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three tissue machines, with Voith and Valmet providing one machine each. In 1989 five new machines are scheduled to come on stream at existing Mills with a further seven paper machines due to follow in 199O.
The Lake Superior Paper Industries (LSPI) 235,000 tpy clay-filled supercalendered groundwood mill at Duluth, Minnesota entered into service on November 4, 1987. Built in only 19 months, this mill was almost entirely furnished with foreign equipment including a pressurized groundwood pulping system (PGW) from Tampella (Finland). This is the second such PGW mill in the United States (the first was Madison Paper in Madison, Maine). The mill was one of the largest new capital projects to be completed domestically in recent years. 3
The near-term outlook in foreign markets is mixed. In Canada, our largest export market, 1987 brought the sharpest increase in U.S. exports since the recession. Given the intention of Canadian paper producers to increase capital spending, U.S. exports should remain high in 1988-89. In Mexico and South America the extent of future sales will depend partly on the health of the national economies.
As past customers, Saudi Arabia, India, and Nigeria represent markets for possible additional future U.S. exports of paper machinery. In East Asia, heavily forested nations such as the Philippines, Malaysia, and Indonesia offer a significant opportunity for more concentrated market development. As discussed earlier, U.S. trade seminar-missions in 1987 to Australia-New Zealand and to West Germany are examples of an intra-industry trade promotion effort which May eventually yield promising results.
External Climate. The degree of success of the U.S. paper machinery industry will depend not only on their own efforts and market demand but also will depend on external economic conditions particularly exchange rates, tariffs, taxes, and interest rates.
The recent much lower and more competitive value of the U.S. dollar in relation to principal currencies of Western Europe and Japan should be favorable for U.S. paper machinery firms trying to sell in those markets. The expected further reduction in paper machinery tariffs among the United States and other nations will provide a more open trading environment than ever before. This will intensify competition among major paper machinery exporting nations.
* The LSPI mill project is described at length in Pulp & Paper, April 1988, pp. 118-123. For an updated list of pulp and paper machine startups in the United States from 1977 to 1987, see 1988 Pulp & Paper Factbook, p. 77, Miller-Freeman Publications, San Francisco, 1988.
The elimination of the investment tax credit in the Tax Reform Act of 1986 May cause at least some temporary adjustment in capital expenditures of U.S. paper machinery producers. Whether producers consider the lower corporate tax rates a sufficient offsetting blessing remains to be seen. The industry stands to benefit from reduction of state and locally imposed inventory taxes which are frequently applied to machinery in place. Because the machinery produced by this industry is long-lived and quite immobile the cumulative effects of such inventory taxes May act to discourage increased capital expenditures for new paper machinery.
The paper machinery industry is not well known to the general public. But its ultimate benefits are widespread. Its output makes possible the production of enormous amounts of paper, which in turn is transformed into a myriad variety of goods essential to daily business, education, personal, and government activities of modern societies. It is an important industry whose competitiveness issues deserve equal consideration by government leaders along with better-known and more visible industries.
Several issues and options which face the U.S. paper machinery industry have substantial impacts on competitiveness in the International marketplace. "Options" are policies and actions which government could initiate or support. It is not intended that government resources should be, necessarily, committed to all of these alternatives. They require evaluation with respect to potential effectiveness and must be balanced against competing demonds for government resources.
Major competitiveness issues confronting the U.S. paper machinery industry are how to:
expand export markets
o improve export financing
o encourage greater research and development (R&D) efforts
o promote fairness in product liability laws
o increase usefulness of U.S. Bureau of the Census
O insure an adequate national security manufacturing base
Expand Export Markets
In the past, the U.S. paper machinery industry succeeded by focusing primarily on the huge and little contested U.S. market. However, increased foreign penetration into the U.S. domestic market decreased the U.S. industry's share of the market. Thus, while the U.S. industry is trying to regain lost domestic market share, it also needs to focus more on increasing its world market share.
Earlier, this study showed that West Germany is the leading exporter of paper machinery with about one-fourth of the world export market for this product. The U.S. sector ranks a shaky distant second, hard-pressed by Italian, Japanese, and Finnish competition. The Üxport success of foreigners further increases their capacity to penetrate U.S. domestic and third-country markets. Traditionally, this industry has not placed a high priority on export promotion. Realizing the importance of increased exports for long-run survival, the U.S. paper machinery industry has initiated more emphasis on export promotion activities. This industry recently conducted
several private trade missions which have been successful in broadening the exposure of the industry and getting its members to participate in cooperative ventures. To sustain a major and adequate export promotion effort, however, the industry could benefit from more formalized export promotion under the U.S. Department of Commerce auspices and Commerce-sponsored activities could assure the level of visibility desired by the industry.
o The U. S. Government can assist the industry trade association, the Pulp and Paper Machinery Manufacturer's Association (PPMMA), in encouraging further intra-industry cooperation in International trade promotion of U.S.-made paper machinery. This industry should be encouraged to conduct further private trade missions of the type it successfully conducted in the past to Scandinavia, Australia-New Zealand, and West Germany. Department of Commerce assistance to this industry has included, for example, use of the U.S. Department of Commerce, U.S. and Foreign Commercial Service (US&FCS) long-established worldwide network of trade specialists in the United States and overseas to provide market contacts and market promotion assistance.
o Representatives of the US&FCS district offices could contact and offer assistance to U.S. paper machinery firms and the trade association.
o The Department of Commerce could convene a meeting of US&FCS district Office specialists to develop an export promotion strategy.
o The U.S. Department of Commerce can help in
o A multilingual video presentation, prepared jointly by the U. S. Government and the paper machinery industry, could be distributed throughout the US-FCS network.
o The U.S. Department of Commerce, Office of Export Trading Company Affairs, in cooperation with the U.S. Department of Justice, could assist the paper machinery industry in starting an export trading Company.
High foreign tariffs on imported paper machinery limit U.S. export
expansion possibilities. The U.S. Federal Government, in conjunction with private industry support, plays a central role in
negotiating with foreign governments on tariff rates. Nontariff barriers, such as different quality standards, licensing procedures, and local content requirements, May also constrain export growth.
o In the current Uruguay Round GATT negotiations, the
O In the GATT proceedings, the U.S. Government delegation should also press for elimination of nontariff barriers.
Improve Export Financing
In International trade circles, it is well-known that export financing competitiveness often decides success or failure in world markets. Preceding discussion in this report cited active pursuit by the paper machinery industry in seeking export financial assistance from the Export-Import Bank of the United States (Eximbank).
In Eximbank's annual report to the U.S. Congress on export credit competition during calendar year 1986, the bank concludes that while empirical data, exporters, and private sector Banks indicate that U.S. long-term official export credit programs were competitive with standard foreign official export credit, two competitive deficiencies still existed between U.S. and foreign credit agencies: (1) the 2 percent application fee and (2) tied-aid (mixed) credits. In its recent 1988 report the Eximbank indicates foreign competitors use of mixed credits continued to rise in 1987. Eximbank adjusted its fee structure in May 1987 to counter foreign fees. It is responding to the mixed-credit situation by using the war chest.
O The U.S. Department of Commerce in conjunction with PPMMA could continue to encourage the U.S. paper machinery industry to monitor and seek export financial support from Eximbank.
o The U.S. Government should support Eximbank in its
o Eximbank could hold educational seminars directed at firms in the paper machinery industry.