# Popular Science Monthly/Volume 77/October 1910/The Tariff Board: Its Scope and Limitations

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* THE TARIFF BOARD: ITS SCOPE AND LIMITATIONS
By SEYMOUR C. LOOMIS
NEW HAVEN, CONN.
EMINENT authorities on civil government lay down the rule that certain questions should be left to the people or their representatives in a legislative body, and certain other questions should be decided by experts: the latter, not because experts do, or do not, represent the people, but because they are more familiar with the subject matter and better able to reach a correct determination. Upon this principle our federal and state constitutions have separated the legislative from the judicial department. The legislature is chosen particularly to represent the people; the judiciary, because of its knowledge of the administration of the law.
Many, if not most, public questions arising in a republic, may properly be classified in one or the other of two ways: those which should be settled by the people, and those which are best referred for final action to men trained in the subject-matter. There are some questions, however, which can not be put wholly in one or the other of these divisions. They are similar to those issues arising in the practise of law which are mixed questions of law and of fact, as, for example, the question of negligence. The court, when a case involving negligence is before it, decides what standards the law requires and provides certain positive rules which must be obeyed by a party in order for him to be in the exercise of due care. But within those rules there are a vast number of cases which may, or may not, amount to negligence in fact, according as the jury applies the test of what an ordinarily prudent person would, or would not, do under the circumstances.
So the tariff is a question both for congress and for experts. Under our federal constitution, as well as in accordance with the unwritten principles underlying our government, the power to lay duties is vested in congress. It can not be delegated to any other person or body whatsoever. Obtaining the evidence and finding the facts so that the duty can be intelligently levied, falls within the province of experts. It is for congress to say whether a tariff should be designed primarily for protection or primarily for revenue, and to lay duties accordingly. It has no power under the constitution, and ought to have none, to frame a tariff simply for the purpose of allowing certain persons to obtain an excessive profit. Such a tariff has been called a ​tariff for profit. No reasonable person would contemplate the deliberate formation of such a tariff. It has doubtless been brought about as a result of certain schedules, but was presumably unintended by the framers. It is here that legislative machinery breaks down and requires the aid of experts to furnish the foundation for intelligent action. It is conceded that congressmen have no time, even if they have the capacity and inclination, to find out and properly correlate all the intricate items of supply and demand; weigh the variations of cost of production here and abroad, and finally to estimate the relative amount of protection and revenue, which will be yielded according as the duty is more or less. A schedule which produces a large revenue may not be protective and one which is protective may produce no revenue at all. But between these extremes are numberless shifting conditions where the amounts of protection and revenue vary as the duty is higher or lower.
Previous to about a year ago these reasons did not appear to congress sufficient to justify the appointment of a permanent governmental agency to inquire and find out in regard to this subject. But the agitation surrounding the framing of the Payne tariff bill was such that congress in August, 1909, passed a law which recognizes the need of such a board. Merchants and manufacturers throughout the country were emphatic in their demand for it. The great body of manufacturers had begun to realize that their foreign as well as domestic trade was seriously damaged or ruined, for the benefit of a few industries, which were making an excessive profit.
The popular branch of congress did not at first regard this agitation as of enough importance to warrant the passage of any law concerning it. In the senate, however, the finance committee were convinced of its sincerity. Several bills for a tariff commission had been introduced. Those proposing that such a commission should have power to fix rates, even within certain limits to be prescribed by congress, overstepped the domain of a commission for the reasons already stated. Others were within the proper field. On July 3, 1909, while the Payne bill was before the senate, the finance committee reported an amendment which provided for maximum and minimum rates. The general duties in the bill were to constitute the minimum tariff, and the amendment provided that from and after March 31, 1910, there should be added to the general duties a further one of 25 per cent, ad valorem, which was to constitute the maximum rate. It was further provided that, whenever after March 31, 1910, and so long thereafter as the president shall be satisfied that any foreign country imposes no discriminations or restrictions, against the United States, either by way of rates, regulations, charges, exactions or in any other manner, directly or indirectly, upon the importation of the products ​of the United States, and that such foreign country pays no export bounty or imposes no export duty or prohibition upon the export of any article to the United States, which unduly discriminates against the United States or the products thereof, and that such foreign country accords to the products of the United States reciprocal and equivalent treatment, thereupon and thereafter, upon proclamation to this effect by the president, all articles from such country shall be admitted under the terms of the minimum tariff; that is, without the addition of the 25 per cent, ad valorem. The proclamation may extend to the whole of any foreign country or may be confined to, or exclude from its effect, any dependency, colony or other political subdivision, having authority to adopt and enforce legislation, or to impose restrictions or regulations, or to grant concessions, upon the exportation or importation of articles which are, or may be, imported into the United States.
