Appendix B

ANALYSIS OF THE EFFECTS OF TARIFF PREFERENCE FOR AMERICAN PRODUCTS ON THE IMPORT TRADE OF THE PHILIPPINES

Relative Effect of Exemption from Specific Duties as Compared with Exemption from Ad Valorem and Minimum Ad Valorem Duties.1

In order to understand better the effects of the tariff preference which the United States has enjoyed in the Philippines since 1909 it is important to distinguish between those goods which are subject to duty at specific rates when imported from countries other than the United States and those goods which are subject to ad valorem on minimum ad valorem rates. Table 37 shows such an analysis, com1 paring the duty-free imports from the United States under the different categories with the dutiable imports from other countries, and showing the change as between the period 1911-1914 and the period 19221926. The significance of the distinction between specific duties and ad valorem duties lies in the fact that the latter (unless modified by new legislation) automatically adapt themselves to changes in prices, whereas the former (unless modified by new legislation) represent varying degrees of protection as prices rise or fall. In fact there has been little such modification in the Philippine import tariffs, either ad valorem or specific, and since prices generally have risen the specific duties after the World War usually represented lower ad valorem equivalents.

It appears that the greatest increase of importations from the United States was in those commodities which are subject to ad valorem or minimum ad valorem rates when imported from other countries. The imports from the United States falling under this category constituted 26.7 per cent of the total imports of the Philippines from all sources during the 42-year period July 1, 1910, to December 31, 1914, whereas this proportion rose to 36-7 per cent during the 5-year period January 1, 1922, to December 31, 1926. The duty-free imports from the United States of products dutiable at specific rates when imported from other countries also rose relatively to the total imports from all sources but the change was less marked, being from 16.6 per cent of total imports in the earlier period to 20.3 per cent in the later period.

The superior advantage to the United States through exemption from ad valorem duties as compared with the exemption from specific duties is further indicated by the fact that whereas the imports into the Philippines from non-American countries of a selected group of articles subject to specific rates constituted 14.9 per cent of total imports from all sources in the earlier period and 14.5 per cent in the later period, showing little change, on the other hand the imports from non-American countries of all articles subject to ad valorem or

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1 ad valorem rates of duty in the Philippine tariff are applicable to the actual market value or wholesale price of merchandise, as bought and sold in usual wholesale quantities, at the time of exportation to the Philippine Islands, in the principal markets of the country whence imported including the value of all cartons, cases, crates, boxes, sacks, and coverings of any kind, and all other costs, charges, and expenses incident to placing the merchandise in condition, packed ready for shipment to the Philippine Islands."

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minimum ad valorem rates of duty fell from 21 per cent of total Philippine imports in the first period to 15.9 per cent in the later group of years.

In making the foregoing comparison concerning non-American importations into the Philippines, rice importations (which were subject to specific tariff rates and which were imported almost entirely from non-American sources) have been disregarded, for the reason that they were the largest single Philippine import item in which the United States did not compete during either of the periods compared. Likewise, tobacco products have not been considered, since the specific rates on these products in the Philippines, from the beginning of reciprocal duty-free trade, have been so high that the preferential effect on imports from the United States resulting from exemption from duty has remained substantially unimpaired by price changes. Effect of Differences in Levels of Duties on non-American Goods upon Imports of Such Goods Duty Free from the United States.

It might be expected on first thought (a) that Philippine imports from the United States, enjoying freedom from duty, would constitute a larger proportion of total imports of the same commodities in the case of those articles subject to high duties when imported from nonAmerican countries than in the case of those subject to low duties; and (b) that the gain in the share of the United States in total imports, as between the early years of the duty-free arrangement and more recent years, would be greater in the case of those commodities where the duties collectible on imports from other countries have remained stationary or risen, in terms of ad valorem equivalents, than in cases where those equivalents have declined. A detailed examination of the statistics of rates and imports of individual commodities, however, shows that these conclusions are valid only within certain limits.

