MARCH 21, 1961

PAGE 4376

MUSKIE REMARKS ON THE TEXTILE AND SHOEMAKING INDUSTRIES IN THE FACE OF INCREASED TRADE COMPETITION.

Mr. PASTORE. I thank the Senator from South Carolina. I am happy now to yield to the Senator from Maine.

Mr. MUSKIE. Mr. President, I thank the distinguished Senator from Rhode Island for yielding to me. I compliment him and his subcommittee upon the excellence of the report. I particularly compliment him on his handling of the matter on the floor this afternoon. I think he has dealt with the domestic problem realistically, and has indicated its true dimension and depth. At the same time, he has discussed it in the context of our international trade requirements.

I think at the outset of my remarks this afternoon I ought to indicate my interest in the problem in terms of its impact upon my own State. In 1957 Maine was down to 16,500 workers in this key industry. This represented a drop from 26,000 workers in 1949. In January of this year Maine's textile employment had dipped to 12,200. Many workers are employed part time.

According to estimates by the Federal Reserve Bank of Boston, a realistic projection of employment trends in the textile industry would result in a 40 percent decline in textile employment in Maine between 1957 and 1970. By 1970 we would have only 9,900 workers employed in our textile mills. This is not a pleasant prospect for those communities where textile plants are the backbone of the industrial economy.

To those not immediately concerned with the textile industry, the import figures may not seem too critical. When we read that total imports represented only 7.2 percent of domestic consumption in 1960, it is easy to say that this, after all, is a modest share of the market.

Unfortunately, this figure does not carry the full impact of the increase in imports. It is the rapid invasion of the domestic market which has demoralized a highly competitive and volatile industry.

In 1948, for example, imports of cotton cloth and made-up cotton goods amounted to less than 1 percent of domestic production. By 1958 this figure had reached 3.5 percent, and by 1960 it stood at 8 percent. The increase in total imports of textiles, from 131 million square yards in 1948 to 1.3 billion square yards in 1960, represents an increase of 905 percent. This is a figure which cannot be ignored.

In the mid-1950's we were primarily concerned with the imports of cotton goods from Japan. In the 10-year period between 1948 and 1958, annual cotton textile imports from that country increased from 14 million square yards to 260 million square yards. In 1957 our Government negotiated a voluntary import program with the Japanese which slowed down the rate of Japanese exports to the United States. As a result of this agreement, imports from Japan slowed to a rate of 282 million square yards in 1960. This represented an increase of 22 million square yards, or 8 percent, between 1958 and 1960.

Unfortunately, this program was undermined by increases in imports from other nations. In 1948, countries other than Japan exported 50 million square yards of cotton goods to the United States. In 1958, when Japan exported 260 million square yards to our country, other countries exported 171 million square yards. In 1960, imports from Japan totaled 282 million square yards, while imports from other nations had reached 797 million square yards. In other words, our agreement with Japan had served to restrict Japanese opportunities without solving our domestic problem.

I was pleased to note in the subcommittee's report a recommendation for a flexible and expandable import quota program for textiles and textile products. This recommendation parallels a suggestion I made in an address to the board of directors of the National Shoe Manufacturers Association, March 3, 1961.

I ask unanimous consent that the text of the speech be inserted in the RECORD as a part of my remarks.

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

REMARKS BY SENATOR MUSKIE AT A MEETING OF THE BOARD OF DIRECTORS, NATIONAL SHOE MANUFACTURERS ASSOCIATION, INC., BILTMORE HOTEL, PALM BEACH, FLA., MARCH 3,1961

No one who has spent even a brief sojourn in the Capitol can escape the truism that a program cannot be written on a clean slate. This is the most acute dilemma of the New Frontier, as it is the most vexing problem for any Senator or Representative. In preparing for my meeting with you, I have been struck again and again by the complexity of the import problem, its interrelationship with a whole range of domestic and international policies, and the conflicting interests which surround any policy proposal. In short, the quest for a sensible

trade policy is fraught with as many obstacles and hidden dangers as a voyage into space.

James Reston, the perceptive Washington observer for the New York Times, put the problem very neatly in a recent column:

"The more the Kennedy administration studies its new responsibilities the more conscious it becomes of the complexity and interconnection of its domestic and foreign problems. It cannot even think of balancing the budget without the cooperation of the industrial nations of Western Europe, whose defense policies and programs for the underdeveloped nations affect the level of expenditure in Washington.

"It cannot increase its sales of American goods abroad without thinking about the competitive cost of those goods. And this in turn brings it to the hard political question of restraining the wage demands of organized labor, which helped bring it to power in the first place.

