PHILIPPINE TARIFF LAWS.

January 25, 1906.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed.

Mr. PAYNE, from the Committee on Ways and Means, submitted the

following

REPORT.

[To accompany H. R. 13104.]

The Committee on Ways and Means, to whom was referred the bill (H. R. 9978) to amend an act entitled "An act to revise and amend the tariff laws of the Philippine Islands, and for other purposes, approved March 3, 1905, beg leave to report the same back with the accompanying substitute, with a recommendation that the substitute do pass.

Section 1 of this substitute is substantially the same as H. R. 9978, and the reasons for the amendments are fully set forth in a letter from Theodore T. Dorman, secretary, to Col. Clarence R. Edwards, chief of the Bureau of Insular Affairs, which letter is as follows:

[Philippine tariff committee: Arthur J. Cumnock, chairman; Theodore T. Dorman, secretary; Silas K. Everett, W. F. Adam, Jose Ma Menendez, Gcorge H. Franklin.]

DECEMBER 18, 1905.

DEAR SIR: As the committee of the Merchants' Association of New York upon the Philippine cotton tariff, we have just received a copy of the cablegram transmitted to you by W. Morgan Shuster, collector of customs for the Philippine Islands, in reply to your cablegram recently sent him, in which you transmitted to him a summary of the recommendations of proposed amendments to the schedules on cotton goods in the present tariff made by this committee and approved by the Merchants' Association of New York and by American manufacturers. In order that you may have the whole situation before you in a manner most convenient for your consideration, we summarize our recommendations, giving a statement of the reasons why each recommendation is made. We follow therewith with a summary of Mr. Shuster'ssuggestions and a statement of the reasons why those suggestions will not properly meet the requirements of the American manufacturer.

The first recommendation made by this committee is an additional paragraph and note to Class IV, Group 3, Rule B, which reads as follows:

"Textiles having a false selvage, on either one or both sides, shall be considered as goods improved in condition, and shall be liable, as the textile, to the duties leviable thereon, plus an additional surtax of one hundred per centum. This provision applies to all cotton fabrics.

'NOTE.-By a false selvage shall be understood an edge obtained by cutting, ripping, tearing, or otherwise splitting the textile in the direction of the warp."

HR-59-1-Vol 1-15

This recommendation of the committee looks mainly to the establishment of a fair basis for introduction into the Philippine market of the American textiles woven with true selvages in all widths, but mainly in narrow widths, for example, 25 inches. This recommendation is essential to the American manufacturers, as will appear from the following statement concerning the comparative situation as regards the manufacture of these fabrics in this country and abroad. Generally speaking, under any conditions of manufacture, the fabric is woven and run in a continuous piece through the different finishing processes as desired, namely, sizing, bleaching printing, dyeing, and calendering, and finally cut in pieces of convenient length, rolled or folded, packed in cases or bales and marketed.

In American mills there is a vast equipment of looms, printing and finishing machinery, designed to operate on textiles of narrow widths, and since designed for narrow widths these machines will not accommodate textiles of greater widths.

Among the European manufacturers a method designed to reduce the cost of manufacture is in practice as follows: Instead of originally weaving the textile in the width finally desired a special loom of double the width of the desired textile is used-that is, for a desired print of 25 inches width a loom of 52 inches is taken (2 inches being allowed for shrinkage in width during the finishing operations). At the center of this wide 52-inch textile two sets of heavy warp threads, slightly separated, are placed, and the fabric is woven 52 inches wide. Still, in this width, it is run through specially wide bleaching, printing, and finishing apparatus, and, as an additional operation after the completion of manufacturing and finishing, is split or torn lengthwise at the weak center line between the two sets of heavy threads, giving two lengths of textiles of the original length woven, but only 25 inches wide. This additional operation gives to these textiles the name of "splits," and they can always be distinguished from goods manufactured in single widths with true selvage on each edge by the appearance of the false or "split" selvage along one of the sides.

The possibility by this European method of doing in one set of operations on two lengths of 25-inch textile what must be done by the American method by two successive sets of operations greatly reduces the European cost of manufacture as compared with the American.

