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The following agency reports have been received by the subcommittee up to the time of publication. In addition, any written comments received on specific bills have been inserted following the reports. The material is arranged numerically by House bill number.
H. CON. RES. 383 To disapprove the determination of the President not to provide import relief for
the leather wearing apparel industry
AMERICAN FEDERATION OF LABOR
Washington, D.C., August 22, 1980.
of Representatives. DEAR CHAIRMAN VANIK: The AFL-CIO supports H. Con. Res. 383 to provide for action to stem the flood of injurious imports of leather wearing apparel. Further delay in curbing these damaging imports will destroy the remaining jobs and production in this U.S. industry.
The injury is so severe, the case for action so overwhelming, that failure to act could undermine confidence in U.S. trade laws and international trade agreements. In proceedings before the U.S. International Trade Commission, the industry and the unions have proved that imports cause serious injury. Title II of the Trade Act of 1974 provides that the Commission, if it finds injury, can recommend relief. In January 1980 the Commission unanimously found injury and recommended relief. Article XIX of the General Agreement on Tariffs and Trade recognizes that relief against imports that injure domestic industry is appropriate.
We urge swift action on H. Con. Res. 383 which disapproves the President's determination not to follow the recommendations of the International Trade Commission for import restraints on leather wearing apparel. If a resolution of disapproval is passed by both the Senate and the House, the President will be required to proclaim the relief recommended earlier by the ITC. On August 21, the Senate Finance Committee considered and by voice vote reported out a similar resolution, S. Con. Res. 108. Approval by the Subcommittee on Trade of H. Con. Res. 383 will provide an important step toward helping injured U.S. industries and saving the jobs and production in leather wearing apparel. Sincerely,
RAY DENISON, Director, Department of Legislation.
STATEMENT OF THE AMERICAN RETAIL FEDERATION These comments are submitted by the American Retail Federation (ARF) on behalf of itself, and its members which include 33 national retail associations, 50 state retail associations as well as its corporate members. Through its members, ARF represents more than 1,000,000 retail stores, employing over 13,000,000 persons. The industry accounts for a quarter of the Gross National Product; also, it consists of a very broad spectrum of retailers, from large multi-unit enterprises, to the independent corner market, drug and variety store.
The American Retail Federation urges the Subcommittee on Trade to support the action of the President on the Leather Wearing Apparel Escape Clause proceedings (USITC No. TA-201-40) and to reject the remedy and recommendations of the United States International Trade Commission because those remedies would be
inflationary to consumers and to the economy and would be counterproductive to the domestic industry's interests.
IN A PERIOD WHEN INFLATION IS THE NO. 1 DOMESTIC PROBLEM IN THE UNITED STATES,
THE FEDERAL GOVERNMENT SHOULD AVOID ACTION WHICH WOULD SUBSTANTIALLY CONTRIBUTE TO THE RATE OF INFLATION The Consumer Price Index went up 1.2 percent in December 1979 bringing the 1979 inflation rate to 13.3 percent. This is an increase of 4.3 points over the 9.0 percent rate in 1978. This represents the highest rate of inflation the United States has experienced in the last three decades.
The United States citizens for several years have manifested an increasing concern about inflation. It has become the overriding domestic issue. In a nationwide survey conducted for the American Retail Federation by Cambridge Reports, Inc., in July and August 1978, 52 percent of the Americans named inflation as one of the two most important problems facing the United States today. The survey results are based on in-home interviews with approximately 1500 adult Americans. In a second national survey in October 1978, 57 percent listed inflation as the number one problem. In the April/May national survey of 1979, 62 percent listed inflation as the most important problem. The results show a ten point jump in less than a year. The Consumer Price Index in June of 1980 rose at an annual rate of over 12 percent, after six months of economic downturn.
General merchandise retailers are extremely aware of the inflation rate and its impact on the consumer market. Price competition within the general merchandise industry has been one of the key factors in holding the present inflation rate to only 13.3 percent. In 1979 while gasoline prices rose 52 percent as compared with 8.4 percent in 1978, and home financing costs rose by 34.7 percent, general merchandise prices were holding the line and in some cases declining. Women's separates and sportswear were down 1.2 percent in December 1979 as compared with a year before. On the whole, women's and girls' apparel rose by only 1.9 percent in 1979 while men's and boys' apparel rose by only 3.2 percent. This not only reflects the great resistance to price increases found in the consumer market but a decreasing amount of disposable income for U.S. consumers.
