Current Philippine economics Part II

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Part of The American Chamber of Commerce Journal

Title: Current Philippine economics Part II
Language: English
Year: 1937
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Fulltext: 22 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 PART II. PHILIPPINE EXPORT COMMODITIES 1. INTRODUCTION Productive activity in the Philippines may be roughly classified in two groups, production for domestic consumption, and production for ex port. The first group comprises fishing and the cultivation of rice, corn, and such fruits as ba nanas, mangoes, and papayas. All of these pro ducts are consumed almost entirely within the Islands. The second group comprises the pro duction of sugar, coconuts and coconut products, gold, abaca (manila hemp) and rope, tobacco and toacco products, and embroideries—to men tion only the most prominent. Practically the entire Philippine production of these articles is exported. Timber and lumber also find a sub stantial outlet abroad, but their major market, particularly in terms of quantity, is in the Philippines. Articles produced largely or entirely for local consumption will not be directly affected by the trade provisions of the Independence Act. And a number of the articles produced for export will likewise not be directly affected. Several of them are exported chiefly to countries other than the United States, and some of those which go Chart V RELATIVE IMPORTANCE OF SEVEN MAJOR COMMODITIES in Philippine Export trade 1933-1935 SOURCES: Annual Reports, Insular Collector of Customs. Gold Statistics, Annual Reports, Federal Reserve Board. largely to the U nited States will not, on the basis of present United States tariffs, be subject to export ta^es and import duties. But most of the impotant Philippine exports will be affected by the trade provisions of the In dependence Act, inasmuch as these exports are sold chiefly in the United States, where they are protected by comparatively high tariffs. Sugar is the principal export from the Islands. During the 3-year interval 1932-34, it accounted for over 50 percent of the value of all Philippine exports. In 1935, although still the leading export, it declined sharply both in absolute and relative importance. 'I'his was due to the extra ordinary restrictions which were placed on ship ments to the United States in that particular year. Coconut products rank second in im portance among exports from the Islands, and gold ranks third. Gold is customarily regarded as a trade-bal ancing item but, in the case of the Philippines, it may more properly be considered in the same category as other export commodities. Practi cally all of the gold produced is regularly ex ported. and almost all of it goes to the United States. During the period 1933-35 the United States dollar value of Philippine gold shipments increased because of the enlarged physical pro duction and because of the devaluation of the dollar which occurred in January 1934. The four other Philippine export categories which have been of major importance in recent years are abaca and cordage, tobacco and pro ducts, embroideries, and timber and lumber. The relative values of each of the above seven categories of exports for the 1933-35 period are shown in chart V. In the subsequent chapters of this report, an analysis will be made of the effect which the Independence Act and other recent legislation is likely to have on the export of each of the above commodities to the world and to the United States in particular. Similar analyses will also be made for certain of the minor Philippine exports. 2. SUGAR THE POSITION OF THE SUGAR INDUS TRY IN PHILIPPINE ECONOMY Development of the Philippine Sugar Industry. The culture of sugarcane was known in the Philippines long before Magellan discovered the Islandsin 1521. It was probably first introduced in the island of Luzon by the Chinese coming from Formosa. In the early days the cane was ground by primitive mills, crudely built of wood and stone, and operated by animal power. The juice obtained from the very low extractions of these mills was boiled directly over fires in large open kettles. The resultant product was a low-grade muscovado (raw) sugar. Improved methods of milling were slow in developing; it was not until 1860 that the first steam-driven mill began operations on the island of Negros. These more efficient mills produced a superior grade of muscovado sugar. The first modern sugar central was established on the island of Mindoro in 1910. Gradually the old muscovado mills were replaced by centrigufal mills. By 1920 the modernization of the Philippine sugar industry was well under way. It was not until 1923, however, that the production of centrifugal sugar exceeded the pro duction of muscovado sugar. From 1920 to 1934 the area devoted to sugarcane culture was increased 55 percent, but sugar production in creased over 200 percent. Within the same period the average yield of sugar per acre rose from 0.957 short ton to 2.186 short tons. This rise was due primarily to the use of better varieties of cane, to improved methods of culti vation, and to the introduction of modern centrifugal mills. The most rapid expansion in both acreage and production occurred in the years 1932-34, when the question of Philippine independence was being debated by Congress. Inasmuch as the several independence bills then under con sideration provided for quotas on sugar to be allocated to individual mills and to planters on a production basis, there was an incentive to increase output and hence quota allotments. As a result, Philippine sugar production reached a peak of 1,598,000 short tons in 1934. Since that year it has declined because of the quota provisions of the Jones-Costigan Act and the Independence Act. In 1935 there were 46 sugar centrals in the Philippines with an anJune, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 23 nual milling capacity of 12,000,000 tons of cane, or about 1,500,000 short tons of sugar, based on a normal grinding season of 150 days. Exports of Philippine sugar were small until the latter part of the nineteenth century. They totaled 50,300 short tons in 1859 but increased to 376,400 short tons in 1895, a figure which was not exceeded until 1922. Production declined after 1895 as a result of political disturbances caused by the rebellion against Spain and the American occupation. Exports dropped to 62,250 short tons in 1901. The industry was partially revived in consequence of the passage of the Payne-Aldrich Tariff Act in 1909 providing for the free entry of Philippine sugar into the United States, with an annual maximum dutyfree allotment of 300,000 tons. The outbreak of the World War gave a further incentive to sugar growers, and production increased steadily until 1934 when restrictions were placed on exports to the United States. The area utilized in the production of sugar and the quantitites produced in recent years are shown in table 9. T^ble 9.—Area in the Philippines, 1920-34 in the 1923 1924 1925. 1926. 1927. 561,395 591,740 572,886 586.501 585.636 636,811 Percent "s:s 15.1 If S li If 258.763 325,046 190.711 172,245 25.S51 31,800 475,325 529,091 si 1 .8 13.3 1.317 1.060 1.308 1.379 1.467 1 537 1.513 1.878 2.024 2.186 1928. .. 1929.... 21.3 17.5 20.2 20 1 30.6 551.621 407,703 586,833 634,585 769,394 191,563 163,682 140,694 128,989 121,636 36,326 35,977 39,375 44.240 42,925 779,510 607.362 766,902 807,814 933,955 1930. 1931. 1932. 1933 1934 640,073 633.031 625.435 663,365 755,861 31 2 29.8 28.2 36.0 55.0 866,913 871,292 1,100,214 1,284,986 1,597,949 77.346 51,186 41,671 29,364 23,339 39,508 983,767 35,549 958,032 32,426 1,174.311 28,445 1,342.795 31,305 1,652,593 1 Panocha is a lower grade of raw sugar than muscovado; it is produced for insular consumption. 1 The base year 1920 was selected to show the rapid rise in the importance of centrifugal sugar. Source: Bureau of Statistics, Department of Agriculture and Commerce, Commonwealth of the Philippines. World Conditions in Production Sugar. During the decade 1926-35 a critical situation developed in world sugar production. The industry has been suffering in recent years from low prices resulting from a world surplus. From 1906 to 1931 world production increased from 16,000,000 to 32,000,000 tons. Consumption, however, failed to keep pace with the rise in production, and a large surplus was created which later caused a restriction of production in certain areas. Some of the factors con tributing to this condition are stated below. (1) European beet-sugar production during the World War declined sharply and did not regain its former tonnage until 1925. The cul tivation of sugarcane was greatly expanded, owing to higher prices resulting from the de creased supply. With the resumption of sugar beet planting in Europe after the war, total pro duction of sugar rose from an average of 18,813,000 tons for the period 1918-23 to 31,899,000 tons in 1930-31, an increase of nearly 70 percent. (See table 10.) (2) The yield of sugar per acre of cane in creased and this was accompanied by a re duction in costs. Increased efficiency within the industry resulted primarily from the de velopment of better varieties of cane and also from improvement in methods of cultivation, and more extensive use of modern machinery. (3) The increase in world sugar production was accompanied by a rising tide of nationalism which brought with it innumerable trade restric tions and the dislocation of established markets. Such barriers have encouraged the cultivation of sugar in certain protected areas, to the de triment of exporting regions which formerly supplied these areas. This condition serves to exp lain the plight of Java and Cuba during the period 1931-35. Even the marked decline in the production of sugar by these two countries has had little effect on world output because of expansion elsewhere, such as in the United States insular areas and in British Dominions and dependencies. (See table 10.) World production of sugar increased from 1906 to 1931, but declined during the 5 years 1931-35; the figures were 31,899,000 tons in 1931, 27,253,000 tons in 1933, and 29,013,500 tons in 1935. The Philippine Islands, however, increased production rapidly, nearly doubling their output during the period 1931-34. From the crop year 1925-26 to 1933-34, Philippine sugar production increased 223 per cent; and other insular areas of the United States—Hawaii, Puerto Rico, and the Virgin Islands—in the aggregate, raise their sugar tonnage by 45 percent. From 1925-26 to 1935-36 India increased its production from 3,334,000 to 6,834,000 tons, or by 105 percent. Cuba, on the other hand, decreased its output to 2,899,000 tons, 53 percent of 1925 production; and Java reduced production from 2,230,000 tons to 635,000 tons, 28 percent of the forme total and only 19 percent of the peak production in the crop year 1927-28. The spectaculr rise in Philippine and Indian sugar production and the marked decline in that of Cuba and Java illustrate clearly the effect on producing areas of the increased trade restrictions imposed by the principal consuming areas. Statistics giving the production of each of the above-mentioned areas appear in table 101. Organization of the Philippine Sugar Industry. Sugar production in the Philippines is organiz ed on a basis different from that in many other cane-producing areas. In Hawaii, for example, centrals operate large estates controlling their own production of cane. In the Philippines, however, the industry consists of individual planters who produce the cane and of the centrals which mill it. A few of the centrals grow cane on their own lands, but the area so utilized accounts for only a small fraction of the total sugar-producing area. Individual planters and tenants, raising most of the cane grown in the Philippines, operate under a milling contract with a central. These contracts arre usually drawn for a period of 30 years and provide for either an equal division of the sugar between planters and central or a 60-40 division with the larger share going to the planter. Under the contract, the planters are obligated to have their cane milled by the contracting central, and the central is obligated to furnish transportation for the cane and to convert it into sugar. As a general rule the planters give the central a right-of-way across their lands for railway construction and also guarantee to devote a specified minimum pro portion of their land—usually 50 percent—to the cultivation of cane; the customary practice is to allow only about one-third of the cane land to lie fallow. Some planters, operating without contracts, sell their cane outright to centrals or have it milled on a share basis; however . the amount of sugar produced under such conditions is relatively small..^ The organization of the Philippine sugar industry is largely due to the Philippine land law which forbids the acquisition, ownership, or control of large tracts of public land by indiviiThe figures from Willet and Gray for Philippine production are slightly lower than estimates made by the Philippine Department of Agriculture and Commerce. Table 10.—Raw sugar production in the world and in selected areas, 1926-36 (In thousands of short ton; i. e.. 000 omitted) World pro duction Conti nental United States Philip Islands Other insular of tiie United States Cuba Java India Japanese Empire Crop year 24 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 193 7 duals or corporations. The resultant small hold ings gave rise to the long-term-contract system which guarantees to the centrals a permanent source of raw material without which the com paratively large investment necessary to es tablish such plants would not be warranted. Two of the centrals producing centrifugal sugar also produce refined sugar. In all, there are four sugar refineries in operation in the Phil ippines. Three of these are located on the island of Luzon and one on the island of Negros. The largest plant has an annual capacity of 75,000 short tons. These refineries, however, absorb only a small part of the Philippine pro duction of raw sugar. They manufacture pri marily for export to the United States, but supply a part of the local sugar consumption.2 In 1934 exports of refined sugar equaled 5 per cent of the quantity and 6.5 percent of the value of total Philippine exports of sugar. Location and Sectional Importance of the Sugar Industry. The Philippine sugar industry is located in four principal producing areas: (1) The islands of Negros and Panay, (2) the Provinces of Pampanga, Bataan, and Tarlac, located in the central plain of Luzon, north of Manila; (3) the Provinces of Batangas and Laguna, south of Manila; and (4) the island of Cebu. These four districts supported nearly 85 preent of the Philippine population who were engaged in sugar production in 1934; they accounted for 86 percent of the total Philippine sugar land and they pro duced over 95 percent of the sugar crop. (See table 11.) The Province ' Occidental Negros alone accounted for 39 percent of the total sugar area and 50 percent of the sugar produced in the crop year 1933-34. According to recent estimates made by the Philippine Sugar Association, approximately 15 percent of the total Philippine population is directly dependent on the sugar industry. The degree of dependence, however, varies markedly from province to province. It is estimated that in the Provinces of Occidental Negros and Pam panga 90 percent of the population is dependent on the growing and milling of sugar; in the Prov ince of Tarlac, 60 percent; in the Provinces of Batangas and Iloilo, 50 percent; and in Cebu, 10 percent. In addition to those directly engaged in pro ducing sugar, a portion of the population in each province is indirectly dependent on the industry; for example, those engaged in merchandising, transportation, and the professions. The govern ment-owned Manila Railroad, which traverses the sugar regions in Luzon, receives approxi mately 40 percent of its freight revenue from this source, and the Provincial governments in 5 of the leading provinces are supported pri marily by taxes received from the sugar industry. The island of Negros is probably the most dependent on the production of sugar. The sugar industry is the only important industry in the island, except lumbering which is highly localized. Sugar producers on the island of Negros have a lower cost of production than those in other regions, principally because of more favorable soil and climatic conditions. They also enjoy comparatively low transportation costs through their ability to ship directly by water, avoiding the rail, lighterage, and terminal storage charges which are paid by producers on Luzon. Moreover, the planters’ contracts with the centrals on Negros give them 60 percent of the crop rather than 50 percent usually paid in Luzon. Because of these advantages, it seems probable that the sugar industry on Negros could continue to produce sugar profitably at lower prices than any other region in the Phil ippines. Table 11 shows the production of the principal producing areas in the Philippines, and the esti mated population dependent upon the industry in those areas. Table 11.—Philippine sugar production, for the year ending June 30, 1934, and population dependent thereon, by producing areas Province Estimated Pro- percentage Sugar duction Estimated of populaproduc- per total popu- tion dction acrcl lotion pendent on Population dependent estimated percentages Luzon—Central plain: Pampanga.................................... Bataan.......................................... Tarlac............................................ Luzon—South of Laguna de Bay: Batangas...................................... Occidental.................................... Oriental........................................ Iloilo............................................. Capiz............................................ Cebu: Cebu.......................... ................. 294,173 19,669 37,485 12,602 23,796 Short 208,744 31,712 160,103 812,426 72,132 63,247 25,419 36,040 2.762 3.667 1.687 2.017 1.514 292,900 70,400 210,200 426,200 244,500 488,700 353,000 599,500 357,200 1,064,900 90 30 60 50 25 90 20 10 263,600 21,100 126,100 213,100 61.100 439,800 70,000 299,750 71,400 106,500 Total or average for above areas........... 051,454 1,551,102 2.381 4.107,500 41 1,673,050 Grand total or average for Philipincs. . . 755,854 1,621,288 2.145 13,099,400 15 1,980,000 1 Production figures include both centrifugal and muscovado sugar, consequently the computed production per acre is lower than it would be if the aren and production for only centrifugal sugar were considered. 1 Estimates made by the Philippine Sugar Association. Source: The Philippine Statistical Review, Vol. 2, No. 2, 1935. Employment and Wages in the Sugar In dustry. The number of people wholly or partially dependent on the sugar industry has recently been estimated at 1,980,000, according to the following classification supplied by the Philip pine Sugar Association: (see table 12 below) The planters having contracts with centrals receive 50 to 60 percent of the sugar extracted from their cane. The tenants usually have the same type of contract with the central, but they also pay 10 to 15 percent of the total crop to the landowner as rent. In-certain sections where the landlord furnished a part of the materials and labor, the rental is even higher. The wages of employees in sugar centrals vary in accordance with the type of work performed and the length of the working day, which ranges from 8 to 12 hours. Employees are provided with houses, water, fuel, garden space, and, in many cases, light, as part of their remuneration. Unskilled manual labor is paid a minimum wage of 5 cents per hour with a daily return of from 40 to 60 cents. Semiskilled laborers, such as oilers, and weighers, receive from 60 cents to $1.25 per day, while skilled laborers, such as machinists, mechanics, engineers, and carpenters, are paid from $1.25 to $3.50 per day. Skilled assistants in the office and laboratory are em ployed on a monthly basis with a salary ranging from $100 to $200 per month. The salaries of the department heads and senior executives are, of course, considerably higher. Unskilled plantation laborers are generally paid 15 to 25 cents per day. Skilled laborers, such as foremen, mechanics, and truck drivers receive from 50 cents to $1 per day. Both groups are usually provided with housing facili ties in addition to their money wages. Sugar culture is seasonal in character; consequently many of the laborers are employed only during the planting and harvesting periods. These seasonal workers customarily receive 15 to 25 cents per day and their food and lodging. It has been estimated that the centrals and plantations each pay approximately $6,000,000 annually in wages to labor.9 Investments in the Sugar Industry. In 1935 the Philippine Statistical Review reported investments in sugar centrals to be $84,000,000 and investments in land aDd im provements $181,000,000.* Of the total capital invested in centrals, approximately 45 percent was owned by Filipinos, 30 percent by Americans, and 25 percent by Spaniards. Most of the in vestments in cane lands and improvements have been made by Filipinos; the remainder has been provided principally by Americans and Span iards. The capital employed in crop loans and 3Much of the sugar consumed in the Islands is in completely refined or "washed" sugar. 3 Estimates by the Philippine Sugar Association. 4 The Philippine Statistical Review, p. 310, no. 4, vol. 2, 1935. Estimates by the Philippine Sugar Association place the investments in centrals at 893,250,000 and investments in land and improvements at 8105,000,000. Commissioner Paredes, addressing the United States House of Representatives on May 28, 1936, quoted Mr. Alunan, president of the Philippine Sugar Association, as stating that investments in centrals totaled 884,000,000, and those in lands and improvements 8140,000,000. Table 12.—Classification of persons employed in the Philippine sugar industry1 Occupation Number Dependents! Total ......................... 15,000 75,000 90,000 ......................... 175,000 875,000 1,050,000 ......................... 25,000 125,000 150,000 Plantation laborers: ......................... 40.000 200,000 240,000 ......................... 60,000 300,000 360,000 Miscellaneous employees*........................................................ ......................... 15,000 75,000 90,000 ......................... 330,000 1,650,000 1,980,000 1 Based on estimates made by the Philippine Sugar Association in 1934. > Calculated on basis of 5 dependents per person employed. 3 Laborers temporarily employed during the planting and harvesting season. ♦ Employees of agents and transportation companies. June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 25 miscellaneous investments represents the invest ment of a number of nationalities. Philippine Export Trade in Sugar. Since 1923 the value of Philippine exports of sugar has been greater than that of the exports of any other commodity. In 1932 exports ex ceeded 1,000,000 short tons for the first time in Philippine history. Exports in 1934 rose to a peak of 1,275,000 short tons, valued at 365,450,000. In the 3 years, 1932 through 1934, sugar accounted for 63, 61 and 59 percent, respectively, of total Philippine exports. Be cause of United States quota limitations, ship ments declined in 1935 to 573,500 short tons, valued at S32,990,000, and equaled only 35 percent of total exports but, despite this re Table 13.—Quantities and values of raw sugar exported from the Philippines to all countries and to the United Slates, 1921-35 Total exports Percent of Exports to the United Percent of total value States total quanYear of all Phil- ---------------------------------- tity exported « , ippinc ex- to the United Quantityi \aluc port9 Quantity Value States 1921 . 1922. 1923. 1924 . 1925. 1926. 1927. 1928. 192'J . .1930. 1931 1932 1933 1934. 1915 Short tons 319,532 573.510 $25,518,727 25.582,555 34,519,123 41,868,086 45,514,002 32,229.634 50,295,960 47,542,940 53,244,149 52,240,226 49,963,105 59,801,884 64,333,426 65,454.580 32,990.680 Short tons raw, and refined^ugar, the last1 Statistics on quantity include muscovado, of raw sugar. Source: Annual Reports. Insular Collect RESTRICTIONS UPON THE EXPORTATION OF PHILIPPINE SUGAR TO THE UNITED STATES Recent United States Legislation Affect ing Sugar. The Tariff Act of 1922 fixed the rate on fullduty 96° sugar entering the United States at 2,206 cents per pound; this rate was increased by the Tariff Act of 1930 to 2.5 cents per pound. On May 9, 1934, the President issued a procla mation lowering the duty on sugar to 1.875 cents per pound. The new rate became effective on June 8, 1934. In each of the above instances the rate on Cuban sugar was 20 percent lower than the full duty because of the convention of commercial reciprocity signed by Cuba and the United States in 1902.6 By the terms of the trade agreement between the United States and Cuba, proclaimed on August 24, 1934, the United States granted a reduction in duty on Cuban raw sugr (96°) from 1.5 cents to 0.9 cent per pound effective September 3, 1934. The agreement provides, however, that the reduced duty is to remain in effect only so long as the quota provisions "of the Jones-Costigan Act or their equivalent are operative. Upon the declaration by the Secretary of Agriculture that these provisions have lapsed, the duty on Cuban sugar will revert to a rate which will be 20 percent less than the full duty in effect at the time. On a basis of the present sugar duty, this rate would be 1.5 cents per pound. The Jones-Costigan Act, signed by the Pre sident on May 9, 1934, made possible the appli cation of interstate marketing quotas to con tinental producing areas, together with import quotas for insular possessions and foreign coun duction, sugar remained the leading export pro duct of the Islands. (See table 13.) In 1936 Philippine exports of sugar were considerably larger, since the revised Philippine quota govern ing shipments to the United States was set at 1,000,829 short tons, of which approximately 970,000 tons were permitted to enter the United States duty-free under the provisions of the Independence Act.5 In recent years practically all of the sugar exported by the Philippines has been destined for the United States market. The proportion was 83 percent in 1926, 96 percent in 1929, and has been practically 100 percent since 1930. Total Philippine exports of sugar and exports to the United States are shown in the following table: $16,876,678 20,010,930 30,381,419 37,491,180 41,419,797 29,162,895 47,889,764 45,699,006 52,161,316 52,039,890 49,950,417 59,796,369 64,332.902 65,453.621 32,961,593 lined being converted into its equivalent tries. The act was to continue in operation for a period of 3 years from the date of approval. The quota system was extended for the calendar year 1937 by a law approved on June 19, 1936. The Jones-Costigan Act established the minimum quota for continental beet sugar production at 1,550,000 short tons of raw sugar and for con tinental cane sugar production at 260,000 tons of raw sugar, with the further provision that, should consumption requirements in any year be set at more than 6,452,000 tons, continental producing areas should be allotted, in addition to their minimum quotas, 30 percent of the net increase. The remainder (6,452,000 tons less 1,810,000 tons) has been distributed among the ofl-shore producing areas on the basis of ship ments made to the United States during the three “most representative” years in the period 1925-33. If the Secretary of Agriculture should determine the United States consumption re quirements for any year to be in excess of 6,452,000 tons, "off-shore” areas would be allotted 70 percent of the increase but, if consumption requirement should be less than 6,452,000 tons, these areas would have their aggregate quotas lowered by the full amount of the reduction. The Secretary of Agriculture was also authorized to prorate the quota deficiency of any area among the other producing regions. Provision was made for storage in bonded warphouse of shipments made in excess of quota limitations, such shipments to be charged against the quota for the next succeeding year. The quotas for 1934 were fixed by t.hc Secre tary of Agriculture on June 9 of that year. The consumption requirements for 1934 of sugar for continental United States were estimated to be 6,476,000 short tons of raw sugar. Since the estimate was 24,000 tons above the 6,452,000 tons stipulated by Congress, 30 percent of the excess, or 7,200 tons was added to the continental allotments. The quota for 1935 was fixed at 6,359,261 tons and the revised effective quota for 1936 at 6,812,687 tons (see table 14, footnote 1). On December 4. 1934, the Governor General of the Philippines approved a sugar limitation bill which was designed to bring Philippine pro duction into correspondence with United States quota. The Governor General was empowered to determine and to allocate production quotas based on the amount of shipments to the United States, plus allowances for Philippne consumption and for an emergency reserve. For the year 1935 Philippine consumption was estimated at 70,000 tons and the resrve at 100,000 tons. After the inauguration of the Commonwealth Government, a change occurred in the local sugar administration. On January 21, 1936, a Philippine Sugar Administration was created by the Commonwealth Government to handle the enforcement of the Sugar Limitation Act. This body was authorized to administer the allocation of domestic quotas; the allocation of shipments to the United States remained under the jurisdiction of the United States High Commissioner. The United States quota for the Philippines was 1,015,186 tons in 1934, 981,958 in 1935, and 1,000,829 tons in 1936. The quota for 1937 has been set at 1,035,742 tons. In 1934, the Philippine crop, the largest ever produced in the Islands had already been cut and milled when the quotas were announced. The resulting overshipments in that year were charged against the 1935 quota so that actual exports to the United States in 1935 totaled only 569,000 tons. The planters, however, received benefit payments for their crop reductions in that year. These payments aggregating approximately 815,000,000, partially reimbursed the planter for the cost of planting cane which was later destroyed, and for the restriction in production which averaged 56.5 percent 'when compared with production in 1934. In 1936 the amount of Philippine sugar which could enter the United States duty-free was limited by the Independence Act to the equi valent of approximately 970,000 short tons of raw sugar. However, the 1936 quota under the Joncs-dost.igan Act was originally fixed at 1,098,738 tons. Shipments in excess of the quota stipulated in the Independence Act will be assessed the full United States duty. The ability of the Philippine producers completely to fill their quota for 1936 became doubtful • STlie Independence Act provides for the duty-free entry of 800,000 long tons of unrefined and 50,000 tons of refined sugar. The combined quotas when converted into short tons of 96° sugar are the approximate equi valent of 970,000 tons. •The rate on 96° Cuban sugar was 1.7648 cents per pound under the Tariff Act of 1922, 2 cents per pound under the Tariff Act of 1930, and 1.5 cents per pound after the Presidential proclamation effective June 8, 1934. This last-named remained in force until Sept. 3, 1934, when the CubanTrade Agreement became effective. 26 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 Table 14.—United States sugar quotas assigned to producing areas for the calendar years 1934, 1935, and 1936 (In quota 6.812.687 tong. ■The third quota revision in 1936 was made neressary by the inability of Philippine producers to fill their quota; the Philippine deficiency of 97,900 tons was reallocated to other producing areas. The revised Philippine quota of 1,000,829 tons was admitted duty-free. Based on the provisions of the Independence Act, approximately 970,000 tone are permitted to enter the United States duty-free in any one yar; the remainder, more than 30,000 tons, arrived in the United States in 1935 and therefore could not be included as a part of the duty-free quota for 1936. ■The amount actually received from the Philippines in 1935 was 524,606 tons. Excess shipments made in 1934 were held in bonded warehouse to be applied against the 1935 quota. Restrictions Imposed by the Independence Act. The economic provisions of the Independence Act have placed certain restrictions on the shipment of Philippine sugar to the United States. These restrictions may be divided on a basis of time into three periods: (1) During the first 5 years of the Common wealth Government, the annual quantity of sugar which will be admitted into the United States free of duty is limited to 50,000 long tons of refined sugar and 800,000 tons of unrefined sugar. These two figures approximate 970,000 short tons of raw sugar and are 45,186 tons less than the 1934 quota established under the Jones-Costigan Act. The duty-free limitation is 21,308 tons less than the 1935 quota and 128,738 tons less than the original quota in 1936. All Philippine sugar entering the United Table 15.—Philippine export taxes and United States duties applicable to Philippine sugar marketed in the Uwiled States1 Quota sugar un- ccsh of Indepcndder Independ- cnee Act States in excess of the quota limitation fixed by the Independence Act will be subject to the full United States duty. (2) From the sixth to the tenth year of the Commonwealth Government, the quota stipulated in the act will remain the same, but progressive export taxes will be assessed against such quota sugar exported to the United States. These taxes will amount to 5 percent of the prevailing United States duty during the sixth year of the Commonwealth period, and will be increased by the same amount each succeeding year until, in the tenth or last year, they will amount to 25 percent of the United States duty. Based on the present duty of 1.875 cents per pound, these export taxes will equal 0.09375 cents per pound in the sixth year of the Commonwealth, rising to 0.46875 cents per pound in the tenth year. (3) On Ju’y 4> 1946> when the Philippines obtain their complete independence, it will no longer be required that export taxes be assessed and the quota limitation fixed by the Independ ence Act will cease to be applicable. After this time all Philippine sugar arriving in the United States will be subject to the full United States duty. The various taxes and duties to which Philip pine sugar marketed in the United States will be subject are shown in table 15. COMPETITIVE ASPECTS — UNITED STATES PRODUCTION AND IMPORTS Sugar Production in Continental United States. The regions producing sugar in the United States may be segregated on a basis of those areas producing cane sugar, primarily Lousiana and Florida, and those producing beet sugar. The beet-sugar area may be further divided according to the principal producing regions: (1) Colorado and other Rocky Mountain States, (2) California, and (3) Michigan. The consumption in continental United States of sugar produced therein was 1,216,346 short tons raw value in 1929, or 17.4 percent of the total consumed. The corresponding figures for 1934 were 1,800,190 tons, or 29.3 percent; and for 1935, they were 1,724,430 tons, or 26.9 percent. The beet-sugar area was given a quota of 1,550,000 tons under the Jones-Costigan Act. This quota was never filled, partly be cause of the drought, although in 1934 the quan tity of beet sugar delivered for consumption was 1,545,236 tons. The beet area failed to reach its quota by a margin of 135,000 tons in 1935, and by an amount estimated at 208,000 tons in 1936. Deliveries for consumption of continental cane sugar, however, reached 314,737 tons in 1933, an amount greater than the established quota of 260,000 tons. The quota was again exceeded in 1935 when adjustments permitted the total delivered for consumption to become 309,898 tons. Production in Continental United States Compared With Shipments and Imports. The amount of sugar produced in continental United States has never amounted to as much as 30 percent of the consumption in this area and consequently sugar received from other sources has been the largest factor in supplying the American demand. During the last two decades, this off-shore sugar has come almost entirely from insular territories and possessions of the United States and from Cuba. The relative importance of the various areas supplying the continental United States market is indicated in table 16. Since the passage of the Jones-Costigan Act, production in continental United States has continued at approximately the level attained in 1933, while the proportions received from other areas have tended to approach those which • existed in 1929. Cuba has gained both ab solutely and relatively when 1935 is compared w'ith 1933 but has not attained the position it held in 1929. The insular areas, on the other hand, have lost in position since 1933 although they had a larger participation in. 1935 than in 1929. Among the insular group the percentage figures show that the Philippines supplied 10.4 percent of American consumption in 1929, 19.6 June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 27 Table 16.—Sugar consumed in continental United States, classified according to proportions supplied by various sources 19291 193 32 1 9352 U> Continental United States. Beet.................................. Cane................................. United States insular areas Hawaii........................... Puerto Rico................. Philippine Islands. . . . Virgin Islands............. Cuba........................ Other......................... .7 .7 1.3 >.4 .1 Percei 17. 30 Perce 21 0 7 Perce 26 47 25 Per 26 42 9 3 Total................................................. .2 100.0 30. ■The peak year for sugar consumption in continental United States in the last decade. 2Thc last year before the imposition of quota control. 2The first full year after the imposition of quota control. «Less than 1/10 of 1 percent. Source: Statistics compiled from Willet nnd Gray shown in table 17, p. 58. Under the terms of the Independence Act, the Philippines, during the Commonwealth period, are permitted to sell duty-free in the United States market the approximate equivalent of 970,000 short tons of 96° sugar.12 Because of this privilege the Islands received $43,456,000 in 1935 (on a basis of average prices in that year) more than they would have obtained if they had sold an equivalent amount of sugar at the world price.13 This sum may also be regarded as the premium which the United States paid for Philippine sugar on the present duty-free quota basis as compared with what the cost to the United States would have been if it had pur chased an equivalent amount of sugar at world prices.14 percent in 1933, and 14.0 percent in 1935. Comparing 1935 with 1933, the relative decline of the Philippines as a supplier of the American market was greater than that of any other insular area. This is due primarily to the fact that Philippine production developed much more rapidly immediately preceding 1933 than did production in any of the other insular areas. Consequently the representative years prior to 1934, which were chosen as a basis of quota determination, were below the then existing productive capacity in the Philippines.7 The quotas for Philippine sugar fixed under the Jones-Costigan Act have been greater than the duty-free quota of approximately 970,000 short tons allotted by the Independence Act. The latter, however, is greater than Philippine production in any year prior to 1932. The 1932 figure has been exceeded only during the 2 succeeding years when the United States Con gress was discussing Philippine independence and considering the limitations of Philippine shipments to the United States by a quota to be allocated to individual Philippine producers on a basis of past production. Table 17 shows the total consumption of sugar in continental United States for the period 1928-35 and indicates the principal sources from which it was obtained. continental and insular production had been increasing while imports from Cuba had been declining. The statistics in table 17 indicate that the increased quantities of duty-free sugar sold in the American market were sold in com petition with sugar from Cuba. For the future, it appears that the terms under which Cuban and other foreign sugar will be admitted into the United States will be the most significant factor in determining the sales of duty-free sugar in this market. Before the establishment of quota control, producers of duty-free sugar received the full American price whether they were located in continental United States or in insular areas. The differential between the American and the world price of sugar went to the United States Treasury in the case of sugar imported from Cuba. But in the case of sugar produced in the United States and its insular areas, it went to the private producers themselves. Since the establishment of the quota system the price of sugar in the United States has not been definitely related to the world price.’ Instead, it has been the resultant of current domestic demand and the volume of permitted sales fixed in accordance with the provisions of the Jones-Costigan Act. Up to the present time this price has exceeded the world price not On a basis of existing United States duties, the annual loss in revenue to the United States Treasury resulting from the duty-free admission of the Philippine sugar may be calculated to range from $36,375,000 to $17,460,000. If the United States should purchase sugar from any foreign supplier other than Cuba, the United States Treasury would collect a duty of 1.875 cents per pound. Based on the Philippine dutyfree quota of aproximately 970,000 tons the revenue foregone by the United States Treasury would equal $36,375,000. If the same amount of sugar should be purchased from Cuba the duty would be 0.9 cent per pound or $17,460,000.1S In neither of the above cases would the increase in Treasury revenue, operate to influence the price of sugar in the American market. 7Thc representative years selected for the Philippines by the Secretary of Agriculture were 1931,1932, and 1933. These were the years of largest production for the islands within the period (1925-33) fixed by the Jones-Costigan. Act for the guidance of the Secretary in quota determi[Short tons, raw sugar) Table 17.—Total consumption of sugar in continental United States by sources of supply,1928-35 •The preference gave no price premium to Cuban producers inasmuch as Cuban producers obtained the same price for the sugar they marketed in the United States as for that they marketed elsewhere. •The American price, however, could not long remain below the world price plus the United States duty on Cuban sugar, for, if such a decline should occur, the American supply would be curtailed by the refusal of Cuban producers to sell in this market. loUndcr the preferential arrangement with Cuba, that country has been able to derive the benefit of the spread between the United States and world prices less he amount of the United States duty on Cuban sugar. Oct. 1, 1936. 5 of the is the It is Dutiable and Duty-Free Sugar in the United States Market. For over 30 years prior to the inauguration of the quota system in 1934, sugar prices in the United States approximated world prices plus the preferential United States duty on Cuban sugar, inasmuch as continental and insular the Ph only by much more than the United States duty on Cuban sugar, but also by more than the full duty.10 The average spread between the United States and world prices in 1935 was as follows:11 production together were not sufficient to supply United States quotations—96° sugar spot price........................................................................... 3.23 American consumption requirements.8 During Transportation cost—Cuba to New York—(average for 1935).......................... H5 the period 1929-33 production in continental Net United States quotations—f. o. b. Cuba................................................................................ 3.115 United States supplied less than 30 percent of London quotation, f. o. b. Cuba..................................................................................................... -875 the continental sugar requirements, yet both Differential between United States and world price............................................................... 2.240 28 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 The total premium paid for Philippine sugar at present exceeds the revenue foregone by United States Treasury. This is due to the fact that the spread between the American price for sugar and the world price is greater than the United States duty. The extent of the spread, in turn, is the result of the existing quotas which rather than the duty, now provide the effective limitation on imports. As long as this condition prevails, therefore, some additional cost (above the world price and the full duty) will be paid by the American consumers for all sugar sold in the United States. This arrangement, however, is advantageous to those producers who are permitted to sell sugar in the American market. Philippine Sugar in the United States Market During and After the Common wealth Period. As long as the present quota system prevails, the Philippine producers will no doubt be able to sell in the United States market the quantity of preference sugar fixed by the Independence Act. Assuming that the existing level of sugar prices in the United States is maintained with minimum fluctuations, and that control will also be exercised over the quantity of sugar coming from off-shore areas, Philippine sugar producers will continue to benefit from the tariff preferences accorded them in the American market during the Commonwealth period. The export taxes to be applied to quota sugar during the second 5 years of the Commonwealth period, however, will reduce the advantage of duty-free entry which the Philippine sugar producers now enjoy. Should the quota system be abolished during the Commonwealth period, the various offshore areas would be free from quantitative lim’tation, and American sugar prices would again resume a more definite relationship with world prices. Assuming a continuation of the present United States duty on sugar, the preference rate for Cuban sugar under existing agreements with Cuba would became 1.5 cents per pound. Phil ippine sugc.r entering under the duty-free quota would continue to have a marked advantage over Cuban sugar in the United States market; however, imports of sugar from the Philippines permitted duty-free entry into the United States would still be limited bv the provisions of the Independence Act. The extent of that pre ference when compared with the duty on Cuban sugar is illustrated in table 18. The table also shows the transportation costs from the two countries. Assuming no changes in the United States duty or in the present costs of transportation, Philippine sugar would, in the absence of a quota system, have an advantage over Cuban sugar in these charges during the entire Common wealth period. Even in the tenth year, as shown in table 18, the export tax on the Philip pine product plus transportation costs would total only 0.78125 cent per pound while the duty on Cuban sugar plus shipping charges would equal 1.63 cents per pound, a difference in favor of the Philippines of 0.84875 cent per pound. At that time, however, the price of sugar in the United States might be sufficiently low in re lation to Philippine costs as to reduce materially Philippine participation in the American market. After independence, according to the present provisions of the Independence Act, Philippine Table 18.