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

Part 4

Chapter 42,053 wordsPublic domain

_Deficiencies in comparative overhead data._--More striking in some respects than the failure to secure importers' selling expenses is the contrast exhibited in the commission's report between overhead expenses in the United States and abroad. The foreign overhead expenses are mere estimates, since the commission's representatives were refused access to the original books and records by practically every foreign firm. It accordingly became necessary to resort to estimates based on flat percentages of prime costs or sales price. These were in fact submitted by Italian manufacturers and used by the commission's representatives. It now develops that these percentages have never been analyzed or justified. Indeed, there is no definite record of what expense items were included or neglected in such percentages. The overhead expenses in the United States include very considerable salaries paid to officers of the domestic manufacturing concerns, and the question is presented whether, as some accountants maintain, such salaries should not be charged exclusively to selling rather than manufacturing expenses, since such officers usually pay more attention to the selling end of the business. In the commission's records it appears that about 85 per cent of the total officers' salaries was charged to manufacturing and about 15 per cent to selling. The importance in cost investigations of scrutinizing high salaries should be evident, as they might easily be, although, in this instance it is not suggested that they have been, used to conceal profits. It is worthy of note that the average salaries allowed by the commission's representatives in the domestic costs of all the hats manufactured amounted to 69 cents per dozen--nearly as much as the entire average Italian overhead charge. It is to be remembered, as already stated, that this average amount does not include the additional item allowed in the selling expense for officers' salaries. It is of interest to note, further, that the American firms which complain most of Italian competition showed the largest salary accounts. One firm, in fact, had a salary expense, included in manufacturing cost, of more than $1 per dozen hats. Nevertheless, even after the payment of such salaries, it has been shown that the industry as a whole earned approximately 10 per cent on the invested capital during the period covered by the commission's investigation.

It would be obviously difficult to determine what salaries should reasonably be allowed, but, in view of such a showing, it might be argued with force that, as has been done in other investigations when data unsatisfactory for a fair comparison have been secured, such data on both sides should be excluded from the final calculation. To illustrate, the commission in the present investigation has eliminated the item of interest here and in Italy, since adequate data for the Italian industry were unobtainable. If this principle were followed in the matter of overhead, a conclusion might reasonably be based on the comparison of material and labor costs here and in Italy plus transportation from Italy to our principal market or markets.

To illustrate the possibility, already mentioned, of diverse conclusions from the commission's record, the difference between the material and labor costs here and in Italy, with transportation included, is shown in the following table:

The failure to consider interest on investment in the overhead introduces another difficulty of some importance. If rents actually paid are included in costs, equality of treatment demands that interest on capital invested in plants owned, and therefore not rented, should be considered. In the costs of 14 of the American companies investigated the rent charge amounted to $0.29 per dozen for all styles of hats. It appears that there is no information to show that any one of the Italian companies covered rented its factory; therefore, the failure to include interest on the capital invested in the Italian factories may have overestimated the relative strength of Italian competition. The failure to include interest on invested capital in the Italian costs might justify the exclusion of the rent item from the American overhead costs.

It will, of course, be argued that to disregard all overhead costs in both the foreign and domestic figures in the way suggested would fail to measure the domestic disadvantage arising from relatively higher overhead expenses. There are, however, two considerations, discussed in detail in this statement, which tend to compensate for any inaccuracy which the above findings might imply. They are (1) the method of sampling employed by the commission; and (2) the failure to consider certain of the Italian industries' marketing expenses.

_Conclusions._--The principal significance of the foregoing discussion is to be found in the conclusion that, in recommending under the law an increase in the present rate of duty on lower-priced hats from 60 to 88 per cent on foreign value, the statute is being liberally construed from the point of view of the domestic industry, in the effort to arrive at an equalization of costs in the United States and abroad. Regardless of the legal question as to whether transportation should or should not be included, any higher duty on any of the hats investigated than 88 per cent on foreign value--particularly so high a duty as 105 per cent, or the equivalent 50 per cent on American selling price, which has been suggested by certain commissioners--involves such a grave departure from the economic purposes sought to be promoted by section 315 as to make it highly desirable that the present investigation be reopened before any such increase in duty is proclaimed.

Reviewing, therefore, the whole record in this investigation and dismissing, though not without hesitation, the foregoing argument in favor of a lower rate of duty than 88 per cent, foreign value, on the lower-priced hats, it is submitted that under the law the data collected by the commission in this investigation warrant formal findings of fact to the following effect:

1. The classification for men's sewed straw hats in paragraph 1406 of the tariff act of 1922 should be changed to provide separate rates of duty for imported hats of different foreign values.

2. The present rate of duty should be increased to 88 per cent on imported hats having a foreign value of less than $9.50 per dozen.

