The USITC Remanufacturing Report: Key Findings, Observations, and Insights 7 th Annual Heavy Duty Remanufacturing Group Summit January 21, 2013
The USITC Remanufacturing Report:Key Findings, Observations, and Insights
7th Annual Heavy Duty Remanufacturing Group Summit
January 21, 2013
Agenda
• About the USITC• Background
– Context: trade barriers, negative perceptions, work at the WTO and APEC
– USTR request letter elements• Scope and industry coverage• Main Findings
– HDOR equipment– Motor vehicle parts
• Comparison with previous estimates and the USITC’s approach• Questions
About the USITC• Independent, nonpartisan, quasi-judicial federal agency with broad
investigative powers on matters of trade and tariff issues– Not a policy-making agency or trade-agreement negotiating body
• Six commissioners; 360 employees –– International trade analysts (investigators and experts in particular industries)– International economists, attorneys, and technical support personnel
• USITC’s mission– Administer U.S. trade remedy laws in fair and objective manner (e.g., AD/CVD
injury investigations)– Maintain U.S. Harmonized Tariff Schedule– Provide President, USTR, and Congress with independent and objective analysis
on matters of tariffs, trade, and U.S. competitiveness
• USITC’s remanufacturing study falls within the last mission category
Background: Context of USTR’s Request
• Trade barriers to U.S. exports of remanufactured goods– Import bans– Other NTMs (e.g., onerous licensing requirements or regulatory barriers)– Used for consumer health/safety reasons or to shield domestic industries
• Negative perceptions of remanufactured goods– Not well understood– Considered “used” goods or junk– NIMBY
• Ongoing work at the WTO (since 2005) and APEC (since 2009)– Educating members on the economic value of remanufacturing (not much data)– Removing NTMs– Negotiating agreed upon definitions
Elements of USTR’s Request
• Specific definition provided by USTR:Non-agricultural goods that are entirely or partially comprised of parts that (i) have been obtained from the disassembly of used goods; and (ii) have been processed, cleaned, inspected, and tested to the extent necessary to ensure they have been restored to original working condition or better; and for which the remanufacturer has issued a warranty.
• Principal elements of request include:– Size and scope of remanufacturing in the United States– U.S. market for remanufactured goods– U.S. trade in remanufactured goods– Factors affecting sales, trade, and investment and recent trends– FDI in U.S. remanufacturing; outward FDI by U.S.-based firms– Overview of selected foreign markets; estimates of global trade
• Questionnaire-based covering 2009-11– Qs mailed to sample of 7,000 firms in 12 industry sectors; 60 percent response rate– Results were extrapolated to project activity for all U.S. remanufacturing activity
Scope and Industry Coverage
• USTR’s request to focus on remanufacturing-intensive sectors– Remanufacturing-intensive is not defined in the request letter– Those commercial sectors that remanufacture relatively more than do other
sectors– USITC focused on firms with > 20 employees (est. ~2,900 remanufacturing firms)
• 12 remanufacturing-intensive sectors identified through industry outreach:
AerospaceConsumer productsElectrical apparatusHeavy-duty and off-road (HDOR) equipmentIT productsLocomotives
MachineryMedical devicesMotor vehicle partsOffice furnitureRestaurant equipmentRetreaded tires
Industry sectors and product examplesSector Product examplesAerospace Landing gears, flight surface actuators, engines, fuel systemsConsumer products Consumer electronics, including mobile phones, cordless phones, smart phones,
digital cameras, DVD players, televisions, etc.; and consumer household appliances, including washers, dryers, refrigerators, kitchen appliances
Electrical apparatus Power distribution conductors, transformers, switch gears and boardsHDOR equipment Diesel engines, transmissions, differential carriers, starters, brakesIT products Desktop computers, laptops, servers, data storage arrays, network switches,
routers, modems, base transceiver stations, etc.; and imaging products, including copiers, printers, scanners, fax machines, ink and toner cartridges, fuser assemblies
