Address all communications to 

Secretary to the Commission 

United States International Trade Commission 

Washington, DC 20436

U.S. International Trade Commission

Robert B. Koopman

Director, Office of Operations

Arona Butcher

Acting Director of Economics

COMMISSIONERS 

 

Irving A. Williamson, Chairman 

Shara L. Aranoff 

Dean A. Pinkert 

David S. Johanson 

Meredith M. Broadbent 

F. Scott Kieff

Project Leader

José Signoret

jose.signoret@usitc.gov

Deputy Project Leader

Tani Fukui

tani.fukui@usitc.gov

Office of Industries

Renee Berry, Andrea Boron, Caitlin Blair, Richard Brown, 

Jonathan Coleman, Eric Forden, Tamar Khachaturian, Martha Lawless, 

Douglas Newman, Michael Stanton-Geddes, and Mihir Torsekar

Office of Economics

William Deese, Michael Ferrantino, Alan Fox,

Kyle Johnson, Lin Jones, William Powers, Ravinder Ubee, 

Zhi Wang, and Edward Wilson

Content Reviewers

Laura Bloodgood and David Riker

Editorial Reviewer

Peg Hausman

Statistical Reviewer

Cindy Cohen

Help Desk and Customer Service Division

Under the Direction of

Marinos Tsigas, Acting Chief

Research Division
CONTENTS

Page

Acronyms........................................................................................................................... v

Executive Summary............................................................................................... vii

Effects of Significant Import Restraints.................................................................................. vii

Removal of All Significant Restraints.............................................................................. vii

Effects of Sector-by-Sector Liberalization ....................................................................... ix

Services’ Contribution to Manufacturing................................................................................ x

Chapter 1: Introduction.................................................................................... 1-1

Overview ................................................................................................................................. 1-1

Scope and Organization of the Report..................................................................................... 1-1

Approach ................................................................................................................................. 1-3

Significant Import Restraints............................................................................................ 1-4

Services’ Contribution to Manufacturing ......................................................................... 1-6

Bibliography............................................................................................................................ 1-7

Chapter 2: Effects of Removing Significant Import

Restraints.................................................................................................................... 2-1

Overview ................................................................................................................................. 2-1

Effects of Removing All Significant Import Restraints.......................................................... 2-2

Effects of Liberalization on the Aggregate Economy Relative to Projected Trends........ 2-2

Effects of Liberalization on Individual Sectors Relative to Projected Trends.................. 2-3

Cheese ..................................................................................................................................... 2-3

Nature of Trade Restraints................................................................................................ 2-5

Projected Industry Trends................................................................................................. 2-7

Effects of Liberalization Relative to Projected Trends..................................................... 2-7

Sugar and Sugar-Containing Products..................................................................................... 2-8

Nature of Trade Restraints................................................................................................ 2-10

WTO Agreement on Agriculture TRQs...................................................................... 2-11

FTA TRQs .................................................................................................................. 2-12

Projected Industry Trends................................................................................................. 2-12

Effects of Liberalization Relative to Projected Trends..................................................... 2-13

Canned Tuna............................................................................................................................ 2-13

Nature of Trade Restraints................................................................................................ 2-14

Projected Industry Trends................................................................................................. 2-15

Effects of Liberalization Relative to Projected Trends..................................................... 2-15

Textile and Apparel................................................................................................................. 2-15

Nature of Trade Restraints................................................................................................ 2-17

FTAs, Preference Programs, and Rules of Origin ............................................................ 2-18

Projected Industry Trends................................................................................................. 2-18

Effects of Liberalization Relative to Projected Trends..................................................... 2-18

Other Goods Sectors with Significant Import Restraints ........................................................ 2-19

Footwear and Leather Products ........................................................................................ 2-19

Projected Industry Trends................................................................................................. 2-19

Effects of Liberalization Relative to Projected Trends..................................................... 2-20

i
CONTENTS—Continued

Page

Chapter 2—Continued

Services Import Restraints....................................................................................................... 2-21

Nature of Trade Restraints................................................................................................ 2-22

Commercial Banking ........................................................................................................ 2-22

Nature of Trade Restraints.......................................................................................... 2-23

Telecommunications......................................................................................................... 2-24

Nature of Trade Restraints.......................................................................................... 2-26

Bibliography............................................................................................................................ 2-27

Chapter 3: Services’ Contribution to Manufacturing..... 3-1

Overview ................................................................................................................................. 3-1

Rationales for the Increased Use of Services in the Manufacturing Sector ............................ 3-3

Services Enable the Geographic Dispersion of Global Value Chains .............................. 3-4

Services Supported by New Technologies Help Firms Lower Costs and Improve 

Efficiency.......................................................................................................................... 3-5

Services Are Increasingly Part of Manufacturers’ Product Offerings, Helping to 

Differentiate and Customize Goods.................................................................................. 3-7

Advances in ICT Give Firms Enhanced Customer Information and Feedback ......... 3-8

Services Help Customers Purchase and Use Products............................................... 3-9

Services Enhance Manufacturing Productivity ....................................................................... 3-9

Productivity Gains in Manufacturing Are Associated with Business Services ................ 3-10

Productivity Gains in Services Create Downstream Benefits for Manufacturers............. 3-11

Advances in ICT Generate Productivity Benefits...................................................... 3-12

Services Are Associated with Intangible Capital, a Source of Gains in Labor 

Productivity....................................................................................................................... 3-13

Services Liberalization Benefits Manufacturing............................................................... 3-14

Services Inputs into U.S. Manufacturing: Patterns and Trends............................................... 3-16

The Share of Business Services-Providing Occupations in Manufacturing Has Risen 

Slightly since 2006............................................................................................................ 3-16

The Share of Services as Direct Intermediate Inputs in Manufacturing Has Remained 

Stable since 1997...................................................................................................... 3-18

The Value Added of Business Services Has Remained Stable or Is Rising in Several 

Manufacturing Sectors.............................................................................................. 3-21

International Comparisons and Services Trade in GVCs.................................................... 3-23

The Role of Services Trade in Manufacturing............................................................. 3-25

Manufacturing Case Studies.................................................................................................... 3-29

Semiconductor Industry.................................................................................................... 3-30

Factors of Competition............................................................................................... 3-30

Electronic Design Automation Services..................................................................... 3-31

Services Offered by Equipment Manufacturers......................................................... 3-32

Medical Device Industry................................................................................................... 3-33

Factors of Competition............................................................................................... 3-34

Use of Services........................................................................................................... 3-35

Performance Textiles........................................................................................................ 3-36

Nonwovens................................................................................................................. 3-37

Factors of Competition............................................................................................... 3-37

Research and Development........................................................................................ 3-38

ii
CONTENTS—Continued

Page

Chapter 3—Continued

Bibliography............................................................................................................................ 3-40

Appendixes

A. Request Letters........................................................................................................................ A-1

B. Federal Register Notice .......................................................................................................... B-1

C. Calendar of Public Hearing ..................................................................................................... C-1

D. Positions of Interested Parties ................................................................................................. D-1

E. Model Projections and Additional Results.............................................................................. E-1

F. Embodied Services in Goods-Producing Industries................................................................ F-1

Boxes

3.1 Business services .............................................................................................................. 3-2

Figures

ES.1 Tariff rates and estimated welfare gains from liberalization have fallen over the 

life of the report, 1993–2013 ............................................................................................ viii

ES.2 Business services’ contribution to manufacturing value added by country, 2008............ xi

3.1 Manufacturing sectors that buy more business services have had more rapid 

productivity growth, percent, 2002–11............................................................................. 3-11

3.2 Business services, share of U.S. GDP, 1950–2011........................................................... 3-17

3.3 The share of business services-providing occupations in U.S. manufacturing has 

increased over time, 2002–12 ........................................................................................... 3-17

3.4 Intermediate inputs of the manufacturing sector............................................................... 3-19

3.5 Manufacturing sectors that buy more business services also employ more workers in 

business services occupations, 2011................................................................................. 3-20

3.6 Services’ contribution to manufacturing value added in each country, percent, 2008 ..... 3-24

3.7 Indirect exports of services, share of U.S. services value added, 1998–2011 .................. 3-27

Tables

ES.1 Average annual welfare gains from liberalizing significant import restraints relative to 

the model’s baseline projection, million $, 2012–17........................................................ viii

1.1 Restrictiveness of U.S. import restraints, percent increase in price of imports due to 

restraints, 2017.................................................................................................................. 1-3

2.1 Average annual welfare gains from liberalizing significant import restraints relative to 

the model’s baseline projection, million $, 2012–17........................................................ 2-2

2.2 U.S. national economy: Summary data and simulation results......................................... 2-4

2.3 Simultaneous liberalization of all significant restraints: Effect on liberalized sectors,

percent, 2017..................................................................................................................... 2-4

2.4 Cheese: Summary data and simulation results.................................................................. 2-5

2.5 Cheese import restraint overview, representative products and sources, 2012................. 2-6

2.6 Sugar: Summary data and simulation results.................................................................... 2-9

2.7 Sugar: TRQ fill rates, 2009–12......................................................................................... 2-12

2.8 Canned tuna: Summary data and simulation results......................................................... 2-14

2.9 Textiles and apparel: Summary data and simulation results............................................. 2-16

iii
CONTENTS—Continued

Page

Tables—Continued

2.10 Sectors with significant tariffs: Summary data and simulation results............................. 2-20

2.11 U.S. commercial banking industry: Revenue, value added, and employment,

2008–12 ............................................................................................................................ 2-23

2.12 Top 10 global banks’ holdings of foreign subsidiaries and branches............................... 2-25

2.13 U.S. wired telecommunications industry: Revenue, value added, employment, and 

broadband connections, 2008–12...................................................................................... 2-25

2.14 U.S. wireless telecommunications industry: Revenue, value added, employment, and 

wireless subscribers, 2008–12 .......................................................................................... 2-25

3.1 Services advances throughout the product value chain..................................................... 3-6

3.2 Productivity gains for services most purchased by manufacturers................................... 3-13

3.3 Indicators of intangible capital in manufacturing, 1992–2011 ......................................... 3-15

3.4 Share of business services occupations in total U.S. manufacturing employment ........... 3-19

3.5 Use of business services intermediates in manufacturing sectors..................................... 3-20

3.6 Total services’ contribution to U.S. manufacturing value added...................................... 3-22

3.7 Business services’ contribution to U.S. manufacturing value added................................ 3-22

3.8 Direct and indirect exports of services, share of sectoral value added, percent, 2011...... 3-28

D.1 Information provided by interested parties....................................................................... D-3

E.1 Projected growth in macroeconomic variables, real percentage change, 2012–17........... E-6

E.2 Observed and projected changes in imported quantities, selected sectors........................ E-6

E.3 Effects of simultaneous liberalizations, percent, 2012–17................................................ E-8

E.4 Effects of individual liberalizations, percent, 2012–17 .................................................... E-8

E.5 Classification of imports, exports, shipments, and employment, by sector, in summary 

tables................................................................................................................................. E-9

F.1 Domestic and foreign value-added sources of U.S. final manufacturing goods exports.. F-8

F.2 Domestic and foreign value-added sources of U.S. final manufacturing goods imports.. F-9

F.3 Decomposition of value added created by U.S. services sectors (WIOD), percent.......... F-11

F.4 Decomposition of value added created by U.S. services sectors (BEA), percent............. F-13

F.5 Share of services in output of final manufactured goods, percent .................................... F-15

iv
ACRONYMS

3-D 3-dimensional

AVE ad valorem equivalent

BEA Bureau of Economic Analysis (USDOC)

BLS Bureau of Labor Statistics (USDOL)

CAD computer-aided design

CAFTA-DR U.S.-Central America-Dominican Republic Free Trade Agreement

CAM computer-aided manufacturing

C.F.R. Code of Federal Regulations

CGE computable general equilibrium

CY calendar year

EDA electronic design automation

EIA Energy Information Administration (USDOE)

ERP enterprise resource planning

ERS Economic Research Service (USDA)

EU European Union

fab semiconductor fabrication facility

FAO Food and Agriculture Organization of the United Nations

FAS Foreign Agricultural Service (USDA)

FCC U.S. Federal Communications Commission

FDI foreign direct investment

FDIC Federal Deposit Insurance Corporation

FTA free trade agreement

FY fiscal year

GDP gross domestic product

GSP Generalized System of Preferences

GTIS Global Trade Information Services, Inc.

GVC global value chain

H.R. House of Representatives

HTS Harmonized Tariff Schedule of the United States

ICT information and communications technology

INDA Association of the Nonwoven Fabrics Industry

I-O input-output

IT information technology

ITA International Trade Administration (USDOC)

KLEMS capital, labor, energy, materials, and purchased services

LINC Leaders in Innovation and Nonwovens Commercialization

MFA Multifiber Arrangement

MILC milk income loss contract

MNC multinational company

mtrv metric tons, raw value

mt metric ton(s)

NWI Nonwovens Institute

MY marketing year 

v
ACRONYMS—Continued

NAFTA North American Free Trade Agreement

NAICS North American Industry Classification System

NASS National Agricultural Statistics Service (USDA)

n.e.c. not elsewhere classified

NIPA national income and product accounts

NTR normal trade relations

ODC other duty or charge (fuel ethanol imports)

OECD Organisation for Economic Co-operation and Development

OES Occupational Employment data Statistics

PPP purchasing power parity 

PTA preferential trading agreement

R&D research and development

ROOs rules of origin

SaaS software-as-a-service

SCP sugar-containing product

strv short tons, raw value (sugar)

TRQ tariff-rate quota

USAGE U.S. Applied General Equilibrium (economic model)

U.S.C. United States Code

USDA U.S. Department of Agriculture

USDOC U.S. Department of Commerce

USDOD U.S. Department of Defense

USDOE U.S. Department of Energy

USDOL U.S. Department of Labor

USITC U.S. International Trade Commission

USTR U.S. Trade Representative

WEF World Economic Forum

WIOD World Input-Output Database

WTO World Trade Organization

vi
Executive Summary

This is the eighth update of The Economic Effects of Significant U.S. Import Restraints.

During the more than 20 years since this series of reports began, U.S. tariff and nontariff 

measures on imports have fallen, and trade has expanded markedly. Over this period, the

U.S. services sector has also increased in importance considerably, in both absolute and 

relative terms, with important implications for other sectors of the economy. The 

contribution of services to U.S. manufacturing is the subject of a special-topic chapter in 

this report.

The United States is one of the world’s most open economies. In 2012, the average U.S. 

tariff on all goods remained near its historic low of 1.3 percent on an import valueweighted basis—essentially unchanged from the previous update in 2011. Nonetheless, 

significant restraints on trade remain in certain sectors. The U.S. International Trade 

Commission (Commission) estimates that U.S. economic welfare, as defined by total 

private consumption, would increase on average by about $1.1 billion annually relative to 

the 2012–17 baseline calculated by the Commission if the United States unilaterally 

ended (“liberalized”) all the significant restraints quantified in this report. Exports and 

imports would both expand by about $6.2 billion. These changes would result from 

removing import barriers affecting cheese, sugar, canned tuna, textiles and apparel, and 

certain high-tariff manufacturing sectors.1 Restraints on the services sectors are discussed 

qualitatively.

Effects of Significant Import Restraints

As in previous updates, this report uses an economic model of the U.S. economy to 

analyze the economic effects of removing remaining significant U.S. import restraints. 

Sectors with significant import restraints, such as high tariff rates and restrictive

“quantitative restraints,” such as tariff-rate quotas (TRQs), were identified by 

Commission staff. Among agricultural products, the most restrictive restraints are 

currently applied to sugar. Among manufactured goods, the most restrictive restraints are 

in the textile and apparel sectors.

Removal of All Significant Restraints

As noted above, the Commission estimates that simultaneous liberalization of all 

significant import restraints quantified in this report would increase annual U.S. welfare 

by $1.1 billion per year by 2017 (table ES.1). This figure is substantially lower than the 

estimated welfare increase in the previous (2011) update, which was $2.6 billion;

2 most 

of this change is due to the elimination of a major U.S. import restraint on ethanol in 

2011. This result is in line with recent Commission studies of the gains from 

liberalization: the Commission’s estimates have trended downward as U.S. tariffs and 

quantitative restraints have been liberalized over the duration of the Import Restraints

report series (figure ES.1).

1 These include ball and roller bearings, ceramic and glass products, cigarettes, costume jewelry,

footwear and leather, hand and edge tools, pens and mechanical pencils, residential electric lighting fixtures,

and synthetic organic dyes. 2 As a percentage of U.S. GDP both estimated welfare gains are small (less than 0.05 percent).

vii

 
TABLE ES.1 Average annual welfare gains from liberalizing significant import 

restraints relative to the model’s baseline projection, million $, 2012–17

Sector Change in economic welfare 

Simultaneous liberalization of all significant restraints 1,126.3

Individual liberalizations

 Cheese 49.5

 Sugar 276.6

 Tuna 7.7

 Textiles and apparel 483.4

 Ball and roller bearings –3.5

 Ceramic and glass products 52.5

 Cigarettes 139.5

 Costume jewelry 5.3

 Footwear and leather products 114.8

 Hand and edge tools 7.1

 Pens and mechanical pencils –2.0

 Residential electric lighting fixtures –18.6

 Synthetic organic dyes –1.4

Source: Commission estimates.

FIGURE ES.1 Tariff rates and estimated welfare gains from liberalization 

have fallen over the life of the report, 1993–2013

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

1993 1995 1999 2002 2004 2007 2009 2011 2013

Average import tariff (%)

Welfare gain (% of GDP)

Year of report

Import tariffs

Welfare gain

Sources: USITC DataWeb/USDOC (December 10, 2012); Commission

estimates.

Notes: The average tariff is the import-weighted tariff across all imports. 

The year of the report does not represent the year modeled. The current

update (2013), for example, projects the U.S. economy to 2017. Although 

the data indicate a downward trend, the data may not be directly 

comparable across years, as the model and scope of analysis have been 

updated for each report. 

viii
By contrast with the previous update, this report does not include ethanol, tobacco, and 

certain dairy products as sectors with significant restraints. The exclusion of ethanol, 

which accounted for more than half of the welfare gain from liberalization in the previous 

update, reflects the expiration of the “other duty or charge” (ODC) on fuel ethanol 

imports at the end of 2011. Imports of tobacco and dairy subject to TRQs, as discussed in 

the previous update, have continued to decline in recent years, which has resulted in

much less restrictive TRQs that are far from being filled. As a result, tobacco and most 

dairy products—aside from cheese—have not been included as sectors with significant 

restraints in this update.

Effects of Sector-by-Sector Liberalization

The Commission report examines each sector that has significant import restraints in 

order to estimate the economic effects of import liberalization (1) on U.S. consumers, 

producers, and workers in the sector, and (2) on related (upstream and downstream) 

sectors. A summary of the key results for each sector is provided below. Liberalization 

effects are reported relative to the baseline projected through 2017.

Textiles and 

apparel

The Commission estimates that liberalizing import restraints in 

textiles and apparel would increase welfare by $483.4 million. This 

value is very close to the estimate in the previous update, as little 

has changed with respect to restraints. Liberalization would reduce 

both shipments and employment in this sector by approximately 14 

percent. Imports of textiles and apparel would increase by 2.9 

percent.

Cheese Liberalization of import restraints in cheese is estimated to increase 

U.S. welfare by about $49.5 million. The prior report estimated 

gains for the entire dairy segment and did not provide a welfare 

number for cheese alone. U.S. cheese shipments and employment 

are each expected to decline by 1–2 percent, while imports of 

cheese would increase by 40 percent.

Sugar Removing tariffs and TRQs on imports of raw and refined sugar is 

estimated to increase welfare by $276.6 million. This is a 

significantly higher welfare gain than in the previous update, 

reflecting a projected larger gap between the domestic and world 

prices of sugar by 2017. Imports of raw and refined sugar would 

increase by 43 percent, while total U.S. shipments of sugar would 

decline by more than 14 percent. On the other hand, exports would 

increase by more than 18 percent. U.S. confectioners, benefiting 

from the decline in refined sugar prices, would increase shipments 

and exports by a small amount.

Canned tuna Ending import restraints on canned tuna would increase welfare by 

$7.7 million, which is less than the estimated gain in the previous 

update. Imports of canned tuna would increase by 5 percent. U.S. 

shipments and employment would each fall by 5 percent.

Other high-tariff 

sectors

Nine other sector groupings were identified as subject to relatively 

high tariffs. The welfare effects of eliminating these tariffs are 

ix
estimated to range from a gain of $139.5 million for cigarettes to a 

loss of $18.6 million for residential electric lighting fixtures. Taken 

together, the gains in these high-tariff sectors are comparable in 

size to those estimated in the previous update. All sectors are 

expected to see increased imports and exports, lower shipments and 

employment, and lower consumer prices.

Services The United States is very open to the imports of services from other 

countries. Nonetheless, some U.S. measures remain in place. The 

report describes import restraints in services qualitatively, with a

focus on restraints in commercial banking and telecommunications.

Regulations on foreign commercial banking in the U.S. market 

include minimum deposits by U.S. citizens and residents, and 

citizenship and residency requirements for board members. In 

telecommunications services, the main restraints relate to 

ownership limits on foreign investors.

Services’ Contribution to Manufacturing

A strong and dynamic services economy can benefit manufacturers as they integrate 

services into their activities. More and more, manufacturing relies on services at every 

stage of the value chain, from product design and market research to warehousing and 

distribution. This increasingly important role of services reflects, in large part, how 

manufacturers have responded to the pressure of global competition and the opportunities 

presented by technological innovations.

A review of the literature highlights some of the competitive reasons driving the growing 

role of services in manufacturing in recent times. These include more widely distributed 

production networks or supply chains to take advantage of geographic specialization; the 

adoption of advances in information and communications technology to cut costs and 

improve efficiency; and the integration of services into marketed products to make them 

stand out from their competitors and strengthen customer relationships.

The United States has the world’s largest services economy and one of the highest shares 

of services in its gross domestic product in the world. Business services in particular—

those that are predominantly purchased by other businesses—have grown rapidly relative 

to other sectors of the economy. International data on value added shows that U.S. 

manufacturers are among the most intensive users of business services worldwide (figure 

ES.2). Business services have also benefited from significant innovations that, in turn,

may enhance the productivity of the services users, many of which are manufacturers.

The idea that innovative services are improving users’ productivity is supported both by 

the data and by the case studies conducted for this study.

While many accounts point to a heavier reliance on services by U.S. manufacturing, the 

picture arising from recent trends in the data is more muted, partly reflecting some 

measurement issues. Although the levels of services use in manufacturing remain

significant, the changes in various measures of services intensity are small. Nevertheless, 

certain patterns emerge. Both the value of certain services embedded in manufacturing 

and the use of services workers in manufacturing are increasing over time. Manufacturing 

sectors that are intensive users of business services—such as information services,

x
FIGURE ES.2 Business services’ contribution to manufacturing value added by country, 2008

Sources: WIOD; Commission estimates.

Note: Foreign business services for the European Union (EU) include intra-EU trade in business

services.

financial services, and professional services—also tend to employ business services

workers more intensively within their operations. Moreover, the manufacturing sectors 

that have been using more business services as intermediate inputs have, on average, 

experienced higher productivity gains. Finally, the use of foreign business services inputs 

is currently small but growing rapidly.

Case studies in three selected manufacturing industries—semiconductors, medical 

devices, and performance textiles—illustrate the types of business services that have 

yielded efficiency improvements, lowered costs, and improved customer relationship 

management for manufacturing sectors. 

The semiconductor case study describes services early in the design and testing stages 

that are important for this industry. Specialized software and engineering services enable 

designers in the semiconductor industry to leverage prior knowledge, thereby reducing 

costs. The case study also illustrates services provided by equipment manufacturers that 

enhance their relationship with their semiconductor customers.

The medical devices case study focuses on the use of software-enabled services to 

upgrade process efficiency. This case study illustrates the extensive use of services 

throughout the production process, as software-enabled services provide efficiency 

improvements at every stage of the value chain.

Finally, the performance textiles case study explores ways that services have been used to 

boost competitiveness within a sector that is facing substantial foreign competition.

Research and development services have been key to this industry to improve efficiency, 

while allowing the development of niche products.

0

2

4

6

8

10

12

14

16

18

United States European Union Rest of world

Percent

Foreign

Domestic

xi

CHAPTER 1

Introduction

Overview

This is the eighth update in the series of reports entitled The Economic Effects of 

Significant U.S. Import Restraints. Since 1989, when the U.S. International Trade 

Commission (Commission or USITC) began investigating this topic,1 U.S. import 

restraints have imposed increasingly smaller costs on the U.S. economy in terms of net 

economic welfare, output, employment, and trade. Estimates in this eighth update remain 

consistent with these trends. The current estimate of the total cost to U.S. consumers of 

all significant U.S. import restraints is approximately $1.1 billion per year, down sharply

from $2.6 billion in the previous update in 2011.

2 The estimated effects on specific U.S. 

sectors of removing the remaining restraints—a process known as “liberalization”—are 

also generally lower than in the seventh update.

As in the previous update, this total cost estimate does not include the cost of significant 

restraints on services imports into the United States, which are difficult to quantify. 

However, although certain restraints remain in place, as noted in this report, the United 

States is one of the economies most open to services trade and is the world’s largest 

importer of services. At the same time, the United States is the world’s largest exporter of 

services and has the world’s largest services trade surplus. In fact, the United States’

strong domestic services sector accounts for the majority of U.S. economic activity, in 

terms of both value added and employment.

3

A strong services economy can create unique opportunities for U.S. manufacturers, as

they have access to high-quality and innovative business services that enable innovation 

and productivity. The role of services in U.S. manufacturing is the subject of this report’s 

special topic.

4

Scope and Organization of the Report

The rest of this chapter describes the scope of the next two chapters in the report and the 

methodological approaches used in each.

Chapter 2 provides updated estimates of the economic effects of liberalizing significant 

U.S. import restraints on U.S. firms, workers, and consumers. It also assesses the increase 

in net economic welfare from this liberalization. As discussed in the original letter by the 

1 The United States Trade Representative (USTR) originally requested this series of reports in May 

1992. Before this series of investigations, the Commission conducted a similar study in three phases for the 

U.S. Senate Committee on Finance during 1989–91. 2 USITC, Import Restraints, 2011, ix. The welfare value of $1.1 billion in this report represents the 

average annual cost of significant import restraints in 2012–17, measured in 2011 dollars. In the previous 

report, the cost was for 2015, measured in 2005 dollars. 3 Services accounted for 82 percent of U.S. GDP in 2011 and 85 percent of total U.S. employment.

4 In November 2012, the USTR, in addition to requesting an eighth update of this report, requested an

overview of the role of services in manufacturing. See appendix A for facsimiles of both the 1992 and 2012 

request letters.

1-1

 
U.S. Trade Representative (USTR) requesting this investigation, this report considers all 

U.S. import restraints except those originating from antidumping or countervailing duty 

investigations, section 337 or 406 investigations, or section 301 actions. The quantitative 

analysis in this report concentrates on measures that are applied at the border, such as 

tariffs and tariff-rate quotas (TRQs) applied to imports of goods.

5 Restraints on imports 

of services are discussed qualitatively.6

Chapter 2 focuses on the sectors with the most restrictive restraints. As indicated in the 

next section, this report defines “restrictive import restraints” as those that increase the 

price of imports or limit their quantity, including tariffs, quantitative restraints, and 

preferential rules of origin.7 Historically, the most restrictive barriers have occurred in a 

fairly consistent list of sectors. Table 1.1 presents the sectors that produce goods 

identified as subject to significant import restraints for the purpose of this update. 

Unlike the previous update, this update does not include ethanol, tobacco, and certain 

dairy products as sectors with significant restraints. Ethanol has been dropped because of 

the expiration of the “other duty or charge” (ODC) on fuel ethanol imports at the end of 

2011. A decline in imports of tobacco and dairy products subject to TRQs, already noted 

in the previous update, has continued in recent years, resulting in much less restrictive 

TRQs that are far from being filled.8 As a result, out of this group of products, only 

cheese is still considered to have significant restraints in this update.

Based on their high tariffs, residential lighting fixtures and synthetic organic dyes are two 

sectors included in the present analysis that were absent from previous Import Restraints

studies. While there have been no policy changes in these sectors, they are identified as 

significant in this update because the Commission was able to make use of more detailed 

tariff data in making its analysis.9

Chapter 3, as requested by USTR, provides an overview of trends in U.S. manufacturers’ 

use of services and in services’ contribution to manufacturing output and productivity, as 

well as a description of manufacturing industries that may have experienced the biggest 

changes in this area. The chapter also examines the importance of services to U.S. 

manufacturing relative to other countries, as well as the role of foreign services use in 

U.S. manufacturing.

5 These measures are described later in this chapter.

6 Restrictions on trade in services tend to be nontariff measures, which are often applied “behind the 

border” and so are harder to quantify. Researchers have begun to model services restraints and nontariff 

measures in computable general equilibrium models, which is the type of model used in this report. Some 

studies show large gains from liberalizing these restraints, but the results are highly variable, and there is no 

consensus on the best way to measure such restraints. See USITC, Import Restraints, 2009, 101–7. 7 Preferential rules of origin determine whether a product is eligible to receive preferential access 

(reduced rates of duty) under free and preferential trade agreements. Globally, preferential rules of origin for 

apparel are the most restrictive, and impose the highest costs, because they have the most stringent eligibility 

requirements. Examples include requirements that a minimum share of value must be added in the country of 

origin (the country exporting the apparel) or that a “substantial transformation” of the product must occur in 

that country. 8 See the discussion below on TRQ restrictiveness and fill rates.

9 Tariff ad valorem equivalents (AVEs) in previous updates were calculated for each input-output (I-O) 

industry code in the benchmark I-O data. These I-O industry codes correspond to industries in the North 

American Industry Classification System (NAICS), but at varying levels of aggregation. Tariff AVEs in this 

update were calculated for each NAICS 6-digit industry. For example, synthetic organic dyes (NAICS code 

325132) are part of synthetic dyes (32513) in the I-O data, which also include inorganic dyes (325131). 

While synthetic organic dyes are subject to significant tariffs, inorganic dyes are not.

1-2

 
TABLE 1.1 Restrictiveness of U.S. import restraints, percent increase in price of imports due to 

restraints, 2017

Sector U.S. tariffa U.S. TRQb Totalc

Food and agriculture

 Cheese 7.3 5.4 13.1

 Sugar 0.5 23.1 23.7

 Tuna 11.7 0.0d 11.7

All textiles and apparel

 Yarn, thread, and fabric 5.0 0.0 5.0

 Textile products 5.8 0.0 5.8

 Apparel 12.2 0.0 12.2

Other manufacturing sectors

 Ball and roller bearings 5.8 0.0 5.8

 Ceramic and glass products 4.6 0.0 4.6

 Cigarettes 7.3 0.0 7.3

 Costume jewelry 7.2 0.0 7.2

 Footwear and leather products 9.6 0.0 9.6

 Hand and edge tools 4.3 0.0 4.3

 Pens and mechanical pencils 5.2 0.0 5.2

 Residential electric lighting fixtures 5.0 0.0 5.0

 Synthetic organic dyes 4.9 0.0 4.9

Source: USITC DataWeb/USDOC (accessed February 20, 2013) and Commission estimates based on 

tariff rates and TRQ commitments in the USAGE model projection for 2017.

Note: The table provides projected 2017 tariff and TRQ values, which may differ from their 2012

values. For example, projected tariffs may be below their 2012 values because of staged reductions in 

tariffs prescribed by U.S. trade agreements.

 aMeasured as an ad valorem equivalent share of the cargo, insurance, and freight (c.i.f.) value of 

imports. 

 bMeasured as an export tax equivalent—that is, the degree to which a TRQ increases the “export 

price” of a commodity (defined as the price before entry into the United States).

 cThe total effect includes the interaction of tariffs and TRQs, and in some cases may exceed the sum 

of these effects.

 dImports of canned tuna packed in water are subject to a TRQ. Because the quota allocation is 

small, most imports are subject to the over-quota duty rate. See chapter 2.

Approach

This report uses substantially different analytical approaches to explore its two main 

topics. The analysis of significant import restraints in chapter 2 is largely based on an 

economic model that examines the effect of liberalizing significant import restraints in a 

medium-term economic projection to 2017. The overview of services’ contribution to 

manufacturing in chapter 3 draws extensively on existing literature and case studies. 

Chapter 3 also measures the role of services in manufacturing based on available inputoutput (I-O) and occupational data. The differences in approach reflect the different 

objectives specified for the two topics in the original request letter and the letter for the 

current update, which asked for a detailed model-based examination of import restraints 

paired with an accessible overview of services’ contribution to manufacturing. Both 

1-3
chapters benefited from testimony presented during the Commission’s public hearing on 

March 19, 2013, and written submissions from interested parties.10

Significant Import Restraints

To model the effects of a hypothetical trade policy liberalization in chapter 2, this update 

uses the U.S. Applied General Equilibrium (USAGE) model used in previous updates.

11

As its name indicates, this is a single-country model of the U.S. economy that 

incorporates the linkages among different economy sectors, consumers, the government, 

and foreign economies. These linkages enable the Commission to model the effect that 

trade policy changes can have on different, but interrelated, parts of the U.S. economy. 

This update’s analytical framework relies on annual I-O data for the United States as 

opposed to the I-O benchmark data used in the previous updates, which are estimated for 

every five-year period and released with delays.12 Having up-to-date I-O information is 

useful, for example, when significant technological changes or macroeconomic shocks 

may have changed economic interactions among sectors in a relatively short time. The 

annual data, however, are reported at an aggregated level, so that some sectors central to 

this investigation had to be disaggregated from these accounts.13

The analysis of U.S. import restraints proceeds in three steps. These steps include (1) 

identifying sectors with significant restraints; (2) projecting the U.S. economy to 2017 to 

provide a baseline against which to measure the effects of liberalization; and (3) 

simulating the extent to which liberalizing the significant restraints will affect the trends 

present in the projected U.S. economy. 

Tariff rates are the first, and simplest, criterion used to identify sectors having significant 

restraints. The analysis uses a standard statistical measure to determine large differences 

from the average level. For the purpose of the analysis in chapter 2, tariff rates are 

considered significantly restrictive if they exceed the average tariff by one standard 

deviation, which for 2012 included sectors with tariff rates greater than 4.1 percent.14

Most sectors shown in table 1.1 were identified because of high tariffs.

In addition to tariff rates, selection is also based on the restrictiveness of TRQs for those 

sectors that are subject to them. A TRQ is a method of trade protection under the World 

Trade Organization (WTO) Agreement on Agriculture that imposes a relatively low “inquota” tariff rate on imports of specific goods from specific countries until an annual 

allocation is met. Any imports beyond the TRQ allocation are subject to higher overquota tariff rates. In the model, restrictiveness is measured by the amount that TRQs raise 

the prices of imported goods, which is largely determined by three factors: the over-quota 

tariff rate, the gap between U.S. and world prices, and the “fill rates” or the extent to 

which imports from specific sources approach or exceed their quantity allotments. As 

with tariffs, not all sectors subject to TRQs were deemed to have significant restraints.

10 See appendixes C and D. 11 For an overview of the USAGE framework, see appendix E and USITC, Import Restraints, 2009, 

appendix E. For a complete specification of the model see Dixon and Rimmer, “USAGE-ITC,” 2002. 12 During the period of this investigation the latest benchmark data available are for 2002, while annual 

I-O data are available for up to 2011. 13 See appendix E for a description of these sectoral splits. 14 In detail, the average tariff rate among all NAICS 6-digit industries was 1.3 percent ad valorem based 

on the cost, insurance, and freight (c.i.f.) import value, and the standard deviation was 2.8 percent.

1-4

 
As noted above, the simulation analysis begins by generating a projection of the U.S. 

economy to 2017 to provide a baseline against which the effect of liberalizing significant 

import restraints can be compared. The projection uses the most up-to-date forecasts by 

other U.S. government agencies and international organizations to forecast the 

macroeconomy to 2017 and to project key U.S. macroeconomic variables such as 

consumption, investment, government spending, and imports and exports, as well as 

world gross domestic product (GDP). Using these macroeconomic projections, the model 

also generates baseline projections of output, employment, trade, and prices in each of the 

sectors of the model. These sectoral projections are further refined for the individual 

sectors that appear in this report, using forecasts from government and industry sources, 

as available, and observed industry trends.

15

The baseline assumes that current U.S. import restraints will remain in place. At the same 

time, however, it incorporates known trade policy adjustments, such as changes to tariff 

rates and TRQ quantity allocations contained in tariff staging schedules16 in U.S. free 

trade agreements (FTAs) and other trade agreements, as well as provisions of preferential 

trade arrangements (PTAs). These agreements provide the projected values of trade 

policy variables (such as tariff rates and TRQ fill rates) through 2017.

17

For each product, the projected restrictiveness of the TRQs depends on the projected gap 

between U.S. and world prices as well as projected fill rates, which are specific to each 

exporting country. For many products, both price gaps and fill rates have declined in 

recent years, a trend that has made the TRQs less restrictive than in previous updates of 

this report and has reduced their effect on U.S. prices and net economic welfare. Table 

1.1 summarizes the restrictiveness of import restraints in each sector in the model 

projection for 2017. The cheese, sugar, and apparel sectors have the most restrictive 

restraints in terms of their estimated ad valorem equivalents—i.e., the associated 

percentage increase in cost of the measure relative to the import price.

After the baseline projection is developed, the simulation can estimate the effects of 

liberalizing significant restraints, including tariffs, TRQs, and restrictive rules of origin. 

The liberalization of these restraints is modeled by setting the relevant tariffs to zero, 

removing TRQ quantitative restrictions, and removing preferential rules of origin in the 

textile and apparel sectors.18 The model simulation solves for the new equilibrium with 

these changes in place. The simulation calculates new equilibrium values, consistent with 

supply and demand constraints, for all model sectors. This report, however, lists estimates 

for only the sectors of interest, along with key “upstream” and “downstream” sectors.19

Estimates of the effects of liberalizing each sector are presented relative to the baseline 

changes expected to take place through 2017. For example, U.S. manufacturers’

shipments of cheese are projected to grow 13 percent between 2012 and 2017 in the 

absence of policy liberalization. Liberalization of cheese restraints would lower U.S. 

cheese shipments by about 2 percent, for an overall increase of approximately 11 percent 

15 Appendix E describes the sources and values of key macroeconomic variables and the sectoral 

baseline projections. 16 U.S. FTAs require tariffs for certain products to be reduced by stages in accordance with “staging 

schedules.” 17 For imports from countries without such agreements, future tariffs and TRQ allotments are based on 

their 2012 values. 18 Liberalizations of tariffs and TRQs directly affect imports into the United States. The removal of 

preferential rules of origin, in contrast, primarily affects U.S. exports by lowering foreign demand for U.S. 

inputs exported to U.S. FTA partners and preferential trading partners. See chapter 2 for details. 19 An “upstream” sector provides output that is used as an input by a “downstream” sector. 

1-5

 
through 2017. As the focus of this section is the economic effect of liberalization on 

consumers, firms, and workers, the key variables of interest are net economic welfare 

(i.e., the total purchasing power of U.S. consumers), shipments, and employment, in 

addition to imports and exports.

