AUGUST 2, 1962

PAGE 15506

THE TRADE EXPANSION ACT OF 1962 -- AMENDMENT

Mr. MUSKIE. Mr. President, I submit, for appropriate reference, an amendment to H.R. 11970, the Trade Expansion Act of 1962. I do so on behalf of myself, the distinguished Senator from Alaska [Mr. BARTLETT], the distinguished Senator from New Mexico [Mr. CHAVEZ], the distinguished Senators from New Hampshire [Mr. COTTON and Mr. MURPHY], the distinguished Senator from Connecticut [Mr. DODD], the distinguished Senators from Rhode Island [Mr. PASTORE and Mr. PELL], and the distinguished Senator from Wisconsin [Mr. WILEY].

I ask unanimous consent that this amendment remain at the desk through Friday, August 10, to give other Senators an opportunity to join me in cosponsoring the proposal.

The PRESIDING OFFICER. The amendment will be received, printed, and referred to the Committee on Finance; without objection, the amendment will lie on the desk as requested by the Senator from Maine.

Mr. MUSKIE. Mr. President, I offer this amendment as a constructive effort to provide improved protection for those industries faced with disruptive increases in imports from low-wage industries in foreign countries, without frustrating the basic intent of the trade expansion program. Briefly, my amendment would give the President the authority to negotiate special agreements with low-wage countries to allow such countries an orderly share of our domestic market, without destroying our own industry because of the unfair advantage enjoyed by those foreign industries paying substandard wages. This will carry out the intent of S. 1735, the Orderly Marketing Act, which I introduced last year.

I ask unanimous consent that my amendment may be printed at this point in the RECORD.

There being no objection, the amendment was ordered to be printed in the RECORD, as follows:

[Text of Amendment omitted.]

Mr. MUSKIE. Mr. President, I am not opposed to expanded trade. I come from a State with a rich heritage in foreign trade. I know that our Nation must trade if it is to grow, and we cannot export to other nations unless we buy from them.

But I am not willing to ignore the fact that a number of domestic industries-particularly those requiring large labor inputs-are faced with a tremendous volume of imports from countries which have reached a high level of mechanization, without a corresponding increase in the wages paid to their workers.

The State of Maine, for example, has several kinds of manufacturing enterprises in this category, including shoes and leather footwear, woodworking, and textiles. The cotton textile industry has benefitted from an import agreement negotiated between our country and 19 others at Geneva. The authority for the cotton textile negotiations is found under the Agriculture Act. There is no specific authority for such negotiations in the existing Trade Agreements Act, or in the legislation proposed by the President or as passed by the House of Representatives.

The whole thrust of the proposed trade bill is to expand trade opportunities, particularly between the United States and the Common Market. It assumes that we are talking about roughly comparable, mature industrial economies. It assumes that in such a trade expansion program, desirable as it may be, there are bound to be injuries to certain segments of our own economy. And so, it provides for certain protections, including the escape clause proceedings and adjustment assistance.

Both of these provisions are good, but they do not have a direct or sufficiently immediate relationship to the sudden flood of imports which threaten to engulf certain of our domestic industries.

What these industries need is prompt, and realistic relief. They need breathing space, a time in which to adjust to changing competitive conditions. This would be true in any case, but in the case of those industries where increased efficiency, added capital investment, and improved marketing are not sufficient to overcome the wide differential in wages between domestic and foreign manufacturers, they are entitled to special consideration.

Within our own Nation we have made it illegal to transport goods across State lines when such goods are manufactured under low wages and substandard working conditions. The Treaty of Rome, which formed the foundation for the Common Market, recognized that true free trade between the Common Market countries could not be achieved until the separate nations had reached a certain parity in wages. We cannot enforce Fair Labor Standards Act on other nations, but we can insist on reasonable safeguards for our workers who must compete with workers in other nations receiving abnormally low wages and working under substandard conditions

Today, Mr. President, Mr. Harold Toor, treasurer of the National Shoe Manufacturers Association, testified before the Senate Committee on Finance. He represents an important American industry which has been threatened by imports, and which is feeling the pinch of rapidly expanding imports from low wage countries. Now, frankly, I would not have been surprised if the shoe industry had taken a rigidly protectionist attitude on the trade bill. To their credit, they have not. They have come out for expanded trade, in a rational framework. This amendment is one part of the framework they support. It is a reasonable request, which I hope will receive the favorable action of this body.

