Men\'s Sewed Straw Hats
U >>
United States Tariff Commission >> Men\'s Sewed Straw Hats
FORMAL STATEMENT OF CONCLUSIONS
(1) Italy is the principal competing country. While Commissioners
Costigan and Dennis agree with this conclusion, they are also of opinion
that, with respect to hats valued at more than $9.50 per dozen in the
country of exportation, Great Britain is shown to be the principal
competing country.
(2) The average cost of production in the United States, as shown by
the cost data for the season 1923-24, of men's sewed straw hats sold
to jobbers for $10.55 to $16.52 per unit of one dozen is $12.74. The
average cost of production, not including transportation costs, of
imported men's sewed straw hats whose landed costs, duty paid, range from
$8.51 to $13.10 per dozen, and which are like or similar to the domestic
hats above described, is $5.98 per dozen. The difference in said costs
of production, transportation costs not included, is $6.76 per dozen.
The cost of production of the imported hats, including transportation
costs from the foreign factory to the dock at New York, is $7.08 per
dozen, and the difference in said costs is $5.66 per dozen.
(3) The average selling price of such imported men's sewed straw hats,
in the country of exportation, as shown by said cost data, is $6.42 per
dozen. The American selling price, as defined in subdivision (_f_) of
section 402 of the tariff act of 1922, of similar competitive articles
manufactured or produced in the United States, is $13.28 per dozen.
(4) If transportation costs be not included, the differences in costs
of production in the United States and in said principal competing
country are greater than the amount of the present duty of 60 per cent
ad valorem increased by the total maximum increase authorized under
section 315, subdivision (_a_), of said act, and said differences in
costs of production in the United States and in said principal competing
country can not be equalized by proceeding under the provisions of said
subdivision (_a_); that is to say, by increasing to the extent of 50 per
cent the existing ad valorem duty applied to the value of the imported
article in the country of exportation.
(5) If transportation costs be included, the rate of duty shown
by the differences in costs of production, necessary to equalize said
differences, upon men's sewed straw hats valued at $9.50 or less per
dozen in the country of exportation, is a rate of 88 per cent ad valorem
based on the valued in the country of exportation, as defined in section
402 of said act.
(6) If transportation costs be not included, the rate of duty shown by
the differences in said costs of production, necessary to equalize said
differences, upon men's sewed straw hats valued at $9.50 or less per
dozen in the country of exportation, is a rate of 50 per cent ad valorem
based upon the American selling price, as defined in said section 402,
of similar competitive articles manufactured or produced in the United
States.
(7) The average cost of production in the United States, as shown by
the cost data for the season 1923-24, of men's sewed straw hats sold
to jobbers for $16.74 to $22.50 per unit of one dozen is $16.06. The
average cost of production, not including transportation costs, of
imported men's sewed straw hats whose landed costs, duty paid, range
from $15.64 to $18.60 per dozen, and which are like or similar to the
domestic hats above described, is $9.32 per dozen. The difference in
said costs of production, transportation costs not included, is $6.74
per dozen. The cost of production of the imported hats, including
transportation costs, is $10.67 per dozen, and the difference in said
costs is $5.39 per dozen.
(8) The average selling price of such imported men's sewed straw hats,
in the country of exportation, as shown by said cost data, is $9.73 per
dozen.
(9) If transportation costs be included, the rate of duty shown
by the differences in costs of production necessary to equalize said
differences upon men's sewed straw hats valued at more than $9.50
per dozen in the country of exportation is a rate of 55 per cent ad
valorem based upon the value of such hats in the country of exportation.
(10) If transportation costs be not included, the rate of duty shown
by the differences in costs of production necessary to equalize said
differences upon men's sewed straw hats valued at more than $9.50 per
dozen in the country of exportation is, according to a mathematical
calculation, 69 per cent ad valorem based upon the value of such hats
in the country of exportation. Commissioners Marvin, Glassie, and
Baldwin are, however, of the opinion that the existing rate of 60
per cent ad valorem substantially equalizes differences in costs of
production in respect of hats valued above $9.50 per dozen in the
country of exportation.
