April 11, 1974
Page 10891
U.S. SHOE INDUSTRY
Mr. MUSKIE. Mr. President, Robert Lockridge, chairman of the Footwear Industry Emergency Committee on Trade Policy, and Mark Richardson, president of the American Footwear Industries Association, testified recently before the Finance Committee on H.R. 10710, the Trade Reform Act of 1973. Their testimony cogently outlined many of the problems facing the American shoe industry today.
They painted a picture of an industry already crippled by an increasing flood of imports, but unable to obtain relief through existing laws and procedures. Five years ago, net imports – imports less exports – of nonrubber footwear totaled 175 million pairs valued at $330 million. In 1970, net imports totaled 240 million pairs valued at $560 million. And by 1973, net imports had increased to 316 million pairs valued at close to $1 billion.
If this situation continues, this country will surely some day lose its shoe industry. Each year, executives of the shoe industry come to Washington and tell the executive that "no major industry in this country is suffering from import penetration of the magnitude endured by the nonrubber footwear industry." Each year, the executive listens politely, suggests they will help, and in fact, does nothing.
The only results of Government help the shoe industry is able to see are the closing of plants; the burgeoning loss of jobs; the reduction of profits, now among the lowest for any major industry in the United States at 1.9 percent of total sales; and the loss to the United States of roughly $1 billion in balance of payments terms.
In other countries – Brazil, Argentina, Korea, Spain, to name only a few – Government help to the shoe industry takes the form of subsidies, rather than inactivity. To try to remedy this situation in 1969, I introduced the Orderly Marketing Act for Shoes, designed to allow shoe manufacturers to gain their fair share of the U.S. market. Last year, I introduced legislation to control the export of cattle hides. And most recently, I appealed to the President to seek an international agreement which would set up procedures for the international surveillance of shoes and leather products similar to the one that recently became effective with respect to textile and apparel trade.
All I have received from the administration are assurances that these measures will get "prompt attention" or are "under consideration." But an industry which has already suffered severe injury from import competition – while other industries enjoy the ear and the aid of the administration – needs more than promises. If the Executive will not act to help this industry, then Congress must.
Mr. President, as evidence of the industry's critical need, I ask unanimous consent that excerpts from Mr. Lockridge's testimony on the Trade Reform Act of 1973 be printed in the RECORD at this point.
There being no objection, the testimony was ordered to be printed in the RECORD, as follows:
TESTIMONY OF ROBERT S. LOCKRIDGE
Our association represents the manufacturers of 95% of the leather and vinyl footwear produced in the United States and, through our associate members, about 85% of all the suppliers to the footwear industry. There are approximately 500 companies with about 800 plants in our industry – numbers which have been declining over the last several years – located in 40 states. The industry now employs about 200,000 workers directly in its manufacturing operations – again a number which has been declining over the last several years. There are about 100,000 workers in allied supporting industries. A great many of our plants are located in the smaller communities of our country where the shoe manufacturer often is the major or sole employer.
The message we bring before the Committee today is a simple one. It is the same that we brought to the House Ways and Means Committee. The American footwear industry is suffering drastic injury because of continuing disruptive imports which have caused reduced production, the closing of plants, loss of jobs, and approximately a $1 billion net trade deficit for the United States. In every category through which the health of a particular industry is measured, an examination of the facts reveals a story that is tragic to an important industry such as ours and revealing as to the failure of the Administration to act within its professed trade policy and in keeping with existing laws. Imports are eroding our ability to continue as a viable industry. The remedy we seek lies in action by Congress, and now specifically by the Senate, because the Executive Branch has not provided our industry with warranted and needed import relief through mechanisms already at its disposal despite the serious injury caused by disruptive imports.
CURRENT SITUATION
Import Penetration is Growing. In 1960, the import penetration ratio for nonrubber footwear was less than 5%. As early as 1960 our association pointed out the trend of imports. By 1968, when we first appeared before Congress asking for relief from imports it had reached 22%; in 1970 when a trade bill was again considered by Congress it had risen to 30%. And in 1973, when Congress began its consideration of H.R. 10710, import penetration of the domestic market had risen to 40%. Unfortunately our analyses had proven correct again. The import penetration for women's and misses' nonrubber footwear, which accounts for better than half of our total production, was 51 % of the total market last year.
