In 1976, Japan and Hong Kong were the principal suppliers of imports under item 912.0500, according for 81 percent; Japan was the principal source of imports under item 912.1010, accounting for 81 percent of the total; and Japan, again, was the leading supplier of imports under item 912.1020, accounting for 80 percent of the total. France was the second most important supplier under the latter classification accounting for 11 percent of total imports in 1976.

TECHNICAL COMMENTS

Section 1(a)(1) of H.R. 5263 would amend item 912.05 by inserting a new phrase immediately after "Generator lights for bicycles". In order to conform with the existing language in item 912.05, it is suggested that section 1(a) (1) of H.R. 5263 be amended so that the new phrase ("and parts thereof") would be inserted immediately after "Generating lighting sets for bicycles". In section 1(b) (2) of the bill a comma should be inserted before the term "coaster brakes". It is our understanding that the article description for "alloy butted frame tubing" in section 1(b) (2) is intended to cover butt-welded steel tubes which have been cut to specific lengths and imported in sets, each set having the number of tubes needed for assembly (with other parts) into the frame and fork of one bicycle. When imported other than in sets, the tubing is not distinguishable from steel pipes and tubes used for other purposes. In order to clarify the coverage of this provision, it is suggested that the article description be modified to read "parts of bicycles consisting of sets of steel tubing cut to exact length and each set having the number of tubes needed for assembly (with other parts) into the frame and fork of one bicycle.'

Since all known steel tubing for bicycle cotterless crank sets and rims are made of metal alloy, we would suggest that the term "alloy" is unnecessary and should be deleted from the article description for these products. We also would suggest that the description for cotterless crank sets be modified to read "cotterless type crank sets," in order to insure that crank sets of the cotter type which are imported without their cotter pins are not covered in the duty suspension provision.

REGULATORY IMPACT

It does not appear that the enactment of H.R. 5263 would have any regulatory impact.

POTENTIAL LOSS OF REVENUE

Based on imports in 1976, it is estimated that the total potential loss of revenue resulting from enactment of H.R. 5263 would be approximately $6.6 million annually. About $1.4 million of this loss would be attributable to the new items added, while $5.2 million of revenue might be lost on these items which previously received duty-free treatment (this includes derailleurs which were deleted by this bill and thus overstate somewhat the potential loss).

DEPARTMENT OF COMMERCE

This is in reply to your request for the views of this Department on H.R. 5263, a bill "To suspend until the close of June 30, 1979, the duty on certain bicycle parts."

If enacted H.R. 5263 would extend until the close of June 30, 1979, the suspension of column-1 duties, which are accorded imports from countries receiving most-favored-nation tariff treatment, on generator lighting sets and certain specified parts for bicycles. The bill would add parts of generator lighting sets and coaster brakes, alloy butted frame tubing, alloy cotterless crank sets, alloy rims, and parts of the foregoing to the specified parts previously covered by the temporary duty-free treatment, which expired December 31, 1976. The bill also would eliminate derailleurs from the articles covered and would make the dutyfree treatment retroactive until December 31, 1976. In the absence of the duty suspensions, imports of generator lighting sets would be subject to a duty of 19 percent ad valorem and the other specified parts to a duty of 15 percent ad valorem.

The Department of Commerce favors the enactment of H.R. 5263. The continued duty-free importation of the parts and accessories covered in the proposed legislation is important to U.S. producers of finished bicycles in preserving their

competitiveness against imported bicycles inasmuch as none of the parts and accessories covered in the proposed legislation is manufactured in the United States and the duties on U.S. imports of bicycle parts and accessories are much higher than the duties on imported bicycles.

The duty suspensions were first introduced in 1971 in order to help domestic bicycle manufacturers compete with growing imports of complete foreign-made bicycles. Domestic manufacturers have taken a number of steps to increase their production and to improve their competitive position, including investments in new machinery. U.S. bicycle production, which relies heavily on the importation of duty-free parts, rose from 6.5 million units in 1971 to 10.0 million units in 1973 and 10.1 million units in 1974, but decreased sharply as demand declined to 5.6 million units in 1975. Production increased to 6.4 million units in 1976. As a result of this more competitive posture by U.S. manufacturers, the share of the U.S. market accounted for by imported bicycles, which rose from 26 percent (2.3 million units) in 1971 to 37 percent (5.2 million units) in 1972, dropped steadily to less than 24 percent (1.72 million units) in 1975 and to about 21 percent (1.67 million units) in 1976.

