YEAR IN REVIEW 1997: BUSINESS-AND-INDUSTRIAL-REVIEW: ...

APPAREL: Footwear. Faced with a dwindling number of merchants and dramatic decreases in same-store sales in the fourth quarter of 1995, many shoe companies were faced in 1996 with the strategy of wooing retailers and sacrificing margins. Such name brands as Converse, L.A. Gear, K-Swiss, and Stride Rite's Keds division recorded losses. While third-quarter profits sank for Reebok International, which sold its Avia brand, growth was seen by fashion brands Nine West Group and Wolverine World Wide--maker of Hush Puppies, Caterpillar, and Wolverine Wilderness--which posted soaring third-quarter results. Timberland, after suffering losses in the second quarter, reported that third-quarter earnings more than doubled. Giants Nike and Fila Holding had record-shattering sales. The Olympic Games, held in Atlanta, Ga., marked one of the biggest promotional blitzes ever put forth by athletic footwear companies, with Nike, Reebok, Adidas America, and Fila spending more than $100 million on advertising. Nike spent a record $35 million, and Reebok spent about $30 million plus the $20 million it laid out as the official footwear supplier. Footwear stocks were dragged down by disastrous performances by companies such as Edison Brothers Stores, operator of Bakers and the Wild Pair stores, which was in bankruptcy proceedings. Woolworth received a shareholder proposal to spin off its athletic footwear chains, including Foot Locker. Melville spun off its footwear operations to shareholders, creating an entity named Footstar that would include FootAction USA and Meldisco's leased shoe departments in Kmart stores. In addition, Melville disclosed plans to close down its remaining Thom McAn stores by mid-1997. May Department Stores decided to spin off its Payless ShoeSource operation. As part of the deal, Payless closed or relocated about 450 stores in the second quarter of 1996. Herman's Sporting Goods liquidated, but Finish Line reported that it planned to open 75 stores in two years, and Melville said that it would convert up to 100 of its former Thom McAn sites to FootAction stores. Sports Authority said that it also planned to add 55 to 60 locations within a year. (BONNIE BABER) This article updates clothing and footwear industry. APPAREL: Furs. Retail sales of fur apparel bounced back strongly in the frigid early months of 1996 as one of the harshest winters on record boosted fur sales by 10-20% over the previous year's sales of $1.2 billion and brought industry inventories to their lowest levels in years. Animal rights organizations had claimed credit for having put a damper on U.S. fur sales, which had peaked at $1.9 billion in 1987 before falling to half that amount and then rising steadily. Furriers witnessed the sharpest increases in skin prices in memory. World production of both ranched and wild furs had dropped precipitously since 1987, when the market collapsed because of oversupply and a decline in demand as a result of worldwide economic recession and a series of mild winters. Not only were there fewer pelts to supply the traditional markets, but there was also a tremendous increase in demand from Russia and China, two large fur consumers that had historically relied on their own domestic supplies. Sudden economic growth in those countries was accompanied by a major upswing in consumer demand for luxury items. The two countries became new competitors for the world's fur supplies, joining South Korea, which had entered the market a few years earlier. Another positive factor was the increased use and promotion of furs by major international fashion designers, many of whom had never used furs before and were now using them as trimmings on their textile and leather outerwear and for such accessories as hats--in such countries as Russia and China. At the same time, there was an increase in favourable media coverage, which featured furs in fashions and downplayed coverage of antifur demonstrations. Members of the Animal Liberation Front raided 22 mink farms, liberating animals and causing millions of dollars in damage. An agreement was reached in December that would enable Canada and Russia to continue to ship furs into the European Union (EU), which had legislated a ban on such items from countries that had not outlawed the use of steel-jawed leghold traps. The U.S., the world's largest fur source, was still balking at year's end and faced the prospect of having its goods alone banned from EU countries. (SANDY PARKER) AUTOMOBILES The year 1996 represented a milestone for U.S. automakers and their suppliers. The U.S. industry celebrated its 100th anniversary, tracing its roots to the 13 cars built by the Duryea brothers in 1896 rather than to any of the single vehicles that had preceded the series they produced. Yet while the industry trumpeted its centennial with a number of celebrations, it did not burden itself with sentimentality. General Motors abandoned its longtime headquarters in midtown Detroit, which had been built by its first chairman, William Durant, and which had