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that region's production was on 128 machines installed or rebuilt before 1970, of which 30 machines, or 9 percent, antedate the Korean War. In the Mid-Atlantic region, 87 machines (42 percent of the total in place) predated 1971. These machines accounted for more than half (53 percent) of the region's production capacity.

The large share of older machinery in place indicates that the domestic rebuild market will continue to flourish into the next decade. Since this is the market segment which has provided the greatest opportunities for U.S.-based suppliers, it is imperative that they remain competitive and alert to future rebuilding jobs.

Used Machinery Market

Quite separately from machine rebuilding, a used paper machinery market also flourishes. In 1982, an estimated $21 million worth of used machinery accounted for nearly 2 percent of total machinery shipments for that year. Domestic suppliers, primarily specialty firms dealing in used paper machinery, provide most used machinery consumed by the U.S. paper industries. Used paper machinery is most commonly sold as a section of the wet or dry end of the machine. Specialty equipment, calenders, and woodyard equipment frequently are sold on the used machinery market. Smaller pieces of equipment employed at the beginning (woodyard) or the end (converting) of the papermaking process are most readily sold as used equipment. There is a modest export market for used paper machinery, although the market is hindered by foreign restrictions commonly applied to imports of used machinery. Such restrictions, which May appear arbitrary, have often arisen in light of bad experiences many foreign countries have had with dumping and lack of service provided on used machinery. These constraints have led in some instances to generic prohibitions on the import of used machinery. However, these provisions have not hindered machinery rebuilding. 4

A Foreign Trade Deficit: How It Came to Be

The U.S. paper machinery industry historically maintained a favorable trade balance prior to 1979. After declining through much of the 1970s, the industry's terms of trade turned negative in 1979, only to recover a favorable position in 1980. This improvement did not survive the steep recession of 1982 even though that recession slowed the demand for both imported and domestic machinery.

Table 9 summarizes trends in U.S. trade in paper machinery between 1982 and 1986. In 1983, the previous year's trade surplus of $109

4 Roberts Fred "Used Equipment Can Provide Quick, Low Cost, Answer to Capital Needs," Pulp & Paper, December 1988.

million was wiped out and replaced with a $7 million deficit, which has grown substantially in the ensuing years. Even if conservatively estimated, the deficit skyrocketed in 1986 to approximately $300 million, including such additional items as stock treatment pumps and certain roll bars.

Final trade figures for 1987 showed a trade deficit of $254 million for the year. Imports, including closely related equipment, were up 9 percent over 1986, totaling $562 million. Exports, in comparison, showed a rise of 14 percent for the year and at $308 million were still 2 percent below the pre-recessionary level of $316 million achieved in 1982.5

Several component products have formed the industry's trade deficit. Parts for machines in this industry are the largest item of trade both in exports and imports. Exports of parts Fell by $10 million over the 5-year period from 1982-86, dropping from $179 million to $169 million. During the same period, imports of parts rose by $100 million, from $97 million to $197 million. This translated the major surplus item (at $72 million) into a deficit of $28 million. Another major contributor to the trade deficit lies in the converting area, in box-making machinery. This item primarily consists of corrugating machinery, an industry segment which has undergone swift change within the past year. While exports of box-making machinery have remained steady, rising from $19 million to $22 million over the period, imports rose from $37 million to $92 million over the same time.

Emergence of a trade deficit at the start of the decade shocked some U.S.-based firms into action. Even as trade terms improved, companifs and associations began to reassess steps which might be undertaken to become more competitive. The U.S. International Trade Commission (ITC) prepared a report entitled A Summary of Trade and Tariff Information which was issued in August 1982 and revised again in October 1984, that highlighted the deteriorating trade position of the industry. A grant provided to the Pulp and Paper Machinery Manufacturers Association (PPMMA) by the Economic Development Administration, U.S. Department of Commerce led to a 1981 report entitled An Analysis of the Changes in the Markets for Pulp and Paper Machinery (1974-1979). This report surveyed the recent history of the paper machinery industry, sought to explain the initial appearance of the trade deficit, and offered recommendations, on behalf of the grantee PPMMA, as to steps which both industry and the trade association might undertake to become more competitive globally.

° Trade data used in this report, unless otherwise stated, are customs value for imports and f. a.s. for exports.

