UNITED STATES-PHILIPPINE TARIFF AND TRADE

RELATIONS

INTRODUCTION

This report briefly summarizes tariff and trade relations between the United States and the Philippines from the time of American occupation of the islands in 1898 until recent years. Tables have been used frequently rather than discussion because of the relatively long periods included in presenting various aspects of the subject. Part I deals principally with the tariff relationship; Part II, with comparative trade and tariff advantages; and Part III, more generally with trade movements in both directions and related data. several appendices give supplementary information.

Part I

The

VARIOUS PHASES OF UNITED STATES-PHILIPPINE TARIFF RELATIONS

THE TARIFF STATUS ON BOTH SIDES, 1898-1930

United States-Philippine Tariff Relations, 1898–1902.

During the initial period of American occupation of the Philippines from August 13, 1898,1 to March 8, 1902, import duties 2 in the United States on Philippine products, import duties in the Philippines on goods from the United States, and export duties on Philippine products shipped to the United States were levied as though the relationship between the islands and the United States were that of one foreign country to another. During this first phase of American tariff policy in the Philippines no tariff reductions or preferences were accorded to products of the islands entering the United States, and American goods entering the Philippines received the same tariff treatment as similar goods from all other countries.5

1 The city of Manila, which was the most important political and administrative center, was occupied by American land forces on this date.

2 For convenient reference, the terms "importation" and "exportation" are often used in this report in discussions of the trade movement between the Philippines and the United States. These terms are not strictly accurate, as the Philippines are not "foreign" territory.

* Supplies and materials for the use of the U. S. Army and Navy and for the insular government were admitted duty free into the Philippines from any source from the beginning of the American occupation to Aug. 5, 1909. (Pars. 23 and 363, tariff and regulations, accompanying the Executive order issued in Washington, D. C., July 12, 1898, and corresponding provisions in succeeding United States military decrees; par. 385, Philippine tariff of Sept. 17, 1901; and par. 385, congressional Philippine tariff acts of Mar. 8, 1902, and Mar. 3, 1905.) Since Aug. 6, 1909, such supplies, unless imported from the United States or its possessions, have been subject to the general Philippine tariff.

The Manila customhouse actually was opened Aug. 20, 1898, under United States military occupation of the Philippines, but until Nov. 10, 1898, Spanish goods ordered or purchased before the Spanish-American War were accorded such preferences as they had enjoyed under the Spanish colonial tariff system in the Philippines.

The collection of Philippine import duties on goods from the United States and of export duties on Philippine products shipped to the United States prior to Mar. 8, 1902, was legalized under the act of Congress of June 30, 1906.

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Second Phase of United States-Philippine Tariff Relations.

In the act of March 8, 1902, Congress passed its first tariff legislation respecting the Philippines. Philippine products not already on the general free list of the United States tariff act of 1897 were granted a preferential reduction of 25 per cent from the rates of that tariff. Products of the United States entering the Philippines were made subject to the general Philippine import duties. The same act provided that no export duties were to be levied in the Philippines on products of the islands going directly to the United States for use and consumption therein, if such products were on the general free list of the United States tariff; and provided further that any export duties collected in the islands on shipments to the United States which were dutiable therein must be deducted from the American import duties, and that all import duties collected in the United States on Philippine products must be paid into the treasury of the Philippine Islands.*

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The act of March 8, 1902, also postponed the application of the United States coastwise shipping laws to the Philippines, and these laws have in fact never been extended to the Philippines. This means that whereas only American flag vessels may trade between ports of continental United States, or between them and other outlying possessions, foreign vessels may trade between the United States and the Philippines.

This second phase of American tariff policy regarding the Philippines (from March 8, 1902, to August 5, 1909) was therefore characterized by tariff preferences in favor of Philippine products entering the United States, and by the continuation and conclusion of the policy by virtue of which American and non-American goods alike received the same tariff treatment in the Philippine Islands. Beginning of United States-Philippine Duty-Free Trade Relations.

The first arrangement establishing Philippine-United States dutyfree trade, beginning August 5, 1909, limited the annual quantities of Philippine sugar and tobacco products admissible duty free into the United States; limited the permissible content of materials originating in foreign countries and embodied in Philippine products admissible duty free into the United States to 20 per cent of their value; conditioned duty-free trade in both directions upon nonallowance of drawback upon the articles affected; and abolished all Philippine export duties upon shipments to the United States. With the exceptions just noted in regard to rice 10 and nonallowance of drawback, the act of August 5, 1909, likewise granted unlimited duty-free entry of American products into the Philippines. Duty-free entry in both directions was conditioned upon direct shipment of the products in question.

All the United States tariff acts, beginning with that of August 5, 1909, provide "That in consideration of the exemptions aforesaid, all

• In Art. IV of the treaty of peace with Spain the United States agreed to "admit Spanish ships and merchandise to the ports of the Philippine Islands on the same terms as ships and merchandise of the United States" for a term of 10 years from Apr. 11, 1899.

7 Ever since the inauguration of duty-free trade in 1909, all import duties collected in the United States on such Philippine goods as were not entitled to duty-free entry have been currently paid over to the Philippine treasury for the benefit of the insular government, under authority of the act of Mar. 8, 1902. (See Table 36.)

8 Authority for extension of the coastwise laws to the Philippines by Executive action under certain conditions still exists under sec. 21 of the merchant marine act of June 5, 1920.

• Except for rice, which continued to be dutiable on both sides. (Sec. 5 of the United States tariff act of 1909, and sec. 12 of the Philippine tariff act of 1909.)

