successful toy lines is about three years; those that are unsuccessful usually die within
months of their introduction.
Most toys have a high labor content, making wage rales an important function
of a product's competitiveness. While certain aspects of toy manufacture can be
automated, it is usually uneconomical to automate an entire production line for a toy
because its lifespan is usually so brief. Furthermore, for many toys, production will
always entail a substantial amount of manual activities.
In the late 1960s, toys produced overseas by foreign manufacturers began
gaining U.S. market share at the expense of U.S. -made toys on the basis of lower
prices. In order to remain competitive at home, U.S. companies were forced lo seek
out new sources of supply from lower-wage countries. At the same time, U.S.
companies were attempting to make inroads into international markets and found
again that, in order to be competitive in foreign markets, they needed to supply a
lower-cost product.
Consequently, U.S. companies began establishing offshore operations and
sourcing from unrelated foreign vendors. U.S. companies turned first lo Japan as an
alternative source of supply and then, throughout the 1970s, increasingly to Hong
Kong, Korea and Taiwan. Eligibility for GSP benefits - which provided duty savings
of either 6.8 or 12 percent on most toy categories - were a significant factor in
drawing toy investment to these Asian countries. Later, as wage rates in these
countries rose sharply, GSP benefits again factored into toy companies' decisions to
turn to new sources of supply such as Malaysia. Thailand, Mexico, the Philippines and
Indonesia.
Today, most toys selling in the U.S. market are made offshore. It is important
to note that the production-related jobs that have moved offshore will not return to
the United States; the differential between U.S. and offshore wage rates is simply too
large. Furthermore, the vagaries of the U.S. toy market make it essential that
companies be able lo halt production of a toy line quickly, shift rapidly to more
competitive sources of supply, or switch to newer or more successful products.
Although most toy production now takes place overseas, some production jobs
remain in the United Slates. These arc in areas of the toy industry in which the
United Stales retains important competitive advantages, particularly toys whose
manufacture is capital- and/or technology-intensive, toys whose large size makes them
too expensive lo ship long distances, and toys selling' in specialized market segments
whose manufacture requires sophisticated production techniques and strict quality
control.
While these U.S. production jobs probably represent a minor portion of our
industry's overall employment, there nevertheless remain thousands of key American
jobs in the U.S. toy industry. Many of these arc critically tied to imports.
For example, while Mattel and many other toy companies have relatively few jobs in
the United Stales that would be considered production jobs by some traditional
definitions, we employ thousands of workers in jobs that are directly tied lo the
products' creation and bringing (hem to the market. These U.S. jobs, which range
from preliminary product design to design and development engineering, are not only
integral to the task of producing the toy, they are the very types of technologically
advanced and high-value-added jobs that we believe our government should be
promoting.
93
Mattel's Use or the GSI> Program
Mallei has been an active participant in the GSP's Annual Review process
and, through these efforts, has succeeded in expanding GSP benefits for toys. In the
several cases our company has participated in since the GSP's first renewal in I9K4,
we have consistently proven that there is no significant U.S. production of the sorts of
toys sourccd duty-free under the GSP and that expanded GSP coverage lor toys
benefits U.S. toy companies and other economic interests.
Currently, Mattel sources product from four GSP beneficiary countries:
Malaysia, Mexico, Indonesia and Thailand. With the exception of Thailand, Mattel
operates wholly owned subsidiaries in these GSP beneficiaries that manufacture a
wide array of Mattel products including Barbie, Ken ami Hot Wtieels.
In 1992, Mattel imported over $I(K) million worth of toys GSP-free which, as
mentioned above, yielded duly savings of over $10 million. These duly savings
enabled us to price these products competitively and were an important reason that
our sales attained record levels.
In the future, the GSP program will be an important factor in Mallei's
sourcing decisions with respect to China, which currently is Mallei's largest single
foreign supplier as il is for most U.S. toy companies. During ihe past live years, the
PRC has become our industry's dominant supplier lor several reasons, bul mostly
because its labor costs are so much lower than those in other viable loy suppliers.
