The members of the guild produce approximately 65 percent of all the champagne made in the United States. Hundreds of people are dependent upon this industry for livelihood, including grape growers, farmers, skilled workmen, and laborers. Two of the members of the guild were established before the Civil War. Champagne has been produced in this country for more than 80 years. The members of the Guild are: American Wine Co., St. Louis, Mo., established 1859, producers of Cook's Imperial; Pleasant Valley Wine Co., Rheims, N. Y., established 1860, producers of Great Western; Roma Wine Co., Fresno, Calif., producers of Roma American Champagne; Vineyardists, Inc., Penn Yan, N. Y., producers of Vintner's American Champagne; D. W. Putnam Co., Hammondsport, N. Y., producers of Golden Age; George F. Lonz, Middle Bass, Ohio, producers of Ile de Fleur. There are at least six other members of the industry, all of whom are vitally interested in this application, although they are not members of the guild. THE CONDITION OF THE AMERICAN INDUSTRY (a) The manufacturer. During the prohibition era the production and sale of champagne came practically to a standstill; huge inventories were carried in the wine cellars and no sales were permitted for the reason that champagne was not used for sacramental and religious purposes, this being the only legal outlet for wines. It became necessary for the producers to heavily mortgage their plants and property. Some closed down completely. With the advent of repeal in December 1933 complete rehabilitation became necessary. Additional loans were negotiated for the purchase of grapes and materials. Plants had to be repaired and new equipment installed. Inventories had to be built up. Champagne must age at least 1 year in the bottle before being sold. The champagne manufacturers have accomplished all of these things and are placing upon the American market a product which by comparison is the equal in equality of good French champagne and far superior to the cheap brands which are now being widely distributed throughout the United States. With all of the handicaps above enumerated and with the high costs of grapes and labor, the American consumer is paying an average of $2.49 per bottle for American champagne. On the other hand this same consumer can now purchase imported French champagne for as little as $1.89 per bottle. The difference in the cost of production in America and in France partly accounts for the situation. The cost of champagne grapes grown in the United States east of the Rocky Mountains during the past few vintage seasons has averaged approximately $135 per ton. While statistics are not available, reliable information indicates that the cost of similar grapes in France is lower by at least 50 percent. Included in this cost is the labor for maintaining the vineyards, picking the grapes and delivering them to the winery In France many vinters own their own vineyards, whereas in this country these vineyards are owned by independent grape growers who depend upon the vineyards for a livelihood. Grape growers in France get from 27 to 40 cents per day, this in comparison with our minimum wage of $2.40 per day. The disgorger, a skilled workman in the manufacture of champagne, receives in France approximately 20 francs per day or 50 to 60 cents. This same workman in this country receives approximately $3.60 per day. In some sections of the United States where trade-union agreements are in effect, unskilled labor starts with 50 cents per hour, and particularly in the State of Missouri the disgorger is getting from 55 to 65 cents per hour. The manufacture of champagne consists entirely of hand labor. Every bottle in the process is handled at least 250 times. The direct labor cost entering into the manufacture, excluding the maintenance of the vineyards and the picking of the grapes, amounts to at least $1.80 per case. This cost does not include cases, bottles, labels, corks, packing, shipping, freight, sales expense, advertizing or taxes. It may fairly be stated that the cost to manufacture American champagne is at least four times greater than making French champagne. (b) Consumer.-American manufacturers have spent thousands of dollars to educate the consumer along temperance and modification lines. Our price range is such that the products are available to the American public generally as it is not in the case of expensive French champagnes, available only to a selected few. Even with all the advertizing and publicity, the American consumer is not yet champagne or wine conscious. During prohibition the prevalent drinks were whisky and gin, but with repeal, a new market had to be created. The consumer, generally, appears to be label conscious rather than quality conscious. Many expected to purchase a fine French champagne offered by reputable concerns, only to be disappointed after purchasing cheap French wines offered under various names. It has been said by one consumer that he would perfer to purchase American champagne with a French