Mr. Toor's presentation provides such an excellent outline of the general trade problem confronting such industries, and underscores the need of my amendment so forcefully, I ask unanimous consent that it 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 HAROLD 0. Toor FOR THE U.S. SHOE MANUFACTURING INDUSTRY BEFORE THE SENATE FINANCE COMMITTEE, AUGUST 1, 1962

My name is Harold 0. Toor. I am treasurer of the National Shoe Manufacturers Association, president of the H. 0. Toor Shoe Corp., and chairman of the board of the Freeman Shoe Corp. I am representing the National Shoe Manufacturers Association, the New England Shoe, & Leather Association, and the St. Louis Shoe Manufacturers Association, which together include over 500 manufacturers producing at least 90 percent of all the footwear made in the United States.

INDUSTRY LOCATION AND PLACE IN THE ECONOMY

The leather shoe manufacturing industry is an essential industry whose products were rationed in World War II. 'It is made up of approximately 850 companies with over 1,300 factories in counties represented by 262 congressional districts in 38 States. These factories are in over 650 communities. In many cases, they provide the major economic support of the community. In certain States, for example, such as Maine, New Hampshire, and Massachusetts, shoe manufacturing, according to the three-digit Standard Industrial Classification of Manufacturing for 1959, was the largest manufacturing Industry employer; in Missouri it was the second largest; and in Wisconsin and Pennsylvania it was the 11th.

We generate a payroll in the United States, If we include suppliers of materials, equipment, and machinery, at somewhere between 350,000 and 400,000 employees. In certain cases where our manufacturers' have opened new factories, the community has estimated that a 500-person payroll affects the economic welfare of 1,600 to 2,000 people. On the basis of this assumption, the activities of shoe manufacturing In the United States affect the economic welfare of a million to a million and a half citizens. The shoe industry is vitally Important to hundreds of small communities throughout the Nation.

A HIGHLY COMPETITIVE INDUSTRY

The shoe manufacturing industry is one of the most competitive in the Nation. Concentration in shoe manufacturing in the United States is minimal. The first four companies, according to the Census Bureau, in 1961 produced 23 percent and the first 50 companies, 51.6 percent of total output. In 1939, the first 4 produced 23.3 percent and the top 50 produced 51.3 percent, or about the same as today. The shoe industry remains for the most part in the hands of the small entrepreneur or businessman.

Exit and entry in the shoe manufacturing industry is relatively easy. Buildings and machinery may be leased, and production undertaken with a relatively small amount of capital as compared with the investment required to enter manufacturing industry generally. Conditions in the industry are relatively fluid: Over the last 11 years 603 factories have ceased operation, while around 445 factories have begun shoe manufacturing.

An index of the intensive competition prevailing in shoe manufacturing is provided by the Department of Commerce figures for average factory value of all shoes produced.

The average factory value was only $3.80 per pair in 1961, as compared with $3.44 in 1950. This rather amazing picture is confirmed at retail where over 58 percent of the women's shoes sell at $6 a pair, or below; over 60 percent of all men's shoes at $10, or below; and over 72 percent of all children's shoes at or below $6 a pair.

The intense conflict prevailing in shoe manufacturing is further illustrated by the fact that of the approximately 850 companies in the industry, around a third report losses to the Internal Revenue Service each year. The earnings of the entire industry average about 2 percent on sales, after taxes; the middle 60 percent of the companies, from 0.9 to 2.7 percent.

SHOE MANUFACTURING INDUSTRY RECOGNIZES THE NECESSITY OF TRADE WITH NATIONS

The shoe manufacturing industry of the United States recognizes the necessity of a policy and program of trade expansion as a national objective. We endorsed and supported the proposed Orderly Marketing Act of 1961, under which foreign manufacturers would share in the growth of our domestic market.

