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TABLE 10.- United States domestic exports, industrial production, and wholesale

commodity prices

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Source: Industrial production and wholesale prices from 1940 Agricultural Outlook; Exports from U. S. Department of Agriculture.

TABLE 11.-United States exports of domestic merchandise before and after deducting foreign countries' profit from the United States gold buying program

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Source: Net gold imports, from Federal Reserve Board; exports of merchandise, from U. S. Department of Agriculture.

The CHAIRMAN. I should like to place in the record, following the testimony of Mr. Holman, the text of a letter addressed by the Secretary of State to the Honorable Phil Ferguson. In this letter, which was printed in the Congressional Record of January 25, 1940, the Secretary of State categorically denies that the trade agreements in any way circumscribe the right of the United States to adopt and enforce any sanitary laws or regulations which may be deemed

necessary.

(The text of the letter follows:)

The Honorable PHIL FERGUSON,

House of Representatives.

DEPARTMENT OF STATE, Washington, January 25, 1940.

MY DEAR MR. FERGUSON: I have received your letter of January 22, 1940, and I am pleased to confirm your impression that there is no relationship between the proposed sanitary convention with Argentina and trade agreements.

No trade agreement entered into with any foreign country has affected or fo any way relaxed the laws governing sanitary regulations and inspection of fond products imported into the United States. As a matter of fact, it is customary to include in trade agreements a provision making clear that sanitary measures are not affected. For example, article XII of the present trade agreement will Canada reads in part as follows:

"2. Subject to the requirement that, under like circumstances and conditions, there shall be no arbitrary discrimination by either country against articles the growth, produce or manufacture of the other country in favor of the like articlis the growth, produce or manufacture of any other foreign country, the provisiors of this agreement shall not extend to prohibitions or restrictions.

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"(b) Designed to protect human, animal, or plant health or life Substantially similar provisions are included in other trade agreements. In response to your question concerning chilled and frozen beef, no concession has been granted on these products in any trade agreement so far concluded nor is any concession under consideration.

Sincerely yours,

CORDELL HULL.

The CHAIRMAN. There will be inserted in the record, a statement submitted to the committee by Mr. John B. Gordon, Washington representative of the Bureau of Raw Materials for American Vegetables Oils and Fats Industries.

It

STATEMENT OF JOHN B. GORDON, WASHINGTON REPRESENTATIVE OF THE BUREAT OF RAW MATERIALS FOR AMERICAN VEGETABLE OILS AND FATS INDUSTRIES, IN SUPPORT OF HOUSE JOINT RESOLUTION 407 TO EXTEND RECIPROCAL TRADE AGREEMENTS ACT, BEFORE SENATE FINANCE COMMITTEE, MARCH 5, 1940 Mr. Chairman and members of the committee, we believe that the Trade Agreements Act has been a definitely constructive force in our national economy. has served to build up the foreign commerce of the United States in farm and factory products. It has served as an ameliorating influence in reducing excessive tariff barriers throughout the world. When peace is restored, it will be one of the effective contributions which our country can make toward rehabilitation. are, therefore, for the renewal of the Trade Agreements Act without crippling amendments, such as Senate ratification.

We

The 22 trade agreements already negotiated have been of benefit to various of the vegetable oil industries. Paint, varnish, enamel, and lacquer makers specifically have secured enlarged export outlets on paint in agreements with six countries. Nine countries have granted concessions on our varnish exports. Seven countries have reduced import rates on our lacquers, and five have admitted our enameis at lower duties.

Our exports of lacquers, ready-mixed paints, enamels and varnishes increased to countries with which we had trade agreements to 1,225,949 gallons in 1938 from 629,494 gallons in 1933, or an increase of 94.8 percent, while during this same period our exports to non-trade-agreement countries increased only 68.5 percent from 1,261,867 gallons in 1933 to 2,126,650 gallons in 1938. Total exports in 1938 amounted to 3,352,599 gallons, valued at $6,211,000.

