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Viewed in the light of these efforts to obtain repeal of the manufacturing provision, the assertion that such repeal would not result in a substantial movement of book manufacturing business out of this country is difficult to comprehend. Book manufacturing is an extremely high labor-intensive process. The wage component of the book manufacturing sales dollar is unquestionably one of the highest in our national economy. Thus, our industry, paying high craft wage rates, is one of the most vulnerable to low-wage foreign competition. In a recent BMI study of 19 representative book manufacturing establishments, it was found that the ratio of factory production labor costs to the total sales dollar was 40.1 percent overall, running as high as 61.2 percent for composing rooms, 50.3 percent for letterpress platemaking, and 48.7 percent for letterpress pressroom. A copy of this study, designated exhibit A, is attached to my prepared statement and is submitted for the record.

Recent Labor Department studies show that the earnings of employees in European book manufacturing establishments are far below those of their counterparts in the United States. Tables showing the results of these studies, designated exhibits B and C, are attached to my prepared statement and are submitted for the record.

These labor cost comparisions show clearly why continuation of the manufacturing provision in the U.S. copyright law is essential if the United States is to have a strong book manufacturing industry. The highest effective hourly earnings (i.e., hourly earnings adjusted to reflect wage supplements) received by book manufacturing employees anywhere in Europe, namely, those received by the more highly skilled men in France, is only 63 percent of the average hourly earnings of all workers engaged in book printing in the United States.

The best paid European printing and bookbinding employees on the average are Swedish men, and their effective hourly earnings are only 60 percent and 66 percent, respectively, of the earnings of their American counterparts. The other countries of Europe range far below Sweden. In the United Kingdom, which is one of the largest book exporting nations in the world and is the principal source of United States imports of books, average hourly earnings of men workers engaged in book printing, publishing, binding, and engraving are less than one-half of the average hourly earnings of American workers, both men and women, similarly engaged. It is well known, of course, that Asiatic and other countries of the world are far below the European countries in labor costs. By far the highest paid hand compositors, machine compositors, press operators, and bookbinders in Europe are those in Sweden, whose minimum wage rates are much below the minimum rates paid to their American counterparts. comparison is as follows:

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The same comparison with other foreign countries, of course, shows even greater differentials. These labor cost differentials are offset to only a very slight degree by U.S. technology and productivity. In the first place, the argument that U.S. book manufacturing is technologically more advanced than European technology is largely a myth. The fact is that while a larger percentage of U.S. book manufacturers have modern, high speed equipment than do European book manufacturers, the more advanced European firms use comparable, and in some cases superior, equipment to any found in the United States. As a matter of fact, American plants are using substantial amounts of Europeanmade equipment. Moreover, with high speed jet air transportation becoming the rule rather than the exception, and with favorable westbound freight rates. European book manufacturers can now meet tight production schedules and can lay down completed books in the United States at freight costs competitive with our own high, overland costs.

Much has been said about superior productivity in the United States, implying lower output per man-hour in foreign countries. Obviously, output per man

hour on the less sophisticated equipment used for short-run work would be less than that on a high-speed long-run production line. However, productivity in a Western European plant producing books with the same length of run and specifications as a similarly equipped American plant, which would be the case if the manufacturing provision were removed and the European plant were manufacturing American book titles, would differ little from that of the American plant. Despite the low wages paid, European craftsmen are highly skilled and work hard and effectively. Thus, with their drastically lower labor rates, the per-unit-of-production costs of European plants manufacturing American book titles would be substantially lower than our own unit costs.

It should be remembered that book manufacturers have no product to sell but our manufacturing services. In the entire process of writing, designing, planning, manufacturing, marketing, and distributing books, the book manufacturer performs the single function of manufacturing the product. We sell our services, not to the general public, but to publishers. We own no book inventory, and we do not sell books. For the most part, we never own even the physical materials which we use to manufacture books. These materials, like the finished books themselves, are the property of the publisher. Moreover, we have no control as to the content, format, advertising or terms of sale of the books we manufacture. These, too, are in the hands of our customer, the publisher.

