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 91⁄2 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

other containers. They are designed to fit into the cells of container ships, to be carried on railroad freight cars and to ride on chassis over the road. There are in the world today in excess of 2,500,000 containers (measured in "TEU" or 20-foot equivalent units). Of these, American companies own about 1,300,000 TEU and the leasing companies listed above own about 800,000 TEU. The replacement value of 800,000 TEU is about $2 billion and the gross revenues of these leasing companies, earned all over the world and payable almost always in U.S. dollars, are estimated to exceed $450,000,000 annually. The American interest is therefore a major one. Containerization represents a bright part of the United States maritime industry.

REDUCTIONS IN COSTS TO INDUSTRY, GOVERNMENT, AND CONSUMER

The principal interest of the leasing industry in passage of H.R. 7660 is to eliminate the cost of policing its containers to comply with customs regulations as instruments of International Traffic (IITs). Under customs treaties and U.S. Customs regulations, 19 CFR 10.41a(f), foreign made container (and I estimate that 85 percent of the containers of the leasing companies listed above were made abroad) do not incur duty or tariff when they enter a country, if they are used for international transport and observe certain restrictions. In simplified form the U.S. restrictions permit a loaded container to travel on a direct route from a U.S. port to an inland destination, to be repositioned to an inland point to pick up export cargo, and to follow a reasonably direct route out of the country.

The container leasing industry, the shipping industry and the U.S. Customs Service all incur substantial costs in order to comply and to deal with enforcement problems when they arise under the IIT regulations. Elimination of these costs would reduce the costs to all three of these groups and eliminate the hassles and administrative proceedings that occur from time to time when a container transgresses and violates the regulations. It would obviously reduce the costs and efforts of the U.S. Customs Service and it would promote efficiency and lower costs in transporting all goods carried in containers. Reduction of these costs would enable U.S. leasing companies and carriers to compete more efficiently on world markets and in earning foreign exchange. In the case of the U.S. leasing industry, this becomes a significant factor as U.S. leasing companies own approxiately 80 percent of the leasing company containers of the world.

LACK OF PROTECTIVE AND REVENUE INTERESTS

Normally, the major consideration in defending a tariff is the protection of domestic industry. With all due respect to those who may favor retention of the tariff, there is very little protective interest to be served by any tariff on containers. As stated above, approximately 85 percent of the containers of the companies above do not incur duty at all because they are maintained as IITs. The existence of the tariff therefore does not encourage owners to purchase from domestic industry.1 The tariff has been largely irrelevant because the primary consideration in the place of first use. Since over the years there has been a great demand for containers to carry manufactured goods from the Far East, containers have been purchased in the Far East, and today new container plants are even being manufactured in China, often with U.S. help.

The tariff produces little revenue for the United States Treasury because duty is paid so infrequently on new containers, and it probably costs more to collect the duty than the revenue generated by it. A small duty is, however, usually paid if a container is sold at the end of its useful life, even if the buyer represents that it will take the container abroad, simply in order to insure against the possibility that the container will turn up in the U.S. and the Customs Service will seek a penalty.

AMENDMENT OF DEFINITION

Finally, we request that the definition of container be amended in accordance with the attached. The present definition is limited to containers which are 40' and 20' long and 8' and 82' high. While the vast majority of the leasing industry's containers meet this definition, there are new "high cube" containers used in the Pacific region which are 9' and 92' high, and several U.S. maritime carriers have containers which are 35', 27' and 29′ long. There is no good reason to exclude these sizes from the coverage in this bill.

'There is no substantial demand for containers purely for land transport because tractor trailers supply such demand far more efficiently.

DEFINITION OF CONTAINER

Freight containers of permanent character, designed for carriage of goods on a repeated basis by two or more modes of transport without intermediate reloading, having corner fittings for securing or handling and with an area enclosed by the four outer bottom corners of at least 150 square feet or, if it has top corner fittings, of at least 75 square feet.

Mr. VANIK. That takes care of the discriminatory problem?
Mr. WOOLLEY. Yes; it would.

Mr. VANIK. Any questions?

Mr. JENKINS. Mr. Chairman, first of all I want to express my appreciation to Mr. Sikes, who is from my district and who is an enterprising young man that ran into a terrible administrative headache. And I want you to explain to the committee this.

You normally purchase used containers only, is that correct? Mr. SIKES. That is correct.

Mr. JENKINS. And then is that toward the end of their normal life as an instrument of trade?

Mr. SIKES. That is right.

Mr. JENKINS. And when they have been damaged or so worn that they can no longer be used, is that correct?

Mr. SIKES. When they cannot be returned to extended fleet service, Congressman, we buy them.

Mr. JENKINS. And then you repair those.

Mr. SIKES. Generally to the standard so they can be used for one last export journey.

Mr. JENKINS. And returned as an instrument of trade?

Mr. SIKES. That is right.

Mr. JENKINS. So really there is no duty under the existing law on over 95 percent of the containers you handle, is that correct? Mr. SIKES. Yes; in a fair administration of the existing law. Ninety-five percent of what we sell is to Americans who stuff the boxes with American cargo and send them overseas to stay. And we ought not to have to pay any duties on those boxes because they have been reexported and are staying out of the country this last time. But in fact we have had to pay that duty when the large leasing companies that we buy from ask us to pay it.

We say to them there is no duty fairly owed on these boxes because we are selling them for re-export and our customers are sending them overseas. And the big leasing companies who sell to us say, "but you will have to pay it because we have reached agreement with Customs and we are going to pay the duty to them because we have to keep the Customs people off our neck, because even if we do sell 95 percent of our cargo for export, there is 1 out of 20 that stays in America, and on that one, the Customs Department will sting us, so we have decided to pay the $12 or $15 apiece on all of them.'

