tampered with at this critical time? The U.S. Tariff Commission (now called the International Trade Commission) has on many occasions recommended escape clause relief for other domestic industries who were faced with a percentage of foreign penetration far less than 54 percent. We respectfully suggest that there are many ways in which the fishing industry could be aided without reducing the duty on fish netting.

In June of 1976, the Select Committee on Small Business of the U.S. Senate submitted a report titled “Economic Problems Confronting the Fisheries Industry", Report No. 94-9:3, which was based on the results of appropriate Senate Subcommittee hearings. The report made a number of recommendations, but they did not include among them reducing the duty on fish netting. In fact, on page 1 the report listed as one of the three major problems of the fishing industry, today, the "dumping of foreign imports on the American markets”. The enactment of H.R. 1248 would aggravate, rather than ameliorate, the dumping evils referred to.2

The reasons for the domestic industry's inability to adequately cope with foreign competition are not related to any inefficiency or outdated production methods. Rather they have to do with the fact that the Japanese netting industry is generally vertically integrated with Japan's chemical industry, so that chemical fibers used as components of the netting (which represent the principal raw material cost of the finished product) can be purchased by Japanese netting companies from Japanese chemical fiber manufacturers at a much lower price than our own industry can buy their raw materials from any American supplier.

Net manufacturing being labor-intensive, the differential in wage scales between the two countries is also an important factor. The final result is that our own industry, even though using modern machinery, but required to comply with minimum wage laws, antitrust laws, and the like, is severely disadvantaged in battle against their foreign counterparts.

Thus, the argument favoring the reduction of tariffs to the point where free market forces can set the proper level of prices does not apply here.

Japan can undersell the U.S. netting producers by a wide margin. If the present tariff were materially reduced, the U.S. fish netting industry could not survive. Once having destroyed the domestic competition, and having secured its monopoly within the domestic market, it would be very easy for Japan to raise its prices or restrict exports at will. The domestic fishing industry would then find itself at the mercy of its foreign suppliers, just as we are presently partially at the mercy of the OPEC countries, with regard to the importation of oil.

The U.S. netting industry is over two hundred years old. It has served the fishing industry long and faithfully through war and peace. To what position of peril would we be reduced if we were now to destroy it altogether, and to place the entire fishing industry at the fickle mercy of a foreign competitor?

If we concede that the U.S. fishing industry is facing certain financial difficulties, it does not follow that it should solve its problems at the expense of the industry's trusted suppliers. The fishing industry is big: grossing in its entirety over a billion dollars a year, by its own admission. The netting industry is tiny. Its gross sales would be less than one percent of those of the giant fishing industry. To wipe out the netters' tiny profit margin by reducing the tariff protection now in place would hardly constitute a significant factor in the financial therapy administered to the sick fishermen, but it would certainly constitute a coup de grace, if administered to the even more emaciated netting manufacturers.

II

The argument against using piecemeal legislative enactments to tamper with complicated and interrelated tariff structures can be stated very simply. In the Trade Act of 1974, Congress authorized the administration to conduct negotiations with our various international trading partners, with the view of generally reducing barriers to international trade, but without causing undue economic injury or disruption to domestic producers. The State Department, the Office of the President's Special Trade Representative, the Departments of Treasury, Commerce, Labor, and all other interested departments and agencies, along with the entire community of U.S. businessmen and international traders, have built their

plans around this concept of how the reduction of tariff barriers is supposed to be accomplished.

Negotiations in Geneva will be gathering impetus within the near future. They have already been the subject of much discussion, as we all know. There is one overwhelming reason why tariff adjustments of commodities that are earmarked for negotiation in Geneva should not now be accomplished through unilateral legislative enactment.

If we reduce tariffs before the negotiations begin we will be uselessly sacrificing our bargaining chips. Tariff reductions should be accomplished only after exacting a quid pro quo from the beneficiaries of the reduction. This is particularly true in the case of Japan, from which comes the great bulk of imported netting. It would be sheer madness for us to disarm our negotiators, before the game begins.

The entire process of negotiating tariff reductions is an immensely complicated one, and involves the balancing of innumerable equities involving scores of countries and thousands of commodities. Congress has already indicated that this process should be accomplished by our specialists at the negotiating table. The decision to proceed in this manner was carefully made after extensive public debate extending over several years. Why should we now question this decision? The sponsors of H.R. 2048 apparently do not recommend changing the procedures established by the Trade Act of 1974; but H.R. 2048 would effectively do just that.

For purposes of complying with the committee rules, the following summary is included.

1. The witness submitting this statement is Ralph J. Sigler, Executive Vice President/General Manager, FNT Industries, 927 First Street, Menominee, Mich. 49858, and Chairman of the American Netting Manufacturers Organization.

