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PARAGRAP: 15-COAL-TAR DYES.
production of their line of aniline colors. Up to 1896 we lost money steadily; we absolutely lost money. From then on we were able to increase our production materially, owing to expiring foreign patents and to the working of our own patents, and to the placing on the reef list in 1897 of additional raw materials. We were never, however, able to earn as much as 6 per cent on our coal-tar dyes, even without writing off anything on machinery and plant. Our books are open to the inspection of your committee or any authorized representative at any time.
We have been working on a declining market for over 30 years, or ever since we have been in business, and the process is still going on. As I said before, our colors have gone down in price to such an extent, since the Payne bill was passed, that we make less on our colors than we save on the raw materials coming in free. So that shows that competition does something.
STATEMENT OF JOSEPH F. O'CONNELL, ON BEHALF OF
SCHOELLKOPF, HARTFORD & HANNA CO.
Mr. O'CONNELL. Gentlemen, I have only a few observations to make, because I believe that when Mr. Schoellkopf's testimony is read it will clear up very many things of which the committee were in the dark.
I would like to call your attention particularly to sections 21 and 24 of the proposed bill. Section 21 calls for a cut of from 30 to 25 per cent on the coal tar dyes or colors that are manufactured in this country.
Now, if I understand it, one of the purposes of the committee in revising this chemical schedule was to raise revenue primarily, having proper regard for the interests of the consumer.
It seems to me the committee have made a mistake in this matter, and we respectfully call the committee's attention to these particular sections, with the desire that they may go into it very carefully. There is consumed in this country only seven and one-half million dollars worth of coal tar products. Of that, 80 per cent comes from abroad. That 80 per cent equals $6,000,000. There are $6,000,000 in value imported, which pay in revenue to this Government $1,800,000—surely, not a prohibitive tariff. This proposed cut will make a difference in the revenue of $300,000. Now, as against that, you seek to put on, in section 24, a 10 per cent duty on articles that are now on the free list, and from those articles that are now on the free list you estimate that you are going to get $100,000.
Taking into consideration article 22, which is also allied with it, which shows a loss in that section of $25,000, which, added to the $300,000, makes a total of $325,000, as total loss in revenue by the proposed changes. In other words, you are losing approximately $325,000 on the manufactured articles, and you are imposing $100,000 on the raw materials, a net loss of revenue of $225,000.
Now, we submit that the committee are not accomplishing their purpose in doing this, and in addition are doing two things that I am sure they never intended to do, namely, crippling an American industry and adding to the burden of the American consumer. The American consumer is burdened whenever you tax raw materials.
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As a Democrat, I think I am justified in protesting against the policy of taking raw materials from free list and taxing them.
Mr. HARRISON. One moment, if you please, Mr. O'Connell: Is it not true that, if a reduction is made in the duty upon the finished product, it would be difficult, if not impossible, for the American manufacturer to hand on that tax on the materials that are manufactured to the consumer? In other words, it would be difficult for him to increase the price to the consumer if the duty is lowered upon his finished product?
Mr. O'Connell. I do not know that I grasp your intent exactly, but do I gather from your statement
Mr. HARRISON. How can the manufacturer of coal-tar dyes or colors increase the price to the consumer of coal-tar dyes and colors if his duty is reduced upon his finished product? He can not hand down to the persons who buy from him the duty which we impose upon his materials of manufacture, because the competition from abroad will increase.
Mr. O'CONNELL. No; the competition from abroad would wipe out the competition here, and then the competition from abroad would be able to do what it pleased and surely raise the prices to the consumer.
Mr. HARRISON. That is just an assumption; that is a different matter.
Mr. O'CONNELL. I do not think it is an assumption; it is a well known and accepted fact in the coal-tar industry. In the first place, only seven and a half million dollars worth of products are used, and if you lower the tariff it is not going to increase the consumption. For instance, the dye that is in my coat or necktie will not be increased because the duty on the dye is going to be lowered or is going to be raised.
Now, you say you expect to gain $1,000,000 in products coming in under section 24. If you increase that a million dollars, it merely means that you are taking away from the American manufacturer the opportunity to make $1,000,000 worth of goods which he now makes, and you are cutting that American industry absolutely in two. Thus you are increasing the output of foreign manufacturers and retarding and taking away our market to the extent that the American manufacturer will only supply less than 10 per cent of the whole amount of coal-tar colors which are consumed.
