DRAWBACK AND BONDING.

[Title III, Sections 314 and 316.]

STATEMENT OF JAMES F. BELL, REPRESENTING THE WASHBURNCROSBY CO., MINNEAPOLIS, MINN.

Mr. BELL. I represent the Washburn-Crosby Co. and bear the indorsement of a number of northwestern mills, some Illinois mills, and the New York Millers' Association.

Senator MCCUMBER. You are to speak on the drawback proposition, are you not?

Mr. BELL. Drawback and bonding.

Senator MCCUMBER. In other words, milling in bond?
Mr. BELL. Yes, sir.

Of course, gentlemen, I do not know what your committee has arranged for in the way of a duty. These administrative features are based upon the existence of a duty. While I may have to refer from time to time to a duty, I want to make my position clear and to say that we are not interested in a duty on flour, except that it should be equal to the duty on wheat. If wheat is free, then flour should be free. If, on the other hand, there is a duty on wheat, then the rate on flour should be the wheat rate applied to the number of bushels used in making the flour imported.

Senator SMOOT. I think we all agree to that.

Senator MCCUMBER. There was a witness here a short time ago who, I think, spoke for the eastern millers. In addition to having the countervailing duty which we intend to allow, and which would be equivalent to 4 bushels of wheat to 1 barrel of flour, he wanted 50 cents a barrel. Do you see the necessity for that?

Mr. BELL. The compensatory duty, Senator, as I say, is based upon the application of the wheat rate to the number of bushels it would take to make the barrel of flour so imported. That assumes, of course, that the cost of production in the countries of export and import is the same. When you make a comparison between Canada and the United States, you find that the costs in Canada are lower than they are in the United States to begin with.

Senator McCUMBER. Now, why is the cost lower? Wages are about the same, are they not?

Mr. BELL. Yes; but upon investigation we find that a dollar of Canadian money will go as far as a dollar of American money in the production of flour. Of course, the American dollar is at a premium, so that if you take our money and invest it in Canada

Senator MCCUMBER (interposing). Leave out the question of exchange.

Mr. BELL. Unfortunately, we can not leave it out.

Senator MCCUMBER. Let us suppose for the sake of argument that the exchange would be normal. Would it not then cost practically

the same?

Mr. BELL. I think so.

Senator MCCUMBER. The cost of production by Canadian mills and the cost of production by American mills would be practically the same?

Mr. BELL I think it would be practically the same.

Senator MCCUMBER. Then, outside of the 4.5 measure, opinion the difference is in the exchange.

Mr. BELL. No. Oh, the difference in the cost is the difference in exchange; yes, sir. The difference in grades is, of course, another matter.

This question, by the way, is simply a matter of arithmetic. It takes 4.5 bushels to make 196 pounds of 100 per cent flour. That, however, is not the flour that is imported into this country and used in this country. It takes five, six, or seven bushels to make the kind of flour that you, Senator McCumber, are accustomed to use. Of course, I realize that it is almost impossible to incorporate into a tariff schedule a schedule that will make up for these inequalities in grades and costs.

I think you are as much interested in the compensatory feature as we are, because if the duty is not compensatory then the Canadian manufacturer and the Canadian laborer are going to benefit. They are given preference as regards the American manufacturer and the American laborer. Furthermore, that tends to neutralize the very benefits that you hope to secure through the enactment of a duty on wheat.

Senator McCUMBER. I think there is no question but that those who want protection on wheat will be ready to give an equivalent protection on flour.

Mr. BELL. I want to make it very clear that we do not want a duty on flour other than that. We are not interested in a duty. If you want free wheat, flour should not be subjected to a duty. We can compete with these people. There is no trouble about that. We can compete if we can do so on an equal basis. And that is what we ask. Senator SMOOT. What change do you want in section 314?

Mr. BELL. May I make a remark with regard to the duty as it stands, Senator Smoot?

Senator SMOOT. Yes.

Mr. BELL. To-day there is included in the emergency tariff act a duty which amounts to about 58 cents in favor of the Canadian miller, and there would be 52 cents, at least, in the proposed House bill. I have prepared schedules on those which I should be very glad to file if you care to see them. As I have said, this is a simple case of arithmetic.

