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Under the provisions of the National Industrial Recovery Act we have ample testimony of increasing costs of production resulting from shorter hours, higher base rates of pay and increased costs of materials. We are at the moment faced with an administration request that there be a still further shortening of the work week, with a corresponding upward adjustment in the basic rates of pay. word, then, it would seem that the Administration has not yet achieved the level of prices to which its recovery program is committed. One cannot escape the conclusion that if the other elements of this program are successful a further increase in the domestic price levels is inevitable. Another frequently expressed object of the recovery program is to stimulate the capital goods industries. Under the proposed legislation, which is the subject of this brief, there is an obvious likelihood that our tariff duties will be reduced on certain commodities. If these reductions are to be effective, it would obviously mean lower prices for the commodities involved, and increased importations. It is difficult to see how any industry that is dependent upon tariff protection for its existence can have confidence in the future or be willing to engage in commitments for capital goods, or, for that matter, in any long-term contractual relations of any character, in the face of the possibility of lower prices and increased importations.

Second, in extension of the point just outlined, it becomes necessary to emphasize the fact that regardless of what some people have stated concerning this bill, the powers which would be conferred upon the President are practically without limitations. There are no standards prescribed which he must follow; there are no rules laid down to guide him; he is restricted only by the broadest of limitations—a maximum change in duty of 50 percentum. He has assured us that “the exercise of authority which I propose must be carefully weighed in the light of the latest information so as to give assurance that no sound and important American interest will be injuriously disturbed.”

No one will question the intent to live up to this observation in the fullest degree. It is not unreasonable, however, to ask that before we contemplate the delegation of such broad authority that there be defined the tests which would be applied before an industry would be sacrificed. Obviously, there is no thought of using comparative production costs, and none of the other devices which have been suggested from time to time by advocates of reciprocal tariff treaties will satisfactorily bear close analysis.

Third, there have been many intimations that any developments under this legislation would be part of a long-range plan. Such intimations constitute a very frank recognition of our contention that certain industries would be permamently sacrificed in following out this legislation. No provision is made for hearings or consultation with the parties to be affected, and the stress that has been laid upon the need for a device which will enable prompt action warrants the conclusion that no very extensive consultation is contemplated. Such a course of action is without precedent and completely out of harmony with the spirit of democracy.

Fourth, the assumption that our export industry may be materially stimulated by a reciprocal tariff program does not seem warranted. In his recent pamphlet America Must Choose, Secretary Wallace made the following observation:

“From 1926 on it became increasingly plain that modern technique applied to agriculture and to the production of other raw materials was heaping up a worldwide oversupply, World overproduction played an important part in the overdescending spiral which began in 1930.

"When the present administration came into power on March 4, 1933, it had been for several years apparent that there is no longer an effective foreign purchasing power for our customary exportable surplus of cotton, wheat, lard, and tobacco at prices high enough to assure social stability in the United States.

With the ever-increasing tendency on the part of other nations to expand their production of agricultural products, it is difficult to see how one can achieve a permanent outlet for even a reduced export surplus of some of our agricultural products. It would take a world-wide agreement to effectively restrict the increase in output of certain of these products, and unless such restriction were consummated no agreement with individual countries would long be permitted to stand. In the industrial field the opportunity for development of the permanent export market is even more precarious. We have abundant testimony of the increased industrialization of a number of the principal countries of the world and the utilization of the most modern methods. In addition, it is an easily demonstrated fact that a majority of these countries are far more dependent for their domestic well-being on the maintenance of their export market than is the case with the United States. Under such circumstances we must recognize the competitive idportance of lower costs of production and correspondingly lower prices which will constantly beset the American explrter. In this connection it might be remarked that even during the last decade the ability of certain of our manufacturers to maintain a large export market was achieved only by the constant development of new markets.

Fifth. There is abundant testimony that the policy of tariff bargaining is about the least satisfactory method of approaching our foreign-trade problems. In support of this statement we would direct your attention to an observation from the report of the United States Tariff Commission on Tariff bargaining under most-favored-nation treaties:

Since 1919 there is evidence that the increasing of tariff rates and the erection of barriers, principally for use in bargaining, has grown rather than diminished. Accordingly, the difficulty of making a reciprocity policy yield net reductions in foreign tariffs has increased rather than diminished as the bargaining countries have attained greater experience.