been the largest office building in the world when it was completed in 1920. Ironically, GM moved into the glass towers of the Renaissance Center in downtown Detroit, which had been built by Henry Ford II, and quickly notified the Ford Motor Co. that it would not renew Ford's leases in the office complex. From a more immediate standpoint, 1996 marked the greatest period of prosperity the U.S. auto industry had enjoyed in 30 years. Not since the 1960s had there been such ongoing strength in the market. The industry entered its fourth straight year of solid sales, strong employment, and robust earnings, largely thanks to the resilience of the U.S. economy and the continuing boom in the truck segment, which continued to be dominated by the Big Three. Sales of new vehicles in Japan, however, were up only 1.5%, and they still had not recovered their levels of the late 1980s. In Europe sales were slightly stronger, but they were well below the record set in 1992. Several less-developed markets such as China and Argentina struggled through rough economic conditions. The Mexican market, while showing great percentage gains, continued to run far below the sales levels it had enjoyed just a few years earlier. The length of the U.S. automotive recovery prompted many analysts to wonder how long it could last. The growth of gross domestic product came under increasing scrutiny, since the U.S. consistently devoted about 4.5% of its GDP to the purchase of new vehicles. As long as the U.S. economy continued to grow, analysts reasoned, the automotive market would too. During the year the economy continued to post ongoing, albeit modest, growth, with low levels of inflation, interest rates, and unemployment. These conditions led economists at the Big Three to conclude that the strong auto market would continue well into 1997, and they forecast a sales rate of slightly over 15 million units, compared with about 15.3 million units in 1996. While some industry observers also began wondering how long the truck segment could continue to grow, it showed no signs of abating. Whereas the total U.S. market grew more than 3% in 1996, truck sales jumped more than 8%. Passenger car sales were essentially flat. The truck segment accounted for 43% of the total market, and there were few analysts who doubted that by the end of the decade trucks would account for one of every two vehicles sold. (Of course, the fact that vans and sport utility vehicles, not just pickups, were classified as trucks affected these numbers.) The domestic U.S. automakers benefited tremendously from their dominance in the truck segment, which stood at an impressive 86% share. Not only was the segment growing strongly, but it also generated a disproportionate amount of U.S. automakers' profits. On some top-of-the-line vehicles, such as the Ford Expedition, Chevrolet Suburban, and Jeep Grand Cherokee, financial analysts estimated that each automaker was earning as much as $10,000 in variable profits. General Motors, Ford, and Chrysler each offered a mix of truck products that greatly appealed to customers, but they also continued to benefit from U.S. gasoline prices, which by world standards were extremely low. Gasoline prices in Europe and Japan were two to three times more than they were in the U.S. The low price of fuel in the U.S., about $1.30 per gallon, continued to encourage buyers to opt for full-size trucks, vans, and sport utility vehicles with large V-6 and V-8 engines. Since there were few other markets in the world where such vehicles were competitive, few foreign automakers were willing to make the huge investment needed to develop these types of trucks and engines. Those foreign automakers who chose to sell pickups in the U.S. also had to make them in the U.S. or pay a 25% import duty. In late 1995 Japan's largest and richest automaker, Toyota, announced that it would build a new plant in Princeton, Ind., to make 100,000 full-size pickup trucks annually. No other foreign automaker revealed plans to do the same, however. That did not stop Japanese automakers from trying to find their own niche in the truck segment, with smaller sport utility vehicles priced under the more popular U.S. models. Toyota began importing the RAV4 to the U.S. market, and its immediate sales success prompted Honda to announce that it would import the CR-V. Subaru also announced that it would bring in the Streega from Japan. The South Korean automaker Kia also introduced the Sportage, which was priced below the Japanese entries. The Sportage also pioneered the first application of a knee air bag. The air bag deployed quickly just below the steering column and pushed the driver's knees back, thus straightening the torso and putting the driver in a better position for the chest air bag, which deployed a fraction of a second later. Upscale sport utility vehicles were not the only products to attract affluent buyers. Most European luxury cars enjoyed a double-digit sales growth in 1996, while their U.S. and Japanese counterparts floundered. BMW, Mercedes-Benz, Audi, Porsche, and Jaguar all