For the American manufacturers to adopt the European so-called "split" method of construction is at present economically and practically impossible. The present American equipment of narrow looms, printing, and finishing machines would have to be supplanted by similar machines of wider construction. This would mean almost a complete loss of the present capital invested in textile machinery and an immense investment of new capital in wide machinery for this special purpose. More careful and skillful operators would have to be employed, as it requires greater care economically to run the wider machinery. This in turn would mean higher wages, and the American wage is already much higher than among European textile manufacturers. With the present automatic machinery a loom stops upon the breaking of a thread until the operator repairs the break and restarts the loom. For every minute that a wide loom stands idle the loss in production is double as compared with the loss on a narrow loom in the same situation, and with operators inexperienced in the use of wide machinery the loss would be proportionately greater.

These statements summarize the reasons for the present impossibility of compli ance with the suggestion, naturally arising, that the European "split" method of production should be adopted by American manufacturers.

Therefore it is found that to place American goods of this character in the Philippine market upon a fair basis of competition with the "split" goods of European production, it is absolutely essential that appropriate provisions, favorable to the American manufacturers, should be embodied in the Philippine tariff.

After most careful consideration of all the elements entering into the situation, this committee has recommended the addition to Rule B, before set forth, as the only practicable solution of the problem from the standpoint of the American manufacturer.

In reply to your cablegram, Mr. Shuster has suggested, upon this point, that the additions proposed by this committee to Rule B, quoted above, are unnecessary, and that the needs of the American manufac turer could be met by the interpolation into paragraph 117 of the clause "provided that the width of such textiles shall be measured and computed from true selvage to true selvage, and that 'splits' and false selvages shall not be considered."

Aside from the objection apparent to this committee that this would apply only to such "split" fabrics as are entered under paragraph 117,

and would not operate upon the "split" fabrics coming under paragraphs 118, 119, and 120, the above suggestion of Mr. Shuster is objectionable according to his own allegation, made in a report to Hon. Henry C. Ide, secretary of finance and justice, April 28, 1905, transmitted by secretary of finance and justice to your Department under date of May 2, 1905, in which report Mr. Shuster states:

It has always been the practice of this office in calculating the width of these cotton textiles to take the width of the goods as found in the bolt, including selvages, as imported. But if by calculating the width of imported cotton goods from true selvage to true selvage the cablegram of the honorable secretary of War means that it is intended in the case of splits to obtain the width of the goods for the purposes of paragraph 117 by joining two separate bales of goods, each one of which would be measured from the true selvage to the split, then in such case it seems to this office that such construction or interpretation would be open to grave question, especially if attempt was made to defend the same in court. This office does not know from the cablegram whether it has correctly understood the intention of the American cotton exporters, but it is believed that their intention may be construed from the fact that to take two separate bales of goods consisting of cotton splits and constructively treating them as one bale of goods would, in effect, throw under paragraph 118 a number of English and German and probably Spanish cotton goods which under the present interpretation go under paragraph 117. This, of course, would at once arouse German, English, and Spanish importers, and the force of the criticism would be directed against this office for putting in force a rule which, as above stated, is believed to be open to considerable question.

We desire to call your attention in this quotation to Mr. Shuster's statement that it would be a practical impossibility accurately to determine the width from true selvage to true selvage because of the fact that he has only one part of the original fabric before him, and that in order to ascertain the true width he would have to have both parts as manufactured in the loom before him.

We respectfully submit that if this objection was pertinent at the time it is just as pertinent now, whether the provision for measurement from true selvage to true selvage is established by a rule of interpretation made by the War Department or is contained in the law itself.

Mr. Shuster in his recent cablegram states that our proposed modification of Rule B would not affect all "splits." From our intimate knowledge of the processes of manufacture and of the condition of importation into the Philippine Islands, we believe that Mr. Shuster is mistaken in this, possibly through the failure to comprehend the full import of our recommendation, and we further believe that the recommendations made by this committee will cover all "splits" in competition with American goods under paragraphs 117, 118, 119, and 120, because Rule B governs and controls each of these paragraphs. We therefore maintain that the amendment to Rule B, as proposed by this committee, is absolutely essential for the American manufacturer, and that the process of splitting being in the nature of an improvement in condition of the fabric after manufacture, the application of the surtax is entirely consistent with the principles underlying the imposition of surtaxes under other clauses of Rule B upon textiles receiving additional improvement or manipulation after manufacture. Immediately after the changes in the tariff made by the act of March 3, 1905, came to our attention, the committee of the Merchants' Association of New York realized the serious effects of these changes upon importation of American cotton goods into the Philippine Islands. The only complete remedy for the difficulties that arose under those changes lay exclusively in the hands of Congress by further amendment to the law. Congress at that time had adjourned and would not convene until the present session; therefore complete remedy could not be had. At that time that committee suggested to the War Department that the amended law should be construed so that the measurement of "split" goods should be from true selvage to true selvage. The committee stated that this would not be a cure, but would be a partial and temporary expedient whereby possibly 50 per cent of the loss to American manufacturers caused by the change in the tariff would be saved. At that time Mr. Shuster, as stated above, objected, and the recommendation made by the War

