If we can be of any further assistance to you or your Subcommittee, please call on us at anytime. Yours very truly, Hon. WILLIAM J. GREEN, Chairman, Committee on Trade, KENT J. NENTWIG, Vice President, Operations. FIGURE FLATTERY INC., New York, N.Y., March 25, 1976. DEAR MR. CHAIRMAN: I am writing this letter, as a businessman, not a lawyer, to express my opposition to the proposals for repeal of Items 806.30 and 807.00, TSUS. My Company, Figure Flattery Inc., was probably one of the pioneers to initiate an assembly operation in Mexico in reliance on Item 807.00 for popular-priced foundation garments (bras and girdles), and, more recently, sportswear, men's underwear and disposable hospital products. We began these operations in July 1963 in Juarez, initially on a pilot basis, and we did so not as a "run-away" plant but in order to compete more effectively in the United States market with companies selling goods that originated overseas. To supplement our Juarez assembly operation, we established a twin plant in El Paso for our cutting and preassaembly operations, which created new job opportunities there. Achieving an efficient border operation was no easy job; integrating the twin plants, coordinating their activities and training Mexican labor was a time-consuming and expensive process. However, over a period of many years we established a satisfactory border operation and, despite the recently imposed quota restrictions on textile imports, continue to operate under the 807 program. As already indicated, our Mexican plant was established to supplement our existing U.S. production facilities and not "to export more and more jobs" as some advocates of repeal would have you believe. In fact, over a period of years as we expanded our Mexican assembly facilities, we likewise expanded our support operations in the U.S., thereby increasing our employment of U.S. labor. The present attempts to repeal 806.30 and 807.00 are, in my opinion, misconceived. They proceed on the false assumption that the repeal of Item 807 would automatically "reclaim" foreign job opportunities for the U.S. Contrariwise, I sincerely believe that such repeal would have a boomerang effect and disastrous economic consequences to the U.S. economy. If the proponents of repeal succeed, Figure Flattery Inc. would have only two options: We would either discontinue and liquidate our U.S. and Mexican operations or convert entirely to foreign-based facilities. Let me explain why these are the only viable options. Labor's assurances to the contrary, in our field there has long been an alarm ing decrease in the available number of domestic employees qualified or willing to work as sewing machine operators; for example, during the last several years and, as recently as 1975, we have been attempting to hire employees in our U.S. facilities to fill 35 such positions. Despite classified advertisements in newspapers serving the Spanish-speaking population, supplemented by direct appeal to the local labor union, we have been able to fill only ten of those positions to date. There is just no adequate labor force in the U.S. experienced or willing to be trained for the jobs now being done in our Mexico assembly facility. However, even if a domestic labor force were available, the fact is that it would not be economically feasible for us to manufacture in the U.S. and still compete effectively with sellers of popular-priced garments originating in the Orient and other developing countries. Accordingly, if we were constrained, by repeal of Item 807, to discontinue operations, we would then also terminate our present component of 430 U.S. workers, which complement includes 285 employees with one to five years of tenure, over 130 employees with five to ten years of tenure and 15 employees with over ten years of tenure, all presently employed at an annual payroll in excess of $5,200,000. In addition, of course, the liquidation of our operations would inevitably have adverse radial effects upon the work forces of all our U.S. suppliers from whom we purchase U.S. made components, trimmings, etc. Based on our annual volume of such purchases, presently aggregating over $10,000,000, we estimate that the termination of our operations would necessarily affect between 750 to 1,000 employees of our suppliers with annual payrolls comparable to our own. We sincerely believe that if Item 807 is repealed, we will be forced out of business. The only other viable alternative would be to force our entire manufacturing operation out of the country. In that case, we would probably discontinue our purchase of U.S. made components and buy foreign piece goods and trimmings in order to achieve a more attractive world-wide availability and price so that we would continue serving our major customers on a competitive basis. In that eventuality, the Mexican job opportunities would not be "repatriated" to the United, as the advocates of repeal would have you believe, and the effect would be counter productive. Indeed, we would strip down our U.S. operations and our U.S. suppliers of piece goods and trimmings would lose the bulk of their present volume and their own job opportunities would, likewise, be reduced. Whatever our choice (liquidation or greater foreign concentration), repeal of Item 807 would inevitably stir turmoil along the border. For example, we presently employ approximately 1,500 people in our Mexican facilities. Were these trained workers to lose their positions, many will become migrant workers and, by virtue of our training and their experience, could then compete with U.S. employees in seeking job opportunities with fringe operators in border states, thus, further aggravating the "wet-back" problem. Indeed, it is highly probable that some Mexican entrepreneurs would then take advantage of such a qualified labor pool for local operations to compete with U.S. manufacurers and in this era of relaxing international trade barriers, it is highly unlikely that our economy will be benefited. In short, the suggestion by labor leaders that the repeal of Items 806.30 and 807.00 will necessarily create more job opportunities in the U.S. is wishful fantasizing and myopically unrealistic. Properly directed and encouraged, Items 806.30 and 807.00 can enable U.S. manufacturers to compete more effectively in world markets for apparel, something they have not been able to do successfully. With the price structures that these Items support, U.S. manufacturers can count the capability of going beyond the domestic market and into other markets of the free world which have tremendous potential and which are presently serviced almost exclusively by foreign-based manufacturers. The economic benefits to the U.S., for balance of trade and the like, are obvious and the direct and indirect benefits to U.S. labor can be equally significant. The fact is that as textiles represent only 4% of all U.S. imports under Item 807.00, it is clear that the present campaign for repeal is a last ditch effort to stop textile imports without the stigma of being labelled un-American and anti free-trade. The American Institute for Free-Trade Union Development recently circulated a story describing a U.S. operation under Item 807.00, which allegedly exploits its Honduran workers by paying extremely low wages and treating them inhumanely. The story also describes the U.S. company's efforts to resist and forcibly oppose unionization of its Honduran plants. While we do not know whether that report is factual, we can assure the Committee that it is atypical of the 807.00 operations with which we are familiar and certainly not reflective of ours. Figure Flattery began its 807.00 operation in Mexico in July 1968 and, even before the plant was opened, freely accepted one of the two largest national labor unions in Mexico to organize the workers. They did so and to this day we have maintained satisfactory relations with the Mexican union and, in fact, look to them for the stability of our reputation as a foreign company operating in Mexico. All of our operators work under the piece rate system and are paid from $50 to $65 per week and, in addition, 30% in fringe benefits that include housing, Social Security, unemployment and other such benefits. Mr. George Meany, President of the AFL-CIO, was recently quoted as having said: “... Today most bras are 807 imports. Apparel manufacturers send out the cut cloth for assembly abroad and import the final product. And the only tariff they pay is on the added value, which is cheap, cheap wages paid to workers in other countries." He then concluded that the consumer doesn't benefit: "Rather these large manufacturers charge the same price for garments made entirely in the U.S. and those assembled abroad." These charges are utterly misleading. First, Figure Flattery, since starting its operation in Mexico, has reduced its prices in many cases but in no instance save prices increased more than 5%. Also incorrect is the implication that importers pay tariff on added value only (meaning solely the Mexican labor costs). The fact is that Figure Flattery pays a tariff of 32% plus on the majority of the products it assembles in Mexico and added value is much more than the labor required to sew a particular garment; it includes labor, direct and indirect, all general expenses, transportation costs of materials and finished goods, certain costs incurred in the U.S. such as salaries paid by and other "assists" from the parent company, depreciation of equipment provided by the parent company, etc. The "added value" on which duty is payable is by no means minor and any manufacturer, domestic or foreign, would deem it a substantial cost. The ILGWU Research Department has stated that "garment parts cut in the U.S. are considered to be of American origin even if the fabric itself was originally produced outside the U.S. The process of cutting in the United States turns fabric of foreign origin into a domestic product." As any Item 807.00 operator knows, any material of foreign origin used in the assembly process abroad, even if cut domestically, is again dutiable as if it were foreign in its original state. In other words, there is double customs duty on such imports and it is, therefore, not financially feasible for 807 manufacturers to use anything but U.S. piece goods and trimmings. The statements of proponents for repeal of Items 806.30 and 807 falsely proclaim that U.S. manufacturers operating under 807 are reaping huge and unconscionable profits by exploiting "cheap, cheap labor" and charging high, high prices to U.S. consumers, thereby allegedly "proving" that consumers reap no benefit from Item 807. What they do not say, and what many do not know, is that the major U.S. retailers who