Mr. GIBBONS. Fine, if you get it to the staff, we will put it in the record.

[The information follows:]

Hon. CHARLES A. VANIK,

ECONOMIC CONSULTING SERVICES, INC.,
Washington, D.C., August 26, 1980.

Chairman, Subcommittee on Trade, Committee on Ways and Means, U.S. House of Representatives, Longworth House, Office Building, Washington, D.C.

DEAR MR. CHAIRMAN: At the recent hearings on H. Con. Res. 383, Congressman Gibbons expressed the Subcommittee's interest in obtaining more specific details on what the U.S. leather apparel industry could and would do with a period of effective import relief. In response to that request, I am providing the attached document which outlines some of the plans of several firms in the U.S. leather apparel industry.

ent

This document is based on a survey of nine firms in the industry which we conducted in late February of this year to gain a very clear and specific idea of what the industry would do to adjust if import relief were provided. We undertook the survey at the request of several Executive Branch agencies which felt such information was, at that point, very important in their deliberations. We were informed at that time that the information contained in this document and supplied to them was most useful and had "passed the test", so to speak, of showing that the industry could make effective use of import relief. Indeed, as a result, we understand that at least three agencies, including the Trade Representative's Office, recommended to the President that import relief be provided this industry.

As I stated in my written testimony of August 26 before the Subcommittee, the ITC judged three years of relief to be sufficient for the industry to implement the types of capital investment, production process improvement, and technological advancement which were possible for the industry. This judgment was based on an extensive investigation conducted by the ITC staff. Mr. William Fry, the supervisory investigator in that case, advised the Commission, during a public staff briefing, that three or four years would be necessary to implement the kinds of plans that the industry had in mind. These judgments certainly did not take place in a vacuum, without the requisite assurance that an import relief program could be used effectively.

I should like to emphasize in this regard that these plans require the increased market share, increased production, and increased capacity utilization which will result from an effective import relief program. These anticipated benefits of import relief will not only generate additional revenues to allow firms to make the investments required (as detailed in the attached), but will also lead to greater efficiency which will help to lower average unit production costs and help keep prices stable. Thus, the industry adjustment plans must go hand in hand with a temporary import relief program to allow the industry to make real gains in its competitive position.

I hope that the attached document will be helpful in reflecting to the Subcommittee the intentions of the industry to use the import relief program recommended by the ITC in the best interest of the firms, the workers, and the American consumer. In order to facilitate the dissemination of this information, we have deleted the names of the firms from which the information was obtained, so that the document does not have to be accorded business confidential treatment. We would be pleased to offer any further assistance which the Subcommittee requests.

With all best wishes,

Sincerely yours,

Attachment.

STANLEY NEHMER, President.

SPECIFIC ADJUSTMENT PLANS OF SELECTED U.S. LEATHER APPAREL
MANUFACTURERS DURING A PERIOD OF IMPORT RELIEF

Based on the results of a survey of major U.S. leather apparel producers, several types of machinery and equipment were identified as products in which U.S. firms would invest during a period of effective import relief. This equipment and machinery will improve the productive efficiency of U.S. firms and increase, to varying degress, the amount of output per man-hour in these firms.

The different types of such machinery, their functions, and cost include:

Durkoff Sewing Machines and Pfaff Sewing Machines, With Needle Positioners And Under Trimmers: combines sewing and angle trimming in one operation$2,000 per unit.

Singer Sewing Machines: used for sewing leather-$1,100 per unit.

Union Special Sewing Machines-$1,100 per unit.

Singer Double Needle Sewing Machines: used for stitch linings--$1,400 per unit. High-Speed Overlock Machines: used to sew together fabric for linings, prevents fraying-$2,300 per unit.

Union Special Memory Stitcher-$9,000 per unit.

Singer Bar Tacker: puts bar tacks on points of stress-$1,700 per unit.

Needle Positioner and Underbed Trimmer-$1,200 per unit.

Automatic Snap Machines-$600 per year rental.

Cisell Steam Air Finisher: blows steam and air through finished garments-$2,000 per unit.

Spreading Machines With Automatic Edge Guide and Automatic Cut-Off: used for cutting linings-$10,000 per unit.

Air-Operated Pressing Machines: used for pressing garments-$2,400 to $3,000 per

unit.

Clicker Machine: a die-cutting machine for cutting smaller-sized pieces of leather-$2,500 per unit.

Fusing Machine: used to press adhesive to the back of leather-$11,000 to $20,000 per unit.

Strapping Machine: bundles finished garments-$1,700 per unit.

