Mr. SHANNON. In fact, aren't we saying to the other countries that have embargoes on exports of cattle hides that we are treating your embargo the same way we treat any domestic subsidy of an industry?

We are saying to Brazil and Argentina what you are doing with this policy is subsidizing your industry, and we are going to face it that way.

Ms. HUGHES. We are saying that they are protecting their domestic processing industry, which is the reverse of us.

Mr. SHANNON. There are plenty of situations where we respond to domestic subsidies-

Mr. GIBBONS. Every developing country that I know of tries to get more value added to their raw material and I guess hides is a raw material, or semiprocessed raw material, but every country, including our own, tries to get greater value added to their own raw material.

You know, I realize hides are unique. It looks like to me we already have a case of our Government going out and trying to suppress the price that a farmer can get for his cow and slaughterer can get for the hide, and yet that is not enough to pacify the people who are fabricating leather products in this country. I don't want to state it unfairly, but I don't know of any other industry that we do the same thing for, any other processor, any other raw material. Is there any other raw material where we go around and try to get other people to export more in order to keep our domestic prices more in line?

Ms. HUGHES. I think this is a unique industry.

Mr. GIBBONS. It sure sounds this way.

They should be happy at the unique treatment they have received.

Mr. FRENZEL. Mr. Chairman, I want to proceed on the question of compensation. Whenever we raise a duty rate in this country and force exporters from other countries to pay a higher rate of duty we are obliged under our international treaties to provide some sort of compensation to those countries, should they request it.

I suppose that maybe we have to give more coal or TV quotas to the Taiwanese or Asians or maybe we should let them ship more automobiles into this country at a lower rate. What are some of the forms of compensation that are likely to be requested and are they not likely to be worse than what we are trying to cure here and, finally, how much compensation are we talking about?

Ms. HUGHES. We are talking about imports running now at about $230 to $240 million a year. The compensation would be calculated on the basis of trade damage. We don't know how many sales would be lost if we raised the tariff rate. This would be a question that you would negotiate internationally.

Where you have a declining market generally it would be very likely that our negotiators would be arguing fiercely that the imports were not being damaged as greatly as they otherwise would be if you had a rising market?

Mr. FRENZEL. On the other hand, we have to give some compensation or get involved in a chicken war.

Ms. HUGHES. We are likely to be faced with demands for compensation. If we can't reach agreement on them they will retaliate against us.

Mr. FRENZEL. Which is likely to trigger an international problem.

Ms. HUGHES. Yes. And the items that are typically chosen for retaliation are your best export items.

Mr. FRENZEL. Does the gentleman with you want to comment? Mr. BENNETT. Yes, Congressman Frenzel, based on the estimates of the model we made two assumptions: One, there would be no markup at all on the increased tariff. That assumption followed, there would be approximately a decrease of $115 to $120 million worth of imports based on 1979 import levels.

The other assumption is that if there were 100 percent markup on the added cost to the imported item, then there would be a decrease in imports based upon 1979 import levels of approximately $238 million to $240 million. So your compensation levels would run in that range.

Mr. FRENZEL. That is a fair amount of trade, is it not?

Mr. BENNETT. Yes, sir.

Mr. FRENZEL. It seems to me that is a rather dangerous relief

measure.

May I also go back to your testimony on the subject of the innovative styling. Am I to understand from your testimony that much of the competitive inroad or the capture of the U.S. market by foreign garments is the result of styling rather than head-tohead competition in plain leather coats?

Ms. HUGHES. There has been some head-to-head competition in the plain leather coat market, but the bulk of the imports has been in more stylish items.

Mr. FRENZEL. Is that also true in this period of declining imports? What imports we are getting are more likely to be the highly stylized materials which domestic producers have not as yet furnished in very great amount?

Mr. BENNETT. Yes, we estimate that that would seem to be the

case.

Mr. FRENZEL. Thank you very much.

I yield back the balance of my time.
Mr. GIBBONS. Mr. Shannon.

