On behalf of the Bicycle Manufacturers Association of America, Inc. ("BMA"),* we wish to make the following comments in connection with the Subcommittee on Oversight's hearings to review the impact and effectiveness of the Caribbean Basin Initiative ("CBI"). These comments focus on that portion of the CBI known as the Caribbean Basin Economic Recovery Act ("CBERA"), 19 U.S.C. S 2701-2706, under which the United States extends duty-free treatment to all but certain specifically excluded products manufactured in countries located in the Caribbean Basin. As a general philosophical matter, BMA has no objection to U.S. government programs designed to foster the development of the world's lesser-developed countries, especially when those countries are deemed to be of strategic importance to the United States. BMA strongly believes, however, that U.S. government programs designed to spur development in the lesser developed countries should not operate essentially at the expense of U.S. industries and their workers. Ideally, duty preference systems like the CBERA should function primarily by allowing imports from the beneficiary countries to displace imports from non-beneficiary countries. BMA rejects the proposition that the The regular members of BMA are Huffy Corporation, Murray Ohio Manufacturing Company and Roadmaster Corporation. These firms together account for the vast majority of bicycles manufactured in the United States. BMA also has 15 associate member companies which manufacture bicycle parts and components. United States should assist the development efforts of the lesser developed countries by sacrificing the economic welfare of its own industries and workers; the objective of a duty preference program should be to give imports from the beneficiary countries a competitive edge over imports from other sources vis-a-vis the U.S. customs laws. The CBERA Lacks an Effective Mechanism for Avoiding Injury to Domestic Industries Unfortunately, the CBERA does not presently contain an effective mechanism by which the effects of the duty preference program on U.S. industries can be monitored and benefits under the program terminated for certain products where competitive injury to U.S. industries is threatened. For a number of product areas in which the Caribbean countries have either a demonstrated or a very strong potential competitiveness textiles and apparel articles, footwear and certain leather products, tuna, petroleum, and watches - Congress saw fit to make CBERA benefits wholly unavailable (or in the case of sugar, available on a limited basis) in order to prevent competitive injury to a number of already import-sensitive U.S. industries. See 19 U.S.C. S 2703(b). Apart from these statutory exclusions, all other products are eligible for duty-free treatment under the CBERA program. Both the U.S. International Trade Commission and the Department of Labor are required by the law to conduct periodic reviews of the effects of the CBERA program (see id. SS 2704, 2705), but the statute does not expressly make these reviews a forum for domestic industries to complain about the effects of the duty preference program, much less seek exemptions from its coverage. In this respect, the CBERA stands in notable contrast to the United States' primary duty preference program, the Generalized System of Preferences ("GSP program"). See 19 U.S.C. SS 2461-2466. The statute creating the GSP program provides for an elaborate mechanism under which the effects of the program on competing U.S. industries are closely monitored and benefits terminated once certain "competitive need limits" are reached (e.g., imports from the beneficiary developing country exceed 50 percent of the value of total U.S. imports of the product in question). Moreover, the statute also allows U.S. industries to petition for withdrawal of GSP benefits even before such "competitive need limits" are reached in cases where the competitive health of the industry is being undermined. Under this so-called "graduation" process, many products have become ineligible for GSP treatment and countless U.S. jobs saved. To this point in time, the absence of an administrative mechanism for securing the withdrawal of CBERA benefits has not greatly concerned BMA, nor did it appear at the time the CBERA was enacted that bicycle production in the Caribbean Basin countries might pose a realistic threat to the U.S. bicycle industry. It now appears, however, that a number of Caribbean countries are seeking to establish bicycle assembly operations, possibly in cooperation with established parts manufacturers in Korea and Taiwan, for the specific purpose of supplying the U.S. market with bicycles on a dutyfree basis. BMA submits that such a course of events would be contrary to the interests of one of this country's most