Services’ Contribution to Manufacturing

The Commission used complementary approaches to develop the chapter on services’ 

contribution to manufacturing. Unlike the import restraints analysis, the overview in 

chapter 3 involves no modeling. Instead, it reviews the literature on the role of services in 

manufacturing; describes publicly available data from sources including the U.S. Census

Bureau, the U.S. Bureau of Economic Analysis, and the U.S. Bureau of Labor Statistics;

examines statistics on the value of services embedded in manufacturing; and provides 

examples of the importance of services in manufacturing via case studies. 

The chapter begins by examining the existing literature on the role of services in 

manufacturing. The discussion is particularly focused on changes in the economic 

environment in the last few decades. Information was gathered from a broad range of 

sources, including industry sources, academic research, government research, and the 

popular press.

Increased efficiency is a driving force behind increased use of services by manufacturing 

firms. Improved efficiency related to services use is assessed through the examination of 

productivity measures using available sectoral data. 

Using similar sectoral data, broad patterns and trends of services inputs into 

manufacturing are discussed. Direct intermediate inputs of services into manufacturing 

are examined first; these are the services used by the manufacturing sector to complete 

their production. A second approach examines occupational data, which permits the 

analysis of the share of services workers within a manufacturing sector. This perspective 

is complementary to direct intermediate inputs in that it serves as a proxy for the services 

production occurring within a firm, whereas direct intermediate inputs are largely

produced outside the firm.

20

Data on value added are also used to examine the value contributed by services to 

manufacturing. Value-added databases collect the value contributed by each sector, both 

directly via direct intermediate inputs and indirectly, through other sectors. For services 

that are primarily sold to other businesses, it is particularly important to look at services 

value added, as a large share of these business services gets embedded within other 

intermediate inputs used in manufacturing goods. A global input-output database21 is 

used to place the U.S. data in global context and to assess the role of services trade in 

manufacturing.

The chapter concludes with three case studies—on semiconductors, medical devices, and 

performance textiles—that illustrate ways in which these industries are integrating 

services into their manufacturing activities.

20 In the database that describes direct intermediate inputs, services that are produced within a firm but 

provided across establishments (locations) are counted as direct intermediate inputs. See Horowitz and 

Planting, “Concepts and Methods,” 2006. 21 The data used are taken from the World Input-Output Database (WIOD).

1-6

 
Bibliography

Dixon, Peter, and Maureen Rimmer. “USAGE-ITC: Theoretical Structure.” Paper presented at the Fifth 

Annual Conference on Global Economic Analysis, Taipei, Taiwan, June 2002.

Horowitz, Karen, and Mark Planting. “Concepts and Methods of the U.S. Input-Output Accounts.” U.S. 

Department of Commerce. U.S. Bureau of Economic Analysis (BEA), BEA Paper, 

2006. http://www.bea.gov/papers/pdf/IOmanual_092906.pdf.

U.S. International Trade Commission (USITC). Interactive Tariff and Trade DataWeb (Dataweb)/U.S. 

Department of Commerce (USDOC). http://dataweb.usitc.gov (accessed various dates).

———. The Economic Effects of Significant U.S. Import Restraints: Sixth Update 2009. USITC 

Publication 4094. Washington, DC: USITC, 2009.

———. The Economic Effects of Significant U.S. Import Restraints: Seventh Update 2011. USITC 

Publication 4253. Washington, DC: USITC, 2011.

1-7

CHAPTER 2

Effects of Removing Significant Import 

Restraints

Overview

This chapter examines the effects that removing significant U.S. import restraints would 

have on U.S. consumers, firms, and workers. Removing these barriers to trade is expected 

to increase domestic welfare, exports, and imports. At the same time, however, it is 

expected to reduce shipments and employment in the U.S. sectors in which the restraints

are removed. 

For each industry with a significant restraint, the chapter presents updates on market 

conditions, explains and evaluates the import restrictions, and assesses the effects of 

removing those restrictions. Estimates are produced by the dynamic USAGE model

(discussed in chapter 1) and are assessed relative to a baseline of projected industry 

changes to 2017.1 As in previous updates, the modeling analysis does not account for 

liberalization in the services sector. 

The chapter first presents the effects of simultaneously liberalizing all sectors with 

quantified import restraints, and then presents the effects of individual liberalization of 

specific sectors. Not every sector with a significant restraint receives an individual writeup; those are reserved for sectors with multiple restraints or more complex restraints. 

Sectors affected chiefly by high tariffs are discussed together. Services import restraints 

are discussed qualitatively at the end of the chapter.

As mentioned in chapter 1, the estimated annual cost of the restraints (in net welfare 

terms2

) is about $1.1 billion, far lower than the $2.6 billion annual cost estimated by the 

previous (2011) update. The lower estimate largely reflects the expiration of the “other 

duty or charge” (ODC) on fuel ethanol imports at the end of 2011. Liberalization of 

restraints on textiles and apparel accounts for a little less than half of the welfare gains 

estimated in this update (table 2.1).

Although the model estimates that the size of the effects will differ by sector, the

mechanism of the effects in the markets for liberalized goods is broadly similar across 

sectors. Removing a measure such as a tariff-rate quota (TRQ) reduces the landed, dutypaid price of the affected U.S. import. The decline in the import price reflects the 

restrictiveness of the trade measure; eliminating a more restrictive measure will trigger a 

larger decline. To compete with lower-priced imports, U.S. producers of similar 

commodities will reduce their own prices. Some producers may go out of business due to 

increased competition so that domestic shipments and employment decline in these 

1 See chapter 1 and appendix E for more details about the analytical framework and the baseline 

projection. 2 Net welfare in the model is measured as the difference in real private consumption between the 

baseline projection and the liberalization scenario. Real public consumption is held constant across the two 

simulations and therefore contributes no change to total consumption.

2-1

 
TABLE 2.1 Average annual welfare gains from liberalizing significant import restraints relative to 

the model’s baseline projection, million $, 2012–17

Sector Change in economic welfare 

Simultaneous liberalization of all significant restraints 1,126.3

Individual sector liberalizations

 Cheese 49.5

 Sugar 276.6

 Tuna 7.7

 Textiles and apparel 483.4

 Ball and roller bearings –3.5

 Ceramic and glass products 52.5

 Cigarettes 139.5

 Costume jewelry 5.3

 Footwear and leather products 114.8

 Hand and edge tools 7.1

 Pens and mechanical pencils –2.0

 Residential electric lighting fixtures –18.6

 Synthetic organic dyes –1.4

Source: Commission estimates.

industries; remaining U.S. producers of the good will become more competitive in the 

world economy and increase exports. 

Users of the liberalized good benefit from these changes. As the prices of imported and

domestic goods fall, consumption of the liberalized good increases. Consumers benefit 

because they can continue to buy the same quantity of the good at a lower price and have 

money remaining for other uses. Producers who use the product as an input become more 

competitive in both domestic and foreign markets. Overall, the gains typically outweigh 

the costs, although there are distributional effects. For example, workers employed in

import-competing industries face the prospect of job loss and lower wages. Households 

broadly benefit from lower-cost consumption, but not every household gains. Those 

facing dislocation bear greater costs, barring any special assistance that they may receive. 

The same distributional effects hold for capital owners (owners or investors in firms) in 

different sectors of the economy.

As noted in chapter 1, estimates of the effects of liberalizing each sector are presented 

relative to the baseline changes expected to take place through 2017. For example, U.S. 

shipments of cheese are projected to grow 13 percent between 2012 and 2017 in the 

absence of policy liberalization. Liberalization of cheese restraints would lower U.S. 

cheese shipments by about 2 percent, for an overall increase of approximately 11 percent 

through 2017.

Effects of Removing All Significant Import Restraints

Effects of Liberalization on the Aggregate Economy Relative to 

Projected Trends

As the U.S. and global economies continue to emerge from the global recession, the 

model baseline projects an increase in gross domestic product (GDP) of 14.8 percent over 

2-2
2012–17, or an average annual compounded growth rate of 2.3 percent per year. 

Employment is expected to grow more slowly, at 8.8 percent over the period. Trade will 

grow more briskly (table 2.2).

Eliminating the significant import restraints identified in the model is expected to 

increase economic welfare by $1,126.3 million on average over the period 2012–17 (table 

2.1). Equilibrium employment in 2017 is expected to decline slightly relative to the 

benchmark, and 2017 GDP is expected to rise slightly—both by less than 0.05 percent 

(table 2.2). Imports are estimated to expand by 0.2 percent in 2017, while exports are 

expected to rise slightly faster, by 0.3 percent (table 2.2).

Effects of Liberalization on Individual Sectors Relative to Projected 

Trends

When all significant U.S. import restraints are eliminated at once, almost all liberalized 

sectors show the expected patterns of declining domestic shipments and employment, 

with increases in both imports and exports (table 2.3).

3 Among liberalized sectors, the 

largest proportional effects on shipments are seen in the textile and apparel sectors, which 

show declines of between 6.3 and 22.8 percent. Employment and shipments contract for 

most liberalized sectors. Imports of cheese, sugar, and cigarettes are all expected to 

respond strongly, due to the relatively high level of barriers removed for these goods.4

With the exception of the textile and apparel sectors, exports from the liberalized sectors 

are expected to rise, though less than imports. Textile and apparel exports are expected to 

decline substantially, amplified by the removal of rules of origin requirements under full 

liberalization; yarn, thread, and fabric imports decline, driven by the contraction in 

demand from the apparel sector, while imports of textile products and apparel rise in 

response to liberalization.

Cheese

The cheese industry is an important component of the U.S. dairy industry, with roughly 

one-third of U.S. milk supplies annually going to produce cheese.5 The value of cheese 

shipments in 2012 is estimated at about $36 billion, almost 30 percent higher than 

shipments in 2009 at $28 billion (table 2.4). Cheese manufacturing supports between 

40,000 and 50,000 employees, with Wisconsin and California by far the leading 

producing states, followed by Idaho, New York, and New Mexico. Excluding changes in 

stocks, U.S. cheese consumption grew 8 percent annually between 2009 and 2012 (26 

percent over the period), with mozzarella and cheddar the most popular cheese types.

3 The effects of liberalizing all significant import restraints at once are broadly consistent with the 

effects (shown in later tables) of liberalizing restraints one sector at a time. However, they may differ slightly

because of broader general equilibrium effects or linkages between liberalized sectors. For instance, 

shipments of synthetic organic dyes would fall by 3.1 percent in the simultaneous liberalization, while they 

would contract by somewhat less in the individual sector liberalization. Synthetic organic dyes are used as 

intermediate inputs by textile products. Thus, in the case of simultaneous liberalization, the effect on 

shipments of synthetic organic dyes reflects both the direct effects on dyes and the reduced demand for dyes 

by textile producers. 4 See table 1.1 for information on the restrictiveness of the import restraints.

5 About one-third of the milk is processed into fluid milk and cream products, one-third into cheese, 

and the remaining one-third into all other manufactured dairy products, such as butter, ice cream, and yogurt.

2-3

 
TABLE 2.2 U.S. national economy: Summary data and simulation results

Item

Summary data Projected 

change, 

2012–17 (%)

Effect of 

2009 2010 2011 2012 liberalization (%)

Million employees

Employmenta 130.9 129.9 131.5 133.7 8.8 (–)

Billion $

GDP 13,973.7 14,498.9 15,075.7 15,684.8 14.8 (+)

Importsb 1,976.2 2,356.1 2,662.3 2,744.0 18.9 0.2

Exportsb 1,587.4 1,844.4 2,094.2 2,184.0 34.4 0.3

Sources: USDOC, BEA, National Economic Accounts (accessed July 18, 2013); USDOL, BLS, Current 

Employment Statistics (accessed July 18, 2013); EIA, Annual Energy Outlook, 2012; Commission estimates 

for projection and liberalization.

Note: (+) and (–) denote a small positive or negative change of less than 0.05 percent.

 a

Employees on nonfarm payrolls.

 bIncluding goods and services.

TABLE 2.3 Simultaneous liberalization of all significant restraints: Effect on liberalized sectors, percent, 

2017

Sectora Employment Shipments Imports Exports

Food and agriculture

 Cheese –1.7 –1.5 40.2 0.9

 Sugar –13.6 –5.4 42.0 17.9

 Tuna –5.2 –5.2 4.8 0.5

All textiles and apparel

 Yarn, thread, and fabric –24.7 –22.8 –5.6 –52.7

 Textile products –5.6 –6.3 3.6 –29.0

 Apparel –7.8 –7.7 3.4 –7.9

Other manufacturing sectors

 Ball and roller bearings –2.1 –2.2 3.0 2.1

 Ceramic and glass products –2.3 –2.2 4.9 1.6

 Cigarettes –0.5 –0.4 26.1 0.6

 Costume jewelry –3.6 –3.3 1.1 0.8

 Footwear and leather products 0.2 0.1 1.2 1.0

 Hand and edge tools –2.5 –2.2 2.0 1.1

 Pens and mechanical pencils –3.3 –2.5 2.3 1.8

 Residential electric lighting fixtures –5.1 –4.6 2.5 1.2

 Synthetic organic dyes –4.0 –3.1 3.1 1.0

Source: Commission estimates.

 a

See appendix E for sector definitions.

2-4
TABLE 2.4 Cheese: Summary data and simulation results

Item

Summary data Projected change, 

2012–17 (%)

Effect of 

2009 2010 2011 2012 liberalization (%) 

Employment (employees) 41,400 44,400 50,300 48,700a 6.1 –1.7

Shipments (million $) 28,053 33,222 37,388 36,110a 13.1 –1.5

Imports (million $) 1,010 966 1,076 1,094 12.0 40.2

Exports (million $) 437 701 967 1,120 21.7 0.4

Sources: USDOC, Census, Annual Survey of Manufactures 2010 (accessed May 16, 2013); trade data 

from USITC DataWeb/USDOC (accessed May 17, 2013); Commission estimates for projection and 

liberalization.

Notes: Projected changes are based on quantity trends. Effects of liberalization represent deviations from 

the projected changes. See appendix E for details and sector definitions. 

 aCommission estimate.

The U.S. dairy industry operates under a complex system of federal and state programs. 

Federal programs include domestic price supports, milk marketing orders, the national 

Milk Income Loss Contract program, the Dairy Export Incentive Program, and domestic 

and international food aid programs.6 These programs aim to raise and stabilize dairy 

prices and producer incomes.

U.S. international trade in cheese is small relative to total domestic shipments. During 

2009–12, imports remained fairly stable at about $1 billion annually. Close to 80 percent 

of U.S. cheese imports are from the European Union (EU), with an additional 10 percent 

jointly from Switzerland and Norway. 

In contrast to imports, U.S. cheese exports saw rapid growth over this period, rising from 

$437 million in 2009 to $1.1 billion in 2012 for an annual growth rate of over 36 percent. 

In 2012, the United States for the first time became a net exporter of cheese due to 

increased demand abroad. Leading markets for U.S. cheese exports are Mexico, the 

Republic of Korea, and Japan.

Nature of Trade Restraints

The cheese sector is subject to relatively high average tariffs and the greatest number of 

quantitative restraints of any sector in this report, with nine separate cheese TRQs (table 

2.5).7 Some cheeses imported into the United States are not subject to TRQs, including 

cheese made of sheep and goat’s milk (e.g., feta and roquefort), and they accounted for 

about 36 percent of the total value of U.S. dairy cheese imports in 2012. Cheese imports

not subject to TRQs typically face low or moderate tariffs, most less than 10 percent ad 

valorem. 

Cheese products that are subject to TRQs encompass about 131 of the dairy sector’s 157 

10-digit tariff classifications in the Harmonized Tariff Schedule of the United States

(HTS). All nine TRQs have country-specific in-quota volume allocations. In-quota tariff 

rates on these products are generally below 10 percent ad valorem, while over-quota ad 

6 Details on these programs and their economic implications can be found at USDA, ERS, “Dairy 

Policy” (accessed May 16, 2013). 7 U.S. domestic and trade policies for dairy products were developed in the 1930s in response to price 

declines in the Great Depression. As part of the agreement establishing the World Trade Organization (WTO) 

that went into effect on January 1, 1995, a system of TRQs replaced fixed import quotas that were 

inconsistent with WTO disciplines.

2-5

 
TABLE 2.5 Cheese import restraint overview, representative products and sources, 2012

Item, with selected sources

AVE tariff rate (%) Imports (metric tons) TRQ

In-quotaa Over-quotab, c

Inquotaa Overquotab, c Fill rate (%)Allocation 

(metric tons)

Subject to TRQ

Other cheese (note 16) 10 20–40 36,262 3,042 74.6 48,627

Blue mold cheese (note 17) 10–20 17–28 2,792 722 95.9 2,911

Cheddar (note 18) 10–16 15–27 8,450 1,344 68.0 12,423 

 New Zealand 310 3.8 8,200 

 Australia 220 9.0 2,450 

 EU 1,032 78.6 1,313 

American-type incl. colby (note 19) 10–20 13–22 3 8 0.1 3,523

Edam and gouda (note 20) 10–15 23–37 5,481 163 80.4 6,816

Italian-type (note 21) 7.5–25 8–62 6,909 6,807 51.2 13,481 

 Argentina 2,005 31.4 6,383 

 EU 4,214 77.9 5,407

Gruyere-processed (note 22) 6.4–10 17–39 2,442 18 31.1 7,855 

Other cheese—low fat (note 23) 10 15 3 102 0.1 5,475 

Swiss and emmenthaler (note 25) 6.4 28 19,181 35 55.6 34,475 

 Norway 6,038 87.7 6,883 

 Switzerland 2,576 71.0 3,630 

 EU 10,340 45.2 22,900 

 Grand total 81,523 12,242 60.1 135,586 

Not subject to TRQ Total AVE tariff rate (%) Total imports (metric 

tons)

Sheep’s milk cheeses 0.1 24,015.70

Stilton 13.5 502.00

Source: USDA, FAS, Dairy Monthly Imports, January 2013.

 a

Commission estimate. Imports for specific countries may have entered under the "all other country" and free trade 

agreement (FTA) TRQs. 

 b

Over-quota imports may enter under separate tariff lines. 

 cExcluding over-quota shipments from FTA partners that enter duty free.

valorem equivalent (AVE) rates averaged about 27 percent in 2012.8 For some products, 

such as “other cheese” (note 16),9 cheddar cheese (note 18), and Italian-type cheese (note 

21), the quantity of over-quota imports is high compared to the quota quantity. For 

example, in 2012, over-quota imports for cheddar cheese and Italian-type cheese were 

1,344 metric tons and 6,807 metric tons, respectively, even where fill rates—the ratio 

between actual imports under the quota and the allotted quota level—were significantly 

below 100 percent. Over-quota imports sometimes occurred for high-value cheese 

imports, such as Italian-type cheeses from Italy. In these cases, the over-quota specific 

tariff was lower than the in-quota rate on an ad valorem basis.10 TRQ fill rates can reflect 

8 In-quota tariffs are ad valorem (i.e., a percentage of a good’s total value), while over-quota tariffs are 

specific (i.e., dollars per kilogram). 9 “Note” refers to notes in chapter 4 of the HTS. Each TRQ has a separate note, indicating the quota 

quantity and the specific 8-digit tariff subheadings that are covered by the quota. 10 For example, included in the Italian-type cheese quota (note 21) is 0406.90.41 (romano, reggiano, 

parmesan, provolone, and provoletti), which has an in-quota tariff of 25 percent. The over-quota rate 

(0406.90.42) is $2.146 per kilogram, which, combined with an average unit value of $15.24 per kilogram in 

2012, translates into an ad valorem equivalent tariff of 14.1 percent, less than two-thirds of the in-quota tariff. 

Over-quota imports, which do not require licenses, also may occur when importers without licenses are able 

to sell at a profit in the U.S. market.

2-6

 
the restrictiveness of restraints: the higher the fill rate, the more restrictive the restraint. In 

2012, the fill rates rose above 75 percent only for blue mold cheese (note 17) and edam 

and gouda (note 20).11 For two quotas, American-type cheese including colby (note 19) 

and “other cheese—low fat” (note 23), fill rates were negligible. Low quota fill rates can 

be explained by global market forces, such as rising demand in emerging markets.12

Global dairy exporters, such as New Zealand, Australia, and to a certain extent the EU, 

have begun exporting to expanding markets in Asia and the Middle East rather than to the 

United States. As dairy prices offered by rapidly developing economies converge with 

and, at times, surpass U.S. prices, the United States is no longer always the destination 

market of choice. Instead, major dairy-exporting countries (including the United States) 

are responding to market signals by shifting sales to regions of the world with previously 

low consumption of dairy products. These trends are expected to continue through the 

medium term (and likely longer) and are reflected in the sector-specific forecasts for 

dairy products in the simulation.

Projected Industry Trends

U.S. shipments of cheese are projected to increase by 13.1 percent between 2012 and 

2017, equivalent to about 2.5 percent annual growth (table 2.4). This increase is largely in 

response to high expected domestic demand for cheese owing to a rise in U.S. 

consumption of prepared foods and increasing consumption of food away from home.13

At the same time, U.S. milk shipments are expected to rise over this time, reflecting 

higher output per cow from improved technology and animal genetics. With expected 

lower consumption of fluid milk, higher milk production will be used to produce

processed dairy products, of which cheese is the most important in the U.S. market. 

Projected employment growth in the sector reflects the higher levels of future shipments. 

Larger projected cheese shipments are also a response to continued growth of U.S. cheese 

exports. U.S. cheese exports are projected to increase by about 22 percent between 2012 

and 2017, reflecting continued demand growth for U.S. cheese, particularly in Mexico 

and in a number of other markets, such as Asia, with high rates of population and per 

capita income growth. U.S. cheese imports are projected to rise by 12 percent, or 2.3 

percent annually during 2012–17, consistent with expected trends in U.S. population and 

per capita income growth.

Effects of Liberalization Relative to Projected Trends

Liberalization of U.S. import restraints on cheese is expected to increase U.S. welfare by 

$297 million over the six-year period from 2012 through 2017, or an average of about 

$50 million per year (table 2.1). Liberalization is modeled by removing all TRQs and 

duties on this product. Table 2.4 shows the effects of this liberalization on U.S. trade, 

shipments, and employment. Ending U.S. import restraints on cheese is expected to lower 

the landed, duty-paid price of cheese, which would lead to a rise in imports of over 40 

percent and to dips in domestic shipments of cheese (1.5 percent) and U.S. employment 

11 Even in cases where broad quota categories remain unfilled, TRQs can restrain imports if limits on 

quantities allowed from specific countries are filled and importers are forced to shift to other suppliers. 12 Low fill rates can also reflect market conditions, such as weak domestic demand for imports or 

increases in dairy consumption and imports in third-country markets. USDA, FAS, Dairy, July 2013. 13 USDA, USDA Long-term Projections, February 2013, 82.

2-7

 
in the cheese industry (1.7 percent). Cheaper imported cheese would induce a decline in 

U.S. domestic prices relative to world prices, leading to a small increase in exports of 0.4

percent. While the percentage rise in imports is quite high, the effect on domestic 

producers would be rather modest because of the low level of import penetration in the 

domestic cheese market.

Sugar and Sugar-Containing Products

The United States ranks fifth in the world in sugar consumption, accounting for 6 percent 

of global consumption, or 10.0 million short tons, raw value (strv) in marketing year 

(MY) 2012.14 U.S. sugar consumption increased in terms of quantity at an annual average 

rate of about 1.5 percent during calendar years (CY) 2009–12, mainly the result of 

population growth.

Sugar is produced in the United States from both sugarcane and sugar beets.15 The 

sugarcane sector comprises two distinct segments: sugarcane milling and raw cane sugar 

refining. First, sugarcane is milled to produce raw cane sugar. Raw cane sugar is then 

further refined at raw cane sugar refineries. Refined beet sugar, by contrast, is produced 

from sugar beets in a continuous process.16 Refined beet sugar and refined cane sugar are 

virtually identical and are interchangeable in use. Refined sugar is used directly by 

consumers and as an input in the manufacture of a multitude of food items. Many of these 

food items are included in the sugar-containing products (SCP) sector.17 While the 

primary focus of this section is the sugar sector, there is a secondary discussion of SCPs 

because of the quantity of sugar contained within these products.

18

U.S. producers supplied approximately 76 percent of U.S. sugar consumption in 

MY 2012.

19 The value of U.S. sugar processing totaled $10.1 billion in MY 2012 

(table 2.6). In terms of quantity, U.S. sugar production increased, from 7.5 million strv in 

MY 2009 to 8.5 million strv in MY 2012.20 Annual variations in sugar production result 

largely from weather conditions that affect both sugar beet and sugarcane production. 

The sugar processing sector employed 11,700 workers in CY 2012. Such employment 

has been in a long-term decline resulting from industry consolidation. Employment in 

14 Data are on a marketing year basis, generally October of the previous year through September of the 

stated year. USDA, FAS, Production, Supply and Distribution Online (accessed July 11, 2013). 15 Sugarcane and sugar beet production, which are respectively categories 111930 and 111991 in the 

North American Industry Classification System (NAICS), are not explicitly included in the sugar sector, as 

the import restraint is applied to the manufactured product. In addition, the United States does not trade in 

sugarcane and sugar beets. However, the import restraints affecting the sugar sector have an indirect effect on 

the production of sugarcane and sugar beets, as they are the primary inputs for sugar production. The 

Commission’s USAGE model accounts for adjustments among sectors and addresses the impact of sugar 

import liberalization on the sugarcane and sugar beet sector, which is discussed in this report. 16 The sugar processing industry appears in NAICS categories 311313 (beet sugar manufacturing) and 

311314 (cane sugar manufacturing). Before 2012 cane sugar processing comprised distinct NAICS codes for 

sugarcane mills (311311) and cane sugar refining (311312). This report uses the new NAICS grouping for 

cane sugar. 17 NAICS categories for SCPs include chocolate and confectionery manufacturing from cacao beans 

(31132); confectionery manufacturing from purchased chocolate (31133); nonchocolate confectionery 

manufacturing (31134); bread and bakery product manufacturing (31181); cookie, cracker, and pasta 

manufacturing (31182); and flavoring syrup and concentrate manufacturing (31193). 18 Most of these SCPs are not covered by TRQs. 19 USDA, ERS, Sugar and Sweetener Yearbook Tables (accessed April 1, 2013). Share is for domestic 

food and beverage use, raw sugar basis. 20 USDA, ERS, Sugar and Sweetener Yearbook Tables (accessed July 11, 2013).

2-8

 
TABLE 2.6 Sugar: Summary data and simulation results

Item

Summary data Projected 

change, 

2012–17 (%)

Effect of 

liberalization 

2009 2010 2011 2012 (%)

Employmenta Employees

Sugar crop farming

 Sugarcane farming 3,675 4,292 4,344 4,400 –22.5 –20.5

 Sugar beet farming 1,544 1,654 1,724 1,800 –0.6 –19.2

Sugar processingb 12,859 12,161 11,887 11,700 –6.3 –13.8

Shipmentsc Million $

Sugar crop farming

 Sugarcane 992 969 1,070 1,460 7.7 –14.2

 Sugar beets 1,501 1,610 2,143 2,449 3.4 –16.9

Sugar processing 6,487 9,811 10,609 10,149 0.6 –5.3

Importsd

Total sugar 1,243 1,850 2,532 2,534 30.2 43.0

Exportse

Total sugar 87 156 185 186 –19.5 18.0

Sources: USDA, ERS, Sugar and Sweetener Yearbook Tables (accessed July 9, 2013); USDA, NASS, 

Crop Production, various annual summaries; USDOL, BLS, Quarterly Census of Employment and Wages

(accessed July 9, 2013); Commission estimates for projection and liberalization.

Notes: Projected changes are based on quantity trends. Effects of liberalization represent deviations from 

the projected changes. See appendix E for details and sector definitions. 

 aReported on a calendar year basis. Data for 2012 estimated by Commission.

 bNAICS codes 311311 (sugarcane mills) and 311312 (cane sugar refining) were merged into NAICS 

code 311314 (cane sugar manufacturing) in 2012, and data are reported using the new codes. 

 cReported on a marketing year basis. Raw cane sugar is valued at the U.S. duty-fee paid price for 

imported raw sugar, New York. Refined beet sugar is valued at the U.S. domestic wholesale price for 

refined beet sugar.

 dReported on a marketing year basis. Total sugar includes raw and refined cane and refined beet sugar.

 eReported on a marketing year basis. Includes exports of cane and beet sugar, including refined sugar 

exports under the sugar reexport program, which accounted for 25 percent of the total value of U.S. sugar 

exports in FY 2011.

upstream sectors—sugarcane and sugar beet farming—totaled 6,200 workers in CY 2012, 

reversing a long-term decline and rising from 5,219 in CY 2009.

The United States is a net importer of sugar, mostly raw cane sugar, and typically exports 

a minor amount.21 The total value of sugar imports increased substantially from MY 2009 

to MY 2012 as a result of both rising demand and rising domestic and world prices. 

Imports supplied about 33 percent of the U.S. sugar market in MY 2012 in terms of 

21 Some U.S. sugar exports (27 percent in MY 2012) fall under the refined sugar reexport program, 

which allows cane sugar refiners and manufacturers using refined sugar as an input to import raw cane sugar 

at or slightly above world prices. However, the equivalent quantity of imported sugar is reexported within a 

given time period. The refined sugar reexport program is designed to ensure the competitiveness of U.S. 

sugarcane product exports on the world market while offering U.S. cane sugar refiners access to the raw 

material they need to maintain utilization of their refineries’ capacity.

2-9

 
quantity (raw basis), up from about 30 percent in MY 2009.22 Mexico is the leading 

supplier of U.S. sugar imports, accounting for 29 percent of the total quantity (raw basis) 

of such imports in MY 2012. All U.S. imports of sugar from Mexico have entered free of 

duty under the North American Free Trade Agreement (NAFTA) since January 1, 2008. 

The United States also trades and consumes a significant amount of sugar found in SCPs 

that are not subject to sugar TRQs. The net domestic consumption of sugar in imported 

SCPs rose from 152,444 strv in CY 1995 to 620,798 strv in CY 2012; such consumption

peaked at 834,058 strv in 2006.23 The bulk of SCP imports consist of sugar-based 

confectionery as well as cocoa and cocoa preparations. The principal suppliers are 

Canada and Mexico, which together accounted for 69 percent of all such imports during

CY 2012.24 There has been a long-term shift in production capacity of U.S. confectionery 

and baking companies to these countries, contributing to this trade.

However, net U.S. imports of sugar in SCPs have generally declined in recent years, as 

imports leveled and exports increased. The increase in exports resulted, in part, from 

increased market access for U.S. SCP exports under the NAFTA and other free trade 

agreements (FTAs) and preferential trade arrangements (PTAs). Also, some U.S. SCP 

manufacturers have increased production capacity in the U.S. market in recent years.25

Nature of Trade Restraints

Trade restraints in the U.S. sugar sector are related to domestic policies that manage 

supplies to maintain market prices for raw cane and refined sugar.26 If domestic prices 

fall below legislatively determined thresholds (“loan rates”), producers may opt to forfeit 

their supplies to the Commodity Credit Corporation of the U.S. Department of 

Agriculture at the loan rates.27 To keep U.S. domestic prices sufficiently above the loan 

rates, the United States administers a system of TRQs for imports of raw cane and refined 

sugar, blended sugar syrups, and certain SCPs for member countries of the World Trade 

Organization (WTO) in accordance with the WTO Agreement on Agriculture, and for 

other countries under U.S. FTAs and PTAs.28 WTO TRQs are based on minimum 

22 USDA, ERS, Sugar and Sweetener Yearbook Tables (accessed July 10, 2013). 23 USDA, ERS, Sugar and Sweeteners Outlook, June 18, 2013, 15. 24 USDA, ERS, email message to USITC staff, April 5, 2013 25 ASA, written submission to the USITC, March 11, 2013, 21–22. 26 The principal domestic policy elements include minimum prices (loan rates), a domestic marketing 

allotment that is set at a minimum 85 percent of U.S. consumption, and a feedstock flexibility program to 

divert surplus sugar to ethanol production. A summary of major changes that occurred to the U.S. sugar 

program under the 2008 farm bill is available at USDA, ERS, “2008 Farm Bill Side-by-Side” (accessed 

February 16, 2011). 27 Threshold prices are known as loan rates because when sugar prices drop below the threshold, U.S. 

sugar producers may take non-recourse loans from the Commodity Credit Corporation, using their sugar as 

collateral. 28 Sugar quotas were first established under the Jones-Costigan Act in 1934, largely in response to 

global competitive conditions and government support in other countries. The current TRQ structure was 

established on October 1, 1990, as a result of a complaint under the General Agreement on Tariffs and Trade 

by Australia. Suarez, “Origin of the United States Sugar Import,” September 1997, 14; Proclamation No. 

6179, September 13, 1990 (55 F.R. 38293).

2-10

 
commitments and may be increased under certain circumstances, while sugar TRQs 

under FTAs and PTAs are increased annually according to staging schedules.

29

WTO Agreement on Agriculture TRQs

The United States maintains separate TRQs for raw cane sugar, refined sugar, certain 

SCPs, and blended sugar syrups, and an absolute quota for cocoa powder containing 

sugar under the WTO Agreement on Agriculture.30 Imports within the quota are dutiable 

at relatively low in-quota tariff rates, while over-quota imports are subject to much higher 

duties. The majority of in-quota imports benefit from duty-free treatment under various 

FTAs or PTAs, mainly the Generalized System of Preferences (GSP). Over-quota 

imports are also subject to automatic safeguards, which add extra duties to the over-quota 

tariff depending on the price level of imports or, if announced by the Secretary of 

Agriculture, on the quantity of imports.31

The WTO raw cane sugar TRQ is allocated on a country-specific basis among designated 

sugar-exporting nations in proportion to their average market share of U.S. imports 

during 1974–1981. The four leading beneficiaries were allocated 46 percent of the total 

TRQ quantity, and only one of these (Brazil) filled its entire allotted amount in MY 2012 

(table 2.7). Under Uruguay Round commitments, the United States is required to allocate 

at least 1.1 million metric tons, raw value (mtrv) annually. The raw sugar TRQ must be 

set at this minimum level at the beginning of each marketing year (October 1) and may 

not be increased before April 1 of the following year, except in emergencies.32 In 

MY 2012, the final raw cane sugar TRQ totaled 1.5 million mtrv, with a fill rate of about 

84 percent (table 2.7).

The WTO refined sugar TRQ is administered with lower allocations than the raw cane 

sugar TRQ, but with fewer regulatory restrictions as well. For example, while the 

required minimum level of the global refined sugar TRQ is 22,000 mtrv annually, it is not 

restricted to this minimum on October 1. The refined sugar TRQ typically is set at a 

substantially higher level than the minimum. Moreover, the refined sugar TRQ is 

administered on a first-come, first-served basis, except for reserved annual allocations for

Mexico and Canada.33 A certain amount of the refined sugar TRQ is reserved for 

29 “Staging schedules” are schedules for implementing provisions of a trade agreement in steps rather 

than all at once. Note that preferential treatment under the raw cane sugar and refined sugar TRQs was not 

provided in the FTA with Australia. In addition, in-quota imports of sugar benefit from duty-free treatment 

under the Generalized System of Preferences, the Andean Trade Preference Act, and the Caribbean Basin 

Economic Recovery Act. 30 The WTO TRQs for raw cane sugar, refined sugar, certain SCPs, and blended sugar syrups are all 

provided for in the additional U.S. notes 5, 7, 8, and 9 to chapter 17 of the HTS and pertinent subheadings. 

The WTO TRQ for cocoa powder containing sugar is provided for in additional U.S. note 1 of chapter 18 of 

the HTS. 15 C.F.R. 2011 (2012). 31 The safeguards do not apply to imports from countries with U.S. FTAs. U.S. note 1 to chapter 99, 

subchapter IV of the HTS. 32 Emergencies include war, flood, hurricane, or other natural disaster, or other similar event as 

determined by the Secretary of Agriculture. 7 U.S.C. 1359kk. The current farm bill became effective October 

1, 2008. 33 Because of WTO commitments, Mexico and Canada still receive a refined sugar allocation despite 

their duty-free status under NAFTA. The Mexican allocation is 2,954 mt, while the Canadian allocation is 

10,300 mt.

2-11

 
TABLE 2.7 Sugar: TRQ fill rates, 2009–12

TRQ fill rates (%) Imports Allocation

TRQa 2009 2010 2011 2012 2012 2012

mtrv

WTO raw sugar quota 82.2 94.1 94.5 84.3 1,263,083 1,498,212

 Australia 100.0 100.0 100.0 98.3 133,212 135,530

 Brazil 98.4 100.0 100.0 100.0 236,770 236,770

 Dominican Republic 95.5 100.0 100.0 99,5 217,696 218,908

 Philippines 99.1 100.0 100.0 86.2 190,019 220,441

 Other 65.9 87.6 88.1 70.7 485,386 686,563

WTO refined sugar quota 90.9 96.7 71.6 94.2 106,151 112,718

Mexicob (

c

) (

c

) (

c

) (

c

) 917,859 (

c

)

FTA sugar quotasd 96.5 95.6 86.3 81.9 150,642 183,999

 CAFTA-DR 98.4 97.3 87.7 97.7 114,170 116,820

 Other 0.9 1.0 0.7 54.3 36,472 67,179

Sources: USDA, FAS, Sugar Monthly Import and Re-Export Data Report, 2009–12; USDA, ERS, Sugar and 

Sweetener Yearbook Tables (accessed July 30, 2013); DHS, CBP, Historical Tariff-Rate Quota/Preference 

Level Fill Rates (accessed July 2, 2013); USITC DataWeb/USDOC (accessed July 2, 2013).

 aOn a marketing year basis, unless otherwise indicated.

 b

Imports unconstrained by TRQs since January 1, 2008.

 c

Not applicable.

 dOn a calendar year basis. Data are on a product weight basis for some products.

specialty sugars (initially 1,656 mtrv in MY 2012).34 The refined sugar TRQ totaled 

112,718 mtrv in MY 2012, with a fill rate of about 94 percent (table 2.7).

FTA TRQs

The United States provides TRQs for sugar and SCPs under various FTAs. FTAs include 

additional market access for imported raw cane sugar, refined sugar, and SCPs, and the 

allocations generally increase annually for the quantities specified in each FTA. As noted 

above, imports from Mexico under NAFTA now enter free of duty. Duty-free, quota-free 

access is also provided under FTAs with Israel and Korea. Currently, the countries in the 

U.S.-Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) have 

the largest additional allocations among U.S. FTA partners. Sugar TRQs are also 

provided in FTAs with Bahrain, Chile, Colombia, Jordan, Morocco, Oman, Panama, 

Peru, and Singapore. FTA TRQs are subject to provisions that require partner countries to 

satisfy rules of origin and to have net trade surpluses of sugar, which must be larger than 

the staged allocation amount. Sugar TRQ allocations under FTAs totaled 183,999 mtrv in 

CY 2012, representing a fill rate of about 82 percent (table 2.7).

Projected Industry Trends

The baseline simulation projects only 0.6 percent growth in U.S. sugar processing 

shipments during 2012–17 (table 2.6). In the simulation, cane sugar refiners benefit from 

increased imports of raw cane sugar, while beet sugar refiners face increased competition, 

both from domestic cane sugar refiners and from imports of refined sugar.

