therefore, our interest at the moment is trying to get protection over here against these imports. Some may be interested in establishing. becoming connected with factories there to ship to the undeveloped countries, but I don't think the U.S. mind is geared that way in shoe manufacturing.

Senator MCCARTHY. I notice you endorse Senator Muskie's bill. Do you feel that the present peril point provisions are inadequate or have not been properly applied?

Mr. TOOR. We don't think the peril point-well, if the level is applied properly, I think the peril point would be of some help for us. Senator MCCARTHY. The concept is all right. It is a matter of application.

Mr. TOOR. That is right.

And the Muskie bill, the important thing for us is that it doesn't eliminate imports of shoes at all. It would just put it on an orderly basis, based on our own production.

Senator MCCARTHY. What is proposed in the Muskie bill is not very different or, let me ask you, is it very different from some of the proposals which the Common Market nations supposedly are using in order to work out the gradual adjustments within the Common Market or among the Common Market countries.

The question of agriculture, for example?

Mr. TOOR. No; it is not much different.

Senator MCCARTHY. Essentially the same-if we can call it principle-practical approach in which they attempt to ease the transition. Mr. TOOR. That is right.

Senator MCCARTHY. And this in effect is what you are recommending?

Mr. TOOR. That is what we are looking for; right.

Senator MCCARTHY. Particularly to take into account the differences in wages.

Mr. TOOR. Definitely.

Senator MCCARTHY. Which you say is the principal competitive advantage that the foreign producers now have?

Mr. TOOR. Strictly a matter of wages, sir.

Senator MCCARTHY. Some advantage in terms of the cost of capital. their interest rates are still somewhat lower.

Mr. TOOR. That is right.

Senator MCCARTHY. Speaking in terms of a share of the world market for shoes, where do the Japanese and the Italians rate in that total picture?

Mr. Toor. Well

Senator MCCARTHY. What is their production in relation to the production of the shoe industry, let's say, in the United States? I am not concerned with their share of the American market, but if we can speak of a world market for shoes.

Mr. TOOR. I think together they probably are close to our production. Our production is a little over 600 million pairs a year. Senator MCCARTHY. This is all in the United States?

Mr. TOOR. That is right; where we make

Senator MCCARTHY. Whereas Japanese, it is proper to say, theirs is distributed throughout the world?

Mr. Toor. I don't think they come near our production figures in shoes other than leather; they might. I am talking about, you know sneakers, and so forth; it is very big.

Senator MCCARTHY. Yes.

Mr. Toor. I don't know what the figures are, I really don't. I imagine our association has them, but I am not familiar with them. Senator MCCARTHY. And then the Italians and the Spaniards and so on have a relatively small share?

Mr. TooR. Spain is becoming relatively important. They are now offering to build factories for American manufacturers over there. Senator MCCARTHY. In Spain?

Mr. TOOR. Yes. And everybody is making a visit to Spain right now, looking into the situation.

Senator MCCARTHY. I have nothing further.

Senator KERR (presiding). If we give them enough money from our Treasury to their treasury, then they will take a part of it and give it to you boys to build shoe factories?

Mr. TOOR. That is right. We did a very good job of training them right after the war. I mean with all due respect, and probably it was the right thing to do, but they sent teams over here from all the countries and my factories were some of those that we brought them down to. We taught them our methods, and the methods are the same all over now. There is no competition in technological improvement; it is just a matter of wages.

Senator MCCARTHY. If I can ask one more question: What is the condition of the machinery in the American shoe industry? Is it as modern generally as in other parts?

Mr. TOOR. Yes; it is as modern as any of them. Automation does not play too important a part in shoe manufacturing as long as we deal with the product that comes off the animal's back. It is not uniform, and it restricts our ability to use automation.

There are improvements. They have them over there, and we have them, too. But we are way ahead of them in quality construction, and so forth.

Senator KERR. Thank you.
Mr. John Andrew Kennedy.

