NSC MEETING ON COMMERCE'S SECTION 232 INVESTIGATION OF MACHINE TOOLS, MARCH 26, 1986, 11:00 A.M.

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88G01117R000501590003-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 91
• Document Creation Date: December 22, 2016
• Document Release Date: July 5, 2011
• Sequence Number: 3
• Publication Date: March 25, 1986
• Content Type: MEMO

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SYSTEM II
90176
NATIONAL SECUFUTY COUNCIL
*,ASMNOTON. D.C. 40606
March 25, 1986
DONALD GREGG
Assistant to the Vice President
for National Security Affairs
NICHOLAS PLATT
Executive Secretary
Department of State
SHERRIE COOKSEY
Executive Secretary
Department of the Treasury
COLONEL DAVID R. BROWN
Executive Secretary
Department of Defense
HELEN ROBBINS
Executive Assistant to the
Secretary
Department of Commerce
PHILIP DuSAULT
Acting Associate Director for
National Security &
International Affairs
Office of Management and Budget
Executive Secretary
Central Intelligence Agency
JAMES FRIERSON
Chief of Staff
U.S. Trade Representative
REAR ADMIRAL JOHN W. BITOFF
Executive Assistant to the Chairman
Joint'Chiefs of Staff
SUBJECT: NSC Meeting on Commerce's Section 232 Investigation
of Machine Tools, March 26, 1986, 11:00 a.m. (S.
At Tab A is the Agenda for the meeting. Attendance is principal plus
one. (S)
At Tab B is the Department of Commerce's Section 232 investigation and
recommendations, it is to be handled 9n,a,strict19ed-to-know basis.
(S)
Ro- ney B. McDaniel
Executive Secretary
Attachments
Tab A - Agenda
Tab B - Commerce Investigation
cc: Donald T. Regan
John A. Svahn
Beryl Sprinkel
S EGRET
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SECRET System II
90176
NATIONAL SECURITY COUNCIL MEETING
Friday, March 21, 1986
The Cabinet Room
11:00 a.m.-12:00 noon
COMMERCE DEPARTMENT SECTION 232
INVESTIGATION AND RECOMMENDATIONS REGARDING
MACHINE TOOLS
Agenda
I.
Introduction
Admiral John Poindexter
(5 minutes)
II.
Briefing Commerce 232 Study
Secretary Baldrige
(20 minutes)
III.
Interagency Views
Richard Levine
(10 minutes)
IV.
General Discussion
All Participants
(20 minutes)
V.
Summary
Admiral John Poindexter
(5 minutes)
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MAR 17 1986
The President
The White House
Washington, D.C. 20500
Dear Mr. President:
THE SECRETARY OF COMMERCE
Washington. D.C. 20230
In February 1984, I forwarded a report to you under Section 232
of the Trade Expansion Act of 1962, as amended, that concluded
that machine tool imports threaten to impair the national
security. Your former National Security Advisor Bud McFarlane
requested that I review my findings in this investigation in
light of the newly developed planning assumptions of the NSC
Stockpile Study. I have completed my review and conclude that
imports pose a greater threat to our national security today
than they did two years ago.
Specifically, I recommend that you find that imports of
machining centers, lathes, milling machines and punching and
shearing machines threaten to impair the national security.
The machine tool industry is a vital component of the U.S.
defense industrial base because machine tools are used to
manufacture virtually all military and associated industrial
hardware. We are on the verge of losing our industry due to
high import levels which exceed 70 percent in certain
high-technology product lines.
We are now at the juncture where you must decide whether the
United States needs a machine tool industry for national
security purposes or whether you are prepared to rely on
foreign sources to meet our critical needs.
I have reviewed this issue with Secretary Weinberger and we
agree that prompt action must be taken to address this critical
national security problem. I recommend the following course of
action:
We should ask our major trading partners to restrict their
imports of machining centers, lathes, milling machines and
punching and shearing machines to 1981 levels for five
years. (1981 was the last year that the domestic industry
was adequately profitable.) The proposed level of import
relief, although substantially less than requested by the
petition, will enable the U.S. industry to gain a
reasonable market share. It will also allow the industry
to restructure and improve its competitive position and
production base.
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I propose to monitor industry performance on an annual
basis. If the industry does not take the necessary steps
to improve its competitive position, I will recommend that
the import restraints be discontinued and that we develop
an alternate strategy to address the national security
threat.
Since our major trading partners are allies and friends who
depend on the U.S. defense umbrella, we should be able to
obtain their cooperation in addressing this collective
security matter. In this regard, we already have firm
indications that Japan is willing to take positive steps in
this direction if we ask them to do so.
In the unlikely event that our trading partners are
unwilling to restrict machine tool imports to 1981 levels
within six months, we should inform them that the United
States will be compelled to impose quotas. This signal
will provide the incentives for our trading partners to
cooperate and for the industry to begin making the needed
investments to modernize facilites and improve production
capabilities.
The Government should support the establishment of a
private sector manufacturing technology research facility
as recommended by the National Academy of Sciences.
The machine tool industry must increase its research and
development efforts and modernize its facilities for the
express purpose of enhancing their ability to meet national
security needs. Although the industry must take primary
responsibility and initiative for its own restructuring,
the Government can and should support this process for
national security reasons.
You should establish an inter-agency task force to study
the industry's ability to improve its situation through the
negotiation of 'voluntary agreements' as defined in Section
708 of the Defense Production Act. These agreements could
include joint basic and applied research and other forms of
cooperation that will improve the industry's competitive
position.
I recognize that there will be some costs to machine tool
consumers resulting from this action. However, the
national security benefits of maintaining a viable machine
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tool industry are substantial especially since technological
developments in this industry have spin-off applications in
other manufacturing sectors. Such benefits are not subject to
precise quantification.
Sincerely,
Secretary of Commerce
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NO FORN
SUPPLEMENTARY REPORT ON THE EFFECT OF IMPORTS OF
MACHINE TOOLS ON THE NATIONAL SECURITY
Report to the President on an Investigation
Conducted under the authority of Section 232
of the Trade Expansion Act of 1962, as amended (19 USC 1862)
U.S. Department of Commerce
International Trade Administration
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NO FORN
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Section 232 Supplementary Machine Tool Report
SUPPLEMENTARY REPORT ON THE EFFECT OF IMPORTS OF
MACHINE TOOLS ON THE NATIONAL SECURITY
TABLE OF CONTENTS
Executive Summary ...................... I
I. Introduction ........................... 1
II. Current Industry Analysis .............. 3
III. Mobilization Requirements .............. 9
IV. Mobilization Capacity .................. 12
V. National Security Analysis ............. 16
Alternative A ....................... 20
Alternative B ....................... 32
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EXECUTIVE SUMMARY
The Machine Tool Industry:
The machine tool industry produces a wide range of power driven
equipment designed to cut, form or shape metal to produce items
of all sizes, used principally as parts or components of other
machines.
The United States is the largest user of machine tools in the
world, consistent with its role as the world's leading
manufacturer. In 1983 almost 2.2 million metal working machine
tools were functioning in American factories, twice the machine
population in Japan. Over 70% of these were 10 or more years
old.
Without products such as lathes, drilling machines, milling
machines, boring machines and presses, neither factory
production equipment nor- defense or consumer products made of
metal would be possible. The industry thus lies at the heart
of America's mechanical competence, just as semiconductors now
lie at the heart of its electronic competence.
In recent years the industry has been undergoing rapid change.
Traditional mechanically controlled individual machines, each
with its own skilled operator, are being gradually replaced by
larger, more productive, precise, and flexible machines that
are computer or electronically numerically controlled (NC).
Groups of these newer NC designs are increasingly
inter-connected to create a flexible manufacturing system
directed by a central computer. In 1984, about half of U.S.
production and imports of metal cutting equipment were
numerically controlled.
To design and fabricate these newer machines the industry must
add electronic knowledge to traditional mechanical engineering
and machinist skills traditionally required in its work force.
In addition to radical changes in its product line, the machine
tool industry is shifting its geographic base. In 1970 the
U.S. was the world leader, producing almost 3 times the output
of Japan, and double that of the USSR. In 1982, the base year
for this study, the U.S. still led by a very narrow margin. By
1984 it had dropped to fourth place, with a world market share
of 12% behind Japan, West Germany and the USSR.
This decline was most pronounced in the newer NC categories --
in 1984 Japan produced 3.2 times the value of U.S. production;
the United States imported 59% on a unit basis.
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As a result of these trends, the industry has changed
significantly since 1980. Some companies have consolidated
operations with layoffs of workers and management (e.g.
Cincinnati Milacron); some companies have discontinued product
lines (e.g. Ex-Cell-0, Brown & Sharpe); some companies have
gone out of the machine tool business (e.g. Houdaille). In
sum, Commerce Department machine tool industry experts estimate
that domestic production capacity has declined by 25% since
1982. These trends are continuing.
History of Investigation:
On March 10, 1983, the National Machine Tool Builders'
Association (NMTBA) of McLean Virginia, petitioned the
Secretary of Commerce to conduct an investigation under Section
232 of the Trade Expansion Act of 1962, as amended (the Act),
to determine the effect of imports of metalworking machine
tools on the national security.
The NMTBA asserted that current machine tool import trends will
result in a critically weakened industry which will be
incapable of meeting U.S. national security needs.
The petition requested that a five year regime of quotas be
imposed limiting imports to 17.5% of the market in the broad
metal cutting and metal forming categories, and to no more than
20% in any of the eighteen individual product categories.
The Department of Commerce accepted the petition and initiated
an investigation on March 14, 1983.
The Act provides authority for the President to adjust imports
in order to remove a national security threat based on
recommendations from the Secretary of Commerce. In evaluating
the impact of imports on the national security under the Act,
the Secretary is required to consider the following dynamic
factors:
o the capacity of domestic industries to meet national
security requirements;
o existing and anticipated availabilities of skilled labor and
materials essential to national defense;
o the requirements of growth for such industries, including
the investment and technology development necessary to
assure such growth;
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o the importation of goods and their effect on the production
capacity of such industries of the United States to meet
national security requirements; and
o the impact of foreign competition on the economic welfare of
individual domestic industries and the serious effects
resulting from the displacement of any domestic products by
excessive imports.
On February 27, 1984, the Secretary of Commerce submitted his
report to the President which concluded that imports in five of
the eighteen product categories of machine tools posed a
national security threat.
On March 3, 1984, former National Security Advisor McFarlane
informed Secretary Baldrige that the President has decided to
defer his final decision in this case until the National
Security Council (NSC) has completed its review of United
States economic requirements in wartime... After this NSC study
is complete, its findings should be integrated into the Section
232 machine tools report.'
This study is the result of that instruction.
Findings:
The Department of Commerce has completed its supplementary
machine tool investigation and has determined that imports of
boring machines, drilling machines, gear cutting machines,
grinding and polishing machines, station type machines, other
metal cutting machines, numerically controlled (NC) and non-NC
bending and forming machines, pressing machines, forging
machines, and other metal forming machines do not threaten to
impair the national security.
With regard to the remaining machine tool categories, two
analyses are presented for Presidential review and decision:
-- The first concludes that imports of machining centers,
milling machines, NC and non-NC lathes, and NC and non-NC
punching and shearing machines threaten to impair the
national security, (positive findings).
-- The second concludes that machine tool imports in these
categories do not threaten to impair the national
security, (negative findings).
The analyses leading to the two alternative findings are
summarized below.
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Analysis Leading to Positive Findings:
1. The U.S. must maintain a technologically sophisticated
machine tool in ustry for national security purposes.
The machine tool industry is one of the most critical
elements of the U.S. defense industrial base. Machine
tools are used to manufacture virtually all military
and associated industrial products made of metal.
From a national security perspective, machine tools
must be evaluated on a different basis than raw
materials because they reflect continuing changes in
technology, engineering and design. Raw materials, on
the other hand, can be readily stockpiled for future
use.
2. National security requirements for machining centers,
milling machines, non-NC lathes and non NC punching and
shearing machines cannot be met by anticipated supplies.
- This conclusion is based on a quantitative comparison
of projected wartime requirements provided in the NSC
Stockpile Study and DOC 1982 estimates of U.S.
emergency machine tool production capabilities
collected for the original DOC Section 232
investigation. As can be seen from table ES-1 found
on the following page, post-1982 trends (which reflect
capacity losses) lead even more strongly to this
conclusion.
-- The estimates are based on optimistic projections of
U.S. domestic production capacity. The 1982 DOC
capacity estimates project mobilization year
production capabilities at 175 percent of the
industry's best year's output, and exceed 1984 actual
production by three to thirteen times in individual
product lines.
-- These estimates do not incorporate a lag time to reach
maximum production levels. They also do not reflect
recent capacity losses and assume immediate
availability of skilled labor and materials. DOC
considers these assumptions to be dangerously
optimistic.
-- This analysis accounted for reliable imports as
specified in the NSC Stockpile Study.
The Defense Department (DOD) recommended that old
tools held in storage not be included in supply
estimates. The Department of Commerce accepted the
DOD recommendation based on obsolescence of these
machines and time needed to rehabilitate them.
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-- This analysis is based on the NSC Stockpile Study
assumption of complete intra-industry substitution of
machine tools and no inter-industry substitution.
Although both fungibility assumptions are overstated,
the NSC Stockpile Study notes that errors in one
direction would tend to cancel errors in the other.
-- Use of supplies from inter-industry substitution
cannot be considered by the study without an
offsetting recalculation of the intra-industry
substitution potential that is incorporated in the NSC
Stockpile Study model.
-- Machine tool industry experts consider the potential
for inter-industry substitution to be extremely
limited due to physical, technological and labor
constraints.
3. Imports of NC lathes and NC punching and shearing
machines also threaten to impair the national security.
-- This conclusion is based on qualitative analysis of
rising import penetration levels, the decline of U.S.
shipments, and the increasing importance of NC
capacity to both manufacturing technology and military
programs.
-- U.S. technological competitiveness is the foundation
of our national security edge. Technological
developments in the machine tool industry have
spin-off applications in other defense sectors. The
erosion of the U.S. technological base in machine
tools will harm technological advances in other
defense industries as well.
-- Increasing foreign penetration of U.S. machine tool
markets risks the possibility that U.S. advanced
technical data will be transferred from U.S.
manufacturers to foreign machine tool builders. The
technological lead is shifting out of the United
States and preventing technological advances from
being quickly incorporated in defense products.
-- Japan is now the leader in NC machine tool
manufacture. The USSR has provided the Japanese with
a 'wish list" of 14 technologies they would like to
purchase. The top 3 items are microprocessors, NC
machine tools, and flexible manufacturing systems (all
of which are COCOM controlled.)
Based on this analysis, imports of machine tools threaten to
impair the national security.
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4. Post-1982 industry trends further reinforce these
positive findings.
-- Unit import penetration has risen from 53 percent in
1980 to 68 percent in 1985 in the categories where
imports represent a national security threat. Import
penetration of NC lathes and machining centers rose to
over 70%. Over the same period, the value of import
entries in these categories have risen from 30 percent
to 57 percent of the market indicating that imported
tools are expanding penetration of more expensive
high-technology product markets.
-- From 1980 to 1985, domestic unit shipments in the
above categories declined 52 percent. Dollar
shipments declined 54 percent over the same period.
-- As a result, the industry lost money in 1983 (9.6% of
sales and 8.7% of assets), 1984 (3.2% of sales and
3.4% of assets) and 1985 (1.0% of both sales and
assets). During this period there was a boom in
capital spending, but increased demand was filled
mostly by increased imports.
