Men's Sewed Straw Hats Report of the United Stated Tariff Commission to the President of the United States (1926)

Part 3

Chapter 33,585 wordsPublic domain

COMPETITIVE CONDITIONS

Styles for men's straw hats are set about one year in advance. Sample hats are manufactured in May and June and orders are taken by manufacturers in July, August, and September for hats to be delivered the following spring. This custom of the trade makes it possible for foreign manufacturers to copy and offer in competition the same styles as those made by American manufacturers. Imported hats have a wide range of styles and prices, including not only sewed hats of sennit braid but also those of fancy braids, and woven body hats such as leghorns. Domestic hats also comprise a wide range of styles and prices. Within this range there is a more or less definitely limited field in which imports compete directly with domestic merchandise.

TRANSPORTATION AND MARKETING COSTS

Before the Italian or English hats enter into competition in the domestic wholesale market with hats of domestic manufacture expenses for transportation, marine insurance, and consular fees must be incurred. In the season 1923-24 the charges specified amounted to approximately $1.10 per dozen for Italian hats and $1.35 per dozen for English hats.[3] Such expenses are set forth in the lower half of Tables 8 and 9.

[Footnote 3: Computed from consular invoices for hats imported at the port of New York in the six months, January-June, 1924.]

The methods of marketing foreign and domestic hats are similar, but because of minor differences in terms of sale, etc., it was not found practicable to institute a mathematical comparison of selling costs. Some domestic firms deal only with jobbers, others only with retailers. A few of the largest firms sell to both jobbers and retailers. When the manufacturer dispenses with the services of jobbers his selling costs are, of course, increased. Foreign straw hats are distributed principally by importing jobbers. Such firms are usually engaged also in the marketing of domestic hats and in some instances are manufacturers or have financial interests in domestic factories. Foreign factories occasionally deal directly with large retailers in this country. In such cases it is usual for the retailer's representative to travel abroad to inspect samples and place orders. One large Italian factory maintains a New York office through which it deals directly with domestic retailers.

FORMAL STATEMENT OF CONCLUSIONS

(1) Italy is the principal competing country. While Commissioners Costigan and Dennis agree with this conclusion, they are also of opinion that, with respect to hats valued at more than $9.50 per dozen in the country of exportation, Great Britain is shown to be the principal competing country.

(2) The average cost of production in the United States, as shown by the cost data for the season 1923-24, of men's sewed straw hats sold to jobbers for $10.55 to $16.52 per unit of one dozen is $12.74. The average cost of production, not including transportation costs, of imported men's sewed straw hats whose landed costs, duty paid, range from $8.51 to $13.10 per dozen, and which are like or similar to the domestic hats above described, is $5.98 per dozen. The difference in said costs of production, transportation costs not included, is $6.76 per dozen. The cost of production of the imported hats, including transportation costs from the foreign factory to the dock at New York, is $7.08 per dozen, and the difference in said costs is $5.66 per dozen.

(3) The average selling price of such imported men's sewed straw hats, in the country of exportation, as shown by said cost data, is $6.42 per dozen. The American selling price, as defined in subdivision (_f_) of section 402 of the tariff act of 1922, of similar competitive articles manufactured or produced in the United States, is $13.28 per dozen.

(4) If transportation costs be not included, the differences in costs of production in the United States and in said principal competing country are greater than the amount of the present duty of 60 per cent ad valorem increased by the total maximum increase authorized under section 315, subdivision (_a_), of said act, and said differences in costs of production in the United States and in said principal competing country can not be equalized by proceeding under the provisions of said subdivision (_a_); that is to say, by increasing to the extent of 50 per cent the existing ad valorem duty applied to the value of the imported article in the country of exportation.

(5) If transportation costs be included, the rate of duty shown by the differences in costs of production, necessary to equalize said differences, upon men's sewed straw hats valued at $9.50 or less per dozen in the country of exportation, is a rate of 88 per cent ad valorem based on the valued in the country of exportation, as defined in section 402 of said act.

