverage includes state-trading and competition policy. These two topics are not addressed in the URAs but 

are particularly important for ensuring meaningful market access to Mexico, given Mexico's lack of prior 

history of antitrust enforcement, privatization of key sectors, and lingering government role in such fields as 

the purchase of staple foodstuffs. 

To the extent there is an overlap between the accords (table 2-3), NAFTA disciplines generally go 

further and faster than their Uruguay Round counterparts, particularly in such areas as market acess, 

investment and most services. For example, NAFTA involves complete elimination of tariffs. The Uruguay 

Round negotiations resulted in a 35-percent reduction in U.S. tariffs, with tariffs being lowered in stages 

starting Jan. 1, 1995. In the services area, NAFTA disciplines and commitments are generally more 

extensive than those in the Uruguay Round General Agreement on Trade in Services (GATS). NAFTA rules 

provide for unconditional MFN and national treatment, and for the right of establishment, for example.' 

Mexico's and Canada's commitments under NAFTA are less restrictive than those under the GATS.' 

Disciplines on such nontariff barriers as sanitary and phytosanitary measures, standards, and government 

procurement are largely the same in both accords, although coverage varies. 

Some NAFTA innovations were ultimately incorporated into the final Uruguay Round accord, 

notably in the intellectual property area, where the final WTO provisions on trade-related intellectual property 

rights (TRIPs) are much stronger than those previously under discussion. The effect of the TRIPs changes is 

that within a relatively short period of time, standards for protection of intellectual property will be raised 

throughout the world to levels comparable to those existing in the United States and other developed 

economies. But NAFTA accomplishes this goal faster. Under NAFTA, Mexico was required to implement 

state-of-the-art IPR protection within NAFTA's first few years of operation. Under the WTO TRIPs 

Agreement, Mexico would have had until 2000 to make similar strides.' 

NAFTA disciplines on investment are regarded as much more far-reaching than those found in the 

Uruguay Round accord. They cover a range of matters affecting foreign direct investment generally, versus 

the more narrowly defined coverage of the WTO Agreement on Trade-Related Investment Measures 

(TRIMs). Unlike NAFTA, the TRIMs agreement does not address such basic issues for investors as the right 

21Mexico was already a signatory to the Tokyo Round Customs Valuation Code. The WTO Customs 

Valuation Agreement added two clarifying decisions that pertained to practices found in India and Africa. Mexico does 

not employ preshipment inspection. 

22Organization of American States (OAS), Trade Unit, Provisions on Trade in Services in Trade and 

Integration Agreements in the Western Hemisphere, May 1997. 

23U.S. International Trade Commission, General Agreement on Trade in Services: Examination of Major 

Trading Partners ' Schedules of Commitments, USITC publication 2940, Dec. 1995. 

24On the assumption that Mexico would be treated as a developing country for purposes of implementing 

TRIPs obligations other than MFN and national treatment. 

2-22 

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Table 2-3 

Summary of Uruguay Round Agreements, time frame for implementation, and overlap with NAFTA 

Topic Key provisions and implementation schedule Covered by NAFTA? 

GATT 1994 and 

Ministerial Decisions 

Includes the national market-access schedules, appended to 

the Marrakesh Protocol to GATT 1994, where specific 

national commitments are found reducing tariff and nontariff 

barriers over 5 years, that is, by 2000. Adjusted 

interpretation of 7 GATT articles, notably by deciding that 

regional trade arrangements should now be completed within 

10 years. 

Yes. 

Agreement on 

Agriculture 

Agreed to "tariffy," bind, and reduce tariffs on imports; 

reduce export subsidies; and limit domestic support payments 

on agricultural products over a period of 6 years, to 2001, 

for developed WTO members. Developing WTO members 

have 10 years, until 2005. Also agreed minimum access 

provisions, notably to rice markets in Japan and South Korea. 

Only partially. 

Agreement on Sanitary 

and Phytosanitary 

Measures (SPS) 

Agreed that a scientific basis must be used to justify any 

trade restrictions placed on agricultural imports aimed at 

protecting human, animal, or plant health and must follow a 

consistent national assessment of risks so as to avoid 

becoming a disguised trade barrier. Provides for recognition 

of equivalence and of pest- and disease-free zones. 

Yes. 

Agreement on Textiles 

and Clothing 

Agreed to phase-out the Multifiber Arrangement in 3 stages 

over 10 years, by 2005. Does not apply to new members, 

such as China or Taiwan, until they become a WTO member. 

Yes. 

Agreement on 

Technical Barriers to 

Trade (MT) 

Agreed to use international standards where appropriate and 

follow procedural steps to ensure transparency and 

nondiscrimination. Extended coverage to include PPMs and 

conformity assessment procedures. 

Yes. NAFTA 

contains additional 

disciplines on 

conformity assessment 

and calls for 

harmonization of 

standards. 

Agreement on TradeRelated Investment 

Measures (TRIM) 

Prohibits certain contingent investment incentives (such as 

local content and trade-balancing requirements) that distort 

trade flows. Also provides an opening for more far-reaching 

investment disciplines in the future. 

NAFTA goes beyond 

TRIMs. 

Agreement on 

Antidumping 

Agreed to more standardized and transparent procedures for 

initiating, carrying out, and reviewing antidumping measures. 

Yes, except for 

reviews and sunset of 

outstanding orders. 

Agreement on Customs 

Valuation 

Agreed procedures to investigate incorrectly priced customs 

invoices more readily as well as continuing standardized 

procedures for valuing imports at customs clearance. 

No. 

2-23 2-23
Table 2-3 

Summary of Uruguay Round Agreements, time frame for implementation, and overlap with NAFTA—Continued 

Topic Key provisions and implementation schedule Covered by NAFTA? 

Agreement on 

Preshipment Inspection 

(PSI) 

Set out standardized procedures for preshipment inspections, 

employed by such countries as Indonesia, the Philippines, 

and a number of countries in Sub-Saharan Africa, to avoid 

trade delays. 

No. 

Agreement on Rules of 

Origin 

Agreed a 3-year study to develop principles and rules to 

harmonize origin rules for nonpreferential trade and to follow 

such principles in the interim until rules can be developed. 

Coverage differs. 

Agreement on Import 

licensing Procedures 

Increased transparency and predictability of import licensing 

by strengthening rules governing notification and publication 

of licensing requirements, whether automatic or 

nonautomatic. 

NAFTA eliminates 

import licensing. 

Agreement on Subsidies 

and Countervailing 

Measures 

Defined and categorized subsidies into prohibited, actionable, 

and nonactionable—including actionable subsidies that are 

presumed detrimental to other WTO member economies—to 

strengthen the previous disciplines prohibiting export 

subsidies on manufactured goods set-out under the 1979 

Tokyo Round Code on Subsidies and Countervailing 

Measures. 

Only partially. 

Agreement on 

Safeguards 

Phases out Voluntary Restraint Agreements and other socalled "grey area" measures taken outside the GATT/WTO 

multilateral trading system—many of which are targeted on 

APEC members such as China, Hong Kong, Japan, South 

Korea, and Singapore as well as at one time members of the 

European Union—and permits selective safeguards (that is, on 

a non-MFN basis) for strict 3-year time limits. 

Yes. 

General Agreement on 

Trade in Services 

(GATS) 

Agreed framework rules and specific commitments 

concerning trade in services in December 1993. Negotiations 

continued regarding particular service sectors such as 

financial services (June 1995), movement of personnel (June 

1995), basic telecommunications (April 1996), maritime 

transport (June 1996), and professional services (no 

deadline). 

NAFTA's approach 

and commitments are 

generally more 

liberalizing than the 

OATS, but NAFTA 

does not cover basic 

telecom. 

Agreement on TradeRelated Aspects of 

Intellectual Property 

Rights (TRIPs) 

Agreed to provide minimum legal protection of intellectual 

property rights such as patents, copyrights, and trademarks, 

and adequate enforcement of these rules. Agreement effective 

for developed WTO members in 1996 but in 2000 for 

developing WTO members. 

Yes. NAFTA goes 

beyond TRIPs in 

certain areas. 

2-24 2-24
Table 2-3 

Summary of Uruguay Round Agreements, time frame for implementation, and overlap with NAFTA—Continued 

Topic Key provisions and implementation schedule Covered by NAFTA? 

Dispute Settlement A single integrated dispute settlement system now applies to Yes. NAFTA 

Understanding (DSU) all WTO members, makes adoption of dispute panel reports contains additional 

virtually automatic, and creates an appeals body to reconsider mechanisms for 

panel report judgements. AD/CVD measures, 

investment, financial 

services, and private 

commercial disputes. 

Plurilateral Agreements The Agreement on Government Procurement, Agreement on Procurement is 

Trade in Civil Aircraft, International Bovine Meat covered. 

Agreement, and International Dairy Agreement are the four 

remaining Tokyo Round codes with limited memberships that 

were carried over into the WTO. The last three are 

essentially unchanged (the United States is not a member of 

the Dairy Agreement) but the Government Procurement 

Agreement went into effect in 1996 with lower contract 

thresholds; coverage expanded to services and construction 

contracts; and, on a reciprocal basis, extension to contracts 

beyond the central government level to cover "subcentral" 

governments and quasi-public entities. 

Compiled by staff of the U.S. International Trade Commission. 

2-25
of establishment, the right to fair and just compensation for expropriation, and the expeditious handling of 

investor-state disputes. Moreover, NAFTA's premise is that all flows of investment will be free of 

restrictions unless specifically exempted. These and other NAFTA disciplines have served as models in other 

trade-related forums For example, they are forming the basis for U.S. pursuit of updated bilateral investment 

treaties with foreign partners, and for U.S. efforts to secure a Multilateral Agreement on Investment (MAI) in 

the OECD. 

On the other hand, the absolute amount of U.S. trade covered by the Uruguay Round is significantly 

larger. Some 70 percent of U.S. exports and imports was accounted for by non-NAFTA partners in 1996, 

most of which was potentially affected by any Uruguay Round-related changes by virtue of such changes 

being extended on a most-favored-nation (MFN) basis. Moreover, the Uruguay Round went beyond NAFTA 

in some areas, notably agriculture and services. Clearer rules on antidumping and subsidies and requirements 

to review or sunset outstanding AD/CVD measures also were established in the Uruguay Round. 

The WTO Agreement on Agriculture went well beyond NAFTA and the prior CFTA in replacing 

existing nontariff barriers to U.S.-Canada trade in agricultural goods with tariffs (a process known as 

"tariffication"), as well as reducing subsidies.' In addition to tariffication, WTO members agreed to bind 

and reduce tariffs on agricultural imports; reduce export subsidies; and limit domestic support payments on 

agricultural products over a period of 6 years for developed country members and 10 years for developing 

country members (ending in 2001 and 2005, respectively) Minimum access levels for imports were also 

established. 

As the analysis presented in Chapter 8 makes clear, these WTO provisions on agriculture have 

already liberalized NAFTA trade, particularly between the United States and Canada. As a result of a 

December 1996 NAFTA panel ruling, high Canadian tariffs will apparently remain on key agricultural 

products of potential interest to U.S. exporters even after NAFTA's provisions are fully phased in.' 

However, many border measures are being eased, transparency has increased, and any reduction in subsidies 

as a result of the Uruguay Round should benefit trade among NAFTA partners. Moreover, the WTO 

Agreement on Agriculture commits WTO participants to begin negotiations by the year 2000 on further 

reducing agricultural support and protection. 

Another Uruguay Round advance over NAFTA is found in the area of services. The Uruguay Round 

negotiations addressed basic telecommunications, a topic largely exempted from NAFTA. WTO negotiations 

25 Part II, Annex 1A, Agreement on Trade in Goods, Agreement on Agriculture, Final Act Embodying the 

Results of the Uruguay Round (December 1993). 

26 The U.S.-Mexico portion of the NAFTA chapter on agriculture already called for the tariffication of nontariff 

barriers in U.S.-Mexico trade. For further background on the Uruguay Round Agreement on Agriculture, see, U.S. 

International Trade Commission, The Year in Trade 1993, USITC publication 2769, June 1994, pp. 6-9 and Potential 

Impact on the U.S. Economy and Industries of the GATT Uruguay Round Agreements, USITC publication 2790, June 

1994, Part II. 

27 On December 2, 1996, an arbitral panel set up under NAFTA chapter 20 at U.S. request, unanimously 

determined that Canada had acted in a manner consistent with both its NAFTA and its WTO commitments when it 

replaced its prior supply management systems for certain agricultural products, including dairy products, poultry, eggs, 

barley, and margarine, with tariff-rate quotas and high over-quota tariffs (up to 285.6 percent). NAFTA Secretariat, In 

the Matter of Tariffs Applied by Canada to Certain U.S.-Origin Agricultural Products (Secretariat File No. CDA-95- 

2008-01), Final Report of the Panel. The United States has expressed disappointment with the ruling. USTR, "Joint 

Statement of the Acting U.S. Trade Representative and the Secretary of Agriculture Regarding Release of the NAFTA 

Panel Report on Canadian Agricultural Tariffs," press release 96-93, Dec. 2, 1996. 

2-26 

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on basic telecommunications successfully concluded in February 1997. Canada and Mexico, the United 

States' two largest telecommunications-trading partners, are now participating in a multilateral accord 

providing market access for local, long distance, and international service through any means of network 

technology, either on a facilities basis or through resale of existing network capacity. Canada retained a 46.7-

percent cap on foreign-equity ownership of all basic telecommunication service providers except those 

providing services through submarine cables, and mobile and fixed satellite. Mexico increased its foreign 

equity limits on all telecommunication services from 40 to 49 percent. In cellular services, Mexico agreed to 

allow 100-percent foreign ownership. Mexico also scheduled commitments that accord foreign service 

providers full market access and national treatment when providing all services except domestic satellite 

services, for which foreign providers are required to use Mexican infrastructure until 2002. 28 

Another effect of the Uruguay Round has been in the area of tariffs. To the extent that NAFTA 

partners subsequently lowered tariffs in the Uruguay Round on an MFN basis, the margin of preference, or 

price advantage, enjoyed by NAFTA-qualifying goods relative to non-NAFTA origin goods will be reduced.' 

Most URA tariff reductions are being phased in over the 5-year period from January 1, 1995 to January 1, 

2000. Tariffs on particularly sensitive sectors, such as textiles, will be phased out over a 10-year period 

ending January 1, 2005. On the other hand, the Uruguay Round resulted in agreement to completely 

eliminate (or substantially reduce) tariffs on an MFN basis in certain sectors. 

By the end of the Uruguay Round, the United States had agreed to lower its tariffs by an average of 

more than a third by the year 2005, when all Uruguay Round tariff concessions are slated to be fully phased 

in. It is estimated that the trade-weighted applied U.S. tariff will be 2.7 percent by the year 2000. Simple 

average tariffs will be 4.6 percent in 2000 and 3.16 percent by 2005.' 

The United States and Canada fully participated in all of the so-called "zero-for-zero" agreements 

concluded as part of the Uruguay Round. Such sectoral initiatives cover agricultural equipment, beer, brown 

spirits, chemicals,' construction equipment, furniture, medical equipment, paper, pharmaceuticals, scientific 

equipment, steel, and toys. The United States and Canada are also participating in the multilateral 

Information Technology Agreement (ITA) that is slated to enter into effect on July 1, 1997, which will further 

lower their average MFN tariffs.' The ITA will eliminate tariffs on a wide-range of products in the 

information technology sector, including computer hardware, software, telecommunications equipment, 

electronic components, and office machines. Mexico did not participate in these initiatives, thus the margin 

of preference enjoyed by U.S. goods in the Mexican market as a result of NAFTA has not been reduced. 

There has been a slight lowering of the margin of preference some U.S. goods enjoy in the Canadian 

market. Canada's pre-Uruguay Round applied MFN tariff rate averaged 7.24 percent; its post-Uruguay 

28 For further background on the negotiations, see, U .S. International Trade Commission, The Year in Trade, 

1996, USITC publication 3024, Apr. 1997. 

This situation is only relevant during the second two years being examined here (1995 and 1996), since the 

first stage of Uruguay Round cuts did not enter into force until Jan. 1, 1995. Moreover, it is not relevant in examining 

U.S. exports to Mexico, since Mexico did not reduce MFN-applied tariffs as a result of the Uruguay Round. 

30 APEC, Individual Action Plan of the United States of America, "Tariffs," Nov. 1996 and WTO, Integrated 

Data Base CD-ROM. 

31 Tariffs on certain chemicals are being harmonized at low levels. 

32 For a discussion of the ITA and information on how it will affect U.S. industries, see U.S. International 

Trade Commission, Advice Concerning the Proposed Modification of Duties on Certain Information Technology 

Products and Distilled Spirits, USITC publication 3031, Apr. 1997. 

2-27 

2-27
Round bound rate is 4.11 percent" Canada has also unilaterally lowered its tariffs since the Uruguay 

Round's conclusion. Among other things, in June 1995 it unilaterally lowered tariffs on some 1,500 items 

(largely inputs) on an MFN basis, and expanded its preference scheme for developing countries known as the 

General Preferential Tariff (GPT). 34Another package of unilateral tariff reductions and a simplification of 

the Canadian tariff schedule is under consideration for implementation Jan. 1, 1998. Duty-free treatment of 

items not made in Canada, and of selected machinery and parts, are key features of the proposal." 

Mexico did not lower its tariffs in the Uruguay Round, instead opting to bind its tariffs at relatively 

high ceiling rates." These rates are generally set at 35 percent ad valorem, still lower than the 50 percent 

rate permitted by Mexico's 1986 GATT accession protocol. Most goods from non-NAFTA countries 

continue to enter Mexico at lower applied rates--typically ranging between 10 and 20 percent ad valorem--

that predated NAFTA and the Uruguay Round. Mexico's average MFN applied tariff rate stood at 12.5 

percent in 1996 and weighted average tariffs were 9.8 percent. 

The value of NAFTA vis-a-vis WTO commitments in securing U.S. access to the Mexican market 

has already been demonstrated. As a result of a worsening in its external accounts and the ensuing December 

1994 peso crisis, Mexico raised MFN tariffs on 502 consumer goods (apparel, footwear, and leather articles) 

to the 35 percent bound rate (versus the 20 percent rate previously applied).' U.S. goods meeting NAFTA 

rules of origin, as well as goods from other trading partners with whom Mexico has free trade agreements, are 

not subject to the higher rates and therefore now enjoy a wider margin of preference relative to other foreign 

suppliers in the Mexican market. 

To the extent there has been any change in the margin of preference for U.S. goods in the Mexican 

market, it has been a result of developments outside of the Uruguay Round. Mexico continues to broaden its 

engagement with the world economy, joining the Organization for Economic Cooperation and Development 

(OECD) in 1994, participating in the Asia-Pacific Economic Cooperation (APEC) forum, and pursuing trade 

agreements with Latin American and other partners. Mexico had a preexisting FTA with Chile when 

NAFTA entered into effect. It has since concluded FTAs with Bolivia (1995), Colombia (1995), Costa Rica 

(1995), and Venezuela (1995), and is negotiating such accords with Guatemala, Honduras and El Salvador." 

(Interestingly, although these accords provide tariff advantages to partners, they may serve to enhance U.S. 

access to key Central and South American markets by virtue of extending NAFTA-based rules on such topics 

33 WTO, Integrated Data Base CD-ROM. 

34 GATT, Trade Policy Review Mechanism: Canada, Report by the Secretariat, Oct. 25, 1994, p. 53 and 

APEC, Osaka Initial Actions, submission by Canada, Nov. 1995. 

35 Bureau of National Affairs, "Draft Bill to Update Customs Tariff Introduced in Canadian Parliament" 

International Trade Reporter, Apr. 30, 1997, pp. 773-4. 

36 WTO, Integrated Data Base CD-ROM. 

37 The list of products affected by the Mexican tariff increase was published in the May 30, 1995 Diario 

Oficial, Mexico's "Federal Register". Virtually the entire list of goods in chapters. 61 through 64 of the Harmonized 

Tariff Code and various categories of chapters 42 and 43 are affected. U.S. exports to Mexico in these chapters totaled 

$1.9 billion in 1996. The increased tariffs went into effect shortly after the notice was published. For background see, 

U.S. Department of State telegram No. 12356, "Mexico Raises Import Tariffs for Leather Goods, Footwear, and 

Apparel," prepared by U.S. Embassy, Mexico City, June 1, 1995. 

38 Discussions with Miguel Rodriguez Mendoza, Chief Trade Advisor, OAS, suggest that in these bilateral 

agreements Mexico utilized many sections of NAFTA as the basis for the new agreements it signed. 

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as IPR, investment, services, and government procurement to Mexico's FTA partners 3 9) Mexico is also 

seeking a framework trade and investment accord with the EU, with notable breakthroughs reported in recent 

months. Negotiations to make its bilateral FTA with Chile more comparable to NAFTA by expanding its 

coverage and adding disciplines on nontariff barriers, services, investment, intellectual property rights, and 

temporary movement of personnel are under way. 

Mexico has unilaterally granted non-FTA partners lower tariffs on several products, notably 

machinery and electronic inputs.' In 1997, Mexico announced that it was unilaterally eliminating tariffs on 

environmental equipment not made in Mexico. Since products originating in North America were already 

accorded lower tariffs than were those of non-NAFTA partners, they will no longer enjoy a tariff-related price 

advantage in the Mexican market. A U.S. manufacturer of water treatment equipment testifying at the 

Commission's public hearing stated that tariffs are an insignificant factor in competition in Mexico's market; 

NAFTA's investment guarantees and availability of financing are reportedly much more important.' 

Some NAFTA provisions explicitly call for updating NAFTA commitments to reflect any advances 

made in the Uruguay Round. For example, NAFTA Article 1024 requires Parties to immediately begin 

consultations with a view towards including procurement by sub-Federal (e.g., U.S. State and local) entities 

and enterprises, and increasing the obligations on government procurement under NAFTA to a level 

commensurate with that attained in the Uruguay Round. Discussions regarding that provision have occurred 

within the context of the NAFTA Government Procurement Working Group, but thus far no changes in 

NAFTA coverage have resulted." 

A final important effect of the Uruguay Round has been in the area of dispute settlement. 

Specifically, dispute settlement procedures were strengthened and made more automatic in the WTO, which 

replaced the GATT on January 1, 1995. The result is that the WTO has become a more viable forum for the 

resolution of disputes. For NAFTA partners, the WTO may be a preferable forum for considering matters, 

such as protection of "cultural industries," that are treated differently in NAFTA and the WTO. Indeed, in 

response to a U.S. complaint, a WTO dispute settlement panel recently found Canada's taxes on so-called 

split-run magazines' in violation of GATT 1994. 44 

39 OAS Trade Unit, NAFTA Rules: Exporting Framework for Trade, informal transmittal to USITC staff, May 

22, 1997. 

40 APEC, Individual Action Plan, Mexico, Nov. 1996, p. 2. 

41 Testimony of Richard J. Heckmann, President and Chief Executive Officer, U.S. Filter Corp. before the U.S. 

International Trade Commission in inv. 332-381, May 15, 1997. 

42 NAFTA Government Procurement Working Group, 1994-96 Report to the Free Trade Commission, p. 3. 

Although the Uruguay Round generally resulted in the expansion of coverage by the Government Procurement 

Agreement (GPA), Mexico still is not a signatory to the GPA and the United States and Canada failed to agree to accord 

each others' sub-Federal entities and utilities nondiscriminatory treatment. Canada maintains that coverage of subfederal entities is tied to removal of set asides and Buy America provisions, a position the United States rejects. U.S. 

Department of State Telegram No. 58176, "NAFTA Working Group on Procurement: March 20-21 meeting," Mar. 28, 

1997. 

43 The Canadian measure applied to special edition periodicals imported into Canada that contain an 

advertisment primarily directed to a market in Canada that does not appear in identical form in all editions of that 

periodical distributed in the periodical's country of origin. 

44 The dispute settlement panel in the case found that certain Canadian measures were inconsistent with 

Articles XI: 1, XX(d), III:2, III:4, and III:8(b) of GATT 1994. World Trade Organization , " Report of the Panel on 

Canada - Certain Measures Concerning Periodicals," WT/DS31/R, Mar. 14, 1997, para. 6.1. 

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For matters arising under both the NAFTA and the WTO, NAFTA establishes a procedure for 

notification and consultation prior to resort to WTO dispute settlement. NAFTA partners may choose either 

agreement's dispute settlement procedure; the choice is made by the complaining party.' Regardless of the 

forum to which a dispute is brought, the scope of the panel's examination is limited to whether the practice 

being complained of violates that particular agreement. Thus, the NAFTA panel examining the U.S. 

complaint on dairy and poultry found Canada's actions consistent with NAFTA itself, not that WTO rules 

per se take precedence over NAFTA.' NAFTA article 103 states that unless otherwise provided in the 

Agreement, in case of a conflict between NAFTA and WTO provisions, the NAFTA provisions prevail. 

45 NAFTA Art. 2005.1. However, NAFTA article 2005.2 states that if the Parties cannot agree on a forum, 

"the dispute normally shall be settled under this Agreement." 

46 The panel's reasoning was that article 710 of the CFTA brings into NAFTA by reference the replacement 

regime for nontariff barriers that was ultimately established for the WTO Agreement on Agriculture. As a result, the 

Canadian duty increases were found to be "otherwise provided for in the agreement," and therefore consistent with 

NAFTA article 302. NAFTA Secretariat, In the Matter of Tariffs Applied by Canada to Certain U.S.-Origin 

Agricultural Products (Secretariat File No. CDA-95-2008-01), Final Report of the Panel. 

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CHAPTER 3 

THE NORTH AMERICAN ECONOMIES 

Introduction 

A brief review of the overall size of the U.S., Mexican, and Canadian economies and their recent 

performance provides a perspective for understanding NAFTA's impact on the U.S. economy and U.S. 

industries during its first three years of operation. The discussion below provides such a perspective focusing 

mainly on the 1994-96 period. Trends and developments during NAFTA's first three years are placed in a 

longer term context through the use of charts and textual references. 

NAFTA links three nations that share borders, yet which differ markedly in economic size and 

population. Canada's and Mexico's economies are each about 10 percent as large as the U.S. economy on a 

purchasing power parity basis.' Mexico's population is one-third that of the United States and nearly three 

times as large as Canada's. Canada's population enjoys one of the world's highest per capita incomes. 

Mexico remains a middle income developing country with per capita income less than a third that of either the 

United States or Canada. Estimates of 1995 levels of purchasing power parity,. Gross Domestic Product 

(GDP), population, and GDP per capita are presented below. 2 

GDP Population GDP per capita 

(billion) (million) (actual) 

United States $7,248 266.5 $27,500 

Canada 694 28.8 24,400 

Mexico 721 95.8 7,700 

On an exchange rate (current U.S. dollar) basis, Mexico's economy is even smaller, equalling just 

over 4 percent of U.S. GDP in 1996 and accounting for a little under 4 percent of overall North American 

GDP in 1996. The United States accounted for 89 percent of North American GDP. Canada, whose 

economy was just under 8 percent of the United States' on an exchange rate basis, accounted for just under 7 

percent of North American GDP (figure 3-1). 3Because of its relatively smaller size, a high export-to-GDP 

ratio (approximately 29 percent in 1996), 4and its heavy dependence on trade with the United States, 

Purchasing power parity is a method of comparing magnitudes expressed in different currencies by comparing their 

ability to purchase a particular mix of market goods. 

2 1995 levels, as reported in the CIA, 1996 World Fact Book 

3 International Monetary Fund, International Financial Statistics. 

4 Based on the ratio of actual 1996 merchandise trade exports and the estimated value of Mexican GDP in 1996, as 

reported in U.S. Department of State, Country Reports on Economic Policy and Trade Practices, Mar. 1997, pp. 274-

275. 

3-1 3-1
Mexico 328.0 

(4%) 

Canada 580.3 

(7%) 

United States 7,576.1 

(89%) 

Figure 3-1 

1996 GDP for Canada, Mexico, and the United States, actual and as a share of NAFTA members' 

combined GDP (total North American GDP) 

Billion dollars 

Source: U.S. Department of Commerce, Bureau of Economic Analysis, and U.S. Department of State, Country 

Report on Economic Policy and Trade Practices, March 1997. 

3-2
Mexico's economy was expected to be the most affected by NAFTA implementation. Canada, too, is highly 

dependent on exports and on the U.S. market, but had already benefited from preferred access under the U.S.-

Canada Free Trade Agreement (CFTA). 

Economic trends in North America during the 1994-96 period illustrated the increasing 

internationalization of all three North American partners and their growing interdependence. Growth rates of 

the three economies varied (figure 3-2). The U.S. economy continued to outperform the Organization for 

Economic Cooperation and Development (OECD) average, as it has since 1991, when its longest postwar 

expansion began. Inflation remained low, job growth was robust, and U.S. exports increased, even as 

progress was made in reducing the U.S. Federal budget deficit. The overall U.S. trade deficit expanded, 

largely due to faster growth in the U.S. economy vis-a-vis the economies of most major U.S. trading partners. 

The U.S. share of both the Canadian and Mexican import markets has risen during the 1994-96 period. The 

current account deficit as a share of GDP increased from 1993 to 1994 but remained steady thereafter. 

Canada's export-driven economy continued to track closely that of the United States, outperforming the 

OECD average in 1994 and 1995. 

Mexico's economic growth had slowed considerably in the 2 years preceding NAFTA, grew rapidly 

in 1994, and then experienced its worst recession since the 1930's in the wake of the December 1994 peso 

crisis.' Decisive measures returned Mexico to solvency,' improved its external accounts, and put the country 

on a path of renewed economic growth by 1996. U.S. exports to Mexico recovered most of the ground lost 

during 1995, and still exceed their pre-NAFTA levels. Indeed, on a percentage basis, non-U.S. markets and 

suppliers appear to have been more negatively affected by the peso-induced shift in Mexico's trade balance 

since 1994 than their U.S. counterparts.' A country-by-country review of economic performance by NAFTA 

partners follows. 

United States 

Economy 

The U.S. economy performed remarkably well in the 1994-96 time frame that coincided with 

NAFTA's first 3 years of operation (table 3-1), entering 1997 well into its sixth year of economic expansion. 

National income grew at rates generally higher than those prevailing in other industrialized countries, 

unemployment declined, and inflation remained subdued, despite upward movements in energy and food 

prices and wage costs over the past year. Productivity increased and wage hikes were offset by a slowing of 

5 1n May 15, 1997, testimony before the Commission, Sidney Weintraub referred to the Mexican contraction as a 

virtual "depression," being substantially larger in percentage terms (Mexico's GDP declined by 6.9 percent in 1996) 

than in the recessions that followed the 1982 debt crisis and 1985 earthquake, when GDP declined by 4.3 and 3.8 

percent, respectively, according to OECD statistics. 

6See Mexico section, below, for further details. 

7See Mexico section, below, for further details. 

3-3 3-3
Figure 3-2 

Real GDP growth, Canada, Mexico, and the United States, 1980-96 

Percentage 

10 

8 

6 

4 

2 

0 

—2 

—4 

—6 

—8 

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 

est. 

Source: OECD, Economic Outlook, Dec. 1996. 

3-4 

3-4
Table 3-1 

Key economic indicators for the United States 

Item 1994 1995 1996 

Real GDP growth (percentage change) 3.5 2.0 2.4 

Non residential fixed investment 

(percentage change) 9.8 9.5 7.2 

Investment in producers' durable equipment 

(percentage change) 13.2 10.4 13.41 

Labor force participation rate (percentage of 

working age population) 66.6 66.6 66.8 

Index of industrial production (percentage 

change) 5.9 3.2 3.2 

Capacity utilization rates 83.9 83.8 83.2 

Consumer credit outstanding (billion dollars2) . 966.5 1,103.3 1,190.6 

Consumer Price Index (percentage change) . . . . 2.6 2.8 3.0 

Unemployment rate 6.1 5.6 5.4 

Civilian employment (millions) 123.1 124.9 126.7 

Real private consumption expenditure 

(percentage change) 3.1 2.3 2.5 

GDP current dollars (billion dollars') 6,935.7 7,253.8 7,576.1 

General government balance 

(percentage of GDP) 2.5 -2.0 -1.7 

IEstimated based on average of first 3 quarters of 1996. 

'As of November 1996. 

3Source: International Monetary Fund. 

Source: These data have been extracted from: Council of Economic Advisors (CEA), Economic Report of the 

President, Feb. 1997 and OECD, Economic Outlook, Dec. 1996, except where a different source for actual 

data is indicated. 

3-5 3-5
nonwage labor costs and a decline in the cost of capital, resulting in a drop in the core rate of inflation to its 

lowest level in 30 years (figure 3-3). 8 

Although the expansion of U.S. growth slowed in 1995, largely as a result of a tightening of U.S. 

monetary and fiscal policies, this was generally viewed as a welcome cooling off of an economy in danger of 

"overheating." Growth picked up sharply in the spring of 1996. Boosted by 3.9-percent growth in the fourth 

quarter of 1996, real GDP for the year as a whole grew by 2.4 percent, faster than the 2.0-percent growth rate 

in 1995, according to the U.S. Department of Commerce. Most recent data indicate that real U.S. GDP 

increased by 5.6 percent in the first quarter of 1997, fueled by a sharp upturn of investment spending over the 

fourth quarter of 1996, and a 6.4 percent rise in real personal consumption expenditures. 

The industrial production index stood at 119.6 in the first quarter of 1997, up from 117.7 percent in 

December 1996 (1992=100). Despite a 3.7-percent increase in capacity from March 1996 to March 1997, 

capacity utilization stands at 84.1 percent, 2 percentage points higher than the 1967-96 average of 82.1 

percent. U.S. industrial production and capacity grew steadily in the 1994-96 period, continuing a trend 

begun in 1991; utilization rates varied, but remained high. 9Other indicators reflect the strong consumer 

demand and underlying vitality of the current U.S. economic expansion. The Conference Board's composite 

index of leading indicators, for example, advanced 0.5 percent in February 1997. 

U.S. growth rates in the 1990s, like those in other major countries and regions, have been lower than 

those experienced in the previous three decades, when real U.S. growth averaged 4.3 percent from 1960-73, 

2.9 percent from 1973-79, and 2.7 percent from 1979-89. This long-term deceleration has been primarily 

attributed to weak productivity growth and smaller increases in the working age population. 1°Recent 

productivity news, however, has been heartening. The U.S. Department of Labor reports that overall U.S. 

labor productivity grew faster in 1996 than it had in any of the past 10 years (with the exception of 1992). 

U.S. manufacturing productivity grew by 3.8 percent in 1996, the largest increase since 1987. 11 

The U.S. unemployment rate has declined steadily since 1992, falling to 5.4 percent in 1996 (figure 

3-4). 12By April 1997, the U.S. unemployment rate stood at 4.9 percent, the lowest level in 24 years. Job 

creation continues to be robust. Indeed, the IMF termed U.S. job creation "quite impressive," with 

8OECD, OECD Economic Outlook, No. 60, December 1996, pp. 43 and 45. 

9 Federal Reserve Board, Federal Reserve Statistical Release, No. G.17 (419), Apr. 16, 1997, "Industrial Production 

and Capacity Utilization," pp. 1 and 3. 

1°OECD, OECD Economic Outlook, No. 60, Dec. 1996, pp. 18-19. 

11 Bureau of Labor Statistics data, as reported by Michael Youssef, "International Economic Developments," U.S. 

International Trade Commission, International Economic Review, Feb./Mar. 1997, USITC publication 3029. For the 

1989-96 period, U.S. manufacturing productivity grew at the following annual rates: 1.8 percent in 1989, 1.8 percent on 

1990, 2.5 percent in 1991, 3.6 percent in 1992, 2.1 percent in 1993, 3.1 percent in 1994, 3.4 percent in 1995, and 3.8 

percent in 1996. 

12Council of Economic Advisors (CEA), Economic Report of the President, Feb. 1997, Table B-40, p. 346. 

3-6 3-6
Figure 3-3 

Inflation (change in consumer prices) for the U.S., 1980-96 

Percentage 

14 

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 

Source: OECD Economic Outlook, Dec. 1996 and U.S. Department of Labor Consumer Price Indexes, Nine 

Countries, Apr. 1997. 

Figure 3-4 

Unemployment rate for the United States, 1980-96 

Percentage 

12- 

10- 

• 

• 

• 

• 

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 

Source: OECD Economic Outlook, Dec. 1996. 

O f 

1980 1996 

est. 

3-7
employment having expanded by roughly 60 percent since 1970, versus the 11 percent increase registered in 

the European Union (EU) in the same period. 13Since January 1994, 3.65 million jobs have been added to 

the U.S. economy, according to the Bureau of Labor Statistics.' The percentage of the population that is 

employed, at 63 percent, approached a record high in 1996. 15 

Nonfarm payroll U.S. employment expanded by 240,000 jobs per month on average in the first eight 

months of 1996, a rate which has since slowed. This rate contrasts with the total of some 100,000 workers 

that were certified during NAFTA's first 3 years as qualified for NAFTA-related Trade Adjustment 

Assistance (NAFTA-TAA), which is aimed at persons having lost jobs due to increases in imports from, or 

shifts in production to, NAFTA partners.' The current total number of NAFTA-TAA certified workers 

stands at 126, 686. 17The number of workers under the NAFTA-TAA program was 2.4 percent of the total 

number of U.S. workers dislocated during the 1993-95 period.' 

Several factors make this number an unreliable gauge of U.S. jobs "lost" due to NAFTA. The 

number of jobs existing in the economy is primarily a macroeconomic phenomenon; trade agreements such as 

NAFTA generally affect the composition, not the overall level, of U.S. employment. The number of workers 

certified for NAFTA Trade Adjustment Assistance is not necessarily a good proxy for such changes. 

Limited familiarity with the program and training requirements and time limits associated with it may mean 

that workers choose to seek assistance under the overall Trade Adjustment Assistance program or to accept 

alternate employment (which would tend to understate the number of NAFTA-impacted workers). On the 

other hand, the program is not tied to NAFTA provisions per se, but rather to increases in imports from, or 

shifts in production to, NAFTA partners (which would tend to overstate the number of NAFTA-impacted 

workers). 

Concerns have been raised about the quality of new jobs being created in the United States and about 

growing inequality in income distribution. The Council of Economic Advisors (CEA) reported recently that, 

although most of the new jobs created in the 1990s are "good" jobs, the number of lower-paying jobs also 

increased, and employment in the middle of the earnings distribution fell. The CEA further noted that "a 

disproportionate share" of employment growth in the current expansion is in the service sector. Nevertheless, 

during the February 1994-February 1996 period (most of the period being studied in this investigation), the 

CEA reported that managerial and professional jobs were the main contributor to net increases in services 

employment.' Meanwhile, gains in real household income during the 1993-95 period were greater, in 

percentage terms, for the lowest-income households.' 

13International Monetary Fund, World Economic Outlook, Oct. 1996, p. 52. 

14CEA, Economic Report of the President, Feb. 1997, Table B-34, p. 340. 

13 Ibid., p. 141. 

16 Durm.g the Jan. 1, 1994-Dec. 31, 1996 period, the U.S. Department of Labor instituted 1,553 NAFTA Trade 

Adjustment Assistance (NAFTA-TAA) cases involving 181,741 workers; 1,452 of these, involving 167,650 workers, 

had been decided by year end 1996: 99,861 workers were certified as eligible for benefits under the program, and 

66,894 were denied benefits under the program (41 petitions, involving 895 workers, were withdrawn). 

17As of May 15, 1997, a total of 1,817 cases had been decided and 126,686 workers had been certified. U.S. 

Department of Labor, Employment and Training Administration, Office of Trade Adjustment Assistance, informal 

transmittal to U.S. International Trade Commission staff, May 15, 1997. 

18U.S. Department of Labor, Bureau of International Labor Affairs, fax transmittal, May 8, 1997. 

19CEA, Economic Report of the President, Feb. 1997, pp. 141-42. 

p. 164. 

3-8 3-8
Analyses of recent data also suggest that most of the jobs being created in the United States pay 

above-average wages, with most new jobs being full- rather than part-time.' The share of part-time 

employment in total employment declined during the 1994-96 period, partly reversing rises in part-time work 

that occurred during the 1989-92 period.' Wage growth, particularly for white-collar workers, has 

accelerated.' Moreover, there was a decline in the share of U.S. households living below the poverty level in 

both 1994 and 1995. 24Even so, total compensation has risen by less than productivity, a trend begun in the 

early 1980s." White-collar, older, and more educated workers have become more susceptible to job loss." 

Total U.S. exports set new records in each of the past 3 years, making the United States the world's 

leading exporter. Indeed, the World Trade Organization (WTO) reports that U.S. exports grew three times 

faster than the world average during 1996, rising by 11.9 percent, versus a 4-percent rise in world exports 

generally.' The OECD reports that relative U.S. competitiveness' has increased during the time NAFTA 

has been in force, continuing a trend that began in 1990." A recently-released annual survey ranking 

countries by competitiveness placed the United States No. 1 in the world in 1997, the third year in a row it 

was accorded top ranking." 

The current account deficit widened in 1996 (figure 3-5), even though the U.S. deficit in investment 

income narrowed substantially. The U.S. deficit on trade in goods and services expanded to $114.2 billion in 

1996, largely due to weaker growth in foreign markets compared with that of the United States, notably in 

Canada, the EU, Singapore, and Korea. The appreciation of the U.S. dollar on foreign exchange markets 

since mid-1995 may also have played a role. However, U.S. exports posted a sharp turnaround in the fourth 

quarter of 1996, and U.S. exports are expected to pick up in 1997, as growth in such key foreign markets 

strengthens The U.S. current account deficit as a percent of GDP is thus expected to stabilize at about 2 

percent,31up from the 1.5 percent rate in 1993 but smaller than the rate prevailing during the 1984-1988 

21IMF, World Economic Outlook, October 1996, p. 53. 

nCEA, Economic Report of the President, Feb. 1997, p. 145. 

z3 OECD, OECD Economic Outlook, No. 60, Dec. 1996, p. 45. 

24CEA, Economic Report of the President, Feb. 1997, Table B-31, p. 336. 

25 Ibid., pp. 149-51. 

26 Ibid., p. 153. 

27WTO, Press Release, No. 7, Apr. 4, 1997. 

28The indicators used are relative average value of manufactured exports, relative unit labor costs in manufacturing, 

and relative consumer prices. 

29OECD, OECD Economic Outlook, No. 60, Dec. 1996, annex figure 4, p. A-64. 

"The Economist, Mar. 29, 1997, p. 7. 

31OECD, OECD Economic Outlook, No. 60, Dec. 1996, p. 48. 

3-9 3-9
0 

—1 

—2 

—3 

-4 T r I 

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 

est. 

Figure 3-5 

Current account balance, percent of GDP, for the U.S., 1980-96 

Source: OECD Economic Outlook, Dec. 1996. 

3-10
period. (The recession year of 1991 was the only year since 1983 that the U.S. current account deficit as a 

share of GDP was close to zero.) 32 

The United States has made steady progress towards general government budget balance since 

1992,33with an improvement in structural terms of about 2 1/4 percentage points of GDP by 1996 (figure 3-

6).34The cyclical recovery since the second quarter of 1991 and cuts in discretionary spending, particularly 

in defense, have brightened the U.S. fiscal outlook. In fiscal year 1996 (ending September 30), the ratio of 

the federal budget deficit (budget basis) to GDP was 1.4 percent, the smallest it has been since 1974; the 

overall public debt-to-GDP ratio is expected to fall for the first time since 1989." Business confidence and 

profits have both been high, keeping business investment in new plant and equipment, particularly 

information processing equipment, buoyant." The U.S. stock market reached successive record highs during 

the period, generating a "wealth effect" for asset-owning households otherwise showing signs of needing to 

retrench in the face of mounting consumer indebtedness. Consumer spending, the largest component of U.S. 

GDP, has remained strong (figure 3-7). Consumer confidence is also high and real disposable personal 

income expanding.' 

Despite increased U.S. investment in new plant and equipment, capacity utilization rates remain high. 

The OECD found the U.S. economy one of the few to be operating at or above its potential level in 1996; 

sizeable output gaps were evident in most other industrialized countries." Thus, economists at the IMF, the 

OECD, the CEA, and the Federal Reserve all appear to agree that the biggest threat to the U.S. economy 

today is revived inflation, given continued signs of strong U.S. economic activity, high capacity utilization 

rates, rises in employment and incomes, and expanding employment." Some signs of weakness have 

emerged in recent weeks, including a decline in retail sales in April 1997, a drop in new orders for 

manufactured goods in March 1997, and a build-up in inventories during the first quarter of 1997. 

Nevertheless, a continuation of moderate growth is predicted by most economists in the coming two years, 

32 Ibid., p. A-54. 

33IMF, World Economic Outlook, Oct 1996, p. 18. 

34OECD, OECD Economic Outlook, No. 60, Dec. 1996, pp. 9-10. 

36OECD, OECD Economic Outlook, No. 60, Dec. 1996, p. 45. 

36CEA, Economic Report of the President, Feb. 1997, Table B-17, p. 317 indicates that real private nonresidential 

gross fixed investment, particularly for durable goods, expanded briskly in each of NAFTA's first three years . 

37CEA, Economic Report of the President, Feb. 1997, p. 78. 

38OECD, OECD Economic Outlook, No. 60, Dec. 1996, p. 4. 

39Others reject the idea that the United States has reached full employment, and believe that NAFTA has foreclosed 

job opportunities in high wage manufacturing jobs. Testimony of Steve Beckman, International Economist, United Auto 

Workers, before the U.S. International Trade Commission in Investigation 332-381, May 15, 1997. 

3-11 3-11
Figure 3-7 

Real private consumption expenditure, percent change for the U.S., 1980-96 

5.5 

4.5- 

3.5- 

Figure 3-6 

General government structural balance for the U.S., 1980-96 

Surplus (+) or deficit (-) as a percentage of potential GDP 

—4.5 , , I T T, I I I I I 

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 

est. 

Source: OECD, Economic Outlook, Dec. 1996. 

2.5- 

1.5 

0.5 

11 g 

—0.5 

g 

—1.5 , , } I ' 

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 

est. Source: OECD, Economic Outlook, Dec. 1996. 

3-12
with real growth forecast to be just over 2.5 percent in 1997, 4°and the IMF recently upping its projected real 

GDP growth estimate for the U.S. economy to 3.0 percent.' 

Foreign Trade 

Since NAFTA's implementation, overall U.S. trade has continued to grow, as has trade with NAFTA 

partners. The ratio of exports to U.S. national income has risen steadily, from 10.3 percent in 1993 to 10.8 

percent in 1994, 11.5 percent in 1995, and 11.8 percent of U.S. GDP by the third quarter of 1996. 42By 

1996, the Commerce Department reported that total U.S. exports stood at a record $624.8 billion and U.S. 

imports reached $791.4 billion, resulting in a $166.6 billion deficit in merchandise trade. U.S. exports to 

North America amounted to $190.4 billion, with exports to Canada totaling $133.7 billion and exports to 

Mexico totaling $56.8 billion. Imports from them, at $156.5 billion and $73.0 billion respectively, totaled 

$229.5 billion, resulting in a $39.0 billion deficit in trade with North America, as shown in the following 

tabulation: 43 

40 Based on projections by six different forecast groups compiled by the Conference Board and reprinted with 

permission in U.S. International Trade Commission, International Economic Review, July 1997, forthcoming. 

41 IMF, World Economic Outlook, May 1997. 

42 CE , Economic Report of the President, Feb. 1997, p. 302. 

43 U.S. Department of Commerce, FT-900, Feb. 1997. These data differ from the bilateral data reported later in the 

Mexico and Canada sections respectively, which are derived by the U.S. International Trade Commission based from 

Census data Among the differences are that the Commerce Department FT-900 reports general imports, but the U.S. 

International Trade Commission figures are imports for consumption (both are on a customs value basis); Commerce 

reports total exports on an f a.s. basis, versus the U.S. International Trade Commission figures, which are domestic 

exports (both are on a f a.s. basis). FT-900 data include all errata corrections identified after the release of monthly 

tapes as well as adjustments for carryover. 

3-13 3-13
1993 1994 1995 1996 

Exports: 

Total 465,091 512,626 584,742 624,767 

North America 142,025 165,282 173,518 190,429 

Canada 100,444 114,439 127,226 133,668 

Mexico 41,581 50,844 46,292 56,761 

Imports: 

Total 580,659 663,256 743,445 791,364 

North America 151,134 177,900 207,033 229,469 

Canada 111,216 128,406 145,349 156,506 

Mexico 39,917 49,494 61,685 72,963 

Balance: 

Total -115,568 -150,629 -158,703 -166,597 

North America -9,108 -12,618 -33,515 -39,040 

Canada -10,772 -13,967 -18,123 -22,838 

Mexico 1,664 1,350 -15,393 -16,202 

Using a longer time series compiled by the U.S. International Trade Commission from official U.S. 

Commerce Department data, it is clear that the rate of expansion of the U.S. trade deficit with NAFTA 

partners has generally been slower than the expansion in the U.S. trade deficit overall (figure 3-8). However, 

over the 1993-96 period, the U.S. trade deficit with North America has widened at a rate 7.4 times faster than 

the overall U.S. trade deficit. 

North America remained the United States' leading regional export market,' accounting for some 30 

percent of U.S. exports and 29 percent of U.S. imports in 1996. The import share of North American 

suppliers rose slightly. North America's relative importance to total U.S. exports fluctuated, but remained 

on par with its 1993 level, as shown in the following tabulation: 45 

North America's 

Share of U.S. exports Share of U.S. imports 

1993 30.5 26.0 

1994 32.2 26.8 

1995 29.7 27.9 

1996 30.5 29.0 

44 U.S. exports to North America were $190.4 billion in 1996 compared with $188.0 billion with the Pacific Rim and 

$141.4 billion with Western Europe. The Pacific Rim was a more important import supplier, however, accounting for 

$290.0 billion in U.S. imports in 1996, versus North America's $229.5 billion. 

45 Derived from official statistics of the U.S. Department of Commerce, FT-900, Feb. editions for 1995, 1996 and 

1997. 

3-14 3-14
Figure 3-8 

U.S. mechandise trade balance overall, and with Canada and Mexico, 1989-96 

Million dollars 

50 

0 

—50 

—100 

—150 

—200 

—250 

1989 1990 1991 1992 1993 1994 1995 1996 

Source: Compiled by USITC staff from official statistics of the U.S. Department of Commerce. Exports are domestic 

exports (f.a.s.) imports are for consumption (customs value). 

3-15
Canada's share of U.S. trade remained relatively constant, standing at 21.4 percent of total U.S. 

exports in 1996 and 19.8 percent of total U.S. imports in 1996 (from 21.6 percent of U.S exports and 19.2 

percent of U.S. imports in 1993). Mexico's share of U.S. imports rose steadily, while its share of U.S. 

exports rose sharply in 1994, fell in 1995, and regained much of the ground lost in 1996, as shown in the 

following tabulation: 46 

Mexico's 

Share of U.S. exports Share of U.S. imports 

1993 8.9 6.9 

1994 9.9 7.5 

1995 7.9 8.3 

1996 9.1 9.2 

U.S. exports to North America grew by about the same percentage as overall U.S. exports during the 

1993-96 period though U.S. exports to Mexico grew by a slightly wider margin (by 36.5 from 1993 to 1996, 

compared with the increase in overall U.S. exports of 34.3 percent). The growth in U.S. exports to North 

America is more significant when considered against the sharp appreciation of the dollar versus the Mexican 

peso that began in late 1994, which made U.S. exports to Mexico more expensive, and the steep recession 

experienced by Mexico in 1995 and 1996. Indeed, the increase in U.S. exports to Mexico in 1996 was about 

five times greater than the estimated increase in Mexico's real GDP that year.' 

U.S. imports from North America increased at a substantially higher rate than overall U.S. imports: 

Percent Change 

U.S. exports U.S. imports 

1993 to 1996 1993 to 1996 

North America 34.1 51.8 

Total 34.3 36.3 

U.S. imports from Mexico grew particularly rapidly, rising by 82.8 percent over the 1993-96 period. 

46 Derived from official statistics of the U.S. Department of Commerce, F7'-900, Feb. editions for 1995, 1996 and 

1997. 

47 Based on figures contained in CEA, Economic Report of the President, Feb. 1997, p. 81. 

3-16 3-16
Mexico 

Mexico's economic policy since 1989 evolved in the context of preparations for a trade agreement 

first with the United States only, then for a trilateral NAFTA (1990-93), and subsequently in the context of 

NAFTA in operation (1994-96). Mexico also continued to implement policies associated with its 1986 

GATT accession protocol and to pursue unilateral economic reforms. The last 2 years of this period (1995-

96) were dominated by the "peso crisis"-- the adverse consequences of Mexican macroeconomic and 

monetary policies generally preceding and unrelated to NAFTA." Some attribute Mexico's relatively rapid 

rebound in 1996 to NAFTA and to the increased competitiveness of certain sectors of the Mexican 

economy.' 

Economy 

When Mexico began considering a free-trade accord with the United States in the summer of 1990, 

its economy was in a position of relative strength, with a growth rate in real GDP of 4.4 percent (figure 

3-9)." However, growth thereafter declined each year, and the economy virtually stagnated with a growth 

rate of 0.6 percent in 1993. Rising labor costs, slowing employment growth, declining profit margins by 

some companies competing in a market increasingly open to foreign competition, and concerns over the 

widening of the current account deficit were among the factors dampening Mexico's economic prospects on 

the eve of NAFTA.' Thus, by the time Mexico joined the United States and Canada in NAFTA on January 

1, 1994, its economy had been weakened. 

In October 1993, then-President Carlos Salinas de Gortari began to address economic stagnation by 

introducing various stimuli in his economic plan (pacto) for 1994. 52In addition to its sluggish economy, 

48 Certain public submissions for the Commission's present investigation (e.g., Anderson, Cavanaugh, and Ramney of 

the Institute for Policy Studies and Robert Blecker of the Economic Policy Institute) claimed there was a link--albeit 

indirect--between NAFTA and the peso crisis. Specifically, they said, NAFTA "locked in" policies that were already 

destabilizing to the Mexican economy and impoverishing Mexico's farmers and workers. 

49 See, for example, statements and/or submissions made in connection with this investigation by Gary Hufbauer, 

Jeffrey Schott, and Jacqueline McFadyen, Institute for International Economics; Albert C. Zapanta, United StatesMexico Chamber of Commerce; Williard A. Workman, U.S. Chamber of Commerce; and the National Foreign Trade 

Council. 

5°For more detail, see U.S. International Trade Commission, The Year in Trade: OTAP, 1990, USITC publication 

2403, p. 126. 

51 Banco de Mexico, The Mexican Economy, 1993. 

52 Since the end of 1987, a series of annual accords ("pacto") between the government, business, and labor have 

constituted the framework of Mexico's economic policies. Such an accord, the "Pact for Stability, Competitiveness, and 

Employment," signed in October 1993, was in effect through the end of the first NAFTA year. 

3-17 3-17
Figure 3-9 

Real GDP growth, for Mexico, 1980-96 

Percentage 

10 

8 

6 

4 

2 

0 

—2 

—4 

—6 

—8 

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 

est. 

Source: OECD, Economic Outlook, Dec. 1996. 

3-18
Mexico's prospects at the beginning of the actual NAFTA era were also clouded by political instability-- 

uprisings' and political assassinations.' Yet, during 1994, the Mexican economy performed well again in 

terms of economic growth (3.5 percent), and continued control of the rate of inflation, which declined from 

26.7 percent in 1990 to 7.0 percent in 1994 (figure 3-10). Real private consumption expenditures increased 

in 1994 by 3.7 percent (figure 3-11). But, a large trade deficit ($18.5 billion), current account deficit ($29.5 

billion), low level of foreign exchange reserves ($6.1 billion), and an artificially high exchange rate for the 

peso (an annual average of 3.4 pesos to the dollar), indicated serious macroeconomic imbalances. A 

perception by investors that Mexican securities were risky, in combination with the lure of high interest rates 

in advanced industrial countries, caused a massive outward flow of portfolio capital from Mexico during the 

first NAFTA year.' Table 3-2 summarizes the major macroeconomic data for the Mexican economy during 

the first three NAFTA years. 

Table 3-2 

Key Economic Indicators for Mexico 

Actual Estimated 

Item 1994 1995 1996 

Real GDP growth (percentage change) 3.5 -6.9 4.01 

Consumer Price Index (percentage change) . . . . 7.0 35.0 26.53 

Unemployment rate 3.7 6.3 6.0' 

Real Private Consumption Expenditure 

(percentage change) 3.7 -12.9 2.51 

Current Account Balance; end-of-period (billion 

dollars) -29.52 0.72 -0.1 2 

Current Account Balance (percent of GDP) . . . . -8.0 0.2 0.01 

Avg. Annual Exchange Rate (pesos per US$) 3.42 6.52 7.62 

Short-term and long-term interest rates 13.82 39.82 34.01 .2 

Estimate. 

2Source; U.S. Embassy, Mexico, Foreign Investment Report, 1996-97, Oct. 1996, Annex B. 

3Department of State, Country Reports on Economic Policy and Trade Practices, Mexico, March 1997, p. 

274. 

Source: OECD, Economic Outlook, Dec. 1996, Annex, and OECD, Main Economic Indicators, March 

1997, unless otherwise specified. 

53Notably, the January 1994 uprising of the Zapatista National Liberation Army (EXLN) in Chiapas, in protest of the 

country's social and political conditions. 

54 Notably, the assassination of Luis Donaldo Colosio in March 1994, who had been nominated to succeed President 

Salinas, and by subsequent violent acts against prominent individuals. 

55Mexico's peso crisis was discussed in detail in U.S. International Trade Commission, The Year in Trade: OTAP, 

1994, USITC publication 2894, pp. 85-86. 

3-19 3-19
Figure 3-10 

Inflation (change in consumer prices) for Mexico, 1980-96 

Percentage 

140 

0- I I 1 I 

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 

est. 

Source: OECD Economic Outlook, Dec. 1996. 

Figure 3-11 

Real private consumption expenditure for Mexico, 1980-96 

Percentage 

10-, 

—10- 

—1 5-1 

, , , I •

, I I I I I I I I 1 I 

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 

est. 

Source: OECD Economic Outlook, Dec. 1996. 

3-20
All these tensions came to a head on December 20, 1994, when the new Government of Ernesto 

Zedillo Ponce de Leon" devalued the peso by widening the dollar/peso , exchange rate band. (Up to this point, 

the peso had been relatively stable since 1989, declining gradually from an annual average 2.5 pesos to the 

U.S. dollar in 1989 to an annual average 3.1 pesos to the dollar in 1993 (figure 3-12).) On December 22, 

1994, 2 days following the devaluation, market pressures forced the Government of Mexico (GOM) to float 

the peso freely, and the Mexican currency sharply depreciated from 3.5 pesos to 5.7 pesos to the dollar. 

Following announcement of an international loan package granted to Mexico on January 31, 1995, 5' the peso 

strengthened temporarily, but then continued to weaken. The average trade-weighted exchange rate was 6.4 

pesos to the dollar during the year. 

In 1995 and 1996, the state of the Mexican economy was heavily influenced by the 1994 peso crisis 

and its aftermath. The international loan package saved Mexico from an immediate default, but increased the 

country's high foreign indebtedness and left financial markets destabilized. On March 9, 1995, President 

Zedillo introduced an austerity program, which provided for major tax hikes, drastic increases in the prices of 

oil and electricity, stringent federal budget cuts, and tight limits for extending credit. These measures led to 

Mexico's deepest recession since the 1930's. 

Economic activity in Mexico declined by 6.9 percent (figure 3-9), and average wages plummeted by 

more than 20 percent during 1995. Interest rates for a time surged above 90 percent, contributing to a severe 

credit mulch.' The high interest and mortgage rates choked off investment, and caused bankruptcies and 

loan defaults to the point where the solvency of the entire banking system was threatened, requiring rescue by 

the GOM. Inflation accelerated, despite the March austerity measures designed to reduce the inflationary 

impact of the peso's devaluation on the economy. On an annual average basis, the consumer price index 

increased 35 percent in 1995 (figure 3-10). 

Unemployment according to official Mexican definitions had been below 3 percent in the 1989-92 

period; it edged up to 3.4 percent in 1993 and was 3.7 percent in 1994. After the peso crisis, official 

unemployment surged to an annual average of 6.3 percent in 1995 and was recorded at an estimated 6.0 

percent in 1996 (figure 3-13). However, a broader measure of unemployment by Mexico's National 

Statistical and Geographics Institute, which considers persons employed less than 35 hours per week as out of 

work, showed that 28.7 percent of the economically-active population was unemployed in May and 26.4 

percent in December 1995. More than 1 million jobs were reportedly lost following the peso crisis.' High 

56Ernesto Zedillo took office on December 1, 1994. 

57For details on the $50 billion international loan package assembled under U.S. leadership, see U.S. International 

Trade Commission, The Year in Trade: OTAP, 1994, USITC publication 2971, pp. 86-87. 

58See also U.S. International Trade Commission, The Year in Trade: OTAP, 1995, USITC publication 2971, pp. 25-

26. 

59See also U.S. International Trade Commission, The Year in Trade: OTAP, 1995, USITC publication 2971, pp. 25-

26. Recent reports by Mexico's National Institute of Statistics, Geography, and Informatics and Social Security Institute 

suggest that the number of Mexican job holders increased steadily in 1996 and 1997, though labor market improvements 

still lag behind gains in industrial production and exports. U.S. Department of State telegram No. 3811, "Mexican 

Unemployment stable in March," Apr. 18, 1997. 

3-21 3-21
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 

Figure 3-12 

Trade weighted nominal exchange rates versus the U.S. dollar for Canada and Mexico, 1984-96 

Canadian dollar, Mexican peso 

10 

I 

8 

6 

4 

2 

0 

III Canada Mexico 

Source: Compiled by USITC staff from official statistics of the U.S. Department of Commerce. Exports are domestic 

exports (f.a.s.) imports are for consumption (customs value). 

Figure 3-13 

Unemployment rate for Mexico, 1980-96 

Percentage 

7 

2 I I I 1 I F 1 1 

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 

Source: OECD Economic Outlook, Dec. 1996, Main Economic Indicators, May 1997. 

3-22
rates of inflation, interest, and taxes; widespread small business failures; diminished revenues for the selfemployed; joblessness; and a policy of wage restraints, all had the effect of reducing household consumption 

and living standards. Real private consumption expenditures plummeted by 12.9 percent for the year (figure 

3-11). 

However, as 1995 progressed, some measure of normalcy returned. Mexico was able to return to 

international capital markets far sooner than expected, apparently because its NAFTA partnership and the 

Mexican administration's austerity policy generated confidence abroad. Its $29.5 billion year-end 1994 

current account deficit, which accounted for 8 percent of GDP, virtually disappeared during the second 

NAFTA year, shrinking to a negligible deficit of $654 million (or 0.2 percent of the GDP ) by the end of 

1995 (figure 3-14). The principal cause was the reversal of Mexico's large 1994 trade deficit to a substantial 

1995 trade surplus. 

The economy showed strong signs of recovery in 1996, approaching production levels attained 

before the crisis. Mexico's emergence from the previous year's depression was marked by an estimated 4.0-

percent annual growth in GDP, signs of declining unemployment (figure 3-13), and a notable reduction of 

inflation from an annual rate of 35.0 percent in 1995 (figure 3-10) to 26.5 percent. In line with declining 

inflation, average (short-term and long-term) interest rates dropped from 39.8 percent in 1995 to an estimated 

34.0 percent in 1996, easing the credit crunch (table 3-2). 

To cope with Mexico's large burden of external debt, estimated at $168 billion towards the end of 

1996, the GOM extended the maturities of the public portion of the debt by refinancing and altering its 

composition.' One component of Mexico's foreign debt strategy was the prepayment of certain emergency 

loans obtained following the peso crisis, including those granted by the U.S. Government. The entire $12.5 

billion emergency loan provided by the U.S. Government has already been repaid with interest, having been 

refinanced in private credit markets. 

In 1996, after holding steady for most of the year at somewhat above 7 pesos to the dollar, the 

exchange rate dipped to some 8 pesos to the dollar in October, 61following the GOM's retreat from plans to 

fully privatize the secondary petrochemical plants owned by Petroleos Mexicanos (PEMEX), the federal 

petroleum monopoly.' The estimated annual average trade-weighted exchange rate for 1996 was 7.6 pesos 

to the dollar (figure 3-12). 

° U.S. Department of State telegram No. 14492, "1996 Trade Act Report: Mexico," prepared by U.S. Embassy, 

Mexico City, Nov. 18, 1996, p. 4. 

61Mexico has a floating exchange rate system, with the Bank of Mexico playing a marginal, sporadic role in the 

currency market. 

62See discussion of privatization later in this section. 

3-23 3-23
10 II I 1 1 1 1 1 1 1 1 1 1 1 

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 

Figure 3-14 

Current account balances as a percentage of GDP for Mexico, 1980-96 

Source: OECD Economic Outlook, Dec. 1996. 

3-24
This renewed decline of the peso's exchange rate sparked an intense debate about the currency's 

"true value." According to some analysts, the peso had unduly appreciated in real terms. Although the 

currency's nominal exchange rate dropped, the decline was not sufficient to offset the rise in inflation.' 

Foreign Trade 

Some consider NAFTA's most important achievement to date the fact that Mexico did not fall back 

on a protectionist regime following the peso crash, but continued to be committed to an open economy.' On 

January 1, 1995, immediately after the peso crisis erupted, Mexico proceeded with implementation of the 

second round of its NAFTA tariff cuts;' on January 1, 1996, the third round; and on January 1, 1997, the 

fourth. 

During 1995 and 1996, Mexico's foreign trade was profoundly affected by the peso crisis. 

According to official Mexican statistics, Mexico posted a $7.1 billion trade surplus in 1995, radically 

reversing a 4-year string of deficits, which in 1994 reached an unsustainable level of $18.5 billion (table 3-3). 

The 1995 trade surplus resulted from a 30.5-percent growth of exports and an 8.8-percent decline of imports. 

Exports continued to increase in 1996 at an estimated rate of 20.9 percent.' However, unlike in 1995, 

imports were also up in 1996, by an estimated rate of 23.7 percent, causing the 1996 trade surplus to 

contract to an estimated $6.5 billion. Table 3-3 shows Mexico's foreign trade data, the U.S. and Canadian 

share in the country's exports and imports during the first three NAFTA years, and projections for 1997. 

According to the United Nations, in the first 8 months of the year, the rate of appreciation in real terms was 15 

percent. Source: United Nations, Economic Commission for Latin America and the Caribbean, Economic Panorama of 

Latin America, 1996, p. 56. 

64Numerous witnesses at the ITC's hearing made such an observation (see Appendix D). Similar comments are 

found in the academic literature, for example, Aaron Tomell, and Gerardo Esquivel, The Political Economy of Mexico 's 

Entry to Nafta, Working Paper 5322. Cambridge, National Bureau of Economic Research, Oct. 1995, p. 27. 

65The first round of tariff cuts under the NAFTA was implemented on January 1, 1994, when the accord itself became 

effective. 

66U. S. Department of State telegram No. 807, "Mexico's Preliminary Trade Balance for 1996," prepared by U.S. 

Embassy, Mexico City, Jan. 25, 1997 and Dan McCosh, "Trade Surplus for '96 Was 6.3 Bn. Dollars," El Financiero, 

Jan. 27 to Feb 2, 1997. 

3-25 3-25
Table 3-3 

Mexico's overall foreign merchandise trade and the U.S. and Canadian share 

Actual Projected 

Item 1994 1995 1996 1997 

Exports (billion dollars) 60.9 79.5 96.0 95.9 

U.S. share (percentage) 84.9 83.6 83.9 82.8 

Canada's share (percentage) 2.5 2.5 2.3 n/a 

Imports (billion dollars) 79.4 72.4 89.5 89.6 

U.S. share (percentage) 69.0 74.4 75.5 74.7 

Canada's share (percentage) 2.0 2.0 1.9 n/a 

Trade balance (billion dollars) -18.1 7.1 6.5 6.3 

Source: Data are official Mexican trade statistics, which include in-bond (maquiladora) trade. 

In 1996, the United States accounted for well over four-fifths of Mexico's exports and some threefourths of its imports. Canada accounted for 2.3 percent and 1.9 percent, respectively. Because of the large 

U.S. role in Mexico's foreign trade, U.S. trade was most affected by this reversal in Mexico's trade balance. 

The GOM recognizes the positive role the United States played in improving the soundness of 

Mexico's overall foreign trade. At his 1996 year-end press conference, Commerce Secretary Herminio 

Blanco defended NAFTA by pointing out that Mexico attained a $12-billion trade surplus in 1996 with the 

United States. This surplus, he explained, helped offset the $3.2 billion trade deficit Mexico posted with the 

European Union and the $5-billion deficit Mexico had with Asian countries. 

The U.S. role in balancing Mexico's foreign trade goes back prior to the implementation of NAFTA. 

The United States was also responsible for Mexico's 1995 trade surplus, as Mexico posted deficits vis-a-vis 

Europe and Asia. Moreover, the large overall trade deficit Mexico still registered in 1994, the first NAFTA 

year, was not the result of Mexico's trade with the United States or Canada, but its trade predominantly with 

Asian countries and the EU. 

On the other hand, data also show that Mexico's post-crisis emphasis on exports, and its curtailment 

of imports, was somewhat restrained by NAFTA commitments. The U.S. share in Mexico's total 1994 

exports was 84.9 percent, but this share declined both in 1995 and 1996, and Canada's share also declined in 

1996, as Mexico diversified its exports to third-country markets (table 3-3). At the same time, the U.S. share 

in Mexico's imports increased considerably, from 69.0 percent in 1994 to 74.4 percent in 1995 and 75.5 

percent in 1996, as Mexico shifted its sourcing to its NAFTA neighbor. Canada's share in Mexican imports 

dropped slightly in 1996. 

The tabulation below shows year-over-year percentage changes of total Mexican foreign trade since 

the peso crisis and trade by selected trading partners: 67 

67Source: INEGI and the Bank of Mexico. 

3-26 3-26
1994 to 1995 1995 to 1996 

Exports Imports Exports Imports 

Mexico's total foreign trade 30.5 -8.8 20.7 23.5 

Mexico's trade with North America 29.0 -2.1 21.2 25.4 

Europe 34.5 -25.5 0.4 15.2 

Asia 31.2 -22.5 31.2 16.5 

The North American market thus received comparatively less than third-country markets from 

surging Mexican exports in the second NAFTA year. In the third NAFTA year, the growth of Mexican 

exports to Asia was fastest, but was negligible to Europe. By the same token, North American exporters 

were less affected by shrinking Mexican imports in 1995 and profited more from resurging imports in 1996 

than have European and Asian exporters. For example, as noted in the previous chapter, NAFTA's tariff 

provisions protected U.S. exporters from Mexico's decision in 1995 to raise tariffs from 20 to 35 percent on 

textiles, apparel, and footwear articles imported from countries with which Mexico did not have free trade 

agreements. 

Thus, Mexico did not turn around its trade balance at the expense of NAFTA partners. On the 

contrary, in percentage terms, the reversal of Mexico's trade balance from a large deficit to a considerable 

surplus generally affected Mexico's NAFTA partners less adversely than it has third countries. 

U.S. Trade with Mexico 

U.S. trade with Mexico increased vigorously throughout the 1989-96 period (figure 3-15). NAFTA 

further boosted U.S.-Mexico trade in both directions, first, through the expectation of such an accord, then 

through the lowered tariffs and removal of other trade barriers in its implementation. According to official 

U.S. statistics, two-way trade reached a record $97.7 billion in 1994. It continued to rise to $105.7 billion in 

1995 (due this time solely to the continued surge of U.S. imports from Mexico), and reached an 

unprecedented $128.9 billion in 1996. Mexico continued to rank as the third-largest U.S. trading partner, 

after Canada and Japan, in both U.S. exports and imports. 

The U.S. trade balance with Mexico began deteriorating even before NAFTA and the peso crisis, 

reversing a peak U.S. surplus of $5.7 billion in 1992 to a $17.7 billion U.S. deficit by 1995. In 1996, the 

U.S. trade deficit widened to $19.5 billion, showing a slowdown in the rate of deterioration for the U.S. side. 

3-27
I 

Figure 3-15 

U.S. trade with Mexico: Exports, imports, and trade balance, 1989-96 

Billion dollars 

80 

u 1 r I 

60 

40 

20 I 

—20 

—40 

1989 1990 1991 1992 1993 1994 1995 1996 

$24.1 $27.5 $32.3 $39.6 $40.3 $49.1 $44.9 $54.7 

$26.6 $29.5 $30.4 $33.9 $38.7 $48.6 $61.7 $74.2 

-$2.4 -$2.0 $1.8 $5.7 $1.6 $0.5 -$16.8 -$19.5 

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

Exports 7 

Imports 

Balance 

3-28
U.S. Exports 

U.S. merchandise exports to Mexico increased to a record $54.7 billion in 1996. The 21.8 percent 

increase of this trade flow in the third NAFTA year contrasts sharply with its 8.7 percent decline in 1995. 

Exports to Mexico in 1996 rebounded in all major Standard Industrial Trade Classification (SITC) product 

categories from their unusually low 1995 levels (table 3-4). 

Machinery and transport equipment was the largest export category, since Mexican producers 

continued to depend on the capital goods included in this U.S. industry sector. These exports, with motor 

vehicle parts, electrical products equipment and electronic components being the predominant items in the 

group, surged by 20.5 percent in 1996, and accounted for 45.8 percent of total U.S. exports to Mexico. 

U.S. Imports 

In 1996, U.S. merchandise imports from Mexico grew by 20.2 percent (figure 3-15) to $74.2 billion . 

Mexico's share of the U.S. import market rose from 6.7 percent in the pre-NAFTA year of 1993 to 9.3 

percent in 1996. As on the U.S. export side, machinery and transport items were the dominant SITC 

category, accounting for 54.8 percent of the total. U.S. imports from Mexico entering under NAFTA 

provisions constituted an increasing share of the total in each NAFTA year: 63.7 percent in 1994, 71.2 

percent in 1995, and 74.2 percent in 1996 (table 3-5). 

In 1996, Mexico became the world's largest clothing exporter to the United States by volume, 

displacing Asian countries. Shared production, i.e., apparel sewn in Mexico from U.S. made and cut fabric 

and returned to the United States, predominates in U.S. apparel imports from Mexico. 

Production Sharing Trade 

Close geographic proximity permits inter-country specialization within industrial sectors. Production 

sharing or the use of assembly plants in Mexico by U.S. firms has been booming for years. Much of U. S.- 

Mexican production sharing takes place within the sectors producing motor vehicles, auto parts, electronic 

products (especially televisions), and apparel. Processing U.S. materials or assembling U.S. components in 

Mexico assists many U.S. producers of labor-intensive articles in competition with imports from Asia; at the 

same time it benefits Mexico by creating jobs, and transferring U.S. managerial and technological know-how 

to Mexican establishments. 

Most assembly plants in Mexico that process components imported in bond for export markets 

operate under the Maquiladora Program, which was initially called the Border Industrialization Program when 

it began in 1965. The Maquiladora Program permits imports of components, raw material, containers, 

packing material, fuel, lubricants, spare parts, equipment, and machinery into Mexico without requiring 

payment of import duties or the value-added tax, provided those imports are used to produce goods for 

export. Over 90 percent of the parts and materials for use in the maquiladora industry originate in the United 

States; the maquilas obtain only an estimated 2 percent of their supplies from domestic sources in Mexico. 

3-29
0 

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3-31 

3-31
Prior to the implementation of NAFTA, goods assembled in the maquiladora industry accounted for 

over 70 percent of Mexico's exports of manufactured goods to the United States. U.S. exports to productionsharing operations in Mexico continued to grow in the NAFTA period undetered by the peso crisis, because 

these operations, as before, depended on sales to the U.S. market and were not affected by demand in Mexico. 

Exports of U.S. components and materials to companies that continued to make use of the production sharing 

tariff provisions of HTS 9802 when re-exporting assembled goods to the United states continued to gain 

significance after the peso crisis, accounting for 23.6 percent of overall U.S. exports to Mexico in the first 

NAFTA year, 28.6 percent in the second, and 28.1 percent in the third (table 3-5). It is estimated that 

maquiladora exports to the United States entering under NAFTA, but not also claiming eligibility and HTS 

9802, amounted to at least $10 billion in 1996." 

Products resulting from production sharing often re-enter the United States under chapter 98 of the 

Harmonized Tariff Schedule (HTS).' Because these imports must pay duties only on the value added in 

Mexico under these provisions, while the U.S. inputs return free of duty, the overall effective rate of U.S. duty 

for eligible goods is reduced." Many imports from the maquiladora industry also qualify for and enter at 

NAFTA rates, further lowering the tariff burden.' The value of U.S. components returned after further 

processing or assembly in Mexico accounted for 55 percent of the total value of U.S. imports under the 

production-sharing provisions of chapter 98 in 1996. As a result, U.S.-origin components in imports under 

HTS 9802 accounted for 21 percent of the value of all U.S. imports from Mexico. HTS heading 9802.00.90 

permits duty-free entry of apparel from Mexico that is sewn entirely from U.S.-formed-and-cut fabric 

components, and many U.S. apparel companies have established sewing operations in that country, bringing 

the number of textile and apparel maquilas to 636 by 1996. The majority of these firms have shifted 

production from Asia, where Asian fabric was typically employed, and to a lesser extent from the Caribbean 

Basin, thereby boosting U.S. textile mill exports to Mexico. 

NAFTA contributed to the increased use of U.S. components in foreign assembly operations. 

Several Asian companies responded to NAFTA rules-of-origin requirements by accelerating the movement of 

the assembly of electronic products from Asia to Mexico and changing the sourcing of components from Asia 

to the United States." 

U.S. imports of jointly produced products from Mexico under production sharing HTS provisions 

that entered under HTS 9802 increased sharply during the NAFTA years,from $19.0 billion in the preNAFTA year of 1993 to $25.0 billion in 1995 and to $27.9 billion in 1996. This trend reflected the growing 

price-competitiveness of production-sharing operations in Mexico, caused by the cheaper peso and by 

NAFTA provisions that allowed duty-free entry of Mexican apparel sewn from U.S. fabric. 

" See U.S. International Trade Commission, Production Sharing: Use of Components and Materials in Foreign 

Assembly Operations, 1992-1995, USITC publication 3032, Apr. 1997, pp. 1-6, 2-3. 

9Many imports from production sharing operations, however, do not enter under HTS 98, thus HTS 98 data 

understate actual imports from production sharing operations. 

70Duty-free treatment for the value of U.S.-made components contained in U.S. imports from the maquiladora industry 

and duty-free treatment for GSP-eligible imports from Mexico combined to make the trade-weighted effective rate of 

duty on U.S. imports from Mexico 2.07 percent in 1993. 

71The trade-weighted effective rate of duty on U.S. imports from Mexico fell to 0.65 percent in 1996. 

72See also U.S. International Trade Commission, Production Sharing: Use of U.S. Components and Materials in 

Foreign Assembly Operations, 1992-1995, publication 3032, Apr. 1997, ch. 4. 

3-32 3-32
Although boosting the scope of U.S.-Mexican production sharing, NAFTA functioned at the same 

time as an instrument of phasing out the maquiladora program as it is known presently, and integrating this 

sector into the Mexican economy. While maquilas were conceived originally as producing for exports only, 

NAFTA provisions' had the effect of modifying Mexico's maquiladora legislation to gradually increase the 

amount of a maquila's production that may be sold to the Mexican market. Maquilas are granted full access 

to the domestic market by January 1, 2001. That is the same date by which "duty drawback" for Mexico's 

trade with the United States and Canada would also be phased out under NAFTA provisions.' For example, 

goods likely to be imported into the United States from Mexico under the production-sharing tariff provisions 

that have longer duty phaseout periods, or that do not contain sufficient North American content to meet 

NAFTA rules of origin, would become dutiable after January 1, 2001 Similarly, Mexican tariff preferences 

for the maquilas on still dutiable imported products would end on that date. 

Although the maquiladora program will formally end, and maquilas will operate in the same manner 

as any other Mexican firm by 2001, the sector will continue to play a significant role in both the U.S. and 

Mexican economies because the complementarity of the U.S. and Mexican economies will sustain the 

incentives for production sharing. The ending of Mexican tariff preferences for the maquilas will be of little 

consequence because, by that date, tariffs on most imports from the United States and Canada would be 

reduced to zero under NAFTA. 

U.S. Foreign Direct Investment in Mexico 

While U.S. foreign direct investment (FDI) in Mexico has increased in recent years, there are 

important conceptual problems to be addressed in attributing any particular portion of this increase to 

NAFTA. Direct investment, like merchandise trade, was heavily influenced by a number of macroeconomic 

factors which operate independently of trade liberalization agreements. The rate of growth and stability of 

the Mexican economy affected the attractiveness of Mexico as an investment location, as did relative wages 

in the United States and Mexico. The behavior of the Mexican peso played a role, as did investors' 

expectations of its future behavior. In particular, the extent to which potential investors in Mexico prior to 

the December 1994 devaluation perceived the strong peso to be a sign of underlying strength in the Mexican 

economy or, alternately, understood that the currency was overvalued and anticipated a sharp devaluation, 

remains unclear. 

Many of the influences on U.S. FDI in Mexico are similar to the factors which influence domestic 

investment; for example, such investment becomes more or less attractive as equipment prices fall or rise 

relative to prices of other goods. Since U.S. direct investment in Mexico is financed primarily in U.S. capital 

markets, the rate of interest also plays a role. Attributing any particular changes in U.S. FDI flows to 

Mexico to NAFTA requires that a reasonable attempt be made to control both for those macroeconomic 

factors affecting investment in general and those impinging particularly on U.S.-Mexican bilateral flows. 

Moreover, while NAFTA contains important investment-related provisions which broaden the degree 

of protection for U.S. investments in Mexico, the Mexican government itself undertook major unilateral 

reforms in its policies toward foreign direct investment in the immediate pre-NAFTA years, which contrasted 

markedly with Mexico's earlier inward-looking policies. Mexico significantly broadened the list of sectors of 

73 NAFTA, Annex I for Mexico, p. I-M-34. 

74 Under "drawback," duties on imported components used in the manufacture of products that are eventually exported 

can be either waived or rebated. 

3-33 3-33
the Mexican economy eligible for FDI and loosened government oversight of FDI in other sectors. These 

unilateral reforms are of at least equal importance to NAFTA reforms, which express and "lock in" many of 

the unilateral reforms in terms of international commitments. The presence of unilateral reforms makes 

assessment of investment trends in the pre-NAFTA period particularly problematic. While some increases in 

FDI in the immediate pre-NAFTA years may have been made in anticipation of NAFTA's passage, others 

would have taken place as a result of the unilateral reforms alone. 

Summary data on foreign direct investment in Mexico, from both the world and the United States, is 

presented in figure 3-16. Appendix Tables C-8 through C-16 provide detailed information on U.S. foreign 

direct investment in Mexico by major economic sector, including stocks and flows, method of financing, 

income, sales, exports and imports. U.S. capital outflows to Mexico were erratic during the debt crisis years 

of the early 1980s, showing occasional reversals during years of net repatriation (1983 and 1986). Nominal 

capital outflows quadrupled from $393 million in 1987 to $1.7 billion in 1989, when major investment 

reforms were instituted. Capital flows increased steadily but more slowly thereafter. This increase was 

interrupted in 1992, when U.S. FDI capital outflows to Mexico dropped to $1.3 billion, less than half the 

1991 level, recovering quickly to trend in 1993. This drop may be partly attributable to business uncertainty 

regarding NAFTA ratification during the 1992 election year. 

The immediate pre-NAFTA period saw favorable macroeconomic conditions for U.S. investment in 

general and investment in Mexico in particular. These conditions account to some extent for the increases in 

U.S. FDI in Mexico prior to 1994. U.S. interest rates fell steadily, with Moody's Aaa corporate bond rate 

declining from an annual average rate of 9.71 percent in 1988 to 7.22 percent in 1993, remaining between 7 

and 8 percent during 1994-95. 75This reduced the cost of capital for U.S. investments in Mexico, as these 

investments were financed largely in U.S. capital markets. Of considerable importance to investors, 

Mexico's macroeconomic stability increased as well. Inflation at the producer level fell from 136 percent in 

1987 to 16 percent in 1989, rose to 23 percent the following year, then steadily declined to under 7 percent in 

1994. Following the devaluation, Mexico posted a 39-percent inflation rate in 1995. 76 

In 1994, the first year of NAFTA implementation, U.S. FDI capital outflows to Mexico reached a 

record level of $3.3 billion. This amounts to a healthy, but not spectacular, 15 percent compounded 

75Taken from Council of Economic Advisors, Economic Report of the President, Feb. 1997. 

76Calculated from annual values of the Mexican wholesale price index, as reported in World Bank, STARS *95 

(Socioeconomic Time-Series Access and Retrieval System), on CD-ROM. 

3-34 3-34
Figure 3-16 

Foreign direct investment in Mexico: Inflows from World and the United States, 1980-95 

Billion dollars 

12- 

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 

Source: OECD Economic Outlook, Dec. 1996. 

3-35
nominal increase from time of the 1989 reforms to the first implementation of NAFTA. By comparison, 

capital outflows diminished somewhat in the wake of the peso crisis, falling in 1995 to $2.1 billion. 

Tables C-16 and C-17 document the significant extent to which U.S. trade with Mexico is intrafirm 

trade. For 1994, the most recent year for which data are available, U.S. exports to U.S. affiliates in Mexico 

amounted to approximately $16.2 billion, while U.S. imports from U.S. affiliates in Mexico were 

approximately $16.4 billion. These figures amount to approximately 33 percent of all U.S. exports to 

Mexico and 34 percent of all U.S. imports from Mexico. The vast bulk of U.S. trade with U.S. affiliates in 

Mexico is intrafirm trade, i.e., trade between U.S. parents and affiliates. U.S. trade with U.S. affiliates in 

Mexico has traditionally been in near-balance despite fluctuations in the aggregate bilateral balance, largely 

because of the historical operation of the Maquiladora Program (see the section on Production Sharing, 

above). 

While U.S. FDI in Mexico increased both prior to and subsequent to NAFTA, U.S. direct 

investments in other parts of the world increased more rapidly. Thus, there is no particular evidence that U.S. 

FDI in Mexico was withdrawn from other markets because of superior Mexican investment opportunities. 

Table 3-6 contains the relevant data. During 1989-94, U.S. FDI in Canada and in the Asia/Pacific region 

grew at significantly higher rates than U.S. FDI in Mexico. During 1995, a large-scale surge in total U.S. 

direct investment abroad ended up primarily in Europe, the historical host region for most U.S. FDI, but 

coincided with the peso crisis and a decline in U.S. FDI to Mexico. 

Table 3-6 also illustrates that U.S. FDI flows to Mexico during the NAFTA years were small relative 

to total U.S. gross private domestic fixed investment, amounting to approximately 0.2 to 0.3 percent of total 

U.S. investment. Thus, any fluctuations in U.S. FDI in Mexico (whether or not attributable to NAFTA) can 

have had only a minimal impact on aggregate U.S. investment. To the extent that U.S. real wage increases 

are driven by U.S. capital investment and increasing education and skills of workers, the influence of U.S. 

FDI in Mexico on U.S. real wages, in the aggregate, is correspondingly minimal. 

3-36
Table 3-6 

Growth of U.S. direct investment capital outflows, by region 

1989 1994 1995 1989-94 1994-95 

Millions of dollars --Annualized pct. change-- 

World 37,604 53,028 93,406 7.1 76.1 

Mexico 1,652 3,327 2,113 15.0 -36.5 

Canada 1,268 6,287 7,787 31.0 23.5 

Europe 23,679 20,050 52,828 -3.3 163.5 

Other Latin America/ 

W. Hemisphere 7,442 11,470 12,501 9.0 9.0 

Asia/Pacific . . . . 4,375 11,143 16,001 20.6 43.6 

Other' -811 656 2,194 0 234.5 

U.S. gross private 

domestic fixed 

investment 797,500 954,900 1,028,200 3.4 7.8 

FDI in Mexico . . . . 

from the 

world 2,785 10,972 6,963 31.6 -36.5 

1Includes Africa and the Middle East. 

Cannot be calculated. 

Source: U.S. Department of Commerce, Bureau of Economic Analysis, International Investment Division: 

Balance of Payments and Direct Investment Position Estimates, on disk; International Monetary Fund, 

International Investment Statistics. 

Third-Country FDI Flows to Mexico 

According to International Monetary Fund data, worldwide FDI in Mexico grew sharply in the postNAFTA period (see figure 3-16). Mexican direct investment inflows from all sources were measured at rates 

of $2 billion-$3 billion annually in each of the years 1988-1990, jumped to $4 billion-$5 billion annually 

during the years 1991-1993, then more than doubled to $11.0 billion in the first year of NAFTA, 1994. 

Although worldwide FDI in Mexico fell subsequent to the peso crisis, to $7.0 billion in 1995, this level was 

still substantially in excess of historical levels. Thus the raw data show substantially more rapid growth in 

worldwide FDI to Mexico than in U.S. FDI to Mexico. 

Data from Secretary of Commerce and Industrial Development (SECOFI) (Mexico's Ministry of 

Commerce and Industry) indicate that as of 1996, 60 percent of Mexico's cumulative direct investment had 

come from the United States, 21 percent from Europe, 5 percent from Japan, 2 percent from Canada, and 10 

percent from other sources. For the 30 months from January 1994 through June 1996, the United States 

accounted for 51.9 percent of new inflows of FDI to Mexico. At least 15.9 percent of new FDI inflows were 

3-37 3-37
from Europe (the Netherlands, 7.2 percent; Germany, 4.6 percent; the United Kingdom, 4.1 percent), 4.4 

percent from Japan, 7.0 percent from Canada, 8.3 percent from India, 2.0 percent from Korea, and 10.0 

percent from other sources. 

Economic Policy 

By the time NAFTA concept began to take shape in the early nineties, Mexico had made significant 

progress in deregulating, privatizing, and opening up its economy for foreign trade and investment. Thus 

NAFTA was to complete a process of trade liberalization that had been under way in Mexico since the mid1980s." NAFTA addressed a wide range of topics.' Among the more significant changes made by 

Mexico since NAFTA's inception are removal of certain foreign investment restrictions still mandated by 

Mexico's laws and permitted under NAFTA; continuation of the country's privatization program; and 

strengthening of intellectual property rights (IPR) protection through additional legislation, better 

implementation, and updated customs practices. 

Foreign Investment Policy' 

The legal framework for foreign investment in Mexico changed significantly with the country's 

Foreign Investment Law (E11.,), enacted on December 27, 1993, in response to Mexico's commitments 

under NAFTA, which opened up further branches of economic activities to foreign direct investment (FDI). 

The FIL replaced the "Law to Promote Mexican Investment and Regulate Foreign Investment" of 1973, 

which was generally considered hostile to foreign capital. The new investment law consolidated several 

earlier regulations that had gradually eased the rigor of the earlier law, and provided for unilateral 

liberalization of foreign investment during the pre-NAFTA years. 

Under the new law, foreign investment is permitted in any sector, unless it is specifically mentioned 

as being subject to restrictions. These may range from outright prohibition or ceilings on equity participation. 

In accordance with Mexico's Constitution, the FIL continued to reserve "strategic" economic activities to 

the State, notably oil and gas exploration and production, and the transmission of electric power; industries 

such as forestry exploitation, and domestic air and maritime transportation were reserved for Mexican 

nationals. NAFTA respected Mexico's constitutional reservations. 

NAFTA provisions implemented by Mexico assured both national treatment and most-favorednation (MFN) treatment for investors from partner countries in setting up operations or acquiring firms in the 

NAFTA area." They removed such bathers to partner-owned operations as export performance 

requirements, capital controls, and mandatory domestic content percentages; and allowed investors from 

NAFTA partners to freely transfer hard currency for profit and capital repatriation. 

77For a detailed discussion of Mexico's unilateral trade liberalization measures, see U.S. International Trade 

Commission, Review of Trade and Investment Liberalization Measures by Mexico and Prospects for Future United 

States-Mexican Relations, Apr. 1990, USITC publication 2275. 

79See ch. 2 for details. 

79This section is based in part on U.S. Department of State telegram No. 14492, "1996 Trade Act Report: Mexico," 

prepared by U.S. Embassy, Mexico City, Nov. 18, 1996, and U.S. Embassy, Mexico, "Foreign Investment Report, 

1996-97, Oct 1996. 

80"National treatment" means treatment as favorable as that of domestic firms, and "most-favored-nation treatment" 

means treatment as favorable as that of third-country investors. 

3-38 3-38
After NAFTA's implementation, the FIL was followed by other laws and regulations relating to 

foreign investment in Mexico. These changes further liberalized Mexico's investment policies. Under 

NAFTA, these subsequent liberalizations cannot now be reversed.' A constitutional amendment of 

December 31, 1994, reduced the scope of the originally reserved areas, allowing foreign investment in 

railroads, telecommunications, and satellite transmission.' Mexico's quest for foreign capital--especially 

after the peso crisis, which tempered investors' interest in the country--resulted in several new provisions 

during 1995 that went beyond commitments under NAFTA. On May 12, 1995, the Federal Gazette 

published the "Regulatory Law of the Railroad Services," which opens for 50 years foreign participation in 

concessionary enterprises of up to 49 percent in capital stock. In November 1995, the GOM allowed that the 

airport network's 50-year management concessions should be auctioned off to private investors, including 

foreigners. 

On June 7, 1995, the Federal Gazette published a "Federal Telecommunications Law" that 

permitted foreign participation in the satellite communications sector up to 49 percent of capital stock, as was 

applicable in communications overall. (The FIL and NAFTA had originally reserved satellite communication 

to the State.) This law also permits foreign participation up to 100 percent of capital for communication by 

cellular phone, subject to approval by the National Foreign Investment Commission.' On August 10, 1996, 

in a step consistent with NAFTA telecommunications provisions, the Gazette announced the establishment of 

Mexico's Telecommunications' Commission, an agency with a mandate similar to that of the Federal 

Communications Commission (FCC) in the United States. The same law ended the monopoly of Mexico's 

national telephone company (TELMEX) on commercial long-distance telecommunications services. U.S. 

companies responded by beginning to compete, in partnership with Mexican firms, for Mexican long-distance 

subscribers." 

In 1996, the United States cited Mexico for not complying with its NAFTA telecommunications 

standards under chapter 13 of NAFTA, which requires that Mexico have in place by January 1995 NAFTAconsistent telecom terminal attachment equipment standards as well as procedures to accept telecom test data. 

These issues have been the subject of ongoing bilateral consultations between the U.S. and Mexican 

Governments, resulting in an agreement to a NAFTA-consistent set of terminal attachment standards at the 

February 12, 1997, meeting of the NAFTA Telecommunications Standards Subcommittee (TSSC)." A 

resolution of U.S. concerns related to test acceptance was announced on May 20. 86The principal remaining 

restriction in the Mexican telecommunications sector is the 49-percent equity limit for foreign investment in 

basic telecommunications services, which are excluded from most NAFTA obligations. Although basic 

telecommunications is not covered by NAFTA, Mexico did participate in the WTO Agreement on Basic 

Telecommunications Services (see ch. 2 for details). NAFTA provides a further opportunity for liberalization 

in this sector, stating at Art. 1309 that the Parties shall consult regarding the feasibility of further liberalizing 

trade in all telecommunications services, including basic services. 

81NAFTA Art. 1108. 

82U. S. Department of State telegram No. 14492, "1996 Trade Act Report: Mexico," prepared by U.S. Embassy, 

Mexico City, Nov. 18, 1996, p. 6. See also the next section on "Privatization." 

83The National Foreign Investment Commission, chaired by the Secretary of Commerce and Industrial Development 

(SECOFI) makes major decisions on foreign investment in Mexico. 

84United States Trade Representative, 1997 National Trade Estimate Report on Foreign Trade Barriers, p. 265. 

85United States Trade Representative, 1997 National Trade Estimate Report on Foreign Trade Barriers, p. 265 

86USTR, USTR Announces Agreement Between the United States and Mexico on Exchange of Product Safety Test 

Dui),for Telecommunications Equipment, Press Release 97-46, May 20, 1997. 

3-39 3-39
An amendment to the FIL published on May 11, 1995, allows private investment (both national and 

foreign) in transportation, distribution, and storage of natural gas. Implementing regulations followed on 

November 8, 1995. Originally, the Constitution and the FIL reserved these activities, as part of the 

"strategic" petroleum and other hydrocarbons sector, to the Mexican State; NAFTA respected those 

reservations. 

As provided to in NAFTA Art. 1409 and Annex VII (A), foreign financial institutions from member 

nations are restricted to holding a specified percentage of capital assets in Mexico's financial system. Mexico 

committed in Annex VII (B) to increase those limits over time in accordance with the amount of assets in the 

financial system. The limits, published semiannually, take effect the day following publication. The last 

liberalization of individual and aggregate capital limits applicable to U.S. and Canadian financial institutions 

operating in Mexico was announced on May 15, 1997. 

On February 15, 1995, Mexico amended its "Law to Regulate Financial Corporations," its "Credit 

Institutions Law," and its "Stock Exchange Law," broadening the scope of activities for foreign investors in 

the area of banking and financial services in order to ameliorate the effects of the peso crisis. The new rules 

allowed partner banks to acquire up to 100 percent ownership in existing banks that have less than 6 percent 

of the total capital in the banking system (this effectively excludes, however, Mexico's 3 largest banks). 

Collectively, NAFTA-partner investors may now own up to 49 percent of a bank, brokerage house, or 

financial group--up from the 30 percent required by NAFTA. 

With the implementation of NAFTA, U.S. and Canadian insurers that had joint ventures in Mexico 

were allowed to increase their ownership share from 30 percent in 1994 to 51 percent in 1996, and to 100 

percent by the year 2000. U.S. and Canadian insurers were also permitted to establish wholly owned 

subsidiaries in Mexico, subject to aggregate market share limits, which will be eliminated in 2000. Given 

these NAFTA preferences to be enjoyed in Mexico by investors from partner countries, some third-country 

firms entered the Mexican market through affiliates of U.S. or Canadian subsidiaries. 

The General Office of Foreign Investment, operating under the SECOFI, is assigned to register and 

monitor foreign direct investment in Mexico. On June 12, 1996, the Federal Gazette announced that this 

office will also act as a clearinghouse for NAFTA-related complaints on investment regulations or the 

implementation of NAFTA's chapter 11, which deals with investment. 

While Mexico is actively seeking foreign investment in most sectors of the economy, and has 

undertaken additional liberalization since NAFTA's inception, it continues to exclude foreign investors 

(including those from NAFTA partners) from owning assets in other important sectors, including oil and gas 

distribution and retailing, selected educational services, newspapers and agricultural land.' 

Mexico's liberal reforms boosted FDI inflows in 1985-1987. The prospect of Mexico's partnership 

in a NAFTA apparently gave a new impetus to these inflows in 1990. In 1993 and 1994, as NAFTA became 

a reality, FDI in Mexico surged from the United States, was joined in 1994 from third countries at an even 

higher rate, and reached an all-time high. However, the peso's collapse caused investors to lose interest in 

1995 and 1996. Despite recent signs of revived activity, FDI inflows are reportedly far below predevaluation levels.' 

87 United States Trade Representative, 1997 National Trade Estimate Report on Foreign Trade Barriers, p. 266. 

88 Rick Wills, "International Investments Slowly Leaving Mexico," El Financiero, Jan. 13-19, 1997, p. 21. 

3-40 3-40
Privatization 

The GOM has privatized or eliminated more than 1,000 parastatal" companies and organizations 

since 1986, when the process of privatization began in earnest." Privatizations (or "de-monopolization," as 

the process is sometimes called) 9I during the administrations of de la Madrid and Salinas included 

commercial banks, the telephone company, a television network, airlines, steel mills, mining companies, 

several major industrial facilities, and the banking system.' A Federal Economic Competition Law was 

enacted in 1993 to restrict monopolistic power and other practices of unfair competition in the newlyexpanding private sector. Foreign investors have been invited to participate in Mexico's privatization 

process in the same way as they have been encouraged to use many other avenues of direct investment. 

Some measures liberalizing foreign investment referred to above took place in the context of 

privatization. The Zedillo administration initially broadened the previous administration's privatization 

program, specifying concessions awarded by the national railroad, port facilities, the generation of electricity, 

and some portions of PEMEX, Mexico's state monopoly for petroleum-related activities, as major areas of 

implementation.' The May 1995 amendment to the FIL,.for example, which opened up several opportunities 

for foreign investment, legalized the privatization of the national railroad system. Similarly, the June 1995 

telecommunications law, which opened of up satellite communication to foreign participation up to 49 

percent and privatized TELMEX for long-distance communication, was an act of privatization. Nonetheless, 

progress of privatization during the Zedillo administration has been slow. For example, only one small 

concession has been awarded thus far in the area of distribution, transmission, and storage of natural gas. 94 

 The Communications and Transportation Ministry (S CT) has decided to reduce the number of airports to be 

auctioned off from the originally-scheduled 58 to 35, and the pace in auctioning off railroad concessions has 

been slow." 

Most notable is a weakening in the Government's resolve to privatize the petrochemical industry. 

PEMEX has been preparing since 1992 to privatize its secondary petrochemical plants,' in quest of foreign 

funds and technology. Initially, President Zedillo had made the sale of some 61 petrochemical facilities an 

important component of his privatization program.' From the outset, however, petrochemical privatization 

faced resistance from domestic political forces, which considered Mexico's entire petroleum industry-- 

89 Organizations with some degree of government ownership and control are generally referred to as "parastatal" 

organizations. 

9°Some divestment of the public sector began to take place already following the nationalization of Mexico's banking 

system in 1982. 

91 U.S. Department of State telegram No. 258771, "National Trade Estimate Report--Mexico," prepared by 

Department of State, Washington D.C., Dec. 20, 1996. 

92 U.S. Department of State telegram No. 14492, "1996 Trade Act Report: Mexico,"prepared by U.S. Embassy, 

Mexico City, Nov. 18, 1996, p. 4. 

93OECD, "Trade Liberalisation Policies in Mexico," 1996, p. 50. 

94 David Shields, "Privatization Tribulations," El Financiero, Feb. 17-23, 1997. 

95 Nick Wilson, "Fewer Airports Will be for Sale," El Financiero, Dec. 9-15, 1996. 

96 The distinction of basic petrochemicals versus secondary petrochemicals is used to devide Mexico's petrochemical 

products into those reserved for state production (basic) and those open to private production (secondary.) 

97 President Zedillio's announcement in March 1995, at the 57th anniversary of the nationalization of the Mexican oil 

industry, that the State petrochemical industry will be put up for sale. 

3-41 3-41
including all petrochemicals--as national patrimony, which should remain state-owned.' PEMEX unions, 

which feared massive layoffs from privatization, were a vocal source of opposition. 

Apparently in response to these forces, in March 1996 Mexico announced its intention to use a 

NAFTA provision that allows it to limit the initial offering of the PEMEX secondary petrochemical assets to 

private industry. On October 13, 1996, Mexico's energy minister stated that the original plans of privatizing 

secondary petrochemical plants will be scaled down,and that legislation will be introduced to limit private 

sector investment in secondary petrochemicals to no more than 49 percent, with PEMEX retaining the 

majority share. 

Protection of Intellectual Property Rights" 

In the period before and since NAFTA's implementation, the GOM responded to U.S. concerns 

about IPR violations in Mexico with the following pieces of legislation: the Industrial Property Act of 1991, 

which significantly improved patent and trademark protection;' amendments to this law in 1993 and 1994; 

and the Mexican Copyright Act of August 1991' and amendments thereto. The 1994 amendment to the 

Industrial Property Law created the Mexican Institute for Industrial Property (IMPI), with a mandate to 

implement Mexico's patent-related laws. Mexico also joined major international organizations that regulate 

the protection of IPR rights. 102 

Chapter 17 of NAFTA served as a model for the Trade-related Intellectual Property Rights (TRIPS) 

agreement negotiated in the Uruguay Round and incorporated commitments built on existing international 

agreements--including the Paris Convention on the protection of industrial property rights and the Rome 

Convention on the rights of authors and artists. NAFTA provides for nondiscriminatory national treatment in 

1PR protection and requires each party to ensure that effective enforcement procedures are in place and civil 

judicial procedures are available to rights' holders. 

Mexico's legislative activity regarding IPR before and during the NAFTA years has been intense. A 

new Customs Law, in force since April 1, 1996, enabled Mexican customs officials for the first time to seize 

pirated merchandise. Although enforcement of IPR has been improving in these years, U.S. concerns persist, 

especially in protecting copyright of computer software, video recording, and sound recording. For this 

" According to the Constitution of Mexico and enabling state laws, hydrocarbons are a state domain. Many consider 

the definition of hydrocarbons to include petrochemicals. 

99This section is based principally on U.S. Department of State telegram No. 14492, "1996 Trade Act Report: 

Mexico," prepared by U.S. Embassy, Mexico City, Nov. 18, 1996, and Christina Moeckel, "Harmonizing Mexico's 

Intellectual Property Rights Regime with That of its NAFTA Partners," North American Free Trade & Investment 

Report, Feb. 15, 1996, pp. 14-15. 

1°°Mexico's "Law for the Promotion and Protection of Industrial Property " of June 26, 1991, covers patents and 

trademarks and trade secrets, and replaces the 1976 Law of Inventions and Marks and the 1982 Law on the Transfer of 

Technology. Notably, this law extended patent protection from 14 to 20 years from the date of filing; granted trade 

marks for 10-year renewable periods; and provided for recovery of damages in case of infringement. 

1°1The 1991 copyright law includes provisions for increased protection of computer programs against unauthorized 

reproduction, and provides for procedures when claiming damages. 

1°2 Notable achievements have been Mexico signing (but not yet ratifying) the UPOV convention and the Patent 

Cooperation Treaty and reactivating its Interministerial Commission for the Protection of IPR. 

3-42 3-42
reason, on April 30, 1996, a bilateral U.S.-Mexican working group was established to help Mexico amend its 

laws and improve enforcement." The group met three times in 1996. 

In a February 1996 submission to United States Trade Representative (USTR), the International 

Intellectual Property Alliance (IPA), an umbrella group for U.S. copyright-based industries, said that 

Mexico's failure to comply with NAFTA's enforcement obligations cost copyright-based industries more 

than $285 million in 1995. The IIPA charged that Mexico does not provide expeditious relief from piracy as 

required under article 1714 of NAFTA. In addition, the group said that Mexico has not provided provisional 

remedies, injunctive relief, or sufficient criminal penalties for violators, as required under Articles 1715, 

1716, and 1717 respectively.' 

 to a survey conducted by the Business Software Alliance (BSA)," civil actions against 

infringers are found to be time-consuming, costly, and ineffective in Mexico, therefore rarely initiated.' As 

to criminal investigations, one of the problems in the copyright area was the insufficiency of penalties for 

violations.'" 

Stiffer penalties for violators were introduced and administrative procedures strengthened in 

Mexico's most recent copyright legislation, based on analysis of U.S. and European laws, and published on 

December 24, 1996. 108The new law substantially increases protection of computer programs, textile designs, 

and several other types of copyrighted material. Major outstanding questions remain as to the consistency of 

the new law with Mexico's obligations under NAFTA and the WTO Agreement on TRIPS. Particular 

concerns include the lack of criminal penalties for sound-recording piracy, the absence of civil remedies, and 

the possible decriminalization of end-user piracy.' Some of these problems were addressed with passage of 

technical amendments on April 29, 1997. The United States is currently working with Mexico to address its 

remaining concerns. 110 

Canada 

Canada's membership in NAFTA was more the result of an evolution than a dramatic departure from 

the trade policy of either Canada or the United States. The "revolution" took place 7 years prior to the 

trilateral agreement--in 1987, when Canada and the United States successfully concluded the U.S.-Canada 

Free Trade Agreement (CFTA). The pact became effective on January 1, 1989, and reflected a recognition 

by Canada of the importance of trade to the overall Canadian economy, and of the significance of the United 

States as the primary trading partner of Canada. The Agreement was fueled by a Canadian desire for greater 

transparency and predictability in the bilateral trading relationship with the United States. It was also 

1°3International Trade Reporter, May 1, 1996. 

1°4 11PA, "IIPA Names 29 Countries Causing Over $6 Billion in Trade Losses Due to Copyright Piarcy in 1995," Feb. 

20, 1996 and accompanying report to USTR, pp. 19-26. 

'°s As reported by Christina Moeckel, "Harmonizing Mexico's Intellectual Property Rights Regime with That of its 

NAFTA Partners," North American Free Trade & Investment Report, Feb. 15, 1996, pp. 14-15. 

1°6Christina Moeckel, "Harmonizing Mexico's Intellectual Property Rights Regime with That of its NAFTA 

Partners," North American Free Trade & Investment Report, Feb. 15, 1996, pp. 14-15. 

1°7 Penalties for trademark violations are much steeper than for copyright violations. 

108Rick Wills, "International Investments Slowly Leaving Mexico," El Financiero, Jan. 13-19, 1997, p. 21. 

109United States Trade Representative, 1997 National Trade Estimate Report on Foreign Trade Barriers, p. 263. 

11°USTR official, telephone interview with U.S. International Trade Commission staff, May 14, 1997. 

3-43 3-43
bolstered by increased Canadian annoyance at what came to be called "contingency protection"--the effect of 

U.S. measures, generally antidumping and countervailing duties, on Canadian products, and the impact that 

the threat of the imposition of such measures had in inhibiting the sale of Canadian products in the United 

States. 

The CFTA was viewed therefore, as an explicit attempt on the part of both governments to establish 

more discipline in bilateral trade, while at the same time creating institutions that would lessen the tensions 

and add to the measured resolution of disputes that inevitably occurred as part of such a large commercial 

relationship. All qualifying trade between the United States and Canada will become free of duty as of 

January 1, 1998. At that time, the 10-year period for the staged elimination of all tariff barriers between the 

two countries, initiated by the CFTA, will have ended. Canada and the United States are already one 

another's main trading partners, and growth in trade under NAFTA has been significant. 

Economy 

Table 3-7 summarizes the major macroeconomic data for the Canadian economy during 1994 and 

1995 and presents projections for 1996 and 1997. Economic indicators for Canada show that the Canadian 

economy performed respectably during the 1994-96 period. 

Table 3-7 

Key Canadian economic indicators and projections 

Acutal Projected 

Item 1994 1995 1996 1997 

Real GDP growth (percentage change) 4.1 2.3 1.4 3.3 

Consumer Price Index (percentage change) 0.2 1.9 1.5 2.0 

Unemployment rate 10.4 9.5 9.6 9.4 

Current Account Balance; end-of-period 

(billion dollars) -16.2 -8.2 0.0 2.3 

Foreign Exchange Reserves; end-of-period 

(million dollars) 10,219 12,629 18,028 18,450 

Foreign Debt (percentage of GDP) 3.8 3.4 2.8 2.3 

Avg. Annual Exchange Rate (C$ per US$) 1.37 1.37 1.36' 1.34 

'Actual. 

Source: OECD, Economic Outlook, Dec., 1996; IMF, World Economic Outlook, Oct. 1996; IMF, 

International Financial Statistics, March 1997; supplemented by data from Statistics Canada. 

Canada's real GDP growth closely tracks that of the United States and was faster than the OECD 

average from 1993-1995, but slowed to 1.4 percent in 1996 (figures 3-2 and 3-17). Inflation has been kept 

under control (figure 3-18). Unemployment--a particularly difficult problem in Canada--has decreased 

3-44 3-44
14 

12 

10 

Figure 3-17 

Real GDP growth, for Canada, 1980-96 

Percentage 

8 

6 

4 

2 

0 

—2 

—4 

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 

est. 

Source: OECD, Economic Outlook, Dec. 1996. 

Figure 3-18 

Inflation rate (change in consumer prices) for Canada, 1980-96 

Percentage 

0 

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 

est. 

Source: OECD, Economic Outlook, Dec. 1996. 

3-45 

3-45
(figure 3-19). The level of public debt has also diminished significantly, as has the ratio of debt to GDP. The 

Federal deficit decreased by C$8.9 billion through the third quarter of fiscal year 1996, an annual decline of 12.7 

percent. 111The targets of lowering the deficit to GDP ratio to 3 percent in fiscal year 1996/97and 2 percent in 

fiscal year 1997/98 appear achievable."' Most of the improvement has been due to a 4.2-percent drop in current 

Government expenditures on goods and services over the period."' 

An ongoing difficult area has been the persistently high level of unemployment. Cutbacks in the public 

sector, which accounts for 15 percent of Canada's total employment, have had an adverse effect on the overall 

employment level.' However, it appears that recent management of the employment problem is producing 

positive results. OECD projections for most of the macroeconomic indicators are quite favorable."' 

The Canadian dollar was stable during the 1994-96 period, closing 1996 at 1.370 (C$ per U.S.$), a 

decline of 0.003 from the previous year. 116The Canadian dollar depreciated by 5.6 percent from 1993 to 1994, 

but has remained within a very narrow band since then. 

Foreign Trade 

A large proportion of Canada's GDP is directly tied to export performance. A recent report on 

Canadian trade policy states that "the share of exports of Canadian GDP has steadily increased from 24 percent 

in 1991 to 37 percent in 1995." 1 " There have been reports of exports accounting for as much as 43 percent of 

Canadian GDP. 118 

From 1994-96, overall Canadian exports grew by 24.6 percent and imports by 13.5 percent (table 3-8). 

The higher rate of export growth caused Canada's total trade surplus to increase to $29.0 billion in 1996, almost 

triple the 1994 surplus of $9.8 billion."' Canada's current account balance improved by 2.8 percent over the 

same period (figure 3-20). 

The United States accounted for some 75 percent of Canada's total trade in 1996. Exports to the United 

States accounted for 79 percent of Canada's total exports in 1996, down slightly from the 83 percent they 

represented in 1994. The U.S. share of Canada's total imports rose over the 1994-96 period, reaching 68 

percent in 1996. Canada's other major trading partners, the EU and Japan, together accounted for less than 15 

percent of Canada's trade. 

111Statistics Canada, Canadian Dimensions, Economic Indicators. 

112 Canadian Embassy, Canada Quarterly, Oct 1996, vol. 4, No. 4. 

113Statistics Canada, CANSIM matrix 6840. 

114 ibid. 

115OECD, Economic Outlook, Dec. 1996. 

116Statistics Canada, Canadian Dimensions, Economic Indicators. 

117 wTo, Trade Policy Review, Canada: Report by the Government, WT/TPR/G/22, Oct 15, 1996, p. 2. 

118 Wall Street Journal, "Canada Sees Exports As Path to Prosperity," Oct 21, 1996, p. Al. 

119Statistics Canada, Canadian International Merchandise Trade - cat 65-001, Dec. 1995. 

3-46 3-46
1992 1993 1994 1995 1996 

est. 

Figure 3-19 

Unemployment rate, for Canada, 1980-96 

Percentage 

0, 

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 

Source: OECD, Economic Outlook, Dec. 1996. 

Figure 3-20 

Current account balance as a percentage of GDP, Canada, 1980-96 

Percentage 

1 

0 

—1 

—2 

—3 

—4 

—5 

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 

est. 

Source: OECD, Economic Outlook, Dec. 1996. 

3-47 

3-47
Table 3-8 

Canada's overall foreign trade and the U.S. and Mexican share 

Actual Projected 

Item 1994 1995 1996 1997 

Exports (billion dollars) 161.3 190.2 201.0 221.0 

U.S. share (percentage) 83 80 79 n.a. 

Mexico's share (percentage) neg. neg. neg. n.a. 

Imports (billion dollars) 151.5 163.3 172.0 188.0 

U.S. share (percentage) 66 67 68 n.a. 

Mexico's share (percentage) 2 3 3 n.a. 

Trade balance (billion dollars) . . . . 9.82 26.9 29.0 33.0 

Source: Data are official Canadian trade statistics. 

Trade with the United States 

The positive impact of NAFTA on Canada's imports and exports was different in degree. Overall, U.S. 

exports to Canada increased 29.6 percent from 1993 to 1996. U.S. imports from Canada, which already 

exceeded U.S. exports in 1993, increased by 41.4 percent over the same period. The U.S.-Canada trade deficit 

has widened in each year of the current U.S. economic expansion (figure 3-21). 

U.S. exports rose by 12.8 percent during 1994 and 9.3 percent in 1995. The declining rate of growth 

continued during 1996, when U.S. exports increased by 5.1 percent. The machinery and transport equipment 

sector accounted for over one-half of total U.S. exports to Canada, equaling $64.8 billion in 1996 (table 3-9). 

Manufactured goods classified chiefly by material made up the next largest sector equaling 13.5 percent. 

Miscellaneous manufactured articles and chemicals also constituted significant portions. 

U.S. imports from Canada have grown at a slightly higher rate than exports, rising by 16.6 percent in 

1994, 12.5 percent in 1995, and 7.9 percent in 1996. As in the case of exports, machinery and transport 

equipment is the principal category of U.S. imports from Canada, accounting for 43.1 percent of U.S. imports in 

1996. "Other manufactured goods" are the next largest category, making up 16.5 percent of U.S. imports from 

Canada. Third in rank is fuel and raw materials, accounting for 10.7 percent. The three leading natural resource 

imports from Canada to the United States are crude oil, coniferous wood, and natural gas. 

Given the importance of trade to Canada's economy and the crucial role of the United States as a 

Canadian trading partner, the strength of the U.S. economy is a major determinant of Canadian economic 

3-48 3-48
I I 

200 

1989 1990 1991 1992 1993 1994 1995 

$75.0 $78.2 $78.7 $83.2 $91.9 $103.6 $113.3 

$88.0 $91.2 $90.9 $98.2 $110.5 $128.8 $144.9 

-$13.0 -$13.0 -$12.2 -$15.0 -$18.6 -$25.1 -$31.6 

1996 

$119.1 

$156.3 

-$37.2 

—50 

150 

100 

50 

Exports 7 

Imports 

Balance 

Figure 3-21 

U.S. trade with Canada: Exports, imports, and trade balance, 1989-96 

Billion dollars 

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

3-49
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3-50
well-being. During the recent WTO trade policy review of Canada, some countries pointed out "the cyclical 

vulnerability inherent in such dependence on one destination."" The United States shipped 21.4 percent of its 

overall merchandise exports to Canada in 1996. On the other hand, Canada shipped 79.5 percent of its 

merchandise exports to the United States. 12' 

Canadian-Mexican Trade 

According to 1994 statistics, Mexico was Canada's 13th-largest export market.' Mexico was 

Canada's fourth-largest supplier, accounting for 2.4 percent of 1994 Canadian imports. Mexico's exports to 

Canada are about equal to exports to the United Kingdom, and are surpassed only by those of Japan and the 

United States. Canada's exports to Mexico in 1995 accounted for 0.4 percent of Canada's total merchandise 

exports, while comparable Mexican exports to Canada represented 2.5 percent of Mexican shipments to the 

world. 

Pre-NAFTA trade flows showed a high growth rate in the 1990-93 period, with Canadian imports from 

Mexico averaging increases of 36 percent annually. Canada's imports from Mexico rose by 51 percent from 

1993 to 1996. In 1993, imports were $2.71 billion and increased almost 22 percent to $3.22 billion in 1994. 1 ' 

In 1995, Canada's imports from Mexico increased by 17.8 percent to $3.91 billion, and in 1996, they rose 10.5 

percent to over $4.3 billion (figure 3-22). Leading Canadian imports from Mexico consisted of fruits and 

vegetables, electrical machinery, motor vehicles, furniture, mineral fuels, and organic 

chemicals. 

Pre-NAFTA years show variable growth rates of Canadian exports to Mexico. The peso crisis affected 

Canada's exports to Mexico in 1995. While Canadian exports to Mexico increased 31 percent in 1994, the 

increase in 1995 was only 5 percent. In 1996, it was 3.2 percent, bringing Canada's total 1996 exports to nearly 

$855 million (figure 3-22). Canada's resulting bilateral trade deficit was $3.5 billion, or approximately 15.0 

percent greater than the previous year, down from the 21.2 percent increase that took place between 1994 and 

1995. The result was a nearly 40 percent increase in the bilateral trade deficit from the level at the end of 1994. 

Canada's importance as a source of FDI in Mexico increased following the inception of NAFTA. 

Canada was the ninth largest investor in Mexico, accounting for 1.6 percent of the cumulative total of FDI 

through 1994. 124During the first half of 1996, NAFTA partners accounted for the greatest shares of investment 

in Mexico, with Canada's share being 21.0 percent of the total [FDI in Mexico] during the period.' 

12°WTO, Trade Policy Review Body, Review of Canada, press release, TPRB 50, Nov. 19, 1996. 

121 WTO, Annual Report 1996, Vol. 2, p. 31. 

122Statistics Canada, Pocket Facts: Canada - Economic Indicators, No. 36. Mar. 15, 1996. 

123Senate of Canada, Proceedings of the Standing Committee on Foreign Affairs, 1st sess. 35th Parliament, 1994-

1995, No. 26, Aug. 3, 1995. 

124U.S. Embassy, Mexico, Economic and Financial Report, Jan. 1997, table 63 as derived from SECOFI. 

125U.S. Embassy, Mexico, Foreign Investment Report, 1996-1997, table 12. Data reflect the investment situation as 

of May 31, 1996. Investment worth nearly $1.3 billion flowed from Canada to Mexico during the period. 

3-51 3-51
6000 

4000 

2000 

0 

—2000 

—4000 

N 

\ 

Figure 3-22 

Canada-Mexico, merchandise trade, 1995-96 

Million U.S. dollars 

1995 1996 

Canadian exports $833.3 $854.9 

Imports $3912.0 $4389.4 

Balance -$3078.7 -$3534.5 

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

3-52
Direct Investment Between the United States and Canada 

The integration of the North American market is marked by a long-standing collaboration between 

Canada and the United States--one that pre-dates both the CFTA and NAFTA. Direct investment of U.S. firms 

in the Canadian economy, and of Canadian firms in the U.S. economy, has historically been substantial and has 

continued to grow during the NAFTA years. The 1965 Auto Pact forged a strong alliance between auto 

manufacturers and has resulted in this particular sector being well integrated thirty years later. Trade in 

automotive products accounts for the largest segment of commerce in either direction between the United States 

and Canada. The movement toward closer linkages was furthered by both the CFTA and the NAFTA; that is, 

the bilateral tariff reductions and other liberalizing measures of NAFTA have intensified the integration of the 

North American market. The most recent WTO review of Canadian trade policies concluded that "..most sectors 

[in Canada] are now exposed to, and perform well in, full competition with their U.S. counterparts. 726 

As of 1995, the most recent year for which data are available, the U.S. direct investment position in 

Canada, on a historical-cost basis, amounted to $81.5 billion." Approximately 67 percent of the stock of FDI 

in Canada in 1995 was U.S.-owned.' Canada accounts for 11.4 percent of the total U.S. direct investment 

position abroad, and is second only to the United Kingdom as a host country for U.S. direct investment. 

Manufacturing accounts for 50.7 percent of the stock of U.S. direct investment in Canada, with transportation 

equipment alone making up 14.5 percent of the U.S. direct investment position. Other important components of 

the U.S. direct investment position are (non-financial) services (23.1 percent), financial services, including 

banking (17.4 percent), and petroleum (10.1 percent). 

An idea of the importance of U.S. direct investment for Canadian capital formation can be obtained by 

observing that direct investment flows from all sources accounted for 5.0 percent of Canadian gross fixed capital 

formation in 1993 and 5.9 percent of Canadian gross fixed capital formation in 1994." The United Nations 

reports gross FDI inflows into Canada of $6.0 billion in 1994 and $11.2 billion in 1995. U.S. Commerce 

Department data report U.S. direct investment capital inflows into Canada of $6.3 billion in 1994 and $7.8 

billion in 1995. These figures are not directly comparable, but they suggest that the United States accounts for 

the vast majority of FDI inflows into Canada. 13° 

U.S. direct investment flows into Canada during 1994 and 1995 are large by historical standards, 

accounting in nominal terms for two of the largest three years of U.S. FDI inflows into Canada. (In 1983, U.S. 

direct investment capital inflows into Canada were $6.5 billion). The total U.S. direct investment capital inflow 

into Canada during the first two years of NAFTA was $14.1 billion, nearly triple the $5.7 billion of inflows 

during the 1992-93 period immediately preceding. The composition of U.S. direct investment capital inflows 

into Canada during 1994 and 1995 continued to be weighted heavily toward manufacturing, which accounted for 

60.6 percent of the total inflows. Transportation equipment alone accounted for 26.0 percent of all U.S. direct 

126 WTO, Trade Policy Review Body, press release, Nov. 11, 1996, p. 2. 

127Unless otherwise specified, all data on foreign direct investment in this section are those collected by the U.S. 

Department of Commerce, Bureau of Economic Analysis, International Investment Division. 

128U.S. Department of State, "Country Reports on Economic Policy and Trade Practices," March 1997, p. 221. 

12-9UnitedNations, World Investment Report 1996: Investment, Trade, and International Policy Arrangements. 

(1996) United Nations: New York and Geneva. 

130 By the Canadian Government's own reckoning, "In 1995, from an estimated $15 billion dollars in FDI, $12 billion 

alone originated from the United States." (Source: Industry Canada and Department of Foreign Affairs and International 

Trade, Government of Canada. The dollar figures in the above quote refer to Canadian dollars.) 

3-53 3-53
investment capital inflows into Canada during the first two years of NAFTA. Other important components of 

the 1994-95 flows included nonfinancial services (12.0 percent) and financial services, including banking (10.6 

percent). 

Direct investment of Canadian firms in the United States has also been significant In 1995, the FDI 

position of Canadian firms in the United States was $46.0 billion on a historical-cost basis, over half as large as 

the U.S. direct investment position in Canada. The FDI position of Canadian firms in the United States 

accounted for 8.2 percent of the direct investment position of all foreign firms in the United States in 1995. 

Canada is the fifth largest direct investor in the United States, behind (in order) the United Kingdom, Japan, the 

Netherlands, and Germany. Of the stock of Canadian FDI in the Uiiited States, 42.2 percent is in manufacturing. 

Commerce Department disclosure of the composition of Canadian manufacturing FDI is incomplete, due to the 

concentration of certain large investors in some industries. Seagrams (Canada) has a minority, but not 

controlling, interest in DuPont (United States); data for this firm complicates both disclosure and interpretation 

of the data for Canadian FDI in the United States.' Another 11.5 percent of the stock of Canadian FDI in the 

United States is in the insurance industry. 

Canadian direct investment flows into the United States during the first two years of NAFTA were $4.0 

billion in 1994 and $4.5 billion in 1995. These were two of the three largest such annual flows in nominal terms 

(the 1987 figure was $4.3 billion). By comparison, Canadian direct investment inflows into the United States 

were $1.3 billion in 1992 and $3.8 billion in 1993. Manufacturing accounted for 49.5 percent of the Canadian 

FDI inflows into the United States during 1994-95, insurance for 18.9 percent, and retail trade for 11.7 percent. 

Economic Policy 

Given the fact that NAFTA was an evolution from the CFTA, wholesale policy changes were largely 

unnecessary for purposes of implementing NAFTA in Canada. NAFTA did require some changes by Canada, 

however, as did the Uruguay Round. These changes are discussed in greater detail in Chapter 2. 

FTA With Chile 

Foremost among the other policy changes and Canadian initiatives that took place during the NAFTA 

period was the negotiation and implementation of a free-trade agreement (FTA) with Chile, the country generally 

recognized as the leading candidate for additional entry into NAFTA. Canada has frequently expressed interest 

in adding new countries to NAFTA and broadening the agreement. In December 1994, the Summit of the 

Americas set the year 2005 as the deadline for the accomplishment of the Free-Trade Area of the Americas 

(FTAA). During the Summit, the three NAFTA partners--Canada, Mexico, and the United States--announced 

their intention to expand the trilateral agreement further by including Chile. Lack of fast-track authority 

effectively prevented the negotiations from proceeding after their formal launch in June 1995. 

Canada resumed negotiations with Chile late in 1995, when it was clear that the United States would not 

be in a position to meaningfully participate; these negotiations were completed and a bilateral agreement 

131 Lois E. Steckler and Guy V. G. Stephens, "Adequacy of U.S. Direct Investment Data," in Peter Hooper and J. 

David Richardson, eds., International Economic Transactions: Issues in Measurement and Empirical Research, 

National Bureau of Economic Research Studies in Income and Wealth 55 (1991), Chicago and London: University of 

Chicago Press. 

3-54 3-54
between the two countries was set in place in November 1996. The Canada-Chile FTA is expected to take effect 

on June 2, 1997, after legislative approval in both countries. Canada has characterized the bilateral FTA as an 

"interim" agreement--one that "will provide a bridge to Chile's eventual accession to NAFTA and create 

momentum for the broader FTAA initiative." 

Two-way trade between Canada and Chile in 1995 amounted to about $500 million, with Canada's 

surplus in the relationship amounting to about $380 million. Canadian products shipped to Chile include grains, 

machinery, minerals, and paper. Chilean exports to Canada include fruit, copper, wine, and seafood. Canadian 

potential in Chile centers around opportunities for mining, energy, and pulp and paper interests. 

The agreement covers more than 80 percent of Canadian industrial exports to Chile. These exports will 

be duty-free from the inception of the agreement. The 11-percent Chilean duty, levied on all imports, will be 

eliminated for a broad range of Canadian industrial products. Most Chilean goods already enter Canada dutyfree, so the asymmetry in the market access features of the FTA are notable. Duties on certain horticultural, 

textile, and footwear products from Chile will be lowered over a period of 6 years. Chile will also be able to 

maintain some duties on edible oil, sugar, potato and wheat products for up to 18 years. 

The Canada-Chile FTA tracks the NAFTA model in a number of areas--labor and environmental 

cooperation, rules of origin, and safeguard protection. However, certain aspects of the Canada-Chile accord and 

NAFTA differ. In the former, Chile was permitted to retain requirements on foreign investors that have been 

identified as barriers by the United States. In a significant departure from NAFTA, Canada and Chile both 

agreed not to apply antidumping measures against one another. This particular facet of the agreement is to be 

phased-in at the same time that tariffs are being phased-out (i.e. over six years), and will only apply to those 

products that have already reached a duty-free level. This step was, as a Canadian background paper noted, 

"consistent with the Canadian government's longstanding objective to reform and eventually eliminate the use of 

antidumping duties within the NAFTA." Cultural industries were exempted from the pact, as were supplymanaged agricultural commodities. Both sectors are also exempt from NAFTA , and both have been the subject 

of U.S.-Canada disputes since NAFTA's entry into force. 

Other Policy Developments 

Other noteworthy developments on the Canadian policy front during the 1994-96 period include: a 

review of the Canadian tariff system; continued deregulation of industries--telecommunications, financial 

services, and air transport--that previously had been protected; and the elimination of internal trade barriers 

within Canada. The regulatory environment that governs Canadian growth and structural adjustment has also 

been bolstered by the internal attempts to lower trade barriers. The Agreement on Internal Trade was signed in 

July 1994, with most provisions to reduce or remove interprovincial trade bathers within Canada becoming 

effective by July 1995. 

In 1994, Canada began a 3-year review of its tariff system. The purpose of the review was to simplify 

the system, and to make it more responsive to the competitive pressures facing Canadian industries as a result of 

freer trade. One part of the review was implemented in June 1995, when most-favored nation rate reductions on 

a range of manufacturing inputs took place. A new, simplified Customs Tariff was proposed in March 1996. It 

calls for additional rate reductions, as well as a reduction in the number of tariff categories and a general 

simplification of the system. The new tariff is expected to be implemented in 1998. 132 

132 WTO, Trade Policy Review, Canada: Report by the Government, WT/TPR/G/22, Oct. 15, 1996, p. 5. 

3-55 3-55
- 

3-56
CHAPTER 4 

EFFECTS OF NAFTA ON U.S. INDUSTRY PERFORMANCE: 

TRADE, LABOR, AND PRODUCTIVITY 

Introduction 

This chapter analyzes the effects of NAFTA on U.S. bilateral trade flows with Canada and 

Mexico and on U.S. labor markets. In addition, the effects of Canadian and Mexican import competition 

on U.S. labor productivity are evaluated to indicate the potential effects of NAFTA on U.S. industry 

productivity. In the results reported below, econometric analyses were conducted at a detailed industry 

level as well as an aggregate level to identify the impact of NAFTA on trade and labor markets.' These 

analyses attempt to control for changes in other market forces that affect each of these variables, 

including the Mexican peso devaluation. The empirical analysis of U.S. industry productivity has a 

different focus. That analysis identifies the effects of increased import penetration on U.S. labor 

productivity to characterize industries that are most likely to exhibit changes in labor productivity as a 

result of the Agreement. A summary of findings from these analyses is presented below, followed by a 

more detailed description of the trade, labor market, and productivity results. 

The largest consistent result for the detailed industry-level bilateral trade analysis was no 

statistically discernible change in the volume of imports and exports during 1994-96 as compared with 

1989-96. Of the industries that exhibited a strong statistical link between the implementation of NAFTA 

and changes in trade volumes most of those industries indicated a positive change in trade over 1994-96. 

Another group of industries were judged inconclusive regarding a strong consistent relationship between 

changes in trade volumes and the implementation of the NAFTA. The principal result of the aggregate 

analysis is a strong statistical link demonstrated for U.S.- Mexico bilateral trade. 

NAFTA was identified as affecting industries that, in total, employ less than 4 percent of the nonfarm labor force. Among the industries that were affected, those with increases in hours worked 

outnumbered industries with decreases, and industries with earnings reductions outnumbered industries in 

which there were earnings increases. The aggregate labor market was not found to have a NAFTArelated impact. 

Labor productivity is shown to increase as a result of higher import penetration, but the results 

obtained here suggest that lagged import competition, and not contemporaneous import competition, 

affects labor productivity. In addition, imports must account for a relatively substantial share of 

consumption—in this analysis, 15 percent—before productivity is affected by increases in import 

competition. In general, the estimated effects of imports on U.S. labor productivity were relatively 

modest. 

The Effects of NAFTA on Trade Flows 

Changes in U.S. imports and exports are evaluated at both detailed and aggregate levels to 

determine if there were shifts in U.S. trade flows that can be associated with NAFTA. Approximately 85 

to 90 percent of U.S. bilateral commodity trade with Canada and Mexico is included in the detailed 

The methodology that is used in the trade and labor analyses tests for statistically significant changes in these 

markets that are unexplained by changes in factors theoretically associated with their behavior. Although we refer to 

these shifts as NAFTA effects, they may also reflect other events that occur concurrently with NAFTA 

implementation. A detailed discussion of technical challenges and issues associated with this analysis can be found 

in appendix C. 

4-1 

4-1
analysis by focusing on approximately 198 of the 4-digit SIC industries (45 percent) that have commodity 

trade? Monthly data spanning 5 years prior to and the 3 years after (1989-1996) implementation of the 

Agreement are used to determine whether there were distinct shifts in actual trade flows that can be 

attributed to NAFTA. Econometric estimations control for the changes in import prices, competing 

(domestic) goods prices, purchaser incomes, and exchange rates to identify shifts in U.S. imports and 

exports during the first 3 years of NAFTA that may then be attributed to the Agreement. 

Industry-Level Results 

Four bilateral trade flows have been analyzed for 198 4-digit SIC industries: 1) U.S. imports from 

Canada; 2) U.S. exports to Canada; 3) U.S. imports from Mexico; and 4) U.S. exports to Mexico. A total 

of 677 out of a possible 792 individual econometric estimations were conducted for this analysis. 3A 

summary of results directly related to the questions addressed by this report are presented in this chapter. 

The methodology and details of this analysis are contained in appendix C. 

In general, the observed impacts in these estimates are consistent with prior expectations of 

NAFTA: that specialization, intraindustry trade, and trade diversion would result from the Agreement. 

Also, since the U.S.-Canada Free Trade Agreement preceded the implementation of NAFTA, the effects 

of NAFTA on trade flows were not expected to be symmetric between Mexico and Canada. Much of the 

trade between Canada and the United States has already been liberalized or liberalization is being phased 

in over time, so NAFTA will generally affect bilateral trade flows with Mexico more than it affects trade 

between Canada and the United States. 

A regression analysis is used to identify statistically significant shifts in 1994, 1995 and 1996 

trade flows, after controlling for changes in economic factors theoretically associated with their behavior. 

In particular, each estimation contains three (binary) variables 4identifying the years 1994, 1995, and 

1996 to formally test whether the growth rates of imports from and exports to Canada and Mexico in the 

years 1994, 1995, and 1996 are statistically different from the average rates of growth during the entire 

sample period, 1989 through 1996. Table 4-1 presents a summary of the number of 4-digit SIC industries 

within each ITC group for which the Commission estimated a 'conclusive' effect (whether an increase, a 

decrease, or no impact) for all estimations performed. 5.6A conclusive result is defined in the trade 

analysis as occurring when the three binary variables all have the same algebraic sign and all are either 

statistically significant or statistically insignificant.' This consistent effect across all 3 years is the basis 

for the conclusion that an association exists between the implementation of NAFTA and a change in the 

volume 

'The 4-digit Standard Industrial Classification (SIC) level represents greatest degree of disaggregation for 

which data are widely available and provides the basis for the industries evaluated in this chapter. This level of 

disaggregation is a common way of distinguishing U.S. industries for analysis. 

3 Data constraints prevented estimation of the additional 115 individual estimations. 

4A binary variable is a variable that takes on a value of one or zero to identify a specific period or the 

occurrence of a specific event in time. In regression analyses, binary variables are used to identify shifts that are not 

explained by other variables in the regression. In this analysis, the year specific binary variables take on a value of 

one in each of the 12 months in the year it identifies and zero otherwise. 

'The term "statistically significant" indicates that there is a relatively large probability, for example 90 or more 

out of 100, that the estimated effect of the variable characterized as significant would not have occurred by chance. 

Results for all of the individual estimations are presented in appendix table C-1. 

Since the binary variables identify shifts that might be due to NAFTA and non-NAFTA events, a threshold of 

three statistically significant annual changes (of the same direction) was chosen to minimize the instances of 

incorrectly attributing a trade shift to NAFTA. 

4-2 

4-2
Table 4-1. Impact of NAFTA on the number of 4-digit SIC study sectors, by country, by ITC Group' 

ITC Group 

Total 

study 

SICs2 

U S. Imports from U.S. Exports to 

Increase' Decrease' No 

impact 

Increases Decrease' No 

impact 

Canada 

ITC Group 1: Grains and oilseeds 4 3 3 

ITC Group 2: Raw cotton 1 

ITC Group 3: Field crops 1 1 1 

ITC Group 4: Fresh vegetables, & canned & fan. fruits and veg. 3 2 2 

ITC Group 5: Ornamental floriculture and nursery products 1 

ITC Group 6: Meats and livestock 3 1 3 

ITC Group 7: Fish and shellfish 2 

ITC Group 8: Iron ore 1 

ITC Group 9: Coal 1 

ITC Group 10: Crude petroleum, nat. gas, and nat. gas liquid 2 2 

ITC Group 11: Animal feeds 1 1 1 

ITC Group 12: Bakery products 1 1 1 

ITC Group 13: Chocolate and cocoa products 1 1 1 

ITC Group 14: Fats and oils 2 1 1 

ITC Group 15: Malt beverages 1 1 

ITC Group 16: Bottled and canned soft drinks and carbonated waters 1 1 

ITC Group 17: Miscellaneous food preparations 1 

ITC Group 18: Textile mill products 8 1 5 3 

ITC Group 19: Apparel and other finished textile products 11 7 6 

ITC Group 20: Solid wood products 8 4 2 

ITC Group 21: Furniture 1 1 1 

ITC Group 22: Paper products 8 5 6 

ITC Group 23: Printed matter 5 3 3 

ITC Group 24: Alkalies and chlorine 1 

ITC Group 25: Industrial inorganic chemicals 2 1 I 1 

ITC Group 26: Synthetic plastics, resins, and rubber 2 2 1 

ITC Group 27: Pharmaceutical preparations 1 1 

ITC Group 28: Soaps, detergents, toiletries 2 2 1 

ITC Group 29: Paints and allied products 1 1 1 

ITC Group 30: Industrial organic chemicals 2 1 1 1 

ITC Group 31: Fertilizers, pesticides, and agricultural chemicals 2 1 1 2 

ITC Group 32: Petroleum refinery products 1 1 

ITC Group 33: Plastic and rubber products 7 1 4 3 1 

ITC Group 34: Leather tanning and finishing 1 2 

ITC Group 35: Women's footwear, except athletic 1 

ITC Group 36: Flat glass and glassware 4 1 3 1 

4-3 

4-3
Table 4-1. Impact of NAFTA on the number of 4-digit SIC study sec ors, by country, by ITC Group' 

ITC Group 

Total 

study 

SICs2 

U.S. Imports from U.S. Exports to 

Increase' Decrease° No 

impact 

Increase' Decrease' No 

impact 

ITC Group 37: Cement 1 1 1 

ITC Group 38: Vitreous china plumbing fixtures 1 1 

ITC Group 39: Gypsum building products 1 1 1 

ITC Group 40: Mineral wool 1 1 1 

ITC Group 41: Steel products 2 1 1 1 

ITC Group 42: Nonferrous metals, unwrought 4 2 1 2 

ITC Group 43: Nonferrous metals, wrought 4 1 2 

ITC Group 44: Fabricated metal products 10 4 2 1 5 

ITC Group 45: Industrial machinery 24 3 2 13 1 1 7 

ITC Group 46: Computers & computer peripheral equipment 2 

ITC Group 47: Heavy electrical equipment 4 1 1 1 3 

ITC Group 48: Household appliances 5 1 1 1 2 

ITC Group 49: Electric lighting and wiring equipment 4 1 1 3 

ITC Group 50: Radio and television equipment 3 1 2 1 2 

ITC Group 51: Communications equipment 2 1 1 

ITC Group 52: Electronic components and accessories 6 1 4 

ITC Group 53: Misc. electrical machinery, equipment, and supplies 4 1 2 

ITC Group 54: Motor vehicles 1 1 1 

ITC Group 55: Motor vehicle parts 4 1 1 2 

ITC Group 56: Aircraft and aircraft parts 3 1 1 2 

ITC Group 57: Boat building and repairing 1 1 1 

ITC Group 58: Railroad equipment and parts 1 1 

ITC Group 59: Transportation equipment 1 

ITC Group 60: Measuring, analyzing and controlling instruments 6 3 3 

ITC Group 61: Medical equipment 3 2 2 

ITC Group 62: Photographic equipment and supplies 1 

ITC Group 63: Jewelry, precious metals 1 

ITC Group 64: Games, toys, and children's vehicles 1 1 1 

ITC Group 65: Sporting goods 1 1 

ITC Group 66: Miscellaneous industries, n.e.c. 1 1 

Total Canada 198 13 8 94 10 8 94 

4-4 

4-4
Table 4-1. Impact of NAFTA on the number of 4-digit SIC study sectors, by country, by ITC Group' 

ITC Group 

Total 

study 

SICs2 

U.S. Imports from U.S. Exports to 

Increase' Decrease's No 

impact 

Increase' Decrease' No 

impact 

Mexico 

ITC Group 1: Grains and oilseeds 4 1 3 

ITC Group 2: Raw cotton 1 

ITC Group 3: Field crops 1 1 1 

ITC Group 4: Fresh vegetables, & canned & fr-zn. fruits and veg. 3 3 1 

ITC Group 5: Ornamental floriculture and nursery products 1 

ITC Group 6: Meats and livestock 3 1 

ITC Group 7: Fish and shellfish 2 

ITC Group 8: Iron ore 1 

ITC Group 9: Coal 1 

ITC Group 10: Crude petroleum, nat. gas, and nat. gas liquid 2 1 

ITC Group 11: Animal feeds 1 1 1 

ITC Group 12: Bakery products 1 1 

ITC Group 13: Chocolate and cocoa products 1 

ITC Group 14: Fats and oils 2 2 

ITC Group 15: Malt beverages 1 1 

ITC Group 16: Bottled and canned soft drinks and carbonated waters 1 1 

ITC Group 17: Miscellaneous food preparations 1 1 

ITC Group 18: Textile mill products 8 5 2 3 

ITC Group 19: Apparel and other finished textile products 11 1 3 5 

ITC Group 20: Solid wood products 8 1 3 1 2 

ITC Group 21: Furniture 1 1 1 

ITC Group 22: Paper products 8 5 1 4 

ITC Group 23: Printed matter 5 1 1 2 1 2 

ITC Group 24: Alkalies and chlorine 1 

ITC Group 25: Industrial inorganic chemicals 2 1 

ITC Group 26: Synthetic plastics, resins, and rubber 2 1 1 1 

ITC Group 27: Pharmaceutical preparations 1 1 1 

ITC Group 28: Soaps, detergents, toiletries 2 2 

ITC Group 29: Paints and allied products 1 1 

ITC Group 30: Industrial organic chemicals 2 1 

ITC Group 31: Fertilizers, pesticides, and agricultural chemicals 2 2 1 

ITC Group 32: Petroleum refinery products 1 

ITC Group 33: Plastic and rubber products 7 3 2 

ITC Group 34: Leather tanning and finishing 1 1 1 

ITC Group 35: Women's footwear, except athletic 1 

ITC Group 36: Flat glass and glassware 4 4 1 

4-5 

4-5
Table 4-1. Impact of NAFTA on the number of 4-digit SIC study sectors, by country, by ITC Group' 

ITC Group 

Total 

study 

SICs2 

U S. Imports from U.S. Exports to 

Increase' Decrease° No 

impact 

Increase' Decrease' No 

impact 

ITC Group 37: Cement 1 1 

ITC Group 38: Vitreous china plumbing fixtures 1 1 1 

ITC Group 39: Gypsum building products I I 1 

ITC Group 40: Mineral wool 1 1 1 

ITC Group 41: Steel products 2 2 1 

ITC Group 42: Nonferrous metals, unwrought 4 1 2 2 

ITC Group 43: Nonferrous metals, wrought 4 4 2 

ITC Group 44: Fabricated metal products 10 1 1 3 2 

ITC Group 45: Industrial machinery 24 2 1 15 1 8 

ITC Group 46: Computers & computer peripheral equipment 2 1 1 

ITC Group 47: Heavy electrical equipment 4 1 

ITC Group 48: Household appliances 5 1 1 1 1 

ITC Group 49: Electric lighting and wiring equipment 4 1 1 1 2 

ITC Group 50: Radio and television equipment 3 1 1 1 

ITC Group 51: Communications equipment 2 1 

ITC Group 52: Electronic components and accessories 6 3 2 1 

ITC Group 53: Misc. electrical machinery, equipment, and supplies 4 1 3 

ITC Group 54: Motor vehicles 1 1 1 

ITC Group 55: Motor vehicle parts 4 1 2 3 

ITC Group 56: Aircraft and aircraft parts 3 1 2 

ITC Group 57: Boat building and repairing 1 

ITC Group 58: Railroad equipment and parts 1 1 1 

ITC Group 59: Transportation equipment 1 

ITC Group 60: Measuring, analyzing and controlling instruments 6 1 4 5 

ITC Group 61: Medical equipment 3 1 1 1 1 

ITC Group 62: Photographic equipment and supplies 1 1 

ITC Group 63: Jewelry, precious metals 1 

ITC Group 64: Games, toys, and children's vehicles 1 1 1 

ITC Group 65: Sporting goods 1 1 

ITC Group 66: Miscellaneous industries, n.e.c. I 1 1 

Total Mexico 198 16 7 92 13 0 77 

These identify econometric estimates in which there are either three or zero significant coefficients on the binary variables for the NAFTA years of 1994, 1995, and 1996 

Results in each row do not sum to the total number of industries in each ITC group. Those SIC industries not repotted in the table either did not have a consistent 3-year outcome, or were not 

estimated due to data constraints. 

3 SICs included in this column: Canada-2252, 2816, 3053, 3221, 3321, 3511, 3554, 3564, 3625, 3635, 3648, 3671, and 3721; Mexico-2086, 2341, 2493, 2771, 3053, 3081, 3089, 3429, 3564, 3599, 

3635, 3644, 3651, 3714, 3825, and 3841. 

SICs included in this column: Canada-2879, 3275, 3585, 3593, 3631, 3652, 3669, and 3944; Mexico-2721, 2834, 3341, 3441, 3566, 3633, and 3661. 

SICs included in this column: Canada-2869, 3211, 3275, 3452, 3493, 3532, 3613, 3635, 3663, and 3691; Mexico-2252, 2281, 2411, 2672, 2771, 2821, 2865, 3535, 3643, 3671, 3676, 3679, and 

3841. 

SICs included in this column: Canada-2051, 2066, 3011, 3053, 3089, 3339, 3494, and 3519. 

Source: U.S. International Trade Commission. 

4-6 

4-6
of U.S. imports and exports.' Table 4-1 organizes the results for the 4-digit SIC industries using the ITC 

groupings analyzed in chapters 5 and 6. 

First consider those industries with a conclusive statistical link between the volume of U.S. 

imports and exports and the NAFTA years. For U.S.-Canada trade, 21 U.S. importing industries (13 

increasing and 8 decreasing) and 18 U.S. exporting industries (10 increasing and 8 decreasing) show an 

impact of NAFTA on trade in 1994-96. Similarly, for U.S.-Mexico trade, 23 U.S. importing industries 

(16 increasing and 7 decreasing) and 13 U.S. exporting industries (13 increasing and 0 decreasing) show 

an impact of the Agreement on real trade volumes in 1994-96. In every case, those industries showing 

increases in trade growth outnumber those exhibiting decreases in growth. None of the analyzed 

industries exhibited a conclusive relationship between NAFTA and lower U.S. exports to Mexico. In 

addition, the number of industries that showed significant increases in imports and exports are greater for 

bilateral trade with Mexico than for trade with Canada. 

The largest group of industries with conclusive results are those that indicate there is no impact 

on the growth of bilateral trade between the United States and its NAFTA partners. Specifically, 94 

industries with imports from Canada and 92 industries with imports from Mexico exhibited no statistical 

link between the real volume of imports and the first 3 NAFTA years. Similarly, 94 industries with 

exports to Canada and 77 industries with exports to Mexico exhibited no statistical link between the 

growth of imports and the first 3 NAFTA years. For each of the 4 bilateral flows, approximately 40 to 48 

percent of the industries analyzed exhibited no statistically discernible change during 1994-96, as 

compared with the entire sample period. These results are spread across the entire range of industries 

evaluated. 

The effects of the U.S.-Canada Free Trade Agreement preceding NAFTA are also consistent with 

the estimates presented above. The sequential timing of the two agreements suggests that increases in 

trade should be largest with Mexico and instances of trade diversion will generally shift U.S.-Canada 

trade toward bilateral flows with Mexico. This expected pattern is exhibited here by the greater number 

of conclusive negative import (8) and export (8) changes in U.S.-Canada trade than the number of 

negative import (7) and export (0) changes in U.S.-Mexico trade. However, because in many industries 

NAFTA extends the degree of trade liberalization between the United States and Canada beyond the 

provisions agreed to in the U.S.-Canadian Free Trade Agreement, trade diversion should not be expected 

in every industry. 

Results from the Commission analysis are also consistent with increases in specialization and 

intraindustry trade. Specialization appeared to be most common, as evidenced by a change in only one 

direction or a combination of simultaneous increases and decreases in either imports or exports for a 

given industrial grouping. There were 22 ITC groups in which U.S.-Canada bilateral trade had at least 

one 4-digit industry with a significant change in imports or exports. U.S. bilateral trade with Mexico was 

affected in 21 ITC sectors. One-way shifts in trade flows were present in approximately 70 percent of 

these groupings. Indications of intraindustry trade were most prevalent in the industrial products sectors 

and other groups expected to generate this pattern of trade, such as those characterized by product 

differentiation and production with a high degree of manufactured components. For example, in the case 

of Canada, the glass, industrial machinery, heavy equipment, household appliances, and radio and 

television equipment sectors demonstrated two-way increases in trade. Two-way increases in trade with 

Mexico occurred in the apparel, plastics and rubber, industrial machinery, electric lighting and wiring 

equipment, radio and television equipment, and medical equipment sectors. 

'In many instances, the results in each row do not sum to the total number of industries in each ITC group. 

SIC industries not reported in the table either did not have a consistent 3-year outcome, or were not estimated. 

4-7 

4-7
Table 4-2 and 4-3 attempt to identify the relative size of the affected industries highlighted in 

table 4-1 by presenting the 1996 share (or percent) of NAFTA partner trade covered by those industries. 

Table/4-2 puts into perspective the industries for which conclusive changes were identified. For example, 

ITC group 33, plastic and rubber products, showed that three of seven industries had a significant positive 

change in U.S. imports from Mexico (table 4-1). These industries represent 0.57 percent of total U.S. 

commodity imports from Mexico. In contrast, one of three industries in ITC sector 50, radio and 

television equipment, had a significant positive change in imports, but that industry represented 6.25 

percent of total commodity imports from Mexico. Overall, the results indicate that NAFTA affected a 

larger share of Mexico's bilateral trade with the United States during 1994-96 than Canada's. 

Specifically, U.S. imports from Mexico increased in industries that represent about 14.5 percent of total 

bilateral commodity trade, and U.S. exports to Mexico increased in industries that represent about 8.7 

percent of such trade. Alternatively, U.S. trade with Canada that was conclusively affected by NAFTA 

represents 5 percent or less of total U.S.-Canada bilateral commodity trade flows. 

Table 4-3 presents calculations similar to those in table 4-2 for those industries that showed no 

statistical change in U.S. imports or exports during any of the NAFTA years. Once again, the 1996 share 

(or percent) of bilateral trade for those industries is reported. These results suggest that the amount of 

bilateral commodity trade unaffected by NAFTA during 1994-96 is quite significant. It ranges from 

approximately 35 to 55 percent of total bilateral trade flows, with the largest amount of unaffected trade 

consisting of imports from Canada. 

Under the analysis described above, industries in which there were statistically significant shifts 

in trade flows in only 1 or 2 years are judged to be inconclusive with regard to a NAFTA effect? A lower 

degree of confidence exists in defming a conclusive link between NAFTA and a single or two year shift 

in trade, but a close evaluation of these results yields a notable pattern. Among the many combinations of 

one and two year changes that are possible (e.g. increases in 1994 and 1995, increases in 1994 and 1996, 

etc.) in the bilateral trade flows estimated here, the results are generally quite similar.' Within each of 

the many combinations, there are usually only a small number of industries represented. 

One notable exception exists to this general pattern. For the estimations representing U.S. 

exports to Mexico, a striking result emerged. Of the 78 industries that show a statistically significant 

change in only one or two years, 36 have a single positive statistically significant coefficient identifying a 

change in 1994 and statistically insignificant coefficients for the variables identifying changes in 1995 

and 1996. These 36 industries accounted for approximately 15.3 percent of total commodity bilateral 

trade between the United States and Mexico in 1996. This result indicates that a considerable number of 

industries may have experienced a jump in exports to Mexico immediately after NAFTA implementation, 

but this significant change abruptly ended in 1995 and had not yet resumed in 1996. The Mexican peso 

devaluation may have had an impact on these industries. 

As indicated above, the criteria used to determine a statistical link between trade flow changes 

and NAFTA is the presence of a statically significant coefficient identifying a change in trade growth in 

each of the NAFTA years. The choice of criteria involves a tradeoff between a confidence in linking a 

yearly binary variable to an event that occurs in that year and the probability of erroneously linking 

NAFTA to unexplained changes in trade. To the extent that the estimated trade models do not fully 

control for exchange rate changes, requiring three statistically significant binary variables identifying 

9This group of industries represents the second largest set of bilateral estimates, behind those with no NAFTA 

effect. 

I°A tabulation of results based on the different possible combinations is reported in table C-3 in appendix C. 

4-8 

4-8
Table 4-2. 1996 share of total bilateral commodity trade in analyzed industries having conclusive shifts in trade growth by country, by ITC Group 

ITC Group 

Canada Mexico 

U.S. Imports from U.S. Exports to U.S. Imports from U.S. Exports to 

Increase' Decrease' Increase' Decrease` Increases Decrease6 Increase' Decrease 

ITC Group 1: Grains and oilseeds 

ITC Group 2: Raw cotton 

ITC Group 3: Field crops 

ITC Group 4: Fresh vegetables, & canned & fan. fruits and veg. 

