-2- profit margins as a consequence of the relentless penetration of imports in the domestic market. Consider these shocking statistics: From 1968 to
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1 TESTIMONY OF RONALD ANSIN, VICE CHAIRMAN, NATIONAL AFFAIRS COMMITTEE, AMERICAN FOOTWEAR INDUSTRIES ASSOCIATION, BEFORE THE TRADE POLICY STAFF COMMITTEE, OFFICE OF THE SPECIAL REPRESENTATIVE FOR TRADE NEGOTIATIONS, WASHINGTON, D.C., NOVEMBER 17, 1977 I am Ron Ansin. I own three small shoe factories in three New England states. I am also Vice Chairman of the National Affairs Committee of the American Footwear Industries Association a trade association headquartered in Arlington, Virginia whose member firms account for the great bulk of nonrubber footwear production in the United States. I speak to you today, therefore, both as a shoe manufacturer with firsthand experience in the problems of import impact and also as a representative of other firms in this industry which, like mine, have been waging an uphill battle for survival against burgeoning imports. Such import surges have been experienced especially from low-wage, low-cost supplying developing countries, many of which also provide additional competitive advantages to their exporters under government export incentive programs. These have involved features that the Treasury Department has ruled to be countervailable. Our industry with its ancillary supplying industries the tanners, in-sole manufacturers, machinery manufacturers, plastics producers, last and die-makers, among, others provide jobs for over 250,000 men and women all over this country. Yet what we have seen throughout each sector of this industry is a consistent decline in employment, production, and reasonable
2 -2- profit margins as a consequence of the relentless penetration of imports in the domestic market. Consider these shocking statistics: From 1968 to 1976, footwear imports rose from 182 to 370 million pairs. Import penetration increased in this period from 22 percent to 47 percent. (It is almost 52 percent today.) Domestic production fell from 642 to 422 million pairs. Employment in footwear manufacturing declined from 233,000 to 170,000 workers. Our unemployment rate was 13 percent in the first half of 1977, 86 percent higher than the national average. Idle capacity in our industry is about 200 million pairs, 30 percent of the industry's capacity. The number of firms declined from 597 in 1969 to 376 in 1975 and probably is less than 350 today. President's Grant of Import Relief Gives Industry Breathing Spell After experiencing rebuff after rebuff at the hands of prior Administrations, after three escape clause investigations, two unanimous injury findings, and prolonged inter-agency consideration by special task forces of appropriate measures to deal with the shoe industry's import problems, this industry has at long last been given an opportunity for a breathing spell against injurious imports. The industry is, indeed, ^
3 -3- grateful to President Carter for his action last April for, in effect, he delivered on a promise made by his predecessor, but never kept, to provide import relief to this industry. You know the details of President Carter's April 1 announce ment granting import relief. Perhaps many of you were involved in the inter-agency deliberations which influenced that decision. You know then that President Carter on April 1 announced the grant of import relief through negotiated orderly marketing agreements with appropriate supplying countries. Such agree ments, involving a rollback in imports from two principal foreign suppliers of shoes Taiwan and Korea were offi cially implemented by Presidential Proclamation 4510 of June 22, It should be noted here that imports from these two coun tries had spurted from 98 million pairs of shoes in 1974 to 200 million pairs in 1976, representing last year about 54 percent of total imports. Agreements to moderate the level of shipments from these countries and assurances from the Administration that there will be a cap on the rest of the world at levels no higher than their 1976 levels, provide this industry with its first oppor tunity for a breathing spell to adjust to import competition. With reasonably effective import relief, shoe producers should be in a position to increase their output in response to increased orders which will enable domestic producers to return to efficient levels of capacity utilization, leading to gains in productivity and efficiency and generating in- \ creased profits for plant expansion and new investment. In short, we are looking to a revitalized industry.
