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Basically, section 16 originally required as a condition to copyright that books in the English language be manufactured from type set, plates made, and by a process wholly performed within the United States.

As you can see from our written statement, there has been a constant erosion in the manufacturing area over the years, until we arrive at the language in section 601 of H.R. 2223. This language represents a compromise developed by the book manufacturers and the trade unions, and a number of House and Senate committees in this and previous Congresses.

Section 601 does substantially liberalize the existing manufacturing clause as it is contained in section 16 of title 17 of the United States ('ode. And exemption has been added for American nationals domiciled abroad for more than 1 year, and the absolute loss of copyright protection upon noncompliance with the manufacturing clause has been deleted. Further, the number of books that may be imported as exempt has been increased to 2,000, and other exemptions have been added.

Section 601 does away with the special ad interim time limits and registration requirements of the present law, and even if copies are imported or distributed in violation of the section, there would be no effect on a copyright owner's right to make and distribute phonorecords of the work or to make derivative works, including dramatization and motion pictures, or to perform or display the work publicly.

The essential question is whether Congress may impose reasonable limitations and conditions on the grant of a monopoly; namely, a copyright, in order to provide domestic printers a limited measure of protection admittedly lost when a copyrighted book is manufactured by a foreign competitor. Recognizing that the manufacturing clause is not solely a free trade issue, it should be emphasized that the needed protection for a domestic book manufacturing industry is not provided now, since the tariffs on most books were eliminated in 1966 through the implementation of the Florence Agreement by the United States. Foreign countries, on the other hand, impose many kinds of tariff and nontariff barriers and currency controls and other restrictive devices to limit the export of our books.

One of the main justifications for that manufacturing clause is economics. The cost of those skilled and unskilled labor abroad in many parts of the world is substantially less than fully comparable cost in the United States. Further, it is important to note that in the United States, labor costs constitute a higher percentage of total manufacturing costs than in most other industries.

As an example, a comparison of data reported by the Department of Commerce and the 1972 Census of Manufacturing indicates a production payroll cost in the book manufacturing industry equals 44.5 percent of total value added by the manufacturer. This is compared to only 29.7 percent for all U.S. manufacturing generally.

In other words, production worker wage costs are related to the value added by the manufacturer, and are more than 50 percent higher in book printing than the average for all U.S. manufacturing.

Further, our industry must meet U.S. standards of servicing quality and bear a certain heavy social cost in the form of OSHA compliance, EPA standards, and a host of other regulatory requirements. Our com

petitors abroad do not have these expenses and burdensome requirements, and thus gain a certain advantage,

It should be remembered that during the last decade with the limited protection of the manufacturing clause, 51 book manufacturers went out of business and 23 were merged or acquired and 3 are to be closed at a later date.

The manufacturer of books requires the purchase of very expensive printing equipment, such as the high-speed, long-run web offset press, but at the same time, return on net worth to the industry has only been in the 5-to 8-percent range in the past decade.

Based on available data, it is clear that the amount of foreign manufactured books imported into the United States is increasing at an alarming rate. In examining the 8-year period between 1967 and 1974, it is apparent that the value of imported books has increased at a considerably faster rate than domestic production, as measured by the BMI composite and the Standard & Poor's publishing industry composite. Book imports of all sorts has increased from 69.3 million in 1967 to 150.7 million in 1974, according to the U.S. Departinent of Commerce figures. This represents a rise in the market share pene. tration of imported books from 2.5 percent to 3.7 percent of the U.S. market. Remember, this all occurred with the limited protection of the manufacturing clause.

