If you're one of 25 million Americans who jogs, or countless others who play tennis or basketball, it's likely you wear an imported athletic shoe like Nike or Adidas or an American-made brand like Converse or New Balance.
The competition to reach that massive market has spawned a battle that has three heavyweight political allies on most major national issues linning up on different sides in this tussle - The Great Sneaker Snafu. Rep. Al Ullman, (D-Ore.) chairman of the House Ways and Means Committee, leads an Oregon delegation in support of Nike, an Oregon company that imports 80 percent of its shoes and whose sales have risen from $28 million to $150 million in two years.
Sen. Ted Kennedy (D-Mass.), a possible presidential candidate and chairman of the Senate Judiciary Committee, and Home Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.) Jr., lead a Massachusetts delegation in support of the domestic manufacturers, many of whose factories are located in that state.
At dispute is whether Nike's imports from Japan, Taiwan and Korea are subject to the American Selling Price (ASP), that acronym the importers dread, which was established in a 1930 tariff act to protect domestic articles against lower-priced imports.
According to Nike and the U.S. Customs Service, Blue Ribbon Sports Inc., which manufactures and distributes the Nike brand, may owe the U.S. government as much as $13 million in additional duties if its imports are subject to the ASP. Other importers may owe lesser amounts.
Importers pay a duty equal to 20 percent of the wholesale export cost. If a similar American shoe is made, then the imported shoe is subject to the ASP, which is the wholesale price of the American-made shoe. The difference in duty can range as much as $2 a pair, which likely would raise retail price by as much as $5.
According to a Customs official, Nike imported $50 million worth of shoe in 1978 alone, and is potentially liable for $8 million retroactive duty in those 12 months. According to Customs regulations, importers declare the wholesale value, with the understanding the the Customs Service later may rule the shoes subject to the ASP.
Blue Ribbon Sports Inc. began in 1964 as a partnership between Phil Knight, a former University of Oregon runner and Stanford Business School graduate, and Bill Bowerman, his coach, a former Olympic track coach and a man who designed and made new running shoes in his garage workshop.
They began modestly as the American distributor for Tiger, a Japanese jogging shoe. They sold and shipped the first 300 pair from the basement of the home of Knight's father. Knight as the time was working days as a certified public accountant.
Sales totaled $8,000 the first year. By 1967, when only serious athletes were buying high-quality running shoes, Bowerman had developed a new shoe for Tiger, and Blue Ribbon's sales reached $300,000 by 1969. Knight entered the shoe business full time.
About that time, West German brothers Adi and Rudi Dassler, who
See NIKE, G9, Col.1
NIKEM FROM G1
COULDN'T WORK TOGETHER, SPLIT TO FORM ADIDAS AND PUMA SHOES. THEY BEGAN MARKETING SPECIALIZED ATHLETIC SHOES FOR EVERY SPORT, PRECEDING THE JOGGING BOOM BY A FEW YEARS.
IN 1972, THE TIGER COMPANY BROKE ITS CONTRACT WITH BLUE RIBBON, SELLING ITS OWN AMERICAN DISTRIBUTORSHIPS AND TAKING AWAY 95 PERCENT OF BLUE RIBBON'S BUSINESS. KNIGHT AND BOWERMAN SUED, AND THE ENSUING SETTLEMENT SPUN OFF THE NIKE BRAND. BULE RIBBON RECEIVED A CASH SETTLEMENT AND THE RIGHT TO PRODUCE THE SHOE BOWERMAN HAD DESIGNED IN 1967, NOW NIKE'S POPULAR CORTEZ MODEL.
NIKE'S LEGAL BATTLES WITH THE ASP and the domestic manufacturers began two years later. However, it was not until November 1977 that the domestic industry "woke up," according to in dustry spokesman Richard Kaplan. The U.S. firms began sending their brands to Customs and certifying them as similar to the imports, thus claiming the imports were subject to the ASP.
Rich Werschkul, Nike's corporate lawyer, says he now spends 60 percent of his time working on ASP matter. The company recently hired a Washington lobbyist, Jay Edwards. The domestic industry, with its law frim in New York, also has its own lobbyist in Washington Mitch Cooper.
Athletic shoe sales are a big business now. The Commerce Department lumps sandals and low-grade athletic shoes in with the Nike-type sneakers that retail for up to $50. The Commerce Department said 172 million pairs subject to the ASP were imported last year with a wholesale export value of $544 million.