Further, in connection with maintaining the competitiveness of domestic bicycle manufacturers, it should be noted that the great bulk of imported bicycles is subject to rates substantially lower than those of the parts covered by the duty suspensions. The two most popular import categories, accounting for 75 and 20 percent of the total quantity of bicycle imports, are currently dutiable at 5.5 percent ad valorem (TSUS item 732.18) and 11 percent ad valorem (TSUS item 732.12), respectively.

With regard to the retroactive provisions of the proposed legislation, we believe that refunding the duties collected since the last suspension expired on imports covered by the bill is warranted and would not constitute windfall profits to the importers. In the past, in cases where legislation was pending before the Congress to extend duty suspension which had expired, it was the Customs Service practice to withhold liquidation of entries, e.g., not collect the duties, on importations covered by the legislation. In the case of bicycle parts, however, entries made since the suspension expired December 31, 1976, are being liquidated and the duties collected as a result of a recent Customs Court ruling requiring Customs to discontinue the withholding practice. Since it had been anticipated that Customs would withhold liquidations, and, in fact, did until the Court ruling, parts importers have not "passed along" to the consumer additional costs to cover the duties. Thus, the proposed refunding of duties constitutes recovery of an unanticipated expense rather than windfall profits.

In the event this legislation were enacted, it would have no impact on the revenues to, or the administrative costs of, this Department.

We have been advised by the Office of Management and Budget that there would be no objection to the submission of this report to the Congress from the standpoint of the Administration's program.

DEPARTMENT OF STATE

The Secretary has asked me to reply to your request for the views of the Department of State on H.R. 5263, a bill providing for a temporary suspension of the duties applying to certain bicycle parts and accessories.

The Department of State has no objection to the enactment of H.R. 5263. It would in effect, continue for an additional period ending June 30, 1979, the temporary duty free entry provided in Public Law 490 for certain bicycle parts (dutiable at 15 percent ad valorem) and accessories (dutiable at 19 percent ad valorem). We understand that the bicycle parts and accessories of interest are not generally available from domestic sources. An extension of the period of duty free entry would enable domestic bicycle manufacturers to continue to obtain, at reduced cost, parts and accessories necessary to maintain domestic production and employment in the United States industry and, in so doing, help to keep the industry on a firmer competitive footing in supplying the market.

The Office of Management and Budget advises that, from the standpoint of the Administration's program, there is no objection to the submission of this report.

DEPARTMENT OF THE TREASURY

Reference is made to your request for the views of this Department on H.R. 5263, "To suspend until the close of June 30, 1979, the duty on certain bicycle parts."

The bill would suspend for two years the duties on certain bicycle parts.

The Department supports the intent of H.R. 5263. There is no domestic production of the items covered by the bill, except for a small quantity of derailleur (gear shifting mechanism) components. It would permit domestic manufacturers to continue to produce bicycles at a lower cost.

We note, however, that the Customs Service anticipates administrative problems in enforcing the bill as it is currently drafted. If parts classified under items 912.05 and 912.10 are specifically provided for elsewhere in the tariff schedules, they will be classified thereunder pursuant to General Headnote 10 (ij), Tariff Schedules of the United States. Moreover, the term "generator lights" does not appear in the current item 912.05. We also note that it is unclear as to what metals are to be included under the term "alloy" in section 1(b) of the bill. In addition, the classification of the alloy butted frame tubing under the proposed legislation would depend on its being chiefly used on bicycles. It may be difficult to determine the chief use of such tubing, however, since it has a number of end uses.

If the bill were redrafted to eliminate the foregoing administrative difficulties, the Department would support enactment of the proposed legislation.

The Office of Management and Budget advises that there is no objection from the standpoint of the Administration's program to the submission of this report to your Committee.