label than to purchase the best French champagne with an American label. The industry is confronted with the situation of the consumer being offered an inferior French champagne at a far lower price than it is possible for him to purchase a quality American product. Everywhere the retailer as well as the jobber is pushing the cheaper French product because of less sales resistance. (c) Farmer and grape grower. Before prohibition in the Finger Lakes district of New York State approximately 20,000 acres of vineyards were under cultivation. A survey made in 1927 indicates an acreage of about 11,307. Figures alone do not indicate the real picture. The vineyards are in very bad condition and the yield is 30 percent less in the same amount of acreage than before prohibition. At the present rate of consumption of American champagne our present acreage more than supplies the necessary champagne grapes. Similar conditions exist in the other grape-growing sections of this country, with the possible exception of California. Naturally, with increased use of American wines this acreage would again increase and sections of the country formerly dependent upon the grape-growing industry will return to prosperity. Then too, with such an increase in consumption, the price to the consumer would be reduced and additional labor employed. STATISTICS Attached hereto and marked "Exhibit I" are statistics showing the production and tax-paid withdrawals of champagne, sparkling wine, and artificially carbonated wine in gallons and cases from July 1, 1933, to December 31, 1938. An analysis of these figures show: Tax-paid withdrawals show a steady increase each fiscal year beginning July 1, 1933, up to and including June 30, 1937, except for a slight decrease in the fiscal year 1934 and 1935. The fiscal year July 1, 1936, to June 30, 1937, showed sales of 164,712 cases. It was about this time that the franc was being devaluated and thereafter American sales decreased. For the 6-month period from June 30, 1938, to December 31, 1938, sales totaled 92,577 cases, and considering this figure, it must be borne in mind that the major part of champagne sales occur during the months of October, November, and December. Comparative statistics for January and February 1939 and January and February 1938 are as follows in gallons and cases: January 1939: 16,008 gallons, 6 670 cases. January 1938: 23,088 gallons, 9,620 cases. February 1939: 11,294 gallons, 4,706 cases. February 1938: 22,888 gallons, 9,537 cases. From the foregoing figures it will be seen that there has been a tremendous decrease in the sale of American champagne for the months indicated. There is also attached hereto and marked "Exhibit II" a comparison for the fiscal years ending June 30, 1937, and June 30, 1938, of tax-paid withdrawals for American champagne and sparkling wine, and the duty-paid imports of French champagne only. An analysis of these figures indicates the following: Duty-paid imports of French champagne for the fiscal year ending June 30, 1938, show an increase of 223 cases over the fiscal year ending June 30, 1937. On the other hand, tax-paid withdrawals of American champagne for the same period showed a decrease of 14,224 cases. While actual figures are not available to the present date, we are reliably informed that there has been very little change except in a further devaluation of the franc. THE DUMPING OF CHEAP FRENCH CHAMPAGNES HAS DEMORALIZED THE AMERICAN MARKET During preprohibition and up until the last year our domestic champagnes sold in competition with imports and brought about one-half the price of the imported product. Today we are confronted with an imported product being dumped on the American market and retailing as low as $1.89 per bottle. There are innumerable brands upon the market, all of which no one has ever heard of. On March 9, 1939 and numerous other times, R. H. Macy Co. advertised their Étoile Rouge Champagne at $1.98 and this advertiser states as follows: "Available at this absurd price only because world conditions have destroyed the growers' markets in vast sections of the globe." There are two main reasons for this dumping. First, France has lost the markets of Russia, Germany, and Italy, and has an overproduction of champagne. Secondly, the devaluation of the franc is the main factor in this dumping. When the trade treaty agreement was entered into the State Department advised that the tariff had been reduced from $6 to $3 per gallon and that this reduction amounted to about 61 cents per bottle on a bottle which retailed at that time from $5 to $7. Evidence had been introduced showing that this would not be ruinous competition for American champagne and the reduction of 61 cents per bott'e would not bring imported champagne into the price range of the domestic. On June 15, 1936, the effective date of the trade agreement, the rate of exchange was 6.586 dollars per hundred French franes. In June of 1937, the rate of exchange dropped to 4.440 dollars per hundred French franes. The average