THE WHITE HOUSE, December 20, 1911. To the Senate and House of
Representatives:
In my annual message to Congress, December, 1909, I stated that under
section 2 of the act of August 5, 1909, I had appointed a Tariff Board of
three members to cooperate with the State Department in the administration
of the maximum and minimum clause of that act, to make a glossary or
encyclopedia of the existing tariff so as to render its terms intelligible
to the ordinary reader, and then to investigate industrial conditions and
costs of production at home and abroad with a view to determining to what
extent existing tariff rates actually exemplify the protective principle,
viz., that duties should be made adequate, and only adequate, to equalize
the difference in cost of production at home and abroad.
I further stated that I believed these investigations would be of great
value as a basis for accurate legislation, and that I should from time to
time recommend to Congress the revision of certain schedules in accordance
with the findings of the Board.
In the last session of the Sixty-first Congress a bill creating a permanent
Tariff Board of five members, of whom not more than three should be of the
same political party, passed each House, but failed of enactment because of
slight differences on which agreement was not reached before adjournment.
An appropriation act provided that the permanent Tariff Board, if created
by statute, should report to Congress on Schedule K in December, 1911.
Therefore, to carry out so far as lay within my power the purposes of this
bill for a permanent Tariff Board, I appointed in March, 1911, a board of
five, adding two members of such party affiliation as would have fulfilled
the statutory requirement, and directed them to make a report to me on
Schedule K of the tariff act in December of this year.
In my message of August 17, 1911, accompanying the veto of the wool bill, I
said that, in my judgment, Schedule K should be revised and the rates
reduced. My veto was based on the ground that, since the Tariff Board would
make, in December, a detailed report on wool and wool manufactures, with
special reference to the relation of the existing rates of duties to
relative costs here and abroad, public policy and a fair regard to the
interests of the producers and the manufacturers on the one hand and of the
consumers on the other demanded that legislation should not be hastily
enacted in the absence of such information; that I was not myself possessed
at that time of adequate knowledge of the facts to determine whether or not
the proposed act was in accord with my pledge to support a fair and
reasonable protective policy; that such legislation might prove only
temporary and inflict upon a great industry the evils of continued
uncertainty.
I now herewith submit a report of the Tariff Board on Schedule K. The board
is unanimous in its findings. On the basis of these findings I now
recommend that the Congress proceed to a consideration of this schedule
with a view to its revision and a general reduction of its rates.
The report shows that the present method of assessing the duty on raw
Wool--this is, by a specific rate on the grease pound (i. e., unscoured)
--operates to exclude wools of high shrinkage in scouring but fine quality
from the American market and thereby lessens the range of wools available
to the domestic manufacturer; that the duty on scoured wool Of 33 cents per
pound is prohibitory and operates to exclude the importation of clean,
low-priced foreign wools of inferior grades, which are nevertheless
valuable material for manufacturing, and which can not be imported in the
grease because of their heavy shrinkage. Such wools, if imported, might be
used to displace the cheap substitutes now in use.
To make the preceding paragraph a little plainer, take the instance of a
hundred pounds of first-class wool imported under the present duty, which
is 11 cents a pound. That would make the duty on the hundred pounds $11.
The merchantable part of the wool thus imported is the weight of the wool
of this hundred pounds after scouring. If the wool shrinks 80 per cent, as
some wools do, then the duty in such a case would amount to $11 $11 on 20
pounds of scoured wool. This, of course, would be prohibitory. If the wool
shrinks only 50 per cent, it would be $11 on 50 pounds of wool, and this is
near to the average of the great bulk of wools that are imported from
Australia, which is the principal source of our imported wool.
These discriminations could be overcome by assessing a duty in ad valorem
terms, but this method is open to the objection, first, that it increases
administrative difficulties and tends to decrease revenue through
undervaluation; and, second, that as prices advance, the ad valorem rate
increases the duty per pound at the time when the consumer most needs
relief and the producer can best stand competition; while if prices decline
the duty is decreased at the time when the consumer is least burdened by
the price and the producer most needs protection.
Another method of meeting the difficulty of taxing the grease pound is to
assess a specific duty on grease wool in terms of its scoured content. This
obviates the chief evil of the present system, namely, the discrimination
due to different shrinkages, and thereby tends greatly to equalize the
duty. The board reports that this method is feasible in practice and could
be administered without great expense. The scoured content of the wool is
the basis on which users of wool make their calculations, and a duty of
this kind would fit the usages of the trade. One effect of this method of
assessment would be that, regardless of the rate of duty, there would be
an increase in the supply and variety of wool by making available to the
American market wools of both low and fine quality now excluded.
The report shows in detail the difficulties involved in attempting to state
in categorical terms the cost of wool production and the great differences
in cost as between different regions and different types of wool. It is
found, however, that, taking all varieties in account, the average cost of
production for the whole American clip is higher than the cost in the chief
competing country by an amount somewhat less than the present duty.