DEPARTMENT OF LABOR

H.R. 5263 would suspend the duties on certain bicycle parts until June 30, 1979. The Department of Labor supports this legislation. H.R. 5263 is intended to continue the duty suspension for those bicycle parts classified under TSUS items 912.05 and 912.10 and, in addition, to add several more parts. None of the total eleven parts is produced in the United States. The duty-free imported parts are used together with U.S.-produced parts in U.S. bicycle assembly and provide additional U.S. production and employment. Both the U.S.-produced and U.S.assembled bicycles compete with imported bicycles.

STATEMENT ON BEHALF OF AMERICAN ASSOCIATION OF BICYCLE IMPORTERS, INC.

(Presented by Philip Kamler)

My name is Philip Kamler. I am President of the American Association of Bicycle Importers, Inc. (AABI), a nonprofit trade organization of American bicycle importers. Our respective businesses are American owned and American managed.

We thank you for this opportunity to express our views and to state the position of our association opposing H.R. 5263, the continuation of the suspension of duty on bicycle component parts for an additional 30-month period to June 30, 1979.

The issues in contention of H.R. 5263, a Bill to Suspend Payment of Duties on Certain Bicycle Parts and Accessories, were never clearly defined or fully expressed to the U.S. House Committee on Ways and Means in previous enactments in 1970 and 1973.

First, the parties to this issue should be defined. Proponents would have you believe that this is an issue between foreign producers and domestic bicycle manufacturers. Nothing could be further from the truth. The parties to this matter

are:

1. American businesses whose principal activity is the importation of complete bicycles.

2. The seven American factories producing bicycles.

The American Association of Bicycle Importers, Inc. first came into being in March 1975, and thus the reasons for opposition to enactment, which were as persuasive in 1970 and 1973, as they are today, could not have expression for the

benefit of the Committee on Ways and Means. The issues in contention do not belong nor should they occupy the time of this committee since the issues involved are particular to the bicycle industry.

The bicycle industry is like no other industry. Bicycles are assembled in the United States by seven industry factories. However, the bicycles produced by American bicycle manufacturers are not made up of American produced component parts. The principal component parts of an American bicycle are imported from foreign producers. It is reliably reported that these imported parts constitute in excess of 50 percent of the dollar value of all purchased parts installed in domestic bicycles. At the request of the committee, we would be pleased to submit our analyses of American production costs in documentation of our argument.

We list herewith the imported parts which usually are installed on American bicycles: Tires and tubes; rim strips; spokes; chains; pedals; hand brakes-front and rear; derailleur components and controls; multi-speed free wheels; front hubs; rear hubs; three-speed hubs; and coaster brake hubs.

You may then ask, exactly what does the so-called American bicycle producer actually produce? The answer is that he produces very little.

That brings us to the issue in contention. The proponents have pictured themselves as American producers. The facts indicate they are substantial importers of foreign bicycleparts which they assemble into domestic bicycles. American bicycle importers are industry people whose companies are U.S. tax payers, employ labor, utilize services of American Flag Line steamships, make substantial expenditures for goods and services, and whose pricipal activity is the import of complete bicycles from foreign producers.

It is our contention that the issue is one of the market place—an industry competition between bicycle industry people, each involved substantially with foreign producers for their share of the U.S. market consumption.

Our opposition is predicated upon the fact that the proposed duty suspension would be tantamount to a discriminatory import assessment against American companies whose principal activity is the import of complete bicycles. The effect of the presence of imported bicycles in the U.S. market has been to keep price levels competitive which had led to increased consumer demand and sales for the entire industry. Imports have contributed to the great bicycle expansion in the U.S. market without displacing domestic production.

We have already pointed out what is meant by bicycle production. An American bicycle factory and most foreign bicycle factories fabricate only the frame of the bicycle. The great preponderance of all other component parts are purchased from component sub-suppliers. Foreign bicycle manufacturers purchase their components in most cases from the identical foreign components parts sub-suppliers as U.S. factories. Thus, we have the picture of domestic and foreign bicycles varying in essence only in the composition of the bicycle frames while the remaining bicycle components are made up of comparable or even identical foreign component parts. American bicycle manufacturers are thus the largest U.S. importers of parts far exceeding replacement parts importers in the quantity of parts imported. We repeat, American bicycle manufacturers import the preponderance of total U.S. parts imported into the United States.