-- The industry continues to lose its skilled labor
force. Such a decline is cause for deep concern in
light of the many years necessary to develop machine
tool production skills.
-- Since 1982, industry-wide production capacity has
declined by an estimated 25 percent as many companies
have moved offshore or gone out of business entirely.
Industry experts estimate that capacity has declined
by about 14,000 units in the cited categories.
-- The U.S. has already lost its ability to manufacture
certain product lines along with the associated
technological know-how.
-- The U.S. now faces the risk of total loss to imports
of the market for machining centers and NC lathes, the
heart of flexible manufacturing systems (FMS).
-- DOC mobilization capacity and industry expansion
potential is based on 1982 data. The above trends
indicate that this optimistic estimate is no longer
reliable.
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Alternative Analysis Leading to Negative Findings:
1. Although the domestic machine tool industry is facing
significant challenges, the preceding picture may be too
bleak.
The future of the industry lies increasingly in
supplying highly automated systems of machines and
other tools. The critical element of such a system is
not any particular tool but the computer hardware and
software that links them. A high import share for
particular machine tools does not necessarily impair
U.S. ability to supply automated systems of machine
tools.
Although there may have been some changes in the
industry since the DOC survey was taken, capacity is
unlikely to be significantly affected. Further, the
DOC 1982 industry survey represents a conservative
estimate of capacity.
2. It is Administration policy to depend on imports from
allies to meet national security requirements. Imports
of machine tools do not threaten the national security if
emergency requirements can be met by any combination of
domestic production, inventories, substitution and
reliable imports.
3. The preceding analysis does not sufficiently take into
account the additional supplies that could be available.
These additional supplies will meet national security
needs.
More productive NC tools can compensate on a wide
scale for shortages of non-NC tools.
Underutilized or idle tools in nonessential industries
can be transferred to critical defense industries
where they are needed.
Production facilities that manufacture product lines
that are deemed to be in surplus can, to some extent,
be converted to manufacture product lines that are in
short supply. In the event of a national emergency,
the Federal Government will invoke authorities under
the Defense Production Act to provide incentives to
facilitate such plant conversions.
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a ?,
-- The U.S. will be able to ootain additional imports
from reliable foreign suppliers.
-- Old tools held in storage by the Defense Department
can be refurbished under emergency conditions.
Based on these analyses, machine tool imports do not threaten
to impair the national security.
The Secretary of Commerce, having reviewed the above analyses
and consulted with the Department of Defense and other relevant
agencies, finds that imports of machining centers, NC and
Non-NC lathes, milling machines and NC and Non-NC punching and
shearing machines threaten to impair the national security.
,E--,'ECR.D
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I. INTRODUCTION
On March 10, 1983, the National Machine Tool Builders'
Association (NMTBA) of McLean, Virginia, petitioned the
Secretary of Commerce to conduct an investigation under Section
232 of the Trade Expansion Act of 1962, as amended (the Act), to
determine the effect of imports of metalworking machine tools on
the national security. The Act states that:
The Secretary shall report the findings of his
investigation ... with respect to the effect of the
importation of such article. ... The President shall
take such action, and for such time, as he deems
necessary to adjust the imports of such article ... so
that such imports will not threaten to impair the
national security.(U)
In its petition, the NMTBA asserted that current machine tool
import trends will result in a critically weakened industry
which will be incapable of providing an adequate supply of
machine tools during a national emergency.
The petition focused on imports of eleven categories of new
metal-cutting and seven categories of new metal-forming machine
tools valued at greater than $2500 per unit. The NMTBA
requested that a five year regime of quotas be imposed limiting
imports to 17.5 percent of the market in the broad
metal-cutting and metal-forming categories.
The Department of Commerce (DOC) reviewed and accepted the
NMTBA petition and initiated its investigation on
March 14, 1983. Under statute, the Secretary of Commerce had
one year in which to conduct an investigation and forward a
report to the President. (U)
On February 27, 1984, the DOC submitted its investigation
report to the President. This report concluded that imports
represent a threat to the national security in five of the
eighteen categories under study (specifically - boring
machines, horizontal numerically controlled lathes, vertical
numerically controlled lathes, machining centers, and forging
machines). The report recommended that percentage quotas be
imposed on unit imports of the first four categories of
machines, that the Department of Defense (DOD) stockpile
forging machines, and that a number of other non-trade options
be considered as well. (U)
cPr.RrT
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Section 232 Supplementary Machine Tool Report
During its investigation, the DOC participated in the work
coordinated by the National Security Council (NSC) to update
mobilization planning assumptions. The NSC and the agencies
that assisted in the development of the study were unable,
however, to complete their work and provide revised planning
assumptions in time to meet the DOC's statutory deadline.
Therefore, the DOC's original machine tool report was completed
using the prevailing mobilization planning assumptions and DOD
expenditure patterns which had been the basis of previous DOC
Section 232 investigations. (U)
On March 3, 1984, National Security Advisor McFarlane wrote to
Commerce Secretary Baldrige informing him that 'the President
has decided to defer his final decision in (the machine tool)
case until the NSC has completed its review of United States
economic requirements in wartime." Mr. McFarlane further
stated that, 'after this NSC study is completed, its findings
should be integrated into the Section 232 machine tools
report.' On July 14, 1984, Mr. McFarlane again wrote to
Secretary Baldrige asking that a "technical level interagency
group ... be established to integrate the working group
reports' findings into the machine tools report.' Copies of
these letters are attached as Tab A. (S)
On November 15, 1984, after extensive analysis of the NSC study
and per Mr. McFarlane's request, the DOC convened an
interagency Machine Tool Working Group (MTWG) including
representatives from the Departments of Commerce, State,
Defense, and Interior; the National Security Council, the
Office of Management and Budget OMB the Council of Economic
Advisors (CEA), and the 25X1
Federal Emergency Management Agency (FEMA).
The great bulk of material contained in this revised machine
tool report is based on the work done by the MTWG and its
technical level task forces. This report uses methodologies
suggested by the OMB and approved by the MTWG to disaggregate
broad machine tool categories into the 18 categories that are
the subject of this study, to convert the 18 category dollar
requirements into unit requirements, and to continue to
estimate capacity using the DOC's survey of 1982 mobilization
capacity. (U)
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Section 232 Supplementary Machine Tool Report
II. CURRENT INDUSTRY ANALYSIS
Section 232 of the Trade Expansion Act of 1962, as amended,
provides that:
For the purposes of this section the Secretary shall, in
the light of the requirements of national security and
without excluding other relevant factors, give
consideration to domestic production needed for
projected national defense requirements, the capacity of
domestic industries to meet such requirements, existing
and anticipated availabilities of the human resources,
products, raw materials, and other supplies and services
essential to the national defense, the requirements of
growth of such industries and such supplies and services
including the investment, exploration, and development
necessary to assure such growth, and the importation of
goods in terms of their quantities, availabilities,
character, and use as those affect such industries and
the capacity of the United States to meet national
security requirements. In the administration of this
section, the Secretary shall further recognize the close
relation of the economic welfare of the Nation to our
national security, and shall take into consideration the
impact of foreign competition on the economic welfare of
individual domestic industries; and any substantial
unemployment, decrease in revenues of government, loss
of skills or investment, or other serious effects
resulting from the displacement of any domestic products
by excessive imports shall be considered, without
excluding other factors, in determining whether such
weakening of our internal economy may impair the
national security. (U)
As time has passed since the DOC's submission of its original
machine tool report, questions arise over the validity of
making national security recommendations based on data from
1982. In the interest of expediting the interagency process,
however, the MTWG unanimously agreed not to repeat the survey
of machine tool producers and importers undertaken for the
original DOC machine tool investigation. To bridge the data
gap between the 1982 data and the present, the following
section discusses recent industry trends. (U)
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Section 232 Supplementary Machine Tool Re ort
Despite an upturn in orders, the industry continues to face
significant economic difficulties that are eroding its
production capabilities. The industry's mobilization capacity
remains threatened by increasing imports, stagnant exports, low
profitability, plant closures, and the exodus of production
capacity to offshore operations. (U)
During 1984, the U.S. machine tool industry experienced a mild
recovery with respect to new orders, shipments, employment and
exports:
o New orders increased from the 1982 recessionary low of
$1.5 billion to $2.9 billion in 1984. However, 1984
orders accounted for only slightly more than half of the
1975-79 average adjusted for inflation. During the
first eleven months of 1985, new orders declined 11
percent. The machine-tool industry is sensitive to
business cycles. (U)
o foreign manufacturers have been the principal
beneficiaries of the recent upturn in machine tool
orders. Although their new orders increased 72 percent
between 1983 and 1984, shipments by domestic producers
increased only 15 percent to $2.4 billion in 1984 after
two years of solid decline from the 1981 peak of $5.1
billion. Current operating rates are estimated to be
about 60 percent of capacity, with metal cutting
capacity utilization even lower. (U)
o There continue to be deep concerns regarding the erosion
of the industry's skilled labor force, especially in
light of the fact that machine tool production skills
take many years to develop. The Department of Labor
asserts that, for critical machine tool specialties,
minimum on the job training and/or experience required
ranges from 1 to 3 years for test technicians to a
maximum of 4 to 10 years for tool makers. Optimum
proficiency levels are achieved at from 3 to 5 years for
electrical or computer engineers to a maximum of 10 to
14 years for tool makers. (U)
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Section 232 Supplementary Machine Tool Report
o The Department of Labor further states that essentially
nofungibility exists in the transfer of labor between
industries whic could assist the machine-
ac ine tool industry
in meeting increased production requirements pursuant to
the mobilization scenario. Labor asserts that while
there are no other industries directly related or
comparable to the machine tool industry; some labor
could theoretically be shifted from the aerospace,
electronics and heavy electrical equipment industries to
the production of machine tools during an emergency.
However, such conversions would be time-consuming as
such displaced workers would require extensive training,
which would be difficult to accomplish during a
mobil-ization. Furthermore, the very industries
providing labor comparability would also be tasked to
maximize production in a mobilization effort. (U)
o In 1983, U.S. machine tool industry employment stood at
62,200, well below the 1980 peak of 99,700. The Labor
Department has indicated that displaced workers in this
industry are unlikely to find new employment that will
permit them to retain their specialized skills. (U)
Although there has been a recovery in some of the machine tool
industry's economic indicators, there has also been a continued
deterioration of its position relative to export markets,
import penetration, price competition, profitability, and
individual firm viability.
o The U.S. has lost many of its export markets. While in
1977 the industry had a trade surplus, the dollar value
of exports was only half that of imports in 1982 falling
to one-fourth in 1985. The U.S. machine tool balance of
trade was in deficit by an estimated $1.26 billion in
1985, following deficits of $947 million in 1984 and
$540 million in 1983. (U)
o The import share of the U.S. market continued its
uninterrupted growth, reaching an estimated 42.9 percent
of the market in 1985. U.S. machine tool imports
reached $1.6 billion in 1985 - their highest level
ever. This represents a significant increase over the
34.4 percent market share recorded in 1983 and the 27.7
percent recorded in 1982. The leading sources of U.S.
machine tool imports in 1984 were Japan ($683 million),
West Germany ($206 million), Taiwan ($99 million) and
Switzerland ($78 million). (U)
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Section 232 Supplementary Machine Tool Report
o One reason for the rise in import penetration has been
the strong price competition which developed during the
last recession, as importers worked to reduce
inventories. Liquidations of metalworking
establishments have also added to machine tool supply.
Price cutting is still prevalent in the market as
domestic producers attempt to compete with lower cost
imports. Domestic producers frequently cite the strong
U.S. dollar as an important factor working against the
U.S. industry's price competitiveness in its home
market. The recent decline in the dollar should
alleviate some of this problem. (U)
o In addition, a recent Japanese Machine Tool Builders
Association (JMTBA) report warned its members about
Japanese overcapacity and predatory price-cutting in the
low-end of the machining center and numerically-
controlled lathe markets. The JMTBA cited margins
averaging only 1.47 percent during a six month period in
1984. Clearly, overcapacity in Japan has increased the
pressure on Japanese producers to export to the United
States, putting further pressure on the U.S.
industry. (U)
o Reflecting an environment of increased foreign
competition and higher import penetration, the U.S.
machine tool industry lost money both in 1983
(9.6 percent of sales and 8.7 percent of assets) and in
1984 (3.2 percent of sales and 3.4 percent of assets).
Although some of the industry's leaders returned to
marginal profitability in 1984, non-machine tool
segments of their business often have been carrying
machine tool operations. Cincinnati Milacron, for
example, reported 1984 operating earnings of $1.2
million on machine tool sales of $312 million, while its
plastics machinery business yielded earnings of $25.9
million on sales of $165 million and their specialty
products lines returned $9.6 million on sales of $183
million. Smaller machine tool companies are in even
worse situations. Despite a backlog of orders, many
have had difficulty generating the working capital
needed to sustain operations due to concerns about their
long-term viability. (U)
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Section 232 Supplementary Machine Tool Report
o Not only have U.S. machine tool manufacturers been
unprofitable, but many companies have gone out of the
machine tool business altogether with more closings
expected. DOC machine tool industry experts estimate
that overall capacity has declined 25 percent since
1982. As a result, the U.S. has actually lost its
ability to manufacture certain product lines. For
example, in late 1984, the last U.S. producer of wire
electrical discharge machines ceased production because
of imports from Japan and Switzerland. (These high
technology machines are computer controlled and cut
extremely hard and exotic metals to fine tolerances in a
single operation. They are many times more productive
than other techniques and are used to produce dies,
molds and jet turbine blades.) The U.S. is now totally
dependent upon imports for advances in this
technology. (U)
o Further, some machine tool industry experts believe that
the United States now risks the total loss of NC lathe
and machining center production capacity due to high
import levels. These technologies are the heart of
flexible manufacturing systems. (U)
o Some analysts think this is particularly distressing due
to the fact that, unlike raw materials such as copper,
machine tool technology cannot be effectively
stockpiled. Raw materials are extracted from the
ground, are fungible, and have fixed specifications. On
the other hand, machine tool technology reflects an
evolving process that incorporates engineering, design
and labor skills.(U)
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Section 232 Supplementary Machine Tool Report
o Two factors in particular have dominated the machine
tool industry's restructuring. First, foreign companies
have been expanding their U.S. market share by buying
into established U.S. firms, establishing new ventures
and entering into marketing agreements with U.S. firms.
Second, domestic builders have been moving their
manufacturing operations offshore or sourcing components
and machines offshore in efforts to cut costs and become
more price competitive. By the end of 1985, it was
estimated that one-half of the industry was importing
either components or complete machines. The net effect
of this trend will be a further reduction in domestic
machine tool manufacturing peacetime and surge capacity.
(U)
o Some analysts believe that certain changes that are
underway in the industry suggest that the preceding
picture may be too bleak.
