changes. I find no obstacle in those changes and would be pleased to support them as an amendment to my bill. I want to emphasize that increasing the number of manufacturing jobs in Eddystone, Pa., a small community in the heart of an economically depressed area, would be beneficial indeed, and I welcomed the opportunity to relieve the company of its difficulty by offering H.R. 6750. I thank the subcommittee for its attention to this bill, and for the opportunity to speak to you today. I would now draw on the expertise of Mr. Longaker, who will describe in just a brief statement in a little more detail what in fact this fabric is used for. Mr. VANIK. Mr. Longaker, your entire statement will be in the record as submitted. You may read from it or excerpt from it, whichever you see fit. STATEMENT OF R. G. LONGAKER, VICE PRESIDENT AND Mr. LONGAKER. Yes, sir. Congressman Edgar's summary has succinctly presented the condition which prevails relative to the tariff on the Hovercraft skirt material. HSI has presented a prepared statement. Due to the fact that it is somewhat redundant and in the interest of the committee's time I would not read that. The material in question is distinctly a specialty product both in manufacturing technique and end use. The subcommittee staff I believe has passed a sample of the material and a picture of its end use. And we believe that that examination draws the sharpest prospective to the material of a nontextile product―― Mr. VANIK. Tell me about Hovercraft. Is this a craft that floats over water or land? Mr. LONGAKER. Yes, sir. It is a structure in which the skirt incloses a periphery of a generally steel boxed barge shaped vehicle. The deck penetration with a large fan, driven generally by a diesel engine, pumps air under it. The skirt actually does not lift the craft. They inflate, they hold the air inside so the air pressure can work on the entire bottom of the craft. Mr. VANIK. It is the principal of an air balloon. Mr. LONGAKER. Yes, sir. High volume, low pressure. Mr. VANIK. Is it a navigable craft that you can navigate and move it in any direction you want to? Mr. LONGAKER. Most of them are not. They are usually winched, pushed, or pulled. The one that brought this case before this committee is a self-propelled craft for the State of Alaska. It is driven by large turret tires with hydraulic motors for turning them. So it is navigable in that case on ice and on land with water wheel attachments in the water. Mr. VANIK. It could go on ice and float on open water? Mr. LONGAKER. Yes, sir, it is on the air cushion at all times when it is operating. Mr. VANIK. I would assume it useful in the development of petroleum resources or mining? Mr. LONGAKER. Extremely useful. They are looking at it with increasing interest every month, yes, sir. 68-723 0 81 8 Mr. VANIK. Your company puts together the assembly that uses this material? Mr. LONGAKER. Yes, sir. Mr. VANIK. The power, do you provide the power equipment? Is that done by somebody else? Mr. LONGAKER. We buy that from subcontactors and suppliers. We make the structure and of course we would like to get into the manufacture of the skirt material. Mr. VANIK. Are you the principal company in America involved in this product? Mr. LONGAKER. Yes, sir, there is only one other and they are inactive at this time. Mr. VANIK. And how many employees does this involve at present? What is the potential if we take care of your case? Mr. LONGAKER. For the skirt manufacturer it would be on the order of 10 to 12, but we have been unable to implement under the existing tariff conditions. Mr. VANIK. What is your potential if you are permitted to go ahead? Mr. LONGAKER. Well, on the order of 60 to 70. Mr. VANIK. You know, the size of your company or the size of the personnel is not involved. It is what potential it has for multiplying or increasing employment. So you have a good factor. Yes, sir? Mr. EDGAR. Mr. Chairman, I think one of the things of interest is that the Hovercraft are intended for use in supplying some of the communities that are in remote areas of Alaska with supplies during the winter months. And many of the barges that use the waterways presently freeze up in the winter. So I think it an asset in that respect. Mr. VANIK. What is your carrying capacity in tonnage so far? Mr. LONGAKER. Seventy tons. And that is with a base weight or equipped weight of 100 tons. So it is almost one to one. Mr. VANIK. You may proceed. Anything else? Mr. LONGAKER. No, sir. Mr. VANIK. Any questions? You have no problem with the change that was recommended by the administration? Mr. Edgar said he would have no problem Mr. LONGAKER. No problem at all. Mr. VANIK. Well, I want to thank you very much. Mr. EDGAR. Thank you for your kindness. I appreciate at this late hour your consideration of this bill. Mr. VANIK. Oh, I have-well, I have already asked you if there would be any problem with the amendment and will the new description meet your needs. And I presume the answer is yes, sir. Mr. EDGAR. Yes, sir. [The prepared statement follows:] STATEMENT OF HOVER SYSTEMS, INC. Fabrics used in the manufacture of Hovercraft skirts are generally a woven basecloth with a polymer coating. While small lightweight craft use light fabric skirts, these notes are confined to materials used in the fabrication of skirts for large commercial, passenger, and freight craft, and military