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REGIONAL ECONOMIC ISSUES Working Paper Series A look at the big em erging m arkets and U.S. trade Linda M. Aguilar and Mike A. Singer FEDERAL RESERVE BANK OF CHICAGO WP- 1995/9 A look at the big emerging markets and U.S. trade Linda M. Aguilar and Mike A. Singer "No nation was ever ruined by trade. —Benjamin Franklin The preceding quote by Benjamin Franklin isas true today as itwas 200 years ago. United States history is steeped in trade and trade debate, from the pivotal role of the Boston Tea Party in shaping the United States as a nation, to the recent debate over the merits of U.S. ratification of the present round of the General Agreement on Tariffs and Trade (GATT) negotiations. The U.S. Department of Commerce is actively involved in promoting exports. In 1993, President Clinton announced a National Export Strategy for the United States, described as "a comprehensive plan [that] upgrades and coordinates the government's export promotion and export finance programs to help American firms compete in the global marketplace."1 In particular, the National Export Strategy identifies past problems with U.S. trade promotion efforts and recommends improvements to current ones. This includes enhancing existing trade finance programs such as the Exim Bank and the Overseas Private Investment Corporation and creating a Tied Aid Fund to help U.S. firms compete on a level playing field. As an outcrop of this initiative, Commerce identified ten foreign nations as the big emerging markets (BEMs) of the upcoming century, markets where the potential for trade growth is the greatest. It has long been recognized that exports play an important role in the U.S. economy because they supportjobs and they represent a significantcomponent of gross domestic product (GDP). Over the last few years, U.S. exports have contributed significantly to overall GDP growth. But targeting emerging markets is a new concept for the U.S. In the past, the nation could expect tradetoexpand steadilywith itstraditionaltradingpartners— mainly Europe and Canada and, more recently, Japan. As the National Export Strategy was being developed, however, it became clear that the U.S. could not rely on these partners as a source of continued growth. In fact, trade with our traditional trading partners has been, and is projected to continue to be, flat.2 The next FRB C H IC A G O Working Paper July 1995, W P-1995-9 1 logical step was to determine where growth was likely to occur. Thus was born the B E M initiative. In addition to growth potential, the ten BEMs have other traits in common. They are all physically large with large populations, have recently undergone some program of economic reform, are politically important to theirregion of the world, and are likely to spur growth within theirregions.3 Where are these markets? Geographically they represent several parts of the world. In Asia they are China, Indonesia, India, and South Korea; in Latin America they are Mexico, Argentina, and Brazil; in Central and Southern Europe they are Poland and Turkey; in Africa it is South Africa. Commerce estimates thatthe BEMs and other lessdeveloped countries will be the fastest growing import markets through the year 2010. By then, the BEMs are expected to account for 27 percent of total world imports, three times their 1992 share.4 U.S. firms will want to capture as much of that market as possible. With accurate knowledge and support from alllevels of government, they can realize that goal; to some extent, they are already ahead of the curve. In 1987, U.S. commodity exports to the BEMs accounted fornearly 15 percent of ail U.S. exports. By 1994, the BEM market had grown to 20 percent of all U.S. exports— an increase of $65 billion. Total exports to the BEMs increased 177 percent. State governments also actively promote exports and overseas business opportunities for firms located in their state. In the Seventh Federal Reserve District, which includes all of Iowa and parts of Illinois, Indiana, Michigan, and Wisconsin, efforts by state governments may have helped exports to the BEMs grow from 10 percent of all District exports in 1987 to 13 percent in 1994, an increase of $5.6 billion in goods.5 Total District exports to the BEMs grew 152 percent over the period, with those to Indonesia, Argentina, and Brazil experiencing the largest growth (425 percent, 334 percent, and 249 percent, respectively). This article will begin by examining the import profiles of the BEMs as a group over the 1988-92 period. We then present U.S. and Seventh District exports to these markets for roughly the same time period. Next we examine agriculturalexports separately because ofthe importantroleplayed by Seventh District states in U.S. agricultural output and trade. We then provide additional detail on U.S. trade with the individual BEMs followed by an examination of current U.S. and Districtexport promotion initiatives. Finally, we sum up and conclude with an assessment of how well U.S. exports are meeting the r^eds of the BEMs. FRB C H IC A G O Working Paper July 1995, W P -1995-9 2 The data in this article represent the full range of goods that can be bought and sold in the marketplace, including agricultural goods, minerals, clothing, chemicals, metals, machinery, scrap and waste, secondhand goods, and antiques. They do not include services. We used several data sources. The import profiles of the BEMs came from United Nations data and cover the 1988-92 period. We chose 1988 as the base year for import data since itwas the start of the data series used and we didn't feel we needed to go back any further in time since U.S. trade with the BEMs has only recently started to expand. We chose 1987 as the base year for export data solely because that was the start year of one of the data series we used. Census data on U.S. exports are more current and are available through 1993, but to avoid confusion we used those data only when discussing U.S. exports in total or when discussing aspects of the BEMs unrelated to the United Nations data. State export data, based on Census data, came from theMassachusetts Institute for Social and Economic Research (MISER). These data were available through 1994, but we used them only for aspects unrelated to United Nations import data. One other note on the data. In reporting imports for the BEMs, the United Nations uses the Standard International Trade Classification (SITC) system, a system originally developed in 1950 by the United Nations so that all countries reportingtrade statisticswould use comparable categories. However, for most purposes, U.S. trade is reported on the basis of the Standard Industrial Classification (SIC) system that was originally developed for analyses of domestic commerce. These two systems (as well as several other reporting systems) are not generally comparable. Although the commodity or industry descriptions may sound similar, the actual components that comprise them are generally not the same. T he grow ing B EM m arket The BEMs' share of world imports grew from 7.7 percent in 1988 to 9.3 percent in 1992. In the latter year, the BEMs imported $357 billion in commodities. The U.S. captured the largest share with nearly 22 percent, up from 20 percent in 1988. Japan held second place with approximately 14 percent, down from 17 percent in 1988. Germany captured nearly 9 percent, as itdid throughout the period (see figure 1). Korea and China are by far the largest of the BEMs in terms of total imports. In 1902, each of those two FRB CH IC A G O Working Paper July 1995 ,W P -1995-9 3 countries imported around $81 billion in goods. Mexico was the next largest with nearly $48 billion. Figure 1 Sources of imports of all BEMs combined, 1992 Source: United Nations (1993). Two things stand out about the types of goods that the BEMs imported in 1992. First, the single largest import commodity was petroleum and petroleum products (crude petroleum and fuel). Second, the next four largest import commodities were all in machinery and transportation equipment—electrical machinery (such as household appliances and switchgears), machines for special industries (such as textile and leather machinery), general industrial machinery (such as heating and cooling equipment), and road vehicles. Combined, these five commodity categories accounted for $124 billion, or about 35 percent of total B E M imports (see figure 2). FRB C H IC A G O Working Paper July 1995, W P -1995-9 4 Figure 2 Top commodities imported by all BEMS combined, 1992 Note: SITC commodities imported from all countries, measured by U.S. dollar value. Source: United Nations (1993). This collective import profile of the BEMs shows an emphasis on production rather than consumer goods, reflecting a desire to develop the capacity to produce their own goods for consumption or export. Given this desire, the BEMs need machinery imports to build an industrial structure or upgrade an existing one. Thus several of the Asian BEMs' machinery imports are in the textile and apparel industries. Road vehicles, telecommunications, and electronics and electrical machinery are in demand in the Latin American BEMs, and machinery for special purpose industries is in demand in several others, for example, industrial food processing machinery in Poland. To fuel these industries (literally), petroleum and petroleum products are needed—for the factories, equipment, workers' homes, workers' transportation, and so on. FRB CH IC A G O Working Paper July 1995, W P-1995-9 5 Individually, some of the BEMs had quite different import profiles than the group as a whole (see table 1). For example, China's second-largest import commodity is textile yarns, which in turn support two of their major export industries—clothing and accessories, and textile yarn and fabrics. Combined, these two industries accounted for 30 percent of China's exports in 1992. India’s only commonality with the BEMs' collective import profile is that its top import commodity is petroleum and petroleum products. Its second-largest import commodity is nonmetal minerals, which include precious and semi precious stones, primarily rough unset diamonds. Diamonds accounted for 15 percent of India's exports in 1992. Indonesia's imports also vary substantially from the group's overall profile. Another way in which the BEMs differed from each other was in who their largest sources of imports were (see table 2). As could be expected, several countries had a neighboring country among their top three sources. For example, of all the goods that China imports, Hong Kong was the single largest supplier, capturing over 25 percent of the total. Of Argentina's total imports, Brazil was the largest source, providing 22 percent. In turn, Argentina was Brazil's third-largest source, providing 8 percent of the latter's imports. Total import growth for the BEMs over the 1988-92 period was nearly 59 percent. By comparison, total world imports grew 32 percent, and among the industrialized countries, U.S. imports grew by 21 percent, Japan's by 25 percent, and Germany's by 63 percent. Germany's spectacular increase can be attributed to the country's reunification and the increased demand needed to bring the former East Germany up to par with the rest of the country. (East Germany was not included in the 1988 data). In addition, the BEMs as a whole registered a higher average annual import growth rate than did either the U.S. or Japan, both of which have experienced recent periods of economic slowdown. However, Germany still outperformed the BEMs (on average) for the reason noted above. Individually, BEM import growth ranged from a high of 179 percent for Argentina to a low of 7 percent for South Africa. In addition to Argentina, Mexico and Indonesia also had above-average import growth, rising 145 percent and 106 percent respectively. South Africa’s weaker gains were likely due to its overall stagnant economic growth that persisted through the early 1990s. FRB C H IC A G O Working Paper July 1995, W P -1995-9 6 T ab le 1 Top commodities imported by the BEMs, 1992 by SITC classification ($ U.S. Billions) China $8.3 7.8 4.9 4.5 4.2 Mach, for special industries Textile yarns Electrical machinery, NES Iron and steel Plastic materials 35.6% Percent of total imports Indonesia $2.7 2.5 2.1 1.7 1.5 India 38.3% Percent of total imports $6.6 Petroleum and products Nonmetal mineral MFS, NES Inorganic chemicals Iron and steel Fertilizers, mfg 2.8 0.9 0.9 0.8 59.1% Argentina $2.0 1.1 1.1 0.8 0.7 Brazil Mach, for special industries Gen’l industrial mach., NES Petroleum and products Power generating equipment Iron and steel Road vehicles Telecomm., sound equip. Electrical machinery, NES Gen'l industrial mach., NES Mach, for special industries Percent of total imports $4.4 Petroleum and products Electrical machinery, NES Organic chemicals Cereals and preparations Gen'l industrial mach., NES 1.4 1.0 1.0 48.5% Poland Turkey Percent of total imports 38.7% 2.2 Mexico Percent of total imports Korea S.Africa $7.9 3.3 2.6 2.6 2.1 Road vehicles Gen'l industrial mach., NES Mach, for special industries Electrical machinery, NES Telecomm., sound equip. 