TCF Machine: borrowed from the footwear industry, used to cement small hems and replace sewing operations-$12,000 per unit.

Pre-Creasing Machines: folds leather to provide creases for sewers-unknown. Some firms are already equipped to some degree with some of these types of machines, while other firms must embark on full-scale efforts to upgrade their capital equipment. Thus, the capital investment needs and plans of individual firms will vary widely. According to the firms surveyed which are anticipating major upgrading programs with a period of effective import relief, investment in machinery will increase output per man-hour in individual operations by as much as 25 percent. One firm anticipated an overall increase in operating efficiency (output per man-hour) of 40 percent as a result of an investment program to upgrade facilities. It is important to note that due to the relatively small size of leather apparel manufacturing firms, the cost of these machines constitutes major investments. For example, even a minimum investment in three new single-needle sewing machines with accessories, one air-finisher, one fusing press and one automatic cutter would require an outlay of between $23,000 and $38,000.

Given the poor profitability of this industry as a result of injury from imports, the cost of such an investment represents a considerable obstacle. For example, according to the ITC, in 1978, the average net operating profit before taxes for the 35 firms which accounted for the great majority of the industry's output was only $111,000. After expenses for debt servicing and other items, plus taxes, the amount would be considerably smaller. As low as this level of profits was, 1978 was a better year for the industry relative to the extremely poor profitability in 1979. ITC data for the first six months of 1979 show actual net operating profits before taxes of only $195,000 for 24 firms, or only $8,125 per firm, compared to $34,280 per firm in the first six months of 1978. Thus, although the cost of each machine described above is relatively low compared to other, more capital-intensive industries, it represents a major outlay to the U.S. leather apparel industry. Only increased shares of the U.Š. market and the assurance of several years of longer production runs will make such investment economically feasible, a result which will occur only with the effective relief recommended by the U.S. industry.

To gain a better understanding of the major nature of investment possible for and needed by firms in the industry, the following information provides a full summary of the investment programs anticipated by three firms in the industry.

FIRM NO. 1: INVESTMENT NEEDED TO UPGRADE PLANT AND EQUIPMENT DURING A PERIOD OF EFFECTIVE IMPORT RELIEF

FIRM NO. 1: INVESTMENT NEEDED TO UPGRADE PLANT AND EQUIPMENT DURING A PERIOD OF EFFECTIVE IMPORT RELIEF-Continued

FIRM NO. 2: INVESTMENT NEEDED TO UPGRADE PLANT AND EQUIPMENT DURING A PERIOD OF

'It is estimated that this upgrading program will increase the output per man-hour of this firm's operation by 40 percent.

FIRM NO. 3: PROGRAM OF INVESTMENT IN PLANT AND EQUIPMENT TO INCREASE EFFICIENCY DURING A PERIOD OF EFFECTIVE IMPORT RELIEF

Much of the above investment plan is the result of an in-depth analysis of manufacturing costs, work flow patterns, handling of in-process merchandise, and other related operations conducted by the firm over the last year. Already a substantial reduction in manufacturing time per unit output of 25 percent has been achieved. Continuing increases in efficiency will result from the above investment program.

Several firms with less extensive investment needs revealed anticipated purchases of machinery and equipment including leather die-cutters ($2,500 each), fusing presses ($11,000 to $20,000 each), lapel presses, pre-creasing machines, and TCF Machines.

Efficiency increases are anticipated through the purchase of this equipment, the bulk of which will not occur without import relief. In addition, major efficiencies are anticipated for firms which plan and become able to build a new plant either to replace a current plant or to expand capacity. These efficiencies relate to updated heating and air-conditioning systems to save on energy costs, to use of improved designs for the physical lay-out of the plant, and to new equipment to generate costsavings in training new workers.

When substantial increases in production runs do occur, an increase in the purchase and use of die-cutting machines can be expected.

Mr. NEHMER. Finally, I want to comment on a point raised about the decline in imports.

When we talk about the decline in imports, what are we talking about? We are talking about a decline in imports at the same time that domestic production declined; and the share which imports have of the domestic market, yes, that share declined from 81 percent to 79 percent. Imports still have 79 percent, and that 79 percent happens to be higher than any of the years prior to 1978. Now, you provided in section 201 of the Trade Act a very important provision: The ITC is not to look only at 1 year or 2 years, but they are to look at the most recent 5-year period; and that the ITC did. They were also supposed to look at the threat, the question of threat, and on both of those tests the ITC found actual injury and threat of continued injury.

What we are asking the subcommittee and the committee in the House of Representatives to do, as we have done with the Senate, is to override the President in this case. Certainly the provision of an override was provided for by Congress as part of the tradeoff in 1974 when you gave the President the authority to "find for the national overall economic interests a basis not to provide import relief."