-- The critical element of new highly automated systems
is not any particular tool but the computer hardware
and software that links them. (U)
Large companies that have not in the past supplied
machine tools, such as IBM and GE, are entering the
market for automated systems. Sales of machine
tools alone are not necessarily indicative of the
health of the automated systems industry,
particularly its high-tech component, since the
computers linking machine tools are not included in
machine tool sales. (U)
A high import share for particular machine tools
does not necessarily impair U.S. ability to supply
automated systems of machine tools. In fact, it may
be enhanced if manufacturers of the hardware linking
the various components can utilize the lowest priced
components. In this way, the U.S. can best preserve
the capability to supply entire systems at a
competitive price. (U)
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Section 232 Supplementary Machine Tool Report
III. MOBILIZATION REQUIREMENTS
Stockpile Study Estimates of Requirements
The NSC Stockpile Study's Input/Output Report explicitly
provides an estimate of total requirements for additional metal
cutting and metal forming machine tools to be met by the
domestic base during a mobilization year followed by a three
year war. These requirements were generated after considering
the effect of net imports (imports minus exports) on machine
tool mobilization requirements.(U)
In order to compare the original DOC study's requirement
estimates expressed in 1982 dollars with the Stockpile Study's
estimates expressed in 1972 dollars, it was necessary to
deflate the former using Bureau of Labor Statistics (BLS) price
indices for the broad metal cutting and metal forming
categories. Price indices of $3.066 for metal cutting and
$3.230 for metal forming were used, indicating, for example,
that in 1982 it would have taken $32,300 to purchase the same
amount of metal forming tools that $10,000 could have purchased
in 1972. The price indices used throughout this supplementary
report to transform 1982 dollar requirements and other numbers
into 1972 dollars compatible with the Stockpile Study can be
found at Tab B. Table III-1 uses these BLS deflators to
contrast Stockpile Study machine tool requirement estimates
with the requirement estimates used in the original DOC machine
tool investigation. (FOUO)
TABLE III-1
MACHINE TOOL REQUIREMENT ESTIMATES (FO0O)
millions of 1972 dollars)
Source
Mob Year
War Year 1
War Year 2
War Year 3
Total
Metal Cutting
Original
DOC Study
$4671
$4394
$2752
$1439
$13,256
Stockpile
Study
$2394
$2833
$4038
$4430
$13,695
Metal Forming
Original
DOC Study
$1499
$1258
$ 603
$ 303
$ 3663
Stockpile
Study
$ 883
$ 855
$1140
$1203
$ 4081
Source: Original DOC machine tool study and Stockpile Study
Input/Output report
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Section 232 Supplementary Machine Tool Report
As shown, total Stock ile Study requirements estimates over the
four year period are higher than requirements used in the
o ri ina DOC machine tool study. However, Stockpile Study
requirements reach their peak in the third war year. The
machine tool requirements in the original DOC study were highest
in the mobilization year. In a real situation, manufacture of
capital goods such as machine tools must precede availability of
the products to be produced on them. A description of how
machine tool requirements estimates were derived by the NSC
Stockpile Study is provided at Tab C. (U)
Table 111-2 below presents Stockpile Study projections of
exports and imports for metal-cutting and metal-forming tools
for the mobilization and three war years. (U)
NSC Stockpile Study Exports and Imports
(millions of 1972
's) (U)
Mob
War
War
War
EXPORTS
Year
Yearl
Year2
Year3
Total
Metal-Cutting
233
161
147
134
675
Actual 1982
132
Metal-Forming
148
102
93
85
428
Actual 1982
66
IMPORTS
Metal-Cutting
304
106
101
94
605
Actual 1982
345
Metal-Forming
95
33
32
29
189
Actual 1982
61
Source: FEMA I/O Analysis for NSC Stockpile Study
U.S. exports are larger than peacetime levels in all years. In
contrast, imports are substantially less than peacetime levels in
the war years. The NSC Study used relatively high assumptions for
exports to allied nations and low assumptions for imports from
them. This raised U.S. machine tool requirements significantly and
constitutes a "safety margin.' (U)
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Section 232 Supplementary Machine Tool Report
Disaggregation of Requirements into 18 Categories
Beginning with the aggregated requirement estimates in Table III-1 above, the
MTWG established a technical level task force to determine the best method to
disaggregate these estimates into the 18 machine tool categories needed for
individual product findings. Weighting factors were developed to determine
what percentage of overall dollar requirements would be needed for each of th
18 categories for each of the years. Unit machine tool requirements for each
of the 18 categories were next developed by dividing disaggregated dollar
requirements by the average projected unit prices for each category. Average
prices were calculated using value figures set forth in the DOC industry
surveys. Within each category specifications (and prices) of individual
machines will vary widely, and assumed "averages" are at best rough
approximations. Table 111-3 presents disaggregated unit requirements for eac
of the 18 categories for 'each of the four subject years. As specified by the
Stockpile Study, this chart already incorporates the effect on requirements o.
net imports (imports minus exports). A more detailed discussion of the
disaggregation process can be found at Tab D.(U)
Table 111-3
Machine Tool Unit Requirements (FOUO)
Actual 1984
Metal Cutting U.S. Production Mob Year War 1 War 2 War 3
Boring 472 2599 2404 3439 3771
Drilling 973 7189 8277 12026 13236
Gear Cutting 199 1029 1144 1608 1790
Grinding 8575 22982 26417 37182 40674
Hor. NC Lathes 1332 3825 4170 6037 6612
Ver. NC Lathes 165 401 468 689 760
Non-NC Lathes 2493 74565 80479 109413 118833
Milling 7531 27470 32169 42963 46582
Mach. Centers 1237 3731 4747 7159 7919
Station Type 599 1015 996 1439 1593
Metal Forming Mob Year War 1 War 2 War 3
NC Punching
and Shearing 442 1298 1199 1578 1653
Non-NC Punching
and Shearing 2722 14230 12986 17002 17827
NC Bending
and Forming 218 624 600 818 865
Non-NC Bending
and Forming 5954 15987 13812 18111 18983
Pressing Machines 2665 18583 18136 24721 26303
Forging Machines 198 1265 1197 1587 1672
Source: FEMA calculations based on Stockpile Study and DOC Calculations
based on DOC survey of machine tool producers and importers ^ r..^ ^ .-. -
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Section 232 Supplementary Machine Tool Report
IV. MOBILIZATION CAPACITY
Once disaggregated machine tool mobilization requirements were
established, it was essential to identify the best estimate of
machine tool building capacity which would be available under
emergency conditions. After considering several options, the
MTWG agreed to use the capacity estimates developed for the
DOC's original machine tool study. That study estimated
capacity by surveying all identifiable domestic producers and
importers. (U)
Although the interagency MTWG agreed to use the mobilization
capacity projections set forth in the DOC industry survey, a
number of qualifying factors must also be taken into
consideration when using these estimates to reach national
security policy decisions. Some industry experts believe that
the DOC survey of 1982 industry capacity overstates current
domestic capacity by about 25 percent. Other analysts note that
although there have been changes in the industry since 1982,
capacity is not likely to be significantly affected. These
analysts believe that the DOC survey presents a conservative
estimate of industry production capabilities. Tab E provides a
more in-depth analysis of qualifying factors to be taken into
account when using the DOC survey to estimate capacity. (U)
Substitutability of Machine Tool Production Capacity
The vast array of machine tools produced is indicative of the
variety of knowledge, skills, physical capacities and materials
required to produce them. Significant learning and experience
would have to occur before a machine tool facility could be
converted to manufacture a new and different machine tool
product. The only short-term option available would be to
convert excess capacity for a certain type of machine tool into
a job shop operation for production of selected parts for
another more critical type of machine tool. However, limited
excess capacity could be used in this way, and it is likely that
such a process would be inefficient. (U)
Due to considerable differences in the technology and skills
needed to make different product lines, U.S. machine tool
manufacturers tend to specialize in certain machine tools. For
example, Landis makes grinders, Bridgeport makes milling
machines and Hardinge makes lathes. Even the largest producers
with the broadest product lines centralize production by type of
machine. Cross and Trecker, for example, produces machining
centers in Milwaukee and NC turning machines in Cleveland. In
addition, before Houdaille put its machine tool facilities up
for sale, it produced machining centers in Los Angeles and NC
punching machines in New York. (U)
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Section 232 Supplementary Machine Tool Report
Finally, fungibility of machine tool production capacity would
be further limited by the industry's tight labor supply.
Serious questions already exist about the availability of
sufficient labor to support the industry's ambitious estimates
of mobilization capacity growth. It is therefore unlikely that
excess skilled labor will be available to be directed to the
inefficient conversion of surplus production capacity.
In light of the above, the ability of machine tool manufacturers
to shift from making one type of machine tool to a completely
different product line would be limited, especially in the short
term. Domestic producers, however, would be able to shift some
fraction of surplus capacity to needed lower technology
categories, especially under emergency conditions. (U)
Substitutability of Existing Machine Tools
It is important to note that the NSC Stockpile Study requirement
projections for new tools already assume that there is complete
intra-industry fungibility of existing machine tool stocks and
no inter-industry fungibility. Although both assumptions are
likely overstated, the Stockpile Study notes that "the two
sources of error will tend to cancel, but the net effect is
unknown.' The degree to which these rough assumptions vary from
future experience can have a major impact on requirements for
new machines. (U)
Machine tools are complex mechanisms with applications generally
fixed within a fairly narrow range. There are hundreds of types
of relatively standard machine tools which fall within broad
generic categories such as drilling, grinding or forging. In
addition, there are literally thousands of specialized or
customized machines such as cam contour grinders, stretch
forming machines, multi-station in-line transfer machines-pallet
type, rivet making machines, gear cutter sharpeners and gun
drilling machines. (U)
All machine tools have limits to their applications due to
physical characteristics and design specifications such as size,
power, structural rigidity, spindle speed, travel distances,
feed rates and ability to hold tolerances. The large number of
machine tool varieties has been developed through time to meet
unique industrial applications. Although machine tool
technology has evolved and continues to evolve, this trend has
not and will not obviate the need for a vast array of machine
tool types. The current array of machine tools is the
manifestation of numerous decisions made through the years by
engineers and managers in all metalworking industries on the
most efficient way to produce the vast number of metal parts
needed by modern peacetime economies. (U)
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Section 232 Supplementary Machine Tool Report
Some analysts believe that machine tools can be shifted among
facilities. The NSC Study assumed civilian austerity, e.g.,
automobile plants will be operating far short of capacity. Some
of the tools in these facilities may be able to be shifted to,
e.g., the production of military vehicles. Alternatively, as in
World War II, some automobile plants could be converted to
produce these items. These analysts believe that as much as
25 percent of the idle machines could be shifted to the
production of scarce commodities. (U)
Generally, there is no fungibility between the broad generic
categories of machine tools. A drilling machine will never turn
a part, and a boring machine will not produce a forging. It may
be possible, or even desirable to drill a hole with a mill or to
grind a part while on a lathe but these are operations ancillary
to the basic function of the machine and would never be the
efficient operation of choice. (U)
The hierarchy of machine tool controls offer some scope for
fungibility. Numerically controlled (NC) lathes, for example,
can do much of the work for non-NC lathes at much higher
productivity. As a rough value, one NC tool is as productive as
5-10 non-NC tools. However, not all turning operations can be
done on NC lathes. For some defense applications related to
maintenance and repair, non-NC machines are essential. (U)
In some instances, fungibility is possible but not desirable.
For example, a machining center can drill, mill, and bore but is
designed to perform those operations in combination in a batch
environment. It would never be efficient to use a machining
center as a production mill, drilling machine or boring
machine. Specialized and customized machines generally are
designed for unique applications and are seldom fungible for
other applications. (U)
Finally, some analysts believe that, under emergency conditions,
the Defense Production Act will provide incentives for
substitution among facilities, use of NC machines in place of
non-NC machines, and conversion of domestic capacity from
surplus categories to those machine tools with shortfalls. (U)
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Section 232 Supplementary Machine Tool Report
DOC Survey Capacity Estimates
Table IV-1 presents the unit capacity estimates per category per year derived
from the machine tool producers' survey, as well as estimated mobilization
year supply (capacity plus producer and importer inventories). In the
original DOC study, all Defense Industrial Plant and Equipment Center (DIPEC)
machines were added to total available supplies. However, for this
supplementary study, the Department of Defense memorandum presented at Tab F
caused us to determine that DIPEC machine tool stocks should not be included
in mobilization year supply. Defense believes that the uncertain condition
and usefulness of many DIPEC machines raise questions about their availability
to meet emergency needs. Defense states that "(u)ntil the (DIPEC) General
Reserve is in a ready for issue status, we would recommend that it not be
included as an asset to help offset machine tool mobilization requirements in
a 232 evaluation." However, some analysts suggest that, if needed, the tools
could be refurbished during the mobilization and early war years. (U)
Metal Cutting
Table IV-1
MACHINE TOOL UNIT CAPACITY BY CATEGORY (FOUO)
Actual U.S. Mob Yr Mob Yr War Yr 1 War Yr 2 War Yr 3
1984 Prod. Capacity Supply* Capacity Capacity Capacity
Boring 472 2132 3195 2526 3241 4238
Drilling 973 12386 14023 14677 18827 24623
Gear Cutting 199 1526 1746 1808 2320 3034
Grinding 8575 28066 33383 33258 42660 55795
Hor. NC Lathes 1332 4251 5781 5037 6462 8451
Ver. NC Lathes 165 632 813 749 961 1256
Non-NC Lathes 2493 36390 49764 43122 55313 72343
Milling 7531 23291 29097 27600 35402 46303
Mach. Centers 1237 3618 4813 4287 5499 7193
Station Type 599 1942 2161 2301 2952 3861
Metal Forming
Actual U.S Mob Yr Mob Yr War Yr 1 War Yr 2 War Yr 3
1984 Prod. Capacity Supply* Capacity Capacity Capacity
NC Punching
and Shearing 442 2029 2207 2404 3084 4034
Non-NC Punching
and Shearing 2722 5508 6769 6527 8372 10950
NC Bending
and Forming 218 704 768 834 1070 1400
Non-NC Bending
and Forming 5954 8825 12141 10458 13414 17544
Pressing Machines 2665 15143 16567 17950 23025 30114
Forging Machines 198 863 928 1023 1312 1716
*Equals Mobilization year capacity plus domestic and importer inventories. I
practice inventories could not be drawn down to the zero levels assumed.
Source: DOC Survey of Machine Tool Producers and Importers
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Section 232 Supplementary Machine Tool Report
V. NATIONAL SECURITY ANALYSIS
Mobilization requirements were contrasted with mobilization
machine building capacity to identify those machine tool
categories where projected supply falls short of projected
demand. Excess capacity in the mobilization or early war years
was determined to be available for later year needs. In cases
where shortfalls exist, we further evaluated whether shortfalls
were due to exceedingly high import penetration of the domestic
market. (U)
Administration policy is to rely on imports from our allies and
reliable suppliers to meet wartime requirements. The recently
completed NSC Stockpile Goals Study, from which the economic
scenario underlying this investigation is taken, explicitly
relied on our allies and other reliable nations for several
critical materials in lieu of a stockpile. (U)
The NSC Stockpile Goals Study resulted in a decision to rely on
members of NATO, as well as Japan, Taiwan and South Korea, since
all are politically reliable nations for materials. The NSC
Study of sealane attrition projected losses for civilian
shipping averaging less than 1% per year. (S)
The NSC Study includes estimates of war damage for Western
Europe, East Asia and OPEC. Only the first two areas are
sources of machine tool imports. West German production is
assumed to be completely unavailable for the first two war
years, and 75% destroyed for the third war year. With West
Germany currently the second largest producer of machine tools,
this raises the question of which supplier will be available to
compensate for the loss of West German capacity and to meet the
wartime machine tool needs of our European and Asian allies.
Remaining West European nations incur losses of 13.3% in the
first year, 11.8% in the second and 7.5% in the third. For East
Asia, losses are 6.7%, 6.3% and 5.0%. No losses in U.S.
capacity are contemplated. (S)
Potential for Technology Loss and Transfer
There could be reasons other than the unreliability of wartime
foreign suppliers to maintain a substantial domestic industry.