(6) If transportation costs be not included, the rate of duty shown by the differences in said costs of production, necessary to equalize said differences, upon men's sewed straw hats valued at $9.50 or less per dozen in the country of exportation, is a rate of 50 per cent ad valorem based upon the American selling price, as defined in said section 402, of similar competitive articles manufactured or produced in the United States.

(7) The average cost of production in the United States, as shown by the cost data for the season 1923-24, of men's sewed straw hats sold to jobbers for $16.74 to $22.50 per unit of one dozen is $16.06. The average cost of production, not including transportation costs, of imported men's sewed straw hats whose landed costs, duty paid, range from $15.64 to $18.60 per dozen, and which are like or similar to the domestic hats above described, is $9.32 per dozen. The difference in said costs of production, transportation costs not included, is $6.74 per dozen. The cost of production of the imported hats, including transportation costs, is $10.67 per dozen, and the difference in said costs is $5.39 per dozen.

(8) The average selling price of such imported men's sewed straw hats, in the country of exportation, as shown by said cost data, is $9.73 per dozen.

(9) If transportation costs be included, the rate of duty shown by the differences in costs of production necessary to equalize said differences upon men's sewed straw hats valued at more than $9.50 per dozen in the country of exportation is a rate of 55 per cent ad valorem based upon the value of such hats in the country of exportation.

(10) If transportation costs be not included, the rate of duty shown by the differences in costs of production necessary to equalize said differences upon men's sewed straw hats valued at more than $9.50 per dozen in the country of exportation is, according to a mathematical calculation, 69 per cent ad valorem based upon the value of such hats in the country of exportation. Commissioners Marvin, Glassie, and Baldwin are, however, of the opinion that the existing rate of 60 per cent ad valorem substantially equalizes differences in costs of production in respect of hats valued above $9.50 per dozen in the country of exportation.

SUMMARY OF CONCLUSIONS

On the basis of the facts presented the commission agrees that the data indicate an increase in tariff rates, if the differences in costs of production are to be equalized between lower-priced grades of foreign hats and comparable products of American factories. In respect of such hats, Italy is the principal competing country.

The commission further agrees that foreign hats sold in the United States on a basis of quality rather than price are the higher-priced hats which at this time are not keenly competitive with the products of the American industry. With respect to such higher-priced hats, Commissioners Costigan and Dennis are of opinion that Great Britain is shown to be the principal competing county, and that under the law the data indicate that the duty should be reduced.

The commission agrees that $9.50 per dozen, foreign valuation, represents a fair breaking point for customs purposes between lower-grade hats competing on a price basis and hats of superior material and workmanship competing on a quality basis.

Under section 315 of the tariff act of 1922 there is an undetermined legal question with respect to including transportation expense in estimating foreign production costs. Commissioners Costigan, Dennis, and Baldwin agree that under subdivision (c) of section 315 a fair estimate of foreign costs should include the expense of transporting the foreign product to the principal competitive market or markets in this country. For hats whose foreign value is not in excess of $9.50 per dozen the rate of 88 per cent ad valorem is indicated as the correct duty for equalizing costs, with transportation included.

Chairman Marvin and Commissioner Glassie agree that under the law costs of production do not include transportation costs on either side. If transportation costs be not included in the foreign costs of production shown by this investigation, the rate indicated by the cost data would be 105 per cent on foreign valuation. This rate being in excess of the maximum permissible under subdivision (a) of section 315, resort must be had under subdivision (b) of section 315 to the American selling price basis of valuation in order to equalize the differences in production costs. For hats whose foreign valuation is not in excess of $9.50 per dozen the rate of duty thus indicated by the cost difference is 50 per cent on the American selling price.

As to hats with a foreign valuation above $9.50 per dozen, if foreign transportation be included, the present duty of 60 per cent on the basis of foreign valuation is in excess of the difference in cost of production and the rate of duty indicated is 55 per cent on the basis of foreign valuation. If foreign transportation be not included, the rate of duty indicated is 69 per cent on the basis of foreign valuation. The figures are shown in detail in Table 9, on page 10.

In the accompanying report the above conclusions will be found more formally stated for the purposes of a proclamation.

