poses; and the concessions which it grants are frequently, if not usually, less generous than the preliminary in

creases.

The other method rejected by the American Congress during the tariff discussion of 1922 was designed to place in the hands of the President power to penalize the commerce of any foreign country which imposes on its imports, including those coming from the United States, duties which, in comparison with the duties imposed by the United States, he deems to be "higher and reciprocally unequal and unreasonable." Probably no more objectionable method of tariff bargaining than this has ever been suggested. The aim of this method is not, at least primarily, to remove discriminations, but to batter down tariff rates, equally applicable to all countries, which American export interests may regard as too high, but which the foreign country may think justified by its fiscal and industrial needs. From the beginning of our history we have been very insistent upon our right to impose any duties which we thought our domestic needs required. Frequently, foreign nations have objected to our high duties, but their claims have been denied. In view of this fact, it was inevitable that Congress would reject a method which was designed to employ penalty duties to force down the level of foreign tariffs. Furthermore, such a method was almost certain to lead to retaliation, and even when it did not provoke retaliation, the method was likely to be ineffective in opening foreign markets.

Congress finally adopted in Section 317 a method of commercial negotiation that followed the precedents established by the maximum and minimum provision of the Payne-Aldrich Act which, to quote the conferees who finally shaped the Act,

had for its purpose the obtaining of equality of treatment for American overseas commerce. The United States offers under its tariff (Section 317) equality of treatment to all nations and at the same time insists that

foreign nations grant to our external com

merce equality of treatment.

In detail, this section empowers the President, when he deems it to the public interest, to impose additional duties or even prohibition upon the whole or a part of the commerce of any foreign country that places the commerce of the United States at a disadvantage compared with the commerce of any other foreign country. The phraseology of the law is designed to secure real and not merely nominal equality of treatment. It is designed to secure the removal not only of open discriminations but of discriminations concealed in customs and sanitary regulations and in classifications.

This new section, while similar in principle to the penalty provision of the Payne-Aldrich Act, differs in method and also, in part, in object from its predecessor. In method the PayneAldrich provision was inflexible, clumsy and unworkable. Under it the President may be said to have been debarred for practical purposes from recognizing any discrimination unless it were of sufficient magnitude to justify the imposition of an additional 25 per cent ad valorem upon all the products of the offending country. The law permitted no adjustment according to the nature of the discrimination against American trade or according to the nature of our imports from the offending country. Under the present flexible law, any country which continues to discriminate against American trade may find its trade suffering from exactly those penalties which will do it the greatest amount of harm with the least possible injury to American importing interests.

In a special paragraph, Section 317 provides an extraordinary remedy against preferential export taxes. If the President finds that a country by means of preferential export taxes is placing the commerce of the United States at a disadvantage as compared with the commerce of any third country and if he believes that these discriminations cannot be removed by the imposition of additional duties on certain imports from the discriminating country, he may impose additional rates of duty on articles imported into the United States from any third country which benefits from the preferential export tax imposed in the second country. If the existence of these differential export duties places American industries at a disadvantage by compelling them to pay higher prices for their raw materials, these American industries may under this law receive special protection against any third country in whose favor the differential duties operate. The principle here embodied in legislation is similar to that upon which are based countervailing duties to offset bounties given by foreign governments. If, for example, the preferential duty had been continued by India on untanned hides and skins, the President, if he had felt the public interest would be served thereby, might have imposed by proclamation additional duties on leather and leather products imported from Canada and Great Britain.

Obviously, the object of Section 317 is to obtain for American commerce equal treatment in accordance with accepted standards of regulation between nations, but it goes further and includes within its scope discrimination often referred to as of only domestic concern. Most serious from the standpoint of both trade and world peace, as has been pointed out, is the system of import and export preferences which

today characterize the colonial commercial policies of the United States, Great Britain, France, Italy, Spain, Portugal and Japan. So long as the United States maintains its policy of preference in the Philippines we are hardly in a position to penalize the colonial preferences of other nations. The term "foreign country" is, however, defined in Section 317 to include dominions, colonies, protectorates, or other subdivisions of government wherein separate tariff rates are imposed.60 It can, therefore, no longer be said that the American Congress regards colonial preferences as "domestic questions."