In the soap, cosmetic, and toilet preparations field 12 trade agreements negotiated with foreign nations accord improved trade treatment of these articles, and 13 contain tariff concessions. Exports of soap in 1939 totaled 28,639,000 pounds, an increase of 7,000,000 pounds over 1933, the year prior to the adoption of the reciprocal trade-agreements program. There are no figures available for the entire year of 1939 covering destination of exports, but it is of interest to note that exports of soap to trade-agreement countries in the year 1938 increased 36.1 percent, as compared to 1933, while exports to non-trade-agreement countries declined 17.77 percent. Total exports of soap in 1938 were 22,489,364 pounds. In the naval-stores industry, which is closely allied with the vegetable oil industries, particularly the paint, varnish, and soap industries, reductions in import duties have been granted by three countries which are parties to trade agreements. Naval stores were bound on the free list in the trade agreement with Great Britain, which is a consideration of importance, as Great Britain takes one-fourth of the annual exports of rosin and turpentine from the United States. Several of the members of this association process oils for use in the tanning industry. They are favorably affected, therefore, by the 19 reciprocal trade agreements containing tariff concessions on leather and leather products.

Some of the firms which I represent process oil for use in the manufacture of textiles. These firms have been beneficially affected by increased exports gained by the textile industry through tariff concessions in eight or more reciprocal trade agreements.

Another product on which tariff concessions have been granted in 15 or more agreements, which is of interest to the vegetable oil industries, is rubber tires and other rubber products, as zinc laurate made from coconut oil is used in the manufacture of rubber goods.

RECIPROCAL TRADE-AGREEMENTS PROGRAM HAS SERVED USEFUL FUNCTION IN STABILIZING PRICES OF RAW MATERIALS OF AMERICAN INDUSTRY

In addition to providing enlarged export outlets, the trade-agreements program has served a useful function in stabilizing the prices of the raw materials of practically every branch of American industry. As an illustration, I will mention that concessions granted by the United States on imports from trade agreement countries have included reductions in rates of duty applicable to more than twenty raw materials employed in the making of paint, varnish, enamel and lacquers although only one of these concessions involved an oil or fat. In the Brazilian trade agreement the duty on castor beans, from which castor oil is made, was reduced from one-half to one-quarter cents per pound. This change was most fortunate, as the war in China has made it impossible to secure an adequate supply of tung or wood oil, and dehydrated castor oil is the most generally used substitute material. It is also indispensable in the role of plasticizer in making lacquers.

The National Cooperative Milk Producers' Federation has taken occasion in a brief filed with the Ways and Means Committee to censure those in charge of the reciprocal trade agreements program for having been engaged, in the words of the Milk Producers' Federation, in "breaking down the oils and fats price structure." Examination of the charges made reveal that the source of the complaint appears to be as follows:

"The duty on edible palm-kernel oil has been reduced from one to one-half a cent per pound. Expressed or extracted palm and babassu oils, and inedible palm-kernel oil have been bound on the duty-free list in their duty-free status. The 20 percent ad valorem rate on shark and shark liver oils has been reduced to 10 percent. The duty on crude sperm oil has been reduced from 5 to 21⁄2 cents per gallon. Babassu nuts and kernels, palm nuts and palm nut kernels and copra have been found on the free list. In the course of a year we import in terms of oil approximately 300,000,000 total pounds of the above-listed commodities."

With your kind indulgence I will review briefly the changes which have been made in the oils and fats tax and tariff rates. I should state in the beginning that the changes are so trivial that it is quite unusual that anyone should have thought it worthwhile to comment on them.

The first change in tariff rate referred to by the milk producers is the cut in the duty on edible palm-kernel oil from one cent to a half cent per pound. This reduction was made in the British trade agreement and became effective January 1, 1939. In the first full year of the operation of the British agreement, the imports of edible palm-kernel oil into the United States totaled 1,911,000 pounds, as contrasted to imports of 2,383,000 pounds in 1938, a decrease of 472,000 pounds. Our domestic consumption of all oils and fats totals 9,800,000,000 pounds per annum. It may be seen, therefore, that the concession on edible palm-kernel oil to Great Britain could have had not even the most trivial effect on domestic oils and fats prices.