No other major industry in the U.S. suffers from an import penetration of this magnitude. The effects on the economy in general and on the nonrubber footwear industry in particular of this massive degree of import penetration are devastating.
Trade Balance is Deteriorating. Whether or not one is concerned about the state of health of our industry, one should certainly be concerned over the effect of burgeoning imports on the nation's balance of payments. Five years ago net imports (imports less exports) of nonrubber footwear totaled 175 million pairs valued at $330 million.
When we appeared before Congress last. in 1970, net imports totaled 240 million pairs valued at $560 million. By 1973, net imports had jumped to 316 million pairs valued at just under $1 billion.
Last year's experience represented an unbroken continuation of higher and higher imports. The import growth in 1973 over 1972 was 6.4 % in terms of pairs and 16.9 % In terms of value. At the same time the other two domestic industries with massive import penetration – iron and steel and textiles and apparel – enjoyed a noticeable reduction in imports last year over 1972.
All Industry Indicators Are Down. The effects of imports of this magnitude upon our industry cannot be disregarded in any consideration of trade legislation.
Production is down;
Employment is down;
Number of plants is down; and
Profits are down.
The only thing that is up in the industry is its problems. Imports have cost our workers over 43,000 jobs since 1960, and total direct employment has now dipped below 200,000. In 1973, we lost an additional 3 % of our work force. While all manufacturing has enjoyed a better than 10% gain in employment since 1960, employment in the domestic footwear industry has dropped by more than 15%. Fewer jobs mean fewer plants. Data recently released by the U.S. Department of Commerce reveal that the number of nonrubber footwear manufacturers dropped 35% between 1967 and 1972 – from 799 to 525. The number of plants also fell sharply from 1,083 to 813 during this period.
As a result, domestic production in 1973 fell to 488 million pairs, the lowest level of domestic production in more than 20 years, and 7% below the 1972 level, and 150 million pairs below production only five years earlier.
I also wish to point out to the Committee at this time that the nonrubber footwear industry shares the "distinction" with the apparel industry of having the lowest profit per dollar of sales of any major manufacturing industries in the U.S.
CAUSES OF STRONG IMPORT PENETRATION
There are basically three main reasons why imports account for an increasingly high percentage of domestic consumption each year. They are (1) the substantially lower wages paid workers in the footwear industries of exporting countries; (2) high tariff levels and other import restrictions maintained by many importing countries; and (3) subsidies extended by many foreign governments to assist their footwear industries in exporting.
Labor Costs Are Substantially Lower Abroad. Most foreign manufacturers pay wage rates that would be illegal in the United States, generally less than 50% of the U.S. wage level. There are few prohibitions on child labor abroad. There are even fewer concerns for environmental or occupational health and safety standards. In an industry as highly labor intensive as ours, where labor input represents 20-45% of manufacturing cost, these lower labor costs oversees more than offset the higher productivity of the US. industry compared with that of our foreign competitors. For 1972, estimated average hourly earnings, including fringe benefits, were as follows:
[Table omitted]
Other Markets Restrict Imports To Our Detriment. Other importing countries do not permit imports as freely as does the United States. Countries which are major exporters to us are even more restrictive in what they will allow to be imported. The high tariff and non-tariff barriers maintained by other countries act to funnel into the relatively open, low-tariff U.S. market footwear that would otherwise go to other markets. The Department of Commerce released on March 15, 1974, a survey of tariff and trade regulations of selected countries in the field of nonrubber footwear. The survey shows that the average U.S. import duty is 10% ad valorem on leather footwear and 6% on vinyl footwear. On the other hand, Argentina, India, Korea, and Turkey do not permit footwear imports. Brazil maintains import duties of 70% to 120% and Taiwan has duties of 59% to 130%. Japan has an import duty ranging from 27% to 30% for most nonrubber footwear imports and maintains import quotas. The Common External Tariff of the European Economic Community ranges from 7% to 20% plus a value added tax that ranges from 5.2% in the case of Ireland to 20% in the case of France. Spain maintains import duties ranging from 8% to 35% plus a compensatory import tax of 10%.