35 Employment 

34 USTR, “U.S. Trade Representative Ron Kirk Announces,” August 12, 2010. Specialty sugars are 

defined in 15 C.F.R. 2011.202(i). 35 Although both domestic beet and cane refiners are subject to marketing orders, access to lower-cost 

imported raw cane sugar due to liberalization would enhance the relative competitiveness of cane refiners.

2-12

 
is projected to drop in all sugar sectors, with the greatest declines in sugarcane farming 

(23 percent) and sugar processing (6 percent). Total sugar imports are projected to 

increase by 30 percent during the period. Total U.S. sugar exports are projected to decline 

by a fifth during the baseline period.

Effects of Liberalization Relative to Projected Trends

Removal of restrictions on imports of sugar would result in a welfare gain to U.S. 

consumers of $1,660 million over 2012–17, or an average of $277 million per year (table 

2.1). Liberalization would be achieved by eliminating the TRQs and the remaining inquota tariffs. Sugar processing shipments and employment are each expected to decline, 

with employment declining more substantially than shipments. Sugar crops are expected 

to contract by 14 to 17 percent, while sugar processing would decline by only 5.3 percent

(table 2.6). This is possible because of sugar processing’s increased reliance on imported 

raw sugar feedstock. Total sugar imports would increase by 43 percent. Responding to 

the decline in domestic prices relative to world prices, producers would increase exports 

by 18 percent, albeit from a low basis.

Shipments of sugar-containing products would increase slightly, by 0.6 percent, in 

response to the lower sugar prices resulting from the liberalization. Imports would dip 1.0

percent, and exports would rise 1.3 percent.

Canned Tuna36

The United States is the world’s third-largest canned tuna producer,37 with shipments 

valued at an estimated $807 million in 2012 (table 2.8). It is also the world’s leading 

market for canned tuna, accounting for about 24 percent of global consumption.38 The 

U.S. canned tuna industry, which includes production facilities in the continental United 

States, American Samoa, and Puerto Rico, has become increasingly concentrated over 

time, such that three major brands—Bumble Bee, StarKist, and Chicken of the Sea—

account for between 75 and 85 percent of the U.S. market.39

The industry’s concentration is largely a response to competitive stresses linked to 

significantly higher U.S. wage rates in fish processing compared with those of foreign 

competitors, such as Thailand, Vietnam, and Ecuador. As a result, U.S. production has 

fallen from about 250,000 metric tons (mt) in 2002 to about 175,000 mt in 2012.40

Similarly, industry employment has fallen significantly compared with 30 years ago. 

Operations in American Samoa—which were originally established to take advantage of 

Samoa’s combination of proximity to tuna fisheries, relatively low wages, and duty-free 

access to the U.S. market—have not proved immune to this pressure. In 2009 and 2010, 

two major tuna companies eliminated or cut back operations in American Samoa, 

36 Throughout this section, the term “canned tuna” refers to both canned and pouched tuna. In the U.S. 

HTS, both tuna in cans and tuna in pouches are referred to as “tuna in airtight containers.” 37 FAO, Fishery Commodities Global Production and Trade database (accessed May 30, 2013). 38 The Pew Charitable Trusts website, “Global Tuna Fishing,” http://www.pewenvironment.org/newsroom/other-resources/global-tuna-fishing-85899397309 (accessed May 30, 2013). 39 Makoto et al., “Recent Developments in the Tuna Industry,” 2010, 93, 98. 40 USDOC et al., Fisheries of the United States 2003, October 2004, 56; USDOC et al., Fisheries of the 

United States 2011, August 2012, 55.

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TABLE 2.8 Canned tuna: Summary data and simulation results

Summary data

Projected change, 

2012–17 (%)

Effect of 

liberalization

Item 2009 2010 2011 2012 (%)

Employment (employees) 7,500a 5,000a 5,000a 5,000a –5.9 –5.2

Shipments (million $) 757 724 769 807a –14.5 –5.2

Imports (million $) 779 901 987 1,156 20.0 4.8

Exports (million $) 8 7 7 8 34.8 0.0

Sources: USDOC et al., Fisheries of the United States 2011, August 2012, 55; USITC DataWeb/USDOC

(accessed May 28, 2013); USDOC, Economic Census 2007 (accessed May 28, 2013); Rushford, “Charlie

the Tuna’s Economic Woes,” July 7, 2010.

Notes: Employment and shipments estimates are for the United States, American Samoa, and Puerto Rico. 

Imports and exports are for the United States and Puerto Rico only (U.S. customs territory).

 a

Commission estimate.

reportedly due to an increase in the minimum wage there.41 Tuna companies’ remaining 

domestic operations have become increasingly mechanized in order to achieve efficiency 

through scale economies.42

The United States is the world’s largest canned tuna importer,43 with imports of over $1.1 

billion in 2012. Recent high prices for canned tuna have affected trade levels; in 2012, 

U.S. imports of canned tuna declined in volume but increased in value. Imports are 

concentrated among a few major suppliers. In 2012, Thailand accounted for 47 percent of 

U.S. tuna imports, while the top five suppliers (Thailand, Ecuador, the Philippines, 

Vietnam, and China) together accounted for 79 percent. China has grown to become a 

major supplier of canned tuna; its shipments of canned tuna to the United States grew 389 

percent between 2008 and 2012. Imports made up 59 percent of estimated U.S. 

consumption in 2012, up from 44 percent in 2008, and exports accounted for 1 percent of 

domestic production.

The canned tuna sector comprises two principal products: tuna packed in oil and tuna 

packed in water. Production costs for tuna in oil and tuna in water are nearly identical; 

canneries can switch production from one product to the other at little cost. For the same 

brand and size of can or pouch, the two products often have identical wholesale and retail 

prices. Tuna packed in water is by far the more popular product, accounting for about 85 

percent of U.S. production and approximately 97 percent of total U.S imports.

Nature of Trade Restraints

Duties on tuna packed in oil are much higher than on tuna in water. Imports of canned 

tuna packed in oil are subject to a relatively high tariff of 35 percent, but are not subject 

to TRQs. U.S. imports of canned tuna packed in water are subject to a TRQ, but both the 

in-quota rate of 6 percent and the over-quota duty rate of 12.5 percent are far below the 

41 Rushford, “Charlie the Tuna’s Economic Woes,” July 7, 2010. 42 Bumble Bee Foods, LLC, written submission to the USITC, January 12, 2011, 5. 43 The United States is the largest single-country importer of canned tuna. If the EU countries are taken 

together, however, they are a larger import market. GTIS, World Trade Atlas (accessed May 31, 2013).

2-14

 
35 percent rate for tuna packed in oil.44 The TRQ for any given calendar year is equal to 

4.8 percent of apparent U.S. consumption (as reported annually by the USDOC) of 

canned tuna during the immediately preceding year.45 There is substantial demand for 

canned tuna in the United States, however, and as the over-quota tariff is not prohibitive, 

in 2012 over-quota imports amounted to 209,813 mt, representing 92 percent of total 

canned tuna imports.

The TRQ is administered on a global first-come, first-served basis. Because the low inquota tariff rate is about half the over-quota rate, importers attempt to qualify for as large 

a share of the TRQ as possible by storing thousands of cases of canned tuna in customsbonded warehouses in late December, waiting to withdraw those cases as soon as the 

calendar year begins. As a result, the TRQ fills very rapidly. However, according to 

industry sources, this system is costly for importers because it raises storage costs and 

leads to uncertainty over whether an individual importer’s product will face the in- or 

over-quota rate.

Projected Industry Trends

The baseline simulation projects a modest decline in U.S. canned tuna shipments to 2017, 

with shipments slowing at an average annual rate of about 3 percent. As domestic 

shipments fall, imports are expected to grow by about 20 percent over the five-year 

period. Meanwhile, exports are expected to grow moderately (for reasons discussed 

below), albeit from a very small base. Historically the industry has produced almost 

exclusively for the domestic market.

Effects of Liberalization Relative to Projected Trends

Liberalization in canned tuna was modeled by eliminating the ad valorem tariff 

equivalents of the duties on canned tuna packed in water and in oil. Removing these 

tariffs would lead to an increase in U.S. economic welfare of $46 million over the 2012–

17 period, or $7.7 million per year on average (table 2.1). Because elimination of the 

duties would lower the domestic price of tuna, employment and shipments in the U.S. 

tuna sector would decline by over 5 percent, with imports rising by almost 5 percent

(table 2.8). Because the domestic price would fall relative to the world price, U.S. 

producers would export a larger share of their reduced shipments, but there would be

almost no change in exports.

Textiles and Apparel

The United States was the largest single-country importer of textiles and apparel in 2012, 

accounting for 23 percent of global imports by value.46 Between 2009 and 2011, trade 

and shipments rebounded from the U.S. recession of 2007–09. This was followed by 

slower or slightly negative growth rates in 2011–12 (table 2.9). U.S. imports and exports 

44 Quotas on canned tuna imports were first introduced in 1956. This was in response to sharply 

increasing imports of canned tuna (nearly all from Japan) beginning in the early 1950s. See U.S. Tariff 

Commission, Tuna Fish, 1958; USITC, Competitive Conditions in the U.S. Tuna Industry, 1982. 45 For example, for CY 2012, the TRQ on canned tuna was 17,270,370 kilograms. 77 Fed. Reg. 22797 

(April 17, 2012). 46 GTIS, World Trade Atlas (accessed May 20, 2013).

2-15

 
TABLE 2.9 Textiles and apparel: Summary data and simulation results

Summary data Projected 

change, 

2012–17 (%)

Effect of 

liberalization

Item 2009 2010 2011 2012 (%)

Employment Employees, thousands

All textiles and apparel 418 396 389 381 –9.6 –14.5

Textile millsa 124 119 120 118 –9.6 –24.7

Textile productsb 126 119 118 115 –9.6 –6.8

Apparelc 168 158 151 148 –9.6 –7.7

Shipments Million $

All textiles and apparel 62,675 65,955 67,383 68,619 –2.1 –13.9

Yarn, thread, and fabric 25,380 29,617 30,196 29,775 –6.3 –22.9

Textile products 21,774 21,557 22,543 23,523 5.1 –7.1

Apparel 15,521 14,781 14,644 15,321 –4.9 –7.7

Imports

All textiles and apparel 85,338 97,760 106,375 106,026 13.8 2.9

Yarn, thread, and fabric 5,287 6,524 7,314 7,608 10.4 –5.8

Textile products 13,229 15,824 16,943 17,233 18.8 4.1

Apparel 66,821 75,412 82,118 81,186 13.1 3.3

Exports

All textiles and apparel 11,508 13,471 15,006 14,715 8.4 –41.3

Yarn, thread, and fabric 6,431 7,822 9,063 8,573 10.4 –52.7

Textile products 2,267 2,583 2,740 2,853 12.0 –30.2

Apparel 2,811 3,066 3,203 3,289 18.8 –7.9

Sources: USITC DataWeb/USDOC (accessed April 29, 2013); USDOL, BLS, Quarterly Census of 

Employment and Wages (accessed July 2, 2013); USDOC, Census, M3 Survey (accessed April 30, 2013); 

Commission estimates for projection and liberalization.

 aYarn, thread, and fabric are primarily produced by textile mills (NAICS code 313).

 bTextile products include carpets, rugs, home linens, canvas products, rope, twine, tire cord, and other 

miscellaneous made-up textile articles (NAICS code 314).

 cApparel includes knit, knit-to-shape, and woven garments and hosiery (NAICS code 315).

grew by 25 and 30 percent, respectively, between 2009 and 2011. From 2011 to 2012, 

U.S. exports contracted by 2 percent, while there was no change in imports. Shipments of 

textiles and apparel increased 9.5 percent during 2009–12 to $68.6 billion. Yarn, thread, 

and fabric output accounted for much of the increase in total shipments, increasing 17 

percent during the period; shipments of apparel declined 1 percent. 

As textile and apparel manufacturing has been outsourced to low-cost overseas 

producers, the number of U.S. textile and apparel plants has declined, with a 

corresponding decrease in the number of textile and apparel workers.47 In 2012, there 

were 3,025 textile mills, down from 3,463 in 2009; 7,132 textile product mills, down 

from 7,810 in 2009; and 7,241 apparel firms, down from 8,339 in 2009.48 Employment in 

the textiles and apparel sector experienced a consistent decline, falling 9 percent from 

2009 to 2012 for a total loss of roughly 37,000 jobs.49 The declines in employment can be 

47 Panteva, “Textile Mills in the U.S.,” 2012, 6. 48 USDOL, BLS, Quarterly Census of Employment and Wages (accessed July 2, 2013). 49 USDOL, BLS, Quarterly Census of Employment and Wages (accessed July 2, 2013). 

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attributed to production moving overseas, as well as to steady increases in shipments per 

worker as innovations in production processes and equipment continue.50

The contraction of the U.S. industry is part of a longer-term trend that was exacerbated 

by the elimination of the United States’ global quotas in 2005.51 However, industry 

representatives project that the rate of decline in the U.S. textile and apparel industry will 

slow through 2017.52 In part, this is because U.S. producers no longer compete directly 

with imports. U.S. production of textiles and apparel is primarily for high-end fashion 

and niche markets; U.S. government defense contracts under the Berry Amendment;53

and performance textiles for medical and industrial purposes requiring specialized 

materials such as nonwoven, antiballistic, or flame-resistant fabrics.54

Since 2005, global textile and apparel production has become concentrated among a 

small group of lower-cost Asian suppliers, particularly China, whose exports to the 

United States accounted for 40.4 percent of total U.S. imports of textiles and apparel in 

2012. Between 2009 and 2012, U.S. imports of textiles and apparel from China rose by 

26.7 percent to $42.8 billion. Although China is the leading supplier to the U.S. market, 

its export growth to the United States has slowed in recent years; China’s 

competitiveness versus other low-cost suppliers has weakened due to a stronger currency 

and rising costs for materials and labor.55 U.S. imports from its second-largest supplier, 

Vietnam, increased 42.3 percent by value during the period to $7.5 billion. Further, U.S. 

imports from India, Indonesia, and Bangladesh continued to grow at above-average rates. 

U.S. imports of textiles and apparel from NAFTA and CAFTA-DR countries also 

increased by value during 2009–12, rising by 13.6 percent and 28.6 percent, respectively.

Nature of Trade Restraints

There are no quantitative restrictions on U.S. imports of textiles and apparel. However, 

U.S. tariffs on these goods remain high: the trade-weighted average ad valorem tariff on 

all U.S. imports of textiles and apparel was 11.2 percent in 2012.

56 In general, these 

tariffs rise with each stage of manufacturing—that is, the duty rates are usually higher on 

apparel than on yarn or fabric. In 2012, the trade-weighted average tariff on apparel was 

12.8 percent, compared with 6.1 percent for textile products and 5.0 percent for textile 

mill articles (yarn, thread, and fabric).57 Tariffs on many heavily traded apparel articles 

are much higher than the overall average cited above, particularly for articles produced 

50 Reichard, “Textiles 2012: The Prognosis Is Good,” 2012, 26. 51 Quotas were imposed on textile and apparel imports to prevent market disruption as part of the 1974 

Multifiber Arrangement (MFA), an agreement reached among most of the major textile exporting and 

importing countries. In 1995, the WTO Agreement on Textiles and Clothing replaced the MFA and 

established a 10-year phaseout of textile and apparel quotas that ended on January 1, 2005. For additional 

information, see USITC, Import Restraints, 2007; USITC, Import Restraints, 2009; and USITC, U.S. Imports 

of Textiles and Apparel, 1991. 52 Panteva, “Textile Mills in the U.S.,” 2012, 8; Reichard, “Textiles 2012,” 2012, 26. 53 The Berry Amendment requires that clothing or textile articles procured by the U.S. Department of 

Defense (USDOD) be U.S.-produced, including the fibers, yarn, and fabric used to construct the articles (10 

U.S.C. 2533a). See USDOD, “Berry Amendment FAQ”

http://www.acq.osd.mil/dpap/cpic/ic/berry_amendment_faq.html (accessed May 28, 2013). 54 Panteva, “Textile Mills in the U.S.,” 2012, 8. 55 Fangqing, “Sourcing Shifts,” June 3, 2013. 56 USITC DataWeb/USDOC (accessed May 29, 2013). 57 These average tariffs were calculated using NAICS nomenclature. USITC DataWeb/USDOC 

(accessed May 29, 2013).

2-17

 
with manmade fibers. For example, the 2012 NTR duty rates on certain women’s and 

girls’ woven manmade-fiber pants and blouses were 28.6 percent and 26.9 percent 

respectively, and those on men’s woven swimwear of manmade fibers were 27.8 percent. 

The United States also has several compound tariffs on certain articles of apparel, where 

a fixed cost per kilogram plus an ad valorem duty are levied. For example, men’s 

manmade-fiber and wool blended coats classified under HTS 6201.13.30 are dutiable at 

49.7 cents per kilogram plus 19.7 percent ad valorem.

FTAs, Preference Programs, and Rules of Origin

Qualifying U.S. imports of textiles and apparel are eligible for duty-free treatment under 

various FTAs and preference programs. The value of U.S. imports under FTAs or 

preference programs in 2012 was $17.5 billion, or 16.5 percent of total U.S. imports of 

textiles and apparel, with 70 percent of such imports originating from CAFTA-DR and 

NAFTA partner countries. In general, for apparel to qualify for duty-free entry under the 

rules of origin (ROO) requirements in U.S. FTAs, it must be made from U.S. or regional 

inputs (yarns and fabrics); the specific percentages and other requirements vary by 

program. Such requirements generate a large share of foreign demand for U.S. textile and 

apparel inputs in the Western Hemisphere.

Projected Industry Trends

The baseline simulation projects a 2.1 percent decline in U.S. shipments of textiles and 

apparel between 2012 and 2017. Domestic employment in the sector is projected to 

decline more steeply at 9.6 percent during the period. U.S. exports of textiles and apparel 

are projected to increase 8.4 percent, while U.S. imports are projected to increase by 13.8 

percent. Overall household demand is estimated to rise by 17.3 percent over the six-year 

period. 

Effects of Liberalization Relative to Projected Trends

The removal of import restraints in the textile and apparel sectors would increase U.S. 

welfare by over $3 billion from 2012 to 2017 ($483 million per year, on average) 

according to model results (table 2.1), similar to the $514 million projected for the year 

2015 in the previous report. Liberalization consists of removing all duties on these goods, 

as well as removing ROO requirements on the subject goods. The removal of ROOs

would reduce demand for U.S. exports of items that currently benefit from such a 

requirement. The size of the reduction in each sector depends on the amount of textile 

and apparel inputs that the United States exports to preferential trading partners that is 

subsequently exported back to the United States in finished textile goods and apparel.58

Employment and shipments would each decrease by approximately 14 percent in the 

overall textile and apparel sectors (table 2.8). The textile sector would decline much more 

than textile products or apparel because much of the sector’s exports are driven by ROOs. 

Full liberalization would not only increase import competition for the textile industry, but

would also cause export demand to contract by over half.

58 A more complete discussion of the approach used is in Fox et al., “Textile and Apparel,” 2008. 

Following Fox et al. and using current trade data, the demand reduction from ROO elimination is estimated at 

33.1 percent for yarn, thread, and fabric, 15.4 percent for textile products, and 4.6 percent for apparel. 

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Other Goods Sectors with Significant Import Restraints

The Commission identified a number of other small and large U.S. goods-producing

sectors that face significant import restraints and that manufacture a wide variety of 

products. In 2011, these sectors represented over $70 billion in production and 179,000

employees. Among them, 45 percent of the production was accounted for by cigarette 

manufacturing, while footwear and leather products accounted for 62 percent of imports

(table 2.10). Employment and exports were higher in the ceramic and glass products, 

footwear and leather products, and hand and edge tools sectors, though no sector was 

outstanding in either area.

Footwear and Leather Products

Since the footwear and leather products sector encompasses 10 different NAICS codes, it 

produces a large variety of goods, giving it the most employment, imports, and exports 

among the sectors in this section. Although both the footwear and the leather products 

categories are substantial in size, in order to maintain comparability with previous 

instances of this study, they have been kept together in the model.

The five-year projections for these two categories vary considerably, so that larger trends 

obscure smaller ones. For example, exports for footwear are projected to grow at 35.1 

percent over the next five years, while exports of leather products are expected to decline

by 5.3 percent. However, the value of the projected exports of leather products is much 

larger than that of footwear, depressing the five-year projected increase in exports by the 

sector as a whole to 2.5 percent.

Projected Industry Trends

Overall, it is expected that employment in five of these sectors will decrease over the next 

five years, with the largest decrease occurring in the costume jewelry sector. The outlook 

for these industries is especially noteworthy considering that the average change in 

shipments for this group of industries is 1.7 percent, while U.S. real GDP is expected to

grow 14.8 percent over the same time period. The largest decrease in shipments is 

projected to occur in the hand and edge tools sector. Here the industry expects an 

increasing amount of production to shift to China, a change that underlies the expected 

increase in imports. Similarly, marked increases in imports are expected in other sectors 

that also produce items which are small and composed primarily of metal or plastic, and 

are hence relatively easy to ship in high volume, such as costume jewelry.

On the other hand, sectors in this group that are related to housing construction, 

residential electric lighting fixtures, and ceramics and glass will see increases in 

shipments, imports, and exports. All these trends reflect the continued recovery in the 

U.S. real estate market.

Export growth is projected to be flat or negative for the majority of industries in this 

group. This, along with the expected increase in imports, will expand the trade deficit 

within these sectors over the next five years.

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TABLE 2.10 Sectors with significant tariffs: Summary data and simulation results

Item

Summary data

2011

Projected change, 

2012–17 (%)

Effect of 

liberalization (%)

Employment Employees

Ball and roller bearings 22,320 –5.1 –2.4

Ceramic and glass products 75,032 4.6 –2.3

Cigarettes 7,309 –26.3 –0.4

Costume jewelry 4,862 –41.1 –3.8

Footwear and leather 28,220a –11.8 –0.2

Hand and edge tools 26,490 –37.6 –2.6

Pens and mechanical pencils 3,707 –12.5 –3.4

Residential electric lighting fixtures 7,318 –2.5 –5.0

Synthetic organic dyes 3,806 –5.8 –2.6

Shipments Million $

Ball and roller bearings 6,461 19.0 –2.5

Ceramic and glass products 18,119 12.4 –2.2

Cigarettes 31,183 –1.7 –0.4

Costume jewelry 575 –21.7 –3.5

Footwear and leather 4,728a –14.4 –0.3

Hand and edge tools 5,249 –28.6 –2.4

Pens and mechanical pencils 826 –13.2 –2.5

Residential electric lighting fixtures 1,371 27.6 –4.6

Synthetic organic dyes 2,170 14.8 –2.1

Imports

Ball and roller bearings 3,041 84.9 2.8

Ceramic and glass products 9,059 7.4 4.9

Cigarettes 130 24.4 26.2

Costume jewelry 2,134 55.4 1.0

Footwear and leather 35,433 8.1 1.3

Hand and edge tools 3,112 42.8 2.0

Pens and mechanical pencils 990 –16.7 2.3

Residential electric lighting fixtures 1,920 50.4 2.5

Synthetic organic dyes 925 –3.1 5.2

Exports

Ball and roller bearings 2,062 47.4 1.6

Ceramic and glass products 5,278 15.9 1.2

Cigarettes 386 –47.2 0.1

Costume jewelry 195 –17.2 0.3

Footwear and leather 2,803 2.5 0.6

Hand and edge tools 1,548 3.2 0.6

Pens and mechanical pencils 138 –28.1 1.3

Residential electric lighting fixtures 145 24.6 0.7

Synthetic organic dyes 711 –16.0 0.3

Sources: USITC DataWeb/USDOC data (accessed May 28, 2013); USDOC, Census, Annual Survey of 

Manufactures 2011 (accessed May 29, 2013); USDOC, Census, County Business Patterns 2011 (accessed 

May 29, 2013); Commission estimates for projection and liberalization.

Notes: Projected changes are based on quantity trends. See appendix E for details and sector definitions. 

 aDoes not include data for the NAICS sector of house slippers (316213) due to lack of availability.

Effects of Liberalization Relative to Projected Trends

The effect of liberalizing imports in these sectors is modeled by removing tariffs, one 

sector (or category) at a time. Simulation results show that eliminating tariffs in these 

sectors would decrease the price of imported goods, increase imports, and generally 

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reduce shipments and employment in the domestic industry (table 2.10). Removing tariffs 

from almost all sectors would lead to a net welfare gain (table 2.1).

U.S. welfare would increase the most from the removal of tariffs on cigarettes, rising by 

an average of $140 million per year over 2012–17.59 However, employment would 

contract, domestic shipments would decline, and imports of cigarettes would rise as the 

price of imported cigarettes falls, reducing prices for both domestic and foreign product 

in the U.S. market. The U.S. cigarette industry becomes slightly more competitive on 

world markets and exports rise as a result. This pattern of change is typical of the other 

sectors in this section.

Liberalization of footwear and leather products would increase welfare by $115 million

per year over 2012–17 (table 2.10). Employment would fall 0.2 percent and shipments 

would shrink by 0.3 percent in response to liberalization. Meanwhile, exports would 

increase by 1.8 percent.

The pattern of effects is the same for most of the other sectors in this group, although the 

magnitude varies somewhat. The prices of imports decline, shipments and employment in 

the domestic industry fall, and welfare rises. However, for four sectors—ball and roller 

bearings, pens and mechanical pencils, residential electric lighting fixtures, and synthetic 

organic dyes—the declines in shipments and employment outweigh the benefits of 

reduced import prices to produce net welfare losses.

Services Import Restraints

In the United States, services sector industries account for a very large share of GDP and 

employment. In 2011, for example, the U.S. services sector accounted for approximately 

82 percent ($12.4 trillion) of total U.S. GDP,

60 and employment in services industries 

represented 85 percent (104 million) of all employees in the United States.61

In terms of international trade, U.S. cross-border exports of private services were $586.8 

billion in 2011, while imports were $393.1 billion, resulting in a services trade surplus of 

$193.7 billion. In addition to cross-border flows, international trade in services also 

occurs when U.S. and foreign companies sell services through affiliates in foreign 

countries. Services supplied abroad by U.S.-owned foreign affiliates were valued at 

approximately $1.1 trillion in 2010, whereas services supplied by foreign-owned 

affiliates in the United States totaled $696 billion. 

Although there is considerable cross-border economic activity, both in trade and affiliate 

sales, import restraints in services remain and inhibit the freer flow of economic activity. 

59 These welfare gains do not account for the potential adverse effects from increased tobacco use. 60 USDOC, BEA, GDP-by-Industry Data (accessed April 25, 2013). This figure is the sum of the totals 

for two broad BEA categories: private services-producing industries ($10.4 trillion) and government ($2.0 

trillion). 2011 is the last year for which full-year data are available. 61 USDOC, BEA, GDP-by-Industry Data (accessed November 13, 2012). This figure is the sum of fulltime equivalent employees in private services-producing industries (83.6 million) and government (20.2 

million). 

2-21

 
Nature of Trade Restraints

Most U.S. government restrictions on services imports take the form of regulations that 

limit or prohibit foreign companies from operating and/or establishing subsidiaries in the 

United States. Foreign companies seeking to provide freight shipping services in the 

United States, for example, are restricted by U.S. cabotage62 laws. Specifically, under the 

Merchant Marine Act of 1920—better known as the Jones Act—cabotage may be 

provided in the United States only by ships that are registered, built, and maintained in 

the United States and owned by a U.S. citizen or corporation.63 Similarly, air cabotage 

regulations prohibit the transportation of persons, property, or mail (for compensation) 

between points within the United States in a foreign civil aircraft.64

Foreign services providers also face barriers to trade in the United States in the form of 

equity ownership restrictions and nationality requirements. In air transport services, for 

example, U.S. legislation not only limits foreign ownership of U.S. airlines to 25 percent 

of voting shares but also stipulates that the president and at least two-thirds of the board 

of directors (and other managing officers) must be U.S. citizens. Airplanes serving 

domestic routes within the United States are also required to be crewed by U.S. citizens 

or resident aliens.65 Similarly, 75 percent of the crew of Jones Act-compliant ships must 

be U.S. citizens.66

Commercial Banking

The U.S. commercial banking industry offers a broad range of financial services, 

although its traditional intermediation services—deposit-taking and commercial, 

industrial, and consumer lending—continue to account for about 60 percent of industry 

revenues.67 The remaining 40 percent of revenue comes from non-interest earnings, 

comprising fees and commissions for credit card services; real estate and mortgage 

transactions; and trading in securities and derivatives. Bank profit is normally estimated 

as the net interest margin—the percentage spread between deposit rates and lending rates 

—plus net non-interest revenue—the percentage spread between non-interest revenue and 

non-interest expenses such as salaries, lease or rental expenses, and other administrative 

expenses. During 2011–12, U.S. commercial banks continued their slow recovery from 

the financial crisis, experiencing increases in industry revenue, value added, and 

employment (table 2.11).

Cross-border trade in banking is limited to large money center banks and large, typically 

multinational, customers. The predominant mode of trade in commercial banking services 

is selling financial products through subsidiaries and branches located in foreign markets. 

62 Cabotage is defined as the transport of passengers and goods between two points within a country. 63 46 U.S.C.: Shipping. In 2002, the Commission modeled the impact of completely liberalizing the 

Jones Act’s requirements on maritime cabotage, with welfare effects estimated at $656 million. Liberalizing 

only the Jones Act’s requirement that the vessels need to be built domestically produced welfare effects of 

$261 million. USITC, Import Restraints, 2002, 115–29. 64 19 C.F.R. 122.165, “Air Cabotage” (2011). 65 49 U.S.C. § 40102(a)(15); 49 U.S.C. § 41102(a). 66 46 U.S.C.: Shipping. 67 Standard and Poor’s, Banking: Current Environment, 2013, 2.

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TABLE 2.11 U.S. commercial banking industry: Revenue, value added, and employment, 2008–12

Year Revenue (billion $) Value added (billion $) Employment

2008 544.1 179.2 1,945,672

2009 631.2 166.2 1,911,610

2010 631.8 272.4 1,919,644

2011 610.7 261.8 1,935,404

2012 613.5 262.2 1,950,887

Source: IBISWorld, Commercial Banking in the US, February 2013, 36.

In 2010, U.S. banking affiliates’ sales abroad totaled an estimated $164.2 billion, whereas 

foreign banking affiliates’ U.S. sales totaled $95.6 billion.68

Nature of Trade Restraints

The identification of trade restraints on commercial banking requires careful judgment. In 

particular, one must draw a distinction between prudential regulation, which is intended 

to ensure the safety and soundness of the banking system, and non-prudential regulation. 

Prudential regulation is practiced in every country, and ample room is made for such 

regulation in all trade agreements, though it is recognized that prudential regulation can 

increase costs and impede trade. Prudential regulations impose costs on foreign and 

domestic banks, both by increasing banks’ cost structure, as Basel III69 does by 

increasing capital adequacy ratios,70 and by increasing compliance costs when new 

regulations are promulgated, as is reportedly happening under the Wall Street Reform 

and Consumer Protection Act (H.R. 4173), also known as the Dodd-Frank Act.71

Prudential regulation may impede trade, as screening and licensing a foreign bank 

requires a careful, and sometimes lengthy, assessment of the foreign bank’s regulatory 

environment and the potential risks that that environment poses to the safety and 

soundness of the host country’s banking system. Regulatory reform, too, may impede 

trade by interjecting temporary uncertainty and ambiguity into the regulatory 

environment, as the reform is formulated, debated, implemented, and interpreted.72

Ultimately, every country is free to establish the prudential regulations and to undertake 

the regulatory reforms it deems appropriate.

For these reasons, this discussion focuses only on two non-prudential regulations. One 

regulation (actually a set of regulations) restricts the lines of business foreign banks may 

undertake in the U.S. market; the other restricts foreign representation on boards of 

directors. First, under the Foreign Bank Supervision Enhancement Act of 1991, branches 

of foreign-owned banks may receive deposits of any size from foreign customers, but are 

forbidden to receive deposits of less than $100,000 from U.S. citizens and residents. This 

68 USDOC, BEA, U.S. International Services, October 2012, 25, 27. 69 Basel III imposes a stricter, more narrow definition of capital and requires that capital increase as risk 

factors increase. Standard and Poor’s, Banking: Current Environment, 2013, 10. 70 The capital adequacy ratio is a prudential measure intended to preserve the solvency of banks. It 

expresses share capital and reserves as a share of total assets, the latter of which will be risk-weighted 

according to Basel III guidelines. 71 The Dodd-Frank Act entered into force on July 21, 2012. The act, among other things, establishes the 

Consumer Financial Protection Bureau to protect consumers from potential predatory practices of financial 

institutions, restricts banks’ ownership of hedge funds and private equity funds, and limits speculative 

proprietary trading. 72 For instance, DavisPolk reports that as of May 1, 2013, 153 (38 percent) of the 398 rulemakings 

necessary to the Dodd-Frank Act had been finalized and 129 (32 percent) rulemakings had yet to be 

proposed. DavisPolk, Dodd-Frank Progress Report, May 2013.

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effectively keeps foreign banks from establishing any retail branches, which would serve 

individuals and small businesses.

The act also stipulates that deposits in any foreign-owned branch established after 

December 19, 1991, are not covered by U.S. deposit insurance.73 While these restrictions 

may reduce the viability of foreign-owned banking branches in the U.S. market, their 

severity is moderated by the option of establishing a subsidiary, which would be free of 

such restrictions. Banks entering foreign markets often choose to do so through a

subsidiary rather than a branch, in large part because it poses less risk to the parent bank 

should the foreign unit experience a crisis (see table 2.12). 74

The second non-prudential regulation is that nationally chartered U.S. subsidiaries of 

foreign banks must have boards in which the majority of members are both U.S. citizens 

and residents. Board members are also expected to live near the subsidiary they govern, 

although the Office of the Comptroller of the Currency, which regulates nationally 

chartered foreign banks, may waive this requirement. Regulations pertaining to foreign 

banks chartered by U.S. states vary.75

Telecommunications

Both the wired and the wireless U.S. telecommunications industry experienced growth 

and change during 2008–12. Although the wired segment faced declining demand for 

traditional voice communications services, growing demand for wired broadband Internet 

services has offset these decreases, accounting for a projected 41.2 percent of industry 

revenues in 2013.76 Overall, during 2008–12, revenue and value added in the wired 

segment grew modestly, and while employment declined, the number of broadband 

connections doubled (table 2.13). 

The wireless segment of the U.S. telecommunications industry has seen increasing 

demand for mobile Internet access in recent years. Although cellular voice services

account for a majority of industry revenue, projected at 52.2 percent in 2013, data 

services such as text messaging are the current drivers of growth.77 During 2008–12, 

growth in industry value added outpaced revenue and employment growth. At the same 

time, the number of mobile subscriptions continued to rise, reaching 338.1 million in 

2012—nearly 30 percent higher than the 2008 level (table 2.14). The main

telecommunications firms, such as Verizon Communications and AT&T, each operate

across several segments of telecommunications, including both wireless and wired.78

73 Federal Reserve Bank of New York, “Foreign Banks,” 2007; FDIC, FDIC Consumer News, 2010; 

representative of the Institute of International Bankers, email message to USITC staff, April 19, 2013. 74 As Fiechter et al. explain, “A subsidiary is a separate legal entity, which is licensed and supervised 

by local regulators, with the parent having no legal obligation to support it if it falls into distress. In contrast, 

a branch is legally inseparable from the parent, which is fully responsible for its financial commitments.” 

Fiechter et al., “Subsidiaries or Branches,” 2011. 75 World Bank, Services Trade Restrictions Index (accessed July 16, 2013); PricewaterhouseCooper, A 

Regulatory Guide for Foreign Banks, 2007. 76 IBISWorld, Wired Telecommunications Carriers, 2013, 13–14. 77 IBISWorld, Wireless Telecommunications Carriers, 2013, 13–14. Broadband-enabled mobile 

devices are generating more revenue than older cellphones, which provide comparatively limited services 

(voice and text messaging). Ibid., 5. 78 IBISWorld, Wired Telecommunications Carriers, 2013, 5, 27–29.

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TABLE 2.12 Top 10 global banks’ holdings of foreign subsidiaries and branches

Bank Foreign subsidiaries Foreign branches

Industrial and Commercial Bank of China 19 2

China Construction Bank 4 1

JP Morgan Chase 11 1

Wells Fargo 1 0

Agricultural Bank of China 2 0

Bank of America 8 5

Banco Santander (Spain) 62 1

Citibank 69 5

Bank of China Limited 30 4

BNP Paribas (France) 66 0

Source: Bureau van Dijk, ORBIS database (accessed May 31, 2013).

Note: Banks are ranked by total assets.

TABLE 2.13 U.S. wired telecommunications industry: Revenue, value added, 

employment, and broadband connections, 2008–12

Year

Revenue 

(billion $)

Value added 

(billion $) Employment

Number of broadband 

connections (million)

2008 117.3 66.7 321,283 117.5

2009 120.0 67.4 310,991 124.0

2010 123.4 67.9 295,721 159.2

2011 124.2 67.8 293,060 206.6

2012 128.3 68.7 294,232 237.2

Source: IBISWorld, Wired Telecommunications Carriers in the US, March 2013, 36.

TABLE 2.14 U.S. wireless telecommunications industry: Revenue, value added,

employment, and wireless subscribers, 2008–12

Year

Revenue 

(billion $)

Value added

(billion $) Employment

Number of wireless 

subscribers (million)

2008 196.1 63.1 286,323 262.7

2009 198.7 65.2 277,590 276.6

2010 206.8 71.4 279,811 300.5

2011 207.0 73.5 283,168 322.9

2012 213.8 79.7 291,947 338.1

Source: IBISWorld, Wireless Telecommunications Carriers in the US, April 2013, 42.

The predominant mode of trade in telecommunications services is sales by establishments 

with commercial presence abroad. In 2010, U.S. telecommunications affiliates’ sales 

abroad totaled $31.0 billion, whereas foreign telecommunications affiliates’ U.S. sales 

totaled $30.8 billion.79 A majority of U.S. foreign affiliate sales were accounted for by 

wired telecommunications carriers.80

79 USDOC, BEA, U.S. International Services, “Table 9,” 2006–10; USDOC, BEA, U.S. International 

Services, “Table 10,” 2006–10. Cross-border exports and imports in 2011 totaled $12.7 billion and $7.7 

billion, respectively. USDOC, BEA, U.S. International Services, “Table 1,” 1999–2011. 80 Affiliate sales data are broken out into three categories: wired telecommunications carriers, wireless 

(except satellite) telecommunications carriers, and other telecommunications services. In contrast to foreign 

affiliate sales abroad, the wired segment appeared to account for a minority of sales by U.S. affiliates of 

foreign companies. Data for the other two categories were unavailable.