38.4% Percent of total imports $2.2 1.1 0.8 0.8 0.7 Petroleum and products Gen'l industrial mach., NES Mach, for special industries Misc. manuf. goods, NES Road vehicles 39.1% Percent of total imports $3.0 1.6 1.3 1.3 1.3 Petroleum and products Mach, for special industries Electrical machinery, NES Gen'l industrial mach., NES Iron and steel 37.7% Percent of total imports $12.0 8.5 4.7 4.2 3.3 Petroleum and products Electrical machinery, NES Gen'l industrial mach., NES Mach, for special industries Iron and steel 39.9% Percent oftotal imports $1.8 1.3 1.0 1.0 0.8 Road vehicles Gen'l industrial mach., NES Electrical machinery, NES Mach, for special industries Office equipment 34.7% Percent of total imports NES: Not elsewhere specified. Source: United Nations (1993). FRB C H IC A G O Working Paper July 1995, W P -1995-9 7 Tab le 2 BEMs largest import trading partners, 1992 ($ U.S. Billions) Imports China Indonesia India Argentina Brazil World $80.6 Hong Kong 20.5 Japan 13.7 USA 8.9 Germany 4.0 Russia 3.5 25.4% 17.0% 11.0% 5.0% 4.3% World $27.3 Japan 6.0 USA 3.8 Germany 2.1 Korea 1.9 Singapore 1.7 22.0% 13.9% 7.7% 7.0% 6.2% World $24.2 USA 2.3 Belgium 2.0 Germany 1.8 Japan 1.6 UK 1.5 9.5% 8.3% 7.4% 6.6% 6.2% World $14.9 Brazil 3.3 USA 3.2 Germany 1.1 Italy 0.8 Japan 0.7 22.1% 21.5% 7.4% 5.4% 4.7% World $23.1 USA 5.4 Germany 2.0 Argentina 1.8 Saudi Arabia 1.7 Japan 1.3 23.4% 8.7% 7.8% 7.4% 5.6% Source: United Nations (1993). FRB C H IC A G O Working Paper July 1995, W P -1995-9 Mkt. share Imports Mexico Poland Turkey Korea S. Africa World $47.9 USA 30.1 Germany 2.5 Japan 3.0 France 1.3 Brazil 1.1 World $15.9 Germany 3.8 Russia 1.4 Italy 1.1 UK 1.1 Austria 0.7 World $22.9 Germany 3.8 USA 2.6 Italy 1.9 Saudi Arabia 1.7 France 1.4 Mkt. share 62.8% 5.2% 6.3% 2.7% 2.3% 23.9% 8.8% 6.9% 6.9% 4.4% 16.6% 11.4% 8.3% 7.4% 6.1% World $81.4 Japan 20.0 USA 18.3 Saudi Arabia 3.8 3.7 Germany China 3.7 24.6% 22.5% 4.7% 4.5% 4.5% $18.4 World Germany 3.0 USA 2.5 Japan 2.0 UK 1.9 France 0.7 16.3% 13.6% 10.9% 10.3% 3.8% T o sum m arize, the im port p rofile o f the B E M s o v er the last fe w years in d icates that they are indeed grow th markets. Import grow th in sev en o f the ten B E M s e x c e e d e d w orld import grow th, the typ es o f go o d s the B E M s im port are those m ost needed to support a grow in g eco n o m y , and the major industrialized countries o f the world have reco g n ized the im portance o f servin g these markets, particularly the U nited States. The n ext section w ill present in more detail the export patterns o f the U .S . and S even th D istrict in term s o f m eetin g the BEM s' needs. U.S. exports to the BEMs O ver the 1 9 8 7 -9 4 period, U .S. exports to the B E M s grew $65 b illio n , or 177 percent, for an average annual com pound gain o f 16 percent. U .S . exp orts to the rest o f the w orld grew by 95 percent over the sam e period, for an average annual com pound gain o f 10 percent. W ith the ex cep tio n o f tw o industries—m ining o f quarry nonm etal m inerals (such as sand or cla y ), and lum ber and w ood products—B EM export grow th by in d u sh y e x c e e d e d U .S . export grow th to the rest o f the w orld. The m achinery industries did particularly w ell in terms o f absolute increases w ith both elec trica l and n on electrical m achinery increasing by over $11 b illio n each and transportation equipm ent increasing by nearly $ 1 0 b illion . In term s o f market share, the B E M s have grow n from 15 percent o f total U .S . exports in 1987 to 20 percent in 1994. W h ile all the B E M s had p o sitiv e grow th o v er the period, A rgentina, Indonesia, and M e x ic o had the largest p ercen tage increases, at 3 1 0 percent, 2 6 6 percent, and 2 4 7 percent, resp ectiv ely . H ow ever, U .S . exports to M e x ic o in m any w ays stand out from those to other B E M s because o f certain characteristics unique to M e x ic o . O ne major factor is that M e x ic o is a free trade partner o f the U .S . The U .S ., M e x ic o , and Canada have a form al trade agreem ent that fosters free and op en trade am on g our countries, and in clu d es rules and agreem ents that g o b eyon d G A TT. In addition, U .S . trade w ith M e x ic o is augm ented by the proxim ity o f these tw o nations. Thus, w h ile U .S . export grow th to the com b in ed B E M s has outpaced export grow th to the rest o f the w orld, the M ex ica n market is e sp e c ia lly sign ifican t. W h ile M e x ic o is by far the largest B EM export market for the U .S ., South K orea, C hina, and B razil are also major markets for the U .S . The South Korean m arket is the largest o f the three, nearly d ou b le the size o f the C h in ese FRB CH IC A G O Working Paper July 1995, W P-1995-9 9 or B ra zilia n m arket in 1994. The top exp ort industries to S ou th K orea in 199 4 w ere elec trica l m achinery, n o n electrical m achinery, and transportation eq uipm ent. On a m ore d etailed basis, in 1993 (the latest year for w h ich such data are n ow ava ila b le), the top exports to South K orea w ere sem icon d u ctors, aircraft, and m eat products. T he top exports to C hina w ere aircraft, m otor v e h ic le s, and radio and T V equipm ent; those to B razil w ere data p ro cessin g eq u ip m en t, aircraft, and industrial organic ch em ica ls. (S e e appendix for the top U .S . g o o d s exported to the B E M s as a group and in d iv id u a lly in 1993.) Seventh District trade with the BEMs E xports to the B E M s from the S eventh D istrict states in creased by $ 5 .6 b illio n , or 152 percent, over the 19 8 7 -9 4 period. B y contrast, exp orts to the rest o f the w orld grew 9 0 percent. A lm ost all industries had p o sitiv e export grow th to the B E M s w ith the ex cep tio n o f forestry, scrap and w a ste, and the tw o m in in g industries. N on electrica l m achinery, elec trica l m achinery, and ch e m ic a ls had the largest absolute increases, accou n tin g for 6 0 p ercen t o f the D istrict's total export increase to the B E M s over the period. T he B EM s' share o f S even th D istrict exp orts has also grow n. In 1987, ex p o rts to the B E M s com p rised 10 percent o f total D istrict exports; by 1994, that share had risen to 13 percent. The largest B E M export m arkets for the D istrict w ere M e x ic o , South K orea, and C hina, w h ich together com p rised three-fourths o f the D istrict's exports to the B E M s in 1994. H ow ev er, in term s o f the fa stest-g ro w in g m arkets, Indonesia, A rgentina, and B razil had the largest percen tage in creases over the period (4 2 5 percent, 3 3 4 percent, and 2 4 9 percent, r esp ectiv ely ). L ike the U .S ., exports to M e x ic o tended to d om in ate the p rofile o f D istrict exports to the B E M s as a group b ecau se o f the large share M e x ic o con su m es; nearly h a lf o f all D istrict exports to the B E M s are to M e x ic o . A n interesting d ev elo p m en t in the D istrict b etw een 1987 and 1994 w as that transportation equipm ent d eclin ed as a share o f total D istrict exports. T h is w as true for total D istrict exports as w e ll as D istrict exp orts to the B E M s. In 1987, transportation eq uipm ent exports com p rised 38 percent o f total D istrict exports; by 1994, their share had fa llen to 3 0 percent. W h ile transportation w as still the top export industry for the D istrict as a w h o le (in d ollar v a lu e), other major industries such as n on electrical m achinery, elec trica l m ach in ery, and ch em ica ls, w ere either gain in g or m aintaining market share (see table 3). FRB C H IC A G O Working Paper July 1995, W P -1995-9 10 Table 3 A. Top 5 District export industries to the world, 1987 and 1994 Ranked by 1987 value Transportation equipment Nonelectrical machinery Electrical machinery Chemicals Fabricated metals 1987 value Industry market share* (billions) (percent) $14.0 7.8 2.9 2.9 2.1 38.1 21.2 8.0 7.8 5.7 Ranked by 1994 value Transportation equipment Nonelectrical machinery Electrical machinery Chemicals Measuring instruments 1994 value Industry market share* (billions) (percent) $21.4 15.8 8.6 6.4 3.4 29.6 21.9 12.0 8.9 4.7 B. Top 5 District export industries to the BEMs, 1987 and 1994 Ranked by 1987 value Transportation equipment Nonelectrical machinery Electrical machinery Chemicals Measuring instruments 1987 value Industry market share* (billions) (percent) $1.2 0.9 0.4 0.4 0.2 32.1 24.2 10.8 9.6 5.0 Ranked by 1994 value Nonelectrical machinery Electrical machinery Transportation equipment Chemicals Food and kindred products 1994 value Industry market share* (billions) (percent) $2.4 1.6 1.5 1.1 0.5 26.0 16.8 16.5 11.4 5.9 'Industry market share is that industry's share of total District exports. Source: Massachusetts Institute for Social and Economic Research (1992 and 1995). FRB CH IC A G O Working Paper July 1995, W P -1995-9 11 D istrict exports to the B E M s sh ow an e v e n m ore p ronounced pattern o f ch an ge. In d ollar valu e, transportation eq u ip m en t exports have fa llen in rank from first in 1987 to third in 1994. A lso , their m arket share has fa llen from 3 2 p ercen t o f total D istrict driven by trade w ith M e x ic o , h ave fa llen from 4 9 percent ch an ge occurred in electrica l exports to 17 percent. T his pattern is largely w here transportation exp orts (la rg ely auto parts) o f the total to 21 percent. A nother sig n ifica n t m achinery exports, w h ich grew from 11 percent o f total D istrict exports to the B E M s to 17 percent. S everal p o sitiv e things can be said about this ch an ge in the D istrict's export p rofile. First, com pared w ith the past, the fortunes o f the auto industry w ill have a sm aller im pact on the D istrict during both lean tim es and g o o d tim es. S eco n d , le ss concentration o f exports a lon g industry lin es su g g ests that overall D istrict exp ort perform ance w ill not be so c lo s e ly tied to o n e or tw o industries in the future. F in ally, D istrict exports tend to correspond—e v e n m ore than U .S . exports as a w h o le —to those industries in w h ich e x p erie n c in g sig n ifica n t growth. B EM purchases are U.S. agricultural exports to the BEMs U .S . agricultural exports m ake an im portant contribution to farm in co m e as w ell as to our nation's trade balance. The U .S . D epartm ent o f A griculture (U S D A ) reported that 17 percent o f the valu e o f U .S . agricultural production w as exported last year, accou n tin g for a tenth o f the va lu e o f all U .S . exp orts and generating a major p o sitiv e contribution to the m erchandise trade b a la n ce.6 Furtherm ore, current d ev elo p m en ts su g g est that foreign m arkets w ill b e co m e ev en m ore im portant to U .S . agriculture. The b udget constraints so prom inent in the 1995 farm bill debate and the trend tow ards greater market orientation