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ADDITIONAL SUBSTANTIVE CONSIDERATIONS Raw material costs and restrictions of other countries on the export of hides as a
substantial cause other than increased imports It is clear that a major problem facing the United States leather wearing apparel industry relates to restrictions of other countries on the export of hides (raw material for leather wearing apparel). In this regard, it is important to note that such restrictions generally increase the cost of hides for United States domestic producers of leather wearing apparel and thus constitute a significant factor, independent of imports, which has affected the competitive position of domestic producers of leather wearing apparel.
Furthermore, the United States, with the prospective exception of Argentina, is the only major country which produces hides which does not severely restrict such exports.
In accordance with the record of discussion between the representatives of governments of the United States of America and Argentina in Washington, D.C. on August 10, 1979 concerning hide exports and other trade matters, the following was noted on the matter of possible future imposition of import restrictions by the United States on leather apparel: 8 “The Government of Argentina reserves the right to terminate the Agreement under paragraph 6 if the United States restricts imports of leather apparel as a result of the import relief petition.”
Accordingly, if the subject Presidential Determination was overridden by the United States Congress to reinstate the decision of the USTIC, the Government of Argentina could justifiably withdraw from its commitments to the United States under the provisions of the agreement noted above.
Furthermore, this contention is also supported by statements and analysis set forth in the USTIC report on the subject case:9
“The Commission also considered the cost of raw materials as a cause of serious injury. Raw material costs are high in this industry, accounting for over 50 percent of cost of production, and play an obvious role in determining competitive conditions for leather wearing apparel on the world market. The fluctuation in U.S. imports from Latin America may demonstrate this link. In contrast to most other foreign suppliers, Latin American producers have access to indigenous hide supplies Argentina, Uruguay and Brazil place export restrictions on their hides and skins in order to ensure a stable supply for their leather apparel and footwear industries and, thus during certain periods, leather apparel producers in these countries have paid less for raw materials than U.S. producers. This cost advantage experienced by Latin American suppliers may help to explain why Argentina and Uruguay were among the three foreign suppliers which most significantly increased their share of the U.S. import market.” (Italic supplied.]
Possible Substantial Causes of Serious Injury, or the Threat Thereof, Other than
Increased Imports Hide prices and restrictive export practices
It is estimated that the cost of leather comprises approximately 54 percent of the cost of manufacturing an article of leather wearing apparel.10 Thus the cost of leather is of major concern to domestic producers of leather wearing apparel, whose products face competition not only from fur and cloth garments, but also from imports of leather wearing apparel from countries where labor costs are lower, and that may benefit from artificially low prices for hides, skins, and tanned leather.
Prices of hides, skins, and tanned leather in the U.S. market are by nature volatile, as the supply of hides is determined by cyclical trends in animal slaughter for meat, not by price and demand of the hides themselves. Hence, the tanning and leather wearing apparel industries are dependent on an almost perfectly inelastic supply of hides. 11 Furthermore, the United States, although the world's largest hide producing
8 See record of discussion between Representatives of Governments of the United States of America and Argentina in Washington, D.C. Aug. 10, 1979, concerning hide exports and other trade matters accompanying the Agreement Between the Governments of the United States of America and Argentina concerning Hide Exports and Other Trade Matters, p. 2.
• See U.S. Internation Trade Commission Report to the President on Investigation No. TA201-40 under section 201 of the Trade Act of 1974, USITC publication 1030, pp. 12 and A-41, A42, A-44, A-45, January 1980.
10 See "Certain Leather Wearing Apparel From Colombia and Brazil Determinations of No Injury. .”, in Investigation Nos. 303-TA-7 ... USITC Publication 948, February 1979.
