prices. Even if leather apparel were included in the CPI, it would not even register a "blip."

More important than this, however, is the fact that the increase in the tariff proposed by the ITC would be imposed on only a portion of total consumption of leather apparel, that is, the imported portion. The intense competition among those U.S. firms which have survived the onslaught of imports in recent years will assert itself even more vigorously under an import relief program and will act as a strong moderating force on any inflationary price increases by domestic producers. Stability in domestic prices will be aided by the increased capacity utilization gained as larger shares of the market go to U.S. firms, while the investment plans of many firms improve production efficiency and worker productivity.

Even with respect to imports, the price effects of the tariff on the U.S. consumer will be modest. Despite the large price gaps between much imported and domestically produced leather apparel, as are well documented by the ITC, it is a widely known and acknowledged fact that retailers use that price gap to charge much higher mark-ups on imported merchandise, and hence collect larger profits. Many comparable items of domestic and imported leather apparel actually sell to the consumer for the same price. Since the competitive pressures among U.S. firms will act to minimize increases in domestic prices, importers and retailers will also be forced to maintain price responsibility, either absorbing much of the tariff, or, as is likely to happen for a substantial volume of apparel, shifting to domestic sources. Hence, it is unlikely for unwarranted inflationary price effects to occur at the consumer level for either imported or domestic products.

The second reason for the President's denial of import relief-doubts that import relief would help the domestic industry to adjust effectively-is equally spurious. One of the most obvious points which should have removed the President's doubts in this regard is the ITC's own remedy recommendation.

The ITC unanimously recommended what I feel was a modest three-year import relief program consisting of an increase in the tariff on leather coats and jackets valued at not over $150. The tariff increase recommended was 25 percentage points for the first year, 20 percentage points for the second year, and 15 percentage points for the third and final year. It is important to realize that while the Commission had the authority to recommend a tariff-rate increase of up to 50 percentage points for up to five years they chose to recommend a level of tariff increase far less than 50 percentage points for only three years.

It was the opinion of the Commission that this modest tariff increase would be sufficient "to equalize more nearly prices between imports and domestically produced articles." i Furthermore, the ITC judged three years "to be adequte time for the industry to make adjustments based on the proposed plans discussed before the Commission." 2

Thus, the steps which the industry is prepared to take under a program of import relief were judged by the ITC to have such merit as to allow the Commission to propose a modest import relief program with confidence, as reflected in their unanimous finding. Clearly, by the end of the three-year period, at which time the import relief would terminate, the industry would be in a much better competitive situation than it now is.

Many firms in the industry have extensive plans to improve themselves, if the opportunity is provided through effective import relief to make those plans feasible. Based on the results of a survey of major U.S. leather apparel producers which we undertook, 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 degrees, the amount of output per man-hour in these firms. This equipment and machinery would include new types of sewing machines, new machine accessories such as needle positioners and underbed trimmers, finishing machines, fusing machines, and in-plant transportation systems, among other items, all of which would improve productivity and production process efficiency.

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 those firms surveyed which are anticipating major upgrading programs in the range of tens of thousands of dollars during a period of effective import relief, investment in machinery will increase output per man-hour

1 "Leather Wearing Apparel: Report to the President on Investigation No. TA-201-40 under Section 201 of the Trade Act of 1974," USITC Publication 1030, United States International Trade Commission, Washington, D.C., January 1980, p. 15.

2 Id., p. 15.

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.

In addition to equipment and machinery purchases, 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 the use of improved physical layout of the plant, and to new equipment to generate cost-savings in training new workers.

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. This compares 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.S. market and the assurance of several years of longer production runs will make such investment economically feasible, a result which will occur only with effective import relief.

It should be clear that this U.S. industry has well documented its need for import relief and that it will make every effort to utilize that relief to the best advantage of its firms, workers, and the American consumers. No one knows better than the firms and workers in this industry that they must compete and improve just to survive, since in recent years many have not survived.

Concerns about inflation and the ability of the U.S. industry to improve its competitive position are unfounded and should not restrain your willingness to assist a deserving industry with a modest import relief program.