Department did not go into effect. Congress is now in session, and the only complete and proper remedy is by amendment to Rule B, as recommended above.

The second recommendation of this committee is a revised schedule of counts, to apply uniformly to paragraphs 117, covering plain goods of heavy weave; 118, covering light goods of plain weave; 119, covering heavy goods of twill and fancy weave, and 120, covering light goods of twill and fancy weave.

The reasons for this recommendation are as follows: The present tariff law is based upon and in the main follows the schedule of counts which was contained in the original Spanish tariff devised about fifty years ago and intended primarily for the benefit of European manufacturers. American textiles at the present time are manufactured upon a different basis of construction from the textiles known at that time. Since the Philippine Islands have come into the possession of the United States, it is only fair that the counts scheduled in the tariff should conform to the American methods of manufacture. It is also only fair that the American manufactured product should have the best possible position in that market in competition with the products of other countries, and in order to insure that fairness to the American products it is absolutely necessary that the system of counts should be made to conform to the American schedules.

In making this essential change in the schedule of counts this committee has found it necessary to readjust the corresponding duties leviable thereunder. Several inconsistencies exist in the present tariff, as, for example, the provisions under Clause C, paragraphs 117 and 119, for goods of 26 to 30 threads, being such as to admit at a less rate of duty a fabric made with a twill or fancy weave than a fabric of corresponding count made in plain weave. This inconsistency is readily seen when it is stated that a twill or fancy weave is more expensive to produce, count for count, than a plain weave, and should therefore be subject to a greater proportionate duty. In the readjustment of the duties as recommended by this committee these inconsistencies are overcome. The committee has had in mind throughout this proposed readjustment that the present revenue of the Philippine government must not be reduced, and after a careful comparison of the proposed amendments with the statistics of imports under the previous tariff, so far as obtainable from the records of the War Department, finds that in most instances the revenue will remain the same, and in some instances will increase, the net result being a material increase in revenue. A copy of the tabulation from which these conclusions are drawn is herewith attached. The recommendation of Mr. Shuster by cablegram in reference to these paragraphs is that a return to the language of the tariff act of 1901 might be sufficient for all requirements. This recommendation does not meet the absolute needs of the situation because it does not provide for the adjustment of the system of counts to conform to the methods of American manufacture. The statement is made by Mr. Shuster that under the terms of the old tariff there was an increase in the importation of American goods from 1901 to 1905. We respectfully submit from our knowledge and experience that such increase was in spite of and not because of the language of the then existing tariff. From our knowledge and experience in the business we assert that the changes proposed by this committee are not, as referred to by Mr. Shuster, "unknown experimental modifications." On the other hand we positively assert that these changes will operate to the proper advantage of the American manufacturer and to the increase in the revenue of the Philippine Islands.

The additional recommendation of this committee in reference to paragraphs 117 and 119 is embodied in the form of a note, as follows: "Textiles woven with a colored yarn on the selvage or with a colored selvage stripe not exceeding 2 millimeters in width shall not be considered as manufactured with dyed yarns." This recommendation is made in order to overcome the possibility now existing in the tariff that such fabrics shall be required to pay duty as for a fabric colored throughout. This blue line is interwoven usually about an inch from the selvage, and appears principally in ducks, twills, sailcloth, and the like, and serves as a guide in sewing two widths together. It is the custom of the American manufacturers to make goods of this character with such a stripe. On this point Mr. Shuster states that this proposed provision is already met in the present practice of the Philippines customs service. Our only comment upon Mr. Shuster's statement is that if this is the practice it is not so understood by importers in Manila, for orders even of recent date for these fabrics have been particularly explicit in specifying that this colored stripe should be omitted, thereby necessitating the manufacture of special goods to fill these orders at an increased expense. Moreover, the practice of the Philippines customs service, as referred to by Mr. Shuster, is not specifically authorized by the law as it stands, and for that reason, as well as the former reason, the recommendation of this committee in that respect should be adopted.