SUMMARY OF CONCLUSIONS
On the basis of the facts presented the commission agrees that the data
indicate an increase in tariff rates, if the differences in costs of
production are to be equalized between lower-priced grades of foreign
hats and comparable products of American factories. In respect of such
hats, Italy is the principal competing country.
The commission further agrees that foreign hats sold in the United
States on a basis of quality rather than price are the higher-priced
hats which at this time are not keenly competitive with the products
of the American industry. With respect to such higher-priced hats,
Commissioners Costigan and Dennis are of opinion that Great Britain is
shown to be the principal competing county, and that under the law the
data indicate that the duty should be reduced.
The commission agrees that $9.50 per dozen, foreign valuation,
represents a fair breaking point for customs purposes between
lower-grade hats competing on a price basis and hats of superior
material and workmanship competing on a quality basis.
Under section 315 of the tariff act of 1922 there is an undetermined
legal question with respect to including transportation expense in
estimating foreign production costs. Commissioners Costigan, Dennis, and
Baldwin agree that under subdivision (c) of section 315 a fair estimate
of foreign costs should include the expense of transporting the foreign
product to the principal competitive market or markets in this country.
For hats whose foreign value is not in excess of $9.50 per dozen the
rate of 88 per cent ad valorem is indicated as the correct duty for
equalizing costs, with transportation included.
Chairman Marvin and Commissioner Glassie agree that under the law costs
of production do not include transportation costs on either side. If
transportation costs be not included in the foreign costs of production
shown by this investigation, the rate indicated by the cost data would
be 105 per cent on foreign valuation. This rate being in excess of the
maximum permissible under subdivision (a) of section 315, resort must be
had under subdivision (b) of section 315 to the American selling price
basis of valuation in order to equalize the differences in production
costs. For hats whose foreign valuation is not in excess of $9.50 per
dozen the rate of duty thus indicated by the cost difference is 50 per
cent on the American selling price.
As to hats with a foreign valuation above $9.50 per dozen, if foreign
transportation be included, the present duty of 60 per cent on the
basis of foreign valuation is in excess of the difference in cost of
production and the rate of duty indicated is 55 per cent on the basis of
foreign valuation. If foreign transportation be not included, the rate
of duty indicated is 69 per cent on the basis of foreign valuation.
The figures are shown in detail in Table 9, on page 10.
In the accompanying report the above conclusions will be found more
formally stated for the purposes of a proclamation.
Respectfully submitted.
THOMAS O. MARVIN,
_Chairman_.
EDWARD P. COSTIGAN,
HENRY H. GLASSIE,
ALFRED P. DENNIS,
A. H. BALDWIN,
_Commissioners_.
SEPARATE STATEMENT OF COMMISSIONER COSTIGAN, IN PART CONCURRING AND
IN PART DISSENTING, IN THE INVESTIGATION OF MEN'S SEWED STRAW HATS
While I concur with my associates in transmitting the commission's data
in the investigation of men's sewed straw hats, a differentiation of
views must be expressed with respect to certain conclusions which may be
drawn from such data.