We would like to support the proposed trade expansion bill, H.R. 11970. We have grave doubts, however, that we can survive as a healthy industry under this legislation unless there is an Improved safeguard for businesses such as ours which face increasingly severe competition from imports.

RAPID GROWTH OF FOOTWEAR IMPORTS POSES AN INCREASING THREAT TO THE SHOE MANUFACTURING

INDUSTRY

The table below reveals that over the past decade under the Trade Agreements Act our markets have been opened to footwear products of the world and a steady expansion has taken place in imports of footwear.

Since 1960 imports have expanded at an increasingly rapid rate. For the first 6 months of 1962 they have more than doubled. At the present time, Imports are running at the rate of 10.3 percent of U.S. production. If the gain continues for the year, which is likely, imports will exceed 70 million pairs in 1962. If the gain In imports in 1963 is 50 percent, and in 1964 and 1965 only 25 percent, at the end of 1965 we shall be importing over 160 million pairs, or 24.6 percent of an estimated 1965 output of 650 million pairs. In summary, we shall have exported in the first half of the sixties practically all of our potential growth.

IMPORTS THREATEN EMPLOYMENT IN SHOE MANUFACTURING

This flood of imports will have a marked effect on actual and potential employment in shoe manufacturing. It is not surprising that the president of the AFT-CIO mentioned in his presentation before this committee the problems of shoeworkers arising from the great increase in Imports.

On the average each 3,500 production workers in the shoe industry working a 35-40 hour week, 50 weeks a year, produces about 10 million pairs of shoes a year. This output in turn provides employment for another estimated 1,200 workers In the supplying trades. A total of 4,700 workers, therefore, are provided with job opportunities in the manufacture of each 10 million pairs of shoes.

This would mean that in 1961 at least 16,000 employment opportunities were lost in the leather shoe and supplying industries through imports. If imports reach 160 million pairs by the end of 1965, then another 58,000 employment opportunities will have been sacrificed in the leather shoe and supplying industries. The support the shoe and allied payrolls give In hundreds of small communities through the Nation may well mean that directly or indirectly, a total of anywhere from 76,000 to 100,000 additional people may be affected by this trend.

This flood of imports not only reduces employment opportunities for shoe workers, but it forces shoe manufacturers to make arrangements of one type or another In foreign countries to produce shoes or shoe parts. A few manufacturers, thoroughly discouraged by the import flood, are investing in facilities abroad or making other arrangements so that they may import footwear or parts and thus remain competitive. Unless some action is taken to adjust imports to an orderly growth, this movement will grow apace, and we shall see dozens of factories moved from this country to Europe. What will happen to the workers In the small towns of Maine, Pennsylvania, Arkansas, and Missouri? It is the height of sophistry to assume that the adjustment provision of this bill will take care of all these people.

The employment data that I have cited clearly indicate that at present reduced tariff rates, imports of footwear have essentially free entry into the United States. Further encouragement to imports is not needed. There is positive evidence that at existing duty rates -- 5 percent and 10 percent through 20 percent -- the United States has made a substantial contribution to the objective of trade expansion in footwear.

In contrast, our export trade in footwear has not shared in this expansion, principally because of higher costs here but also because of restrictions of one type or another in foreign countries.

SHOE MACHINERY AND MANUFACTURING METHODS SIMILAR THROUGHOUT TRADING NATIONS

The question may be asked: How can foreign shoe manufacturers make such substantial inroads in U.S. markets if the domestic shoe industry is modern, has built at least 80 new plants with over 3 1/2 million square feet of space since 1950, is keenly competitive, alert to changes in markets, and possesses an excess capacity of at least 100 million pairs per year? The answer is clear. Differences between wage rates in the United States and shoe exporting countries are responsible for the growth of imports.

