of the renewal of the Reciprocal Trade Agreements Act for another 3 years, confident that the further extension will bring additional trade expansion and mutual value. Respectfully yours, H. H. PIKE, JR. Chairman, Cuban Committee. Hon. PAT HARRISON, NATIONAL COTTONSEED PRODUCTS ASSOCIATION, INC., Chairman, Committee on Finance, United States Senator, Senate Office Building, Washington, D. C. MY DEAR SENATOR: The enclosed statement, prepared a short time ago, represents the viewpoint of the cottonseed industry with respect to the reciprocal trade agreements program, now subject to hearings before your committee. I am sending it to you as information and for such use as you see fit. Yours very truly, T. H. GREGORY, Executive Vice President. RECIPROCAL TRADE AGREEMENTS What promises to be one of the most bitter battles in the present Congress is already shaping up in the House-namely: the question of renewing the Reciprocal Trade Agreements Act. The legislation, passed originally in 1934 and renewed in 1937 for 3 years, gives the President the power to conclude trade agreements with foreign nations providing for the adjustment of tariffs and other trade restrictions. In the making of such agreements, duties or excise taxes may be raised or lowered by no more than 50 percent and articles may not be transferred between the dutiable and the free lists. Agreements are not subject to approval by Congress. The trade-agreements program developed out of the reaction against the SmootHawley Tariff Act of 1930. That act, which its sponsors claimed would restore American prosperity, raised import duties to the highest level in the Nation's history. It was followed by a series of retaliatory measures on the part of foreign nations and by the drastic decline in both our foreign and domestic trade. Rather than improving the position of American agriculture and industry, it was an important contributing factor to one of the worst depressions this country has experienced. By 1932 and 1933, the view was widely held that a downward revision of the tariff would assist substantially in bringing about improved economic conditions. The Democratic candidate for President was able to state emphatically that he favored such a revision and still was elected-something which had not been possible for 20 years. Three alternative methods of tariff revision were open to the United States: (1) an agreement among a large group of nations to reduce tariffs, (2) unilateral reduction of our own tariff and (3) negotiation of agreements with individual countries. The first method was attempted at the World Economic Conference in London in 1933 and it failed completely. Because of the pressure of local interests on Congress, the second method promised little success. Furthermore, a general reduction of the American tariff was no guarantee that other nations would follow suit and we therefore would have given something for nothing. The third method-negotiation of reciprocal trade agreements-was therefore chosen. Since its enactment 51⁄2 years ago, agreements have been concluded with 21 nations, as follows: Cuba, Belgium, Haiti, Sweden, Brazil, Canada, the Netherlands and colonies, Switzerland, Honduras, Colombia, France and colonies, Guatemala, Nicaragua,1 Finland, El Salvador, Ecuador, United Kingdom and colonies, Costa Rica, Czechoslovakia,2 Venezuela, and Turkey. From its inception, the trade-agreements program has been under attack by various groups who felt, whether correctly or incorrectly, that their interests were being adversely affected. As new agreements were signed and tariff reductions were granted on an increasing number of commodities, this criticism has grown in volume. Today, it is evident that the issue of whether or not the program is 1 Suspended because of monetary difficulties. ? Abrogated since absorption of country by Germany. to be continued will be decided by the present Congress and that the decision will be a close one. For this reason, it is worthwhile to take a brief look at what has happened under the agreements. Between 1929 and 1932, our exports declined by 60.3 percent; our imports declined by 60.9 percent. Since that time, the trend has been reversed. Between 1932 and 1938, exports increased by 92.1 percent; imports increased by 48.2 percent. From the point of view of those who believe we must export more than we import, our trade position is better than it was in 1929, except that we have not recovered the volume of foreign trade carried on in that year. Of course, not all this increase can be attributed to trade agreements. Some measure of the importance of the agreements is indicated, however, by the fact that, between 1934-35 and 1937-38, our exports to trade-agreements countries increased by 62.1 percent while exports to other countries rose only 37.9 percent. The contrast is even more marked in the case of agricultural products. Exports of such products to trade-agreement countries have increased by 50 percent while exports to nonagreement countries have actually declined. Aside from imports and exports, there is one aspect of foreign trade and the reciprocal agreements which is almost wholly overlooked in