_Both higher and lower duties indicated by the commission's cost
figures._--Under the provisions of section 315 of the tariff act of
1922, the information secured by the commission and summarized in this
report points not only to an increased duty on lower-priced hats but
also to a decreased duty on higher-priced hats. It is submitted that
no satisfactory reason can be assigned under the present record for
failing to recommend such a simultaneous upward and downward change in
the present rate of duty by the use of the provisions for flexibility in
the tariff act of 1922. Under the controlling statute all commissioners
are agreed that a clear distinction exists between the bulk of the
lower-priced hats coming from Italy and the lesser but considerable
quantity of higher-priced hats imported from Great Britain. This feature
of the commission's summarized data is particularly presented in Tables
5, 6, and 7, in which are shown the sources, volume, and foreign values
of imported hats. Table 8 presents American and Italian costs of
lower-priced hats; Table 9, cost data for higher-priced hats in the
United States and Great Britain. Table 8 indicates that, in lieu of the
present duty of 60 per cent on foreign value, a duty of 88 per cent on
foreign value is required to equalize the costs incurred with respect
to the lower-priced hats; and Table 9, that a duty of 55 per cent on
foreign value will suffice to equalize such costs in the case of the
higher-priced hats. In other words, the record establishes the need, if
competitive costs are to be equalized under section 315, for creating
two classes of men's sewed straw hats, with a different principal
competing country and a separate rate of duty for each class. Under the
circumstances, to confine the findings of the commission to an increased
duty on lower-priced hats is, in one important particular, to fall short
of the statutory responsibility undertaken when the commission ordered
an investigation of the adequacy of the present 60 per cent ad valorem
duty as a measure of equalized costs in the United States and foreign
countries. A partial conclusion from the commission's data, where, as
here, a comprehensive conclusion is clearly warranted, would appear
to be discriminatory and fail to fulfill the scientific and impartial
purposes of the provisions of section 315.
_Determining the dividing line for tariff purposes between higher and
lower priced hats._--The above tables sufficiently demonstrate that the
great bulk of men's sewed straw hats, imported at the port of New York
during the period of investigation, came from Italy and had a foreign
value of $7 or less per dozen, and much the larger part of the
higher-priced hats came from England and had a foreign value of $8.50
or more per dozen. The separation into classes of lower and higher
priced hats, with different duties for each class tends to result in
an overstatement of the values of the lower-priced imports in order to
obtain the benefit of the lower duty on high-priced imports. There is
also a tendency of the higher-priced imports to increase in volume. To
meet the changed situation a higher "breaking point" than the $7 value
is desirable. For example, with a 90 per cent duty, a hat whose foreign
value is $7 per dozen would cost, landed, duty and transportation paid,
$14.40. If the rate of 60 per cent remain on hats in the higher bracket,
as certain commissioners suggest that it continue to do, instead of the
$7 hat it might be profitable to import a hat worth $8.25 per dozen,
which would enter, duty paid and transportation included, for $14.30.
Adopting and applying the same method to hats having an invoice value
of $7.50 or less per dozen, a breaking point of approximately $9.10
would make it unprofitable to bring in higher-priced hats in order to
obtain the benefit of a 55 per cent rate of duty. A breaking point of
approximately $9.50 would therefore appear to be safely calculated to
prevent overvaluation with respect to the great bulk of low-priced men's
sewed straw hats now being imported.
_Some omissions from and doubtful features in the commission's
report._--Although from the point of view of equalizing foreign and
domestic costs under the provisions of section 315, the data of the
commission on their face point to an increase from 60 to 88 per cent ad
valorem, complete frankness compels the statement that the conclusion
arrived at is not free from difficulties; that the record is not
unequivocal; and that a strong case might be made for not advancing
the duty to the full extent thus indicated. Since the application
of the cost-of-production standard under section 315 is still in its
experimental stages, it may promote accuracy and help to bring about
scientific amendments of the present law to illustrate in this
investigation the possible danger of using the commission's figures
to fortify different and inconsistent conclusions. The data obtained
by the commission in the straw-hat investigation are unsatisfactory
in the following particulars:
_Representativeness of samples._--In selecting hats assumed to be
representative of American production, it was found impracticable
to determine the respective percentages of production of cheap,
medium-priced, and high-priced hats. In consequence there is some
reason to believe that the limited figures secured with respect to cheap
American hats has tended to exaggerate American costs beyond what an
exactly representative selection would have shown. Figures were secured
for only a few producers of cheap American hats, and while it is
impossible to say what weight should be given to such cheap American
production, expert opinion is not wanting in support of the view that
because of the method of sampling employed, American costs as a whole
have been unduly elevated for comparison with Italian costs. While it is
too late to make any exact mathematical adjustment on this account, it
is only fair to urge distinct caution in accepting at their face value
and following to their inexorable conclusions the comparisons based on
the domestic and foreign data.