Respectfully submitted.

THOMAS O. MARVIN, _Chairman_. EDWARD P. COSTIGAN, HENRY H. GLASSIE, ALFRED P. DENNIS, A. H. BALDWIN, _Commissioners_.

SEPARATE STATEMENT OF COMMISSIONER COSTIGAN, IN PART CONCURRING AND IN PART DISSENTING, IN THE INVESTIGATION OF MEN'S SEWED STRAW HATS

While I concur with my associates in transmitting the commission's data in the investigation of men's sewed straw hats, a differentiation of views must be expressed with respect to certain conclusions which may be drawn from such data.

_Both higher and lower duties indicated by the commission's cost figures._--Under the provisions of section 315 of the tariff act of 1922, the information secured by the commission and summarized in this report points not only to an increased duty on lower-priced hats but also to a decreased duty on higher-priced hats. It is submitted that no satisfactory reason can be assigned under the present record for failing to recommend such a simultaneous upward and downward change in the present rate of duty by the use of the provisions for flexibility in the tariff act of 1922. Under the controlling statute all commissioners are agreed that a clear distinction exists between the bulk of the lower-priced hats coming from Italy and the lesser but considerable quantity of higher-priced hats imported from Great Britain. This feature of the commission's summarized data is particularly presented in Tables 5, 6, and 7, in which are shown the sources, volume, and foreign values of imported hats. Table 8 presents American and Italian costs of lower-priced hats; Table 9, cost data for higher-priced hats in the United States and Great Britain. Table 8 indicates that, in lieu of the present duty of 60 per cent on foreign value, a duty of 88 per cent on foreign value is required to equalize the costs incurred with respect to the lower-priced hats; and Table 9, that a duty of 55 per cent on foreign value will suffice to equalize such costs in the case of the higher-priced hats. In other words, the record establishes the need, if competitive costs are to be equalized under section 315, for creating two classes of men's sewed straw hats, with a different principal competing country and a separate rate of duty for each class. Under the circumstances, to confine the findings of the commission to an increased duty on lower-priced hats is, in one important particular, to fall short of the statutory responsibility undertaken when the commission ordered an investigation of the adequacy of the present 60 per cent ad valorem duty as a measure of equalized costs in the United States and foreign countries. A partial conclusion from the commission's data, where, as here, a comprehensive conclusion is clearly warranted, would appear to be discriminatory and fail to fulfill the scientific and impartial purposes of the provisions of section 315.

_Determining the dividing line for tariff purposes between higher and lower priced hats._--The above tables sufficiently demonstrate that the great bulk of men's sewed straw hats, imported at the port of New York during the period of investigation, came from Italy and had a foreign value of $7 or less per dozen, and much the larger part of the higher-priced hats came from England and had a foreign value of $8.50 or more per dozen. The separation into classes of lower and higher priced hats, with different duties for each class tends to result in an overstatement of the values of the lower-priced imports in order to obtain the benefit of the lower duty on high-priced imports. There is also a tendency of the higher-priced imports to increase in volume. To meet the changed situation a higher "breaking point" than the $7 value is desirable. For example, with a 90 per cent duty, a hat whose foreign value is $7 per dozen would cost, landed, duty and transportation paid, $14.40. If the rate of 60 per cent remain on hats in the higher bracket, as certain commissioners suggest that it continue to do, instead of the $7 hat it might be profitable to import a hat worth $8.25 per dozen, which would enter, duty paid and transportation included, for $14.30. Adopting and applying the same method to hats having an invoice value of $7.50 or less per dozen, a breaking point of approximately $9.10 would make it unprofitable to bring in higher-priced hats in order to obtain the benefit of a 55 per cent rate of duty. A breaking point of approximately $9.50 would therefore appear to be safely calculated to prevent overvaluation with respect to the great bulk of low-priced men's sewed straw hats now being imported.