portend a decrease in the le v e l o f federal spending on program s that support farm prices and in com e. S lo w population grow th in the U .S . w ill con tin u e to be a sig n ifica n t constraint on future gain s in d o m estic food dem and. M oreover, b io g en etic research p rom ises to augm ent strides in agricultural p roductivity. G iven these factors, farm ers and ag rib u sin esses m ust in creasin gly lo o k to fo reig n m arkets as an o u tlet for co n tin u ed gain s in output and as a v e h ic le to m aintain or im prove in co m e le v e ls. The states o f the S even th Federal R eserve D istrict m ake an im portant contribution to both agricultural output and trade. Farms in these states accou n t for a substantial share o f the nation's d om estic liv e sto c k , m ilk, c o m , FRB C H IC A G O Working Paper July 1995, W P -1995-9 12 and soyb ean production. The high le v e l o f output p rop elled D istrict states into an 18 percent share o f U .S. farm com m od ity receip ts in 1993 and also provided raw m aterial to a siza b le fo o d p rocessin g sector. Furthermore, D istrict states play an im portant role in international agricultural trade. T he U S D A estim ates that the fiv e states together accounted for over a fifth o f the value o f U .S . agricultural exports in 1 993.7 The B E M s represent a major market for U .S . agriculture. From 1987 through 1994, their share o f foreign sa les o f U .S . agricultural products rose from 14 percent to 2 0 percent. M oreover, the potential for future gains is sig n ifica n t, as rising in co m es and international agreem ents that lib eralize trade are ex p ected to boost purchases o f U .S . agricultural products. A m on g the B E M s, the top three buyers o f U .S. agricultural products are M ex ic o , South K orea, and C hina. T hese three nations accounted for over 80 percent o f total U .S . agricultural exports to the B E M s from 1987 through 1994. S a les to M e x ic o increased nearly four tim es during this period, w h ile those to C hina tripled. B ut the m ost rapid grow th rates in U .S. agricultural sa les w ere to the rela tiv ely sm aller markets o f A rgentina, B razil, and Indonesia. (A gricultural exports to South A frica also rose q u ick ly, but this w as due to a severe drought in that nation.) M uch o f the grow th in the va lu e o f agricultural exports to the B E M s stem m ed from rising sales o f value-added p rocessed products, a trend that is reflected in agricultural exports to other nations as w ell. S in ce 1985, the share o f U .S . agricultural exports m ade up o f these products has been g ro w in g .8 P rocessed products inclu d e m eat, poultry, dairy products, fats and o ils, b everages, and a w id e variety o f other consum er food products. M oreover, foreign sa les o f p rocessed products have e x c e e d e d the export valu e o f bulk agricultural co m m o d ities (such as w heat, cotton, and other crops) sin ce 1991. In general, bulk exports have suffered as the e ffe c ts o f more favorable ex ch a n g e rates have been o ffset by greater com p etition from other nations as w e ll as w eak en ed foreign dem and. In contrast, U .S . sales o f p rocessed products have b en efited from reduced trade barriers, in com e grow th in m any d ev elo p in g nations, a grow in g taste for W estern food s, and the co n v e n ie n c e offered by p rocessed fo o d s. Furthermore, the transport o f perishable fo o d item s has been aided by advancem ents in tech n o lo g y that im proved c o st-e ffe c tiv e n e ss and reduced the potential for sp o ila g e.9 From 1987 through 1994, the p rocessed share o f U .S . agricultural exports to the B E M s rose from a third to nearly half. The major p rocessed exports are red m eat and poultry, w h ich together accou n ted for a fifth o f the v a lu e o f U .S . FRB CH IC A G O Working Paper July 1995, WP-1995-9 13 agricultural sa les to the B E M s from 1989 through 1993, the latest year for w h ich in d ivid u al industry data are a vailab le. M e x ic o and South K orea are by far the largest buyers. B ut w h ile exports o f red m eat to the B E M s tended to rise from 1989 to 1992, a sharp drop in 1993 pushed the v a lu e back d ow n to the le v e l o f fiv e years earlier. In com parison, the v a lu e o f U .S . poultry exports m ade brisk gain s—particularly to M e x ic o , C hina, and P olan d —and con tin u ed to clim b ev en as sa les o f red m eat faltered. A host o f other p rocessed products exported to the B E M s m ade o n ly m od est in d ivid u al contributions to total sales, y et together a ccou n ted for 21 p ercent o f the aggregate figure from 1989 through 1993. T he m ost im portant are soyb ean o il, anim al fats and oils, m illed corn products, and m ilk pow der. T hose products ex p erie n c in g the m ost rapid export grow th in clu d e so ft drinks, ice cream and ch e e se , potato ch ip s and snacks, and breakfast fo o d s. O ver the period, the B E M s increased their purchases o f all p rocessed products other than red m eat and poultry by a rem arkable 5 0 percent. In com p arison , p urchases o f red m eat and poultry rose by a m ore m od est 2 0 percent. A m o n g the major bulk com m od ities, sa les o f w heat and cotton to the B E M s w ere g en erally d eclin in g from 1989 through 1993. The drop in w h eat exp orts w as largely attributable to C hina, w h ich reduced its purchases by rou gh ly 75 percent. Furthermore, cotton export sa les ex p erien ced not o n ly an o v erall d ec lin e but a shift aw ay from South K orea and C hina tow ard M e x ic o and B razil. The valu e o f U .S . corn exports to the B E M s also su ffered a seriou s d e c lin e from $ 1 .2 b illio n to $ 2 8 8 m illio n . T his stem m ed m o stly from a steady d e c lin e in sa les to South Korea and M e x ic o . C hina supplanted the U .S . as South Korea's major supplier, but China's recen t sw itch from corn exporter to im porter w ill g iv e the U .S . an opportunity to recapture market share. U .S . sa les o f corn to M e x ic o suffered partly b ecau se o f past M ex ic a n p o lic y that en cou raged d om estic production and erected trade barriers in su latin g M ex ic a n producers from foreign com p etition . B u t reform o f those p o lic ie s and the im p lem en tation o f the North A m erican Free Trade A g reem en t (N A F T A ) h elp ed rev iv e U .S . corn exports to M e x ic o last year. In contrast to w heat, cotton , and corn, the valu e o f soyb ean exports fared m uch better, risin g by o v er one-third. M ost o f it w ent to M e x ic o and South K orea, though sa les to In d on esia also registered strong gains. W hat share o f agricultural exports to the B E M s is produced w ith in S even th D istrict states? T hough data on sta te-lev el exp orts to the B E M s are a v a ila b le, they m ust be interpreted w ith caution for tw o reasons. First, the data are aggregated alon g broad product ca teg o ries rather than in d ivid u al c o m m o d ities. FRB C H IC A G O Working Paper July 1995, W P -1995-9 14 B ut m ore im portantly, exporters m ay assem b le co m m o d ities at a central location (such as a major port) and then report that site as the point o f origin o f sh ip m en ts.10 C on seq u en tly, the data on agricultural exports originating from D istrict states tend to be understated, w h ile those from states w ith major ports are lik e ly inflated. H ow ever, som e insight m ay be gained regarding D istrict agricultural exports to the B E M s by ex a m in in g the trends in these data. From 1987 through 1994, the value o f D istrict agricultural exports to the B E M s tripled, a m uch faster increase than sales to the rest o f the w orld. N early all the gain in D istrict exports to the B E M s stem m ed from crops and p rocessed products rather than forestry products, fish , or liv e anim als. H ow ever, there w as con sid erab le d ifferen ce b etw een the sales pattern o f bulk co m m o d ities and that o f processed products. W h ile the export v alu e o f p rocessed products to the B E M s gen erally gained stead ily from year to year, D istrict crop exports exp erien ced w ide sw in gs. A s an exam p le, C h in a’s d isp lacem en t o f the U .S. as the primary corn supplier to South K orea w as lik ely responsible for the sharp d eclin e in D istrict crop exports to the B E M s in 1991. A closer look at the BEMs It should be clear by now that the B E M s are not a h o m o g en eo u s group. W h ile they have som e sim ilarities, such as in the typ es o f g o o d s they im port, in d ivid u ally they appear to present unique c h a llen g es in terms o f U .S . export prom otion and market strategies. C o lle c tiv e ly they ex h ib it con sid erab le grow th p otential, y e t several o f them already are large exp ort m arkets for U .S . g ood s, and som e are still very m uch in the grow th sta g es o f b eco m in g lead in g w orld markets. F o llo w in g is a c lo ser lo o k at all ten markets. C hin a In 1992, China's im ports11 topped $80.5 b illion , up $ 2 5 .0 b illio n from 1988. China's largest source o f im ports in 1992 w ere H on g Kong w ith 25 percent o f total im ports, Japan w ith 17 percent o f total, and the U .S . w ith 11 percent. C hina is the secon d largest im port market o f the B E M s, led on ly by K orea. China's largest im port industries in 1992 w ere eq uipm ent for sp ecial industries (such as tex tile and leather m achinery, and m achinery related to w ea v in g and felt m anufacturing), tex tile yarns and fabrics, and electrica l m achinery. T ex tile FRB C H ICAG O Working Paper July 1995, WP-1995-9 15 m ach in ery and tex tile y a m s accou n ted for nearly 2 0 p ercen t o f C hina's im ports in 1992. T hese im ports in turn support tw o o f China's m ajor export industries—clo th in g and a ccesso ries, and tex tile y a m and fabrics, w h ich co m b in ed , accou n ted for 3 0 percent o f the country's exports in 1992. U .S . co m m o d ity exports to China grew 166 percent o v er the 1 9 8 7 -9 4 period, w ith transportation equipm ent, n o n electrical m achinery, and ch e m ic a ls the largest export industries to C hina in 1994 (se e figure 3). T hese three industries accou n ted fo r over 6 0 percent o f all U .S . exp orts to C hina that year. A t a m ore d etailed le v e l, the top U .S . export to C hina in 1993 (latest year such data are ava ila b le) w as aircraft, accou n tin g for nearly one-fourth o f all exp orts to C hina that year. M otor v e h ic le s and car b o d ies w as the n ext largest exp ort com m od ity, accou n tin g for over 7 percent o f total exports to C hina. Figure 3 U.S. exports and total imports China, 1987-1994 index, 1987=1 FRB C H IC A G O Working Paper July 1995, W P -1995-9 16 In term s o f catering to China's largest im port n eeds, 13 percent o f U .S . exp orts in 1993 w ere in China's three largest 1992 im port in d u stries.12 In other w ords, China's top three im port industries in 1992 w ere m ach in es for sp ecia l industries, general industrial m achinery, and tex tile yarn and fabrics. U .S . exports to C hina o f these go o d s in 1993 represented 13 percent o f total exports to C hina that year. U .S. exporters have historically found trade w ith C hina d ifficu lt. Several m ethods o f im port restrictions used a re-r e str ic tiv e im port lice n sin g requirem ents, quantitative restrictions, em b argoes on certain con su m er g o o d s, and higher quality standards and testin g for im ports versu s d om estic products. In 1992, the U .S. and C hina sign ed a m em o o f understanding (M O U ) to reduce som e o f these trade barriers. In particular, C hina agreed to p h ase-in low er tariffs on certain good s over tim e, and apply standards and testin g requirem ents eq u ally to both foreign and d om estic g o o d s.13 N o n eth eless, U .S. exports to C hina com prised less than 2 percent o f all exports in 1994. So in M arch o f 1995, the U nited States and C hina m oved