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goes on raw cattle hides. This effort was undertaken at the behest of the tanning, shoe, and other hide and leather-using industries here in the United States.
As the members of the Committee may recall, U.S. cattle hide prices reached record levels last year, forcing a dramatic increase in consumer prices for leather products. The leather products' industries organized the Hide Action Program to work for the passage of legislation to impose controls on exports of domestic hides. That legislation failed in both the Senate and the House.
The industry then turned for help to the Executive Branch. Although we were unable to provide an immediate solution, we undertook a longer term effort to liberalize trade in cattlehides as a permanent remedy.
Historically, with the notable exception of the United States, most of the world's cattle-producing countries have imposed embargoes on their exports of hides. Consequently, when the world has experienced shortages, foreign import demand has been concentrated on the U.S. market. This has led to dramatic increases in U.S. hide prices and dislocation in our tanning and leather-using industries.
Our efforts to liberalize the world trade in hides are intended to shift some of that foreign import demand to other markets. In this way, we hope to share the burden of short supplies more fairly among a larger number of cattle-producing nations.
I am pleased to report that our efforts to liberalize hide exports have been successful. Over the past year, we have had a series of difficult, bilateral negotiations with the key cattle-producing countries in Latin America. We have reached agreement with Argentina, Brazil, and Uruguay on liberalization of their hide export embargoes. These agreements are not perfect, but they provide the first important step forward toward liberalizing world trade in this sector.
The U.S. tanning and shoe industries have recognized the importance of these agreements. Fred Meister, President of the American Footwear Industries Association and Director of the Hide Action Program, said last October that the agreement with Argentina can be “a much needed precedent and a significant step toward greater liberalization of international trade in the hide sector.” Mr. Eugene Kilik, President of the Tanners' Council of America, made a similar observation
last October when he described the U.S.-Argentine Agreement on Hides as “a first step toward reversing a trend of protectionism in the international trade of hides and leather, and gives the U.S. tanning industry a fairer chance to compete for world supplies.”
You may be wondering what relevance these new trade agreements have to the question of overriding the President's decision not to place additional restrictions on imports of leather wearing apparel. The fact is, the President's decision not to place additional restrictions on imports of leather wearing apparel is essential to the maintenance of the hide agreements. Furthermore, that decision is consistent with our efforts to liberalize world trade in hides. If we were to impose additional restrictions on leather wearing apparel, we would, in effect, be saying to Argentina, Brazil, and Uruguay that we intend to apply a double standard on this matter of trade policy. We will be saying that, on the one hand, we expect them to eliminate the protection they provide their leather apparel industry, while, on the other, we will take action to protect our industry.
I submit that we cannot have it both ways. These countries have every reason to expect that we will avoid imposing additional restrictions on our imports of manufactured leather products. Although we are not specifically prohibited under these agreements from imposing such restrictions, a decision to do so could force these governments to reconsider their willingness to liberalize their exports of hides to the United States. In short, by imposing additional restrictions on our imports of leather wearing apparel, we would run the very real risk that one or more of the countries with which we have hide agreements will resume the protectionist prac
Finally, in the consideration of this case, questions have been raised about the administration's handling of import relief cases in general. Some people have argued that very little relief has been given to American industry under this program. This is not so.
Over the past four years, the ITC has reported on 27_cases. Of those, the ITC recommended relief in only 16 of the cases. When the President, reviewed these cases, he provided relief in 8 of them. Both large and small industries have been helped. They are: footwear, TVS, high-carbon ferrochrome, clothespins, industrial fasteners, non-electric cookware, CB radios, and sugar.
Some people have argued that the President should have taken the advice of the ITC in most, if not all, of the cases sent to him. This view, however, does not recognize the different statutory responsibilities of the ITC and the President in these cases.
The Congress gave the ITC the job of determining if an industry was injured, if that injury was subtantially caused by increased imports, and, if so, what relief was necessary to remedy the injury.
In charging the President with the responsibility for administering the relief program, Congress required the President to take a much broader view of the issue and to weigh the national economic interest in providing relief. How much would relief cost consumers? How much harm would be likely to other industries if other countries retaliated against our exports? How much damage might be done to other U.S. international economic interests by providing relief. These factors must be looked at along with the economic and social costs to taxpayers, communities and workers if relief is not provided.