It is further provided that whenever the president shall be satisfied that the conditions which led to the issuance of the proclamation no longer exist, he shall issue a proclamation to this effect, and ninety days thereafter the provisions of the maximum tariff shall be applicable to all productions of such country, whether imported directly or otherwise into the United States.
Then the amendment in the senate closed with this important clause:
To secure information to assist the president in the discharge of his duties imposed upon him by this section, and information which shall be useful to congress in tariff legislation, and to the officers of the government in the administration of the customs laws, the president is hereby authorized to employ such persons as may be required to make thorough investigations and examinations into the production, commerce and trade of the United States and foreign countries and all conditions affecting the same.
This amendment passed the senate and went with the rest of the senate bill to the committee of conference of the senate and house. The provision in regard to the maximum and minimum tariff board clause was cut down and made to read as follows:
To secure information to assist the president in the discharge of the duties imposed upon him by this section, and the officers of the government in the administration of the customs laws, the president is hereby authorized to employ such persons as may be required.
In this form it was finally passed by both houses of congress, signed by the president and is now the law.
What are the powers of this board under this act and what further authority, if any, ought to be given to it in order to make its usefulness as effective as possible?
The purposes of the board are twofold: (1) To secure information to assist the president in the discharge of the duties imposed upon him in the maximum and minimum section. (2) To secure information ​to assist the officers of the government in the administration of the customs laws.
The scope of this language is much greater than appears on its face. The president in order to be satisfied of the existence of the facts, which are the basis of his proclamation, must have accurate information of the details which go to make up the presence or absence of discrimination on the part of every foreign country which does business with the United States. If the president is not satisfied, then the provision for this immense additional duty of 25 per cent, on the total value of the imported goods, remains in effect. It does not become operative by the action of the president, but continues in force by his omission or failure to act. It is evident that there will be enormous pressure from foreign governments as well as from our own importers to see that the president takes action if he has not already done so. If he is satisfied as to one or more foreign countries, and so proclaims in accordance with the law, the United States at once is in a position to demand fair and reciprocal treatment from the others. The fact that the products of any foreign country may be imported into the United States without the payment of 25 per cent, of their value, provided the president is satisfied that such foreign country makes no discrimination against the United States, is a strong argument, not to say leverage, to induce that foreign country to remove the discrimination and reap the benefit of trade with the United States. This would also be to the advantage of our own producers and manufacturers who desire a foreign market for their products.
A differential, or maximum and minimum, tariff, applicable to countries foreign to themselves, is in force in Argentine Republic, Austria-Hungary, Belgium, Canada, Denmark, France, Germany, Greece, Italy, Japan, Norway, Russia, Spain and Switzerland. A general tariff rate applicable to all foreign countries is in force in Mexico, Netherlands, Sweden, Turkey and the United Kingdom of Great Britain and Ireland. The United States had commercial agreements under section 3 of the tariff law of 1897, with Bulgaria, France, Germany, Great Britain, Italy, Netherlands, Portugal, Spain, Switzerland and Cuba. In France changes have been and are now under consideration, making the maximum rate to range from 25 per cent, to 100 per cent, above the minimum.
A brief consideration will disclose the necessity of the president's being correctly and accurately informed as to details in order to become satisfied that a foreign country accords to the products of the United States reciprocal and equivalent treatment. And he must not only be satisfied once, but he must continue to be satisfied in order to have the minimum duties remain. The act provides that so long as the president is satisfied, etc., the articles from such country shall be admitted ​under the terms of the minimum tariff, and that whenever he shall be satisfied that the conditions which led to the issuance of the proclamation no longer exist, he shall issue a proclamation to this effect and ninety days thereafter the provisions of the maximum tariff shall be applicable to all productions of such country whether imported directly or otherwise into the United States.