benefited from new models, most of them aggressively priced, that stole sales away from the Japanese luxury brands. Volkswagen, too, enjoyed a healthy sales surge. Yet despite their recent success, the European brands were just starting to get back to the sales levels they had enjoyed in the mid- to late 1980s. The year was also marked by strikes and labour negotiations. In March the United Automobile Workers struck two General Motors plants in Dayton, Ohio, that made brake parts. The union objected to GM's buying antilock brakes from Robert Bosch GmbH, an outside supplier, instead of building them in-house. The practice of buying parts that formerly had been made in-house, commonly called outsourcing, was a particularly contentious issue between manufacturers and labour unions. The shortage of brake parts from the idled Dayton plants quickly forced most other GM plants to close as well. The strike lasted only 17 days, but before it was over, GM had lost 96,000 vehicles, and the company blamed a $900 million loss in the second quarter on the lost production. Most analysts felt, however, that General Motors had showed a new resolve in taking on the union, something it had been reluctant to do earlier, when its balance sheet was weak and it was losing money in North America. Later, in the fall, each of the Big Three and many of their suppliers had to negotiate a new three-year labour contract with both the UAW and the Canadian Automobile Workers. Ford and Chrysler breezed through their negotiations with virtually no disruptions, but GM ran into difficulties, especially with the CAW. Once again the issue centred on outsourcing and job security, and once again the company lost significant amounts of production. GM's troubles with its unions stemmed from the fact that it needed to negotiate a contract that would allow it to shed a staggering 50,000 to 60,000 workers in order to match the productivity levels that Ford and Chrysler had achieved. The difficulty was compounded by the fact that Ford and Chrysler had completed most of their outsourcing during the severe automotive recession of the early 1980s, while General Motors was trying to reduce its workforce drastically during a prosperous period, something the unions resisted. At first blush the contracts settled with each of the unions seemed to be decidedly pro-labour. They guaranteed that each automaker would retain 95% of its workforce during the length of the contract. Every hourly employee was given a $2,000 signing bonus, and over the life of the contract each employee would earn an additional $10,000 in wages and benefits. Each automaker also committed itself to looking for opportunities to bring more work in-house to preserve jobs. As more details of the contracts began to leak out, however, it became apparent that the automakers had negotiated enough loopholes to allow them to achieve ongoing reductions in the cost of labour. It was learned, for example, that the 95% job guarantee applied only to outsourcing. Any plant that was able to reduce its workforce by means of productivity improvements would not be held to the 95% level. Nor did the guarantee apply to contract workers or to plants that were sold, and it would not apply during an economic downturn. Moreover, any new workers hired to make automotive parts, as opposed to those involved in vehicle or power train assembly, could be paid a substantially lower wage. The Office for the Study of Automotive Transportation (OSAT), affiliated with the University of Michigan, released a study showing that over 30% of the automotive workforce was already more than 50 years old. The study predicted that more than 40% of this hourly and salaried workforce, representing several hundred thousand people, would retire by 2003. As automakers continued to outsource more work to supplier companies, those companies in turn experienced a great increase in their business. The larger supplier companies embarked on a major buying spree during the year, trying to acquire smaller companies. They did so for several reasons. First, they were trying to broaden their technical capabilities and product lines. Second, they were essentially buying new customers by acquiring firms that did business with other automakers or even other suppliers. Third, they were trying to expand their presence in overseas markets. A report from Morgan Stanley showed that during the period from February 1995 through February 1996, there were 75 acquisitions of publicly traded supplier companies, nearly two a week, representing $17 billion in transactions. Some of the more notable mergers and acquisitions during the year included the giant German supplier Robert Bosch, which paid $1.5 billion in cash for the brake business of AlliedSignal (the company that had long been known as Bendix). Hayes Wheels International and the Motor Wheel Corp. merged in a $1.1 billion deal. Lucas Industries and the Varity Corp. merged to form a $6.7 billion company. The giant seating supplier Lear bought Automotive Industries and Masland. Lear's formidable competitor Johnson Controls purchased the Prince Corp. for $1,350,000,000. Tenneco bought Clevite for $300 million, snatching it away from Mayflower at the last moment. Sweden's Autoliv acquired the auto-safety division of the U.S.