Balancing all of these costs and benefits to the country is the President's job, and it is an agonizing one since it means weighing very specific jobs and human suffering against inflation and the economic well being of the country as a whole. These hard choices have resulted in the President's decision not to provide relief in half the cases the ITC has sent to him.
In conclusion, let me say that in the present case, leather wearing apparel, we believe that the circumstances have not changed significantly since the President's decision in March. Although this industry continues to be impacted, we still believe that the inflationary costs and ineffectiveness of relief make it inappropriate for this industry.
Mr. VANIK. It is the intention of the subcommittee to proceed with completion of the public hearing on House Concurrent Resolution 383 right on through the lunch period, and then to commence the hearing on the tariff and trade bills at 2 o'clock.
I will give those who are sitting here waiting for those bills a chance to get lunch.
My question is this: In calculating the cost of providing relief, did you calculate the taxes that would be paid by keeping these workers employed as compared with the loss of taxes if they become unemployed?
Did you calculate cost of unemployment under the Trade Adjustment Assistance Act and the welfare benefits?
Did you calculate the deflationary effect that the impact of the increased tariff would have, as a result of providing relief?
Ms. HUGHES. I would like to ask Mr. Bennett to answer that question.
Mr. BENNETT. Mr. Chairman, we used the standard consumer cost model that is used by the Council of Economic Advisers in these instances. I am not that familiar with that model so I don't know if the model itself includes this type of estimates.
In terms of the specific assumption we put into that model for the leather apparel industry, they did not include estimates on trade adjustment assistance benefits, unemployment benefits or potential inflationary repercussions of granting relief.
Mr. VANIK. Do you or do you not believe these items should be included? They are very, very important factors. I have been very disturbed with the model. I expressed my concern about the model when we talked about automobile trade impact and I think that the model to be realistic should assume and undertake to include all factors that contribute to the cost to the Government which reflects itself down to the consumer cost.
Mr. BENNETT. My initial reaction is that I certainly agree with that. However, I would prefer not to give a specific response on that because, as you know, that model was designed by an informal Government and congressional committee.
Mr. VANIK. I thought you said the model was designed by the Council of Economic Advisers. What congressional impact is there in that model?
Mr. BENNETT. It is my understanding that there was an informal working group of people from CEA and also congressional committees.
Mr. VANIK. It did include congressional input but at that time the congressional representatives wanted these items included and felt they should be a part of the criteria. We are having a tremendously difficult time getting Congress to adequately support adjustment assistance. I think we are near the peril point in how much support the Congress will be willing to provide, particularly with budgetary restraints imposed by the Executive.
I see no way, no logical way that we can disregard these very, very critical items. As far as I am concerned, the criteria which you use is fatally defective.
Mr. BENNETT. Once again I don't feel I am in a position to comment on that model. I do know that the industry sector has been very displeased with the way the model has been used and the result it put out in a number of escape clause cases. There have been other instances where the industry has been pleased.
It depends on which side the bread is being buttered.
Mr. VANIK. We ought to have a clear-cut formula by which we measure the impact.
Mr. BENNETT. I would agree with that, adding in the specific industries characteristics as called for in each specific case.
Mr. VANIK. Do you have any comment on it, Ms. Hughes? How do you feel about the model that is used here?
Ms. HUGHES. I think the factors you mentioned need to be taken into account.
Mr. VANIK. Now what assurance have we that they are going to be included as factors in any other future cases?
Ms. HUGHES. I think what we are saying is that we agree with you and we will endeavor to put them into our consideration of other cases.
Mr. VANIK. You have authority to put them in in this case, don't you?
Ms. HUGHES. Yes, we do.
Mr. VANIK. if you agree with us why didn't you use it in this case and start using your own criteria, which might strengthen the recommendation that you make, if you recognize what we here have advocated and recommended as elements of a criteria?
Ms. HUGHES. I think we made an attempt in our interagency review to try to factor in those costs which you mentioned, not in the model that the CEA used but in our other analyses. I think a more systematic way of doing it is called for.
Mr. VANIK. Mr. Gibbons.
Mr. GIBBONS. Ms. Hughes, first of all we welcome you back. I realize you have been before this committee before in the past in different roles. I know your background and expertise.
What can you tell the committee about recent trends in the importation of leather products that we are talking about here today? Have there been any changes in this area recently?
Ms. HUGHES. Yes. Since the peak in 1978 imports have declined every year and every month. The market has simply fallen off. People are not demanding leather jackets and leather coats. So there has been a significant decline.