An indiscriminate use of penalty duties against colonial preferences was probably not contemplated by Congress. The removal of systems of preference deeply embedded in the economic and political policies of countries may call for serious negotiations rather than for retaliatory steps which might result in trade wars. In this respect the significance of Section 317 is that foreign nations can no longer ignore his views if the President raises with them some of the fundamental issues of international commercial policy. The purpose of the section is to secure merely equal treatment and if this is once secured, the additional duties are withdrawn.

THE DRIFT TOWARDS COMMERCIAL CONFLICT

The world is drifting more and more towards commercial conflict. There is evident in many countries a desire to use commercial devices for the purpose of furthering narrow national interests. Nations are not looking ahead nor visualizing the situation which may result from every country pursuing a discriminatory policy in its commercial

60 For comments on the status of the British Dominions see page 232.

make their agreements effective. Too often the open door has been nominally accepted only to be evaded in practice. After all, there are some things which nations must do together. Nationalism, useful and essential in some fields, has its limitations. "In many ways," President Harding said on October 11, 1922, in his letter to Mr. Mondell, "real protection comes from coöperation with other nations. The best intelligence of the day recognizes the need to encourage intimacy and understanding in the social, economic and political family of nations."

The transition is easily made from aggressive export taxes and bounties on production and exportation to direct government aid in price fixing and stabilization. When the producers or distributers of a country have a virtual monopoly of an essential product which is chiefly consumed in foreign countries and particularly when an overproduction threatens serious reduction in prices, the producers seek the aid of government. If they have sufficient influence, their policy becomes for all practical purposes the government policy. The consumers in foreign countries have only a negative influence and the price is fixed at the point which the market will bear and which will not bring out substitutes and new sources of supply.

Examples of government aid to producers are furnished by sisal in Yucatan, citrate of lime in Italy, coffee in Brazil and cocoa in Ecuador.

61 See page 214. Preferential Tariffs and the Open Door. Dr. B. B. Wallace, United States Tariff Commission.

YUCATAN AIDS SISAL PRODUCERS

Of practical and vital interest, particularly to the American agriculturalist, is the monopolistic control of the production and distribution of sisal produced in Yucatan. Sisal embraces a number of tropical fibers, but the Mexican variety, known as henequen, constitutes the large bulk of the commercial supply of such fibers.

Sisal is used chiefly in the manufacture of binder twine and something like four fifths of the world's supply of such twine has been made of it-all but about 10 per cent having been produced in the United States and Canada. The United States has absorbed all but a small amount of the entire output of the Mexican henequen industry.

Sisal is grown on a comparatively small scale in East Africa and Java. It is a better quality than the Mexican henequen and commands a better price. It may be grown successfully in certain parts of the Philippine

Islands and in other tropical regions, but the crop does not yield fiber until the sixth or seventh year after planting.

During the war the Comision del Reguladora del Mercado de Henequen was formed in Mexico. It exercised control over the industry in Mexico but was liquidated late in 1919.

Following the war the henequen industry became very badly disorganized. Plantations were practically abandoned and their productive capacity disappeared entirely. To place them in production again requires replanting and from six to seven years wait before fiber may be

taken.

Early in 1922 the Comision Exportadora de Yucatan was established by the Government of the Province of Yucatan. An export duty imposed upon all sisal exported by any other agency gives it a complete monopolistic control over the henequen. Under this control the price of the fiber advanced very shortly from a range of from 3 to 4 cents per pound to from 61 to 7 cents per pound, at which it was held. The pre-war price was around 5 to 6 cents per pound. In negotiating contracts for henequen the Comision Exportadora has required that from 25 to 50 per cent of the amount of fiber contracted for should be taken out of store stocks. In this manner stocks were reduced from about 500,000 bales (360 pounds each) in early 1922 to about 100,000 bales about a year later. Decreased production (936,000 bales in 1920, 565,000 bales in 1921, and 462,000 bales in 1922) made this plan to reduce excess stocks easy in application. The extent to which production has been deliberately curtailed is not known. The cost of producing the fiber is, roughly, 3 to 33 cents per pound f.o.b. plant, and the price dropped for a considerable time to less

than this cost. This would naturally result in a decrease in production.