The increase in the value of the total imports from the United States into the Philippines for the period 1922-1926 as compared with the period 1910-1914 was very great, and large value increases appeared in most individual commodities. In part these increases, however, were due to the advance in price levels, which was marked in the case of most, though not all, of the commodities. It is impossible, of course, to enter into a detailed quantitative comparison of the imports of a large number of individual commodities. In the present discussion, in order as far as possible to eliminate the effect of price changes, the basis of comparison used is that of the share of the United States in the total value of Philippine imports from all sources.

During the period July 1, 1910, to December 31, 1914 (four and one-half years) the United States and its possessions furnished 44 per cent in value of the total imports of the Philippines; the proportion rose to 58 per cent during the 5-year period 1922-1926. The corresponding proportions enjoyed by the United States in the total imports of articles of different categories, as classified according to the rate of duty collectible on them when imported from non-American countries, are shown in Table 38. In compiling that table certain items of Philippine imports have been omitted from consideration in order to obtain closer comparability.

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There was practically no change in the Philippine tariff as between the two periods compared. For the most part neither the specific rates nor the ad valorem rates were changed. Owing to the change in prices, however, the specific rates on many commodities represented different and usually lower ad valorem equivalents in the later period than in the earlier. In Table 38 the commodities have been grouped in such a way as to bring together, on the one hand, those in which there has been little change or even a slight increase in the ad valorem or ad valorem equivalents and, on the other hand, those in which there was a decrease.

Groups A and B in the table represent commodities in which the imports from the United States became a larger share of such imports from all countries between 1910-1914 and 1922-1926, while Groups C and D cover those in which that share fell off.

From an inspection of Table 38 it appears that the position of the United States in the import trade of the Philippines advanced most conspicuously in the case of commodities in Group A. In this group the average ad valorem rates or ad valorem equivalents of the duties applicable to imports from non-American countries remained substantially the same or even in some cases increased slightly between 1910-1914 and 1922-1926. In the first period imports of this group from the United States represented 18.4 per cent of total imports of all commodities from all countries, whereas this proportion rose in the later period to 28.8 per cent. It is noteworthy, however, that the United States also increased very conspicuously its share of the total imports of the Philippines from all countries in the case of the large number of articles classed under Group B, on which the duties applicable to imports from other countries were lower (in terms of ad valorem equivalents) in the later period than in the earlier; the imports of these commodities from the United States constituted 12.9 per cent of total imports from all countries in 1910-1914, but rose to 18.9 per cent in 1922-1926.

Group C embraces articles on which, as in Group A, the duties applicable to imports from other countries show little change in terms of ad valorem equivalents between the earlier period and the later, and of which the imports from the United States constituted a smaller proportion of total imports in the later than in the earlier period.2 Since this group is much smaller than Group A, it appears that in the case of most of the commodities on which the ad valorem equivalents remained stable the United States made marked gains. The imports of Group C from the United States constituted 5.6 per cent of total imports of all commodities from all countries in the pre-war period and 4.6 per cent in the postwar period.

Group D is similar to Group B in that it comprises commodities on which Philippine duties, from which the United States is exempted, were lower in terms of ad valorem equivalents after than before the war (principally by reason of increases in prices on articles bearing

2 The increased importance of Range (9) of this group shown in Table 38, in relation to the share of total trade represented thereby in 1922-1926 might appear to be at variance with the decreased proportions of commodities in this group supplied by the United States. It is explained, however, largely through the failure of the United States to supply the same percentage of gasoline imports in 1922-1926 as in the earlier period, the share decreasing from 86 per cent to 70 per cent, although gasoline during 1922-1926 had become a considerably more important item among Philippine imports.

specific duties), but of which the imports from the United States declined relatively to those from other countries. This Group D in turn is much smaller than Group B; in other words, in the case of much the greater proportion of the commodities in which the preference enjoyed by the United States declined, the United States was nevertheless able to gain a larger share of the total import trade of the Philippines. Imports of Group D from the United States represented 6.5 per cent of total imports of all commodities from all countries in the pre-war period as compared with 4.8 per cent for 1922-1926.