ITC Group 5: Ornamental floriculture and nursery products 

ITC Group 6: Meats and livestock 

ITC Group 7: Fish and shellfish 

ITC Group 8: Iron ore 

ITC Group 9: Coal 

ITC Group 10: Crude petroleum, nat. gas, and nat. gas liquid 

ITC Group 11: Animal feeds 

ITC Group 12: Bakery products 0.17% 

ITC Group 13: Chocolate and cocoa products 0.16% 

ITC Group 14: Fats and oils 

ITC Group 15: Malt beverages 

ITC Group 16: Bottled and canned soft drinks and carbonated 0.07% 

ITC Group 17: Miscellaneous food preparations 

ITC Group 18: Textile mill products 0.02% 0.13% 

ITC Group 19: Apparel and other finished textile products 0.19% 

ITC Group 20: Solid wood products 0.04% 0.01% 

ITC Group 21: Furniture 

ITC Group 22: Paper products 0.36% 

ITC Group 23: Printed matter 0.03% 0.02% 0.04% 

ITC Group 24: Alkalies and chlorine 

ITC Group 25: Industrial inorganic chemicals 0.10% 

ITC Group 26: Synthetic plastics, resins, and rubber 2.34% 

ITC Group 27: Pharmaceutical preparations 0.02% 

ITC Group 28: Soaps, detergents, toiletries 

ITC Group 29: Paints and allied products 

ITC Group 30: Industrial organic chemicals 1.12% 0.73% 

ITC Group 31: Fertilizers, pesticides, and agricultural chemicals 0.05% 

ITC Group 32: Petroleum refinery products 

ITC Group 33: Plastic and rubber products 0.12% 1.67% 0.57% 

ITC Group 34: Leather tanning and finishing 

ITC Group 35: Women's footwear, except athletic 

ITC Group 36: Flat glass and glassware 0.06% 0.26% 

4-9 

4-9
Table 4-2. 1996 share of total bilateral commodity trade in analyzed industries having conclusive shifts in trade growth by country, by ITC Group 

ITC Group 

Canada MexicoU.S. Imports from U.S. Exports to U.S. Imports from U.S. Exports to 

Increase' Decrease' Increase' Decrease' Increase' Decrease6 Increase' Decrease 

ITC Group 37: Cement 

ITC Group 38: Vitreous china plumbing fixtures 

ITC Group 39: Gypsum building products 0.06% 0.01% 

ITC Group 40: Mineral wool 0.49% 

ITC Group 41: Steel products 0.07% 

ITC Group 42: Nonferrous metals, unwrought 0.40% 0.13% 

ITC Group 43: Nonferrous metals, wrought 

ITC Group 44: Fabricated metal products 0.77% 0.40% 0.02% 

ITC Group 45: Industrial machinery 0.34% 0.22% 0.17% 1.82% 0.45% 0.04% 0.16% 

ITC Group 46: Computers & computer peripheral equipment 

ITC Group 47: Heavy electrical equipment 0.19% 0.09% 

ITC Group 48: Household appliances 0.07% 0.07% 0.09% 0.17% 0.04% 

ITC Group 49: Electric lighting and wiring equipment 0.06% 0.51% 0.65% 

ITC Group 50: Radio and television equipment 0.03% 0.58% 6.25% 1.79% 

ITC Group 51: Communications equipment 0.07% 0.75% 

ITC Group 52: Electronic components and accessories 2.14% 

ITC Group 53: Misc. electrical machinery, equipment, and supplies 0.16% 

ITC Group 54: Motor vehicles 

ITC Group 55: Motor vehicle parts 0.20% 529% 

ITC Group 56: Aircraft and aircraft parts 0.89% 

ITC Group 57: Boat building and repairing 

ITC Group 58: Railroad equipment and parts 

ITC Group 59: Transportation equipment 

ITC Group 60: Measuring, analyzing and controlling instruments 0.16% 

ITC Group 61: Medical equipment 0.41% 032% 

ITC Group 62: Photographic equipment and supplies 

ITC Group 63: Jewelry, precious metals 

ITC Group 64: Games, toys, and children's vehicles 0.09% 

ITC Group 65: Sporting goods 

ITC Group 66: Miscellaneous industries, n.e.c. 

Total 1.95% 0.72% 3.01% 4.99% 14.54% 1.02% 8.67% 0.00% 

SICs included in this column: 2252, 2816, 3053, 3221, 3321, 3511, 3554, 3564, 3625, 3635, 3648, 3671, and 3721. 

SICs included in this column: 2879, 3275, 3585, 3593, 3631, 3652, 3669, and 3944. 

SICs included in this column: 2869, 3211, 3275, 3452, 3493, 3532, 3613, 3635, 3663, and 3691. 

SICs included in this column: 2051, 2066, 3011, 3053, 3089, 3339, 3494, and 3519. 

SICs included in this column: 2086, 2341, 2493, 2771, 3053, 3081, 3089, 3429, 3564, 3599, 3635, 3644, 3651, 3714, 3825, and 3841. 

6 SICs included in this column: 2721, 2834, 3341, 3441, 3566, 3633, and 3661. 

SICs included in this column: 2252, 2281, 2411, 2672, 2771, 2821, 2865, 3535, 3643, 3671, 3676, 3679, and 3841 

4-10 

Source: U.S. International Trade Commission. 

4-10
Table 4-3. 1996 share of total bilateral commodity trade in analyzed industries having no statistically significant shifts in trade growth, by country, by 

ITC Group 

ITC Group 

Canada Mexico 

U.S. Imports from' U.S. Exports to' U.S. Imports from' U.S. Exports to° 

ITC Group 1: Grains and oilseeds 0.48% 0.06% 2.95% 

ITC Group 2: Raw cotton 0.49% 

ITC Group 3: Field crops 0.09% 0.12% 0.04% 0.04% 

ITC Group 4: Fresh vegetables, & canned & frzn. fruits and veg. 0.19% 0.82% 2.27% 

ITC Group 5: Ornamental floriculture and nursery products 

ITC Group 6: Meats and livestock 0.72% 0.46% 0.04% 

ITC Group 7: Fish and shellfish 

ITC Group 8: Iron ore 

ITC Group 9: Coal 

ITC Group 10: Crude petroleum, nat. gas, and nat. gas liquid 8.38% 0.06% 

ITC Group 11: Animal feeds 0.10')/0 0.08% 0.08% 

ITC Group 12: Bakery products 0.19% 0.02% 

ITC Group 13: Chocolate and cocoa products 0.17% 0.08% 

ITC Group 14: Fats and oils 0.05% 0.05% 0.26% 

ITC Group 15: Malt beverages 0.13% 0.42% 

ITC Group 16: Bottled and canned soft drinks and carbonated waters 0.05% 

ITC Group 17: Miscellaneous food preparations 0.06% 

ITC Group 18: Textile mill products 0.50% 0.62% 0.40% 0.81% 

ITC Group 19: Apparel and other finished textile products 0.33% 0.16% 1.82% 1.72% 

ITC Group 20: Solid wood products 4.43% 0.17% 0.35% 0.08% 

ITC Group 21: Furniture 1.63% 1.08% 1.86% 0.85% 

ITC Group 22: Paper products 0.59% 0.88% 0.08% 1.29% 

ITC Group 23: Printed matter 0.28% 0.59% 0.18% 0.30% 

ITC Group 24: Alkalies and chlorine 

ITC Group 25: Industrial inorganic chemicals 0.92% 0.13% 0.15% 

ITC Group 26: Synthetic plastics, resins, and rubber 1.34% 1.91% 0.05% 0.19% 

ITC Group 27: Pharmaceutical preparations 0.21% 0.09% 

ITC Group 28: Soaps, detergents, toiletries 0.29% 0.43% 0.15% 

ITC Group 29: Paints and allied products 0.12% 0.38% 0.01% 

ITC Group 30: Industrial organic chemicals 0.44% 0.28% 

ITC Group 31: Fertilizers, pesticides, and agricultural chemicals 0.22% 0.58% 0.14% 0.15% 

ITC Group 32: Petroleum refinery products 0.64% 

ITC Group 33: Plastic and rubber products 1.57% 0.03% 3.02% 

ITC Group 34: Leather tanning and finishing 0.02% 0.08% 

ITC Group 35: Women's footwear, except athletic 0.03% 

ITC Group 36: Flat glass and glassware 0.24% 0.64% 0.14% 

ITC Group 37: Cement 0.16% 0.03% 0.01% 

ITC Group 38: Vitreous china plumbing fixtures 0.02% 0.15% 

4-11 

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Table 473. 1996 share of total bilateral commodity trade in analyzed industries having no statistically significant shifts in trade growth, by country, by 

ITC Group 

ITC Group 

Canada Mexico 

U.S. Imports from' U.S. Exports to' U.S. Imports from' U.S. Exports to' 

ITC Group 39: Gypsum building products 0.01% 

ITC Group 40: Mineral wool 0.06% 0.08% 0.01% 0.03% 

ITC Group 41: Steel products 1.57% 1.40% 1.44% - 0.11% 

ITC Group 42: Nonferrous metals, unwrought 1.96% 0.16% 0.77% 0.33% 

ITC Group 43: Nonferrous metals, wrought 0.08% 0.76% 1.28% 2.36% 

ITC Group 44: Fabricated metal products 0.86% 1.34% 1.21% 0.13% 

ITC Group 45: Industrial machinery - 2.06% 2.54% 2.19% 2.68% 

ITC Group 46: Computers & computer peripheral equipment 0.98% 2.97% 

ITC Group 47: Heavy electrical equipment 0.06% 0.84% 0.23% 

ITC Group 48: Household appliances 0.27% 0.39% 0.08% 

ITC Group 49: Electric lighting and wiring equipment 0.07% 0.98% 0.22% 1.40% 

ITC Group 50: Radio and television equipment 0.47% 0.93% 0.30% 

ITC Group 51: Communications equipment 0.07% 

1TC Group 52: Electronic components and accessories 0.05% 1.14% 1.86% 0.41% 

ITC Group 53: Misc. electrical machinery, equipment, and supplies 0.65% 0.40% 0.81% 

1TC Group 54: Motor vehicles 21.44% 9.21% 15.48% 2.23% 

ITC Group 55: Motor vehicle parts 0.02% 1.25% 4.66% 8.68% 

ITC Group 56: Aircraft and aircraft parts 0.63% 1.26% 0.05% 0.24% 

ITC Group 57: Boat building and repairing 0.39% 0.11% 

ITC Group 58: Railroad equipment and parts 0.27% 0.06% 0.06% 

ITC Group 59: Transportation equipment 

ITC Group 60: Measuring, analyzing and controlling instruments 0.40% 1.04% 1.58% 1.21% 

ITC Group 61: Medical equipment 0.05% 0.39% 0.45% 0.12% 

ITC Group 62: Photographic equipment and supplies 0.47% 

ITC Group 63: Jewelry, precious metals 

ITC Group 64: Games, toys, and children's vehicles 0.25% 0.60% 0.14% 

ITC Group 65: Sporting goods 0.28% 0.36% 

ITC Group 66: Miscellaneous industries, n.e.c. 0.19% 0.08% 0.09% 

Total 53.99% 34.98% 43.88% 36.80% 

SICs Included in this column: 0111, 0115, 0119, 0139, 0161, 1311, 1321, 2011, 2037, 2048, 2051, 2066, 2079, 2082, 2221, 2257, 2281, 2295, 2321, 2322, 2325, 2331, 2335, 2341, 2369, 2421, 

2431, 2439, 2499, 2599, 2653, 2672, 2673, 2676, 2678, 2752, 2771, 2782, 2819, 2821, 2822, 2824, 2834, 2841, 2844, 2851, 2869, 2873, 3011, 3069, 3082, 3089, 3111, 3144, 3211, 3229, 3231, 

3241, 3296, 3312, 3339, 3341, 3354, 3441, 3443, 3494, 3499, 3519, 3523, 3535, 3537, 3541, 3542, 3555, 3559, 3561, 3562, 3566, 3569, 3599, 3612, 3641, 3651, 3663, 3678, 3691, 3711, 3724, 

3732, 3812, 3823, 3824, 3841, and 3845. 

SICs included in this column: 0111, 0116, 0119, 0139, 0161, 0211, 0213, 2011, 2037, 2048, 2076, 2086, 2273, 2281, 2311, 2321, 2322, 2331, 2337, 2342, 2431, 2435, 2599, 2611, 2653, 2657, 

2672, 2676, 2678, 2721, 2771, 2782, 2816, 2821, 2824, 2844, 2851, 2865, 2873, 2879, 2911, 3082, 3241, 3261, 3296, 3312, 3334, 3341, 3353, 3354, 3429, 3441, 3442, 3443, 3499, 3511, 3542, 

3544, 3555, 3564, 3585, 3593, 3612, 3621, 3625, 3631, 3633, 3641, 3643, 3644, 3651, 3652, 3669, 3671, 3672, 3675, 3676, 3679, 3694, 3695, 3711, 3715, 3721, 3724, 3732, 3743, 3823, 3824, 

3827, 3841, 3845, 3944, 3949, and 3999. 

SIGs included in this column: 0115, 0139, 0161, 1321, 2011, 2033, 2037, 2048, 2082, 2099, 2221, 2257, 2281, 2295, 2322, 2325, 2342, 2431, 2435, 2499, 2599, 2653, 2657, 2672, 2673, 2678, 

2752, 2782, 2822, 2824, 2841, 2844, 2851, 2873, 2879, 3111, 3211, 3221, 3229, 3231, 3261, 3275, 3296, 3312, 3321, 3331, 3339, 3351, 3353, 3354, 3357, 3443, 3494, 3499, 3511, 3519, 3531, 

3535, 3537, 3541, 3544, 3546, 3554, 3555, 3559, 3561, 3569, 3577, 3585, 3593, 3613, 3631, 3641, 3671, 3672, 3674, 3676, 3691, 3694, 3699, 3711, 3724, 3743, 3822, 3823, 3824, 3827, 3842, 

3861, 3944, 3949, and 3999. 

SICs included in this column: 0111, 0116, 0119, 0131, 0161, 2048, 2051, 2066, 2076, 2079, 2221, 2295, 2311, 2325, 2337, 2341, 2369, 2431, 2493, 2599, 2621, 2657, 2673, 2676, 2721, 2752, 

2816, 2822, 2824, 2834, 2879, 3011, 3089, 3144, 3231, 3241, 3261, 3275, 3296, 3321, 3334, 3339, 3353, 3357, 3442, 3493, 3511, 3519, 3532, 3537, 3541, 3554, 3562, 3571, 3585, 3633, 3644, 

3648, 3652, 3678, 3694, 3695, 3699, 3711, 3714, 3715, 3721, 3724, 3743, 3812, 3822, 3823, 3825, 3827, 3845, 3944, and 3999. 

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Source: U.S. International Trade Commission. 

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1994-96 could understate the export effects relative to the import effects associated with the Agreement." 

Relaxing the criteria used to statistically link yearly trade flow changes to NAFTA (i.e., looking at 

statistically significant shifts in trade flows in only 1 or 2 of the NAFTA years) generally reinforces the 

results reported above. Moreover, relaxing the selection criteria increases the number of industries in 

which there were increases in U.S. exports to Mexico relative to the number of industries in which there 

are increases in U.S. imports from Mexico: 2 

Aggregate Bilateral Trade Flows 

This section analyzes the effects of NAFTA on aggregate bilateral trade flows between the United 

States and its two NAFTA trading partners. After controlling for changes in market forces that are 

primarily affected by economic business cycles and macroeconomic policy, the results of this analysis 

indicate a strong statistical link between the increase in bilateral trade between the United States and 

Mexico and the implementation of NAFTA. On the other hand, the results also indicate that aggregate 

bilateral trade between the United States and Canada showed no consistent statistically significant 

changes during NAFTA's first 3 years. 

The methodology used to empirically analyze U.S. trade flows here is nearly identical to the 

approach used to estimate industry-level effects: 3The analysis of aggregate trade flows estimate the 

growth of U.S. bilateral imports and exports with Canada and Mexico using monthly aggregate U.S.-

Canada and U.S.-Mexico trade data.' With the exception of a drop in U.S. exports to Mexico following 

the sharp devaluation of the peso, these bilateral trade flows generally increased year to year. Estimates 

in this section compare the growth of U.S. imports and exports during the NAFTA years, relative to their 

growth over the entire sample period of 1989-96: 5 

As described earlier, the use of year-specific binary variables to capture the trade effects during 

the period 1994-96 yields information that would not be available if only a single binary variable for the 

entire NAFTA period had been used. This is most evident in the case of aggregate bilateral imports and 

exports between the United States and Mexico. The results show a sharp difference in trade growth 

before and after the peso crisis. This difference also illustrates the important interconnection between 

U.S. imports from Mexico and U.S. exports to Mexico. 

" To the extent that the binary variables in the U.S-Mexico specifications also account for some of effects of the 

sharp peso devaluation in late 1994, this standard may result in a larger number of industries with an increase in U.S. 

imports from Mexico and a smaller number of industries with an increase in U.S. exports to Mexico, because a peso 

devaluation increases U.S. imports and reduces U.S. exports. 

12The different possible combinations of yearly effects that are found in the disaggregated results are tabulated 

in appendix C. 

13The only difference is that for the aggregate U.S. import demand estimation, exchange rates are explicitly 

included in the specification because monthly bilateral import price variables are not available. See appendix C. 

14The trade and macroeconomic variables are more fully described in appendix C. U.S. aggregate bilateral 

trade flows (monthly) were obtained from various issues of the Direction of Trade Statistics published by the 

International Monetary Fund. 

"Data were obtained for the period 1973-1996, however, the estimated effects of NAFTA that are reported in 

this section are derived from data covering the period January 1989 to November 1996. This choice was based on 

statistical tests that indicate a strong break in underlying behavioral properties of the data during 1988-89. More 

formally, cusum square and Chow tests were conducted on the specified model and generally found the estimated 

relationships over these two periods to be sufficiently different at the 95 percent confidence level to warrant separate 

estimations. Only the results from the 1989-96 estimations are discussed here. The parameter estimates and 

diagnostic statistics are contained in appendix C. 

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The results indicate, after controlling for changes in income, prices, and exchange rates, that the 

volume of U.S. imports from Mexico increased by 1.0 percent in 1994 as a result of NAFTA. In addition, 

U.S. imports from Mexico are estimated to be 5.7 and 6.4 percent higher in 1995 and 1996, respectively. 

Similarly, the results indicate that the volume of U.S. exports to Mexico increased by 1.3 percent in 1994 

as a result of NAFTA, and increased by 3.8 and 3.2 percent in 1995 and 1996, respectively.' Two 

important points emerge from these estimates. First, in 1994, the only year in which NAFTA was in 

place and the peso devaluation does not confound the estimates, the increased volume of exports from the 

United States to Mexico outpaced the increased volume of U.S. imports from Mexico. Second, during 

1995 and 1996, the estimated simultaneous increase in import and export volumes demonstrates the high 

degree of integration between U.S. and Mexican bilateral trade flows.' 

The Effects of NAFTA on the U.S. Labor Market 

The effects of NAFTA on the U.S. labor market are investigated by examining the impact of 

NAFTA on employment and earnings in manufacturing industries, which account for about 20 percent of 

the non-farm labor force. Industry level effects are based on an analysis of 120 4-digit SIC categories that 

were selected using the criteria described in chapter 1 and for which monthly data existed during the 

period 1989-1996. Because labor effects can occur through changes in employment or earnings, these 

variables are examined separately. Changes in the labor market are evaluated by controlling for changes 

in market conditions that generally affect employment and earnings to separate the effects of NAFTA 

from changes due to typical business cycle shifts. 

The principal fmding reported in this section is that relatively few U.S. industries show evidence 

of having been affected (either positively or negatively) by NAFTA in the Agreement's first three years. 

These industries represent less than 4 percent of the non-farm labor force or less than 17 percent of the 

manufacturing labor force. Moreover, within these industries, not all workers are necessarily affected. 

Evidence suggests that the effects on these industries are for the most part small, and that there is no 

statistically significant effect of NAFTA on the U.S. manufacturing labor force as a whole. Agricultural 

products and the labor force that produces them are not insulated from either beneficial or detrimental 

effects of NAFTA, but Bureau of Labor Statistics (BLS) does not collect data on agricultural sectors in 

the same way as other labor force segments. Consequently, the techniques applied here to manufacturing 

labor could not be used for agricultural labor. Similarly, because trade flows for services industries are 

generally not tracked on a monthly basis, an examination of the labor force in services industries was also 

excluded from this analysis. However, the qualitative analyses in chapter 6 discuss, to the extent that data 

are available, the effects of NAFTA on employment in selected agricultural and services industries. 

The techniques used in the labor analysis are generally similar to those used in the previous 

section, but there are some important differences. The linkage between trade policy and labor market 

Note that the latter periods are also associated with the peso devaluation. To the extent that the analytical 

technique used does not fully compensate for the effects of the devaluation on bilateral trade, these results may 

overstate the effects of NAFTA on U.S. imports from Mexico. However, the results are consistent with the research 

of David Gould of the Federal Reserve Bank of Dallas. He states in his written submission to the Commission dated 

May 6, 1997, "... NAFTA has had a statistically significant and important positive effect on trade flows between the 

United States and Mexico since NAFTA's implementation in January 1994. ... Both exports and imports between the 

U.S. and Mexico are at least 20% higher in 1997 than they would have been had NAFTA not been ratified. Trade 

between the United States and Canada, however, has not been significantly affected by NAFTA," p. 1. 

"Indeed, according to Sidney Weintraub, a "very high import component" is contained in Mexico's exports. 

He estimates that the import component is roughly 40 to 45 percent. He also notes that about 75 to 80 percent of 

those imports come from the United States. This relationship is supported by the estimates that suggest strong 

increases in import growth from Mexico during 1995-96 was accompanied by large, but smaller, increases in U.S. 

export growth. See the comments by Sidney Weintraub, Public Hearing Transcript, p. 85. 

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4-14
effects is less direct than the link between the trade agreement and a single bilateral trade flow. Trade 

policy changes most directly affect the quantities and prices of traded goods, which then affect the labor 

force that produces those goods. As a result, the labor market findings are less conclusive than the 

findings reported with respect to trade flows. 

There are also differences in the approach used to identify and separate NAFTA effects from 

those due to the peso devaluation. The impact of trade flow changes on labor is tied to changes in the 

levels of both imports and exports. Employment and earnings estimates include the effects of imports 

directly by controlling for shifts in those variables that are due to changes in the price of imports, but 

effects of exports on labor markets are not treated explicitly. Therefore, a variable identifying the period 

following the sharp peso devaluation is included to help isolate export effects, insofar as such effects are 

attributable not only to exchange rate changes but also to the related recession in the Mexican economy. 

Studies of NAFTA and Employment 

Since the beginning of negotiations for NAFTA, labor market issues have been prominent. A 

relatively large body of literature has been produced on projected effects of NAFTA, including effects on 

wages and employment. More recently a number of studies have attempted to retrospectively assess 

NAFTA's effects. Most such studies agree that the effects of NAFTA on the U.S. economy are minimal 

in the aggregate; at current levels of near-full employment, small changes in trade will not appreciably 

affect the total number of jobs, but will only shift jobs between sectors. Where effects are isolated below 

an aggregate level, most studies rely on anecdotal data or the results of economic simulation models. A 

selection of these studies will be reviewed briefly below. 

A study by Sidney Weintraub'sdiscusses the labor market effects of NAFTA as an issue that is of 

minor significance in the overall evaluation of the Agreement, particularly given the current low level of 

unemployment in the United States and the rapid rate of job creation. The implication is that the 

Agreement has had no real, discernable effect on aggregate jobs in the economy, certainly not in a 

negative direction. Weintraub further points out, however, that sectoral dislocations of labor may occur, 

as well as reductions in earnings in some industries. No empirical work on the magnitude of such 

changes is offered. 

The Congressional Research Service (CRS) reports that "estimates of NAFTA-related job gains 

and losses are small related to total U.S. employment ... An estimated 231,000 net jobs were created from 

new exports to Mexico and Canada during 1994 and 1995.' 9The estimates are derived from Commerce 

Department estimates of jobs related to trade," and the job loss data provided by the Labor Department 

Trade Adjustment Assistance (TAA) program. The CRS study points out that the measures of gains and 

losses are generally rather crude, and are derived from different methodologies. The study also notes that 

in an economy at full employment, jobs are neither created nor destroyed, but only moved from sector to 

sector. In any case, the study does not provide a sectoral breakout of jobs "gained" or "lost." 

S. Weintraub, NAFTA at Three: A Progress Report (Washington, DC: The Center for Strategic & 

International Studies, 1997) 

Bolle, NAFTA: Estimated U.S. Job "Gains" and "Losses" by State (Washington, DC: U.S. Library of 

Congress, Congressional Research Service, Sept. 1996) p. 1. 

2°The Commerce Department uses an input-output model to derive the number ofjobs added to the economy 

when industrial output increases. The estimate of all jobs supported by exports is used to derive the average number 

ofjobs supported by a given dollar amount of exports. See Bolle, p. CRS-5. 

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A recent study by Hinojosa and others' fmds that " ... the overall positive or negative 

employment impacts of U.S.-Mexico trade have not been significantly affected by the liberalization of 

tariffs due to NAFTA; ... the overall net U.S. employment impacts since NAFTA implementation (1994-

1996) have also been slightly positive, even taking into account the large impact of the peso crisis of 

1995; [and] ... the most important negative impact on employment has been the decline in U.S. exports 

due to the Mexican peso crisis, not the liberalization of tariffs due to NAFTA.' These conclusions are 

based on a partial equilibrium simulation model, deriving employment effects from small changes in trade 

flows inferred from the model. Support for the conclusions is drawn from data provided by the U.S. 

Department of Labor's NAFTA TAA program. 

Results and Interpretation 

The model used to estimate the effects of NAFTA on employment and earnings is described in 

appendix C. It makes use of two kinds of variables, in a statistical regression form, to detect these effects. 

The first variable is the price of imports from Mexico, and is used to measure the sensitivity of hours 

worked and of hourly earnings to a change in the price of an industry's competing imports from Mexico. 

These price changes may or may not be due to NAFTA tariff reductions; with data available at this time, 

it is not possible to identify, on a month-by-month basis, what tariff reductions are due to NAFTA, what 

reductions are due to the tariff concessions associated with the World Trade Organization and its 

agreements, what NAFTA reductions simply replace GSP benefits formerly received by Mexican imports, 

or how much of any tariff reduction is in fact passed through to the purchaser as a price reduction. 

The second variable is a NAFTA binary variable. It is used to isolate any effects associated with 

NAFTA and the period since NAFTA was implemented, other than those captured by import prices. A 

more detailed discussion of its interpretation, in conjunction with a variable that is connected to the period 

of the peso devaluation, is provided in appendix C. For the purposes of this analysis, a significant 

coefficient for the NAFTA binary variable for any particular industry is interpreted as an indication that 

the NAFTA years, 1994 through 1996, are observably and distinctly different from the previous years for 

that industry, and that this difference can be identified as being either positive or negative in its effects on 

the hours worked and the average hourly earnings of the production workers in the industry. A certain 

caution is required in designating these effects, as being due to NAFTA; again, issues of interpretation are 

more fully discussed in appendix C. 

Table 4-4 provides a summary of the extent of significant findings for the binary variables in the 

regression estimates. The table shows those sectors for which results indicate a significant effect 

captured by the binary variables specified above. In the first column, the ITC industry groups' in which 

industries were found to have significant coefficients for the binary variables are listed. Information is 

provided on the number of sectors for which the NAFTA coefficient was significantly different from zero 

at the 5 percent level, and indicates how often these coefficients were positive, and how often negative. 

As mentioned, labor data are not generally available for agricultural industries, so the first sector group in 

21 R. Hinojosa Ojeda, C. Dowds, R. McCleery, S. Robinson, D. Runsten, C. Wolff; and G. Wolff, North 

American Integration Three Years After NAFTA: A Framework of Tracking, Modeling and Internet Accessing the 

National and Regional Labor Market Impacts (Los Angeles: North American Integration and Development Center at 

UCLA, 1997) 

R. Hinojosa et aL, North American Integration, p. 12. 

'3Analysis was conducted at the level of 4-digit SIC industries, but for conciseness these results are summarized 

in terms of the 68 ITC sector groups described in chapter 1 and listed in chapter 6. 

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Table 4-4. Number of 4-digit SIC study sectors, by ITC Group that have a significant 3-year NAFTA 

coefficient at the 5 percent significance level, for hours or hourly earnings equations 

ITC Group 

No. of 4- 

digit SICs +H -H +E -E 

First order auto-regressive procedure, 

with instrumental variables 

ITC Group 6—Meats and livestock 1 1 

ITC Group 18—Textile mill products 6 1 

ITC Group 19—Apparel and other finished textile products 10 1 

ITC Group 22—Paper products 4 1 

ITC Group 25—Industrial inorganic chemicals 2 1 

ITC Group 28—Soaps, detergents, and toiletries 2 2 

ITC Group 33— Plastic and rubber products 4 2 1 

ITC Group 34—Leather tanning and finishing 1 1 

ITC Group 36—Flat glass and glassware 4 1 

ITC Group 38—Vitreous china plumbing fixtures 1 1 

ITC Group 41—Steel products 2 1 

ITC Group 43—Nonferrous metals, wrought 3 1 

ITC Group 44—Fabricated metal products 7 1 1 1 

ITC Group 45—Industrial machinery 16 1 1 1 

ITC Group 47—Heavy electrical equipment 2 2 

ITC Group 49—Electrical lighting and wiring equipment 3 1 1 

ITC Group 52—Electronic components and accessories. 4 1 1 

ITC Group 60—Measuring, analyzing, and control instruments 3 1 

ITC Group 64—Games, toys, and children's vehicles, except 

dolls and bicycles 1 1 

Total 8 4 6 11 

Source: Compiled by the staff of the U.S. International Trade Commission. 

4-17
which significant results were found is ITC Group 6, Meats and Livestock.' The table also shows that in 

this sector, a single 4-digit SIC was analyzed, as reported in column 2. For that SIC, the coefficient on 

the NAFTA variable was significant and negative in the "earnings" equation; this is the meaning of the 

"1" in the "-E" column. In Group 18, 6 four-digit SICs were analyzed; among them, there was only one 

significant NAFTA coefficient, a negative one in an "earnings" equation meaning NAFTA had a negative 

effect on earnings in that sector. 

If NAFTA has effects on the domestic market (and labor market), some of these effects will be 

felt indirectly through effects on domestic prices and aggregate consumption. The simple analysis 

pursued here is not capable of fully separating these indirect effects from the direct effects. These effects 

will be felt directly through changes in the price of U.S. imports from Mexico and through any residual 

effect that may be captured by the binary variables. As with most of the other analysis in this report, the 

problem of interpreting the coefficient of the NAFTA binary variable is of concern here. A significant 

coefficient indicates that, during the NAFTA years 1994-1996, the trend in earnings (or hours worked) 

for an industry was higher (or lower) than can be accounted for by import or domestic product prices, real 

incomes, overall wages and unemployment, and any separate effect captured by the PESO variable for 

1995 and 1996.' It does not say that the Agreement itself caused hours or earnings to rise (or fall); other 

events uniquely tied to these years, perhaps affecting industries in specific ways, also would cause the 

NAFTA variable to be significant. Nor does it imply that earnings (or hours) actually did rise or fall in 

the NAFTA years; a negative coefficient on earnings may mean that earnings rose by less than they 

otherwise would have. Finally, this coefficient does not capture all of any NAFTA effect that may exist. 

In particular, the price of imports from Mexico or Canada can be expected to hold at least part of the 

effect of any tariff changes due to NAFTA (as well as price changes due to any other market conditions). 

One result evident from the table is the relative sparseness of significant effects. The model 

specification has earnings and hours equations for 120 industries; about 20 of these industries 

demonstrated significant "NAFTA" effects as defined by the 5 percent significance criterion for inclusion 

in these tables. There is wide variation in magnitude of the coefficients, ranging from a fraction of a 

percentage change in hours or earnings attributed to NAFTA to over 15 percent. Hours worked were 

most often found to be positively related to NAFTA, while earnings were more often found to be 

negatively related, among those SIC industries with significant effects. 

To give an indication of the magnitude of the small number of workers affected by the 

Agreement, one can add up the size of the total labor force that works in industries found to have been 

affected, in one way or another, by NAFTA. As of March 1995 (from the BLS benchmark employment 

survey for that month'), for all industries found to have one or more significant NAFTA effects in any 

estimated equation, fewer than 4 million workers were employed in these industries. The total number of 

workers in those industries represent 3.4 percent of the total non-farm labor force of 115.3 million 

workers, and 17 percent of the total manufacturing labor force (of 23.8 million workers). Note that these 

are counts of the total number of workers in "NAFTA-affected industries," not counts of "NAFTAaffected workers." While dislocations have occurred, the econometric estimates indicate that in any 

industry, changes in total hours worked or average hourly earnings would be very small and, as estimated, 

affect only a small percentage of the workforce. 

Note, the 4-digit industry evaluated is category 2011- Meat products and meat packing, for which 

manufacturing labor data is available. 

ss The PESO variable is a binary variable that identifies the years 1995 and 1996. It is included in the regression 

to identify the period after the substantial Mexican peso devaluation. 

U.S. Department of Labor, Bureau of Labor Statistics, Manual on Series Available and Estimating Methods, 

BLS Current Employment Statistics Program, March 1995 (Washington, DC: U.S. Department of Labor, 1996) 

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4-18
Price Effects 

Besides any NAFTA effect captured by the binary variables, the other principal channel for 

NAFTA to affect the labor force is likely to be through the price of imported goods. Revenga (p. 257) 

found that "changes in import prices have had a significant effect on both employment and wages." Her 

study reports a range of import price elasticities for employment of 0.24 to 0.39, and for wages of 0.06 to 

0.09. These results were estimated across a selection of U.S. industries, looking at the effects of all 

import prices (not just from a single country), using data from the years 1977-1987. They imply that, for 

example, a 1-percent decrease in the price of all imported goods will result in a decrease in employment 

in manufacturing industries of from 0.24 to 0.39 percent, and a decrease in wages of 0.06 to 0.09 percent. 

The Commission study had a tighter focus. In particular, it examined the effects of the prices of 

U.S. imports from Mexico rather than imports from all countries, to evaluate the impact on individual 

industries. Table 4-5 presents the magnitudes of estimates for these elasticities' where they were found 

to be significant at the 5 percent level in the autoregression model with instrumental variables. As one 

might expect, results were in general smaller than those of Revenga, and varied rather widely from 

industry to industry. 

A positive sign in this table indicates that an increase in the price of U.S. imports from Mexico is 

associated with an increase in hours worked or earnings, and conversely that a decrease in import prices is 

associated with a decrease in hours and earnings. In principle, the algebraic signs of the coefficients can 

be either positive or negative, as discussed above. In any event, significant coefficients are again sparse 

and varied. 

These coefficients, it must be emphasized, are not direct NAFTA effects. They are estimates of 

import price elasticities, and as such indicate the sensitivity of an industry's labor market to changes in 

the price of U.S. imports from Mexico. They state that (choosing the industry with the largest estimated 

hours worked elasticity as an example) that if NAFTA reduces duties collected in SIC 2082, Malt 

beverages, by 1 percent, and if those tariff savings were fully passed through to the U.S. market, total 

weekly hours worked in that industry will increase by 0.94 percent. There are 35.5 thousand workers in 

that industry as of March 1995, so if this increase is met by increasing employment rather than adding 

overtime, there would be an increase of 314 full-time-equivalent workers. 

Finally, it should be noted that for the past 3 years, the U.S. economy has been operating at or 

near what has historically been regarded as full employment. Therefore, while NAFTA will have caused 

painful dislocations to some workers in the labor force, these are small relative to total job creation over 

the same period, and relative to dislocations associated with other factors such as technological change. 

Effects of NAFTA on the Aggregate Labor Force 

The United States labor force has been at virtually full employment for almost the entire duration 

of NAFTA.' Therefore, the real effects of NAFTA on the labor force are to be found at the sectoral 

level, where cases of job dislocation and employment creation may be found rather than at the aggregate 

level. 

27These coefficients, as estimated, are "price elasticities." They measure the proportional responsiveness of 

hours worked (or hourly earnings) to a proportional change in the import price, i.e., a value of 0.1 means that a 1 

percent increase in the price of Mexican imports implies a 0.1 percent change in the hours worked (or earnings). 

Weintraub, NAFTA at Three; CRS, NAFTA: Estimated U.S. Job "Gains" and "Losses". 

4-19 

4-19
Table 4-5. Elasticities of earnings and hours with respect to price of imports from Mexico 

ITC 

Group SIC Earnings Hours 

15 2082—Malt beverages -0.94 

17 2099—Food preparations, nec 0.06 

19 2331—Women's, misses', and juniors' blouses and shirts 0.12 

22 2621—Paper mills 

2653—Corrugated and solid fiber boxes 

2676—Sanitary paper products 

-0.02 

0.03 

0.10 

33 3069—Fabricated rubber products, nec -0.06 

36 3229—Pressed and blown glass and glassware, nec 0.01 

43 3353—Aluminum sheet, plate, and foil 0.12 

45 3561—Pumps and pumping equipment -0.02 

47 3613—Switchgear and switchboard apparatus 0.08 

48 3632—Household refrigerators and freezers -0.06 

49 3641—Electric lamp bulbs and tubes 

3644—Noncurrent carrying wiring devices 

-0.09 

0.04 

50 3651—Household audio and video equipment 0.28 

52 3676—Electronic resistors • 0.04 

55 3714—Motor vehicle parts and accessories 0.05 

66 3999—Miscellaneous industries, nec 0.03 

Source: Compiled by the staff of the U.S. International Trade Commission 

4-20
Where an attempt has been made to estimate the overall effect of trade on employment,' very small 

effects have been found, even for across-the-board changes in all import prices. Therefore one would not 

expect to fmd strong effects of NAFTA on the U.S. labor force." 

This investigation did not fmd a significant aggregate effect of NAFTA, or of other variables 

relating to trade with Mexico or Canada, on the domestic labor force. The investigative procedure 

paralleled the approach used for the sectoral analysis of labor market effects. Dependent variables were 

the hourly wage rate and the total hours worked per week in all manufacturing industries. Independent 

variables included real income and measures of trade flows. Civilian unemployment and the aggregate 

wage rate were excluded, since these are the dependent variables. Measures of trade include total import 

flows from and to Mexico, Canada, and the rest of the world. A "price of imports" is not well defined for 

aggregate trade, so the indices of real exchange rates were used, as well as measures of the total imports 

from, and exports to, Mexico and Canada. Finally, the two binary variables described above were used, 

NAFTA and PESO.' In no specification was a coefficient on the dollar-peso exchange rate index, import 

or export trade flow, or NAFTA variable significantly different from zero. This was true in the analyses 

of both the hourly earnings and the hours worked in the manufacturing labor force. 

The Effects of Trade on Labor Productivity 

U.S. labor productivity is examined across 455 4-digit SIC manufacturing industries.' At the 

time the econometric analysis was conducted, most of the data used to construct measures of labor 

productivity, as well as data for most of the explanatory variables, were only available on an annual basis 

through 1994." In addition, empirical work indicates that changes in import competition affect 

productivity after a delay.' Therefore, the unavailability of high-frequency data over time did not allow a 

direct econometric estimate of the actual effects of the NAFTA on U.S. labor productivity. Instead, the 

analysis focused on the general effects of increased import competition from Mexico and Canada on U.S. 

labor productivity. Therefore, the estimates obtained in this analysis do not measure the actual effects of 

NAFTA on U.S. labor productivity, but rather, provide an indication of the direction and magnitude of its 

potential effects. In addition, the analysis identifies sectors that are most likely to experience productivity 

increases due to NAFTA. 

The productivity effects of the growth in industry output, R&D intensity, the level of industry 

concentration, and the change in imports were estimated for four separate cases. The basic model is 

described in appendix C and focuses primarily on the changes in labor productivity associated with 

" Revenga, "Exporting Jobs?" 

" In a letter accompanying his written submission to the Commission for this study, David Gould, senior 

economist at the Federal Reserve Bank of Dallas, stated that "Since trade with Mexico represents less than 10 

percent of our total trade, I find it hard to believe that it would have had any effect on aggregate employment levels." 

Letter, David M. Gould to Donna R. Koehnke, Secretary, U.S. International Trade Commission, May 6, 1997. 

" The basic equation was estimated with the maximum likelihood first-order autoregressive model, as well as an 

error correction model as described in appendix C, since the hypothesis of cointegration among variables could not 

be rejected. 

" An empirical model is used in which four variables determine productivity changes in an industry: the growth 

in industry output, research and development intensity, the degree of market concentration, and the change in 

imports. The model is based on previous economic studies and is discussed further in appendix C. 

" Following the literature in this area, only labor productivity is evaluated. The effect of trade on total 

productivity, or capital productivity may not be the same as that observed for labor. 

This finding in the literature also implies that import changes induced by NAFTA in 1994 might not affect 

productivity until later years. 

4-21 

4-21
changes in imports lagged one year.' A second proposition is examined in which a minimum threshold 

of imports must exist before lagged import competition affects productivity.' The final two analyses 

involve an examination of the effects of total import competition in sectors where Canadian and Mexican 

imports were increasing." The specific results are presented in table C-3 in appendix C. This analysis 

focused on the change in labor productivity that occurred across sectors between 1993 and 1994 which 

reflects the average change that occurred in productivity for the overall manufacturing sector. 

In the basic estimation, the estimated effects of output growth and market concentration on labor 

productivity were positive and statistically significant.' The estimated effects of import changes and 

R&D intensity were not found to be statistically important in affecting labor productivity." As suggested 

by the literature examining labor productivity, an alternative hypothesis is that changes in import 

competition are not likely to have an impact on productivity until they reach a "critical mass" or threshold 

level in an individual sector. Domestic firms are less likely to respond to changes in import competition 

if the degree of competition is relatively small. Only at the point where the market share of imports 

begins to affect domestic producers, do firms begin to react. 

The results for this alternative hypothesis suggest that changes in productivity are positively 

related to changes in total import shares and that some threshold level of total imports must be present—in 

this case, a 15-percent share—before a sector responds to import competition with increases in 

productivity. Results of this analysis indicate that a 1-percent increase in the share of imports in 

industries with relatively high import penetration are associated with a 0.16-percent increase in labor 

productivity. Of the 455 4-digit SIC manufacturing industries examined, 141 of these have imports with 

at least a 15-percent share of U.S. consumption. On average, the market share of imports in these 

industries increased by 3.1 percent between 1992 and 1993. Therefore, during this period, as a result of 

increased import competition, labor productivity for these 141 sectors increased approximately 0.5 

percent on average.' 

35This is case 1 as reflected by equation C-4. The analyses also examined the effects of contemporaneous 

changes in import competition. Similar to earlier studies described in appendix C, the analysis in this report found 

that the effects of import competition did not occur contemporaneously, but appeared with a one-period lag. 

36Case 2 in appendix C. 

37These are cases 3 and 4 in appendix C. 

'Even though high market concentration in a sector is associated with an imperfectly competitive industry 

structure, this condition does not imply generally that the market is not competitive. An important factor affecting 

competition in those markets is the degree of openness to international competition. Import competition tends to 

result in highly competitive markets, even in sectors where domestic firms are highly concentrated. MacDonald 

examined the interaction between market concentration and changes in import competition. As noted in the 

overview, he found that labor productivity in highly concentrated markets showed the largest gains as a result of 

import competition. 

39The insignificant results for R&D intensity might be partially explained by the fact that the data for R&D are 

more highly aggregated (2- and 3-digit SIC level) than the data for labor productivity (4-digit) and, therefore, 

deficient for purposes of measuring R&D variance at the appropriate 4-digit SIC level. Other studies have obtained 

similar results with respect to R&D intensity. 

The rationale for the hypothesis examined in this analysis was that, as markets become open to competition 

from imports, domestic firms are induced to increase their competitiveness by adopting more efficient production 

methods. The efficiency or productivity gains induced by import competition can be derived from modernization in 

plant and equipment, the enhancement of processing methods, or workforce reductions. The source of the observed 

productivity gains was not specifically identified in this analysis; however, in all likelihood, the gains can be 

attributed to a combination of these factors. As discussed in appendix C, for the 141 sectors, the correlation between 

productivity changes and employment changes was observed to be negative. This would tend to suggest that the 

gains in productivity found during this period were, on average, accompanied by reductions in the workforce. 

4-22 

4-22
While these results provide support for the hypothesis that there is a positive association between 

import competition and U.S. labor productivity, a similar statement cannot be made about import 

competition from U.S. NAFTA trading partners (Canada and Mexico) or, more specifically, imports from 

Mexico. The effects estimated for the second analysis apply to the total level of imports in each of the 

sectors and not to imports from a single country source. Even though imports from a single country might 

increase, total import penetration in an industry would not change if trade diversion, rather than trade 

creation, occurred. Changes in total imports give a more accurate indication of changes in import 

competition. Therefore, estimates from the second analysis cannot be applied on an individual basis to 

Mexican or Canadian imports without considering the relative change in total imports. 

This analysis also examines the effects of import competition from Canada and Mexico relative to 

total import competition. This effect was measured by focusing on those sectors where the overall 

threshold level of imports was relatively substantial (15 percent) and where both total imports and NAFTA 

imports simultaneously increased.' As in the analysis of all sectors, the effects of import changes are both 

positive and statistically significant only for industries with a relatively substantial import market share. In 

the case of industries with relatively high import shares and simultaneous increases in total and NAFTA 

(Canadian and Mexican) imports, 73 sectors meet this criteria with a total market share of imports 

increasing on average by 7.3 percent. The estimated effect suggests that, for these 73 sectors, labor 

productivity on average increased by 1.2 percent during this period as a result of increased import 

competition. 

The fmal analysis focuses on the effects of imports on labor productivity for the case in which 

there was a simultaneous increase in both total and Mexican imports. This combination occurred in 67 

industries. For these sectors, the total share of imports increased on average by 6.9 percent. The estimated 

effect of changes in import market share on labor productivity, for these 67 sectors was an average increase 

in labor productivity of 1.4 percent.' Results of this analysis can also be used to identify specific sectors 

that might experience productivity gains as a result of NAFTA. Rather than listing all of the sectors that 

are likely to be affected by increased import penetration due to NAFTA, a subset was selected consisting 

of the 17 leading 4-digit SIC sectors where U.S. imports from Mexico accounted for at least 10 percent of 

total U.S. imports and there were increases in both the total and Mexican import market share (table 4-6).' 

Over one-half of these 17 sectors fall within the electronic and electrical equipment and components 

sector." 

41 Numerous simulation analyses prior to the NAFTA estimated that, in general, U.S. imports from Mexico 

would increase as a result of the Agreement. For a summary of these estimates, see USITC, Potential Impact on the 

U.S. Economy and Selected Industries of the North American Free-Trade Agreement, USITC publication 2596, 

Washington, DC, Jan. 1993. 

42 The import-competition effect estimated for case 4 suggests that, on average, a 0.2-percent increase in labor 

productivity could potentially result with every 1-percent increase in the market share of total imports. 

On average, total imports in these 17 sectors increased by 7 percent, between 1992 and 1993. Applying the 

estimated effect from case 4 to the subset, productivity for these 18 sectors increased by 1.5 percent during this 

period as a result of increased import competition. 

Many of these sectors include industries where a substantial share of the imports from Mexico are associated 

with production-sharing operations in Mexico. 

4-23 

4-23
Table 4-6 

Leading 4-digit SIC manufacturing sectors that might experience gains in labor productivity as a result of 

NAFTA 

(Percentage) 

Imports from Total import 

Mexico as a share of U.S. 

4-digit share of total consumption 

SIC No. Industry U.S. imports in 1992 

2399 Fabricated textiles products, n.e.c. 68.5 25.3 

3677 Electronic coils, transformers and other inductors 37.3 34.4 

3672 Printed circuit boards 29.9 22.3 

3643 Current-carrying wiring devices 29.4 22.9 

3644 Non-current carrying wiring devices 27.9 15.8 

3691 Storage batteries 24.0 16.6 

3631 Household cooking equipment 16.9 25.7 

3955 Carbon paper and inked ribbon 15.8 21.0 

3493 Steel springs, except wire 14.2 41.3 

3669 Communications equipment, n.e.c. 14.1 15.4 

3253 Ceramic wall and floor tile 13.4 36.4 

3131 Boot and shoe cut stock and fmdings 12.7 53.7 

3823 Industrial instruments for measurement, display and 

and control of process variables 12.7 15.7 

3625 Relays and industrial controls 12.3 15.4 

3494 Electrical equipment for internal combustion engines 11.6 51.3 

3671 Electron tubes 10.9 22.8 

3648 Lighting equipment, n.e.c. 10.3 37.2 

Source: Constructed by USITC staff from Bureau of Census statistics. 

4-24
CHAPTER 5 

INDUSTRY ANALYSIS 

This chapter describes the selection of industries for analysis,' their grouping into 68 sectors, and the 

qualitative analytical approach used to determine the effect of NAFTA on these industries. This analysis 

builds on the expertise of the Commission. Staff has conducted more than 25 studies analyzing implications 

of the liberalization by Mexico and Canada of trade and investment measures. 2A summary of the major 

findings and the individual sector analyses are presented in chapter 6. 

Industry Selection 

The Commission examined the effect of NAFTA on those industries "in which U.S. exports to 

Mexico or Canada or imports into the United States from Mexico or Canada have increased significantly," as 

set forth in the request letter for the study by the United States Trade Representative (appendix A). 3 

 Industries were defined according to the U.S. Bureau of the Census Standard Industrial Classification (SIC) 

4-digit industry number groupings. This industry classification system facilitated the collection and 

compilation of the necessary shipment, trade, employment, and other data required to conduct the analysis 

specified by USTR. Although the request letter does not define "increased significantly," the Commission 

selected a threshold of a $50-million increase from 1993 to 1996 in any one of the trade flows with our 

NAFTA partners (i.e., U.S. exports to Canada, U.S. exports to Mexico, U.S. imports from Canada, or U.S. 

imports from Mexico). The $50 million threshold was used because this level would capture a high 

percentage of total trade with NAFTA partners. A decline in imports or exports did not trigger consideration 

within the scope of this investigation.' Based on this threshold, the Commission examined a total of 271 4- 

digit SIC industries' of which 198 4-digit SIC industries were further analyzed using quantitative models.' 

A list of industries selected for analysis appears at the end of this chapter. 

2 These reports include examination of Mexico's economic reforms, conditions of competition with NAFTA partners, 

rules-of-origin issues related to various industries, and major trading partners' commitments under the GATS. In 

addition, the Commission has issued a series of reports examining the composition of U.S.-Mexico trade overall, and 

with maquiladora operations. 

3 Section 512 of the North American Free Trade Agreement Implementation Act (Public Law 103-182, approved 

Dec. 8, 1993) requires that the Administration provide a similar analysis in its report to the Congress due July 7, 1997. 

4 Nine 4-digit SIC industries had declines in exports of $50 million or more from 1993 to 1996: SIC 0912, Finfish; 

2023, Milk and Cream, Condensed; 2111, Cigarettes; 2899, Chemical Preparations, Not Elsewhere Classified; 3356, 

Extruded Nonferrous Metal Products; 3412, Metal Shipping Barrels; 3465, Automotive Stampings; 3647, Motor 

Vehicle Lighting Equipment; and a grouping entitled in the Census concordance, 9200, Used or Second-Hand 

Merchandise. 

5 Using the $50 million threshold, 204 industries were initially selected. Because of the numerous 4-digit SIC textile 

and apparel industries that met the threshold and the commonality of analysis for these 4-digit industries, textile and 

apparel products were examined at a more aggregated 2-digit level; as a result, 35 additional 4-digit SIC's were added 

to the analysis. Further, the U.S. Bureau of the Census has in instances grouped one or more 4-digit SIC industries 

under one 4-digit SIC industry title in its concordance between SIC industries and merchandise trade classifications. 

This appears where U.S. trade data classifications do not match the production activities or output of 4-digit SIC 

industries. As a result of the Census classification, 32 additional 4-digit SIC industries are included for analysis. Also, 

Commission staff reassigned certain merchandise trade classifications within the Census SIC/trade concordance when 

Census assignments conflicted with classifications described in the Census Standard Industrial Classification Manual, 

1987. 

6 Chapter 4 quantitatively analyzes 198 4-digit SIC industries. 

5-1 

5-1
Collectively, these industries accounted for a range of 86 percent to 94 percent of the value of 

imports from or exports to a particular NAFTA partner (table 5-1). Overall, a greater percentage of U.S. 

imports were covered (90 percent to 94 percent) as a result of this threshold than of U.S. exports (86 percent 

to 91 percent). Overall, approximately the same percentage of U.S. exports to Canada and Mexico, and 

similarly almost the same percentage of U.S. imports from Canada and Mexico, are covered by the 

Commission's analyses. 

To facilitate analysis and to provide a manageable report, SIC industries were generally grouped into 

sectors where the 4-digit industries appeared to be related. Certain industries did not lend themselves to 

grouping and were analyzed separately. For example, the 4-digit SIC women's footwear industry was 

covered separately because other 4-digit footwear industries did not meet the threshold' and women's 

footwear could not readily be aggregated with any similar industries. Sector analyses relied primarily on U.S. 

trade data from the U.S. Bureau of the Census and labor data from the U.S. Bureau of Labor Statistics. 

In addition to commodity trade, a summary of the effects of NAFTA on U.S. trade in services with 

NAFTA partners is presented at the end of chapter 6. Data on services industries are available only through 

1995, the second year of NAFTA implementation.' Conclusions drawn from such limited data may present a 

distorted view of the effects of NAFTA on services industries because such data would largely reflect the 

devaluation of the peso in December 1994 and Mexico's depressed economy in 1995. 

Analytical Approach 

The Commission was requested to determine for the USTR those industries in which U.S. trade 

flows with our NAFTA partners increased significantly, and whether such increases affecting trade and other 

performance indicators specified by the USTR occurred as a result of the NAFTA. The Commission staff 

used its industry-specific expertise to evaluate a wide variety of factors in determining whether increases in 

U.S. trade flows with Canada or Mexico were negligibly or significantly affected by NAFTA. These factors 

included the consideration of underlying trends in U.S. trade flows with both NAFTA and non-NAFTA 

partners; industry and regulatory developments, as well as structural factors, influencing trade; competitive 

factors and global competition affecting industries; and the provisions of NAFTA affecting specific 

industries. Commission analysts used their understanding of trade, tariff, and nontariff measures in specific 

industries, including services, to assess cross-border operations and investment as well as changes in the trade 

environment affected by NAFTA as compared to other macro- and microeconomic factors (discussed below). 

Information was gathered from publicly available sources; submissions to, and transcripts of, 

hearings before Congress; Commission records; and other government documents. Further, the analyses 

considered information obtained in testimony from the Commission's public hearing held in connection with 

this investigation May 15-16, 1997, and official written statements submitted by interested parties to this 

investigation. In addition, analysts engaged in extensive contact with industry, government, and trade group 

officials in order to gain further perspectives on the effects of NAFTA and non-NAFTA factors on U.S. trade 

flows with NAFTA partners. 

See the list of industries selected for analysis at the end of this chapter. 

The necessity for providing a broader examination of the services industries is due to data limitations (only available 

through 1995) and the generally incomplete collection of data on trade in services by the Bureau of Economic Analysis 

of the U.S. Department of Commerce (USDOC). The USDOC is in the process of redefining the SIC system to obtain 

greater detail on service industries in its 1997 quinquenial census. This effort is being undertaken with the cooperation 

of our NAFTA partners to the North American Industry Classification System (NAICS). 

5-2 

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Table 5-1 

Total trade covered by the Commission analysis for U.S. imports for consumption and exports of 

domestic merchandise from Mexico and Canada, market share, change in value, and percentage 

change, 1993-96 

Trade flow/supplier 1993 1994 1995 1996 

Absolute 

change 

1993-96 

Relative 

change, 

1993-96 

Value (million dollars) Percent 

U.S. trade: 

U.S. imports from : 

World 574,863 657,885 739,660 790,470 215,607 37.5 

Mexico 38,668 48,605 61,721 74,179 35,511 91.8 

Canada 110,482 128,753 144,882 156,299 45,817 41.5 

All others 425,713 480,526 533,057 559,992 134,279 31.5 

U.S. exports to: 

World 439,295 481,887 546,465 582,137 142,842 32.5 

Mexico 40,265 49,136 44,881 54,686 14,420 35.8 

Canada 91,866 103,643 113,261 119,123 27,257 29.7 

All others 307,164 329,108 388,323 408,328 101,165 32.9 

Trade covered in selected sectors: 

U.S. imports from: 

Mexico 35,080 44,738 56,971 69,483 34,403 98.1 

Canada 102,238 120,431 136,005 146,376 44,138 43.2 

U.S. exports to: 

Mexico 35,068 43,255 40,460 49,535 14,465 41.3 

Canada 79,366 91,571 100,566 106,364 27,216 34.0 

Percent of Total 

U.S. trade: 

U.S. imports from: 

World 100.0 100.0 100.0 100.0 (1 ) (1 ) 

Mexico 6.7 7.4 8.3 9.4 (1 ) (1 ) 

Canada 19.2 19.6 19.6 19.8 (1 ) (1 ) 

All others 74.1 73.0 72.1 70.8 (1 ) (1 ) 

U.S. exports to: 

World 100.0 100.0 100.0 100.0 (1 ) (1 ) 

Mexico 9.2 10.2 8.2 9.4 (1 ) (1 ) 

Canada 20.9 21.5 20.7 20.5 (1 ) (1 ) 

All others 69.9 68.3 71.1 70.1 (1 ) (1 ) 

Trade covered in selected sectors: 

U.S. imports from: 

Mexico 90.1 92.0 92.3 93.7 (1 ) (1 ) 

Canada 92.5 93.5 93.9 93.7 (1 ) (1 ) 

U.S. exports to: 

Mexico 87.1 88.0 90.1 90.6 (1 ) (1 ) 

Canada 86.4 88.4 88.8 89.3 (1 ) (1 ) 

Not meaningful for purposes of comparison. 

Source: Compiled by the staff of the U.S. International Trade Commission. 

5-3
Upon determining that an increase in U.S. imports from or exports to Canada or Mexico was due in 

significant measure to NAFTA (criteria defined below), analysts then examined certain performance 

indicators specified by USTR, including wages, employment, productivity, investment, and changes in U.S. 

trade with third countries to determine whether NAFTA had a significant or negligible effect on changes from 

1993 to 1996. These assessments accompany the nine industry sector analyses for which the increase in U.S. 

trade flows with Canada or Mexico were determined to be significantly affected by NAFTA. 9Sectors in 

which the NAFTA effect on the increase in U.S. trade flows from 1993 to 1996 was determined to be 

negligible (criteria defined below) include the basis for this assessment in the summary of sector analysis. 

This summary highlights principal developments affecting trends in U.S. import and export trade as well as 

other factors of importance to trade with NAFTA partners. 

NAFTA Effects 

Each sector was examined to determine whether NAFTA had a significant or negligible effect on the 

increased U.S. trade flows with NAFTA partners. For purposes of these sector analyses, the following 

criteria were used in assessing whether an increase in trade was a result of the NAFTA: 

Significant.--The increase in U.S. trade flows from 1993 to 1996 is due in considerable measure to 

NAFTA as compared with any other economic factor or industry development occurring during the 

period. This definition was also applied in assessing the effect of NAFTA on performance indicators 

such as wages, employment, productivity, investment, and changes in U.S. trade with third countries. 

Negligible.--The increase in U.S. trade flows in from 1993 to 1996 is due primarily to economic 

factors or industry developments occurring during the period other than NAFTA; any NAFTA effect 

on U.S. trade increases is insignificant or a minor influence. This definition was also applied in 

assessing the effect of NAFTA on performance indicators such wages, employment, productivity, 

investment, and changes in U.S. trade with third countries. 

The sector analyses primarily assesses measurable changes in the trade and economic environment, 

such as reductions in tariffs, changes in NAFTA rules, investment liberalization, sectoral arrangements under 

NAFTA, and other factors as appropriate. Such an analysis, however, cannot fully differentiate the effects 

that NAFTA had on the psychological climate of doing business with NAFTA partners, especially Mexico, 

due to the lowering of business risk brought about by the Agreement. The guarantees provided by NAFTA 

regarding market access, procurement, and particularly investment, with the resultant change in business 

perceptions, in some instances have been an important factor influencing the production and investment 

decisions of individual firms," even in instances where the change in industry performance indicators was due 

principally to factors other than NAFTA. These more intangible effects of NAFTA are difficult if not 

impossible to assess in a systematic manner. 

9 These sectors include grains and oilseeds, raw cotton, textile mill products, apparel and other finished 

products, leather tanning and finishing, women's footwear (except athletic), household appliances, motor 

vehicles, and motor vehicle parts. 

io Transcript of hearing, pp. 35, 37 -38, 41, 206, 221 -222. 

5-4 

5-4
As requested, the sector analyses considered a number of factors in assessing the effect of NAFTA 

on increased trade flows, and examined the effect of NAFTA on other industry performance indicators. In 

addition to the factors and effects noted in the letter from the USTR, the Commission included consideration 

of total trade, trade balance performance measures, and trade specialization. The factors and performance 

indicators are summarized in the following text box. 

Micro-and macroeconomic factors Sector performance indicators to be examined 

• Exchange-rate fluctuations, including the peso • Increased U.S. trade flows 

devaluation • Wages 

• Economic growth • Employment 

• Trade agreements, including: • Productivity/production workers 

— U.S.-Canada Free Trade Agreement • Investment that occurred as a result of NAFTA 

— Uruguay Round Agreement • Changes in U.S. trade with third countries 

• NAFTA-specific trade and tariff actions induced by NAFTA 

• Total trade and trade balance 

• Trade specialization 

Micro- and Macroeconomic Factors 

In examining the effect of NAFTA on trade increases in each sector, the request letter asked that the 

analyses consider relevant micro- and macroeconomic factors. The USTR also requested that the Commission 

consider the differences between U.S. tariffs applied to goods from our NAFTA trading partners and the 

tariff rate that would have applied to those goods in the absence of the Agreement. 

Foreign exchange rate fluctuations 

The major foreign exchange rate fluctuation considered in this analysis was the devaluation of the 

Mexican peso. The Canadian dollar declined slightly in value relative to the U.S. dollar and had a limited 

effect on U.S.-Canada trade in most sectors during 1993-96. The devaluation of the peso' had a major 

influence on U.S. trade levels with Mexico during 1995. The peso devaluation at the end of 1994 resulted in 

a sharp decline in demand in the Mexican domestic market for many products and reduced the cost of 

Mexican exports. As a result, many producers in Mexico, including maquiladora and other productionsharing operations, increased exports to the U.S. market to maintain production levels and gain foreign 

exchange. In addition, the devaluation of the peso resulted in lower Mexican labor costs relative to other low 

wage-rate countries, and therefore, may have encouraged some production shifts to Mexico.' In cases where 

production was established in Mexico, as exports of U.S.-made components rose to those facilities in Mexico 

so did imports of finished products into the United States. The financial crisis in Mexico made it difficult for 

industrial, commercial, and household consumers in Mexico to obtain credit, resulting in reduced sales in 

Mexico of both domestically produced and imported goods in 1995. 

11The devaluation of the peso is not considered a NAFTA effect. See chapter 3 for a discussion of the peso crisis. 

12 Transcript of the hearing, p. 454. 

5-5 

5-5
Economic Growth 

U.S. economic growth was a major factor affecting the increase in trade flows in many of the sector 

analyses. During 1993-96, strong U.S. economic growth was facilitated by low inflation, low interest rates, 

low unemployment, and rising consumer discretionary income. The low interest rate environment was 

beneficial to strong growth in capital goods, housing starts, consumer durables, and the motor vehicle 

industry. 

Other Trade Agreements 

Both the CFTA and the URA were taken into account in the sectoral analyses. For many sectors, the 

most apparent effect of the CFTA was tariff reductions under this agreement, although some nontariff 

barriers (NTB's) facing manufactured products and services trade were eliminated. The tariff staging under 

the CFTA was largely unaffected by the NAFTA. Mexico's elimination of some bathers after its accession to 

the GATT in 1986 and subsequent unilateral liberalization measures, such as privatization of some state 

owned industries, resulted in fewer bathers to market access in Mexico prior to NAFTA. The URA 

agreements went beyond the NAFTA in some areas, especially in the agriculture and services sectors. The 

changes in the trading environment brought about by these various agreements are discussed more fully in 

chapter 2 of this report. 

For each sector, effective U.S. ad valorem equivalents (AVEs) 13are presented for U.S. imports from 

Mexico, Canada, and the rest of the world for 1993 to 1996. These data take into account duty reductions or 

eliminations under trade agreements (i.e., the CFTA; NAFTA; Automotive Products Trade Act (APTA) with 

Canada; Civil Aircraft Agreement; Florence Agreement; and the Uruguay Round Agreements,' including the 

Uruguay Round Concessions on Intermediate Chemicals for Dyes and the Agreement on Trade in 

Pharmaceutical Products); other tariff preference programs (i.e., Generalized System of Preferences (GSP)), 15 

 and duty-free tariff provisions, including trade under the production sharing provisions (HTS headings 

9802.00.60, 9802.00.80, and 9802.00.90). Similar AVE data for U.S. and third country exports into 

Mexico and Canada, however, were not calculated since these data were not readily available. 

With respect to tariff effects, the effective AVE calculated for each sector generally show lower 

effective U.S. AVEs for imports from Canada and Mexico relative to the effective U.S. AVE on imports 

collectively from non-NAFTA sources. In some sectors, the effective U.S. AVE increased rather than 

declined, either because of a shift in the imported product mix or a change in the use of tariff preferences 

among products in the sector. The effective U.S. AVE on imports from non-NAFTA sources could be 

13 Calculated duties collected divided by total trade for the sector. 

14 As a result of the tariff concessions made by the United States under the Uruguay Round Agreement, tariffs on a 

number of goods from Mexico were readjusted; some goods became unconditionally free of duty on an MFN basis. See 

section G, Annex, Presidential Proclamation 6763 of Dec. 23, 1994, "To Implement the Trade Agreements Resulting 

From the Uruguay Round of Multilateral Trade Negotiations, and for Other Purposes," 60 F.R. 1008, 1684-1700, Jan. 

4, 1995. 

15 GSP expired on July 4, 1993; it was renewed retroactively from July 4, 1993, through Sept 30, 1994, in the 

Omnibus Budget Reconciliation Act of 1993; in the Uruguay Round Agreements Act it was renewed retroactively from 

Sept 30, 1994, through July 31, 1995; and the last renewal occurred in the Small Business Job Protection Act of 1996 

effective Oct 1, 1996, through May 31, 1997. This last Act contained a provision that provided for retroactive duty-free 

treatment to July 31, 1995, for articles that would have been eligible for duty-free treatment under the GSP except for 

the expiration of the program, but that any refund due would not be made before Oct 1, 1996. 

5-6 

5-6
viewed as a proxy of the effective U.S. AVE that would have been applied to goods from Mexico in the 

absence of NAFTA. However, there are several drawbacks that call into question the accuracy of this proxy. 

Not only is the composition of U.S./Mexico trade different from U.S./non-NAFTA trade, but the use of tariff 

preference programs differs for these trade flows as well.' This proxy likely overstates the effective AVE for 

U.S. imports from Mexico absent NAFTA, given that non-NAFTA tariff preference programs have 

historically been more widely applied to imports from Mexico than to imports in general.' The effective 

U.S. AVE on imports from Canada would probably be close to that shown in the sector analyses, since tariff 

reductions under the CFTA would have continued to be implemented in the absence of NAFTA. 

NAFTA-Specific Trade and TariffActions 

The sector analyses summarize the important NAFTA-specific trade and tariff actions that have 

occurred in the United States. These actions primarily are changes in agricultural commodity import grades, 

and quality, sanitary, and phytosanitary requirements. In addition, the analyses reference actions taken under 

national trade laws, such as the antidumping, countervailing duty, and safeguard laws, that may have affected 

trade with our NAFTA partners in these sectors. The analyses also reference NAFTA binational panel 

(dispute settlement) reviews under NAFTA chapters 19 and 20 involving goods covered by the sectors. Final 

antidumping and countervailable duty actions are reviewable by binational panels established under NAFTA 

chapter 19 in lieu of judicial review. Most other actions are reviewable by panels established under NAFTA 

chapter 20. There have been numerous panel reviews under chapter 19 of actions by all 3 NAFTA members. 

Only one review has been completed under chapter 20 (concerning a U.S. challenge to Canadian poultry and 

dairy tariffs). Mexico has requested the establishment of a chapter 20 panel to review the recent U.S. global 

safeguard action on broom corn brooms (Mexico is the major source of U.S. imports of such brooms). 

Important NAFTA specific actions by our NAFTA trading partners are considered and identified in the sector 

assessments if such actions had an effect on U.S. exports to our NAFTA partners. 

Sector Performance Indicators Examined 

The USTR requested that analyses examine a variety of effects on those U.S. industries exhibiting significant 

increases in trade. In addition to examining significant trade effects due to NAFTA, the analyses examined 

changes in wages, employment, productivity, and investment that have occurred as a result of NAFTA, and 

changes in U.S. trade with third countries. 

16 A closer estimation of the tariff rates that would have been applied to goods from Mexico absent NAFTA involves 

several challenges. Such an estimation would necessitate assumptions regarding the amount of trade that would qualify 

for, and ultilmately use, tariff preferences under the GSP and under production-sharing provisions of the HTS in order to 

derive trade-weighted aggregates. In addition, there would be great difficulty in ascertaining what trends in U. S.- 

Mexico trade would have occurred in the absence of NAFTA, which would be required to calculate weighted average 

tariffs for each sector. 

'7For example, in the years just prior to NAFTA, roughly 70 percent of Mexican manufactured exports to the United 

States took advantage of production sharing provisions. 

5-7 

5-7
Employment, Wages, and Labor Productivity 

For sectors where NAFTA was determined to have a significant effect on the increase in trade, 

assessments were made regarding the effects of NAFTA on employment and wages,' and labor 

productivity.' Trends in total-and production-worker employment were compared with Department of Labor 

data on job losses certified under the NAFTA-Transitional Adjustment Assistance (NAFTA-TAA) program 

to have been the result of production relocations to Mexico or Canada and/or increased imports from these 

countries.' However, NAFTA-TAA certification does not represent a verification that NAFTA was the 

cause of production relocation decisions or the reason for increased imports. 21In assessing job-creation 

effects of the Agreement, there is little available government or private sector information or data.' 

However, an increasing.body of anecdotal information is emerging indicating that numerous jobs have been 

created, both in manufacturing and in the service sector, while some have been lost as well. Information on 

labor productivity provided in the sector analyses was obtained primarily by applying standard productivity 

analysis methods to shipments and labor data, and also from contacts with industry officials (for a 

quantitative assessment of NAFTA effects on labor productivity, see chapter 4). 

Investment 

Information on the relationship of NAFTA to U.S. investment in Mexico, and foreign or U.S. 

investment in the United States, is provided for all sector analyses as available.' In addition, the analyses 

include any available information concerning the effect of NAFTA on third-country investment in Mexico 

and Canada. There is an increasing number of foreign producers, both Asian and European, that have located 

production facilities in Mexico in order to take advantage of NAFTA rules of origin, U.S. and Canadian 

preferential tariffs, and lower-cost Mexican labor. In addition, firms have located in Mexico in order to gain 

access to the Latin American market through Mexico's participation in preferential trade agreements with 

18 For most sectors, employment and wage data were compiled from official statistics of the U.S. Bureau of Labor 

Statistics. Where appropriate, wage data were weighted by the number of production hours worked expended in the 

various SIC industries comprising a sector. For many agricultural industries examined, reliable data are not available. 

For other industries, such as petroleum, labor data from other U.S. Government agencies were deemed to be more 

reliable and therefore used in the analysis 

19 Productivity was calculated by dividing industry shipments by production work hours for 1993-95. Data was 

compiled from the U.S. Bureau of the Census, Annual Survey ofManufactures, 1994 and 1995. For some sectors, data 

from Census Current Industrial Reports and work hours of the U.S. Bureau of Labor Statistics were used.. 

20See North American Free Trade Agreement Implementation Act (Public Law 103-182, approved Dec. 8, 1993) 

sec. 250 (19 U.S.C. 2331). 

21U.S. Department of Labor, NAFTA Office. Although these job losses are certified to be the result of production 

relocations to Mexico or Canada and/or increased imports from these countries, NAFTA may not have been the cause of 

production relocation decisions or the reason for the increase in imports. 

22 One case study examination of job creation due to NAFTA appears in Raul Hinojosa Ojeda, et al., North American 

Integration Three Years After NAFTA: A Frameworkfor Tracking, Modeling and Internet Accessing the National and 

Regional Labor Market Impacts, North American Integration and Development Center, University of California, Los 

Angeles, Dec. 1996, pp. 52-63. 

23 Data on U.S. direct investment in Mexico are collected and compiled by the U.S. Department of Commerce, 

Bureau of Economic Analysis. However, such data are published for only broad industry groupings, since desegregated 

categories would reveal individual company data. A quantitative analysis of these data appear in chapter 4. 

5-8 

5-8
other Latin American countries.' Most of the non-North American companies that have established 

assembly plants on the Mexican side of the U.S.-Mexico border to supply the U.S. market typically purchase 

components and materials from U.S. producers.' 

Changes in U.S. Trade with Third Countries 

In some sectors, NAFTA may have induced changes in U.S. trade with third countries. Referred to 

as trade diversion, such trade shifts can result from preferential trade agreements where the preferences or 

other economic measures would outweigh market forces and thus change trade patterns. Indications of trade 

diversion are discussed in sector analyses when evidence exists, and may be apparent by examining the data 

on U.S. import market shares,' which are presented in each sector analysis. Evidence of trade diversion is 

best illustrated in the analysis of apparel products, where there has been a significant increase in U.S. imports 

from NAFTA partners and a commensurate decrease in imports from Asian and Caribbean Basin countries 

between 1993 and 1996. In other industries, U.S. exports to NAFTA parties benefitted under the CFTA and 

NAFTA, at the expense of exports supplied by non-NAFTA countries to Canada and Mexico. For example, 

U.S. exports of cattle and beef to Mexico have gained an increasing share of the Mexican market at the 

expense of Mexican imports of cattle and beef from Australia and New Zealand. This was the case with U.S. 

exports to Mexico in 1995 in the aftermath of the peso devaluation. Mexico raised its MFN tariff rates on 

imports of many goods to its bound rates under the GATT, while placing U.S. and Canadian goods, and 

goods from other countries for which Mexico was obliged to provide preferential rates, at an advantage over 

goods from other countries. 

Total Trade, Trade Balance Measures, and Trade Specialization 

The sector analyses include data and information on three measures that also may be used to assess 

the effects of NAFTA. These are total NAFTA trade, the trade balance, and the specialization of trade. 

Total NAFTA trade is an indication of the extent to which together all NAFTA parties are benefiting from 

the Agreement.' For each sector, data on total U.S. trade with the world, Canada, and Mexico are presented. 

Under NAFTA, U.S. trade with NAFTA partners may be expected to increase at a rate faster than U.S. trade 

with the world. Similarly, data on the trade balance in each sector is also provided. The U.S. trade balance 

may be affected by a number of factors, including the comparative advantages of one NAFTA partner to 

another in a particular sector, adverse weather conditions, or changes in governmental policy. 

The analysis of trade specialization examines the international division of labor in which countries 

become efficient producers and exporters of certain articles, but importers of other articles where market 

forces provide a relative disadvantage in domestic production. As tariffs and other trade barriers are reduced 

or eliminated and domestic industries are forced to compete internationally, economic theory suggests that 

countries participating in such agreements will specialize in the production of those articles where they have a 

24 See chapter 4 in U.S. International Trade Commission, Production Sharing: Use of U.S. Components and 

Materials in Foreign Assembly Operations, 1992-1995 (investigation No. 332-237), USITC publication 3032, Apr. 

1997. 

25USITC, Production Sharing, USITC publication 3032, p. 4-8. 

26This analysis is limited to U.S. imports because detailed Mexican and Canadian import statistics were not available 

in an electronic format to permit such broad sector analyses. 

27See testimony of by Sidney Weintraub, transcript of hearing, p. 62, and Sidney Weintraub, NAFTA at Three: A 

Progress Report, The Center for Strategic & International Studies, Washington, DC, 1997, pp. 16-17. 

5-9 

5-9
comparative advantage? Product specialization may be examined by looking at (1) intra-industry trade, (2) 

trade in intermediate products, and (3) production-sharing arrangements, such as the maquiladora industry in 

Mexico." The sector analyses attempted to characterize intra-industry trade, including infra-firm trade and 

the extent of trade in intermediate products,' as measured by the extent to which U.S.-made components are 

used in foreign assembly. Foreign assembly of U.S. components is not limited to low-labor-cost countries, as 

a significant amount of foreign assembly of U.S. components also occurs in Canada. 

The extent of trade specialization may also be illustrated by the use of production-sharing by U.S. 

companies. The extent of such operations are revealed by examining U.S. imports under the production 

sharing provisions (HTS headings 9802.00.60, 9802.00.80, and 9802.00.90). These provisions encourage 

companies with foreign assembly or production operations to use U.S.-made components or materials. 31 

 However, the use of U.S. components is also indicative of the extent to which assembly operations are located 

in Canada or Mexico, and the extent to which component production is located in the United States. Where 

relevant, such data are provided in the sector analyses. In some instances, foreign assembly operations have 

evolved into an important competitive strategy for many U.S. producers of low-cost labor-intensive articles. 

Such operations help preserve market share in the United States and abroad, which may enable companies to 

retain higher production and employment levels in the United States than might otherwise be possible.' 

The following table presents the industry grouping definitions. These definitions are based upon 4-

digit SIC industries. The findings for 68 groupings listed are discussed individually in chapter 6. 

28Ibid., p. 34. 

" Official statistics of the Mexican Government on Mexican imports used in the maquiladora industry are another 

indicator of specialization. However, for the Commission's analyses, these data were not readily available. However, 

the official compilation of U.S. production sharing data was used. For added detail, see USITC, Production Sharing, 

USITC publication 3032. 

3°There is no system for classifying or reporting U.S. imports or U.S. exports as intermediate products. 

31 The principal provision involving "foreign-assembly" provides a U.S. duty exemption for U.S.-made components 

that are returned to the United States as parts of articles assembled abroad. 

32 For more detailed information and illustrations in various industry sectors, see USITC, Production Sharing, USITC 

publication 3032. 

5-10 

5-10
Table 5-2 

Sectors and industries selected for analysis with trade increases over $50 million from 1993 to 1996 

indicated by trade flow 

ITC 

Group 

No. 

Sector SIC Industry No. and title' 

Sector trade with 

NAFTA partners 

as a percentage 

of total sector 

trade, 1996 

1 Grains and oilseeds 0111—Wheat 15.1 

0115—Corn 

0116—Soybeans 

0119—Cash grains, n.e.c. 

2 Raw Cotton 0131—Cotton 13.0 

3 Field crops 0139—Field crops, except cash grains, n.e.c. 30.3 

4 Fresh vegetables 

and canned and 

frozen fruits and 

vegetables 

0161—Vegetables and melons 46.0 

2033—Canned Fruits, vegetables, preserves, jams and 

jellies 

2037—Frozen fruits, fruit juices, and vegetables 

5 Ornamental 

floriculture and 

nursery products 

0181—Ornamental floriculture and nursery products 23.5 

6 Meats and livestock 0211—Beef cattle feed lots 

(0212—Beef cattle, except feedlots) 

35.6 

0213—Hogs 

2011—Meat packing plants 

(2013—Sausages and other prepared meat products) 

7 Fish and shellfish 0273—Animal aquaculture 27.6 

0913—Shellfish 

(2092(pt)—Prepared fresh or frozen fish and seafood) 

8 Iron ore 1011—Iron ore 70.7 

9 Coal 1221—Bituminous coal and lignite surface mining 

(1222—Bituminous coal underground mining) 

12.5 

10 Crude petroleum, 

natural gas, and 

natural gas liquids 

1311—Crude petroleum and natural gas 37.8 

1321—Natural gas liquids 

11 Animal feeds 2048—Prepared feeds and feed ingredients for animals 

and fowls, except dogs and cats 

37.0 

5-11
ITC 

Group 

No. 

Sector SIC Industry No. and title' 

Sector trade with 

NAFTA partners 

as a percentage 

of total sector 

trade, 1996 

12 Bakery products 2051—Bread and other bakery products, except cookies 

and crackers 

(2052—Cookie and crackers 

2053—Frozen bakery products, except bread) 

58.7 

13 Chocolate and 

cocoa products 

2066—Chocolate and cocoa products 42.4 

14 Fats and oils 2076—Vegetable oil mills, except corn, cottonseed, and 

soybean 

35.2 

2079—Shortening, table oils, margarine, and other edible 

fats and oils, n.e.c. 

15 Malt beverages 2082—Malt beverages 31.4 

16 Bottled and canned 

soft drinks and 

carbonated waters 

2086—Bottled and canned soft drinks and carbonated 

waters 

46.5 

17 Miscellaneous food 

preparations 

2099—Food preparations, n.e.c. 27.9 

18 Textile mill products 22—Textile mill products 

2824—Man-made organic fibers 

32.3 

19 Apparel and other 

finished textile 

products 

23—Apparel and other finished products made from 

fabrics and similar materials, 

16.9 

20 Solid wood products 2411—Logging 55.8 

2421—Sawmills and planing mills, general 

2434—Wood kitchen cabinets 

2431—Millwork 

2435—Hardwood veneer and plywood 

2439—Structural wood members, n.e.c. 

2493—Reconstituted wood products 

2499—Wood products, n.e.c. 

21 Furniture 2599—Furniture and fixtures, n.e.c. 

(2511—Wood household furniture, except upholstered 

2512—Wood household furniture, upholstered 

2519—Household furniture, n.e.c. 

2521—Wood office furniture 

2531—Public building and related furniture 

2541—Wood office and store fixtures, partitions, shelving, 

and lockers) 

52.5 

5-12 

5-12
ITC 

Group 

No. 

Sector SIC Industry No. and title' 

Sector trade with 

NAFTA partners 

as a percentage 

of total sector 

trade, 1996 

22 Paper products 2611—Pulp mills 54.8 

2621—Paper mills 

2653—Corrugated and solid fiber boxes 

2657—Folding paperboard boxes, including sanitary 

2672—Coated and laminated paper, n.e.c. 

2673—Plastics, foil, and coated paper bags 

2676—Sanitary paper products 

2678—Stationery, tablets, and related products 

23 Printed matter 2721—Periodicals: publishing, or publishing and printing 51.3 

2731—Books: publishing, or publishing and printing 

(2732—Book printing) 

2752—Commercial printing, lithographic 

(2754—Commercial printing, gravure 

2759—Commercial printing, n.e.c.) 

2771—Greeting cards 

2782—Blank books, looseleaf binders, and devices 

24 Alkalies and chlorine 2812—Alkalies and chlorine 27.7 

25 Industrial inorganic 

chemicals 

2816—Inorganic pigments 27.5 

2819—Industrial inorganic chemicals, n.e.c. 

26 Synthetic plastics, 

resins, and rubber 

2821—Plastics materials, synthetic resins, and 

nonvulcanizable elastomers 

38.8 

2822—Synthetic rubber (vulcanizable elastomers) 

27 Pharmaceutical 

preparations 

2834—Pharmaceutical preparations 17.7 

28 Soaps, detergents, 

and toiletries 

2841—Soap and other detergents, except specialty 

cleaners 

32.1 

2844—Perfumes, cosmetics, and other toilet preparations 

29 Paints and allied 

products 

2851—Paints, varnishes, lacquers, enamels, and allied 

products 

54.2 

5-13
ITC 

Group 

No. 

Sector SIC Industry No. and title' 

Sector trade with 

NAFTA partners 

as a percentage 

of total sector 

trade, 1996 

30 Industrial organic 

chemicals 

2865—Cyclic crudes and intermediates, and organic dyes 

and pigments 

18.2 

2869—Industrial organic chemicals, n.e.c. 

31 Fertilizers, 

pesticides, and 

agricultural 

chemicals 

2873—Nitrogenous fertilizers 26.3 

2874—Phosphatic fertilizers 

2879—Pesticides and agricultural chemicals, n.e.c. 

32 Petroleum refinery 

products 

2911—Petroleum refining 22.0 

33 Plastic and rubber 

products 

3011—Tires and inner tubes 40.2 

3052—Rubber and plastics hose and belting 

(3084—Plastics pipe) 

3053—Gaskets, packing, and sealing devices 

3069—Fabricated rubber products, n.e.c. 

3081—Unsupported plastics film and sheet 

3082—Unsupported plastics profile shapes 

3089—Plastics products, n.e.c. 

34 Leather tanning and 

finishing 

3111—Leather tanning and finishing 17.5 

35 Women's footwear, 

except athletic 

3144—Women's footwear, except athletic 3.5 

36 Flat glass and 

glassware 

3211—Flat glass 37.8 

3221—Glass containers 

3229—Pressed and blown glass and glassware, n.e.c. 

3231—Glass products, made of purchased glass 

37 Cement 3241—Cement, hydraulic 52.5 

38 Vitreous china 

plumbing foctures 

3261—Vitreous china plumbing fixtures and china and 

earthenware fittings and bathroom accessories 

55.8 

39 Gypsum building 

products 

3275—Gypsum products 70.4 

40 Mineral wool 3296—Mineral wool 49.1 

5-14 

5-14
ITC 

Group 

No. 

Sector SIC Industry No. and title' 

Sector trade with 

NAFTA partners 

as a percentage 

of total sector 

trade, 1996 

41 Steel products 3312—Steel works, blast furnaces (including coke ovens) 

and rolling mills 

35.2 

3321—Gray and ductile iron foundries 

(3322—Malleable iron foundries 

3324—Steel investment foundries 

3325—Steel foundries, n.e.c.) 

42 Nonferrous metals, 

unwrought 

3331—Primary smelting and refining of coppers 37.0 

3334—Primary production of aluminum 

3339—Primary smelting and refining of nonferrous 

metals, except copper and aluminum 

3341—Secondary smelting and refining of nonferrous 

metals 

43 Nonferrous metals, 

wrought 

3351—Rolling, drawing, and extruding of copper 50.2 

3353—Aluminum sheet, plate, and foil 

3354—Aluminum extruded products 

3357—Drawing and insulating of nonferrous wire 

44 Fabricated metal 

products 

3429—Hardware, n.e.c. 43.3 

3441—Fabricated structural metal 

3442—Metal doors, sash, frames, molding, and trim 

3443—Fabricated plate work (boiler shops) 

3452—Bolts, nuts, screws, rivets, and washers 

(3451—Screw machine products) 

3466—Crowns and closures 

3489—Ordnance and accessories, n.e.c. 

3493—Steel springs, except wire 

(3495—Wire springs) 

3494—Valves and pipe fittings, n.e.c. 

(3491—Industrial valves 

3498—Fabricated pipe and pipe fittings) 

3499—Fabricated metal products, n.e.c. 

5-15 

5-15
ITC 

Group 

No. 

Sector SIC Industry No. and title' 

Sector trade with 

NAFTA partners 

as a percentage 

of total sector 

trade, 1996 

45 Industrial machinery 3511—Steam, gas, and hydraulic turbines and turbine 

generator set units 

25.5 

3519—Internal combustion engines, n.e.c. 

3523—Farm machinery and equipment 

3531—Construction machinery and equipment 

3532—Mining machinery and equipment, except oil and 

gas field machinery and equipment 

3535—Conveyors and conveying machinery 

3537—Industrial trucks, tractors, trailers, and stackers 

3541—Machine tools, metal cutting types 

3542—Machine tools, metal forming types 

3544—Special dies and tools, die-sets, jigs and fixtures, 

and industrial molds 

3546—Power-driven hand tools 

3547—Rolling mill machinery and equipment 

3554—Paper industries machinery 

3555—Printing trades machinery and equipment 

3559—Special industrial machinery, n.e.c. 

3561—Pumps and pumping equipment 

3562—Ball and roller bearings 

3564—Industrial and commercial fans and blowers and 

air purification equipment 

3565—Packaging machinery 

3566—Speed changers, industrial high-speed drives, and 

gears 

3569—General industrial machinery and equipment, 

n.e.c. 

3585—Air-conditioning and warm air heating equipment 

and commercial and industrial refrigeration equipment 

3593—Fluid power cylinders and actuators 

(3592—Carburetors, pistons, piston rings, and valves) 

3599—Industrial and commercial machinery and 

equipment, n.e.c. 

5-16 

5-16
ITC 

Group 

No. 

Sector SIC Industry No. and title 

Sector trade with 

NAFTA partners 

as a percentage 

of total sector 

trade, 1996 

46 Computers and 

computer peripheral 

equipment 

3571—Electronic computers 16.0 

3577—Computer peripheral equipment, n.e.c. 

(3575—Computer terminals) 

47 Heavy electrical 

equipment 

3612—Power distribution and specialty transformers • 43.1 

3613—Switchgear and switchboard apparatus 

3621—Motors and generators 

3625—Relays and industrial controls 

48 Household 

appliances 

3631—Household cooking equipment 37.2 

3632—Household refrigerators and farm freezers 

3633—Household laundry equipment 

3635—Household vacuum cleaners 

49 Electric lighting and 

wiring equipment 

3641—Electric lamp bulbs and tubes 42.3 

3643—Current-carrying wiring devices 

3644—Noncurrent-carrying wiring devices 

3648—Lighting equipment, n.e.c 

(3645—Residential electric lighting fixtures 

3646—Commercial electric lighting fixtures) 

50 Radio and television 

equipment 

3651—Household audio and video equipment 28.9 

3663—Radio and television broadcasting and 

communications equipment 

3671—Electron tubes 

51 Communications 

equipment 

3661—Telephone and telegraph apparatus 29.6 

3669—Communications equipment, n.e.c. 

52 Electronic 

components and 

accessories 

3672—Printed circuit boards 17.2 

3674—Semiconductor and related devices 

3675—Electronic capacitors 

3676—Electronic resistors 

3678—Electronic connectors 

3679—Electronic components, n.e.c. 

5-17 

5-17
ITC 

Group 

No. 

Sector SIC Industry No. and title' 

Sector trade with 

NAFTA partners 

as a percentage 

of total sector 

trade, 1996 

53 Miscellaneous 

electrical machinery, 

equipment, and 

supplies 

3652—Phonograph records and prerecorded audio tapes 

and disks 

17.8 

3692—Primary batteries, dry and wet 

3695—Magnetic and optical recording media 

3699—Electrical machinery, equipment, and supplies, 

n.e.c. 

54 Motor vehicles 3711—Motor vehicles and passenger car bodies 

(3716—Motor homes) 

53.2 

55 Motor vehicle parts 3691—Storage batteries 64.6 

3694—Electrical equipment for internal combustion 

engines 

3714—Motor vehicle parts and accessories 

3715—Truck trailers 

3792—Travel trailers and campers 

56 Aircraft and aircraft 

parts 

3721—Aircraft • 11.5 

3724—Aircraft engines and engine parts 

3728—Aircraft parts and auxiliary equipment, n.e.c. 

57 Boat building and 

repairing 

3732—Boat building and repairing 47.4 

58 Railroad equipment 

and parts 

3743—Railroad equipment 70.6 

59 Transportation 

equipment 

3799—Transportation equipment, n.e.c. 48.3 

60 Measuring, 

analyzing, and 

controlling 

instruments 

3812—Search, detection, navigation, guidance, 

aeronautical and nautical systems, and instruments 

26.7 

3822—Automatic controls for regulating residential and 

commercial environments and appliances 

3823—Industrial instruments for measurement, display, 

and control of process variables; and related products 

3824—Totalizing fluid meters and counting devices 

3825—Instruments for measuring and testing of electricity 

and electrical signals 

3827—Optical instruments and lenses 

5-18 

5-18
ITC 

Group 

No. 

Sector SIC Industry No. and title 

Sector trade with 

NAFTA partners 

as a percentage 

of total sector 

trade, 1996 

61 Medical equipment 3841—Surgical and medical instruments and apparatus 14.9 

3842—Orthopedic, prosthetic, and surgical appliances 

and supplies 

3845—Electromedical and electrotherapeutic apparatus 

62 Photographic 

equipment and 

supplies 

3861—Photographic equipment and supplies 13.0 

63 Jewelry, precious 

metal 

3911—Jewelry, precious metal 7.4 

64 Games, toys, and 

children's vehicles . 

3944—Games, toys, and children's vehicles, except dolls 

and bicycles 

12.1 

65 Sporting goods 3949—Sporting and athletic goods, n.e.c. 18.0 

66 Miscellaneous 

industries, n.e.c. 

3999—Miscellaneous industries, n.e.c. 10.9 

67 Waste and scrape 9100—Scrap and waste3 38.8 

68 Miscellaneous trade 9800—Goods returned3 38.0 

9900—Special classifications 3 

3)00(--Manufactured articles not identified by kind 3 

SIC industries listed in parentheses indicate that Census included trade data for these products in the SIC industry 

preceding the parentheses. 

2 Sector will be assessed because trade flows are believed to have been affected by NAFTA, with upstream effects 

on certain service industries. 

3 SIC number does not appear in the Census Standard Industrial Classification Manual 1987, but is provided with 

Census CD-ROMs containing trade data and is also used on the Compro trade data system at NIH. 

Source: Compiled by the staff of the U.S. International Trade Commission. 

5-19 

5-19
5-20
CHAPTER 6 

SECTOR-BY-SECTOR ANALYSES 

This chapter summarizes the findings of sector-by-sector analyses, and presents the 68 individual 

sector analyses' as well as the assessment of NAFTA effects on U.S. trade in services. The summary 

includes identifying (1) the major effects of NAFTA on sectors where NAFTA had a significant effect on the 

increase in U.S. trade flows, and (2) the non-NAFTA factors that predominated in sectors where NAFTA was 

determined to have had a negligible effect on increased trade flows.' Each sectoral analysis is then presented 

by ITC Group number, concluding with a summary of NAFTA and non-NAFTA effects on the services 

industries.' 

For purposes of these sector analyses, the following criteria were used in assessing whether an 

increase in trade was a result of NAFTA: 4 

Significant—Theincrease in U.S. trade flows from 1993 to 1996 is due in considerable measure to 

NAFTA, as compared with any other economic factor or industry development occurring during the 

period. This definition was also applied in assessing the effect of NAFTA on performance indicators 

such as wages, employment, productivity, investment, and changes in U.S. trade with third countries. 

Negligible.--The increase in U.S. trade flows from 1993 to 1996 is due primarily to economic factors 

or industry developments occurring during the period other than NAFTA; any NAFTA effect on U.S. 

trade increases is insignificant or a minor influence. This definition was also applied in assessing the 

effect of NAFTA on performance indicators such as wages, employment, productivity, investment, 

and changes in U.S. trade with third countries. 

Challenges were encountered in isolating NAFTA effects given the dynamics of other very 

significant macroeconomic factors during the study period, such as the peso devaluation and a strong U.S. 

economy. The effect of NAFTA on the perceptions of business risk was also difficult to precisely identify. A 

more detailed discussion of the analytical methodology is contained in chapter 5. 

Comparison of Analytical Results 

The results of these sector analyses may not correspond directly to the econometric results for each of 

the sectors in chapter 4 found to have a conclusive statistical link to the implementation of NAFTA. 

Although some of the econometric results may not appear to be consistent with the findings of these sector 

ISee chapter 5 for a discussion of the methodology for industry selection and the analytical approach. 

As noted in chapter 5, a decline in imports or exports did not trigger consideration for analysis within the scope of 

this investigation. 

The analysis of trade in services is done on a broad basis because of data limitations. Data on the services industries 

are only available through 1995. Therefore, to a greater extent than commodity trade, analysis of NAFTA trade in 

services is distorted by the effects of the peso in late 1994 and throughout 1995. In addition, such analysis is also 

affected by GATT and WTO initiatives in harmonizing trade in services. The analysis presented herein provides a point 

of departure for any future examination of services under NAFTA. 

The analysis cannot fully differentiate less directly measurable effects of NAFTA such as changes in the business 

climate or business relationships, which in some instances have been important factors influencing production and 

investment decisions by individual firms. See chapter 5 for a more detailed exploration of factors considered in the 

industry assessments and the challenges of separating variables. 

6-1 

6-1
analyses, the conclusions are based on different standards. As such, any statistically significant results from 

the analysis conducted in chapter 4 cannot appropriately be compared to the determinations of NAFTA 

effects on a sector-by-sector basis in chapter 6. Chapter 1 explains the two analytical approaches in greater 

detail. 

Sectors with Significant NAFTA Effects 

Based on the industry sector analysis performed by Commission staff, NAFTA appears to have had 

a significant effect on the 1993-96 increase in U.S. trade flows for nine of the 68 sectors analyzed, 

specifically ITC Group Nos.-- 

1: Grains and oilseeds 

2: Raw cotton 

18: Textile mill products 

19: Apparel and other finished textile products 

34: Leather tanning and finishing 

35: Women's footwear, except athletic 

48: Household appliances 

54: Motor vehicles 

55: Motor vehicle parts 

The analyses for these individual sectors are presented in nonsequential order, as listed above, after this 

chapter introduction. The NAFTA effects in each of these sectors can be summarized as follows: 

• ITC Group No. 1: Grains and oilseeds.--Mexican tariff reductions on grains, and the conversion 

of import licensing to tariffs or a tariff-rate quota, were largely responsible for the increased U.S. 

exports of grains to Mexico. In spite of increased exports that were due to NAFTA, employment 

on U.S. farms continued a long-term decline due to other factors. 

• ITC Group No. 2: Raw cotton.--The growth in U.S. exports of raw cotton to Mexico partly 

reflected increased Mexican demand for the fiber used in the production of textile mill products 

(such as fabrics) for shipment to the United States under NAFTA. Data on changes in 

employment were not available, nor were investment data other than acreage planted in cotton, 

which increased by 24.6 percent between 1993 and 1996. 

• ITC Group No. 18: Textile mill products.--NAFTA rules-of-origin stimulated demand in both 

Mexico and Canada for fabrics produced by U.S. textile mills to make apparel for the U.S. 

market. Job losses, possibly attributable to increased imports, have been at least partly offset by 

gains due to increased exports. 

• ITC Group No. 19: Apparel and other finished textile products.--Increased U.S. apparel imports 

from Mexico were primarily due to NAFTA provisions that enable duty-free and quota-free 

entry for apparel (and other made-up textile goods) assembled in Mexico wholly from fabric that 

was made and cut in the United States. This provided a strong incentive for apparel firms to 

shift production to Mexico from Asian and Caribbean Basin countries. Employment in U.S. 

apparel manufacturing has declined since NAFTA, most likely reflecting in part a shift of some 

operations to Mexico. 

6-2 

6-2
• ITC Group No. 34: Leather tanning and finishing.--The increase in U.S. exports of leather 

(principally for use in motor vehicle seats) resulted, in part, from NAFTA changes in rules of 

origin related to motor vehicle export performance requirements and changes in Mexico's 

Maquiladora Decree that allowed shipments of car seats and/or car seat covers directly from 

maquiladora operations to vehicle assembly plants in Mexico. Employment in the leather 

tanning and fmishing industry has declined despite increased exports as a result of the cyclical 

nature of the cattle/beef industry, closures in the face of environmental standards, and relocation 

of some facilities to low wage-rate countries. 

• ITC Group No. 35: Women's footwear. except athletic.--Increases in women's footwear imports 

from Mexico, mostly under production-sharing provisions, largely reflected uncertainty over 

MFN renewal for China as well as preferential U.S. tariffs under NAFTA. Employment 

decreased by one-third from 1993 to 1996 due to these two factors. 

• ITC Group No. 48: Household appliances.--Some leading U.S. appliance producers chose to 

expand production in Mexico to supply the growing Latin American market, with increased U.S. 

imports from Mexico reflecting rationalized production. Since employment grew in this sector it 

is difficult to qualitatively discern a negative employment effect. Overall, U.S. imports of 

household appliances from Mexico rose as a result of changes in Mexican investment laws that 

made it attractive to expand U.S.-Mexican joint ventures producing household appliances; 

changes in the Maquiladora Decree that enabled a phased-in increase in shipments from 

maquiladoras to the Mexican domestic market; and the 10-year staging of Mexican tariff 

reductions. 

• ITC Group No. 54: Motor vehicles.--U.S. exports of motor vehicles to Mexico increased as a 

result of NAFTA-related reductions in trade balancing requirements and tariffs. NAFTA has 

had a positive effect on the increase in industry employment. 

• ITC Group No. 55: Motor vehicle parts.--The sustained strength of the U.S. and Canadian 

motor vehicle markets, and investments in new plants and capacity expansions, have supported 

employment growth in the U.S. auto parts industry. Overall, U.S. imports of motor vehicle parts 

from Mexico rose in part because of NAFTA rules of origin requirements and a more liberalized 

foreign investment climate. 

Data on services industries are available only through the second year of NAFTA implementation 

(1995). The effect of NAFTA on U.S. investment in fmancial services is regarded as significant. NAFTA 

has raised foreign investment ceilings, thereby facilitating greater investment by U.S. banking and security 

firms in Mexico. 

Sectors with Negligible NAFTA Effects 

For 59 of the 68 sectors analyzed, NAFTA was determined to have had a negligible effect on 

increased trade flows because other factors predominated, including the strong U.S. economy. In about half 

of the sectors examined, the major trade increases were with Canada, and were primarily due to non-NAFTA 

6-3
factors; this is because U.S. import duties were already low sand the removal of nontariff barriers had 

generally been accomplished prior to NAFTA under the CFTA. In some sectors, U.S. and Canadian 

industries are extensively interrelated, with the parent company and subsidiaries in different countries. Such 

integration occurs, for example, in industries producing certain processed foods, chemicals, engines and other 

automobile parts, and electronics. 

In those sectors examined that had an increase in U.S. imports from Mexico, the effects of NAFTA 

.were generally minor because of the effect on the competitiveness of Mexican products due to the peso 

devaluation, low U.S. tariffs prior to NAFTA implementation, and/or the extensive use of Mexico's 

maquiladora program and U.S. production-sharing tariff treatment, which together encourage the use of 

assembly plants in Mexico by U.S. producers. In many sectors, U.S. exports to Mexico rose in 1994, but 

were then adversely affected by reduced demand stemming from the peso crisis in 1995, before trade in some 

sectors rebounded in 1996. Over the entire period, the change in the value of U.S. exports to Mexico was 

generally small as the peso crisis and associated exchange rate shifts significantly outweighed the effects of 

NAFTA. 

Data on services industries are available only through the second year of NAFTA implementation 

(1995), and largely reflect the effects of the peso devaluation on Mexico's economy. Overall, the effects of 

NAFTA on U.S. services trade are believed to be negligible. Regulatory changes in large industries, such as 

the telecommunication and financial services industries, appear to have exerted a stronger influence on trade 

than did NAFTA. The effect of NAFTA on U.S. investment is believed to be negligible in nearly all services 

industries (except fmancial services). 

Total NAFTA Trade for Sectors Examined 

Total trade (imports plus exports) with NAFTA partners is one indicator of how all NAFTA parties 

are benefiting from the Agreement. For each sector examined in this chapter, data on total U.S. trade with the 

world, Canada, and Mexico are presented. Several observations are apparent based on an aggregation of total 

trade for each sector (ITC Group Nos. 1-66' and services) into major commodity/services sector groupings 

(table 6-1). 

Since 1993, total trade has increased, both with respect to NAFTA partners and the rest of the world, 

in all broadly combined commodity sectors and services groups. The percentage increase in commodity trade 

with NAFTA partners has exceeded the percentage growth in trade with non-NAFTA partners in all groups, 

with the exception of trade in agricultural and food products with Canada and forestry products, paper and 

printing with Mexico. Trade in services (through 1995), however, exhibits some contrasts. Services trade 

with Mexico has declined since 1993, driven primarily by a reduction in U.S. travel receipts from Mexican 

tourists. Services trade with Canada increased, but at a slower rate than trade with non-NAFTA partners. 

5Several important products traded between Canada and the United States, including motor vehicle equipment, 

aircraft, and semiconductors, were free of duty prior to the implementation of the CFTA, while duties on most remaining 

products were eliminated in five stages during 1989-94. 

6Waste and scrap (ITC Group No. 67) and miscellaneous trade (ITC Group No. 68) are not included because they 

contain commodities that fall into multiple sector groupings. 

6-4 

6-4
Table 6-1 

Total trade for each sector (ITC Group Nos. 1-66 1and services) aggregated by major sector 

groupings, 1993 and 1996, absolute and percentage change 1993-96, for Mexico, Canada, and Restof-world 

Sector grouping/ 

trading partner 1993 1996 

Absolute 

change2 

Percentage 

change2 

Agricultural and food products: 

Million dollars -PercentMexico 5,042 7,780 2,738 54 

Canada 7,543 9,980 2,437 32 

Rest-of-world 36,836 50,443 13,598 37 

Chemicals and related products: 

Mexico 6,172 10,052 3,880 63 

Canada 17,025 25,977 8,951 53 

Rest-of-world 62,567 90,751 28,184 45 

Extractive and related industries: 

Mexico 7,954 13,715 5,761 72 

Canada 21,924 31,146 9,221 42 

Rest-of-world 60,625 72,945 12,319 20 

Forestry products, paper, and printing: 

Mexico 2,376 2,978 602 25 

Canada 18,586 25,305 6,720 36 

Rest-of-world 19,413 24,474 5,061 26 

General manufacturing industries: 

Mexico 5,400 8,485 3,084 57 

Canada 9,287 13,557 4,270 46 

Rest-of-world 46,781 59,962 13,181 28 

Machinery and equipment 

Mexico 39,469 67,977 28,507 72 

Canada 103,469 141,744 38,275 37 

Rest-of-world 323,761 434,669 110,908 34 

Textiles and apparel: 

Mexico 4,544 8,500 3,955 87 

Canada 3,513 5,386 1,873 53 

Rest-of-world 49,768 58,150 8,382 17 

Services: . 

Mexico 16,610 3 14,791 °-1,814 4-11 

Canada 28,100 330,327 42,227 48 

Rest-of-world 238,445 3280,948 442,503 4 18 

'Waste and scrap (ITC Group No. 67) and miscellaneous trade (ITC Group No. 68) are not included because they 

contain commodities that fall into multiple sector groupings. 

2Calculation based on unrounded numbers. 

3 The most recent data, shown here, is for 1995. 

4Change between 1993 and 1995. 

Source: Compiled by USITC staff based on official statistics of the U.S. Department of Commerce. 

6-5
ITC Group No. 1: Grain and Oilseeds' 

Table 6-1-1 

Grain and oilseeds: Summary_of NAFTA effects on selected U.S. indicators, 1993-96 

Performance 

indicator 

Performance measure during 

1993-96 NAFTA effect 

U.S. imports: 

From Mexico 

From Canada 

Up $8 million (100 percent) to $16 

million. 

Up $288 million (58 percent) to 

$782 million. 

Nealiaible. 1—Increased U.S. imports of grain and 

oilseeds from Canada and Mexico were not 

affected significantly by NAFTA. Factors beyond 

the NAFTA, such as government programs and 

rising U.S. demand for certain grains and 

oilseeds, were largely responsible for the increase 

in imports. U.S. imports from Canada rose 

sharply, but the decrease in already low rates of 

duty had little effect on this trade flow. 

U.S. exports: 

To Mexico 

To Canada 

• 

Up $1.6 billion (154 percent) to 

$2.7 billion. 

Up $45 million (23 percent) to $236 

million. 

Sianiflcant. 2—U.S. exports to Mexico of corn, 

wheat, and soybeans rose sharply, both in terms 

of volume and value. Under NAFTA, the 

conversion of import licensing to tariffs or a 

Mexican tariff-rate quota on grains, especially U.S. 

corn, and Mexican preferential access for U.S. 

wheat over non-NAFTA suppliers, aided U.S. 

grain sales to Mexico. The seasonal tariff on U.S. 

soybeans also declined. Two-thirds of U.S. 

exports to Canada consist of corn for which the 

Canadian tariff was already low under the CFTA; 

thus, NAFTA had only a negligible effect on U.S. 

exports and did little to reduce restrictive 

measures on U.S. wheat and barley in the 

Canadian market. 

Employment Down 34,000 (9 percent) to 

360,000 farms. 

Nealiaible.—Although employment data on U.S. 

cash grain farms are not available, the number of 

farms continued a long-term decline to an 

estimated 360,000 cash-grain farms in 1996. 

NAFTA had little effect on this decline. 

Average hourly wages Unknown. Nealiaible.—No known effects. Wage data are not 

meaningful for U.S. farmers. Farm receipts from 

crops increased 23 percent from $88 billion in 

1993 to $108 billion in 1996, according to data of 

the USDA.' Higher prices contributed a sizable 

portion of the increase. 

U.S. investment in 

Mexico 

Not available. Nealiaible.—No known effects. 4 

Investment in the 

United States 

Not available. Nealiaible.—No known effects. 4 

1The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry developments 

occurring during the period other than the NAFTA. Any NAFTA impact on performance indicators is insignificant or a minor influence. 

2The change in specified performance indicators from 1993 to 1996 is due in considerable measure to NAFTA as compared with any 

other economic factor or industry development occurring during the period. 

USDA, Agricultural Outlook, Jan.-Feb. 1997, p. 57. 

4The NAFTA effect upon investment cannot be determined with confidence due to the lack of detailed investment data. 

Source: Compiled by the staff of the U.S. International Trade Commission. 

' Standard Industrial Classification (SIC) Industry No. 0111, Wheat: 0115, Corn; 0116, Soybeans; and 0119, Cash 

Grain, Not Elsewhere Classified. 

6-6 

6-6
Summary of Sector Analysisz 

U.S. grain and oilseed exports to Mexico have increased significantly from 1993 to 1996, particularly sales of 

corn, wheat, and soybeans. The creation under NAFTA of minimum market access in the form of a tariff-rate 

quota (TRQ) for U.S. corn entering Mexico, and lower preferential Mexican duties on U.S. wheat aided U.S. 

exports of grain to Mexico. Factors beyond NAFTA also stimulated U.S. exports: low supplies of domestic 

wheat and corn during 1994-96 encouraged the Mexican government to loosen TRQs affecting these grains. 

Drought and unfavorable growing conditions in Mexico during these years reduced Mexican output of corn, 

wheat, sorghum, and soybeans. This resulted in a significant increase in Mexican imports beyond what was 

expected in 1993. 4However, U.S. exports of sorghum fell in part because of the higher U.S. shipments of 

corn to Mexico.' 

Although U.S. imports from Canada increased substantially from 1993 to 1996, U.S. tariff changes resulting 

from NAFTA had little effect on U.S. imports from NAFTA partners as the prior tariff rates were quite low. 

Non-tariff measures were largely unaffected by NAFTA; changes in supply and demand conditions benefitted 

Canadian grain being sold in the U.S. market. Canada has largely failed to liberalize its non-tariff measures 

affecting U.S. grain exports to their market. 

U.S. exports of grain and oilseeds to Canada did increase during 1993-96, but mostly as a result of higher 

prices of corn (the leading export) that were unrelated to NAFTA. The volume of U.S. corn exports to 

Canada rose by less than 6 percent during this period. The volume and value of U.S. exports of soybeans (the 

second leading export item) fell as Canadian soybean output rose. 

Under NAFTA, the market access provisions of the U.S.-Canada Free Trade Agreement continue to be in effect. 

NAFTA did establish bilateral market access provisions between the United States and Mexico and contains trilateral 

provisions on domestic support, export subsidies, rules of origin, safeguards, and phytosanitary standards for these 

products. 

3Views of parties that submitted written and/or oral testimony to the Commission in connection with this 

investigation are summarized in Appendix D. Copies of the hearing transcript and copies of all written testimony are 

being provided separately to USTR. 

4 1n 1993, the Commission estimated the tariff protection for Mexican corn was 112 percent AVE, and that the longterm elimination of this protection would increase U.S. exports of corn to Mexico by 381 percent. 

U.S. exports of corn and sorghum to Mexico both go largely into animal feed rations; thus, the higher corn exports 

in part reduced sorghum exports. 

6-7 

6-7
Key Provisions Affecting Sector 

Tariffs 

U.S. average trade weighted tariff equivalents 

(AVEs) in 1993 and 1996 for imports from (i 

percent): 

1993 1996 

Canada . 13 0.2 

Mexico 0.1 0.0 

All other 0.4 0.3 

Trade Flows 

Total trade in the grain and oilseed sector grew by 59 

percent ($9.2 billion) to $24.7 billion in 1996. Total 

U.S.-Canada trade for the sector increased by 49 

percent ($333 million) to $1.0 billion in 1996, 

whereas U.S.-Mexico trade for the sector grew by 

154 percent ($1.6 billion) to $2.7 billion in 1996. 

U.S. Imports — Mexico, a substantial net importer 

of grain and oilseeds, supplied about 2 percent of 

U.S. imports. Imports from Mexico doubled from 

$8.1 million 1993 to $16.2 million in 1996. 

Canada, along with the United States, the EU, 

Argentina, and Australia, is a leading world exporter 

of grain, particularly wheat and barley. From 1993 to 

1996, Canada remained the dominant supplier of 

grain and oilseeds to the U.S. market. U.S. imports 

from Canada (composed mainly of wheat, barley, 

oats, flaxseed, and dried peas and lentils) rose 58 

percent to $782 million in 1996, accounting for 87 

percent of total U.S. imports (table 6-1-2). NAFTA 

likely had little effect on U.S. imports from Canada 

since tariff rates were already substantially low 

because of the Canadian Free Trade Agreement 

(CFTA). Nontariff measures, particularly the 

influence of Canadian and U.S. agricultural support 

programs, have long played an important role in U.S. 

and Canadian grain trade. NAFTA had little effect 

on these programs. 

Phase-in period: Most tariffs with Canada were 

reduced`under the CFTA. Most tariffs with Mexico 

were eliminated with the implementation of 

NAFTA. 

POSt4VA'FTABOrderatid:aihrMeasUrei.. 

U S •••••••••••••• • • ••• ••• • -• • • • • • • • • were 

affeOting.c4h4diOn*heat.Andba0ey:espoos:: .0 the 

AV. ,..toriff1.4teCipota....00. Wheat . 

was iinposed;:for fit: seOtiOW22 (arop.. 

.":1994/9.5..):: . :.Caitad*rnaitIta*tatifflate.:quotaSi. 

On .qs.:barley,.. an4::o.ther restrictive theasures.;on 

U S: grain .Mexeqconlidted.::.4ripiraiOpnsing to 

.tariffs :or. . a tariff :rate qiiota for. gains 

End -use certificates were required under section 

3210 of the NAFTA sinceCanada imposes similar 

restrictions on U.S barley and wheat exports 

On a volume basis, U.S. imports from Canada peaked in 1994, a year of low wheat and feed grain supplies in 

the United States. Rising U.S. prices and higher commensurate sales of Canadian minor grains and oilseeds 

contributed to increasing imports in 1995-96. Canadian exports of grain to the United States declined on a 

volume basis as U.S. production recovered in 1995 and 1996, and as a U.S. tariff-rate quota was imposed on 

wheat during 1994-95. Sales of specialty Canadian grains and oilseeds (such as oats, peas and lentils, and 

flaxseed) continued to rise in the U.S. market because of strong demand and lower U.S. production. 

U.S. Exports — U.S. exports of grain and oilseeds to all countries reached a record $24 billion in 1996, up 60 

percent from 1993. Mexico became the third-leading market in 1996, behind Japan and the EU, passing 

Korea and Taiwan, which have traditionally been the third- and fourth-leading markets for these U.S. 

products. U.S. exports to Mexico, as a share of U.S. total world exports, rose from 7 percent in 1993 to 11 

percent in 1996. 

Mexico tightly controls and licenses imports of corn and wheat. Under NAFTA, the establishment of 

minimum access to the Mexican market with a tariff-rate quota (TRQ) for U.S. corn, and preferential access 

6-8 

6-8
for U.S. wheat over non-NAFTA suppliers aided U.S. grain sales to Mexico.' Since 1994, the Mexican 

seasonal tariff on U.S. soybeans was reduced from 15 to 10 percent, and the dutiable period shortened.' This 

encouraged the increase in U.S. soybean exports. Moreover, U.S. corn and soybean exports to Mexico 

benefitted from lower Mexican supplies during 1994-96 as weather and poor growing conditions reduced 

Mexican production. 

The Mexican crop shortfall increased U.S. grain and oilseed exports to Mexico beyond what was expected 

under NAFTA. The 1996 TRQ was 2.653 million metric tons (MMT) of U.S. corn, but Mexico allowed 

imports from the United States of 5.9 MMT. The U.S. Department of Agriculture projected that Mexico in 

1996/97 will import 3.7 MMT of corn, 55 percent below 1996 imports because of rising Mexican corn and 

sorghum production.' The Mexican TRQ for corn rises under NAFTA to 2.73 MMT in 1997. 

U.S wheat and corn have gained an increasing share of the Mexican market, with the U.S. share of corn 

consumption rising from 8 percent in 1993 to 18 percent in 1996. U.S. wheat supplied virtually all Mexican 

imports in 1996 as Canadian wheat lost substantial market share. U.S. wheat shipped on rail enjoys a 

transportation advantage in central portions of Mexico, and the availability of USDA credit guarantees also 

reinforces U.S. competitiveness. 

The $45-million rise in U.S. exports of grain and oilseeds to Canada during 1993-96 (two-thirds of which 

was corn) was attributable to higher U.S. corn prices. Canadian duties on U.S. corn were already low 

(generally less than 2 percent AVE) prior to NAFTA. U.S. corn exports to Canada rose by $62 million 

(63 percent) to $160 million during 1993-96. U.S. exports of soybeans (the second leading export item) 

dropped by about $34 million as Canadian soybean production rose sharply; U.S. soybeans have entered 

Canada duty-free for a number of years prior to NAFTA. U.S. exports of wheat and barley remained 

restricted through Canadian nontariff measures (these were unaffected by NAFTA), although U.S. exports of 

certified seed wheat did register an increase of $16 million during 1993-96. 

NAFTA Sector Specific Trade Actions 

There were several U.S. trade actions during 1994-96 that affected U.S.-Canadian grain trade. The USDA 

imposed on January 26, 1995 end-use certificates on Canadian barley and wheat entering the United States, 

under section 321(f) of NAFTA. 9The United States imposed a TRQ on wheat entering from Canada and 

elsewhere from September 1994 to September 1995 under section 22 of the Agricultural Adjustment Act.' 

This TRQ expired in September 1995. 

6Stephen P. Dees, Farmland Industries, written submission to the USITC, May 12, 1997, p. 2. 

7Mark Berg, American Soybean Association, written submission to the USITC, May 15, 1997, p. 1. 

Mexican corn imports during marketing year 1996/97, beginning October 1. U.S. Department of Agriculture, 

Foreign Agriculture Service, Grain and Feed Annual, U .S. Embassy, Mexico City, Mar. 11, 1997, p. 10. 

9 60 F.R. 5087 (Jan. 25, 1995). 

1°See U.S. International Trade Commission, Furfutyl Alcohol from China, South Africa and Thailand, USITC 

publication 2794, July 1994. 

6-9 

6-9
Table 6-1-2 

Grain and oilseeds: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 44,800.0 40,400.0 49,730.0 53,700.0 8,900.0 19.9 

Consumption (million dollars) . . . 30,474.1 27,404.5 30,719.6 30,790.8 316.8 1.0 

Trade data (million dollars):' 

Exports: 

Total 14,924.9 13,884.6 19,780.4 23,805.1 8,880.2 59.5 

To Mexico 1,056.0 1,467.6 1,335.6 2,686.2 1,630.1 154.4 

To Canada 191.4 135.6 190.0 236.0 44.6 23.3 

To non-NAFTA countries 13,677.5 12,281.3 18,254.9 20,883.0 7,205.5 52.7 

Imports: 

Total 599.0 889.1 770.0 896.0 297.0 49.6 

From Mexico 8.1 10.8 13.7 16.2 8.1 100.2 

From Canada 493.4 749.0 682.4 781.6 288.2 58.4 

From non-NAFTA countries 97.5 129.3 74.0 98.1 0.6 0.6 

Trade balance: 

Total 14,325.9 12,995.5 19,010.4 22,909.2 8,583.2 59.9 

With Mexico 1,047.9 1,456.8 1,321.9 2,669.9 1,622.0 154.8 

With Canada -302.0 -613.4 -492.4 -545.6 -243.6 -80.7 

With non-NAFTA countries 13,580.0 12,152.0 18,180.9 20,784.8 7,204.8 53.1 

Total trade: 

Total 15,523.9 14,773.7 20,550.4 24,701.1 9,177.2 59.1 

NAFTA partners 1,748.9 2,363.0 2,221.5 3,720.0 1,971.1 112.7 

With Mexico 1,064.2 1,478.4 1,349.2 2,702.4 1,638.3 153.9 

With Canada 684.7 884.6 872.3 1,017.6 332.9 48.6 

Import market share (percent): 

Total 2.0 3.2 2.5 2.9 0.9 (2) 

Mexico 0.0 0.0 0.0 0.1 0.0 (2) 

Canada 1.6 2.7 2.2 2.5 0.9 (2 

Non-NAFTA countries 0.3 0.5 0.2 0.3 0.0 (2 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.1 (3) (3) 0.0 -0.1 (2) 

Canada 1.3 1.2 0.5 0.2 -1.1 (2) 

All other 0.4 0.5 0.6 0.3 -0.1 (2) 

U.S. industry indicators: 

Employees (1,000 farms)` 394.0 383.0 372.0 360.0 -34.0 -8.6 

Production workers 

(1,000 persons) (5) (5) (5) (5) (6) (6) 

Average hourly wages of 

production workers (5) (5) (5) (5) (6) (6) 

Estimated by USITC staff. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent. 

4Estimated number of cash grain farms (adjusted from the 1992 Census of Agriculture). 

5Not available. 

6Not applicable. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

6-10 

6-10
ITC Group No. 2: Raw Cotton' 

Table 6-2-1 

Raw cotton: Summary of NAFTA effects on selected U.S. indicators, 1993-96 

Performance 

indicator 

Performance measure during 

1993-96 NAFTA effect 

U.S. imports: 

From Mexico 

From Canada 

Up $16 million (6,187 percent) to 

$17 million. 

No imports from Canada. 

Negligible.'—Increased imports from Mexico 

mainly reflected tight supplies and rising cotton 

prices in U.S. market. U.S. cotton quotas 

expanded for Mexico under NAFTA, allowing 

imports from Mexico to increase their share of the 

U.S. market to 0.4 percent. 

U.S. exports: 

To Mexico 

To Canada 

Up $68 million (33 percent) to $277 

minion. 

Up $42 million (72 percent) to $101 

million. 

Significant.2—Export growth to Mexico followed a 

large decline in Mexican cotton production in the 

early 1990s and, more recently, reflected 

increased Mexican demand for cotton as an input 

in the growing production of textile mill products 

for export to the United States under NAFTA. 

Export growth to Canada, which does not grow 

cotton, reflected increased Canadian production 

of textile products for export to the U.S. market. 

Canada is now the United States' largest foreign 

supplier of textile articles such as yarn and fabric. 

Acreage Acreage planted rose by 3 million 

acres to 17 million. 

Negligible.—U.S. production was affected by world 

prices, and supply and demand factors in 

countries like China and Egypt, not NAFTA 

partners. 

Average hourly wages Not available. Negligible. 

U.S. investment in 

Mexico 

U.S. sector investment in Mexico is 

believed to be negligible. 

Negligible.—NAFTA-related investment in textile 

mill production in Mexico has stimulated demand 

for U.S. cotton. 

Investment in the 

United States 

Sector capital expenditures believed 

to be small. There are extensive 

research and investment in pestresistant cotton seeds and in 

expanded and improved uses of 

cotton in woven and non-woven 

applications. 

Negligible. 

1 The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than the NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

2 The change in specified performance indicators from 1993 to 1996 is due in considerable measure to NAFTA as 

compared with any other economic factor or industry development occurring during the period. 

Source: Compiled by the staff of the U.S. International Trade Commission. 

Standard Industrial Classification (SIC) Industry No. 0131, Cotton, which covers cotton and cottonseed. This sector 

analysis will focus on cotton, not carded or combed, since it accounts for the vast majority of U.S. sector trade. Cotton 

seed is a byproduct of cotton ginning and is used as an oilseed to produce edible oil. 

6-11 

6-11
Summary of Sector Analysis' 

The United States is the world's largest exporter of cotton, accounting for 28 percent of the world total in 

crop year 1995/96. It supplies the vast majority of the cotton used in Canada, which does not grow any of the 

fiber, and in Mexico, a small producer whose cotton output is just beginning to recover from the steep 

declines of the early 1990s. U.S. foreign trade in cotton before 1996 consisted almost entirely of U.S. 

exports, which reached a record $3.7 billion in 1995 and then fell to $2.8 billion in 1996. Prior to 1995, U.S. 

cotton imports were negligible largely because of import quotas in place under section 22 of the Agricultural 

Adjustment Act that were designed to protect the USDA price support program for cotton from import 

interference. In 1996, however, cotton imports totaled $284 million, most of which came from Uzbekistan 

and Argentina. 

The increase in U.S. cotton imports is mainly the result of two non-NAFTA related events: (1) the conversion 

in 1995 of U.S. cotton import quotas to a tariff-rate quota system in order to implement U.S. obligations in 

made in the Uruguay Round, and (2) legislation enacted in 1996 that allowed for the importation of additional 

cotton at in-quota tariff rates under the tariff-rate quota system. The World Trade Organization Agreement 

on Agriculture required the United States to convert its section 22 quotas to tariffs. The Uruguay Round 

Agreements Act (URAA) converted the section 22 quotas on cotton to a tariff-rate quota system beginning in 

1995. Under this system, which is in effect a two-tiered tariff, a specified quantity of imported cotton (inquota imports) is allowed to enter at one rate of duty, and additional (over-quota) imports enter at a higher 

rate of duty. The Federal Agricultural Improvement and Reform Act of 1996 (the FAIR Act) allows the 

importation of additional quantities of cotton at in-quota rates of duty when U.S. cotton prices exceed the 

price of cotton available to foreign textile mills. The intent of the legislation (and predecessor legislation) is 

to provide U.S. textile mills with access to raw cotton at prices equivalent to those paid by their foreign 

competitors. Under the FAIR Act and predecessor legislation, USDA is authorized to expand the quota level 

when U.S. cotton prices exceed the average price quotation of the world's five cheapest growths of cotton by 

more than 1.25 cents per pound for 10 consecutive weeks. According to USDA, as of May 8, 1997, "after 80 

consecutive 10-week periods in which price conditions in the cotton market had caused import quotas to be 

announced weekly, U.S. price quotations have declined to the point that they have become competitive in 

world cotton trade.' 

In-quota tariff rates set by the URAA range from zero to about 2 cents per pound, and apply to about 

225,000 bales of imported cotton (plus about 49,000 bales allowed for Mexico under NAFTA), subject to 

restrictions on country of origin, staple length, and type of cotton; much higher over-quota tariffs apply to 

imports in excess of the amount subject to the in-quota tariffs. The in-quota amounts permitted will increase 

each year until 2000, when they will be capped at about 350,000 bales, which, with the NAFTA amount, 

yields a total of about 400,000 bales (equivalent to about 4 percent of 1996 U.S. mill consumption). 4 

'Under NAFTA, the market access provisions of the U.S.-Canada Free Trade Agreement continue to be in effect. 

NAFTA did establish bilateral market access provisions between the United States and Mexico and contains trilateral 

provisions on domestic support, export subsidies, rules of origin, safeguards, and phytosanitary standards for these 

products. 

3U.S. Department of Agriculture, Farm Service Agency, "USDA Clarifies Status of Upland Cotton Special Import 

Quotas," press release No. 1493.97, May 8, 1997. Each of the quotas announced during those 80 weeks was about 

200,000 bales in size, the amount of cotton estimated to be consumed by U.S. textile mills in 1 week's time. 

Carol Skelly and Janise Zygmont, "Background and Perspective on U.S. Cotton Imports," Cotton and Wool: 

Situation and Outlook Yearbook, U .S. Department of Agriculture, Economic Research Service, CWS-1996, Nov. 1996, 

p. 18. 

6-12 

6-12
U.S. sector trade with Mexico consists almost entirely of U.S. exports; sector imports from Mexico in 1996 

of almost $17 million supplied less than 1 percent of the U.S. market. Sector exports to Mexico have grown 

rapidly during the 1990s, about doubling from $71 million in 1991 to $141 million in 1992 and then rising 

continually to a record $277 million in 1996. The export growth in the early 1990s occurred as Mexico's 

cotton production was falling sharply. After totaling about 300,000 metric tons (MT) in crop year 1988/89, 

Mexican cotton output fell to 179,000 MT in crop year 1991/92 and to a low of 24,000 MT in crop year 

1993/94, before rebounding to 99,000 MT a year later and to a forecasted 191,000 MT in crop year 1995/96. 

The decline in Mexican cotton output in the early 1990s was attributable to Mexico's land reforms, 

elimination of government input subsidies, and falling world cotton prices. As world cotton prices rebounded 

in 1994 and 1995, coupled with the introduction of a Mexican Government program to aid cotton farmers, 

Mexico's cotton production began to recover. 

The growth in U.S. sector exports to Mexico also reflected increased Mexican demand for U.S. cotton. Trade 

sources report that several mills recently opened along the U.S.-Mexican border in Mexico and that managers 

of these mills were accustomed to processing U.S. cotton and tended to use it when the price, aided by 

proximity which reduces shipping costs, is advantageous. In addition, the increased demand for U.S. cotton 

in Mexico also reflected growing production of textile mill products there for shipment to the United States 

under NAFTA. Part of the growth in U.S. imports of textile mill products from Mexico since the enactment 

of NAFTA in 1994 may have come at the expense of shipments from Asia. For example, whereas U.S. 

imports of blue denim fabric from Mexico, a major end-use for cotton, rose from $2 million in 1993 to $107 

million in 1996 (almost all of which entered free of duty under NAFTA), shipments from China fell from $25 

million to less than $5 million. U.S. denim imports 

from Hong Kong and Taiwan, after rising to $80 

million and $32 million in 1995, fell to $61 million 

and $27 million in 1996. 

The growth in U.S. sector exports to Canada reflects 

increased demand for cotton, partly for the production 

of textiles for export to the United States. Canada is 

the United States' largest foreign supplier of textile 

articles such as yam and fabric. 

Trade Flows 

Overall U.S. sector trade rose by nearly $1.5 billion 

during 1993-96 to $3 billion. U.S.-Mexico sector 

trade grew by $85 million to $294 million and U.S.-

Canada trade (limited to U.S. exports) rose by $42 

million to $101 million. 

U.S. Imports — Overall U.S. sector imports rose from 

negligible levels in 1993-95 to $284 million in 1996. 

Expanded tariff quotas under the FAIR Act allowed 

cotton imports in excess of the URAA-authorized 

tariff quota level to enter at the lower, in-quota tariff 

rates. 

Key Provisions Affecting Sector 

Tariffs 

US:: trade-weighted tariff equivalents 

(AVEs)in 1993 and 1996 for imports from (in 

P ercent): 

1993 1996 

Canada . Not applicable. 13.5 

Mexico 0.82 0.00 

All other 0.51 0.01 

Phase-in period: Most tariffs with Canada reduced 

under the CFTA. Most tariffs with Mexico 

eliminated with implementation of NAFTA. 

Pre-NAFTA border and other measures 

Weed and pest controls. 

Post-NAFTA border and other measures 

Chapter 7; and Sanitary and 

Phytosanitary Measures, Section B, particularly 

possible reviews conducted`in compliance with 

NAFTA Article 714 (Equivalence) and 715 (Risk 

Assessment and Appropriate Level of. Protection 

Phase m was immediate. 

6-13 

6-13
U.S. sector imports from Mexico in 1996 totaled almost $17 million, or 6 percent of the total. Mexico was 

the fourth-largest source of U.S. sector imports after Uzbekistan, Argentina, and Australia. 

U.S. Exports — Overall U.S. sector exports rose by $1.2 billion during 1993-96 to almost $2.8 billion. 

Sector exports to Mexico rose by 33 percent, or by $68 million, during 1993-96 to $277 million; most of the 

increase occurred in 1996. Mexico was the fourth-largest market for U.S. sector exports, with 10 percent of 

the 1996 total, trailing China, Japan, and Indonesia. U.S. sector exports to Canada, the sixth-largest export 

market for U.S. cotton, rose by 72 percent, or by $42 million, during 1993-96, to just over $100 million. 

Canada accounted for slightly less than 4 percent of total U.S. sector exports. 

Other factors — Information on investment in the Mexican raw-cotton-producing sector is not available. 

According to the USDA and industry sources, however, a number of investments occurred in textile 

production facilities in Mexico. These were from U.S. and other sources seeking to benefit from the trade and 

investment liberalization of NAFTA. The new production facilities particularly favored the use of U.S. 

cotton.' 

5Cotton, Inc., 1996 10-K Report; according to Cotton Inc., more than 40 mills, manufacturers, and retailers in 

Mexico now use the Seal of Cotton for 100-percent cotton products, or the Natural Blend trademark for textile products 

containing at least 60 percent cotton. 

6-14 6-14
Table 6-2-2 

Raw cotton: Selected U.S. sector data, 1993-96 

Item 1993 1994 

Shipments' (million dollars) 4,521.0 6,797.0 

Consumption (million dollars) . . 2,962.5 4,108.2 

Trade data (million dollars): 

Exports: 

Total 1,559.3 2,695.7 

To Mexico 208.7 223.7 

To Canada 58.5 63.1 

To non-NAFTA countries . . 1,292.0 2,408.9 

Imports: 

Total 0.7 6.9 

From Mexico 0.3 0.0 

From Canada 0.0 

From non-NAFTA countries 0.5 6. 

Trade balance: 

Total 1,558.5 2,688.8 

With Mexico 208.5 223.7 

With Canada 58.5 63.1 

With non-NAFTA countries 1,291.5 2,402.0 

Total trade: 

Total 1,560.0 2,702.5 

NAFTA partners 267.5 286.8 

With Mexico 209.0 223.7 

With Canada 58.5 63.1 

Import market share (percent): 

Total 0.0 0.2 

Mexico 0.0 0.0 

Canada 0.0 (5) 

Non-NAFTA countries 0.0 0.2 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.8 

Canada (5) R 

All other 0.3 0.1 

U.S. industry indicators: 1 

Acreage planted (million) 13.4 13.7 

Production workers 

(1,000 persons) 

Average hourly wages of 

production workers 

Absolute 

change 

Percentage 

change 

1995 1996 1993-1996 1993-1996 

6,551.0 6,524.0 2,003.0 44.3 

2,831.8 4,049.8 1,087.3 36.7 

3,730.0 2,758.2 1,198.9 76.9 

208.2 276.9 68.2 32.7 

92.6 100.7 42.2 72.1 

3,429.2 2,380.5 1,088.5 84.3 

10.8 284.0 283.3 (2) 

2.6 16.6 16.3 (2) 

0.0 (3) (3) 

(4) 

8.1 267.4 266.9 (2) 

3,719.2 2,474.2 915.7 58.8 

205.5 260.3 51.9 24.9 

92.6 100.7 42.2 72.1 

3,421.1 2,113.1 821.6 63.6 

3,740.7 3,042.2 1,482.2 95.0 

303.4 394.3 126.7 47.4 

210.8 293.5 84.5 40.4 

92.6 100.7 42.2 72.1 

0.4 7.0 7.0 (4) 

0.1 0.4 0.4 (4) 

0.0 (5) (5) 

(4) 

0.3 6.6 6.6 (4) 

0.0 

3.7 

0.0 

13.5 

-0.8 

13.5 

(4 ) 

0.1 (5) -0.3 

16.9 16.7 3.3 24.6 

(6) (6) 

(6) 

(6) 

(7) (7) 

(6) (6) (6) (6) (7) (7) 

Compiled from official statistics of the U.S. Department of Agriculture. 

2Over 1,000 percent 

3Less than $50,000. 

4Not meaningful for purposes of comparison. 

5Less than 0.05 percent 

6Not available. 

Not applicable. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

6-15 

6-15
ITC Group No. 18: Textile Mill Products/ 

Table 6-18-1 

Textile mill products: Summary of NAFTA effects on selected U.S. indicators, 1993-96 

Performance 

indicator 

Performance measure during 

1993-96 NAFTA effect 

U.S. imports: 

From Mexico 

From Canada 

Up $466 million (247 percent) to 

$655 million. 

Up $547 million (75 percent) to $1.3 

billion. 

Significant.'—Import growth from Mexico reflects 

its competitive labor costs and reduced duties 

under NAFTA. Much of the increased imports 

from Canada is reported to be intrafirm trade. 

U.S. exports: 

To Mexico 

To Canada 

Up $452 million (63 percent) to $1.2 

billion. 

Up $556 million (37 percent) to $2.1 

billion. 

Significant.— NAFTA has encouraged use of U.S. 

fabric in apparel made in Mexico for the U.S. 

market. The export increase to Canada reflected 

the economic recovery there and the inability of 

Canadian mills to meet local demand. 

Employment Down 49,200 (7 percent) to 

683,000 employees. 

Nealiaible.2—The increased use of U.S. fabrics in 

apparel made in Mexico for the U.S. market 

helped minimize the loss of textile mill 

employment. The U.S. Department of Labor has 

certified 3,409 workers eligible for trade 

adjustment assistance as a result of NAFTA. 3 

Average hourly wages Up $0.78 to $9.93. Nealiaible 

Labor productivity '1 Up 10 percent. Nealiaible 

U.S. investment in 

Mexico 

Several U.S. firms have made 

significant investments to build or 

acquire manufacturing and 

distribution facilities in Mexico. 

Nealiaible.—These investments are to supply the 

Mexican market, third countries with which Mexico 

has free trade agreements, and the U.S. market, 

but not to displace current U.S. production. 

Investment in the 

United States 

Up $1.1 billion during 1993-95 to 

$3.6 billion. 

Nealiaible.—However, the increased use of U.S. 

fabrics in imports of apparel from Mexico has 

helped spur investment. 

1 The change in specified performance indicators from 1993 to 1996 is due in considerable measure to the NAFTA as 

compared with any other economic factor or industry development occurring during the period. 

2 The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than the NAFTA. Any NAFTA impact on performance indicators is insignificant 

or a minor influence. 

3 U.S. Department of Labor, NAFTA Office. Three-fourths of the workers in SIC 22 certified for trade adjustment assistance 

eligibility were employed by firms producing knitwear. Although these job losses are certified to be the result of plant relocations 

to Mexico or Canada and/or increased imports from these countries, NAFTA may not have been the cause of plant relocation 

decisions or the reason for the increase in imports. 

Productivity was calculated by dividing industry shipments by production worker hours for 1993-95. Data compiled from the 

U.S. Bureau of the Census, Annual Survey of Manufactures, 1994 and 1995. 

Source: Compiled by the staff of the U.S. Intemational Trade Commission. 

Standard Industrial Classification (SIC) Major Group 22, Textile Mill Products, and SIC 2824, Manmade Organic 

Fibers. Among the products in SIC 22 is knitwear (SIC 225, Knitting Mills), such as hosiery, underwear, and sweaters 

made in mills in which the fabric was knitted. SIC 22 also includes industry Nos. 2211, Broadwoven Fabric Mills, 

Cotton; 2221, Broadwoven Fabric Mills, Manmade Fiber and Silk; 223, Broadwoven Fabric Mills, Wool; 224, Narrow 

Fabric and Other Smallwares Mills; 226, Dyeing and Finishing Mills; 2273, Carpets and Rugs; 228, Yam and Thread 

Mills; and 229, Miscellaneous Textile Goods (such as coated fabrics, tire cord, and cordage). 

6-16 

6-16
Summary of Sector Analysis' 

U.S. sector trade with Canada and especially Mexico has increased significantly under NAFTA. Sector trade 

with Mexico doubled during 1993-96 and that with Canada rose by 49 percent. Most of the increased trade 

was in broadwoven fabrics, which dominate sector trade with the NAFTA partners, and manmade fibers. In 

addition, U.S. trade with Mexico in hosiery (a knitwear item in SIC 22) increased significantly. 

The U.S. sector, especially producers of fabrics, has benefited from the increased use of U.S. fabric in apparel 

and other made-up textile goods assembled in production-sharing operations in Mexico. (This development 

is further described in the apparel section of this report.) The use of U.S. materials in imports of apparel and 

other textile goods assembled in Mexico from parts cut in the United States' doubled during 1993-96 to $2.8 

billion, more than twice the $1.2 billion of textile mill products exported there in 1996. 

2Views of parties that submitted written and/or oral testimony to the Commission in connection with this 

investigation are summarized in Appendix D. Copies of the hearing transcript and copies of all written testimony are 

being provided separately to USTR. 

3These parts are classified in SIC 23. 

6-17 

6-17
Key Provisions Affecting Sector 

Tariffs 

U.S. average trade-weighted tariff;equivalents 

(AVEs) in 1993 and 1996 for imports (in percent 

1993 1996 

Canada 4.0 1.6 

Mexico 9.0 3.5 

All other 10.3 9.6 

Phase-in period: Tariffs with Canada will be phased 

out by 1998 under the CFTA. Most tariffs with 

Mexico will be eliminated by 1999 and the 

remainder by 2003. 

Pri.,.4N4Fr4bOrder .:tint,Other:: :Measare.s.: . US::clubtas:::00..n4or&:fniiii:MeNiCo:...:::' 

Post..NAFrit ..Order and.:90.et Measitres 

eliminated; in .:1994- the..:rest 

Tariff FraferenCe.Levels 

•:(r.p4s)10:erOlirnited:qua t t es of goads from 

Mexico`: and:: Canada:tllat: : :are riade;from foreign 

materials..tcientef at:NAFTA:Oreferentiattariffs • 

:::Canada.7 s:TPL;for wool atiparetis virtually all:filled . 

•:. with tailored :elothirig••.:Suelt. as 

• contend that.:SinCe: thesegarmentS:do .not:contain: 

U S fabric ::andthat the itiipOrtS:...:havedisplaeedU.S.,:i. 

prOductior of tdilarectclothiiig;V:5::::aP.Oaret..firins: 

! : !•and their::fahrie: suprilierS:•:lia*.eirieUrte4Stibstantial 

:Moore;!eXeeuti*eicc • 

..•preSideritAmerieanTextileManufaetUrers 

: .:•lnStifute;:•Writtens0000.0.*:vslic;:m.4y.. 

20, 1997... MOO.see flze ;apparel secfion in this 

Trade Flows 

Despite considerable growth in U.S. sector trade 

with Canada and Mexico, the U.S. sector trade 

surplus with each NAFTA partner changed by less 

than 3 percent during 1993-96. U.S. sector trade 

with the NAFTA partners rose by $2.0 billion, or 

by 64 percent, while U.S. sector trade with the rest 

of the world grew by $1.3 billion, or by 13 percent. 

U.S. Imports — Canada was the leading source of 

U.S. sector imports during 1993-96, with its share 

of the total growing from 10 to 15 percent in the 

period. U.S. imports from Canada during 1993-96 

rose by 75 percent, or by $547 million. Two-thirds 

of the import increase consisted of broadwoven and 

circular knit fabrics, manmade fibers, and carpets 

and rugs. Much of the increased imports of the 

fibers and carpets are believed to be intrafirm trade. 

U.S. sector imports from Mexico slightly more than 

tripled during 1993-96 to $655 million. As a result, 

Mexico's share of sector imports grew from 3 

percent of the total in 1993 to 8 percent in 1996, 

when it was the third-largest supplier after Canada 

and Korea. Broadwoven fabrics dominate U.S. 

imports from Mexico, both in absolute terms and in 

terms of growth. The other leading import from 

Mexico was manmade fibers, mainly involving 

intrafirm trade. 

The growth in U.S. sector imports from Mexico 

also reflected a substantial increase in hosiery 

shipments, from $1.6 million in 1993 to $70.2 

million in 1996. One-half of these imports 

consisted of hosiery knit in Mexico by U.S. hosiery 

producers, which stated that competitive labor costs 

in Mexico combined with reduced duties under 

NAFTA are sufficient to allow them to benefit from sourcing part of their goods there.' The rest of the 

imports from Mexico was hosiery assembled in production-sharing operations (i.e., seaming, dyeing, and 

packaging) and returned to the United States duty-free under HTS heading 9802.00.90. Under NAFTA, 

apparel and other textile goods assembled in Mexico from U.S.-made and -cut fabric and dyed, bleached, or 

otherwise fmished there may enter the United States free of duty under HTS heading 9802.00.90. For similar 

imports from other countries, such fmishing constitutes further fabrication and disqualifies the goods from a 

partial duty exemption under heading 9802 even though they contain U.S. parts. Hosiery accounted for twothirds of the sector's 1996 imports from Mexico under that tariff heading. 

° Industry official, telephone interview by USITC staff, Mar. 6, 1997. 

6-18 6-18
U.S. Exports — Canada and Mexico were the principal markets for U.S. sector exports during 1993-96. In 

1996, Canada accounted for 27 percent of sector exports and Mexico accounted for 15 percent. U.S. textile 

firms have expanded and are planning to add capacity solely to produce goods for export to the NAFTA 

partners.' 

U.S. sector exports to Canada grew by 37 percent during 1993-96 to $2.1 billion. The export growth was 

spread among several products. Spun yarns and coated fabrics showed the largest absolute gains, of $59 

million and $58 million, respectively, reflecting the recovery of Canada's economy following the recession of 

the early 1990s and the inability of Canadian mills to meet local demand. Other products showing substantial 

increased shipments, also attributed to the improving Canadian economy, were broadwoven and circular knit 

fabrics, and carpets and rugs.' These products, along with manmade fibers, made up the largest shares of 

U.S. sector exports to Canada. The fabrics accounted for 33 percent of the 1996 total, manmade fibers for 20 

percent, and carpets for 13 percent. 

U.S. sector exports to Mexico grew by 63 percent during 1993-96 to $1.2 billion. Most of the export growth 

occurred in broadwoven and circular knit fabrics, which accounted for 42 percent of sector shipments to 

Mexico in 1996. Much of these fabric shipments to Mexico are believed to be used in the production of 

apparel for the U.S. market, which benefit from NAFTA trade preferences.' Exports of manmade fibers to 

Mexico, which accounted for 11 percent of the 1996 total, were up by 56 percent, to $132 million. Although 

making up a smaller share of trade, exports of spun yarn and sewing thread showed among the strongest 

percentage increases, up 322 and 287 percent, respectively. These articles are also largely believed to be used 

in the production of goods for the U.S. market. 

U.S. exports of hosiery to Mexico fell from $11 million in 1993 to $6 million in 1995, and then increased to 

$31 million in 1996. Industry sources say the 1996 increase in these exports consisted mainly of parts of 

pantyhose for assembly, dyeing, and packaging, and for subsequent return to the United States.' A small 

share of U.S. hosiery exports to Mexico consisted of socks sent by U.S. producers to Mexico for dyeing and 

other labor-intensive finishing processes and packaging. These socks are then returned to the U.S. market as 

NAFTA-eligible goods. Industry sources expect this trade to increase as U.S. tariff rates are phased out 

under NAFTA. 

Other Factors 

USITC Investigation No. 332-373, Advice on Providing Temporary Duty-Free Entry for Certain Suits and 

Suit-Type Jackets from Mexico. HTS heading 9802.00.90 provides for duty-free entry for apparel and other 

textile goods assembled in Mexico from fabric wholly formed and cut in the United States. A loss of 

domestic supply of certain interlining fabrics used in the assembly of suits and suit-type jackets had precluded 

U.S. firms from importing the garments under this HTS provision. U.S. textile and apparel industry officials 

asked that the President authorize temporary duty-free entry for these suits and suit-type jackets until such 

5Carlos Moore (ATM). 

6 1n April 1992, Canada imposed antidumping duties of 12 percent on most imports of tufted carpets from the United 

States for 5 years. Subsequently, U.S. carpet exports to Canada declined from $265 million in 1991 to $213 million in 

1993 and then gradually increased to $253 million in 1996. 

' U.S. imports of apparel and other made-up textile goods from Mexico under NAFTA that are not wholly made of 

fabric formed and cut in the United States rose from $187 million in 1994 to $671 million in 1996. See section of this 

report on apparel and other made-up textile goods. 

'Industry officials report that U.S. hosiery exports to Mexico before NAFTA were mostly shipments by large U.S. 

retailers to stock the same brands in their Mexican stores as are in their U.S. stores. 

6-19 

6-19
interlining fabrics could be made in the United States. 9On November 19, 1996, the United States Trade 

Representative (USTR) requested that the USITC provide advice on the probable effect on the U.S. industry, 

workers in the industry, and consumers, of providing temporary duty-free entry for certain suits and suit-type 

jackets from Mexico containing imported interlining fabrics. On January 27, 1997, the USITC released its 

report, advising that temporary duty-free entry for certain suits and suit-type jackets from Mexico would not 

affect U.S. shipments of similar domestically produced suits and suit-type jackets, associated U.S. 

employment, or prices to customers." 

On April 23, 1997, the interagency Committee for the Implementation of Textile Agreements (CITA) 

announced in the Federal Register that the United States intends to request consultations with Mexico and 

Canada under Section 7 (2) of Annex 300-B of NAFTA to consider amending the rules of origin for warp 

pile fabrics of manmade fibers classified in HTS subheading 5801.35. The consultations will focus on a 

short supply of NAFTA-eligible rayon filament yarns classified in HTS subheadings 5403.31 and 5403.32 

and used in the production of the subject fabric." 

9The loss of the ability to use the HTS 9802.00.90 provision affects the U.S. textile mill industry because it 

discourages the use of U.S. fabrics in the garments. 

1°U.S. International Trade Commission, Advice on Providing Temporary Duty -Free Entry for Certain Suits and 

Suit-Type Jackets from Mexico (investigation No. 332-373), USITC publication 3012, Jan. 1997. 

11 62 F.R. 19739, Apr. 23, 1997. 

6-20 6-20
Table 6-18-2 

Textile mill products: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments (million dollars) 82,646.0 82,675.0 88,352.0 87,103.0 4,457.0 5.4 

Consumption (million dollars) . . . 84,101.1 84,109.5 89,466.6 87,899.2 3,798.1 4.5 

Trade data (million dollars): 

Exports: 

Total 5,643.9 6,257.4 7,094.0 7,615.6 1,971.7 34.9 

To Mexico 721.2 898.9 881.1 1,172.8 451.6 62.6 

To Canada 1,520.3 1,688.5 1,909.5 2,075.9 555.5 36.5 

To non-NAFTA countries 3,402.4 3,670.1 4,303.4 4,367.0 964.6 28.3 

Imports: 

Total 7,099.0 7,691.9 8,208.6 8,411.8 1,312.8 18.5 

From Mexico 188.7 266.0 473.2 654.7 466.0 247.0 

From Canada 726.3 919.9 1,080.3 1,273.5 547.1 75.3 

From non-NAFTA countries 6,184.0 6,506.1 6,655.2 6,483.6 299.7 4.8 

Trade balance: 

Total -1,455.1 -1,434.5 -1,114.6 -796.2 658.9 45.3 

With Mexico 532.5 632.9 407.9 518.0 -14.4 -2.7 

With Canada 794.0 768.6 829.2 802.4 8.4 1.1 

With non-NAFTA countries -2,781.5 -2,836.0 -2,351.7 -2,116.6 664.9 23.9 

Total trade: 

Total 12,742.9 13,949.4 15,302.6 16,027.5 3,284.6 25.8 

NAFTA partners 3,156.5 3,773.2 4,344.0 5,176.8 2,020.3 64.0 

With Mexico 909.9 1,164.9 1,354.3 1,827.5 917.6 100.9 

With Canada 2,246.6 2,608.3 2,989.8 3,349.3 1,102.7 49.1 

Import market share (percent): 

Total 8.4 9.1 9.2 9.6 1.1 

Mexico 

Canada 

0.2 

0.9 

0.3 

1.1 

0.5 

1.2 

0.7 

1.4 

0.5 

0.6 

1) 

1 

'

) 

( 

Non-NAFTA countries 7.4 7.7 7.4 7.4 0.0 (1 ) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 9.0 6.2 4.5 3.5 -5.5 ( 1 ) 

Canada 4.0 2.8 2.3 1.6 -2.4 (1 ) 

All other 10.3 10.2 9.6 9.6 -0.7 (1) 

U.S. industry indicators: 2 

Employees (1,000 persons) . . . 732.1 728.1 714.7 682.9 -49.2 -6.7 

Production workers 

(1,000 persons) 609.5 611.6 598.6 573.9 -35.6 -5.8 

Average hourly wages of 

production workers $9.15 9.38 9.67 9.93 0.78 8.5 

'Not meaningful for purposes of comparison. 

2Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

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ITC Group No. 19: Apparel and Other Finished Textile Products' 

Table 6-19-1 

Apparel and other finished textile products: Summary of NAFTA effects on selected U.S. indicators, 1993-96 

Performance 

indicator 

Performance measure during 

1993:96:':' NAFTA effect 

U.S. imports: 

From Mexico 

From Canada 

Up $2.2 billion (91 percent) to $4.7 

billion. 

Up $571 million (93 percent) to $1.2 

billion. 

Significant.'—Growth in imports from Mexico 

reflects increased use of production sharing by 

U.S. firms as a result of preferential NAFTA 

treatment for garments assembled there from 

U.S.-formed and U.S.-cut fabric. Imports from 

major Asian producers, which seldom contain 

U.S. materials, have declined. 

U.S. exports: 

To Mexico 

To Canada 

Up $836 million (73 percent) to $2.0 

billion. 

Up $179 million (30 percent) to 

$785 million. 

Significant.—Growth in exports to Mexico, which 

consisted mostly of garment parts for assembly, 

reflects expansion of production-sharing trade, as 

noted above. Peso devaluation also enhanced 

price competitiveness of production sharing by 

reducing Mexican labor costs in dollar terms by 

almost one-half. 

Employment Down 138,100 (14 percent) to 

851,300 employees. 

Number of production workers 

down 130,300 (16 percent) to 

698,400. 

Significant.—Ongoing employment decline has 

accelerated since NAFTA's enactment, reflecting 

a shift in assembly operations to Mexico. The 

U.S. Department of Labor has certified 21,768 

workers for trade adjustment assistance under 

NAFTA.2 

Average hourly wages Up $0.82 (12 percent) to $7.89. Sianificant —Much of the increase is among 

higher-skilled and higher-paying cutting jobs; 

lower-paying sewing jobs are moving offshore, 

largely to Mexico and Caribbean Basin countries. 

Productivity' Up 8.9 percent during 1993-95. Negligible` 

U.S. investment in 

Mexico 

Not available. Significant.—Trade sources indicate that U.S. 

apparel investment in Mexico has grown 

significantly due to NAFTA. 

Investment in the 

United States 

Up by $233 million during 1993-95 

to $1.2 billion. 

Negligible.—Cannot separate NAFTA investment 

from overall industry investment. 

The change in specified performance indicators from 1993 to 1996 is due in considerable measure to NAFTA as compared with any 

other economic factor or industry development occurring during the period. 

2U.S. Department of Labor, NAFTA Office. Although these job losses are certified to be the result of plant relocations to Mexico or 

Canada and/or increased imports from these countries, NAFTA may not have been the cause of plant relocation decisions or the reason 

for the increase in imports. 

3Productivity was calculated by dividing industry shipments by production worker hours for 1993-95. Data compiled from the U.S. 

Bureau of the Census, Annual Survey of Manufactures, 1994 and 1995. 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry developments 

occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is insignificant or a minor influence. 

Source: Compiled by the staff of the U.S. International Trade Commission. 

' Includes products classified in Standard Industrial Classification (SIC) 23, which includes establishments producing 

apparel and other textile products by cutting and sewing purchased fabrics and related materials, such as leather and fur. 

The nonapparel products included in SIC 23 are homefumishings such as curtains, sheets, and towels; textile bags; 

canvas and related products; special pleating, stitching, and embroidery performed for the apparel trade; automotive and 

apparel trimmings; and fabricated textile products, such as automobile safety belts. Apparel products made in knitting 

mills, such as underwear and sweaters, are covered in the section of this report on textile mill products, SIC 22. 

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Summary of Sector Analysis' 

U.S. sector trade with Mexico has expanded substantially under NAFTA, as trade preferences under the pact, 

along with the devaluation of the Mexican peso, have enhanced the relative competitiveness of Mexico. From 

1993 to 1996, U.S. sector imports from Mexico rose by 91 percent to $4.7 billion and U.S. sector exports 

grew by 73 percent to $2.0 billion. Most of the sector trade with Mexico involves production sharing, in 

which U.S. firms ship garment parts cut to shape in the United States to Mexico for assembly and subsequent 

return to the U.S. market. The acceleration of this trade in recent years largely reflected a provision in 

NAFTA implemented by HTS heading 9802.00.90, which provides duty-free entry to U.S. imports of apparel 

and other textile articles assembled in Mexico from fabric both made and cut in the United States. 3These 

articles also enter free of quota under NAFTA. In addition, the 50-percent devaluation of the Mexican peso 

in December 1994-January 1995 further enhanced Mexico's competitive position by effectively reducing 

dollar prices of Mexican goods in the U.S. market. 

NAFTA trade preferences, along with the peso devaluation, have contributed to a diversion of sector trade to 

Mexico from other low-cost areas. U.S. trade with the traditional major producers in Asia has declined since 

1993. NAFTA has also encouraged U.S. investors to redirect new investment from the traditional Caribbean 

Basin Initiative (CBI) suppliers to Mexico. Employment in the U.S. apparel industry declined significantly 

during 1993-96, and part of this decline is attributable to U.S. apparel companies' moving assembly 

operations to Mexico and/or switching from using contractors in the United States to those in Mexico. 

Consequently, the lower-paying sewing jobs are moving offshore, while the higher-skilled and -paying cutting 

jobs remain in the United States. 

U.S. sector trade with Canada also expanded significantly under NAFTA from 1993 to 1996. U.S. imports 

from Canada almost doubled to nearly $1.2 billion during the period, in part because Canadian producers of 

tailored garments have better access to lower-cost wool fabric than do U.S. apparel producers. Meanwhile, 

U.S. exports to Canada grew by 30 percent to $785 million, reflecting the competitive strength of U.S.-made 

towels, which are produced in highly-automated processes, and intracompany trade in motor vehicle seat 

belts. 

2Views of parties that submitted written and/or oral testimony to the Commission in connection with this 

investigation are summarized in Appendix D. Copies of the hearing transcript and copies of all written testimony are 

being provided separately to USTR. 

'Most U.S. sector imports from Mexico made of NAFTA-originating fabric--that is, fabric made in the United States, 

Mexico, or Canada--enter quota free and at reduced duties. Most sector imports from Mexico made of fabric originating 

in non-NAFTA countries are not eligible for any NAFTA preferential duty treatment. Quotas on nonoriginating sector 

goods will be phased out under NAFTA by 2004. 

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Trade Flows 

U.S. sector trade with the world rose by $10.2 

billion or by 25 percent from 1993 to 1996, while 

U.S. sector trade with NAFTA partners rose by $3.8 

billion or by 79 percent. U.S. sector trade with 

Mexico rose by $3.1 billion or by 85 percent during 

1993-96 and sector trade with Canada rose by $749 

million or by 61 percent. (U. S. sector trade with the 

rest of the world increased by $6.4 billion or by 18 

percent during the period.) 