That points out in another way the difficulty that I think the committee overlooked in framing this bill.
Now, I submit as a Democrat that it is very poor policy to put any raw materials needed for manufacturing in this country on the dutiable list. I think there are very many eminent authorities who have protested most strongly against such a policy.
Mr. LONGWORTH. I suppose what you mean by raw materials are those materials not produced in this country?
Mr. O'CONNELL. Yes.
Mr. O'CONNELL. When Mr. Cleveland was President, in his message he protested against it most strongly. Let me quote what he said
PARAGRAPH 15—COAL-TAR DYES.
in a letter to Mr. Wilson denouncing the Senate for its action at that time.
Mr. KITCHIN. Let me interrupt you. Maybe I misunderstood you, but Mr. Cleveland did not make the difference or distinction that my friend from Ohio makes. Mr. Longworth, in referring to raw materials, refers to only those articles that are not produced in this country. Mr. Cleveland made no such distinction.
Mr. O'CONNELL. I am sure President Cleveland intended, by raw materials, all those materials that are necessary for our factories to use which they make into the finished product. Coal-tar products which are to be made into colors are as much raw materials as iron ore or wool, which are to be finished into other forms.
Mr. Cleveland was very emphatic. He said: One topic will be submitted to the conference which embodies Democratic principles so directly that it can not be compromised. We have in our platforms and in every way possible declared in favor of the free importation of raw materials. We have again and again promised that this should be accorded to our people and our manufacturers as soon as the Democratic Party was invested with the power to determine the tariff policy of the country.
The party now has that power. We are as certain to-day as we have ever been of the great benefit that would accrue to the country from the inauguration of this policy, and nothing has occurred to release us from our obligation to secure this advantage to our people.
Mr. William Jennings Bryan, in the Fifty-third Congress, took the same attitude. Speaking about free raw materials at that time, he said:
They tell us that free coal can not benefit the interior. Take the tariff off from coal so that the New England manufacturers can buy it for less, and they can manufacture more cheaply, and then by cutting down the tariff on the products of their factories we can compel them to sell at a lower price to the people of the South and West. That is the reason our folks are interested in free coal. So long as we lay burdens upon what the manufacturers use they can with some justification ask a tariff on the product of their looms.
Mr. Chairman, in the first place, I believe we can make no permanent progress in the direction of tariff reform until we free from taxation the raw materials which lie at the foundation of our industries.
Mr. HARRISON. Mr. O'Connell, you are very familiar, of course, with our tariff history and you know that the class of raw materials as used at that time was specially defined or referred to as the crude products in the soil, and then they have been advanced in the process of manufacture. That surely does not apply to any of these intermediate coal-tar products, which are the result of high systems of manufacture.
Mr. O'CONNELL, I believe that the same distinction would have been made then as is made now if it had been brought out along the same lines that you now refer to. When 60 per cent of the value of the products consumed by an industry are imported from abroad, those certainly ought to be considered raw materials, particularly when they are not found here in this country. They are basic raw materials, so far as our manufacture is concerned, and are so specified in the coal-tar industry.
Now, gentlemen, it seems to me that this committee ought to bear in mind that it is necessary for our textile manufactures that this industry should be kept in this country. It serves as a restraint upon the German syndicates, cartels, and combinations that are
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raising prices ad libitum whenever there is no competition. If we have no competition in this country the foreign makers will surely and quickly raise the prices of their articles.
Our factories at Buffalo are engaged in a work that ought to receive your heartiest aid. They are engaged in an enterprise which can be made one of the greatest enterprises in this country.
The great industrial development of Germany has centered around her chemical industry, and the most marvelous part of her chemical industry has been along the lines of the coal-tar industry. Their products and profits have been enormous. The profits, according to your own glossary, which you have published, have been from 24 to 25 per cent. We barely survive under present conditions, as our books will disclose if you care to investigate. Those people are now able to come into this country, and even with the competition which we have in this country and the 30 per cent that is now on it, they are able to lay down the goods here and sell them cheaper than houses in this country are able to do. The Germans have gone into this matter very carefully and very minutely and are giving it their closest attention and encouragement.
