flexible provision in so far as it affects agriculture. In addition, a careful study has been made of the provisions of Section 315 as well as the operation of this section in actual practice.

The following conclusions and recommendations are respectfully submitted concerning the flexible provision:

(1) Flexibility in our tariff is necessary in order to make possible a stabilized protective system through adjustment of the rates upward and downward to meet rapidly changing conditions without necessitating a general tariff revision every time a few rates need adjustment.

(2) The principle of a flexible provision has justified its existence during the past seven years and should be continued.

(3) Various modifications to secure greater flexibility and to improve the operation of the flexible provision should be provided.

(4) Experience has shown that the existing language of section 315 is not sufficiently flexible because:

(a) Adjustments are confined mainly to ascertained differences in the cost of production, which are not always ascertainable and which are not always truly indicative of competitive conditions.

(b) The method of computing transportation costs is not defined but is left subject to administrative interpretation; the determination of this method often is the deciding factor as to whether an increase or a decrease is warranted. (c) There is no authority for transferring articles to and from the free list. (d) There is no definition of the term "like or similar article."

(e) The complicated, technical processes involved in carrying out the present cost of production formula results in long delays and tends to arouse foreign resentment.

(f) The 50 per cent limitation upon the power to change rates of duty is often inadequate to give proper protection.

5. Instead of being abolished, the flexible provision should be improved and strengthened.

6. Injurious competition should be the primary basis for adjustments through the flexible provision rather than ascertained differences in cost of production. 7. What constitutes injurious competition should be defined in the act and should include the following:

(a) When the foreign value plus the duty and transportation costs are lower than the domestic value of a like or similar domestic article plus transportation costs.

(b) When the price to producers in the principal competing country plus the duty and transportation costs is lower than the cost to the domestic producers of a like or similar article plus transportation costs.

(c) When the delivered price (commonly known as the price including cost, insurance, and freight) of the imported article at the principal port of entry for the article under consideration as ascertained by the commission from consular invoices and other sources of information, plus the duty, is lower than the American selling price of a like or similar domestic article plus the transportation and other charges to the same point.

(d) When the wholesale selling price of the imported article after payment of the duty is less than the wholesale selling price of a like or similar domestic article, in the same domestic market during the same period of time.

(e) When the cost of production of the article in the principal competing country plus the duty and transportation cost is less than the cost of production plus transportation costs of a like or similar article in the United States.

8. The method of computing transportation costs should be specified in the act and should be based on the cost of transporting the imported article and a like or similar domestic article from the principal competitive areas of production to the principal port of entry of the foreign article into the United States.

9. The 50 per cent limitation upon the power to change rates of duty should be eliminated and the rates adjusted to whatever extent is required to offset injurious competition.

10. Authority should be granted through the flexible provision to transfer articles to and from the free list following the ascertainment of appropriate information concerning injurious competition or the absence of injurious competition.

11. The President should be eliminated from the rate-changing powers under the flexible provision, in order to assure a more nonpartisan adjustment of rates and to eliminate delays which this procedure necessarily involves.

12. The term "like or similar" article should be definitely defined in the act. The definition provided in section 336 (g) (2) would make a bad situation worse

by making it increasingly easy for importers to block action through the technicality that the imported article is not like or similar to any domestic article. The following definition is suggested:

"For the purpose of this section an imported article shall be construed to be 'like or similar' to articles wholly or in part the growth or product of the United States whenever these articles are regarded in the usual trade channels as like or similar articles in the commonly accepted meaning of these terms, or whenever these articles are used for the same purpose; but differences in grade or quality of the imported article and the domestic article shall not be construed to prevent their comparison as 'like or similar' articles for the purposes of this section, provided due consideration is taken of differences in grade or quality, as these may be reflected in costs of production and prices."

13. The commission should be given specific authority to utilize for the purpose of the flexible provision information obtained from other agencies which in the judgment of the commission is of a reliable nature.

14. Cases instituted under the flexible provision should be required to be completed within not less than 12 months after the date of the filing of the first application for a change in the rate. Provision should be made that, wherever this is found to be impracticable, public notice should be given promptly to this effect together with the reasons therefor.