TABLE 9

U. S. TRADE IN PAPER MACHINERY, 1982–87
($ million)

Year Exports Imports Balance
1982 $316 $206 $110
1983 203 210 – 7
1984 259 301 - 42
1985 251 411 -160
1986 268 511 -2 4 3
1987 308 562 -254

SOURCE: U.S. Department of Commerce, International Trade Administration, internal documents

With respect to industry efforts the report made the following recommendations: (1) Increased industry R&D into process improvements and energy saving; (2) use of metric engineering standards for both original equipment manufacturers and replacement parts; (3) stronger efforts to meet delivery dates; (4) better language and other training for sales personnel; (5) greater product promotion; (6) improved warranties; (7) improved quality control; and (8) better technical support service to the paper industry. With respect to the association, the report recommended several steps to improve the balance of trade in paper machinery. These included the following: (1) Support of efforts to achieve equal tariff treatment for paper machinery between the major trading partners; (2) PAMMA sponsorship, in conjunction with the U.S. Department of Commerce, of booths at major foreign paper trade shows and of technical seminar missions to foreign countries; (3) PPMMA work with U. S. Export-Import Bank to develop a program for low-interest loans for long-term projects above $5 million; and (4) PPMMA work to achieve revisions in the Standard Industrial Classification (SIC-3554) of paper industries machinery.

As an offshoot of a recommendation contained in the earlier report, the industry undertook its first trade mission in 1982. The mission was an industry organized-government assisted (IOGA) mission to Norway, Sweden, and Finland. The mission produced a technical report8 and generally satisfactory results for the U.S.

6 Advanced Technology In U. S. Pulp and Paper Machinery, Pulp and Paper Machinery Manufacturers Association, Washington, D.C. 1982, 1987. For West Germany, see, Neue Technologie fur die Zellstorff-und Papierindustrie aus den USA, Pulp and Paper Machinery Manufacturers Association, Washington, DC, 1987.

participants. Going into the "lion's den," the mission raised the profile of the paper machinery industry. In February 1987, the U.S. industry conducted a successful private seminar-mission to Australia and New Zealand. The industry then followed with another successful private trade-seminar mission to West Germany in November 1987.

Import Trends with Major Trading Partners

As paper machinery trade has evolved in the 1980s, four countries--Finland, West Germany, Sweden, and Switzerland--have emerged as the leading contributors to the U.S. trade deficit in this industry. Trade with Canada, historically our leading trading partner in paper machinery, has provided a steady but diminishing favorable U.S. balance. Several other countries, notably the United Kingdom, Mexico, and Australia, also are positive contributors to the U.S. balance of trade in paper machinery (see Figure 3).

U.S. imports of paper machinery from West Germany were 14 times U.S. exports in 1986. Imports totaled $200 million; exports just under $14 million. Imports nearly doubled between 1984 and 1986, from $108 million to a record $200 million. Finland was the next largest contributor to the trade deficit during this period. Paper machinery imports from Finland totaled $55 million in 1986, up more than four times from the $12 million imported in 1984. Such sharp swings in U.S.-Finnish paper machinery trade are not uncommon. During one year in the 1970s imports rose from $3 million to $29 million. The all-time high was $98 million in Finnish imports in 1981, immediately prior to the 1982 recession which dried up demand for Finnish imports as effectively as it did domestic shipments.

Switzerland continues as the major import source of converting machinery, accounting for $37 million in 1986, up from $20 million in 1982. This figure includes shipments from Bobst, an industry leader, which maintains a U.S. plant at Roseland, New Jersey. While Switzerland has maintained its position as the primary U.S. import source for box-making machinery, its lead is being challenged. Imports from Japan totaled $24 million in 1986 with another $15 million entering from the West Germany. By comparison, 1982 imports from these markets totaled only $7 million combined. Imports of parts and paper boxes totaled some $150 million in 1986, accounting for half of the 1986 deficit.

Imports from Canada, level at $30 million between 1981 and 1983, rose to $53 million by 1986. Exports, which had remained relatively steady through the recessionary period in the United States and Canada, Fell in 1986 to $67 million, $5 million below the 1985 lfvel. Over the past decade the trade balance has shifted in favor of Canada. The overall balance now stands in a 6-5 ratio, U.S.-Canada, as against the 3-1 ratio common in the mid-1970s.

Japan has also recently become a major supplier of paper machinery to the United States. With $60 million in 1986 imports, Japan now

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($ million)
CANADA L- UNITED MEXICO REMAINING
o KINGDOM WORLD
o- FRANCE -
- FINLAND JAPAN
SWITZERLAND
1982
987
|-
|-
WEST GERMANY

SOURCE: U. S. Department of Commerce, International Trade Administration.

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