The first year USITC recommended increases in rates of duties on leather apparel would raise the tariff to 25 percent ad valorem. This would substantially increase the landed cost of leather wearing apparel on imports. It is estimated that retail prices on such imports could increase from 10 to 15 percent at a minimum and this would not include price increases which would be the result of the increasing cost of tanned leather used to create the garments.
In the highly competitive general merchandise retail market, price elasticities are not readily discernible. The Federation has no aggregate demand/price information for the Committee. However, we expect several retailers to file separate comments which may include price elasticity information which they have experienced in their own firms in the past several years.
SUBSTANTIALLY INCREASED TARIFFS ON LEATHER WEARING APPAREL IMPORTS MAY BE
COUNTERPRODUCTIVE TO DOMESTIC INDUSTRY INTERESTS SINCE SUCH APPAREL ARE FASHION GOODS AND SUBJECT TO SUBSTITUTION
In setting the $150 limit, the USITC reasoned that "Haute couture or high fashion apparel, which consists mostly of women's leather wearing apparel, does not compete directly with the vast majority of domestically produced leather wearing apparel.”1 In so doing, the Commission ignored the fact that virtually all leather wearing apparel items are, in fact, fashion goods. Fashion is not just a term applied to haute couture but is, in fact, spread through all classes of merchandise. Fashion goods are sold in department stores, discount stores, chain stores, and in specialty stores. Fashion is created through the marketing procedures. In the past ten years, a great variety of leather wearing apparel articles have become highly fashionable consumer goods for all classes of consumers.
Fashion is a highly perishable commodity. Apparel which may be fashionable one day may lose its marketability within a short period and a substitute be found to take its place. Merchandise which is priced beyond the consumers' willingness to pay is a prime target for such substitution. This poses a paradox for those wishing to "equalize more nearly prices between imports and domestically produced arti
1 Leather Wearing Apparel, TA-201-40, USITC Publication 1030, January, 1980, p. 14.
p 2 Ibid., p. 15.
The effect of 400 percent increase in the rate of duty will substantially increase the cost at a time when price is utmost in the consumers' minds.
This will result in a reduction in the number of units sold and a substitution of a different type of apparel for the leather wearing apparel. This could be leathertrimmed or fur-trimmed apparel, or apparel from different fabrics such as wool, cotton, or man-made fibers. If fashion shifts in the first year a return of lower prices will not necessarily re-establish the fashion.
IMPORTS PLAY A CRITICAL ROLE IN KEEPING DOWN CONSUMER PRICES Dr. Charles S. Pearson, Associate Professor, International Economic, Johns Hopkins University School of Advanced International Studies, said before the USITC in February 1979, in the Television Receivers proceedings, (TA-201-19):
"The most critical role played by imports into the United States is in keeping prices paid by consumers at a reasonable level, and dampening inflationary pressure. The positive, downward effect on consumer prices arises not only from the purchase of lower priced imports, but perhaps more importantly from the moderating effect of imports on the price of domestic production. Thus, a modest level of unrestricted imports, of say 20 percent of domestic consumption, can hold down the price of the much larger 80 percent of the market. The anti-inflationary impact of imports is, therefore, larger than current import levels imply.
“Restrictions on imports create a deadweight loss of efficiency, income and welfare for an economy, and for consumers. But the consumer interest goes far beyond the efficiency losses, because import restrictions also inevitably transfer income and welfare within the society. The transfer of welfare is always away from consumers toward other groups, namely protected producers, perhaps their workers, toward government in the case of tariffs, and often to foreign suppliers in the case of quantitative restrictions (quotas). Both the deadweight loss and the transfer loss to consumers are permanent annual losses lasting as long as the restrictions are in place and effective. The transfer loss to consumers is apt to be much larger than the efficiency losses. Both type of losses are reflected in inflated consumer prices.
“The consumer, then, correctly views import restrictions as permanent inflationary taxes that cause a reduction in welfare and efficiency in the economy, and that arbitrarily reduce and transfer away his real income and puchasing power.
"Imports also provide non-price benefits to the U.S. consumer. Conversely, import restrictions cause the consumer additional harm. Specifically, imports provide the consumer with a broader range of choice and selection with regard to product style, size, performance, and features. His satisfaction and welfare are increased. Additionally, technological improvements may be first available through imports. Nonprice competition from abroad obliges U.S. producers to become more responsive to consumer tastes, to be more innovative and style conscious, and to provide better product service. In contrast, import restrictions limit these important aspects of consumer choice, and relieve pressure on U.S. producers to be responsive and innovative."