Mr. GIBBONS. This has come about primarily since the recommendation of the ITC. Is that right?
Ms. HUGHES. It began in 1979 before the ITC report was sent to the President. The report was sent in January of this year. Even during the investigation imports were declining.
Mr. GIBBONS. They have continued to decline since then?
Ms. HUGHES. Yes, they have continued to decline. In fact, indications from importers and retailers that we have talked to are that the imports are declining even more, at a greater rate now.
Mr. GIBBONS. You know, I sometimes get all concerned. We have been trying to get people to increase their exports of hides and we export hides. Why are we trying to get other people to increase their exports of hides if we export hides?
Ms. HUGHES. We think we are very competitive in the world market on hides. However, we are one of the few countries that has an open market. Other countries, when prices rise, tend to protect their domestic processing industry by keeping their hides at home.
Mr. GIBBONS. Doesn't that drive up the price of our hides more?
Mr. GIBBONS. I would assume that makes the farmer happy and the fellow that skins the hide happy. Why are we trying to generate competition for them?
Ms. HUGHES. We want to keep the price at a reasonable level for our own processors.
Mr. GIBBONS. We are trying to protect our processors by getting other people to export their hides more readily, is that it?
Ms. HUGHES. We are trying to keep the price at a more reasonable level than it has been in the past. We are trying to spread the burden, as it were, among all the cattle producing countries. We think it is unfair for them to protect their domestic processing industry,
Mr. GIBBONS. Is there any other industry where we go around the world encouraging people to export because it keeps our own domestic prices for manufacturers down and penalizes our agricultural producers?
Ms. HUGHES. I am not aware of any other.
Mr. GIBBONS. The leather fabricating industry is already getting preferential treatment in the United States. Am I incorrect in that?
Ms. HUGHES. What is happening is that we are trying to promote free trade in the hide market throughout the entire world. I don't think that you can look upon that as preferential treatment.
Mr. GIBBONS. We don't go around trying to get people to export more automobiles, do we, or export more airplanes or export more pharmaceuticals? We just go around trying to get them to export more hides. It seems to me that we have a blatant case here of preferential treatment to the American leather fabricators.
Mr. SHANNON. Will you yield?
Mr. SHANNON. In fact, aren't we saying to the other countries that have embargoes on exports of cattle hides that we are treating your embargo the same way we treat any domestic subsidy of an industry?
We are saying to Brazil and Argentina what you are doing with this policy is subsidizing your industry, and we are going to face it Ms. HUGHES. We are saying that they are protecting their domes
. tic processing industry, which is the reverse of us.
Mr. SHANNON. There are plenty of situations where we respond to domestic subsidies-
Mr. GIBBONS. Every developing country that I know of tries to get more value added to their raw material and I guess hides is a raw material, or semiprocessed raw material, but every country, including our own, tries to get greater value added to their own raw material.
You know, I realize hides are unique. It looks like to me we already have a case of our Government going out and trying to suppress the price that a farmer can get for his cow and slaughterer can get for the hide, and yet that is not enough to pacify the people who are fabricating leather products in this country. I don't want to state it unfairly, but I don't know of any other industry that we do the same thing for, any other processor, any other raw material. Is there any other raw material where we go around and try to get other people to export more in order to keep our domestic prices more in line?
Ms. HUGHES. I think this is a unique industry.
They should be happy at the unique treatment they have received.
Mr. FRENZEL. Mr. Chairman, I want to proceed on the question of compensation. Whenever we raise a duty rate in this country and force exporters from other countries to pay a higher rate of duty we are obliged under our international treaties to provide some sort of compensation to those countries, should they request it.
I suppose that maybe we have to give more coal or TV quotas to the Taiwanese or Asians or maybe we should let them ship more automobiles into this country at a lower rate. What are some of the forms of compensation that are likely to be requested and are they not likely to be worse than what we are trying to cure here and, finally, how much compensation are we talking about?
Ms. HUGHES. We are talking about imports running now at about $230 to $240 million a year. The compensation would be calculated on the basis of trade damage. We don't know how many sales would be lost if we raised the tariff rate. This would be a question that you would negotiate internationally.
Where you have a declining market generally it would be very likely that our negotiators would be arguing fiercely that the imports were not being damaged as greatly as they otherwise would be if you had a rising market?
Mr. FRENZEL. On the other hand, we have to give some compensation or get involved in a chicken war.