The various changes that the coal-tar industry has suffered during the variations of the tariff might be brought closely home to you when I say this: That the price of coal-tar colors was immediately lowered after the passage of the last tariff act when these articles were put upon the free list that you now seek to put back on the dutiahle list. If yju put these articles back on the dutiable list, as you now cöntemplate under section 24, the cost of production of coal-tar colors will necessarily rise and the American manufacturer will suffer accordingly. It may occur to some that the putting of this 10 per cent will help the consumer, but I would like to refer you to page 162 of the tariff hearings held before the Finance Committee of the United States Senate last year on this bill, and will quote to you a letter from one of the German houses to the effect that whenever contracts are made this clause is put in:
In case any duty should be charged on any merchandise sold under this contract or in case of any change in said duty the buyer to pay or receive in dutiable funds any difference from the present rates, the buyer to pay any additional duty caused by advance in the market value.
In other words, the consumer must bear this burden. You do not improve the situation, and you do not increase the revenue, by lowering the tariff from 30 to 25 per cent on the finished articles, and putting 10 per cent on the raw materials.
Mr. LONGWORTH. Mr. O'Connell, will you let me ask you a question right there? Mr. O'CONNELL. Yes.
Mr. LONGWORTH. Suppose, as you contend, the passage of this legislation will destroy this industry here, in this country, do you think that would result in lowering the price to the consumer?
Mr. O'CONNELL. Absolutely not. It would result in an immediate rise in the prices to the consumer.
Mr. LONGWORTH. I welcome you to my school of political thought.
Mr. O'CONNELL. I think everybody will agree to that. Mr. Harrison and Mr. Underwood will absolutely agree with this position after they have considered the matter a little more fully.
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Mr. James. Are you advocating a tariff for protection to this industry, or are you advocating it for revenue?
Mr. O'CONNELL. I am advocating a tariff for revenue along Democratic lines and that is a tariff that permits competition. I think you and I both agree on that, Mr. James.
Mr. James. I agree with you as to a tariff for revenue. I do not know of any Democrat that approves of a tariff for protection.
Mr. O'CONNELL. I am not asking for a tariff for protection. We are asking for a tariff in order to allow us to compete for the benefit of the American consumer.
Mr. James. I merely made the remark, or asked the question, rather, to see whether my friend Mr. Longworth was right when he welcomed you to his political school. I do not want to lose any Democratic followers here.
Mr. O'CONNELL. Well, I rather think we will be welcoming Mr. Longworth to our school before we finish.
Mr. LONGWORTH. As enunciated by yourself, not by Senator James.
Mr. O'CONNELL. Well, I don't know.
Mr. PAYNE. I wish you would clear up the Democratic policy on this question, Mr. O'Connell.
Mr. O'CONNELL. I will leave that to those who are better qualified, Mr. Payne.
Mr. JAMES. We will attend to that when we come to make the bill.
Mr. O'Connell, at a later date, submitted the following brief on behalf of Schoellkopf, Hartford & Hanna Co.:
DECEMBER 26, 1911. Hon. Oscar W. UNDERWOOD, Chairman Ways and Means Committee,
House of Representatives, Washington, D. C. DEAR MR. CHAIRMAN: In accordance with your suggestion that a brief be filed in reference to article 15, schedule 1, viz, that referring to “coal-tar dyes or colors, not specially provided for, on which there is imposed a thirty per cent ad valorem, and all other products or preparations of coal tar not colors or dyes, and not medicinals, not specially provided for, of fifteen per cent ad valorem, let me say that I am firmly of the belief that this section should not be in any way changed. The duty is hardly a sufficient one.
German manufacturers control practically the whole output and are able to compete in our market to-day, and very frequently can undersell us.
In the last year there was over $6,000,000 worth of coal tar imported under this section, giving a revenue of $1,700,000.
There can be only two possible reasons assigned for a change in this schedule, viz, first, that a reduction of the rate of the tariff might lower the price of the imported coal-tar products in this country, and, second, that the cost of coal-tar products in the form of aniline colors and dyes would be cheaper to the manufacturers that use these colors.
Inasmuch as it will be practically impossible for American manufacturers to compete against German manufacturers, if this rate is cut, we can safely assure your committee that a cut of the present 30 per cent only means that the aniline dye manufacturers in this country must close their doors. The consequence of this is apparent, viz, there will be no competition in this country against the German color makers, thus affording them a monopoly. Their first step in this case will be to raise the price of coal-tar products, and the same situation will arise as was found in the case of the alizarin colors which were put upon the free list in the Dingley bill and the prices immediately raised. Thus it is quickly seen that the very objects which are sought for in a reduction of the tariff will be quickly and effectually defeated. It will establish a monopoly which can not in any way be combated