—Comparative taxes (should the quota system be abolished) and transportation costs for Philippine and Cuban sugar entering the United States 1 (Cents per pound) Philippine sugar Cuban sugar3 .Seventh year......... Eighth year............ Ninth year............. Tenth year............ After independence.. . . port duty 0.09375 .1875 .28125 .375 .40875 1.875 (Based on present rates of duty and transportation costs. It is recognized that these may change during the period under consideration. 2Tlic rates shown for the Commonwealth period arc applicable only to amounts of sugar not in excess of the quota stipulated in the Independence Act. Any excess will be subject to the full United States duty, but will be exempt from Philippine export taxes. »The rate on Cuban 96° sugar was set in the Cuban Trade Agreement at 0.9 cent per pound. , If offshore quotas should be discontinued, the Cubnn rate would become the full United States duty less 20 percent. The transportation cost of 0.13 cent per pound is the latest quoted rate (January 1937). sugar will be subject to the full United States duty. Cuba will theD have the advantage of a rate at least 20 percent lower than the full duty under the terms of existing treaties and agree ments. In addition, Cuba will probably have the continued advantage of lower transportation costs. Should the United States, at that time, not be operating under a quota system, Philip pine producers will be obliged to have a cost of production low enough to enable them to sell at world prices if they are to continue pro ducing sugar for export. If, on the other hand, a quota system is still in force and if some allotment is made for Philippine sugar, then the prevailing price for sugar in this market will be the principal factor influencing sugar shipments to the United States. To attract Philippine sugar under these circumstances, however, it would be necessary that the United States price should exceed the world price by more than the duty applicable to the Philippine sugar plus the cost of transportation. SUMMARY 1. Sugar fulture was carried on in the Philippines before the arrival of the Spaniards in 1521, but modernization of the industry did not begin until 1910. The peak production of 1,598,000 short tons was reached in 1934. The normal productive capacity of modern sugar centrals in 1936 is estimated at 1,500,000 short tons. 2. In recent years Philippine sugar produc tion increased rapidly while world production remained relatively stationary. In 1934 the Philippines supplied a little over 5 percent of total world production. 3. Because of its commanding position in Philippine export frade, sugar is of great im portance to Philippine economy. Investments in the industry are estimated at §265,000,000, of which §84.000,000 is invested in centrals. American participation is confined principally to centrals, investments therein comprising 30 percent of the. total. As a result of the Philippine law, the culture of cane is carried on by thousands of independent planters and tenants; 15 percent of the Philippine population are directly dependent on the industry and 5 im portant provinces rely almost entirely on it for their revenue. The island of Negros is probably the area most dependent on sugar. 4. The United States duty on 96° sugar is now 1.875 cents per pound. Prior to September 3, 1934 when the trade agreement between the tntion costs Tax or United Transpor- Tax or to Atlantic duty plus States tat ion costs duty plus coast transpor- duty to New transporta ports tation costs York tion costs 0.3125 .40625 ^59375 .6875 .78125 2.1875 .5 .5 .5 United States and Cuba became effective, the rate on Cuban sugar was 1.5 cents per pound. The rate on Cuban sugar is now 0.9 cent per pound and under the terms of the trade agree ment will remain so as long as the quota system or its equivalent continues in force. If these limitations should be removed, the duty would automatically revert to 1.5 cents per pound. 5. Exports of Philippine sugar to the United States during the Commonwealth period will be affected by three factors: The absolute quota established under the Jones-Costigan Act (on a basis of present legislation quota control will terminate Dec. 31. 1937); the duty-free quota provided for in the Independence Act: and the export taxes provided for by the Independence Act. In 1936 the original Jones-Costigan quota for the Philippines was nearly 129,000 tons larger than the quota established by the Independence Act. Shipments in excess of the duty-free quota arc subject to the full United States duty. 6. Sugar production in continental United States has supplied less than 30 percent of continental consumption. The remainder has come almost entirely from insular possessions of the United States and from Cuba. Prior to the inauguration of the quota system, sugar prices in the United States exceeded the world price by the amount of the duty on Cuban sugar. Since the establishment, of the quota system, the American price for sugar has not been directly influenced by the world price; it has exceeded the world price by not only much more than the United States duty on Cuban sugar but by more than the full duty. 7. The United States could purchase sugar from foreign suppliers at lower prices than those now paid for sugar from the Philippines. Based on 1935 prices, the "premium” which the United States paid for Philippine sugar entering under the duty-free quota, as compared with what the cost to the United States would have been if it had purchased an equivalent amount of sugar at world prices, amounted to $43,456,000 in 1935. On a basis of existing United States duties, the annual loss in revenue to the United States Treasury resulting from the duty free admission of Philippine sugar may be calculated to range from $36,375,000 to $17,460.000. The total “premium” paid for Phil ippine sugar at present exceeds - the revenue foregone by the United States Treasury, because the spread between the American price for sugar and the world price is greater than the United June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 29 States duty. The magnitude of the "premium” for the future will depend upon the sources of supply, the tariff rates imposed, and the re lationship between the American and world prices for sugar. S. During the last 5 years of the Common wealth period, the export taxes which are to be imposed on exports of Philippine sugar to the United States will reduce the advantages of duty-free entry which Philippine producers now enjoy. After independence Philippine sugar entering the United States will be subject, on a basis of present legislation, to the full United States duty. Cuba, however, on a basis of present legislation will continue to have at least a 20 percent preferential duty,' moreover, it will presumably continue to have lower costs of transportation. If a system of quota control should not then be in operation in the United. States, the Philippines would be able to continue producing sugar for export only if they were able to sell their product at world prices. But if a quota system, including a specific allotment, for Philippine sugar, should still exist, producers in the Islands would be able to continue selling sugar in the United States provided the American price for sugar should then exceed the United States duty by an amount sufficient t.o cover the Philippine costs of production plus transporta tion charges. 3. COCONUT PRODUCTS THE POSITION OF THE COCONUT INDUSTRY IN PHILIPPINE ECONOMY Development of the Philippine Coconut Industry. The coconut industry is one of the oldest and most important in the Islands. When Magellan first arrived in Philippine waters, Siamese junks were already engaged in the copra trade. Throughout all but the last 60 years of the Spanish regime, however, exports of coconut products—as well as other products—were strict ly limited. During the latter part of the nineteenth century, the commercial growth of the soap and margarine industries of Europe gave rise to an increased world demand for copra and coconut oil. Since the crushing of copra and the pre paration of the extracted oil for the manufacture of soap and margarine were principally French developments, France occupied a dominant position in the world trade in copra at that time. Between 1899 and 1903, despite the unsettled conditions which prevailed in the Islands, the Philippines increased their exports of copra over fivefold. The soap and margarine industry in United States developed considerably in years following American occupation of Philippines and hence gave added impetus to the production of coconuts in the Islands. At the outbreak of the World War the Philippines were supplying approximately one-fourth of all the copra entering into world trade. The copra-crushing industry had not as yet developed in the Islands, and so the export of coconut products was almost entirely in the form of copra. The demand for copra and coconut oil was greatly stimulated during the World War period. The prices of all oils and fats rose to extremely high levels, but the price of coconut oil, along with palm-kernel oil, rose somewhat more than the prices of the others. (CocoDut oil has a high glycerin content and is therefore in demand for the production of explosives.) The Philip pines at that time not only expanded the acreage devoted to coconut palms, but also began to develop a coconut-oil export industry.1 Be cause of the scarcity of shipping during the war. it was more economical to export the coconut oil than the more bulky copra. At first only a few large mills and a number of small ones began to crush copra for export but by the ter mination of the war there were over 40 sizable establishments in operation. The cessation of hostilities was followed shortly by a world-wide depression, in conse quence of which the demand for both oil and its byproduct, copra cake, declined sharply. Most of the oil mills had been capitalized on the basis of the high prices of oil, and the high costs of equipment which prevailed during the war. Moreover, too many mills bad entered the field. ICoconut oil was first produced on a commercial scale in the Islands as early as 190G. The exports of oil, how ever, did not assume important proportions until 1914. Table 19.—The growth of the Philippine coconut industry, 1899-1935 Acreage Exporta 2 tionl Copra the the the 1900. 1901 . 1902. 1903. 1904 . 1905 1906. 1907. 1908. 1909. 1910. 1911 . 1912. 1913. 1914 . 1915. 1916. 1917. 1918. 1919 1920. 1921 . 1922. 1921 1921 1925. 1926 1927 . 1928 . 1929 1930. 193*1 1931. 1935 . ^Statistical Bulletin ol the Philippine Islands. ^Annual Reports. Insular Collector of Customs. Copra Desiccated cake coconut Thousands Thousands Thousands Thousands Thousands of of of of of acres metric tons metric tons metric tons metric tons (’) 15 .... ........................... (3) 64 (3) 32 (3) 56 (3) 81 (3) 38 (3) 55 (3) 60 1 (3) 58 1 .... .... (3) 96 3 (3) 107 405 119 .... .... .... 515 140 .... .... ... 570 141 .... .... ... 551 81 5 .... .... 608 86 12 .... .... 652 137 13 669 71 16 .... ... 744 91 44 1 ... 829 54 113 .... .... 922 25 138 37 .... 981 25 76 36 .... 1,032 148 89 44 .... 1,098 170 105 66 .... 1,127 204 88 50 1 1,137 154 110 65 4 1,166 144 102 55 8 1,198 171 115 70 12 1,235 196 142 90 14 1,273 231 140 81 15 1,311 171 187 112 20 1,361 172 145 89 22 1,390 171 162 98 20 1,398 134 112 75 16 1,480 303 157 99 16 1,484 346 145 100 25 (3) ’ 253 165 102 34 Total as Thousands of 15 64 32 56 81 38 55 61 59 100 107 119 140 141 89 104 157 96 159 229 237 143 285 333 341 330 317 372 442 374 497 436 459 350 603 643 4 550 3N'ot available. ^Estimated. ELECTRIC ARC Whatever—Wherever the job—We can do it If it can’t be moved wc will do it on the spot ... if it seems impossible—we will find a way. Electric or gas welding—hard-surfacing oil expcller parts—any metal—every type of work—at a low bid. Years of experience guarantees complete satisfaction, efficient and modern up-todate equipment with our new 800 amp. Arc Welder recently installed in our shop assures excellent work. (Portable Equipment for Outside Jobs) Fernandez Welding and Cutting Co. 534 Aviles, Manila — Tel. 2-36-95 IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 30 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 and most of them employed highly inefficient milling methods. By 1920 every coconut-oil mill in the Islands, with possibly one exception, was forced into liquidation. Most of the mills closed down and the remainder modernized their equipment. At present there are seven major firms (operating eight plants) engaged in the production of coconut oil for export. There are also 10 small mills which crush oil for local consumption. The survival of the copra crushing industry in the Philippines on an export basis was made possible largely because of the protection afforded by the United States Tariff Act of 1922, which imposed a duty of 2 cents per pound on coconut oil.2 This duty has served practically to exclude imports from all sources other than the' Philippines. Table 19 illustrates the marked growth in the Philippine coconut industry from 1899 to 1934. The combined tonnage of the major coconut products exported increased over fortyfold during this interval. The acreage devoted to coconut production advanced without setback from 1913 to 1934. progressing most rapidly between 1916 and 1923. By 1935 more land was devoted to the cultivation of coconut palms than to any other agricultural staple in the Islands except rice. Philippine Participation in World Trade in Coconut Products The major portion of world trade in coconut products is in copra and coconut oil. During the decade 1925-34, total world trade in the 2 products increased from the equivalent to 579,977 metric tons of oil in 1925 to 947,001 tons in 1934, or by over 63 percent.3 During this same period, the Philippines increased their exports from 193.137 tons to 363,151 tons, or by 88 percent. In 1923, they supplied 33 percent of the world trade in copra and coconut oil combined: in 1934. they supplied 38 percent, and for the 10-vear period, they supplied on an average of 34 percent. The other major sup pliers were the Netherlands Indies, Malaya, and Ceylon. The minor suppliers were the South Sea Islands, Cochinchina, and the Malabar Coast. The participation of each of these in the world trade during this period is shown in table 20. With the exception of the Philippines, all of the above-mentioned areas shipped either the total or the major portion of their exports in the form of copra rather than coconut oil. The Philippines, during the decade under consideration, shipped 54 percent of their com bined exports in the form of oil, whereas the remaining world suppliers in the aggregate shipped 17 percent in this form. The dissimi larity in the proportions of oil shipped in these cases is t,o be attributed primarily to the fact that only the Philippines had access to a large, protected market for coconut oil. Organization of the Philippine Coconut Industry. The coconut-growing industry in the Philip pines consists for the most part of small enter prises. The groves on which most of the coco nuts are grown consist of plots of less than 10 acres, large plantations being comparatively few and confined chiefly to the more recently developed sections in the islands of Negros and Mindanao. Plantations in excess of 1,000 acres account in the aggregate for less than 1 percent of the total acreage devoted to coconuts. In point of area under cultivation, coconut j5Foduct.ion ranks second in importance in the Islands, being exceeded only by rice; it generally ranks third in value, being exceeded only by sugar and rice. There are no accurate data available concerning the number of people engaged in the production of coconuts. The ^Philippine Department of Agriculture and Commerce in 1933. however, estimated that 800,000 heads of families were dependent in whole or in part on the raising of the crop. On the basis of 5 persons to the family, this would mean that 4.000,000 people or over 30 percent of the total population of approximately 13,000,000 in the Islands, were directly depend ent on the industry for their livelihood. In addition, a number of others would be indirectly dependent. Coconuts are generally produced on a share tenantry basis. The land, in being developed, is cleared and planted by the tenant who is also permitted to raise supplementary crops for his own account. Several systems are employed in apportioning the proceeds from the sale of the nuts or copra. The tenant is usually re quired to cultivate and harvest the crop and to convert the nuts into copra. The landowner under this arrangement is required to provide the tenant with a dwelling, a kiln, work imple ments, and seed nuts. One-third of the pro ceeds from the sale of the copra goes to the tenant and the remainder to the landowner. Frequently the com raised as a supplementary crop is also shared between the landowner and tenant on a similar basis. Another variation of the share-tenantry system requires the land owner, in developing his grove, to supply the seed nuts and to pay the tenant a cash sum annually on the basis of the number of palms brought to maturity. The nuts are subsequently harvested on a share basis. Still another variation requires the tenant to develop the owner’s property and to produce the copra, the landowner being responsible only for the pay ment of taxes and for negotiating the sale of the copra. The tenant, under this agreement, receives about 85 percent of the proceeds, and the owner, the remainder. In addition to the coconuts cultivated on a share-tenantry basis and on the large estates by hired laborers, a substantial quantity is grown by peasant proprietors, who finance them selves by advances secured against their land and prospective crops. Since they generally obtain their loans from the persons to whom they sell their copra, they are frequently victimized bv unscrupulous creditors. The existing system of agricultural finance in the Philippines bears heavily on the peasants and constitutes a serious impediment to the development of the coconut industry and agriculture in general. Location and Sectional Importance of Coconut Production. Coconuts are growD in every province in the Philippine Islands, but the provinces on the 2Thc Emergency Tariff Act of 1921 imposed a duty of 20 cents per gallon on coconut oil. 3Thc coconut oil equivalent of copra is here calculated on the basis that 1 ton of copra equals 0.63 tons of co conut oil. 1925 1926 Shipments to specified 1927 1928 1929 1930 1931 1932 1933 1934 Yearly Share of average total 1925-34 Table 20.—Copra and coconut oil; Exports from the principal producing regions in the world, 1925-34 Copra: Philippines........... 146,200 149,300 186,900 201,100 176,318 166,780 178,043 133,867 302,492 346,271 198,727 Percent 22.6 Netherlands Indies 206,609 222,560 296,110 436,837 413,986 375,374 359,717 479,534 486,170 407.049 368,395 41.8 Malaya................. 99,156 128,388 83,227 116,755 126,112 121,319 116,460 113,900 112,600 86,928 110,485 12.6 112,546 121,787 97,000 94,250 101,453 89,410 88.800 46,625 64,500 105,681 92,205 10.5 South Se- Islands. 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 150,000 150,000 110,000 12.5 Malaba- Coast... 4,873 1,916 679 ,1 Total................. 664,511 726,908 765,153 948,942 917,869 852.883 843,020 873,926 1,115,762 1.095,929 880.491 100.0 550,573 702,930 690,435 554,709 Equivalent of above total in terms of coconut oill........ 418,642 Coconut oil: Philippines........... 101,0^1 Netherlands Indies 9,300 Malaya................. 7,626 Ceylon................... 27.581 Cochinchina......... 15,397 482,048 141,701 8,000 10,301 30,255 20,191 537,316 184,542 14,655 9,472 38,274 20,869 111,600 16,180 12,387 50,612 15,610 158,928 8,302 18,637 52,500 8,323 145,000 2,526 25,798 145,055 14,568 69,838 13,404 12,143 42,427 16,057 Total............... 579.577 643,112 692,496 837,890 864.094 805,128 773,710 756,962 949,620 947,001 784,959 100.0 Total, reduced to co conut oil: Philippines........... 193,137 Netherlands Indies 139,464 Malaya...................... 70,094 Ceylon....................... 98,485 South Sea Islands. 63,000 Cochinchina......... 15,397 Malabar Coast... .......... 210,359 259,448 154,871 194,550 89,414 62,734 106.215 91,365 63,000 63,000 16,183 20,191 3,070 1,208 274,608 308,782 83.398 95,433 63,000 12,669 289,613 251,141 85,903 94,602 63,000 20,869 270,386 230,675 83,529 104,083 63,000 22,037 319,498 314.589 89,575 93,135 94,500 8,323 363,151 270.253 258,967 246,657 80,562 81,748 136,417 100,516 94,500 69,300 13,404 16,057 ...................................... 428 • 34 31 10 12 8 2 Total ................. 579,577 643,112 692,496 837,890 864,094 805,128 773,710 756,962 949,620 947.001 784,959 100.0 11 ton of copra calculated the equivalent of 0.63 ton of coconut oil. Source: Frank Fehr <k Co., London, 1935 June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 31 island of Luzon account for approximately onehalf of the total acreage in the Islands under cultivation to this crop, and a single province (Tayabas) on Luzon accounts for almost onehalf of the coconut acreage on this island. The island of Mindanao is second in importance in the production of coconuts, accounting for about one-sixth of the total acreage. None of the remaining islands accounts for as much as one-twentieth of the total coconut acreage in the Philippines. For the year ending June 30, 1934, about 1,500,000 acres, or over one-fourth of the total area planted to all crops in the Islands, was devoted to the cultivation of coconuts? A number of the provinces in the Philippines depend predominantly or largely on the coconut industry for their tax receipts. Tayabas obtains over 75 percent of its revenues from this in dustry; 6 other provinces obtain between 50 and 75 percent of their total from it; and at least 10 others obtain 25 to 50 percent from it. Insular Revenue from Industry Both directly and indirectly, the Insular Government derives a considerable portion of its total revenues from the coconut industry. The aggregate receipts from the land, poll (cedula), wharfage, sales and income taxes and from license fees and miscellaneous imports were estimated at S3,750,000 for the industry for 1934, or about 10 percent of the total receipts of the Government for that year? In addition, the Government collected other taxes, such as the. duties on the goods imported by the industry. The following table, prepared by the Philippine Technical Trade Committee, shows the basis for the above estimate of Government revenues? The revenues which the Government receives from land and poll taxes do not vary much from year to year. But the wharfage taxes fluctuate with the quantity of cargo exported, the rate being fixed at SI.00 per metric ton (2,204 pounds). Receipts from sales taxes fluctuate the most widely, inasmuch as they vary with the value of the total ‘ sales” (as legally defined^ made during the year.7 Since the prices of coconut products were extremely low during 1934, the revenues of the Government from this source amounted to only $465,775. against an estimated yearly average of $892,088 for the decade 1925-34. These estimates of sales tax receipts are based on the assumption that copra and desiccated coconut for export are obliged to pay the insular sales tax once, that coconut oil and copra cake and meal for export are obliged to pay it twice, and that locally consumed coconut products pay it three times. These appear to be the minimum frequencies of assessment; actually they are thought to aver age appreciably higher. It may be noted that if the Philippines were to lose their export market for coconut oil. the government would lose revenue, even though the export market for copra should increase bv an amount corres ponding to the copra equivalent of the oil market lost. Investment in Coconut Industry. Reliable data are not available concerning the value and ownership of either the land devoted to the cultivation of coconuts or the Table 21.—Estimated Insular Government revenue derived from coconut industry, 1934 Tuxch on coconut lands................................................................. Poll tax (coduln) from those engaged in coconut industry. Wharfage dues. . ............... ....................................................... f . Total. ■ - ........ 1 ■ • ■ • n........................... 461 946 Total .................................................................................................................................................................... 3,750,000 mills and refineries engaged in the preparation of coconut products. Most of the land-value estimates arc based on the assessed valuations of the properties involved, and these do not reflect accurately other costs or market values. Es timates relating to the values and ownership 4The foregoing arc based on data compiled from The Philippine Statistical Review, vol. 1, no. 4. Manila, 1931. .... IN FACT? ... PRESIDENT HOOVER writes that “THERE IS NO SINGLE DE VICE IN OUR WHOLE ECONOMIC SYSTEM WHICH IS GREAT ER IN IMPORTANCE IN SAFEGUARDING THE WELFARE OF OUR WOMEN AND CHILDREN THAN LIFE INSURANCE’’. WHY not then buy a policy RIGHT NOW and give protection and security to your FAMILY? A ^dtlOildl Ulft 3lnS>UVdnCC endowment or life policy protects you against all emergencies! It also embodies: Personal Accident Benefit Double Indemnity Accident Benefit Extended Insurance Other Standard Features Insure With The jBational life Snsiurance Company and Invest your Money Where It Will Do the Most Good. ARSENIO N. LUZ, General Agent, National Life Ins. Co. P. O. Box 676, Manila. Sir : Send me particulars about your endowment or life policy without any obligations on my part. Ntunc............................................................................ ............................ Address......................................................................................................... Occupation.................................................................................................... How much insurance do you need I*......................... ........................... ................. $1,436,279 ............... 800,000 ............... 580,000 $129,077 31,534 203,846 33,818 67,500 SThc poll tax, or cedula, is assessed against all male inhabitants of the Philippines over 18 and under 60 years of age, except such persons as United States soldiers and foreign officials. •The Technical Trade Committee was appointed by Governor General Murphy in the fall of 1935 to make a survey of Philippine trade and economy. ’The Island sales tax, amounting to 1-1/2 percent, is assessed against each successive sale except the original one made by a producer. IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 32 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 of mills and refineries are not satisfactory be cause of the large number of extremely small establishments concerning which little informa tion is available. According to an unofficial Philippine estimate, the coconut industry in the Philippines represents a total investment of §221.215,000 on July 31, 1935. Ownership of land and milLs was distribut ed among various nationalities as follows:” Table 22.—Investments in Philippine . . . British'.’. . . ' ' All others. ONE START can cause more engine wear than driving 75 miles an hour Every time you start your engine, loo parts are instantly put into motion. For a few moments your en gine runs “dry” of oil — unless the oil flows fast enough to reach every part quickly. This is one reason why starting causes approximately J^ths of your engine’s wear. Golden Shell Motor Oil checks start ing wear because it flows faster! Yet it’s tough enough to withstand high speed heat. Drive in and let us tell you about it. Golden Shell MOTOR OIL The Asiatic PetroleumGo. (P.l.) LTD. P. O. Box 441 MANILA Major Coconut Products. It is estimated that approximately 93 percent of the coconuts harvested during the decade 1925-34 were first converted into copra. 6 percent converted into desiccated coconut, and the remaining 1 percent entered directly into local edible consumption. About. 0.75 percent of the bearing coconut trees were devoted to the proPhilippine coconut industry Land mid Milla, refill- Total investSI 94,665,000 8,375,000 4,185,000 2,095,666 $905,000 1 5,545,000 525,000 3,495,000 1,425.000 $195,570,000 13,920,000 4,710,000 3,495,000 3,520,000 .......... 209,320,000 11,895,000 221,215.000 duction of tuba a native beverage made from the sap of the coconut, palm. No nuts are harvested from the trees tapped for this purpose. No official quantitative data are available concerning the Philippine consumption of coco nut products. Various estimates place it at from 10 to 20 percent of the annual production. The remainder is exported in a variety of forms, but primarily as copra coconut oil, desiccated coconut, and meal and cake. These constitute the major coconut products of the Islands. Copra. The average quality of Philippine copra is generally regarded as inferior to that produced elsewhere in the world except in the South Sea Islands. Moreover, as indicated in table 23, it commands a price in world markets which is much below that offered for the best qualities, and one which is only slightly above that offered for the very poorest qualities. Order Table 23.—London prices for principal grades of copra 1929 1935 G 1 ..................... Fair merchantable good white 2 .....................Fair merchantable sun-dried . . 3 .....................Fair merchantable sun-dried . . 4 .....................Fair merchantable sun-dried. . 5 .....................Fair merchantable sun-dried . . b..................... Fair merchantable...................... 7 ..................... Fair merchantable sun-dried . . 8 ..................... Fair merchantable sun-dried. . Country sun-dried..........Mulabar.................... ........................... Ceylon........................ ........................... Juva............................ ........................... Straits Settlements. ........................... Netherland India.. ........................... Straits Settlements. ........................... Philippine Islands.. ........................... South Sea Islands.. tixo quotation. Source: Average of quotations published in each Saturday’s issue of the Times, London. The best grades of copra are either sun-dried or mechanically dried. From them oil of low acid content and light color can be obtained. Such copra is sought for use in the edible fields and generally commands a premium over other grades. Very little of this variety is produced in the Philippines. The poorer grades are dried in several ways, but chiefly by smoking in crude open kilns. Such copra yiels oil of a high acid Table 24.—Prices of coprain Manila [Buen corriente, per 100 kilos (220.46 pounds) (1 peso =li. S. $0.50)] Ye: Dollars 9.78 8.90 l.Monthly averages are computed on the basis of the average of the opening and closing monthly prices. Sources: 1925-34. and first 9 months of 1935. Leo Schnurmacher, Inc., copra broker, Manila; last 3 months 1935, American Trade Commissioner s (Manila) reports on quotation for resicada grade of copra, reduced by 10 percent to allow for higher moisture content of buen corriente grade; 1936, quotations Manila Daily Bulletin. content and dark color, both of which properties detract considerably from its desirabilty for edible use, but not greatly for inedible use. Inasmuch as Europe uses coconut oil largely for edible purposes and the United States, prior to 1935, used it. chiefly' for inedible purposes, the higher grades of copra generally have been shipped to Europe and the inferior grades to the. United States. This is primarily the reason why the. United States, before May 10, 1934, when the preferential processing tax came into effect, purchased the bulk of its copra from the Phil ippines. Since then it has imported copra almost exclusively from the Islands. Under the existing marketing conditions, producers of copra in the Islands generally find it unprofitable to supply superior grades of copra. Only a limited number of buyers, catering primarily to the European markets offer any premium for the higher qualities. In consequence, practically all of the copra pro duced is of one basic low quality, the commercial grading of which is based chiefly on moisture content. The grade known as buen corriente (“good current”), containing from 12 to 15 percent moisture is the one whose price is most generallyquoted in the domestic Philippine trade. In the export trade only dry copra is dealt in, the grading being based chiefly on origin and appearance. Copra prices in the Philippines.—From table 24 it will be noted that during the decade 1926-35 the price of buen corriente copra declined in Manila from an average of 89.78 per 220.46 pounds (100 kilos) in 1926 to an average of 81.96 in 1934. Id 1934, the year in which the 25 0 0 (1) 23 18 0 14 7 5 22 17 0 (1) 23 0 0 12 9 6 23 0 0 12 9 10 . ..(1) 11 17 5 21 17 0 11 16 9 22 3 0 11 8 2 United States excise tax of 3 cents per pound was first imposed on Philippine coconut oil, the price fell as low as 31.50 per 220.46 pounds, the lowest ever recorded in the Manila market. The price rose by over 100 percent before the end of the year, however, and continued to advance erratically during 1935. During the first half •The Philippines Statistic-ill Review, vol. 2, no. 4, Manila, 1936, p. 310. High IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 33 of 1936, the price fell slightly below the average for the previous year. The higher prices for 1935 and 1936 were in large measure due to the short age of fats and oils in the United States, which shortage operated to increase the world prices of many oils and oil substances besides copra. Exports.—Table 25 shows the quantities and value of Philippine exports of copra to all countries and to the United States during the period 1926-35. It will be noted that the fluctuations in the unit values of the exports coincided very closely with those for the domes tic, buen corriente grade. Prices declined sharply from the beginning of the period under review until 1934, when they reached their lowest levels. In this year, the Philippines shipped to the United States a smaller percentage of the quantity and value of their total exports of copra than in any preceding year in the period, a situation which Philippine dealers attributed to the imposition by the United States of an excise tax on coconut oil in May 1934. In terms of absolute quantities, however, the exports of copra from the Philippines to the United States in 1934 were exceeded in only 3 earlier years in the period. Moreover, the quantities shipped to the United States in the year imme diately preceding and in the year following 1934 were the 2 highest in the decade. Unit prices were higher in 1935 than in any other year following 1931. Coconut Oil. The coconut oil business in the Islands Js primarily an export industry which caters to a single market, the United States. It is estimated that the Philippines export over 90 percent of the coconut oil they produce. The remainder is consumed in the Islands or is exported in the form of vegetable lard, soap, or other manufac tured products. Distribution and ownership of mills.—On March 1, 1936, there were eight large coconut oil plants in the Philippines supplying principally the export trade, and there were ten small plants supplying solely the domestic trade. Six of the larger plants were in Manila and two in Cebu. The ten smaller plants were in seven different cities in various parts of the Islands. Two of the eight larger plants were owned by Americans, two by Englishmen, two by Spa niards, one by Chinese, and one by Filipinos. None of the smaller plants was American owned; Chinese owned five of them, Filipinos four, and Swiss one. Exports.—Table 26 shows the quantity and value of coconut oil exported from the Philip pines to all countries and to the United States for the decade 1926-35. It will be observed that, as in the case of copra, the price of coconut oil declined sharply from the beginning of the period under review until 1934, and then rose sharply again in the foilwing year. The price of coconut oil iq 1935 was above that for any preceding year subsequent to 1931. The Philippines shipped to the United States during 1934 a smaller fraction of their total volume of exports of coconut oil than in any preceding year in the 10-vear period except in 1931, but the amount of oil exported to the United States during this year was only 6 per cent below the annual average for the whole 10-year period. The shipments in 1935, more over, were 12 percent above the annual average for the decade, having been exceeded only once (1929) during this period. Table 25.—Quantities and values of copra exported from Philippines to all countries, and to the United States, 1926-35 Year Exports of copra to all countries Quantity Value Value per 1926. 1927 . 1928. 1929. 1930. 1931 1932. 1933 1934. 1935 Ratio of value of exports of total value of all Phil ippine ex Exports of copra to Ratio of the United Slates quantity of ported to the • United States Quantity Value to totalquan tity of copra exported to all countries. 5.4 8.3 7.8 11.7 Short ton; 142,286 173,973 201,265 142.878 155,603 133,251 91,522 229,279 169,186 229,382 69*4 60.5 67.4 44.8 82.3 Source: Annual Reports, Insular Collector of Customs. PEOPLES BANK & TRUST COMPANY Manila, Philippine Islands Our Trust Department has every facility for serving you to the best advantage as: TRUSTEE FOR BOND ISSUES TRANSFER AGENT OR REGISTRAR OF CORPORATE STOCKS TRUSTEE, EXECUTOR, ADMINISTRATOR AND IN ALL OTHER FIDUCIARY CAPACITIES Individuals and corporations who require the services of an institution of this kind should call or correspond with us. Four Provincial Branches at Your Service Baguio, Mt. Province San Fernando, Pampanga Tarlac, Tarlac San Pablo, Laguna PLUMBING is our Line—Our Specialty— For Over 25 Years You are assured of lower prices—complete stock—widest selec tion—reliable quality—prompt service Lavatories Waterclcsets Bath tubs Bidets Kitchen sinks Urinals Showers, etc. Tiles for wall and floor Bathroom accessories Heaters and Boilers . Watermeters Brass Valves Rubber goods Lighting Fixtures Pipes and Fittings—Galv., Soil, Brass, Lead UNITED PLUMBING CO., INC. Largest Plumbing Supply House in P. I. Importers & Distributors 666-676 Juan Luna ILOILO MANILA BACOLOD IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 34 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 35 copra cake, as sucb, has been in north Europe, whereas the only important market or the meal has been in the United States. Until a few years ago, the cake was shipped principally to Ham burg, from where it was distributed within Ger many and throughout the Scandinavian and other nearby countries. Recent German restric tions on the importation of such materials, how ever, have served to shift the primary markets Sweden, Norway, and Denmark. Exports.—Table 28 shows that from 1926 until 1934, the Philippines generally exported 80 percent or more of their combined cake and meal shipments to countries other than the United States. Since 1934, largely because of the feed shortage in the United States, the Philippines have increased the proportion of their sales in this market very appreciably. Unit prices declined to extremely low levels during 1934, but in the following year they rose to the approximate average attained in 1931. OF ALL, there is the BEST! Carry on with ST. GEORGE DISTILLED LONDON DRY GIN AT ALL GROCERS & STORES A PRODUCT OF LA TONDEflA, INC. on this product and a duty of one-half cent each on raw coconuts.9 Since then the Philip pine export of desiccated coconut products has been almost exclusively to the United States, all of the other markets combined never having taken as much as 0.3 percent of the exports. There were 11 desiccated coconut factories in the Philippines on January 1, 1936, nine of which were in operation and two of which were temporarily closed. With the exception of two plants in Zamboanga and Davao, on the island of Mindanao, all of the factories are in the Prov inces of I.aguna and Tayabas, on the island of Luzon. Six of them are owned by American investors, two by British, one by Japanese, and one by Chinese. Approximately 80 percent of the output of the Islands is produced in the American-owned plants. The unit price of desiccated coconut has tended to follow the general price trend of other THE 1937 FORD V-8 speaks for itself! We are so pleased with the new Ford V-8 that we want you to inspect and drive it. Here is an automobile that has EVERYTHING you demand for fine motor ing. Visit our show rooms and let the 1937 Ford V-8 speak for itself! ••After We Sell We Serve” Manila Trading & Supply Go. PORT AREA, MANILA Over 120 Authorized Ford Service Stations Throughout the Islands Compliments of Germann & Co. Ltd. Agents for Berkefeld House and Industrial Water Filters Tel. 4-90-15 IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 36 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 moderate. As shown in table 29, the exporta tion of desiccated coconut to the United States has increased appreciably during the past few years, the volume in 1935 having amounted to over 40 percent more than in anj- preceding year during the decade. Combined Exports of Major Coconut Pro ducts. On the basis of value, the aggregate exports from the Philippines of the four principal co conut products fell in 1932 to the lowest level reached in the period 1926 to 1935. The trade in that year was the smallest both in absolute value and in relation to the value of total ex ports to all countries. The trade of the Islands in these products with the United States followed a similar course, except that the ratio of exports of coconut products to total exports was lowest in 1934 rather than 1932. During 1933, the value of coconut exports increased absolutely aDd relatively to the total value of exports both for the world as a whole and for the United States. This was followed by a general decline in 1934 and by a very substantial expansion in 1935. In the latter year, the value of the exports from the Philippines of major coconut products to all countries was higher than in any year since 1930, and it constituted a larger proportion of the value of the total exports of all commodities than in any year since 1929. The same was true of the corresponding export trade of the Philippines with the United States. The values of Philippine exports of major coconut products to all countries and to the United States are shown in table 30. (Please turn to page 5.)) Escolta Drug’s New Stand Escolta Drug, driven out by the recent Escol ta fire in its old block, found pleasant refuge nearer the Jones Bridge in the old quarters of the Manila Stock Exchange where the coffee tables are at the front and a specialty is made of a peso-lunch from 11 to 2. New patronage is drifting in. Table 2§—Quantities and values of desiccated and shredded coconut exported from Philippines to all countries with precentages thereof exported to the United States, 1926-351 Ycnr Exports of desiccated and shredded coconut to all countries Ratio of exports of desiccated and shred ded coconut to total Quantity* Value Value per value of all ton3 Philippine exports Exports of desiccated and Ratio of shredded coconut to the quantity of United States desiccated -----------------------------------------and shredded Quantity Value exported to the United States to total quan tity of desiccated and shredded coconut exported to all countries ESTABLISHED 1881 TELEPHONES 22478 p. O. BOX 22 Mariano Uy Chaco Sons & Co. CHACO BUILDING PLAZA CERVANTES AND ROSARIO STREET, MANILA, P. I. DIRECT IMPORTERS AND GENERAL CONTRACTORS TO THE U. S. AND INSULAR GOVERNMENTS SHIP CHANDLERS, HARDWARE OF ALL DESCRIPTIONS, IRON. STEEL, TIN, COP PER, BRASS AND METALS, ROOFING IRON AND BUILDING SUPPLIES RUBBER HOSE AND PACKING, ETC., ETC. PAINTS, OILS AND VARNISHES PROVINCIAL ORDERS ATTENDED TO WITH CARE. INDENfS ACCEPTED. Short tons 15,794 *2,757,658 16,737 2,850,060 22.448 3,723,586 24,566 3,540,124 21,972 2,962,844 18,543 1,822,128 17,717 1,616,701 19,761 1,682,804 25,944 2,254,540 37,443 3,962,315 *207.86 202.72 197.47 171.36 160.53 116,98 108.63 101.38 103.45 125.98 2.0 1.8 2.4 2.2 2.2 1.8 1.7 1.6 2.0 4.2 Short tons 15.763 *2,751,964 16,685 2,840.286 22.419 3,718,268 24,547 3,537,004 21,943 2,958,710 18,522 1,819,691 17,704 1,615,446 19,733 1,679,997 25,931 2,253.236 37,275 3,941,938 Percent 90.8 99.7 99.9 99.9 99.9 99.9 99.9 99.9 100.0 99.6 „ major portion of the small annual shipments not credited to the United States in this table are shipped to the Hawaiian Islands. ^Includes weight of containers. f»In computing unit values, 16 percent has been deducted from the gross weight shown in order to Source: Annual Reports, Insular Collector of Customs. allowforthe weight Table 30.—Values of total exports of principal coconut products from the Philippines to all countries and to the United States, 1926-S51 1926. 1927. 1928. 1929. 1930. 1931. 1932 1933. 1934 1935 Year Value of principal coconut prod uct exported to all countries Ratio of value of exports of principal coco nut products to total value of all Philippine exports Value of principal coconut prod ucts exported to the United States Ratio of value of exports of principal coco nut products to the United States to the value of exports of principal coconut prod ucts to all countries Percent *45,425.830 49,331,022 52,641,236 52,083.672 37,443,888 27,528,657 15,454,738 20,866,209 18,705,656 28,843,650 33.2 *38,833,102 31.7 42,969,646 34.0 44,920,474 31.7 44,285,658 28.1 32,902,818 26.5 21.555,351 16.2 12,063,082 19.7 16,785,452 16.9 12,997,262 30.6 25,670,716 38.8 37.0 38.9 35.6 31.2 IThe coconut products include here are copra, coconut oil, copra cake and meal, and desiccated coconut. Source: Annual Reports, Insular Collector of Customs. Jofcofjama Specie Jhnfc ---- ■ Itb. = (Established 1880) HEAD OFFICE: YOKOHAMA, JAPAN Yeo Capital (Paid Up)........................................................................................ 