Turning from a consideration of the group totals of Table 38 to the detailed entries classified according to the rates of duty applicable on non-American goods, it will be seen that, contrary to what might perhaps have been expected, the relative gain in the position of the United States in the import trade of the Philippines was not least in the commodities having the lowest rates of duty nor greatest in those having the highest rates. Range (1) represents the commodities with the lowest rates of duty, ranging from 5 to 10.2 per cent ad valorem (or ad valorem equivalent) during 1910-1914 and from 5 to 8.5 per cent in 1922-1926. This range falls under Group A and there is no corresponding range under Groups C and D, (in which the United States lost position relatively). Although the total imports of commodities of of Range (1) are small, it is perhaps significant that whereas the United States supplied only 17 per cent of the total imports of this group in the pre-war period it supplied 55 per cent of them from 1922 to 1926.

By summarizing the four groups, A, B, C, and D, of Table 38 according to the ad valorem or ad valorem equivalent ranges of the duties applicable to corresponding non-American goods during 19221926, it appears that the net American gain in relative importance among total Philippine imports was from 43.4 per cent in 1910-1914 to 57.1 per cent in 1922-1926, and that the principal advances were made in what may be termed the intermediate ranges of ad valorem or ad valorem equivalent rates. The greatest net American gain, from 32.8 per cent in 1910-1914 to 44.3 per cent in 1922-1926, occurred in the eight ranges (2), (3), (6), (7), (9), (10), (13), and (14), with ad valorem rates and equivalents running from 10 to 25.3 per cent in 1922-1926; the next greatest net gain, from 5.3 per cent in 1910-1914 to 7.5 per cent in 1922-1926, is found in ranges (1), (5), and (12) at ad valorem rates and equivalents ranging from 5 to 9.7 per cent in 1922-1926. In ranges (4), (8), (11), and (15), which include the highest rates of duty (in terms of ad valorem and ad valorem equivalents) applicable in 1922-1926 to corresponding non-American goods entering the Philippines, there was no net change in the relation of American goods to total Philippine imports, this percentage remaining at 5.3 both during 1910-1914 and 1922-1926.

The following tabulation, condensed from Table 38, illustrates the summary made in the preceding paragraph.

Variations in United States share of selected Philippine imports within different ranges of tariff preference during stated periods

Movement of 223 Commodities and Commodity Groups in Philippine Import Trade from the United States and Possessions according to Tariff Preferences, 1911-1914 to 1922-1926 (Table 39).

It will be understood that a narrative discussion of the whole Philippine import-trade movement by commodities and according to the tariff preference accorded different commodities coming from the United States, over the long period July 1, 1910, to December 31, 1926, is not practicable within the limitations of this summary, and on these points reference is therefore made to the details of Table 39, pages 132 to 136.

A tabular analysis is presented in Table 39 of all imports from the United States into the Philippines, by individual commodities and somewhat narrowed commodity groups, during the consecutive period, July 1, 1910, to December 31, 1926. The table is arranged alphabetically, based as far as possible on the original Philippine statistical nomenclature, and gives average annual Philippine import values from all sources and from the United States and possessions by commodity items or restricted groups, with indication of the corresponding proportions entered from the United States and possessions and the tariff rates applying to them when imported from other countries (in terms of ad valorem or ad valorem equivalents). Unless otherwise indicated annual averages are shown for the 42-year period, July 1, 1910, to December 31, 1914, which embraces substantially the pre-war period of United States-Philippine free-trade relations (except the initial months August 6, 1909, to June 30, 1910);3 the four calendar years 1915-1918, which include most of the World War period; the three calendar years 1919-1921, first following the World War; and the five calendar years 1922-1926, which may be taken to follow the first postwar readjustment period.

The short period, Aug. 6, 1909, to June 30, 1910, first following the inauguration of duty-free trade has been omitted in constructing Table 39, because imports of Government supplies are not included in Philippine import statistics for that period, while they are included in the subsequent years.