2-25

 
Nature of Trade Restraints

In the telecommunication services sector, U.S. legislation restricts foreign investors to a 

direct ownership position of 20 percent in telecommunication services carriers (referred 

to as common carrier licensees), whereas indirect ownership is limited to 25 percent.81 In 

practice, however, petitions to exceed the U.S. foreign ownership cap are typically 

approved by the U.S. Federal Communications Commission (FCC) on a streamlined 

basis for investors from WTO member countries. Indeed, two of the United States’ three 

largest mobile carriers are fully or partially owned by foreign investors: Verizon Wireless 

is a joint venture with UK-based Vodafone, which owns 45 percent, and T-Mobile is the 

U.S. subsidiary of Germany’s Deutsche Telekom. Tracfone, the leading prepaid provider 

of mobile services in the United States, is owned by Mexico’s América Móvil. Besides 

the FCC, the federal government’s so-called “Telecom Team” must also approve a 

petition to exceed the U.S. foreign equity restrictions. Approval by the Telecom Team, 

which is composed of representatives from the Department of Justice, Department of 

Defense, Department of Homeland Security, and several other government agencies, is 

reportedly more difficult to obtain, with issues ranging from lengthy review periods to 

nontransparent rules to high legal costs.82

The broadcasting segment is also subject to ownership restrictions. U.S. commitments 

under the WTO’s Agreement on Basic Telecommunications Services exclude foreign 

ownership in companies that offer direct-to-home, direct broadcast, and digital audio 

services to the U.S. market.83

81 47 U.S.C. § 310(b)(3); 47 U.S.C. § 310(b)(4). This legislation also applies to broadcast and 

aeronautical radio station licensees. A direct owner holds an “immediate interest” in a company where an 

indirect owner holds a 10 percent or greater interest in a company through “intervening entity or entities in an 

ownership chain.” FCC, “FCC Form 602: Instructions,” January 2007, 2. 82 Industry representative, email to USITC staff, August 3, 2011. 83 WTO, “Schedule of Specific Commitments,” 1997.

2-26

 
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3-1 

CHAPTER 3 

Services’ Contribution to Manufacturing 

Overview 

Services are used throughout the manufacturing process and the manufacturing value 

chain.1

 Some services are needed early in the chain (e.g., research and development); 

some are needed at the end (retailing, maintenance and repair); and some are needed at 

every stage (telecommunications and financial services).2

 Individual manufacturers often 

require a full spectrum of services.3

 In the United States, on average, 25.3 percent of 

intermediate inputs purchased by manufacturers in 2011 were from the services sector. 

For certain manufacturing sectors, such as computer and electronic products, this 

percentage—a measure of “services intensity”—is as high as 47.6 percent. 

Services can include a wide variety of activities, such as trade, transportation, 

information, education, health, and financial and professional services.4

 The emphasis in 

this chapter, however, is on business services. Business services are defined as those that 

are predominantly purchased by other businesses rather than final consumers; examples 

include legal, data processing, and accounting services, among many others (box 3.1). 

These services play an important role in manufacturing. In 2008, business services 

accounted for nearly half of all services purchased by manufacturing sectors. Moreover, 

business services are dynamic, having grown more rapidly than the services sector as a 

whole: since 1980, the share of business services in the U.S. economy has increased by 

59 percent, more than double the 24 percent share increase of overall services.5

 These 

sectors have benefited strongly from recent technological innovations, particularly those 

related to information and communications technologies (ICT), and in turn provide the 

benefits of improved productivity to the buyers of their products, many of whom are 

manufacturers. 

In describing the contribution of services in manufacturing, the chapter considers services 

inputs broadly, including services purchased by manufacturers from other firms, as well 

as services tasks performed within the firm. Not every employee in a manufacturing firm 

is directly involved in the physical production of goods. Rather, many employees provide 

services that support the manufacturing process. Examples include in-house lawyers, 

 1

 Value chains encompass all activities necessary to bring a product from conception to consumption. 

To the extent that they involve suppliers in different countries, they are referred to as global value chains or 

global supply chains. See USITC, Import Restraints, 2011, chapter 3. 2

 Nordås, “Trade in Goods and Services,” 2010; Miroudot and Rouzet, “Trade Policy Implications of 

Global Value Chains,” 2013. 3

 Kommerskollegium, At Your Service, 2010. 4

 While there is no universal definition of services, a basic definition would correspond to the services 

activities described in industry classification systems. Most of the data presented later in this chapter are 

based on the North American Industry Classification System (NAICS) and similar categorizations. The 

statistical classification of economic activities in the European Community (Nomenclature Générale des 

Activités Économiques dans les Communautés Européennes, or NACE) forms the basis for the World InputOutput Database (WIOD). 5

 USDOC, BEA, GDP-by-Industry Data (accessed July 11, 2013).The trends in business services are 

discussed in more detail below. 
3-2 

BOX 3.1 Business services 

Services sectors vary in how much they sell to final users versus how much they sell to producers. Some sectors sell 

primarily to final users; examples include restaurants, hotels, and public transportation. Business services, the 

sectors of interest to this study, sell the majority of their output, such as data processing, legal, and accounting 

services, to other firms. 

In this chapter, business services are defined as those that primarily supply producers and use high-skilled workers. 

For a sector to be considered a business services sector, more than 50 percent of its output must be used as 

intermediate inputs, and more than 60 percent of its labor force must work in certain high-skilled occupations 

(described below). 

Business services include the following activities, as classified by the Bureau of Economic Analysis (BEA) of the U.S. 

Department of Commerce:a (1) publishing (includes software), (2) motion picture and sound recording, (3) 

broadcasting and telecommunications, (4) information and data processing services, (5) services involving Federal 

Reserve banks, credit intermediation, and related activities, (6) services involving securities, commodity contracts, 

and investments, (7) insurance carriers and related, (8) rental and leasing services and services involving lessors of 

intangible assets, (9) legal services, (10) computer systems design and related services, (11) miscellaneous 

professional, scientific, and technical services, and (12) management of companies and enterprises.b 

Employees in business services-providing occupations are defined as workers in several major occupation 

groups in the Occupational Employment Statistics (OES) database kept by the Bureau of Labor Statistics of the U.S. 

Department of Labor: (1) management, (2) business and financial operations, (3) sales and related, (4) office and 

administrative support, (5) computer and mathematical, (6) architecture and engineering, (7) life, physical, and social 

science, (8) legal, and (9) art, design, and media. 

An extensive literature focuses on services sectors that supply producers. These are sometimes referred to as 

producer services. Depending on the author and the dataset examined, the sectors may also include wholesale trade 

and transport services, and may exclude communications.c 

a These correspond to sectors in the U.S. annual input-output tables published by USDOC, BEA. b

 The World Input-Output Database (WIOD) data source used in this chapter uses a slight variation on the BEAbased definition of the sector used in other parts of this chapter. In particular, WIOD includes national postal services 

and administrative and support services in addition to the business services used in this chapter’s analysis. WIOD 

excludes publishing, software, motion picture and sound recording, and broadcasting. c See Francois and Woerz, “Producer Services,” 2008; Liu et al., “Embodied Services,” 2013. Other research that 

examines business services includes Lesher and Nordås, “Business Services, Trade and Costs,” 2006; Kox, 

“Unleashing Competition in EU Business Services,” 2012; Antipa and de la Serve, “International Comparisons,” 2010. 

accountants, and researchers developing and applying technologies, as well as 

maintenance workers and administrative assistants. In 2012, about a third of all workers 

in U.S. manufacturing firms were in business services occupations, a share that has been 

rising in recent years. 

The chapter first describes how U.S. manufacturers in the 21st century are taking 

advantage of services in new and innovative ways to manage global supply chains, cut 

costs, improve efficiency, and strengthen customer relationships. This description draws 

from the literature and industry accounts. The chapter then considers the linkages 

between the increased use of business services and manufacturing productivity using U.S. 

input-output (I-O) data. Also using I-O data and occupational data, the chapter describes 

recent trends and sectoral patterns in the use of services by manufacturers. A global I-O 

database permits the comparison of the services intensity of U.S. manufacturing with that 

of other economies, as well as an assessment of the importance of foreign services to U.S. 

manufacturers. Finally, three case studies—on semiconductors, medical devices, and 
3-3 

performance textiles—illustrate the types of services that have upgraded efficiency, 

increased competiveness, and enhanced customer relationships. 

Rationales for the Increased Use of Services in the 

Manufacturing Sector 

Services have always been embedded throughout the manufacturing value chain. In 

recent years, developments in the services economy have transformed the way traditional 

services activities are conducted and have even introduced new services related to the use 

of new technology. Manufacturing firms now have more employees conducting research 

and development (R&D), business information management, and accounting, given the 

huge increase in computational capacity brought about by advances in information 

technology (IT). They also have more employees in marketing and advertising, reflecting 

the expansion of customer channels of communication fostered by the Internet and social 

media.6

 At the same time, new communications technologies have enabled many 

activities previously maintained in-house to be outsourced to specialist services 

providers.7

 As a result of these trends, the U.S. manufacturing sector appears to be 

growing more business service-intensive over time.8

 This increased importance of 

services is especially marked in such manufacturing subsectors as computer and 

electronic products, where services represent a high and growing proportion of inputs 

purchased outside the company as well as activities undertaken in-house. 

While changes in the pattern of manufacturers’ use of services are likely to reflect how 

firms have responded to a variety of business and economic factors, three key drivers of 

manufacturing firms’ use of services are identified and further discussed in this section: 

1. The increasing geographic dispersion of supply chains with specialization. 

Firms are seeking opportunities to move low-skill production work to low-wage 

locations and to concentrate their intellectual property development efforts in highskill locations with favorable regulatory environments. 

2. The need to cut costs and improve efficiency. Firms are using a variety of new 

technologies, particularly technologies related to ICT, to improve production 

efficiency and lower costs. 

3. The desire to deepen customer relationships by providing services related to 

their products. Firms are using new types of services to better differentiate and 

customize their products, increasing their opportunities for premium pricing or 

improved market position. 

These prospective competitive gains encourage manufacturers to incorporate more 

services at all stages in the product value chain. In early stages, ICT and transportation 

services increase manufacturing productivity by allowing firms to take advantage of 

 6 As discussed later in the chapter, the share of U.S. manufacturing employees engaged in business 

services activities rose from 29.7 percent in 2002 to 32.5 percent in 2012. 7

 For example, many manufacturing companies are increasingly purchasing “cloud” data processing 

services instead of maintaining their own data processing facilities. It is currently estimated that about 5 

percent of all enterprise IT spending is on cloud services, but this is expected to rise exponentially in the next 

few years. USITC, Digital Trade, 2013, 3-4; Venkatraman, “The Battle for the Cloud,” 2013, 19. 8

 The share of business services in U.S. manufacturing value added has held roughly steady at close to 

16 percent from 1995 to 2008. Combining this with an observed increase in business services occupations 

may suggest an increase in services intensity overall. This and other trends are discussed later in this chapter.
3-4 

global economies of scale and use new process-improving technologies. At later stages in 

the chain, integrating services with manufactured goods into a more tailored product 

offering allows firms to increase their product differentiation, creating new business 

opportunities. Additionally, advances in ICT, particularly Internet-enabled services, have 

enabled firms to establish dynamic feedback loops, allowing them to collaborate with 

their customers and to deliver more customized products.9

 

Services Enable the Geographic Dispersion of Global Value Chains

Better services provision, particularly in ICT, logistics, and financial services, has 

reduced the trade and coordination costs associated with greater geographic dispersion of 

global value chains (GVCs). Including more services components is likely to strengthen 

the competitiveness of an entire value chain, including both production and services 

activities, because more people are able to specialize in certain tasks along the chain and 

coordination is more effective.10 High-quality ICT infrastructure—fast, reliable 

telecommunications networks and broadband access—has become more universally 

widespread, reducing the costs of coordination for GVCs.11 At the same time, 

multinational manufacturing firms are seeing great benefits from integrating supply chain 

management services into their business. For example, Intel has been able to significantly 

shorten lead times, reduce inventory holdings, and respond much faster to customers 

using a networked GVC management system.12

Improvements in logistics services have also fueled the globalization of supply chains. 

Containerization transformed the logistics and warehousing industries in the 1970s and 

1980s, while more recently the advent of location tracking and temperature sensors made 

possible by new digital communications (the so-called Internet of Things) has enabled 

more efficient shipment of parts and goods all around the world with reduced handling 

losses.13 Shippers like UPS and FedEx increasingly provide maintenance and care 

services for the products they move, in addition to mere shipment.14 

The quality of professional and financial services available locally or on a global-account 

basis may have also played a role in enabling GVCs. Global manufacturing firms are 

likely to find it easier to set up significant production or sales operations in countries with 

established legal and insurance services and strong financial sectors; local access to credit 

and efficient payment systems help improve efficiency and lower supply costs.15 In 

addition, services providers have also expanded their range of products and geographic 

coverage in recent years in order to assist multinational corporations. For example, global 

supply chain management insurance is a relatively recent innovation designed to help 

 9

 Kommerskollegium, Everybody Is in Services, 2012; USITC, Digital Trade, 2013, F-6. 10 Nordås and Kim, “Interaction between Goods and Services,” 2013, 19. 11 USITC, Digital Trade, 2013, 1-9. 12 Intel, “Accelerating Business Growth through IT,” 2013, 10. 

13 Copeland, “Identifying the Potential of Logistics Technology,” 2013, describes DHL’s use of digital 

technologies and radio frequency identification devices to improve logistics efficiency and tracking 

capabilities. See also Bernhofen et al., “Estimating the Effects of the Container Revolution,” 2012; 

Notteboom and Rodrigue, “The Future of Containerization,” 2009. 14 Shactman, “UPS, FedEx Growing by Tapping ‘Adjacent Business,’” 2012; Bughin et al., “Ten ITEnabled Business Trends,” 2013, 5. 15 Arkell, “The Essential Role of Insurance Services,” 2011, 2; OECD, “Global Value Chains (GVCs): 

United States,” 2013, 3.
3-5 

protect large multinationals setting up operations abroad against business continuity risks 

from supply disruption.16 

Services Supported by New Technologies Help Firms Lower Costs 

and Improve Efficiency 

Technology changes have led to improvements in existing services—as in the logistics 

industry, as described above—and have enabled the introduction of some entirely new 

services, such as software development for 3-D printing of prototypes.17 Table 3.1 

describes how technology enables services to provide direct benefits to producers in 

terms of improved processes, greater efficiency, and increased customization and 

customer interaction. The table also illustrates how these services advances percolate 

throughout the product value chain. 

ICT services are seen to be central in helping companies develop better products and get 

these products to market more quickly. Along with widely adopted new organizational 

paradigms, such as “lean manufacturing,” manufacturing companies now use enterprise 

resource planning and business information systems to manage suppliers, track parts and 

inventory, reduce energy costs and other production costs, track orders, and coordinate 

sales and after-sales services. Increasing reliance on these services has enabled 

companies to improve efficiency, cut costs, and diversify their products.18 

Firms now need more scientific, engineering, and technical services for R&D, as well as 

maintenance and training services, as a result of major scientific advances in recent 

decades, including research into new materials in machinery and electronics, and 

progress in genetic engineering in the life sciences.19 For example, the aircraft 

“composites revolution” has saved plane producers money by adding strength, reducing 

weight and fatigue, and decreasing production costs. However, designing and learning 

how to maintain new composite parts requires new performance measurement processes, 

both while new parts are in the design stage and after they have been produced and 

installed.20

Opportunities for new types of R&D and prototyping services have arisen with the advent 

of 3-D printing, robotics, and other forms of automation––and the IT and Internet 

technologies that they rely upon. Producers are now often able to customize products to 

specific customer requirements or to run smaller batch runs with little additional cost. 

Flexible machine tools and automated business processes allow cost-efficient batch 

production to take place at several sites, including locations in high-wage economies, if 

customer requirements dictate. Engineering and designing processes that automate 

customers’ requests create more services opportunities.21

Innovations such as “Big Data” analytical services and cloud computing services are 

expected to have profound effects on manufacturers’ business models. Big Data analytics 

 16 Zurich Insurance, “Supply Chain Risk,” 2012, 5. 17 Brynjolfsson, “The 4 Ways IT Is Revolutionizing Innovation,” 2010. 18 Infor, “Supporting the Lean Value Stream,” n.d. (accessed August 30, 2013); SAP, “Riding the 

Growth Wave,” 2008; IBM, “IBS and IBM Optimize ERP,” 2010. 19 Lind and Freedman, “Value Added: America’s Manufacturing Future,” 2012. 20 Careless, “The Aircraft Composites Revolution,” 2012. 21 Nordås and Kim, “Interaction between Goods and Services,” 2012, 8. 
3-6 

TABLE 3.1 Services advances throughout the product value chain 

Driver Stage in the 

value chain Service Benefit to producer Enabling technology 

More efficiency 

and lower costs 

of product 

development, 

production, and 

overhead

Design Design services Makes process more efficient 

Computer-aided design (CAD) 

software 

Information technologies 

R&D R&D services; prototyping 

services 

Improves products; reduces 

development costs and 

shortens product development 

cycle; increases product 

efficiency (in decreased cost of 

failure)

Advanced manufacturing 

 –3-D printing 

 –New composite materials and 

 chemistry 

 –Nanotechnology 

Sourcing of 

intermediate 

inputs 

Logistics and transportation 

services; supply chain 

management services 

Allows geographic dispersion 

of GVC with the aim of 

lowering costs 

Containerization; digital 

communications; radio frequency ID 

tracking 

Manufacture 

and assembly 

IT services/production 

process management 

services; testing services; 

parts inventory tracking 

Makes process more efficient Robotics and automation 

Network and communications 

services; data analytics and 

processing services 

Makes process more efficient Cloud computing 

Increases production process 

quality and cuts production 

times 

Algorithms for processing Big Data 

“The Internet of Things”: smart 

systems and sensor networks 

Utilities, including 

telecommunications and 

electricity 

Makes manufacturing more 

efficient owing to high-quality 

provision of services (no 

interruptions) 

Fiber optic telecommunications and 

broadband networks; smart grid 

Management of 

the firm 

Human capital management 

services Lowers overhead costs and 

improves coordination of the 

enterprise Digital communications and cloud 

computing; enterprise management 

software 

IT services 

Financial and treasury services Lowers financing costs 

Legal, accounting, and other 

professional services Lowers overhead costs 

Warehousing 

and distribution 

Inventory management 

services; logistics and 

transportation services 

Allows geographic dispersion of 

GVC with the aim of lowering 

costs 

Containerization; digital 

communications 

More product 

differentiation 

and customer 

satisfaction, 

enabling higher 

sales margins 

and more 

competitive 

product 

positioning 

Marketing, 

branding, and 

sales 

Online sales 

Facilitates outreach to 

customers and offers ways to 

access new markets 

Cloud computing; e-commerce 

platforms 

Sales force management 

services 

Enables faster and more 

efficient customer targeting 

Enterprise management software 

and networks; cloud computing 

Financial services (such as 

customer finance or equipment 

leasing services) 

Enables sales of large-ticket 

items such as aircraft via 

customer financing solutions; 

allows customers to buy 

functionality that can be easily 

scaled up and down via 

equipment leasing 

Innovative asset securitization 

structures; digital communications 

Aftermarket 

service 

Digital services including cloud 

computing, social media, 

customer relationship 

management; IT services 

Attracts more customer insights 

and collaboration 

Cloud computing; digital 

communications technologies 

Maintenance and repair 

services 

Shortens response times to 

repair products and upgrades 

ability to do preventative 

maintenance, improving 

customer service 

“Internet of Things” 

communications; cloud computing; 

machine sensors 

Sources: USITC, Import Restraints, 2011, 3-2; WEF, The Shifting Geography of Global Value Chains, 2012, 21; 

Kommerskollegium, Everybody Is in Services, 2012, 14; Ebner and Bechtold, “Are Manufacturing Companies Ready?” 2012, 4. 
3-7 

encompass a range of ICT services focused on gathering and interpreting large 

information datasets—such ICT services include wireless communications, software 

programming, data processing, mathematical modeling, and data storage and retrieval. 

On the factory floor, companies collect real-time metadata on their manufacturing 

processes through digitally connected testing and monitoring equipment, and use these 

data for ongoing process improvement.22 Some use data approaches developed in-house, 

while others purchase the services of data scientists or data miners. In response to 

constant analysis of testing results, production process recipes can be quickly adjusted to 

meet technical and quality standards, with a minimum of downtime cost. Companies like 

GlobalFoundries, a semiconductor foundry, use Big Data analytics to monitor and refine 

manufacturing procedures, including forecasting quality and yields in new production 

batches. Big Data analytics are also helpful in the development phase of semiconductor 

manufacturing, enabling producers to model multiple client designs at one time or 

estimate the performance characteristics of a range of product variations.23 

Cloud computing services have also become important in the manufacturing sphere. 

Amazon, Google, Microsoft, Rackspace, and many other companies provide cloud 

hosting, data communications, and infrastructure services for manufacturers of all sizes, 

often in coordination with software services offered by IBM, Oracle, or SAP. Clients pay 

according to amount of space they use, and besides hosting, securing, and maintaining 

data, services providers offer infrastructure services and applications. Because cloud 

services remove the need for a large IT infrastructure investment, businesses—especially 

small to medium-sized firms—often find them a cost-saving alternative. Small firms can 

also benefit from the economies of scale of large data centers, as cloud services providers 

can use their security systems to protect and store data from many different customers at 

once, passing on the unit cost savings to customers. 24 

Services Are Increasingly Part of Manufacturers’ Product 

Offerings, Helping to Differentiate and Customize Goods 

In addition to using services in the production process, manufacturing firms are 

combining goods with services to differentiate their products from those of other 

suppliers and to provide a more customized product offering. In so doing, they make 

themselves more appealing to shoppers and build a stronger relationship with their 

customers. Examples include the monitoring and evaluation capabilities that come with 

Emerson Electric devices25 or the OnStar customer support system in new GM vehicles. 

Customizing goods through services components helps manufacturers stand out in a 

market that relies increasingly on non-price competition.26 As a result, many firms that 

once saw services as merely part of operating costs now highlight them as essential for 

providing a premium product and building brand loyalty and product dependence.27

 22 McGuire et al., “Why Big Data Is the New Competitive Advantage,” 2012. 23 Industry representatives, interviews by USITC staff, May 2013. 24 Brodkin, “Ten Cloud Computing Companies to Watch,” 2009. Amazon Web Services website, 

http://aws.amazon.com/what-is-cloud-computing (accessed August 30, 2013); Oracle, “Managing the Product 

Value Chain,” 2011; USITC, Digital Trade, 2013, 2-31. 25 Emerson Process Management website, http://www2.emersonprocess.com (accessed September 17, 

2013). 26 Nordås and Kim, “Interaction between Goods and Services,” 2012, 8; Lind and Freedman, “Value 

Added: America’s Manufacturing Future,” 2012. 27 Aberdeen Group, “Service Excellence and the Path,” 2012. 
3-8 

Advances in ICT Give Firms Enhanced Customer Information and Feedback 

Manufacturers are also using services to create a system of dynamic feedback that uses an 

array of customer information to align production with customer needs and wants. An 

example of this is the use of analytics and metrics to analyze trends and develop customer 

insights. Like other services that support the customizing of goods, metadata analysis 

helps firms to segment the customer base and then tailor products for each market they 

serve, as well as to provide them with customer information that is valuable in shaping 

future product offerings.28

Hewlett-Packard, an IT company, uses software-as-a-service (SaaS)29 to analyze 

customers’ Web metrics and uses the results in a dynamic model of production. In 

addition to allowing Hewlett-Packard to use clickthrough information to improve product 

pages, Web metrics such as time spent viewing a page and click counts help the company 

to learn which products are most popular on their site and adjust production 

accordingly.30

Many firms are also using online interactions with their target market, including social 

media, to bolster sales, identify demand, and build brand loyalty. Customers can provide 

product feedback using firms’ online presence and, in many cases, can expect a response. 

As described below, companies have also developed entire social media departments—

often separate from customer service departments—to use Twitter and Facebook to 

interact with customers and improve customer service and brand recognition.31

Digital interaction services offer customers a direct line of feedback into a product that 

they care about, and they in turn provide firms with an inexpensive pool of testers, 

designers, and consumers. Frito-Lay used Facebook to host its “Do Us a Flavor” 

campaign, accessing customers from across the world and engaging them to suggest and 

vote on new potato chip flavors.32 The contest created a buzz and caused many customers 

both to pay more attention to Frito-Lay’s products and to buy more of them. This contest 

brought in more than eight million customers to vote from all over the world.33

Lego uses its CUUSOO platform to solicit suggestions for new toy sets and allow 

potential consumers to vote on the most popular sets. On CUUSOO, a set suggestion that 

receives 10,000 votes of support is reviewed for possible production, though Lego also 

provides feedback and encouragement on suggestions that have yet to receive that many 

votes.34 Similarly, digital communications are enabling video game developers like 

Microsoft to access a global pool of beta testers.35

 28 McGuire et al., “Why Big Data Is the New Competitive Advantage,” 2012. 29 Software-as-a-service (SaaS) refers to the provision of computer software applications from a remote 

“cloud” installation on an on-demand basis. USITC, Digital Trade, 2013, 2-29. 30 Boulton, “H-P Using Its Analytics Software to Grow Sales,” 2013. 31 Oliver Wyman, “Social Media Management,” 2013, 5. 32 PepsiCo, “Lay’s Potato Chips Teams Up,” July 2012; Frito-Lay’s Facebook website, 

https://www.facebook.com/FritoLay (accessed August 14, 2013). 33 Champagne, “How Lay’s Got Its Chips to Taste,” 2013. 34 Lego’s CUUSOO website, http://lego.cuusoo.com (accessed August 9, 2013). 35 Microsoft Game Studios Beta Program website, http://connect.microsoft.com/MGSBetas (accessed 

August 9, 2013). 
3-9 

Services Help Customers Purchase and Use Products 

More and more, companies are integrating services into the latter stages of the 

manufacturing value chain, facilitating the purchase and consumption of the good. 

Manufacturers combine the sale of their goods with complementary services that enable 

purchasing firms to source and integrate the goods into their business, or help final 

consumers make their purchase. Examples include financial, transportation, and shipping 

services. 

Leasing services also promote product sales. Many large machinery and equipment 

manufacturers, for example, are able to capture more of their potential market by offering 

both purchasing and leasing opportunities to their customers. Markets that involve large 

equipment or heavy machinery can have both large cost barriers to entry and high 

equipment maintenance fees. Leasing gives manufacturers a way to enable their 

customers to use a larger variety of their products over time rather than simply waiting 

for the old ones to break down before procuring new ones. Leasing also helps the 

manufacturers ensure that the newest of their product offerings can be the most 

prominent and best maintained of their offerings.36

Performance-based contract services are similarly gaining importance. Such 

arrangements allow buyers to outsource performance risk to suppliers, who differentiate 

themselves by being willing to take it on as part of a maintenance and service contract.37

Rolls-Royce’s “Power by the Hour” program provides an example. The program uses a 

complex combination of problem-detecting sensors and regular downtime maintenance to 

ensure that when an airline purchases a Rolls-Royce engine, buying high level of engine 

performance is guaranteed.

38

Finally, many large machinery and transportation manufacturers provide basic training 

services to make their products useful for even the most inexperienced or small-scale 

customers. Companies like GE find these services offerings to be so beneficial that they 

are expanding them beyond their previously established customer base as a sales tool.39

Another example is StartupBoeing, a services program that helps potential new airline 

owners with everything from maintenance and flight crew training to fuel conservation 

services. Boeing works with potential customers very early in the process, offering advice 

on when and how to start a new airline. It then builds and maintains its customer 

relationships by offering a range of products, product upgrades, and related services, such 

as training for maintenance workers and navigation services, to its new and existing 

airline customers.40

Services Enhance Manufacturing Productivity 

The previous discussion has highlighted a number of the business strategies in which 

manufacturers use services to reduce costs, increase efficiency, and expand sales. This 

 36 Cusumano et al., “A Theory of Services in Products Industries,” October 2008, 27. 37 Baiman et al., “Procurement in Supply Chains,” 2004. 38 Rolls-Royce, “Rolls-Royce Celebrates 50th Anniversary of Power-by-the-Hour,” October 2012; 

Knowledge@Wharton, “‘Power by the Hour,’” 2007. 39 PWC, “Customer Collaboration Designs Excellence,” 2011, 5. 40 StartupBoeing website, http://www.boeing.com/boeing/commercial/startup/ (accessed August 30, 

2013). 
3-10 

section turns to the available quantitative evidence linking the use of services with 

improved productivity in manufacturing. Productivity measurement seeks to find 

evidence that firms are producing a higher value of output with the same or fewer inputs. 

Productivity improvement can take the form of either cost savings (e.g., reduced 

materials or energy use) or improvements in product quality that raise the real value of 

output. 

There is some evidence that productivity gains are, on average, larger for manufacturing 

industries that make greater use of business services, as well as for manufacturing 

industries with larger increases in the use of business services.41 In addition, productivity 

gains within the services sectors themselves have enabled manufacturers to benefit from 

services inputs that are both lower-priced and more efficiently provided than before. 

While these findings are subject to the caveats associated with productivity 

measurement—particularly the challenges involved in constructing price indices for 

services—the evidence is nonetheless suggestive.42

Productivity Gains in Manufacturing Are Associated with Business 

Services 

Many of the most widely used strategies and tactics for achieving productivity gains 

make intensive use of business services.43 In the United States, there is a correlation 

across manufacturing sectors between the use of business services and productivity gains 

in manufacturing. That is, the manufacturing sectors in which the use of business services 

has grown the most rapidly have, on average, enjoyed the highest productivity growth 

(figure 3.1). This is true whether growth in the use of business services is measured by 

manufacturers’ purchases of business services from other firms or by their employment 

of their own workers in business services occupations.44

Of the various U.S. manufacturing sectors, the one producing computers and electronics 

products uses business services the most intensively—both purchased and in-house—and 

has shown the greatest productivity gains. This sector is especially important as a driver 

of productivity gains for knowledge-based workers in other sectors and as a means of 

accessing information and communication services in general. However, even when 

computers and electronic products are excluded from the analysis, a positive correlation 

 41 Multifactor productivity or MFP (also called total factor productivity or TFP) measures how rapidly 

the real value of output is growing relative to a bundle of inputs. Measures of MFP used in this discussion are 

from the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor. In the BLS’s KLEMS 

framework, there are five inputs—capital, labor, energy, materials, and purchased services. For details of the 

techniques used by BLS in measuring multifactor productivity, see USDOL, BLS, “Technical Information,” 

2007. 42 Challenges in the measurement of productivity include issues in measuring capital and difficulties 

with constructing appropriate price indexes for goods of variable quality. The price index problem is more 

challenging for services than for goods. For a discussion of productivity measurement issues in services 

industries see Triplett and Bosworth, “Productivity Measurement Issues in Service Industries,” 2003. 43 Although productivity gains can also be associated with other services—for example, transportation 

services linked to logistics—the focus on this section is on business services. 44 It is also true that the level of business services used is correlated with growth in multifactor 

productivity, and that this is so whether or not business services use is measured by purchased services or 

business services employment. This correlation implies that increasing use of business services enhances 

productivity regardless of sector. At the same time, the relationship noted above between the level of business 

services use and productivity growth implies that sectors which use more business services may enjoy more 

opportunities for innovation. 
3-11 

FIGURE 3.1 Manufacturing sectors that buy more business services have had more rapid productivity 

growth, percent, 2002–11

Sources: USDOL, BLS, Multifactor Productivity tables (accessed May 22, 2013); USDOC, BEA, Annual 

Input-Output tables (accessed June 25, 2013); Commission calculations. 

remains between use of business services and productivity gains for the rest of U.S. 

manufacturing. 

In recent years, U.S. manufacturing output has grown more rapidly than purchased inputs 

in manufacturing (i.e., the productivity of purchased inputs has increased), implying 

increasing value added. Over the period 1997–2011, real output in manufacturing rose 

5.9 percent while purchased inputs (energy, materials, and services) fell by 8.2 percent, 

enabling a 34.3 percent increase in real value added.45 Thus, productivity gains in 

manufacturing led to increased payments to the factors of production.

Productivity Gains in Services Create Downstream Benefits for 

Manufacturers 

Many of the services industries have themselves experienced significant productivity 

gains in recent years. Often, these gains have been made possible by ICT. Productivity 

gains in services have an effect on manufacturers purchasing those services analogous to 

a drop in the price of oil, or an improvement in the quality of materials. By either 

reducing costs or improving the quality of productive inputs, productivity gains in 

 45 USITC calculation based on USDOL, BLS, Multifactor Productivity tables. 

-4

-2

0

2

4

6

8

10

12

14

-10 -8 -6 -4 -2 0 2 4 6

Annualized growth in multifactor productivity 

Change in business services intermediate inputs

Computer and 

electronic products

Apparel and leather 

products

Transport

equipment

Miscellaneous 

manufacturing
3-12 

services have been passed on to manufacturers, leading to further benefits for 

manufacturing.

Because services are labor intensive, it is often thought that productivity gains in services 

are harder to achieve than in goods production. This observation may have been valid in 

the period before widespread computer use, and it is still valid for personal services such 

as education, healthcare, and entertainment.46 However, productivity growth in services 

as a whole accelerated markedly beginning in the 1990s and is now on a par with 

productivity growth in goods.47

As table 3.2 shows, the types of services most purchased by manufacturers have shown 

significant productivity gains in recent years. In the period from 1987 to 2002, 

cumulative productivity gains exceeding 10 percent were observed in wholesale trade; 

securities, commodities, and investments; rail and truck transportation; and computer 

systems and related activities. In the most recent period for which data are available 

(2002–10), comparable productivity gains have been achieved in the utilities and 

computer systems design and related services sectors. Over a longer period, these 

productivity gains have been substantial. For the whole period 1987–2010, cumulative 

productivity gains have amounted to 53 percent for wholesale trade, 34 percent for truck 

transportation, 35 percent for rail transportation, 166 percent for the securities industry, 

and 56 percent for computer systems design and related activities. These gains are 

concentrated in sectors which are particularly relevant to the ability of manufacturers to 

upgrade the performance of supply chains and manage innovation. 

Advances in ICT Generate Productivity Benefits 

There is a sizable literature on the link between ICT and productivity growth. While 

earlier studies had difficulty identifying ICT’s impact on productivity, it is now generally 

recognized that ICT has led to productivity improvements in services as well as 

manufacturing.48 As noted above, productivity improvements in most of the services 

types most widely used by manufacturers have provided spillover benefits to 

manufacturing. Available estimates49 broadly cluster around gains of 0.5–0.6 percent 

productivity growth associated with a 10 percent increase in ICT use. These gains appear 

to have accelerated over the last 20 years, to be stronger for firms that invest in 

organizational change and organizational capital, and to have been larger in the United 

States than the European Union (EU). 

 

 46 The difficulty in achieving cost reductions in personal services has been recognized since the 1960s. 

See Baumol, “Health Care, Education, and the Cost Disease,” 1993. 47 See Triplett and Bosworth, “Productivity Measurement Issues in Service Industries,” 2003; Triplett 

and Bosworth, “Productivity in the U.S. Services Sector,” 2004. 48 In the late 1980s, Nobel Prize-winning economist Robert Solow famously noted that “You can see 

the computer age everywhere but in the productivity statistics.” See Solow, “We’d Better Watch Out,” 1987. 

Brynjolfsson, “The Productivity Paradox of Information Technology,” 1993, reviewed a number of studies 

which investigated the disconnect between the U.S. productivity slowdown that started around 1973 and the 

simultaneous rapid growth in computing power. Later analysis, focusing on the acceleration of U.S. 

productivity from about 1995 onward, provides a more optimistic view of the impact of computers and 

information technology on productivity. See Jorgenson et al., “A Retrospective Look,” 2008. 49 This discussion relies on the review in Kretschmer, “Information and Communication Technologies 

and Productivity Growth,” 2009, wherein the range of available estimates is cited. 
3-13 

TABLE 3.2 Productivity gains for services most purchased by manufacturers

Sector 

2011 Changes in multifactor 

productivity, cumulative 

percentage change 

Purchases 

by manufacturers, 

million 

dollars 

Share of total 

intermediate 

use in manufacturing, 

percent 

1987–

2002 

2002–

2010 

1987–

2010 

Wholesale trade 240,828 6.6 46.7 4.1 52.7 

Management of companies and 

enterprises 128,242 3.5 3.9 –19.0 –15.8 

Miscellaneous professional, scientific, and 

technical services 126,748 3.5 7.5 5.9 13.9 

Utilities 75,192 2.1 –1.1 21.0 19.6 

Truck transportation 65,265 1.8 23.0 8.6 33.6 

Administrative and support services 42,160 1.1 2.0 9.8 12.0 

Rail transportation 33,481 0.9 31.8 2.4 35.0 

Rental and leasing services and lessors of 

intangible assets 32,819 0.9 –32.9 2.6 –31.1 

Securities, commodity contracts, and 

investment 30,472 0.8 155.5 4.0 165.9 

Real estate 20,328 0.6 –2.8 -5.7 -8.3 

Federal Reserve banks, credit 

intermediation, and related activities 17,244 0.5 –14.2 0.6 –13.7 

Computer systems design and related 

activities 16,362 0.4 15.8 34.3 55.5 

Sources: USDOL, BLS, Multifactor Productivity tables (accessed May 22, 2013); USDOC, BEA, Annual 

Input-Output tables (accessed June 25, 2013); Commission calculations. 

Services Are Associated with Intangible Capital, a Source of Gains 

in Labor Productivity 

It is widely recognized that investments in capital, or “capital deepening,” can increase 

labor productivity and boost wages. Capital is often thought of as consisting primarily of 

physical capital, such as equipment and structures. However, more broadly, capital 

consists of any asset that enhances productivity over an extended period of time—for 

example, a year or more—rather than being used up in the production process. Thus, 

there is also nonphysical or intangible capital,50 primarily associated with the generation 

of knowledge-based assets. Most forms of intangible capital are produced by services 

activities. 

Business intangibles can be grouped into three broad categories: computerized 

information, which includes software and computerized databases; innovative property, 

which is acquired both through R&D and through nonscientific inventive and creative 

activity; and economic competencies, which include knowledge embedded in human 

resources and firm-specific business and organizational practices, including brand names. 

Software and computer systems design, R&D, creative and artistic design (as in apparel 

and furniture, and certain features of motor vehicles and electronics), and certain 

management activities are examples of services which can give rise to intangible capital. 

 50Corrado et al. estimated that by the late 1990s, investment in business intangibles amounted to 10 to 

12 percent of U.S. GDP, was at least as large as tangible capital spending in equipment and structures, and 

was growing more rapidly than tangible capital spending. Corrado et al., “Measuring Capital and 

Technology,” 2005. 
3-14 

As of yet there is no readily available measure of intangible capital specific to the U.S. 

manufacturing sector.51 Table 3.3, below, presents several measures related to intangible 

capital in manufacturing, as well as some other measures for comparison. These include 

investment in software, R&D expenses,52 and wages spent by manufacturers in 

occupations associated with the creation of intangible capital.53 These measures do not 

represent all intangible capital—for example, they do not include the value of brand 

names, nor all of the payments made to services firms that may provide intangible capital 

to manufacturing—nor should they be summed to provide an overall measure. Some of 

the measures are overlapping; both the software measure and the wages measure include 

certain items counted in R&D spending. Nonetheless, they provide a broad indication of 

the formation and growth of intangible capital in manufacturing. 

Even if the measures are highly overlapping, it appears likely that investment in overall 

intangible capital in manufacturing is larger than tangible investment in equipment and 

structures, and growing more rapidly. Investment in software accelerated rapidly in the 

1990s, though it decelerated thereafter, while R&D spending accelerated in the 2000s. 

