RECIPROCAL TRADE TREATIES was so objectionable. Originally no farmer or manufacturer knew whether any of his products would be considered for reductions in duty. Now a list of products is published in advance. If a product does not appear on this list or a supplement to it, there will be no reduced duty on that product in the treaty about to be negotiated. There is now fuller opportunity to present evidence and also a more receptive attitude on the part of the committee conducting the hearings and investigations which precede actual negotiations of a treaty. The present method of arriving a t changes in duty is, on the whole, an improvement over congressional tariff making. However, it was not necessary to make what was formerly a legislative function into an executive one in order to make this improvement, A properly constituted tariff commission is the proper place for rate making. Qualification for membership on such a commission should not be a preconceived free trade or low tariff philosophy. This points out some of the flaws in the present setup. There is a present disposition to disregard differences in cost of production as between competitive domestic and foreign goods. Moreover, only decreases in rates are considered, and the provision for increases is so far a dead letter. More far-reaching in its importance is the matter of personnel. If we say that the present method of procedure has an advantage over congressional tariff making, we must not forget that changed personnel or even the present personnel could, under the law, act in a very high-handed and arbitrary manner. The destiny of whole groups in agriculture or industry is largely in the hands of men bound by no definite yardstick except the 50 per cent limitation. Whereas we may approve of the method now used for reducing tariffs, we may question seriously the wisdom of making reductions. Particularly is this true if we are not unmindful of the rapid industrialization in nations having lower wage and lower living standards than ours, especially in the Far East. Here is the real difficulty with our tariff system. We have one rate to all. A rate on rayon staple, which adequately protects us against England, is much less protection against Italy and no protection a t all against Japan. Conversely, adequate protection against Japan is an embargo against others.
EDITOR’S KOTE. Few matters confronting the American chemical industry are so highly controversial as is the policy for controlling traffic through the principle of the Reciprocal Trade Treaties. The editor, in his effort to be as fully informed as possible on this question, has corresponded with various students of tariffs; one of the replies to his inquiries impressed him as being fair and dispassionate in view of this highly contentious program and consequently one that would be of general interest to the readers of INDUSTRIAL AND ENGINEERING CHEMISTRY.The data and explanation presented here have to do with the effect of the Reciprocal Trade Treaties so far concluded, on American chemical industry. They do not relate to industry in general and of course cannot touch upon what might easily be the most important of all the trade treaties-namely, the one pending with Great Britain.
T
HERE is no question that there are different viewpoints about the seventeen trade treaties so far concluded, A blanket condemnation of them serves no purpose, whereas a fair and unbiased appraisal of the theory and practice involved in this important program is very desirable. To review briefly, the Trade Agreements Act authorized the President to increase or decrease our existing rates of duty by not more than 50 per cent. He cannot transfer articles from dutiable to free list or vice versa. This is to be accomplished by negotiation with foreign nations, and reciprocal advantages are to be received from them. The Trade Agreements Act extends the reduced rates to all foreign nations, unless the President, by proclamation, bars some nation because of discrimination against our commerce as is now the case with Germany. Whether we do or do not gain reciprocal advantages from the nation with whom we negotiate may be open to question. What will be the longrange effect of giving the reductions to all other nations is also deserving of study. At this point, however, one item favorable to the treaties seems important: Had the party in power elected to make a general congressional tariff revision, the new rates in such a revision would also have been extended to all nations because we have a one-column tariff in the United States +ith uniform rates to imports from all countries. We are therefore no worse off in this respect under Reciprocal Trade Treaties than we would have been under a general tariff revision. We do have some advantage in the fact that one foreign nation a t least reduces some of its rates in return for our reductions. This, of course, is lacking in a purely unilateral tariff revision. There is another advantage in that the reductions made under present procedure appear to be more carefully planned and are not subject to the usual logrolling of a congressional revision. After much criticism the State Department, to whom the negotiation of these treaties is entrusted, has eliminated much of the original ‘‘star chamber” method of procedure which
