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working capital, new machinery or equipment, new or renovated buildings, and similar purposes. Trade certified firms are also eligible to participate in some of the activities under the Department's Textile and Apparel Export Expansion Program at minimal cost. The production of leather wearing apparel requires a relatively high proportion of man hours per unit, even in comparison with the production of cloth wearing apparel. Each leather coat and jacket must be cut, sewn, lined, trimmed, and finished by hand. Each piece of leather must be cut individually because of the indeterminant size or irregular quality (because of discoloration or scars) of the hide or skin. In the sewing phase, workers must use a much heavier and slower machine than that used to manufacture cloth garments. Even if some savings in labor costs could be implemented in this industry, the likely outcome of import relief would not be a sustained revival of the entire domestic industry. Rather, it would be an increase in the price of imported articles, and a shift in production from Korea and Taiwan, for example, to those countries currently enjoying even lower labor costs. Several other important factors evolving from the interagency task force's examination of this case were considered by the President. First, the la o in U.S. imports of leather coats and jackets ão, 1978 was largely .# by a simultaneous increase in U.S. consumption. And most of this growth in consumption resulted from a demand created by the widespread introduction through imports of a more stylish and refined garment that was not, and to a large extent is still not, being supplied by domestic producers. The truth is, imports created most of the increased market for fashionable leather coats and jackets. During this period of growth, shipments by domestic producers of men's coats and jackets, the area where 85 percent of domestic production is concentrated, remained fairly stable. It appeared from the analysis of the Task Force that injury in the men's segment of the industry did not necessarily result from growth in imports on the whole, but only from increasing low-priced imports in the particular market segment, volume production of basic coats and jackets, that the domestic industry heavily relies upon. Second, the demand for leather wearing apparel is highly price sensitive. This is largely because leather coats and jackets are often considered luxury items and, thus, discretionary purchases, and, moreover, substitutes are readily available. The market declines in both domestic shipments and imports in 1979 and 1980 resulted in large part from consumer resistance to higher prices, which resulted from escalating leather prices, and reflects this price sensitivity of demand. The imposition of import relief would only raise prices more. This would further restrict the market and worsen the situation for all suppliers. Third, the granting of import relief in this case might have had a long-term effect § o export opportunities in certain large and growing markets in the Third Oriol. The markets of developing countries have become increasingly important to U.S. exports. They now surpass the market share accounted for by all OECD countries combined. Of the ten leading suppliers of leather wearing apparel to the U.S., nine represent markets accounting for at least $1 billion in 1979 U.S. export. The top suppliers Korea, Taiwan, Argentina, Mexico, Uruguay, and Brazil have all been gradually liberalizing their import restrictions to improve access to their markets for our products and those of other nations. We would not want to inspire a reversal of that trend. If the President had granted import relief, a specific export loss would have been felt in U.S. exports of hides, skins, and leather. Combined, these exports totaled more than $1.23 billion in 1979, or more than five times the value of U.S. imports of leather coats and jackets that same year. Japan (a major source of tanned leather for Taiwan and Korea), Korea, Canada, Mexico, Taiwan, Hong Kong, and Uruguay were all important markets for U.S. hides and skins. With the exception of Japan, all these countries are major sources of U.S. imports of leather coats and jackets. Although most of these leather and hide exports are used in the manufacture of footwear, a Department of Agriculture analyst estimated that restrictions on U.S. imports of leather wearing apparel would lead to a reduction in U.S. exports of at least $50–$80 million. Another important consideration in the President's decision was the impact of import relief on our efforts to improve American access to hide and skin supplies in other countries. The U.S.-Argentina Agreement on Hide Exports contains a provision under which the Government of Argentina has reserved the right to cancel the agreement if the United States grants relief for leather wearing apparel. There would be a similar direct impact on hide agreements with Brazil and Uruguay. These agreements are the result of an intensive effort by USTR over the past year to negotiate agreements with cattle-producing countries to ease their export embargoes on raw cattle hides. This effort was undertaken at the behest of the tanning, shoe, and other hide and leather-using industries here in the United States. As the members of the Committee may recall, U.S. cattle hide prices reached record levels last year, forcing a dramatic increase in consumer prices for leather products. The leather products' industries organized the Hide Action Program to work for the passage of legislation to impose controls on exports of domestic hides. That legislation failed in both the Senate and the House. The industry then turned for help to the Executive Branch. Although we were unable to provide an immediate solution, we undertook a longer term effort to liberalize trade in cattlehides as a permanent remedy. Historically, with the notable exception of the United States, most of the world's cattle-producing countries have imposed embargoes on their exports of hides. Consequently, when the world has experienced shortages, foreign import demand has been concentrated on the U.S. market. This has led to dramatic increases in U.S. hide prices and dislocation in our tanning and leather-using industries. Our efforts to liberalize the world trade in hides are intended to shift some of that foreign import demand to other markets. In this way, we hope to share the burden of short supplies more fairly among a larger number of cattle-producing nations. I am pleased to report that our efforts to liberalize hide exports have been successful. Over the past year, we have had a series of difficult, bilateral negotiations with the key cattle-producing countries in Latin America. We have reached agreement with Argentina, Brazil, and Uruguay on liberalization of their hide export embargoes. These agreements are not perfect, but they provide the first important step forward toward liberalizing world trade in this sector. The U.S. tanning and shoe industries have recognized the importance of these agreements. Fred Meister, President of the American Footwear Industries Association and Director of the Hide Action Program, said last October that the agreement with Argentina can be “a much needed precedent and a significant step toward greater liberalization of international trade in the hide sector.” Mr. Eugene Kilik, President of the Tanners' Council of America, made a similar observation last October when he described the U.S.-Argentine Agreement on Hides as “a first step toward reversing a trend of protectionism in the international trade of hides and . and gives the U.S. tanning industry a fairer chance to compete for world supplies. You may be wondering what relevance these new trade agreements have to the question of overriding the President's decision not to place additional restrictions on imports of leather wearing apparel. The fact is, the President's decision not to place additional restrictions on imports of leather wearing apparel is essential to the maintenance of the hide agreements. Furthermore, that decision is consistent with our efforts to liberalize world trade in hides. If we were to impose additional restrictions on leather wearing apparel, we would, in effect, be saying to Argentina, Brazil, and Uruguay that we intend to apply a double standard on this matter of trade policy. We will be saying that, on the one hand, we expect them to eliminate the protection they provide their leather apparel industry, while, on the other, we will take action to protect our industry. I submit that we cannot have it both ways. These countries have every reason to expect that we will avoid imposing additional restrictions on our imports of manufactured leather products. Although we are not specifically prohibited under these agreements from imposing such restrictions, a decision to do so could force these governments to reconsider their willingness to liberalize their exports of hides to the United States. In short, by imposing additional restrictions on our imports of leather wearing apparel, we would run the very real risk that one or more of the countries with which we have hide agreements will resume the protectionist practices. Finally, in the consideration of this case, questions have been raised about the administration's handling of import relief cases in general. Some people have argued that very little relief has been given to American industry under this program. This is not so. Over the past four years, the ITC has reported on 27 cases. Of those, the ITC recommended relief in only 16 of the cases. When the President, reviewed these cases, he provided relief in 8 of them. Both large and small industries have been helped. They are: footwear, TVS, high-carbon ferrochrome, clothespins, industrial fasteners, non-electric cookware, CB radios, and sugar. Some people have argued that the President should have taken the advice of the ITC in most, if not all, of the cases sent to him. This view, however, does not i. the different statutory responsibilities of the ITC and the President in these cases.

