MAY 2, 1962

PAGE 7615

LEATHER AND RUBBER FOOTWEAR EXPORTS

Mr. MUSKIE. Mr. President, for some time, the shoe industry has been concerned about the rapid expansion of leather and rubber footwear imports. This industry, which is vital to the economy of the State of Maine, is threatened with market disruption by a rising volume of shoe imports from efficient but low-wage industries in various parts of the world.

The following statement relating to shoe facts illustrates the problem:

THE FACTS ABOUT SHOE IMPORTS

First. Leather shoe imports have increased 234.5 percent since 1957, from 11 million in 1957 to 36.8 million pairs in 1961. In the first 2 months of 1962, leather footwear imports were 82 percent above the comparable period of last year. Rubber footwear imports dropped last year, but this year the rate is 45 percent higher than last year.

Second. At the present rate, footwear imports will reach 76.6 million pairs by 1965, which would be 11.7 percent of U.S. output. If imports of sneaker types were added to leather imports, then total imports would represent 20.4 percent of estimated U.S. output of leather and sneaker types combined.

Third. While imports have been increasing, our exports have dropped from 4.4 million pairs in 1957 to 3 million pairs in 1961.

Fourth. For every 10 million pairs of leather footwear produced, there are jobs for 4,100 workers in shoe manufacturing, and another estimated 1,400 jobs in the supplying trades, or 5,500 jobs in all. Since 1956 alone 15,000 jobs have been lost in the leather shoe and supplying industries. By the end of 1965, another 22,000 jobs will have been sacrificed in the leather shoe and supplying industries. This is at current tariff levels.

Fifth. The trade expansion bill, H.R. 9900, if passed as written, could result in tariffs on imported shoes being lowered to one-half, or in some cases, even to zero during the next 5 years.

Sixth. The United States pays the highest wages to shoe workers of any country in the world. The U.S. shoe worker receives from 2 to 5 times the wages of foreign shoe workers.

Seventh. With the new equipment and machinery in foreign shoe factories -financed in large part with U.S. help and easier tax laws-foreign shoe output per worker approximates our own production rates.

Eighth. Imported shoes land in this country at far lower prices than for like items produced here. This is simply cheap foreign labor competing against higher price U.S. labor.

Ninth. U.S. tariffs are among the lowest in the world. For shoes, U.S. duties average 12.6 percent on all shoes imported from all countries. Foreign tariffs plus taxes loaded on exported U.S. shoes range up to as high as 53 percent of landed cost. This is certainly a poor example of how foreign nations have lived up to our reciprocal trade agreements.

Mr. President, in spite of this grave problem to the shoe industry, it has taken a lightened approach to our basic trade policy and to the President's recommendations.

Recently, I had an opportunity to discuss the problems of trade with the shoe executives of Maine. Because of the problems of the shoe industry and because of the relationship of their problems, to that confronting other industries in our country, I ask unanimous consent that my remarks to the Association of Shoe Executives of Maine, on April 28, 1962, be printed in the RECORD.

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

ADDRESS BY SENATOR EDMUND S. MUSKIE TO SHOE EXECUTIVES OF MAINE AT THE CALUMET CLUB, AUGUSTA, MAINE, APRIL 28, 1962

I remember -- too many years ago for my own comfort -- when the subject of international trade was a dry-as-dust part of my studies. The questions of "comparative advantage," "balance of trade," and "international payments" were remote from my personal concerns, and not particularly exciting.

Today I find the jargon of trade talk as dry as ever; but the subject of trade is a vital preoccupation for me and for my constituents. Next to the subject of taxes, it is the question which is absorbing the most attention on Capitol Hill these days.

I come before you with mixed feelings to talk on trade. In the words of the folk song "Goober Peas": "The subject's interesting but the rhymes are mighty tough."

I think most of you know my general philosophy on the subject of trade policy. The President's bill has been introduced and hearings have been concluded by the House committee on Ways and Means. Now the committee is closeted in executive session to work its will on the President's recommendations. My own opportunity to cast my vote and to exert my will directly on the bill is three steps away: House Committee action, House passage, and Senate Finance Committee action. I do plan to appear before the Finance Committee to offer some suggestions which, in my opinion, will improve the bill and will provide a more realistic form of assistance to domestic industries threatened by import competition, particularly where that competition comes from highly industrialized, low-rate areas.

