5. Write an extended paper on the purposes, organization, methods, and accomplishments of the present United States Tariff Commission. See Reports of the Commission; No. Am. Rev., January, 1918; Am. Econ. Rev., 10: 417-426; New Republic, 19: 375-376; Rev. of Reviews, 64: 287-291; Outlook, January 4, 1922, pp. 27-29; Yale Review, 12: 255275; BERNHARDT, Tariff Commission.

6. Trace the various modifications of the general tariff system in the United States since 1890. Should this country adopt a multiple-tariff system? If so, which is preferable, general-and-conventional or maximum-and-minimum? See especially, Tariff Commission Report on Reciprocity and Commercial Treaties, pp. 439-510; Annals, 94: 160175; CULBERTSON, Commercial Policy, Ch. 10.

7. Summarize the U. S. Tariff Commission Report on Interim Legislation.

8. Classify the defects in American tariff-making methods illustrated in the following selections. Which of them would a tariff commission be likely to remedy? TAUSSIG, Free Trade, Tariff, and Reciprocity, Ch. 9; Am. Econ. Rev., 10: 425; Annals, 64: 56–65; HAMILTON, Current Economic Problems, 327–333.

CHAPTER IX

EXPORT AND IMPORT FAVORS

Direct or Open Export Bounties. - A bounty is a premium paid, usually by a government, to persons engaged in an industry selected for special encouragement. Payment may be in proportion to total output or in proportion to quantity exported. If on the former basis, it is a production bounty; if on the latter, an export bounty. Either may serve as a stimulus to exportation; but the latter is specially designed to afford such stimulus. Export bounties were common under the Mercantilist System when every effort was made to increase exports, especially of manufactured goods, in order to create a favorable balance of trade. They were also employed when the domestic market was overstocked, in order to prevent an inland price depression or in order to aid a young industry in its efforts to obtain a footing in foreign markets. In modern commercial politics, while premiums of this kind have played an important rôle in the case of a few tariffs, their use is becoming less general.

There are two classes of export bounties, direct or open and indirect or concealed. One of the best examples of the former is to be found in English commercial politics. In 1689 the British government passed a law, which was not repealed until 1814, granting an export bounty on wheat, providing the domestic selling price did not exceed a certain amount. France formerly paid direct bounties on many articles, and the Australian colonies have granted them on certain agricultural exports. The most prominent export bounties during the last century have been those paid on European beet sugar.

Some of these have been direct and others indirect. Germany in 1891 enacted a law allowing a direct bounty upon this commodity. The law stipulated that this bounty should be lowered in 1895 and entirely abolished in 1897; but owing to the decline in the price of sugar, the prevalence of premiums in other countries, and the influence of the sugar producers, the direct bounty was doubled in 1896. The conclusion of the Brussels Sugar Convention in 1902, however, resulted in the virtual abolition of sugar bounties in most of the European countries. So far as the United States is concerned the export bounty system has never found a place in American commercial politics, although recommended by Hamilton in his famous Report on Manufactures.

Indirect or Concealed Bounties. Indirect bounties have generally resulted from the inadequate administration of internal tax remission on domestic products destined for exportation. This is especially the case regarding beet sugar and, to a less extent, brandy. These articles are subject to an inland tax in most of the countries of Western Europe, the tax generally being levied upon the raw or half manufactured product. Upon the exportation of the finished article, the amount of the internal tax is remitted; but the impossibility of correctly estimating this causes governments to err in favor of the exporter by refunding more than the original excise, the excess being in the nature of an indirect or concealed bounty.

This form of a bounty is well illustrated by the sugar tax in Germany, where the excise was levied on the raw product (beets) and refunded on the finished product (sugar), when exported. Formerly it was estimated that it took twenty pounds of beets to make one pound of sugar, so that when a German manufacturer exported one pound of sugar, the government refunded a sum equal to the excise paid on twenty pounds of beets. It is readily seen that under such

conditions when, because of better methods of manufacture or of agriculture, one pound of sugar could be extracted from less than twenty pounds of beets, more was paid back on the finished product, when exported, than was received in the form of the excise on the raw material. Although the government attempted to remedy this by constantly reducing the ratio, the advance in the technique of agriculture and of manufacture more than kept pace with the rate of reduction so that there was continually paid to sugar producers a concealed bounty. This continued until 1891 when the government replaced the indirect by a direct bounty. An American law of 1795 imposed an internal revenue tax on snuff mills and, in turn, provided for a drawback of six cents for each pound of snuff exported. It chanced that the drawback exceeded the tax and that snuff began to be manufactured in large quantities for the sake of the drawback; the law was accordingly suspended and finally repealed.

A concealed bounty has also, in many instances, been allowed in the case of drawbacks where duties have been received on imported raw materials and more than refunded upon the reëxportation of the finished product. Prior to 1883 the United States government, for example, graded import duties on sugar according to the "Dutch standard," under which sugar content is supposed to be indicated by color; the darker the color, the lower the saccharine quality. Consequently sugar of high saccharine content was often artificially discolored, imported into the United States at low rates of duty, refined in this country, and then, upon exportation, it commanded a drawback much in excess of the import duty actually paid on the discolored raw material.1

It is a general policy for states owning railways to offer, in many instances, especially low rates on outgoing freight, or to exact, on the other hand, relatively higher rates on in

1 TAUSSIG, Some Aspects, 100.

coming freight. While the latter operates in the same way as an import duty and tends to discourage importation, the former acts as an encouragement to exportation and is in the nature of an indirect or concealed bounty.

While bounties are generally paid by the government, they may be paid by private individuals or by corporations. Thus privately owned railroads often grant special rates on freight destined for foreign markets. An organization of Austrian cotton spinners in 1897 paid an export bounty on cotton yarn for a certain period in order to save the home market from overproduction and the consequent depression in price. A somewhat similar arrangement has existed in Germany among steel makers.

Export Bounties and Some of Their Consequences. The general purpose of an export bounty is to encourage exportation. Its general effect is to lower the price in foreign markets, and it is sometimes designed to enhance domestic price by avoiding a glut in the home market. It presupposes at least an equivalent protective import duty; otherwise both the purpose and the effect of the bounty would be defeated, since the entire output of the commodity in question might be exported and some of it reimported for domestic use.1 Even then, it may not yield the returns anticipated. For example, the aim of the English bounty on wheat exported (1689) was to raise the price by encouraging exportation and thus rendering wheat scarcer in England; its effect was to induce the grain raisers to sow larger fields, to produce more than the market demanded, and by competing with one another to keep domestic prices down for many decades. Moreover, bounties are not generally popular nor widely applicable, because they consume revenue and yield none in return and because they are more obviously a tax than are ordinary customs duties.

1 GRUNZEL, Economic Protectionism, 318–319.