These duties thus cast upon the president require him to keep in constant touch with the situation, not only of the treatment which our products receive when exported to foreign countries, but also as to the action of such foreign country in respect to export bounties, duties and prohibitions upon the export of any article to the United States, and its effect upon the United States and its products. There are many ways by which a country can indirectly discriminate against another country or its products. One way is to raise the valuation as appears on the invoice or bill of lading. This may result in the payment of a larger ad valorem duty or a higher specific one on account of a different classification. If such treatment is unfair, and is persisted in against the products of a particular country, and not pursued against those of other countries, the treatment is discriminatory. The value of the article exported then becomes of prime importance, for if the value stated on the invoice or bill of lading is less than it ought to be, perhaps so made with the intention of saving duty, then the foreign customs officers have an equitable right to raise the valuation to a proper and reasonable amount, and such action on their part, provided they do the same with the products of all other countries, is fair and just. In order for the president to know in regard to this, he must have accurate knowledge of the cost of production of all articles exported from this country, and as any article made in the United States is likely at any time to be exported, he should also have knowledge of its cost, etc., so as to be ready to act, when the occasion arises, as provided by the act of congress. Some articles are now exported from this country at valuations less than they are sold here. Such practise is not contrary to the law of the United States, but it is contrary to the law of foreign countries to value articles for the purpose of customs lower than they are worth. What they are worth depends to some extent upon their cost in the country where they are made.
The second branch of the tariff board's duties is to secure information to assist the officers of the government in the administration of the customs laws.
What has been said of importations into foreign countries applies to importations into our own. The proper administration of our customs laws requires on the part of the various officers of our government a clear insight into the value and cost of all articles imported. The acts of congress require the general appraiser and the boards of general ​appraisers to "proceed by all reasonable ways and means in their power to ascertain, estimate and determine the dutiable value of the imported merchandise, and in so doing they may exercise both judicial and inquisitorial functions." This, however, only applies to articles which are subject to an ad valorem duty or to a duty based upon or regulated in some manner by the value thereof. In such cases the act distinctly provides that the duty shall be assessed upon the actual market value or wholesale price thereof, at the time of exportation to the United States, in the principal markets of the country whence the goods are exported; and that such actual market value shall be held to be the price at which such merchandise is freely offered for sale to all purchasers in said markets, in the usual wholesale quantities, and the price which the manufacturers or owners would have received, and was willing to receive, for such merchandise when sold in the ordinary course of trade in the usual wholesale quantities. In order to determine with any degree of accuracy, the appraisers, the board of appraisers, and on appeal the government's counsel, must be in possession of the facts in detail to properly know and present the government's side of the case. When one reflects that some 300 to 400 millions of dollars are expected to be annually collected as revenue from the tariff, one realizes that there are sure to be strong tendencies, acting on the exporters of foreign countries and the importers here, to keep the valuations down to the lowest possible sum. The importers are allowed to produce witnesses and try out their cases in very much the same manner as prevails in ordinary cases before the courts of justice, with the additional authority in the board of appraisers that they have inquisitorial powers.
The tariff board can clearly be of great assistance to our various customs officers if it should continually keep informed and have in its possession facts and figures relative to the cost of foreign products, as incidental to their true value and as indicative of the price which the foreign manufacturer or owner would have received and was willing to receive, when sold in the ordinary course of trade, in the usual wholesale quantities, in the principal markets of the country, whence the goods may be exported. Such assistance would be increased when the publications of the tariff board by virtue of their accuracy, completeness and truth come to be regarded as authoritative and are accepted as such both here and in foreign countries. A condition like this would lead to better trade relations between this country and the other powers of the world.