Some analysts believe that U.S. technological competitiveness is
the foundation of our national security edge and that we cannot
afford to lose our lead in critical technologies to foreign
manufacturers. It is important to note that the U.S. and its
allies maintain COCOM export controls on high technology machine
tools to deny access to Soviet Bloc countries. If these
technologies are important enough to keep away from the Soviets,
they should be important enough for us to maintain a domestic
technological capability. (C)
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Section 232 Supplementary Machine Tool Report
A healthy and technologically sophisticated machine tool
industry is essential for our national security. This is true
not only because these tools are used to manufacture virtually
all military hardware, but also because technological
developments in this industry have spin-off applications in
other industrial and defense-related sectors. For example,
technological advances in flexible manufacturing systems (FMS)
are being applied to critical industries such as plastics and
glass manufacturing. FMS technology is also critical to the
development of aerospace components and the collaboration
between machine tool and aircraft manufacturers has been
essential in this process. (U)
In this regard, there are potential negative technology transfer
implications associated with increasing foreign penetration of
the U.S. machine tool market. Manufacturers of high-technology
end-use items must often provide sensitive technical data to
machine tool companies so that their tools conform to
appropriate specifications. In this intimate synergistic
process, we risk the possibility that U.S. advanced technical
data will be transferred from U.S. manufacturers to foreign
machine tool builders and then to foreign high-technology
industries. Some analysts believe that this process can erode
U.S. industrial competitiveness in high-technology applications
and may even result in sensitive data leaking to Soviet Bloc
countries. (C)
Other analysts believe that more detailed study is required of
these issues before a definitive national security threat can be
established. Since many of our most advanced technology weapons
systems are exported (i.e., F-15, Aegis defense system, Patriot
missile, etc.) to Allied and friendly countries, the transfer of
weapon system specifications to reliable foreign country machine
tool producers, in most cases, would not incur more risk of
technology-transfer loss. (C)
Projected Shortfalls and Surpluses
Table V-1 identifies projected product-by-product machine tool
surplus/shortfall estimates for those machine tool categories
where supply (domestic capacity as determined by the Commerce
survey combined with domestic and importers' inventories) cannot
satisfy Stockpile Study disaggregated requirements. Such
shortfalls were identified in the following categories: non-NC
lathes, milling machines, machining centers, other metal
cutting, non-NC punching and shearing machines, non-NC bending
and forming machines, forging machines, presses and other metal
forming.(FO0O)
SI!^IMET
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Section 232 Supplementary Machine Tool Report
Although shortfalls were found in both the other metal cutting and
other metal forming categories, it was determined that no systematic
or reasonable means for disaggregating these categories into
specific types of machine tools could be identified and used. For
the seven additional categories in which supply shortfalls were
determined to exist, the following individual product analyses were
undertaken. (FOUO)
Table V-1
UNIT SHORTFALLS AND SURPLUSES (FOUO)
Metal Cutting
Mob Year
War Yr 1
War Yr 2
War Yr 3
Cum. Tota
Boring Machines
596
122
-198
467
987
Drilling Machines
6834
6400
6801
11387
?31422
Gear Cutting Machines
717
664
712
1244
3337
Grinding Machines
10401
6841
5478
15121
37841
Horizontal NC Lathes
1956
867
425
1839
5087
Vertical NC Lathes
412
281
272
496
1461
Non-NC Lathes
-24801
-37357
-54100
-46490
-162748
Milling Machines
1627
-4569
-7561
-279
-10782
Machining Centers
1082
-460
-1660
-726
-1764
Station Type Machines
1146
1305
1513
2268
6232
Other Metal Cutting
-3781
-6907
-12059
-7746
-30493
Metal Forming
NC Punching and Shearing
909
1205
1506
2381
6001
Non-NC Punching
and Shearing
-7461
-6459
-8630
-6877
-29427
NC Bending and Forming
144
234
252
535
1165
Non-NC Bending
and Forming
-3846
-3354
-4697
-1439
-13336
Pressing Machines
-2016
-186
-1696
3811
-87
Forging Machines
-337
-174
-275
44
-742
Other Metal Forming
-3637
-2107
-3175
840
-8079
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Section 232 Supplementary Machine Tool Report
For each product where such a shortfall has been identified, two
sets of discussions and conclusions appear in the text. The
first set of discussions and conclusions (entitled Alternative
A) is based on consideration of the following steps: (U)
Step A: Compare Stockpile Study disaggregated requirements
with supply (domestic capacity as determined by the
Commerce survey combined with domestic and importers'
inventories). Requirements are already adjusted for
net imports/exports as noted in the NSC study's
Input/Output report. As the Stockpile Study provides,
import levels are approximately one half the peacetime
quantity while exports from the U.S. are increased. (U)
Step B: If a supply shortfall is calculated or if the U.S.
production base is eroding in critical high-technology
applications and imports represent more than one-third
of the peacetime supply to the U.S., then it is
determined that imports threaten the national
security. (U)
The second set of discussions and conclusions (entitled Altern-
ative B) is based on consideration of the following steps: (U)
Step A: Repeat Step A, as noted above. (U)
Step B: Consider the following other sources for machine tool
supply:
Substitution of NC tools for non-NC tools. (U)
Adjusted imports from allies and other reliable
countries. (U)
Substitution of machines from idle facilities. (U)
Conversion of surplus domestic machine tool
producer capacity from surplus categories to the
production of machine tools in short supply. (U)
Step C: If a shortfall exists in the mobilization year,
consider the effects of the Defense Production Act's
priority rating system which orders that defense items
be prioritized over civilian goods production. Also
consider increased substitution. (U)
Step D: Make a 232 finding in light of the above steps.(U)
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Section 232 Supplementary Machine Tool Report
Alternative A
Based on the analysis in the preceding sections, The Secretary
of Commerce concludes that imports of boring machines, drilling
machines, gear cutting machines, grinding and polishing
machines, station type machines, other metal cutting machines,
bending and forming machines, pressing machines, forging
machines, and other metal forming machines do not threaten to
impair the national security. The Secretary of Commerce also
concludes that imports of lathes, milling machines, machining
centers, and punching and shearing machines do pose a national
security threat. Individual product category analysis based on
post-1982 data would lead even more strongly to the conclusion
that machine tool imports are posing a threat to our national
security in the above product lines.(FOUO)
As the statute requires, we must consider "the requirements of
growth of ... industries and such supplies and services
including the investment, exploration, and development necessary
to assure such growth." Continued investment and growth in NC
lathes, NC punching and shearing machines, and other NC
categories will be required for the U.S. to maintain its
technological competitiveness in machine tools. At the same
time, a technologically sophisticated machine tool industry is
clearly essential to our national security. NC machine tools
are a central element of flexible manufacturing systems, the
forefront of advanced manufacturing technology.(U)
Given the fact that advanced technology cannot be stockpiled in
the same way that one can stockpile raw materials, it is
important for the United States to remain technologically
competitive in advanced manufacturing processes. Furthermore,
there are potential negative technology transfer implications to
the loss of domestic NC capacity. We risk the possibility that
U.S. advanced technical data will be transferred from U.S.
manufacturers to foreign machine tool builders in the
synergistic process of specification and design.(U)
As previously noted, the U.S. machine tool industry has faced
severe economic difficulties that are largely attributable to
import penetration. For the positive finding categories, U.S.
shipments and domestic capacity have declined while imports have
increased dramatically. Tab G presents a composite industry
profile of activity in these categories for the 1981 to 1985
period.(U)
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Section 232 Supplementary Machine Tool Report
The machine tool industry is one of the most critical elements
of the U.S. defense industrial base. Even so, we may soon lose
our ability to manufacture key product lines as increased
imports drive U.S. companies offshore or out of business. As we
consider this development, it is important to note that there
are significant differences between import dependence (depending
upon foreign suppliers to supplement domestic production) and
import vulnerability (depending on foreign suppliers because we
cannot make the products ourselves). We are facing import
vulnerability in the machine tool industry with foreign
suppliers capturing three-quarters of the U.S. market in some
product lines. If no action is taken, we may soon lose our
domestic capability to manufacture important machine tool
product lines essential for weapon systems and related
industrial production.(U)
This analysis accounts for reliable imports as specified in the
NSC Stockpile Study.
The DOD recommended that old tools held in storage not be
included in supply estimates. The Department of Commerce
accepted the DOD recommendation.
This analysis is based on the NSC Stockpile Study assumption of
complete intra-industry substitution of machine tools and no
inter-industry substitution. Although both assumptions are
likely overstated, the NSC Stockpile Study notes that errors in
both directions would tend to cancel.
This analysis does not calculate additional available supplies
from inter-industry substitution of existing tools and
production facilities. Such substitution cannot be considered
without a recalculation of intra-industry substitution potential
that is incorporated in the NSC Stockpile Study model.
In any event, machine tool industry experts consider the
potential for inter-industry substitution to be extremely
limited due to physical, technological and labor constraints.
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Section 232 Supplementary Machine Tool Report
Non-NC Lathes
Mob Year
War 1
War 2
War 3
Cum. Shortfall
Domestic Requirements
74565
80479
109413
118833
Domestic Capacity
36390
43122
55313
72343
Domestic Inventory
7703
Importers Inventory
5671
Total Supply
49764
43122
55313
72343
Surplus/(Shortfall)
(24801)
(37357)
(54100)
(46490)
(162748)
Discussion:
There are major supply shortfalls during the mobilization year and all
three war years. In the 1978-82 period, the DOC survey indicates that
mobilization capacity declined. During this period, imports captured
about half of the domestic market. By 1984, U.S. shipments declined to
less than one-third of 1982 levels, and the import share of domestic
consumption rose to 75 percent.
NC Lathes can be substituted for non-NC lathes with greater efficiency
in some operations. However, there are applications critical to defense
preparedness where NC turning machines cannot do the work of manual
(non-NC) lathes. In general, this applies to maintenance and repair
operations performed in many industrial facilities and all shipboard
facilities. For example, in valve and pump repair, each item is unique
and repair or modification of parts is often non-standard. Pump shafts
and impellers require critical tolerances and finishes under manual
control.
Furthermore, given the massive projected shortfalls, it can be expected
that non-NC machines will be required on a widespread basis by many
defense contractors. Machining capabilities must be available to the
specific contractors who need them throughout the country. Furthermore,
as fungible NC lathe capacity also continues to decline, it becomes less
likely that surplus NC lathes will be available as substitutes for
non-NC machines.
Conclusion:
Positive Finding: Given the massive projected shortfalls that will not
be totally erased by fungible NC machines, the DOC finds that total
available supplies will not meet national security requirements.
Imports are capturing three-fourths of the U.S. market and impeding the
industry's ability to meet national security requirements.
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Section 232 Supplementary Machine Tool Report
Horizontal NC Lathes
Mob Year War 1 War 2 War 3 Cum. Surplus
Domestic Requirements 3825 4170 6037 6612
Domestic Capacity 4251 5037 6462 8451
Domestic Inventory 368
Importers Inventory 1162
Total Supply 5781 5037 6462 8451
Surplus/(Shortfall) 1956 867 425 1839 5087
Vertical NC Lathes
Mob Year War 1 War 2 War 3 Cum. Surplus
Domestic Requirements 401 468 689 760
Domestic Capacity 632 749 961 1256
Domestic Inventory 55
Importers Inventory 126
Total Supply 813 749 961 1256
Surplus/(Shortfall) 412 281 272 496 1461
Discussion:
A technologically sophisticated machine tool industry is clearly
essential to current military and associated industrial programs. As
established in the body of the report, NC machine tools are a central
element of flexible manufacturing systems -- the forefront of advanced
manufacturing technology.
Furthermore, there are potential negative technology transfer
implications to the loss of domestic NC capacity. We risk the
possibility that U.S. advanced technical data will be transferred from
U.S. manufacturers to foreign machine tool builders in the synergistic
process of specification and design.
By 1984, domestic horizontal NC lathe shipments declined to less than 53
percent of 1980 levels. At the same time, import penetration in the
horizontal NC lathe category rose from 49 percent in 1980 to 79 percent
in the first half of 1985. U.S. 1984 vertical NC lathe shipments
represented 46 percent of 1980 shipments. At the same time, import
penetration in vertical NC lathes has gone from 72 percent in 1980 to 62
percent in 1981 back up to 76 percent in 1984.
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Section 232 Supplementary Machine Tool Report
As noted previously, NC lathes can be substituted for non-NC lathes with
greater efficiency in some operations. However, any dependence on
excess NC lathe capacity to compensate for severe non-NC lathe shortages
will become problematic as NC lathe capacity continues to decline and NC
lathe import penetration levels continue to increase.
Conclusion:
Positive Finding: NC lathe technology is an essential element of
flexible manufacturing systems and other advanced manufacturing
technology. At the same time, imports are capturing three-fourths of
the U.S. market and putting into question the very future existence of a
domestic NC lathe industry.
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S 1:0% F1 pe~ -r
Section 232 Supplementary Machine Tool Report
Milling Machines
Mob Year
War 1
War 2
War 3
Cum. Shortfall
Domestic Requirements
27470
32169
42963
46582
Domestic Capacity
23291
27600
35402
46303
Domestic Inventory
4029
Importers Inventory
1777
Total Supply
29097
27600
35402
46303
Surplus/(Shortfall)
1627
(4569)
(7561)
(279)
(10782)
Discussion:
There are supply shortfalls for each year of the war. Imports as a
percentage of domestic consumption have risen from 34 percent in 1979 to
half the U.S. market in 1982. Even as apparent consumption increased
through 1984, imports continued to capture half the domestic market.
Machining centers can be substituted for milling machines in some
applications with greater efficiency. However, this is often not the
case. For example, a machining center cannot do the work of a profiler
or the work of certain high tolerance milling machines. In any event,
it is anticipated that machining centers will be in short supply and not
available to offset milling machine shortfalls.
Conclusion:
Positive Finding: Imports are impeding the industry's ability to meet
national security requirements.
SCT
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Section 232 Supplementary Machine Tool Report
Machining Centers
Mob Year
War 1
War 2
War 3
Cum. Shortfall
Domestic Requirements
3731
4747
7159
7919
Domestic Capacity
3618
4287
5499
7193
Domestic Inventory
620
Importers Inventory
575
Total Supply
4813
4287
5499
7193
Surplus/(Shortfall)
1082
(460)
(1660)
(726)
(1764)
Discussion:
Machining centers are particularly important to the national security
due to their key role in flexible manufacturing systems and other
processes at the forefront of machine tool technology. Such systems are
essential to improvement of both the quality and efficiency of weapons
systems production.
Wartime shortfalls exist that cannot be met by total available supplies.
Mobilization year supply is deemed adequate only due to the presence of
large inventories. As previously noted, both domestic capacity and
inventories have declined since the time that the survey was taken.
Milling machines may be substituted for machining centers for some
applications at significantly reduced efficiency. However, as
previously noted, we anticipate shortages of milling machines.
During the 1978-84 period, imports as a percentage of domestic
consumption rose from 22 percent to 72 percent. In the same period,
domestic shipments as a percentage of domestic consumption declined from
92 percent to 31 percent.
Conclusion:
Positive finding: Shortfalls exist that cannot be met by anticipated
total supplies. Imports are impeding the domestic industry's ability to
meet national security requirements. The U.S. requires a rapidly
increasing machining center production capacity due to this category's
key role in flexible manufacturing systems and other of the most
technologically advanced applications. The clear danger to the U.S.
national security would be further exacerbated by any additional loss of
capacity resulting from increased import penetration.
