Whereas, the American fishermen are laboring under inequitable cost burdens, in meeting competition in the food producing industry, when the United States government maintains a tariff on all nets and/or netting material imported into this country. Therefore, be it

Resolved, That all tariffs and/or duties on nets and/or netting material be removed.

Further, that we support legislation to reduce the tariffs on nets and netting material imported into the United States, and urge that very consideration be given to further reduction of all tariffs.

This policy statements endorsed by: Texas Shrimp Association, American Tunaboat Association, Seafood Producer's Association, Association of Pacific Fisheries, Tuna Research Foundation, Southeastern Fisheries Association, Boatowners United, Inc., American Shrimpboat Association, Virginia Seafood Council, National Canners Association, Fishermen's Cooperative Association, Western Fish Boatowners Association, and National Federation of Fishermen.

Mr. GIBBONS. Where do the best nets come from?

Ms. SLOAN. Some come from Japan and some come from Europe. Most of them come from Japan, but particularly on the east coast where we are beginning to adapt certain northern European techniques, we are also buying the equpiment from the northern European manufacturers.

Mr. GIBBONS. Where are the domestic manufacturers of fishing nets. I don't really know.

Where are the domestic manufacturers located?

Ms. SLOAN. Alabama, Rhode Island, Washington, California, Tennessee, Texas, Mississippi, Florida, Pennsylvania, and Michigan. Mr. GIBBONS. I am surprised that there are no representatives of the domestic fish net manufacturing industry here to testify.

MS. SLOAN. I thought that was interesting, too.

Mr. GIBBONS. Are there any questions for Ms. Sloan?

Mr. STEIGER. Thank you very much.

Mr. GIBBONS. When we have a very intelligent witness we don't look to ask questions because they might make us look bad, particularly one so very attractive, too.

Thank you for coming.

Ms. SLOAN. Thank you, Mr. Chairman.

Mr. GIBBONS. Mr. King, I understand you represent the opposition to this.

STATEMENT OF DAVID KING, ON BEHALF OF THE AMERICAN NETTING MANUFACTURERS ORGANIZATION

Mr. KING. If I may just make an oral statement in response to the Chairman's observation. We have already submitted a written statement on behalf of the netting manufacturers.

I was persuaded by the staff not to make an oral statement in the interest of time, and am willing to abide by that understanding. However, if the Chairman desires to ask some questions, I am at your service.

Mr. GIBBONS. I think because of the fact that they put on a pretty persuasive case, Mr. King, you ought to take the chair and respond a little.

We don't want to put anybody in the position of not being able to respond if they are present, so go ahead.

Mr. KING. I appreciate the opportunity. I am David King, a former Member of Congress, now practicing law. I do represent the American Netting Manufacturers Organization, which is an organization of 10 of the principal netting manufacturers in this country.

They manufacture over 90 percent of all the netting manufactured in the United States. We understand the fisheries do have a problem. The netting manufacturers, however, have an even greater problem. The margin of profit has been cut down so much that to cut any further into it, slender as it is, would result in the complete elimination and collapse of the domestic netting industry.

The main problem, as I understand it, is that the Japanese netting manufacturers have an arrangement in Japan whereby they are vertically integrated with the large Japanese chemical companies.

As a result, they can buy the raw materials from which the nylon and hence the netting is ultimately manufactured. This is the big item of cost in the finished product.

Whereas our netting manufacturers, faced with antitrust laws and minimum wage laws and the rest, find it absolutely impossible to compete with the Japanese, the system being structured as it is at the present time.

There is no way we could compete without the approximately 40 to 50 percent duty now in force which affords the protection necessary to stay in business.

Even now, the foreign penetration exceeds 50 percent which is a very, very heavy penetration of the domestic market. If that were to progress any further, it would mean the elimination of the domestic industry.

Our position is that we are prepared to produce any kind of netting that the fishermen would like. We ask only that they give us a reasonable amount of leadtime.

We know that fishermen tend to be very individualistic, and this is fine. Each one has his own ideas as to what kind of netting he would prefer.

We don't quarrel with that. The Japanese have such an extensive operation, however, which is almost a world monopoly. Of necessity, with the mass production of which they are capable, they can meet these individualistic demands much more quickly.

Our operations are much smaller. It would take a little time to tool up and to satisfy the demand of the domestic fishermen.

But, our position is that there is no net that could be reasonably demanded by any U.S. fishermen that we are not prepared to manufacture if just given a little leadtime.

So, the argument that they cannot buy the net locally, we feel, is not a substantial and valid argument.

Mr. GIBBONS. What is the current duty on netting?

