Valuation & Flexing

Question: "Is it true . . . that manufacturers care nothing about the rates in the Tariff Bill as long as they can get what they want in the administrative sections?"

Answer: "Well ... I think I can say that is true."

That was the note on which, last week, the Senate Finance Committee closed its public tariff hearings. The Democratic members of the committee were politely ushered out while the Republicans in their shirt sleeves huddled themselves down to the task of redrafting a tariff measure to be presented to the Senate a month hence.

The Question above was asked by Utah's Democratic Senator King. The Answer was given by John E. Edgerton, president of the National Association of Manufacturers (membership: 50,000). Witness Edgerton had been arguing at length before the committee in behalf of increased "flexibility" in the new tariff bill. Others who had demanded the same thing were Vice President Matthew Woll of the American Federation of Labor; Chester Gray, legal representative of the American Farm Bureau Federation; John G. Lerch, counsel of the American Tariff League. Mr. Lerch also called for a change from foreign to domestic valuation in administering the new tariff bill.

Flexibility. The present law permits the President, on recommendations by the Tariff Commission, to raise or lower tariff rates 50%. Based on the difference in the cost of producing an article abroad and in the U. S. the rate change is supposed to equalize competition.

The new bill continues the President's power to alter rates by 50% but changes the basis from differences in cost of production to difference in conditions of competition wholly within the U. S. market. Prolonged economic research would no longer retard the Tariff Commission's findings under the new plan.

Valuation. The tariff imposes two kinds of duties: 1) specific; 2) ad valorem, based on the value of the imported goods. The flat rate of 6-c- per lb. on fresh beef, is a specific duty. The rate of 40% on wire rope is an ad valorem duty. The first is fixed, regardless of price; the second varies with the value of the commodity. On many items the tariff is a combination of specific and ad valorem rates. (Example: violins, specific duty of $1.25 each, plus an ad valorem duty of 35%.)

What Mr. Edgerton had in mind when he implied that the tariff rates were not so important as their administration was the two conflicting methods of valuing imports for customs purposes. One method, called Foreign, values an article at its fair sale price in the country of production, i.e., the price at which the importer buys it. The other method, called U. S., values an article at the U. S. sale price of a similar article. Illustration:

It is proposed to impose a 70% ad valorem duty on surgical instruments. A German lancet is purchased in Berlin for $1.50. By foreign valuation it would pay a duty of $1.05 on entering the U. S. and go into the domestic market at $2.55. A U. S. lancet of the same character and quality sells for $2.50. If U. S. Valuation were applied to the German lancet on import, it would have to pay a duty of $1.75, giving it a sale price of $3.25.

U. S. manufacturers have long clamored for a U. S. Valuation system, largely because it would mean much higher duties, hence greater "protection." They have claimed that imported goods are grossly undervalued on the foreign-valuation basis to get the benefit of cheaper ad valorem duties.

The House tariff bill took a long step in the direction of substituting U. S. Valuation for Foreign when it proposed that the President be authorized to shift tariff appraisals from foreign to domestic valuation when conditions warranted. Senate Finance Committee Republicans took their problem with them into executive session, wrestled with the evidence spread between the two valuation systems, pondered the merits of each.

Opposition. To "flexibility" and U. S. Valuation most Democratic Senators are opposed. Also in opposition are Idaho's Senator Borah and the Republican Progressives following his lead in the forthcoming tariff fight. Their objection is that the flexible provision of the law gives the President an unconstitutional power to "levy taxes," that U. S. Valuation is a subterfuge to obtain higher rates than the tariff bill itself would seem to grant.

About Washington last week spread a story that President Hoover, favoring tariff flexibility, had secretly asked the Tariff Commission to supply him with the names of Democratic Senators who had appealed to it for higher tariff rates under the law's flexible, clause for commodities of, local interest to them. It was said that President Hoover was going to use this information to combat the Democratic attack upon tariff flexibility, to show that many a Democrat had covertly sought to use this very machinery to get higher rates for special commodities. Mississippi's Senator Harrison shouted that neither he nor any other Democrat would thus be "bludgeoned or browbeaten" by the White House.

Promptly President Hoover denied that he had made any such request to the Tariff Commission. Observers began to realize that the Tariff fight was passing into its bitterest stage.