100,000,000.00 Reserve Funds.............................................................................................. 132,650,000.00 Undivided Profits........................................................................................... 10,708^19.91 MANILA BRANCH 34 Plaza Cervantes, Manila S. Dazai, Manager Telephone 2-35-28 Import Dept. Telephone 2-37-58 Export & Current Deposit Account Dept. Telephone 2-37-59 Manager Telephone 2-37-68 Remittance & Deposit Dept. Telephone 2-37-55 Cashier & Accountant Manila’s Smartest Restaurant RESTAURANT DE PARIS French Cuisine and French Wines Management of Andre Savary Isaac Peral at the Boulevard Telephone 2-89-35 IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 47 2. MINERALS GOLD Location of the Industry. Gold-mining claims have been filed in practical ly every province of the Philippines. Actual production, however, is confined to five regions: (1) the Mountain Province in Luzon which is the oldest and by far the most important pro ducing area; (2) the island of Masbate; (3) the Province of Camarines Norte in Luzon, where pro duction is going forward in the Paracale and Mambulao districts; (4) the Province of Bulacan in Luzon; and (5) the island of Mindanao, which has small producing areas in Surigao and Zam boanga Provinces. In the Mountain and Bulacan Provinces and in the island of Masbate, lode claims are being mined; in Camarines Norte both lode and placer claims are operated, and in the island of Mindanao, gold is obtained pri marily from placer claims. The importance of the industry to each of these different sections is difficult to determine. Because of the long-established and extensive mining developments in the Mountain Province, the industry is probably most important to the economy of that region. Other districts are less dependent upon gold mining, although the industry has contributed to the economic devel opment of the various regions in which it is located; this is particularly true of the ParacaleMambulao district in Camarines Norte which has experienced a marked increase in business activity through the resumption of mining operations. The Development of the Industry in the Philippines. Prior to the arrival of the Spaniards gold was mined by natives in the Benguet and Paracale districts. Under Spanish rule these operations were continued, but no important development of the industry occurred. The application of modern methods and the growth of the industry, therefore, are relatively recent. Many mining companies were organized during the early years of the American regime, but of the companies incorporated prior to 1930 only three are now producing gold. In 1930 these three companies had a daily mill capacity of approximately 500 tons. Since 1930 the industry has progressed rapidly, stimulated at first by the reduced costs of mining operations which accompanied the declining commodity price level, and later by the increased United States price of gold, which was raised from $20.67 per ounce in 1933 to $35 per ounce in 1934. This latter development increased the United States dollar value of the ore reserves of established mines as well as claims containing low-grade ore previously considered of no com mercial value. As a result, prospecting was stimulated throughout the Islands, new com panies were organized, and existing companies made plans to enlarge their plant capacities. By 1935, 15 companies were actively mining gold and several others were engaged in construct ing mills which were to commence operations in 1936. Daily mill capacity for Philippine mines was increased from 500 tons in 1930 to 4,500 tons in 1935. The average daily milling in December 1935 was 4,210 tons; production for that month totaled $1,596,515. At that time it was expected that the mill construction undertaken by new and established mines would increase their daily plant capacity to 7,400 tons in 1936. Number of Gold-Mining Companies and Their Capitalization. Between 1907 (when mining records were initiated) and 1935, the number of gold-mining companies recorded by the Division of Mineral Resources has aggregated approximately 300, many of which are no longer in operation. In 1935, 88 companies were licensed to sell stock in the Philippines. The stock exchange in Manila on March 31, 1936, listed 30 gold-mining companies, with an authorized capital of $25,550,407; of this amount $22,930,686 represented either paid-in or subscribed capital. The surplus and reserves of the 30 companies totaled $2,860,272.1 The combined capital accounts of the two largest companies, which are owned and controlled by American investors, equaled $7,011,650, or 27.2 percent of the total capital and surplus of all listed Philippine mining companies. During 1935, six mining companies paid divi dends, and three of these have within the last few years returned to their stockholders in the form of dividends an aggregate sum in excess of the total capital invested. Taxation. Philippine gold mines are taxed by the Govern ment on the basis of gross output. The tax is assessed on a sliding scale, the maximum tax for any company being 5.5 percent of its annual production in excess of $6,500,000. In 1935 the output of only two companies was assessed at the maximum rate, then 5 percent.2 The present law governing the taxation on the gross output of mines was passed on October 9, 1936, by the Philippine National Assembly. The new schedule of rates is as follows: Tax on gross output (percent) Value of grosq, output (pesos): 1 to 500,000............................................. 1.5 500,001 to 1,000,000............................... 2.0 1,000,001 to 1,500,000............................. 2.5 1,500,001 to 2,000,000............................ 3.0 2,000,001 to 2,500,000............................ 3.375 2,500,001 to 3,000,000............................ 3.75 3,000,001 to 3,500,000............................ 4.125 3,500,001 to 4,000,000............................ 4.5 4,000,001 to 4,500,000............................ 4.75 4,500,001 to 5,000,000............................ 5.0 5,000,001 to 5,500,000............................ 5.125 5,500,001 to 6,000,000............................ 5.25 6,000,001 to 6,500,000............................ 5.375 6,500,001 or more................................... 5.5 Provisions is made for the following deductions from the above taxes: (1) A deduction of 15 percent for lode mines producing gold from ores which average less than 10 pesos but more than 7 pesos per ton. (2) A deduction of 25 percent for lode mines producing gold from orcs averaging less than 7 pesos per ton. (3) A deduction of 35 percent for placer gold mines. Tax on gross output (percent) Values of gross output: 1 peso to 1,000,000 pesos................................... 1.6 1,000,001 pesos to 2,500,000 pesos................... 2.5 2,500,001 pesos to 4,000,000 pesos................... 3.5 Over 4,000,000 pesos............................................ 5.0 Employment and Wages. Philippine gold mines employed approximately 20,000 miners and laborers in 1935; on the basis of this figure, it is estimated that more than 100,000 people are directly dependent upon gold mining for their livelihood. Most of the em ployees arc engaged in the mining of quartz gold in the Benguet district where 8 of the 15 producing mines are located. Two mines in that district employ 8,000 people. The increase in the number of men employed in the industry in recent years is shown by the following figures.3 1 Manila Daily Bulletin Apr. 13, 1936. STlie rates listed below were in effect during 1935. ^Obtained from the Gold Mining Association of the Philippines. MINE MANAGERS OPERATORS------- CONSULTANTS Our Staff of Experienced Technical Men At Your Service Examinations and Technical Services OPISSO & COMPANY, INC 3rd Floor S. J. Wilson Bldg. Juan Luna MANILA P. O. Box 3094 IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 Unskilled laborers............................... $0.40 to $0.70 Miners.................................................... 0.70 to 1.00 Carpenters............................................. U50 to 3.50 Meohanics............................................. 1.25 to 3.25 Foremen................................................ 1.00 to 2 50 Many mining companies have given careful attention to sanitation, medical treatment, and hospital care. Schools are frequently maintained by the companies for the children of their em ployees, and facilities for exercise and recreation are also provided. Production of Gold. The production of gold in the Philippines developed slowly until 1929, when it amounted to S3,370,000. Prior to that time it had never exceeded $1,946,000. Since 1929 the physical quantity of gold produced has increased rapidly and, because of the devaluation of the United States dollar and the Philippine peso, the value of production measured in terms of these curren cies has advanced at an even faster pace. In 1935 the Philippines produced more gold than Alaska and were second only to California among the various producing areas under the The Secret of Good Concrete is A Good Concrete Mixer This illustration slums the “Automix'’ and a McCORMICK-DEERING 5 to 5 h.p. engine mounted on special platform for trailing behind a truck. Capacity: 5-l/2cu.ft. “Batch-a-Minute Mixer” These simple inexpensive concrete mixer outfits turn out a batch of thoroughly mixed concrete every minute. Equipped with Timken roller-bearings, the counter-balance drum of the “Automix,” when loaded, requires practically no effort on the part of the operator to discharge. When discharged, the counter-balance feature automatically returns the drum to charging position. International Harvester Company OF PHILIPPINES 154 M. de Comillas—Tel. 2-22-85 MANILA BRANCHES: ILOILO - BACOLOD - CEBU - DAVAO - LEGASPI - BAGUIO flag of the United States. Production reached $16,000,000 in that year. In October 1936 it was estimated that production for 1936 would exceed $20,000,000. The ore milled in the two largest mines in the Islands in 1935 amounted to $10,602,000, or 66 percent of total production; in the same year production in the four largest mines reached $13,220,000, or 82.5 percent of the total. With only minor exceptions, the entire Phil ippine production of gold is shipped in the form of bars by registered mail to the United States. The bullion when it leaves the mines is only partially relined, and on the basis of quantity contains approximately 53 percent gold and 45 percent silver. The refining is done in the United States by the United States Mint. In 1935 gold was the third most important com modity in Philippine export trade; on a value basis it is only exceeded by sugar and coconut products. Statistics showing gold production in the Philippines and United States imports of gold from the Philippines since 1926 are given in table 51. Table 51.—Gold: Production in the Philippines, and imports into the United Stales from the Phil ippines, l!)26-36x the’’United” States from the Philippines 3 The deposit located in Camarines Sur, 8 miles from tidewater on the Lagonoy Gulf, is known to contain at least 100,000 tons of ore with additional development possibilities still to be explored. The ore body has an average content of over 55 percent chromic oxide. Construction has been completed on an aerial tramway and a pier to facilitate direct loading into deep-water vessels. The company com menced exporting ore to the United States in September 1936. Annual shipments are ex pected to approximate 25,000 tons. In Zambales one deposit has been located near Masinloc. Surveys show that it contains over 10,000,000 tons of ore, which is the largest known body of chromite in the world. The deposit has a relatively low chromic oxide conof the TV RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 49 size and location of the deposit, it is believed that exploitation of the deposit may be undertaken profitably. Construction work is going forward on a road over which to convey the ore to deep water which is 10 miles distant. An incomplete survey of another deposit in Zambales, 9 miles from deep water, shows it to contain 182,000 tons of ore. Three other deposits have been discovered in this region. In addition, the Commonwealth Government has two reserva tions in the Province of Zambales and the United States Government has one reservation. Chromite claims have also been filed in the island of Samar and in Surigao Province, Min danao; however, they are as yet undeveloped. IRON Iron ore has been discovered in Camarines Norte and Bulacan Provinces on Luzon, in the island of Samar, and in the Province of Surigao on Mindanao. Of these four deposits only one at Mambulao, Camarines Norte, is being developed commercially. Exports totaled approximately 300,000 tons in 1935 and at that time it was expected that they would reach 450,000 tons in 1936. Approximately 2,000 men are employed in this development. The Mambulao ore is free from objectionable impurities and has an average ferrous content of 61 percent, with an estimated reserve of nearly 5,000,000 tons. The principal market for this ore is Japan. The deposits in Bulacan near Angat are operat ed by Filipinos using primitive methods. Al though these deposits contain high-grade ore, production is not large and the iron produced is used entirely in local markets. The ore reserve in this district is estimated at approximately 1,000,000 tons. Ore with a ferrous content of 61 percent has also been discovered on the island of Samar. The deposit is believed to contain over 1,000,000 tons of ore but no commercial development has yet been undertaken. The largest iron deposit in the Philippines is located in the Province of Surigao on the island of Mindanao. The entire deposit has been reserved by the Philippine Government. Sur veys indicate that it contains approximately 500,000,000 tons of ore of satisfactory quality with an average ferrous content of 54 percent. About 260,000,000 tons of the ore is accessible for mining and is 9 feet or more in thickness; however, only one-half of this tonnage, because of terrain, could be profitably moved via Dahakan Bay which offers the only natural harbor in that immediate vicinity. Although the deposit was discovered over 25 years ago, the reserve has never been commercially developed. OTHER MINERALS Deposits of silver, copper, and manganese also exist in the Philippines. Silver is produced as a byproduct -of the gold mining industry. Copper deposits of considerable size have been located in the Mountain Province of Luzon but inaccessibility, low-grade ore, and, until recently, copper prices, have combined to retard their development. Plans are being made to develop deposits of copper in the island of Panay and in the Sulu Archipelago. The manganese ore in the Philippines is largely “float.” The size and character of the deposits apparently have not justified extensive exploitation. One com pany, however, located in Ilocos Norte Province, possesses estimated reserves of 100,000 tons. The company is installing machinery and plans to begin shipments of ore in the near future. Cement is produced in two regions in the Islands, in Rizal Province on Luzon and on the island of Cebu. The development in Cebu is carried on by a Government-owned industrial corporation, and the ot her cement plant is op erated by a private corporation. The two com panies produced 640,000 barrels of cement in 1935, practically all of which was consumed in the Philippines. Deposits of coal have been located in Cebu and in the Province of Camarines Sur on Luzon. These deposits, which have been mined in the past, are not now being operated. Surveys have been undertaken, however, to determine whether operations can be profitably resumed. During 1935 and 1936 there was marked activity in the Philippines in the prospecting MANILA STOCK EXCHANGE 139-143 Juan Luna, Manila, P. I. TEL. 2-29-95 | DIRECTORY: MEMBER-HOUSES ALDANESE & CORTES MACKAY & McCORMICK Plaza Goiti 34 Escolta Tel. 2-36-31 Tel. 2-15-57 C. ALDECOA & CO. MARIA MARTINEZ & CO. 40 Plaza Moraga 36 Plaza Moraga Tel. 2-87-24 Tel. 2-22-78 ALEGRE <fc CO. A. MONTINOLA & CO. 34 Escolta 319 Heacock Bldg. Tel. 2-29-12 Tel. 2-67-76 H. E. BENNETT <fc CO. MULCAHY, LITTON & CO. 53 Escolta 30 Plaza Moraga Tel. 2-24-51 Tel. 2-51-13 CAMAHORT & JIMENEZ L. R. NIELSON <fc CO. 34 Escolta 601 Escolta Tel. 2-34-81 Tel. 2-12-81 N. CONCEPCION & CO. MARINO OLONDRIZ Y CIA. 134 Nueva Crystal Arcade Tel. 2-89-66 Tel. 2-22-08 ELLIS, EDGAR <fc CO. OVEJERO & HALL 123 Juan Luna S. J. Wilson Bldg. Tel. 2-29-64 Tel. 2-10-51 JOSE FELIX & CO. ANGEL PADILLA & CO. 36 Escolta Burke Building Tel. 2-39-31 Tel. 2-18-34 GUTIERREZ, GUTTRIDGE & BRIMO PARELLADA Y CIA. 102-106 Nueva National City Bank Bldg. Tel. 2-35-22 Tel. 2-22-63 HAIR & PICORNELL LUIS PEREZ Y CIA. S. J. Wilson Bldg. Samanillo Bldg. Tel. 2-18-44 Tel. 2-59-55 HESS & ZEITLIN, INC. E. SANTAMARIA & CO. Crystal Arcade S. J. Wilson Bldg. Tel. 2-32-74 Tel. 2-33-85 MAX KUMMER & CO. LEO SCHNURMACHER, INC. S. J. Wilson Bldg. El Hogar Filipino Bldg. Tel. 2-15-26 Tel. 2-37-16 S. E. LEVY & CO. SWAN, CULBERTSON & FRITZ Filipinas Building S. J. Wilson Bldg. Tel. 2-38-51 Tel. 2-38-34 HEISE, LARSON & CO. TRINIDAD, CELESTE & CO. 423-35 San Vicente 101 Echague Tel. 2-33-46 Tel. 2-66-09 WOO, UY-TIOCO & NAFTALY 322 San Vicente Tel. 2-30-75 - - - and leasing of oil lands, but no wells were brought into production during this period. Minerals other than those discussed above are known to exist in the Philippines, but thus far they have not proved to be of commercial significance. GOVERNMENT REGULATION OF THE MINING INDUSTRY The Philippine Government has been assisting in the development of mining through its Bureau of Mines in the Department of Agriculture and Commerce. The Bureau performs three distinct functions: (1) The making of topographic and geologic surveys covering mineral deposits, water resources, and soil classifications; (2) the assaying and testing of ores and the inspec tion of mines; and (3) the administration and disposition of mineral lands, the recording of IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 50 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 locations, transfers, and assignments, the in specting of claims and leases, and the granting of patents, leases, or permits. Under the Philippine Constitution the dispo sition of mineral land will be confined to the granting of leases. The Constitution provides that— nil natural resources of the Philippines belong to the State, nnd their disposition, exploitation, development, or An Investment that is Second to None! Business in actual operation and manufacturing the CAPITAL STOCK following: PI,000,000.00 CEMENT TILES AND BRICKS CONCRETE BLOCKS AND PIPES Divided into 10,000,000 shares at SYNTHETIC MARBLE P.10 each par value. Minimum re WASH-OUT MARBLE ASBESTOS ROOFING AND SIDING servations: 1,000 shares or P100.00. TERRAZO FLOORING Only 25% of total reservation pay GRANOLITH for floor, wall, or able with application; balance in stairway. 120 days. LIMITED RESERVATIONS ARE STILL AVAILABLE ASBESTOS AND CEMENT PRODUCTS 4th FLOOR. WISE BUILDING 174-178 JUAN LUNA. MANILA p. O. BOX 2091 • TEL. 4-81- 42 FACTORIES: 105 LARA ST., SAN NICOLAS 1I RIVERSIDE AND MANILA A. VILLA STREETS TEL. 4-92-33 | SAN JUAN, RIZAL wealth Government, both the freehold and lease hold systems of disposing of mineral lands were utilized in the Philippines. As a result some mineral lands are held under patent by private individuals or corporations and some are held under lease executed by the Insular Govern ment. All new leases, however, must be issued in compliance with the provisions of the consti tution and no mineral lands can be permanently alienated in the future. The development of new mineral lands, therefore, must await the determination of policies and regulations by the Commonwealth Government. During the Commonwealth period, Americans will enjoy the same right to participate in the exploitation of natural resources in the Islands as Filipinos; but after the Philippines become independent, it will no longer be required that Americans shall have any greater privileges than citizens of any other foreign country. (Please turn to page 82) ^Constitution of the Commonwealth of the Philippines. Art. XII, Sec. 1. Another Tile Company Pedro Guevara heads Asbestos & Cement Products, capitalized at 1*1,000,000 in ten-cen tavo shares, with a plant in San Juan on River side drive making standard tile and granolithic products for building purposes. In a prospectus dated June the company alleges a purpose to acquire an asbestos deposit in the Islands and go more extensively into the making of asbestos products. The company also reports purchase from M. Karolchuck of the plant and machinery the latter used in construction of the Wilson (Please turn to page 55) MINES Management, Operations, Promo tions, Technical Advice and Con sultations, Assaying, Surveying and Geophysical Prospecting ALVIR & CO., INC. Yutivo Building MANILA OFFICERS AND DIRECTORS REAL SMOKERS PREFER THEM KEGICS Dr. A. D. Alvir............. Pres. & Gen. Mgr. Mr. Walter J. Eaton . .Asst. Gen. Mgr. Mr. V. Lopez................... Vice-Pres. Mr. J. V. Bagtas...........Director & Bus. Mgr. Mr. H. Gilhouser.........Asst. Bus. Mgr. Mr. F. H. Stevens..........Director Hon. F. A. Delgado. . . .Director Atty. J. D. Alvir.......... Sec.-Treas. TABACALERA CIGAR TELEPHONE 2-25-77 IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 54 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 Homestake................................. .0141 Ipo Gold................... .305 Itogon......................................... 1.51 IXL........................................... 1.49 Marsman..................................... Masbate Cons............................ .454 Mind. Hamamali....................... Mineral Ent............................... .118 Mineral Res............................... .433 Mother Lode............................. .149 Northern Mining....................... .153 Palidan Suyoc........................... .150 Paracale Daguit......................... .0122 Paracale Gold................ .339 Paracale Gumaus...................... .742 Paracale Mining....................... .0207 Philippine Amal......................... .119 Philippine Dorado..................... .251 Phil. Iron Mines....................... 1.35 Phil. Racing............................... 1.00 Pilar Copper..................... .118 Prudential................................... .099 Salacot......................................... .081 San Mauricio............................. 3.02 Sta. Cruz Mamb............. .0125 Sta. Rosa. .. .079 Surigao Oriental... .019 Suyoc Cons............................... .467 Synd. Investment. .127 Twin Rivers............................... .417 United Paracale......................... 1.27 Universal Expl........................... .408 Lepanto....................................... Mapaso....................................... Dev. Inc..................................... May Average .574 April Average .G48 March Average .793 Feb. Average .835 .0112 .009 .01 .007 .0089 .28 .224 .215 .185 .20 1.35 1.06 1.05 .85 .933 1.36 .744 .80 .65 .744 70.85 69.00 56.00 60.31 .422 .335 .215 .24 .271 .0119 .0066 .007 .006 .0066 .099 .071 .07 .05 .059 .366 .274 .27 .21 .244 .127 .094 .06 .045 .050 .123 .088 .085 .07 .079 .135 .106 .10 .08 .093 .0116 .0085 .008 .004 .0049 .264 .173 .16 .12 .141 .652 .505 .46 .34 .398 .0225 .0173 .016 .015 .0155 .108 .083 .07 .07 .07 .244 .226 .24 .16 .213 .875 .85 .85 .85 .118 .064 .055 .055 .055 .05 .065 .046 .045 .036 .040 2.69 1.97 2.15 1.70 1.92 .0103 .0052 .006 .004 .0045 .068 .049 .05 .04 .0454 .019 .0114 .01 .009 .0091 .409 .383 .40 .325 .366 .123 .091 .09 .075 .084 .403 .345 .31 .27 .288 .944 .707 .81 .57 .679 .357 .228 .245 .18 .222 .26 ’ .23 .242 .15 .10 .135 .30 .38 .37 .371 JUNE 1, 1937 (Continued from page 86) MINOR COCONUT PRODUCTS 'The Philippine output of coconut products of minor importance has increased appreciably in recent years. None of these has as vet at tained great importance in the export field, although several show considerable promise. Soap Philippine soap, which contains an average of 60 percent coconut oil, is produced in a large number of small factories scattered throughout the Islands. In addition to the 173 registered soap manufacturers (Nov. 1,1935), it is estimated that there, are at least 500 smaller home estab lishments. No data are available concerning the capital invested in this industry, either as to the total amount, or as to the participation by the nationality of their owners. The three largest, soap fact: l ies are owned one each by Americans, Swiss, and Chinese, and they are operated in conjunction with establishments making cooking fats and margarine. Practically all of the other factories and home establishments producing soap arc owned by Chinese. Filipinos, however, own a small number of plants. 'The total annual production of soap in the Islands is variously estimated at from 20,000 to 40,000 short tons, practically all of which is consumed domestically. 'The bulk of this soap is of the poorer grades, the better qualities being imported. In 1935, the Philippines exported soap to the value of 87,085, whereas they im ported soap to the value of 3364,502, over 96 percent of which came from the United States. As the Philippines continue to improve the quality of the domestic product, it is likely that they will be able to become practically selfEngineers! Protect Your MACHINERY by using “SYRACUSE” BABBITTS for bearing service I SYRACUSE BABBITTS are scientifically manufactur ed by the secret “Stanley Process”. This process, which is under the exclusive control of Syracuse Smelting Works of Brooklyn, N. Y., gives Syracuse Babbitts the unusual ability to carry heavy load without stretching; absorb shocks without cracking; and remain cool while the shaft is revolving at high speed. No “hard points’ or “soft spots” in Syracuse Babbitts. Your machinery is assured of long life and efficient service when you use these metals for bearings. Made Only By UNITED AMERICAN METALS CORP’N SYRACUSE SMELTING WORKS EXPORT DIVISION Brooklyn, N. Y. — Chicago, Ill. Distributed exclusively in P. I. by YUTIVO SONS HARDWARE CO. Yulivo Building Manila P. O. Box 47 Branches: Cebu and Davao IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 55 sufficient in soap and they may be able to expand their export trade appreciably, thereby increasing the domestic consumption of coconut oil. At the present time, it is estimated, the Philippine Table 31.—Quantities and value of soap exported from the Philippines to all countries and to the United States, 1932-35 1932 .......... 1933 ........... 1934 .......... 1935 ........... lExclueh,-c of Hawaii and Guam. Annual Reports, Insular Collector of Cuslor Edible Oils and Fats. Until recent years the Philippines depended in considerable measure on imports for their supplies of cooking oils and edible fats, par ticularly Chinese lard, peanut oil, cottonseed oil, and grease. At present one large factory and a number of smaller ones supply the bulk of the domestic requirements for these products with substitutes prepared principally from Philippine coconut oil. They also supply a modest but an enlarging export market. It appears probable that the Philippines will continue to enjoy an expanding market for these coconut products both at home and abroad. With improvement in the quality of the products and the decline in their price, prejudice against coconut-oil preparations has been disappearing. The Chinese population in the Islands, for example, has more and more been substituting refined coconut oil for peanut oil. In the foreign field, the demand for coconut-oil preparations has likewise been increasing, particularly among the Mohammedan population in the Far East. The largest Philippine factory engaged in the production of cooking oils and vegetable lard and butter consumes, it is claimed, more than 20,000 tons of coconut oil per year. The oil is produced in its own plant and is then converted into cooking oil, vegetable lard, and vegetable butter. The factory is well equipped with elaborate refining and processing machinery, and fabricates its metal containers from sheet tin by the use of automatic equipment. Coconut oil, edible.—Thelargest foreign markets for edible Philippine coconut oil are the Straits Settlements and Netherlands Indies, where it is used chiefly for cooking purposes by the Mo hammedan population. In 1935, the first year in which exports were of importance, they amounted to approximately 2,200,000 pounds valued at 3100,579. Only $1,046 worth of this oil was shipped to the United States. Vegetable Lard. Although the exports of vegetable lard are small in comparison with the quantity consumed within the Islands (estimated at over 1,000 tons a month), the exports have recently assumed considerable importance. Until 1935 they went chiefly to countries in the Far East, but during this year the major portion went to the United States. The sudden rise in exports totheUnited States at this time is to be accounted for by the fact that there was no provision in the United States Revenue Act of 1934 for taxing Philippine manufactures embodying oils which themselves were subject to the excise tax. The United States Revenue Acts of 1935 and 1936 made these products subject to the excise tax, and since 1936 the exports to the United States have soap industry consumes from 3 to 4 percent ot the copra produced in the Islands. The following table shows the Philippine export trade in soap for the years 1932-35: All countries Quantity Pounds 26.299 55.095 507.336 238,774 United States 1 Quantity Value Pounds 210,971 128.032 $5,075 3,392 declined. Table 32 shows the Philippine export trade in vegetable lard for the period 1932-35. Table 32.—Quantities and values of vegetable lard exported from the Philippines to all countries and to the United States 1932-35 Year ■ Exclusive of Hawaii and Guam. .■source: Annual Reports, Insular Collector of Customs Vegetable Butter (Margarine). This product, like vegetable lard, is manufac tured chiefly for Philippine consumption. Ithas practically displaced the imported margarine, most of which formerly came from Europe. The export industry, though still small has progressed very rapidly. The markets are almost entirely in the neighboring countries, the United States at no time having been of more than negligible importance. Although the Table 33.—Quantities and values of vegetable butter exported from the Philippines to all countries, and tothe United States, 1932-35 Year 1932 1933 1934 1935 ■ Exclusive of Hawaii and Guam. Source: Annual Reports, Insular Collcctt Fatty Acids and Glycerin. Coconut oil cbd be broken down chemically into fatty acids aDd glycerin. Fatty acids are used in the production of soaps. Since the United States Revenue Act of 1934 placed no compensatory tax on imported products made from oils subject to excise taxes in the United States, the Philippines as well as other countries found it profitable for a time to export fatty acids to the United States. One large firm in the Islands installed expensive machinery for pro ducing fatty acids and succeeded in shipping about 10,000.000 pounds to the United States before the Revenue Act of 1935 went into effect, subjecting fatty acids (along with other products Table 34.—Quantities and values of glycerin exported from the Philippines to the United States, 1932-351 Year Value 1932 1933. $8,949 1934. 15,901 1935. ■Since the United States iB the only export market, this table also shows the total exports |of this product from the ^Source: Annual Reports, Insular Collector of Customs. lOFrior to July 27,1935, fatty acids were not separately classified in United States import statistics. From this date to the end of 1935, imports from the Philippines amounted to 5,150,679 pounds, valued at $267,848. During the same interval, imports from other countries, Another........... (Continued from page 50) Building on calle Juan Luna. It claims to have contracted with Siochi & Co. to supply brick and tile for Cebu’s new capitol, and to have fur nished these materials for various new Manila buildings including Malacanan Annex. So far as the Journal knows, this is the third such enterprise on an extensive scale launched in the Manila district, the oldest being the Ma nila Hume Pipe & Tile Works in Sta. Mesa. Nicolas Estella is vice president of Asbestos & Cement Products, Emilio Ejercito is the general manager, Miss Carmen Garcia is the treasurer, and Cirilo B. Villamin the secretary. Offices are on the 4th floor of the Wise Building, Juan Luna, with the other Guevara offices. All countries Quantity Value Pounds 061,611 752,847 953,478 2,075,782 United StatcU Quantity Value Pounds 220,899 $11, 179,307 8, 296,827 11, 2,037,522 118, British East Indies provided the best foreign market when this Philippine product was first introduced into other countries, the Netherlands Indies now ranks first in importance. It has re cently been purchasing about two-thirds of the total exports from the Islands. Other minor markets are Siam and Hong Kong. The following table shows the Philippine exports of vegetable butter from 1932 to 1935: All countries Quantity Pounds 41,239 227,226 1,178,778 1,904.457 Value $2,731 15,526 76,599 152,493 Year United States* Quantity Value Pounds 'eb 2,065 '$6 442 of Customs. processed outside of the United States from taxed oils) to a compensatory tax.10 Since then, the Philippines have not fouDd it profitable to continue the production of fatty acids for export. The Philippines have regularly exported small amounts of gycerin, all of which they marketed in the United States. During the short period when it was profitable to export fatty acids, Philippine exports of glycerin increased very sharply. Any permanent expansion of exports of glycerin from the Islands will depend largely on the extent to which they will find it profitable to produce soap and fatty acids. The following table shows the exports of glycerin from the Philippines for the period 1932-35. Quantity Value Pounds 174,587 $14,177 742,459 35,101 chiefly Germany, amounted to 7,502,941 pounds valued at $308,549, all of which were subject to a duty of 20 percent and. effective Sept. 30, 1935, to a compensatory tax equal to the tax on the oils. The Revenue Act of 1936 continued the excise tax on such imports. 56 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 May 1937 Gold Production Mine 22,307 5,989 37,270 24,276 not available Antainok.................................................... Baguio Gold.............................................. Balatoc....................................................... Benguet Consolidated.............................. Benguet Exploration................................ Cal-Horr.................................................... Demonstration........................................... East Mindanao......................................... Gold Creek................................................ Ipo Gold.................................................... Ttogon........................................................ I.X.L.—Argos............................................ I.X.L........................................................... Masbate Consolidated............................. Salacot....................................................... San Mauricio............................................. Suyoc Consolidated.................................. Tambis Mining not available................ United Paracale......................................... Total........................................... P3,433,462.56* ‘Including: Coco Grove not available...................... Northern Mining not available.............. Charcoal. During the World War, the Philippines ex ported small amounts of coconut-shell charcoal to the United States for use in the manufacture of gas masks. With the conclusion of the war, the demand for this product ceased. More recently, however, new uses have been found for it. such as in the production of commercial gas absorbents. Coir The cleaned fiber of the coconut husk, known as coir, has long been of commercial importance in countries other than the Philippines, particular ly India. The material is used chiefly for making mats, brooms, brushes,fbats, paper, pulp, and fur niture stuffing. The Philippines are endeavoring to develop the production of these products on a commercial scale but have not thus far been successful. Labor costs appear to be too high at present to enable the Islands to compete with producers in countries such as India. Raw Coconuts. On several occasions the Philippines have attempted to market husked coconuts in the United States for the edible trade. The trial shipments thus far indicate that the superior qualities (chiefly in size) of the Philippine nuts are outweighed by their higher landed costs as compared with nuts imported into the United States from Dearer sources. Palm Sap and Coconut Milk. The sap of the coconut palm and the milk obtained from the nuts are used domestically in the preparation of fresh beverages, sugar and coconut, sirup, and vinegar; the sap is also used in the preparation of wines and spirits. It is estimated that in recent years about 0.75 percent of the bearing palms in the Islands are tapped for their sap and are therefore withdrawn from the production of nuts. Thus far, no export trade of any consequence has been developed in any of these products. Coconut Flour, Paper, and Plastics.11 The manufacture of these coconut derivatives is still in the experimental stage. At present M.-.y. 1937 Tons Milled Value P440,156.05 100,628.98 1,095,444.78 817.981.70 21,420.00 May, 1937 5,753 99,396.82 8,000 131,543.00 3,580 62,500.00 (Included in Antamokl Tons Mliled Value 14,763 P396,186.76 5,337 92,185.00 37,515 954,636.70 24,934 787,702.76 2,242 13,866.22 4,982 74,536.30 6,218 146,259.00 5,428 17,882 3,680 7,352 46,018 5,020 5,633 6,250 31,772 yds. 8,298 49,231.07 292,439.05 26,024.21 183,549.31 248,796.36 34,130.28 225,988.46 121,759.82 14,793.45 139,997.67 1,670 5,254 14,303 5,374 26,413 5,000 4,691 5,100 29,149 yds 5,514 P4,105,781.01 56,557.54 52,622.30 214,074.57 25,558.19 72,893.33 145,022.36 37,000.00 106,433.83 96,064.56 10,578.75 113,125.56 53,339.02 626 4,819.45 coconut flour, which is made from the meat of the coconut, possesses poor keeping qualities, is inferior in flavor and is not easily digestible. Coir paper is very brittle and is suitable only for wrapping. Coir board (made from coir dust), however, is considered an excellent substitute for cork board for use as insulating material in refrigerator equipment. Molded plastics can be made from coir dust copra meal and waste coconut pulp, by the condensation of aldehydes and cellulose under the influence of heat. RECENT LEGISLATION AFFECTING THE EXPORTATION OF PHILIPPINE COCONUT PRODUCTS TO THE UNITED STATES The quantities and values of Philippine co conut products exported to the United States have always been the resultants of numerous factors. Among those which have recently assumed major significance, either because of their present or their probable future effects are: The United States Agricultural Adjust ment program, the droughts of 1934 and 1936 in the United States, the Philippine Independ ence Act, and the United States Revenue Acts of 1934 and 1936. The operation of some of these factors has tended to obscure the force of some of the others, and the operation of at least one of them, the Independence Act, has not as yet become apparent. The purpose of the following discussion is to consider the present and probable future effects on Philippine in terests which may properly be assigned to the provisions of (1) the Independence Act and (2) the United States Revenue Acts of 1934 and 1936, insofar as they affect, or may affect, the exportation of coconut products to the United States. The effects of this legislation cannot be fully isolated from the effects of other factors, and any estimate for the future is particularly subject to error because of the unforeseen tech nological and economic changes which may develop. Certain observations, nevertheless, appear warranted, but they are to be regarded merely as statements of tendencies, whose op eration for the future will in part be conditioned upon the continuance of the present United States tariff rates and classifications on coconut products. Independence Act. The Independence Act provides for certain restrictions on the movement of Philippine coconut products to the United States. The major products—copra, coconut oil, copra cake and meal, and desiccated coconut—are to be affected as follows: (1) During the first 5 years of the Common wealth Government, the maximum quantity of coconut oil which may be admitted into the United States duty-free in any calendar year is 200,000 long tons (224,000 short tons). Any excess is subject to the full United States duty. No restrictions of any kind are placed on the movement of the other major coconut products from the Philippines to the United States. (2) During the second 5 years of the Common wealth Government, the duty-free quota on coconut oil will remain unchanged, but the allotments will become subject to the same progressive Philippine export taxes to be applied against all Philippine exports to the United States which would be subject, to duty if entered from a foreign country. Exports of coconut, oil to the United States in excess of the duty-free quota will not. be subject to Philippine export taxes but they will be subject to the United States duty. The export taxes will also apply to desiccated coconut and t.o cake and meal but not to copra, assuming, of course, the con tinuance of the present United States tariff rates and classifications. (3) After the Philippines attain their complete independence on July, 4,1946, Philippine coconut oil will no longer be subject to the quota restric tions previously imposed by the Independence Act. nor will it or any other Philippine export to the United States be subject to the export taxes provided for in the act. At that times all Philippine products entering the United States will be dutiable at the same tariff rates applicable to similar imports from other coun tries. The following table shows the export taxes to which the major coconut products will be subject during the period of the Commonwealth Government, and the United States duties to which they will become subject thereafter. All computations are based on the United States tariffs now in effect: they do not take into ac count the excise taxes imposed by United States revenue acts. Effects of Independence Act on Philippine Coconut Industry.—During the first 5 years of the Commonwealth period, it does not appear that the exports of coconut products will be curtailed in consequence of the provisions of the Independence Act. Coconut oil is the only coconut product whose export to the United States is subject to any restrictions. The duty fee limitation in this case, however, amounts to 200,000 long tons per year. This exceeds by 7 percent the maximum amount (reached in 1929) shipped to the United States in any one year during the decade ending with 1935, and it exceeds by more than 40 percent the average annual amount shipped during the entire period. (Please turn to page 68) nlnformation on these commodities was obtained from a 1935 report by the Department of Agriculture, Straits Settlements and Federal Malay States, entitled “The Coconut Industry of the Philippine Islands" by F. C. Cooke. 58 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 (Continued from page 56) Table 35.