The second change made, of which the Milk Producers' Federation complains, is the reduction in the 20 percent ad valorem rate on shark and shark liver oil to 10 percent, made in the second Canadian agreement. It is even more remarkable that any mention was made of this cut in rate of duty, as there have been imports of only seven tank cars of shark liver oil from Canada since this concession was made, compared to none prior thereto, and a few thousand pounds have come in from Mexico. Total imports for 1939 were 467,480 pounds. Such imports as have been made, have been employed in the production of oils for sale to stock feeders and chicken feeders, the usage for which purpose could not have been of the remotest interest to the Milk Producers' Federation. Shark and shark liver oils are high vitamin potency oils, which are valuable for the same purposes for which cod liver oil is employed, and cod liver oil, it should be stated, has been on the free list for many years because of its great value to livestock and chicken feeders.

The third change in rate of duty to which the brief of the milk producers, as filed with the Ways and Means Committee, takes exception is the cut on crude sperm oil from 5 to 21⁄2 cents per gallon. This concession was made in the first Canadian trade agreement, effective January 1, 1936. Imports of crude sperm oil in the year 1939 totaled 2,496,980 pounds. Imports in 1935, the year prior to that in which the concession was granted in the Canadian agreement, totaled 2,337,638 pounds.

It is hardly understandable that these relatively small imports of an oil, which is used mainly in the manufacture of lubricating oil for rapid-running light machinery, also for leather dressing and for the tempering of steel, could be of any interest whatsoever in a competitive way to milk producers. It would appear that the Milk Producers' Federation is hard put to it to find ground for criticism of the reciprocal trade agreements program in mentioning these trivial changes which have been made in fats and oils rates.

OILS AND FATS RATE CHANGES TRIVIAL

It will be noted that at the bottom of the paragraph which I have quoted from the National Cooperative Milk Producers' Federation's brief, it is stated that "In the course of a year we import in terms of oil approximately 300,000,000 total pounds of the above-listed commodities." In this connection, it should be pointed out that the three rate changes which we have discussed are the only rate changes which are enumerated in the brief of the Milk Producers' Federation as having been made in oils and fats duties. It is obvious, therefore, that the imports of 300,000,000 pounds in terms of oil come in in the form of oils and fats or oil-bearing materials which were merely bound on the free list, where those in charge of the reciprocal trade-agreements program found them. In other words, absolutely no change whatever was made in rates of duty on oils and fats which resulted in an increase of imports, with the exception of the almost infinitesimal increase in the imports of crude sperm oil, a lubricating oil, and the even more infinitesimal increase in the imports of the high-vitamin-potency oilsshark and shark liver. This, of course, is an unfortunate defect in the program, as the import taxes on many oils and fats are high beyond the realms of reason and could properly have been made the basis of trade-gaining concessions, but our reason for considering it as a defect is quite different from those advanced by the milk producers.

As previously mentioned, those in charge of the reciprocal trade-agreements program bound palm and babassu oils and inedible palm-kernel oil on the dutyfree list, where they had been placed by Congress. They also bound babassu nuts and kernels, palm nuts and palm kernels, and copra on the free list, where they found them. It should be stated, however, that this binding on the free list was more apparent than real in respect to all of these materials, with the single excерtion of babassu kernels, as all of the oils involved except babassu bear a processing tax of 3 cents per pound, which is equivalent to an import tax of 100 percent ad valorem or greater. Obviously, this rate is higher than most any tariff rate which is in effect against any commodity or article which is imported into the United States when considered on an ad valorem basis. The average ad valorem equivalent of the rates in the Smoot-Hawley Tariff Act was 75 percent, when enacted in 1930. We do not believe that the reciprocal trade-agreements negotiators can be justifiably criticized for acceding to the request of the Netherlands and Great Britain that palm and palm-kernel oils be bound against further increase in rate of excise tax, in view of the fact that this excise tax constituted a tariff duty higher than almost any tariff duty on our list of dutiable articles in the Tariff Act of 1930.

CANCELATION OF ONE ITEM MEANS ENTIRE AGREEMENT MUST BE RENEGOTIATED

It has been urged before this committee that the binding of palm and palmkernel oils at the present rate of excise tax and the binding of babassu kernels and oil on the free list in the Brazilian trade agreement be canceled. This would be tantamount, of course, to cancelation of the trade agreements with these three countries, for, as was pointed out in the testimony of the Secretary of State, Cordell Hull, Hull on February 26, it is impossible to cancel a single item in a trade agreement without throwing the entire agreement open to renegotiation. Since the trade agreements with Great Britain, the Netherlands, and Brazil are among the most important in effect, it can be seen that great risk would be attached to a move which would result in absolutely no benefit to anyone.