-based Morton for $750 million to form a giant air-bag supplier. Finally, Textron bought Germany's Kautex Group for more than $300 million. All of this activity led several executives at Chrysler and Ford to denounce it as "merger mania." They warned suppliers that it was not necessary to own other companies and that they could get the same benefits by cooperating with them instead of buying them. The automakers worried about supplier executives being distracted by their acquisition activity. They also openly wondered how suppliers would manage their debt loads during the next economic downturn. For their part, however, many supplier executives suspected that the automakers simply did not like the fact that supplier companies were becoming so big and powerful. They assumed that the automakers opposed their growth because suppliers would be in a better position to resist pressures to cut prices. Besides, they argued, mergers and acquisitions enabled them to achieve better value for their stockholders. The facts seemed to bear them out. The stock of the publicly traded automotive supplier companies actually outperformed the Standard & Poor's 500 index, including the stock performance of the automakers themselves. Elsewhere in the supply business, General Motors and Ford studied the possibility of selling parts to each other as they tried to increase their presence in the Southeast Asian market. Rather than have each company build components for itself in this part of the world, GM's Delphi and Ford's Automotive Parts Operations discussed how they could coordinate their activities to prevent any overlap. They were especially interested in not duplicating factories that required heavy capital investment. The companies also studied how they might locate their supplier plants close to one another's assembly plants. Japanese automakers already did much the same thing in some Asian countries. Toyota, for example, made engine cylinder blocks for Nissan and Isuzu in Thailand. Nissan, in turn, made engine cylinder heads for the others, while Isuzu made connecting rods and camshafts. Toyota and Honda also introduced cars designed specifically for the Southeast Asian market that were not just stripped-down versions of existing cars. Toyota's car, called the Affordable Family Car, or AFC, was derived from the company's four-door Tercel. To hold prices to affordable levels ($12,000 to $16,000), Toyota dropped certain equipment such as antipollution devices, a heater, and some safety beams. Nonetheless, it offered air-conditioning, a modern design, and the possibility of optional air bags on higher-priced models. Honda introduced the City, a four-door subcompact that was developed exclusively for the region and was powered by a 1.3-litre engine. Ford increased its equity in its Japanese partner, Mazda, to 33.4% from 24.5%, effectively taking legal control of the company. Ford also named Henry Wallace president of Mazda, the first time in history that a non-Japanese executive had run a Japanese auto company. The need for Ford's financial involvement was clear. Mazda's debt had swelled to $7 billion, and it had lost money. Ford also pulled several product-development programs out of the U.S. and Europe in favour of Mazda. Specifically, it yanked development of a new engine family (known as the I-4/I-5 program) out of Europe and gave it to the Japanese company. It also killed a small sport utility vehicle being developed in the U.S. in favour of a joint Ford-Mazda program that was already under way. This undoubtedly helped Mazda, but several European and U.S. supplier companies that had invested in the projects were angry at being left out. General Motors became the first major automaker in the modern era to offer a mass-produced electric-powered vehicle. Called the EV1, it became available for lease at Saturn dealerships in Los Angeles and San Diego, Calif., and in Phoenix and Tucson, Ariz. The move was part of a deal that automakers had reached with the California Air Resources Board. The CARB agreed to drop its 1998 mandate that 2% of automakers' sales in California had to be electric vehicles, provided that automakers agreed to introduce electric vehicles. The CARB did not, however, rescind its mandate that 10% of all vehicles sold in 2003 had to be electrics. Toyota and Honda quickly announced their own plans to make electric-powered vehicles available in 1997. Other automakers were also expected to announce similar plans. Air bags came under scrutiny in 1996 when they were identified as potentially lethal devices for children and for short drivers, especially small women. To protect unbelted occupants in a car, as required by law, air bags needed to deploy very quickly. Because they deployed at nearly 325 km/h (200 mph), they were dangerous for anyone who was too close to them and potentially lethal for anyone small enough to be