Senator SMOOT. You had better put them in the record.

Mr. BELL. If we can have a flour rate five times the wheat rate it would come very close to ironing out the inequalities. Four and a half times has been suggested. While it may sound unreasonable, yet if you apply it to particular grades that find entry you will find that it would not be far out of the way. It would be reasonably protective. I do not think it would be prohibitive. I think you could justify a rate of five or six times better than you could four and one-half plus 50 cents. That is my personal opinion; that is merely my personal judgment.

As to the administrative features, we have no objection to a duty on wheat, because if it will make a better price and thereby encourage production, we shall be very happy. We have all that we have invested in the production of flour. If we have a duty on wheat, however, we are anxious that it should be as constructive as possible and

a force for betterment along all lines. A mere protective duty is in itself negative; it creates nothing. Whereas we believe that these administrative features could be so altered that through the utilization of this Canadian movement of wheat through the United States, which is heavy, we could at the same time increase the benefit which it is hoped will be secured through a wheat tariff; that is, the creation of a better price, and through a better price greater production. Senator SMOOT. What are the suggestions that you have, Mr. Bell? I haven't heard of any plan of any manufacturer to change the existing law. I do not know what changes you care to make.

Mr. BELL. The necessity for the changes I will speak about later. The changes I can give you very briefly. They relate to bonding and drawback:

Provided, That wheat flour or wheat products produced from imported wheat, or any portion thereof, may be withdrawn for domestic consumption, or transferred to a bonded customs warehouse and withdrawn therefrom, and the several charges against the bond canceled, upon payment of duty equal to the duty which would be assessed and collected by law if such flour or wheat products were imported from a foreign country.

Provided further, That where two or more products result from the manipulation of an imported article and only certain of these products are subject to duty, the several changes against such bond may be canceled upon exportation or upon delivery to a bonded warehouse, of those products which are subject to duty.

Senator SMOOT. You want to do away with the 1
Mr. BELL. No, sir; what we want is-

per cent?

Senator SMOOT (interposing). That is what you will have to do. Mr. BELL. We have that now on by-products, but not on the principal products.

Senator MCCUMBER. You may put that in the record.

Mr. BELL. We want it to read both principal products and byproducts, but H. R. 7456, in transmission to the Senate, contains no such provision.

Senator SMOOT. The House provision is that where imported ma-. terials on which duty has been paid are used in the manufacture of articles manufactured or produced in the United States, there shall be allowed on the exportation of such articles a drawback equal in amount to the duty paid on the materials used, less 1 per cent of such duty.

Mr. BELL. That is right, but if the by-products were not subject. to a duty, then upon the exportation of the principal product we would like to have a drawback.

Senator SMOOT. You would get it whatever duty you paid.

Mr. BELL. That has not been the case, Senator.

Senator SMOOT. Suppose that the wheat carries a duty as it does now and you get wheat from Canada and make flour out of that wheat and then export it. You do not have a duty.

Mr. BELL. Suppose we have to export feed. We can not export feed if

Senator SMOOT (interposing). I believe I see what you want now; but I do not know whether that could be put into a general law, because in some cases it will not do at all.

Mr. BELL. It would not?

Senator SMOOT. No.

Mr. BELL. I am not familiar with the other cases.

Senator SMOOT. What you want is this: You want that wheat to come in, say, at 45 cents. If you make that into flour that you can retain in this country, then you can accomplish your purpose. Mr. BELL. If it is not dutiable.

Senator SMOOT. Yes; if it is not dutiable. You would pay nothing on it at all.

Mr. BELL. Nothing at all.

Senator SMOOT. And you would pay only 1 per cent on the flour itself.

Mr. BELL. That is right.

Senator SMOOT. But that would not work out with some of these other things.

Mr. BELL. It would not?

Senator SMOOT. No.

Senator MCCUMBER. Do you export the by-products?

Mr. BELL. Very little, Senator. The quantity is negligible. It does not amount to anything. It does not lend itself to ocean transportation. Bran, for instance, heats readily in railroad cars.

Senator SMOOT. You have never had trouble selling it, have you?.
Mr. BELL. No; the supply is always short.

Senator SMOOT. We could not make it a general law.
Mr. BELL. We have asked for a specific provision.

