Classified Information

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The federal government has finally gone global. The 1999 Economic Census is the first official document to use the North American Industrial Classification System (NAICS), which replaces the Standard Industrial Classification (SIC) system that defined U.S. businesses for the past 30 years. NAICS (pronounced "nakes") is not merely a modified SIC, but an entirely redesigned international classification system.

The implementation of the North American Free Trade Agreement (NAFTA) in 1994 underscored the need for a system that applies across international borders. With the adoption of NAICS, governments and businesses can directly compare industrial production statistics between each of the three NAFTA trading countries -the United States, Canada, and Mexico.

The revamped system also allows for comparisons with countries around the world that use the International Standard Industrial Classification System, developed by the United Nations.

The SIC had plenty of critics-and rightfully so. Many charged that the system was outdated and unresponsive to the rapid changes in the U.S. economy. The system wasn't based on a consistent economic concept, and some industries were considered demand-based; others production-based. The last revision was in 1987, when 20 new service industries were added along with a few new manufacturing industries.

NAICS creators at the Economic Classification Policy Committee, a consortium of government agencies, addressed these issues head on. The new system is based on a production-oriented economic concept-establishments that use the same or similar processes to produce goods or services are grouped together. There is also a new focus on growing service industries and industries engaged in the production of advanced technologies.

The numbers speak for themselves. Of the 1,170 industries covered by NAICS, 565 are service-based. The SIC only recognized 416 service-related industries. Sixteen of 20 sectors in NAICS are service-related, while the SIC only had five out of ten.

The new Information sector in NAICS captures industries that create, disseminate, or provide the means to distribute information. Thirty-four industries fall into this division-20, including paging, cellular and other wireless communications, and satellite telecommunications, have never been classified before.

NAICS industries are identified by a six-digit code, compared to SIC's four-digit code, to allow for more sectors and greater flexibility in designating subsectors. It also provides data not appropriate for all three NAFTA countries. The agreement fixed only the first five digits of the code, leaving the sixth digit to identify country-specific industries.

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