flung back by them. Air bags were identified as the cause of death for a small number of children and adults involved in minor accidents and as the cause of abrasions, bruises, and broken ribs for some adults. Safety advocates called for the introduction of so-called smart bags that would sense how quickly or powerfully they had to deploy, depending on the size and position of the occupant. Automakers countered that the technology for smart bags was not yet reliable. They argued instead in favour of air bags that would not deploy as quickly yet would protect passengers who wore seat belts. Both sides urged parents to keep their children belted in the backseat. The National Highway Traffic Safety Administration contemplated issuing a regulation mandating a more stringent warning label in cars. At the end of the year, however, the issue had not been resolved. (JOHN McELROY) This article updates automotive industry. BEVERAGES The largest U.S. brewers were determined to be as many things to as many people as possible in 1996 in an effort to generate more than marginal growth. Anheuser-Busch, Miller Brewing, and Adolph Coors all made no secret of their desire to cut in on the booming craft beer market, and, just as they had in 1994 and 1995, all three indulged in an upscale, low-volume strategy, trying to pluck off microbrewing's relatively few but valuable consumers. More important, however, the large brewers paid close attention to their mainstream marketing efforts. Reasoning that the premium segment was the biggest of all, Coors relaunched its Original Coors brand as "the last real beer." Similarly, Miller lent its trademark to a new label simply called Miller Beer. Each was trying to siphon off shares from Anheuser-Busch's Budweiser, the sales leader. Anheuser-Busch, the world's largest brewer, took shots at its much-smaller competitors in 1996. The company introduced dating to remind drinkers that Budweiser was fresh, not "skunked" (stale), as some imports tended to be. When Budweiser radio ads lambasted a competitor for not being what it said it was, the competitor was not Miller or Coors. It was instead the comparatively small Boston Beer, the marketer of the leading microbrew, Samuel Adams, which Anheuser-Busch criticized for not brewing in Boston. By year's end Anheuser-Busch had come up with Pacific Ridge Pale Ale, just for California. As for the craft-style beers that had led the revolution in taste, they continued to increase their sales in double-digit percentages in 1996 while at the same time proliferating in numbers. It was estimated that by year's end there were 4,400 brands of beer available in North America, most of them created by small brewpubs (restaurants that made their own beer) for limited clientele. Still, the many beers available continued to affect tastes, whether they appealed to the traditional consumer or to those willing to experiment, even with fruit flavours. So-called alcopops, like an alcoholic lemonade, became popular in Australia and the U.K., and several companies were exploring their possibilities in the U.S. This article updates beer. BEVERAGES: Soft Drinks. People could not miss Coca-Cola in 1996 if they watched the Olympic Games, held in the carbonation giant's headquarter city, Atlanta, Ga. The company invested an estimated $500 million to plaster its name all over the world's most watched event. Later in the year Coca-Cola swooped into Venezuela, one of the few markets where it was outsold by Pepsi-Cola, and reversed the situation by signing with Pepsi's powerful bottler, the Cisneros Group. Pepsi struck back in November by signing a deal with Polar, the Venezuelan brewer and packager, to bottle and distribute its goods. As U.S. soft drink consumption continued to increase at a better than 3% annual clip, both Pepsi and Coke managed to enjoy good fortunes at home. Pepsi inaugurated "Pepsi Stuff," a promotion that allowed consumers to save "points" from packages and receive apparel and sporting goods with the Pepsi logo. Outside the U.S., the company began Project Blue, which included a newly designed blue can. While colas remained king throughout the world, there was no shortage of contenders for "next big thing" in 1996. At a time when Snapple and AriZona iced tea sales were lagging, a vacuum was waiting to be filled. There were soft drinks with names like Black Lemonade and exotic ingredients like ma huang and ginkgo biloba. Energy drinks included Guts, made with guarana, a South American extract said to offer beneficial effects. Even cola was not safe from spice, whether it be sodas spiked with coffee (including one marketed by Pepsi) or the U.S. debut of the British sensation Virgin Cola. In December Coca-Cola introduced Surge, a high-calorie and high-caffeine citrus drink targeted at Pepsico's Mountain Dew market. Clearly Canadian grabbed a wave of publicity in 1996 by floating gelatinous spheres in a juice drink and calling it Orbitz. Yet for all the effort that many entrepreneurial companies invested into gaining the spotlight, the most publicity went to a simple product: