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 3 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.

Mr. ARCHER. Thank you, Mr. Chairman.

I am very much concerned about the potential adverse consequences for the U.S. agricultural interests if this resolution is passed by the Congress. Accordingly, I would like to address a question to the witness.

Under the GATT escape clause compensation procedure, will not the United States lose more than it will gain through possible retaliation that might occur if this resolution passes against U.S. exports of various goods including agricultural commodities, particularly with reference to the agreement with Argentina that the chairman talked about which provides for substantial reduction in Argentine restrictions on the export of hides?

It is my understanding if the Presidential determination is overridden by the Congress in this case, then Argentina could withdraw from its commitment and this in turn could renew pressures for the United States to put export controls on hides.

In general, do you agree that we could come out a net loser in export products from this country if we take this action?

Mr. HORMATS. Let me, before turning the floor over to Ms. Hughes, make a general observation. It certainly runs that risk, yes. It runs the risk of undermining the agreements that were negotiated with those countries and also making us vulnerable to their requests for compensation which could very well cut into other elements of our exports in the agricultural area of the manufactured goods area.

It depends on what sort of compensation they would ask for. Under the GATT in such instances countries are entitled to compensation.

Mr. ARCHER. We are running a very real risk of retaliation which could have an effect on the export of our products and resulting in job loss in the United States.

Mr. HORMATS. That is correct

Mr. ARCHER. Thank you very much.

Ms. HUGHES. Mr. Archer, there is another aspect to that question. Our exports of hides to primarily the Far East, Taiwan and Korea, hides and tanned leathers, are being made into leather garments and sent back to this country.

If we were to cut off or diminish their market here, we believe we would be running a very strong risk of cutting off some of our exports of hides and leather because we would not be able to replace them one for one at home. We do not believe that the American market can absorb a large number of much more expensive garments at prices that would have to be charged in order for the domestic manufacturers to be able sell them here.

So we would have a net loss of the use of our own leather and hides in garments sold in this country.

Mr. ARCHER. That is what I am concerned about. If we are going to be the net loser, than we certainly should not support this resolution.

Mr. MOORE. I wonder if Ms. Hughes or Mr. Hormats could comment. I perceive an inconsistency here, that we were able to negotiate with the Argentines to get them to open up their exports of hides, which they did not want to do, which I understand benefits

the shoe manufacturers of the gentleman from Massachusetts State.

Today we are being asked to take an action which would cause them to retract and withdraw from that agreement and reduce the number of hides they export which in some way helps garment manufacturers but turns around and hurts shoe manufacturers. I see an inconsistency in dealing with Argentina on this issue. Do your agree with that?

Mr. HORMATS. Yes.

Mr. ARCHER. I also share your concern about that inconsistency. Thank you, Mr. Chairman.

Mr. VANIK. Mr. Shannon has a question of Mr. Hormats.

Mr. SHANNON. Ambassador Hormats, STR is part of the interagency group that recommended import relief to the President? Mr. HORMATS. Yes; we shared the interagency process.

Mr. SHANNON. Why the flip now?

Mr. HORMATS. Pardon me?

Mr. SHANNON. Why the flip now on your part?

Mr. HORMATS. What is the flip?

Mr. SHANNON. Did STR recommend import relief?

Mr. HORMATS. The interagency process and the recommendations to the President of various agencies are normally not made public. We fully support the position, and as a result we are testifying in opposition to this resolution.

Mr. SHANNON. You oppose it now but recommended the President do something else before?

Mr. HORMATS. I think you recognize it is inappropriate for this agency to explain to this body or any other body what was the private confidential recommendation to the President.

Mr. SHANNON. Thank you.

Mr. VANIK. I would like to proceed with the statements. Are there any questions of Mr. Starkey?

Mr. MOORE. Yes, Mr. Chairman.

Mr. VANIK. You may proceed with Mr. Starkey.

Mr. MOORE. Mr. Starkey, I want to thank you for being so kind to sit with us when you had plans not to be here with this panel. I appreciate that. I would like to inquire for the record to the extent of the domestic trade export market; first, do we in fact export hides from the United States to the world market?

STATEMENT OF JAMES H. STARKEY, DEPUTY UNDER SECRETARY FOR INTERNATIONAL AFFAIRS, DEPARTMENT OF AGRICULTURE

Mr. STARKEY. Yes, Mr. Moore, we normally export about 65 percent of our cattle hide production and our exports of cattle hides in 1979 were close to $900 million.

Mr. MOORE. Has this been a market which has been stable or is it beginning to increase for us or is it on the decline?

Mr. STARKEY. I think it has been fairly stable at that level. There are some changes of course depending on prices.

Mr. MOORE. Is it your opinion or that of the Department of Agriculture that having a market for our hides and being able to export them is a benefit to domestic cattle producers?