THE UNITED STATES TARIFF COMMISSION

The recommendations of the American Farm Bureau Federation concerning the United States Tariff Commission may be summarized as follows:

1. The membership on the commission should be increased to seven members in order to prevent time consuming dead locks and to promote administrative efficiency.

2. Inasmuch as the tariff is nation-wide in its importance and effect, regional representation should be provided upon the commission so that each section of the country will be represented by one commissioner from that region. (See suggested plan for regional representation, p. 9774, Hearings on Tariff Readjustment, 1929, Ways and Means Committee.)

3. Membership on the commission should be on a non-partisan rather than a bi-partisan basis, and emphasis should be placed upon qualifications to fulfill the duties of the office rather than upon partisan affiliations.

4. The salaries of the commissioners should be raised to $12,000 per annum, thus placing them on a parity with other government commissions.

5. These suggested changes with reference to the Tariff Commission should be instituted gradually and not in such manner as to legislate the present commission out of office and to make possible thereby a complete change in personnel. The House bill, H. R. 2667, does legislate the commission out of office and makes it necessary for the President to reorganize the entire commission.

THE PHILIPPINE ISLANDS AND OTHER INSULAR POSSESSIONS

The American Farm Bureau Federation recommends with respect to the Philippine Islands and other insular possessions that imports from that country be made dutiable at the same rates as imports from other countries. This policy is embodied in a resolution adopted by the annual convention of the American Farm Bureau Federation at Chicago, December 10, 1928, which is as follows:

"We urge that the situation regarding entry of sugar into the United States be brought to the attention of members of Congress without delay, and we respectfully ask them to use their best efforts to place a limit on the free entry of sugar from the Philippines and Porto Rico to a point which will guarantee reasonable protection to the United States sugar industry; and that the tariff rate against all foreign sugar be increased so as to give adequate protection to this great American enterprise."

The principal reasons for assessing full rates of duty on products from these insular possessions may be summarized as follows:

(1) Free entry of goods from the Philippines and other insular possessions to a large extent nullifies or impairs the effectiveness of duties on various products, principally sugar, coconut oil, and tobacco.

(2) Free trade with the Philippines is injurious to the American farmer because over 80 per cent of our exports to the Philippines consists of industrial products and 95 per cent of our imports from the Philippines consists of agricultural products.

(3) The principle of collecting a duty on the imports from the Philippines is already established in the act of 1922 in section 301 of Title III, but is rendered ineffective by exmeptions which permit free entry. The following is quoted from section 301:

"That there shall be levied, collected, and paid upon all articles coming into the United States from the Philippine Islands, rates of duty which are required to be levied, collected, and paid upon like articles imported from foreign countries."

The tariff act of 1902 also provided for the collection of duties on imports from the Philippines, less a 25 per cent preferential rate.

(4) Declarations of various high officials of the United States Government, including President McKinley, Gen. Leonard Wood, former Governor General of the Philippines, and President Coolidge, give support to the expectation that the Philippine Islands are eventually to be given their independence and that they are not to be considered an integral part of the United States.

(5) The term "United States" as it has become established in usage in the courts and legislation does not include Porto Rico as a part. Revenue laws do not apply to Porto Rico. A United States court has ruled that

"Porto Rico is a territory appurtenant and belonging to the United States but not a part of the United States within the revenue clauses of the Constitution." Section 313 of the tariff act of 1922, which deals with the refund of duties, does not include Porto Rico, and section 315, which is the flexible provision, contains the added provision "or into any of its possessions," in addition to the words "United States," thus indicating that the latter term does not include the former.

For further information in support of the proposal to collect duties on imports from the Philippines, the attention of the committee is invited to pages 3049-3052, 9778-9780, Hearings on Tariff Readjustment, 1929, Ways and Means Committee, House of Representatives.