Locomotives Locomotive engines, drive motors, axles, other subsystemsMachinery Industrial valves, turbines, machine tools, textile machinery, compressors, vending
machines, HVAC and heating equipmentMedical devices Diagnostic, surgical, and patient care apparatus; scanners; medical pumps; X-ray
equipmentMotor vehicle parts Starters, alternators, gear boxes, engines, differentials, brakesOffice furniture Office systems furniture, laminate work surfaces, reupholstered office seatingRestaurant equipment Ovens, beverage dispensers, food preparation tablesRetreaded tires Tires for trucks, cars, off-the-road vehicles, airplanes
Industry sectors were mapped to specific NAICS categories (see app. F of report for details)
Main findings• U.S. production totaled at least $43 billion in 2011, supporting 180,000
full-time jobs
• U.S. exports totaled $11.7 billion, up 50 percent compared with 2009
• About 40 percent of U.S. exports went to FTA partners; Canada and Mexico are important markets
• Foreign remanufacturers invested in the United States account for about one-sixth of trade
• The price and availability of cores are the leading supply-side factors; the relative price of remanufactured goods and consumer perceptions are important demand-side factors
• Regulatory barriers in foreign markets limit U.S. exports of remanufactured goods and cores
• The United States and the EU account for the bulk of global remanufacturing activity; Brazil, India, and China are the fastest growing markets for new aftermarket parts, but restrict trade the most
• FDI in U.S. remanufacturing supported over 22,000 full-time remanufacturing jobs in the United States in 2011.
Remanufactured goods production, investment, employment, exports, imports, and remanufacturing intensity, 2011
Sector Production (thousand $)
Investment (thousand $)
Employment(full-time workers)
Exports (thousand $)
Imports(thousand $)
Remanufacturing intensity (%)
(value of shipments of remanufactured goods to
all products in sector)
Aerospace 13,045,513 90,471 35,201 2,589,543 1,869,901 2.5
HDOR equipment 7,770,586 162,746 20,870 2,451,967 1,489,259 3.8
Motor vehicle parts 6,211,838 105,684 30,653 581,520 1,481,939 1.1
Machinery 5,795,105 711,008 26,843 1,348,734 268,256 1.0
IT products 2,681,603 17,503 15,442 260,032 2,756,475 0.4
Medical devices 1,463,313 31,260 4,117 488,008 110,705 0.5
Retreaded tires 1,399,088 23,874 4,880 18,545 11,446 2.9
Consumer products 659,175 4,948 7,613 21,151 360,264 0.1
All other 3,973,923 67,537 22,999 224,627 40,683 1.3
Wholesalers n/a 8,294 10,891 3,751,538 1,874,128 n/a
Total 43,000,144 1,223,326 179,509 11,735,665 10,263,056 2.0
U.S. production, employment, and exports are growing, but still small compared with overall sectors
MV parts is a large sector, but does not export much directly; reflects regional nature of business
U.S. production totaled at least $43 billion in 2011, up from $39 billion in 2009; production in most sectors grew during the period
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Aerospace HDORequipment
Motor vehicleparts
Machinery IT products Medicaldevices
Retreadedtires
Consumerproducts
All other
Bill
ion
$
2009
2010
2011
Production increased 51% to $7.8b fueled by foreign demand and exports
The drop in production of remanufactured MV parts may reflect falling domestic demand for certain parts, such as delayed purchases of power trains by fleet customers, as well
as some production moving to Mexico
Production declined 12% to $6.2b due to falling domestic demand for certain parts
U.S. remanufacturing employment increased to 180,000 workers in 2011, up from 166,000 in 2009
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Aerospace Motorvehicle parts
Machinery HDORequipment
IT products Wholesalers Consumerproducts
Retreadedtires
Medicaldevices
All other
Full-
time
wor
kers
2009
2010
2011
Aerospace, MV parts, and machinery sectors accounted for the greatest share of employment; IT products, wholesalers, and retreaded tires the largest growth
Annual employment ranged from 30,000-31,000 full-time workers despite drop in production
Employment increased 16 percent to 20,900 full-time workers