Probably the most important principle of sampling employed by the
commission's agents when confronted with the problem of selecting for
cost comparison a few types of hats from the many manufactured was
the choice of those types of hats with respect to which the domestic
industry has been suffering the keenest competition. It must be clear
that the selection of such hats tended to show the widest cost
divergence for the two countries, since it was to be expected that the
severest competition would have been experienced when the relatively
higher-cost hats of the United States met the relatively lower-cost hats
of Italy. Nor could it be said that such hats as were chosen were the
only "similar competitive articles," since the foreign manufacturers
can and do produce all types and styles sold in the United States. The
fact that the American industry earned approximately 10 per cent on its
invested capital (even after the payment of large salaries) must be
chiefly explained by the profits earned on hats with respect to which
there was no such acute competition. Obviously such more profitable hats
strengthened the domestic industry's competitive resistance.
_Importers' selling expenses omitted._--Through inadvertence, but
none the less unfortunately, the selling expenses of importers were
not obtained by the commission. There was considerable testimony at
the commission's public hearing to the effect that a relatively heavy
burden rests on such importers in selling such straw hats in the United
States. (See Transcript of Public Hearing, pp. 110-116.) The American
manufacturers' costs of marketing their hats to the jobbers were secured
by the commission's representatives, but the selling expenses of
importers of foreign hats (without which Italian hats could not reach
American jobbers) were not secured: thus, the complete picture of the
competitive cost situation is not presented in the commission's report.
The significance of this omission is considerable. Under the provisions
of subdivision (c) of section 315 the statutory mandate to consider much
"advantages and disadvantages in competition" is unavoidable, and, while
it is probably not reasonable to reject the commission's findings as a
whole because of this record defect, some allowance would be reasonable
falling short of the extreme conclusions to which the data would
otherwise point.
In answer to the argument that the domestic industry has so well
withstood the competition offered by what seem to be extremely low-cost
Italian hats, it has been urged that the Italian producers are far
from their market and that jobbers prefer a source of supply more
conveniently at hand. This statement involves the admission of a
competitive disadvantage suffered by the foreign producer, which is
clearly not capable of being measured. However, the one statistically
measurable marketing disadvantage of the foreign producer, referred to,
was unfortunately neglected when the commission's data were assembled.
As has been suggested, costs secured, though not used, for the American
producer included his expense of placing his hats in condition ready for
delivery to the jobber, but only those Italian costs were obtained which
with transportation added bring the product to the docks at New York.
Importers must incur the expense of handling and reselling before the
product is ready for the jobbers. In so far as such importers perform
the jobbers' functions, the objections stated may not be valid, but any
importers' costs of reselling to jobbers should undoubtedly have been
collected and considered.
It may further be noted that some American manufacturers actually sell
their hats to retailers. Such domestic selling expenses were secured by
the commission on its schedules, and there is reason to believe that
certain overhead items in the assembled costs are probably larger than
they would otherwise be because of the imperfect allocation of selling
and manufacturing expenses.
_Deficiencies in comparative overhead data._--More striking in some
respects than the failure to secure importers' selling expenses is the
contrast exhibited in the commission's report between overhead expenses
in the United States and abroad. The foreign overhead expenses are mere
estimates, since the commission's representatives were refused access
to the original books and records by practically every foreign firm.
It accordingly became necessary to resort to estimates based on flat
percentages of prime costs or sales price. These were in fact submitted
by Italian manufacturers and used by the commission's representatives.