11 See "The Structure, Pricing Characteristics, and Trade Policy of the Hides, Skins, Leather, and Leather Products Industry," U.S. Department of Agriculture, July 1979, p. 18.
country, is also one of the few countries which allows unrestricted exports of its hides. Although the United States accounted for approximately 25 percent of world production of hides in 1976–78, it accounted for 44 percent of world trade in these articles during the same period. Sixty percent of U.S. hides were exported in 1978. These rising exports, coupled with a cyclical low point in cattle slaughter, resulted in a severe inflation in the U.S. wholesale price of hides, skins, and tanned leathers in 1978 and 1979, as indicated in table 18. (Italic supplied.)
The highwater mark for hides, skins, and tanned leather prices was May 1979, when the price index reached 666.9 for hides and skins, and 429.4 for tanned leather. By August 1979 the hide index retreated to 511.9 and the tanned leather index to 365.9, indicating a slow but steady increase in the availability of hides as more cattle and other animals are made available for slaughter.
In the early 1970's, many Latin American countries, some of which had been major suppliers of "hides in world trade, began to restrict their hide exports to insure a stable supply of hides for their leather apparel and footwear industries. Methods of restricting exports of hides include export taxes (Uruguay), export licensing (Mexico), export embargoes (Brazil and Colombia), and export controls (Argentina). 12 The result of these restrictions has been that Latin American leather wearing apparel producers sometimes pay less for their leathers than United States and other foreign producers of these articles. This cost advantage is increased when hides are in short supply in major exporting countries such as the United States. A comparison of average prices of U.Ş. selected South American hides, from which articles of garment leather are made, is presented in table 19. [Italic supplied.]
Argentine garment leather hides undersold U.S. light native cowhides by an average 45 percent in 1978. The margin of underselling decreased to 31 percent in January-September 1979. Uruguayan hides undersold U.S. hides by an average 25 percent in 1978, but oversold them by an average of 7 percent in January-September 1979.
The raw material cost fluctuations experienced by these Latin American producers of leather wearing apparel may have been a contributing factor in the increase in those countries' exports of these articles to the United States from 1975 to 1978, and in the noticeable drop in exports from Uruguay in 1979. Imports of leather wearing apparel from countries that restrict hide exports are given in table 20. [Italic supplied.]
Imports of leather wearing apparel from hide restrictive countries rose significantly during 1975-78, increasing from $26.4 million in 1975 to $109.4 million in 1978, or by 314 percent. The value of imports from these countries declined by 35 percent, however, in January-August 1979, when compared with the corresponding period in 1978. The share of such imports to apparent U.S. consumption increased 140 percent from 1975–1978, but decreased by 30 percent in January-August 1979, as compared with January-August 1978.” Impact of increased relative costs in the U.S. market including inflation and consid
erations If the President of the United States were to adopt the USITC recommendation to increase United States customs duties to 36 percent ad valorem, it is clear that this would have a substantial inflationary impact on the United States economy. In this regard, it is important to note that various statements contained in the subject UŠITC report support this proposition that price considerations, including possible price increases as a consequence of increased United States customs duties, could result in elimination of certain portions of the United States market for these products (consumers would refrain from purchasing such products altogether) in:13 "Average unit values and their relationship to purchases
“Because of problems with sparse price data in past leather wearing apparel investigations, several approaches were tried this time to improve the price picture. Among them were the tabulation of the “1-percent sample” 14 of all customs documents, a canvass of about 12 percent of customs documents of imports entering
12 Ibid; p. 4. On Aug. 10, 1979, the United States reached agreement with Argentina to replace its export controls on hides with a 20 percent export tax. This tax is to be reduced to zero by Oct. 1, 1981. [Emphasis supplied.]
13 Id. at p. A-26.
14 The “1-percent sample” is a 1-percent sample of all customs entries; it may not correspond to a 1-percent sample of the subject TSUSA items. Approximately 80 documents were tabulated for each of the years, 1977–79.
through New York, 15 a canvass of retailers in the New York City area, and questionnaires to domestic producers, importers, and importer-retailers. These steps were taken so that import quantities could be accurately estimated and so that import prices and price trends could be examined for evidence of price suppression or depression, or for use in devising a remedy in the event of an affirmative determination by the Commission.”
