In a resounding victory for actual manufacturers- the people that make things- the OMB reported today that the proposal to create a “Factoryless Goods Producer’ classification for the NAICS 2017 has been withdrawn.
PMPA has been on the forefront of challenging the classification which would have created a class of phantom manufactures that did not actually manufacture goods, but rather purchased finished goods for resale, and possibly from foreign sources. August 1 2012 link, March 17, 2014 link, July 16, 2014 link
On May 22, 2014, the Administration announced the U.S. Census Bureau was considering a proposal to count a business as a manufacturer even if they outsource all of the transformation steps traditionally considered production activities, or manufacturing. The proposal would have counted some activities outsourced overseas as U.S. manufacturing and included financiers and others as manufacturers even though they never visit a shop floor.
Among PMPA’s objections to the scheme were the following:
- NAICS is based on the primary activity of an establishment. In the absence of actual production processes, the primary activity of the so-called “Factoryless Goods Producers” is Wholesale activity. “Factoryless Goods Producers” produce no goods, and employ no manufacturing processes. They do not “produce goods.” They employ actual manufacturers who utilize recognized transformative processes to manufacture goods. This makes the proposed FGPs best classified by their “process” as Wholesale trade.
- NAICS is for classifying domestic activities only. In many cases, the outsourcing of the “Factoryless Goods Producer’s” actual manufacturing occurs overseas. The NAICS System is for classifying North American operations only. Classifying as a “manufacturer of record” any entity that outsources actual manufacturing operations to off shore / overseas companies allows the distortion of statistics based on said classification. Federal regulations are replete with rules regarding the origin and labeling of production. Yet the proposed change to recognize “FGP’s” as “Manufacturers” would foster the type of inaccuracy and mischaracterization that these labeling rules are expressly designed to prevent. An NAICS classification should not mislead the public that manufacturing occurred in a U.S. establishment when in fact the manufacturing took place in a faraway land that, perhaps, does not provide the same types of wages, working conditions and environmental protections as U.S. manufacturers.
PMPA commented that by definition, a business must manufacture or alter the physical content of a product to fall under NAICS 31-33.
Further, these production activities must occur within North America, or they undermine the very purpose of a North American Industry Classification System.
If manufacturing processes are not actually required for a “manufacturing” classification, the statistics produced by such a distorted definition are virtually useless.
“This is an important victory for U.S. businesses and we applaud the Administration for recognizing the flawed thinking behind this proposal,” said Mike Kobylka, Executive Director of PMPA. “This proposal would have created a class of phantom manufacturers. The NAICS classification system has never and should never take into account foreign sourced production processes.”