issue. The relief offered by this tariff suspension bill is of critical importance to Schwinn, particularly at this point in time.

Schwinn and other bicycle manufacturers are facing an unsettled period in their history. In the late 1960's and early 1970's demand for bicycles, both imported and domestic, exploded. However, the bicycle boom has run its course. In 1974, total market consumption slumped by well over 1 million units. In 1975 the total market was down almost 50 percent. Schwinn alone experienced a staggering 36-percent decline in 1975, and Schwinn's American production has again shown a decline in 1976. The effect of reduced sales on the workers of Schwinn in the last few years has been devastating.

Included as exhibits in our submission are monthly reports on labor turnover for 1972 through 1976 which Schwinn has filed with the Illinois Department of Labor. To summarize briefly, in 1973 we employed over 2,200 people in our Chicago facilities. By January of 1975, the employment had dropped to 841 workers. In 1976, the average was 1,440 workers.

As sobering as these figures are, they do not reflect the full scope of our recent difficulties. In an effort to keep as many Schwinn workers as possible on the job, the company was forced to resort to many 4-day workweeks throughout 1975 and 1976.

In February of this year our factories and offices were closed down for a full week because of lack of orders. When Schwinn and other manufacturers speak of economic hardship and serious erosion of our work force, it is not based on abstract philosophizing or unsubstantiated theories. Schwinn has faced the unpleasant prospect of laying off large numbers of these workers on a month-by-month, week-by-week

basis.

The financial picture at Schwinn has been simply distressing. The bicycle manufacturing operations resulted in a significant loss in 1975 and again in 1976. Other manufacturers have experienced even greater difficulties. Iverson Cycle Corp. filed chapter 11 proceedings in bankruptcy in March of 1976. H. P. Snyder Co. terminated its bicycle production on May 7, 1976, after 81 continuous years of being in the bicycle manufacturing business. It is clear that the small and dwindling American bicycle industry has suffered a severe depression.

Without the extension of the duty suspension, the American bicycle manufacturers will be forced to make a choice between equally unacceptable alternatives. They must either absorb the increased duty even though many manufacturers have been operating at a loss in recent years, or they must increase the cost of their product to the consumer. The latter action would cause a senseless inflation of prices and would inevitably result in loss of sales for American bicycle manufacturers. For all of the foregoing reasons, Schwinn Bicycle Co. joins the Bicycle Manufacturers Association in respectfully requesting that the Subcommittee on Trade favorably report this bill at the earliest opportunity. Time is of the essence. Schwinn submits that the logic which justified the tariff exemption in 1970 and 1974 is stronger than ever in the troubled market of 1977.

Mr. Chairman, we submitted a detailed statement which we respectfully request be entered into the record in its entirety.

[The prepared statement and attachments follow:]

STATEMENT OF SCHWINN BICYCLE COMPANY, JAY TOWNLEY, DIRECTOR OF
GOVERNMENT AFFAIRS AND PRODUCT SAFETY

SUMMARY

1. H.R. 5263 is essentially identical to a bill which passed both Houses of Congress late in the last session but was not enacted due to the addition of nongermane amendments by the Senate.

2. What H.R. 5263 does:

(a) Extends for thirty months the duty suspension on eight parts which has been in effect since 1971.

(b) Adds four additional parts to the duty-free category.

(c) Deletes derailleurs from T.S.U.S. Item No. 912.10.

3. Reasons for the duty suspension :

(a) The Tariff Schedules create a distinct disadvantage to American bicycle manufacturers in that most imported parts are assessed at 15 percent ad valorem while most imported bicycles are assessed at 5.5 percent ad valorem.

(b) The parts encompassed by the bill have no domestic sources of supply. Schwinn must rely on foreign sources of these components with or without tariff relief.

REQUESTED INFORMATION

1. Revenue impact-Unknown.

2. Domestic Production-None.

3. Impact on consumers-Will help to hold down bicycle prices.

4. Impact on employment-Will directly aid employees of American bicycle manufacturers.

5. Foreign sources of supply-Throughout Asia and Europe particularly Japan, Great Britain, France, Germany, Italy, Hong Kong.