bottled water. The hottest new product of the year, much imitated in North America, was Water Joe, uncarbonated water with caffeine. (GREG W. PRINCE) This article updates soft drink. BEVERAGES: Spirits. (For Leading Spirits-Consuming Countries in 1995, see Graph.) The marketing development of 1996 involved advertising practice in the U.S. After 60 years of voluntarily avoiding the airwaves, the sellers of distilled spirits in the U.S. declared that they would change their policy. Liquor, like beer and wine, would seek customers through radio and television advertising, a common practice elsewhere in the world. The spirits industry called it a matter of equity. Beer companies called this a specious argument (given the difference in the alcoholic content of a glass of spirits and a mug of beer) and did not care to be lumped with the so-called hard liquor industry. Would-be guardians of morals, from Pres. Bill Clinton on down, fretted that whiskey commercials would be bad for children. The chairman of the Federal Communications Commission, Reed Hundt, talked about new regulations; others planned to turn to Congress for a solution. The major broadcast networks declared that they did not want to run such ads anyway, but local stations and cable operators did not seem to mind. One thing was apparent. By running almost no advertising but merely talking about it, the spirits industry had probably gained more publicity than at any time since the repeal of Prohibition in 1933. Ironically, the talk of instituting new advertising regulations for alcoholic beverages came at a time when there was relatively little pressure to enact prohibitionist legislation. Drunk-driving figures had steadily declined over the previous decade, and some watchdog groups had come to recognize that alcohol marketers were taking a substantial measure of responsibility for the use of their goods. The sales of spirits continued to lag. Demographers pointed to an aging population that was not as interested as its parents were in traditional bar drinks. The industry responded in 1996 by unleashing wave after wave of unique products. Among the spirits introduced were Teton Glacier Potato Vodka; Rain Vodka, the first American vodka to be distilled from organically grown ingredients; a zesty line of liqueurs from Belgium called Smeets FruitJenever; and, in a nod to craft brewers, Jacob's Well, billed as "the world's first micro-bourbon." The most unusual package was for Rohol, a German whiskey drink that came in a miniature crude-oil can. (GREG W. PRINCE) This article updates distilled spirit. BEVERAGES: Wine. Vintage 1996 provided the usual roller-coaster ride of good and bad results. In California and Oregon the vintage was generally fairly good, continuing a trend of the entire decade of the 1990s. The real problem there was of supply and demand. As more Americans consumed a more varied selection of wines, the demand for premium-quality wines drove prices generally higher if suitable grapes could be found at all. This was exemplified by merlot, whose prices soared as supplies dwindled. In Europe the outlook was generally optimistic. French growers had to deal with rains just prior to harvest, but these were not a great problem except for the "right bank" wines of Pomerol and Saint Emilion in Bordeaux and in the wines of the southern Rhone Valley. Medoc was promising a good vintage; Burgundy growers were enthusiastic, especially about their whites; Alsace should prove an exceptional vintage; and the northern Rhone Valley should produce some fine wines. Champagne producers were expected to declare a vintage and were excited about the quality of the grapes. In Italy Tuscan producers promised a good vintage, while their colleagues in the Piedmont were happy with the results of the harvest. Southern Hemisphere producers continued to improve the quality of their wines. Australia was plagued by drought, and so the crops were small. The increased demand for wine in Australia, therefore, led to less wine being available for export. South American wines continue to become more available and were of improved quality. South African wines gained in availability and popularity. Sales continued strong, with a more international flavour to consumption. Increasing numbers of producers on both sides of the Atlantic were sending their products overseas, giving consumers a more varied selection. (HOWARD HERING) This article updates wine. BUILDING AND CONSTRUCTION The pace of new construction eased slightly in mid-1996 in the U.S., but it rebounded strongly in September. Total new construction spending rose in September to a record annual rate of $573.4 billion, according to U.S. Department of Commerce figures. Strong third-quarter support came from nonresidential building. The major stimulus was government spending, with gains in highways, schools, urban public housing and redevelopment, hospitals, and water-treatment plants. By contrast, housing starts declined after a brisk pace in the first quarter. According to the National Association of Home Builders, new residential