discussions of the subject. That is their effect upon the domestic market. Foreign trade involves more than just the exchange of exports for imports. It is estimated that there are some 3,000,000 persons employed directly in the United States producing commodities for export; but this is only one side of the picture. A particular branch of agriculture or industry does not have to be in the export business to benefit from exports and from the reciprocal trade agreements. In 1938, the automobile industry sold 11.1 percent of its output in foreign markets. In the same year, that industry provided employment for 306,000 factory workers. In other words, about 34,000 workers (not including office employees) owed their employment to export sales. It is a simple fact that 34,000 workers can consume a lot of food and clothing from our farms and a large quantity of the varied output of our factories. Their level of consumption was certainly much higher than it would have been had they been on relief. What is more, the purchases of these workers provided thousands of additional workers with jobs in the fields of transportation, communication, and trade, etc. It has been estimated that every time the capital-goods industries employ two new workers the service industries have to hire three new workers. While the automobile industry is not strictly a capital-goods industry-it may be classed as a "consumers' capital-goods industry"-it is probable that the employment of one new worker in that industry is matched by the employment of at least one additional worker in other industries. Thus the farmer or the manufacturer, who may not export a single unit of his products, benefits substantially from sales to workers employed as the result of increased exports. The significant point is that exports bring about an expansion of the domestic market that is of equal or greater importance than actual export sales themselves. The cottonseed industry, like every other American industry, has a stake in foreign trade and in the trade-agreements program. The difference is that its stake is greater than that of most other industries. For one thing, the industry is interested in the duties and taxes imposed upon imported fats and oils which compete with cottonseed oil. The desire to maintain such duties and taxes for whatever protection they afford is logical so long as most of the industry's purchases must be made in a highly protected market. Of even greater importance, is the industry's dependence upon cotton. During the last 10 years, in spite of the artificial controls imposed upon it, 47 percent of the cotton produced in this country has been exported. In other words, 47 percent of the cottonseed industry's supply of raw materials is dependent upon the export market for cotton. Destroy that market and it is not difficult to envisage the future of the industry. Ten- or even twenty-cent cotton oil is of little value to a mill if it has no seed to crush. Obviously, the discontinuance of the trade-agreements program would not mean the automatic loss of the export market for cotton and the disappearance of half the industry's supply of raw materials. In the first place, the agreements already concluded will remain in effect until abrogated by the specific action of the President or Congress. Its abandonment, however, would signify a return to the type of tariff policy which preceded it, namely: the pressure of each group for higher and higher duties on its own products and the steadily increasing restriction of foreign trade. In such a scramble, any one industry may or may not obtain equitable treatment. Assuming that it does, the net result would be a loss for, as pointed out above, the restriction of foreign trade results in contraction 215171-40-55 of the domestic market as well. The cottonseed industry would have to face the additional condition that a return to this type of tariff policy would eventually reduce the supply of raw materials upon which it relies for existence. The current debate over reciprocal trade agreements is a phase of the age-old agreement between the short-run and the long-run point of view, between local or limited interest and the national interest. The restriction of imports does confer advantages upon particular groups and over short periods of time. In the long run, such restriction reduces the volume of trade in both domestic and foreign markets and leads to greater governmental control over all economic activity. MEMORANDUM IN SUPPORT OF EXTENSION OF RECIPROCAL TRADE AGREEMENTS Аст (By Cigar Manufacturers Association of America, Inc., 200 Fifth Avenue, New York, N. Y.) This memorandum is submitted by the Cigar Manufacturers Association of America, Inc., the members of which produce collectively upwards of 85 percent of all domestic cigars with annual sales of approximately $150,000,000. The Association desires to express its hearty endorsement of the Reciprocal Trade Agreements Act and to urge that conditions throughout the world today, requiring adjustment of trade barriers, justify the continuation of the Reciprocal Trade Agreements program. The serious inroads made upon our foreign trade since the