The Bureau of Economics of the Federal Trade Commission reported to the Commission in June 1980 on “The Effects on Restrictions on United States Imports: Five Case Studies and Theory.” In table 8.6 of the report, the Bureau concluded that nearly $10 billion of net welfare gains would be achieved by removing import restraints on apparel.
The further study conducted by William R. Cline, Senior Fellow of the Brookings Institution in August, 1978 3 concluded that imported products are an average 10.8 percent cheaper than domestic products, and that imported goods for low-end consumers may be purchased for as much as 13.1 percent cheaper than domestic goods. The survey was based on 4300 price observations and purchases of imported and domestic goods.
Dr. Cline concluded that American consumers receive a direct savings of $2 billion annually from the availability of imported consumer goods (not including automobiles and food).
IT IS THE RESPONSIBILITY OF BOTH THE USITC AND THE PRESIDENT TO FORMULATE A
REMEDY THAT CAN REASONABLY BE EXPECTED TO PROVIDE SOME PERMANENT RELIEF FOR THE INJURY FOUND The USITC has the responsibility under the Trade Act of 1974 to find the amount of increase in, or imposition of, any duty or import restriction on such article which is necessary to prevent or remedy such injury, (emphasis added] or if it determines
3 William R. Cline, “Imports and Consumer Prices: A survey Analysis”, Journal of Retailing, vol. 55, No. 1, p 3. (1979).
that adjustment assistance can effectively remedy such injury it should recommend providing such assistance. 4 The President has the responsibility in selecting the relief to be granted to determine the probably effectiveness of import relief as a means to promote adjustment, the efforts being made or to be implemented by the industry concerned to adjust to import competition, and other considerations relative to the position of the industry in the nation's economy.5 The Commission's findings and recommendations are totally inadequate in determining the probable effect of the duty rate increase. This is particularly true in light of the real probability of other apparel being substituted for leather wearing apparel as prices increase.
While the U.S. consumer has a strong interest in keeping the prices on imported leather wearing apparel down, that consumer also has an interest in the type of remedy chosen where imports have been found to be causing injury to domestic production. The most desirable action is the provision of adjustment assistance to firms and workers.
In recent years, the Congress has acted to increase the effectiveness of adjustment assistance. The Department of Commerce has taken the initiative to provide adjustment assistance in new and innovative ways, particularly in the area of non-rubber footwear and is currently studying new forms and methods of adjustment assistance for the textile industy.
There are many good reasons for providing adjustment assistance for the leather wearing apparel industry. First, it is consistent with the federal government's antiinflation program. Second, it provides positive relief for the domestic industry without raising the problem of declining production as price increases trigger fashion substitution. Third, adjustment assistance does not put an inflationary tax on consumers. The efficiency and transfer losses accompanying import restrictions are not present. Fourth, consumers can continue to benefit from a wider selection of products, and can continue to enjoy any future cost savings in foreign or domestic production. Fifth, adjustment assistance is a onetime cost, while increased duty rates and restrictions impose continuing costs so long as they are effective. Sixth, adjustment assistance is financed through the existing tax system and the cost is equitably borne throughout the society rather than in the regressive manner of import restrictions. Finally, adjustment assistance is provided to increase the mobility and efficiency of the domestic economy, either by making existing production more competitive, or by facilitating the transfer of workers to other productive employment. U.S. consumers gain, as the overall efficiency and competitiveness of the economy increases. For the foregoing reasons, the American Retail Federation urges the Subcommittee on Trade of the House Ways and Means Committee to approve the President's action to provide adjustment assistance as the remedy which would grant permanent relief for the injury found, and not transfer the costs of such relief directly on the already burdened United States consumer.
STATEMENT OF J. C. PENNEY CO., INC., BY JOHN B. PELLEGRINI, SENIOR ATTORNEY
J. C. Penney Company, Inc. (“Penney') is a general merchandise retailer with over 1900 stores located throughout the fifty states. Among the products sold by Penney are leather coats and jackets purchased from both domestic and foreign sources. Penney opposes H. Con. Res. 383. Penney believes that President Carter's decision as announced on March 24, 1980, is in the national economic interest and urges the Committee to approve the President's determination.
