falling to just $12 million in 1983, U.S. paper machinery exports to Mexico slowly rebounded, reaching $23 million in 1986, and then fell again to $14 million in 1987. As shown in Table 36, other Latin American markets have also been steady, if somewhat declining, customers for U.S. paper machinery. The export decline seemed to be reversed in 1986, in line with world trends. However, as noted earlier, several Spanish-backed paper mill projects, some using U.S.-built machinery, have recently failed or have been severely troubled. These projects have involved mills in Chile, Colombia, and Guatemala and their problems will likely reduce the enthusiasm of these governments for further such ventures. TABLE 36 U.S. EXPORTS OF PAPER MACHINERY TO MEXICO AND SELECTED LATIN AMERICAN COUNTRIES: 1982-87 ($ million) Source: U.S. Department of Commerce, International Trade Administration internal documents. Brazil The Brazilian pulp and paper industry has developed significantly over the past decade both in product output and in machine technology. Brazil has emerged as a major supplier of pulp and, hence, a competitor to established producers in the southern United States and in Canada. Simultaneously, Brazil has also emerged as a major exporter of pulp and papermaking machinery, primarily to North American markets. Brazil has a sophisticated paper machinery industry, with approximately 13 primary producers capable of manufacturing major items of paper machinery including fourdrinier tables, top-wire formers, driers, refiners and refiner plates, calenders, and filled rolls. Production capacity is far in excess of domestic or regional needs, and most output is exported to North America. Under the "Law of Similars" (Lofs) Brazil has excluded most imports and placed high tariffs on the few allowed imports ($10.6 million in 1987). Imports of pulp and paper machinery are subject to customs duties of 45 to 55 percent as well as to other charges, including a 25 percent financial operations tax, a tax of 50 percent on ocean freight designed to finance port improvements, and a 3 percent merchant marine tax. These taxes and tariffs have proved an intolerable burden to most importers and have effectively forced suppliers to produce in Brazil. In comparison, U.S. tariffs on paper machinery imported from Brazil range from zero to 4.7 percent ad valorem. The list of suppliers active in Brazil includes several of the world's leading producers. Beloit-Rauma in Campinas, Voith S/A in Sao Paulo, and C-E do Brasil, also of Sao Paulo, are among the leading producers. Other active producers include subsidiaries of Sunds and Kamyr and the Companhia Federal de Fundicao, now Brazilian-owned but originally established by Black Clawson. Oriented to exporting and meeting Brazilian internal demand, the Brazilian paper machinery industry has not sought to locate subsidiaries abroad. Similarly, the largely foreign-owned industry has conducted much of its R&D abroad although R&D facilities exist at several Brazilian facilities. A listing of Brazilian suppliers of paper machinery is given in Appendix A. Brazil ranks as the world's 11th largest producer of paper and paperboard, with 1987 production of 4.7 mmtpy and is ranked 8th worldwide as a pulp producer with 4 mtpy. However, Brazil's per capita consumption of paper is fairly low at 68 pounds. Brazil has 146 paper and paperboard mills and 38 pulp mills, several of which have announced plans for capacity expansion. The rapid expansion of Brazilian trade in paper machinery is readily apparent from the trade statistics. Based on Brazilian figures, Brazilian imports fell by two-thirds between 1981 and 1985, dropping from $36 million to $12 million. Over the same period, Brazilian exports also fell but this conceals a rapid rise from 1984 to 1985 following losses during the worldwide drop in paper machine demand after the 1982 recession. After falling from $69 million in 1981 to $27 million in 1984, Brazilian exports rebounded to $61 million in 1985 (Table 37). West Germany supplies 50 percent of the small Brazilian import market, the United States about 22 percent, the United Kingdom about 12 percent, and Italy, Sweden, Switzerland, and Finland together account for about 6 percent. 1 The Lofs is an import substitution device designed to protect and encourage development of local industry. The law is a series of regulations that require a similarity test such that if it's made locally it cannot be imported. Source: U.S. Department of Commerce, International Trade Source: International Trade Administration, U.S. Department of Commerce internal documents Table 38 shows trends in U.S.