last World War, particularly with regard to several South American republics, have been a source of grave concern to the United States. Regaining these markets was essential, and the negotiation and consummation of reciprocal trade agreements has resulted in the recapture of some of them. The program, despite the fact that some nations are now at war, must not be abated or retarded. A well-ordered policy of foreign trade will look and plan for the future if the gains already made are to be preserved. The foreign-trade policy pursued by the Department of State since 1934 has had a most beneficial effect on the commerce of the United States. In a report issued by the Chamber of Commerce of the United States on January 20, 1940, Mr. E. L. Backer, manager of the Foreign Commerce Department, stated: "Our export trade in 1938 with countries with which we at that time had trade agreements increased 68 percent over the 1931-35 average; our export trade with nonagreement countries increased 45 percent. Our import trade with agreement countries, in the same comparison, increased 21 percent; our import trade with nonagreement countries increased 10 percent." Since the many industries which have benefited as a result of the present policy of the Administration will undoubtedly point out the numerous advantages which have accrued to their separate industries, this memorandum is confined to the cigar manufacturing industry and its allied industries and the benefits contemplated under the Reciprocal Trade-Agreements Act. The reciprocal trade agreement of 1934 with Cuba granted certain concessions on the importation of Cuban tobacco with reciprocal benefits to the Island of Cuba with respect to imports of certain food products, industrial machinery and rubber products. This treaty was later abrogated because of the unconstitutionality of the Agricultural Adjustment Act, as declared by the Supreme Court of the United States on July 6, 1936. Realizing the seriousness to the industry of the reinstatement of the former higher duty rate on tobacco the association became active in recommending the negotiation of a supplemental reciprocal trade-agreement with Cuba. Such agreement was consummated after public hearings and made effective on December 23, 1939. Among the matters effected under this supplemental trade agreement was a reduction of approximately 40 percent in the tariff on Cuban leaf tobacco. An examination of recent trends in the cigar industry and their effect not only on the American grower of cigar leaf tobacco but on the American cigar worker will be helpful in appraising the value of this tariff reduction to all sections of American industry. In the two decades beginning with 1920 figures compiled by the Commissioner of Internal Revenue show that there has been a persistent and continued decline in cigar consumption in the United States. In 1920 more than 81⁄2 billion cigars were consumed; in 1930 about 64 billion, in 1939 only 5% billion. Even more significant than the decline in consumption was the shift in price level. A survey by the association discloses that class C cigars, retailing at 8 to 15 cents, dropped by 1937 from almost 40 percent of total production to 10.18 percent. Class A cigars (5 cents or less) rose from 30 to about 88 percent of total production by 1937, and have now reached nearly 90 percent. This sharp decline in cigar production has naturally been reflected in a marked decrease in the production of domestic cigar leaf tobacco, grown in Connecticut, Florida, Georgia, Massachusetts, Minnesota, New York, Ohio, Pennsylvania and Wisconsin. For the years 1928-32 there was an average production of about 1721⁄2 million pounds (Crops and Markets, U. S. Department of Agriculture, Dec. 1, 1936). In 1938 production amounted to about 107 million pounds and in 1939 to about 126 million pounds. The increase over the prior year is due largely to increased yield per acre rather than increased acreage. This steady decline in cigar consumption and the consequent decrease in domestic cigar-leaf production are due not only to economic conditions generally, but to increased competition from cigarettes. The shift in public favor, it has frequently been urged, is not inevitable or permanent, but instead the cigar industry requires an effective stimulus, which it is believed is supplied in part by the readjustment of the Cuban tobacco-tariff rates. The unique aroma and flavor and the general suitability for cigar purposes of Cuban tobacco are well known. The two most important classes of cigars today, classes A and C, accordingly employ it. In general, class C has included the Clear Habana (all Habana filler and wrapper) and the higher grades of cigars blended of a Havana filler and a domestic binder or wrapper or both. Class A has predominantly included pure domestic and domestic filler type blended with some Habana filler. The price range of cigars has traditionally been an inflexible one and therefore cigar manufacturers in recent years have found it necessary, in order to meet competition, to improve the quality and value of their cigars by adding to domestic or Puerto Rican filler some of the more expensive