ESA/STAT/AC.63/15 20 October 1998 UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS STATISTICS DIVISION Fourth Meeting of the Expert Group on International Economic and Social Classifications New York, 2-4 November 1998 NAICS IN MEXICO by Enrique Ordaz, National Institute of Statistics, Geography and Informatics of Mexico (INEGI)
NAICS IN MEXICO National Institute of Statistics, Geography and Informatics of Mexico (INEGI) 2
NAICS IN MEXICO Enrique Ordaz - INEGI This document briefly describes the work carried out by the Instituto Nacional de Estadística, Geografía e Informática (INEGI), to develop jointly with the national statistical offices of the United States and Canada the North American Industry Classification System (NAICS). 1. BACKGROUND As in many other countries, before INEGI was created, economic statistics in Mexico were mainly produced by the central bank and by the finance ministry. Industrial activity indicators, the system of national accounts, the trade balance and the price system were a secondary, but nevertheless important function of the central bank. The industry classification used to collect and present data was not completeley in line with international recommendations, and at different points in time some features were introduced to safisfy very specific data needs. On the other hand, statistics from the economic censuses, which were carried out by the national statistical office used a classification mostly based on the International Standard Industrial Classification (ISIC). Work to harmonize this situation was carried out since 1991 and by the time the Economic Census of 1994 was conducted, all projects involved in field data collection as well as in statistics produced from administrative records adopted the Mexican Classification of Activities and Products (CMAP), directly derived from ISIC, Rev. 2. Even though this classification was not used by the System of National Accounts of Mexico (SNAM) to produce or disseminate its data, very detailed correspondance tables were developed, so that all the information provided as an input to the SNAM could be properly used. At that time the office of National Accounts was already using a classification derived from ISIC, Rev. 3. 3
The main issues of discussion in 1991 were related to the following: 1. Developing homogeneous criteria to adopt a unique classification to be used by all the statistical projects of the INEGI. 2. Assessing the convertion to ISIC, Rev. 3. Two types of concerns were faced at this point: on the one hand the practical aspects were refered to mantaining time series, writing new manuals for field operations, programming new coding systems, etc.; on the other, questions were raised as to the extent to which the structure of ISIC could be applied to the Mexican economy. 3. The up coming new System of National Accounts was an important consideration put forward by those in favor of moving to ISIC, Rev. 3. As these discussions were taken place, the North American Free Trade Agreement brought a new set of conditions for producers and users of economic data. At the time when the North American Free Trade Agreement was formally accepted in 1993 by the governments of Mexico, the United States and Canada, their national statistical offices engaged in producing a new economic classification to be simultaneously used by the three countries to provide users with internationally comparable data on their economic structure and activities. The North American Industry Classification System, was jointly developed by Mexico s Instituto Nacional de Estadística, Geografía e Informática, the Economic Classifications Policy Committee, on behalf of the Office of Management and Budget of the United States and Statistics Canada. Against this background the importance of NAICS Mexico can be looked at from several perspectives: fisrtly, NAICS unifies the classifications for economic statistics; secondly, it we will enable us to compare our economic data with those of the United States and 4
Canada; finally, this tool will help us to better measure the velocity and magnitude of recent changes in the country s economic structure. 2. CONCEPTUAL FRAMEWORK NAICS is the first industry classification system explicitly developed on an economic concept wich is the production function (See Anex A), so that economic activities are classified by their similarities in their production processes. The production or supply approach was used because it allows the collection and dissemination of economic statistics on the way the economy functions. Data will be provided to users for analysis on productivity, employment, unit labor costs, among others. One of the major achievements in developing NAICS based on a conceptual basis is arriving to a classification system equally valid for countries with different economic structures, different levels of economic development and different dynamics of change. General conditions in each country are not the same, for instance, some economic activities are influenced by geographic elements such as climate, soils, etc. Customs, traditions and practices also play an important role on what the economies produce and how they do it. On the demographic side we have also strong differences since Mexico is a much younger country; the production of goods and services is linked to the country s demographic trends. Another major achievement of NAICS is that while allowing for straightforward data comparability, national classifications reflect particular or unique characteristics. NAICS Mexico has fewer industries than the United States or Canada, because the Mexican economy is smaller than theirs, but nevertheless, shows an increasing diversity in its structure. Actually most of the national industries observed in Canada and the United States classifications do exist in Mexico, but because of their scale, they are usually carried out along with other activities within one establishment s premises. 5