As a Senator from the State of Maine, I am very much concerned over the economic growth of our country. Maine has been plagued by unemployment for many years and I realize that we must encourage general economic growth if we are to overcome many of our economic difficulties.

I recognize that expanding international trade represents one important facet of the President's efforts to stimulate a dynamic domestic economy. However, although I agree with this objective, I think there are substantial problems involved in the trade bill, H.R. 9900, which must be resolved. Expanding trade can be harmful as well as beneficial unless the policies affecting it are realistically devised.

In approaching the specific legislation pending in Congress, it is well to keep one's perspective. It is altogether too easy to be drawn off into one of the two extremes in the trade debate. On the one side we have the "free traders" who follow the Ideal of absolute and untrammeled international competition like knights in search of the Holy Grail. At the other extreme are the committed protectionists who see in every import statistic the threat of imminent collapse for the American economy. In the trade debate, neither contributes substantially to the kind of balanced trade policy which will encourage sound economic growth.

What are the objectives offered by the President? What are the conditions under which we are being asked to formulate a new trade policy?

The President is convinced that increased trade is vital to "the unity of the West, the course of the cold war, and the economic growth of our Nation for a generation to come."

The factors which have triggered the new debate over trade are the expiration of the Reciprocal Trade Act and the development of the European Common Market.

The expiration of the Reciprocal Trade Act confronted the President with a choice of three alternatives:

First. He could let the act expire and wait for the nonelection year of 1963 to press for trade legislation;

Second. He could call for a simple extension of the act; or

Third. He could request a new law revising our present trade policy.

He has chosen the latter course.

Coincidental with this circumstance has been the spectacular development of the Common Market.

Since the close of World War IL the United States has supported the principle of European integration, because of its conviction that the creation of a broad, competitive market in Western Europe would be advantageous to the United States and that it would build up the economic strength of Europe, thus making for a strong free world.

In 1958, six European countries -- France, West Germany, Belgium, Luxembourg, the Netherlands, and Italy -- formed the European Economic Community for the purpose of integrating their economies. The Treaty of Rome, which created it, represents the most ambitious step yet taken toward economic integration. The most important aspect of the Community, from the point of view of US foreign trade, is the Common Market.

Under the treaty, the six member countries agreed to eliminate all tariffs and quotas among themselves starting January 1, 1959. It was contemplated that 12 to 25 years would be required for the progressive attainment of free trade within the area. The target date for the complete elimination of internal tariffs is now 1966 instead of 1969 -1972, as originally contemplated. Import quotas among the member countries on industrial products are to be eliminated by the end of 1961 and on other goods by 1970.

Because of the acceleration of internal tariff reduction and of the early institution of the common external tariff, the impact of the European Common Market of U.S. exports will be felt earlier than had been contemplated. Since the common external tariff will be determined by the average of rates prevailing in each of the six countries in 1957, the tariffs that eventually will be applicable to U.S. products will be higher in some countries and lower in others. Generally speaking, the tariffs of France and Italy will be lower, while those of the Benelux countries and Germany will be higher.

If the Common Market is carried through to completion, as there is every reason to believe it will be, the net effect will be the formation of a large free trade area of great potential economic growth. The United Kingdom has applied for membership in the European Economic Community, and when she does join, the resulting market area of Western Europe will be the largest in the world, larger even than the United States.

There is no way of knowing what will happen with regard to commodities on which tariffs are to be determined by negotiation. Neither is there any way of knowing what will happen to external quotas. Here, too, only time can tell whether the net effect of the European Common Market will be to liberalize trade or to intensify protection.

In the short run, certain U.S. exports will decline as the new discriminatory tariffs become effective. In the long run, however, it is reasonable to suppose that some products which the United States does not export in large quantities may be in greater demand because of the changed structure of European industry. Indeed U.S. exports to the Common Market countries probably will increase as time passes.

The Common Market will make it possible for Europe to compete in world markets more effectively than heretofore. The lowered costs and prices which usually accompany an expanding economy will increase the capacity of Europe to earn dollars and, consequently, to increase its capacity to import more than it does now from the dollar area. Under the circumstances, it is essential that U.S. industry increase its efficiency and improve its exporting and marketing methods.

About 25 percent of all U.S. exports to Western Europe consist of raw materials, such as ores, textile fibers, nonmineral oils, and raw chemicals. Not many products in this category will be affected by the new Common Market tariffs, since duties on most of them will remain low. In fact, the industrial growth of Europe probably will cause U.S. exports in these categories to increase.