toward broader market a ccess for U .S. good s, in particular telecom m u n ication s, insurance, and agriculture, by agreeing to an eig h t point plan to open China's market to U .S. good s. Part o f the agreem ent in clu d es U .S. support o f China's a ccessio n to the n ew ly form ed W orld Trade O rganization. Exports from the S eventh D istrict states to C hina increased 123 p ercent over the 1 9 8 7 -9 4 period. Like the U .S ., C hina w as the D istrict’s third largest export market in 1994 w ith $ 1 .2 b illio n in good s. D istrict exports to C hina w ere the m ost concentrated o f the B E M s. That is, the top three largest export industries (electrical m achinery, non electrical m achinery, and ch em ica ls) accou n ted for 83 percent o f all D istrict exports to C hina that year. In d o n e s ia Indonesia's total im ports in 1992 stood at $27.3 b illio n , w ith Japan, the U .S ., and G erm any accou n tin g for nearly 4 4 percent o f all im ports. T otal im ports in 1992 w ere more than double their 1988 lev el. Indonesia's largest im port industries in 1992 w ere m achinery for sp ecial industries, particularly tex tile and leather m achinery, and m achinery for general industries, such as h eatin g and c o o lin g equipm ent and m ech an ical handling equipm ent (fork lift trucks, and liftin g and loading m ach in es). Indonesia's other major im port industry in 1992 w as petroleum and products. FRB CH IC A G O Working Paper July 1995, WP-1995-9 17 N early one-third o f Indonesia's exports are m ineral fu els, m ain ly crude p etroleum and natural gas. A nother m ajor export industry is te x tile yarn and fabrics, and clo th es and a ccesso ries, w h ich , lik e C hina, tie d irectly to their im ports o f tex tile m achinery. U .S . exp orts to In d on esia en joyed ex cep tio n a l grow th over the 1 9 8 7 -9 4 period w ith a 2 6 6 percent in crease, representing o v er a $ 2 b illio n increase in g o o d s (se e figu re 4 ). In d on esia ranked seco n d in term s o f p ercen tage in crease o f the B E M s. N o n electrica l m achinery, transportation equipm ent, and c h e m ic a ls w ere the largest U .S . export industries to In d on esia in 1994, acco u n tin g fo r 5 8 percent o f all exports that year. Figure 4 U.S. exports and total imports Indonesia, 1987-1994 index, 1987=1 FRB C H IC A G O Working Paper July 1995, W P -1995-9 18 In term s o f m eetin g Indonesia's largest im port need s, 15 percent o f U .S . exports to Indonesia in 1993 w ere in Indonesia's three largest im port industries. U .S . exports o f m achinery for sp ecial industries, in clu d in g tex tile and leather m achinery, totaled $ 1 8 3 m illio n or 7 percent o f U .S. exports to Indonesia that year. G eneral industrial m achinery exports, such as heating and c o o lin g equipm ent, m ech an ical handling equipm ent, and pumps, totaled $ 1 3 4 m illio n or 5 percent o f U .S . exports, and exports o f pow er generating equipm ent totaled $ 1 0 6 m illio n or 4 percent o f U .S . exports. In general, Indonesia d oes not restrict im ports but som e licen sin g requirem ents do ex ist for certain agricultural com m od ities, a lco h o lic beverages, and som e iron and steel p roducts.14 H ow ever, Indonesia participated last year, alo n g w ith 17 o f its A sia n /P a cific R im neighbors, in a declaration to create a free trade zo n e in the area by the year 2 0 2 0 . Y et this did not preclude the U .S . and Indonesia from recently announcing $ 4 0 b illio n in jo in t in vestm en t projects over the next decad e, w ith the bulk o f this sum in v o lv in g a jo in t project b etw een E xxon and Pertamina, the state-ow n ed o il co m p a n y .15 A lso , U .S . exports are anticipated to continue to grow as Indonesia is ex p ected to spend about $ 1 0 0 m illion over the next fiv e years in infrastructure im p rovem en ts.16 D istrict exports to Indonesia increased 425 percent over the 1 9 8 7 -9 4 period, the largest D istrict increase o f the B EM s. M ost industries ex p erien ced spectacular grow th over the period w ith three industries—leather and products, paper and products, and fabricated m etals, having in creases greater than 2 ,0 0 0 percent, I n d ia The U .S ., B elg iu m , and Germ any provided India's top im ports in 1992. T otal im ports that year w ere $ 2 4 .2 b illio n , up 25 percent from 1988. India’s major im port industries in 1992 w ere petroleum and products, nonm etal m inerals (p reciou s and sem i-p reciou s ston es, prim arily rough unset diam onds) and organic ch em ica ls (such as phosphoric acids used in fertilizers). D iam on d s also play a role in India's exports, accou n tin g for 15 percent o f India's exp orts in 1992. T ex tile yarns and fabrics, and cloth in g and accesso ries, w ere also m ajor export com m od ities. U .S . exports to India grew only 57 percent over the 1 9 8 7 -9 4 period, the sm allest increase o f the B E M s for that period (see figure 5). N o n electrica l m achinery, ch em ica ls, and transportation equipm ent w ere the largest export industries to India in 1994. FRB C H ICAG O Working Paper July 1995, WP-1995-9 19 Figure 5 U.S. exports and total imports India, 1987-1994 index, 1987=1 W h ile India is on e o f the sm aller B E M s in term s o f U .S . exports, n o n eth eless, the U .S . is India’s largest trading partner. In 1993, im ports from the U .S . a ccou n ted for 11.5 percent o f India's total im p orts.17 In 1993, on ly 3 percent o f U .S . exports m et India’s largest im port n eed s w ith nonm etal m inerals (such as preciou s and sem i-p recio u s ston es) co m p risin g the largest share w ith 2 percent. A s w ith m ost o f the B E M s, India has on ly recen tly begun m arket lib eralization reform s. M arket a ccess, high tariffs, and nontariff barriers to trade are still a problem . Import lic e n se s are still n ecessary for m ost con su m er durables, certain electro n ics, fruits and v eg eta b les, p rocessed fo o d products, and g o o d s required for sm a ll-sca le industry.18 H o w ev er, d esp ite these trade-related problem s, U .S . in vestm en t in India is large and grow in g sin ce India lo o sen ed restrictions on in vestm en t in 1 991. In 1993, approvals for in vestm en t in India by U .S . firm s totaled $ 1 .2 b illio n , or FRB C H IC A G O Working Paper July 1995, W P -1995-9 20 approxim ately 4 0 percent o f all approvals for n ew in vestm en t that year. In early 1995, a trade d elegation from the U .S . sign ed approxim ately $ 4 b illio n in trade and in vestm en t d eals w ith Indian bu sin ess leaders w ith p o ten tially an additional $ 1 2 b illion under n egotiation . The $4 b illio n included industries such as petroch em icals, transportation.19 p ow er generation, telecom m u n ication s, and Like the U .S ., D istrict exports to India in 1993 ex p erien ced slo w grow th over the 1 9 8 7 -9 4 period w ith o n ly a 5 4 percent increase. N o n electrica l m achinery, ch em ica ls, and food and kindred products w ere the largest D istrict export industries to India in 1994. O f the B E M s, India w as the on ly country to h ave food and kindred products w ithin the top three D istrict export industries, and this is d esp ite India's import licen sin g requirem ents on processed food s. A rg e n tin a A rgentina's im ports nearly tripled over the 1 9 8 8 -9 2 period to $ 1 4 .9 b illio n in 1992. A rgentina w as the sm allest o f the B EM im port markets in 1992. T he U .S. and B razil were A rgentina's largest source o f im ports in 1992 w ith o v er 20 percent market share each, fo llo w e d by G erm any w ith a 7 percent share. Road v e h ic le s, telecom m u n ication equipm ent, and electrica l m achinery w ere A rgentina's major import industries in 1992. E lectrical m achinery im ports varied from consum er-type item s such as laundry m ach in es, to electrica l com p on en ts such as sw itchgears. A rgentina's exports are prim arily agricultural related. T heir top export com m od ity in 1992 w as food and liv e anim als, fo llo w e d by feed in g stu ff for anim als (so y a beans, lin seed , and su n flow er seed s) and cerea ls and preparations. C om bined, these three com m od ity groups accou n ted for 7 0 percent o f A rgentina's exports in 1992. O ver the 1 9 8 7 -9 4 period, A rgentina w as the largest grow th market o f the B E M s for U .S . exports w ith a 3 1 0 percent increase (see figure 6). A ll m anufacturing industries had p o sitiv e grow th, and in m ost ca ses, sig n ifica n t grow th (all m anufacturing industries m in im ally d ou b led their exp orts to A rgentina o v er the period, w h ile others, lik e furniture and fixtu res and leather and leather products, had increases greater than 3 ,0 0 0 percent). N o n electrica l m achinery, electrical m achinery, and ch em ica ls w ere the largest U .S . export industries to A rgentina in 1994, accou n tin g for 63 percent o f all U .S . exports to A rgentina that year. FRB CH IC A G O Working Paper July 1995, WP-1995-9 21 Figure 6 U.S. exports and total imports Argentina, 1987-1994 index, 1987=1 O ver 21 percent o f U .S. exports to A rgentina in 1993 w ere in A rgentina's largest im port industries. E lectrical m achinery exp orts w ere $ 2 8 9 m illio n or 8 percen t o f total U .S . exports, road v e h ic le s w ere $ 2 3 4 m illio n or 6 percent, and teleco m m u n ica tio n s equipm ent w ere $ 2 7 3 m illio n or 7 percent. In recen t years, A rgentina has taken steps to rem ove im port barriers in clu d in g tariff red u ction s (average tariffs have been reduced from 29 percent in 1990 to le ss than 10 percent currently) and the ab olish m en t o f its im port lic e n sin g sy stem in 1 9 8 9 .20 A rgen tin a is a m em ber o f M E R C O SU L , a com m on m arket agreem ent b etw een A rgen tin a, B razil, U ruguay, and Paraguay, that w as sch ed u led to g o into e ffe c t on January 1, 1995 to create a cu stom s union (an agreem ent that a llo w s free flo w o f capital, go o d s, flo w , and services; com m on external tariffs; co m m o n foreign p o licy ; and the coordination o f m acroecon om ic and sectoral p o lic ie s) b etw een the four cou n tries.21 D ep en d in g on the typ es o f g o o d s these four cou n tries produce, U .S . exports to A rgentina cou ld be hindered. FRB C H IC A G O Working Paper July 1995, W P -1995-9 B razil is 22 already A rgentina's largest importer, capturing 2 2 percent o f A rgentina's im port market in 1992. D istrict export grow th to A rgentina over the 1 9 8 7 -9 4 period w as sim ilar to U .S . grow th. Top D istrict export industries to A rgentina in 1994 w ere n on electrical m achinery, electrical m achinery, and ch em ica ls, a ccou n tin g for nearly 7 0 percent o f all exports to A rgentina that year. L ike total U .S ., nearly all D istrict industries exp erienced large and p o sitiv e export grow th to A rgentina o v er this period. In particular, m ined quarry m inerals (su ch as sand and c la y ) increased nearly 4 ,4 0 0 percent and m easuring instrum ents increased nearly 1,800 percent. B ra zil B ra zil’s im port growth has slo w ed over the last tw o years, stallin g at around $23 b illio n sin ce 1990, for an overall grow th o f 4 4 percent over the 1 9 8 8 -9 2 period. T he U .S. provided the largest share o f Brazil's im ports w ith 23 percent in 1992. Germ any and A rgentina w ere the next largest sou rces o f im ports. Petroleum and products, electrical m achinery, and organic c h em ica ls w ere B razil's largest import industries in 1992. B a sic m anufactures, such as iron and steel, and m achinery and transportation equipm ent, such as road v eh icles, are B razil's largest export industries. F ood and liv e anim als is also a major export industry. U .S . exports to B razil increased 101 percent over the 19 8 7 -9 4 period (se e figure 7). N on electrical m achinery, ch em ica ls, and elec trica l m achinery w ere the largest export industries to B razil in 1994. In term s o f m eetin g B razil's im port n