6. Beneficiaries of the bill-American bicycle manufacturers.

STATEMENT

Schwinn Bicycle Co. submits these comments in support of H.R. 5263 to supplement the oral testimony of Mr. Jay C. Townley, Schwinn's director of product safety and governmental affairs, which was presented to the Committee on April 27, 1977. Schwinn respectfully requests that the Subcommittee on Trade favorably report this bill at the earliest opportunity. The duty-free bicycle parts categories expired on December 31, 1976 and thus American bicycle manufacturers are currently paying duty on the parts covered by the bill.

Schwinn is an Illinois corporation with its sole place of business in Chicago, Ill. Since 1895, Schwinn has produced and sold high quality bicycles and component parts and has established a reputation for high standards of performance and workmanship. In 1976, Schwinn's sales accounted for 11.8 percent of all bicycles sold in the United States. Schwinn has perhaps the best vantage point of any American bicycle producer in commenting on the problems of foreign competition, imports and exports. Like other domestic producers, Schwinn imports a great many foreign parts which are either unavailable, not of sufficient quality or not available in sufficient quantities in the domestic carket. In addition, Schwinn also imports complete bicycles including its Schwinn-approved "Traveller", "LeTour" and "Volare" models. These are high quality lug-framed bicycles ranging in price from approximately $142 to $495. However, Schwinn is primarily a domestic manufacturer of bicycles and wants to foster the wellbeing of the American bicycle industry. It is in pursuit of this goal that we are advocating the extension of the duty suspension on certain bicycle parts. A. History of the tariff suspension of bicycle parts

In 1970, Representative Fulton of Tennessee first proposed the tariff suspension for certain bicycle parts. Public Law 91-689, commonly known as the "Fulton Bill,' created two duty-free categories in the tariff schedules, T.S.U.S. Items No. 912.05 and 912.10 which encompassed nine parts: generator lighting sets, derailleurs, caliper brakes, drum brakes, three-speed hubs incorporating coaster brakes, three-speed hubs not incorporating coaster brakes, click twist grips, click stick levers, and multiple free-wheel sprockets. These duty-free categories were extended for an additional 3-year period in 1974 by Public Law 93-490. A copy of the relevant tariff schedule is included as exhibit A.

B. BACKGROUND OF H.R. 5263

The proposed legislation now before this committee was introduced by Representative Dan Rostenkowski of Illinois on March 21, 1977 and is essentially the same as H.R. 12254 which the Representative introduced in the 94th Congress. That earlier bill passed the House of Representatives overwhelmingly, was unanimously recommended by the Senate Finance Committee and passed the Senate on the last day of the legislative session. Unfortunately, two nongermane amendments were appended to the bill in the waning hours of the day. The House did not have an opportunity to review the amendments prior to adjournment and hence the bill died.

H.R. 5263 has four principal provisions. First, the suspension of tariffs on eight parts which was in effect until December 31, 1976 would be extended until June 30, 1979. This is clearly the most important feature of the legislation. Second, four parts—coaster brakes, alloy butted frame tubing, alloy cotterless crank sets, and alloy rims-would be added to the duty-free category. These new parts are not available from domestic sources of supply and thus fit squarely within the rationale of the original tariff suspension legislation.

Third, the words "and parts of all the foregoing" would be inserted in T.S.U.S. Items No. 912.05 and 912.10. This language would allow subcomponents of the duty-free parts to also be exempt from duty. The Customs Service takes the position that unless subcomponents are specifically mentioned in a tariff classification, they are not included. See for example, ruling No. ORR 209-71 issued by Mr. A. P. Schifflin, Director of Tariff Classification Rulings, regarding parts of caliper brakes which appears as exhibit B. While this issue has a minor financial impact on Schwinn and other manufacturers, it often causes considerable confusion in liquidating entries through Customs.

Four, H.R. 5263 would provide for retroactive application to January 1, 1977. The duty-free bicycle parts categories expired on December 31, 1976. Inasmuch as both Houses of Congress last year expressed support for H.R. 12254, Schwinn requests that duly collected on the enumerated bicycle parts between January 1, 1977 and the enactment of this legislation be refunded. In this regard, we join with the Bicycle Manufacturers Association in seeking an amendment to the legislation which would direct the Customs Service to make refunds without the necessity of filing protests on each individual entry of parts. The protest system is inappropriate to our current stuation, in that protests must be filed within 90 days of liquidation. Clearly, in many instances the right to a refund created by this bill will not be operative within the prescribed period. Thus, absent the suggested addition, Schwinn and other manufacturers would be forced to file protests and perhaps file summonses in the customs court to pursue a remedy which has not yet been created.