Labor costs in China arc so low that, in many cases, they offset the advantage
provided by the GSP's margin of preference.
If the U.S. GSP program is nol renewed, China could become an even more
attractive site for toy production. Without their GSP margin of preferences, benefi-
ciary country suppliers - such as those owned by Mattel in Indonesia, Malaysia and
Mexico — would lag even further behind the PRC as a competitive location for toy
production. This change in competitive conditions would present our industry wilh
difficult choices given the uncertainty created by our government's continuing threal
to revoke China's most-favorcd-nalion (MFN) stalus. Do we simply accept the
substantial duly costs and keep production in place in beneficiary countries, or do we
shift still more production to China and make our industry increasingly vulnerable to
MFN sanctions?
Conclusion
For the foregoing reasons. TMA urges thai the GSP program be renewed. In
this regard, we would like to stress Ihe importance of ihis issue to our sector given its
high MFN rales of duty of 6.8 to 12 percent versus the less than 5 percent average
U.S. tariff for all producls. The application of these duties lo GSP beneficiary
countries would undermine the ability of U.S. loy companies lo maintain our leader-
ship role in world markets.
Finally, we also would like lo stress the importance of enacting renewal
legislation before the program expires on July 4 - less than ten weeks from loday.
This is a mailer of critical importance for our industry since the height of the
Christmas shipping season is Ihe period July through September. Purchasing commit-
ments for the 1993 Christmas season already have been made, and a change in prices
this summer would present especially grcal hardships for manufacturers and retailers
in our industry. Mosl importantly, because of this liming problem, even a temporary
lapse in the GSP program is likely to affect the prices paid by U.S. consumers
throughout this year's Christmas season.
69-455 0-93-4
94
Chairman Gibbons. Thank you.
Mr. Nelsen.
STATEMENT OF PETER T. NELSEN, PRESIDENT,
INTERNATIONAL TRADE COUNCIL
Mr. Nelsen. Thank you, Mr. Chairman. We thank you for the
opportunity to present testimony at this time on this very impor-
tant issue.
The International Trade Council represents about 850 companies
in 49 of the 50 States. It is a broad cross-section of manufacturing
and service companies. We started out in 1976 as the Agricultural
Trade Council, and majority of our members are still in food pro-
duction. But it includes practically everything other than military
and outer space.
I would like to submit our statement for the record and summa-
rize because much of what is in there has already been said.
Just for the short version of it, we strongly recommend the re-
newal of GATT. The problem of not having the GATT, as vou men-
tioned yourself before, is far worse than having some GATT. And
the one thing that we might be able to add to the dialog is that
after 7 years of negotiation, we can maybe sign off on those things
that we have agreement on and leave the other parts to the next
round.
In the 7 years that have transpired, millions of dollars and mil-
lions of jobs have been lost because of the limited trade that has
taken place without agreements in agriculture, particularly in serv-
ices, and a lot of problems have arisen out of the intellectual prop-
erty void in the agreement. So by all means, we ought to with what
is available that we can reach agreement on. If the French farmers
want to hold out and some of the labor unions here want to hold
out, well, let's go with the rest of it.
We are here primarily to talk about the GSP, but let me just
mention one other thing. About 2,000 companies have already gone
to Mexico and offshore locations, be it Thailand, be it Philippines,
and whatever. If we don't reach agreement on the GATT, GSP, and
some of the other trade issues on the table now, it will encourage
more companies to go offshore to have access to those markets
rather than producing here and exporting in its entirety.
On the issue on tariffs: Really, tariffs are a tax upon the
consumer, and some of the legislation that has been passed ap-
pears to be more an attempt to increase revenue. About 2.5 percent
of our Federal budget comes from tariffs.
[The following was subsequently received:]
Our tariff schedule, in spite of some changes, is an anachronism that dates back
before World War I when there was no income tax and the entire budget of the Gov-
ernment was generated from tariffs. Tariffs should be reduced to 1 percent, just
enough to cover the operating cost of the Customs Service which is responsible for
controlling trade in contraband and defense sensitive material.