eeds, 15 percent o f U .S . exp orts to B ra zil in 1993 w ere in the country’s three largest im port industries—organic c h em ica ls w ith $ 4 8 7 m illio n or 8 percent o f total exports, e le c trica l m achinery w ith $ 4 0 5 m illio n or 7 percent, and cereals and preparations w ith $35 m illio n or .6 percent. U ntil 1990, Brazil's trade p o licy in regard to im ports w as h igh ly restrictive. O ver the 1 9 8 0 -9 2 period, annual im port grow th w as nil, and im port tariffs averaged 78 percent.22 H ow ever, eco n o m ic reform s that began in 1989 have h elp ed both im port and export grow th. In 1993, im ports increased by over $5 b illio n or 25 percent over the prior year. A verage tariffs have b een reduced to 14 percent.23 FRB C H IC A G O Working Paper July 1995, W P -1995-9 23 Figure 7 U.S. exports and total imports Brazil, 1987-1994 index, 1987=1 A cco rd in g to various new spaper reports, several key m arket opportunities ex ist for U .S . com p an ies, particularly in the com puter and te x tile m anufacturing industries. W ith a p opulation o f 155 m illio n , B razil's com p u ter m arket is ex p e c te d to quadruple from 2.5 m illio n in 1994 to 10 m illio n by the end o f the d eca d e.24 T e x tile m anufacturing has already b eco m e a b oom industry in B razil w ith 45 n ew tex tile and clo th in g c o m p a n ies e x p ected to o p en in the c ity o f F orteleza a lo n e .25 U .S . exports o f cotton h ave already in creased dram atically, from $5 m illio n in 1989 to $ 85 m illio n in 1993. In addition, n ew m anufacturing fa c ilitie s w ill require n ew eq uipm ent thereby creating opportunities for U .S . tex tile equipm ent m anufacturers. D istrict exp orts to B razil increased 2 4 9 percent over the 1 9 8 7 -9 4 period, m ore than tw ic e the U .S . p ercen tage increase. T he top three D istrict export industries to B razil in 1994 w ere n on electrical m achinery, transportation eq uipm ent, and c h em ica ls. T hese three industries accou n ted for 6 8 p ercent o f all D istrict exports to B razil that year. FRB C H IC A G O Working Paper July 1995 ,W P -1995-9 24 M exico M ex ico 's im ports grew 122 percent over the 1 9 8 8 -9 2 period. The U .S. provided the bulk o f those im ports w ith 63 percent o f total im ports in 1992. Japan and G erm any are M exico's next largest source o f im ports, w ith 6 and 5 percent resp ectiv ely . Road v e h ic le s and m achinery (in clu d in g electrica l, general industrial, and m achines for sp ecia l industries) are M exico's largest im port com m od ities. M achinery im ports co v er a broad spectrum in clu d in g teleco m m u n ica tio n s equipm ent, m etal w orking m achinery, tex tile and leather m achinery, and c iv il en gin eerin g equipm ent (such as sh o v els and e x ca v a tin g equipm ent). M exico's largest export co m m o d ities are crude petroleum and road v e h ic le s, accou n tin g for 4 4 o f total exports. In 1993, 19 percent o f U .S. exports w ere in M ex ico 's three largest im port industries—road v e h ic le s (m ainly auto parts), general industrial m achinery, and m achines for sp ecial industries. M exico's clo se proxim ity to the U .S . in con ju n ction w ith recent market liberalizations in M e x ic o and the free trade agreem ent b etw een M ex ic o , the U .S ., and Canada, negotiated in 1993 have h elped m ake the M exican market more a ccessib le than just a d ecad e ago. M e x ic o is the largest U .S. export market o f the B E M s, accou n tin g for nearly h a lf o f the B EM exports in 1994. U .S. exports to M ex ic o increased 2 4 7 percent over the 1 9 8 7-94, the third largest percentage increase o f the B E M s (see figure 8). The U .S. is M e x ic o ’s largest trading partner w ith 65 percent o f all im ports co m in g from the U .S. and approxim ately 80 percent o f all exports g o in g to the U .S. M achinery, both electrical and n o n electrical, and transportation equipm ent w ere the largest U .S. export industries to M e x ic o in 1994. N early h a lf o f all U .S. exports to M e x ic o are in these three industries. E co n o m ic reform began in M e x ic o in 1986 w hen they b ecam e m em bers o f the G eneral A g reem en t on T ariffs and Trade (G A T T ). S in ce then, the country has m ade sig n ifica n t strides in op en in g its eco n o m y by low erin g tariffs, w h ich in som e ca se s w ere as high as 100 percent, privatizing m ay o f its state-ow n ed industries, and reducing barriers to foreign investm ent. B etw een 1986 and 1992, M ex ica n im ports rose an average o f 25 percent per year. FRB CH IC A G O Working Paper July 1995, WP-1995-9 25 Figure8 U.S. exports and total imports Mexico, 1987-1994 index, 1987=1 D istrict exports to M e x ic o increased 143 percent over the 1 9 8 7 -9 4 period. T he top three export industries o f the D istrict w ere the sam e as the U .S —n o n electrical m achinery, transportation equipm ent, and e lec trica l m achinery. D istrict exports o f transportation equipm ent (m ain ly m otor v e h ic le parts) accou n ted for 14 percent o f all U .S . exports o f m otor v e h ic le parts to M e x ic o in 1994. P o la n d Poland's im port le v e ls have been erratic over the 1 9 8 8 -9 2 period. In 1988, im ports stood at $13 b illio n , dropped to $8 b illio n in 1990, and rose to nearly $ 1 6 b illio n in 1992. Poland's im port partners are the m ost lo c a liz e d o f the B E M s. That is, m any o f its major im port partners are from the sam e region o f the w orld—G erm any, R ussia, A ustria, and C zech o slo v a k ia . G erm any is Poland's largest im porter, capturing 2 4 percent o f the im port m arket in 1992. P etroleu m and petroleum products, general industrial m achinery, and m ach in es FRB C H IC A G O Working Paper July 1995, W P -1995-9 26 for sp ecia l industries (such as industrial fo o d p rocessin g and tex tile and leather m achinery), w ere Poland's largest im port industries in 1992. Poland's export grow th has been extrem ely slo w over the 1 9 8 9 -1 9 9 2 period, and actu ally d eclin ed 2 percent from the b egin n in g to the end o f the period. C oal, co k e and briquettes, iron and steel, and nonferrous m etals such as silver, copper, and alum inum , w ere P oland’s largest export co m m o d ities in 1992. In 1994, U .S . exports to Poland stood at $ 6 2 5 m illio n , the sm allest exp ort market o f the B E M s. In terms o f grow th, U .S. exports grew 162 percent o v er the 1 9 8 7 -9 4 period, w ith nonelectrical m achinery, transportation eq u ip m en t, and electrica l m achinery the largest export industries in 1994 (see figure 9). Figure 9 U.S. exports and total imports Poland, 1987-1994 index, 1987=1 FRB CH IC A G O Working Paper July 1995, W P-1995-9 27 In term s o f m eetin g Poland's largest im port n eed s, 16 p ercent o f U .S . exp orts in 1993 w ere in Poland's top three im port industries. M a ch in es for sp ecia l industries exports accou n ted for $ 9 7 m illio n or 11 percent, w h ile general industrial m achinery exports and m iscella n eo u s m anufactured g o o d s each accou n ted for $23 m illio n or 3 percent o f total exports. Poland's overall trade p o licy has no restrictions on trade, e x c e p t in a fe w sen sitiv e areas. H o w ev er their trade p o lic y has ch an ged several tim es in the 1 9 9 0 s alon e in reaction to d om estic pressures from con su m ers w ith pent up dem and on the on e hand, and farmers and m anufacturers w an tin g protection from foreign com p etition on the other hand.26 U .S . exporters are hindered by Poland's c lo se ties to the E uropean C om m u n ity w h ich in clu d es a tariff preference arrangem ent. A lso , standards for testin g, la b elin g , and certification for U .S . g o o d s are stricter than eq u iv a len t regu lation s in W estern countries.27 H ow ever, som e r e lie f is ex p e c te d by Poland's u p com in g re-a ccessio n to G A T T .28 D istrict exp orts to Poland increased 2 05 percent o v er the 1 9 8 7 -9 4 period w ith n on electrical m achinery, electrica l m achinery, and ch em ica ls the largest exp ort industries. Poland is the sm allest B EM market for D istrict exp orts and the least concentrated o f the B EM s. That is, the top three D istrict exp ort industries in 1994 accou n ted for on ly 53 o f total D istrict exports (com pared to 80 percent for C hina). T u rkey Turkey's im ports stood at nearly $ 23 b illio n in 1992, up 6 0 p ercen t from 1988. G erm any, the U .S ., and Italy w ere Turkey's largest source o f im ports in 1 992, capturing over one-third o f the im port market. Turkey's largest im port co m m o d ities in 1992 w ere petroleum and products, m ach in es for sp ecia l industries, and electrica l m achinery. Turkey's largest export c o m m o d ities in 1992 w ere clo th in g and a c cesso ries and te x tile yarn and fabrics, a cco u n tin g for nearly 4 0 percent o f all exports. V e g e ta b le s and fruits, and iron and ste e l, w ere Turkey's next largest export co m m o d ities. U .S . exports to Turkey increased 86 percent over the 1 9 8 7 -9 4 period (se e figu re 10). T he top three export industries in 1994 w ere transportation equ ip m en t, m easuring instrum ents, and n on electrica l m achinery. T ransportation equipm ent, m ainly aircraft and aircraft parts, accou n ted for 38 p ercen t o f all U .S . exports to Turkey in 1994. FRB C H IC A G O Working Paper July 1995, W P -1995-9 28 Figure i0 U.S. exports and total imports Turkey, 1987-1994 index, 1987=1 O nly 8 percent o f U .S. exports to Turkey cater to Turkey's largest im port industries. Exports o f m achines for sp ecial industries in 1994 w ere $ 95 m illio n or 3 percent o f total exports, electrica l m achinery exports w ere $ 8 6 m illio n or 3 percent, and general industrial m achinery exports w ere $ 7 4 m illion or 2 percent. Turkey has undergone substantial eco n o m ic ch an ge over the last 10 years in clu d in g structural reform , trade liberalization, and p rivatization o f stateow n ed enterprises. O nly a few item s still require im port lic e n se s, but im port surcharges and fee s are used to protect d om estic industries.29 L ike w ith Poland, U .S . exporters m ay be hindered w hen Turkey enters into an a sso cia tio n agreem ent w ith the EU in 1996, thereby granting m ore favorab le trade term s to its European partners than to the non-E U com m unity. FRB CH IC A G O Working Paper July 1995, WP-1995-9 29 D istrict exp orts to T urkey increased 35 percent o v er the 1 9 8 7 -9 4 , the sm a llest p ercen tage increase o f the B E M s for that period. T ransportation eq uipm ent, n on electrica l m achinery, and electrica l m achinery w ere the largest D istrict exp ort industries to Turkey in 1994. S o u th K o r e a K orea's30 im ports in 1992 stood at $81 b illio n , m aking it the largest im port m arket o f the B E M s. H ow ever, K orea exp erien ced alm ost no grow th in im ports b etw een 1991 and 1992. Japan and the U .S . are K orea’s largest source o f im ports, capturing a com b in ed 4 7 percent o f Korea's im port m arket in 1992. Petroleum and products, elec trica l m achinery, and gen eral industrial m achinery w ere Korea's largest im port industries in 1992. E lectrical m achinery (in clu d in g electro n ic m icrocircu its), tex tile yarn and fabrics, and clo th in g and accesso ries, w ere Korea's largest export co m m o d ities in 1992. U .S . exports to South Korea increased 123 percent over the 1 9 8 7 -9 4 period w ith all industries e x c e p t agricultural crops increasing over the period (see figure 11). The m achinery industries, both electrica l and n o n electrica l, had in creases o f over $2 b illio n each over the period, w ith transportation eq uipm ent also h avin g a large increase ($ 1 .5 b illio n ). A t a m ore d eta iled le v e l, the top U .S . exports to South K orea in 1993 w ere sem icon d u ctors and aircraft, accou n tin g for o v er 15 percent o f all U .S . exp orts to South K orea that year. In 1993, 21 