Many Countries Subsidize Their Exports To Us. So devastating to our industry are the subsidies paid by several foreign governments to assist and encourage their footwear industries to export to the U.S. The Argentine Government provides cash reimbursements of up to 30% of the f.o.b. value of exported shoes, grants low-interest loans for up to 80% of the value of exports, reduces the taxable income of exporters, and provides other tax incentives. The Brazilian Government exempts producers of footwear (and other industrial products) from various indirect taxes including exemption from taxes on imports of capital goods designed to expand export capacity, and also provides low interest credits for exporters. The Spanish Government pays export bounties not simply as a credit against taxes but as cash remissions for export sales. In addition, the Spanish Government guarantees loans to local manufacturers equaling 20% of the export dollar value of the preceding year at interest rates significantly lower than prevailing commercial rates for similar purposes. Other countries, including Korea and some of the European Common Market countries, also offer subsidies to their footwear industries.
The American Footwear Industries Association is unfortunately well aware of the footwear subsidization practices of foreign governments. Our industry feels the full impact of this unfair competition in the domestic market. It has filed two petitions under the countervailing duty statutes with the Treasury Department documenting in detail the practices of the Spanish Government (filed in February 1973, 14 months ago) and the Brazilian and Argentine Governments (filed in July 1973, 9 months ago). Yet it was only on March 8, 1974 that the Treasury Department announced that it had instituted an investigation on Brazilian footwear, other than rubber. No action has been taken to date on our petition with regard to Spain or Argentina. It is essential that action be taken expeditiously and affirmatively in the Brazilian case, and that investigations be instituted in the Spanish and Argentine cases.
All of this translates into the fact that, with a relatively small duty today on imports of footwear, other than rubber, the differential between landed costs of imports and domestic average factory value is significant. In the case of leather footwear from Italy, it would require an additional duty of 31% to equalize domestic and import values. In the case of Spain, the differential is 25%, also for leather footwear. For Brazil, it is 63%. For Argentina, it is 31%. For Romania, without MFN status, it is 112 %. In the case of Taiwan, for vinyl footwear, which represents 95 % of the total value of nonrubber footwear shipments from Taiwan to the United States, the differential is 240%.
These differentials point up the danger to our industry of extending generalized tariff preferences to footwear. We are pleased that the President said in his message to the Congress of April 10, 1973 transmitting the Administration's trade proposals that it would be the "intention to exclude certain import-sensitive products such as ... footwear ..." We feel that if Congress should accept the idea of generalized tariff preferences (Title V of H.R. 10710), footwear should be excluded from its provisions in the statute itself.
We are concerned about growing imports of nonrubber footwear from the developing countries because they are today the fastest growing foreign sources of nonrubber footwear in our market. Taiwan has replaced Italy as the leading supplier of footwear, other than rubber, to the U.S. market – l12 million pairs in 1973, 35% of total nonrubber footwear imports. Keep in mind Taiwan's hourly wage rate is $0.21 – the U.S. $3.22, or 15 times as great.
Brazil and Argentina are also cases in point. In 1973, the U.S. imported almost 20 million pairs of nonrubber footwear from Brazil, an increase of 65% above the 1972 level. Imports from Argentina jumped from less than 500,000 pairs in 1972 to almost 4 million pairs a year later – an increase of 733%. Greece, Mexico, and Romania have all registered similar impressive advances. The latter, despite the fact that it does not enjoy MFN status, increased its exports to us from 1 million pairs in 1972 to 2.5 million pairs in 1973, an increase of 131%. We are pleased that the Treasury Department finally initiated an anti-dumping investigation on welt work shoes from Romania on March 15, 1974. The American footwear industry first called the Treasury Department's attention to the dumping of Romanian work shoes in 1968.
ADMINISTRATION INACTION AND CONGRESSIONAL REMEDY
The problems faced by our industry from imports have been with us for some time. They did not arise to injure our industry for the first time in 1973 or in 1974. What is happening is that unrestrained, growing disruptive imports are weakening our industry's position by what appears to be a deliberate policy of the Administration ignoring its professed trade policy and the requirements of existing law that action be taken on a timely basis.
