Mr. McKINLEY. That is right, sir. Mr. SIMPSON. It is for that reason that you would hope to have some relief available to you upon application within H. R. 4294 under parts that permit the imposition of quotas? Mr. MCKINLEY. That is right, sir. Mr. SIMPSON. That part of the proposed bill becomes very important to your industry? Mr. MCKINLEY. We feel it does, sir. Mr. SIMPSON. Of course, from the national interest standpoint, as contrasted with your own individual company and its employees, this matter of your essentiality with respect to war is a vital interest that the committee must consider here. Two figures would seem to indicate that if we go on in a short time you may only have 175 men skilled in the lines of making microscopes and binoculars which are necessary during wartime. You might repeat, in the event you had so few men available and we were called upon to expand the industry, in the United States, comparable to the extent we had to expand it a few years ago, you say it would take quite a long time. Mr. MCKINLEY. During the last war it took us 2 years to build up to a peak and that was the 2 years we had before we entered the war. It gave us a chance by having 2 years' leeway to build up an optical industry. Even during that time we were supplying Canada and England with binoculars, so that gave us a start in the direction of building up. So at the time Pearl Harbor happened, we were in very much better position of having had 2 years of expansion. If we started out with 176 men to expand and had lost the others, as I said in my report, we have not lost those men, we have maintained them on Government contracts, but we all feel that Government contracts are going to be withdrawn in a short period of time-we hope-and in that case we are going to depend entirely upon the commercial business which, from these figures alone, would indicate that we have gone down to 70 percent of our production. Mr. SIMPSON. Your considered opinion is that the only way to preserve your industry for essential and necessary work during wartime is by giving it a substantial part of the domestic market in peacetime years? Mr. MCKINLEY. That is right, sir. Mr. SIMPSON. And you further believe that the only way to do that is by the imposition of a quota under certain findings on the part of the accredited agency of government? the Mr. MCKINLEY. That is right. I would like to say this: In nearly every case where there has been a petition to lower tariffs, that country which has asked for the lowering of tariff has not benefited in optical industry, at least, from the reduction of the tariff. Some other country with lower labor rates has come in and taken away the market. In the last meeting it was France who asked reduction on the binoculars, and from the record you can find that France is not producing anything like the binoculars that they were before because Japan took that market away from them. Mr. SIMPSON. I assume you manufacture many things other than those you have emphasized here? Mr. MCKINLEY. Yes, sir. Mr. SIMPSON. I want to ask you, and I would like to know, do the other parts of your business benefit greatly by reason of the cuts that have been made in the trade agreements? Mr. MCKINLEY. I beg your pardon? Mr. SIMPSON. Are you heavy exporters in other lines of your products? Mr. MCKINLEY. I gave just the binoculars. Our total exports, including the spectacle lenses, have dropped at least 90 percent from where they were. Mr. SIMPSON. So far as your whole operation is concerned, the trade agreements to the extent that they were intended to help American business as we have been told in the past have not operated to your advantage, then? Mr. MCKINLEY. None whatever. The CHAIRMAN. Any other questions? If not, we thank you for your appearance and the information you have given us. Mr. MCKINLEY. Thank you. (The following material was submitted for the record :) SUMMARY STATEMENT BY THE OPPLEM Co. This statement is submitted by the Opplem Co. of New York City and Lynchburg, Va., importers of scientific instruments for 26 years. While favoring extension of the Reciprocal Trade Agreements Act, we oppose passage of H. R. 4294 because the act would be crippled by the amendments proposed therein. Opplem manufactures scientific instruments in the United States and distributes microscopes and other scientific instruments imported from Italy. Long experience qualifies us to state unequivocally that Italian microscopes together with all other imports are not causing harm to United States security nor to United States industry or labor. The facts on this are very clear. A. UNITED STATES PRODUCTION OUTSTRIPS IMPORTS BY AT LEAST 25-30:1 Domestic production in 1952 appears to have been a minimum of $20 millions, probably much more; imports only $700,000. Does this suggest that United States industry is threatened by imports? B. UNITED STATES EXPORTS EXCEED IMPORTS BY 50 PERCENT United States microscopes and accessories obviously must be competitive with foreign products, for United States products valued at $1,034,000 were exported to 77 countries and dependencies in 1952. Moreover, these exports exceeded imports by 50 percent. A sharp drop in exports from the United States since 1948 has been attributed to imports. This is unrealistic. Firstly, imports into the United States do not affect United States exports. Either United States products are compteitive abroad, or not. Obviously, they were in 1952-over $1 million's worth. Secondly, 1948 was an abnormally high year for exports because foreign supplies from war damaged Germany, Italy, and Japan had not yet returned to international markets. Thirdly, exports to Soviet bloc countries have fallen sharply as the result of strategic export controls. For example, exports to China fell from $310,000 in 1948 to $47,000 in 1949, to zero in recent years. Finally, the drop in exports was nowhere near as sharp as claimed. According to official statistics, from 1948-52 exports by the United States industry dropped less than 58 percent, not 97.5 percent as the report of Bausch & Lomb Optical Co, might lead one to believe. C. LOWER LABOR COSTS ABROAD ARE SO OFFSET BY OTHER HIGHER COSTS THAT IMPORTS CAN BARELY COMPETE WITH UNITED STATES PRODUCTS There are three very important points here. 1. Because of heavy distribution costs, duty, etc., Italian scopes are only about 10 percent cheaper than United States scopes. Bausch & Lomb admit their net costs are $293; Italian scopes can be offered dealers at an average price of $263. 