—Philippine export taxes and United States duties applicable to the principal Philippine coconut products marketed in the United States1 [Cents per pound] So far as the provisions of the act are concerned, the Philippines will face no obstacle even in expanding their shipments of coconut oil to the United States over those made during recent years. Philippine coconut interests, who them selves suggested the limitation of 200,000 long tons, recognize that such is the case. During the second 5 years of the Common wealth period, the exports of coconut products in the aggregate are not likely to be affected appreciably in consequence of any provisions of the Independence Act. But the composition of the major coconut exports is likely to undergo some important changes, since the export taxes will constitute a progressively increasing dis advantage for the Philippine producers of coconut oil in their competition with crushers located in the United States. Philippine producers maintain that their costs of producing coconut oil are substantially the same as those of producers in the United States . The advantage of the lower wage scales in the Islands, they contend, is offset by the lower efficiency of the labor and by the greater costs for power, mchinery, and replacement parts. In 1935, according to Philippine oil producers, the cost of 'the copra represented approximately 90 percent of the cost of pro ducing coconut oil in the Islands.12 Of the remaining 10 percent, mill labor costs were said to represent onlv about 3 percent of the value of the oil. Such possible advantage as crushers in the Philippines may actually have at present, over producers in the United States must be con fined principally to some fraction of the relatively small cost of converting copra into oil, since mills in the United States and in the Islands presumably buy copra on similar terms. Other minor competitive considerations would arise out of the fluctuations in freight rates on copra, coconut oil, and cake and meal to the various markets, and in the shifts in the markets them selves for each of these products. But the general competitive advantage which crushers in the Islands may enjoy over those in the United States cannot in any event be large, otherwise the producers in the .United States would not have been able to withstand Island competition up to the present time. It is highly improbable, therefore, that the oil producers in the Philip pines will be able to compete with mainland producers even for the whole of the Common wealth period. In the last year of that period, the export tax on coconut oil (on the basis of present United States duties) will amount to one-half cent per pound. Such a tax exceeds the entire present cost of converting copra into oil assert that they will not be able to compete with mainland producers beyond the sixth or, at most, the seventh year of the Commonwealth period. But even if the Philippines should be obliged to abandon their exports of coconut oil to the When To Stop Advertising When every man has become so thoroughly a creature of habit that he will certainly buy this year the same pro ducts he bought last. When younger, and fresher and spankier concerns in your line cease starting up and using the newspapers in telling the people how much better they can do for them than you can. When nobody else thinks ‘‘it pays to advertise.” When population ceases to multiply and the generations that crowd on after you, and never heard of you, come on. When you have convinced everybody whose life will touch yours, that you have better goods and lower prices than they can ever get anywhere outside of your store. When you perceive it to be the rule that men who never do and never did advertise are outstripping their neigh bors in the same line of business. When men stop making fortunes right in your sight, sole ly through the discreet use of this mighty agent. When you can forget the words of the shrewdest and most successful men concerning the main cause of their prosperity. When you would rather have your own way and fail than take advice and win. When you want to go out of business with a stock on hand. When you want to get rid of the trouble of waiting on customers. Let us help you with your Advertising Problems Manila Daily Bulletin ADVERTISING SERVICE DEPARTMENT United States at some time during the second 5 years of the Commonwealth period, they would doubtless be able to increase their exports of copra by an amount corresponding to the de cline in the shipments of oil. Consumption of coconut oil in the United States presumably will not be affected by Philippine export taxes so long as these are not applicable to copra. The export taxes, therefore, will operate to transfer the crushing industry from the Islands to the United States. Should the transfer in fact occur, the Islands would necessarily cease ex(Please turn to page 67) UThe V. S. Tariff Commission report, entitled "Cer tain Vegetable Oils, Whale Oil.and Copra” (1932), shows pected. therefore, that the cost of the copra should have represented a higher fraction of the value of the coconut IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 67 (Continued from page 58) porting copra cake and meal. The loss of the crushing industry would entail a small decline in employment in the Philippines, a shrinkage in Government revenues, and a loss of some capital (chiefly American and British) invested in the crushing mills.13 The export of desiccated coconut is not likely to be very seriously affected by the export taxes, since even in the last year of the Com monwealth period (on a basis of present United States duties) Philippine producers will still enjoy a tariff preference in the United States market of almost 2.4 cents per pound over other foreign suppliers. Philippine producers, themselves, do not believe that the export taxes will prove a very serious impediment to exports, although they expect increased competition from Ceylon producers and from producers within the United States during the second 5 years of the Commonwealth period. After the Philippines attain their complete independence on July 4, 1946, any further im portant changes likely to affect the coconut in dustry in consequence of the provisions of the Independence Act will depend primarily on (1) whether the present United States excise taxes on oils and fats will then be in effect, and (2) whether coconut oil derived from Philippine copra will continue to en oy its present pre ferential excise-tax status in the United States market. The existing United States revenue ates are not clear on this latter point. If the present United States tariff and the present excise tax legislation remain in effect after July 4, 1946, and if Philippine-derived co conut oil remains in its present preferential excise tax status, the only further important change likely to affect the coconut industry in consequence of the provisions of the Inde pendence Act will be a reduction, in greater or lesser degree, of the output and profitableness of the desiccated coconut industry. The exports of coconut oil to the United States would pre sumably have been discontinued in the second half of the Commonwealth period. But if this should not have taken place then, it appears practically certain that on the basis of present tariff rates, coconut oil would no longer be ex ported to the United States after becoming sub ject to the full United States duty, inasmuch as it could not then compete in the American market with coconut oil crushed in the United States from imported, duty-free Philippine copra. Whether the Philippines would be able to find alternate markets for their coconut oil at. that time is problematical. At present, as has been pointed out, most countries impose duties on coconut oil since they prefer to do their own copra crushing. Once the Philippines cease exporting coconut oil they would, as was pre viously observed,‘cease exporting copra cake and meal. Their ability to continue exporting desic cated coconut will depend on whether they will be able to reduce their production costs so as to compete in the United States or in other world markets with Ceylon producers. T.abor costs are a large element in the production of desic cated coconut and, at present, according to Philippine producers, these are much lower in Ceylon than in the Philippines. Some, but not all, of the manufacturers of desiccated coconut in the Philippines maintain that they will be obliged to abandon their business once their product becomes subject to the full United States duty. Whether this will be t he case is proble matical, but in any event the complete or partial liquidation of this business would not greatly affect the coconut industry as a whole in the Islands. It would result in a somewhat lessened demand for coconuts, in a slight curtailment in employment and government revenue, and in a loss of some private capital—-almost entirely American—to those engaged in the business. Considering the effects of the provisions of the Independence Act for the whole period of the Commonwealth Government and for the period after independence, it does not appear that they will of themselves materially discourage the growing of coconuts in the Islands, or will That home and garden which you always dreamed of— SAN JUAN HEIGHTS is the best place for it. SAN JUAN HEIGHTS GO., INC. 680 Ave. Rizal P. O. Box 961 Tel. 2-15-01 MANILA greatly restrict the total value or volume of ex ports of the major coconut products (considered in the aggregate), provided that, if the present excise taxes remain in effect after July 4, 1946, coconut oil derived from Philippine copra will continue to enjoy its present preferential position in respect of excise taxes. If this preference is i3Coconut-oil interests in the Philippines contend that the transfer of the crushing industry from the Islands to the United States would injure the position of the copra producers in the Islands, since they would no longer find as continuous or as stable a market for their product as they now enjoy. The transfer, it is also contended, whould be injurious to the American producers of cattle feed. Phil ippine cake and meal now go chiefly to Europe; but if the crushing industry were transferred to the United States, the additional amounts of cake and meal appearing on the market, it is argued, would tend to depress American feed prices generally. IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 68 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 not continued, coconut oil will be placed ata marked disadvantage in the American market in comparison with competitive oils. In this circumstance, the Philippine coconut industry will be seriously injured. Throughout the Commonwealth period and thereafter, however, the excise taxes themselves, independently of the provisions of the Independence Act, will continue to have an important effect on the Philippine coconut industry. United States Revenue Acts. The United States Revenue Act of 1934 placed excise tuxes on the importation of certain fish and marine-animal oils and on the first domestic processing of certain vegetable oils, among which Philippine coconut oil was speci fically included.11 The tax amounted to 3 cents per pound on the oil extracted—cither in the Philippines or in the United States—from copra of Philippine origin, as compared with 5 cents per pound on oil extracted from copra of other foreign origins.15 The tax on most other foreign competitive oils was 3 cents per pound. Section 602-1/2 of the act also provided that the excise taxes which the United States should collect on coconut oil produced either in the Islands or in the United States from Phil ippine copra would be paid to the Treasury of the Philippine Islands. The remittance of this money was made conditional on the Philippine Government not paying any subsidies to pro ducers of copra, coconut oil, or allied products. The Revenue Act of 1935 amended that of 1934 so as to place a compensatory tax on im ported articles manufactured or produced in chief value from taxable oils. The rates were to be substantially the equivalent of the pro cessing taxes which would have been collected had the oil ingredients been imported into the United States in the form of oil.1* As explained in a preceding section, one of the effects of this law was to subject Philippine-made fatty acids, vegetable, lard, soap, and some other products to the equivalent of the excise tax. (Since it also subjected similar preparations entering the United States from other countries to the com pensatory taxes it served to improve rather than to lower the competitive position in the United States of coconut oil derived from Philippine copra.) The Revenue Act of 1936 amended both of the preceding revenue acts.17 The most important changes, from the standpoint of the Philippines, were the extension of the list of taxable oils and the increase in rates on some of the oils already taxed. Internal Revenue Treasury Decision No. 4695, promulgated on September 11, 1936, modified and clarified administrative procedure. Excise taxes are levied, collected, and paid on imported oils and oil substances entering the United States in the same manner as duties imposed by the Tariff Act of 1930, except in the cases of coco nut, palm, and palm-kernel oils, and the fatty acids, salts, mixtures, and combinations thereof. In these, the excise taxes are collected by the Bureau of Internal Revenue on the first domestic processing. The receipts collected by both the Customs and the Bureau of Internal Revenue, on goods produced in the Philippines or derived from Philippine materials, are credited to a special fund which Is to be remitted to the Phil ippine Treasury. Effects of United States Revenue Acts.—The met effect of the recent revenue acts, even as amended to date, has been to alter adversely the competitive position in the American market of Philippine-derived coconut oil as compared with oils and fats produced wholly in the United States, inasmuch as the excise taxes have been applied only against oils and fats of foreign and of Philippine origin.19 This legislation has also altered adversely the competitive position of Philippine coconut oil in comparison with several foreign oils—at present more or less minor— which are exempt from the excise taxes and, in a few instances, exempt from import duties as well. The preferential tax position accorded coconut oil of Philippine derivation has given the Islands a larger share of the American copra market than they previously had, but in view of the fact that they are still obliged to sell in the world market, it is doubtful that this has redounded appreciably to their advantage. The Islands sell their copra in the United States generally at no price advantage over their sales in the world market, and foreign copra which formerly entered the United States now supplants sub stantially equivalent amounts of Philippine copra in other markets. Since there is no reason to suppose that the world price of copra has been appreciably affected in consequence of the excise tax preference accorded Philippine copra in the United States, it would appear that this pre ference has served more to alter the channels of world copra trade than to confer any substan tial benefits on Philippine coconut producers.” To the extent that the use of coconut oil in the United States has been lessened or the price (exclusive of the tax) depressed, in consequence of the excise-tax legislation, the Philippine copra and coconut oil interests have been affected adversely. What effect this legislation may be expected to have for the -future, should it con tinue in force unaltered, is a matter for specula tion. The acts provide that the preferential rate shall be accorded to coconut oil crushed from copra originating in “the Philippine Islands or any other possession of the United States.” Although the Philippines will no longer be a possession of the United States after July 4,1946, coconut oil derived from Philippine copra may be held to be entitled to preferential treatment in the United States on the basis of the wording of the existing laws. The present preferential rate on Philippine coconut oil is the same as the rate applicable to a number of other imported oils which are competitive with coconut oil in varying degree. The removal of the preference on Philippine coconut oil, therefore, would result in adversely affecting the competitive position of this product in the United States market in respect of most other taxed foreign oils and fats. As has been mentioned, the excise taxes which the United States collects on Philippine coconut oil are to be paid, subject to certain conditions, to the Philippine Treasury. These remittances, when and if made, will represent gains for the Insular Government which will very likely exceed any monetary losses which the Philippine coconut industry may have suffered in conse quence of the United States excise tax legislation. The processing tax has been high in relation to the oil—about 100 percent when the law was introduced—and it appears that only a part of the tax has been shifted back to the Philippine producers of coconuts and copra. The United States has not thus far forwarded any portion of the coconut oil excise tax receipts to the Commonwealth Treasury. The payment of these funds has become the subject of litiga tion, with the result that even their eventual payment is not now regarded as certain.20 By November 30, 1936, the United States Treasury had collected $41,202,203 for remission to the Philippine Government, as shown in the following table.21 Proposed Legislation to Amend the Revenue Acts. Philippine copra and coconut-oil interests contend that while the United States excise-tax legislation places them at an increased advantage in the American market in respect of other foreign suppliers of the identical products, it places them at a more than offsetting disad vantage compared with foreign and domestic suppliers of untaxed and lesser-taxed oils and oil substances which can replace copra and coconut oil in some of their uses. The fact that the excise-tax collections may possibly be remitted to the Philippine Treasury, they point out, does not minimize the injury which the excise taxes inflict upon them. The coconut interests in the Philippines, and more recently the Philippine Government, have been urging that the United States allow the “The act became effective on May 10, 1934, as to processing taxes and on May 11, 1934, as to import taxes. isCoconut oil imported as such from countries other than the Philippines and Cuba is also subject to an im port duty of 2 cents per pound. Coconut oil from Cuba would be subject to an import duty of 1.6 cents, but the United States does not import ooconut oil from Cuba at present. i*This change went into effect on Sept. 30, 1935, or 30 days after the 1935 act became operative. HThis act was approved on June 22, 1936, and the new rateB beoame effective on Aug. 21, 1936. lSjFor all practical purposes, these acts do not differ entiate between ooconut oil produced wholly in the Philippines and coconut oilproduoed in the United States from Philippine copra. The original act, however, tendedslightly to favor the crushing of copra in the Islands rather than in the United States, since manufactures of coconut oil, such as vegetable lard and soap, were not subject to a compensatory tax (equivalent to the proces sing tax) upon their arrival in the United States until after the Revenue Act of 1935 became effective. l»The tax preference accorded Philippine coconut oil, as compared with coconut oil imported as such into the United States from other sources, did not benefit the Philippine oil producers in any appreciable degree. Prior to the introduction of excise taxes, the United States tariff duty of 2 cents per pound had already oper ated to exclude coconut oil from other countries. 20A number of suits have been instituted by soap manufacturers and others to recover the excise taxes which they have paid on coconut oil derived from Phil ippine copra. The plaintiffs, in most instances, have charged that the tax is unconstitutional, since the pro ceeds are to be paid to the Philippine Government. The court decisions which have been rendered to date have without exception upheld the constitutionality of the tax, but no payments have thus far been made to the Philippine Government. Before making any re mittances the United States Treasury may possibly desire to have the constitutionality of the tax upheld by the United States Supreme Court. The highest courts which have thus far rendered decisions in this case are the United States Court of Appeals in the District of Columbia, and the Circuit Court of Appeals for the Eighth Circuit. On June 30, 1936, the former sustained a dismissal order which had been appealed from a lower court by Haskins Bros., soap manufacturers. On November 9, 1936, the Supreme Court refused to review this case and two other similar cases. 2tln contrast, the United States Treasury during the same interval collected only 31,532,024 in excise taxes on coconut products originating in other United States possessions and in foreign countries, supplies from the latter source being subject in most instances to an excise tax of 5 cents per pound. June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 69 Table 36.—United States Treasury receipts from processing taxes on coconut oil derived from Philippine copra' sis s portant, would be able to compete with imported taxed oils and fats (including coconut oil derived from foreign copra) on the same basis as domes tically produced, untaxed oils and fats. But since the competitive status of these latter has been improved in consequence of the excise tax-free usage of Philippine coconut oil (i. e., oil crushed from Philippine copra either in the Islands or in the United States) if rendered inedible for industrial uses.” Coconut oil of other foreign origins and Philippine coconut oil used for edible purposes, under this proposal, would remain subject to the tax. The accept ance of such a proposal by the United States would greatly benefit coconut interests in the Philippines, at least for the period of the Com monwealth Government.” It would even in the United States market than the one they occupied prior to the introduction of the excise taxes. Philippine coconut oil in its inedible uses, which until recently were the most im pend able Speed High-grade Service-Frequent Sailings SINCE MAY THE S.5."COP«£C/OO«" FLAGSHIP OF THE MARITIMA FLEET HAS CONSISTENTLY MAINTAINED THE FASTEST CROSSINGS BETWEEN MANILA AND I LOILO. The’S.S. 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IN TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 70 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 taxes being assessed against most imported oils and fats, Philippine coconut oil in its industrial uses would likewise be placed in an improved bosition, compared with the one it occupied pefore the excise taxes were imposed. The effects of carrying out the above plan would be to increase the preferential position of a major Philippine export in the United States market during a period when the Independence Act anticipates that a contrary development will occur. The adoption of the plan, moreover, would result in shutting off a large source of revenue for the Philippine Government, assum ing of course that the United States would otherwise remit the coconut-oil processing taxes to the Islands. The probable effects which the adoption of such a proposal would have on private American economic interests and on the United States Treasury will be discussed in the next section of this chapter. tities of coconut products, but practically all of them are derived from imported raw materials. The imports of some Philippine coconut pro ducts, therefore, directly compete in varying degree with similar coconut products made in the United States; and the imports of all Philippine coconut products indirectly compete in varying degrees with other domest'cally madeorimported products. The competition which will be ana lyzed below is that which affects the domestic production, consumption, and importation of (1) coconut oil, (2) copra cake and meal, and (3) desiccated coconut. Each of these analyses considers the manner in which the provisions of the Independence Act and the Revenue Acts of 1934, 1935 and 1936 have affected or will prob ably affect American interests. COMPETITIVE ASPECTS—UNITED STATES PRODUCTION AND IM PORTS The United States produces substantial quanTable 37.—Copra: United States imports for consumption, 1926-351 COCONUT OIL The coconut oil produced in the United States is manufactured entirely from imported copra, the bulk of which, as shown in the following table, comes from the Philippines.24 Year 1926 . . 1927. . 1928. . 1929 . . 1930. . 1931. . 1932. . 1933. . 1934. : 1935. . From Philippines (duty free) Quantity Thousands of pounds 275,696 341,389 371,889 310,194 336,555 267,471 198,526 442,168 338,087 441,066 From other countries (duty free) Value Unit value Quantity Value Unit value Thousands of dollars 14,037 15,113 16,548 13.154 12,493 6,574 3,431 6,009 4,071 9,366 Per pound S0.051 .044 .044 .042 .037 .025 .017 .014 .012 .021 Thousands of pounds 181,903 109,606 130,101 260,737 258,784 190,476 254,922 218,704 61.147 13.068 Value Thousands of dollars 9,476 5,528 6,230 11,041 9.294 4,493 4,028 3,229 733 232 Per pound 1.052 .050 .048 .042 .036 .024 .018 .015 .012 .018 tOn May 10, 1934, the oil crushed from Philippine copra became subject to an excise tax of 3 cents a pound, and the oil crushed from copras of foreign origins became subject to an excise tax of 5 cents a pound. Source: Foreign Commerce and Navigation of the United States. It will be noted that the participation of the Philippines in this trade advanced sharply after the United States Revenue Act of 1934 became effective. Copra from all sources is admitted into the United States free of duty, but the revenue act provides that coconut oil expressed from copra produced outside of the Philippines or other possessions of the United States shall be subject to an additional excise tax of 2 cents a pound, or a total tax of 5 cents a pound. This preferential provision has served greatly to res trict the importation of copra from sources other than the Philippines. In 1935 such importation accounted for less than 3 percent of the total which entered the United States. The copra which formerly came from British Malaya, the South Sea Islands, the Netherlands Indies, and other regions now enters other markets, and the Americans who formerly imported copra from these sources have transferred their purchases to the Philippines. Prior to the introduction of the excise taxes, non-Philippine copra generally sold in the United States on a competitive price basis with Philip pine copra, as shown in table 37. Certain grades from some origins occasionally were higher priced, and at other times, lower priced, but the price differences were never large.24 The 24A trifling amount is also, manufactured from the parings and waste supplied by the domestic desiccated coconut industry. Mil will be recalled that the United States generally impoits only the pcorcr grades of copra which enter into world commerce. price now charged for Philippine copra in the United States is substantially the same as that charged for it in other world markets. Philip pine copra continues to be exported in large volume to markets other than the United States, and in these markets encounters the competition of copra from other countries, which prior to the imposition of the preferential excise tax had gone to the United States. It is doubtful, therefore, that the American consumers of copra pay an appreciably higher price for their requirements than they would if copra of all origins were subject to the same excise-tax treatment as Philippine copra. Temporarily, however, the preferential provisions of the tax laws have probably injured the American importers who formerly purchased copra from countries other than the Philippines. Certain expenses, no doubt, have been entailed in severing established business connections and in making new ones. Coconut oil is produced in the United States chiefly in and near Los Angeles, San Francisco, Portland (Oreg.), Cincinnati, New York, and Baltimore, the west coast cities accounting for over 90 percent of the total production. Four of the eight producing companies account for approximately 90 percent of the domestic pro duction. Some companies cater principally to outside consumers of oil and cake, whereas others operate their mills primarily to supply their own requirements of oil in the production of soap and food products. Although fluctuating somewhat from year to year, the domestic production of coconut oil averages about 50 percent of domestic consump tion, the remainder being accounted for by net imports. Exports have ranged between 6 and 8-1/2 percent of domestic production in recent years, and the principal markets have been Canada, Mexico, and Cuba. Domestic pro duction and net imports, as compared with domestic consumption are shown in table 38. Table 39.—Coconut oil, crude: United Stales imports for consumption, 1926-351 From Philippines (duty-free) From other countries (2 cents per pound duty) Quantity Value Unit Quantity Value Unit Computed value value advnlorem 1926.. 1927.. 1928. 1929. 1930. 1931. 1932. 1933. 1934 . 19352. Thousands of dollars 22,088 22.900 23,061 29,552 19.901 15,272 7,619 8,556 7,372 12,576 Thousands of pounds 327 38 60 43 33 5 26 25 2 10 Thousands of dollars 36.0 3.0 6.4 4.2 .8 1JJ .3 1.0 Per pound S0.110 .079 .106 .102 .129 .141 .057 .062 .134 .102 18.2 25.4 18.0 19.6 15.6 14.3 35.2 32.2 14.9 19.6 I On May 10, 1931, coconut oil imported "as such from the Philippines or crushed in the United States from copra ori ginating in the Philippines or other United States possessions, became subject to an excise tax of 3 cents a pound; coconut oil imported as such from foreign sources or crushed in the United States from copra imported from foreign sources, became subject to an excise tax of 5 cents a pound. tPreliminary. Table 38.—Coconut oil, crude: Factory production, net imports, stocks, and apparent disap’ pearance, 1926-35 [In thousands of pounds, i. e., 000 omitted] Year production Net importsl Stocks Apparent disDec. 31 appearance 1926. 1927. 1928^ 1929. 1930. 1931 . 1932 1933. 1934 . 19353 260,712 281,654 311,181 352,054 352,727 303,434 264,079 351,075 297,277 252,841 225,507 267,095 259,453 381,065 291,015 305,829 221,867 286,447 289,682 341,078 100,124 114,839 117,003 193,543 182,243 204,093 136,194 199,383 189,227 153,428 3444,634 534,034 568,470 657,179 655,042 587,413 553.845 574,333 597,115 629.718 Imports. The imports of dutiable coconut oil, as shown in table 39, have been insignificant as compared with the imports of the duty-free Philippine product. Moreover, the unit values of the dutiable imports have greatly exceeded the unit values of the Philippine product, not taking into account either the duty or the higher excise tax to which the dutiable imports have been subject since May 10, 1934. The excise tax preference accorded Philippine coconut oil, as compared with coconut oil of foreign origin, has been largely ineffective, inasmuch as the tariff duty of 2 cents per pound already operated as a virtual embargo against the importation of the latter. Even in the year preceding the imposition of the ITotal imports minus exports and reexports. ZBased on a carry-over from 1925 of 58,539,000 pounds. ^Preliminary. Source: United States Department of Agriculture report on oleomargarine, August 1936, p. 25. June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 71 excise taxes, non-Philippine coconut oil ac counted for less than one one-hundredth of 1 percent of the total quantity which entered the United States. The principal ports of entry for coconut oil are New York, New Orleans, and Boston. San Francisco and Los Angeles, which are the prin cipal coconut-oil production centers in the Unit ed States, are of much less importance. The prin cipal consuming area is in the Midwest. Ocean and rail freights on copra and coconut oil are so constructed as to allow competition on an ap proximately equal basis in this area between the domestically produced coconut oil, and the im ported coconut oil entered at the Atlantic, Gulf, or Pacific coast ports. The coconut oil imported from the Philippines is, for all practical purposes, identical with the coconut oil produced in the United States from Philippine copra. Moreover, there appears to be no appreciable cost advantage or disadvantage of producing it as between the Islands and the United States. Any substantial margin of per sistent difference, as was suggested earlier, would have tended to center the crushing industry either in the United States or in the Islands, and no such tendency has been apparent. Uses of Coconut Oil. Coconut oil is used both for nonedible and for edible purposes. The United States factory consumption in the major uses in recent years is shown in the following table. Table 40.—Coconut oil: United States factory consumption in specified products, 1931-35 consumed g=E,_ « = s i All Others................................................ (4) (4) (4) (4) (4) inks and miscellaneous products. It will be noted that, until 1935, the amounts and proportions of coconut oil entering into each of its chief uses fluctuated only within narrow limits. From 61 to 69 percent of the coconut oil (including foots) was used in soap; from 21 to 26 percent in oleomargarine; from 10 to 15 percent in cooking compounds and vegetable shortening, and confectionery products (chiefly the latter); and less than one-half of 1 percent in paints, varnishes, printing inks, and miscel laneous products. In 1935, however, there was a marked decline in the amount and proportion used for soap, and marked increases in the amounts and proportions used for oleomargarine and for other edible purposes. The increased use of coconut oil for food purposes was largely due to the shortage of domestic edible oils caused by the drought in 1934 The extent to which coconut oil, as compared with other oils and fats, entered into the various branches of domestic consumption in 1934 (the most recent typical year) is depicted in chart VI and table 41. Coconut oil accounted for 6.6 percent of all the oils and fats consumed in the United States; it constituted 21.1 percent of those used in soap and 3.5 percent of those used for edible purposes. Domestic oils and fats constituted almost 95 percent of all the food oils but only 63.5 percent o the soap oils. DEGREE OF INTERCHANGEABILITY IN INEDIBLE Uses. In the inedible field, coconut oil findsits chief use in the production of soap.26 For this purpose it has long been the most important of the vegetable oils. Prior to the World War foots are still used. During the war imported soybean oil was an important constituent of soap, but because of the duty which was imposed on the oil, little is now imported. The domes tically produced soybean oil is used principally in the manufacture of paints, varnishes, com pounds, and vegetable shortenings. The preference in the United States, partic ularly in those regions where the water is hard or semihard, is for hard white soaps which lather quickly and rinse easily, and which have good keeping qualities. The lathering properties de pend chiefly on the lauric acid content of the oil ingredient. Coconut oil and palm-kernel oil are both high in lauric acid content, but soaps made of palm-kernel oil tend to be darker in color than those made of coconut oil. Soaps made chiefly of cottonseed oil, corn oil, or peanut oil not only possess poor lathering qualities, particularly in hard water, but have a tendency to become rancid. Yellow laundry soaps con tain little or no coconut oil, being made chiefly of talow, greases, fish oils, and cottonseed-oil foots, together usually with rosin which gives them their characteristic odor. The demand for such soaps, however, has declined in recent years. The practical disappearance of cottonseed oil from use in soap is not to be attributed to the increased use of coconut oil. Cottonseed oil is no longer used even in soaps in which coconut oil was never an appreciable ingredient, yellow laundry soaps for example. Cottonseed oil has disappeared from use in soap principally because the entire supply of the edible grade is now absorbed in food uses at much higher prices Philippine Trust Company thru its correspondent banks, executes orders for the purchase or sale of stocks and bonds on the New York Stock Exchange and other ex changes in the United States. It also sells drafts and cable or radio transfers for the payment of money anywhere in the United States, the principal cities of Europe, China and Japan. Fidelity and Surety Company of the Philippine Islands executes and covers BONDS INSURANCE Court, Customs, Firearms, etc. Plaza Goiti and Escolta LIFE, Fire, Marine, etc. IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 72 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 proportion of inedible tallow increased substan tially, while that of each of the other principal oils, with the exceptions of fish oil and palm kernel oil in 1935, declined. During the period from 1931 through 1933, the proportion of coco nut oil and palm-kernel oil combined remained almost constant; in 1934 and again in 1935, the proportion declined somewhat. But during these latter 2 years, considerable amounts of fatty acids derived from coconut oil and palm kernel oil were imported into this country (in asmuch as they were not subject to excise taxes between May 10, 1934, and Sept. 30, 1935) and used in the manufacture of soap. It would appear, therefore, that during the whole of the period under review, (1931-35), the proportion of coconut oil and palm-kernel oil combined, including the fatty acids derived from them, fluctuated only to a limited extent, despite considerable changes in the respective tax-paid prices of these oils as compared with other soap oils. Coconut oil and palm-kernel oil, as has been explained, are the only important soap oils now used which contain lauric acid, a necessary constituent of freelathering soaps. There are other oils containing lauric acid, such as babassu and cohune nut, but these have not yet been used in substantial amounts in the manufacture of soap. Moreover, like coconut oil, they are derived from sources outside of the United States. To produce the varieties of soap most in demand in the United States, a substantial fraction of the oil ingredient must be some oil containing lauric acid. The proportion required can be altered within limits, however, and to this extent other oils and fats, either of domestic or foreign origin, can replace it. No oil or fat now produced in the Un; ted States, or likely to be produced in any appreciable quantity, contains any lauric acid whatsoever. It would appear therefore, that for soap-making purposes, do mestically produced oils and fats can replace coconut oil only to a limited extent under existing conditions of production technique and consumer demand. Coconut oil and other oils of lauric acid content may be said to be complementary to domestic soap oils and fats to a much greater degree than they are competitive with them. The same may be said of coconut oil in relation to other imported soap oils and fats, except those with a high content of lauric acid. Imported tallow', for example, is in no greater degree in terchangeable with coconut oil for use in soap making than are domestic tallow, grease, or fish Table 41.—Oils and fats: Apparent consumption in the United States, by major types of use, 1934 Million pounds Percent Product Type of use Food Soup MiscellaneDrying ous rnanuindustries factured products Total disappearFood Miscellanc- Of all oils Drying ous mnnu and fats Soap industries factured products eign: Coconut oil........................... Palm oil................................ Linseed oil............................ Tung oil................................ Olive oil. edible.................. Castor oil............................. Olive oil, sulphur or foots. Sunflower oil........................ Perilla oil.............................. Palm-kernel oil................... Sesame oil............................. Olive oil, inedible............... Rapeseed oil......................... Vegetable oil foots............. / 211 / 17 35 Total foreign.......................................................................... 307 588 441 104 1,440 5.1 36.5 74.2 22.9 16.7 Domestic: Butter.............................................................................................. Lard.................................................................................................. Cottonseed oil....................................................................... Tallow, inedible.......................................................... Grease.................................................................................... Linseed oil............................................................................ . .. Corn oil..................................................................... Fish and marine aninlal oils..................................................... Oleo oil and edible animal stearin.......................................... Tallow, edible................................................................................ Soybean oil............................................................ ........... Peanut oil....................................................................................... Grease, wool................................................................................... Neats-foot oil................................................................ ............. Vegetable oil foots....................................................................... Total domestic...................................................................... Total disappearance, all oils and fats........................... 96 16 82 66 / 3 24 37 28 24 41 19.4 2.'2 ’. ...........6 9 63 0 100 2 2 3 ..................... 1 6................................. 5 25.8 77 0 100.0 100 2 7 1 6 Percent of disappearance: Foreign produots........................................................................... Domestio products....................................................................... Total foreign and domestic....................................................... 7.2 100.0 .................................................................................................... 4.9 100.0................................................................................................... 5.3 100.0 .................................................................................................... Source: Division of Statistical and Historical Research, U. S. Department of Agriculture, except for certain adjustments in the case of vegetable oil foots which have been signed to soap. Figures given represent estimated total consumption except items marked and figures for soap, both of which are factory consumption. THE AMERICAN CHAMBER OF COMMERCE JOURNAL 73 oil. The recent increases in the proportion of to the decreases in the proportions of other imported and domestic oils and fats, such as palm oil, whale oil, and grease, than to the decreased proportion of coconut oil. Moreover, the excise tax imposed on imported inedible tallow on August 21, 1936, has since operated to reduce its use in soap. A shift from white to yellow laundry soaps would afford the greatest opportunity for the substitution of domestic oils for coconut oil. However, there is a distinct consumer preference for white rather than yellow laundry soaps. This preference may be attributed largely to such factors as the extensive advertising of white soaps, and to the poor lathering qualities of yellow soaps in hard water. Degree of Interchangeability in Edible Uses, Margarine. Coconut oil enters food consumption in the United States principally in the form of marga rine. It is by far the most important oil used Coconut oil. .j. Oleo oil........... Lard, neutral. Oleostearine.. . Peanut oil . . . Soybean oil ... Babassu oil. . . Other 4.............. Coconut oil. . . Cottonseed oil. Oleo oil........... Lard, neutrul. Oleostearine.. . Peanut oil.. . . Soybean oil. . . Babassu oil. . . Others.. Total. for this purpose, accounting for as much as 75 percent of the total used in some recent years. It has accounted for an even higher percentage of the oils used in wholly vegetable margarines. For the production of margarine, an oil should be smooth and firm in texture and light in color, have a sharp melting point, and be easily rendered almost neutral in odor and taste. Until recently no vegetable oil met these requirements as satis factorily as coconut oil, although a number of other oils were, and still are, used in margarine. A process has recently been perfected by which cottonseed oil can be used with results equally as satisfactory as those obtained from coconut oil. In fact, margarine can now be made almost en tirely of hydrogenated cottonseed oil. Recent shifts in the prices of the margarine oils and the increased production of margarine have considerably altered the absolute and relative amounts of coconut oil entering into this use, as shown in the following table: It will be noted that the factory consumption of oils and fats used in the production of mar garine declined between 1931 and 1932, but advanced thereafter. The aggregate consumpof materials .used in manufacture, United States, 1931-35 Percent of total 1 Less than 500,000 pounds. 2 Includes butter, oleo stock, corn, palm, palm-kernel, sesame, and sunflower oils. a Percentages computed on total weight of fats and oils, exclusive of milk, salt, and miscellaneous materials. Source: Prepared in the United States Department of Agriculture, Bureau of Statistical and Historical Research. Based on Bureau of the Census, Factory Consumption of Primary Animal and Vegetable Fatsand Oils, by classes of products, calendar years, 1931-35. For The Typhoon Season: Padre Faura Barometers from ?35— up LA ESTRELLA EEL MITE Levy Hermanos Inc. 46-50 Escolta MANILA IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 74 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 tion of these materials in 1935 was the largest on record except in 1919, when it was approxi mately 1 percent higher.27 It w»ll also be noted that the amount of coconut oil consumed declined in 1934 but that it rose sharply again in 1935 to a point above that in any preceding year except 1929, when .it was about 6 percent higher.26 Nevertheless, the proportion of coconut oil consumed in margarine in 1935 as compared with 1934 declined slightly whereas that of cottonseed oil rose sharply. In fact, the most conspicuous development in margarine pro duction in 1934 and 1935 was the large increase in the use of cottonseed oil. Certain other changes were also significant. Between 1933 and 1935, the proportion of vegetable oils used in margarine increased from 84 to 91-1/2 percent of the total of all oils and fats so used; that of animal fats declined cor respondingly. Practically all of the animal fats used in margarine are of domestic origin, whereas, almost two-thirds of the aggregate volume of the vegetable oils are either imported as such from other countries (including the Philippines) or are produced in the United States from imported raw materials. Among the vegetable oils derived from sources outside of continental United States, coconut oil is the only one of outstanding importance. Prior to 1934, palm oil was of slight importance but since'then (due principally to legislation taxing margarine colored yellow by means of palm oil at the same rate as artificially colored margarine) it has practically disappeared from this use. In 1935, for the first time, babassu oil, palm kernel oil, sunflower oil, and sesame oil became of some importance (particularly babassu oil), but in the aggregate they accounted for less than 4 percent of the total of the foreign derived vegetable oils entering into the production of margarine in the United States. The proportion of domestic vegetable oils used in margarine, though still less than that of the vegetable oils of foreign origin, has increased substantially since 1933. In that year, as shown in the table below, the domestic vegetable oils constituted 10.5 percent of the total vegetable oils used, whereas in 1935 they constituted 34.2 percent.24 Although the proportion of veget able oils of foreign origin declined corresponding ly, the aggregate amount consumed was consid erably larger in 1935 than in 1933. Coconut oil competes not only directly with domestic vegetable oils for use in the manufacture of vegetable margarines, but indirectly with domestic animal oils used in the manufacture of so-called animal margarines. The latter are made principally with oleo oil, neutral lard, or oleostearine in mixture with vegetable oils, chiefly cottonseed oil, and usually with some butter and milk. The vegetable and animal margarines are in a large degree interchangeable, Table 44.—Margarine: Origin and composition of^materials used in manufacture in the United ■EEEEEE B B ¥ W margarines generally sell for 1 to 2-1/2 cents per pound more than vegetable margarines. In the form of margarine, coconut oil is re garded by certain interests as being more or less directly competitive with butter. One of the principal reasons that the domestic dairy interests, for example, have favored the im position of processing taxes on coconut and other imported oils is their belief that the re sultant increase in the price of margarine would result in a substantia increase in the demand for butter. While it is outside the scope of this report to consider the competition between margarine and butter, it may be observed that the present processing tax of 3 cents a pound on Philippine coconut oil represents about 2 cents a pound in the cost of the finished vegetable margarine, whereas the wholesale price spread between butter and uncolored vegetable mar garine averaged 17.2 cents per pound during 1935.