The president has repeatedly stated that he will construe the act as empowering the board to find out the facts at home and abroad so as to assist him in his administration of the maximum and minimum section, and to assist in the administration of the customs laws in general by the officers of the government. With this end in view he has directed ​the board to secure information as to the cost of production in this country of all goods affected by the tariff law, and the cost of their production in foreign countries. Two members of the board, Professor Emery, its chairman, and Mr. Reynolds, have already visited Europe in obedience to the president's orders. Professor Emery has recently returned for consultation, leaving Mr. Reynolds abroad pursuing the work there.
The findings and publications of the board can not hereafter fail to reach congress either directly or by a presidential message, or otherwise, and in matters of tariff legislation should expedite hearings, and furnish solid foundation for intelligent tariff schedules.
In determining the construction to be put upon the language of a legislative act, the debates at the time of its consideration and passage are regarded as important factors in discovering the intention of the legislature as to its scope and meaning.
Senator Aldrich, of Rhode Island, the chairman of the finance committee, introduced the amendment in the senate. Senator LaFollette, of Wisconsin, who was notoriously in favor of a tariff commission, charged that the provisions were purposely such as to render any action by the proposed board of little, if any, value in future tariff legislation, and that no adequate appropriation would be made. "Whereupon Senator Aldrich spoke as follows:
The duties of the commission, the parties to be named by the president, are denned in this act. They will also be defined by the president. So far as the appropriations are concerned, they will undoubtedly be made. This provision was put into the bill in good faith. It was agreed to by the senator from Indiana (Senator Beveridge) who aided in the preparation of it, and it covers all the suggestions and the requirements of the various organizations that have been asking us to provide for the appointment of a commission of this kind.
On the other hand, Senator Hale, of Maine, remarked:
I do not understand the provisions in any way constitute a tariff commission. . . . If I believed that the provisions of the bill would do anything more than allow the president to appoint experts that might from time to time report, and, if necessary, be sent to congress by the president, and that it would be a commission such as the senator wants, I would not vote for the proposition.
Later Senator Aldrich said:
This is not intended to be a partisan or non-partisan commission. It is intended to assist the president in carrying out the work that is assigned to him by the provisions of this section. It is also intended that they shall examine all questions pertaining to tariff matters and the products of foreign countries, so that they may have expert knowledge as to discriminations. For that purpose they will need to be acquainted with industrial conditions in this country and in other countries.
Whereupon Senator Bacon, of Georgia, interrupted and said:
Whereupon Senator Aldrich replied, "Unquestionably." Senator Bacon dwelt further upon the subject and inquired of the senator from Ehode Island if he heard him, whereupon Senator Aldrich answered that he did. And Senator Aldrich further stated:
I think the senator will agree with me, even from that standpoint, that this information ought not to be gathered by men with a partisan bias. I can imagine nothing which would be more detrimental to the purposes which we have in view than a partisan commission sent out to gather information with reference to one political view or one economic view or another. I think it would destroy the usefulness and the purpose of this commission, or whatever you please to call it.
This occurred before the clause was changed in conference between the two houses of congress. When the clause came back in the form in which it was finally passed, it was the subject of a long debate in the senate.
Several senators, among others, Senator Newlands, of Nevada, called attention to the bill as it had passed the senate and then inquired of the chairman of the finance committee, Senator Aldrich, how the change came to be made. Senator Aldrich said that the house conferees objected in toto to it. He said:
The inclusion of the words was a compromise between the two houses. I will say to the senator from Nevada, of course with due deference to his judgment to the contrary, that the provision contained in the bill itself is even broader than it was in the senate, in my judgment. It allows the president to employ whomever he pleases without limit and to assign such duties to them as he sees fit within the limitation of the maximum and minimum provision, and to assist the customs officers in the discharge of their duties. Now these two purposes, especially the latter, cover every conceivable question that is covered by tariff legislation.
Whereupon Senator Newlands inquired whether the bill as it came from the conferees would warrant the president in appointing men who will inquire into and ascertain the difference in the cost of production at home and abroad, of the articles covered by the tariff. Whereupon Senator Aldrich answered:
Unquestionably it will, for the reason. . . the home valuation as well as the foreign valuation of goods is a matter which has to be determined by the customs officers, and that involves, of course, all collateral questions. I have no doubt myself that the provision as it now stands is, as I have already stated, even broader than the provision which passed the senate.
