International and Domestic Product Classifications

Abstract

The globalization of the world economies (U.S. trade share in 1998 was 29.3 percent) necessitates improved economic statistics. The interest in developing conceptual economic frameworks for industry and product classification systems has intensified because of the need for data to be comparable for domestic production and trade with information from other countries in that comparability allows for more meaningful analyses of international trade relationships. However existing product data systems are organized differently one from the other, and this presents difficulty in the construction of complete and consistent data bases. Indeed, while this issue of international comparability of data is being discussed in many fora, e.g., APEC, UN, WCO, etc., practicality dictates that the Harmonized System (HS) should serve as the foundation for the goods definitions in any new product (goods and services) classification system developed for the United States. Domestically and internationally there is a need for: (1) a wherever-produced, product-oriented system, (2) a highly disaggregated level of product detail, (3) comparability between domestic production and trade data statistics, and (4) more adequate detail as to services industries. Addressing each of these issues is of major importance. This is so because the data obtained from existing production and international trade classifications are inconsistent; i.e., none of the domestic or nternational product classifications is based upon a single unifying, or even the same, economic concept. The Office of Management and Budget established the Economic Classification Policy Committee with the charge of initiating a fresh slate examination of economic classification systems. This U.S. effort was joined by the other members of the NAFTA, and the three countries agreed that conceptually based classifications would be adopted. In 1997, work on constructing a supply-side, production-oriented industry classification resulted in the adoption of the North American Industry Classification System (NAICS). Work within NAFTA has now begun on developing a demand-side, market-oriented product classification. The resulting North American Product Classification System (NAPCS) is intended to provide the requisite comparability of product data. This paper describes several existing classification systems for products and illustrates some of the problems that will be encountered in implementing a demand-side product classification. The paper is designed to serve as background in defining NAPCS.