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Korea is the largest foreign supplier of leather wearing apparel to the United States. According to data published in the U.S. International Trade Commission, in 1978 Korea accounted for some 48 percent of the quantity of total U.S. imports, while for the first eight months of 1979 (the latest period for which data are available) Korea accounted for approximately 51 percent of the total quantity.
On January 24, 1980, the International Trade Commission reported to the President, in Investigation No. TA-201-40, Leather Wearing Apparel, its affirmative determination and recommendation of relief in the form of higher duties on imported leather apparel. The President determined on March 24 that the import relief recommended by the International Trade Commission should not be provided. The President's determination was correct based on the evidence available when it was made. Subsequent developments have borne out the wisdom of that determination. Consequently, we believe that the President's determination should be approved.
1. The decline in imports both absolutely and relative to domestic production support the President's determination.
Section 201(b)(1) of the Trade Act of 1974 permits import relief only if it is determined that "an article is being imported into the United States in such increased quantities as to be a substantial cause of serious injury.” [Emphasis added.] Time and again the domestic producers in the leather apparel industry have ignored the important word "quantities”. They speak of increases in the value of imports—but value data alone are legally and economically irrelevant.
The International Trade Commission in the course of its investigation, obtained quantitative data based upon a sampling of imports, and from those domestic firms that provided responses to the Commission's questionnaire.2 The Commission data show that during the period January-August 1979, total imports were 25 percent below 1978 levels. During the same period, imports from Korea, the leading supplier, were 20 percent below 1978 levels. Furthermore, the ITC data demonstrated that the ratio of imports to U.S. shipments was lower in 1979 than in 1978. With total imports down sharply on an absolute basis, and down also relative to domestic shipments, the President clearly was justified in determining that the import relief recommended by the ITC was not needed to limit imports or to provide protection for the domestic industry.
Furthermore, this import trend has continued since the President's determination. The quantity of leather apparel items licensed for export from Korea during the first six months of 1980 is 41 percent below the quantity licensed during the same period in 1979. The value of actual exports from Korea during the first six months of 1980 was 32 percent below the comparable period in 1979. Thus, indications are that exports from Korea—the leading foreign supplier to the U.S. market-will be even lower in the second half of 1980 than they were in the first. With exports from Korea down some 41 percent below the levels they obtained prior to the President's determination, one wonders what purpose the proposed duty increase is intended to serve?
2. The President was correct in his determination that import relief would be inflationary
The President stated that the imposition of a 25 percent tariff increase on imported leather apparel would be inflationary, and he was correct. Domestic producers, on the other hand, claim that higher tariffs would not be inflationary because retailers allegedly apply a higher markup to imports-so the consumer does not benefit from lower priced imports. But the ITC specifically found that this is not the case.
The ITC reported (page A-38) that a survey of retail prices in New York City during its investigation revealed that “import prices are between 3 percent and 30 percent below the comparable domestic product.” There were further indications that in some instances the retail price to the consumer was as much as 40 percent below the comparable domestic product. Clearly the charge of exhorbitant retail markup was not borne out by the facts of the ITC investigation. The consumer does benefit from lower priced imports. The President's concern with the inflationary impact of a substantial duty increase was well founded and deserves the approval of the Congress.
3. “Increased” imports are not a substantial cause of serious injury to the domestic industry, as measured by employment
The President's determination not to provide import relief is justified, we submit, on the basis that imports are not undergoing the statutory required increase. For
2 Fewer than 50 firms of the approximately 100 firms producing leather apparel in the United States took the time to respond to the ITC questionnaire and supply shipment data. Thus, the quantities given in the ITC Report for domestic shipments understate the level of those shipments, and consequently overstate imports as a percentage of domestic shipments or consumption. See, ITC Report, pp. A13-A15.
this reason alone, the President's determination should be approved. But even assuming the contrary for purposes of analysis, the question remains whether “increased” imports are a substantial cause of injury. A comparison of import performance to available employment data (a major indicator of injury) demonstrates that they are not.
