I arrived late, I am sorry I did not hear your testimony, so I don't have extensive questions, but I am curious why, with one thing to the extent that any of you are knowledgeable about retailing, there is currently a major campaign going on to promote made in the USA labels for garments. I am just curious whether you have any experience at all as to whether made in the USA on the label has much appeal to consumers?

In other words, if consumers have a choice and the product is made in the USA, is that a marketing tool which is helpful?

Mr. MOUNGER. I would like to venture my opinion, and it is strictly an opinion, Mr. Pease, I would say the first thing the customer looks at is the fashion of the garment, and the person-man or woman, boy or girl-would look at fashion of the item. That is number one.

Second, they look at the price, and those two things are very close together. I like it, but can I afford it.

And then there are other factors that go into decisionmaking process. One of those is the made in America label. I think some consumers look for made in America, but I do not think it is a significant factor in terms of making a selection. That is my honest belief.

Mr. PEASE. Anybody else have any experience?

Mr. DELIN. I would add to what the gentleman just said, I think many of the major department stores are getting into the quick response, private label entity, which they can turn over various styles at the quickest pace so they can get more customers into the store and show them a variety of styles and various fabrics more frequently. This would be made in America labels and shops and factories in the United States.

Mr. PEASE. Thank you very much, Mr. Chairman.

Mr. SCHULZE. I also apologize. I had to attend another meeting. Can you tell me a little bit about our textile exports. Do any of you directly export? How about Levi Strauss, I presume you could export or franchise or have a licensing agreement with other parts of the world?

Mr. BAUCH. Excuse me, I think, as I said at the outset of my testimony-it wasn't in my written remarks for which I apologizeLevi Strauss does not make any fabric. We sew it and put it together in the form of-

Mr. SCHULZE. I am talking about exports of product.

Mr. BAUCH. We do export jeans from the United States to Europe, Japan, and to a more limited extent, to Canada. That is not a major factor in our business. We find that for our products that we are better off to manufacture the goods in the countries or the areas that we are selling, sourcing the fabric in the most cost efficient way. It is the case that in Europe we do manufacture jeans. We buy a fair amount of American fabrics for that manufacture. We find that in some countries in Europe-notably France— the made in America label has actually a premium price.

Mr. SCHULZE. France?

Mr. BAUCH. In France for jeans. I think that whether made in America is a detriment or an incentive depends in part on the garments.

Mr. SCHULZE. Mr. Bauch, does your company expend any effort in trying to broaden your export market?

Mr. BAUCH. At the moment, sir, we would love to expand our market, but the major constraint is denim. Currently denim is in very short supply. High quality denim, for all practical purposes, is sold out.

Mr. SCHULZE. Do you have any of your own denim production facilities, or are you vertically or horizontally integrated?

Mr. BAUCH. No, we are not vertically integrated in any way. We find that we know how to manufacture jeans and have looked at vertical integration as something we simply can't do. The two industries are quite different. And there are very efficient, very capable people in the textile manufacturing area that I don't think we could compete with, nor do we want to.

Mr. SCHULZE. What I am getting at, of course, is how could we increase our exports, No. 1, and No. 2, how could we reduce or eliminate any barriers we experience in other countries? I am getting blank stares. None of you export?

Mr. BAUCH. I was looking round. I think I might represent the only people here who do a substantial amount of export business. We find that there are a couple of barriers to entry, but that principally in recent years one of the major problems has been that the currency fluctuations. You can hardly build a business of shipping to Europe if the currency is going to swing back and forth on you by factors of 20 to 30 percent.

We have built a fairly profitable business in Japan, using a combination of goods manufactured in the Philippines, in Japan, and U.S. made goods.

We have, by the way, gotten excellent help from the Trade Representative when we encountered barriers.

Mr. SCHULZE. There are methods for insuring your currency against currency fluctuations, isn't that correct?

Mr. BAUCH. We have looked at those. They are ungodly expensive. For all practical purposes you have to borrow forward to hedge. The cost of the hedge-I hasten to add I am not a financial officer-tends to set up the certainty that you get.