Shoe manufacturing in other countries is similar In character to our own. It is relatively easy to enter and there are hundreds of factories to supply the domestic market as well as foreign demand. Because shoes are a necessity, shoe factories in these countries were among the first to be reconstructed following the war. Many of these plants were rebuilt or modernized, with U.S. aid.' Shoe manufacturing is an assembling operation, and shoe machinery is of a relatively simple nature to assist hand operators in stitching, cutting, trimming, folding, smoothing, and so forth. Machinery and technology are universal, and today no one Industrial country enjoys any substantial advantages over the other in machinery and methods.

At the same time, it should be made clear that in general the productivity of American shoe factories may on the average be as much as 25 percent greater than In factories abroad although the productivity of a few of the larger factories in England, Italy, and Japan may approximate that of American factories producing a comparable type of footwear. Our productivity, however, cannot offset the substantial price advantage which exists today in favor of foreign shoe manufacturers.

WIDE DIFFERENCES IN WAGE RATES ALONE RESPONSIBLE FOR FLOOD OF IMPORTS

Wages in shoe manufacturing abroad range from a half to even a fifth of wages in the United States as the following table will reveal:

Differences in wage rates here and abroad result in such price differences between foreign and domestic footwear that foreign producers may land shoes In this country at prices 15 to 25 percent lower than for equivalent items produced In the United States. In other words, this is the result of lower priced labor in foreign countries competing against higher priced labor in America. While some footwear designs from foreign countries have won for themselves an accepted place in the American shoe market because of design alone, in the great majority of cases foreign footwear has earned its place in the U.S. economy solely because of differences In price. By far the greater part of the imports today are styled in America and made in Europe or Japan for the U.S. market.

It is easy to show in an example how important these differences In prices between foreign and domestic footwear become in the highly competitive footwear industry. About 175 million pairs of women's shoes sell at $2.98, $3.98, $4.98, and $5.98 a pair through the great mass shoe distributors of America. These retailers provide consumers with amazing values in shoes. They are, however, In intensive competition with each other for a greater share of the market. They, as well as shoe manufacturers, face a rising trend of costs. The cost squeeze requires them to search continuously for ways and means to increase mark on in order to widen profit margins. In a $3.98 shoe, for example, as costs Inch up, the retailer is forced to shorten his mark on or move from the $3.98 to the $4.98 bracket. As there is a price elasticity In the demand for footwear, the retailer realizes that a move to a higher bracket may curtail his market or place him at a disadvantage against strong competition, or both.

If, however, he can purchase these shoes abroad wholesale at important savings, then he can maintain his $3.98 bracket and at the same time Increase his mark on to meet heavier expenses. There is every encouragement, therefore, to buying more from lower wage countries to hold the price line and increase mark on. In a few cases, manufacturers of shoes who have been suppliers to large distributive outlets or who own distributive outlets, have been forced to curtail certain domestic production and open up factories abroad, simply because they could not meet Import competition and supply their customers, whether wholesale or retail, with shoes at the right price.

It is clear, too, from these comments why the shoe manufacturing Industry is vitally concerned In maintaining even its present scale of low tariffs. Any reductions, for example, in the present duty of 20 percent on women's cement shoes would inevitably accelerate the growth rate of Imports of these types in the United States from still other countries. Some countries now very easily jump the hurdle of our tariffs. However, as these tariffs become lower, other runners will also be able to jump over them.

SHOE TARIFFS ALREADY THE LOWEST OF ANY TRADING NATION

Shoe tariffs in the United States are the lowest of any important trading country in the world, as the next table will show. In the United States, too, there are no excise taxes or other restrictions which must be taken into consideration In calculating the final level of costs in certain countries.

Source. NSMA, based on customs schedules and report

LITTLE RECIPROCITY IN PAST NEGOTIATIONS

This comparison of tariff schedules of the United states and foreign countries indicates further that there has been little reciprocity in previous trade negotiations. This may have been all very well during the reconstruction stage of European and Japanese industry. It throws the trading picture completely out of balance today when the same technology and equipment are used in foreign countries as in the United States, and these countries have the additional advantage of cheap labor.