2. Italian labor is 133 percent more expensive than Bausch & Lomb reports. Verified statistics show average labor costs in Officine Galileo, Milan-a completely privately owned company-to be about 70 cents per hour, not 30 cents as reported by Bausch & Lomb. Overlooked is the fact that Italian companies are required to pay heavy social security charges, Christmas bonuses, housing contributions, etc., which jack up wages from 43 cents to 70 cents. 3. Several factors cancel out the advantage of lower labor costs in Italy. First, labor accounts for less than one-third of the final cost of an Italian scope sold in the United States, so lower labor costs are not of much advantage. (In the United States, the Census of Manufacturers shows the comparable laborcost figures as 38 percent.) Second, other costs in Italy, of money, materials and machinery, are far higher than in the United States. Third, heavy costs are incurred in distributing Italian scopes in the United States. Fourth, United States output is high enough to permit some mass-production economies, which economies are not possible in Italy because of low output. The fact is that the net profit per dollar of sales for Bausch & Lomb exceeds greatly that of the Opplem Co., and of the Italian manufacturer. D. IMPORTS ARE NO THREAT TO THE UNITED STATES PRODUCTION BASE OR TO NATIONAL SECURITY The largest single purchaser of microscopes is the Defense Department. Instructions to contracting officials require that they assure protection of the United States mobilization base before making awards to foreign firms (par. A of an unclassified memorandum of June 19, 1952). Furthermore, the Joint Optics Committee has recommended stockpiles of optical glass adequate to protect us in the event of an all-out war. Also, the skills required for microstope production are used widely in several other branches of the optical industry, in several branches of which there are virtually no imports. Unlike preTar, there is a large optical instruments industry in the United States today; put was $94.8 million in 1951 and growing, against $8.7 million in 1939. Finally, foreign labor is not displacing United States labor for, indeed, New York State reports a shortage of skilled labor for the optical industry. E. IMPORTS HAVE SAVED MONEY FOR THE TAXPAYER Government agencies buy imports at prices below the protected, high-profit United States price. As a result of this competition, American firms have dropped their prices to the Government nearly 20 percent and still make handSome profits. Note that before foreign competition the United States industry was able to bid higher, and identical prices to Government agencies. (See annual report 1951, Senate Small Business Committee Report No. 1068.) Extensive antitrust litigation in Federal courts involving United States industry makes crystal clear that there has been an absence of real competition in the United States optics industry. F. IMPORTS BENEFIT HOSPITALS, CHARITABLE FOUNDATIONS, AND RESEARCH INSTITUTES Import prices may be lower or at least may hold down the United States price. The savings that hospitals and research foundations thus make permits more research in medicine and science. Besides, foreign skills, techniques, and equipment are essential to high-grade research. G. AN INCREASE IN DUTY, OR IMPOSITION OF QUOTAS, COULD KNOCK ITALIAN MICROSCOPES OUT OF THE UNITED STATES MARKET Competition with United States scopes is already intense and profits are low. A price increase, therefore, forced by duties could be a disastrous blow. Quotas could also be dangerous for they arbitrarily limit the kinds and quantities of imports. If imports were reduced or eliminated for either reason, the domestic industry would have a virtual monopoly on the market, with all the undesirable effects that this would entail. OPPLEM COMPANY, INC. NEW YORK, N. Y. Because we believe that H. R. 4294 does not best serve the national interest, we oppose passage in its present form. We favor, instead, extension of the Reciprocal Trade Agreements Act without crippling amendments. SAMUEL SANDERS, President. OPPLEM CO., INC. NEW YORK, N. Y. STATEMENT ON BINOCULARS While we are not at the present time importing binoculars, we have done so in the past, both post and prewar, in considerable quantities. We are therefore familiar with the market from both a quality and price standpoint. From both points of view it is clear that inexpensive imports do not compete with Bausch & Lomb binoculars. First The quality of inexpensive imported binoculars is not equal to Bausch & Lomb. Under no circumstances could the quality of the imported binoculars be compared with the precision quality of the Bausch & Lomb binocular which is made to conform to rigid specifications. As we have much experience repairing and servicing Bausch & Lomb instruments, we know the workmanship is far superior to inexpensive imports. Second: Imported binoculars tap a completely different, low-income market. The statement made by Bausch & Lomb does not present a clear picture of the binocular market. There is the high-price, high-income Bausch & Lomb market and the low-price, low-income import market. The two are so far apart that they are not competitive. The large volume of low-price imports indicates that