“ The retail price spread in most St ites, however, was somewhat less, due principally to State excise taxes on margarine amounting, in some instances, to as much as 15 cents per pound. Nevertheless, the retail price spread between but ter and margarine in most parts of the United States was so substantial, even after the Fe deral oil excise taxes went into effect, as to offer little inducement for most consumers to shift from margarine to butter. Other Edible Uses. Prior to 1934 the only major edible use for coconut oil in the United States besides mar garine, was in the manufacture of certain special confectioners’ and bakers’ supplies. For these uses no oil of domestic origin can satisfactorily be substituted. Commencing in 1934, again as the result of the scarcity of domestic oils and fats, there was a very large increase in the use of coconut oil in the preparation of vegetable shortenings and lard compounds. Consumption in edible products other than margarine increased from 76,000,000 pounds in 1933 to 131,000,000 pounds in 1935, and no doubt a large portion of the in crease went into shortenings and lard compounds. For these uses, domestic oils were employed al most exclusively in most years prior to 1935, the principal oil being cottonseed oil, although oleo oil, neutral lard, peanut oil, soybean oil, and corn oil were also used to some extent. Coconut oil and in some years seasame oil, were used only in relatively small quantities. The increased use of coconut oil in 1935 resulted principally from the price situation arising from the reduced pro duction of domestic oils which in turn was the result chiefly of the drought. In recent years, moreover, the excise taxes imposed by many States on margarines made from “foreign” oils (including Philippine coconut oil) has operated to increase the proportion of cottonseed oil in margarine, thus leaving less of it for use in shortenings and compounds. Prospects of Replacing Coconut Oil With Domestic Oils and Fats. The extent to which the domestic production of oils and fats is likely to increase in response to the imposition of excise taxes on coconut oil and other foreign oils appears to be limited. The principal domestic oils which can be bustituted in a greater or lesser degree for coconut oil in its chief uses are inedible tallow and greases, fish oil, cottonseed oil, oleo oil, neutral lard, peanut oil, corn oil, and soybean oil. All of these, except inedible tallow and greases produced in rendering plants and certain types of fish oil, are by-products or joint products with other commodities, and their production is not likely to be influenced appreciably by moderate changes in the prices of oils and fats. The production of cottonseed oil will be de termined largely by the demand for cotton, since the oil during recent years has represented only about one-eighth of the value of the cotton crop. The production of animal fats, considered as a group, will depend largely on the demand for pork, beef, and mutton; and the production of corn oil will depend principally on the demand for cornstarch and sirup. There is little prospect that the output of the principal products with which these particular oils and fats are asso ciated will lead to any substantial increase in the aggregate production of such oils and fats in the near future. Peanut oil has generally been in the nature of a byproduct in the United States. Until recently only offgrade peanuts were ordinarily used for this purpose. The bulk of the peanuts entered either into direct consumption or into the manufacture of peanut butter. The pro duction of peanut oil increased substantially after the imposition of the excise taxes on foreign oils, but the chief stimulant to its production appears to have been the bonus or subsidy which was paid at this time for peanuts diverted to the oil mills under the program of the Agricultural Adjustment Administration. There 6eems little prospect, therefore, that the imposition of excise taxes on foreign oils will of itself have any im portant permanent effect in promoting the un subsidized production of large amounts of peanut oil in the United States. Soybean oil has been increasing in production in recent years, but until 1935 it entered princi pally into paints and varnishes, for which coco nut oil is not used to any appreciable degree. Soybean oil has generally sold at prices much above those which would permit it to compete with coconut oil for use in soap. Domestic soy bean oil has sold at prices which would permit it to compete for use in margarine only since 1935. The beans from which the soybean oil is ex tracted are grown mostly for soil enrichment and for hay, rather than for oil production. More over, soybeans have a low oil content as com pared with other oil materials; soybeans yield only about 15 percent oil and 85 percent oilcake. Since oilcake is produced jointly with most of the domestic vegetable oils, any substantial June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 75 increase in the production of these latter would result in a greatly enlarged production of animal feeds, for which it might be difficult to find a market. The application of excise taxes to imported oils and fats does not operate greatly to expand domestic production. Such taxes in a limited degree operate to curtail domestic exports, and thereby to increase the supply of domestically produced oils which can displace coconut oil and other imported taxed oils. To the extent that the existing scale of excise taxes is effective in raising the prices of domestic oils and fats, it operates to make the home market more pro fitable than foreign markets in which to dispose of the domestic production. (The attractive ness of foreign markets is simultaneously reduced in some degree, since the oils and fats which are prevented from entering the United States, in consequence of the tax, flow to the foreign markets in which the United States exports must compete.) The United States is normally an importer principally of the lower-priced inedible oils and an exporter of the higher-priced edible oils. It does not appear likely, therefore, that the restric tive effect of the excise taxes on the exports of domestic oils and fats will be a major factor in bringing about a marked increase in the do mestic consumption of domestically produced oils and fats, even when production in the United States again becomes more nearly normal. Other factors, however, may bring this about to a considerable degree. If, for example, European restrictions against the importation of American oils and fats (particularly lard) should continue in effect when exportable sur pluses again become available, the United States may then be obliged to consume them in large measure at home rather than export them. Such a situation would operate to depress their prices and to curtail the importation of coconut oil and other oils and fats. What policy foreign countries will pursue in restricting imports of oils and fats from the United States is a matter for speculation. United States Revenue Acts. The excise taxes provided for by the Revenue Acts of 1934 1935, and 1936, and the Treasury decisions relating thereto, have had very sig nificant effects upon the prices, uses, and imports of oils and fats in the United States. Since no. oil or fat derived from materials produced in continental United States was made subject to the excise taxes, the economic effects of these taxes have been identical with those which would have resulted from increased tariff duties, with one significant exception. Duties could not have been made applicable in 1934 to imports from the Philippines (and the noncontiguous United States territories) without an amendment to the Tariff Act of 1930. Inasmuch as the United States has been a large net importer of oils and fats ever since the excise taxes have been in effect (as well as before), these taxes have operated generally to enhance the prices of domestic oils which are subject to competition from the taxed foreign oils, including Philippine coconut oil, and to depress the (tax unpaid) prices of the latter. The competitive position of coconut oil, ex tracted either in the Lslands or in the United States from Philippine copra, was at first also depressed in consequence of the excise taxes, both in relation to all domestically produced oils and fats and in relation to certain foreign oils and fats, principally inedible tallow and, toa lesser degree, babassu oil. When the United States Revenue Act of 1936 became effective on August 21, 1936, however, imported inedible tallow became subject to an excise tax of 3 cents per pound, and a number of other imported oils and fats and oil-bearing materials becamesubject to equally high or still higher excise taxes (on a basis of oil content), among them being inedible animal grease, rapeseed and rapeseed oil, sesame seed, and inedible sesame oil, sun flower oil, kapok seed and oil, and various fatty acids. The excise taxes and rates of duty applicable to foreign oils and fats at the present time (Jan, 1, 1937) are shown in table 45. So far as excise-tax considerations are con cerned, the competitive position of Ph lippine coconut oil at present (Jan. 1, 1937) continues to be less favorable in relation to domestic oils than it was prior to the imposition of the excise, taxes, but it remains only slightly different in relation to practically all of the competitive foreign oils. Most of these latter oils are now either subject to at least as high excise taxes as. Philippine coconut oil or, where they are exempt from excise taxes, the available supplies of them are limited. In addition, most of them are. subject to substantial tariff duties. The com petitive position of babassu oil, particularly for the future, may possibly be regarded as an exception. happen under favorable photograitions. But with the Cental, re secured under any condition, CONTAX manipulate. Unexcelled ZEISS lenses and accurate range finder focusing res remerkable sharp negatives and tdid enlargements. Its virtually simetal, focal plane shutter af 1/1250th second is a real advantage in can did Photography. ANY PICTURE ANYWHERE ANYTIME WRITE FORfLITERATURE BOTICA BOIE P. O. BOX 299 MANILA Far East—Europe RAPID LUXURY LINERS Via Singapore—Colombo—Bombay—Massowah—Suez—Port Said M.V. VICTORIA Leaves MANILA. AUG. 23. for Naples and Genoa S.S. CONTE VERDE Leaves HONGKONG. SEPT. 4, for Venice and Trieste S.S. CONTE BIANCAMANO Leaves HONGKONG. SEPT. 19, for Naples and Genoa Overland to London, Paris, Berlin. Stopover privileges. From Egypt the voyage may be continued by five | optional routes of the Mediterranean services. Through Tickets I to the U. S. and Round the World at Reduced Fares. j EXPRESS SERVICE via INDIA-EGYPT-ITALY ITALIA LINE—LLOYD TRIESTINO Smith, Bell & Co., Ltd., Agents i HONGKONG & SHANGHAI BANK BLDG., PHONE 2-31-31 j IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL. 76 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 Table 45.—Oils and fats: United States tariff rates and excise taxes in effect on Jan. 1, 19S71 Oil or fat, or combinations or manufactures thereof, and oil-bearing materials Revenue tax on imports Duty* into the United States or on first domestic processing* Animal oils and fats: Tallow............................................................................................... Inedible animal oils, fats, greases, n. s. p. f......................... Fatty acids or salts of above..................................................... Butter............................................................................................... Lard................................................................................................... Oleo oil and oleostcarine............................................................. Edible nnimal oils, fats, or greases, n. s. p. f...................... ’Marine animal and fish oils: Herting and menhaden oils......................................................... Whale (other than sperm) and seal oils................................. Fish and marine animal oils, n. s. p. f.................................. Fatty acids or salts of above..................................................... '.Vegetable oils and raw materials: Coconut oil: From, or produced in the United States of materials from, the Philippines oi any other possession of the United States.1 ......................................................................................... Other................................................................................................. Palm oil: For tin plate................................................................................... Other................................................................................................. Palm nuts or kernels............................................................................ Palm-kernel oil: Rendered unfit for food....................................................... Other......................................................................................... Fatty acids or salts of above oils............................................. Babassu nuts................................................................................... Babassu oil....................................................................................... Corn oil............................................................................................. Cottonseed........................................................................................ Cottonseed oil................................................................................. Olive oil: Weighing with container less than 40 pounds............. Rendered unfit for food....................................................... N- s- P- f.................................................................................. P.anuts: Shelled....................................................................................... Not shelled.............................................................................. Peanut oil......................................................................................... Tallow, vegetable........................................................................... Kapok oil......................................................................................... Kapok fatty acids or salts.......................................................... Kapok seed...................................................................................... . Semidrying.n Rapeseed oil: Rendered unfit for food....................................................... Other......................................................................................... .Sesame oil: Rendered unfit for food....................................................... Other......................................................................................... ;Sunflower oil: Rendered unfit for food....................................................... Other......................................................................................... ’Fatty acids or salts of above..................................................... Rapeseed........................................................................................... Sesame seed..................................................................................... Sunflower seed................................................................................ Drying: Soybean oil...................................................................................... W. Dot Dot Do.t 3 CCI)m Do. Do.l Do. Do. Do. 8 cents per pound........ Free.................................... 6-1/2 cents per pound. Do. Do. Do. 7 cents per pound......... 4-1/4 cents per pound. 4 cents per pound......... Free.................................... (io)..................................... (4)...................................... Free.................................... Free........................... 6 cents per gallon. Free........................... 3 cents per pound. N D°’ Do. Soybeans....................................................................................... Seeds and nuts, n. s. p. f. (when oils derived from them are _ free of duty)...... i.................................. 3-1/2 cents per pound but not less than 45 percent ad valorem. 2 cents per pound......... iree 01 uuvyi.......... ............................;...................................... Expressed or extracted oils, n. a. p. f.......... ................ .Any combination or mixture containing a substantial quantity Coconut oil, palm oil, or palm-kernel oil.............................. Fatty acids or salts of the foregoing...................................... Manufactured articles or combinations containing 10 percent or more by weight of— Taxable oils and fats.................................................................... Taxable fatty acids or salts of foregoing. Margarine and other butter substitutes.......... Lard compounds and lard substitutes............. Soap:. ........................................................................ Castile............................................................... Other toilet...................................................... Other, including soap powder.................... Do. Free.................................... 20 percent ad valorem. Do. Do. 25 percent ad valorem W. («)...................................... centsU Do.ia 25 percent ad valorem. . (4)...................................... 14 cents per pound... . 5 cents per pound......... 15 percent ad valorem... 30 percent ad valorem. 15 percent ad valorem. (»). («). (>’). lExcise taxes imposed by Revenue Acts of 1934 and 1936, the latter of which went into effect on Aug. 21, 1936; and tariff rates established by Tariff Act of 1930, as amended by Presidential proclamations and trade agreements up’ to Jan. 1, 1937. 2Oils and fats and oil materials produced in Cuba are entitled to a minimum tax preference of 20 percent under art. Ill of the Cuban Agreement of Aug. 24, 1934. Some of the articles may be free of duty under art. I of the agree ment but no decision on specific articles has as yet (Nov. 1, 1936) been made. »In thislcase "United States” refers tc the 48 States, the Territories of Alaska and Hawaii, and the District of Co lumbia. With the exceptions of coconut oil, palm oil, and palm-kernel oil, and combinations, mixtures, and salts thereof, all of the products enumerated arc subject to revenue taxes on their importation into the United States (as above defined) as well as into Puerto Rico. The taxes apply to the articles named whether or not refined, sulphonated, sulphated, hydrogenated, or otherwise processed. •Specific cases subject to Treasury decisions. STax status subject to Treasury decision. The revenue tax of 3 cents per pound on "inedible oils, fats, or greases”, however, would presumably apply. • Does not apply to products of American fisheries. ^Possessions of the United States include the Philippine Islands and the following designated as "noncontiguous Territories" Alaska, Hawaii, Midway Islands, Puerto Rico, Guam, American Samoa, Wake Island, Panama Canal Zone, and Viigin Islands. , , , „ , . «’ • Bound” free from duty and increase in excise tax during life of Netherlands Trade Agreement, effective Feb. 1,1936. • “Bound” free from duty and excise tax during life of Brazilian Trade Agreement, effective Jan. 1, 1936. lOIf ruled to be "vegetable oils” n. s. p. f., a tariff rate of 20 percent ad valorem; if ruled to be "nut oils” n. s. p. f. rCllThedd/visions between nondrying, semidrying, and drying oils aie not clear cut. In general, an oil or fat having an iodine nimberlcis thin ID) is :l nse.l n n in frying; one ha vinganiodine number between 100 and 130 as semidrying, and cne with a number above 130, as drying. ^Combinations and mixtures of animal, vegetable, or mineral oils, or any of them, are generally subject to rate ap plicable to the highest taxed component material. 13 Rate or rates applicable to particular mixtures or combinations presumably will be indicated by Treasury decision on classifications as need arises. Excise taxes do not apply to any item in the combintion or mixture on which an import or first domestic processing tax has been previously paid. Mln addition, there is a Federal stamp tax of 15 cents per poundimposed onimported margarine under the internal 20~ccnts ad valorem . . . 14 cents per pound. .. . 3 cents per pound........ 1 cent per pound........... 20 percent ad valorem . 5 cents per gallon......... 6 cents per gallon......... 20 percent ad valorem. (♦)...................................... .Free. Free*............ ................. do.t ................. do. .................do................... 1 cent per pound........ («).................................... ..............do.«.................. 20 percent nd valorem. 1/3 cent per pound.. . 3 cents per pound. .. . Effect of Excise Tax on Imports of Oils. The large importation of foreign oils which has taken place since the excise taxes have been in effect occurred generally not because Philip pine coconut oil was made subject to the excise tax, but principally because there was an un usually small domestic production of oils and fats and a somewhat increased demand for them. Even under the Revenue Act of 1934, the foreign oils and fats, with only a few exceptions, were subject to excise taxes which, in combination with the import duties, were at least as high as the excise tax applicable to Philippine coconut oil. The imported oils and fats, with the excep tion principally of inedible tallow and babassu oil, tended to supplement domestic oils and fats rather than to displace Philippine coconut oil from use in the Un'ted States. Plvlippine coconut oil itself, as was shown earlier, also entered into larger edible use because of the domestic shortage of oils and fats. In the inedible field, however, Philippine coconut oil— along with other taxed oils—was in some con siderable measure displaced by imported in edible tallow prior to August 21, 1936, at which time the latter was also made subject to an excise tax. Table 46 shows the imports into the United States in recent years of the oils and fats and oil-bearing materials which may be regarded as being directly or indirectly compe titive in any appreciable degree with coconut oil. It will be noted that the imports of tallow advanced sharply during 1934 and 1935, but that they fell during the first 8 months of 1936. Returns for the full year will undoubtedly show imports much below those for 1935, inasmuch as inedible tallow became subject to an excise tax of 3 cents a pound on August 21, 1936. Im ports of rapeseed and rapeseed oil, sunflower oil, sesame seed and inedible sesame oil, kapok seed and oil for 1936 are likewise expected to be below those for 1935 in consequence of provisions in the Revenue Act of 1936. Imports of babassu nuts and oil were negligible prior to 1936, but during the first 8 months of that year, 46,293,000 pounds of nuts were imported. This is the equivalent of more than 29 million pounds of oil. It is possible that in the future imports of babassu nuts and oil, and imports of other foreign oil substances and oils which are not now of importance, may increase in consequence of their exemption from excise taxes and tariff duties. For the immediate future, however, substantial increases appear likely only in babassu nuts and babassu oil.31 Supplies of the nuts are believed to be very large, but transportation and crushing costs are high Effect of Excise Taxes on the Price of Oils. Table 47 gives prices of coconut oil, and of various domestic and foreign oils which may be regarded as in any degree directly or indirectly competitive with it. The prices of dutiable im ported oils arc shown inclusive of tariff duties (except in the case of whale oil), but exclusive of excise taxes. These taxes became effective on various dates in 1934, 1935, and 1936; aver ages based on price quotations inclusive of such taxes, therefore, would be less significant for comparative purposes than averages of price quotations exclusive of them. aiBabassu nuts and oil are “bound” free of duty and excise tax in the Brazilian Trade Agreement which i9 expected to continue for at least 3 years commencing Jan. 1, 1936. June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 77 Table 46.—Oils and fats: Imports for consumption in the United States of specified commodities, calendar years 1929, 1932-85, and January-August 1986 [In thousands of pounds, i. e., 000 omitted] Table 47.—Oils and fats: Average price per pound {exclusive of excise tax) of specified commodities al points indicated, 1929, 1932-35, and January-September 1936 Animal fats and oils: a a a a a M H H ■■ H is % Babassu oil in tanks Xcw York 3 7.2 Pacific coust......... 7.1 3.2 3.0 2.6 4.4 4.4 (4) ■||if .... 9.7 4.6 5.5 7.1 8.6 .... 8.2 3.8 3.8 3.5 4.7 4.8 .43 .37 .45 .... 13.3........10.0 9.6 9.7 13.3 7.2 8.2 10.6 11.3 6.1 6.9......... 8.0 12.1 10.7 6.4 6.4 7.7 12.1 .... 10.8 4.7 6.2 5.4 6.3 ... 764 10 8 4*6 6 4.7 12.5 l7.7 10.2 ^ugo 8 .... 17.5 8.8 8.2 9.1 12.6 .... 12.2 5.9 6.8 8.6 13.1 12*0 U. Department of Agriculture, Division of Statistical and Historical United States market prices of coconut oil and of practically all oils which are directly or indirectly competitive with it in any appreciable degree advanced after the excise taxes went into effect, but the prices (tax unpaid) of coconut oil and of certain other imported oils, particularly palm oil and palm-kernel oil, declined when they first became subject to the tax. This movement is reflected in the fact that their average prices in 1934, excluding excise taxes, were below those of 1933, whereas the average prices of all of the domestic oils shown in the table were higher in 1934 than in 1933. In 1935 the prices of all the oils shown in the table, including coconut oil itself, advanced above the average levels prevailing in 1933 or 1934. The prices of domes tic oils, however, generally advanced to a much greater extent than did the prices (tax unpaid) of the imported oils subject to the excise taxes. The rise in price of oils and fats generally (exclusive of tax) in 1935 must be attributed to improved world demand, particularly demand in the United States market. The greater rise in the prices of the domestic oils than in the taxes foreign oils (tax unpaid) may in large measure be attributed to the excise taxes, but since both the untaxed and taxed oils rose in price, the entire increases in the prices of the untaxed oils was clearly not due to the excise taxes. Even in the absence of these taxes, the prices of domestic oils would no doubt have risen but not to the degree that they did because of the tax. The excise tax, however, was not the only factor operating to prevent similar price advances for taxed and untaxed oils. Oils are interchangeable only within certain limits, and the factors affecting production, importation, and consumption influenced somewhat differently the prices of the different products. In 1933, the year before the excise taxes went into effect, inedible tallow sold for about the same price as coconut oil. But in 1935, the first full year during which the excise taxes were in effect, inedible tallow sold for more than 1 cent a pound less than tax-paid coconut oil. Soap manufacturers consequently substituted in some measure inedible tallow for coconut oil. They substituted the inedible tallow for other soap oils in still greater degree, however. Since imported tallow (edible and inedible) be came subject to an excise tax of 3 cents a pound on August 21, 1936, inedible tallow lost the com petitive tax advantage which it had previously enjoyed over coconut oil and other taxed oils. In consequence its use in soap declined. Imports fell sharply even before the imposition of the tax because prices prevailing for tallow in foreign markets were more attractive than those in the United States. Effects of Excise Taxes on Private and N ATIONAL INTERESTS IN THE UNITED STATES. Domestic producers of oils and fats, who meet competition either from coconut oil derived from Philippine copra, or from oils and fats from foreign countries, have been clearly benefited by the excise taxes. The taxes have not operated appreciably to enlarge domestic production of oils and fats, except in the case of certain fish oils, soybean oil, and inedible greases, but they have operated to increase prices. Domestic consumers of foreign and domestic oils and fats, in consequence, have generally been obliged to pay higher prices for their requirements than they would have paid in the absence of the excise taxes. The extent to which the interests of the Government have been affected has not as yet been fully determined. The Government collects the excise taxes which the domestic consumers pay on imported oils and fats, but the Revenue Act of 1934 stipulates that the 78 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 collections on coconut oil derived from Philip pine copra shall be remitted to the Philippine Government.32 If this should ultimately take place, the United States would not be able to retain for its own use the full amount of the taxes borne by its citizens on their consump tion of the imported oils and fats. For the future, the probable effect on American interests arising out of the excise taxes on Philippine-derived coconut oil is indeterminate. It will depend largely (1) on the extent to which the importation of the few untaxed or lesser taxed, competitive oils increase or decrease; (2) on the changes which may be made in the rates of duty and in the excise taxes applicable to im ported oils; (3) on whether the United States ul timately remits the excise-tax collections on co conut oil to the Philippine Government; and (4) on whether coconut oil derived from Philippine INSURANCE For Every Need and Purpose WORKMEN’S COMPENSATION PUBLIC LIABILITY AUTOMOBILE ---------ATLAS ASSURANCE CO. LTD. CONTINENTAL INSURANCE CO. ORIENT INSURANCE COMPANY INSURANCE COMPANY OF NORTH AMERICA General Agents I . E. EIMI. INC. Telephone 2-24-28 — MANILA — Kneedler Building THE SIGN OF aSuflEZtoX QUALITY IN PRINTING BOOKBINDING ENGRAVING McCullough service means expert supervision and the intelligent handling of your printing problems. What ever your printing needs may be, you are assured the utmost satisfaction when McCullough does the job. McCullough printing co. MAKERS OF RUBBER STAMPS . DRY SEALS . BRASS SIGNS . CHAPAS . ETC. copra is subject to a preferential excise tax rate after the Philippines attain their complete in dependence in 1946. A bill has recently been introduced to ex empt from the excise tax, Philippine coconut oil which is rendered inedible.33 If this were to be passed, the probable effects on private Amer ican interests would be: (1) to reduce the cost of coconut oil to domestic manufacturers of soap, but by somewhat less than the full amount of the tax, inasmuch as some portion of it is now shifted to producers of coconuts and copra in the Philippines; (2) to increase the proportion of coconut oil u ed in the manufacture of soap appreciably above the level preva ling before the imposition of the excise taxes, particularly since imported tallow has recently become subject to an excise tax of 3 cents per pound; (3) to depress in some degree the price of both domestic FIRE MARINE ACCIDENT PLATE GLASS THE EMPLOYER’S LIABILITY ASSURANCE CORPORATION LTD. and foreign competitive soap oils now used in the United States; (4) to lower the proportion of coconut oil entering edibible channels, since edible coconut oil would advance in price if the inedible coconut oil were exempt from the tax; and (5) to enhance the price of the domestic edible oils which are competitive with coconut oil.34 The effects which the passage of the bill would have on United States Government interests is not fully determinate. If inedible Philippine coconut oil were exempt from the excise tax, the United States Government would then collect less revenue from its citizens for remission to the Philippines. This would benefit domestic con sumers, but not to the full extent of the tax; it would not, however, influence the amount of the revenue which the United States Govern ment might retain for its own use, provided that the revenue collected on Philippine coconut oil is ultimately to be remitted to the Insular Gov ernment. If the remission does not occur, the consumers of coconut oil in the United States will be relieved from paying the tax but, since some portion of it is now shifted to the Philippine suppliers, the Government would forego a greater sum than the domestic consumers would be relieved of paying. The passage of the bill would a so commit the United States to i ncreasi ng the economic dependence of the Philippine co conut industry on the American market for at least the duration of the Commonwealth period and possibly longer. The situation would be materially different if the tax exemption proposed in the bill were to be generalized to all imported oils and fats entering into inedible uses. Effects of Independence Act on Private and National Interests in the United States No provision of the Independence Act, as has been explained earlier, is likely to have any restrictive effect on the importation of coconut oil into the United States during the first 5 years of the Commonwealth period. In the light of other restrictive legislation by the United States, the substantial duty-free quota provided for in the act probably will not be reached in this period. During the second 5 years of the Com monwealth period, when the Philippine export taxes become operative, it is probable that the imports of Philippine coconut oil will be dis continued completely or almost completely, imports of copra being substituted. In any event, the importation of Philippine coconut oil will almost certainly cease after July 4, 1946, if it then becomes subject to the present United States duty of 2 cents per pound while copra remains on the free list. After that time coco nut oil from the Philippines will no longer be able to compete in the United States market with that produced domestically from Philippine copra. 32'I'he domestic consumer, as has been explained, does not bear the whole of the tax; some portion of it is borne by Philippine or foreign suppliers. MGufTcy-Dockweilcr bill. Its probable effects on Philippine interests were discussed on pp. 89-90. 3tThe amount of coconut oil now entering edible channels is greater than it was prior to the introduction of the excise taxes, but the acute domestic shortage of oils and fats rather than any provision of the excise tax laws appears to be the significant causal factor. The amount of domestic vegetable oils entering into a marwine, however, increased during the period 1933-35 to much greater degree than did the amount of coconut oil. IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 79 It would appear, therefore, that if the present United States tariffs on coconut oil and copra remain unchanged, the provisions of the In dependence Act will operate to transfer practical ly the entire export crushing industry from the Islands to the United States, probably sometime during, but in any case certainly not beyond the second 5 years of the Commonwealth period. Although this shift would increase the size of the domestic crushing industry and thereby confer certain benefits on some American in terests, it would probably injure other American interests. Most of the crushing mills in the Islands are owned by Americans, who will prob ably enter the crushing business in the United States when they are obliged to discontinue operations in the Islands. Certain expenses, no doubt, will be incurred in making the transfer. Neither the American consuming interests nor the United States Government is likely to be materially affected more than temporarily by the transfer. Coconut oil presumably would be produced in the United States at no disad vantage in cost over producing it in the Islands; and, so long as the importations into the United States were confined to duty-free copra in lieu of Philippine coconut oil, the United States Government revenues from customs duties and excise taxes would not be influenced by the transfer of the industry. If coconut oil crushed in the United States from Philippine copra becomes subject to the nonpreferential excise tax after July 4, 1946, the domestic copra crushing industry may be re duced rather than increased in size, owing to the lessened domestic demand for coconut oil. Domestic producers of other oils and fats would presumably benefit from the lessened competition from coconut oil, unless there should be a large increase in the consumption of lesser taxed competitive foreign oils; in either event domestic consumers of oils and fats would probably pay higher prices for their requirements. The United States excise-tax receipts would advance or decline, according to the extent to which the increased excise taxes on coconut oil would restrict its consumption and would increase the consumption of the lesser taxed, competitive foreign oils. Copra Cake and Meal. Like coconut oil, copra cake and meal are pro duced in the United States from imported ma terials. The imported and the domestically produced copra cake and meal compete in varying degree with each other, and with a number of other varieties of cake and meal, either imported as such or produced in the United States from materials of foreign or of domestic origin. Im ports of oil cake and oil-cake meal into the United States have ordinarily amounted to only 1 or 2 percent of the domestic production of similar substances derived from domestic ma terials, such as cottonseed, flaxseed, soybeans, and peanuts. Practically all of the imports of copra cake and meal into the United States are from the Phil ippines. In recent years such imports have constituted a substantial fraction of imports of all varieties of cake and meal from all sources, as shown in the following table: Table 48.—Oil cake and oil-cake meal: Imports for consumption in the United States, 1931-35 From the Philippines From other countries (duty-free) (3/10 cent per pound duty) Quantitj- Value Quantity Value 1931 1932 1933 1934 1935 102.399.4S3 65.790,237 67,743.411 104,177.660 125.85S.195 199.350.883 $705,389 614,025 855,733 1,265,823 The increased importation of oil cake and oil-cake meal from the Philippines and from other sources since 1933, is largely the result of the scarcity of feedstuffs caused by droughts and crop curtailment. Since most of the Philippine cake and meal enters Pacific coast ports and is consumed largely in their vicinities, it probably does not compete in-any important degree with the cake and meal derived from domestic ma terials which, except for cake and meal made in the United States from Philippine copra, are marketed chiefly in other sections of the country. The increased importations of Philippine cake and meal, therefore, have tended to supplement rather than to supplant domestic production of similar materials. Effects of Independence Act. No provision of the Independence Act has thus far affected the importation of Philippine copra cake and meal into the United States. When Philippine export taxes become operative in 1941, however, the crushing industry of the Islands will find it increasingly difficult to com pete with that of the United States. By the time Philippine coconut oil becomes subject to the full United States duty in 1946, if not before then, the Philippine coconut-oil industry will probably cease to exist on any appreciable scale as an export industry. Since copra cake and meal are by-products of coconut oil, their export must ft llow approximately the same course as the exports of oil. But should the Philippine crush ing industry be transferred to the United States in consequence of the provisions of the Independ ence Act, the United States would produce ad ditional amounts of copra cake and meal in quan tities much exceeding the imports now coming from the Philippines, since the Islands generally export most of their output of cake and meal to European markets. This additional production might then supply some of the domestic re quirements which would otherwise be met by imports of cake and meal, not only from the Philippines but from other countries, and might also supply a surplus for export. So far as domestic producers and consumers and United States Government revenues are concerned, the transfer of the production of copra cake and meal from the Philippines to the United States should have little effect. Con sumers in the vicinity of the crushing mills might be placed in a slightly improved competitive position in bidding for their requirements; and the domestic producers of feedstuffs supplying these areas might be placed in a correspondingly poorer competitive position. Government cus toms receipts might be lowered slightly owing to the fact that probably less dutiable cake and meal would enter the country if the domestic crushing industry increased its output of copra cake and meal. 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ILLIES&CC. 550-554 San Luis Tel. 5-69-89 Manila IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 80 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 imported coconuts grown in the West Indies and in Central America. The production of raw coconuts in continental United States, chiefly in Florida, has been exceedingly small and of diminishing importance in recent years.1’’ As shown in table 49, shipments from Puerto Rico have recently accounted for 10 to 15 percent of the total entering continental United States, whereas imports of duty-free coconuts from the Philippines and Cuba have been of slight com mercial importance. / The desiccated coconut industry is centered chiefly around New York City and the manu facturing is done by only a few firms. Domestic E Table 49.—Rate coconuts: 1931 Puerto Rico................................................................. Free........... 7,253 $209,050 Philippines.........................................................................do.............. 254 5.600 Cuba................................................................................... do.l.......... 23 590 Jamaica......................................................................... 1/2c.each.. 31,487 489.766 Panama...............................................................................do.............. 10,672 192,101 Trinidad and Tobago..................................................... do.............. 6,923 108,728 All others...........................................................................do.............. 13,076 201,632 Total.......................................................................................... 69,688 1.207,473 Country or territory Duty Number (in thou- Value Number (in diou- Value admitted free of duty under the terms of the Reciprocity-Convention of 1902 and of the Trade 1 Cuban coconuts arc Agreement of 1934. Source: Foreign Commerce and production is confined largely to sweetened desiccated coconut, whereas imports consist entirely of the unsweetened. The bakery and confectionery trades use both varieties, but the household trade uses only the sweetened. In terms of value (volume data are not avail able), domestic production has supplied about 60 percent of the domestic requirements in recent years. Almost all of the remainder has been imported from the Philippines and Ceylon, chiefly the former.36 The following table shows the imports into the United States com mencing with 1923, the .vear when the increased tariff went into effect. Table 50.—Desiccated, shredded coconut meat: Imports for consumption in the United States, 1923-35 From Philippines (duty-free) From other countries (3-1 /2 cents per pound duty) 1 Value Value Computed Quantity Value per Quantity Value per ad valorem pound pound rate Thousands 1923. 1925. 1926. 1927. 1928. 1929 1930 1931 1932 1911 1934. 1935 43,123 45.343 37,133 1,655 2.212 3,781 1 Includes very small amounts from Cuba which are subject to a 20-peicent lower duty. Source: Foreign Commerce and Navigation of the United States. During the period under review the volume of United States imports varied markedly from year to year. In r935 the volume was the highest on record, exceeding that for 1923 by over 65 percent. At the beginning of the period the Philippines supplied less than 20 percent of the imports, whereas at the end they supplied almost 99 percent. Participation of the Phil ippines in the United States market began to expand at a rapid rate immediately after the Tariff Act of 1922 increased the duty on desiccat ed coconut from 2 cents to 31 /2 cents per pound. Prior to 1923 imports into the United States came principally from Ceylon; by 1935 this source supplied only slightly more than 1 percent of the trade. Since the unit price of the imports from the Philippines is still well below that of the duty-paid price of the imports from Ceylon, the Islands will no doubt continue to supply practically all of the imports into the United States, at least until the end of the Common wealth period. The duty on desiccated coconut has operated principally to change the source of United States imports rather than to transfer production to continental United States. When the duty was increased from 2 cents to 31/2 cents per pound on desiccated coconut, a duty of one-half cent each was placed on fresh coconuts. Since about 3 coconuts are required to produce 1 Shipments received by the United Stales, 1934 and 1935 1935 10,205 $282,844 73 1,489 137 4.063 27,222 398,247 11,071 180,132 2,618 46,354 15,242 236,100 Navigation of the United States. 66,568 1,149,229 pound of desiccated coconut, and since the domestic producer depends chiefly on dutiable coconuts for his raw material, the tariff increase benefited him but little. The domestic manu facturer pays considerably higher prices for his raw coconuts, whether free of duty or not, than does the Philippine producer. The cost of moving desiccated coconut to Atlantic coast ports from the Philippines amounts to about 1 cent a pound, whereas the ocean freight on fresh coconuts from Puerto Rico to New York, for example, is the equivalent of about 3 cents per pound on the desiccated meat produced therefrom. Thousand.