Wages spent to create intangible capital, particularly wages of top-level scientific, 

technical, and creative personnel, have grown over the last decade significantly more 

rapidly than either software investment or wages in occupations not associated with 

intangible capital. Thus, the contribution of intangible capital to gains in manufacturing 

productivity has likely also been significant. 

Services Liberalization Benefits Manufacturing 

There is now substantial evidence that access to a wide variety of high-quality services 

promotes manufacturing competitiveness.54 For example, countries and products that 

make greater use of services inputs exhibit higher product quality and higher export 

prices. As noted above, services inputs boost manufacturing competitiveness in several 

ways. They increase productivity in activities that manufacturers currently perform, give 

manufacturers the flexibility to specialize in new high-skill activities, and facilitate the 

outsourcing of less productive tasks. 

Liberalization of services trade can reduce costs and increase the variety of services 

available to manufacturers. Hence, services liberalization can be an important component 

 51The role of intangible capital in U.S. official data is expanding significantly in the 2013 

comprehensive revision of the national income and product accounts (NIPA). Historically, only one type of 

intangible capital—software—has been recognized and accounted for in U.S. official data on investment and 

fixed assets. The revisions recognize private and government expenditures on R&D as fixed investment, as 

well as private expenditures on entertainment, literary, and other artistic originals. Tables and reports 

reflecting the new concepts were phased in during July–August 2013. At the time of writing, the new 

measures of fixed investment were available on an economy-wide basis but not for manufacturing 

specifically. See McCulla et al., “Improved Estimates,” 2013, for details. 52 These include R&D expenses paid by manufacturers, by government, and by other organizations. 53 The definition of “scientific, technical, and creative personnel” in table 3.3 includes most 

occupations in business and financial operations, computer, engineering, and science occupations, and certain 

arts and design occupations, as well as librarians and library technicians. This definition is somewhat 

narrower than the definition of “business services” occupations used elsewhere in the chapter. Following 

Corrado et al., the calculation in table 3.3 assumes that 20 percent of managerial time is spent on 

organizational innovation. Corrado et al., “Measuring Capital and Technology,” 2005. 54 This section summarizes empirical evidence presented in Francois and Woerz, “Producer Services, 

Manufacturing Linkages, and Trade,” 2008; Francois and Hoekman, “Services Trade and Policy,” 2010; 

Gonzales et al., “Globalisation of Services and Jobs,” 2012; Nordås, “Business Services,” 2010; Nordås and 

Kim, “The Role of Services,” 2013. 
3-15 

TABLE 3.3 Indicators of intangible capital in manufacturing, 1992–2011

 Cumulative increase, percent 

Indicator 2011a 1992–2002 

2002–

11 

1992–

2011 

Intangible capital 

Investment in software 30.5 111.8 19.9 154.1 

Research and development expendituresb

 195.1 20.9 79.0 116.3 

Wages spent to create intangible capital 137.4 n.a. 28.2 n.a. 

Top-level scientific, technical, and creative personnel 75.5 n.a. 52.7 n.a. 

20 percent of wages of top-level managersc

 61.8 n.a. 7.2 n.a. 

Memo items 

Investment in equipment and structures 161.7 25.5 16.2 45.9 

Wages in other occupations 334.4 n.a. 2.8 n.a. 

Sources: USDOC, BEA, National Economic Accounts (accessed July 16, 2013); USDOL, BLS, Occupational 

Employment Statistics (accessed June 20, 2013); NSF, Business Research and Development and 

Innovation Survey, various issues (accessed July 15, 2013); Commission calculations. 

Note: The indicators of intangible capital should not be summed in an attempt to create an overall measure, 

since they are partly overlapping. 

 aBillion current dollars. bData end in 2010. Expenditures include expenditures paid for by companies, by government, and by other 

organizations. 

 cAssuming that 20 percent of managerial time is spent on organizational innovation. See text and notes. 

of efforts to boost manufacturing competitiveness. Increased business services openness 

has a strong positive effect on the competitiveness of downstream industries. As with any 

trade liberalization, however, the effects will differ by sector, and not every industry will 

benefit. Estimates in the literature suggest that reducing services trade costs would have 

strong positive effects on motor vehicles, plastics, and rubber, but no effect in apparel.55

Increased use of imported business services raised exports of skill- and technologyintensive industries in a panel of Organisation for Economic Co-operation and 

Development (OECD) countries, but reduced exports of labor-intensive manufactures.56 

The benefits of services liberalization are particularly marked in manufacturing industries 

that are tightly integrated into production networks. Parts and components that cross 

multiple borders are subject to regulations and potential restrictions in multiple countries. 

Restrictions on the services needed to produce these parts, or restrictions on the services 

that facilitate their movement, can occur in widely distributed places, and effects can 

compound as goods move through the supply chain. As supply chains spread through an 

increasing number of countries and industries, manufacturers are increasingly exposed to 

the effects of services restraints occurring in locations with which they may have no 

direct contact. 

Manufacturers are also affected by regulations and restrictions affecting the movement of 

goods in these same locations. Hence, some studies conclude that broad regional or 

global trade liberalization, including both goods and services and affecting barriers both 

 55 See Nordås, “Business Services,” 2010; Francois and Woerz, “Producer Services, Manufacturing 

Linkages, and Trade,” 2008. 56 Francois and Woerz, “Producer Services, Manufacturing Linkages, and Trade,” 2008. 
3-16 

at and behind the border, can most effectively address the potential inefficiencies along 

the entire supply chain.57

Services Inputs into U.S. Manufacturing: Patterns and 

Trends 

Over the last several decades, services have become an increasingly large share of the 

U.S. economy. In 1950, business services contributed 8.7 percent of U.S. gross domestic 

product (GDP); in 2012, they contributed 21.5 percent (figure 3.2).58 This growth became 

particularly pronounced in the 1980s and 1990s, but has plateaued in the last decade. 

A few patterns and trends emerge from an analysis of aggregate-level databases. As U.S. 

business services sectors have increased relative to the size of the economy, some 

manufacturing sectors have increased their use of business services. In addition, there has 

been a recent increase in business services-providing occupations within manufacturing. 

At the sector level, there is a positive correlation between the use of business services 

inputs and the share of business service-providing occupations. 

Most of the data described in the rest of this chapter are restricted to the last decade, due 

to the lack of longer time series. Again, the focus is on business services, which, as 

discussed at the beginning of the chapter in box 3.1, are the services that are primarily 

used as intermediate inputs by other businesses and that use high-skilled services workers 

intensively.59 

The Share of Business Services-Providing Occupations in 

Manufacturing Has Risen Slightly Since 2006 

The share of workers in business services occupations within manufacturing has grown in 

recent years.60 Manufacturing sector employment includes significant numbers of 

services-providing staff, conducting activities such as R&D, accounting, or marketing 

and advertisement. This increasing share of services-providing staff in manufacturing 

suggests the importance of these activities for manufacturing. 

From 2002 to 2012, the share of business services occupations in manufacturing 

employment increased by 2.8 percentage points, rising from 29.8 to 32.6 percent (figure 

3.3). Much of this increase occurred beginning in 2008. While production occupations—

occupations directly related to the production process—retained by far the largest share 

of total manufacturing employment, their share declined slightly from 54.5 percent in 

2002 to 52.9 percent in 2012; there was an increase in the downward trend following the 

 57 Kommerskollegium, Everybody Is in Services, 2012, 22–23. 58 USDOC, BEA, GDP-by-Industry Data (accessed July 11, 2013). This historical time series 

constructed using data from the Bureau of Economic Analysis (BEA) includes the sectors defined in box 3.1, 

with one addition and one omission: (1) funds, trusts, and other financial vehicles are included in the 

definition used in the historical time series; (2) rental and leasing services and lessors of intangible assets are 

excluded. 59 The short time series availability is due to changes in sector and occupation classifications, as well as 

the lack of historical data for newly constructed databases. 60 Similar analysis has been undertaken in Falk and Jarocinska, “Linkages between Services and 

Manufacturing,” 2010, which uses EU data. 
3-17 

FIGURE 3.2 Business services, share of U.S. GDP, 1950–2011 

Source: USDOC, BEA, GDP-by-Industry Data (accessed July 11, 2013); Commission calculations. 

Note: The definition of business services used in this figure is slightly modified relative to the definition laid 

out in box 3.1: funds, trusts, and other financial vehicles are included in the definition, while rental and 

leasing services and lessors of intangible assets are excluded. This modification was necessary due to the 

lack of detailed sector-level data in earlier years. 

FIGURE 3.3 The share of business services-providing occupations in U.S. manufacturing has increased 

over time, 2002–12

Sources: USDOL, BLS, Occupational Employment Statistics (accessed June 20, 2013); Commission 

calculations. 

0

5

10

15

20

25

1950 1960 1970 1980 1990 2000 2010

accelerated

growth

plateau

moderate growth

Share of U.S. GDP (%)

0

10

20

30

40

50

60

2002 2004 2006 2008 2010

Percent

Production occupations

Business services

occupations

Other services

occupations
3-18 

financial crisis in 2008. The share of other services-providing occupations dipped by 1.1 

percentage point from 2002 to 2012.61

This structural shift of manufacturing employment toward business services occupations 

reflects the rising use of business services within manufacturing operations. It may also 

signal increased insourcing of business services products, with manufacturers hiring more 

business services workers even as they expanded purchases from other services sectors. 

Nearly all sectors saw gains in the share of business services occupations employed; 

growth was most pronounced in computer and electronic products, apparel and leather, 

electrical equipment, and motor vehicles and parts (table 3.4), each of which has 

increased its share of business services-providing occupations by more than 5 percentage 

points. Only two sectors saw declines in their use of business services occupations: 

chemicals, and food, beverages, and tobacco. 

The Share of Services as Direct Intermediate Inputs in 

Manufacturing Has Remained Stable since 1997 

“Direct services” measures the direct contribution of each sector to manufacturing 

inputs.62 On a constant-dollar basis, purchased services have remained stable at just under 

20 percent throughout this time period.63 Materials remain the largest intermediate input 

into manufacturing, and their share of total intermediate inputs increased slightly from 

76.2 percent in 1997 to 78.8 percent in 2011 (figure 3.4). Energy is a fairly small portion 

of intermediate inputs into manufacturing at around 3 percent. 

However, about half of all sectors increased their purchases of business services used as 

intermediate inputs (table 3.5) from 2002 to 2011. The fastest increases were seen in the 

computer and electronics and the apparel and leather products sectors—notably, the same 

sectors that experienced the fastest growth in business services occupation shares (table 

3.4).64

Examining the levels of business services used, it appears that manufacturing sectors that 

use purchased business services intensively also have a high share of business services 

employment (figure 3.5). This relationship is most notable for computer and electronics 

products, which rank first both in purchased business services and in business services 

 61 Other services-providing occupations include education, health care, social and personal services, 

transportation, and installation, maintenance and repair occupations. 62 This section uses the data in Fleck et al., “A Prototype,” 2012, as well as data from the BEA’s inputoutput tables. Fleck et al. produce a constant-price time series (in 2005 prices) of the intermediate inputs in 

three cost categories—energy, materials, and purchased services. “Materials” includes the cost of raw 

materials and intermediate goods. This permits a discussion based on constant prices, although only for the 

aggregated cost categories. Fleck et al. apply a KLEMS production framework to BEA’s estimates of 

industry production. See Strassner et al., “Annual Industry Accounts,” 2005, for details. 63 The last two years of data show a slight decline, but more data would be needed to establish a 

downward trend. 64 Although both figure 3.5 and table 3.5 display direct services inputs into manufacturing, they are not 

directly comparable. Table 3.5 uses nominal values (not adjusted for inflation) as the basis for share 

calculations, while the Fleck et al. data displayed in figure 3.5 uses real (constant price) values as the basis 

for share calculations. Table 3.5 also uses only business services inputs, while Fleck et al. use all purchased 

services. Although constant-price adjustments are preferred, they are not available at a disaggregated sector 

level. 
3-19 

TABLE 3.4 Share of business services occupations in total U.S. manufacturing employment

Sectora 

 Percent Change,b

2002 2012 2002–12 

Computer and electronic products 59.5 67.2 7.7 

Other transportation equipment 46.8 47.7 1.0 

Chemical products 45.7 43.7 –2.0 

Petroleum and coal products 35.5 38.7 3.2 

Miscellaneous manufacturing 33.7 38.4 4.7 

Printing and related support activities 36.6 38.3 1.7 

Machinery 35.8 37.2 1.4 

Electrical equipment, appliances, and components 29.0 35.6 6.6 

Apparel and leather and allied products 20.3 28.7 8.4 

Fabricated metal products 25.3 26.5 1.2 

Furniture and related products 20.2 23.6 3.4 

Motor vehicles, bodies and trailers, and parts 17.2 22.8 5.6 

Plastics and rubber products 20.4 22.8 2.4 

Paper products 21.1 22.6 1.5 

Nonmetallic mineral products 20.5 21.9 1.4 

Textile mills and textile product mills 18.6 20.9 2.3 

Primary metals 18.8 19.5 0.7 

Food and beverage and tobacco products 19.1 18.6 –0.5 

Wood products 16.4 17.5 1.1 

Average 29.8 32.6 2.8 

Sources: USDOL, BLS, Occupational Employment Statistics (accessed June 20, 2013); Commission 

calculations.

 a

Sorted by the share of business services occupations in 2012.

 b

Percentage point difference.

FIGURE 3.4 Intermediate inputs of the manufacturing sector

Sources: Fleck et al., “A Prototype,” 2012; Commission calculations. 

0

10

20

30

40

50

60

70

80

90

1997 1999 2001 2003 2005 2007 2009 2011

Percent

Materials

Purchased services

Energy
3-20 

TABLE 3.5 Use of business services intermediates in manufacturing sectors

Sectora 

 Percent Change,b

2002 2011 2002–11 

Computer and electronic products 26.8 30.4 3.6 

Other transportation equipment 19.1 24.8 5.7 

Apparel and leather and allied products 17.8 21.8 4.0 

Miscellaneous manufacturing 20.8 21.5 0.8 

Printing and related support activities 19.8 20.7 0.8 

Furniture and related products 17.8 16.7 –1.1 

Fabricated metal products 18.1 16.1 –1.9 

Nonmetallic mineral products 14.8 14.9 0.1 

Machinery 15.8 14.5 –1.3 

Chemical products 20.3 12.8 –7.6 

Electrical equipment, appliances, and components 13.3 11.2 –2.0 

Wood products 10.2 10.9 0.7 

Plastics and rubber products 13.2 9.6 –3.6 

Paper products 9.7 9.3 –0.4 

Food and beverage and tobacco products 10.8 8.8 –2.0 

Motor vehicles, bodies and trailers, and parts 7.2 7.5 0.2 

Textile mills and textile product mills 9.1 7.4 –1.7 

Primary metals 9.6 6.6 –3.1 

Petroleum and coal products 2.6 0.5 –2.0 

Average 14.0 10.4 –3.6 

Sources: USDOC, BEA, Annual Input-Output tables (accessed June 25, 2013); Commission calculations.

 aSorted by the share of business services intermediates in 2011.

 b

Percentage point difference.

FIGURE 3.5 Manufacturing sectors that buy more business services also employ more workers in business 

services occupations, 2011 

Sources: USDOL, BLS, Occupational Employment Statistics (accessed June 20, 2013); USDOC, BEA, 

Annual Input-Output tables (accessed June 25, 2013); Commission calculations. 

0

5

10

15

20

25

30

35

0 10 20 30 40 50 60 70 80

Share of business services intermediates (%)

Share of business service occupations, percent

Computer and 

electronic products

Other transport 

equipment Misc.manufacturing

Apparel and 

leather products

Petroleum and coal

products
3-21 

employment. Leaving computers and electronics aside, the correlation between business 

services purchases and employment is more modest, but remains positive. 

The Value Added of Business Services Has Remained Stable or Is 

Rising in Several Manufacturing Sectors 

Services’ full contribution to manufacturing is most accurately measured in terms of 

value added. Value added measures how much value (in terms of employee 

compensation and company profits) was generated by each sector. Consider the 

manufacture of a motor vehicle. The input-output (I-O) tables describe the production 

value of motor vehicles and their direct intermediate inputs, which may include auto 

parts, metal, glass, and electronics. However, embedded in each of these manufactured 

products may be accounting services provided to the auto parts company, computer 

services to the electronics manufacturer, and steel to the metals manufacturer; each of 

these sectors has in turn purchased goods and services embedded within them; and so on. 

The embedded values created by each sector can be summed up by transforming I-O 

tables, using certain assumptions, to recover the estimates of total value added (both 

direct and indirect) generated by each sector along the entire value chain.65 In the 

discussion below, the total value added by all sectors of the economy in production of 

final manufactured goods is referred to as “manufacturing value added.”66

Performing such calculations shows that as a share of value-added input into the 

aggregate U.S. manufacturing industry, services have remained relatively stable at 

approximately 34 percent (table 3.6). For the aggregate manufacturing sector, the share of 

services has decreased by 0.9 percent from 1995 to 2008, while the share of business 

services (at approximately 16 percent) has expanded slightly, by 0.2 percent, due to the 

expanded use of foreign business services. 

At a more disaggregated level (table 3.7), manufacturing sectors differ substantially in the 

value added that is attributable to business services. Such value added ranges from as 

little as 8.2 percent of the share of total value added to the refined petroleum, coke, and 

other fuels sector to 23.2 percent for the pulp, paper, printing, and publishing sector. In 

the latter sector, a large part of business services value added is professional services. 67 

This is likely driven by the publishing segment, which requires extensive professional 

services in the production of content. The sector has also experienced the fastest growth 

of any manufacturing sector in the use of services, which reflects both the increased use 

of professional services by digital publishers and the decline in physical media.

 65 National-level I-O tables stop tracing value added at the border. As goods production has become 

increasingly fragmented across countries and sectors, an accurate assessment of value added requires I-O 

tables that link production processes within and across countries. To meet this need, the World Input-Output 

Database (WIOD) (a European Commission-funded program) has constructed a set of international I-O 

tables. The WIOD tables permit the tracing of value added across countries. See Timmer, “The World InputOutput Database,” 2012. Because of international differences in the classification of services sectors, 

activities included in business services by WIOD differ slightly from those included by BEA. See box 3.1 for 

a comparison. A detailed explanation is provided in appendix F. 66 This measure is distinct from GDP by industry, which would include only value added by firms and 

workers in the manufacturing sector, and is also known as “manufacturing value added.” 67 Professional services include activities such as legal, accounting, architectural, engineering, research 

and development, as well as the renting of machinery and equipment. 
3-22 

TABLE 3.6 Total services’ contribution to U.S. manufacturing value added

Category 

 Percent Change,a

1995 2008 1995–2008 

Total services 34.7 33.7 –0.9 

 Domestic services 30.2 27.3 –2.9 

 Foreign services 4.5 6.5 2.0 

Business services 15.7 15.9 0.2 

 Domestic business services 13.9 13.4 –0.5 

 Foreign business services 1.8 2.5 0.7 

Sources: WIOD; Commission estimates.

 aPercentage point difference.

TABLE 3.7 Business services’ contribution to U.S. manufacturing value addeda 

Sectora 

 Percent Change,b

 1995–2008 

1995 2008 

Dom. Foreign Total Dom. Foreign Total Dom. Foreign Total 

Pulp, paper, printing and 

publishing 16.9 1.5 18.4 21.0 2.2 23.2 4.1 0.6 4.7 

Chemicals and chemical 

products 15.4 1.9 17.3 16.4 3.1 19.5 1.0 1.2 2.2 

Transport equipment 12.1 2.2 14.3 14.2 3.3 17.5 2.1 1.1 3.2 

Other nonmetallic mineral 

products 11.6 1.2 12.8 15.2 2.0 17.2 3.6 0.8 4.4 

Rubber and plastics 13.2 1.8 15.0 13.8 2.9 16.7 0.6 1.1 1.7 

Wood and wood products 10.8 1.3 12.1 14.3 2.0 16.3 3.6 0.7 4.3 

Electrical and optical 

equipment 16.9 2.3 19.2 13.5 2.4 15.9 –3.4 0.1 –3.3 

Basic metals and 

fabricated metal 11.9 1.6 13.5 13.3 2.4 15.7 1.4 0.8 2.2 

Manufacturing n.e.c. 12.0 1.5 13.5 13.5 2.2 15.7 1.5 0.7 2.2 

Machinery n.e.c. 13.1 1.8 14.9 13.0 2.6 15.6 –0.1 0.8 0.7 

Food, beverages, and 

tobacco 14.2 1.4 15.6 13.6 1.9 15.5 –0.6 0.5 –0.1 

Textiles and apparel 13.9 1.6 15.5 9.9 2.1 12.0 –4.1 0.4 –3.7 

Footwear and leather 

products 16.1 2.2 18.3 9.0 2.0 11.0 –7.1 –0.2 –7.3 

Refined petroleum, coke, 

and other fuel 9.3 2.0 11.3 5.5 2.7 8.2 –3.8 0.7 –3.1 

Total manufacturing 13.9 1.8 15.7 13.4 2.5 15.9 –0.5 0.7 0.2 

Sources: WIOD; Commission estimates. 

Notes: Includes services value used directly and indirectly in the production of manufactured goods. n.e.c. 

means “not elsewhere classified.”

 a

Sorted by total business services contribution in 2008.

 b

Percentage point difference.

Two other sectors also contain a large share of value added by business services, 

primarily due to high levels of R&D. The chemicals sector includes the highly R&Dintensive pharmaceutical manufacturers, while transportation equipment has a large share 

of embedded R&D in components and new materials, as well as in the development of 

new final goods such as motor vehicles and airplanes. 
3-23 

The footwear and leather products sector, one of the least business services-intensive 

sectors, has experienced the greatest decline in business services use since 1995. This 

decline is due primarily to the reduced use of professional services. 

Foreign services inputs are used at similar rates across U.S. manufacturing sectors. 

Foreign business services accounted for 1.9–3.3 percent of sectoral output value in 2008 

(table 3.7). Sectors with relatively high use of foreign business services include chemicals 

and transport equipment. This likely reflects the importance of intellectual property in 

these sectors,68 and the significant presence of foreign-owned affiliates in these sectors. 

Consistent with the increased globalization of value chains, foreign business services 

have grown increasingly important to U.S. manufacturing: use of foreign services rose in 

nearly every sector between 1995 and 2008, albeit from a low base. Although there is 

nothing to keep a sector from being an intensive user of both foreign and domestic 

services, in practice this is uncommon. Only three sectors (chemicals, transport 

equipment, and rubber and plastics) had above-average use of both types of services in 

2008.69

International Comparisons and Services Trade in GVCs 

Globally, business and distribution services are much more important to manufacturers 

than other types of services. In 2008, business services accounted for 12.6 percent of the 

value of manufacturing output; distribution services such as retail trade and transportation 

for an additional 14.0 percent; and other services, such as utilities, hotels, and 

government services, for a smaller 6.8 percent (figure 3.6 and appendix table F.5).70 

There are stark differences across countries in the use of services by manufacturers. 

Among the countries in the dataset created by the World Input-Output Database (WIOD), 

services use ranges from a low of 20 percent in Indonesia to a high of 44 percent in 

Ireland. European countries dominate the ranks of countries with high services use, 

occupying the top 10 positions on the list in 2008. In the United States, services 

contributed one-third (33.7 percent) of U.S. manufacturing value added. The U.S. value 

was almost identical to the global average of 33.4 percent. In part, European prominence 

is due to the composition of countries in the WIOD dataset used to produce these 

estimates—27 of the 40 countries in the dataset are European. But the OECD, using a 

more inclusive (though non-public) dataset, largely confirms these findings. For example, 

OECD ranks France as the second-highest user of services in manufacturing (behind 

Iceland) in 2009, and it estimates that 9 of the 10 top services users are in Europe. 

Although U.S. manufacturers use services less overall than their European counterparts, 

they use more business services inputs. In fact, the United States ranks fifth globally in 

the share of business services in manufacturing value added, behind only Ireland, France, 

 68 Barefoot and Koncz-Bruner find that these sectors generated the most services imports among all 

manufacturing sectors, noting that for these sectors, “intellectual property forms an important part of firms’ 

competitive advantage, which gives rise to transactions in royalties and license fees and R&D and testing 

services.” Barefoot and Koncz-Bruner, “A Profile of U.S. Exporters and Importers of Services,” 2012, 71–2. 69 Rubber and plastics had only slightly above-average use of services. 70 These estimates are generated using the WIOD database as described in appendix F and exclude 

construction. They are broadly confirmed by the OECD, which also finds that services contributed over 30 

percent of the total value added in manufactured output, using a separate database. Miroudot and Rouzet, 

“Trade Policy Implications,” 2013. 
3-24 

FIGURE 3.6 Services’ contribution to manufacturing value added in each country, percent, 2008 

Sources: WIOD; Commission estimates. 

Note: Includes services in output of final goods only. 

Luxembourg, and Cyprus. The United States also uses more business services (15.9 

percent of manufacturing value added) than the EU as a whole (15.1 percent). High U.S. 

business services inputs may reflect both the nature of the advanced products produced 

by U.S. companies, which require these inputs, and the highly educated U.S. 

manufacturing and services workforce that provides them. 

The higher value of overall services in Europe may reflect the high prices of many 

services there. Overall, services prices are 11 percent higher in the EU than in the United 

States, and prices for some types of services—such as utilities and transportation 

services—are much higher (about 25 and 50 percent, respectively).71 Hence, the lower 

U.S. input share for trade and transportation services may simply be due to the lower U.S. 

cost of these inputs. 

Although the differences in services use across countries can be at least partly attributed 

to services prices and the types of products produced by each country, the change over 

time is more difficult to explain. Figure 3.6 shows that while manufacturers in all of the 

countries with the highest services-to-manufacturing ratio increased their use of all 

services between 1995 and 2008, this ratio did not increase for the United States, which is 

 71 According to 2008 benchmark purchasing power parity (PPP) data from the Eurostat-OECD PPP 

Programme, http://stats.oecd.org/Index.aspx?DataSetCode=PPP2008 (accessed August 1, 2013). “Overall 

services” excludes government services. 

0

5

10

15

20

25

30

35

40

45

Ireland

France

Italy

Sweden

Netherlands

Luxembourg

Belgium

Australia

Germany

Spain

Taiwan

Poland

Finland

Estonia

Denmark

Canada

Latvia

Cyprus

U.K.

Hungary

Czech Republic

Portugal

Slovakia

India

Greece

Slovenia

Austria

United States

Lithuania

Turkey

Brazil

Bulgaria

Rest of world

Russia

Japan

Mexico

Malta

South Korea

Romania

China

Indonesia

World

Business services, 2008 Trade and transport, 2008 Other services, 2008 Total services, 1995
3-25 

consistent with prior analysis in this chapter.72 U.S. use of business services rose in the 

period, but by a very small amount (0.2 percent of manufacturing value added). The 

largest U.S. change in the period is a 1.1 percent decline in the share of trade and 

transportation services. Again, it is possible that this decline reflects better U.S. price 

performance in these sectors than in Europe in the period. International comparisons of 

services prices generally do not exist for the 1990s, however, so no definite conclusions 

can be reached. 

The supply chain logistics literature emphasizes that more extensive global supply chains 

raise management and organization costs, but also allow companies to take advantage of 

economies of scale in trade and transportation.73 At the country level, there appears to be 

some support for this conclusion. There is a positive correlation between a country’s 

global engagement in 2008 and its use of business services in manufacturing.74 The need 

for additional business services to coordinate international networks provides another 

reason why the business services share is high in tightly integrated Europe. In contrast to 

business services, there is no correlation between global engagement and the use of trade 

and transportation services. 75 

The Role of Services Trade in Manufacturing 

Many manufacturers rely on both domestic and foreign goods and services. Worldwide, 

foreign services providers account for a small but growing share of services inputs.76 As 

with total services inputs discussed above, the importance of imported services varies 

widely across countries; in some countries, such as Sweden, the importance of imported 

services is fairly substantial.77 

Measured by the direct import of services, U.S. manufacturer’s use of imported services 

appears quite low: direct services imports account for about 0.5–1 percent of the value of 

all U.S. manufacturing inputs.78 However, as noted above, direct flows can present a 

misleading picture of total input use. A key source of indirect services inputs are the 

foreign services embedded in imports of parts and components used by U.S. 

manufacturers. Another important source of indirect inputs are services imported by 

 72 Appendix table F.5 shows a 1 percentage point decline in U.S. services use in manufacturing output. 

Stehrer et al., “Value Added and Factors in Trade,” 2012, 17, shows a small decline in U.S. services use in 

manufacturing exports in this period, while the OECD estimates a larger increase in services use in U.S. 

exports, particularly in the wood and transportation equipment sectors. See OECD and WTO, “OECD/WTO 

Trade in Value Added,” 2013, 4. Though not all estimates agree, the overall change in U.S. services use has 

likely been minor. 73 See Hesse and Rodrigue, “The Transport Geography of Logistics and Freight Distribution,” 2004; 

Rodrigue, “Transportation and the Geographical and Functional Integration,” 2006. 74 Global engagement is measured by the share of imported intermediates that are used in exported 

products, as reported by the OECD. Business services use is given in figure 3.7. The correlation between 

engagement and services use is 0.32, and it is significant at the 5 percent level. This correlation does not 

imply causation. While global engagement may increase organizational complexity and the need for business 

services, it is also possible that greater use of business services generates products that succeed in the global 

marketplace. 75 There is no evidence that it lowers use of these services as implied by the supply chain logistics 

literature. This correlation is 0.03, and it is far from significant. Trade and transportation use is given in 

figure 3.6 and appendix table F.5. 76 Gonzales et al., “Globalisation of Services and Jobs,” 2012. 77 Kommerskollegium, Servicification of Swedish Manufacturing, 2010. 78 Even in detailed manufacturing industries, this share rarely rises above 2 percent. For a review of 

manufacturing use of direct services imports, see USITC, Import Restraints, 2011, 3-13. 
3-26 

companies in other sectors of the economy (e.g., mining or services) to produce domestic 

inputs to manufacturing. Incorporating these sources of indirect services considerably 

raises the share of foreign services in U.S. manufacturing. Including indirect flows, 

foreign business services accounted for 2.5 percent of U.S. manufacturing value added, or 

about 16 percent79 of all business services used by U.S. manufacturers in 2008 (table 3.6). 

This comes to just over 3 percent of the value of all U.S. manufacturing inputs. Hence, 

accounting for indirect inputs raises the importance of foreign business services to U.S. 

manufacturers at least threefold.80

U.S. services firms also provide inputs that are used abroad by foreign manufacturers. In 

2008, the value of U.S. business services used by domestic manufacturers was about 

2.5 times the value of U.S. business services used by manufacturers abroad.81 However, 

foreign manufacturers have become more important to U.S. services providers as their 

purchases of U.S. services have risen steadily over time. 

There are four channels by which U.S. services are used in goods consumed abroad. The 

first two channels constitute direct services exports, and the last two are indirect exports. 

They include: 

1. direct U.S. services exports to foreign manufacturers; 

2. direct U.S. services exports to foreign services firms that provide services to foreign 

manufacturers; 

3. U.S. services used by U.S. goods producers that are subsequently exported to foreign 

manufacturers and consumers; and 

4. U.S. services used by U.S. services providers that are subsequently exported to 

foreign manufacturers. 

Of these channels, the first two (direct exports) have shown the most growth in recent 

years. According to services trade data compiled by the Bureau of Economic Analysis 

(BEA) of the U.S. Department of Commerce, U.S. direct exports of business, 

professional, and technical services doubled in value between 2003 and 2011, and tripled 

between 1998 and 2011.82 In comparison, BEA annual I-O tables imply that indirect 

services exports grew only 4 percent overall from 1998 to 2011. Indirect exports through 

services sectors rose 44 percent, but indirect exports embodied in manufactured goods 

fell 16 percent (figure 3.7). 

 

 79 Calculated as the ratio of foreign services (2.5 percent) to total services (15.9 percent) in 2008 (table 

3.6). 80 Including other embodied foreign services, such as the value of utilities used to produce foreign 

goods, raises the foreign services’ share to 5 percent of the value of U.S. manufacturing inputs. 81 According to Commission estimates using WIOD data, U.S. manufacturers used $265.3 billion of 

U.S. business services in the production of final manufactured goods, while foreign manufacturers used 

$106.7 billion of U.S. business services. Although foreign use is substantially less than domestic use of 

business services, this nevertheless indicates that a significant amount of U.S. business services is used by 

manufacturers abroad. 82 Because of changes to U.S. export classifications over time, no precise match to business services as 

defined in box 3.1 is possible before 2006. The export category “business, professional, and technical 

services” is largely a subset of the services included in box 3.1. It excludes publishing, motion picture and 

sound recording, broadcasting and telecommunications, financial services, and royalties and license fees. It 

also includes some unrelated sectors such as medical services, construction, and mining services, though 

there is relatively little trade (less than $20 billion, or about 3 percent of total services exports in 2011) in 

these sectors. 
3-27 

FIGURE 3.7 Indirect exports of services, share of U.S. services value added, 1998–2011 

Sources: USDOC, BEA, Annual Input-Output tables (accessed June 25, 2013); Commission estimates. 

Notes: “Resource-intensive manufacturing” includes wood, metal, mineral, paper, petroleum, chemical, 

plastic, and rubber products. “Machinery and transport” includes machinery, electrical equipment, computer 

and electronic products, motor vehicles, and other transportation equipment; “other manufacturing” includes 

food, furniture, textiles and apparel, and miscellaneous manufacturing. 

Most indirect U.S. services exports pass through U.S. manufacturers, and thus indirect 

services exports strongly reflect the export performance of U.S. manufacturers that use 

services intensively. As noted in table 3.7, these sectors include natural resource sectors, 

chemicals, and transport equipment. U.S. manufacturing exports respond to changes in 

global demand, and can rise or fall rapidly, leading to shifts in indirect services exports. 

For example, recession-driven manufacturing export declines in 2001–02 and 2009 

resulted in declines in indirect services exports. Indirect exports are also driven by 

increases or decreases in manufacturers’ use of services inputs, though this factor evolves 

more gradually. 

Previous sections of this chapter have started by identifying specific manufacturing 

sectors, then have looked upstream at the types of services inputs that they use. A 

complementary picture emerges by starting with specific services sectors, and looking 

downstream at the ways they are used by manufacturers. Table 3.8 presents figures for 

direct exports of U.S. services sectors and the downstream sectors that use services and 

that account for indirect services exports. 

The sector with the highest direct exports of services, as a share of total sectoral value, is 

“rental, leasing, and lessors of intangible assets” (23.5 percent). This sector includes 

royalties and license fees paid by foreign firms and U.S. affiliates to access U.S. 

intellectual property. Another sector with high direct exports of services is management 

(19.8 percent). These sectors are among the major contributors to U.S. services exports 

and the U.S. services trade surplus.83

Direct services exports account for a substantial share (3.7 percent) of the services 

sector’s total value added, yet indirect exports account for an even greater share (3.9 

 83 For a discussion of cross-border exports in these sectors, see USITC, Recent Trends, 2013, 1-8, 2-4. 

Other manufacturing

Machinery and 

transport equipment

Resource-intensive 

manufacturing

Services sectors

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1998 2000 2002 2004 2006 2008 2010

Percent
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TABLE 3.8 Direct and indirect exports of services, share of sectoral value added, percent, 2011 

Indirect exports 

Manufacturing 

Sector Direct exportsa Resourceintensive 

Machinery and 

transport Other 

Total 

mfg. Services 

Business services 

 Management 19.8 3.1 5.1 1.1 9.3 3.2 

 Miscellaneous professional, 

scientific, and technical 

2.5 1.8 2.2 0.6 4.5 4.2 

 Rental, leasing, and lessors 

of intangible assets 

23.5 1.8 1.8 0.6 4.2 3.4 

 Legal services 3.1 0.8 1.2 0.4 2.4 3.1 

 Information and data 

processing 

0.5 0.8 1.3 0.3 2.3 2.8 

 Computer systems design 2.9 0.7 1.2 0.2 2.1 1.8 

 Financial services 5.0 0.6 1.0 0.4 2.0 3.1 

 Publishing, motion pictures 10.3 0.4 1.1 0.1 1.6 2.1 

 Broadcasting and telecoms 1.3 0.6 0.8 0.2 1.6 2.5 

 Insurance 2.5 0.2 0.3 0.1 0.7 2.6 

Other services 

 Wholesale trade 12.0 1.8 2.5 0.8 5.1 1.2 

 Utilities 0.1 2.5 1.4 0.6 4.6 1.0 

 Transportation and storage 13.8 2.1 1.7 0.7 4.5 3.4 

 Administrative and support 0.4 1.2 1.7 0.5 3.3 4.4 

 Waste management 0.8 1.1 1.0 0.4 2.4 1.8 

 Entertainment, food, hotel 0.1 0.3 0.4 0.1 0.9 1.3 

 Real estate activities 0.0 0.2 0.3 0.1 0.6 0.9 

 Retail trade 0.0 0.1 0.1 0.0 0.3 0.1 

 Social services 0.1 0.0 0.0 0.0 0.0 0.0 

All services 3.7 0.8 1.0 0.3 2.1 1.8 

Sources: USDOC, BEA, Annual Input-Output tables (accessed June 25, 2013); Commission estimates. 

Notes: “Resource-intensive manufacturing” includes wood, metal, mineral, paper, petroleum, chemical, 

plastic, and rubber products. “Machinery and transport” includes machinery, electrical equipment, computer 

and electronic products, motor vehicles, and other transportation equipment; “other manufacturing” includes 

food, furniture, textiles and apparel, and miscellaneous manufacturing. 

 aIncludes only added value generated by the exporting sector. 

percent).84 For the overall services sector, and in 13 of 19 individual sectors, indirect 

value added through manufacturing exceeds services value added in direct exports.85

Sectors that have the highest indirect exports through U.S. manufacturing include 

management (9.3 percent of sectoral value added), wholesale trade (5.1 percent), and 

utilities (4.6 percent). Management is used at every stage of the supply chain, from 

conception to delivery. Utilities, too, are required at all stages, particularly in resourceintensive manufacturing sectors such as rubber and plastics, other nonmetallic minerals, 

and basic metals and fabricated metals. Wholesale trade is another widely used service, 

often required when physical goods are transferred. Hence, indirect exports of these 

 84 Including 2.1 percent of sectoral value added exported indirectly through manufacturing sectors and 

1.8 percent through services sectors. 85 For comparability, table 3.8 reports only each sector’s value added for both direct and indirect 

exports. Thus direct exports exclude some value reported in official services export statistics. For example, 

direct exports in the second row exclude the value of legal services used to produce exports of computer 

systems design. 
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services are high because they are important inputs to the production of intermediate 

inputs and final goods that are subsequently exported. 

U.S. services firms also indirectly export a substantial amount of value generated by 

other services firms, though such exports are not generally as large as indirect services 

exports by manufacturers. Services sectors that see a large share of their value added 

exported by other services firms include administrative and support services 

(4.4 percent), miscellaneous professional, scientific, and technical services (4.2 percent), 

and rental, leasing, and lessors of intangible assets (3.4 percent). Miscellaneous 

professional services include activities such as accounting, advertising, specialized 

design, technical services, and scientific research. U.S. services companies, like U.S. 

manufacturers, require substantial amounts of these services to produce their highly 

technical and specialized exports, along with the inputs of intellectual property and 

administrative services provided by the other sectors on this list. 