2. The names and addresses of the members of the American Netting Manufacturers Organization are as follows: Bayside Net & Twine Co., Inc., Brownsville, Tex. The Brownell Net Company, Moodus, Conn. Commercial Fishing Supplies, Inc., East Haddam, Conn. First Washington Net Factory, Inc., Blaine, Wash. FNT Industries, Menominee, Mich. Hope Fish Netting Mills, Hope, R.I. Blue Mountain Industries, Blue Mountain, Ala. Koring Brothers, Inc., Long Beach, Calif. Nylon Net Company, Memphis, Tenn. Harbor Net and Twine Co., Inc., Hoquiam, Wash.

3. This statement deals exclusively with H.R. 2048, and is in opposition thereto.

4. The effects of the enactment of this bill would be to throw out of employment most of those directly employed in the fish netting industry. They number approximately 1,500. Persons employed in those satellite industries indirectly dependent upon the netting industry and who would also be thrown out of work, the death of the netting industry, number approximately 2,000. The foreign sources of netting are, essentially, Japan, Taiwan, Korea, Mexico, Panama, Hong Kong, Spain, Portugal, Great Britain, and Scotland. Those benefitting from the defeat of this bill would be those whose names are listed under 2, above.

Mr. GIBBONS. Mr. Jenkins?
Mr. JENKINS. Mr. King, I have several questions.

With the companies that you represent-has the demand increased or decreased in the last 5 or 6 years!

Mr. King. The demand for netting?
Mr. JENKINS. Yes.

Mr. King. In 1975 there was a very sharp drop both in domestic demand and foreign demand.

In 1976—and we have not completely compiled all of these figures yet, but the demand has gone up for both domestic and foreign netting in 1976.

Mr. JENKINS. Really, isn't one of the main problems the fact that most of these fisherman or a great number of them are individuals,

small operators, shrimpers, and so forth; when they want a net, they don't want to wait for the domestic producers to provide that net to them?

Mr. King. The point is very well taken.

Here, again, we are allowing a few isolated examples to obscure our vision of the general picture. For the most part, I can't give you percentages, but certainly for the most part the demand is met and it is met more quickly here than in Japan, obviously.

It is only these custom-made jobs that must satisfy the peculiarities or eccentricities of a particular fisherman satisfactorily a problem.

For the majority of the fishermen we are able to produce quality.

It is the price that causes us the problem, not the problem of delivering.

Mr. JENKINS. What is the leadtime for a custom net ?

Mr. King. I am not able to give a figure there because I suppose it would depend on the particular job required.

Our producers are small. The Japanese are much larger by comparison. They have a vast worldwide market. They sell vastly greater quantities of netting than we do and, of necessity, they can carry a bigger inventory and probably are in a better position to meet these special custom-made specifications than we are.

Mr. JENKINS. Do you think the largest factor is price rather than inability to produce?

Mr. King. Yes, sir, naturally, the fishermen are always going to pick out a few examples, and you will always have a few examples where the custom-made feature is the important thing, but we would insist that those are just a few isolated examples.

Mr. JENKINS. Is the largest part of production for fish netting?
Mr. King. That is correct.
Mr. GIBBONS. Thank you, Mr. King.

[The following was subsequently recieved for the record :] SUPPLEMENTARY STATEMENT SUBMITTED BY DAVID S. KING, REPRESENTING THE

AMERICAN NETTING MANUFACTURERS ORGANIZATION On April 27, 1977, Mr. David S. King, representing the American Netting Manufacturers Organization made an appearance in opposition to the enactment of H.R. 2048. Questions were propounded during the course of his statement for which answers for the record were requested. This supplementary statement seeks to provide the requested information.

During the course of the hearing, proponents of the bill (H.R. 2048) reasoned that the present duty was purposeless, and even counterproductive. It was argued that the American fishermen buy Japanese netting not because it is cheaper, but because it is superior. In several instances, it was said, the U.S. manufacturers were not able to meet the Japanese quality standards, or the specifications required for optimum results. As a result, U.S. fishermen went to the Japanese to meet their demands, even though the Japanese prices were higher (with the tariff added), and long delays were involved.

Mr. King's answer (and this is the official position of the U.S. netting industry) is that it is true that there are certain limited categories of netting where the Japanese can outperform their U.S. competitors. This is primarily, and perhaps exclusively, in the area of monofilament gill netting.

The reason for this is that such netting has to be subjected to processes known as “depth stretching” and “heat setting” after leaving the loom. These are laborintensive operations which the Americans, because of their much higher wagescale, cannot perform within the price-range set by the Japanese.

It will be noted, however, that monofilament gill netting accounts for not over 15 percent of the entire netting market. In all categories, (including monofilament gill netting) the U.S. manufacturer can turn out a product equal, or superior, to that of the Japanese. In this area, however, the Japanese have an unbeatable price advantage, even with the present ta riff.

It is unsound to make generalizations regarding the entire netting industry based on one relatively small category of netting.

There are also a few additional cases requiring comment. Reference was made by the proponents of H.R. 2048 to the need for a 64'' mesh net, which cannot be satisfied by domestic producers who produce nothing larger than a 24" mesh. (Actually, the U.S. netters can produce a 44'' mesh.)

First of all, it should be understood that the 64'' netting would only account for 1/10th of one percent of the entire netting market. It is a specialty item. Even those nets containing a 64” mesh panel would still be made up, essential, of the more conventional mesh in other panels.