* of pound, 36,976 31.253 23,653 19,801 25,757 14,972 7,096 5,179 Thousand, About 90 percent or more of the imports of Philippine desiccated coconut have entered Pacific coast ports in recent years, as compared with only 20 percent or less prior to 1928. This change is no doubt accounted for by the trans portation advantage which the Philippine pro duct enjoys over the domestically prepared product in the western part of the United States, and to the large increase in consumption of the product in that section of the country. Effects of Independence Act. The imposition of Philippine export taxes on the shipment of desiccated coconut to the United States during the second half of the Commonwealth period is not likely to prove an important restrictive factor affecting the volume of this trade. Even in the last year of the period the tax will amount to only 0.875 cent per pound as compared with the United States duty of 3-1/2 cents per pound applicable to imports from other sources. The extent to which Philippine desiccated coconut will be able to compete in the United States after it becomes subject to the full duty in 1946, how ever, is problematical. The spread between the import prices of the Philippine and of the duti able desiccated coconut has never equaled the duty. At its maximum, the import value of the Philippine product was higher than the value of the dutiable product (duty unpaid) by 2.3 cents per pound in 1923, as shown in table 50. The differences declined irregularly until 1933 when the unit value of the Philippine product was slightly below that of the dutiable. But by 1935 the import price of the Philippine product advanced above that of the dutiable product by 0.9 cent per pound. Under competitive conditions which have existed during recent years, the Philippine desiccated coconut industry has been able to operate very profitably and on an increasing scale while selling its product in the United States at a price not greatly above that of the Ceylon product, duty unpaid. Philippine pro ducers expect that by the time Philippine in dependence is achieved, wage costs, and conse quently production costs, will be reduced some what, and that profit margins will be narrowed. It may well be, therefore, that the Philippines will be able to retain a large fraction of their American market for desiccated coconut even after it becomes subject to the full United States duty. Some part of their market, however, they will probably lose to domestic manufacturers and to Ceylon producers, chiefly the latter. The United States Treasury, rather than the domestic manufacturer or consumer, is likely to be the principal beneficiary when Philippine desiccated coconut becomes subject to the tariff. Even to the extent that domestic pro duction increases, the Treasury will benefit from the increased revenues arising out of imports of dutiable fresh coconuts. The domestic con sumer will doubtless be obliged to pay higher prices for the imported desiccated coconut in consequence of the duty being applicable to the Philippine product. But the increased cost to the consumer will not likely be as great as the increased revenues which will accrue to the Treasury, since Philippine desiccated coconut, when it becomes subject to the duty, will tend to sell in the American market at least at no higher price than the Ceylon product or to be supplanted by it. SUMMARY 1. The growing of coconuts in the Philippine Islands is largely an industry of small enterprise, the palm groves consisting generally of plots of less than 10 acres each. For the most part these are worked on a share-tenantry basis. In point of area under cultivation in the Islands, coconuts rank second after rice; in point of value they rank third after sugar and rice. It is estimated that more than 25 percent of the KThe reported domestic production was 612,680 coconuts in 1919; 180,157 in 1927: and 72,944 in 1931. No census was made in 1933, and the 1935 data aro not percent of United States total imports during 1935. June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 81 total population of the Islands are directly dependent upon the growing of coconuts for their livelihood. 2. Coconuts are grown {throughout the Philippines, but the island of Luzon accounts for more than one-half of the total acreage devoted to their cultivation. A number of the provinces depend upon the coconut industry for at least 25 percent of their total revenues, and it is estimated that the Insular Government obtains 10 percent or more of its entire tax collections from this source. 3. The total capital invested in the Philip pine coconut industry has recently been estimat ed at over §220,000,000, the American partici pation being about S14,000,000, of which 60 percent is in land and improvements and the remainder in mills and refineries. About 90 percent of the total investment in the industry is owned by Filipinos, and practically all of their holdings are represented by land and improve ments. 4. About 10 to 20 percent of the coconuts grown in the Philippines are consumed in the Islands; the remainder is exported chiefly in the form of copra, coconut oil, desiccated coconut, and meal and cake. Of these, copra and coconut oil generally account for 80 to 90 percent of the total export values. The four major coconut products usually constitute from 20 to 30 percent of the value of the total exports of all commo dities from the Islands to all countries; and they constitute from 15 to 35 percent of the value of the total exports from the Islands to the United States. From 75 to 85 percent of the total ex ports of the major coconut products, on the basis of value, are generally exported to the United States. 5. The respective values of the exports of copra, coconut oi, and cake and meal from the Philippines were at low levels during the period from 1932 through 1934, as compared with those for immediately preceding years. This was due principally to low unit prices. The value of exports of desiccated coconut was also relatively low in 1932 and 1933, but it advanced sharply in 1934, principally because of the large increase in the volume of exports. In 1935 the values of the exports of each of the four major coconut products rose to levels above those for any year subsequent to 1930, theexport value of desiccated coconut rising to an unprecedented height. The combined value of the exports of major coconut products was about 55 percent higher in 1935 than in 1934. The rise was due principally to increases in the unit price of each of the commo dities, although there were also increases in volume, particularly in that of desiccated coconut. 6. The provisions of the Independence Act will not likely have any important direct effect on the Philippine coconut industry during the first 5 years of the Commonwealth period. During the second 5 years the provisions will operate to bring about a more or less complete liquidation of the coconut oil export industry. Any decline in the exports of coconut oil and copra cake and meal arising from the provisions of the act, however, will presumably be offset by a corresponding increase in the volume of exports of copra. The production of copra in the Islands, therefore, should be little affected. For the period following independence, the position of the coconut industry, insofar as it will be affected by the provisions of the Inde pendence Act, will depend principally on whether the present excise tax on oils and fats is still in effect in the United States, and whether coconut oil derived from Philippine copra continues to enjoy its present preferential excise tax status. The United States excise tax legislation is not explicit with respect to this latter point. If this legislation remains in force and if the present tax preference is still accorded, the Philippine coconut industry, considered as a whole, will not likely be faced with any further serious develop ments in consequence of the provisions of the Independence Act. But if the excise taxes remain in force and the Philippine tax preference is no longer accorded after independence, the effect of the provisions of the Independence Act will be to injure very seriously the coconut industry of the Islands. 7. The United States excise-tax legislation comprising the Revenue Acts of 1934, 1935, and 1936, has operated in general to lower the com petitive position of Philippine coconut oil in the American market, both in relation to o'ls and fats produced wholly ;n the United States (none of which is subject to excise taxes), and in re lation to a few foreign oils which are exempt from ‘TIRE* „ NERVES MADE DAVE ACT CROSS AS TWO STICKS RICH IN VITAMINS A-BGD FREE BOOKLET Send coupon today for your free copy of the helpful new booklet, that tells how yeast helps to tone up your entire nervous system. Standard Brands of the Philippines, Inc. Dept. J., P. O. Box 586 Manila, P. I. excise taxes. The rise in the price of coconut oil (tax unpaid) which has occurred since the excise taxes went into effect took place in spite of, rather than because of, this legislation. What effects the excise taxes will have in the future— particularly after independence—on the com petitive position of coconut oil derived from Philippine copra, is indeterminate, even though the present excise-tax legislation continues in force unchanged. It will depend largely: (1) On the extent to which the imports into the United States of untaxed or lesser taxed com petitive oils will increase or decrease; (2) on the changes which may be made in the United States rates of duties applicable to such oils; (3) on whether the United States ultimately remits the coconut oil excise-tax collections to the Philip pine Government; and (4) on whether coconut oil extracted from Philippine copra is subject to a preferential excise-tax rate after Philippine independence. 8. 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(Write your name and address below) Address___________________________________ (Mail this coupon to address given below) IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 82 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 Philippine coconut interests and may affect them even more adversely after independence, this legislation may nevertheless confer sub stantial benefits upon the Philippine Government. The United States revenue acts provide that the excise taxes collected on coconut oil extractcdfrom Philippine copra (either in the Islands or in the United States) shall be forwarded to the Phil ippine Government. Because of litigation, how ever, none of the revenue thus far collected has been remitted. On November 30, 1936, the receipts in question amounted to 841,202,203. These tax collections, when and if remitted, will represent gains for the Insular Government which will no doubt far exceed any monetary losses the Philippine coconut industry may have suffered in consequence of the excise-tax legis lation. 9. The United States produces substantial quantities of processed coconut products, but they are manufactured almost entirely from raw materials originating outside of continental United States. The coconut oil imported from the Philippines competes directly with the do mestically produced coconut oil, and both com pete indirectly in varying degree with a number of other oils and fats of wholly domestic origin. Philippine copra cake and meal, and desiccated coconut also compete similarly but to a lesser extent, with the domestically processed or pro duced goods. 10. In the production of the varieties of soap in chief demand in the United States, coco nut oil can be replaced only to a limited extent by oils and fats produced wholly in continental United States. In this use, which was its most important in the United States, until recently, coconut oil complements domestic oils and fats to a much greater degree than it competes with them. But in its major edible uses, coconut oil, so far as physical characteristics are con cerned, can be replaced by a number of other oils and fats derived from materials produced wholly in continental United States. 11. The economic effects of the oil excise taxes on American interests have been similar to those which would have resulted from corre sponding tariff duties, inasmuch as no oil or fat derived from materials produced in continental United States was made subject to the excise taxes. These taxes have operated to enhance the price of those domestic oils and fats which meet competition from coconut oil and from other taxed oils of foreign derivation, but they have not operated, nor are they likely to operate, to en large appreciably the domestic production of oils and fats with the exception of certain types of fish oil, inedible tallow, and soybean oil. Most of the domestic oils are produced jointly with other products of much greater value. While domestic producers of oils and fats have benefited generally from the imposition of the excise taxes, domestic consumers have been obliged to pay higher prices for their require ments than they would have in the absence of the excise taxes. The extent to which the interests of the United States Government have been affected has not been determined at this time (Jan. 1, 1937). It will depend largely on whether the United States will finally remit the coconut-oil excise-tax collections to the Philip pine Government. The effect which the excise tax legislation will have on private American interests after Philippine Independence is largely indeterminate. 12. The provisions of the Independence Act governing the exports of Philippine coconut products to the United States are not likely to have any direct effect on private American interests or on United States Government reve nues during the first 5 years of the Common wealth government. During the second 5 years of this period, these provisions will operate prin cipally to expand the domestic copra-crushing industry, without appreciably affecting cither the United States Government revenues or the position of domestic producers or consumers of fats and oils, and meal and cake, generally. For the period following independence, the effects of these provisions are largely indeterminate, principally because the excise-tax status of Philippine coconut oil is not clearly set forth in the United States revenue acts. If the present excise taxes and preferences are continued after Philippine independence, then no provision of the Independence Act will operate further to alter the position of American producers and consum ers of oils and fats, or to alter United States Government revenues collected on oils and fats. If the present excise taxes are continued but the preference is no longer accorded to coconut oil of Philippine derivation after independence, the provisions of the Independence Act will operate to reduce the consumption and to in crease the tax-paid price of coconut oil in the United States. This in turn will operate to increase the prices of domestically produced, competitive oils and fats. Whether United States Government revenues would rise or fall in this contingency is not clear. The provisions of the Independence Act will also operate, in an indeterminate degree, to restrict the importation of Philippine desiccated coconut into the United States after independ ence. In consequence, the domestic producers of desiccated coconut may be benefited to a limited extent. United States tariff revenues will presumably increase, and American consumers will probably pay somewhat higher prices for their requirements. {Please turn to Mining Section page 47) (Continued from page 50) 5. ABACA AND CORDAGE ABACA Production. Abaca, popularly known as manila or manila hemp, is used in the manufacture of cordage; it is grown on about 10 percent of the cultivated area in the Philippines. During the last 20 years the total acreage devoted to abaca culture has remained relatively constant at approxi mately 1,100,000 acres. The area actually har vested, however, and therefore the production of the fiber, have varied from year to year. Pro duction declined appreciably during the years 1931-32, but recovered during 1934-35. Statis tics covering the 10-year period 1926-35 appear in the following table. Table 52.—Abaca: Production in the Philip pines, 1926-35 Bales (278.3 Year pounds) Short tons 1926 ........................... 1927 ........................... 1928 ........................... 1929 ........................... 1930 ........................... 1931 ........................... 1932 ........................... 1933 ........................... 1934 ........................... 1935........................... 1,238,113 1,229,119 1,386,897 1,590,343 1,274,464 1,070,147 872,954 1,227,987 1,441,202 1,480,396 172,283 171,032 192,987 221,296 177,342 148,911 121,472 170,874 200,543 205,997 Source: Annual Baling Reports, Fiber Inspection Service, Department of Agriculture and Commerce, Commonwealth of the Philippines. The principal regions producing abaca are located in southern Luzon, and in the islands of Mindanao, Leyte, Samar, and Masbate. Methods of cultivation and fiber extraction are primitive, except in the Province of Davao, Mindanao, where American and Japanese pro ducers have employed scientific methods of cultivation and have introduced improved machinery for extracting the fiber. As a result of these improvements the Province of Davao has increased its production, while the output in other sections has either remained stationary or has declined. This province, which has the largest abaca acreage under cultivation in the Islands, now raises between 40 and 45 percent of the total abaca fiber produced. Other prov inces prominent in the production of this fiber are Albay, Sorsogon, and Leyte. The principal grades used by rope manufactur ers in the United States are of high quality and are designated as JI, G, and I; in recent years Davao has produced between 70 and 80 percent of the total quantity of these grades grown in the Islands. The investment in land, improvements, and machinery in the abaca industry is estimated at 8185,000,000; of this amount, 90 percent is owned by Filipinos and the remainder by Amer icans, Japanese, and others.1 It is estimated that between 2,000,000 and 2,500,000 people are dependent directly or indirectly on abaca production for all or part of their livelihood. Of these, approximately 600,000 heads of families are directly engaged in growing manila hemp as their major crop. The wages paid on the abaca plantations range from 20 to 50 cents per day except for those engaged in stripping the fiber; the latter usually receive somewhat higher remuneration. Exports. Manila fiber was the largest export crop of the Islands in the nineteenth century. As late as 1903 t comprised 68 percent of the value of all Philippine exports, fo owing which it declined in relative importance until 1932, when it conH'hilippine Statistical Review, vol. 2, no. 4. 1935, p. Table 53.—Abaca and cordage: Exports from the Philippine Islands, 1903, 1926-35 Value of exports Year Cordage Total Percent of modifies 1903. 1926 1927 1928 1929. 1930. 1931 1932 1913 1934. 1935....................................................................... $22,000,588 32,142,038 29,687,129 26,593.606 28,420,550 18,426,676 8,942,907 5,015,602 6,873,860 8,661,568 11,473,967 $21,848 1.405,458 1,666,707 1.775,436 1,904,272 1,553,227 887,408 659,047 906,768 1,335,047 1,161,815 $22,022,436 33,547,496 28*369^042 30,324.822 19,979,903 9,830,315 5,674,649’ 7,780.628 9,996,615 12,635,782 68 24 20 12 18 15 9 6 7 9 13 Source: Annual Reports, Insular Collector of Customs. June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 83 stituted 6 percent of total exports. The low point reached in 1932 was the result of a decline in the unit price of abaca as well as in the quan tity exported. The decline in relative importance was also due to the marked rise in the exports of other commodities, particularly sugar and coco nut products. As shown in table 53, the com bined shipments of abaca and cordage in 1934 amounted to 9 percent of the total value of Philippine exports, and in 1935 to 13 percent. In the export trade of the Islands for 1935 the value of abaca and cordage combined was below that of sugar, coconut products, or gold. Most of the abaca produced in the Philippines is exported as fiber. The quantity of fiber consumed by the local cordage factories is esti mated at approximately 8,500 tons. The prin cipal markets for abaca are the United States, the United Kingdom, and Japan. The United States purchases the largest amount of high grade fiber, the United Kingdom buys medium grades, and Japan the medium and lower grades, the latter being used primarily in the manu facture of paper. Exports to Japan are the largest in quantity but those to the United States are the highest in value. The distribution of exports of Philippine abaca for 1935 is given below: United States. United Kingdom Other countries. . 201,624 100.0 11,473,967 lAnnual Export Report, Fiber Inspection Board, Department of Commerce and Agriculture, Commonwealth of the Philippines. 2Annual Report, Insulnr Collector of Customs. Because the Philippines have a practical mono poly in the production of abaca, other nations are obliged to make most of their purchases there. The share of the United States in the export trade is lower in abaca than in many other Philippine products. Abaca from all sources has entered the United States duty-free since 1890. Competitive Aspects. Although the Philippines have a virtual mono poly in the production of abaca, Japanese interests are developing plantations in British North Borneo and the Netherlanders in Su matra. In addition, sisal for certain uses com petes with abaca on a price basis, but because of differences in quality this competition is limited. Because of the monopolistic character of abaca production, it has been suggested that Philippine growers might obtain increased prices for their product by restricting output. Any serious attempt to make such a program effective would no doubt stimutale production elsewhere and also improve the competitive position of cheaper fibers. Manila hemp does not compete with any product raised in the United States. So long as abaca remains on the United States free list it will not be directly affected by the trade provisions of the Independ ence Act. CORDAGE Nature and Importance of the Industry. Five cordage factories were operating in the Philippines during 1935. Four of these were in Manila and one was in Legaspi, in southern Luzon. The total annual spindle capacity of the five Philippine cordage mills is 57,024,000 pounds of fiber; their annual consumption in recent years has averaged only 17,385,000 pounds. Three of the factories in Manila produce most of the cordage manufactured in the Islands. In 1935 American capital con trolled 53.4 percent of the spindle capacity of the Philippines, Filipino capital controlled 40.5 percent, and Chinese 6.1 percent. Total in vestments in the industry are estimated to be approximately $3,000,000. Employment and Wages. The number of people employed by cordage mills in the Philippines in recent years has averaged 1,030, and the number of people directly dependent on the industry, is estimated at about 5,000. The total salaries and wages paid approximate $300,000 per annum. La borers receive from 40 cents to $2.50 per day depending upon the kind of work which they perforin. Exports. Exports of cordage from the Philippines totaled 15,467,000 pounds in 1929, the quantity declined to 8,451,200 pounds in 1932, rose to 18,339,700 pounds in 1934, and fell to 17,651,400 in 1935. The value of exports was $1,904,300 in 1929, 8659,000 in 1932, $1,334,100 in 1934, and 81,161,800 in 1935. The decline in total exports in 1935 as compared with 1934 Tons! Percent of value 47.6GG 23.6 $3,811,010 33.2 72,082 35.8 3,149,542 27.4 46,779 23.2 2,449,534 21.4 35,097 17.4 2,063,881 18.0 was accounted for by the reduction in ship ments to the United States. This reduction was due, no doubt, to the limitation imposed by the provisions of the- Cordage Act which became effective on Muy 1. 1935. During the period 1926-35, except for 1932 and 1933, countries other than the United States took more than 50 percent of the quantity of cordage exported from the Philippines. Since 1929, however, shipments to the United States Laura Gu erite at her new TROCADEKC atop the State Theatre Bldg. Distinguished for her charm as a hostess, her taste and skill to entertain you, and her deep understanding of serving the best food to the best people. Hear LAURA GUERITE sing her amusing songs at the piano. Also the best imported artists in cluding the COLBERT TWINS, ZELIE and MARIE. For Reservations Phone 2-18-08 have accounted for more than 50 percent of the value. (See table 54.) During the decade under review, the unit values of shipments to the United States were greater than the unit values of exports to other countries. This condition may be explained in part by the ability of the individual Philippine producers operating through exclusive distributing agencies to sell various types of rope in the protected market of the United States at higher prices than could be obtained in foreign markets, and in part, by the fact that the grades of rope sold in foreign countries are generally lower than those sold in the United States. The increase in the exports of Philippine cordage in recent years has been marked, rising from 8,500,000 pounds in 1932 to 17,500,000 pounds in 1935. Despite this increase, exports of cordage constituted only 1.2 percent of the value of total exports from the Philippines in 1935, a proportion which has been maintained for a number of years. The American market is less important to Philippine producers of cord age than to producers of many other products, since approximately one-half of the exports of cordage is shipped to countries other than the United States. Restrictions on the Shipment of Philippins Cordage to the United States. The United States Tariff Act of 1922 fixed the 100.0 duty on cordage “wholly or in chief value of manila * * ♦” at 0.75 cent per pound. The act of 1930 increased the rate to 2 cents per pound and added 15 percent ad valorem to that rate if the rope were smaller than three-fourths of 1 inch in diameter. The ad valorem equi valent of these rates applied to imports of all hard fiber rope paying full duty in 1935 averaged approximately 24 percent on rope three-fourths of 1 inch or greater in diamater and 41 percent on ropes smaller than three-fourths of 1 inch. The equivalent ad valorem rate, however, would vary in accordance with the price of IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 84 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 Table 54.—Cordage: Exports from the Philippines to the United Statesand to other countries, 1926.-35 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 Exports to United States Quantity Value Percent of total Pounds to all countries 40.3 33.7 37.2 43.7 48.8 52.6 53.2 48.8 45.6 Exports to other countries Quantity Value Percent Percent Percent of total of total of total Mint to all Pounds to all Amount to all countries countries countries 8,036 46.1 6,010,736 59.7 $757,422 53.9 3.745 38.4 8.148,230 66.3 1,025,962 61.6 1.121 40.6 9,101.676 62.8 1,054.315 59.4 2.731 49.0 8,816,246 56.3 971,542 51.0 1.565 54.2 7.089,046 51.2 711,662 45.8 3,001 51.8 5.625,692 55.0 427,407 48.2 1.207 62.4 4.003.342 47.4 247,840 37.6 1,340 62.6 6,031.554 46.8 339.428 37.4 5,053 58.8 9,396,534 51.2 549,057 41.2 8,959 51.1 9,598,167 54.4 532,856 45.9 Source: Annual Reports, Insular Collector of Customs, each individual shipment which, in turn, would be based upon the size and grade of the rope involved. Cordage is one of the three Philippine export commodities for which duty-free entry into the United States was to be restricted under the Independence Act, as follows: For the first 5 years of the Commonwealth period, the Independence Act fixed a cordage quota of 3,000,000 pounds to be admitted free of duty. Any imports above that amount were to pay the full United States duty. The dutyfree quota stipulated in the act was approxi mately one-half of the average annual shipments from the Islands to the United States during the period 1926-35. During the second 5 years of the Common wealth period, the duty-free limitation was to be continued but the quota was then to become subject to the progressive Philippine export taxes. These taxes are to begin at 5 percent of the United States duty on cordage in the sixth year of the Commonwealth and increase to 25 percent in the tenth year. After complete independence is achieved, Philippine export taxes will no longer be required, but the full United States duty will then be applied to all Philippine cordage imported into the United States. The cordage provisions of the Independence Act, however, were superseded by an Act of Congress approved June 14, 1935. This legis lation amended the cordage provisions of the Independence Act in several respects: (1) the duty-free limitation on “all yarns, twines, cords, cordage, rope, and cable, tarred or untarredwholly or in chief value of manila (abaca) or other hard fiber” was raised from 3,000,000 to 6,000,000 pounds annually; (2) the increased quota is an absolute one and no Philippine cord age in excess of 6,000,000 pounds annually is to be admitted into the United States; (3) all Philippine cordage exported to the United States will be subject to the export taxes provided for in the Independence Act during the second 5 years of the Commonwealth assuming the con tinuation of the Cordage Act which is subject to termination on May 1, 1938. Prior to the date of Philippine independence, the latter act may be extended by proclamation of the Pres ident of the United States for an additional period of 3 or more years, upon approval of the President of the Commonwealth of the Philip pines. On the expiration of this act, cordage again will become subject to the provisions of the Independence Act. The restriction in the Cordage Act differs from those imposed by the Independence Act on such Philippine exports to the United States as are subject to quota limitations. The Cord age Act limited shipments of cordage as of May b 1935, whereas the restrictions fixed by the In dependence Act would not have become applic able until November 15, 1935, when the Com monwealth Government was inaugurated.2 More over, the Independence Act permitted goods subject to quotas to enter the United States in excess of such quotas by paying full duty. The Cordage Act, on the other hand, fixes an ab solute maximum which may not exceeded. The quota fixed in the Cordage Act also includes binder twine which is on the United States free list. All United States imports of Philippine binder twine, therefore, must be included in the cordage quota’ although foreign countries may ship to the United States unlimited quantities of this product duty-free; however, only negligble quantities of binder twine have heretofore been imported from the Philippines. Another factor affecting the shipment of Philippine cordage to the United States arises out of the spread in the freight rates on baled abaca and finished rope. Inasmuch as about 1 pound of abaca is required to produce 1 pound of rope, a freight differential, corresponding to approximately one-half cent per pound, favors the movement of abaca rather than rope.’ Competitive Cordage Situation in the United States. Production of hard-fiber cordage in the United States has fluctuated widely in the last 10 years. In 1927 the total was 193,000,000 pounds but by 1933 it had declined to 84,500,000 pounds. In 1935 production increased, reaching a total of 87,950,000 pounds. Imports also fluctuated during this period; they dropped from 16,325,000 pounds in 1929 to 6,860,000 pounds in 1931 but recovered to 12,300,000 pounds in 1935. Total imports have never exceeded 14 percent of domestic production. The principal source of imports, however, has changed. Prior to 1930, more than 50 percent of the imported hard-fiber cordage came from foreign countries while subsequent to 1930, more than 80 percent of it came from the Philippines. Because of the decline in domestic production and the increase in shipments from the Philippines, these latter corresponded to 9.4 percent of domestic production in 1933 and 12.5 percent in 1935. The decline in imports of cordage from foreign Table 55.—Hard-fiber cordage: United States countries may be explained in part by the in creased tariff rates which became effective with the passage of the Tariff Act of 1930, by the competition of wire rope, and by the general depressed condition of world trade following 1929. Table 55 indicates the changes which occurred in domestic production and in imports during the period 1927-35. During the Commonwealth period the entry of Philippine cordage into the United States will be restricted either by the absolute quota of the Cordage Act or by the duty-free quota of the Independence Act. Moreover, during the second 5 years of the Commonwealth the Phil ippine export taxes will reduce the advantage now enjoyed by Philippine cordage manufactur ers in the American market. It does not appear, however, that the export taxes will of themselves cause any material reduction in the quantity of Philippine cordage exported to the United States. After the Philippines become inde pendent, the United States duties will operate to reduce the quantity and profitableness of Philippine exports of cordage, but it seems un likely that the duties will prove to be prohibitive. The charges for transportation to the United States for this product constitute a third factor which may become almost as important in its effect upon Philippine shipments to the United States as either the Philippine export taxes or the United States duty. Any permanent increase in the sales of Philppine cordage in the United States would operate to reduce the purchases of abaca by American buyers, since the fiber is used primarily in the manufacture of rope.4 Moreover, if large quantities of Philippine cordage made from inferior fiber should be sold in the United States, 3The Cordage Act was approved on June 14, 1935, but was made effective as of May 1, 1935. Because of this retroactive feature in the law, one company was able to over-ship its quota by approximately 1,500,000 pounds before export licenses could be issued. This action resulted in decreasing, during the year beginning May 1, 1936, the effective quotas for those concerns which normally ship the largest quantities of rope to the United States. Beginning on May 1,1937, however, the Common wealth Government will be able to allocate entire quota of 6,000,000 pounds to individual cordage manufacturers. sConfcrence rates in effect May 1, 1936—from Manila to Atlantic coast ports. Cordage: Per long ton....................................... $35.00 Abaca: Per bale (average 278.3 pounds), dollars................... $3.00 Per pound................................. 0.0108 Per long ton................................................. 24.15 Spread in rates per ton....................... 10.85 Spread in rates per pound................. .0048 Prior to May 1, 1936, the following rates prevailed: Cordage: Per long ton....................................... 35.00 Per bale (average 278.3 pounds), dollars................... $2.25 Per pound................................. 0.0081 Per long ton................................................. 18.11 Spread in rates per ton....................... 16-89 Spread in rates per pound................. .0075 «United States imports for consumption of manila or abaca from the Philippines for specified years: Year: Pounds 1927............................................................ 114,710,400 1929............................................................ 159,772,480 1931......................................................... 68,242,640 1933............................................................ 72,244,480 1935........................................................ 95,747,840 Source: Foreign Commerce and Navigation of the United States. production and imports from foreign countries and from the Philippines Year United States United States imports production 1 from foreign Pounds Pounds 192,991,638 5,528.037 163,764,354 9,399,685 95,746,551 1,479,854 84,496,911 1,332,387 87,949.699 1,307,086 United States imports from the Philippines Pounds 4,891,349 6,936,833 5,380,222 7,939,736 11,009,125 Ratio of imports from the Philippines to production 1 "2^ 5.6 9.4 • 12.5 Ratio of total imports to production Pereen 5.4 10.0 7.2 11.0 14.0 1927...................................... 1929...................................... 1931...................................... 1933...................................... 1935...................................... iBureau of the Census. Source: Foreign Commerce and Navigation of the United States except where footnoted. June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 85 American manufacturers would be compelled to buy a large proportion of low-grade abaca so that they might compete. In this way the major Philippine outlet for high-quality fiber might be restricted. However, so long as imports from the Philippines remain limited to 6,000,000 pounds annually, such a contingency appears improbable. Binder Twine. The production of binder twine in the United States was subject to less fluctuation than the production of cordage from 1927 through 1935, but imports during that interval increased from 7 to 36 percent of domestic production. Domes tic production totaled 227,600,000 pounds in 1927 and 157,700,000 pounds in 1935. Imports were 15,800,000 pounds in 1927, but rose to 56,300,000 pounds in 1935. Under the Tariff Act of 1930, foreign countries are permitted to ship to the United States unlimited quantities of binder twine free of duty. By the provision of the Cordage Act, as has been pointed out, the Philippines are now the only country which may not do so. Philippine shipments of binder twine in the past, however, were negligible. SUMMARY 1. As late as 1903 abaca, or manila fiber, accounted for 68 percent of the value of all Philippine exports, but by 1936 abaca and cord age combined accounted for only 13 percent. The Philippines continue to enjoy a virtual world monopoly in this material. No similar material is produced in the United States and imports enter duty-free. 2. Five cordage factories representing an investment of approximately S3,000,000 were operating in the Philippines in 1935. Four of the mills are located in Manila, two of which are owned by American capital. The total annual spindle capacity of all Philippine factories is 57,024,000 pounds of fiber; annual factory consumption in recent years has averaged 17,385,000 pounds. The cordage industry em ployed 1,030 people in 1935. 3. The provisions of the Independence Act limit the free import of Philippine cordage into the United States to 3,000,000 pounds per annum, amounts in excess of that quantity being permitted entry at full duty. These pro visions, however, have been superseded, at least temporarily, by the Cordage Act of 1935. Under this law 6,000,000 pounds of Philippine cordage may enter the United States duty-free, an amount approximately equal to the average annual ship ments from the Islands during the period 1926-35, but considerably below the amount shipped in 1934 and 1935. This quota was made retro active as of May 1, 1935, over 6 months in advance of the date when the provisions of the Independence Act were to take effect. It is absolute, no shipments in excess of it being permitted, and includes not only cordage but also binder twine which is on the free list in the Tariff Act of 1930. Philippine cordage exported to the United States in the second 5 years of the Commonwealth period, either under the quota of the Cordage Act or, if that act should be allowed to lapse, under the quota provided by the Independence Act, will be subject to the export taxes provided for in the Independence Act. 4. United States imports of manila cordage from the Philippines have become an increasingly important factor in the American market; they amounted to approximately 12.5 percent of total domestic production of hard fiber cordage and 90 percent of the total imports in 1935. United States imports of binder twine from all sources equaled 36 percent of domestic production in 1935. Imports from the Philippines were negligible. 5. It is not likely that the Philippine export taxes will cause any material reduction in the quantity of Philippine cordage exported to the United States. The United States duties to be applied after independence, however, will prob ably operate to reduce both the quantity and profitableness of these exports, though it appears improbable that existing rates of du^y would prove to be prohibitive. 6. TOBACCO AND TOBACCO rRODUCTS POSITION OF THE INDUSTRY IN PHIL IPPINE ECONOMY Tobacco Culture. Approximately 137,000 acres, or 1.4 percent of the cultivated land in the Philippines, is devoted to the culture of tobaccoj Production was valued at 81,432,000 in 1934 and is largely concentrated in three regions. The first and most important district is the Cagayan Valley in northeastern Luzon, the second is located along the northwestern coast of Luzon, and the third is composed of the islands of Cebu, Negros, and Panay. Tobacco is the principal crop in the Cagayan Valley; it is one of the major crops along the northwestern coast of Luzon, but is less important in the three Visayan Islands. Isabela Province, located in the Cagayan Valley, is the largest producer of leaf tobacco in the Philippines. It has the highest yield per acre, and its crop is marketed at higher prices than the crops of other tobacco regions. Tobacco is grown on about 75,000 small farms and on 15 large plantations. The capital invested in tobacco lands and improvements approximates 821,000,000. Filipino landowners cultivate most of the tobacco area, though Spanish capital controls a few of the large plantations. The population dependent upon tobacco culture has been estimated to be 500,000. The laborers are employed either in the fields or in the ware houses where the crop is graded and baled. Wages range from 20 cents to $1 per day, de pending upon the type of employment and also upon the speed of the worker, since certain tasks are paid for on a piece-rate basis. Large manufacturers of tobacco products maintain representatives and warehouses in the principal producing regions. The tobacco is purchased from the grower and is then sorted, baled, and either exported or shipped to the factory of the buyer where it is prepared for use in the manufacture of various tobacco pro ducts. The Manufacturer of Tobacco Products. The 30 companies manufacturing tobacco products are located in or near Manila; in 1935 four of these accounted for the major part of production in the Philippines. Including ware houses, factories, and equipment, the industry represents a total investment of approximately 89,250,000. Spanish companies have the largest capital investment, estimated at 60 percent of the total; Swiss, American, Chinese, and Filipino investors control the remaining 40 percent. /HARLOW ^TAYLOR PERSONAL PROPERTY ggOODEAllTH DICK MADELEINE _ ILI’C rOWEU.ORROU . IMIHG /ON THE ftVSjttJE ® ALICE FAYE BieRITZ Brothers m GEORGE BARBIER A VICTOR FLEMING PRODUCTION Just some of the HITS coming to the IDEAL THEATRE WATCH FOR OPENING DATES IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 86 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 Approximately 20,000 factory laborers are employed in the manufacture of tobacco pro ducts; these, together with their families, form a group of over 100,000 people who are dependent upon this phase of the tobacco industry. Wages vary from 30 cents to SI per day, depending upon the particular task and the volume of work accomplished. Much of the labor is paid for on a piece-rate basis; in 1935 cigar makers in Manila, for example, received S2.25 per 1,000 cigars. It is estimated that an efficient worker can produce 2,000 cigars in a week; because of reduced production in 1935, however, laborers in many factories were allowed to manufacture only, 1,000 cigars a week. Machinery is used in the manufacture of cigarettes, and in the wrapping of cigars with cellophane and in the banding of them; it is not used in the actual manufacture of cigars. Exports of Tobacco and Tobacco Products. During the period 1926-35 the annual exports of tobacco and tobacco products varied from $5,200,000 to $8,900,000 and from 4.7 to 7.1 percent of the total value of exports from the Philippine Islands. From the low point of 4.7 percent in 1934, exports of tobacco and tobacco products increased to 6.4 percent in 1935. This increase in importance is due to the rise in the quantity and value of exports of leaf tobacco in 1935 and also to the decline in total Philippine exports caused principally by the limitation of shipments of sugar to the United States. Philippine exports of tobacco and tobacco products may be segregated into three major divisions: Leaf tobacco, cigars, and other tobacco products. The last division includes cigarettes, stripped filler and scrap tobacco, and smoking and chewing tobacco, of which filler and scrap tobacco are the most important. Exports of leaf tobacco comprised from 27 to 50 percent of the total annual exports of tobacco and tobacco products during the period 1926-35. Spain is the principal foreign market for Philip pine tobacco leaf, taking from 50 to 80 percent of the value of exports to all countries. Other foreign markets are Japan, France, Belgium, and China. Approximately 28 percent of the total quan tity of cigars produced in the Philippines is consumed in the Islands and 72 percent is ex ported, 67 percent to the United States and 5 percent to other countries. Exports of cigars have constituted from 45 to 70 percent of the total value of exports of tobacco and tobacco products. Statistics for 1935 show that exports totaled 233,000,000 cigars valued at $1,700,000. On a value basis this figure equaled 56.6 percent of the total exports of tobacco and tobacco pro ducts in that year. Over 90 percent of these cigars were shipped to the United States to be retailed at 2 for 5 cents. Exports of cigarettes are small, amounting to less than 1 percent of Philippine production of cigarettes.1 In 1935 they were valued at only $22,000, of which shipments to the United States totaled $6,000. Stripped filler and scrap tobacco are the remaining items of importance in the tobacco trade of the Philippines. In 1935 ex ports of these products totaled $270,000, or 4.5 percent of the total exports of tobacco and tobac co products; exports to the United States were valued at $252,000, or 93 percent of the total exports in this classification. The United States is the largest consumer of Philippine tobacco and tobacco products, having taken 54.8 percent of total exports in 1935. Spain is the second market, having taken 26.5 percent in 1935. A large number of other coun tries purchase small quantities. The commanding position of the United States in the tobacco trade of the Philippines is due entirely to the preferential free-trade relationship which exists between the two countries. Table 56 indicates the general character of the Philippine export trade in tobacco and tobacco products. and the cheaper grades have encountered severe competition from American machine-made cigars, especially in recent years. Philippine cigars retailing at 2 for 5 cents were sold to American importers at $15.17 per 1,000 cigars in 1935.4 This price included the United States internal revenue tax of $2? The Phil ippine manufacturer, therefore, received $13.17 per 1,000 cigars from which he had to deduct the cost of raw material, labor, overhead, packing, Table 56.—Tobacco and tobacco products: Exports from the Philippines to all countries, 1926-35 Leaf tobacco I Year Quantity Value Quantity Value Value of all other tobacco products 3 Total value < In thouRatio of to total Philippine exports 1926 ............................. 1927 ............................. 1928 ............................. 1929 .............................. 1930 ............................. 1931 .............................. 