In reference to paragraph 120, Mr. Shuster states: "No reason is known for removing the surtax under F, paragraph 120." The amendment proposed to paragraph

120 by this committee did not contemplate the removal of the surtax under former clause F, and we therefore conclude that the new proposed clause G, which contains the provision for this surtax, was omitted in cabling to Mr. Shuster. The redivisions of the counts under paragraph 120 necessitated the adding of a new clause; therefore the old clause F becomes, under the new amendment as proposed by us, the new clause G, and they are identical, word for word.

The last recommendation of this committee is an amendment to paragraph 123 covering the carded textiles, such as blankets and other similar articles. The changes recommended by the committee under this paragraph are twofold: First, as to the admission of blankets by schedule in accordance with the percentages of color; and second, as to the admission of hemmed blankets.

A large proportion of American blankets is made without color, except as to a small stripe or set of stripes technically known as the "border." The exact percentages proposed are set forth in the schedule appearing in the report attached hereto. The colored yarn in these borders forms a very small percentage of the total yarn entering into the composition of the blanket. Under the present provision of the tariff the addition of any particle of colored yarn to a blanket places it in the class with blankets composed entirely of colored yarn, thereby imposing an additional duty of 6 cents per kilo. It is reasonable that blankets with a large percentage of colored yarn should pay at a higher rate of duty, since colored yarns are more expensive than uncolored. But it is more consistent to permit blankets with colored borders only to enter at a lesser rate of duty than blankets which are colored throughout. The second change recommended by the committee under this paragraph is a reduction of the surtax upon hemmed blankets from 100 to 30 per cent by the addition of a note to paragraph 123, as follows:

NOTE.-Blankets, single or in pairs, hemmed or bound, shall be liable to a surtax of thirty per centum of the duties leviable thereon."

There is no direct provision in the present law that blankets shall pay 100 per cent duty. There is, however, a provision that hemmed blankets shall be considered as made-up articles for the application of a surtax. In another clause of the tariff certain made-up articles, hemmed or bound, are enumerated as under a surtax of 30 per cent, among these being handkerchiefs, tablecloths, napkins, etc. (Rule B); all made-up articles not enumerated under this exception fall into a general class of "other made up articles," which carry a surtax of 100 per cent, and blankets, since not specifically enumerated, are taxed in this general class. These provisions were copied from the Cuban tariff then in force. The omission of blankets from the articles enumerated in Rule B, carrying a 30 per cent surtax, was apparently an inadvertence, since in all reason they should, as articles of a similar nature for house.hold purposes, have been included, and since the military government in Cuba has subsequently corrected this omission by a ruling admitting hemmed blankets among the other made-up articles carrying only a 30 per cent surtax. It is hardly necessary to state that all blankets manufactured in this country are made up with a hem or binding. The result of these two provisions in the present tariff, which we seek to remedy by amendment, has been practically to eliminate the American-made blankets from the Philippine market. In Mr. Shuster's cablegram there is no comment made upon the proposed amendment to this paragraph.

We respectfully submit that the needs and requirements of the American manufacturer should be considered primarily and fundamentally in any tariff imposed upon American goods going into the Philippine market.

This committee in determining upon the amendments proposed above has scrupulously refrained from suggesting any amendment which, from the knowledge and experience of American manufacturers, does not appear to be necessary and essential. The committee, furthermore, has borne in mind the necessity of maintaining the revenues of the Philippine Islands.

Representing as we do the greater part of the cotton manufacturers of the United States, with their millions of capital already invested in thousands upon thousands of looms, giving employment to hundreds of thousands of American citizens, we respectfully insist that the amendments proposed by this committee should be approved by the War Department and adopted by Congress at the earliest possible moment, notwithstanding the comments made by Mr. Shuster in his recent cablegram or the opposition of any antagonistic interests. Respectfully submitted.

THE PHILIPPINE TARIFF COMMITTEE OF THE MERCHANTS' ASSOCIATION OF NEW YORK, By THEODORE T. DORMAN, Secretary.

Col. CLARENCE R. EDWARDS,
Chief of the Bureau of Insular Affairs,

War Department, Washington, D. (