CUBAN RECIPROCAL TREATY

The American Farm Bureau Federation further recommends that the United States abrogate the Cuban reciprocity of 1902 whereby each country grants to the other a 20 per cent preferential reduction in the tariff rates below the rates accorded to the rest of the world. This recommendation is based on various considerations which may be summarized as follows:

(1) The treaty has failed to stimulate trade between the United States and Cuba as had been expected. This is shown by the fact that the increase in imports and exports between the United States and Cuba has been smaller than the increases in trade between the United States and many other Latin-American countries.

(2) American agriculture is injured rather than benefited by the prerferential duties between Cuba and the United States because approximately 95 per cent of our imports from Cuba are agricultural whereas only about 31 per cent of our exports to Cuba are agricultural. (See p. 175, Vol. II, U. S. Department of Commerce Yearbook, 1926.)

(3) The United States as a whole is a loser by virtue of this mutual reduction in duties because she purchases about one-half more than the amount of her exports to Cuba. The total value of our imports from Cuba in 1926 was $242,882,000 whereas the total value of our exports to Cuba was $160,052,000 (p. 175, Vol. II, U. S. Department of Commerce Yearbook, 1926).

The United States Tariff Commission has published a summary of its study of the effects of the Cuban reciprocity treaty of 1902 in the annual report of the commission for 1928 (see pp. 37-40).

For further information concerning the reasons for abrogating this treaty with Cuba, the attention of the Finance Committee is invited to the data contained on pages 3052-3055, Hearings on Tariff Readjustment, 1922, Ways and Means Committee, House of Representatives.

MILLING-IN-BOND PROVISION

By amendments approved on the floor of the House of Representatives a new paragraph was inserted in section 311, H. R. 2667 (see p. 259 of House bill), which reads as follows:

"No flour, manufactured in a bonded warehouse from wheat imported after 90 days after the date of the enactment of this act, shall be withdrawn from such warehouse for exportation without payment of a duty on such imported

wheat equal to any reduction in duty which by treaty will apply in respect of such flour in the country to which it is to be exported."

The effect of this amendment is to abolish the advantage which flour milled in bond from Canadian wheat in the United States has over 100 per cent American wheat flour when imported to Cuba.

Under the act of 1922, the milling-in-bond provision made it possible to import wheat into the United States from Canada, free of duty, to mill this foreign wheat into flour, to call it American flour, and when exported to Cuba, it received the same preferential reduction of 20 per cent in the Cuban tariff that 100 per cent American wheat flour received.

This situation gave flour milled from Canadian wheat an advantage over flour composed entirely of American wheat when shipped to the Cuban market, on account of the lower cost of production and lower price of the Canadian wheat as compared with the American wheat. In other words, Canadian wheat imported into the United States in bond for export to Cuba in the form of flour, not only escaped the 42 cents per bushel duty when entering the United States, but also got the benefit of the 20 per cent preferential rate upon entry into Cuba, which was intended for American products, and which it would not have received if imported directly from Canada to Cuba.

This amendment simply means that foreign grown wheat milled in bond in the United States and shipped to Cuba will no longer get the benefit of the 20 per cent preferential rate granted to American exports to Cuba, although it will still receive the advantage of admission free of duty into the United States. A period of 90 days after the date of the enactment of the new tariff act is allowed before this new provision takes effect.

This amendment does not prevent the importation of wheat from Canada free of duty under the milling in bond provision for reexport in the form of flour. It merely seeks to remove the disadvantage which 100 per cent American wheat flour suffers in competition with flour milled in bond from imported Canadian wheat and exported to Cuba.

It is hoped that the Senate Finance Committee and the Senate will give approval to this amendment adopted by the House of Representatives, and retain it in the new tariff act.

ELIMINATION OF DRAWBACK ON WHEAT

No rebates on imported wheat reexported in the form of flour will be given in the new tariff bill, H. R. 2667, if the amendments inserted on the floor of the House prevail.