There are also substantial indirect exports of transportation and storage services (3.4 

percent of total value added in the sector). Although direct exports by wholesalers, 

logistics, and transport firms account for the majority of trade in these services, they may 

also be exported indirectly if goods that are shipped abroad have been transported or 

stored domestically at an earlier stage of production. Since these goods may be used by 

foreign manufacturers, a portion of this value will reenter manufacturing supply chains 

abroad.86

Manufacturing Case Studies 

To illustrate in greater detail some of the ways in which services are being used in U.S.

manufacturing, the Commission conducted case studies of three industries: 

semiconductors, medical devices, and performance textiles. 87

As discussed above, innovations in information technology have enabled services to 

improve efficiency and cut costs in manufacturing sectors. A prime example of this is the 

semiconductor industry. Software-enabled services have given the semiconductor 

industry an important avenue to improving efficiency. The case study on the 

semiconductor industry presents an in-depth look at this effect; in addition, it presents an 

example of the use of services to enhance its customer relationships. The sector to which 

the semiconductor industry belongs—computers and electronics products—is generally a 

high user of services, and has experienced strong productivity growth as a result of 

technological innovation. Semiconductor manufacturing remains strong in the United 

States, and many of the world’s largest semiconductor companies maintain headquarters 

and operations in the United States.88 This case study describes the semiconductor 

industry from the point of view of the factory floor to provide some context about the 

changes in manufacturing that result in the aggregated statistical movements. 

The case study on medical devices manufacturing presents another segment of the U.S. 

market in which software-enabled services have become critical to competitiveness. 

 86 One limitation of using a single-country (U.S.) I-O table is that it cannot distinguish whether exports 

are ultimately used by foreign consumers, manufacturers, or services firms. 87 For the purpose of this report, “performance textiles” includes textiles commonly referred to as 

technical, specialty, and/or industrial fabrics. 88 Lineback et al., McClean Report, 2013, figure 3-2. 
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Software-enabled services assist medical device firms throughout each step of the value 

chain, from designing a new product to helping firms comply with regulations. The 

economic activity of medical devices manufacturing is scattered among several industry 

categories, and cannot be easily seen in the data. 

The case study on performance textiles highlights the role of R&D in manufacturing. 

R&D is a service that directly produces technological innovation. Performance textiles 

are an interesting case study for exploring the use of services in manufacturing as a 

growth area in an industry hard hit by global competition. The U.S. textiles industry 

overall has experienced a significant decline in the contribution of services to its value 

added—as seen in table 3.7, the industry has reduced its use of services by 3.7 percent, 

more rapidly than any other sector besides footwear and leather products. By contrast, the 

positive outlook for the U.S. performance textile industry can be attributed to the 

vigorous use of services such as R&D to complement manufacturing capabilities. Unlike 

many other segments of the textiles industry, performance textiles have been able to 

retain manufacturing facilities in the United States due to substantial investments in R&D 

services to create new products. 

Semiconductor Industry 

The semiconductor industry buys, provides internally, or sells services along each step of 

the design and manufacturing process. These services include utilities and logistics, 

R&D, testing and validation, contract manufacturing, packaging and assembly, and 

marketing and sales. The semiconductor industry uses services to increase yield and 

output and to reduce the costs of producing semiconductor devices. 

The semiconductor industry is highly globalized; companies in the United States have 

access to the same services as companies manufacturing in other countries, and 

semiconductor trade flows are almost entirely tariff free under the WTO’s Ministerial 

Agreement on Trade in Information Technology Products.89

This case study describes two specific business services, offered at different steps of the 

production process, to demonstrate the importance of services in semiconductor 

manufacturing today. It first describes electronic design automation (EDA) providers, 

which offer test and validation tools and processes related to product design. The 

remainder of the case study describes services offered by semiconductor equipment 

suppliers, which also sell services that increase the performance of tools used in a 

semiconductor fabrication facility (fab). 

Factors of Competition 

The semiconductor industry designs and produces the integrated circuits that enable the 

operation of almost all electronic devices, industrial and consumer.90 Computers and 

telecommunications devices account for nearly 60 percent of semiconductor usage. In 

 89 WTO, Information Technology Agreement, 

http://www.wto.org/english/tratop_e/inftec_e/inftec_e.htm (accessed August 1, 2013). 90 Semiconductor is a generic term for integrated circuits and discrete devices, such as transistors, 

resistors, capacitors, and diodes. Semiconductors are almost universally fabricated from a base of silicon. 
3-31 

2012, the value of worldwide semiconductor production accounted for 23 percent of 

electronic system production.91 

Distinctive competitive challenges for semiconductor producers arise partially from the 

industry’s own production cycle. The costs to produce semiconductors are enormous. 

Fabrication equipment and tools cost tens of millions of dollars,92 while the average 

selling price per unit is relatively low.93 The combination of large capital outlays and low 

product unit prices requires semiconductor companies to construct fabs that produce high 

volumes to achieve sufficient economies of scale. As a result, when a new fab enters 

service, the added capacity may overload the market or depress demand for technologies 

produced by older fabs, driving down selling prices across the industry. 

To address these challenges, one strategy has been the separation of design and 

production. “Fabless” companies design semiconductors only, and “foundry” companies 

operate fabs to produce semiconductors only. Fabless designers share production capacity 

at foundries, a strategy which effectively increases fab utilization. In 2012, IC Insights 

reported that fabless companies accounted for nearly 30 percent of worldwide sales, and 

have grown at a faster rate than integrated device manufacturers.94 A complementary 

strategy is pursued by integrated device manufacturers, which design and fabricate chips 

in a vertically integrated process and own their fabs. These companies have responded to 

the industry’s challenges by building high-volume fabs allowing them to increase their 

economies of scale.95 Both of these business strategies rely on the use of services, and 

this case study describes two specific services below. 

Electronic Design Automation Services 

EDA providers sell services that give access to proven simulation models, enabling 

designers to advance semiconductor capabilities. EDA companies offer services in five 

categories: software to engineer chips, software to lay out printed circuit boards, software 

to test and certify integrated circuits, consulting services, and access to semiconductor 

patents or intellectual property.96 EDA is not a specific process, but rather a services 

sector “involved in developing and supplying highly specialized software- and hardwarebased tools for the automated design of electronic products of all kinds.”97 

Two of the five EDA product categories—integrated circuits software testing and 

semiconductor intellectual property access—offer clear examples of services used in 

semiconductor manufacturing. One of the basic software offerings of EDA companies is 

Verilog hardware description language, which designers use to model integrated circuits. 

While early semiconductor designers could lay out the circuit designs by hand, the 

microscopic scale of advanced chips can only be tested using software. Semiconductor 

 91 Lineback et al., McClean Report, 2013, 2–4. 92 For example, the average selling price of a tool from ASML, a Dutch company that makes 

photolithography tools, is $20 million (ASML, Annual Report, 2012, F-38). 93 Examples of prices: less than $0.50 for an analog chip, more than $3.50 for NAND flash memory 

units, and around $30.00 for top-level application-specific integrated circuit chips. See IC Insights, “May 

Update,” 2013; Rassweiler, “Many iPhone 5 Components Change,” 2012. 94 IC Insights, “Fabless Companies Play Increasing Role,” 2013. 95 Naeher et al., “The Evolution of Business Models,” 2011. 96 For a description of software programs in each of the five categories, view the product category list at 

http://edac.org/initiatives/committees/mss. 97 EDAC, “EDA Glossary,” http://edac.org/industry/glossary (accessed July 24, 2013). 
3-32 

designers could not design new integrated circuits for manufacture without EDA test and 

validation tools. Another EDA offering is access to existing design patents. New 

integrated chips include, for example, “systems on a chip,” which integrate both memory 

and logic processors. EDA companies acquire semiconductor patents and then license the 

intellectual property to other circuit designers. This service allows designers to use a 

proven design that they can modify or integrate with their new design. At the same time, 

it helps the semiconductor industry because it reduces design engineering labor needs by 

hundreds of hours and reduces costs by millions of dollars.98

Leading companies that offer all or some of these services include Cadence Design 

Systems, MentorGraphics, ARM, and Synopsys. In 2012, the EDA industry surpassed $6 

billion in revenue, with nearly 40 percent in computer-aided engineering services. Since 

1996, EDA revenues have increased steadily, around 4 percent annually on average and 

6.7 percent in 2011–12.99 However, EDA is a small sector, with revenues around 2 

percent of the semiconductor industry’s revenues annually over the past 15 years.100 

Services Offered by Equipment Manufacturers 

Semiconductor equipment manufacturers have in the past decade begun to offer specific 

services to help fabs operate their equipment and tools optimally and in concert. These 

services help fabs generate a higher yield of good semiconductor chips and therefore 

increase revenue. An analysis of public revenue data from three major tool and 

equipment suppliers shows that services revenue rose by about 4 percent on average 

annually during 2008–12.101

Services offered by equipment and tool manufacturers perform functions in two general 

categories: helping integrate the equipment into the manufacturing system, and ensuring 

that the equipment is working when it should. In the past, when a fab ramped up a new 

process, the yield of usable chips was low during the initial stages of its use. Therefore, 

equipment manufacturers started to offer models and simulations that accelerate the 

initial yield rates.102 The second category of equipment manufacturer services places 

skilled technicians and certified engineers at or near customer sites to solve process 

problems.103 Many equipment manufacturers provide services that ensure that tools 

operate correctly and do not go out of service unexpectedly. Equipment manufacturers 

can collect dozens to thousands of data points from all of their tools, and study the data to 

uncover trends indicating that a tool may fail.104 When the trends are detected using 

millions of data points from thousands of machines—the Big Data analytics described 

earlier in the chapter—they enable still greater confidence in predicting the tool’s future 

operating status. 

 98 EDAC representative, telephone interview by USITC staff, July 30, 2013. 99 EDAC, “Market Statistics Service 2012,” n.d. (accessed June 26, 2013). 100 Commission analysis using data from the World Semiconductor Trade Statistics and EDA 

Consortium. 101 This analysis used all revenue not from the sale of physical equipment as a proxy indicator for 

services revenue. Data taken from 2012 annual reports of AMAT, ASML, KLA-Tencor, LAM, and Tokyo 

Electron. 102 Tribula, “The Evolution of the Semiconductor Service,” 2013; KLA-Tencor, Annual Report, 2012. 103 Lam Research website, ValuePoint Expert Support, http://www.lam-research.com/CSBG_2.cfm

(accessed June 26, 2013). 104 Tribula, “The Evolution of the Semiconductor Service,” 2013. 
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Finally, some services used in semiconductor manufacturing are not captured in revenue 

data or economic statistics. One such service offered by semiconductor equipment 

manufacturers is the installation of machinery. An equipment manufacturer will send an 

engineer or team of engineers to install the equipment as part of the price of the 

equipment sale. Another example is the creation of a manufacturing execution system, a 

complex program that runs wafers through processing steps. A fab manager will design a 

manufacturing execution system internally, where it is considered a cost of 

manufacturing and most likely would not be captured or reported as a services purchase. 

These two examples show that many services may not be captured by corporate financial 

analysts and reported for statistical purposes. 

Medical Device Industry 

Software-enabled services—the principal services used in the global medical device 

industry—have contributed significantly to the manufacturing of medical devices across 

various phases of the product lifecycle. This section will first identify the factors of 

competition in the global industry and then describe the ways in which software solutions 

enable firms to remain competitive. 

Healthcare professionals use medical devices to treat, diagnose, and prevent various 

ailments and injuries.105 Many medical devices fall within the computer and electronic 

products and miscellaneous manufacturing sectors, which according to table 3.5 are 

intensive users of services. The medical device industry is also highly capital intensive; 

the industry’s capital intensity was measured at 40 percent by one survey.106 Further, due 

to the complexity of some medical devices—for instance, diagnostic imaging 

technologies—the industry relies on a highly skilled workforce to develop, design, and 

test products. Employees’ wages in the U.S. medical device industry exceed the national 

average.107 

The medical device industry is highly regulated, owing to the potentially significant 

health risks associated with various devices. In the United States, the Food and Drug 

Administration categorizes devices into three classes, with the lowest-risk devices 

receiving a class one rating. Most manufacturers seek class two approvals for their 

devices, reflecting the relatively lower regulatory burden on these devices compared to 

class three devices.108 Class two and three devices make extensive use of software 

services throughout the product life cycle, particularly with respect to software solutions, 

and will be the focus of this section. 

 105 Relevant NAICS codes for these devices include 325413, in vitro diagnostic substances and devices; 

334510 and 334517, electromedical equipment; 339112, surgical and medical instruments; 339113, 

orthopedic devices and hospital supplies; and 339114, dental equipment. 106 Only four industries surveyed ranked higher in capital intensity than the medical device industry: 

chemicals (50 percent); refining petroleum, coke, nuclear (56 percent); computers and office machinery (41 

percent); and basic metals (41 percent). McKinsey, Manufacturing the Future, November 2012. 107 In 2008, the average salary in the medical device industry was $58,000, well over the national 

earnings average of about $42,000. Lewin Group, “State Economic Impact of the Medical Technology 

Industry,” June 7, 2010. 108 Zhong, “Primer,” 2012. Manufacturers of class two devices are required to demonstrate that their 

device is fundamentally similar to an existing device that has been approved for sale, while manufacturers of 

most class three devices are required to submit data from clinical trials in order to demonstrate the efficacy of 

the device; trials can run more than a year. Most implantable devices, including orthopedic devices, are class 

three devices, while many non-implantable devices, such as diagnostic equipment, are generally considered 

class two. 
3-34 

Factors of Competition 

Innovation and R&D 

Innovation is one of the principal determinants of competitiveness in the global medical 

device industry; a McKinsey survey ranked the industry’s R&D intensity at 35 percent, 

the highest among all the industries surveyed.109 Further, in the United States, leading 

U.S. medical device manufacturers commonly devote between 9 and 10 percent of their 

annual revenues to R&D, in contrast to an average of 3–4 percent for other domestic 

manufacturers.110 R&D spending is generally devoted to developing innovative (in 

particular, less invasive) technologies; designing prototypes; testing products; and 

improving existing devices.111 To achieve these ends, R&D teams are generally 

composed of engineers, computer scientists, biologists, and other highly skilled 

professionals.112

Time to market 

The life cycles of most advanced medical devices are relatively short, making the speed 

with which products are approved another critical factor affecting competitiveness.113

However, the approval process for medical devices can be lengthy, commonly exceeding 

one year and, in some cases, reaching as high as five years, during which time a firm 

receives no income from the device.114 Because of the long approval process and the 

short product life cycles, approved devices may enjoy success on the market for as little 

as a year before being made obsolete by a newer product.115 As a result, firms that are 

able to efficiently move through each stage of the life cycle while maintaining detailed 

records for regulators are more likely to launch a successful product. One study suggested 

that lateness getting to market was the principal reason that devices failed in the 

marketplace.116 

Reimbursement 

Reimbursement for the use of medical devices is a critical determinant of the type of 

devices an end user chooses to acquire. In the United States, hospitals and other 

consumers of medical devices base much of each purchasing decision on the likelihood 

of being reimbursed by the government or third-party insurers—the principal U.S. 

reimbursement entities.117 This factor is one reason that medical device manufacturers 

 109 R&D intensity was measured as R&D expenditures as a share of value added. McKinsey, 

Manufacturing the Future, 2012. 110 S&P, “Healthcare,” 2013. R&D investment in the sector remained high during the economic 

recession of 2007–09, increasing by 11 percent during this time. Holtzman and Figgatt, “R&D,” 2012. 111 Johnson & Johnson, “Form 10-K” (accessed August 8, 2013); Zimmer Holdings, “2012 Form 10-K” 

(accessed August 8, 2013); Medtronic, “Form 10-K” (accessed August 8, 2013). 112 S&P, “Healthcare,” 2013. 113 The estimated product life cycle for advanced medical devices is two years; USITC, Medical 

Devices, March 2007. 114 Industry association conference (M2M), May 9, 2013, Cambridge, MA; industry representative, 

telephone interview by USITC staff, Washington, DC, February 24, 2010; industry representative, interview 

by USITC staff, Boston, MA, March 2, 2010. 115 USITC, Medical Devices, March 2007. 116 Matlis, “Design for Manufacturability,” 2007. 117 S&P, “Healthcare,” 2013. 
3-35 

have become increasingly focused on reducing costs throughout the product life cycle, as 

affordability and efficacy can facilitate timely reimbursements. 

Use of Services 

Software-enabled services are used throughout the value chain 

Software-enabled services have been the services most commonly used within the 

medical device industry over the past 30 years.118 As previously stated, given the 

industry’s competitiveness, manufacturers often try to achieve rapid time to market while 

keeping their costs low. To that end, software-enabled services are increasingly used 

throughout the value chain to facilitate production planning, parts procurement, supply 

chain management, product design and development, and manufacturing.119 Although 

medical device firms have relied on software to manage inventories since the 1980s, the 

increasingly strict regulatory environment has led many manufactures to use software to 

document and manage risk throughout the value chain, a trend which has taken root 

within the past 20 years.120 This approach, most commonly called enterprise resource 

planning, helps firms immediately detect and quantify the extent of problems incurred 

during production and digitally submit these data to regulators.121 

Within the past 20 years, software has also become increasingly integrated into the 

product design and development phase, where innovation and planning often translates 

into eventual commercial success.122 During this phase, computer-aided design (CAD) is 

commonly used to create and transmit 3-D images onto a computer screen, while also 

allowing sensitive data to be stored digitally.123 3-D modeling of prototypes has been one 

of the most critical drivers of manufacturing efficiencies, allowing designers to 

dramatically reduce the time needed to generate highly detailed designs.124 The use of 

CAD became prevalent around 1995, when the software became accessible to users of 

personal computers.125

3-D printing services 

Within the past decade, 3-D printing has emerged as a service used in the manufacturing 

of implantable devices in particular. Digitally produced designs generated during the 

prototyping phase can be translated into usable parts or finished products—both 

customized to meet a specific user’s needs—using 3-D printing.126 For instance, hearing 

aid manufacturers are able to use this service to create customized components that will 

perfectly fit a user’s ear. Similarly, 3-D printing enables leading orthopedic 

manufacturers in the United States, such as Stryker and Zimmer, to produce joint 

implants that are specifically tailored to a particular user, taking into account users with a 

 118 Barbella, “Agents of Change,” 2013. 119 Barbella, “Agents of Change,” 2013. 120 Barbella, “Agents of Change,” 2013. 121 Barbella, “Agents of Change,” 2013. 122 McKinsey, “Manufacturing the Future,” 2012; Samuel, “The Value of High End,” 2011; Delporte 

and Barbella, “Full-Service Outsourcing,” 2013. 123 Whitney, “The Computer Age,” 2006. 124 Bell, “Outwit,” 2007. 125 Freiherr, “CAD/CAM and Beyond,” October 1, 1995. 126 Marsh, “Technology: Game Changer,” 2013. 
3-36 

weak bone structure, for example. With the personalized medicine market projected to 

double to $450 billion by 2015, customized medical solutions are expected to grow in 

significance.127 

Cloud computing services 

Cloud computing has also gained in popularity within the past decade, enabling users to 

manage each phase of the product’s life cycle while achieving flexibility not allowed 

through other platforms. For example, whereas many of the software solutions previously 

discussed require installation, cloud computing is accessible from any location with an 

Internet connection.128 During the product development phase, prototypes can be 

uploaded onto the cloud and immediately made accessible to suppliers and related 

partners. Similarly, data from clinical trials for certain class three medical devices can be 

accessed in real time by multiple users in various locations. Once the device is sold, the 

cloud-based service can continue; data generated from a patient with a cardiac 

defibrillator or an infusion pump, for example, can be transferred directly to the 

healthcare provider via the cloud. Additionally, the cloud enables manufacturers to give 

technical assistance to users of the device.129

Performance Textiles 

In the highly competitive global textile industry, higher-cost manufacturers such as the 

United States must differentiate their products to remain competitive.130 R&D services 

produced by private firms, collaborative organizations, and research institutions have 

enabled U.S. manufacturers in performance textiles to become leading producers and 

exporters. The traditional U.S. textile industry producing inputs for apparel and home 

furnishings has faced intense international competition over the past two decades; 

however, performance textiles have emerged as a growth area, built upon traditional 

textile expertise in states such as North Carolina.131 Investments in R&D are important to 

the industry and result in differentiated products with technical characteristics that are not 

easily produced elsewhere (e.g., fireproof, water-resistant, and antiballistic products). 132 

Performance textiles are manufactured for their technical performance and functional 

properties rather than their aesthetic or decorative characteristics.133 End users are found 

in a wide variety of industries, including the aerospace, automotive, farming, marine, 

medical, military, safety, transport, and construction industries.134 The global 

performance textile industry is highly competitive, yet U.S. manufacturers are able to 

maintain a competitive advantage through innovation in highly specialized products. The 

 127 Barbella, “Agents of Change,” 2013. 128 Bockrath, “Medical Devices Begin to Drift into the Cloud,” n.d. (accessed July 10, 2013). 129 Bockrath, “Medical Devices Begin to Drift into the Cloud,” n.d. (accessed July 10, 2013). 130 Nelson, “Building the Performance Cluster in North Carolina,” 2007. 131 Nelson, “Building the Performance Cluster in North Carolina,” 2007. 132 NC Textile Connect, “Summary,” n.d. (accessed July 25, 2013). 133 Textiles Intelligence, “Textile Outlook International,” 2012, 187. 134 Performance textiles are commonly divided into 12 functional areas: sport, agriculture, construction, 

apparel, geotextiles, industrial, home, hygiene, transportation, environmental, packaging, and 

protection/military. See Techtextil (International Trade Fair for Technical Textiles and Nonwovens), 

http://techtextil.messefrankfurt.com/ (accessed August 8, 2013). Geotextiles reinforce the soil or permit 

drainage in civil engineering applications, such as the construction of roads or dams. 
3-37 

U.S. performance textiles industry has been adding and improving production capacity in 

the past few years, which stands in contrast to the U.S. textile industry as a whole.135

Nonwovens 

Nonwoven fabrics are a helpful focus for a case study in performance textiles, as they 

encompass a wide range of applications, including automotive, construction, personal 

care, and medical uses.136 Well adapted to filtration and protection functions, common 

nonwoven products include medical masks and gowns; industrial filters; hygienic 

products such as diapers, pads, and wipes; and insulation wrap for construction. 

Engineered nonwovens also impart desired protection characteristics such as resistance to 

abrasion, impacts, ballistics, and fire. Reportedly, textiles for high-end markets, such as 

safety and technical textiles, are less affected by import competition than commoditytype fabrics.137 

In 2011, the U.S. nonwoven fabrics industry employed about 17,000 workers in 228 

establishments.138 The performance textile industry is capital intensive, requiring few 

employees to manage large and complicated production machinery. However, while labor 

inputs are low, the sector requires skilled operators.139 The value of nonwoven production 

rose from $7.7 billion in 2010 to $8.2 billion in 2011, accounting for roughly one-quarter 

of all U.S. textile production that year.140 By volume, production of nonwoven fabrics has 

grown, on average, about 5 percent annually over the past 10 years and is forecast to 

grow 28 percent between 2012 and 2017.141 

While the traditional U.S. textile industry has moved operations offshore, one industry 

source has predicted that advanced-technology manufacturing of textiles such as 

nonwovens will remain in the United States, as many lower-cost foreign producers are 

not able to produce these specialized materials.142 In 2012, U.S. exports of nonwoven 

fabrics totaled $1.9 billion, or 2.3 times the value of U.S. imports of these goods.143 

Factors of Competition 

Lower shipping costs, robust domestic demand, the perceived high quality of U.S. 

manufacturing, and relatively low U.S. energy costs encourage domestic production and 

render the U.S. performance textiles industry globally competitive.144

 135 See discussion, chapter 2. Technical Textiles International, “Signs of Recovery,” March/April 2012. 136 Nonwoven fabric mills are provided for under NAICS 31323 and classified under HTSUS 5603. A 

nonwoven fabric is a manufactured sheet of directionally or randomly oriented fibers bound together through 

heat or an adhesive. Textiles Intelligence, “Textile Outlook International,” 2012, 180. 137 Rasmussen, “2013 State of the Industry,” 2013. 138 Employment in nonwovens accounted for 14 percent of total U.S. textile employment in 2011. 

USDOC, Census, County Business Patterns (accessed July 8, 2013). 139 Cotton Incorporated, telephone interview by USITC staff, June 13, 2013. 140 USDOC, “Annual Survey of Manufacturers (ASM)” (accessed July 8, 2013). 141 Association of the Nonwoven Fabrics Industry (INDA), telephone interview by USITC staff, June 5, 

2013. 142 Panteva, “Textile Mills in the U.S.,” 2012, 4. 143 USITC DataWeb/USDOC (accessed July 8, 2013). 144 Reichard, “Capital Spending Perks Up,” 2013; Technical Textiles International, “Signs of 

Recovery,” March/April 2012. 
3-38 

Proximity to market 

Though many nonwoven fabrics are lightweight, their bulk makes it cost prohibitive to 

ship such materials long distances. Therefore, manufacturing of nonwovens is 

concentrated near their end markets.145 Both consumer and industrial demand drive 

growth in U.S. production of nonwoven fabrics. Consumer demand has diversified from 

diapers and feminine hygiene products in recent years as more nonwoven products are 

incorporated into everyday life. Consumer wipes and nonwoven cleaning products such 

as Swiffer products are now commonplace.146 As baby boomers age, demand for adult 

incontinence products will likely grow as well.147 U.S. demand for nonwovens is forecast 

to increase 5.7 percent annually through 2016.148 

Nonwoven fabrics are also inputs used widely in a number of major U.S. industries. For 

example, nonwoven fabrics meet the increased demand in automotive manufacturing for 

lightweight materials to increase fuel efficiency.149 They are also used to insulate vehicle 

interiors from noise and engine heat. In home construction, to take another example, 

durable nonwovens are used externally in insulation wraps, roofing products, and 

geotextiles, as well as internally in carpets, blinds, and rugs.150

Innovation 

U.S. firms invested $1.2 billion in textile mills and textile product mills in 2011, up from 

$1.1 billion in 2010.151 An industry source noted that the performance textile industry 

focuses its resources on “perpetual innovation,”152 enabling the U.S. performance textile 

industry to be a global leader. One researcher found that R&D and the development of 

brands and markets are the highest value-adding activities in textile manufacturing.153

Research and Development 

As indicated earlier in this chapter, high-tech textiles manufacturing involves complex 

production processes where R&D plays an important role. Such strategic business 

services are typically kept in-house and are put to use before or during product 

development. Private firms, collaborative organizations, and research institutions engage 

in R&D services that enhance the industry’s competitiveness. Two examples are 

discussed below. 

 145 Cotton Incorporated, telephone interview by USITC staff, June 13, 2013; INDA, telephone 

interview by USITC staff, June 5, 2013. 146 INDA, telephone interview by USITC staff, June 5, 2013. 147 INDA, telephone interview by USITC staff, June 5, 2013. 148 Gangloff, “U.S. Nonwovens Fabric Demand,” 2013. 149 Cotton Incorporated, telephone interview by USITC staff, June 13, 2013. 150 Cotton Incorporated, telephone interview by USITC staff, June 13, 2013. 151 USDOC, Census, Annual Capital Expenditures Survey (accessed July 8, 2013). 152 Reportedly, firms focus on developing new and better products, investment in new plants and 

equipment, and better marketing of their products to remain ahead of the competition. Rasmussen, “2013 

State of the Industry, Part I,” 2013. 153 Frederick et al., “A Descriptive Analysis,” 2007. 
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Cotton Incorporated 

Cotton Incorporated (Cotton Inc.) is a private, not-for-profit organization based in Cary, 

North Carolina.154 It has research projects throughout the entire cotton supply chain, from 

farm to market, and collaborates with private firms in their development of new 

technology to encourage increased use of cotton. For work on nonwovens in particular, 

Cotton Inc. has collaborated with the U.S. Department of Agriculture (USDA), academic 

research institutions, and private firms. The USDA’s five-year-old research facility in 

New Orleans contains state-of-the-art equipment for developing and testing high-valueadded nonwovens.155

Cotton Inc. has worked with USDA and private entities to develop cotton nonwovens for 

insulation (insulation is typically fiberglass);156 with Texas Tech University, the USDA 

research center, and Sellars Absorbent Materials Inc. (Sellars) to develop nonwoven

cotton booms for oil spill cleanup;157 and with labs and academic institutions to develop 

nonwoven fabric treatments that wick moisture and perspiration, with the intention of 

sharing them across the textile and apparel industry. 

The Nonwovens Institute 

The Nonwovens Institute (NWI), housed within the North Carolina State University 

College of Textiles, is the largest cooperative research center in North America.158

According to an industry source, NWI is valuable because it trains students and allows 

the industry access to new science.159 NWI’s research services focuses on nonwovens 

materials and processes technology, surface and bulk engineering, and analysis of 

material structure and performance.160 NWI has spent over $30 million on its research 

over the past 10 years.

The NWI has facilities for product development and testing services. Its members, which 

include companies such as 3M, DuPont, and Procter & Gamble, as well as organizations 

such as Cotton Inc., can sponsor proprietary research at NWI’s facilities. NWI product 

development examples include durable nonwovens for use in uniforms, 3-D nonwovens, 

and acoustical nonwovens for speakers.161 NWI partners with a manufacturing incubator, 

Leaders in Innovation and Nonwovens Commercialization (LINC), that is also based at 

the university. LINC focuses on commercializing high-value technical nonwoven 

products, helping firms introduce and test new products.162

 154 Cotton Inc. website, http://www.cottoninc.com/ (accessed June 4, 2013). 155 Nonwovens Industry, “USDA-Agricultural Research Service,” 2011. 156 Cotton Inc., telephone interview by USITC staff, June 13, 2013. 157 Cotton is naturally hydrophobic and oleophilic; therefore, cotton booms repel water, absorb oil, and 

float when saturated so that the boom can be picked up. Cotton Inc., telephone interview by USITC staff, 

June 13, 2013; Nonwovens Industry, “TTU Research Proves Power of Cotton,” 2013; Sellars website, 

http://www.sellarscompany.com/ (accessed June 13, 2013). 158 NWI website, http://www.thenonwovensinstitute.com/about-nwi/ (accessed June 12, 2013). 159 Cotton Inc., telephone interview by USITC staff, June 13, 2013. 160 NWI website, http://www.thenonwovensinstitute.com/about-nwi/ (accessed June 12, 2013). 161 NWI, email message to USITC staff, June 7, 2013. 162 NWI, email message to USITC staff, June 7, 2013. 
3-40 

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WIOD Working Paper 10, 2012. http://www.wiod.org/publications/papers/wiod10.pdf. 

Timmer, Marcel, Bart Los, Robert Stehrer, and Gaaitzen de Vries. “Fragmentation, Incomes, and Jobs: 

An Analysis of European Competitiveness.” WIOD Working Paper 9, 2012. 

http://www.wiod.org/publications/papers/wiod9.pdf. 

Tokyo Electron. 2012 Annual Report. http://www.tel.com/ir/library/ar/index.htm (accessed July 10, 

2013). 

Tribula, Dana. “The Evolution of the Semiconductor Service Model.” Applied Materials Blog, March 20, 

2013. http://blog.appliedmaterials.com/service-3point0. 

Triplett, Jack E., and Barry Bosworth. Productivity in the U.S. Services Sector: New Sources of Economic 

Growth. Washington, DC: Brookings Institution Press, 2004. 
3-48 

———. “Productivity Measurement Issues in Services Industries: ‘Baumol’s Disease’ Has Been Cured.” 

Federal Reserve Bank of New York Economic Policy Review, September 2003: 23–33. 

U.S. Department of Commerce (USDOC). Bureau of Economic Analysis (BEA). Annual Input-Output 

Data. http://www.bea.gov/industry/io_annual.htm (accessed June 25, 2013). 

———. GDP-by-Industry Data. http://www.bea.gov/industry/gdpbyind_data.htm (accessed July 11, 

2013). 

———. National Economic Accounts. http://www.bea.gov/national/index.htm (accessed July 16, 2013). 

U.S. Department of Commerce (USDOC). U.S. Census Bureau (Census). Annual Capital Expenditures 

Survey. http://www.census.gov/econ/aces/ (accessed July 8, 2013). 

———. County Business Patterns. http://www.census.gov/econ/cbp/ (accessed July 8, 2013). 

———. Annual Survey of Manufactures (ASM). http://www.census.gov/manufacturing/asm/ (accessed 

July 8, 2013). 

U.S. Department of Labor (USDOL). Bureau of Labor Statistics (BLS). Multifactor Productivity Tables. 

http://www.bls.gov/oes/tables.htm (accessed May 22, 2013). 

———. Occupational Employment Statistics. http://www.bls.gov/oes/tables.htm (accessed June 20, 

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———. “Technical Information about the BLS Multifactor Productivity Measures,” September 26, 2007. 

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http://www.zurichna.com/zna/corporatebusiness/supplychain.htm. 

APPENDIX A 

Request Letters 

 

A-3
A-4
A-5

APPENDIX B 

Federal Register Notice 

 

Federal Register / Vol. 77, No. 247 / Wednesday, December 26, 2012 / Notices 76071 

accepted by letter and may be addressed 

to: Bureau of Land Management-Eastern 

States, Attn: Kemba Anderson-Artis, 

7450 Boston Blvd., Springfield, VA 

22153. Comments may be sent via email 

to kembaand@blm.gov, or by fax to 703– 

440–1551. The lessee has paid the 

required $500 administrative fee and 

has reimbursed the BLM for the cost of 

publishing this Notice in the Federal 

Register. The lessee has met all the 

requirements for reinstatement as set 

out in the Federal Oil and Gas Royalty 

Management Act of 1982 (Pub. L. 97– 

451). 

Kemba Anderson-Artis, 

Supervisory Land Law Examiner. 

[FR Doc. 2012–30860 Filed 12–21–12; 8:45 am] 

BILLING CODE 4310–GJ–P 

INTERNATIONAL TRADE 

COMMISSION 

[Investigation No. 332–325] 

The Economic Effects of Significant 

U.S. Import Restraints: Eighth Update 

Special Topic: Services’ Contribution 

to Manufacturing 

AGENCY: United States International 

Trade Commission. 

ACTION: Notice of eighth update report, 

scheduling of public hearing, 

opportunity to file written submissions. 

SUMMARY: Following receipt of a letter 

dated November 2, 2012 from the 

United States Trade Representative 

(USTR), the U.S. International Trade 

Commission (Commission) has 

announced its schedule for preparing 

the eighth update report in investigation 

No. 332–325, The Economic Effects of 

Significant U.S. Import Restraints, 

including the scheduling of a public 

hearing in connection with this update 

report for March 19, 2013. This year’s 

report will include a chapter on 

services’ contribution to manufacturing. 

DATES:

March 6, 2013: Deadline for filing 

requests to appear at the public 

hearing. 

March 11, 2013: Deadline for filing prehearing briefs and statements. 

March 19, 2013: Public hearing. 

March 26, 2013: Deadline for filing posthearing briefs and statements. 

April 12, 2013: Deadline for filing all 

other written submissions. 

November 15, 2013: Transmittal of 

Commission report to USTR. 

ADDRESSES: All Commission offices, 

including the Commission’s hearing 

rooms, are located in the United States 

International Trade Commission 

Building, 500 E Street SW., Washington, 

DC. All written submissions should be 

addressed to the Secretary, United 

States International Trade Commission, 

500 E Street SW., Washington, DC 

20436. The public record for this 

investigation may be viewed on the 

Commission’s electronic docket (EDIS) 

at http://edis.usitc.gov/edis3-internal/ 

app. 

FOR FURTHER INFORMATION CONTACT: 

Project Leader Jose Signoret 

(jose.signoret@usitc.gov or 202–205– 

3125) or Deputy Project Leader William 

Deese (william.deese@usitc.gov or 202– 

205–2626) for information specific to 

this investigation (the eighth update). 

For information on the legal aspects of 

this investigation, contact William 

Gearhart of the Commission’s Office of 

the General Counsel (202–205–3091 or 

william.gearhart@usitc.gov). The media 

should contact Margaret O’Laughlin, 

Office of External Relations (202–205– 

1819 or margaret.olaughlin@usitc.gov). 

Hearing-impaired individuals may 

obtain information on this matter by 

contacting the Commission’s TDD 

terminal at 202–205–1810. General 

information concerning the Commission 

may also be obtained by accessing its 

Internet server (http://www.usitc.gov). 

Persons with mobility impairments who 

will need special assistance in gaining 

access to the Commission should 

contact the Office of the Secretary at 

202–205–2000. 

Background: The Commission 

instituted this investigation under 

section 332(g) of the Tariff Act of 1930 

(19 U.S.C. 1332(g)) following receipt of 

an initial request from the USTR dated 

May 15, 1992. The request asked that 

the Commission assess the quantitative 

economic effects of significant U.S. 

import restraints on the U.S. economy 

and prepare periodic update reports 

after the initial report. The Commission 

published a notice of institution of the 

investigation in the Federal Register of 

June 17, 1992 (57 FR 27063). The first 

report was delivered to the USTR in 

November 1993, the first update in 

December 1995, and successive updates 

were delivered in 1999, 2002, 2004, 

2007, 2009, and 2011. 

In this eighth update, as requested by 

the USTR in a letter dated November 2, 

2012, the Commission will, in addition 

to the quantitative effects analysis 

similar to that included in prior reports, 

include an overview of the 

contributions of services (both U.S. and 

global) to U.S. manufacturing. The 

USTR asked that the report describe 

recent trends in U.S. and global 

sourcing of services and their 

contribution to manufacturing output 

and productivity, and identify sectors 

that have experienced the greatest 

changes. The USTR also asked that the 

report include, to the extent practicable, 

a discussion of services’ indirect 

contribution to merchandise exports 

and also a review of available literature 

on this issue. The USTR asked that the 

information be presented in a manner 

that makes it accessible to a wide 

audience. 

As in previous reports in this series, 

the eighth update will continue to 

assess the economic effects of 

significant import restraints on U.S. 

consumers and firms, the income and 

employment of U.S. workers, and the 

net economic welfare of the United 

States. This assessment will use the 

Commission’s computable general 

equilibrium model. However, as per 

earlier instructions from the USTR, the 

Commission will not assess import 

restraints resulting from antidumping or 

countervailing duty investigations, 

section 337 and 406 investigations, or 

section 301 actions. 

Public Hearing: A public hearing in 

connection with this investigation will 

be held at the United States 

International Trade Commission 

Building, 500 E Street SW., Washington, 

DC, beginning at 9:30 a.m. on March 19, 

2013. Requests to appear at the hearing 

should be filed with the Secretary no 

later than 5:15 p.m., March 6, 2013, in 

accordance with the requirements in the 

‘‘Submissions’’ section below. All prehearing briefs and statements should be 

filed not later than 5:15 p.m., March 11, 

2013; and all post-hearing briefs and 

statements addressing matters raised at 

the hearing should be filed not later 

than 5:15 p.m., March 26, 2013. In the 

event that, as of the close of business on 

March 6, 2013, no witnesses are 

scheduled to appear at the hearing, the 

hearing will be canceled. Any person 

interested in attending the hearing as an 

observer or nonparticipant may call the 

Secretary to the Commission (202–205– 

2000) after March 6, 2013, for 

information concerning whether the 

hearing will be held. 