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Section 232 Supplementary Machine Tool Report
Non-NC Punching and Shearing
Mob Year War 1 War 2 War 3 Cum. Shortfall
Domestic Requirements 14230 12986 17002 17827
Domestic Capacity 5508 6527 8372 10950
Domestic Inventory 396
Importers Inventory 865
Total Supply 6769 6527 8372 10950
Surplus/(Shortfall) (7461) (6459) (8630) (6877) (29427)
Discussion:
Massive shortfalls exist for the mobilization year and all three war
years. Imports of all punching and shearing machines increased from 19
percent to 36 percent during the 1978-82 period and to 43 percent by
1984.
Given the massive projected shortfalls, it can be expected that non-NC
machines will be required on a widespread basis by many defense
contractors. Machining capabilities must be available to the specific
contractors who need them throughout the country. Furthermore, NC
machines cannot substitute for non-NC machines in all applications. For
prototypes and certain close tolerance parts manufacturing, non-NC
machines are absolutely essential. In addition, most shearing
operations are performed on manual machines.
Conclusion:
Positive Finding: Imports are impeding the ability of the industry to
meet national security requirements.
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Section 232 Supplementary Machine Tool Report
NC Punching and Shearing
Mob Year War 1 War 2 War 3 Cum. Surplus
Domestic Requirements 1298 1199 1578 1653
Domestic Capacity 2029 2404 3084 4034
Domestic Inventory 63
Importers Inventory 115
Total Supply 2207 2404 3084 4034
Surplus/(Shortfall) 909 1205 1506 2381 6001
Discussion:
Imports of all punching and shearing machines increased from 19 percent
to 36 percent during the 1978-82 period and to 43 percent by 1984.
A technologically sophisticated machine tool industry is clearly
essential to our national security. Furthermore, there are potential
negative technology transfer implications to the loss of domestic NC
capacity. We risk the possibility that U.S. advanced technical data
will be transferred from U.S. manufacturers to foreign machine tool
builders in the synergistic process of specification and design.
As noted previously, NC punching and shearing machines can be
substituted for non-NC punching and shearing machines with greater
efficiency in some operations. However, any dependence on excess NC
punching and shearing machine capacity to make up non-NC shortages will
become problematic as NC capacity continues to decline and NC import
penetration levels continue to increase.
Conclusion:
Positive Finding: NC punching and shearing machine technology is an
essential element of advanced manufacturing technology. Imports are
capturing a rapidly increasing share of the U.S. market and putting into
question the industry's ability to meet emergency mobilization
requirements.
St r- -. ---4
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Section 232 Supplementary Machine Tool Report
Non-NC Bending and Forming
Mob Year War 1 War 2 War 3 Cum. Shortfall
Domestic Requirements 15987 13812 18111 18983
Domestic Capacity 8825 10458 13414 17544
Domestic Inventory 1427
Importers Inventory 1889
Total Supply 12141 10458 13414 17544
Surplus/(Shortfall) (3846) (3354) (4697) (1439) (13336)
Discussion:
Shortfalls exist for the mobilization year and all three war years.
Although NC machines can be substituted for non-NC machines with greate.r
efficiency in many applications, this theoretical fungibility will not
ensure that machining capabilities will be available to the specific
contractors who need them throughout the country. Import penetration
for all bending and forming machines increased from 10 percent in 1978
to 31 percent in 1984.
Conclusion:
Negative Finding: The U.S. must take steps to increase its ability to
manufacture these machine tools. Import penetration of the U.S. market
has increased significantly since 1978. However, at present, imports
account for less than one-third of the U.S. market. At this juncture,
we do not believe that there is an adequate basis to demonstrate that
imports are eroding the capacity of the U.S. industry or impeding its
growth. However, the trend in non-NC bending and forming machine
imports should continue to be monitored.
- SFCr!Pq
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Section 232 Supplementary Machine Tool Report
Forging Machines
Mob Year
War 1
War 2
War 3
Cum
Shortfall
.
Domestic Requirements
1265
1197
1587
1672
Domestic Capacity
863
1023
1312
1716
Domestic Inventory
65
Importers Inventory
0
Total Supply
928
1023
1312
1716
Surplus/(Shortfall)
(337)
(174)
(275)
44
(742)
Discussion:
There are shortfalls during the mobilization and war years. No other
machine tool can be used to substitute for forging machines. Imports as
a percentage of domestic consumption have increased from 35 percent in
1978 to 52 percent in 1982 to 83 percent in 1984. Although the U.S.
industry has lost many of its export markets, exports continue to
account for 57 percent of domestic apparent consumption, indicating that
significant domestic capacity is still operating. Mobilization capacity
declined by about half during the 1978-82 period, with no growth
projected through 1985. Had the U.S. not lost this capacity, there
would be no projected supply shortfalls.
Conclusion:
Negative Finding: Although imports substantially increased their share
of the market and domestic shipments have rapidly declined, we believe
that substantial capacity losses can be attributed to lost export
markets.
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Section 232 Supplementary Machine Tool Report
Presses
Mob Year War 1 War 2 War 3 Cum. Shortfall
Domestic Requirements
18583
18136
24721
26303
Domestic Capacity
15143
17950
23025
30114
Domestic Inventory
1272
Importers Inventory
152
Total Supply
16567
17950
23025
30114
Surplus/(Shortfall)
(2016)
(186)
(1696)
3811
(87)
Discussion:
There are shortfalls in the mobilization and war years. No other
machines can substitute for presses. Imports accounted for 19 percent
of the domestic market in 1982, rising to 31 percent by 1984. Domestic
capacity increased significantly during the 1978-82 period.
Conclusion:
Negative Finding: Imports account for less than one-third of the U.S.
market. At this juncture, the Department does not believe that there is
an adequate basis to demonstrate that shortfalls are related to
excessive import penetration levels which either erode U.S. production
capabilities or impede the growth of the industry.
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Section 232 Supplementary Machine Tool Report
Alternative B
Alternative B concludes that imports do not represent a threat
to national security, since there will be adequate supplies of
machine tools from a variety of sources (domestic capacity,
reliable imports, and substitution) to meet requirements.(U)
Definitions of Terms
The following summarizes the discussion of terms regarding
requirements and supply incorporated in the following tables. (U)
-- Requirements are from the NSC Stockpile Goals Study,
appropriately disaggregated. (U)
Initial supply is the total for domestic production and
inventories (for producers and importers), as determined
by Commerce surveys. (U)
The initial surplus or shortfall is derived by comparing
requirements and initial supply. If a shortfall is
present, other available sources may be assessed and
included as appropriate depending on one's
assumptions. (U)
Surplus NC machines can be used in place of non-NC
machines to meet part of the requirements for non-NC
lathes. Previous Commerce analyses estimate that one NC
machine is equivalent to 5 to 10 non-NC machines; the
below figures assume a ratio of 5. (U)
There will be idle machines in, e.g., automobile plants,
since the NSC Study included civilian austerity planning
assumptions regarding nonessential goods. The figures in
the table assume that no more than one-fourth of these
machines are in fact transferred or, alternatively, used
in their current locations to produce different
commodities. (U)
There exists considerable surplus domestic capacity for
some metal cutting tools, e.g., drilling machines. The
only other shortfalls for metal cutting tools (aside from
the "other" category, which is not analyzed) are in
milling machines and machining centers. As can be seen
from the next two tables, imports and substitution of
idle machines can alleviate most of their shortfalls.
Most surplus capacity can be devoted to non-NC lathes;
about 20% of this capacity is required. Non-NC lathes
represent the simplest type of machine tool, and thus it
should be relatively easy to convert some facilities.
The Defense Production Act could be used to facilitate
any conversions. (U)
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Section 232 Supplementary Machine Tool Report
The pattern of wartime imports from reliable countries
would shift towards those categories where shortfalls are
present, relative to peacetime patterns. This line
represents the difference between the level of imports
expected on the basis of peacetime patterns and actual
1982 imports. The peacetime pattern of imports is already
incorporated into the estimate of requirements, as
derived from the NSC Stockpile Goals Study. Imports are
projected to increase only for those tools where other
sources, such as substitution, are not adequate; these
increases would be matched by decreases in other tools
(where surplus domestic capacity is projected) to
maintain total wartime imports well below 1982,
consistent with the NSC study. The low overall level of
imports suggests that foreign producers should be able to
concentrate production on those machine tools needed by
the U.S., and thus achieve 1982 actual export levels for
tools in short supply. (U)
The cumulative surplus/(shortfall) is the result of the
above steps. Government incentives available under the
Defense Production Act could be used to ensure that
surplus capacity in the early years is used to build up a
stockpile for use in later years, when supply may not be
adequate. (This line is only provided in subsequent
tables in case there is a surplus in the early years,
followed by a short fall). (U)
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Section 232 Supplementary Machine Tool Report
Non-NC Lathes
Mob Year
War Yr 1
War Yr 2
War Yr 3
Total
Requirements
74,565
80,479
109,413
118,833
383,290
Supply
Domestic Capacity
36,390
43,122
55,313
72,343
207,168
Domestic Inventory
7,703
Importers Inventory
5,671
Initial Supply
49,764
43,122
55,313
72,343
220,542
Initial Surplus/
(Shortfall)
(24,801)
(37,357)
(54,100)
(46,490)
(162,748)
Use Surplus
NC Machines
11,840
5,740
3,485
11,675
32,740
Wartime Imports
1,348
5,778
5,778
5,971
1818.75
Substitute 25%
of Idle Machines
5,178
14,925
11,614
10,492
42,209
Convert 20% of
Surplus Capacity
30,624
13,983
5,624
37,750
87,981
Surplus/
(Shortfall)
24,189
3,069
(27,599)
19,398
19,057
Cumulative Surplus/
(Shortfall)
24,189
27,258
(341)
19,057
19,057
Discussion and Conclusion
Discussion:
Domestic capacity, substitution of idle machines, NC machines, and the
conversion of surplus machine tool capacity, as well as a shift in the
composition of imports, is adequate to meet both mobilization and war
year requirements. Imports from reliable nations are projected to be
available (up to 1982 actual levels) since the majority of imports come
from Asian nations such as Japan and Taiwan. Production from West
Germany, the only major supplier that suffers extensive war damage,
would not be needed, since it accounts for less than 10% of current
imports. Imports are needed for less than 10% of requirements; domestic
sources can accommodate over 90%. (S)
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Section 232 Supplementary Machine Tool Report
35
There are applications critical to defense
cannot do the work of non-NC lathes, for examplermaintenanceeand repair
operations performed in many industrial facilities and all shipboard
facilities. In valve and pump repair each item is unique and repair or
modification of parts is often non-standard. As can be seen from the
table, surplus NC lathes are used to meet less than 10% of total
requirements. Substitution of NC lathes for non-NC lathes would be
concentrated in applications where NC lathes are most efficient. (U)
Conclusion
No shortfalls are projected; imports do not threaten national security.
(FOLIO)
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Section 232 Supplementary Machine Tool Report
36
Milling Machines
Mob Year
War Yr 1
War Yr 2
Wa
Y
r
r 3
Total
Requirements
27,470
32,169
42,963
46,582
149,184
Supply
Domestic Capacity
Domestic Inventory
23,291
4,029
27,600
35,402
46,303
132,596
Importers Inventory
I
i
1,777
n
tial Supply
Initial Surplus/
(Shortfall)
29,097
1,627
27,600
(4,569)
35,402
(7,561)
46,303
(279)
138,402
(10,782)
Wartime Imports
253
1,600
1,600
1,685
5,138
Substitute 25%
of Idle Machines
716
2,359
1,790
1,537
6,402
Convert 2%
of Surplus Capacity
1,536
700
282
1,892
4,410
Surplus/
(Shortfall)
4,132
90
(3,889)
4,835
5,168
Cumulative Surplus/
(Shortfall)
4,132
4,222
333
5,168
5,168
Discussion and Conclusion
Discussion:
Supplies from domestic capacity, substitution of idle machines, NC
machines, and the conversion of surplus machine tool capacity (2%), as
well as a shift in the composition of imports, are ample to meet
projected requirements, including exports. Imports from reliable nations
are projected to be available (up to 1982 actual levels) since imports
are evenly split between Asian nations such as Japan and Taiwan, and
Western European nations such as France and England. Production from
West Germany, the only major supplier that suffers extensive war damage,
would not be needed, since it accounts for less than 5% of current
imports. Imports are needed for less than 10% of requirements; domestic
sources can accommodate over 90%. (S)
Conclusion:
No shortages are projected; imports do not threaten national security.
(FOLIO)
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Section 232 Supplementary Machine Tool Report
37
Machining Centers
Requirements
Supply
3,731
4,747
7,159
7,919
23,556
Domestic Capacity
D
3,618
4,287
5
499
7
omestic Inventory
620
,
,193
20,597
Importers Inventory
575
Initial Supply
Initial Surplus/
4,813
4,287
5,499
7,193
21,792
(Shortfall)
Substitute 25%
1,082
(460)
(1,660)
(726)
(1,764)
of Idle Machines
Surplus/
308
799
597
528
2,232
(Shortfall)
Cumulative Surplus/
1,390
339
(1,063)
(198)
468
(Shortfall)
1,390
1,729
666
468
468
Discussion and Conclusion
Discussion:
Domestic production and substitution of idle machines are sufficient to
meet projected requirements. Given the peacetime pattern of imports
(already implicit in requirements), less than 5% of requirements would
be met with imports of machining centers. (S)
Conclusion:
No shortages are projected; imports do not threaten national security.