It now develops that these percentages have never been analyzed or
justified. Indeed, there is no definite record of what expense items
were included or neglected in such percentages. The overhead expenses
in the United States include very considerable salaries paid to officers
of the domestic manufacturing concerns, and the question is presented
whether, as some accountants maintain, such salaries should not be
charged exclusively to selling rather than manufacturing expenses, since
such officers usually pay more attention to the selling end of the
business. In the commission's records it appears that about 85 per cent
of the total officers' salaries was charged to manufacturing and about
15 per cent to selling. The importance in cost investigations of
scrutinizing high salaries should be evident, as they might easily be,
although, in this instance it is not suggested that they have been, used
to conceal profits. It is worthy of note that the average salaries
allowed by the commission's representatives in the domestic costs of all
the hats manufactured amounted to 69 cents per dozen--nearly as much as
the entire average Italian overhead charge. It is to be remembered, as
already stated, that this average amount does not include the additional
item allowed in the selling expense for officers' salaries. It is of
interest to note, further, that the American firms which complain most
of Italian competition showed the largest salary accounts. One firm,
in fact, had a salary expense, included in manufacturing cost, of more
than $1 per dozen hats. Nevertheless, even after the payment of such
salaries, it has been shown that the industry as a whole earned
approximately 10 per cent on the invested capital during the period
covered by the commission's investigation.
It would be obviously difficult to determine what salaries should
reasonably be allowed, but, in view of such a showing, it might be
argued with force that, as has been done in other investigations when
data unsatisfactory for a fair comparison have been secured, such
data on both sides should be excluded from the final calculation. To
illustrate, the commission in the present investigation has eliminated
the item of interest here and in Italy, since adequate data for the
Italian industry were unobtainable. If this principle were followed
in the matter of overhead, a conclusion might reasonably be based on
the comparison of material and labor costs here and in Italy plus
transportation from Italy to our principal market or markets.
To illustrate the possibility, already mentioned, of diverse conclusions
from the commission's record, the difference between the material and
labor costs here and in Italy, with transportation included, is shown in
the following table:
------------------------------------------------+--------+--------
|Domestic|Italian
------------------------------------------------+--------+--------
Material costs | $6.44 | $4.35
Labor | 4.60 | .87
+--------+--------
Total | 11.04 | 5.22
+--------+--------
Difference | $5.82
Transportation to New York | 1.10
+-----------------
Final difference | 4.72
+=================
Foreign selling value | 6.42
+=================
| _Per cent_
Ad valorem duty required to equalize |
on basis of foreign selling value | 74
Present duty | 60
------------------------------------------------+-----------------
The failure to consider interest on investment in the overhead
introduces another difficulty of some importance. If rents actually paid
are included in costs, equality of treatment demands that interest on
capital invested in plants owned, and therefore not rented, should be
considered. In the costs of 14 of the American companies investigated
the rent charge amounted to $0.29 per dozen for all styles of hats. It
appears that there is no information to show that any one of the Italian
companies covered rented its factory; therefore, the failure to include
interest on the capital invested in the Italian factories may have
overestimated the relative strength of Italian competition. The failure
to include interest on invested capital in the Italian costs might
justify the exclusion of the rent item from the American overhead costs.
It will, of course, be argued that to disregard all overhead costs in
both the foreign and domestic figures in the way suggested would fail
to measure the domestic disadvantage arising from relatively higher
overhead expenses. There are, however, two considerations, discussed in
detail in this statement, which tend to compensate for any inaccuracy
which the above findings might imply. They are (1) the method of
sampling employed by the commission; and (2) the failure to consider
certain of the Italian industries' marketing expenses.
_Conclusions._--The principal significance of the foregoing discussion
is to be found in the conclusion that, in recommending under the law an
increase in the present rate of duty on lower-priced hats from 60 to 88
per cent on foreign value, the statute is being liberally construed from
the point of view of the domestic industry, in the effort to arrive at
an equalization of costs in the United States and abroad. Regardless of
the legal question as to whether transportation should or should not be
included, any higher duty on any of the hats investigated than 88 per
cent on foreign value--particularly so high a duty as 105 per cent, or
the equivalent 50 per cent on American selling price, which has been
suggested by certain commissioners--involves such a grave departure from
the economic purposes sought to be promoted by section 315 as to make it
highly desirable that the present investigation be reopened before any
such increase in duty is proclaimed.