Written Submissions: In lieu of or in 

addition to participating at the hearing, 

interested parties are invited to file 

written submissions concerning this 

investigation. All written submissions 

should be addressed to the Secretary, 

and should be received not later than 

5:15 p.m., April 12, 2013. All written 

submissions must conform to the 

provisions of section 201.8 of the 

Commission’s Rules of Practice and 

Procedure (19 CFR 201.8). Section 201.8 

Section 201.8 and the Commission’s 

Handbook on Filing Procedures require 

that interested parties file documents 


tkelley on DSK3SPTVN1PROD with 

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76072 Federal Register / Vol. 77, No. 247 / Wednesday, December 26, 2012 / Notices 

electronically on or before the filing 

deadline and submit eight (8) true paper 

copies by 12:00 noon eastern time on 

the next business day. In the event that 

confidential treatment of a document is 

requested, interested parties must file, at 

the same time as the eight paper copies, 

at least four (4) additional copies in 

which the confidential information 

must be deleted (see the following 

paragraph for further information 

regarding confidential business 

information). Persons with questions 

regarding electronic filing should 

contact the Secretary (202–205–2000). 

Any submissions that contain 

confidential business information must 

also conform to the requirements of 

section 201.6 of the Commission’s Rules 

of Practice and Procedure (19 CFR 

201.6). Section 201.6 of the rules 

requires that the cover of the document 

and the individual pages be clearly 

marked as to whether they are the 

‘‘confidential’’ or ‘‘non-confidential’’ 

version, and that the confidential 

business information be clearly 

identified by means of brackets. All 

written submissions, except for 

confidential business information, will 

be made available for inspection by 

interested parties. 

In its request letter, the USTR stated 

that his office intends to make the 

Commission’s report available to the 

public in its entirety, and asked that the 

Commission not include any 

confidential business information or 

national security classified information 

in the report it sends to the USTR. Any 

confidential business information 

received by the Commission in this 

investigation and used in preparing this 

report will not be published in a manner 

that would reveal the operations of the 

firm supplying the information. 

By order of the Commission. 

Issued: December 20, 2012. 

Lisa R. Barton, 

Acting Secretary to the Commission. 

[FR Doc. 2012–31031 Filed 12–21–12; 4:15 pm] 

BILLING CODE 7020–02–P 

JUDICIAL CONFERENCE OF THE 

UNITED STATES 

Hearings of the Judicial Conference 

Advisory Committee on Rules of 

Bankruptcy Procedure; Federal 

Register; Citation of Previous 

Announcement: 77FR 49828 

AGENCY: Judicial Conference of the 

United States, Advisory Committee on 

Rules of Bankruptcy Procedure. 

ACTION: Notice of Cancellation of Open 

Hearing. 

SUMMARY: The following public hearing 

on proposed amendments to the Federal 

Rules of Bankruptcy Procedure has been 

canceled: Bankruptcy Rules Hearing, 

January 18, 2013, Chicago, IL. 

FOR FURTHER INFORMATION CONTACT: 

Benjamin J. Robinson, Deputy Rules 

Officer and Counsel, Administrative 

Office of the United States Courts, 

Washington, DC 20544, telephone (202) 

502–1820. 

Dated: December 20, 2012. 

Benjamin J. Robinson, 

Rules Committee Deputy and Counsel. 

[FR Doc. 2012–31040 Filed 12–21–12; 4:15 pm] 

BILLING CODE 2210–55–P 

JUDICIAL CONFERENCE OF THE 

UNITED STATES 

Hearings of the Judicial Conference 

Advisory Committee on Rules of 

Appellate Procedure; Federal Register 

Citation of Previous Announcement: 

77FR 49828 

AGENCY: Advisory Committee on Rules 

of Appellate Procedure, Judicial 

Conference of the United States. 

ACTION: Notice of Cancellation of Open 

Hearing. 

SUMMARY: The following public hearing 

on proposed amendments to the Federal 

Rules of Appellate Procedure has been 

canceled: Appellate Rules Hearing, 

January 18, 2013, Chicago, IL. 

FOR FURTHER INFORMATION CONTACT: 

Benjamin J. Robinson, Deputy Rules 

Officer and Counsel, Administrative 

Office of the United States Courts, 

Washington, DC 20544, telephone (202) 

502–1820. 

Dated: December 20, 2012. 

Benjamin J. Robinson, 

Rules Committee Deputy and Counsel. 

[FR Doc. 2012–31042 Filed 12–21–12; 4:15 pm] 

BILLING CODE 2210–55–P 

DEPARTMENT OF JUSTICE 

Notice of Extension to Public 

Comment Period for Remedial Design/ 

Remedial Action Consent Decree 

under the Comprehensive 

Environmental Response, 

Compensation, and Liability Act 

On December 6, 2012, the Department 

of Justice lodged a proposed Remedial 

Design/Remedial Action Consent Decree 

(‘‘RD/RA Consent Decree’’) with the 

United States District Court for the 

Northern District of Alabama, Eastern 

Division in the lawsuit entitled, United 

States of America v. Pharmacia 

Corporation and Solutia, Inc., Civil 

Action No. 1;02–cv–0749–KOB. The 

RD/RA Consent Decree resolves a 

portion of the United States’ claims 

against the Defendants. Under the RD/ 

RA Consent Decree, the Defendants will 

undertake cleanup activities at an area 

that is part of the Anniston PCB 

Superfund Site designated as Operable 

Unit 3, which covers approximately 138 

acres, including the active 

manufacturing area. OU 3 is generally 

bounded by to the north by the Northern 

Southern and Erie Railroads, to the east 

by Clydesdale Avenue, to the west by 

and including the West End Landfill 

and an Alabama Power Company 

substation, and to the south by and 

including the South End Landfill and 

Highway 202. 

In addition to remedial activities, the 

RD/RA Consent Decree requires the 

Defendants to reimburse EPA for its 

oversight of work performed under the 

Decree by the Defendants. 

The prior notice indicated that the 

Department of Justice would receive 

comments concerning the settlement for 

a period of thirty (30) days from the date 

of publication of the notice on 

December 13, 2012. Having received a 

request for an extension of the initial 

comment period and given the public 

interest in this settlement, the United 

States is extending the comment period 

for an additional thirty (30) days. 

The Department of Justice will 

receive, for a period of thirty (30) days 

from January 14, 2013, any comments 

relating to the proposed RD/RA Consent 

Decree. Comments should be addressed 

to the Assistant Attorney General, 

Environment and Natural Resources 

Division, and should refer to the United 

States of America v. Pharmacia 

Corporation and Solutia, Inc., D.J. Ref. 

No. 90–11–2–07135/1. All comments 

must be submitted no later than 

February 13, 2013. Comments may be 

submitted by email or by mail: 

To submit 

comments: Send them to: 

By email pubcommentees.enrd@usdoj.gov. 

By mail ... Assistant Attorney General, U.S. 

DOJ—ENRD, P.O. Box 7611, 

Washington, DC 20044–7611. 

During the public comment period, 

the RD/RA Consent Decree may be 

examined and downloaded at the this 

Justice Department Web site: http:// 

www.usdoj.gov/enrd/ConsentDecree.html. We will provide a paper 

copy of the RD/RA Consent Decree upon 

written request and payment of 

reproduction costs. 


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APPENDIX C 

Calendar of Public Hearing 

 

CALENDAR OF PUBLIC HEARING

Those listed below appeared as witnesses at the United States International Trade 

Commission’s hearing: 

Subject: The Economic Effects of Significant U.S. Imports 

Restraints: Eighth Update Special Topic: Services’ 

Contribution to Manufacturing 

Inv. No.: 332-325 

Date and Time: March 19, 2013 - 9:30 a.m.

Sessions were held in connection with this investigation in the Main Hearing Room 

(room 101), 500 E Street, S.W., Washington, D.C. 

ORGANIZATION AND WITNESS:

The Sweetener Users Association

Washington, D.C. 

Thomas Earley, Vice President and Economist, 

Agralytica Consulting 

American Sugar Alliance

Arlington, VA 

Jack Roney, Director of Economics and Policy Analysis 

Don Phillips, Trade Adviser

Underwriters Laboratories Inc.

Washington, D.C. 

Ann Weeks, Vice President, Global Government Affairs

-ENDC-3

APPENDIX D

Positions of Interested Parties

Introduction

The summaries of the positions of interested parties are based on information provided at 

a public hearing held on March 19, 2013, and material submitted to the Commission for 

this investigation. The summaries express the views of the submitting parties and not

those of the Commission, whose staff did not attempt to confirm the accuracy of or make 

corrections to the information provided. The full text of the hearing transcript and written 

submissions for the current investigation can be found by searching the Commission’s

Electronic Docket Information System.1

TABLE D.1 Information provided by interested parties

Hearing 

Testimony Submission

American Apparel and Footwear Association 

American Sugar Alliance  

Hildegunn Kyvik Nordås and Yunhee Kim, OECD 

Sweetener Users Association  

Underwriters Laboratories 

Source: USITC Electronic Docket Information System.

American Apparel and Footwear Association2

The American Apparel and Footwear Association (AAFA) said that it is a national trade 

association representing apparel and footwear industries and their suppliers. The 

association’s submission said that 98 percent of all apparel and 99 percent of all footwear 

sold in the United States is imported, providing approximately 4 million American jobs. 

The AAFA made four points in its submission: 

• Imports allow the association’s industries to concentrate U.S. employment on the 

elements in the global value chain where U.S. workers are most competitive. The 

submission explained that these imports make it possible for its companies to 

adapt to constantly evolving fashions, production, and distribution challenges.

• U.S. government trade programs and policies should promote needed imports for 

the U.S. apparel, footwear, and fashion industries, rather than treat textiles and 

apparel as an import-sensitive industry in need of special rules such as quota and 

safeguard programs. The AAFA submission said that in the past such policies 

tightly controlled the industry’s trade patterns and hindered its competitiveness. 

The submission cited the so-called yarn-forward rules of origin, burdensome 

documentation, and out-of-date customs enforcement procedures as examples of 

provisions in U.S. trade agreements that damage U.S. economic interests. The 

association said that the yarn-forward rules limit suppliers and require expensive 

documentation that inflates costs. The higher costs imposed by these rules not 

only raise costs for U.S. firms, the submission contended, but also hinder U.S. 

exports of yarns and fabrics to customers in foreign markets by discouraging 

foreign customers from participating in yarn forward programs. The AAFA 

expressed concern that export opportunities for U.S. firms may be damaged if the 

1 Available online at http://edis.usitc.gov. 2 AAFA, written submission to the USITC, April 12, 2013.

D-3

 
U.S. government tries to include these rules in negotiations for future trade 

agreements, such as the Trans-Pacific Partnership talks.

• The U.S. government should conclude an international services agreement. The 

AAFA said that foreign access to and cross-border trade in services have become 

equally as important as trade in physical goods, as supply chains for the apparel, 

footwear, and fashion industries have become more globalized.

• Continued U.S. trade barriers encourage the imposition of reciprocal barriers 

abroad that affect U.S. exports. The AAFA cited the U.S. application of 

consumer product safety laws as one example that has encouraged foreign 

countries to adopt variations of similar laws that have caused regulatory 

confusion rather than a reduction in trade barriers through harmonized regulatory 

frameworks that secure predictable market access.

American Sugar Alliance3

The American Sugar Alliance (ASA) said that it is a national coalition of the growers, 

processors, and refiners of sugarbeets and sugarcane. In its prehearing submission, the 

ASA said that U.S. sugar policy and import restraints provide a net benefit to the U.S. 

economy, rather than a net cost. In its submission, as well as in testimony to the 

Commission by Jack Roney and Don Phillips representing the ASA, the Alliance 

expressed the view that the USITC has consistently underestimated the number of jobs in 

the industry that would be harmed if U.S. import restraints were removed. The ASA also 

said that the USITC overestimates the job creation likely in the industry if restraints were 

removed. Its submission described the extent to which U.S. jobs would be lost as a result 

of significantly lower producer prices. It also sought to counter the argument that the U.S. 

confectionery industry is contracting, detailing instead examples showing that the sector 

is profitable and expanding.4

The Alliance also looked to counter USITC estimates that a substantial drop in producer 

prices would result in a passthrough of lower sugar prices to consumers if import 

restraints were lifted, based in large part on the relatively insignificant share of sugar in 

the retail cost of sweetened products, according to the submission.5

Concerning exports, the submission expressed the view that food manufacturers already 

have access to sugar at the world price for exported products through the U.S. sugar reexport program. As a result, manufacturers would not increase exports further if U.S. 

import restraints were removed to promote lower import prices for refined sugar.6 In 

summary, the ASA said that far more U.S. jobs are dependent on the sugar-producing 

industry than previously estimated, and consumers are unlikely to see lower retail prices 

for sugar and sweetened products if import restraints are removed.

Hildegunn Kyvik Nordås and Yunhee Kim, OECD7

In a written submission to the Commission, the authors summarized a recent study by the 

Organisation for Economic Co-operation and Development (OECD) on the role of 

3 ASA, written submission to the USITC, March 11, 2013.

4 USITC, hearing transcript, March 19, 2013. 13–15, 20. 5 USITC, hearing transcript, March 19, 2013, 15–17, 20. 6 USITC, hearing transcript, March 19, 2013, 17–18. 7 Nordås and Kim, written submission to the USITC, n.d.

D-4

 
services in helping organize production in international merchandise trade, in support of 

the investigation’s special focus on services’ contribution to manufacturing. They said 

that their report analyzed the relation between manufacturing competitiveness and the 

quality of key intermediate services and reached the following conclusions:

• New technology is altering the way production is organized, making machine 

tools less scale-intensive. 

• For high-tech industries, the import penetration of business services, while low, 

was increasing rapidly, whereas for low-tech industries, import penetration was 

growing fastest for transport, logistics, and travel services. 

• Clothing and apparel and electronics, followed by motor vehicles, were the 

sectors most sensitive to services quality and policies. 

• Restrictions on foreign direct investment in services, as well as services 

regulations beyond the border––such as burdensome technical standards, 

intellectual property rights rules, and other nontariff barriers––harm product 

differentiation and in turn manufacturing competitiveness.

Sweetener Users Association8

The Sweetener Users Association (SUA) said that its membership includes firms that use 

sugar and other sweeteners in their businesses, including confectioners, beverage 

companies, food manufacturers, bakers, dairy product manufacturers, cereal makers, and 

other companies, along with the trade associations that represent these firms. In its 

written submission to the Commission, the SUA highlighted recent developments 

affecting the sweetener trade, including effects of the 2008 farm bill, the integration of 

the U.S. and Mexico sweetener markets, sugar provisions in the recent U.S.-Colombia 

Trade Promotion Agreement, and unfilled allocations of the U.S. sugar quota distributed 

under WTO trade rules.

In its submission, the Association described changes to the U.S. sugar program in the 

2008 farm bill, including new restrictions that reduce U.S. policymakers’ authority to 

adjust sugar import quotas to meet domestic needs. The SUA cited both the shortages in 

2008–12 and the emerging surplus in 2013 as evidence of this failure to adjust imports as 

needed. The Association said that a reliable, affordable, and sufficient supply of highquality sugar is needed by its members to manufacture their products. The SUA cited an 

independent analysis that supports the view that the U.S. sugar tariff-rate quota results in 

a net welfare cost to society as well as a large transfer of income from consumers to sugar 

producers, but the SUA added that the analysis suffered from its inability to quantify the 

benefits of a stable and reliable domestic supply of sugar, as suggested by market 

disruptions in 2005 by Hurricane Katrina and in 2008 by the explosion of a major sugar 

cane refinery. The SUA also expressed support for conclusions in a U.S. Department of 

Commerce study that indicate that the cost of sugar was a major factor in the sharp 

decline in jobs in sugar-using industries over 1997–2011.

The SUA submission said that irregular sugar supplies on the U.S. market are 

compounded by out-of-date allocations of the U.S. raw sugar quota under past WTO 

trade rules, where allocations to 40 countries were based on the market shares prevailing 

during the 1975–81 period. The SUA said that world production and trade patterns have 

8 SUA, written submission to the USITC, March 19, 2013.

D-5

 
shifted considerably, while these quota allocations remain unadjusted. The SUA 

suggested setting up a system permitting some degree of quota tradability among 

countries, which would fill U.S. quota allocations more efficiently.

The SUA expressed support for a more market-based sugar policy, suggesting that better 

sugar TRQ administration was needed urgently, as these individual allocations are 

increasingly going unfilled. Regarding the Commission’s research in particular, the SUA 

urged study not only of differences in raw sugar prices, but also in refined sugar prices, as 

well as greater focus on the inefficiencies, market distortions, and perverse incentives 

inherent in the current TRQ structure.

In a written statement as well as in his testimony, Tom Earley, Vice President of the 

economic consulting firm Agralytica and an economist representing the SUA at the 

hearing, called for a more efficient and market-based sugar U.S. policy that provides a 

reliable sugar supply to sugar users, such as through better administration of the U.S. 

sugar TRQ.9

Underwriters Laboratories10

In testimony before the Commission, Underwriters Laboratories (UL) described its 

business as a global independent safety science company dedicated to supporting the 

production and use of safe products. Ann Weeks, UL Vice President of Global 

Government Affairs, presented comments on U.S. policy to align regulatory requirements 

affecting manufacturers, and expressed support for U.S. participation in upcoming

negotiations with like-minded trading partners toward an international services 

agreement.11 Ms. Weeks addressed the value of and challenges to the testing, inspection, 

and certification industries that are central to UL’s business as a standards development 

organization. She noted that these services industries can act as a multiplier for 

manufactured exports, where an agreed single test or certification can mean increased 

production of a single product that can be designed to reach multiple markets. She said

that UL supports the improvement of definitions and classifications of these service 

industries as a way to end inconsistencies and gaps in classification that otherwise might 

undermine negotiated commitments and create loopholes in implementation and 

enforcement of an agreement to harmonize regulations and liberalize barriers in these 

industries.

9 USITC, hearing transcript, March 19, 2013, 5–12. 10 USITC, hearing transcript, March 19, 2013. 11 USITC, hearing transcript, March 19, 2013.

D-6

 
Bibliography

American Apparel and Footwear Association (AAFA). Written submission to the U.S. International Trade 

Commission (USITC) in connection with inv. no. 332-325, The Economic Effects of Significant 

U.S. Import Restraints: Eighth Update, April 12, 2013.

American Sugar Alliance (ASA). Written submission to the U.S. International Trade Commission 

(USITC) in connection with inv. no. 332-325, The Economic Effects of Significant U.S. Import 

Restraints: Eighth Update, April 12, 2013.

American Sugar Alliance (ASA). Written submission to the U.S. International Trade Commission 

(USITC) in connection with inv. no. 332-325, The Economic Effects of Significant U.S. Import 

Restraints: Eighth Update, March 11, 2013.

Caribbean Ethanol Producers Association (CEPA). Written submission to the U.S. International Trade 

Commission in connection with inv. no. 332-325, The Economic Effects of Significant U.S. 

Import Restraints: Seventh Update, September 22, 2011.

Earley, Thomas. Sweetener Users Association (SUA). Written submission to the U.S. International Trade 

Commission (USITC) in connection with inv. no. 332-325, The Economic Effects of Significant 

U.S. Import Restraints: Eighth Update, March 19, 2013.

Nordås, Hildegunn Kyvik, and Yunhee Kim. Organization for Economic Cooperation and Development 

(OECD). Written submission to the U.S. International Trade Commission (USITC) in connection 

with inv. no. 332-325, The Economic Effects of Significant U.S. Import Restraints: Eighth Update, 

n.d.

Phillips, Don, and Jack Roney. American Sugar Alliance (ASA). Written testimony submitted to the U.S. 

International Trade Commission (USITC) in connection with inv. no. 332-325, The Economic 

Effects of Significant U.S. Import Restraints: Eighth Update, March 19, 2013.

Sweetener Users Association (SUA). Written submission to the U.S. International Trade Commission 

(USITC) in connection with inv. no. 332-325, The Economic Effects of Significant U.S. Import 

Restraints: Eighth Update, March 19, 2013.

Sweetener Users Association (SUA). Written submission to the U.S. International Trade Commission 

(USITC) in connection with inv. no. 332-325, The Economic Effects of Significant U.S. Import 

Restraints: Eighth Update, March 22, 2013.

Weeks, Ann. Underwriters Laboratories (UL). Written submission to the U.S. Trade Representative in 

connection with USTR docket number USTR-2013-0001, “Request for Comments on an 

International Services Agreement,” February 26, 2013.

Weeks, Ann. Underwriters Laboratories (UL). Written testimony submitted to the U.S. International 

Trade Commission (USITC) in connection with inv. no. 332-325, The Economic Effects of 

Significant U.S. Import Restraints: Eighth Update, March 19, 2013.

D-7

APPENDIX E

Model Projections and Additional Results

Overview of the Modeling Framework

The analytical framework used to analyze the economic impact of significant U.S. import 

restraints in this eighth update is similar to the U.S. Applied General Equilibrium 

(USAGE) framework that was used in the seventh and sixth updates. The USAGE model 

is a dynamic computable general equilibrium (CGE) model that describes consumption, 

production, and trade in over 500 U.S. sectors.

1 The current framework, USAGE 2.0,

employs a second-generation version of the USAGE model.

2

The behavioral equations that define the USAGE 2.0 model hew closely to those laid out 

in the USAGE model. The data structures, however, have changed substantially in the 

commodity, industry, and time dimensions. The emphasis in USAGE is on a highly 

detailed picture of the U.S. economy, relying on the 500+ commodity/industry 

benchmark input-output (I-O) table published by the Bureau of Economic Analysis 

(BEA) of the U.S. Department of Commerce. Benchmark I-O tables are only released 

every five years, and with considerable delay. USAGE 2.0, in contrast, relies on the 

annually updated 65-sector I-O tables that are also published by the BEA.

3 While the 

annually updated I-O tables provide less sectoral detail than the benchmark tables, using 

the time series of annual I-O tables beginning with 1998 makes it possible to develop 

dynamic economic relationships which expand the analytical capabilities of the model.

4

The USAGE 2.0 model estimates the effects of removing (liberalizing) significant U.S. 

import restraints relative to a projection of the U.S. economy over the medium term. The 

model incorporates a baseline projection of the U.S. economy to 2017, based on both 

historical and forecast economic data, including estimates of the size of the import

restraints. The projection assumes that current U.S. import restraints remain in place. 

Liberalizations reported in this update are alternative policy scenarios in which the 

significant import restraints are completely eliminated, either individually or all at once. 

The economic impact of liberalization is assessed by comparing the baseline and the 

alternative policy outcomes.5

The USAGE 2.0 model framework has three components: (1) input-output (I-O) accounts 

for approximately 65 sectors and commodities, (2) behavioral parameters, and (3) a 

system of equations that constitute the model specification or theory. The I-O accounts 

specify the transactions among U.S. individuals, firms, and the U.S. government, derived 

from the annual I-O accounts for U.S. industries and types of final demand (e.g., imports, 

1 For more detail on the USAGE framework, see USITC, Import Restraints, 2009, appendix E. For a 

complete specification of the USAGE model, see Dixon and Rimmer, “USAGE-ITC,” June 2002. 2 For more detail on the USAGE 2.0 framework, see Fox et al., “Using Annual Input-Output 

Accounts,” June 2012; Dixon and Rimmer, “USAGE 2.0: Historical Simulations,” August 2012. 3 USDOC, BEA, Input-Output Accounts Data (accessed April 26, 2012). 4 Fox et al., “Using Annual Input-Output Accounts,” June 2012, describe how the annual 65-order BEA 

I-O tables for 1998 to 2009 were made suitable for the USAGE model. 5 The baseline and the policy projections are each subject to their own “closure,” that is, choice of 

variables within the USAGE framework to treat as exogenous (determined outside the model) or endogenous 

(determined by model equations). For example, in the baseline projection, growth rates for the components of 

GDP and for sectoral employment, shipments, exports, and imports of the import restraints sectors are taken 

from external sources. These choices, in turn, determine the evolution of taste and technology parameters. In 

the policy scenario, these taste and technology parameters are taken as fixed, and the liberalization of import 

restraints determines changes in employment, shipments, exports, and imports, which are treated as 

endogenous. Certain macroeconomic relationships are assumed to hold in the policy scenario, too: real 

government consumption is held to the same levels as in the baseline, overall labor force growth is assumed 

to be the same, and growth rates in the average export price and average import price also follow those of the 

baseline.

E-3

 
private and government consumption and investment expenditures, and inventory 

changes) published by the BEA.

For purposes of this study, sectors with significant import restraints are identified at a 

level of aggregation much narrower than those of the core USAGE 2.0 model. In order to 

analyze the effects of liberalizing these sectors, it is necessary to disaggregate each

relevant aggregate sector into two sectors: one sector of interest and one “other” sector.6

The process of disaggregation begins with identifying the relevant sectors in the full 

USAGE model based on the BEA’s NAICS-based 1997 benchmark I-O table. Many 

sectors of interest either map exactly to a NAICS-based commodity/industry (e.g., 

cheese) or to a group of such commodities/industries (e.g., apparel). Certain sectors, 

however, are narrower than those of the 1997 benchmark: sugar beet and sugarcane; raw 

and refined sugar (and the associated raw cane sugar and refined beet and cane sugar 

industries); tuna; costume jewelry; residential electrical lighting fixtures; and pens and 

mechanical pencils. In these cases, additional data are drawn from the earlier USAGE 

model based on the BEA’s non-NAICS-based 1992 benchmark table and from additional 

data sources, including the Census Bureau’s Annual Survey of Manufactures for 2010 

and 2011, the Census of Manufactures for 2007, exports and imports as reported by the 

USITC’s DataWeb (based on data from the U.S. Department of Commerce), and industry 

sources where necessary (such as for tuna). These data are used to weight the 

disaggregation of the broader USAGE 2.0 sectors. The significant import restraint sectors 

are then benchmarked for 2011 to shipments, imports, and exports, as reported in 

chapter 2.

While the I-O accounts provide information on the initial equilibrium of the U.S. 

economy, a set of elasticities help the framework determine how the economy would 

respond to a policy change. Elasticities reflect the degree to which firms or consumers 

alter their behavior in response to certain economic developments, such as a drop in the 

price of imports. For example, an income elasticity of demand for a good is the 

percentage change in consumer demand for that good that occurs in response to a 1

percent change in household income. If demand for a given good is relatively inelastic, it 

will be little affected by changes in household income; if demand is relatively elastic, it 

will tend to rise when household income rises and to fall when housecome income falls. 

The types of elasticities used by USAGE 2.0 include elasticities of substitution between 

imported and domestic goods, elasticities of import supply, elasticities of export demand,

elasticities of substitution between inputs in production, and income elasticities.

Where possible, the Commission has estimated some of these parameters using time 

series data that show how consumers and firms have responded to given changes in the 

past; otherwise, it has relied on published studies for estimates. With the exception of 

textiles and apparel, the elasticities of substitution between imported and domestic goods 

6 The new commodities and industries created through this process (and their associated “other,” or 

residual, sectors) are sugar beet and sugarcane (other farms); ceramic and glass products (other nonmetallic 

minerals and products); hand and edge tools and ball and roller bearings (other fabricated metal products); 

residential electrical lighting fixtures (other electrical equipment); costume jewelry, pens, and mechanical 

pencils (other miscellaneous manufacturing); raw sugar, refined sugar, sugar-containing products, cheese, 

cigarettes, and tuna (other food, beverage, and tobacco); yarn, thread, and fabric and textile products (no 

residual sector); apparel, footwear, and leather products (leather and hide tanning and finishing); and 

synthetic organic dyes (other chemical products). Two industries, beet sugar and cane sugar, were created for 

the production of the single commodity refined sugar.

E-4

 
(known as Armington elasticities) are documented in Donnelly et al.7 The Armington 

elasticities for the textile and apparel sectors are based on Hertel et al.8

The final component of the USAGE 2.0 framework is the system of equations that model 

the U.S. economy. These equations characterize three general conditions that together 

determine a general equilibrium solution.

9 First, activities are characterized by constant 

returns, so firms must earn zero real economic profits at the margin, and all the 

production technologies and preferences are derived from theoretical formulations 

constrained by these zero-profit conditions.10 Second, the quantity supplied must equal 

the quantity demanded for each good and service in the economy. Third, all income must 

be accounted for by final demand or savings. 

Model Projections

The USAGE 2.0 baseline is a “business as usual” projection of the U.S. economy to 

2017. Developing this baseline involves shocking key observable variables in the model 

with projections about how the economy will behave, derived from research conducted 

by Commission staff and other sources, mainly other federal government agencies. The 

detailed theoretical and empirical structure of the model then allocates these projected 

shocks across a wide range of variables at the sectoral level.

Key shocks include macroeconomic expenditure and income aggregates (consumption, 

investment, government spending, imports, and exports). This study sourced

macroeconomic forecasts from other federal agencies, principally the U.S. Energy 

Energy Information Administration. The USAGE 2.0 baseline adjusts these projections 

by taking in additional information from the International Monetary Fund and World 

Bank on the growth of world gross domestic product (GDP); from the Bureau of Labor 

Statistics (BLS) on population, demographics, labor supply, and employment; from 

government and the academic literature on “terms of trade” (the relative prices of imports 

and exports) and exchange rate adjustments; and from diverse sources (including 

government and academic) on productivity comparisons between the United States and 

the rest of the world. Table E.1 gives the projected growth in key U.S. and global 

macroeconomic variables in the forecast period.

Projections for specific sectors are also informed by supplemental data from a wide range 

of sources. As discussed in chapter 1, the projections of sectors with significant restraints 

are refined using data on recent growth in prices, output, imports, and exports; sectorspecific forecasts from organizations such as the Food and Agricultural Policy Research 

Institute and the U.S. Census; and trade journals and industry research reports (such as 

those from IBISWorld). Table E.2 presents projected values and sources for selected 

sectors with significant restraints.

Projections in other important sectors of the U.S. economy rely on trends and data 

specific to those sectors. For example, the growth in health-related sectors is assumed to 

be determined less by relative prices and other typical economic variables and more by

demographic changes (particularly aging, population growth, and changes in morbidity 

7 Donnelly et al., “Revised Armington Elasticities of Substitution,” January 2004.

8 Hertel et al., “How Confident Can We Be?” May 2003. 9 Technically, this represents an Arrow-Debreu competitive general equilibrium. Debreu, The Theory of 

Value, 1959.

10 When returns to scale are constant, the average cost of production does not decline as the volume of 

production rises. 

E-5

 
TABLE E.1 Projected growth in macroeconomic variables, real percentage change, 2012–17

Macroeconomic variable Projected real growth 2012–17

United States

 GDP 14.8

 Consumption 12.5

 Investment 38.2

 Government expenditure –2.7

 Exports 34.4

 Imports 18.9

World

 GDP 26.3

Sources: EIA, Annual Energy Outlook 2012, June 2012; IMF, World Economic Outlook Database, April 2013 

release (accessed July 22, 2013).

TABLE E.2 Observed and projected changes in imported quantities, selected sectors

Sector

2007–12

change (%)

2012–17 projected 

change (%)

Main source(s) of sectoral 

projections

a

Cheese –8.4b 12.0 Commission estimate

Sugar 30.2 30.2 Historical trend

Tuna 15.7b 20.0 USDOC, Commission estimate

Textiles and apparel

 Yarn, thread, and fabric –14.4 10.4 Historical trend, IBISWorld projection

 Textile products –3.2 18.8 Historical trend, IBISWorld projection

 Apparel –3.9 13.1 Historical trend, IBISWorld projection

Ball and roller bearings 30.1 84.9 Historical trend, IBISWorld projection

Ceramic and glass products –8.5 12.4 Historical trend, IBISWorld projection

Cigarettes –18.1 –1.7 Historical trend, IBISWorld projection

Costume jewelry –9.9 –21.7 Historical trend, IBISWorld projection

Footwear and leather products 9.0 –14.4 Historical trend, IBISWorld projection

Hand and edge tools 9.2 –28.6 Commission estimate

Pens and mechanical pencils –16.7 –13.2 Historical trend, IBISWorld projection

Residential elect. lighting fixtures –17.7 27.6 Historical trend, IBISWorld projection

Synthetic organic dyes 15.2 14.8 Historical trend, IBISWorld projection

 aSee chapter 2 for specific sources for each industry.

 b

Change represents 2007–11.

rates) and technological change in medical services; data on these trends are sourced 

from agencies such as BEA and BLS. The analysis also uses sector-specific projections

for energy sectors, using information on supply, production, consumption, prices,

exports, and imports for sectors like coal, natural gas, petroleum, ethanol, and electricity.

The world price of crude petroleum is particularly important, as it can substantially affect 

the U.S. trade balance and terms of trade. The energy sector data are sourced from the 

U.S. Department of Energy and the U.S. Energy Information Administration. The 

Commission incorporated the most recent sector-specific forecasts, as it did with the 

macroeconomic components discussed above. These forecasts are revised periodically as 

new data become available. Updated values will generally have much larger effects on 

the projection than on the simulation results, because the effects of liberalization will 

generally be similar whether growth is high or low.11

11 In USAGE 2.0, the effect of tariff liberalization on domestic output in the directly affected sector 

depends on Armington elasticities, the size of the tariff cut, and imports as a share of GDP; only the import 

share can be affected by U.S. growth in the projection. If growth in U.S. output is lower than assumed in the 

current projection, for example, then import share in some sectors may be smaller than in the current 

projection, and tariff elimination would have slightly smaller effects than reported in chapter 2.

E-6

 
The baseline incorporates trade policy adjustments expected to be made by 2017, such as 

changes to tariff rates and to quantity allocations for tariff-rate quotas (TRQs) contained 

in the tariff staging schedules for U.S. free trade agreements (FTAs) and other trade 

agreements. These agreements provide the projected path of trade policy variables during 

the time horizon of the projection. For U.S. imports from countries that do not have such 

agreements with the United States, projected tariff rates and TRQs are set equal to their

current values.

Some key model inputs, such as changes in consumer preferences, are not observable in 

projections. Values for these components of the USAGE 2.0 baseline come from 

simulation analysis of expected changes during the baseline period. By shocking the 

baseline data with expected percentage changes for a wide range of macroeconomic 

aggregates, as well as production, price, and volume variables, the model is able to 

endogenously quantify model-consistent estimates of “unobservable” data. In addition to 

preferences, such variables include detailed technical change information, shifts in 

preferences between domestic and imported goods and services, and shifts in export 

demand and import supply functions.

Additional Data and Results

Tables E.3 and E.4 show detailed model results, and table E.5 presents the classification 

of sectors discussed in chapter 2.

E-7
TABLE E.3 Effects of simultaneous liberalizations, percent, 2012–17

Change in quantity Change in 

employment

Change in price

Sector Imports Exports Output Imports Household

Cheese 40.2 0.9 –1.5 –1.7 –11.9 –0.3

Sugar 42.0 17.9 –5.4 –13.6 –19.0 –6.2

Tuna 4.8 0.5 –5.2 –5.2 –10.5 –5.7

Textiles and apparel 2.8 –41.0 –13.6 –14.2 –10.6 –4.5

Yarn, thread, and fabric –5.6 –52.7 –22.8 –24.7 –4.8 –2.0

Other textile products 3.6 –29.0 –6.3 –5.6 –5.6 –1.8

Apparel 3.4 –7.9 –7.7 –7.8 –12.1 –5.4

Other high–tariff sectors

Ball and roller bearings 3.0 2.1 –2.2 –2.1 –5.5 (

a

)

Ceramic and glass products 4.9 1.6 –2.2 –2.3 –4.4 –1.1

Cigarettes 26.1 0.6 –0.4 –0.5 –6.8 0.1

Costume jewelry 1.1 0.8 –3.3 –3.6 –6.7 –2.6

Footwear and leather products 1.2 1.0 0.1 0.2 –9.3 –4.3

Hand and edge tools 2.0 1.1 –2.2 –2.5 –4.2 –1.0

Pens and mechanical pencils 2.3 1.8 –2.5 –3.3 –5.0 –1.6

Residential electric lighting fixtures 2.5 1.2 –4.6 –5.1 –4.8 –2.5

Synthetic dyes 3.1 1.0 –3.1 –4.0 –4.7 (

a

)

Source: Commission estimates.

 a

Not applicable.

TABLE E.4 Effects of individual liberalizations, percent, 2012–17

Change in quantity Change in 

employment

Change in price

Sector Imports Exports Output Imports Household

Cheese 40.2 0.4 –1.5 –1.7 –11.8 –0.4

Sugar 43.0 18.0 –5.3 –13.8 –19.1 –6.4

Tuna 4.8 0.0 –5.2 –5.2 –10.4 –5.8

Textiles and apparel 2.9 –41.3 –13.9 –14.5 –10.6 –4.5

Yarn, thread, and fabric –5.8 –52.7 –22.9 –24.7 –4.8 –2.1

Other textile products 4.1 –30.2 –7.1 –6.8 –5.6 –1.7

Apparel 3.3 –7.9 –7.7 –7.7 –12.1 –5.4

Other high-tariff sectors

Ball and roller bearings 2.8 1.6 –2.5 –2.4 –5.5 (

a

)

Ceramic and glass products 4.9 1.2 –2.2 –2.3 –4.4 –1.2

Cigarettes 26.2 0.1 –0.4 –0.4 –6.8 –0.1

Costume jewelry 1.0 0.3 –3.5 –3.8 –6.7 –2.7

Footwear and leather products 1.3 0.6 –0.3 –0.2 –9.2 –4.4

Hand and edge tools 2.0 0.6 –2.4 –2.6 –4.2 –1.1

Pens and mechanical pencils 2.3 1.3 –2.5 –3.4 –4.9 –1.6

Residential electric lighting fixtures 2.5 0.7 –4.6 –5.0 –4.8 –2.6

Synthetic dyes 5.2 0.3 –2.1 –2.6 –4.7 (

a

)

Source: Commission estimates.

 a

Not applicable.

E-8
TABLE E.5 Classification of imports, exports, shipments, and employment, by sector, in summary tables

Sector

Imports

(HTS)

Exports 

(Schedule B)

Shipments 

(NAICS)

Employment 

(NAICS)

Cheese 0406 0406 311513 311513

Sugar

Farming

 Sugarcane farming (

a

) (

a

) 111930 111930

 Sugar beet farming (

a

) (

a

) 111991 111991

Processing

 Beet sugar manufacturing (

a

) (

a

) 311313 311313

 Cane sugar 

manufacturing

(

a

) (

a

) 311314 311314

Sugarcane 1212.93.0000 1212.93.0000 (

a

) (

a

)

Sugar beets 1212.91.0000 1212.91.0000 (

a

) (

a

)

Total sugar 1701b 1701b (

a

) (

a

)

Tuna 1604.14 1604.14 (

c

) 311710d

Imports 

(NAICS)

Exports 

(NAICS)

Textiles and apparel

Yarn, thread, and fabric 313 313 313 313

Other textile products 314 314 314 314

Apparel 315 315 315 315

Other high-tariff sectors

Ball and roller bearings 332991 332991 332991 332991

Ceramic and glass 

products

3272 3272 3272 3272

Cigarettes 312221 312221 312221 312221

Costume jewelry 339914 339914 339914 339914

Footwear and leather

products

3161, 3162, 3169 3161, 3162, 3169 3161, 3162, 3169 3161, 3162, 3169

Hand and edge tools 332212 332212 332212 332212

Pens and mechanical 

pencils

339941 339941 339941 339941

Residential electric lighting 

fixtures

335121 335121 335121 335121

Synthetic dyes 325132 325132 325132 325132

 aNot applicable.

 b

Data are presented on a marketing year basis (October–September).

 c

Provided by USDOC et al., Fisheries of the United States 2011, August 2012.

 d

Commission estimate using data from USDOC, Economic Census 2007 (accessed May 28, 2013); Rushford, “Charlie 

the Tuna’s Economic Woes,” July 7, 2010.