Mr. SCHULZE. If I am not mistaken, at least one or maybe more than one, Federal Government program does that. I think manufacturers and exporters should take advantage of these Federal programs if currency fluctuation is a major problem.

Mr. BAUCH. I will certainly look into it.

Mr. SCHULZE. Can this panel give me a few words on the bilateral textile agreements that we have negotiated with Hong Kong and Korea and Taiwan? What are your thoughts on how the MFA is working and where it is going?

Mr. MOUNGER. I would like to take a shot at that, if I could. I just was at a dinner in Taiwan, Taipei, Taiwan, biting into Peking duck and the person on my left side said, "what is the future of our apparel industry? We have had a reevaluation of it in the dollars about 16 percent against the U.S. dollar here in the last week and frankly I am scared about the future of the Taiwan garment manufacturing business."

I said to this person, frankly you do have reason to be concerned. I said your only chance is to go into fashion and do some other

things, because with the tough bilateral negotiations, the agreements that have been negotiated, we are not going to be buying as much from Taiwan in the future.

Hong Kong, the market is absolutely chaotic. People talk about China and low wage rates and everything else—the apparel importing community is scared to death to do business with China right now. One of our Seattle apparel firms in my association, has three 747s sitting on the runway of Beijing Airport. They couldn't get off because they couldn't get a visa to get into the United States. The 14 years that I have been going overseas I have never seen such a chaotic market because 2 years ago, when Mr. Yeutter first came on the job, he said he was going to be tough in his negotiations. He did a job that was no favor to the American importing community. It was a real benefit in my opinion

Mr. SCHULZE. Are you saying that living up to international agreements is not the thing to do?

Mr. MOUNGER. No sir, not at all. We should absolutely live up to our negotiated bilateral agreements. We support the bilateral agreements that have been negotiated. What I am saying is it is a lot more difficult to import apparel today than it used to be and that is why I am saying I think the negotiations that have taken place are tough, but they are fair, and we can live with them. But the new bill, we do not think we can live with.

Mr. SCHULZE. Now, let's follow up on that. It is more difficult to import today than it was. Is that because Customs and others are doing their job a little bit definitively?

Mr. MOUNGER. Customs is very definitely doing their job and they are policing it very tough, as well they should. That is part of the results of playing the game. That is part of the puzzle, part of the equation of bringing goods in is dealing with U.S. Customs, and we had a meeting with them this morning before we came over here and they are fair, firm, and tough, and I have a great deal of admiration for them.

Mr. SCHULZE. Those of us on this side of the desk have been after them for some time to do just exactly that. We want these negotiated international agreements to be fulfilled. We and you know of instances where they have been ignored totally and huge amounts of textiles and finished goods have come in above quota levels. We just cannot have that if we are going to negotiate these agree

ments.

Mr. MOUNGER. Yes sir.

Mr. SCHULZE. Do you, or does the industry have any figures which show that customers actually save by buying imports? The reason I ask is this: I hear that all these imported, inexpensive textiles save the consumer millions or billions of dollars. I find that hard to believe because when I look at imported products in a store, there is usually only a few cents difference in price between domestic and imported goods.

Now, if you tell me that the retailer makes a bigger profit and therefore uses that money somewhere else, I can understand that; but I don't see, from my own experience, where the customer is getting any great savings in these imported products.

Mr. MOUNGER. Well, I believe that you are going to see in the fall season of this year, significantly higher prices to the consumers

in almost every category from imported goods. It is because goods are more expensive overseas because there are fewer numbers that can be brought in.

Mr. SCHULZE. Does anybody track that? That would be interest

ing.

Mr. MOUNGER. I think it would be interesting. I can't tell you what the results are, but in respect to my associates in the industry, everyone says prices will be up and it is going to have impact on inflation in the United States because the foreign producers have x amount of quota available and they are not going to give it to the low price goods, they are going to be making more of the high price goods.

I think the significant impact is going to be on the low and middle income families.

Mr. SCHULZE. Isn't that their edge price? Isn't that the big edge for imported fabrics?

