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2,820 5,357

1977 .........
1978 ....
January-August:

1978........
1979.....

3,100 5,300

TABLE 9.--PROFIT AND LOSS EXPERIENCES OF U.S. PRODUCERS ON THEIR LEATHER WEARING

APPAREL MANUFACTURING OPERATIONS; ACCOUNTING YEARS 1975–78, JANUARY-JUNE 1978, AND JANUARY-JUNE 1979

[Dollars in thousands]

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1 Represents responses of 35 firms. 2 Represents responses of 24 firms. Source: Compiled from data submitted by 35 U.S. producers in response to questionnaires of U.S. International Trade Commission.

TABLE 11.—LEATHER COATS AND JACKETS: U.S. PRODUCERS' SHIPMENTS, ESTIMATED EXPORTS 1,

ESTIMATED IMPORTS 2, AND APPARENT CONSUMPTION, 1975–78, JANUARY-AUGUST 1978, AND JANUARY-AUGUST 1979

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1. Data on exports were estimated by dividing the value of exports for each period reported by the U.S. Department of Commerce by unit values of U.S. producers' shipments derived from questionnaires submitted to the U.S. International Trade Commission.

2 Data on quantity of imports derived from a 6-percent sample of commercial invoices of U.S. imports of leather wearing apparel, for each year 1975–78, January-August 1978, and January-August 1979.

Mr. VANIK. At this time I would like to ask our colleague, Mr. Shannon Mr. GIBBONS. He has gone to make a quorum.

Mr. VANIK. After Mr. Shannon's comments, our panel will be a Government panel headed by Ann Hughes, Assistant U.S. Trade Representative; Marie Zehngebot, International Economist, Office of Trade Policy; and James Byron, Commodity Industry Analyst, Bureau of Industrial Economics, Department of Commerce.

Mr. Hormats, why don't you proceed to introduce Ms. Hughes. STATEMENT OF AMBASSADOR ROBERT D. HORMATS, DEPUTY

U.S. TRADE REPRESENTATIVE Mr. HORMATS. Thank you very much, Mr. Chairman. Ms. Hughes will discuss the administration's position in greater detail than I. She has been chairman of the interagency group which has worked on this issue from the beginning and knows the ins and outs and the history in a way few other people know them.

Let me just underline the reason I have asked to lead off on this one.

This, as I think your introduction indicates, Mr. Chairman, is one of those cases which is anguishing both for the President and for the administration to make a decision on. We have in the development of our position had long discussions with Mr. Finley and a number of his colleagues I think it is fair to say this is one of the more difficult ones that we have had to deal with.

A number of people are involved, a number of workers, and any case which deals with the question of unemployment as this does is extremely difficult in large measure because the human element is an important one.

I personally very much appreciate that I think the people who brought the case made an eloquent argument in favor of support for their position.

The difficulty with this case, Mr. Chairman, is that it involved a number of considerations. In part, they were considerations of substance which you have mentioned in terms of the effectiveness of the relief in allowing this industry to become more competitive. In part there were considerations of timing. I think they were more the former than the latter, but let me discuss the latter for the moment.

The President's decision on this followed by less than 10 days his speech on a renewed emphasis on fighting inflation. I think labor makes a fair point when they say inflation should not be fought at the expense of workers. That is a fair point, and one I agree with.

On the other hand, that was a particularly poor time for the President, for the administration, to be sending inconsistent signals. In the judgment of many people in the administration, it would have been extremely inconsistent for the President to have made a decision with inflationary implications after having underlined and redoubled his efforts to fight inflation.

Admittedly, the implications were not overwhelmingly inflationary but nevertheless were considered to be a signal that would lead people to question the commitment of the administration with respect to inflation.

In addition, I think it is fair to say that inflation is a cumulative process. A lot of little things lead to a much higher rate of inflation. Therefore, there was a very strong argument in favor of denying relief for the reasons that I have mentioned. It would be the wrong signal at the wrong time.

The more important point though, and one which I believe was compelling, was that the relief that was to be provided, in the judgment of those people who were charged with knowing the details of this industry, would not have been adequate to permit the industry at the end of the relief period to be competitive.

It was felt in many cases that something on the order of a 50percent tariff would be required for relief. A lesser tariff many felt would not be adequate. The judgment was made that if you put on for a period of time a substantial tariff, the tariff recommended by the ITC or a higher tariff, it would certainly not leave the industry competitive enough to withstand international competition by the end of the relief period.

That was the key judgment in the final decision. Now obviously people, reasonable people, can debate this, but this I would say was the judgment of virtually every agency that was represented in the interagency group and was conveyed by the interagency group which dealt with it to the President.

All this is not to say that there has not been support for the leather apparel industry by the Government, and Ann can give you the details on efforts that have been made to help the leather apparel industry boost its exports and boost its competitiveness.

They are mentioned in the testimony we have provided, and I will not go into detail on them. Let me touch on a few other points.

First, it was felt that a large portion of the growth in imports of leather jackets in 1978 was matched by a simultaneous increase in U.S. consumption. The feeling of those who know this industry was that this growth in consumption resulted from a demand created by widespread introduction through imports of a more stylish garment that was not, and to a large extent still is not, being supplied by domestic producers. This was another key conclusion of the interagency group:

Second, part of the problem of the industry was it is highly price sensitive. The increase in the price of leather led to a serious decline in demand for the product.