Mr. KING. It is 32.5 percent ad valoram, plus 25 cents a pounds.

Mr. GIBBONS. I guess they weigh the nets without the lead weights on them.

Mr. KING. That is correct.

Mr. GIBBONS. Mr. Jones.

Mr. JONES. Mr. Chairman, let me see if I understand the previous witness's testimony.

I believe it was that in the first place the foreign nets are selling at considerably higher than a domestically produced net.

Second, there are significant delays in receiving the nets that are ordered and for all of the reasons of selecting a product, you would think that the domestic net would be chosen but this is not the kind that the domestic fisherman want; therefore, the foreign nets are preferred.

The other part I can understand is that the domestic fishing industry has been dealing with domestic net producing industry for some years now or some time now, and all they received were promises that they could deliver what the domestic fishing industry needs but nothing more than promises.

How do you respond to those two arguments?

Mr. KING. We have to remember that many of the purchases of the Japanese netting are not because the Japanese are satisfying a demand that cannot be met by the domestic netting manufacturers.

Much of it is explainable simply on the basis of price; even with the import duty they can still undersell us.

This is the phenomenal thing. Although it may not be true on all netting, it is true on most of it. Undoubtedly there are some cases where we have not been able to produce exactly what the fishermen wanted, on time, and they have gone to the Japanese, but I don't think that that represents the bulk of the foreign importations.

When I mentioned a moment ago that the penetration of the domestic market has been in excess of 50 percent, we cannot conclude that all that represents netting whose specifications were not able to be met or a situation where the demand could not be satisfied domestically.

I think most of that is represented by price differential and a much, much smaller part of it by failure to meet specifications.

Mr. JONES. The testimony of the previous witness was, first, foreign netting was more expensive than the domestic netting.

Second, it was oftentimes untimely delivered-in other words, great delays in the delivery of the foreign netting versus more timely deliveries of domestic netting.

The previous witness testified despite these factors the foreign netting was preferred because of the quality or whatever.

The second point that she made was that the domestic industry has given nothing more than promises to deliver the kind of quality that the domestic fishing industry needs, and this has been going on for some time.

Mr. KING. My response to that is first, that we are making unwarranted generalizations. We see a few specific examples and then we generalize from them and try to make them cover and explain the entire importation picture but it can't be done.

There are possible cases where the fishermen have gone to Japan because they were dissatisfied here, but that does not represent the bulk of the importations.

There are also individual cases where the Japanese price is higher than the domestic price but, again, that does not represent the generality.

I think the figures will show that in most cases they have gone to the Japanese because of a more favorable price.

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Mr. JONES. I would just ask both you and the previous witness if you would buttress each of your arguments on the point I just raised in further testimony.

Mr. KING. Yes, sir.

Mr. Chairman, there is one final point that we brought out in our prepared statement.

I can cover it in 1 minute. I think it is worth bringing up here. In the Trade Act of 1974, as you distinguished gentlemen know since most of you participated in enacting it into law the pattern for tariff reductions was very clearly set forth. In these extremely complex negotiations, we have delegated to the President's Special Trade Representative the task of going to Geneva and handle it for us. He is to work out these extremely complicated adjustments that involve many, many nations and thousands and thousands of commodities, whose problems are interrelated and very complicated.

Now, if we at this time engage in unilateral reduction or tariffs in this way, it seems to me we are taking away the bargaining chips from our negotiators when they go to Geneva to bargain.

The whole concept is that we are to receive some quid pro quo for what we give up. Certainly, it would not behoove us to give up unilaterally what we can use at the bargaining table to a better effect.

We think, since this would be a complete departure from the format laid down by the Trade Act of 1974, that Congress should consider very seriously moving in and tinkering with a system that has already been established by law.

[The prepared statement follows:]

STATEMENT OF THE AMERICAN NETTING MANUFACTURERS ORGANIZATION

Mr. Chairman, and members of the above honorable committee: this statement is submitted on behalf of the American Netting Manufacturers Organization, by Ralph Sigler, Chairman, which organization represents the manufacturers of over 90 percent of all fish netting manufactured in the United States. We oppose the enactment of H.R. 2048, which seeks to reduce import duties on fish netting. Our arguments fall under two topical headings, titled: I. The undesirability of reducing import duties on fish netting; and II. The undesirability of circumventing the efforts of the U.S. Geneva trade negotiators through piecemeal legislative enactments, such as H.R. 2048. I

H.R. 2048 seeks to reduce by 50 per cent the 25¢-per-pounds-plus-32.5 per cent ad valorem import duty on fish netting made from manmade fibers, as prescribed by item 355.45 of the Tariff Schedules of the United States (19 U.S.C. 1202).

