Foreign versus U.S. average hourly earnings and fringe benefits in the leather footwear industry

Fringe benefits percentages are estimated by the U.S. Department of Labor. Period covered for each country is as follows: France, October 1961; Switzerland, October 1960; West Germany, May 1961; Belgium, April 1961; Netherlands, May and June 1959; Italy, June 1960; Japan, calendar 1960; and U.S. hourly earnings and fringe benefits, May 1961.

United Kingdom: Clothing and footwear category, adult males, 21 and over. France: Hides and leather category. Skilled males, in Paris zone, the highest paid region in the country. Switzerland: Maleworkers. Italy: Average hourly earnings and fringes in a related industry, leather and leather products, are as follows: $0.219, 75-80 percent, $0.574. Japan: leather and leather products.

Sources: U.S. Department of Labor; British Ministry of Labour Gazette; NSMA (U.S. fringe benefits). The price differences between foreign and domestic footwear are entirely the result of differences in wage rates. This means that they may land shoes in this country at prices 15 to 25 percent lower than for equivalent items produced in the United States. This is simply 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 field 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.

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 bracket 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. 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 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.

Foreign duty tax rates on U.S. footwear versus actual 1960 duty paid on footwear imported into United States

1 Based on c.i.f. or landed cost values, except for Canada.

Applied to duty paid value. This results in "Net duty plus taxes" being greater than mere addition of duty plus tax rates.

Based on 1960 footwear imports, f.o.b. shipping point values. Duty actually paid.

Maximum of 720 lire duty per pair.

Not available.

Applied to U.S. market value or invoice, whichever is higher.

Source: NSMA, based on customs' schedules and reports from U.S. Embassies, U.S. Department of Commerce.

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 certainly throws the trading picture completely out of balance now when the same technology and equipment are used in foreign countries as in the United States. Yet, these countries have the additional advantage of cheap labor.

In judging the various levels of tariffs and the question of reciprocity we must not forget that some of our Common Market friends have not been as generous as we. 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. At least the Common Market countries recognize what it means to compete with a low-wage competitor 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 tariffs 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."

SUMMARY

In summary, the footwear industry is an essential industry whose products were rationed in World War II. We believe it is necessary to establish some marketing arrangement for footwear similar to that outlined in S. 1735 which

would provide for a sharing of our domestic market growth with foreign footwear producers on an orderly basis.

We recognize that Congress may pass a trade expansion program. We urge, therefore, that certain safeguards for domestic industry be included in the final form of such trade legislation. Our suggestions are as follows:

1. There should be incorporated in the bill a procedure establishing general specifications without a preliminary determination as to national security which would serve as guides to negotiators in developing orderly marketing arrangements for such industries as shoes with high labor content. Congress should enact specific provisions which would empower the executive to negotiate and proclaim agreements establishing equitable market-sharing arrangements where the facts and circumstances justify them.

2. The escape clause provisions of existing law should be prevented and strengthened.

3. The Tariff Commission should, under section 221 of the proposed bill, be directed to hold hearings and 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. Provision should also be made in this section for industry advice and counsel in negotiations with other countries in conformity with the practice of other countries negotiating with the United States.

4. We approve the reaffirmation of the most-favored-nation principle contained in sections 241 and 242 of H.R. 9900. There has, however, been a lack of reciprocity in past trade agreements and a failure to enforce reciprocity by suspending most-favored-nation treatment with respect to any country which discriminates against U.S. commerce or pursue other policies that subvert the most-favored-nation principle. We submit that the principle of reciprocity should be rigorously enforced in future negotiations.

5. We approve the provisions of section 222 of the proposed bill which requires the President to reserve from negotiation for reduction or elimination of duty any article on which escape clause or national security proceedings are in progress. In addition, we would recommend that articles be reserved from negotiation until the President receives the advice of the Tariff Commission under section 221 of the proposed bill.

6. We recommend that section 212 of the bill be clarified to exclude footwear as an agricultural commodity or product thereof.

Finally, the American shoe industry goes on record as being in step with a recognition of the need for trade expansion to help our own country and, doing so, to help the economy of friendly nations. We ask of Congress this simple consideration: a fair competitive chance of survival as an industry paying the world's highest shoe worker wages, yet competing with the world's lowest paid shoe wages as embodied in shoe imports.

Mr. KING. Mr. Toor, the committee appreciates your bringing this message to us. I want to apologize for the prolonged hearings today. I know it has inconvenienced you. Are there questions?

Mr. Burke will inquire.

Mr. BURKE. The Secretary of Commerce testified that the trade expansion program would facilitate a much greater export market for U.S. production. Would the shoe manufacturing industry be able to partake of this benefit?

Mr. TOOR. The shoe manufacturing industry is really not an exporting industry. Our exports have never amounted to too much although they have been on the decline in the last few years. I doubt very much if we would benefit from exporting at all.

Mr. BURKE. You asserted that you supported the Orderly Marketing Act of 1961 or S. 1735, I believe. Would you elaborate on that bill?

