DRAFTING MACHINES AND PARTS THEREOF FROM JAPAN Determination of the Commission in Investigation No. 731-T A-432 (Final} Under the Tariff Act of 1930, Together With the Information Obtained in the Investigation USITC PUBLICATION 2247 DECEMBER 1989 United States International Trade Commission Washington, DC 20436 UNITED STATES INTERNATIONAL TRADE COMMISSION COMMISSIONERS Anne E. Brunsdale, Chairman Ronald A. Cass, Vice Chairman Alfred E. Eckes Seeley G. Lodwick David B. Rohr Don E. Newquist Staff assigned: Elizabeth Haines, Investigator Catherine DeFilippo, Economist Marshall Wade, Financial Analyst Ruben Moller, Industry Analyst William Kane, Attorney George Deyman, Supervisory Investigator Address all communications to Kenneth R. Mason, Secretary to the Commission United States International Trade Commission Washington, DC 20436 CONTENTS Determination and Views of the Commission: Determination ..........•........... ~. .... 1 Views of the Conunission •••••••••••••.•••• ............. 3 Views of Chairman Anne E. Brunsdale •••••• . • . .. .. ... .. ... 21 Additional Views of Vice Chairman Ronald A. Cass •••• ....... • _35 Additional Views of Conunissioner Eckes ••••• .. • ......... ............ 67 Information obtained in the investigation: Introduction •••••• .................. ·• ........ A-1 Background ••••••••• ..... •· .. A-2 Nature and extent of sales at LTFV •••• .............. ............ A"."'2 The product: Description and uses .••••••••••• . .. ............. A-3 Track drafting machine •••••••. .. .. ..... ...... A-3 Band-and-pulley (elbow-type) drafting machine ••••••• ........ A-3 Protract.or head . ..... ct •••••••••••••••••••••••••••••• ....... A-5 Parts of drafting machines. ....... A-5 Manufacturing processes ••••.• .. • ••••••• e: •• A-5 Track drafting machine ••••• ..................... • .. A-7 Band-and-pulley drafting machine ••••••••• ....................... A-7 Protractor head •.•• ............................. A-7 Substitute products. .. ............. A-8 Portable drafting system •• .. ...... A-8 Portable drawing board •.•••.•••••• ..................... A-8 Computer-aided design systems. .. ..... A-8 U.S. tariff treatment •.•••••••••• .. ~ .. A-9 The U.S. market: Apparent U.S. consumption ••• ... •.• ..... A-iO U.S. producers . .......... .. .......... A-10 U.S. importers ........... ...................... A-11 Channels of distribution ••••• .. • ... .. • ..... ........... A-12 Consideration of alleged material injury to an industry in the United States . .............................................. A-13 U.S. producer's capacity, production, and capacity utilization •• A-13 u. s. producer's shipments •• A-13 Domestic shipments ••.•.••• .• .......... .............. A-13 Export shipments ••• ...... A-15 Total shipments •••• A-15 U.S. producer's inventories •• .. ..... A-15 U.S. employment, wages, and productivity •• .....-. A-16 Financial experience of the U.S. producer. .... A-16 Overall establishment operations •••••••• , , , • •• -, •••••••• A-16 Operations on drafting machines and parts thereof •••••• A-19 Financial ratios . ...................... .................. A-20 Value of plant, property, and equipment. ........ • ... A-21 Capital expenditures ••••.•••••.••••••••• ................ .. A-21 Research and development expenses ••••••• .. A-21 Capital and investment ••••••••.••••••••• A-21 ii CONTENTS Information obtained in the investigation--Continued Consideration of the question of threat of material injury .••••••••••••• A-22 U.S. importers' inventories. • • . • • . • • • . • • . • • . • . • . • • . • • • • • • . • . • • • • A-23 The producers in Japan •••••••••.•••••••••••••••••••.•.•••••••••••••••• A-24 Consideration of the causal relationship between imports of the subject merchandise and the alleged material injury: U.S. imports ....•••........•......•.••..........••....•.•.•.••.•••.••• A-25 Market penetration by the subject imports •.••••••••.•••••••••••••••••• A-27 Market structure: Market participants. • • • • • • • • • • • • • • • • • • • • • • • . • • • • • . • • • • • • • • • • • • • • • • A-28 Competition between drafting machines and CAD systems ••••••••••••••• A-30 Prices·.••••••••••.•.••••••••••.•••• - • • • • • • • • • • • • • • • . • • • • • • • • • • • • • • • • • A-31 Price trends ••••.••••••••••••••••••••••..•••••.•••.••.••••.••••••••• A-33 Price comparisons ••••••••••••.•.• •. • • • • • . • • • • • • • • . • • • • • • • • • • • • . • A-34 Lost sales arid. lost revenues. • .. • . • • • • • . • . • . • • • • • • • . • . • . • • • • • • • • • • • • • • A-36 Exchange rates ••••••••••••••••••••.•••••.•• ~···················~········ A-37 ·Appendixes A. Conunission' s Federal Register notice •••.•...•.•••.•.•••••••••••.