Under these circumstances, it will readily be seen that the book manufacturer has very limited areas in which to adjust to adverse competitive conditions. Our only competitive weapons are price, quality, speed, and dependable service. With many European and Asiatic book manufacturers able to offer quality and service comparable to ours and able to meet delivery schedules satisfactorily, all at prices well below the best that we can offer in view of our higher labor costs, removal of the manufacturing provision from the copyright law would result in wholesale importations of foreign book manufacturing services and jobs in substitution for our American book manufacturing services and the jobs of our employees.

We take serious issue with the contention sometimes made that the manufacturing provision is unrelated to copyright and that book manufacturers have no just claim to recognition under the copyright law. It is the book manufacturer who makes possible the commercial exploitation of authors' works by reproducing them in multiple copies. Since it is the book manufacturer who has the physical capability to reproduce authors' creations in multiple copies, it is the book manufacturer who, absent copyright, could profit from the commercial exploitation of such creations.

Thus, copyright denies to book manufacturers the right to use their skills in such a way as to reap the benefits of an author's creative work by freely selling multiple copies. It forecloses us from competing with authors and places us, instead, at the service of authors and their publisher agents, who are the real controllers of copyright power. The control of copyright gives publishers a monopoly, the scope of which precludes all book manufacturers except the one selected by the publisher from manufacturing copies of the protected work. The manufacturing provision is nothing more than a reasonable condition of the grant of that monopoly. Under the requirements of the manufacturing provision, publishers are free to select any book manufacturer they wish so long as it is some domestic manufacturer. If there were no manufacturing provision, the copyright monopoly could, and, we believe, would be used to deny manufacture of a very large number of book titles to all domestic book manufacturers.

We believe that it would be grossly unjust to permit the publishing community, who are the beneficiaries of consumer purchasing power generated by American wage standards, to refuse to pay the cost of American book manufacturing services and, instead, to buy foreign manufacturing services provided at wages which are far below those which we book manufacturers in the United States must pay. Indeed, it seems to us that repeal of the manufacturing provision would enable publishers to have their cake and eat it too. Armed with the power of the copyright monopoly, they would buy book manufacturing services in lowcost foreign markets and sell the books in the high-priced U.S. market.

We do not think you should be misled by any rhetoric you may hear as to the alleged adverse effect of the manufacturing provision on international relations. There is no question of international comity involved here. The proposed new manufacturing provision will not apply to literary works created by na

tionals of any foreign country. Books which are truly the products of foreign nations may be imported into the United States with full copyright protection. Thus, in the true sense, the manufacturing provision does not restrict the importation of foreign books, and it does not hinder in any way the free flow of educational, scientific, and cultural materials; it merely prevents the importation of foreign manufacturing services in substitution for American manufacturing services in the preparation of American books for sale to the American consumer. It is, perhaps, noteworthy that the manufacturing provision was not viewed by the authors of the Florence Convention as an obstacle to U.S. adherence to that agreement calling for the free flow among nations of educa tional, scientific, and cultural materials.

Moreover, the U.S. tariff on foreign books; that is, books written by non-U.S. authors, is an insignificant 3 percent ad valorem, far below the import duties imposed by a great many other countries, and, unlike many foreign countries, the United States requires no special import licenses and imposes no exchange rate restrictions or internal equalization taxes on imported books. Even the 3 percent U.S. import duty is subject to elimination, either through the GATT negotiations or by the Florence agreement legislation which is presently pending before the Committee on Ways and Means.

With one or two notable exceptions, an analysis of present U.S. international book trade statistics produces little useful information bearing on the impact which removal of the manufacturing provision would have on U.S. book manufacturers and our employees. Any attempt to compare trends in imports and exports as they now exist with trends under a marked change of circumstances, such as repeal of the manufacturing provision, is a comparison of apples and pears.

It is reasonable to expect that the effects of the elimination of the manufacturing clause would cause a loss in printing and binding paralleling that which has taken place in composition through the so-called reproduction proof loophole, except that the loss could be expected to be greater since doubt as to the legality under the present law of using foreign reproduction proofs has caused many U.S. publishers to shy away from this practice, particularly with respect to the more valuable copyright properties. As stated previously it is not possible to obtain valid statistics on the amount of composition set abroad. However, where very little composition was so set 10 years ago, there are a number of large composing rooms in the British Isles and Western Europe now specializing in typesetting of American authored books. Two instances showing this practice are cited. Twelve of the one hundred and twelve books shown in the 1964 New England Book Show of books published in New England in 1964 were set abroad. Five of the six books illustrated in a trade magazine article * on the 1965 AAUP book show were set abroad.