C. Reasons for the duty suspension

1. Tariff Disparity Between Parts and Complete Bicycles.-There are two basic reasons for the continuing tariff suspension on bicycle parts. First and most importantly, there is an anomalous disparity in the tariff schedules between the treatment afforded bicycle parts which are imported into this country for assembly into American-made bicycles and the treatment given to imported, foreignmade bicycles. Most bicycle parts fall within T.S.U.S. Item No. 732.36 and are assessed at a rate of 15 percent ad valorem. Complete bicycles, on the other hand, fall within T.S.U.S. Item No. 732.02 through 732.26 and are assessed at rates from 52 percent to 11 percent. The vast majority of these imports fall within T.S.U.S. Item No. 732.18: "Bicycles: Having both wheels over 25 inches in diameter: Valued over $16.66% each."

This category carries a rate of 5.5 percent ad valorem for column 1 countries. This strange feature of the tariff schedules creates an inequitable competitive disadvantage for American bicycle manufacturers. For example, Schwinn imports spokes from Germany for use in its bicycle production in Chicago. These spokes are assessed at 15 percent ad valorem. If the very same spokes were incorporated into a European bicycle and sent to this country, they would be assessed, as part of the complete bicycle, at 5.5 percent of their value. Obviously, this gives foreign manufacturers a significant cost advantage in marketing their bicycles. A suspension of tariffs on the parts embodied in T.S.U.S. Items No. 912.05 and 912.10 partially compensates for this ongoing disparity.

Absent the legislative relief embodied in H.R. 5263, eight parts which have for the last 6 years been entered into this country duty-free will be subject to 15

percent ad valorem duty. The increased cost to the manufacturer, particularly in light of the unsettled state of the American bicycle manufacturing industry, will inevitably have to be passed on to the consumer in the form of higher prices. The more costly American-made bicycles are, the more favorable will be the position of foreign-made bicycles in the American market. The truth of this assertion is best illustrated by the interest of the American Association of Bicycle Importers in the consideration of H.R. 5263. In opposing the legislation, the AABI implicitly confirms that the defeat of this bill and the expiration of the duty-free categories will increase the cost of American bicycles and hence improve the business interests of foreign bicycle manufacturers and importers.

The report which accompanied the original tariff suspension (Senate Finance Committee Report No. 91-1536, December 30, 1970) stated that the purpose of the bill was ". . . to improve the competitive ability of domestic manufacturers of bicycles by temporarily suspending the duty on imports of certain bicycle parts and accessories, thereby reducing their costs;" 1970 United States Code Cong. and Admin. News, p. 6115.

At that time imports comprised approximately 28 percent of the total U.S. market. Since that time market share percentages have varied greatly. Encouraged by the Kennedy Round staged reduction of tariffs on complete bicycles from 1968 through 1972, bicycle imports climbed to a level of 37 percent of the total U.S. market in 1972. In subsequent years these market share percentages have subsided substantially but imports still constitute a significant portion of the American market and in 1976 occupied only slightly less than the percentage they did in 1970 when the suspension on certain bicycle parts was first introduced. See exhibit C for complete statistics from 1895 through 1977.

2. Lack of Domestic Sources of Supply.-The second major reason for enacting the "Fulton bill" in 1970 was the fact that the parts included were not generally available from domestic sources of supply. It seemed pointless to assess duties on parts,and hence raise the cost of the bicycle to manufacturers and to consumers alike, when the manufacturers were compelled to purchase parts from abroad anyway. Schwinn is still completely dependent on foreign sources of supply for the 12 parts covered by H.R. 5263 and therefore with or without the passages of H.R. 5263 Schwinn will still, out of necessity, purchase all of the 12 parts included in this bill from its Asian and European suppliers.

In 1975 alone, Schwinn purchased $6,098,990 worth of parts currently in the duty-free categories. If the tariff suspension had not been in effect, this would have resulted in additional payments to the U.S. Customs Service of $928,968.90. See exhibit D for a detailed breakdown of Schwinn's 1975 purchases of parts covered by the old duty-free categories. As will be explained in more detail below, Schwinn lost money in its bicycle production operations in 1975. There is no feasible way in which this additional duty could have been absorbed by the company. Of necessity, consumer prices would have been raised to absorb these increased costs.