single- and multifamily dwelling starts would total nearly 1.5 billion for the year, 7.7% above the 1995 pace. The U.S. Congress reauthorized the Safe Drinking Water Act, allocating up to $9.6 billion to ensure that the nation's 60,000 water treatment plants were brought into compliance. Some operators began to develop alternatives to chlorine disinfection. Milwaukee, Wis., upgraded its system to ozone disinfection, an $89 million improvement. Seattle, Wash., began competition between four design-construction teams for the proposed 120 million-gal-per-day Tolt River treatment plant (1 gal = 3.79 litres). In the area of wastewater treatment, the $3.5 billion Boston Harbor cleanup passed a milestone in September when a 15.3-km (9.5-mi) outfall tunnel was completed to discharge 1.3 million gal per day of treated effluent 30.5 m (100 ft) below the surface of Massachusetts Bay. Canadian nonresidential construction fell 8.6% during the first quarter of 1996, but residential construction surged as monthly housing starts for the period averaged 113,000 units, a pace that would mark a 4.2% increase for the year. Contractors made significant progress on the $500 million Northumberland Strait Crossing, which would connect Prince Edward Island and New Brunswick. Construction in Mexico rebounded in the second quarter of 1996, advancing 7.8%, after having slumped 23% in 1995. Traditional construction remained weak overall, but the telecommunications sector continued to attract infrastructure investment from carriers preparing to compete for long-distance customers in January 1997. Like many other less-developed nations, Argentina was raising capital for infrastructure by privatizing government businesses. A French-led consortium was investing $4 billion in improvements to the Buenos Aires water- and wastewater-treatment system in return for a 30-year operating concession. Brazil was also following the privatization path, encouraging investment in the previously monopolized transportation, telecommunications, oil, and utility industries. Some 1,100 water and wastewater concessions across the country were up for sale. In Indonesia a favourable investment climate attracted capital to finance a $1 billion petrochemical plant and a $2.5 billion 1,230-MW power station on Sumatra. The current five-year plan called for expenditures of $20 billion for transportation and $9 billion for water supply and treatment. China began to turn its attention to environmental pollution, an unwelcome consequence of rapid development. During the first two quarters of 1996, the central government closed 1,000 small paper plants on the Huai River, its most polluted waterway. The country was seeking to increase the budget for environmental protection above the current level of 0.7% of gross domestic product. Disastrous floods during the summer gave impetus to the massive Three Gorges Dam project, a $25 billion flood-control and hydropower project that would displace well over a million people. (ANDREW G. WRIGHT) This article updates building construction. CHEMICALS The high production and plant-operating rates seen in 1995 continued to mark most of the world's chemical industry in 1996. The high and rising sales levels reflected the generally healthy economies of countries around the globe. The high volume of products sold, however, did not always translate into record profits, particularly for the makers of big-volume petrochemicals. While employment rose in the chemical industry in the U.S., added personnel was not as visible in industrialized countries as was higher productivity--fewer workers turning out more products. Countries in Asia, South America, and the Middle East continued to strengthen their roles in chemical production, and as the economies of many of the nations of Eastern Europe continued to improve--notably Poland, the Czech Republic, and Hungary--they were beginning to surpass the production marks set before the breakup of the Soviet bloc. The few records from Russia itself gave little evidence of recovery. There was concern, however, as to whether some of the capital expansion projects slated for the latter half of the 1990s--many to come into operation beginning in 1997 and 1998--might be ill-timed. This was particularly the case with crackers for the production of ethylene, propylene, and butadiene and for facilities making pure terephthalic acid, used in polyester fibres, film, and bottles. It was being asked if the industry had once more been overly ambitious. The new plants could lead to even more serious market competition that would shrink profit margins. It was competition and the search for higher profits that kept up pressures for mergers and the reshuffling of business units at major companies around the world. The big three German firms, for example--BASF, Bayer, and Hoechst--were reevaluating their operations and selling some business units and merging others. These developments also were seen among other companies in Europe and in the U.S. Even in Japan, where the merger pace remained slower, two chemical units of the Mitsui