craft. These craft operate under extremely adverse conditions, both on land and water. The climates vary from tropical to arctic. The skirt used to form the seal to the ground has to be of an extremely rugged nature. Many fabrics have been tried over a considerable period, but generally all skirt users have settled for using skirt fabrics made by Avon Processed Polymers of the UK. Avon fabrics are far superior to any other fabric from any other manufacturer in the world, for hovercraft use. The materials demonstrate much higher values in tensile, tear, resistance to water penetration of substrate (wicking), and weather resistance. Additionally the coatings have superior wear resistance and are attached to the substrate very strongly. Particular formulations are available which allow operations in temperatures of -40°F, where other materials would be rigid. No other manufacturer in the U.S. or elsewhere, can achieve all of these requirements. At present very little skirt manufacture is performed in the U.S. Most skirts are imported ready made by Avon and others. Such skirts are classified as inflated articles and only attract a duty rate of 6 percent. When HSI decided to commence manufacture in the U.S., an inquiry was made to the Customs in Philadelphia, and HSI was advised that the rate would be 6 percent, but that for a binding ruling we should write to Washington. This was done on October 18, and several conversations with Customs Attorneys followed, during which it was indicated that 6 percent was a probable rate. Based upon this information, and due to lack of time to wait for a formal ruling, orders were placed with Avon to the value of $120,000. Additionally, work commenced on construction of a new 8,000 sq. ft. fabrication shop, equipped to manufacture skirts. Orders were accepted based upon use of this fabric, U.S. manufacture, and 6 percent duty rate. On December 10, 1979, a decision from Customs arrived at HSI. The rate is to be 30 percent Ad Valorum, plus 25 cents per pound weight. This effectively adds over $24,000 to HSI's costs, which cannot be passed on. It means that the only economical means of manufacture is to fabricate in the U.K. This also means that the future of any manufacture in the U.S. is uncertain, now or in the future. The material used in skirt manufacture is a specialty item which should be categorized accordingly. It is not currently available from any U.S. source, nor is likely to be in the near future. This has been confirmed by extensive research and laboratory testing. The current practice of enabling complete skirts to be imported at low duty rates, while penalizing the U.S. manufacturer with a high rate, is unreasonable. Aside from the immediate loss of manufacturing jobs, the specialized techniques involved in skirt manufacture will also be lost. Such a loss will ensure the continued import of skirts thus restricting the growth of fabrication facilities, new jobs, the research into, and manufacture of indigenous fabrics, and the growth of the U.S. commercial and military hovercraft industry. In order to encourage use of Ĥovercraft, the State of Alaska has obtained a waiver of the Jones Act, enabling the use of craft constructed outside of the U.S. It would be a very important step if a tariff concession could be obtained for skirt fabric, thus improving the chances of using U.S. made equipment. This matter is extremely urgent and immediate steps need to be taken to expedite tariff reform, if any advantage is to be gained, and loss of jobs prevented. Mr. VANIK. The next bill is H.R. 7660. We have with us the Containerhouse Co. of Cornelia, Ga., Thomas W. Sikes, president. We also have CTI-Container Transport International, Inc., and ITEL Corp. Container Division, and Transamerica ICS, and Mr. Woolley as special counsel. We would be happy to hear your testimony. You may proceed, Mr. Sikes. Your entire statement will be admitted into the record as submitted. You may read or excerpt from it. STATEMENT OF THOMAS W. SIKES, PRESIDENT, Mr. SIKES. Very well. I will summarize briefly. I have a company that buys and sells used containers. Ocean freight containers are built and admitted into the international service. They travel back and forth across the seas without any duty, regardless of the country of origin, until the end of their lifetime. When they retire from the fleet due to deteriorated physical condition, a duty is imposed. The administration of that tariff is cumbersome. The duty imposed does not provide an incentive to "buy American" because it is imposed at the end of the 7-10 years of the product's useful life and not at the beginning. It is a very negligible percentage duty-4.4 percent-and this is already scheduled to be phased out over the next 6 years. Yet, this duty, as a nuisance, is a considerable burden to people who wish to buy these boxes that have been retired due to deteriorated physical condition. It costs more to collect the duty, in my opinion, and for customs to inspect the boxes in detail than the revenue derived from the duty. And as far as the administration's comments on size are concerned, I have no objection to seeing that the bill is expanded to include all ocean freight containers. Ninety-nine percent of them are the sort identified in the bill as originally drafted, and the expansion of the bill's terms to include all of the sizes indicated would