For the sake of an important industry and its remaining firms and workers, I strongly urge an affirmative vote on H. Con. Res. 383.

Mr. GIBBONS. Mr. Swann?

Mr. SWANN. I have nothing to add to the testimony.

Mr. GIBBONS. Perhaps Mr. Swann could answer this: I know you have some ideas on this.

There is some concern on the part of some of my colleagues that in fact what we are trying to do here is preserve a dinosaur, that no matter what we do in the next couple of years, the leather apparel industry in this country is not going to be able to survive, and so what we are doing is penalizing American consumers, with no real long-term goal in sight. Is that in fact what we are doing?

STATEMENT OF JAMES R. SWANN, PRESIDENT, STAR

SPORTSWEAR, LYNN, MASS.

Mr. SWANN. That is not the experience of my company. My company is a firm that has been in business for 65 years, and it was bought by a major corporation from the founding family some 9 years ago.

In the middle 1970's they found themselves in the same situation that the rest of the leather apparel manufacturers in this country have found themselves in: The importers had moved in very, very quickly; they had taken advantage of the low labor prices of the developing countries, went in with highly styled garments and in effect began to tear into our business. It happened so quickly that

the business eroded to a point where everybody was really fighting for their life; and I say that in speaking of the history of my own company, not speaking of the history of anybody else's.

In 1977 my corporation had to make a decision whether to stay in the leather business or to get out, and those decisions were based upon making major investments. The decision was to make those investments, and we pumped several million dollars into this business, and millions of dollars that we could only pump into it because we were a major corporation, a major successful corporation and one that had a very high bottom line on the rest of its volume and could afford to take a chance on reinvesting, retooling, and reattacking the market.

Well, we did just that. We brought in a new design staff and we went after the design and the fit of our product; and we have made what I think is one of the best offering price products in leather apparel available today, and I don't think the imports are a better product. I don't think they are a more fashionable product. I don't think the turnaround and increase in our sales would indicate that is true either, because from the time of the inception of our program the erosion stopped, and as we got further into the program our sales began to grow. We invested in a new building, all on one floor, a beautifully lighted, well designed plant, to increase our efficiency and to help us attract people. As I indicated earlier, we have brought in a design and pattern staff. We brought in a director of manufacturing for the firm who is an industrial engineer, who is able to help us through the years with his experience in further increasing our productivity. We brought in the latest in leather measuring equipment, to be sure we were actually getting the value we were paying for in raw materials, and we negotiated, just as hard as anybody in the country, with the people who sell us those raw materials; and we have become competitive enough with the importers that we are having consistent growth.

When the people from the administration tell you the leather industry is off today both for domestic and imported products, it doesn't show on my books. We have made the turnaround and are growing. We did so by major investment, by knowing there would be an investment for which there would be no return on profit for a short period of time. And last year, when leather prices soared and raw material went out of sight, we didn't go to any of our customers who bought goods from us and say, "We can't deliver your product because we can't get leather." We invested the extra money that had to be invested in raw material and we delivered our orders. And that, as much as anything else, helped the confidence of the buyers of America that we were going to be in business and stay in business, as well as our price points and our design.

We have growth this year and we are going to make money this year. We have made the turn, in my opinion.

Mr. SHANNON. I have been encouraged in talking to people in your industry, people in the shoe industry, for that matter, that there seems to be a whole new generation of people who are getting involved and who want to make those investments, who want to do it with some sense of certainty as to what our govern

mental trade policy is going to be and how it is going to affect your industry.

Perhaps Mr. Finley could address the question of where we find the industry and who works in the industry, what sort of people we are talking about.

Mr. FINLEY. Congressman, I think it is a basic question you are raising. Let me say one thing first, if I may, to get into it.

This whole concept of what are losers and what are winners in industry, for somebody to sit in a bureau in Washington and make the decision frightens me. Is the auto industry a loser that we can wipe it off? Is the steel industry? Are the 2 million textile and apparel and shoe workers losers we are going to throw down the drain? I use this as an example. I don't think there are such things as winners and losers. I think there are problems that have to be

overcome.