Mr. SHANNON. Thank you, Mr. Chairman.

Let me say at the outset that I don't think anybody who has been involved with this issue-on the side I have been on-wanted to see those agreements with Argentina and Brazil as the preferential action that the administration would take. What we wanted to see is the United States playing by the same set of rules that the other countries are playing by, and have export controls on cattle hides.

I really question what the long-term effect of those agreements is going to be.

I would like to talk a little bit about the United States-Argentina agreement. It is my understanding that under the terms of the United States-Argentina cattle hide agreement the Argentines reserve the right to terminate the agreement if the United States

restricts imports of leather apparel as a result of the ITC petition. Did we agree to that clause?

Ms. HUGHES. Yes, we did.

Mr. SHANNON. Now, the Argentines maintain a 40-percent tariff on imports of leather apparel. Isn't that true?

Mr. GIBBONS. While the gentleman is searching his files, I would point out that the Argentine economy is a model for nothing but chaos. I don't know any country in the world that has a higher inflation rate than Argentina. I was traveling down there at a time the inflation rate was going up so fast they had to keep it moving up in electronic symbols. They couldn't keep up with it with chalk on the board. They had to put it on a computer, it was going up so fast, and it has ever since.

Ms. HUGHES. Mr. Shannon, I don't have that specific information but it is certainly true that a number of lesser developed countries, particularly cattle producing countries, do maintain very high restrictions against imported leather products.

Mr. SHANNON. The information I have, and I hope you will check it out, is that it is a 40-percent tariff. What is our tariff? Ms. HUGHES. Our current tariff is 6 percent.

Mr. SHANNON. Theirs is 40, ours is 6.

Did the Argentines agree to lift all of their embargo on cattle hides?

Ms. HUGHES. They converted their embargo to an export tax. Mr. SHANNON. Which will have the effect of being a partial embargo.

Ms. HUGHES. They agreed to phase it out over a period of time. The schedule that we previously negotiated with them would call for them to have a tax of 15 percent at this time.

Mr. SHANNON. Which would have the same impact as being a partial embargo.

Ms. HUGHES. Yes.

Mr. SHANNON. They have a 40-percent import tariff on leather apparel. They have a partial embargo on cattle hides. We have no embargo on cattle hides and 6-percent import fee on leather apparel, and that is our agreement?

Ms. HUGHES. The Argentines have agreed to phase out their export tax on hides entirely.

Mr. SHANNON. Aren't they in fact going to keep to that schedule? Ms. HUGHES. They have told us that they will resume that schedule.

Mr. SHANNON. They will resume it?

Ms. HUGHES. As I indicated in my testimony, the Argentines were concerned that when Brazil converted their export embargo they replaced it with an export tax of 36 percent. The Argentine tax is 20 percent. Argentina felt that this would cause a flow of hides into Brazil and not a reverse flow into Argentina.

Mr. SHANNON. In fact, did they live up to that agreement?
Ms. HUGHES. No. They held back on one of the cuts.

Mr. SHANNON. After making the agreement they didn't live up to it, is that correct?

Ms. HUGHES. We agreed that we would continue to negotiate with Brazil, which we did. We now have an agreement with Brazil which both governments are considering now for approval which

calls for Brazil to reduce their export tax from 36 percent to 18 percent.

Argentina has told us on that basis they are prepared to resume the reduction of export tax.

Mr. SHANNON. So the Argentines might or might not live up to this agreement depending on what Brazil does?

Ms. HUGHES. We have reached such an agreement that would make it possible for them to live up to it.

Mr. SHANNON. The Argentines are concerned about the Brazilians. The Brazilians are concerned about the Argentines. I don't know what we are going to do to change that. What we have done, it seems to me, is that we have said to them, you can have your 40 percent import tariff on leather apparel. You don't have to lift completely immediately all of your embargo on cattle hides. We are just going to have a 6 percent import tariff on leather apparel and completely free exporting of cattle hides, and that is our agreement with the Argentines.