4 -4- Imports of Components Could Weaken Import Relief Program There are some "ifs," however. We need import relief that is effective over a reasonable time frame. The orderly marketing agreements now in place go a long way to this end, but there is an area of concern to us within this committee's purview, which is the possible loophole in the footwear import restraint program as it relates to imports I/ of footwear components. Components of footwear now enter under various TSUS items of wearing apparel classified by material, i.e., leather, cotton, fibers, etc. Technically, such tariff items relate to "parts of footwear" or to "leather cut or wholly or partly manufactured into forms or shapes suitable for con version into footwear." In practice, the range of imported articles classified as footwear components have included every thing from a wooden sole to unfinished footwear lacking only an outer sole to make it a completed article of footwear. The Customs Service allows shoe uppers and shoes finished through lasting to enter as a component or parts. The duty on these items made of leather is substantially lower than the duty on leather footwear. Our government has itself recognized that the danger exists that the orderly marketing agreements could be undermined by the simple device of uncontrolled imports of shoe components which in reality substitute for finished shoes that are under direct controls. Therefore, what the U.S. has done is to get written I/ As used herein, the term "components" encompasses all parts of footwear, uppers and unfinished shoes.
5 -5- assurances from both the Korean and Taiwan Governments that they would not allow this to-happen. (The letter from the Korean Government in this regard is attached as Appendix A to my testi mony.) We shoe producers are nonetheless concerned that this could happen and, moreover, that large-scale production of foot wear components for export to the United States will occur from countries other than Korea and Taiwan, countries with which we have no orderly marketing agreements and therefore no side letter with respect to footwear components. \ I should also point out that we understand that shoe ex porters in Brazil are shipping such components to the U.S. to avoid the payment of countervailing duties on finished footwear. We have to assume that this will also be the case with shoe exports subject to countervailing duties from other countries. In the petition submitted to the Trade Policy Staff Com mittee, there was appended a table showing that for several TSUSA items, the level of imports in 1976 and through the first half of 1977 involved a not insignificant level of trade. We have updated this table through September and these nine- month data show a sharp rise from earlier trends and confirm our view that there will be considerable expansion, both in volume and value, of shipments of shoe components. A copy of this updated table is given as Appendix B hereto. Given as Appendix C are copies of two advertisements appearing in recent issues of Footwear News by means of which orders for shipments of components for footwear are being openly solicited in the marketplace.
6 -6- GSP Treatment for Components Encourages Increased Imports To the degree that special GSP treatment granted under Title V of the Trade Act continues to be accorded to footwear component imports from the developing countries, it serves only to increase the possibility of encouraging such shipments to the United States as a means of circumventing the import restraint program. As our petition pointed out, Congress has recognized the import sensitive nature of the footwear industry by specifically excluding it from the Trade Act's provisions regarding the Generalized System of Preferences. And the President has considered the import problems of the industry sufficiently severe to warrant import relief. Conceptually, such import relief must logically extend to shipments of footwear components as well as to finished footwear. To do otherwise would be to dilute and negate the effectiveness of the import relief program authorized by the President and which is so urgently needed by the footwear industry. We are concerned with all shoe components which are not technically regarded as finished footwear. Some, in fact, would require the addition only of an outer sole or other minor additions to be considered finished which if they were, would be subject to the regular duties on footwear and the shoe import control program established by the President.
7 -7- Conclusion The extreme import sensitivity of footwear is already evidenced both by the statutory exclusion from GSP provided this product category in the Trade Act of 1974, and in the President's grant of import relief which he announced on April 1, To the extent GSP zero-duty is granted to footwear components when these are imported from beneficiary countries, this acts to stimulate increased shipments of such products from developing suppliers and thus, erodes the effectiveness of the President's import relief program. It would make no sense to impose a global cap on footwear imports, to rollback the two largest exporting countries through orderly marketing agreements, to specifically exempt footwear from GSP (which makes them subject to regular duty), while imposing no tariff whatsoever on a finished upper and a sole which require only the application of cement to become a finished shoe Withdrawal of GSP eligibility for footwear components is therefore essential to the U.S. nonrubber footwear industry and is in the national interest.
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