1932 ............................. 1933 .............................. 1934 ............................. 1935............................. P31,G02 51,990 44,571 60,801 45,791 49,941 47,664 37,250 28,943 49.398 $2,681,361 3,918,749 3,029,633 4,392,435 3,725,879 3,501,496 2,822,233 1,842,553 1.391.046 2,307,460 In thou247,711 207,579 220,884 188,333 178,561 183,874 182,575 196,141 222,820 223,117 $5,661,689 4,652,258 4,765,140 3,824,649 3,545,223 3,395,337 3,231,218 3,157,933 3.605,510 3,390,380 $288,532 337,659 776,664 572,860 565,284 524,005 346,608 177,408 197,210 294,989 $8,631,582 8,908,666 8,571,437 8,789,944 7,836,386 7,420,838 6,400,059 5,177,894 5,193,766 6,001.829 ■ Spain is the largest purchaser of Philippine leaf tobacco importing from 50 to 80 percent of the total Philippine exports of leaf. J The United States is the largest consumer of Philippine cigars, taking over 90 percent of the total quantity exported (91.4 in 1935): of these exports over 90 percent retail in the United States at 2 for 5 cents. g * “ All other tobacco” consists largely of stripped filler and scrap over 9Q percent of which is shipped to the United 4 The United States was the largest consumer of Philippine tobacco and tobacco products in 1935—54.8 percent; Spain was second with 26.5 percent. A large number of other countries purchase small quantities. Source: Annual Reports, Insular Collector of Customs. RESTRICTIONS IMPOSED BY INDE PENDENCE ACT United States Tariff Rates on Tobacco Products. In the Tariff Act of 1922, the duty on filler tobacco, “not specially provided for”, if un stemmed, was 35 cents per pound; if stemmed, 50 cents per pound. The duty on scrap tobacco was fixed at 35 cents per pound, while that on cigars and cigarettes was’$4.50 per pound plus 25 percent ad valorem. These rates were retained in the Tariff Act of 1930.2 Economic Provisions of the Independence Act Affecting Tobacco and Tobacco Products. For the first 5 years of the Commonwealth, Philippine tobacco and tobacco products will have unlimited free entry into the American market according to the provisions of the In dependence Act. During the second 5 years, progressive export taxes will be assessed against Philippine tobacco and tobacco products which are shipped to the United States. Like the export taxes on other dutiable commodities, those on tobacco will begin at 5 percent of the United States duty and rise to 25 percent in the tenth year of the Commonwealth. Commencing July 4, 1946, these Philippine products will be subject to the full United States duty. Effect of the Export Taxes. The importance of these taxes and their prob able effect on the export of Philippine cigars to the United States are illustrated in table 57. In the fiscal year 1935-36, almost 188,000,000 Philippine cigars were sold in the United States; of this number, approximately 90 percent were class A cigars and retailed at 2 for 5 cents.3 Because of the low pr:ce, the export taxes pro vided for in the Independence Act will become a particularly heavy burden. Manufacturers of cigars in the Philippines cannot raise the retail price of their product without losing a substantial fraction of their present sales in the United States market. The more expensive grades have been unable to compete with cigars produced in the United States retailing at more than 5 cents each, and shipping before arriving at a net profit. The export tax in the sixth year of the Common wealth period will amount to $4.20 on each shipment of 1,000 cigars, leaving $8.97 to cover the cost of manufacture. In the eighth year of the Commonwealth the export tax would be $12.59, leaving the manufacturer only 58 cents iPhilippine cigarettes are packed for the retail trade in packages of 20 and 30 and sell for as little as 5 cents (10 ccntuvos) per package. The cigarettes vary in length and size, from standard specifications to those which arc 4J4 inches in length; some are even longer and are considerably larger in circumference. Philippine tobacco, which is dark in color, is used in the manufacture of these cigarettes; cigar clippings are utilized in many of the cheaper brands. •On most tobacco imports into the United States the effective rates arc 20 percent less than the rates shown above, inasmuch as the United States imports of tobacco products come chiefly from Cuba. >Class A cigars arc those which are tax-paid to retail at not more than 5 cents each. The internal revenue tax on class A cigars is $2 per 1,000 cigars. ^Annual Report, 1035, Collector of Internal Revenue, Philippine Commonwealth, p. 66. (The internal revenue taxes collected on Philippine cigars sold in the United States are remitted to the Philippine Treasury by the United States Government. The umounts remitted during the years 1910-35 are shown in the following table: United Stales internal revenue collected in the Philippine products, principally cigars, and transferred to the credit of the Philippine Treasury, 1910-35 Year Amount 1910 1911. 1912. 1913. 1914. 1916. 1917. 1918. 1920. 1921 . 1922 . 1923 . 1924 . 1925. 1926. 1927. 1928. 1929. 1930. 1931 . 1932. 1933. 1934. 1935. $264,100 94,891 224,366 318,783 181,699 204,177 357,474 626,926 1,009,366 1,202,045 1,588,534 378,222 714,479 913,845 749,413 874,350 522,246 366,266 397,312 336,100 321,792 347,532 356,185 383,071 444,084 505,118 Source: Annual Reports, Collector of Internal Revenue, Philippine Islands. June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 87 Table 57.—Export taxes and import duties on Philippine cigars retailing at 2 for 5 cents, and relation of tax or duty to cigar prices, based on quotations to importers in 1935 Period Retail pried porters less internal-revExport tai Percent of United States duty r or duty* Amount ceeds after payment of alcnt advalorem Per 1,000 Per 1,000 Per 1.000 Per 1.000 cigars cigars cigars cigars Percent Sixth year of Commonwealth.......... .$25 $13.17 5 $4.20 $8.97 31.9 Seventh year of Commonwealth . . . 25 13.17 10 8.39 4.78 63.7 Eighth year of Commonwealth .... 25 13.17 15 12.59 .58 95.6 Ninth year of Commonwealth........ 25 13.17 20 16.78 127.4 Tenth year of Commonwealth........ 25 13.17 25 20.97 159.2 After independence........................... 25 13.17 100 83.89 637.0 ■Class A cigars, retailing at 2 for 5 cents or S25 per 1,000. tQuoted price to importers in 1935 was $15.17 per 1,000 cigars including the internal revenue tax of $2 per 1,000. • Based on average of 18 pounds per 1,000 cigars and the net invoice piice to importers less freight and insurance chargee ($13.17—1.60 =$11.57). The United States duty on cigars is $4.50 per pound plus 25 perefent ad valorem. ♦This figure represents that net proceeds to Philippine cigar manufacturers after payment of export taxes. Calcula tions are based on prices quoted to importers in 1935 less internal-revenue tax. On this basis the export tax would exceed total receipts from sales in the ninth yenr of the Commonwealth period. for 1,000 cigars; in subsequent years the tax would be greater than the selling price, assuming no change in existing duties and wholesale prices. The export taxes will fall almost as heavily on filler and scrap tobacco as on cigars. COMPETITIVE ASPECTS OF THE TO BACCO TRADE BETWEEN THE UNITED STATES AND THE PHILIPPINES Exports of Cigars to the United States. Cigars constitute the principal item in Phil ippine exports of tobacco and tobacco products to the United States. In fact, over 90 percent of the exports of Philippine cigars are sold in the American market. The major part of these shipments consists of cigars retailing in the United States at 5 cents each or less. During the 10-year period 1926-36 consumption in the United States of domestic cigars in this price class has steadily increased, rising from 3,047,000,000 in the fiscal year 1926-27 to 4,324,000,000 in 1935-36. This rise was due in part to the increase in demand for cheaper cigars during the depression years, in part to the lower price of tobacco, and also to the increased use of machines in cigar manufacture. The consump tion or Philippine cigars retailing for 5 cents each or less during this 10-year period varied between 4 and 6 percent of the total American consumption of cigars in this price class. The largest consumption of Philippine cigars occurred during the fiscal year 1933-34, when withdrawals of Philippine cigars totaled 223,000,000 or 5.8 percent of domestic consumption. Withdrawals of Philippine cigars dropped to 198,000,000, or 4.7 percent, in 1934-35, and to 188,000,000, or 4.2 percent, in 1935-36. In recent years the cigar manufacturers in the Philippines have found it increasingly difficult to compete in the American market with the low-priced machine-made cigar pro duced in the United States. Withdrawals for consumption indicate the results of this com petition, except in the year 1933-34, when un usual conditions prevailed. Withdrawals of domestic cigars retailing at 5 cents each or less increased 41.9 percent in the fiscal year 1935-36 as compared with 1926-27; the corresponding increase in Philippine cigars was only 5.6 percent. Table 58 gives the relative importance of the two sources of supply for the 10-year period commencing with 1926. Table 58.—Class A cigars: Withdrawals for consumption, domestic compared with Philippine cigars, 1926-36 1 Withdrawals of— Ratio of— Fiscal year 1926- 27.. 1927- 28. . 1928- 29. . 1929- 30. . 1930- 31 . . 1931- 32. . 1932- 33. . 1933- 34 . . 1934- 3.5. . 1935- 36.. Domestic Philippine Domestic Philippine to total to total cigars • cigars with- with drawals drawals millions 178 182 172 153 158 173 160 233 198 188 Philippine Imports of Cigarettes From the United States. 6 Sales of American cigarettes in the Philippines are an important factor in the Philippine market. During the 10-year period, 1926-35, the annual production of cigarettes in the Philippines declined from 4,900,000,000 to 2,900,000,000. Philippine manufacturers supplied 92 percent of local consumption in 1926, but, only 59 percent in 1935. Imports of American cigarettes, on the other hand, rose from 400,000,000 to 2,000,000,000 increasing their participation in the Philip pine market from 8 to 41 percent. The trend toward increased consumption of American cigarettes continued in 1936. Like the sale of Philippine cigars in the United States, the American cigarette trade in the Philippines is dependent almost entirely upon the preferential free-trade relationship existing between the two countries. The Philippine duties on tobacco are similar to those of the United States. A tariff of §4.50 per pound plus 25 percent ad valorem on American cigarettes entering the Philippine market would be practical ly prohibitive; however, such duties will not be applied until the Philippines receive their in dependence on July 4, 1946. Table 59 illustrates the changes which have occurred in the relative positions occupied by Philippine and American cigarettes in the Phil ippine market during the years 1926-35. Other Products in the United StatesPhilippine Tobacco Trade. Although cigars are the principal item in the tobacco trade of the Philippines with the United States, mention should also be made of Philippine stripped filler and scrap tobacco. The combined exports of these two commodities in 1935 equaled $270,000, of which the United States took $252,000, or 93 percent. The unit value of exported filler and scrap tobacco in 1935 was 8J/3 cents per pound, consequently the imposition of the Philippine export taxes, and later the United States duty of 35 or 50 cents per pound, Perce In 3,047 3,213 3,454 3.604 3,622 3.605 3,668 3,816 4,043 4,324 ♦Since 1931 the Philippines have been the principal export market for American cigarettes. Prior to that time China was the largest market, but the establishment of large cigarette factories in that country curtailed ex ports from the United States. In 1935 the total value of United Stntes exports of cigarettes to all countries was $7,262,000; exports to the Philippines totaled $3,086,000 or 42.5 percent of the total. United States exports of cigarettes, however, are relatively small when com pared wiht total American production, averaging from 2 to 3 percent of the latter in recent years. production, and imports from the United States lClass A cigars nre tliose which are tax paid to retail at 5 cents each or less. Over 90 percent of the Philip, pine cigars sold in the United States retail at 2 for 5 centsSource: U. S. Bureau of Internal Revenue. Table 59.—Cigarettes: Philippine consumption, 1926-35 1 Imports from the United States Philippine production Apparent -------------------------------consump tion Percent of Percent of Quantity total con- Quantity total con sumption sumption I' :.6 1.8 .7 .0 .1 .1 In millions 414 7.8 535 9.8 650 11.7 895 15.7 983 17.4 814 16.2 1,550 28.3 940 21.0 1,726 36.9 2.056 240.9 ■Statistics arc based on actual withdrawals for consumption. Exports arc negligible and there are practically no imports from countries other than the United States. 2The trend toward increased consumption of cigarettes from the United States continued in 1936. Source: Annual Reports. Philippine Collcctoi of Internal Revenue. 4 2 2 3 IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 88 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 would have a serious effect upon the sale of such commodities in the Untied States. In addition to cigarettes, the Philippines in 1935 received from the United States leaf tobacco valued at 8288,000, and chewing tobacco valued at $289,000. The leaf tobacco is used largely as wrappers for the cigars sold in the United States. In 1934 and 1935 approximately 75 percent of all the cigars shipped to the United States from the Islands were wrapped with American leaf; less than one-half of 1 percent had Sumatra wrappers and almost all of the remainder was wrapped with Philippine leaf. If Philippine cigars lose their United States market during the Commonwealth period, Philippine imports of American wrappers will decline sharply. The value per pound of the shipments of United States tobacco leaf to the Philippines in 1935 was 67 cents. The Philippine duty on wrapper tobacco, which now is applied to the product of countries other than the United States, is $2.27 per pound. The unit value of chewing tobacco exported from the United States to the Philippines in 1935 was 48 cents. The present Philippine duty on this type of product entering from countries other than the United States is 55 cents per pound. Trends in the United States-Philippine Tobacco Trade. The following statistics illustrate trends in the United States-Philippine tobacco trade during the period 1926-35. Tc • products Comparing 1926 with 1935, Philippine imports States increased 88 percent, while Philippine exports to the United States declined 31 percent; moreover, the trends in both cases have been relatively steady in character. It will also be noted that In 1935, for the first time, Philip pine imports of tobacco and tobacco products from the United States were greater than Phil ippine exports to the United States. These figures indicate the effects of the competition encountered by Philippine cigars in the American market. They also show the incresing popularity of American cigarettes in the Philippine market. In 1935, approximately 64 percent of the cigars produced in the Islands were marketed in the United States, while only 1.5 percent of the cigarettes manufactured in the United States were sold in the Philippines. It is evident, there fore, that the American market is more impor tant to the Philippine producer of cigars than is the Philippine market to the manufacturer of ci garettes in the United States. The same state ment may also be made for the tobacco growers in the Philippines as contrasted with those in the United States. SUMMARY Approximately 137,000 acres, or 1.4 per cent of the cultivated area in the Philippines is devoted to tobacco culture. Production is largely concentrated in three regions, Cagayan Valley in northeastern Luzon, the northwest coast of Luzon, and the islands of Cebu, Negros, and Panay. Capital estimated at $21,000,000 is invested in 75,000 small farms and in 15 large plantations; practically all of the investments are owned by Filipinos and Spaniards. Ap proximately 500,000 people are dependent upon the growing of tobacco for their livelihood. 2. Tobacco products are manufactured in 30 factories located in and around Manila. The capital invested in these plants is estimated at $9,250,000; American investments probably do not exceed 10 percent of the total. Ap proximately 20,000 factory laborers are employed in the manufacture of tobacco products. 3. Exports of tobacco and tobacco products were 4.7 percent of total exports in 1934, and 6.4 percent in 1935. The most important export items were leaf tobacco and cigars. ^Ln 1935, Spain purchased 72.6 percent of the quantity of leaf tobacco exported from the Islands, and the United States 91.4 percent of the cigars. In the same year 54.8 percent of the value of total exports of tobacco and tobacco products was shipped to the United States, 26.5 percent to Spain, and the remainder to a large number of other countries. 4. The Independence Act imposes no quota on tobacco and tobacco products, but the Phil ippine export taxes to be applied during the Commonwealth period will probably drastically reduce, if they do not entirely eliminate, ship ments of Philippine cigars and stripped filler and scrap tobacco to the United States. After inde pendence, Philippine duties, on a basis of present rates, will no doubt be prohibitive of any subs tantial imports of American cigarettes and wrapper and chewing tobacco. The present duty on cigars and cigarettes in both countries is $4.50 per pound plus 25 percent ad valorem. 5. Over 95 percent of the cigars exported from the Philippines to the United States retail for 5 cents each or less. The production of cigars in this price class in the United States increased steadily during the decade 1926-35. Philippine cigars during this perid never consti tuted as much as 6 percent of the total American consumption of this class. Because of the in creased machine production in the United States, producers in the Philippines are finding com petition in the American market increasingly severe. 6. The sale of American cigarettes in the Philippine market increased from 400,000,000 in 1926 to 2,000,000,000, in 1935, at which time they accounted for 41 percent of total cigarette consumption in the Philippines. 7. Since 1926 the trend of Philippine exports of tobacco and tobacco products to the United States has been downward, from $4,724,000 in 1926 to $3,288,000 in 1935, a decline of 31 percent. Philippine imports of tobacco and tobacco products from the United States, on the other hand, have risen from $1,968,000 in 1926 to $3,696,000 in 1935, an increase of 88 percent. In 1935, for the first time, Philippine imports of tobacco products from the United States ex ceeded exports of tobacco products to the United States. 8. Since 65 percent of Philippine cigar pro duction is sold in the United States and only 1.5 percent of American cigarette production is sold in the Philippines, it is evident that the American market is more important to the Philippine cigar manufacturer and tobacco grower than is the Philippine market to the cigarette manufacturer and tobacco grower in the United States. 7. EMBROIDERIES POSITION OF THE INDUSTRY IN PHIL IPPINE ECONOMY Organization and Location of the Industry. The embroidery industry in the Philippines was first encouraged and developed by the Insular Government, which withdrew when private enterprise commenced commercial oper ations. Regular shipments to the United States were begun in 1914. Embroidering is predominantly a household industry which provides a large number of Fili pino families with supplementary incomes. The principal embroidery establishments are located in Manila. In these plants, which are largely distributing centers, the imported cloth is cut and stamped and then delivered to the workers in neighboring provinces through con tractors or subcontractors. When the work is completed the embroidered articles are returned by the contractor to the plants where they are inspected, trimmed, assembled, laundered, and packed for export. Most of the actual embroider ing is done in the homes of workers who live in provinces surrounding Manila, but some is also done in more distant provinces. Practically all of the cloth used by the industry is cotton, which is imported from the United States in order that the finished embroidery may be permitted duty-free entry into the American market.1 The firms engaged in the embroidery business are either (1) branches of companies with offices in the United States, or (2) independ ent concern which sell to importers in the United States. In the first case, the head office provides the capital for the branch or agency and furnishes it with materials and designs. In the second case, the United States importer specifies in his order the type of goods required and some times provides the working patterns. The independent local establishments finance them selves, although occasionally they receive ad vances from the importers. The various types of needlework are usually done by different Workers. One embroiders scallops, another does the hemstitching, while a third makes the buttonholes or does the drawn work. This division of labor necessitates an elaborate system for the distribution of materials among the workers. The task of the contractors and subcontractors is to handle this distribution and to expedite the work. The completion of a garment usually requires 3 to 6 months and oc casionally 9 to 12 months. Because of the time required for the cloth to reach the Philippines and for the finished product to be returned, approximately 1 year elapses before an order can finally be delivered in New York. Owing to the time factor, producers in the Philippines manufacture principally staples rather than style goods, which are subject to sudden and unpre dictable changes. The Philippine embroidery in dustry produces primarily infants’ wear and women’s underwear, slips, and nightgowns. These embroidered cotton garments, for the most part, are produced to retail at from 50 cents to $2 each. Investment and Employment. Approximately 30 firms were operating in the embroidery business in 1935; most of these were engaged in both production and export. The industry as a whole is reported to represent an investment of about $4,000,000,' a substantial June,. 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL part of which consists of goods in process and in transit. The investment in plant and equip ment is relatively small. It is estimated that investments by American total approximately $3,000,000, most of the remainder being owned by Filipinos. Between 30,000 and 50,000 people are employ ed in theindustry, primarily on a part-time basis. The number varies with the quantity of orders on hand and with the seasonal availability of alternate forms of employment for the workers. The wages, paid almost entirely on a piece-rate basis, ..re relatively low despite high-grade work manship. It is estimated that the cost of raw materia! constitutes one-half of the cost of the finished product, the remainder being accounted by the^oHoJing statistics furnished by exporters: United States. As in the case of other dutiable commodities, the export taxes will correspond to 5 percent of the United States duty in the sixth year of the Commonwealth Government and will rise to 25 percent in the tenth year. After July 4, 1946, the full United States duty will be collected on the Philippine product. On the basis of the present United States tariff rates, the Philippine export taxes which are to apply during the Commonwealth period, and the United States duty to apply thereafter, are shown below. counter some competition from certain types produced in continental United States or shipped in from Puerto Rico and from foreign countries, and since most of the Philippine embroideries r.„ iSn-n; is ® Ws Export of Embroidery. The Philippine exports of embroidery to the United States represent only to the extent of about one-half their value, actual Philippine exports, inasmuch as the other one-half represents a reexport of American cotton cloth. During the period 1926-35, exports of embroidery were highest in 1929, being valued at $6,000,000; they declined to less than $2,000,000 in 1933 but rose to $5,000,000 in 1935. Table 60 shows the total exports of Philippine embroideries fror the years 1926-35, during which period over 99 percent of these exports were shipped to the United roideries: Exports from Philippines y... a?,s' as lass RESTRICTIONS IMPOSED BY THE INDEPENDENCE ACT United States Tariff on Embroidery. The United States Tariff Act of 1922 estab lished an ad valorem rate of 75 percent ap plicable to embroidered articles; this rate was increased to 90 percent in the Tariff Act of 1930. The rate on embroidered cotton and silk wearing apparel, however, was lowered to 75 percent ad valorem in the trade agreement with France, which became effective on June 15, 1936. Economic Provisions of the Independence Act Affecting Embroidery. No limitations were placed by the Independence Act on the duty-free quantities of embroideries which may enter the United States from the Philippines. For the first 5 years of the Com monwealth, Philippine embroideries will have unlimited free entry into the American market. During the second 5 years of the Commonwealth, progressive export taxes will be assessed against Philippine embroideries which are shipped to the ^Nearly all of the imports of Philippine embroideries into the United States would fall under this classification if they were entered from a foreign country. METROPOLITAN RADIO CORPORATION Metropolitan Theater Building 2-34-72 Tel-2-19-50 -------------- Ma”ila IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 90 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 193-7 are sold in retail markets where the demand is for low-priced goods, it does not appear probable that prices can be increased sufficiently to absorb the export taxes without losing a substantial part of the American market. The cost of raw materials, moreover, is not subject to the control of embroidery producers and at present accounts for nearly one-half of the cost of production. The export taxes, as has been pointed out, will be assessed against the whole value of the finished product and not merely against the Philippine addition to its value. The laborers now en gaged in the production of Philippine embroidery will not readily find alternate employment when the export taxes begin to apply, consequently it is likely that the effect of the taxes will be to force progressively lower wages. Whether the export industry will be able to survive on the present scale for the whole of the Common wealth period is problematical; that it will survive on any appreciable scale thereafter appears improbable unless costs and profits should be reduced sharply. COMPETITIVE ASPECTS OF THE EM BROIDERY TRADE IN THE UNITED STATES Embroidery Trade in the United States. Philippine embroideries compete only slightly with commercial hand embroideries made in continental United States, since these are confined largely to ready-made dresses of types not made in the Philippines. Embroidered articles from the Philippines, however, do compete with similar articles produced in Arizona, New Mexico, and Texas, although the price and workmanship of the latter are below the standard maintained for Philippine embroidery. The Philippine pro ducts also compete to some extent with the machine embroidery made in continental United States and with Puerto Rican embroideries sold in the American market. Machine production in continental United States usually amounts to over 820,000,000 annually. Though not directly comparable in type or quality, duty-free receipts from the Philippines equaled about 25 percentof this amount in 1935. Of the combined consumption of continental, insular, and foreign cotton embroideries, both hand-made and machine-made, the Philippines supplied approxi mately 12.5 percent in 1935. United States Imports of Embroideries. Only about 25 percent of the embroideries which enter continental United States are im ported from foreign countries; practically all of the remaining 75 percent enter from Puerto Rico and the Philippines. Shipments from Puerto Rico include a wider variety of products than do those from the Philippines, consequently many of the embroideries from Puerto Rico are not competitive with these from the Philippines. ilmport data refer to imports for consumption. Souroe: Foreign Commerce and Navigation of the United States. Table 61.—Embroideries: Shipments received in the United States, 1935 Type of cloth Duty-free receipts Dutiable imports! Total shipceived from all sources From the Philippines From Puerto Rico Cotton...................................................................... Linen......................................................................... Silk........................................................................... Rayon........................................................................ Other........................................................................ .......... $5,080,901 ........... 908 ............. 97,969 $14,260,772 1,247,143 462,250 $1,338,821 4,596,921 405,898 494,365 175,000 $20,680,494 5,844,972 966,117 494,365 175,000 Total................................................................. .......... 5,179,778 15,970,165 7,011,005 28,160.948 Most of the imports from other sources, paying the full duty, also differ from Philippine embroide ries. The quantities received from these various sources in 1935 are shown below. SUMMARY 1. The Philippine embroidery industry is carried on in the workers’ homes and provides supplementary incomes for from 30,000 to 50,000 people living principally in central Luzon. Wage payments are made on a piecerate basis. 2. The embroidery plants, approximately 30 in number, are distributing centers which send out materials through contractors, and which prepare the finished garments for export. Be cause different laborers specialize in particular types of enbroidering, goods are frequently “in process” for a period of 6 months or more. All of the cotton cloth is obtained from the United States. Since approximately 1 year elapses between the placing of an order and the final delivery of it in New York, the Philippines specialize in staple rather than in style goods. 3. Approximately $4,000,000 is invested in the industry, most of which sum is represented by goods in process and in transit. Invest ments by Americans are estimated at $3,000,000, the remainder being owned largely by Filipinos. 4. During the period 1926-35 annual exports varied between $2,000,000 and7 $6,000,000; in 1935 they totaled $5,000,000. Exports to the United States regularly amounted to over 99 percent of total Philippine embroidery exports during the decade 1926-35. 5. The Independence Act places no restric tions on the export of Philippine embroideries to the United States during the first 5 years of the Commonwealth period. During the second 5 years of the Commonwealth export taxes (on a basis of present United States tariffs) will progress from 3.75 percent ad valorem in the sixth year to 18.75 percent in the tenth year. After independence the then pevailing United States duty will be applicable. Since approx imately one-half of the cost of production of embroidered garments is represented by the cost of the imported material embodied in them, it appears that the export taxes and later the United States duty will bear heavily on the industry, possibly compelling it to liquidate in considerable degree by the time independence is achieved. 6. Philippine embroidery, selling at relatively low prices, fills a special demand in the United States. Its chief competitors in the American market are certain types of goods produced in Puerto Rico and in continental United States. For the most part these are inferior in quality to the Philippine product and somewhat lower in price. 8. TIMBER AND LUMBER POSITION OF TIMBER AND LUMBER IN PHILIPPINE.ECONOMY Total forest lands in the Philippines cover 41,886,000 acres or 57 percent of the total land area, while forests which are considered to be profitable for commercial operations comprise 81 percent of the total forest area. The existing 6tands of commercial timber contain approx imately 464,740,000,000 board feet, according to the most recent estimate made by the Phil ippine Bureau of Forestry. Stands are well distributed through the archipelago, although the island of Mindanao contains a larger area of commercial forest than any other. A wide variety of hardw-oods is found in the Islands, however, over 75 percent of the standing timber is of the lauan family, the principal species of which are commonly referred to in the United States as “Philippine mahogany.”1 Such fancy cabinet woods as true mahogany, walnut, and ebony are either not found in the Philippines or are relatively scarce. The Philippine Government, which owns most of the forests in the Islands, administers them through the Bureau of Forestry as a national resource.2 It maintains national parks and forest reserves, creates zones for commercial and community uses, and engages in reforestation, conservation w-ork, and the prevention of the illegal destruction of timber. The Government, through the Bureau of Forestry, leases forest lands to lumbering and logging companies for periods ranging from 1 to 20 years. These com panies are supervised by the Bureau and pay for the concession in accordance with the type and quantity of the timber cut.3 In recent years the net income recived by the Philippine Govern ment from its administration of the forests has exceeded $500,000 annually. The Philippine sawmill industry has developed rapidly since American occupat’on. In 1903, 14 sawmills, with a daily capacity of 80,000 board feet, were producing lumber in the Philippines; by 1935, 90 mills, with a daily capacity of 1,330,000 board feet, were in operation. Many of the companies operating sawmills are also engaged in logging. In addition, over 1,500 operators not associated with sawmills are engaged, at least part time, in logging operations only; their production, however, is relatively small. The total production of logs and lumber during the period 1933-35 was approximately 700,000,000 board feet annually. The lumber and timber industry was reported to represent an investment of about $15,000,000 in 1935. The capital invested in sawmills was estimated to be in excess of $13,500,000; the remainder consisted of the investments of small logging operators. American capital, employed primarily in the sawmill industry, was reported to approximate $6,000,000; the American in vestment in fixed assets alone totaled $2,307,000. Other nationals with investments in the 1 Philippine mahogany is technically a member of the family Dipterocarpaceae, as are other members of the so-called lauan family. •Forest lands owne’1 by the Philippine Government, 97.5 percent. Forest la ids privately owned, 2.5 percent. Forest lands leased by the Philippine Government in 1935 amounted to 4,972,440 acres. •Classification of lumber: Charges per cubic meter First-group timber.................................................... $1.25 Second-group timber........................................................ 75 Third-group timber..........................................................50 Fourth-group timber........................................................ 25 1 cubio meter is the equivalent of 424 board feet. June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 91 Philippine log and lumber industry are Filipinos Chinese, Japanese, Englishmen, and Spaniards. In 1935 the industry in all its branches pro vided employment for about 35,000 people in various parts of the archipelago. Wages ranged from $0.25 to $2.50 per day, according to the location of the mill and the type of work per formed. The Philippine log and lumber industry is favored by the existence of a large and relatively stable market within the Islands. Over 80 percent of the annual production is utilized in the Philippines. This demand creates an outlet for low-priced lumber not suitable for export, and permits the maintenance of production despite fluctuations in foreign sales. The chief industries consuming timber, and lumber in the Philippines are, in the order of their importance, the mining, building, and furniture industries. Although the current expansion in mining will probably stimulate the production of timber, the demand will be confined to the cheaper grades and will be of greatest assistance to those mills which are located in close proximity to the actual mining operations. Because of the development of the lumber industry, Philippine imports of lumber have steadily declined, until, in recent years, they have amounted to less than 1 percent of insular production. Exports of Philippine logs and lumber in recent years have been less than 20 percent of total production. During the period 1926-35 they never exceeded 3 percent of the value of total Philippine exports; in 1935 the figure was 2.5 percent. Exports of logs and lumber reached a peak of $3,600,000 in 1929 but declined to $835,000 in 1932; since that time they have steadily increased, reaching a value of $2,500,000, in 1935. The quantity of logs and lumber exported both in 1934 and 1935, however, was greater than that which was exported in 1929 isee table 62). The United States and Japan are the most important export markets for Philippine hard wood. Shipments to the United States are made in the form of sawed cabinet woods of good quality and relatively high value. In 1935 these shipments equaled 19.7 percent of the volume and 38.7 percent of the value of total exports of log and lumber from the Islands. Japan has become an increasingly important market for Philippine hardwoods. In earlier years, exports to Japan were composed primarily of lumber, but more recently these shipments have consisted almost entirely of logs.4 In 1935, exports of logs to Japan accounted for 61.9 percent of the volume and 30.8 percent of the value of total Philippine exports of logs and lumber. Other markets for Philippine lumber were the United Kingdom, China, Australia, and South Africa. RESTRICTIONS IMPOSED BY THE IN DEPENDENCE ACT Although the United States Tariff Act of 1930 imposes an ad valorem duty of 15 percent on certain so-called cabinet woods under para graph 404, Philippine mahogany is not one of the woods specially provided for therein.5 It falls instead under the duty-free paragraph 1803. However, all hardwood lumber as well as softwood is subject, when imported from foreign countries, to an excise tax imposed by the Revenue Act of 1932.* The tax as fixed in that act was $3 per thousand board feet, but the tax was reduced to $1.50 per thousand board feet by the trade agreement between the United States and Canada, which went into effect on January 1, 1936. This trade agreement is to remain in force until December 1, 1938, and to continue in force thereafter unless the govern ment of either country shall have given 6 months’ notice of intention to terminate it.7 Philippine mahogany, not being subject to this tax, has at present an advantage in com petition with hardwoods of similar type imported from foreign countries into the United States. The Independence Act contains no special pro vision concerning lumber, but the Revenue Act of 1932 provides that the excise taxes thereby imposed “shall bo treated for the purposes of all provisions of law relating to the customs revenue as a duty imposed by such act (i.e., the Tariff Act of 1930)”, subject to certain exceptions which do not apparently have a bearing on the case of the Philippines. It may be that this language, and the language of the Philippine Independence Act, will be so interpreted that during the second half of the Commonwealth period the Philippine Government will be requir ed to impose export duties corresponding to the specified percentages of the United States revenue tax on sawn hardwoods. In any case, if a revenue tax on lumber should be in effect at that time, Philippine lumber will be subject to it after independence is* realized. The pres ent tax, however, is not high in proportion to the value of the Philippine mahogany, which is worth about $40 per thousand board feet. It seems unlikely, therefore, that export taxes, even if imposed, would materially reduce the trade during the second half of the Common wealth period, and even the full tax after in dependence might not reduce it greatly. COMPETITIVE ASPECTS The so-called cabinet woods imported into the United States are used principally in*the manufacture of furniture, radio cabinets, and trim, wherein beauty of grain and finish are of primary importance. The peculiar qualities of certain woods often determine their particular use, for example, the use of teakwood in boat decking and Spanish cedar in cigar boxes. For paneling and trim, price is frequently the most important consideration; but for furniture and fixtures, the current style is the principal factor influencing the selection of a particular wood. Mahogany does not grow in commercial volume in the United States; the lumber manu factured in this country is sawed from imported logs. American production of hardwood lumber occurs chiefly in the lower Mississippi Valley States bordering the Great Lakes, and the lower Appalachian Mountain region. The industry is confined largely to the manufacture of lumber from oak, red gum, maple, birch, and walnut timber. Such lumber is used not only for furni ture and for cabinet work but also for more commonplace purposes. Statistics showing the American production of these species of hard wood lumber for the year 1934 are given below.8 Hardwoods: Oak... Production 1,000 Table 62.—Logs and lumber: Exports to principal markets from the Philippines, 1926-36 All countries United States Year Quantity* Value Quantity * Value Quantity! Value R^ed gum Walnut. board feet 1,082,670 393.293 310,590 126,366 20,755 Total ....................................................... 1.933,674 Owing to improved business conditions, pro duction in 1935 may have exceeded that for 1934. United States imports of various types of cabinet woods in 1935 are 6hown below.8 „ Imports Classification: /.000 board feet Dutiable imports of lumber under para graph 404.................................................. Duty-free imports of lumber from foreign countries io.............................................. Duty-free imports from foreign countries Duty-free imports from the Philippines.. Total imports of cabinet woods. 1,188 3,613 22.188 25,816 52,805 4A high wharfage tax on logs has been advocated in the Islands to encourage the sale of lumber and thus favor the local sawmill industry; no such tax is in effect at present, however. * rar. 404 of the Tariff Act of 1930 imposes a duty on Spanish cedar, lignum-vitae, lancewood, ebony, box, granadilla, mahogany, rosewood, satinwood, Japanese white oak, and Japanese maple. Philippine mohogany, not being a true mahogany, is entitled to enter duty free under par. 1803. • This import revenue tax provision expires June 30, 1937, but may be reimposed by congressional action. 7 The Trade Agreement Act, under which this agree ment was negotiated, is, of course, subject to possible amendment. C 8 Latest available data from the U. S. Bureau of the (Foreign Commerce and Navigation of the United States (preliminary). Some imports, such as Spanish cedar, have highly specialized uses and do not compete with other imports or with domestic hardwoods. !0This classification includes woods not specified in par. 404, and imports excluded from par. 404 by reason of being planed or dressed. When imported from foreign countries these woods, as well as those dutiable under par. 404 are subject to a revenue tax of $1.50 per thousand board feet. Shanghai Tientsin Hongkong 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1.000 board feet 62,265 $2,552,811 72,399 2,793,807 85,880 3,126,500 104,712 3,618,959 82,423 2,743,392 71,334 1,840,602 50,628 834,725 80,234 1,268,607 121,992 2,171,395 143,169 2,511,760 >oard feet 30,683 $1,395,216 39,563 1,723,379 41,032 1,637691 44,924 1,789,129 31,956 1,347,601 20,318 795,362 5,316 173,138 16,489 525,452 20,748 774,241 28,253 972,487 1,000 board feet 11,120 $287,489 18,995 516,861 19,945 531,308 31,955 700,350 25,426 447,378 35,798 467,109 36,020 361,369 49,888 393,113 77,772 710,804 88,639 772,570 Connell Bros. Company Ltd. Importers Exporters San Francisco, Cal. SINGAPORE MANILA iConverted from cubic meters to board feet at 424 board feet per cubio meter. Source: Annual Reports. Insular Collector of Customs. IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 92 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 On the basis of the data given above, total imports in 1935 did not exceed 3 percent of domestic production. A substantial amount of domestic production, however, is not comparable in quality to imported cabinet woods; conse quently, the competitive significance of the latter is greater than the above percentage would indicate. Duty-free shipments received from the Philippines in 1935 were nearly equal in volume to the total imports received from foreign countries; most of the latter also entered dutyfree but were subject to an excise tax of 81.50 per thousand board-feet. Philippine mahogany is used for various types of cabinet work, including furniture, and for trim and paneling; it is also used for special purposes, such as door stock, yacht decking, and trim in automobile bodies. In all of these uses it competes with other imported and domestic hardwoods. From the standpoint of price, Philippine mahogany occupies a middle ground; it is neither the most expensive nor the cheapest cabinet wood sold in the American market. Philippine lumber enters principally on the Pacific coast. Production of hardwoods in that section of the country is negligible, hence the Philippine mahogany marketed there com petes with cabinet woods either imported from other countries or shipped from the domestic producing areas in the Middle West and South. These regions are in an unfavorable competitive position because of high transportation rates which apply to their products when shipped to the Pacific coast. Cabinet woods coming from the Philippines and Japan are subject to appre ciably lower transportation rates, which tend to benefit the consumers of hardwoods on the Pacific Coast. SUMMARY 1. Forests of commercial importance cover approximately one-half of the land area of the Philippines. They are well distributed through out the Islands and are owned by the Philippine Government which leases certain sections to private individuals or companies for periods ranging from 1 to 20 years. 