U.S. Imports — U.S. sector imports from Mexico 

grew by 91 percent from $2.4 billion in 1993 to $4.7 

billion in 1996, fueled by the increased use of 

production-sharing operations by U.S. apparel 

companies as a result of preferential customs 

treatment under NAFTA. The growth in imports 

from Mexico was largely at the expense of the 

traditional Asian suppliers, as sector imports from 

Hong Kong declined by 1 percent from 1993 to 

1996; those from Korea, by 39 percent; and those 

from Taiwan, by 11 percent. Sector imports from 

China rose by only 2 percent during the period. 

These four Asian countries' combined share of total 

sector imports fell from 44 percent in 1993 to 34 

percent in 1996, while Mexico's share rose from 7 

to 11 percent. In value terms, Mexico replaced 

Hong Kong as the second-largest supplier behind 

China. 

Key Provisions Affecting Sector 

Tariffs 

U.S. average trade-weighted tariff equivalents 

(AVEs) in 1993 and 1996 for imports from;( . 

 percent): 

Canada 

Mexico 

All other 

Phase-in period: Tariffs with Canada will be 

phased out by 1998 under the CFTA. Most tariffs 

with Mexico will be eliminated by 1998 and the 

remainder by 2003. Also for Mexico, tariffs were 

eliminated on January 1, 1994, for goods emeriti 

under HTS heading 9802.00.90. 

Pre-NAFTA border and other measures 

U.S. quotas on imports frOnt Mexico. 

Post-NAFTA border and other measures 

U.S. quotas on all NAF'TA-originating goods from 

Mexico, including those entering under I-ITS 

heading 9802.00.90, eliminated on January 1, 

1994; the remainder are being eliminated over a 10- 

year period. Tariff preference levels (TPLs) on 

specified goods from both Mexico and Canada 

permit entry under NAFTA rates of duty for the 

goods to the amount specified;in the TPL. 

The growth in Mexico's sector shipments to the 

United States also displaced imports from CBI 

countries. Traditionally, Mexico and CBI countries 

have competed with one another for assembly work from U.S. apparel firms!' The balance of apparel 

competition between the CBI countries and Mexico changed when NAFTA entered into force in 1994. In the 

4 years before NAFTA, U.S. sector imports from the CBI countries and Mexico each grew by slightly more 

than 20 percent a year. Since 1994, imports from Mexico have consistently outpaced those from the CBI 

countries.' In 1996, the value of sector imports from Mexico rose by 27 percent over the 1995 level, while 

those from the CBI countries rose by only 11 percent. Whereas garments assembled in Mexico from "fabric 

° The vast majority of apparel imports from Mexico and the CBI countries consist of garments assembled from U.S. 

components and entered under HTS headings 9802.00.90 and 9802.00.80, respectively. The use of production-sharing 

operations by U.S. apparel companies has grown rapidly in recent years as U.S. producers, faced with a highly 

competitive retail environment, have expanded their use of offshore assembly operations in Mexico and the CBI 

countries to cut costs in order to compete with Asian imports. 

Although not duty and quota free, most apparel production-sharing imports from CBI countries are eligible for 

preferential market access under liberal quotas and also benefit from reduced duties under HTS heading 9802.00.80. 

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6-24
wholly formed and cut in the United States" enter free of duty and quota under NAFTA, similar products 

from CBI countries enter under liberal "guaranteed access levels" (GALs) but are still subject to duty on the 

value added offshore.' More recently, industry sources have indicated that with NAFTA, Mexico has a 

competitive advantage and is increasingly becoming the destination for new investment in production-sharing 

operations. The peso devaluation further affected the competitive balance between Mexico and CBI countries 

by effectively reducing dollar prices of Mexican goods in the U.S. market. 

Production-sharing trade annually accounted for 85 to 90 percent of the total value of sector imports from 

Mexico during 1994-96. Just over 70 percent of these production-sharing imports consisted of apparel made 

of U.S.-formed and U.S.-cut fabrics and entered free of duty under NAFTA-created HTS heading 

9802.00.90, as well as free of quota under NAFTA. Several U.S. apparel companies indicated that the dutyfree and quota-free benefits under NAFTA had the most significant effect on their decision to assemble 

garments in Mexico.' NAFTA duty-free treatment for garments assembled in Mexico from U.S.-made and 

U.S.-cut fabric applies even if the garments undergo certain fmishing processes in Mexico after assembly, 

such as stone-washing and wrinkle-free processing. For imports under HTS heading 9802.00.80 from CBI 

countries or any other country, treatment of apparel in any such manner constitutes further fabrication and 

disqualifies the treated garments from a partial duty exemption even though they contain U.S. parts. 

NAFTA trade preferences have enhanced the position of Mexico in the U.S. apparel market. For men's dress 

shirts of woven cotton fabric, table 6-19-2 shows the cost advantage of shipping U.S.-formed and U.S.-cut 

fabric to Mexico for assembly.' Of the three production scenarios, the average f o.b. cost for the shirt from 

India is the lowest at $4.91. However, when import costs 9are added to arrive at the landed cost to the 

importer/retailer, the landed cost of the shirt assembled in Mexico of U.S. components is 13 percent lower 

than the landed cost of the shirt made in India and 28 percent lower than the cost of the U.S.-made shirt. 

Most of the cost difference between the f.o.b. costs and the landed costs of the shirts made in India and 

assembled in Mexico of U.S. components is the duty, freight and transportation costs, and inventory carrying 

costs. 

Table 6-19-2 

Cost comparison for a man's cotton dress shirt made in the United States of U.S. fabric, made in India of 

Indian fabric, and assembled in Mexico of U.S.-made and U.S.-cut fabric 

Item United States India U.S.-Mexico 

Total f.o.b. cost/shirt $8.55 $4.91 $5.72 

Import costs 0.00 $2.18 $0.47 

Landed costs to retailer $8.55 $7.09 $6.19 

Source: Werner International, Inc., New York. 

6 1n general, duties on goods entered under HTS heading 9802.00.80 are assessed only on the value added offshore 

and not on the value of the U.S. components sent abroad for assembly. 

'Industry officials, telephone interviews by USITC staff, Apr. 21, 1997. 

Raoul Verret, Werner International Management Consultants, "Competitiveness: The International Challenge," 

speech given at International Textile Manufacturers Federation (ITMF) Annual Conference, Washington, DC, Sept. 25, 

1996, pp. 16-17. 

'Import costs include land and freight costs, insurance, customs duties, customs clearance, agency and buying office 

fees, warehousing costs, extra refurbishing/separation costs, and inventory carrying costs. 

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6-25
U.S. imports of non-production-sharing apparel entering under NAFTA increased even more rapidly, by 

about 260 percent, from $187 million in 1994 to $671 million in 1996, and their share of sector imports from 

Mexico rose from 6 to 14 percent. More and more U.S. apparel producers are opting to send NAFTAeligible fabric to Mexico for both cutting and sewing as a result of decreasing U.S. duties and quota-free 

treatment for such garments. 

The textile and apparel sector, along with the electronics and transportation sectors, is one of the principal 

sectors in Mexico's production-sharing industry. 1°Of the three sectors, employment in Mexico's textile and 

apparel sector grew the fastest in 1996, rising by 37 percent. Employment in the Mexican textile and apparel 

sector, which totaled 124,500 workers during the first 8 months of 1996, has been increasing steadily since 

NAFTA became effective, growing by 16 percent in 1994 and by 27 percent in 1995. 

U.S. sector imports from Canada rose by 93 percent during 1993-96 to $1.2 billion. Although Canada also 

benefits from preferential market access under NAFTA, it is at a competitive disadvantage regarding labor 

costs. 11Increases in sector imports from Canada occurred in several major product groups--namely, men's 

and boys' suits, coats, shirts, and trousers; children's outerwear; women's blouses and shirts; and fabricated 

textile products, such as automobile seat belts. 

The U.S. textile and apparel industry has expressed concern over significant increases in imports of men's 

wool suits, suit-type jackets, and trousers from Canada. Members of the U.S. textile and apparel industry 

stated that they are at a competitive disadvantage because these garments from Canada do not contain U.S. 

fabrics and U.S. producers of tailored apparel must pay significantly higher rates of duty on the imported 

wool fabrics they use than Canadian tailored apparel producers. U.S. industry members contend that these 

imports from Canada have displaced U.S. production of tailored clothing and have caused a substantial loss 

of sales.' In general, for apparel to be eligible for preferential treatment, it must be made of North American 

fabric which, in turn, must be made of North American originating yarn -- a "yarn forward" rule. Canada was 

able to negotiate an exception to the rule in the form of a tariff preference level (TPL) for specified quantities 

of wool products that did not meet the stricter NAFTA origin rule. Under the TPL, Canada could export 

wool apparel to the United States at the preferential NAFTA rates even if the wool articles were made of 

fabric or yarn originating in non-NAFTA countries. With this preferential treatment, Canada replaced Italy 

as the leading foreign supplier of men's suits to the United States.' Both U.S. and Canadian producers of 

men's tailored clothing import a large portion of the wool fabrics used in their tailored suit production; 

however, Canada's tariff on non-North American wool fabric is 8 percent ad valorem, while the comparable 

1997 U.S. tariff is 32.8 percent. 

U.S. Exports —U.S. sector exports to Mexico rose by 73 percent during 1993-96, to $2.0 billion. Mexico 

was the largest country destination for U.S. sector exports; approximately two-thirds of these exports 

"The Maquiladora Industry: Still Going Strong," Business Frontier, El Paso Branch, Federal Reserve Bank of 

Dallas, Issue 4-1996. 

" Based on data for the summer of 1995, hourly labor costs in the apparel industry in Canada averaged $10.07, 

compared with $9.62 in the United States and $1.61 in Mexico. Werner International Management Consultants, 

"Hourly Labor Cost In the Apparel Industry," information obtained directly from Werner International. 

12Carlos Moore, Executive Vice President, American Textile Manufacturers Institute, written submission to the 

USITC, May 20, 1997. 

13Canada filled 100 percent of the TPL for wool apparel in 1995, and filled 96 percent in 1996, based on Customs 

data as of Feb. 28, 1997. 

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6-26
consisted of garment parts for assembly there." The growth in U.S. sector exports to Mexico slowed 

considerably in 1995, following the peso devaluation. Much of the 1995 slowdown reflected a decline in U.S. 

exports of finished apparel to Mexico, the prices for which almost doubled on average in the Mexican market 

as a result of the peso devaluation. Exports of garment parts to Mexico also declined in early 1995 as U.S. 

apparel producers remained cautious about the effects of the peso devaluation on the stability of the Mexican 

economy and the political climate. Ultimately, the peso devaluation enhanced the competitiveness of 

production-sharing operations in Mexico, as labor costs in dollar terms dropped by almost one-half. 

Canada is the second-largest market for U.S. sector exports of finished sector goods (as opposed to garment 

parts), following Japan. U.S. exports to Canada rose by 30 percent during 1993-96 to $785 million. During 

the period, between one-quarter and one-third of the total value of these exports consisted of textile products 

such as homefurnishings (largely towels) and automobile safety seat belts and parts thereof. The exports of 

automobile safety seat belts and parts thereof reflected intracompany trade between U.S. and Canadian plants 

of U.S. automobile companies. U.S. exports of apparel to Canada were concentrated in men's and boys' 

shirts and trousers and children's outerwear. 

Employment 

U.S. sector employment has decreased for many years, but the decline has accelerated recently. Between 

1993 and 1996, total employment declined by 138,100 persons (14 percent) to 851,300, and the number of 

production workers declined by 130,300 (16 percent) to 698,400 workers. By contrast, they each had 

declined by 5 percent during the previous 4-year period, 1990-93. The largest annual decreases occurred in 

1996, when the total number of employees and the number of production workers each fell by 9 percent, the 

largest such declines in at least 10 years. Since January 1, 1994, the U.S. Department of Labor has certified 

21,768 workers, which represent 16 percent of the lost jobs in the sector, to be eligible for trade adjustment 

assistance under NAFTA. 

The recent decline in U.S. sector employment is attributable in part to U.S. apparel producers' shifting the 

assembly part of their production to Mexico and the CBI countries.' The trend is likely to continue. 

According to a recent press report, the Haggar Corporation announced in early 1997 that it will be closing 

three U.S. sewing plants in order to compete with other apparel producers that have moved operations to 

foreign countries. 16These plant closings will result in the lay off of 1,200 workers. Guess, Incorporated, a 

large Los Angeles apparel company, reportedly is shifting production from the United States to Mexico and 

South America." Because Guess, Inc., does not own sewing plants, but uses independent sewing contractors, 

it can easily switch to sewing contractors in Mexico. Economists at the University of California in Los 

Angeles stated that growth in employment in apparel manufacturing in Southern California has slowed 

considerably. In 1996, annual growth in apparel manufacturing jobs slowed to 1,000, compared with 

increases of 11,000 jobs annually in 1994 and 1995. 18 

" Most of the remaining sector exports to Mexico consisted of finished apparel and homefurnishings like sheets, 

towels, and curtains. The potential exists for increased shipments of homefumishings since a major U.S. producer has 

acquired distribution facilities in Mexico. Carlos Moore (ATMI). 

15See Investment in Mexico section below for more on the movement of apparel assembly to Mexico. 

16Steven H. Lee, "Dallas-Based Haggar Corp. to Halve Sewing Plant Workforce in Rio Grande Valley," The Dallas 

Morning News, NewsEDGE/LAN: Mar. 4, 1997. 

17Stuart Silverstein, George White, and Mary Beth Sheridan, "Guess Will Shift Production to Mexico, South 

America," Los Angeles Times, NewsEDGE/LAN: Jan. 15, 1997. 

is 

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Wages 

The average hourly earnings in the U.S. industry increased by 12 percent from $7.07 in 1993 to $7.89 in 

1996. This followed an 8-percent increase in average hourly earnings during 1990-93. Much of the 1993-96 

increase reflected the increased concentration of relatively higher-skilled and higher-paying cutting jobs in the 

United States and the movement of lower-paying sewing jobs to Mexico and the CBI countries. 

Investment 

Investment in the United States 

The available data on U.S. sector investment (SIC 23) indicate that new capital expenditures increased on an 

annual basis by 13 percent in 1994, to almost $1.1 billion, and by 10 percent in 1995, to $1.2 billion. These 

were the largest such annual increases in at least 5 years. The recent increase is attributable to several 

factors. To become more responsive to changes in the marketplace, U.S. apparel companies have been 

purchasing innovative technology to further develop quick response (QR) programs, streamline their 

distribution centers, and upgrade their U.S. cutting operations and other U.S. production processes. NAFTA 

is believed to have had only a negligible effect on these expenditures. 

Investment in Mexico 

Data are not available on investment in Mexico's textile and apparel sector. However, U.S. sector investment 

in production-sharing operations in Mexico is likely to have increased significantly under NAFTA, given the 

rapid growth in sector imports from there. U.S. apparel producers have been shifting the assembly part of 

their production to Mexico in recent years. The shift slowed somewhat in early 1995 as U.S. companies 

awaited the effect of the peso devaluation on the stability of the Mexican economy. It picked up again in mid1995 as reassured U.S. companies sought the labor cost advantages of Mexico's wage rates, which, in dollar 

terms, were cut almost in half by the peso devaluation. Stimulated by continued intense competition in the 

U.S. retail market and fueled by Mexico's low labor rates and NAFTA, U.S. apparel producers continue to 

move apparel production processes--primarily the sewing operations--to Mexico. Mexico's Investment 

Council President, Jaime Alatorre, stated that foreign investors are "rapidly regaining confidence in Mexico," 

and added that major flows of investment are expected for 1996-97, especially in automobiles, electronics, 

and textiles.' 

Other Factors 

On October 20, 1995, a NAFTA binational panel affirmed the U.S. Department of Commerce's remand 

results in Commerce's administrative review of a countervailing duty order on leather wearing apparel 

from Mexico (NAFTA Secretariat File No. USA-94-1904-02). As a result, the Commerce Department 

amended the final results of its 1992 administrative review of the countervailing duty order on such apparel 

for purposes of the entries subject to the panel's review. The results of Commerce's 1992 administrative 

review had been challenged before the panel by Maquiladora Pieles Pitic and Finapiel de Mexico, 

exporters of the subject merchandise. In a remand order on July 19, 1995, the panel directed Commerce 

to conduct a review of the 1992 entries of the two firms. Commerce subsequently determined that the two 

companies did not receive any benefits during 1992 from the programs that it examined, and submitted the 

19"Mexico, Canada To Oppose a Helms-Burton Act On Three Fronts," La Jornada (in Spanish), Sept 10, 1996, p. 

41, FBIS-LAT-96-180. 

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results of its redetermination to the panel on September 19, 1995. For additional information, see the 

notice published by Commerce in the Federal Register of January 26, 1996 (61 F.R. 2492). 

HTS heading 9802.00.90 provides for duty-free entry for apparel and other textile goods assembled in 

Mexico from fabric wholly made and cut in the United States. A loss of domestic supply of certain 

interlining fabrics used in the assembly of these suits and suit-type jackets in Mexico has precluded U.S. 

firms from importing the garments under this HTS provision. U.S. textile and apparel industry officials 

asked that the President authorize temporary duty-free entry for these suits and suit-type jackets from Mexico 

until such interlining fabrics could be made in the United States. On November 19, 1996, the United States 

Trade Representative (USTR) requested the USITC to provide advice on the probable effect on the U.S. 

industry, workers in the industry, and on consumers, of providing temporary duty-free entry for certain suits 

and suit-type jackets from Mexico containing imported interlining fabrics. On January 27, 1997, the USITC 

released its report,' finding that temporary duty-free entry for certain suits and suit-type jackets from Mexico 

would not affect U.S. shipments of similar domestically produced suits and suit-type jackets, associated U.S. 

employment, or prices to consumers. No action on the industry request had been taken as of May 7, 1997. 

" USITC Investigation No. 332-373, Advice on Providing Temporary Duty-Free Entry for Certain Suits and SuitType Jackets from Mexico, USITC publication 3012, Jan. 1997. 

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Table 6-19-3 

Apparel and other finished textile products: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percent 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' million dollars) 70,985.9 73,258.5 73,547.1 74,341.0 3,355.1 4.7 

Consumption (million dollars) . . . 101,028.2 105,674.9 107,658.5 109,404.8 8,376.5 8.3 

Trade data (million dollars): 

Exports: 

Total 5,432.6 6,144.4 7,096.7 8,010.8 2,578.2 47.5 

To Mexico 1,139.0 1,411.3 1,566.9 1,974.6 835.6 73.4 

To Canada 606.0 671.7 768.4 784.5 178.5 29.5 

To non-NAFTA countries . . . 3,687.6 4,061.4 4,761.4 5,251.7 1,564.1 40.7 

Imports: 

Total 35,474.9 38,560.8 41,208.1 43,074.6 7,599.6 21.4 

From Mexico 2,449.1 2,876.9 3,673.1 4,670.3 2,221.2 90.7 

From Canada 615.6 788.1 986.6 1,186.1 570.6 92.7 

To non-NAFTA countries 32,410.3 34,895.8 36,548.4 37,218.1 4,807.8 14.8 

Trade balance: 

Total -30,042.3 -32,416.4 -34,111.4 -35,063.8 -5,021.4 -16.7 

With Mexico -1,310.1 -1,465.6 -2,106.2 -2,695.7 -1,385.6 -105.8 

With Canada -9.5 -116.4 -218.2 -401.6 -392.1 (2) 

Non-NAFTA countries -28,722.7 -30,834.4 -31,787.0 -31,966.4 -3,243.7 -11.3 

Total trade: 

Total 40,907.5 44,705.2 48,304.8 51,085.4 10,177.8 24.9 

NAFTA partners 4,809.7 5,748.1 6,995.0 8,615.6 3,805.9 79.1 

With Mexico 3,588.1 4,288.2 5,240.0 6,644.9 3,056.8 85.2 

With Canada 1,221.6 1,459.8 1,755.0 1,970.6 749.1 61.3 

Import market share (percent): 

Total 35.1 36.5 38.3 39.4 4.3 (3) 

Mexico 2.4 2.7 3.4 4.3 1.8 (3) 

Canada 0.6 0.7 0.9 1.1 0.5 (3) 

Non-NAFTA countries 32.1 33.0 33.9 34.0 1.9 (3) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 3.9 3.6 1.5 0.9 -3.0 (3) 

Canada 7.8 6.7 5.8 4.4 -3.4 (3) 

All other 13.8 13.6 13.1 12.6 -1.2 (3) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 989.4 974.1 930.4 851.3 -138.1 -14.0 

Production workers 

(1,000 persons) 828.7 815.0 771.6 698.4 -130.3 -15.7 

Average hourly wages of 

production workers $7.07 7.32 7.62 7.89 0.82 11.6 

Shipments data are compiled from the U.S. Bureau of the Census, Annual Survey of Manufactures, by adding up all 

4-digit SIC totals. 

2The trade deficit worsened by more than 1,000 percent. 

3Not meaningful for purposes of comparison. 

4Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

6-30 

6-30
ITC Group No. 34: Leather Tanning and Finishing' 

Table 6-34-1 

Leather tanning and finishing: Summary of NAFTA effects on selected U.S. indicators, 1993-96 

Performance 

indicator 

Performance measure during 

1993-96 NAFTA effect 

U.S. imports: 

From Mexico 

From Canada 

Up $24 million (73 percent) to $57 

million. 

Up $11 million (49 percent) to $34 

million. 

Necilioible. 1 —The increase in tanned leather 

imports from Mexico was the result of the 

devaluation of the peso in December 1994. The 

devaluation reduced Mexican labor costs at 

tanneries and made such leather more pricecompetitive in the U.S. market The increase in 

imports from Canada was in response to retail 

and fashion trends. 

U.S. exports: 

To Mexico 

To Canada 

Up $77 million (113 percent) to 

$145 million. 

Down $9 million (16 percent) to $48 

million. 

Sionificant 2—U.S. exports of upholstery leather 

increased because certain U.S. producers of 

leather car seat furniture and components have 

shifted their leather seat-cover-cutting operations 

to Mexico in order to meet the export performance 

requirements as outlined in NAFTA for the 

automobile industry. U.S. exports to Canada 

declined because of a drop in Canadian demand 

for U.S.-origin full grained leather. 

Employment Down 2,500 to 13,000 for all 

employees. 

Nealictible.—The increase in U.S. exports of 

upholstery leather to Mexico had a negligible 

impact on stemming the decline in U.S. 

employment of the leather tanning industry 

because there was no increase in the production 

of tanned leather. U.S.-made upholstery leather 

that was formerly shipped to U.S. facilities of car 

seat producers was redirected to their subsidiaries 

in Mexico. Employment in the leather tanning 

and finishing industry has declined despite 

increased exports as a result of the cyclical nature 

of the cattle/beef industry, plant closures in the 

face of environmental standards, and the 

relocation of some facilities to low wage-rate 

countries. 

Average hourly wages Up $1.57 (16 percent) to $11.51 Nealiaible.-NAFTA had only a negligible effect on 

the wages of the U.S. leather tanning industry. 

'The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

2 The change in specified performance indicators from 1993 to 1996 is due in considerable measure to NAFTA as 

compared with any other economic factor or industry development occurring during the period. 

SIC Industry No. 3111, Leather Tanning and Finishing, includes most types of leather. 

6-31 

6-31
Performance : 

indicator :: 

PerfOrMance meatUredUring 

. 199396' : 'NAFTA effect 

Labor productivity Up by 4.0 percent from 1993 to 

1995. 

Nealiaible.—NAFTA had a negligible effect on the 

productivity of U.S. producers of tanned leather. 

Increases in productivity were the result of largevolume hide packers using wet-blue processing 

for hides. The wet-blue process eliminates both 

the brine curing and fleshing process traditionally 

performed by tanneries. 

U.S. investment in 

Mexico 

Less than $10 million Neolioible.—Investment in Mexico by U.S. leather 

tanneries has been in cutting and labor-intensive 

sewing operations to supply motor vehicle seat 

producers that have assembly operations in 

Mexico. 

Investment in the 

United States 

Less than $1 million. Nealiaible.—Most Investment in the United States 

is not NAFTA-related, but is oriented to the 

development of relatively new markets, such as 

supplying leather to footwear producers in Asia, 

and compliance with environmental regulations. 

Source: Compiled by the staff of the U.S. International Trade Commission. 

Summary of Sector Analysis 

NAFTA had a significant effect on increasing U.S. exports to Mexico of upholstery leather during 1993-1996 

because certain U.S. automobile furniture manufacturers' have shifted some of their leather cutting operations 

to subsidiaries in Mexico in order to meet the performance requirements as outlined in NAFTA. 3As a result, 

the destination for a portion of U.S. shipments of upholstery leather shifted from domestic car seat factories 

to facilities in Mexico. The increase in U.S. exports of upholstery leather had no effect on production, 

employment, or productivity in the U.S. tanning industry. The decline in U.S. employment was the result of 

the following three factors: (1) the cyclical nature of the beef industry which expands or contracts the number 

of cattle slaughtered in response to changes in beef prices; (2) several tanning firms closing because they 

could not afford to retrofit plants to meet strict environmental standards; and (3) the relocation of a number 

of facilities to countries with low-cost labor.' 

NAFTA had a negligible effect on the increase in U.S. imports of leather from NAFTA partners during 1993-

1996. Growth in total U.S. sector imports was principally the result of increased U.S. demand for 

upholstered leather furniture and a shift in U.S. production to higher-priced leather footwear. Non-NAFTA 

partners accounted for the largest part of the growth in sector imports. The increase in U.S. imports from 

2 Car seats account for the bulk of the leather used in the production of motor vehicle furniture and interiors. Car seat 

production has three stages. First, the pieces of a seat cover are cut from cloth, leather, or vinyl. The pieces are then 

sewn into a seat cover. Lastly, the sewn seat cover is fitted over a foam upholstered, metal-seat frame and thereby 

transformed into a complete car seat. The sewing of the seat cover is the most labor intensive stage of production. The 

seat cover accounts for over half of the total value of the complete seat. A car seat can be completely cut, sewn, and 

assembled at one location (usually near a car assembly location) or done in three distinct stages (i.e., fabric cutting in the 

United States, sewing seat covers in Mexico, and final assembly in Canada, the United States, or Mexico). 

By meeting the performance requirements as outlined in NAFTA for the motor vehicle industry, U.S. vehicle 

producers with assembly plants in Mexico are allowed to sell more cars in Mexico. 

U.S. International Trade Commission, Industry and Trade Summary on Hides, Skins, and Leather, USITC 

publication 3015, Feb. 1997, p. 8. 

6-32 

6-32
Key Provisions Affecting Sector 

:Tariffs 

U.S> acierage trade-weighted tariff equivalents 

(AVEs) in 1993 and 1996 for imports (in percent 

1993 1996 

Canada. . 

Mexico 

All other 

0.02 0.05 

0.72 0.08 

2.70 /12 

Phase-in period: tariffs with Canada will be 

elimmated by 1998 under- CFTA. MoSt tariffs with 

'Mexico will be eliminated by.2003 middle rest by 

200$ under NAFTA. 

• Pre-NAFTA Border and Other. measures 

None. 

Pos148r4FTABordercaut other measures 

Meki06.::plan to liniitte impOrtatiOnof niotWear 

anclfOOtWear,:pgo to certain;. ports. 

Mexico was the result of certain Mexican tanneries seeking new U.S. markets to offset reduced demand on 

the part of Mexican shoe manufacturers. Shoe manufacturers in Mexico had lost market share to imports 

from China in 1994 and saw consumer demand erode as a result of the devaluation of the peso in December 

1994 and the ensuing economic downturn in 1995. 

Trade Flows 

Total U.S. sector trade in tanned leather rose by $96 million (6 percent) to $1.6 billion during 1993-1996. 

Growth in total U.S.-Canada trade for the sector rose at a somewhat slower rate, by $2 million (3 percent) to 

$82 million during this period, while such trade with Mexico doubled to $202 million. 

U.S. Imports—U.S. sector imports of tanned leather rose by 

$173 million (23 percent) to $910 million from 1993 to 

1996. Non-NAFTA partners accounted for most of the 

increase as such U.S. imports rose by $138 million (20 

percent) to $830 million during 1993-96 in response to 

growing demand and industry adjustments. U.S. imports 

from Mexico rose by $24 million during the period to $57 

million as a result of both the increase in U.S. demand for 

upholstery leather for use in furniture and the U.S. footwear 

industry shifting from low-priced mass-produced footwear 

to higher-priced, better-quality footwear that incorporates 

more shoe upper leather.' Although U.S. tariffs on most 

qualifying goods of Mexico were immediately eliminated 

under NAFTA, the effect of the tariff reductions was 

negligible because prior to NAFTA, the trade-weighted 

effective average rate of duty on imports from Mexico was 

only 0.7 percent. Eighty-five percent of imports from 

Mexico entered free of duty under the GSP in 1993. 

U.S. imports of leather from Canada was principally for 

footwear soles in 1994 and for apparel in 1996. The 

increase in imports of leather for these markets was due, in 

part, to growing U.S. consumption of leather apparel, 

reflecting increased personal income and retail and fashion 

trends. The trade-weighted effective average rate of duty on sector imports from Canada before NAFTA was 

0.02 percent. Most tariffs on leather from Canada were either already free on an MFN basis prior to 

NAFTA, or were reduced to zero under the CFTA. 

U.S. Exports—NAFTA had a significant effect on increasing U.S. exports to Mexico of tanned upholstery 

leather for use in the production of car seat covers. U.S. exports of upholstery leather rose by $73 million 

(223 percent) to $105 million during 1993-96 and accounted for virtually all of the increase in total sector 

exports to Mexico. Exports rose as certain manufacturers of motor vehicle furniture and interiors, important 

customers for tanners of upholstery leather, shifted some of their leather seat-cover-cutting operations to 

Mexico, allowing U.S. vehicle producers in Mexico to meet the export performance requirements as outlined 

in NAFTA for the motor vehicle industry (Annex 300(a)). 

5Upper leather is shoe leather used for the upper portions of the shoe. 

6-33 

6-33
By cutting the leather in Mexico, instead of the United States, before sewing the cut pieces into car seat 

covers in Mexico, the U.S.-origin leather undergoes a change in tariff classification and allows the car seat 

covers to be considered goods of Mexican origin. Because NAFTA allows maquiladoras to sell an increasing 

portion of their production directly to customers in Mexico, the seat covers (or complete seats) can be 

shipped to motor vehicle assembly plants in Mexico. U.S. vehicle producers with assembly plants in Mexico 

can include the cost of the seat cover (or the complete seat) in the calculation of the portion of their vehicle's 

total production cost that is accounted for by Mexican-origin inputs. By meeting the value-added criteria of 

Mexico's export performance requirements under NAFTA, U.S. motor vehicle producers are allowed to sell 

more cars in Mexico.' 

U.S. exports to Canada rose by $8 million in 1994 to $65 million due to a sharp increase in exports of 

upholstery leather, but declined by one-quarter to $47 million in 1995. The decrease in exports in 1995 

reflected a contraction in the Canadian market for various types of full grain leather. Full grained leather is 

further processed into upholstery leather.' U.S. exports to Canada are largely determined by demand by the 

Canadian footwear and personal leather goods industries, which follows retail and fashion trends. 

6 See discussion of motor vehicle furniture, ITC Group No. 21. 

Full grained leather is the hair side of a split hide and contains the natural leather grain. 

6-34 6-34
Table 6-34-2 

Leather tanning and finishing: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 3,217.9 3,064.3 3,121.3 2,813.0 -404.9 -12.6 

Consumption (million dollars) . . . 3,188.4 3,231.3 3,391.3 3,033.4 -155.0 -4.9 

Trade data (million dollars): 

Exports: 

Total 777.6 700.5 684.0 700.5 -77.1 -9.9 

To Mexico 67.9 68.3 109.9 144.7 76.8 113.1 

To Canada 56.9 65.3 47.1 47.6 -9.2 -16.3 

To Non-NAFTA countries 652.8 566.9 527.0 508.2 -144.6 -22.1 

Imports: 

Total 748.1 867.5 954.0 920.9 172.8 23.1 

From Mexico 32.8 55.4 67.7 56.8 24.0 73.3 

From Canada 22.9 29.6 34.9 34.2 11.3 49.3 

From non-NAFTA countries 692.4 782.5 851.4 829.9 137.5 19.9 

Trade balance: 

Total 29.5 -167.0 -270.0 -220.4 -249.9 (2) 

With Mexico 35.1 12.8 42.2 87.8 52.7 150.2 

With Canada 34.0 35.7 12.2 13.4 -20.5 -60.4 

With non-NAFTA countries -39.6 -215.6 -324.4 -321.6 -282.1 -712.6 

Total trade: 

Total 1,525.7 1,568.0 1,638.0 1,621.4 95.7 6.3 

NAFTA partners 180.4 218.6 259.6 283.3 102.8 57.0 

With Mexico 100.7 123.7 177.6 201.5 100.8 100.1 

With Canada 79.7 94.9 82.0 81.8 2.0 2.5 

Import market share (percent): 

Total 23.5 26.8 28.1 30.4 6.9 (2) 

Mexico 1.0 1.7 2.0 1.9 0.8 (2) 

Canada 0.7 0.9 1.0 1.1 0.4 (2) 

Non-NAFTA countries 21.7 24.2 25.1 27.4 5.6 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.7 0.1 0.1 0.1 -0.6 (2) 

Canada (3

) 

0.1 0.1 0.1 0.1 (2) 

All other 2 2.6 2.2 2.1 -0.6 (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 15.5 14.8 13.7 13.0 -2.5 -16.1 

Production workers 

(1,000 persons) 12.7 12.3 11.3 10.6 -2.1 -16.5 

Average hourly wages of 

production workers $9.94 10.63 11.07 11.51 1.57 15.8 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent 

4Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

6-35 

6-35
ITC Group No. 35: Women's Footwear, Except Athletic' 

Table 6-35-1 

Women's footwear, except athletic: Summary of NAFTA effects on selected U.S. indicators, 1993-96 

Perfarmanae 

indicatOr 

Performance measure during 

• 1993-96 NAFTA effect 

U.S. imports: 

From Mexico 

From Canada 

Up $67 million (144 percent) to 

$113 million. 

Up $21 million (88 percent) to $44 

million. 

Sianificant l—NAFTA tariff reductions contributed 

to increased imports from Mexico, but Mexico is a 

small, higher cost supplier than China, the major 

supplier. 

U.S. exports: 

To Mexico 

To Canada 

Down $3 million (71 percent) to 

$0.8 million. 

Down $0.8 million (4 percent) to 

$21 million. 

Nealiaible. 2—Export decline mirrors overall export 

performance of U.S. sector. 

Employment Down 7,000 (33 percent) to 14,300 

employees. 

Sianificant —Ongoing decline accelerated since 

NAFTA's enactment. Almost 2,500 workers 

certified for trade adjustment assistance. 3 

Average hourly wages Up $0.47 (7 percent) to $7.09. Nealiaible.—Wage gain was down slightly from the 

8-percent gain in the 3-year pre-NAFTA period. 

Labor productivity Up 10 percent, based on constant 

dollar output per employee hour. 

Nealiaible.—Sector has restructured extensively in 

recent years, with many firms now focusing on 

global sourcing, niche markets, and retailing. 

U.S. investment in 

Mexico 

Not available, but believed to be 

negligible. 

Nealiaible.—Industry sources contend that such 

investment will grow in the near future. 

Investment in the 

United States 

Down 36 percent to $7 million in 

1994 from $11 million a year in the 

3-year pre-NAFTA period. 

Nealiaible 

1 The change in specified performance indicators from 1993 to 1996 is due in considerable measure to the NAFTA as 

compared with any other economic factor or industry development occurring during the period. 

2 The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than the NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3 U.S. Department of Labor, NAFTA Office. Although these job losses are certified to be the result of plant relocations 

to Mexico or Canada and/or increased imports from these countries, NAFTA may not have been the cause of plant 

relocation decisions or the reason for the increase in imports. 

Source: Compiled by the staff of the U.S. International Trade Commission. 

Standard Industrial Classification (SIC) Industry No. 3144, Women's Footwear, Except Athletic. It includes 

women's dress, casual, and work shoes, except those with rubber or plastic soles vulcanized or molded to fabric uppers. 

It does not include leather and vinyl athletic shoes (SIC 3149, Footwear, Except Rubber, Not Elsewhere Classified) or 

women's fabric-upper footwear with rubber or plastic soles vulcanized or molded to uppers and rubber and plastic 

protective footwear (SIC 3021; Rubber and Plastics Footwear). 

6-36 6-36
Key Provi sions Affecting Sector 

Tariffs 

U.S. average trade-weighted tariff equivalents 

(AVEs) in 1993 and 1996 for imports (inpercent 

1993 1996 

5.9 2.7 

11.6 7.0 

10.6 

Phase-in period: Tariffs with Canada will be 

eliminated by'1998 under CFTA. Most tariffs with 

Mexico will be eliminated by 2003and the rest;by 

2008 under NAFTA. 

Pre-NAFTA border and othe r measures - None. 

POStNAFTA:bOrdir and other:Measidies 

moz4c9 plans limi(the portationpf:...fixtwear 

and:footwear parts:stry,tertain ports of entry 

Canada 

Mexico . 

All other 

Summary of Sector Analysis 

The U.S. industry producing women's nonrubber footwear, like the overall U.S. footwear industry, has been 

declining in size for many years as a result of competition from imports, which accounted for 86 percent of 

the domestic market in 1996. From 1993 to 1996, U.S. producers' sector shipments fell by 24 percent, 

whereas U.S. sector imports rose. Most sector imports come from China, which supplies about 60 percent of 

the overall U.S. footwear market. U.S. sector exports are small and declining. 

The growth in U.S. sector imports from Canada, which occurred mostly in higher-priced leather footwear, is 

attributable in part to preferential U.S. tariffs under the CFTA. The increased imports from Mexico mainly 

reflected larger shipments under HTS heading 9802.00.80. 2Industry sources attribute the growth in these 

9802 imports to uncertainty over,MFN renewal for China and preferential U.S. tariffs under NAFTA.' In 

addition, the recent devaluation of the Mexican peso has effectively reduced Mexico's labor costs in dollar 

terms, enabling U.S. firms engaged in production-sharing arrangements in Mexico to improve the price 

competitiveness of their goods in the U.S. market vis-a-vis low-cost imports from Asia. 

Trade Flows 

U.S. sector trade with Mexico and Canada is marked by 

widening bilateral deficits as a result of rising U.S. imports 

and falling U.S. exports. From 1993 to 1996, overall U.S. 

sector trade increased by $909 million (22 percent) to $5.1 

billion. Sector trade with Mexico rose by $64 million (127 

percent) to $114 million and that with Canada grew by $20 

million (44 percent) to $65 million. 

U.S. Imports — U.S. sector imports from Mexico and 

Canada have risen more rapidly than overall sector imports 

in recent years, but together the NAFTA partners supply 

just 3 percent of total sector imports. From 1993 to 1996, 

imports from Mexico rose by 144 percent to $113 million 

and those from Canada grew by 88 percent to $44 million. 

Overall sector imports rose by 22 percent. The principal 

sources, China, Brazil, Italy, and Spain, supplied 87 percent 

of the 1996 total. 

Mexico became the sixth-largest source of U.S. sector 

imports in 1996, up from ninth in 1993. Preferential 

NAFTA tariffs contributed to the import growth from 

Mexico, as did the peso devaluation, which effectively 

reduced dollar prices of Mexican goods in the U.S. market. 

The peso devaluation also cut Mexican labor costs in dollar terms, spurring the use of production-sharing in 

Mexico, as evidenced by the rapid growth in sector imports from there under HTS chapter 98. 

Heading 9802.00.80 of the Harmonized Tariff Schedule of the United States provides a partial duty exemption for 

articles assembled abroad of U.S.-fabricated components. In general, the duty is assessed on the value added abroad 

(mainly the cost of stitching the shoe parts together), and not on the value of the U.S. components. 

Fawn K. Evenson, president, Footwear Industries of America, telephone interview by USITC staff, Mar. 6, 1997. 

6-37 6-37
The largest absolute increase in sector imports from Mexico during 1993-96 occurred in dress and casual 

shoes with leather uppers, which rose by $49 million. Other sector goods showing significant import gains 

from Mexico were open-toe and open-heel casual shoes with rubber and plastic soles and textile uppers, 

which rose by $24 million, and leather boots, which rose by $10 million. Most of the textile-upper casual 

shoes entered under the 9802 provision. 

U.S. Exports — U.S. sector exports to both NAFTA partners, like overall sector exports, have fallen in recent 

years. Shipments to Mexico declined by 79 percent to $0.8 million, owing to the peso devaluation, and those 

to Canada fell by 4 percent to $21 million. As a result, the U.S. sector trade deficit widened by $70 million 

with Mexico and by $21 million with Canada. Canada remained the principal market for U.S. sector exports, 

accounting for 38 percent of the total in 1996, up from 35 percent in 1993. Mexico's share of U.S. exports 

declined from 7 percent in 1993, when it was the third-largest export market, to 2 percent in 1996, when it 

was the 17th largest. 

Employment 

The ongoing decline in U.S. sector employment has accelerated since NAFTA's enactment, falling by 33 

percent during 1993-96, compared with a 20-percent decrease in the 3 years before NAFTA. The decline 

during 1993-96 is attributable in part to higher productivity as a result of extensive restructuring in the 

sector. It is difficult to measure the impact of NAFTA on U.S. sector employment because Mexico accounts 

for a small share of sector imports (2 percent in 1996) and because a major portion of the increased imports 

from Mexico since 1993 has occurred in production-sharing trade under HTS chapter 98. 

6-38
Table 6-35-2 

Women's footwear, except athletic: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments (million dollars) 1,183.0 1,194.0 951.0 900.0 -283.0 -23.9 

Consumption (million dollars) . . . 5,276.1 5,681.1 5,685.8 5,915.0 638.9 12.1 

Trade data (million dollars): 

Exports: 

Total 61.6 57.5 56.7 55.0 -6.6 -10.7 

To Mexico 3.8 3.2 1.2 0.8 -3.0 -79.3 

To Canada 21.7 22.8 22.3 20.8 -0.8 -3.9 

To Non-NAFTA countries 36.1 31.5 33.2 33.4 -2.7 -7.6 

Imports: 

Total 4,154.7 4,544.6 4,791.5 5,070.1 915.3 22.0 

From Mexico 46.1 45.2 69.9 112.6 66.5 144.1 

From Canada 23.2 38.3 37.8 43.7 20.5 88.4 

From non-NAFTA countries 4,085.4 4,461.1 4,683.8 4,913.7 828.3 20.3 

Trade balance: 

Total -4,093.1 -4,487.1 -4,734.8 -5,015.0 -921.9 -22.5 

With Mexico -42.3 -42.0 -68.7 -111.8 -69.5 -164.1 

With Canada -1.5 -15.5 -15.5 -22.9 -21.4 -1,387.0 

With non-NAFTA countries -4,049.2 -4,429.6 -4,650.6 -4,880.3 -831.1 -20.5 

Total trade: 

Total 4,216.3 4,602.1 4,848.2 5,125.1 908.8 21.6 

NAFTA partners 94.8 109.5 131.1 177.9 83.1 87.7 

With Mexico 49.9 48.4 71.1 113.4 63.5 127.1 

With Canada 44.9 61.1 60.0 64.6 19.7 43.9 

Import market share (percent): 

Total 78.7 80.0 84.3 85.7 7.0 (2) 

Mexico 0.9 0.8 1.2 1.9 1.0 

Canada 0.4 0.7 0.7 0.7 0.3 

Non-NAFTA countries 77.4 78.5 82.4 83.1 5.6 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 11.6 10.2 9.7 7.0 -4.6 (2) 

Canada 5.9 4.9 3.9 2.7 -3.2 (2) 

All other 10.6 11.0 10.7 10.2 -0.4 (2) 

U.S. industry indicators: 1 

Employees (1,000 persons) . . . 21.4 19.2 17.4 14.3 -7.1 -33.2 

Production workers 

(1,000 persons) 18.4 16.4 14.4 11.6 -6.8 -37.0 

Average hourly wages of 

production workers $6.62 6.95 7.04 7.09 0.47 7.1 

1Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

2Not meaningful for purposes of comparison. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

6-39 

6-39
ITC Group No. 48: Household Appliances' 

Table 6-48-1 

Household appliances: Summary of NAFTA effects on selected U.S. indicators, 1993-96 

Performance ::.::::Performance 

indicator 

::measure during 

. 1993.a6 ' 

- NAFTA,effect 

U.S. imports: 

From Mexico Up $181 million (43 percent) to Significant.'–Liberalized Mexican regulations 

$605 million. regarding foreign investment under NAFTA and 

NAFTA's staged increase in the access of 

From Canada Up $201 million (121 percent) to maquiladoras to the domestic market in Mexico 

$368 million. encouraged three of the five leading U.S. 

manufacturers of major household appliances to 

expand previous investments in Mexico, leading to 

a significant (43 percent–$181 million) increase in 

imports of appliances from their Mexican 

operations following the implementation of 

NAFTA. 

The CFTA, which preceded NAFTA, was largely 

responsible for a significant (121 percent—$201 

million) increase in U.S. imports of household 

appliances from Canada. The lowering of tariffs 

between the United States and Canada has 

resulted in increased integration of U.S.-owned 

production in the two countries. U.S.-owned 

plants in Canada are now more specialized, 

producing a more limited range of products, but 

more often supplying both markets with 

household appliances. Virtually all U.S.-Canadian 

trade in household appliances presently enters 

free of duty, with the trade-weighted average duty 

on U.S. imports from Canada dropping from 1.2 

percent to 0:5 percent during 1993-96. 

U.S. exports: 

To Mexico Down $85 million (35 percent) to Neoliaible.2–Exports to Mexico decreased by $85 

$157 million. million from 1993 to 1996 largely as a result of the 

devaluation of the Mexican peso in late 1994 and 

To Canada Up $45 million (7 percent) to $678 the ensuing high interest rates in 1995 which 

million. made it difficult for Mexicans to purchase 

consumer durables. On the other hand, a modest 

increase of $45 million in U.S. exports of 

household appliances to Canada from 1993 to 

1996 was largely the result of the integration of 

the major household appliance industry in North 

America. The three largest Canadian producers of 

these products are all related to major U.S. 

appliance producers. 

1 The change in specified performance indicators from 1993 to 1996 is due in considerable measure to NAFTA as compared with 

any other economic factor or industry development occurring during the period. 

2 The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry developments 

occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is insignificant or a minor influence. 

Standard Industrial Classification (SIC) Industry Nos. 3631, Household Cooking Equipment; 3632, Household 

Refrigerators and Farm Freezers; 3633, Household Laundry Equipment; and 3635, Household Vacuum Cleaners. 

6-40 

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Performance 

indicator 

. Performance.meaaure during 

1993-96 NAFTA effect 

Employment Up 2,000 to 76,000 persons 

(3 percent) for the entire industry. 

Nealiaible.—Because of a robust U.S. economy, 

U.S. producers of major household appliances 

were able to shift some of their labor-intensive 

operations to Mexico without causing a major loss 

of employment in the overall appliance industry in 

the United States. 

Average hourly wages Up $1.76 to $12.94 (16 percent) 

per hour. 

Nealiaible.—Industry wages increased by 16 

percent during the period of 1993-96. NAFTA 

had a minor effect on wages. High volume 

production coupled with heavy capital investment 

in production technology raised productivity and 

stimulated increases in hourly wages. 

Labor productivity3 Up by 3.2 percent from 1993 to 

1995. 

Nealiaible.—NAFTA did not have a direct impact 

on U.S. labor productivity. Since NAFTA, the 

U.S. household appliance industry has been able 

to increase productivity because of major 

investment in new plant and equipment due to the 

low cost of capital, high stock prices, and slow 

growth in prices of machinery and computer 

equipment. 

U.S. investment in 

Mexico 

Not available. Significant—Two leading U.S. producers of 

household appliances significantly expanded their 

investments in joint ventures and/or maquiladora 

operations in Mexico because of three factors 

related to NAFTA. (1) NAFTA increased the 

extent to which U.S. companies could own 

production facilities in Mexico. (2) NAFTA 

increased the portion of a company's maquiladora 

production that could be sold into the Mexican 

market. (3) NAFTA provided a 10-year phase-in 

period for the elimination of Mexico's relatively 

high tariffs on imports of appliances from the 

United States. These factors were important 

considerations in the decisions of the two U.S. 

producers to furnish certain types and models of 

appliances from production facilities in Mexico 

instead of exporting them to Mexico from the 

United States. 

Investment in the 

United States 

Not available. Nealiaible.—However, one Canadian household 

and commercial freezer producer increased U.S. 

investment because of NAFTA. 

3Productivity was calculated by dividing industry shipments by production worker hours for 1993-95. Data compiled from the U.S. 

Bureau of the Census, Annual Survey of Manufactures, 1994 and 1995 

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Performance 

indicator 

Performance measure during 

1993-96 NAFTA effect 

Other NAFTA-related Not available. Neoliaible.—Major Asian household appliance 

investment producers have increased maquiladora plant 

capacity, or have recently established household 

appliance production in Mexico, as a result of 

rules of origin provisions established under 

NAFTA. Major Asian household appliance 

producers (e.g., Sanyo, Daewoo) primarily serve 

the compact and mid-size U.S. household 

appliance market and do not directly compete 

with appliances produced in the United States. 

Source: Compiled by the staff of the U.S. International Trade Commission. 

Summary of Sector Analysis 

From 1993 to 1996, Canada and Mexico became two of the three principal U.S. trading partners for 

household appliances, reflecting increased integration of North American household appliance production and 

marketing. Canada and Mexico accounted for 50 percent of the increase in total U.S. imports of household 

appliances, principally gas stoves, ranges, refrigerators, and vacuum cleaners. 

Tariff reductions pursuant to NAFTA had a negligible impact on U.S. trade with Canada and Mexico during 

1994-96. By 1994, U.S. and Canadian tariffs on appliances originating from the other country had been 

reduced to almost zero under the CFTA. As a result, the effective U.S. tariff ad valorem equivalent on U.S. 

imports from Canada decreased by only 0.7 percentage point during 1993-96 (from 1.2 percent to 0.5 

percent). Meanwhile, trade-weighted average U.S. tariffs on appliances from Mexico dropped by only 1.2 

percentage points (from 1.3 percent to 0.1 percent), reflecting GSP eligibility for most appliance categories 

prior to 1994 and the use of HTS tariff provision 9802.00.80. 

Three factors related to NAFTA had a significant impact on the 43 percent ($181 million) rise in U.S. 

imports from Mexico. (1) Amendments to Mexican investment laws allowing a greater U.S. ownership of 

Mexican companies encouraged U.S. producers with joint ventures in Mexico to increase their investments 

and expand production capacity in Mexico. (2) Changes in the Maquiladora Decree pursuant to NAFTA, 

permitting assembly plants operating under the Maquiladora Program to sell an increasing portion of their 

production directly into the Mexican market, led some U.S. appliance producers to invest in greater 

production capacity in their maquiladora operations. (3) The long phase-in period in Mexico for the 

elimination of tariffs on U.S.-origin appliances under NAFTA influenced some U.S. appliance producers to 

supply the Mexican market from joint ventures in Mexico, or from maquiladora operations, rather than to 

export to Mexico from their U.S. factories. These three factors led to a rationalization of production and 

increased U.S. imports, with smaller-scale major household appliances (designed specifically for the Latin 

American market, but also applicable to small apartments in the United States) produced in Mexico, and 

larger-scale appliances made in the United States.' 

U.S. imports of appliances from Mexico grew by 17 percent ($72 million) in the first year of NAFTA, but only 2 

percent ($12 million) in 1995, following the devaluation of the peso. The data support the conclusion that increased 

investment in Mexico to supply the Mexican market and rationalize North American production of certain types of 

appliances had a greater influence on increased imports from Mexico than the devaluation of the peso. 

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The industry is dominated by five major corporations that produce complete lines of basic major household 

appliances.' In addition, there are numerous smaller producers of major and small appliances. The U.S. 

industry is a world leader in major household appliance production through its product technology and 

productivity. The industry is relatively mature and can be characterized by intense price competition among 

well-capitalized companies that make heavy capital investments in plant and equipment to achieve high 

volume production. 

To remain competitive and to serve the growing Mexican domestic market, two of the five largest U.S. 

producers established joint-venture agreements with Mexican producers of major household appliances 

(General Electric-MABE4and Whirlpool Corp-Vitro') prior to NAFTA. A third major producer, Maytag via 

its subsidiary Hoover Corp., also opted to establish a production-sharing facility in Mexico to assemble 

vacuum cleaners prior to NAFTA. 

Since NAFTA, both General Electric and Whirlpool Corp. have increased production capacity in Mexico to 

supply the growing domestic appliance market, and to export to North and South American markets. A major 

devaluation of the Mexican peso in December 1994 resulted in Whirlpool Corp. shifting use of much of its 

additional Mexican production capacity to service other Latin American markets that have entered into free 

trade agreements with Mexico in recent years.' 

During the period of 1993 to 1996, the three major U.S. producers with subsidiaries in Mexico accounted for 

the bulk of U.S. imports of household appliances. Most major household appliance imports from Mexico 

(e.g., refrigerators under 19 cubic feet) compete at the low end of the U.S. market.' Industry sources indicate 

that these products do not typically compete directly with U.S.-produced refrigerators. Goods made by other 

major household appliance firms such as Amana do not compete directly with imports from Mexico as they 

predominantly serve the middle- to high-end appliance market.' The major household appliance industry 

requires large economies of scale to be able to compete in particular market areas (e.g., China and India). 

Since the implementation of NAFTA, this industry has further integrated production in North America and 

has begun to focus on international growth markets. 

Trade Flows 

The trade effects of NAFTA have been felt most in the trend in U.S. imports from Mexico. NAFTA has not 

had a significant effect on total U.S. trade in the household appliance industry. The U.S. household appliance 

3Whirlpool Corp., Benton Harbor, MI; General Electric Co., Louisville, KY; Frigidaire, Dublin, OH, Division of AB 

Electrolux of Sweden; Amana, Division of Raytheon Co., Welham, MA; and Maytag Co., Newton, IA. 

General Electric and Mexican-owned major appliance producer MABE established a joint-venture company to 

manufacture gas ranges, refrigerators, and laundry equipment for the North American market. The arrangement with 

MABE is currently GE's most significant joint-venture in Latin America. 

3Whirlpool Corp. and Mexican-owned Vitro Corp. formed a joint venture company in 1987. Whirlpool Corp. holds 

a 49 percent interest in Vitromatic (subsidiary of Vitro Corp). Vitromatic produces ranges, refrigerators, and laundry 

equipment for the Mexican and export markets under the Whirlpool, Acros, Supermatic, Crolls, and Philips brand 

names. Vitromatic also serves as the exclusive Mexican distributor for a full line of Whirlpool, KitchenAid, and Roper 

products built in the United States. 

6Officials of Whirlpool Corp., interview by USITC staff, Jan. 7, 1997. 

7The major appliance market share by company in the United States in 1996 was as follows: Whirlpool Corp., 35 

percent; GE, 29 percent; Maytag, 14 percent; Frigidaire Co. (Electrolux of Sweden), 14 percent; Amana (Raytheon), 6 

percent; other, 2 percent. Appliance Manufacturer, Apr. 1997. 

Officials of Amana, interview by USITC staff, Feb. 27, 1997. 

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Key Provisions Affeding Sector 

Tariffs 

U.S. average trade-weighted tariff equivalents 

(AVEs) M 1993 and 1996 for imports from (M 

percent): 

1.2 

1.3 

2,6 

industry trade grew by 26 percent ($989 million) during 1993-96, rising to $4.9 billion (table 48-2). Total 

U.S.-Mexico trade for the sector grew by 15 percent ($97 million) during 1993-96; while such trade from 

Canada rose by 31 percent ($246 million). 9 

U.S. Imports — Mexico and Canada continued to be the principal suppliers of household appliances during 

the period, ranking first and third, respectively. During the period covering 1993 to 1996, Mexico emerged 

as the leading supplier of refrigerators and freezers, and vacuum cleaners, accounting for 43 percent and 29 

percent, respectively, of total U.S. imports. Mexico was the second-leading U.S. supplier of stoves and 

ranges, accounting for 19 percent of total imports. 

Canada was the second-leading supplier of freezers 

and refrigerators, and laundry equipment in 1996, 

accounting for 21 and 19 percent respectively, of U.S. 

imports in these segments of the appliance market. 

Additionally, Canada was the third-leading supplier 

of vacuum cleaners to the United States in 1993. 

U.S. trade with both Mexico and Canada largely 

reflects the highly rationalized nature of North 

American production for household appliances, a 

trend that has been aided with respect to Mexico by 

NAFTA's liberalized investment rules and increased 

access to the Mexican market for companies 

operating in the Maquiladora Program. Increased 

imports from Canada, which surpassed the growth in 

imports from Mexico during 1993-96, reflect the 

results of investments made in Canada by U.S. 

appliance producers following the implementation of 

the CFTA and can not be attributed to NAFTA. 

U.S. Exports — U.S. exports to Mexico decreased by 

35 percent ($85 million) to $157 million from 1993 

to 1996, reflecting suppressed sales in Mexico 

immediately following the devaluation of the peso. 

Exports to Mexico increased in 1994, but fell 

dramatically in 1995, and were slow to recover in 

1996. Expanded joint venture operations, as well as 

some shipments to the Mexican market directly from 

assembly plants in Mexico, have led to some 

substitution of direct U.S. exports by assembly and 

production in Mexico. The prolonged staging period 

for the elimination of Mexico's relatively high tariff 

rates for these products encourages U.S. producers to 

sell to the Mexican market from their local 

production and assembly plants rather than to export 

from the United States. Leading U.S. appliance firms 

NAFTA immediately eliminated Modem, tariffs on 

approximately 17 percent of exports of appliances 

from the United States. Tariffs on another 17 

percent of U.S. exports of these products will be 

phased out over :5 years. Mexican tariffs on all 

household appliances imported from the United 

States will be eliminated within 10 years 

Phase-in periocl-. Most U.S. tariffs with Canada 

were reduced'under the CFTA. Most U.S. tariffs on 

household appliances from Mexico (85 percent) 

were eliminated with implementation of NAFTA. 

Additionally, the trade-weighted average U.S. rate 

of duty;on appliances from Mexico was only 1.3 

percent prior to the implementation of NAFTA. 

Border and other measures 

Since 1994, several prominent Asian appliance 

producers have either expanded production capacity 

or established household appliance.production 

facilities in Mexico to be able to meet NAFTA 

rules of origin requirements. 

9The relatively strong growth in U.S. trade with non-NAFTA partners during the period, by 26 percent ($646 

million), indicates that NAFTA did not result in significant trade diversion in this sector. 

6-44 

6-44
have established joint ventures in Mexico to produce major household appliances and presently dominate the 

Mexican market with nearly 90 percent market share.' These joint-ventures are the leading exporters of 

appliances from Mexico to the United States and Latin America and are also the leading importers of U.S.-

made appliance parts into Mexico. A substantial percentage of the material content of the appliances 

produced by these joint ventures is of U.S. origin. U.S. exports of appliance parts are likely to increase at a 

rate close to that of the production increases in U.S.-affiliated Mexican plants. U.S. exports to Canada 

increased by 7 percent from 1993 to 1996, largely as the result of continued household appliance integration 

in North America. Additionally, effective January 1, 1998, all remaining household appliance tariffs under 

CFTA will be eliminated. 

1°"GE Appliances: The Dollar Approach," Appliance Manufacturer, Feb. 1997, pp. 22-23. 

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6-45
Table 6-48-2 

Household appliances: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 12,786.0 14,274.0 13,999.0 14,699.0 1,913.0 15.0 

Consumption (million dollars) . . . 12,852.8 14,519.1 14,499.8 15,310.6 2,457.8 19.1 

Trade data (million dollars): 

Exports: 

Total 1,900.9 1,986.5 1,949.5 2,122.7 221.9 11.7 

To Mexico 241.1 271.3 119.0 157.4 -83.7 -34.7 

To Canada 633.1 621.9 604.0 678.1 45.0 7.1 

To Non-NAFTA countries 1,026.7 1,093.3 1,226.6 1,287.2 260.5 25.4 

Imports: 

Total 1,967.7 2,231.5 2,450.3 2,734.3 766.6 39.0 

From Mexico 424.0 496.0 508.0 605.2 181.3 42.8 

From Canada 166.5 208.6 329.4 367.8 201.3 120.8 

From non-NAFTA countries 1,377.2 1,526.9 1,612.9 1,761.3 384.1 27.9 

Trade balance: 

Total -66.8 -245.1 -500.8 -611.6 -544.8 -815.7 

With Mexico -182.9 -224.7 -389.0 -447.9 -265.0 -144.9 

With Canada ' 466.6 413.2 274.6 310.3 -156.2 -33.5 

With non-NAFTA countries -350.5 -433.6 -386.3 -474.0 -123.6 -35.3 

Total trade: 

Total 3,868.6 4,218.0 4,399.9 4,857.1 988.5 25.6 

NAFTA partners 1,464.6 1,597.7 1,560.4 1,808.5 343.9 23.5 

With Mexico 665.0 767.2 627.0 762.6 97.6 14.7 

With Canada 799.6 830.5 933.4 1,045.9 246.3 30.8 

Import market share (percent): 

Total 15.3 15.4 16.9 17.9 2.6 (2) 

Mexico 3.3 3.4 3.5 4.0 0.7 (2) 

Canada 1.3 1.4 2.3 2.4 1.1 (2) 

Non-NAFTA countries 10.7 10.5 11.1 11.5 0.8 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.3 0.4 0.1 0.1 -1.2 (2) 

Canada 1.2 0.9 0.7 0.5 -0.7 (2) 

All other 2.6 2.7 2.4 1.9 -0.7 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 74.0 76.0 76.0 76.0 2.0 2.7 

Production workers 

(1,000 persons) 60.0 65.0 64.0 63.0 3.0 5.0 

Average hourly wages of 

production workers $11.18 11.61 12.35 12.94 1.76 15.7 

Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

6-46 

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ITC Group No. 54: Motor Vehicles' 

Table 6-54-1 

Motor vehicles: Summary of NAFTA effects on selected U.S. indicators, 1993-96 

Performance 

indicator 

Performance,measure during 

1993-96 NAFTA effect 

U.S. imports: 

From Mexico 

From Canada 

Up $7.1 billion (153 percent) to 

$11.7 billion. 

Up $6.9 billion (26 percent) to $33.9 

billion. 

Nealiaible. 1— Increased U.S. imports from Mexico 

are principally a function of the increasing 

integration and interdependence of the U.S. and 

Mexican automotive industries, the peso crisis 

which caused the Mexican market to collapse in 

1995, and the strong U.S. market during the 

period. 

U.S. exports: 

To Mexico 

To Canada 

. 

Up $655 million (128 percent) to 

$1.2 billion. 

Up $1.1 billion (10 percent) to $12.2 

billion. 

Sianificant 2— Increased U.S. exports of motor 

vehicles to Mexico during the period were a direct 

result of the reduction in Mexican trade-balancing - 

requirements and tariff reductions agreed to 

under NAFTA. 

Employment Up 36,200 to 374,500 employees. Negligible.— According to industry sources, 

NAFTA had a positive effect on employment in 

the industry, but was not the leading cause of this 

nearly 11-percent increase. 

Average hourly wages Up $1.16 to $20.04. Nealiaible.—NAFTA had little, if any, effect on 

wages. 

Labor productivity' Up by 9 percent from 1993 to 1995. Nealiaible.—Trends in auto industry labor 

productivity resulted from domestic industry 

structural changes and investment in retooling. 

U.S. investment in 

Mexico 

$2 billion plus. Negligible.—Investments made by the U.S. Big 

Three prior to NAFTA indicate that they regard 

Mexico as an attractive production site for reasons 

unrelated to NAFTA. Big Three investments 

subsequent to NAFTA have been focused on 

modernizing existing plants. In addition, assembly 

of certain vehicles has been discontinued to 

improve economies of scale. There has also 

been some investment in the heavy truck and bus 

sectors by U.S. producers. 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry developments 

occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is insignificant or a minor influence. 

2 The change in specified performance indicators from 1993 to 1996 is due in considerable measure to the NAFTA as compared 

with any other economic factor or industry development occurring during the period. 

Productivity was calculated dividing industry shipments by production worker hours for 1993-95. Data compiled from the U.S. 

Bureau of the Census, Annual Survey of Manufactures, 1994 and 1995. 

Standard Industrial Classification (SIC) Industry Nos. 3711, Motor Vehicles and Motor Vehicle Equipment, and 

3716, Motor Homes. This industry is made up of establishments engaged primarily in manufacturing or assembling 

complete passenger automobiles, trucks, commercial cars and buses, special motor vehicles for highway use, motor 

homes, and vans. 

6-47 

6-47
Performance 

indicator 

Performance measure during 

. . 1993-96 NAFTA effect 

Investment in the $40 billion plus invested by U.S., Neoliaible.—The combination of high national 

United States Japanese, and European productivity and the relative decrease in the value 

automakers. of the dollar against the yen and the deutsche 

mark has made the United States a more 

attractive manufacturing site for foreign 

automakers. 

Other NAFTA-related $2 billion plus in Mexico. Nealiaible.—A number of European and Japanese 

investment motor vehicle producers have announced new 

$600 million plus by Japanese 

automakers in Canada. 

investment in Mexico since the signing of NAFTA, 

at least partly as a result of the liberalized 

investment structure of the Mexican auto industry. 

U.S. automaker Ford has invested However, the peso crisis delayed some 

in its Canada operations during the investment plans. Production from these ventures 

period, and Chrysler has is primarily for the Mexican and Latin American 

announced intentions to expand its markets. (North American content requirements 

Bramalea plant prevent many of these makers from exporting to 

the United States duty free). This investment may 

result in increased sales for U.S. parts makers 

located in Mexico. Mexico's arrangements with 

other countries, e.g., Chile, are also a factor in the 

decision of non-U.S. automakers to invest in 

Mexico. 

Japanese expansion in Canada is largely due to 

favorable government and workforce conditions, 

such as a business-friendly provincial government 

in Ontario, and highly skilled workers earning 

relatively lower wages. 

Source: Compiled by the staff of the U.S. International Trade Commission. 

Summary of Sector Analysis' 

Developments in the U.S. motor vehicle industry are driven by a number of significant factors, including the 

strength of the U.S. economy, efforts by manufacturers to enhance competitiveness by lowering production 

costs and improving production efficiencies, internationalization of production to serve foreign markets from 

local manufacturing bases, and continued integration and rationalization by U.S. automakers of their North 

American operations. In addition, the peso crisis and the implementation of NAFTA contributed to changes 

in the Mexican economic environment which have influenced trade patterns and industry conditions among 

the NAFTA partners. NAFTA, in particular, has altered the economic and business climate in Mexico. 

Measurable changes resulting from NAFTA that are significant to the motor vehicle sector include 

implementation of North American rules-of-origin requirements, reduction in Mexican trade-balancing 

requirements, tariff reductions, and foreign investment liberalization. Intangible NAFTA effects, such as the 

impact on the psychological climate of conducting business with NAFTA partners because of reduced 

business risk, are difficult, if not impossible, to assess but could be an important factor in manufacturers' 

trade and investment decisions. 

2Views of parties that submitted written and/or oral testimony to the Commission in connection with this 

investigation are summarized in Appendix D. Copies of the hearing transcript and copies of all written testimony are 

being provided separately to USTR. 

6-48 

6-48
The rationalization of U.S. automotive production vis-a-vis Canada, spurred decades ago by the Automotive 

Products Trade Acy of 1965 (APTA), resulted in significant intraindustry trade and trade in intermediate 

goods. Similar rationalization with Mexico has taken place through production-sharing arrangements. The 

gradual removal of Mexican import barriers under NAFTA allows U.S. automakers to pursue rationalization 

strategies by shipping vehicles to Mexico that are more efficiently produced in the United States or Canada. 

Therefore, U.S. automakers in Mexico have invested in modernizing their existing operations, and have 

streamlined the number of models assembled to improve economies of scale. While it is this industry 

rationalization and respective domestic economic and market conditions, i.e., weak market conditions in 

Mexico and Canada, which were primarily responsible for the trend in U.S. imports during the period, 

increased U.S. exports to Mexico can be attributed to the trade-liberalizing effects, e.g., the reduced tradebalancing requirements, of NAFTA. 

Trade Flows 

Overall U.S. motor vehicle trade and trade with 

Canada and Mexico increased over the period. Total 

U.S. motor vehicle trade increased 23 percent from 

1993 to 1996, or $20.5 billion, to a total of $110.9 

billion in 1996. Total U.S. motor vehicle trade with 

Mexico increased 151 percent during the period, or 

$7.7 billion, to a total of $12.9 billion. Total U.S. 

motor vehicle trade with Canada increased at a slower 

rate, by 21 percent ($8 billion) over the period to 

$46.1 billion in 1996. 

U.S. Imports — U.S. imports from Mexico increased 

153 percent from 1993 to 1996, from $4.6 billion in 

1993 to $11.7 billion in 1996 (table 6-54-2). Mexico 

ranked as the third-leading source of U.S. motor 

vehicle imports in 1996, displacing Germany in 

1995. Mexico's share of the U.S. motor vehicle 

import market grew from about 7 percent in 1993, to 

approximately 13 percent in 1996. 

NAFTA had a negligible impact on the increase in 

U.S. imports from Mexico and Canada. Increased 

Key Provisions Affecting Sector 

Tariffs 

U.S. average trade-weighted tariff equivalents 

(AVEs) in 1993 and 1996 for imports from (in 

percent): 

1993 996 

Canada 0.1 0.1 

Mexico 2.7 0.6 

All other 2.9 2.7 

Phase-in period: Tariffs with Canada were 

eliminated under the Automotive Products Trade 

Act in 1965. Mexican tariffs on automobiles and 

light-duty trucks were reduced by 50 percent 

immediately upon NAFTA.'s implementation and 

will be phased out'over 5 years for light-duty trucks 

and 10 years for automobiles. 

Pre-NAFTA border and other measures 

Mexican trade-balancing requirements: $1.75 in 

exports for every $1.00 of imports; local content 

and investment barriers. 

:os. :„.t-:„... 

Annex . 

 :..:....:...:.... :......... 

•••• 

staging for.niCtor.Vehicles:•..50:perceriti(stattof ".... • • ...:.:::.:.:.. .:.:. . ...... 

agreeinent ...56.::: ii.ercent.....abf :Tan 

percenv for truCkS)....and..6Z.5 ..percent . aS'Of 

. ...:... . . ......:.: ...:..: 

(60.0erCerit:fartrUcks)::: . Trade-balanCing:.. : ..:.... ...::..:.::.. ..:.. .::::.:.... 

requirements :reduced. tci:!$074.t.:::eXporWfor....every.: 

can 

0 

be phased out by 7ari: l 2004:;; 

6-49 

6-49
U.S. imports from Mexico' are principally a function of the increasing integration and interdependence of the 

U.S. and Mexican automotive industries, the weak condition of the Mexican market as a result of the 

devaluation of the peso in December 1994, 4and the strong U.S. market during the period. According to 

industry sources, many U.S. auto facilities have been operating at capacity, and production from Mexican 

facilities has been needed to meet U.S. market demand.' U.S. motor vehicle imports from Mexico entering 

under NAFTA provisions are increasing at the expense of imports under HTS heading 9802.00.80, primarily 

because the automakers receive duty savings on the entire vehicle, instead of just on the U.S.-component 

value, and, according to industry sources, because of the less onerous regulatory requirements of NAFTA.' 

U.S. motor vehicle imports from Mexico contain a significantly higher proportion of U.S.-made components 

than do imports from third countries; for example, imports from Mexico may contain up to twice the amount 

of U.S. components that comparable imports from Asia contain.' 

U.S. imports from Canada rose 26 percent during the period, from $26.9 billion in 1993 to $33.9 billion in 

1996. In 1996, Canada ranked as the largest source of U.S. motor vehicle imports, displacing Japan in 1995. 

Canada's 39-percent share of the U.S. motor vehicle import market remained relatively steady throughout the 

period.' 

U.S. Exports — U.S. exports to Mexico increased substantially, from $513 million in 1993 to $1.2 billion in 

1996, a 128-percent increase. Mexico moved from the eighth-leading market for U.S. exports in 1993 to the 

fourth-leading market in 1996. U.S. motor vehicle exports to Mexico as a share of total exports increased 

from less than 3 percent in 1993 to 5 percent in 1996. Increased U.S. exports of new vehicles to Mexico 

during the period were a direct result of the reduction in Mexican trade-balancing requirements 9and tariff 

reductions agreed to in the NAFTA. While domestic economic conditions in Mexico contributed to erratic 

trade activity in 1994 and 1995, U.S. industry sources report that the openness of the Mexican economy 

under NAFTA made for a quick recovery and a resumption of U.S. automotive export growth. 1° 

3The preponderance of U.S. motor vehicle imports from Mexico enter under NAFTA provisions, with productionsharing imports under HTS 9802 decreasing. In 1994, motor vehicle imports under NAFTA provisions accounted for 

81 percent of total sector imports from Mexico; in 1996, NAFTA provisions applied to 97 percent of such imports. 

According to one source, the Mexican market will not be able to absorb the growing production capacity in the near 

future, causing Mexico to become a perpetual net exporter to the United States. Steve Beckman, International 

Economist, International Union, United Automobile, Aerospace, and Agricultural Implement Workers of America 

(UAW), testimony before the USITC, May 16, 1997. 

Andrew H Card, President and CEO, American Automobile Manufacturers Association, testimony before the 

USITC, May 16, 1997. 

Association of International Automobile Manufacturers, Inc., statement submitted to the USITC during investigation 

No. 332-237, Production Sharing: Use of U.S. Components and Materials In Foreign Assembly Operations, 1992-

1994, Sept. 1996. 

"North American Auto Industry Expanding Markets Under NAFTA," NAFTA Works, July 1996, p. 2. 

The preponderance of imports from Canada in the motor vehicle sector traditionally entered under provisions of the 

Automotive Products Trade Act of 1965 (APTA). However, beginning in 1995, imports increasingly entered under 

NAFTA provisions instead. In 1995, NAFTA imports from Canada accounted for 53 percent of total sector imports 

from Canada, and in 1996, for 77 percent. In 1994, NAFTA imports accounted for just 17 percent of total motor vehicle 

imports from Canada, with APTA accounting for 82 percent. 

Requirements for $1.75 in exports from Mexico for every $1.00 of imports in 1993 were reduced by 1996 to $0.74 

in exports from Mexico for every $1.00 of imports, thereby allowing U.S. automakers to export more U.S. production to 

Mexico. 

Andrew H. Card, testimony before the USITC, May 16, 1997. 

6-50 

6-50
U.S. exports to Mexico more than doubled in 1994 as a result of strong Mexican demand and the 

implementation of NAFTA. However, the Mexican automotive market was negatively affected by the 

devaluation of the peso in late 1994 and early 1995; sales of vehicles in Mexico fell 70 percent in 1995, with 

sales of cars and light trucks dropping by 69 percent and sales of medium and heavy trucks falling by 

84 percent. The Mexican operations of the U.S. Big Three shifted a considerable amount of their local 

production to export markets, including the U.S. market, in 1995; about 80 percent of the vehicles produced 

by the Big Three in Mexico in 1995 were for export, compared with 48 percent in 1994. 11 

In an effort to increase domestic sales, the Mexican Government announced the temporary removal of the 

sales tax on new cars and light trucks, and a reduction in taxes on commercial-use cars and light trucks in late 

1995. These changes were effective throughout 1996. Moreover, purchasers of new commercial-use cars 

and light trucks were granted a tax deduction of up to 71 percent of the total value of the vehicle over a 4-year 

period. These tax incentives improved the market for U.S. exports to Mexico, particularly of luxury and 

sports cars.' 

U.S. exports to Canada increased by 10 percent during the period, from $11.1 billion in 1993 to $12.2 billion 

in 1996. Canada was been the leading market for U.S. motor vehicle exports throughout the period. The 

Canadian share of U.S. motor vehicle exports remained steady at approximately 53 percent. U.S. automotive 

trade with Canada was liberalized through APTA, and thus was largely unaffected by NAFTA. The U.S.- 

Canadian auto industry is fully integrated, and the U.S. Big Three consider the United States and Canada as a 

single unit for production-planning purposes. Canada's sluggish economy prompted a 12-year low in 

consumer spending on new motor vehicles in 1995, resulting in a 13-percent decline in U.S. exports to 

Canada in 1995 over the previous year, and an 8-percent increase in U.S. imports from Canada.' Canada's 

market rebounded in 1996, with a 3-percent gain in new vehicle sales for the year.' 

11"Mexico Beckons: NAFTA, Recessions Give Foreign Suppliers the Edge," Ward's Auto World, July 1996, p. 69. 

12U.S. Department of Commerce, International Trade Administration, Impact of the North American Free Trade 

Agreement on U.S. Automotive Exports to Mexico, Second Annual Report to Congress - July 1996, found at Internet 

http://www.ita.doc.gov/industry/basic/naftailitail. 

13On average, 85 percent of Canada's motor vehicle shipments are exported to the United States; however, in 1995, 

a record 92 percent were exported to the United States. Canadian sources report that motor vehicle exports to the 

United States fell to 83 percent of total Canadian shipments in 1996. 

14 Isur• g gin Canadian Market Shakes Off Eight-Year Doldrums," Ward's Automotive Reports, Mar. 17, 1996, p. 1 

(special insert). 

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6-51
Table 6-54-2 

Motor vehicles: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments (million dollars) . . 166,764. 198,617.1 201,331.4 196,285.0 29,521.0 17.7 

Consumption (million dollars) 215,289. 254,774.1 264,235.1 260,565.8 45,275.3 21.0 

Trade data (million dollars): 

Exports: 

Total 20,915.9 23,709.7 21,934.2 23,305.6 2,389.8 11.4 

To Mexico 513.3 1,082.5 372.0 1,168.3 655.0 127.6 

To Canada 11,147.1 13,280.0 11,489.4 12,238.7 1,091.5 9.8 

To non-NAFTA countries 9,255.4 9,347.2 10,072.8 9,898.7 643.3 7.0 

Imports: 

Total 69,441.8 79,866.7 84,837.9 87,586.4 18,144.6 26.1 

From Mexico 4,625.6 5,837.0 8,385.6 11,713.8 7,088.2 153.2 

From Canada 26,917.6 31,092.0 33,499.4 33,853.8 6,936.2 25.8 

From non-NAFTA countries 37,898.6 42,937.7 42,953.0 42,018.8 4,120.2 10.9 

Trade balance: 

Total -48,525.9 -56,157.0 -62,903.8 -64,280.8 -15,754.8 -32.5 

With Mexico -4,112.3 -4,754.5 -8,013.6 -10,545.5 -6,433.2 -156.4 

With Canada -15,770.5 -17,812.1 -22,010.0 -21,615.1 -5,844.7 -37.1 

With non-NAFTA countries -28,643.2 -33,590.4 -32,880.2 -32,120.1 -3,477.0 -12.1 

Total trade: 

Total 90,357.7 103,576.4 106,772.1 110,892.0 20,534.4 22.7 

NAFTA partners 43,203.7 51,291.5 53,746.4 58,974.6 15,770.9 36.5 

With Mexico 5,138.9 6,919.6 8,757.6 12,882.1 7,743.2 150.7 

With Canada 38,064.8 44,372.0 44,988.7 46,092.5 8,027.8 21.1 

Import market share (percent): 

Total 32.3 31.3 32.1 33.6 1.4 (1) 

Mexico 2.1 2.3 3.2 4.5 2.3 ( 1 ) 

Canada 12.5 12.2 12.7 13.0 0.5 (1) 

Non-NAFTA countries 17.6 16.9 16.3 16.1 -1.5 ( 1 ) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 2.7 0.9 0.9 0.6 -2.1 (1) 

Canada 0.1 0.0 0.0 0.1 0.0 ( 1 ) 

1) 

All other 2.9 3.0 2.9 2.7 -0.2 

U.S. industry indicators: 2 

Employees (1,000 persons) 338.3 361.3 380.6 374.5 36.2 10.7 

Production workers 

(1,000 persons) 244.5 261.7 286.1 289.0 44.5 18.2 

Average hourly wages of 

production workers $18.88 17.91 20.01 20.04 1.16 6.1 

Not meaningful for purposes of comparison. 

2Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

6-52 6-52
ITC Group No. 55: Motor Vehicle Parts' 

Table 6-55-1 

Motor vehicle parts: Summary of NAFTA effects on selected U.S. indicators, 1993-96 

PerformanCe 

indicator 

PeiforinanCe measure :during 

1993-96 NAFTA effect 

U.S. imports: 

From Mexico 

From Canada 

Up $3.5 billion (94 percent) to $7.1 

billion. 

Up $1.7 billion (21 percent) to $9.5 

billion. 

Sionificant. 1—Imports from Mexico were stimulated 

by several factors, including: investments in new 

plants and capacity expansions by U.S. and 

foreign firms attracted by NAFTA rules-of-origin 

requirements and liberalization of foreign 

investment regulations; the strength of the U.S. 

motor vehicle market; the collapse of the Mexican 

market; relatively lower labor costs in assembly 

operations; and continued integration efforts by 

U.S. automakers. 

Imports from Canada reflect expansions in 

assembly operations and the integrated nature of 

the U.S. and Canadian industries. 

U.S. exports: 

To Mexico 

To Canada 

Up $70 million (2 percent) to $4.8 

billion. 

Up $5.7 billion (47 percent) to $17.6 

billion. 

- 

Nealiaible. 2—Exports to Mexico exhibited little 

growth principally because of the effect of the 

peso devaluation on the automotive market and 

the increasing share of sales permitted from 

maquiladoras to the Mexican market. 

Exports to Canada were spurred by expansions in 

vehicle and parts assembly operations which use 

higher-valued U.S. parts, and the high degree of 

integration between the U.S. and Canadian 

industries. 

Employment Up 88,000 (15 percent) to 660,000 

employees. 

Nealiaible.—The continued strength of the U.S. 

and Canadian motor vehicle markets and 

investments in greenfield plants and capacity 

expansions have supported employment growth 

in the U.S. auto parts industry. 

Average hourly wages Up $1.53 (11 percent) to $15.67 

per hour. 

Neoliaible.—NAFTA had little, if any, effect on 

wages. 

'The change in specified performance indicators from 1993 to 1996 is due in considerable measure to NAFTA as 

compared with any other economic factor or industry development occurring during the period. 

2 The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

Standard Industrial Classification (SIC) Industry Nos. 3691, Storage Batteries; 3694, Electrical Starting and 

Ignition Equipment for Internal Combustion Engines; 3714, Motor Vehicle Parts and Accessories; 3715, Truck Trailers; 

and 3792, Travel Trailers and Campers. The motor vehicle parts and accessories segment of this sector accounted for 

78 percent of U.S. imports and 88 percent of U.S. exports in 1996. 

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6-53
Performance 

indicator 

Performance measure during 

199346 NAFTA effect 

Labor productivity' Up 10 percent during 1993-95. Nealiaible.—Cost-cutting strategies implemented 

by U.S. auto parts manufacturers accounted in 

large part for improved labor productivity. 

U.S. investment in 

Mexico 

The U.S. Big Three invested a total 

of $2.9 billion in the motor vehicle 

and parts industries during the 

period.` Data on investment in the 

auto parts sector by independent 

U.S. component manufacturers are 

unavailable. 

Nealioible.—Investments in Mexico by the U.S. 

automotive industry are designed to further 

integrate North American production capacity and 

to supply U.S.-owned assembly facilities; to gain 

access to Mexican and Latin American markets; 

to benefit from NAFTA-related changes to 

Mexico's Auto Decree liberalizing foreign 

investment restrictions in the auto sector; to 

improve competitiveness with the use of lower 

cost labor (especially in more labor-intensive 

assembly operations); and to modernize existing 

plants. 

Investment in the 

United States 

Reported planned U.S. and foreign 

investments exceeded $5.5 billion. 

Neoliaible.—Although U.S. and foreign investment 

in the U.S. industry has been considerable, most 

has been driven by non-NAFTA factors such as 

protection from currency rate fluctuations; bilateral 

trade pressures; efforts to lower production costs; 

plant modernizations and expansions; strength of 

the U.S. motor vehicle market; and globalization 

of foreign automakers and their suppliers. 

Other NAFTA-related 

investment 

Reported planned foreign 

investments exceeded $500 million. 

Significant.—Major investments in new capacity 

and plant expansions in Mexico by Japanese, 

German, and Italian auto parts producers benefit 

from NAFTA-related changes to Mexico's Auto 

Decree liberalizing foreign investment restrictions 

in the auto sector, and provide access to Mexican 

and Latin American markets. Foreign auto parts 

manufacturers are also pursuing globalization 

strategies to supply their automotive customers in 

overseas markets (e.g., Nissan and Volkswagen 

in Mexico). 

Investment in the Canadian auto parts industry 

has reportedly been considerable. This 

investment is primarily driven by the integration 

and rationalization of the U.S.-Canadian 

automotive industries, and capacity expansions by 

U.S. and Japanese automakers, rather than 

NAFTA-related considerations. However, 

Japanese component manufacturers have 

recently been reported to be increasing 

investments in Canada, in part because of 

NAFTA-related rules of origin requirements. 

3Productivity was calculated by dividing industry shipments by p oduction worker hours for 1993-95. Data 

compiled from the U.S. Bureau of the Census, Annual Survey of Manufactures, 1994 and 1995. 

American Automobile Manufacturers Association, post-hearing statement, p. 2. 

Source: Compiled by the staff of the U.S. International Trade Commission. 

6-54 

6-54
Summary of Sector Analysis' 

Developments in the U.S. motor vehicle parts industry are driven by a number of significant factors, including 

the strength of the U.S. economy and motor vehicle market, efforts by manufacturers to enhance 

competitiveness by lowering production costs and improving production efficiencies, greater 

internationalization of auto parts makers to supply their automotive customers in overseas markets, and 

continued integration by U.S. automakers in their North American operations. In addition, the peso crisis and 

the implementation of NAFTA have recently contributed to changes in the Mexican economic environment 

which have influenced trade patterns and industry conditions among the NAFTA partners. NAFTA, in 

particular, has altered the economic and business climate in Mexico. Measurable changes resulting from 

NAFTA significant to the auto parts sector include implementation of North American rules of origin 

requirements and foreign investment liberalization. Intangible NAFTA effects, such as the impact on the 

psychological climate of conducting business with NAFTA partners because of reduced business risk, are 

difficult, if not impossible, to assess but could be an important factor in manufacturers' trade and investment 

decisions. 

The U.S. and Canadian industries are highly integrated and dominated by U.S.-owned motor vehicle 

manufacturers, with bilateral motor vehicle and original equipment parts trade previously liberalized under 

the Automotive Products Trade Pact (APTA) implemented in 1965. Although Japanese transplant 

automakers Toyota and Honda are integral players in the Canadian motor vehicle industry,' Japanese 

component manufacturers have yet to develop as large a presence in the Canadian auto parts market. 

The Big Three U.S. automakers are among the top motor vehicle and parts producers in Mexico, with 

considerable investments in the Mexican industry pre-dating NAFTA. Integration between the U.S. and 

Mexican industries, however, has been constrained by extensive Mexican regulations on investment and trade 

outlined in its 1983 Auto Decree, parts of which were liberalized with the implementation of the 1989 Auto 

Decree.' As a result, maquiladora operations have historically represented the principal means by which U.S. 

and other foreign auto parts manufacturers have gained a presence in the Mexican market. Under NAFTA, 

the Mexican Auto Decree will gradually be phased out by January 1, 2004, and regulations limiting the sales 

of maquiladora operations to the Mexican market will also be eliminated by 2001. In addition, liberalization 

of foreign investment regulations has enhanced prospects for greater foreign participation in the Mexican 

market. Mexico has become a more attractive investment site for U.S. and foreign motor vehicle 

manufacturers and their parts suppliers seeking lower cost production facilities and access to Latin American 

motor vehicle markets. Moreover, Mexico has also concluded trade agreements with Chile and other Latin 

American countries providing local producers preferential access to these markets. Benefits accrue not only 

2Views of parties that submitted written and/or oral testimony to the Commission in connection with this 

investigation are summarized in Appendix D. Copies of the hearing transcript and copies of all written testimony are 

being provided separately to USTR. 

3Japanese transplant automakers accounted for close to 20 percent of 1996 Canadian motor vehicle production. 

The 1989 Auto Decree, for example, modified the conditions under which manufacturers qualify as a "national 

supplier" or an "enterprise of the autoparts industry;" relaxed national value-added rules for parts that must be 

purchased from national parts producers; reduced trade balancing requirements for domestic automakers; and eased 

limitations on imports of vehicles based on sales in the Mexican market. The full title of the Auto Decree is The Decree 

for Development and Modernization of the Automotive Industry; its implementation legislation is entitled the Resolution 

That Establishes Rules for the Implementation of the Auto Decree. See U.S. Department of State telegram No. 013696, 

"Foreign Investment Report, 1996-1997," prepared by U.S. Embassy, Mexico City, Oct 1996, and U.S. International 

Trade Commission, Potential Impact on the U.S. Economy and Selected Industries of the North American Free -Trade 

Agreement, investigation No. 332-337, USITC publication 2596, Jan. 1993. 

6-55 

6-55
to U.S. and other foreign manufacturers, but to the 

Mexican auto parts industry as well, which greatly 

depends on the technological know-how and 

engineering and design skills offered by foreign 

component manufacturers.' Planned U.S. and 

foreign investment in the Mexican auto parts 

industry exceeds a reported $450.0 million for 

1996-97. 5 

Trade Flows 

Total trade in motor vehicle parts increased by 

36 percent during 1993-96 to $60.5 billion. 

Comparable trade for the United States and 

Canada grew by 37 percent to $27.1 billion, and by 

42 percent to $12.0 billion for the United States 

and Mexico. Canada and Mexico accounted for 

nearly 65 percent of total U.S. trade in this sector 

in 1996, reflecting the high degree of integration of 

the North American automotive industry and the 

market liberalizations resulting from NAFTA. 

Key Provisions Affecting Sector 

Tariffs 

U.S. average trade-weighted tariff equivalents 

(AVEs) in 1993 and 1996 for imports from (in 

percent): 

1993 . 1996 

Canada 0.16 46 

Mexico 1.7. Al 

All otb.e 2:94 2.7 

Phase-in period: Most tariffs with Canada reduced 

under the CFTA. Most tariffs with Mexico 

eliminated with implementation of NAFTA. 

Pre-NAFTA border and other measures 

Trade-balancing requirements: $1.75 of exports for 

every $1.00 of imports; local content and 

investment barriers. 

U.S. Imports — Although Canada remains the 

leading U.S. supplier of automotive parts, 

accounting for 32 percent of U.S. imports in 1996, 

imports from Mexico increased by 94 percent 

during 1993-96 to $7.1 billion, representing 

24 percent of total automotive parts imports. 

Mexico surpassed Japan in 1996 to become the 

second- leading U.S. supplier of motor vehicle 

parts.' This substantial growth reflects, in part, 

investment in Mexican auto parts facilities by U.S. 

and foreign vehicle producers (both prior to and 

after NAFTA); the collapse of the Mexican market 

in 1995; and the continued strength of the U.S. motor v 

of U.S. parts imports during the period, rising from 51 

Post-NAFTA border and other measures 

Annex 300-A covers trade and investment in the 

automotive industry. Trade-balancing requirements 

reduced to $0.77 of exports for every;$1.00 

imported in 1995; Mexican Auto Decrees to be 

phased out by Jan. 1, 2004; maquiladora sales 

restrictions to be lifted by 2001; liberalization of 

requirements " for national supplier and 

 "enterprise of the autoparts industry" status. 

Implementation of NAFTA rules of origin 

requirements for preferential duty treatment 

chicle market. NAFTA partners increased their share 

percent to 56 percent in 1996. 

Deebe Ferris, "Mexico Beckons: NAFTA, Recession Give Foreign Suppliers the Edge," Ward's Auto World, July 

1996, p. 69. 

Investnient data for the motor vehicle parts industry provided in this analysis are based on published reports of 

planned investments in Mexico, the United States, and Canada collected from a number of industry publications; as 

such, these figures indicate potential levels of investment and do not represent absolute levels of investment undertaken. 

' During the period covered by the study, Japanese transplant automakers increased their purchases of U.S.-made 

auto parts from U.S. and Japanese transplant parts suppliers -- rather than import from Japan -- partly in response to 

U.S. pressure to boost U.S. content 

6-56 

6-56
Production sharing operations have been a significant factor affecting trade between the United States and 

Mexico and, to a much lesser extent, Canada.' U.S. imports from Mexico reported under HTS provisions 

9802.00.60, 9802.00.80, and 9802.00.90 increased by 43 percent during 1993-96 to $4.0 billion, 

representing more than one-half of motor vehicle parts imports from Mexico. U.S. content accounted for 

approximately 57 percent of production sharing imports from Mexico in 1996, unchanged from the 1993 

level. With the implementation of NAFTA, the foreign value added to the subject imports enters free of duty 

or at reduced duties when satisfying origin requirements. In 1996, 84 percent of the foreign value added to 

these imports entered under NAFTA. 

Engines accounted for about 20 percent of U.S. motor vehicle part imports from Mexico in 1996. Several 

U.S. and foreign automakers, including the Big Three, Nissan, and Volkswagen, started production of engines 

in Mexico in the 1980s to gain cost advantages from lower wage rates.' Mexican operations now supply 

engines for a range of U.S. vehicle models. 

U.S. Exports — Canada consolidated its position as the leading U.S. market for motor vehicle parts exports, 

as U.S. exports to Canada rose by 47 percent during 1993-96 to $17.6 billion and accounted for 58 percent of 

total parts exports. The expansion of assembly and parts facilities that use high-valued U.S. parts as 

components, as well as the considerable links between the U.S. and Canadian industries, contributed to this 

growth. The sharp contraction of the Mexican automotive market in 1995 because of the peso devaluation 

and the increasing share of sales permitted from maquiladoras to the Mexican market' led to stagnant U.S. 

export levels for motor vehicle parts to Mexico, as exports increased by only 2 percent during 1993-96 to 

$4.8 billion. Although Mexico retained its position as the second-leading U.S. export market, its share of 

U.S. exports fell from 21 percent in 1993 to 16 percent in 1996. However, the share of U.S. exports 

represented by NAFTA partners remained relatively stable at about 75 percent during the period due to the 

increased Canadian share of total U.S. exports. 

Investment 

Other Significant Investment 

Ongoing liberalizations in the Mexican economy and foreign investment environment have enhanced 

opportunities for foreign automakers and their suppliers seeking lower-cost operations in North America." 

In many cases foreign auto parts suppliers are following their domestic customers -- automakers such as 

8 For more information on production sharing, see U.S. International Trade Commission, Production Sharing: Use 

of U.S. Components and Materials in Foreign Assembly Operations, 1992-95 (U.S. Imports Under ProductionSharing Provisions of Harmonized Tariff Schedule Heading 9802), investigation No. 332-237, USITC publication 

3032, Apr. 1997. 

9 NAFTA, The First Year: A View from Mexico, David R. Davila Villers, ed. (University Press of America, Inc., 

Lanham, MD, 1996), p. 65. 

World Wide Web, retrieved Oct. 10, 1996, www.ita.doc.gov , Impact of the North American Free Trade 

Agreement on U.S. Automotive Exports of Mexico: Second Annual Report to Congress - July 1996, U .S. Department 

of Commerce, International Trade Administration, p. 7. 

" According to the American Automobile Manufacturers Association (AAMA), some significant large investments 

have occurred in the Mexican auto parts industry since the implementation of NAFTA. Andrew Card, AAMA, hearing 

transcript, May 16, 1997, p. 403. 

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6-57
Nissan and Volkswagen -- as they expand and globalize their operations.' Japanese, Italian, and German 

auto parts manufacturers have reportedly committed to investments in excess of $330.0 million in the 

Mexican auto parts industry since 1996. Many of these investments are focused on the manufacture and 

assembly of engines and engine parts.' Foreign automakers' expansions in the Mexican market have also 

provided new sales opportunities for U.S. auto parts malcers. 14For example, Honda started Mexican 

production of Accord sedans in late 1995 at a new assembly plant, and 121 U.S. parts producers are now 

supplying components for this operation.' 

In the Mexican automotive market, Auto Decree requirements, such as the conditions necessary to qualify as 

a national supplier or enterprise of the autoparts industry in Mexico, are being liberalized to conform with 

NAFTA provisions. During this transition period, manufacturers must still meet a substantial national 

value-added requirement that provides an incentive to invest in the Mexican industry.' Although NAFTA 

local content requirements for motor vehicles may impede foreign automakers' immediate duty-free access to 

the North American market, their investments can serve as platforms to enter the Mexican automotive market 

and thus several Latin American markets, such as Chile, that have concluded trade agreements with Mexico." 

As with NAFTA, a minimum level of local content in vehicles exported to partner countries is required, 

providing impetus to the Mexican motor vehicle parts industry. 

The Canadian automotive parts industry has reportedly attracted significant investment in recent years. 

Although the amount of such investment in the auto parts industry is unknown, much of this investment is 

believed to originate from U.S. and Japanese automakers,' as well as U.S. and Canadian parts producers. 

For example, about 80 German auto parts firms have reportedly established Mexican production bases in recent 

years to enable Volkswagen to meet NAFTA' s rules of origin requirements for duty-free treatment. With production of 

the new Beetle, Volkswagen expects another 40 firms to set up operations in Mexico. According to a Volkswagen 

official, "the advantage of NAFTA is that we changed our supplier base from Europe to the North American region." 

Mary Beth Sheridan, "For Mexico, NAFTA Means That Giant Job-Plucking Sound," received by NEWS/EDGE LAN, 

Dec. 6, 1996. 

13For examples of announced engine investment projects, see "Viag Unit in Engine Venture," Automotive News, Oct. 

28, 1996, p. 40C, "Mexico Update," Twin Plant News, Jan. 1996, p. 9, and U.S. Department of State telegram, 

"Monterrey: Northern NAFTA Notes," message reference No. 000124, prepared by U.S. Embassy, Monterrey, Jan. 

1997. 

14 According to the United Auto Workers (UAW), increased U.S. exports of auto parts to Mexico do not always 

benefit workers in the U.S. automotive industry. In the case of the Ford Escort plant in Mexico, for example, U.S. parts 

output was directed to the Mexico plant which replaced one of Ford's U.S. operations, resulting in an overall loss of jobs 

in the U.S. automotive sector. Steve Beckman, UAW, hearing transcript, May 15, 1997, pp. 164-165. 

15Impact of the North American Free Trade Agreement on U.S. Automotive Exports of Mexico: Second Annual 

Report to Congress - July 1996, p. 5. 

16Foreign ownership of auto parts firms has already increased. Foreign-owned suppliers accounted for nearly 33 

percent of all registered auto parts companies in Mexico as of July 1995, up from 6 percent in 1992. This growth 

primarily came at the expense of Mexican-owned suppliers, whose share fell from 52 percent to 33 percent during the 

same period. Maquiladoras accounted for the remaining -- and declining -- share of Mexican auto parts firms. 

Information from the National Foreign Direct Investment Commission, Banxico, and Secofi, as presented in Ferris, 

"Mexico Beckons: NAFTA, Recession Give Foreign Suppliers the Edge," p. 69. 

'Impact of the North American Free Trade Agreement on U.S. Automotive Exports of Mexico: Second Annual 

Report to Congress - July 1996, p. 4. 

18For example, Ford invested $134 million Canadian in new equipment for production of V-8 and V-10 engines at its 

Windsor, Ontario facility for use in its F-series pickups, certain sport utility vehicles, and Econoline vans assembled in 

the United States. "Machine for Ford Engine Plant Expansion Arrives on World's Largest Aircraft," received by 

(continued...) 

6-58 

6-58
Japanese component manufacturers currently account for a small portion of these investments,' but this 

situation may be changing. A recent report indicates that Japanese component manufacturers consider 

Canada to be an attractive investment site because of its relatively inexpensive yet skilled labor force, the 

duty-free advantages of NAFTA-based production, and the capacity expansions of both Toyota and Honda at 

their Canadian assembly operations.' 

(...continued) 

NEWS/EDGE LAN, Apr. 21, 1997. Chrysler Canada recently announced plans to invest $1.3 billion Canadian to 

upgrade its Canadian auto plants (auto parts were not specifically cited as part of this investment). U.S. Department of 

State telegram No. 000604, "Summary of Canadian Economic and EST Developments, February 7-13, 1997," prepared 

by U.S. Embassy, Ottawa, Feb. 1997. 

19"Japanese Source Canada More, Not Enough," Ward's Automotive Reports, July 29, 1996, p. 2, and "Canadian 

Parts Makers Push for More Japan Business, But So Far It's Slow Going," The Japan Automotive Digest, July 22, 

1996, pp. 1 and 6. 

20"Sumitomo Will Start Up Canadian Wire Harness Factory," The Japan Automotive Digest, Apr. 7, 1997, p. 7. 

6-59 

6-59
Table 6-55-2 

Motor vehicle parts: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percent 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) . . . . 102,622.4 117,685.4 125,082.4 138,091.0 35,468.6 34.6 

Consumption (million dollars) 102,927.5 118,894.0 124,053.9 137,959.9 35,032.5 34.0 

Trade data (million dollars): 

Exports: 

Total 22,071.6 25,264.8 29,154.9 30,303.3 8,231.7 37.3 

To Mexico 4,776.4 5,116.9 4,747.0 4,846.3 69.9 1.5 

To Canada 11,936.5 14,224.7 17,179.5 17,597.6 5,661.2 47.4 

To non-NAFTA countries 5,358.7 5,923.2 7,228.4 7,859.3 2,500.6 46.7 

Imports: 

Total 22,376.6 26,473.4 28,126.4 30,172.3 7,795.6 34.8 

From Mexico 3,657.1 5,109.7 6,381.3 7,107.2 3,450.1 94.3 

From Canada 7,864.4 8,441.7 8,336.8 9,545.4 1,681.0 21.4 

From non-NAFTA countries 10,855.2 12,922.0 13,408.3 13,519.7 2,664.5 24.5 

Trade balance: 

Total -305.1 -1,208.6 1,028.5 131.1 436.1 (2 

With Mexico 1,119.4 7.3 -1,634.3 -2,260.9 -3,380.2 (2 

With Canada 4,072.0 5,782.9 8,842.7 8,052.2 3,980.2 97.7 

With non-NAFTA countries . -5,496.5 -6,998.8 -6,179.9 -5,660.3 -163.9 -3.0 

Total trade: 

Total 44,448.2 51,738.2 57,281.3 60,475.6 16,027.4 36.1 

NAFTA partners 28,234.4 32,893.0 36,644.6 39,096.6 10,862.2 38.5 

With Mexico 8,433.5 10,226.6 11,128.3 11,953.6 3,520.1 41.7 

With Canada 19,800.9 22,666.4 25,516.3 27,143.1 7,342.2 37.1 

Import market share (percent): 

Total 21.7 22.3 22.7 21.9 0.1 (2) 

Mexico 3.6 4.3 5.1 5.2 1.6 (2) 

Canada 7.6 7.1 6.7 6.9 -0.7 (2) 

Non-NAFTA countries 10.5 10.9 10.8 9.8 -0.7 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.7 1.7 0.8 0.4 -1.3 (2) 

Canada 0.2 0.3 0.4 0.5 0.3 (2) 

All other 2.9 3.0 2.9 2.7 -0.2 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) 572.1 627.4 667.1 660.1 88.0 15.4 

Production workers 

(1,000 persons) 454.4 504.0 535.3 528.6 74.2 16.3 

Average hourly wages of 

production workers $14.14 14.80 15.37 15.67 1.53 10.8 

1 For a discussion of the effects of the NAFTA reciprocal access provisions for trucking services on U.S. truck trailer 

shipments, see the section on land transportation services in the Services chapter. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

6-60 

6-60
ITC Group No. 3: Field Crops' 

Table 6-3-1 

Field crops: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 15,870.0 16,470.0 16,570.0 17,030.0 1,160.0 7.3 

Consumption (million dollars) . . . 15,628.2 16,277.4 16,292.8 16,834.8 1,206.5 7.7 

Trade data (million dollars): 

Exports: 

Total 549.0 628.9 733.1 715.7 166.7 30.4 

To Mexico 31.3 44.7 34.6 52.6 21.3 68.1 

To Canada 110.0 110.4 136.7 148.5 38.5 35.0 

To non-NAFTA countries 407.7 473.8 561.8 514.6 106.9 26.2 

Imports: 

Total 307.2 436.3 455.9 520.5 213.3 69.4 

From Mexico 35.5 38.7 31.1 32.3 -3.1 -8.8 

From Canada 78.2 153.7 105.1 140.6 62.4 79.8 

From non-NAFTA countries 193.6 243.8 319.7 347.5 153.9 79.5 

Trade balance: 

Total 241.8 192.6 277.2 195.2 -46.5 -19.2 

With Mexico -4.2 5.9 3.6 20.3 24.4 (2) 

With Canada 31.8 -43.3 31.6 7.9 -23.9 -75.2 

With non-NAFTA countries 214.1 229.9 242.1 167.1 -47.1 -22.0 

Total trade: 

Total 856.2 1,065.2 1,189.0 1,236.2 380.0 44.4 

NAFTA partners 255.0 347.5 307.6 374.1 119.2 46.7 

With Mexico 66.7 83.4 65.7 84.9 18.2 27.3 

With Canada 188.2 264.1 241.8 289.2 101.0 53.6 

Import market share (percent): 

Total 2.0 2.7 2.8 3.1 1.1 (2) 

Mexico 0.2 0.2 0.2 0.2 0.0 (2) 

Canada 0.5 0.9 0.6 0.8 0.3 (2) 

Non-NAFTA countries 1.2 1.5 2.0 2.1 0.8 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.2 

33)) 

0.2 0.2 0.0 ( 2) 

Canada (3) (3) (3) (3) 

(2) 

All other 0.4 0.4 0.9 0.9 0.5 (2) 

U.S. industry indicators: 

Employees (1,000 persons) . . (4) (4) (4) (4) 

(5) (5) 

Production workers 

(1,000 persons) (4) (4) (4) (4) 

(5) (5 ) 

Average hourly wages of 

production workers (4) (4) (4) (4) 

(5) (5) 

Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent 

4Not available. 

5Not applicable. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry No. 0139, Field Crops, Except Cash Grains, Not Elsewhere 

Classified. Domestic shipments are composed chiefly of hay and alfalfa (80 percent of domestic shipments), field and 

garden seeds (12 percent), and peanuts (6 percent). Other crops are hops, canola seed (rapeseed), mint leaves, and 

herbs, among others. 

6-61 6-61
Summary of Sector Analysisz 

U.S. Imports — NAFTA had a negligible' effect on U.S. imports from NAFTA partners of these various field 

crops.' U.S. imports from Canada increased 80 percent to $141 million in 1996, principally to meet higher 

U.S. demand for rapeseed or canola seed (used in producing canola oil). Such products of Canadian origin 

enter the United States mostly free of duty or at rates of less than 4 percent ad valorem. The tariffs were free 

prior to NAFTA on U.S. imports of Canadian rapeseed and fescue seed, which accounted for two-thirds of 

sector products imports from Canada. 

From 1993 to 1996, imports from Mexico declined by 9 percent to $32 million in 1996, in part because of a 

lower sesame seed crop in Mexico owing to adverse weather conditions in Mexico. There was a $2 million 

increase in U.S. imports of shelled peanuts from Mexico. U.S. peanut imports are restricted through tariffrate quotas, while imports eligible under NAFTA are either free of duty or subject to tariff-rate quotas. U.S. 

imports of broom corn from Mexico fell from $13 million in 1993 to $6 million in 1996. Broom corn from 

Mexico is used to make brooms in the United States, and U.S. broom production fell during this period.' 

U.S. tariffs on broomcorn from Mexico were eliminated under NAFTA. U.S. sesame seed imports were dutyfree prior to NAFTA. 

US. Exports — NAFTA had a negligible effect on U.S. exports of sector products although the agreement 

did aid exports of certain U.S. products to Mexico, such as shelled peanuts and grass seed. U.S. exports to 

Mexico rose by 68 percent from $31 million in 1993 to $53 million in 1996, being boosted by strong demand 

in Mexico. 

U.S. exports of field crops to Canada rose steadily during the period to $149 million in 1996, or by $38 

million. The increase in U.S. exports to Canada consisted primarily of rapeseed and peanuts. Canada does 

not grow peanuts, but processes peanuts from the United States and elsewhere into prepared or preserved 

peanut products.' 

Other Factors — From 1993 to 1996, total U.S. trade in field crops rose by 44 percent to $1.2 billion; much 

of the increased trade occurred because of higher prices increasing the value of trade. Total U.S.-Mexico 

trade for the sector grew by 27 percent ($18 million), to $85 million in 1996. Likewise, total U.S.-Canada 

sector trade increased by 54 percent ($101 million), to $289 million in 1996. 

Under NAFTA, the market access provisions of the U.S.-Canada Free Trade Agreement continue to be in effect. 

NAFTA did establish bilateral market access provisions between the United States and Mexico and contains trilateral 

provisions on domestic support, export subsidies, rules of origin, safeguards, and phytosanitary standards for these 

products. 

3Views of parties that submitted written and/or oral testimony to the Commission in connection with this 

investigation are summarized in Appendix D. Copies of the hearing transcript and copies of all written testimony are 

being provided separately to USTR. 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than the NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

5The leading sector products traded internationally are peanuts, canola seed, grass and other seeds, and hops. 

'For more information about the U.S. broom corn broom industry and the effects of imports of brooms from Mexico, 

see U.S. International Trade Commission, Broom Corn Brooms (investigation Nos. TA-201-65 and NAFTA 302-1), 

USITC publication 2984, Aug. 1996, pp. II-4--II-5. 

These processed products are not included in this sector. 

6-62 6-62
Generally, there is little foreign direct investment in this industry which mostly consists of farming 

operations. There is little foreign ownership of farmland in the NAFTA countries. 

The prior U.S. requirement that alfalfa and red clover seed imported from Mexico be stained red for 

identification was removed in 1994. 8 

8 59 F.R. 655, Jan. 6, 1994. 

6-63 6-63
ITC Group No. 4: Fresh Vegetables, and Canned and Frozen Fruits and Vegetables' 

Table 6-4-1 

Fresh vegetables, and canned and frozen fruits and vegetables: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 6,998.0 7,950.0 8,916.0 8,092.0 1,094.0 15.6 

Consumption (million dollars) . . . 7,659.0 8,609.4 9,623.8 9,468.7 1,809.6 23.6 

Trade data (million dollars): 

Exports: 

Total 2,345.6 2,578.2 2,848.0 2,815.6 470.1 20.0 

To Mexico 82.4 112.0 46.8 74.8 -7.6 -9.3 

To Canada 1,066.3 1,019.1 1,139.6 1,132.3 66.0 6.2 

To non-NAFTA countries 1,196.8 1,447.1 1,661.6 1,608.5 411.7 34.4 

Imports: 

Total 3,006.6 3,237.6 3,555.8 4,192.3 1,185.7 39.4 

From Mexico 1,101.6 1,213.8 1,447.5 1,642.0 540.3 49.0 

From Canada 199.3 225.4 287.6 375.1 175.8 88.2 

From non-NAFTA countries 1,705.7 1,798.3 1,820.7 2,175.2 469.5 27.5 

Trade balance: 

Total -661.0 -659.4 -707.8 -1,376.7 -715.6 -108.3 

With Mexico -1,019.2 -1,101.9 -1,400.6 -1,567.2 -548.0 -53.8 

With Canada 867.1 793.7 851.9 757.2 -109.8 -12.7 

With non-NAFTA countries -508.9 -351.2 -159.1 -566.8 -57.9 -11.4 

Total trade: 

Total 5,352.1 5,815.8 6,403.8 7,007.9 1,655.8 30.9 

NAFTA partners 2,449.6 2,570.4 2,921.5 3,224.2 774.6 31.6 

With Mexico 1,184.1 1,325.8 1,494.3 1,716.8 532.7 45.0 

With Canada 1,265.6 1,244.5 1,427.2 1,507.4 241.9 19.1 

Import market share (percent): 

Total 39.3 37.6 36.9 44.3 5.0 (2) 

Mexico 14.4 14.1 15.0 17.3 3.0 (2) 

Canada 2.6 2.6 3.0 4.0 1.4 (2) 

Non-NAFTA countries 22.3 20.9 18.9 23.0 0.7 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 9.7 5.7 6.0 4.9 -4.8 (2) 

Canada 4.2 3.3 2.4 1.5 -2.7 (2) 

All other 10.3 10.6 6.0 6.6 -3.7 (2) 

U.S. industry indicators:3 

Employees (1,000 persons) . . . 132.2 131.5 128.8 119.9 -12.3 -9.3 

Production workers 

(1,000 persons) 112.3 111.5 108.7 101.4 -10.9 -9.7 

Average hourly wages of 

production workers $9.84 10.01 10.42 10.84 1.00 10.2 

'Production or utilized production from U.S. Department of Agriculture, National Agricultural Statistical Service and the 

Economic Research Service for SIC 0161. Data for SIC 2033 and SIC 2037 are from 1995 Annual Survey of 

Manufactures and Ward's Manufacturing USA. 

2Not meaningful for purposes of comparison. 

3Data are for SIC 2033 and SIC 2037 only, as reliable data for SIC 0161 are not available. Compiled from official 

statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classifications (SIC) Industry Nos. 0161, Vegetables and Melons; 2033, Canned Fruits, 

Vegetables, Preserves, Jams, and Jellies (including catsup, salsa, sauces, juices, and concentrates); and 2037, Frozen 

Fruits, Fruit Juices, and Vegetables. 

6-64 

6-64
Summary of Sector Analysis2' 3 

U.S. Imports - NAFTA had a negligible effect on the increases in U.S. imports from Mexico and Canada of 

products in this sector. The United States currently imports 11 percent of its total vegetable supply, with 

Mexico as its major supplier. 4Before NAFTA, imports accounted for about 8 percent of the fresh vegetable 

supply. Products imported from NAFTA partners include melons, frozen concentrated orange juice, and 

canned and fresh vegetables and certain condiments, among other products. Per capita consumption in 1996 

rose to the highest levels since the mid-1940s, at about 153 pounds per person, attributable to consumer 

health benefits and access to off-season supply. Import penetration is highest for eggplant (43 percent), 

cucumbers (37 percent), asparagus (35 percent), and tomatoes (37 percent). 5 

The increase in imports from Mexico (table 6-4-2) is due largely to increased demand by consumers in the 

United States for fresh fruits and vegetables. Additional factors contributing to the increased imports include 

technological advances in the vegetable growing industries in Mexico and damaging frosts in Florida, which 

disrupted the supply of domestic winter tomatoes harvested from 1993-96. Winter vegetables are the largest 

portion of imports from Mexico in this sector, accounting for $672 million of a total $1.6 billion in 1996. 6 

Table 6-4-2 

U.S. fresh vegetable imports from Mexico, by volume 1993-1996 

(Metric tons) 

Type 1993 1994 1995 1996 

Tomatoes 400,493 376,034 593,065 685,681 

Cucumbers 204,422 228,229 238,986 293,753 

Bell peppers 101,234 96,713 116,173 143,734 

Squash 89,285 99,257 113,217 135,440 

Eggplant 17,941 21,020 24,104 29,780 

Asparagus 23,061 17,826 21,753 18,441 

Snap beans 10,746 9,623 15,524 17,124 

Source: Bureau of the Census, Department of Commerce 

Increased imports of sector products from Canada occurred in tomatoes, carrots, jams, frozen blueberries, 

frozen french fries, and other frozen potatoes and condiments. The increased imports of tomatoes were due in 

large part to growing U.S. demand for tomatoes, and increased Canadian production and export of hothouse 

2Under NAFTA, the market access provisions of the U.S.-Canada Free Trade Agreement continue to be in effect. 

NAFTA did establish bilateral market access provisions between the United States and Mexico and contains trilateral 

provisions on domestic support, export subsidies, rules of origin, safeguards, and phytosanitary standards for these 

products. 

Views of parties that submitted written and/or oral testimony to the Commission in connection with this 

investigation are summarized in Appendix D. Copies of the hearing transcript and copies of all written testimony are 

being provided separately to USTR. 

° USDA, Economic Research Service (ERS). 

Under NAFTA-Trade Adjustment Assistance, 2,126 workers in the fresh vegetable sector (principally snap beans, 

asparagus, artichokes) were certified as eligible to apply for benefits due to job losses during 1994-96. U.S. Department 

of Labor, NAFTA Office. Although these job losses are certified to be the result of plant relocations to Mexico or 

Canada and/or increased imports from these countries, NAFTA may not have been the cause of plant relocation 

decisions or the reason for the increase in imports. 

6-65 

6-65
tomatoes. The increase in imports of frozen french fries from Canada is due in part to increased contracting 

between Canadian potato processors and U.S. fast food restaurants. The imports of blueberries, tomato 

juices, and ketchup rose principally in 1996. Overall, the effective AVE on imports from Canada declined 

from 4.2 percent ad valorem in 1993 to 1.5 percent ad valorem in 1996. 

Tomatoes and other winter vegetables 

U.S. imports of tomatoes from Mexico accounted for the largest share of the value of imports in this sector, 

rising from $304 million (400 thousand metric tons) to $580 million (686 thousand metric tons) during 1993-

96. Imports of tomatoes have increased steadily from Mexico both before NAFTA and since the 

implementation of NAFTA. The principal tomato-growing area in Mexico is along the western Mexican 

coast, particularly in the state of Sinaloa. The bulk of tomato imports from Mexico enter the United States 

at Nogales, Arizona. Imports tend to be at their highest level in February and March, when they are most 

competitive with tomatoes grown in Southern Florida. Imports of tomatoes, eggplants, and squash are 

subject to a tariff rate quota (table 6-4-3). 

Table 6-4-3 

U.S. tariff rate quotas for Mexican vegetables, tariff rate quota volume or actual 

trade if quota was not filled 

(Kilograms) 

Type 1994 1995 1996 

Tomatoes, 3/1 - 7/14 165,500,000 170,465,000 175,579,000 

141,883,302 filled 5/16 filled 4/25 

Tomatoes, 11/15-2/28 or 29 Not available. 172,300,000 177,469,000 

Not available. filled 2/27 filled 2/12 

Eggplant, 4/1 - 6/30 3,700,000 3,811,000 3,925,000 

filled 5/23 filled 6/5 filled 5/3 

Squash, 10/1 - 6/30 Not available. 120,800,000 124,424,000 

Not available. 104,939,592 filled 5/6 

Source: USDA/FAS 

The increased imports from Mexico of these commodities reflect in part the use of improved seed varieties, 

including extended shelf life varieties, better storage facilities, and improved physical access to the U.S. 

market via a relatively new toll road between the principal growing area in Mexico and the U.S. border. 

Mexican growers can be affected by adverse weather conditions such as frosts and excess rain or flooding, 

but are believed to be less susceptible to such conditions than growers in Florida. Some members of the 

domestic industry also attribute the increase in imports of Mexican tomatoes, and the concomitant declines in 

domestic tomato production, to the peso devaluation.' Other industry participants, however, do not believe 

that currency exchange rates or devaluations have a large impact on the price or production of Mexican 

tomatoes, since a large part of the production inputs to tomato production in Mexico are imported from the 

United States; much of the seed, fertilizer, and chemicals used by Mexican tomato growers is imported from 

the United States.' Other factors contributing to the increase in tomatoes from Mexico include the "slight 

' Reginald L. Brown, Florida Fruit and Vegetable Association, representing Florida growers, transcript of the 

hearing, May 15, 1997, pp. 303-305. 

Lee Frankel, Fresh Produce Association, representing produce importers, estimated that 70 percent of production 

input costs in Mexico are denominated in U.S. dollars, transcript of the hearing, May 15, 1997, pp. 252-253. 

6-66 

6-66
drop in the tariff on fresh tomatoes under NAFTA, However, the tariff reductions may have had less effect 

on tomato imports than the increase in U.S. demand for tomatoes from Mexico, because the majority of 

imports entered at the over-quota tariff rate. 10Tariffs on imports of fresh vegetables from Mexico are 

presented in table 6-4-4. 

Table 6-4-4 

U.S. Tariffs on imports of fresh vegetables from Mexico 

Cents per kilogram) 

Type 1993 1994 1995 1996 Phase-out 

period in years 

Tomatoes, fresh 

3/1-7/14 4.60 4.14 3.68 3.22 10 

7/15- 8/31 3.30 2.64 1.98 1.32 5 

9/1-11/14 4.60 3.68 2.76 1.84 10 

11/5 - 2/28 or 29 3.30 2.97 2.64 2.31 5 

Tomatoes, cherry 

5/1 -11/30 3.30 2.64 1.98 1.32 5 

12/1 - 4/30 3.30 0.00 0.00 0.00 immediate 

Bell peppers 

6/1 - 10/31 5.50 4.40 3.30 2.20 5 

11/1 - 5/31 5.50 4.95 4.40 3.85 10 

Cucumbers 

3/1 - 5/31 6.60 6.16 5.72 5.28 15 

6/1 - 6/30 6.60 5.28 3.96 2.64 5 

7/1 - 8/31 3.30 0.00 0.00 0.00 immediate 

9/1 - 9/30 6.60 5.28 3.96 2.64 15 

10/1 - 11/30 6.60 6.16 5.72 5.28 5 

12/1 - 2/28 or 29 4.90 0.00 0.00 0.00 immediate 

Squash 

7/1 - 9/30 2.40 1.92 1.44 0.96 5 

10/1 - 6/30 2.40 2.16 1.92 1.68 10 

Eggplant 

4/1 - 6/30 3.30 2.97 2.64 2.31 10 

7/1 - 9/30 3.30 0.00 0.00 0.00 immediate 

10/1 - 11/30 3.30 2.97 2.64 2.31 10 

12/1 - 3/31 2.40 0.00 0.00 0.00 immediate 

Snap Beans 

6/1 - 10/31 7.70 6.16 4.62 3.08 5 

11/1 - 5/31 7.70 6.93 6.16 5.39 10 

Source: USDA/FAS. 

U.S. International Trade Commission, Fresh Tomatoes from Mexico (investigation No. 731-TA-747 

(preliminary)), USITC publication 2967, May 1996, p. VII-1. 

1°The difference in the tariff level for products under the tariff rate quota and for those over the tariff rate quota is less 

than 0.10 per kilogram. 

6-67 6-67
Since 1993, U.S. tomato growers have filed two safeguard petitions under section 202 of the Trade Act of 

1974 and an antidumping petition under the Tariff Act of 1930 with respect to imports of tomatoes. Growers 

of bell peppers joined in the second of the two safeguard petitions. The U.S. International Trade Commission 

instituted the first safeguard investigation, No. TA-201-64, Fresh Winter Tomatoes, on March 29, 1995, in 

response to a petition filed by the Florida Tomato Exchange, et al. The Commission made a negative 

determination in the provisional relief phase of the investigation; the petition was subsequently withdrawn on 

May 4, 1995, and the investigation was terminated without a final determination.'' On March 11, 1996, the 

Commission instituted a second safeguard investigation, No. TA-201-66, Fresh Tomatoes and Bell Peppers, 

at the request of the Florida Fruit and Vegetable Association, et al., and in July made a negative injury 

determination; accordingly no relief was provided.' In response to a petition filed by the Florida Tomato 

Growers Exchange, et al., an antidumping investigation was instituted by the Commission on April 4, 1996, 13 

14In October 1996, and initiated by the U.S. Department of Commerce (Commerce) on April 25, 1996.

following Commerce's announcement of a preliminary fmding of dumping margins ranging from 4.16 

percent to 188.45 percent, Commerce and Mexican growers entered into a suspension agreement. To ensure 

that there will be no undercutting or suppression of prices, the agreement sets a reference price, which can be 

adjusted after one year if market conditions undergo significant changes. The agreement also suspended the 

antidumping duty investigation.' Domestic farm groups contend that the suspension agreement is not being 

enforced and that Mexican tomato imports are disrupting the domestic market,' whereas Florida tomato 

growers and packers express related concerns." 

Section 316 of the NAFTA Implementation Act directs the U.S. International Trade Commission (USITC) to 

monitor imports of fresh or chilled tomatoes and fresh or chilled peppers, other than chili peppers until 

January 1, 2009. To perform such monitoring, the USITC instituted investigation No 332-350, Monitoring 

of U.S. Imports of Tomatoes (59 F.R. 1763, January 12, 1994), and investigation No. 332-351, Monitoring 

of U.S. Imports of Peppers (59 F.R. 1762, January 12, 1994). The USITC published reports on the results of 

such monitoring in 1994 and 1995 but published no report in 1996, the year in which it conducted safeguard 

and antidumping investigations. 

11U.S. International Trade Commission, Fresh Winter Tomatoes (investigation No. TA-201-64), USITC publication 

2881, Apr. 1995. 

1261 F.R. 42652, Aug. 16, 1996. See also U.S. International Trade Commission, Fresh Tomatoes and Bell Peppers 

(investigation No. TA-201-66), USITC publication 2974, Aug. 1996. 

" 61 F.R. 15968, Apr. 10, 1996. 

" 61 F.R. 18377, Apr. 25, 1996. 

1561 F.R. 18377, Apr. 25, 1996. 61 F.R. 56617, Nov. 1, 1996. 61 F.R. 58217, Nov. 13, 1996. See U.S. 

International Trade Commission, Fresh Tomatoes from Mexico (investigation No. 731-TA-747 (preliminary)), USITC 

publication 2967, May 1996. 

16See for example, Dean Kleckner, president American Farm Bureau, "A statement Regarding Review of NAFTA 

with Canada and Mexico, the House Agriculture Committee, U.S. House of Representatives, Apr. 17, 1997, p.3. 

17According to a representative of the Florida tomato growers and packers, "This appeared to be a solution to the 

problem, and worked quite well in the beginning, but changes in the terms of the enforcement of the suspension 

agreement by the Commerce Department months after it already had been approved, have and will undoubtedly continue 

to weaken the final results." Wayne Hawkins, Florida Tomato Exchange, transcript of the hearing, May 15, 1997, pp. 

296, 298. 

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6-68
In response to concerns expressed by the Florida growers about imports of tomatoes from Mexico, the United 

States Trade Representative in November 1995 proposed to allocate on a weekly basis the seasonal tariff-rate 

quota for fresh tomatoes established under NAFTA,' but this proposal was not implemented. 

Melons 

U.S. imports of melons from Mexico rose from $49 million in 1993 (129 percent) to $112 million in 1996. 

Total U.S. imports of melons grew in 1993 from $128 million (60 percent) to $205 million in 1996. Two 

factors make it difficult to discern a significant effect of NAFTA on melons at this point: the increased per 

capita consumption of melons (attributable to consumer health concerns and greater availability of off-season 

supplies), and the fact that U.S. duties on melons had been temporarily suspended during the 1980s and early 

1990s, prior to implementation of NAFTA, allowing imports to enter duty free. The U.S. ad valorem 

equivalent (AVE) duty on imports of melons from Mexico fell from 20.4 percent in 1993 to 4.9 percent in 

1994 and 1995, and to 2.8 percent in 1996 as a result of NAFTA.' Such duty suspensions expired in 

mid-1993 when duties reverted to the MFN rates. In 1992, the United States imported $67 million of melons 

from Mexico, but imports declined to $49 million in 1993 when the higher duties were in effect. It was not 

until 1995 that the value of imports exceeded the 1993 level. Industry sources state that the reduction of 

duties under NAFTA on melons, including cantaloupes, provided an incentive for producers and exporters of 

melons to shift operations from Central America to Mexico; in addition, producers and exporters gained 

closer proximity to U.S. markets and U.S. ports for export to Asia.' Mexican producers are able to compete 

more effectively with imports from Central America in the U.S. market, although imports from the top three 

suppliers after Mexico either increased or remained steady between 1993 and 1996. 

During the period 1995-96, per capita consumption of melons and fresh vegetables increased by 5 percent to 

153 pounds per person, the highest level since the mid-1940s. The increase is dominated by watermelons and 

cantaloupe. The increased consumption of watermelons began in 1992 when the industry simultaneously 

began to heavily promote watermelon, and new seedless and ice box varieties became available.' 

Orange juice 

U.S. imports of orange juice, principally frozen concentrated orange juice (FC0.1),' rose from $14.3 million 

in 1993 to $62.7 million in 1995, and then declined to $54.8 million in 1996. The increase in imports during 

1993-94 was largely due to price (unit value) increases for FCOJ rather than increased U.S. consumption. 

Increases in 1995 reflected sustained U.S. consumption during a period of relatively tight supplies due to 

lower domestic crop yields. Prices (unit values) rose in 1996, but quantity declined due to a decrease in 

Mexican production. As a result of NAFTA, the effective AVE on imports of orange juice from Mexico fell 

from 50.5 percent ad valorem to 18 percent ad valorem in 1994, before rising to 24.7 percent in 1995, then 

falling to 17.6 percent in 1996. The increase in the AVE in 1995 occurred because of the imposition of the 

18 61 F.R. 64131-64132, Dec. 14, 1995. 

19See, for example, Harmonized Tariff Schedule (HTS) of the United States, 1992, supplement I, HTS subheading 

9902.08.07, providing for duty-free treatment for certain melons. This provision, however, expired in mid-1993. 

Official, Fresh Produce Association of the Americas, telephone interview by USITC staff, May 8, 1997. 

21USDA, ERS. 

22 In May 1987, an antidumping duty order on frozen concentrated orange juice from Brazil was issued by the 

Commerce Department, and remains outstanding. See Commerce investigation No. A-3 51-605. 

6-69 6-69
snapback' tariff provision on FCOJ. While the changes in the AVE on orange juice appear to be significant, 

it is too early to determine if such changes and the resulting increase in imports from Mexico are attributable 

to a significant NAFTA effect. U.S. imports of orange juice have not shown a consistent pattern of increase 

by volume or value before or since the implementation of NAFTA. During the period 1990-96, the volume 

of imports of FCOJ into the United States from Mexico was in a narrow range and averaged about 170 

kiloliters per year except in 1993, when imports amounted to 76.9 kiloliters. Most of the Mexican orange 

production goes to the fresh market in Mexico so the processing industry faces limited supplies of 

competitively priced oranges. Because FCOJ is traded in a near-term futures market, U.S. imports of 

Mexican FCOJ must be competitively priced at world market prices which are driven in large part by Brazil, 

the world's largest producer and exporter of FCOJ. 

Under NAFTA two different tariff rate quotas (TRQs) exist for orange juice. In the period 1994 to 1996 

these TRQs remained unfilled except for 1995 when the TRQ for FCOJ was effectively filled. The TRQ for 

FCOJ is 40 million gallons, and the TRQ for fresh orange juice is 4 million gallons. On January 1, 1994, 

when NAFTA entered into force, the tariffs on in-quota imports were reduced by half, from 9.25 cents per 

liter for FCOJ and 5.3 cents for fresh juice, to 4.6 and 2.7 cents, respectively. U.S. imports from Mexico that 

exceed the quotas (over-quota imports) are subject to the MFN tariffs. The TRQs have not increased but the 

in-quota and over-quota tariffs will be equalized over the 15 year phase out and will be equalized in year 13. 

Brazil has been the traditional primary supplier of imported FCOJ to the United States, with Mexico holding 

less than a 5 percent market share of total imports. Concerns about transhipment of Brazilian FCOJ were 

addressed by NAFTA provisions requiring 100-percent origin in orange juice. 

Frozen vegetables 

U.S. imports of frozen vegetables (asparagus, broccoli, and cauliflower) from Mexico remained relatively 

stable, ranging from $107 million to $111 million annually during 1993-96. Frozen vegetable companies use 

multiple foreign and domestic sources for the vegetable products, to ensure a year-round supply of fresh 

harvested vegetables. 

Grapes 

U.S. imports of grapes for juice and juice concentrates rose from $2.6 million in 1993 to $6.2 million in 

1996. These imports have been increasing as U.S. wineries shift to less expensive imported grape juice used 

for making jug wines, as California grapes have commanded higher prices. 

Under section 309(a) of the NAFTA Implementation Act, a temporary duty (snapback) is imposed on imports of 

Mexican frozen concentrated orange juice when certain conditions exist. The snapback provision is one of the 

safeguards under NAFTA for certain agricultural commodities, including FCOJ. Under this provision, certain price 

conditions must exist before the United States can apply a snapback duty on imports of Mexican frozen concentrated 

orange juice. The condition for the imposition of the snapback provision occurs, when for each period of 5 consecutive 

days the daily closing price on the New York Cotton Exchange for frozen concentrated orange juice is less than the 

trigger price. In addition, such imports must exceed specified amounts before the snapback duty can be applied. The 

Foreign Agricultural Service of the USDA administers the snapback program. 

Under the snapback provisions, the temporary duty was imposed in June 1994 (59 F.R. 35309, July 11, 1994), and 

in Dec. 1995 was removed (60 F.R. 61682, Dec. 1, 1995). It was imposed again in Aug. 1996 (61 F.R. 44037-44038, 

Aug. 27, 1996), and in Sept. 1996 was removed (61 F.R. 46617, Sept. 4, 1996). In Oct 1996, the temporary duty was 

again imposed (61 F.R. 51258, Oct 1, 1996). 

6-70 

6-70
U.S. Exports — U.S. exports of sector products to Canada remained relatively steady during 1993-96, as 

stable economic growth in Canada lead to few changes in Canadian consumption patterns of sector products. 

In 1996, U.S. exports of fresh vegetables totaled $643 million; canned and preserved vegetables and fruits 

totaled $222 million; and frozen foods totaled $267 million. Although U.S. exports of fresh vegetables 

declined by $46 million during 1993-96, exports of canned and preserved vegetables rose by $35 million, and 

frozen vegetables, fruits, and juices rose by $77 million. The greatest growth occurred in U.S. exports of 

orange juice, which doubled from $36 million to $72 million during 1993-96. 

U.S. exports of products in this sector to Mexico rose in 1994 after the implementation of NAFTA, but 

sharply declined by 58 percent in 1995, before rebounding by 60 percent in 1996. The decline in U.S. 

exports in 1995 was due to the devaluation of the peso. The devaluation resulted in declining personal 

incomes and rising prices adversely affecting sales of consumer foods. U.S. exports recovered slightly in 

1996 as the Mexican economy began to recover. In 1996, the mix of products in this grouping was almost 

equally divided between fresh vegetables, canned and preserved foods, and frozen foods. The leading U.S. 

exports of sector products were lettuce and shallots; cereals; canned or preserved tomato sauces and juice; 

and frozen french fries and other potatoes. 

Other Factors — Total sector trade grew by 31 percent ($1.7 billion) during 1993-96 to $7.0 billion. Total 

U.S.-Canada trade for the sector grew by 19 percent ($242 million) to $1.5 billion and total U.S.-Mexico 

trade for the sector grew by 45 percent ($533 million) to $1.7 billion. 

U.S. investment in the fresh vegetable industry in Mexico has been both direct and indirect though figures are 

not available. Some U.S. producers of tomatoes have invested in Mexican production, distribution, or 

marketing operations to sell Mexican tomatoes in the United States. In 1995-96, U.S. investment in fresh 

vegetable production or financing for production was sought by Mexican producers because the peso 

devaluation resulted in dramatic increases in Mexican interest rates. Mexican producers were faced with a 

lack of readily available credit. Large U.S. food producers have also invested in produce distribution 

operations in Mexico, as well as in the production of vegetables, such as fresh asparagus. NAFTA reportedly 

did have a positive effect on U.S. exports of seeds and other inputs used in the production of sector 

products.' 

In March 1996, the Agricultural Marketing Service of the USDA adopted a Final Rule that exempts imported 

fresh fruit, vegetable, and specialty crop commodities from grade, size, quality, and maturity requirements if 

those commodities are to be used for specific purposes, generally other than commercial sales. The rule 

applies to tomatoes and onions, as well as to other crops. The rule was implemented in accordance with 

section 8e of the Agricultural Marketing Agreement Act of 1937. The intent of the revision is "to make the 

import regulations more consistent with applicable domestic marketing order exemptions and with the 

provisions of NAFTA." The rule gives exemptions to uses including, but not limited to, processing, 

livestock feed, and donation to charity.' 

24Official of the Fresh Produce Association of the Americas, telephone interview by USITC staff, Apr. 16, 1997. 

2561 F.R. 13051, Mar. 26, 1996. 

6-71 

6-71
ITC Group No. 5: Ornamental Floriculture and Nursery Products' 

Table 6-5-1 

Ornamental floriculture and nursery products: Selected U.S. sector data, 1993-96 

Item 1993 1994 1995 1996 

Absolute 

change 

1993-1996 

Percentage 

change 

1993-1996 

Shipments (million dollars) i) 1) 

(1 ) (1) 

(2) 

(2) 

Consumption (million dollars) . . 2) 2) (2) (2) (2) (2) 

Trade data (million dollars): 

Exports: 

Total 337.2 350.6 363.9 372.9 35.7 10.6 

To Mexico 49.1 53.0 53.6 63.5 14.4 29.3 

To Canada 111.2 111.9 112.6 108.2 -3.0 -2.7 

To non-NAFTA countries 176.9 185.6 197.7 201.3 24.4 13.8 

Imports: 

Total 774.4 830.0 982.9 1,107.2 332.7 43.0 

From Mexico 32.3 30.4 40.6 40.6 8.4 26.0 

From Canada 82.5 91.5 112.4 135.6 53.1 64.4 

From non-NAFTA countries 659.7 708.0 829.9 931.0 271.3 41.1 

Trade balance: 

Total -437.2 -479.4 -618.9 -734.2 -297.0 -67.9 

With Mexico 16.9 22.6 13.0 22.9 6.0 35.6 

With Canada 

With non-NAFTA countries 

28.7 

-482.8 

20.4 

-522.4 

0.3 

-632.2 

-27.4 

-729.7 

-56.1 

-246.9 -51

(

.

3

1

) 

Total trade: 

Total 1,111.6 1,180.5 1,346.8 1,480.1 368.5 33.1 

NAFTA partners 275.1 286.9 319.2 347.9 72.8 26.5 

With Mexico 81.4 83.5 94.2 104.2 22.8 28.0 

With Canada 193.7 203.5 225.0 243.7 50.0 25.8 

Import market share (percent): 

Total (2) (2) (2) (2) (2) (2) 

Mexico (2) (2) (2) 

(2) 

(2) (2) 

Canada 

Non-NAFTA countries 

(2) 

(2) 

(2) 

(2) r)) 2) 2 

( (2

) 2

) ( (2) 

(

(2) 

2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 2.3 2.1 1.6 0.9 -1.4 (3) 

Canada 1.3 1.0 0.8 0.6 -0.7 (3) 

All other 1.3 1.3 1.1 1.0 -0.3 (3) 

U.S. industry indicators: 

Employees (1,000 persons) . . (1) (1) (1) 

(1) 

(2) (2) 

Production workers 

(1,000 persons) (1) (1 ) (1) 

(1) 

(2) (2) 

Average hourly wages of 

production workers (1 ) (1) (1) (1) (2) (2) 

I Aggregate data are not available due to the diversity of products covered in this sector. 

2Not applicable. 

3Not meaningful for purposes of comparison. 

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

' Standard Industrial Classification (SIC) Industry No. 0181, Ornamental Floriculture and Nursery Products. 

Products in this industry includes cut flowers, foliage for floral arrangements, miscellaneous decorative plants, and 

flowers and vegetables for planting. 

6-72 

6-72
Summary of Sector Analysis' 

U.S. Imports — NAFTA appears to have had a negligible' effect on rising U.S. imports of ornamental 

floriculture and nursery products from NAFTA partners. Trade in this diverse sector has expanded rapidly 

during the past 4 years and total U.S. imports grew by 43 percent from all sources during 1993-96 to $1.1 

billion. Imports from Mexico (dominated by cut flowers) grew by $8 million to $41 million in 1996. 4 

 Despite the 26 percent growth during the period, imports from Mexico accounted for only 4 percent of total 

U.S. sector imports in 1996. The increase in imports from Mexico was due to both the growth in the U.S. 

economy, which enhanced consumers' discretionary spending on such items as flowers and foliage for special 

occasions,' and the devaluation of the peso, which made Mexican flowers less expensive for importers.' U.S. 

imports from Canada (dominated by miscellaneous plants and ornamental foliage) grew by 64 percent during 

1993-96 to $136 million in 1996, when they accounted for 12 percent of total sector imports. The increase in 

imports from Canada,' resulted largely from the growth in housing starts and home improvements in the 

United States, increasing the demand for imported trees and foliage for use in landscaping. 

As a result of tariff reductions under NAFTA beginning in 1994, the effective U.S. ad valorem equivalent 

(AVE) tariff on the products in this category from Mexico fell from 2.3 percent ad valorem to less than 1 

percent from 1993 to 1996. The effective U.S. AVE on goods from Canada fell from 1.3 percent ad valorem 

to almost one-half-of-one percent during 1993-96. 

U.S. Exports — NAFTA also had a negligible effect on U.S. exports of sector products. During this period, 

exports to Mexico (dominated by seeds for sowing vegetables) registered a 29 percent increase to $64 million 

in 1996. The growth in seed exports to Mexico was due primarily to sustained demand for productive 

vegetable varieties that are grown by Mexican vegetable producers for export to the United States. Mexican 

tariffs on seeds from the United States were free before NAFTA. As a result of NAFTA, however, Mexico 

eliminated the import licensing requirements for seeds, a nontariff barrier which limited the importation of 

seeds.' U.S. exports to Canada (dominated by cut flowers and foliage and miscellaneous plants) decreased by 

3 percent to $108 million in 1996. 

2Under NAFTA, the market access provisions of the U.S.-Canada Free Trade Agreement continue to be in effect. 

NAFTA did establish bilateral market access provisions between the United States and Mexico and contains trilateral 

provisions on domestic support, export subsidies, rules of origin, safeguards, and phytosanitary standards for these 

products. 

3The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

On Oct. 26, 1995, two Mexican firms requested a NAFTA binational panel review of the final results of an 

antidumping administrative review made by the U.S. Department of Commerce (Commerce), respecting fresh-cut 

flowers from Mexico. On Dec. 16, 1996, a binational panel remanded the action to Commerce with instructions 

concerning the rate of duty to be assigned. Commerce filed its determination in response to the remand on Jan. 29, 

1997, NAFTA Secretariat File No. USA-95-1904-05. For additional information, see the notice published by the U.S. 

section of the NAFTA Secretariat in the Federal Register on Apr. 23, 1997. 62 F.R. 19736. 

5Official, USDA/FAS, telephone interview by USITC staff, May 12, 1997. 

6Ibid. 

7An antidumping duty order on U.S. imports of fresh cut flowers from Canada, issued on Mar. 18, 1987, was 

revoked by the U.S. Department of Commerce (Commerce investigation A-122-604), on June 18, 1993. 

Official of the Fresh Produce Association of the Americas, telephone interview by USITC staff, Apr. 16, 1997. 

6-73 6-73
Other Factors — Total U.S. trade in horticulture products grew by 33 percent during 1993-96 from $1.1 

billion to nearly $1.5 billion. Trade between the United States and Canada and trade between the United 

States and Mexico grew at rates less than total U.S. trade during the comparable time period. During this 

period, total U.S.-Canada trade in these products increased by 26 percent from $194 million in 1993 to $244 

million in 1996. Likewise, total U.S.-Mexico trade in these products increased 28 percent from $81 million 

in 1993 to $104 million in 1996. 

Information about investments in this group of products in Mexico, the United States, or Canada resulting 

from NAFTA is not readily available. 

Under the NAFTA-TAA, 40 workers were certified eligible for relief as a result of imports from unspecified 

countries during 1994-96. 9 

The U.S. Department of Commerce and the Animal and Plant Health Inspection Service of the USDA have 

proposed to amend the cut flowers regulations' eliminating the import permit, and notice of arrival 

requirements, for certain types of flowers. No final rule has yet been issued. 

U.S. Department of Labor, NAFTA Office. Although these job losses are certified to be the result of plant 

relocations to Mexico or Canada and/or increased imports from these countries, NAFTA may not have been the cause of 

plant relocation decisions or the reason for the increase in imports. 

1061 F.R. 40362, Aug. 2, 1996. 

6-74 

6-74
ITC Group No. 6: Meats and Livestock' 

Table 6-6-1 

Meats and livestock: Selected U.S. sector data, 1993-96 

Item 1993 1994 1995 1996 

Absolute 

change 

1993-1996 

Percentage 

change 

1993-1996 

Shipments' (million dollars) 49,410.0 46,545.0 46,723.0 46,500.0 -2,910.0 -5.9 

Consumption (million dollars) . . . 49,016.7 45,241.2 44,478.1 44,127.2 -4,889.6 -10.0 

Trade data (million dollars): 

Exports: 

Total 4,862.2 5,501.3 6,439.4 6,388.2 1,526.0 31.4 

To Mexico 558.5 761.3 370.5 580.8 22.3 4.0 

To Canada 565.0 631.9 619.6 597.9 32.9 5.8 

To non-NAFTA countries 3,738.8 4,108.1 5,449.3 5,209.6 1,470.8 39.3 

Imports: 

Total 4,469.0 4,197.5 4,194.6 4,015.4 -453.6 -10.1 

From Mexico 450.1 376.0 572.5 149.2 -300.9 -66.8 

From Canada 1,826.3 1,759.0 1,914.6 2,373.1 546.9 29.9 

From non-NAFTA countries 2,192.6 2,062.5 1,707.5 1,493.1 -699.5 -31.9 

Trade balance: 

Total 393.3 1,303.8 2,244.9 2,372.8 1,979.6 503.4 

With Mexico 108.3 385.4 -202.0 431.6 323.2 298.4 

With Canada -1,261.3 -1,127.0 -1,295.0 -1,775.2 -514.0 -40.7 

With non-NAFTA countries 1,546.2 2,045.5 3,741.8 3,716.5 2,170.3 140.4 

Total trade: 

Total 9,331.2 9,698.8 10,634.'0 10,403.7 1,072.5 11.5 

NAFTA partners 3,399.9 3,528.2 3,477.2 3,701.1 301.2 8.9 

With Mexico 1,008.6 1,137.3 943.0 730.0 -278.6 -27.6 

With Canada 2,391.3 2,390.9 2,534.2 2,971.1 579.8 24.2 

Import market share (percent): 

Total 9.1 9.3 9.4 9.1 0.0 (2) 

Mexico 0.9 0.8 1.3 0.3 -0.6 (2) 

Canada 3.7 3.9 4.3 5.4 1.7 (2) 

Non-NAFTA countries 4.5 4.6 3.8 3.4 -1.1 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.2 (3) (3) (3 -1.2 (2) 

Canada (3) (3) 

(3) 

( 3 (3) 

(2) 

All other 1.5 1.6 1.6 1 . 0.1 (2) 

U.S. industry indicators: 

Employees (1,000 persons) . . 

(4) (4) (4) (4) (5) (5) 

Production workers 

(1,000 persons) (4) (4) (4) (4) 

(5) (5) 

Average hourly wages of 

production workers 6 $9.26 9.44 9.60 9.77 0.51 5.5 

'Shipments data for 1996 are for SIC 2011 and exclude live animals, and are estimated by USITC staff. Thus, the 

1996 calculated consumption figure, as well as percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent 

Not available. 

5Not applicable. 

6Data are for SIC 2011 only. Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to 

Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 0211, Beef Cattle Feedlots; 0213, Hogs; and 2011, Meat 

Packing Plants. 

6-75 6-75
Summary of Sector Analysie' 

U.S. Imports — NAFTA had a negligible' effect on U.S. imports of meat and livestock from NAFTA 

countries, compared to other factors such as the peso devaluation, drought in Northern Mexico, and the 

contraction phase of the U.S. cattle and beef business cycles. Overall, total U.S. imports of sector products 

decreased by 10 percent from 1993 to 1996 from $4.5 billion to $4.1 billion. Imports from Mexico declined 

by 67 percent from $450 million to $149 million over this period, despite peak imports of $572 million in 

1995. Imports from Mexico declined sharply (74 percent) in 1996, compared to the previous year's level, as 

drought in Northern Mexico adversely impacted the supply of feeder calves. In contrast, imports from 

Canada rose 30 percent from 1993 to 1996 from $1.8 billion to $2.4 billion. 

Prior to the implementation of NAFTA, U.S. imports of meat and livestock from all sources received trade 

weighted average duties of less than 2 percent ad valorem. Most sector product imports from Canada 

received a duty rate of "Free" as a result of the CFTA, and imports of quota-type meats were excluded from 

quantitative restrictions under the Meat Import Act of 1979. The Meat Import Act quotas were converted to 

tariff-rate quotas and the Act was repealed effective January 1, 1995, to bring U.S. treatment of meat into 

conformity with U.S. obligations under the World Trade Organization on Agriculture. 

As a result of the NAFTA, U.S. imports of most sector products from Mexico received a duty rate of "Free" 

although such duties were already relatively low. Also, imports of quota-type meats from Mexico were 

excluded from quantitative restrictions under the Meat Import Act of 1979. 

U.S. Exports — Since NAFTA implementation, U.S. sector exports to non-NAFTA countries have grown 39 

percent, whereas exports to Mexico and Canada have grown 4 percent and 5.8 percent, respectively. The 

increase in U.S. exports to non-NAFTA countries reflects, in part, the opening of Korean and Japanese 

markets for beef. In terms of U.S. exports to NAFTA partners, Commission analysis indicates that nonNAFTA events had a far more important effect on the level of U.S. sector exports than NAFTA. The drop in 

exports to Mexico over 1995-96 from a peak in 1994 was due largely to a drop in real Mexican consumer 

income and higher prices of imported meat caused by the devaluation of the peso, rather than NAFTA. U.S. 

sector exports to Canada were already duty free under the CFTA. 

However, NAFTA has enhanced certain U.S. beef exports; 5preferential tariff treatment enjoyed by the 

United States following NAFTA has expanded the U.S. market share in Mexico at the expense of Australian, 

New Zealand, and EU suppliers. Moreover, U.S. export levels in 1995-96 would likely have been even lower 

Under NAFTA, the market access provisions of the U.S.-Canada Free Trade Agreement continue to be in effect. 

NAFTA did establish bilateral market access provisions between the United States and Mexico and contains trilateral 

provisions on domestic support, export subsidies, rules of origin, safeguards, and phytosanitary standards for these 

products. 

3Views of parties that submitted written and/or oral testimony to the Commission in connection with this 

investigation are summarized in Appendix D. Copies of the hearing transcript and copies of all written testimony are 

being provided separately to USTR. 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than the NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

'Live cattle for immediate slaughter and fresh, chilled, or frozen beef. These items account for less than 50 percent 

of the value of sector exports. 

6-76 

6-76
without the NAFTA duty reductions.' Mexican duties for beef imports from NAFTA partners declined to 

zero from ad valorem rates of 25 percent (frozen beef), 20 percent (fresh or chilled beef), and 15 percent (live 

cattle). Mexican tariffs for most pork products declined from 10 percent; pork is now subject to tariff rate 

quotas with most in-quota quantities entering Mexico free of duty. 

Other Factors — Total U.S.-world trade in meat and livestock grew 12 percent from 1993 to 1996 to $10.4 

billion. Total U.S.-Canada trade in these products grew almost $0.6 billion to nearly $3 billion in 1996, a 24 

percent increase over 1993 levels of $2.4 billion. In contrast, total U.S.-Mexico trade shrank by 28 percent 

($0.3 billion) from 1993 levels of $1 billion to $0.7 billion in 1996. 

There is a lack of detailed data on U.S. investment in Mexico and Canada, investment in the United States, 

and other NAFTA-related investments. Although there are two U.S.-owned,' large-volume beef slaughtering 

and processing plants that reportedly account for 50 percent of Canada's cattle slaughter, additional foreign 

investment is believed to be minor and investment patterns were not altered noticeably by NAFTA. 

The U.S. Department of Agriculture, Animal and Plant Health Inspection Service, terminated its in-bond 

program for feeding Mexican feeder cattle in the United States, because the U.S. Customs Service, in order to 

comply with NAFTA, discontinued its collection of duties and bonds on cattle imported from Mexico.' 

In September 1995, a Binational Panel Review affirmed the Commerce Department's final affirmative 

countervailing duty administrative review. The Panel Review, Live Swine from Canada (USA-94-1904-01), 

was brought by Canadian producers of swine in March 1994. 9 

6For further explanation see USITC investigation, Cattle and Beef. Impact of the NAFTA and Uruguay Round 

Agreements on U.S. Trade, currently scheduled for completion in July 1977. 

7The two U.S. parent companies are Cargill, a large-volume multi-national agricultural company, and IBP, Inc., a 

large-volume slaughterer and processor of cattle and hogs. 

8 60 F.R. 13896, Mar. 15, 1996. 

9 60 F.R. 31448, June 15, 1995. 

6-77 6-77
ITC Group No. 7: Fish and Shellfish' 

Table 6-7-1 

Fish and shellfish: Selected U.S. sector data, 1993-96 

Item 1993 1994 1995 1996 

Absolute 

change 

1993-1996 

Percentage 

change 

1993-1996 

Shipments' (million dollars) 2,133.3 2,046.1 2,090.0 2,105.0 -28.3 -1.3 

Consumption (million dollars) . . . 4,715.1 5,291.4 5,403.1 5,322.5 607.4 12.9 

Trade data (million dollars): 

Exports: 

Total 727.2 731.8 653.4 634.1 -93.1 -12.8 

To Mexico 20.2 23.1 11.7 12.4 -7.8 -38.8 

To Canada 125.0 142.2 166.4 180.2 55.2 44.2 

To non-NAFTA countries . . . 582.0 566.5 475.3 441.5 -140.5 -24.1 

Imports: 

Total 3,309.0 3,977.1 3,966.5 3,851.6 542.6 16.4 

From Mexico 227.8 282.2 375.8 373.5 145.7 64.0 

From Canada 535.6 655.2 651.2 672.6 137.1 25.6 

From non-NAFTA countries 2,545.7 3,039.7 2,939.5 2,805.5 259.8 10.2 

Trade balance: 

Total -2,581.8 -3,245.3 -3,313.1 -3,217.5 -635.7 -24.6 

With Mexico -207.5 -259.1 -364.1 -361.1 -153.6 -74.0 

With Canada -410.6 -513.0 -484.8 -492.4 -81.8 -19.9 

With non-NAFTA countries -1,963.7 -2,473.2 -2,464.2 -2,364.0 -400.3 -20.4 

Total trade: 

Total 4,036.2 4,708.9 4,619.9 4,485.6 449.4 11.1 

NAFTA partners 908.5 1,102.7 1,205.1 1,238.7 330.2 36.3 

With Mexico 248.0 305.3 387.6 385.9 137.9 55.6 

With Canada 660.5 797.4 817.6 852.8 192.3 29.1 

Import market share (percent): 

Total 70.2 75.2 73.4 72.4 2.2 (2) 

Mexico 4.8 5.3 7.0 7.0 2.2 (2) 

Canada 11.4 12.4 12.1 12.6 1.3 (2) 

Non-NAFTA countries 54.0 57.4 54.4 52.7 -1.3 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico ( ) 3 0.1 () 3 3 

0

(

.1

) 3 

-0

(

.1

) (2) ) 

Canada 0.2 0.1 0.1 ( ) 

All other (3) (3) (3) (3) 

(3) (2) 

U.S. industry indicators: 

Employees (1,000 persons) . . 

(4) (4) (4) (4) 

(5) (5) 

Production workers 

(1,000 persons) (4) (4) (4) (4) 

(5) (5) 

Average hourly wages of 

production workers (4) (4) (4) (4) 

(5) (5) 

Shipments data for 1995 and 1996 estimated by USITC staff. Thus, the 1995 and 1996 calculated consumption 

figures, as well as percentage changes in both shipments and consumption, are estimates. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent. 

4Not available as reliable data are not collected. 

5Not applicable. 

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

Summary of Sector Analysis 

U.S. Imports - NAFTA had a negligible effect on rising U.S. imports of fish and shellfish from NAFTA 

countries. Most U.S. tariffs on the fish and shellfish covered herein were free prior to NAFTA, particularly 

Standard Industrial Classifications (SIC) Industry Nos. 0273, Animal Aquaculture; 0913, Shellfish; and 2092(pt.), 

Prepared Fresh or Frozen Fish and Seafoods. 

6-78 

6-78
on the vast majority of articles imported from Mexico and Canada. The U.S. ad valorem equivalent for 

imports from Mexico and Canada was almost nil from 1993 to 1996. Much of the increase in imports was 

due to increased production of farm-raised salmon in Canada, 2increased private investment in the Mexican 

shrimp fleet that allowed for bigger catches of wild shrimp, and, especially between 1994 and 1995, the peso 

devaluation. Overall, total U.S. imports of sector products from all source countries rose by 16 percent from 

1993 to 1996, while imports from NAFTA partners rose by 37 percent over the same period. U.S. imports 

from Canada rose by $137 million (26 percent) to $673 million from 1993 to 1996, and consisted primarily 

of live or frozen lobsters and frozen lobster meat, fanned Atlantic salmon, farmed chinook, snow crabs, and 

clams. U.S. imports from Mexico rose by $146 million (64 percent) to $374 million from 1993 to 1996. 3 

 Almost 80 percent of the increase in imports from Mexico was frozen shrimp and prawns, and the remaining 

20 percent comprised rock lobsters, crabs, scallops, and octopus. Approximately 88 percent of Mexico's 

fishery exports went to the United States in 1995. 4Mexico's shrimp aquaculture is still quite nascent, but 

growing, fueled largely by demand in the large U.S. market, where domestic production is at maximum 

capacity. 

U.S. Exports — NAFTA also had negligible' effect on U.S. exports of sector products to NAFTA partners. 

Overall, U.S. exports world wide declined by $93 million (13 percent) to $634 million from 1993 to 1996. 