U.S. remanufacturing investment almost doubled to $1.2 billion in 2011; investment dominated by the machinery sector
In the HDOR sector, one-third of remanufacturers increased production capacity; in the MV parts sector, one-third increased capacity while about 20 percent reduced capacity
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
Machinery HDOR equipment Motor vehicle parts Aerospace All other
Mill
ion
$ 2009
2010
2011
Investment increased 39 percent to $106m
Investment doubled to $163m
Jump in investment likely reflects investment by one or two firms in remanufacturing facilities
The U.S. is a net exporter of remanufactured goods; U.S. exports totaled $11.7 billion in 2011, up 50 percent from 2009
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
2009 2010 2011Bill
ion
$ Imports
Exports
Trade Balance
U.S. imports of remanufactured goods totaled $10.3 billion, up over 60 percent from 2009; the U.S. market is slightly smaller than U.S. production because of net exports
Overall, the United States exports almost 30 percent of its production of remanufactured goods; big export sectors include wholesalers, aerospace, and HDOR equipment
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Wholesalers Aerospace HDORequipment
Machinery Motor vehicleparts
Medical devices All other*
Mill
ion
$ 2009
2010
2011
* Includes IT products, consumer products, retreaded tires, electrical apparatus, locomotives, office furniture, and restaurant equipment
Wholesale trade of remanufactured goods includes products from other sectors (e.g., MV parts); most active in MV parts, IT products, aerospace products, and consumer products
Exports increased 46 percent driven by demand for mining and energy equipment in Canada, Australia, and Mexico
Exports increased 35 percent mostly to NAFTA partners, reflecting regional integration of MV industry
About 40 percent of U.S. exports went to FTA partners in 2011; Canada and Mexico are important markets
The EU is another important export market, primarily for remanufactured aerospace products, IT products, and medical devices
Canada51%
Mexico19%
Australia10%
Singapore9%
Chile3%
CAFTA-DRa
3%All other FTA
partnersb
5%
Total U.S. exports$11.7 billion
Total U.S. exports to FTA partners
$4.4 billion
FTA partners38%
EU12%
Other50%
Trade patterns vary by sector, but Canada, the EU, and Mexico are our largest trading partners for remanufactured goods
Leading export destinations and import sources for remanufactured goods, 2011 (destinations and sources ranked by value)
Sector(ranked by production value)
Leading destinations for U.S. exports of remanufactured goods
Leading FTA markets for U.S. exports of remanufactured goods
Leading suppliers of remanufactured goods to the United States
AerospaceEUCanadaJapan
CanadaSingaporeMexico
EUCanadaJapan
HDOR equipmentCanadaAustraliaMexico
CanadaAustraliaMexico
MexicoCanadaEU
Motor vehicle parts CanadaMexico
CanadaMexico
MexicoEUCanada
IT productsEUCanadaHong Kong
CanadaMexicoSingapore
Mexico
Medical devicesEUCanadaBrazil
CanadaSingaporeMexico
EUMexicoCanada
Retreaded tiresMexicoCanadaVietnam
MexicoCAFTA-DRCanada
CanadaEUKorea
Other remanufacturing sectorsMexicoEUCanada
MexicoCanadaCAFTA-DR
ChinaMexico
Prevalence of regional processing trade in many sectors (HDOR, MV parts, IT products)
U.S. exports of remanufactured HDOR equipment increased by 45 percent during 2009-11; about half go to FTA partners, primarily NAFTA partners
2011Total U.S. exports
$2.5 billion
2011Total U.S. exports to FTA partners
$1.3 billion
U.S. imports totaled $1.5 billion in 2011; 90 percent were from Mexico, reflecting in part regional processing trade
Canada23%
Australia12%
Mexico9%
All other countries
56%
Canada43%
Australia23%
Mexico16%
All other FTA partners18%
The vast majority of U.S. exports of HDOR cores are to FTA partners, most likely to Mexico where they are often remanufactured and shipped back to the U.S.
239,814 254,346 256,230
488,651521,318
618,622
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
2009 2010 2011
Exports Imports
FIGURE 4.1 HDOR: U.S. core exports and imports, 2009–11
Source: USITC staff calculations of weighted responses to the Commission questionnaire.