buy from us protect their customers by giving them the best dollar value available in any country in the world. Figure Flattery, we believe, is representative of most manufactuerers in the apparel industry, including those operating under Item 807.00, and under the governing eye of the competitive major retailers. With these natural restraints. Figure Flattery operates at a 3% and below profit-margin. Neither Figure Flattery, nor the Mexican operation, manufactures for sale in Mexico; indeed, if our products were sold in Mexico, they could command twice the price. When, in 1969, an earlier attempt to repeal Item 807.00 failed, labor turned to the Department of Commerce and Industry and was successful in obtaining quotas for countries not previously included in the list of quota import countries. Although the issue before you is not free-trade, or international policy, the fact remains that the United States was a major participant in the Kennedy Round of Tariffs and what is now being referred to as the Tokyo Round of Tariffs. The avowed goal is the relaxation of trade barriers and worldwide tariffs so that all countries may participate more equitably in the exchange of goods and services. Labor claims that 69% of the value of all apparel imports under Item 807.00 are of domestic value and if that is so it negates the case for repealing Item 807.00. According to published reports, apparel items under Item 807.00 represented 10.3% of all apparel imports in 1974. We suggest that if 100% of all apparel imports fell under Item 807.00, the boost to the U.S. economy and our balance-of-trade situation would be significantly improved. In essence, if all apparel imports fell within 807.00 categories, the U.S. export responsibility would decrease almost 70% in its effort to balance the dollar import under the apparel categories. Does it make sense to eliminate from import those apparel products containing only a 31% foreign makeup or value and leave untouched almost 90% of all apparel imports with 100% foreign makeup and value? We think not. In any event, it seems highly anomalous to us that at the very same time that negotiations are in progress in Geneva, aimed at relaxing international trade carriers generally, a pressure group effort directly contrary to the spirit of those discussions is aimed at the 807.00 program. In conclusion, we respectfully urge every member of the Committee to base his decision on the proposal to repeal Items 806.30 and 807.00. TSUS solely on the merits and the best interests of the United States and the consuming public and not on the propagandizing of a special interest pressure group, however implemented. Neither that group nor manufacturers who operate under items 806.30 and 807.00 should be considered. Respectfully submitted. BERNARD KORMAN, President. STATEMENT OF THE TELEVISION BUSINESS DEPARTMENT, GENERAL SUMMARY General Electric is the only television manufacturer that has kept its entire TV set production in this country Competition is intense and is characterized by the number of companies dropping out of the business, and movement of set manufacture offshore. The unfair pricing practices of the Japanese and inequities that exist between tariffs on a completed TV set and components provide incentives to move set production offshore 807.000 protects TV set production jobs of General Electric in the U.S. in that it narrows tariff inequities between imported TV sets and components. 807.00 should not be changed until tariff inequities are studied as part of preparation for GATT negotiations and current legal actions resolve the alleged predatory pricing practices by Japanese television firms. STATEMENT When in full production, the General Electric Company employs well over 5,000 persons at its television assembly operation near Portsmouth, Virginia. The 134-acre site serves also as the headquarters for the engineering, manufacturing and marketing of General Electric's complete line of both color and monochrome (black and white) television receivers. It currently has annual payroll exceeding 44 million dollars. Indirectly, it provides employment for several thousand additional persons in other firms, through its annual purchase of 157 million dollars in materials and components. INTENSE INDUSTRY COMPETITION-DOMESTIC AND FROM JAPANESE As a company with the heritage of having pioneered in the television industry, General Electric has made substantial investments in this intensely competitive and changing industry that has seen manufacturers such as Westinghouse, Teledyne, Emerson and a great many others drop out. Within the past two years, for example, Philco Ford's television business was purchased by GTK Sylvania, Motorola's television business was acquired by Matsushita of Japan, Magnavox was taken over by North American Philips. Admiral was bought out by Rockwell International, and Muntz simply dropped out of the business of manufacturing television receivers. In fact, out of 28 U.S. color television brandnames in 1960, only 11 now survive. This period was characterized by aggressive Japanese pricing of monochrome TV sets, leading to the offshore production of nearly 70% of the monochrome sets sold in the U.S. In the period from 1974 to 1975, the same trends are appearing in color TV. The Japanese share of the 18-inch and 19-inch color TV receivers sold in this country increased