-Brazil paper machinery trade for. 1981-87. The majority of U.S. paper machinery imports from Brazil have been parts, accounting for 58 percent, or $24 million, of the 1985 import total. Specialty items such as stock treatment parts and gearboxes for paper machines added about $1 million each to the Brazilian totals. Nearly all of these Brazilian exports to the United States entered under the Generalized Schedule of Preferences (GSP) system. In addition to the use of GSP, Brazil has achieved export success through a variety of financing mechanisms. The availability of generous financing has been the leading incentive for the established producers to source paper machinery from Brazilian plants. Two Brazilian entities provide this financing: BNDES (National Economic Development Bank) and, far more significantly, FINAME (Financing Fund for the Acquisition of Industrial Machinery and Equipment), which operates as an arm of the Finance Ministry. FINAME has provided financing for several recent paper machinery projects in the United States, at rates more attractive than may be offered by domestically available financing sources. Recently, Brazil provided financing for parts of the rebuild of a paper machine at the Garden State Paper Company in New Jersey and the greenfield mill project recently completed by Lake Superior Paper Industries at Duluth, Minnesota. In the Canadian market, Voith, sourcing from Brazil, recently provided a 313-inch trim twin-wire for the Finley Forest Industries mill in Mackenzie, British Columbia. While encouraging exports, Brazil protects its domestic market for paper machinery. Two national trade associations, ABDID (Brazilian Association for Capital Goods Industry Development) and ABIMAQ (Brazilian Machine and Equipment Industry Association) work closely with the government to limit capital goods imports and increase Brazilian domestic content in machine production. Prior to the 1987 recession in Brazil, Brazilian papermakers had announced planned capital spending of $2.8 billion on new and rebuilt mill projects between 1986 and 1990. More than half these projects were to be financially assisted by BNDES. Expansions of pulp capacity amounted to 1,477 mtpy, with increased paper and paperboard capacity slated to reach 1,180 mtpy. While the recession did not produce an immediate cutback in the announced expansion plans, many of the projects are scheduled for completion late in the 5-year period and could be affected by changed economic conditions. Asian Markets: Regional Highlights. Production-related data for pulp, paper and paperboard indicate market potential for paper machinery in Asia. Asian markets for pulp, paper, and board showed sharp increases in production during 1987. Output of pulp rose 6.4 percent to a record 20 mmt, while production of paper and paperboard rose 9.8 percent to a record 45 mmt. Excluding China, there were 1,339 paper and paperboard mills and 249 pulp mills in the region in 1987. Japan is the leading producer with about one-half of the region's production capacity and output in paper/paperboard and pulp. China is a substantial second place producer. Though China leads Japan in the number of paper/board mills (1,600), these mills are much smaller than those in Japan. The contrast in average size of the small Chinese paper/paperboard mills and the larger Japanese mills is highlighted by the fact that the Japanese with less than one-third (489) the number of Chinese mills more than double Chinese capacity and output. Among pulp mills, Chinese capacity and output are about two-thirds of those in Japan. Although several newly industrializing countries such as India, Indonesia, South Korea, and Thailand boast significant numbers of mills, most mills in the region are small, single machine operations producing limited tonnage for local markets (Table 39). Japan. As with so many other commodities, Japan is playing a more active role as a producer of paper machinery. Trade with the United States and foreign countries is growing, in both directions, and TABLE 39 PULP AND PAPER MILLS IN ASIA: NUMBER, CAPACITY, Japanese-made equipment is winning greater acceptance in world markets. According to OECD data, Japan advanced from eigth place as an exporter in 1982 to third place in 1984 (9.4 percent of world export market) and dropped back to fourth place in 1985 (7.7 percent). The Japanese paper machinery industry embraces approximately 365 companies. Four large firms dominate the industry with another half dozen firms recognized as leading producers of paper converting machinery. The large producers emerged as new firms after World War II while many small producers began as repair shops for paper machinery. Geographically the industry is dispersed through such urban centers as Tokyo, Osaka, Fuji City, and Shizuoka, the latter a major paper mill center. The leading producers are all large industrial combines for which paper machinery accounts for only 5 percent of annual turnover. The leading Japanese producers of paper machinery include, in order of importance, (1) Mitsubishi Heavy Industries, Ltd.; (2) Ishikawajima-Harima Heavy Industries Co., Ltd.; (3) Sumitomo Heavy |