U.S. exports to Mexico fell by $8 million (39 percent) to $12.4 million, principally due to the devaluation of 

the peso which raised the cost of Mexican imports from the United States, and the downturn in the Mexican 

economy. In contrast, U.S. exports to Canada rose by $55 million (44 percent) to $180 million from 1993 to 

1996. Most of the increase in U.S. exports to Canada was of live lobsters and is attributable to a common 

practice, where U.S. and Canadian seafood wholesalers send live lobsters to lobster pounds prior to retail 

distribution. The use of either U.S. or Canadian lobster pounds is governed by the supply of available space 

at the pounds. 

Other Factors — Total U.S.-world trade in fish and shellfish grew by $449 million (11 percent) to $4.5 

billion from 1993 to 1996. Total U.S.-Canada trade in these products increased by $192 million (29 percent) 

to nearly $853 million and total U.S.-Mexico trade in these products rose by $138 million (56 percent) to 

$386 million. 

There is little information on investment in this sector. Prior to 1992, when Mexico amended its National 

Fisheries Law to improve the fmancial health of the industry, investment in Mexico's shrimp fisheries 

industry was limited to government chartered cooperatives, which were often under-capitalized and 

inefficient.' After 1992, most of Mexico's shrimp fleet was privatized, as shrimp fleet assets were bought 

2Official of U.S. Department of Commerce, National Oceanographic and Atmospheric Administration, telephone 

interview by USITC staff, May 5, 1997. 

3This analysis does not cover tuna fish, found in SIC 0912, Finfish, upon which the United States has imposed 

primary and secondary embargoes against Mexico, and those countries that buy Mexican yellowfin tuna that are 

harvested in a manner that is injurious to dolphins and other marine mammals. 

U.S. Department of State telegram, "Annual Fisheries Report for Mexico: 1995," message reference No. 000117, 

prepared by U.S. Embassy, Mexico City, D.F., Jan. 7, 1997, p. 3. 

5The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

6U. S. Department of State telegram, "SRP 0404: Mexico Fisheries Report 1994," message reference No. 007247, 6 

of 13, prepared by U.S. Embassy, Mexico City, D.F., June 4, 1996, p. 3. 

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6-79
from bankrupt fisherman's cooperatives and lending bank auctions.' In November 1995, Mexico's largest 

exporter of shrimp and lobster to the United States, Ocean Garden Products, Inc., a U.S. registered company 

wholly owned by the Government of Mexico and based in San Diego, CA, was put up for sale by the 

Government of Mexico for the third time.' This effort did not succeed, and the Government of Mexico has 

withdrawn its offer to sell the company from the market. 

'Ibid. 

' U.S. Department of State telegram, "Fisheries: GOM to Privatize Ocean Garden Products, San Diego," message 

reference No. 000117, prepared by U.S. Embassy, Mexico City, D.F., Nov. 14, 1995, p. 2. 

6-80 

6-80
ITC Group No. 8: Iron Orel 

Table 6-8-1 

Iron ore: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 1,578.5 1,655.0 1,771.2 1,700.4 121.9 7.7 

Consumption (million dollars) . . . 1,826.7 2,002.4 2,072.6 2,024.6 197.9 10.8 

Trade data (million dollars): 

Exports: 

Total 166.8 162.5 184.5 231.7 64.9 38.9 

To Mexico 0.2 0.2 0.3 0.9 0.6 296.3 

To Canada 165.4 162.2 184.0 230.1 64.7 39.1 

To non-NAFTA countries 1.2 0.1 0.2 0.7 -0.5 -39.9 

Imports: 

Total 415.1 509.9 485.8 556.0 140.9 33.9 

From Mexico 0.0 0.0 0.0 0.1 0.1 (2) 

From Canada 237.8 317.6 277.7 325.5 87.7 36.9 

From non-NAFTA countries 177.2 192.2 208.2 230.3 53.1 29.9 

Trade balance: 

Total -248.3 -347.4 -301.4 -324.3 -76.0 -30.6 

With Mexico 0.2 0.2 0.2 0.7 0.5 250.0 

With Canada -72.4 -155.5 -93.7 -95.4 -23.0 -31.8 

With non-NAFTA countries -176.0 -192.1 -207.9 -229.6 -53.6 -30.4 

Total trade: 

Total 581.9 672.4 670.3 787.7 205.8 35.4 

NAFTA partners 403.4 480.0 461.9 556.6 153.2 38.0 

With Mexico 0.3 0.2 0.3 1.0 0.7 233.0 

With Canada 403.2 479.8 461.7 555.6 152.4 37.8 

Import market share (percent): 

Total 22.7 25.5 23.4 27.5 4.7 (2) 

Mexico 0.0 0.0 0.0 0.0 0.0 (2) 

Canada 13.0 15.9 13.4 16.1 3.1 (2) 

Non-NAFTA countries 9.7 9.6 10.0 11.4 1.7 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.0 0.0 0.0 0.0 0.0 (2) 

Canada 0.0 0.0 0.0 0.0 0.0 (2) 

All other 0.0 0.0 0.0 0.0 0.0 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 8.9 8.5 8.4 8.3 -0.6 -6.7 

Production workers 

(1,000 persons) 6.8 7.1 7.0 6.9 0.1 1.5 

Average hourly wages of 

production workers $16.67 17.87 18.49 18.67 2.00 12.0 

Estimated by the staff of the U.S. International Trade Commission based on data from the U.S. Bureau of the Mines, 

Mineral Commodity Summaries, 1997. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Summary of Sector Analysis 

U.S. Imports - NAFTA had a negligible' effect on increased U.S. imports of Canadian iron ore from 1993 to 

1996. U.S. tariffs on imports of iron ore were free on an MFN basis prior to NAFTA. Increased U.S. 

Standard Industrial Classifications (SIC) Industry No. 1011, Iron Ores. 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than the NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence 

6-81 

6-81
imports of iron ore were due to rising U.S. steel production as a result of strong demand in the capital goods 

and consumer durables markets from 1993 to 1996. The high operating rates at steel mills contributed to the 

revitalization of the U.S. iron ore industry as domestic production increased significantly and facilities were 

expanded and re-opened. 3As demand increased, prices rose from about $28 per ton to $34 per ton from 

1993 to 1996.4 

Canada supplied over one-half of U.S. needs for iron ore from 1993 to 1996. Canadian iron ore typically is 

shipped by freighter to integrated steel producers located along the Great Lakes, thus taking advantage of low 

cost transportation to U.S. pelletizing plants. Similar to the United States, Canadian iron ore operations 

expanded their extraction operations, at times canceling their traditional summer shutdown. There were 

virtually no U.S. imports of iron ore from Mexico because of captive consumption by Mexican steelmakers. 

U.S. Exports --NAFTA had a negligible effect on U.S. exports of iron ore to NAFTA partners during 1993-

96. U.S. iron ore exports (mostly pellets) to Canada were due to increased production by Canadian steel 

producers to meet strong steel demand in the U.S. and Canadian economies. In the United States, most iron 

ore is mined and pelletized in Minnesota, and can be easily transported by freighter to Canadian integrated 

steel producers located along the Great Lakes. Both U.S. and Canadian steel producers usually purchase iron 

ore based on price and availability. Canadian tariffs on imports of iron ore were free on an MFN basis prior 

to NAFTA. 

U.S. exports of iron to Mexico during the period were quite small. It is difficult for the United States to 

participate and compete in the international iron ore and pellets market because of the inland location of its 

mines and high labor and energy costs. For Mexico's steel mills it is more cost-effective to import iron ore 

and pellets from Brazil and Peru. Mexican tariffs on iron ore, which were 10 percent ad valorem prior to 

NAFTA, were eliminated as a result of NAFTA. 

Other Factors — Total U.S.-world trade in iron ores expanded by $206 million to $788 million during 1993-

96. Total U.S.-Canada trade in sector products rose by $153 million to $557 million. In contrast, total U.S.-

Mexico trade rose by $0.7 million to $1.0 million. Despite the reactivation of an estimated 5.6 million tons 

of pellet capacity in 1995 and 1996, and an average 98 percent capacity utilization during the 1994-96 

period,' investment in the North American iron ore industry was negligible. 

During the period, however, North Limited (an Australian company) reached an agreement to acquire a 59 

percent interest in the Iron Ore Company of Canada (IOC). The majority stake in IOC was purchased from 

Bethlehem Steel Corp. and National Steel Corp. IOC is the largest Canadian iron ore producer, and one of 

the world's largest pellet producers. 

3In the United States, extracting operations such as Eveleth were expanded, and pelletizing plants re-started at 

National Steel and North Shore. 

Based on United States Geological Survey value and volume data. Data for 1996 were estimated. 

5Wallace Huskonen, "Suppliers Say Higher Prices Would Assure Ore Supplies," 33 Metal Producing, Jan. 1997, 

p. 78. 

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6-82
ITC Group No. 9: Coal' 

Table 6-9-1 

Coal: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 18,624.7 19,908.9 19,537.5 19,991.2 1,366.5 7.3 

Consumption (million dollars) . . . 15,775.1 17,302.4 16,262.4 16,583.6 808.6 5.1 

Trade data (million dollars): 

Exports: 

Total 3,059.8 2,824.9 3,521.6 3,643.0 583.1 19.1 

To Mexico 9.9 10.0 30.6 60.2 50.3 507.4 

To Canada 291.5 288.7 305.6 371.4 79.9 27.4 

To non-NAFTA countries . . . 2,758.4 2,526.2 3,185.4 3,211.3 452.9 16.4 

Imports: 

Total 210.2 218.4 246.5 235.5 25.3 12.0 

From Mexico (2) 0.0 (2) 0.2 0.2 485.7 

From Canada 33.7 36.5 49.9 54.5 20.8 61.6 

From non-NAFTA countries 176.5 181.9 196.6 180.7 4.2 2.4 

Trade balance: 

Total 2,849.6 2,606.5 3,275.1 3,407.5 557.9 19.6 

With Mexico 9.9 10.0 30.6 60.0 50.1 504.9 

With Canada 257.8 252.3 255.7 316.9 59.2 23.0 

With non-NAFTA countries 2,582.0 2,344.3 2,988.8 3,030.6 448.6 17.4 

Total trade: 

Total 3,270.1 3,043.3 3,768.2 3,878.4 608.4 18.6 

NAFTA partners 335.1 335.2 386.1 486.4 151.3 45.1 

With Mexico 9.9 10.0 30.6 60.5 50.6 509.9 

With Canada 325.2 325.2 355.6 425.9 100.7 31.0 

Import market share (percent): 

Total 1.3 1.3 1.5 1.4 0.1 (3) 

Mexico (4) 0.0 (4) 0.0 (4) 

(3 ) 

Canada 0.2 0.2 0.3 0.3 0.1 (3) 

Non-NAFTA countries 1.1 1.1 1.2 1.1 0.0 (3) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.0 0.0 0.0 0.0 0.0 (3) 

Canada 0.0 0.0 0.0 0.0 0.0 (3) 

All other 0.0 0.0 0.0 0.0 0.0 (3) 

U.S. industry indicators: 5 

Employees (1,000 persons) . . . 100.9 104.3 98.4 93.7 -7.2 -7.1 

Production workers 

(1,000 persons) 79.9 83.8 79.6 76.6 -3.3 -4.1 

Average hourly wages of 

production workers $17.48 17.23 18.69 18.93 1.45 8.3 

Compiled from official statistics of the U.S. Department of Energy, National Energy Information Center, Annual 

Energy Review, 1995. 

2Less than $50,000. 

3Not meaningful for purposes of comparison. 

4Less than 0.05 percent 

5Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classifications (SIC) Industry Nos. 1221, Bituminous Coal and Lignite Surface Mining; 1222, 

Bituminous Coal Underground Mining. 

6-83 

6-83
Summary of Sector Analysis 

U.S. Imports — The effect of NAFTA on U.S. coal imports from Mexico and Canada was negligible' during 

1993-96. U.S. imports of coal from Canada increased by $21 million (62 percent) from 1993 to 1996, with 

more than 65 percent consisting of bituminous coals,' used by U.S. electric utility plants (these coals are 

referred to as steam coals). The remaining 35 percent consisted of blends of bituminous coals (referred to as 

metallurgical coals) used in a few key industrial areas such as steel, cement, and chemicals. Canadian coal 

producers utilize inexpensive waterborne transportation along the Great Lakes to ship coal to U.S. markets. 

U.S. imports of coal from Mexico were negligible during 1993-96. Mexican coal generally contains high 

levels of sulfur and, when burned, yields relatively high levels of air pollution and ash residue. 

U.S. tariffs on imports of coal were free on an MFN basis prior to the CFTA and NAFTA. 

U.S. Exports — The effect of NAFTA on U.S. coal exports to NAFTA partners was negligible. U.S. exports 

of coal to Mexico increased from $10 to $60 million during 1993-96. Most of the increase occurred in 1995 

and 1996 when they rose by $21 and $29 million, respectively. In 1995 and 1996, approximately 60 percent 

of U.S. coal exports to Mexico were steam coal and 40 percent were metallurgical coal.' While NAFTA 

provided some economic incentive for coal trade between the United States and Mexico by removing the 

previous taxes and duties levied on coal trade,' non-NAFTA developments drove the export increase. The 

primary reason for the increase in U.S. exports is that Mexico, in its effort to gain hard currency, switched 

oil-fired power plants to coal to increase exports of the bunker fuels used in the oil-fired boilers. Mexico also 

constructed new electricity-generating capacity based on blends of Mexican and U.S. coals that reduce air 

pollution and ash residues. Also, with the privatization and modernization of Mexico's steel industry, 

Mexican steel producers no longer were required to purchase lower quality, higher priced Mexican coal.' 

In 1995 and 1996, approximately 60 percent of U.S. exports of coal to Canada were metallurgical coal and 

40 percent were steam coal.' U.S. exports of metallurgical coal to Canada rose from $117 million in 1995 to 

$216 million in 1996, following the steel production cycle in Canada and the United States. Similarly, U.S. 

exports of steam coal increased from $116 million in 1995 to $140 million in 1996, as Canadian electric 

power producers increased their use of cleaner burning U.S. bituminous coal to meet stricter environmental 

regulations. Canadian tariffs on imports of coal were free on an MFN basis prior to NAFTA. 

Other Factors — Total U.S.-world trade in coal expanded by $608 million to $3.9 billion during 1993-96. 

Total U.S.-Canada trade in sector product rose by $101 million to $426 million. In contrast, total U. S.- 

Mexico trade rose by $50 million to $61 million. During 1993-96, despite high activity in company mergers 

and sales, NAFTA-related investment remained negligible. 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than the NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence 

3Coal is classified by rank, which includes anthracite coal, bituminous coal, sub-bituminous coal, and lignite, based 

on fixed carbon, volatile matter, and heating value. Bituminous coal is the most common coal and is used primarily for 

generating electricity, making coke (for use in steel production), and space heating. Bituminous is often referred to as 

either steam coal, which is used in boilers to generate steam to produce electricity, or metallurgical coal, which requires 

the blending of two or more bituminous coals and is used to make coke. 

U.S. Department of Energy, Energy Information Administration, Quarterly Coal Reports, various issues. 

U.S. Department of Energy, Energy Information Administration, International Energy Outlook 1996, Apr. 1997, 

p. 72. 

6Official of Jim Walters Resources, telephone interview with USITC staff, Apr. 28, 1997. 

U.S. Department of Energy, Energy Information Administration, Quarterly Coal Reports, various issues. 

6-84 

6-84
ITC Group No. 10: Crude Petroleum, Natural Gas, and Natural Gas Liquids' 

Table 6-10-1 

Crude petroleum, natural gas, and natural gas liquids: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Production' (million dollars) 45,958.0 41,620.0 46,031.0 42,554.0 -3,404.0 -7.4 

Consumption (million dollars) . . . 89,241.5 85,993.2 93,796.4 95,819.8 6,578.3 7.4 

Trade data (million dollars): 

Exports: 

Total 587.9 575.8 729.3 1,196.8 608.9 103.6 

To Mexico 215.1 183.2 301.8 288.8 73.7 34.3 

To Canada 142.5 178.6 139.9 350.1 207.6 145.7 

To non-NAFTA countries . . . 230.4 214.0 287.6 557.9 327.5 142.2 

Imports: 

Total 43,871.4 44,949.0 48,494.7 54,462.6 10,591.2 24.1 

From Mexico 4,237.6 4,671.7 5,729.6 7,309.5 3,071.9 72.5 

From Canada 9,006.2 9,737.2 10,793.3 13,111.7 4,105.5 45.6 

From non-NAFTA countries 30,627.6 30,540.1 31,971.7 34,041.4 3,413.8 11.1 

Trade balance: 

Total -43,283.5 -44,373.2 -47,765.4 -53,265.8 -9,982.3 -23.1 

With Mexico -4,022.5 -4,488.5 -5,427.8 -7,020.7 -2,998.2 -74.5 

With Canada -8,863.7 -9,558.6 -10,653.4 -12,761.6 -3,897.9 -44.0 

With non-NAFTA countries -30,397.2 -30,326.1 -31,684.1 -33,483.5 -3,086.2 -10.2 

Total trade: 

Total 44,459.3 45,524.8 49,224.0 55,659.3 11,200.0 25.2 

NAFTA partners 13,601.4 14,770.7 16,964.6 21,060.1 7,458.7 54.8 

With Mexico 4,452.7 4,854.9 6,031.4 7,598.3 3,145.7 70.6 

With Canada 9,148.7 9,915.8 10,933.2 13,461.7 4,313.1 47.1 

Import market share (percent): 

Total 49.2 52.3 51.7 56.8 7.7 (2) 

Mexico 4.7 5.4 6.1 7.6 2.9 (2) 

Canada 10.1 11.3 11.5 13.7 3.6 (2) 

Non-NAFTA countries 34.3 35.5 34.1 35.5 1.2 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.5 0.5 0.4 0.3 -0.2 (2) 

Canada (3) (3) (3) (3) (3) 

(2) 

All other 0.6 0.6 0.6 0.4 -0.2 .(2) 

U.S. industry indicators:' 

Employees (1,000 persons) . . . 350.0 337.0 318.0 308.0 -42.0 -12.0 

Production workers 

(1,000 persons) 171.0 162.0 150.0 143.0 -28.0 -16.4 

Average hourly wages of 

production workers $20.00 20.00 20.00 20.00 0.00 0.0 

Compiled from official statistics of the U.S. Department of Energy. It should be noted that the quantity of production 

decreased from 1994 to 1995 but because the price of crude petroleum increased, value data show a contradictory 

trend. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

' Standard Industrial Classification (SIC) Industry No. 1311, Crude Petroleum and Natural Gas; and 1321, Natural 

Gas Liquids. 

6-85 

6-85
Summary of Sector Analysis 

U.S. Imports — NAFTA had a negligible' effect on increased U.S. imports of crude petroleum, natural gas, 

and natural gas liquids from NAFTA partners during the period. The primary factor affecting imports was a 

change in demand. In terms of quantity, U.S. imports from Mexico rose by 30 percent, most of which was 

crude petroleum, which supplemented a temporary decline in U.S. production resulting from the shut-down of 

some offshore wells for routine maintenance, and from Canada by 7 percent; in terms of value, U.S. imports 

from Mexico increased 73 percent to $7.3 billion, while imports from Canada rose 46 percent to $13.1 billion 

because of increased crude petroleum prices that rose by $5-$6 per barrel in 1996, during the period. The 

United States has historically maintained a trade deficit in energy products, and is the major market for 

Mexican crude petroleum, and Canadian crude petroleum and natural gas. In 1996, U.S. imports from 

Mexico increased by 28 percent compared with the 1995 level. The gradual revival of Mexico's economy led 

to a 3 to 7 percent increase in crude petroleum production, all of which was slated for export for much-needed 

hard currency. Canada has historically been a major supplier of U.S. imports of crude petroleum and natural 

gas because of the shared border and an intricate system of interconnected pipelines, whereby large 

multinational companies operating in both nations often exchange product easily across the border. 

U.S. Exports —U.S. exports to Mexico, which primarily consist of natural gas, increased by $74 million (34 

percent) during the period due largely to Petroleos Mexicanos' (PEMEX) 3inability to satisfy increased 

domestic demand. Historically, for reasons of national security, U.S. exports of crude petroleum have been 

prohibited, except to Canada under the provisions of a commercial exchange agreement approved by the U.S. 

Government, whereby U.S. exports of crude petroleum are exchanged for imports of refined petroleum 

products.' As of May 1996, the President authorized U.S. exports of only crude petroleum produced in the 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than the NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

Under the provisions of the Mexican Constitution, all aspects of Mexico's petroleum, natural gas, and basic 

petrochemicals industries (including exploration, drilling, production, refining, distribution, pipeline transmission, trade, 

and oilfield services) are under the sole purview of PEMEX. These Constitutional provisions were not affected by the 

NAFTA. In Mexico, the Petroleum Regulatory Law provides that only the State (i.e., PEMEX) can carry out activities 

that constitute these industries. (See Constitution of the United Mexican States, arts. 25 and 27; Regulatory Law of 

Constitutional Article 27 in the Area of Petroleum, Diario Oficial, Nov. 29, 1958; and Law of Petroleos Mexicanos, 

Diario Oficial, Feb. 6, 1971.) 

Historically, PEMEX allowed for only limited foreign investment in Mexico's secondary petrochemical industry; 

petrochemicals deemed secondary continue to be defined by PEMEX. Article 1102 of the investment chapter of 

NAFTA required Mexico to open its petrochemicals sector, other than "basic" petrochemicals, which remain under the 

sole purview of PEMEX to foreign investment and eliminated the 40-percent limitation on foreign investment in 

"secondary" petrochemicals (See Law on the Promotion ofMexican Investment and The Regulation of Foreign 

Investment, art. 5, Diario Oficial, Mar. 9, 1973); there is no limit with regard to other classifications of petrochemicals 

(See Regulation of the Law on the Promotion ofMexican Investment and The Regulation of Foreign Investment, 

Diario Oficial, May 16, 1989). In addition, to the elimination of investment restrictions on nonbasic petrochemicals, 

certain basic petrochemicals were reclassified, leaving only 8 petrochemicals classified as basic (See 1989 Resolution 

Reclassifying Specified Petrochemical Products as Basic or Secondary Petrochemicals, Diario Oficial, Aug. 15, 1989 

and Resolution Reclassifying Specified Petrochemical Products as Basic or Secondary Petrochemicals, Diario Oficial, 

Aug. 17, 1992). 

The export of crude petroleum can be restricted at any time by the President under sec. 103 of The Energy Policy 

and Conservation Act, Public Law 94-163, Dec. 22, 1975. In matters of export control of crude petroleum, the 

President acts through the Secretary of Commerce, who imposes such restrictions necessary to be consistent with the 

(continued...) 

6-86 6-86
Alaskan North Slope to any MFN country.' These exports (about 1 percent of total U.S. production in 1996) 

have gone to markets in Japan and the Pacific Rim. 

Other Factors — Under the provisions of the Mexican Constitution, all aspects of Mexico's petroleum and 

natural gas industries, including exploration, production, distribution, and trade, are under the sole purview of 

PEMEX. Foreign investment in Mexico's energy industry is prohibited by the Constitution. NAFTA did not 

affect the Constitutional provision prohibiting foreign investment (or any private investment) in Mexico's 

petroleum and natural gas industries. In Mexico, only state-owned PEMEX can import crude petroleum, 

natural gas, and natural gas liquids. PEMEX has historically imported these products as it deemed necessary, 

regardless of tariff rates. Total U.S.-Mexican trade increased by $3.1 billion (71 percent) to $7.6 billion from 

1993 to 1996. However, the U.S. trade balance with Mexico in terms of these products deteriorated by 75 

percent during that same period, primarily because of fluctuations in the price of crude petroleum. 

(...continued) 

national interest and the purposes of the act. The Secretary enforces this provision of the act through the requirement of 

validated export licenses. The rules governing these exports are set forth in sec. 377.6, Petroleum and Petroleum 

Products, U.S. Department of Commerce, Export Administration Regulations, Dec. 7, 1981. 

U.S. exports of crude petroleum can also be controlled by three other acts: Export Administration Act of 1979, 

Public Law 96-72, Sept. 29, 1979; The Naval Petroleum Reserves Production Act of 1976, Public Law 94-258, Apr. 5, 

1976; and The Trans-Alaska Pipeline Authorization Act, Public Law 93-153, Nov. 16, 1973. 

Exports of Alaskan North Slope (ANS) Crude Oil, President Documents, memorandum of April 28, 1996, as 

published in the Federal Register of May 2, 1996 (61 F.R. 19507), pursuant to section 28(s) of the Mineral Leasing 

Act, as amended, 30 U.S.C. 185. 

6-87 

6-87
ITC Group No. 11: Animal Feedsl 

Table 6-11-1 

Animal feeds: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 13,741.6 13,744.7 14,885.0 14,950.0 1,208.4 8.8 

Consumption (million dollars) . . . 13,242.3 13,316.9 14,438.7 14,601.2 1,358.9 10.3 

Trade data (million dollars): 

Exports: 

Total 634.4 602.3 648.8 591.8 -42.7 -6.7 

To Mexico 54.5 73.6 42.7 43.6 -10.9 -20.1 

To Canada 102.0 111.0 123.3 105.4 3.4 3.3 

To non-NAFTA countries 477.9 417.7 482.7 442.8 -35.1 -7.4 

Imports: 

Total 135.1 174.5 202.5 242.9 107.8 79.8 

From Mexico 0.3 0.1 0.3 0.2 -0.2 -53.5 

From Canada 71.0 98.2 113.7 159.3 88.3 124.4 

From non-NAFTA countries 63.8 76.3 88.5 83.4 19.6 30.8 

Trade balance: 

Total 499.3 427.8 446.3 348.8 -150.5 -30.1 

With Mexico 54.2 73.5 42.4 43.4 -10.8 -19.9 

With Canada 31.0 12.9 9.6 -53.9 -84.9 (2) 

With non-NAFTA countries 414.1 341.4 394.3 359.3 -54.8 -13.2 

Total trade: 

Total 769.6 776.8 851.3 834.7 65.1 8.5 

NAFTA partners 227.9 282.9 280.1 308.5 80.6 35.4 

With Mexico 54.9 73.7 43.0 43.8 -11.1 -20.3 

With Canada 173.0 209.2 237.0 264.7 91.7 53.0 

Import market share (percent): 

Total 1.0 1.3 1.4 1.7 0.6 (2) 

Mexico 0.0 0.0 0.0 0.0 0.0 (2) 

Canada 0.5 0.7 0.8 1.1 0.6 (2) 

Non-NAFTA countries 0.5 0.6 0.6 0.6 0.1 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 2.7 0.0 0.0 0.0 -2.7 (2) 

Canada (3) (3) (3) (3) (3) 

(2) 

All other 0.3 0.3 0.3 0.4 0.1 (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 42.2 42.4 42.6 42.5 0.3 0.7 

Production workers 

(1,000 persons) 27.1 26.8 26.7 26.7 -0.4 -1.5 

Average hourly wages of 

production workers $10.17 10.50 10.94 11.05 0.88 8.7 

Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2 Not meaningful for purposes of comparison. 

3 Less than 0.05 percent 

4 Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

' Standard Industrial Classification (SIC) Industry No. 2048, Prepared Feeds and Feed Ingredients for Animals and 

Fowls, Except Dogs and Cats. 

6-88 

6-88
Figure 6-11-1 

Animal feeds: Imports from Canada, price 

and consumption 

1993 1994 1995 1996 

350 

300 

250 

200 

150 

100 

50 

--o— U.S. Imports 

of Canadian 

animal feeds 

Consumption 

—e—Com price in 

cents 

Summary of Sector Analysis2 

U.S. Imports — NAFTA had negligible' effect on U.S. 

imports from its NAFTA partners during 1993-96. 

U.S. imports of animal feeds' from Canada increased 

124 percent, from $71 million in 1993 to $159 million 

in 1996. Most of the increase in imports from Canada 

was prepared feeds for dairy and other cattle, feeds for 

animals other than livestock, both of which were free 

under the U.S. MFN rate of duty prior to NAFTA; and 

other feeds (which were free under the CFTA). 

Note: Consumption is in million metric tons; price is in cents Imports of animal feeds from Canada are a sign of per bushel; imports are in millions of dollars. 

active border trade. For 1993-96, NAFTA was not the Source: Official statistics of the U.S. Department of Agriculture. 

primary operating factor in the U.S. animal feeds 

market. The increase in imports of Canadian animal feeds 

parallels the increase in the domestic price of U.S. feed grains which is represented in the figure 6-11-1 by 

corn, the principal grain. When U.S. prices exceed world prices, imports from Canada are expected to 

increase. 

Animal feeds tend to be very bulky, value-added products prepared largely from by-products. They have 

variable formulations based on local availability, price, and nutritional requirements. Animal feeds tend to 

not be major intercontinental trade items. Rather, they tend to be prepared regionally from available supplies, 

which is why about 66 percent of all imports of animal feeds into the United States originate in Canada. 

There may also be problems of rancidity with shipping animal feeds over long distances. U.S. imports of 

animal feeds from Mexico are low. Mexico ranks as the 25th most important source of animal feeds imports 

for the U.S. From 1993 to 1996, imports of feed from Mexico fluctuated between $0.3 million and $0.1 

million. 

U.S. Exports — NAFTA also had a negligible effect on U.S. exports of sector products to NAFTA partners 

during the period. Total U.S. exports declined $32 million from 1993 to 1994, dipping to $602 million. 

Under NAFTA, the market access provisions of the U.S.-Canada Free Trade Agreement continue to be in effect. 

NAFTA did establish bilateral market access provisions between the United States and Mexico and contains trilateral 

provisions on domestic support, export subsidies, rules of origin, safeguards, and photosanitary standards for these 

products. 

3The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than the NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

° These products are used by those who feed ovine, bovine, equine, porcine, and avian animals, as well as all forms of 

pets. Included are by-products, such as "Bran, sharps (middlings) and other residues"; "Oilcake and other residues," 

which come from the grains, oilseeds, vegetable processing, and rendering industries; forage items, such as hay or 

alfalfa, which may be cubed or pelletized; and prepared animal feeds, including pet foods, and animal feeds containing 

milk or milk derivatives. 

Imports of animal feeds play a negligible role in the 

United States. Imports from Canada in 1996 were 

only about 1 percent of U.S. consumption, and total 

imports were less than 2 percent of U.S. consumption. 

6-89 

6-89
They then rose $47 million only to decline by $57 million to $592 million in 1996, for an overall 1993-96 

decline of $43 million (7 percent). 

U.S. exports to Mexico grew substantially during 1993-94, but fell during 1995 largely as a result of the peso 

devaluation and remained flat in 1996. Prior to NAFTA, Mexican tariff rates ranged from 10 percent ad 

valorem to 20 percent ad valorem. Under NAFTA, some of the tariffs were eliminated , while others were 

scheduled to be phased out in stages over a period of 5 to 10 years. The increase in U.S. exports of feeds in 

1994 was partly the result of Mexican tariff reductions under NAFTA. However, in the subsequent period 

from 1994 to 1996, the peso crisis and concomitant decrease in Mexican purchasing power had a more 

significant effect than the reduced tariffs. For example, in 1994, U.S. exports of "preparations of a kind 

used in animal feeding" (HTS 2309.90.10), the largest single animal feed export category to Mexico, totaled 

$47 million, but decreased by almost half to $24 million in 1995 owing to the peso crisis, as the discretionary 

purchase of imported feed became a luxury. 

Other Factors — Total sector trade grew by 9 percent to $835 million from 1993 to 1996. Total U.S.-

Canada trade for the sector grew by $92 million to $265 million during the period, while total U.S.-Mexico 

trade for the sector declined by $11 million to $44 million. 

The NAFTA effect upon investment cannot be determined with confidence due to lack of detailed investment 

data on U.S. investment in Mexico, Mexican investment in the United States, and any other NAFTA-related 

investments. However, it is believed that the effects were negligible. Most U.S. animal feeds are prepared 

from the by-products of cereal grain and oilseed processing plants located for the most part in the U.S. 

combelt, thus rendering the combelt the most likely focus for U.S. investment. Mexico, however, has 

invested in its own agricultural production system. For further growth in Mexican feed exports, much 

investment is still needed in the Mexican transportation infrastructure.' 

Farmland Industries, a large soybean and corn exporter to Mexico, did indicate in testimony that it is 

investing in feed manufacturing in Mexico to supply growing demand for animal feed in Mexico.' 

5"Nevertheless transportation remains a significant bottleneck that could be broken with additional infrastructure 

investment, paving the way for exports of U.S. farm commodities and food processing technology." Federal Reserve 

Bank of Kansas City, Economic Review, vol. 81, No. 3, "Global Infrastructure to Shape U.S. Export Boom, " Alan 

Barkema and Mark Drabenstott, in the on line edition of Feedstuffs, May 5, 1997, vol. 69, No. 18 

(http://wwvv.feedstuffs.com/subscrip/1997/fl0s6903.htm). 

6Stephen P. Dees, Farmland Industries, written submission to the USITC, May 12, 1997, p. 2, and testimony before 

the Commission, May 16, 1997. 

6-90 

6-90
ITC Group No. 12: Bakery Products 1 

Table 6-12-1 

Bakery products: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 25,357.1 26,777.3 27,659.8 28,489.6 3,132.5 12.4 

Consumption (million dollars) . . . 25,486.1 26,950.9 27,899.0 28,772.6 3,286.5 12.9 

Trade data (million dollars): 

Exports: 

Total 338.6 366.1 359.4 374.4 35.9 10.6 

To Mexico 38.7 43.5 14.5 13.2 -25.5 -65.9 

To Canada 183.5 197:3 218.1 227.5 43.9 23.9 

To non-NAFTA countries 116.4 125.3 126.8 133.8 17.4 14.9 

Imports: 

Total 467.5 539.7 598.6 657.4 189.9 40.6 

From Mexico 34.3 52.9 61.3 73.2 38.9 113.4 

From Canada 199.9 228.6 262.1 291.4 91.6 45.8 

From non-NAFTA countries 233.4 258.2 275.2 292.8 59.4 25.5 

Trade balance: 

Total -129.0 -173.6 -239.2 -283.0 -154.0 -119.4 

With Mexico 4.4 -9.4 -46.8 -60.0 -64.3 (2) 

With Canada -16.3 -31.3 -44.0 -64.0 -47.6 -291.3 

With non-NAFTA countries -117.0 -132.9 -148.3 -159.0 -42.0 -35.9 

Total trade: 

Total 806.1 905.8 958.0 1,031.8 225.7 28.0 

NAFTA partners 456.4 522.3 556.0 605.3 148.9 32.6 

With Mexico 72.9 96.4 75.8 86.4 13.4 18.4 

With Canada 383.4 425.9 480.2 518.9 135.5 35.3 

Import market share (percent): 

Total 1.8 2.0 2.1 2.3 0.5 (2) 

Mexico 0.1 0.2 0.2 0.3 0.1 (2) 

Canada 0.8 0.8 0.9 1.0 0.2 (2) 

Non-NAFTA countries 0.9 1.0 1.0 1.0 0.1 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 4.0 (3) (3) 0.0 -4.0 (2) 

Canada 0.1 0.1 0.1 (3) -0.1 (2) 

All other 0.1 0.2 0.1 0.1 -0.1 (2) 

U.S. industry indicators:4 

Employees (1,000 persons) . . . 210.6 212.0 209.2 202.5 -8.1 -3.9 

Production workers 

(1,000 persons) 135.9 138.9 139.9 136.1 0.2 0.2 

Average hourly wages of 

production workers $11.71 11.19 11.87 12.17 0.46 3.9 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent 

4Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classifications (SIC) Industry Nos. 2051, Bread and Other Bakery Products, Except Cookies 

and Crackers; 2052, Cookies and Crackers; and 2053, Frozen Bakery Products, Except Bread. 

6-91 

6-91
Summary of Sector Analysis' 

U.S. Imports — NAFTA had a negligible' effect on increasing U.S. imports from its NAFTA partners during 

1993-96. Imports from Mexico rose because some U.S. producers of baked goods have located production in 

Mexico for export to the United States before and after NAFTA, in part to take advantage of lower 

(nonsubsidized) sugar prices' in Mexico. In addition, some of the increase was in taco shells and tostada 

shells, which rose by 111 percent, from $13.8 million in 1993 to $29 million in 1996. NAFTA tariffs were 

reduced on these items from 10 percent to zero. Imports from Mexico were concentrated in sweet biscuits, 

waffles, and wafers, other than frozen; pastries, cakes, and similar sweet baked products; and other baked 

products, including toasted products (taco shells and tostada shells). U.S. import tariffs on all bakery 

products were free prior to NAFTA, with the exception of "other baked products, including toasted products" 

(HTS subheading 1905.90.90), which had an MFN tariff of 10 percent ad valorem. Under NAFTA, this duty 

was eliminated on qualifying goods. Imports from Mexico under HTS subheading 1905.90.90 were mostly 

taco shells and tostada shells produced for restaurant use.' 

Imports from Canada increased substantially in 1995 and 1996, in part because the cost of sugar is lower in 

Canada than in the United States, providing a cost advantage to Canadian producers. During 1992-96, most 

U.S. imports from Canada entered under HTS subheadings where the MFN tariff rate was already free. Less 

than 2 percent of U.S. imports from Canada entered under HTS subheading 1905.90.90; in 1993 the U.S. 

tariff under the CFTA was 5 percent ad valorem, which under NAFTA fell to 2 percent ad valorem. 

U.S. Exports -- NAFTA had a negligible effect on U.S. exports of sector products to Mexico and Canada 

during 1993-96. During this period, exports to Mexico fell by 66 percent to $13 million, as the devaluation 

of the peso reduced consumers' real incomes and resulted in price increases for imported baked products, the 

consumption of which is price sensitive. Exports to Canada increased moderately by 24 percent to $228 

million in 1996, which reflected higher consumption levels as well as a continuation of the trend towards 

increased cross-border trade in this sector. 6' 

Other Factors — Total U.S.-world trade in bakery products expanded by 28 percent to $1 billion from 1993 

to 1996. During this period, total U.S.-Canada trade in these products rose by 35 percent to $519 million and 

total U.S.-Mexico trade rose by 18 percent to $86 million in 1996. 

Under NAFTA, the market access provisions of the U.S.-Canada Free Trade Agreement continue to be in effect. 

NAFTA did establish bilateral market access provisions between the United States and Mexico and contains trilateral 

provisions on domestic support, export subsidies, rules of origin, safeguards, and photosanitary standards for these 

products. 

3The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

Official of the Independent Bakers Association, telephone interview by USITC staff, Mar. 10, 1997. 

sFor example, see U.S. Customs ruling letter HQ 954758, Feb. 28, 1994. 

Official of American Bakers Association, telephone interview by USITC staff, Mar. 10, 1997. 

7Official of the Independent Bakers Association, telephone interview by USITC staff, Mar. 10, 1997. Some industry 

officials noted that perhaps there is more trade across the Canadian border because Canada has become more flexible 

with formerly problematic labeling restrictions concerning folic acid. Canada has adopted an interim order to allow the 

entrance of folic acid-enriched baked goods (per the U.S. enrichment requirement that has not yet been approved in 

Canada). 

6-92 

6-92
Many producers of sweet baked goods have been moving from the United States into Mexico because of 

relatively lower sugar prices. Under the NAFTA-TAA, 146 workers were certified as a result of muffm 

production being shifted to Mexico.' 

U.S. Department of Labor, NAFTA Office. Although these job losses are certified to be the result of plant 

relocations to Mexico or Canada and/or increased imports from these countries, NAFTA may not have been the cause of 

plant relocation decisions or the reason for the increase in imports. 

6-93 

6-93
ITC Group No. 13: Chocolate and Cocoa Products' 

Table 6-13-1 

Chocolate and cocoa products: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 3,154.9 3,311.4 3,211.1 3,300.0 145.1 4.6 

Consumption (million dollars) 3,415.6 3,579.3 3,584.1 3,719.1 303.6 8.9 

Trade data (million dollars): 

Exports: 

Total 398.3 382.4 355.5 400.0 1.7 0.4 

To Mexico 49.8 56.0 41.8 47.3 -2.5 -5.0 

To Canada 146.9 134.1 149.9 182.2 35.3 24.0 

To non-NAFTA countries 201.6 192.3 163.8 170.5 -31.1 -15.4 

Imports: 

Total 658.9 650.3 728.5 819.1 160.2 24.3 

From Mexico 16.8 15.2 24.9 25.7 8.9 53.0 

From Canada 164.5 178.1 221.9 261.5 97.0 59.0 

From non-NAFTA countries 477.6 457.0 481.7 531.9 54.3 11.4 

Trade balance: 

Total -260.7 -267.9 -373.0 -419.1 -158.5 -60.8 

With Mexico 32.9 40.9 16.9 21.6 -11.4 -34.6 

With Canada -17.6 -44.0 -72.0 -79.4 -61.8 -350.7 

With non-NAFTA countries -276.0 -264.7 -317.9 -361.3 -85.4 -30.9 

Total trade: 

Total 1,057.2 1,032.7 1,084.1 1,219.1 161.9 15.3 

NAFTA partners 378.1 383.5 438.5 516.8 138.7 36.7 

With Mexico 66.6 71.2 66.7 73.0 6.4 9.7 

With Canada 311.5 312.2 371.8 443.7 132.3 42.5 

Import market share (percent): 

Total 19.3 18.2 20.3 22.0 2.7 (2) 

Mexico 0.5 0.4 0.7 0.7 0.2 (2) 

Canada 4.8 5.0 6.2 7.0 2.2 (2) 

Non-NAFTA countries 14.0 12.8 13.4 14.3 0.3 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.1 0.2 0.0 0.0 -0.1 (2) 

Canada 2.6 2.0 1.6 1.1 -1.5 (2) 

All other 1.5 1.6 1.8 1.7 0.2 (2) 

U.S. industry indicators: 

Employees (1,000 persons) . . (3) (3) (3) (3) (3) 

(4) 

Production workers 

(1,000 persons) (3) (3) (3) (3) (3) 

(4) 

Average hourly wages of 

production workers (3) (3) (3) (3) (3) 

(4) 

Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Not available. 

4Not applicable. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

' Standard Industrial Classifications (SIC) Industry No. 2066, Chocblate and Cocoa Products. Products in this 

industry are chocolate and chocolate-type confectionary products and coatings, and miscellaneous chocolate and cocoa 

products. 

6-94 

6-94
Summary of Sector Analysis' 

U.S. Imports — NAFTA had a negligible' effect on rising U.S. imports of chocolate and cocoa products from 

Mexico and Canada.' U.S. imports from Mexico rose $9 million during the period to $26 million, accounting 

for less than 3 percent of all U.S. imports of chocolate and cocoa products. Apparent consumption during 

the period rose by $304 million (9 percent) to $3.7 billion. Almost all sector products entered from Mexico 

prior to NAFTA entered under tariff provisions for which the MFN rate of duty is free because the articles 

are not produced in the United. States. The imported products were primarily cocoa butter, fat, and oil, which 

were derived from Mexican-grown cocoa. Neither the United States nor Canada produces cocoa. Cocoa 

products that have undergone a minimum of processing are allowed duty-free entry into the United States 

under NAFTA. Most of the growth in imports from Mexico in 1995 and 1996 was of miscellaneous 

confectionary or food preparations containing cocoa, which entered free of duty under. NAFTA. U.S. tariffs 

on most other products are either free for NAFTA goods from Mexico or are subject to tariff-rate quotas 

(TRQ), such as sugar-containing or dairy-containing products. 

The average effective U.S. tariff ad valorem equivalents on imports from Canada was 2.6 percent before 

NAFTA. U.S. imports from Canada rose 59 percent to $262 million from 1993 to 1996, reflecting lower 

sugar costs in Canada than the United States. Most of the products entering from Canada were chocolate or 

certain filled confectionary. Cocoa inputs in this category are processed into intermediate chocolate and 

confectionary products in Canada where sugar, at world prices,' is added, and the intermediate or fmished 

products can generally be imported into the United States. Major U.S. producers, including Kraft General 

Foods and Hershey Food Corporation, process intermediate chocolate or food preparations containing cocoa 

in Canada. The operations of these and other U.S. producers in Canada were established well before 

NAFTA. 

U.S. Exports — NAFTA also had a negligible effect on U.S. exports of sector products to NAFTA countries. 

Exports to Mexico decreased by 5 percent during 1993-96 to $47 million due to the economic downturn in 

1995. Reduced real incomes of consumers, rising unemployment, and price increases in 1995 lead to reduced 

discretionary spending by Mexican consumers. Most of the decline in exports to Mexico occurred in certain 

filled confectionary and a miscellaneous category of confectionary and other products used in the production 

of sweets. U.S. exports of chocolate and other food preparations put up for retail sale to Mexico are minimal, 

because, like all sector products, they are subject to high Mexican tariffs. Under NAFTA, Mexican tariffs of 

20 percent ad valorem are being reduced over 10 years. Hershey Food Corp., a major U.S. manufacturer of 

chocolate and chocolate products, established production facilities in Mexico several years before NAFTA. 

'Under NAFTA, the market access provisions of the U.S.-Canada Free Trade Agreement continue to be in effect. 

NAFTA did establish bilateral market access provisions between the United States and Mexico and contains trilateral 

provisions on domestic support, export subsidies, rules of origin, safeguards, and phytosanitary standards for these 

products. 

3The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

U.S. trade in sector products is dominated by raw cocoa and cocoa-butter ingredients used to produce candy and 

other chocolate products. 

5Sugar prices in the United States are generally higher than those in the rest of the world because of U.S. control of 

the import of sugar under the TRQs. The United States does have partial duty refund provisions for the re-export of 

sugar containing products made with imported sugar. 

6-95 

6-95
Exports to Canada increased by 24 percent to $182 million in 1996, with most of the growth occurring in 

1996. U.S. exports of chocolate and other food preparations containing cocoa put up for retail sale increased 

substantially, but was offset by a large decline in exports of the miscellaneous category of "other" 

confectionary and chocolate or food preparations containing cocoa. The mix of products exported to Canada 

has been shifting since 1995 to products not previously exported in notable quantities. 

Other Factors — Total U.S. trade in chocolate and cocoa products grew by 15 percent from 1993 to 1996 

from $1 billion to $1.2 billion. During this period, total U.S.-Canada trade in these products grew 43 percent 

from $311 million in 1993 to $444 million in 1996. Likewise, total U.S.-Mexico trade grew by 10 percent 

from $67 million to $73 million in 1996. 

Because of duty-free treatment for nearly all sector imports from Mexico prior to NAFTA, and because of 

substantial investments in Canada by U.S. food processors before 1994, it is unlikely that NAFTA has had 

much, if any, effect on investment in the United States, Canada, or Mexico with regard to sector products. 

6-96
ITC Group No. 14: Fats and Oilsi 

Table 6-14-1 

Fats and oils: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 6,709.9 6,457.0 6,653.4 6,300.0 -409.9 -6.1 

Consumption (million dollars) . . . 7,138.6 6,966.7 7,087.3 7,189.1 50.5 0.7 

Trade data (million dollars): 

Exports: 

Total 453.4 566.0 886.3 679.6 226.2 49.9 

To Mexico 78.4 88.6 157.0 147.6 69.2 88.3 

To Canada 58.2 72.8 71.7 106.0 47.8 82.0 

To non-NAFTA countries . . . 316.8 404.6 657.6 426.0 109.2 34.5 

Imports: 

Total 882.1 1,075.7 1,320.2 1,568.7 686.6 77.8 

From Mexico 10.6 7.6 14.7 19.3 8.7 82.1 

From Canada 272.0 369.9 417.1 517.4 245.4 90.2 

From non-NAFTA countries 599.5 698.2 888.4 1,032.0 432.5 72.1 

Trade balance: 

Total -428.7 -509.7 -433.9 -889.1 -460.4 -107.4 

With Mexico 67.8 81.0 142.3 128.3 60.5 89.2 

With Canada -213.8 -297.1 -345.4 -411.4 -197.6 -92.5 

With non-NAFTA countries -282.7 -293.6 -230.8 -606.0 -323.3 -114.3 

Total trade: 

Total 1,335.5 1,641.7 2,206.5 2,248.3 912.8 68.3 

NAFTA partners 419.2 538.9 660.5 790.3 371.1 88.5 

With Mexico 89.0 96.2 171.7 166.9 . 77.9 87.5 

With Canada 330.2 442.7 488.8 623.4 293.2 88.8 

Import market share (percent): 

Total 12.4 15.4 18.6 21.8 9.5 (2) 

Mexico 0.1 0.1 0.2 0.3 0.1 (2) 

Canada 3.8 5.3 5.9 7.2 3.4 (2) 

Non-NAFTA countries 8.4 10.0 12.5 14.4 6.0 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 3.8 4.0 3.2 1.5 -2.3 (2) 

Canada 0.1 0.1 0.1 (3) -0.1 (2) 

All other 1.4 1.1 0.7 0.6 -0.8 (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) 32.0 33.0 34.0 32.0 0.0 0.0 

Production workers 

(1,000 persons) 21.0 22.0 23.0 22.0 1.0 4.8 

Average hourly wages of 

production workers $11.03 11.45 11.86 12.21 1.18 10.7 

I Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent 

4Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data for SIC 

207. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) industry Nos. 2076, Vegetable Oil Mills, Excluding Corn, Cottonseed, and 

Soybean; and 2079, Shortening, Table Oils, Margarine, and Other Edible Fats and Oils, Not Elsewhere Classified. Note 

further that establishments producing corn oil, classified under SIC Industry No. 2046, Wet Corn Milling, and 2075, 

Soybean Oil Mills, are not included in this product sector. 

6-97 

6-97
Summary of Sector Analysis' 

U.S. Imports —NAFTA had a negligible3effect on increasing U.S. imports of fats and oils from Mexico and 

Canada during 1993-96. Mexico is a net importer of fats and oils, and exports a relatively small fraction of 

its output. Mexican exports recovered in 1996 from the low levels of 1993-95 affected by drought that 

reduced production of safflower seed oil, the leading Mexican export. The United States is a net importer of 

fats and oils from Canada, and Canadian producers have made sharp gains in the U.S. market for their 

principal product, canola oil, for which there is rising demand as a cooking oil. Most of this increase occurred 

because of higher prices for vegetable oil. 

U.S. tariffs were reduced by 2.3 percentage points during 1993-96 on sector imports (principally safflower oil 

and sesame oil) from Mexico under NAFTA. U.S. duties on Canadian fats and oils were generally low or free 

prior to NAFTA, principally due to tariff reductions under the CFTA. 

U.S. Exports — NAFTA had a negligible effect on U.S. exports of fats and oils to NAFTA countries. Lower 

Mexican production and higher worldwide prices of vegetable oil were the principal reasons behind the rise in 

the dollar value of U.S. exports to Mexico. The volume of U.S. vegetable oil exports rose by 59 percent.' 

Furthermore, although U.S. sector exports to Mexico benefited from marginally lower import duties 

(Mexican tariffs ranged from 10 percent ad valorem to 20 percent ad valorem in 1993 with staged reductions 

over 10 years under NAFTA), this was offset in 1995 by a 15 percent value-added tax on vegetable oil. 

Adverse growing conditions reduced domestic oilseed supplies in this period. 

U.S. exports to Canada rose to $106 million in 1996, 83 percent above the $58 million level in 1993. 

Although sales of U.S. vegetable oil in Canada benefited from lower import duties, a price rise contributed 

substantially to the increased U.S. vegetable oils exports. Higher valued, refined U.S. vegetable oil products 

did make some inroads into the Canadian market. 

Other Factors — Total U.S. trade in fats and oils grew by 68 percent ($913 million) to $2.2 billion from 

1993 to 1996. During this period, total U.S.-Canada trade for the sector grew by $293 million to $623 

million, and total U.S.-Mexico trade for the sector by $78 million to $167 million in 1996. 

The amount of U.S. investment in Mexico is unknown but is believed to be increasing, although still limited. 

A number of U.S. companies initially expressed interest in the Mexican oilseed sector, but the recession in 

1995 cooled U.S. investors' plans as the Mexican oilseed industry remains financially vulnerable. However 

in 1997, one U.S. oilseed crushing plant will open in Mexico.' Under the NAFTA-TAA, 50 workers that 

produced vegetable oils were certified during 1994-96. 6 

Under NAFTA, the market access provisions of the U.S.-Canada Free Trade Agreement continue to be in effect. 

NAFTA did establish bilateral market access provisions between the United States and Mexico and contains trilateral 

provisions on domestic support, export subsidies, rules of origin, safeguards, and photosanitary standards for these 

products. 

3The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

U.S. exports rose from 138,000 to 220,000 metric tons during 1993-96. 

5"Cargill crushing plant to open ahead of schedule in Mexico," Feedstuffs, Feb. 3, 1997, p. 8. 

6U.S. Department of Labor,. NAFTA Office. Although these job losses are certified to be the result of plant 

relocations to Mexico or Canada and/or increased imports from these countries, NAFTA may not have been the cause of 

plant relocation decisions or the reason for the increase in imports. 

6-98 

6-98
ITC Group No. 15: Malt Beverages' 

Table 6-15-1 

Malt beverages: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 16,628.6 16,713.9 17,100.9 17,785.3 1,156.7 7.0 

Consumption (million dollars) .. . 17,355.5 17,395.6 17,766.9 18,672.8 1,317.3 7.6 

Trade data (million dollars): 

Exports: 

Total 233.7 390.8 525.6 453.2 219.5 93.9 

To Mexico 19.8 29.3 22.8 12.0 -7.7 -39.1 

To Canada 21.2 25.8 32.4 37.1 16.0 75.4 

To non-NAFTA countries 192.7 335.7 470.5 404.0 211.3 109.6 

Imports: 

Total 960.6 1,072.5 1,191.6 1,340.7 380.1 39.6 

From Mexico 163.1 187.9 238.2 306.7 143.6 88.0 

From Canada 168.1 201.4 196.6 208.2 40.1 23.9 

From non-NAFTA countries 629.4 683.2 756.9 825.8 196.4 31.2 

Trade balance: 

Total -726.9 -681.7 -666.0 -887.5 -160.6 -22.1 

With Mexico -143.3 -158.6 -215.4 -294.6 -151.3 -105.6 

With Canada -147.0 -175.6 -164.2 -171.1 -24.1 -16.4 

With non-NAFTA countries -436.7 -347.5 -286.3 -421.8 14.8 3.4 

Total trade: 

Total 1,194.3 1,463.3 1,717.3 1,793.9 599.6 50.2 

NAFTA partners 372.2 444.3 489.9 564.1 191.9 51.6 

With Mexico 182.9 217.2 260.9 318.7 135.8 74.3 

With Canada 189.3 227.1 229.0 245.4 56.1 29.6 

Import market share (percent): 

Total 5.5 6.2 6.7 7.2 1.6 (2) 

Mexico 0.9 1.1 1.3 1.6 0.7 (2) 

Canada 1.0 1.2 1.1 1.1 0.1 (2) 

Non-NAFTA countries 3.6 3.9 4.3 4.4 0.8 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 2.0 1.5 1.5 1.3 -0.7 (2) 

Canada 1.5 1.1 0.8 0.5 -1.0 (2) 

All other 1.5 1.5 1.3 1.1 -0.4 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) .. . 39.5 37.1 35.8 34.9 -4.6 -11.6 

Production workers 

(1,000 persons) 24.2 24.3 23.7 22.6 -1.6 -6.6 

Average hourly wages of 

production workers $20.00 20.51 21.09 21.07 1.07 5.4 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

' Standard Industrial Classification (SIC) Industry No. 2082, Malt Beverages. 

6-99 6-99
Summary of Sector Analysis 

U.S. Imports — The effect of NAFTA on rising U.S. imports from NAFTA partners of malt beverages was 

negligible.' Consumer preferences and the relative strength of the U.S. dollar were the main factors driving 

malt-beverage imports from 1993 to 1996. Total U.S. malt beverage imports from all sources worldwide 

rose by 40 percent from nearly $1.0 billion in 1993 to just over $1.3 billion in 1996, with the rise in imports 

from several non-NAFTA countries exceeding that from the NAFTA partners.' Imports from Mexico rose 

each year to $307 million in 1996. During this same period, imports from Canada were up $40 million, 

despite being relatively flat since 1994. 4This rise in imports from NAFTA partners is due primarily to the 

trend in U.S. consumer preference for imported beer, despite their price premium over domestic beer. In 

1995, U.S. domestic beer sales dropped 1.0 percent but import sales rose 5.3 percent.' The top five imported 

beers in 1994-1995 were Heineken, Corona Extra, Molson Ice, Beck's, and Molson Golden.' Sales of 

Corona have also been supported heavily by the large Hispanic market in the United States.' Furthermore, 

the peso devaluation and a favorable Canadian-dollar exchange rate contributed to the increase in U.S. beerimports, which reduced the cost of these products in the United States. 

NAFTA tariff reductions did not significantly affect the U.S. malt-beverage trade. During 1993-96, tradeweighted average tariff rates on imports of these products did not decrease significantly. The effective U.S. 

ad valorem equivalent (AVE) on malt beverages from Canada decreased two-thirds from 1.5 percent ad 

valorem to 0.5 percent ad valorem. Likewise, the AVE on malt beverages from Mexico decreased by nearly a 

third from 2 percent ad valorem to 1.3 percent ad valorem. 

U.S. Exports — The effect of NAFTA on U.S. exports of sector products to Canada and Mexico was 

negligible. During 1993-96, there was a 94 percent increase in total U.S. beer exports to all countries 

worldwide from $234 million to $453 million, with the rise in exports to several non-NAFTA countries 

exceeding that to the NAFTA partners.' Beer exports to Mexico declined by 59 percent from $24 million to 

$12 million from 1994-1996 due to the Mexican recession and the peso devaluation, which raised the price of 

U.S. beer in peso terms. Beer exports to Canada rose continuously to $37 million in 1996, a 75-percent 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3For example, U.S. imports were up 87 percent from $2.9 million in 1993 to $5.4 million in 1996 from Belgium, up 

108 percent from $769,000 in 1993 to $1.6 million in 1996 from Venezuela, up 447 percent from $1.9 million in 1993 

to $10.3 million in 1996 from the Dominican Republic, and up 71 percent from $50.4 million in 1993 to $86.0 million 

in 1996 from the United Kingdom during this same period. 

4On Jan. 4, 1995, Canadian beer producers filed a request for a NAFTA binational panel to review the recision of the 

injury determination made by the Canadian International Trade Tribunal (CITT) respecting certain malt beverages from 

the United States. 60 F.R. 2942, Jan. 12, 1995. On Nov. 15, 1995, a panel affirmed the determination of the CITT. 

NAFTA Secretariat File No. CDA-95-1904-01. 

Rick Lyke, "The Top Ten Imported Beers," Market Watch, June 1996, vol. 15, No. 4, p. 53. 

6Ibid., p. 55. The origins of these five beers are, respectively, the Netherlands, Mexico, Canada, Germany, and 

Canada. 

'Ibid., p. 56. 

For example, U.S. exports were up 223 percent from $9.9 million in 1993 to $32.0 million in 1993 to Taiwan, up 

184 percent from $10.3 million in 1993 to $29.3 million in 1996 to the United Kingdom, up 394 percent from $5.5 

million in 1993 to $26.9 million in 1996 to Ireland, and up 780 percent from $2.7 million in 1993 to $23.4 million in 

1996 to Paraguay during this same period. 

6-100 

6-100
increase over the $21 million level in 1993 because the removal of tariff and nontariff bathers under GATT 

made it easier to export to Canada, rather than just licensed Canadian brewers.' 

Other Factors — During 1993-96, total U.S.-world trade in malt-beverage products grew 50 percent from 

$1.2 billion to $1.8 billion. Total U.S.-Mexico trade for the sector grew by 74 percent from $183 million in 

1993 to $319 million in 1996. Likewise, total U.S.-Canada sector trade grew 30 percent from $189 million 

in 1993 to $245 million in 1996. 

NAFTA has resulted in the increased acquisition of equity in the Mexican malt-beverage industry by U.S. and 

Canadian interests. Since 1993, both U.S. and Canadian breweries have invested in Mexico. Since 1993, 

Anheuser-Busch has had a direct and indirect equity interest of almost 18 percent in Diblo, S.A. de C.V., the 

operating subsidiary of Mexico's largest brewer, Grupo Modelo, S.A. de C.V. In September 1994, 

Cerveceria Cuauhtemoc Moctezuma formed a strategic alliance with the Canadian brewery, John Labatt, Ltd., 

under which Labatt acquired 22 percent of FEMSA Cerveza, S.A. de C.V., Moctezuma's parent company. In 

the United States, Labatt USA owns the Latrobe Brewing Company. Labatt produces two beers for 

Anheuser-Busch, Budweiser and Bud Light, for sale in Canada under license. Also in Canada, Molson, a 

subsidiary of Phillip Morris, owns equity in Molson, the Canadian brewery. Prior to this equity investment, 

Molson produced beer for Coors Brewing Co. Under the NAFTA-TAA, 970 workers were certified as a 

result of increased beer imports from unspecified countries during 1993-96. 10 

9 1n Aug. 1993, after a GATT panel decision against Canadian restrictions on beer imports, the United States and 

Canada reached an agreement that opened Canada's beer market to imports. As part of the Aug. 5, 1993 Memo of 

Understanding (MOU) between the United States and Canada, the Canadian CFTA duty on beer from the United States 

was eliminated. Canada also agreed to give U.S. producers more direct access to provincial retail outlets, dismantle its 

inter-provincial barriers, reduce minimal retail prices, and eliminate other non-tariff barriers. From June 1991 to Dec. 

1994, Canada changed antidumping duties on beer brewed by Heileman, Strohs, and Pabst and imported into British 

Colombia. 

1°U.S. Department of Labor, NAFTA Office. Although these job losses are certified to be the result of plant 

relocations to Mexico or Canada and/or increased imports from these countries, NAFTA may not have been the cause of 

plant relocation decisions or the reason for the increase in imports. 

6-101 6-101
ITC Group No. 16: Bottled and Canned Soft Drinks and Carbonated Waters' 

Table 6-16-1 

Bottled and canned soft drinks and carbonated waters: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 23,946.1 26,217.8 28,689.1 31,000.0 7,053.9 29.5 

Consumption (million dollars) . . . 23,999.1 26,212.8 28,695.3 31,161.6 7,162.5 29.8 

Trade data (million dollars): 

Exports: 

Total 196.7 325.4 313.1 226.4 29.7 15.1 

To Mexico 62.2 92.2 19.3 6.0 -56.2 -90.3 

To Canada 39.5 58.7 68.4 67.1 27.7 70.1 

To non-NAFTA countries 95.0 174.5 225.4 153.2 58.2 61.3 

Imports: 

Total 249.7 320.4 319.3 387.9 138.2 55.4 

From Mexico 25.7 33.3 40.3 51.9 26.2 101.8 

From Canada 76.4 120.4 121.1 160.9 84.5 110.6 

From non-NAFTA countries 147.6 166.7 158.0 175.2 27.6 18.7 

Trade balance: 

Total -53.0 5.0 -6.2 -161.6 -108.6 -204.9 

With Mexico 36.5 58.8 -21.0 -45.9 -82.4 (2) 

With Canada -36.9 -61.6 -52.7 -93.7 -56.8 -153.9 

With non-NAFTA countries -52.6 7.8 67.5 -21.9 30.6 58.3 

Total trade: 

Total 446.4 645.8 632.4 614.3 167.9 37.6 

NAFTA partners 203.8 304.6 249.0 285.9 82.1 40.3 

With Mexico 88.0 125.5 59.5 57.9 -30.1 -34.2 

With Canada 115.8 179.1 189.5 228.0 112.1 96.8 

Import market share (percent): 

Total 1.0 1.2 1.1 1.2 0.2 (2) 

Mexico 0.1 0.1 0.1 0.2 0.1 (2) 

Canada 0.3 0.5 0.4 0.5 0.2 (2) 

Non-NAFTA countries 0.6 0.6 0.6 0.6 -0.1 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.3 0.2 0.2 . 0.2 -0.1 (2) 

Canada 0.1 0.1 0.0 0.0 -0.1 (2) 

All other 0.8 0.8 0.7 0.7 -0.1 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 94.2 94.0 92.1 93.7 -0.5 -0.5 

Production workers 

(1,000 persons) 35.3 36.3 36.0 38.3 3.0 8.5 

Average hourly wages of 

production workers $11.97 12.33 12.53 12.88 0.91 7.6 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry No. 2086, Bottled and Canned Soft Drinks and Carbonated 

Waters, consisting of establishments primarily engaged in the manufacture of non-alcoholic beverages. 

, 

6-102 6-102
Summary of Sector Analysis 

U.S. Imports — NAFTA had a negligible' effect on rising U.S. imports from its NAFTA partners (and most 

important trading partners of sector products) during 1993-96. Pre-NAFTA duty rates on sector products 

were low and post-NAFTA duties did not fall far enough to have a large effect on imports. During 1993-96, 

effective duties on imports from Canada fell from 0.10 percent ad valorem to zero, and those on imports from 

Mexico fell from 0.28 percent ad valorem to 0.21 percent ad valorem. 

Imports increased because of the falling peso and rising cross-border trade in beverage products. Because 

transportation costs determine competitiveness in regional markets, much of the international trade in these 

products is through plants located near the borders between the NAFTA partners. Imports from Mexico 

more than doubled to $52 million due to higher U.S. consumption levels. Some of the increase in imports 

from Mexico was of miscellaneous categories of beverages that appear to have benefited from increased costcompetitiveness of Mexican products in the U.S. market associated with the devaluation of the peso. U.S. 

imports from Canada also more than doubled to $161 million The increase was principally in mineral or 

bottled waters, and bottled waters with either sweeteners or flavorings rather than carbonated soft drinks. 

The increase in consumption of these types of beverages is due to rising health consciousness, as consumers 

look at such characteristics as caffeine and sodium content. 

U.S. Exports — NAFTA also had a negligible effect on U.S. exports of sector products to Mexico and 

Canada during 1993-96. During this period, exports to Mexico fell 90 percent to $6 million, due largely to 

the devaluation of the peso in late 1994 and 1995, which contributed to decreased Mexican consumer demand 

associated with declining real incomes, rising unemployment, and price increases by vendors to offset rising 

costs. Most of the decline was in carbonated soft drinks and bottled waters with either sweeteners or 

flavorings. Exports to Canada increased significantly by 70 percent to $67 million. Such exports were of a 

miscellaneous group of beverages that include nonalcoholic beer. Demand for nonalcoholic beer is driven by 

consumer desire for non-alcohol drinks due to health concerns or moral convictions. Canadian MFN tariffs 

on most sector products were reduced somewhat in 1995, under unilateral tariff reductions undertaken by 

Canada outside of NAFTA or the GATT. 

Other Factors — Total U.S.-world trade in bottled and canned soft-drinks and carbonated water expanded 

38 percent during 1993-96, from $446 million to $614 million. During this period, total U.S.-Canada trade 

in these products nearly doubled (a 97 percent increase) from $116 million to $228 million In contrast, total 

U.S.-Mexico trade contracted 34 percent, from $88 million in 1993 to $58 million in 1996. 

The major U.S. carbonated bottled drink producers have affiliates or financial interests in carbonated 

beverage bottlers in Canada and Mexico. NAFTA has had little, if any, effect on investment in the bottled 

and canned soft drinks and carbonated waters industry in Mexico, Canada, or the United States. 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA impact on performance indicators is insignificant or a 

minor influence. 

6-103 

6-103
ITC Group No. 17: Miscellaneous Food Preparations ) 

Table 6-17-1 

Miscellaneous food preparations: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 14,708.3 14,323.1 15,165.9 15,900.0 1,191.7 8.1 

Consumption (million dollars) 14,612.2 14,051.6 15,116.5 15,737.5 1,125.3 7.7 

Trade data (million dollars): 

Exports: 

Total 920.1 1,178.6 1,064.0 1,282.3 362.2 39.4 

To Mexico 60.1 78.3 49.7 53.1 -7.0 -11.6 

To Canada 281.6 453.0 330.9 340.4 58.8 20.9 

To non-NAFTA countries 578.4 647.3 683.4 888.9 310.4 53.7 

Imports: 

Total 824.1 907.1 1,014.7 1,119.9 295.8 35.9 

From Mexico 31.0 31.1 36.0 48.0 17.0 54.8 

From Canada 193.0 198.4 235.6 229.8 36.8 19.1 

From non-NAFTA countries 600.1 677.7 743.1 842.1 242.1 40.3 

Trade balance: 

Total 96.1 271.5 49.4 162.5 66.4 69.1 

With Mexico 29.1 47.2 13.7 5.1 -24.0 -82.3 

With Canada 88.6 254.6 95.3 110.6 22.0 24.8 

With non-NAFTA countries -21.6 -30.3 -59.7 46.7 68.4 (2) 

Total trade: 

Total 1,744.2 2,085.7 2,078.7 2,402.2 658.0 37.7 

NAFTA partners 565.7 760.8 652.2 671.2 105.5 18.7 

With Mexico 91.1 109.4 85.7 101.1 10.0 11.0 

With Canada 474.6 651.4 566.5 570.2 95.5 20.1 

Import market share (percent): 

Total 5.6 6.5 6.7 7.1 1.5 (2) 

Mexico 0.2 0.2 0.2 0.3 0.1 (2) 

Canada 1.3 1.4 1.6 1.5 0.1 (2 

Non-NAFTA countries 4.1 4.8 4.9 5.4 1.2 (2 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.5 1.3 0.6 2.7 1.2 (2) 

Canada 2.2 2.1 1.5 1.0 -1.2 (2) 

All other 2.7 2.7 2.3 2.3 -0.4 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 66.8 69.0 67.3 67.4 0.6 0.9 

Production workers 

(1,000 persons) 48.8 49.9 48.6 47.9 -0.9 -1.8 

Average hourly wages of 

production workers $10.16 10.36 10.59 10.88 0.72 7.1 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry No. 2099, Food Preparations, Not Elsewhere Classified. Products 

in this industry include sweetening syrups, desserts, yeast and baking powder, vinegar and cider, herb tea in consumer 

packages, peanut butter, spices, dry food mixes, and perishable prepared food items. 

6-104 

6-104
Summary of Sector Analysis' 

U.S Imports — NAFTA likely had negligible' effects on rising U.S. imports of miscellaneous food 

preparations from Mexico and Canada.' Imports from Mexico were concentrated in dried pepper products,' 

pectic substances, and active yeasts, which for the most part are inputs to processed food products. Although 

not presented in the accompanying table, in 1992 imports from Mexico of sector products totaled $38 

million. The decline in imports in 1993 was largely because of production shortfall of peppers due to drought 

in Mexico. Much of the overall increase in imports occurred in 1996, primarily in peppers and active yeasts, 

as Mexican pepper crops rebounded and as Mexican yeast producers began to export more to the U.S. 

market. The effective U.S. ad valorem equivalent for all sector products imported from Mexico actually 

increased in 1996, as the import product mix shifted to product classifications with higher tariffs. 

U.S. imports from Canada rose appreciably in 1995, principally due to the low value of the Canadian dollar 

relative to the U.S. dollar that made Canadian products more price competitive in the U.S. market. The 

increase in 1995 occurred largely in beverage bases and miscellaneous food preparations used as ingredients 

in other products. Overall , imports from Canada were concentrated in unblended maple sugar and syrup, 

canned pasta, pizza and quiche, peanut butter, sweetened instant tea, active yeasts, food preparations of 

gelatin, and miscellaneous food preparations. This mix of products is used by processed foods 

manufacturers, and retail consumers, whose purchase decisions are largely based on price and brand name. 

Tariffs on goods of Canada were negligible. 

U.S. Exports — NAFTA had a negligible effect on U.S. exports to NAFTA countries in this sector. 

Although exports to Mexico rose in 1994, they declined by 36 percent in 1995, before rebounding by 7 

percent in 1996. This was largely due to the devaluation of the peso, which reduced real incomes as the 

prices increased for food products. During this period, exports to Mexico, dominated by beverage bases and 

food thickening agents used in processed foods production, declined, as Mexican consumers reduced 

spending on processed foods. 

U.S. exports to Canada rose dramatically in 1994. In 1993, United States exports to Canada in this category 

were $282 million which rose to $453 million in 1994, declining to $331 in 1995. Total U.S. exports in this 

category also rose in 1994 and declined in 1995. The increase in exports of miscellaneous food products 

occurred because of an increase in demand for consumer-ready products. This increase in demand for 

Under NAFTA, the market access provisions of the U.S.-Canada Free Trade Agreement continue to be in effect. 

NAFTA did establish bilateral market access provisions between the United States and Mexico and contains trilateral 

provisions on domestic support, export subsidies, rules of origin, safeguards, and phytosanitary standards for these 

products. 

3The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

This sector is represented by a diverse cross section of products including but not limited to dried pastas, rice, 

potatoes, and other like dried products; spices, cider, vinegar, powdered sugar, fried noodles, sauce mixes, beverage 

bases, pectin, pizza, popcorn, and syrups. Imports from Mexico in this category are dominated by yeast, seasonings, and 

thickening agents. Imports from Canada include beverage bases, peanut butter, and active yeasts. 

'Products classified under HS 0904, pepper of the genus Piper, genus Capsicum, or genus Pimenta. 

6-105 

6-105
consumer-ready products is world wide. U.S. exports to Canada were dominated by beverage bases, herb 

teas, breakfast cereals and other miscellaneous prepared food items such as stuffed pasta, pizza and quiche. 

Other Factors — Total U.S. trade in miscellaneous food preparations grew by $658 million to $2.4 billion 

during 1993-96. Total U.S.-Canada trade in these products increased by $96 million to $570 million and 

total U. S.-Mexico trade in sector products rose by $10 million to $101 million. 

There is little, if any information on U.S. investment in Mexico related to sector products. However, U.S. 

multinational companies have had subsidiaries in Canada producing processed food products for sale in 

Canada and for export to the United States for many years before NAFTA. 

6-106 6-106
ITC Group No. 20: Solid Wood Products' 

Table 6-20-1 

Solid wood products: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 68,169.0 73,601.0 72,923.0 79,300.0 11,131.0 16.3 

Consumption (million dollars) . . . 69,938.2 77,033.3 76,028.4 84,161.4 14,223.2 20.3 

Trade data (million dollars): 

Exports: 

Total 6,712.3 6,646.6 6,828.8 6,743.0 30.7 0.5 

To Mexico 388.5 335.5 219.2 207.5 -181.0 -46.6 

To Canada 1,041.2 1,160.2 1,240.1 1,181.3 140.2 13.5 

To Non-NAFTA countries 5,282.6 5,150.9 5,369.5 5,354.1 71.5 1.4 

Imports: 

Total 8,481.5 10,078.9 9,934.1 11,604.4 3,123.0 36.8 

From Mexico 318.6 300.1 297.4 377.4 58.8 18.4 

From Canada 5,982.4 7,269.2 6,925.0 8,465.6 2,483.2 41.5 

From non-NAFTA countries 2,180.5 2,509.6 2,711.7 2,761.5 581.0 26.6 

Trade balance: 

Total -1,769.2 -3,432.3 -3,105.4 -4,861.4 -3,092.2 -174.8 

With Mexico 69.9 35.4 -78.3 -169.8 -239.7 (2) 

With Canada -4,941.2 -6,109.1 -5,684.9 -7,284.2 -2,343.1 -47.4 

With non-NAFTA countries 3,102.1 2,641.3 2,657.9 2,592.6 -509.4 -16.4 

Total trade: 

Total 15,193.7 16,725.5 16,762.9 18,347.4 3,153.7 20.8 

NAFTA partners 7,730.6 9,065.0 8,681.7 10,231.8 2,501.2 32.4 

With Mexico 707.1 635.6 516.6 584.9 -122.2 -17.3 

With Canada 7,023.5 8,429.4 8,165.2 9,646.9 2,623.4 37.4 

Import market share (percent): 

Total 12.1 13.1 13.1 13.8 1.7 (2) 

Mexico 0.5 0.4 0.4 0.4 0.0 (2) 

Canada 8.6 9.4 9.1 10.1 1.5 (2) 

Non-NAFTA countries 3.1 3.3 3.6 3.3 0.2 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.3 0.2 (3) 0.1 -0.2 (2) 

Canada 0.1 0.1 0.1 (3) -0.1 (2) 

All other 3.3 3.0 2.5 2.3 -1.0 (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 522.7 552.3 554.5 550.2 27.5 5.3 

Production workers 

(1,000 persons) 425.8 449.8 452.0 446.7 20.9 4.9 

Average hourly wages of 

production workers $9.95 10.05 10.29 10.54 0.59 5.9 

I Estimated by USITC staff. 

2Not meaningful for purposes of comparison. 

3 Less than 0.05 percent. 

4Compiled from official statistics of the U.S. Bureau of Labor Statistics: 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 2411, Logging; 2421, Sawmills and Planing Mills, General; 

2431, Millwork; 2434, Wooden Kitchen Cabinets; 2435, Hardwood Veneer and Plywood; 2439, Structural Wood 

Members, Not Elsewhere Classified; 2493, Reconstituted Wood Products; and 2499, Wood Products, Not Elsewhere 

Classified. 

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6-107
Summary of Sector Analysis 

U.S. Imports — NAFTA had a negligible effect? on rising U.S. imports of solid wood products from Mexico 

and Canada. Most of the products traded in this sector entered the United States free of duty even before the 

implementation of NAFTA. Likewise, the tariff rates on wood products imported into Canada and Mexico 

were low, with most below 5 percent ad valorem. 

Canada, with large forest reserves, historically has been the major source of U.S. imports, and Mexico, which 

lacks such reserves, has been a small supplier. Total U.S. sector imports rose 37 percent, from $8.5 billion in 

1993 to $11.6 billion in 1996, due to increased demand for lumber in new home construction 3and due to 

higher lumber prices.' Likewise, to meet this demand, domestic shipments of wood and wood products' also 

grew 16 percent during the period, from $68.2 billion in 1993 to an estimated $79.3 billion in 1996. The 

upturn in demand for new homes was influenced by a combination of improving general economic conditions 

and declining interest rates on home mortgages. Imports from Mexico were up 18 percent, to $377 million, 

although Mexico is neither a significant producer nor a significant exporter of wood products. However, 

Mexico does import wood products for remanufacture and reexport. For some SIC industries within this 

sector,' the volume of Mexico's remanufactured exports is notable, but is only a small portion of the sector 

trade as a whole. Likewise, imports from Canada were up 42 percent, to $8.5 billion in 1996, and accounted 

for 73 percent of all imports in this sector. Lumber from Canada accounted for 59 percent of all U.S. wood 

imports. Canada ranks a close second to the United States as a global exporter; softwood lumber dominates 

Canada's exports, and the majority of its exports of this product are shipped to the United States. 

U.S. Exports -- The effect of NAFTA on U.S. exports of sector products to Canada and Mexico was 

negligible; strong domestic demand, high prices, and exchange-rate effects were the main factors in 

dampening exports during 1993-96. The United States is the world's leading producer and consumer of 

wood and wood products,' as well as the world's leading exporter of these products, accounting for between 

15 and 20 percent of world exports between 1993 and 1996. 8Total U.S. exports worldwide remained 

relatively stable at $6.7 billion to $6.8 billion from 1993 to 1996. However, exports to Mexico declined 47 

percent between 1993 and 1996 to $208 million, due to higher relative prices for U.S. wood products in the 

Mexican market coupled with weakened Mexican domestic demand due to the peso devaluation. In contrast, 

exports to Canada were up 14 percent to $1.2 billion. 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than the NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3Single and multi-family home construction accounts for about 80 percent of lumber consumption. In 1996, housing 

starts totaled nearly 1.5 million units, the highest since 1988. U.S. Department of Commerce, "Housing Starts", 

publication C20/97-1, Jan., 1997. 

Lumber prices in 1996, as measured by the "Random Lengths Framing Lumber Composite Price," at $401 per 

thousand board-feet, were 16 percent higher than in the previous year. Random Lengths, 1996 Yearbook (Eugene, OR: 

Random Lengths Publications, Inc., 1997). It might be noted that the value of lumber trade is often affected by price 

swings (affected by supply and demand conditions) and are often not proportional to quantities shipped. 

Lumber and other sawn wood accounted for 35 percent of domestic shipments in 1996. 

6Millwork (SIC 2431) and Wood Products, Not Elsewhere Classified (SIC 2499). 

'Principally roundwood (logs), sawnwood (lumber), and wood-based panels (veneer, plywood, and reconstituted 

wood panels). 

U.S. exports consist primarily of roundwood, but also include large volumes of lumber and plywood. 

6-108 6-108
Other Factors — During 1993-96, total U.S. trade in solid wood products grew 21 percent, from $15.2 

billion to $18.3 billion. However, in the same period, total U.S.-Mexico sector trade dropped 17 percent 

($122 million) to $585 million. In contrast, total U.S.-Canada trade grew 37 percent ($2.6 billion) to $9.6 

billion in 1996. 

Comprehensive investment information is not available for this sector. Both U.S. and Canadian woodproducts firms invested readily in each others' production facilities both before and after the implementation 

of NAFTA. U.S. and Mexican firms also made cross-border investments, but the magnitude was small 

compared with U.S.-Canadian cross-investment. Under the NAFTA-TAA, 2,578 workers were certified 

during 1994-96. 9 

In 1992, the Government of Canada, certain Canadian Provincial Governments, and certain Canadian 

commercial interests requested the establishment of binational panels under the United States-Canada Free 

Trade Agreement to review the final affirmative countervailing duty determination by the U.S. Department of 

Commerce and the final affirmative injury determination of the U.S. International Trade Commission 

concerning softwood lumber from Canada (ITC investigation No. 701-TA-312 (Final)). Commerce had 

found that certain Canadian Provincial Governments were providing countervailable subsidies to producers 

and exporters of certain softwood lumber products. Two panels were established, one to review the 

Commerce determination, and one to review the ITC determination. The panel reviewing the Commerce 

determination remanded the determination to Commerce and ordered it to find that no countervailable 

subsidies were being provided to softwood lumber producers or exporters by the Canadian provincial 

governments. Commerce filed an amended redetermination, which the panel affirmed. The panel's decision 

became final on March 17, 1994 (59 F.R. 12584). On April 6, 1994, the United States requested that an 

Extraordinary Challenge Committee be convened to review the panel's decision. On August 3, 1994, the 

Extraordinary Challenge Committee affirmed the panel's order affirming the determination on remand. In a 

notice published on August 16, 1994, Commerce revoked its countervailing duty order effective March 17, 

1994, and subsequently refunded the duties that had been collected. NAFTA Secretariat File No. USA-92-

1904-01. For additional information, see the Federal Register of August 16, 1994 (59 F.R. 42029). 

In July 1993, the panel reviewing the ITC injury determination affirmed in part and remanded in part the 

ITC's determination. The panel subsequently partially remanded the ITC's determination two additional 

times (on January 28, 1994, and July 6, 1994). The panel dismissed its review of the ITC determination on 

January 27, 1995, after Commerce revoked its countervailing duty order. NAFTA Secretariat File No. USA92-1904-02. For additional information, see the Federal Register of March 20, 1995 (60 F.R. 14733). 

U.S. Department of Labor, NAFTA Office. Although these job losses are certified to be the result of plant 

relocations to Mexico or Canada and/or increased imports from these countries, NAFTA may not have been the cause of 

plant relocation decisions or the reason for the increase in imports. 

6-109 

6-109
ITC Group No. 21: Furniture l 

Table 6-21-1 

Furniture: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 27,817.2 30,590.1 32,958.2 35,000.0 7,182.8 25.8 

Consumption (million dollars) . . . 30,637.1 34,249.0 37,218.0 39,996.0 9,358.9 30.5 

Trade data (million dollars): 

Exports: 

Total 2,524.5 2,811.5 2,870.9 3,047.8 523.3 20.7 

To Mexico 645.4 654.0 536.3 563.3 -82.1 -12.7 

To Canada 1,123.1 1,239.3 1,372.0 1,353.9 230.8 20.6 

To non-NAFTA countries . . . 755.9 918.2 962.6 1,130.6 374.6 49.6 

Imports: 

Total 5,344.3 6,470.3 7,130.7 8,043.8 2,699.4 50.5 

From Mexico 804.6 1,020.2 1,077.4 1,356.5 551.9 68.6 

From Canada 1,422.2 1,819.1 2,155.1 2,552.3 1,130.1 79.5 

From non-NAFTA countries 3,117.5 3,631.1 3,898.2 4,135.0 1,017.5 32.6 

Trade balance: 

Total -2,819.9 -3,658.9 -4,259.8 -4,996.0 -2,176.1 -77.2 

With Mexico -159.2 -366.2 -541.1 -793.2 -634.0 -398.3 

With Canada -299.1 -579.8 -783.1 -1,198.4 -899.3 -300.7 

With non-NAFTA countries -2,361.6 -2,712.9 -2,935.6 -3,004.4 -642.8 -27.2 

Total trade: 

Total 7,868.8 9,281.8 10,001.5 11,091.6 3,222.8 41.0 

NAFTA partners 3,995.4 4,732.6 5,140.8 5,826.0 1,830.7 45.8 

With Mexico 1,450.1 1,674.2 1,613.7 1,919.8 469.7 32.4 

With Canada 2,545.3 3,058.4 3,527.1 3,906.3 1,360.9 53.5 

Import market share (percent): 

Total 17.4 18.9 19.2 20.1 2.7 (2) 

Mexico 2.6 3.0 2.9 3.4 0.8 (2) 

Canada 4.6 5.3 5.8 6.4 1.7 (2) 

Non-NAFTA countries 10.2 10.6 10.5 10.3 0.2 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.2 0.4 0.3 (3) -0.2 (2) 

Canada 0.1 0.1 0.1 0.1 0.0 (2) 

All other 2.7 2.6 1.9 1.4 -1.3 (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 349.0 361.0 363.0 360.0 11.0 3.2 

Production workers 

(1,000 persons) 283.0 292.0 293.0 291.0 8.0 2.8 

Average hourly wages of 

production workers $9.18 8.65 9.77 10.05 0.87 9.5 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent 

4Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

1Most furniture of metal or plastics has been excluded from this sector. The Standard Industrial Classification (SIC) 

industries are No. 2511, Wood Household Furniture, Except Upholstered; 2512, Wood Household Furniture, 

Upholstered; 2519 Household Furniture, Not Elsewhere Classified; 2521, Wood Office Furniture; 2531, Public 

Building and Related Furniture; 2541, Wood Office and Store Fixtures, Partitions, Shelving and Lockers; and 2599, 

Furniture and Fixtures, Not Elsewhere Classified. SIC 2599 includes car seats and their components, bar furniture, 

hospital beds, and other miscellaneous furniture. 

6-110 6-110
Summary of Sector Analysis 

U.S. Imports — NAFTA had a negligible impact' on the increase in imports of furniture during 1993-96. 3 

The tariff reductions provided by the Agreement on U.S. sector imports of furniture from Canada and Mexico 

were negligible as the U.S. average trade-weighted tariff equivalents for furniture before the Agreement were 

0.07 percent and 0.18 percent, respectively. Car seats' accounted for 75 percent of the increase in sector 

imports from Mexico and 27 percent of the increase of sector imports from Canada during 1993-96. Trade in 

car seats is the result of the highly rationalized nature of North American automobile production. U.S. 

automobile production showed an overall increase from 10.9 million units in 1993 to 11.7 million units in 

1996. U.S. imports of car seats from Mexico, which are assembled in maquiladora operations, qualify for 

reduced rates of duty under the production-sharing provisions of HTS 9802. Prior to NAFTA, U.S. imports 

of car seats assembled in Mexico that met local value-added requirements were eligible for duty-free entry 

under the GSP. Prior to CFTA, car seats assembled in Canada entered duty free under APTA. 

The increase in U.S. imports of the remaining sector products (principally wood furniture) was also not 

related to NAFTA. Because of proximity, Canada and Mexico are the largest trading partners of the United 

States in furniture. Canadian wood furniture producers provide furniture to the U.S. market at lower prices 

than do their European competitors, in part due to access to less expensive lumber and significantly lower 

transportation costs. Canadian furniture producers that survived the industry shakeout caused by increased 

U.S. competition as a result of the implementation of CFTA have been able to achieve significant increases in 

productivity. The Mexican wood furniture industry's competitive strength lies in its highly skilled yet lowcost labor force and its proximity to the United States. In addition, a number of U.S. producers relocated 

their production operations to Mexico to avoid stringent air-quality standards in California.' The devaluation 

of the peso in December 1994 further reduced labor costs in Mexico, and has made furniture produced in 

Mexico increasingly price competitive in the U.S. market. A healthy U.S. economy also encouraged U.S. 

imports of wood furniture from Canada and Mexico during 1993-96. 

U.S. Exports — NAFTA had a negligible effect on the increase in exports of furniture to Canada from 1993-

96 and although the Agreement had a significant effect on the decline in exports to Mexico, the impact on 

U.S. employment, productivity, and investment was negligible, as noted below. The increase in U.S. sector 

exports to Canada and the decline in exports to Mexico 6was largely accounted for by car seats and 

components.' 

2The change in the specified performance indicators from 1993 to 1996 is due primarily to economic factors or 

industry developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators 

is insignificant or a minor influence. 

3Total U.S. imports of furniture rose by $2.7 billion (51 percent) to $8 billion from 1993 to 1996. Canada and 

Mexico were the largest source of U.S. imports of furniture in 1996. Sector imports from Canada rose by $1.1 billion 

(80 percent) to $2.6 billion during 1993 to 1996; those from Mexico rose by $552 million (69 percent) to $1.4 billion. 

All seating, including car seats, is considered furniture. 

5General Accounting Office, U.S. Mexico Trade: Some U.S. Wood Furniture Firms Relocate from Los Angeles, 

NSIAD-91-191, Apr. 1991, p. 1. 

6Canada and Mexico were the most significant markets for U.S. furniture exports in 1996. U.S. exports to Canada 

were $1.4 billion in 1996; those to Mexico were $563 million. 

' Car seat manufacturing is highly suited to the rationalization of production because each stage of production (cutting, 

sewing, and assembly) is distinct and can be performed in different locations. The production of car seats is as follows: 

first, the pieces of a seat cover are cut from cloth, leather, or vinyl. The pieces are then sewn into a seat cover. Lastly, 

the sewn seat cover is fitted over a foam-upholstered metal seat frame and thereby transformed into a complete car seat. 

(continued...) 

6-111 

6-111
Relocation of certain U.S. leather and fabric car-seat-cover cutting operations to Mexico, stemming from 

changes to the Maquiladora Decree and Mexico's export performance requirements for the auto industry 

under NAFTA, has resulted in two offsetting shifts in trade with Mexico. U.S. exports of cut leather and 

fabric seat cover components have been reduced, while at the same time, exports from the leather tanning and 

finishing industry (ITC group no. 34) and the textile mill products industry (ITC group no. 18) of the uncut 

leather and fabric used in seat covers have increased. 

Car seat covers accounted for all of the decline in exports to Mexico during this period, falling by $108 

million (24 percent) to $338 million. Certain U.S. producers of car seat covers have shifted their fabric and 

leather cutting operations to Mexico. By cutting the leather and fabric in Mexico instead of the United States 

before sewing the cut pieces into car seat covers in Mexico, the U.S.-origin leather undergoes a change in 

tariff classification and allows the car seat covers to be considered goods of Mexican origin. Because 

NAFTA allows maquiladoras to sell an increasing portion of their production directly to customers in 

Mexico, the seat covers (or complete seats) can be shipped to motor vehicle assembly plants in Mexico. U.S. 

automobile producers with assembly plants in Mexico can include the cost of the seat cover (or the complete 

seat) in the calculation of the portion of their vehicle's total production cost that is accounted for by Mexicanorigin inputs. By meeting the value-added criteria of Mexico's export performance requirements under 

NAFTA, U.S. motor vehicle producers are allowed to sell more cars in Mexico. 

The shifting of U.S. leather and fabric car-seat-cover cutting operations to Mexico has had a negligible effect 

on U.S. employment and investment because such operations are highly automated and the cutting machines 

can be transferred from U.S. operations to maquiladora facilities with little loss of employment in the United 

States and no investment in new machinery.' Further, the operations that have been relocated in Mexico use 

imported U.S.-origin leather or fabric in their car seat covers.' Seat-cover-cutting operations involve low 

levels of investment because they use low-technology, vacuum-compression cutting machines. Laser cutters 

are being gradually incorporated into the production process. 1° 

Johnson Controls and Lear Seating--the two largest U.S. car seat manufacturers--accounted for roughly twothirds of North American car seat production in 1995. Delphi Interior and Magna International Inc.,' the 

next largest independent suppliers, accounted for close to 10 percent of such shipments in 1995. 12In order to 

supply the North American car market (chiefly the U.S. Big Three and Japanese transplants), U.S. seat 

manufacturers established subsidiary seat assembly operations in both Mexico and Canada. For the last 

decade, these seat operations have assembled car seats mostly from U.S.-made parts. Relocating certain seat- 

(...continued) 

The sewing of the seat cover is the most labor-intensive stage of production. The seat cover accounts for over half of the 

total value of the complete seat. A car seat can be completely cut, sewn, and assembled at one location (usually near a 

car assembly location) or done in three distinct stages (i.e., fabric or leather cutting in the United States, sewing seat 

covers in Mexico, and final assembly in Canada, the United States, or Mexico). 

'Beth Pincura, Executive Director, Johnson Controls, telephone interview by USITC staff, Feb. 19, 1997. 

9Seat covers (cut and sewn) account for 50 percent of the total cost of a complete car seat. In terms of the total cost 

of producing a car, car seats (front and back) are second only to the engine among the various component costs. 

i°Kathy Karal, Export Division, Honda American Manufactures, telephone interview by USITC staff, Feb. 27, 1997. 

lu Magna is a Canadian-owned company. 

'2 1n contrast to the early 1980's, when virtually all U.S. car seat production was done in-house by the Big Three U.S. 

car manufacturers, currently only Delphi is associated with a car manufacturer; Delphi is a captive supplier of General 

Motors (GM). Industry representatives at GM state that Delphi competes with independent car seat producers for car 

seat contracts through the competitive-bid process. 

6-112 

6-112
fabric-cutting operations to Mexico since implementation of NAFTA has resulted in reduced U.S. exports to 

Mexico of seat cover components comprised of cut leather and fabric. 

Other Factors — Total U.S. trade for sector products increased $3.2 billion (41 percent) to $11.1 billion 

from 1993 to 1996. Meanwhile, total U.S.-Mexico trade increased $470 million (32 percent) to $1.9 billion 

during this period. U.S.-Canada total trade rose $1.4 billion (54 percent) to $3.9 billion. 

The output of U.S. producers was not affected by the shifting of certain leather and fabric seat-cover-cutting 

operations to Mexico. U.S. production of car seats is concentrated in either assembling complete seats for 

installation into U.S.-made vehicles or the cutting and sewing of mid-to-upper-priced car seat covers. 

NAFTA had a negligible impact on U.S. investment in both car-seat-cover operations and wood furniture 

operations in Mexico. Car-seat-cover assembly facilities were established in Mexico's maquiladora 

operations a decade before NAFTA. These operations have been able to absorb the increased volume in seatcover cutting. U.S. manufacturers that have established wood furniture operations in Mexico since the 

implementation of NAFTA have done so to take advantage of lower labor costs, especially after the 

devaluation of the Mexican peso in December 1994. Under the NAFTA-TAA, 430 workers were certified 

during 1993-95. 1 ' 

On December 13, 1996, Mexico raised its duties on U.S. imports of wooden furniture and seven other U.S. 

products (fructose, wine, wine coolers, brandy, Tennessee whiskey, flat glass, and notebooks ) in retaliation 

for a U.S. safeguard action that raised U.S. duties on imports of broom corn brooms. Then Acting US TR 

Charlene Barshefsky expressed the view that Mexico's response was "excessive" and that it failed to meet 

the NAFTA test that self-compensation be "substantially equivalent" to the U.S. safeguard action.' On 

January 14, 1997, following imposition of the U.S. safeguard action, Mexico asked for the establishment of a 

NAFTA chapter 20 binational panel to review the U.S. action. As of early May 1997, a panel was in the 

process of being established. 

13U.S. Department of Labor, NAFTA Office. Although these job losses are certified to be the result of plant 

relocations to Mexico or Canada and/or increased imports from these countries, NAFTA may not have been the cause of 

plant relocation decisions or the reason for the increase in imports. 

14Written response dated Jan. 29, 1997, of Acting U.S. Trade Representative Charlene Barshefsky to Sen. Phil 

Gramm, reprinted in Inside NAFTA, Feb. 6, 1997, p. 4. 

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6-113
ITC Group No. 22: Paper Products' 

Table 6-22-1 

Paper products: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percent 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 92,783.0 99,085.0 119,881.0 108,000.0 15,217.0 16.4 

Consumption (million dollars) . . . 94,148.7 99,742.5 121,582.3 108,631.8 14,483.1 15.4 

Trade data (million dollars): 

Exports: 

Total 8,917.2 10,446.9 14,290.9 13,276.2 4,359.0 48.9 

To Mexico 1,249.6 1,591.8 1,640.9 1,671.4 421.8 33.8 

To Canada 1,689.0 1,926.9 2,453.5 2,546.7 857.7 50.8 

To non-NAFTA countries . . . 5,978.6 6,928.2 10,196.5 9,058.1 3,079.5 51.5 

Imports: 

Total 10,282.9 11,104.3 15,992.2 13,908.0 3,625.1 35.3 

From Mexico 96.1 121.6 279.9 209.2 113.1 117.7 

From Canada 7,735.9 8,284.4 11,971.2 10,483.1 2,747.1 35.5 

From non-NAFTA countries 2,450.9 2,698.3 3,741.1 3,215.7 764.8 31.2 

Trade balance: 

Total -1,365.7 -657.5 -1,701.3 -631.8 733.9 53.7 

With Mexico 1,153.5 1,470.2 1,361.0 1,462.1 308.7 26.8 

With Canada -6,046.9 -6,357.5 -9,517.6 -7,936.4 -1,889.5 -31.2 

With non-NAFTA countries 3,527.7 4,229.9 6,455.3 5,842.4 2,314.7 65.6 

Total trade: 

Total 19,200.1 21,551.2 30,283.1 27,184.2 7,984.0 41.6 

NAFTA partners 10,770.6 11,924.8 16,345.5 14,910.3 4,139.7 38.4 

With Mexico 1,345.7 1,713.5 1,920.8 1,880.6 534.9 39.8 

With Canada 9,424.9 10,211.3 14,424.7 13,029.7 3,604.8 38.2 

Import market share (percent): 

Total 10.9 11.1 13.2 12.8 1.9 (2) 

Mexico 0.1 0.1 0.2 0.2 0.1 (2) 

Canada 8.2 8.3 9.8 9.7 1.4 (2) 

Non-NAFTA countries 2.6 2.7 3.1 3.0 0.4 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.3 0.1 (3) (3) -0.3 (2) 

Canada 0.1 (3) (3) (3) -0.1 (2) 

All other 1.7 1.8 1.5 1.5 -0.2 (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 428.0 428.0 431.0 431.0 3.0 0.7 

Production workers 

(1,000 persons) 324.0 328.0 331.0 331.0 7.0 2.2 

Average hourly wages of 

production workers $14.57 14.77 15.16 15.50 0.93 6.4 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2 Not meaningful for purposes of comparison. 

3 Less than 0.05 percent. 

4 Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 2611, Pulp Mills; 2621, Paper Mills; 2653, Corrugated and 

Solid Fiber Boxes; 2657, Folding Paper Boxes, Including Sanitary; 2672, Coated and Laminated Paper, Not Elsewhere 

Classified; 2673, Plastics, Foil, and Coated Paper Bags; 2676, Sanitary Paper Products; and 2678, Stationery, Tablets, 

and Related Products. 

6-114 

6-114
Summary of Sector Analysis' 

U.S. Imports — The effect of NAFTA on increased U.S. imports of paper products from Mexico and Canada 

was negligible,' as import levels of these products are significantly more sensitive to commodity price 

fluctuations than to NAFTA effects. Total U.S. sector imports from sources worldwide rose 35 percent 

during this period from $10.3 billion to $13.9 billion. Although imports of these products from Mexico were 

up 118 percent to $209 million in 1996, that amount was less than 2 percent of all U.S. imports of paper 

products in that year. Mexico has never been a significant source of paper products, and its papermaking 

capacity is only about 4 percent as large as that of the United States.' Further, Mexico is an emerging market 

and Mexican demand for paper will probably grow at a higher rate than that of the United States. Canada has 

traditionally supplied about three-quarters of all U.S. paper product imports.' Imports from Canada 

increased 36 percent to $10.5 billion in 1996, but most of this increase is attributable to rising pulp, 

printing/writing paper, and newsprint prices.' 

Newsprint, pulp, and waste paper entered the United States free of duty before NAFTA. Less than 1 percent 

of all paper products were subject to a duty prior to the implementation of NAFTA, and the average duty was 

less than 4 percent for Canada and Mexico. Mexican tariffs on U.S. pulp covered in HTS chapter 47 were 

split between free and 5 percent ad valorem prior to NAFTA implementation, and as a result of NAFTA the 

remaining tariffs were eliminated. For paper products in HTS chapter 48, Mexican tariffs were generally 

either 10 percent ad valorem or free prior to NAFTA. As a result of NAFTA, existing tariffs were eliminated 

or staged over 5 or 10 years, with Mexican tariffs on hygienic paper products (HS 4818) as a group having 

the longest staging of 10 years. Canadian printing/writing papers imports were subject to tariffs ranging 

from free to 3.5 percent ad valorem (generally around 2 percent ad valorem) prior to NAFTA, but beginning 

in 1994 Canadian tariffs on U.S.-origin products under HTS chapters 47 and 48 were free. 

U.S. Exports — NAFTA had a negligible effect on U.S. exports to its NAFTA partners; exports were 

principally affected by relatively low Mexican per-capita consumption of sector products, and by an existing 

world-class industry and mature sector-demand patterns in Canada. Traditionally, the United States exported 

a wide range of paper products.' During 1993-96, U.S. paper-product exports to some 30 country markets, 

including Canada and Mexico, increased 49 percent from $8.9 billion to $13.3 billion. During this period, 

exports to Mexico were up 34 percent to $1.7 billion. However, Mexico's per capita consumption of paper 

2Views of parties that submitted written and/or oral testimony to the Commission in connection with this investigation 

are summarized in Appendix D. Copies of the hearing transcript and copies of all written testimony are being provided 

separately to USTR. 

3The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

'Mexico's total forested land is about 13 percent the size of that in the United States. 

5Since the 1920s, Canada supplied between 50 percent and 60 percent of all U.S. newsprint consumption. During 

1992-96, Canada's newsprint exports to the United States averaged about $3.8 billion annually. Canada also supplied 

about $2.1 billion in pulp and $1.7 billion in printing/writing papers annually to the United States during this period. 

Between 1993 and 1996, the price per ton of U.S. imports of Canadian pulp increased by 30 percent; the price per 

kilogram of U.S. imports of Canadian printing/writing paper imports increased by 28 percent; and the price per ton of 

U.S. imports of Canadian newsprint increased by 26 percent. 

Globally, the United States is very competitive in pulp, linerboard (the facing material for corrugated containers), 

printing/writing papers, solid bleach sulfate board (bleached high-quality packaging application), and boxes. In 1996, 

these products represented about 60 percent of all U.S. exports of paper products. 

6-115 6-115
was only about 11 percent of the combined U.S. and Canadian level in 1996. 8Exports to Canada rose 51 

percent over this period to $2.5 billion in 1996. 

Other Factors — Total U.S. trade increased by 42 percent ($8.0 billion) to $27.2 billion in 1996. During 

this period, total U.S. trade with Mexico in paper products increased by $535 million or 40 percent to $1.9 

billion in 1996. Likewise, total U.S. trade with Canada increased by $3.6 billion or 38 percent to $13.0 

billion. NAFTA appears to have had little, if any, effect upon U.S. investment in Mexico, investment in the 

United States, as any other NAFTA-related investments. The U.S. and Canadian paper industries were 

integrated prior to NAFTA. In addition, two U.S. paper producers, Kimberly-Clark Corp. and Sonoco 

Products Co., produce certain types of paper products in Mexico, and had located there prior to NAFTA. 

Under the NAFTA-TAA, 2,077 workers were certified during 1994-96. 9 

U.S. exports of boxes, converted paper products, pulp, printing/writing papers, and sanitary paper products together 

accounted for about three-quarters of all U.S. exports of paper products to Mexico in 1996. 

U.S. Department of Labor, NAFTA Office. Although these job losses are certified to be the result of plant 

relocations to Mexico or Canada and/or increased imports from these countries, NAFTA may not have been the cause of 

plant relocation decisions or the reason for the increase in imports. 

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ITC Group No. 23: Printed Matter' 

Table 6-23-1 

Printed matter: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 74,251.0 75,638.0 80,268.0 82,274.0 8,023.0 10.8 

Consumption (million dollars) . . . 73,229.3 74,845.4 79,462.1 81,449.4 8,220.1 11.2 

Trade data (million dollars): 

Exports: 

Total 2,160.5 2,127.2 2,428.0 2,486.6 326.1 15.1 

To Mexico 157.1 212.1 195.6 227.5 70.5 44.9 

To Canada 962.5 1,011.6 1,157.8 1,164.3 201.8 21.0 

To Non-NAFTA countries 1,040.9 903.5 1,074.6 1,094.8 53.8 5.2 

Imports: 

Total 1,138.9 1,334.6 1,622.1 1,662.0 523.2 45.9 

From Mexico 60.2 85.1 120.2 167.2 107.0 177.9 

From Canada 365.3 432.8 521.5 570.4 205.1 56.1 

From non-NAFTA countries 713.4 816.7 980.5 924.5 211.1 29.6 

Trade balance: 

Total 1,021.7 792.6 805.9 824.6 -197.1 -19.3 

With Mexico 96.9 127.0 75.4 60.4 -36.5 -37.7 

With Canada 597.2 578.8 636.4 593.9 -3.3 -0.6 

With non-NAFTA countries 327.6 86.8 94.1 170.3 -157.3 -48.0 

Total trade: 

Total 3,299.4 3,461.8 4,050.1 4,148.6 849.2 25.7 

NAFTA partners 1,545.1 1,741.6 1,995.1 2,129.4 584.3 37.8 

With Mexico 217.2 297.2 315.8 394.7 177.5 81.7 

With Canada 1,327.9 1,444.4 1,679.3 1,734.7 406.8 30.6 

Import market share (percent): 

Total 1.6 1.8 2.0 2.0 0.5 (2) 

Mexico 0.1 0.1 0.2 0.2 0.1 (2) 

Canada 0.5 0.6 0.7 0.7 0.2 (2) 

Non-NAFTA countries 1.0 1.1 1.2 1.1 0.2 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.2 0.4 0.3 0.2 -1.0 (2) 

Canada 0.1 0.1 (3) (3) -0.1 (2) 

All other 2.2 2.3 1.9 1.8 -0.5 (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 548.0 560.4 563.2 557.7 9.7 1.8 

Production workers 

(1,000 persons) 343.7 347.6 348.2 345.4 1.7 0.5 

Average hourly wages of 

production workers $12.02 12.22 12.41 12.71 0.69 5.7 

1 Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2 Not meaningful for purposes of comparison. 

3 Less than 0.05 percent 

4 Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

I Standard Industrial Classifications (SIC) Industry Nos. 2721, Periodicals: Publishing, or Publishing and Printing; 

2752, Commercial Printing, Lithographic; 2771, Greeting Cards; and 2782, Blankbooks, Looseleaf Binders, and 

Devices. 

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Summary of Sector Analysis 

U.S. Imports — The effect of NAFTA was negligible' on increased U.S. imports of printed matter from 

Canada and Mexico during 1993-96. Imports from Mexico were valued at $167 million in 1996, up $107 

million (178 percent) from 1993 levels. In 1996, 62 percent of imports from Mexico were concentrated in 

SIC 2782 (Blankbooks, Looseleaf Binders, and Devices). 3Canada is the largest source of printed matter, 

with U.S. imports totaling $570 million in 1996, up 56 percent from 1993 levels. Most U.S. sector imports 

from Canada were concentrated in SIC 2752 (Commercial Printing, Lithographic), 4accounting for 65 percent 

of printed matter imported from Canada. This rise in the level of imports from Canada is due to the 

increased U.S. demand for SIC 2752 products. 

U.S. ad valorem equivalent rates on imports from NAFTA partners historically have been low. Imports from 

Mexico were subject to AVE duty rates of 1.74 percent in 1991, which declined to 0.19 percent in 1996. 

U.S. AVE rates on printed matter from Canada were 0.44 percent in 1991, declining to 0.02 percent in 1996. 

U.S. Exports NAFTA also had a negligible effect on U.S. exports of printed matter to Canada and Mexico. 

During this same period, exports to Mexico increased 45 percent, to $228 million in 1996. Most U.S. 

exports of printed matter to Mexico are also concentrated in SIC 2752, commercial printing, which accounted 

for 67 percent of the total sector exports to Mexico. Canada is the largest market for U.S. printed matter with 

U.S. exports totaling $1.2 billion in 1996, up $202 million (21 percent) from 1993 levels. On 

December 13, 1996, Mexico raised its duties on imports of U.S. notebooks and seven other U.S. products in 

retaliation for a U.S. safeguard action that raised U.S. duties on imports of broom corn brooms. Notebooks 

are classified under HTS 4820 and SIC 2782. This analysis includes SIC 2782. Then-Acting USTR 

Charlene Barshefsky expressed the view that Mexico's response was "excessive" and that it failed to meet 

the NAFTA test that self-compensation be "'substantially equivalent' to the U.S. safeguard action.' On 

January 14, 1997, following imposition of the U.S. safeguard action, Mexico asked for the establishment of a 

NAFTA Chapter 20 binational panel to review the U.S. action. As of early May 1997, a panel was in the 

process of being established. 

Other Factors — Total U.S. trade in printed matter products from 1993 to 1996 increased nearly 26 percent, 

to $4.1 billion. Total U.S. trade with Mexico increased 82 percent, to $395 million in 1996. Likewise, total 

U.S.-Canada trade in these products grew 31 percent, to $1.7 billion, during this period. 

Since the English language is common to both countries, U.S.-Canada trade in printed matter, especially 

periodicals, benefits from this commonality. However, Canada restricts or prohibits the importation of 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

Blankbooks have pages that do not contain any printed information. Some examples are diaries, accounting books, 

and scrapbooks. 

This SIC category includes items such as maps, calendars, or trading stamps that have been printed by the 

lithographic process. 

5Written response dated Jan. 29, 1997, of Acting U.S. Trade Representative Charlene Barshefsky to Sen. Phil 

Gramm, reprinted in Inside NAFTA, Feb. 6, 1997, p. 4. 

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certain foreign periodicals and provides favorable postage rates to certain domestic periodicals. 6The United 

States has challenged Canada's practices in the WTO. 7 

The magnitude of foreign investment in the United States is unknown, but is believed to be extremely small. 

Likewise, new NAFTA-related investments in Canada and Mexico are unknown but believed to be minimal. 

The U.S. industry has expressed an interest in developing exclusively Spanish-language editions of popular 

U.S. periodicals to be printed in Mexico. 

American Embassy, Ottawa Cable 000873. 

"World Trade Body Opposes Canadian Magazine Tariffs," New York Times, Jan. 20, 1997. 

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ITC Group No. 24: Alkalies and Chlorine' 

Table 6-24-1 

Alkalies and chlorine: Selected U.S. sector data, 1993-96 

Item 1993 1994 1995 1996 

Absolute 

change 

1993-1996 

Percentage 

change 

1993-1996 

Shipments' (million dollars) 3,117.8 3,190.2 4,134.2 4,626.0 1,508.2 48.4 

Consumption (million dollars) . . . 2,644.8 2,746.4 3,446.1 3,845.6 1,200.8 45.4 

Trade data (million dollars): 

Exports: 

Total 599.5 594.6 900.0 970.8 371.3 61.9 

To Mexico 35.9 42.0 48.6 59.7 23.8 66.2 

To Canada 83.7 81.7 122.2 145.4 61.6 73.6 

To non-NAFTA countries . . . 479.9 470.9 729.2 765.8 285.9 59.6 

Imports: 

Total 126.5 150.8 211.9 190.4 63.9 50.5 

From Mexico 2.2 5.3 6.6 6.6 4.4 202.0 

From Canada 77.2 85.8 110.8 110.4 33.2 43.0 

From non-NAFTA countries 47.2 59.7 94.5 73.4 26.3 55.8 

Trade balance: 

Total 473.0 443.8 688.1 780.4 307.4 65.0 

With Mexico 33.7 36.7 42.0 53.1 19.4 57.4 

With Canada 6.6 -4.1 11.5 35.0 28.4 433.7 

With non-NAFTA countries 432.7 411.2 634.7 692.3 259.6 60.0 

Total trade: 

Total 726.0 745.4 1,111.9 1,161.2 435.2 59.9 

NAFTA partners 199.0 214.8 288.3 322.0 123.0 61.8 

With Mexico 38.1 47.3 55.2 66.2 28.1 73.9 

With Canada 160.9 167.5 233.0 255.7 94.8 58.9 

Import market share (percent): 

Total 4.8 5.5 6.1 5.0 0.2 (2) 

Mexico 0.1 0.2 0.2 0.2 0.1 ) 

Canada 2.9 3.1 3.2 2.9 0.0 2) 

r 

Non-NAFTA countries 1.8 2.2 2.7 1.9 0.1 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico (3) 0.0 0.0 0.0 (2) 

Canada 

All other 

0.1 

0.2 

0.1 

0.2 

(3) 

0.1 

(3) 

0.1 

(3

3

) 

-0.1 

() 

(2) ( 2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 12.7 11.8 10.1 10.0 -2.7 -21.3 

Production workers 

(1,000 persons) 8.2 7.5 6.5 6.5 -1.7 -20.7 

Average hourly wages of 

production workers $18.03 18.64 19.41 19.99 1.96 10.9 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent. 

Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classifications (SIC) Industry Nos. 2812, Alkalies and Chlorine and part of SIC 1474, Potash, 

Soda, and Borate Minerals. SIC 2812 covers establishments producing chlorine and alkali by synthetic means, 

including chlorine, caustic soda (sodium hydroxide), caustic potash (potassium hydroxide), synthetic soda ash (sodium 

carbonate or disodium carbonate not produced in mines), sodium bicarbonate, potassium carbonate, and potassium 

bicarbonate. Products covered by this write-up included in SIC 1474 primarily include mined soda ash (sodium 

carbonate or disodium carbonate), but also include other mined alkali. 

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Summary of Sector Analysis 

U.S. Imports — The impact of NAFTA on rising U.S. imports of sector products from Mexico and Canada 

during 1993-96 was negligible.' U.S. imports of sector products from Canada increased by 43 percent to 

$110 million in 1996, while sector imports from Mexico rose $4 million to just under $7 million). The 

implementation of NAFTA did not have a large impact on the increased level of U.S. imports from NAFTA 

partners, primarily because U.S. tariffs on sector products from Mexico and Canada either entered free of 

duty or at low rates of duty prior to NAFTA. In 1993, about 82 percent of the sector trade from Canada 

entered free of duty under the MFN and the remainder were tariff items that had been reduced under the 

CFTA to zero or, in the case of disodium carbonate, to 0.6 percent. In 1993, virtually all imports of these 

sector products from Mexico entered free of duty either under the MFN or the GSP; thereafter, U.S. tariffs 

remained free under NAFTA. The negligible U.S. duties paid in 1993 on U.S. imports from both Canada 

and Mexico were reflected in the U.S. trade-weighted duty averages for this product sector, which amounted 

to only 0.11 percent and 0.01 percent, respectively. 

Three products accounted for almost all (about 97 percent) sector imports from Canada during 1993-96: 

chlorine, sodium hydroxide in aqueous solution, and disodium carbonate (soda ash). During 1993-96, sector 

imports from Canada increased by 43 percent, reflecting increased U.S. demand spurred by growth in the 

U.S. economy. Most of this rise was accounted for by increased shipments of the co-products chlorine and 

caustic soda, reflecting increased demand for polyvinyl chloride (PVC) plastic made from chlorine and 

increased use of caustic soda in environmental or industrial applications in the northern States. 3PVC output 

growth is closely tied to construction and housing applications and is, therefore, affected by fluctuations of 

the general economy. Caustic soda is used principally in the production of other chemicals, and its use tends 

to be more independent of economic fluctuations than is chlorine. The low level of sector imports from 

Mexico ($6.6 million in 1996) reflected the limited export capacity of the Mexican chlorine and alkali 

industry. 

U.S. Exports NAFTA also had a negligible impact on increased U.S. exports to NAFTA partners during 

1993-96. The impact of NAFTA was greater for U.S. exports of sector products to Mexico than to Canada, 

because, in contrast to Canada, most of the sector products exported in significant amounts from the United 

States to Mexico experienced duty reductions resulting from implementation of NAFTA. With the exception 

of disodium carbonate (soda ash), all the products in this sector, including aqueous sodium hydroxide (the 

principal sector product exported from the United States to Canada), entered Canada duty-free prior to 

NAFTA and thereafter. 

During 1993-96, total U.S. sector exports to Canada rose by 74 percent to $145 million. Altogether, sector 

products that did not experience duty reductions under NAFTA during 1993-96 accounted for 86 percent of 

the increase in these U.S. exports to Canada. The increase was attributed to developments not related to 

NAFTA, including growth in Canadian demand spurred by growth in the Canadian economy and because 

U.S. chorine/caustic soda producers, faced with an excess of caustic soda, increased shipments to Canada and 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3Chlorine and caustic soda are co-products produced in roughly equal amounts from the electrolysis of brine. 

Because of the fixed chemical ratio of the two co-products, an increase in demand for the product in greater demand 

results in increased production of the other co-product, regardless of its demand. In recent years, chlorine demand has 

exceeded that of caustic soda leading to the production of excess caustic soda. 

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other export markets. U.S. exports of disodium carbonate to Canada increased during 1993-96 by 66 

percent, to $22 million. Although disodium carbonate was subject to a duty reduction under NAFTA, 

industry sources do not believe that the reduction in duties under NAFTA during 1993-96 was large enough 

to have caused U.S. exporters to increase their exports of soda ash to Canada (Canada has staged reductions 

of the tariff on disodium carbonate over 10 years under the WTO). According to these sources, U.S. exports 

of soda ash to Canada increased during 1993-96 primarily for the same reason that most U.S. exports of 

other chemicals increased to Canada during that period--the growth in Canadian demand for chemicals 

spurred by growth in the Canadian economy and other non-NAFTA-related influences. 

During 1993-96, U.S. sector exports to Mexico rose by 66 percent to $60 million, primarily as a result of 

increased product demand in Mexico, enhanced by recovery of the Mexican economy in 1996. Sodium 

hydroxide and soda ash accounted for the majority of the increase. As a secondary effect, the impact of duty 

reductions under NAFTA is likely to have some impact, although the impact of these reductions was likely 

minor compared to the much larger impact of the peso devaluation. All of the products in this sector that 

were exported from the United States to Mexico in significant quantities were subject to staged duty 

reductions under NAFTA, from either 10 percent or 5 percent ad valorem to free over a 10-year period. 

Although the impact of these duty reductions on U.S. sector exports is likely to be significant over the entire 

10-year NAFTA duty reduction staging period, the duty reductions for the significant sector exports during 

1994-96, or approximately 1.5 to 3 percent ad valorem, were too small to have been a significant factor in the 

increase of U.S. sector exports to Mexico. 

Although minor in impact, an industry source notes that NAFTA might have been a contributory factor 

towards increased U.S. exports of soda ash to Mexico. According to this source,' a natural soda ash plant in 

Mexico was shut down in 1993, in part because of general environmental concerns raised in anticipation of 

NAFTA about pollution associated with plants in Mexico. The markets formerly supplied by this plant are 

now supplied by soda ash imported from the United States. The duty-reduction provisions in NAFTA also 

are contributing to increased U.S. exports of soda ash to Mexico (much of which is used in glass production), 

by allowing Mexican glass producers to increase their purchases of U.S.-origin soda ash for use in the 

production of glass bottles, which are then, in turn, exported to the United States. 

Other Factors — During 1993-96, total U.S.-world trade in alkalies and chlorine expanded by $435 million 

to almost $1.2 billion. During this period, total U.S.-Canada trade in these products rose by $95 million to 

$256 million; total U.S.-Mexico trade rose by $28 million to $66 million. Although there is limited U.S. 

investment in Mexico to produce chlorine and caustic soda, as well as other alkalies, there is some trade, 

especially of caustic soda, between related producers of alkalies and chlorine in Canada and the United States. 

NAFTA, however, has had little, if any, effect on investment in North America for the production of sector 

products. 

4Industry representative, telephone interview by USITC staff, May 5, 1997. 

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ITC Group No. 25: Industrial Inorganic Chemicals' 

Table 6-25-1 

Industrial inorganic chemicals: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentag 

e change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments (million dollars) 14,251.0 15,147.0 16,536.0 

Consumption (million dollars) . . . 13,909.3 14,803.6 16,412.3 (1) 1) (1) 

Trade data (million dollars): 

Exports: 

Total 4,224.9 4,607.3 5,127.4 5,163.7 938.8 22.2 

To Mexico 273.2 353.5 343.8 470.2 197.0 72.1 

To Canada 686.0 768.0 898.2 901.4 215.4 31.4 

To non-NAFTA countries 3,265.7 3,485.8 3,885.4 3,792.1 526.4 16.1 

Imports: 

Total 3,883.2 4,264.0 5,003.6 5,710.9 1,827.7 47.1 

From Mexico 158.3 164.0 185.3 257.9 99.6 63.0 

From Canada 901.7 1,071.2 1,195.0 1,361.8 460.1 51.0 

From non-NAFTA countries 2,823.3 3,028.8 3,623.3 4,091.2 1,267.9 44.9 

Trade balance: 

Total 341.7 343.4 123.7 -547.2 -888.9 (2) 

With Mexico 115.0 189.5 158.4 212.3 97.3 84.7 

With Canada -215.7 -303.2 -296.8 -460.4 -244.7 -113.5 

With non-NAFTA countries 442.4 457.1 262.1 -299.1 -741.5 (2) 

Total trade: 

Total 8,108.1 8,871.3 10,131.0 10,874.7 2,766.5 34.1 

NAFTA partners 2,019.1 2,356.7 2,622.3 2,991.3 972.1 48.1 

With Mexico 431.5 517.5 529.1 728.1 296.6 68.7 

With Canada 1,587.6 1,839.2 2,093.2 2,263.2 675.5 42.6 

Import market share (percent): 

Total 27.9 28.8 30.5 (1 ) (2) 

Mexico 1.1 1.1 1.1 (1) 1 ) (2) 

Canada 6.5 7.2 7.3 (1) (1 ) (2) 

Non-NAFTA countries 20.3 20.5 22.1 (1 ) (1 ) (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0. 1 (3) (3) (3) -0.1 r2) 

Canada 0.1 0.3 0.3 0.1 0.0 

All other 1.4 1.4 1.4 1.3 -0.1 (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 98.1 93.8 85.4 82.1 -16.0 -16.3 

Production workers 

(1,000 persons) 76.5 78.1 81.1 81.7 5.2 6.8 

Average hourly wages of 

production workers $16.29 16.58 17.08 17.66 1.37 8.4 

Not available. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent 

4Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Summary of Sector Analysis 

U.S. Imports - During 1993-96, U.S. sector imports from Canada rose by 51 percent to $1.4 billion while 

U.S. sector imports from Mexico rose 63 percent to $258 million. Because pre-NAFTA U.S. duty rates were 

low and U.S. non-tariff barriers were insignificant, the reduction of U.S. tariffs under NAFTA is considered 

Standard Industrial Classifications (SIC) Industry Nos. 2816, Inorganic Pigments; and 2819 Industrial Inorganic 

Chemicals, Not Elsewhere Classified. 

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by industry sources interviewed for this study to have been negligible 2in the growth of U.S. imports from 

Canada and Mexico from 1993 to 1996. U.S. duty rates for Canada, which were lowered under the CFTA 

which preceded NAFTA, averaged only 0.1 percent on a trade-weighted average basis in 1993. U.S. duty 

rates for Mexico were even lower than those for Canada in 1993, averaging only 0.06 percent. The growth of 

U.S. imports from Canada and Mexico during 1993-96 is attributed primarily to growth in demand for the 

products in this sector spurred by growth in the U.S. economy. These products are primarily intermediates 

used in making industrial products. U.S. sector imports from Mexico may have been further stimulated by 

the devaluation of the peso, which reduced the cost of Mexican products to U.S. purchasers. Although 

NAFTA was not likely a significant factor in the growth of U.S. sector imports, there was, nevertheless, a 

relatively small number of workers who were found to be eligible to receive assistance under the NAFTA 

Trade Assistance Adjustment Program.' 

U.S. Exports — NAFTA also had a negligible effect on increased U.S. exports to NAFTA partners during the 

period. The increase in U.S. exports to Canada and Mexico during 1993-96 was largely attributable to 

growth in demand for the products in this sector spurred by growth in the Canadian and Mexican economies 

(the latter experienced a recovery in 1996). During 1993-96, U.S. exports to Mexico and Canada increased 

by 72 percent (to $470 million) and by 31 percent (to $901 million), respectively, compared with an increase 

of only 16 percent (to $3.8 billion) for U.S. exports to non-NAFTA countries. Although reduced Mexican 

duty rates negotiated through NAFTA were likely contributory factors to the growth of U.S. exports to that 

country (Mexican duty reductions for most of the products in this sector were eliminated entirely in January 

1994 from a typical 10 percent ad valorem rate in 1993), the impact of the duty reductions was likely minor 

compared to the much larger impact of the peso devaluation. Implementation of NAFTA, however, did have a 

significant impact on stimulating U.S. exports for some products in this sector, especially those products that 

were subject to an immediate elimination of the Mexican duty under NAFTA in January 1994 and that 

experienced increased U.S. exports. In particular, industry sources have reported that elimination of the 10 

percent Mexican duty foftitanium oxides, used in paint and pigment production, was a major factor in 

stimulating increased U.S. exports to Mexico (titanium oxides exports accounted for approximately 6 percent 

of total sector products to Mexico in 1996). Other products in this sector that were subject to immediate 

elimination of the 10 percent ad valorem Mexican duty in January 1994 and that experienced increased U.S. 

exports during 1993-96 include certain forms of precious metals and most supported catalysts. Although 

reduced Canadian duty rates negotiated through NAFTA were also likely contributory factors to the growth 

of U.S. exports to that country, industry sources indicated that this impact was likely relatively minor, 

especially as many Canadian duties were reduced prior to NAFTA during implementation of the CFTA. 

Other Factors — From 1993 to 1996, total U.S.-Canadian trade (imports plus exports) in the industrial 

inorganic sector rose 43 percent ($676 million) to $2.3 billion. During that period, trade in this sector 

between the United States and Mexico rose 69 percent ($297 million) to $728 million. U.S. trade in this 

sector grew more rapidly with Canada and Mexico than with most other countries. From 1993 to 1996, U.S. 

sector trade rose 34 percent to $10.9 billion. 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3The NAFTA Trade Assistance Adjustment (TAA) Program is intended to provide assistance for workers who were 

displaced because of trade.with Canada or Mexico. According to data compiled by the Bureau of Labor Statistics, 212 

employees in the industrial inorganic chemicals sector, or less than 0.5 percent of total employees operating in that 

sector, were certified under this program. Of these, 198 were employees of a single company . 

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Increased investments in Mexico prior to 1995 were primarily attributable to the confidence that U.S. 

investors had in the Mexican economy. This confidence was shaken by the peso devaluation and the ensuing 

recession in Mexico. Consequently, industry sources suggested that U.S. investments probably declined in 

1995 for this sector. According to industry sources, the partial recovery of the Mexican economy in 1996 

likely led to an increase in investment, but did not, however, match the growth of investments prior to 1995. 

According to one industry source, the duty-reduction provisions of NAFTA contributed to his company's 

decision to set up a chemical facility in Mexico and was likely a factor in stimulating U.S. investment in 

Mexico. According to this source, the duty-reduction provisions in NAFTA helped U.S. companies with 

plants in Mexico survive by allowing for increased exports when local demand fell during the Mexican 

recession.' 

'Industry representative, telephone interview by USITC staff, May 19, 1997. 

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ITC Group No. 26: Synthetic Plastics, Resins, and Rubber' 

Table 6-26-1 

Synthetic plastics, resins, and rubber: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 36,284.2 42,268.7 49,470.9 54,500.0 18,215.8 50.2 

Consumption (million dollars) . . . 31,229.0 36,664.9 42,644.6 47,426.6 16,197.6 51.9 

Trade data (million dollars): 

Exports: 

Total 8,128.6 9,507.6 11,601.5 11,930.1 3,801.5 46.8 

To Mexico 797.4 1,029.7 1,060.4 1,403.7 606.3 76.0 

To Canada 1,825.5 2,186.2 2,454.5 2,785.4 960.0 52.6 

To non-NAFTA countries 5,505.7 6,291.7 8,086.6 7,741.0 2,235.3 40.6 

Imports: 

Total 3,073.4 3,903.8 4,775.2 4,856.8 1,783.4 58.0 

From Mexico 113.3 173.6 239.8 224.6 111.2 98.1 

From Canada 1,140.5 1,549.7 2,082.6 2,095.5 955.1 83.7 

From non-NAFTA countries 1,819.6 2,180.5 2,452.8 2,536.7 717.1 39.4 

Trade balance: 

Total 5,055.2 5,603.8 6,826.3 7,073.4 2,018.2 39.9 

With Mexico 684.1 856.1 820.6 1,179.1 495.0 72.4 

With Canada 685.0 636.5 371.9 689.9 4.9 0.7 

With non-NAFTA countries 3,686.1 4,111.2 5,633.8 5,204.3 1,518.2 41.2 

Total trade: 

Total 11,202.0 13,411.5 16,376.6 16,786.9 5,584.9 49.9 

NAFTA partners 3,876.7 4,939.3 5,837.3 6,509.3 2,632.5 67.9 

With Mexico 910.8 1,203.4 1,300.2 1,628.3 717.5 78.8 

With Canada 2,966.0 3,735.9 4,537.1 4,881.0 1,915.0 64.6 

Import market share (percent): 

Total 9.8 10.6 11.2 10.2 0.4 (2) 

Mexico 0.4 0.5 0.6 0.5 0.1 (2) 

Canada 3.7 4.2 4.9 4.4 0.8 (2) 

Non-NAFTA countries 5.8 5.9 5.8 5.3 -0.5 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.2 0.4 0.1 0.1 -0.1 (2) 

Canada 0.1 0.1 (3) 0.1 0.0 (2) 

All other 5.0 5.1 4.9 4.8 -0.2 (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 96.4 92.6 91.2 91.4 -5.0 -5.2 

Production workers 

(1,000 persons) 59.9 58.9 57.4 56.0 -3.9 . -6.5 

Average hourly wages of 

production workers $16.52 17.18 17.83 18.38 1.86 11.3 

I Shipments data for 1996 are estimated by USITC staff. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent 

4Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 2821, Plastics Materials and Resins; and 2822, Synthetic 

Rubber. 

6-126 

6-126
Summary of Sector Analysis 

U.S. Imports — NAFTA's effect on increased U.S. imports from Mexico and Canada during 1993-96 was 

negligible.' The 98-percent rise in imports from Mexico to $225 million during this period was due 

principally to U.S. product shortages precipitated by an inordinate number of U.S. plant malfunctions in 

1994, and significantly lower prices for Mexican products following the peso devaluation in 1994-95. 

Canadian shipments to the United States consisted primarily of products from the Canadian polyolefins 

industry, which is mostly U.S.-affiliated; CFTA-staged tariff provisions facilitated cost-effective cross-border 

distribution channels based on petrochemicals feedstocks from Alberta.' 

U.S. Exports — NAFTA's impact on increased U.S. exports to NAFTA countries during 1993-96 was also 

negligible. U.S. exports to Mexico increased $606 million (76 percent) in 1996, to $1.4 billion, while 

exports to Canada increased $960 million (53 percent) to $2.8 billion. The United States has traditionally 

supplied about 90 percent of total Mexican import demand due principally to more favorable competitive 

economics. Large, low-cost, U.S. sector production facilities are strategically situated along the U.S. Gulf 

Coast in close proximity to Mexican markets. While the staged lowering of tariff barriers under the 

provisions of NAFTA assisted in increasing U.S. exports of these products to Mexico, pent-up Mexican 

demand for these products, driven by extremely low per capita consumption (20 kilograms per capita in 

Mexico vs. 130 kilograms per capita in the United States) and rising GDP, are believed to be decisive factors 

influencing market demand. According to industry sources, market access to Canada improved under staged 

tariff reductions implemented by CFTA, which encouraged more cost-effective cross-border marketing and 

distribution in an industry dominated by U.S. corporate affiliates.' 

Other Factors — During this period, total U.S.-Canada trade increased 65 percent ($1.9 billion), to $4.8 

billion in 1996, while total U.S.-Mexico trade increased 79 percent ($718 million), to $1.6 billion. The total 

U.S. global trade of these products during the subject period increased 50 percent, reaching $16.8 billion in 

1996, while the trade surplus increased 40 percent, reaching $7.1 billion. Canada and Mexico accounted for 

25 percent of the increase in the positive U.S. trade balance during this period. Plastics materials accounted 

for about 90 percent of the positive change in the U.S. trade balance, with synthetic rubber accounting for the 

remainder. 

Since NAFTA entered into force in 1994, several U.S. corporations have built plants in Mexico for the 

purpose of supplying local markets. These moves were largely independent of NAFTA provisions, according 

to corporate officials. Eastman Chemical and Shell Oil have built polyethylene terephthalate (PET) plants to 

serve Mexico's growing beverage container demand, while BASF Corp. is building crystalline polystyrene, 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3Staff telephone interviews with Mr. William C. Kuhlke, Kuhlke & Associates, Polymer Consultant, Houston, TX, 

about changing Mexican and Canadian import trends to the United States. Ms. Jan M. Neuenfeldt, advisor to the 

Strategy Business Research Group of Dow Chemical Co., Midland, MI, a large U.S.-Canadian polymer producer, also 

was interviewed by the staff about U.S.-Canada free trade, Mar. 1997. 

'Ibid. Mr. Thomas E. Cole, President, The Rubber Manufacturers Association, Washington, DC, and Mr. Britt 

Theismann, Information and Systems Director, International Institute of Synthetic Rubber Producers, Inc., Houston, TX, 

Mar. 1997. 

6-127 

6-127
acrylonitrile-butadiene-styrene (ABS), and styrene-acrylonitrile (SAN) plants for local extrusion and injection 

molding product markets.' 

On December 9, 1994, Muehlstein International, Ltd., filed a request for a NAFTA binational panel review of 

a final antidumping determination by Mexico (SECOFI) concerning imports of solid and crystal polystyrene 

from Germany and the United States. On September 12, 1996, the panel, in a majority decision, affumed the 

Mexican determination (NAFTA secretariat file no. MEX-94-1904-03). For additional information, see the 

notice published by the U.S. section of the NAFTA Secretariat in the Federal Register of October 21, 1996 

(61 F.R. 54622). 

5Staff telephone interviews with Mr. John A. Moore, Strategy Business Research, Eastman Chemical Co., Kingsport, 

TN, public relations representatives of BASF Corp., Mount Olive, NJ, and Kuhlke Associates, Houston, TX, in Mar. 

1997. Eastman and Shell PET plants are in Cosoleacaque and Tampico, respectively, while BASF's polystyrene plant 

will go on stream at Altamira. 

6-128 

6-128
Percentage 

change 

1993-1996 

21.7 

22.8 

34.1 

26.9 

31.1 

35.5 

76.6 

320.0 

212.5 

69.2 

-1,332.3 

3.5 

-8.8 

-152.1 

55.7 

58.1 

47.1 

58.8 

(1) 

(1 ) 

(1 ) 

F) 

( 1 ) 

(1) 

-4.9 

4.1 

5.6 

ITC Group No. 27: Pharmaceutical Preparations' 

Table 6-27-1 

Pharmaceutical preparations: Selected U.S. sector data, 1993-96 

Absolute 

change 

Item 1993 1994 1995 1996 1993-1996 

Shipments (million dollars) 79,378.0 82,866.0 87,613.0 96,573.0 17,195.0 

Consumption (million dollars) . . 79,446.7 83,068.5 88,243.1 97,556.9 18,110.2 

Trade data (million dollars): 

Exports: 

Total 2,027.3 2,314.9 2,247.1 2,718.4 691.1 

To Mexico 38.9 43.1 51.2 49.4 10.5 

To Canada 574.3 590.5 639.5 752.8 178.5 

To non-NAFTA countries . . 1,414.1 1,681.3 1,556.4 1,916.2 502.1 

Imports: 

Total 2,096.0 2,517.3 2,877.3 3,702.2 1,606.3 

From Mexico 2.9 2.7 6.3 12.1 9.2 

From Canada 103.6 201.5 245.0 323.6 220.0 

From non-NAFTA countries 1,989.5 2,313.2 2,625.9 3,366.6 1,377.0 

Trade balance: 

Total -68.7 -202.5 -630.1 -983.9 -915.2 

With Mexico 36.0 40.4 44.8 37.3 1.2 

With Canada 470.7 389.0 394.5 429.2 -41.5 

With non-NAFTA countries -575.4 -631.9 -1,069.5 -1,450.4 -875.0 

Total trade: 

Total 4,123.2 4,832.2 5,124.4 6,420.6 2,297.3 

NAFTA partners 719.6 837.7 942.1 1,137.8 418.2 

With Mexico 41.8 45.7 57.5 61.4 19.7 

With Canada 677.8 792.0 884.6 1,076.4 398.6 

Import market share (percent): 

Total 2.6 3.0 3.3 3.8 1.2 

Mexico 0.0 0.0 0.0 0.0 0.0 

Canada 0.1 0.2 0.3 0.3 0.2 

Non-NAFTA countries 2.5 2.8 3.0 3.5 0.9 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.3 1.2 0.0 0.0 -0.3 

Canada 3.0 2.3 0.0 0.0 -3.0 

All other 4.5 4.6 0.0 0.0 -4.5 

U.S. industry indicators:2 

Employees (1,000 persons) . . . 215.8 213.3 209.0 205.2 -10.6 

Production workers 

(1,000 persons) 97.4 101.1 107.1 101.4 4.0 

Average hourly wages of 

production workers $14.72 14.76 14.99 15.55 0.83 

Not meaningful for purposes of comparison. 

2Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

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

Research and Manufacturers Association, except as noted. 

Standard Industrial Classification (SIC) Industry No. 2834, Pharmaceutical Preparations, includes drugs used in 

preparations for human or veterinary use. The preparations are finished in the form intended for final consumption, such 

as ampoules, tablets, capsules, vials, ointments, medicinal powders, solutions, and suspensions. The products are 

promoted as either ethical (prescription) drugs or over-the-counter (OTC) preparations for sale to the general public. 

6-129 

6-129
Summary of Sector Analysis 

U.S. Imports — The NAFTA effect on increased U.S. imports from Mexico and Canada during 1993-96 was 

negligible.' U.S. imports of pharmaceutical preparations from Canada, although only 0. 3 percent of the U.S. 

market, nearly doubled from 1993 to 1996, rising from $104 million to $324 million Imports from Mexico 

(less than 0.1 percent of the U.S. market) increased dramatically as well during the same period, rising from 

almost $3 million to $12 million. However, similar import increases were also observed among non-NAFTA 

countries. The effects of NAFTA tariff reductions for these products were minor; although NAFTA provided 

for a "free" rate of duty for most of these products, nearly all imports from Mexico entered duty free under 

GSP prior to NAFTA. Pre-NAFTA tariff rates for Canada were less than 2 percent. 

There are several non-NAFTA factors that have led to the increased U.S. imports of pharmaceuticals from 

NAFTA and non-NAFTA countries alike. The overall import market share increased from 2.6 percent to 3.8 

percent during 1993-96. New prescription drugs, which are increasingly produced in facilities in major 

consuming and producing areas such as Western Europe and Japan, create their own niche and may absorb 

market share from other, older drugs that have been approved for similar prescription use, potentially 

increasing U.S. imports of the new products. Internationally, prior to the implementation of NAFTA, Canada 

removed compulsory licensing for pharmaceuticals, which in turn increased potential profitability for U.S. 

drug firms; Mexico tightened its intellectual property rights laws, lowering the risks associated with 

introducing newly-developed pharmaceuticals. As a result, both Mexican and Canadian markets have 

become more open to foreign investment. 3 

U.S. Exports — NAFTA had a negligible effect on increased U.S. exports to NAFTA partners during the 

period as well. Exports of the products covered by this digest did not increase as rapidly as imports. The 

increases observed for exports to Canada and Mexico are well within the observed range for non-NAFTA 

countries, indicating that NAFTA had little or no observable effect outside the scope of normal market 

conditions. U.S. exports of these products to Canada increased from $574 million in 1993 to $753 million in 

1996; U.S. exports of these products to Mexico increased from $39 million to $49 million. 

Other Factors — Total sector trade grew by 56 percent to $6.4 billion from 1993 to 1996. Total U.S.-Canada 

trade for the sector grew by 59 percent ($399 million) to nearly $1.1 billion. Total U.S.-Mexico trade for the 

sector grew by 47 percent ($20 million) to $61 million. Part of the increase in total sector trade in 1995-96 

can be attributed to the implementation of the tariff reductions agreed to during the Uruguay Round 

negotiations on January 1, 1995. The agreement provided for duty-free treatment among WTO members for 

over 8,000 pharmaceutical products and chemical intermediates intended for pharmaceutical use (in the 

United States, this duty-free treatment is extended to MFN trading partners as well). 

While there was reportedly $119 million of U.S. investment in Mexico and $177 million in Canada in 1995, 

these amounts are relatively insignificant compared with U.S. investment in other countries that year.' 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

'Industry officials, telephone interview by USITC staff, Feb. 21, 1997. 

'Data provided by the Pharmaceutical Research and Manufacturers Association. 

6-130 

6-130
ITC Group No. 28: Soaps, Detergents, Toiletries' 

Table 6-28-1 

Soaps, detergents, toiletries: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 39,050.0 40,469.0 41,700.0 42,900.0 3,850.0 9.9 

Consumption (million dollars) . . . 38,179.4 39,389.4 40,562.3 41,548.8 3,369.4 8.8 

Trade data (million dollars): 

Exports: 

Total 2,080.2 2,449.3 2,715.3 3,093.9 1,013.7 48.7 

To Mexico 178.9 223.5 148.5 151.0 -27.9 -15.6 

To Canada 546.8 637.3 738.6 854.6 307.8 56.3 

To non-NAFTA countries 1,354.5 1,588.5 1,828.2 2,088.3 733.8 54.2 

Imports: 

Total 1,209.6 1,369.7 1,577.6 1,742.7 533.1 44.1 

From Mexico 52.5 71.2 88.4 103.5 51.0 97.1 

From Canada 228.7 292.0 360.5 445.1 216.4 94.6 

From non-NAFTA countries 928.4 1,006.5 1,128.7 1,194.1 265.7 28.6 

Trade balance: 

Total 870.6 1,079.6 1,137.7 1,351.2 480.6 55.2 

With Mexico 126.4 152.3 60.1 47.5 -78.9 -62.4 

With Canada 318.1 345.3 378.1 409.5 91.4 28.7 

With non-NAFTA countries 426.1 582.0 699.5 894.2 468.1 109.9 

Total trade: 

Total 3,289.8 3,819.0 4,292.9 4,836.6 1,546.8 47.0 

NAFTA partners 1,006.9 1,224.0 1,336.0 1,554.2 547.3 54.4 

With Mexico 231.4 294.7 236.9 254.5 23.1 10.0 

With Canada 775.5 929.3 1,099.1 1,299.7 524.2 67.6 

Import market share (percent): 

Total 3.2 3.5 3.9 4.2 1.0 (2) 

Mexico 0.1 0.2 0.2 0.2 0.1 (2) 

Canada 0.6 0.7 0.9 1.1 0.5 (2) 

Non-NAFTA countries 2.4 2.6 2.8 2.9 0.4 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.4 0.1 0.1 (3) -1.4 (2) 

Canada 2.1 1.5 1.1 0.7 -1.4 (2) 

All other 4.6 4.5 3.5 2.7 -1.9 (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 114.1 111.6 110.9 110.5 -3.6 -3.2 

Production workers 

(1,000 persons) 71.9 70.7 69.8 69.7 -2.2 -3.1 

Average hourly wages of 

production workers $12.64 12.97 13.03 13.10 0.46 3.6 

Estimated by USITC staff. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent. 

4Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 2841, Soaps and Cleansers; and 2844, Toilet Preparations. 

6-131 

6-131
Summary of Sector Analysis 

U.S. Imports — The effect of NAFTA on increasing U.S. sector imports from NAFTA partners was 

negligible during 1993-96. 2The value of imports from Canada rose by 95 percent ($216 million) to $445 

million from 1993 to 1996, while imports from Mexico grew 97 percent ($51 million) to nearly $104 million. 

U.S. duty rates declined during this period from 1.4 percent AVE (Mexico) and 2.1 percent AVE (Canada) to 

almost zero (Mexico) and 0.7 percent (Canada). The increased imports are more likely related to personal 

preferences in the various NAFTA markets; changes in demand are often related to factors such as style and 

fashion. 

U.S. Exports — The effect of NAFTA on U.S. sector exports to Mexico and Canada was also negligible. 

U.S. exports to Canada increased to $308 million (56 percent) during 1993-96, mimicking increases in the 

rate of exports to all countries. In 1996, exports to Mexico decreased 16 percent to $151 million. This 

decline resulted primarily from the price effects of the peso devaluation and economic downturn in Mexico; 

many products are discretionary purchases. Tariff rates for Canada previous to NAFTA ranged from 6.5 

percent to 8.5 percent, while the duties for Mexican imports ranged from 10 percent to 15 percent. 

Other Factors — Total U.S. sector trade grew by 47 percent from 1993 to 1996, to $4.8 billion. Total 

U.S.-Canada trade for the sector grew by 68 percent ($524 million) to $1.3 billion in 1996. Total 

U.S.-Mexico trade for the sector grew by 10 percent ($23 million) to almost $255 million in 1996. U.S. 

export growth resulted from increased demand for these products in current foreign markets, as well as 

expansion of the foreign market base for these products in general. 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

6-132 

6-132
ITC Group No. 29: Paints and Allied Products 1 

Table 6-29-1 

Paints and allied products: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments (million dollars) 15,355.0 16,425.0 16,741.0 (1 ) ( 1 ) ( 1 ) 

Consumption (million dollars) . 14,740.8 15,749.6 16,075.1 (1) 

(1) 

(1) 

Trade data (million dollars): 

Exports: 

Total 811.4 935.9 1,008.8 1,091.2 279.8 34.5 

To Mexico 90.2 133.5 109.5 116.4 26.2 29.1 

To Canada 361.9 423.6 460.4 486.0 124.1 34.3 

To non-NAFTA countries . . . 359.4 378.9 439.0 488.8 129.5 36.0 

Imports: 

Total 197.2 260.6 342.9 393.0 195.8 99.3 

From Mexico 0.9 2.1 3.7 8.7 7.8 882.3 

From Canada 77.5 106.0 134.8 193.0 115.5 148.9 

From non-NAFTA countries 118.8 152.5 204.5 191.3 72.5 61.1 

Trade balance: 

Total 614.2 675.4 665.9 698.2 84.0 13.7 

With Mexico 89.3 131.4 105.8 107.7 18.4 20.6 

With Canada 284.3 317.6 325.6 293.0 8.6 3.0 

With non-NAFTA countries 240.6 226.4 234.5 297.6 57.0 23.7 

Total trade: 

Total 1,008.6 1,196.5 1,351.7 1,484.3 475.6 47.2 

NAFTA partners 530.5 665.1 708.3 804.1 273.7 51.6 

With Mexico 91.1 135.6 113.2 125.2 34.1 37.4 

With Canada 439.4 529.5 595.1 679.0 239.6 54.5 

Import market share (percent): 

Total 1.3 1.7 2.1 (1) (2) 

Mexico 0.0 0.0 0.0 (1) 1) (2) 

Canada 

Non-NAFTA countries 

0.5 

0.8 

0.7 

1.0 

0.8 

1.3 

(1) (1) 1) 

(2) 

(2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.2 1.5 1.0 0.2 -1.0 (2) 

Canada 0.6 0.2 0.4 0.1 -0.5 (2) 

All other 3.8 3.8 3.9 3.7 -0.1 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 58.0 57.3 56.6 56.5 -1.5 -2.6 

Production workers 

(1,000 persons) 30.4 30.1 29.7 30.1 -0.3 -1.0 

Average hourly wages of 

production workers $12.71 12.98 13.08 13.49 0.78 6.1 

1Not available. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Summary of Sector Analysis 

U.S. Imports - NAFTA had a negligible impact' on rising sector imports from Mexico and Canada as strong 

demand and quality improvements overshadowed some small tariff reductions. U.S. imports of paint and 

Standard Industrial Classification (SIC) Industry No. 2851, Paints and Allied Products. 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

6-133 

6-133
allied products from Mexico increased 882 percent ($7.8 million) to $8.7 million in 1996, while U.S. imports 

of these products from Canada increased 149 percent ($116 million) to $193 million. Market factors 

affecting imports from Mexico included strong demand for architectural coatings in areas near the border, 

higher petroleum costs in the United States which affected raw materials prices, availability of the highervalue specialty coatings in the product mix, and an increased ability of Mexican firms to make products that 

comply with U.S. environmental requirements. Imports from Canada were largely driven by strong demand 

for architectural coatings and specialty automotive coatings in areas near the border. NAFTA duty reductions 

had minimal impact on trade in these products, because duty rates for most of these goods previously entered 

at relatively low rates of duty or were free under the GSP and the CFTA. 

U.S. Exports — NAFTA is not believed to have had a significant effect on increased U.S. exports to Mexico 

and Canada. U.S. exports to Mexico and Canada have increased at a rate comparable with those other major 

U.S. trading partners. U.S. exports of these products to Mexico increased by 29 percent to $116 million, 

while exports to Canada increased by 34 percent to $486 million. Profit margins are relatively small for 

many of the products in this sector, and, as such, transportation costs (much more than tariff rates) tend to 

limit foreign trade for many of these products to locations near the manufacturing facilities. U.S. exports to 

Mexico and Canada accounted for more than half of all such exports, by value, during the period because of 

their proximity. Other factors affecting U.S. exports of these products include increased demand in these 

markets, and fluctuations in the quantity and value of the individual products in the product mix. 

Other Factors — Total sector trade from 1993 to 1996 grew by $476 million (47 percent), to $1.5 billion. 

Total U.S.-Canada trade for the sector grew by $240 million (55 percent) to $679 million, whereas total 

U.S.-Mexico trade grew by $34 million (37 percent) to $125 million. 

6-134
ITC Group No. 30: Industrial Organic Chemicals' 

Table 6-30-1 

Industrial organic chemicals: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 59,137.0 64,660.0 71,500.0 73,000.0 13,863.0 23.4 

Consumption (million dollars) . . . 56,161.4 61,076.9 66,831.8 69,292.0 13,130.5 23.4 

Trade data (million dollars): 

Exports: 

Total 10,201.2 12,097.6 15,198.3 14,621.3 4,420.1 43.3 

To Mexico 847.6 1,051.8 1,165.1 1,257.7 410.0 48.4 

To Canada 1,296.7 1,522.0 1,567.9 1,987.2 690.5 53.2 

To non-NAFTA countries 8,056.8 9,523.9 12,465.3 11,376.4 3,319.6 41.2 

Imports: 

Total 7,225.6 8,514.6 10,530.1 10,913.2 3,687.6 51.0 

From Mexico 158.8 206.6 310.8 291.9 133.1 83.8 

From Canada 774.1 940.6 1,347.9 1,103.9 329.9 42.6 

From non-NAFTA countries 6,292.7 7,367.4 8,871.4 9,517.4 3,224.7 51.2 

Trade balance: 

Total 2,975.6 3,583.1 4,668.2 3,708.0 732.5 24.6 

With Mexico 688.8 845.2 854.3 965.8 277.0 40.2 

With Canada 522.7 581.4 220.0 883.3 360.6 69.0 

With non-NAFTA countries 1,764.1 2,156.5 3,593.9 1,859.0 94.9 5.4 

Total trade: 

Total 17,426.8 20,612.2 25,728.5 25,534.5 8,107.7 46.5 

NAFTA partners 3,077.2 3,720.9 4,391.8 4,640.7 1,563.5 50.8 

With Mexico 1,006.4 1,258.4 1,475.9 1,549.6 543.1 54.0 

With Canada 2,070.8 2,462.5 2,915.8 3,091.1 1,020.3 49.3 

Import market share (percent): 

Total 12.9 13.9 15.8 15.8 2.9 (2) 

Mexico 0.3 0.3 0.5 0.4 0.1 (2) 

Canada 1.4 1.5 2.0 1.6 0.2 ) 

Non-NAFTA countries 11.2 12.1 13.3 13.7 2.5 

r 

2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 3.6 1.5 1.7 1.0 -2.6 (2) 

Canada 0.3 0.1 0.1 0.1 -0.2 (2) 

All other 7.8 7.6 4.9 4.3 -3.5 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) 148.2 142.7 143.9 143.7 -4.5 -3.0 

Production workers 

(1,000 persons) 76.5 78.1 81.1 81.7 5.2 6.8 

Average hourly wages of 

production workers $17.79 18.29 19.21 19.70 1.91 10.7 

1Estimated by the staff of the USITC. Thus, calculated consumption figures, as well as percentage changes in both 

shipments and consumption, are estimates. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 2865, Cyclic Crudes and Intermediates; and 2869, Industrial 

Organic Chemicals, Not Elsewhere Classified. The latter accounts for about 80 percent of total sector value. Principal 

product groups in SIC 2865 are cyclic (coal tar) intermediates, dyes and organic pigments, and aromatics (e.g., benzene) 

not made in a refinery. Those in SIC 2869 include aliphatic gases, "natural" organic chemicals, and thousands of 

others. 

6-135 

6-135
Summary of Sector Analysis 

U.S. Imports — NAFTA had a negligible effect' on increased U.S. imports of industrial organic chemicals' 

from Mexico and Canada during 1993-96. U.S. imports from Mexico increased by 84 percent, to $292 

million in 1996. U.S. imports from Canada increased 43 percent, to $1.1 billion. Though total imports of 

industrial organic chemicals account for a 16-percent market share in this sector, Canadian imports were just 

2 percent of the total market and Mexican imports were less than 0.5 percent. Prior to NAFTA, Canadian 

duty reductions as a result of the CFTA, and eligibility for duty-free entry for many imports from Mexico as a 

result of Mexico's GSP status, were the main reasons for the increases in U.S. imports from NAFTA 

partners. Also, the devaluation of the peso soon after the implementation of NAFTA improved the price 

competitiveness of Mexican exports to the United States. Faced with a contracting Mexican market, those 

manufacturers in Mexico who were able to export goods of appropriate quality for the U.S. market did so.' 

U.S. Exports — The NAFTA effect on U.S. exports to Mexico and Canada during the period was also 

negligible. Exports to NAFTA partners increased by 51 percent from 1993 to 1996, to $3.2 billion. Most of 

this increase resulted from higher prices; the quantity of imports increased only 19 percent. In Mexico, the 

state oil monopoly, Petroleos Mexicanos (PEMEX), dominated domestic production of industrial organic 

chemicals in past years. However, more recently, PEMEX has been chronically short of capital to expand and 

provide sufficient supplies to its chemical industry. This has provided an export opportunity for U.S. 

manufacturers of industrial organic chemicals. 

Other Factors — Total sector trade grew by 47 percent from 1993 to 1996, to $25.5 billion. Total U.S.-

Canada trade for the sector grew by 49 percent ($1 billion) to $3.1 billion in 1996, whereas total U.S.-

Mexico trade grew by 54 percent ($543 million) to $1.5 billion in 1996. 

U.S. investment in Mexico is reportedly very small because Mexico restricted privatization of the basic 

petrochemicals on which almost the entire chemical industry depends.' Unrelated to the NAFTA agreement, 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

'Industrial organic chemicals are mostly petrochemicals whose precursors and ultimate raw materials are a handful of 

simple molecules that are byproducts of the petroleum and natural gas industries--methane, ethane, propane, butane, 

benzene, toluene, xylene, and naphtha (the latter is a mixture of many of the foregoing, as well as gasoline-type 

molecules). 

4"NAFTA is Still a Question Mark--Enthusiasm About NAFTA Is Not Universal, But the Chemical Industry Views 

It as a Step on the Road to Freer Trade," Chemical and Engineering News, Oct. 28, 1996, p. 13. 

'Under the provisions of the Mexican Constitution, all aspects of Mexico's petroleum, natural gas, and basic 

petrochemicals industries (including exploration, drilling, production, refining, distribution, pipeline transmission, trade, 

and oilfield services) are under the sole purview of PEMEX. These Constitutional provisions were not affected by 

NAFTA. In Mexico, the Petroleum Regulatory Law provides that only the State (i.e. PEMEX) can carry out activities 

that constitute these industries. (See Constitution of the United Mexican States, arts. 25 and 27; Regulatory Law of 

Constitutional Article 27 in the Area of Petroleum, Diario Oficial, Nov. 29, 1958; and Law of Petroleos Mexicanos, 

Diario Oficial, Feb. 6, 1971.) 

Historically, PEMEX allowed for only limited foreign investment in Mexico's secondary petrochemical 

industry; petrochemicals deemed secondary continue to be defined by PEMEX. Article 1102 of the investment chapter 

of NAFTA required Mexico to open its petrochemicals sector, other than "basic" petrochemicals, which remain under 

the sole purview of PEMEX, to foreign investment and eliminated the 40-percent limitation on foreign investuient in 

"secondary" petrochemicals (See Law on the Promotion of Mexican Investment and The Regulation of Foreign 

(continued...) 