Mr. MOUNGER. Sir, I would have to say price is one part of it. I truly believe that you can get sometimes a better product overseas than you can made here in the United States. I realize that is a tough thing to say, and my associates over here may disagree with that, but I have seen it from the domestic side and from the importing side, and I represent both in my testimony here today, but in the outer wear industry, which is very, very labor intensive, I think you are going to see a better quality of workmanship from Asia today than you are from the United States.

I am sorry that I have to say that but I will stick by that 100 percent.

Mr. SCHULZE. That is in finished goods?

Mr. MOUNGER. Yes sir.

Mr. SCHULZE. Not just in fabrics. Aren't most of our exported fabrics at the higher end, are higher quality goods?

Mr. MOUNGER. Yes sir.

Mr. SCHULZE. Thank you, Mr. Chairman.

Chairman GIBBONS. Let me, Mr. Travis, go to the 807 question. As I understand it, 807 works like this:

You have that piece of cloth there and you cut it, it must be American cloth, and you must cut it with American labor, and have it all ready for fabrication. Is that the way it works? Before you send it out of the country?

Mr. TRAVIS. For the purpose of the special access program, yes. In other words, the preferential quotas in the Caribbean, that is how it has to work. For tariff preferences it doesn't have to be.

Chairman GIBBONS. For the tariff preferences it can be foreign cloth?

Mr. TRAVIS. That is right. It can be foreign cloth, imported into the United States, duty paid, cut in the United States, then sent out and brought back again.

Chairman GIBBONS. Oh, I see.

Mr. TRAVIS. For the application of the quota preferences, it has to be U.S. knitted or woven fabrics.

Chairman GIBBONS. What kind of quota preference do you get under 807?

Mr. TRAVIS. Well, they set up a thing called guarantee access levels for 807 merchandise, which again is made from component parts, which are made from American knitted or woven cloth.

There is a special set of quota limits that have been negotiated with four Caribbean countries. I can submit that to the subcommittee staff, if they would like to have it, a list of those countries and what the levels are. Of course, STR and Commerce have them as well.

Chairman GIBBONS. Yes.

Thank you very much.

Next is the panel of American Association of Exporters & Importers, International Footwear Association, Florsheim Shoe Co., and National Fashion Accessories Association.

Our first witness is Julia Hughes, who represents the Textile and Apparel Group of the American Association of Exporters & Import

ers.

STATEMENT OF JULIA K. HUGHES, COCHAIR, TEXTILE & APPAREL GROUP, AMERICAN ASSOCIATION OF EXPORTERS & IMPORTERS

Ms. HUGHES. Good afternoon, Mr. Chairman, members of the subcommittee, my name if Julia K. Hughes. I am the Washington trade representative of the Associated Merchandising Corp. I appear before you today as cochairperson of the Textile & Apparel Group of the American Association of Exporters & Importers to testify in opposition to H.R. 1154, the Textile and Apparel Trade Act of 1987. AAEI-TAG is comprised of over 100 textile and apparel importers located throughout the United States.

AAEI-TAG has testified on many occasions before this subcommittee on the dangers of yielding to domestic textile and apparel industry pressure for greater import protection. The textile and apparel lobby's arguments in support of textile quota legislation have been the same for decades-rising imports, inability to compete, loss of jobs and a doomed industry. The domestic textile and apparel industries have never admitted that they are pleading for special protection. They claim they are just asking for a chance to compete. In 1956, Senator Payne argued:

The textile industry does not seek favors. But it does ask, President, that the burden of ever increasing imports not be added to its other troubles. The industry seeks a chance to adjust, to work out its problems, so that once again it can stand strong against all competition from whatever source.

Thirty years later, the industry has not disappeared, but we are still hearing that tired old refrain. The industry has not only survived but it is thriving and prosperous. The textile producing States have lower unemployment rates than the rest of the country and in fact, they are experiencing labor shortages in the textile industry.

In light of the healthy competitive state of the domestic textile and apparel industries, and the over 30 years of import protection that these industries have enjoyed, the committee should be considering the reasons why existing protection should be phased out. It is shocking that the domestic industry is in fact asking for even greater protection. What they are truly seeking is a guaranteed