"It cannot survey the challenges of the cold war without talking about the need for greater sacrifices. Yet, the slackness of the domestic economy forces it to concentrate for the time being not on sacrifices but on raising the minimum wage for workers, increasing medical assistance to the aged, pouring more money into the economically distressed areas, adding to the long-term unemployment benefits, adding to the profits of the construction industry, adding to the social security benefits, and increasing subsidies to the farmers."

Reston did not mention, although he might well have done so, the critical problem of imports in certain segments of our economy. To one who represents a State suffering from production losses in the textile and shoe industries, this is one of the supreme dilemmas. In my remarks to you I hope to suggest some ways in which we may resolve the question.

My comments are, of necessity, exploratory. I am not an expert on international trade, and I would not be helping you if I pretended to be one. I am not going to promise the ultimate panacea for your problem; this would not be honest or realistic. One of the most gratifying aspects of my discussions with representatives of this association has been the realistic and constructive attitude toward a problem which affects the economic survival of many of your members.

The dilemma of trade policy is one which confronts not only public officials; it is a perplexing problem with which every businessman must wrestle. He must recognize that in asking for action, or inaction, on this issue, he is asking the Federal Government to take a hand in determining economic and business policy. That policy will effect our domestic as well as our international economic structure.

Around the turn of the present century, when the trust problem loomed large, H. 0. Havemeyer, the sugar magnate, said: "The tariff is the mother of trusts." If this were true today, and if the tariff were a stimulus to monopoly, the solution to the problem of protecting small business in its fight for survival would be simple, for then the easiest way to break the grip of monopoly and free the domestic economy for competition by smaller industry would be to allow imports to enter the country freely. Free trade would then be a logical policy for the United States to follow.

Import competition today is far from being the prime foe of monopoly.

Indeed, the facts point to just the opposite conclusion. Most large businesses today are on the liberal side of the foreign trade issue. The annoying fact is that the incidence of import competition rests primarily on small business. The paradox of our economy is that import restrictions may be necessary to insure domestic competition.

The principle on which free trade arguments rest is that of comparative advantage. In the absence of governmental interference, countries export those goods in which they are relatively most efficient and import those goods which they cannot produce except at costs higher than those abroad. In the United States our traditional export advantage is in large industries such as office machinery, business machinery, various kinds of machine tools and other items produced on a mass basis.

At the other end of the scale are products that do not enjoy such advantage but which, usually because of their high labor content, can be produced more cheaply abroad in countries where unit labor costs are considerably lower than in the United States. Usually these are in our smaller industries. Previously, even in this area, our manufacturers enjoyed the advantages of more efficient plants and machinery, but in recent years economic recovery in these countries has included the installation of modern machinery.

Even a cursory examination of the list of applicants for relief under the escape clause of the present Tariff Act reveals that the problem is one of small business. Among the industries appealing for relief have not been the large mass-production industries. They have been, rather, the small producers of such products as handmade blown glassware, spring clothespins, wood screws, fluorspar, women's fur-felt hats and hat bodies, garlic, tobacco pipes and bowls, velveteen fabrics, and violins and violas. I do not need to remind you of the difficulties confronting the footwear industry.

The American public is rightly concerned over the problems of the small businessman. Even if there were no competition from abroad, competitive pressures from large-scale industries at home are making it ever more difficult for the little fellow to keep his head above water.

The trade problem, then, can be expressed as follows: We realize that imports are necessary in the light of the international political picture. It is necessary, for example that Japan maintain her exports at a high level even to maintain her present level of living. This means that she must export her goods somewhere. The products that she can export most effectively are the products that compete with the products of our own small businessman. The same story can be repeated in other comparable low wage countries.

The problem is to find a formula that will make it possible for these nations to expand their trade in an orderly fashion, but not at the expense of the survival of our own small businessmen. The question is, "How?"

Imports, and hence exports (since exports and imports are two sides of the same coin) make our lives more abundant. If it were not for the importation of coffee, tin, tea, cocoa, and a number of other raw materials, our economy would be less efficient than it is, and our lives would be duller.

Obviously, as far as the products just named are concerned (they are on the free list and consequently may enter the country without restriction) there is no problem. Problems arise in connection with the importation of goods that are produced abroad more cheaply than in the United States but which can be produced in the United States at costs that are not unreasonably high.

The issue is not whether noncompetitive imports are necessary, because they obviously are. It is whether imports that are competitive with the products of American producers are necessary. The problem is particularly acute with respect to countries where the conditions of labor are vastly inferior to those in the United States.

Japan is an obvious illustration, because here is a country that is only a little larger than Montana in area, deficient in resources, and with a population of over 92 million. Yet, with their modern machinery and with their outstanding managerial skills, the Japanese are able to produce many manufactured goods far below the costs of producing similar goods in the United States, such as cotton textiles, footwear, hardwood plywood, silver-plated flatware, china tableware and, more recently, components for the electronics industry. Are such imports necessary? If not, a case might be made for restricting them for the sake of preserving wage standards in the United States.

