Explanatory Notes — Frequently Asked Questions

Q:  What is NAICS?

A:  The North American Industry Classification System (NAICS) is an industry classification system developed by the statistical agencies of Canada, Mexico and the United States. Created against the background of the North American Free Trade Agreement, it is designed to provide common definitions of the industrial structure of the three countries and a common statistical framework to facilitate the analysis of the three economies.

Q:  What is the structure of NAICS?

A:  NAICS is a comprehensive system encompassing all economic activities. It has a hierarchical structure. At the highest level, it divides the economy into 20 sectors. Five sectors regroup the goods producing industries. The other 15 cover the services-producing industries. At lower levels, it further distinguishes the different economic activities in which businesses are engaged.

Q:  What is NAICS used for?

A:  NAICS is primarily used for the compilation of national statistics (Gross Domestic Product, Employment, etc.) without double-counting of any kind and for the classification of data relating to establishments (the producing units of businesses). The criteria used to group establishments into industries in NAICS are similarity of input structures, labor skills or production processes used.

Q:  Is NAICS used to track international trade?

A:  No.  Merchandise trade is tracked by customs using specialized codes based on the Harmonized System. The value (and in some cases the quantity) of specific products (goods, merchandise, commodities) are recorded together with other details concerning the transaction including the country of origin or destination. Merchandise trade statistics are primarily reported on a product basis.

Q:  What then is Trade by Industry?

A:  Trade by Industry is a recompilation of merchandise trade statistics compiled on a product basis. It reports the trade of all the products produced (manufactured, grown, extracted etc.) by a specific industry (e.g. Boat Building). It is compiled mainly to permit an estimation of the apparent domestic market for industry products (recreational boats, canoes, kayaks, yachts and the like) taken as a group.

Q:  How does Trade by Industry relate to business units?

A:  There is no direct relationship. The establishments in a particular industry are not necessarily the importers or exporters of the traded products. However, in the case of manufactured goods, the aggregate shipments of the establishments are used in the calculation of the apparent domestic market.

Q:  What is the apparent domestic market?

A:  It is an estimate of the dollar value of a set of industry products (e.g. recreational boats as described above) in a domestic market (such as Canada). It is obtained by adding imports to domestic production and subtracting exports. It is apparent, as opposed to real, in that it is potentially very imprecise and needs to be evaluated and used with great caution.

Q:  Why is the apparent domestic market imprecise?

A:  The calculation does not take inventories into consideration. Furthermore, the trade data (imports and exports) are collected from customs records whereas the domestic production (manufacturing shipments) is derived from a survey. A number of important factors emerge which can distort the result (see Integrating Trade Data with Manufacturing Data).

Q:  Why is the apparent domestic market reported only in dollars?

A:  The quantities of traded goods are recorded only in certain instances as are the shipments from manufacturers. In many cases, there is a mix of units (e.g. kilograms and square meters) making it impossible to perform the calculation.

Q:  Why is there no trade reported for services industries?

A:  The statistics on this site cover only merchandise trade (or trade by product). Almost all of the merchandise trade is assigned to the goods-producing industries. Trade in services can only be tracked by following the flow of money between residents and non-residents using balance of payments (BOP) accounts. BOP-based data is not consistent with customs-based data, and is available only for certain high-level aggregations. This is explained in the section called Types of Trade Statistics.