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APPENDIX B
POLICIES OF FOREIGN GOVERNMENTS
JAPAN
Government policy has played an important role in
stimulating Japan's machine tool industry. Japan's
Ministry of International Trade and Industry (MITI) has
described three stages of an industry's development:
growth, maturity, and decline. MITI's greatest influence
is during the first and third stages--supporting growing
industries and cushioning the effects of decline. The
Japanese machine tool industry is currently considered
(by MITI) to be in the maturity stage. MITI played a
major role in helping the industry to reach maturity;
however, its influence has diminished considerably in
r ecent years .1 Thus, although much has been said about
the large number and variety of Japanese policies that
support its machine tool industry, many of these policies
are no longer in effect.
Industrial Planning
As par t of its statutory function of identifying and
promoting industr ial growth, MITI has been author ized to:
provide funds for modernization
approve rationalization cartels
stimulate mergers, joint ventures, and further
modernization of equipment
· move domestic firms toward increased specialization
and international competitiveness2
As an example of moves toward specialization, MITI now
requires Japanese firms to discontinue manufacturing
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types of machines that are less than 20 percent of a
f irm's total production and where the firm's share of
national production3is less than 5 percent (excluding
machining centers) . Thus, Japanese machine tool
builders benefit from economies o f scale and reduced
competition.
Availability of Capital
Japanese firms needing capital for expansion or modern-
ization can draw on a range of incentives and traditional
practices going beyond what is available in the United
S tates . These include:
· policies that keep interest rates artificially law
for loans to favored manufactur ing industr ies
~ a relatively concentrated commercial banking
sector, which enables the Ministry of Finance and the
Bank of Japan to "rations credit4
· a }sigh rate of domestic saving, helped in part by
tax preferences on interest income
· a tradition of close cooperation among government
agencies that sets economic pr for ities and commercial
lending agencies
· generous depreciation allowances, including a
special accelerated depreciation rate for numerical
control (NC) machine toolaS
Although many of these policies were conceived at a
time when capital was scarce and when extraordinary
efforts were needed to revive a war-damaged industrial
base, the same policies now provide Japan with subs
stantially greater investment incentives than exist in
any other DECO country.
R&D Incentives
A quasi-governmental corporation, Flexible Manufacturing
System Complex (FMC), involves machine tool builders and
others in a large-scale, government-sponsored effort to
further the state of the art in manufacturing processes.
Although perhaps the most visible, this is but one of a
number of government-sponsored research projects involving
government laborator ice, universities, and industry.
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Japanese tax laws allow generous credits for research
and development (25 percent of incremental Rod.
Because R&D is typically no more than S percent of
sales, subsidized R&D cannot account for much of the
price differential between Japan and the United States.
Subsidized R&D does, however, have one major advantage
that is not just financial. The government's involvement
in R&D lends strategic directions and legitimacy to R&D
work and has helped the Japanese develop NC and electronic
discharge machines quickly.
The bicycle and motorcycle race wagering tax also pro-
vide. direct subsidies to the machine tool industry.
Though their extent is unknown, total collections in 1981
from this tax, which in earmarked For promotion of
industries related to bit ales and other machines,.7
were almost S100 million.
FRANCE
Industrial Planning
France has a long tradition of government involvement in
the economy having used a variety of market and non-market
tools to promote the national economy while reducing
dependence on foreign manufacturers. With the election
of the Mitterrand government, France has begun to emulate
the Japanese, placing greater reliance on market signals
but utilizing various government policies to stimulate
targeted Growth sectors and sponsoring national research
projects. On June 29, 1982, the government announced
the creation of a Super ministry of research and
industry, modeled after MITI.10 This ministry will
implement the various tools of French industrial policy,
including industry restructur ing, subsidies, joint
ventures, foreign acquisitions by French firms, and
research spending to promote growth industr ies .
The Ministry of Research and Industry has begun
Implementing a major restructuring plan for the machine
tool industry, expected to last through 1986. The
establishment of the French Heavy Machinery Company
(MFL), a holding company, was announced in July 1982 and
was formalized in September as the first step in this
restructuring. MEL currently has two subsidiaries, one
devoted to milling machines and one to lathes, each
formed by the merger of two machine tool companies. The
Ministry of Research and Industry has a development
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contract with MEL that calls for a 200 million franc
investment between 1983 and 1985 to increase its share
from 4 percent of world production to 6 percent.
.~IFL is the first of 3 poles around which the machine
tool industry will be regrouped. Of the nearly 150
machine tool companies, the most important will be
regrouped around 15 industry leaders through mergers and
acquisitions. Such arrangements are expected to increase
the international competitive position of French machine
tools by reducing R&D and manufacturing costs.12
Shortly after its creation, the Ministry of Research
and Industry announced the "production plan n to be ing
together various industries--including machine tool--in a
national automation effort.13 This plan aims for 25
percent growth in process control each year for 3 years.
In addition, the government has called for a drastic
cut in imports of NC machine tools, from a 60 percent
market share to 30 percent by 1984. This reduction is to
be achieved through government contracts and subsidies,
leading to an increase in NC machine tool production from
27 percent to 60 percent of total machine tool production
by 1985, with total machine tool output doubling by 198 S .
The government expects f irms to conceit 5 percent of sales
to R&~; in return, the government will award contracts o f
2 00 million francs over the next three years.
R&D Incentives
The French government's 1982 budget plans call for a 37
percent increase in the research and development program
f ram the previous year and a quintupling over the next few
years. During this time, in contrast, the total budget
will r ise only slightly. This, combined with recent
nationalization of several high technology companies,
means that the government controls approximately 75
percent of R&D.