from 9.7 to 19.7%. And in the 12-inch and smaller screen sizes, their share went up from 49.4% to 54.4%. Over the years, General Electric's strength has been in the small screen TV sizes (15-inch and less). And, while the introduction of color significantly impacted the sale of large screen monochrome (black and white) sets, small screen monochrome primarily for bedroom or kitchen viewing continues to be a growth segment of over four million units annually. In this small screen monochrome segment, General Electric has maintained its position of third in the industry-behind only Zenith and RCA, both of whom are manufacturing their small screen chrome TV sets in Taiwan. Not only are Zenith and RCA producing their small screen monochrome TV receivers outside this country, but so are the other major U.S. television manufacturers: Motorola, Admiral and Sylvania in Taiwan, and Magnavox in Mexico. During the last 10 years all of this country's TV firms moved their small screen monochrome assembly operations to foreign locations, primarily in the Far East, in order to compete more effectively with Japanese producers. And Admiral also is moving its small screen color TV production to Taiwan-which raises the question whether this is the start of a trend in which color TV production will continue to be moved out of this country, as U.S. industries are pressured by the cost advantages of offshore production. GE IS ONLY COMPANY ASSEMBLING ALL SETS IN U.S. Only one company has maintained its entire television set production in the United States, in spite of tariff inequities. That company is General Electric. Our decision to maintain TV set production in this country has resulted from a number of important considerations: First, due to the superiority of our engineering design, we have been able to streamline our Portsmouth assembly operations in significant measure. Our studies show that our competitors' monochrome sets consistently have more parts disigned into them than do comparable General Electric receivers. Second, we have a highly-motivated and productive work force that is dedicated to holding the line on costs, while providing the customer good quality and reliability. Third, we have a modern, air-conditioned plant with a facility plan developed specifically to provide a continuous flow of material and assembly throughout the manufacturing operations. And, fourth, we have been successful in sourcing our materials and components without adding substantially to our costs. This has been accomplished through selective purchasing worldwide, and by operating a small components plant in Singapore to supply our operations in this country with printed circuit boards, harness and secondary controls, high voltage assemblies, and other such parts that enable us to achieve the cost levels required to protect U.S. jobs, assembling the completed sets here. In like manner, the Singapore plant utilizes parts produced in this country. Thus, the Singapore plant not only plays a significant role in sustaining the jobs in this country, it is essential to General Electric's survival in the television industry. EVIDENCE OF PREDATORY PRICING PRACTICES BY JAPANESE The maintenance of 807.00-as it relates to our Singapore plant, is necessary because of increasing evidence that the Japanese television firms are engaging in predatory pricing practices, and because 807.00 narrows current inequities between tariffs on completed TV sets and components imported into this country. A recent New York Times News Service account cited information that "clearly suggests that the Japanese are pricing their sets below their average cost of production and perhaps at a level covering no more than direct labor and materials-without allowances for overhead costs such as depreciation, selling expense, and freight." The article continues: "Those who believe the Japanese are engaging in unfair competition point out that 25-inch color sets sold by the Japanese in Japan usually cost more than $1,000 at retail. "Comparable American-made sets sold here cost $600 at retail. The absence of 25-inch American sets in Japan, despite the price differential, is cited as direct evidence of protectionist actions by Japan at home and a predatory attitude by the Japanese in the U.S. market." Further, a study on "The U.S. Consumer Electronics Industry" issued in September 1975 by the U.S. Department of Commerce states: "In Japan, government-industry cooperation and planning-Japan Inc.'have permitted a degree of industry-wide collaboration and market allocation quite different from U.S. antitrust policy. "Japan's industrial policy has been to protect her high-technology, highgrowth sectors. The home market was effectively protected from foreign competition until the industry achieved sufficient economics of scale to become internationally competitive. Business practices still restrain undesired import penetration." In the case of Zenith Radio Corp., V. Matsushita Electric Industrial Company, Ltd., et al., U.S. District Court for Eastern District of Pennsylvania, Zenith expects to prove collusion among 19 Japanese consumer electronics companies and U.S. affiliates and Motorola, Inc., which, as noted earlier, has sold its television business to the Japanese firm, Matsushita. In the 900-milliondollar antitrust suit, Zenith states that the Japanese companies aim at nothing |