MAJOR U.S. AND FOREIGN

FACILITIES IN CANADA

Inc.

Source: Pulp and Paper Canada, Annual Directory, 1986, see also,
"Marketing Opportunities for Canadian Pulp and Paper Equipment
Manufacturers," Department of Regional Industrial Expansion, Report
No. X 6831/1, Ottawa, Ont., August 15, 1985.

greater than shown in the table, which does not include firms producing equipment not classified as paper machinery, such as paper machine controls, motors and drives, and recovery boilers. An exception was made for stock treatment pumps because of their importance to the Canadian pulp and paper industry, with its heavy concentration in production of market pulp and newsprint.

Canadian producers of paper machinery are represented through the Pulp and Paper Machinery Manufacturers Section of the Machinery and Equipment Manufacturers Association of Canada. Many companies are also members of the Technical Section of the Canadian Pulp and Paper Association (CPPA), which is headquartered in Montreal. In addition to the technical section in Montreal, CPPA also assumes the function of representing the paper industry before the Canadian Government and in international fora. For 75 years CPPA has sponsored Canada's major exhibit of paper machinery and paper products. KŸown as Paperweek, the exhibit is customarily held in late January at the Palais des Congres in Montreal. In recent years it has attracted over 10,000 persons to the exhibits of over 300 companies and more than 2,000 to its technical sessions.

In a

The Major Players. There are three builders of fourdrinier machines in Canada. Beloit Corp., the U.S. industry leader, and the Black Clawson Company have large Canadian plants capable of fabricating most types of machinery customarily supplied by these firms. major merger earlier in this decade, Dominion Engineering, Inc. established a joint venture with the Finnish-owned Valmet. Based in Lachine, Quebec, the resulting Valmet-Dominion has major paper machinery production capabilities. In a subsequent move, Valmet-Dominion entered the U.S. market through a separate joint venture known as Valmet-KMW, based at Charlotte, North Carolina, which itself has been incorporated into Valmet Paper Machinery, Inc. The extensive use of groundwood pulp in Canada has produced a substantial market for pulp refiners and other refining equipment. Major producers in Canada include Beloit, Black Clawson, and C-E Sprout-Bauer, the leading U.S. supplier of pulp refiners, which maintains a manufacturing plant at Brantford, Ontario. Hymac, Ltd., the leading Canadian-based refiner maker, has its facility at Laval, Quebec. Koehring-Waterous, a division of the Canadian multinational firm Amca International, manufactures pulpstone grinders in its Brantford plant. Other major Canadian producers include S. w. Hooper & Co., Ltd. of Montreal and a group of firms (Brunette Machine Works, Ltd.; CAE Machinery, Ltd.; and Forano, Inc.) making woodyard equipment. Leading U.S.-based producers of stock treatment and vacuum pumps, such as Goulds, Worthington, and Nash, all manufacture in Canada.

Sunds

There are numerous licensing arrangements in Canada. Defibrator, the Swedish producer of refiners, has a manufacturing arrangement with Quebec Tool. Sandy Hill recently announced that

Sandy Hill Canada, Inc. had entered into a manufacturing and sales arrangement with Lefebvre Freres Ltd. of Montreal.

Pulp and Paper Production. Canada is the world's second largest producer of pulp, trailing only the United States. In 1987 its 128 pulp mills produced 23 million metric tons. As a paper producer, Canada is the world's third largest supplier, dwarfed only by the United States and Japan. Production of its 125 paper and paperboard mills in 1987 totaled 16 million metric tons. In 1984, 62 percent of Canadian pulp production was used as furnish for production of newsprint and other paper grades. The remaining 38 percent consisted of market pulp, primarily produced in British ûolumbia, of which 45 percent was exported to the United States. In the same year, newsprint accounted for 9 million metric tons, or 63 percent of Canadian paper production. Almost 90 percent of Canada's newsprint production was exported in that year, nearly all to the United States. Newsprint production is primarily concentrated in the central Canadian provinces of Ontario and Quebec.

A Flourishing Trade. As with so many other commodities, the United States and Canada are each other's largest trading partners in paper machinery. For the United States, Canada is the largest remaining market with significant two-way trade with which there is a favorable balance of trade in paper machinery. Even so this balance has been declining. Traditionally more than 3-1 in the U.S. favor, the favorable balance in 1987 stood at $47 million, with U.S. exports exceeding imports by $100 million to $53 million. Overall trade between the two countries has declined, although a surge of U.S. exports in 1987 produced the most favorable balance since well before the 1982 recession.