import-impacted manufacturing industries. The prospect of duty-free bicycles entering the United States in increasing numbers is, in addition, inconsistent with ongoing congressional efforts to increase, rather than decrease, the modest tariff protection currently afforded U.S. bicycle manufacturers. The Development of Bicycle Industries in the Caribbean Basin In recent months, BMA has received reliable reports that private and governmental interests in several Caribbean countries are actively seeking to establish bicycle production facilities. We understand, for example, that the Barbados Industrial Development Corporation has expressed an interest in funding a bicycle assembly plant in Barbados in cooperation with Korean suppliers of bicycle parts. In addition to the planned facility in Barbados, BMA has learned that the operators of a former Reynolds Aluminum plant in El Salvador are looking for U.S. customers for all-aluminum bicycles manufactured in that facility. Aluminum bicycles are becoming increasingly popular, and the El Salvador company might very well find itself with no shortage of potential U.S. customers. To be sure, the exact nature and extent of the threat posed by these emerging bicycle plants are not yet known. The current condition of the U.S. bicycle industry is serious enough, however, that BMA must view these developments in the Caribbean with extreme concern. The U.S. Bicycle Industry Has Been Seriously Injured By Imports The U.S. bicycle industry and its part supplier base have been seriously injured by increased imports, and face a continuing threat of injury if current import trends continue. After capturing 17-24 percent of the bicycle market in 1975-82, imports dominated 30 percent of the market in 1983, 42 percent of domestic consumption in 1984, and 49 percent of the market in 1985 (the highest level since the mid-1950's). The major force behind this import surge has been Taiwan, which increased its individual share of the U.S. market from five percent in 1975 to 21 percent in 1983, 32 percent in 1984, and 39 percent in 1985. Imports from Taiwan increased from 364,000 units and 21 percent of imports in 1975 to 4.5 million units and 80 percent of imports in 1985. Behind this surge was a substantial decline in the prices of Taiwanese bicycles; the average unit value of Taiwanese lightweight bicycles in 1985 was 16 percent below the level of 1982, while the average unit value of Taiwanese 20-inch bicycles fell by fully 20 percent between 1982 and 1985. As a result of this increase in imports, the 5.8 million bicycles shipped by domestic manufacturers in 1985 was 33 percent below the level of 1979 and almost eight percent below 1983 levels. To put these declines in perspective, however, it must be noted that apparent domestic consumption of bicycles increased by more than 24 percent between 1983 and 1985. Thus, absolutely all of the market growth, plus a portion of the market share previously held by U.S. producers, has been taken by imports. BMA estimates that demand for bicycles will remain strong in 1986 but that imports will continue to displace domestic production if current trends persist, causing import penetration next year to rise as high as 53 percent. As a result of this continued import surge, U.S. bicycle manufacturers and parts suppliers have been forced to lay off increasing numbers of workers. In those cases where U.S. bicycle manufacturers have been able to maintain sales to existing customers, they have generally had to hold or reduce their prices significantly. This has reduced profit margins throughout the industry, for both bicycle manufacturers and parts suppliers alike. Under current conditions, several companies are finding it impossible to manufacture their products domestically on a profitable basis. In light of the intense import competition being experienced by the U.S. bicycle industry, BMA must necessarily view the developments in the Caribbean Basin described above with concern. Simply stated, the domestic bicycle industry can ill afford the emergence of still more foreign suppliers of low-priced bicycles to the U.S. market, especially when a significant contributor to those low prices will be freedom from the regular U.S. customs duty on bicycles, in accordance with the provisions of the CBERA. The Importation of Bicycles on a Duty Free Basis Under the CBERA Would Be Inconsistent with Pending Legislation that Would Increase U.S. Duties on Bicycles Because of the precarious state of health of the U.S. bicycle industry and its suppliers, BMA strongly supports H. R. 2226, a bill introduced during the last session of Congress by Rep. William H. Boner. H.R. 2226 would increase U.S duties on bicycles and bicycle parts to 19 percent ad valorem. The bill currently has 18 sponsors in the House of