STATEMENT OF MR. N. E. FRANKLIN, PRESIDENT, NATIONAL COUNCIL OF AMERICAN IMPORTERS AND TRADERS, NEW YORK CITY, N. Y. The CHAIRMAN. State your full name. Mr. FRANKLIN. My name is N. E. Franklin. Mr. FRANKLIN. I am president of the National Council of American Importers and Traders. The CHAIRMAN. State in your own way what you desire to present to the committee. Mr. FRANKLIN. Mr. Chairman and gentlemen of the Finance Committee, we are here as a committee from the National Council of American Importers and Traders. We know your time is very valuable, and we do not want to take up any more of it than possibly we have a right to, and we have therefore requested that one of our directors, Mr. Thomas J. Doherty, represent us in the matter. your permission, Mr. Doherty will address you. Thank you. With STATEMENT OF MR. THOMAS J. DOHERTY, DIRECTOR, NATIONAL COUNCIL OF AMERICAN IMPORTERS AND TRADERS, FLATIRON BUILDING, NEW YORK CITY. The CHAIRMAN. You have a brief here, Mr. Doherty, presented to the committee, signed by N. E. Franklin, president. Do you desire to have that inserted in the record? Mr. DOHERTY. I should like to, Senator, if you will permit it? The CHAIRMAN. Without objection, the brief may be inserted in the record. (The brief of the National Council of American Importers and Traders submitted by Mr. Doherty is here printed in full, as follows:) To the members of the Senate Finance Committee: THE EXCHANGE EQUALIZATION MEASURE. President Harding's message to Congress and quotations from spokesmen of the Republican Party in the House and the Senate make it clear that, while the policy of protecting American industry is to be continued, every means shall be made use of to promote American trade in all parts of the world and to preserve the merchant marine built up during the war. In order that neither of these legitimate purposes be sacrificed, every proposal in connection with tariff legislation should be most carefully considered. An important case in point is the amendment proposed in section 14 of the new bill merging the temporary tariff measures (emergency tari f, antidumping, and exchangeequalization measure) that section 25 of an act entitled "Act to reduce taxation, to provide revenue for the Government, and for other purposes," approved August 27, 1894, be amended. Section 25 of said bill refers to the values of the standard coins in circulation in the various nations of the world, estimated by the Director of the Mint, and to be proclaimed quarterly in January, April, July, and October of each year. The value so proclaimed shall be followed in estimating the value of foreign merchandise, the consular certification date of any invoice to be considered the date of exportation. The objectionable amendment reads: "That in the estimation and liquidation of duties upon any imported merchandise, the collector of customs or person acting as such, shall not in any case estimate the depreciation in currency at more than 663 per cent.” This amendment goes far beyond the purpose indicated in its name, "exchange equalization measure,' because it is based on a false assumption. The proposed 44121-21-PT 1—6 measure assumes that the home market values in foreign countries have remained the same, having been little or not at all affected by the war and by the depreciation in the exchange rates. It undertakes, therefore, to equalize the depreciated rates of exchange, so that the Government may get the same amount of duty that it would have gotten had the exchange remained normal. Foreign prices have not remained the same, however, as every merchant knows; they have, on the contrary, advanced enormously the greater the depression in currency the greater have been the advances in price. The appraising officials of the United States Government have the best opportunity to compare prewar prices, converted into dollars at normal rates of exchange, with present-day prices, converted into dollars at the prevailing rates. Their minds are unprejudiced by self-interest and they are unanimous in declaring that the depreciation in the value of foreign currencies has been more than equalized, in the vast majority of cases, by correspondingly great increases in their prices-that, in fact, the Government is collecting more duty now, on many articles, than it did before the war. (See the official letter of the United States appraiser at New York, printed on p. 4025 of No. 35 of the "Hearings Before the Committee on Ways and Means," Feb. 15, 1921.) It is clear that foreign manufacturers and merchants are compelled to advance their selling prices in order to compensate the depreciation in the purchasing power of their respective currencies. Since their depreciated currency is all they can use in the payment of their purchases of raw materials and merchandise from more favorably situated countries, such as the United States, for instance, they could not do otherwise and survive. No explanation has been given so far for setting the limit of depreciation at 663 per cent of the normal rate of exchange. It appears to be an arbitrary limit. It is well, therefore, to examine what the effect on the dutiable values of merchandise will be in those countries where the exchange rate falls below this minimum. Japan, England, and France are omitted, because it seems highly unlikely that their exchange rates will fall below the 663 limit. America must aim to grant equal opportunites to all countries, but it is evident from the above that those countries who have no depreciated currency, or whose depreciated currency does not fall below the 663 provision and whose economic