percent o f U .S . exports to South Korea w ere in South Korea's three largest im port industries. E lectrical m achinery exports, m ain ly transistors and v a lv es, a ccou n ted for the largest share w ith $ 1 .2 b illio n or 12 percen t o f total exports, and general industrial m achinery exports (h eatin g and c o o lin g equipm ent, pum ps, etc.) accou n ted for $ 6 7 7 m illio n or 5 percent. E xports o f m ach in es for sp ecia l industries accou n ted for $ 5 9 5 m illio n or 4 percent o f total exports that year. A s m en tion ed , South K orea is the largest o f the B E M s in term s o f im ports, y e t im port restrictions are still com m on im p ed im en ts to d oin g b u sin ess w ith South K orea. P o lic ie s to reduce barriers have resulted in le ss form al barriers y e t still in clu d e high tariffs, particularly on agricultural products, and em erg en cy tariffs and adjustm ent tariffs.31 A nother major barrier is a restriction to im port on credit. U .S . exporters estim a te they co u ld increase exports to Sou th K orea by nearly a third if this restriction w ere not in p la c e .32 FRB C H IC A G O Working Paper July 1995, W P -1995-9 30 Figure 11 U.S. exports and total imports Korea, 1987-1994 index, 1987=1 D istrict exports to South Korea increased 174 percent over the 1 9 8 7 -9 4 , w ith n o n electrical m achinery, electrica l m achinery, and transportation equipm ent the largest D istrict export industries to South Korea in 1994. South K orea is the secon d largest market for D istrict good s o f the B E M s. S o u th A f r ic a In 1992, im ports to South A frica 33 stood at nearly $ 1 8 .5 b illion . G erm any, the U .S ., and Japan w ere South A frica's largest source o f im ports that year, capturing ju st over 4 0 percent o f the im port market. South A frica's largest im port industries in 1992 w ere road v eh icles, general industrial m achinery (particularly heating and c o o lin g related m achinery and parts), and electrica l m achinery. South A frica's 1992 exports co n sisted o f rough unsorted d iam onds, iron and steel, and co a l, lign ite, and peat. FRB CH IC A G O Working Paper July 1995, W P -1995-9 31 O ver the 1 9 8 7 -9 4 period, U .S . exports to South A frica grew 7 0 p ercent, the se co n d sm allest p ercen tage increase o f the B E M s. N o n electrica l m achinery, c h em ica ls, and elec trica l m achinery w ere the largest export industries to South A frica in 1994 (see figure 12). Figure 12 U.S. exports and total imports South Africa, 1987-1994 index, 1987=1 In term s o f m eetin g South A frica's im port need s, 13 percent o f U .S . exp orts in 1993 w ere in South A frica's three largest im port industries. G eneral industrial m achinery exports w ere $ 1 2 6 m illio n or 6 percent o f total exp orts in 1993, elec trica l m achinery exp orts w ere $ 1 0 5 m illio n or 5 percent, and road v e h ic le exports w ere $ 55 m illio n or 3 percent. FRB C H IC A G O Working Paper July 1995, W P -1995-9 32 South A frica, for the m ost part, still operates under a restrictive im port regim e. The country uses im port perm its, im port surcharges, as w e ll as tariffs to restrict co m p etitiv e im ports.34 In 1993, the U .S . captured 13 percent o f South A frica's im port market w ith g o o d s such as aircraft, data p ro cessin g m ach in es, and lo w valu e good s. The U.S.' sm all grow th over the 1 9 8 7 -9 4 period can be attributed to several factors in clu d in g South A frica's dism al eco n o m ic perform ance during the 1990s w hich in clu d ed alm ost zero im port grow th, and the a b sen ce o f m any U .S. firm s from the South A frican market during the last d ecad e b ecau se o f apartheid concerns. D istrict exports to South A frica increased 87 percent over the 1 9 8 7 -9 4 period w ith n o n e le c t r ^ l m achinery, electrical m achinery, and ch em ica ls the largest D istrict export industries in 1994. T hese three industries a ccou n ted for 6 4 percent o f all D istrict exports to South A frica in 1992. U.S. export promotion initiatives: Advocacy and assistance V arious governm ent a g en cies provide export assistan ce to U .S. firm s in search o f foreign sales. To date, these efforts have tended to be fragm ented and co n fu sin g to users. For exam p le, certain programs are a vailab le on ly to sm all b u sin esses or new b u sin esses but not to large or estab lish ed on es, and v ic e versa; other program s are availab le on ly to sp ecific industries or for purposes o f jo b creation. To address this problem , the U .S . D epartm ent o f C om m erce op en ed exp ort assistan ce cen ters in 1994 in C h icago, B altim ore, L o s A n g e le s, and M iam i. T hese are "one-stop shops" that provide exporters and p oten tial exporters w ith inform ation to help them enter n ew m arkets or build on ex istin g on es. For exam p le, the centers provide trade leads, inform ation on overseas-related trade sh ow s, and inform ation on major project and procurem ent opportunities abroad. In addition, they offer inform ation and a ssistan ce on the various trade fin a n ce programs a vailab le at the fed eral le v e l, help exporters determ ine the right program for them , assist w ith paperw ork, and provide on g o in g support. N early a d ozen more such centers are sch ed u led to op en in 1995. A nother recent effort by C om m erce w as to open an in-house inform ation center and clearinghouse for a d vocacy requests.35 T hese a d v o ca cy efforts represent a coordinated interagency in itiative by the federal govern m en t to h elp A m erican firm s com p ete and w in major contracts such as infrastructure projects w ith B EM governm ents or jo in t ventures w ith B E M firm s. FRB C H IC A G O Working Paper July 1995, W P -1995-9 The 33 cen ter m aintains inform ation on m ajor p rojects and procurem ent op p ortu n ities w o rld w id e and tracks a d v o ca cy requests.36 Export prom otion efforts at the state le v e l are sim ilar to fed eral efforts but provid e m ore o n e-o n -o n e support and are geared m ore tow ard h elp in g sm all and m ed iu m -sized b u sin esses. M ost states also have o v ersea s trade o ffic e s in k ey m arkets to help facilitate the p rocess at the other end, as w e ll as to gen erate n ew trade leads, host trade sh ow s, and prom ote their states' exports. T ab le 4 lists the o v ersea s o ffic e s o f the S ev en th D istrict states. N o te that m ost o f the states have at least tw o o ffic e s in the B E M s. T he U S D A also operates several agricultural exp ort prom otion program s. T he tw o largest and best-k n ow n are the Export E nhancem ent Program (EEP) and an export credit guarantee program. The EEP offers "bonus" p aym en ts to U .S . exporters that enab le them to m eet the su b sid ized prices o ffered by other nations, particularly the European U nion. H ow ever, o v e r tim e , im p lem en tation o f G A T T w ill reduce the am ount o f direct su b sid ies that m em ber nations m ay use to prom ote agricultural exports. T he export credit guarantee program p rovid es federal guarantees to private lenders in v o lv ed in fin a n cin g p urchases o f U .S. agricultural co m m o d ities from abroad. U n lik e the EEP, there is no sp e c ific outlay u n less a borrower d efau lts and the lender incurs a lo ss. M oreover, this program is not a ffected by G A TT. F in ally, the U S D A also operates separate program s to support exports o f soyb ean o il, co tto n seed o il, and dairy products, and to prom ote the sale o f p rocessed products in general. Table 4 Seventh District overseas trade offices, 1994 Illinois Indiana Iowa Belgium Hong Kong Hungary Japan Mexico Poland Canada* China Japan Mexico Netherlands South Korea Taiwan Germany Japan Michigan Belgium Canada Hong Kong Japan Mexico South Africa Wisconsin Canada* Germany Hong Kong Japan Mexico South Korea Indiana, Wisconsin, and Pennsylvania share a Canadian trade office in Toronto. FRB C H IC A G O Working Paper July 1995, W P -1995-9 34 Summary T his article exam in ed the recent U .S. ex p erien ce in export sa les to the ten nations id en tified by the D epartm ent o f C om m erce as potential grow th markets. S p e c ific a lly , w e a ssessed the current siz e and grow th p oten tial o f the ten B E M s as export markets, and w e put the current U .S . p resence in these m arkets into p ersp ective. W e also exam in ed the role played by S ev en th D istrict firm s in supplying these markets. A separate d iscu ssio n o f U .S . agricultural exports to the B E M s w as included b ecau se o f agriculture’s im portant contribution to the U .S . trade b alance and b ecau se o f the large share o f U .S . agricultural production held by S eventh D istrict states. The ten B E M s clearly represent an im portant outlet for m any typ es o f U .S . products. R e c o g n izin g this, U .S. exporters have already m ade inroads into these markets. U .S. export sales to the B E M s have posted sig n ifica n t gain s in recen t years, accou n tin g for an ever-larger share o f total U .S. exports. M ost industries have increased their sales to the B E M s, though they h ave not shared eq u ally in the overall gain. Furthermore, the rise in U .S . exports to the B E M s has gen erally outpaced the increase in exports to the rest o f the w orld. In addition, the U .S . share o f B E M im ports in d icates that A m erican exp orters are h old in g their ow n against tough com petitors from nations such as Japan and G erm any. T his is true despite the fact that the U .S. is the leading supplier to on ly three o f the B EM s. In 1994, o f all U .S. industries, the n o n electrical, electrica l, and transportation equipm ent industries registered the largest sales to the B E M s. T hese industries also accounted for h a lf o f the export sa les gain to the B E M s from 1987 through 1994. H ow ever, several other industries ex p erie n c ed ev en m ore rapid grow th over this period. T his underscores tw o im portant points. First, the U .S . is responding to the BEM s' current requirem ents, w h ich are characteristic o f d ev elo p in g nations. A s the eco n o m ie s o f these nations grow and e v o lv e , their n eeds and w ants w ill ch an ge. The ch a lle n g e to U .S . industry is to anticipate and respond to these potential shifts in dem and. T o a large exten t, this w ill determ ine w hether w e can m aintain or increase current le v e ls o f export sa les to the B E M s. S econ d , the rapid grow th o f these m arkets h old s prom ise for sm aller firm s, as a greater number o f opportunities are availab le in rapidly exp an d in g m arkets.37 FRB C H IC A G O Working Paper July 1995, W P -1995-9 35 E xports from the S even th D istrict states to the B E M s also rose m ore q u ick ly than to the rest o f the w orld from 1987 through 1994. H o w ev er, the grow th o f S ev en th D istrict exports tended to lag that o f the U .S . in general. W h ile M e x ic o , South K orea, and C hina w ere the major cu stom ers for S even th D istrict products, sa les to Indonesia, A rgentina, and B razil ex p erie n c ed the fastest grow th. Furthermore, p rocessed fo o d products m oved into the top fiv e D istrict industries in term s o f export sa les to the B E M s, reflectin g rising in co m es and the grow in g dem and for U .S . agricultural products in these nations. A m o n g the industries exporting agricultural products to the B E M s, p rocessed products sh ow ed the steadiest grow th in recent years and se e m better p o sitio n ed to a ch iev e future gains than bulk agricultural c o m m o d ities. T his is true because the factors driving foreign dem and for p rocessed products are m ore lastin g than the year-to-year production and price variation s that tend to exert a rela tiv ely greater in flu en ce over im ports o f bulk co m m o d ities. In c o n clu sio n , it is clear that there are m any opportunities for U .S . exporters in the em ergin g m arkets. W hile several industries have m ade substantial inroads into these m arkets, con sid erab le potential for future grow th appears to lie in other industries as w ell. Firms that are con sid erin g en terin g these m arkets m ay receiv e further inform ation by con tactin g a U .S. export assista n ce center. FRB C H IC A G O Working Paper July 1995, W P -1995-9 36 Footnotes ‘U.S. Department o f Commerce (1994a). 