be perfectly agreeable. The administration of the tariff is unusually difficult. Some of the times the tariff is collected unfairly in recognition of the fact that the imported boxes are reexported. At other times the duty is not collected, even thought if should be under the existing law. We feel the best solution is to eliminate what is admittedly a nuisance tariff. Mr. VANIK. Thank you very much. We may need some discussion as to the language and solve some problems there. Do you have any further comments? Mr. SIKES. This is all I have, sir. Thank you very much. STATEMENT OF EDWARD A. WOOLLEY, ON BEHALF OF THE Mr. WOOLLEY. Yes, I do. Mr. Congressman, I am authorized to say that I also represent, in addition to the five companies listed in my prepared statement, Xtra, Inc., another major leasing company in the United States. The main interest of these companies is in the administrative problem. Their main interest is that they are compelled to exercise efforts to track the containers and compel their customers to track the containers to prevent them from deviating from the restrictions of the customs regulations as instruments of international traffic. And it is primarily with that interest in mind that these six leasing companies support the bill. I support what Mr. Sikes has said previously, but I do need to make clear the interest of these leasing companies. They have a fleet of approximately 850,000 20-foot equivalent units, and they do not pay duty on most of them because they are maintained under treaty and regulations as instruments of international traffic. So that the domestic industry is not really affected by this tariff. I would like to say in response to the points that were made earlier by the administration, Mr. Chairman, that the reason the domestic industry's numbers are so low is not related to the tariff, because containers are not bought in large quantities from these manufacturers now. And looking at their figures, there was a value of $75 milllion manufactured in 1979, Mr. Chairman, consisting of 9,145 units. If you do a little division, you come out with about $8,000 per unit. That means that those containers were in some way specialized containers, presumably refrigerated containers or tank containers. And those are clearly not the volume of our problem. The administration noted that that value manufactured was about $75 million. The interest of the leasing companies that I represent may be valued in terms of replacement value at $2 billion. I think there is a large interest, a large American interest here, that deserves consideration in considering this tariff. Second, the administration was concerned that these containers might be used domestically. And it seems to me that we ought to keep in mind that if there was a serious threat that they would be used domestically, they would be used domestically now. People would domesticate the containers, pay the tariff, and use them now. In addition, it should be noted that containers are quite different from trailers. Containers must meet a number of strength requirements that trailers do not have to meet. Containers need to meet the strength requirements of the marine mode, in particular. They need to have corner fittings which are heavy fittings which appear in each of the eight corners of the container so the container can be lifted from the top or attached from the bottom to each other. They must have stacking capacity so each can bear approximately five on top of it, since they are stacked six high in the ship. They must bear the racking strains and stresses that a ship imposes from side to side and up and down and not just the stresses and strains that are natural in the land mode of forward and backward. So there are a number of reasons why containers are not naturally suitable for domestic transport. I think I should finally say that we also believe that there should be a slight amendment of the definition to include all cargo freight containers, including the 35's, 24's, 27's, and 30's, and those that might be 9 or 92 feet high. [The prepared statement follows:] STATEMENT OF EDWARD A. WOOLLEY My name is Edward A. Woolley, and I submit this statement, as special counsel, in support of H.R. 7660 to exempt freight containers from customs duty, on behalf of the following United States container leasing companies: CTI-Container Transport International, Inc.; ITEL Container Division; Transamerica ICS Inc.; Trans Ocean Leasing Corporation; Uni-Flex Division, Flexi-Van Corporation. SUMMARY AND TOPICAL OUTLINE H.R. 7660 offers the opportunity to strike a blow for free trade, reduction of costs to the consumer, reduction of the federal budget, deregulation, and promotion of the United States container leasing and maritime industries all at once. It will do this by eliminating on enactment a tariff now being eliminated gradually over an eight year staging period by the GATT Treaty. This statement will describe the container industry, reductions in costs if the bill is passed, the lack of protective and revenue interests, and a requested amendment to the definition of container. CONTAINER INDUSTRY Containerization is a relatively new industry, having become a serious factor in marine and intermodal transportation only at the end of the 1960s. Freight containers are essentially large boxes built to certain sizes so as to be interchangeable with |