That does not seem like much of an agreement to me. Who negotiated this?

Ms. HUGHES. Our office negotiated the agreement. We think it will provide an easing of the international hide market problem that we have had in the past. We think that when we go through another cattle cycle and the price of hides goes up that it won't go up as high as it otherwise would have. There will be a sharing of this burden among cattle producing countries. We think ultimately this is going to work to the benefit of industries such as the shoe industry and our American tanning industry.

Mr. SHANNON. We think ultimately the leather apparel industry in this country can work out its problems, too. What we are afraid of is the short term which is why we believe that the ITC decision was the correct decision. It needed 3 years to straighten things out. Unless we take this action I have real concern that we are not going to see our leather apparel industry in this country survive. Last year when we had the amendment pending before the House of Representatives the administration lobbied extensively against that amendment and came to us and said it was going to negotiate these agreements with Argentina and Brazil.

More than a year later we still have not seen any benefit from these agreements. We have questions as to whether or not the Argentines are going to live up to those agreements. They have suspended them already. We have serious concern about the administration's commitment to solve this problem.

The ITC came down with a decision that I believe was an equitable decision, and the President overruled that decision and instead offered us expedited adjustment assistance, which is a euphemism for a policy of disinvestment. I don't think that that is enough, I don't think you have addressed this problem fully and I don't think that the administration has shown any sensitivity to the problems of this industry.

What you are trying to do is have it both ways. You are trying to say to the industry that you are doing something when in fact you are not. You are trying to put it off by saying you will negotiate agreements which never work out the way you say they are going to, and this industrty will never survive if we continue this way.

Mr. GIBBONS. Mr. Moore.

Mr. MOORE. Thank you, Mr. Chairman.

Ms. Hughes, on page 2 of your testimony you refer to a finding of the International Trade Commission that if the relief of the International Trade Commission went into effect it would create 4,160 new jobs. I have not read all the International Trade Commission's report.

Are we talking about this relief as the creation of new jobs in the garment industry, or are we talking about protecting or preventing the loss of existing jobs?

Ms. HUGHES. This would have been new jobs over those existing at the time of the Commission's finding.

Mr. MOORE. Then the protection that is being sought here for the garment industry is not to protect existing jobs but is to create new ones?

The industry employment has been declining over the years. So it would be in effect a restoration of a previous level of employ

ment.

Mr. MOORE. The point I am trying to get through is that normally when people come in and ask for protection they are trying to protect an industry from further decline, from unfair competition overseas, or whatever. That is why I was a bit startled by the nomenclature of these jobs as new jobs.

Was the decline of this industry in the past due to the importation of leather goods? Are we talking about the opportunity of protecting domestic production of leather goods, or the increase in the work force in the garment industry that has been lost in that industry?

I am trying to get the basis of what we are talking about. Mr. BENNETT. Mr. Moore, those are new jobs, as Ms. Hughes stated above, and beyond those existing. To respond to your question-are these bringing back jobs that had been eroding over time-we do have an industry analyst from the Commerce Department sitting behind us if you would like to discuss the erosion of the industry over time, which has been the case.

Mr. MOORE. What are we doing here? Why is the protection being sought? Is it being sought so that this industry can grow in size or are we talking about protecting it from competition that is destroying it?

Ms. HUGHES. The industry petitioned ITC to remedy injury that had been done over the preceding 2 years.

Mr. MOORE. In the leather industry?

Ms. HUGHES. In the leather wearing apparel industry. So the industry was seeking a restoration of jobs over this immediately preceding period of erosion.

Mr. MOORE. If this remedy were not granted, you would not have 4,160 new jobs, what further erosion would there be? What further erosion in existing jobs would be lost?

Ms. HUGHES. We were unable to make a specific calculation on that because it depends on market conditions and any number of competitive situations, but our feeling is that there are some very strong firms left in the industry and that they will survive and they will prosper.

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