(U)
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Section 232 Supplementary Machine Tool Report
Non-NC Punching and Shearing
Mob Year
War Yr 1
War Yr 2
War Yr 3
Total
Requirements
14,230
12,986
17,002
17,827
62,045
Supply
Domestic Capacity
5,508
6,527
8,372
10,950
31,357
Domestic Inventory
396
Importers Inventory
865
Initial Supply
6,769
6,527
8,372
10,950
32,618
Initial Surplus/
(Shortfall)
(7,461)
(6,459)
(8,630)
(6,877)
(29,427)
Use Surplus
NC Machines
4,545
6,025
7,530
11,905
-30,005
Substitute 25%
of Idle Machines
937
2,730
2,450
2,294
8,411
Surplus/
(Shortfall)
(1,979)
2,296
1,350
7,322
8,989
Discussion and Conclusion
Discussion:
Surplus NC machines and idle machines can eliminate the shortfall in all
war years; one of about 15% of requirements remains in the mobilization
year. A shift in the pattern of imports is not needed for the war
years. (U)
Non-NC tools are relatively simple machines, and can thus be more easily
transferred to other uses than, e.g., machining centers. Thus, the
shortfall in the mobilization year could be easily accommodated with one
or several of the following measures: (U)
-- Substitution rates higher than 25% for idle machines. (U)
-- Refurbished machines from the defense (DIPEC) stockpile of
non-NC punching and shearing machines. (U)
-- Through the Defense Production Act, prioritizing DOD procurement
over civilian goods production. (U)
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Section 232 Supplementary Machine Tool Report
Conclusion:
A shortfall of about 15% of requirements is anticipated in the
mobilization year. This shortfall would be eliminated by giving priority
to the production of defense and essential civilian requirements and/or
through additional substitution. Imports do not threaten national
security. (U)
SFCRT
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Section 232 Supplementary Machine Tool Report
Non-NC Bending and Forming
Mob Year
War Yr 1
War Yr 2
War Yr 3
Total
Requirements
15,987
13,812
18,111
18,983
66,893
Supply
Domestic Capacity
8,825
10,458
13,414
17,544
50,241
Domestic Inventory
1,427
Importers Inventory
1,889
Initial Supply
12,141
10,458
13,414
17,544
53,557
Initial Surplus/
(Shortfall)
(3,846)
(3,354)
(4,697)
(1,439)
(13,336)
Use Surplus
NC Machines
720
1,170
1,260
2,675
5,825
Wartime Imports
---
1,330
1,390
1,340
4,060
Substitute 25%
of Idle Machines
700
2,074
1,853
1,730
6,357
Surplus/
(Shortfall)
(2,426)
1,220
(194)
4,306
2,906
Discussion and Conclusion
Discussion:
A combination of surplus NC machines and idle machines, combined with a
shift in the pattern of imports, can eliminate the shortfall in all war
years (except for 1% of requirements in the second war year); one of
about 15% of requirements remains in the mobilization year. (U)
Projected levels of imports will be available, and would be evenly
divided between Asian nations such as Japan and Taiwan, and Western
European nations such as France, Spain, and England. Imports from West
Germany, the only major supplier that suffers extensive war damage,
would not be needed, since they only account for about 20% of current
imports. (S)
SF!Crr
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Section 232 Supplementary Machine Tool Report
Non-NC tools are relatively simple machines, and can thus be more easily
transferred to other uses than, e.g., machining centers. Thus, the
shortfall could be easily accommodated with the same measures proposed
for non-NC punching and shearing machines: (U)
-- Substitution rates higher than 25% for idle machines. (U)
-- Refurbished machines from the defense (DIPEC) stockpile of
non-NC bending and forming machines. (U)
-- Through the Defense Production Act, prioritizing DOD
procurement over civilian goods production. (C)
Conclusion:
A shortfall of about 15% of requirements is anticipated in the
mobilization year. This shortfall would be eliminated by giving
priority to the production of defense and essential civilian
requirements and/or through additional substitution. Imports do not
threaten national security. (U)
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Section 232 Supplementary Machine Tool Report
Forging Machines
Mob Year War Yr 1
War Yr 2
War Yr 3
Requirements
1,265
1,197
1,587
1,672
Supply
Domestic Capacity
863
1,023
1,312
1,716
Domestic Inventory
65
Importers Inventory
0
Initial Supply
928
10,023
1,312
1,716
Initial Surplus/
(Shortfall)
(337)
(174)
(275)
44
Substitute 25%
of Idle Machines
77
268
227
211
Surplus/
(Shortfall)
(260)
94
(48)
255
Discussion and Conclusion
Discussion:
Total
5,721
4,914
4,979
(742)
783
41
Surplus idle machines can eliminate the shortfall in all war years,
except for a small (3% of requirements) shortfall in the second war
year; there is a shortfall (about 21% of capacity) in the mobilization
year. (U)
The mobilization year shortfall could be alleviated in several ways. The
NSC Study did not assume any civilian austerity in the mobilization
year. The Defense Production Act provides that priority is given to the
production of national security requirements, relative to nonessential
civilian goods. In addition, substitution of more than 25% of the idle
machines might be feasible. Forges, however, are more complex than
non-NC tools, making additional substitution of idle machines less
likely. Finally, West Germany supplies a large fraction of current
imports of forging machines which would be lost during the war years.
Shortages of certain specialized forges might develop. (S)
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Section 232 Supplementary Machine Tool Report
Conclusion:
A shortfall of about 21% of requirements is anticipated in the
mobilization year. Much of the shortfall could be eliminated by giving
priority to the production of defense and essential civilian
requirements. Since increased substitution may be less feasible,
relative to non-NC punching and shearing and bending and forming
machines, DOD should evaluate the need for additional machines in its
stockpile of forges, considering especially the loss of West German
imports. Imports do not threaten national security. (S)
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Section 232 Supplementary Machine Tool Report
Presses
Mob Year War Yr 1 War Yr 2 War Yr 3 Total
Requirements 18,583 18,136 24,721 26,303 87,823
Supply
Domestic Capacity 15,143 17,950 23,025 30,114 86,232
Domestic Inventory 1,272
Importers Inventory 152
Initial Supply 16,567 17,950 23,025 30,114 87,656
Initial Surplus/
(Shortfall) (2,016) (186) (1,696) 3,811 (87)
Substitute 25%
of Idle Machines 1,531 4,962 4,362 4,026 14,881
Surplus/
(Shortfall) (485) 4,776 2,666 7,837 14,794
Discussion and Conclusion
Discussion:
Idle machines can eliminate the shortfall in all years, except for a
minimal shortfall (about 3% of requirements) in the mobilization year,
which could be accommodated with slightly higher rates of substitution
or by giving priority to defense production. (U)
Conclusion:
The minimal shortfall in the mobilization year would be eliminated by
giving priority to the production of defense and essential civilian
requirements and/or through additional substitution. Imports do not
threaten national security. (U)
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8"r- VVn11 L MVV.7C "'-rte
TAB A
MEMORANDUM FOR THE HONORABLE MMALCOI& BAJ.DRIGE
? The .Secretary of Commerce
SUBJECT: Section 232. Case Concerning kNachire Tools '(U)
The Departments:of.Commerce Section :232 investigation on machine
tools
has
b
rais
'w
?
.
.
een;
ed
ith
the President... The. President-has,
decided,;to.'.defe ,his final .decision-:.in-.this case until * the.
-National*.* SecuritY. Council.. : (NSC) . has 'completed its review of
United'.States'economic:requirements'in.*p:artire, in order to
promote a balanced and-coordinated approach to mobilization
preparedness. (S) .
This is being done through the stockpile goals study begun by
Judge Clark nearly eight months ago and now scheduled for
completion and presentation to the President by the end of April.
In the conduct of this ongoing study, the Secretary of Defense on
February 15 forwarded updated defense expenditure patterns. The
President has asked that the results of the stockpile goals study
Jae incorporated, as appropriate, into the Section 232 report on
iaachine tools. (S) - ? ---
After this NSC study is complete, its findings should be
integrated into the Section 232 machine tools report. (U)
The results of your Section 232 report should be kept classified
until the President has ruled on your updated version. (U)
FOR THE PRESIDENT:
WASHINGTON
March 3, 1984
Robert C. McFarlane
Attachment
Tab A Department of Cormmerce Sectior. 232 Report on
on Afachine Tools
SECRET
D Ssify OADR
S co " ~ .
E %NLT
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THE WHITE HOUSE
CONFIDENTIAL
System II
90543
WASHINGTON
July 14, 1984 A 2 -
MEMORANDUM FOR THE HONORABLE MALCOLM BALDRIGE
The Secretary of Commerce
SUBJECT: Section 232 Report on Machine Tools (U)
The President has decided that the NSC Stockpile Study Working
Group Reports presented in Robert Kimmitt's April-11 memorandum
are to be used, as appropriate, for stockpile and industrial
preparedness planning to include Section 232 investigations.
These include:
-- The full mobilization scenario.
Expenditure patterns adopted by the President for the
scenario.
The wartime reliability assumptions for concerned countries.
The international energy supply/demand price projections.
The sealane attrition factors.
Other related assumptions from the Stockpile Study. (C)
In order to ensure that the appropriate level of. detail for'..
the machine tools 232 report is drawn from these working group
reports, a technical-.level interagency group to include State,,
DOD, NSC, OMB and CEA should be established to integrate the.
working group reports' findings into the machine tools report
to the President.. 1 would' appreciate Commerce's taking the
lead to establish this group. I hope that the updated machine
tools report to the President could be submitted within five
weeks' time. (C)
FOR THE PRESIDENT:
cc: The Secretary of State
The Secretary of Defense
The Director, Office of Management and Budget
The Chairman, Council of Economic Advisers
CONFIDENTIAL
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C Oi'1rLJLriI 111 4'
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Machine Tool Price Indices used to transform
1982 dollars into 1972 dollars
Table B-1 presents the price indices used throughout this
supplementary report to transform 1982 dollar requirements
and other 1982 dollar figures into 1972 dollars compatible
with the NSC Stockpile Study. Numbers in the '1972' column
represent the price indices for the various categories in
1972 relative to the 1967 base price for the all metal
cutting, station type, all metal forming, and forging
categories, and relative to the December 1971 base price for
all other categories. Entries in the '1982' column represent
the price indices in 1982 relative to the appropriate base
period cited above. Entries in the 'INDEX' column represent
the ratio of the entry in the 1982 column divided by the
entry in the 1972 column: the appropriate index by which to
divide to transform 1982 dollars into 1972 dollars.
Table B-1
MACHINE TOOL PRICE INDICES(U)
Metal cutting
All Metal Cutting*
120.2
368.5
3.066
Boring Machines**
102.8
283.7
2.760
Drilling Machines**
101.9
290.8
2.854
Gear Cutting Machines**
104.5
471.9
4.516
Grinding Machines**
102.3
318.0
3.109
NC Lathes**
101.7
229.5
2.257
All Lathes**
102.0
293.6
2.878
Milling Machines**
101.5
323.4
3.186
Machining Centers**
101.0
202.3
2.003
Station Type Machines* N/A
Used
All Metal Cutting
3.066
Other Metal Cutting Machines**
102.2
280.6
2.746
Metal Forming
All Metal Forming Machines:*
125.3
404.7
3.230
Punching Bending and Forming:**
102.1
296.1
2.900
Pressing Machines:**
101.2
345.4
3.413
Forging Machines:* N/A
Used
All Metal Forming
3.230
Other Metal Forming Machines:**
102.3
326.2
3.189
* 1967-100
**Dec. 1971-100
Source: Bureau of Labor Statistics
Producer Prices and Price Indexes
I.; Aa~ ~111u 1j iL.l
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UNITED STATES DEPARTMENT OF COMMERCE
The Under Secretary for Economic Affairs
Washington, O.C. 20230
SECRET
February 21, 1985
MEMORANDUM FOR: Machine Tool Section 232 Working Group
From: David K. Henry, Regulatory and Legislative
Analysis Division, Office of Business Analysis
Subject: Machine Tool Requirements Methodology from the
NSC Stockpile Review
The attachment is a summary of the methodology in the NSC chaired
stockpile review to estimate the machine tool requirements. This
summary is based on four reports issued in the stockpile review:
A."National Defense Stockpile Review: Macroeconomic
Scenario", March 7, 1984,
B."Input/Output Report", June 27, 1984,
C."Working Paper: Investment Sufficient to Meet the
Industrial Output Requirements of the U.S. During an
Emergency Period", 1984, and
D."Final Report of the Working Group on International
Supply/Demand Balances and National Defense Stockpile Goals",
December 19, 1984.
This summary is a guide to the steps taken to estimate machine
tool requirements once the overall economy estimate -GNP- was
completed. The attachment includes revisions, where appropriate,
to the draft summary issued on February 6,1984 to the subworking
group on requirements methodology.
Attachment
cc.R. Grant
W. Farb
Cover memo declassified when detached
from classified attachment.
CLASSIFIED BY: MULTIPLE SOURCES of Stockpile Review
DECLASSIFY ON: OADR
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Methodology Used In the
NSC Stockpile Review
to Estimate Machine Tool Requirements
Macro Economic Forecast
o.The macroeconomic working group (of the NSC Stockpile
Review), using the Wharton long term macroeconomic model,
estimated a GNP path for 1983 through 1986 based on the
modified EMPB 3A scenario, one year mobilization and a three
year war. The major assumptions affecting achievable GNP
during the scenario period were reduced imports and higher
real prices of petroleum, higher real defense spending, and
fiscal policies to finance the war. Austerity programs to
reduce automotive production and housing construction also
affected the composition of GNP.
o.Some of the other major assumptions that affected the
overall composition of GNP and differed dramatically from the
1979 stockpile goals study included (1) sea lane attrition
planning assumptions, (2) political reliability planning
assumptions, (3) domestic mineral supplies, and (4) the
resulting U.S. imports and international supply/demand
balance.
o.The major components of GNP resulting from the mobilization
assumptions and the macroeconomic model (Table 1) include
Personal Consumption Expenditures (PCE), Gross Private Fixed
Investment (GPFI), Federal government defense and nondefense
purchases, state and local government expenditures, and net
exports.
Table 1
GNP Assumptions (S)
(Billions of 19725)
1983
1984
1985
1986
Gross National Product
1510
1592
1683
1744
PCE
958
940
966
1017
GPFI
210
208
214
198
Net Exports
9
12
11
12
Government Purchases
Federal defense
131
246
309
338
Federal nondefense
27
22
21
20
State and local
176
165
162
157
Source: Macroeconomic Working Group, March 7, 1984
SECRET
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5EC~?T
Military and Civilian Bills-of-Goods
o.Federal government purchases for defense were supplied by
the Defense Department. They used bridge tables from their
Defense Economic Impact Modeling System (DEIMS) to allocate
their mobilization and war budget numbers among the supplying
industries; i.e., to create a "bill-of-goods" for the direct
requirements (final demands) of the defense effort.
o.The industrial composition (bills-of-goods) for each of the
civilian components of GNP was estimated by FEMA's Demand
Impact Transformation Tables (DITT). The DITT bridge tables
are used in the same way as the DEIMS bridge tables; i.e.,to
estimate industrial final demands based on the allocation,in
this case, of civilian components of GNP to direct industry
purchases. (During the stockpile analysis, the need for
using more updated bridge tables, rather than the DITT bridge
tables, was recognized, but FEMA was unable to implement this
recommendation.)
Indirect output Requirements
o.Once the bills-of-goods for the direct industrial
requirements of the military and civilian components of the
economy were established, the indirect industrial
requirements were calculated as follows: Indirect civilian
requirements were estimated by FEMA using their 257 sector
1972 Input-Output matrix. DoD estimated indirect military
output requirements by using their 403 sector 1972 based
Input-Output matrix. A concordance between the 403 and 257
sector matrices was developed and civilian and military
direct and indirect output requirements were summed to
establish total required output from each industry (257
industry detail). The defense and civilian direct and
indirect outputs added together by industry were then used to
estimate the need-for additional capacity.
SfCItEI
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investment Analysis
o.Seventy industries showed scenario output levels in excess
of recent peak outputs. The output increase for 50 of these
industries was determined to be well within the industrys'
ability to produce by increasing factor utilization. For the
20 industries that exceeded past output peaks by 50 percent
or more (see end of attachment), investment requirements for
structures and equipment, new and replacement, were
estimated. In addition to these 20 industries, investment
requirements were estimated for the petroleum and natural gas
industries, utilities, and the strategic and critical
minerals industries. An additional $20 billion was
distributed among industries to account for depreciation of
existing capital stocks. These estimates of required
investment in structures and equipment (Table 2), including
machine tools, then replaced the macromodel's estimate of
GPFI (except for DoD-financed investment which remained in
Federal government expenditures).
Table 2
Investment Requirements Estimates
NSC Stockpile Review
(billions of 1972$)
1983
1984
1985
1986
General Defense
Private (1)
6.9
11.8
12.8
10.6
DoD Financed (2)
1.5
4.5
6.3
7.3
Energy (3)
18.9
19.4
18.5
13.7
Minerals (3)
2.0
3.5
3.7
2.4
Other (4)
129.4
20.0
20.0
20.0
TOTAL
158.7
59.2
61.3
58.0
Sources:
(1) Office of Business Analysis (OBA), DOC
(2) Program, Analysis, and Evaluation Div., DoD
(3) Special Studies, OMB
(4) The $20 billion to offset depreciation was divided
among industries (other than defense, energy and
minerals) with proportionally larger amounts alloted to
industries that produced at relatively high levels
compared with past peak outputs.