The reason for this rapid increase is a growing practice of the ('.S. publishing industry in investing or placing business abroad. In addition, it is also clear that although the present high ratio of exports of domestic manufactured books to imports of foreign manufactured books is this, a repeal of the manufacturing clause will change the situation quickly, since foreign publishers traditionally have never used U.S. manufacturers. This, of course, may add to the current balance-of-payments problems and in addition, severely damage our industry.

| In conclusion, I would like to state that based on the above facts, we submit that a repeal or a further weakening of the manufacturing clause will have a disastrous effect upon our industry at a time when there is a necessity for an increased volume of printed material, and a need to utilize a skilled labor force to meet these demands. However, in the spirit of reform and recognizing the long and arduous history of compromise of differing economic interests concerning this issue, the book manufacturing industry states its support for section 601, as it presently appears in H.R. 2223.

Mr. Owex. Mr. Chairman, we would like to submit the full text of our statement for the record, as presented to Mr. Fuchs 2 days ago.

Mr. KASTENMEIER. Without objection, your full statement will also be accepted.

[The prepared statement of Jack B. Sandler follows:]

STATEMENT OF JACK B. SANDLER, CHAIRMAN OF THE GOVERVVENT RELATIONS

('OMMITTEE OF THE BOOK MANUFACTURERS INSTITUTE, INC.

My name is Jack B. Sandler and I am Gronp Vice President of Sales, for the Book Division of W. A. Krueger Company, New Berlin, Wisconsin. Todar I am appearing on behalf of the Book Manufacturers Institute (BMI) located in Ridgefield, Connecticut. I am presently serving as Chairman of the Government Relations Committee of BMI.

The BMI is a trade association representing approximately 80% of all companies in the United States engaged in the manufacture of books, which includes the pre-press preparation, printing and binding of books.

I would like to thank the Committee for allowing me to testify here today on behalf of the members of BMI.

At the outset, I wish to emphasize the general support of the BMI for H.R. 2223 and the need for a revision and modernization of the Copyright Law in the United States.

With this in mind, let us consider an important provision of the bill which the BMI strongly supports and which has a great importance to the economic future of the book manufacturing industry in this country.

SECTION 601, THE MANUFACTURING CLAUSE Since 1891, as the result of legislative compromise, there has been a “manufacturing clause" in some form under our Copyright Law. The present manufacturing clause is contained in Section 16 of Title 17 of the United States Code and is supplemented by Section 107.

Basically, Section 16 originally required as a condition to copyright that books in the Erglish language be manufactured from type set, plates made and by a process wholly performed within the United States.

As the result of implementing legislation authorizing the participation of the United States in the Universal Copyright Convention of 1955, the manufacturing clause was weakened and resulted in the present version of Section 16 which generally provides that books by American authors, or by foreign authors, residing or domiciled in the United States, in the English language, as a condition of copyright must be manufactured and printed from type set, plates made and by process wholly performed within the United States.

Section 601 of the bill represents a further liberalization of the manufacturing clause and constitutes a compromise version developed after long study and effort by the publishers, book manufacturers, trade unions and a succession of House and Senate Committees in previous sessions of Congress. Let us now consider the reasons for the desirability of Section 601 and a manufacturing clause in general.

1. THE COPYRIGHT MONOPOLY

A strange marriage of crafts is sheltered under the cloak of copyright, namely, authors, publishers, manufacturers and trade unions. The purpose of a copyright is to grant a monopoly in the sense the copyright takes away from the printer the power to control the multiplication and distribution of printable works. Indeed, it was against printers that the Statute of Anne, on which our copyright law was based, purported to protect authors. Thus, recognizing that the selection of a book manufacturer to produce copies of a copyrighted work creates an exclusive right to reproduce and distribute copies of that work is essential in understanding the impact of the manufacturing clause on our book manufacturing industry. In effect, the manufacturing clause allows the government to say to the publisher: "We will grant you a monopoly to sell and distribute this work, but as a condition of granting you that monopoly, we want you to have the product produced in this country by United States manufacturers and United States workers."

Section 601 and the present version of the manufacturing clause impose a rea. sonable limitation on the power of the copyright owner to select and exclude who shall benefit from his monopoly. The Copyright Law grants the power of monopoly and the manufacturing clause as a part thereof, limits it, both in the public interest.

