Investments in production-sharing operations are part of global efforts to reduce manufacturing costs. Such investments have contributed to cross-border integration of manufacturing in North America and the Caribbean Basin. For example, most manufactured goods imported by the United States from partners in the region incorporate U.S. and other foreign inputs.

            Trends in imports of manufactured goods from Mexico (the leading low-labor-cost, production-sharing partner) are closely linked to trends in manufacturing in the United States. The industrial sectors in the United States that are most likely to use assembly plants in Mexico had mixed results in terms of trends in U.S. manufacturers’ shipments in 2003 compared with 2002. Declining shipments of power transmission equipment, electrical equipment, motor vehicle parts, and apparel offset growth in shipments of medical and measuring instruments, computers, and semiconductors. As a result, U.S. imports from assembly plants in Mexico declined by 1.7 percent in 2003. At the same time liberalized access to the U.S. market through the Caribbean Basin Trade Partnership Act (CBTPA) and the Andean Trade Promotion and Drug Eradication Act (ATPDEA) helped apparel assembly plants in the Caribbean Basin region and Colombia increase production despite intensified competition from China.

            Production sharing includes a spectrum of manufacturing options that range from use of foreign inputs in domestic operations, to global sourcing of inputs in assembly plants, to use of U.S. components in foreign factories. Production sharing can be cross-border rationalization of manufacturing within a firm or outsourcing of certain aspects of production to non-related foreign suppliers.

            Production sharing is no longer strictly limited to manufacturing; the same practice also takes place in service industries such as insurance, banking, healthcare, and information technology. Although production sharing in services does not involve the physical assembly and shipment of components or finished goods, decisions to spread operations over various locations are often made based on a similar set...

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