It is also significant to look at the statistics on Schwinn's importation of four parts which H.R. 5263 would add to the duty-free categories. In 1975 Schwinn purchased 261,352 coaster brakes from Mexico and Japan at a cost of $741,717. Schwinn paid duty on these entries of $111,257.55, yet there is not a single source of coaster brakes in the United States at this time. Schwinn submits that this situation is a strong illustration of the need for duty suspension on 12 selected parts in H.R. 5263.

D. Financial Condition of Schwinn and the American Bicycle Industry.

The relief offered by this tariff suspension bill is a critical importance to Schwinn particularly at this point of time. Schwinn and other bicycle manufacturers are facing an unsettled period in their history. In the late 1960's and early 1970's, demand for bicycles, both imported and domestic, exploded. However, the famed "bicycle boom" has evidently run its course. In 1974 total market consumption slumped by over 1,000,000 units to 14,105,775. In 1975 the total market was down almost 50 percent to 7,293,784 units. Schwinn alone experienced a staggering 36 percent decline in 1975. Schwinn's American production has again shown a decline in 1976.

The effect of the reduced sales on the workers at Schwinn in the last few years has been devastating. Included as exhibit E are Monthly Reports on Labor Turnover for 1972 through 1976 which Schwinn has filed with the Illinois Department of Labor. In 1972 monthly employment levels were consistent and

steady in the 1,900 to 2,200 range. During every month of 1973, over 2,200 Chicago workers were on the Schwinn payrolls. This trend continued through much of 1974 until market demand lagged drastically in the fall. With no orders to fill, Schwinn was forced to lay off over 1,000 employees in late 1974. January, 1975 was the worst month in this period with onl7 841 workers on the payrolls.

Although many of these workers were rehired, there have been periodic layoffs throughout 1975 and 1976 and as recently as March, 1977. The official labor reports clearly show that the monthly average of employees at Schwinn during 1975 was 1,525. The 1976 average has sunk to 1,440-a far cry from the 2,200 of 1973.

As sobering as these figures are, they do not reflect the full scope of our recent difficulties. In an effort to keep as many Schwinn vorkers as possible on the job, the company was forced to resort to many four-day work weeks throughout 1975 and 1976. In February of this year our factories and offices were closed down for a full week because of lack of orders.

When Schwinn and other manufacturers speak of economic hardship and serious erosion of our work force, it is not based on abstract philosophizing or unsubstantiated theories. Schwinn has faced the unpleasant prospect of layingoff large numbers of its workers on a month-by-month, week-by-week basis. The financial picture at Schwinn has been similarly distressing. The bicycle manufacturing operations resulted in a significant loss in 1975-76. It is clear that Schwinn would not have been able to absorb the approximately $2,000,000 in additional duties which would have resulted if the tariff suspension had not been in effect in those years. These additional costs would, of necessity, have been passed on to the consumers.

Other manufacturers have experienced even greater difficulties. Iverson Cycle Corp. filed chapter XI proceedings in bankruptcy in March of 1976. H. P. Snyder Co., a subsidiary of O. F. Mossberg & Sons, Inc., terminated its bicycle production on May 7, 1976 after 81 continuous years in business. Shortly thereafter, on June 18, 1976, that company also filed a petition under chapter XI of the bankruptcy laws.

It is clear that the small and dwindling America bicycle manufacturing industry has suffered a severe depression. Without the extension of the duty suspension, the American bicycle manufacturers will be forced to make a decision between equally unacceptable choices. They must either absorb the increased duty, even though many manufacturers have been operating at a loss in recent years, or they must increase the cost of their product to the consumer. This latter action would cause a senseless inflation of prices and would inevitably result in a loss of sales for American bicycle manufacturers.

CONCLUSION

For all the foregoing reasons, Schwinn Bicycle Co. respectfully requests that the Subcommittee on Trade favorably report H.R. 5263 at the earliest opportunity. Time is of the essence. Schwinn submits that the logic which justified the tariff exemption of 1970 and 1974 is stronger than ever in the troubled market of 1977.