_Some omissions from and doubtful features in the commission's report._--Although from the point of view of equalizing foreign and domestic costs under the provisions of section 315, the data of the commission on their face point to an increase from 60 to 88 per cent ad valorem, complete frankness compels the statement that the conclusion arrived at is not free from difficulties; that the record is not unequivocal; and that a strong case might be made for not advancing the duty to the full extent thus indicated. Since the application of the cost-of-production standard under section 315 is still in its experimental stages, it may promote accuracy and help to bring about scientific amendments of the present law to illustrate in this investigation the possible danger of using the commission's figures to fortify different and inconsistent conclusions. The data obtained by the commission in the straw-hat investigation are unsatisfactory in the following particulars:

_Representativeness of samples._--In selecting hats assumed to be representative of American production, it was found impracticable to determine the respective percentages of production of cheap, medium-priced, and high-priced hats. In consequence there is some reason to believe that the limited figures secured with respect to cheap American hats has tended to exaggerate American costs beyond what an exactly representative selection would have shown. Figures were secured for only a few producers of cheap American hats, and while it is impossible to say what weight should be given to such cheap American production, expert opinion is not wanting in support of the view that because of the method of sampling employed, American costs as a whole have been unduly elevated for comparison with Italian costs. While it is too late to make any exact mathematical adjustment on this account, it is only fair to urge distinct caution in accepting at their face value and following to their inexorable conclusions the comparisons based on the domestic and foreign data.

Probably the most important principle of sampling employed by the commission's agents when confronted with the problem of selecting for cost comparison a few types of hats from the many manufactured was the choice of those types of hats with respect to which the domestic industry has been suffering the keenest competition. It must be clear that the selection of such hats tended to show the widest cost divergence for the two countries, since it was to be expected that the severest competition would have been experienced when the relatively higher-cost hats of the United States met the relatively lower-cost hats of Italy. Nor could it be said that such hats as were chosen were the only "similar competitive articles," since the foreign manufacturers can and do produce all types and styles sold in the United States. The fact that the American industry earned approximately 10 per cent on its invested capital (even after the payment of large salaries) must be chiefly explained by the profits earned on hats with respect to which there was no such acute competition. Obviously such more profitable hats strengthened the domestic industry's competitive resistance.

_Importers' selling expenses omitted._--Through inadvertence, but none the less unfortunately, the selling expenses of importers were not obtained by the commission. There was considerable testimony at the commission's public hearing to the effect that a relatively heavy burden rests on such importers in selling such straw hats in the United States. (See Transcript of Public Hearing, pp. 110-116.) The American manufacturers' costs of marketing their hats to the jobbers were secured by the commission's representatives, but the selling expenses of importers of foreign hats (without which Italian hats could not reach American jobbers) were not secured: thus, the complete picture of the competitive cost situation is not presented in the commission's report.

The significance of this omission is considerable. Under the provisions of subdivision (c) of section 315 the statutory mandate to consider much "advantages and disadvantages in competition" is unavoidable, and, while it is probably not reasonable to reject the commission's findings as a whole because of this record defect, some allowance would be reasonable falling short of the extreme conclusions to which the data would otherwise point.

In answer to the argument that the domestic industry has so well withstood the competition offered by what seem to be extremely low-cost Italian hats, it has been urged that the Italian producers are far from their market and that jobbers prefer a source of supply more conveniently at hand. This statement involves the admission of a competitive disadvantage suffered by the foreign producer, which is clearly not capable of being measured. However, the one statistically measurable marketing disadvantage of the foreign producer, referred to, was unfortunately neglected when the commission's data were assembled. As has been suggested, costs secured, though not used, for the American producer included his expense of placing his hats in condition ready for delivery to the jobber, but only those Italian costs were obtained which with transportation added bring the product to the docks at New York. Importers must incur the expense of handling and reselling before the product is ready for the jobbers. In so far as such importers perform the jobbers' functions, the objections stated may not be valid, but any importers' costs of reselling to jobbers should undoubtedly have been collected and considered.

It may further be noted that some American manufacturers actually sell their hats to retailers. Such domestic selling expenses were secured by the commission on its schedules, and there is reason to believe that certain overhead items in the assembled costs are probably larger than they would otherwise be because of the imperfect allocation of selling and manufacturing expenses.