Habana product. The extent to which Havana filler and scrap is used in blend with domestic has frequently been emphasized by our foreign trade authorities. (See, e. g., Analysis of Cuban-American Trade During the First 2 Years Under the Reciprocal Agreement, Department of State, January 19, 1937, p. 22; U. S. Tariff Commission Report on Cigar Wrapper Tobacco, report No. 16, second series, p. 15.) Far from adversely affecting the domestic tobacco grower, the readjustment of the Cuban tariff rates will undoubtedly benefit him. There is no competition between Cuban filler and domestic wrapper and binder. Indeed about 70 percent of the Connecticut Valley production of such types is used to blend with the Havana product. Respecting domestic filler tobacco, the higher price of the Cuban product prevents it from being used as a complete substitute for that commodity rather than as a blending ingredient. The best evidence that the American tobacco leaf farmer believes he will benefit from the reduction is that the request for such reduction was supported by the petitions of several thousand farmers in Wisconsin, Ohio, and Pennsylvania, the chief cigar tobacco growing sections of the country. The cigar manufacturing industry employs upwards of 56,000 workers, who together with the members of their families are dependent upon the industry for a livelihood. It is believed that the increased availability of Cuban tobacco will make possible further improvement in the quality of the cigar which should renew the popularity of and the demand and appreciation for cigars in all classes. This will have a beneficial effect upon the consumption of cigars generally. resultant increase in volume of cigar consumption should give more stable employment to those already employed and require the employment of more workers in the cigar manufacturing industry and the related fields. It is likely moreover to permit of a more effective program of advertising which would further stimulate cigar sales. The Thus it is believed that the supplemental trade agreement with Cuba will greatly benefit the American grower, consumer, cigar worker and cigar manufacturer. It is a splendid illustration of the inestimable benefits all branches of American industry derive from the Reciprocal Trade Agreements Act. We believe the act supplies necessary and practical stimulants to our domestic economy and keeps open the channels of foreign commerce. The association, therefore, urges that the period of the Reciprocal Trade CIGAR MANUFACTURERS ASSOCIATION OF AMERICA, INC., FEBRUARY 10, 1940. TANNERS' COUNCIL OF AMERICA, CHAIRMAN, COMMITTEE ON FINANCE, United States Senate, Washington, D. C. DEAR SIR: The Tanners' Council requests that inclosed statement in regard to patent-leather imports from Canada be included with report of hearings on trade agreements by Finance Committee. Very truly yours, IMPORTS OF PATENT LEATHER FROM CANADA E. A. BRAND. May we call to your attention certain facts in connection with the importation of patent leather from Canada which have become extremely important to domestic producers. In 1939 imports of patent leather from Canada increased tremendously, thereby very seriously affecting the domestic producers of this leather. This increase in imports of patent side leather was the direct result of a reduction in the applicable tariff rate to 7%1⁄2 from 10 percent in the Canadian trade agreement effective January 1, 1939. The reduced United States duty, it should be noted, compares with a Canadian rate of 20 percent for American patent leather. There is shown below a record of patent leather imports from Canada since 1930. Imports in 1939 were the largest since 1929 and were very sharply higher than in recent years. From these data it would seem perfectly clear that reduction in the patent-leather duty has caused a sharp increase in imports into the United States. It is extremely important to note that the 1939 imports were much more important in relation to the total domestic market than imports 10 years ago or more. Since then consumption of patent has declined strikingly. In 1930 the total deliveries of patent leather by United States tanners was approximately 4,911,000 sides. By 1939, however, the available market for patent had declined to 2,915,000 sides. Although total leather demand in 1939 increased substantially from the semidepression level of 1938, patent leather deliveries showed only a negligible gain. The following table compares deliveries of domestically produced patent leather since 1930. As a result of the shrinking domestic market and the loss of our export market for patent leather, the gain in Canadian shipments to the United States is vitally serious. United States tanners are now confronted not only with inequality in tariff rates, but by several clear disadvantages in relative cost of production. Hides cost the United States tanner 10 percent more than the Canadian tanner, since by virtue of this country's duty on raw hides, the market in the United States remains about 10 percent higher than world markets. Production costs are, of course, substantially higher in this country with wage rates averaging |