3. NAICS STRUCTURE At first sight, the impact of NAICS on economic statistics is its new structure, going to 20 sectors instead of 9. However, much more important is the fracture in the users minds concerning traditional concepts of what manufacturing or services should include. Since all previous classifications were not build upon an economic concept, and firms were organised in a quite different way, it was just natural, for example, to consider publishing as an important activity in the manufacturing sector. Likewise, there has been a tradition of dealing with services under a rather low key approach, even if together with domestic trade, account for two thirds of the country s GDP. Among the most striking changes introduced by NAICS, the information sector caused a great impact in Mexico. The information economy exists but it is embedded in our current economic statistics, and not distinctively presented. The main problem with information was that it meant moving industries traditionally measured as part of the manufacturing sector to a new one, up to that moment non existing sector. At the end it was a matter of recognizing that the manufacturing industry in Mexico, although still very important, is giving its way to new activities mainly in the services sector. This was not an easy change for a country willing to show higher degrees of industrialization, and even though the number of national industries in NAICS Mexico for the manufacturing sector remained about the same, parts of them were moved to services. When defining the national detail, major changes from our previous classification were related to the innovative features of NAICS: in the first place, the information sector was created; then, the breakdown of the services sector has been extensive; also, new industries related to computing, telecommunications and new technologies have been explicitly identified. 6
NAICS Mexico has a much larger detail than CMAP 94. At the national level we recognize 976 industries whereas in CMAP there were 754, that is an increase of 222, (29%) new economic activities. (See Table 1). TABLE 1 Major Chages in the Classifications Categories CATEGORY CMAP 94 NAICS MEXICO SECTOR 9 20 SUBSECTOR 34 94 GROUPS 129 296 SUBGROUPS -- 622 NATIONAL INDUSTRIES (CLASSES) 754 976 Looking at the distribution of national industries by sector, we have 13 sectors where the number of classes increased. In terms of their economic importance the major change has been in services where we have identified more industries. Information, professional services, administrative and support services, education, health, and arts, entretaiment and recreation, stand out as the sectors with a higher breakdown of national industries. (See Table 2) TABLE 2 7
Number of Industry Classes in CMAP 1994 and NAICS Mexico NAICS SECTORS CMAP 94 NAICS MEXICO 11 Agriculture, Forestry, Fishing and Hunting 36 42 21 Mining 24 31 22 Utilities 3 5 23 Construction 28 17 31-33 Manufacturing 302 293 43 Wholesale Trade 45 65 46 Retail Trade 75 76 48-49 Transportation and Warehousing 38 65 51 Information 17 38 52 Finance and Insurance 21 27 53 Real Estate and Rental and Leasing 18 26 54 Professional, Scientific and Technical Services 19 41 55 Management of Companies and Enterprises 1 2 56 Administrative and Support and Waste Management and Remediation Services 8 27 61 Educational Services 22 38 62 Health Care and Social Assitance 13 62 71 Arts, Entertainment, and Recreation 13 40 72 Accommodation and Food Services 16 19 81 Other Services (except Public Administration) 41 43 92 Public Administration 14 19 Total 754 976 To summarize the changes from CMAP 1994 to NAICS we have: 32% of our original national industrial classes remained unchanged, mainly in manufacturing; 23% were not split but became part of another new one, and 45% were brokendown to create new industry classes. 4. CONCLUSIONS OF WORK ON NAICS MEXICO 8
In this context, the first stage of work on the classification consisted of three country meetings where detailed concordance tables among the three classifications were produced. With the work on these tables we were able to know about the differences and similarities among our countries economic activities: forms of organisation; identify industries unique to each on of the three countries; the different importance of the activities in the overall economy; and the degree of industry diversification. Also, we learnt about the traditional ways in which activities were classified in each country. For example, retail trade in Mexico exclusively refers to purchases and sales without any product transformation whatsoever, while in the United States and Canada small establishments carrying out some transformation processes were included in trade, as is the case of some backeries. The second stage consisted of trilateral meetings to agree on the final structure of NAICS. All the work carried out is documented in a set of 31 trilateral agreements. These agreements present the proposed structures and the contents of sectors and subsectors. They state the limitations we recognized when we agreed on those proposals. The first agreement took place in the middle of 1994 and we formally finished the strictire of NAICS by the end of 1996. Within INEGI the work involved all of our statistics producing offices. In most cases general agreements were rapidly reached and we moved forward to other areas of the classification. For the manufacturing sector we did not have so much internal debate as in the case of the services sector, or when we introduced more detailed industries or when new structures were proposed. 9