American importers import complete bicycles and thus, in effect, import large quantities of bicycle components fabricated into these complete bicycles having comparable or identical components as those assembled into U.S. produced bicycles. American importers pay import duties on the entire bicycle of 51⁄2 percent to 11 percent including the components upon which duty suspension is sought by domestic manufacturers. Importers do not object to the payment of import duties of 52 percent to 11 percent on complete bicycles but to grant duty suspension to domestic manufacturers on the import of comparable or identical components constitutes a preference in favor of the American manufacturer and acts to discriminate against American business men whose principal activity is complete bicycle importation.

To make the issue even more concrete, let us assume that the f.o.b. value of the components upon which duty suspension is sought is $10 per bicycle and let us assume an average duty of 8.25 percent (51⁄2 percent to 11 percent). An American bicycle importer would then pay duties of $0.825 per bicycle. An American bicycle manufacturer, assembler of components, would receive preferential treatment and pay no duties on the importation of $10 value of components under duty suspension and have a $0.825 trade competitive advantage over an American

importer. Duty suspension must be viewed as discriminatory against the ability of an American bicycle importer to compete in the market place.

The history of duty suspension now speaks for itself. The advantages given to domestic producers are so great that imports of complete bicycles have declined precipitiously both in the number of bicycles imported and in the percent share of market consumption. We submit the following revealing statistics :

From the foregoing, it is obvious that import bicycles have suffered a most devastating decline. Conditions have changed since the previous date of enactment of duty suspension in 1970 and 1973. The number of bicycles imported above declined in each of the five years from 5,200,000 in 1972 to 1,650,000 in 1976. The ratio of imports to total market consumption has declined in each year since 1972. Imports represented 37 percent in 1972 and had shrunk to 20.3 percent of market consumption in the most recent year 1976. This drastic decline must be attributed, in an important degree, to preferential treatment given to domestic bicycle producers under the duty suspension bills. (See exhibit A attached, a graphic illustration of market statistics.)

It is uniformly agreed in the bicycle industry that imports will continue to decline in both numbers and market consumption share in 1977. We have attached as evidence the statement of Mr. W. M. Hannon, president of Murray Ohio Manufacturing Co., concurring with this opinion (See exhibit B): "Imported bicycles decreased during 1976 and the import share of the market also decreased.

Based upon most recent market condition information available to us, the import of bicycles indicates a further erosion in 1977 to 1,600,000, or 18.4 percent of the total market consumption reverting back to the same relative market condition as existed in 1965.

American bicycle production, on the other hand, rebounded strongly in 1976 and domestic production increased from 5,600,000 in 1975 to 6,460,000 bicycles in 1976, a healthy 15 percent increase in number of bicycles produced. Similarly, domestic industry market share increased from 77 percent in 1975 to 79.7 percent in 1976. Domestic industry leaders openly express their optimism. (See exhibit C, page 8, statement of Stuart J. Northrop projecting continued increasing domestic production to 7,100,000 bicycles in 1977, an increase of 11 percent.) One becomes quite weary by the maze of conflicting statements issued by domestic industry. We can anticipate projections made in Washington, D.C. before this Committee to forebode "domestic industry extinction" should duty suspension enactment fail. However, domestic industry must also address the New York financial market and in Wall Street one hears most glowing forecasts of a most healthy industry condition. (See exhibit C, presentation of Stuart J. Northrop, President, Huffman Manufacturing Co.) before the New York Society of Security Analysts, most recently on February 8, 1977, in which he cites the domestic trade organization, the Bicycle Manufacturers Association of America (see page 8). projection of a domestic production increase of 10 percent, and his considered most optimistic personal forecasts for domestic bicycle production.

Thus, the market trend indicates a greatly improved condition favorable to domestic bicycle factories. All statistics available, all projections made by proponents and opponents of duty suspension conclude a drastic decline of import bicycles in 1977. The declining position of import bicycles must to an important degree be attributable to preferential treatment to domestic industry under duty suspension.