rate of exchange during 1938 amounted to 2.880 and today it is approximately 2.25. In view of this devaluation it is now possible for importers, department stores, and retailers to purchase in France champagnes for as low as $3.50 per case and lay it down in New York at a lower price than the American manufacturer can afford to sell it to the jobber. French champagne, including all duties, taxes, and transportation, cost the importer about $13 per case, while the actual cost to the American manufacturer including taxes is a minimum of $13.50, not including any profit or selling expense. Our market, therefore, is flooded from coast to coast with these French champagnes underselling our American products and creating a condition which may possibly result in the bankruptcy of our American firms. It was only on February 23 that the New York Times carried a release in which Senator Georges Portmann pressed the Commerce Minister of France to obtain concessions from the United States in compensation for the war expenditures France is making in America. In part he stated as follows: "There has been some agitation (United States) for breaking the trade agreement with France. Certainly we know that constitutional rules exist forbidding a reduction of more than 50 percent below the tariffs of 1930 but the war has created entirely new conditions. In view of our large war purchases in that country can we not find means to send a larger amount of our wines there? May I ask that the Commerce Minister use his utmost efforts to obtain from the Washington Government a lowering of tariff duties and taxes on our wines which could stimulate the consumption of them over there by making prices lower for the consumer?" Such a program, if adopted, would complete the ruination of the American champagne industry. From the foregoing facts it is therefore evident that this industry has been a victim of the Reciprocal Trade Agreements Act, and we respectfully urge that the act should not be renewed. J. HOWARD PROPER, General Counsel, American Champagne Guild, Inc., New York, N. Y. EXHIBIT I. Statistics showing the production and tax-paid withdrawals for champagne, sparkling wine and artificial carbontated wine from July 1, 1933, to Dec. 31, 1938 These figures are compiled from the annual reports issued by the Alcohol Tax Unit of the Bureau of Internal Revenue. EXHIBIT II.-Comparison of tax-paid withdrawals of American champagne and sparkling wine for the fiscal years ending June 30, 1937, and June 30, 1938, with duty-paid imports of French champagne for the same periods The committee will recess until 10 o'clock tomorrow morning. (Whereupon at 4:45 p. m. recess was taken until the following day, Friday, March 1, 1940, at 10 a. m.) EXTENSION OF RECIPROCAL TRADE AGREEMENTS ACT FRIDAY, MARCH 1, 1940 UNITED STATES SENATE, The committee met, pursuant to recess, in the Finance Committee Room at 10 a. m., Senator Pat Harrison (chairman) presiding. The CHAIRMAN. The committee will come to order. The first witness this morning is Mr. W. L. Clayton, of Houston, Tex. Mr. Clayton is representing the American Cotton Shippers' Association. STATEMENT OF W. L. CLAYTON, HOUSTON, TEX., REPRESENTING AMERICAN COTTON SHIPPERS' ASSOCIATION The CHAIRMAN. Tell about your concern and the nature of your business, who are you, and your reaction to the reciprocal trade agreements. Mr. CLAYTON. My firm is Anderson, Clayton & Co., cotton merchants I appear here, Mr. Chairman and gentlemen, as a representative of the American Cotton Shippers' Association, with general offices at Memphis, Tenn., and also on my own account as a cotton merchant and a citizen. Practically all the cotton merchants in the South belong to the American Cotton Shippers Association through its affiliated State associations. This association at its last four annual meetings has endorsed the reciprocal trade-agreement program. I wish now to strongly urge the extension of the Trade Agreements Act. Cotton is peculiarly an article of world commerce. The commercial production of cotton is limited to a comparatively small part of the earth's surface. It is consumed throughout the world. In the United States, more than 50 percent of our cotton production is normally exported in competition with the production of numerous other cotton-exporting countries. Obviously, if tariffs on goods imported into the United States are raised so high as to substantially reduce the volume and value of such imports, foreigners have fewer dollars with which to buy our cotton and other commodities and must turn to other sources of supply. This is what happened following the enactment of the Smoot-Hawley tariff bill marking the third substantial increase in tariffs since the World War. World buying power in the United States was thereby substantially destroyed. Agriculture was bound to be the chief sufferer in this situation. In 1930, the year the Smoot-Hawley bill was passed, the rest of the world, through its merchandise exports to the United States, had a 215171--40- 23 |