The manufacturing provision has no effect upon U.S. exports and its only significant effect upon imports is upon imports of books of American authorship in the English language. Books of American authorship accounted for only about 13 percent of the value of total book imports in 1964. Thus, it would appear that the manufacturing provision has been effective and, to that extent, has added to the U.S. export balance in her book trade. It is assumed that most of the imports of books of American authorship were noncopyright books. It should be pointed out, however, that due to the practice of some U.S. publishers' importing foreign reproduction proofs under the designation “publisher's proofs, not for resale," with no or only a nominal value, which are not included in the book import statistics, the statistics understate imports of books written by American authors to an unknown extent.

Although U.S. exports of books continue to exceed imports, the margin has narrowed somewhat in recent years. In 1964, U.S. book exports were valued by the Department of Commerce at $88,642,210 and imports were valued at $42,999,284. Compared to the 1958 exports worth $39,003,227 and imports valued at $16,663,026, the 1964 totals refiect an increase of 127 percent in exports and an increase of 158 percent in imports. In 1958, imports were equal to 43 percent of exports, and in 1964 imports equaled 49 percent of exports. Exhibit D attached to my prepared statement shows the values of book imports and exports from 1958 through 1964, with annual percentages of increase. This table is submitted for the record.

It is our belief that the export totals, which include U.S. Government exports and exports to U.S. Government personnel stationed abroad, overstate foreign

"Book Production Industry," July 1965, pp. 30-33.

buying of U.S. books by an unknown but very substantial amount. Thus, since U.S. Government and overseas personnel buying adds nothing to the export balance, the Department of Commerce export statistics may be seriously misleading as to the size of the U.S. export balance in the book trade.

It is noteworthy that the U.S. import-export trade in books is dominated by, on the one hand, imports from the United Kingdom and, on the other hand, Exports to Canada. The United Kingdom is the source of about 50 percent of U.S. book imports, while Canada absorbs nearly 50 percent of our book exports. This is shown by an analysis of the detailed Department of Commerce statistics on exports and imports. We will be happy to submit these figures for the record if you wish.

We submit that these figures largely explain the strong attacks made by British publishers on the manufacturing provision at the recent International Publishers Association conference. It would be naive in the extreme to suppose that these attacks were based upon principle.

Canada is unique among U.S. book trading partners. Canada alone suffers a large import balance in this trade. While the causes for this situation are numerous and complex, it does not appear that the manufacturing provision is a significant contributor. On the other hand, if the manufacturing provision did not apply to Canadian book manufacturers, they would have the opportunity to manufacture book titles for distribution throughout North America, thus being enabled to increase their productivity through longer manufacturing

runs.

The chief advantage enjoyed by United States over Canadian book manufacturers derives from the larger size of our national market. If our manufacturing provision did not apply to Canada, and Canadian restrictions on books imported from the United States were removed, book manufacturers in both countries would be free to manufacture for the entire North American book market.

The BMI is recommending enactment of a provision which we are confident would result in the early removal of the manufacturing provision's applicability to Canada as well as to any other country in which the cost of manufacturing books does not differ significantly from the cost of manufacturing comparable books in the United States. U.S. book manufacturers have no objection to competing against foreign book manufacturers who do not have the unfair advantage of substandard labor costs. In our opinion, Canadian book manufacturers do not have any such unfair advantage. We would anticipate, of course, that Canada would reciprocate by equalizing her tariffs applicable to imports of books manufactured in the United States with the U.S. tariffs applicable to imports of Canadian books, by withdrawing the application of the Canadian compulsory licensing provision to books manufactured in the United States, and by cooperating in the removal of other restrictions on free flow of printed material between the two countries.

In this connection, I am authorized to state that the BMI has received assurances from the Canadian Book Manufacturers' Institute and the Canadian Graphic Arts Industries Association that the provision being proposed by the BMI to permit waiver of the manufacturing provision's applicability to certain qualifying countries, is satisfactory to them and would fulfill the written request submitted to this subcommittee by the Canadian Graphic Arts Industries Association on April 23, 1965.

Now, I should like to take a few minutes to discuss the Register of Copyright's proposal to increase from the present 1,500 to 3,500 the number of copies of works manufactured abroad which may be imported with copyright protection. The BMI is strongly opposed to this proposal to more than double the number of exempt copies.