However, the problem is not this simple. An independent, free Japan is strategically and militarily essential to the United States. Japan is at the very center of the area of our defenses in the Far East. In a real sense Japan is one of the most critical outposts of the free world facing the Communist bloc. If she should ever be alienated from the free world alliance and become totalitarian, the result would be a major catastrophe for the United States.

The same point can be made for practically every one of the other nations providing the major sources of competition for our domestic footwear industry. They cannot maintain and expand their standards of living without adequate export markets. They cannot help pay the cost of protecting the free world without exports. Restrictive trade actions on our part must be considered in the light of these problems.

Does this mean that we shall have to open our doors wide to imports? I think not. We need to find a formula which will regularize such trade so that it will not have a disruptive effect on the American small businessman. The need is for a formula which will regularize imports and which, while allowing these nations to expand exports, will do so without putting the entire displacement cost on our small businesses.

Again, the question is "how"?

There are several proposals pending before Congress to deal with the problem of competitive imports. Some involve restrictions on concessions under the General Agreement on Tariffs and Trade, some would curtail the power of the President on tariff determinations, some would transfer the President's powers to the Tariff Commission, and some would give relief to specific industries. These proposals are the least likely to gain approval, although present economic conditions have given proponents more strength than usual for strong protectionist recommendations.

Those proposals more likely to gain strong support are the "trade adjustment assistance" approach, the equalization of labor standards approach, and a possible voluntary quota system.

The trade adjustment assistance proposal would provide that when imports are deemed to be necessary in the national interest, domestic producers should be assisted in adjusting to such imports. "Adjustment" is at the very center of the philosophy of the individual enterprise system. It is because rigid protectionism interferes with economic adjustment that it can be so harmful to a free economy.

But, should the cost of economic adjustment be borne by those who are in the immediate line of impact? One of the saddest episodes in the industrial history of Great Britain was the failure of the Government to assist the hand-loom weavers who were thrown out of work in the latter part of the 18th century by the new power looms and other automatic textile machinery. Hundreds of workers whose livelihood depended on the old hand methods were allowed to starve to death in London and other British cities.

The trade adjustment proposals (one of which was introduced several years ago by President, then Senator, Kennedy) would provide that if it can be shown that domestic producers cannot adjust to import competition over a reasonable period of time the Government should assist them to adjust by such devices as stepped-up employment compensation, retraining of younger workers, early retirement of older workers, expanded services of the U.S. Employment Service to bring jobs and workers closer together, payment of moving costs of workers from one part of the country to another, and adjustment loans to employers at low interest rates, together with technical assistance to enable them to shift to new lines of products.

In the pending bill for aiding depressed areas there is a provision giving special attention to the problem of import competition.

Such assistance can be defended so long as the emphasis is on adjustment and not on mere relief. Mere relief does not get to the heart of the problem. Like the payment of subsidies, it would only aggravate the problem. Such an approach should not be considered as a complete answer, in any event, since it does not provide for an orderly transition within a given product line or group.

There are bills which would provide for the imposition of supplemental tariffs to equalize the differences between unit labor costs in the United States and in countries where they are considerably lower. Most proposals along this line are dangerous because they can easily incorporate the fallacy of equalizing unit-costs of production here and abroad. If all costs were equalized trade would be shut off entirely, for it is differences in costs of production that make all trade possible.

It seems clear to most objective observers, however, that competition from a country where wage costs are a small fraction of what they are in the United States (allowing for differences in productivity) differs from competition from countries where wage costs are closer to costs in the United States.

At the present time a Committee on Market Disruption is wrestling with this problem in Geneva under the auspices of the General Agreement on Tariffs and Trade (GATT). What is sought here is not complete equalization of labor standards among countries, but rather some manner of dealing with the problem of the temporary demoralization of markets.

The major obstacle in the legislative field on this proposal is in determining comparable statistics and information on labor and production costs in the countries affected. Without accurate and comparable statistics, the fair labor trade standards approach tends to be meaningless.

An approach which has appealed to me is the voluntary export quota system, tied in with those areas where there is a wide differential in labor standards. We now have agreements with Japan, in connection with cotton textiles, plywood, and a few other products, whereby the Japanese have voluntarily imposed quotas on their shipments to the United States.

This system has had a limited success which indicates a possible expansion into other fields on a mutually beneficial basis.

I am considering the introduction of legislation which would provide for a sliding scale import quota system, through negotiated agreements, to solve troublesome problems of import competition. Under such a program, when it had been determined that a wide differential in wage costs was causing great difficulty to an American industry, the United States would enter into negotiations with foreign countries to establish voluntary quotas which would allow a base quota equal to the average level of imports for a given period, plus a proportion of any increase in the domestic market.