To enact such a bill would administer a crippling blow to the fish netting industry, and thus reverse a previously expressed Congressional intent to give encouragement to the survival of the industry through appropriate tariff protection. The negative impact of this blow would inevitably fall on the entire fishing industry, of which the netting industry is an indispensable component, and which entire industry is likewise the object of Congress's special solicitude.

The precedent of giving special tariff protection to certain key industries faced with unusually harsh competition, and confronting particularly adverse circumstances, has been established by the Congress on numerous occasions. The first netting industry has unquestionably been designated by Congress as one meeting the above qualifications. The most recent expression of such designation occurred in 1971, when Congress enacted P.L. 91-654, a section of which now appears as subparagraph (c) of 19 U.S.C. 1466. Prior to this enactment, the law had required without exception that all vessels departing this country with intent to engage in foreign trade should pay a 50 percent duty on all equip

ments (e.g. fish netting) purchased by said vessels abroad and brought back to the United States, even though such equipments were never offloaded. This worked a hardship on those fishing vessels required to remain away from home port for long periods of time and which, during such prolonged absences, were required to be refurbished with foreign materials.

In an attempt to correct this situation the aforesaid subparagraph (c) was enacted, which provided, first, that the requirement of paying duty under the above circumstances would not apply in the case of long voyages undertaken by vessels designed and used primarily for purposes other than transporting passengers or property (in other words, fishing vessels). But it also provided, second, that this exemption from paying duty on ships' "equipments" should not apply to fish nets. In other words, although Congress recognized that the fishing industry was encountering financial difficulties, it also recognized that the netting industry was encountering even greater financial difficulties and that the netting duty protection already provided by law should not be disturbed. The sound logic which impelled the Congress to give special consideration to the netting industry in 1971 would, a fortiori, apply in 1977, inasmuch as the penetration by foreign competition into the domestic market is more severe now than it was then. Although the duty which H.R. 2048 seeks to reduce is based on a statutory provision different from the aforesaid section 1466 (the latter applying to nets purchased as part of a ship's equipment, and Section 1202 applying to nets shipped in regular foreign commerce), the logic supporting the two duties (which, coincidentally, are similar in amount) is the same. Since Congress has recently reiterated that the duty imposed on netting imported under the circumstances above explained under Section 1466 should continue to be paid, it cannot with consistency now slash the duty on nets imported under parallel circumstances under section 1202, inasmuch as the justification for the two duties is identical.

In imposing a relatively high duty on the importation of foreign netting, Congress recognized that the domestic netting industry was in serious danger of being swamped by foreign competition, particularly Japanese, which benefits from a number of built-in advantages, as explained below.

Conceding, as we do, that the fishing industry has its difficulties, the facts are clear that the netting industry is confronting even greater difficulties.

The tariff-reduction solution, therefore, which amounts to no more than transferring the impact of foreign competition from one shaky operation to another, is no solution at all, but only an exercise in juggling.

In 1975 the domestic industry produced in the neighborhood of 2,150,000 pounds of fish netting, according to statistics kept by the American Netting Manufacturers Organization, which represents well over 90 percent of the productive capacity of the entire domestic industry.

Department of Commerce Figures show that in that same year, Japanese imports amounted to 662,537 pounds, and that total imports from all countries amounted to 1,046,252 pounds. The degree of penetration of the domestic industry by foreign imports for 1975 would therefore be over 32 percent.

Although this degree of penetration is bad enough, these figures do not tell the whole story. For a number of years the U.S. tuna fleet and other components of the fishing industry have resorted to purchasing large quantities of fish netting in Mexico and Panama (made in Japan, Korea, and Taiwan) as part of their ship's "equipments". This netting, although dutiable under the aforesaid 19 U.S.C. 1466, has actually been purchased duty free.1 Although accurage figures on these purchases are unavailable, because of their clandestine nature, reasonable estimates, based on available evidence, place the total quantity of pounds thus brought into the United States in 1975 at 1,460,000. By Factoring this figure into the above calculation, the percentage figure showing the degree of domestic netting market penetration by foreign imports in that year would approximate 54 percent. The figures for 1976, although not yet fully compiled, indicate that the current percentage of domestic market penetration has reached about the same, or perhaps an even higher, figure.

Can any fair-minded person question the reasonableness of the netting industry's growing alarm, and their insistence that the present duty structure not be

1 We believe that this loophole has been plugged by a recent amendment to the Customs regulations, but only time will tell if that will make a difference in the total amount of imports.