STATEMENT OF JOHN ANDREW KENNEDY, ATTORNEY, APPEARING FOR NOEL HEMMENDINGER, ON BEHALF OF THE IMPORTED FOOTWEAR GROUP, NATIONAL COUNCIL OF AMERICAN IMPORTERS, INC.; MISCELLANEOUS GOODS DIVISION, JAPANESE CHAMBER OF COMMERCE OF NEW YORK, INC.; AND JAPAN RUBBER FOOTWEAR MANUFACTURERS' ASSOCIATION

Mr. KENNEDY. Mr. Chairman, my name is John Andrew Kennedy. I am appearing here today in place of Mr. Hemmendinger, who is participating in hearings at the Tariff Commission and was unable to present his statement. I am a member of the firm of Stitt & Hemmendinger of this city.

Senator KERR. Just one moment.

We are either going to have to have more volume or a better amplifier.

87270-62-pt. 2- -24

Mr. KENNEDY. I will try to speak louder then.

I am appearing on behalf of the Imported Footwear Group of the National Council of American Importers, Inc., Miscellaneous Goods Division of the Japanese Chamber of Commerce of New York, Inc., and the Japanese Rubber Footwear Manufacturers Association.

We want to endorse H.R. 11970 and to propose two amendments which we are convinced merit your consideration and at this point I would like to submit our full statement for inclusion in the record and then to summarize the principal points we plan to make.

First of all, we endorse H.R. 11970 because as groups engaged in international trade we strongly favor all measures that may tend to lower barriers to the free flow of goods among nations.

Secondly, we propose two amendments, one with respect to section 336 of the present Tariff Act and one with respect to section 337.

Section 336 is the equalization of cost of production provision. It provides that after an analysis of comparative costs by the Tariff Commission, the Tariff Commission should recommend to the President either an increase in duty or decrease in duty or that the imported goods be appraised on the basis of the American ceiling price of the goods with which it is competitive.

The statute leaves no room for discretion and does not require or permit the Tariff Commission to examine anything but comparative

costs.

Our principals are concerned with this section because rubber footwear which they import is now subject to the American ceiling price basis as the result of a proclamation issued in 1933.

Briefly, there are four reasons why we believe the American ceiling price duty basis is undesirable.

First, the trading nations of the free world adopted a set of trading principles in the General Agreement on Tariff's and Trade which in their judgment reflected sound principles. One of these, article VII, paragraph 2(a), was:

The value for customs purposes of imported merchandise should be based on the actual value of the imported merchandise on which duty is assessed, or of like merchandise, and should not be based on the value of merchandise of national origin or on arbitrary or fictitious values.

The United States is not technically in violation of this provision because of a saving clause relating to existing legislation, but the United States did subscribe to this principle, and departures from it should not be continued year after year without very compelling

reasons.

2. The American selling price basis for duty conceals a level of duties which, if levied upon the normal export value or the foreign value, would be way out of line with the present U.S. duty structure. In actual fact, much imported rubber footwear pays duties equivalent to 100 percent and more on the f.o.b. values.

3. Interference with trade is serious even if the monetary amount of duty is tolerable. When the order is placed, the importer cannot know with certainty what product will be selected by the appraiser as the like or similar American product when the merchandise is entered. It is possible, and indeed has happened, that a new American product is brought to the appraiser's attention between the time the order is placed and the time of entry, thus establishing a new basis for valua

tion entirely outside the control of the importer. The purchase of goods abroad involves risks in any event which are not found in domestic business-problems of distance, of communications, of styling, and so forth. These hazards the importers have to deal with, but they should not be ask to deal with the unfair hazards which the American selling price basis for valuation creates.

It should also be brought to your attention that when ever you have such arbitrarily high duties as the American selling price duty basis creates for rubber footwear, you afford an extraordinary incentive to traders to design products that will not incur the American selling price valuation.

Accordingly, this Congress has twice in recent years enacted special legislation at the request of the American industry, closing so-called loopholes in the protection afforded the industry by these American selling price duties.

We have been told that no section of the tariff schedules has caused more headaches to the Customs Bureau and to the Tariff Commission staff when they were drafting their revised schedules than these clauses, because of the tremendous difference that it makes commercially whether a footwear product falls under one subparagraph or another when all were originally duitable at 35 percent under the Tariff Act of 1930.

The Tariff Commission had occasion to call attention to the anomaly resulting from the American selling price duties as late as June 29, 1962, in its second supplemental report on the tariff classification study.