“At this moment, when so many countries are maintaining emergency tariff rates and trade barriers, care must be taken to avoid the possibility that the United States would obtain in return for its tariff concessions only the abandonment of measures too cumbersome and oppressive and of tariff rates too high to outlast the depression. For example, the tariff rates imposed by certain European countries on wheat as measures of price stabilization and to save their producers from the effects of the abnormally low price of the commodity will inevitably be reduced if and when there is a substantial increase in the world price for cereals; and reciprocal tariff agreements by which concessions were made in return for the reduction of such temporary duties might mean the grant of valuable concessions in return for totally illusory concessions.'

BRIEF SUBMITTED BY E. H. HOGUELAND, PRESIDENT THE SOUTH

WESTERN MILLERS' LEAGUE, BOARD OF TRADE BUILDING, KANSAS CITY, MO.

Wheat growers and millers are vigorously opposed to the following language which appears in subdivision (a) of section 2 of H.R. 8430:

“The third paragraph of section 311 of the Tariff Act of 1930 shall not apply to any agreement concluded pursuant to this act.”

The third paragraph of section 311 of the Tariff Act of 1930, which the foregoing language would make inoperative, insofar as new reciprocal trade treaties with other nations are concerned, reads as follows:

“No flour, manufactured in a bonded manufacturing warehouse from wheat imported after ninety 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 purpose of the last quoted paragraph was to give to the wheat growers and millers of the Inited States the full benefit of any reductions in tariff duties that may be granted by other nations to our products when they are exported to such countries. It makes the total duty on flour milled in the United States from Canadian wheat identically the same as the duty on flour milled from Canadian wheat in Canada and shipped to countries with which we may have reciprocal trade treaties.

When the foregoing paragraph was being considered the discussion was directed largely at the Cuban situation because that happened to be the only nation with which we had a reciprocal trade treaty. The principle, however, applies to all countries with which reciprocal trade agreements may be negotiated in the future.

SECTION 2 OF H.R. 8430 VIRTUALLY REPEALS THIRD PARAGRAPH OF SECTION 311

The effect of the sentence referred to in section 2 of H.R. 8430, if adopted, would be to restore to mills at Buffalo, N.Y., the full advantage of milling Canadian wheat in bond without the payment of any tariff duty whatever to the United States Government, and, when they export such flour to nations with which we may have reciprocal trade treaties, allow them to secure the benefit of the reductions in tariff duties that are accorded our products by such nations. While technically the clause continues the present law insofar as it applies to Cuba, it is a well-known fact that a new treaty is being negotiated with the Cuban Government, which, when ratified, would come under the provisions of the proposed law, and the third paragraph of section 311 would then be meaningless.

IMPORTED WHEAT ORIGINALLY GIVEN PREFERENCE INTENDED FOR UNITED STATES

PRODUCERS Prior to the adoption of the third paragraph of section 311 of the present law Canadian wheat was imported into the United States, milled in bond at Buffalo, N.Y., without the payment of any import duty whatever, under the terms of section 311 of the Tariff Act of 1922, and the flour, when exported to Cuba, was given the benefit of the reduction in duty accorded our flour by Cuba. Under the terms of our treaty with Cuba, our flour is admitted into that country with a reduction of 30 percent in the Cuban duty. The Cuban duty on flour was and is $1.30 per hundred kilos, or 220.5 pounds; this is equivalent to $1.16 per barrel of 196 pounds. The reduction in duty amounts to 39 cents per 100 kilos, which is equivalent to 35 cents per barrel. The net Cuban duty on four exported to Cuba from the United States is 91 cents per 100 kilos, or approximately 81 cents per barrel of 196 pounds. Under the interpretation of the treaty, flour milled at Buffalo from Canadian wheat is considered a product of the industry of the United States, and is accorded the benefit of the reciprocal duty by Cuba. Such flour pays a duty of 81 cents per barrel to the Cuban Government. It now pays to our Government a duty equivalent to the 35-cent reduction allowed Cuba.

The tariff duty on wheat imported into the United States is 42 cents per bushel of 60 pounds, but, under the manufacturing in bond provisions of section 311, imported wheat may be manufactured in the United States and the products be exported without the payment of any duty whatever to the United States Government.

