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mil.$ % mil.$ % mil.$ % mil.$ 8 mil.$ 8

World Market

2329 100.0 2099 100.0 1828 100.0 1989 100.0 2410 100.0

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5 Nation

413 60.8 1275 60.8 1048 57.4 1287 64.7 1447 60.0

Total

NOTE:

U.S. export values may differ from data reported by the U.S. Bureau of the Census.

Source: Organization for Economic Cooperation and Development (OECD), Micro Tables, Series B, Annual Foreign Statistics by Country, 1981-1985.

over the period, and data for 1986 and 1987, which are not available for all countries, show a continued growth in trade.

Most of the industry's trade is between developed countries of Europe and North America. However, although the volume of trade is much smaller with developing nations, trade in paper machinery spans the globe and major markets exist outside the European and North American continents. Chapter V provides a discussion of highlights of each individual country's paper machinery industry.

Leading markets for the major exporting nations vary, in part, according to economic size and proximity. For example, in 1985 the United States was the leading market for exports from Canada, West Germany, Switzerland, Italy, and Japan. The United States is also a primary market for relatively new competitors such as Brazil. Table 21 shows trends in the market shares of the top 10 foreign suppliers to the U.S. market.

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Source: U.S. Department of Commerce, International Trade Administration internal documents. Trade data drawn in part from foreign government sources may not be consistent with U.S. Government data.

Indonesia was Japan's leading export market in 1985 for machinery for making or finishing paper/paperboard; the United States was the next most important export market for this Japanese product. South Korea and Taiwan were also significant markets for Japanese paper machinery products.

For the United States, foreign markets formed a different picture, as indicated in Table 22. In 1985, Canada was the primary market for U.S. exports of machinery for making or finishing paper/paperboard and for machinery for making cellulose pulp. However, Canada and Mexico were second and third, respectively, to Japan as markets for U.S. cutting, bag-making and box-making machinery. In the past, Australia, New Zealand, Venezuela, Chile, and Colombia have been good export markets for U.S. paper machinery.

Competitive Factors

This section identifies key competitive factors, ranks their importance, and indicates for each competitiveness factor how the U.S. paper machinery industry compares to foreign competition. A firm competes in terms of price-related and nonprice factors. Though all factors are important, leaders of the paper machinery industry have specified the exchange rate value of the U.S. dollar as probably the most influential competitiveness factor. Supporting analysis in a later section shows a strong correlation between the variation in exports of this U.S. industry and the variation in the value of the dollar. Availability of competitive export financing may be the next most important factor affecting the price and eventual outcome of a sales effort by the paper machinery industry. The U.S. Export-Import Bank (Eximbank) has taken steps to meet especially tough competition from French and Japanese credit agencies.

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Apart from the external exchange rate and financing environment, another fundamentally important price-related factor is production cost competitiveness. U.S. paper machinery firms producing in the United States have been at a cost disadvantage to producers abroad, particularly for major inputs such as steel and labor. For this and other reasons, U.S. paper machinery firms have established #ubsidiaries abroad. However, the extended depreciation of the U.S. dollar in recent years against Japanese and West European currencies has largely accounted for a strong recovery of U.S. price competitiveness for major carbon steel products such as plate steel as well as narrowing the labor wage gap in some nations. Other factors affecting U.S. price competitiveness are (1) the disparity between the near-zero U.S. tariff level and the substantial levels in other nations international negotiations may reduce this

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inequality, and (2) the higher costs of product liability in the United States than abroad some completed as well as impending congressional legislation may help to reduce this inequity.

Among nonprice factors after sales service, product quality and nontariff barriers can have a significant effect on

competitiveness. None of these factors pose a competitiveness problem for the U.S. paper machinery industry.

The price and nonprice factors discussed above relate directly to sales competitiveness. However, there are two fundamental competitive factors which, while not as directly related to sales as the above, are also essential to the long-run competitiveness of any industry: (1) investment in plant and equipment and (2) research and development.

The Value of the Dollar and U.S. Paper Machinery Exports

Some executives in the U.S. paper machinery sector regard the past high value of the U.S. dollar as their principal competitive disadvantage in earlier export efforts abroad. Economic theory also suggests that trends in the direction of the value of the dollar can be an important factor in the competitiveness of U.S. exports. The essence of the theory is that a decrease in the value of the dollar should help exports increase, but a rise in the value of the dollar would hinder export competitiveness. What does the historical

record show in this regard for U.S. paper machinery exports?

Figure 4 shows that from the early 1970s to 1986 a strong association did exist between trends in (1) the multilateral trade-weighted index of the nominal value of the U.S. dollar and (2) the nominal dollar value of U.S. paper machinery exports. While the index trended downward to a low point in 1980, paper machinery exports trended upward to peak a year later in 1981. Afterward, as the index changed direction and rose until 1985, exports failed to recover to the 1981 peak. However, from 1985 to 1987 the U.S. exchange rate index fell 32 percent. By 1987, the U.S. paper machinery export value had almost recovered to the 1981 peak.

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