The attached table compares the average number of production and related workers and total manhours worked with Korean exports, imports from Korea, and total imports for the period 1976 through 1978, and for January-August 1978 and 1979. Employment, whether measured by average number of prodution and related workers, or by manhours, can best be described as stable during the period 1976 through 1978, although both measurements decline slightly. But employment and total manhours worked fell sharply during January-August 1979 compared to the same period in 1978. Such a decline could be a reliable indicator of the existence of injury. But is that decline caused in substantial part by increased imports? Clearly, no, as the the remainder of the data on the table demonstrate.
While employment, as measured by the average number of production and related workers, dropped 15 percent, and total manhours worked dropped 12 percent, Korean exports dropped 11.6 percent, imports from Korea dropped 19.5 percent, and total imports dropped 24.9 percent. The 15 or 12 percent declines in employment (depending upon the measurement used) could not have been caused by increased imports when imports were declining by nearly 25 percent. Imports clearly were not a substantial cause of this decline in employment.
If imports are not the cause of the decline in employment in the leather apparel industry in the United States, what is?
The ITC stated one of the causes in its discussion of women's leather coats and jackets: “Considerable resistance of consumers to the rapidly escalating prices.” 3 If consumers are reducing their buying of leather wearing apparel because of “rapidly escalating prices”, a substantial duty increase can only make the market worse. This is reason enough to support the President.
Moreover, in addition to this price factor, there is a fashion factor present that was previously described by the Commission in its discussion of the U.S. market in the case of Leather Wearing Apparel from Uruguay 4 “During the 1970's, a dramatic expansion occurred in the the leather wearing apparel market, particularly in the low- and medium-priced ranges. A rise in consumer demand for apparel with a ‘natural' and 'genuine' look coincided with the development of new leather processing techniques. The result of these two occurrences was increased production of leather garments at lower prices, especially since the new technology allowed a lightweight supple garment grain leather to be produced from cattlehides, rather than imported kidskin and goatskins. By 1977, the boom had waned..."
High prices and changing fashion trends, therefore, are the substantial cause of the plateau the leather apparel industry in the United States has reached and the decline in employment, not imports which themselves are decreasing. It is entirely possible that high prices themselves are contributing to the changing fashion trends. The fact that the substantial cause of the current situation of leather apparel is not in imports means that any remedy that restrains imports will be of no benefit to the leather apparel industry.
4. Higher tariffs would not permit the industry to "adjust” to unrestrained future import competition.
The President provided expedited adjustment assistance to the leather wearing apparel industry, rather than industrywide tariff relief, in part because he determined that “expedited adjustment assistance is the only positive action that would aid the adjustment process of the industry without being inflationary or possible causing a further erosion in consumer demand by further increasing prices.” Adjustment assistance, tailored to the needs of particular companies, is the only remedy that makes sense.
Tariff relief should be granted only if, among other factors, it would effectively provide breathing space for industry to adjust. But a legitimate question is, what steps could the domestic producers of leather apparel take to adjust” to the competition that would resume once the temporary respite from imports is terminated.
The production of leather apparel is extremely labor intensive, and raw material costs amount to more than 50 percent of the toal manufacturing costs. Capital costs are minimal: the industry's capital investment really consists of little more than sewing machines. In these circumstances, it is difficult to understand precisely what
3 ITC Report, A-16.
steps this industry would take to adjust to the import competition that would ensue following the termination of relief.
The paucity of steps even possible for adjustment can be seen by the ITC's discussion of the efforts of U.S. leather wearing apparel producers to compete with imports. Only 14 producers responded to this portion of the Commission's questionnaire, from an industry estimated at 100 firms, and in which at least 43 participated in the Commission's investigation. Most of the firms that participated in the Commission's investigation, in other words, did not even discuss possible steps to adjust to import competition.
Of the 14 that responded, five indicated that their adjustment steps were to turn to imports, while the other 9 cited obscure technological developments of an apparent minor nature. The fact that only 9 of the 43 firms that participated in the investigation even spoke of newer technology and newer efficiencies demonstrates overwhelmingly, we submit, that there is nothing practical that can be done to assist this industry in an effort to "adjust” to import competition, or, even if there is, that any significant number of firms intend to do so.