In that report the Tariff Commission recommended a change in the headnote referring to the American selling price duties on rubber footwear to conform to the practice of the Customs Bureau which has held the American selling price bases for duty not applicable to products in chief value of synthetic rubber. The Tariff Commission made a change in its revised schedules to assure that footwear chiefly of synthetic rubber does not have to pay the American selling price duty, and in doing so the Tariff Commission said:

The distinctions made under existing law with respect to the valuation of this footwear are technical in nature and result in an anomaly. Footwear of natural rubber or synthetic rubber or combinations thereof are not commercially distinguishable and should receive like treatment for value purposes.

We respectfully submit that the source of the anomaly to which the Tariff Commission referred to is the American selling price duty basis and that the anomaly should be eliminated by the elimination of these American selling price duty bases.

Accordingly, we propose two things. We propose that section 336 of the Tariff Act be repealed in its entirety.

We propose second, that the existing American selling price duty bases resulting from section 336 investigations be abolished and new rates be established by the President upon the advice of the Tariff Commission, based upon the weighted average of the actual duties paid in the last 3 years, with a ceiling of the rate that would be applied if relief was found to be necessary. In other words, if there had been an escape clause investigation.

The second section which we suggest that the committee consider amending is section 337 of the Tariff Act.

This section relates to unfair competition on the part of imported goods. The Tariff Commission has had much difficulty in the administration of this section which has been confined almost entirely to cases where the import has held to violate patent rights; this led the Commission to recommend twice to the Congress that it be relieved of jurisdiction under section 337 and that its functions be transferred to the Federal Trade Commission and the patent courts which are properly constituted to deal with private controversies.

The Tariff Commission is constituted to deal with public issues and is an investigatorial body rather than an adjudicatorial body.

Recently the Supreme Court held in two cases, one involving the Glidden Co. and the other called Lurk against the United States. that the Court of Customs and Patents Appeals is a constitutional court. Although not a direct holding of the case it is quite likely under this decision that the Supreme Court would hold that the Court of Customs and Patents Appeals could not exercise jurisdiction in section 337 cases.

Finally, if these amendments of the present act are found to present questions which cannot be readily dealt with in the present legislation, then we respectfully suggest that this committee request analysis and views on the future of sections 336 and 337. With such reports in hand it should certainly be possible to deal next year with the unsatis factory situation now presented by legislation.

That concludes my testimony.

Senator KERR. Thank you very much, Mr. Kennedy.

(The prepared statement of Mr. Hemmendinger follows:)

STATEMENT BY NOEL HEMMENDINGER

On behalf of the Imported Footwear Group, National Council of American Importers, Inc., Miscellaneous Goods Division, Japanese Chamber of Commerce of New York, Inc., and Japan Rubber Footwear Manufacturers' Association in support of H.R. 11970 with an amendment

My name is Noel Hemmendinger. I am a member of the law firm of Stitt & Hemmendinger of this city. I am appearing on behalf of the Imported Footwear Group of the National Council of American Importers, Inc., the Miscellaneous Goods Division of the Japanese Chamber of Commerce of New York, Inc., and the Japan Rubber Footwear Manufacturers' Association to endorse H.R. 11970 and to propose an amendment which we are convinced merits your consideration. We endorse H.R. 11970 because, as groups engaged in international trade, we strongly favor all measures that may tend to lower barriers to the free flow of goods among nations.

The amendment which we propose would repeal section 336 of the Tariff Act-the equalization of cost-of-production provision-which has been inapplica ble to merchandise subject to trade agreement concessions since the inception of the trade agreements program in 1934. This provision is therefore almost a dead letter, but not quite; and it is an anachronism which should be removed from the law. The fact that this vestige of a policy long since discarded can still cause trouble is indicated by the fact that there is now pending before the President the report of the Tariff Commission on brooms made of broom corn. in which the Tariff Commission has solemnly recommended an increase in duty and that the duty be based upon the selling price of American brooms, although there is no evidence whether the American industry has been injured or whether it is threatened with serious injury. The statute leaves no room for discretion and does not require or permit the Tariff Commission to examine anything but comparative costs.

My principals have no interest in brooms, which come mostly from Mexim Incidentally, however, it would certainly do our relations with Mexico no good if we were to increase this duty without even a finding that such an increase is