If henequen were the only fiber from which binder twine could be made the Comision Exportadora would be in a position to manipulate the supply and price in such a way as seriously to affect the domestic manufacturers and users of such twine. Fortunately, however, there are satisfactory substitute fibers for the purpose. Manila is quite satisfactory for binder twine and sisal is also available from the Philippine Islands. In addition sisal from East Africa and Java, New Zealand hemp, istle and sunn may be substituted for henequen in binder twine.

Henequen holds its place as the chief binder twine fiber partly because of its lower price and, should this advantage be lost, or the supply of henequen become short, manufacturers of this twine could turn to the use of manila, or some of the substitute fibers.

While the Comision Exportadora has a monopolistic control over henequen, henequen by no means has a similar control over the market in raw material for binder twine. The Comision Exportadora may manipulate the supply and price of henequen to the benefit of Mexico and to the detriment of the United States only to a certain extent. The limit of this manipulation will have been reached when the price of henequen reaches such a point that it gives way to substitute fibers. A larger production and use of these substitute fibers may, in turn, operate to reduce their price.

The effect of the monopolistic control of henequen on the domestic manufacturers and users of binder twine cannot be accurately foretold. So long as a normal relationship in quantity and price is maintained among the various fibers which may be used

for binder twine, no radical changes may be expected. Economic factors, while not sufficient entirely to counteract the force of the complete control of the market price of henequen, will operate to limit it within certain bounds. That is, the price of henequen may increase, under present conditions, only about 10 or 12 per cent when manila will enter as a competitor for the market. This small differential, however, is itself due to the activities of the price-fixing machinery. In the period before the Comision Reguladora and in the interval before the organization of the Comision Exportadora, a rise of 50 per cent in the price of sisal would have been required to make manila available as a substitute.

ITALY AIDS PRODUCERS OF CITRATE OF LIME

The United States is dependent upon Sicily for 95 per cent of its supply of citric acid, either as such, or as citrate of lime. Imports in the past have been chiefly in the form of citrate of lime.

The production of citrate of lime in Sicily is controlled by the Italian Government through a chamber known as Camera Agrumaria. This chamber is made up of a certain number of producers and exporters, representatives from the Ministries of Commerce and Agriculture and a president nominated by the council of ministers.

Citrate of lime is handled almost exclusively by the Camera which fixes prices periodically and allots monthly deliveries to buyers all over the world. The Camera guarantees the producer a minimum price on citrate of lime and the Italian Government forces sales through the Camera by levying an export duty of 1 gold lira per quintal (.087 cents per pound) on all export sales which are not made through the Camera. The producer may de

posit his output with the Camera and is advanced 90 per cent of the value, the balance being adjusted when sale is made.

Manufacturers of citric acid in the United States deal directly through their agents with the Camera for supplies of citrate of lime.62

BRAZIL AIDS COFFEE PRODUCERS Direct government control for the purpose of regulating and fixing the prices of a product has been adopted by a number of governments such as Brazil and Ecuador. The principles involved are not unlike those involved in combinations for the purpose of controlling prices and production by private interests, except that the fact that a sovereign government is the controlling factor has raised some difficult international questions. Organization by governments for the purpose of controlling the market has been put forth under the plausible term "valorization." The two cases to be considered-that of Brazil and that of Ecuador-throw interesting light upon the possible success of such efforts to modify the operation of economic law.

The first valorization of coffee by the Brazilian Government took place in 1870.63 At that time the Brazilian Government purchased large quantities of Rio coffee in lieu of exchange to meet remittances abroad. The next attempt at valorization was started by the state of São Paulo in 1905. Its legislature passed a law authorizing the state government to enter into an agreement with other Brazilian States and the Federal Government for valorization of coffee and also for propaganda abroad to stimulate consumption. The states

62 U. S. Tariff Commission, Tariff Information Survey, A-1, p. 24.

63 All About Coffee. William H. Ukers.