Statement on Proposed Embargo Tariffs.

My dear Senator Harrison:

I fell impelled to write to you in regard to certain amendments now under consideration before your committee which would amend H.R. 3790, a bill which deals with the important and entirely separate subject of reciprocal taxation of incomes of Federal and State employees. These amendments would raise to new heights the taxes—in effect tariffs—on many imported fats and oils. I am addressing this letter to you because the amendments have been referred to the committee of which you are the chairman.

I, of course, know that the Senators who introduced these amendments acted in good faith. But there should be no illusion about the vital importance of the issue the amendments present. We are not dealing here with bona fide excise taxes for revenue purposes, but with what in purpose and effect are tariffs of the embargo variety. The amendments run directly counter to the provisions of reciprocal trade agreements already in force with such important countries as the United Kingdom, Canada, the Netherlands and Brazil. If enacted, they would destroy or at the very least seriously impair these agreements under which we have obtained concessions benefiting more than a quarter of a billion dollars worth of American exports of agricultural products alone and they would hamper our efforts to conclude additional trade agreements in the interest of American agriculture and industry. The issue is clear. It is whether to sustain our present policy or to return now, or during the pendency of the Trade Agreements Act, to the embargo tariff policy exemplified by the disastrous Hawley-Smoot Tariff Act.

The private interests who seek to benefit from the amendments apparently ignore the fact that on the basis of 1938 import values the rates as they now stand have an ad valorem equivalent of 89 per cent in the case of palm oil, 96 per cent on edible palm kernel oil, and 65 per cent on inedible palm kernel oil. Under the proposed amendments these ad valorem equivalents would be increased to 149 per cent, 151 per cent, and 108 per cent, respectively. In the place of present rates on wool grease, ranging from 43 per cent to 93 per cent, the proposals would substitute rates of from 60 per cent to 146 per cent. By and large these proposals call for 50 per cent increases over the already high rates. The resulting rates could be described by no other word than "embargoes." If one industry is thus to receive an embargo, all will demand it. Then other nations will inevitably impose embargoes on our exports.

At first, the proposals called for these tax increases immediately, which would have meant outright violations of our trade agreements with the United Kingdom, Canada, the Netherlands and Brazil. Now it is suggested that the effect of the conflicting tax increases shall be postponed until the four agreements mentioned, which are of such great value to American agriculture and industry, can be modified and terminated at the earliest possible moment under the terms of those agreements. Let no one be lulled into thinking that this modification of the amendments would remove the basic conflict between them and the trade agreements program. The real issue would remain exactly the same. All this modification means is that we should not be convicted of violating outright four of our international agreements; we should still inevitably lose a substantial part of the benefits of these important agreements and should run the grave risk of losing all of them.

I should like every farmer, every producer of surpluses in this country, everyone in all walks of life, to know how great the cost would be if these amendments should be adopted. I should like them to know that the enactment of these amendments would seriously jeopardize trade agreements by means of which concessions have been obtained on more than a quarter of a billion dollars worth of our agricultural exports and on several hundreds of millions of dollars worth of our exports of factory and other products. I should like them to know that these amendments, if passed, would sooner or later expose this huge volume of trade to the danger of retaliatory trade restrictions in the countries adversely affected. I should like them to know that these amendments would hamper our efforts to obtain additional benefits for our agricultural and industrial producers. And I should like them to know that the power for leadership of this country in the great task of rebuilding international trade under the principles of equality and mutual profit, without which full and stable economic recovery in this country and in other countries cannot be realized, would be virtually destroyed.

These amendments would seriously undermine a program which already has proven of great benefit to American agriculture, notwithstanding the depressed state of our foreign market. Our exports of farm products to trade agreement countries increased by 55 per cent in the fiscal year 1937-38 over 1935-36. Our exports of farm products to non-trade-agreement countries increased by only 3 per cent over the same period. This comparison, striking as it is, does not take into account the agricultural benefits obtained recently in the agreement with the United Kingdom or in the new agreement with Canada. In 1936, the United Kingdom alone bought one-third of the agricultural products we sold abroad. Concessions covering 92 per cent of those purchases were obtained in the agreement, effective January 1 of this year. In other words, we have obtained in one single trade agreement improved or more stable markets for nearly a third of our total agricultural exports, including such key products as wheat, cotton, corn, lard and tobacco.

Our trade agreements with 19 foreign countries have done more for American agriculture than to improve and stabilize foreign markets for many of our agricultural products. They have increased purchasing power in the domestic market for our farm crops. When, for example, our exports of automobiles to Brazil under a trade agreement concession increase, as they have done, by 4 1/2 million dollars, there is more purchasing power available for our workers to buy meat, butter, milk, eggs, fruits and vegetables. Our total exports to 17 agreement countries in the two-year period 1937-38 were greater in value by 61.2 per cent than the average for the pre-agreement period 1934-35, while exports to all other countries increased by an average of only 37.9.

Such tariff or tax increases, when proposed, obviously should be treated as amendments of existing tariff legislation and should receive the kind of consideration that would be given to specific tariff legislation. This would include study of the proposals on their own merits by experts of the Tariff Commission and other agencies of the Government and by the appropriate committees of the Congress, as elements in the general tariff structure and in relation to the country's commercial policy as a whole.

The inclusion of tariff revisions as parts of or as riders on other legislation creates a difficult situation for the Congress and a much more difficult situation for the Executive. It imposes upon the President the necessity of accepting tariff rate revisions which he may consider contrary to the public interest in order to preserve the main legislation. His only alternative is to veto the whole act and thereby delay and perhaps endanger the desirable and major portions of the Act. In this case the adoption of the amendments would make it my clear duty to veto H.R. 3790, however meritorious the bill may be.

Let me repeat, the trade agreements program is an essential part of our general program for economic recovery in this country. It is also, particularly at this critical stage of world affairs, a vital part of our foreign policy. Attacks on the trade agreements program such as that represented by this new drive for embargo tariffs on fats and oils are, therefore, attacks on our efforts to attain full prosperity at home and to promote economic disarmament and peaceful relations throughout the world.

Very sincerely yours,

The Honorable

Pat Harrison,

Chairman, Senate Finance Committee,

United States Senate.