6-136 

6-136
the government planned to allow privatization of most or all of the 61 secondary petrochemical plants owned 

by PEMEX. However, in response to strong opposition from Mexican energy unions, which fear that 

privatization will result in large layoffs, the Mexican Government decided to call off the auction. Instead, the 

61 plants were to be grouped into 10 new PEMEX-owned subsidiary companies, 49 percent of each to be 

offered to private investors with PEMEX keeping the other 51 percent. However, that sale has since been 

suspended.' 

(...continued) 

Investment, art. 5, Diario Oficial, Mar. 9, 1973); there is no limit with regard to other classifications of petrochemicals 

(See Regulation of the Law on the Promotion of Mexican Investment and The Regulation of Foreign Investment, 

Diario Oficial, May 16, 1989). In addition to the elimination of investment restrictions on nonbasic petrochemicals, 

certain basic petrochemicals were reclassified, leaving only 8 petrochemicals classified as basic (See 1989 Resolution 

Reclassifying Specified Petrochemical Products as Basic or Secondary Petrochemicals, Diario Oficial, Aug. 15, 1989 

and Resolution Reclassifying Specified Petrochemical Products as Basic or Secondary Petrochemicals, Diario 

Aug. 17, 1992). 

"PEMEX Continues to Suffer," Petroleum Economist, Sept 1996, p. 88; "PEMEX Plans Biggest Investment for 15 

Years," Petroleum Economist, Apr. 1997, p. 34. 

6-137 

6-137
ITC Group No. 31: Fertilizers, Pesticides, and Agricultural Chemicals' 

Table 6-31-1 

Fertilizers, pesticides, and agricultural chemicals: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 15,871.0 17,545.0 19,533.0 21,779.3 5,908.3 37.2 

Consumption (million dollars) . . . 14,652.1 15,716.9 17,391.5 19,854.0 5,201.9 35.5 

Trade data (million dollars): 

Exports: 

Total 3,617.3 4,684.4 5,469.9 5,347.7 1,730.4 47.8 

To Mexico 196.3 250.2 147.9 231.4 35.1 17.9 

To Canada 596.4 670.1 764.7 777.4 180.9 30.3 

To non-NAFTA countries 2,824.6 3,764.2 4,557.4 4,339.0 1,514.3 53.6 

Imports: 

Total 2,398.4 2,856.4 3,328.4 3,422.4 1,024.0 42.7 

From Mexico 56.5 131.5 141.4 139.4 82.9 146.8 

From Canada 963.4 1,090.5 1,128.8 1,154.3 190.9 19.8 

From non-NAFTA countries 1,378.5 1,634.4 2,058.3 2,128.7 750.2 54.4 

Trade balance: 

Total 1,218.9 1,828.1 2,141.5 1,925.3 706.4 58.0 

With Mexico 139.8 118.7 6.5 92.0 -47.8 -34.2 

With Canada -367.0 -420.4 -364.1 -377.0 -10.0 -2.7 

With non-NAFTA countries 1,446.2 2,129.7 2,499.1 2,210.3 764.1 52.8 

Total trade: 

Total 6,015.7 7,540.8 8,798.4 8,770.1 2,754.4 45.8 

NAFTA partners 1,812.5 2,142.3 2,182.7 2,302.4 489.9 27.0 

With Mexico 252.7 381.7 289.3 370.8 118.1 46.7 

With Canada 1,559.8 1,760.5 1,893.5 1,931.7 371.9 23.8 

Import market share (percent): 

Total 16.4 18.2 19.1 17.2 0.9 (2) 

Mexico 0.4 0.8 0.8 0.7 0.3 (2) 

Canada 6.6 6.9 6.5 5.8 -0.8 (2) 

Non-NAFTA countries 9.4 10.4 11.8 10.7 1.3 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.5 0.2 0.2 1.1 0.6 

Canada 0.2 0.3 0.2 0.2 -0.1 2) 

All other 4.5 4.2 2.9 2.8 -1.7 2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 46.3 44.9 43.1 42.5 -3.8 -8.2 

Production workers 

(1,000 persons) 27.4 26.3 25.7 25.2 -2.2 -8.0 

Average hourly wages of 

production workers $15.80 16.09 16.45 16.83 1.03 6.5 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calcula ted consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 2873, Nitrogenous Fertilizers; 2874, Phosphatic Fertilizers; 

and 2879, Agricultural Pesticides. 

6-138 6-138
Summary of Sector Analysis 

U.S. Imports — Most of the increase in U.S. imports from Mexico and Canada during the 1993-96 period 

was due to U.S. demand' for these products caused by product shortages in the U.S. market. NAFTA effects 

were negligible.' The U.S. MFN rate of duty on most of these products was free prior to NAFTA and there 

were few significant nontariff barriers. New export-oriented plant capacity for nitrogenous fertilizer products 

in Canada' significantly contributed to an increase of over $90 million in imports of such products from 

Canada from 1993 to 1996, or approximately one-half of the total net change in imports during this period. 

U.S. Exports — NAFTA had a negligible effect on rising U.S. exports from NAFTA partners as well. The 

effects of the peso devaluation in 1995 made U.S. products considerably less attractive to Mexican buyers. 

Certain of the products in this sector are not produced in Mexico and are important inputs for Mexican 

export-oriented cash crops. Increases in U.S. exports of sector products to Canada, which rose $181 million 

(30 percent) to $777 million from 1993 to 1996, were largely comprised of finished phosphatic fertilizer 

products and herbicides. The purchase by Potash Corporation of Saskatchewan (PCS) of Texasgulf s South 

Carolina phosphate mines and production facilities in mid-1995, an acquisition toward full nutrient spectrum 

production independence,' contributed to the increase in finished phosphatic fertilizer exports to Canada. An 

increase in the number of Canadian acres planted also increased demand and required additional herbicide 

product inputs, which were generally imported. 

Other Factors — Total fertilizer, pesticide, and agricultural chemical sector trade grew 46 percent from 1993 

to 1996, to $8.8 billion. Total U.S.-Mexico trade for the sector increased 47 percent ($118 million) to $371 

million in 1996, whereas total U.S.-Canada trade grew 24 percent ($372 million) to $1.9 billion in 1996. 

The extent to which NAFTA, or other factors such as production sharing, facilitated specialization of 

production, intra-industry trade or trade in intermediate products was negligible, and did not result in any 

economies of scale or benefits that may have had an effect on the competitive position of the sector. NAFTA 

effects were negligible since most U.S. imports of these products entered free prior to NAFTA and less than 1 

percent of total trade in the sector' is affected by special programs such as production sharing, rules of origin, 

or CFTA. The NAFTA effect upon investment cannot be determined with confidence due to a lack of 

detailed data on U.S. investment in Mexico or Mexican investment in the United States. Reportedly, foreign 

firms have not established any NAFTA-related investment in Mexico and no U.S. or foreign NAFTA-related 

investment is known to have occurred in Canada. 

U.S. nitrogenous fertilizer production is unable to satisfy domestic demand, therefore import reliance is significant; 

the United States is a net importer of nitrogenous fertilizers. 

3The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

Saskferco, an ammonia and urea production joint-venture between Cargill Fertilizer of Minneapolis, MN, the Crown 

Corp. of Saskatchewan, and Citibank Canada, came on-stream in the fall of 1992 at Belle Plaine, Saskatchewan. 

5Canada does not have indigenous supplies of phosphate rock, the primary input to phosphatic fertilizer production, 

and, therefore, must import production inputs or finished product. Prior to purchase of these facilities, Canadian 

fertilizer producers imported significant amounts of phosphoric acid as the intermediate input to finished phosphatic 

fertilizer production. 

As calculated from data compiled by USITC from Census data. 

6-139 6-139
ITC Group No. 32: Petroleum Refinery Products' 

Table 6-32-1 

Petroleum refinery products: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percent 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Production' (million dollars) . . . 147,488.0 153,632.0 163,405.0 196,690.0 49,202.0 33.4 

Consumption (million dollars) . 151,399.7 157,737.3 166,541.8 209,082.4 57,682.7 38.1 

Trade data (million dollars): 

Exports: 

Total 5,946.3 5,319.1 5,856.7 6,780.2 833.8 14.0 

To Mexico 788.6 797.7 942.7 1,154.4 365.9 46.4 

To Canada 612.4 638.8 766.3 899.0 286.6 46.8 

To non-NAFTA countries 4,545.3 3,882.7 4,147.7 4,726.7 181.4 4.0 

Imports: 

Total 9,858.0 9,424.4 8,993.5 19,172.6 9,314.6 94.5 

From Mexico 510.2 330.9 296.4 912.7 402.5 78.9 

From Canada 1,772.6 1,673.9 1,935.4 2,751.0 978.4 55.2 

From non-NAFTA countries 7,575.3 7,419.7 6,761.8 15,508.9 7,933.6 104.7 

Trade balance: 

Total -3,911.7 -4,105.3 -3,136.8 -12,392.4 -8,480.7 -216.8 

With Mexico 278.4 466.8 646.3 241.8 -36.6 -13.2 

With Canada -1,160.1 -1,035.1 -1,169.0 -1,852.0 -691.9 -59.6 

With non-NAFTA countries -3,030.0 -3,537.0 -2,614.1 -10,782.2 -7,752.3 -255.9 

Total trade: 

Total 15,804.4 14,743.6 14,850.2 25,952.7 10,148.4 64.2 

NAFTA partners 3,683.7 3,441.1 3,940.7 5,717.1 2,033.4 55.2 

With Mexico 1,298.7 1,128.5 1,239.0 2,067.1 768.4 59.2 

With Canada 2,385.0 2,312.6 2,701.7 3,650.0 1,265.0 53.0 

Import market share (percent): 

Total 6.5 6.0 5.4 9.2 2.7 (2) 

Mexico 0.3 0.2 0.2 0.4 0.1 (2) 

Canada 1.2 1.1 1.2 1.3 0.1 (2) 

Non-NAFTA countries 5.0 4.7 4.1 7.4 2.4 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.9 1.0 0.8 

. 

0.3 -0.6 (2) 

Canada 0.1 (3) (3) (3) (3) 

(2) 

All other 1.0 1.1 0.9 0.7 -0.3 (2) 

U.S. industry indicators:' 

Employees (1,000 persons) . 75.0 75.0 75.0 75.0 0.0 0.0 

Production workers 

(1,000 persons) 48.0 48.0 48.0 49.0 1.0 2.1 

Average hourly wages of 

production workers $20.00 20.00 20.00 20.00 0.00 0.0 

Compiled from official statistics of the U.S. Department of Energy. 

2 Not meaningful for purposes of comparison. 

3 Less than 0.05 percent. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Summary of Sector Analysis 

U.S. Imports - NAFTA had a negligible effect' on increased U.S. imports of petroleum products from 

NAFTA partners during the period. The primary factor affecting imports was a change in demand. In terms 

of quantity, U.S. imports of petroleum products rose by 16 percent from Mexico and by 17 percent from 

Standard Industrial Classification (SIC) Industry No. 2911, Petroleum Refinery Products. 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

6-140 

6-140
Canada. In terms of value, U.S. imports increased from $510 million in 1993 to $913 million in 1996 (79 

percent) primarily because the refiners' acquisition cost of crude petroleum increased by $5 per barrel during 

the period. U.S. imports from Mexico consist primarily of motor fuel blending stocks. The demand for hard 

currency to revive Mexico's economy led to a slight increase in production of petroleum products, all of 

which was exported to the U.S. market. U.S. imports from Canada rose 55 percent, from $1.8 billion in 1993 

to nearly $2.8 billion in 1996. During 1995-96, U.S. imports from Canada increased by 17 percent (quantity) 

and 42 percent (value). Most of these imports are part of a commercial exchange agreement between the 

United States and Canada whereby U.S. exports of crude petroleum are exchanged for refmed petroleum 

products. Also, as a result of the unusually harsh 1996 winter, U.S. imports from Canada, which are 

primarily distillate fuel oils (used for heating), increased to meet U.S. domestic demand. 

U.S. Exports — NAFTA also had a negligible impact on rising U.S. exports of sector products to NAFTA 

partners. The United States is the primary source of Mexico's imports of refined petroleum products, which 

are primarily motor fuels and distillate fuel oils (used as bunker and heating fuels). The gradual revival of 

Mexico's economy following the peso devaluation in 1994-95 led to an increase in demand for refined 

petroleum products. Also, in Mexico, only the state-owned and operated Petroleos Mexicanos (PEMEX) 3 

 can import refmed petroleum products; PEMEX has historically imported these products to meet domestic 

demand since PEMEX either does not produce them or produces insufficient quantities. As a result, U.S. 

exports to Mexico increased from $789 million in 1993 to $1.2 billion in 1996. 

Canada is also a major U.S. trading partner in terms of these products. U.S. exports to Canada consist 

primarily of jet fuels, distillate fuel oils, and residual fuel oils. Large multinational companies operating in 

both nations often exchange product easily across the border via a sophisticated pipeline system connecting 

the United States and Canada. U.S. exports to Canada rose from $612 million in 1993 to $899 million in 

1996. During 1995-96, U.S. exports to Canada increased by 26 percent (quantity) and 17 percent (value). 

Most of these exports are part of the U.S.-Canadian commercial exchange agreement and are based on longterm pricing schedules. 

'Under the provisions of the Mexican Constitution, all aspects of Mexico's petroleum, natural gas, and basic 

petrochemicals industries (including exploration, drilling, production, refining, distribution, pipeline transmission, trade, 

and oilfield services) are under the sole purview of PEMEX. These constitutional provisions were not affected by the 

NAFTA. In Mexico, the Petroleum Regulatory Law provides that only the State (i.e., PEMEX) can carry out activities 

that constitute these industries. (See Constitution of the United Mexican States, arts. 25 and 27; Regulatory Law of 

Constitutional Article 27 in the Area of Petroleum, Diario Oficial, Nov. 29, 1958; and Law of Petroleos Mexicanos, 

Diario Oficial, Feb. 6, 1971.) 

Historically, PEMEX allowed for only limited foreign investment in Mexico's secondary petrochemical 

industry; petrochemicals deemed secondary continue to be defined by PEMEX. Article 1102 of the investment chapter 

of NAFTA required Mexico to open its petrochemicals sector, other than "basic" petrochemicals, which remain under 

the sole purview of PEMEX to foreign investment and eliminated the 40-percent limitation on foreign investment in 

"secondary" petrochemicals (See Law on the Promotion of Mexican Investment and The Regulation of Foreign 

Investment, art. 5, Diario Oficial, Mar. 9, 1973); there is no limit with regard to other classifications of petrochemicals 

(See Regulation of the Law on the Promotion ofMexican Investment and The Regulation of Foreign Investment, 

Diario Oficial, May 16, 1989). In addition, to the elimination of investment restrictions on nonbasic petrochemicals, 

certain basic petrochemicals were reclassified, leaving only eight petrochemicals classified as basic (See 1989 

Resolution Reclassifying Specified Petrochemical Products as Basic or Secondary Petrochemicals, Diario Oficial, 

Aug. 15, 1989 and Resolution Reclassifying Specified Petrochemical Products as Basic or Secondary Petrochemicals, 

Diario Oficial, Aug. 17, 1992). 

6-141 

6-141
Other Factors — Total U.S.-Mexico trade for the sector increased during 1993-96 by $768 million, or 59 

percent. Total U.S.-Canadian trade increased by $1.3 billion, or by 53 percent. Under the provisions of the 

Mexican Constitution, all aspects of Mexico's petroleum industry, including refining, are under the sole 

purview of PEMEX. Foreign investment in Mexico's energy industry is prohibited by the Constitution.' 

4Ibid. 

6-142 

6-142
ITC Group No. 33: Plastic and Rubber Products' 

Table 6-33-1 

Plastic and rubber products: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percent 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 104,100.0 113,700.0 120,100.0 (2) (2) 

(3) 

Consumption (million dollars) . . . 105,692.5 115,338.3 121,993.1 (2) 

(2) (3) 

Trade data (million dollars): 

Exports: 

Total 8,233.8 9,572.2 10,637.8 11,733.2 3,499.3 42.5 

To Mexico 1,519.8 2,126.8 2,032.1 2,523.1 1,003.3 66.0 

To Canada 2,698.9 3,017.8 3,358.8 3,568.4 869.5 32.2 

To non-NAFTA countries 4,015.0 4,427.6 5,246.9 5,641.6 1,626.6 40.5 

Imports: 

Total 9,826.3 11,210.4 12,530.9 13,225.6 3,399.2 34.6 

From Mexico 349.3 438.0 586.3 677.9 328.5 94.0 

From Canada 2,204.1 2,611.2 2,926.6 3,275.9 1,071.8 48.6 

From non-NAFTA countries 7,272.9 8,161.2 9,018.0 9,271.8 1,998.9 27.5 

Trade balance: 

Total -1,592.5 -1,638.3 -1,893.1 -1,492.4 100.1 6.3 

With Mexico 1,170.5 1,688.8 1,445.8 1,845.3 674.8 57.7 

With Canada 494.8 406.6 432.2 292.5 -202.4 -40.9 

With non-NAFTA countries -3,257.8 -3,733.6 -3,771.1 -3,630.1 -372.3 -11.4 

Total trade: 

Total 18,060.1 20,782.6 23,168.6 24,958.7 6,898.6 38.2 

NAFTA partners 6,772.2 8,193.8 8,903.7 10,045.3 3,273.1 48.3 

With Mexico 1,869.2 2,564.8 2,618.3 3,201.0 1,331.8 71.3 

With Canada 4,903.0 5,629.0 6,285.4 6,844.3 1,941.3 39.6 

Import market share (percent): 

Total 9.3 9.7 10.3 (2) (2) 

(3) 

Mexico 0.3 0.4 0.5 (2) (2) 

(3) 

Canada 2.1 2.3 2.4 (2) (2) 

(3) 

Non-NAFTA countries 6.9 7.1 7.4 (2) (2) 

(3) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.0 1.5 0.3 0.3 -0.7 (3) 

Canada 1.9 1.5 1.2 0.8 -1.1 (3) 

All other 4.0 3.9 3.7 3.6 -0.4 (3) 

U. S . industry indicators: 4 

Employees (1,000 persons) . . . 709.3 743.4 764.6 759.2 49.9 7.0 

Production workers 

(1,000 persons) 547.3 577.1 594.2 587.3 40.0 7.3 

Average hourly wages of 

production workers $10.70 10.79 10.96 11.25 0.55 5.1 

1"Facts and Figures for the Chemical Industry," Chemical and Engineering News, June 24, 1996, pp. 38-64. 

2Not available. 

3Not meaningful for purposes of comparison. 

4Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 3011, Tires and Inner Tubes; 3052, Rubber and Plastics Hose 

and Belting; 3053, Gaskets, Packing, and Sealing Devices; 3069, Fabricated Rubber Products, Not Elsewhere 

Classified; 3081, Unsupported Plastics Film and Sheet; 3082, Unsupported Plastics Profile Shapes; and 3089, Plastic 

Products, Not Elsewhere Classified. 

6-143 

6-143
Summary of Sector Analysis 

U.S. Imports — The effect of NAFTA on rising U.S. imports from Mexico and Canada in this sector was 

negligible.' U.S. tariffs on rubber and plastic products have not changed significantly under NAFTA, 

although there have been moderate reductions on most items. There are no outstanding nontariff trade 

barriers currently affecting trade in this sector. U.S. imports of these products from Mexico increased by 94 

percent to $678 million during 1993-96; however, Mexico's import market share increased by less than 0.5 

percent. U.S. imports from Canada increased 49 percent to $3.3 billion in 1996. The increase in imports 

from Mexico and Canada is attributable to increased demand for these goods by U.S. consumers, resulting 

from a strong U.S. economy during the period. The peso devaluation and contraction in the Mexican 

economy also contributed to the rise in imports from Mexico. Because many of the items in this sector are 

low value, labor-intensive plastic goods for which price is the primary concern, the favorable dollar-to-peso 

exchange rate decreased the price of Mexican products, making them relatively attractive to U.S. consumers. 

The effect of the peso devaluation is indicated by the $148 million increase in 1995 imports from Mexico, a 

significant change relative to import growth in other years during the period. 

U.S. Exports — The effect of NAFTA on U.S. exports to NAFTA partners in this sector was negligible 

during the period. The increase in U.S. exports to Mexico and Canada is attributable to the overall trend of 

growth in their economies, which has resulted in increased demand for rubber and plastic goods. The 

Canadian economy was fairly stable throughout the period, as reflected by steady growth (i.e., $319 million, 

$341 million, and $209 million annual increases) in U.S. exports. U.S. exports to Mexico grew steadily 

except in 1995, when exports in this industry sector decreased as a result of the peso devaluation. As the 

peso recovered in 1996, U.S. exports increased by 25 percent over the 1995 level. During 1993-96, U.S. 

exports to Mexico increased by 66 percent to $2.5 billion, indicating a continuing demand in Mexico for 

specialized U.S. plastic and rubber products. 

Other Factors — The sector's total U.S. trade with all countries increased 38 percent, from $18 billion in 

1993 to $25 billion in 1996. Total U.S.-Mexico trade for these products increased 71 percent, from $1.9 

billion in 1993 to $3.2 billion in 1996. Total U.S.-Canada trade rose 40 percent from $4.9 billion in 1993 to 

$6.8 billion in 1996. 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

6-144 6-144
ITC Group No. 36: Flat Glass and Glassware' 

Table 6-36-1 

Flat glass and glassware: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 18,729.1 19,664.3 19,919.1 20,000.0 1,270.9 6.8 

Consumption (million dollars) . . . 18,950.2 20,133.9 20,408.6 20,581.4 1,631.2 8.6 

Trade data (million dollars): 

Exports: 

Total 1,867.4 2,057.9 2,321.2 2,551.1 683.7 36.6 

To Mexico 210.6 268.1 235.9 246.7 36.1 17.1 

To Canada 763.5 826.8 898.4 961.7 198.2 26.0 

To non-NAFTA countries 893.4 963.0 1,186.8 1,342.8 449.4 50.3 

Imports: 

Total 2,088.6 2,527.6 2,810.7 3,132.5 1,044.0 50.0 

From Mexico 266.7 372.6 409.2 468.2 201.5 75.5 

From Canada 319.3 385.0 436.9 473.6 154.3 48.3 

From non-NAFTA countries 1,502.5 1,769.9 1,964.6 2,190.7 688.2 45.8 

Trade balance: 

Total -221.1 -469.6 -489.5 -581.4 -360.3 -162.9 

With Mexico -56.1 -104.4 -173.2 -221.5 -165.4 -294.8 

With Canada 444.1 441.8 461.5 488.1 44.0 9.9 

With non-NAFTA countries -609.1 -806.9 -777.8 -848.0 -238.8 -39.2 

Total trade: 

Total 3,956.0 4,585.5 5,131.9 5,683.6 1,727.7 43.7 

NAFTA partners 1,560.1 1,852.6 1,980.4 2,150.1 590.0 37.8 

With Mexico 477.3 640.7 645.1 714.8 237.5 49.8 

With Canada 1,082.8 1,211.8 1,335.3 1,435.3 352.5 32.6 

Import market share (percent): 

Total 11.0 12.6 13.8 15.2 4.2 (2) 

Mexico 1.4 1.9 2.0 2.3 0.9 (2) 

Canada 1.7 1.9 2.1 2.3 0.6 (2) 

Non-NAFTA countries 7.9 8.8 9.6 10.6 2.7 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 2.6 3.3 1.7 1.3 -1.3 (2) 

Canada 0.9 0.9 0.7 0.6 -0.3 (2) 

All other 7.8 7.6 7.2 6.6 -1.1 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 151.6 152.2 151.0 146.9 -4.7 -3.1 

Production workers 

(1,000 persons) 121.6 121.1 121.5 118.8 -2.8 -2.3 

Average hourly wages of 

production workers $12.59 12.96 13.24 13.57 0.98 7.8 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 3211, Flat glass; 3221, Glass Containers; 3229, Pressed and 

Blown Glassware, Not Elsewhere Classified; and 3231, Glass Products, Made of Purchased Glass. 

6-145 

6-145
Summary of Sector Analysis' 

U.S. Imports — The effect of NAFTA on increased U.S. sector imports from NAFTA partners was 

negligible.' The recovery of the restructuring Canadian glass container industry from its fmancial difficulties 

of 1993 rather than NAFTA is believed responsible for the above average growth of imports from Canada. 

Glass containers represented $56 million (36 percent) of the growth in imports from Canada during the 

period, but most such imparts were unaffected by NAFTA and entered under HTS subheadings with column 

1 rates of free throughout the period. Canadian glass containers had an ad valorem equivalent rate of duty of 

0.01 percent in both 1993 and 1996. Canadian tariffs on sector products were already relatively low in 1993 

because of the CFTA and did not decline significantly under NAFTA; the ad valorem equivalent on such 

products declined from 0.98 percent in 1993 to 0.61 percent in 1996. These rates compared with 7.75 

percent in 1993 and 6.62 percent in 1996 for countries other than Canada and Mexico. In addition, 30 

percent of Canadian products was duty-free in 1993 under the Automotive Products Trade Act of 1965. The 

48-percent increase in imports of Canadian products exceeded the 46-percent increase recorded for nonNAFTA countries during the period. 

Tariffs on Mexican products declined to a greater extent than for Canadian products; the ad valorem 

equivalent on sector products from Mexico declined from 2.56 percent in 1993 to 1.31 in 1996. However, 

the above average 76-percent increase in imports was not primarily based on products whose duties actually 

declined under NAFTA, but rather on increased imports of various items classified under SIC 3231 (i.e., 

tempered glass, certain fiberglass products, and mirrors) which were duty-free from Mexico under GSP prior 

to NAFTA. Products entered under the GSP represented 53 percent of Mexican products in 1993. The 

Mexican industry's addition of a float glass line and tempering facility in Mexico, and purchase of U.S. 

fabrication and distribution facilities just prior to 1993, likely contributed to the import growth of Mexican 

products to some degree. 

U.S. Exports — The effect of NAFTA on increased U.S. exports to North America was negligible. U.S. 

export growth rates to Canada (26 percent) and Mexico (17 percent) were roughly half of the 50-percent 

increase in exports to non-NAFTA countries during the period. Canadian tariff reductions under NAFTA 

offered limited incentive to sell to the Canadian market, since Canadian tariffs on more than half of the HTS 

subheadings under Chapter 70 already were free in 1993 under the CFTA. The recovery of the Canadian 

glass container industry limited the export potential of the Canadian market for certain glass products; 

shipments of U.S.-produced glass containers to Canada declined by $13 million (12 percent) during the 

period. The 1994 closure of Ford Motor Company's only automotive glass fabrication plant in Canada 

reduced the potential Canadian market for U.S.-produced flat glass to a certain degree; shipments under SIC 

3211 (flat glass) were up only 12 percent for the period compared with increases of 38 percent for glass 

containers (SIC 3229) and 25 percent for glass products (SIC 3231). 

Mexican tariff reductions under NAFTA for sector products were more substantial than those of Canada for 

the period, but failed to generate higher export growth. Mexican tariff levels for these products at the 

beginning of NAFTA staging were 10-20 percent, compared with an ad valorem equivalent rate of 2.56 

Views of parties that submitted written and/or oral testimony to the Commission in connection with this investigation 

are summarized in Appendix D. Copies of the hearing transcript and copies of all written testimony are being provided 

separately to USTR. 

3The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

6-146 6-146
percent for the same products in 1993; staging for many of these items was set at 10 years. The contraction 

and restructuring of the U.S. glass container industry during the period may have contributed to a decline in 

U.S. exports of $6 million (55 percent) for SIC 3222 during the period. The growth of flat glass fabrication 

facilities in Mexico may have limited the export potential for U.S.-produced products under SIC industry 

3231, as fabricated or tempered flat glass led the $22 million (25 percent) decline in U.S. sector exports 

during the period. 

Other Factors — Total sector trade grew by 44 percent ($1.7 billion) to $5.7 billion in 1996. Total U.S.-

Canada trade for the sector grew by 33 percent ($353 million), to $1.4 billion in 1996. Total U.S.-Mexico 

trade for the sector grew by 50 percent ($238 million), to $715 million in 1996. There was no known 

investment as a result of NAFTA during the period. Employment declines during the period were largely in 

the glass container segment of the industry that contracted and restructured in response to increased 

competition from plastic packaging materials and excess capacity. 

On December 13, 1996, Mexico raised its duties on imports of U.S. flat glass and seven other U.S. 

products (fructose, wine, wine coolers, brandy, Tennessee whiskey, notebooks, and wooden furniture) in 

retaliation for a U.S. safeguard action that raised U.S. duties on imports of broom corn brooms. ThenActing USTR Charlene Barshefsky expressed the view that Mexico's response was "excessive" and that it 

failed to meet the NAFTA test that self-compensation be "'substantially equivalent'" to the U.S. safeguard 

action.' On January 14, 1997, following imposition of the U.S. safeguard action, Mexico asked for the 

establishment of a NAFTA chapter 20 binational panel to review the U.S. action. As of early May 1997, a 

panel was in the process of being established. 

Written response dated Jan. 29, 1997, of Acting U.S. Trade Representative Charlene Barshefsky to Sen. Phil 

Gramm, reprinted in Inside NAFTA, Feb. 6, 1997, p. 4. 

6-147 6-147
ITC Group No. 37: Cement' 

Table 6-37-1 

Cement: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 4,187.0 4,822.0 5,161.0 5,562.0 1,375.0 32.8 

Consumption (million dollars) . . . 4,422.4 5,219.8 5,649.1 6,096.1 1,673.7 37.8 

Trade data (million dollars): 

Exports: 

Total 47.8 45.2 53.0 58.2 10.4 21.7 

To Mexico 3.4 4.2 1.9 4.8 1.4 40.3 

To Canada 36.0 35.3 40.4 42.2 6.2 17.1 

To non-NAFTA countries 8.3 5.7 10.7 11.2 2.8 34.1 

Imports: 

Total 283.1 443.0 541.1 592.2 309.1 109.2 

From Mexico 29.1 25.6 31.9 47.7 18.7 64.2 

From Canada 147.7 168.6 198.1 246.7 98.9 67.0 

From non-NAFTA countries 106.3 248.9 311.1 297.8 191.5 180.1 

Trade balance: 

Total -235.4 -397.8 -488.1 -534.1 -298.7 -126.9 

With Mexico -25.7 -21.4 -30.1 -42.9 -17.3 -67.4 

With Canada -111.7 -133.3 -157.6 -204.5 -92.8 -83.0 

With non-NAFTA countries -98.0 -243.2 -300.4 -286.7 -188.7 -192.5 

Total trade: 

Total 330.9 488.2 594.0 650.4 319.5 96.6 

NAFTA partners 216.3 233.7 272.3 341.4 125.2 57.9 

With Mexico 32.5 29.8 33.8 52.5 20.0 61.7 

With Canada 183.8 203.9 238.5 288.9 105.1 57.2 

Import market share (percent): 

Total 6.4 8.5 9.6 9.7 3.3 (2) 

Mexico 0.7 0.5 0.6 0.8 0.1 (2) 

Canada 3.3 3.2 3.5 4.0 0.7 (2) 

Non-NAFTA countries 2.4 4.8 5.5 4.9 2.5 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.0 0.0 0.0 0.0 0.0 (2) 

Canada 0.0 0.0 0.0 0.0 0.0 (2) 

All other (3) (3) (3) (3) (3) (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 17.9 17.9 17.7 17.6 -0.3 -1.7 

Production workers 

(1,000 persons) 13.8 13.6 13.4 13.3 -0.5 -3.6 

Average hourly wages of 

production workers $15.12 15.57 16.34 16.78 1.66 11.0 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent 

4 Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industry ClassifiCation (SIC) Industry No. 3241, Hydraulic Cement 

6-148 

6-148
Summary of Sector Analysis 

U.S. Imports — The effect of NAFTA on increased U.S. imports of hydraulic cement products from NAFTA 

countries was negligible' between 1993-96 because the bulk of these products were free under the column one 

general rates of duty prior to NAFTA. 3Most of the increase in U.S. imports of cement products from Mexico 

and Canada was due to increased construction demand; the United States reported an 11 percent increase in 

new construction put in place during the period.' Cement imports from Canada increased by 67 percent, to 

$247 million. Imports from Mexico increased by 64 percent, to $48 million. 

U.S. Exports — The 40-percent increase in U.S. exports to Mexico from 1993 to 1996 (to $4 8 million) was 

primarily a factor of increased construction activity and demand for cement in that market' the effect of 

NAFTA on U.S. exports to Mexico was negligible. Industry sources report that Mexico experienced a 

growing demand for cement during 1990-94, driven largely by heavy investments in infrastructure and 

housing projects.' U.S. exports to Mexico dropped to $1.9 million in 1995, following the peso devaluation 

and subsequent recession, but then increased to $4.8 million in 1996 as the Mexican market strengthened. 

Although U.S. exports to Canada increased by 17 percent to $42 million from 1993 to 1996, industry sources 

report that Canada's construction market remained fairly constant during that time.' Some of the increase in 

U.S. exports to Canada may have been a factor of shortages in that market. NAFTA effects were negligible 

because most Canadian tariffs for this product group were free prior to the CFTA, and remained so under 

NAFTA. 

Other Factors — Total sector trade grew by 97 percent ($320 million) to $650 million in 1996. Total U.S.-

Mexico trade for this sector grew by nearly 62 percent ($20 million) to $53 million and total U.S.-Canada 

trade grew by 57 percent ($105 million) to $289 million during the period. There are no known foreign 

investments in the U.S. cement industry that are due to NAFTA.' Nor are there U.S. cement investments in 

Canada or Mexico related to NAFTA. 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3One specialty product, white hydraulic cement, had a column 1 general rate of duty in 1996 of 13 cents per ton 

(including weight of container). White cement comprises only about 1 percent of the U.S. cement market. Still, the 

NAFTA effect is negligible for this product because Mexico was eligible for duty-free treatment under the Generalized 

System of Preferences prior to NAFTA. Canada is the dominant U.S. supplier of this product and was eligible for dutyfree treatment effective Jan. 1, 1989. 

'Because of the low value-to-weight ratio and the fungible character of cement, truck transportation costs generally 

limit shipments to within a 150-mile radius. Where feasible, the relatively lower cost of waterway transportation can 

greatly extend the market distance. 

'Under NAFTA, the 10-percent tariff for most of Mexico's imported cement products is scheduled to be removed in 

5 equal annual stages commencing on Jan. 1, 1994; such products became eligible for duty-free treatment on Jan. 1, 

1998. The exception was aluminous cement which was eligible for duty-free treatment prior to NAFTA and remained 

so under NAFTA. 

6Tom Kendall, "Mexico Promises of Prosperity," Industrial Minerals, Sept 1995, p. 53. 

Canadian Portland Cement Association, "Canadian Cement Trends," The Monitor, Aug.-Sept. 1996, pp. 1-10. 

Although Mexico's cement industry owns and operates a cement-clinker (intermediate cement product) grinding 

facility in Texas, the NAFTA effect would be negligible because the initial investment was made prior to NAFTA and 

cement clinker had a free duty rate before the Agreement as well. 

6-149 6-149
On September 13, 1996, a NAFTA binational panel issued a decision unanimously affirming a final 

antidumping duty administrative review by the U.S. Department of Commerce with respect to gray portland 

cement and cement clinker from Mexico (NAFTA Secretariat File No. USA-95-1904-02). 9The panel 

review had been requested by CEMEX, S.A. de C.V., a Mexican producer. For additional information, see 

the notice published by the U.S. section of the NAFTA Secretariat in the Federal Register of October 21, 

1996 (61 F.R. 54621). 

Following a final affirmative dumping determination on imports of gray portland cement and cement clinker from 

Mexico, the U.S. Department of Commerce (DOC) issued an antidumping order on Aug. 30, 1990. (This product group 

accounts for the bulk of cement imports from all countries, including Mexico.) As a result of subsequent DOC 

administrative reviews, the antidumping duty rates applied and collected on cement imports from Mexico during 1993-

95 were as follows: (1) from Aug. 1, 1992-July 31, 1993, a rate of 61.85 percent for cement manufacturer Cemex, S.A. 

and 61.35 percent for all other cement manufacturers in Mexico; (2) from Aug. 1, 1993 to July 31, 1994, the rates were 

109.43 percent and 61.35 percent, respectively; and (3) from Aug. 1, 1994 to July 31, 1995, the rates were 73.69 

percent and 61.85 percent, respectively. This lower rate for Aug. 1994 to July 1995 should not have effected the 

increase in imports during 1995-96 because the final review results for this period were not reported until Apr. 9, 1997 

(103.82 percent for Cemex) and then amended on May 5, 1997 (73.69 percent for Cemex). DOC has not issued an 

administrative review determination for periods covering Aug. 1, 1995 forward; until further notice, the rate published 

in the last review determination is collected. 

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6-150
ITC Group No. 38: Vitreous China Plumbing Fixtures' 

Table 6-38-1 

Vitreous china plumbing fixtures: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 982.3 1,020.0 1,019.1 1,015.0 32.7 3.3 

Consumption (million dollars) . . . 1,006.3 1,079.5 1,103.4 1,120.0 113.7 11.3 

Trade data (million dollars): 

Exports: 

Total 75.4 77.9 76.6 73.7 -1.7 -2.2 

To Mexico 4.9 2.8 0.5 0.5 -4.4 -90.1 

To Canada 30.2 31.1 23.7 26.5 -3.6 -12.0 

To non-NAFTA countries . . . 40.3 44.0 52.5 46.7 6.4 15.8 

Imports: 

Total 99.4 137.4 160.9 178.7 79.3 79.8 

From Mexico 50.9 69.9 86.1 107.0 56.1 110.1 

From Canada 2.4 2.3 3.3 6.8 4.4 183.7 

From non-NAFTA countries 46.1 65.2 71.6 64.9 18.9 41.0 

Trade balance: 

Total -24.0 -59.5 -84.3 -105.0 -81.0 -337.2 

With Mexico -46.1 -67.2 -85.6 -106.5 -60.5 -131.3 

With Canada 27.8 28.8 20.4 19.8 -8.0 -28.8 

With non-NAFTA countries -5.7 -21.2 -19.1 -18.3 -12.5 -218.3 

Total trade: 

Total 174.8 215.4 237.6 252.4 77.7 44.4 

NAFTA partners 88.4 106.1 113.5 140.8 52.4 59.3 

With Mexico 55.8 72.7 86.6 107.5 51.7 92.5 

With Canada 32.5 33.4 26.9 33.3 0.7 2.3 

Import market share (percent): 

Total 9.9 12.7 14.6 16.0 6.1 (2) 

Mexico 5.1 6.5 7.8 9.6 4.5 (2) 

Canada 0.2 0.2 0.3 0.6 0.4 (2) 

Non-NAFTA countries 4.6 6.0 6.5 5.8 1.2 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 6.1 1.0 0.5 0.6 -5.5 (2) 

Canada 3.6 3.2 2.4 1.5 -2.1 (2) 

All other 2.2 2.1 2.2 1.7 -0.5 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 9.5 10.2 10.2 9.5 0.0 0.0 

Production workers 

(1,000 persons) 8.0 8.8 8.6 8.0 0.0 0.0 

Average hourly wages of 

production workers $12.14 12.14 12.46 12.73 0.59 4.9 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry No. 3261, Vitreous China Plumbing Fixtures, and China and 

Earthenware Fittings and Bathroom Accessories. 

6-151 

6-151
Summary of Sector Analysis' 

U.S. Imports — NAFTA had a negligible impact' on the increase in imports of vitreous china plumbing 

fixtures from NAFTA partners during 1993-96. Total U.S. imports of these products in 1996 were $179 

million, up 80 percent from $99 million in 1993. Mexico is the main source of vitreous china plumbing 

fixtures imports to the United States, accounting for 60 percent of total imports in 1996. Over the 3-year 

period, imports from Mexico increased 110 percent, from $51 million in 1993 to $107 million in 1996. 

Mexico's share of the U.S. market also increased, from 5 percent in 1993 to nearly 10 percent in 1996. U.S. 

imports of vitreous china plumbing fixtures from Canada, although much less in total value, also increased 

quite significantly over the three year period, from $2 million to $7 million, or 184 percent. Canada's share 

of the U.S. market, which stood at 0.2 percent in 1993, increased just slightly to 0.6 percent in 1996. 

A number of factors, other than tariff reductions under NAFTA,' were the principal cause of the increase in 

imports from Mexico. 5According to industry sources, the increase in imports during the period was largely a 

result of gradual production shifts over the last decade to Mexico to take advantage of lower labor costs.' 

Production of vitreous china plumbing fixtures is extremely labor-intensive; as U.S. labor costs in this 

industry average $22/hour, it was more cost effective to shift production to other low-wage countries, like 

Mexico, where labor costs average $2-3/hour. Mexico's close proximity to the U.S. market posed the most 

attractive alternative for production of these goods because of lower transportation costs.' 

Another important factor that spurred imports from both Mexico and Canada during this period was the 

strong U.S. economy, specifically growth in the construction and home improvement or remodeling 

industries. The state of the plumbing fixtures market tends to follow the cycles of these industries, but 

because demand factors are largely separate, a decline in one will not necessarily be detrimental to producers 

of sanitary ware fixtures because losses can be offset by gains in the other. Products sold in the construction 

market, primarily at wholesale to contractors and builders, are generally higher priced than those sold to the 

home improvement market at the retail level. The lower priced retail level is where sanitary ware products of 

Mexico compete. The peso devaluation, which made Mexican sanitary ware exports to the U.S. market less 

expensive, also contributed to increase in imports from Mexico. 

U.S. Exports — Total U.S. exports of vitreous china plumbing fixtures declined from $75 million in 1993 to 

$74 million in 1996. Canada is the largest export market for U.S. producers, while the Mexican market is 

relatively insignificant to U.S. producers, ranking as the 21st-largest export destination for U.S. products in 

1996. Exports to both Mexico and Canada dropped over the 1993-1996 period; those to Mexico fell by a 

2Views of parties that submitted written and/or oral testimony to the Commission in connection with this investigation 

are summarized in Appendix D. Copies of the hearing transcript and copies of all written testimony are being provided 

separately to USTR. 

3The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

The average trade weighted U.S. tariff equivalents of vitreous china plumbing fixtures imported from Mexico 

decreased from 6.13 percent ad valorem in 1993 to .57 percent ad valorem in 1996. The average trade weighted U.S. 

tariff equivalents of these products from Canada also decreased, from 3.56 percent ad valorem in 1993 to 1.53 percent 

ad valorem in 1996. 

5Industry representatives, telephone interviews by USITC staff, Mar. 3, 5, and 6, 1997. 

'Representative of American Standard, Inc., telephone interview by USITC staff, May 13, 1997. 

7Because these products can be quite heavy, and shipping charges are generally determined according to weight, 

transport by truck became the most economical method of transport. 

6-152 

6-152
large margin, from $5 million in 1993 to $0.5 million in 1996, partially because the peso devaluation made 

U.S. products more expensive in the U.S. market. Industry representatives maintain that without the 

incentives of NAFTA, however, U.S. exports to Mexico would likely have fallen further.' Exports to Canada 

fell less dramatically, to $27 million in 1996 from $30 million in 1993. NAFTA had a negligible effect on 

these decreased in exports to NAFTA partners. 

Other Factors — Total U.S. trade for this sector increased $78 million (44 percent) to $252 million from 

1993 to 1996. The trade deficit has increased over the 3-year period, from a $24 million deficit in 1993 to a 

$105 million deficit in 1996, a 337-percent increase. Total U.S.-Mexico trade increased $52 million (93 

percent) to $108 million, while total U.S.-Canada trade rose slightly $0.7 million (2 percent) to $33 million 

in 1996. 

NAFTA also had a negligible impact on other factors. With regard to employment, 250 American Standard 

Inc. (Piscataway, NJ) employees were certified as being eligible to apply for NAFTA-TAA benefits in 1995, 

due to production shifts to the company's affiliate in Mexico, Ideal Standard.' However, according to official 

data, there was no change in overall sector employment levels in the three year period. As for investment, 

there was no significant investment in Mexico reported due to NAFTA. While two of the largest U.S. 

producers of sanitary ware fixtures, Kohler Inc. (Kohler, WI) and American Standard Inc., have production 

facilities in Mexico, both were established before the passage of NAFTA. 

'Roger Banks, Kersner and Associates, written submission to the USITC on behalf of Mexican sanitary ware 

producers, May 12, 1997, p. 13. 

U.S. Department of Labor, NAFTA Office. Although these job losses are certified to be the result of plant 

relocations to Mexico or Canada and/or increased imports from these countries, NAFTA may not have been the cause of 

plant relocation decisions or the reason for the increase in imports. 

6-153 

6-153
ITC Group No. 39: Gypsum Building Products' 

Table 6-39-1 

Gypsum building products: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments (million dollars) 1,790.0 2,389.0 2,862.0 3,060.0 1,270.0 71.0 

Consumption (million dollars) . . . 1,759.0 2,388.5 2,881.9 3,103.2 1,344.2 76.4 

Trade data (million dollars): 

Exports: 

Total 56.8 52.1 55.9 61.2 4.4 7.7 

To Mexico 2.7 4.0 1.5 2.2 -0.5 -17.2 

To Canada 11.3 11.2 9.8 10.6 -0.7 -6.2 

To non-NAFTA countries . . . 42.9 36.9 44.5 48.4 5.6 13.0 

Imports: 

Total 25.9 51.6 75.8 104.5 78.6 304.2 

From Mexico 0.3 1.7 4.3 10.1 9.8 3,053.1 

From Canada 25.2 49.4 71.2 93.7 68.5 272.2 

From non-NAFTA countries 0.4 0.5 0.3 0.7 0.3 96.4 

Trade balance: 

Total 31.0 0.5 -19.9 -43.2 -74.2 (2 

With Mexico 2.4 2.3 -2.7 -7.9 -10.2 (2 

With Canada -13.9 -38.2 -61.4 -83.1 -69.2 -498.3 

With non-NAFTA countries 42.5 36.4 44.2 47.7 5.2 12.3 

Total trade: 

Total 82.7 103.7 131.7 165.7 83.0 100.4 

NAFTA partners 39.5 66.3 86.8 116.6 77.1 195.4 

With Mexico 3.0 5.7 5.8 12.3 9.3 309.0 

With Canada 36.5 60.6 81.0 104.3 67.8 186.0 

Import market share (percent): 

Total 1.5 2.2 2.6 3.4 1.9 (2) 

Mexico 0.0 0.1 0.1 0.3 0.3 (2) 

Canada 1.4 2.1 2.5 3.0 1.6 (2) 

Non-NAFTA countries 0.0 0.0 0.0 0.0 0.0 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.0 (3) (3) 0.0 0.0 (2) 

Canada 1.6 1.2 0.8 0.5 -1.1 (2) 

All other 2.8 2.8 2.1 1.7 -1.1 (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 11.9 12.1 12.2 12.4 0.5 4.2 

Production workers 

(1,000 persons) 9.4 9.6 9.7 9.7 0.3 3.2 

Average hourly wages of 

production workers $12.37 12.37 12.75 13.10 0.73 5.9 

1Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent 

Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry No. 3275, Gypsum Products. Principal products covered include 

gypsum plasters and wallboards, sheets, panels, and tiles made from a composition based on plaster. 

6-154 6-154
Summary of Sector Analysis 

U.S. Imports — Although imported gypsum products originating from Mexico are eligible for duty-free 

treatment under NAFTA, the NAFTA's effect on increased U.S. imports was negligible' because such 

products generally entered duty-free under GSP prior to NAFTA. In contrast, the staged duty rate negotiated 

for Canadian products under the CFTA remained in effect under NAFTA; imports of product originating 

from Canada had a rate of duty ranging from 1.61 percent ad valorem in 1993 to 0.48 percent in 1996. 

Despite this relative tariff disadvantage, Canada continues to be the dominant U.S. supplier of imported 

gypsum building products. This is primarily a factor of industry structure; Canada is the world's third largest 

producer of mined gypsum.' U.S. imports from Canada become eligible for duty-free treatment January 1, 

1998. 

U.S. Exports — The reduction and eventual elimination of tariffs under NAFTA is expected to have a 

positive influence on the trade of gypsum building products in the North American markets,' but the overall 

effect thus far has been negligible compared to the impact of growth in construction activity. Changes in 

trade for this product group are predicated principally on changes in construction demand and on availability 

of product. Of the three countries, the United States is the largest market and has had the longest sustained 

growth in construction activity (showing an increase of about 11 percent for new construction put in place 

from 1993 to 1996). In contrast, industry sources report that increasing construction activity in Mexico was 

interrupted in 1995 with the devaluation of the peso,' and that construction activity in Canada remained 

relatively constant during the 1993-96 period.' In concert with the levels of construction activity in these 

markets, U.S. exports to Mexico declined by $500,000 (17 percent) and U.S. exports to Canada remained 

fairly constant during the report period, ranging between approximately $10 million and $11 million. 

Other Factors — Total U.S. sector trade doubled, increasing $83 million to $166 million in 1996. Total 

U.S.-Mexico trade for this sector grew by 309 percent ($9 million) to $12 million, and total U.S.-Canada 

trade grew by 186 percent ($68 million) to $104 million. There are no foreign investments in this industry 

sector in North America that are known as being NAFTA-related. The U.S. gypsum building products 

industry is reported to own and operate gypsum mines (the source of the primary ingredient for this industry 

group) in Canada and have minority interests in Mexican operations. The Canadian industry is also reported 

to have minority share investments in Mexican gypsum mines. 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence 

3 1n 1996, the U.S. Department of Interior's Bureau of U.S. Geological Survey reported that Canada ranked third after 

the United States and China among world producers of mined gypsum and Mexico ranked 7th. Cite: World Wide Web, 

Apr. 23, 1996, Bureau of U.S. Geological Survey, http://minerals.er.usgs.gov/minerals/pubs/mcs/gypsum.txt, 

"Gypsum," Mineral Commodity Summaries, Jan. 1996. 

A 20-percent tariff rate for most of the subject products entering Mexico was scheduled to be removed under 

NAFTA in 5 equal annual stages; most products become eligible for duty-free treatment Jan. 1, 1998; plaster was the 

exception, tariff rates were zero, effective Jan. 1, 1994. Most of Canada's tariff rates for these products were free prior 

to NAFTA or effective Jan. 1, 1994; a basket category for gypsum board was the exception, eligible for duty-free 

treatment Jan. 1, 1998. 

3Tom Kendall, "Mexico Promises of Prosperity," Industrial Minerals, Sept. 1995, p. 53. 

4 Canadian Portland Cement Association, "Canadian Cement Trends," The Monitor, Aug.-Sept. 1996, pp. 1-10. 

6-155 

6-155
ITC Group No. 40: Mineral Wool' 

Table 6-40-1 

Mineral wool: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 3,170.0 3,565.0 3,766.0 3,894.0 724.0 22.8 

Consumption (million dollars) . . . 2,993.0 3,368.7 3,582.6 3,692.2 699.2 23.4 

Trade data (million dollars): 

Exports: 

Total 236.1 298.1 307.4 336.1 100.0 42.4 

To Mexico 14.4 27.3 13.9 17.5 3.1 21.4 

To Canada 98.6 105.4 99.8 105.3 6.7 6.8 

To non-NAFTA countries 123.1 165.4 193.7 213.4 90.3 73.3 

Imports: 

Total 59.1 101.8 124.1 134.3 75.2 127.2 

From Mexico 3.4 4.8 7.0 8.2 4.9 144.5 

From Canada 34.1 68.0 87.1 99.8 65.7 192.4 

From non-NAFTA countries 21.6 29.0 29.9 26.3 4.7 21.6 

Trade balance: 

Total 177.0 196.3 183.4 201.8 24.8 14.0 

With Mexico 11.0 22.5 6.9 9.3 -1.8 -16.1 

With Canada 64.5 37.4 12.7 5.5 -59.0 -91.5 

With non-NAFTA countries 101.5 136.4 163.8 187.1 85.6 84.4 

Total trade: 

Total 295.2 399.9 431.5 470.4 175.2 59.3 

NAFTA partners 150.5 205.5 207.8 230.8 80.3 53.3 

With Mexico 17.8 32.0 20.9 25.7 7.9 44.7 

With Canada 132.8 173.5 186.9 205.1 72.3 54.5 

Import market share (percent): 

Total 2.0 3.0 3.5 3.6 1.7 (2) 

Mexico 0.1 0.2 0.2 0.2 0.1 (2) 

Canada 1.1 2.0 2.4 2.7 1.6 (2) 

Non-NAFTA countries 0.7 0.9 0.8 0.7 0.0 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.3 0.1 (3) (3) -0.3 (2) 

Canada 1.9 1.7 1.3 0.9 -1.0 (2) 

All other 5.5 4.8 4.8 4.5 -1.0 (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 22.3 23.5 24.2 24.1 1.8 8.1 

Production workers 

(1,000 persons) 17.6 18.4 18.8 18.8 1.2 6.8 

Average hourly wages of 

production workers $13.86 13.87 14.21 14.80 0.94 6.8 

Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3 Less than 0.05 percent. 

Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry No. 3296, Mineral Wool. This industry includes HTS provisions 

6806.10 (slag wool, rock wool, and similar mineral wools); 6806.90 (acoustical pads and boards); 7019.39 (glass 

fibers, including glass wool and articles thereof); and 7019.90 (woven glass fibers and other glass fibers). 

6-156 6-156
Summary of Sector Analysis 

U.S. Imports — NAFTA had a negligible impact' on U.S. imports of mineral wool from NAFTA partners. 

Although the value of U.S. imports from Canada of mineral wool products increased almost 200 percent from 

1993 to 1996, this increase was largely due to the staged duty reductions negotiated under the CFTA that 

preceded NAFTA.' 

NAFTA likely had only a small effect on U.S.-Mexico trade in mineral wool because, with the exception of 

woven glass fibers (HTS 7019.90.10), U.S. imports of mineral wool from Mexico had been eligible for dutyfree treatment under the Generalized System of Preferences (GSP) prior to the implementation of NAFTA.' 

U.S. imports of woven glass fibers from Mexico amounted to only $668,000 in 1996, out of a total $8.2 

million in imports of Mexican mineral wool products.' 

U.S. Exports — Total exports of mineral wool increased at a greater rate than exports to either Canada or 

Mexico from 1993 to 1996. U.S. exports to Canada rose by 7 percent compared with a 21 percent increase in 

U.S. exports to Mexico. Total U.S. exports of mineral wool increased 42 percent to $336 million in 1996, 

indicating that increased world demand and the availability of U.S. production, not NAFTA, were likely 

responsible for the rise in U.S. exports of this product to NAFTA countries. 

Other Factors — Total sector trade of mineral wool grew by 59 percent ($175 million) to $470 million in 

1996. Total U.S.-Canada trade for the sector grew by 55 percent ($72 million) to $205 million, while total 

U.S.-Mexico trade increased 45 percent ($8 million) to $26 million from 1993 to 1996. According to 

industry officials, the change in U.S. trade in mineral wool with Canada and Mexico was not related to 

specialization of production.' The only significant investment (in excess of $100 million) in mineral wool 

manufacturing in North America was to increase plant capacity at Saint Gobain's CertainTeed subsidiary in 

Kansas City, Kansas. The work, which started in 1994, is expected to be completed in 1997. The plant's 

overall capacity to manufacture fiberglass will be doubled to approximately $200 million of product per year. 

Sales of the additional production are intended for the U.S. market; NAFTA reportedly did not enter into the 

decision-making process related to this expansion.' 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3The CFTA reduced duty rates on HTS heading 6806 products from 3.9 percent in 1989 to free in 1993. Duties on 

HTS 7019 products, with the exception of 7019.10, were decreased from 5.5 percent in 1989 to 3.1 percent in 1993. In 

1996, duties were at 1.2 percent and are to be entirely eliminated by 1998. HTS 7019.10 duties were decreased from 

6.2 percent to 3.4 percent in 1993. In 1996, the duty was 1.3 percent, and will drop to free in 1998. 

4The only dutiable mineral wool import from Mexico into the United States in 1993 was woven glass fibers (HTS 

7019.90.10), with duties of 6.9 percent ad valorem. In 1994, all mineral wool products from Mexico, including woven 

glass fibers, became duty free. 

5The $668,000 import figure represents approximately eight percent of 1996 U.S. imports of mineral wool products 

from Mexico, and less than 0.02 percent of total U.S. mineral wool consumption. 

'Officials of Owens Coming Corp., telephone interviews by USITC staff, Feb. 24, 1997, Mar. 3 and 6, 

1997. 

Official of CertainTeed Corp., telephone interview by USITC staff, Mar. 12, 1997. 

6-157 

6-157
ITC Group No. 41: Steel Products' 

Table 6-41-1 

Steel products: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 66,956.8 75,518.2 79,545.5 97,800.0 30,843.2 46.1 

Consumption (million dollars) . . . 72,624.8 85,080.0 86,853.4 106,519.2 33,894.4 46.7 

Trade data (million dollars): 

Exports: 

Total 3,060.4 3,265.3 5,013.2 4,507.7 1,447.3 47.3 

To Mexico 663.3 646.2 658.4 871.7 208.4 31.4 

To Canada 1,281.7 1,495.5 1,848.3 1,851.2 569.5 44.4 

To non-NAFTA countries 1,115.4 1,123.6 2,506.5 1,784.8 669.4 60.0 

Imports: 

Total 8,728.4 12,827.1 12,321.1 13,226.9 4,498.5 51.5 

From Mexico 349.3 594.0 862.1 1,031.1 681.8 195.2 

From Canada 2,098.9 2,220.6 2,378.6 2,480.0 381.1 18.2 

From non-NAFTA countries 6,280.2 10,012.5 9,080.4 9,715.8 3,435.6 54.7 

Trade balance: 

Total -5,668.0 -9,561.8 -7,307.9 -8,719.2 -3,051.2 -53.8 

With Mexico 314.0 52.2 -203.7 -159.4 -473.4 (2) 

With Canada -817.2 -725.1 -530.3 -628.8 188.4 23.1 

With non-NAFTA countries -5,164.8 -8,888.9 -6,573.9 -7,931.0 -2,766.2 -53.6 

Total trade: 

Total 11,788.8 16,092.4 17,334.3 17,734.6 5,945.8 50.4 

NAFTA partners 4,393.2 4,956.3 5,747.4 6,234.0 1,840.8 41.9 

With Mexico 1,012.6 1,240.2 1,520.5 1,902.8 890.2 87.9 

With Canada 3,380.6 3,716.1 4,226.9 4,331.2 950.6 28.1 

Import market share (percent): 

Total 12.0 15.1 14.2 12.4 0.4 (2) 

Mexico 0.5 0.7 1.0 1.0 0.5 (2) 

Canada 2.9 2.6 2.7 2.3 -0.6 (2) 

Non-NAFTA countries 8.6 11.8 10.5 9.1 0.5 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 4.9 4.7 3.6 3.3 -1.6 (2) 

Canada 2.1 1.6 1.2 0.8 -1.3 (2) 

All other 5.0 4.7 4.3 3.8 -1.2 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 251.0 251.7 254.9 249.7 -1.3 -0.5 

Production workers 

(1,000 persons) 195.4 197.2 200.4 197.2 1.8 0.9 

Average hourly wages of 

production workers $16.14 16.85 17.17 17.63 1.49 9.2 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as welt as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics. Data for 1996 were estimated based on Jan.-

Oct 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 3312, Steel Works, Blast Furnaces (Including Coke Ovens) 

and Rolling Mills; and 3321, Gray and Ductile Iron Foundries. 

6-158 

6-158
Summary of Sector Analysis 

U.S. Imports — NAFTA had a negligible effect' on rising steel imports from NAFTA partners, whereas a 

strong U.S. economy3combined with exchange rate fluctuations and producer outages were the likely factors 

driving steel imports from 1993 to 1996. Overall, total imports of steel products increased by 52 percent to 

$13 billion. U.S. imports of Canadian steel products increased 18 percent to $2.5 billion from 1993 to 1996, 

whereas imports from Mexico rose 195 percent to $1 billion. The peso devaluation in late 1994 resulted in 

depressed demand for steel in the Mexican economy, as major consuming sectors, particularly manufacturers 

whose production was oriented to the domestic market in Mexico and the construction industry, contracted. 

Mexican producers of steel thus sought foreign markets in order to offset loss of local demand. The peso 

devaluation helped increase the competitiveness of Mexican exports in the international market, thus 

generating increased U.S. steel imports from Mexico.' The peso crisis also facilitated increased Mexican 

steel production, which rose more than 50 percent.' In previous studies, the Commission has found that steel 

import levels are highly sensitive to changes in the exchange rate.' Also, the privatization of Mexico's steel 

industry in 1991 boosted investment in domestic firms which produce higher value added products, such as 

cold finished bars and drawn wire. Enhanced productivity and lower production costs also resulted from the 

Mexican privatization initiative. 

U.S. tariffs applied to Canadian steel products are being phased out over a 10-year period as a result of the 

CFTA,7and are continuing under NAFTA. NAFTA provided for a 10-year phaseout of tariffs on Mexican 

steel products. The United States has since agreed to a 10-year phaseout of tariffs on imports of steel 

products applied to all nations eligible for most-favored-nation status as a result of commitments made in the 

Uruguay Round trade negotiations, with duty-free status to be reached in 2004. 

U.S. Exports — NAFTA has had a negligible effect on U.S. steel product exports to Canada and Mexico 

during 1993-96. Since 1993, the improving Canadian economy has boosted apparent consumption of steel 

products by 9 percent,' thus contributing to an increase in U.S. exports to Canada. Capital investment and 

facility closures in the Canadian steel industry during this period increased the need for cold rolled sheet and 

semifinished products, respectively. Trade in such intermediate products has increased due to market demand 

rather than primarily a NAFTA influence. U.S. exports to Mexico remained relatively stable from 1993 to 

1995 even though Mexican consumption fell.' This is due in part to Mexico's need for U.S. steel products 

that are inputs for downstream Mexican export industries, such as automobiles and appliances. In 1996, U.S. 

steel product exports to Mexico increased by 32 percent over 1995 levels, an indication that the Mexican 

market has begun to recover, as there was only a 2-percent increase from 1994 to 1995. 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3World Wide Web, retrieved Feb. 2, 1997, Today's Steel Industry, http://www.steel.org/facts/factpage7.htm1/, "North 

American Steel at a Glance," American Iron and Steel Institute. 

4"Mexican Car Makers Diversify Steel Supply," El Financiero International, Jan. 27-Feb. 2, 1997, p. 17. 

Canacero. Pedil de la Industria Siderurgica Mexicana. 

U.S. International Trade Commission, Steel Industry Annual Report, (investigation No. 332-289), USITC 

publication 2436, Sept. 1991, pp. 3-45 to 3-48. 

7While most Canadian steel product tariffs were in the 2-percent to 4-percent range, select products faced tariffs up to 

5.8 percent. 

American Iron and Steel Institute, 1995 Annual Statistical Report, 1996. 

9"Mexico Turns the Corner," Metal Bulletin Monthly, Oct 1996, p. 10. 

6-159 6-159
Other Factors — U.S. trade in steel products grew by 50 percent during 1993-96. Total U.S.-Canada trade in 

steel products grew by $951 million to $4.3 billion in 1996, a 28-percent increase over 1993 levels. Total 

U.S.-Mexico trade in steel products grew by 88 percent, or $890 million, to $1.9 billion in 1996. Various 

economic factors played an important role in the growth of trade among the United States, Canada, and 

Mexico; however, NAFTA had a negligible impact on the steel products sector. 

Although there is no known investment by U.S. steel firms in Mexican steelmaking facilities, there has been 

U.S. investment in Mexico as a result of NAFTA, taking the form of U.S.-Mexican joint ventures for 

distribution and service center activities valued at $33 million from 1994-1996. 1°There has been $8.5 billion 

invested in the U.S. steel industry during the same time period. However, it was not determined to be an 

effect of NAFTA. Rather, the capital expenditures have focused on upgrading and modernizing existing 

plants, investing in new facilities, and expanding steel production capacity to serve the U.S. market. 

On August 3, 1993, Bethlehem Steel Export Corp., U.S. Steel, a unit of USX Corp., National Steel Corp., 

Inland Steel Company, and LTV Steel Company filed a request for a NAFTA binational panel review of a 

final dumping determination made by the Canadian Deputy Minister of National Revenue for Customs and 

Excise concerning certain cold-rolled steel sheet originating in or exported from the United States. On June 

14, 1994 the panel affirmed in part and remanded in part the Canadian agency's determination. On January 

31, 1995, the panel affirmed the determination on remand. NAFTA Secretariat File No. CDA-93-1904-08. 

For additional information, see the notice published by the U.S. section of the NAFTA Secretariat in the 

Federal Register of July 15, 1994 (59 F.R. 36163). 

On August 12, 1994, U.S. Steel, a unit of USX Corp., Inland Steel Company, UN Kote, and LTV Steel filed a 

request for a NAFTA binational panel review of a final determination of dumping made by the Canadian 

Deputy Minister of National Revenue for Customs and Excise concerning certain corrosion-resistant steel 

sheet products from the United States. The panel unanimously affirmed in part and remanded in part the 

Canadian agency's determination. The panel majority affirmed the agency remand determination with two 

partial dissenting opinions. NAFTA Secretariat File No. CDA-94-1904-03. For additional information, see 

the notice published by the U.S. section of the NAFTA Secretariat in the Federal Register of August 25, 

1994 (59 F.R. 43816). 

On September 1, 1994, Inland Steel Company and USX Corporation filed a request for a NAFTA binational 

panel review of a final antidumping determination by Mexico's Secretariat de Comercio y Fomento Industrial 

(SECOFI) concerning flat coated sheet products from the United States. On September 27, 1996, the panel 

unanimously affirmed in part and remanded in part the Mexican determination. In its order the panel 

affirmed all aspects of the final determination except for several specific instructions to SECOFI to take 

further actions. NAFTA Secretariat File No. MEX-94-1904-01. For additional information, see the notice 

published by the U.S. section of the NAFTA Secretariat in the Federal Register of October 28, 1996 (61 

F.R. 55617). 

On September 1, 1994, Bethlehem Steel Corporation filed a request for a NAFTA binational panel review of 

a final antidumping duty determination by Mexico (SECOFI) concerning imports of cut-length plate, covered 

by Mexican customs tariff classifications 7208.32.01, 7208.33.01, 7208.42.01, and 7208.43.01, originating 

in and entering from the United States. On the same date, a request for panel review was also filed by U.S. 

Steel. On August 30, 1995, the panel majority, with two dissenting opinions, remanded the determination to 

SECOFI to issue a new determination. NAFTA Secretariat File No. MEX-94-1904-02. For additional 

1 ° Compiled from the financial statements of Worthington Steel and Inland Steel Company. 

6-160 

6-160
information, see the notice published by the U.S. section of the NAFTA Secretariat in the Federal Register of 

September 11, 1995 (60 F.R. 47153). SECOFI subsequently issued revised duties on April 30, 1997, some 

of which have again been appealed to the binational panel. 

On September 1, 1994, U.S. Steel, Inland Steel Company, I/N Kote, Bethlehem Steel Export Corporation, 

and LTV Steel Company filed a request for a NAFTA binational panel review of a final affirmative injury 

determination made by the Canadian International Trade Tribunal concerning certain corrosion-resistant steel 

sheet products from the United States. On July 10, 1995, the NAFTA binational panel affirmed the Canadian 

agency's determination. On August 22, 1995, the binational panel review was completed. NAFTA 

Secretariat File No. CDA-94-1904-04. For additional information, see the notice published by the U.S. 

section of the NAFTA Secretariat in the Federal Register of October 2, 1995 (60 F.R. 51457). 

On July 26, 1995, Tubos de Acero de Mexico, S.A. filed a request for a NAFTA binational panel review of a 

fmal determination of sales at less than fair value made by the U.S. Department of Commerce concerning oil 

country tubular goods from Mexico. On July 31, 1996, the panel affirmed and remanded the Commerce 

Department's determination. The remand determination was affirmed on December 2, 1996 and the panel 

review was completed on January 21, 1997. NAFTA Secretariat File No. USA-95-1904-04. For additional 

information, see the notice published by the U.S. section of the NAFTA Secretariat in the Federal Register of 

February 6, 1997 (62 F.R. 5612). 

On November 10, 1995, Gulf States Tube Division filed a request for a NAFTA binational panel review of a 

final antidumping determination made by Mexico (SECOFI) concerning seamless commercial steel tubes 

from the United States. On December 6, 1995, Gulf States filed a Notice of Motion requesting termination of 

this panel review. No other interested persons filed a request for panel review of this fmal determination. 

The Notice of Completion of panel review was effective March 17, 1995. NAFTA Secretariat File No. 

MEX-95-1904-01. For additional information, see the notice published by the U.S. section of the NAFTA 

Secretariat in the Federal Register of December 20, 1995 (60 F.R. 65637). 

On January 26, 1996, Dofasco Inc. filed a request for a NAFTA binational panel review of a final 

antidumping determination made by Mexico (SECOFI) concerning cold-rolled steel sheet originating in or 

exported from Canada. Panel review of this matter was terminated by the requestor on April 26, 1996. 

NAFTA Secretariat File No. MEX-96-1904-01. For additional information, see the notice published by the 

U.S. section of the NAFTA Secretariat in the Federal Register of June 14, 1996 (61 F.R. 30221). 

On January 29, 1996, the Titan Industrial Corporation, Dofasco Inc., Stelco Inc., and Algoma Inc. filed a 

request for a NAFTA binational panel review of a fmal antidumping determination by Mexico (SECOFI) 

concerning rolled steel plate originating or exported from Canada. The proceedings were suspended in 

September 1996, and resumed on January 14, 1997. A decision is expected in August 1997. NAFTA 

Secretariat File No. MEX-96-1904-02. For additional information, see the notice published in the U.S. 

section of the NAFTA Secretariat in the Federal Register of February 15, 1996 (61 F.R. 5983). 

On January 29, 1996, the Titan Industrial Corporation, Dofasco Inc., Stelco Inc., and Algoma Inc. filed a 

request for a NAFTA binational panel review of a fmal antidumping determination by Mexico (SECOFI) 

concerning hot-rolled steel sheet originating in or exported from Canada. A decision is expected in June 

1997. NAFTA Secretariat File No. MEX-96-1904-03. For additional information, see the notice published 

by the U.S. section of the NAFTA Secretariat in the Federal Register of February 15, 1996 (61 F.R. 5982). 

6-161 

6-161
ITC Group No. 42: Nonferrous Metals, Unwroughtl 

Table 6-42-1 

Nonferrous metals, unwrought: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 17,580.0 20,231.0 24,285.0 21,880.0 4,300.0 24.5 

Consumption (million dollars) . . . 15,692.7 23,997.7 29,500.4 26,067.7 10,375.0 66.1 

Trade data (million dollars): 

Exports: 

Total 10,200.2 6,721.6 7,203.6 8,467.6 -1,732.6 -17.0 

To Mexico 217.2 269.4 161.1 221.9 4.7 2.2 

To Canada 777.9 546.4 602.7 774.7 -3.2 -0.4 

To non-NAFTA countries . . . 9,205.0 5,905.8 6,439.8 7,470.9 -1,734.1 -18.8 

Imports: 

Total 8,312.9 10,488.2 12,419.0 12,655.3 4,342.4 52.2 

From Mexico 327.6 363.3 591.6 614.1 286.6 87.5 

From Canada 4,318.3 5,212.1 6,036.4 6,212.9 1,894.6 43.9 

From non-NAFTA countries 3,667.0 4,912.8 5,791.0 5,828.2 2,161.2 58.9 

Trade balance: 

Total 1,887.3 -3,766.7 -5,215.4 -4,187.7 -6,075.0 (2) 

With Mexico -110.3 -93.9 -430.5 -392.2 -281.9 -255.5 

With Canada -3,540.4 -4,665.8 -5,433.7 -5,438.2 -1,897.8 -53.6 

With non-NAFTA countries 5,538.0 993.0 648.8 1,642.7 -3,895.3 -70.3 

Total trade: 

Total 18,513.1 17,209.8 19,622.6 21,122.8 2,609.7 14.1 

NAFTA partners 5,641.0 6,391.2 7,391.7 7,823.7 2,182.6 38.7 

With Mexico 544.8 632.8 752.7 836.1 291.3 53.5 

With Canada 5,096.3 5,758.5 6,639.0 6,987.6 1,891.3 37.1 

Import market share (percent): 

Total 53.0 43.7 42.1 48.5 -4.4 (2) 

Mexico 2.1 1.5 2.0 2.4 0.3 (2) 

Canada 27.5 21.7 20.5 23.8 -3.7 (2) 

Non-NAFTA countries 23.4 20.5 19.6 22.4 -1.0 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.1 0. 1 (3) (3) -0.1 (2) 

Canada 0.1 0.2 0.1 0.1 0.0 (2) 

All other 0.6 0.5 0.5 0.6 0.0 (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 56.8 56.1 56.4 57.0 0.2 0.4 

Production workers 

(1,000 persons) 42.7 42.3 42.6 43.1 0.4 0.9 

Average hourly wages of 

production workers $14.25 14.43 14.88 15.16 0.91 6.4 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent. 

4Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

' Standard Industrial Classification (SIC) Industry Nos. 3331, Primary Smelting and Refining of Copper; 3334, 

Primary Production of Aluminum; 3339, Primary Smelting and Refining of Nonferrous Metals, except Copper and 

Aluminum; and 3341, Secondary Smelting and Refining of Nonferrous Metals. 

6-162 

6-162
Summary of Sector Analysis 

U.S. Imports — The effect of NAFTA on the U.S. unwrought nonferrous metal sector from 1993 to 1996 

was negligible,' largely because there were no effective U.S. tariff reductions on these products. U.S. tariffs 

on imports from Canada were either zero, or already low and in the process of being staged to zero under the 

CFTA. U.S. imports from Mexico were eligible for duty-free entry under GSP for all the major unwrought 

nonferrous products before NAFTA. (The trade-weighted ad valorem equivalent tariff rates for U.S. imports 

from Canada and Mexico have been less than 0.5 percent through the period.) 3Although U.S. imports from 

both Canada and Mexico increased at a faster rate than U.S. shipments from 1993 to 1996, this was caused 

by growing U.S. consumption. The market shares of Canada and Mexico did not change appreciably 

(Canada's market share actually decreased) because the amount of U.S. shipments consumed domestically 

increased. Much of the change in the value of shipments and trade flows was caused by variations in prices.' 

U.S. Exports — NAFTA had a negligible effect on U.S. exports to North America during this period. 

Canada and Mexico have large unwrought metals industries, but are relatively small consumers and are not 

major importers of these products. The quantity of U.S. exports to these markets decreased from 1993 to 

1996, but because of the price increases, the value of these exports did not change appreciably. 

Other Factors — Total sector trade grew by 14 percent ($2.6 billion) to $21.1 billion in 1996. Total U.S.-

Canada trade for the sector grew by 37 percent ($1.9 billion) to $7.0 billion from 1993 to 1996, whereas total 

U.S.-Mexico trade grew by 54 percent ($291 million) to $836 million in 1996. There is no known effect of 

NAFTA on specialization of production, intra-industry trade, trade in intermediate products, or economies of 

scale. Likewise, there was no known shift in investment patterns because of NAFTA. Canadian minerals and 

metals companies are investors in the U.S. industry (mostly in the gold industry), but this was occurring 

before NAFTA. Also, there are no known barriers to entry in the U.S. metals industry for any foreign 

country. U.S. companies have redirected investment to other parts of the world, but this is reportedly in 

response to environmental considerations and prospects for U S mining law reform, not a reaction to 

NAFTA. 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence 

3Ad valorem equivalent tariff rates compiled from official statistics of the U.S. Department of Commerce. 

The price of the two most important nonferrous metals (as measured by the quantity of consumption), copper and 

aluminum, increased, respectively, from $0.92/lb in 1993 to $1.09/1b in 1996, an 18 percent increase, and from 

$0.53/1b in 1993 to $0.72 in 1996, a 36 percent increase. The price of lead, another major nonferrous metal, increased 

53 percent from $0.32/lb to $0.49/lb during the same period. 

6-163 

6-163
ITC Group No. 43: Nonferrous Metals, Wrought' 

Table 6-43-1 

Nonferrous metals, wrought: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 30,941.5 34,991.5 40,495.6 40,389.8 9,448.3 30.5 

Consumption (million dollars) . . . 29,843.1 33,791.7 39,329.0 38,873.0 9,029.9 30.3 

Trade data (million dollars): 

Exports: 

Total 4,075.0 4,899.9 6,191.9 6,458.6 2,383.7 58.5 

To Mexico 882.1 1,105.3 1,195.5 1,466.7 584.7 66.3 

To Canada 1,261.7 1,561.0 1,848.3 1,764.1 502.4 39.8 

To non-NAFTA countries . . . 1,931.2 2,233.6 3,148.1 3,227.8 1,296.6 67.1 

Imports: 

Total 2,976.5 3,700.1 5,025.3 4,941.8 1,965.3 66.0 

From Mexico 465.4 524.8 786.0 937.1 471.7 101.3 

From Canada 840.3 1,159.2 1,534.5 1,552.5 712.2 84.8 

From non-NAFTA countries 1,670.8 2,016.1 2,704.8 2,452.2 781.4 46.8 

Trade balance: 

Total 1,098.4 1,199.8 1,166.6 1,516.8 418.4 38.1 

With Mexico 416.7 580.5 409.5 529.7 113.0 27.1 

With Canada 421.4 401.8 313.8 211.6 -209.8 -49.8 

With non-NAFTA countries 260.3 217.5 443.3 775.6 515.2 197.9 

Total trade: 

Total 7,051.5 8,600.0 11,217.1 11,400.4 4,348.9 61.7 

NAFTA partners 3,449.5 4,350.3 5,364.3 5,720.4 2,270.9 65.8 

With Mexico 1,347.5 1,630.1 1,981.5 2,403.8 1,056.3 78.4 

With Canada 2,102.0 2,720.2 3,382.8 3,316.6 1,214.6 57.8 

Import market share (percent): 

Total 10.0 11.0 12.8 12.7 2.7 (2) 

Mexico 1.6 1.6 2.0 2.4 0.9 (2) 

Canada 2.8 3.4 3.9 4.0 1.2 (2) Non-NAFTA countries 5.6 6.0 6.9 6.3 0.7 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.8 1.5 0.9 0.7 -1.1 (2) 

Canada 0.8 0.7 0.6 0.4 -0.4 (2) 

All other 3.3 3.2 2.9 3.3 0.0 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 143.4 147.9 149.0 148.1 4.7 3.3 

Production workers 

(1

r

,000 persons) 105.4 111.0 113.3 113.1 7.7 7.3 

Aveage hourly wages of 

production workers $13.02 13.22 13.46 13.84 0.82 6.3 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 3351, Rolling, Drawing, and Extruding of Copper; 3353, 

Aluminum Sheet, Plate, and Foil; 3354, Aluminum Extruded Products; and 3357, Drawing and Insulating of Nonferrous 

Wire. This sector can also be referred to as "nonferrous mill products." 

6-164 

6-164
Summary of Sector Analysis 

U.S. Imports — NAFTA had a negligible impact2on rising U.S. imports from NAFTA partners. Prior to 

NAFTA, nearly all sector products of Mexico were eligible for duty-free treatment under the GSP program' 

and those of Canada were already subject to staged elimination of duties under the CFTA. Imports from 

Mexico rose $472 million (101 percent) to $937 million, whereas imports from Canada increased $712 

million (85 percent) to just over $1.5 billion during the period. Total U.S. imports increased nearly $2 billion 

(66 percent) to $4.9 billion from 1993 to 1996. From 1993 to 1996, the average trade-weighted tariff 

equivalent (AVE) for all products in this sector dropped steadily from 0.82 percent to 0.45 percent ad 

valorem for U.S. imports from Canada, and from 1.75 percent to 0.70 percent ad valorem for U.S. imports 

from Mexico.' However, reduced import tariffs reportedly had less impact on U.S. trade with its NAFTA 

partners than did sustained U.S. economic growth, the relatively strong U.S. dollar, and intra-industry trade.' 

Growth in U.S.-Canada sector trade was sustained by both strong U.S. demand, and the high degree of 

integration between U.S. and Canadian aluminum producers, and to a lesser extent, firms in the copper 

industry. Following the peso devaluation, U.S. sector imports from Mexico increased by 50 percent in 1995 

as Mexican producers looked north for additional markets to compensate for weaker Mexican demand, and 

U.S. consumers shifted to comparatively cheaper Mexican sources. 

U.S. Exports — Production sharing arrangements and the high degree of cross-border industry integration 

were underlying factors in U.S. exports to NAFTA countries during 1993-96; NAFTA had a negligible 

impact on exports to these countries. Total U.S. exports increased $2.4 billion (59 percent) to almost $6.5 

billion during this period. U.S. exports to Mexico rose $585 million (66 percent) to nearly $1.5 billion in 

1996; in percentage terms, growth in U.S. exports to Mexico exceeded that of total U.S. exports. In contrast, 

exports to Canada increased $502 million (40 percent) to $1.8 billion. Production-sharing arrangements, 

especially for nonferrous wire products, helped sustain U.S. export growth to Mexico after the 1994/95 peso 

devaluation' and subsequent recovery of Mexican demand furthered growth in U.S. exports in 1995-96. 7 

 Export levels to Canada during this period were sustained by the high degree of integration of the industries 

in these two countries that existed before NAFTA, as firms traded with their cross-border subsidiaries.' 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3 A notable exception was insulated electrical conductors classified in HTS subheading 8544.51.40. The United 

States imported $228 million of this product from Mexico in 1993. Imports did not rise sharply in 1994 (less than 0.9 

percent to $230 million), although the rate of duty on goods of Mexico was reduced from 5.3 percent ad valorem to 4.7 

percent under NAFTA. Compiled from official statistics of the U.S. Department of Commerce. 

4Ibid. 

5Various industry and trade-association representatives, telephone interviews by USITC staff, Mar. 3-6, 1997. 

Drawing and insulating of nonferrous wire products comprised 72 percent of the sector products exported to and 82 

percent of those imported from Mexico by the United States in 1996. U.S. sector imports from Mexico under 

production-sharing provision HTS heading 9802.00.80 (statistically reported under 9802.00.8065) rose by 41 percent 

($192 million) during 1993-96 to $463 million; their proportion of total U.S. sector imports from Mexico ranged from 

49 to 59 percent. Imports under production-sharing provision HTS subheading 9802.00.60 (statistically reported under 

9802.00.6000) were an insignificant fraction of total U.S. imports from Mexico. Compiled from official statistics of the 

U.S. Department of Commerce. 

7Annual average growth of U.S. exports of wrought nonferrous metals to Mexico was 23 percent during 1995-96, 

compared to 8 percent during 1994-95 and 25 percent during 1993-94. Ibid. 

Production sharing between these two countries was a less significant factor affecting U.S. trade with Canada. 

During 1993-96, only 3 to 5 percent of total annual U.S. imports from Canada fell under production-sharing provision 

PITS heading 9802.00.80. Imports under HTS subheading 9802.00.60 dropped from 29 percent of total U.S. sector 

6-165 

6-165
Other Factors — Total U.S. trade grew by 62 percent ($4.3 billion) from 1993 to 1996 to $11.4 billion. 

Total U.S.-Canada sector trade grew slightly less, increasing by 58 percent ($1.2 billion) to $3.3 billion in 

1996. In contrast, growth in total U.S.-Mexico sector trade exceeded total U.S.-world sector trade, rising 78 

percent ($1.1 billion) to $2.4 billion in 1996. 

Relocation of U.S. production operations to Mexico, and switching by U.S. customers to Mexican suppliers, 

were restricted primarily to various types of nonferrous wire products.' With the timing of these shifts postdating the peso devaluation, lower operating costs appear to be a stronger motivating factor for wire-products 

producers, rather than tariff reductions resulting from NAFTA. For new investment in the Western 

Hemisphere, U.S. producers of wrought nonferrous metals tended to look past Mexico to seek what they 

perceived as greater opportunities in the larger markets of South America, especially Brazil.' 

imports from Canada in 1993 to 4 percent in 1996. Ibid. 

U.S. Department of Labor, NAFTA Office. Although these job losses are certified to be the result of plant 

relocations to Mexico or Canada and/or increased imports from these countries, NAFTA may not have been the cause of 

plant relocation decisions or the reason for the increase in imports. 

1 ° Representative of the aluminum industry, telephone interview by USITC staff, Mar. 4, 1997. 

6-166 6-166
ITC Group No. 44: Fabricated Metal Products' 

Table 6-44-1 

Fabricated Metal Products: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 63,950.2 69,368.3 75,000.3 76,909.9 12,959.7 20.3 

Consumption (million dollars) 65,205.3 70,724.0 76,521.1 77,937.3 12,732.0 19.5 

Trade data (million dollars): 

Exports: 

Total 6,925.6 8,182.8 9,184.8 10,740.3 3,814.6 55.1 

To Mexico 1,183.8 1,664.6 1,699.4 2,267.8 1,084.0 91.6 

To Canada 2,437.5 2,934.8 3,124.0 3,562.5 1,124.9 46.2 

To non-NAFTA countries 3,304.3 3,583.4 4,361.5 4,910.0 1,605.7 48.6 

Imports: 

Total 8,180.7 9,538.4 10,705.6 11,767.6 3,586.9 43.8 

From Mexico 758.1 916.5 1,028.8 1,355.7 597.6 78.8 

From Canada 1,414.6 1,784.0 2,112.3 2,564.2 1,149.6 81.3 

From non-NAFTA countries 6,008.1 6,837.9 7,564.6 7,847.8 1,839.7 30.6 

Trade balance: 

Total -1,255.1 -1,355.7 -1,520.8 -1,027.4 227.7 18.1 

With Mexico 425.7 748.1 670.6 912.1 486.3 114.2 

With Canada 1,022.9 1,150.8 1,011.7 998.3 -24.6 -2.4 

With non-NAFTA countries -2,703.7 -3,254.5 -3,203.1 -2,937.8 -234.0 -8.7 

Total trade: 

Total 15,106.4 17,721.2 19,890.5 22,507.9 7,401.5 49.0 

NAFTA partners 5,794.0 7,299.9 7,964.4 9,750.1 3,956.1 68.3 

With Mexico 1,941.8 2,581.0 2,728.1 3,623.4 1,681.6 86.6 

With Canada 3,852.1 4,718.8 5,236.3 6,126.7 2,274.5 59.0 

Import market share (percent): 

Total 12.5 13.5 14.0 15.1 2.6 (2) 

Mexico 1.2 1.3 1.3 1.7 0.6 (2) 

Canada 2.2 2.5 2.8 3.3 1.1 (2) 

Non-NAFTA countries 9.2 9.7 9.9 10.1 0.9 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.1 0.4 0.4 0.4 -0.7 (2) 

Canada 1.1 1.0 0.8 0.6 -0.5 (2) 

All other 4.1 4.0 3.8 3.5 -0.6 (2) 

U.S. industry indicators: ' 

Employees (1,000 persons) 472.9 484.7 499.2 499.2 26.3 5.6 

Production workers 

(1,000 persons) 338.2 352.9 368.1 368.1 29.9 8.8 

Average hourly wages of 

production workers $11.36 11.58 11.84 12.12 0.76 6.7 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 3429, Hardware, Not Elsewhere Classified; 3441, Fabricated 

Structural Metal; 3442, Metal Doors, Sash, Frames, Molding, and Trim; 3443, Fabricated Plate Work (boiler shops); 

3451, Screw Machine Products; 3452, Bolts, Nuts, Screws, Rivets, and Washers; 3466, Crowns and Closures; 3489, 

Ordnance and Accessories, Not Elsewhere Classified; 3491, Industrial Valves; 3493, Steel Springs, Except Wire; 3494, 

Valves and Pipe Fittings, Not Elsewhere Classified; 3495, Wire Springs; 3498, Fabricated Pipe and Pipe Fittings; and 

3499, Fabricated Metal Products, Not Elsewhere Classified. 

6-167 

6-167
Summary of Sector Analysis 

U.S. Imports — During 1996, the United States imported $598 million more fabricated metal products from 

Mexico and $1.1 billion more from Canada than in 1993. Shifts in U.S. trade of these products with NAFTA 

partners from 1993 to 1996 are largely attributable to sustained U.S. economic growth, the strong U.S. dollar, 

and production-sharing arrangements,' whereas reduced tariffs under NAFTA had a negligible impact. 3Prior 

to NAFTA, almost all sector products of Mexico were eligible for duty-free treatment under the GSP 

program. Such goods of Canada were already subject to staged eliminations of duties under the CFTA. From 

1993 to 1996, the average trade-weighted tariff equivalent (AVE) for this sector dropped steadily from 1.13 

percent to 0.64 percent ad valorem for U.S. imports from Canada and from 1.10 percent to 0.36 percent ad 

valorem for U.S. imports from Mexico.' Steady growth in trade of fabricated metal products between the 

United States and Canada was sustained by both strong U.S. demand, and the high degree of integration of 

the industries in these two countries that existed before NAFTA, as firms traded with their cross-border 

subsidiaries. 

U.S. Exports — NAFTA also had a negligible effect on U.S. exports to North America during this period. 

The United States exported almost 92 percent more ($1.1 billion) of these products to Mexico and just over 

46 percent ($1.1 billion) to Canada in 1996 than in 1993. Despite weakened Mexican domestic demand due 

to the peso devaluation, extensive production-sharing arrangements for valves, hardware, and other laborintensive products helped revive U.S. export growth to Mexico after 1994-95. 5To compete with Asian 

imports, U.S. producers of industrial valves exported hydraulic and electronic components to Mexico for 

assembly into Mexican-cast housings 6(to take advantage of cheaper labor and foundry operations) for reexport to the United States. 

Other Factors — Total U.S. trade in this sector grew by 49 percent ($7.4 billion) from 1993 to 1996, to 

$22.5 billion. Growth in total U.S. sector trade with its NAFTA p4artners exceeded total U.S. sector trade. 

Total U.S.-Canada sector trade grew by 59 percent ($2.3 billion) to $6.1 billion in 1996. Likewise, total 

U.S.-Mexico sector trade grew by 87 percent ($1.7 billion) to $3.6 billion. During 1994-96, the U.S. 

Department of Labor certified 1,826 workers as being eligible to apply for NAFTA-TAA benefits. In nearly 

all SIC classifications of this sector, NAFTA-TAA worker certifications were the result of U.S. operations 

Various industry and trade-association representatives, telephone interviews by USITC staff, Mar. 3-6, 1997. 

3The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

Compiled by USITC staff from official statistics of the U.S. Bureau of the Census. 

Annual average growth of U.S. exports of fabricated metal products to Mexico was 33 percent during 1995-96, 

compared to 2 percent during 1994-95 and 41 percent during 1993-94. U.S. sector imports from Mexico under 

production-sharing provision HTS heading 9802.00.80 (statistically reported under 9802.00.8065) rose by 78 percent 

($258 million) during 1993-96 to $590 million, but their proportion of total U.S. sector imports from Mexico remained 

relatively steady, ranging from 40 to 46 percent. Compiled from official statistics of the U.S. Department of Commerce. 

For example, industrial valves with high-value U.S.-made hydraulic or electronic activators assembled into 

Mexican-produced iron and steel valve body housings. See Ruben Mata, "Valves," in U.S. International Trade 

Commission, Production Sharing: Use of U.S. Components and Materials in Foreign Assembly Operations, 1991-

1994 (US. Imports Under Production Sharing Provisions of Harmonized Tariff Schedule Heading 9802), 

(investigation No. 332-237), USITC publication 2966, May 1996, pp. 4-16 to 4-18. 

Valves and pipe fittings comprised 20 percent of the sector products exported to and 36 percent of those 

imported from Mexico by the United States in 1996. 

6-168 6-168
shifting to NAFTA partners and U.S. customers switching to Mexican and Canadian suppliers.' With the 

timing of these shifts post dating the peso devaluation (summer 1995 though spring 1996), cheaper labor and 

production costs appear to be stronger investment factors than the tariff reductions resulting from NAFTA. 

U.S. Department of Labor, NAFTA Transitional Adjustment Assistance Program statistics. 

6-169 

6-169
ITC Group No. 45: Industrial Machinery' 

Table 6-45-1 

Industrial machinery: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percent 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) . . . . 154,448.5 173,803.3 193,942.9 223,034.3 68,585.8 44.4 

Consumption (million dollars) 146,156.1 167,448.8 186,450.1 213,693.4 67,537.3 46.2 

Trade data (million dollars): 

Exports: 

Total 36,293.8 42,047.3 49,095.0 52,140.7 15,846.9 43.7 

To Mexico 3,091.5 3,930.7 3,390.8 3,662.7 571.1 18.5 

To Canada 8,869.5 11,140.9 11,893.7 12,368.1 3,498.6 39.4 

To non-NAFTA countries 24,332.7 26,975.7 33,810.6 36,109.9 11,777.2 48.4 

Imports: 

Total 28,001.3 35,692.8 41,602.2 42,799.7 14,798.4 52.8 

From Mexico 958.8 1,590.0 1,836.3 2,119.4 1,160.6 121.1 

From Canada 3,374.4 4,976.7 5,855.0 6,032.2 2,657.8 78.8 

From non-NAFTA countries 23,668.2 29,126.1 33,911.0 34,648.2 10,980.0 46.4 

Trade balance: 

Total 8,292.4 6,354.5 7,492.9 9,340.9 1,048.5 12.6 

With Mexico 2,132.8 2,340.6 1,554.5 1,543.3 -589.5 -27.6 

With Canada 5,495.1 6,164.2 6,038.7 6,335.9 840.8 15.3 

With non-NAFTA countries 664.5 -2,150.3 -100.4 1,461.7 797.2 120.0 

Total trade: 

Total 64,295.1 77,740.1 90,697.2 94,940.4 30,645.3 47.7 

NAFTA partners 16,294.2 21,638.3 22,975.7 24,182.4 7,888.1 48.4 

With Mexico 4,050.3 5,520.7 5,227.0 5,782.0 1,731.7 42.8 

With Canada 12,243.9 16,117.6 17,748.6 18,400.3 6,156.4 50.3 

Import market share (percent): 

Total 19.2 21.3 22.3 20.0 0.9 (2) 

Mexico 0.7 1.0 1.0 1.0 0.3 (2) 

Canada 2.3 3.0 3.1 2.8 0.5 (2) 

Non-NAFTA countries 16.2 17.4 18.2 16.2 0.0 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.2 1.0 0.3 0.2 -1.0 (2) 

Canada 0.3 0.2 0.2 0.2 -0.1 (2) 

All other 3.0 3.0 2.6 2.4 -0.6 (2) 

U.S. industry indicators:' 

Employees (1,000 persons) 1,169.1 1,220.0 1,277.6 1,294.0 124.9 10.7 

Production workers 

(1,000 persons) 794.3 840.1 885.4 894.9 100.6 12.7 

Average hourly wages of 

production workers $12.91 13.14 13.33 13.63 0.72 5.6 

1Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

'This grouping includes SIC Industry Nos. 3511, Steam, Gas, and Hydraulic Turbines, and Turbine Generator Set 

Units; 3519, Internal Combustion Engines, Not Elsewhere Classified; 3523, Farm Machinery and Equipment; 3531, 

Construction Machinery and Equipment; 3532, Mining Machinery and Equipment, Except Oil and Gas Field Machinery 

and Equipment; 3535, Conveyors and Conveying Equipment; 3537, Industrial Trucks, Tractors, Trailers, and Stackers; 

3541, Machine Tools, Metal Cutting Types; 3542, Machine Tools, Metal Forming Types; 3544, Special Dies and Tools, 

Die Sets, Jigs and Fixtures, and Industrial Molds; 3546, Power-Driven Handtools; 3547, Rolling Mill Machinery and 

Equipment; 3554, Paper Industries Machinery; 3555, Printing Trades Machinery and Equipment; 3559, Special 

Industry Machinery, Not Elsewhere Classified; 3561, Pumps and Pumping Equipment; 3562, Ball and Roller Bearings; 

3564, Industrial and Commercial Fans and Blowers and Air Purification Equipment; 3565, Packaging Machinery; 3566, 

Speed Changers, Industrial High-Speed Drives, and Gears; 3569, General Industrial Machinery, Not Elsewhere 

Classified; 3585, Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration 

Equipment; 3592, Carburetors, Pistons, Piston Rings, and Valves; 3593, Fluid Power Cylinders and Actuators; and 

3599, Industrial and Commercial Machinery and Equipment, Not Elsewhere Classified. 

6-170 

6-170
Summary of Sector Analysis' 

U.S. Imports — NAFTA had a negligible effect on increasing U.S. imports from Canada and Mexico during 

1993-96, which were spurred primarily by strong demand in the U.S. economy for capital goods and motor 

vehicles rather than NAFTA tariff reductions. During 1993-96, low U.S. interest rates and the need for 

capital equipment provided an environment that stimulated demand for industrial machinery and auto parts. 

Canada was the leading trading partner of the United States for most sector products. Cross-border trade in 

industrial machinery is strong between the United States and Canada, as some U.S. and Canadian industries 

have integrated production.' In other instances, Canadian producers either are dominant in their industry or 

offer very competitive world-class machinery in certain product niches. The effective U.S. ad valorem 

equivalent (AVE) on imports from Canada fell from 0.3 percent ad valorem in 1993 to 0.2 percent ad 

valorem in 1996. A significant portion of U.S. imports from Canada in this sector is accounted for by 

industrial vehicles, farm machinery, and a variety of auto parts, such as engines, fuel pumps, bearings, 

catalytic converters, air conditioners, carburetors, pistons, and valves. Most of such equipment entered the 

United States free of duty from Canada prior to NAFTA. 

Several U.S. industrial machinery and motor vehicle parts producers have production facilities in Mexico that 

are integrated into their North American production operations. During 1993-96, much of their production 

was exported to the United States.' The effective U.S. AVE on imports from Mexico fell from 1.2 percent ad 

valorem in 1993 to 0.2 percent ad valorem in 1996 as a result of tariff reductions under NAFTA. In 1993, 

approximately 31 percent of total U.S. imports of industrial machinery from Mexico entered duty-free under 

the GSP, and 40 percent entered at reduced rates of duty under HTS heading 9802.00.80. U.S. components 

made up half of the value of these imports. Many of the production-sharing imports were from maquiladoras, 

but others were from other U.S. subsidiaries or from Mexican firms in which U.S. companies had an equity 

interest. Most of the U.S. production presence in Mexico was established before NAFTA. 

U.S. Exports — NAFTA had a negligible effect on U.S. exports of sector products to Canada and Mexico 

during 1993-96. Increased U.S. exports to Canada' were caused in large part by a strengthening economy in 

Canada, low interest rates, and integrated manufacturing production between U.S. and Canadian firms. 

A major increase in U.S. industrial machinery exports in 1994 was primarily due to a robust Mexican 

economy, and, to a lesser extent, by the reduction of Mexican tariffs. The sharp decline in exports in 1995 

2Views of parties that submitted written and/or oral testimony to the Commission in connection with this investigation 

are summarized in Appendix D. Copies of the hearing transcript and copies of all written testimony are being provided 

separately to USTR. 

U.S. imports and U.S. exports with Canada dominated trade among the NAFTA partners in SIC Industries Nos. SIC 

3523, Farm Machinery and Equipment; SIC 3535, Conveyors and Conveying Equipment; SIC 3537, Industrial Trucks, 

Tractors, Trailers, and Stackers; SIC 3544, Special Dies and Tools, Die Sets, Jigs and Fixtures, and Industrial Molds; 

SIC 3554, Paper Industries Machinery; SIC 3561, Pumps and Pumping Equipment; and SIC 3562, Ball and Roller 

Bearings. 

U.S. imports from Mexico were concentrated in SIC Industry Nos. SIC 3519, Internal Combustion Engines, Not 

Elsewhere Classified; SIC 3531, Construction Machinery and Equipment; SIC 3546, Power-Driven Handtools; SIC 

3564, Industrial and Commercial Fans and Blowers and Air Purification Equipment; and SIC 3585, Air-Conditioning 

and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment. 

U.S. exports to Canada were concentrated in the following SIC Industries Nos.: 3511, Steam, Gas, and Hydraulic 

Turbines, and Turbine Generator Set Units; SIC 3541, Machine Tools, Metal Cutting Types; SIC 3566, Speed 

Changers, Industrial High-Speed Drives, and Gears; SIC 3592, Carburetors, Pistons, Piston Rings, and Valves; and SIC 

3593, Fluid Power Cylinders and Actuators. 

6-171 6-171
was primarily due to the peso crisis and resulting economic contraction as high Mexican interest rates limited 

credit available to finance purchases of industrial machinery. Additionally, the lack of Mexican credit 

availability reduced all types of construction activity nationwide, resulting in a sharp decrease in U.S. exports 

of construction machinery. In 1996, U.S. exports of industrial machinery increased by 8 percent, principally 

due to Mexico's need to fuel its export-driven economy with additional capital equipment imports, principally 

from the United States. 

Other Factors — Total sector trade grew by $30.6 billion to almost $94.9 billion during 1993-96. Total 

U.S.-Mexico trade for the sector grew by $1.7 billion to $5.8 billion, and total U.S.-Canada trade for the 

sector rose by $6.2 billion to $18.4 billion. 

During 1994-96, under the NAFTA-TAA, 1,390 workers were certified as being eligible to apply for 

NAFTA-TAA benefits. Of these, 868 workers were certified as a result of production shifts to Mexico.' 

U.S. Department of Labor, NAFTA Office. Although these job losses are certified to be the result of plant 

relocations to Mexico or Canada and/or increased imports from these countries, NAFTA may not have been the cause of 

plant relocation decisions or the reason for the increase in imports. 

6-172 6-172
ITC Group No. 46: Computers and Computer Peripheral Equipment' 

Table 6-46-1 

Computers and computer peripheral equipment: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 48,272.2 57,011.8 70,226.6 82,300.0 34,027.8 70.5 

Consumption (million dollars) . . . 53,751.8 65,623.1 80,705.6 91,829.1 38,077.3 70.8 

Trade data (million dollars): 

Exports: 

Total 22,165.0 25,538.1 30,479.6 34,287.9 12,122.9 54.7 

To Mexico 1,082.0 1,313.8 1,112.3 1,784.3 702.3 64.9 

To Canada 3,056.8 3,641.6 4,256.0 4,475.4 1,418.6 46.4 

To non-NAFTA countries 18,026.3 20,582.6 25,111.3 28,028.2 10,001.9 55.5 

Imports: 

Total 27,644.6 34,149.3 40,958.5 43,817.0 16,172.4 58.5 

From Mexico 854.0 1,387.7 1,803.7 2,915.6 2,061.7 241.4 

From Canada 2,168.5 3,026.4 3,960.0 3,328.1 1,159.6 53.5 

From non-NAFTA countries 24,622.2 29,735.2 35,194.8 37,573.3 12,951.1 52.6 

Trade balance: 

Total -5,479.6 -8,611.3 -10,479.0 -9,529.1 -4,049.5 -73.9 

With Mexico 228.0 -73.9 -691.5 -1,131.3 -1,359.3 (2) 

With Canada 888.3 615.2 296.0 1,147.3 259.0 29.2 

With non-NAFTA countries -6,595.9 -9,152.6 -10,083.5 -9,545.1 -2,949.2 -44.7 

Total trade: 

Total 49,809.6 59,687.4 71,438.1 78,104.9 28,295.2 56.8 

NAFTA partners 7,161.2 9,369.5 11,132.0 12,503.4 5,342.2 74.6 

With Mexico 1,936.0 2,701.5 2,916.0 4,699.9 2,764.0 142.8 

With Canada 5,225.3 6,668.1 8,216.0 7,803.5 2,578.2 49.3 

Import market share (percent): 

Total 51.4 52.0 50.8 47.7 -3.7 (2) 

Mexico 1.6 2.1 2.2 3.2 1.6 (2) 

Canada 4.0 4.6 4.9 3.6 -0.4 (2) 

Non-NAFTA countries 45.8 45.3 43.6 40.9 -4.9 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.7 0.9 0.4 0.4 -0.3 (2) 

Canada 0.1 0.1 (3) (2) 

All other 1.8 1.3 0.9 0.8 -1.0 (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 271.1 259.7 253.2 261.9 -9.2 -3.4 

Production workers 

(1,000 persons) 77.7 79.9 78.3 82.1 4.4 5.7 

Average hourly wages of 

production workers $12.84 13.43 14.04 14.28 1.44 11.2 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent. 

4Compiled from official statistics of the U.S. Bureau of Labor Statistics: 1996 refers to Jan.-Oct 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 3571, Electronic Computers; 3575, Computer Terminals; and 

3577, Computer Peripheral Equipment, Not Elsewhere Classified. 

6-173 6-173
Summary of Sector Analysis 

U.S. Imports — The effect of NAFTA on increased imports from Mexico and Canada in this sector was 

negligible.' The average U.S. duty for these products was nearly free prior to the implementation of the 

agreement. The effective U.S. ad valorem tariff rate on computer imports from Mexico was 0.7 percent in 

1993 and 0.4 percent in 1996. The effective ad valorem tariff rate for subject imports from Canada was even 

lower at 0.1 percent in 1993 and 1996. U.S. imports from Mexico increased 241 percent ($2.1 billion) to 

$2.9 billion in 1996, while imports from Canada increased 54 percent ($1.2 billion) to $3.3 billion. The 

increase in U.S. imports from NAFTA partners reflects growing U.S. demand for computer products and the 

decrease in imports from Japanssince 1994 as the appreciation of the yen made Japanese products relatively 

less competitive. In the case of Mexico, the devaluation of the peso in 1994 lowered the price of Mexican 

sub-assemblies used in computer products.' U.S. computer imports from countries other than Mexico and 

Canada accounted for 86 percent of total imports in this sector and about 55 percent of all subject imports 

entered under HTS heading 9802.00.80 in 1996. In terms of production sharing under HTS heading 

9802.00.80, computer goods from Mexico comprised 30 percent of total imports in this sector in 1993 and 

increased to 44 percent in 1996. Canadian computer products of HTS heading 9802.00.80 remained 

negligible at 1 percent of total imported computer products in 1993 and less than 1percent in 1996. U.S. 

computer producers such as Digital Equipment Corp. (DEC), IBM, and Hewlett-Packard (HP) have 

manufacturing facilities that were established well in advance of NAFTA. IBM, for instance, produces 

desktop and portable personal computers in a manufacturing facility located in Guadalajara to serve the North 

American and Latin American markets.' Similarly, DEC has a personal computer (PC) manufacturing 

facility in Canada which was responsible for over $1 billion in total net exports in fiscal year 1996, with 

much of these exports sent to the United States.' 

U.S. Exports — The NAFTA effect on U.S. exports to NAFTA partners was also negligible. U.S. exports to 

Mexico increased by 65 percent ($702 million), from $1.1 billion in 1993 to $1.8 billion in 1996, mainly in 

response to growing Mexican demand for these products. Computerization of Mexico's major industrial 

sectors such as telecommunications and petrochemicals, as well as renewed confidence in the economy, 

helped spur a 70-percent plus rise in the Mexican market for personal computers in 1996 as compared to 

1995. 7U.S. computer exports to Mexico were subject to tariffs of 10-20 percent in 1993. These tariffs were 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3Japan is the largest supplier of computers and computer peripheral equipment to the United States. U.S. imports of 

computers and computer peripheral equipment from Japan decreased from $11.2 billion in 1994 to $10.4 billion in 

1996, a 7-percent decrease, while U.S. world imports of these products increased by 28 percent during this same period. 

4Industry representative, telephone interview by USITC staff, Apr. 25, 1997. 

5World Wide Web, retrieved Apr. 25, 1997, Manufacturing Plant, http://www.mexico.ibm.com/planta/iplanta.html, 

IBM, "Personal Computers" and World Wide Web, retrieved Apr. 25, 1997, Manufacturing Plant, 

http://www.mexico.ibm.com/planta/iplanta.html, IBM, "Portable Computers." 

'World Wide Web, retrieved Apr. 25, 1997, Exports, http://www.digital.ca/canada/exports.htm, Digital Equipment 

Corporation, Canada, "Exports and Manufacturing," Apr. 4, 1997. 

7World Wide Web, retrieved Apr. 24, 1997, International Data Corporation, 

http://wwwidcresearch.com/HNR/msjonz.htin, "Latin America PC Market Reaches 2.77 Million Units;" World Wide 

Web, retrieved Apr. 24, 1997, DQinteractive: Info Desk; In the News, http://dqi2.dataquest.com/info/press/irn9713.html,"Latin America PC Market Grew 30 Percent in 1996, According to Dataquest," Feb. 25, 1997; and World 

Wide Web, retrieved Apr. 24, 1997, DQinteractive: Info Desk; In the News, http://dqi2.dataquest.com/info/press/irn9625.htm1,"Mexican PC Market Begins Its Return to Prosperity, According to Dataquest," June 18, 1996. 

6-174 6-174
lowered to 0.8 percent in 1996, after NAFTA implementation, with most computer products entering duty 

free. U.S. exports to Canada rose by 46 percent ($1.4 billion) from $3.1 billion in 1993 to $4.5 billion in 

1996, reflecting growing demand for computers.' There were no Canadian tariffs on computer products from 

the United States in 1993 or after NAFTA implementation. U.S. computer exports to countries other than 

Mexico and Canada increased by 56 percent ($10 billion), from $18 billion in 1993 to $28 billion in 1996. 

Other Factors — Total U.S. imports of these products increased by 59 percent ($16.2 billion) from 

$27.6 billion in 1993 to $43.8 billion in 1996. Total U.S. exports increased by 55 percent ($12.1 billion) 

during 1993-96, to $34.3 billion. Total U.S.-Mexico trade in computers, computer terminals, and computer 

peripheral equipment increased by 143 percent, from $1.9 billion in 1993 to $4.7 billion in 1996. Total U.S.- 

Canada trade in this sector increased from $5.2 billion in 1993 to $7.8 billion in 1996, or by 49 percent. 

sIndustry representative, telephone interview by USITC staff, Feb. 28, 1997. 

6-175 6-175
ITC Group No. 47: Heavy Electrical Equipment' 

Table 6-47-1 

Heavy electrical equipment: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) . . . 25,111.0 27,693.0 29,796.0 32,500.0 7,389.0 29.4 

Consumption (million dollars) . 25,762.8 29,133.4 31,394.6 34,183.6 8,420.8 32.7 

Trade data (million dollars): 

Exports: 

Total 4,330.5 4,571.1 5,347.5 5,602.0 1,271.5 29.4 

To Mexico 1,005.1 1,093.5 1,163.7 1,596.7 591.6 58.9 

To Canada 808.6 954.0 1,088.7 1,086.1 277.4 34.3 

To non-NAFTA countries . 2,516.8 2,523.6 3,095.1 2,919.2 402.4 16.0 

Imports: 

Total 4,982.3 6,011.5 6,946.0 7,285.6 2,303.2 46.2 

From Mexico 1,151.3 1,451.4 1,753.9 2,060.3 909.0 79.0 

From Canada 500.3 672.9 766.7 805.5 305.1 61.0 

From non-NAFTA countries 3,330.7 3,887.1 4,425.5 4,419.8 1,089.1 32.7 

Trade balance: 

Total -651.8 -1,440.4 -1,598.6 -1,683.6 -1,031.8 -158.3 

With Mexico -146.1 -358.0 -590.2 -463.5 -317.4 -217.2 

With Canada 308.3 281.1 322.0 280.6 -27.7 -9.0 

With non-NAFTA countries -813.9 -1,363.5 -1,330.4 -1,500.6 -686.7 -84.4 

Total trade: 

Total 9,312.8 10,582.6 12,293.5 12,887.5 3,574.7 38.4 

NAFTA partners 3,465.4 4,171.8 4,773.0 5,548.6 2,083.2 60.1 

With Mexico 2,156.4 2,544.9 2,917.5 3,657.0 1,500.6 69.6 

With Canada 1,309.0 1,626.9 1,855.4 1,891.5 582.6 44.5 

Import market share (percent): 

Total 19.3 20.6 22.1 21.3 2.0 (2) 

Mexico 4.5 5.0 5.6 6.0 1.6 (2) 

Canada 1.9 2.3 2.4 2.4 0.4 (2) 

Non-NAFTA countries 12.9 13.3 14.1 12.9 0.0 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.6 1.3 0.4 0.4 -1.2 (2) 

Canada 0.9 0.9 0.6 0.6 -0.3 (2) 

All other 4.3 4.3 4.0 3.6 -0.7 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . 215.6 219.1 221.2 219.6 4.0 1.9 

Production workers 

(1,000 persons) 150.1 153.8 155.3 152.0 1.9 1.3 

Average hourly wages of 

production workers $10.81 11.07 11.27 11.63 0.82 7.6 

Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 3612, Power, Distribution, and Specialty Transformers; 3613, 

Switchgear and Switchboard Apparatus; 3621, Motors and Generators; and 3625, Relays and Industrial Controls. 

6-176 6-176
Summary of Sector Analysis 

U.S. Imports — From 1993 to 1996, the impact of NAFTA on increased U.S. imports from NAFTA partners 

of heavy electrical equipment was negligible' due principally to the fact that additional duty reductions 

realized by U.S. suppliers under the trade agreement were quite small. The average trade weighted tariff on 

U.S. imports of heavy electrical equipment from Canada fell from 0.92 percent ad valorem in 1993, to 0.57 

percent ad valorem in 1996, or by only 0.35 percentage points. The corresponding reduction with respect to 

Mexican entries was from 1.64 percent to 0.41 percent, or just 1.23 percentage points. The extensive use of 

the duty-lowering provisions of HTS heading 9802.00.80 and the CFTA by U.S. suppliers of this equipment 

was the major factor moderating the impact of NAFTA on U.S. imports. The vast majority of the 79-percent 

increase in U.S. imports from Mexico (which rose to $2.1 billion in 1996), and the 61-percent increase in 

imports from Canada (which reached $806 million) was the result of the steady rise in U.S. demand for these 

products. Imports from Canada and Mexico during the period were concentrated in lower-valued fractional 

and integral horsepower motors, transformers (notably lamp ballasts), molded-case circuit breakers, and 

miscellaneous low-voltage distribution equipment. All of this equipment has benefited from strong U.S. 

markets for consumer electrical and electronic products, energy-efficient lighting products, and electrical 

industrial apparatus. 

U.S. Exports -- NAFTA had a negligible impact on increased U.S. exports to North America as well. 

Although U.S. exports of heavy electrical equipment, particularly to Mexico (up by 59 percent to $1.6 

billion), registered significant increases during 1993-96, the vast majority of these shipments were of parts 

and subassemblies in support of the border operations of U.S. suppliers. In particular, exports to Canada 

were heavily composed of parts of motors and boards, panels, and miscellaneous low-voltage electrical 

apparatus, while those to Mexico were concentrated in parts of inductors, miscellaneous low-voltage 

switching and connecting apparatus, and parts of miscellaneous low-voltage switching apparatus. During the 

period, U.S. exports of heavy electrical equipment to Canada increased only slightly more rapidly than the 

rise in total U.S. exports to all foreign markets (34 percent versus 29 percent, respectively). 

Other Factors -- U.S. total trade increased $3.6 billion (38 percent) to $12.9 billion in 1996. Total U.S.-

Mexico trade rose $1.5 billion (70 percent) to $3.7 billion in 1996, while U.S.-Canada trade increased $583 

million (45 percent) to $1.9 billion during the period. 

The influence of NAFTA on U.S. employment, wage rates, labor productivity, and investment have, to date, 

been negligible. The operations of U.S. producers in Mexico and Canada, while extensive, are nevertheless 

not a significant portion, in value terms, of their overall North American operations. In addition, the types of 

assembly operations that are performed in Mexico are generally not as extensive or as capital intensive as 

those retained in the United States. NAFTA, to date, has also not been the principal force driving U.S. 

investment in Canadian or Mexican operations. U.S. suppliers rather have been more interested in the 

significantly lower costs of labor, land, and other input factors in Mexico; and market presence, energy cost, 

exchange rate, tax incentive, and alternative sourcing advantages in Canada. 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

6-177 6-177
ITC Group No. 49: Electric Lighting and Wiring Equipment' 

Table 6-49-1 

Electric lighting and wiring equipment: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 17,415.0 18,900.0 19,510.0 21,045.0 3,630.0 20.8 

Consumption (million dollars) . . . 18,937.5 20,370.4 20,957.5 22,395.4 3,457.8 18.3 

Trade data (million dollars): 

Exports: 

Total 3,069.4 3,710.0 4,225.1 4,517.1 1,447.6 47.2 

To Mexico 709.5 1,034.6 1,208.4 1,306.5 597.0 84.1 

To Canada 1,000.3 1,132.0 1,266.6 1,414.1 413.8 41.4 

To non-NAFTA countries 1,359.7 1,543.4 1,750.1 1,796.5 436.9 32.1 

Imports: 

Total 4,592.0 5,180.4 5,672.6 5,867.4 1,275.5 27.8 

From Mexico 1,037.6 1,263.2 1,330.9 1,299.6 262.0 25.2 

From Canada 308.1 305.0 359.8 374.1 66.0 21.4 

From non-NAFTA countries 3,246.3 3,612.2 3,982.0 4,193.7 947.4 29.2 

Trade balance: 

Total -1,522.5 -1,470.4 -1,447.5 -1,350.4 172.2 11.3 

With Mexico -328.2 -228.5 -122.5 6.8 335.0 (2) 

With Canada 692.2 827.0 906.8 1,040.0 347.8 50.2 

With non-NAFTA counties -1,886.6 -2,068.8 -2,231.9 -2,397.2 -510.6 -27.1 

Total trade: 

Total 7,661.4 8,890.4 9,897.8 10,384.5 2,723.1 35.5 

NAFTA partners 3,055.4 3,734.8 4,165.7 4,394.3 1,338.8 43.8 

With Mexico 1,747.1 2,297.8 2,539.2 2,606.1 859.0 49.2 

With Canada 1,308.3 1,437.0 1,626.4 1,788.2 479.8 36.7 

Import market share (percent): 

Total 24.2 25.4 27.1 26.2 2.0 (2) 

Mexico 5.5 6.2 6.4 5.8 0.3 (2) 

Canada 1.6 1.5 1.7 1.7 0.0 (2) 

Non-NAFTA countries 17.1 17.7 19.0 18.7 1.6 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.7 1.3 0.7 . 0.7 -1.0 (2) 

Canada 

All other 

1.6 

4.9 

1.7 

4.9 

1.2 

4.6 

1.0 

4.3 

-0.6 

-0.6 

(2) 

(2) 

U.S. industry indicators:3 

Employees (1,000 persons) . . . 154.3 157.8 159.9 156.8 2.5 1.6 

Production workers 

(1,000 persons) 110.4 112.6 113.9 110.7 0.3 0.3 

Average hourly wages of 

production workers $10.46 10.67 10.88 11.59 1.13 10.8 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 3641, Electric Lamp Bulbs and Tubes; 3643, CurrentCarrying Wiring Devices; 3644, Noncurrent-Carrying Wiring Devices; 3645, Residential Electrical Lighting Fixtures; 

3646, Commercial Electric Lighting Fixtures; and 3648, Lighting Equipment, Not Elsewhere Classified. 

6-178 

6-178
Summary of Sector Analysis 

U.S. Imports -- NAFTA has had a negligible effect' on increased U.S. imports of electric lighting and wiring 

equipment from NAFTA countries, due primarily to the small reductions in weighted average tariff rates. 

From 1993 to 1996, the weighted average duty on entries from Canada fell by just 0.6 percentage points 

(from 1.6 percent to 1.0 percent). At the same time, the reduction in import duties for Mexican products fell 

from 1.7 percent ad valorem to 0.65 percent ad valorem, or by 1.05 percentage points. These low-level duty 

reductions were not significant enough to cause the 25-and 21-percent increases (to $1.3 billion and to $374 

million) in imports from Canada and Mexico, respectively, during the period. Additionally, these increases 

were less than the 28-percent increase in U.S. imports from all sources. U.S. imports of these products, 

particularly from Mexico, were principally of lower-valued apparatus, such as tungsten-halogen lamps; 

miscellaneous, low-voltage, electrical switching and connecting apparatus; and residential and commercial 

lighting fixtures. Production of this equipment is labor-intensive. Intense price competition from foreign 

suppliers has prompted U.S. producers to establish operations in Mexico and Canada to take advantage of 

wage rate and other competitive advantages, such as tax incentives, exchange rate differences, and enhanced 

market access. A large portion of imports of this equipment prior to 1993 was entered under the dutyreducing provisions of HTS heading 9802.00.80 (approximately 80 percent of imports from Mexico), and the 

CFTA and APTA (over 80 percent combined of imports from Canada). 

U.S. Exports -- The impact of NAFTA on increased U.S. exports of electric lighting and wiring equipment to 

Mexico and Canada was also negligible. The majority of these shipments were of parts and subassemblies in 

support of established assembly operations in Canada and Mexico. Strong U.S. demand for the end products 

into which this equipment is incorporated (i.e.,fuse panels, computers, motors vehicles, etc.) was the major 

reason underlying the 84-percent increase in U.S. exports to Mexico (versus 47 percent to the world). U.S. 

exports to Canada increased by 41 percent during the period. 

Other Factors -- Total U.S. sector trade increased $2.7 billion (36 percent) to $10.4 billion from 1993 to 

1996. Total U.S.-Mexico trade increased $859 million (49 percent) to $2.6 billion in 1996, while U.S.-

Canada trade rose $480 million (37 percent) to $1.8 billion. 

The impact of NAFTA on U.S. employment, wage rates, labor productivity, and investment has been 

negligible, in large part due to the fact that the Mexican operations of U.S. suppliers represent a relatively 

small portion of the value of their total North American production activities. In great measure, U.S. trade 

with Mexico in electrical lighting and wiring equipment is currently being driven by U.S. demand for finished 

equipment, much of which is lower-valued merchandise that U.S. manufacturers cannot easily or 

economically automate domestically. Trade with Canada, on the other hand, is to a greater extent dependent 

upon demand for these products in Canada, even though a significant portion of U.S. exports are 

subsequently returned in upgraded form, or as an integral part of other equipment. U.S. exports of lighting 

and wiring equipment to Canada are in general more sophisticated, higher value, and more capital-intensive, 

compared with shipments to Mexico. 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

6-179 6-179
ITC Group No. 50: Radio and Television Equipment' 

Table 6-50-1 

Radio and television equipment: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 29,816.0 36,091.0 39,918.0 43,900.0 14,084.0 47.2 

Consumption (million dollars) . . . 41,184.4 49,618.9 53,701.0 56,759.2 15,574.8 37.8 

Trade data (million dollars): 

Exports: 

Total 7,679.9 9,632.7 11,672.1 11,691.3 4,011.5 52.2 

To Mexico 1,503.1 1,797.6 1,695.8 2,041.6 538.5 35.8 

To Canada 1,115.5 1,363.2 1,565.3 1,601.3 485.8 43.6 

To Non-NAFTA countries . . . 5,061.3 6,471.9 8,411.0 8,048.4 2,987.1 59.0 

Imports: 

Total 19,048.3 23,160.6 25,455.1 24,550.5 5,502.3 28.9 

From Mexico 2,404.6 3,851.0 5,087.2 6,047.6 3,643.0 151.5 

From Canada 294.7 484.0 639.1 783.6 488.9 165.9 

From non-NAFTA countries 16,349.0 18,825.6 19,728.7 17,719.3 1,370.3 8.4 

Trade balance: 

Total -11,368.4 -13,527.9 -13,783.0 -12,859.2 -1,490.8 -13.1 

With Mexico -901.5 -2,053.4 -3,391.4 -4,006.0 -3,104.5 -344.4 

With Canada 820.8 879.3 926.1 817.7 -3.1 -0.4 

With non-NAFTA countries -11,287.7 -12,353.7 -11,317.8 -9,670.9 1,616.8 14.3 

Total trade: 

Total 26,728.1 32,793.3 37,127.1 36,241.9 9,513.7 35.6 

NAFTA partners 5,317.8 7,495.8 8,987.5 10,474.1 5,156.3 97.0 

With Mexico 3,907.6 5,648.6 6,783.1 8,089.2 4,181.6 107.0 

With Canada 1,410.2 1,847.2 2,204.4 2,384.9 974.8 69.1 

Import market share (percent): 

Total 46.3 46.7 47.4 43.3 -3.0 (2) 

Mexico 5.8 7.8 9.5 10.7 4.8 2) 

Canada 0.7 1.0 1.2 1.4 0.7 (2) 

Non-NAFTA countries 39.7 37.9 36.7 31.2 -8.5 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 3.1 1.3 0.7 0.5 -2.6 (2) 

Canada 1.7 0.9 0.5 0.4 -1.3 (2) 

All other 4.0 3.7 3.2 2.8 -1.2 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 188.5 196.9 203.2 200.7 12.2 6.5 

Production workers 

(1,000 persons) 103.8 108.9 110.7 108.7 4.9 4.7 

Average hourly wages of 

production workers $11.51 11.71 11.38 11.63 0.12 1.0 

IShipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 3651, Household Audio and Video Equipment; 3663, Radio 

and Television Broadcasting and Communications Equipment; and 3671, Electron Tubes. 

6-180 

6-180
Summary of Sector Analysis 

U.S. Imports — NAFTA had a negligible effect 2on increased U.S. trade in radio and television equipment. 

Narrowing profit margins in household audio and video equipment, a large part of this sector, influenced U.S. 

producers to relocate color television receiver (CTV) assembly plants to Mexico to take advantage of lower 

labor costs. Mexico has only one picture tube producer, although Samsung, a Korean-based corporation, has 

begun building a picture tube and television receiver plant in Mexico. The majority of cathode-ray tubes for 

CTVs imported from Mexico are produced in the United States and then shipped to Mexico for assembly into 

complete receivers.' 

Mexico was the largest supplier of products in this sector to the United States in 1996, accounting for almost 

25 percent of total U.S. imports in this sector, and overtaking Japan for the first time. U.S. imports from 

Mexico increased 152 percent ($3.6 billion) to $6 billion from 1993 to 1996, largely as a result of the fastgrowing Mexican assembly and manufacturing industries.' The growth in Mexican assembly plants was 

largely due to foreign investment in new facilities or expansion of existing facilities. The primary factors 

influencing these investments were low labor costs, which were further decreased by the peso devaluation in 

December 1994; proximity to major markets; lower transportation costs; preparation for the elimination of 

the maquiladora program, and to some extent, the various rules of origin.' Imports from Mexico under HTS 

heading 9802.00.80 rose by 81 percent, or $1.8 billion, to $3.4 billion in 1996. Imports under HTS heading 

9802.00.80 accounted for 65 percent of U.S. imports from Mexico in 1996, a decrease in share from 91 

percent in 1993. The U.S. content of imports under HTS heading 9802.00.80 fluctuated between 23 and 34 

percent during the period. The growth in U.S. imports from Canada from 1993 to 1996, which rose by 

$489 million to $784 million, is indicative of the relatively small but quickly growing Canadian industry. 

U.S. Exports — The effect of NAFTA on radio and television equipment exported to Canada and Mexico was 

negligible. While Mexico and Canada continued to be the first and second largest markets for U.S. exports in 

this sector and grew 36 percent and 44 percent, respectively, this growth was significantly slower than that of 

non-NAFTA countries. U.S. exports to Mexico increased by $539 million to $2 billion in 1996. This was 

largely as a result of exports of electron tubes, primarily color television picture tubes, which increased by 

$568 million to just over $1 billion, due to the increasing use of Mexico as a source of less expensive labor 

for the assembly of television receivers. U.S. exports to Canada increased by $486 million to $1.6 billion in 

1996. Exports to Canada of radios combined with sound-reproducing apparatus during 1993-96 increased by 

$143 million to almost $250 million as a result of increased demand for compact disc (CD) players installed 

in motor vehicles assembled in Canada. Also, exports to Canada of miscellaneous transmission apparatus 

incorporating reception apparatus increased by $106 million to just over $200 million as a result of 

increasing demand for cellular telephones. Exports of household audio and video equipment to Mexico 

decreased by $52 million to $722 million, as a result of the declining purchasing power of the peso, while 

exports of these products to Canada increased by $247 million to $861 million. 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

NAFTA rules of origin require that television receivers contain a television tube of North American origin to be 

considered a North American product and eligible for duty-free treatment under NAFTA. 

USITC, Production Sharing: Use of U.S. Components and Materials in Foreign Assembly Operations, 1992-

1995, USITC publication 3032, Apr. 1997, pp. 3-19 to 3-21. 

Ibid., pp. 4-5 to 4-7. 

6-181 

6-181
Other Factors — U.S.-Mexico trade in this sector increased 107 percent ($4.2 billion) to $8.1 billion in 1996, 

while U.S.-Canada trade increased 69 percent ($975 million) to $2.4 billion. Meanwhile, total U.S. trade in 

this sector increased during this period by 36 percent ($9.5 billion) to $36.2 billion. 

On June 26, 1995, Mitsubishi Electronics Industries Canada, Inc., filed a request for a NAFTA binational 

panel review of a fmal determination by the U.S. Department of Commerce to to revoke the U.S. antidumping 

order on imports of color picture tubes from Canada. On May 6, 1996, the panel affirmed the Commerce 

Department's determination.' For additional information, see the notice published by the U.S. section of the 

NAFTA Secretariat in the Federal Register of June 14, 1996 (61 F.R. 30221). 

6NAFTA Secretariat File No. USA-95-1904-03. 

6-182 6-182
ITC Group No. 51: Communications Equipment' 

Table 6-51-1 

Communications equipment: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 2,559.0 24,606.0 27,532.0 30,560.0 8,001.0 35.5 

Consumption (million dollars) . . . 24,276.8 26,578.1 28,646.3 31,556.2 7,279.4 30.0 

Trade data (million dollars): 

Exports: 

Total 4,556.6 5,348.0 6,362.9 7,138.6 2,582.0 56.7 

To Mexico 465.7 563.5 420.0 598.1 132.4 28.4 

To Canada 854.4 881.7 1,053.8 1,356.9 502.5 58.8 

To non-NAFTA countries . . . 3,236.6 3,902.8 4,889.0 5,183.6 1,947.0 60.2 

Imports: 

Total 6,274.3 7,320.0 7,477.2 8,134.8 1,860.5 29.7 

From Mexico 317.3 443.8 551.3 713.2 395.8 124.7 

From Canada 948.0 1,091.0 1,323.6 1,845.5 897.4 94.7 

From non-NAFTA countries 5,009.0 5,785.3 5,602.3 5,576.1 567.2 11.3 

Trade balance: 

Total -1,717.8 -1,972.1 -1,114.3 -996.2 721.6 42.0 

With Mexico 148.3 119.7 -131.3 -115.1 -263.4 (2) 

With Canada -93.7 -209.3 -269.8 -488.6 -394.9 -421.5 

With non-NAFTA countries -1,772.4 -1,882.6 -713.2 -392.5 1,379.9 77.9 

Total trade: 

Total 10,830.9 12,668.0 13,840.1 15,273.4 4,442.5 41.0 

NAFTA partners 2,585.4 2,980.0 3,348.9 4,513.7 1,928.2 74.6 

With Mexico 783.0 1,007.3 971.4 1,311.3 528.3 67.5 

With Canada 1,802.4 1,972.7 2,377.5 3,202.4 1,400.0 77.7 

Import market share (percent): 

TOtal 25.8 27.5 26.1 25.8 -0.1 (2) 

Mexico 1.3 1.7 1.9 2.3 1.0 (2) 

Canada 3.9 4.1 4.6 5.8 1.9 (2) 

Non-NAFTA countries 20.6 21.8 19.6 17.7 -3.0 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.1 1.3 0.2 0.2 -0.9 (2) 

Canada 1.3 1.4 0.4 0.5 -0.8 

All other 4.8 4.5 4.3 3.9 -0.9 

r2)) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 134.8 135.3 140.0 140.9 6.1 4.5 

Production workers 

(1,000 persons) 72.7 71.8 71.6 69.6 -3.1 -4.3 

Average hourly wages of 

production workers $12.18 13.10 12.86 13.60 1.42 11.7 

' Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 3661, Telephone and Telegraph Apparatus and 3669, 

Communications Equipment, Not Elsewhere Classified. 

6-183 

6-183
Summary of Sector Analysis 

U.S. Imports — NAFTA had a negligible effect 2on the $396 million increase in U.S. imports from Mexico 

from 1993 to 1996. The rise was primarily attributed to the sharp devaluation of the peso in 1995, the 

decrease in Japanese exports of communications equipment to the United States, and rising demand for 

communications equipment in the United States. Similarly, U.S. imports of communications equipment from 

Mexico that entered under HTS heading 9802.00.80 increased by $114 million to $238 million during the 

same period. The average trade-weighted duty for communications equipment imported from both Mexico 

and Canada decreased by less than 1 percentage point during 1993-96. Although U.S. imports from Canada 

increased by $897 million from 1993 to 1996, the small decrease in duties was unlikely to have had more 

than a negligible effect on Canadian imports of communications equipment because these imports consist 

largely of proprietary equipment parts and thus the purchaser's ability to switch from one supplier to another 

is limited. U.S. imports of communications equipment that entered under HTS heading 9802.00.80 during 

1993-96 were negligible compared with other U.S. imports of communications equipment from Canada. 

The increase in U.S. imports from Mexico and Canada coincided with the very large decrease in 

communications equipment imports from Japan resulting from an appreciation of the yen. Japan was the 

largest foreign source of communications equipment for the United States in 1993. However, U.S. imports of 

communications equipment from Japan decreased from,$1.9 billion in 1993 to $1.3 billion in 1996. 

Meanwhile, U.S. consumption of communications equipment increased from $24.3 billion to $31.6 billion 

during the same period. Since the United States imports many of the same products from both Mexico and 

Japan, Mexico directly benefited from Japan's currency appreciation. 3Increased imports from Canada 

resulted, in part, from lower prices for communications equipment brought about by increased competition in 

the Canadian telecommunications market and by increased U.S. demand. 

U.S. Exports — U.S. exports to Mexico and Canada increased by $132 million and $503 million, 

respectively, during 1993-96. NAFTA had a negligible effect on U.S. exports to each country. Increased 

U.S. exports to Mexico were largely the result of increased demand fueled by a substantial U.S. investment in 

Mexico's telecommunications infrastructure. In recent years, U.S. telecommunications equipment producers 

such as Lucent and Motorola have won contracts to provide both wireless and wireline equipment to private 

telecommunications suppliers in Mexico.' Increased U.S. exports to Canada were largely the result of 

Northern Telecom's relocation of several of its Canadian telecommunications equipment production facilities 

to the United States and increased demand in the Canadian market. These relocations, for the most part, took 

place following the CFTA and prior to NAFTA. Increased demand in the Canadian market has resulted from 

the privatization of telecommunications services, as new service providers develop infrastructure and 

established service providers upgrade old equipment in response to competition. Total U.S. exports increased 

$2.6 billion to $7.1 billion in 1996. 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3For example, cordless phones from Mexico accounted for a large share of U.S. imports from Mexico. These imports 

increased from $31 million in 1993 to $113 million in 1996, while U.S. imports of cordless telephones from Japan 

decreased by $234 million to $54 million during the same period. The other major suppliers of cordless phones to the 

United States--Malaysia, the Philippines, and China--also increased their market share during this period at Japan's 

expense. The U.S. market share for other communications equipment products imported from Mexico, such as corded 

telephones and answering machines, also increased at Japan's expense during this period. 

U.S. Department of Commerce, Mexico - Landline/Cellular Infrastructure Equipment - ISA960201, Market 

Research Reports, Feb. 1996, p. 1. 

6-184 6-184
Other Factors — During 1993-96, total U.S.-Mexico trade in communications equipment increased by 

$528 million to $1.3 billion; total U.S.-Canada trade increased by $1.4 billion to $3.2 billion; and total U.S. 

sector trade increased by $4.4 billion to $15.3 billion. 

6-185
ITC Group No. 52: Electronic Components and Accessories' 

Table 6-52-1 

Electronic components and accessories: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percent 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 73,345.0 88,369.0 108,541.0 104,500.0 31,155.0 42.5 

Consumption (million dollars) . . . 81,472.7 98,714.6 127,044.2 119,412.3 37,939.6 46.6 

Trade data (million dollars): 

Exports: 

Total 19,405.3 25,196.0 32,232.5 33,684.5 14,279.3 73.6 

To Mexico 1,941.1 2,872.9 3,773.8 4,480.8 2,539.7 130.8 

To Canada 2,506.2 2,889.8 3,683.8 4,012.6 1,506.4 60.1 

To non-NAFTA countries . . . 14,957.9 19,433.4 24,774.8 25,191.1 10,233.2 68.4 

Imports: 

Total 27,533.0 35,541.6 50,735.6 48,596.9 21,063.9 76.5 

From Mexico 1,877.4 2,273.0 2,640.0 2,682.9 805.5 42.9 

From Canada 2,043.5 2,090.9 2,496.0 2,973.0 929.6 45.5 

From non-NAFTA countries 23,612.1 31,177.6 45,599.7 42,940.9 19,328.9 81.9 

Trade balance: 

Total -8,127.7 -10,345.6 -18,503.2 -14,912.3 -6,784.6 -83.5 

With Mexico 63.7 599.8 1,133.9 1,797.9 1,734.2 2,722.4 

With Canada 462.7 798.9 1,187.8 1,039.6 576.9 124.7 

With non-NAFTA countries -8,654.1 -11,744.3 -20,824.9 -17,749.8 -9,095.7 -105.1 

Total trade: 

Total 46,938.2 60,737.6 82,968.1 82,281.4 35,343.2 75.3 

NAFTA partners 8,368.2 10,126.5 12,593.6 14,149.4 5,781.1 69.1 

With Mexico 3,818.5 5,145.9 6,413.8 7,163.7 3,345.2 87.6 

With Canada 4,549.7 4,980.7 6,179.8 6,985.7 2,436.0 53.5 

Import market share (percent): 

Total 33.8 36.0 39.9 40.7 6.9 (2) Mexico 2.3 2.3 2.1 2.2 -0.1 (2) 

Canada 2.5 2.1 2.0 2.5 0.0 (2) 

Non-NAFTA countries 29.0 31.6 35.9 36.0 7.0 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 2.4 0.7 0.3 0.3 -2.1 (2) 

Canada 0.2 0.2 0.1 0.1 -0.1 (2) 

All other 1.0 0.9 0.7 0.7 -0.4 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 485.7 502.6 538.7 570.4 84.7 17.4 

Production workers 

(1,000 persons) 280.0 293.0 318.8 335.9 55.9 20.0 

Average hourly wages of 

production workers $11.21 11.29 11.56 12.08 0.87 7.8 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

1Standard Industrial Classification (SIC) Industry Nos. 3672, Printed Circuit Boards; 3674, Semiconductors and 

Related Devices; 3675, Electronic Capacitors; 3676, Electronic Resistors; 3678, Electronic Connectors; and 3679, 

Electronic Components, Not Elsewhere Classified. 

6-186 6-186
Summary of Sector Analysis 

U.S. Imports — The impact of NAFTA on the increase in U.S. imports to NAFTA partners was negligible.' 

From 1993 to 1996, U.S. imports from Mexico increased by 43 percent ($806 million) to $2.7 billion, and 

imports from Canada rose by 46 percent ($930 million) to $3 billion. Much of the trade and growth in trade 

in this sector between the United States and its NAFTA partners was in the form of production sharing (HTS 

heading 9802.00.80) and already-received preferential tariff treatment prior to the implementation of 

NAFTA. This is particularly true of U.S.-Mexico trade, where U.S. component manufacturers have been 

using Mexican maquiladora facilities since the 1960s to assemble their unfinished products.' In order to 

lower production costs in the relatively labor-intensive assembly stages of electronic component 

manufacturing, many U.S. firms transfer that portion of the production process to areas with lower labor 

costs. By shifting the labor-intensive operations, U.S. firms are able to lower overall production costs and 

increase their competitiveness with non-U.S. firms!' In the case of passive electronic components (capacitors, 

resistors, switches, and so forth), Mexico has been the largest production-sharing partner for the United 

States.' Over 85 percent of imports of passive components from Mexico enter the United States under the 

production-sharing provisions, and U.S. component manufacturers continue to invest in assembly plants 

there. Canada is also a major production sharing partner of the United States.' Increases in U.S. imports from 

the United States' NAFTA partners were the result of increased overall U.S. imports of electronic 

components, which grew by 77 percent ($21 billion) to $48.6 billion during 1993-96. In addition, the 

effective U.S. tariff on electronic components from outside NAFTA is only marginally higher than the tariff 

on products from Canada and Mexico under NAFTA. As a result, NAFTA had a negligible effect on U.S. 

imports of electronic components.' 

U.S. Exports — From 1993 to 1996, U.S. exports to Mexico increased by 131 percent ($2.5 billion) to 

$4.5 billion, while exports to Canada rose by 60 percent ($1.5 billion) to $4 billion. NAFTA had a negligible 

effect on this growth; instead, it primarily reflects the increased use of production-sharing facilities in Mexico 

and Canada by U.S. electronic component manufacturers. Most U.S. exports to Mexico in this sector are 

directed to maquiladora enterprises, which either finish assembly of the components or incorporate them into 

finished electronic equipment products for export to the United States or elsewhere. Under the Mexican 

maquiladora program, maquiladoras are largely able to import components free of duty, and therefore tariff 

reductions under NAFTA offer little advantage. Roughly two-thirds of U.S. exports to Canada in this sector 

are semiconductors, and Canada had already eliminated its tariffs on these products before the 

implementation of NAFTA. In addition, Mexico and Canada have growing electronic equipment industries 

for such products as computers, televisions, telecommunications equipment, and automobiles. These 

industries are consuming growing amounts of electronic components and contribute to higher levels of U.S. 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

U.S. industry representatives, telephone interviews by USITC staff, Fall/Winter 1996. 

4 Ibid. 

By contrast, most U.S. production sharing in active components, or semiconductors, occurs in Asian countries such 

as Malaysia, the Philippines, Indonesia, Hong Kong, Singapore, Korea, and Taiwan. 

Because of the elimination of the customs user fee for Canadian exports to the United States, Canadian exporters 

have had little incentive to utilize the 9802 provisions. As a result, the bulk of electronic subassemblies produced in 

Canada using U.S.-origin components enter duty free under NAFTA and are not reported under HTS heading provision 

9802.00.80. 

' U.S. industry representatives, telephone interviews by USITC staff, Apr. 24, 1997. 

6-187 

6-187
exports. Total U.S. exports in this sector showed similar impressive growth, increasing by 74 percent ($14.3 

billion) to $33.7 billion during this period. 

Other Factors — From 1993 to 1996, there was tremendous growth in global production and trade in 

electronic components. Total U.S. trade for this sector, which rose by 75 percent ($35.3 billion) to 

$82.3 billion, is consistent with total U.S. trade under NAFTA. Total U.S.-Mexico trade in this sector 

increased by 88 percent ($3.3 billion) to $7.2 billion, while total U.S.-Canada trade grew by 54 percent 

($2.4 billion) to $7 billion. 

6-188
ITC Group No. 53: Miscellaneous Electrical Machinery, Equipment, and Supplies' 

Table 6-53-1 

Miscellaneous electrical machinery, equipment, and supplies: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 13,245.2 13,856.0 14,742.4 15,258.4 2,013.2 15.2 

Consumption (million dollars) . . . 10,372.2 10,523.7 10,877.1 11,655.9 1,283.8 12.4 

Trade data (million dollars): 

Exports: 

Total 7,497.9 8,486.0 9,505.0 9,558.2 2,060.3 27.5 

To Mexico 444.0 579.7 481.8 509.1 65.1 14.7 

To Canada 1,195.6 1,384.6 1,463.5 1,211.7 16.1 1.3 

To non-NAFTA countries 5,858.3 6,521.6 7,559.7 7,837.4 1,979.1 33.8 

Imports: 

Total 4,624.9 5,153.7 5,639.7 5,955.7 1,330.9 28.8 

From Mexico 322.5 437.9 512.8 603.6 281.1 87.2 

From Canada 303.1 424.2 409.3 436.7 133.6 44.1 

From non-NAFTA countries 3,999.3 4,291.7 4,717.6 4,915.4 916.1 22.9 

Trade balance: 

Total 2,873.0 3,332.3 3,865.3 3,602.5 729.4 25.4 

With Mexico 121.5 141.9 -31.0 -94.4 -216.0 (2) 

With Canada 892.5 960.5 1,054.2 775.0 -117.6 -13.2 

With non-NAFTA countries 1,859.0 2,229.9 2,842.1 2,921.9 1,063.0 57.2 

Total trade: 

Total 12,122.7 13,639.7 15,144.7 15,513.9 3,391.1 28.0 

NAFTA partners 2,265.2 2,826.4 2,867.4 2,761.1 495.9 21.9 

With Mexico 766.5 1,017.6 994.7 1,112.7 346.2 45.2 

With Canada 1,498.7 1,808.8 1,872.7 1,648.3 149.7 10.0 

Import market share (percent): 

Total 44.6 49.0 51.8 51.1 6.5 

Mexico 3.1 4.2 4.7 5.2 2.1 

r2 

Canada 2.9 4.0 3.8 3.7 0.8 2) 

Non-NAFTA countries 38.6 40.8 43.4 42.2 3.6 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 2.1 1.1 0.5 0.4 -1.7 (2) 

Canada 0.3 0.3 0.2 0.1 -0.2 (2) 

All other 3.8 3.7 3.2 2.8 -0.9 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 84.7 87.0 86.8 85.7 1.0 1.2 

Production workers 

(1,000 persons) 53.1 55.3 57.0 57.5 4.4 8.3 

Average hourly wages of 

production workers $10.67 10.92 11.08 11.26 0.59 5.5 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 3652, Phonographic Records and Prerecorded Audio Tapes 

and Disks; 3692, Primary Batteries, Dry and Wet; 3695, Magnetic and Optical Recording Media; and 3699, Electrical 

Machinery, Equipment, and Supplies, Not Elsewhere Classified. 

6-189 

6-189
Summary of Sector Analysis 

U.S. Imports — From 1993 to 1996, U.S. imports of miscellaneous electrical machinery, equipment, and 

supplies from Mexico rose 87 percent ($281 million) to $604 million, and imports from Canada increased 

44 percent ($134 million) to $437 million. Although imports of these products grew substantially, NAFTA 

had a negligible effect2on the increases. The growth in imports was probably due to increases in the use of 

production-sharing facilities, as well as increased production capacity in Mexico. During 1993-96, U.S. 

imports of subject goods from Mexico under HTS heading 9802.00.80 increased by roughly 34 percent, from 

$189 million to $254 million. More than 40 percent of U.S. imports from Mexico in this sector entered the 

United States under U.S. production-sharing provisions (HTS heading 9802.00.80) in 1996. 3In order to 

lower production costs in relatively labor-intensive assembly stages, many U.S. firms transfer that portion of 

the production process to areas with lower labor costs.' By shifting the labor-intensive operations, U.S. firms 

are able to lower overall production costs and increase their ability to compete with Asian products. A 

number of major firms in these industries have been operating in Mexico and Canada since the 1970s. 

However, in order to service the growing U.S. market for these products, additional firms have established 

operations in these countries, particularly in Mexico. 

US. Exports — NAFTA had a negligible effect on increased U.S. exports to Mexico and Canada during this 

period. Under NAFTA, Mexican tariffs on most U.S. sector goods fell from approximately 10 to 15 percent 

to zero on January 1, 1994. From 1993 to 1996, U.S. exports to Mexico increased by nearly 15 percent ($65 

million) to $509 million. Primary batteries accounted for most of the increase in exports. While exports to 

Mexico of sector goods increased by roughly 40 percent during 1993 and 1994, they dropped off significantly 

in 1995 and 1996. This decrease coincides with, and is largely attributable to, the December 1994 peso 

devaluation and the economic downturn that followed. Because of the peso devaluation, many U.S. exports 

became relatively more expensive to Mexican consumers.' However, the peso devaluation did not affect all 

U.S. exports to Mexico; many U.S. exports were most likely in the form of production-sharing arrangements, 

the products of which usually are not consumed in Mexico, but rather assembled and reexported. U.S. exports 

to Canada of sector products rose by 22 percent during 1993-95, from $1,2 billion to $1.5 billion, but fell 

back to $1.2 billion in 1996. Export patterns of SIC No. 3652, which accounted for most of these changes, 

were probably related to economic factors in the industry.' Further, most Canadian tariffs on U.S. products 

were reduced or eliminated under CFTA, so NAFTA had little effect on U.S. exports to Canada. 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

Because of the elimination of the customs user fee for Canadian exports to the United States under NAFTA, 

Canadian exporters have had little incentive to use the 9802 provisions. As a result, the bulk of electrical machinery 

produced in Canada using U.S.-made parts enters the United States duty free under NAFTA and is not reported under 

HTS provision 9802.00.80. It is believed that a significant portion of the imports of electrical machinery from Mexico 

entering under NAFTA (but not under 9802.00.80) is assembled chiefly from U.S.-made parts. 

U.S. industry representatives, telephone interviews by USITC staff, Apr. 24-25, 1997. 

Further, high interest rates in Mexico immediately following the devaluation made it difficult for Mexicans to borrow 

money to finance either the purchase of goods made by electrical machinery or investments in new machinery. This 

reduced the market in Mexico for both domestically produced and imported machinery. 

'U.S. industry representative, telephone interview by USITC staff, Apr. 25, 1997. Prerecorded records, tapes, and 

discs are usually replicated in the country of sale. As a result, there is little cross-border trade of these products. The 

industry makes exceptions when a country experiences a shortage of recordings that resellers need quickly. Within 

North America, the industry in Canada, the United States, and Mexico uses cross-border shipments under such 

circumstances. 

6-190 

6-190
Other Factors — From 1993 to 1996, total U.S.-Mexico trade in this sector grew by 45 percent 

($346 million) to slightly more than $1.1 billion, with U.S. exports to Mexico accounting for most of the 

increases. Total U.S.-Canada trade increased by 10 percent ($150 million) from 1993 to 1996, to 

approximately $1.6 billion. Meanwhile, total U.S. trade in this sector increased by 28 percent ($3.4 billion) 

to $15.5 billion in 1996. 

6-191
ITC Group No. 56: Aircraft and Aircraft Parts' 

Table 6-56-1 

Aircraft and aircraft parts: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 87,685.0 79,742.0 77,762.0 82,428.0 -5,257.0 -6.0 

Consumption (million dollars) . . . 62,545.0 56,702.1 58,894.2 58,275.4 -4,269.6 -6.8 

Trade data (million dollars): 

Exports: 

Total 36,681.1 34,754.5 29,814.1 37,265.8 584.7 1.6 

To Mexico 530.3 583.8 156.5 184.1 -346.1 -65.3 

To Canada 1,593.0 1,555.7 2,038.9 2,397.9 804.9 50.5 

To non-NAFTA countries 34,557.9 32,615.0 27,618.8 34,683.7 125.8 0.4 

Imports: 

Total 11,541.2 11,714.5 10,946.3 13,113.2 1,572.0 13.6 

From Mexico 50.6 47.6 - 45.4 56.4 5.8 11.6 

From Canada 1,970.3 2,324.5 2,375.7 3,155.5 1,185.2 60.2 

From non-NAFTA countries 9,520.3 9,342.5 8,525.3 9,901.4 381.0 4.0 

Trade balance: 

Total 25,140.0 23,039.9 18,867.8 24,152.6 -987.4 -3.9 

With Mexico 479.7 536.2 111.1 127.7 -352.0 -73.4 

With Canada -377.4 -768.8 -336.8 -757.6 -380.2 -100.8 

With non-NAFTA countries 25,037.6 23,272.5 19,093.5 24,782.4 -255.2 -1.0 

Total trade: 

Total 48,222.3 46,469.0 40,760.5 50,379.0 2,156.7 4.5 

NAFTA partners 4,144.1 4,511.5 4,616.4 5,793.9 1,649.8 39.8 

With Mexico 580.8 631.4 201.8 240.5 -340.3 -58.6 

With Canada 3,563.3 3,880.1 4,414.6 5,553.4 1,990.1 55.9 

Import market share (percent): 

Total 18.5 20.7 18.6 22.5 4.1 (2) 

Mexico 0.1 0.1 0.1 0.1 (3) (2) 

Canada 3.2 4.1 4.0 5.4 2.3 (2) 

Non-NAFTA countries 15.2 16.5 14.5 17.0 1.8 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.1 0.1 0.1 0.1 0.0 (2) 

Canada (3) (3) (3) (3) (3) (2) 

All other 0.2 0.2 0.3 0.2 (3) (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 542.0 

Production workers 

(1,000 persons) 252.5 

Average hourly wages of 

production workers $17.24 

481.5 449.2 450.3 -91.7 -16.9 

222.0 206.7 212.6 -39.9 -15.8 

17.98 18.07 18.57 1.33 7.7 

1Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent 

4Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 3721, Aircraft; 3724, Aircraft Engines and Parts; and 3728, 

Aircraft Parts and Auxiliary Equipment, Not Elsewhere Classified. 

6-192 

6-192
Summary of Sector Analysis 

U.S. Imports — NAFTA had a negligible impact' on increased U.S. imports of aircraft and aircraft parts from 

NAFTA partners during 1993-96. The United States and Canada were among the signatories to the 

Agreement on Trade of Civil Aircraft, which was part of the 1979 GATT Tokyo Round agreements. Under 

this agreement, signatories agreed to make trade in civil aircraft and parts for civil aircraft essentially duty 

free. The increase in U.S. imports from Canada, which rose by $1.2 billion from 1993 to 1996, can be 

attributed to increased shipments of commuter aircraft, business jets, and helicopters to U.S. regional, 

commuter, and business aircraft operators. This increase was attributable to greater demand for travel, which 

was largely driven by the improved U.S. business climate. U.S. imports from Mexico rose by nearly 12 

percent ($6 million) to $56 million in 1996, whereas total U.S. imports increased 14 percent ($1.6 billion) to 

$13.1 billion in 1996. 

U S. Exports — NAFTA had a negligible effect on U.S. exports to North America as well. U.S. exports to 

Canada increased by $805 million from 1993 to 1996, as U.S. suppliers met the increased demand of 

Canadian aircraft manufacturers (regional, commuter, helicopter, and business jets). U.S. exports to Mexico 

declined by $346 million during the period. Mexican airlines have been unprofitable over the last few years, 

which has led to reduced demand for aircraft and parts. Mexico is not a signatory to the Agreement on Trade 

of Civil Aircraft; nevertheless, duties on these goods were low, fluctuating from 0.03 percent to 0.09 percent 

ad valorem during the period. 

Other Factors — Total U.S. trade in aircraft and aircraft parts increased 5 percent ($2.2 billion) to 

$50.4 billion in 1996. Total U.S.-Canada trade rose 56 percent ($2 billion) to $5.6 billion, while U.S.-

Mexico trade decreased 59 percent from 1993 to 1996 in this sector, to $241 million. 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

6-193 6-193
ITC Group No. 57: Boatbuilding and Repairing' 

Table 6-57-1 

Boatbuilding and repairing: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 4,632.2 4,887.4 5,065.6 5,200.0 567.8 12.3 

Consumption (million dollars) . . . 4,522.7 4,944.6 5,214.9 5,576.6 1,054.0 23.3 

Trade data (million dollars): 

Exports: 

Total 534.2 507.2 657.8 620.6 86.3 16.2 

To Mexico 8.8 20.2 10.3 10.5 1.6 18.5 

To Canada 117.1 134.7 143.6 140.5 23.4 20.0 

To non-NAFTA countries . . . 408.3 352.3 503.8 469.6 61.3 15.0 

Imports: 

Total 424.7 564.4 807.1 997.2 572.5 134.8 

From Mexico 0.7 0.2 0.4 0.3 -0.4 -52.3 

From Canada 206.2 275.1 463.2 616.1 409.9 198.8 

From non-NAFTA countries 217.8 289.1 343.4 380.7 162.9 74.8 

Trade balance: 

Total 109.5 -57.2 -149.3 -376.6 -486.2 (2) 

With Mexico 8.1 20.0 10.0 10.1 2.0 24.6 

With Canada -89.2 -140.4 -319.6 -475.7 -386.5 -433.6 

With non-NAFTA countries 190.6 63.2 160.4 88.9 -101.7 -53.4 

Total trade: 

Total 958.9 1,071.5 1,464.8 1,617.8 658.8 68.7 

NAFTA partners 332.8 430.1 617.6 767.4 434.6 130.6 

With Mexico 9.5 20.4 10.7 10.8 1.3 13.3 

With Canada 323.3 409.8 606.9 756.6 433.4 134.1 

Import market share (percent): 

Total 9.4 11.4 15.5 17.9 8.5 (2) 

Mexico 0.0 0.0 0.0 0.0 0.0 (2) 

Canada 4.6 5.6 8.9 11.0 6.5 (2) 

Non-NAFTA countries 4.8 5.8 6.6 6.8 2.0 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.2 0.1 0.3 0.1 -0.2 (2) 

Canada 0.1 0.1 0.1 0.1 0.0 (2) 

All other 1.4 1.4 1.3 1.3 -0.1 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 46.5 51.3 54.0 55.4 8.9 19.1 

Production workers 

(1,000 persons) 38.2 43.1 45.3 46.4 8.2 21.5 

Average hourly wages of 

production workers $9.82 9.81 10.03 10.42 0.60 6.1 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) 3732, Boat Building and Repairing. This industry includes outboard 

motorboats, commercial and military; inboard motorboats; and all other boats, as well as boat building and repair, 

military and nonmilitary. 

6-194 

6-194
Summary of Sector Analysis 

U.S. Imports — The effect of the implementation of the NAFTA on increased U.S. imports of recreational 

boats from NAFTA countries was negligible.' During 1993-96, U.S. imports from Mexico declined by 

$369,000 (52 percent) to approximately $0.3 million, whereas U.S. imports from Canada rose by $410 

million (199 percent) to $616 million. Increased imports from Canada coincided with a 1995 Customs ruling 

that personal watercraft should be imported under HTS subheading 8903.99.90, and are substantially a result 

of that reclassification; personal watercraft were previously not included among the products within this 

sector. Total U.S. imports of personal watercraft increased by $332 million during the period, the largest 

dollar increase in this sector. The personal watercraft segment is one of the fastest-growing of the 

recreational boating market. Tariff reductions implemented under NAFTA had little effect on imports of 

sector products as the applied tariff rate for this sector, prior to NAFTA implementation, was less than 1 

percent ad valorem. 