Third, it was felt that there was the risk that imposing import relief in this case could have a long-term adverse effect on U.S. export opportunities in certain of the large growing markets in the developing world which have been over the last several years gradually liberalizing import restrictions so we can export morenot so much in this area but in other areas. To have taken this action could well have jeopardized, in some countries at least, the direction of their liberalization efforts.

The last point is that at the request and the urging of the leather industry, the tanning industry and other industries, we have been pressing a number of countries which have export restrictions on hides to liberalize those export restrictions.

Those countries are Argentina, Brazil, and Uruguay. There was a very real danger that by imposing import restrictions in the area of leather garments that the direction of their policies would be re

1

versed, and, in fact, since the decision was made, we have managed to reach agreement with some of these countries for further liberalization.

These are the basic points that led to this decision, Mr. Chairman.

Let me make one other point about the process because you raised a number of questions which deserve to be addressed.

The problem that is often faced here is that the President in having to make his decision based on the national interest has to take into account issues and considerations which differ from those that the ITC must take into account.

He has to look into such things as the inflationary impact, the impact on consumers, the possibility of retaliation, damage which might be done to other domestic or international economic interests, questions of unemployment, as well as problems of the particular industry and its workers.

It is not an easy job. The President has to balance an awful lot of considerations. It is the judgment of my office, and indeed the judgment of other agencies of this administration, that the President's decision, given all the various factors that the President had to take into consideration, was the right one.

It was not an easy one for the President, however, given the timing, given the major questions that were raised regarding the ability of this relief to lead the industry to become competitive, and given the other points I made, this was the decision that the interagency group for the most part felt was the right one. Indeed, it is our judgment that the President's position was correct, given what he had to deal with. The resolution to override is therefore opposed by us.

Mr. VANIK. Before I proceed with Mr. Shannon's statement which we are awaiting, I want to say that I find problems with some portions of your written statement. As a matter of fact I find something offensive because the USTR undertook these negotiations with Argentina before you even knew what the ITC decision

You allowed this provision to get into the agreement with Argentina. Now you turn around, in effect and use that very poorly negotiated agreement to be a reason against granting relief.

As far as I am concerned the USTR’s negotiations caused prejudgment of the ITC case over a year ago. Now are the Argentines living up to the agreement? Have they fulfilled all parts of it including the reductions of their export taxes? Perhaps Ms. Hughes wants to respond.

Mr. GIBBONS. Mr. Chairman, are we going to hear from Ms. Hughes in full?

Mr. VANIK. We can let that question pend then. We can pick it up in discussion. Mr. HORMATS. I will have Ms. Hughes take over.

Mr. VANIK. We will hear her response in the course of her statement to the subcommittee.

At this time and in order to keep the record in order and in perspective, I would like to have an opportunity to let our colleague, Mr. Shannon, give the subcommitte his case for his resolu

was.

STATEMENT OF HON. JAMES M. SHANNON, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MASSACHUSETTS Mr. SHANNON. Thank you, Mr. Chairman.

I also want to especially thank you for the speedy scheduling of this hearing.

I became involved in this issue and introduced the resolution before us for two different reasons. First of all I am concerned with the effect that the President's decision will have on our domestic leather apparel industry. ITC's finding of injury was unamimous and was not questioned by the President.

However, in rejecting the ITC's recommendation for relief, a recommendation which was also unanimous, the President stated that such relief was not in the national interest since it would be both inflationary and ineffective, and expedited trade adjustment assistance was the most effective noninflationary action.

I disagree wholeheartedly with this decision and look forward to a full hearing of this issue this morning.

There is also another reason to be concerned with the President's action. My concern is its possible effect on our international trade policy and increased protectionist measures in Congress which could result from a series of similar decisions.

The administration's record on providing relief is not good. In the past 342 years the ITC has made 16 recommendations on import relief. The President has accepted the Commission's recommendation in none of these cases. The decision in this case is particularly distressing because it is the only case of a unanimous finding of injury and unanimous relief recommendation where all import relief was denied.

While it is the most distressing rejection of an ITC recommendation, this case is only the most recent in a long line of rejections. The cumulative effect of such decisions can only be a growing realization in American industry that the relief contained in our trade laws exists only on paper.

With this realization will come increased demands for protectionist measures. If relief from injury caused by imports cannot be assured, then Congress will be asked more and more frequently to restrict imports and prevent any possible injury.

It will be increasingly difficult for the Congress to defend a free trade policy when we cannot realistically guarantee our constituents that relief will be forthcoming if they are seriously injured by a free trade policy.

Mr. Chairman, the case before us goes beyond the immediate industry involved and has ramifications for our overall trade policy. I look forward to discussing all of these issues this morning. I might say that I particularly look forward to the response to the chairman's question on the agreements which have been worked out concerning leather hides because I know from personal experience that this administration was forced, dragging, kicking, and screaming into those negotiations. I am going to be interested in getting the witnesses' feelings on how well those agreements have worked.

Thank you, Mr. Chairman.

Mr. VANIK. Are there any other comments by my colleagues on the subcommittee? Mr. Archer.

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