•••••• B-1 B. Conunission's Federal Register notice pertaining to its hearing, and list of witnesses who appeared at the hearing .•••••••••••.•••••• B-5 c. Conunerce' s Federal Register notice· .•.•••.•••••.•.•..•••••••••••••••••• B-11 D. Percentage changes in market data •••••••••••••.•.••••••••••••••••••••• B-15 E. Conunents by Vemco on the effects of imports from Japan on its growth, investment, development and production efforts, and abi 1 i ty to raise capital •••.••••••••••••••••••.•••.•••••••••.•••••••• B-17 F. Ranges of sales prices ••••..•. ·•.•.•. • ••.•.• ~ •.••..•..••••.•••••••••••• B-19 Figures 1. Types of drafting machines .•.••••••....••••.......•.••.••.•••••••••• A-4 2. Types of protractor heads ..•.•••.•.•.•.•.•••..••....•••••••••••••••• A-6 F-1. Drafting machines: Largest quarterly sales prices and ranges of highest and lowest sales prices as reported by Vemco and Mutch for products 1 and 2, by quarters, January 1988-June 1989 ••••••••• B-20 F-2. Drafting machines: Largest quarterly·sales prices and ranges of highest and lowest sales prices as reported by Vemco and Mutoh for products 3 and 4, by quarters, January 1988-June 1989 ..••••••• B-20 iii CONTENTS Tables 1. Drafting machines and parts thereof: U.S.-produced domestic shipments, U.S. shipments of imports, and apparent U.S. consumption, 1986-88, January-June 1988, and January-June 1989 .••• A-11 2. Drafting machines: U.S. shipments, by markets and types of protractor head, 1988 ..... .• ....................................... A-12 3. Drafting machines: U.S. capacity, production, and capacity utilization, 1986-88, January-June 1988, and January-June 1989 •••• A-13 4. Drafting machines and parts thereof: U.S. producer's company transfers, domestic shipments, export shipments, and total shipments, 1986-88, January-June 1988, and January-June 1989 ••.••• A-14 5.. Drafting machines: U~ S. producer's end"'."'of-period inventories, inventories as a share of U.S. shipments, and inventories as a share of total shipments, as of Dec. 31 of 1986-88, June 30, 1988, ·and June 30, 1989 ............... ..................................... A-15 6.~ Average number of employees and production and related workers, producing drafting machines and parts thereof and all products, hours worked, wages paid, hourly wages, total comp~nsation paid, productivity, and unit labor costs, 1986-88, January-June 1988, and January-June 1989 ............................... ·· .............. A-17 7. Income-and-loss experience of Vemco Corp. on the overall establishment operations within which drafting machines are produced, accounting years 1986-88, January-June 1988, and ~anuary-June 1989 .. ........... , ..................................... A-18 8. Income-and.,.-loss experience of Vemco Corp. on its operations producing drafting machines and parts thereof, accounting years 1986-88, January-June 1988, and January-June 1989 ••. ~ ••••••••..•• : A-20 9.. Drafting machines: End-of-period inventories of Japanese products, as of Dec. 31 of 1986-88, June 30, 1988, and June 30, 1989.~ •••••• A"'."'24 10. Drafting machines: Mutoh Industries, Ltd,'s capacity, production, capacity utilization, end-of-period inventories, inventories as a share of total shipments, home-market shipments, exports to the United States, exports to all other countries, and total shipments, 1986-88, January_.June .1988, and January-June 1989 •••••• A-26 11. Drafting machines and parts thereof: U.S. imports, 1986-88, January-June 1988, and January-June 1989 •• ~ ••....••.•••••••••••••• A-27 12. · Drafting machines and parts thereof from Japan: U.S. importers' domestic shipments, export shipments, and total shipments, 1986-88, January-June 1988, and January-June 1989 •••.•••.•..•••••• A-28 13. Drafting machines and parts thereof: Shares of U.S. consumption · supplied by Japan, and all other countries, 1986-88, January- June 1988, and January-June 1989 ••.••••••••••....••••••••.•••••••• A-29 14. Drafting machines: F.o.b. prices and margins of underselling (overselling) reported by Vemco and Mutoh America for sales to distributors of product 1, by quarters, !January 1986-June 1989 •••• A-33 iv CONTENTS Tables--Continued 15. Drafting machines: F.o.b. prices and total quarterly shipments of.products 2, 3, and 4 to distributors as reported by Vemco and Mutoh America, by quarters, January 1986-June 1989 •••••••••••• A-34 16. Exchange rates: Indexes of the nominal and real exchange rates between the U.S. dollar and Japanese yen, and indexes of producer prices in Japan and the United States, by quarters, January 1986-June 1989 ............................................. A-38 D-1. Drafting machines: Percentage changes in market data, 1986-87, 1987-88, and January-June 1988 to January-June 1989 .••••••.••••••• B-16 Note.--lnformation that would reveal business proprietary