Mr. STARKEY. Absolutely. The price of the hide is a very important component of the price that the producer receives when he sells his animal. In some periods when prices in the domestic market are under pressure, the price of the hide may well represent the difference between a profit and loss for domestic cattle

men.

Mr. MOORE. I think Mr. Archer has indicated there is a possibility if we take the action in this resolution we might well have retribution taken against the export of American hides. If that is the case, would this be detrimental to the American cattle producer?

Mr. STARKEY. I think it would definitely be detrimental.

There is a third element to this that neither of my colleagues mention. That is the fact these leather garments come from some of our most important agricultural export markets in developing countries. To the extent that we reduce their ability to sell in this country, we obviously reduce their ability to buy from us. A number of these are billion-dollar markets.

Mr. MOORE. You are saying that these countries buy from us more than just hides? They buy other argicultural products?

Mr. STARKEY. Yes; they certainly do.

Mr. FRENZEL. Will the witness indicate what some of those countries are?

Mr. STARKEY. Taiwan and Korea would be two of them that are billion-dollar markets for agricultural commodities. Mexico is another one which is a very important market, $1.5 billion probably this year.

Mr. FRENZEL. Thank you.

Mr. MOORE. Do you have a rough idea how many cattle producers there are in the United States and how many States produce cattle?

Mr. STARKEY. I think roughly every State in the United States produces cattle, even my own State of Maryland has a few. Obviously there are some that are much more important producers than others. Texas and Louisiana being important producing States. I have no idea of the number of cattle producers but there certainly is a substantial number of them.

Mr. MOORE. Thank you, Mr. Starkey. I very much appreciate your staying. I appreciate your answers to the questions.

Mr. Chairman, I thank you for allowing me to question out of order.

Mr. VANIK. Mr. Shannon?

Mr. SHANNON. Will you state for the record please the average historical percentage of the total value of the cattle that is in the hide? Isn't the hide just a meat wrapper?

Mr. STARKEY. I never heard the shoe industry regard it as a meat wrapper. They were rather exercised about this at one point.

Mr. SHANNON. You are talking about approximately 4 percent of the total value of the cattle in the hide?

Mr. STARKEY. Mr. Shannon, the price of the hide varies. As I pointed out in response to a question raised by Mr. Moore, at some point during some periods, particularly, I would say during the last 4 or 5 years when our domestic cattle industry was under extreme pressure, that 4 percent, if you will, may have represented the only

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profit that man had or the difference between the poor house and bankruptcy and continuing his operation.

Mr. SHANNON. I went through this whole cattle hide thing last year when I offered the amendment which would have placed export controls on cattle hides. At that time we talked to Secretary Bergland and there was acknowledgment from the Department of Agriculture that the cattle cycle was not substantially affected by the hide market.

Is there anything now that changes your mind on that?

Mr. STARKEY. I do not think that I said anything that would imply the cattle hide cycle is affected by changes in the hide market. I did say the income of cattle producers can be dramatically affected by high prices and by their inability to market their hides.

Mr. SHANNON. That would affect the cattle cycle?

Mr. STARKEY. It would more likely affect the number of producers in business rather than the actual cattle cycle.

Mr. SHANNON. I would appreciate if you could get us some historical data on this issue. This is the argument that I heard from a number of different interests last year concerning the tremendous impact our actions on leather were going to have on the beef cycle, cattle cycle. I wish you could get us those numbers so that we can analyze them. Why don't you analyze those numbers yourself? I understand what your role is here, but, if you are going to be coming before this committee, you should come with some real numbers.

Mr. STARKEY. Thank you, Mr. Shannon. I was not planning to come before this committee. I was asked to stay on and I did. I do think that if you look at our cattle industry where producers for 4 years went through a period where they had losses of up to $150 per head, the value of the hide is extremely important.

We will be very happy to get those numbers for you for the record to show you what percentage the value of the hide has been over a historical period to the value of the animal.

Mr. MOORE. Mr. Chairman, I would ask that when Mr. Starkey submits those figures he also submit what the profit and loss picture was for the cattle industry for the same years. I think Mr. Starkey is correct, the cattle industry has had tough going in the past and any amount of income you cut back makes it that much

worse.

Mr. VANIK. Mr. Frenzel?

Mr. FRENZEL. Mr. Starkey, in connection with the question of the gentleman from Massachusetts, is it not also true that your constituency, the agricultural producers, get nervous about embargoes or trade disruptions of any kind such as the possible prohibition on export of hides that was pending last year and this item that is pending this year and that the psychological distress sometimes is more important than even the very important loss of the hides to that particular segment of our economy?

Mr. STARKEY. Certainly you are correct in that there are shortterm impacts and long-term impacts and there is a great deal of psychological concern.

Mr. SHANNON. I fully appreciate the psychological distress that our agricultural sector feels when we start talking about these