US. Exports — NAFTA has had a negligible effect on U.S. sector exports to Canada or Mexico. U.S. 

exports to Mexico more than doubled from 1993-94, rising to $20 million in 1994, before dropping to just 

over $10 million in 1995 and 1996. U.S. exports to Canada rose by $27 million (23 percent) to $144 million 

during 1993-95, before dropping by $3 million in 1996. Exports in this sector appear to have been 

influenced more by overall economic conditions than by the effects of the NAFTA agreement; that is, as 

disposable income fluctuates, U.S. exports of recreational boats also fluctuate. 

Other Factors — Total sector trade increased by 69 percent ($659 million) to $1.6 billion from 1993 to 

1996. Total U.S.-Canada trade for the sector increased by 134 percent ($433 million), to $757 million in 

1996. Total U.S.-Mexico trade also rose, by 13 percent ($1 million), to nearly $11 million in 1996. 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

6-195 6-195
ITC Group No. 58: Railroad Equipment and Parts 3 

Table 6-58-1 

Railroad equipment and parts: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 4,884.0 5,995.0 6,671.0 6,700.0 1,816.0 37.2 

Consumption (million dollars) . . . 5,012.5 6,362.5 7,003.9 7,105.6 2,093.1 41.8 

Trade data (million dollars): 

Exports: 

Total 458.8 601.0 755.2 722.7 263.9 57.5 

To Mexico 31.0 75.4 61.8 33.2 2.2 6.9 

To Canada 185.9 282.4 481.7 348.5 162.7 87.5 

To non-NAFTA countries 242.0 243.2 211.6 341.0 99.0 40.9 

Imports: 

Total 587.3 968.5 1,088.0 1,128.3 541.0 92.1 

From Mexico 26.1 19.1 39.8 41.1 15.0 57.6 

From Canada 415.8 775.7 867.5 883.6 467.9 112.5 

From non-NAFTA countries 145.5 173.7 180.7 203.6 58.1 40.0 

Trade balance: 

Total -128.5 -367.5 -332.9 -405.6 -277.1 -215.7 

With Mexico 4.9 56.3 22.0 -7.9 -12.9 (2) 

With Canada -229.9 -493.2 -385.8 -535.1 -305.2 -132.7 

With non-NAFTA countries 96.5 69.5 30.9 137.4 40.9 42.4 

Total trade: 

Total 1,046.2 1,569.5 1,843.2 1,851.0 804.9 76.9 

NAFTA partners 658.7 1,152.6 1,450.9 1,306.4 647.7 98.3 

With Mexico 57.1 94.5 101.7 74.2 17.2 30.1 

With Canada 601.7 1,058.1 1,349.3 1,232.2 630.5 104.8 

Import market share (percent): 

Total 11.7 15.2 15.5 15.9 4.2 (2) 

Mexico 0.5 0.3 0.6 0.6 0.1 (2) 

Canada 8.3 12.2 12.4 12.4 4.1 (2) 

Non-NAFTA countries 2.9 2.7 2.6 2.9 0.0 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico (3) 0.2 0.3 0.4 0.4 (2) 

Canada 0.3 0.8 0.8 0.7 0.4 (2) 

All other 2.9 4.3 3.3 3.2 0.3 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 31.0 35.0 37.2 35.2 4.2 13.5 

Production workers 

(1,000 persons) 23.1 26.2 27.9 26.3 3.2 13.9 

Average hourly wages of 

production workers $14.90 15.60 15.07 16.20 1.30 8.7 

Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3 Less than 0.05 percent. 

4Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

3Standard. Industrial Classification (SIC) Industry No. 3743, Railroad Equipment. This sector includes locomotives, 

both new and rebuilt, and parts; new freight train and passenger train cars, excluding parts; street, subway, trolley, and 

rapid transit cars; all rebuilt railcars and parts for all railcars; and other railroad equipment. 

6-196 6-196
Summary of Sector Analysis 

U.S. Imports — The effect of NAFTA on the increase in U.S. imports of sector products from Mexico and 

Canada was negligible.' From 1993 to 1996, U.S. imports from Mexico rose by 58 percent ($15 million) to 

$41 million, and U.S. imports from Canada increased by 113 percent ($468 million), to $884 million. 

Imports from Mexico amounted to less than 1 percent of U.S. consumption. The increase in imports from 

Canada was the result of purchase decisions made prior to 1992 by U.S. rail transportation companies to 

source locomotives (HTS subheading 8606.21.00), and covered and closed railway cars (HTS subheading 

8606.91.00), from Canada. U.S. imports of locomotives from Canada peaked in 1995, and then declined by 

26 percent in 1996. U.S. production and sales of certain railway cars rose significantly during 1994-96, 

which may have led to delays in U.S. shipments to customers, thereby encouraging Canadian sourcing. 

Finally, there was a certain residual effect of the CFTA and Uruguay Round Agreement tariff reductions that 

have been implemented. Total U.S. imports increased by 92 percent ($541 million) to $1.1 billion. 

U.S. Exports — The impact of NAFTA on increased U.S. exports to North America was negligible. From 

1993 to 1996, U.S. exports to Mexico rose by 7 percent ($2 million) to $33 million, and U.S. exports to 

Canada increased by 88 percent ($163 million) to $349 million. Exports to Canada rose because certain 

U.S.-owned production facilities were established in Canada prior to NAFTA; these facilities continued to 

source U.S.-built parts, which accounted for the majority of the increased exports (HTS subheadings 

8607.99.10 and 8607.91.00). 5The change in U.S. exports to Mexico was very minor, and results from 

cyclical market fluctuations, the end of business contracts, and the devaluation of the peso. Total U.S. 

exports increased by 58 percent ($264 million) to $723 million in 1996. 

Other Factors — Total sector trade increased by 77 percent ($805 million) to $1.9 billion in 1996 because of 

the pronounced resurgence of the U.S. rail market in recent years. Total U.S.-Canada trade for the sector 

increased by 105 percent ($631 million) to $1.2 billion in 1996. Total U. S.-Mexico trade also rose by 

30 percent ($17 million) to $74 million in 1996. 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

Brenco, Inc., a U.S. manufacturer of tapered roller bearings for railway cars, plans exports of $8 million to Canada 

in 1997, representing 47 percent of its total exports. Howard J. Bush, Vice President, Marketing and Shipments, 

Brenco, Inc., testimony before the USITC, May 16, 1997. 

6-197 6-197
ITC Group No. 59: Transportation Equipment' 

Table 6-59-1 

Transportation equipment, n.e.c.: Selected U.S. sector data, 1993-96 

Item 1993 1994 1995 1996 

Absolute 

change 

1993-1996 

Percentage 

change 

1993-1996 

Shipments' (million dollars) 3,483.0 3,673.0 4,238.9 4,500.0 1,017.0 29.2 

Consumption (million dollars) . . . 4,119.8 4,194.2 4,500.1 4,691.1 571.3 13.9 

Trade data (million dollars): 

Exports: 

Total 486.4 502.9 624.5 604.3 117.9 24.2 

To Mexico 11.7 21.2 8.1 10.6 -1.1 -9.2 

To Canada 217.4 254.3 321.2 311.8 94.3 43.4 

To non-NAFTA countries 257.3 227.3 295.2 282.0 24.7 9.6 

Imports: 

Total 1,123.2 1,024.1 885.7 795.4 -327.8 -29.2 

From Mexico 4.7 0.2 0.5 0.8 -3.9 -83.9 

From Canada 691.8 563.3 389.7 353.1 -338.7 -49.0 

From non-NAFTA countries 426.7 460.7 495.6 441.6 14.9 3.5 

Trade balance: 

Total -636.8 -521.2 -261.2 -191.1 445.7 70.0 

With Mexico 7.0 21.1 7.6 9.9 2.9 -40.9 

With Canada -474.4 -308.9 -68.5 -41.3 433.1 91.3 

With non-NAFTA countries -169.4 -233.4 -200.4 -159.7 9.8 5.8 

Total trade: 

Total 1,609.6 1,527.0 1,510.2 1,399.8 -209.9 -13.0 

NAFTA partners 925.6 839.0 719.5 676.2 -249.4 -26.9 

With Mexico 16.4 21.4 8.6 11.4 -5.0 -30.6 

With Canada 909.2 817.6 710.9 664.8 -244.4 -26.9 

Import market share (percent): 

Total 27.3 24.4 19.7 17.0 -10.3 r) 

Mexico 0.1 0.0 0.0 0.0 -0.1 2) 

Canada 16.8 13.4 8.7 7.5 -9.3 (2) 

Non-NAFTA countries 10.4 11.0 11.0 9.4 -0.9 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.0 2.0 0.8 1.3 0.3 (2) 

Canada 

2q 

(3) 0.1 (3) (3) (2) 

All other 2.5 2.5 2.5 0.0 (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 19.9 20.4 23.0 24.2 4.3 21.6 

Production workers 

(1,000 persons) 11.8 14.9 16.7 17.7 5.9 50.0 

Average hourly wages of 

production workers $10.06 10.12 10.34 10.69 0.63 6.3 

1Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent 

' Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

This sector includes Standard Industrial Classification (SIC) Industry No. 3799, Transportation Equipment, Not 

Elsewhere Classified. This SIC industry includes all terrain vehicles (ATVs), automobile trailer chassis, midget autos, 

golf carts, and snowmobiles, among other vehicles. 

6-198 

6-198
Summary of Sector Analysis 

U.S. Imports — NAFTA had a negligible effect' on the decline in U.S. imports of transportation equipment 

from Canada and Mexico during 1993-96. This grouping consists largely of small motor vehicles with sparkignition engine capacity under 1,000 cc, snowmobiles, and wagons and carts. U.S. consumption of these 

products, including U.S. imports from Canada, is largely a function of good weather conditions and 

consumers' discretionary income. U.S. imports from Canada declined from $612 million in 1993 to $140 

million in 1996; the decline was largely attributable to decreased imports of motor vehicles with a 

spark-ignition engine under 1,000 cc. This decrease, however, was somewhat offset by a rise in imports of 

snowmobiles, from $47 million in 1993 to $197 million in 1996. During 1993-96, the snowbelt experienced 

favorable snow conditions, and U.S. discretionary income rose, permitting consumers to purchase 

snowmobiles and small motor vehicles for recreational use. In addition, a weak Canadian dollar relative to 

the U.S. dollar led the only Canadian snowmobile producer' to increase exports to the United States. During 

1993-96, the effective ad valorem equivalent (AVE) on imports from Canada declined from 0.2 percent to 

0.1, as most U.S. tariffs on sector products were reduced or eliminated under the CFTA. 

During 1993-96, the value of U.S. imports from Mexico was negligible. Imports from Mexico consisted of 

miscellaneous carts and wagons; Mexico is not a producer of snowmobiles, golf carts, or all-terrain vehicles 

(ATVs). 

U.S. Exports — NAFTA had a negligible effect on the increase in U.S. sector exports of transportation 

equipment to Canada and Mexico during 1993-96. The increase in U.S. exports to Canada was largely due to 

good weather in the snowbelt that benefited sales of snowmobiles, and new product innovations by U.S. 

manufacturers that increased the attractiveness of U.S. products. The decline in 1996 was partly due to the 

large number of snowmobile sales during the previous 3 years and the strong U.S. dollar relative to the 

Canadian dollar that made U.S. snowmobiles less price-competitive in Canada.' In addition, the strong U.S. 

dollar relative to the Japanese yen made Japanese exports of snowmobiles to Canada more price competitive 

with U.S. products in the Canadian market. The trend in snowmobiles, however, was partially offset by a 

steady increase in U.S. exports of motor vehicles with a spark-ignition engine under 1,000 cc. 

The increase in U.S. exports to Mexico in 1994 consisted largely of miscellaneous motor vehicles. However, 

the sharp decrease in 1995 was due to the decline in the peso which depressed demand for specialty vehicles 

and wagons, carts, and trailers. As the Mexican economy improved, U.S. exports rebounded in 1996. 

Mexican tariffs on sector products ranged between 10 percent ad valorem to 20 percent ad valorem prior to 

NAFTA, with most tariffs being reduced over 5 to 10 years. 

Other Factors — Total sector trade declined by $210 million (down 13 percent) to $1.4 billion during 1993-

96. Total U.S.-Canada trade for the sector declined by $249 million (down 27 percent) to $676 million and 

U.S.-Mexico trade for the sector declined by $5 million (up 31 percent) to $11 million. In 1995, Arctic Cat 

began production of ATVs; prior to this Polaris, Kawasaki, and Honda were the principal U.S. manufacturers 

of ATVs. 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3Bombardier, Inc.(Canada) is the only Canadian producer of snowmobiles. The other major producers of 

snowmobiles in the world are Polaris Industries, Inc. (United States), Arctic Trak (United States), and Yamaha (Japan). 

Polaris Inc., Form 10-K, 1995, and 1997. 

6-199 

6-199
ITC Group No. 60: Measuring, Analyzing, and Controlling Instruments' 

Table 6-60-1 

Measuring, analyzing, and controlling instruments: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 31,675.0 33,439.0 34,876.0 36,854.0 5,179.0 16.4 

Consumption' (million dollars) . . . 28,199.7 30,261.3 31,787.5 33,184.8 4,985.1 17.7 

Trade data (million dollars): 

Exports: 

Total 8,707.6 9,507.2 10,550.2 11,635.0 2,927.4 33.6 

To Mexico 935.2 1,028.0 824.9 779.9 -155.3 -16.6 

To Canada 1,429.8 1,843.5 2,008.8 2,110.2 680.4 47.6 

To non-NAFTA countries . . . 6,342.5 6,635.7 7,716.5 8,744.9 2,402.3 37.9 

Imports: 

Total 5,232.4 6,329.5 7,461.7 7,965.8 2,733.5 52.2 

From Mexico 641.2 1,033.5 1,309.6 1,322.2 681.0 106.2 

From Canada 628.2 849.7 917.0 1,028.7 400.5 63.7 

From non-NAFTA countries 3,962.9 4,446.2 5,235.1 5,614.9 1,652.0 41.7 

Trade balance: 

Total 3,475.3 3,177.7 3,088.5 3,669.2 193.9 5.6 

With Mexico 294.1 -5.5 -484.7 -542.3 -836.3 (2) 

With Canada 801.6 993.7 1,091.8 1,081.5 279.9 34.9 

With non-NAFTA countries 2,379.6 2,189.4 2,481.4 3,130.0 750.3 31.5 

Total trade: 

Total 13,940.0 15,836.6 18,011.9 19,600.8 5,660.8 40.6 

NAFTA partners 3,634.5 4,754.7 5,060.3 5,241.0 1,606.5 44.2 

With Mexico 1,576.4 2,061.5 2,134.5 2,102.1 525.7 33.3 

With Canada 2,058.1 2,693.2 2,925.9 3,138.9 1,080.9 52.5 

Import market share (percent): 

Total 18.6 20.9 23.5 24.0 5.5 (2) 

Mexico 2.3 3.4 4.1 4.0 1.7 (2) 

Canada 2.2 2.8 2.9 3.1 0.9 (2) 

Non-NAFTA countries 14.1 14.7 16.5 16.9 2.9 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.5 1.4 0.4 0.5 -1.0 (2) 

Canada 0.7 0.6 0.7 0.7 0.0 (2) 

All other 4.2 4.3 3.7 3.2 -1.0 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 410.5 385.5 365.6 361.9 -48.6 -11.8 

Production workers 

(1,000 persons) 174.1 164.6 158.1 154.6 -19.5 -11.2 

Average hourly wages of 

production workers $13.52 13.67 13.72 14.13 0.61 4.5 

Estimated by USITC staff, based on official statistics of the U.S. Department of Commerce. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry Nos. 3812, Search, Detection, Navigation, Guidance, Aeronautical 

and Nautical Systems, and Instruments; 3822, Automatic Controls for Regulating Residential and Commercial 

Environments and Appliances; 3823, Industrial Instruments for Measurement, Display, and Control of Process 

Variables and Related Products; 3824, Totalizing Fluid Meters and Counting Devices; 3825, Instruments for Measuring 

and Testing of Electricity and Electrical Signals; and 3827, Optical Instruments and Lenses. 

6-200 

6-200
Summary of Sector Analysis 

U.S. Imports — Although significant growth was recorded in U.S. imports of measuring, testing, controlling, 

and analyzing instruments from both Mexico and Canada during 1993-96, NAFTA had a negligible impact.' 

U.S. imports from Mexico grew by $681 million (106 percent) to $1.3 billion during the 4-year period, while 

imports from Canada rose by $400 million (64 percent) to $1.0 billion. The growing availability of 

competitively-priced high-quality products from these countries (largely instruments for measurement, 

display, and control of process variables), coupled with intra-corporate trade between U.S. companies and 

their counterparts in Canada and Mexico, were the principal factors contributing to growth in these imports. 

Reductions in tariffs and nontariff barriers (NTBs) resulting from NAFTA had only a negligible effect on 

trade in this sector, as tariff rates were generally low and NTBs were not significant barriers to trade. 

U.S. Exports — Although U.S. exports of measuring, testing, controlling, and analyzing instruments to 

Canada grew by $680 million (48 percent) to $2.1 billion from 1993 to 1996, U.S. exports of such products 

to Mexico fell by $155 million (17 percent) to $780 million during the period. The rise in the value of 

exports to Canada largely reflected an increase in demand for navigation instruments (especially satelliterelated products) and industrial instruments used for measurement, display, and control of process variables. 

The decline in exports to Mexico primarily reflected the devaluation of the peso, which led to a decrease in 

demand from U.S.-owned assembly plants in Mexico for measuring instruments and parts, and components 

manufactured in the United States. The effects of NAFTA on U.S. exports in this sector were negligible. 

Other Factors — Total U.S. trade from 1993 to 1996 rose $5.7 billion (41 percent) to $19.6 billion. Total 

U.S.-Mexico trade increased almost $526 million (33 percent) to $2.1 billion, while total U.S.-Canada trade 

grew almost $1.1 billion (53 percent), reaching $3.1 billion in 1996. 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

6-201 

6-201
ITC Group No. 61: Medical Equipment' 

Table 6-61-1 

Medical equipment: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 34,559.0 34,276.0 34,830.0 35,350.0 791.0 2.3 

Consumption (million dollars) . . . 31,321.9 30,629.9 30,877.1 30,482.6 -839.3 -2.7 

Trade data (million dollars): 

Exports: 

Total 6,719.1 7,279.8 8,094.4 9,367.8 2,648.7 39.4 

To Mexico 364.7 298.6 211.1 328.1 -36.7 -10.0 

To Canada 760.8 771.0 810.3 821.2 60.4 7.9 

To non-NAFTA countries 5,593.5 6,210.2 7,073.0 8,218.5 2,625.0 46.9 

Imports: 

Total 3,482.0 3,633.7 4,141.5 4,500.5 1,018.5 29.3 

From Mexico 468.6 519.1 655.4 761.1 292.5 62.4 

From Canada 120.3 122.1 148.0 154.9 34.6 28.7 

From non-NAFTA countries 2,893.1 2,992.5 3,338.1 3,584.5 691.4 23.9 

Trade balance: 

Total 3,237.1 3,646.1 3,952.9 4,867.4 1,630.3 50.4 

With Mexico -103.8 -220.5 -444.3 -433.0 -329.2 -317.1 

'With Canada 640.5 648.9 662.3 666.3 25.8 4.0 

With non-NAFTA countries 2,700.4 3,217.7 3,735.0 4,634.0 1,933.7 71.6 

Total trade: 

Total 10,201.1 10,913.5 12,235.9 13,868.3 3,667.2 35.9 

NAFTA partners 1,714.4 1,710.8 1,824.8 2,065.2 350.8 20.5 

With Mexico 833.3 817.7 866.5 1,089.2 255.9 30.7 

With Canada 881.1 893.1 958.3 976.0 94.9 10.8 

Import market share (percent): 

Total 11.1 11.9 13.4 14.8 3.6 (2) 

Mexico 1.5 1.7 2.1 2.5 1.0 (2) 

Canada 0.4 0.4 0.5 0.5 0.1 (2) 

Non-NAFTA countries 9.2 9.8 10.8 11.8 2.5 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.8 1.2 0.6 0.3 -1.5 (2) 

Canada 1.4 1.1 0.5 0.4 -1.0 (2) 

All other 4.8 4.4 3.2 - 2.3 -2.5 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 244.3 239.8 237.8 240.0 -4.3 -1.8 

Production workers 

(1,000 persons) 143.5 139.8 138.5 140.8 -2.7 -1.9 

Average hourly wages of 

production workers $10.81 11.06 11.45 11.82 1.01 9.3 

Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

' Standard Industrial Classification (SIC) Industry Nos. 3841, Surgical and Medical Instruments and Apparatus; 3842, 

Orthopedic, Prosthetic, and Surgical Appliances and Supplies; and 3845, Electromedical and Electrotherapeutic 

Apparatus. SICs 3841 and 3842 contain a significant amount of goods that are considered textile (hospital gowns, 

gauze, bandages, etc.), rubber or apparel products (surgical gloves, examination gloves), and transportation devices 

(wheelchairs). These products are typically not classified as medical devices by the Commission. Medical equipment 

shipment data is significantly overstated due to the inclusion of products as noted in SIC coverage. Shipments never 

actually contracted, as the data suggests, but rather slowed as the growth rate simply dropped slightly from historical 

double digit rates. 

6-202 

6-202
Summary of Sector Analysis 

U.S. Imports — U.S. imports of medical goods from Mexico increased 62 percent ($293 million) to 

$761 million from 1993 to 1996, while U.S. imports from Canada rose 29 percent ($35 million) to 

$155 million. NAFTA had a negligible effect' on increased imports, with U.S. general tariffs already low 

and staging toward zero as a result of concessions in the Uruguay Round. Before NAFTA, preferential tariff 

treatment under production sharing provisions (particularly HTS heading 9802.00.80) encouraged the use of 

Mexican assembly operations by U.S. medical goods firms. The principal reason cited by industry sources for 

using such assembly operations is to reduce labor costs on production of commodity hospital products and 

other low-end medical equipment. This has enabled U.S.-based manufacturers to gain a price advantage in the 

increasingly price sensitive U.S. market for these commodity products, and gain market share at the expense 

of domestic and foreign competitors. Although the use of HTS heading 9802.00.80 is expected to decline 

considerably over the next several years as U.S. producers increasingly take advantage of duty-free provisions 

for medical goods now available under NAFTA, most importers continued to enter medical goods under HTS 

heading 9802.00.80 through 1996. 3 

U.S. Exports — Although U.S. exports to Mexico decreased overall by 10 percent ($37 million) to 

$328 million from 1993 to 1996, Mexico is expected to be a leading market for U.S. exports of medical 

goods, as well as supplier of U.S. imports, primarily because of its attractiveness as a production-sharing 

location for U.S. producers.' Mexico's relatively low wages, proximity to the United States, and projected 

growth in its own health care market provides an incentive. U.S. exports of medical goods to Mexico 

significantly contracted in 1995 due to the Mexican peso crisis which dampened economic activity and 

demand in the Mexican market.' However, U.S. exports rose sharply from 1995 to 1996, as economic 

conditions stabilized in Mexico. U.S. exports to Canada increased by just 8 percent ($60 million) to $821 

million from 1993 to 1996 as measures by Canadian Provincial Governments to contain health care costs 

slowed growth in demand for imports. Total U.S. exports rose 39 percent ($2.6 billion) to $9.4 billion from 

1993 to 1996. 

Other Factors — Total U.S.-Mexico trade increased by 31 percent ($256 million) to $1.1 billion from 1993 

to 1996. Total U.S.-Canada trade increased by 11 percent ($95 million) to $976 million in 1996. Total U.S. 

sector trade increased 36 percent ($3.7 billion) to $13.9 billion during the period. 

The medical equipment industry has been one of the most successful U.S. sectors in terms of both sales and 

an increasing trade surplus.' U.S. industry shipments have shown consistent year-to-year growth during the 

past decade with moderate demand in U.S. and other mature markets such as the EU and Japan due to 

attempts to contain health care expenditures. However, there has been explosive export growth to certain 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3Some U.S. companies continued to import products assembled in Mexico at reduced duties under HTS heading 

9802.00.80 even after the rate of duty was reduced to free under NAFTA because of initial uncertainty by the companies 

regarding documentation required to qualify for duty-free treatment under NAFTA rules of origin. Other companies 

indicated that they continued to import goods under production-sharing provisions after duties on medical goods went to 

free under NAFTA on Jan. 1, 1994, because they were not aware of the elimination of tariffs under NAFTA. U.S. 

industry representatives, telephone interviews by USITC staff, Dec. 6-8, 1995, Aug. 26-29, 1996, and Apr. 9-10, 1997. 

Industry representatives, telephone interviews by USITC staff, Apr. 24, 1997. 

U.S. industry representatives, telephone interviews by USITC staff, Apr. 8-10, 1997. 

6 See explanatory footnote in table 1. 

6-203 6-203
other markets, particularly to rapidly developing countries which are now just beginning to develop their 

health care infrastructures.' New investment in Canada has been negligible because that market is primarily 

served through exports.' The focus of most increased foreign investment during the period was in China and 

other rapidly-emerging East Asian countries.' 

' U.S. industry representatives, telephone interviews by USITC staff, Apr. 8-10, 1997. 

8 Ibid. 

U.S. investment analysts, telephone interviews by USITC staff, Apr. 24, 1997. 

6-204 

6-204
ITC Group No. 62: Photographic Equipment and Supplies' 

Table 6-62-1 

Photographic equipment and supplies: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 19,686.0 20,227.0 19,143.0 18,180.0 -1,506.0 -7.7 

Consumption (million dollars) . . . 23,176.8 24,473.1 23,797.1 22,446.2 -730.6 -3.2 

Trade data (million dollars): 

Exports: 

Total 3,634.7 3,705.0 4,081.9 4,459.2 824.5 22.7 

To Mexico 279.0 325.4 272.7 344.8 65.7 23.6 

To Canada 673.7 711.6 697.9 722.7 49.0 7.3 

To non-NAFTA countries 2,682.0 2,668.1 3,111.3 3,391.7 709.7 26.5 

Imports: 

Total 7,125.5 7,951.1 8,736.0 8,725.4 1,599.9 22.5 

From Mexico 157.1 242.1 268.2 333.1 176.0 112.0 

From Canada 318.8 315.8 309.1 314.3 -4.5 -1.4 

From non-NAFTA countries 6,649.6 7,393.3 8,158.7 8,078.0 1,428.4 21.5 

Trade balance: 

Total -3,490.8 -4,246.1 -4,654.1 -4,266.2 -775.4 -22.2 

With Mexico 121.9 83.3 4.5 11.7 -110.2 -90.4 

With Canada 354.9 395.8 388.8 408.4 53.5 15.1 

With non-NAFTA countries -3,967.6 -4,725.2 -5,047.4 -4,686.3 -718.7 -18.1 

Total trade: 

Total 10,760.2 11,656.1 12,817.8 13,184.6 2,424.4 22.5 

NAFTA partners 1,428.7 1,594.8 1,547.9 1,714.9 286.3 20.0 

With Mexico 436.2 567.4 540.9 677.9 241.7 55.4 

With Canada 992.5 1,027.4 1,007.0 1,037.1 44.6 4.5 

Import market share (percent): 

Total 30.7 32.5 36.7 38.9 8.1 (2) 

Mexico 0.7 1.0 1.1 1.5 0.8 (2) 

Canada 1.4 1.3 1.3 1.4 0.0 (2) 

Non-NAFTA countries 28.7 30.2 34.3 36.0 7.3 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 2.8 0.6 0.7 0.9 -1.9 (2) 

Canada 0.5 0.5 0.1 0.1 -0.4 (2) 

All other 3.9 4.0 3.2 2.9 -1.0 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 91.4 88.3 84.9 84.2 -7.2 -7.9 

Production workers 

(1,000 persons) 39.3 38.6 38.3 38.4 -0.9 -2.3 

Average hourly wages of 

production workers $14.66 15.00 15.37 15.78 1.12 7.6 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2 Not meaningful for purposes of comparison. 

3 Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry No. 3861, Photographic Equipment and Supplies. 

6-205 

6-205
Summary of Sector Analysis 

U.S. Imports — The effect of NAFTA on photographic equipment and supplies imported from Mexico and 

Canada was negligible.' Although U.S. imports from Mexico more than doubled by $176 million to 

$333 million during 1993-96, this increase was largely the result of the Mexican peso devaluation rather than 

the 1.9 percentage point average reduction in tariffs brought about by NAFTA. U.S. imports of photographic 

equipment that were classified under HTS heading 9802.00.80 decreased by $40 million during 1993-96 to 

$7 million. Photocopiers and photocopier parts comprised 40 percent of U.S. imports of photographic 

equipment and supplies in 1996 and increased significantly during 1993-96. An industry representative stated 

that a large share of these imports come from photocopier remanufacturing operations' in Mexico and that 

this industry was established prior to 1993 and has been unaffected by NAFTA.' The effective U.S. tariff ad 

valorem equivalent (AVE) for U.S. imports of Canadian goods decreased by less than 1 percentage point 

during 1993-96 and, thus, has had little effect on import growth. U.S. imports of photographic equipment 

and supplies from Canada decreased by $5 million during 1993-96 to $314 million. Total U.S. imports 

increased by $1.6 billion during 1993-96 to $8.7 billion. 

U.S. Exports — The effect of NAFTA on photographic equipment and supplies exported to Canada and 

Mexico was negligible. These two countries accounted for a smaller percentage of total U.S. exports of these 

products in 1996 (24 percent) than they did in 1993 (26 percent). U.S. exports to Mexico increased $66 

million (24 percent) during 1993-96 to $345 million. The growth rate in exports to Mexico mirrored the 23-

percent increase in total exports and accounted for less than 8 percent of U.S. total exports in both 1993 and 

1996. Photocopiers and parts and unexposed photographic film were the largest U.S. export categories to 

Mexico as well as to the rest of the world. Under NAFTA, Mexican duties went to zero on imports of 

photocopying apparatus and parts, but the duties on imports of unexposed photographic film are being staged 

down over 10 years. U.S. exports to Canada increased by $49 million to $723 million from 1993 to 1996. 

The 7 percent growth rate for exports to Canada was less than the average growth rate to all markets and 

Canada accounted for 16 percent of exports of these products in 1996 compared to 18 percent in 1993. 

Total U.S. exports rose by $825 million, reaching $4.5 billion in 1996. 

Other Factors — Total U.S.-Mexico trade in photographic equipment and supplies increased by $242 million 

to $678 million in 1996. Total U.S.-Canada trade in photographic equipment and supplies rose by 

$45 million to approximately $1 billion in 1996. Total sector trade increased by $2.4 billion to $13.2 billion 

in 1996. 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3Remanufacturing operations produce photocopiers that contain some used components. Since many of the 

photocopiers used in the United States are supplied as part of a service contract whereby the supplier maintains 

ownership of the photocopier, the distinction between a totally new photocopier and a remanufactured photocopier is 

less important than it would be if the copiers were sold outright. 

Industry representative, telephone interview by USITC staff, Mar. 18, 1997. 

6-206 6-206
ITC Group No. 63: Jewelry, Precious Metal' 

Table 6-63-1 

Jewelry, precious metal: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 4,006.2 4,062.8 4,002.2 4,120.0 113.8 2.8 

Consumption (million dollars) . . . 6,841.8 7,215.7 7,311.3 7,521.7 680.0 9.9 

Trade data (million dollars): 

Exports: 

Total 423.2 403.8 402.9 418.0 -5.3 -1.2 

To Mexico 17.7 24.1 7.3 11.5 -6.2 -35.3 

To Canada 45.0 59.1 61.9 65.5 20.5 45.7 

To non-NAFTA countries 360.6 320.6 333.7 341.0 -19.6 -5.4 

Imports: 

Total 3,258.8 3,556.7 3,712.0 3,819.7 560.9 17.2 

From Mexico 72.3 76.0 100.0 126.8 54.5 75.3 

From Canada 68.1 84.2 94.1 108.1 40.0 58.7 

From non-NAFTA countries 3,118.4 3,396.5 3,517.9 3,584.8 466.4 15.0 

Trade balance: 

Total -2,835.6 -3,152.9 -3,309.1 -3,401.7 -566.2 -20.0 

With Mexico -54.6 -51.9 -92.7 -115.3 -60.7 -111.1 

With Canada -23.2 -25.1 -32.3 -42.6 -19.5 -84.0 

With non-NAFTA countries -2,757.8 -3,075.9 -3,184.1 -3,243.8 -486.0 -17.6 

Total trade: 

Total 3,682.0 3,960.5 4,114.9 4,237.6 555.6 15.1 

NAFTA partners 203.1 243.4 263.3 311.8 108.7 53.5 

With Mexico 90.0 100.1 107.3 138.2 48.2 53.6 

With Canada 113.1 143.3 156.0 173.6 60.5 53.5 

Import market share (percent): 

Total 47.6 49.3 50.8 50.8 3.2 (2) 

Mexico 1.1 1.1 1.4 1.7 0.6 (2) 

Canada 1.0 1.2 1.3 1.4 0.4 (2) 

Non-NAFTA countries 45.6 47.1 48.1 47.7 2.1 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.1 0.2 0.2 0.1 0.0 (2) 

Canada 0.1 0.2 0.1 0.1 0.0 (2) 

All other 4.5 4.5 4.2 4.2 -0.3 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 37.8 38.0 37.3 35.9 -1.9 -5.0 

Production workers 

(1,000 persons) 26.8 26.4 25.6 24.3 -2.5 -9.2 

Average hourly wages of 

production workers $9.58 9.81 10.21 10.73 1.15 12.0 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry No. 3911, Jewelry, Precious Metal. 

6-207 

6-207
Summary of Sector Analysis 

U.S. Imports — NAFTA had a negligible effect' on increased U.S. imports from its NAFTA partners. Such 

imports are small compared with imports from non-NAFTA sources. The largest source of jewelry imports is 

Italy, which accounted for $1.3 billion, or 35 percent of total U.S. imports of precious metal jewelry in 1996, 

compared with only 3 percent for Mexico and Canada combined. U.S. imports of jewelry have increased in 

response to increased U.S. demand; economic growth and rising consumer confidence encouraged U.S. 

consumers to increase their discretionary spending. The relatively low price of gold and changes to the 

industry structure have limited price increases on precious metal jewelry.' U.S. imports from Canada rose by 

$40 million from 1993 to 1996, and were principally jewelry made of gold. The vast majority of precious 

metal jewelry imports from Canada were free of duty prior to the implementation of the NAFTA, as the rates 

on these goods were eliminated under the CFTA. 

U.S. imports from Mexico rose by $54 million (75 percent) from 1993 to 1996. The increase in imports 

from Mexico is principally due to growth in U.S. jewelry demand stemming from the growth in real incomes 

and the strong U.S. economy. Although some of the increase in imports from Mexico may have been due to 

the elimination of most tariffs on sector products as a result of NAFTA, 4another 83 percent of imports from 

Mexico already entered free of duty under the GSP in 1993. Ten to $12 million entered under the productionsharing provisions of HTS chapter 98; U.S. content (duty-free) accounted for over 90 percent of the value of 

these imports. The increase in imports from Mexico was concentrated in jewelry, other than necklaces and 

neck chains, made of gold. 

U.S. Exports — NAFTA had a negligible effect on U.S. exports of sector products during 1993-96. U.S. 

exports were concentrated in jewelry articles made of gold. Canadian tariffs on the majority of U.S. exports 

of precious metal jewelry were phased out during the CFTA. The $21 million increase in U.S. exports to 

Canada over 1993-96 was due to steady growth in the Canadian economy and increased discretionary 

spending by Canadian consumers in 1994. 5 

U.S. exports to Mexico declined by $6 million during the period, due in large part to the peso crisis and 

economic downturn in 1995. The devaluation resulted in a drop in real income of Mexican consumers, 

thereby limiting their discretionary spending. However, exports rebounded slightly, by $4.2 million (58 

percent) to $11.5 million in 1996. Prior to NAFTA, most Mexican tariffs ranged from 10 to 20 percent ad 

valorem; under NAFTA, most are being phased out over 10 years. 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3Consolidation of large regional and national jewelry retail chains has placed an emphasis on price competition, as 

has growing competition from department stores and home TV shopping networks. Further, large retailers are buying 

domestically or importing directly from manufacturers, thereby passing some savings on to consumers. There are also 

an increasing number of foreign suppliers serving the U.S. market. 

James Marquart, President, Manufacturing Jewelers and Silversmiths of America, telephone interview by USITC 

staff, May 6, 1997. 

Corporate downsizing in Canada amid successful efforts to increase productivity has contributed to a general sense 

of insecurity in much of the Canadian workforce. As a result, discretionary spending in Canada did not keep pace with 

economic growth in 1995 and 1996. 

6-208 

6-208
Other Factors — U.S.-world trade in precious metal jewelry expanded by $556 million to $4.2 billion from 

1993 to 1996. During this period, total U.S.-Canada trade in sector products rose by $61 million to $174 

million, and total U.S.-Mexico trade rose by $48 million to $138 million. 

There is little information available about U.S. investment in the Mexican jewelry industry as a result of 

NAFTA. However, several U.S. jewelry producers continue to assemble and perform other operations in 

maquiladoras in Mexico in order to reduce production costs.' 

For example, see U.S. Customs Service Ruling Letter HQ 955807, May 2, 1994. 

6-209 

6-209
ITC Group No. 64: Games, Toys, and Children's Vehicles' 

Table 6-64-1 

Games, toys, and children's vehicles: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 3,955.0 3,880.0 4,257.0 4,385.0 430.0 10.9 

Consumption (million dollars) . . . 9,089.8 8,363.0 8,953.3 10,003.4 913.6 10.1 

Trade data (million dollars): 

Exports: 

Total 650.7 753.8 782.5 763.8 113.1 17.4 

To Mexico 100.3 132.8 64.4 67.7 -32.7 -32.5 

To Canada 183.9 212.7 214.0 211.1 27.2 14.8 

To non-NAFTA countries 366.5 408.2 504.2 485.1 118.6 32.4 

Imports: 

Total 5,785.5 5,236.8 5,478.8 6,382.3 596.8 10.3 

From Mexico 210.2 309.6 428.4 439.9 229.8 109.3 

From Canada 65.6 90.8 139.3 148.2 82.7 126.0 

From non-NAFTA countries 5,509.8 4,836.4 4,911.1 5,794.1 284.3 5.2 

Trade balance: 

Total -5,134.8 -4,483.0 -4,696.3 -5,618.4 -483.6 -9.4 

With Mexico -109.8 -176.8 -364.1 -372.3 -262.4 -238.9 

With Canada 118.3 121.9 74.7 62.9 -55.5 -46.9 

With non-NAFTA countries -5,143.3 -4,428.2 -4,406.9 -5,309.0 -165.7 -3.2 

Total trade: 

Total 6,436.2 5,990.6 6,261.4 7,146.1 709.9 11.0 

NAFTA partners 560.0 746.0 846.1 867.0 307.0 54.8 

With Mexico 310.5 442.5 492.8 507.6 197.1 63.5 

With Canada 249.5 303.5 353.3 359.3 109.9 44.0 

Import market share (percent): 

Total 63.6 62.6 61.2 63.8 0.2 (2) 

Mexico 2.3 3.7 4.8 4.4 2.1 2 Canada 0.7 1.1 1.6 1.5 0.8 

Non-NAFTA countries 60.6 57.8 54.9 57.9 -2.7 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.3 1.1 0.0 0.0 -1.3 (2) 

Canada 2.9 2.3 (3) (3) -2.9 (2) 

All other 4.7 4.8 0.1 0.1 -4.6 (2) 

U.S. industry indicators:4 

Employees (1,000 persons) . . . 43.3 43.0 41.7 40.9 -2.4 -5.5 

Production workers 

(1,000 persons) 30.1 28.8 27.9 27.3 -2.8 -9.3 

Average hourly wages of 

production workers $8.51 8.85 9.16 9.29 0.78 9.2 

Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Less than 0.05 percent. 

4Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

' Standard Industrial Classification (SIC) Industry Nos. 3944, Games, Toys, and Children's Vehicles, Except Dolls 

and Bicycles. This sector encompasses the majority of mechanical and nonmechanical toys and games for both adults 

and children, such as: toy and hobby models; baby carriages, strollers and walkers; toy dishes; toy instruments; 

electronic and other board games; toy blocks and erector sets; pii771es; marbles; toy trains; tricycles; video game 

machines (not coin-operated); .and kites. Stuffed toys are not included in this SIC group. 

6-210 

6-210
Summary of Sector Analysis 

U.S. Imports — NAFTA had a negligible impact' on the toy industry, and was not the main reason for the 

increase in U.S. imports from both Mexico and Canada. Imports from NAFTA partners expanded rapidly 

from 1993 to 1996, principally because of the strong U.S. economy during the period that enabled consumers 

to spend more of their discretionary income on items such as toys. From 1993 to 1996, U.S. imports of toys 

from Mexico and Canada rose by $230 million (110 percent) and $83 million (126 percent), respectively. 

Although U.S. trade with each of its NAFTA partners grew faster than total trade in the toys and games 

sector from 1993 to 1996, imports from Mexico accounted for just 7 percent of total U.S. sector imports in 

1996, whereas Canada accounted for only 2 percent. Despite strong growth in imports from Mexico and 

Canada following the implementation of NAFTA,' imports from these partners were dwarfed by the imports 

of toys from China and video games from Japan. Together, these two Asian sources accounted for 88 percent 

of total U.S. imports in the toys and games sector in 1996. Most sector imports from Mexico are products 

assembled in the maquiladora industry from U.S. components by U.S. toy companies who have found that, 

for a limited number of products, it is cheaper to assemble in Mexico than to contract out production to China 

or Southeast Asia.' Most imports from Canada are games or puzzles that are protected from direct 

competition by copyrights. 

Industry sources have confirmed that NAFTA has had a negligible impact on their sourcing patterns, but that 

Chinese factories have reacted to the possible loss of business by modernizing plants to become more 

competitive. 5NAFTA has not significantly shifted sector trade patterns because most sector imports from 

Mexico already entered the United States free of duty under the GSP, and most imports from Canada were 

either free of duty under the CFTA by January 1, 1994, or became free of duty on January 1, 1995 in 

accordance with U.S. commitments made in the Uruguay Round. 

U.S. Exports — The 33-percent decrease in U.S. exports to Mexico (from $100 million to $68 million) was 

due to the devaluation of the Mexican peso that reduced the ability of Mexicans to purchase luxury goods 

such as toys. U.S. exports to Canada, mainly of construction sets; cartridges, and parts and accessories for 

video games; and copyrighted board games, have been relatively flat. 

Other Factors — While U.S.-Mexico trade in toys and games rose by 64 percent ($197 million) in 1996, to 

$508 million, and trade with Canada increased by 44 percent ($110 million), to $359 million, total sector 

trade grew by 11 percent ($710 million), to $7.1 billion. 

The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

3Toys with spring mechanisms, video game parts and consoles, toys in sets, toy balls, children's picture books, and 

other wheeled vehicles made up most of the increase in U.S. imports of toys and games from Mexico; while assembly 

kits, toys in sets, and three-dimensional pli771es were responsible for much of the growth in imports from Canada. 

4The majority of companies that assemble toys in Mexico also have plants in China; and labor costs in postdevaluation Mexico were still higher than in China. Mexico's proximity to the United States has also not prompted a 

notable shift from suppliers in China because toys are generally compact, durable, and very easy to transport. In 1995, 

U.S. imports of games and toys under the production-sharing provisions of HTS 9802 from Mexico totaled $80 million, 

an increase of $40 million (98 percent) since 1993. Remaining U.S. production of toys, games, and children's vehicles 

consisted of large items that are too costly to transport or items that can be produced in highly-automated processes, 

such as board games and jigsaw puzzles. 

5Industry representatives from major U.S. toy companies, telephone interviews by USITC staff, Feb. 24 and 26, and 

Mar. 10 and 11, 1997. 

6-211 

6-211
According to an industry source, at least one U.S. company has opened an additional toy assembly facility in 

Mexico; however, the reason given was that the Mexican government permits their Mexican-affiliate 

company to import some toy components free of duty from China for further assembly in Mexico. 6Most 

other Mexican imports of toys from China are subject to relatively high duties. Investment in the United 

States has been declining slightly throughout the toy industry as a whole, as U.S. manufacturers continue to 

move the production of compact, durable and less technology-intensive toys to countries with cheaper labor 

costs, while maintaining some domestic production to take advantage of technological expertise, lower 

shipping costs, and faster delivery times. 

6Ibid. 

6-212 

6-212
ITC Group No. 65: Sporting Goods' 

Table 6-65-1 

Sporting goods: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 7,285.0 7,542.0 8,596.0 9,370.0 2,085.0 28.6 

Consumption (million dollars) . . . 8,355.0 8,966.5 9,878.0 10,586.0 2,231.0 26.7 

Trade data (million dollars): 

Exports: 

Total 1,517.6 1,764.5 2,188.8 2,335.7 818.0 53.9 

To Mexico 84.2 119.1 106.1 159.2 75.0 89.0 

To Canada 246.3 293.1 344.2 327.8 81.5 33.1 

To non-NAFTA countries 1,187.1 1,352.3 1,738.6 1,848.7 661.6 55.7 

Imports: 

Total 2,587.7 3,189.0 3,470.8 3,551.7 964.0 37.3 

From Mexico 122.8 140.6 162.3 260.4 137.6 112.1 

From Canada 189.0 260.6 308.2 312.6 123.6 65.4 

From non-NAFTA countries 2,275.9 2,787.8 3,000.3 2,978.7 702.8 30.9 

Trade balance: 

Total -1,070.0 -1,424.5 -1,282.0 -1,216.0 -146.0 -13.6 

With Mexico -38.6 -21.6 -56.2 -101.3 -62.7 -162.5 

With Canada 57.3 32.5 35.9 15.3 -42.1 -73.4 

With non-NAFTA countries -1,088.8 -1,435.4 -1,261.7 -1,130.0 -41.2 -3.8 

Total trade: 

Total 4,105.3 4,953.5 5,659.6 5,887.4 1,782.1 43.4 

NAFTA partners 642.3 813.4 920.8 1,060.0 417.7 65.0 

With Mexico 207.0 259.7 268.4 419.6 212.6 102.7 

With Canada 435.2 553.7 652.4 640.4 205.1 47.1 

Import market share (percent): 

Total 31.0 35.6 35.1 33.6 2.6 (2) 

Mexico 1.5 1.6 1.6 2.5 1.0 (2) 

Canada 2.3 2.9 3.1 3.0 0.7 (2) 

Non-NAFTA countries 27.2 31.1 30.4 28.1 0.9 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 1.2 0.2 0.1 0.1 -1.1 (2) 

Canada 1.4 0.9 0.6 0.6 -0.8 (2) 

All other 3.8 3.6 3.3 3.4 -0.4 (2) 

U.S. industry indicators: 3 

Employees (1,000 persons) . . . 67.6 72.4 76.4 74.5 6.9 10.2 

Production workers 

(1,000 persons) 49.5 53.3 56.2 53.9 4.4 8.9 

Average hourly wages of 

production workers $8.98 9.24 9.63 10.09 1.11 12.4 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2Not meaningful for purposes of comparison. 

3Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct. 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

' Standard Industrial Classification (SIC) Industry No. 3949, Sporting and Athletic Goods, Not Elsewhere Classified. 

6-213 

6-213
Summary of Sector Analysis 

U.S. Imports — The effect of NAFTA on increased U.S. imports of sporting goods equipment from Mexico 

and Canada was negligible.' Despite rapid growth in North American trade in sporting goods since the 

implementation of NAFTA, imports from Canada and Mexico accounted for just 9 percent and 7 percent of 

total imports in 1996, respectively. Imports from the NAFTA partners were surpassed by imports from Asia, 

especially China (28 percent of total imports) and Taiwan (21 percent of the total). U.S. imports increased 

from Mexico and Canada from 1993 to 1996 as a result of several factors, including rising demand for 

certain types of competitively-priced niche sporting goods articles, a stable U.S. economy, and elevated 

discretionary incomes in the United States. The combination of these factors enabled U.S. producers to 

increase assembly output in Mexico and Canada. Golf equipment led the U.S. import growth from Mexico, 

while U.S. imports from Canada were more evenly distributed between product lines, such as above-ground 

swimming pools, snow skis, in-line roller skates (also known as roller blades), certain gymnasium and 

exercise equipment, and ice hockey equipment 

From 1993 to 1996, the effective U.S. tariffs on goods imported from Mexico and Canada decreased by 

approximately 1 percentage point each. As a result, tariff reductions under NAFTA did not constitute an 

important factor in leading to increased importation of sporting goods from either partner country. Golf club 

heads accounted for three-quarters ($189 million) of total U.S. imports of sporting goods from Mexico in 

1996. Such imports more than doubled during 1993-96, rising by $104 million, or 79 percent of the total 

increase in U.S. imports of sporting goods from Mexico during the period. The growth in imports of golf 

club heads from Mexico coincided with NAFTA, but was not a result of the agreement. Rather, it reflected 

(1) consolidation in the golf club assembly industry in the United States, which resulted from increased price 

competition and which put pressure on U.S. parts suppliers to reduce costs; (2) rising labor costs in Taiwan; 

and (3) lower labor costs in Mexico following the December 1994 devaluation of the peso. The casting and 

finishing of golf club heads is quite labor intensive. Much of the U.S. production of golf club heads was 

contracted out to producers in Taiwan by U.S. golf club assemblers in the 1970s. As labor costs rose in 

Taiwan, some of the production shifted to China. The U.S. golf club industry is increasingly performing 

processing and finishing in Mexico as an alternative to importing heads from Taiwan and China. Golf clubs 

and parts were eligible for duty-free entry into the United States from Mexico under the GSP prior to 1994, 

so tariff treatment for golf club heads from Mexico did not change after the implementation of NAFTA. 

U.S. Exports — NAFTA had a negligible effect on the 54-percent increase in U.S. exports of sporting goods 

to NAFTA partner countries from 1993 to 1996. While exports to Canada grew by 33 percent during the 

period, the rate of growth in exports to non-NAFTA countries was almost twice as fast (56 percent). Most of 

the expansion in exports of sporting goods to Canada was accounted for by gymnasium and exercise 

equipment ($24 million) and golf clubs ($19 million). Almost all of the 89-percent growth in exports of 

sporting goods to Mexico was accounted for by a $69 million rise in the shipment of golf club heads to the 

maquiladora industry for processing and finishing operations and return to the United States. 

Other Factors — U.S. bilateral trade in sporting goods has increased more rapidly with NAFTA partners 

since the agreement's implementation than has total sector trade. From 1993 to 1996, U.S. trade in sporting 

goods with Mexico more than doubled, from $207 million to $420 million, and trade with Canada rose by 47 

percent ($205 million) to $640 million. Total sector trade, meanwhile, grew by 43 percent ($1.8 billion) to 

$5.9 billion. 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

6-214 

6-214
Reduced labor costs in Mexico following the devaluation of the peso spurred investment in the maquiladora 

industry. Although a sporting goods industry survey suggests that NAFTA may have influenced 

manufacturing growth in Mexico,' further contacts with industry sources revealed that it is difficult to 

establish a direct link between added manufacturing presence in Mexico and NAFTA's trade liberalization 

benefits.' 

3In a survey of manufacturers completed by the Sporting Goods Manufacturers Association by year-end 1995, 40 

percent of the respondents stated that NAFTA most likely has resulted in more offshore manufacturing activity (in 

Mexico). The survey also showed that 23 percent of respondents believed that NAFTA may have encouraged more 

manufacturing activity in the United States as well. However, 37 percent noted that NAFTA had no measurable impact 

on other investment in North America. 

Officials of Callaway Golf, Coastcast Corp., and Prince Sports Group Inc., telephone interviews by USITC staff, 

Apr. 27-28, 1997. 

6-215 6-215
ITC Group No. 66: Miscellaneous Industries, N.E.C.' 

Table 6-66-1 

Miscellaneous industries, n.e.c.: Selected U.S. sector data, 1993-96 

Absolute 

change 

Percentage 

change 

Item 1993 1994 1995 1996 1993-1996 1993-1996 

Shipments' (million dollars) 5,547.9 5,599.1 6,037.9 7,547.0 1,999.1 36.0 

Consumption (million dollars) . . . 7,075.5 7,337.7 8,079.1 9,512.8 2,437.3 34.4 

Trade data (million dollars): 

Exports: 

Total 890.1 911.3 967.9 1,057.0 166.9 18.8 

To Mexico 84.5 69.3 48.1 48.8 -35.7 -42.2 

To Canada 172.3 196.0 164.6 233.2 60.9 35.3 

To non-NAFTA countries 633.3 646.0 755.2 775.0 141.7 22.4 

Imports: 

Total 2,417.7 2,649.9 3,009.1 3,022.8 605.1 25.0 

From Mexico 46.8 48.2 57.2 60.1 13.3 28.4 

From Canada 45.6 66.8 63.3 104.1 58.5 128.1 

From non-NAFTA countries 2,325.3 2,534.9 2,888.6 2,858.6 533.3 22.9 

Trade balance: 

Total -1,527.6 -1,738.6 -2,041.2 -1,965.8 -438.2 -28.7 

With Mexico 37.7 21.1 -9.1 -11.3 -49.0 (2) 

With Canada 126.7 129.2 101.3 129.1 2.4 1.9 

With non-NAFTA countries . . -1,692.0 -1,888.9 -2,133.4 -2,083.6 -391.6 -23.1 

Total trade: 

Total 3,307.8 3,561.2 3,977.0 4,079.8 772.0 23.3 

NAFTA partners 349.2 380.3 333.2 446.2 97.0 27.8 

With Mexico 131.3 117.5 105.3 108.9 -22.4 -17.1 

With Canada 217.9 262.8 227.9 337.3 119.4 54.8 

Import market share (percent): 

Total 34.2 36.1 37.2 31.8 -2.4 (2) 

Mexico 0.7 0.7 0.7 0.6 0.0 (2) 

Canada 0.6 0.9 0.8 1.1 0.4 (2) 

Non-NAFTA countries 32.9 34.5 35.8 30.1 -2.8 (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico 0.5 0.3 (3) (3) -0.5 (2) 

Canada 1.0 0.8 0.3 0.1 -0.9 (2) 

All other 5.5 5.6 3.4 3.1 -2.4 (2) 

U.S. industry indicators: 4 

Employees (1,000 persons) . . . 81.6 83.8 82.7 81.8 0.2 0.2 

Production workers 

(1,000 persons) 43.6 46.1 45.5 45.8 2.2 5.0 

Average hourly wages of 

production workers 9.76 10.07 10.18 10.50 0.74 7.6 

'Shipments data for 1996 estimated by USITC staff. Thus, the 1996 calculated consumption figure, as well as 

percentage changes in both shipments and consumption, is an estimate. 

2 Not meaningful for purposes of comparison. 

3 Less than 0.05 percent 

Compiled from official statistics of the U.S. Bureau of Labor Statistics; 1996 refers to Jan.-Oct 1996 data. 

Source: Compiled from official statistics of the U.S. Department of Commerce, except as noted. 

Standard Industrial Classification (SIC) Industry No. 3999, Manufacturing Industries, N.E.C. Products classified in 

SIC 3999 include a diverse range of products, for example, candles, beaded novelties, wigs, Christmas decorations and 

artificial Christmas trees, artificial flowers, umbrellas, wind chimes, puppets, hair grooming articles, coin-operated 

video games and pinball machines, slot machines, matches, pipes, and lamp shades. 

6-216 

6-216
Summary of Sector Analysis 

U.S. Imports — NAFTA had a negligible effect' on the increase in U.S. imports from NAFTA partners in 

this sector. U.S. imports from Canada rose by 128 percent ($58 million), to $104 million in 1996, while 

imports from Mexico grew by only 28 percent ($13 million) to $60 million. In contrast, imports from China 

rose by 49 percent, and accounted for almost 50 percent of sector imports in 1993 and for 59 percent in 1996. 

Imports from the NAFTA partners accounted for just 5 percent of total U.S. imports of sector products in 

1996. 

The increase in U.S. import trade with NAFTA partners is largely due to increased consumer demand for 

scented, colored candles over the last 3 years.' Increased U.S. imports of candles from Canada, which rose 

from $923,000 in 1993 to $40.6 million in 1996, reflect increased demand for scented candles, as well as 

heavier marketing of candles as gifts by department stores, mass merchandisers, and other large retailers. 

The U.S. tariff on candles from Canada was free prior to NAFTA. The remainder of the increase in U.S. 

sector imports was spread across a wide variety of products, including tailors dummies and mannequins, fire 

extinguishers and parts, video games for arcades, Christmas figures, and artificial Christmas trees. The 

effective U.S. ad valorem equivalent (AVE) on imports from Canada fell from one percent in 1993 to 0.14 

percent ad valorem in 1996. 

The increase in U.S. sector imports from Mexico was largely due to sustained consumer demand for candles 

and artificial Christmas trees, as well as Christmas decorations. U.S. imports of candles from Mexico rose 

from $2.5 million in 1993 to $15.8 million in 1996. The U.S. tariff of 5.8 percent ad valorem on eligible 

candles of Mexican origin was eliminated under NAFTA; this, along with the devaluation of the peso, 

facilitated imports of candles from Mexico.' The effective U.S. AVE on imports from Mexico fell from 0.5 

percent in 1993 to almost free in 1996. 

U.S. Exports — Trade in this sector was dominated by U.S. exports to Canada, which rose by 35 percent ($61 

million) to $233 million. Canada was the largest single U.S. export market from 1993 to 1996. Most (86 

percent) of the increase in U.S. exports of miscellaneous manufactures to Canada during this period occurred 

in exports of certain arcade games, and candles and tapers. Canadian tariffs on U.S. exports of these articles 

were free prior to NAFTA. The decrease in U.S. exports to Mexico was due to a large reduction in U.S. 

exports of beads, bangles, and associated products, other than handbags, that began in 1993, prior to 

NAFTA. Overall, U.S. exports in this sector appear to be affected by weaker Mexican domestic demand due 

to the devaluation of the peso. 

Other Factors — Total sector trade grew by 23 percent ($772 million) from 1993 to 1996, to $4.1 billion in 

1996. Total U.S.-Canada trade for the sector grew by 55 percent ($119 million) to $337 million, whereas 

total U.S.-Mexico trade fell by 17 percent ($22 million) to $109 million from 1993 to 1996. U.S. imports 

from Mexico under HTS chapter 98 production sharing provisions totaled $8.2 million in 1996, or about 14 

2The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

Blyth Industries, Inc., 10-K Report, 1996. 

'Representative of Endar Corp., telephone interview with USITC staff, Apr. 17, 1997. 

6-217 6-217
percent of total sector imports, with U.S. content comprising 57 percent of the production sharing imports. 

U.S. imports from Mexico in 1993 under the production sharing provisions of HTS Chapter 98 also 

accounted for 14 percent of total sector imports, with the U.S. content comprising 70 percent. Imports from 

these production sharing operations occurred in a variety of products, including candles, hair-nets, Christmas 

nativity figures, and hand sieves. 

6-218
ITC Group No. 67: Waste and Scrap' 

Table 6-67-1 

Waste and scrap: Selected U.S. sector data, 1993-96 

Item 1993 1994 1995 1996 

Absolute 

change 

1993-1996 

Percentage 

change 

1993-1996 

Shipments (million dollars) 

(1 ) (1) 

(1) 

(1) (2) (2) 

Consumption (million dollars) . . ( 1 ) (1) 

(2) (2) 

Trade data (million dollars): 

Exports: 

Total 3,440.8 4,285.6 6,232.5 4,655.3 1,214.5 35.3 

To Mexico 186.3 261.0 387.8 316.7 130.4 70.0 

To Canada 897.1 1,058.4 1,413.8 1,069.5 172.5 19.2 

To non-NAFTA countries 2,357.5 2,966.2 4,430.9 3,269.2 911.7 38.7 

Imports: 

Total 1,110.2 1,437.3 1,933.9 1,769.8 659.6 59.4 

From Mexico 147.8 215.9 377.6 282.9 135.2 91.5 

From Canada 551.9 703.4 931.7 823.7 271.8 49.2 

From non-NAFTA countries 410.5 517.9 624.6 663.2 252.7 61.6 

Trade balance: 

Total 2,330.6 2,848.3 4,298.6 2,885.5 554.9 23.8 

With Mexico 38.5 45.0 10.2 33.7 -4.8 -12.4 

With Canada 345.1 355.0 482.1 245.8 -99.3 -28.8 

With non-NAFTA countries 1,947.0 2,448.3 3,806.3 2,606.0 659.0 33.8 

Total trade: 

Total 4,551.0 5,722.9 8,166.4 6,425.2 1,874.2 41.2 

NAFTA partners 1,783.0 2,238.7 3,110.9 2,492.8 709.8 39.8 

With Mexico 334.0 476.9 765.4 599.6 265.6 79.5 

With Canada 1,449.0 1,761.8 2,345.5 1,893.3 444.2 30.7 

Import market share (percent): 

Total (') 1) 2) (2) 

Mexico 

{1 

1) 2) (2) 

Canada 1) 1) 2) (2) 

Non-NAFTA countries (1) (1 (1) (1) 2) (2) 

Effective U.S. tariff ad valorem 

equivalent (AVE) (percent): 

Mexico (3) (3) (3) (3) (3) (2) 

Canada (3) (3) 

(3) (3) (3) 

(2) 

All other 0.1 0.1 0.1 0.1 0.0 (2) 

U.S. industry indicators: 

Employees (1,000 persons) . . (1) (1) (1) (1) (2) (2) 

Production workers 

(1,000 persons) (1) (1) (1) 

(1) 

(2) (2) 

Average hourly wages of 

production workers (1) (1) 

(1) (1) (2) (2) 

Not applicable because such statistics on scrap and waste are not collected. 

2Not applicable. 

3Less than 0.05 percent. 

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

No Standard Industrial Classifications (SIC) Industry No. exists for scrap and waste articles. However, the U.S. 

Bureau of the Census has categorized the products under a 4-digit number, 9100, in its concordance of 4-digit SIC 

industries and HTS merchandise trade classifications. The products covered herein include waste and scrap principally 

from the textile and apparel industries and metals industries. 

6-219 6-219
Summary of Sector Analysis' 

U.S. Imports —NAFTA had a negligible effect' on increased U.S. imports from its NAFTA partners. The 

vast majority of imports of the products in this sector entered free of duty before NAFTA. The tradeweighted ad valorem equivalent tariff rates for U.S. imports from Canada and Mexico were less than 0.01 

percent during 1993-96, mostly accounted for by imports of certain precious metal scrap.' Much of the 

change in the value of trade flows has been caused by variations in prices.' Total U.S. imports of waste and 

scrap increased nearly $660 million (60 percent) to $1.8 billion. Imports from Mexico and Canada increased 

by $135 million (92 percent) to $283 million and by $272 million (49 percent) to $824 million during 1993-

96, respectively. A relatively strong U.S. economy was the main factor driving imports of waste and scrap, 

which are recycled as low-cost raw material inputs into the industries producing such goods as steel, 

aluminum, or copper; these three waste products together accounted for a majority of the trade in this sector. 

Also, additional steel melting capacity, utilizing steel scrap as its input, came on line in the United States. 

Several additional factors contributed to the increase in imports from Mexico. The peso devaluation in late 

1994 resulted in depressed demand in Mexico for goods produced by major waste-consuming sectors of steel, 

copper, and aluminum. This made additional supplies of scrap available while offering Mexican exporters 

greater returns in peso terms. 

U.S. Exports —NAFTA had a negligible effect on increased U.S. exports of sector products because 

shipments from the United States into Canada and Mexico were subject to very small or zero tariffs prior to 

NAFTA. Again, much of the change in trade flows has been caused by price variations. Total U.S. exports 

increased by $1.2 billion (35 percent) to $4.7 billion during 1993-96. U.S. exports to Mexico and Canada 

increased by $130 million (70 percent) to $317 million and by $172 million (19 percent) to $1.1 billion, 

respectively. U.S. exports of paper waste and steel scrap account for the bulk of U.S. exports of sector 

products to Mexico, while U.S. exports of these two products plus precious metals scrap and copper scrap 

account for the majority of U.S. exports to Canada. 

Other Factors —U.S. trade in scrap and waste grew by $1.9 billion (41 percent) to $6.4 billion during 1993-

96. Total U.S.-Canada trade in sector products grew by $444 million (31 percent) to $1.9 billion, while U.S.-

Mexico trade in sector products increased by $266 million (80 percent) to $600 million during this same 

period. 

2The U.S. industries that benefit from trade in scrap and waste are distribution and service industries, principally 

covered by SIC 5093, Scrap and Waste Materials (firms primarily engaged in assembling, breaking up, sorting, and 

wholesale distribution of scrap and waste materials). 

3The change in specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

4 Ad valorem equivalent tariff rates compiled from official statistics of the U.S. Department of Commerce. 

5Scrap prices are correlated with the prices of the primary products for which they are used as inputs. The prices of 

copper, aluminum, and steel increased by 18 percent, 31 percent, and 7 percent during 1993-96, respectively. 

6-220 6-220
ITC Group No. 68: Miscellaneous Trade' 

Table 6-68-1 

Miscellaneous trade: Selected U.S. sector data, 1993-96 

1993 1994 1995 1996 1993-1996 1993-1996 

Absolute Percentage 

change change 

Item 

Not applicable because such statistics on scrap and waste are not collected. 

2 Not applicable. 

3Not meaningful for purposes of comparison. 

4 Less than 0.05 percent. 

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

No Standard Industrial Classifications (SIC) Industry No. exists for these products. However, the U.S. Bureau of the 

Census has categorized these products under three 4-digit numbers ("9800," "9900," and "3XXX") in its concordance 

of 4-digit SIC industries and HTS merchandise trade classifications. The products within SIC 9800 are found in HTS 

heading 9801, imports of goods returned after having been exported, without having been advanced in value or 

improved in condition by any process of manufacture or other means while abroad, and under HTS subheadings 

9802.00.40 and 9802.00.50, imports of articles exported for repairs or alterations. SIC 9900 includes primarily 

electricity, motion pictures, videos, certain other recorded magnetic media, the value of repairs or alterations of 

previously imported articles, and imports under HTS subheading 9817.00.50, which provides for duty-free treatment of 

machinery, equipment, and implements to be used for agricultural or horticultural purposes, provided that the importer 

supplies a valid end-use certificate that is accepted by the U.S. Customs Service. SIC 3XXX includes primarily a 

Census estimate of U.S. exports of low-value shipments other than to Canada. 

No Standard Industrial Classifications (SIC) Industry No. exists for these products. However, the U.S. Bureau of the 

Census has categorized these products under three 4-digit numbers ("9800," "9900," and "3XXX") in its concordance 

of 4-digit SIC industries and HTS merchandise trade classifications. The products within SIC 9800 are found in HTS 

heading 9801, imports of goods returned after having been exported, without having been advanced in value or 

improved in condition by any process of manufacture or other means while abroad, and under HTS subheadings 

9802.00.40 and 9802.00.50, imports of articles exported for repairs or alterations. SIC 9900 includes primarily 

electricity, motion pictures, videos, certain other recorded magnetic media, the value of repairs or alterations of 

previously imported articles, and imports under HTS subheading 9817.00.50, which provides for duty-free treatment of 

machinery, equipment, and implements to be used for agricultural or horticultural purposes, provided that the importer 

supplies a valid end-use certificate that is accepted by the U.S. Customs Service. SIC 3XXX includes primarily a 

Census estimate of U.S. exports of low-value shipments other than to Canada. 

 and imports under HTS subheading 9817.00.50, which provides for duty-free treatment of 

6-221 

6-221
Summary of Sector Analysis2 

This sector grouping covers a wide variety of products that are traded but for which no corresponding 4-digit 

SIC industry classification exists. In addition, for many of the products covered herein, no specific 4-digit 

SIC can be identified since many of the trade classifications are not product-specific but are more activity or 

end-use oriented, such as for agricultural use or for use by the U.S. Government. Overall, sector products 

cover a significant amount of U.S. trade with NAFTA partners. In 1996, U.S. imports of sector products 

from Mexico accounted for almost 4 percent of total U.S. imports from Mexico, and almost 3 percent of U.S. 

exports to Mexico. Likewise, U.S. imports of sector products accounted for almost 6 percent of total U.S. 

imports from Canada, and 3 percent of U.S. exports to Canada. 

U.S. Imports —NAFTA had a negligible effect 3on the increase in U.S. imports from Canada and Mexico 

during 1993-96. Because of the large volume of trade covered and the diversity of products covered herein, 

trade trends cannot be easily identified. In 1996, U.S. imports from Canada of electricity totaled $902 

million; machinery, equipment, and implements certified for agricultural or horticultural use totaled $75 

million; and discs for laser reading systems and videos totaled $64 million. Other identifiable products 

included motion picture film, exposed or developed; feathers used for stuffing down; and architectural, 

engineering, or industrial plans. U.S. imports of electricity rose from $662 million to $960 million in 1994 

due to extremely cold weather in the Eastern United States and changing conditions affecting the generation 

of hydroelectric electricity, before falling to $902 million in 1996. Electricity imports enter free of duty into 

the United States. Canada historically has been the major U.S. trading partner in electricity because of the 

existence of interconnecting transmission systems along the U.S.-Canada border. 

In 1996, U.S. imports from Mexico of machinery, equipment, and implements certified for agricultural or 

horticultural use totaled $45 million and video tapes were valued at $14 million U.S. tariffs on imports of 

videos from Mexico were reduced under NAFTA, and imports of these products rose from $8 million to $14 

million during 1993-96. 

From 1993 to 1996, U.S. imports of the value of goods returned (SIC 9800) from Canada rose from $4.3 

billion to $6.3 billion, and imports from Mexico rose from $1.3 billion to $2.2 billion. Within SIC 9800, in 

1996, approximately $500 million of U.S. imports from Canada of the value of goods returned were articles 

that had been previously exported to Canada for repair outside of a warranty; U.S. imports from Mexico of 

similar articles totaled $166 million. 

The remainder of U.S. imports from Canada and Mexico in this sector grouping were Census estimates of 

low-value shipments. During 1993-96, imports of low-value shipments from Canada rose from $1.9 billion 

to almost $2.7 billion, and imports from Mexico rose from $359 million to $498 million. 

U.S. tariffs under most of these tariff provisions were free on an MFN basis prior to NAFTA. 

2The U.S. industries that benefit from trade in miscellaneous trade are suppliers of electricity, including utilities, 

maintenance and repair operations of manufacturers or service providers, (such as airlines that have machinery repaired 

overseas), and producers and distributors of recorded movies, videos, and magnetic media. In addition, much of the 

miscellaneous trade affects cross-border retail trade, and customer service operations of large companies that accept 

returns of their products for whatever reason. 

3The change is specified performance indicators from 1993 to 1996 is due primarily to economic factors or industry 

developments occurring during the period other than NAFTA. Any NAFTA impact on performance indicators is 

insignificant or a minor influence. 

6-222 

6-222
U.S. Exports — NAFTA had a negligible effect on the increase in U.S. exports to Canada and Mexico during 

1993-96. In 1996, the major identifiable U.S. exports of sector products to Canada were the value of repairs 

or alterations, video tapes and other tape recordings, and electricity. U.S. exports of the value of repairs or 

alterations rose from $183 million to $204 million, before falling to $184 million in 1996. Exports of repair 

services are tied to Canadian use of U.S.-built aircraft, aircraft engines, and other U.S.-built capital goods. 

U.S. exports of electricity to Canada fell from $61 million in 1993 to $30 million in 1994, before rising to 

$69 million in 1996. The 1994 decline in U.S. exports of electricity was due to extremely cold weather in the 

Eastern United States that resulted in U.S.-produced electricity being consumed domestically. U.S. exports of 

videos have increased as Canadian consumers have chosen to view and own U.S. media productions. 

The major identifiable U.S. exports of sector products to Mexico were the value of repairs or alterations of 

previously imported articles, followed by video tapes and phonograph records. During 1993-95, U.S. exports 

to Mexico of the value of repairs or alterations ranged from $147 million to $151 million, but dropped to 

$113 million in 1996. Trends in maintenance and repair services are difficult to identify. However, some of 

the repair may relate to aircraft maintenance services, since the United States is a major supplier of such 

services globally. 

During 1993-96, there were no U.S. electricity exports to Mexico. The Mexican state-owned Comision 

Fedral de Electricidad (CFE) controls imports of electricity into Mexico. Since NAFTA, the CFE has moved 

to privatize the Mexican electricity generation sector and has opened up certain areas of electricity generation 

to foreign investment. Under NAFTA, Mexican tariffs on imports of U.S. electricity are being eliminated 

over 5 years. 

U.S. exports of reexports, not of Canadian origin, to Canada, rose from $347 million in 1993 to $407 million 

in 1996. There are no comparable data for exports to Mexico. 

The remainder of U.S. exports to Canada and Mexico in this sector grouping were Census estimates of lowvalue shipments. During 1993-96, exports of low-value shipments to Canada rose from $2.0 billion to 

almost $2.4 billion, and exports to Mexico rose from $1.5 billion to $2.1 billion. 

Other Factors —Data on U.S. investment in Mexico of sector products is not readily available. However, 

U.S. investment in Mexico's electricity sector has only recently begun. In January 1997, AES Corp. 

announced that Mexico's CFE has selected AES Corp. and two partners, including a Mexican company, to 

build, own, and operate a 484-megawatt gas-fired combined-cycle power plant in Merida on the Yucatan 

peninsula.' Electric power generated by the plant will be sold to CFE. This is the first independent power 

provider to be established in Mexico. 

World Wide Web, retrieved May 10, 1997, AES Crop., www.aesc.com/PR/Q7101-1997Me)dco.html, AES Corp. 

press release, "AES Wins Bid for a 484 MW Gas-Fired Plant in Mexico," Jan. 23, 1997. 

6-223 

6-223
Services 

Nations trade services through two principal channels. One channel, cross-border trade, entails 

sending skilled individuals, information, or money across national borders. The other channel, affiliate 

transactions, entails selling services through affiliates established in foreign markets by multinational 

companies. The relative importance of each channel of trade varies by service industry. Data on U.S. crossborder trade for specific service industries are available with respect to Canada and Mexico, as reported by 

the U.S. Department of Commerce, Bureau of Economic Analysis (BEA). Cross-border data for 1994-95, 

the latest available, correspond to the first two years after NAFTA came into effect. Data on affiliate 

transactions are available to a lesser extent by industry and by country. BEA reports data on affiliate 

transactions with Canada, but not Mexico. These data extend only through 1994. 

NAFTA Provisions Affecting Service Industries 

NAFTA chapters and annexes on investment and cross-border trade in services are of particular 

importance to U.S. service firms, because of the benefits derived from provisions intended to reduce or 

remove impediments to trade in services, particularly those inherent in Mexican Federal laws and/or 

regulations. NAFTA chapter 11 on "Investment" applies to investments defined as, among other things, 

"enterprises," and which involve the "establishment, acquisition, expansion, management, conduct, operation, 

and sale or other disposition of investments" by investors of any party to NAFTA. Such investments of U.S. 

and Canadian service providers are to receive the better of most-favored-nation (MFN) treatment or national 

treatment, freedom to transfer profits, freedom from burdensome performance requirements, rights to prompt 

compensation of fair market value in the event of expropriation, and rights to international arbitration of 

disputes with Mexican enterprises or the Mexican Government. 

NAFTA chapter 12 on the "Cross-Border Trade in Services" applies to all services except financial 

services and air transport services. It establishes the principle of nondiscrimination (the better of national 

treatment or MFN treatment), prohibits local-presence requirements, charges parties to endeavor to negotiate 

the liberalization or removal of quantitative restrictions, and sets forth commitments to liberalize or remove 

licensing and performance requirements and other discriminatory measures. It also provides for transparent 

licensing and certification of service providers on the basis of objective criteria such as competence and 

ability to provide a service. In addition, chapter 12 provides for the elimination of any citizenship and 

permanent residency requirements that "professional service providers" such as doctors, lawyers, and 

accountants of another party were formerly required to meet. 

Each of the parties to NAFTA has exempted certain sectors from the liberalized treatment described 

above. Those reservations and exceptions are set forth in the various annexes to the agreement.' Although 

broad, these reservations are the only exceptions permitted, because NAFTA provides that all services are 

covered unless specifically exempted from the agreement. The provision for reservations allows for the 

widest possible coverage of existing services and any new subsequent services. In addition, NAFTA applies 

to both existing and future laws governing trade in services. 

Several sector-specific NAFTA provisions were included to create significant new openings in 

Mexico for U.S. and Canadian service providers, either through cross-border trade or by allowing investment 

in, or establishment of, Mexican enterprises in the telecommunications, banking, insurance, engineering, 

construction, and transportation service markets. 

' NAFTA, Annexes I through VII. 

6-224 6-224
NAFTA Effects on U.S. Trade in Services' 

In general, U.S. service firms face more transparent and favorable market access and national 

treatment conditions than they did before NAFTA. U.S. firms also tend to face less onerous limitations or 

exceptions to such treatment under NAFTA than they do in most countries under the World Trade 

Organization's General Agreement on Trade in Services (GATS). Nevertheless, to date, little evidence of 

measurable effects of NAFTA on services trade is apparent. 

Expenditures by tourists and business persons who traveled between the United States and its 

NAFTA partners contributed the most to total U.S. service exports and imports (tables 6-69-1 and 6-69-2) 

during 1990-95. The value of U.S. trade with Mexico is below that with Canada with regard to most service 

industries, especially trade in freight services and insurance services. Exceptions include telecommunications 

services; architectural, engineering, and construction (AEC) services; and mining services. U.S. exports of 

installation, maintenance, and equipment repair services to Mexico were also relatively significant. 

In 1995, Canada was the third-largest U.S. trading partner for services, as U.S. cross-border service 

exports to Canada stood at $17.9 billion, representing 9.1 percent of the United States' total service exports, 

valued at $196.4 billion. U.S. imports from Canada were valued at $12.4 billion, accounting for 9.5 percent 

of the $129.7 billion total (tables 6-69-1 and 6-69-2). Consequently, the United States registered a $5.6- 

billion services trade surplus with Canada in 1995 (table 6-69-3), although the surplus has eroded modestly 

each year since 1991. U.S. cross-border service exports to Mexico, the fourth-ranked U.S. trading partner, 

measured $6.2 billion, or 3.2 percent of the total. U.S. exports were exceeded by imports of $8.6 billion, or 

6.6 percent of total service imports. In contrast to a string of relatively small surpluses with Mexico since 

1990, the United States recorded a large $2.4-billion deficit in cross-border services trade with that country in 

1995. The deficit was largely accounted for by a 41-percent decline in travel receipts from Mexico as the 

devaluation of the peso discouraged Mexican tourists from traveling to the United States. 

The effects of NAFTA on U.S. employment and wages are believed to be negligible in all service 

industries. Regulatory changes in large industries, such as the telecommunication and fmancial service 

industries, appear to have exerted a stronger influence over employment. The effect of NAFTA on U.S. 

investment is likewise believed to be negligible in nearly all service industries, except in fmancial services, 

where it is regarded as significant. NAFTA has raised foreign investment ceilings in Mexico, thereby 

facilitating greater investment by U.S. banking and securities firms in the Mexican market. 

2 Views of parties that submitted written and/or oral testimony to the Commission in connection with this investigation 

are summarized in Appendix D. Copies of the hearing transcript and copies of all written testimony are being provided 

separately to USTR. 

6-225 

6-225
Table 6-69-1 

U.S. cross-border trade in services: Exports to Canada and Mexico, 1990-95 

Item 1990 1991 1992 1993 1994 1995 1990-93' 1993-94 1994-95 

Canada: 

Million dollars Percent 

Total2 16,011 18,167 17,977 17,657 17,363 17,949 3.3 -1.7 3.4 

Transportation: 

Travel 7,093 8,500 8,182 7,458 6,252 6,207 1.7 -16.2 -0.7 

Passenger fares 979 1,040 1,099 1,191 1,186 1,284 6.8 -0.4 8.3 

Freight 493 1,469 1,613 1,594 1,735 1,803 47.9 8.8 3.9 

Port services 467 478 494 477 535 555 0.7 12.2 3.7 

Other 87 92 103 87 109 149 0.0 25.3 36.7 

Royalties and license fees: 

Affiliated 1,034 1,093 1,074 1,047 1,026 1,094 0.4 -2.0 6.6 

Unaffiliated 164 164 165 160 155 141 -0.8 -3.1 -9.0 

Other private services: 

Affiliated 2,434 2,239 2,350 2,649 3,062 3,262 2.9 15.6 6.5 

Unaffiliated 2,781 3,259 2,897 2,994 3,303 3,454 2.5 10.3 4.6 

Education 245 269 301 343 383 401 11.9 11.7 4.7 

Financial services 249 323 348 428 378 442 19.8 -11.7 16.9 

Insurance: 

Premiums 2,471 1,551 948 836 1,021 1,195 -30.3 22.1 17.0 

Losses 1,828 1,052 626 617 639 709 -30.4 3.6 11.0 

Balance 643 499 322 219 382 487 -30.2 74.4 27.5 

Telecommunications (3) 288 229 252 244 255 (4) -3.2 4.5 

Film and tape rentals 221 171 235 234 282 321 1.9 20.5 13.8 

Business, professional, 

and technical services . 582 996 953 1,056 1,327 1,304 22.0 25.7 -1.7 

Advertising 25 54 73 66 208 196 38.2 215.2 -5.8 

Computer and data 

processing services . 76 166 147 221 192 193 42.7 -13.1 0.5 

Database and other information services 17 63 87 85 108 118 71.0 27.1 27.1 

Research and development and testing 

services 11 18 27 29 38 45 38.1 31.0 18.4 

Management, consulting, and public 

relations services . . . 37 52 37 36 77 93 -0.9 113.9 20.8 

Legal services 19 76 98 97 115 98 72.2 18.6 -14.8 

Construction, engineering, architectural, and mining . . . . 87 87 17 47 45 36 -18.6 -4.3 -20.0 

Industrial engineering . . 9 7 9 12 69 (3) 10.1 475.0 (4) 

Installation, maintenance and repair 

of equipment 195 238 247 258 251 247 9.8 -2.7 -1.6 

Other business, professional, and technical services 106 235 212 207 224 (3) 25.0 8.2 (4) 

Other services (3) 884 744 696 590 567 (4) -15.2 -3.9 

See footnotes at end of table. 

6-226 6-226
Table 6-69-1 

U.S. cross-border trade in services: Exports to Canada and Mexico, 1990-95--Continued 

Item 1990 1991 1992 1993 1994 1995 1990-931 1993-94 1994-95 

Mexico: 

Million dollars Percent 

Total2 7,387 8,225 8,647 8,427 8,814 6,205 4.5 4.6 -29.6 

Transportation: 

Travel 5,108 5,367 5,696 5,119 4,866 2,857 0.1 -4.9 -41.3 

Passenger fares 464 514 527 554 733 584 6.1 32.3 -20.3 

Freight 114 142 153 147 '231 137 8.8 57.1 -40.7 

Port services 232 270 262 319 304 260 11.2 -4.7 -14.5 

Other 48 48 52 43 54 76 -3.6 25.6 40.7 

Royalties and license fees: 

Affiliated 191 270 (3) 379 468 (3) 25.7 23.5 (4) 

Unaffiliated 40 59 (3) 84 90 (3) 28.1 7.1 (4) 

Other private services: 

Affiliated 129 145 214 284 412 283 30.1 45.1 -31.3 

Unaffiliated 1,092 1,412 1,325 1,497 1,656 1,594 11.1 10.6 -3.7 

Education 92 96 101 120 131 152 9.3 9.2 16.0 

Financial services 129 250 212 230 231 189 21.3 0.4 -18.2 

Insurance: 

Premiums 44 59 89 126 117 95 42.0 -7.1 -18.8 

Losses 64 32 32 49 68 59 -8.5 38.8 -13.2 

Balance -20 27 57 77 50 37 (5) -35.1 -26.0 

Telecommunications . . . . (3) 169 158 180 198 218 (4) 10.0 10.1 

Film and tape rentals . . . . 34 18 35 45 58 62 9.8 28.9 6.9 

Business, professional, 

and technical services . 419 516 421 495 620 553 5.7 25.3 -10.8 

Advertising 0 10 10 11 14 (3) (4) 27.3 (4) 

Computer and data 

processing services . 19 28 39 54 65 62 41.6 20.4 -4.6 

Database and other information services 8 12 14 17 30 31 28.6 76.5 3.3 

Research and development and testing 

services 1 5 3 6 6 5 81.7 0.0 -16.7 

Management, consulting, and public 

relations services . . . 2 39 29 21 52 36 119.0 147.6 -30.8 

Legal services 3 13 16 19 29 25 85.0 52.6 -13.8 

Construction, engineering, architectural, and mining . . . . 8 16 24 45 73 53 77.9 62.2 -27.4 

Industrial engineering 7 13 12 5 19 26 -10.6 280.0 36.8 

Installation, maintenance 

and repair of equipment 219 243 189 222 232 201 0.5 4.5 -13.4 

Other business, professional, and technical services 152 135 85 90 99 (3) -16.0 10.0 (4) 

Other services (3) 353 377 394, 427 446 (4) 8.4 4.4 

Average annual rate of change. 

2Totals for 1990 and 1991 were revised, but published data on individual services are available only as originally reported. 

3Suppressed to avoid disclosure of data of individual companies. 

4Not available. 

5Not meaningful figure. 

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business. 

6-227 

6-227
Table 6-69-2 

U.S. cross-border trade in services: Imports from Canada and Mexico, 1990-95 

Item 1990 1991 1992 1993 1994 1995 1990-93' 1993-94 1994-95 

Canada: 

Million dollars Percent 

Total2 9,282 9,877 9,763 10,443 11,521 12,378 4.0 10.3 7.4 

Transportation: 

Travel 3,541 3,705 3,554 3,692 3,914 4,319 1.4 6.0 10.3 

Passenger fares 256 249 227 260 302 306 0.5 16.2 1.3 

Freight 229 2,156 2,275 2,360 2,716 2,886 117.6 15.1 6.3 

Port services 394 422 393 414 456 541 1.7 10.1 18.6 

Other 105 111 124 136 148 149 9.0 8.8 0.7 

Royalties and license fees: 

Affiliated 44 47 55 68 43 109 15.6 -36.8 153.5 

Unaffiliated 25 30 26 25 33 29 0.0 32.0 -12.1 

Other private services: 

Affiliated 1,589 1,425 1,306 1,724 1,816 2,023 2.8 5.3 11.4 

Unaffiliated 1,332 1,731 1,804 1,763 2,093 2,016 9.8 18.7 -3.7 

Education 6 7 8 8 8 8 10.1 0.0 0.0 

Financial services 131 190 67 97 122 164 -9.5 25.8 34.4 

Insurance: 

Premiums 833 1,025 1,132 1,048 1,128 1,101 8.0 7.6 -2.4 

Losses 607 481 473 516 431 536 -5.3 -16.5 24.4 

Balance 226 544 658 532 697 565 33.0 31.0 -18.9 

Telecommunications 315 319 330 361 390 346 4.6 8.0 -11.3 

Film and tape rentals 2 11 13 16 28 67 100.0 75.0 139.3 

Business, professional, 

and technical services . 357 362 435 458 549 553 8.7 19.9 0.7 

Advertising 6 25 55 58 47 42 113.0 -19.0 -10.6 

Computer and data 

processing services . 9 19 19 14 31 49 15.9 121.4 58.1 

Database and other 

information services . 4 8 7 11 9 . 13 40.1 -18.2 44.4 

Research and development and testing 

services 11 35 24 29 35 34 38.1 20.7 -2.9 

Management,consuiting, and public 

relations services . 9 11 9 10 29 45 3.6 190.0 55.2 

Legal services 2 15 22 22 23 22 122.4 4.5 -4.3 

Construction, engineering, architectural, and mining .. . 11 43 42 51 59 56 66.7 15.7 -5.1 

Industrial engineering . . 8 8 20 14 17 34 20.5 21.4 100.0 

Installation, maintenance and repair of 

equipment 265 121 145 163 197 137 -15.0 20.9 -30.5 

Other business, professional, and technical services 31 76 94 86 102 121 40.5 18.6 18.6 

Other services 298 309 305 307 327 380 1.0 6.5 16.2 

See footnotes at end of table. 

6-228 6-228
Table 6-69-2 

U.S. cross-border trade in services: Imports from Canada and Mexico, 1990-95--Continued 

Item 1990 1991 1992 1993 1994 1995 1990-93' 1993-94 1994-95 

Mexico: 

Million dollars Percent 

Total2 7,386 7,757 8,031 8,183 8,525 8,586 3.5 4.2 0.7 

Transportation: 

Travel 4,879 5,111 5,160 5,162 5,334 5,316 1.9 3.3 -0.3 

Passenger fares 565 531 635 641 601 560 4.3 -6.2 -6.8 

Freight 75 86 64 52 57 85 -11.5 9.6 49.1 

Port services 264 276 290 298 369 336 4.1 23.8 -8.9 

Other 3 2 3 4 2 2 10.1 -50.0 0.0 

Royalties and license fees: 

Affiliated 3 9 9 11 (3) (3) 54.0 (5) (5) 

Unaffiliated (3) 1 2 2 (3) (3) (5) (5) (5) 

Other private services: 

Affiliated (3) 32 37 67 84 93 (5) 25.4 10.7 

Unaffiliated (3) 1,736 1,830 1,947 2,051 2,148 (5) 5.3 4.7 

Education 50 79 65 66 67 71 9.7 1.5 6.0 

Financial services (4) 41 51 66 79 76 (5) 19.7 -3.8 

Insurance: 

Premiums 3 2 2 1 1 2 -30.7 0.0 100.0 

Losses 5 7 6 2 (4) 4 -26.3 (5) (5) 

Balance -2 -5 -4 -1 1 -2 -20.6 (6) (6) 

Telecommunications 729 755 818 884 963 1,001 6.6 8.9 3.9 

Film and tape rentals 103 0 1 10 2 0 -54.0 -80.0 -100.0 

Business, professional, 

and technical services 103 160 154 214 157 190 27.6 -26.6 21.0 

Advertising 1 2 21 21 29 25 175.9 38.1 -13.8 

Computer and data 

processing services . 1 (4) 1 1 1 2 0.0 0.0 100.0 

Database and other 

information services . 0 (4) (4) 6 (4) (4) 

(5) -100.0 (5) 

Research and development and testing 

services (4) 3 3 3 3 4 (5) 0.0 33.3 

Management, consulting, and public 

relations services (4) 4 4 4 4 4 (5) 0.0 0.0 

Legal services (4) 10 8 11 12 12 (5) 9.1 0.0 

Construction, enggineering, architectural, and mining . . . 1 1 (4) 2 7 12 26.0 250.0 71.4 

Industrial engineering 0 0 0 (4) (4) (4) (5) 

(5) (5) 

Installation, maintenance and repair of 

equipment 91 117 91 132 63 85 13.2 -52.3 34.9 

Other business, professional, and technical services 9 22 27 33 39 47 54.2 18.2 20.5 

Other services (3) 706 746 718 785 813 (5) 9.3 3.6 

1Average annual rate of change. 

2Totals for 1990 and 1991 were revised, but published data on individual services are available only as originally reported. 

3Suppressed to avoid disclosure of data of individual companies. 

4Less than $500,000. 

5Not available. 

6Not meaningful figure. 

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business. 

6-229 

6-229
Table 6-694 

U.S. cross-border trade in services: Trade balance with Canada and Mexico, 1990-95 

Item 1990 1991 1992 1993 1994 1995 1990-93' 1993-94 1994-95 

Canada: 

Million dollars Percent 

Total2 6,729 8,290 8,214 7,214 5,842 5,571 2.3 -19.0 -4.6 

Transportation: 

Travel 3,552 4,795 4,628 3,766 2,338 1,888 2.0 -37.9 -19.2 

Passenger fares 723 791 872 931 884 978 8.8 -5.0 10.6 

Freight 264 -687 -662 -766 -981 -1,083 (3) -28.1 -10.4 

Port services 73 56 101 63 79 14 -4.8 25.4 -82.3 

Other -18 -19 -21 -49 -39 0 -39.6 20.4 (3) 

Royalties and license fees: 

Affiliated 990 1,046 1,019 979 983 985 -0.4 0.4 0.2 

Unaffiliated 139 134 139 135 122 112 -1.0 -9.6 -8.2 

Other private services: 

Affiliated 845 814 1,044 925 1,246 1,239 3.1 34.7 -0.6 

Unaffiliated 1,449 1,528 1,093 1,231 1,210 1,438 -5.3 -1.7 18.8 

Education 239 262 293 335 375 393 11.9 11.9 4.8 

Financial services 118 133 281 331 256 278 41.0 -22.7 8.6 

Insurance: 

Premiums 1,638 526 -184 -212 -107 94 (3) 49.5 (3) 

Losses 1,221 571 153 101 208 173 -56.4 105.9 -16.8 

Balance 417 -45 -336 -313 -315 -78 (3) -0.6 75.2 

Telecommunications (4) -31 -101 -109 -146 -91 29.8 -33.9 37.7 

Film and tape rentals 219 160 222 218 254 254 -0.2 16.5 0.0 

Business, professional, 

and technical 

services 225 634 518 598 778 751 38.5 30.1 -3.5 

Advertising 19 29 18 8 161 154 -25.0 1912.5 -4.3 

Computer and data 

processing 

services 67 147 128 207 161 144 45.6 -22.2 -10.6 

Database and other 

information 

services 13 55 80 74 99 105 78.6 33.8 6.1 

Research and 

development and 

testing services 0 -17 3 0 3 11 (3) (3) 266.7 

Management, consulting, 

and public relations 

services 28 41 28 26 48 48 -2.4 84.6 0.0 

Legal services 17 61 76 75 92 76 64.0 22.7 -17.4 

Construction, engineering, architectural, and 

mining 76 44 -25 -4 -14 -20 (3) -250.0 -42.9 

Industrial engineering 1 -1 -11 -2 52 (4) (3) (3) (3) 

Installation, maintenance and repair 

of equipment -70 117 102 95 54 110 (3) -43.2 103.7 

Other business, professional, and technical 

services 75 159 118 121 122 (a

) 17.3 0.8 (4) 

Other services es ) 575 439 389 263 187 (4) -32.4 -28.9 

See footnotes at end of table. 

6-230 

6-230
Table 6-69-3 

U.S. cross-border trade in services: Trade balance with Canada and Mexico, 1990-95--Continued 

Item 1990 1991 1992 1993 1994 1995 1990-931 1993-94 1994-95 

Mexico: 

Million dollars Percent 

Total2 1 468 616 244 289 -2,381 524.9 18.4 (3) 

Transportation: 

Travel 229 256 536 -43 -468 -2,459 (3) -988.4 -425.4 

Passenger fares -101 -17 -108 -87 132 24 4.9 (3) -81.8 

Freight 39 56 89 95 174 52 34.6 83.2 -70.1 

Port services -32 -6 -28 21 -65 -76 (3) (3) -16.9 

Other 45 46 49 39 52 74 -4.7 33.3 42.3 

Royalties and license fees: 

Affiliated 188 261 (4) 368 468 0 25.1 27.2 (3) 

Unaffiliated (4) 58 (4) 82 90 0 (5) 9.8 (3) 

Other private services: 

Affiliated (4) 113 177 217 328 190 (5) 51.2 -42.1 

Unaffiliated (4) -324 505 -450 -395 -554 (5) 12.2 -40.3 

Education 42 17 36 54 64 81 8.7 18.5 26.6 

Financial services 129 209 161 164 152 113 8.3 -7.3 -25.7 

Insurance: 

Premiums 41 57 87 125 116 93 45.0 -7.2 -19.8 

Losses 59 25 26 47 68 55 -7.3 44.7 -19.1 

Balance -18 32 61 78 49 39 (3) -37.2 -20.4 

Telecommunications (4) -585 -660 -704 -765 -783 (4) -8.7 -2.4 

Film and tape rentals -69 18 34 35 56 62 (3) 60.1 10.7 

Business, professional, 

and technical services . . 316 356 267 281 463 363 -3.8 64.8 -21.6 

Advertising -1 8 -11 -10 -15 -25 -115.4 -50.0 -66.7 

Computer and data 

processing 

services 18 28 38 53 64 60 43.3 20.8 -6.3 

Database and other information services 8 12 14 11 30 31 11.2 172.7 3.3 

Research and development and 

testing services 1 2 0 3 3 1 44.2 0.0 -66.7 

Management, consulting, and public 

relations services 2 35 25 17 48 32 104.1 182.4 -33.3 

Legal services 3 3 8 8 17 13 38.7 112.5 -23.5 

Construction, engineering, architectural, 

and mining 7 15 24 43 66 41 83.1 53.5 -37.9 

Industrial engineering 7 13 12 5 19 26 -10.6 280.0 36.8 

Installation, maintenance and repair of 

equipment 128 126 98 90 169 116 -11.1 87.8 -31.4 

Other business, professional, and technical 

services 143 113 58 57 60 (4) -26.4 5.3 (4) 

Other services (4) -353 -369 -324 -358 -367 (4) -10.5 -2.5 

Average annual rate of change. 

2Totals for 1990 and 1991 were revised, but published data on individual services are available only as originally reported. 

3Not meaningful figure. 

4Not available. 

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business. 

6-231 

6-231
Land transportation services.--In 1995, U.S. exports of land transportation (railway' and trucking) 

services to Mexico stood at about $213 million, compared to U.S. imports of $87 million. Unrelated to 

NAFTA, privatization of the Mexican rail system enabled a joint venture between Kansas City Southern 

Industries and Transportacion Maritime Mexicana to bid successfully on the 50-year concession for Mexico's 

Northeast Line, which carries 40 percent of Mexico's rail traffic (in ton-miles). The joint venture will hold 

80 percent of the Northeast Line, with the Mexican Government retaining 20 percent, pending a public stock 

offering within the next 2 years.' With regard to trucking services, reciprocal access provisions under 

NAFTA have yet to take effect. Since December 1995, Mexican companies have been able to apply for 

approval to begin providing cross-border truck and bus services into the United States.' The United States 

has accepted applications from Mexican motor carriers to operate between Mexico and the states of 

California, Arizona, New Mexico, and Texas, but final processing of applications remains postponed until 

U.S. concerns about commercial vehicle safety are addressed.' Following the U.S. Government's decision to 

postpone the processing of applications by Mexico, Mexican authorities reportedly retaliated against U.S. 

trucking firms transporting cargo increasingly in 53-foot trailers.' The U.S. and Mexican Governments had 

previously agreed such trailers, longer than standard 48-foot trailers, could be used on international trips on 

specific roads, but Mexican authorities reportedly began to check vehicle lengths more closely, resulting in 

fines, delays, longer lines, and increased time and costs for U.S. carriers. Further adverse impact ensued, as a 

leading U.S. carrier reportedly canceled a contract for 53-foot trailers with an Indiana tractor trailer 

manufacturer, resulting in the layoff of hundreds of workers.' In a related issue, Mexico continues to deny 

MFN treatment to U.S. trucking companies,' which cannot obtain authorization to use transportation 

terminals within 20 kilometers of the Mexican side of the border. 

Telecommunication services.--In 1995, U.S. imports of telecommunication services from Mexico 

amounted to $1 billion, far exceeding U.S. exports of $218 million. Although the Telecommunications 

chapter of NAFTA' provides for the construction and use of private corporate communications networks and 

the provision and use of value-added services, such services generate considerably smaller revenues relative 

to basic telecommunication services, which were excluded from the agreement." However, on February 15, 

1997, Mexico joined the WTO agreement on basic telecommunication services, allowing 49-percent foreign 

investment in wireline services and 100-percent in cellular and private leased-line services. Consequently, 

U.S. firms made capital improvements in infrastructure to support business with Mexico. For example, Union 

Pacific spent $6 million to expand its Port Laredo rail complex. Joe Heastie, Products Manager, Mexico Market, Union 

Pacific Railroad, testimony before the USITC, May 16, 1997. 

"Mexico's Railway Privatization: KCS Maps 'The NAFTA Railroad'," Railway Age, Jan. 1997, pp. 49-51. 

NAFTA, Annex I, p. I-U-18-20. 

United States Trade Representative, 1997 National Trade Estimate Report on Foreign Trade Barriers, 

(Washington, DC: GPO, 1997), pp. 264-265, and Financial Times, Mar. 13, 1997, p. 8. 

The Honorable Steve Buyer, U.S. House of Representatives, testimony before the USITC, May 15, 1997; and 

Michael T. Hodson, Executive Vice President, Celadon Trucking Services, testimony before the USITC, May 16, 1997. 

The Honorable Steve Buyer, U.S. House of Representatives, testimony before the USITC, May 15, 1997. 

U.S. small package delivery firms reportedly do not receive national treatment in Mexico. Despite numerous 

promises and an offer of U.S. reciprocity, contingent on Mexico's granting national treatment, Mexico has not yet 

granted full operating authority to U.S. firms for such delivery services. This issue has been the subject of ongoing 

bilateral consultations between the U.S. and Mexican Governments, including formal consultations at both the staff and 

ministerial level, pursuant to the dispute resolution procedures of NAFTA chapter 20. United States Trade 

Representative, "1997 National Trade Estimate Report on Foreign Trade Barriers," p. 264, and USTR 

telephone interview by USITC staff, Mar. 10, 1997. 

1°NAFTA, ch. 13, art. 1301. 

11 Ibid. 

6-232 6-232
employment among U.S. affiliates that provide wireless services is expected to increase substantially by the 

year 2000, as U.S. firms enter the growing Mexican cellular service market.' This likely will not adversely 

affect U.S. employment in the telecommunication service industry, which increased by an estimated 8 percent, 

to 946,400 workers, during 1993-96. 1 ' To date, the most significant U.S. investment in Mexico's 

telecommunications industry has resulted from the privatization of Telefonos de Mexico (TELMEX), which 

began in 1991. The U.S. firm SBC Communications, Inc. currently has a 10-percent stake in TELMEX, 

amounting to approximately $1 billion.' Further, AT&T, MCI, and Bell Atlantic, along with their Mexican 

partners, are expected to invest more than $4 billion in the Mexican long-distance and cellular markets over 

the next 10 years.' 

Banking and securities services.--In 1995, U.S. cross-border exports of banking and securities 

services to Mexico amounted to $189 million, while corresponding U.S. imports stood at $76 million. The 

NAFTA Financial Services chapter' accords benefits to U.S. firms and modestly increases the permissible 

aggregate market share" of foreign banks and securities firms' operating in Mexico. Prior to NAFTA, 

Citibank was the only foreign-owned bank in Mexico, because it had been established before investment 

restrictions began in 1966. Under NAFTA, Mexico published regulations in April 1994 establishing the 

procedures for submission and consideration of applications for further foreign participation in its 

commercial banking system. Upon processing initial submissions, Mexico authorized 52 foreign financial 

institutions to invest in, acquire, or establish wholly owned subsidiaries, of which 18 were commercial banks, 

12 from the United States. The peso crisis delayed expansion plans for many of these banks by six months to 

a year. Nevertheless, by spring 1996 numerous banks' had established subsidiaries in Mexico under 

NAFTA provisions that permit up to 100 percent foreign ownership.' Also, 9 of the 16 foreign securities 

firms operating in Mexico were from the United States.' Leasing companies such as GE Capital, Ford 

Credit International, and Caterpillar Financial Services also opened offices.' 

Engineering and construction services.--In 1995, U.S. exports of construction, engineering, 

architectural, and mining services to Mexico stood at $53 million, surpassing U.S. imports of $12 million. 

There are no specific NAFTA provisions that significantly impede the provision of construction services, 

Increasing employment among U.S. affiliates in Mexico does not necessarily signal a decrease in U.S. employment, 

as service provision in Mexico may require that additional tasks be performed in the United States. 

13U.S. Bureau of Labor Statistics, Employment and Earnings, found at Internet http://stats.b1s.gov:80/cgi-bin/srgate. 

SBC Communications Inc., About SBC, International Operations, found on Internet at 

http://www.sbc.com/About/internationalltml, Apr. 24, 1997, and SBC Communications Inc. annual report, 1995. 

" Eden Zoller, "Mexico Gets Set for New Year Competition in Long-Distance," Financial Times Telecom Markets, 

Dec. 18, 1996. 

16NAFTA, ch. 14. 

17NAFTA, Annex VII(B). If foreign banks and securities firms achieve an aggregate 25 and 30 percent, respectively, 

of the Mexican market between 2000 and 2004, the annex stipulates that Mexico could freeze foreign financial affiliates' 

market share at that level. If imposed, such a restriction could not exceed 3 years. 

'8All foreign banks would be included, whether or not parties to NAFTA. 

'9Included are Chemical/Chase Manhattan Bank, Bank of America, J.P. Morgan, Republic Bank of New York, Bank 

of Boston, NationsBank, American Express Bank, and First Bank of Chicago. 

20"Foreign Commercial Banks," Financing Foreign Operations, Apr. 1, 1996. 

'Includes securities firms of Citibank, J.P. Morgan, Goldman Sachs, Bankers Trust, Merrill Lynch, Chemical, 

Lehman Brothers, Morgan Stanley, and Bear Stearns. Mexican Investment Board, Economic and Business Overview, 

"VIII. Financial Environment," World Wide Web, found at http://www.quicklink.corn/mexmib/fmancia.html, Feb. 18, 

1997. 

"NAFTA's effect on financial services in Mexico," Financing Foreign Operations, Apr. 1, 1995. 

6-233 6-233
except for reservations by Mexico with respect to certain investments' or certain types of construction, i.e., 

concessions for road construction, which may be granted only to Mexican nationals and Mexican 

enterprises.' The only provision relating specifically to engineering services covers the temporary licensing 

of engineers.' 

Adverse economic conditions in Mexico drove the Mexican construction market into a deep recession 

in 1995-96, which resulted in canceled or postponed projects and slowed the pace of U.S. firms' expansion 

into that market. Accordingly, the anticipated beneficial effects on U.S. wages, employment, and 

investment' as a result of NAFTA have thus far failed to materialize on a broad scale. Nevertheless, 

construction activity is said to be increasing in Brownsville, TX, spurred by maquiladora growth in nearby 

Matamoros, Mexico, and evidenced by new residential developments, hospitals, and restaurants.' Several 

small Arizona construction firms have also reported increased activity in Mexico.' In addition, numerous 

prospective business opportunities for U.S. firms reportedly exist in Mexico, as suggested by plans for the 

development of transportation infrastructure (roads, ports, and airports), power generation plants, and 

pipelines. Industry representatives indicate that U.S. contractors are both establishing companies in Mexico 

and investigating the feasibility of joint ventures.' Although NAFTA provisions accord the Mexican 

Government the right to screen all U.S. investment above 49 percent in existing and new Mexican 

construction firms until January 1, 1999, 3°industry representatives note that such provisions do not constitute 

a substantial impediment to investment by U.S. engineering and construction firms, many of which prefer to 

partner with local interests.' 

NAFTA has specific provisions to encourage the service professions to work toward mutual 

recognition and the portability of credentials based on objective criteria stated in the agreement.' 

Accordingly, in June 1995, members of the engineering profession became the first profession to reach 

agreement under NAFTA on a mutual recognition document. Before the agreement can enter into force, 

however, ratification by professional associations in each country and at state and provincial levels in the 

' NAFTA, Annex I, pp. I-M-21-24. 

'ANAFTA, Annex I, p. I-M-72. 

zs NAFTA, Annex 1210.5, section C. 

se USITC, Potential Impact on the U.S. Economy and Selected Industries of the North American Free -Trade 

Agreement (investigation No. 332 -337), USITC publication 2596, Jan. 1993, ch. 41. 

Rick Lund, Director of Communications and Research, Brownsville Economic Development Council, testimony 

before the USITC, May 16, 1997. 

Carol Colombo, Governor's representative for NAFTA implementation, State of Arizona, testimony before the 

USITC, May 16, 1997. 

Industry representative, facsimile letter to USITC staff, Feb. 5, 1997; U.S. Department of State telegram, message 

no. 12958, prepared by U.S. Consulate, Cuidad Juarez, Jan. 19, 1996; and USDOC, International Trade Administration, 

Construction Review, Spring 1994, pp. iv-vii. 

so USDOC, ITA, Construction Review, Spring 1994, and USITC, Potential Impact of the U.S. Economy and 

Selected Industries of the North American Free-Trade Agreement (investigation No. 332-337), USITC publication 

2596, Jan. 1993, pp. 41-2. 

'Industry representative, interview by USITC staff, Washington DC, Oct. 23, 1996. 

NAFTA, Annex 1210.5, section A. 

6-234 6-234
United States and Canada must occur. 33Although Mexico and Canada have formally adopted the agreement, 

Texas is the only U.S. State to have ratified the agreement to date.' 

' Office of the United States Trade Representative, press release, June 5, 1995, found at World Wide Web, 

http://www.ustr.gotheleases/1995/06/95-39, May 8, 1997. 

'Industry representative, telephone interview by USITC staff, Mar. 12, 1997, and U.S. Government official, 

interview by USITC staff, Mar. 13, 1997. 

6-235 6-235
6-236
APPENDIX A 

REQUEST LETTER 

A-1
A-2
THE UNITED STATES TRADE REPRESENTATIVE 

Executive Office of the President 

Washington. D.C. 20506 

sl the. April 22, 1997 

%.- 

= 

%.175 CA I)r, 

--.4 

The Honorable Marcia E. Miller 

Chairman 

U.S. International Trade Commission 

500 E Street, SW 

Washington, D.C. 20436 

Dear Madam Chairman: 

The North American Free Trade Agreement (NAFTA, or the Agreement) was signed on 

December 17, 1992. In December 1993, the President signed the NAFTA Implementation Act 

(19 U.S.C. 3301), which contains the provisions necessary or appropriate to implement the 

Agreement in U.S. domestic law. Section 512 of the Act (19 U.S.C. 3462) requires the President 

to provide to the Congress by July 1, 1997, a comprehensive study of the operation and effects of 

the Agreement during its first three years. 

The Administration is currently assessing the economic impact of the Agreement on the United 

States for that report to Congress. The Agreement has been in effect for only three years, during 

which time its provisions have not been fully implemented, the effects of its provisions have not 

been fully realized, and the trade environment has been subjected to the effects of the Uruguay 

Round agreements, exchange-rate and related financial instability in Mexico, a deep recession in 

Mexico, and a strong U.S. domestic economy. Realizing that these and other factors greatly 

complicate an analysis of NAFTA and its effects, we have begun to collect factual data and 

analyses of the impact of NAFTA from a variety of sources. In the past, the Commission has 

been a valuable source of information and analysis for the Administration regarding the potential 

impact of trade agreements on the U.S. economy. For the current review, the Commission's 

economic and industry-specific expertise will again be a valuable resource which the 

Administration will draw upon in preparing its report to Congress. 

Under authority delegated by the President and pursuant to section 332(g) of the Tariff Act of 

1930, as amended, I request that the Commission institute an investigation to address the 

economic effects of NAFTA through both quantitative and qualitative analysis. In addition, 

please provide: (1) a literature review and analysis of existing studies that have assessed the 

impact on the United States of NAFTA in its first three years, (2) a discussion of the technical 

issues involved in formal economic assessment of the impact of a partially implemented free 

trade agreement, while considering other non-agreement factors affecting trade flows during the 

same period, and, to the extent possible (3) an analysis of the aggregate effects on the U.S. 

economy of the Agreement in its first three years. 

A-3
The Honorable Marcia E. Miller 

Page 2 

The analysis of the impact that the Agreement has had on U.S. trade with its NAFTA partners 

should be derived using formal empirical methods, as well as bringing to bear the in-depth 

industry expertise maintained by the Commission. This analysis should consider relevant microand macro-economic factors, such as exchange-rate fluctuations (including the effects of the peso 

crisis), economic growth, and other agreements, including the U.S.-Canada Free Trade 

Agreement and the phase-in of Uruguay Round commitments, that affected the U.S. economy, so 

as to isolate those effects, to the extent feasible, from the factors that relate specifically to the 

NAFTA. 

As described in section 512, the specific U.S. industries to be analyzed for NAFTA effects 

should be those in which U.S. exports to Mexico or Canada or imports into the United States 

from Mexico or Canada have increased significantly. It is our expectation that the industries 

analyzed would be those that account for the majority of U.S. trade within NAFTA, that the 

industries examined will be largely inclusive of industries significantly affected by NAFTA, and 

that the analyses of these industries would be aggregated as appropriate. In addition to 

significant trade effects, such analyses should examine changes in wages, employment, 

productivity, and investment that occurred as a result of NAFTA, and changes in U.S. trade with 

third countries induced by NAFTA. In assessing all these factors, to the extent possible, the 

study should distinguish between the consequences of NAFTA and events that likely would have 

occurred without the Agreement, and should consider NAFTA effects in the context of the 

overall performance of the U.S. industries analyzed. 

In your analyses, please provide a summary of the important NAFTA-specific trade and tariff 

actions in the United States that have occun ed. With respect to the tariff effects in these 

analyses, please consider the differences between U.S. tariffs applied to goods from our NAFTA 

trading partners and the tariff rate that would have applied to those goods in the absence of the 

Agreement. Also consider the important NAFTA-specific trade and tariff actions by our 

NAFTA trading partners that have occurred. 

In accordance with policy of the USTR, I direct you to mark or identify as "confidential" such 

portions of the Commission's report and its working papers as my office will identify in a 

classification guide. Executive Order 12958 and its implementing regulations require that 

classification guides identify or categorize the elements of information that require protection. 

Accordingly, I request that you provide my office with an outline of the report as soon as 

possible. Based upon this outline and my office's knowledge of the information to be covered in 

the report, a USTR official with original classification authority will provide detailed 

instructions. 

A-4
The Honorable Marcia E. Miller 

Page 3 

The Commission is requested to provide its final report no later than June 6, 1997. The 

Commission's assistance in this matter is greatly appreciated. 

Sincerely, 

Charlene Barshefsky 

A-5
- 

A-6
APPENDIX B 

NOTICE OF INITIATION AND PUBLIC HEARING 

B-1
B-2
UNITED STATES INTERNATIONAL TRADE COMMISSION 

Washington, DC 

(Investigation 332-381) 

THE IMPACT OF THE NORTH AMERICAN FREE TRADE AGREEMENT ON THE U.S. 

ECONOMY AND INDUSTRIES: A THREE YEAR REVIEW 

AGENCY: United States International Trade Commission 

ACTION: Institution of investigation and scheduling of public bearing. 

EFFECTIVE DATE: April 25, 1997 

SUMMARY: Following receipt on April 23, 1997, of a request from the Office of the U. S. Trade 

Representative (USTR), the Commis' sion instituted investigation No: 332-381, The Impact of the North 

Anted= Free Trade Agreement on the U.S. Economy and Industries: A Three Year Review, under section 

332(g) of the Tariff Act of 1930 (19 U.S.C. 1332(g)). 

FOR FURTHER INFORMATION: Information on economic aspects of the investigation may be obtained 

from Kyle Johnson, Office of Economics (202-205-3229), Hugh Arce, Office of Economics (702-205-

3234), or William Donnelly, Office of Economics (202-205-3223), and on legal aspects, from William 

Gearhart, Office of the General Counsel (202-205-3091). The media should contact Margaret O'Laughlin, 

Office of External Relations (202-205-1819). Hearing impaired individuals are advised that information on 

this matter can be obtained by contacting the TDD terminal on (202-205-1810). 

BACKGROUND: The USTR's letter requesting the investigation was received on Apnl 23, 1997. The 

-letter notes that section 512 of the North American Free Trade Agreement Implementation Act (19 U.S.C. 

3462) requires the President to provide to the Congress by July 1, 1997, a comprehensive study of the 

operation and effects of the NAFTA during its first 3 years. The letter states that the Commission's 

investigation and report are to serve as a resource which the Anion can draw upon in preparing its 

report tom. 

As requested by USTR, the Commission in its report on the investigation will provide (1) a literature 

review and analysis of existing Mathes that have assessed the impact on the United States of NAFTA in its 

first 3 years; (2) a &elusion of the technical issues involved in formal economic assessment of the impact 

of a partially implemented free trade agreement, while considedng other non-agreement factors affecting 

trade flows during the same period; and (3), to the extent possible, an analysis of the aggregate effects on 

the economy of the Agreement in its first 3 years. 

As requested, the Commission in its analysis' of the impact of NAFTA on U.S. trade with NAFTA 

partners will use formal empirical methods, as well as the industry expertise maintained by the 

Commission. It will consider relevant micro- and macro-economic factors, such as exchange-rate 

fluctuations ('including the effects of the peso crisis), economic growth, and other agreements, including 

the U.S.-Canada Free Trade Agreement and the phase in of Uruguay Round commitments, that affected 

the U.S. economy, so as to isolate those effects, to the extent feasible, from the factors that relate 

specifically to the NAFTA. 

As requested, the Commission will examine for NAFTA effects the U.S. industries in which U.S. exports 

to Mexico or Canada or imports into the United States from Mexico or Canada have increased 

B-3
2 

significantly. The Commission will also examine, in ode as to trade effects, dianges in wages, 

employment, productivity, and investment that occurred as a result of NAPTA, and changes in U.S. trade 

with third countries induced by NAPTA. In assessing these factors, the Commission will, to- the extent 

possible, attempt to distinguish between the consequences of NAFTA and events that likely would have 

occurred without the Agreement, and will consider NAFTA effects in the context of the overall 

performance of the U.S. industries analyzed. 

PUBLIC HEARING: A public hearing in connection with the investigation will be held in the Commission 

hearing room, 500 E Street, SW, Washington, D.C. 20436, beginning at 9:30 a.m. on May 15, 1.997, and 

continuing on May 16 if an additional day is needed. All persons have the right to appear by counsel or in 

person to present information and to be heard. Requests to appear at the public hearing should be filed 

with the Secretary, United States International Trade Commission, 500 E Street, SW, Washington, D.C. 

no later than noon, May 9, 1997. Hearing statements should be filed not later than COB May 12, 1997. 

Any posthearing submissions must be filed not later than COB May 22, 1.997. 

In the event that, as of noon on May 9, 1997, no witnesses are scheduled to appear at the hearing, the 

hearing will be canceled. Any person interested in auenting the hearing as an observer or nonparticipant 

may call the Secretary to the Commission (202-205-1816) after May 12, 1997, to determine whether the 

hearing will be held., 

WRITTEN SUBMISSIONS: Interested persons are invited to submit written statements (one original and 

14 copies) concerning the matters to be addressed in the report. Commercial or financial information that 

a party desires the Commission to treat as confidential must be submitted on separate sheets of *per, each 

clearly marked "Confidential Business Information" at the top. (Generally, submission of separate 

confidential and public versions of the submission would be appropriate.) All submissions requesting 

confidential treatment must conform with the requirements of § 201.6 of the Commission's Rules of 

Practice and Procedure (19 CFR201.6), All written submissions, except for confidential business 

information, will be made available in the Office of the Secretary to the Commission for inspection by 

interested persons. To be assured of submission.to USTR with the report, written statements relating to 

the Commission's report should be submitted at the earliest practical date and should be received no later 

than May 22, 1997. All submissions should be addressed to the Secretary, U.S. International Trade 

Commission, 500 E Street, SW, Washington, D..C. 20436. 

Persons with mobility 'mini:meats who will need special assistance in gaining access to the Commission 

should contact the Office of the Secretary at 202-205-2000. 

By order of the Commission. 

ckntaR=,0 

Secretary 

Issued: April 25, 1997 

B-4
APPENDIX C 

TECHNICAL ISSUES AND RESULTS IN EMPIRICAL ESTIMATIONS 

APPENDIX C 

TECHNICAL ISSUES. AND RESULTS IN EMPIRICAL ESTIMATIONS 

This appendix is a technical presentation of the methodology and a discussion of more.technical 

issues, challenges, and results associated with empirical estimations of trade, employment, earnings, and 

productivity effects associated with NAFTA. These estimates are summarized and reported in chapter 4, 

but for clarity that chapter avoids a full discussion of technical issues and challenges faced while 

attempting to estimate the impact of NAFTA on these variables. This appendix is organized to follow the 

sequence of topics covered in chapter 4. Technical material associated with trade flow estimations are 

followed by a discussions of the employment and earnings estimates. The methodology used to estimate 

productivity effects is in the third major section and the appendix is concluded with a set of tables 

presenting detailed data on foreign direct investment flows, which is discussed in chapter 3. 

Econometric Estimates of Trade Functions 

The effects of the NAFTA on U.S. trade with Canada and Mexico are analyzed at both industry 

and bilateral aggregate levels. The methodology used to empirically estimate the effects of NAFTA on 

these flows is identical. Issues and difficulties associated with trade flow estimations are reviewed first. 

The background literature that was used in developing the estimated model specification is described 

second, followed by a discussion of the specific import and export equations that are estimated. Timeseries issues that were identified and addressed are described in the next section and the disaggregated 

results used to compile tables 4-1, 4-2, and 4-3 are presented in table C-1. These disaggregated tables are 

summarized further in this appendix. Issues and results related to estimates of the aggregate bilateral 

trade flows are in the fmal section describing international trade flows. 

Issues in Trade Flow Estimations 

One of the important issues in trade flow modeling is the simultaneous occurrence of two or more 

events in an economy because a similarity in timing cannot be taken as a priori evidence of a relationship. 

Implementation of NAFTA (January 1994) occurred in close proximity to a number of other policy 

changes and economic shocks that may have significantly altered international trade flows. If NAFTA 

had constituted the only policy change over a several-year horizon, effects of the Agreement would be 

easier to distinguish. However, NAFTA effects are confounded by the establishment of the World Trade 

Organization and its associated agreements (January 1995), other bilateral and sectoral trade negotiations 

(e.g., Canada-Chile), unilateral trade and domestic policy changes (e.g., regulatory and tax policies), 

shifts in the political environment, and the business cycle. In addition, the sharp devaluation of the 

Mexican peso in December 1994 was a major post-NAFTA event that makes identification and separation 

of NAFTA effects difficult. 

Two elements are employed to enhance the likelihood of successfully separating the effects of 

concurrent events from one another. First, monthly data are used, which allows the model estimations to 

include 60 pre-NAFTA and 44 post-NAFTA observations. With this frequency of data the first 11 

observations in 1994 occurred with NAFTA in place, but before the sharp peso devaluation.' Second, a 

relatively high threshold is used to judge the occurrence of significant changes in U.S. imports and 

exports before those results are attributed to NAFTA. The threshold used to define significant NAFTAinduced effects requires that consistent changes in imports or exports occur over the entire 3-year period 

' Michael Kouparitsas, Federal Reserve Bank of Chicago, testified at the public hearing in connection with this 

study that high-frequency data should be used with time series econometric techniques. Public Hearing Transcript, 

p. 111. 

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C-1
following implementation of the Agreement' Likewise, industries for which there were no measurable 

changes in imports or exports in any of the 3 NAFTA years were also characterized as industries that 

were conclusive in that, as yet, NAFTA has had no discernible (positive or negative) effect on the 

industry. Industries are judged to have exhibited inconclusive NAFTA effects if the statistical results 

indicate a significant change in only 1 or 2 of the NAFTA years. 

Separating the effects of NAFTA on trade flows from those of other events cannot be 

conclusively determined using this classification scheme alone. In particular, concern exists that 

significant changes in an industry may be caused by an event outside the scope of NAFTA, but not 

explicitly modeled. This problem is addressed by supplementing the quantitative analysis with qualitative 

assessments of the industries identified for this study. For this aspect of the study, the Commission's 

industry expertise was used, and those assessments are contained in chapters 5 and 6. 

Another challenge in this analysis is separating the impact of tariff changes from the effects of 

changes in nontariff barriers. Within the realm of tariff changes, one also needs to distinguish the effects 

of direct tariff liberalizations from those of indirect tariff modifications. 3In a very narrowly focused 

study of individual industrial sectors, it may be possible to obtain sufficiently detailed industry-specific 

data to use empirical techniques that would enable one to separate tariff and nontariff effects with some 

degree of confidence. This type of exercise requires an exceptionally detailed analysis of each industry of 

interest, would greatly increase the data requirements for the 198 industries analyzed in this study, and is, 

consequently, beyond the scope of this request. 

Past work on the demand for imports and exports 

The estimation of international trade flows is a well studied area in economics. International 

trade theory has one of the longest histories in economics, and the wide availability of trade data has 

supported the empirical research testing the rich set of empirical questions derived from the theory. Data 

extend for long periods of time and can be found disaggregated by commodity. Also, the underlying 

theoretical basis for trade, which stems directly from consumer demand and production theory, provides a 

good basis for empirically testing a wide range of fundamental economic hypotheses. Finally, the 

empirical results provide income and price elasticities of demand and supply that have implications for a 

wide variety of policy issues. The purpose of this section is not to comprehensively review the empirical 

trade literature, but to focus on some of the significant developments in the literature that are relevant to 

the specification adopted for this analysis.' 

2 As is discussed in more detail in the next section, three binary variables for the years 1994, 1995 and 1996 are 

evaluated in the trade estimations to discern NAFTA consistent effects. If all three variables are statistically 

significant and have the same algebraic sign, then the NAFTA is concluded to have had an impact on U.S. bilateral 

trade volumes with Canada and Mexico. The term "statistically significant" indicates that there is a relatively large 

probability, for example, 90 or more out of 100, that the estimated effects of the variables characterized as 

significant would not have occurred by chance. 

3Indirect tariff changes refer to the impact of tariff modifications for third countries or related products. 

Because goods are substitutable (to a degree) across industries and countries, these are tariff effects that are distinct 

from the direct price effects on an industry caused by lower import duties in that industry. Separating the direct and 

indirect effects of tariff and nontariff liberalizations was not feasible in this analysis. 

For a comprehensive review of trade modeling as it pertains to the demand and supply of imports and exports, 

see, Morris Goldstein, and Mohsin Kahn, "Income and Price Effects in Foreign Trade," in R.W. Jones and P.B. 

Kenen (eds.), Handbook ofInternational Economics, Vol. II (Amsterdam: Elsevier Sciences Publishers B.V., 1985), 

pp. 1041-1105. 

C-2 

C-2
One of the most widely cited articles on import demand is that of Houthakker and Magee.' In this 

paper, Houthakker and Magee estimate demand elasticities for both imports and exports with respect to 

price and income for many countries. Their estimations specify basic aggregate import and export 

demand equations as a function of economic activity (income) and price. This type of specification 

assumes that the supply elasticity is infmite. In general, this assumption is based on the belief that firms 

are operating at less than full capacity. As such, prices are rigid. That is, if demand slackens, firms will 

cut production rather than price. Similarly, when demand increases, prices will hold until capacity has 

been achieved by all firms in the industry. Consequently, the supply curve remains flat until full capacity 

is reached.' Houthakker and Magee also assume the absence of "money illusion"' or more formally that 

the demand function is homogeneous of degree zero in price. Consequently, their price variable is 

specified as a relative price, i.e., for imports (P m/ PD) and for exports (Px/ PF) where Pm= price of 

imports, PD = price of domestic competing goods, Px= price of exports, and PF = price of competing 

goods in the foreign market. This specification constrains the import (export) demand elasticity with 

respect to import (export) prices to be equal in magnitude (but opposite in sign) to the elasticity with 

respect to domestic (foreign) prices. In general they find positive income elasticities and negative price 

elasticities. 

Murray and Gillman' followed with an examination of the assumption constraining import and 

domestic price variables to be equal but opposite in sign. They argue that at least for aggregate import 

demand estimations, the model is misspecified if one uses a relative price. They statistically test for this 

specification by estimating an import demand equation with domestic and import prices specified 

separately and testing the price coefficients to determine if they sum to zero.' In rejecting this hypothesis, 

they argue that prices in import demand models should be included separately. 

Another issue surrounding the estimation of trade equations is the specific form of the equation 

employed by researchers. Generally, trade equations have been estimated using a logarithmic 

transformation of the data because such a transformation allows the estimated coefficients to be 

interpreted as elasticities. Khan and Ross' specifically address this issue. They note that there is little in 

microeconomic theory regarding the appropriate functional form of demand relationships and point out 

that trade equations are generally specified as linear and linear in logarithms (double logarithmic). They 

note that each type of specification has its merits, but which functional form is more appropriate is an 

empirical question. They specify a simple import demand relationship with the quantity of imports 

specified as a function of real domestic income and the relative price of imports. Using statistical 

techniques to analyze these specifications for aggregate import demand for the United States, Canada, and 

Japan, Khan and Ross conclude that the double logarithmic form is preferable to the linear form.' 

H.S. Houthakker and Stephen Magee, "Income and Price Elasticities in World Trade," The Review of 

Economics and Statistics, 51, May 1969, pp. 111-125. 

Alternatively, it is also argued that, in general, exports account for a small share of total output, and 

consequently are unlikely to affect total output and prices. 

'Money illusion occurs when one believes he/she is better or worse off based on nominal changes, when 

actually they are not. An example would be if one received a 3-percent increase in pay, but overall consumer prices 

increased by 6 percent. While nominal income increased, real income actually fell. 

Tracy Murray and Peter Gillman, "An Empirical Examination of the Traditional Aggregate Import Demand 

Model," The Review of Economics and Statistics, 58, Feb. 1976, pp. 75-80. 

9If the coefficients for the price variables are equal but opposite in sign, then they will add to zero (e.g., if -a = 

b, then a+b = 0). 

19Mohsin Khan and Knud Ross, "The Functional Form of the Aggregate Import Demand Equation," Journal of 

International Economics, 7, May 1977, pp. 149-160. 

" Khan and Ross (1977) employ the Box-Cox analysis of transformations. See G. E. P. Box and D. R. Cox, 

(1964) "An Analysis of Transformations," Journal of the Royal Statistical Society, Series B, 26, pp. 211-243. 

C-3 

C-3
Warner and Kreinin" examine international trade flows over the period 1957 to 1980 breaking 

their sample in 1972 to account for the period when exchange rates began to float. In addition, they relax 

the money illusion assumption embodied in the relative price specification and estimate import prices and 

domestic prices separately. In addition, during the period of floating exchange rates, they modify the 

price variable to express import prices in terms of foreign currency and include an exchange rate variable. 

This strategy was also employed in their export demand equations. They fmd that for most countries in 

their sample, it is not justified to employ a relative price specification. In fact, they note that separating 

the price variables yields more accurate results. On the export side they fmd that exchange rates and the 

price of competing goods in the foreign market have a significant effect on a country's export 

performance." 

Finally, the empirical trade literature has begun to take into account problems due to 

characteristics exhibited by time-series economic data!' A comprehensive work that examines U.S. 

import demand is the work by Giuseppe Carone." In his article, Carone specifies a dynamic model of 

U.S. demand for aggregate imports that accounts for the time-series properties of his variables. The 

period he examines is from 1970 to 1992 using quarterly data resulting in over 90 observations for his 

estimations. An important problem Carone identifies in his data is the fact that his series are trending 

over time, i.e., the mean of his series changes over time. He employs a statistical method that corrects for 

this characteristic, as well as providing short-run dynamics and a long-run relationship for the variables in 

his equations. The model employed in this chapter incorporates the methods exhibited in Carone's work. 

Imports 

The general economic model of U.S. import demand from Canada and Mexico estimated in this 

chapter is presented in equation C-1 below. This specification embodies a standard theoretical 

relationship for import demand which generally posits import quantity (gm) as a function of the price of 

imported goods (pin)," the price of domestic substitutes (p d), and domestic economic activity or income 

(yd)." Inclusion of these explanatory variables control for changes in trade that are driven by basic 

market forces!' It is expected that decreasing import prices, rising domestic economic activity, and 

increasing domestic prices would raise the demand for imports. In trade estimations, exchange-rate 

fluctuations can be explicitly or implicitly accounted for depending on the nature of the pricing data. It 

should be noted that in the import estimations, pm and p dare denominated in U.S. dollars, and therefore, 

'2Dennis Warner and Mordechai Kreinin, "Determinants of International Trade Flows," The Review of 

Economics and Statistics, 65, Feb. 1983, pp. 96-104. 

13In a study using similar methodology, Deyak, et al. compare trade flows between Japan and the United States. 

See Timothy Deyak, Charles Sawyer, and Richard Sprinkle, "A Comparison of the Demand for Imports and Exports 

in Japan and the United States," Journal of World Trade, 27, Oct. 1993, pp. 63-74. 

14See, Michael C. Burda and Stefan Gerlach, "Intertemporal Prices and the U.S. Trade Balance," American 

Economic Review, 82, Dec. 1992, pp. 1234-1253, and Clarida, Richard H., "Cointegration, Aggregate Consumption, 

and the Demand for Imports: A Structural Econometric Investigation," American Economic Review, 84, March 1994, 

pp. 298-308. 

" Giuseppe Carone, "Modeling the U.S. Demand for Imports Through Cointegration and Error Correction," 

Journal of Policy Modeling, 18, Feb. 1996, pp. 1-48. 

16Note that this is not a tariff-inclusive price. 

17Lower-case letters define first-differenced natural logarithms of the variables, e.g., q m=log(Qmt)-log(Qm„). 

The variables are transformed logarithmically for ease of interpretation, and the series are first-differenced to correct 

for time-series characteristics as described below and in appendix C. 

A simplifying assumption implied by this specification is that the domestic income and import prices are 

exogenous in the determination of import flows. To the extent that income and import price changes are affected by 

NAFTA, using binary variables alone to estimate the counterfactual impact of NAFTA will underestimate the full 

effect of the agreement. 

C-4 

C-4
the exchange rate between U.S. and foreign currencies (Canadian dollars and Mexican pesos in this case) 

is implicitly accounted for in the variable pm. 

To account for events that occurred since 1994, three separate binary variables are added to the 

specification for the NAFTA years 1994-96 (Y94, Y95, and Y96) to identify significant changes in 

imports that are not accounted for by changes in the variables listed above.' Binary variables are a 

suitable way to account for the changes in trade flows induced by both the tariff and nontariff aspects of 

NAFTA as long as the import price does not include the tariff. Some of the important nontariff measures 

associated with NAFTA include rules of origin, technical standards, competition policy, national 

treatment, various agricultural measures, customs clearance issues, and investment liberalization. In 

addition, binary variables account for other non-price-induced effects not already captured by the price 

variables in the equations. These other effects include tariff changes on upstream or downstream 

industries, shifts in joint production arrangements, and trade diversion effects due to tariff changes in 

third markets.' Individual binary variables were preferred over, for example, a single variable for the 

entire NAFTA period because more information could be obtained from the results, and these variables 

are more closely aligned with the NAFTA implementation and the Mexican peso devaluation.' The 

binary variables for 1995 and 1996 should account for the impact of the peso devaluation not otherwise 

controlled for in the estimating equations. 

An additional difficulty identified in this analysis concerns the statistical methods used to 

evaluate data ordered by time (i.e., time-series data). This analysis uses empirical techniques to test for 

these specific properties in the data and correct for them in the estimations.' A first step to correct for 

these properties is to first-difference the data as indicated earlier. However, while this transformation 

permits the use of classical statistical techniques, it purges the long-run relationships known to be present 

among the variables. Provided the data series have certain properties, a model can be specified that 

re-establishes this long-run relationship.' Specifically, an "error correction" term (ECT"') 24is added to 

the model and this term represents the difference between the current period's import quantity and the 

expected long-run equilibrium import quantity. Consequently, U.S. import demand is specified as: 

qm= Po+ P 'PmP2PdP3YdPaY94 + 135Y95 + I36Y96 +137ECT° + u C-1 

19Each binary variable has a value of one for each month of the year it represents, and it has the value of zero 

for all other months. 

" Note that binary variables will also account for other, non-NAFTA, related information. For this reason, a 

high threshold was set for asserting a statistical link between the implementation of NAFTA and these binary 

variables. 

21Y94 represents NAFTA's first year before the peso devaluation, and Y95 and Y96 represent NAFTA's 

second and third year with the peso devaluation. 

n Economic time-series data often have a great deal of hysteresis, meaning a shock to the economy may not 

result in a natural reversion to a finite mean. More formally, economic time series are often nonstationary, which 

invalidates generally used tests for statistical significance of estimated coefficients. Analysts measuring the effects 

of NAFTA, but not compensating for these properties may generate results that appear significant using standard 

statistical measures, are actually measuring 'spurious' effects that are caused by properties of the data series that are 

used. See, C.W.J. Granger and P. Newbold, "Spurious Regressions in Econometrics," Journal of Econometrics, 2, 

1974, pp. 111-20. 

n The econometric specification used in this estimation is a dynamic specification called an error-correction 

model (ECM), which allows estimations to proceed using data that is differenced to correct for unit roots, but which 

imposes long-run equilibrium constraints on the specified model. 

ECTmt= + art., + + a,Ydt.„ upper case letters represent the natural logarithms of the variables 

and the coefficients a,-a3 represent long-run relationships between the import quantity and the explanatory variables. 

This term explains changes in imports that are caused by the market attempting to correct for past short-run 

disequilibrium behavior. 

C-5 

C-5
With the exception of P I , the algebraic signs of the other coefficient estimates in equation C-1 ((3 24 6) 

indicate the direction of the shift in the import demand curve. The coefficient P Iis a statistical estimate of the 

effects of import price on import quantity, which characterizes the slope of the demand curve, and it is 

expected to be negative. The algebraic sign and magnitude of the other coefficients 

(132-136) represent a shift in the import demand curve. If the sign is positive, then this result represents a 

rightward shift in the import demand curve. Likewise, if the sign is negative, then this result represents a 

leftward shift in the demand curve. The greater the magnitude of the coefficient, the greater the magnitude of 

the shift it represents. The coefficient 13 7 represents the effects of the error-correction process on the demand 

for imports and its sign is expected to be negative.' 

Figure C-1 provides a graphical example of the effects of a tariff liberalization on the market for U.S. 

imports. Import demand in figure C-1 is negatively related to the price of imports, but the supply of imports 

in this model is depicted as horizontal (i.e., perfectly elastic supply)." Changes in variables other than the 

price of imports are characterized as shifts in the curves. Therefore, changes in income, prices of competing 

goods, exchange rates, and trade measures are represented by shifts in the curves. In the model above, 

changes attributed to price, income, and disequilibrium factors are accounted for directly in the estimation 

(pm, pd, yd, ECTm). Remaining factors influencing the market for imports during the NAFTA years are 

captured by the three annual binary variables Y94, Y95, and Y96. In figure C-1, a reduction in trade barriers 

for this industry implies a rightward shift in the demand curve (from D Ito D2), resulting in a larger quantity 

demanded (but at a constant price). This shift implies an increase in imports during the NAFTA period 

which is not explained by the other economic variables in the equation. Therefore, statistically significant 

effects associated with NAFTA are identified by the significance of the coefficients on the binary variables 

identifying the NAFTA years (134, P5, and N)• 2

' 

Exports 

U.S. exports to Canada and Mexico are modeled in a manner similar to that for U.S. import demand. 

In particular, because exports from the United States are, in fact, Canadian and Mexican imports, U.S. 

exports are effectively modeled as Canadian and Mexican import demand specifications. Therefore, the 

specification and general description of the determinants of import demand in the previous section apply to 

the estimation of U.S. export demand. The quantity of U.S. export demand (qx) is modeled as a function of 

the price of U.S. exports (TO,' the price of domestic (i.e., Canadian and Mexican) substitutes (p d), domestic 

(i.e., Canadian and Mexican) economic activity or income (yd), and the exchange rate (e). 29As with imports, 

it is expected that decreasing U.S. export prices, rising economic activity, and increasing prices would raise 

the demand for U.S. exports. 

The coefficient on the error-correction term represents the degree to which demand adjusts to a deviation of the 

previous period's actual demand from its expected value. The dynamic adjustment process will be stable only if the 

value of this term is between zero and negative one. The magnitude of the coefficient represents the speed with which 

the adjustment process works. A value approaching negative one indicates a movement towards full adjustment after a 

single period. As values approach zero, the degree of adjustment per period becomes smaller and smaller, therefore, full 

adjustment will take longer. 

' This embodies the simplifying assumption described earlier in the import demand literature review, which 

presumes that the supply of import quantities is not price sensitive. 

' Recall that a "statistically significant" coefficient is one in which there is a high degree of confidence, that the 

coefficient is not, in fact, equal to zero. That is, in this case one rejects the hypothesis that there is no relationship 

between the volume of U.S. imports and the binary variables. 

Note that this is not a tariff-inclusive price. 

As before, lower-case letters define first-differenced logarithms of the variables. 

C-6 

C-6
Figure C-1: Increase in import demand 

Price 

S 

Quantity 

C-7
One difference between the U.S. import and export demand estimations is the currency units in which 

domestic and foreign prices are denominated. As described above, import demand was estimated using 

import prices denominated in U.S. dollars. Therefore, exchange rate changes, (e), are implicit in the prices in 

the import equations, and are not included as a separate explanatory variable. For the export demand models, 

U.S. export prices are denominated in U.S. dollars, but domestic (i.e., Canadian and Mexican) prices in these 

models are denominated in Canadian dollars and Mexican pesos. Hence, exchange rates are included 

explicitly in the estimates of U.S. export demand and should control for changes in exchange rates. 

As before, the statistical properties of the data used in the export demand models have characteristics 

that need to be corrected in order to use classical estimation techniques. The variables are first differenced 

and an error correction term is included in the models. ECTx represents the difference between the currentperiod foreign import quantity and the expected long-run equilibrium.' Similarly, individual binary variables 

for the NAFTA years 1994-96 are included to identify changes in U.S. exports that are not controlled for by 

changes in the other variables listed here. Consequently, U.S. export demand is specified as: 

qx = po +13ipx + p2pd + 133yd+134e +135Y94 +136Y95 +137Y96 +138ECTx + u C-2 

With the exception of P i, the sign of the other coefficient estimates in equation C-2 (13 2-(37) indicate 

the direction of the shift in the export demand curve. The coefficient P iis a statistical estimate of the effects 

of export price on export quantity, which characterizes the slope of the demand curve, and it is expected to be 

negative. The algebraic sign and magnitude of the other coefficients (P 2-(37) represent a shift in the export 

demand curve. If the sign is positive, then this result represents a rightward shift in the export demand curve. 

Likewise, if the sign is negative, then this result represents a leftward shift in the demand curve. The greater 

the magnitude of the coefficient, the greater the magnitude of the shift it represents. The coefficient Rs 

represents the effects of the error-correction process on the demand for exports, and its sign is expected to be 

negative. 

Data 

The industry analysis covers the period January 1989 to October 1996, using monthly data 

observations for each of the variables listed above. Bilateral import and export flows at the 4-digit SIC level 

were constructed from official trade data of the U.S. Department of Commerce (DOC) disaggregated to the 

10-digit level of the harmonized tariff schedule (HTS). 31These trade data are aggregated to the 4-digit SIC 

level using a concordance maintained by the DOC.' Import and export prices are represented by a unit value 

index constructed from the ratio of value to quantity. Therefore, the import and export prices are also 

implicitly trade-weighted aggregates of the price indices for the 10-digit HS tariff categories. 

" ECP, = + ayx,, + + + cc,E,„, upper case letters represent the natural logarithms of the 

variables and the coefficients arct, represent long-run relationships between the export quantity and the explanatory 

variables. This term explains changes in exports that are caused by corrections for past short-term market 

disequilibrium. 

31 Since governments generally receive tariff revenue from imports, import data are usually of better quality than 

records of exports, in which there are no duty revenues. Official U.S. import and export data are recognized to have the 

same patterns. However, data on U.S. exports to Canada are of relatively high quality, because the United States and 

Canada have a reciprocal agreement in which each country's bilateral import data are used by the export country to 

represent its bilateral exports. This type of agreement does not exist between the United States and Mexico; therefore, 

the quality of the data on U.S. exports to Mexico is recognized to be of lower quality. 

nThe SIC is essentially a production-based classification system identifying how production occurs, whereas the 

HTS is a commodity-based classification of what is imported. It is recognized that any concordance between two such 

conceptually different classifications will have imperfections. Import and export quantities are converted to indices by 

trade-weighting the trade flows of each 10-digit HTS category to the 4-digit SIC category. 

C-8 

C-8
Domestic price series were collected from each of the NAFTA countries. U.S. domestic prices 

were obtained from the U.S. Bureau of Labor Statistics (BLS). In most cases, these price series represent 

BLS-calculated values for an identical 4-digit SIC category. Data that were unavailable at this level were 

proxied by 2- and 3-digit SIC industry series also available from BLS data. Statistics Canada provided 

Canadian domestic pricing data, disaggregated to the 4-digit Canadian SIC level, and these were matched 

to U.S. SIC categories. 33Mexican domestic pricing series were obtained from the Government of 

Mexico. These data were also concorded to the U.S. SIC industries by ITC staff. m 

Domestic activity variables for each country capture the effects of the business cycle on import 

(and export) demand. To match the monthly frequency of the trade flow data, a measure of domestic 

activity with the same frequency was also required. Since gross domestic product (GDP) data are only 

available on a quarterly basis, indices of real industrial output from each country are used. These indices 

for the United States, Mexico, and Canada were obtained from the Board of Governors of the U.S. 

Federal Reserve Bank, Institute National de Estadistica Geografia e Informatica, and Statistics Canada, 

respectively. Real exchange rates between the U.S. dollar and the currencies of Mexico and Canada were 

also collected. The Federal Reserve Bank of Dallas provided an index of the real peso-dollar exchange 

rate, and the real exchange rate between the Canadian and U.S. dollars was calculated from published 

sources.35 

Econometric Methodology 

Econometric methods used in this chapter are heavily influenced by the nature of the data used in 

the estimation. In particular, time series data are used which are monthly covering the period January 

1989 to October 1996. Because it is important to obtain consistent estimates of the significance of the 

parameter estimates, we test for and compensate for the existence of unit roots in the data. 36To 

compensate for this problem without purging long-run theoretical components from the data, we employ 

dynamic estimations of import and export demand using error-correction models (ECM)." The data are 

differenced to eliminate the unit root property. In doing so, estimations of the demand system are 

transformed into estimates of the growth rate of import and export demand. The explanatory variables 

remain the same, but each is also differenced (in logarithmic form) so the growth rate of those variables 

are used to explain the growth of demand. 

Using an ECM model as generalization of a dynamic (short-run) process in which all data series 

exhibit unit roots, the error-correction term represents a degree of convergence of the previous period 

from long-run equilibrium. That is, an ECM permits a process' dichotomization into short-run and longrun (theoretically based) components. If long-run equilibrium properties exist in the data, the ECM term 

can be included in the estimation. This term imposes long-run theoretical relationships on the data If the 

33Data were matched using the publication Concordance Between the Standard Industrial Classcations of the 

United States and Canada: 1987 United States SIC - 1980 Canadian SIC, produced by Statistics Canada and the 

U.S. Bureau of the Census. 

Data were obtained from Banco de Mexico. The unavailability of an official concordance required staff to 

match industries using descriptions of the industries. Price data from Mexico were obtained for 60 industries that 

were matched to the 198 U.S. SIC industries evaluated in this chapter. 

35The real exchange rate is the product of the nominal exchange rate and the ratio of the U.S. and Canadian 

producer price indices. The nominal exchange rate and producer price indices were collected from various issues of 

International Financial Statistics published by the International Monetary Fund. 

A unit root in the data violates the assumption of stationarity, (a stationary mean and finite variance) that is a 

fundamental requirement for use of standard statistical estimation techniques. 

For formal descriptions of these models, see David Hendry, Adrian Pagan, J. Dennis Sargan, "Dynamic 

Specification," in Handbook of Econometrics, Volume II, eds. Zvi Griliches and M.D. Intriligator (Amsterdam: 

Elsevier Science Publishers, 1984). 

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C-9
data do not exhibit long-run relationships, imposing this type of constraint is inappropriate, therefore, the 

model should be estimated using the differenced variables only. 

Accordingly, to employ these models the data series are tested for long-run relationships. 

Formally, these are tests of cointegration, which are tests on the residuals of a regression of the levels of 

the variables. If each of the series in the regression exhibits unit roots, but the residuals are stationary, the 

individually nonstationary variables move together in a stationary manner and are tied together by a longrun relationship(s) between the variables in the regression. More formally, the series are said to have a 

cointegrating vector(s)," representing the long-run relationship between the variables in the regression. 

Unit root and cointegration tests were conducted on the series for each of the sectors included in 

the analysis. Unit roots were nearly uniformly present in the data, so each data series was differenced to 

obtain stationarity." In addition, the cointegration tests indicated a degree of cointegration among the 

data series. However, in small samples, the bias in cointegration tests can be substantial because the longrun properties of the data may not be fully reflected.' As a result, we followed the strong theoretical 

basis for the long-run relationships that exist in the data and incorporated the ECM term in the estimations 

to impose that long-run relationship.' 

Results 

Table C-1 summarizes the results of the ordinary least-squares (OLS) estimations performed for 

this analysis. For each U.S. NAFTA partner there are two estimations—an import demand equation and 

an export demand equation resulting in a total of four estimations for each SIC sector identified for 

analysis.' Table C-1 presents only the statistically significant (90 percent level) year-specific binary 

variables. These are represented by an 'X' for exports and an 'NV for imports below the country-year 

heading for each equation. In addition, a `+' or `-' sign indicates the direction of change that has been 

observed. 

38In a multivariate regression, there may be multiple cointegrating vectors, but a single vector is sufficient for 

the purpose of correcting for cointegration. 

" First-differenced data were also tested for unit roots. First differencing, in nearly all cases, led to series that 

easily satisfied the required stationarity properties. 

4°See A.C. Harvey, The Econometric Analysis of Time Series (London: Philip Allan, 1990), p. 256. 

4' As a result of the large number of regressions that were estimated for the industry analysis, a standardized 

equation structure was chosen (based on an analysis of a subset of estimations) and applied to all equations. The 

estimated equations include no lagged differenced variables. 

42There were a total of 677 estimations out of a possible 792 run for the trade analysis. The lack of an 

estimation in a sector is due to either data constraints or the fact that the sector was added for analysis late in the 

study . 

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Table C-I: Summary of Significance for the Import and Export Estimations 

Canada Mexico 

Adjusted 

R2 94 95 96 

Adjusted 

R2 94 95 96 

Group 1: Grains and Oilseeds 

EXPORTS 

0111-Wheat IMPORTS 

0.28 

0.21 

0.86 (1) o) (1) 

0115-Corn 

0.55 

0.11 

+X 0.51 

0.66 

-X 

0116-Soybeans 

0.64 

0.30 +M 

0.54 (1) 0) (1) 

0119-Cash grains, nspf 

0.76 

0.30 

0.68 

0.52 +M +M 

Group 2: Raw Cotton 

0131-Cotton and cottonseeds 

0.77 (I) +(;C +(?)( 0.67 (I) (1) a) 

Group 3: Field crops . 

0139-Field crops, except cash grains, nspf 

0.51 

0.40 

0.64 

0.57 

+X +X 

Group 4: Fresh vegetables, canned & frzn. fruits and veg. 

0161-Vegetables and melons 

0.03 

0.10 

0.52 

0.26 

2033-Canned fruits and vegetables 

0.34 

0.66 

+ 

X 

+ 

0.75 

0.35 

+X 

2037-Frozen fruits and vegetables 

0.46 

0.36 

0.96 

0.64 

+X +X 

Group 5: Ornamental floriculture and nursery products 

0181-Ornamental floriculture and nursery products 

0.51 -;( i;C (1) 0.87 +(;C (I) co 

Group 6: Meats and livestock 

0211-Beef cattle 

 66 0. (0 (1) (I) 0.46 (0 If -a 

0213-Hogs 

0.50 (1) (1) (1) 0.71 (1) If If 

2011-Meat products and meat packing 

0.11 

0.54 

0.53 

0.78 

+X -X 

Group 7: Fish and shellfish 

0273-Aquaculture 

0) 

(I) 

(I) 

(I) co cu 

(1) (1) (1) 

(1) 

(I) 

(I) 

0912-Finfish 

0) 

(1) 

(1) 

(0 

0) 

(I) 

(I) 

(1) 

(0 

(1) 

(I) 

(1) 

C-11 

C-11
Table C-1: Summary of Significance for the Import and Export Estimations 

Canada Mexico 

Adjusted 

R2 94 95 96 

Adjusted 

R2 94 95 96 

Group 8: Iron ore 

1011-Iron ores 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

Group 9: Coal 

1221-Bituminous coal and lignite surface mining 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

Group 10: Crude petroleum, nat. gas and nat gas lig. 