E-9
Bibliography

Debreu, Gerard. The Theory of Value. New York: Wiley, 1959.

Dixon, Peter, and Maureen Rimmer. “MONASH-USA: Creating a 1992 Benchmark Input-Output 

Database.” Centre of Policy Studies (COPS) Working Paper, May 2001.

———. “USAGE-ITC: Theoretical Structure.” Paper presented at the 5th Annual Conference on Global 

Economic Analysis, Taipei, Taiwan, June 2002.

———. “USAGE 2.0: Historical Simulations for 1998 to 2009.” Centre of Policy Studies (CoPS). 

Unpublished draft, August 2, 2012. 

Donnelly, William, Kyle Johnson, Marinos Tsigas, and Dave Ingersoll. “Revised Armington Elasticities 

of Substitution for the USITC Model and the Concordance for Constructing a Consistent Set for 

the GTAP Model.” U.S. International Trade Commission. Office of Economics Research Note no. 

2004-01-A, January 2004.

Fox, Alan K., Kyle Johnson, Robert Koopman, Marinos Tsigas, Julian Richards, Peter Dixon, and 

Maureen Rimmer. “Using Annual Input-Output Accounts to Analyze the Evolution of the U.S. 

Economy.” Paper presented at 15th Annual Conference on Global Economic Analysis, June 27–

29, 2012, Geneva, Switzerland.

Hertel, Thomas, David Hummels, Maros Ivanic, and Roman Keeney. “How Confident Can We Be in 

CGE-Based Assessments of Free Trade Agreements?” Global Trade Analysis Project (GTAP) 

Working Paper no. 26, May 2003.

International Monetary Fund (IMF). World Economic Outlook Database, April 2013 

release. http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/download.aspx (accessed July 

22, 2013).

Rushford, Greg. “Charlie the Tuna’s Economic Woes.” SeafoodSource.com, July 7, 

2010. http://www.seafoodsource.com/newsarticledetail.aspx?id=4294997402. 

U.S. Department of Commerce (USDOC). Bureau of Economic Analysis (BEA). Input-Output Accounts 

Data. http://www.bea.gov/industry/io_annual.htm (accessed April 26, 2012).

U.S. Department of Commerce (USDOC). U.S. Census Bureau (Census). Economic Census 2007 in 

American FactFinder 

database. http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?refresh=t (accessed 

May 28, 2013).

U.S. Department of Commerce (USDOC). National Oceanic and Atmospheric Administration (NOAA). 

National Marine Fisheries Service (NMFS). Fisheries of the United States 2011. Silver Spring, 

MD: NMFS, August 2012.

U.S. Department of Energy (DOE). U.S. Energy Information Administration (EIA). Annual Energy 

Outlook 2012. Washington, DC: June 2012.

U.S. International Trade Commission (USITC). The Economic Effects of Significant U.S. Import 

Restraints: Sixth Update 2009. USITC Publication 4094. Washington, DC: USITC, 2009.

E-10
APPENDIX F 

Embodied Services in Goods-Producing 

Industries 

 

F-3 

Concepts and Estimation Methods 

An important subject of the analysis in chapter 3 of this study is “embodied services in 

goods-producing industries.” These are defined as the value of the services that are

embedded in manufacturing, either directly by manufacturing firms or indirectly via 

purchased intermediate inputs. To estimate the values reported in chapter 3, the 

Commission transformed input-output (I-O) tables in conjunction with other sector-level 

data to obtain a decomposition of value added that permits the analysis in the report. This 

method, which was developed by Koopman, Wang, and Wei, generalizes the vertical 

specialization measures proposed by Hummels, Ishii, and Yi; it is summarized below.1

 

Methodology

Assuming a world of G countries, each country produces goods and services in N 

tradable sectors. Goods and services produced in each sector can be either used as 

intermediate inputs or consumed directly. Each country exports both intermediate and 

final goods to all other countries. Gross outputs (X) produced by a country are used either 

as intermediate inputs or final goods and services (F), so 

  

G

r

X s Asr X r Fsr ( ) , r,s = 1,2.... G (1) 

where Xs is the N×1 gross output vector of country s, Fsr is the N×1 final demand vector 

that gives demand in country r for final goods and services produced in country s, and Asr

is the N×N I-O coefficient matrix, which gives the value of intermediate inputs produced 

by country s and used in country r. 

The G-country, N-sector production and trade system can be written as an inter-country 

input-output (ICIO) model in block matrix notation 

























  

  

  













































































G G GG

G

G

G G GG G

G

G

G F F F

F F F

F F F

X

X

X

A A A

A A A

A A A

X

X

X













   







1 2

21 22 2

11 12 1

2

1

1 2

21 22 2

11 12 1

2

1

. (2) 

Rearranging,















































































































  

  

  































 

G G GG G

G

G

G

r

Gr

G

r

r

G

r

r

G G GG

G

G

G F

F

F

B B B

B B B

B B B

F

F

F

A A I A

A I A A

I A A A

X

X

X





   





 

   







2

1

1 2

21 22 2

11 12 1

2

1 1

1 2

21 22 2

11 12 1

2

1

(3) 

 1

 Koopman, Wang, and Wei, “Tracing Value-added and Double Counting in Gross Exports,” 

forthcoming; Hummels, Ishii, and Yi, “The Nature and Growth of Vertical Specialization in World Trade,” 

2001. 
F-4 

where Bsr denotes the N×N block Leontief inverse matrix, which is the total requirements 

matrix that gives the amount of gross output in producing country s that is required for a 

one-unit increase in final demand in the destination country r.  

G

r

Fs Fsr is an N×1 

vector that gives the total production of final goods and services of country s' and can be 

split into FDs  Fss and 



G

r s

FEs Fsr to represent the country’s domestic and external 

final demand, respectively. 

Let Vs be the N×1 direct value-added coefficient vector. Each element of Vs gives the 

ratio of direct domestic value added to total output for country s. This is equal to 1 minus 

the intermediate input share from all countries (including the country’s own 

intermediates): 

 (  )

G

r

s Ars V I . (4) 

Putting all Vs vectors on the diagonal and denoting them with a circumflex (V s



), we can 

define a GN×GN matrix of direct domestic value added for all countries as 







































V G

V

V

V



   





0 0

0 0

0 0

2

1

. (5) 

Similarly, putting all countries’ domestic and external final demand on the diagonal, we 

can define another GN×GN matrix of all countries’ final demand as 















































































G

r

Gr

G

r

r

G

r

r

G F

F

F

F

F

F

F



   







   





0 0

0 0

0 0

0 0

0 0

0 0

2

1

2

1

 (6) 

Finally, the decomposition of gross domestic product (GDP) by industry and value added 

in final demand can be represented by the following system of equations: 
F-5 

















































































































     

     

     















G G G G G GG G

G G

G G

G G G GG

G

G

G

V B F V B F V B F

V B F V B F V B F

V B F V B F V B F

F

F

F

B B B

B B B

B B B

V

V

V

VBF



   







   







   







   





1 1 2 2

2 21 1 2 22 2 2 2

1 11 1 1 12 2 1 1

2

1

1 2

21 22 2

11 12 1

2

1

0 0

0 0

0 0

0 0

0 0

0 0

ˆ

 (7) 

where 

VˆB F is a GN×GN square matrix that gives the estimates of sector and country 

sources of value added in a country’s total (domestic and external) final demand. Each 

block matrix Vs Bsr Frr

 

is an N×N square matrix, with each element representing the 

value added from a source sector in a source country directly or indirectly used by an 

absorbing sector in a destination country’s total (domestic and external) final demand. If 

we replace Fr



 in equation (7) by each country’s bilateral final exports, we also can 

decompose the value of each bilateral final trade flow value into its country and sector 

sources. 

Application to Services’ Contribution to Manufacturing

Exports of direct and indirect services value added are estimated in this report by 

summing the 

VˆB F matrix across columns (i.e., along each row). This provides estimates 

of each country’s domestic value added in all countries’ foreign and domestic final 

demand of the value added-producing sectors, regardless of the absorbing sectors and 

geographic destinations. It is the value-added contribution made by production factors 

employed at the producing sector in the source country. It provides a supplier (producer)-

side perspective on the use of each country’s GDP by industry, whether directly or 

indirectly, to satisfy domestic or external final demand. 

Summing up the 

VˆBF matrix across rows (along the column) provides the country and 

sector sources of value added in each country’s final goods and services output (sales), 

and thus a decomposition of a particular sector’s final goods and services sales into its 

various country and sector sources. Based on the I-O identity, all of these sources should 

sum to the total value of the sectoral final products output. It provides a user (consumer)-

side perspective that decomposes a country/sector’s final goods and services into its 

original country/sector sources (this is how the embedded service in final manufactured 

goods is estimated in this report). These two different ways to decompose value-added 

production and final demand have distinct economic interpretations and therefore 

different roles in the economic analysis. 2 However, they are equivalent in the aggregate 

because global value-added production equals global final demand.3

 2

 This value-added (final demand) decomposition method differ from the gross exports accounting 

method proposed by Koopman, Wang, and Wei, “Tracing Value-added and Double Counting in Gross 

Exports” (forthcoming). Accounting for double-counting in gross exports in additional to value added is an 
F-6 

Sector level value-added decompositions can be conducted from both the producer and 

user perspectives. The production factor content method counts the domestic value added 

that originated in a particular sector in the source country and is embodied in that sector 

and all its downstream sector’s exports. This supply-side perspective would include, for 

example, the value created by production factors employed in the telecommunications 

sector and incorporated into gross exports of telecommunications services (direct 

domestic value-added exports), as well as exports of computers, consumer appliances, 

and automobiles (indirect domestic value-added exports). In other words, it decomposes 

GDP (domestic value added) by industries in a country according to where 

(sector/country) it is used. It has been called a forward-looking decomposition in the 

literature on I-O. 

As an alternative, sector-level value-added decompositions also can be conducted from 

the user perspective. This will include all upstream sectors/countries’ contributions of 

value added to a specific sector/country’s final goods output. For example, in the 

electronics sector, it includes value added in the electronics sector itself as well as value 

added in inputs from all other upstream sectors/countries (such as glass from country A, 

rubber from country B, transportation and design from the home country) used to produce 

electronics to satisfy domestic or foreign final demand by the home country 

(direct/indirect domestic value added in exports, and foreign value added in exports). In 

other words, it decomposes a particular final product according to its value-added 

sources. It has been called a backward-looking decomposition in the literature on I-O. 

Such a perspective aligns well with case studies of supply chains of specific sectors and 

products, such as the iPod or iPhone examples frequently cited in the literature. 

Measurement of Embodied Services and Data Sources 

After understanding how production of value added (GDP) by country/industries sources 

and production of final products by country/sectors value-added sources can be usefully 

decomposed, embodied services can be defined as service sectors’ indirect value-added 

contribution to a goods-producing sector—i.e., the indirect contribution by labor and 

capital employed in services sectors to a country’s final goods production and sales.4

 

The value-added estimates in this report are based on two primary data sources: (1) 

annual U.S. make and use tables from the BEA, which cover 65 U.S. industries from 

1998 to 2011; (2) global industry by industry ICIO tables from the World Input-Output 

Database (WIOD), which cover 35 industries and 41 countries from 1995 to 2009. 

Appendix tables F.1 and F.2 report backward-looking decompositions (user perspective) 

based on WIOD data that sum across the rows (along the columns) of 

VˆB F matrix. In the 

exports decomposition table (F.1), U.S. manufactured final goods exports are first 

decomposed into domestic and foreign sources. Returned U.S. domestic value added is 

included in U.S. domestic value-added shares. Then each source is further split into four 

 important part of their methodology, while here only the decomposition of value-added production is 

considered. Therefore, 

BF decomposes gross output based on where it is produced. It does not equal the 

gross export decomposition matrix defined in equation (29) in Koopman et al.; it decomposes gross output 

based on where it is absorbed. 3

 See proof in Timmer et al., “Fragmentation, Incomes, and Jobs,” 2013; Koopman, Wang, and Wei, 

“Tracing Value-added and Double Counting in Gross Exports” (forthcoming). 4

 This measure is different from HIY’s measures of vertical specialization, because the latter is not net 

value-based measures as discussed in Koopman, Wang, and Wei. 
F-7 

sector groups: (1) resources, including agriculture, hunting, forestry, fishing, and mining 

industries; (2) manufacturing, including all manufacturing industries; (3) construction; 

and (4) services, including all service industries and government services. Business 

services, which include telecommunication, financial, and other business services, are 

reported separately, since they are the key sectors of interest of this report. 

The imports decomposition table (F.2) is constructed by summing up all of the countries’ 

bilateral exports of final goods to the United States. It first decomposes the total value of 

U.S. final goods imports into three sources: (1) value added that is exported to the United 

States directly by the exporting countries; (2) value added that is exported indirectly to 

the United States via a third country; and (3) value added that is created by U.S. 

production factors and returns home after being processed abroad (used by other 

countries as intermediate inputs to produce final manufacturing goods and shipped back 

to the United States). These three sources are further split into sector groups, as in the 

exports decomposition table. 

Appendix table F.3 reports a forward-looking decomposition (producer perspective) 

based on the WIOD data that sum across the columns (along the rows) of 

VˆB F matrix. It 

decomposes GDP created by each U.S. services sector into six components: direct valueadded exports (1–2); indirect service sector value-added exports that go to third countries 

via the direct importers (3); returned U.S. service sector value added via final goods and 

services imports that fit U.S. domestic final demand (4); returned U.S. service sector 

value added via intermediate imports that are used to produce final goods and services 

consumed at home (5); and domestic value added directly used at home (6). The first 

three components sum to total value-added exports, and the first five terms sum to GDP 

in exports, which can also be derived from the BEA’s annual U.S. I-O tables as a whole 

(reported in appendix table F.4 below). However, components 2 to 5 cannot be estimated 

from the BEA data individually, because the BEA I-O tables do not include the detailed 

ICIO transactions. The estimates of components 4 and 5 provide some indication of how 

much bias may occur in estimating domestic and foreign value-added shares by using 

single country I-O tables instead of global ICIO tables when there are two-way 

intermediate goods trade involved, because domestic value added embodied in imports 

cannot be estimated from single country I-O table. 

Appendix table F.4 reports a forward-looking decomposition based on the BEA U.S. 

annual I-O table that sums across the columns (along the rows) of 

VˆB F matrix. The table 

decomposes the GDP created by each U.S. service industry as reported in the BEA use 

table (which gives more sector detail than the WIOD table) according to its use: directly 

used by domestic consumers and exports, or indirectly used by downstream industries to 

meet domestic and foreign final demand. 

Appendix table F.5 reports a backward-looking decomposition (user perspective) based 

on WIOD data that sums across the rows of the services sectors (along the columns that 

correspond to all of the manufacturing sectors) of the 



VˆB F matrix. It includes service 

intermediate inputs sourced both domestically and internationally, and provides the 

information on value-added shares of three major services groups in manufacturing final 

goods production across countries 

. 
F-8 

TABLE F.1 Domestic and foreign value-added sources of U.S. final manufacturing goods exports 

1995 

M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 

U.S. final manufacturing goods exports  (million $) 25,664 7,621 844 61 5,876 2,834 8,330 1,627 243 3,333 37,018 Domestic sources (%) 

Resources 13.9 2.2 3.1 10.4 1.3 20.8 2.4 1.7 3.9 1.7 0.8 

Manufacturing 42.6 56.8 47.8 48.9 55.4 30.2 53.4 56.5 59.4 58.0 59.3 

Construction 0.5 0.4 0.3 0.6 0.5 0.4 0.5 0.5 0.7 0.6 0.4 Services 33.8 30.3 33.8 29.9 33.9 21.2 32.7 29.6 28.4 27.6 27.5  Business services 14.2 13.9 16.1 10.8 16.9 9.3 15.4 13.2 11.6 11.9 13.1  Other services 19.7 16.3 17.7 19.1 17.0 11.9 17.3 16.4 16.8 15.7 14.4 

Total 90.8 89.7 85.0 89.8 91.1 72.7 88.9 88.4 92.3 87.9 88.0 

Foreign sources (%) 

Resources 3.0 1.2 1.9 2.2 0.8 17.5 1.8 1.3 1.2 1.2 0.8 

Manufacturing 2.9 5.2 7.4 4.5 4.5 2.7 4.9 5.9 3.5 6.5 6.7 

Construction 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Services 3.2 3.9 5.6 3.5 3.5 7.0 4.3 4.3 2.9 4.3 4.4  Business services 1.4 1.6 2.2 1.3 1.5 2.0 1.9 1.8 1.2 1.6 1.8  Other services 1.8 2.2 3.4 2.2 2.0 5.0 2.4 2.5 1.7 2.6 2.6 

 Total 9.2 10.3 15.0 10.2 8.9 27.3 11.1 11.6 7.7 12.1 12.0 

2008 

M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 

U.S. final manufacturing goods exports  (million $) 40,146 7,399 742 187 8,718 25,782 29,210 3,974 296 6,815 70,229 Domestic sources (%) 

Resources 16.4 2.3 3.6 9.3 1.8 18.9 4.0 2.7 5.8 2.9 1.2 

Manufacturing 37.4 60 59.5 41.3 48.8 25.8 43.2 47.8 45.7 47.1 52.5 

Construction 0.5 0.3 0.3 0.7 0.6 0.4 0.5 0.6 0.8 0.6 0.4 Services 31.8 22.6 19.7 34.9 37.5 11.5 31.3 28.9 34.6 29.9 27.4  Business services 13.6 9.9 9.0 14.3 21.0 5.5 16.4 13.8 15.2 13.3 13.0  Other services 18.2 12.7 10.8 20.6 16.6 6.0 15.0 15.1 19.3 16.6 14.3 

Total 86.1 85.2 83.2 86.2 88.6 56.6 79.0 79.9 86.8 80.5 81.5 

Foreign sources (%) 

Resources 5.4 3.4 3.8 4.0 2.4 30.7 6.4 4.6 4.0 3.9 2.8 

Manufacturing 3.9 6.3 7.6 5.0 4.3 3.0 7.2 8.3 4.5 9.2 9.2 

Construction 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Services 4.6 5.1 5.3 4.8 4.6 9.7 7.3 7.1 4.6 6.4 6.4  Business services 1.9 2.1 2.0 2.0 2.2 2.7 3.1 2.9 2.0 2.4 2.6  Other services 2.7 3.0 3.3 2.8 2.4 7.0 4.2 4.2 2.6 4.0 3.8 

Total 13.9 14.8 16.8 13.8 11.4 43.4 21.0 20.1 13.2 19.5 18.5 

Sources: World Input-Output Database; Commission estimates. Notes: M1: food, beverages, and tobacco; M2: textiles and textile products; M3: leather and footwear; M4: wood and wood products; M5: papecoke, refined petroleum, and nuclear fuel; M7: chemicals and chemical products; M8: rubber and plastics; M9: other non-metallic minerals; M1metal; M11: machinery; M12: electrical and optical equipment; M13: transport equipment; M14: manufacturing (n.e.c.) and recycling; Resourcand fishing and mining and quarrying; Business services: post and telecom, financial, renting of machinery and equipment (M&E), and other bservices: utilities, trade, transport, hotel and restaurants, real estate, and other services; All services: business services and other services. 
F-9 

TABLE F.2 Domestic and foreign value-added sources of U.S. final manufacturing goods imports 

1995 

M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 

U.S. final manufacturing goods imports  (million $) 18,785 49,098 12,134 1,351 4,511 2,937 11,270 4,933 2,852 6,945 37,480 Direct Importers (%) 

Resources 20.5 7.3 8.2 14.7 2.7 24.9 4.7 4.2 6.2 3.7 1.0 

Manufacturing 38.0 46.4 47.5 47.2 53.6 28.1 48.5 50.8 54.8 49.5 56.5 Construction 0.4 0.2 0.3 0.3 0.4 0.4 0.5 0.3 0.5 0.5 0.5 Services 24.6 18.4 23.5 19.2 23.9 17.7 24.9 21.4 23.9 23.4 23.1 

 Business services 7.0 5.1 6.3 4.7 8.2 5.1 9.4 6.0 7.1 6.5 8.4  Other services 17.6 13.3 17.3 14.4 15.7 12.7 15.5 15.5 16.9 16.9 14.7 

Total 83.5 72.3 79.5 81.4 80.7 71.2 78.5 76.7 85.4 77.1 81.1 

Third countries (%) 

Resources 2.7 1.9 1.8 3.1 1.1 10.1 2.0 1.7 2.8 2.6 1.2 

Manufacturing 3.9 11.3 7.8 6.1 7.3 4.4 7.9 7.7 5.1 8.7 8.2 Construction 0.1 0.1 0.1 0.1 0.1 0.2 0.1 0.1 0.1 0.1 0.1 Services 5.1 9.1 7.0 5.9 6.3 9.1 7.2 5.7 4.8 6.2 5.8  Business services 1.7 2.8 2.2 1.7 2.5 2.3 2.7 2.1 1.7 2.1 2.1 

 Other services 3.3 6.3 4.8 4.1 3.8 6.7 4.6 3.6 3.1 4.1 3.7 

Total 11.8 22.5 16.6 15.2 14.8 23.7 17.2 15.2 12.8 17.6 15.4 

Domestic value-added return home (%) 

Resources 0.6 0.3 0.3 0.3 0.1 0.9 0.2 0.3 0.1 0.3 0.1 

Manufacturing 1.3 1.8 1.3 1.0 1.8 1.1 1.6 4.3 0.7 2.7 1.7 Construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Services 2.8 3.1 2.3 2.2 2.5 3.1 2.4 3.5 1.0 2.4 1.7  Business services 1.2 1.4 1.0 1.0 1.4 1.4 1.2 1.8 0.5 1.1 0.9 

 Other services 1.6 1.8 1.3 1.1 1.2 1.7 1.3 1.8 0.5 1.2 0.9 

Total 4.8 5.2 3.8 3.4 4.5 5.1 4.3 8.2 1.8 5.3 3.6 

Sources: World Input-Output Database; Commission estimates. Notes: M1: food, beverages, and tobacco; M2: textiles and textile products; M3: leather and footwear; M4: wood and wood products; M5: pM6: coke, refined petroleum, and nuclear fuel; M7: chemicals and chemical products; M8: rubber and plastics; M9: other non-metallic mine

fabricated metal; M11: machinery; M12: electrical and optical equipment; M13: transport equipment; M14: manufacturing (n.e.c.) and recyc

hunting, forestry, and fishing and mining and quarrying; Business services: post and telecom, financial, renting of M&E, and other business utilities, trade, transport, hotel and restaurants, real estate, and other services. 
F-10 

TABLE F.2 Domestic and foreign value-added sources of U.S. final manufacturing goods imports—continued

 2008 

M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 

U.S. final manufacturing goods  imports (million $) 54,162 104,340 21,678 1,848 9,502 32,354 69,085 12,367 2,859 16,169 85,839 Direct Importers (%) 

Resources 18.6 10.2 14.2 14.5 2.1 23.9 5.4 5.4 9.6 5.8 2.4 

Manufacturing 37.4 43.1 45.3 46.1 49.1 21.9 38.8 44.4 45.9 40.8 46.3 

Construction 0.3 0.2 0.2 0.2 0.4 0.2 0.3 0.2 0.4 0.3 0.3 Services 23.2 14.5 17.8 17.8 26.8 12.8 21.5 19.3 19.4 19.1 19.5  Business  services 7.0 4.5 5.3 5.0 10.3 3.5 8.5 5.8 6.0 5.4 7.0  Other services 16.1 9.9 12.4 12.8 16.4 9.3 13.0 13.6 13.4 13.7 12.4 

Total 79.6 68.0 77.5 78.6 78.3 58.8 66.0 69.3 75.3 66.0 68.4 

Third countries (%) 

Resources 3.9 4.7 4.5 6.7 2.8 18.3 5.7 5.8 6.6 10.0 4.5 

Manufacturing 4.4 10.9 7.2 5.4 6.9 4.9 10.2 9.6 6.4 9.5 12.4 

Construction 0.1 0.2 0.1 0.1 0.1 0.2 0.2 0.1 0.2 0.2 0.2 Services 7.4 12.0 7.8 6.8 8.0 13.9 13.1 8.7 8.6 8.9 10.2  Business  services 2.8 4.4 2.9 2.3 3.4 3.2 5.5 3.3 3.1 3.1 3.9  Other services 4.7 7.5 4.9 4.5 4.7 10.7 7.6 5.4 5.6 5.8 6.3 

Total 15.8 27.8 19.6 18.9 17.8 37.2 29.2 24.2 21.8 28.6 27.4 

Domestic valueadded return home (%) 

Resources 0.7 0.4 0.3 0.2 0.2 0.7 0.3 0.4 0.2 0.9 0.2 

Manufacturing 1.1 1.3 0.9 0.7 1.3 0.8 1.5 3.0 0.8 1.9 1.9 

Construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Services 2.8 2.5 1.7 1.5 2.4 2.4 3.0 3.1 1.9 2.6 2.2  Business  services 1.2 1.2 0.8 0.6 1.3 1.0 1.7 1.6 0.8 1.2 1.1  Other services 1.5 1.3 0.9 0.9 1.1 1.4 1.4 1.5 1.1 1.4 1.1 

Total 4.6 4.2 2.9 2.4 3.8 4.0 4.8 6.5 2.9 5.4 4.2 

Sources: World Input-Output Database; Commission estimates. Notes: M1: food, beverages, and tobacco; M2: textiles and textile products; M3: leather and footwear; M4: wood and wood products; M5: paM6: coke, refined petroleum, and nuclear fuel; M7: chemicals and chemical products; M8: rubber and plastics; M9: other non-metallic miner

fabricated metal; M11: machinery; M12: electrical and optical equipment; M13: transport equipment; M14: manufacturing (n.e.c.) and recycli

hunting, forestry, and fishing and mining and quarrying; Business services: post and telecom, financial, renting of M&E, and other business utilities, trade, transport, hotel and restaurants, real estate, and other services. 
F-11 

TABLE F.3 Decomposition of value added created by U.S. services sectors (WIOD), percent 

1995 

Sector 

Value added in 

final goods 

exports

Value added in 

intermediates absorbed 

by direct importer

Indirect valueadded exports to third countries

Total valueadded exports

Ret

interme

Utilities 2.1 3.4 0.4 6.0 Sale, maintenance and repair of motor vehicles 

 and motorcycles; retail sale of fuel 0.5 1.0 0.1 1.6 

Wholesale trade and commission trade, except of 

 motor vehicles and motorcycles 4.6 12.4 1.3 18.3 

Retail trade, except of motor vehicles and 

 motorcycles; repair of household goods 0.5 0.8 0.1 1.3 

Hotels and restaurants 0.8 1.3 0.2 2.3 Inland transport 4.2 9.2 0.9 14.4 Water transport 12.4 35.6 2.7 50.7 Air transport 7.0 13.5 1.2 21.6 Other supporting and auxiliary transport activities 4.2 12.9 1.4 18.4 Post and telecommunications 2.5 6.2 0.7 9.4 Financial intermediation 2.3 6.9 0.6 9.8 Real estate activities 0.6 1.1 0.1 1.8 

Renting of manufacturing and equipment and other

 business activities 3.6 7.4 1.0 12.0 

Public administration and defense; compulsory 

 social security 0.3 0.5 0.1 0.8 

Education 0.3 0.6 0.1 1.0 Health and social work 0.0 0.0 0.0 0.0 Other community, social and personal services 1.6 3.2 0.4 5.1 Private households with employed persons 0.5 1.0 0.1 1.6 

Sources: World Input-Output Database; Commission estimates. 

aLess than 0.05 percent. 
F-12 

TABLE F.3 Decomposition of value added created by U.S. services sectors (WIOD), percent—continued

 2008 

Value added in 

final goods 

exports 

Value added in 

intermediates absorbed 

by direct importer 

Indirect valueadded exports to third countries 

Total valueadded exports 

Utilities 2.4 4.1 0.8 7.3 Sale, maintenance and repair of motor vehicles and  motorcycles; retail sale of fuel 0.4 0.9 0.2 1.5 Wholesale trade and commission trade, except of motor  vehicles and motorcycles 4.6 12.7 2.1 19.5 Retail trade, except of motor vehicles and motorcycles;  repair of household goods 0.3 0.6 0.1 1.1 Hotels and restaurants 0.6 1.4 0.2 2.2 Inland transport 4.8 11.0 1.7 17.5 Water transport 12.8 37.4 5.2 55.4 Air transport 6.4 15.4 2.0 23.8 

Other supporting and auxiliary transport activities 4.2 14.4 2.7 21.3 

Post and telecommunications 1.9 5.5 1.0 8.4 Financial intermediation 2.4 7.5 0.9 10.8 Real estate activities 0.5 1.2 0.2 1.9  Renting of manufacturing and equipment and other  business activities 3.0 7.7 1.4 12.1 Public administration and defense; compulsory social  security 0.3 0.7 0.1 1.1 Education 0.2 0.5 0.1 0.8 Health and social work 0.0 0.0 0.0 0.0 Other community, social and personal services 1.4 3.4 0.6 5.4 Private households with employed persons 0.4 0.9 0.2 1.5 Sources: World Input-Output Database; Commission estimates. 
F-13 

TABLE F.4 Decomposition of value added created by U.S. services sectors (BEA), percent 

2002 

 Value-added exports

Share of sector value added 

used to satisfy domestic demand

Sector Direct Indirect Direct Indirect

Utilities 0.1 5.2 44.0 50.6

Wholesale trade 7.8 5.9 48.4 37.9

Retail trade (a

) 0.4 90.2 9.4

Air transportation 17.7 3.1 52.1 27.1

Rail transportation 10.5 9.4 14.2 65.8

Water transportation 25.8 2.3 53.3 18.6

Truck transportation 6.8 6.3 35.3 51.5

Transit and ground passenger transportation 0.1 2.2 58.5 39.2

Pipeline transportation 2.7 6.6 5.5 85.1

Other transportation and support activities 12.1 9.6 10.6 67.7

Warehousing and storage 2.7 9.8 0.8 86.7

Publishing industries (includes software) 5.3 4.4 53.8 36.6

Motion picture and sound recording industries 10.3 3.8 39.4 46.5

Broadcasting and telecommunications 1.1 4.1 40.2 54.6

Information and data processing services 0.4 6.4 26.2 67.0

Federal Reserve banks, credit intermediation, 

 and related activities 3.2 4.1 30.5 62.2

Securities, commodity contracts, and 

 investments 4.0 3.9 31.1 61.0

Insurance carriers and related activities 1.1 2.3 45.2 51.5

Funds, trusts, and other financial vehicles (a

) 0.4 92.3 7.3

Real estate 0.0 1.4 70.3 28.2

Rental and leasing services and lessors of 

 intangible assets 16.1 6.6 24.6 52.7

Legal services 2.1 4.6 35.8 57.5

Computer systems design and related services 2.2 4.0 57.9 35.8

Miscellaneous professional, scientific and 

 technical services 1.5 8.4 9.1 81.1

Management of companies and enterprises 13.7 12.7 -0.1 73.7

Administrative and support services 0.4 6.9 7.3 85.4

Waste management and remediation services 0.3 3.4 18.3 77.9

Educational services 0.3 0.6 89.7 9.4

Ambulatory health care services 0.0 0.0 96.2 3.8

Hospitals and nursing and residential care 

 facilities 0.0 0.0 99.5 0.5

Social assistance 0.0 0.0 98.3 1.7

Performing arts, spectator sports, museums, 

 and related activities 0.2 3.6 46.7 49.4

Amusements, gambling, and recreation 

 industries (a

) 0.5 92.0 7.4

Accommodation 0.0 3.2 62.3 34.5

Food services and drinking places 0.1 1.5 78.9 19.5

Other services, except government 0.0 2.1 69.5 28.3

Sources: BEA Input-Output Table; Commission estimates. 

a

Less than 0.05 percent.
F-14 

TABLE F.4 Decomposition of value added created by U.S. services sectors (BEA), percent —continued

2011 

 Value-added exports

Share of sector value added used 

to satisfy domestic demand

Sector Direct Indirect Direct Indirect

Utilities 0.1 6.3 53.1 40.4

Wholesale trade 12.0 6.9 47.8 33.2

Retail trade (a

) 0.4 94.5 5.1

Air transportation 24.9 3.5 47.8 23.9

Rail transportation 17 15.2 11.6 56.2

Water transportation 18.7 4.6 49.9 26.9

Truck transportation 11.0 8.5 34.7 45.8

Transit and ground passenger transportation 0.1 2.5 62.9 34.6

Pipeline transportation 10.3 11.0 7.7 71

Other transportation and support activities 16.1 11.7 11.1 61.1

Warehousing and storage 5 11.1 0.7 83.3

Publishing industries (includes software) 10.1 4.2 58.4 27.4

Motion picture and sound recording industries 10.8 4.7 32.5 52.1

Broadcasting and telecommunications 1.3 5.1 43.2 50.4

Information and data processing services 0.5 7.0 35.8 56.7

Federal Reserve banks, credit intermediation,

 and related activities 4.5 5.4 27.5 62.5

Securities, commodity contracts, and 

 investments 7.6 7.2 25.0 60.2

Insurance carriers and related activities 2.5 3.7 44.1 49.8

Funds, trusts, and other financial vehicles (a

) 0.8 92.4 6.9

Real estate 0.0 1.7 71.5 26.8

Rental and leasing services and lessors of 

 intangible assets 23.5 8.4 19.6 48.5

Legal services 3.1 6.1 35.9 54.9

Computer systems design and related 

 services 2.9 6.3 50.1 40.6

Miscellaneous professional, scientific and 

 technical services 2.5 10.7 9.8 76.9

Management of companies and enterprises 19.8 13.3 -0.1 67.0

Administrative and support services 0.4 8.9 6.9 83.8

Waste management and remediation 

 services 0.8 4.8 18.5 76.0

Educational services 0.5 0.2 93.5 5.7

Ambulatory health care services 0.0 0.0 95.3 4.6

Hospitals and nursing and residential care 

 facilities 0.0 0.0 99.4 0.5

Social assistance 0.0 0.0 97.4 2.5

Performing arts, spectator sports, museums, 

 and related activities 0.4 4.5 47.7 47.4

Amusements, gambling, and recreation 

 industries (a

) 0.6 93.5 5.9

Accommodation 0.0 3.8 63.6 32.6

Food services and drinking places 0.1 1.9 78.8 19.2

Other services, except government 0.0 2.6 70.5 26.9

Sources: BEA Input-Output Table; Commission estimates. 

a

Less than 0.05 percent.
F-15 

TABLE F.5 Share of services in output of final manufactured goods, percent 

 1995 2008 

Country 

Business 

services 

Trade and 

transport

Other 

services Total 

Business 

services

Trade and 

transport 

Other 

services Total

Australia 12.1 16.4 8.3 36.8 14.7 15.2 8.9 38.8

Austria 11.7 14.0 6.8 32.5 11.7 15.2 7.2 34.0

Belgium 14.2 17.0 6.1 37.4 14.8 17.3 7.2 39.3

Brazil 10.2 13.0 6.6 29.8 11.1 14.5 7.7 33.3

Bulgaria 10.5 14.5 5.2 30.2 10.8 14.7 6.6 32.0

Canada 10.6 14.2 7.7 32.5 12.3 15.8 8.2 36.3

China 6.6 10.9 5.2 22.7 9.5 9.8 6.9 26.1

Cyprus 12.3 12.7 5.6 30.6 16.3 12.7 7.1 36.0

Czech Republic 9.7 15.0 8.0 32.7 10.9 17.3 6.7 34.9

Denmark 10.4 16.7 6.5 33.6 12.5 17.0 6.8 36.3

Estonia 7.8 16.3 7.0 31.1 12.1 16.8 7.5 36.4

Finland 11.3 14.6 6.2 32.0 14.6 15.0 7.2 36.8

France 17.8 15.2 8.3 41.2 19.7 16.2 7.8 43.6

Germany 14.5 12.0 7.5 34.0 15.3 14.0 8.9 38.2

Greece 9.1 15.2 6.7 30.9 11.1 14.9 8.1 34.1

Hungary 12.6 11.9 7.9 32.4 14.5 13.3 8.1 35.8

India 8.2 16.7 8.8 33.7 10.3 19.6 4.5 34.4

Indonesia 6.1 10.8 3.2 20.2 4.6 9.4 5.7 19.8

Ireland 15.0 14.8 5.6 35.5 26.1 12.2 5.6 43.8

Italy 10.8 17.4 7.7 35.8 14.0 17.0 9.1 40.0

Japan 9.5 13.1 7.2 29.8 11.0 13.4 6.5 30.9

Korea, Republic of 10.8 9.1 5.6 25.5 11.1 10.3 5.7 27.1

Latvia 6.0 11.2 6.7 24.0 11.3 17.6 7.4 36.3

Lithuania 5.3 16.8 8.9 31.0 7.6 19.1 7.0 33.7

Luxembourg 10.9 12.6 6.6 30.1 16.4 15.7 7.5 39.6

Malta 8.2 12.7 5.0 25.9 10.4 11.5 6.0 27.9

Mexico 10.7 13.3 4.6 28.7 10.7 13.6 4.4 28.7

Netherlands 14.9 14.6 7.5 37.0 15.6 16.2 7.9 39.7

Poland 7.0 16.4 6.7 30.1 10.9 19.4 7.1 37.4

Portugal 12.1 15.9 6.7 34.7 12.7 15.0 6.7 34.4

Romania 10.6 10.0 5.0 25.6 8.9 11.7 6.2 26.7

Russia 3.2 19.6 5.7 28.5 6.4 18.6 6.1 31.0

Slovakia 8.6 16.6 7.2 32.4 10.5 16.7 7.3 34.4

Slovenia 10.8 13.6 5.9 30.2 11.8 14.9 7.2 34.0

Spain 11.4 16.8 7.3 35.4 13.0 16.7 8.3 38.0

Sweden 12.2 14.9 6.3 33.5 15.8 16.2 7.9 39.9

Taiwan 11.3 15.0 8.6 34.9 10.5 19.0 8.0 37.5

Turkey 7.5 16.2 3.7 27.3 7.8 21.3 4.6 33.6

United Kingdom 12.5 13.3 5.6 31.5 14.4 14.7 6.9 36.0

United States 15.7 12.2 6.7 34.7 15.9 11.3 6.6 33.7

Rest of world 9.4 17.9 4.7 32.0 10.8 15.9 5.1 31.7

World 11.8 14.0 6.6 32.4 12.6 14.0 6.8 33.4

Sources: World Input-Output Database; Commission estimates. 

Note: “Other services” includes utilities, hotel and restaurants, real estate services, government, education, health, 

and social services. 
F-16 

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