In the act of 1922, there was a provision, section 313, whereby 99 per cent of the import duties on imported wheat were remitted as drawbacks provided that such wheat were mixed with not less than 30 per cent of domestic wheat and reexported in the form of flour or by-products. The provision in section 313 for the payment of drawbacks, which has been amended, reads as follows in the Act of 1922:

"SEC. 313. That upon the exportation of articles manufactured or produced in the United States with the use of imported merchandise the full amount of the duties paid upon the merchandise so used shall be refunded as drawback, less 1 per centum of such duties, except that such duties shall not be so refunded upon the exportation of flour or by-products produced from imported wheat unless an amount of wheat grown in the United States equal to not less than 30 per cent of the amount of such imported wheat has been mixed with such imported wheat."

As amended by the House bill this provision would read as follows:

"SEC. 313. Drawback and refunds: (a) Articles made from Imported Merchandise. Upon the exportation of articles manufactured or produced in the United States with the use of imported merchandise, the full amount of the duties paid upon the merchandise so used shall be refunded as drawback, less 1 per centum of such duties, except that such duties shall not be so refunded upon the exportation of flour or by-products produced from wheat imported after 90 days after the date of the enactment of this act."

The effect of the amendments to this provision is to abolish the drawback privilege on wheat entirely after the lapse of a period of 90 days after the enactment of the tariff act.

Like the milling in bond provision, the drawback privilege placed American wheat at a disadvantage with Canadian wheat milled in the United States, when exported to Cuba, because the Canadian wheat, under the drawback privilege

paid no duty except 1 per cent and in addition when milled in the United States and exported in the form of flour to Cuba it received the same 20 per cent reduction in the duty which 100 per cent American wheat flour received. By thus escaping virtually all of the import duty and getting the benefit of the Cuban preferential which it would not have gotten if shipped directly from Canada to Cuba, the Canadian wheat, produced under lower cost conditions than American wheat, gained an advantage over American wheat which it would not have if this drawback provision were not in effect. The requirement for mixing with not less than 30 per cent of domestic wheat modifies but does not remedy this disadvantage to domestic producers.

We recommend that these amendments to the drawback provision which have been adopted by the House of Representatives, be approved and retained in the new tariff bill.

STATEMENT OF JOHN G. LERCH, NEW YORK CITY, REPRESENTING THE AMERICAN TARIFF LEAGUE

(The witness was duly sworn by the chairman of the committee.) Senator SMOOт. Mr. Lerch, may I ask if you want all of these briefs printed?

Mr. LERCH. No; Senator. I just want them distributed. They are copies that you have there, Mr. Chairman. I would like to have them distributed now, if that may be done.

Senator KING. Is it the same matter you discussed before the committee previously?

Mr. LERCH. No, Senator, it is not. There is nothing old in it; it is all new.

Senator SHORTRIDGE. You desire to address yourself to what proposition?

Mr. LERCH. Generally to the administrative provisions.

For the purpose of convenience in taking up the subjects, I wish to discuss, I have divided them into three points, one which I have seen fit to term a bill of rights, another covering the valuation proceedings, which I covered more or less fully when the hearings were had on valuations, the third being miscellaneous provisions.

Senator SMOOT. Is it your intention to repeat all that is in this brief here?

Mr. LERCH. No, sir; it is not my intention to do so.

Senator SMOOT. There is no need of filing the brief and having it printed if you are going to repeat exactly what is in the brief. Mr. LERCH. I am not going to do that, Mr. Chairman. Senator SMOOT. If there is anything you wish to say outside of the brief, we will be glad to hear it. But when we come to consider

the question, this brief is what we are going to read.

Mr. LERCH. I will follow the brief to an extent, but there are other remarks not in this instrument here that I would like to make, Mr. Chairman. I will try to make my remarks as brief as possible.

Section 516 of the tariff act of 1902 for the first time in American tariff history recognized that the American producer of a commodity in competition with imported merchandise has an interest in the appraisement and classification of the imported merchandise. For the first time the American manufacturers' interests were recognized by this provision of section 516 giving us the right to protest the classification, the amount of duty, or to file an appeal for reappraisement on the value of the merchandise.

That section 516 as written in the tariff act of 1922, we believe, is a mere hollow gesture.