a new market has been created, catering to the lower income groups. It would certainly be unfair to deprive these groups of the opportunity to purchase an inexpensive binocular solely because Bausch & Lomb makes an expensive one. SAMUEL SANDERS, President. SUPPLEMENTARY STATEMENT BY THE OPPLEM Co., NEW YORK, N. Y. This statement is submitted by the Opplem Co. of New York and Lynchburg, Va., manufacturers of scientific instruments and distributors of microscopes and other scientific instruments made in Italy. We believe that the Reciprocal Trade Agreements Act should be extended for 1 year, but without crippling amendments as in H. R 4294. In a preceding summary statement, it was been established clearly that imports of microscopes represent no harm to the national security, to American industry or to American labor; that the American taxpayer benefits; that hospitals, charitable institutions, and research foundations benefit; that real competition in the optical industy is introduced and maintained through such imports. In this statement we will develop in some detail the facts supporting this conclusion. We would welcome an equally frank statement by those claiming harm from imports. A. HOW DO DOMESTIC PRODUCTION AND IMPORTS COMPARE? The figures show that domestic production exceeds imports by about 2530:1. Data on domestic production are not easily obtained. But Bausch & Lomb Optical Co., the largest firm in the industry, admits that about one-third of its production is scientific instruments' and that in 1952, microscopes accounted for "* * * by far the largest volume of its scientific instrument production.” Bausch & Lomb gross sales in 1952 were $52 million. Thus, scientific instru 1 Hearings before the Committee on Finance, U. S. Senate, 82d Cong., 1st sess., H. R. 1612. on 2 Testimony of Bausch & Lomb before the Committee on Ways and Means, House of Representatives, May 1953, on H. R. 4294. 3 Annual report, Bausch & Lomb Co. 2 ments would be about $17 million and if "by far the largest volume" means, say, 75 percent, then Bausch & Lomb produced nearly $13 million of microscopes. Gross production in the remainder of the industry can be very conservatively estimated at $7 million. A minimum figure for the industry would thus appear to be about $20 million. Even if the figure were somewhat lower, it would still have to be compared with imports of only $700,000 in recent years, an import figure which seems to be stable and which is far below the prewar level. In view of this disproportion, is it not stretching matters to claim that imports are harming domestic production? B. HOW DO DOMESTIC PRICES AND IMPORT PRICES COMPARE? Bausch & Lomb reports a net price for their average model of $293. After paying duty and all the other heavy charges described below, Italian scopes can be offered to dealers at an average price of $263, roughly a 10 percent difference. This is borne out in a recent Government bid for binocular microscopes when the Italian scope was offered at $315, the Bausch & Lomb scope at $346.40— again, the 10 percent difference. With only this 10 percent differential, Italian scopes have real difficulty competing in commercial markets against the resources, strength, and reputation of Bausch & Lomb. That is why United States production vastly outruns imports, despite a minor price disadvantage. It is a misconception to consider Italian scopes as "low priced." Because of high costs of distribution, overhead, advertising, duties, etc., incurred in the United States at United States cost levels, Italian scopes are, as we said, only about 10 percent under Bausch & Lomb scopes. Included among these costs are: (a) a duty of 45 percent advalorem (b) cost of freight, insurance, and handling (c) cost of advertising (d) cost of attendance at exhibitions and scientific demonstration (e) cost of maintaining inventories and supplies of spare parts (f) cost of servicing equipment provided for under guarantee on each instrument (g) cost of mechanical and optical checking of each instrument (h) cost of special equipment produced in the United States, which is added to the imported microscope; for example, special mechanical parts, plastic covers, special cases, etc. (i) printing of instruction books (j) costs of combatting the efforts by domestic industry to shut off imports. Census of Manufactures data for 1951 in the United States indicate that labor costs accounted for only 28 percent of the value of shipments of the optical industry, for there were $4.73 of shipments for each $1.80 spent for labor, the difference being accounted for by materials, distribution, overhead, administration, profits, and other costs. Equally, with Italian products, labor accounts for only a small part of the value of shipments, the difference being heavy distribution and overhead costs incurred here. Thus, a microscope imported from Italy having a dutiable value of about $80 must be offered to dealers at several times this cost. Those who believe that the importer, distributor, or manufacturer has made much money from Italian imports are gravely mistaken. Net profits in recent years have been far less than the average for United States industry. C. DO IMPORTS HARM EXPORTS? It has been claimed that exports of Bausch & Lomb instruments fell off 97.5 percent from 1948 to 1952 because of "low cost" imports." Now, this statement is indeed difficult to understand. First: What effect can imports possibly have on exports? Either United States products are competitive in world markets or they are not. What is imported into the United States cannot possibly affect the ability of United States microscopes to compete on markets abroad. Second: The year 1948 was an abnormally favorable year for United States exports. The world was starved for scientific instruments, buying widely from anyone who offered them. The United States was able to offer these products, |