1311-Crude petroleum and natural gas 

0.46 

0.02 

+X 0.60 

0.53 

+ 

X 

+ 

1321-Natural gas liquids 0.48 

(1) (I) (I) 

0.56 

(1) (1) (1) 

Group 11: Animal Feeds 

2048-Prepared feeds, nspf 

0.57 

0.52 

0.35 

0.76 

Group 12: Bakery products 

2051-Bread and other bakery products 

0.40 

0.32 

-X -X -X 0.47 

0.25 +M +M 

Group 13: Chocolate and cocoa products 

2066-Chocolate and cocoa 

0.13 

0.16 

-X -X -X 0.22 

0.51 -M 

Group 14: Fats and oils 

2076-Vegetable oils 

0.48 

0.21 +M +M 

0.35 

0.58 +M 

2079-Shortening, table oils 

0.47 

0.04 

-X 0.48 (q (I) (1) 

Group 15: Malt beverages 

2082-Malt beverages 0.35 

0) (I) (I) 

0.45 

(1) 0) 0) 

Group 16: Bottled & canned soft drinks & carbonated waters 

2086-Bottled and canned soft drinks and carbonated waters 

0.28 

0.08 +M 

0.35 

0.46 +M 

>5 

-X 

+M 

Group 17: Miscellaneous food preparations 

2099-Food products, nspf 

0.26 

0.44 

-X 

X4 

0.43 

0.44 

+X 

Group 18: Textile mill products 

2211-Broadwoven fabric mills, cotton 

0.24 

0.48 

-X 

-M 

0.38 

0.21 

+X 

+M +M 

C-12 

C-12
Table C-1: Summary of Significance for the Import and Export Estimations 

Canada Mexico 

Adjusted Adjusted 

R2 94 95 96 R2 94 95 96 

0.60 -X 0.39 

2221-Broadwoven fabric mills, manmade fiber and silk 0.59 0.37 

0.62 

F, 

-X 0.55 +X 

++ 

>< 

+X 

2252-Hosiery, n.e.c. 0.51 +M +M 0.47 +M 

0.68 -X -X 0.65 +X 

2257-Weft knit fabric mills 0.15 0.37 

0.47 0.44 -X 

2273-Carpets and rugs 0.25 -M 0.49 +M 

0.21 0.61 +X +X +X 

2281-Yam spinning mills 0.32 0.35 

0.48 -X -X 0.72 

2295-Coated fabrics, not rubberized 0.87 0.63 

0.14 0.48 

2824-Manmade organic fibers 0.00 0.37 

Group 19: Apparel and other finished textile products 

0.53 0.58 

2311-Men's and boy's suits, coats, and overcoats 0.45 -M 0.44 +M 

0.32 0.55 -X 

2321-Men's and boy's shirts, except work shirts 0.50 0.49 -M 

0.61 0.42 +X 

2322-Men's and boy's underwear and nightwear 0.50 0.46 

(1) (I) (I) 0.61 

2325-Men's and boy's separate trousers and slacks 0.40 0.15 

0.62 0.54 +X +X 

2331-Women's, misses', and juniors' blouses and shirts 0.52 0.24 +M 

(1) (I) (I) (1) (I) (1) 

2335-Women's, misses', and juniors' dresses 0.61 0.42 +M +M 

0.39 0.70 

2337-Women's, misses', and juniors' suits, skirts, and coats 0.54 +M 0.36 +M 

0.42 -X 0.74 

2341-Women's, misses', and children's underwear & nightwear 0.61 0.38 +M +M +M 

0.54 0.61 -X 

2342-Brassieres, girdles, and allied garments 0.59 +M 0.28 

0.50 -X -X 0.72 

2369-Girls, children's, and infants' outerwear, n.e.c. 0.31 0.78 +M +M 

(2) (2) (2) (2) (2) (2) 

(2) (2) (2) (2) (2) (2) 

2392-House furnishings, except curtains and draperies 

C-13
Table C-1: Summary of Significance for the Import and Export Estimations 

Canada Mexico 

Adjusted Adjusted 

R2 94 95 96 R2 94 95 96 

Group 20: Solid wood products 

0) 0) 0) 

0.75 +X 

+ X 

+X 

2411-Logs 0.23 0.82 

0.54 -X 0.42 -X 

2421-Lumber 0.52 0.87 +M 

0.61 0.20 

2431-Millwork 0.84 0.32 

0) 0) 0) 0) 0) 0) 

0) 0) 0) 0) co 0) 

2434-Kitchen cabinets 

0.75 0.40 +X +X 

2435-Hardwood veneer 0.55 -M 0.22 

0) 0) 0) 0) 0) 0) 

0) 0) 0) 

2439-Structural wood members 0.85 

0.28 +X 0.33 

2493-Reconstituted wood products 0.37 -M 0.60 +M +M 

0) 0) 0) 0) 0) 0) 

2499-Wood products, nspf 0.69 0.80 

Group 21: Furniture 

0.70 0.67 

2599-Furniture and fixtures, n.e.c. 0.69 0.80 

Group 22: Paper products 

2611-Pulp 

0.50 

0.52 -M 

0.36 

0.33 

+(? -2C 0) 

0.46 +X 0.45 

2621-Paper 0.47 -M 0.22 +M 

0.15 0.39 +X 

2653-Corrugated paper 0.26 0.39 

0.64 0.50 

2657-Folding paperboard 0.36 0.52 

0.76 0.84 +X +X +X 

2672-Coated paper 0.45 0.53 

0.38 +X 0.90 

2673-Sacks and bags 0.93 0.61 

0.08 0.56 

2676-Sanitary paper 0.14 0.36 +M +M 

0.23 0.41 +X 

2678-Stationary products 0.19 0.72 

C-14
Table C-1: Summary of Significance for the Import and Export Estimations 

Canada Mexico 

Adjusted 

R2 94 95 96 

Adjusted 

R2 94 95 96 

Group 23: Printed matter 

2721-Periodicals 

0.16 

0.46 -M 

0.54 

0.64 -M -M -M 

2731-Books, publishing 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

2752-Printed matter, lithographic 

0.69 

0.81 

-X 0.91 

0.67 

2771-Greeting cards 

0.77 

0.61 

0.66 

0.65 

+X 

+M 

+X 

+M 

+X 

+M 

2782-Blankbooks 

0.43 

0.65 

0.83 

0.78 

+X 

Group 24: Alkalies and chlorine 

2812-Alkalies and chlorine 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

Group 25: Industrial inorganic chemicals 

2816-Inorganic pigments 

0.63 

0.44 +M +M +M 

0.66 

0.40 -M -M 

2819-Industrial inorganic chemicals 

0.90 

0.88 

-X 0.78 

0.86 

-X -X 

+M 

Group 26: Synthetic plastics, resins, & rubber 

2821-Plastic materials and synthetic resins 

0.34 

0.63 

0.50 

0.28 

+X +X 

+M 

+X 

2822-Synthetic rubber 

0.57 

0.47 

+X 0.69 

0.46 

Group 27: Pharmaceutical preparations 

2834-Pharmaceutical preparations 

0.99 

0.84 

+X 0.98 

0.89 -M -M -M 

Group 28: Soaps, detergents, & toiletries 

2841-Soaps and cleansers 

0.32 

0.49 

-X -X 0.79 

0.35 

-X 

2844-Toilet preparations 

0.44 

0.42 

0.57 

0.65 

+X 

Group 29: Paints & allied products 

2851-Paints and allied products 

0.77 

0.56 

0.83 

0.50 

+X 

Group 30: Industrial organic chemicals 

2865-Cyclic crudes 

0.81 

0.43 +M +M 

0.68 

0.76 

+X 

+ 

X 

s 

+X 

C-15 

C-15
Table C-1: Summary of Significance for the Import and Export Estimations 

Canada Mexico 

Adjusted Adjusted 

R2 94 95 96 R2 94 95 96 

0.58 +X +X +X 0.84 +X +X 

2869-Industrial organics 0.63 0.68 +M 

Group 31: Fertilizers, pesticides, & agricultural chemicals 

0.69 

(1) a) (i) 

2873-Nitrogenous fertilizers 0.40 0.30 

0.34 0.53 

2879-Agricultural pesticides 0.52 -M -M 0.59 

Group 32: Petroleum refinery products 

0.86 0.57 

X 

2911-Petroleum refinery products 0.49 +M +M 0.50 -M 

Group 33: Plastic & rubber products 

0.35 -X -X -X 0.66 

3011-Tires and inner tubes 0.33 0.74 +M 

0.24 -X 0.97 +X 

3052-Rubber and plastics hoses and belting 0.74 +M 0.90 +M 

0.54 -X -X -X 0.82 -X -X 

3053-Gaskets, packing, and sealing devices 0.92 +M +M +M 0.61 +M +M +M 

m m co m m m 

3069-Fabricated rubber products, n.e.c. 0.73 0.95 +M 

0.13 

>5 >5 

0.54 +X 

3081-Unsupported plastics film and sheet 0.38 0.55 +M +M +M 

0.52 0.67 +X 

3082-Unsupported plastics profile shapes 0.29 0.63 +M 

0.83 -X -X -X 0.57 

3089-Plastics products, n.e.c. 0.81 0.94 +M +M +M 

Group 34: Leather tanning & finishing 

0.85 -X -X 0.83 +X 

3111-Leather tanning and finishing 0.72 0.56 

Group 35: Women's footwear, except athletic 

co (1) m 

0.75 

3144-Women's footwear, except athletic 0.48 0.54 +M 

Group 36: Flat glass & glassware 

0.81 +X +X +X 0.76 +X 

3211-Flat glass 0.46 0.56 

0.60 

+ X 

+ X + 

0.69 +X 

3221-Glass containers 0.54 +M 0.30 

co 0) m m m m 

3229-Pressed and blown glass and glassware, n.e.c. 0.76 0.91 

C-16 

C-16
Table C-1: Summary of Significance for the Import and Export Estimations 

Canada Mexico 

Adjusted 

R2 94 95 96 

Adjusted 

R2 94 95 96 

0.63 +X +x 0.50 

3231-Glass products, made of purchased glass 0.76 0.73 

Group 37: Cement 

0.63 0.72 

3241 -Cement, hydraulic 0.44 0.33 +M 

Group 38: Vitreous china plumbing fixtures 

0.67 0.78 

3261 -Vitreous china plumbing fixtures, etc. 0.72 -M 0.21 

Group 39: Gypsum building products 

0.82 +x +x +x 0.83 

3275-Gypsum products 0.71 -M -M -M 0.19 

Group 40: Mineral wool 

0.08 0.32 

3296-Mineral wool 0.91 0.60 

Group 41: Steel products 

0.32 

(1) co (1) 

3312-Steel works, blast furnaces & rolling mills 0.76 0.84 

0.63 +x +x 0.58 

3321-Gray and ductile iron foundries 0.87 +M +M +M 0.92 

Group 42: Nonferrous metals, unwrought 

0.22 +x +X 0.32 +x 

3331-Primary smelting and refining of copper 0.37 +M +M 0.32 

0.58 0.62 

3334-Primary production of aluminum 0.43 +M 0.58 +M +M 

0.78 -X -X -X 0.71 

3339-Primary smelting and ref. of nonfer. metals, ex. cop. & al. 0.82 0.61 

0.28 0.45 +x 

3341-Secondary smelting and refming of nonferrous metals 0.44 0.15 -M -M -M 

Group 43: Nonferrous metals, wrought 

0.60 +X +X 0.26 +X 

3351-Rolling, drawing, and extruding of copper 0.28 +M 0.42 

0.58 0.32 

3353-Aluminum sheet, plate, and foil 0.35 +M +M 0.46 

0.24 0.58 +X +X 

3354-Aluminum extruded products 0.65 0.59 

0.51 +x +X 0.61 

3357-Drawing and insulating of nonferrous wire 0.87 +M 0.47 

C-17 

C-17
Table C-1: Summary of Significance for the Import and Export Estimations 

Canada Mexico 

Adjusted Adjusted 

R2 94 95 96 R2 94 95 96 

Group 44: Fabricated metal products 

0.65 0.85 +X +X 

3429-Hardware, n.e.c. 0.85 +M +M 0.71 +M +M +M 

0.37 0.53 

X 

3441-Fabricated structural metal 0.15 0.33 -M 

0.44 0.64 

3442-Metal doors, sash, frames, molding, and trim 0.23 +M +M 0.22 +M 

0.50 0.86 -X 

3443-Fabricated plate work (boiler shops) 0.54 0.84 

0.72 +X +X 

+ x 

0.92 +X 

3452-Bolts, nuts, screws, rivets, and washers 0.64 0.65 +M +M 

0) 0) 0) 0) 0) 0) 0) 0) 0) 0) 0) 0) 

3466-Crowns and closure 

0) 0) 0) 0) 0) 0) 

0) co 0) 0) 0) 0) 

3489-Ordnance and accessories, n.e.c. 

0.56 +X 

x x 

0.58 

3493-Steel springs, except wire 0.59 0.41 +M 

0.53 -X -X -X 0.92 +X +X 

3494-Valves and pipe fittings, n.e.c. 0.76 0.19 

0.97 0.90 +X 

3499-Fabricated metal products, n.e.c. 0.90 0.92 

Group 45: Industrial machinery 

0.70 0.56 

3511-Steam, gas & hydraulic turbines & turbine generators 0.51 +M +M +M 0.88 

0.52 -X -X -X 0.64 

3519-Internal combustion engines, n.e.c. 0.50 0.82 

0.72 -X 0.85 

X 

3523-Farm machinery and equipment 0.68 0.84 +M 

0.73 

>5, 

0.64 +X 

3531-Construction machinery and equipment 0.72 0.86 

0.67 +X +X +X 0.77 

3532-Mining mach. and eq., ex. oil and gas 0.62 +M +M 0.85 +M 

039 -X 0.52 +X +X +X 

3535-Conveyors and conveying equipment 0.81 0.45 

0.72 +X 0.84 

3537-Industrial trucks, tractors, trailers, and stackers 0.86 0.93 

0.64 +X +X 0.70 

3541-Machine tools, metal cutting types 0.86 0.77 

0.60 0.71 +X +X 

3542-Machine tools, metal forming types 0.78 0.78 -M -M 

C-18 

C-18
Table C-1: Summary of Significance for the Import and Export Estimations 

Canada Mexico 

Adjusted Adjusted 

R2 94 95 96 R2 94 95 96 

0.79 0.80 +X 

3544-Special dies and tools, die sets, jigs and fixtures, etc. 0.78 +M +M 0.68 

0.57 -X 0.86 +X 

3546-Power-driven handtools 0.63 0.19 

(2) (2) (2) (2) (2) (2) 

(2) (2) (2) (2) (2) (2) 

3547-Rolling mill machinery and equipment 

0.83 +X 0.64 

3554-Paper industries machinery 0.87 +M +M +M 0.47 

0.44 032 -X 

3555-Printing trades machinery and equipment 0.64 0.26 

0.76 +X +X 0.73 +X 

3559-Special industrial machinery, n.e.c. 0.78 0.81 

0.60 -X 0.86 +X 

3561-Pumps and pumping equipment 0.82 0.57 

0.55 -X 0.82 

3562-Ball and roller bearings 0.60 0.71 -M -M 

0.49 0.69 +X +X 

3564-Ind. & comm. fans & blowers & air purification eq. 0.87 +M +M +M 0.34 +M +M +M 

(2) (2) (2) (2) (2) (2) 

(2) (2) (2) (2) (2) (2) 

3565-Packaging machinery 

0.63 +X 0.73 

X 

3566-Speed changers, industrial high-speed drives, and gears 0.89 0.31 -M -M 

0) 0) 0) 

0.84 +X 

3569-General industrial machinery and equipment, n.e.c. 0.80 0.66 

0.81 0.83 

3585-Air-cond., heating eq. and comm. and ind. refrig. eq. 0.69 -M 0.26 

0.48 0.75 +X 

3593-Fluid power cylinders and actuators 0.81 -M -M 0.60 

0.72 +X 0.88 +X +X 

3599-Industrial & commercial machinery & equipment, nec 0.72 0.78 +M +M +M 

Group 46: Computers & computer peripheral equipment 

0.46 

›$ 

0.73 

3571-Electronic computers 0.67 -M 0.32 +M +M 

0.65 -X 

H 

0.64 +X 

3577-Computer peripheral equipment, n.e.c. 0.61 0.29 

Group 47: Heavy electrical equipment 

0.47 0.74 

LL` 

3612-Power, distribution, and specialty transformers 0.74 0.27 

0.73 +X 

›+< d 

+X 0.56 +X 

3613-Switchgear and switchboard apparatus 0.61 0.65 

C-19 

C-19
Table C-1: Summary of Significance for the Import and Export Estimations 

Canada Mexico 

Adjusted Adjusted 

R2 94 95 96 R2 94 95 96 

0.35 0.71 +X 

3621-Motors and generators 0.41 +M 0.26 -M 

0.76 0.75 +X 

+ X 

3625-Relays and industrial controls 0.64 +M +M +M 0.41 

Group 48: Household appliances 

0.64 0.47 +X 

3631-Household cooking equipment 0.73 -M -M -M 0.18 

0.63 0.60 

3633-Household laundry equipment 0.86 -M -M 0.29 -M -M -M 

(2) (2) (2) (2) (2) (2) 

(2) (2) (2) (2) (2) (2) 

3634-Electric housewares and fans 

0.39 +X +X +X 0.63 +X +X 

3635-Household vacuum cleaners 0.59 +M +M +M 0.27 +M +M +M 

(2) (2) (2) (2) (2) (2) 

(2) (2) (2) (2) (2) (2) 

3639-Household appliances, n.e.c. 

Group 49: Electric lighting & wiring equipment 

0.46 0.70 +X 

3641-Electric lamp bulbs and tubes 0.26 0.42 

0.80 0.83 +X +X 

r'<-- 

3643-Current-carrying wiring devices 0.91 -M 0.61 -M 

0.81 0.87 

3644-Noncurrent-carrying wiring devices 0.81 +M +M 0.85 +M +M +M 

(1) (1 ) (1) 

3648-Lighting equipment, n.e.c. 0.85 +M +M +M 0.19 0.73 -M -M 

Group 50: Radio and television equipment 

0.67 0.85 

X 

+X 

3651-Household audio and video equipment 0.33 0.39 +M +M 

0.46 +X +X +X 0.68 +X 

3663-Radio and television broadcasting & comm. eq. 0.72 0.22 +M +M 

0.29 0.32 +X +X +X 

3671-Electron tubes 0.87 +M +M +M 0.20 

Group 51: Communications equipment 

0.03 +X +X 0.64 +X 

3661-Telephone and telegraph apparatus 0.68 +M 0.30 -M -M -M 

0.83 0.81 

X 

3669-Communications equipment, n.e.c. 0.73 -M -M -M 0.26 

Group 52: Electronic components & accessories 

0.46 0.80 +X +X 

3672-Printed circuit boards 0.37 +M 0.67 

C-20 

C-20
Table C-1: Summary of Significance for the Import and Export Estimations 

Canada Mexico 

Adjusted Adjusted 

R2 94 95 96 R2 94 95 96 

0.49 +X +X 0.52 +X 

3674-Semiconductor and related devices 0.58 +M 0.42 

3675-Electronic capacitors 

0.47 0) (1) (1) 0.62 0) 

0.56 0.67 +X +X +X 

3676-Electronic resistors 0.91 -M -M 0.83 

0.69 +X 0.84 

3678-Electronic connectors 0.73 0.50 +M 

0.63 0.38 +X 

+ 

X 

1 

+X 

3679-Electronic components, n.e.c. 0.76 +M 0.86 -M 

Group 53: Misc. electrical machinery, equipment, & supplies 

0.55 0.59 

3652-Phonograph records and prerecorded audio tapes &disks 0.78 -M -M -M 0.65 +M +M 

(2) (2) (2) (2) (2) (2) 

(2) (2) (2) (2) (2) (2) 

3692-Primary batteries, dry and wet 

0.84 0.91 

3695-Magnetic and optical recording media 0.49 +M 0.59 +M +M 

0.72 +X +X 0.79 

3699-Electrical machinery, equipment, and supplies, n.e.c. 0.72 +M +M 0.80 

Group 54: Motor vehicles 

0.48 0.47 

3711-Motor vehicles and passenger car bodies 0.36 0.78 

Group 55: Motor vehicle parts 

0.53 +X +X +X 0.77 +X 

3691-Storage batteries 0.76 0.47 

0.59 0.74 

3694-Electrical equipment for internal combustion engines 0.86 -M 0.30 

0.77 -X +X 0.82 

3714-Motor vehicle parts and accessories 0.83 +M +M 0.53 +M +M +M 

0.24 0.41 

3715-Truck trailers 0.49 -M 0.53 -M -M 

Group 56: Aircraft & aircraft parts 

0.61 0.51 

3721-Aircraft 0.54 +M +M +M w 0) to 

0.74 0.79 

3724-Aircraft engines and engine parts 0.86 0.41 

(1) (I) (I) ( 1) (1) (1 ) 

co (1) (1) (I) (1) (1) 

3728--Aircraft parts and auxiliary equipment, n.e.c. 

C-21 

C-21
Table C-1: Summary of Significance for the Import and Export Estimations 

Canada Mexico 

Adjusted 

R2 94 95 96 

Adjusted 

R2 94 95 96 

Group 57: Boat building & repairing 

3732-Boat building and repairing 

0.45 

0.35 

0.60 

0.69 

+X 

+M 

Group 58: Railroad equipment and parts 

3743-Railroad equipment 

0.45 

0.59 +M 

0.41 

0.66 

Group 59: Transportation equipment 

3799-Transportation equipment, n.e.c. 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

Group 60: Measuring, analyzing & controlling instr. 

3812-Search, detection, nay., guid., aero. & naut sys. & inst 

0.74 

0.60 

+X 0.58 

0.66 +M +M 

3822-Auto. cont for reg. res. and comm. environ. and appl. 

0.53 

0.68 +M 

-X -X 0.61 

0.58 

3823-Ind. instr. for meas., display and control 

0.65 

0.67 

0.83 

0.20 

3824-Totalizing fluid meters and counting devices 

0.68 

0.66 

0.78 

0.31 

+X 

3825-Instr. for meas. and testing of electricity 

0.62 

0.79 +M 

+X 

+M 

0.75 

0.82 +M +M +M 

3827-Optical instruments and lenses 

0.76 

0.77 -M 

0.71 

0.89 

Group 61: Medical equipment 

3841-Surgical and medical instruments and apparatus 

0.78 

0.81 

0.78 

0.70 

+X 

+M 

X + 

+X 

+M 

3842-Orthopedic, prosthetic & surgical appliances & supplies 0.71 

0) 

-M 

0) (I) 

0.20 

(1) (1 ) (0) 

3845-Electromedical and electrotherapeutic apparatus 

0.66 

0.86 

0.75 

co co 0) 

Group 62: Photographic equipment & supplies 

3861-Photographic equipment and supplies 0.35 

(I) (1) 

- M 

0) 

- M 0.60 

(1) (1) 0 ) 

Group 63: Jewelry, precious metals 

3911-Jewelry, precious metal 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

(2) 

Group 64: Games, toys, & children's vehicles 

3944-Games, toys & children's veh., except dolls & bicycles 

0.90 

0.90 -M -M -M 

0.73 

0.45 

C-22 

C-22
Table C-1: Summary of Significance for the Import and Export Estimations 

Canada Mexico 

Adjusted 

R2 94 95 96 

Adjusted 

R2 94 95 96 

Group 65: Sporting goods 

3949—Sporting and athletic goods, n.e.c. 

0.65 

0.66 +M +M 

0.89 

0.79 

+X 

Group 66: Misc. industries, n.e.c. 

3999—Manufacturing industries, n.e.c. 

0.88 

0.70 +M +M 

0.81 

0.83 

Estimation was not possible due to data constraints. 

Estimation was not possible because sector was added late in the study. 

Notes: In every row, exports are presented above imports in each cell. A `+/- X' represents a positive or negative statistically significant 

coefficient (at the 90 percent level) for the yearly binary variables for the U.S. export demand estimations. Similarly, a `+/- M' represents 

a positive or negative statistically significant coefficient (at the 90 percent level or better) for the yearly binary variables for the U.S. 

import demand estimations. 

Source: Estimated by USITC staff. 

C-23
The large number of regressions estimated for the industry-level trade flows made it difficult to 

present the full complement of diagnostic statistics. However, because the adjusted multiple correlation 

coefficient ( adjusted R2) is widely used as a measure of the degree of fit of the estimated regressions, that 

statistic is reported for each equation in table C-1. Table C-2 characterizes the distribution of the adjusted 

R2statistics from the trade flow estimations. The first four rows indicate the number of equations with 

adjusted R2statistics in each range. For example, among the 168 equations estimated for U.S. exports to 

Mexico, 55 had adjusted R2values greater than 0.75. The median adjusted R 2for each set of bilateral 

trade flow estimations are reported in the last row of the table. 

Table C-2—Summary statistics for the adjusted Res for the trade equations 

Range 

Canada Mexico 

Imports Exports Imports Exports 

Less than 0.25 15 17 16 3 

0.25 - 0.49 46 44 58 31 

0.50 - 0.74 65 75 56 79 

Greater than 0.75 48 31 38 55 

Total equations estimated 174 167 168 168 

Median 0.61 0.57 0.54 0.66 

Source: U.S. International Trade Commission. 

Table 4-1 in chapter 4 reports the disaggregated results from table C-1 after applying the criteria 

that all three binary variables must be statistically significant and have the same algebraic sign. As 

described above, this incorporates a high criteria, but is chosen to compensate for limitations associated 

with the use of binary variables to identify trade flow effects that are due to NAFTA. The results in table 

C-1 are also summarized in more condensed forms in tables C-3 and C-4. Table C-3 summarizes 

outcomes that were found for each of the four flows, by grouping them based on the algebraic sign and 

the years in which significant coefficients were identified. For example, the first row in table C-3 

identifies the number of equations in which there were positive and statistically significant coefficients on 

the binary variables identifying the years 1994, 1995 and 1996. There were 13 4-digit SIC industries for 

which this was true in the equations representing U.S. imports from Canada, and 10 SIC categories with 

this result in the case of U.S. exports to Canada. The first three rows identify the totals shown in table 4-

1. The remaining rows tabulate the results in which there were statistically significant changes in 1 or 2 

years or were not estimated. These effects were considered to be inconclusive in this analysis. 

C-24 

C-24
Table C-3—Number of significant coefficients for the binary variables per estimated equation, 

by year and algebraic sign 

• Canada Mexico 

Imports Exports Imports Exports 

3 positive and statistically significant 13 10 16 13 

3 negative and statistically significant 8 8 7 0 

Zero statistically significant 94 94 94 77 

2 positive and statistically significant, 94 & 95 3 4 4 10 

2 positive and statistically significant, 95 & 96 13 9 11 7 

2 positive and statistically significant, 94 & 96 1 0 3 1 

1 positive and statistically significant, 94 9 4 3 36 

1 positive and statistically significant, 95 3 3 3 4 

1 positive and statistically significant, 96 4 9 14 1 

2 negative and statistically significant, 94 & 95 2 1 1 0 

2 negative and statistically significant, 95 & 96 5 10 8 7 

2 negative and statistically significant, 94 & 96 2 0 0 0 

1 negative and statistically significant, 94 4 1 3 5 

1 negative and statistically significant, 95 4 4 3 3 

1 negative and statistically significant, 96 9 8 0 2 

Negative and positive and statistically significant 0 2 0 2 

Not estimated 24 31 30 30 

Total 198 198 198 198 

Source: U.S. International Trade Commission. 

The summaries of detailed results in table C-3 are further condensed in table C-4 by counting 

the number of 4-digit SIC categories for which there is either a consistent and statistically significant 

algebraic sign, no statistically significant binary variable coefficients, or a conflicting set of binary 

variable coefficients. These numbers combine both the effects we report as significant and the results 

that were considered inconclusive. 

Table C-4—Number of 4-digit SIC study sectors that have either one, two or three significant 

coefficients on the binary variables for the NAFTA years of 1994, 1995, and 1996 

Canada Mexico 

Imports Exports Imports Exports 

1,2 or 3 positive and statistically significant 46 39 54 72 

1,2 or 3 negative and statistically significant 34 32 22 17 

Zero statistically significant 94 94 92 77 

Negative and positive and statistically significant 0 2 0 2 

Not estimated 24 31 30 30 

Total 198 198 198 198 

ource: U.S. InternationalTrade Commission. 

C-25 

C-25
Aggregate Bilateral Trade Flows 

Estimates of the aggregate bilateral trade flow effects follow a methodology generally identical to 

the estimates described in the industry-level trade flow section. Aggregate U.S. imports and exports with 

Mexico and Canada have been estimated to discern whether there exist effects during 1994-96 that can be 

attributed to NAFTA. This section describes the data sources, the model specification, and the equation 

estimates and interpretations that were used in the aggregate trade section of chapter 4. Data sources, 

time series issues not described previously, and the results and diagnostics are the focus here. 

The basic economic specification that was estimated in this section is described by equations C-1 

and C-2 in the previous sections. U.S. imports and exports are both specified in terms of import demand 

equations. Quantity demanded is posited to depend on the price of the imported good, the price of the 

domestic substitute (denominated in the domestic currency), domestic income or economic activity, and 

the real exchange rate between the United States and the bilateral partner country. 

U.S. aggregate nominal imports and exports between the United States and Mexico and Canada 

were obtained from the Direction of Trade Statistics, published by the International Monetary Fund. 

These data were obtained at a monthly frequency for the period 1973-1996. Real GDP, the most common 

indicator of economic activity is not available at a monthly frequency, so seasonally unadjusted indices of 

industrial production were obtained for the United States, Canada, and Mexico from International 

Financial Statistics, published by the International Monetary Fund. Domestic wholesale prices and 

average monthly nominal exchange rates were also obtained from various issues of International 

Financial Statistics. The price of aggregate bilateral imports and exports are not available on a monthly 

basis for this period of time. Indices of aggregate U.S. and Canadian import and export unit values were 

used to proxy for these bilateral prices. Import and export unit values were not available for Mexico, so 

U.S. export and import unit values were used in the estimates of bilateral trade between the United States 

and Mexico. Estimates in this section are based on nominal U.S. imports and exports that have been 

deflated by the U.S. wholesale price index. 

As discussed in the previous section, describing issues and problems associated with the sectoral 

estimations, time series properties of the data warrant attention when the estimation procedures use 

economic time series. Nonstationarity was tested for and found to be present in the data. In addition, 

long-run relationships were tested using cointegration techniques and were found to be present. The 

estimations in this section, therefore, use an error-correction model as specified in the section of industrylevel trade estimations. A further test of the model specification is to check for changes in the underlying 

structure of the model over time. Cusum square tests indicated potential breaks in the bilateral trade 

patterns in the period 1988-1989. Chow tests were used and found that one can reject the hypothesis that 

the underlying parameters have not changed between the two periods. Therefore, the aggregate estimates 

of trade flows in this section are estimated with data covering the period 1989-1996. This sample is 

consistent with the sample period used to estimate the industry level trade flows. 

Table C-5 below reports the final model results used to characterize each of the four aggregate 

bilateral trade flows. A simple error-correction model was specified and the residuals were tested for the 

appropriate characteristics. Serial correlation was found in each of the models, so the fmal specifications 

are based on estimations that follow a second-order polynomial distributed lag (PDL) for each of the 

independent variables.' For space purposes, results in table C-5 only report the sum of the PDL 

coefficients that were estimated in the fmal model. Again, the AIC criteria was used to determine the 

fmal lag structure for each model. 

4' Second-order PDL models were selected by minimizing the Akaike Information Criteria (AIC) to chose 

between second- and third-order PDL models. 

C-26 

C-26
These parameter estimates do not directly correspond to the percentage changes in imports and 

exports, as reported in chapter 4. Instead, the shifts in import and export growth rates are derived from 

the binary variable coefficients for each of the years. The estimated trade flows are estimated on monthto-month differences in logarithmic levels, which are approximately equal to the percentage change in the 

transformed variable. Converting the estimated coefficients into annualized growth rate changes requires 

a conversion of the semi-log estimation to the appropriate form" which is then transformed to an 

annualized rate to obtain the estimates in chapter 4. 

Table C-5: Results of bilateral import demand specifications 

U.S. imports 

from Mexico 

U.S. exports 

to Mexico 

U.S. imports 

from Canada 

U.S. exports 

to Canada 

Constant -9.96' 8.02 -13.16' -6.67' 

(-2.56) (1.21) (-3.38) (-3.32) 

Import price -2.19 -3.67 -9.275' -6.86' 

(-0.90) (-0.55) (-3.68) (-2.49) 

Domestic price 6.342 2.56 0.78 -2.32 

(1.73) (1.62) (0.27) (-0.69) 

Domestic income -0.916 2.43' 1.36 8.82 1 

(-0.23) (3.25) (0.67) (4.21) 

Exchange rate 1.25' 0.76' -0.36 4.21' 

(3.35) (2.43) (-0.44) (2.59) 

Year 1994 0.0702 0.118' -0.052 -0.031 

(1.80) (3.72) (-1.36) (-1.07) 

Year 1995 0.346' 0.305' -0.104 -0.097 

(4.23) (2.50) (-1.50) (-1.61) 

Year 1996 0.378' 0.2612 -0.142 -0.14' 

(4.04) (2.12) (-1.62) (-2.02) 

Adjusted R2 0.76 0.62 0.84 0.88 

Mean dep. var. .01136 0.00879 .00767 0.00703 

Number observations 95 95 95 95 

D.F. test on residuals -3.63 -3.28 -3.80 -3.99 

Ljung-Box Q (6) 14.29 8.63 3.32 14.03 

Numbers in parentheses represent t-statistics on the coefficient estimate. 

Indicates the coefficient was statistically different from zero at a 95-percent confidence level. 

2Indicates the coefficient was statistically different from zero at a 90-percent confidence level. 

Source: Estimated by the staff of the United States International Trade Commission. 

." Peter Kennedy, (1992) A Guide to Econometrics, p. 223. The correct expression of the percentage impact of 

the coefficient on the binary variable is e 6- 1. 

C-27 

C-27
Labor 

Studies of Trade and Employment 

Dickens' provides a fairly comprehensive survey of research on the effects of trade on 

employment, and provides a summary of the results. Among the conclusions are that: (1) the research 

tells us nothing about the long-run level of employment; (2) the research does provide conclusions on the 

composition of employment in the United States, with trade leading to job gains in " . . . chemicals, 

plastics, engines, turbines, generators, construction and mining machinery, office and computing 

machinery, aircraft parts, and scientific instruments," and to losses in " . . . apparel, furniture and fixtures, 

leather products, screws and stamping, and radio and televisions;" (3) even tariff reductions of 50 percent 

or more, for imports from all countries, will probably cause far fewer than 200,000 job losses; and (4) 

short run job losses due to imports in the early 1980s probably contributed to the depth of the 1982 

recession and the subsequent slow recovery of employment,' and most of these trade effects were likely 

due to increased imports from Japan and Asia. 

Ana Revenge has estimated the effects of imports on employment and earnings. Her work is not 

explicitly related to NAFTA, covering the years 1977 to 1987 and looking at the effects of imports from 

all countries rather than from a specific partner. Nevertheless, since it analyzes the effects of trade on 

labor markets in specific industries, it provides interesting insights. Her results are discussed in chapter 4 

and her methodology provides significant guidance to the analysis preformed here. 

Estimation of NAFTA Effects 

As described in the introduction to this report, and more completely in chapter 5, a sample of 

industries was selected for analysis, based on the changes in the levels of trade between the United States 

and its NAFTA partners between 1993 and 1996. For the analysis of labor market effects, a total of 120 

industries, classified at the 4-digit SIC level, were selected by this criterion and by availability of data on 

the labor force. This represents a subset of all industries analyzed in the trade analysis and in chapter 4. 

Several industries were excluded because of lack of data on earnings and hours worked, including all 

agricultural sectors and many for which BLS did not collect individual sector labor data Several more 

sectors were excluded because of lack of data on trade flows, including all service sectors. 

For each of these industries an econometric analysis was performed in an attempt to isolate the 

effects of NAFTA on the industry's earnings (as measured by average hourly earnings of production 

workers as reported by the BLS) and employment levels (as measured by average hours worked per week 

by all production workers, equal to length of the average work week for production workers in a given 

month, multiplied by the average number of production workers that month). 

Employment and Earnings Specifications 

The effects of NAFTA on employment and earnings are transmitted by import price changes 

which are in turn induced by NAFTA policy changes. The functional form is largely that suggested by 

" W.T. Dickens, "The Effects of Trade on Employment: Techniques and Evidence" in L.D. Tyson, W.T. 

Dickens, and J. Zysman, eds., The Dynamics of Trade and Employment (Chicago: The University of Chicago Press, 

1988) pp. 41-85. 

" Dickens, p. 43. 

A.L. Revenga, "Exporting Jobs? The Impact of Import Competition on Employment and Wages in U.S. 

Manufacturing", Quarterly Journal of Economics, Feb. 1992, pp. 255-284. 

C-28 

C-28
Revenge, with additional variables to account for NAFTA and the peso devaluation, to the extent that 

their effects are not captured by other variables. 

Earnings or Employment Level = ,(economic activity, prices, alternative wages, unemployment 

level, NAFTA, Peso Crisis) 

EorH=Po+PLY+P2PM+ P3PC+ P4PR+135 PD 4136W+P7U+138NAFTA+P9 PESO +11. C-3 

where: 

E (or H) is the Earnings (or Hours worked) in the given industry. Data are average hourly 

earnings and average weekly hours for production workers in the industry. Earnings are deflated 

by the CPI. 

Y is economic activity in the United States, expressed as real GDP. 

PM, PC, and PR are prices of sector imports from Mexico, Canada, and the rest of the world to 

the United States, expressed as unit values of imports. 

PD is the domestic U.S. price of the industry's output. 

W is an alternative wage, the average wage of all private employees (deflated by CPI). 

U is total civilian unemployment 

In equation C-3 above, NAFTA represents a binary variable to account for the implementation of 

the NAFTA, equal to 1 for the years 1994-1996, and PESO represents a binary variable for the peso crisis 

of December 1994, equal to 1 for the years 1995-1996. The binary variables, as well as the variables Y, 

W, and U (for GDP, alternative wage, and unemployment) are the same for all industries. The variables 

E (earnings), H (hours), PM (price of Mexican imports), PC (price of Canadian imports), PR (price of 

imports from the rest of the world), and PD (price of domestic output) are specific to each industry. 

Data are monthly observations, from January 1989 through October 1996 (94 observations). All 

data are entered in logarithmic form. Trade and employment effects of NAFTA were estimated in two 

ways. Data from a subsample of nine industries were tested for stationarity, and the null hypothesis of 

nonstationarity universally failed to be rejected. This subsample of industries was tested for 

cointegration, with ambiguous results. Variables were entered in log first-difference form, with lagged 

values of the log levels of the independent variables added to recapture the transient variation lost by use 

of the differences. As an alternative, a simple iterative maximum likelihood procedure' to correct for 

first-order serial correlation was also used (referred to as the "autoregression model"). For a discussion of 

this procedure, see C.M. Beach and J.G. MacKinnon, "A Maximum Likelihood Procedure for Regression 

with Autocorrelated Errors," Econometrica, 46, 1978, pp. 1035-1056. The two approaches were highly 

consistent with each other, identifying NAFTA and price effects of the same sign in almost all those cases 

tested (where "NAFTA effects" are the coefficients of the binary variable "NAFTA" defined above). 

The autoregression procedure found coefficients of the "NAFTA/PESO" binary variables to be significant 

A.L. Revenga, "Exporting Jobs? The Impact of Import Competition on Employment and Wages in U.S. 

Manufacturing," Quarterly Journal of Economics, Feb. 1992, pp. 255-284. 

' See C.M. Beach and J.G. MacKinnon, "A Maximum Likelihood Procedure for Regression with 

Autocorrelated Errors," Econometrica, 46, 1978, pp. 51-58. 

C-29 

C-29
at the 5 percent level for more industry sectors. An appropriate modeling response to the existence of 

cointegrated variables, as discussed in the trade analysis section, is an error-correction model. 

In general, if the disturbance term of the regression equation is correlated with one of the 

independent variables, the estimated parameters will be biased. In the model specifications tested here, it 

seems likely that import price variables may be correlated in this fashion. Particularly in the context of 

NAFTA, a change in the import price due to the Agreement may be correlated with other changes to the 

labor market not effectively captured by the binary variables. In order to correct for this, an instrumental 

variable procedure was applied, following the suggestion of Revenga. Instrumental variables essentially 

purge the independent variable of the "undesirable" correlation with the residual, leaving the "desirable" 

correlation with the dependant variable. Thus an appropriate instrument would be one that is correlated 

with the import price, but not with the unobserved components of earnings and hours worked. A 

candidate for this role is the exchange rate, since it is related to import prices but would not seem to be 

related to transitory labor market influences. Therefore the instruments chosen were indices of the 

exchange rate of the dollar with the Mexican peso, the Canadian dollar, and the rest of the world. 

Specifically, we used the index of the trade-weighted value of the dollar as calculated by the Federal 

Reserve Bank of Dallas. The Mexican and Canadian components were used for the Mexican and 

Canadian indices, and were removed from the global index to provide an index of the dollar's value with 

the rest (non-North American part) of the world. For each industry these indices were weighted by the 

share of U.S. imports in that industry originating in Mexico, Canada, and the rest of the world. These 

instruments were incorporated in a variation of the autoregression procedure described above, and will be 

referred to from this point as the "autoregression with instruments" (or "with instrumental variables") 

procedure. 

In the models, NAFTA is assumed to make itself felt through the dummy variables and more 

directly through the effect of the Agreement on the price of imports from Mexico. (There were almost no 

cases of significant effect of changes in Canadian import prices, and the effect of these imports will not be 

discussed here.) If NAFTA-related changes in duties result in a decrease in the price of Mexican imports 

of a particular product, this may cause domestic U.S. employment and wages to fall in the U.S. industry 

that produces a competing product. On the other hand, if imports of a particular product are 

complementary to domestic products in the same SIC classification, or if import pressure causes increased 

productivity in the U.S. industry (either due to increased investment, or to layoffs or downsizing, or to job 

relocation or production rationalization), observed wages and in some cases employment may rise. Thus 

the import price variable may be either positively or negatively related to U.S. employment and earnings. 

Note that the import price variable is not explicitly a tariff or tariff reduction variable. Within the scope 

of this study it was not possible to isolate on a monthly basis the net change in duties collected due to 

NAFTA from those due to the tariff concessions associated with the World Trade Organization, changes 

in the structure of joint production arrangements ("Maquiladora" trade), or other factors. Nor was it 

possible to determine the extent to which changes in tariffs were actually passed through as price 

reductions. Furthermore, the import price variable and the corresponding instrumental variable, the value 

of the dollar against the peso, will also reflect changes in the exchange rate, particularly the major 

devaluation of the peso. 

Interpretation of Coefficients on Binary Variables 

To the extent that NAFTA has other effects besides the reduction of import prices, the dummy 

variable specifications are expected to capture them. As explained elsewhere, the NAFTA variable 

actually measures, on average, the proportional difference between earnings (or hours) in the NAFTA 

years and those in the pre-NAFTA years, after accounting for the effects of all the other variables in the 

model. If NAFTA lowered non-tariff barriers, induced productivity-enhancing investment flows, or 

created more secure and profitable trade through the enforcement of intellectual property rights, the 

C-30 

C-30
effects of these changes should be seen in the coefficient of the NAFTA variable. And if any other 

changes to the trading environment occur simultaneously, such as a sudden change in exchange rates or a 

change in the political environment, the effects of these changes will also be picked up by the NAFTA 

variable. The PESO variable is used to further isolate the effects of the NAFTA coefficient from at least 

some of the confounding effects of concurrent events, to the extent that these changes are not contained in 

the price and exchange rate measures. In addition, the PESO variable may help isolate the NAFTA effect 

from effects on the U.S. labor market that may be due to devaluation-related changes in U.S. exports to 

Mexico. Where the trade analysis in the preceding section looks at NAFTA's relation to imports and 

exports separately, the analysis of effects on the labor market can only look at the net effect, and the 

absence of timely data on Mexican demand and price conditions has precluded a more complete 

examination of the export effects. It therefore seemed appropriate, for largely heuristic reasons, to specify 

NAFTA and PESO variables here rather than the three variables Y94, Y95, and Y96 used to pick up 

NAFTA effects in the trade analysis." 

The way in which the NAFTA and PESO variables are entered, in principle, requires their effects 

to be interpreted jointly, since it is possible for the PESO variable to cancel out the effect of the NAFTA 

variable during the second and third years of NAFTA. In this analysis, however, there were no cases in 

which an equation contained significant NAFTA and PESO variables of opposite signs. 

The NAFTA variable and the PESO variable also pick up, at least partially, some effects which 

are related to prices. For example, price changes can in principle make themselves felt in apparently 

unrelated industries; a reduction in the prices of imported cement or steel can lead to an increase in 

employment in construction and manufacturing industries. The present analysis has not attempted to 

capture these cross-industry complimentarity effects. 

Table C-6 presents a summary of significant fmdings from the labor market analysis. It shows all 

4-digit SIC classification industries for which a significant "NAFTA" or "Mexican import price 

elasticity" coefficient was found, for either the equation estimating effects on hours worked or the effects 

on average hourly earnings. If a significant "PESO" coefficient occurs in conjunction with a significant 

"NAFTA" coefficient, that is also reported. For the significant binary variables only the sign is reported, 

following the presentation of table C-1. The value of significant coefficients on the Mexican import price 

is reported, as is the adjusted R-squared statistic for each reported equation. The significance level (or 

confidence level) for all reported coefficients is 95 percent. 

" Estimations were also performed using the the three annual variables, with no appreciable differences from 

those of the estimates reported here. 

C-31 

C-31
Table C-6: Summary of Significance for Hours and Earnings Estimations. 

ITC Group and SIC Industry Dependent 

Variable 

NAFTA PESO Mexican 

Import Price 

Adjusted 

R2 

Group 6—Meats and livestock 

SIC 2011—Meat packing 

plants 

Earnings - .91 

Group 15—Malt beverages 

SIC 2082—Malt beverages Hours -0.94 .81 

Group 17—Misc. food prepar. 

SIC 2099—Food products, 

nspf 

Hours 0.06 .71 

Group 18—Textile mill products 

SIC 2295—Coated fabrics, 

not rubberized 

Earnings - .89 

Group 19—Apparel and other 

finished textile goods 

SIC 2325—Men's and boys' 

separate trousers 

and slacks 

Earnings + .72 

SIC 2331—Women's, 

misses', and 

juniors' blouses 

and shirts 

Earnings 0.12 .26 

Group 22—Paper products 

SIC 2621—Paper mills Hours 0.10 .97 

SIC 2653—Corrugated and 

solid fiber boxes 

Earnings -0.02 .82 

SIC 2676—Sanitary paper Hours - 0.03 .90 

Earnings .90 

Group 25—Industrial inorganic 

chemicals 

SIC 2819—Industrial 

inorganic chemicals 

Earnings - .75 

Group 28—Soaps, detergents, and 

toiletries 

SIC 2841—Soaps and 

cleansers 

Hours - .95 

SIC 2843—Surface active 

agents 

Hours - .95 

Group 33—Plastic and rubber 

products 

+ + + 

SIC 3052—Rubber and Hours .90 

plastics hoses 

and belting 

Earnings .66 

SIC 3069—Fabricated rubber 

products, nec 

Hours + -0.06 .78 

C-32 

C-32
Table C-6: Summary of Significance for Hours and Earnings Estimations. 

ITC Group and SIC Industry Dependent 

Variable 

NAFTA PESO Mexican 

Import Price 

Adjusted 

R2 

Group 34—Leather and leather 

footwear 

SIC 3111—Leather tanning 

and finishing 

Earnings + + .77 

Group 36—Flat glass and 

glassware 

SIC 3229—Pressed and 

blown glass and 

glassware, nec 

Earnings + 0.01 .50 

Group 38—Vitreous china 

plumbing fixtures 

SIC 3261—Vitreous china 

plumbing fixtures 

Earnings .89 

Group 41—Steel products 

SIC 3321—Gray and ductile 

iron foundries 

Hours + + .75 

Group 43—Nonferrous metals, 

wrought 

SIC 3351—Rolling, drawing, 

and extruding 

of copper 

Hours 

Hours 

+ 

0.12 

.86 

.96 

SIC 3353—Aluminum sheet, 

plate, and foil 

Group 44—Fabricated metal 

products 

SIC 3443—Fabricated plate 

work (boiler shops) 

Earnings - .70 

SIC 3452—Bolts, nuts, 

screws, rivets, 

washers 

Hours + .94 

SIC 3493—Steel springs, 

except wire 

Earnings + .71 

Group 45—Industrial machinery 

SIC 3561—Pumps and 

pumping equipment 

Hours -0.02 .92 

SIC 3566—Speed changers, 

drives, and gears 

Hours - .84 

SIC 3569—General industrial 

machinery and equip., nec 

Earnings - .65 

SIC 3599—Industrial and 

commercial machinery and 

equipment, nec 

Hours + .95 

C-33
Table C-6: Summary of Significance for Hours and Earnings Estimations. 

ITC Group and SIC Industry Dependent 

Variable 

NAFTA PESO Mexican 

Import Price 

Adjusted 

R2 

Group 47—Heavy electrical 

equipment 

SIC 3613—Switchgear and 

switchboard 

apparatus 

Hours 0.08 .97 

SIC 3621—Motors and 

generators 

Earnings - .99 

SIC 3625—Relays and 

industrial controls 

Earnings - .91 

Group 48—Household appliances 

SIC 3632—Household 

refrigerators and 

freezers 

Earnings -0.06 .93 

Group 49—Electrical lighting and 

wiring equipment 

SIC 3641—Electric lamp 

bulbs and tubes 

Hours + -0.09 .94 

SIC 3644—Noncurrent- Hours 0.04 .63 

carrying devices Earnings - - .58 

Group 50—Radio and television 

equipment 

SIC 3651—Household audio 

and video equipment 

Hours 0.28 .94 

Group 52—Electronic components 

and accessories 

SIC 3674—Semiconductor 

and related devices 

Earnings - .79 

SIC 3676—Electronic Hours + .95 

resistors Earnings 0.04 .62 

Group 55—Motor vehicle parts 

SIC 3714—Motor vehicle 

parts and 

accessories 

Earnings 0.05 .76 

Group 60—Measuring, analyzing, 

and control instruments 

SIC 3823—Industrial 

instruments for 

measurement, 

display, and control 

Earnings - .68 

Group 64—Games, toys, and 

children's vehicles 

SIC 3944—Games, toys, and 

children's vehicles, 

except dolls and bicycles 

Earnings + .59 

C-34
Table C-6: Summary of Significance for Hours and Earnings Estimations. 

ITC Group and SIC Industry Dependent 

Variable 

NAFTA PESO Mexican 

Import Price 

Adjusted 

R2 

Group 66—Misc. industries 

SIC 3999— Manufacturing 

industries nec 

Hours 0.03 .79 

Source: Compiled by the staff of the U.S. International Trade Commission. 

C-35 

C-35
Econometric Estimates of Manufacturing Productivity 

One of the potential effects posited for the NAFTA was that it would increase industrial 

productivity in both U.S. and Mexican sectors, as those sectors faced increased competition from imports. 

The rationale was that as domestic industries faced a larger number of competing firms in the expanded 

NAFTA market, U.S. firms would be induced to adopt more efficient production methods.' That is to 

say, reducing barriers to trade might increase the competitiveness of a country's firms, thereby increasing 

domestic productivity. Given the size of the Mexican economy relative to the U.S. economy, however, it 

is unclear how significant the NAFTA contribution to overall U.S. productivity will be. 

Empirical studies examining the determinants of U.S. labor productivity generally find that three 

interrelated variables: industry growth, R&D intensity, and firm concentration, are the most important 

factors influencing labor productivity. The effects of imports and trade in general on U.S. productivity 

have received increased attention from economists, with three recent studies obtaining mixed results 

about the extent to which trade might induce U.S. domestic industries to become more productive. 52Two 

of the studies found statistical support for the hypothesis that import competition and increases in labor 

productivity are positively related, while the third found no association between trade and productivity. 

At the time this analysis was conducted, most of the data used to construct measures of labor 

productivity, as well as the data for most of the explanatory variables, were only available on an annual 

basis through 1994. In addition, the fmdings of this analysis identify changes in import competition that 

affected productivity in a period before NAFTA implementation.' Therefore, these two factors did not 

allow a direct econometric estimate of the actual effects of the NAFTA on U.S. labor productivity. 

As an alternative to estimating the effects of NAFTA-induced import changes on productivity, the 

analysis focused instead on the general effects of increased import competition from Mexico and Canada 

on U.S. labor productivity using a cross-sectional analysis. Thus, the estimates obtained in this analysis 

do not measure the effects of NAFTA on U.S. labor productivity, but rather, provide an indication of the 

direction and magnitude of its potential effects. The discussion that follows provides an overview of the 

relevant literature, a description of the analytical framework and, a specification of the regression that was 

used, and, finally, a summary of the econometric results that were obtained. 

Overview of Literature 

Studies by Caves and Barton, MacDonald, and Scherer have provided mixed results about the 

extent to which trade might induce U.S. domestic industries to become more productive. These 

econometric studies provided the basis for the empirical analysis of productivity in chapter 4 and are 

summarized below. 

5 ' In addition, it was argued that the expanded NAFTA market would enhance productivity by allowing existing 

firms to exploit economies of scale. For further discussion of these issues, see Gary Hufbauer and Jeffrey Schott, 

NAFTA: An Assessment (Institute for International Economics, Washington, DC: Feb. 1993), p. 23. 

' Richard Caves and David R. Barton, Technical Efficiency in U.S. Manufacturing Industries (Cambridge: The 

MIT Press, 1990); James M. MacDonald, "Does Import Competition Force Efficient Production?" Review of 

Economics and Statistics, vol. 76, Nov. 1994, pp. 721-27; and F. Michael Scherer, "Lagging Productivity Growth: 

Measurement, Technology, and Shock Effects," Empirica, vol. 20, 1993, pp. 5-24. These analyses are discussed in 

further detail in the next section. 

This finding also implies that import changes induced by NAFTA in 1994 might not affect productivity until 

later years. 

C-36 

C-36
Using data compiled by the International Trade Administration (ITA), Caves and Barton examine 

the relation between changes in the ratio of imports to domestic supply and the annualized rate of growth 

of real shipments per employee between 1977 and 1986 for 221 4-digit SIC manufacturing industries. 

Controlling for the growth in real shipments, they fmd that contemporaneous increases in import 

competition have a small, but statistically significant and positive correlation with increases in labor 

productivity. In addition, the authors examine lagged changes (1972-77) in the value of imports and 

found that the effect for the lagged variable is also positive and statistically significant, but larger than the 

effect for the changes in contemporaneous imports. 

Scherer examines the association between the growth in U.S. net exports' — exports minus 

imports -- and the growth of labor productivity, fmding no statistically significant effect between 

productivity growth and the contemporaneous change of net exports. His analysis is based on panel data 

constructed by the National Bureau of Economic Research (NBER) of 447 4-digit SIC manufacturing 

industries between 1978 and 1988. 

MacDonald found that changes in imports had little effect on labor productivity in less 

concentrated sectors but led to large increases in productivity in highly-concentratee sectors between 

1975 and 1987. MacDonald's results are based on a panel of 94 manufacturing industries where import 

changes are the ratio of sector-level imports to the value of U.S. shipments and productivity changes are 

calculated from measures of labor productivity (output per man-hour) constructed by the Bureau of Labor 

Statistics (BLS). The analysis observed four periods, each of 3 years duration: 1975-78, 1978-81, 1981-

84, and 1984-1987. The strong effects that imports have on concentrated industries does not occur 

contemporaneously, but appears with a one-period lag. MacDonald fmds that his results are weakened 

but remain statistically significant when the BLS data set is replaced with the larger NBER data set used 

by Scherer. 

Analytical Framework 

A regression model is used in which four variables determine productivity changes in a sector: 

the growth in industry output, R&D intensity, the level of industry competition as measured by market 

concentration, and the change in imports.' The model is based on the studies described above which fmd 

that sectors experiencing higher levels of market concentration and increases in scale economies, 

technological innovation, and import competition, on average, experience greater increases in labor 

productivity. 

The intuitive explanation for the positive association between productivity and these four 

variables is generally straightforward. As stated earlier, increases in international competition should 

induce domestic firms to adopt more efficient production methods and thereby increase productivity.' Of 

Scherer's use of net-exports as an explanatory variable was based on the position that net-exports were a 

better indicator of varying international competition than changes in imports alone. His explanation of this view was 

that many multinational corporations simultaneously export some of their product lines from the United States and 

import others from offshore plants. 

Ss Highly-concentrated industries are defined as those with a four-firm concentration index of 0.70 or above. 

The analyses also examined the effects of contemporaneous changes in import competition. Similar to 

MacDonald, the analysis in this report found that the effects of import competition did not occur contemporaneously, 

but appeared with a one-period lag. See MacDonald, "Does Import Competition Force Efficient Production?" for 

further discussion. 

' During the first part of the 1990's, many sectors underwent substantial restructuring accompanied by large 

reductions in their workforce, and indeed, this is one method by which firms increase productivity. The 

restructuring that occurred during this period was not formally examined in the model that was used in the 

(continued...) 

C-37 

C-37
the four variables in the model, the intuition underlying the association between innovation and labor 

productivity is perhaps the most straightforward: higher levels of innovative activity, especially process 

innovation, typically lead to a more efficient utilization of all inputs, including labor. The rationale for 

the positive association between productivity and increasing scale economies is based on the efficiency 

gains that firms realize by spreading costs over expanded production runs. 

Finally, the positive association that is posited between productivity and market concentration is 

less straightforward because high market concentration is typically associated with lower levels of 

domestic market competition, and consequently, lower productivity.' However, numerous empirical 

studies have identified a positive association between productivity and concentration. One'plausible 

explanation is that sectors experiencing higher productivity rates might become more concentrated as a 

result of their previous innovative activity.' 

Model Specification 

To examine the effects of import competition on U.S. labor productivity, the Commission staff 

estimated the following equation using ordinary least squares (OLS) on a cross-section across 455 4-digit 

SIC manufacturing industries. 

PR = Ro + PilD + I32CR4 + PAS + 134MD (C-4) 

where: 

PR = the percentage change of real shipments per man-hour between 1993 and 1994. 

ID = the percentage change of real shipments between 1993 and 1994. 6° 

CR4 = the four firm concentration ratio in 1992. 

RS = the percentage of R&D expenditures to sales in 1993. 

MD = the percentage change in the share of all imports in U.S. domestic consumption 

between 1992 and 1993 

(...continued) 

Commission analysis. However, for the overall data that were analyzed for the period between 1993 and 1994, the 

correlation between productivity and employment was observed to be negative. In the 141 threshold sectors where 

imports competition was found to be positively associated with changes in labor productivity, the correlation was 

also found to be negative. This would tend to suggest that the gains in labor productivity that were found during this 

period were generally accompanied by reductions in the workforce. 

Even though high market concentration in a sector is associated with an imperfectly competitive industry 

structure, this condition does not imply generally that the market is not competitive. An important factor affecting 

competition in those markets is the degree of openness to international competition. Import competition tends to 

result in highly competitive markets, even in sectors where domestic firms are highly concentrated. MacDonald 

examined the interaction between market concentration and changes in import competition. As noted in the 

overview, he found that labor productivity in highly concentrated markets showed the largest gains as a result of 

import competition. 

59Caves and Barton provide a more detailed discussed on the association between productivity and market 

concentration. See Caves and Barton, Technical Efficiency, ch. 8, for further discussion. 

A typical approach in the literature (e.g., Caves and Barton (1990), McDonald (1994), and Douglas F. Greer 

and Stephen A. Rhoades, "Concentration and Productivity Changes in the Long and Short Run," Southern Economic 

Journal, 43, Oct. 1976, pp. 1031-44) when modeling the association between productivity and scale effects is to 

regress the change in real shipments per man-hour against the change in real shipments. Generally, one would 

expect real shipments to increase over time. In contrast, real shipments per man-hour is constant unless there is a 

change in productivity. Therefore, the relation between the two variables is not reflected by a constant term. 

C-38 

C-38
Except for the four firm concentration ratio and R&D activity, data are available on an annual 

basis through 1994. In addition, data for all of the variables except R&D intensity are available at the 4-

digit SIC level.' Data for R&D are only available at the more highly aggregated 2- and 3-digit SIC level. 

Because the data focus on the change in labor productivity that occurs across sectors between 1993 and 

1994, the OLS estimates for each of the explanatory variables in equation C-4 reflect average estimates 

for the overall manufacturing sector. 62As noted in the intuitive explanation above, the growth or change 

in output (ID), R&D intensity (RS), the four-firm concentration ratio (CR4), and the change in imports 

lagged by one year (MD) are all expected to be positively related to productivity changes. The 

hypotheses tested are that the expected signs on all of the coefficients for these four explanatory variables 

are positive. 

Econometric Results 

The estimated results of equation C-4 are presented in table C-7 under case 1 63The coefficients 

for ID and CR4 are positive and statistically significant at the 95 percent confidence level. Neither the 

coefficients for MD nor RS are statistically significant. The insignificant results for R&D intensity might 

be partially explained by the fact that the data for RS are more highly aggregated (2- and 3-digit SIC 

level) than the data for PR (4-digit) and, therefore, incompatible for purposes of measuring R&D variance 

at the appropriate 4-digit SIC level. 

An alternative hypothesis suggested by the literature proposes that imports are not likely to have 

an impact on productivity until they reach a "critical mass" or threshold level in an individual sector. 

Domestic firms are less likely to respond to changes in import competition if the degree of competition is 

relatively very small. Only at the point where the market share of imports begins to affect domestic 

producers, do firms begin to react. To test the threshold hypothesis, an interaction term identifying this 

characteristic, MA, was added to the estimation of equation C-4: 

PR =130+ 13/ID + I32CR4 + 133RS + 134MD +135MA (C-5) 

where, MA = the interaction term between the percentage change in the share of U.S. domestic 

consumption for all imports between 1992 and 1993 and a binary variable which 

is equal to one when the share of imports is at or above the specified threshold 

level and zero otherwise. 

The results for the estimation of equation C-5 are reported under case 2 in table C-7 and suggest 

that changes in productivity are positively related to changes in total import shares and that some 

threshold level of total imports must be present—in this case, a 15 percent share—before a sector responds 

to import competition with increases in productivity. On average, a 1-percent increase in the share of 

imports in threshold sectors is associated with a 0.16-percent increase in labor productivity. Of the 455 

manufacturing sectors examined, 141 of these are sectors where total imports held at least a 15-percent 

share of U.S. consumption. On average, the share of imports in these threshold sectors increased by 3.1 

percent between 1992 and 1993. Applying the estimated effect of the interaction term, MA, this analysis 

suggests that productivity for the 141 sectors increased, on average, by approximately 0.5 percent during 

this period as a result of increased import competition. 

61R&D data were obtained from databases compiled by the National Science Foundation. All other data were 

obtained from databases compiled by the Bureau of Census. 

sz Other studies have obtained similar results with respect to R&D intensity. For instance, see Greer and 

Rhoades for further discussion. 

63 The t-statistics which appear in parentheses are based on standard errors adjusted for heteroskedasticity. 

C-39 

C-39
Table C-7 

Econometric estimates of the effects of increased import penetration on U.S. labor productivity 

Estimated coefficients and t-Statistics 

Explanatory 

Variable Case 1 Case 2 Case 3 Case 4 

Constant -.023* -.023* -.024* -.024* 

(-2.43) (-2.50) (-2.64) (-2.68) 

ID .506 * .503* .507* .504* 

(9.79) ( 9.74) ( 9.84) (9.78) 

RS .237E-02 .224E-02 .244E-02 .221E-02 

( 0.98) (0.93) (1.01) (.91) 

CR4 .576E-03 * .558E-03* .564E-03* .578E-03* 

( 2.63) (2.54) ( 2.57) (2.65) 

MD -.168E-03 -.210E-02 -.186E-02 -.182E-02 

( -0.50) (-0.68) (-0.58) (-0.57) 

MA .157* — 

(2.28) 

MN .158* 

(2.02) 

MM .209* 

(2.16) 

No. of observations: 455 455 455 455 

Adjusted R2 .29 .30 .30 .31 

F-stat.(zero slopes) 48.47 39.86 39.56 39.81 

Note: T-statistics are noted in parentheses. "*" indicates statistical significance at the 95 percent confidence level. 

Standard errors are adjusted for heteroskedasticity. Case 1 examines the primary hypothesis that changes in labor 

productivity are associated with changes in imports. Cases 2 through 4 examine the hypothesis that a minimum 

threshold of imports must exist before import competition can affect productivity. The interaction term, MA, in case 2 

sets the threshold where the share of domestic consumption for all imports is at least 15 percent. Cases 3 and 4 also set 

the threshold for all imports at 15 percent; however, the interaction term in case 3, MN, only reflects changes in imports 

in those sectors where both total imports and NAFTA imports increased. The interaction term in case 4, MM, only 

reflects changes in imports in those sectors where both total imports and Mexican imports increased. 

Source: Compiled by USITC staff. 

C-40 

C-40
While these results provide support for the hypothesis that there is a positive association between 

import competition in high-import threshold sectors and U.S. labor productivity, a similar statement 

cannot be made about import competition from U.S. NAFTA trading partners (Canada and Mexico) or, 

more specifically, imports from Mexico. The estimates in equation C-5 apply to the total level of imports 

in each of the sectors and not to imports from only a single country. Even though imports from a single 

export source might increase, total import penetration in a sector would not change if trade diversion, 

rather than trade creation, occurred. Changes in total imports give a more accurate indication of changes 

in import competition. 

The Commission analysis subsequently examined the effects of import competition from Canada 

and Mexico relative to total import competition. This effect was measured by focusing on those sectors 

where the overall threshold level of imports was at least 15 percent and where both total imports and 

NAFTA imports simultaneously increased." The import competition from Canadian and Mexican 

imports was estimated with two separate interaction terms that replaced the term, MA, in equation C-5. 

These two interaction terms, MN and MM, are described below: 

MN the interaction term between the percentage change in the share of U.S. domestic 

consumption for all imports between 1992 and 1993, and a binary variable which 

is equal to 1 when the share of total imports is at or above the 15-percent 

threshold level and when both total imports and NAFTA- partner imports 

simultaneously increased. The binary variable is zero otherwise. 

MM = the interaction term between the percentage change in the share of U.S. domestic 

consumption for all imports between 1992 and 1993, and a binary variable which 

is equal to 1 when the share of total imports is at or above the 15-percent 

threshold level and when both total imports and Mexican imports simultaneously 

increased. The binary variable is zero otherwise. 

The results for these two interaction terms are reported in table C-7 under cases 3 and 4. The 

results for MN and MM are both positive and statistically significant at the 95-percent confidence level. 

Under case 3, the interaction term reflects increases in total import competition for 73 sectors where 

NAFTA (Canadian and Mexican) imports simultaneously increased. In these sectors, the total share of 

imports increased on average by 7.3 percent. The estimate of the effect of MN suggests that, for these 73 

sectors, labor productivity on average increased by 1.2 percent during this period as a result of increased 

import competition. Under case 4, the interaction term reflects increases in total import competition for 

67 sectors where Mexican imports simultaneously increased. For these sectors, the total share of imports 

increased on average by 6.9 percent. The estimate of the effect of MM suggests that, for these 67 sectors, 

labor productivity on average increased by 1.4 percent during this period as a result of import 

competition. As noted above, the import changes that are measured in cases 3 and 4 are the changes in 

total imports in the threshold sectors and not solely the changes in imports from Canada and Mexico. 

As discussed in chapter 4, the lack of productivity data for 1995 and 1996 did not allow a direct 

econometric estimate of the actual effects of the NAFTA on U.S. labor productivity. Nonetheless, the 

results provide some insights on the association between labor productivity and import competition as 

well as give some indication on the potential effects of NAFTA on labor productivity. To summarize, the 

results suggest that lagged import competition, and not contemporaneous import competition, affects 

" Numerous simulation analyses prior to the NAFTA estimated that, in general, U.S. imports from Mexico 

would increase as a result of the Agreement. For a summary of these estimates, see USITC, Potential Impact on the 

U.S. Economy and Selected Industries of the North American Free-Trade Agreement, USITC publication 2596, 

Washington, D.C. Jan. 1993. 

C-41 

C-41
labor productivity. In addition, imports must account for a relatively substantial share of consumption—in 

this analysis, 15 percent—before productivity is affected by increases in import competition. Therefore, to 

the extent that NAFTA induced total imports to increase (i.e., overall trade creation) in threshold sectors 

over the period 1993 through 1996, the results of this analysis imply that U.S. manufacturing labor 

productivity likely increased. 

Data on Foreign Direct Investment 

The discussion of investment in Chapter 3 includes a reference to detailed U.S. foreign direct 

investment flows into Mexico. These data are contained in the tables that follow. 

C-42 

C-42
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C-43
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Table C-9:U.S.Direct InvestmentAbroad:CapitalOutflowstoMexico,1982-95 

C-44
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bleC-10:U.S.DirectInvestment Abroad: EquityCapital OutflowstoMexico,1982-95 

C-45
TableC-11: U.S. DirectInvestmentAbroad:Reinvested EarningsIn Mexico, 1982-95 

C-46
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TableC-12: U.S. Direct InvestmentAbroad:IntercompanyDebtOutflowsto Mexico,1982-95 

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C-47
Millionsof dollars; inflows (- 

Table C- 13:U.S.DirectInvestmentAbroad:Income inMexico, 1982-95 

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er 

. 

2 m.2 5 m 01 01 MIS Ch rn 40 CN CN 

CN C9 00 S. vn rn C4 Ch et r00 ■ Ch CI 

C..) 4) CO C4 rn C4 rn rn et et et 

lo 4 c..) 0 

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. 0 4.. g -44 .. -. C4 en M Tr en ". 

5 

-.N.0' et N O N CA 00 mt•- N N m 

01 NOMOst,N't000 et 00 VD 

...... 

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1 

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CV" el-CI ". 

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 fiq 

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= 0 

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N et C4 4D 4D C4 Ch CD N el c4 N 41 et 

CI -. N•-•N ' —C4 C4 et 41 et 40 C4 

6 — 

° 0 0 .2 

u o 

C-48
O 

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'so 

Table C- 1 4:Sales by U.S.Nonbank Affiliates in Mexico, byIndustry 

B 

0 

0, 

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h ers •■I ••

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Ch CN Ch ON CN CN ON Ch CN Ch Ch CN CN 

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(..,4, •—■ 

C-49
••

■•■1 .1■1 

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00 00 00 00 00 00 00 00 ON ON ON ON 0'. 

ON CT CT ON ON ON CT ON ON ON ON CT as 

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= wc.0s0 CO • -■ 

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col 

sot er r1■1 1■1 

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= 0 -0 .-, .--. N en nt N et en et VD en. 

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cc .1... 3 - -'

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NN N 4,-"..).-"-'7"-•*:

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N en et 00 It- '.0 en 00 et N 

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el Ws en ON en VD a% en 

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-- ■-• 

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.. . csj 

nsl ni ON 0 et et t- 

• as o N 01 U") en en ON 

M en et et et VD 

se. 00 N NO en ern en N 00 ON en 

• en 0 VD It- 00 0 VD s0 

s-s a, t-s4 00 et et co oo 

M NO 00 en CO 01 N se. N O V- en ON 

N ce) eh NO en et et 

-0 4 

o {) oo c> cr •-• N el .--, N I

-- ..:-• In 0 v") N.-.. .--. .-, Met v-, 00 ,..., In CZ VI 

1 .75. .c.2 CI VI •-, 

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-V 

CD 00 C) d• 00 01 N 00 ON et VD et en 

et NO en eF sr, sa trl '.0 01 s0 00 N 

en el ON 11:) cos on es4 — co! •-■ cs.;,‘ 

N N N en et; et in C

.: 00 ON N N et= •■■I v■I 

• er eh en en Va N een vv

.) 

• 

00 N en CO •• ■ It- ON en N en 0 est •-■ N N NO en en ON ON '.0 rn O VD vn 

00 v-) NO NO 00 N N N 

Csi N rei en et et sr; N CO o es.; sot vD 

= 

. 

TableC- 15:U.S.ExportstoU.S.Nonbank Affiliates inMexico, by Industry 

C-50
C) 

^. I., 41.• 

0 

0 "0 

7S 

v-, 0 •-■ 

7..., ‘0, 

N en en en et 

0 0 0 0 0 0 0 0 0 0 0 0 0 

*C N .C," • N ••-■ ■0 

M VI en 

N M l".• VD ON 0 00 00 

0 E 

N eet N •O• 

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NI. el.ON 00 N..N ON 

Csi 

N en en en. 00 

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N .0-v.) r-- •-■ c.) C)

.0 

irt 

N.,en •-■ 

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en en en en en 

•et 00 00 ON 

N 

N N 

•-• en •-•-• rIn 00 tel en en CO Ln N en e", 

0 00 ON oo tn oo esi en %el N •-•-• 

•01. 

'8 0 

t

• 

..., Ge ..i. e- a, N 0 r- et N ...• .

---4--- 

.0 ,-. a N N , - 'a .-. ••-■ -. N N 0 r-- r-- ea ,--., ,...., 

2 -a 00 ..-. 

,.., . ,... w a ...g 

N 00 00 In N un en NO 0 M^ ON 

01 00 N 01 ON en 0 N •-•-• N 

00 N..0 eV V7vl 

N en en 'eh •01. In 00 t: 00 

5 0 

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.

N00 

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0 00 

•-• 

• 

N N N. en ON CO N 0 VI N.,0 el 

a .0

, 

— Nen en et vi N 00 e•is 

(Millions ofdollars) 

O 

Table C- 16:U.S.Imports fromU.S.Nonbank Affiliates in Mexico,byIndustry 

Vf 

.e :„; '‘a 

g el 8 9 

N en et In '.0 N 00 01 0 e-4 en et 

00 oo oo co oo oo oo co cr, ch as as ch 

Cr1 0.1 01 ON ON 01 01 01 01 a, ON ON 

C-51
. 

C-52
APPENDIX D 

HEARING CALENDAR, DOCKET REPORT, 

AND SUMMARIES OF WRITTEN SUBMISSIONS 

CALENDAR OF PUBLIC HEARINGS 

Those listed below appeared as witnesses at the United States International Trade 

Commission's hearing: 

Subject 

In. No. 

Date and Time 

THE IMPACT OF THE NORTH AMERICAN 

FREE TRADE AGREEMENT ON THE U.S. 

ECONOMY-AND INDUSTRIES: A THREE 

YEAR REVIEW 

332-381 

May 15th and 16th , 1997 - 9:30 a.m. 

Sessions were held in connection with the investigation in the Main Hearing Room 101, 

500 E Street, S.W., Washington, D.C. 

Congressional Appearances: 

The Honoiable Jim Kolbe, U.S. Congressman, 5th District, State of Arizona 

The Honorable Robert F. Smith, U.S. Congressman, 2nd District, State of Oregon 

The Honorable Steve Buyer, U.S. Congressman, 5th District, State of Indiana 

ORGANIZATION AND WITNESS 

Panel 1 

Commonwealth of Virginia, Richmond, Virginia 

Robert T. Skunda, Secretary of Commerce and Trade, 

Commonwealth of Virginia 

Christopher D. Lloyd, Assistant Secretary of Commerce 

and Trade, Commonwealth of Virginia 

Panel 2 

.U.S. Filter Corporation, Palm Desert, CA 

Richard J. Heckmann, President and Chief Executive 

Officer, U.S. Filter Corporation 

D-I 

D-1
ORGANIZATION AND WITNESS-CONT'D 

Panel 3 

Baylor University, Waco, Texas 

Joseph A. McKinney, Professor of 

Economics, Baylor University 

Center for Strategic & International Studies (CSIS), Washington, D.C. 

Sidney Weintraub, William E. Simon Chair in 

Political Economy, CSIS 

Institute for International Economics, Washington, D.C. 

Jeffrey J. Schott, Senior Fellow, Institute for 

International Economics 

Gary Hufbauer, Senior Fellow, Institute for 

International Economics 

Federal Reserve Bank of Chicago, Chicago Illinois 

Michael Kouparitsas, Economist, Research Department 

Panel 4 

American Federation of Labor and 

Congress of Industrial Organizations (AFL and CIO) 

Gregory Woodhead, Ph.D., Economist, 

Public Policy Department, AFL and CIO 

International Union, United Automobile, Aerospace & 

Agricultural Implement Workers of America (UAW), 

Washington, D.C. 

Steve Beckman, International Economist, UAW 

Panel 4.- cont'd 

National Farmers Union, Washington, D.C. 

Lynn McBride, Legislative Representative, 

National Farmers Union 

D-2 

D-2
Phillip Klutts, President Oklahoma Farmers Union 

Public Citizen, Washington, D.C. 

Lori Wallach, Director, Public Citizen's Global Trade 

Watch 

Panel 5 

National Foreign Trade Council (NFTC), Incorporated, Washington, D.C. 

Frank D. Kittredge, President, NFTC • 

American Chamber of Commerce of Mexico, Mexico, D.F. • 

Shauna Doyle de Brun, President of the American Chamber 

of Commerce of Mexico, and President of Texel, SA de CV 

U.S. Chamber of Commerce, Washington, D.C. 

Willard A. Workman, Vice President of the International 

Division, U.S. Chamber of Commerce 

Border Trade Alliance, San Diego, CA 

Susan Kohn Ross, Member of the Board of Directors 

Panel 6 

Fresh Produce Association of the Americas, Nogales, Arizona 

Lee Frankel, President, Fresh Produce'Association 

of the Americas 

D-3
American Farm Bureau Federation, Washington, D.C. 

David J. Salmonsen, Assistant Director, Governmental 

Relations 

U.S. Mexico Chamber of Commerce, Washington, D.C. 

Albert C. Zapanta, President and CEO, USMCOC 

Stuart S. Dye, Secretary, USMCOC 

Kersner and Associates 

Washington, D.C. 

on behalf of 

Fabricas Orion 

Procesadora de Ceramica de Ceramica de Mexico, S.A. 

Sanitarios Azteca, S.A. 

Vitromex, S.A. 

Roger Banks, Associate Attorney, Kersner and Associates 

Panel 7 

O'Connor & Hannan, LLP 

Washington, D.C. 

on behalf of 

Florida Tomato Exchange 

Wayne Hawkins, Executive Vice President, 

Florida Tomato Exchange 

John M. Himmelberg—OF COUNSEL 

McDermott, Will & Emery 

Washington, D.C. 

on behalf of 

Florida Fruit and Vegetable Association 

D-4
Reginald L. Brown, Director of Marketing and 

Membership, Florida Fruit and Vegetable Association 

Jerry C. Hill 

)—OF COUNSEL 

Carolyn Gleason ) 

Accomack County Farm Bureau, Accomack County; Virginia 

Lynn Gayle, President, Accomack County 

Farm Bureau 

Bonita Packing Company, Bonita Springs, Florida 

Billy Don Grant, President, Bonita Packing Company 

Florida Farmers & Suppliers Coalition, Incorporated, Lake Worth, Florida 

Taylor & Fulton, Incorporated, Palmetto, Florida 

R. Jay Taylor, President, Taylor & Fulton, Incorporated 

DAY 2 - MAY 16. 1997 - NAFTA HEARING CONTINUED 

Panel 8 

American Automobile Manufacturers . 

Association, (AAMA), Washington, D.C. 

Andrew H. Card, Jr., President and CEO, AAMA 

Council of the Americas, Washington, D.C. 

Ambassador William T. Pryce, Vice President, Washington 

Operations, Council of the Americas 

Peter Stephens, Director, Government Affairs, Council 

of the Americas 

Panel 9 

Farmland Industries, Incorporated, Washington, D.C. 

Stephen P. Dees, Executive Vice President 

D-5
Greater San Diego Chamber of Commerce, San Diego, California 

Gilbert A. Partida, President 

State of New Jersey, Department of Commerce and Economic 

Development, Trenton, New Jersey 

Carlos T. Kearns, Director, International Trade 

Brownsville Economic Development Council, 

Brownsville, Texas 

Rick Luna, Director of Communications & Research, 

Brownsville Economic Development Council 

Panel 10 

Washington State Community, Trade and 

Economic Development, Washington, D.C. 

Stephen R. Odom, Managing Director, International 

Trade Division, Washington State Community, Trade 

and Economic Development 

Colombo & Bonacci, P.C., Phoenix, Arizona 

Carol A. Colombo, Governor's Representative 

for NAFTA, Colombo & Bonacci 

Arizona Department of Agriculture, Phoenix Arizona 

John Wake, Assistant Director, Commodities Promotion and 

Development 

Panel 11 

Brenco, Incorporated, Midlothian, Virginia 

Howard J. Bush, Vice President, Marketing & Sales, 

Brenco, Incorporated 

D-6
Union Pacific Railroad, Washington, D.C. 

Joe Heastie, Products Manager, Mexico Market, 

Union Pacific Railroad 

Celadon Trucking Services, Incorporated, Indianapolis, Indiana 

Michael T. Hodson, Executive Vice President, 

Celadon Trucking Services, Incorporated 

Panel 12 

Summit of the Americas Center, Miami, Florida 

Charles Jainarain, Executive Director, Summit 

of the Americas Center 

The Heritage Foundation, Washington, D.C. 

Robert P. O'Quinn, Policy Analyst for 

International Economics and Trade, Asian Studies Center 

Economic Policy Institute, Washington, D.C. 

Robert E. Scott, Economist, Economic Policy Institute 

Citizens for a Sound Economy Foundation, Washington, D.C. 

Anita Sheth, Director, Trade Policy 

Thunderbird, The American Graduate School of 

International Management, Glendale, Arizona 

Dr. Shoshana Tancer, Director, NAFTA Center and 

faculty member, Department of International Studies 

D-7
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

04-25-1997 News Release Filed by Peg 0 Laughlin, Public Affairs Officer, on behalf of Office 

of External Relations 

(ITC-Seq# 199704250022 - Public) 

04-29-1997 Institution of Investigation Filed by Donna R Koehnke, Secretary, on behalf of 

Commission 

(ITC-Seq# 199704290001 - Public) 

04-29-1997 Federal Register Notice Filed by Donna R Koehnke, Secretary, on behalf of 

Commission 

(ITC-Seq# 199704290004 - Public) 

05-02-1997 Appearance Filed by John M Emmelberg, 0 Connor and Hannan Llp, on b - halfof 

the Florida Tomato Exchange 

(ITC-Seq# 199705020008 - Public) 

05-06-1997 Appearance Filed by Jerry C Dill , Mcdermott Will and Emery, on behalf of Florida 

Fruit and Vegetable Association 

(ITC-Seq# 199705060033 - Public) 

05-07-1997 Statement Filed by Wayne Hawkins, Executive Vice President, on behalf of Florida 

Tomato Exchange 

(ITC-Seq# 199705070005 - Public) 

05-07-1997 Appearance Filed by William T Pryce, Ambassador, on behalf of Council of the 

Americas 

(ITC-Seq# 199705070010 - Public) 

05-07-1997 Appearance Filed by John M Frimmelberg, Oconnor and Hannan Llp, on behalf of 

Bonita Packing Company 

(ITC-Seq# 199705070032 - Public) 

D-8 

D-8
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

05-07-1997 Appearance Filed by John M Ilimmelberg, Oconnor and Hannan Llp, on behalf of 

Big Red Tomator Packers 

(ITC-Seq# 199705070033 - Public) 

05-07-1997 Appearance Filed by John M Ifunmelberg, Oconnor and Hannan Llp, on behalf of 

Taylor and Fulton Incorporated 

(ITC-Seq# 199705070034 - Public) 

05-07-1997 Appearance Filed by Gregory Woodhead, Public Policy Department, on behalf of 

American Federation of Labor and Congress of Industrial Organizations 

(ITC-Seq# 199705070035 - Public) 

05-07-1997 Appearance Filed by Sidney Weintraub, on behalf of Center for Strategic and 

International Studies 

(ITC-Seq# 199705070036 - Public) 

05-08-1997 Appearance Filed by Joseph a Mckinney, Department of Economics, on behalf of 

Baylor University 

(ITC-Seq# 199705080002 - Public) 

05-08-1997 Appearance Filed by David Erickson, President, on behalf of American Soybean 

Association 

(ITC-Seq# 199705080003 - Public) 

05-08-1997 Appearance Filed by Gregory Woodhead, Public Policy Department, on behalf of 

American Federation of Labor and Congress of Industrial Organizations 

(ITC-Seq# 199705080005 - Public) 

05-08-1997 Appearance Filed by J Luis Rodriguez, Executive Director, on behalf of Florida 

Farm= and Suppliers Coalition Incorporated 

(ITC-Seq# 199705080007 - Public) 

Page 2 

D-9 D-9
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

05-08-1997 Submission Filed by J Luis Rodriguez, Executive Director, on behalf of Florida 

Farmers and Suppliers Coalition Incorporated 

(ITC-Seq# 199705080011 - Public) 

05-08-1997 Appearance Filed by Andrew Howell, Director Latin American Affairs, on behalf 

of Us Chamber of Commerce 

(ITC-Seq# 199705080012 - Public) 

05-08-1997 Appearance Filed by John M Bruton, Executive Vice President, on behalf of 

American Chamber of Commerce of Mexico Ac 

(ITC-Seq# 199705080013 - Public) 

05-08-1997 Appearance Filed by Robert T Skunda, Secretary of Commerce and Trade, on 

behalf of Commonwealth of Virginia 

(ITC-Seq# 199705080014 - Public) 

05-08-1997 Appearance Filed by William T Pryce, Vice President, on behalf of Council of the 

Americas 

(ITC-Seq# 199705080019 - Public) 

05-08-1997 Appearance Filed by Susan Kohn Ross, Sk Ross and Association Pc, on behalf of 

Border Trade Alliance 

(ITC-Seq# 199705080020 - Public) 

05-08-1997 Appearance Filed by Jeffrey Bobeck, Senior Congressional Liaison, on behalf of 

American Automobile Manufacturers Association 

(ITC-Seq# 199705080024 - Public) 

05-08-1997 Appearance Filed by Leland Swenson, President, on behalf of National Farmers 

Union 

Page 3 

D-10 

D-10
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

(ITC-Seq# 199705080026 - Public) 

05-08-1997 Appearance Filed by Julius L Katz, President, on behalf of Hills and Company 

(ITC-Seq#. 199705080029 - Public) 

05-08-1997 Appearance Filed by Richard J Heckmann, Chairman, on behalf of United States 

Filter Corporation 

(ITC-Seq# 199705080030 - Public) 

05-08-1997 Submission Filed by Gregory Woodhead Phd, Public Policy Department, on behalf 

of American Federation of Labor and Congress of Industrial Organizations 

(ITC-Seq# 199705080032 - Public) 

05-08-1997 Appearance Filed by Jeffrey J Schott, Senior Fellow, on behalf of Institute for 

International Economics 

(ITC-Seq# 199705080034 - Public) 

05-08-1997 Appearance Filed by Sidney Weintraub, Center for Strategic and International 

Studies, on behalf of Center for Strategic and International Studies 

(ITC-Seq# 199705080035 - Public) 

05-09-1997 Appearance Filed by Howard J Bush, Vice President, on behalf of Brenco 

Incorporated 

(ITC-Seq# 199705090008 - Public) 

05-09-1997 Appearance Filed by Steve Beckman, International Economist, on behalf of 

International Union Uaw 

(ITC-Seq# 199705090013 - Public) 

05-09-1997.Appearance Filed by T Albert Yainada, Washington Representative, on behalf of 

Page 4 

D-41 D-11
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

Fresh Produce Association of the Americas 

(ITC-Seq# 199705090021 - Public) 

05-09-1997 Appearance Filed by John M Ilimmelberg, Oconnor and Hannan Llp, on behalf of 

Accomack County Farm Bureau 

(ITC-Seq# 199705090023 - Public) 

05-09-1997 Submission Filed by John M Marsh, Department of Agricultural Economics and 

Economics, on behalf of Montana State University 

(ITC-Seq# 199705090025 - Public) 

05-09-1997 Appearance Filed by Rick Luna, Director of Communications and Research, on 

behalf of Brownsville Economic Development Council 

(ITC-Seq# 199705090026 - Public) 

05-09-1997 Appearance Filed by Robert P Oquinn, Policy Analyst for International Economics 

and Trade, on behalf of Asian Studies Center 

(ITC-Seq# 199705090028 - Public) 

05-09-1997 Appearance Filed by Robert E Scott, Economist, on behalf of Economic Policy 

Institute • 

(ITC-Seq# 199705090030 - Public) • 

05-09-1997 Appearance Filed by Michael T Hodson, Executive Vice President, on behalf of 

Celadon Trucking Services Incorporated 

(ITC-Seq# 199705090031 - Public) 

05-09-1997 Appearance Filed by Mary E Mcquliffe, Vice President, on behalf of Union Pacific 

Company 

(ITC-Seq# 199705090034 - Public) 

Page 5 

D-12 

D-12
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

05-09-1997 Appearance Filed by Frank D Kittredge, President, on behalf of National Foreign 

Trade Council Incorporated 

(ITC-Seq# 199705090035 - Public) 

05-09-1997 Appearance Filed by Carol a Colombo, Colombo and Bonacci, on behalf of 

Colombo and Bonacci 

(ITC-Seq# 199705090036 - Public) 

05-09-1997 Appearance Filed by Peter F Young, Enterprise Initiatives Manager, on behalf of 

Thunderbird 

(ITC-Seq# 199705090037 - Public) 

05-09-1997 Appearance Filed by Stephen R Odom, Managing Director International Trade 

Division, on behalf of Washington State Community Trade and Economic 

Development 

(ITC-Seq# 199705090042 - Public) 

05-09-1997 Appearance Filed by Stephen P Dees, Executive Vice President, on behalf of 

Farmland Industries Incorporated 

(ITC-Seq# 199705090045 - Public) 

05-09-1997 Statement Filed by William C Lane, Washington Director Governmental Affairs, 

on behalf of Caterpillar Incorporated 

(ITC-Seq# 199705090048 - Public) 

05-09-1997 Appearance Filed by Richard S Ledford, Senior Vice President, on behalf of 

Greater San Diego Chamber of Commerce 

(ITC-Seq# 199705090049 - Public) 

05-12-1997 Appearance Filed by Bob Graham, United States Senator, on behalf of United 

States Senate 

Page 6 

D-13 D-13
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

(ITC-Seq# 199705120003 - Public) 

05-12-1997 Appearance Filed by Laura Grund, Global Trade Watch, on behalf of Public 

Citizen 

(ITC-Seq# 199705120004 - Public) 

05-12-1997 Appearance Filed by Michael Kouparitsas, Economist Research Department, on 

behalf of Federal Reserve Bank 

(ITC-Seq# 199705120005 - Public) 

05-12-1997 Appearance Filed by Anita Sheth, Director of Trade Policy, on behalf of Citizens 

for a Sound Economy Foundation 

(ITC-Seq# 199705120006 - Public) 

05-12-1997 Appearance Filed by Richard S Ledford, Senior Vice President, on behalf of 

Greater San Diego Chamber of Commerce 

(ITC-Seq# 199705120009 - Public) 

05-12-1997 Statement Filed by J Luis Rodriguez, Executive Director, on behalf of Florida 

Farmers and Suppliers Coalition Inc 

(ITC-Seq# 199705120012 - Public) 

05-12-1997 Statements Filed by Gary Martin, Farmland Industries Inc, on behalf of Farmland 

Industries Inc 

(ITC-Seq# 199705120017 - Public) 

05-12-1997 Testimony Filed by Porter Goss, Congress of the United States, on behalf of 

Congress of the United States 

(ITC-Seq# 199705120018 - Public) 

Page 7 

D-14 

D-14
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

05-12-1997 Appearance Filed by Andrew Howell, Director Latin American Affairs, on behalf 

of Us Chamber of Commerce 

(ITC-Seq# 199705120025 - Public) 

05-12-1997 Appearance Filed by John M Bruton, Executive Vice President, on behalf of 

American Chamber Mexico 

(ITC-Seq# 199705120026 - Public) 

05-12-1997 Testimony Filed by Phillip Klutts, President, on behalf of the National Farmers 

Union 

(ITC-Seq# 199705120029 - Public) 

05-12-1997 Appearance Filed by Joseph a Mckinney, Baylor University, on behalf of Baylor 

University 

(ITC-Seq# 199705120031 - Public) 

05-12-1997 Testimony Filed by William Pryce, Vice President, on behalf of Washington 

Operations Council of the Americas 

(ITC-Seq# 199705120034 - Public) 

• 05-12-1997 Statement Filed by David J Salmonsen, Assistant Director of Governmental 

Relations, on behalf of American Farm Bureau Federation 

(ITC-Seq# 199705120035 - Public) 

05-12-1997 Appearance Filed by Roger Banks, Kersner and Associates, on behalf of Fabricas 

Orion Etal 

(ITC-Seq# 199705120036 - Public) 

05-12-1997 Pre-hearing Brief Filed by Roger Banks, Kersner and Associates, on behalf of 

Fabricas Orion Etal 

(ITC-Seq# 199705120037 - Public) 

Page 8 

D-15 D-15
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

05-12-1997 Appearance Filed by Steve Buyer, Member of Congress, on behalf of Congress of 

the United States 

(ITC-Seq# 199705120038 - Public) 

05-12-1997 Appearance Filed by Dennis W Harmon, Director Office of Tourism Trade and 

Economic Development, on behalf of Office of the Governor 

(ITC-Seq# 199705120039 - Public) 

05-12-1997 Statement Filed by Steve Beckman, International Economist, on behalf of 

International Union United Automobile Aerospace and Agricultural Implement 

Workers of America 

(ITC-Seq# 199705120041 - Public) 

05-12-1997 Testimony Filed by Reginald L Brown, Director Marketing and Membership, on 

behalf of Florida Fruit and Vegetable Association 

(ITC-Seq# 199705120044 - Public) 

05-12-1997 Testimony Filed by Sidney Weintraub, Center for Strategic and International 

Studies, on behalf of Center for Strategic and International Studies 

(ITC-Seq# 199705120048 - Public) 

05-12-1997 Testimony Filed by Rick Luna, Director of Communications of Research, on behalf 

of Brownsville Economic Development Council 

(ITC-Seq# 199705120049 - Public) 

05-12-1997 Letter Filed by Antonio 0 Garza, Secretary of State, on behalf of State of Texas 

(ITC-Seq# 199705120061 - Public) 

05-12-1997 Statement Filed by Joseph a Mckinney, Professor of Economics, on behalf of 

Baylor University 

Page 9 

D-16 

D-16
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

(ITC-Seq# 199705120062 - Public) 

05:12-1997 Appearance Filed by David J Salmonsten, Assistant Director Governmental 

Relations, on behalf of American Farm Bureau Federation 

(ITC-Seq# 199705120067 - Public) 

05-12-1997 Testimony Filed by Melinda J Goforth, Program Coordinator, on behalf of Border -

Trade Alliance 

(ITC-Seq# 199705120068 - Public) 

05-12-1997 Submission Filed by Sarah Anderson, Institute for Policy Studies, on behalf of 

Institute for Policy Studies 

(ITC-Seq# 199705120069 - Public) 

05-12-1997 Appearance Filed by Carlos T Kearns, Department of Commerce and Economic 

Development, on behalf of State of New Jersey 

(ITC-Seq# 199705120082 - Public) 

05-13-1997 Appearance Filed by Jim Kolbe, Member of Congress, on behalf of Congress of 

the United States 

(ITC-Seq# 199705130001 - Public) 

05-13-1997 Testimony Filed by Robert E Scott, Economic Policy Institute, on behalf of 

Economic Policy Institute 

(ITC-Seq# 199705130003 - Public) 

05-13-1997 New Release Filed by Peg Olaughlin, Public Affairs Officer, on behalf of Office of 

External Affairs 

(ITC-Seq# 199705130004 - Public) 

Page 10 

D-17 D-17
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

05-13-1997 Appearance Filed by Rick Luna, Director of Communications of Research, on 

behalf of Brownsville Economic Development Council 

(ITC-Seq# 199705130005 - Public) 

05-13-1997 Letter Filed by Terry L Medley, Administrator, on behalf of United States 

Department of Agriculture 

(ITC-Seq# 199705130006 - Public) .

05-13-1997 Testimony Filed by Robert P Oquinn, the Heritage Foundation, on behalf of the 

Heritage Foundation 

(ITC-Seq# 199705130008 - Public) 

05-13-1997 Appearance Filed by Robert F Smith, Chairman, on behalf of Us House of 

Representatives 

(ITC-Seq# 199705130009 - Public) 

05-13-1997 Letter Filed by Keith Kelly, Director, on behalf of Arizona Department of 

Agriculture 

(ITC-Seq# 199705130010 - Public) 

05-13-1997 Statement Filed by Wayne Hawkins, Executive Vice President, on behalf of Florida 

Tomato Exchange 

(ITC-Seq# 199705130012 - Public) 

05-13-1997 Statement Filed by Lynn P Gayle, Staked Tomato Farmer and Grain Farmer, on 

behalf of Peerless Virginia Farms 

(ITC-Seq# 199705130013 - Public) 

05-13-1997 Statement Filed by Mark Berg, First Vice President, on behalf of American 

Soybean Association 

(ITC-Seq# 199705130015 - Public) 

Page 11 

D-18 

D-18
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

05-13-1997 Testimony Filed by Shauna Doyle De Brun, President and C E 0, on behalf of 

Texel Sa De Cv and the American Chamber of Commerce of Mexico 

(ITC-Seq# 199705130018 - Public) 

05-13-1997 Statement Filed by Willard a Workman, Vice President, on behalf of Us Chamber 

of Commerce 

(ITC-Seq# 199705130053 - Public) 

05-13-1997 Testimony Filed by Shauna Doyle De Brun, President and Ceo, on behalf of Texel 

Sa De Cv 

(ITC-Seq# 199705130054 - Public) 

05-14-1997 Appearance Filed by Robert F Smith, Chairman, on behalf of U S House of 

Representatives 

(ITC-Seq# 199705140006 - Public) 

05-14-1997 Appearance Filed by Albert C Zapanta, President, on behalf of U S Mexico 

Chamber of Commerce 

(ITC-Seq# 199705140009 - Public) 

05-15-1997 Appearance Filed by Tim Kolbe, Congress of the United States, on behalf of House 

of Representatives 

(ITC-Seq# 199705150001 - Public) 

05-15-1997 Submission Filed by Tara Barrett, Public Affairs Specialist, on behalf of Federal 

Reserve Bank of Dallas 

(ITC-Seq# 199705150002 - Public) 

05-16-1997 Transcript Filed by Donna R Koehnke Hearing, Secretary, on behalf of 

Commission 

Page 12 

D-19 D-19
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

(ITC-Seq# 199705160013 - Limited) 

05-16-1997 Statement Filed by Gary Hall, President, on behalf of Kansas Farm Bureau 

(ITC-Seq# 199705160014 - Public) 

05-16-1997 Statement Filed by Jose F Nino, President and Ceo, on behalf of United States 

Hispanic Chamber of Commerce 

(ITC-Seq# 199705160015 - Public) 

05-19-1997 Testihrony Filed by Antonio 0 Garza Jr, Secretary of State, on behalf of 

(ITC-Seq# 199705190001 - Public) 

05-19-1997 Transcript Filed by Donna R Koehnke Hearing, Secretary, on behalf of 

Commission 

(ITC-Seq# 199705190002 - Limited) 

05-19-1997 Hearing Material Filed by Jacqueline N Hawkins, Chief on behalf of Hearing and 

Publication Branch 

(ITC-Seq# 199705190004 - Public) 

05-19-1997 Letter Filed by Patricia Flynn, Director, on behalf of Tower Group International 

(ITC-Seq# 199705190021 - Public) 

05-19-1997 Submission Filed by Patricia Flynn, Director Professional Advisory Services, on 

behalf of Tower Group International 

(ITC-Seq# 199705190025 - Public) 

05-19-1997 Letter Filed by Antonio 0 Garza Jr, Secretary of State, on behalf of State of Texas 

(ITC-Seq# 199705190045 - Public) 

Page 13 

D-20 

D-20
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

05-20-1997 Submission Filed by Robert Kaplan, Executive Director, on behalf of Clothing 

Manufacturers Association of the Usa 

(ITC-Seq# 199705200009 - Public) 

05-20-1997 Submission Filed by David Lopez, Associate Professor of Law, on behalf of St 

Marys University 

(ITC-Seq# 199705200011 - Public) 

05-20-1997 Comments Filed by Carlos Moore, Executive Vice President, on behalf of 

American Textile Manufacturers Institute 

(ITC-Seq# 199705200016 - Public) 

05-20-1997 Letter Filed by David Porras, Chairman of the Board, on behalf of El Paso 

Hispanic Chamber of Commerce 

(ITC-Seq# 199705200018 - Public) 

05-21-1997 Submission Filed by Mike Allen, President and Ceo, on behalf of Mcallen 

Economic Development Corporation 

(ITC-Seq# 199705210003 - Public) 

05-21-1997 Statement Filed by C James Kruse, General Manager and Port Director, on behalf 

of Port of Brownsville 

(ITC-Seq# 199705210004 - Public) 

05-21-1997 Submission Filed by James R Giermanski, Texas a and M International University, 

on behalf of Texas a and M International University 

(ITC-Seq# 199705210006 - Public) 

05-21-1997 Submission Filed by John W Skorburg, American Farm Bureau Federation, on 

behalf of American Farm Bureau Federation 

(ITC-Seq# 199705210015 - Public) 

Page 14 

D-21 D-21
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

05-21-1997 Submission Filed by Richard W Douglas, Greater Dallas Chamber, on behalf of 

Greater Dallas Chamber 

(ITC-Seq# 199705210016 - Public) 

05-21-1997 Submission Filed by Diane C Swonk, First National Bank of Chicago, on behalf of 

First National Bank of Chicago 

(ITC-Seq# 199705210017 - Public) 

05-21-1997 Submission Filed by Arne H Carlson, Governor, on behalf of State of Minnesota 

(ITC-Seq# 199705210019 - Public) 

05-21-1997 Submission Filed by Keith Kelly, Arizona Department of Agriculture, on behalf of 

Arizona Department of Agriculture 

(ITC-Seq# 199705210021 - Public) 

05-22-1997 Submission Filed by Charles I Jainarain, Executive Director, on behalf of Summit 

of the Americas Center 

(ITC-Seq# 199705220001 - Public) 

05-22-1997 Submission Filed by Dennis W Harmon, Director, on behalf of Office of the 

Governor - Office of Tourism Trade and Economic Development 

(ITC-Seq# 199705220003 - Public) 

05-22-1997 Submission Filed by Dan Miller, Congressman, on behalf of Congress of the. 

United States 

(ITC-Seq# 199705220004 - Public) 

05-22-1997 Statement Filed by American Sheep Industry Association Inc, American Sheep 

Industry Association Inc, on behalf of American Sheep Industry Association Inc 

(ITC-Seq# 199705220005 - Public) 

Page 15 

D-22 

D-22
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

05-22-1997 Submission Filed by Karl Spilhaus, President, on behalf of Northern Textile 

Association 

(ITC-Seq# 199705220007 - Public) 

05-22-1997 Statement Filed by Rick Perry, Texas Commissioner of Agriculture, on behalf of 

Texas Department of Agriculture 

(ITC-Seq# 199705220008 - Public) 

05-22-1997 Submission Filed by Jim Edgar, Office of the Governor, on behalf of State of 

Illinois 

(ITC-Seq# 199705220009 - Public) 

05-22-1997 Statement Filed by Stephen Lamar, Vice President, on behalf of Jefferson 

Waterman International 

(ITC-Seq# 199705220011 - Public) 

05-22-1997 Statement Filed by Stephen Lamar, Jefferson Waterman International, on behalf of 

Richard L Bernal Ambassador of Jamaica 

(ITC-Seq# 199705220012 - Public) 

05-22-1997 Comments Filed by Steve Odom, Director Trade and Market Devopment, on 

behalf of Department of Community Trade and Economic Development 

(ITC-Seq# 199705220013 - Public) 

05-22-1997 Letter Filed by Andrew G Sharkey, American Iron and Steel Institute, on behalf of 

American Iron and Steel Institute 

(ITC-Seq# 199705220014 - Public) 

05-22-1997 Comments Filed by Thomas J Donohue, President and Chief Executive Officer, on 

behalf of American Trucking Associations Inc 

Page 16 

D-23 D-23
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

(ITC-Seq# 199705220017 - Public) 

05-22-1997 Post-hearing Brief Filed by Roger Banks, Kersner and Associates, on behalf of 

Fabricas Orion Etal 

(ITC-Seq# 199705220018 - Public) 

05-22-1997 Comments Filed by Robert H Frenzel, President, on behalf of United Parcel 

Service 

(ITC-Seq# 199705220019 - Public) 

05-22-1997 Letter Filed by Richard E Nef , Legal Adviser Latin America, on behalf of 

Business Software Alliance 

(ITC-Seq# 199705220022 - Public) 

05-22-1997 Submission Filed by Robert H Frenzel, Vice President, on behalf of United Parcel 

Service 

(ITC-Seq# 199705220025 - Public) 

05-22-1997 Letter Filed by Dan Geer, Chairman, on behalf of Glacier County Commissioners 

(ITC-Seq# 199705220026 - Public) 

05-22-1997 Submission Filed by Tim Leonard, Burlington Industries, on behalf of Burlington 

Industries 

(ITC-Seq# 199705220028 - Public) 

05-22-1997 Statement Filed by Bobby F Mckown, Executive Vice President and Ceo, on 

behalf of Florida Citrus Mutual 

(ITC-Seq# 199705220036 - Public) 

05-22-1997 Statement Filed by David L Moore, President, on behalf of Western Growers 

Page 17 

D-24 

D-24
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

Association 

(ITC-Seq# 199705220037 - Public) 

05-22-1997 Statement Filed by Make Bozick, California Desert Grape Growers League, on • 

behalf of California Desert Grape Growers League 

(ITC-Seq# 199705220038 - Public) 

05-22-1997 Statement Filed by Kevin Andrew, Wmegrape Growers of America, on behalf of 

Wmegrape Growers of America 

(ITC-Seq# 199705220039 - Public) 

05-22-1997 Statement Filed by David Marguleas, Senior Vice President Maiketing and 

Corporate Development, on behalf of Sun World International Inc 

(ITC-Seq# 199705220040 - Public) 

05-22-1997 Statement Filed by Karen Reinecke, President, on behalf of California Pistachio 

Industry 

(ITC-Seq# 199705220041 - Public) 

05-22-1997 Statement Filed by Alan Tank, National Pork Producers Council, on behalf of 

National Pork Producers Council 

(ITC-Seq# 199705220045 - Public) 

05-22-1997 Comments Filed by Terence P Stewart, Stewart and Stewart, on behalf of Ppg 

Industries Inc 

(ITC-Seq# 199705220048 - Public) 

05-22-1997 Submission Filed by Edward J Farrell, Wigman Cohen Leitner and Myers Pc, on 

behalf of Canadian Cattlemens Association 

(ITC-Seq# 199705220051 - Public) 

Page 18 

D-25 

D-25
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

05-22-1997 

05-22-1997 

Comments Filed by Carla Dancy, Manager International Trade Issues, on behalf of 

Office of Government Affairs 

(ITC-Seq# 199705220052 - Public) 

Letter Filed by Andrew H Card Jr, American Automobile Manufacturers 

Association, on behalf of American Automobile Manufacturers Association 

(ITC-Seq# 199705220053 - Public) 

05-22-1997 Response Filed by Wallie Hardie, President, on behalf of National Corn Growers 

Association 

(ITC-Seq# 199705220056 - Public) 

05-22-1997 Submission Filed by William T Pryce, Vice President, on behalf of Council of the 

Americas 

(ITC-Seq# 199705220059 - Public) 

05-22-1997 Letter Filed by Tommy G Thompson, Governor, on behalf of Office of Federals 

State Relations 

(ITC-Seq# 199705220061 - Public) 

05-22-1997 Comments Filed by Robert P Koch, Wine Institute, on behalf of Wme Institute 

(ITC-Seq# 199705220063 - Public) 

05-22-1997 Statement Filed by Thomas J Trendl, Howrey and Simon; on behalf of Tile Council 

of America Incorporated 

(ITC-Seq# 199705220068 - Public) 

05-22-1997 Statement Filed by Edward T Coughlin, National Milk Producers Federation, on 

behalf of National Milk Producers Federation 

(ITC-Seq# 199705220070 - Public) 

Page 19 

D-26 

D-26
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

05-22-1997 Comments Filed by Charles F Conner, President, on behalf of Corn Refiners 

Association 

(ITC-Seq# 199705220071 - Public) 

05-23-1997 Post-hearing Brief Filed by T Albert Yamada, Washington Representative, on 

behalf of Fresh Produce Association of the Americas 

(ITC-Seq# 199705230001 - Public) 

05-23-1997 Letter Filed by Rosemarie Neuman, Western Montana Chapter of Wife, on behalf 

of Western Montana Chapter of Wife 

(ITC-Seq# 199705230004 - Public) 

05-23-1997 Comments Filed by Charles F Conner, President, on behalf of Corn Refiners 

Association 

(ITC-Seq# 199705230006 - Public) 

05-23-1997 Comments Filed by Mark Armentrout, National Cattlemens Beef Association, on 

behalf of National Cattlemens Beef Association 

(ITC-Seq# 199705230015 - Public) 

05-23-1997--Testimony Filed by David E Bonior, Congressman, on behalf of U S Congress 

(ITC-Seq# 199705230017 - Public) 

05-27-1997 Comments Filed by Daniel a Seligman, Senior Fellow, on behalf of Sierra Club 

(ITC-Seq# 199705270002 - Public) 

05-27-1997 Statement Filed by Senator Bob Graham, U S Senate, on behalf of 

(ITC-Seq# 199705270005 - Public) 

05-27-1997 Statement Filed by Bob Crawford, Commissioner of Agriculture-state of Florida, 

Page 20 

D-27 

D-27
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

on behalf of Florida Department of Agriculture and Consumer Services 

(ITC-Seq# 199705270015 - Public) 

05-27-1997 Letter Filed by Robert H Frenzel, Vice President Corporate Public Affairs, on 

behalf of United Parcel Service 

(ITC-Seq# 199705270037 - Public) 

05-27-1997 Submission Filed by Daniel a Seligman, Senior Fellow Responsible Trade 

Campaign, on behalf of Sierra Club 

(ITC-Seq# 199705270052 - Public) 

05-28-1997 Comments Filed by James J 0 Brien, Port Director, on behalf of Port Everglades 

(ITC-Seq# 199705280005 - Public) 

05-29-1997 Comments Filed by Jim Edgar, Governor, on behalf of State of Illinois - Office of 

the Governor 

(ITC-Seq# 199705290006 - Public) 

05-29-1997 Comments Filed by Bob Crawford, Commissioner of Agriculture, on behalf of 

State of Florida 

(ITC-Seq# 199705290007 - Public) 

05-29-1997 Comments Filed by Bobby F Mckown, Executive Vice President, on behalf of 

Florida Citrus Mutual 

(ITC-Seq# 199705290015 - Public) 

05-29-1997 Comments Filed by Jack Mohon, , on behalf of 

(ITC-Seq# 199705290016 - Public) 

05-29-1997 Statement Filed by Bob Graham, Senator, on behalf of U S Senate 

Page 21 

D-28 

D-28
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

(ITC-Seq# 199705290017 - Public) 

05-29-1997 Submission Filed by Richard E Neff, Legal Advisor for Latin America, on behalf of 

Business Software Alliance 

(ITC-Seq# 199705290022 - Public) 

05-30-1997 Action Jacket Filed by Robert Rogowsky - Ec-97-007, Acting Director, on behalf ' 

of Office of Operations 

(ITC-Seq# 199705300051 - Public) 

05730:1997 Action Jacket Filed by Robert Rogowsky - Ec-97-006, Director, on behalf of 

Office of Operations 

(ITC-Seq# 199705300052 - Public) 

05-30-1997 Comments Filed by Mildred Cardona, Nafta Committee Co-chair, on behalf of 

National Council on International Trade Development 

(ITC-Seq# 199705300066 - Public) 

06-02-1997 Letter Filed by Terrance J Ryan, President and Ceo, on behalf of Fort Worth 

Chamber of Commerce 

(ITC-Seq# 199706020002 - Public) 

06-03-1997 Comments Filed by Shoshana B Tancer, Director, on behalf of Thunderbird - the 

American Graduate School 

(ITC-Seq# 199706030009 - Public) 

06-03-1997 Comments Filed by Ambler Moss, Director, on behalf of North-south Center 

University of Miami 

(ITC-Seq# 199706030010 - Public) 

Page 22 

D-29 

D-29
USITC Docket Report as of: 6-6-97 

332-TA-381 (final) 

Nafta-Canada-Mexico 

06-05-1997 Memorandum Filed by Lynn Bragg Co71-u-003, Vice Chairman, on behalf of 

Commissioner 

(ITC-Seq# 199706050019 - Public) 

Page 23 

D-30 

D-30
Submissions in Alphabetical Order by Group 

AFL-CIO 

Gregory Woodhead, Ph.D., Economist, Public Policy Department 

American Automobile Manufacturers Association (AAMA) 

Andrew H. Card, Jr., President 

American Chamber of Commerce of Mexico 

Shauna Doyle de Brun, President, AmCham of Mexico; President and CEO of Texel SA de 

CV 

American Farm Bureau Federation 

David J. Salmonsen, Assistant Director of Government Relations 

American Farm Bureau Federation 

John W. Skorburg, Senior Economist 

American Farmers and Ranchers 

The Honorable Robert F. (Bob) Smith, Chairman, Committee On Agriculture 

American Iron and Steel Institute 

Andrew G. Sharkey, DI, President and CEO 

American Sheep Industry Association, Inc. 

David Orwick, Director of Government Affairs and CEO 

American Soybean Association 

Mark Berg, First Vice-President 

American Textile Manufacturers Institute 

Carlos Moore, Executive Vice President 

American Trucking Associations, Inc. 

Thomas J. Donohue, President and CEO 

State of Arizona 

The Honorable Jim Kolbe, 5th District, State of Arizona 

Carol A. Colombo, Colombo and Bonacci--OF COUNSEL, Governor's representative for 

NAFTA implementation for the State of Arizona 

Arizona Department of Agriculture 

Keith Kelly, Director 

Association of Western Pulp and Paper Workers 

Elmer R. Laulainen, President of Local 293 

Baylor University 

Joseph McKinney, Ben H. Williams Professor of Economics, Hankamer School of Business 

Bonita Packing Company 

Billy Don Grant, President 

Border Trade Alliance 

Susan K. Ross, Member of the Board of Directors 

Brenco Incorporated 

Howard J. Bush, Vice President, Marketing & Sales 

Broward County Board of County Commissioners 

James J. O'Brien, Director of Port Everglades 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-31 D-31
Brownsville Economic Development Council 

Rick Luna, Director of Communications and Research 

Brownsville Navigation District (The Port of Brownsville) 

C. James Kruse, General Manager and Port Director 

Burlington Industries 

Jim Leonard, Manager of Economic Relations and 

Donna Lee McGee, Director of Government Affairs 

Business Software Alliance 

Richard B. Neff, Legal Advisor for Latin America 

California Pistachio Commission 

Karen Reinecke, President of the California Pistachio Industry 

Canadian Cattlemen's Association 

Chris J. Mills, Policy Advisor 

Edward J. Farrell, Wigman, Cohen, Leitner & Myers, P.C.--OF COUNSEL 

Caterpillar, Inc. 

William C Lane, Washington Director, Governmental Affairs 

Celadon Trucking Services, Incorporated 

Michael T. Hodson, Executive Vice President 

Center for Strategic and International Studies 

Sidney Weintraub, William E. Simon Chair in Political Economy 

Citizens for a Sound Economy (CSE) Foundation 

Anita Sheth, Director of Trade Policy 

Clothing Manufacturers Association (CMA) of the United States of America 

Robert A. Kaplan, Executive Director/Secretary 

Corn Refiners Association 

Charles F. Conner, President 

Council Of The Americas 

William Pryce, Vice President, Washington Operations 

"The Council of the Americas Report on the Impact of the North American Free Trade Agreement on 

California" (April 1997) 

"The Council of the Americas Report on the Impact of the North American Free Trade Agreement on 

Florida" (April 1997) 

"The Council of the Americas Report on the Impact of the North American Free Trade Agreement on 

Illinois" (May 1997) 

"The Council of the Americas Report on the Impact of the North American Free Trade Agreement on 

Indiana" (April 1997) 

"The Council of the Americas Report on the Impact of the North American Free Trade Agreement on 

Kentucky" (April 1997) 

"The Council of the Americas Report on the Impact of the North American Free Trade Agreement on 

Massachusetts" (May 1997) 

"The Council of the Americas Report on the Impact of the North American Free Trade Agreement on 

Michigan" (May 1997) 

"The Council of the Americas Report on the Impact of the North American Free Trade Agreement on 

New York" (April 1997) 

"The Council of the Americas Report on the Impact of the North American Free Trade Agreement on 

North Carolina" (April 1997) 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-32 

D-32
"The Council of the Americas Report on the Impact of the North American Free Trade Agreement on 

Ohio" (May 1997) 

"The Council of the Americas Report on the Impact of the North American Free Trade Agreement on 

Pennsylvania" (April 1997) 

"The Council of the Americas Report on the Impact of the North American Free Trade Agreement on 

Tennessee" (Apri11997) 

"The Council of the Americas Report on the Impact of the North American Free Trade Agreement on 

Texas" (Apri11997) 

"The Council of Americas Report on the Impact of the North American Free Trade Agreement on 

West Virginia" (April 1997) 

Desert Grape Growers League of California 

Mike Bozick, Vice President-General Manager, Richard Bagdasarian, Inc. and President of 

the Desert Grape Growers League of California 

Economic Policy Institute 

Robert A. Blecker 

Thea M. Lee 

Robert E. Scott, Economist 

EDS 

Carla Dancy, Manager, International Trade Issues, Office of Government Affairs 

El Paso Hispanic Chamber of Commerce 

David Porras, Chairman of the Board 

Fabricas Orion, Procesadora de Ceramica de Mexico, S.A. de C.V., Sanitarios Azteca, S.A., and 

Vitromex, S.A. 

Steven P. Kersner and Roger Banks, Kersner & Associates--OF COUNSEL 

Farmland Industries, Inc. 

Steven P. Dees, Executive Vice President of Corporate Relations, Communications and 

International Services 

Federal Reserve Bank of Chicago 

Michael Kouparitsas, Economist 

Federal Reserve Bank of Dallas 

David M. Gould, Senior Economist and Policy Advisor 

First National Bank of Chicago 

Diane C. Swonk, First Vice President/Deputy Chief Economist, Economics Group 

State of Florida 

The Honorable Dan Miller, 13th District, State of Florida 

Bob Crawford, Commissioner of Agriculture, Florida Department of Agriculture and 

Consumer Services 

The Honorable Bob Graham, U.S. Senator 

Dennis W. Harmon, Director of the Office of Tourism, Trade and Economic Development, 

Executive Office of the Governor 

The Honorable Porter Goss, 14th District, State of Florida 

Florida Citrus Mutual 

Bobby F. McKown, Executive Vice President and CEO 

Florida Farmers and Suppliers Coalition, Inc. 

R. Jay Taylor, President, Taylor & Fulton, Inc. 

Florida Fruit & Vegetable Association 

Reginald L. Brown, Director of Marketing and Membership 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-33 

D-33
Florida Tomato Exchange 

Wayne Hawkins, Executive 

Fluke Corporation 

Ronald R. Wambolt, Senior Vice President, Worldwide Marketing, Sales & Service 

Fresh Produce Association of the Americas 

Lee Frankel, President 

Fort Worth Chamber of Commerce 

Terrance J. Ryan, President and CEO 

Glacier County Commissioners 

Dan Geer, Chairman 

Greater Dallas Chamber 

Richard Douglas, President 

Greater San Diego Chamber of Commerce 

Gilbert A. Partida, President 

The Heritage Foundation 

Robert P. O'Quinn, Policy Analyst , International Economics and Trade, Asian Studies 

Center 

State of Illinois 

The Honorable Jim Edgar, Governor 

State of Indiana 

The Honorable Steve Buyer, 5th District, State of Indiana 

Institute for International Economics 

Gary Hufbauer, Senior Fellow, Jeffrey J. Schott, Senior Fellow, and Jacqueline McFayden, 

Research Assistant 

Institute for Policy Studies 

Sarah Anderson, John Cavanagh, and David Ranney 

Sarah Anderson, John Cavanagh, and Saul Landau 

International Union, United Automobile, Aerospace and Agricultural Implement Workers of America 

(UAW) 

Steve Beckman, International Economist 

Country of Jamaica 

Dr. Richard L. Bernal, Ambassador to the United States 

Jefferson Stephen Lamar, Vice President, Jefferson Waterman International--OF COUNSEL 

Kansas Farm Bureau 

Gary Hall, President 

Jack Mahon 

Jack Mahon 

McAllen Economic Development Corporation 

Mike Allen, President and CEO 

State of Michigan 

The Honorable David E. Bonior, 10th District, State of Michigan 

State of Minnesota 

Arne H. Carlson, Governor 

Montana State University 

John M. Marsh, Professor, Agricultural Economics and Economics 

National Cattlemen's Association 

Mark Armentrout, Chairman, International Markets 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-34 

D-34
National Corn Growers Association 

Wallie Hardie, President 

The National Council on International Trade Development 

Mildred Cardona, NAFTA Committee Co-chair 

The National Farmers Union (NFU) 

Phillip Klutts, President, Oklahoma Farmers Union 

National Foreign Trade Council, Inc. 

National Milk Producers Federation 

Edward T. Coudilin, Acting Chief Executive Officer 

National Pork Producers Council 

Alan Tank, CEO 

Nicholas Giordano, Esq., 

State of New Jersey 

Carlos T. Kearns, Director of International Trade, Department of Commerce and 

Economic Development 

North-South Center, University of Miami 

Ambler Moss, Director 

Northern Textile Association 

Karl Spilhaus, President 

State of Oregon 

The Honorable Robert F. (Bob) Smith, Chairman, Committee On Agriculture 

PPG Industries, Inc. 

Terence P. Stewart, Stewart and Stewart--OF COUNSEL 

Charles A. St. Charles, Stewart and Stewart--OF COUNSEL 

Peerless Virginia Farms 

Lynn P. Gayle, President 

Public Citizen 

Lori Wallach, Director of Global Trade Watch 

St. Mary's University, School of Law 

David Lopez, Associate Professor of Law 

The Sierra Club 

Daniel A. Seligman, Senior Fellow, Responsible Trade Campaign 

Summit of the Americas Center 

Charles I. Jainarain, Executive Director 

Sun World International, Inc. 

David Marguleas, Senior Vice President 

Texas A&M International University 

James R. Giermanski 

Texas Department of Agriculture 

Rick Perry, Commissioner 

Thunderbird, The American Graduate School of International Management 

Dr. Shoshana B. Tancer, Director of NAFTA Center and Professor, Department of 

International Studies 

Tile Council of America, Inc. 

Thomas J. Trendl, Howrey and Simon--OF COUNSEL 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-35 

D-35
Tower Group International 

Patricia Flynn, Director, Professional Advisory Services 

Union Pacific Railroad 

Joseph Heastie, Products Manager, Mexico Market 

U.S. Chamber of Commerce 

Willard Workman, Vice President of the International Division 

U.S. Filter Corporation 

Richard J.Heckmann, President and Chief Executive Officer 

United Parcel Service of America, Inc. 

Robert Frenzel, Vice President of Corporate Public Affairs 

Ana M. Guevara, Public Affairs Manager, and 

Alix Apollon, Legal, Americas Region 

United States Hispanic Chamber of Commerce 

Jose F. Nifio, President and CEO 

United States-Mexico Chamber of Commerce 

Albert C. Zapanta, President and CEO 

Virginia Cooperative Extension 

Jim Belote, Extension Agent, Agriculture and Natural Resources 

The Commonwealth of Virginia 

The Honorable Robert Skunda, Secretary of Commerce and Trade 

State of Washington 

Steve Odom, Director of Trade and Market Development, Department of Community Trade 

and Economic Development 

Western Growers Association 

David L. Moore, President 

Western Montana Chapter of Women Involved In Farm Economics 

Rosemarie Neuman 

Wine Institute 

Robert P. Koch, Wine Institute and 

Simon Siegl, American Vintners Association 

Winegrape Growers of America 

Kevin Andrew, Chair 

State of Wisconsin 

Tommy G. Thompson, Governor 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-36 

D-36
SUBMISSION SUMMARIES IN ALPHABETICAL ORDER BY GROUP 

• 

AFL-CIO 

Gregory Woodhead, Ph.D., Economist, Public Policy Department 

"NAFTAMATH 3 Years Later" 

• Against the Agreement. 

• "NAFTA has contributed to the loss of jobs and income for workers, while enriching elites." The 

results of this integration have been "disastrous." 

• The U.S. bilateral trade balance with Mexico hit $15.4 billion in 1995, and in 1996 the goods deficit 

increased to $16.2 billion. During the first 3 years of NAFTA, the trade deficit with Canada 

increased 113 percent. The combined goods trade deficit with NAFTA partners was $39 billion in 

1996. 

• The author argues that "the $16.2 billion goods trade deficit with Mexico of 1996, compared with 

the $1.7 billion surplus from before NAFTA means that 251,000 jobs were lost or not created as a 

result of the deterioration of the trade balance with Mexico." Likewise, the deficit with Canada 

resulted in 169,000 lost job opportunities. 

• Because of the peso devaluation, "U.S. workers experienced downward pressure on wages, and will 

see their jobs disappear" as Mexico promotes exports and attracts investment with its cheap labor. 

The Department of Labor has certified 99,497 workers for training after experiencing NAFTArelated unemployment. Four hundred sixteen certifications were based on a shift in production from 

the United States to Mexico. 

• Concerned that any future NAFTA negotiations should place the interests of working families "at the 

center of trade agreements" as well as address NAFTA's deficiencies. 

Notable statistics: 

• As of January 5, 1997, the Department of Labor had received 1,406 petitions involving dislocated 

workers in 48 states who believed NAFTA caused their unemployment. Of these, 732 petitions have 

been certified. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-37 

D-37
American Automobile Manufacturers Association (AAMA) 

Andrew H. Card, Jr., President 

Statement to the U.S. International Trade Commission 

• Supports the Agreement. 

• The AAMA testified that before NAFTA, the Mexican Auto Decrees forced U.S. automakers to (1) 

establish manufacturing plants in Mexico in order to sell in Mexico; (2) export substantially more 

than they imported and (3) purchase a high percentage of vehicle content from Mexican-owned 

suppliers which, in many instances, did not meet globally competitive sourcing standards in terms of 

quality or price. 

• Under NAFTA, U.S. automakers no longer have to own Mexican plants in order to sell motor 

vehicles in the Mexican market. 

• The AAMA stated that the growth in U.S. exports is far more significant than the growth in imports, 

and that, according to the Department of Commerce, automotive employment in the United States 

has risen by 100,000 jobs since the implementation of NAFTA. The AAMA believes that this 

performance is particularly significant because it occurred during the period when Mexico suffered 

serious economic destabilization as a result of the peso devaluation. The Mexican economy also 

remained open and recovered more quickly because of NAFTA, enabling the U.S. automotive 

industry to resume the trend of increasing exports to the Mexican market. 

• U.S. automotive jobs haven't shifted to Mexico after NAFTA. Since 1992, U.S. employment has 

risen by almost 17 percent while Mexican employment has fallen by over 8 percent. 

• More than two-thirds of all vehicles exported to Mexico from the.United States and Canada were 

assembled in U.S. plants. Moreover, the most popular vehicles assembled in Canada for export to 

Mexico have a high percentage of U.S. parts content. NAFTA's strong rules of origin have also 

discouraged non-U.S. manufacturers from building vehicles with low North American content in 

Mexico for export to the United States. 

• According to the AAMA, increased U.S. vehicle imports from Mexico are attributable to the 

enormous U.S. consumer demand for new cars and trucks made by General Motors, Ford, and 

Chrysler during the past 3 years. With many facilities in the United States operating at capacity to 

meet domestic demand, production at Mexican facilities had helped to fill that gap. 

Notable statistics: 

From 1992 to 1996, U.S. automotive (and automotive parts) employment rose from 348,800 to 

399,200 while Mexican employment steadily declined. These trends are also evident in the 

automotive industries of the United States and Mexico. 

• AAMA member exports of cars and trucks to Mexico, which totaled 27 vehicles when NAFTA 

negotiations began in 1989, rose to nearly 87,000 in 1996. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-38 

D-38
• Since 1993, U.S. automakers have invested $40 billion in the United States, as compared with only 

$2.7 billion in Mexico. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-39 

D-39
American Chamber of Commerce of Mexico 

Shauna Doyle de Brun, President, AmCham of Mexico; President and CEO of Texel SA de CV 

Statement to the U.S. International Trade Commission 

• Supports NAFTA. 

• The American Chamber of Commerce of Mexico represents 2,400 companies which constitute 

approximately 85 percent of the U.S. foreign direct investment in Mexico. Survey results are from 

90 responses to 1,100 mailings to companies. They also state that despite some problems, 

mechanisms for resolving trade disputes are improving. 

Ms. de Brun reported that the goals of NAFTA were fourfold: to (1)increase trade and investment, 

(2)facilitate the flow of goods and services across all borders, (3)develop mechanisms to resolve 

trade disputes, and 4) create a more competitive North American product. 

NAFTA has increased trade: bilateral trade between the United States and Mexico increased by 58 

percent during the first year of NAFTA implementation. Mexican imports of U.S. products 

increased 28 percent between 1993 and 1996. Mexico is now the third largest trading partner of the 

United States. 

Mexico attracted $31.5 billion in foreign direct investment between 1994 and 1996. This was 

second only to China in terms of emerging markets and represents a long-term vote of confidence for 

Mexico and for NAFTA. 

NAFTA contributed to Mexico's recovery following the peso crisis by opening investment laws. 

With regard to the goal of more competitive North American products, Ms. de Brun discusses her 

company, Texel. (Texel is a textiles manufacturing company with annual sales of approximately $75 

million The company's capital is 65 percent Mexican and 35 percent American. Texel imports raw 

materials from New York, North. Carolina, and Houston into Mexico to produce yarns that they 

export back to the United States. The yarns are then shipped out of American factories as home 

furnishing products to the Middle East, Australia, South America, and other countries.) Under 

NAFTA, Texel has seen each of the component sales parts grow. Imports from the United States 

increased 67 percent ($12 million in 1992 to $20 million in 1996). Exports from Mexico increased 

from $10 million in 1993 to $34 million in 1996. 

Notable statistics: 

• Of companies responding to a recent survey regarding changes since NAFTA, 60 percent reported 

establishing new relations with U.S. companies, 34 percent reported establishing new relations with a 

Mexican enterprise, 57 percent had invested an average of $6 8 million in new environmental 

technology, and 63 percent had implemented new health and safety standards. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-40 

D-40
American Farm Bureau Federation 

David J. Salmonsen, Assistant Director of Government Relations 

"Statement of the American Farm Bureau Federation to the U.S. International Trade 

Commission Regarding Review of the Status of NAFTA with Canada and Mexico" 

• In favor of the Agreement. 

• U.S. agricultural trade with Mexico and Canada has increased since the implementation of NAFTA 

including a 34 percent increase from 1995 to 1996 (led by bulk commodities). 

• Attributes the disappearance of the prior trade surplus the United States had with Mexico to the 

"peso crisis" of 1994. 

• Expects U.S. exports to Mexico to reach $5.5 billion and the current U.S. agricultural trade surplus 

with Mexico to continue during 1997. 

• Increases in agricultural exports to Mexico in 1996 were "led by increased payments for corn, wheat, 

soybeans, and cotton" at the same time that imports of Mexican tomatoes hit a new high. The 

increase in tomato imports led to negotiations between U.S. tomato producers and Mexico. 

However, the suspension agreement that resulted is not being enforced. Again, this increase in 

imports from Mexico is attributed to the 1994 peso devaluation as opposed to the non-enforcement 

of the suspension agreement (or NAFTA). 

Weather conditions are also used to explain trade imbalances. For example, a drought in 1994 in 

northern Mexico caused a massive importation of cattle into the United States. Weather conditions 

after this event turned more favorable in Mexico and so cattle imports dropped markedly. 

Argues that Canada is not in compliance with the Uruguay Round by maintaining "very high tariffs 

on our [U.S.] dairy and poultry commodities." This is used to explain the small agricultural trade 

deficit the United States is expected to have with Canada for 1996-1997. Nonetheless, U.S. 

agricultural exports to Canada have been rising since before the Canadian Free Trade Agreement. 

Expresses concern over "Canada's high border tariffs" that remain. 

Monitoring and enforcing of these accords needs to continue to make sure the benefits promised to 

farmers and ranchers are fully realized. 

Notable statistics: 

• "1993-94 U.S. agricultural trade surplus with Mexico vanished during 1995"; imports of Mexican 

tomatoes rose 66 percent from 1995 (Oct.-May) to 1996 (Oct.-May); U.S. agricultural exports to 

Canada reached $6.0 billion in 1996, and imports from Canada reached $6.5 billion. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-41 

D-41
American Farm Bureau Federation 

John W. Skorburg, Senior Economist 

"Is NAFTA Still a Success?" 

• Debate about NAFTA continues because 1) Growth-curbing policies in Mexico caused demand for 

U.S. agricultural goods to decline, and a peso devaluation has caused demand for Mexican 

agricultural goods to rise, and 2) There is an ongoing dispute with Canada on the hindering of U.S. 

dairy and poultry imports from the United States. 

• A study of the trade data reveals that strict adherence to NAFTA and continuous monitoring of the 

pact still make long-run economic sense, once the pain of the initial adjustments start to ease. While 

trade may be uneven when commodities are compared with each other, a general macro-level benefit 

is evident for each trading partner. 

• In 1994, U.S. agricultural exports to Mexico increased 25 percent from 1993, while agricultural 

imports from Mexico increased 5 percent. Over the same period, U.S. farm exports to Canada 

increased 4 percent, and imports from Canada rose 13.2 percent. 

• Because of the peso devaluation, exports to Mexico declined and imports from Mexico increased. 

However, NAFTA "limited the import reducing policy responses Mexico could implement during a 

recession" (ERS, U.S. Department of Agriculture). In addition, during 1995, exports to Mexico of 

many commodities, like corn, wheat, and rice, increased. 

Notable statistics: 

• The largest positive trade balance between the United States and Canada occurs in fruits and 

vegetables, with 1995 U.S. exports totaling $2.02 billion while imports were $0.52 billion. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-42 

D-42
American Farmers and Ranchers 

The Honorable Robert F. (Bob) Smith, Chairman, Committee On Agriculture 

The Impact Of The North American Free Trade Agreement On The U.S. Economy and 

Industries: A Three Year Review 

• Supports NAFTA. 

• If it weren't for agriculture exports, the U.S. trade deficit would be larger than it currently is. In 

1996, U.S. agriculture exports totaled $60 billion and the agriculture trade surplus exceeded $26 

billion. 

• Smith wants to see agricultural exports expand and barriers to those exports decline. To that end, he 

has led the Committee on trade expansion trips. 

• NAFTA has been good for U.S. agricultural trade. The Agreement is not perfect; there are problems 

with access and barriers that must be resolved. 

• In 1996, U.S. agriculture exports to our NAFTA partners increased by 14.2 percent. The 1996, U.S. 

agriculture trade surplus with Mexico exceeded $1 billion. 

• The United States is the major agriculture and food exporter to Canada. 

• Agriculture is an extremely important and essential issue to be considered in all trade negotiations 

and resolutions of disputes. Agriculture must be a top priority with the Administration. Historically, 

U.S. agriculture has been a leader in free trade principles. It has also been one of the exports most 

harmed by the policies of foreign governments. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-43 

D-43
American Iron and Steel Institute 

Andrew G. Sharkey, III, President and CEO 

Letter to the U.S. Special Trade Representative, Secretary of Commerce and the Chairman of 

the U.S. International Trade Commission 

This letter was apparently sent in response to a previous letter from the American Institute for 

International Steel and comments, for the most part, on dumping in the steel industry. 

Mr. Sharkey states that "surging imports of dumped steel from nonmarket economies (NMEs) are an 

urgent trade policy concern." He argues that these imports are "being driven to our shores not by 

market demand, but by excess supply, sold at artificially low prices." 

Insofar as NAFTA is concerned, Canada, Mexico, and the United States all agree that enforcement of 

national trade laws should be stengthened with respect to NME dumping. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-44 

D-44
American Sheep Industry Association, Inc. 

David Orwick, Director of Government Affairs and CEO 

Statement to the U.S. International Trade Commission 

• Against the Agreement. 

• The sheep industry believes that serious trade problems have resulted from NAFTA and must be 

resolved. The industry believes that NAFTA benefits should accrue to NAFTA signatories rather 

than serve as a vehicle for non-signatory countries to exploit trade benefits to access the U.S. market. 

• While Canada and Mexico are the largest export markets for American lamb and for live sheep, 

exports to those countries have actually decreased since the implementation of NAFTA. 

• Mexico has eliminated its import tariffs on wool for non-NAFTA countries; this allows wool to be 

processed and shipped to the United States with NAFTA trade benefits. Australia is moving wool to 

Mexico for processing and then re-exporting to the United States as a NAFTA product. 

• The Canadian wool apparel Tariff Preference Level (TPL) has caused significant damage to the 

domestic wool production and textile industry. Using the TPL, Canada has consumed significant 

components of some extremely valuable U.S. wool apparel markets such as men's and boy's suits. 

In 1995, production by the five largest U.S. suppliers of mid-priced men's and boy's wool suits fell 

by 26 percent, while Canadian market share grew to 25 percent of the U.S. market. Subsequently, 

U.S. suit manufacturers have had to lay off thousands of American workers. 

• Health protocols, particularly with live cattle trade between the United States and Canada, still need 

to be resolved. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-45 

D-45
American Soybean Association 

Mark Berg, First Vice-President 

• The American Soybean Association supports NAFTA. 

NAFTA has triggered record U.S. soybean exports to Mexico. Exports of U.S. soybeans and 

soybean products to Mexico rose to nearly $869 million in 1996, an increase of 83 percent from the 

$474 million sold in 1993. 

Prior to NAFTA, U.S. soybean exports faced a heavy seasonal duty; NAFTA shortened the duty 

period and reduced the duty. Mexican duties on soybean meal and soybean oil were reduced by 

nearly half. NAFTA also guaranteed movement of U.S. soybean exports to Mexico during the peso 

devaluation, precluding Mexico from raising tariffs. 

Under NAFTA, Mexico should become a more reliable and steady customer for U.S. soybeans and 

soybean products as the Mexican economy stabilizes and grows. U.S. exports of these products to 

Mexico and Canada combined rose by $215 million in the past two years. 

• With regard to Canada, the volume of U.S. soybean and soybean Meal exports has increased, with 

Canada ranking as the leading market for U.S. soybean meal exports during 1994-96. 

• NAFTA has helped lock in market access gains for American soybean farmers, and has contributed 

to expanded U.S. exports of soybeans and products. 

Notable statistics: 

• The value of soybeans and soybean products sold to Mexico and Canada combined has increased by 

$215.4 million in the last two years. 

• Combined soybean exports increased by 2.4 percent in 1994/95, and by 40 percent in 1995/96. 

• Combined exports of soybean cake and meal increased by 3.8 percent in 1994/95, and 2.2 percent in 

1995/96. 

• 

• 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-46 

D-46
American Textile Manufacturers Institute (ATMI) 

Carlos Moore, Executive Vice President 

Letter to the U.S. International Trade Commission Regarding NAFTA's Economic Effects 

• Supports the Agreement. 

• Since 1993, U.S. textile exports to Mexico have increased by $344 million, or 44 percent. The brief 

and modest decline which was registered during 1995 was solely due to the sudden and dramatic 

devaluation of the Mexican peso. High inflation in Mexico counteracted the sharp price increase of 

dollar-based American goods. Textile exports to Mexico increased 27 percent during 1996. 

• Exports to Mexico last year totaled over $2.5 billion. This made Mexico the largest U.S. textile 

export market. 

• CFTA and NAFTA have both been demonstrably beneficial to the American textile industry. 

Several ATMI members have made significant investments, totaling tens of millions of dollars, to 

build or acquire manufacturing and distribution facilities in Mexico; but not at the expense of current 

U.S. production. Industry members are reporting marked increases in exports to Mexico. Several 

textile manufacturers are extending capacity for the sole purpose of exporting to NAFTA partners. 

• The author complains about the "enormous Tariff Preference Levels (TPLs) granted [to] Canada in 

the CFTA and later expanded under NAFTA." The wool apparel TPL (that was granted in 1988) is 

equal to all the wool that Canada exported to the United States in 1987; and the non-wool apparel 

TPL (again, from 1988) is greater than Canada's 1987 exports. These levels were all increased 

under NAFTA. "A fragile but important segment of the U.S. textile-apparel complex has been 

grievously injured by this misfeasance." During NAFTA negotiations, the United States gave up the 

right to invoke any kind of safeguard action with respect to.products imported under a TPL. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-47 

D-47
American Trucking Associations, Inc. 

Thomas J. Donohue, President and CEO 

Statement to the U.S. International Trade Commission 

• Supports the Agreement. 

When measured by value, trucks move over 85 percent of U.S.-Mexico trade and 67 percent of U.S.-

Canada trade. NAFTA offers the promise of more transportation jobs because it establishes the 

framework for more trade, the vast majority of which moves by truck. 

• NAFTA is working and will continue to grow, benefiting the American worker and consumer. 

However, the U.S. Government delay in implementing the essential cross-border trucking provisions 

of NAFTA has "arbitrarily denied all three countries the full benefits of NAFTA." In order to meet 

the escalating demand that will accompany trade growth, the implementation of NAFTA's trucking 

provisions will prove crucial. 

• Implementation of NAFTA's trucking provisions will eliminate a cumbersome, outdated and costly 

system of moving freight across borders, and replace it with an efficient, transparent and safe crossborder trucking process. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-48 

D-48
State of Arizona 

The Honorable Jim Kolbe, 5th District, State of Arizona 

Statement to the U.S. International Trade Commission 

• Congressman Kolbe supports NAFTA. 

• NAFTA helped Mexico recover from the "peso crisis" of 1995 by preventing the Mexican 

government from resorting to market-closing strategies to deal with the economic crisis. 

• The shift in the bilateral trade balance between the United States and Mexico from a surplus to a 

deficit is a result of the "peso crisis" rather than a result of NAFTA. 

• Increases in two-way trade have resulted in specialization which will lead to long-term maximization 

of resources. 

• Claims of NAFTA job losses are unfounded as Arizona unemployment is at a 25-year low with many 

economists predicting that we are at or near full employment 

Notable statistics: 

• The unemployment rate hit 4.9 percent in 1996, the lowest rate in 25 years. 

• U.S. imports accounted for a 76-percent share of the Mexican import market by June 1996. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-49 

D-49
State of Arizona 

Carol A. Colombo, Colombo and Bonacci—OF COUNSEL, Governor's representative for 

NAFTA implementation for the State of Arizona 

Statement to the U.S. International Trade Commission 

• Supports the Agreement. 

• Ms. Colombo points out that NAFTA is not about drugs, immigration, or creating an integrated 

economic community like the EC; rather, NAFTA is about trade. 

• "In spite of [the] peso devaluation and the subsequent recession in 1995, Arizona has experienced 

continually growing exports to Mexico." From 1993 to 1994, total exports grew by 10.9 percent, 

16.4 percent from 1993 to 1995, and 49.2 percent from 1993 to 1996. "Almost every industry in our 

state has benefited from exports between 1993 to 1996." The major exceptions to this growth are 

forestry, lumber, and coal, and "also where peso devaluation at the end of 1994 dramatically 

impacted the Mexican consumer's ability to purchase.... food and consumer goods." 

• "Statistics documenting Arizona's experience are very positive, especially when considering the 

economic situation in Mexico during this time. If the sale of Arizona services to Mexico were 

included, the economic impact on Arizona's economy would be much greater." To this particular 

issue, Ms. Colombo read from select letters that the Arizona Department of Commerce had received 

from various businesses: 

- Tostino's (Tucson, Arizona): "Is NAFTA a benefit to [our] company?... Yes. NAFTA opened up 

an industry that was closed solid to foreign competition.... We would be very disappointed if the 

people in Congress do away with something that has only been a benefit to us." 

- American Eagle Beverages (Tempe, Arizona): "Since the passage of NAFTA, our business has 

increased by 36 percent.... we show an increase in jobs at the farm, plant and transportation areas." 

- Kitchell (Phoenix, Arizona): "Our growth into the Mexican marketplace has increased Kitchell's 

employment by ten full-time construction professionals." 

- The City of Phoenix: "This important legislation has not only increased international trade 

opportunities for the state, but has also significantly impacted the development of non-stop 

international air service between Phoenix Sky Harbor and key markets in Mexico and Canada." 

- America West Airlines (Phoenix, Arizona): "We believe that the treaty has been a factor in our 

success in [Mexico and Canada]." 

- Sundt Corporation (Tucson, Arizona): "The passage of NAFTA has greatly facilitated Sundt's 

ability to work in Mexico." 

• On the Border Environmental Cooperation Commission and North American Development Bank, 

Ms. Colombo said: "we believe that they have pretty much worked out the kinks and are now 

moving towards a more effective use of the promise that they actually had when they were created." 

• "As a state, we are pleased with the success of the agreement to date, and we would respectfully 

request Congress to move forward with the implementation of all the provision[s] of the agreement, 

including the truck provisions." 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-50 

D-50
Arizona Department of Agriculture 

Keith Kelly, Director 

The Impact of the North American Free Trade Agreement on the U.S. Economy and 

Industries: A Three Year Review 

• Mr. Kelly and the Arizona Department of Agriculture support NAFTA. 

• Arizona believes that by establishing close ties with Mexico, they will have a competitive advantage 

in world trade. 

• Arizona is the third largest state in overall U.S. vegetable and citrus fruit production. The state also 

has a cooperative arrangement with Sonora, Mexico to train Sonoran agricultural professionals in the 

proper handling of pesticides. 

The cattle industries in Arizona and Sonora interact extensively with one another, with Arizona 

importing young feeder cattle and exporting fat steers and beef to Sonora. To ensure this 

relationships thrives, the governors of both Arizona and Sonora signed the Arizona-Sonora Animal 

Health Agreement in 1992. This agreement calls for sharing information and personnel to facilitate 

the eradication of bovine tuberculosis and brucellosis in Sonora. 

On May 17, 1997, both governors, Mr. Kelly, and the Secretary of the Sonoran Department of 

Livestock, Luis Colosio signed a joint letter in support of a pilot program to promote further trade 

between both states. 

Arizona has found that several states in Mexico have hindered the state's exports of beef cuts packed 

in boxes (referred to as "boxed beef') and dairy products by state grading and other regulations. 

Arizona believes this to be contrary to NAFTA and that the federal government needs to address this 

issue. 

• 

• 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-51 

D-51
Association of Western Pulp and Paper Workers 

Elmer R. Laulainen, President of Local 293 

Letter to the Office of the Special Trade Representative - plus 2 attachments 

• Mr. Laulainen has been trying for the past 16 months to be certified in order to qualify under the 

Trade Adjustment Assistance. To date, certification has not occurred. 

• The author tells of the moving of paper manufacturing equipment from the United States to Mexico. 

The vast majority of product from this equipment is intended to be exported back to the United 

States. 

• The author wonders about the President's report to Congress underestimating NAFTA's impacts, 

when NAFTA benefits are not granted to displaced workers under the Trade Adjustment Assistance. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-52 

D-52
• 

• 

Baylor University 

Joseph McKinney, Ben H. Williams Professor of Economics, Hankamer School of Business 

Statement before the U.S. International Trade Commission 

Supports the Agreement. 

"Despite the economic difficulties encountered by Mexico, the effects of NAFTA thus far on the U.S. 

economy have been on balance positive and relatively modest. Significant potential gains remain to 

be realized." 

While merchandise trade deficits with Mexico and Canada totaled almost $40 billion last year, more 

than one-third was offset by a sizable U.S. trade surplus in services. 

"The [United States] would no doubt be better off with a higher savings rate, and less dissaving on 

the part of the government. However, the savings rate and the size of government budget deficits are 

affected little, if at all, by NAFTA." 

"Trade deficits are not necessarily undesirable, and they reflect basic macroeconomic conditions of 

the countries involved rather than the levels of trade barriers." 

• Dr. McKinney attributes recent U.S. trade deficits with Mexico to the "peso crisis" and therefore 

judges them as temporary. 

The author states that there is no correlation between unemployment and trade deficits. Although 

increased trade with Canada and Mexico has required "labor adjustments in certain industries," 

careful empirical analysis has shown that the widening gap between unskilled and skilled workers is 

due to technological change rather than trade. The author suggests a solution to this disparity is 

"providing skills for unskilled workers." While the increased international trade has affected the 

"composition of employment," unemployment has actually decreased. 

• The 1995 "peso crisis" was not caused by NAFTA; rather, Mexico's recovery was aided by NAFTA. 

The author points out that during the "peso crisis," NAFTA members were exempt from Mexican 

trade restrictions. 

• Concerned about the level of Mexico's external debt ($170 billion), the author supports the 

continuation of NAFTA so that Mexico can have access to the U.S. market. Such access would aid 

Mexico's growth, which would in turn be important to the U.S. economy. 

• While U.S. direct investment in Mexico is expected to increase with time, such an outflow would 

have a negligible effect on the U.S. economy. 

Notable statistics: 

• Since the implementation of NAFTA, there has been a net increase in U.S. jobs of over 8 million. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-53 

D-53
Bonita Packing Company 

Billy Don Grant, President 

Testimony before the U.S. International Trade Commission 

no written submission provided 

Mr. Grant believes NAFTA "...needs some revamping done now." 

Mr. Grant, a tomato grower and packer, reported that he entered the tomato business in 1988. After 

three good years (1990-92), Mr. Grant claims the business deteriorated. 

• Mr. Grant stated that his packing plant and two other tomato growers employed 1,700 people with a 

payroll close to $15 million in 1992. Since then, employment has fallen to 850 people, with an 

expected payroll of about $8 million Mr. Grant expected employment to fall to 400 people next 

year. 

• Mr. Grant implied, but did not state, that NAFTA was responsible for the situation. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the US1TC. 

D-54 

D-54
Border Trade Alliance 

Susan K. Ross, Member of the Board of Directors 

Statement to the U.S. International Trade Commission 

• Supports NAFTA. 

• Trade levels between the United States and Mexico, which were over $140 billion in 1996 (the third 

year of NAFTA implementation) are at their highest levels ever. 

• Long-term barriers in industries not specifically addressed by NAFTA, such as telecommunications 

and natural resources, are being lifted, and American firms like AT&T and the Arizona Public 

Service Company (a natural gas distributor) are moving into Mexico. 

• California exports approximately $20 billion to NAFTA countries, which corresponds to 280,000 

jobs. 

• The maquiladora industry benefits the United States as well as Mexico. San Diego CA, for example, 

after losing several important industries and seeing its employment level rise to almost 10 percent in 

the late 1980s and early 1990s, has benefited from foreign direct investment since implementation of 

NAFTA. The region has become a center for television production, and Sony now employs 3,000 

people on the U.S. side and 7,000 on the Mexican side. The current unemployment rate in San 

Diego, CA is around 4.5 percent, and the unemployment rate in Tijuana, Mexico is approximately 1 

percent. 

• U.S. consumers should benefit from removal of tariffs on many goods in the agricultural and textile 

sectors. 

• Ms. Ross uses the state of California as an example of how NAFTA is working for the United States. 

Ms. Ross reported that California exports over $20 billion to the NAFTA signatory countries, 

accounting for over 19 percent of the state's total export dollars. This is a net increase of 18.3 

percent form 1995 totals. This increase in exports is linked to jobs and the growth in trade has 

equaled employment for thousands of Californians. Furthermore, exports are booming in Southern 

California for industries such as biotech, telecom, hi-tech, software, and manufacturing due to the 

link to trade in the NAFTA countries. 

• According to Ms. Ross, industries that have traditionally been protected from import competition are 

the ones most likely to suffer when a trade agreement removes or reduces that protection: steel, 

autos, footwear, wearing apparel, and agriculture. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-55 

D-55
Brenco Incorporated 

Howard J. Bush, Vice President, Marketing & Sales 

Testimony before the U.S. International Trade Commission 

no written submission provided 

• Brenco expects to export bearings valued at $17 million in 1997, $8 million of which will go to 

Canada and $1 millionto Mexico. 

• Brenco states that NAFTA has resulted in increased sales to Mexico. Upon passage of the 

Agreement, Brenco secured contracts with Mexico's FNM Railroad which have resulted in $3 

million in sales over the last three years. Brenco also reports that its recently signed 10-year 

agreement with a Mexican company to recondition bearings might not have been possible without 

NAFTA. Brenco indicates that NAFTA has created 6 to 10 U.S. jobs and a similar number in the 

company's reconditioning subsidiary in Mexico. 

• Prior to NAFTA, Brenco points to tariffs and required letters of credit as impediments to free trade in 

the bearings industry. Brenco states that these nontariff barriers are being reduced as a result of 

NAFTA and notes an increased willingness of parties from both countries to enter into business 

arrangements since passage of the Agreement. 

• Brenco states that increased trade stemming from NAFTA, resulting in increased rail traffic, has led 

to and will continue to afford business and employment opportunities for Brenco. Brenco also 

indicates that NAFTA facilitated the privatization of FNM which is expected to improve rail traffic 

and maintenance standards, leading to increased business for Brenco in bearings, replacement 

components, and reconditioning operations. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-56 

D-56
Broward County Board of County Commissioners 

James J. O'Brien, Director of Port Everglades 

• Florida seaports' trade growth with Mexico has occurred incrementally over the last three years since 

NAFTA. 

• O'Brien states that there is not enough real data available at this time to support assessing the overall 

effects of NAFTA because of the short time period since implementation of the accord. 

• At Port Everglades, the signing of NAFTA encouraged the establishment of regularly scheduled 

weekly liner service to Mexican ports by a major U.S. carrier. Based upon container cargo tonnage, 

in 1996 Mexico was ranked in the top 20 countries for trade, 12th as one of Port Everglades' top 

export country and 7th in the top import countries. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-57 

D-57
Brownsville Economic Development Council 

Rick Luna, Director of Communications and Research 

Statement to the U.S. International Trade Commission 

Supports NAFTA. 

Mr. Luna reported that NAFTA has brought more activity, more jobs, and better opportunity to the 

Brownsville area. Mr. Luna stated that Brownsville has traditionally had double-digit unemployment 

and a high poverty rate. For example, per capita income was 52 percent of the national average in 

1994. According to the 1990 Census, 43.9 percent of all persons live below the poverty line. 

Brownsville's economic performance is linked to the growth in the maquiladora industry in its sister 

city of Matamoros, Mexico. Mr. Luna stated that Matamoros now has almost 50,000 jobs in the 

maquiladora sector. Most of the job growth in Brownsville has been in industries supplying goods 

and services to maquiladora plants, such as injection molding, metal working, trucking, and port 

facilities. 

• Mr. Luna stated that his organization has attracted 17 companies to Brownsville in the past 18 

months, generating 3,200 jobs with most of the new companies locating in Brownsville to supply the 

maquiladora industry. He indicated that some companies, such as Titan Wheel International, are in 

Brownsville, in part to make inroads into Latin American markets. 

• Although Brownsville and Matamoros have always had good relations, things have gotten better 

since the implementation of NAFTA. Mr. Luna attributed that to better institutions in Matamoros, 

improved clarity of organization and purpose in those institutions, and more resources enabling them 

to address a greater number of issues, such as cross-border cooperation regarding emergency 

response and mutual environmental concerns. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-58 

D-58
Brownsville Navigation District (The Port of Brownsville) 

C. James Kruse, General Manager and Port Director 

Letter to the U.S. International Trade Commission Regarding NAFTA's Economic Effects 

• Supports the Agreement. 

• The 1990 Census reported that 44 percent of Cameron County's residents lived below the poverty 

line. In 1994, the area's per capita income was 52 percent of the national average. 

• The Port of Brownsville, its users and tenants are dependant on Mexico for about 90 percent of the 

business conducted at the Port. 

• In the last 5 years, over $100 million in infrastructure projects have been initiated at the Port. The 

area has seen "tremendous growth in the manufacturing and transportation sectors." In the last 18 

months, 17 new companies and 3,200 new jobs have appeared in Brownsville. Construction activity 

has "broken all previous records." 

• "NAFTA gives us a stable, predictable environment within which we can earn a reasonable return on 

the community's investment." 

• "A good indicator of how trade is doing in our area is the number of trucks crossing the border 

daily." In 1992, an average of 1,000 trucks crossed to and from Mexico; in 1996, 1,200 trucks 

crossed daily. Truck traffic has grown "despite the severe problems suffered by the Mexican 

economy, our primary marketplace." 

• Government statistics show that Brownsville has surpassed the nation's rate of job creation in every 

year this decade, except 1995. 

Notable statistics: 

• A recent study indicated that a 10-percent increase in the maquilla business in Mexico produced a 2-

percent increase in jobs on the American side. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-59 

D-59
Burlington Industries 

Jim Leonard, Manager of Economic Relations and 

Donna Lee McGee, Director of Government Affairs 

Statement to the U.S. International Trade Commission 

While U.S. textile and apparel producers strongly supported NAFTA enactment, this company's 

worsted wool division is being seriously disadvantaged and damaged by the wool apparel Tariff 

Preference Level (TPL). 

Although TPLs are designed to allow NAFTA treatment on goods not commercially available from 

NAFTA countries, Canada is importing wool fabric from outside countries where those fabrics are 

readily available from both U.S. and Canadian manufacturers. Canada then uses this imported fabric 

to make tailored wool apparel for export under the TPL to the United States. "By exporting under 

the TPL, Canada bypasses the NAFTA rules of origin yet receives the same low, preferential tariff 

rate as if they had used fabric from one of the NAFTA countries." 

Burlington Industries can account for at least 7,200 jobs lost, yet feel that a formal industry census 

would reveal a much larger number. 

• Despite repeated calls from the industry for action, no resolution has occurred. Damage to the wool 

market is continuing. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-60 

D-60
Business Software Alliance 

Richard B. Neff, Legal Advisor for Latin America 

Statement to the U.S. International Trade Commission 

• Supports the Agreement. 

A survey of member companies indicated that NAFTA, despite the Mexican recession in 1995, has 

had a positive impact on the U.S. software industry. 

Overall, U.S. exports of business application software to Mexico increased 16.4 percent in 1994 

from their 1993 levels and, despite the peso crisis, U.S. exporters increased their share of the total 

Mexican business application software market from 71.5 percent in 1994 to 77.7 percent in 1995. 

In addition to the positive effects on exports, NAFTA had an important impact on the level of 

intellectual property protection in Mexico. New property and copyright laws have been enacted and 

enforcement measures have increased. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-61 

D-61
California Pistachio Commission 

Karen Reinecke, President of the California Pistachio Industry 

Statement to the U.S. International Trade Commission 

This group provided testimony before Congress in support of the Agreement, because it expected the 

reduced tariff levels to "level the playing field" by allowing more U.S. exports. 

In 1994, shipments of California pistachios increased 337 percent over the 1993 level, to a value of 

$2.85 million 

However, in 1995 exports fell to a value of $465,000. 

"Although NAFTA opened the door for California pistachio exports, the benefits have been lost 

because of the peso devaluation and the economic conditions currently prevailing in Mexico." 

• The pistachio industry therefore believes that future free trade agreements must take into account the 

fiscal policies and the economic health of the potential trading partners. 

• 

• 

• 

• 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the US1TC. 

D-62 

D-62
Canadian Cattlemen's Association 

Chris J. Mills, Policy Advisor 

Edward J. Farrell, Wigman, Cohen, Leitner & Myers, P.C.--OF COUNSEL 

The impact of NAFTA has been generally positive for both the Canadian and U. S. beef industries. 

Recent price declines in both Canada and the United States are almost entirely attributable to the 

cyclical increase in production that began in 1991 and now appears almost at its peak. U.S. beef 

production went from 23 billion pounds in 1992 to 25 billion pounds in 1995 and is predicted to 

peak in 1997 at a record 26.1 billion pounds. 

In addition to expanding production, profit margins in both countries have been further squeezed by 

increasing grain prices. U.S. corn prices at Omaha went from $2.37 per bushel in January 1992 to 

$4.92 in March 1996 and have since dropped back to $2.84. Thus, record high production and high 

feed costs have had a significant impact on both slaughter and feeder cattle prices and returns. 

• NAFTA provides for a process that is intended to harmonize and possibly eliminate plant and 

product inspections on meat moving between the two countries. However, U.S. producers, especially 

in those areas where there are significant imports of Canadian product, continue to question the 

efficacy of the Canadian inspection system and the re-inspection process applied by United States 

authorities. As a result, despite the fact that there is no evidence to indicate any inadequacies in the 

Canadian system, the United States recently introduced more stringent rules governing the reinspection of Canadian product entering the country. 

• In January 1992, Canada's grading system for high quality beef grades was amended, so that it was 

virtually equivalent to that used in the United States. However, lack of a grading equivalency 

agreement between the two countries means that U.S. boxed product sold into Canada must be sold 

as "USDA" or "Ungraded" product, and that Canadian boxed product moving into the United States 

must be sold as "no-roll" product and take the appropriate discount. This lack of grade equivalency 

is discouraging beef trade between the two countries and is contributing to the continuing sale of live 

cattle and carcass beef out of Western Canada to packing plants in the Northwestern United States. 

Data sources/methodology: Data were obtained from Canadian Government sources. 

• 

• 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-63 

D-63
Caterpillar, Inc. 

William C. Lane, Washington Director, Governmental Affairs 

• Supports NAFTA. 

• Mr. Lane reported that NAFTA has been a success for Caterpillar. During the 3 years of NAFTA 

(1994-96), Caterpillar's U.S. exports to Canada and Mexico increased by $807 million over the 

previous 3-year period (1991-93). At the same time, Caterpillar's imports from Canada and Mexico 

went up $117 million. 

• Mr. Lane reported that Caterpillar's factories have experienced increased efficiencies (as a result of 

lower U.S. tariffs on North American-produced raw material and components) that have allowed the 

company to better compete throughout the world. 

• Mr. Lane also stated that the company believes that the Mexican economic recovery has been quicker 

and stronger than would have been possible if the flow of trade had been cut off. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-64 

D-64
Celadon Trucking Services, Incorporated 

Michael T. Hodson, Executive Vice President 

Testimony before the U.S. International Trade Commission 

no written submission provided 

• Celadon is a $165 million truckload carrier specializing in transporting truckloads of freight between 

the United States, Canada, and Mexico. It started serving Mexico in 1985 and today is the nation's 

largest truckload provider to Mexico. 