U.S. exports rose by 25 percent during 1984-87, reaching an all time high at $100 million. Imports fell by approximately 5 percent in 1986 to $53 million, after a $20 million jump the previous year (Table 24.)

Trade between both countries has been greatest in pulping equipment, reflecting the much higher use of refiner mechanical pulp in Canada. Parts usually account for over 60 percent of U.S. exports and about 40 percent of U.S. imports.

Considerable disparity exists in the tariff treatment of paper machinery by the two countries. Most U.S. imports are classed in the Tariff Schedules of the United States (TSUS) codes 668.00-668.07 and carry duties ranging from free to 2.4 percent ad valorem. Nearly all Canadian production is in the catchall Canadian tariff code 42700 and carries a duty rate of 9.2 percent ad valorem.

The U.S.-Canada Free Trade Agreement will phase out the existing tariffs on paper machinery in both directions. Reductions will be staged at annual intervals over a 5-year period beginning

Source: Shipments from Catalogue 42-214, Annual, "Other Machinery and Equipment Industries," Statistics Canada, Ottawa, 1984. Export and Import data from internal sources of the U.S. Department of Commerce, International Trade Administration. Shipments were calculated at an exchange rate of US$0.71. = C$1.

January 1, 1989, at the end of which the existing Canadian and U.S. tariffs will be abolished. Removal of tariffs is expected to contribute to increased bilateral trade and easier interplant shipments within the industry.

Some

In the past U.S.-based suppliers of paper machinery have been willing to use Canadian facilities to produce equipment for jobs in the United States when it has appeared to be cost effective. problem has existed in maintaining the Canadian shops at optimum work levels. Most Canadian facilities of U.S.-owned firms have production capabilities similar to comparable U.S. facilities and are regarded as export capable. A recent Canadian publication listed some 90 firms selling to the paper industry in Canada as export capable.2 This includes many firms such as boiler manufacturers and control suppliers not in the primary paper machinery industry. As indicated earlier, Canadian plants are generally equipped to produce most types of equipment required by their domestic industry.

2

Pulp and Paper Journal, February 1986, Second Export Report and Capability Guide. For background on the Canadian industry see the following: Pulp and Paper Canada, Annual Directory, 1986; Pulp and Paper, North American Factbook '84-'85; Pulp & Paper, 1988 Factbook; and Pulp and Paper Journal, Directory Issue, May '86.

The Role of Government Assistance. The Government of Canada and provincial governments provide marketing and export assistance to Canadian exporters. The primary Federal agency providing such assistance is the newly created Department of Industry, Science, and Technology, which has incorporated functions previously performed by the Department of Regional Industrial Expansion (DRIE). Additional specialized agencies exist to direct aid to Atlantic Canada and to Western Canada. These agencies are authorized to provide loans, grants, or other forms of assistance for industrial research and for erection of mills and factories. Provincial assistance has also come in the form of loans, grants, or tax abatements.

Other forms of assistance include export credit guarantees, which are available for large foreign projects in a fashion similar to those offered by other member countries of the Organization for Economic Cooperation and Development (OECD). Marketing assistance is provided by the Ministry of External Affairs. The Ministry's USA Marketing Division, U.S. Trade and Investment Development Bureau has sponsored Canadian exhibits at TAPPI and other major trade shows in the United States.

Various regional development incentives have been made available to Canadian producers by DRIE. The present government has pledged not to provide further subsidies to pulp and paper mill projects, but continues to offer financial help for mill construction. The Federal Government, through DRIE, has also provided some assistance to paper machinery R&D. A recent such instance saw grants totaling $2 million given to Hymac, Ltd. of Laval, Quebec. These grants assisted a $3 million R&D project to produce a thermomechanical pulp refiner. Expansion of Hymac's domestic market share would likely reduce the need for imports supplied from the United States. Although DRIE has provided assistance to Canadian paper machinery producers, its major impact on the industry has come through assistance to paper mill projects. This assistance has probably benefitted U.S. suppliers and their Canadian subsidiaries by providing support for both greenfield projects and machine rebuilds. Such assistance has not been without controversy both for its effect on U.S. paper producers and competing Canadian suppliers. Assistance has also been provided by provincial governments. Such assistance appears to be on the decline in part due to budget stringency imposed on the Federal Government.

Among the most controversial projects in recent years was support for a Domtar, Inc. project at Windsor, Quebec. The first of two twin-wire fine paper machines started up late in 1987. The project will include

3. For an overview of the Canadian paper machinery industry, see "Marketing Opportunities for Canadian Pulp and Paper Equipment Manufacturers," Government of Canada, Department of Regional Industrial Expansion, Report X6381/1, August 15, 1985.