The objective there should be to encourage the creation of trading
partners, which leads us to the GSP.
There are 141 countries presently that receive GSP benefits.
There are about a dozen countries, I think, that had GSP benefits
and have graduated into regular trading partners of the United
States, such as Korea, Taiwan and so on.
95
It is far better to support the development of the world with
trade rather than aid. One of the questions on the GSP is how are
we going to make up for the $700 million that would be lost if the
program is extended. The answer is from the $16 billion foreign aid
program. We ought to review the foreign aid program, which was
set up for humanitarian help, but it, over the years, became a tool
of the State Department, and we distribute the foreign aid program
to benefit our political aims rather than our humanitarian aid.
Therefore, if there is any objection to $700 million being lost,
there is $16 billion in the foreign aid program that could be redi-
rected.
One of the main benefits of the GSP program is the fact that it
reduces inflation, it is a great benefit to the consumer to obtain
products that otherwise would be more expensive and out of their
reach. In other words, it improves the quality of life of our low-in-
come portion of the population.
[The following was subsequently received:]
There are approximately 20 countries that extend GSP benefits to the LDC'a. It
would be politically embarrassing if we did not continue the GSP from a humani-
tarian aspect and it would be detrimental to U.S. trading companies and U.S. con-
sumers. Therefore, if opposing voices object, we submit the following proposal:
GSP rights will be granted to any country that meets the criteria outlined in
the Act provided that they will permit U.S. producers of products, commodities
and service at tariffs or other fees no higher than what the country charges any
other country who may have preferential trade agreements or other fee agree-
ments to export to that country.
It may be asked: Why not free access? there are many LDCs who have no effec-
tive individual tax collecting system. If they could not collect import and export fees,
they would not have money to run their governments. Many of these countries have
preferential agreement such as ex-British colonies in the Commonwealth system
and ex-French colonies with the French banking and trading system. Therefore, if
the U.S. gives them free access to our markets, then the U.S. producers should have
the best possible access to their markets.
Everything else I think has been said. Let me mention a couple
of things on the Trade Adjustment Act. I think nobody today has
covered that yet, since it is on your schedule.
Trade Adjustment Act money ought to be going to retraining of
U.S. workers rather than just compensation for them losing a job.
There is a bill kicking around for retraining of workers who have
lost their jobs, whether it is through down sizing or plants moving
overseas, whatever, and the moneys that goes into trade adjust-
ment ought to be used only for specific retraining.
There is no point in retraining people unless they are being
trained for a specific job. The objective there ought to be to make
moneys available to companies who will give an individual a job if
he is properly trained for that position.
We have lots of highly skilled workers, for example, ex-Boeing
employees and ex-defense industry employees in general, who are
extremely well trained, and what else are we going to send them
to school for if it isn't for a specific occupation? The Trade Adjust-
ment Act expires in September. There is enough time, if the will
exists in Congress, to rewrite it with a little more good logic.
With that, I will conclude my remarks, and we will be glad to
submit additional information if you would like.
[The prepared statement follows:]
96
INTERNATIONAL TRADE COUNCIL
Statement of Peter T. Nelsen, President
International Trade Council
Before the
U. S. House of Representatives
Committee on Ways and Means
Subcommittee on Trade
April 27, 1993
-Extension of Fast Track of the GATT
-Extension of the General System of Preferences (GSP)
-Trade Adjustment Assistance for Workers
Mr. Chairman and Members of the Committee. We thank you for this
opportunity to appear and present testimony before the Subcommittee on Trade of
the Committee on Ways and Means.
The International Trade Council (ITC) is a non-profit trade association with
member companies in 49 of the 50 states who produce products and services for
the world market. We have both exporting and importing companies and some
who both export and import. The member companies include both large, medium
and small producers. All of the companies and their employees are affected by the
legislation that your Committee passes or rejects.
ITC has testified four times over the past several years on the subject of the
General Agreement on Tariffs and Trade (GATT) and the benefits that will derive
to the United States and our producers with the planned passage of the new
sections on agriculture, services and the intellectual property provisions.