97 percent went to FTA partners
Import sources more mixed
Indeed, Mexico is an important destination for U.S. outbound FDI in foreign remanufacturing, accounting for almost one-third ($32m) of the total ($111m) in 2011
Thou
sand
$
U.S. exports of remanufactured MV parts increased by 35 percent during 2009-11; more than 75 percent go to FTA partners, mostly to Canada
2011Total U.S. exports
$582 million
2011Total U.S. exports to FTA partners
$448 million
U.S. imports totaled $1.5 billion in 2011; most imports were from Mexico and the EU, reflecting in part both regional processing trade and European remanufacturers active in the U.S. market
Canada66%
Mexico4%
All other countries
30%
Canada86%
Mexico6%
All other FTA
partners8%
The U.S. is a net exporter of MV cores; FTA partners, likely Mexico or Canada, account for at least one-third of core exports and reflect regional integration of the North American auto industry
The EU is an important export market for MV cores too; trade patterns with EU reflect European remanufacturing activity
a147,847
b177,587b195,144
20,222
50,903 57,755
0
50,000
100,000
150,000
200,000
250,000
2009 2010 2011Exports Imports
Source: USITC staff calculations of weighted responses to the Commission questionnaire.
aLow-precision estimate; RSE below 65 percent.
FIGURE 5.1 Motor vehicle parts: U.S. core exports and imports, 2009–11
Thou
sand
$
About two-thirds from FTA countries
Mostly to NAFTA partners and the EU
The biggest factors affecting the ability of U.S. remanufacturers to compete in U.S. and foreign markets are the cost and availability of cores, transport costs, labor costs, and regulatory barriers
2.4
3.7
7.9
8.0
8.8
10.5
12.3
12.8
18.7
0 5 10 15 20
Cost of compliance with other productstandards
Cost of compliance with productenvironmental standards
Licensing or certification requirements
Lack of knowledge of foreign market
Lack of distribution and marketing channels
Foreign market tariffs
High price of cores
Regulatory barriers in foreign market
Transportation costs
Competitive factors affecting U.S. remanufacturers in foreign markets
Percent
2.75.55.7
6.78.1
8.910.7
11.211.3
12.612.9
13.514.514.715.015.3
15.9
0 5 10 15 20
Research and development costsDifficulty accessing capital
Borrowing costsCompetition from imported remanufactured goods
Energy costsLicensing or certification requirementsCustomer preference for new products
Declining demand for remanufactured goodsScarcity of skilled workersEnvironmental regulationsUnfavorable tax treatment
Availability of low-cost new productsTransportation costs
Labor costsHigh price of cores
Health care costsScarcity of cores
Competitive factors affecting U.S. remanufacturers in the U.S. market
Percent
Other important factors include consumer preferences, relative prices, and competition from imports
Note: More than one factor could be cited by U.S. remanufacturers as “extremely important.” As a result, shares do not total to 100 percent.
Most frequently cited factors affecting the ability of U.S. remanufacturers to compete in U.S. and foreign markets vary by sector
Sector The U.S. market Foreign markets
Aerospace1. Availability of skilled workers2. Availability of cores3. Labor costs
1. Regulatory barriers in foreign markets2. Licensing or certification requirements3. Transportation costs
HDOR equipment1. Transportation costs2. Environmental regulations3. Availability of cores
1. Foreign market tariffs2. Transportation costs3. Regulatory barriers in foreign markets
Motor vehicle parts1. Labor costs2. Transportation costs3. Availability of cores
1. High price of cores2. Cost of compliance with products’ environmental
standards3. Licensing or certification requirements
Machinery1. Availability of skilled workers2. Healthcare costs3. Unfavorable tax treatment
1. High price of cores2. Transportation costs3. Regulatory barriers in foreign markets
IT products1. High price of cores2. Customer preferences for new products3. Availability of low-cost new products
1. Transportation costs2. Lack of knowledge of foreign market3. Foreign market tariffs
Medical devices1. Unfavorable tax treatment2. Availability of cores3. Healthcare costs
1. Transportation costs2. Regulatory barriers in foreign markets3. Lack of distribution or marketing channels
Retreaded tires1. Availability of cores2. Energy costs3. Unfavorable tax treatment
None cited
Consumer products1. Availability of low-cost new products2. Customer preferences for new products3. Declining demand for remanufactured goods
1. Lack of knowledge of foreign market2. Transportation costs3. Lack of distribution or marketing channels
All other1. Healthcare costs2. Availability of cores3. Unfavorable tax treatment
1. Transportation costs2. Foreign market tariffs3. Lack of distribution or marketing channels
Wholesalers1. Transportation costs2. Energy costs3. Labor costs
1. Regulatory barriers in foreign markets2. Transportation costs3. High price of cores
Remanufacturing and trade in remanufactured goods and cores in foreign markets is limited
• Little data on global trade in remanufactured goods (except retreads)
• Biggest constraint to trade is the lack of an accepted legal definition of remanufactured goods → treatment of reman goods like used goods
• Remanufacturing in the EU is well developed; trade is generally open
• But in developing markets with growing domestic demand for new aftermarket parts (e.g., Brazil, China, India), remanufacturing and trade is more restricted
• In other markets like Korea and Singapore, governments recognize remanufacturing within the context of broader efforts to promote sustainability
Many countries limit trade in remanufactured goods and cores; no distinction between the two is one of the biggest limiting factors
Barriers to U.S. trade in remanufactured HDOR equipment and motor vehicle parts in selected countriesCountry Trade barrierArgentina Bars imports of remanufactured goods, with the exception of remanufactured parts marketed by OEM assemblers to service their
own products.