Several programs exist to assist private firms in
R&D. One program, Lettres d'Agrement, is a means to
encourage f irms to develop and manufacture a product in
the national interest. The government provides loan
guarantees or low-interest loans to assist the firm, with
preference given to priority sectors. Aide au Development
is a program to assist firms in commercialization of
public and private R&D results. The government provides
subsidies for prototypes and pilot plants, as well as
loans for 50 percent of the pro ject cost. The loans ar e
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repaid only if the project is successful. Other programs
promote cooperative R&D between private, government, and
university labs.
Three canters for goal-oriented machine tool research
were designated by the government in 1982; the Machine
Tool Study and the Research Center (CAM), the Agency for
Development of Automated Production (ADEPA), and the
Mechanical Industries Technical Center (CETIM) will be
the s ites of the programs. Machine tool companies will
be encouraged to take advantage of the technological
advances developed at these centers.
FEDERAL REPUBLIC OF GERMANY (FRO)
Industrial Planning
Our ing the past decade, the government of the Federal
Republic of Germany (FRO) has become increasingly involved
in directing industrial development and change. The lead
agency in industrial planning is the Ministry of Research
and Technology (BMFT), which was created in 1972. Like
MITI, BMFT has encouraged rationalization of industries
in structural decline and promoted knowledge-intensive
sectors. Like Japan in the late 1950s and early 1960s,
the FRG has encouraged mergers, consolidations, and
offered grants, low-cost loans, and tax concessions
during the late 1960s and early 1970s. However these
programs have primarily been designed to benefit declining
industries; the Germans have no official priority list of
growth sectors to be supported. Priorities are set
through market mechanisms, while business response to
market changes are guided by an informal system of
~concertation. based on input from government, banks, and
labor.
The Economics Ministry and the BMFT provide grants to
industry for research and development. A variety of
research institutes, both independent and university
associated, receive government funding. For example, the
Technical Research Institute at Aachen is considered by
many to be the best machine tool laboratory in the world;
69 percent of its funds for research come from the
government--either federal or Lander (states).14
The 17-20 Fraunhofer Institutes in the FRG are an
important source of industrial research. Fraunhofer
Institutes specialize in industrial technology, especially
in high growth, advanced technology industries, under
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contract to companies and government agenc ies . Th e
government matches the institutes' contract funding with
an equal amount to be used for basic research. 15
Since the early 1970s, a major project to develop
flexible manufacturing systems (E?4S) has been sponsored
by the f ederal government, involv ing many institutions
and f irms and receiving heavy subsidies. Elements of the
project include CAD/CAM technology; technology for parts
fabrication and assembly methods: and highly flexible
manufactur ing systems based on machining centers grouped
around programmable industrial robots. The federal
government plans, coordinates, and funds various R&D
projects in academic and industrial labs related to EMS.
For example, university research centers at Aachen,
Berlin, and Stuttgart have been encouraged deco develop a
r esearch center for CAM.
T he f ederal government has also implemented the
Follow-on Production Technology R&D Program to run
through 1984 and probably longer. This program is
designed to consolidate the development of EMS research
by encouraging utilization of R&D results to batch
manufacturing processes. Interest free loans and rapid
depreciation are provided by the government to promote
installation of R&D results, including applications of
industrial robots and automatic controls. Over the long
term, the Follow-On Program is intended to encourage the
use of various FMS in all plants to create computer-
integrated automated factories.
NOTES TO APPENDIX B
1. Houdaille Industr ies , Tr~c., petition to the
President of the United States Through the Office of
the United States Trade Representative for the
Exercise of Presidential Discretion, Author ized by
Section 103 of the Revenue Act of 1971, 26 U.S.C.
Section 48(a) (7) (D) ,. Hay 3, 1982, p. 64.
Ministry of International Trade and Industry, The
Vision of MITI Policies in 1980s, Summary,.
Provisional Translation, March 17, 1980, p. 15.
3. National Machine Tool Builders' Association,
Japanese Study Mission, Meeting the Japanese
Challenge,. September 14, 1981, p. 16.
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117
4. koudaille, pp. 61, 74-75.
5. Comptroller General of the United States, Industrial
Policy: Japan's Flexible Approach, U.S. Government
Printing Office, June 23, 1982, p. 30.
6. James A. Gray, America Needs You." NMTBA, p. 2.
7. Comptroller General of the United States, p. 36.
8.
Houdaille, pp. 110-111.
9. MMTBA, Japanese Study Mission, p. 16.
10. Several national research projects are in areas
related to machine tools, including electronics,
computers, and robotics.
11. G. Bidal, With the 'Productics' Plan, National-
Scale Automation is at Stake,. Electroniquetualites,
Paris, September 3, 1982, p. 1, translated in West
Europe Report on Science and Technology.
12. George LeGall, in L'U~ine Nouvelle, Paris, Octobe r
1, 198 2, p . 8 2, and Lubka, Stephane, "Mach ine Tools:
Official Birth of the French Heavy Machinery
Company, n Les EChos, Paris, September 3, 1982,
p. 6. Both translated in West Europe Report on
Science and Technology.
13. AEP Sciences, Paris, July 1, 1982, p. 1, translated
in West Europe Repor ~ on Sc fence and Technology .
Andre Larane, Heathen, a Mecca for Machine Tools, ~
Industr ies & Techniques, Par is, June 1, 1982, p. 7 7.
15. Department of Commerce, Office of Productivity,
Technology, and Innovation, Cooperative R&D in Major
OECO Countr ies, June 30, 1982, p. 7.
Representative terms from entire chapter:
tool industry