Adjustment assistance, on the other hand, that might reach the specific problems of particular firms might provide benefit peculiar to individual circumstancesincluding the nine that have indicated that they could make technological changes.
CONCLUSION In conclusion, we submit that the President's determination was correct when it was made, and is supported by the facts that have developed since. Imports were lower then than in the previous year, and have continued to decline.
Higher tariffs clearly would be inflationary, as the ITC specifically found that the benefits of lower priced imports were in fact passed on to consumers at the retail level.
The overwhelming evidence on the record of the ITC investigation demonstrates that such factors as higher prices combined with fashion changes that may themselves have been exacerbated by the higher prices-rather than imports-are responsible for the troubles of this industry.
Final it is apparent that the higher tariffs recommended by the ITC would not permit this industry to "adjust” to future import competition.
For all of the reasons, we urge the Subcommittee to support the President's determination.
LEATHER APPAREL: EMPLOYMENT AND MANHOURS WORKED—EXPORTS FROM KOREA, U.S. IMPORTS
FROM KOREA, AND TOTAL U.S. IMPORTS, 1976–78, JANUARY-AUGUST 1978–79
STATEMENT OF PETER O. SUCHMAN, COUNSEL, CERTAIN IM
PORTERS/DISTRIBUTORS OF LEATHER WEARING APPAREL, INCLUDING AND ACCOMPANIED BY RICHARD KASTLEMAN, PRESIDENT, ELLIOT & KASTLE, INC., AND DAVID YESTON, PRESIDENT, DIAL IMPORT CORP. Mr. SUCHMAN. Thank you, Mr. Chairman. My name is Peter Suchman. I represent a group of 14 importer/ distributors of men's and boy's leather wearing apparel. I am accompanied here today by Mr. Richard Kastleman, president of Elliot & Kastle, Inc., on my right; and Mr. David Yeston, president of Dial Import Corp..
I will be brief. Most of the points we would have made have already been made. I know you are running behind schedule.
We believe the point has been well made that imports of leather wearing apparel are not now increasing. In fact, the data for the first 5 months of 1980 show an inflation adjusted figure on a value basis of some 40 percent below the same period of last year.
We note that at the same time—and it is rather curious-exports by the domestic industry were up 150 percent during that period, admittedly over a small base.
We also note that-building upon what Mr. Palmeter just said, according to the ITC data the employment figures for the domestic industry show 3,164 jobs in 1975 and 3,388 in 1978, a rather flat figure, and that the real drop in employment apparently occurred in 1979 and in 1980 at a time when imports were falling at an annual rate of about 40 percent a year.
Obviously, there is little connection between the drop in employment and increasing imports. Of course, imports were not increasing
The other point we would like to stress is that we do not believe that the domestic industry can serve the market now served by imports. There is an insufficient labor supply of skilled workers to come anywhere near filling the portion of the market that the high fashion imports now serve.
The ITC again calculated an unused capacity of something like 600,000 units. Imports now supply approximately 7 million to 9 million units. If the projections we have received are correct, and there is a drop of 50 to 75 percent in imports as the result of this action, obviously it is going to take a very long time before the domestic industry can begin to fill this gap. By that time we would suggest there will be no market there. Furthermore, leather goods are not necessities; they are luxury goods. Price increases of the sort that would result from this duty increase will simply dry up the market for everyone, and it is illusory to believe there will be consumers out there to buy the goods at the prices that would result from these tariff increases.
Finally, on the issue of hides, I would only add to what Mr. Palmeter said, and that is, it is our understanding that a substantial portion of the goods imported by the group which we represent are in fact made with hides that originate in the United States, although they may in some cases be tanned abroad.