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o.Input-output analysis used to derive required industrial
output as described above does not allow for substitution
away from products of those industries that are capacity
constrained. This would result in the lowering of output
requirements and therefore lowering of investment
requirements. On the other hand, industries that are not
capacity constrained and may have to provide the
"substituted" product would possibly have higher estimates of
required output and higher investment. The fixed
relationship among industries unaffected by capacity
constraints and price fluctuations should be kept in mind
when using input-output analysis.
o.For the selected 20 industries, industry investment levels
were estimated by relating maximum output estimates and net
capital stocks for 1972 through 1981 and then applying the
ten year average output to capital stocks ratio to the level
of output determined necessary for the emergency. Net
capital stocks rather than gross capital stocks were used to-
account for physical depreciation of the capital goods.
Capital stocks estimates derived from multiplying the
average capital stocks to output ratio to the emergency
output levels, were subtracted from the previous years' level
to determine the new investment requirements. A separate
analysis on the replacement investment provided for the value
of assets discarded or subject to wear and tear during the
1983 through 1986 period for assets existing prior to the
emergency.
o.Maximum estimated outputs for the selected industries for
the years 1972 through 1981 were derived by dividing actual
outputs by capacity utilization rates and taking a 95 percent
use of the capacity estimate. This procedure was determined
to be conservative since most capacity utilization rates
(published by the Census) were based on a one-shift
production rate. During an emergency, double or triple
shifts could provide for increased output levels. Capital
stocks data for the same time period on a three and four
digit Standard Industrial Classification basis are maintained
by the Office of Business Analysis in DOC. A ratio of
capital stocks to maximum output was computed for each of the
years for each industry. The average of ten (1972 to 1981)
ratios relating capital stocks to output was used in the
projected period to determine capital stocks requirements for
each industry based on the levels of projected mobilization
and war outputs.
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o.Investment in each industry was then broken down as to type
of structure and type of equipment; e.g., cutting and forming
machine tools. The distribution was done in two steps: (1)
OBA's capital goods matrix for 1980 was used to break down
the industry investment into 15 types of structures and 22
types of equipment, and (2) direct from BEA's capital flows
matrix for 1972 was used to further break-down the structures
and equipment estimates to the 4-digit SIC level of detail.
o.In the stockpile model, the Federal Government component of
final demand from the DEIMS model includes estimates of
producers' durable equipment required to make major defense
systems such as missiles, aircraft, tanks, ships, and
ammunition. Approximately 10 percent of overhead budgets on
major procurement accounts are estimated to be capital
investment. This translates to about 2-3 percent of outlays
for most major weapon systems. To avoid double counting of
producers' durable equipment in the GPFI component of final
demand, the DoD purchases of producers' durable equipment
were netted against the additional investment required
derived by the procedures described above.
o.Separate investment analyses were performed for the
petroleum and gas industries, utilities, and industries
producing strategic and critical minerals. Estimates of
investment for these industries were distributed as to type
of structure and type of equipment and included in the GPFI
estimate of final demands.
o.This alternative estimate of required new and replacement
investment by industry, translated to a bill-of-goods,
replaced the macro-model's estimate of GPFI. The investment
bills-of-goods together with all other final demands, are
used in estimating indirect requirements (including indirect
requirements for machine tools.) The direct (final demand)
and indirect output requirements are added together to
estimate the machine tool output requirements.
Note: The 20 industries evaluated for investment included
missiles (SIC 3761), tanks (SIC 3795), ammunition, small (SIC
3482), ammunition, large (SIC 3483), ordnance,nec (SIC 3489),
chemicals (SIC 2892), primary metals (SIC 339), nonferrous
forgings (SIC 3463), cutting machine tools (SIC 3541), forming
machine tools (SIC 3542), metal machinery, nec (SIC 3544-9),
electrical measuring devices (SIC 3825), radio & TV
communications equipment (SIC 3662), electronic components (SIC
367), aircraft (SIC 3721), aircraft and missile engines and
engine parts (SIC 3724,64), aircraft and missile parts (SIC
3728,68), ships (SIC 3721), and engineering instruments (SIC
3811)
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D
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uiCLAhbJ V,
Description of the method used to disa re ate
machine tool requirements
National security requirements for metal cutting and metal
forming machine tools are set forth in the NSC Stockpile
Study in 1972 dollar terms as part of a 257 industry
input/output analysis of the U.S. economy. Requirements for
these two broad categories of machine tools are specified for
the mobilization and three war years. In order to adapt the
NSC requirements into an appropriate format for this
investigation, it was necessary to 1) disaggregate them into
the 18 product lines under review, and 2) to convert them
from 1972 dollars into units.
To disaggregate the Stockpile Study-generated machine tool
requirements, the FEMA Capital Input/Output model was used
first to calculate the specific machine tool inputs needed to
manufacture the specified industrial output requirements.
However, since the FEMA model divides the economy into 68
broad industry sectors, it was necessary to aggregate the 257
industry requirements provided by the Stockpile Study. The
FEMA model results were used to determine the percentage that
each product line's requirements represented of the broad
metal cutting or metal forming categories. These percentages
were then multiplied by the Stockpile Study requirements for
each of the four years to generate 1972 dollar requirements
for each of the 18 product lines.
To facilitate comparison with the capacity projections set
forth in the DOC industry survey, these 1972 dollar
requirements were next transformed into 1982 dollar
requirements. The Bureau of Labor Statistics price indices
for each category of machine tool presented in Tab B were
used to accomplish this conversion. Table D-1 presents the
disaggregated NSC Stockpile Study requirements for each
product line in 1982 dollars.
UCLASSIF1ED
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i~CLaJS~r~ru
DISAGGREGATED SCENARIO REQUIREMENTS
(millions of-1-982
Metal Cutting
Mob Yr War Yr 1 War Yr 2 War Yr 3
Boring Machines 389.92 430.32 615.59 674.98
Drilling Machines 251.62 297.97 432.93 476.50
Gear Cutting Machines 205.85 242.63 340.94 379.41
Grinding Machines 896.31 1056.66 1487.29 1626.96
Horizontal NC Lathes 554.63 654.76 947.77 1038.04
Machining Centers 798.42 1077.58 1625.14 1797.57
Milling Machines 851.56 1061.57 1417.78 1537.20
Non-NC Lathes 1043.91 1207.18 1641.19 1782.49
Other Metal Cutting 536.62 623.86 873.82 958.26
Station Type Machines 998.55 994.30 1436.11 1589..76
Vertical NC Lathes 150.15 195.01 287.21 317.06
Metal Forming
Mob Yr War Yr 1 War Yr 2 War Yr 3
Forging Machines 206.20 190.36 252.39 265.86
NC Bending and Forming 43.07 40.81 55.61 58.82
NC Punching and Shearing 106.40 95.90 126.20 132.20
Non-NC Bending and Forming 415.66 400.56 525.23 550.50
Non-NC Punching and Shearing 498.04 480.50 629.06 659.61
Other Metal-Forming Machines 384.02 368.83 484.89 509.39
Pressing Machines 1133.57 1124.42 1532.72 1630.77
Source: DOC calculations based on FEMA Capital Input/Output Model
It was then necessary to convert the 1982 dollar requirements
into the specific units that would be needed for national
security purposes. To transform the dollar requirements into
unit requirements comparable with available capacity
information, the dollar requirement figures shown in Table D-1
were divided by the average prices per category per year shown
on the next page in Table D-2.
Average prices for the mobilization year are based on both the
survey of producers and the survey of importers as
mobilization year supplies reflect domestic capacity,
inventories held by importers, and inventories held by
domestic producers. At the conclusion of the mobilization
year, it is anticipated that domestic and import inventories
will be exhausted. Therefore, the prices for all three war
years reflect only data from the DOC survey of domestic
manufacturers.
UNCLASSIFIED
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O~CIASSifiED
-
Tab
l
D3 -
e D-2
AVERAGE MACHINE TOOL PRICES ($000 OF 1982$)
Metal Cutting
Mob Year
War Years
Boring Machines
150
179
Drilling Machines
35
36
Gear Cutting Machines
200
212
Grinding Machines
39
40
Horizontal NC Lathes
145
157
Vertical NC Lathes
374
417
Non-NC Lathes
14
15
Milling Machines
31
33
Machining Centers
214
227
Station Type Machines
984
998
Other Metal Cutting
23
23
Metal Forming
Mob Year
War Years
NC Punching and Shearing
82
80
Non-NC Punching and Shearing
35
37
NC Bending and Forming
69
68
Non-NC Bending and Forming
26
29
Pressing Machines
61
62
Forging Machines
163
159
Other Metal-Forming Machines
25
25
Source: DOC calculations based on DOC survey of machine tool
producers and importers
UNCLASSIFIED
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E
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Capacity Analysis
Although the inter-agency Machine Tool Working Group agreed to use
the mobilization capacity projections set forth in the 1983 DOC
industry survey of domestic manufacturers and importers, a number of
qualifying factors must also be taken into consideration when using
these estimates to reach national security policy decisions.
o DOC machine tool industry experts estimate that overall
US machine tool production capacity has declined since
1982. Weak domestic demand, increasing import
penetration and stagnant exports have led to unprofitable
operations and inadequate cash flow in the domestic
machine tool industry. A list of some of the most
significant capacity changes in the industry since 1982
can be found at the end of this Tab.
As a result of these factors, many companies are
importing components and entire machines rather than
manufacturing them. Others have gone out of the machine
tool business, and others have shut down production
capacity. Cincinnati Millacron, for example, has
laid-off workers and increased its dependence on overseas
operations; Brown and Sharpe has discontinued production
of machining centers; Houdaille (previously one of the
top ten producers) has announced plans to sell off all of
its domestic manufacturing facilities, and Ex-Cell-O
(previously one of the top five producers) has placed its
machine tool and related businesses up for sale
eliminating them as a domestic producer of machining
centers, transfer lines, and flexible manufacturing
systems.
o The DOC survey did not provide for any lag time to reach
mobilization capacity. In fact, there would likely be a
substantial lag time to reach maximum production
potential given the current low operating rates. When
estimating capacity, surveyed domestic manufacturers were
instructed to assume their best production mix for
efficient operations and the immediate availability of
labor and materials. In light of these assumptions,
estimated mobilization year capacity represents 175% of
the industry's 1979 production-its best year to date. By
the third war year, survey respondents estimate that
industry unit capacity will be 347% of the industry's
1979 production.
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When asked about bottlenecks to reach such efficient
operations, 76 percent of respondents indicated that
skilled labor would be a constraint. Furthermore, in its
contribution to the original machine tool study, the
Department of Labor indicated that "the existing national
pool of potentially available machinists, toolmakers and
other similarly skilled workers does not appear to be
adequate, absent extensive training, to meet the needs of
restaffing an entire industry in an emergency. Efforts
to recruit skilled workers from other industries could
have an adverse impact on these industries, which may
also be essential during a national emergency."
o Inventories held by importers and domestic manufacturers
are lower than they were at the time of the 1983 DOC
survey. Nevertheless, in this report's shortfall
analysis, survey inventory levels were added to available
domestic supplies and were used to offset requirements.
As the Department predicted in its original machine tool
report, the liquidation of importers' inventories has in
fact filled the demand for new U.S. machine tools as
overall demand has increased. This has reduced the
domestic industry's opportunity to increase production
and capacity utilization.
Japan is the largest source of U.S. machine tool imports
and, due to product lines and business practices, has
also been the largest source of machine tools inventoried
in the United States. In a May 1984, paper entitled
"Exports of Japanese Machine Tools to the U.S. and the
Recent Trend of the U.S. Market," Japan's Ministry of
International Trade and Industry (MITI) presented the
results of a 1983 survey of the U.S. inventory of
Japanese-made numerically-controlled machine tools. This
survey focused on NC lathes and machining centers, the
largest dollar volume Japanese machine tool exported to
the United States, and included machines in transit.
MITI noted that "the inventory level at the end of the
fourth quarter of 1983 was reduced 33 percent in the case
of NC lathes and 18 percent in the case of machining
centers as compared with the inventory level at the end
of the first quarter of 1983." MITI also stated that "it
is believed that the reduction of inventory reflects the
recovery of demand in the U.S. market." It is quite
likely that the level of inventory reduction was even
greater in 1984 and 1985 than in the three quarters of
1983 covered by the MITI survey.
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o The requirements set forth in the NSC model are
structured in such a manner so as to be unlikely to lead
to the capacity expansions projected in the DOC survey.
The survey anticipated that domestic producers will add
capacity as quickly as possible. This was a reasonable
assumption given the requirements for machine tools in
the original DOC machine tool study. In that study, most
of the requirements for new machine tools occur during
the mobilization year and the first war year. However,
the NSC Stockpile Study scenario projects that demand for
machine tools will be lowest during the mobilization year
and highest during the third war year. In the free
market wartime economy envisioned by the Stockpile Study,
it is therefore unlikely that domestic manufacturers will
add capacity for orders they have not yet received. It
is equally unlikely that orders will be placed three
years in advance.
Significant Changes in Machine Tool Capacity Since 1982
Cincinnati Milacron - Traditional industry leader. Consolidated
operations, layoffs of workers and management. Greater
dependence on overseas operations. Has agreed to market NC
lathes manufactured by Hitachi Seiki of Japan. Announced plans
to import more parts and components - affects machining centers,
NC turning, milling, grinding, etc. Since December 1985,
consolidated manufacturing further discontinuing machining at
Wilmington, OH plant (NC lathes) moving all production to main
plant in Cincinnati.
Cross & Trecker - Consolidated operations, increasing dependence
on offshore operations. Has acquired many machine tool
companies and rationalized redundant capacity. Importing two
lines of machining centers and NC lathes from Japan. May 1985
agreement to produce NC lathes in India. Ranks a close second
to Cincinnati Milacron.
Houdaille Industries - Closed several plants. Placed etire machine
tool group up for sale in May 1985. Announced in October 1985
it is selling or closing all of its machine tool operations.
Machining centers, NC punching, etc. Houdaille was one of the
top ten U.S. machine tool companies.
Jones & Lamson - Sold by Textron in May 1985. Undergoing
restructuring: status unclear. NC lathes.
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Bridgeport Machines - Offered for sale by parent (Textron) in
May 1985. Sold to management in highly leveraged buy-out in
October 1985. Has moved capacity offshore. Status unclear.
Milling machines and small machining centers. Bridgeport and
Jones & Lamson taken together, ranked as the seventh leading
U.S. machine tool producer in 1982.
Bendix Corporation - Sold its entire machine tool group to
Cross & Trecker after selling at auction the assets of its
Turning Machine Division (formerly the Warner & Swasey
Company). Bendix was the third leading U.S. machine tool
producer in 1982.
Acme Cleveland - Sold its LaSalle Machine Tool Division
to Cross & Trecker, reducing its machine tool capacity by half -
eliminates participation in machining centers and systems. Acme
Cleveland was eighth leading U.S. machine tool producer in 1982.-
Ex-Cell-O - Has placed its Manufacturing Systems Division up for
sale (July 1985). This effectively eliminates Ex-Cell-O as a
domestic producer of machining centers, transfer lines, flexible
manufacturing systems and other metal cutting machine tools.
Ex-Cell-O has consistently ranked as one of the top five U.S.
machine tool producers.