And we have no recourse.

Mr. JENKINS. So, in effect they pay the duty even though it is not really needed or they are not really liable for that.

Mr. SIKES. That is correct.

Mr. JENKINS. They do that in order to avoid the administrative hassle and headache of trying to trace where all of these containers go, is that correct?

Mr. SIKES. That is correct. I think earlier in this session we have discovered here that we have a new kind of tariff. All of these

hundreds of years the philosophy of a tariff's deterrence to imports has derived from the fact that you have to pay so many dollars for bringing merchandise into the country.

But now we have had the administration witnesses say they don't care very much about the revenues raised, since they are such a small percentage of the value of the boxes. We also have had people who pay the tariffs, the large-fleet owners, say that they don't care very much about the money. But the administration has said that the national policy in this instance is to penalize the buyers with redtape. Redtape will be the primary penalty and not the dollars raised from the tariff itself.

Mr. JENKINS. On the average, what do you pay for an average used container?

Mr. SIKES. We pay $400 or $500. Maybe we pay a little more on some of the larger ones.

Mr. JENKINS. So at the most, if you want to pay the duty, you are talking about what?

Mr. SIKES. About $12 or $15 a container-sometimes slightly higher.

Mr. JENKINS. Then I assume that you have to sign an indemnity agreement when you purchase from these larger companies that in the event one of these containers turns up in the domestic market, that they are liable to in turn vouch you in to pay the bill. Is that basically what happens?

Mr. SIKES. Yes.

Mr. JENKINS. Thank you.

Mr. VANIK. Any other questions? Thank you.

Could these containers be used for farm storage?

Mr. SIKES. A few are used for farm storage to prevent theft of tires or maybe hay, but a very small number. Our greatest dollar is for re-exporting the unit.

Mr. VANIK. They are generally made of aluminium?

Mr. SIKES. Aluminum and steel. And to that $400 or $500 that we pay for these boxes, we must add repair costs and transportation costs. So therefore, our highest and best use is for selling to a company who wishes to export American products. And only those with mangled corner posts and torn up doors, et cetera, are kept in the United States.

Mr. VANIK. Does the unit include the wheels?

Mr. SIKES. No, sir, that is separate. These ocean freight containers are units without wheels. They have doors at one end, and corner castings on the top and bottom. That is all there is to it. They are really not trailers.

Mr. VANIK. They are thick boxes?

Mr. SIKES. Yes.

Mr. VANIK. So, if you move them around, they have to go on flatbed?

Mr. SIKES. Yes, sir, flatbed or a specially built chassis.

Mr. VANIK. Thank you very much.

Mr. WOOLLEY. I want to thank the committee and Congressman Jenkins for introducing the bill.

Mr. VANIK. Well, Mr. Jenkins is a very important and dedicated member of the committee. I want you to know we think very highly of your representative.

Mr. JENKINS. Thank you, Mr. Chairman.

Mr. MOORE. Me, too.

Mr. JENKINS. Ditto.

Mr. VANIK. Next is H.R. 7709. Our witness is Mr. Evans of the Virgin Islands. If anybody is appearing with you, why don't you have them sit up here as a panel and you will all be here together. Of course, we know General Dawson. Will you identify the other witness?

STATEMENT OF HON. MELVIN H. EVANS, A DELEGATE IN CONGRESS FROM THE VIRGIN ISLANDS

Mr. EVANS. This is the Honorable Amadeo Francis, commissioner of commerce of the Virgin Islands. You know General Dawson. Mr. VANIK. Your entire statement will be admitted, and you may excerpt from it.

Mr. EVANS. Thank you.

I will therefore not read the entire statement but indicate a portion of it for the record.

Mr. Chairman and members of the subcommittee, I am pleased to take the opportunity to appear before you once again on a matter of great economic importance to the Virgin Islands. I most deeply appreciate the fact you are holding this hearing on H.R. 7709.

Mr. Chairman, this legislation addresses and rectifies the unforeseen adverse impact upon cigarette revenues in the Virgin Islands which occur as a result of passage of the Customs Procedural Reform and Simplification Act of 1978, Public Law 95-410. That law was intended primarily to curb the abuses of Canadian cigarette exports.

However, at the same time it, unfortunately, restricted the unlimited number of cigarettes which could be imported duty free from the Virgin Islands by limiting the number of cigarettes to 200.

H.R. 7709 merely allows for the importation of cigarettes from the Virgin Islands to be increased to not more than 1,000 cigarettes. It does not, however, list the cigarette limitation applicable to foreign countries.

I would like to briefly touch upon the impact that Public Law 95410 has had on the Virgin Islands. A study conducted by the Virgin Islands Department of Commerce, a copy of which you have before you, shows that imports of cigarettes in the Virgin Islands by the three major U.S. distributors dropped 29 percent between 1978 and 1979, despite an unprecedented increase in tourism and tourist expenditures during the same period.

After a steady increase in taxes paid on cigarettes, which reached a peak of $411,544 in fiscal year 1978, it dropped dramatically the next fiscal year by 39 percent to $202,122.

Mr. Chairman, this measure would have no discernible effect upon either the general economy of the United States or the revenues of the United States derived from cigarettes. But as you can see, it has a marked effect on what must be called the very fragile tourist-oriented economy of the Virgin Islands.

This measure, if enacted by Congress will be one more step in the direction of making us more self-sufficient. I urge its favorable