The gridlock that has lasted for four years now as a result of the
intransigence of special interest groups such as the French farmers, some labor
unions here and single industries both here in the United States and overseas, has
cost the majority of the United States industries hundreds of millions of dollars and
millions of jobs in lost opportunities during this time.
Mr. Chairman, ITC urges the House Ways and Means Committee to
recommend an extension of the fast track as necessary and to advise Mickey
Kantor and the Special Trade Representatives office to settle and sign with its
opposite representatives overseas, in short time, those items upon which agreement
can be reached and leave off for the next round those items that have deadlocked
the entire Urugary Round until now. In this case, part of a pie is better than no
pie and a partial agreement would create new productivity and employment in the
United States.
**********
The General System of Preferences (GSP) is due to expire on July 4, 1993.
It is important to the U. S. economy, both the business sector and the U. S.
consumer that the GSP be renewed. We, therefore, urge a short term extension
to the program, sufficient to review and update the legislation.
The GSP creates economic development in 141 less developed countries
(LDC's) and enables these countries to earn dollars with which they can buy U.
S. exports. The GSP permits the U. S. to implement U. S. trade policies and
international trade law such as intellectual property rules, banking laws and
contract treaties.
The GSP creates industrialization, economic growth and international as well
as domestic commerce; thereby reducing and eventually eliminating the need for
foreign aid. There are numerous examples of LDC's who are now industrialized
and who have become self sufficient economies, in part as a result of our GSP and
Aid programs who are now good trading partners of the U.S.A.
97
The GSP is used not only for finished products for the world market not
only by the United States. The European community countries and Japan have
similar GSP laws. The program also permits U. S. producers to import
commodities and parts which go into U. S. manufactured products, produced here
for the world market, thus creating employment here and making U. S. producers
competitive in the world market.
The GSP permits 4400 different product categories to be imported, most of
which are consumer goods. They are a significant factor in keeping our consumer
prices down, thereby improving the quality of life for a portion of our population
who could not afford many of the items at higher prices.
The last time the GSP rules were changed Intellectual Property Rules,
workers' rights and ILO rules were added.
ITC herewith suggests the following new rule: That in return for duty free
access to the U. S. market, the GSP countries will agree to permit U. S. exports
to their country at a rate of import duty equal to the lowest rate that they impose
on any other country.
The reason for that, rather than zero import duty, is that many LDC's still
depend entirely on import duties and export taxes to pay for their government
operating costs, just as the U. S. did prior to World War I. The proposed rule
would apply particularly to ex-French and ex-British colonies who give preferential
rates to their ex-colonial powers, and to regional trade agreements.
A six month extension will cost the U. S. Treasury 600 to 700 billion
dollars. It would be most logical to deduct that amount from the U. S. foreign aid
program budget. The entire Foreign Aid program needs to be reviewed. It served
as a policy tool of the State Department during the cold war to induce countries
to side with the U.S. rather than the U.S.S.R. and for other political reasons such
as the extraordinary amounts given to Israel and Egypt.
The world has changed and original intent of humanitarian help is still valid
but the methods should be revised to assist enterprise in those countries rather than
grants to the governments.
********
The Trade Adjustment Assistance (TAA) program which terminates on
September 30, 1993 should be combined with the newly proposed job retraining
program. There is enough time to formulate legislation in the next five months so
that no temporary legislation seems to be needed.
Laid off workers receive unemployment insurance and trade adjustment
assistance would be just a wasteful redistribution of taxpayers' money unless it is
used to retrain workers into a skill area where jobs exist. Therefore, it would be
better used as matching funds for companies who will agree to hire the workers
when they satisfactorily complete their training.
The GATT, the GSP and the TAA are all key building blocks that can
improve the rules of economic engagement to improve the quality of life in the
U.S.A. and around the world and thereby avoid the expansions of military
engagements. We are reminded of Cordell Hull's statement a half century ago that
"Where trade will not cross borders - guns will."