Senator SMOOт. Have you the wording as you want it on the record?

Mr. BELL. Yes. I have prepared a short brief, which is not more than four pages long, and have bound with that the wording of the provisions that we would require. I am going to ask the privilege of filing a supplemental brief, with proper references in the brief, so that if you want to go into the matter the material is there. The brief, as I say, is but four pages.

Senator MCCUMBER. You may insert it in the record.

Mr. BELL. The other clause is the bond provision.

Senator SMOOT. That is section 314?

Mr. BELL. Yes, sir; section 314.

Bonding provisions which will permit withdrawal of the principal product or by-product from bond upon payment of duties equal to that imposed upon similar articles of import.

Senator MCCUMBER. Will you illustrate just what you mean by that?

Mr. BELL. Senator McCumber, we bring in wheat in bond and we want to withdraw that for domestic consumption. We manufacture it into flour and feed. We wish to withdraw it for domestic consumption. We ask the privilege of doing so upon the payment of a duty equal to what the Canadian miller would pay if he sent the flour into the United States.

Senator MCCUMBER. You want a higher duty than the duty on the wheat?

Mr. BELL. No. We want it so that it is equal. We want to pay only what the Canadian miller would pay. To-day we pay more. To-day we pay about 59 cents more than he does on the same quality of wheat. If, for instance, I manufacture a unit of wheat at, say, Fort William, and I manufacture that same unit of wheat on this side of the Canadian line, it costs me 59 cents more than on the Canadian side. That is a pure case of arithmetic.

Senator SMOOT. That would be a case of arithmetic.

Mr. BELL. It does seem to us that you would want a duty that is compensatory as much as we want it.

Senator SMOOT. 59 cents a hundred?

Mr. BELL. No; 59 cents a barrel. It is rather an obsolete term. It is the old term "stone." Unfortunately, it is one of the remaining trade names. We think that is a perfectly fair request, because to deny it would be to acknowledge that the duty is not compensatory, and in doing that we would say that we were giving preference to the Canadian manufacturer and to Canadian labor and making possible the introduction of flour into the United States. It means that the farmer, instead of selling wheat in the United States, sells that same quantity of wheat abroad. He loses the sale in the domestic market. The tariff on wheat would aim to prevent that thing. It would seem that if this duty is not compensatory, and if this bonding proviso is not granted, that we would be neutralizing the very benefits that you hope to secure through a wheat tariff.

Senator SMOOT. Let me see if I understand. The wheat comes from Canada and goes into the bonded warehouse?

Mr. BELL. Yes, sir.

Senator SMOOT. A month from now you want to make that wheat into flour.

Mr. BELL. And feed.

Senator SMOOT. You withdraw it for that purpose, and it is in a bonded mill.

Mr. BELL. Yes, sir.

Senator SMOOT. You manufacture flour and feed?

Mr. BELL. Yes, sir.

Senator SMOOT. At the same time?

Mr. BELL. Yes.

Senator SMOOT. Now, what you want is to export the flour.
Mr. BELL. No.

Senator SMOOт. That is the other end?

Mr. BELL. That is the other end.

Senator SMOOT. When you get it over, what do you want to do? Mr. BELL. I want to pay the same duty that the Canadian miller would pay on the flour and on the feed, and keep it for distribution in the United States.

Senator SMOOT. If you did that, then that part of the wheat that was made into bran or some other by-product would bear no duty. Mr. BELL. I pay both. I want to pay the duty on flour and on feed. Senator SMOOT. You do not want to pay the duty then until you have withdrawn it for sale in the United States.

Mr. BELL. Yes. I want to be sure that the duty is compensatory. To-day I would have to pay a penalty of 59 cents as compared with the Canadian miller. In other words, the Canadian miller, Senator Smoot, could bring that in at 59 cents less duty.

Senator SMOOT. If he ships separately as flour and feed?

Mr. BELL. Yes.

Senator SMOOт. Well, that is what I meant.

Mr. BELL. If I bring it in as wheat I pay on it as wheat. He pays on it as flour and feed. The difference is 59 cents in his favor. Öf course, every barrel of that flour brought in destroys the sale of that amount in the United States.