Brazil Counts cores as used products, and has barriers in place to prevent the importation of used products. Internal barriers to remanufacturing include a vehicle registration system that also requires the engine serial number to be registered. In order to sell remanufactured cores, the producer must convince the person who is the source of the core to go through the process of de-registering his or her old engine.
Chile Only allows remanufactured goods to be sold on an “outright” basis, without any discount for exchanged cores. U.S. FTA provisions do not address this reported barrier.
China Restricts remanufactured good imports, and limits domestic remanufacturing. Has allowed some remanufacturing on a “pilot” basis. Allows imports of cores of certain motor vehicle parts into export processing zones (EPZs) for remanufacturing and subsequent export.
India Does not allow remanufactured products made with cores from other countries to enter its domestic market, but will allow remanufacturing using domestic cores. Allows imports of cores that are intended to be remanufactured domestically and subsequently exported.
Malaysia Prohibits imports of used automotive parts, including remanufactured goods.
Mexico Does not include used cores in rules of origin for NAFTA, because they were not included in rules of origin for the original NAFTA agreement.
Russia Customs regulations make the export of cores difficult.
Turkey Bars importation of remanufactured products.
USITC Estimates are Smaller, but More Accurate
• Boston University (1996) – 73,000 firms, $53 billion sales, 480,000 jobs– Survey based; authors acknowledged overstating the size of the industry– Sample population based on active association membership lists - inflated– Estimates of non-member firms provided by associations also inflated
• OPI (2003 and 2009) – $49 billion in 2003, $92 billion in 2009– Uses different methodology based on estimates of the % of maintenance and
remanufacturing expenditures as a share of asset values in a range of sectors– Sectors overlap with BU and USITC sectors– % estimates and values based on OPI industry expertise, not on survey analysis;
methodology unclear
• USITC (2012) – $43 billion sales in 2011; 180,000 jobs– Estimates are extrapolated based on statistical analysis of survey results– Survey responses weighted to project activity onto the U.S. economy as a whole– 7,000 firm sample size; 60 percent response rate
Limitations of the Survey
• Estimates based on statistical analysis; less precise estimates noted throughout the report (see p. 1-3 of the report for details)
– More difficult to explain trends based on extrapolated results
• Factors that may lead to underestimates (see p. 1-5)– Report estimates activity in remanufacturing-intensive sectors, not all industry sectors of the
U.S. economy– Differences in terminology across industry sectors (e.g., overhaul, rebuild, refurbish)– Ambiguity in the definition of remanufactured goods (i.e., services vs. production; extent of
disassembly; warranties on internally consumed products)– Nonsystematic survey of imports and firms with < 20 employees
• Double counting may lead to overestimates (see p. 2-3 and tables G.10 and 11 in appendix G)
– Varies by sector, but overall potential double counting of up to $6.7 billion for production
Thank you
Questions?
To download the USITC’s report, click here: http://www.usitc.gov/publications/332/pub4356.pdf
Alan Treatemail: [email protected]