condition is, therefore, obviously better, will have great competitive advantage in this country as against all other countries less fortunately situated. The advantage the Far East is supposed to enjoy, on account of a wage scale lower than that of Europe and America, will be increased many times in this market, as against goods of Italian and Central European origin. Austria, already in a deplorable situation, will be discriminated against in an extraordinary degree, her trade with us will be paralyzed. Italy will be under a considerable handicap, as compared with France, Spain, and England. If the exchange rates of Czechoslovakia and Jugo-Slavia are to be based on the normal exchange rate of the Austrian coinage, as assumed in above table, they will suffer severely, although surely no discrimination is intended against them. The limit of 663 per cent, if adopted, must lead to a very marked decline in, if not the entire exclusion of, importations from Central Europe, the restoration of which market is one of our greatest needs. It must, in many instances, nullify the measures undertaken to make possible the exportation of our surplus products necessary to relieve the prolonged stagnation of American business. Clearly too this measure is not in the interest of the Government, for it will greatly diminish the customs révenue. There is an extraordinary inconsistency in legislating so that imports from many European countries will necessarily be cut off and at the same time resuscitating the War Finance Corporation for the express purpose of financing exports from the United States to European and other countries. Such exports, from the very nature of things, can only be paid for in goods imported from those countries. The incorporation of a $100,000,000 export bank indicates the realization of the urgency of finding an outlet for our rapidly accumulating agricultural and manufactured surplus, but this seems to have been overlooked when the ill-considered exchange equalization measure was drafted. Central Europe is a large consumer of our products, such as cotton, copper, and manufactured goods, and it is in urgent need of them yet can not pay except in merchandise. Not only will our farmers and manufacturers suffer if this measure is passed but so will our newly created merchant marine. Ships that have no return cargo can not be profitably run, and our American merchant fleet is already handicapped by relatively high operating costs. Even our railroads can not remain unaffected, because westbound freight is as important a source of revenue as are eastbound shipments. The proposed amendment before the committee means practically an embargo against imports and a cessation of our exports to all countries whose currencies are greatly depreciated, and a much reduced trade (import as well as export) with all countries except those whose currencies have remained above the limit of 663 depreciation. We call attention to the language of paragraph 25 of section 2, which is ambiguous in that it does not state whether the collector shall apply the minimum depreciation provision only to entries which will be made following the passage of the act or whether it shall be applied to all entries made prior to but not liquidated until after the enactment. Paragraph 25 of section 2 in the proposed emergency tariff act reads as follows "Provided. That the Secretary of the Treasury may order the reliquidation of any entry at a different value whenever satisfactory evidence shall be produced to him showing that the value in United States currency of the foreign money specified in the invoice was at the date of certification at least 10 per centum more or less than the value proclaimed during the quarter in which the consular certification occurred: Provided further, That in the estimation and liquidation of duties upon any imported merchandise the collector of customs, or person acting as such, shall not in any case estimate the depreciation in currency at more than 663 per centum." To avoid litigation, serious hardship, and expense, the provision with reference to the liquidation of entries should be in explicit and clear language leaving no doubt as to the entries that it is intended should be affected by it. As a very considerable time elapses after the entry is made before the liquidation is completed (usually from six months to one year, and even longer) a provision without a specific reference to the dates of the entries to which it applies would become retroactive, and cause great injustice. The merchandise in most cases would have been sold on the basis of the tariff act in force at the time of the importation. Imports from and exports to depreciated-currency countries for the calendar year 1920. [From Table No. 9, Department of Commerce.] Mr. DOHERTY. Gentlemen of the committee, in reading the reports of the hearings that were held by the Ways and Means Committee last December and during February, and also reading the debates in Congress, it impressed me that what this whole matter depends on is purely and simply an issue of fact; that is all that we are concerned with. If, as some of the gentlemen have said, the Government is being mulcted of its appropriate duties, then some method should be adopted to secure those duties. If, for example, as some gentlemen seem to think, an article that before the war was invoiced at, say, 10 lire, using the Italian currency for illustration, it would be $1.93, and the Government was getting duty on $1.93; if, I say, that article is still being invoiced at 10 lire, but at 4.6 cents a lira, and the Government was only