White Consolidated - Recently completed second major restructuring
in two years. Significant reductions of capacity. They are in
a full retreat trying to salvage what they can of remaining
product lines." Machining centers, NC lathes, VTL's. White
Consolidated was the ninth leading U.S. machine tool producer
in 1982.
Brown & Sharpe - Discontinued production of machining centers
in 1984. Is leasing 20 percent of its production area as
warehouse space. Brown & Sharpe ranked as the nineteenth
leading U.S. producer in 1982.
Hurco - Importing castings for small machining centers from the
People's Republic of China. Laid off 20 percent of its
workforce in July 1985.
Monarch - Has begun importing small NC lathes.
Morey Machinery - Chapter 11 bankruptcy.
Conlon Corporation - Bankrupt. Assets up for auction.
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New Britain Machine - Has begun importing NC lathes.
Gould & Eberhart - Chapter 11 bankruptcy.
Ekstrom Carlson - Moving out of machining centers and boring
machines.
Hardinge Brothers - Announced a layoff in June 1985. NC lathes.
Boston Digital - Announced agreement to import Swiss machining
centers.
Farrel Company - Offered for sale by parent (Emhart) in
June 1985. Status unclear. Lathes, grinders.
Rank Engineering - Chapter 11 bankruptcy.
E & M Machine Tool - Out of business.
Charmilles - Discontinued U.S. production of travelling wire
electrical discharge machines in 1984.
Milwaukee Press and Machine Company - Bankrupt. Assets up for
auction.
Boyar-Schultz Corporation - Reduced capacity, moved into
smaller facility. Produces NC grinding equipment.
Kysor Industrial Corporation - Divested machine tool operations.
Some operations will continue under new ownership but at least
one major product line will no longer be produced in the United
States.
Fitchburg Engineering - Out of business
Fox Engineering - Out of business
HES Machine - Out of business
Ironcrafter - Dropped machine tool line
Famco - Out of business
Evans & Associates - Dropped machine tool line
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RESEARCH AND
ENGINEERING
OFFICE OF THE UNDER SECRETARY OF DEFENSE
OFFICE OF INDUSTRIAL BASE ASSESSMENT
TWO SKYLINE PLACE, SUITE 1406
5203 LEESBURG PIKE
FALLS CHURCH, VIRGINIA 22041.3466
UNCI.ASSIHED
19NART
MB4)RANIJ}1 FOR STEVE GOLDMAN, DIRECTOR, RESOURCES ASSESWM DIVISION
SUBJECT: Condition of Machine Tools in General Reserve
The Department of Coerce (Doc) asked the Department of Defense (DoD) to
disaggregate and evaluate machine tools held in the General Reserve. We do
not have disaggregated data available by the 18 classes specified in the
Machine Tool 232 petition or a specific breakout by numerical controlled
machines. There are a total of 13,644 metal working machine tools in the
General Reserve as of 31 January, 1985. Approximately 5,000 of these will be
disposed of during the next year. A breakout by 30 Federal Supply
Classification classes is available and has been enclosed. This breakout
shows the number of machine tools in each class.
Several years ago, an estimate was made that 801 of the items in the
General Reserve required sane repair prior to their being used. The actual
condition (degree of repair) is not known. DIPEC also estimated that it would
take 3-5 years to repair all of the equipment in the General Reserve. This
estimate was based on a General Reserve that was 33% larger than the current
structure. Defense Logistics Agency (DLA) is refining the requirements
criteria for stocking machine tools in the General Reserve. After these
criteria are finalized and the General Reserve is pared down, the DLA will
address the problem of getting the machine tools into ready for issue
condition. Because of the need for repair, very few of the machine tools could
be placed into production in time to aid the mobilization effort.
Until the General Reserve is in a ready for issue status, we would
reconmend that it not be included as an asset to help offset machine tool
mobilization requirements in a 232 evaluation.
Please contact John King, 756-2310, if you require further information.
; JAMES H. KORDES
Director
LASSIHED
Declassified in Part - Sanitized Copy Approved for Release 2012/05/14: CIA-RDP88G01117R000501590003-8
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/14: CIA-RDP88G01117R000501590003-8
ly Classificatio
Anti-icing an
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cellaneous Ac,
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art 1 - Groups and Classes
UICLASSIFIED
types of equipment are excluded from this
class and are to be classified in the same
classes as their next higher assemblies. The
FSC indexes and structure will govern the
classification of those items permitted
classification in a single class only.
Includes Shafts and Shafting; Collars; flexible
Shafting.
Bearings
NOTE: All bearings, whether specially designed.
specially lubricated, or specially selected, are
classified in the appropropriate classes of this
group, unless specifically excluded, such as jewel
bearings (FSC class 6695).
3110 Bearings, Antifriction, Unmounted
Includes Ball Bearings; Roller Bearings; Balls;
Races.
Excludes Plain Bearings; Jewel Bearings.
3120 Bearings, Plain, Unmounted
Includes Sleeve Bearings; Split Bearings;
Washer Type Bearings.
Excludes Antifriction Bearings.
3130 Bearings, Mounted
Includes Pillow Block Units; Cartridge Units;
Flange Units; Takeup Units; Hanger Box
Units; Flat Box Units; Step Box Units.
GROUP 32
Woodworking Machinery and Equipment
3210 Sawmill and Planing Mill Machinery
3220 Woodworking Machines
Includes Mortisers; Tenoners; Veneer
Lathes.
Excludes Hand Held Power Driven Tools;
Hand Held Tools Operated by Flexible Shaft.
3230 Tools and Attachments for Woodworking
Machinery
Includes Circular and Band Saw Blades; Cut-
ter Heads; Jointer and Notcher Heads; Cut-
ters.
Excludes Hand Turning Tools.
Metalworking Machinery
U~!GI.AS~!f;ED is
3405 Saws and Filing Machines 133
Includes Cutoff Machines; Saw Blade Dress-
ing Machines; Retoothing Machines.
3408 Machining Centers and Way-Type Machines
ing of parts requiring multiple operations
such as milling, drilling, tapping, boring, and
reaming, having an integral tool storage
device and an integral means for positioning
various faces of the work piece. It must have
facilities for automatic interchanging of
varied cutting tools between successive
operations. Excluded from this class are
multipurpose numerically controlled machine
tools, such as Boring-Drilling-Milling
Machines, which require the use of an attach-
ment or accessory for tool storage and/or to
position the various faces of a work piece.
These types of equipment are classified in
other appropriate classes within group 34.
b. "Way-Type Machine", refers to a
special machine tool of station type design
consisting of individually mounted self-
contained machining units and facilities for in-
dexing the work piece to each station in a
predetermined sequence. The machining
unit(s) may be disassembled and rearranged
to accommodate different work piece con-
figurations. Machine is capable of performing
single or multiple operations on the work
piece simultaneously or in sequence to each
station.
NOTE: The following definitions apply to
"machining centers" and "way type
machines". gg
a. "Machining Center", refers to a
multipurpose numerically controlled machine
tool for the complete and automatic machin.
3410 Electrical and Ultrasonic Erosion Machines
Includes Electrical Discharge Machines; Elec-
trolytic Grinding Machines.
3411
3412
11
3413
3-6
Boring Machines q71
Broaching Machines / 6 2,
Drilling and Tapping Machines
Includes Multiple Spindle Drilling-Tapping
Machines. 1 02 4
Excludes Way-Type Machines.
3414 Gear Cutting and Finishing Machines L,( 3 Z
3415 Grinding Machines iZ / 9 ,2
' Excludes Electrolytic Grinding Machines.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/05/14: CIA-RDP88G01117R000501590003-8
46
3416 Lathes
Includes Screw Machines.
UCL1SSIF lED
3,2 80
Excludes Speed Lathes; Metal Spinning
Lathes; Cartridge Cast and Shell Lathes.
3417 Milling Machines ~ 7/7
3418
Planers and Shapers
Excludes Gear Shapers; Planer Type Milling
Machines.
Includes Combination Shaper-Planers
3419 Miscellaneous Machine Tools .O3
11 Includes Gun Rifling Machines: Speed Lathes.
3422 Rolling Mills and Drawing Machines
36
8
3424 Metal Heat Treating and Non-Thermal
Includes Hardening. Annealing, Tempering,
Normalizing, Cyaniding, and Carburizing
Equipment; Furnaces, Flue Welding, Non.
Thermal Stress Relieving Systems.
3426 Metal Finishing Equipment M
Includes Galvanizing, Tinning, Oiling. Pick-
ling; Electroplating, and Anodizing Equip-
ment.
3431 Electric Arc Welding Equipment (02.
Includes Gas Shielded Arc Welding
Machines; Arc Bonding Machines; Semi-
Automatic and Automatic Arc Welding
Machines.
Excludes Welding Supplies, and Associated
Equipment such as: Flux Recovery Machines;
Flux Dispensers; Tacker Panels; Welding
Panels.
3432 Electric Resistance Welding Equipment
Includes Electric Resistance Brazing
Machines; Band Saw Brazers; Stored Energy
Resistance Welding Machines.
Excludes Electric Induction Brazing and
3433
I.3(
Gas Welding, Heat Cutting, and Metalizing
E
Includes Metal Spray Guns; Arc Cutting
Machines; Torches and Tips; Gas Brazing
Machines; Flame Cutting Machines; Vacuum
Metalizers; Spark Discharge Metalizers.
Excludes Welding Supplies; Disintegrating
Machines.
quipment
3436 Welding Positioners and Manipulators r7 z
Includes Welding Tables.
UICL1ISSHED
Treating Equipment
Federal Supply Classification
3438 Miscellaneous Welding Equipment 30
Includes Thermit Welding Equipment; Flux
Recovery Machines; Flux Dispensers; Arc
Converters; Welding Panels.
3439 Miscellaneous Welding, Soldering, and Braz-
ing Supplies and Accessories
Includes Soldering Irons; Welding Electrodes
and Rods; Brazing Fluxes; Soldering Fluxes;
Solder.
3441
Bending and Forming Machines 30-3
Excludes Wire and Metal Ribbon Forming
Machines.
3442 Hydraulic and Pneumatic Presses, Power
Driven
6
Includes Metal Powder Compacting Presses.
3443 Mechanical Presses, Power Driven 9 a Z
' Includes Metal Powder Compacting Presses.
3444 Manual Presses
Includes Arbor, Straightening, Forcing, and
A
ssembly Presses.
3445 Punching and Shearing Machines
3446 Forging Machinery and Hammers
' Excludes Forging Presses.
3447 Wire and Metal Ribbon Forming Machines
Excludes Roll Forming Machines.
3448 Riveting Machines
Excludes Power Driven Hand Riveting 5
Machines.
3449 Miscellaneous Secondary Metal Forming and
Cutting Machines 57
7
Includes Metal Spinning Lathes.
3450 Machine Tools, Portable
Includes Portable Abrasive Cutting
Machines; Portable Drilling Machines; Por-
table Slotters and Shapers.
Excludes Stationary Type Machine Tools
mounted on portable devices such as wheel or
leg type stands.
3455 Cutting Tools for Machine Tools
Includes Broaches; Files; Milling Cutters;
Reamers; Saws.
Excludes Flame Cutting Tools.
3456 Cutting and Forming Tools for Secondary
Metalworking Machinery
!Y
Declassified in Part - Sanitized Copy Approved for Release 2012/05/14: CIA-RDP88G01117R000501590003-8
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/14: CIA-RDP88G01117R000501590003-8
Flux
Are
ides
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sing
Part 1 - Groups and Classes
3460 Machine Tool Accessories
N.-
Excludes Abrasive Wheels, Cones, and other
Abrasive Attachments for use only on Hand
Held Power Tools.
3461 Accessories for Secondary Metalworking
Machinery
Excludes Parts Feeders.
3465 Production Jigs, Fixtures, and Templates
NOTE: This class includes jigs, fixtures,
and templates used in conjunction with the
metalworking machinery classified in group
34. Jigs, fixtures, and templates used in con-
junction with maintenance and repair shop
specialized equipment are classified in group
49.
3470 Machine Shop Sets, Kits, and Outfits
Service and Trade Equipment
3510 Laundry and Dry Cleaning Equipment
Includes Washing Machines; Extractors: Wr-
ingers; Drying Tumblers; Ironers: Presses:
Starching Machines; Marking Equipment;
Mobile Laundry and Dry Cleaning Units.
3520 Shoe Repairing Equipment
Includes Shoe Sewing Machines; Mobile Shoe
Repair Shops.
3530 Industrial Sewing Machines and Mobile Tex.
tile Repair Shops
Excludes Shoe Sewing Machines.
3540 Wrapping and Packaging Machinery
Includes Filling Machines; Container Capping
Machines; Label Applying Machines; Package
Sealing Machines; Paperboard Box, Case and
Tray Making Machines: Strapping Machines:
Stapling Machines, except Office Type.
Excludes Paperboard Manufacturing
Machinery.
3550 Vending and Coin Operated Machines
Includes Fare Recording Devices; Parking
Meters: Turnstiles; Coin Operated
Phonographs.
Excludes Coin and Currency Handling
Machines; Coin Operated Scales.
3590 Miscellaneous Service and Trade Equipment
Includes Manicure Tables.
rU ei ? n(+ir,CI
UNCLASSIFIED
Special Industry Machinery
3605 Food Products Machinery and Equipment
Includes Industrial Food Products Equip-
ment.
Excludes Kitchen and Galley Equipment.
3610 Printing, Duplicating, and Bookbinding
Equipment
Includes Offset Presses; Typesetting
Machinery; Bookbinding Machinery; Pho-
toengraving Machinery; Printing Type;
Rules: Leads; Slugs; Line Gages; Quoins;
Plate Hooks; Gelatine Process Machines;
Spirit Process Machines; Stencil Process
Machines; Offset Process Machines:
Photostat Machines; Blueprint Printing and
Developing Machines; Print Shop Furniture.
Excludes Microfilm Machines.
3611 Industrial Marking Machines
NOTE: Marking machines which make per-
manent indentations in metal are classified in
group 34.
Excludes Marking Machines, Laundry; Prin-
ting Machine, Label; Printing Press. Label;
Embossing Machines, Office Type and Mark-
ing Machines, Office Type.
3615 Pulp and Paper Industries Machinery
Includes Chippers; Digestors; Beaters;
Bleaching Equipment; Paperboard Manufac-
turing Machinery.
Excludes Paperboard Box, Case and Tray
Making Machines.
3620 Rubber and Plastics Working Machinery
Includes Plasticators; Presses; Synthetic
Rubber Working Machinery; Tread Ex-
truding Machinery; Vulcanizing Machinery.
Excludes Protective Covering Laminating
Presses; Tire Maintenance and Repair Equip-
ment.
3625 Textile Industries Machinery
Includes Cotton Ginning Machinery; Looms;
Button Covering Machines; Rope Laying
Machines; Lace Machines.
3630 Clay and Concrete Products Industries
Machinery
Includes Brickmaking Machinery.
3635 Crystal and Glass Industries Machinery
Includes Optical Goods Manufacturing
Machinery.
Declassified in Part - Sanitized Copy Approved for Release 2012/05/14: CIA-RDP88G01117R000501590003-8
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/14: CIA-RDP88GO1117R000501590003-8
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Declassified in Part - Sanitized Copy Approved for Release 2012/05/14: CIA-RDP88GO1117R000501590003-8
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/14: CIA-RDP88G01117R000501590003-8
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Declassified in Part - Sanitized Copy Approved for Release 2012/05/14: CIA-RDP88G01117R000501590003-8