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The Congress gave the ITC the job of determining if an industry was injured, if that injury was subtantially caused by increased imports, and, if so, what relief was necessary to remedy the injury.

In charging the President with the responsibility for administering the relief program, Congress required the President to take a much broader view of the issue and to weigh the national economic interest in providing relief. How much would relief cost consumers? How much harm would be likely to other industries if other countries retaliated against our exports? How much damage might be done to other U.S. international economic interests by providing relief. These factors must be looked at along with the economic and social costs to taxpayers, communities and workers if relief is not provided.

Balancing all of these costs and benefits to the country is the President's job, and it is an agonizing one since it means weighing very specific jobs and human suffering against inflation and the economic well being of the country as a whole. These hard choices have resulted in the President's decision not to provide relief in half the cases the ITC has sent to him.

In conclusion, let me say that in the present case, leather wearing apparel, we believe that the circumstances have not changed significantly since the President's decision in March. Although this industry continues to be impacted, we still believe that the inflationary costs and ineffectiveness of relief make it inappropriate for this industry.

Mr. VANIK. It is the intention of the subcommittee to proceed with completion of the public hearing on House Concurrent Resolution 383 right on through the lunch period, and then to commence the hearing on the tariff and trade bills at 2 o'clock.

I will give those who are sitting here waiting for those bills a chance to get lunch.

My question is this: In calculating the cost of providing relief, did you calculate the taxes that would be paid by keeping these workers employed as compared with the loss of taxes if they become unemployed?

Did you calculate cost of unemployment under the Trade Adjustment Assistance Act and the welfare benefits?

Did you calculate the deflationary effect that the impact of the increased tariff would have, as a result of providing relief?

Ms. HUGHES. I would like to ask Mr. Bennett to answer that question.

Mr. BENNETT. Mr. Chairman, we used the standard consumer cost model that is used by the Council of Economic Advisers in these instances. I am not that familiar with that model so I don't know if the model itself includes this type of estimates.

In terms of the specific assumption we put into that model for the leather apparel industry, they did not include estimates on trade adjustment assistance benefits, unemployment benefits or potential inflationary repercussions of granting relief.