10 Ibid.

articles, the growth, product, or manufacture of the United States, upon which no drawback of customs duties has been allowed therein, shall be admitted to the Philippine Islands from the United States free of duty," thus placing the duty-free admission of American goods into the islands on a compensatory basis in return for dutyfree admission of Philippine products into the United States.

This third phase of American tariff policy respecting the Philippines extended from 1909 to 1913. During this period complete tariff exemption was granted the then leading Philippine export products (sugar, cigars, and tobacco) for quantities which exceeded the capacity of Philippine export production at the time. All other Philippine natural products, and predominantly Philippine manufactured products, except rice, were granted unlimited duty-free admission.12 Concurrently, American products except rice entered the Philippines unlimited as to quantities and foreign material content, but with tariff preferences considerably smaller than those enjoyed by the leading Philippine export products by virtue of their exemption from the higher level of duties in the United States.

Present Status of United States-Philippine Tariff Relations.

The fourth phase of American tariff policy respecting the Philippines, which still subsists, was inaugurated by the tariff act of October 3, 1913. The essential change in policy from that of the tariff act of 1909 was the removal by the act of 1913 of the limitations on the quantity of Philippine sugar, cigars, and tobacco admissible duty free into the United States, although these limitations had not been nearly approached by actual shipments up to that time. The earlier exception of rice from duty-free trade movement in both directions also was omitted in the act of 1913, and all Philippine export duties on products shipped to any destination were repealed. But the limitation as to the permissible foreign material content of Philippine products granted duty-free admission into the United States was not removed in 1913, and is still in effect. Nor have any changes been made by Congress since 1909 in the rates of the Philippine import tariff.

American goods entering the Philippines enjoy no preference respecting internal-revenue taxes levied in the islands as compared with internal-revenue taxes levied there on like goods of Philippine production or like goods imported from other countries, and Philippine goods entering the United States are in the same nonpreferential situation in the American market. 13 All American goods going into the Philippines from the United States are exempt from United States internal-revenue taxes, and all Philippine goods going into the United States are exempt from Philippine internal-revenue taxes.

No step implying tariff assimilation of the Philippines was ever taken by Congress. Significant elements of United States tariff policy which were not applied by Congress in the Philippine import tariff are the antidumping, countervailing, or contingent duty, and the flexible provisions of the United States tariffs. Congress has, in fact, divested itself of responsibility for import tariff legislation for the

11 Tariff act of 1909, sec. 5; tariff act of 1913, Sec. IV, C; tariff act of 1922, sec. 301; tariff act of 1930, sec. 301. 12 A limitation as to the maximum permissible foreign material content in duty-free importations from the Philippines was originally suggested by a represen ative of the Connecticut Tobacco Growers' Association to prevent other than American wrapper tobacco being used in Philippine cigars shipped to the United States duty free, but the limitation was enacted so as to apply to all Philippine products.

13 Since passage of the United States tariff act of Aug. 5, 1909, all United States internal revenue collected on Philippine goods coming to the United States has been currently paid over to the Philippine treasury for the benefit of the insular government. (See Table 35.)

Philippines under the provisions of the Philippine organic act of August 29, 1916. This act, while reserving to Congress the sole right to legislate respecting trade relations between the United States and the Philippines, empowered the Philippine Legislature to enact tariff legislation for the islands, subject to approval or final veto by the President of the United States.

CHRONOLOGICAL DEVELOPMENT OF UNITED STATES COMMERCIAL POLICY IN THE PHILIPPINES

First Reduction in United States Duties on Philippine Products.

The first United States tariff legislation to favor Philippine products by means of special rates was the act of March 8, 1902. During the life of this legislation, until August 5, 1909, two Philippine import tariffs also were prepared under American administration in the islands and approved by Congress, neither of which, however, established preferential rates on American goods.

From the time of the American occupation of the Philippines in August, 1898, until the decision in 1901 of the United States Supreme Court in the Fourteen Diamond Rings case, the full rates of the tariff act of 1897 were applied in the United States to dutiable commercial shipments from the Philippines. In that decision the Supreme Court held that the Philippines by the treaty of peace with Spain ceased to be "foreign" territory, and that therefore the duties imposed by the tariff act of 1897 upon imports from foreign countries could not be levied upon products of the Philippines entering the United States. Although in the absence of legislation to the contrary, Philippine products were entitled under this decision to duty-free admission into the United States, the Supreme Court in this and the later "insular" cases recognized that Congress possesses full power to regulate the tariff relations with the Philippines.

After these decisions in the insular cases, Congress at once took up the matter of Philippine tariff legislation for several reasons. First, the Philippine insular tariff of September 17, 1901, was in question, this tariff having been proclaimed by the Philippine Commission under certain restricted legislative powers granted under the Spooner amendment to the Army appropriation act of March 2, 1901. Secondly, by virtue of the above decision of the Supreme Court, imports into the United States from the Philippines were, at least temporarily, admissible free of duty. And thirdly, these recent decisions of the Supreme Court rendered it likely that if the question came up for decision American coastwise shipping laws (which excluded foreign shipping from the American coastwise trade) would be held applicable to commerce between the Philippines and the United States. But on account of the small number of American merchant vessels then engaged in Philippine trade, such a decision would have driven the commerce of the islands to foreign countries whose ships could trade between the Philippines and foreign ports, but not between Philippine and American ports.

To meet this situation bills were introduced by Senator Lodge in the Senate on December 4, 1901, and by Mr. Payne in the House on December 10, 1901. Both bills provided for reenactment by Congress of the Philippine insular tariff of 1901.

The Philippine Commission asked that the rates of the tariff act of 1897 be reduced by one half or more upon Philippine products