2"The big emerging markets" (1994). 3Ibid. 4Ibid. 5Coughlin and Cartwright (1987) found evidence that state export promotion expenditures support manufacturing export levels. 6Capehart (1994) and Carter (1994). 7U.S. Department o f Agriculture (1994). *Greene (1994). 9Tse (1993). 10Coughlin and Mandelbaum (1991). “This section uses United Nation's data as the source o f China's imports and excludes the province o f Taiwan. “ Due to different data sources, 1993 U.S. exports are compared to 1992 BEM imports. Also, for BEMs where petroleum and products was one o f their top three imports in 1992, the U.S. export comparison excludes this industry because BEM imports in this category are primarily crude petroleum and U.S. exports to the BEMs in this category tend to be petroleum products. 13U.S. Department o f State (1994b). ,4U.S. Department o f State (1994d). 15Sciolino (1994). 16Ibid. “ "India: Reforms spawn superb business opportunities" (1995). 18U.S. Department of State (1994c). “ Bums (1995). 20U.S. Department of State (1994a). “ C o n fed era te Nacional da Industria (1994). 22Brooke (1994b). “ Ibid. 24Brooke (1994c). “ Brooke (1994a). FRB C H IC A G O Working Paper July 1995, W P-1995-9 37 “ U-S. Department o f State (1994e). 27Ibid. 28Ibid. 29U.S. Department o f State (1994f). 30This section United Nation's import data which reports import data for the Republic o f Korea (versus North and South Korea). However, U.S. export data include only South Korea (U.S. trade with North Korea is minimal). 31U.S. Department o f State (1994h). 32Ibid. 33The United Nations import data represent the customs union o f South Africa which includes Botswana, Lesotho, Namibia, South Africa, and Swaziland. U.S. exports are for South Africa only. 34Department o f State (1994g). 35Department o f Commerce (1994a). 3fiDepartment o f Commerce (1993). 37Lyon (1995). FRB CH1CA G O Working Paper July 1995, W P -1995-9 38 References "The b ig em ergin g markets," Business America, M arch 1994, pp. 4 -6 . B rook e, Jam es, "Denim and jea n s pour out o f northeastern Brazil," Times,A pril 7, 1994a, sec. D , p. 7. New York _______________, "U.S. business flo ck in g to B razilian ventures," Times, M ay 9, 1994b, sec. D , p. 1. New York _______________, "Brazil luring com puter com panies," 6, 1 994c, sec. 1, p. 33. New York Times, A u gu st B u m s, John F., "U.S. ends a $4 b illion v isit to India," January 18, 1995, sec. D, p. 3. New York Times, Cape hart, Tom , "Exports as a share o f agricultural production," 1994, pp. 2 0 -2 2 . A gricultural Outlook, A ugust Carter, Ernest, "Agriculture's trade balance retains secon d p lace am ong e le v e n major U .S . industries in 1993," Agricultural Trade Highlights, A pril 1994, pp. 5 -6 . C onfederagao N a cion al da Industria (B rasil), D e p a r tm e n t de C om ercio E xterior e In vestim en tos, Doing Business with Brazil, 1994. C oughlin, C letus C., and P h illip A . Cartwright, "An exam ination of~SEa*te foreign export prom otion and m anufacturing exports," Journal of Regional Science, A ugust 1987, pp. 4 3 9 -4 4 9 . C oughlin, C letus C., and Thom as B. M andelbaum , "Measuring state exports: Is there a better way?" Economic Review, Federal R eserve Bank o f St. Louis, July/A ugust 1991, pp. 65 -7 9 . G reene, Joel, "H igh-value food products b oost S ep tem ber-D ecem ber 1994, pp. 18-22. agricultural exports," FoodReview, "India: R eform s spaw n superb b u sin ess opportunities," Business America, January 1995, pp. 11-14. L yon, Carmi, "Target marketing consum er food products," Products, A gricultural Trade M ay 1995, pp. 7-9. M assach u setts Institute fo r S o cia l and E conom ic R esearch, "Exports from all states to all countries by 2 d ig it SIC, 1987," diskette, 1992. FRB C H ICAG O Working Paper July 1995, WP-1995-9 _______________, "Exports from all states to all countries by 2 d ig it SIC , 1994," d isk ette, 1995. S c io lin o , E laine, "Clinton is stern w ith Indonesia on rights but g le e fu l on trade," New York Times,N ovem b er 17, 1994, sec. A , p. 1. T se, R obert, "Grain and m eal shipm ents in the form o f m eat are on the rise," 1993, pp. 6-7. Agricultural Trade Highlights,Septem ber U n ited N ation s, D epartm ent o f E con om ic and S o cia l D ev elo p m en t, N e w Y ork, 1993. 1992 International Trade Statistics Yearbook, U .S . D epartm ent o f A griculture, 1994. Foreign Agricultural Trade of the United States, M arch/A pril U .S. D epartm ent of C om m erce, International Trade Implementation of the National Export Strategy, D ecem b er U .S . D epartm ent o f C om m erce, A dm inistration, 1993. Competing to Win in a Global Economy, Septem ber 1994a. ______________ , Bureau o f C ensus, 1989-1993, U.S. Exports History: Historical Summary, C D -R O M , July 1994b. U .S . D epartm ent o f State, Argentina: Economic Policy and Trade Practices, Country R eports on E con om ic P o licy and Trade Practices, C D -R O M , 1994a. _______________, China: Economic Policy and Trade Practices, Country R eports on E con om ic P o licy and Trade P ractices, C D -R O M , 1994b. ______________ , India: Economic Policy and Trade Practices, Country R eports on E con om ic P o licy and Trade P ractices, C D -R O M , 1994c. ______________ , Indonesia: Economic Policy and Trade Practices, C ountry R eports on E conom ic P o licy and Trade Practices, C D -R O M , 1994d. ______________ , Poland:Economic Policy and Trade Practices, C ountry R eports on E conom ic P olicy and Trade P ractices, C D -R O M , 1994e. ______________ , Turkey: Economic Policy and Trade Practices, Country R eports on E conom ic P o licy and Trade P ractices, C D -R O M , 1994f. ______________ , South Africa: Economic Policy and Trade Practices, Country R eports on E con om ic P o licy and Trade P ractices, C D -R O M , 1994g. ______________ , South Korea: Economic Policy and Trade Practices, R eports on E con om ic P o licy and Trade Practices, C D -R O M , FRB CHICAGO Working Paper Ju\y 1995, WP-1995-9 Country 1994h. 40 Appendix Figure 1 Top U.S. exports to all BEMs combined, 1993 Note: SITC commodities imported from all countries, measured by U.S. dollar value. Source: United Nations (1993). FRB CH IC A G O Working Paper July 1995, W P-1995-9 Appendix Top U.S. exports to the BEMS, 1993 A r g e n t in a B r a z il C h in a 19 9 3 P e rce n t 19 9 3 e x p o rts of e x p o rts of ( m il l i o n s ) to ta l ( m il l i o n s ) to ta l $ 3 ,7 7 5 .7 S I C C o m m o d it y T o ta l $ 4 1 ,5 8 1 .1 S I C C o m m o d it y T o ta l 3 4 9 .7 9 .3 % A u t o m a t e d d a t a p r o c e s s in g m a c h i n e s 4 ,18 8 .4 1 0 .1 % 1 6 0 .2 4 .2 % A irc ra ft 1 ,5 3 8 .1 3 .7 % L o w v a lu e g o o d s 12 9 .2 3 .4 % L o w v a lu e g o o d s 9 9 6 .4 2 .4 % A u t o m a t e d d a t a p r o c e s s in g m a c h i n e s 1 2 6 .2 3 .3 % In d u s t r ia l o r g a n ic c h e m ic a l s , N E C 9 16 .5 2 .2 % E l e c e q u ip m e n t • in t e r n a l c o m b , e n g i n e s 11 3 .0 3 .0 % M o to r v e h ic le s & c a r b o d ie s 9 0 6 .3 2 .2 % E le c t r o n ic c o m p o n e n t s , N E C 9 5 .8 2 .5 % P la s t ic s , r e s in s , e la s t o m e r s 8 5 3 .1 2 .1 % R a d i o & T V r e c e iv in g s e t s P la s t i c p la t e s , s h e e t s , e t c . M o to r v e h ic le p a r t s , a c c e s s o r i e s 9 0 .5 2 .4 % D r a w in g , in s u la t in g n o n fe r . w ire 8 1 6 .4 2 .0 % 9 0 .1 2 .4 % S t e a m ,g a s . h y d r a u l ic t u r b in e s 7 6 0 .0 1.8 % P e t r o le u m r e fin in g 8 9 .4 2 .4 % R a d io , T V , c o m m e q u ip , a p p a r t u s 7 3 8 .3 1.8 % P la s t i c s , r e s in s , e l a s t o m e r s 7 7 .3 2 .0 % P e s t ic id e s , a g r ic c h e m ic a l s , N E C 6 8 1 .8 1.6 % F u r n it u r e a n d fix t u r e s , N E C $ 6 ,0 5 8 .0 T o tal P o la n d $ 9 1 1 .6 T o tal 4 6 7 .0 7 .7 % A u t o m a t e d d a t a p r o c e s s in g m a c h i n e s 1 4 2 .4 1 5 .6 % L o w v a lu e g o o d s 4 6 1.4 7 .6 % A irc ra ft 1 4 0 .4 15 .4 % A irc ra ft 2 9 9 .9 5 .0 % In d u s t r ia l o r g a n ic c h e m ic a ls , N E C 8 5 .8 9 .4 % 2 2 8 .4 3 .8 % M o to r v e h i c le s & c a r b o d ie s 4 6 .4 5 .1% O il f ie ld m a c h in e r y & e q u ip m e n t 2 2 7 .5 3 .8 % M e t a llu r g ic a l b it u m in o u s c o a l 3 5 .1 3 .9 % C h ic k e n c u ts 18 3 .3 3 .0 % P la s t i c s , r e s in s , e la s t o m e r s 2 9 .6 3 .3 % A u t o m a t e d d a t a p r o c e s s in g m a c h i n e s 1 6 4 .9 2 .7 % M o to r v e h ic le p a r t s , a c c e s s o r i e s 2 6 .8 2 .9 % W heat 15 9 .3 2 .6 % E le c t r o n ic c o m p o n e n t s , N E C 19 .8 2 .2 % R a d i o , T V , c o m m e q u ip , a p p a r t u s 13 3 .7 2 .2 % P h o t o g r a p h ic e q u ip m e n t & s u p p lie s 1 8 .9 2 .1 % M o to r v e h i c le s & c a r b o d i e s 12 7 .3 2 .1 % P e s t ic id e s , a g r ic c h e m ic a l s , N E C 1 7 .4 1.9 % T e l e p h o n e & t e le g r a p h a p p a r a t u s T o tal $ 8 ,7 6 2 .8 S . A f r ic a $ 2 ,18 8 .4 Co rn T o tal A irc ra ft 2 7 2 .2 12 .4 % 7 .4 % M o to r v e h ic le s & c a r b o d ie s 12 9 .1 5 .9 % 3 3 1 .3 3 .8 % R a d i o , T V , c o m m e q u ip , a p p a r t u s 9 4 .9 4 .3 % L o w v a lu e g o o d s 2 9 2 .8 3 .3 % N it r o g e n o u s fe r t iliz e r s 8 5 .7 3 .9 % W heat 2 7 4 .2 3 .1 % W heat 7 2 .6 3 .3 % In d u s t r ia l o r g a n ic c h e m i c a l s , N E C 2 4 3 .0 2 .8 % P e t r o le u m r e fin in g 6 8 .3 3 .1 % Co rn 1 9 4 .1 2 .2 % T e l e p h o n e & t e le g r a p h a p p a r a t u s 6 7 .7 3 .1 % P a p e r m ills , e x b u ild in g p a p e r 1 9 0 .7 2 .2 % A ir c r a ft p a r t s 5 9 .9 2 .7 % A irc ra ft p a r t s 2 ,0 2 9 .7 2 3 .2 % 6 4 5 .9 A irc ra ft A u t o m a t e d d a t a p r o c e s s in g m a c h i n e s 1 7 5 .6 2 .0 % In d u s t r ia l o r g a n ic c h e m i c a l s , N E C 5 9 .4 2 .7 % C o n s t r u c t io n m a c h in e r y & e q u ip m e n t 1 7 4 .9 2 .0 % A u t o m a t e d d a t a p r o c e s s in g m a c h i n e s 4 0 .9 1.9 % F a r m m a c h in e r y & e q u ip m e n t FRB C H IC A G O Working Paper July 1995, W P -1995-9 M e x ic o P e rc e n t 42 Appendix (c o n tin u e d ) Top U.S. exports to the BEMS, 1993 In d ia N o te: P e rce n t 19 9 3 of e x p o rts of ( m il l i o n s ) to ta l ( m il l i o n s ) to ta l $ 2 ,7 7 8 .1 In d o n e s ia P e rce n t 19 9 3 e x p o rts S I C C o m m o d it y T o tal S . K o re a $ 1 4 ,7 8 2 .0 S I C C o m m o d it y T o ta l 8 .4 % S e m ic o n d u c t o r s , r e la t e d d e v i c e s 1,0 5 2 .1 7 .1% A irc ra ft 6 9 5 .9 4 .7 % M e a t p a c k in g p la n t s 5 9 2 .0 4 .0 % S c ra p a n d w a ste In d u s t r ia l o r g a n ic c h e m ic a ls , N E C 4 9 8 .2 3 .4 % 2 .9 % P e t r o le u m r e fin in g 4 6 4 .3 3 .1 % P e t r o le u m re fin in g 2 .8 % W heat 4 3 9 .2 3 .0 % A irc ra ft p a r t s A irc ra ft 1,2 3 5 .1 6 .5 % S t e a m , g a s , h y d r a u l i c t u r b in e s 17 5 .1 6 .3 % N it r o g e n o u s fe r t iliz e r s 11 7 .9 4 .2 % A irc ra ft p a r t s 8 1.5 2 .9 % 7 9 .5 7 8 .3 5 8 1.6 2 0 .9 % 1 8 0 .2 In d u s t r ia l o r g a n ic c h e m ic a l s , N E C 7 7 .6 2 .8 % C o n s t r u c t io n m a c h in e r y & e q u ip m e n t 4 3 0 .3 2.oVo 6 2 .9 2 .3 % R o llin g m ill m a c h in e r y & e q u ip m e n t 2 9 8 .8 2 .0 % S p e c i a l in d u s t r ia l m a c h in e r y , N E C 6 1.9 2 .2 % S c r a p a n d w a ste 2 9 8 .1 2 .0 % C o tto n $ 2 ,7 7 0 .3 T o tal 6 6 7 .9 2 4 .1% 1 4 2 .6 T u rk e y $ 3 ,4 2 8 .9 A u t o m a t e d d a t a p r o c e s s in g m a c h i n e s T o tal A irc ra ft A irc ra ft 7 5 8 .8 2 2 .1 % 5 .1% C o tto n 2 9 2 .0 8 .5 % 1 1 2 .4 4 .1 % P e t r o le u m r e fin in g 15 4 .2 4 .5 % S c ra p a n d