Mr. TOOR. We were thinking in our way that an equitable distribution would be fair to the shoe industry in some way; that is, our proposal that we would share the marketing arrangements with these

other countries and the friendly nations in some way. We do not intend to eliminate imports into this country even though we do not share equitable exports from here.

Mr. BURKE. You have indicated that the shoe manufacturing industry is an area of production with high labor content. Will you

Mr. TOOR. As you probably know-some of the others may notthere are over 200 operations in the average pair of shoes which means that 200 operators handle a pair of shoes. Shoe workers are really craftsmen and the machines only act as a supplementary part. The fact that we deal with leather, which is the skin of an animal, does not permit us too much automation. We have so many operations that require handwork and every machine in a shoe factory has to be manned by an operator with the result that, of all the industries that I know of, I think that the shoe industry has more people working per dollar volume than any other industry I know of.

Mr. BURKE. Can you estimate how many jobs have been lost in your industry at the present import rate and how many are likely to be lost at a reasonably projected import rate?

Mr. TOOR. They have estimated over 30,000 jobs would be affected between 1956 and 1965 if the duties remain as they presently are. Mr. BURKE. In the shoe industry?

Mr. TOOR. Yes. This is shown on one of the charts that we have with our statement.

Mr. BURKE. Are the import duties and other trade restrictions on shoes more severe in the foreign countries than in the United States? Mr. TOOR. They are by far. We have a chart on that, too. On page 10 of our brief we show the countries in the Common Market and the other countries with their rates of duties and their other taxes as against our duty in this country. If you will refer to that you will see that there is a substantial difference all the way through. We are not even close on any of them.

Mr. CATES. One of the things that happens when you get involved in exports is that, as we check with our people in the industry who have always had an export business, we find that their business has been on the decline because of the noncompetitiveness of our dollar cost of product versus what they have in the foreign country.

Beyond this, in order to sustain any kind of export business, we are jumping over the barrier by setting up licenses in these foreign countries and the licenses in the foreign countries allow our shoes to be made there with foreign labor for the domestic market in those countries but, as far as generating any employment here is concerned, it has been a complete loss, whereas all our imports represent jobs that we are generating in the foreign countries as they ship the merchandise here.

Mr. BURKE. Do you think the removal of many of these restrictions would be helpful to the export business of the shoe industry? Mr. TOOR. I doubt if it would help us very much.

Mr. BURKE. Do you think these restrictions are so prohibitive as to prevent the shoe industry here in America from competing abroad? Mr. TOOR. Yes, we still have to compete against a much, much lower labor rate.

Mr. BURKE. In addition to these other restrictions.

If there were these restrictions removed, you would still have the big problem of the cost of labor?

Mr. Toor. That is right. The removal of some of these restrictions might help us some. There is some possibility, but it would never be of any substantial amount.

Mr. CATES. If you start with 3 million pairs plus of exports today and expand it at any rate you can imagine up to 200, 300, or 400 percent, you might be up to 10 or 12 million pairs of shoes. We are not talking in those kinds of terms in the amount coming in so the effect is still tremendously in favor of the import job.

Mr. BURKE. Those 3 million pairs of shoes you are talking about, are they specialized high-cost shoes-some people may want to buy a quality shoe in some countries or are they a cheap shoe?

Mr. ČATES. I do not know if we have enough to give you a good answer on that. We can find out and let you know.

Mr. BURKE. I was wondering what type of export business we were enjoying, whether it was just a specialized type of business as a result of design, quality of shoe, or just what was the cause of that business dwindling, whether it was caused by the requirement for a quality shoe or certain design shoe, that that might be the reason for the shoe being exported. In other words, these 3 million pairs of shoes being exported are not meeting the competitive price of foreign countries. Mr. CATES. We would expect that it would be a combination of quality, brand name, specific markets that are still open that do not have the competition of the Common Market and that type of thing. It could be some peculiar design.

Mr. BURKE. Could we get a brief summary statement analyzing why this figure is down to 3 million pairs? We would like to have that for the information of the committee, just the reasons why it is only 3 million pairs, why it should not be 12 or 15 million pairs. Was it because of a need for a quality shoe or special design shoe? Mr. CATES. We have made market surveys.

Mr. BURKE. Did these 3 million pair of shoes happen to be a cheap pair of shoes made by one or two manufacturers?

Mr. TOOR. We are not really able to tell you what shoes.

I do think that a lot of them are a smattering of some of our very famous brand names that are purchased in some of the foreign countries in limited quantities.

Mr. BURKE. Thank you very much.

I think you have presented an excellent case on behalf of the shoe

industry.

Mr. TOOR. Thank you.

The CHAIRMAN. We thank you, sir.

Are there any further questions? Mr. Alger.

Mr. ALGER. Mr. Toor, having been raised in the suburbs of St. Louis, I know I was always conscious of the shoe business and the gentleman from Missouri, Mr. Curtis, were he here, would extend the greeting that I, too, share in extending to you.

Secretary Hodges was here and made a point for your industry in this way. As I remember, he said that, to prove how virile our industry is, the Japanese produce scuffs but in short order American manufacturers, through their technical ability and know-how, over