Based on the data obtained in the investigation, the following statements can be made with some certainty:
"(1) Imports of leather wearing apparel increased in quantity and value from 1976 through 1978, and then imports of women's leather coats and jackets fell in 1979; the decline in imports of women's coats and jackets was large enough to cause the total imports of men's and women's coats and jackets to fall in 1979. This decline in imports of women's coats and jackets may have been due to changing tastes, since domestic sales of women's coats and jackets also fell. However, it was noted that both domestic and imported women's coats and jackets increased sharply in price in 1979, perhaps owing to increased leather costs.” [Italic supplied.]
CONCLUSION Based on the points, authorities, developments and considerations set forth above, it is urged that the House Ways and Means Committee Subcommittee on Trade recommend that Congressional Resolution Number 383 be defeated and that the Presidential Determination of March 24, 1980, be upheld.
Total U.S. imports of leather wearing apparel into the United States (in U.S. dollars)
for the years 1975 through 1979 with respect to category Nos. 791.7620 and 791.7640
of the Tariff Schedule of the United States 1975 .........
293,848,000 1979 ...
65,068,353 1 Data reflects information for the period Jan. 1, 1980, through June 30, 1980. Source: Import statistics on leather wearing apparel are based on source materials available at United States Department of Commerce, Foreign Trade Statistics Section; these statistics are compiled monthly and summarized annually.
Mr. GIBBONS. Our next witness, according to the list here, is Mr. Jeffrey Wilson.
Mr. Wilson. Mr. Chairman, my situation, coming here from the west coast for this hearing, has been outlined pretty well by Mr. DeLaney.
All I would like to say at this point, as a point of reference, is that we have listened to the domestic manufacturers' claim that given this relief within 3 years' time they will be back with a product to offer the American consumer. We haven't heard how they are going to do it.
My only point I would like to make at this time is that the sewing machine they are using today is the sewing machine they are going to use for the next 3 years; and I haven't heard anything at all why they are proposing this legislation, which would cost the American consumer $150 million more if they want their leather goods. For this price we are going to end up 3 years from now with the same sewing machine and the same cost that goes to manufactured goods here in the United States. So I ask you to consider
15 The New York sample consisted of all import entries through the port of New York (including John F. Kennedy Airport) for the month of August for the years 1975 through 1979. Over 3,500 documents were tabulated. Nearly 60 percent of imports of the subject items enter through New York City. The month of August was determined to be typical.
what they say when they say, “Give us 3 years; give us the time, because we will work on it,” and yet they don't propose what they are working on.
Mr. GIBBONS. Thank you, Mr. Wilson. Our next witness is Mr. Lyle Berman. Mr. Berman? Mr. BERMAN. Mr. Chairman, I am delighted to have the opportunity to speak before this subcommittee and I am particularly pleased to see Congressman Frenzel from Minnesota and the other members of the subcommittee interested in this matter.
Most of the points, or all of the points, I believe, have been represented by Mr. DeLaney, but one thing I would like to call attention to is that the imports created the market, the very market that the domestic manufacturers are now saying, "Help us get it; we can get it if you give us import relief.”
We import a substantial amount of garments. We bring in garments that can't possibly be made in this country at a price that we can sell them for to the consumer; and the domestic industrywe have tried repeatedly to have them-we have sent them styles and said, “Can you make this for us?” and we have given them every opportunity to do whatever they could; I have worked with many of them-and consistently we get back the price quotes and they just can't compete. They cannot give us a garment that we can sell to our customers at a price our customer is willing to pay, and I seriously doubt that in 3 years they could become competitive. They have had 3 years to become so, and they haven't yet, and that is all.
Mr. GIBBONS. Mr. Berman, if Mr. Frenzel is your Congressman, you couldn't do any better.
Mr. FRENZEL. That is marvelous. Say that a couple of more times.
Mr. GIBBONS. Mr. Palmeter?