The reason why the U.S. manufacturers do not produce the 64'' mesh netting is simply because the demand for it is so inconsequential that it would not be profitable for them to make the heavy investment in the machinery required to produce it.

It may be that there is a small number of other specialty items which the Japanese are better able to produce, because of the advantage they enjoy of : (a) vertical integration with their chemical industries; (b) a much lower wage-scale ; (c) a much larger mass-production operation, supplying a worldwide market; and (d) freedom from the conventional restraints imposed by the antitrust laws, etc.

All told, however, these items, including the monofilament gill netting, would scarcely exceed from 15% to 20% of the entire netting market. It would be unfair to so revise the entire duty structure as to put the U.S. net producer out of business (which H.R. 2048 will surely do), because of a special problem involving only 20 percent, or less, of the industry. And to reduce the duty on only a few types of netting would affect the market for all types, due to cross-elasticity of demand among different types of netting. Such a "limited” reduction would cause de nd for those favored types netting to grow at the expense of demand for other types, thereby seriously harming U.S. producers. The proponents of H.R. 2048 are incorrect in concluding that the few isolated examples which they hold forth should control the direction of those larger forces which will shape, and perhaps destroy, the entire industry. We are convinced that a 50 percent reduction of the present duty on netting will make it impossible for the domestic industry to compete. An inspection of our books will make this readily seen.

We feel strongly that the U.S. fishermen have been misled in thinking that the U.S. netting industry cannot meet their specifications. Accordingly, we have invited the National Federation of Fishermen, a national spokesman, to meet with us to discuss those areas where they claim we cannot compete with imported netting, and to try to resolve our mutual problems.

The facts are clear that with regard to the bulk of the netting purchased from the Japanese by U.S. fishermen, the controlling consideration is price, and not quality. Appended to this statement are the Department of Commerce statistics showing the quantity and value of fish netting imported from Japan during the year 1976, broken down according to Customs Districts. The third column shows the value of such netting per pound, including the per pound assessment. Although it is impossible to make direct comparisons of these prices with prices of corresponding U.S. netting, for the reason that the figures do not indicate exactly what type of netting is included, nevertheless the figures do indicate in a general way how the Japanese are able to meet the U.S. price competition.

We note, for example, that the value of Japanese netting, plus import duty, imported through the port of Houston, is $1.81 per pound. This would almost certainly consist, substantially, of a polyethylene webbing, which would retail at $3.50, if produced domestically. The Los Angeles Japanese imports would involve a multifilament nylon small mesh netting (less than 1"'). The import value, including per pound duty assessment, is $3.67 as reported. The U.S. selling price would be $7. .

One of the members of our organization stated categorically that the Japanese had quoted him a price of $2 per pound for polyethylene webbing net, delivery at an inland U.S. city, whereas their quoted price for the same netting was $2.35 without the depth stretching and heat set process added (which the Japanese netting would have included).

This same company reported that domestically produced multifilament nylon gill netting would have to sell for $1.89 a pound, whereas it can be imported from Japan, with on-the-dock delivery to an inland U.S. city, for one dollar less than the U.S. selling price.

The reported figures also reveal another interesting fact. The average Japanese selling price went down from $1.81 in 1975, to $4.39 in 1976. This can only mean one thing: the Japanese are deliberately trying to take away the U.S. market. The general world-wide price increases which have taken place during 1976 are too well known to require discussion Assuming that the Japanese were making a normal profit in 1975, it would be impossible for them to make a 10 percent cut in the selling price in 1976, and retain their normal profit. We can only conclude that the Japanese are in such a strong position that they can manipulate prices at will, in complete disregard for world-wide price trends, in order to establish themselves in foreign markets.

It is the price, and not the quality, which have given them the margin of superiority.

We repeat what was said previously: it is not because of obsolete production methods or inefficiency that the U.S. producers have trouble competing with the Japanese. It is because of certain conditions imposed on our domestic industry which, though worthwhile, are burdensome. I am referring to minimum wage laws, antitrust laws, and regulations promulgated by OSHA and the innumerable other agencies with which we are only too familiar.

Referring, for a moment, to the exceptional Japanese netting which the U.S. industry finds particularly hard to match, qualitywise. Here again, it is not that the U.S. producer is unable, or unwilling, to compete. It is simply that he cannot afford to because of the above cost-multiplying factors. These are items in which labor becomes a more important factor. As to these items, the solution should be, not less duty, but more duty.

UNITED STATES IMPORTS FROM JAPAN OF FISH NETTING AND FISH NETS OF MAN-MADE FIBERS, 1976

1

Average value per pound' of U.S. imports from Japan fish netting and fish nets

of man-made fibers 1971 $2. 40 1974

6. 33 1972 3. 16 1975

4. 81 1973 3. 51 1976

4. 39 1 Including tariff.

Mr. Jones. Our next witness is Mr. William B. Hayes, who will testify on H.R. 3387, rutile suspension.

Welcome, Mr. Hayes.