Senator Beveridge then asked Senator Aldrich if he did not differ from Senator Hale when the deficiency appropriation bill was being passed, and Senator Newlands said he was about to ask the same question, to which Senator Aldrich answered that he was not present ​when the senator from Maine (Senator Hale) made a statement on that subject, "but," he said, "I am stating my own views, which are clearly carried out in my judgment by the language used in the act." Senator Newlands then remarked that he was much gratified to receive the assurance from the senator from Rhode Island and that it did credit to that senator's good faith and to his maintenance of his obligation to the senate.
Senator Aldrich then said:
I think I can say, without betraying the confidence of the president, that the views which I entertain are also the views entertained by the president of the United States.
This language of Senator Aldrich, who was chairman of the committee which had charge of the bill in the senate, and who was one of the conferees, was frequently quoted afterwards in the debate, particularly by Senator Beveridge, who was and is in favor of a tariff board with sufficient powers to make itself useful, and the bill was passed with that understanding in the senate. In the house after the conference, the debate was general and nothing contrary to the senate's intention occurred.
For the work of the board the present congress at its last session appropriated two hundred and fifty thousand dollars in the last sundry civil appropriation bill, which contains the following:
To enable the president to secure information to assist him in the discharge of the duties imposed upon him by section 2 of the act entitled "An act to provide revenues, equalize the duties, and encourage the industries of the United States, and for other purposes," approved August 5, 1909, and the officers of the government in administering the customs laws, including such investigations of the cost of production of commodities, covering cost of material, fabrication and every other element of such cost of production, as are authorized by said act, and including the employment of such persons as may be required for those purposes, and to enable him to do any and all things in connection therewith authorized by law, $250,000.
This new provision, while it refers for authority to the old act, is indicative of the construction thereof which has been hereinbefore stated.
The limitations of the tariff board are in the absence of ways and means of obtaining evidence in regard to the facts about which it is to secure information. It has no power to summon witnesses or compel the production of books or papers. If, however, the board shall have access to the facts in the possession of other governmental agencies, such as the consular and secret revenue service, the bureau of corporations in the department of commerce and labor, and of the officers of the government, who have charge of the collection of the corporation tax (if that is held to be constitutional), the ways and means which are otherwise lacking will be largely provided for. Under the law the president can direct all other governmental agencies to aid ​the board and to permit it and its agents, to examine all papers, statistics, evidence, files, etc., in their custody. Such a course would commend itself on the ground of dispensing with duplication of labor and therefore saving expense to the government.
From these considerations it will appear that the scope of the act providing for the tariff board is sufficiently broad for present purposes, and the only action from congress needed is to provide adequate appropriations. To bring about this result, the continued interest, on the part of all persons who desire intelligent tariff laws, and their reasonable and honest administration, is required.
The board can not assume or be given the congressional prerogative of making the rates any more than the president can make the rates under this law. He can proclaim the event, upon the happening of which congress says the different rates shall go into effect. The Supreme Court so held in Field vs. Clark, 143 U. S., 692.
As time shows the necessity, and the work of the board commends itself, or requires it, changes doubtless will be needed in the law; notably some provision authorizing the tariff board to present the facts directly to the ways and means committee, whenever any tariff legislation is before congress. The board should furnish data and memoranda with verifying witnesses, who could be examined by the ways and means committee and by parties interested. In this way the whole people of the country would be represented before the committee in a substantial manner, where now they are practically unrepresented so far as the presentation of the case by witnesses and counsel is concerned. As a check upon the accuracy of the work of the board, parties interested should have the privilege of cross-examination, and also the right to bring before the congressional committee, which is independent of the board and of the department to which it belongs, experts of their own; these experts in turn to be subject to cross-examination by counsel representing the tariff board.
Congress has taken a great step towards the scientific disentanglement of the tariff subject, and towards the consequent enlargement of our foreign trade, and it only remains for the people of the United States to give their cordial support to the board in every reasonable endeavor it makes to obtain the facts which are at the basis of the solution of this intricate and vexing question. Thus will future congresses be able and willing to deal with the tariff in an equitable way.