We have tried to work through the established procedure of the Trade Expansion Act of 1962, namely, the escape clause. We had great hopes and expectations when in July 1970, as the Congress was considering trade legislation, President Nixon requested the Tariff Commission to launch an escape clause investigation on nonrubber footwear. Six months later to the day (January 15, 1971), the Tariff Commission submitted to the President its report with an evenly-divided decision. Even the two Commissioners who voted in the negative did so because they did not feel that injury resulted in major part from tariff concessions, not because they felt there was no injury to our industry from imports.
It has been over three years since that Tariff Commission report was submitted to President Nixon. Yet to date the President has taken no action in the case – either affirmatively or negatively. As the Committee members know, under split Tariff Commission decisions in escape clause cases, the President can join either with the Commissioners' finding affirmatively or with those expressing a negative judgment. The promise which the escape clause investigation held for our industry has been shattered by the failure of the Administration to act on this issue. We have seen how imports have continued to mount while jobs have been lost and production has fallen since the Tariff Commission's report was filed. That is why we are appealing to the Congress for help. What we are asking for is well within the scope of your powers. The key question you must face is how much import disruption, how much import penetration of the domestic market, how much loss of capacity and jobs, how much declining production, must an industry endure before action is taken to restrain imports. This question poses serious concerns not only for the nonrubber footwear industry but also for others who may some day be in a position similar to the one we are in today.
For these reasons, our industry supports legislation such as that introduced by Representative Richard Fulton in the House (H.R. 8518), the Footwear Articles Import Relief Trade Act. We hope that the Senate would consider similar legislative language. This realistic and reasonable approach to the import problem faced by our industry would use calendar years 1970 through 1972 as the base period for establishing import quotas. At the same time, there would be provision for the automatic suspension of such quotas if international agreements are entered into to provide for restraints on exports to the United States of nonrubber footwear. The President
would be authorized to increase imports where he finds that the supply of such footwear is inadequate to meet domestic demand at reasonable prices. This approach also would provide for exemption by the President from quota restrictions when he determines that such exemptions will not disrupt the domestic market.
Such legislation would be fair to producers, workers, and consumers. Consumers would be fully protected by the authority given to the President to exempt nondisruptive imports from quota controls and by allowing him to increase quotas if he should find that the supply is inadequate to meet the domestic demand at reasonable prices. At the same time, the significant erosion of the U.S. market from imports which has been so detrimental to the health of our industry would be halted.
THE TRADE REFORM ACT WILL NOT HELP US
In appealing to Congress for legislation to help our industry – either as part of the trade bill or as separate legislation – we feel strongly that the Trade Reform Act will not assist our industry any more than did the Trade Expansion Act. We find serious problems with the Trade Reform Act as passed by the House.
CONCLUSION
The conclusion our industry has reached is that we cannot support the trade bill currently before you. We take this position not only because of the serious weaknesses which we find in the bill itself, but also because, as it now stands, the bill provides no import relief for the American footwear industry.
In summary, we recommend the following to you:
1. We must have specific legislation to deal with the problems of the footwear industry because the record of the Administration in meeting problems of disruptive import competition faced by our industry gives us no confidence that now, or in the future, under the existing trade legislation or under H.R. 10710, there will be any Executive Branch solution to this problem.
2. The trade bill before you should be modified in several respects.
Industries such as ours which suffer from substantial import penetration should be specifically exempted from trade negotiations.
The escape clause should include a trigger mechanism that would assure relief when imports reached certain levels of penetration of the domestic market.
The factors which the President must take into consideration in escape clause cases before reaching a decision run counter to providing relief and should be deleted.
In countervailing duty cases, there should be a six-month limit as the total time which Treasury may take to make a decision beginning with the date of filing a complaint.
In anti-dumping cases, American manufacturers should be given the right to appear in hearings without having to show good cause.
The provisions for a generalized system of preference should specifically exempt industries, such as ours, which are experiencing disruptive import competition.
Effective action must be taken now to help our industry. Our future, in part, is in your hands. We ask only for fair play so that we can compete on a basis which makes it economically justifiable to remain in business.