group announced plans to combine in 1997. The strong performance that developed in the chemical industry in 1996 came from a powerful 1995 base, the last year for which figures were available. The dollar value of world chemical shipments reached an estimated $1,545,000,000,000 in 1995, up 12.2% from 1994. Production indexes, however, were not as impressive. U.S. production rose by just 1% in 1995 after having gained 5% in 1994. The U.S. chemical industry remained the largest in the world, turning out 23.8% of the world's production in 1995, but its dominance was slipping, for in 1985 it had held a 28.4% share. Western Europe's production increased 2.5% in 1995, but performance varied greatly among countries. Germany's production index, for example, was 102.7, compared with its 1994 mark of 105.2. Germany remained Europe's largest producer, with 8.1% of the world's sales in 1995, worth $125.4 billion. France raised its chemical sales to $85.3 billion, up 8% in 1995, and its production index was at 119.2, up from 117, almost 1.8%. France had about a 5.5% share of the world's chemical business. The U.K., with a 4% share, saw its sales volume rise to $61.6 billion, up 10%, and its production rise to 3.6%. Italy showed a striking growth in sales, to $50.9 billion, up 15%. Its production rose about 3%. It had 3.3% of world production. Belgium, Spain, and The Netherlands all registered sales above $30 billion in 1995. Large increases were seen in Poland, Turkey, and Hungary in 1995. Poland's sales rose to $6.7 billion, up more than 45%, and production increased 12%. Turkey had sales of $6 billion, an even more impressive jump of 76.4%. Hungary, still well below its production level of 1991 and not growing as fast as it did in 1994, nonetheless raised its production by 1.6% and hiked sales to $3.3 billion, a gain of 50%. Although South America's chemical industry experienced good growth in the 1990s, only Brazil had a domestic sales volume that put it in the ranks of the large European countries. In 1995, for example, the latest year for which figures were available, its total sales volume was $39,390,000,000. Next largest in South America was Argentina, with sales of $13,110,000,000. Mexico's sales totaled $19.7 billion, only slightly less than Canada's, at $23,520,000,000. The picture in Asia continued to change with remarkable speed. Japan, with an output valued at $255.1 billion in 1995, had 16.5% of the world's chemical business. Chemical production was up 7%. Because Japan's plants were generally too small for serious competition in the export field and had high costs (Japan had to import naphtha as raw material for most key petrochemicals), the country's large chemical producers were increasing investments elsewhere in Asia, including Taiwan, South Korea, and China. Taiwan, which was relatively early to draw Japanese investors, had a 1995 sales volume of $28,570,000,000, which put it in the ranks of major European countries. Although dwarfed by Japan, South Korea's chemical industry, with domestic sales of $43,120,000,000 in 1995, was behind only four countries in Europe. The chemical enterprises of China, with domestic sales at $84,550,000,000 in 1995, exceeded those of all but one nation of Europe, Germany. China's expansion in chemicals continued at about 10% per year. International chemical trade in 1995 was valued at $437 billion, some 15% above the 1994 mark. The falloff in trade that was seen in the latter part of 1995, however, carried into 1996. Many of the leading exporters continued to be strong importers. Countries of the European Union, for example, exported $158 billion in chemicals, up 12%, in 1995 and imported $132 billion, up 14%. Germany retained its position as the world's export leader, shipping goods valued at $70.5 billion, up 6%, and importing chemicals valued at $43 billion, up 11%. Italy made the biggest gains, raising exports 29%, to $20 billion, and increasing imports 23%, to $28 billion. The U.S. in 1995 shipped out chemical goods valued at $62 billion, up 20%, and increased imports to $40 billion, a 19% change over 1994. Japan had a 19% export gain, to $30 billion, and imported 16% more than in 1994, or $25 billion. Stimulated by the need to exploit new technology effectively, a number of business alliances were announced in 1996. These included links between Germany's BASF and E.I. Du Pont de Nemours & Co. (Du Pont) of the U.S., which would work on a venture in China to capitalize on a new way to make key raw materials for the two most common types of nylon (nylon 6 and nylon 6/6). In the U.S., Exxon Chemical Co. and Union Carbide Co. combined their skills to cooperate on the commercial development of the new metallocenes, or single-site catalysts, which produced superior-quality polyolefins. Exxon also joined Netherlands-based DSM in exploiting metallocene technologies for types of specialty rubber made primarily of ethylene and propylene. Dow Chemical Co. and Du Pont set up Du Pont Dow Elastomers, with Dow's expertise on metallocenes a central factor. Similarly, Dow and Montell Polyolefi