3. The present rate of duty should be decreased to 55 per cent on imported hats having a foreign value of $9.50 or more per dozen.

EDWARD P. COSTIGAN, _Commissioner_.

JULY 15, 1925.

APPENDIX

A PROCLAMATION

BY THE PRESIDENT OF THE UNITED STATES OF AMERICA

INCREASING THE RATE OF DUTY ON MEN'S SEWED STRAW HATS

Whereas in and by section 315 (a) of Title III of the act of Congress approved September 21, 1922, entitled "An act to provide revenue, to regulate commerce with foreign countries, to encourage the industries of the United States, and for other purposes," it is, among other things, provided that whenever the President, upon investigation of the differences in costs of production of articles wholly or in part the growth or product of the United States and of like or similar articles wholly or in part the growth or product of competing foreign countries, shall find it thereby shown that the duties fixed in this act do not equalize the said differences in costs of production in the United States and the principal competing country he shall, by such investigation, ascertain said differences and determine and proclaim the changes in classifications or increases or decreases in rates of duty provided in said act shown by said ascertained differences in such costs of production necessary to equalize the same;

Whereas in and by section 315 (c) of said act it is further provided that in ascertaining the differences in costs of production, under the provisions of subdivisions (a) and (b) of said section, the President, in so far as he finds it practicable, shall take into consideration (1) the differences in conditions in production, including wages, costs of material, and other items in costs of production of such or similar articles in the United States and in competing foreign countries; (2) the differences in the wholesale selling prices of domestic and foreign articles in the principal markets of the United States; (3) advantages granted to a foreign producer by a foreign government, or by a person, partnership, corporation, or association in a foreign country; and (4) any other advantages or disadvantages in competition;

Whereas, under and by virtue of said section of said act, the United States Tariff Commission has made an investigation to assist the President in ascertaining the differences in costs of production of and of all other facts and conditions enumerated in said section with respect to the articles included within the class or kind of articles provided for in paragraph 1406 of Title I of said tariff act of 1922, namely, men's straw hats, whether wholly or partly manufactured, not blocked or blocked, not trimmed or trimmed, if sewed, being wholly or in part the growth or product of the United States, and of and with respect to like or similar articles wholly or in part the growth or product of competing foreign countries;

Whereas in the course of said investigation hearings were held, of which reasonable public notice was given and at which parties interested were given reasonable opportunity to be present, to produce evidence, and to be heard;

Whereas the President upon said investigation of said differences in costs of production of men's straw hats, whether wholly or partly manufactured, not blocked or blocked, not trimmed or trimmed, if sewed, wholly or in part the growth or product of the United States and of like or similar articles wholly or in part the growth or product of competing foreign countries, has thereby found--

That no change in the existing rate of duty is required to equalize differences in costs of production in the United States and in the principal competing country, with respect to men's straw hats, whether wholly or partly manufactured, not blocked or blocked, not trimmed or trimmed, if sewed, valued at more than $9.50 per dozen;

That the principal competing country for men's straw hats, whether wholly or partly manufactured, not blocked or blocked, not trimmed or trimmed, if sewed, valued at $9.50 or less per dozen, is Italy;

And that the duty fixed in said title and act does nor equalize the differences in costs of production in the United States and in said principal competing country, namely, Italy, in respect of such men's straw hats, whether wholly or partly manufactured, not blocked or blocked, not trimmed or trimmed, if sewed, valued at $9.50 or less per dozen, and has ascertained and determined the increased rate of duty necessary to equalize the same.

Now, therefore, I, Calvin Coolidge, President of the United States of America, do hereby determine and proclaim that the increase in the rate of duty provided in said act upon men's straw hats, whether wholly or partly manufactured, not blocked or blocked, not trimmed or trimmed, if sewed, valued at $9.50 or less per dozen, shown by said ascertained differences in said costs of production necessary to equalize the same is as follows:

An increase in said duty on men's straw hats, whether wholly or partly manufactured, not blocked or blocked, not trimmed or trimmed, if sewed, valued at $9.50 or less per dozen from 60 per cent ad valorem to 88 per cent ad valorem.

In witness whereof, I have hereunto set my hand and caused the seal of the United States to be affixed.

Done at the city of Washington this twelfth day of February, in the year of our Lord one thousand nine hundred and twenty-six, and of the Independence of the United States of America the one hundred and fiftieth.

[SEAL.]

CALVIN COOLIDGE.

By the President: FRANK B. KELLOGG, _Secretary of State_.

[Transcriber's Note: Original tables presenting data for the years 1923 and 1924 in adjacent columns under each country header have been broken into two parts; one for each year, with headers and rows duplicated.]