• The company estimates that NAFTA has created 40,000 to 50,000 trucking related jobs in the 

United States over the past 3 years. In 1994, Celadon was hauling 55 percent of its business to 

Mexico, now it hauls 65 percent to Mexico. The company itself has grown 50 percent in the past 3 

years. This growth has created 500 new truck driving jobs and 100 dministrative jobs. A Celadon 

truck driver earns between $32,000 and $40,000 per year. The average salary of an administrative 

job at Celadon is between $25,000 and $30,000 per year. 

• Mr. Hodson pointed out that Chrysler, Celadon's largest customer, has grown significantly due to 

NAFTA. Specifically in 1995, Chrysler reopened its St. Louis car plant, which had been closed in 

1991. Chrysler has also invested in Wisconsin, Michigan, and Indiana (where a new $1.9 billion 

transmission plant is being constructed). Celadon believes so many manufacturers are investing in 

American production because: (1) Improvements in all NAFTA countries will create demands for 

U.S. products and services, (2) Mexico and Canada represent economic allies—Mr. Hodson points out 

the shorter time it takes to transport goods between NAFTA countries than from Asia, (3) logistics 

velocity allows many parts to be produced in the United States and assembled in Mexico, as well as 

encouraging the use of Mexican parts in U.S. production. 

• Celadon is frustrated by the delays in implementing NAFTA—particularly the trucking provisions. 

The current Mexican restriction that 48-foot trucks have to be used instead of 53-foot trucks leads to 

a 10 percent efficiency loss in terms of carrying capacity. There is also inefficiency at the Laredo 

border where drayage companies can dray only export shipments but must return empty. This 

increases costs and congestion and a need for more bridges. 

• "We believe that NAFTA has contributed to the consistent economic expansion of our country that it 

has enjoyed over the past several years and the relatively consistent full employment in the United 

States" (Transcript, vol. 2, p. 505). 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-65 

D-65
Center for Strategic and International Studies 

Sidney Weintraub, William E. Simon Chair in Political Economy 

Statement to the U.S. International Trade Commission 

• Supports the Agreement. 

Argues that NAFTA was not responsible for the "peso crisis" of 1995; nor was it the main cause for 

growth in U.S. imports. These changes were due to Mexico's attempts to hold down inflation, an 

overvalued peso, steady growth in the U.S. economy, and an appreciating dollar. He summarizes 

above arguments by saying that the 1995 "peso crisis" and increased U.S. imports were due to each 

country's macroeconomics, not NAFTA. The author points out that "NAFTA does not deal with 

macroeconomic policies of member countries." 

Dr. Weintraub reports that during the 3-plus years that NAFTA has been in effect, U.S. job creation 

has averaged about 2.5 million a year, and that the United States is at full employment. The author 

further states that if the U.S. economy is at full employment, then extra imports are not creating 

overall job losses, but rather adding to consumer choice. (Although, the author states that this does 

not mean that individuals in affected industries and communities are not losing jobs.) 

• Dr. Weintraub also reported that the number of persons certified as having been adversely affected 

by increased investment in and imports from Canada and Mexico was about 120,000 in the 3 years 

of NAFTA. This number equates to about 2 weeks of U.S. job creation. Therefore, even if this 

number is understated, job losses as a result of NAFTA are very small relative to the millions of job 

turnovers from domestic restructuring. The central job issue, however, is the kinds of jobs that are 

being created. For example, export jobs pay from 12 to 13 percent more than non-export jobs. 

Therefore, import protection would mean saving poor jobs and sacrificing better jobs. 

Dr. Weintraub further states that total trade has increased under NAFTA. Bilateral trade between the 

United States and Canada is greater than that between any other two nations and has been increasing 

since the U.S.-Canada Free Trade Agreement went into effect. Similarly, trade between the United 

States and Mexico increased from $81.5 billion in 1993 to almost $130 billion last year and should 

exceed $150 billion this year. 

Tests of NAFTA include: (1) Specialization: "An examination of U.S.-Mexico trade shows that this 

specialization is taking place, as it did earlier in Canada [with the U.S.-Canada Free Trade 

Agreement]," (2) The fact that Mexico did not respond to its 1995 crisis by imposing import controls 

on U.S. products as it had done previously, (3) Total welfare has increased for all member countries, 

and (4) The creation of "numerous public and private institutional alliances... essential to smooth 

and prosperous relations." 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

• 

• 

• 

• 

D-66 

D-66
Citizens for a Sound Economy (CSE) Foundation 

Anita Sheth, Director of Trade Policy 

Statement to the U.S. International Trade Commission 

• The CSE Foundation supports NAFTA, believing that it has brought positive benefits to the 

economy. 

• Manufacturing jobs have no apparent relationship with the existence or relative size of the trade 

deficit as many protectionists have insisted. 

• The U.S. auto industry has seen significant increases in both sales in Mexico and U.S. employment. 

• Trade deficits show no correlation with decreased family income as protectionists have argued. 

• Personal income has risen at a steady rate since the implementation of NAFTA. 

• International trade is critical part of a "healthy and growing" economy, as well as a means to improve 

our standard of living and preserve economic strength. 

Notable Statistics: 

• • 8 million more Americans are employed today than before NAFTA, including 181,000 added to the 

manufacturing ranks. (Paul Blustein, "NAFTA: Free Trade Bought and Oversold," The Washington 

Post, Sept. 30, 1996) 

• Autoworkers' jobs increased from 833,000 in the year before NAFTA to 950,000 today. (U.S. 

Department of Labor) 

• The United States has increased its exports at an average rate of 10 percent per year for the last six 

years. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-67 

D-67
ClothingManufacturers Association (CMA) of the United States of America 

Robert A. Kaplan, Executive Director/Secretary 

Letter to the U.S. International Trade Commission Regarding NAFTA's Economic Effects 

The CMA has strongly opposed the concept of loopholes to rule of origin requirements under free 

trade agreements, such as Tariff Preference Levels (TPLs). 

This specific problem has resulted in considerable damage to the U.S. tailored wool apparel industry. 

• Today, Canada is completely filling the wool TPL, and as a result is flooding the U.S. market with 

finished apparel that is made from low-priced non-NAFTA fabrics sourced from China, Turkey, and 

Korea. The same fabrics are available from manufacturers in both the United States and Canada. 

Since there is no safeguard under NAFTA to address this issue, the United States is denied the right 

to reduce the size of the overall TPL, regardless of its effect on the U.S. market. 

Canadian textile exports have surged, and the U.S. manufacturing base "has been severely crippled." 

Bankruptcies and plant closings have been commonplace in the United States. If the Canadian wool 

apparel TPL problem is not rectified, thousands of additional U.S. jobs could be lost. 

Notable statistics: 

• Canadian exports of men's and boys' wool suits in the years prior to the CFTA accounted for less 

than 5 percent of the total U.S. imports of this product. During the period covered by the CFTA and 

NAFTA, Canadian shipments of these goods have increased ten-fold; and a full 21 percent in 1995 

over 1994 levels. 

Translated from U.S. Department of Commerce data, American wool suit production has fallen from 

3.2 million suits produced in 1994 to about 2.8 million suits in 1995 . 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-68 

D-68
Corn Refiners Association 

Charles F. Conner, President 

Submission to the U.S. International Trade Commission 

• The Corn Refiners Association (CRA) is a strong supporter of NAFTA. CRA believes that 

continued trade liberalization is of utmost importance to U.S. agricultural producers and processors. 

They also believe that the negotiation of regional free trade agreements, such as NAFTA, can serve 

as a springboard to press for even further liberalization of agricultural trade at the global level. 

Finally, the CRA sees substantial new business opportunities arising from NAFTA. 

• In both the United States and Canada, the market for processed corn products is reasonably 

mature. While there is some cross-border trade in refined corn products with Canada, they are 

particularly interested in the new opportunities for exports and investments in Mexico which have 

been highlighted by NAFTA. 

• In 1992, before completion of the NAFTA negotiations, the United States exported approximately 

$87 million of primary processed corn and starch products to Mexico. In 1996, these same 

commodities accounted for approximately $145 million of exports. While not all of the growth can 

be directly attributed to tariff reductions under NAFTA, the CRA believes that the agreement was 

responsible for a new interest in increasing cross-border trade. 

• While there have been problems with NAFTA, CRA believes that these problems should not be used 

as excuses on either side to pull back from the agreement's overall commitment to greater and freer 

trade, which both governments have adopted. 

Data was obtained from various U.S. Government sources. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-69 

D-69
Council Of The Americas 

William Pryce, Vice President, Washington Operations 

Statement to the U.S. International Trade Commission 

The Council of Americas is a strong proponent of both NAFTA and the Free Trade Association of 

the Americas (FTAA). 

• From 1993 to 1996, exports were up 34.1 percent overall, with a 36.5 percent increase in exports to 

Mexico and a 33.1 percent increase to Canada. 

• The Council recently commissioned a series of studies on the impacts of NAFTA on 21 U.S. states. 

11 studies were submitted for the record. Abstracts have been done and are attached with the 

submission. 

• Several states have benefited from NAFTA in ways other than the growth associated with increased 

exports. 

• Approximately 100,000 people who lost their jobs between 1994 and 1996 were certified by the U.S. 

Department of Labor for the NAFTA Trade Adjustment Assistance program. 

Clearly, some of the growth in U.S. exports to Canada and Mexico mentioned above and in the 

individual state studies would have occurred without NAFTA, but officials from many companies, 

business organizations, and state governments across the country indicated that much of this 

expansion in trade can be directly attributed to NAFTA. 

• Business organizations and state governments have indicated that much of the recent trade expansion 

can be directly attributed to NAFTA. Companies have indicated that lower tariffs and transportation 

costs have made their products less expensive than European and Asian competitors' products. 

Four positive effects of the Agreement on trade and investment between the member countries: 

1) U.S. companies' competitive edge over non-member countries have led to increased sales; 

2) NAFTA has created new interest in member countries' markets - this has induced more 

businesses to export goods; 

3) NAFTA has enabled many U.S. industries to reorganize production strategies to improve 

efficiency, e.g., automobile industry; 

4) NAFTA protected U.S. exports to Mexico from facing high tariffs imposed by Mexico under 

its safeguard laws in reaction to the "peso crisis." 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-70 

D-70
Council of the Americas 

The Trade Partnership 

• 

"The Council of the Americas Report on the Impact of the North American Free Trade 

Agreement on California" (April 1997) 

• Supports the Agreement. 

California's border region has experienced growth under NAFTA due to the increased trade and 

investment between Mexico and California. Exports to Canada and Mexico have grown over 40 

percent between 1993 and 1996; these exports accounted for 19.3 percent of California's total 1996 

exports. 

Over 47 percent of California's exports to Mexico are made up of electronic and electrical equipment 

and parts, and industrial machinery (including computers) Similarly, these two categories represent 

over 55 percent of California's exports to Canada. 

• According to the California Department of Agriculture, NAFTA partners account for 29 percent of 

total California agricultural trade, with Mexico alone taking 9 percent. According to Rafael Patron, 

adviser to the California Trade and Commerce Agency, "[California] should have a large competitive 

advantage over most products in the Mexican market." Canada consistently ranks as California's 

second-largest market for agricultural exports. 

At least 95,900 jobs in California were directly related to NAFTA exports in 1996 (U.S. Department 

of Commerce). This number would be much higher if jobs in transportation, banking, and other 

sectors were included. Of those jobs that have been lost due to NAFTA, prospects of re-employment 

are good. The number of jobs lost due to NAFTA is small compared to the number of workers who 

have benefited from NAFTA. Workers have seen export-related jobs pay higher wages than 

manufacturing jobs, on average. Thousand of jobs statewide are created because of maquiladoras. 

• California industries have benefited from the intellectual property rights provisions in NAFTA 

although progress in this area has been "slow and halting." 

• Opportunities for improvement are: 

1) local, state, and federal funding could be provided for border infrastructure improvements so that 

California can better realize economic benefits from its geographic location; 

2) implementation and enforcement of transportation-related provisions of NAFTA should be 

harmonized — especially trucking provisions; 

3) better information to workers that may have been harmed by imports due to NAFTA on 

assistance that is available through the Trade Adjustment Assistance. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

• 

• 

D-71 

D-71
Council of the Americas 

The Trade Partnership 

"The Council of the Americas Report on the Impact of the North American Free Trade 

Agreement on Florida" (April 1997) 

• Supports the Agreement. 

• During the first year of NAFTA (1994), Florida's exports to Mexico increased by nearly 11.8 

percent over their 1993 levels. The 1994-95 decline in Florida's exports to Mexico, caused by 

devaluation of Mexico's peso, was nearly recovered by 1996. Florida's exports to Mexico in 1996 

increased by 31.7 percent over their 1995 levels. Florida's exports to Canada, between 1993 and 

1996, increased by 10.7 percent under NAFTA. In 1996, Canada and Mexico were Florida's second 

and eighth most important export markets, respectively. 

• Florida companies have increased exports to member countries because of the cost savings from 

lower tariff rates and the reduced barriers to trade. Other companies, such as those in the packaging 

and distribution industries, have also profited from the liberalization of Mexico's foreign investment 

laws. 

In 1996, 3,570 Florida jobs directly benefited from the state's exports to Mexico; an additional 

8,530 jobs were directly linked to Florida's exports to Canada, for a total of 12,100 (U.S. 

Department of Commerce). The actual number of jobs benefiting from trade with NAFTA partners 

is much higher, once related jobs in transportation, wholesaling, warehousing, finance, insurance, 

banking and other sectors are added. While some Florida workers have lost their jobs due to 

competition induced by NAFTA, their numbers are smaller than those who have benefited from 

NAFTA. The total number of Florida workers certified by the U.S. Department of Labor for 

NAFTA Trade Adjustment Assistance (TAA) is just under 2,300 for the 1994-1995 period. 

• Opportunities for improvement are: 

1) Florida should take advantage of its geographic location and pursue more export promotion; 

2) sectors that feel disadvantaged by any trade agreement, e.g., tomato growers, should work within 

existing laws and procedures specifically designed to mitigate such disadvantages; 

3) better information to workers that may have been harmed by imports due to NAFTA on 

assistance that is available to them through the Trade Adjustment Assistance. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-72 

D-72
Council of the Americas 

The Trade Partnership 

"The Council of the Americas Report on the Impact of the North American Free Trade 

Agreement on Illinois" (May 1997) 

Supports the Agreement. 

• Illinois' exports to Mexico and Canada grew by nearly 38 percent between 1993 and 1996. Canada 

and Mexico together accounted for 35 percent of Illinois' exports in 1996, which was its fifth most 

important export market. 

• Illinois' major exports to Mexico and Canada are construction equipment, farm equipment, 

specialized industrial machinery, pharmaceuticals, telecommunications equipment, and auto parts. 

• Agricultural products are Illinois' fifth most important export to Mexico. These exports increased by 

520 percent between 1993 and 1996. Other key exports are corn, soy beans and processed foods. 

• In 1996, 6,100 jobs in lllinois directly benefited from the state's exports to Mexico, and 38,300 were 

linked to its exports to Canada (U.S. Department of Commerce). 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-73 

D-73
Council of the Americas 

The Trade Partnership 

"The Council of the Americas Report on the Impact of the North American Free Trade 

Agreement on Indiana" (Apri11997) 

• Supports the Agreement. 

• Exports to Canada and Mexico have grown over 47.1 percent between 1993 and 1996. 

• Exports to Canada and Mexico accounted for half of Indiana's total 1996 exports. High-value-added 

manufactured goods led Indiana's exports to both Mexico and Canada. Over 40 percent of Indiana's 

exports to Mexico are made up of industrial machinery and electronic and electrical equipment. 

Similarly, these two products make up one-quarter of Indiana's exports to Canada. 

• At least 28,420 jobs in Indiana were directly related to NAFTA exports in 1996 (U.S. Department of 

Commerce). This number would be much higher if jobs in transportation, wholesaling, warehousing, 

finance, insurance, banking, and other sectors were included. Of those jobs that have been lost due to 

NAFTA, prospects of re-employment are good. The number of jobs lost due to NAFTA is 

significantly smaller than the number of workers who have benefited from NAFTA. Workers have 

seen export-related jobs pay higher wages than manufacturing jobs, on average. 

• The Indiana pharmaceutical industry has benefited from the intellectual property rights provisions in 

NAFTA. 

Opportunities for improvement are: 

1) funding an extension of Interstate 69 from Canada through Indiana to Mexico; 

2) that customs and agricultural officials from the member countries could meet regularly to find 

ways to ensure that paperwork and standards requirements do not interfere with trade 

opportunities; 

3) to provide better information to workers that may have been harmed by imports due to NAFTA 

on assistance that is available to them through the Trade Adjustment Assistance. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-74 

D-74
Council of the Americas 

The Trade Partnership 

"The Council of the Americas Report on the Impact of the North American Free Trade 

Agreement on Kentucky" (April 1997) 

• Supports the Agreement. 

• Kentucky's exports to Canada and Mexico have grown over 75 percent between 1993 and 1996. In 

1996, Canada and Mexico were Kentucky's leading and seventh most important export markets. 

Exports to these countries accounted for 40.5 percent of Kentucky's total exports in 1996. 

• High-value-added manufactured goods lead the state's exports to Mexico and Canada, including 

computers and peripherals, audio equipment and chemicals. In addition, automobile exports "grew 

substantially between 1993 and 1994 due to NAFTA's automotive provisions;" and the farm sector 

benefited from NAFTA's agricultural provisions. 

• NAFTA's provisions on foreign investment led to an opening of a "number of new Mexican markets 

to Kentucky health care providers, among others." These provisions have allowed Kentucky 

companies the ability to expand exports to Mexico" since many American direct investors in Mexico 

depend heavily on U.S. products." 

• At least 13,250 jobs in Kentucky were directly related to NAFTA exports in 1996 (U.S. Department 

of Commerce). This number would be much higher if jobs in transportation, wholesaling, 

warehousing, finance, banking, insurance, and other sectors were included. Of the jobs that have 

been lost due to NAFTA, prospects of re-employment are good. 

• While some Kentucky workers have lost jobs due to competition induced by NAFTA, their numbers 

are significantly smaller than those who have benefited from NAFTA. The total number of workers 

certified by the U.S. Department of Labor for NAFTA Trade Adjustment Assistance (TAA) is just 

over 860 for the 1994-1996 period. State officials believe that Mexico will be an important market 

for Kentucky products in the future. 

• Opportunities for improvement are: 

1) NAFTA customs officials should reduce the amount of paperwork associated with NAFTA trade; 

2) better information should be provided to workers that may have been harmed by imports due to 

NAFTA on assistance that is available to them through the Trade Adjustment Assistance. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-75 

D-75
Council of the Americas 

The Trade Partnership 

"The Council of the Americas Report on the Impact of the North American Free Trade 

Agreement on Massachusetts" (May 1997) 

Massachusetts' exports to Canada and Mexico have grown strongly under NAFTA, up over 31 

percent between 1993 and 1996. The 1994-95 decline in Massachusetts' exports to Mexico (caused 

by the devaluation of the peso) was recovered by export growth during 1996. 

• Canada and Mexico are Massachusetts' leading and twelfth most important export markets. Highvalue added manufactured goods lead Massachusetts' exports to both Mexico and Canada. These 

products include computer equipment and software, pharmaceuticals, telecommunications 

equipment, medical equipment and aerospace equipment. Massachusetts' agricultural sector and 

service industries have also benefitted from NAFTA. 

• Massachusetts' production of goods for export to Canada and Mexico supports thousands of highpaying manufacturing, transportation, services, finance and other jobs. 

• Numerous Massachusetts companies across a wide range of sectors avail themselves of NAFTA and 

remain optimistic about its prospects for increasing business for Massachusetts companies. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-76 

D-76
Council of the Americas 

The Trade Partnership 

"The Council of the Americas Report on the Impact of the North American Free Trade 

Agreement on Michigan" (May 1997) 

• Supports the Agreement. 

• Michigan's exports to Canada and Mexico grew by more than 10 percent between 1993 and 1996. 

Canada and Mexico together accounted for 70 percent of Michigan's exports in 1996. 

• Because of NAFTA's extensive automobile provisions, transportation equipment ranks as 

Michigan's leading export to both Canada and Mexico and accounts for approximately 60 percent of 

Michigan's exports to Canada and Mexico. 

• Michigan's other major exports to Canada and Mexico include engines, machine tools, metal 

stampings, chemicals, computers, and household appliances. 

• Michigan's farm sector benefits from NAFTA's agricultural provisions. Michigan's major 

agricultural exports to Canada and Mexico are dried beans, blueberries, organic food products, snack 

products, onions, processed asparagus, turkeys, flour, and pork products. 

• In 1996, 15,180 jobs in Michigan directly benefited from the state's exports to Mexico, and 82,750 

jobs were directly linked to the state's exports to Canada (U.S. Department of Commerce). 

• Opportunities for improvement are: 

1) resolving Canadian over-quota tariffs on U.S. exports of dairy, poultry, and egg products through 

NAFTA dispute settlement procedures, and 

2) refraining from providing special protection to U.S. industries that may be threatened with 

competition from Mexican or Canadian imports. For example, U.S. protection for corn broom 

producers invoked Mexican retaliation in the form of 20 percent tariffs on office furniture, which was 

one of Michigan's important exports. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the usrrc. 

D-77 

D-77
Council of the Americas 

The Trade Partnership 

"The Council of the Americas Report on the Impact of the North American Free Trade 

Agreement on New York" (April 1997) 

• Supports the Agreement. 

New York's exports to Canada and Mexico have increased by nearly 30 percent between 1993 and 

1996. Specifically, New York's exports to Mexico, between 1993 and 1996, increased by 8.4 percent 

and New York's exports to Canada during this same time period increased by 31.7 percent under 

NAFTA. In 1996, Canada and Mexico were New York's leading and twelfth largest export markets, 

respectively. Exports to these two countries accounted for 29.1 percent of total New York exports in 

1996. 

• Over 38 percent of New York's exports to Mexico are made up of high-technology instruments and 

chemical products. Three additional high-tech sectors -- transportation equipment, electronic and 

electrical equipment, and industrial machinery and computers -- make up 43 percent of New York's 

exports to Canada. 

• New York's agricultural sector has also benefited from the agricultural provisions of NAFTA. 

According to the New York Department of Agriculture, although Mexico is not yet a major market 

for New York agricultural exports, it has the potential to become one of the state's most important 

markets. Canada is the second most important market for exports of New York apples. 

• New York's large service sector expanded into the Mexican market following the implementation of 

NAFTA. Since 1994, 10 U.S. banks have opened Mexican subsidiaries. Leading New York banks 

that have established Mexican operations include J.P. Morgan, Chemical Bank, Republic National 

Bank of New York, and Chase Manhattan Bank. 

• In 1996, 4,430 jobs in New York directly benefited from the state's exports to Mexico; an additional 

49,150 jobs were directly linked to New York's exports to Canada for a total of 53, 580 (U.S. 

Department of Commerce). The actual number of jobs benefiting from trade with NAFTA partners 

is much higher, once related jobs in transportation, wholesaling, warehousing, finance, insurance, 

banking and other sectors are added. While some New York workers have lost jobs to competition 

induced by NAFTA, their numbers are smaller than those who have benefited from NAFTA. The 

total number of workers certified by the U.S. Department of Labor for NAFTA Trade Adjustment 

Assistance (TAA) is just under 9,400 for the 1994-1996 period. 

• It is suggested that the Administration do more to inform American workers potentially harmed by 

imports about the Trade Adjustment Assistance available to them. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-78 

D-78
Council of the Americas 

The Trade Partnership 

"The Council of the Americas Report on the Impact of the North American Free Trade 

Agreement on North Carolina" (April 1997) 

Supports the Agreement. 

North Carolina's exports to both Mexico and Canada have increased by over 63 percent between 

1993 and 1996. Specifically, North Carolina's exports to Mexico, between 1993 and 1996, have 

increased by 93 percent and during this same period, North Carolina's exports to Canada have 

increased by 57.7 percent under NAFTA. In 1996, Canada and Mexico were North Carolina's 

leading and fourth most important export markets, respectively. 

• Over 44 percent of North Carolina's exports to Mexico are made up of textile and apparel products. 

These two categories represent over 11 percent of North Carolina's exports to Canada. Fourteen 

percent of North Carolina's exports to Mexico are made up of industrial machinery and equipment 

(including computer equipment and parts). This sector represents 24 percent of North Carolina's 

exports to Canada. 

• In 1996, a total of 24, 650 jobs in North Carolina directly benefited from the states's exports to 

Mexico and Canada (U.S. Department of Commerce). The actual number of jobs benefiting from 

trade with NAFTA partners is much higher, once related jobs in transportation wholesaling, 

warehousing, finance, insurance, banking and other sectors are added. While some North Carolina 

workers have lost their jobs to competition induced by NAFTA, their numbers are significantly 

smaller than those who have benefited from NAFTA. The total number of workers certified by the 

U.S. Department of Labor for NAFTA Trade Adjustment Assistance is just under 5,300 for the 

1994-1996 period. 

• North Carolina's large financial-service sector expanded into the Mexican market following the 

implementation of NAFTA. Since 1994, Charlotte-based NationsBank, the fourth-largest bank in the 

country, is one of ten U.S. banks to have opened subsidiaries in Mexico, as well as one of nine U.S. 

companies to operate a brokerage firm in Mexico. 

• Problems related to the transportation sector need addressing. It is suggested that the Administration 

do more to inform American workers potentially harmed by imports about the Trade Adjustment 

Assistance (TAA) available to them. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the US1TC. 

D-79 

D-79
Council of the Americas 

The Trade Partnership 

"The Council of the Americas Report on the Impact of the North American Free Trade 

Agreement on Ohio" (May 1997) 

Ohio has benefited significantly from trade liberalization under NAFTA. Exports from Ohio to 

Mexico and Canada have grown since the implementation of NAFTA. Mexico is Ohio's fastestgrowing export market. In 1996, Canada and Mexico were Ohio's leading and sixth most important 

export markets, respectively. Exports to these two countries accounted for nearly half of total Ohio 

exports in 1996. 

NAFTA helped offset the decline in Ohio's exports to Mexico due to the peso crisis. NAFTA also 

allowed for vigorous expansion of exports to Mexico in 1996 that more than made up for any 

previous losses due to the crisis. 

Cleveland ranked 12th in the total value of U.S. exports to and imports from Mexico in 1996. Highvalue-added manufactured goods led Ohio's exports to Mexico and Canada. 

NAFTA has proven to be mutually beneficial to the U.S., Mexican, and Canadian steel industries by 

encouraging each country to specialize in the steel products in which it is the most competitive; 

consequently, both the United States and Mexico have enjoyed an increase in steel exports to 

NAFTA partners since the agreement's implementation. 

The leading Ohio agricultural exports are soybeans, corn and breeding livestock. 

Of the employees who have lost their jobs due to NAFTA, their prospects for re-employment are 

good. Moreover, many of these workers see an improvement in earnings from their new jobs. Fifty 

four percent of re-employed electrical machinery workers find new jobs paying them the same or 

greater wages. Employees in the export industries that have seen sales growth in Canada and Mexico 

earn more than the average manufacturing job in Ohio. 

• Since protection of one industry comes at the expense of others, the Administration should do more 

to inform American workers potentially harmed by imports about the Trade Adjustment Assistance 

available to them, to encourage adjustment to import competition, rather than protection from it. 

Notable statistics: 

• Ohio's exports to Canada and Mexico have increased 34.7 percent between 1993 and 1996. 

• During the first year of NAFTA, Ohio's exports increased 30.9 percent between 1993 and 1996. 

• Transportation equipment ranks as Ohio's leading export to Canada, accounting for 41.6 percent of 

total Ohio exports to Canada in 1996. 

• In 1996, 3,600 jobs in Ohio directly benefited from the state's exports to Mexico; an additional 

54,700 jobs were directly linked to Ohio's exports to Canada (U.S. Department of Commerce). By 

contrast, the total number of Ohio workers certified by the U.S. Department of Labor for TAA was 

just over 2,900 for the 1994-96 period. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-80 

D-80
Council of the Americas 

The Trade Partnership 

"The Council of the Americas Report on the Impact of the North American Free Trade 

Agreement on Pennsylvania" (April 1997) 

Exports from Pennsylvania to Canada increased by 34.2 percent between 1993 and 1996. 

Pennsylvania's exports to Mexico increased by 26.5 percent during this same period. In 1996, 

Canada and Mexico were Pennsylvania's leading and fourth most important markets, respectively. 

These two countries accounted for 38.1 percent of total Pennsylvania exports in 1996. 

High-value-added manufactured goods dominate Pennsylvania's exports to both Mexico and 

Canada. Over three-quarters of Pennsylvania's exports to Mexico are made up of primary metal 

products, electronic and electrical equipment, industrial machinery and equipment, and chemicals and 

related products. Exports to Canada are more diversified, with the four top categories of 

manufactured goods representing 46.9 percent of the state's total exports to Canada. 

Pennsylvania's auto and auto-parts sector benefits from the increased integration of the North 

American auto industry that has resulted from NAFTA. Transportation equipment is Pennsylvania's 

fourth-largest export to Canada. Pennsylvania's agricultural sector has also benefited from the 

agricultural provisions of NAFTA. Canada is the leading destination for Pennsylvania's agricultural 

products, accounting for 34 percent of total agricultural exports in 1995. 

Pennsylvania state government officials plan to promote Pennsylvania products, tourism and 

investment more widely in both Mexico and Canada, further increasing trade and investment 

opportunities -- and related jobs -- in the state. 

In 1996, 3,940 jobs in Pennsylvania directly benefited from the state's exports to Mexico; an 

additional 25,260 jobs were directly linked to Pennsylvania's exports to Canada for a total of 29,200 

(U.S. Department of Commerce). The actual number of jobs benefiting from trade with NAFTA 

partners is much higher, once related jobs in transportation, wholesaling, warehousing, finance, 

insurance, banking and other sectors are added. While some Pennsylvania workers have lost jobs to 

competition induced by NAFTA, their numbers are significantly smaller than those that have 

benefited from NAFTA. The total number of workers certified by the U.S. Department of Labor for 

NAFTA Trade Adjustment Assistance (TAA) is just over 7,200 for the 1994-1996 period. 

It is suggested that customs officials do more to reduce the amount of paperwork associated with 

NAFTA trade and that the Administration do more to inform U.S. workers potentially harmed by 

imports about the Trade Adjustment Assistance available to them 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

• 

• 

• 

• 

D-81 

D-81
Council of the Americas 

The Trade Partnership 

"The Council of the Americas Report on the Impact of the North American Free Trade 

Agreement on Tennessee" (April 1997) 

• Supports the Agreement. 

• Tennessee's exports to Canada and Mexico have grown strongly under NAFTA, increasing by 40 

percent between 1993 and 1996. Industries that have benefited include: automotive, agricultural, 

paper, abiminum products, and transportation services. During this time period, exports to Mexico 

have grown 39 percent; and exports to Canada have grown 40.3 percent. Tennessee's exports to 

Canada and Mexico accounted for 40.8 percent of total exports in 1996. Key industries in Tennessee 

have benefited directly from the Agreement. 

• In 1996, 3,100 jobs in Tennessee directly benefited from the state's exports to Mexico; an additional 

14,180 jobs were directly linked to Tennessee's exports to Canada for a total of 17,280 (U.S. 

Department of Commerce). The actual number of jobs benefiting from trade with NAFTA partners 

is much higher, once jobs in transportation, wholesaling, warehousing, finance, insurance, banking, 

and other sectors are added. While some Tennessee workers have lost jobs due to competition 

induced by NAFTA, their numbers are significantly smaller than those who have benefited from 

NAFTA. The total number of Tennessee workers certified by the U.S. Dept. of Labor for NAFTA 

Trade Adjustment Assistance (TAA) is just over 3,500 for the 1994-96 period. 

Many Tennessee firms remain optimistic about NAFTA's "prospects for increasing business for 

Tennessee companies." NAFTA has made member countries' industries, such as paper and 

chemicals, more aware of each other. 

Opportunities for improvement are: 

1) funding an extension of Interstate 69 from Canada through Tennessee all the way to Mexico; 

2) need to harmonize standards and enforcement of transportation-related provisions of the 

Agreement; 

3) the Administration should refrain from providing special provisions to U.S. industries that feel 

threatened by Mexican or Canadian imports, lest retaliation result from member countries; 

4) better information to workers that may have been harmed by imports due to NAFTA on 

assistance that is available to them through the Trade Adjustment Assistance. 

• 

• 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-82 

D-82
Council of the Americas 

The Trade Partnership 

"The Council of the Americas Report on the Impact of the North American Free Trade 

Agreement on Texas" (April 1997) 

• Supports the Agreement. 

Texas' exports to Mexico and Canada have increased by over 41 percent between 1993 and 1996. 

Specifically, Texas' exports to Mexico, between 1993 and 1996, have increased by 34.3 percent and 

during this same period, Texas' exports to Canada have increased by 73.2 percent under NAFTA. In 

1996, Mexico and Canada were Texas' leading and second most important export markets, 

respectively. Exports to these two countries accounted for 46.9 percent of total Texas exports in 

1996. 

• Over 55 percent of Texas' exports to Mexico are made up of electronic and electrical equipment and 

parts, transportation equipment, industrial machinery (including computers) and fabricated metal 

products. The first three categories plus chemicals represent nearly 72 percent of Texas' exports to 

Canada. According to the Texas Department of Agriculture, Mexico is by far Texas' most important 

agricultural trading partner. Texas maintains a positive trade balance with Mexico and Texas 

economists expect this trend to continue in the future. 

• In 1996, a total of 165,000 jobs in Texas directly benefited from the state's exports to Mexico and 

Canada (U.S. Department of Commerce). While some Texas workers have lost their jobs to 

competition induced by NAFTA, their numbers are significantly smaller than those that have 

benefited from NAFTA. The total number of Texan workers certified by the U.S. Department of 

Labor for NAFTA Trade Adjustment Assistance (TAA) is just over 9,500 for the 1994-1996 period. 

• Texas government officials believe that NAFTA and increased trade and investment with Mexico is 

essential to the future of the Texas economy. Texas' economy has profited from an large influx of 

foreign direct investment since the passage of NAFTA, both by Mexican companies eager to expand 

into the U.S. market and Asian and other foreign companies trying to gain a foothold in the Mexican 

market. NAFTA's Border Environmental Cooperation Commission and North American 

Development Bank have helped Texas communities promote economic development while improving 

their drinking water and environment. Texas companies have also profited from the liberalization of 

Mexico's foreign investment laws, opening a number of new Mexican markets to Texas 

transportation, construction, and utility firms, among others. American investment in Mexico has 

also given some Texas companies the ability to expand exports to the region. 

Problems related to the transportation sector need addressing. Increased state and federal funding for 

environmental cleanup along the border could be sought. It is suggested that the Administration do 

more to inform American workers potentially harmed by imports about the TAA available to them. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-83 

D-83
Council of the Americas 

The Trade Partnership 

"The Council of Americas Report on the Impact of the North American Free Trade 

Agreement on West Virginia" (April 1997) 

Supports the Agreement. 

• Between 1993 and 1996, West Virginia's exports to Mexico increased by 13.3 percent, while 

exports to Canada during this same period increased by 47.1 percent under NAFTA. In 1996, 

Canada and Mexico were West Virginia's leading and twenty-third most important export markets, 

respectively. 

• NAFTA offers excellent benefits for ferrous metal exports -- in favor of U.S. exporters to Mexico. 

Primary metal exports from West Virginia to Mexico have increased since the implementation of 

NAFTA, up 142 percent between 1993 and 1996. In 1996, primary metals ranked as West 

Virginia's second leading export to Mexico Similarly, primary metals also ranked as West 

Virginia's second leading export to Canada following a 53 percent increase between 1993 and 1996. 

Under NAFTA, West Virginia exports of stone, clay and glassware to Mexico increased by 145 

percent between 1993 and 1996; exports of the same goods to Canada during this same time frame 

increased by 245 percent. 

West Virginia's growing auto-parts sector benefits from the increased integration of the North 

American auto industry that has resulted from NAFTA. West Virginia saw transportation equipment 

exports to Mexico increase by more than 1,500 percent between 1993 and 1996 and during this same 

time frame, West Virginia exports of transportation equipment to Canada increased by over 100 

percent. 

• In 1996, 130 jobs in West Virginia directly benefited from the state's exports to Mexico; an 

additional 1,960 jobs were directly linked to West Virginia's exports to Canada for a total of 2,090 

(U.S. Department of Commerce). The actual number of jobs benefiting from trade with NAFTA 

partners may be much higher, once related jobs in transportation, wholesaling, warehousing, finance, 

insurance, banking, and other sectors are added. While some West Virginia workers have lost jobs to 

competition induced by NAFTA, their numbers are significantly smaller than those who have 

benefited from NAFTA. The total number of workers certified by the U.S. Department of Labor for 

NAFTA Trade Adjustment Assistance (TAA) is just over 980 for the 1994-1996 period. 

Opportunities for improvement are: 

1) better cooperation between state and export promotion officials to help "take better advantage of 

the opportunities for co-production that NAFTA presents;" and 

2) better information to workers that may have been harmed by imports due to NAFTA on 

assistance that is available to them through the TAA. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-84 

D-84
Desert Grape Growers League of California 

Mike Bozick, Vice President-General Manager, Richard Bagdasarian, Inc. and President of 

the Desert Grape League of California 

Statement to the U.S. International Trade Commission 

As a result of an "uneven playing field and the devastating devaluation of the Mexican peso, our 

domestic table grape industry lost an estimated trade value of $100 million since the implementation 

of NAFTA." 

The "uneven playing field" stems from the duty that U.S. grapes face when entering Mexico (and 

Chile) and the lack of duty that Mexican (and Chilean) grapes face when entering the United States. 

In addition, Chile and Mexico recently "maintained phytosanitary barriers on imports of table grapes 

into their markets which were not based on scientific findings." 

At the beginning of NAFTA implementation, Coachella (California) producers faced a Mexican 

tariff of 18 percent (as opposed to the pre-NAFTA level of 20 percent), while table grapes from 

Mexico entered the U.S. market duty free during the April 20 to June 30 period. 

The surge in imports from Mexico since the NAFTA's implementation is attributed to "a number of 

macroeconomic and regulatory factors: primarily the devaluation of the peso, the wage differential, 

the lack of equivalent environmental standards in Mexico, Mexico's unfair phytosanitary restrictions, 

and the marketing of Mexican table grapes in the United States as an American product." 

"In the opinion of the California Desert Grape Growers League, the U.S. fresh fruit and vegetable 

industry was not given the attention that other sectors of the economy received in the negotiation of 

NAFTA.... [and] believe that all sectors of the economy should receive equal consideration by [the 

U.S.] government in any trade negotiations Unfortunately, this was not the case with NAFTA." 

The following recommendations have been made: 

The Executive Branch should establish a firm trade policy that truly protects importsensitive domestic agricultural crops; 

A trade policy that provides symmetry for tariffs between nations; 

A trade policy that requires unreasonable phytosanitary barriers to be removed before the United 

States enters into trade negotiations; 

Complete compliance with the U.S. country of origin marking statute, which requires country 

identification in a conspicuous place on the consumer package. 

Notable statistics: 

• During the period April 20 to June 30: 

Mexican table grape exports to the United States were 2.5 million boxes in 1987 compared to 8.4 

million produced in the United States; 

In 1994, Mexican exports were 4.0 million boxes; 

In 1995, Mexican exports were 7.9 million boxes; 

In 1996, Mexican exports were 5 3 million boxes. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

• 

• 

• 

• 

• 

• 

D-85 

D-85
Economic Policy Institute 

Robert A. Blecker 

" NAFTA and the Peso Collapse: Not Just a Coincidence" 

• Does not support the Agreement. 

• Mr. Blecker disagrees with NAFTA promoters who argue that the peso devaluation and the ensuing 

depression of the Mexican economy in 1995 resulted solely from failed Mexican macroeconomic and 

exchange rate policies. While acknowledging that Mexico's macroeconomic and exchange rate 

policies were flawed, he argued that the peso had to be devalued in order to implement the export-led 

strategy for economic growth that NAFTA was intended to promote--a strategy that was pushed on 

Mexico by the U.S. government and the U.S. corporate interests that stood to profit from this 

agreement. In his view, Mexico had to devalue the peso in order to attract the direct foreign 

investment and export-oriented manufacturing that NAFTA was designed to promote. Mr. Blecker 

estimated that the devaluation of the peso lowered Mexican labor costs by 40 percent in dollar terms 

between 1994 and 1995. 

• In his view, the importance of devaluing the peso can be seen by comparing the impact of 

devaluation to the small reductions in NAFTA. At the start of the tariff negotiations the average 

tariffs in the United States were about 3.4 percent for U.S. imports and 10 percent for Mexican 

imports. In contrast, the peso appreciated by over 75 percent in real terms from 1987 to 1994 and 

then fell by about 50 percent from 1994 to 1995. Thus, none of the tariff reductions in NAFTA 

could have made much of a difference if the peso had remained as high as it was in 1993-94. In 

order for NAFTA to promote Mexican exports as intended, a significant devaluation of the peso was 

unavoidable. 

• Since the devaluation of the peso, the Mexican government has felt obligated to maintain tight fiscal 

and monetary policies in order to placate nervous investors and to suppress inflation. With these 

policies most Mexicans are not seeing the gains they were promised from NAFTA and the entire 

export-led strategy. Some Mexican workers have gotten export jobs, but only at real wages that are 

20 percent lower than they were in 1994. Meanwhile, Americans are not seeing the booming export 

market that they were promised in Mexico. Instead, lower Mexican labor costs are creating a 

substantial movement of manufacturing jobs to Mexico. 

• As an alternative to present policies, Mr. Blecker recommends, among other things, that Mexico 

should rely less on exports as a source of growth and should diversify its export markets away from 

an exclusive focus on the United States. 

Data source/methodology: 

Mr. Blecker obtained his tariff rate data from a 1991 study by the U.S. International Trade 

Commission. His exchange rate data came from the International Monetary Fund and his U.S. and 

Mexican wage data were obtained from the U.S. Department of Labor. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-86 

D-86
Economic Policy Institute 

Thea M. Lee 

"False Prophets: The Selling of NAFTA" 

• Does not support the Agreement. 

In the briefmg paper prepared in July 1995, Ms. Lee argues that NAFTA is having negative effects 

on both the United States and Mexico. She estimated that U.S. exports to Mexico would fall sharply 

in 1995 resulting in a trade deficit of up to $15 billion for the year and a loss of around 300,000 jobs. 

Since NAFTA's implementation, 61,000 U.S. workers have been laid off in plants that have filed to 

receive NAFTA-related adjustment assistance. Of these workers, the Labor Department has certified 

almost 35,000 to receive assistance. She also had estimated that Mexico would lose 800,000 jobs in 

1995 and that the Mexican economy would contract by around 5 percent with an inflation rate as 

high as 50 percent. While Ms. Lee does not attribute all of Mexico's problems to NAFTA, she does 

consider NAFTA to be an important contributing factor in the peso devaluation. 

• Ms. Lee considers Mexico's economic problems to be a result of policy changes in Mexico that 

began in the mid-1980s and have continued to the present. These policies included dramatic 

reductions of trade barriers, privatization of hundreds of state-owned firms, cuts in subsidies, 

market-oriented land reform, and dismantling of regulations on foreign investment and the financial 

sector. The author believes that these policies have been implemented too rapidly and thus, have had 

harmful effects on Mexican farmers and small- and medium-sized Mexican businesses. 

• Part of Ms. Lee's work is devoted to a critique of some observers' positive forecasts of NAFTA's 

first-year of. Some individuals and groups had forecasted large gains in new jobs and higher wages 

in both the United States and Mexico for 1995. While noting that these benefits had not 

materialized, the author also acknowledges that the full long-term impact of NAFTA (which is being 

phased in over a 10- to 15-year period) could not yet be gauged. 

• Ms. Lee argues that the labor and environmental side agreements relating to NAFTA have done little 

to mitigate NAFTA's harmful effects on workers and the environment. Despite the labor agreement, 

Mexican companies have continued to harass or fire workers who attempt to organize independent 

unions, with minimal interference from the government. She also argues that the environmental side 

agreement has failed to slow the environmental degradation along the border. She says that the 

North American Development Bank, which was set up to fund environmental clean-up and other 

development on a matching basis, has not funded a single project, largely because Mexican 

communities trying to fund projects were not able to come up with their matching shares. 

Data source/methodology: 

Forecasts of job losses, inflation and contraction in the Mexican economy were provided by the 

Mexican embassy. Forecasts of the job loss in the United States were obtained by using an 

employment multiplier also used by Hufbauer and Schott (1993). This multiplier allows for a change 

of about 19,000 jobs for every $1 billion change in net exports. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-87 

D-87
Economic Policy Institute 

Robert E. Scott, Economist 

"The Impact of NAFTA on Workers and Wages in the United States" 

• Does not support NAFTA. 

• NAFTA has led to a deterioration of the U.S. trade balance with both Mexico and Canada. The 

bilateral surplus with Mexico in 1993 of $1.7 billion became a deficit of $16.2 billion in 1996, and 

the U.S. deficit with Canada grew from $10.7 billion in 1993 to $22.8 billion in 1996. 

• NAFTA contributed to the Mexican peso devaluation and the surge of foreign direct investment in 

Mexico. 

• Because of the increased trade deficit with NAFTA partners, the United States has lost at least 

251,000 jobs to Mexico and 169,000 jobs to Canada. The largest losses were in the area of vehicles 

and parts. He estimated that approximately 27 percent of the job losses with Canada fell into this 

category while about 64 percent of the losses with Mexico were in vehicles and parts. 

• Increased trade with low-wage countries such as Mexico have led to a decline in the wages of bluecollar workers relative to white-collar workers. 

Notable Statistics: 

The job loss figures were calculated by multiplying the change in the trade balance with Canada and Mexico 

between 1993 and 1996 by 14,000 jobs per billion dollars of change. The 14,000-jobs-lost figure was based 

on a U.S. Department of Commerce estimate which stated that on average 14,197 jobs were needed to 

produce each billion dollars of exported goods. In applying a figure to the trade balance that was developed 

for exports only, they state that the net trade balance is more relevant than exports alone because increased 

imports displace U.S. jobs. The authors claim that the Mexican and U.S. governments maintained the value 

of the peso artificially high in 1993 and 1994 to ensure passage of NAFTA by the U.S. Congress and 

reelection of the PRI party in Mexico. After these events, Mexico devalued the peso to attract foreign direct 

investment. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-88 

D-88
Economic Policy Institute 

Robert E. Scott, Economist 

"North American Trade after NAFTA: Rising Deficits, Disappearing Jobs" 

Does not support NAFTA. 

In his briefing paper presented in July 1996, Mr. Scott stated that since NAFTA was implemented on 

January 1, 1994, U.S. trade balances with Mexico and Canada have steadily worsened, resulting in 

significant job losses. He estimated that the increase in the net export deficit with Mexico has 

resulted in the loss of 284,000 jobs (or job opportunities) since 1993 and that the increase in the net 

export deficit with Canada has resulted in the loss of 200,000 jobs. 

Mr. Scott estimated that the largest job losses resulting from trade with Mexico in 1995 were in 

transportation equipment (77,311 jobs) and electrical equipment (30,611 jobs). Principal industries 

in these sectors included motor vehicles and parts, radio and TV sets, and communications 

equipment. Large job losses were also recorded in computers, fruits, and vegetables. Job gains were 

estimated for electronic components. 

In the case of Canada, the largest job losses in 1995 occurred in paper products (48,576 jobs). Other 

sectors experiencing major job losses included transportation equipment and primary metals. Gains 

were registered in electronic equipment and lumber and wood products. 

Mr. Scott disputes arguments presented by some analysts that the United States has benefited from 

NAFTA because exports have grown to both countries. He says that it makes little sense to consider 

only the employment-creating consequences of exports while ignoring the employment-displacing 

effects of imports. Many imported goods, such as automobiles imported from Mexican assembly 

plants, replace goods that were made in U.S. factories that have closed or downsized. In addition, 

some of the new exports to NAFTA partners consist of parts and other inputs that previously 

supplied assembly lines in the United States. 

Data source/methodology: 

International trade statistics used were obtained from the U.S. Department of Commerce. In 

estimating the employment effects of trade, an employment multiplier is used that allows for 15,382 

jobs to be created for every $1 billion of exports. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-89 

D-89
EDS 

Carla Dancy, Manager, International Trade Issues, Office of Government Affairs 

Statement to the U.S. International Trade Commission 

EDS is very optimistic about the growth potential in the Mexican information technology market. 

The implementation of NAFTA has brought more competition to previously protected Mexican 

industries and this forces Mexico to invest in more current processes and technology to keep pace 

with these new market forces. 

As the world becomes a truly global economy, companies develop a need to become more efficient in 

order to compete and sell on a worldwide basis. This need, which has been stimulated by NAFTA, 

offers opportunities for EDS to provide business process re-engineering to existing customers who 

are now venturing outside the Mexican borders. 

• NAFTA has created jobs. In the three years prior to NAFTA (1990-93), EDS employment in 

Mexico increased by 34 percent. During the three years since NAFTA's implementation (1993-96), 

employment increased by an additional 45 percent. 

• In Canada, EDS employment increased by 30 percent during the NAFTA period. These were new 

jobs, not replacements of lost U.S. jobs. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-90 

D-90
El Paso Hispanic Chamber of Commerce 

David Porras, Chairman of the Board 

Letter to the U.S. International Trade Commission Regarding NAFTA's Economic Effects 

• Supports the Agreement. 

• Since the implementation of NAFTA, Mexico has become the largest market worldwide for export 

products classified under the Harmonized Tariff Schedule. 

• The strong growth in U.S. exports to Mexico under NAFTA has been geographically broad-based. 

44 U.S. states experienced growth in export sales to Mexico in 1996. 

• NAFTA joins its member countries to create new opportunities for business growth and higherpaying export-related jobs in all three markets. 

• New supplier bases will continue to develop. and trade opportunities will continue to expand. 

Notable statistics: 

• Mexico now accounts for 10 percent of worldwide U.S. agricultural exports; 23 percent of U.S. 

apparel and other textile products; 21 percent of rubber and plastic products; 17 percent of fabricated 

metal products; and 13 percent of electronic and electrical equipment. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-91 

D-91
Fabricas Orion, Procesadora de Ceramica de Mexico, S.A. de C.V., Sanitarios Azteca, S.A., and 

Vitromex, S.A. 

Steven P. Kersner and Roger Banks, Kersner & Associates--OF COUNSEL 

An Analysis of the Effects of the North American Free Trade Agreement on the U.S. Sanitary 

Ware Industry - a pre-hearing brief 

Three general types of sanitary ware end-users exist in the United States: (1) high-end residential; 

(2) non-residential, commercial; and (3) functional, low-priced sanitary ware. Sanitary ware 

produced in Mexico and other countries, generally supplies the latter market, which is less 

discriminating and price sensitive. The majority of the U.S. industry's domestic sales are to the highend residential and the non-residential commercial markets. Growth in the home construction and 

home remodeling industries has helped boost demand for sanitary ware of all price ranges. An 

increase in domestic demand was a contributing factor to the growth of U.S. imports from Mexico. 

The benefits of NAFTA to the sanitary ware industry include: (1) reducing the advantages of nonNAFTA sanitary ware producers; (2) reducing the disadvantage of Mexican sanitary ware in the U.S. 

market (vis-a-vis other sanitary ware exports with duty-free treatment under other U.S. preferential 

programs); (3) facilitating the U.S. sanitary ware industry's improvement of quality, design and 

productivity; increasing the industry's competitiveness in the global market and benefitting the 

consumer; (4) expanding the ability of the U.S. industry to market products in Mexico and displace 

non-NAFTA exports; averting domination of the Mexican market by large non-NAFTA competitors 

under Mexico's trade liberalization laws and free trade agreements; and (5) furthering the central 

purposes of NAFTA, as Mexican imports displace low-end imports from non-NAFTA countries. 

The following effects have not occurred (and will not occur) as a result of NAFTA: (1) imports from 

Mexico have not increased; (2) any increase in low-end Mexican imports will not harm the U.S. 

industry, which sells overwhelmingly to mid- and upper-range segments; (3) the Mexican industry 

will not gain competitive advantages over the United States from labor cost differences, because the 

U.S. industry is increasing automation and moving away from labor intensive production techniques; 

(4) neither will the Mexican industry gain competitive advantages from differences in environmental 

controls, in view of the Mexican industry's state-of-the-art environmentally safe production facilities. 

Predictions of continued growth and profitability in the U.S. sanitary ware industry are based on 

favorable trends. The existence of free trade between Mexico and the U.S. will contribute to the 

Mexican industry's ability to continue modernization of sanitary ware plants. 

Mexican producers note that the decline in U.S. exports to Mexico of sanitary ware products was 

mainly a result of the peso devaluation. Without the incentives of NAFTA, exports to Mexico would 

likely have fallen further. The producers contend that demand for U.S. building products, including 

sanitary ware, will increase as the Mexican economy strengthens. 

Notable Statistics: 

• Sixteen pages of statistics on imports, exports, shipments, and housing starts, based largely on 

Census data are included. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

• 

• 

• 

• 

D-92 

D-92
Fabricas Orion, Procesadora de Ceramica de Mexico, S.A. de C.V., Sanitarios Azteca, S.A., and 

Vitromex, S.A. 

Steven P. Kersner and Roger Banks of Kersner & Associates--OF COUNSEL 

Analysis of the Effects of the North American Free Trade Agreement on the U.S. Sanitary 

Ware Industry and the U.S. Economy - a post-hearing addendum (May 22, 1997) 

• Supports the Agreement. 

Comparing the 1995 peso devaluation to the Mexican financial crisis of 1982: "In 1995... instead of 

reacting to the crisis by restricting U.S. exports, Mexico continued to reduce [trade bathers] in 

accordance with its obligations under NAFTA. At the same time, Mexico placed additional 

restrictions on imports from non-NAFTA countries." This resulted in an increase of the U.S. share 

of Mexico's total import market while exports from Western Europe, Japan, and Korea to Mexico 

fell. 

"The quick recovery from the 1994 peso crisis, when compared to the years of recovery required 

after the 1982 crisis, demonstrates yet another beneficial effect of NAFTA on both the United States 

and Mexican economies." 

• The large change in the U.S.-Mexico trade balance between 1994 and 1995 is attributed to the "peso 

crisis" and severe recession. The peso devaluation is not attributed to NAFTA. Instead, NAFTA 

helped reduce the negative effects of the crisis. These arguments are supported by a Federal Reserve 

Bank of Dallas article, and a citation from the USTR. 

• "We believe that NAFTA has provided significant benefits to the U.S. economy as a whole, and the 

U.S. sanitary ware industry in particular. As the remaining impediments to free trade are gradually 

removed under NAFTA, these early promises of growth will mature into even greater economic 

benefits for all three NAFTA economies." 

Notable statistics: 

U.S. jobs supported by export of goods pay 13 to 16 percent more than U.S. jobs overall (USTR). 

• 

• 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-93 

D-93
Farmland Industries, Inc. 

Steven P. Dees, Executive Vice President of Corporate Relations, Communications and 

International Services 

Hearing Statement before the U.S. International Trade Commission 

• Strongly supports NAFTA. 

• Farmland industries, Inc. is a farmer-owned cooperative with over 1,400 local members in 22 

Midwestern states, Mexico, and Canada. Over 13,000 livestock producers are also members. 

Farmland sells inputs to members and assists them in processing and marketing. 

• In 1993, Farmland's grain sales amounted to just 300,000 metric tons. During its 1996 fiscal year, 

Farmland's sales to Mexico were 1.9 million metric tons and are expected to substantially exceed 2 

million tons in the current fiscal year. 

• Sales of its subsidiary beef packing company increased from $14 million prior to NAFTA to $28 

million in 1996. Also its pork operations increased Mexican sales from $1.7 million in 1993 to $3.5 

million in 1996. 

• Overall, Farmland increased its sales in Mexico from less than $50 million in 1992 to nearly $450 

million in 1996. Increasing farm exports to Mexico depend upon Mexico's economic well being. 

NAFTA has enabled Mexico to recover and expand trade with the United States and Canada. 

• The protein consumption of the average Mexican is far below the levels for the United States. Mr. 

Dees believes that as the economic condition of the Mexican consumer improves, these consumers 

will spend more money on meat, eggs, and dairy products. As Mexico comes out of its crisis, he sees 

nothing but increasing opportunities for its members. 

• Since the United States ratified NAFTA, new regional and bilateral free trade agreements have been 

aggressively pursued by U.S. neighbors. Mr. Dees believes that the most important new agreements 

are the Canada/Chile, the South American Southern Cone (MERCOSUR) and Association of South 

East Asian Nations (ASEAN) agreement. Equal access to these growing markets is important to the 

future of U.S. agricultural trade. He is concerned that the United States may not be adequately 

represented at the negotiating table on new agreements since "fast-track" expired with the approval 

of NAFTA. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-94 

D-94
Federal Reserve Bank of Chicago 

Michael Kouparitsas, Economist 

Testimony before the U.S. International Trade Commission 

no written submission provided 

• Dr. Kouparitsas summarized his research from "A dynamic macroeconomic analysis of NAFTA" 

Economic Perspectives (Jan./Feb. 1997). 

Kouparitsas stated that "although NAFTA has been in place for over 3 years, it is still too early to 

measure the long run impact ... from available data sources." He further states that it is "difficult to 

measure the short run impact of NAFTA from casual observation of trade, expenditure and output 

data. Since accurate measurement of NAFTA's short run effects requires disentangling cyclical 

features not directly related to NAFTA from those that are driven by NAFTA." 

• Kourparitsas recommends simulation analysis involving computable general equilibrium (CGE) 

models be used to study the short and long run impact of the Agreement, and discussed his research 

on the effects of NAFTA using his dynamic CGE model. 

Two primary findings: First, NAFTA will lead to an increase in output or welfare for all signatories, 

with the largest gains occurring to Mexico. Specifically, the author finds that U.S. GDP is predicted 

to expand by one-fourth percent point while Canadian GDP is expected to increase by about onetenth of a percentage point. In the long run, Mexico is predicted to experience a permanent increase 

in GDP of about 3 and one-fourth percent. 

• The second finding is that the transition to the new liberalized environment will be characterized by 

an expansion of all sectors in the United States and Mexico. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-95 

D-95
Federal Reserve Bank of Dallas 

David M. Gould, Senior Economist and Policy Advisor 

Statement to the U.S. International Trade Commission 

• "I have no political agenda nor personal economic interest in the trade accord, so perhaps I can give 

an unbiased assessment of NAFTA." 

• NAFTA has had a statistically significant and important positive effect on trade flows between the 

United States and Mexico since NAFTA's implementation. However, NAFTA's effect on U.S.-

Canada trade is not significant most likely because of the already low tariffs due to the U.S.-Canada 

FTA. 

• Both exports and imports between Mexico and the United States are 20 percent higher than they 

would have been if NAFTA had not been ratified. 

• In distinguishing the Mexican peso crisis from NAFTA, U.S. exports to Mexico would have 

increased by 13 percent in 1995, rather than decline by 11 percent, if the peso crisis had not occurred. 

U.S. imports were not significantly affected by the peso crisis because the United States was not 

experiencing a recession at that time. 

• In other research, the author has found that overall unemployment is unrelated to increasing total 

U.S. trade flows. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-96 

D-96
First National Bank of Chicago 

Diane C. Swonk, First Vice President/Deputy Chief Economist, Economics Group 

"Payoffs to the North American Free Trade Agreement for Manufacturing Industries in the 

Midwest" (May 1997) 

• Supports the Agreement. 

• Canada and Mexico are two of the United States' largest purchasers of durable goods. For example, 

U.S. exports of light vehicles to Mexico increased by 30 percent in 1996. 

• Prospects for growth in both Canada and Mexico are good, especially when compared to Japan and 

Europe. Projected growth of gross domestic product ranges from 3.3 to 5.0 percent for Canada and 

Mexico for 1997 and 1998 while projected growth rates for Western Europe and Japan range from 

1.6 to 2.7 percent. 

• Trade with Mexico is a step towards increasing trade with other Latin American countries. 

Caterpillar, which exports roughly 40 percent of its production, ships mainly to Latin America. 

Case, another large equipment producer, exports approximately 20 percent of its production to Latin 

America. 

• Japanese companies have invested heavily in plants in the United States, Canada, and Mexico. 

Unless these plants increase their North American content, however, they will be precluded from the 

benefits of NAFTA. This could help to alleviate the pressure created by the dollar's recent 

appreciation to import from Japan. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-97 

D-97
State of Florida 

The Honorable Dan Miller, 13th District, State of Florida 

The Impact of the North American Free Trade Agreement on the U.S. Economy and 

Industries: A Three Year Review 

• Supports NAFTA. 

• Congressman Miller's district is the second largest tomato-producing region in Florida. 

• Congressman Miller believes that the "volume-based snapback provision," "the automatic price 

monitoring," and the "expedited import relief' mechanisms have failed. It was these measures that 

the President stated in his letter dated November 16, 1993, to Representative Tom Lewis, that were 

supposed to provide Florida's fresh fruit and vegetable growers with a 10-year phase-in period to a 

free market. However, due to the peso crisis and the desire of the Mexicans to acquire U.S. dollars, 

the U.S. market was flooded with Mexican tomatoes that were priced below the cost of production. 

This led to many tomato growers losing their farms in Florida. The ITC found in favor of the U.S. 

tomato growers, that dumping had occurred. A five-year suspension agreement with Mexican 

producers was negotiated by the U.S. Department of Commerce. The fact that the United States had 

to resort to such measures underscores the failures of some of NAFTA's enforcement provisions. 

Congressman Miller believes that the ITC and Congress should address the snapback provision, the 

price monitoring, and the expedited import mechanisms before any consideration for extending 

NAFTA to other countries is carried out. 

Congressman Miller suggests the ITC include in its review of NAFTA an examination of Mexican 

regulatory practices in the agricultural sector. He also recommends that Congress pass a good 

country of origin labeling law so that consumers can make informed choices in the grocery store. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-98 

D-98
State of Florida 

Bob Crawford, Commissioner of Agriculture, Florida Department of Agriculture and 

Consumer Services 

Submission to the U.S. International Trade Commission 

• Does not support the Agreement. 

• To demonstrate the importance of Florida in the agricultural industry, Mr. Crawford stated that 

Florida is the nation's second largest producer of fresh vegetables in terms of value. Florida 

agriculture is described as highly competitive in international markets with $1.2 billion in exports. 

• The author states that "competitiveness of the industry is dependent upon the fairness and 

consistency of rules governing international trade." 

Crawford asserts that the needs of seasonal and perishable agriculture is different than other goods 

and that NAFTA has failed to meet these needs. Specifically, the safeguard provisions have proven 

inadequate when tested (especially with respect to fresh chilled tomatoes and peppers). According to 

Crawford, the law does not recognize the fact that severe and irreparable injury can occur to one part 

of the nation as a result of increased imports. 

The author stated that his concerns include the need for (1) an effective price based safeguard 

mechanism for sensitive perishable commodities, (2) enforcement of food safety requirements, (3) 

adequate rules on sanitary and phytosanitary issues, (4) harmonization of pesticide and 

environmental regulations, (5) open market access and (6) consistency or equivalency in labor and 

worker safety requirements. 

• 

• 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-99 

D-99
State of Florida 

The Honorable Bob Graham, U.S. Senator 

Statement before the U.S. International Trade Commission 

• The effects of Mexican tomatoes being dumped on the market had a huge impact on the Florida 

tomato industry. In the 1992-93 growing season, the Florida tomato industry made up 56.4 percent 

of the market share compared to 28 percent for the Mexican tomato producers. In the most recent 

growing season (1995-96), Mexican growers had increased their share of the market to 49.5 percent 

while the Florida producer's share dropped to 35.1 percent. 

• The suspension agreement with Mexican tomato growers, which prohibits Mexican growers from 

selling tomatoes below a specific price, has worked relatively well for both the Florida growers and 

the Mexican growers. However, in his view, the enforcement of this agreement has been 

problematic. 

Senator Graham questions whether the safeguards provided for in NAFTA are sufficient to allow 

U.S. industries injured as a result of unfair trade practices to seek effective redress. He also raises 

the question of whether there are other factors, such as the seasonality of agricultural products, that 

should be taken into account when the United States is negotiating future trade agreements. 

He believes that these questions are of particular importance as we begin to discuss the accession of 

China into the WTO, the accession of Brazil into NAFTA, and fast track authority for future trade 

agreements. 

• 

• 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-100 

D-100
State of Florida 

Dennis W. Harmon, Director of the Office of Tourism, Trade and Economic Development, 

Executive Office of the Governor 

• Florida has substantial trade and tourism with Canada and Mexico, although it experienced some 

fluctuations resulting from post-NAFTA monetary adjustments. Most of Florida's trade with 

Mexico and Canada travels over land by truck or rail, and thus, is not captured by the port 

merchandise trade data. Agricultural products are the principal exports to Canada from Florida, 

followed by industrial machinery, computers, and electric and electronic equipment. Florida's main 

exports to Mexico in 1996 were industrial machinery and computer equipment. 

The major benefits to Florida from NAFTA are likely to come in the longer term both with expansion 

of hemisphere free-trade agreements based on NAFTA and with the strengthening of the Canadian 

and Mexican economies. Florida's geographic position, first rate trading infrastructure, and cultural 

ties to Central and South America position the state ideally to benefit from increased U. S. commerce 

with the nations of this region. For example, Brazil is Florida's number one trading partner. Chile, 

the nation most likely to join NAFTA in the near term, ranked 11th in value of Florida-origin exports 

in 1996. For this reason, Trade Expansion Authority or the "fast-track" legislation is very important. 

There is evidence of some job losses in Florida's agriculture, food -processing, and apparel 

industries. It is likely that these contractions are, in part, due to direct competition with Mexico. It is 

important that work continue in establishing fair, effective remedies for these impacts. Employment 

in food processing declined by 2 percent during 1993-96 and employment in apparel manufacturing 

declined by 7 percent during these years. 

Enactment of NAFTA removed most of the regional competitive trading advantages for the 

Caribbean Basin nations. Florida stands to benefit greatly from a strengthening of the economies in 

this region. The issue of parity for the Caribbean nations is central to a discussion of the future 

direction of NAFTA. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-101 

D-101
State of Florida 

The Honorable Porter Goss, 14th District, State of Florida 

Statement to the U.S. International Trade Commission 

• Congressman Goss is a supporter of NAFTA, but as a representative of one of the most prolific 

vegetable- and fruit- producing areas of Florida, he believes that there are some enforcement issues 

that need to be addressed before NAFTA can responsibly be expanded. 

The congressman believes that a number of issues should be examined by the U.S. International 

Trade Commission before a possible expansion of NAFTA. These include the extraordinary length 

of time it took for effective relief for winter fruit and vegetable growers in crisis, the apparent failure 

of the resolution process (particularly for seasonal growers), and reported delays in the collection of 

statistics required to monitor trade and trigger existing safeguard mechanisms. 

Congressman Goss believes that the United States can come to terms with these Mexico-related 

issues and move forward with the process of opening markets to American goods, services, and 

products, but first that means ensuring U.S. laws relating to current trade under NAFTA are fully 

enforced and fully enforceable. 

Other concerns include the availability of trade statistics from Mexico; the enforcement of U.S. 

health and safety regulations on imported produce; reports of increased drug trafficking with 

expansion of trade; and safeguarding, monitoring, and resolution process measures. 

Notable statistics: 

• Unfair Mexican trading practices have led to 200 Florida farmers going out of business and $700 

million in economic losses. 

• 

• 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-102 

D-102
Florida Citrus Mutual 

Bobby F. McKown, Executive Vice President and CEO 

Statement before the U.S. International Trade Commission 

The impact of NAFTA, thus far, should in no way be considered a model of the potential effects of 

an FTAA (that includes citrus) because the circumstances would be very different. One of the 

greatest differences is that Brazil has the world's largest citrus industry. 

Under NAFTA, U.S. imports from Mexico of frozen orange juice more than doubled between 1993 

and 1994; imports grew by almost 50 percent between 1994 and 1995; and then imports fell 

somewhat between 1995 and 1996. In all three years, Mexican frozen orange juice imports exceeded 

the tariff rate quote level. 

In 1996, imports of orange juice from Brazil were 3 times greater than the Mexican level. In 

addition, Brazil's citrus industry does not face the same irrigation and other infrastructure limitations 

that exist in Mexico. Brazil's domestic competition for fresh oranges allows it to export a greater 

proportion of its production than Mexico. Brazil's production capacity is much larger than that of 

Mexico (during 1995-96, Brazil produced five-and-a-half times as many oranges as Mexico). 

Lastly, Brazil's citrus industry is highly concentrated—four industries control 80 percent of 

production—and has been found to engage in both sales at less than fair value and in receipt of 

countervailing subsidies. The author points out that an antidumping order remains in effect. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-103 

D-103
Florida Farmers and Suppliers Coalition, Inc. 

R. Jay Taylor, President, Taylor & Fulton, Inc. 

"Perspective of U.S. Vegetable Farmer" 

• Does not support NAFTA. 

• Mr. Taylor manages a business that produces cucumbers, peppers, and tomatoes on farms in Florida, 

Georgia, and Virginia. 

• Mr. Taylor states that the impact of NAFTA is evident in the small agricultural communities in the 

states where he manages farms. He asserts that although his business is modem and efficient, it 

cannot compete with corporate farms in Mexico that do not operate according to the same labor and 

environmental rules. 

Mr. Taylor reported that he contracted a film company to document agricultural practices in Mexico. 

He has footage depicting young children working with adults in the field, reckless use of pesticides, 

use of contaminated water for irrigation and consumption, and other unsanitary practices. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-104 

D-104
Florida Fruit & Vegetable Association 

Reginald L. Brown, Director of Marketing and Membership 

Statement to the U.S. International Trade Commission 

• Does not support the Agreement 

• Florida's vegetable industry has experienced greatly increased competition from Mexican imports 

since 1994. This is attributed to the implementation of NAFTA and the 1995 peso devaluation. 

• Since the implementation of NAFTA, "considerable investment capital has flowed into the Mexican 

industry from non-traditional sources." In addition, changes in Mexican technology have 

"dramatically increased yields, which has both increased Mexico's volume and reduced their per-unit 

costs." The productivity gains and lower value of the peso have combined to enhance Mexico's 

position in the marketplace. 

• The impact on Florida's tomato industry has been the most dramatic. Florida's share of the U.S. 

tomato market has declined from 56.4 percent in the 1992-93 season to 35.1 percent in the most 

recent season. Mexico's share of the U.S. tomato market increased from 28 percent in 1992-93 to 

49.5 percent in 1995-96. Other Florida commodities have also been affected. Mexican shipments of 

bell peppers, cucumbers, squash, eggplant, beans, and sweet corn increased substantially during the 

period, particularly in the 1995-96 season. 

• While Florida's tomato acreage, shipments, crop value, and market share have all declined, an 

antidumping petition by the U.S. tomato industry (March 1996) regarding Mexican predatory pricing 

led to a suspension agreement that established a floor price for Mexican tomatoes. 

• "Inadequacies of NAFTA's safeguard mechanisms, combined with serious deficiencies in the 

application of U.S. trade laws, place Florida's import-sensitive fruit and vegetable growers in serious 

jeopardy." Examples include the volume-based tariff rate quota mechanism, Section 201/202 and 

monitoring provisions in NAFTA. 

• Contrary to the Sanitary and Phytosanitary Pact, Mexico has stalled access for many U.S. fruits and 

vegetables by refusing to adopt relevant standards or work plans. 

• "Virtually all of the pre-NAFTA impact predictions on Florida agriculture grossly underestimated 

the damage suffered by the industry in a very short time." 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-105 

D-105
• 

• 

Florida Tomato Exchange 

Wayne Hawkins, Executive Vice President 

Statement to the U.S. International Trade Commission 

• Does not support the Agreement 

Mr. Hawkins expresses concern about illegal drug trafficking. The top producing area of Mexican 

tomatoes is also, according to the FDA, the "number one assembly point for illegal drugs shipped to 

the United States." 

• Original estimates of harm that would occur to the Florida Perishable Agricultural Industry were 

lower than actual outcome due to the 1995 peso devaluation. This is because the devaluation "erased 

any advantage of NAFTA for America and forced Mexico to increase exports." 

• Mr. Hawkins believes that numerous laws passed by the U.S. government to regulate Florida growers 

have not been applied to Mexican imports. These laws include those relating to grade, size, quality 

or maturity of products. He also believes that other provisions relating to country of origin labeling 

and fertilizer and pesticide use are not being fairly applied. 

Mr. Hawkins argues that the government promised that the Florida tomato industry would be 

protected and that there would be safeguard provisions in NAFTA when it would go into effect. 

However, in his view the promises were not kept and the safeguard provisions were tried but did not 

provide any relief. He said that the industry has suffered losses of hundreds of millions of dollars 

and that thousands of workers have been displaced. 

• The author cites U.S. Department of Commerce data that the U.S. trade deficit has increased in each 

year of NAFTA. In addition, the author points out that while trade has increased in both directions 

between the United States and Mexico, an "enormous trade deficit with Mexico which was not 

present prior to NAFTA" has developed. 

• Mr. Hawkins argues that "good paying jobs will be replaced by minimum wage jobs and the standard 

of living ... lowered." 

Notable statistics: 

• According to the Los Angeles Times: "Boosters, including the President, predicted that NAFTA 

would create 200,000 high-paying jobs for American workers. Instead, using the Commerce 

Department's formula, as many as 600,000 jobs may have been destroyed as U.S. factories fled to 

Mexico." 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-106 

D-106
Fluke Corporation 

Ronald R. Wambolt, Senior Vice President, Worldwide Marketing, Sales & Service 

Letter to the Office of The Special Trade Representative 

• Supports the Agreement. 

• Lower import duties has allowed the company to lower its prices, thus allowing customers "to buy a 

little more." 

• A major benefit from NAFTA has been "the great stimulant to... sales to Mexico caused by Mexico's 

much stronger economy as a result of NAFTA." 

• Fiscal 1997 sales to Mexico have increased by 96 percent over the previous fiscal year. 

• More sales to Mexico have increased the company's demand for labor— "probably 15 to 20 jobs." 

• "We are not aware of any negative impact on our U.S. sales because of NAFTA." 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-107 

D-107
Fresh Produce Association of the Americas 

Lee Frankel, President 

Oral Testimony before the U.S. International Trade Commission 

no written submission provided 

• The Fresh Produce Association of the Americas is a trade association of U.S. firms that market and 

distribute fresh produce, primarily from Mexico, and also export U.S. agricultural inputs and services 

to growers in Mexico. Association members also export and ship produce to other regions of the 

world, including Europe, Asia, and Canada. The association was founded over 50 years ago with 

headquarters in Nogales, Arizona. This year the association is estimating that its members will 

handle about $1.2 billion of sales of produce from Mexico. 

• According to Mr. Frankel, the view of the Florida tomato industry is that a good Mexican tomato is 

one that is rotting on the vine in Sinaloa. The Fresh Produce Association of the Americas (the 

Association) does not share the antagonistic views of the Florida growers because the production 

areas, Mexico and Florida, complement each other. Neither could adequately supply the U.S. market 

by itself. According to the Association, Florida's insistence on this bitter rivalry been both 

destructive to the industry, as well as self-defeating. 

• Consumers are now turning more and more to new sources of tomatoes, such as greenhouse and 

hydroponic product. Mexico's share of the import market fell last year because of increased 

shipments from other competitors, such as The Netherlands and Canada. 

• The main reason for increased imports is the improvement of produce quality from Mexico, allowing 

distributors to sell and retailers to carry the right produce for consumers With a few exceptions, 

imports of fresh fruits and vegetables from Mexico have not significantly been affected by NAFTA 

tariff reductions. This is because of the tariff reductions or the low tariffs in place before the 

NAFTA. For many items there are additional tariff rate quotas and long phase-outs of up to 15 

years. 

• Mr. Frankel also stated that one area that NAFTA has had a very favorable effect on is the business 

climate that has now been established between the United States and Mexico. U.S. businesses can 

now make the investments, plan ahead, increase the inventories, increase the employment, and set up 

long-range business patterns, knowing that the legal and economic foundations have been codified 

through NAFTA. 

• NAFTA makes possible the combining of U.S. marketing expertise and capital with the Mexican 

farm management and ideal climate necessary to grow many of these winter vegetables. The 

combination of these factors create globally competitive firms that market and export throughout the 

world. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-108 

D-108
Fort Worth Chamber of Commerce 

Terrance J. Ryan, President and CEO 

Statement to the U.S. International Trade Commission 

• Fort Worth Chamber of Commerce unanimously endorses NAFTA. 

• NAFTA has given Forth Worth area companies increased access to a huge single [North American] 

market. 

• Texas exports more goods and services to Mexico than any other state. As a result, export-related 

jobs in Texas have increased by 8.97 percent in 1996 since 1994, and by 20.4 percent from 1995 to 

1996. 

• Canada is Texas' second largest trading partner (after Mexico), and 1996 exports are 7.4 percent 

greater than 1995 totals. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-109 

D-109
Glacier County Commissioners 

Dan Geer, Chairman 

Letter to the U.S. International Trade Commission 

• The author expresses concern over the importation of livestock and grain into the United States. 

• "The flow of Canadian livestock and grain coming south [from Canada] has certainly had a negative 

effect on our local markets." 

The author states that he finds "it especially discouraging that other foreign countries can import 

through [Canada and Mexico] by just relabeling the meat." 

Mr. Geer points out that when the United States tries to export cattle to Canada, it experiences 

difficulty from the required tests and quarantine time. 

The author argues that when trade is liberated between countries with disparate standards of living, 

the country with the highest standard of living will experience a decline in its own standard of living. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-110 

D-110
Greater Dallas Chamber 

Richard Douglas, President 

Letter to the U.S. International Trade Commission Regarding NAFTA's Economic Effects 

• Supports the Agreement. 

• Wholesale/retail trade comprises 25 percent of the local economy and is the second largest 

employment sector. 

According to a recent study by the Federal Reserve Bank of Dallas, trade with Mexico comprises a 

bigger share of Texas' economy than oil and gas extraction. The state's merchandise exports 

account for more than 15 percent of the state's GDP (more than any other border state). 

Dallas/Fort Worth's total trade with Mexico equaled $618 million in 1995, an increase of 46.3 

percent over the past 4 years. Dallas/Fort Worth's exports to Canada in 1995 totaled over $149 

million—a 27 percent increase over the past 4 years. 

• Furthering international trade opportunities leads to overall job growth and an enhanced quality of 

jobs. 

• 

• 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-111 

D-111
Greater San Diego Chamber of Commerce 

Gilbert A. Partida, President 

"The Impact of the North American Free Trade Agreement On The San Diego Economy" 

• Supports NAFTA. 

• International trade currently accounts for one-third of San Diego's manufacturing industry. 

Manufacturing remains San Diego's largest economic sector in dollars generated. 

• San Diego is the largest border community in the United States. The San Diego/Tijuana region is the 

busiest border in the world. 

• In 1993, the year before NAFTA, San Diego's economy was still in a recession, and its 

unemployment rate reached 8.4 percent. San Diego's unemployment rate is 4.3 percent. In the three 

years that NAFTA has been in effect, San Diego's gross regional product has increased by a total of 

20.7 percent, including growth of approximately 9 percent in 1996. 

• San Diego exports to Mexico have increased by 66 percent during the last three years. Over 42 

percent of everything San Diego exports goes to Mexico. This makes Mexico more important to San 

Diego's economy than its next ten most important export markets combined. 

• Seventy percent of San Diego businesses polled feel that NAFTA has benefited their local economy, 

while 7 percent feel negatively. 

• Existing barriers to trade need to be addressed during the upcoming NAFTA review period. 

Adequate infrastructure to facilitate a smooth flow of goods across the border is one of the most 

pressing needs as far as NAFTA implementation is concerned. Implementation of the NAFTA 

trucking provisions is needed to facilitate cross-border trucking. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-112 

D-112
The Heritage Foundation 

Robert P. O'Quinn, Policy Analyst for International Economics and Trade, Asian Studies 

Center 

Statement to the U.S. International Trade Commission 

• Supports NAFTA. 

• Under NAFTA, two-way trade with both Canada and Mexico has expanded, climbing from $293 

billion in 1993 to $420 in 1996, a gain of $127 billion or 43 percent. Because of NAFTA average 

Mexican tariffs on U.S. goods exports have fallen from 10 percent in 1993 to less than 6 percent in 

1996. As a result, U.S. exports to Mexico grew substantially. Exports to Canada also increased 

greatly during this period. 

• Because of NAFTA, average Mexican tariffs on U.S. goods exports have fallen from 10 percent in 

1993 to less than 6 percent in 1996. 

• The combined U.S. trade deficit with Canada and Mexico increased during the first three years of 

NAFTA implementation from $9 billion in 1992 to $40 billion in 1996. Nevertheless, the U.S. 

economy has created 12 million new jobs since 1992. The overall unemployment rate declined form 

7.5 percent in 1992 to 5.3 percent in 1996. 

• NAFTA has boosted U.S. high technology exports to Mexico. NAFTA has encouraged firms to 

relocate low-skill, low-wage, labor-intensive clothing and footwear factories from East and Southeast 

Asia to Mexico. This productions shift benefits American manufactures and their workers because 

Mexican factories are more likely to acquire their capital goods and production inputs from the 

United States than from factories located in Asia. 

• A comparison of the average annual growth rate of real per capita gross domestic product, real 

disposable personal income, and real personal consumption expenditures in the three years before 

NAFTA with the following two years, shows a dramatic improvement in the living standards of U.S. 

workers. For example the average annual real per capita GDP growth rate accelerated from 0.23 

percent in 1990-93 to 1.79 percent in 1994-95. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-113 

D-113
State of Illinois 

Jim Edgar, Governor 

Statement to the U.S. International Trade Commission 

• Supports NAFTA. 

• Governor Edgar believes Illinois is one of the biggest beneficiaries from NAFTA. Illinois' exports 

have increased, as has state economic growth, and most importantly, jobs have been created. 

• Exports to Mexico have increased by 35 percent since 1993. Exports to Canada have increased by 

36.8 percent since 1993; Canada continues to be Illinois' largest trading partner. 

• The Governor believes in expanding NAFTA to other countries Illinois exports to Chile over the 

last three years have increased by over 12 percent. 

• 1996 figures show that over 145,000 Illinois jobs are supported by exports to NAFTA countries. A 

recent University of Illinois study concluded that one out of every five manufacturing jobs in Illinois 

is directly tied to the production and distribution of exports. The study also concluded that trade with 

Mexico is expected to add over 10,000 more jobs over the next 10 years. 

• The governor believes NAFTA is extremely important to the continued strength and growth of the 

Illinois economy. NAFTA works for Illinois. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-114 

D-114
State of Indiana 

The Honorable Steve Buyer, 5th District, State of Indiana 

Statement to the U.S. International Trade Commission 

Supports the Agreement. 

• There has been some job displacement, "but much of that would have occurred had there been no 

NAFTA." 

• Complains about the Clinton administration's unilateral delay of key provisions of the Agreement, 

and how these delays have a risk of undermining the integrity of the Agreement. A specific example 

is a provision on commercial truck border crossings. 

• The author points out that NAFTA does not lessen any member nation's safety standards. Pursuing 

his example of commercial trucking, Mexican trucks should not enter the United States unless they 

meet all U.S. safety standards, and vice versa for U.S. trucks entering Mexico. To deal with this, 

"the national organization representing commercial vehicle law enforcement officials has looked into 

this whole question and has helped design a strong enforcement system in the border region." 

• Based on the cited provision, specific orders were placed for construction of new trucking equipment. 

However, when the Clinton administration backed out of the agreement, orders were canceled and 

jobs were lost. 

• The author argues that when "the United States doesn't stand by its commitments, American families 

pay the price." This can be seen by the retaliation Mexican authorities began when the United States 

backed out of the commercial trucking provision. 

• As a consequence of the U.S. action in this example, the author argues that U.S. truckers have lost 

jobs since they needed to transfer loads at the U.S.-Mexico border. This raised the cost of shipment, 

which raised the cost of the final good, "ultimately costing the consumer." 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-115 

D-115
Institute for International Economics 

Gary Hufbauer, Senior Fellow, Jeffrey J. Schott, Senior Fellow, and Jacqueline McFayden, 

Research Assistant 

"NAFTA and the U.S. Economy: A Brief Comment" 

• The authors support NAFTA. 

• U.S. merchandise exports to Mexico have increased significantly faster than U.S. exports to the rest 

of the world (the same can be said for U.S. imports from Mexico, compared to the rest of the world). 

• The numbers of jobs lost or created are not reflective of NAFTA's success or failure; trade 

agreements can, at best, be considered on the microeconomic level of the composition of jobs, not the 

macro level of overall employment. 

• Infra-industry trade has significantly grown between United States and Mexican firms leading to a 

sorting out of industries along competitive strengths. 

• NAFTA facilitated the recovery of Mexico after the peso crisis, as U.S. investment coupled with a 

new flexible Mexican economic policy led to a painful, but short recovery period. 

• As is true of all trade agreements, NAFTA has led to further bilateral integration and negotiations 

outside of the agreement, as well as providing an "insurance policy" against protectionist sentiment 

in either nation. 

Notable Statistics: 

• Workers directly or indirectly involved in the export sector have earned 12 to 15 percent higher 

wages since the passage of NAFTA [U.S. Department of Commerce (1996), Richardson and Rindal 

(1996)]. 

• Since 1994, the number of overall U.S. jobs has increased by 6.7 million as unemployment has fallen 

by 1.4 million. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-116 

D-116
Institute for Policy Studies 

Sarah Anderson, John Cavanagh, and David Ranney 

"NAFTA's First Two Years: The Myths and the Realities" 

Does not support NAFTA. 

(Myths stated by the Institute are in italics.) 

NAFTA had nothing to do with the Mexican crisis. Under NAFTA, problems associated with 

Mexico's trade deficit became more severe. NAFTA rules exacerbated the crisis by preventing 

Mexico from restricting trade to save scarce foreign exchange. 

Increased exports equal increased jobs. The U.S. Department of Commerce uses a crude formula 

to estimate jobs created by trade, but the formula ignores jobs lost due to increased imports. Many 

U.S. firms that are successful exporters have eliminated thousands of U.S. jobs. 

NAFTA will create not only more, but better jobs. Employers have threatened to shift production to 

Mexico to force employees to accept lower wages. Lawmakers are attempting to reduce worker 

benefits under the guise of improving competitiveness. Displaced workers face a market in which 20 

percent of all new jobs are temporary and do not pay benefits. Many new jobs are part-time, and 

there is a shortage of full-time entry level positions. 

• The NAFTA labor agreement has teeth. The North American Agreement on Labor Cooperation (the 

labor side agreement to NAFTA) is weak, overly procedural, and has not benefited any workers to 

date. 

• NAFTA will improve the environment. Since the NAFTA enactment, illegal dumping of toxic waste 

along the U.S.-Mexican border has increased ; the incidence of water-borne disease is three times the 

national average in this area. NAFTA-related environmental institutions, such as the North 

American Commission for Environmental Cooperation; the North American Development Bank, and 

the Border Environment Cooperation Commission have been ineffective in addressing and rectifying 

environmental concerns. 

• NAFTA will decrease immigration and improve North American relations. The number of 

Mexicans apprehended in attempted border crossings increased 43 percent between 1994 and 1995. 

Immigrant rights have been eroded without addressing the root causes of immigration. 

NAFTA will improve food security by enabling countries to import food cheaply on the world 

market. Cutting subsidies and import restrictions will deter efforts to ensure food security. 

Economic relations should be left to government and corporations. Many citizen action groups are 

countering actions by corporations and government bureaucrats that adversely affect their well being. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-117 

D-117
Institute for Policy Studies 

Sarah Anderson, John Cavanagh, and Saul Landau 

"Foreign Policy in Focus: North American Free Trade Agreement" 

• Does not support NAFTA. 

• NAFTA has made it easier to transfer capital and thus jobs throughout North America. Corporations 

have used this power to decrease wages and lower environmental standards in Canada and the United 

States. 

Although more than 90,000 U.S. workers qualified for a NAFTA retraining program (due to 

employer moving production to Canada or Mexico or lost revenues due to increased imports from 

these countries), the actual number of jobs lost is far greater because many laid-off workers are 

unaware of the retraining program or do not qualify. 

Notable Statistics: 

• The source of information on the current job market is not identified. Environmental information is 

from "NAFTA's Broken Promises" in Public Citizen, Jan. 1996 and comments by Harry Browne of 

the Interhemispheric Resource Center in New Mexico. Border crossings data are from "Mexicans 

Flood In, Fueling U.S. Debate," Wall Street Journal, Mar. 1, 1996. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-118 

D-118
• 

International Union, United Automobile, Aerospace and Agricultural Implement Workers of America 

(UAW) 

Steve Beckman, International Economist 

Statement to the U.S. International Trade Commission 

UAW claims that NAFTA has caused the following problems: (1) the United States suffers growing 

trade deficits with Canada and Mexico, (2) Mexico faces widespread unemployment, and (3) Mexico 

faces a decline in the buying power of wages of more than 25 percent. 

• UAW points to changes in trade flows between the United States and the other NAFTA countries as 

a way to judge the impact of NAFTA on the United States. UAW reported that prior to NAFTA, the 

United States ran a trade surplus of $5.4 billion with Mexico and a deficit of $8.0 billion with 

Canada (a combined deficit of $2.6 billion). UAW reported that this deficit worsened under 

NAFTA. In 1993, the (combined) deficit with Mexico and Canada was $9.1 million. In NAFTA's 

first year of implementation the combined deficit was $12.7 billion. This combined deficit was 

$33.5 billion in 1995 and $39 billion in 1996. 

• UAW also states that the trade deficit for the auto industry (which accounts for one quarter of all 

NAFTA trade) also worsened under NAFTA. UAW reported that in 1993 (pre-NAFTA), the United 

States ran a $9.1 billion deficit with Mexico and Canada. By 1995, the combined auto trade deficit 

with Canada and Mexico had worsened to $23 billion. 

• UAW further states that workers in the three countries have lost jobs and income as a result of 

NAFTA. UAW reports that the U.S. Department of Labor has certified more than 120,000 workers 

as eligible for NAFTA trade adjustment assistance (TAA). However, UAW states that this number 

of certified workers only "scrapes the surface" of worker dislocation resulting from NAFTA, as some 

of the eligible workers are unaware of the benefits available and never apply. 

• UAW also states that NAFTA has also added downward pressure on worker's wages. According to 

UAW, it is commonplace for companies to threaten to move work to Mexico in order to undermine 

the efforts of workers to improve their wages, benefits and working conditions through collective 

bargaining, in contract negotiations or union organizing campaigns. 

• UAW also reports that environmental organizations have been disappointed with the supplemental 

agreement on the environment. 

Notable Statistics: 

• UAW provided two pages of data. One page consists of "Automotive Trade with Mexico and 

Canada, 1993-1996" (Source: U.S. Department of Commerce, Office of Automotive). The other 

page contains data on "Total Trade with Mexico and Canada, 1992-1996," (Source: U.S. 

Department of Commerce, Bureau of the Census). 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the US1TC. 

D-119 

D-119
Country of Jamaica 

Dr. Richard L. Bernal, Jamaican Ambassador to the United States 

Jefferson Stephen Lamar, Vice President, Jefferson Waterman International--OF COUNSEL 

"The Slanted View of Trade" 

• Supports the Agreement. 

• Points out that not all jobs qualifying for TAA (Trade Adjustment Assistance) do so directly as a 

result of NAFTA. 

• Programs such as TAA highlight the job-diverting aspects of trade, and can be used to cast a normal 

comparative advantage driven reorientation of the economy as a negative effect of freer trade. 

The claim that increased exports increase jobs cannot necessarily be turned around to argue against 

increased imports, because imports from one country, such as Mexico, may be displacing imports 

from other countries, not necessarily American products. 

• Calls for a program to certify job-creating effects of trade liberalization to balance out the negative 

statistics generated by the TAA. "By developing an incentive to report the creation of new exportrelated jobs, the government can more accurately record trade-related employment statistics--both the 

losses and the gains--nationwide." 

• Suggests the initiation of a program to provide training to employees in new exporting firms, or 

block grants to support the export promotional effects of states that can certify trade-related job 

growth." 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-120 

D-120
Kansas Farm Bureau 

Gary Hall, President 

"Statement to the U.S. International Trade Commission on the impact of NAFTA on the 

economy and industries" 

Supports the Agreement. 

Free trade should not be tied to social reforms or labor or environmental standards of other countries. 

This group recommends the continuous monitoring of NAFTA to be sure the terms of the original 

agreement and the side agreements are fulfilled. 

The Agreement will make long-term economic growth possible in the member countries. 

"With a more stable peso in Mexico, we're again running trade surpluses with that country. The 

surplus is expected to continue during 1997." 

The United States ran a trade deficit in agricultural goods because Canada maintains "very high 

tariffs on our dairy and poultry commodities limiting exports." 

Principal gainers in 1996 were due to larger payments made for corn, wheat, soybeans, and cotton. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-121 

D-121
Jack Mahon 

Jack Mahon 

Statement to the U.S. International Trade Commission 

• Does not support the Agreement. 

Mr. Mahon cites that NAFTA has cost a terrible loss of U.S. jobs and has hurt small and medium 

size firms. The author further states that the Agreement is hurting the U.S. balance of trade. He 

states that Canadians are abusing it in the agricultural and lumber industries, and that the Mexican 

lower classes are being tragically hurt by multinational firms. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-122 

D-122
McAllen Economic Development Corporation 

Mike Allen, President and CEO 

Letter to the U.S. International Trade Commission Regarding NAFTA's Economic Effects 

• Supports the Agreement. 

• Many companies are locating offices near the Northern and Southern borders of the United Sates to 

take advantage of potential benefits from NAFTA. 

• Mexican companies will move manufacturing facilities north to cater to United States and Canadian 

consumers. In addition, U.S. manufacturers can expand by manufacturing near the U.S. borders with 

Canada and Mexico. Some of the primary reasons for this are the minimization of risks and reduced 

transportation costs. 

• Along the U.S.-Mexico border, the devaluation of the peso caused Mexican wages to decrease in 

relation to the United States dollar. So products manufactured in Mexico through the maquiladora 

program and returning for sale in the United States can benefit from even more cost-efficient 

Mexican labor than before. It should be noted that jobs in the Maquiladora program are some of the 

highest paying jobs in Mexico. 

• McAllen/Reynosa was recently named by Forbes Magazine as the 9th fastest growing area in the 

nation with a 24 percent increase in jobs during the past five years. 

Notable Statistics: 

• Since the passage of NAFTA, the McAllen Economic Development Corporation has assisted 

companies to locate in the U.S.-Mexico border area. In the United States, 1,737 new jobs were 

created, and 13,398 new jobs created in Mexico. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-123 

D-123
State of Michigan 

The Honorable David E. Bonior, 10th District, State of Michigan 

Testimony before the U.S. International Trade Commission on "The Impact of NAFTA" 

• Against the Agreement. 

An unreleased study by Cornell University for the U.S. Department of Labor found that 62 percent of 

American companies use Mexico and other low-wage nations to bargain down wages and worker 

benefits. This study states: "The fact that the post-election plant closing rate has more than doubled 

since NAFTA was ratified suggests that NAFTA has both increased the credibility and effectiveness 

of the plant closing threat for employers and emboldened increasing numbers of employers to act 

upon that threat." 

The trade deficit with Mexico is at a record $16 billion. Using a narrow definition by the U.S. 

Department of Labor, more than 120,000 Americans have lost their jobs to NAFTA, and using a 

formula of the NAFTA proponents, 600,000 American jobs have been lost. 

• Public Citizen examined the record of companies that had promised to create jobs if NAFTA were 

passed and found that 90 percent of these companies broke their promises. 

• Although corporate profits have improved as a result of NAFTA, workers' rights on both sides of the 

border and the environment have suffered. Before expanding NAFTA, these deficiencies need to be 

corrected. 

• 

• 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-124 

D-124
State of Minnesota 

Arne H. Carlson, Governor 

Letter to the U.S. International Trade Commission 

• Supports the Agreement. 

• The Governor states that Minnesota's manufactured exports to Canada and Mexico have exceeded 

$2.6 billion in 1996, which represents 30 percent of the state's overall exports. 

Canada is Minnesota's largest export market, accounting for over $2.4 billion in 1996. Between 

1992 and 1995, Minnesota's exports to Canada increased by 54.5 percent. 

Minnesota's overall export to Mexico have declined since the peso devaluation, although some 

Minnesota industries have reported growth between 1994 and 1996. 

• During the period 1994 and 1996, the Minnesota Department of Trade and Economic Development 

has reported that the Agreement has had no negative impact on job creation. 

• The Governor is very optimistic about the long-term prospects for growth and the economic benefits 

that NAFTA can offer. The Governor concludes by saying that NAFTA has significantly 

contributed to the strength and competitiveness of the Minnesota economy and he and the state of 

Minnesota look forward to continued economic growth, creation of more jobs, and new opportunities 

in the future through free trade. 

• 

• 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-125 

D-125
Montana State University 

John M. Marsh, Professor, Agricultural Economics and Economics 

"The Effects of NAFTA on U.S. Cattle Prices" 

• Prior to NAFTA, the Canadian-U.S. Free Trade Agreement virtually eliminated tariffs and quotas 

relating to live cattle and meat. 

After NAFTA, the United States suspended tariffs of 2.2 cents per kilo on Mexican live cattle 

imports and 4.4 cents per kilogram on fresh, chilled, and frozen imports from Mexico. Mexico 

suspended a 15 percent tariff on live U.S. cattle imports, a 20 percent tariff on chilled beef and a 25 

percent tariff on frozen beef. 

• Canadian trade reduced the U.S. feeder price by $3.88 per carcass weight ton (cwt) or $0.49 per cwt 

per year, and Mexican trade reduced U.S. feeder prices by $1.70 per cwt on $0.21 per cwt per year. 

Price effects are small as U.S. live cattle imports did not constitute more than 4 to 7 percent of 

domestic beef production from 1988 to 1996. 

• Prices of U.S. beef exports to Canada were virtually unchanged with the advent of NAFTA while 

those to Mexico increased by $2.27 cwt, or $0.28 cwt per year. 

• Slimming up the U.S. net cattle import and net beef export price effects for Canada and Mexico 

reveal a $0.30 per cwt increase in feeder prices prior to NAFTA and a $1.78 per cwt decrease after 

NAFTA. 

These effects were estimated by dynamic multipliers from a structural supply and demand model. Beef 

prices were affected by increasing inventories of red meat and poultry in 1994, red meat's decreasing share of 

the meat market, higher feed grain prices and higher packer margins. Imports from Mexico were influenced 

by devaluation of the peso and drought conditions in 1995 that forced some herd liquidation. Cattle 

movement from Canada increased due to delays in planned meat packer expansion. It is difficult to isolate 

these effects from NAFTA's impact, and more years of data are needed to draw a firm conclusion. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-126 

D-126
National Cattlemen's Association 

Mark Armentrout, Chairman, International Markets 

Statement to the U.S. International Trade Commission 

• The National Cattlemen's Beef Association (NCBA) believes that the international market is the 

future growth market for U.S. agricultural products, including beef. Only 4 percent of the world's 

population lives within U.S. borders. Population demographics indicate that the U.S. agricultural 

industry will increasingly market products in countries having younger, faster growing populations 

with increasing disposable incomes. 

• NCBA supported NAFTA and continues to support initiatives to improve the agreement. Canada is 

a major market for beef, second only to Japan. During the past several years, Mexico has vied with 

Korea and frequently traded places as the third or fourth largest export market for U.S. beef. 

• NAFTA was designed to open markets, reduce tariffs, eliminate barriers to trade, and increase the 

economic strength of the United States, Mexico, and Canada. While the Agreement has generally 

been favorable for agricultural trade, it is not perfect and there are problems with access and barriers 

that need to be resolved. 

• Mr. Armentrout gave examples of some of these problems. He said that during 1995, Canadian 

cattle feeders had a cost advantage over U.S. cattle feeders due to Canadian Wheat Board 

intervention in North American feed grain trade. The author also said that a technical trade bather 

has been adopted by three states in Mexico, who have imposed their on grading systems on beef. 

These grading systems appear to be purposely designed to restrict imports of boxed beef from the 

United States. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-127 

D-127
National Corn Growers Association 

Wallie Hardie, President 

Statement to the U.S. International Trade Commission 

• Supports the Agreement. 

• NAFTA has removed the import-licensing system that was previously restricting U.S. access to the 

Mexican corn market. 

• The National Corn Growers Association (NCGA) believes that NAFTA helped minimize damage 

done by the "peso crisis" to U.S. exports of corn. 

• NAFTA should lead to an increase in both U.S. exports and domestic production in Mexico. Also 

anticipated are new investments in corn processing facilities in Mexico. 

• The United States should push for more rational Mexican phytosanitary restrictions on corn imports. 

• The United States should honor its commitment to free trade. Measures like the protection of the 

broom corn industry lead to retaliation in other industries. "We cannot afford to protect one 

domestic industry at the expense of others." 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-128 

D-128
The National Council on International Trade Development 

Mildred Cardona, NAFTA Committee Co-chair 

Statement to the U.S. International Trade Commission 

• Supports the Agreement. 

• Cardona stated that one committee member's fum has experienced an increase of $807 million in 

exports to Canada and Mexico during the first three years of NAFTA (1994-1996) over the previous 

three year period (1991-1993). At the same time, this same firm's imports from Canada and Mexico 

have increased by $117 million. 

• The Agreement's benefits have been "clouded by the administrative burdens, costs and complexity of 

the NAFTA regulations. Companies have incurred significant costs in order to comply with NAFTA 

regulations." 

• The foremost impediment has been the NAFTA regulations themselves because they are "too 

complex and onerous for the trade community to minister." 

• Another major issue has been that the harmonized tariff schedule among the three countries is not 

consistent or uniform. For example, the same product may have three different classifications in 

each of the three NAFTA countries. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-129 

D-129
• 

The National Farmers Union (NFU) 

Phillip Klutts, President, Oklahoma Farmers Union 

Submission for the U.S. International Trade Commission 

• Mr. Klutts addresses four areas where NFU believes NAFTA needs to be improved: dispute 

resolution, currency fluctuations, reporting of agricultural exports and imports, and food safety 

issues. 

Dispute resolution--Mr. Klutts states that NAFTA has increased trade but as a result, the large influx 

of agricultural products into the United States have had a devastating impact on U.S. producers. Mr. 

Klutts cites industries such as tomatoes, peppers, wheat, and barley, which have been affected by 

imports; however, dispute resolution has not helped. 

Currency fluctuation--Mr. Klutt states that until there is the establishment of a common measure of 

currency, we will never have fair trade agreements. Mr. Mutt believes that the establishment of a 

common measure of currency will prevent unstable, dramatic fluctuations of currency. 

• Reporting--Mr. Mutt suggests that there be more uniformity in reporting that allows all producers to 

have access in the same standardized format. 

• Food Safety--A recent General Accounting Office report concluded that fewer than 1 percent of 

every 3.3 milliontrucks entering the United States are inspected. Food and other raw commodities 

now travel across our borders largely unchecked. Farmers and food processors in the United States 

must comply with complicated and extensive regulations when they grow or transport food, yet these 

same standards either do not exist, or are not enforced in other countries. 

• Farmers Union supports "the NAFTA Accountability Act" introduced by Rep. Marcy Kaptur (DOH), which sets clear and measurable performance standards by which the United States can assess 

the impact of the agreement. The bill requires the United States to evaluate the effects of NAFTA on 

various sectors of the national economy and requires the President either to certify that the agreement 

is working as promised or provide for renegotiation of the terms so it operates in the United States' 

interests. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-130 

D-130
NationalForeign Trade Council, Inc. 

"NAFTA-The Right Track for U.S. Trade Policy" 

The National Foreign Trade Council supports NAFTA. 

• By eliminating pre-NAFTA tariffs and barriers to trade, NAFTA has leveled the playing field for 

trade between Mexico and the United States. 

• United States exports to Mexico have significantly increased as the United States asserted its 

dominance of the Mexican market. 

• NAFTA helped keep Mexican markets open to U.S. exports despite the peso crisis of 1995 as well as 

aiding the recovery of the Mexican economy. 

• NAFTA has provided the impetus for bilateral relations in other areas such as the environment, 

human rights, immigration, and crime. 

Notable Statistics: 

• By June 1996, seventy six percent of goods imported into Mexico came from the United States. 

• Increases in exports to Mexico and Canada have resulted in the creation of 310,000 jobs (United 

States Trade Representative). 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USTTC. 

D-131 

D-131
• 

National Milk Producers Federation 

Edward T. Coughlin, Acting Chief Executive Officer 

Statement to the U.S. International Trade Commission 

• Supports the Agreement. 

• Due to decreases in domestic price supports, international trade is increasingly important to the dairy 

industry. 

U.S. dairy industry supported NAFTA based on understanding that it would lead to barrier-free trade 

for North America. Canada still imposes high tariffs on US dairy imports. 

• NAFTA has provided for the elimination of tariffs and non-tariff barriers in Mexico, and has 

reinforced the already increasing sales to Mexico. 

• The Federation also feels that NAFTA helped cushion U.S. dairy exports from full effects of the peso 

crisis. 

• The Mexican state enterprise CONASUPO's monopoly control over SMP (skim milk powder) 

imports requires the United States to subsidize exports. This issue should be addressed in future 

U.S.-Mexico bilateral talks. 

Notable statistics: 

• Canadian protection causes an estimated $1 billion in financial harm to U.S. dairy farmers annually. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-132 

D-132
• 

National Pork Producers Council 

Alan Tank, CEO 

Nicholas Giordano, Esq., Assistant Vice President of Foreign Policy and Trade 

Statement to the U.S. International Trade Commission 

• Supports the Agreement. 

Prior to the liberalizing effects of the Uruguay Round and NAFTA, U.S. pork exports were 

hampered by foreign trade barriers. Since 1995, U.S. pork exports have increased by approximately 

45 percent in volume and 75 percent in value over 1994 levels. 

• "If the U.S. Government is (1) aggressive in holding its trading partner to their commitments under 

trade agreements; and (2) does not exempt pork as a "sensitive" agricultural sector in WTO 

accession negotiations and/or in new trade agreements, the growth potential of U.S. pork exports is 

virtually milimited." 

• Each year since the inception of NAFTA, U.S. pork exports to Canada have increased. In 1996, 

Canada was the third most significant market for the U.S. pork industry in value terms. 

• U.S. imports of Canadian hogs for processing have helped U.S. producers meet growing world 

demand for pork. 

• U.S. pork producers support continued efforts to establish health and safety regulations based on 

sound science. To this end, producers would like to see the removal of Canadian restrictions on 

imports of U.S. hogs for slaughter from states free of the pseudorabies virus. 

Notable statistics: 

• The U.S. pork industry supports an estimated 600,000 domestic jobs and generates more than $64 

billion in total economic activity annually. 

• Pork represents 44 percent of the world's daily meat protein intake. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-133 

D-133
State of New Jersey 

Carlos T. Kearns, Director of International Trade, Department of Commerce and 

Economic Development 

Statement before the U.S. International Trade Commission 

• Reducing tariff barriers between the United States and its trading partners in Canada and Mexico has 

resulted in an increase in the state's exports to these markets and continues to provide significant 

employment to its citizens. 

• Mexico now ranks as New Jersey's 8th largest export market, responsible for almost 10,000 jobs for 

working men and women. 

• NAFTA partners contribute over $4 billion of New Jersey's total exports of $20 billion-20 percent 

of all international sales. 

• "Our failure to extend this agreement is only an opportunity for our trade competitors in Europe and 

the Pacific Rim to take advantage of something we have in our grasp; to be the leading trading 

partner in the Western Hemisphere." 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-134 

D-134
Northern Textile Association 

Karl Spilhaus, President 

The Impact of the North American Free Trade Agreement on the U.S. Economy and 

Industries: A Three Year Review 

• Karl Spilhaus and the Northern Textile Association (NTA) are in favor of NAFTA but have 

reservations with regards to certain issues that they believe need to be resolved. 

The NTA is an industry trade association made up of 192 companies. Their member companies, 

together with the rest of the textile industry employ approximately 600,000 U.S. workers. Textile 

imports continue to outpace exports, thus a trade deficit exists and represents a huge loss of potential 

markets for American textiles. NTA is very interested in American trade policies that can be 

implemented in ways that promote American exports. NTA also strongly urges the ITC to examine 

certain aspects of NAFTA that have resulted in producers from non-member countries gaining 

benefits since the implementation of NAFTA. 

NTA supported NAFTA prior to its implementation and continues to support the idea of free trade. 

North American markets now account for about half of all U.S. exports of textiles. NTA has also 

observed U.S. imports of apparel items shift from sources in East Asia toward more sourcing from 

North American countries. 

• NTA believes on the whole, that NAFTA has been generally beneficial and has functioned largely as 

predicted, but some areas where inequities exist, need to be addressed. Members of NTA consider 

the bra exemption an arbitrary circumvention of the NAFTA rules of origin and recommend that the 

consultation provision in the agreement be invoked and the exemption repealed. NTA also believes 

that there has been abuse of the wool apparel TPL which gives NAFTA benefits to non-North 

American countries. NTA believes it is unfortunate that loopholes in NAFTA have been abused so 

that non-North American producers have gained a unilateral benefit, to the harm of North American 

producers. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-135 

D-135
State of Oregon 

The Honorable Robert F. (Bob) Smith, Chairman, Committee On Agriculture 

"The Impact Of The North American Free Trade Agreement On The U.S. Economy and 

Industries: A Three Year Review" 

"If it weren't for agriculture exports, the U.S. trade deficit would be larger than it currently is. In 

1996, U.S. agriculture exports totaled $60 billion and the agriculture trade surplus exceeded $26 

billion." 

The Honorable Mr. Smith wants to see agricultural exports expand and barriers to those exports 

decline. "One way that I have chosen to accomplish that goal is to lead the Committee on trade 

expansion trips." Several trips that have been conducted were successful. 

"NAFTA has been good for U.S. agricultural trade. It is not perfect, there are problems with access 

and barriers that must be resolved." 

In 1996, U.S. agriculture exports to our NAFTA partners increased by 14.2 percent. The 1996, U.S. 

agriculture trade surplus with Mexico exceeded $1 billion. 

• The United States is the major agriculture and food exporter to Canada. 

• "Agriculture is an extremely important and essential issue to be considered in all trade negotiations 

and resolutions of disputes. Agriculture must be a top priority with the Administration. Historically, 

U.S. agriculture has been a leader in free trade principles. It has also been one of the exports most 

harmed by the policies of foreign governments." 

• The Honorable Mr. Smith supports free and fair trade agreements:"The goal should be to secure fair 

treatment for American commodities through NAFTA." 

• 

• 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-136 

D-136
PPG Industries, Inc. 

Terence P. Stewart, Stewart and Stewart--OF COUNSEL 

Charles A. St. Charles, Stewart and Stewart—OF COUNSEL 

Statement on behalf of PPG Industries, Inc. to the U.S. International Trade Commission 

• PPG produces flat glass and fiberglass, chemical, coating and resin products. 

• Exports of all products other than flat glass were already covered under existing FTA agreements 

with Canada. 

• PPG initially supported the Agreement based on promises that Mexico would reduce existing high 

tariffs on flat glass within 120 days after effective date of the Agreement. Four years later, tariffs 

have not only failed to decline but have increased. Mexico has reneged on this promise. 

• Due to Mexico's ability to disregard prior commitments to freer trade, PPG has concluded that, "if 

tariff/non-tariff parity and elimination of trade distortive measures are not achieved up front during 

actual treaty negotiations, they are not likely to be accomplished any time soon thereafter." 

• PPG feels that the U.S. bailout of Mexico during the peso crisis was, "a wasted opportunity which ... 

most other nations would not have hesitated to exploit had the situation been reversed." 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-137 

D-137
Peerless Virginia Farms 

Lynn P. Gayle, President, Accomack County Farm Bureau 

Testimony before the U.S. International Trade Commission 

• NAFTA has adversely affected the tomato industry in Florida and Virginia's Eastern Shore tomato 

industry. 

• The author states that 1995 saw the lowest per package cost (as a result of the most efficient crop 

ever grown) and still tomato prices were low due to the influx of tomatoes from Mexico. Mexico has 

now captured about 50 percent of the U.S. tomato market. 

• The Eastern Shore Economic Development Commission provided the author with figures indicating 

the losses of three farms as a result of imported Mexican tomatoes. The two terminated farms 

represent 925 lost jobs and over $8 million in operational expenses removed from the economy due 

to the malaise of the farms. The other farm operation wavering on the brink of disaster will be 

operating at a greatly reduced level and represents over 500 more lost jobs and several million dollars 

in lost revenue. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-138 

D-138
Public Citizen 

Lori Wallach, Director of Global Trade Watch 

Testimony before the U.S. International Trade Commission 

• Public Citizen is opposed to NAFTA on the grounds it has not fulfilled its promises and does not 

provide a good model for how trade should be conducted. 

• NAFTA has led to a significant loss of jobs, not the increase predicted. 

• NAFTA has led to a decline in real wages and has led to a decrease in the quality and wage earning 

potential of U.S. jobs. 

• NAFTA has turned a trade surplus with Mexico in 1993 into a trade deficit in 1996 as imports from 

Mexico flow into the United States. 

• The Mexican economy has been in a crisis state since the implementation of NAFTA that has led to a 

severely weakened economy as well as political and social instability. 

• Environmental and health conditions have deteriorated since the implementation of NAFTA 

especially in border towns. 

Notable Statistics: 

• The United States has lost about 500,000 jobs to NAFTA trade (no source specified). 

• The U.S. trade surplus with Mexico in 1993 of $1.7 billion is now a deficit projected to stand at 

around $16 billion in 1997. 

• Over 28,000 small and medium-sized businesses in Mexico have been wiped out since NAFTA (no 

source specified). 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-139 

D-139
St. Mary's University, School of Law 

David Lopez, Associate Professor of Law 

"Dispute Resolution Under NAFTA: Lessons from the Early Experience" 

• NAFTA supporter, the agreement's ability to set up procedures for settling disputes is essential to its 

success. 

• Dispute resolution mechanism structure defined by NAFTA, Chapter 20, Section B, which covers 

controversies concerning the interpretation, application, or breach of the agreement; and Chapter 19 

which covers anti-dumping and countervailing duty disputes. 

• Chapter 20 which consists of a three-stage process (consultation, a meeting of the Commission, and 

non-binding arbitration) has been invoked eight times since implementation. It has been successful 

in resolving just one of those conflicts (a Canadian-U.S. dispute over uranium) 

• Chapter 19 claims are resolved through the use of an arbitral panel. Of 24 disputes brought under 

this provision, 22 have been resolved either directly or indirectly as a result of the provision 

• The Environmental Side Agreement created the Commission for Environmental Cooperation to 

handle environmental disputes. While six cases have been brought before the commission on charges 

of not "effectively enforcing" environmental law (Articles 14 and 15 of the agreement) and one case 

has been reviewed by the Secretariat (Article 13), no country is yet to charge another with a 

"persistent pattern of failure to enforce environmental laws" (Article 22). 

• The Labor Side Agreement created a dispute resolution mechanism that consisted of initial 

consultations, ministerial consultations, expert evaluations, and possible nonbinding arbitration. 

• Mr. Lopez points out five lessons derived from NAFTA's dispute resolution structure: (1) there has 

been mixed success in terms of conclusive results or outcomes, (2) NAFTA parties will abide by 

rulings even if they are not beneficial, (3) time limits for dispute resolution are often ignored, (4) 

mechanisms for resolution will "bend to political necessity," and (5) the merit of the resolution 

mechanism is dependent on the nature of the dispute and will vary with time. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-140 

D-140
The Sierra Club 

Daniel A. Seligman, Senior Fellow, Responsible Trade Campaign 

Statement to the U.S. International Trade Commission 

• Since NAFTA took effect, hundreds of U.S. companies have moved plants across the border to 

Mexico's maquiladora assembly plant zone in search of cheap labor. Despite assurances that 

NAFTA would render the maquiladoras obsolete, the number of such factories has grown 20 percent 

and employment is up 50 percent since NAFTA took effect. With the sharp increase in industrial 

activity, air, water, and solid waste pollution have also increased. 

• The North American Development Bank (NADB), established as part of NAFTA to fund 

environmental projects on the border, has failed. The NADB has so far generated a meager 1 percent 

of the promised $2 billion in clean-up funds. As a result, workers earning $6 a day in some of the 

world's most technologically advanced factories go home to neighborhoods of cardboard shacks 

without running water, sewers, paved streets or trash pickup. 

• One hundred-fifty children in Michigan were recently stricken with hepatitis A after eating frozen 

strawberries grown in Mexico and shipped to school lunch programs in fifteen states. Lack of 

sanitation facilities for workers in Mexico's fields make Mexico the likely origin of the 

contamination. However, the real culprit is NAFTA rules which weakened U. S. food safety 

inspections at the border. Under NAFTA's terms, the United States agreed to accept Mexico's food 

safety inspections as "equivalent" to its own. Given sanitation conditions in the fields, Mexico's 

food safety system faces enormous challenges, yet little has been done to bring Mexico's system up 

to United States' levels. 

• U. S. farm workers are feeling a competitive squeeze because health, safety, and labor conditions are 

deteriorating for Mexican farm workers. In the Calycine Valley in the state of Sinaloa, Mexican 

growers contract with U.S. agri-business companies to supply nearly half the winter fresh fruits and 

vegetables consumed in the United States. Many of these buyers look the other way as the valley's 

250,000 farm workers slather the fields with pesticides that are often prohibited in the United States 

without benefit of safety equipment, clean water, or sanitation facilities. Due to lack of adequate 

housing, many of the workers are forced to camp in the fields and bathe in pesticide-contaminated 

drainage ditches. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-141 

D-141
Summit of the Americas Center 

Charles I. Jainarain, Executive Director 

Statement to the U.S. International Trade Commission 

• Mr. Jainarain believes that in the long term, NAFTA is beneficial to the United States and to Florida. 

He considers NAFTA instrumental in furthering the deepening and widening of economic and 

political reform in Latin America and the Caribbean, thus fostering trade with businesses in Florida. 

• Overall, 60 percent of Florida's trade is with Latin America and the Caribbean. As a state, Florida is 

the key U.S. trading partner with every country in Latin America, except for Mexico. Strong trade 

growth has been decisive in Miami International Airport's growth—becoming the leading 

international cargo airport in the United States. 

• This growth has also benefited Florida's cruise ports, which account for more international 

passengers than any other area in the world. These infra structural elements generate jobs, both 

directly and indirectly, for the United States. 

• Creation of the Free Trade Area of the Americas, as proposed at the Summit of the Americas held in 

December 1994, enjoys strong and widespread support by Florida businesses. No other state in the 

United States has as much at stake with Latin America's and the Caribbean's well-being as Florida. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-142 

D-142
Sun World International, Inc. 

David Marguleas, Senior Vice President 

Statement before the U.S. International Trade Commission 

• This group states that effective trade agreements must include equal protection to industries, in 

particular intellectual property rights. 

• This statement recounts an example of an intellectual property rights issue: One of Sun World's 

patented grapevines had been stolen in the late 1970's and was later found in Mexico. The lack of 

plant patent protection law in Mexico prevented the grapevine's legitimate owner from suing. 

Neither were there "trade relations" under which protection could be filed for. 

• To meet its international trade commitments, Mexico has recently signed a law on plant breeders' 

rights, but this is not retroactive. Mexico has also expressed an interest in becoming a member of the 

International Union for the Protection of New Varieties of Plants (UPOV)—but only in signing the 

1978 Convention which is "far weaker then the 1991 or the 1995 Conventions." 

• If agricultural industries are to thrive and the U.S. economy to grow through expanded trade, the 

United States "must insist that other countries grant [U.S. industries] the same patent protections we 

accord them ... To date, NAFTA is woefully short of this goal." 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-143 

D-143
Texas A&M International University 

James R. Giermanski 

NAFTA and the South Texas Border, Is the Border Fit to Compete: An Analysis 

• Mr. Giermanski discusses the negative impact of NAFTA on the border regions of South Texas 

• The economy of the South Texas border region is inextricably linked to trade with Mexico. Many of 

the high wage jobs in the area were government jobs focused on patrolling the border and collecting 

tariffs. Many of these jobs are likely to be phased out under NAFTA. 

Mexican consumers had traveled to South Texas border towns to shop for U.S. goods that were not 

subject to the tariffs they would be if bought in Mexico. Thus Mexicans contributed to the 

prosperity of the retail industry in the area. The elimination of tariffs under NAFTA makes it just as 

easy for Mexicans to stay home and buy the goods at competitive prices, hurting business for U.S. 

shops on the border. 

New transportation provisions will allow the free flow of goods across borders, diminishing the 

importance of ICC commercial zones which formerly restricted the movement of goods. 

Labor-intensive, low skill manufacturing and agriculture are likely to become less competitive along 

the U.S. border, costing South Texans much-needed jobs. 

Reforms in customs procedures such as the North American Trade Automation Prototype (NATAP) 

as well as the construction of superhighways across the border will facilitate the flow of goods 

through the border and hurt regions along the border dependent upon the revenue from those who 

now must regularly stop there. 

"Perhaps it is time to recognize that this region is unfit to compete without a sound strategy for 

educating its workforce, developing efficient and effective business practices, and diversifying its 

economy." 

• 

• 

• 

• 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-144 

D-144
Texas Department of Agriculture 

Rick Perry, Commissioner 

Impact of the North American Free Trade Agreement 

• Supports NAFTA. 

• Commissioner Perry believes NAFTA and other similar free-trade agreements are important, 

particularly to agriculture, because growing and developing countries have an increased demand for a 

variety of foods. 

• As a result of NAFTA, Texas has had both gains and losses, but Texas expects clear benefits to all 

NAFTA partners in the long run. 

• Prior to NAFTA, Mexico was Texas' largest trading partner. Since 1992, overall trade between 

Texas and Mexico has increased by 44 percent. Texas accounts for nearly half of all U.S. exports to 

Mexico. 

• NAFTA has provided a forum to work out disputes. 

• Cattle are the most important income generator in Texas agriculture, accounting for about half of all 

of Texas' agricultural income. Between 1995 and 1996, live cattle exports to Mexico almost 

doubled. 

• Texas vegetable industry officials have reported that the outlook is promising for distributing and 

processing of Mexican fruits and vegetables. 

• With or without NAFTA, Texas and Mexico would continue to trade with one another, but the trade 

relationship between them would not be as prosperous or harmonious without NAFTA. Because 

NAFTA has established rules and regulations regarding trade, the trade relationship between Texas 

and Mexico is becoming even stronger. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-145 

D-145
Thunderbird, The American Graduate School of International Management 

Dr. Shoshana B. Tancer, Director of NAFTA Center and Professor, Department of International 

Studies 

"An Evaluation of The North American Free Trade Agreement" 

• The NAFTA Center, which is partially funded by the U.S. Department of Education, has been in 

existence since the Fall of 1994. The purpose of the Center is to assist small and medium-sized 

businesses who wish to work in or with nations of one or the other NAFTA nations by providing 

information and feasibility studies for them 

• Dr. Tanser discussed the progress of NAFTA over the last three years addressing: (1) elimination of 

bathers to trade and facilitating cross-border movement of goods and services; (2) promoting conditions 

for fair competition in the free trade area; (3) increasing substantially the investment opportunities in 

the territories of the Parties; (4) adequate and effective protection and enforcement of intellectual 

property rights; (5) creating effective procedures for the implementation and application of the 

Agreement; and (6) establishing a framework for further trilateral, regional and multilateral cooperation. 

• The author discussed the goals of NAFTA with regards to each members individual objectives for 

signing the Agreement. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-146 

D-146
Tile Council of America, Inc. 

Thomas J. Trendl, Howrey and Simon—OF COUNSEL 

Statement to the U.S. International Trade Commission 

• Although the Tile Council did not oppose NAFTA when it was being considered, it was important to the 

highly import-sensitive and import-impacted U.S. ceramic tile industry that NAFTA not serve to injure 

U. S. ceramic tile producers. The Tile Council believes that after three years of experience, NAFTA has 

had an extremely negative impact on the U.S. ceramic tile industry in the form of a dramatic increase in 

imports of low-priced ceramic tile from Mexico. 

Imports of ceramic tile from Mexico increased dramatically after the implementation of NAFTA, from 

an average of 107,506,000 square feet in the three years prior to NAFTA (1991-93) to an average of 

181,245,000 square feet in the three years after NAFTA (1994-96). 

Mexico's share of U.S. consumption of tile increased from an average of approximately 10 percent in 

1991-93 to an average of 13 percent in 1994-96. Mexico had record 1996 exports of 221,596,000 

square feet and 14.6 percent of U.S. consumption. 

The severe impact of NAFTA is especially evident in a comparison of the percentage increase in 

Mexican imports and domestic shipments. In 1994, Mexican imports increased 14.63 percent, while 

domestic shipments only increased 1.14 percent. Similar increases occurred in 1995 and 1996. 

Trade data were obtained from the U.S. Department of Commerce. 

• 

• 

• 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-147 

D-147
Tower Group International 

Patricia Flynn, Director, Professional Advisory Services 

Letter to the U.S. International Trade Commission Regarding NAFTA's Economic Effects 

• Supports the Agreement. 

• This group is an international trade services provider that has seen its own business rise as well as the 

number of its competitors and clients. 

• The scope of this company's service has expanded from "a couple of core services" to "over a dozen... 

NAFTA-related services and products." 

• The number of workers employed by this company has increased from 2 to 24 since early 1994. This 

does not include temporary/contract workers. 

• This company's clients have grown "as a result of NAFTA." Such companies are in the automotive, 

textile, chemical, high-technology, and agricultural industries. 

• International operations have benefited from NAFTA in terms of: savings in duty, transportation, and 

operating costs. 

• Domestic operations have benefited from NAFTA in terms of: ease of doing business; product quality 

and increased efficiency; and lower costs, risks, and liabilities associated with insurance, banking, and 

financial transactions. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-148 

D-148
Union Pacific Railroad 

Joseph Heastie, Products Manager, Mexico Market 

Statement to the U.S. International Trade Commission 

• Union Pacific strongly supports NAFTA. 

• Revenue from business with Mexico increased significantly between 1993 and 1996. "The key revenue 

drivers for this business were auto parts, finished vehicles, agricultural products and industrial products 

of all types." 

• NAFTA has led to increases in business for Union Pacific suppliers. 

• The success of business with Mexico led to capital improvements to Union Pacific's rails and equipment 

servicing Mexico. 

• Union Pacific Railroad asserts that its business with Mexico grew because of a change in tariffs and 

trade regulations on the goods that traveled by rail, rather than from any change in the railroad industry. 

• Despite losses in revenue due to the peso devaluation of 1995, northbound movement of goods on Union 

Pacific rail increased. 

Notable Statistics: 

• Union Pacific revenue increased from $504 million in 1993 to $733 million in 1996 despite a decline 

due to the peso crisis in 1995 (Union Pacific). [USTIC Note: the 1996 revenue number may be 

misleading, as it represents the combined earnings of Union Pacific and Southern Pacific Railroad, which 

was purchased by Union Pacific in 1996. Therefore, earnings from 1996 are not directly comparable 

to 1993-1995.] 

• Union Pacific spends between $280 and $300 million on service and industrial purchases as a direct 

result of business with Mexico. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-149 

D-149
U.S. Chamber of Commerce 

Willard Workman, Vice President of the International Division 

Statement before the U.S. International Trade Commission 

• Supports NAFTA. 

• Mr. Workman stated that NAFTA has resulted in increased exports to both Canada and Mexico. Last 

year the combined exports to these two countries reached $190 billion, a 9 percent increase over 1995 

exports of $173.5 billion. 

• Mr. Workman cited the auto industry as a significant beneficiary of NAFTA. In 1994, the first year of 

NAFTA, the auto industry exported just 57,500 units. By 1996, these exports had increased to 86,000 

units. 

• NAFTA has given U.S. firms an advantage over Asian and European competitors trying to export into 

the growing Mexican market. As an example, in a recent effort to raise revenue, the Mexican 

government looked at its international trade policy and found that it could raise tariffs on European and 

Asian exporters. However, due to its NAFTA obligations, Mexico could not unilaterally increase tariffs 

on U.S. goods. As a result, U.S. exports to Mexico did not fall nearly as dramatically as those from 

Europe and Asia; instead, NAFTA worked to protect over 700,000 U.S. jobs. 

• Mr. Workman also believes that NAFTA helped accelerate Mexico's recovery from its recent economic 

crisis. Because Mexico maintained its commitment to open markets, the country's economy grew 4.5 

percent last year. As a result, U.S. exports increased 23 percent last year, a $10 billion increase in sales, 

while U.S. imports from Mexico grew 18 percent in 1996. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-150 

D-150
• 

U.S. Filter Corporation 

Richard J. Heckmann, President and Chief Executive Officer 

Testimony before the U.S. International Trade Commission 

no written submission provided 

• NAFTA has helped U.S. Filter Corporation, the largest U.S. manufacturer of water treatment equipment, 

expand its business in Mexico. U.S. Filter sales to Mexico rising from virtually zero in 1993 to $50 

million in 1996. The Mexican filter market for water treatment products consists of both governments 

(federal, state, and municipal) and companies that need water treatment facilities. U.S. Filter builds, 

owns, and operates the water treatment facilities for companies and builds, owns, operates on a 

concession basis two water treatment plants for municipalities where after 15 years, ownership will 

revert to the municipality. 

NAFTA has changed attitudes about doing business in Mexico. From the U.S. perspective, companies 

are more willing to invest in Mexico since there are legal protections for U.S. investment under NAFTA. 

As a result, U.S. Filter has made long term agreements in Mexico and "trusts that the commitments made 

to us by the state and federal governments in Mexico will also be kept" (Transcript, vol.1, p. 35). U.S. 

companies have also benefitted from a change in Mexican attitudes toward U.S. companies. Since 

NAFTA, U.S. Filter has noticed that Mexican entities have encouraged U.S. Filter to invest in Mexico. 

According to U.S. Filter, there were not many Mexican tariff and other trade barriers hindering U.S. 

exports of water treatment products to Mexico. 

• Many of the environmental issues in Mexico require financing, which will have to be obtained from 

companies and governments outside Mexico. Thus, NAFTA provides guarantees for such investments 

from sources outside of Mexico. Mr. Heckmann noted that the U.S. Export- Import Bank and the North 

American Development Bank (created as a result of NAFTA) work at a slow pace and require 

complicated paperwork that puts U.S. Filter Corporation at a competitive disadvantage in Mexico 

compared with its Japanese and European competitors. Since the implementation of NAFTA, Benobras 

(a Mexican development bank) has begun to guarantee some of the financing for water treatment plants 

in Mexico; this has been helpful to U.S. Filter. 

• NAFTA provides a subtle advantage to U.S. firms in Mexico over third country competitors. U.S. Filter 

Corporation notes that the advantage that NAFTA provides is that "new treaty partners and new trade 

partners ... tend to go out of their way to do business with each other" (Transcript, void, p. 46). U.S. 

Filter noticed this trend with Mexican entities after the passage of NAFTA. 

• U.S. Filter exports equipment and technology to Mexico principally from factories in California, Illinois, 

Massachusetts, and Texas. In April 1997, U.S. Filter acquired a company in Pennsylvania that supports 

many of U.S. Filter's Mexican projects. U.S. Filter estimates that 400 to 500 of its U.S. employees are 

working on business related to Mexico. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

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D-151
United Parcel Service of America, Inc. 

Robert Frenzel, Vice President of Corporate Public Affairs 

Ana M. Guevara, Public Affairs Manager, and 

Ala Apollon, Legal, Americas Region 

Response to Request for Views before the U.S. International Trade Commission 

• Supports the Agreement. 

• The company argues that free trade "is the right policy," in that it benefits consumers as well as the 

world's businesses. New markets open; opportunities for investment expand; business alliances emerge; 

and increased competition spurs technology growth. In particular, free trade benefits transportation and 

logistics companies, such as United Parcel Service (UPS). 

• The company raises the issue of the Mexican government's constraints placed on the package express 

business. 

• The failure of Mexico to live up to its commitments with respect to package express services and the 

failure of the Chapter 20 process and the best efforts of the U.S. government to achieve a timely and 

equitable resolution of the issue have undermined the credibility of NAFTA and, by inference, the 

credibility of other current and prospective trade agreements. 

• Other arguments against the Mexican government's constraints include: such constraints hinder 

development of the industry; foreign-owned package express operators are at a competitive disadvantage 

versus domestic operators; and, "continued uncertainty and restrictions will send the wrong message to 

U.S. investors in Mexico, making them reluctant to invest in Mexican operations." 

• "The full potential of NAFTA and the obligations undertaken by the Government of Mexico with respect 

to package express service has not been realized. In this sense, NAFTA has been disappointing and has 

failed to live up to its promise." As UPS continues to evaluate the effectiveness of its investment in 

Mexico, the ability and willingness of the Mexican government "to live up to its commitments under 

NAFTA will be a significant factor in influencing UPS decisions regarding... investments, growth of that 

market, and growth in jobs in Mexico and... in the United States." 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-152 

D-152
United States Hispanic Chamber of Commerce 

Jose F. IsHilo, President and CEO 

Statement to the U.S. International Trade Commission 

Supports the Agreement. 

Since the implementation of NAFTA, this group has been able to establish an office of representation 

in Mexico that has allowed it to assist nearly 200 companies with joint ventures, investments, and 

exports. The organization's presence in Mexico has helped increase the overall number of Hispanic 

firms that have benefited from the organization's services. 

"NAFTA provides countless opportunities for the United States with Mexico and Canada." 

Notable statistics: 

Trade between the United States and Mexico has increased over 400 percent since 1986, faster than any 

other U.S. bilateral trade relationship. 

Foreign direct investment by the United States in Mexico has risen to 52.7 percent from 1994 to June 

1996. 

Forty four out of the 50 U.S. states export to Mexico under NAFTA. 

Since the implementation of NAFTA, Mexico has become the largest market worldwide for 1,154 U.S. 

products. 

Canada, the United States, and Mexico issued a joint statement on March 30, 1997, that trade under 

NAFTA has increased 45 percent since 1994. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

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D-153
United States-Mexico Chamber of Commerce 

Albert C. Zapanta, President and CEO 

Statement before the U.S. International Trade Commission 

• Supports the Agreement. 

• NAFTA goes beyond tariff reduction by opening previously protected sectors in agriculture, energy, 

textiles, and automotive trade. The Agreement (1) opened up the U.S.-Mexico border to trade in services 

with specific rules in financial, transportation, and telecommunication services; (2) set rules on 

government procurement and intellectual property rights; (3) set specific safeguards including how to 

deal with subsidies and unfair practices; (4) created procedures for dealing with private commercial or 

agricultural disputes; and (5) set up a process for dealing with NAFTA implementation concerns. 

• The large number of predicted job losses or gains have not materialized. 

• NAFTA has had almost no impact on overall employment levels in the United States. However, the jobs 

that have been created by U.S.-Mexico trade have higher wages than the jobs that have left the United 

States. New jobs in the United States were mostly due to the continued expansion of the U.S. economy. 

The fall in the Mexican economy due to the peso crisis was "muted and its recovery accelerated because 

of NAFTA." 

A prosperous Mexico will lead to lower illegal immigration and a healthier environment in Mexico; and 

a "vibrant Mexico will be better able to deal with the illegal drug activities." 

• The United States and Mexico have made progress over the past three years addressing the decades of 

deteriorating environmental conditions along their shared border. 

• Canada and Mexico are reaching out to other countries in the hemisphere and signing bilateral trade 

agreements. These bilateral agreements put U.S. firms "at a competitive disadvantage compared with 

their Canadian and Mexican counterparts." 

Notable statistics: 

• It is estimated that 31,000 new jobs were created and 28,000 jobs were lost due to NAFTA. 

• 

• 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-154 

D-154
Virginia Cooperative Extension 

Jim Belote, Extension Agent, Agriculture and Natural Resources 

"The Potential Economic Effects of Farm Industry Loss on the Eastern Shore of Virginia in 1997" 

• Against the Agreement. 

• 1996 was an economic disaster for most vegetable producers: farms are closing down or reorganizing 

under bankruptcy; and over 1,900 jobs have been lost. 

• By converting from high-income vegetable crops to low-income crops, such as soybeans and small 

grains, a potential farm gate loss in acreage value is estimated at $28 7 million annually (a 33.4 percent 

single-year loss in farm gate value). 

• Because the Eastern Shore employs many seasonal migrant workers, the estimated withdrawal of 

migrants from that area would "have a significant impact on the economy of the Eastern Shore." 

• If migrant workers were no longer available to Eastern Shore agricultural producers, employee income 

would decline. 

Notable statistics: 

• If fruit and vegetable production was replaced with less labor-intensive soybean and grain acreage 

following withdrawal of migrants, then total annual output would fall by $42.9 million, employee income 

would fall by $6 0 million, and 349 full-time permanent jobs would be lost (Economic Impact of 

Migrant Farmworkers on Virginia's Eastern Shore, Virginia Tech, Dept. of Agricultural Economics). 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-155 

D-155
The Commonwealth of Virginia 

The Honorable Robert Skunda, Secretary of Commerce and Trade 

Statement before the U.S. International Trade Commission 

• Virginia has benefited from NAFTA and supports it. 

• Virginia's ports have seen significant benefits from increased trade leading to increased employment 

at port facilities (Hampton Roads, a deep water port in Virginia, is the second busiest port on the 

East Coast). 

• Virginia has seen a marked increase in its overall exports to Canada and Mexico since the passage of 

NAFTA. 

• Facilitated by NAFTA's provisions, Governor Allen of Virginia visited Mexico securing contracts 

for firms based in Virginia. 

• While there are have been jobs lost, they have been offset by job increases in other sectors 

Notable Statistics: 

• Exports from Virginia to Canada and Mexico increased by $112 million, over 7 percent since Jan. 1, 

1994. 

• The value of cargo passing through Virginia's ports increased by 75 percent between 1994 and 1995 

as well as increasing in volume by 10 percent. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-156 

D-156
State of Washington 

Steve Odom, Director of Trade and Market Development, Department of Community Trade 

and Economic Development 

Comments on the Impact of the North American Free Trade Agreement on the U.S. Economy 

and Industries 

Supports the Agreement. 

In 1995, almost one-fourth of all jobs in Washington State were supported by exports. It has been 

forecast that by the year 2005, one out of every three jobs in the state will be supported by exports. 

Using the U.S. Department of Commerce's formula (of 19,100 jobs per $1 billion of exports), about 

44,000 jobs in the state supported North American exports in 1993. In 1996, 57,000 jobs were 

related to North American exports. This is compared to the state's statistics on worldwide exports 

that show no increase. 

Since NAFTA's implementation, Washington's exports to Canada have increased by 38 percent, in 

spite of a strong U.S. dollar and a soft consumer market. The state's exports to Mexico have 

dropped almost 18 percent since implementation of NAFTA; this is attributed to the Mexican 

economic crisis of 1995 that dramatically reduced Mexican demand for imported goods. However, 

Washington's 1996 exports to Mexico increased by nearly 40 percent over the 1995 level and are 

expected to continue to grow. In 1996, Mexico became Washington's sixth most important export 

market in terms of the number of business exporting there. 

It is pointed out that if the Agreement had not been in effect, the 1995 economic crisis in Mexico 

might have been more severe and lasted longer, with more serious consequences for the state's 

Mexican exports and supporting employment. 

Washington has run a "huge trade surplus with Mexico for as long as we have had statistics and this 

surplus has grown considerably since the implementation of NAFTA." 

• Small businesses in Washington State are benefitting from the removal of barriers to market entry 

such as tariffs and lack of regulatory transparency brought about by NAFTA, as demonstrated by the 

high proportion of small exporters selling to Mexico and Canada. 

Notable Statistics: 

• In 1995, Washington State exported over $28 billion in goods and service, which translated into 

$5,182 per capita, compared to $3,063 for the nation per capita. 

• Exports to NAFTA partners increased 31 percent between 1993 and 1996. 

• Washington's fastest growing industries in terms of exports to Canada accounted for almost three 

quarters of the states total exports to Canada in 1996. The fastest growing industries in terms of 

exports to Mexico accounted for almost three-fifths of exports to Mexico in 1996. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the US1TC. 

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D-157
• 

• 

• 

• 

Western Growers Association 

David L. Moore, President 

Statement of Economic Effect of the North American Free Trade Agreement 

Supports Agreement, but feels that more should be done in subsequent agreements to obtain greater 

market access for U.S. firms. 

Association represents over 3,000 firms who collectively account for 90 percent of fresh vegetables 

and 60 percent of fresh fruits grown, packed, and shipped in Arizona and California. 

Feels that NAFTA, through tariff reduction and regulation standardization, has improved access to 

Mexican markets. 

The Association feels that further measures to increase market access should be pursued aggressively 

with both Mexico and Canada. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-158 

D-158
Western Montana Chapter of Women Involved In Farm Economics 

Rosemarie Neuman 

Letter to the U.S. International Trade Commission 

• The Western Montana Chapter of Women Involved In Farm Economics is strongly against the 

renewal efforts for NAFTA. 

• The Western Montana Chapter of Women Involved In Farm Economics believes that the U.S. 

economy has suffered since the implementation of NAFTA, that U.S. jobs have gone overseas, and 

that imports have damaged U.S. industries. 

• Neuman states on behalf of the Western Montana Chapter of Women Involved In Farm Economics 

that "it is obvious that our cattle prices have been reduced considerably since NAFTA and our costs 

of production have continued to climb." There are other issues that need to be addressed. For 

instance the wheat and grain problem with Canada and the hepatitis outbreak, caused by 

contaminated school lunches that were provided by government-purchased strawberries from 

Mexico. 

• "We do not support the United Nations (UN) because we do not believe other countries should be 

making decisions in our country such as the Mandate by the Convention on Biological Diversity, The 

Wildlands Project, UN and U.S. Man and Biosphere Program, and various UN, U.S. Heritage 

Programs, and NAFTA." 

• "We already pay 25 percent of the UN Operating Budget." The author feels that NAFTA is too 

closely tied to the United Nations. 

Data sources/methodology: Exact source of data and methodology were not included with the statement. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-159 

D-159
Wine Institute 

Robert P. Koch, Wine Institute and 

Simon Siegl, American Vintners Association 

Comments to the U.S. International Trade Commission 

Does not support the Agreement. 

It is felt that the Agreement puts the U.S. wine industry at a disadvantage. 

The Wine Institute represents over 75 percent of U.S. wine production and 90 percent of U.S. wine 

exports. The American Vintners Association represents 560 wineries in 42 states. 

The U.S. wine industry has the lowest wine tariffs of any wine-producing country; therefore, U.S. 

tariff rate should be a benchmark for all others. 

After NAFTA, Mexico reimposed pre-NAFTA tariffs in retaliation for U.S. broom corn protection. 

Mexicans have not held to promised phase-outs of their tariffs. 

Mexican brandy has zero tariff in United States, while U.S. brandy is still subject to Mexican tariffs; 

this even though the Mexican brandy industry is almost double the size of the U.S. industry. 

Canada is now the second-largest market for U.S. wine after the United Kingdom. 

The Canadian market is protected through discriminatory mark-ups and restrictions on bottle size, 

warehousing, pricing, labeling, and delivery systems. These structural impediments erode the U.S. 

price advantage in the Canadian market. 

• Based on NAFTA experience, the Wine Institute feels that, "it would be imprudent to enter into a 

Free Trade Area of the Americas." 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the US1TC. 

D-160 

D-160
Winegrape Growers of America 

Kevin Andrew, Chair 

Statement before the U.S. International Trade Commission 

• Against the Agreement. 

• "Mexico has a very strong domestic brandy industry. Historically, Mexico's brandy imports into the 

United States have been 10 times greater than U.S. exports to Mexico. Under NAFTA, the United 

States dropped its brandy tariffs to zero immediately while Mexico was allowed a 10-year phaseout 

of its higher brandy tariffs." 

• The wine industry was caught in the middle of a trade dispute last December when Mexico raised 

tariffs on U.S. wine and brandy imports in retaliation for the U.S. protection of the corn broom 

industry. 

• "We do not fear competition in the world wine market, but it must be fair. The inequitable treatment 

of wine and brandy must be corrected by harmonizing the tariff phaseout and elimination " 

Notable statistics: 

Grapes are the eighth largest agricultural crop in the U.S., producing over $2 billion worth of fruit in 

1996. 

Wine production adds value of approximately $2 for each $1 of farm gate value. 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

D-161 

D-161
State of Wisconsin 

Tommy G. Thompson, Governor 

• 

• 

• 

Supports the Agreement. 

"The fastest growing segment of Wisconsin's economy is exports. Trade agreements like the 

NAFTA have been instrumental in encouraging growth in the job market." 

The reduction in U.S. and Mexican tariffs has made Wisconsin goods more competitive in the world 

and has resulted in a significant increase of Wisconsin exports. 

The decrease in Wisconsin's exports to Mexico in 1995 is attributed to "economic circumstances 

unrelated to the NAFTA." 

• The Governor points out that NAFTA prevented the Mexican government from increasing tariffs to 

pay for "their troubled economy" in 1995. NAFTA thereby served to protect the potential loss of an 

estimated 2,500 jobs in Wisconsin. "Despite this economic crisis, Wisconsin exports were still $24 

million higher in 1995 than before NAFTA." 

• "Wisconsin, with strong manufacturing and agricultural bases, has always benefited significantly 

from free trade and investment. By expanding access for goods and services in the markets of two of 

our top trading partners, NAFTA has helped to strengthen our economy and create new jobs." 

Information contained in summaries is taken from written submissions and testimony and has not been verified by the USITC. 

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D-162
APPENDIX E 

TRIP NOTES OF VICE CHAIRMAN BRAGG 

AND 

COMMISSIONER NEWQUIST 

D-165
D-166
COMMISSIONER 

UNITED STATES INTERNATIONAL TRADE COMMISSION 

WASHINGTON. D.C. 20436 

C071-U-003 

C067-U-011 

June 4, 1997 

TO: Public File, The Impact of the North American Free 

Trade Agreement on the U.S. Economy and Industries: A 

Three Year Review (Inv. No. 332-381) 

FROM: Vice Chairman Lynn Brag 

Commissioner Don Newguist-Vtler 

RE: Trip Notes 

Between May 18 and May 21, 1997, we travelled to Mexico City 

and Monterrey, Mexico, and San Antonio, Texas, in connection with 

the above-referenced investigation. We met with a variety of 

U.S. and Mexican industry and industry association 

representatives, as well as a handful of government officials. 

Everyone with whom we met indicated that, on balance and by 

varying degree, NAFTA has been a "success." Significantly, there 

were several recurring themes to our discussions -- virtually 

every participant in our various meetings mentioned at least a 

couple of the following observations. 

E-1
I. THE PESO CRISIS 

o Mexico's peso crisis created a "worst case scenario" in 

which to attempt to assess the impact of NAFTA on the 

U.S. economy 

o In order to avert complete economic collapse, 

Mexico was forced to rely on increased export 

trade with its NAFTA partners, particularly the 

U.S. 

o Absent increased NAFTA-related exports during 

the crisis, Mexico's gross domestic 

production ("GDP") decline in 1995 would have 

been at least twice as severe 

o At the same time that the peso crisis caused 

increased Mexican exports, it also prevented 

Mexico from maintaining a robust level of import 

trade 

o NAFTA's impact on the U.S. economy should be measured 

against circumstances unrelated to the Agreement 

itself, i.e., the peso devaluation 

o To "control" for distorting effects of the peso 

crisis, 1994-95 U.S.-Mexico trade data should be 

compared to 1982-83 data -- the last time Mexico's 

economy faced a devaluation of a similar magnitude 

o IN SHORT, TO THE EXTENT THAT QUANTITATIVE AND 

QUALITATIVE DATA INDICATE NAFTA HAS BENEFITTEDJOHE U.S. - 

ECONOMY TO SOME DEGREE, THE PESO CRISIS SIGNIFICANTLY 

UNDERSTATES THIS BENEFIT 

o THE PESO CRISIS NOTWITHSTANDING, BY THE END OF CALENDAR 

YEAR 1997, MEXICO WILL LIKELY REPLACE JAPAN AS THE 

UNITED STATES' SECOND LARGEST TRADING PARTNER 

E-2
II. U.S. JOB LOSS 

o Admittedly, there was a loss of some U.S. jobs to 

Mexico during the period investigated 

o Increased employment in Mexico directly benefits 

the U.S. economy: (i) Mexican producers purchase 

input materials and parts from U.S. manufacturers; 

and (ii) Mexican workers purchase U.S. 

manufactured consumer products and services 

o Most of the U.S. jobs lost to Mexico were from sectors 

that would have experienced a similar level of job loss 

absent NAFTA, e.g.,apparel manufacturing 

o Without NAFTA, however, these jobs would have 

shifted not to Mexico but to the closed economies 

of southeast Asia -- which tend to import only 

marginal volumes of U.S. produced goods 

o THUS, JOBS LOST TO MEXICO, IN CONTRAST TO THOSE LOST TO 

ASIA, DIRECTLY TRANSLATE INTO INCREASED IMPORTS FROM 

THE U.S., AND THUS CREATION OF U.S. JOBS IN OTHER 

SECTORS 

III. REFORMS IN MEXICO 

o NAFTA has forced a series of governmental - and economic 

reforms in Mexico; though there is still much more to 

be done 

o Chief among these reforms is increased 

transparency and reduced bureaucracy 

o SIGNIFICANTLY, AS A RESULT OF CURRENT AND ONGOING 

REFORMS, U.S. COMPANIES AND INDIVIDUALS "DOING 

BUSINESS" IN MEXICO NOW EXPERIENCE A LEVEL OF 

REGULATORY PREDICTABILITY PREVIOUSLY UNKNOWN 

E-3
IV. NORTH AMERICA AS A "SUPPLIER PLATFORM" 

o NAFTA lays the foundation for transforming North 

America into the world's leading supplier of 

manufactured goods, agriculture products, and services 

o In light of economic and capital integration in 

other regions of the world, North American 

countries must join forces to successfully compete 

against such merged economies 

o No one NAFTA partner alone can challenge the 

comparative and competitive advantages of the 

European Union, the ASEAN nations, or similar 

regional trading blocs 

o NAFTA IS THUS A FIRST STEP TOWARD LEVELLING THE PLAYING 

FIELD AMONG NORTH AMERICAN COUNTRIES AND OTHER WORLD 

ECONOMIES 

V. TRUCKING AGREEMENT 

o FAILURE TO IMPLEMENT THE NAFTA TRUCKING AGREEMENT HAS 

ADVERSELY AFFECTED NAFTA-RELATED TRADE BETWEEN THE U.S. 

AND MEXICO 

E-4 

E-4
MATERIALS 

Several of the groups with whom we met provided us with 

written materials related to NAFTA and the U.S. economy. 

Copies of these materials, listed below, may be obtained 

from the public file in this investigation. Please contact the 

Office of the Secretary, (202) 205-2000. 

1. Materials provided by the American Chamber of Commerce --

Mexico 

2. Materials provided by the Free Trade Alliance of San Antonio 

3. Materials provided by CAINTRA (the Chamber of Industry in 

Nuevo Leon), based on statistics compiled by SECOFI 

(Secretariat of Commerce and Industrial Promotion) 

4. Materials provided by SECOFI . (note: English and Spanish 

materials are different documents) 

E-5
E-6
APPENDIX F 

ADDITIONAL COMMENTS OF COMMISSIONERS 

ADDITIONAL COMMENTS OF VICE CHAIRMAN BRAGG 

In setting forth the results of this study of the effects of NAFTA on the U.S. economy, I believe it is 

very important to give weight to evidence offered to the Commission by those individuals and organizations 

most directly affected by the Agreement. This evidence indicates that passage of NAFTA has indeed had a 

positive, if to date modest, effect on the U.S. economy. 

To a large degree, the results presented in this report are based on the results obtained from a variety 

of complex econometric models. But any economic model is only as good as its underlying assumptions and 

the quality of the data available to those constructing the model. There is no test available to determine 

whether any particular assumption is in fact valid in the real world. Moreover, as the staff acknowledges, 

many of the assumptions employed in the Commission's analysis were purposely designed to be conservative. 

(See Appendix C-24) With respect to the data used in the model, it is similarly impossible in many cases to 

determine either the quality or representativeness of the data. In this particular study, the Commission staff's 

econometric modeling was complicated by macroeconomic events such as the peso crisis, and by an 

exceptionally short (three year) period of review. Thus in my view, econometric modeling alone rarely 

permits the comprehensive assessment of long-term changes in economic relationships as complex as those 

affected by the implementation of NAFTA. 

In this investigation the Commission collected qualitative, as well as quantitative data. On May 15-

16, 1997, the Commission invited interested parties to *sent testimony and submissions at a public hearing 

in order to obtain a better view of the impact of NAFTA. In addition, on May 18-21, 1997, Commissioner 

Newquist and I traveled to Mexico and to San Antonio to learn more about NAFTA's "real world" impact. 

In both instances, the consistent message was that in addition to lowering tariffs and eliminating nontariff 

barriers, NAFTA has also provided a more open and predictable business climate. The benefits of this 

improved business climate may be impossible to capture as quantifiable numerical results, but may well 

outweigh any other effects the study has been able to quantify. 

F-1
F-2
ADDITIONAL COMMENTS OF COMMISSIONER NEWOUIST 

Although I do not disagree with most of the "findings" in this Report, for the reasons discussed 

below, I am concerned that these findings may not adequately reflect the positive, albeit modest, impact of 

NAFTA on the U.S. economy. 

Thus, while I approve of the submission of this Report, I do so with the caution that the data 

presented herein be viewed as an estimate or approximation, rather than as a definitive quantification of the 

impact of NAFTA. 

Limitations of Economic Modelling 

First, as a general statement, I am skeptical of conclusions drawn from economic models. In my 

view, economic modelling is essentially an exercise in untested, unverifiable, and often unrealistic theory. At 

its base level, economic modelling is nothing more than the manipulation of "data" and often vague or 

unspecific "variables." Underlying the data collection and identification of variables is the individual 

modeler's prejudices and subjective assumptions. 

Thus, individuals measuring the impact of a particular event or occurrence, may employ completely 

different assumptions and focus on different variables -- to say nothing of "ranges" within the assumptions 

and variables. Likewise, different modelers are prone to utilize different input data -- whose quality and 

representativeness vary widely. 

In this investigation, many economists and modelers themselves echoed some of my concerns. At 

least two economist witnesses at the Commission's hearing in connection with this investigation testified that 

the input data underlying the econometric modelling is complicated by macroeconomic events and by an 

unduly short period of review.' 

Similarly, as indicated in this Report, Commission staff could not empirically measure various 

deviations from certain gross domestic product trends because, on one hand, there were not a sufficient 

number of data observations, and on the other, because the quality of data observed may have been 

significantly undermined by the peso crisis.' 

For a further general discussion of my views regarding economic modelling, particularly its 

limitations, see, The Economic Effects of Antidumping and Countervailing Duty Orders and Suspension 

Agreements, Inv. No. 332-344, USITC Pub. 2900 at XI ("Views of Commissioner Don Newquist")(June 

1995); see also, Potential Impact on the U.S. Economy and Industries of the GA77' Uruguay Round 

Agreements, Volume I, Inv. No. 332-353, USITC Pub. 2790 at 1-7, n.17 (June 1994); Potential Impact on 

the U.S Economy and Selected Industries of the North American Free-Trade Agreement, Inv. No. 332-337, 

USITC Pub. 2597 at 1-6, n.9 (January 1993). 

' See Testimony of Professor Joseph McKinney at hearing transcript, p. 60; Testimony of Dr. Sidney Weintraub at 

hearing transcript, p. 63. 

2See Report at "Chapter One: GDP Analysis." 

F-3 

F-3
Assessing Ouantitative Data 

I am additionally suspicious of qualitative assessment of quantitative data. Although I find such 

assessment more reliable than econometric modelling, it is, nonetheless, largely a subjective exercise. 

Conclusions derived from qualitative analysis are only as credible as the underlying quantitative data. Thus, 

in this investigation, where the data set is for a statistically limited period (three years), and the data are 

susceptible to a number of significant external variables, qualitative assessment of such data must be 

ded with a certain level of caution. 

Specifically, I am concerned that qualitative analysis may not sufficiently isolate the tremendous 

impact of the peso crisis, particularly since such crisis existed during roughly half of the period examined. As 

noted in my joint "Trip Notes" with Vice Chairman Bragg Ole Appendix E), the peso crisis distorted the 

balance of trade between Mexico and the U.S. 

I therefore am of the view that although qualitative assessment is helpful, in a static, "laboratory" 

vacuum, it too may fail to adequately and accurately measure the impact of a dynamic, ongoing event --

NAFTA. 

Assessing Qualitative Data 

Finally, I note that it is equally difficult, if not impossible, to quantify subjective, "behavioral" 

developments caused or influenced by NAFTA. 

As indicated in Chapter One of this Report, "Wile analyses cannot fully distinguish the effects that 

NAFTA has had on the psychological climate of doing business with NAFTA partners, especially Mexico, 

due to any real or perceived lowering of business risk brought about by the Agreement." 

Similarly, the analysis cannot confidently measure the extent to which the U.S. economy has 

benefitted by virtue of such improved psychological business climate. 

Conclusion 

Thus, in this investigation, I find more probative the real world experiences of those involved in 

NAFTA-related trade. 

At the Commission's hearing, as well as in written submissions, a preponderance of witnesses and 

commentators indicated that, on balance, NAFTA has had a positive, although modest, impact on the U.S. 

economy. In this regard, I note that at my joint request with Vice Chairman Bragg, Commission staff has 

summarized all witness and commentator submissions received in connection with this investigation. These 

summaries are contained in Appendix D. 

I am hopeful that the Congress and the President will base future trade policy decisions more on the 

experiences of those directly involved with NAFTA, than on "results" generated from economic models, 

insulated and subjective assessments of empirical data, and Immeasurable qualitative factors. 

F-4 F-4