According to the 1978 Runner's World shoe supplement, three importers-Adidas, Tiger and Nike-account for 84 percent of all running shoes sold. The Runner's World supplement lists Adidas with 36 percent of the market and Nike with 20 percent.
Nike's Werschkul says his company's sales now equal Adidas' in the U.S., with Tiger dropping to a distant third.
The domestic industry claims that to reach this position of market power, Nike has played a game of financial "Russian roulette" in regards to the ASP, according to Kaplan. He also claims that other importers who have shoes that may be subject to the ASP have set aside reserve funds and/or raised prices accordingly in anticipation of having to pay up.
The domestic companies clain that by not making Nike pay the ASP at time of import, the U.S government in effect is subsidizing Nike at their expense. They, by the way, have been playing catchup all along in the jogging shoe market.
Nike, on the other had, says Customs' delay in determining whether its shoes are subject to the ASP is preventing the company from proceeding with a planned expansion intodomestic production and exporting. Because of currency devaluation and higher wages, it is now cheaper to maufacturer in the U.S. than in Japan, according to Werschkul.
Following the Customs review procedures, the case in likely to wind up being settled in the federal courts, with the outcome based on a number of legal and technical points. The Customs Service can't win this one. Either the domestics or the importer will be irked. Customs is a pawn in the middle.
And when power brokets such as Ullman, Kennedy and O'Neill show interest, bureaucrats pay attention. The Oregon delegation wrote its first letter to the Customs Service in 1976. The Massachusetts delegation entered the picture only last month.
"That has gotten the Treasury Department interested where it normally doesn't get into importer-vs.-Customs matter," said Customs official Miles Flynn. "This case is extraordinary only in that respect, but not the way Customs has handled it."
Nike has reised a number of questions concerning Customs procedure. One result has been that, instead of one man in New York Customs determining whether the ASP applies, three Customs employes are involved. The original customs footwear specialist has been reassigned to another division.
Nike raises three basic points:
Its shoes are not similar to American-made shoes and therefore not subject to the ASP.
If its shoes are similar to American-made shoes, the Brooks Co. shoe that Customs has used for most of the ASP determinations is made in Puerto Rico and therefore not American-made. Werschkul also claims that the Ustoms regulations pertaining to the ASP can be interpreted so broadly that Nike shoes are similar to another brand that wholesales for $7.75. Brooks Co. shoes are in the $11.5- $17 wholesale range.
If Nike's shoes are similar to any American-made shoe and thus subject to ASP, then the ASP should not be retroactive.
The latter claim to the Treasury Department, made in March, brought Kennedy and O'Neill into the dispute.
The Kennedy-O'Neill-letter, also signed by Sen. Paul Tsongus (D-Mass), merely points out that the importers had been advised of possible retroactivity with regard to possible ASP determination.
"Failure to assess these duties retroactively to the date of original shipments would be unjust and, in effect, constitute a subsidy permitting that company to compete unfairly against its domestic counterparts," they said. "Moreover, a waiver of retroactive payments would be a damaging precedent at a time when the administration is doing all it can to overcome our adverse balance of trade."
"Thet (Nike) resorted to political influence to get attention," said the domestic industry's Kaplan, "and I think it (the Kennedy-O'Neill letter) is just a matter of checkmate."
Meanwhile, Nike has had to shelve its American expansion plans pending a final determination of the ASP problem. Instead of financing money for the new plant in New Hampshire, the company may have to finance the additional duties, Werschkul said.
And the way the judicial process works, Nike must post its additional duties before the case will be heard in federal court.
If Nike gets past this one, it won't have to worry much anymore about the ASP, which was designed as a protectionist policy. Recently completed trade treaties that still must be ratified by Congress, include a provision eliminating the ASP on July 1, 1981, in favor of a new formula that bases duty solely on the export wholesale cost.
The low-grade, low-cost items will carry a duty of as much as 60 percent, while the high-grade, high-cost items will carry a duty as low as 20 percent.
The main advantage of the new plan is predictability, said Steve Creskoff of the Treasury Department's enforcement and operations division. "With ASP, you never know what you're going to pay," he said. "It's a key problem with ASP." CAPTION: Picture 1, From left, Converse, Adidas, Nike and New Balance athletic shoes at the Athletic Shoe Box, Connecticut and M Sts.: heavyweight politicians take side in the Great Sneaker Snafu. By Fred Sweets - The Washington Post; Picture 2,*