About 5 percent of U.S. exports to Western Europe consist of fuels, principally coal and petroleum products, most of which will remain subject to low tariffs. The prospects for U.S. fuel exports depend more on the degree of quota protection on coal, and on how much oil is developed in Europe and other countries, than on tariffs.

About 30 percent of U.S. exports to Europe consist of food and tobacco, tariffs on which vary widely. Tariffs on these goods are not as significant, however, as quotas, subsidies, and administered pricing. The European Economic Community's new agricultural policy will extend national preferences to producers throughout the Common Market area. It also will stimulate competition among European farmers and encourage more efficient production of foodstuffs within the area. There is no way of telling, now, whether these effects will be counterbalanced by increased total demand for food and tobacco. Their objective is, obviously, to stimulate their own agricultural production and to reduce their reliance upon agricultural imports.

The remaining 40 percent of all U.S. exports to Western Europe consist of manufactured goods, principally machinery, transportation equipment, and manufactured chemicals. Most of these products will encounter external tariffs and discrimination within the Common Market, while internal Common Market tariffs approach zero. At the same time, European producers are likely to enjoy cost advantages brought about by increased efficiency and larger scale production. In consequence, many American producers will find European competition increasingly difficult to meet.

For many manufacturers this increased competition will extend to markets outside Europe. Western Europe must export manufactured goods in order to import needed raw materials. At the present time, the six Economic Community countries, together export more than the United States.

However, this does not necessarily mean that American manufacturers will not be able to compete in world markets, or even that they will be unable to export to the Common Market countries. It is characteristic of the U.S. economy to emphasize research, to improve products, and to reduce costs. It is quite likely that, through research. American companies will find new ways to produce certain goods more efficiently and better than they can be produced anywhere else in the world.

As the European economy grows and becomes more highly specialized, it will become capable of producing a wider range of goods cheaply, but its imports are likely to grow as well as its exports. The leaders of the European Economic Community have expressed the intention of pursuing a liberal trade policy, and it seems clear that their interests Iie in expanding, rather than in contracting trade.

This, then, briefly, is the problem and the opportunity posed by the Common Market. How do we take advantage of the opportunity created by this great new market, and, at the same time, meet the problem of competition, at home and abroad, which the Common Market countries will give our products?

In the long run U.S. exports that will best be able to stand up against the new competition, are those unique in performance and design, in the light of cost. There can be no doubt that technical progress in the United States will be rapid throughout the decade.

The avowed purpose of the President's trade program is to minimize the discriminations resulting from the formation of the European Common Market by reducing our trade barriers on a bargaining basis.

Such bargaining cannot be one way. As the President said in his state of the Union message: "Concessions, in this bargaining, must, of course, be reciprocal, not unilateral. The Common Market will not fulfill its own high promise unless its outside tariff walls are low."

Assuming the desirability of expanded trade, and this is an assumption I accept, how do we develop a rational trade policy?

First, we must recognize that not all industries are going to view expanded trade in the same light. For example, Maine is sometimes regarded as a "protectionist" State. And yet, the pulp and paper industry, which is vital to our economy, was the first major industry to endorse the President's trade proposal. And the cotton textile industry has announced its support.

There are, I think, four categories of manufacturers in relation to trade:

First. Those industries which are not affected directly by trade;

Second. Those who benefit from free trade policies because of their export opportunities;

Third. Those who benefit from free trade because of their raw material import requirements; and

Fourth. Those industries which find it difficult to compete in the world market.

It is this latter group, those industries who do not enjoy a comparative advantage, which is of greatest concern to us in a new trade policy.

I believe our trade policy should be shaped in such a way as to serve the legitimate requirements of each of these groups. I think it can be.

Most of the industries at the low end of the comparative advantage scale in the United States are those that require a high proportion of labor relative to capital. In the United States, where capital is plentiful and labor is relatively scarce, such industries find it difficult to compete against products from countries where labor is plentiful and capital is scarce.

The shoe industry is a case in point.

Under a system of complete free trade these industries, or at least certain segments of them, would not be able to compete. To adjust our production in favor of imports, unlike adjustment to increased exports, is often painful. This is the situation in which most of our producers who complain of import competition find themselves.