getting duty on 4.6 cents where it used to get duty on 19 cents, then I say that the situation calls for a radical change, and there is a necessity for this legislation. As a matter of fact, however, there is no such thing as that in existence. That is not so. As a matter of fact-and it can be demonstrated and will be demonstrated with mathmetical certaintythe Government is not only getting the same amount of duty as it did before the war, but it is getting a higher amount of duty in many instances, for the reason that whereas before the war an article was invoiced at, say, $1 and duty was paid on $1, duty is now now being paid not only on $1 but in many instances on $1, $2, $3, or $4. In the very brief remarks I am going to make to-day I am going to talk only in real money; that is, dollars; we will not concern ourselves with depreciated currency at all. The CHAIRMAN. You are an importer, are you? Mr. DOHERTY. Yes, sir; I am connected with an importing house; that is to say, a house that does both an importing and exporting business and a very large domestic business, and is also a large domestic manufacturer. The CHAIRMAN. And you apprar here as attorney and representative of this National Council of American Importers? Mr. DOHERTY. I am a member of the board of directors of this National Council of American Importers and Traders, and I am speaking for them, and, of course, for all the importers that we represent. Our membership is nation wide; it is not merely a local affair; it includes merchants from every corner of the country, and it includes merchants who are not only direct importers but who are dealers in imported goods and also in domestic goods. The CHAIRMAN. How many members have you in your association? Mr. DOHERTY. This organization is new. It was started only about a month ago, and we have now about 275 actual members, but the potential members run into thousands. The CHAIRMAN. What do you mean by "potential members?" Mr. DOHERTY. Those who are most likely to become members because of their interests, because of the fact that this is a matter of life and death to them. I want to say, also Senator REED (interposing). Permit me to ask, in line with your question, Mr. Chairman, what class of men belong to this organization; what kind of concerns? Mr. DOHERTY. Why, corporations and individuals and partnerships. Senator REED. Are they large importers? Mr. DOHERTY. Large importers and small importers, both, Sena tor. Senator REED. What classes of goods? Mr. DOHERTY. All classes of goods; imports generally; all kinds of merchandise; for example, the particular house I am connected with imports almost everything under the sun and exports in the same variety. The CHAIRMAN. Which house is that? Mr. DOHERTY. George Borgfelt & Co., of New York. They are composed exclusively of American citizens, and, as a matter of fact, if I may say so, their business is over 60 per cent domestic goods. The CHAIRMAN. Your membership is chiefly composed of people living in New York or doing business there? Mr. DOHERTY. Up to the present time, although we have members in San Francisco, Chicago, New Orleans, Minneapolis, Indianapolis, and St. Louis. This is a matter that appeals to all importers and those who are interested in imported goods; it is not a local matter at all. I have got here some concrete examples in proof of our contention, namely, that in point of fact and in truth and substance, and as has already been demonstrated by the entirely disinterested Government officials, Uncle Sam is merely getting not only as much duty as he got before the war, but more, because there has been a natural rise in the intrinsic prices of goods, that is, the prices expressed in dollars; and, incidentally, some of these exhibits will show the result of this legislation. Senator SMOOT. Is there any greater increase in foreign countries than the increase in the United States? Mr. DOHERTY. I'am told-of course, on that, Senator, I can not give any expert testimony, because I have not made an exhaustive investigation of the subject, but in consultation with many gentlemen who are informed, they say in some foreign countries the proportionate rise has been even higher than here. Here is a sample of an Italian lace [exhibiting sample of lace to the committee.] This lace is worth $1 for a given unit. It is filet lace, handmade, imported from China, and also from Italy. The Italian lace is $1; the present duty is 60 cents. The Chinese lace, exactly like it-you can not tell one from the other-cost 50 cents in China, and pays a duty of only 30 cents, that is, at the present time. Under this proposed legislation Italy is one of the countries that will be affected by it-and China will not be affected because the Chinese currency is not depreciated to any extent. The Italian lace will pay a duty of 84 cents; the Chinese lace will only pay a duty of 30 cents. Senator MCLEAN. You are referring to section 214? Mr. DOHERTY. I am addressing my remarks to section 214, the currency valuation section. Senator MCLEAN. That is your interpretation of that section? Senator MCLEAN. Do you think that the Government has any right to estimate the value of an import in one currency, that is, fixing the value of the currency, we will say, of the mark at 8 cents, and then deny to the man who pays the duty the same valuation? Would we not be discriminating against that country and violating all our treaties? Mr. DOHERTY. Absolutely, if I understand you correctly. Senator MCLEAN. If your interpretation is right. I understand the experts do not all agree with you about it. They seem to think |