THIS brings us to one of the serious objections to the Reciprocal Trade Treaties. After many years of tariff practice in the United States, we had incorporated in our tariff law the theory of flexible tariffs which provided the method for increasing or decreasing rates by the President after study and recommendation by the Tariff Commission. In other words, much of the technic now used in connection with negotiating trade treaties was already existent in the Hawley-Smoot Law. The Trade Agreements Act introduced two new ideas. First, it provided for reductions in our tariffs in return for reciprocal reductions by other nations. Secondly, it made inoperative as to all commodities dealt with in trade agreements, the flexible provision of our tariff law. I n like manner it made inoperative the provision for the manufacturer’s right of protest, a provision unfamiliar to many. Thus the initial price paid for the reductions in foreign tariffs was to exchange flexibility for inflexibility a t a time when flexibility was perhaps more important than ever before in view of rapidly changing economic conditions throughout the world. If, therefore, the duty is reduced on your product in a trade 960
AUGUST, 1938
INDUSTRIAL AND ENGINEERING CHEMISTRY
TABLEI. IMPORTS FOR CONSUMPTION AND EXPORTS OF CHEMICALS AND RELATED PRODUCTS Coal-tar roducts Medioina? and pharmaceutical preparations 1ndustriF.l chemicals and chemical
I-_.1
Imports for Consumption Exports 1937 1934 1937 1934 $18,353,081 $11,847,058 $14,877,555 $13,264,086 4,893,994
-- ._ _ ---
4,234,433
.- , - -
-.
17,979,326
__
10,944,953
__ _._ . .. ._ .
I.. I
Soap and toilet Dreparations Total Increase, 1937 over 1934 Dollars Per cent
3,130,703 102,571,308
65,117,435 139,447,201
137,453,873 57.5
$46,881,922 50.6
92,565,279
96 1
many. From this may flow just enough changes by Germany in her trade practices to meet the Secretary of State’s rather elastic requirements as to discrimination or the lack of it. Then Germany will participate in all our duty reductions to date. In a broad sense the chemical industry will share in the prosperity or lack of it on the part of all industry. We cannot, therefore, be unconcerned as we see a gradual whittling away a t the principle of protection. Each little strand severed may be comparatively unimportant, but once enough strands are cut, then the hawser suddenly shows a disastrous break.
O F PARTICULAR concern is the veritable with Great Britain and it subsequently develops that Japan can, because of low price, take all your business, you have no relief under the flexible provision of the 1930 law. True, the State Department provides escape clauses in the treaties so that if countries other than the one with whom the treaty is made are the chief beneficiaries, the State Department may reopen the matter. Up to the present time the State Department has not shown any inclination to do so, although there are such cases. The franc was valued a t 6.59 cents when our treaty was made with France. It is now valued a t 2.79 cents. Presumably if cases regarded by the department as of major importance should arise, it would act. Here again its conclusions would probably be based on ideas of good neighborliness. There seems to be a disposition to avoid reductions seriously harmful to the chemical industry. Treaties negotiated so far bear this out, for as an industry we have not fared badly. However, it should be pointed out that the indirect effects--namely, the importation of textiles, paper, and other products requiring chemicals in their manufacture-promise to be more harmful t o the chemical industry than the direct effects from the reduction of chemical rates under the trade agreement program. Comparing 1937 with 1934, imports of chemical and related products increased 57 per cent, while exports increased 50 per cent. Imports increased more from agreement countries than from nonagreement (34 as against 15 per cent) while exports increased more to nonagreement countries (37 as against 12 per cent). Confining our observation solely to those chemical schedule items on which the United States has granted concessions, we find a clear indication that countries other than the ones with whom we made agreements are