A fixed import quota is open to the criticism that it would place imports in a straitjacket. A sliding-scale arrangement, such as I have suggested, would have the advantage of sharing an expanding market with foreign producers on an orderly basis.

Such a sliding-scale arrangement could be based on either import quotas, or tariffs, or a combination of the two. It might also be possible to ease restrictions wherever it can be demonstrated that the foreign country with substandard labor conditions has succeeded in improving its wages and other working conditions.

The key to this proposal is its recognition of the opportunity of other manufacturers, foreign as well as domestic, to compete in our market on roughly equal terms. It would protect our own businesses from unfair competition, open the door for orderly competition from abroad, and exercise minimum interference with a free market.

We cannot turn the clock back to the Smoot-Hawley tariff, unless we are willing to say that the American economic system cannot compete under any circumstances. But this does not mean that we should turn our back on the critical trade problems which confront our own businessmen, particularly in the small business segment of our economy.

Our business community must take every opportunity to compete at home, and to compete abroad for growing markets in other countries. They must not assume that competition stops at the water's edge. At the same time, our Government must recognize the problems and take appropriate steps to insure a fair contest.

Mr. MUSKIE. Mr. President, that represents, I believe, a sound approach to our import problem. As the subcommittee states in its report, import quotas "should not be fixed for all time. They should be flexible. As the market in this country grows, imports should be allowed to increase. We are not proposing that the status quo be maintained."

In recent years there has been a tendency for positions on trade policy to become frozen. Those who support free trade have argued on an all or nothing basis. Protectionists have taken a similarly rigid position. I submit that neither extreme will meet the interests of this Nation or of the free world. The economies of nations are interrelated and independent. Trade between nations can no longer be left to chance. We must plan our trade policies. This, to me, is the great virtue of the Organization for Economic Cooperation and Development. It carries with it the recognition that expanded opportunities for all countries in the free world depend on sensible and sensitive attention to the needs of all economies, and that planning in this area may well result in greater free trade.

In my speech on March 3, I recommended a sliding-scale import quota system, provided through negotiated agreements, to solve troublesome problems of import competition. This recommendation was tied to our problems with low wage countries. As you know, this is a critical problem in the textile industry.

Under such a program, when it had been determined that a wide differential in wage costs was causing great difficulty to an American industry, the United States would enter into negotiations with foreign countries to establish voluntary quotas which would allow a base quota equal to the average level of

imports for a given period, plus a proportion of any increase in the domestic market.

The key to this proposal is its recognition of the opportunity for other manufacturers, foreign as well as domestic, to compete in our market on roughly equal terms. It would protect our own businesses from unfair competition, open the door for orderly competition from abroad, and exercise minimum interference with a free market.

I am encouraged, Mr. President, to see that others share my feelings on this question. The Subcommittee on Textiles has made a similar recommendation, and Dr. Alfred C. Neal, president of the Committee for Economic Development, has suggested a parallel approach. Dr. Neal's comments are worth quoting here:

The explosive effects of advanced technology in a country with extremely low wages can be damaging to all -- to the exporting country because it overexpands -- and to importing countries because they cannot move people and resources out of damaged industries fast enough. Controlling the most serious of these cases by means of agreed quotas, which are temporary and expandable, may be the only reasonable alternate to the disruption of the whole trading system of the West.

These are encouraging signs of a more realistic approach to our trade problems which offer hope to the textile industry in dealing with its import problems. It encourages me as I continue my efforts to develop sound legislative language to implement my proposal and that of others who are concerned with this problem.

In closing, Mr. President, I wish to pay particular attention to one other important facet of the subcommittee report. The subcommittee has recommended that "appropriate Government agencies, including the Business and Defense Services Administration, expand, and initiate where necessary, textile research. This should include basic research to develop new industrial and consumer uses for fibers and fabrics, and an expansion of economic research on the textile industry as well."

In my remarks, this afternoon, I have stressed import control. I would not want to imply, by this, that we can solve our problems by reducing the problems of competition. An important part of the long-term solution to the problems of the textile industry is an aggressive research program. The industry has not done enough. The only major effort in this direction has been in the field of synthetic fibers and fabrics, where large corporations have been able to devote their considerable resources to the task. The textile industry is primarily a small business industry. Its profit margins have been narrow and erratic. Under the circumstances, and in view of the long delay in meeting conditions beyond the control of the industry, we have a responsibility as a nation to stimulate research.

Such research would have benefits reaching beyond the manufacturing operations to the producers of raw materials, including cotton and wool. Such a program would be important to agriculture as well as to industry. We have a precedent in the research now conducted by the Forest Products Laboratory under the U.S. Forest Service. This is a program which benefits the manufacturer and the raw material producer. I urge that strong efforts be made to provide a similar approach for the textile industry.