[The prepared statement follows:]
We appear here today in opposition to House Concurrent Resolution 383 which would disapprove the determination of the President not to provide import relief to the domestic leather apparel industry and would result in an increase in the duties on leather coats and jackets of 25 percent ad valorem. We believe that the March 24, 1980, decision of the President, after consideration of all relevant aspects of this case, including those set forth in Section 202(c) of the Trade Act of 1974, that the imposition of import relief would have an unacceptable inflationary impact, while not helping the domestic industry to adjust and become more competitive was correct. The criteria for imposing import relief have not been met. Furthermore, the only effect of the increase in duties which would result from passage of this resolution would be to increase the price of these products beyond the point of market resistance. The already shrinking demand for leather coats and jackets would dry up completely. Many jobs would be lost in the importing, distributing and retailing industries while domestic producers, because of their inability to hire the skilled craftsman in any where near the numbers necessary or to produce high fashion garments, would be unable to meet demand. The consumer would suffer with little if any net benefit to the domestic economy.
All in all, this is certainly not the case for Congress to exercise, for the first time, its statutory override authority. The facts of this case must be carefully examined in order to fully understand the futility of the duty increase recommended by the International Trade Commission (ITC).
Leather coats and jackets are not being imported in increased quantities.
Section 201 of the Trade Act of 1974 (19 U.S.C. 2251) provides that, upon the filing of a petition requesting import relief, the ITC must determine “whether an article is being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry ...
It is indisputable that imports of leather coats and jackets are not increasing. The ITC staff report in Investigation No. TA-201-40 shows that the dollar value of imports of leather coats and
jackets declined for the period January-August 1979 as compared with January-August 1978 from $171,402,000 to $157,112,000. Import data for the entire year 1979 establishes that this downward trend in imports continued. The value of imports of leather coats and jackets fell in 1979 to $238,418,000 from a 1978 level of $293,848,000. The decline has accelerated during the first five months of 1980, dropping from $73,724,000 for January-May 1979 to $50,916,000 for the same period in 1980. Since these figures are stated in dollars they mark an even greater decline in units. Using data prepared by the ITC staff it is clear that the quantity of leather coats and jackets imported into the United States in 1979 declined precipitously, falling from 10,448,000 units in 1978 to only 6,927,000 units in 1979, a single year decline of 33.7 percent. Using value figures, all that are available for a five month 1979–1980 comparison, imports dropped another 31.5 percent, an understated figure since it does not take into account the inflationary increase in per unit cost. Using a 13 percent inflation rate the decline becomes 39 percent.
Not only have there been sharp absolute declines in imports, in 1979 there was also a decline in imports relative to domestic production. The ITC staff's data shows that the ratio of imports to apparent consumption dropped off from 81 percent in the first eight months of 1978 to 79 percent in the first eight months of 1979, a downward decline that continued throughout the final four months of 1979. Therefore, since the basic requirement for the provision of import relief under Section 201 of the Trade Act of 1974–(i.e., increased imports) is not met, the President's determination is consistent with the law and the intent of Congress.
If the domestic leather apparel industry is suffering economic distress, imports are not the cause.
If the domestic leather apparel industry is suffering economic distress, it is not the serious injury required to trigger import relief pursuant to Section 201 of the Trade Act of 1974 nor are there sufficient grounds to override a Presidential determination. The ITC employment data is misleading in that although the average number of production and related employees in the industry in the first eight months of 1979 was 23 percent below the level for 1978, the average weekly hours per worker were up by 23.9 percent, with the average worker putting in an hour and a half of overtime per week. Similarly, while ITC data show a decline in capacity utilization in the first eight months of 1979, such decline cannot be import related. Since imports were dropping rapidly and workers were on overtime, the only explanation for this decline in capacity utilization is that domestic manufacturers were holding back production for other reasons, such as declining demand, unavailability of trained workers and rapidly escalating prices for raw hides and tanned leather.
Indeed, it is this final factor which is surely a substantial cause of any injury suffered by the domestic industry in 1979. Table 1 appended to this statement demonstrates that at least since 1975, and with the exception of 1978, when the domestic industry recorded a slight improvement in profitability, in the face of