Those who argue the elimination of the manufacturing clause under the guise of free trade misunderstand the concept of the copyright monopoly. Granting unlimited monopoly within the United States to foreign manufactured books obtained under the Universal Copyright Convention does not bolster free trade since at the same time, the requirements for obtaining a monopoly within the United States has been accomplished and hence, a restraint on domestic trade has resulted. Thus, this issue should not be solely construed as a classic confrontation between free trade and protecting domestic interests. The essential question is whether Congress may impose reasonable limitations and conditions on the grant

19 Anne. C. 19 (1710). Great Britain

: The Manufacturing Clause of the u.8. Copyright Law, Copyright omice, Library of Congress, February, 1963.

of a monopoly, namely a copy right, in order to provide domestic printers a limited measure of protection admittedly lost when a copyrighted book is manufactured by a foreign competitor.

Recognizing that the manufacturing clause is not solely a free trade issue it should be emphasized that the needed protection for our domestic book manu. facturing industry is not provided now, and is not likely to be provided in the future under the United States tariffs. Indeed, tariffs prior to February 1, 1967 had been minimal and on most books have been removed entirely as the result of P.L. 8651 (October 14, 1966) and Presidential Proclamation No. 3754 (November 3, 1906, 3 CFR, 1966 Comp. p. 90) which implemented the "Florence Agreement" by the United States. It should be noted that the United States removed all tariffs on books and educational materials covered by the "Florence Agreement," including imports of these items from countries which to date have not signed the Agreements. During this decade, it should not be overlooked that foreign countries, while generally granting copyright protection to United States manufactured books, impose many kinds of import barriers, currency controls, and similar restrictive devices comparable to the manufacturing clause. Therefore, the existing manufacturing clause and the proposal contained in Section 601 are not an unreasonable limitation on the granting of copyright protection and would pot present an undue burden on free trade.

II. ECONOMIC JUSTIFICATION FOR THE MANUFACTURING CLAUSE

The historical basis for the manufacturing clause was and still is economic, It is common knowledge that the cost of both skilled and unskilled labor in the book manufacturing industry in Europe and Asia is less than the fully compar. able cost in the United States. We support the testimony of the International Allied Printing Trades Association on this point.

In addition, it is important to note that in the printing industry in the United States, labor costs constitute a higher percentage of total manufacturing costs than in most other industries. As an example, a comparison of data reported by the Department of Commerce, 1972 Census of Manufacturing, indicates that production payroll cost in the book manufacturing industry equals 44.5 percent of total reported value added by manufacture as compared to only 29.7 percent for all (*.S. manufacturing generally. In other words, production worker wage costs when related to value added by manufacture are 50 percent higher in book printing than the average for all U.S. manufacturing.

Generally, our industry has a considerable quality and productivity leadership orer foreign manufacturers. However, a number of European and Asian countries have begun to improve their manufacturing facilities through investment in advanced high speed equipment comparable or identical to United States technology and are capable of eventually matching their products with United States standards of service and quality. However, since our industry is really a service oriented industry that is dependent in large part upon the quality of our labor force which represents a substantial percentage of our manufacturing cost as demonstrated above, it is imperative to recognize that labor cost differentials are severe to our industry for competitive purposes. Further, understanding that our products are in a sense a unique service product, dependent upon our high stand. ards of quality and service, it appears inconsistent to penalize our industry which must bear certain heavy "social costs” in the form of OSHA compliance. EPA standards, and other regulatory programs, by allowing foreign produced products manufactured under less expensive social conditions and wage differentials, to compete with our products in the United States.