2. In 1935, 90 sawmills, with a daily capacity of 1,330,000 board feet, were operating in the Philippines. The capital invested in these mills has been estimated to exceed $13,500,000, of which American investments account for about $6,000,000. The industry provides em ployment for approximately 35,000 people. 3. Over 80 percent of the Philippine pro duction is marketed in the Islands. The re mainder is exported primarily to the United States and Japan. The insular market absorbs low grades of lumber which are not suitable for export. The United States consumes high grade cabinet woods in semifinished form, while Japan takes logs exclusively. Although ship ments to the United States are relatively small in quantity, they are sufficiently high in value to be of considerable importance to the lumber industry in the Philippines. 4. If the present tariff and revenue laws with respect to lumber are continued, Philippine cabinet woods will still enter the United States free of duty or tax, and without competitive limitation, during the first half of the Common wealth period; they may be subject to Philippine export taxes during the second half of the Com monwealth period by reason of the United States revenue tax applicable to sawn woods imported from foreign countries. After in dependence they will become subject to the full United States excise tax applying to imported sawn woods. The present rate of this tax, how ever, is relatively low. 5. Total imports of cabinet woods into the United States have been small when compared with American production of hardwoods. Im ports are largely duty-free. Shipments received from the Philippines constitute about one-half of the total quantity imported. The Philippine product, however, is competitive in greater or lesser degree with about one-half of the total imported from foreign countries. 6. Philippine mahogany is shipped primarily to the Pacific coast, where it competes with im ports from Japan and with American hardwoods. The products imported from the Philippines and from Japan, when compared with domestic hardwoods, have a competitive advantage in transportation rates to the Pacific coast. 9. MINOR EXPORT COMMODITIES HATS Position of the Industry in Philippine Economy. The Philippine fiber-hat industry is centered in two small towns, Baliuag and Lucban, on the island of Luzon. The weaving of hats is done chiefly by hand and is a household in dustry. Some weaving is done in factories where hats are manufactured by machine from coarse fiber. The machine-made product is composed chiefly of bamboo, straw, or abaca fiber, while the hand-made hats are woven with buntal fiber obtained from the leaf of the buri palm. Buntal hats or bali-buntal hats (the latter having a somewhat different and finer weave) are the principal types exported; the others are manufactured primarily for the in sular market. The hand-woven hats are purchased from the weavers by agents of Wholesale dealers or ex porters. They are finished and packed for export in Manila. The finishing process in volves weaving an edge on the brim, after which the hats are washed and ironed. When finally packed for export, they are usually not blocked or trimmed and not bleached, dyed or colored. In 1935, 16 plants were engaged in finishing hats and in preparing them for export. The capital invested in the industry is estimated at $2,000,000 of which $1,750,000 represents working capital used chiefly in making advances to the weavers, the remainder being invested in plant and equipment. Twenty-nine firms, including the 16 already referred to, are engaged in exporting hats, and 17 firms are exporters of buntal fiber for which China is the principal market.1 It is estimated that the hat-making industry employs from 40,000 to 60,000 weavers. The hats are purchased at rates which vary in ac cordance with the quality, style, and demand. Inasmuch as the unit value of exports in any year during the period 1932-35 was less than $1, the laborers who wove the hat bodies must have averaged less than 50 cents per hat. Finishing in 1935 was paid for on the following basis. Edge-weavers, 10 to 25 cents per set of 8 hats. Washers, 10 to 15 cents per set of 8 hats. Finishing and ironing, 25 to 35 cents per set of 8 hats. During the period 1926-35, the largest ex ports occurred in 1928 when 1,426,200 hats valued at $3,359,000 were shipped from the Philippines. Exports in 1935 were the lowest in the decade, totaling 538,400 hats valued at $474,800. From 1928 to 1933 the unit value of exports declined steadily from $2.35 to 77 cents. (See table 63.) The United States has regularly been the principal market for Philippine hats, having taken from 50 to 75 percent of the value of total exports; other important markets have been the United King dom, France, and Italy. The average value of hats shipped to the United States and France has generally been higher than the value of those shipped elsewhere. Export statistics for the period 1926-35 are given in table 63. Restrictions Imposed by the Independence Act. The United States Tariff Act of 1922 imposed a duty of 35 percent ad valorem on hats not blocked or trimmed. This duty was reduced by the Tariff Act of 1930 to 25 percent if the hats were not bleached, dyed, colored, or stained. Under the Independence Act, no restrictions are imposed on the shipment of Philippine hats into the United States during the first 5 years of the Commonwealth. During the second 5 years export taxes will be collected on hats shipped to the United States. On the basis of the present United States duty the export taxes to apply during the Commonwealth period and 'The following figures indicate the value of buntal fiber exported from the Philippines for the period 1931-35. Year: Value 1931 ................................................................. (281,399 1932 ................................................................. 52,868 1933 ................................................................. 208,921 1934 ................................................................. 302,334 1935 ................................................................. 278,337 Source: Annual Reports, Insular Collector of Customs. Legislation passed by the last session of the Philippine National Assembly was designed to prohibit the export of buntal fiber from the Philippines, thus curtailing the supply of raw materials used by manufacturers of buntal hats in foreign countries. As late as Jan. 1, 1937, how ever, the legislation had not yet been approved by the President of the United States. Table 63.—Hats: Exports from the Philippines to all countries and to the United States, 1926-351 Exports to the United States 2 Year Quantity Value Unit vulue Percent of total PhilipQuantity Value Unit of total value of exports of hats 1926 1927. 1928 . 1929. 1930. 19 12 1933.. 1934. . 1935 3 Number 833,801 706,674 1,426,202 950,741 869,011 539,224 988*490 1,227,989 538,381 $1,561,673 1,567,886 3,358,963 2,048,729 1.271,607 555,030 593,590 766.056 Number 665,408 $1,187,195 325,888 887,193 842,021 2,277,125 651,820 1,547,424 669,060 981,721 293,273 341,538 535,890 436,757 700,465 554,894 712,317 697,584 251,708 240,125 1 Includes all types of hats, i. e., bamboo, buntal, buri, and straw. Buntal hats constitute thd largest individual type, averaging in value over 90 percent of total exports of hats. 2 Principal markets, other than the United States, are France, Great Britain, and Italy. 3 In 1935 buntul hats comprised 87.9 percent of the total quantity of hats exported and 89.9 percent of the value. Source: Anuual Reports, Insular Collector of Customs. June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 93 the United States duty to apply thereafter are 6hown below: Period: (percent) Sixth year of the Commonwealth........ . . . . 1.25 Seventh year of the Commonwealth . .... 2.50 Tenth year of the Commonwealth.. . . . . . . 6.25 After independence (July 4, 1946) . . . . . . . 25.00 Competitive Aspects. Hat bodies similar to those imported from the Philippines are not manufactured in the United States. Philippine hat bodies entering the United States provide the raw material for a substantial domestic hat-finishing industry. Buntal hats are of fine quality, comparing favor ably with high-grade Panama hats, and, when finished and trimmed, retail in the United States at from $7.50 to $25 each. Some fiber hats are manufactured within the United States from imported braid, but these are of a distinctly different type; Philippine buntal hats compete with them only to a limited extent. Philippine hats, however, do encounter competition in the United States market from buntal hats imported from China and from high-grade Panama hats imported largely from Ecuador and Peru. Other competing types are the leghorn from Italy, the baku and sisal from China, and high grade, machine-woven paper hats from Japan. Buntal hats are designed primarily for women, consequently the marked fluctuations in quantity and value of exports from the Philippines may be explained in part by changes in fashion. Changes in style and competition from buntal hats made in China may prove more important factors governing the future of the market for Philip pine hats in the United States than either the export taxes or the United States duty provided for in the Independence Act. PEARL BUTTONS Position of the Industry in Philippine Economy. Philippine ocean pearl buttons are manu factured in Manila from mother-of-pearl, trochus and snail shells gathered in waters surround ing the Visayan Islands. Although three plants have produced pearl buttons,, only one, which manufactures approximately two-thirds of the quantity exported, has been able to operate continuously during the period 1926-35. In its manufacturing processes the industry employs about 600 people. Salaries and wages are estimated to aggregate $125,000 a year. The total investment in machinery, tools, and equipment is approximately $100,000, nearly all of which is American capital. Exports of pearl buttons constitute 75 percent of total production, the remainder being con sumed within the Islands or applied to garments which are exported. For the decade 1926-35, exports were highest in 1926 when they totaled 942,900 gross, valued at $449,900; they declined to their lowest level in 1935, aggregating 694,160 gross, valued at $237,400. The highest average value per gross in this period was 51 cents in 1929; the lowest was 32.4 cents in 1933. Practically all of the buttons exported are sold in the United States. During the period 1926-35, exports of buttons totaled less than 0.5 percent of total Philippine exports. Table 64 shows the quantity and value of exports of pearl buttons for the years 1926-35. Table 64.—Exports of pearl buttons from the Phi'ippines, 1926-35 1 Year Quantity Value 1926 ................... 912,903 1927 ................... 790,788 1928 813,231 1930 ................... 850/174 1931 ................... 811,982 1932 ................... 739,821 1933 ................... 836,237 1931................... 713,886 1935................... 694,161 $119 9 18 366,853 385,857 380J 10 <66 78 1 213,667 270.753 212,838 237,397 • Over 99 percent of the exports of pearl buttons from the Philippines are shipped to the United States. Source: Annual Reports, Insular Collector of Customs. Restrictions Imposed by the Independence Act. The United States Tariff Act of 1922 establish ed a duty on buttons of pearl or shell, finished or partly finished, of 1% cents per line per gross plus 25 percent ad valorem.2 The Tariff Act of 1930 maintained that rate. No limitation or restriction is placed by the Independence Act on the shipment of buttons to the United States during the first 5 years of the Commonwealth period, but during the second 5 years, Philippine export taxes will be collected on shipments to the United States. When Philippine independence is achieved the full United States duty will become applicable. The figures given below indicate the amount of the export taxes and the United States duty, on the basis of the existing United States tariff rates, that will be applicable to a representative 16-line button invoiced at 36 cents per gross. Period Sixth ^year the CommonSeventl^year of the CommonEighth year of the Common wealth .................................... Ninth, year of the CommonTenth year of the CommonAfter independence (July 4, 1946)...................................... Tax per gross ad valorem Cents 1.85 3.70 5.55 7.40 9.25 37.00 5.1 10.3 15.4 20.6 25.7 102.8 Competitive Aspects. During the period 1926-35, the annual pro duction of pearl buttons in the United States ranged from 23,000,000 to 29,000,000 gross and the value from $8,000,000 to $14,000,000. The output in 1935 approximated the lower figures, in both quantity and value. Over 75 percent of the total quantity of domestic pearl-button production consists of fresh-water pearl buttons; ocean pearl buttons constitute the remainder. The latter type is manufactured, principally in New York and New Jersey from imported shells, of which Australia is the most important sup plier. Ocean pearl buttons have a higher unit value than the fresh-water pearl buttons. The latter are produced from domestic mussel shells in factories, most of which are located in Iowa and New York. During the decade 1926-35, imports of pearl buttons into the United States from all sources were the equivalent of approximately 5 percent of the total domestic production of all types of pearl buttons. These imports consisted almost entirely of ocean pearl buttons and, in 1935, equaled about 20 percent of the domestic pro duction of that type of button. About 75 per cent of the imports consist of duty-free ship ments from the Philippines; the remainder, of dutiable imports from Japan and France. Im ports from the Philippines in 1935 equaled 728,300 gross, valued at $260,000; imports from Japan amounted to 265,600 gross, valued at $73,100, and those from France, 7,600 gross, valued at $3,000? Imports from Japan had a value of 27.5 cents per gross, and the imports from France, 39.7 cents per gross. This com pares with a value of 35.8 cents per gross on imports from the Philippines. Pearl buttons imported into the United States are in general competitive with buttons pro duced in the United States. Pearl buttons manufactured from trochus shells in the Phil ippines and Japan are similar to domestic buttons made from imported ocean shell. More over, the low-grade imported ocean pearl but tons compete for some uses on a price basis with high-grade fresh-water pearl buttons pro duced in the United States. In recent years pearl buttons have also encountered increased competition from plastic buttons. The range in wholesale selling prices in New York of competitive pearl buttons, whether imported or domestic, is very narrow. Con sequently. when Philippine pearl buttons be come subject to the export taxes provided for in the Independence Act, they will find it in creasingly difficult to retain their market in the United States. The application of the full United States duty, if maintained at the present level, would probably be prohibitive of Phil ippine exports to the United States. CANNED PINEAPPLES Position of the Industry in Philippine Economy. The commercial production and canning of pineapples is confined principally to the opera tions of a single company.4 Its cannery is located on the seaco.-.st of northern Mindanao, near the town of Cagayan, and its plantation lies about 15 miles to the south on the Bukidnon Plateau. The planting of pineapples was begun in 1928 after a thorough investigation had been made to determine the area best suited to pine apple culture. By 1935 approximately 2,000 acres were under cultivation. This area will probably be expanded during the next few years. Both the plantation and the cannery, which has a capacity of about 350,000 cases per year, are owned and operated by a subsidiary of a large United States packing corporation also engaged in the production and canning of pineapples in the Hawaiian Islands. The subsidiary cor poration has recently been making experiments to determine the feasibility of canning tuna fish during the off-season for pineapple as an addi tional use for its plant and equipment. The investment in the industry is estimated at $1,000,000. Exports of canned pineapples from the Philppines were made first in 1930. They increased in quantity and value until 1933, when pro duction was reduced to correspond with the pro gram adopted by producers in the Hawaiian Islands. In 1934 exports were resumed on a less restricted basis. All exports of canned pineapple from the Philippines are sold in the American market. They are not an important factor in the foreign trade of the Philippines, never having amounted to as much as 0.5 percent of total exports. The quantity and value of exports for the period 1930-35 appear in the following table: 1 The term "line" refers to the line button measure of •ne-fortieth of 1 inch. * Preliminary figures, Foreign Commerce and Naviga tion of the United States. 4 For a disoussion of the pineapple industry see the Manila Daily Bulletin. Mar. 4. 1936. 94 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 Table 65.—Canned pineapples: Exports from the Philippines, 1930-351 1 Cutch was not produced commercially prior to 1928. ^Exports of cutch from the Philippines arc shipped almost entirely to the American market. Source: Annual Reports. Insular Collector of Customs. Restrictions Imposed by the Independence Act. The United States Tariff Act of 1922 placed a duty of 15 percent ad valorem on extracts, dyeing and tanning, in which cutch extract Year Quantity J Value 1930. 1931. 1932. 1933. 1934. 1935. Pound, 1.074,822 3,538.482 5.742.804 3.031,650 6,739,434 2,639,056 *96.044 Value per pound Cent,. 4.2 5.2 4.4 6.1 1 Export statistics for the years 1930 nnd 1931 are for canned fruit and canned fruit products: these consisted chiefly of canned pineapples. Canned pineapples were not reported separately until 1932. * All exports of canned pineapple from the Philippines are marketed in the United States. Source: Annual Reports, Insular Collector of Customs. Restriction Imposed by the Independence Act. The United States Tariff Act of 1922 establish ed a rate of 2 cents per pound on canned pine apples. This rate was retained in the Tariff Act of 1930. The Independence Act places no restriction upon the shipments to the United States of canned pineapples from the Philip pines during the first 5 years of the Common wealth period. During the second 5 years, the progressive export taxes will be applicable to such shipments. After independence is realized, canned pineapples will become subject to the then existing United States duty. On the basis of the present United States duty, the export taxes and the United States duty will ba as follows: Equivalent Period Tax per ad valorem pound rate* Sixth year of the CommonSeventh year of the Common wealth .................................... Eighth Year of the CommonNinth^year of the CommonTenth year of the Common wealth .................................... After independence (July 4. 1946)...................................... Cents Percent 0.1 1.7 .2 3.3 .3 5.0 .4 6.7 .5 8.3 2.0 33.3 Baaed on a unit value of 6 cents per pound, which prevailed during 1935. Competitive Aspects. The Hawaiian Islands supply approximately 98 percent of the canned pineapple consumed in the United States; the Philippines and Cuba furnish most of the remainder. Since at present only one company produces canned pineapples in the Philippines and since it is a subsidiary of a company which has its major pineapple interests in the Hawaiian Islands, production in the Philippines is not likely to become a serious competitive factor in the American market. The opportunity for Philippine producers to develop new markets is not promising. Costs of production in the Philippines, however, are lower than those in the Hawaiian Islands be cause of lower wage rates, lower land values, greater soil fertility,. and a longer harvesting season. Distance from the American market presents no handicap to Philippine producers, since ocean freight rates on canned pineapple to the United States from the Philippines and from the Hawaiian Islands are the same. Be cause of comparatively low-production costs, Philippine exports of canned pineapples will probably not decline as a result of the appli cation of export taxes. The effect of the United States duty, after Philippine independence is realized, is largely indeterminate; it will depend on future costs of production in the Philippines, future tariff rates in the United States, agree ments and understandings with Hawaiian pine apple packers, and the price level in the American market of pineapples and competing canned fruits. CUTCH Position of the Industry in Philippine Economy. Cutch is an extract containing tannin and is used in dyeing and tanning. It is obtained in the Philippines from the bark of mangrove trees, forests of which are found on the islands of Mindanao and Palawan, in the Sulu Archi pelago, and on the east coast of Luzon in the Province of Tayabas and Camarines Norte. Other stands of mangrove trees are scattered throughout the Islands but are not sufficiently large to be of commercial importance. Only one company, located in Zamboanga, Mindanao, produces cutch extract in the Phil ippines. It was organized in 1927 and began exporting in 1928. The company has a license agreement with the Philippine Government, effective until January 1, 1942, to cut, collect, and remove mangrove bark in Provinces in the southern part of the Islands. The plant and equipment at Zamboanga have an estimated value of 8250,000 and a production capacity of 6,000 tons of cutch extract per year. Ex port statistics (see table 66) indicate that the plant has been operating, at near capacity since 1930 with the single exception of 1932. Ap proximately 150 men are employed in the factory, and 1,250 men are employed in gathering and transporting the bark and in removing from the forest the wood from which the bark is stripped. The latter operation is required by Philippine forestry regulations. The total number of people dependent on the industry is estimated at from 7,000 to 8,000. Wages range from 25 cents to 31 per day, in. accordance with the quantity and type of work performed. Except in 1928 and 1929, when the industry was becoming established, annual exports up through 1935 averaged 11,000,000 pounds, valued at 3240,000. Owing to depressed economic con ditions in 1932, shipments declined to 9,400,000 pounds valued at 3200,000, but by 1935 they increased to 13,368,700 pounds, valued at 3267,000. Since 1932, exports from the Phil ippines have been shipped entirely to the American market. These shipments have not been an important factor in Philippine foreign trade, since they never amounted to as much as 0.5 percent of total Philippine exports. Export statistics for the period 1928-35 are shown in table 66. Table 66.—Cutch extract; Exports from the Philippines, 1928-351 Year Quantity 1 Value per Value pound 1928 ............ 1929 ............. 1930 ............ 1931 ............ 1932 ............ 1933............. 1934............ 1935............. Pound, 4,230.754 8,427,909 11,426,478 11,331,447 9,446,712 11,614,527 12,634,928 13,368,741 *101,726 191,189 257,152 247,370 200,414 232.198 252,841 267,375 is included. The rate remained the same in the Tariff Act of 1930. The only restrictions placed by the Independence Act on the shipment of cutch extract from the Philippines to the United States are the export taxes to be imposed during the second 5 years of the Commonwealth period and the United States duty, which is to be im posed after independence is achieved. The amounts of these taxes, on the basis of the pre sent United States duty, are shown below. Tax Period: (percent) Sixth year of the Commonwealth................... 0.75 Seventh year of the Commonwealth.............. 1.50 Eighth year of the Commonwealth................. 2.25 Ninth year of the Commonwealth................. 3.00 Tenth year cf the Commonwealth................. 3.75 After independence (July 4, 1946)................. 1 15.00 1 On a basis of *44.08 per long ton which was the pre vailing unit import prioe in 1935, the United States duty at that time would be *6.61 per long ton. Competitive Aspects. Although no product similar to cutch extract is produced in the United States, this product competes in a greater or lesser degree with certain domestically produced dyes. The United States imports of cutch are obtained primarily from the Philippines, but a number of competing products are obtained in large volume from foreign sources. On the basis of current prices for cutch extract, exports from the Philippines are not likely to be materially affected by the application of either the Philippine export taxes during the Commonwealth period or the United States duties after Philippine independence is realized.6 It is possible, moreover, that the effects of the duty might be offset, at least in part, by adjustments in transportation chargee. 10. THE READJUSTMENT OF PHILIP PINE ECONOMY Necessities for Adjustment of Philippine Economy The economic provisions of the Independence Act will have a serious effect upon many of the export industries of the Philippines. In pre ceding sections of this report it is pointed out that the application of the export taxes, and later, the full United States duties, to Philippine goods marketed in the United States will operate to restrict the sale of many such goods in this market, and that profitable alternate markets cannot soon, or easily, be developed. All Philippine products now receiving pre ferential treatment in the American market will, to a greater or lesser degree, be adversely affected either by a reduction in the volume of their sales in that market, or in the profit ableness of such sales, or both. In 1935 these products accounted for approximately 80 percent of the value of Philippine exports to the United States. Abaca, under existing laws, has free access to the American market, even though imported from sources other than the Philip pines. “Philippine mahogany” is also on the free list, but after independence it will be subject to an import revenue tax of 31.50 per thousand board feet, provided the existing tax is then in force. Although copra, constituting 12 percent of Philippine exports to the United States in 1935, is on the free list in the American tariff, coconut oil made from Philippine copra—either in the Philippines or in the United States—is subject to a processing tax of 3 cents per pound. Coconut oil imported from foreign countries and coconut oil made in the United States from foreign copra are subject to a processing tax (The price of Philippine cutch extract in the Amerioan market on Nov. 9. 1936, was quoted at 4 oents per pound or *89.60 per lang ton. June, 1937 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 95 of 5 cent per pound. The Philippine exports to the United States which appear most likely to be curtailed sharply as a result of the provisions in the Independence Act are sugar, coconut oil, tobacco and tobacco products, embroideries, and pearl buttons.1 It is probable that cordage, straw hats, desiccated coconut, canned pineapples, and cutch will be less severely affected. Sales of these products are likely to continue even after independence, although volume and profits will probably be reduced. Cotton goods in the piece.......... $10,050,000 Other cotton goods..................... 5,250,000 Tobacco and manufactures of.. 3.750,000 Breadstuff.................................... 3,727,000 Dairy products............................ 3,077,000 Paper, unprinted......................... 2,122,000 Vegetable fibers and manu factures...................................... 1,691,000 Vegetables......................... 1,640,000 Meat products............................. 1,577,000 Fish and fish products................ 1,361,000 Fruits and nuts............................ 1,323,000 Leather and manufactures of... 1.064,000 Coffee, raw and prepared.......... 673.000 Perfumery, cosmetics, and toilet preparations............................. 660,000 Indian rubber products, except nnn 505,000 0.6 435,000 .5 414,000 .5 365,000 .4 327,000 .4 255.000 .3 153.000 .2 The loss of the American market for many of the export products of the Philippines will doubtless have widespread repercussions upon the whole Philippine economy, including adverse effects upon governmental revenues. The Com monwealth Government, therefore, faces a serious problem of readjustment, particularly in districts where the principal export industries are centered. Recognizing the necessity for a comprehensive plan of action, the Common wealth Government has appointed the National Economic Council to draft a program designed to lessen the shock of the impending restrictions. The council has not yet concluded its delibera tions, but two broad alternative programs are known to be under consideration: (1) Speciali zation in the production of agricultural com modities to the end that they may compete in world markets; and (2) increased economic self-sufficiency. Specialization in the Production of Agri cultural Commodities. The adoption of a program designed to reduce costs sufficiently to enable Philippine agricul tural products to compete in world markets would retain much of the existing agricultural economy and might lead to further diversification of it. To reduce unit costs to the level required, it would be necessary to make a careful selection, on the basis of climate and fetility of soil, of the lands on which crops are to be cultivated and to adopt the most efficient methods of planting, cultivating, harvetting, grading, and marketing. If carried too far, however, a plan of this kind would probably bring about a general deflation, thereby increasing the debt and tax burdens and possibly creating social unrest. Even if the maximum possible success were attained in such a program, certain in dustries, such as the production of coconut oil and cigars, would probably be compelled to liquidate in substantial degree, inasmuch as high foreign tariffs and government monopolies would preclude the sale of their goods in foreign markets. The reduction of costs in the Philippines to a parity with costs in other tropical countries is particularly difficult. In important crops, such as sugar, the reduction would have to be sub stantial.2 But costs in the Islands cannot be reduced easily, primarily because of the large number of small independent producers who are either unable or unwilling to adopt improved methods of crop production. Another factor militating against the con tinuance of a Philippine economy based primarily on the production of agricultural commodities for export is the number and extent of the trade barriers which hamper the development of the export trade of the Islands with countries other than the United States. Even with production costs reduced sufficiently to insure successful competition in world markets, it might be that additional trade obstacles would be raised against Philippine products. Increased Economic Self-sufficiency. If, after independence, the Philippines cannot export certain important agricultural com modities to the United States, and if adequate markets for these commodities cannot be de veloped elsewhere, the Islands will be obliged to fashion a more self-sufficient economy than that outlined above. Any program for the attainment of maximum self-sufficiency would require a thorough analysis of Philippine imports to determine which products could be econo mically produced in the Islands. At its in ception the program would probably have to be directed by the Commonwealth Government. Greater diversification in agriculture and in creased industrialization, if carefully undertaken, would make it possible to reduce the quantity of goods imported. The task of revamping the economy of the Philippines, however, could not be accomplished quickly. There are obvious limits upon di versification. Certain types of agricultural commodities could not be produced because of the fact that they are not adaptable to the soil and climate of the Islands, and many manufac tured goods now imported could not be produced, because the market would be too small to justify the investment necessary. The absence of basic raw materials and of trained technicians would also prove serious handicap. Should the National Economic Council decide to initiate certain agricultural and in dustrial projects, such enterprises could be launched by the National Development Com pany on an experimental scale. As they prove their worth they could be sold to private in terests, leaving the capital of the association free to engage in other projects. Many of the new developments might require government subsidies or additional tariff protection. The desirability of launching such projects, however, would depend upon how much they would increase costs to the consuming public. Agencies of the Philippine government and independent research groups have suggested the possibility of producing in the Philippines all or part of certain imported commodities re presenting nearly 50 percent of the value of total Philippine imports in 1935.’ These imports are shown in table 67. Table 67.—Philippine imports of selected com modities, 1935 1 Product Value Percent of total tires............................................ 657,000 Cocoa and manufactures of.... Spirits, wines, and malt liquors...................................... Wood, bamboo, rattan, reeds, and manufactures of............. Soaps. . Starch. Confectionery............................... Sugar and molasses..................... Eftgs................................................ 134.000 .2 Tea.................................................. 65,000 .1 Totnl...................................... 41,273,000 48.3 Total Philippine imports . . 85,524,000 100.0 ■ The 10 leading commodities constituted 40 percent of the vnlue of totul Philippine imports. Source: Annual Report, Insular Collector of Customs. Agricultural Diversification. Except where otherwise indicated the sub sequent discussion on introducing new crops and industries into Philippine economy is based chiefly on the reports of agencies of the Philippine Government and independent Phil ippine research organizations. No attempt has been made to determine the feasibility of the various proposals. As has already been noted, the task of i ncreasi ng the economi c self-sufficiency of the Philippines and of developing new export industries cannot be accomplished easily oi* quickly. Considerable time necessarily would elapse before any new project could be firmly established, in asmuch as it is easier to determine whether an article is suited to the soil, climate, and the economy of the Islands than to deter mine whether production can be developed in the face of world competition. The industry offering the greatest potentiality for the Philippines is probably the production of cotton and cotton goods. In 1935 imports of cotton goods exceeded $15,000,000 and over a period of years have been the largest single item in Philippine import trade. It has been de monstrated that cotton can be grown in the Philippines. More than 2,000 acres were de voted to its production in the crop year 1933-34; the area was increased to 3,000 acres in 1934-35. The crop yield has averaged more than 200 pounds per acre. Additional research on the relative advantages of the different varieties of cotton and on the soil and climatic conditions best adapted to cotton culture is being conducted by the Department of Agriculture in the Phil ippines. The expansion of cotton growing in the Islands depends to a considerable extent on the development of high-yield, disease-resisting on the development of high-yield, disease resisting varieties. Although large quantities of tobacco and cigars are exported, imports of tobacco and tobacco products into the Islands are large having totaled $3,750,000 in 1935. Imports consisted primarily of cigarettes and wrapper tobacco. These are regularly purchased abroad because similar types are not grown in the Philippines. Exper iments are being conducted with a view to pro ducing Virginia-type tobacco for cigarettes and Georgia and Sumatra types for wrapper tobacco. Although these varieties have been grown in the Philippines, producers have not as yet been able to develop the desired qualities in the trans planted products. Even if the experiments eventually prove successful, there will be a decline of imports of cigarettes into the Islands after independence because of the high Philip pine duties. Imports of wrapper tobacco are likely to decline during the second 5 years of the Commonwealth because of the restrictive ■ During the Commonwealth period, the decline in the exports of coconut c.il will likely be accompanied by a corresponding increase in the exports of copra. After independence, the volume of exports of copra to the United States will depend on whether coconut oil made in the United States from such copra is acoorded preferential treatment in respect of excise taxes. 2United States Tariff Commission, Report to the Pres ident on Sugar, Report No. 73, Second Series, 1934. > Consumption of some of these items will probably decline when the U. S. Army is withdiawn from the Islands after independence; should the U. S. Navy also be withdrawn, there will probably be an even greater 96 THE AMERICAN CHAMBER OF COMMERCE JOURNAL June, 1937 effect of the Philippine export taxes upon the shipment of cigars to the United States. Wheat flour is another major Philippine im port, having amounted to more than 78,000 tons valued at §2,855,000 in 1935. Some wheat is at present grown in the Cagayan Valley (Luzon) and experiments are being con ducted to improve the native varieties. The Philippines also import large quantities of vegetables, fruits, and nuts, imports in 1935 having amounted to $4,142,000. Many of these can be grown in the Islands; potatoes, onions, cocoa, coffee, citrus fruits, and peanuts are now being produced in limited amounts. The Bureau of Plant Industry of the Department of Agriculture and Commerce is encouraging the production of many of these commodities and is introducing scientific methods of culti vating them. A new export crop which gives promise is dorris root, used in the manufacture of insecticides. A considerable acreage was devoted to its cultivation in 1935 and 1936. There is also the possibility of further devel opment of rubber plantations in the Philippines. Approximately 9,000 acres are now utilized in the cultivation of rubber, and trees in production now yield about 575 tons annually. Exports in 1935 totaled 415 tons valued at $82,800. Considerable quantities of rubber are consumed in the Philippines in various manufactures, especially rubber footwear. According to a survey made by the United States Departments of Commerce and Agriculture, soil and climatic conditions are suitable for the production of Para rubber on more than 1,500,000 acres located in the islands of Mindanao, Basilan, and Jolo. The development of large rubber plantations, however, has been retarded by legal limitations on the acquisition of public lands in the Philip pines and by adverse conditions in the world rubber market in recent years. Although the Islands are ordinarily selfsufficient in rice, small amounts of certain varieties are imported. Such imports are due primarily to the demand of foreign groups in the Philippines and will probably continue. Im ports of fish, meat, and eggs, however, might be reduced by stimulating insular production. The competitive position of existing agricultural ex ports, such as copra, hemp, and leaf tobacco, could be strengthened by giving more attention to improved methods of production and grading. Increased Industrialization. Certain industries operating in the Philip pines, such as those supplying soaps, wines, liquors, leather and rubber-soled shoes, perfumery and cosmetics, confectionery, sugar, and breadstuffs might be expanded to fill the major portion of insular requirements. Philippine imports of such products in 1935 totaled $2,822,000. The manufacture of furniture from native forest products, such as hardwoods and rattan, is already a growing Philippine industry and might be further expanded. The production of vitrified clay products is another industrial possibility. Experiments indicate that the clay found in different parts of the Islands can be used in the production of fire bricks, glazed bricks, tile, and sanitary fixtures. The further development of these industries would offer in creased employment to Philippine labor and would operate to replace imports. The establishment of cotton spinning and weaving mills has long been considered. Fili pino experts assert that the coarser types of cotton cloth which are consumed in the Islands could be produced there, and that, if technical knowledge and skill should increase, the finer grades of cloth might also be manufactured. They likewise believe that, the weaving of coarse fabrics and the manufacture of bags from various fibers such as jute, maguey, and abaca offer other potential industries for the Philippines. The practicability of manufacturing coarse grades of paper from abaca is receiving con sideration. Such an industry is operating suc cessfully in Japan. The development of a canning industry in the Islands has also been advocated. Many Philippine foods, such as vegetables, fruits, fish, and meat and dairy products, might be preserved for insular con sumption. The minor industries connected with the grow ing of copra and the production of coconut oil have already been discussed in the section of this report dealing with coconut products. It is possible that the production of margarine and cooking oils, for example, could be developed further as export industries supplying markets in the Orient. PART III. UNITED STATES TRADE AND INVESTMENT POSITION IN THE PHILIPPINES 1. UNITED STATES EXPORTS TO THE PHILIPPINES The Extent and Importance of the Trade. During the period 1926-35, the annual value of United States exports to the Philippines averaged $60,565,500. 1 Exports were highest in 1929, when they amounted to $85,414,000, and lowest in 1933 when they amounted to $44,645,000? In 1934 the Philippines ranked ninth as an export market for American goods, and in 1935 eleventh. United States exports were valued at $2,243,000,000 in 1935, of which amount exports to the Philippines accounted for $52,560,000, or 2.34 percent. ■ Foreign Commerce and Navigation of the United States. a The marked variation in the value of.exports between these years was due more to fluctuations in unit prices than to changes in the quantities shipped. > For currencies not having a gold parity, the law established certain arbitrary rates, based in most cases on the market rates of exchange which prevailed prior to the adoption of the low. In 1935 American goods occupied a command ing position in the import trade of the Islands, comprising 63.5 percent of total Philippine im ports. During the period 1926-35, Philippine im ports from the United States were never less than 60 percent of the total Philippine imports. More over, for much of the period the Islands occupied first or second position as an export market for a number of American commodities, including cotton piecegoods, cigarettes, galvanized iron and steel sheets, condensed and evaporated milk and cream, wheat flour, canned fish, soap, and paint. Philippine Laws Affecting Imports from Foreign Countries. Philippine imports from sources other than the United States are governed directly by two Philippine laws, (1) the Philippine Tariff Act, and (2) the Philippine Parity Law. In assessing duties under the Parity Law, all foreign currency invoices covering shipments subject to ad valorem duties are required to be converted into Philippine currency at fixed parities established by the act. Proclaimed in December 1932, the law established in most cases the gold parities which existed prior to the devaluation of the dollar, as the rates at which invoices in foreign currencies shall be converted. 3 The law, while not directly affecting imports from the United States, favors imports from countries whose currencies, in relation to market rates, are undervalued in the act, and penalizes imports Mining in the Philippines has progressed rapidly in recent years, and further development might lead to increased exports, profits, and employment. If this industry could be ex panded at a time when many major industries were forced, because of the provisions of the Independence Act, cither to reduce operations or to liquidate completely, it might prove a stabilizing factor. The success of any program for increased industrialization rests in part upon the existence or development of motive power. At present the inadequate supply and the relatively high cost of electric energy is undoubtedly a handicap to industrial expansion. The Philippines, how ever, are fortunate in having a number of poten tial sites where hydroelectric power may be generated. The development of these sites is being given careful consideration by the Na tional Economic Council. If increased industrialization in the Philippines is to be attained, well-planned direction and assistance from the Government will be required. Particular consideration must be given to the problem of obtaining adequate capital to finance the program and to the question of tariff pro tection or government subsidy. from countries whose currencies are overvalued. Should the Parity Law remain in force after Philippine independence, imports from the United States, on which ad valorem duties are imposed, may be subject to higher or to lower effective duties than those applicable to similar goods coming from other foreign countries. The present Philippine Tariff Act was adopted in 1909 and has remained in force since that date with only limited revisions. The last amendment of importance was proclaimed in February 1933. Many of the duties imposed by the act are specific and based upon weight. Because of the price fluctuations which have occurred since 1909, the ad valorem equivalents of some of these specific duties have undergone marked changes during the intervening years and no longer provide either the revenue or the degree of protection originally contemplated. Moreover, the application of specific duties on weight has resulted in taxing, in certain tariff classifications, low-grade goods much more heavily than high-grade goods. American goods imported into the Philip pines after independence will presumably be subject to the full Philippine tariff. An analysis of the probable effect of the Philippine tariff and other factors on specific American com modities is presented in subsequent pages. The relative importance to both the Philip pines and the United States of 30 leading com modities among the Philippine imports from the United States and the United States exports to the Philippines are shown in table 68. The table also gives the ad valorem equivalents in 1935 of Philippine duties assessed against pro ducts in the same tariff classification as those coming from the United States but actually imported from other countries.