This exemption originally was enacted (in 1949) for the purpose of permitting publishers of works first published abroad to test the U.S. market before bringing out a U.S. edition. The Register's present proposal constitutes a proposal to change the basic purpose of the exemption from one of market testing to one of maximizing publisher profits. Thus, on page 145 of the Supplementary Report of the Register of Copyrights, there appears the following statement:

"The 3.500-copy figure was suggested as the point, in the present book market, beyond which it is generally more costly for a publisher to import copies than to manufacture an edition here."

The BMI is strongly opposed to this fundamental change. While a reasonable increase in the number of copies exempted for market testing purposes would

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be acceptable, say to 2,000, the increase proposed by the Register would result in serious injury to many U.S. book manufacturers.

A 1960 study of production and manufacturing problems of American university presses, who constitute a major group publishing limited distribution titles, shows that the average number of copies per title printed for 29 university presses was 2,367 and the average number of copies bound was 1.979. Of the 29 university presses, only one averaged printings in excess of 3,500 copies per title, and none averaged bindings in excess of 3,500 copies per title. Thus, under the Register's proposal, practically the entire production of the university presses, who already are tax exempt, would also be exempt from the manufacturing provision.

The experience of most BMI members bears out the findings of the university press study. A large number of book titles never produce over 3,500 copies and most initial book orders are well below this figure. A number of U.S. book manufacturers who specialize in small-edition work would be exposed to very serious injury if 3,500 copies were exempted from the manufacturing requirement. With these manufacturers experiencing marginal profits under existing conditions, the loss of only a very few titles to foreign manufacturers could make the difference between a profit and a loss. Accordingly, we strongly urge that the 3,500-copy exemption proposal be rejected and that the number of exempt copies be kept at 1,500 or, at the least, not raised beyond 2,000.

Finally, I should like to discuss briefly the so-called reproduction proof loophole in the existing and proposed manufacturing provision.

Book manufacturers have long felt that the practice of sending authors' manuscripts abroad and importing foreign-made reproduction proofs for use in printing multiple copies in the United States by the lithographic process, violates the original intent of the existing manufacturing provision, section 16, of the present copyright law. This issue has never been tested in the courts although the practice has been fairly widespread for at least 10 years. Absent some prior congressional action, the validity of copyright in an unknown but certainly very large number of book titles hinges upon how the courts might decide this issue when and if it is litigated.

While the practice has cost our composing rooms a very substantial amount of work, we have no desire to see these existing copyrights endangered. It could be argued, of course, that those publishers who have engaged in this practice have done so with full knowledge of the risk entailed, and it could be pointed out that they have taken this risk only with respect to their lessvaluable copyright properties. However, rightly or wrongly, we feel a sense of moral responsibility to our customers for having allowed this practice to go on unchallenged for so many years, until it has now reached the point at which a single case could render valueless a large number of copyrights. Accordingly, we respectfully suggest that, in adopting the new manufacturing provision, the committee give consideration to protecting these existing copyrights by legislative interpretation in its report.

With respect to the new manufacturing provision, we realize that the subcommittee is faced with sharply contrasting views. However, while the publishers have talked about doing away with the manufacturing provision altogether, they have clearly indicated that their primary concern is to be able to have composition done abroad without threat to the validity of their copyrights. As manufacturers we would naturally prefer not to lose this composition, but we realize that this may be the most practicable solution to a difficult problem.

Accordingly, with respect to the language of proposed section 601, we recommend adoption of the language proposed by the Register of Copyrights which would continue in effect the relevant language of the present law, but we reluctantly would not object to a legislative interpretation in the committee's report exempting such reproduction proofs. We do not believe that it is necessary to alter the statutory language proposed by the Register of Copyrights. In summary, the BMI generally supports enactment of the manufacturing provision proposed by the Register of Copyrights. We are in complete accord with the change which removes total loss of copyright as the penalty for violation of the provision's requirements. In general, we feel that proposed section 601 constitutes a great improvement over section 16 of the existing law.

We are, however, strongly opposed to increasing the number of exempt copies to 3,500, and we urge the adoption of a provision authorizing the waiver of the manufacturing requirement with respect to foreign countries whose book manufacturers' costs are on a par with those in the United States. We have technical problems with the provision exempting works written by foreign

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