I have already mentioned the situation with the information sector. However it was also as difficult to deal with the new proposed treatment for ancillary untis, and some issues related to smaller industries such as cotton ginning or backeries became a national position. For these we spent relatively more time debating over INEGI s proposals to our partners. For Mexico the final stage was the definition of the national detail and was done during 1997. The reference clasification was CMAP 1994, and direct consultations were carried out with firms and trade and bussiness associations. All these discussions brought about a set of conditions and situations which I believe are present in many countries or agencies at times when innovations are discussed in different areas of statistical development: a) The inertia is very strong while carrying out our projects. Tradition, and sometimes, oral tradition, becomes an important argument to remain where we are, even if objective argumentation is put forward, b) In the particular case of industrial classifications we were dealing with two big economic partners. Sometimes the question was asked whether we were giving away our statistical system. c) Looking for enlightening answers from international standards does not always work. Finding creative responses to treat ambiguous or outdated areas of existing standards is a better solution, even if it entails compromises. d) Important gains are obtained by conveying the sense of partnership and of ownership of the project. 10
ANEX A THE CONCEPTUAL FRAMEWORK FOR THE NEW NORTH AMERICAN INDUSTRY CLASSIFICATION SYSTEM Statistic Canada, Mexico s Instituto Nacional de Estadística, Geografía e Informática (INEGI), and the Economic Classification Policy Committee (ECPC) of the United States, acting on behalf of the Office of Management and Budget (OMB), have agreed that a common industry classification system for the three North American countries is needed and should be put in place. They have further agreed that the new North American Industry Classification System (NAICS) should conform to the following principles: 1. The uses of industrial statistics which include measuring productivity, unit labour costs and the capital intensity of production require that information on outputs and inputs be used together. Moreover, statistical agencies in the three countries expect to be called upon to produce information on inputs and outputs, industrial performance, productivity, unit labour costs, employment and other statistics in order to analyse the effects of the North American Free Trade Agreement. An industry classification system erected on a production-oriented or supply-based, conceptual framework wil assure maximum usefulness of industrial statistics for these and similar purposes. Therefore, the three countries agree that the new North American Industry Classification System should conform to a production-oriented economic concept. 2. The statistical agencies of the three countries also acknowledge that market-oriented, or demand-based, groupings of economic data are required for many purposes, including studies of market share, demands for goods and services, import competition in domestic markets, and similar studies. Each country will provide product data compiled within the framework of its respective statistical system, to meet the need for 11
such information. Recognizing the increasing international trade in goods and sevices, each country will work cooperatively to help improve commodity classification systems, including the Harmonized System (HS) of the Customs Co-operation Council and the United Nations Provisional Central Product Classification (CPC) system for services, by coordinating efforts and keeping each agency informed of proposals for changes. 3. The statistical agencies of the three countries envision the implementation of a production-oriented conceptual framework for economic classifications in the new North American Industry Classification System as a long-term goal that cannot by fully achieved by 1997. The conceptual framework will be used, both for 1997 and subsequiently, in reviewing changes to the existing list of industries. 4. Statistical agencies of the three countries agree to give special attention to developing production-oriented classifications for a) new and emerging industries, b) service industries in general and c) industries engaged in the production of advanced technologies including, bm, but not necessarily limited to, electronic components, telecommunications equipment, computer equipment, computer software, medical equipment, and advanced materials. For these industries, statistical agencies will actively seek out industry expertise in all three countries, in order to generate the information required to define industries in accordance with the agreed productionoriented economic concept. 5. For industries in sectors of the economy outside of those sectors discussed in paragraph (4), statistical agencies of the three countries wish to maintain time series continuity, to the extent possible. However, changes in the economy and evolving user 12
needs must be considered, so long as they are supported by reasoning and factual information that furthers the long-term goal of the North American Industry Classification System. 6. Those sectors of the economy where Canada, Mexico, and the United States presently have incompatible industry definitions will require adjustements in order to produce a common North American Industry Classification System. The three countries statistical agencies agree to a detailed review of their present industry definitions to determine where differences in industry definitions exist and to move toward full commonality and the implementation of prouction-oriented reasoning into the new classfication system. 7. In the interest of a wider range of international comparisons, the three countries agree to strive for a North American Industry Classification System that will be compatible with the 2-digit level of the current international Standard Industrial Classification of All Economic Activities (ISIC, Revision 3) of the United Nations. 13