We have said on many occasions to people in the executive branch we were very concerned that the President has not provided import relief. The answer we get back, interestingly enough, is that "The executive branch is not the court of last resort; it is Congress. Congress kept for itself the right to override the President."

We are asking that of you today. Thank you.

[The prepared statement follows:]

STATEMENT OF STANLEY NEHMER

SUMMARY

Passage of H. Con. Res. 383 is urgently needed by the firms and workers of the U.S. leather apparel industry to rectify the injustice of the President's determination not to provide import relief to the industry.

Despite the unanimous injury finding by the U.S. International Trade Commission and its unanimous recommendation on import relief, the President denied any import relief to the industry. The President's report to Congress gave two reasons for this determination to deny import relief: the unacceptable inflationary impact of higher tariffs and doubt that a relief program would help the industry compete

effectively once the relief program had expired. Neither reason was accurate or credible then nor are they now.

Import relief to the leather apparel industry will not have an unacceptable inflationary impact and consumer cost. The importance of leather wearing apparel in U.S. consumer spending is so small that this commodity is not figured into the consumer price index compiled by the U.S. Government. Any price increases for leather apparel would not stimulate even a "blip" in the inflation rate. Moreover, intense competition among U.S. firms trying to get back on their feet will strongly moderate inflationary price increases by domestic producers. Furthermore, lowpriced imports do not necessarily mean low prices to the consumer, but big margins for retailers. Tariff increases will simply cut the profit margins of retailers and turn them toward domestically-produced goods.

The judgment that the industry cannot become more effective with import relief is in error. An effective import relief program for this industry will make a decisive difference in the industry's efforts to get back on its feet. The industry's strenuous efforts to compete today and its plans for continued improvement assure that an effective import relief program will work. The U.S. ITC has proposed a three-year program of increased tariff protection. The protection proposed was much less than the maximum protection allowed in cases of this kind, but, if effective, will provide the needed time and market stability for the industry to adjust.

The key to the industry's competitive efforts, however, is effective import relief. The industry has already undertaken efforts to increase its productivity and responsiveness to market changes, and additional extensive efforts are underway. These efforts are expensive, however, especially for an industry suffering such extensive import injury. It is essential that the industry be allowed to earn the revenues necessary to make the changes that will improve its future competitive position.

STATEMENT

My name is Stanley Nehmer. I am President of Economic Consulting Services Inc., which has served as economic consultants to the workers and firms of the U.S. leather apparel industry.

I am appearing here today to urge passage of House Concurrent Resolution 383, which would disapprove the determination by the President on March 24, 1980 not to provide import relief to the U.S. leather wearing apparel industry as recommended unanimously by the U.S. International Trade Commission (ITC). This determination by the President to deny any import relief to the leather wearing apparel industry was an ill-conceived and inappropriate decision, in view of the comprehensive ITC investigation which fully documented both the difficulties of this industry in coping with increasingly serious injury from imports and the need for effective temporary import relief. Many workers and firms in many areas of our country have been adversely affected by this industry's import problem, and the President's denial of relief to this industry was a severe disappointment for thousands of people. H. Con. Res. 383 will go far to rectify this injustice.

In the President's report to the Congress setting forth his determination to deny import relief to this industry, two reasons were given. The first reason was that import relief would have an inflationary impact and a consumer cost that the President considered unacceptable. The second reason was doubt that import relief would help the domestic industry to compete effectively with imports once the relief had expired.

Neither of these reasons for denying relief was accurate or credible then nor are they now. My comments today will be devoted to a brief discussion of some essential points which explain why this is so.

The argument that the ITC's import relief program would have an unacceptable inflationary impact is wholly unfounded. The industry and its sales are a small component of the U.S. economy, and changes in prices of leather apparel_have virtually no impact on overall consumer prices. In fact, the Bureau of Labor Statistics' official Consumer Price Index, or CPI, does not even include leather wearing apparel in the wide range of products which are monitored to construct the CPI. The insignificance of leather apparel prices to overall consumer prices can be seen in the comparison of the value of domestic consumption of leather apparel to total personal consumption expenditures in the U.S. In 1979, the approximately $470 million of leather apparel consumed in the United States accounted for only .03 percent of personal consumption expenditures. In other words, the influence of any changes in the prices of leather apparel consumed in the United States would be weighted at only three one-hundredths of one percent of overall consumer prices. Such a negligible weight in consumer prices means that even a large increase in the price of leather apparel would have no measurable impact on overall consumer