In judging the various levels of tariffs and the question of reciprocity, moreover, we must not forget that some of our Common Market friends have not been as generous as our negotiators. They have been discriminating against Japan and under GATT have refused most-favored-nation treatment to Japan because of low wage rates in that country. They do not hesitate to provide protection for their manufacturers against imports from low-wage countries. These Common Market countries recognize what it means to compete with a low-wage country in the world's market.

We believe at this stage of world industrial development that the United States must insist in its negotiations on real reciprocity. Business Week has commented on this point as follows: "It is essential, however, that we treat this matter from the start on a business basis. The postwar period of European weakness is over. We are now dealing with commercial equals from whom we have every right to expect a quid pro quo-if not some credit for one-sided concessions we have made In the past. Our new trade policy should be shaped-and used-accordingly. Even if we assume that this authority to wipe out certain tariffs would be an advantage in getting Europe to bargain, some limits and safeguards need to be put on it. For example, the administration should not be free to reduce U.S. tariffs to zero on several broad product categories while EEC In return cuts its common tariff 20 percent overall. From the statistics, such a swap might appear to be to our benefit. But chances are that the Europeans would gain more. The absence of tariffs In the United States, even on a limited number of categories, would enable them to penetrate our markets more deeply than we could theirs, as long as they retained a tariff wall."

RECOMMENDATIONS

We recognize that Congress may pass a trade expansion program. We urge, therefore, the inclusion of certain safeguards for domestic industry in the final form of this trade legislation.

1. We strongly endorse the principle embodied in the proposal which Senator Muskie will introduce in the Senate and urge the trade bill be amended to provide for the establishment of negotiating procedures for orderly marketing which will offer a nation in which wages are significantly lower than in the United States a fair share in the growth or change in domestic consumption in such manner as will also prevent unfair competitive advantage over manufacturers and producers in the United States.

2. We also recommend that the Tariff Commission should, under section 221 of the proposed bill, after holding hearings, be directed to report to the President in advance of negotiation the level of duty or import restriction on any article or articles below which domestic producers of such articles would suffer serious Injury from importation. The President should inform Congress where reductions are made in tariff duties or restrictions below such levels. In conclusion: The American shoe industry asks this simple consideration -- a fair competitive chance of survival as an industry paying the world's highest shoe workers' wages.

Mr. MUSKIE. We are talking here, Mr. President, about an industry which is important to hundreds of small communities throughout the Nation. It is made up of approximately 850 companies with over 1,350 plants in over 550 small towns and cities, as well as in the major metropolitan areas of Boston, New York, St. Louis, Philadelphia, Pittsburgh, Chicago, Milwaukee, Cincinnati, Newark, Jersey City, San Francisco, Oakland, Los Angeles, Providence, Baltimore, and Seattle. These towns and cities are within over 260 congressional districts in 38 States. Plants are also located in Puerto Rico.

I have here a report listing the towns and cities with shoe manufacturing plants in 37 States. It reports employment data for shoe manufacturing and related industries for 27 States for which such information was available. Total employment for the shoe industry and related industries is estimated at between 350,000 and 400,000 employees.

I ask unanimous consent that this report be printed in the RECORD at the conclusion of my remarks.

The PRESIDING OFFICER. Without objection, it is so ordered.

(See exhibit 1.)

Mr. MUSKIE. Mr. President, the trade bill we enact this year will be of tremendous importance, not only in its immediate impact on our economy, but also in the direction it establishes for the whole course of our future trade policy. I believe any rational trade policy must include specific tools for dealing with imports from low-wage countries. The trade bill, as of today, does not include such authority. My amendment would provide it.

To those Members of the Senate who wish to expand trade and provide reasonable protection to domestic industries I commend this amendment. It will not shut the door to imports; it will give foreign manufacturers an opportunity to share in the growth of the American market on an equitable basis. At the same time domestic manufacturers will know that they have a remedy against unfair competition, and the President will have a flexible tool in dealing with troublesome import problems from those areas of the world where wages and working conditions have not kept pace with industrialization.

I urge my colleagues to give serious consideration to cosponsorship of this amendment. I hope it will be adopted.