Penney believes that the remedy recommended by the United States International Trade Commission (the "Commission”) is ill-conceived. An increase in duty of the magnitude recommended by the Commission will not necessarily have the effect of diverting retailer purchasers to domestic from foreign producers, nor will it permit domestic producers to raise prices, except at the expense of reduced sales volume. To the extent that prices are increased the inflationary impact on consumers will be substantial.
1. THE PROBABLE EFFECTIVENESS OF THE COMMISSION'S RECOMMENDATION The Commission found that a tariff increase (25 percent ad valorem, in the first year, 20 percent ad valorem in the second year, 15 percent ad valorem in the third year) is necessary to "equalize more nearly prices between imports and domestically
* Trade Act of 1974, 19 U.S.C. 2101, section 201(a)(1).
produced articles.”6 Presumably, the Commission felt that price equalization would cause retailers to purchase a greater percentage of their requirements from domestic producers. This was certainly the fond hope of that portion of the domestic industry which participated in the proceeding when it stated that any benefit it might derive from the import relief requested would have to be predicated on increased orders.? An examination of the facts, however, strongly suggests that higher tariffs will not increase domestic orders.
The Commission notes that in the period 1975–1978 total apparent consumption for leather coats and jackets increased almost two-fold and that the bulk of this increase was "captured” by imports. (Report at 11.) It is not quite correct that imports “captured” the increase in consumption; imports created the increase by permitting retailers to offer fashion leather coats and jackets at prices within the reach of middle and lower income consumers. This was certainly Penney's experience during this period. Imports were a major factor in creating and sustaining this part of the market. Penney's imports were and continue to be lower-priced garments purchased as promotions. With some exceptions, domestic suppliers were not able to match these prices.
This part of the market is not price elastic. Higher prices are invariably followed by reduced volume. Penney's experience in 1978 and 1979 graphically illustrates this truth. In 1978, Penney sold substantial quantities of leather coats and jackets at prices averaging $83.32. In 1979, the average unit value increased by 28.9 percent and unit sales decreased by almost 50 percent. A specific example of consumer resistance to price increases in leather apparel is Penney's experience in marketing men's lined leather coats. These coats sold for $90 in 1978 and $120 in 1979. The 25percent price increase led to a 50-percent reduction in demand. 1980 demand has improved because prices have been reduced to 1978 levels.
Penney believes that a tariff increase will invariably lead to higher prices, will further reduce consumer demand and consequently domestic production. Middle and lower income consumers will turn to cloth garments to replace the leather garments they can no longer afford. Penney's assortment plans for fall 1980 contain fewer leather garments than were offered in prior years. It seems unlikely, therefore, that a tariff increase will have the desired effect.
Assuming that the tariff increase will generate greater demand for domestic products, data presented to the Commission indicates that domestic producers may not be able to satisfy this demand.
Clearly, unless there is a marked under utilization of domestic capacity, an increase in tariffs will have no positive effect. 10 Capacity utilization data is set forth in the Report at A-16, 17, and suggests that substantial production facilities now idle are available to meet an increase in demand. But since the leather garment industry is extremely labor intensive, 11 the availability of labor is at least as important as the availability of production facilities if domestic suppliers are to meet any increased demand. The availability of skilled production workers in sufficient numbers to permit domestic producers to operate at anything near full capacity has been questioned. 12 If there is a shortage of workers, domestic producers will be unable to take advantage of any increased demand.
Increased productivity could, of course, alleviate any shortage of production workers, but, since the productivity of the domestic leather industry exceeds that of virtually every other country in the world, 13 it seems unlikely that technological innovations can be expected to increase greatly the production capacity of domestic producers.
Thus, it is reasonable to anticipate that a tariff increase will not result in a greater demand for domestic leather coats and jackets and if it does come to pass that demand increases, there is no assurance that the demand will be satisfied. The result will be higher prices, lower consumer demand, and eventually the disappearance of popular priced fashion leather coats and jackets . . . none of which will aid the recovery of domestic leather producers, save those who shift to producing cloth garments.
6 Leather Wearing Apparel; TA-201-40, USITC Publication 1030, at 15, January 1980 (the "Report").
7 Petitioners Post Hearing Brief, p. 19.
& Transcript of Hearings ("TR") at pp 426-430. See also, Report, Figures 1 through 4, at A-29 which suggest that most imports fall in the lower price categories.
9 TR at pp. 428; 235; 292. Report at A-16.
12 Letter to the Commission from D. Chan, an industrial designer employed by a domestic manufacturer, dated Oct. 24, 1979. The letter is in the Commission's Public Inspection File.
13 TR at p. 102.