Buffalo, N.Y., is the only place in the United States where imported wheat is milled in bond in any substantial quantity. Seven companies have flour mills at Buffalo. They are:

Barrels Washburn Crosby Co. (general mills), daily capacity.

20, 000 Pillsbury Flour Mills Co., daily capacity

10, 000 International Milling Co., daily capacity

6, 000 Russell-Miller Milling Co., daily capacity

3, 200 Hecker-Jones-Jewel Co., daily capacity

2, 500 Commander Milling Co., daily capacity

1, 600 Geo. Urban Milling Co., daily capacity

1,500 Total

44, 800 The Buffalo milling companies increased their total daily flour capacity from 26,400 barrels in 1924 to 37,400 barrels in 1925, and have since increased their capacity to 44,800 barrels per day.

THIRD PARAGRAPH OF SECTION 311 GIVES UNITED STATES PRODUCERS BENEFIT OF

REDUCTIONS IN TARIFF DUTIES UNDER RECIPROCAL TREATIES

With the enactment of the third paragraph of section 311 of the Tariff Act of 1930, the Buffalo millers were required to pay to the United States Government on flour, manufactured in a bonded warehouse from imported wheat, withdrawn from such warehouse for exportation to a country like Cuba, a duty equivalent to 35 cents a barrel, the amount of the reduction in the flour duty which Cuba grants to our flour imported into that country under the terms of the present reciprocal trade treaty. Thirty-five cents a barrel is approximately 7.6 cents a bushel duty on the imported wheat, as it requires 4.6 bushels of wheat to produce a barrel of flour.

The Buffalo millers pay to the Cuban Government a net duty of 81 cents per barrel, the same as millers using wheat grown in the United States pay as a duty on their flour exported to Cuba. Adding the 35 cents paid to the United States and the 81 cents per barrel paid to Cuba, the Buffalo millers pay a total duty of $1.16 per barrel on flour exported to Cuba. The Canadian millers pay the regular Cuban duty of $1.16 per barrel on the flour they export to Cuba, the same as the total duty paid by the Buffalo millers using Canadian wheat.

The present law gives our millers, using wheat grown in the United States, the advantage of the reductions allowed by Cuba, as originally intended. They should likewise be accorded the benefit of any concessions that may be made in future treaties with other nations.

WHEAT GROWERS AND MILLERS OF UNITED STATES URGED ADOPTION THIRD

PARAGRAPH, SECTION 311 OF TARIFF ACT OF 1930

For many years the wheat producers and millers of the United States, other than those interested in the Buffalo properties, contended that it was unfair to give flour milled in the United States from Canadian wheat the benefit of the reduction in tariff duty on flour amounting to 35 cents per barrel, provided for in the reciprocal trade agreement with Cuba.

In 1930 all the national farm organizations and practically all of the State and regional associations of wheat producers in the United States joined with the State and regional organizations of flour millers of the country in demanding relief from the old tariff law which accorded imported wheat milled in bond in the United States the full measure of the reductions in tariff duties allowed on our products in reciprocal trade treaties with other nations.

The problem was presented to the House of Representatives by the Garber bill. no. 16346. The Ways and Means Committee recognized the merits of our claim and promptly recommended the third paragraph of section 311, which was adopted. The Finance Committee of the Senate, under the leadership of Chairman Smoot, rejected the paragraph in question by a 10 to 1 vote. However, when the matter came before the Senate it was adopted by a vote of 50 to 18 after a debate lasting nearly 2 days.

The same argument applies with even greater force today because our millers using domestic wheat are severly handicapped on account of wheat prices in the United States being much higher than in Canada.