We thank you again, Mr. Chairman, for the opportunity to present testimony
on these important subjects. We will be glad to submit further information or
analysis for the record if you wish.
98
Chairman Gibbons. Thank you, sir.
Ms. Wiss.
STATEMENT OF MARCIA A. WISS, GENERAL COUNSEL AND
LEGISLATIVE DIRECTOR, CANNED & COOKED MEAT IM-
PORTERS ASSOCIATION
Ms. Wiss. Thank you, Mr. Chairman. I am Marcia Wiss, the gen-
eral counsel and legislative director of the Canned & Cooked Meat
Importers Association. I am also a partner in a law firm, that of
Whitman & Ransom.
I am here today to urge the renewal and extension of the gener-
alized system of preferences, a system providing for duty-free treat-
ment for goods entering the United States from developing coun-
tries.
There are many reasons to support the continuation of GSP.
Chief among them are that it, one, maintains and creates jobs in
the United States. This is a jobs bill.
Two, it controls costs to producers and consumers.
Three, it enhances the competitiveness of U.S. producers and
workers.
The benefits of GSP are not available to import-sensitive prod-
ucts or to countries which are highly competitive in a particular in-
dustry. Therefore, the benefits of the program are strongly focused
on U.S. jobs and U.S. competitiveness.
Our major competitors overseas have their own systems of pref-
erences for goods imported from developing countries. Therefore, to
remove this benefit from U.S. producers and consumers would be
to place U.S. industry at a competitive disadvantage.
Let me give you some background on the Canned & Cooked Meat
Importers Association, or CCMIA, as it is known.
CCMIA is a trade association of substantially all the U.S. compa-
nies engaged in the importation, not for their own use, into the
United States of canned and cooked frozen meat from South Amer-
ica, primarily from Brazil, Argentina, and Uruguay.
In addition to the importers, who are the regular members of the
association, CCMIA is also composed of service members, such as
customs brokers, shipping lines and other carriers, warehousers,
freight forwarders, and other companies which assist in the impor-
tation of beef from South America. The association is a District of
Columbia nonprofit corporation founded more than 35 years ago.
CCMIA strongly supports GSP because it greatly facilitates the
importation of two of the key products imported Dy its members
into the United States. The principal such product is canned corned
beef, which is a traditional export from Brazil, Argentina, and Uru-
guay. The industry in South America was developed over 100 years
ago by an American, Mr. Libby, who developed Libby's canned
corned beef. The product is familiar to the consumer in the retail
12-ounce trapezoidal can. Over the past several years, this trade
has represented approximately $75 to $100 million annually in im-
ports into the United States.
Canned corned beef provides an economical source of meat pro-
tein primarily consumed by low-income blue-collar customers and
senior citizens. A recent market survey compiled by the Nielsen
Market Research Co. shows that canned corned beef and canned
99
corned beef hash are predominantly used by minority ethnic
groups, who can least afford the impact of price increases on the
foods tney eat
Canned corned beef has traditionally been an important low-cost
source of meat protein, 25 to 27 percent, with a low-fat content, 10
to 13 percent, for low-income families. Were GSP to expire, the
costs of a typical $1.79 can of 12-ounce corned beef would increase
by about 8 to 10 cents. Canned corned beef hash, which requires
a meat content of 35 percent cooked meat, would increase by 3 to
4 cents for a typical $1.49 can.
Canned corned beef would be particularly hard hit were GSP to
expire since the duty of 7.5 percent is a relatively high duty for this
kind of product
We do understand that it is the subject of a zero duty offer in
the Uruguay round in major part because it does not compete with
any U.S. -produced product
Canned corned beef does not compete with any U.S. -produced
product, a fact which was confirmed by the U.S. Government in a
rinding several years ago that no like or directly competitive prod-
uct is produced in the United States. This is due primarily to the
health rules enforced by the United States Department of Agri-
culture requiring that the product be cooked to a minimum of 167
degrees Fahrenheit This retorting process results in a high-pro-
tein, low-fat product since the fat is cooked off during the cooking