Representatives in addition to Rep. Boner. BMA strongly believes that H.R. 2226 is critical to the welfare of U.S. manufacturers of bicycles and bicycle parts and their workers. In its current form, H. R. 2226 does not propose to disqualify bicycles from duty-free treatment under the CBERA, and BMA has no present plans to seek to have the bill amended in this fashion. However, if it begins to become clear that bicycle manufacturers in the Caribbean countries are contributing significantly to the escalating import problem being experienced by the domestic bicycle industry, BMA will be forced to seek passage of legislation adding bicycles to the list of articles ineligible for benefits under the CBERA, either as part of H.R. 2226 or independently. If there is to be no regularized administrative framework for ensuring that the CBERA does not encourage development in the Caribbean Basin only at the expense of domestic industries, then the affected industries will have no choice but to seek changes in the statutory regime itself. The industrialization of the Caribbean and other underdeveloped areas must not be accomplished by deindustrializing America. We appreciate your attention to these comments. Very truly yours, CC: Honorable Dan Rostenkowski Honorable William H. Boner THOMAS F. SHANNON MICHAEL R. KERSHOW Counsel for the Bicycle Manufacturers STATEMENT OF THE CALIFORNIA FARM BUREAU FEDERATION BY HENRY J. VOSS, PRESIDENT The California Farm Bureau Federation is the state's largest farm organization, representing approximately 85 percent of its farmers and ranchers. Our members are involved in the production of nearly 250 commodities, and are highly dependent on international trade. While foreign trade presents great opportunities for the state's farm economy (roughly 25 percent of farm income comes from exports), we also are vulnerable to competition from imports, particularly in the specialty crops. CF3F opposed the establishment of the Caribbean Basin Initiative (CBI) on the basis that it was disruptive to multilateral trade negotiations, violated the Most-Favored-Nation principle of the General Agreements on Tariffs and Trade (GATT), and could seriously damage our domestic agricultural economy. We fear the precedent set by CBI, and have seen an increasing emphasis on bilateral free trade that disturbs us. CFBF opposed the U.S.-Israeli Free Trade Agreement for similar reasons. CFBF's primary concerns are the potential impact of CBI and the precedent set by unilaterally reducing or eliminating tariffs to the detriment of the domestic industry. Potential is difficult to measure, but essential to consider. Caribbean Basin (CB) nations have quickly taken advantage of the provisions of CBI. For the first quarter of 1984, exports from CB beneficiary countries increased 30 percent over the same period in the previous year. Some eligible countries report increases of greater than 100 percent, and Barbados leads the way with an increase of approximately 176 percent. According to Daniel Amstutz, Under Secretary, USDA, sales of non-traditional production in the Caribbean and Central America increased to $180 million in 1984, up from about $100 million in 1978-79. Also, since January 1984, 124 new agribusiness ventures have been started in the region. In a series of workshops around the U.S., Caribbean Basin growers have been advised to aim for the production window of exotics or produce that is countercyclical to U.S. production. In addition to these tropical fruits and vegetables, imports of items normally grown in states such as California -- cucumbers, peppers, melons, and cauliflower, for example --have increased. Traditionally, the CB beneficiary countries have not been large suppliers of horticultural products to the U.S., except bananas and plantains. Basic impediments to growth have been limited investment credit availability, poor marketing facilities, and inadequate fruit and vegetable inspection and grading systems. These impediments will diminish as U.S. investors are attracted to beneficiary nations through CBI. The potential for substantial import competition is a concern to California's agricultural industry. CITRUS Citrus production in the Caribbean has increased significantly over the past decade. Even before CBI, production was shifting to the area because of low production costs and favorable growing conditions. Orange production increased 34 percent to 14.2 million boxes between 1977 and 1983, and grapefruit production jumped 92 percent to 2 million boxes during that time. Currently the area's increased production is not an immediate cause for alarm in the industry; Brazilian production dwarfs that of the Caribbean. However, there is a trend toward increased investment in the area. In the wake of Florida's damaging freezes, U.S. citrus producers |