Mills in the United States grinding wheat grown in the United States formerly enjoyed a very substantial four trade in Cuba, but they found this business was gradually going to the Buffalo mills because of the great advantages enjoyed by them in milling cheap Canadian wheat in bond without the payment of any tariff duty to the United States, with lower transportation costs, and with the 35-cent reduction in duty accorded our flour by the Cuban Government also being allowed on flour milled from Canadian wheat at Buffalo. The following table, obtained from reports of the United States Department of Commerce, “Foodstuffs' Round the World”, and United States Department of Agriculture, “Crops and Markets”, shows the volume of flour exports, in thousands of barrels, from the United States to Cuba via Atlantic and Gulf ports, for the calendar years 1922 to 1932, inclusive; and also the total for the year 1933, but the figures are not available via ports for 1933:

Flour exports from United States to Cuba

[In thousands of barrels)

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It has always been conceded that figures showing movement via Atlantic ports represent shipments from Buffalo almost exclusively, as that is the only locality milling wheat in bond in substantial quantities, while shipments from the southwest, southeast, and central sections of the country move via Gulf ports. The foregoing statement shows that from 1922–26 the preponderance of the movement was via the Gulf ports. Since 1927 the flour movement from Buffalo to Cuba has been relatively greater than from other sections of the United States.

The flour shipments to Cuba reached their maximum of 1,266,000 barrels in 1929, the Buffalo mills securing 724,000 barrels compared with 492,000 barrels via the Gulf ports.

On account of the impoverished condition of the Cuban people, due to the long depression, the flour consumption in that country has progressively declined each year.

The Tariff Act of 1930 was approved June 17, 1930, but the provisions of the third paragraph of section 311 did not really become operative until 1931 because of the exemption contained in the rule.

In 1930 Buffalo mills shipped 573,000 barrels of four to Cuba, compared with 431,000 barrels moving via the Gulf ports, and 52,000 via other ports, or a total of 1,056,000 barrels shipped to Cuba in that year. While the total shipments to Cuba declined in 1931 to 924,000 barrels, the esports via the Atlantic ports increased to 591,000 barrels, or 18,000 barrels more than in 1930. The movement via the Gulf ports declined to 280,000 barrels, or a loss of 151,000 barrels. In 1932 the Buffalo mills increased their flour exports to Cuba to 593,000 barrels, or 2,000 more than in the preceding year, while via the Gulf the movement declined to 186,000 barrels, or 94,000 less than in the preceding year, making a total of 779,000 barrels shipped from the entire United States to Cuba in the year 1932. While the figures are not available via ports for 1933, the total flour exports from the United States to Cuba in 1933 were 747,000 barrels, a loss of 32,000 compared with the preceding year. Southwestern millers know that they sustained the chief portion of this loss.

Since the third paragraph of section 311 of the Tariff Act of 1930 became effective the Buffalo mills have steadily increased their flour exports to Cuba, notwithstanding the fact that they have paid a duty on the imported wheat equivalent to 35 cents per barrel.

Reports from the United States Department of Commerce, Foodstuffs Division, show that the following sums have been paid as duty on imported wheat withdrawn under the provisions of section 311 of the Tariff Act of 1930, for milling into flour for export to Cuba: 1931.

$53, 050. 15 1932

196, 874. 05 1933.

370, 019. 96 January 1934.

36, 320. 79 Total...

656, 264. 95 The foregoing figures indicate that the third paragraph of section 311 of the present tariff law has produced considerable revenue for the Government, and might be the means of obtaining additional revenue if Canadian wheat is to be used to supply our export flour trade.

ORIGINALLY CLAIMED THAT CUBAN BUSINESS WOULD GO TO CANADIAN MILLS

During the time the third paragraph of section 311 was being discussed before the Ways and Means Committee in 1929, record 9972, et seq., and before the Finance Committee of the Senate, page 312, et seq., the contention was constantly made by representatives of Buffalo millers that if the section were approved and the Buffalo millers were required to pay 35 cents tariff duty to the United States Government, the Cuban flour trade would be driven to Canadian mills. We challenged the truth of such statements at the time. The following data, taken from reports of the Dominion Bureau of Statistics, shows the Canadian exports of wheat flour to Cuba for the crop years ended July 31 of 1922 to 1933, inclusive: Barrels

Barrels 1933

40, 104
1927

69, 276 1932. 44, 267 1926

171, 415 1931,

12, 342
1925.

107, 436 1930. 8, 249

240, 041 1929.

31, 617
1923

243, 294 1928. 21, 540 1922

154, 582 An examination of this table shows that Canadian mills have not been a very serious factor in Cuba since 1927. Our mills have never found it difficult to meet competition from Canadian mills in Cuba or in any Latin American country. The sharpest and most severe competition always comes from Buffalo mills.

1924

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