Mr. VANIK. Do you or do you not believe these items should be included? They are very, very important factors. I have been very disturbed with the model. I expressed my concern about the model when we talked about automobile trade impact and I think that the model to be realistic should assume and undertake to include all factors that contribute to the cost to the Government which reflects itself down to the consumer cost.

Mr. BENNETT. My initial reaction is that I certainly agree with that. However, I would prefer not to give a specific response on that because, as you know, that model was designed by an informal Government and congressional committee.

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Mr. VANIK. I thought you said the model was designed by the Council of Economic Advisers. What congressional impact is there in that model?

Mr. BENNETT. It is my understanding that there was an informal working group of people from CEA and also congressional committees.

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Mr. VANIK. It did include congressional input but at that time the congressional representatives wanted these items included and felt they should be a part of the criteria. We are having a tremendously difficult time getting Congress to adequately support adjustment assistance. I think we are near the peril point in how much support the Congress will be willing to provide, particularly with budgetary restraints imposed by the Executive. I see no way, no logical way that we can disregard these very, very critical items. As far as I am concerned, the criteria which you use is fatally defective. Mr. BENNETT. Once again I don't feel I am in a position to comment on that model. I do know that the industry sector has been very displeased with the way the model has been used and the result it put out in a number of escape clause cases. There have been other instances where the industry has been pleased. It depends on which side the bread is being buttered. Mr. VANIK. We ought to have a clear-cut formula by which we measure the impact. Mr. BENNETT. I would agree with that, adding in the specific industries characteristics as called for in each specific case. Mr. VANIK. Do you have any comment on it, Ms. Hughes? How do you feel about the model that is used here? Ms. HUGHES. I think the factors you mentioned need to be taken into account. Mr. VANIK. Now what assurance have we that they are going to be included as factors in any other future cases? Ms. HUGHES. I think what we are saying is that we agree with you and we will endeavor to put them into our consideration of other cases. Mr. VANIK. You have authority to put them in in this case, don't you? Ms. HUGHES. Yes, we do. Mr. VANIK. if you agree with us why didn't you use it in this case and start using your own criteria, which might strengthen the recommendation that you make, if you recognize what we here have advocated and recommended as elements of a criteria? Ms. HUGHES. I think we made an attempt in our interagency review to try to factor in those costs which you mentioned, not in the model that the CEA used but in our other analyses. I think a more systematic way of doing it is called for. Mr. VANIK. Mr. Gibbons. Mr. GIBBons. Ms. Hughes, first of all we welcome you back. I realize you have been before this committee before in the past in different roles. I know your background and expertise. What can you tell the committee about recent trends in the importation of leather products that we are talking about here today? Have there been any changes in this area recently?

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Ms. HUGHES. Yes. Since the peak in 1978 imports have declined every year and every month. The market has simply fallen off. People are not demanding leather jackets and leather coats. So there has been a significant decline. Mr. GIBBons. This has come about primarily since the recommendation of the ITC. Is that right? Ms. HUGHEs. It began in 1979 before the ITC report was sent to the President. The report was sent in January of this year. Even during the investigation imports were declining. Mr. Gibbons. They have continued to decline since then? Ms. HUGHEs. Yes, they have continued to decline. In fact, indications from importers and retailers that we have talked to are that the imports are declining even more, at a greater rate now. Mr. GIBBons. You know, I sometimes get all concerned. We have been trying to get people to increase their exports of hides and we export hides. Why are we trying to get other people to increase their exports of hides if we export hides? Ms. HUGHES. We think we are very competitive in the world market on hides. However, we are one of the few countries that has an open market. Other countries, when prices rise, tend to protect their domestic processing industry by keeping their hides at home. Mr. GIBBoNs. Doesn't that drive up the price of our hides more? Ms. HUGHES. It does. Mr. GIBBons. I would assume that makes the farmer happy and the fellow that skins the hide happy. Why are we trying to generate competition for them? Ms. HUGHES. We want to keep the price at a reasonable level for our own processors. Mr. Gibbons. We are trying to protect our processors by getting other people to export their hides more readily, is that it? Ms. HUGHES. We are trying to keep the price at a more reasonable level than it has been in the past. We are trying to spread the burden, as it were, among all the cattle producing countries. We think it is unfair for them to protect their domestic processing industry— Mr. GIBBons. Is there any other industry where we go around the world encouraging people to export because it keeps our own domestic prices for manufacturers down and penalizes our agricultural producers? Ms. HUGHES. I am not aware of any other. Mr. Gibbons. The leather fabricating industry is already getting Forential treatment in the United States. Am I incorrect in that: Ms. HUGHES. What is happening is that we are trying to promote free trade in the hide market throughout the entire world. I don't think that you can look upon that as preferential treatment. Mr. GIBBons. We don't go around trying to get people to export more automobiles, do we, or export more airplanes or export more pharmaceuticals? We just go around trying to get them to export more hides. It seems to me that we have a blatant case here of preferential treatment to the American leather fabricators. Mr. SHANNoN. Will you yield? Mr. Gibbons. I will be glad to yield.

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