STATEMENT OF N. DAVID PALMETER, COUNSEL, KOREAN
LEATHER & FUR EXPORTERS ASSOCIATION Mr. PALMETER. Thank you.
I just have a couple of points on behalf of the Korean Leather Exporters.
I think a major question for the committee, if not the central question on the economic issue, would be, what would be the purpose of the import relief that the ITC recommended. My understanding is that the purpose would be to control imports, either to moderate their growth or indeed in certain cases perhaps to roll them back, in order to provide the domestic industry an opportunity to adjust.
The fact is that in 1979 total imports were 25 percent below what they were in 1978. Korea supplies about half of the imports to the U.S. market. For the first 6 months of 1980 export licenses granted from Korea are running 41 percent below what they were for the first 6 months of 1979. Šo the question is, what would the purpose of the import relief be?
The reduced exportation of leather apparel, the substantially reduced exportation from Korea, contrary to the previous testimony that we heard, would have an adverse impact and is having an
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adverse impact on the hide industry in the United States because my information, from my clients at least, is that virtually all of the Korean leather garments that are manufactured for sale anywhere in the world-and only about half or less than half come here—are manufactured of U.S. hides or U.S. tanned leather made from U.S. hides.
And, finally, just one other point on the employment that was raised by the previous panel, I believe Mr. Finley testified that some 6,500 jobs that existed in the industry, or were lost in the industry, or something to that effect, the figure of 5,500 or 6,000 was mentioned in a table to our formal submission, which is before the committee, we noted that in the employment data, as reflected by the International Trade Commission, no figure higher than 3,500 employees in this industry at peak is mentioned. That might be because the table reflects—apparently reflects-only 40 to 45 firms responding, and that, again, I think, should be a consideration for the committee, the fact that fewer than half of the firms of this industry even responded to the International Trade Commission's questionnaire to provide the data.
So the employment data, production data, the profit data, for the domestic industry is understated and appears to be skewed toward that third to one-half of the industry that is not doing too well.
Thank you very much.
[The prepared statement follows:] STATEMENT OF N. DAVID PALMETER, ON BEHALF OF THE KOREA LEATHER & FUR
EXPORTER'S ASSOCIATION 1
SUMMARY 1. The President's determination not to provide import relief was justified by the fact that imports during 1979 were running 25 percent below 1978 levels.
2. This trend has continued in 1980: during the first six months of this year, the quantity of leather apparel items licensed for export from Korea is 41 percent below the quantity licensed during the same period in 1979.
3. Imposition of a 25 percent tariff clearly would be inflationary. The Intrernational Trade Commission specifically found that the lower price of imports is passed on to the consumer at the retail level.
4. Increased imports are not a cause of serious injury to the domestic industry, as measured by employment in that industry. While imports were growing, employment remained stable. When the employment fell significantly, imports were declining at an even more rapid rate.
5. The leather apparel industry in the United States is experiencing difficulties because consumers are reacting negatively to higher prices, and fashion trends are moving away from the industry's product.
6. In an industry characterized by high labor and raw material costs, the amount of technological adjustment possible is severely limited. Thus, higher tariffs cannot serve their statutory purpose of providing a period within which the industry may “adjust”.
STATEMENT Mr. Chairman and members of the committee, I am David Palmeter of the law firm of Daniels, Houlihan and Palmeter, P. C., Washington, D.C. I represent the Korea Leather and Fur Exporter's Association (KOLFEXA), a trade association headquartered in Seoul, Korea whose members consist of manufacturers and exporters of leather wearing apparel from that country.
1 Daniels, Houlihanm & Palmeter, P.C. is a law firm retained by the Korea Leather and Fur Exporter's Association (KOLFEXA), and is registered with the Department of Justice under provisions of 22 U.S.C. 611, et seq. as an agent of such foreign principal. Copies of the firm's registration statement are available for public inspection in Department of Justice files. Registration does not indicate approval of this publication by the U.S. Government.