Obviously, it is not a real answer to the problem to say, as some of the more extremists do, that these companies should simply get out of business. One of the most troublesome facts of all is that the lines of production that are hardest hit by import competition are included in what we in the United States call "small business." And these small businesses are often found in small towns, such as in Maine, where the survival of such businesses is vital to the local economy.

With bigness all but swallowing us up and with little businesses each year finding competition against bigness more difficult, it doesn't seem to make much sense to force an additional burden upon them in the form of increased competition from abroad. It seems too much like kicking a man who is down and almost out.

Yet it is essential that the United States increase foreign trade, both exports and imports. And to achieve this goal, the President must have the power to negotiate favorable trade agreements. This is the fundamental point in any trade legislation.

Lest some misinterpret what I have just said, I want to point out that I said we need favorable trade agreements.

And yet, we must recognize that any trade program, no matter how favorable to the Nation as a whole, is bound to involve adjustments for some industries. As I have already shown, one of the painful facts in the situation is that the injured firms and labor that are most seriously affected by import competition usually are small businesses. Under the present law, all that the President can do is either to perpetuate them or to throw them to the wolves, so to speak.

A third choice has been offered in H.R. 9900, the administration trade bill. This choice would allow the President to provide "adjustment assistance" in those industries and areas suffering from import injury.

The adjustment-assistance approach, involving earlier retirement for older workers, retraining programs for younger workers, special unemployment compensation, family Moving allowances, technical assistance to the owners of capital, small business loans, and so forth, is a new and relatively untested approach to the problem of trade adjustment.

It should be noted that such an approach has no assurance of substantial success in providing relief. In Maine, and in many parts of New England, we have been carrying out an intensive industrial development program to help replace lost jobs in the textile industry, and other similarly affected industries. It is a long, slow, and hard process. The area redevelopment program is similarly aimed at restoring lost jobs. It offers some useful tools, but it is too soon to predict how successful it will be.

There is another possible line of attack on the problem, to which I have given much thought.

Last year, I introduced S. 1735, the Orderly Marketing Act. This proposed legislation would give the President the power to enter into trade agreements with exporting countries restricting the importation of commodities to a certain percentage of our domestic market where such commodities are produced at a substantially lower labor cost than applies in the United States.

My bill has the twin advantage of defining injury far more explicitly than in existing trade legislation and of adopting the principle of permitting exporting countries to share in our expanding domestic market even in cases where our domestic industries are threatened with injury. I believe that trade legislation must take into account the peculiar problems of those industries which require high labor input in highly industrialized low-wage countries. In interstate commerce, we have used the minimum wage law to insure fair competition, as well as to protect workers from substandard working conditions.

In international trade, we cannot impose a minimum wage requirement, but we can adjust trade in commodities produced by foreign industries with substandard wages so as to minimize the impact of such competition.

To take this position is not to embrace the cause of protectionism. It is, I believe, a realistic approach to our trade problem.

I have been very much encouraged by the attitude taken by the shoe industry on this issue. This industry, as well as others in the State of Maine, is confronted by rapidly expanding imports from low-wage countries. The industry has substantial reason to be concerned over import threats. In spite of this, it has taken a very balanced and reasonable approach to the trade problem.

For when we come down to the heart of the problem, we have to recognize once more that what we, and the rest of the free world, are after is economic growth and stability. This will not be achieved by raising impossible barriers to trade, and neither will it be gained by throwing our doors open, willy-nilly, to imports.

In the final analysis, our trade policy should be guided by the following principles:

First. That with respect to the highly industrialized, economically advanced countries, the President must have powers to bargain effectively for the reduction of trade barriers against U.S. goods;

Second. That with respect to the highly industrialized, but low-wage countries such as Japan, the President must have the powers to negotiate agreements which will allow such countries to share our markets provided that the sharing is done in an orderly way which will not seriously disrupt these markets for our own domestic industries;

Third. That Congress must have adequate review powers over the President's actions in negotiating trade agreements;

Fourth. That downward adjustments in tariffs must be made gradually so as to give domestic industries an opportunity to adjust to changed conditions; and

Fifth. That "adjustment assistance" to domestic industries and areas injured by imports be coordinated with other Government aid programs such as the Area Redevelopment Administration.

I do not think this is an impossible task for us to set for ourselves. It has always been the genius of our democracy to meet our needs in a practical fashion. There is no reason to stop the practice when it comes to the matter of setting trade policy.