In view of the manufacturing cost advantage of foreign competitors in the form of differentials in United States and foreign labor costs, and hence destructive competition which our industry may not otherwise combat, the effect on our indu-iry of an unrestrictive flow of foreign manufactured books into the United States would obviously be devastating. Section 601 would provide our industry with a limited and reasonable measure of protection against the clearly dis. parate economic situation,

As mentioned earlier, economic justification is the main issue behind the retention of the manufacturing clause. This rationale was summarized by two pre. vious Congressional Committees supporting an identical version of Section 601 as follows:

"The real issue that lies between Section 101 and complete repeal is an economic one, and on purely economic grounds the possible dangers to the American print

ing industry in removing all restrictions on foreign manufacturing outweigh the possible benefits repeal would bring to American authors and publishers."

We submit, the economic justifications responsible for the existence of the manufacturing clause under present law clearly exist today and support the proposed Section 601.

III. THE IMPACT ON THE PRINTING TRADE LABOR FORCE

It is undisputed that in the United States, labor conditions are far superior to those in foreign countries as was illustrated earlier by the disparity in wages between our industry and that of European and Asian countries. This high standard enjoyed by our labor force is obviously dependent upon a healthy and enduring industry, continuing capital investment and improvements. Our industry has always evidenced those qualities and all indicators point in that direction for the future.

As discussed earlier, with tariffs gone, a repeal of the manufacturing clause will remove the only protection afforded our industry from devastating foreign competition. Without the manufacturing clause, investment and risk-taking would be discouraged and increased unemployment would result. It should be remembered that during the last decade, 51 book manufacturers have gone out of business, 23 have merged or been acquired and 3 are to be closed at a later date. The manufacture of books requires the purchase of very expensive printing equipment such as the high speed, long run webb offset press. But, at the same time, return on net worth in the industry has only been in a 5% to 8% range in the past decade.

Thus, it can be seen that the manufacturing clause is important. Failure to economically compete in the marketplace caused by repeal of the clause will obviously cause a decline in the production of our industry with a corresponding reduction in the labor force employed in the manufacture of domestic books. This possibility unfortunately is real and may not be capable of reversal under current disparities between the production costs of our industry and our foreign competitors.

Thus, in these times of economic uncertainties and under conditions where it is imperative that our skilled labor force be employed to meet our national commitments, it is clear that a reasonable protection for our existing domestic labor force in the form of the manufacturing clause contained in Section 601 should be retained.

IV. EFFECT ON IMPORTS OF ENGLISH LANGUAGE BOOKS Based on available data, it is clear that the amount of foreign manufactured books imported into the United States is increasing at an alarming rate. In examining the eight-year period between 1967 and 1974, it is apparent that the value of imported books has increased at a considerably faster rate than domestic production as measured by the BMI Composite and the Standard and Poor's Publishing Industry Composite. Book imports of all classes have increased from $69.3 million in 1967 to $150.7 million in 1974 according to U.S. Department of Commerce figures. This represents a rise in market share penetration of imported books from 2.5% to 3.7% of the U.S. Market. And remember this all occurred with the limited protection of the manufacturing clause!

The reason for this rapid increase is the growing practice of the United States publishing industry in investing or placing business abroad. In addition, it is also clear that although the present high ratio of exports of domestic manufactured books to imports of foreign manufactured books exists, a repeal of the manufacturing clause would change this situation quickly since foreign publisherg traditionally have never used United States manufacturers. This of conrse may add to the current balance of payments problems and in addition, severely damage our industry.

Thus, retention of the manufacturing clause contained in Section 601 is essential to insure the favorable ratio of exports of domestic manufactured books to imports of foreign manufactured books and the corresponding beneficial effect upon our current balance of payments situation.

& Ilouse of Representatives' Report No. 2237. 89th Cong.. 2nd Session. October 12. 19RR. at pp. 162-163: Senate Report No. 993, 93rd Cong.. 2nd Session, July 3. 1974. at p. 196. It is important to note that this Congressional review and conclusion spanned a period of eight years. thng bolstering a clear economic justification for the ne manufacturing clause.

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