Statement on the Revitalization of the Machine Tool Industry

I am pleased to announce today a number of actions we are taking to facilitate the revitalization of the United States machine tool industry. On May 20 I announced that the Secretary of Commerce, in consultation with the Secretary of Defense and other administration officials, had determined that high levels of imports could potentially erode U.S. capabilities to manufacture critical machine tool product lines. At that time, I directed that discussions be held with Japan, Switzerland, Taiwan, and West Germany leading to voluntary import limitations in critical product lines. I further directed that a domestic action plan be developed to supplement the industry's own modernization efforts.

Japan and Taiwan have agreed to voluntarily restrain the level of their machine tool exports to this country for a period of 5 years beginning in January 1987. I appreciate the willingness of Japan and Taiwan to discuss these questions of common importance in a cooperative and constructive manner. Japan has agreed to limit its exports of machining centers, computer-controlled and noncomputer-controlled lathes, computer-controlled and noncomputer-controlled punching and shearing machines, and milling machines. Taiwan has agreed to limit its exports of machining centers, computer-controlled and noncomputer-controlled lathes, and milling machines. These agreements will allow the U.S. industry to increase its share of the domestic market and preserve critical production capabilities.

Secretary Baldrige and Ambassador Yeutter have informed West Germany and Switzerland that their machine tool exports to the United States should not exceed specified limits. In this regard, I have directed the Department of Commerce and the U.S. Customs Service to monitor machine tool imports to determine whether these limits are being exceeded. If we determine that exports of these machine tools exceed these limits and undermine the integrity of the machine tool revitalization program, I am prepared to take unilateral action under U.S. law.

The combined effect of the actions announced today will create new market opportunities for U.S. machine tool manufacturers of about 3,300 units provided that demand remains constant. In 1985 these machines were imported at a value of $155 million. Over the 5 years of the VRA [voluntary restraint agreement], U.S. machine tool manufacturers could increase domestic sales by about 16,500 machines. The imported value of these machines would be $775 million. These additional sales would represent an overall increase from 35 percent to 44 percent in market share for this portion of the U.S. machine tool industry. In the critical computer-controlled product lines (NC lathes, machining centers, and NC punching and shearing machines), capacity utilization is expected to rise by more than 40 percent. These boosts in capacity utilization and additional revenues should allow the industry to funnel more investment into research, development, and facilities, thereby regaining its former vitality. According to industry experts, new investment in plant and equipment could total $115 million over the 5-year period.

We do not anticipate that domestic machine tool prices will rise significantly as a result of the actions announced today because of continuing strenuous competition among U.S. and foreign firms and because of the existence of significant excess production capacity in the United States and abroad. Further, these initiatives will continue to allow a significant foreign presence in the U.S. machine tool market. As a result, U.S. purchasers will continue to be able to purchase competitively priced tools from foreign and domestic sources.

Due to the industry's vital importance to the national security, we have developed a domestic action plan to facilitate the industry's recovery effort. By integrating the industry more closely into the defense procurement process, U.S.-based companies will have a better idea of prospective DOD requirements and be better able to make efficient production and investment decisions. By designating the machine tool industry as a major focus for DOD concentration, the industry will have a better opportunity to obtain funding from MANTECH and other Defense Department programs for advances in critical technologies. Federal support for the National Center for Manufacturing Sciences should leverage private contributions, lead to advances in process technology, and widely disseminate state-of-the-art technology.

The revitalization of the domestic machine tool industry is primarily the industry's own responsibility. Throughout the course of the voluntary import restraint program, we will closely monitor the industry's performance to ensure that it is taking the required initiatives to improve its competitive position.