The 100-percent ad valorem excise taxes on oils and fats have been in effect since the year 1934. In this 6-year period it has been possible to make a careful study of these excise taxes, and it is the carefully considered opinion of those experienced in the trading of oils and fats that the excise taxes have done far more harm to the domestic producers of oils and fats than they have brought benefit to them.

The effect of the excise taxes has been manifested in the main in two directions. First, they have reduced the value of the oils and fats against which they were levied in international markets, with the result that whenever domestic producers of oils and fats export their lard, their soybean oil in the form of soybeans, etc., into the markets of the world, they encounter the competition of these oils and fats in far more intensified form than they ever would have had the taxes not been placed. The effect of these excise taxes on palm, palm-kernal, and coconut oils has been to force our chief export fat, lard, so low in price that frequently during the past year and at present it is in competition with low-grade inedible animal fats and greases in the soap kettle. This was the direct result of the low prices at which export lard has been forced to sell in European markets during the past year as the result of the competition of the oils and fats, on which we had levied excise taxes.

EXCISE TAXES ON IMPORTED VEGETABLE OILS HAVE DONE MORE HARM THAN GOOD

That the excise taxes levied in 1934 had the effect of reducing the prices at which the oils and fats to which they were applicable sold in international markets, is readily obvious from the fact that almost immediately following the imposition of these excise taxes, the prices of these oils and fats broke away from the general average value of all oils and fats and sold considerably below the general price average. Whereas prior to the imposition of the excise taxes there was a close relationship between the price index numbers of palm, palm-kernel, and coconut oils and the average price index number of all oils and fats sold in international markets, after the excise taxes were levied in 1934 there was a marked divergence in the price index lines of the three oils in question from the average price-index number of all oils and fats sold in international markets, due to the fact that these three oils sold at prices considerably below those at which oils and fats not affected by the American excise taxes sold in international markets.

It is the settled conviction of those who have had experience in dealing in oils and fats in international markets that if, by any circumstance, the Congress should ever decide to increase the excise taxes on oils and fats, we might as well say good-bye permanently to any export business which this country possesses in oils and fats. The effect of these increased excise taxes would be to diminish further the prices of competitive oils and fats in international markets and make it even more difficult to sell lard in competition therewith in European markets. In place, therefore, of "preventing domestic producers from using the tariff and internal tax method of fortifying their incomes," as claimed in the brief of the National Cooperative Milk Producers' Federation as filed with the Ways and Means Committee, the administrative agencies in charge of the reciprocal tradeagreements program when they bound the rates of excise tax on palm and palm kernel oils and, inferentially, that on coconut oil when copra, the raw material from which it is made, was bound on the free list in the British agreement, they merely protected these producers from further injury in saving for them what was left of the domestic export market.

EXCISE TAXES ON VEGETABLE OILS HAVE REDUCED PURCHASING POWER OF IMPORTANT EXPORT MARKETS

A second effect of the excise taxes levied in 1934 has been to decrease the purchasing power of the areas from whence come the oils and fats against which the taxes were levied. For illustration, the Netherland East Indies, which bought more than $35,000,000 worth of American merchandise in 1939, could in all probability have purchased an additional $4,500,000 worth of American-produced merchandise had the excise tax of 3 cents per pound not been in effect on palm oil with corresponding diminishment of the ability of palm-oil consumers in the United States to pay a proper price for the palm-oil supplies which they purchased.

It must be obvious that the consumer of palm oil in the United States who is forced to pay into the United States Treasury 3 cents on every pound of palm oil which he utilizes in the manufacture of soap or other industrial product cannot pay in addition thereto the normal price of the oil. Since the United States is the largest consumer in the world of oils and fats, it is obvious that the price which it pays must set the price in world markets of oils such as palm and coconut, of which it is the world's largest consumer.

The Philippine Islands, which in 1939 purchased $100,000,000 worth of American merchandise and ranked fifth in the order of importance in our export markets,

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