w a ste 10 6 .7 3 .9 % Soybeans 15 3 .0 4 .5 % A irc ra ft e n g in e s 1 0 0 .4 3 .6 % O il fie ld m a c h in e r y & e q u ip m e n t 13 6 .9 4 .0 % C ig a r e t t e s 8 9 .0 3 .2 % A irc ra ft p a r t s 11 9 .2 3 .5 % R a d a r a p p a ra tu s 8 4 .0 3 .0 % P la s t i c s , r e s in s , e la s t o m e r s 111.3 3 .2 % Tob acco 7 9 .4 2 .9 % In d u s t r ia l o r g a n ic c h e m ic a ls , N E C 9 3 .4 2 .7 % In d u s t r ia l o r g a n ic c h e m i c a l s , N E C 7 5 .7 2 .7 % P u lp " ' i l ls 8 0 .0 2 .3 % Secondhand goods 5 6 .1 2 .0 % In d u s t r ia l in o r g a n ic c h e m ic a ls , N E C 7 5 .8 2 .2 % S m a ll a r m s a m m u n it io n A irc ra ft p a r t s N E C is n o t e ls e w h e r e c la s s if ie d . S o u rce: U .S . D e p a rtm e n t of C o m m e r c e (1 9 9 4 b ) . FRB C H ICAG O Working Paper July 1995, WP-1995-9 43 Working Paper Series A series o f research studies on regional eco n o m ic issu es relating to the Seven th Federal R eserve D istrict, and on financial and eco n o m ic topics. REGIONAL ECONOMIC ISSUES E stim ating M onthly R egion al V alu e A dded by C om bining R egion al Input W ith N ational Production D ata WP-92-8 Philip R. Israilevich an d Kenneth N. Kuttner L ocal Im pact o f F oreign Trade Z one WP-92-9 D a vid D. Weiss Trends and Prospects for Rural M anufacturing WP-92-12 William A. Testa State and L ocal G overnm ent Spen d in g--T h e B alance B etw een Investm ent and C onsum ption WP-92-14 Richard H. M attoon F orecasting w ith R egion al Input-Output T ables WP-92-20 P.R. Israilevich , R. M ahidhara, and G.J.D. Hewings A Primer on G lobal A u to M arkets WP-93-1 Paul D. B allew and R obert H. Schnorbus Industry A pproaches to E nvironm ental P olicy in the Great L akes R egion WP-93-8 D a vid R. Allardice, Richard H. M attoon and William A. Testa T he M id w e st S tock Price In d e x -L e a d in g Indicator o f R egio n a l E co n o m ic A ctivity WP-93-9 W illiam A. Strauss L ean M anufacturing and the D e c isio n to V ertically Integrate WP-94-1 S o m e E m pirical E v id en ce From the U .S . A u tom ob ile Industry Thomas H. K lier D o m estic C on su m p tion Patterns and the M id w est E con om y WP-94-4 R obert Schnorbus an d Paul B allew 1 W orking paper series continued T o Trade or N o t to Trade: W ho Participates in R EC L A IM ? WP-94-11 Thomas H. K lier and R ichard M attoon Restructuring & W orker D isp lacem en t in the M id w est WP-94-18 Paul D. B allew and R obert H. Schnorbus F inancing Elem entary and Secondary E ducation in the 1990s: A R ev iew o f the Issues WP-95-2 R ichard H. M attoon C om m unity D evelop m en t-F iscal Interactions: A R ev iew o f the Literature WP-95-6 William H. Oakland and William A. Testa C om m unity D evelo p m en t-F isca l Interactions: T heory and E vidence from the C h icago A rea WP-95-7 William H. O akland and William A. Testa A L ook at the B ig E m erging M arkets and U .S. Trade WP-95-9 Linda M. A guilar and Mike A. Singer ISSUES IN FINANCIAL REGULATION Incentive C on flict in D eposit-Institution R egulation: E vid en ce from A ustralia WP-92-5 E dw ard J. Kane and G eorge G. Kaufman Capital A d eq u acy and the Grow th o f U .S . Banks WP-92-11 H erbert B aer and John M cElravey Bank C ontagion: Theory and E vid en ce WP-92-13 G eorge G. Kaufman Trading A ctiv ity , Progarm Trading and the V olatility o f Stock Returns WP-92-16 Jam es T. M oser Preferred S ou rces o f M arket D iscip lin e: D epositors vs. Subordinated D eb t H olders WP-92-21 D ouglas D. E vanoff A n Investigation o f Returns C onditional on Trading Perform ance WP-92-24 Jam es T. M oser and Jacky C . So 2 W orking paper series continued T he E ffect o f Capital on P ortfolio R isk at L ife Insurance C om panies WP-92-29 Elijah B rew er III, Thomas H. M ondschean, and Philip E. Strahan A Fram ew ork for E stim ating the V alu e and Interest Rate R isk o f R etail Bank D ep osits WP-92-30 D a vid E. Hutchison, G eorge G. Pennacchi C apital S h ock s and B ank G row th -1973 to 1991 WP-92-31 H erbert L. B aer a nd John N. M cElravey T he Im pact o f S& L Failures and R egulatory C hanges on the C D M arket 1987-1991 WP-92-33 Elijah B rew er and Thomas H. M ondschean Junk B on d H old in gs, Prem ium T ax O ffsets, and R isk WP-93-3 E xposure at L ife Insurance C om panies Elijah B rew er III and Thomas H. Mondschean Stock M argins and the C onditional Probability o f Price R eversals WP-93-5 Paul Kofman and Jam es T. M oser Is There L if(f)e A fter D T B ? C om p etitive A sp ects o f C ross L isted Futures C ontracts on Synchronous M arkets WP-93-11 Paul Kofman, Tony Bouwman and Jam es T. M oser O pportunity C ost and Prudentiality: A R epresentativeA gen t M o d el o f Futures C learinghouse B eh avior WP-93-18 H erbert L. Baer, Virginia G. France and James T. M oser T he O w nership Structure o f Japanese Financial Institutions WP-93-19 H esna G enay O rigin s o f the M odern E xch an ge C learinghouse: A H istory o f Early C learing and S ettlem en t M eth od s at Futures E xch an ges WP-94-3 Jam es T. M oser T he E ffe c t o f B an k -H eld D erivatives on Credit A ccessib ility WP-94-5 Elijah B rew er III, B ernadette A. Minton and Jam es T. M oser 3 W orking paper series continued Sm all B u sin ess Investm ent C om panies: Financial Characteristics and Investm ents WP-94-10 Elijah B rew er HI and Hesna Genay Spreads, Inform ation F lo w s and Transparency A cross Trading System WP-95-1 Paul Kofman and James T. M oser T he Cultural A ffin ity H yp oth esis and M ortgage L ending D ecisio n s W P-95-8 William C. Hunter and M ary Beth Walker MACROECONOMIC ISSUES A n E xam ination o f C hange in Energy D ep en d en ce and E fficien cy in the S ix Largest Energy U sin g C o u n tr ie s -1970-1988 WP-92-2 Jack L. H ervey D o es the Federal R eserve A ffect A sset Prices? WP-92-3 Vefa Tarhan Investm ent and M arket Im perfections in the U .S. M anufacturing Sector WP-92-4 Paula R. Worthington B u sin ess C y c le D urations and Postw ar Stabilization o f the U .S . E con om y WP-92-6 M ark W. Watson A Procedure for Predicting R ecessio n s w ith L eading Indicators: E conom etric Issues and R ecen t Perform ance WP-92-7 Jam es H. Stock and M ark W. Watson Production and Inventory Control at the General M otors Corporation D uring the 1920s and 1930s WP-92-10 Anil K. K ashyap and D avid W. Wilcox L iquidity E ffects, M onetary P o licy and the B u sin ess C ycle WP-92-15 Law rence J. Christiano and M artin Eichenbaum M onetary P o licy and External Finance: Interpreting the B ehavior o f F inancial R o w s and Interest Rate Spreads WP-92-17 Kenneth N. Kuttner 4 W orking paper series continued T estin g L on g Run N eutrality WP-92-18 R obert G. King an d M ark W. Watson A Policym aker's G uide to Indicators o f E con om ic A ctivity WP-92-19 Charles Evans , Steven Strongin, and Francesca Eugeni Barriers to Trade and U n ion W age D yn am ics WP-92-22 Ellen R. Rissman W age G row th and Sectoral Shifts: Phillips Curve R edux WP-92-23 Ellen R. Rissman E x ce ss V o latility and T he Sm ooth in g o f Interest Rates: A n A p p lication U sin g M on ey A nnouncem ents WP-92-25 Steven Strongin M arket Structure, T ech n o lo g y and the C yclicality o f Output WP-92-26 Bruce P etersen and Steven Strongin T he Identification o f M onetary P o licy D isturbances: E xplain in g the L iquidity P u zzle WP-92-27 Steven Strongin E arnings L o sses and D isp la ced W orkers WP-92-28 Louis S. Jacobson, R obert J. LaLonde, and D aniel G. Sullivan S om e E m pirical E vid en ce o f the E ffects on M onetary P olicy S h ock s on E xch an ge R ates WP-92-32 M artin Eichenbaum and Charles Evans A n U n ob served -C om p on en ts M od el o f C onstant-Inflation Potential Output WP-93-2 Kenneth N. Kuttner Investm ent, C ash F lo w , and Sunk C osts WP-93-4 Paula R . W orthington L esso n s from the Japanese M ain Bank S ystem for F in an cial S y stem R eform in Poland WP-93-6 Takeo Hoshi, A nil Kashyap, and G ary Loveman 5 W orking paper series continued Credit C onditions and the C yclical B ehavior o f Inventories WP-93-7 Anil K. Kashyap, Owen A. Lam ont and Jerem y C. Stein Labor Productivity D uring the Great D epression WP-93-10 M ichael D. Bordo and Charles L. Evans M onetary P o licy Sh ock s and Productivity M easures in the G -7 C ountries WP-93-12 Charles L. Evans and Fernando Santos C onsum er C on fid en ce and E con om ic Fluctuations WP-93-13 John G. M atsusaka and A rgia M. Sbordone V ector A u toregression s and C ointegration WP-93-14 M ark W. Watson T esting for C ointegration W hen S om e o f the C ointegrating V ectors Are K now n WP-93-15 M ichael T. K. H orvath and M ark W. Watson T echnical C hange, D iffu sio n , and Productivity WP-93-16 Jeffrey R. Cam pbell E con om ic A ctiv ity and the Short-Term Credit Markets: A n A n a ly sis o f P rices and Q uantities WP-93-17 Benjamin M. Friedman and Kenneth N. Kuttner C yclical Productivity in a M od el o f Labor H oarding WP-93-20 A rgia M. Sbordone T he E ffects o f M onetary P o licy Shocks: E vidence from the R o w o f Funds WP-94-2 Lawrence J. Christiano , M artin Eichenbaum and Charles Evans A lgorith m s for S o lv in g D yn am ic M od els with O ccasionally B inding Constraints WP-94-6 Lawrence J. Christiano and Jonas D.M. Fisher Identification and the E ffects o f M onetary P olicy Shocks WP-94-7 Law rence J. Christiano , M artin Eichenbaum and Charles L. Evans 6 W orking paper series continued Sm all S am p le B ia s in G M M E stim ation o f C ovariance Structures WP-94-8 Joseph G. A ltonji and Lewis M. Segal Interpreting the P rocyclical Productivity o f M anufacturing Sectors: External E ffects o f Labor Hoarding? WP-94-9 A rgia M. Sbordone E vid en ce on Structural Instability in M acroecon om ic T im e S eries R elations WP-94-13 Jam es H. Stock and M ark W. Watson T he Post-W ar U .S . P hillips Curve: A R ev isio n ist E conom etric H istory WP-94-14 R obert G. King and M ark W. Watson T he Post-W ar U .S . P hillips Curve: A C om m ent WP-94-15 Charles L. Evans Identification o f Inflation -U n em p loym en t WP-94-16 Bennett T. M cCallum T he Post-W ar U .S . P hillips Curve: A R ev isio n ist E conom etric H istory R esp o n se to E vans and M cC allum WP-94-17 R obert G. King an d M ark W. Watson E stim ating D eterm in istic Trends in the P resence o f S erially Correlated Errors WP-94-19 Eugene Canjels and M ark W. Watson S o lv in g N on lin ear R ational E xpectations M od els by Param eterized E xpectations: C on v erg en ce to Stationary S olu tion s WP-94-20 A lbert M arcet and D avid A. M arshall T he E ffect o f C ostly C onsum ption A djustm ent on A sse t Price V olatility WP-94-21 D avid A. M arshall and Nayan G. Parekh T he Im p lication s o f F irst-O lder R isk A versio n for A sse t M arket R isk Prem ium s W P-94-22 G eert Bekaert, R obert J. H odrick and D a vid A . M arshall 7 W orking paper series continued A sse t Return V olatility w ith E xtrem ely Sm all C osts o f C onsum ption A djustm ent WP-94-23 D avid A. M arshall Indicator Properties o f the P aper-B ill Spread: L esso n s From R ecen t E xperience WP-94-24 Benjamin M. Friedman and Kenneth N. Kuttner O vertim e, E ffort and the Propagation o f B u sin ess C y cle Sh ock s WP-94-25 G eorge J. H all M onetary p o licies in the early 1 9 9 0 s-r e fle c tio n s o f the early 1930s WP-94-26 R obert D. Laurent T he Returns from C lassroom Training for D isp laced W orkers WP-94-27 Louis S. Jacobson, R obert J. LaLonde and Daniel G. Sullivan Is the B anking and P aym ents S ystem Fragile? WP-94-28 G eorge J. Benston and G eorge G. Kaufman Sm all Sam ple Properties o f G M M for B u sin ess C y cle A n alysis WP-95-3 Law rence J. Christiano and W outer den Haan T he Fed Funds Futures Rate as a Predictor o f Federal R eserve P olicy WP-95-4 Joel T. K rueger and Kenneth N. Kuttner Capital U tilization and Returns to S cale WP-95-5 Craig Burnside, M artin Eichenbaum and Sergio Rebelo 8
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