When the shoe industry ran into a severe problem in this country and the shrinkage, and the orderly marketing agreements were then negotiated, with it you had an infusion, with the industry, the Government, and the unions, in terms of investment and productivity and technological change, and as a result you now see a hopeful industry and a hopeful saving of jobs.

The same thing is happening in the apparel industry. In our own union we have a labor-management committee in one area of the union where we are working now with management, labor, and the Government. We have a massive CETA program; we have a massive one with the National Science Foundation, and a massive one with the Commerce Department, to improve technology, with the consequences that we know that it means, but we think it will save a viable industry that provides jobs for literally hundreds of thousands of people.

And the same thing is true with the leather apparel industry, in our judgment. I know our experience of our union with the industry here. It is not the largest branch, but we have a cooperative relationship, as any of these gentlemen can testify, in terms of our long-term relationship.

We have an engineering department which is already engaged in being of help to wherever is of benefit to our people and expertise with the industry in according productivity.

We are sitting now with the industry to expand the concept of the CETA and the Commerce and the National Science Foundation from the ones we are now into, because we recognize the industry, in order to survive with or without the problem of imports, needs increased productivity, which means technology and so forth.

But we recognize in order to do this, as was done in other parts of the apparel industry-which is all covered by the multifiber agreement-except for leather-the administration under this, for textile and apparel, where you have over 2 million people employed, negotiated, very adequately, international agreements regulating trade there.

Now, you come to leather, which from a peculiarity of the statute is not covered, and here for 5,500 people the issue is, we can't help them. It is not even consistent.

From our experience we have worked-when I say "us"-other unions as well, the shoe industry now has optimism, the men's

apparel industry has a sense of optimism, the textile industry has invested millions of dollars in increasing productivity, all because they got a chance through international agreements regulating the free flow of trade. And we say, and we know from our experience, that if this Congress reverses the administration on this one, grants the relief that the ITC gives, we are confident that the apparel, the leather apparel industry will be able to do exactly what is being done in the rest of it-will become viable and will be able not only to maintain the jobs but also possibly and hopefully to bring back the 6,000 people who lost their jobs in the last 5 years.

Without the sense of hope, though, it is going to be hard to convince the smaller businessmen to make the investment; but if they have that sense of hope and they know they have got the time, they will then make the investment; and with our cooperation within the union side, we are positive that the industry can be once again the viable industry it was in the past, Congressman. Mr. SHANNON. Let me just say, as I stated in my opening statement, that a major fear of mine is that if we don't look at these cases and try to develop a fair and equitable trade policy, that the pressure will be to be blindly protectionist, particularly in areas like the one I represent, which is very much dependent on exporting now. We have a lot of people working in the shoe and the apparel industries, and the pressure from those people to be blindly protectionist will be overwhelming.

I think this is a question of fair trade policy, and I have been convinced in my discussions with representatives from your industry, Mr. Swann, that we are seeing a new era, and I hope we can get this resolution through.

Mr. FINLEY. May I add one thing on that, Mr. Chairman, because I think it bears on what the Congressman said?

The shirt industry is governed by the multifiber agreement, which regulates the flow of trade in shirts. In our last negotiations, because there was a sense of stability, we worked out with the industry where they have a right, as part of it, to bring in some imports, guaranteeing the workers of present domestic consumption, et cetera. We could never have done that if we had not been able to tell our people that there is this international regulation, that trade is good, but you will not pay the price of capital punishment, meaning loss of jobs, welfare, public assistance.

We were able as the result of this, as the Congressman pointed out, to where we were able to negotiate and work out an orderly arrangement of imports because we have this sense that it won't cost them the capital punishment of loss of jobs.

Mr. COOPER. Mr. Chairman, may I just interject something into Mr. Swann's statement? His company is the exception; that is not the rule. I would assume that most of the companies, if they had the resources that were available to Mr. Swann's company, from his parent company, they would have been used and perhaps maybe have been as successful as Mr. Swann.

We do need the import relief for the major part of our industry. Mr. Swann is a good example of what can be done, and with import relief I am sure that many companies will be able to accomplish similar results.