the principal gainers, for on such items our imports increased 16.87 per cent from agreement countries and 157 per cent from nonagreement. It seems fair to say that the chemical industry has sustained no major injury up to the present as the result of trade treaties. We would be less than prudent, however, if we did not watch with some apprehension several world trends which may directly affect us and in which trade treaties play a part. First is the rapid industrialization of the Far East. Temporarily Japan is engaged otherwise. However, the full impact of her competition in our markets is still to come. We know she can produce rayon. Since trade treaty reductions in duty have been in effect, she has shipped chemicals, such as heliotropine, trichloroethylene, and high-test bleach. She may even surprise some Americans by her ability to produce good automobiles cheaply. Her wage and living standards are wholly unacceptable to us and there are limits to our ability to overcome this handicap by improved efficiency. Secondly, we should watch our step as we see the moves toward a rapprochement between Britain and Ger-
flood of free trade propaganda with which the country is being deluged. Although all of us want just as much foreign trade as we can profitably get and to that extent are in favor of its encouragement, we wonder why the State Department and a very small band of men resort to such distortions of truth in their advocacy of lower tariffs as a way to enlarged foreign trade. We in the United States have no intention of discontinuing our heavy purchases abroad. We are very stupid, however, if we allow ourselves to be convinced that our economic well being is chiefly dependent on international trade. Stupid because in that case we fail t o realize the strength of our own position in that we have a greater degree of natural selfsufficiency than do most nations. We should not disregard the volume and the force of this propaganda, for unless we combat it, we will one day be overwhelmed by the abandonment of the whole principle of protection by popular vote. The antiprotection propaganda is going into schools through pamphlets chiefly notable for their distortions of fact. -.A syllabus has been prepared for the schools under the auspices of the National Foreign Trade * AND EXPORTS TO AGREEMENT COUNTRIES AND OTHERCOUNTRIES OF CHEMICALS AND RELATED PRODUCTS
TABLE 11. IMPORTS FROM
Imports f o r consumption 1936 1934 Agreement countries: Canada $13,459,639 0 7,955,665 ...... ...... Costa Rica Cuba 250,080 109,643 ...... ...... Guatemala ...... Haiti 35 ...... ...... Honduras Netherlands West ...... Indies 1,167 ...... Nicaragua ...... ...... ...... Salvador 70,080 12,639 Brazil ...... 96 Colombia 3,301,586 4,150,196 Belgium 4,613 9,550 Finland 3,896,408 3,782,613 France 6,500,506 7,779,397 Netherlands 100,947 354,774 Sweden 3,181,177 3,949,417 Switzerland Netherlands East Indies 1,146 311 Total, agreement countries 33,808,190 Other countries 46,175,329
Exports 1936
1934
$18,488.883 209,802 3,872,712 308,898 166,421 580.052
$15,165,718 210,771 2,793,981 296,569 225,036 548.206
641,440 274,415 220,264 2,152,744 1,824,800 5,155,597 266,267 4,995,296 3,631,597 1,797,249 352,511
488,982 240,859 203,504 1,852,547 1,622,266 2,267,951 148,784 6,894,919 3,243,542 1,225,773 319,184
1,153,743
3,173,806
25,063,495 40,053,940
46,092,691 70,889,523
40,922,398 51,642,881
65,117,435
116,982,214
92,565,279
Grand total, all countries
79,983,519
Difference Agreement countries Other countries
8,744,695 6,121,389
5,170,293 19,246,642
14,866,084
24,416,935
34.8 15.3 22.8
12.6 37.3 26.4
All countries
yo increase:
Agreement countries Other countries All countries
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Council; the idea is that this syllabus will be made the basis of a foreign trade course of study. The National Foreign Trade Council constantly circulates the country with material to be made the basis of speeches on this subject. Most of them seem to be rather one-sided presentations, to state it mildly. Now the Foreign Commerce Committee of the Chamber of Commerce of the United States has prepared eleven or twelve skeleton addresses to be used all over the United States in advocacy of the trade agreements program. HOWthis constant barrage of propaganda affects public thinking is shown by the recent Gallup poll on trade agreements sentiment. Shrewdly capitalizing on an almost universal desire for peace, the country has been told by the State Department that trade treaties are the way to peace. Then after telling them over and over again that the achievement of peace and the negotiation of trade treaties are almost synonymous, the Gallup poll is taken. To any fair-minded person this seems to smack somewhat of a Hitler plebiscite.