The report shows that the duties on wools, wool wastes, and shoddy, which
are adjusted to the rate Of 33 cents on scoured wool are prohibitory in the
same measure that the duty on scoured wool is prohibitory. In general, they
are assessed at rates as high as, or higher than, the duties paid on the
clean content of wools actually imported. They should be reduced and so
adjusted to the rate on wool as to bear their proper proportion to the real
rate levied on the actual wool imports.
The duties on many classes of wool manufacture are prohibitory and greatly
in excess of the difference in cost of production here and abroad.
This is true of tops, of yarns (with the exception of worsted yarns of a
very high grade), and of low and medium grade cloth of heavy weight.
On tops up to 52 cents a pound in value, and on yarns of 65 cents in value,
the rate is 100 per cent with correspondingly higher rates for lower
values. On cheap and medium grade cloths, the existing rates frequently run
to 150 per cent and on some cheap goods to over 200 per cent. This is
largely due to that part of the duty which is levied ostensibly to
compensate the manufacturer for the enhanced cost of his raw material due
to the duty on wool. As a matter of fact, this compensatory duty, for
numerous classes of goods, is much in excess of the amount needed for
strict compensation.
On the other hand, the findings show that the duties which run to such high
ad valorem equivalents are prohibitory, since the goods are not imported,
but that the prices of domestic fabrics are not raised by the full amount
of duty. On a set of 1-yard samples of 16 English fabrics, which are
completely excluded by the present tariff rates, it was found that the
total foreign value was $41.84; the duties which would have been assessed
had these fabrics been imported, $76.90; the foreign value plus the amount
of the duty, $118.74; or a nominal duty of 183 per cent. In fact, however,
practically identical fabrics of domestic make sold at the same time at
$69.75, showing an enhanced price over the foreign market value of but 67
per cent.
Although these duties do not increase prices of domestic goods by anything
like their full amount, it is none the less true that such prohibitive
duties eliminate the possibility of foreign competition, even in time of
scarcity; that they form a temptation to monopoly and conspiracies to
control domestic prices; that they are much in excess of the difference in
cost of production here and abroad, and that they should be reduced to a
point which accords with this principle.
The findings of the board show that in this industry the actual
manufacturing cost, aside from the question of the price of materials, is
much higher in this country than it is abroad; that in the making of yarn
and cloth the domestic woolen or worsted manufacturer has in general no
advantage in the form of superior machinery or more efficient labor to
offset the higher wages paid in this country The findings show that the
cost of turning wool into yarn in this country is about double that in the
leading competing country, and that the cost of turning yarn into cloth is
somewhat more than double. Under the protective policy a great industry,
involving the welfare of hundreds of thousands of people, has been
established despite these handicaps.
In recommending revision and reduction, I therefore urge that action be
taken with these facts in mind, to the end that an important and
established industry may not be jeopardized.
The Tariff Board reports that no equitable method has been found to, levy
purely specific duties on woolen and worsted fabrics and that, excepting
for a compensatory duty, the rate must be ad valorem on such manufactures.
It is important to realize, however, that no flat ad valorem rate on such
fabrics can be made to work fairly and effectively. Any single rate which
is high enough to equalize the difference in manufacturing cost at home and
abroad on highly finished goods involving such labor would be prohibitory
on cheaper goods, in which the labor cost is a smaller proportion of the
total value. Conversely, a rate only adequate to equalize this difference
on cheaper goods would remove protection from the fine-goods manufacture,
the increase in which has been one of the striking features of the trade's
development in recent years. I therefore recommend that in any revision the
importance of a graduated scale of ad valorem duties on cloths be carefully
considered and applied.
I venture to say that no legislative body has ever had presented to it a
more complete and exhaustive report than this on so difficult and
complicated a subject as the relative costs of wool and woolens the world
over. It is a monument to the thoroughness, industry, impartiality, and
accuracy of the men engaged in its making. They were chosen from both
political parties but have allowed no partisan spirit to prompt or control
their inquiries. They are unanimous in their findings. I feel sure that
after the report has been printed and studied the value of such a
compendium of exact knowledge in respect to this schedule of the tariff
will convince all of the wisdom of making such a board permanent in order
that it may treat each schedule of the tariff as it has treated this, and
then keep its bureau of information up to date with current changes in the
economic world.
It is no part of the function of the Tariff Board to propose rates of duty.
Their function is merely to present findings of fact on which rates of duty
may be fairly determined in the light of adequate knowledge in accord with
the economic policy to be followed. This is what the present report does.
The findings of fact by the board show ample reason for the revision
downward of Schedule K, in accord with the protective principle, and
present the data as to relative costs and prices from which may be
determined what rates will fairly equalize the difference in production
costs. I recommend that such revision be proceeded with at once.