§ 15. We have already pointed out that (a) no very clear line can be drawn between processes which are, and those which are not to be included under the conception of manufacturing (b) that just as there are the two alternatives of warehousing in a free port and in a building under customs supervision, so there is the alternative of manufacturing in a free port or manufacturing in a bonded warehouse. The difference between these two systems is thus already indicated; in the case of the free port the customs authorities are only cognisant of the products as they pass the customs frontier, in the case of the bonded manufacturing system the essential, feature is the postponement of payment of duties at the cost of customs supervision of the stores on hand of dutiable materials and finished products.

In the United States the sixth and seventh classes of warehouses are described in the regulations as

"Warehouses for the manufacture in bond, solely for exportation, of articles, made in whole or in part of imported materials or of materials subject to internal revenue tax; for the manufacture for home consumption. or exportation of cigars in whole of tobacco imported from one country; also for the storage and cleansing of imported rice intended for exportation," and as "warehouses for smelting and refining imported ores and crude metals for exportation or domestic consumption."

It will be noted that the conditions on which manufacture in bond is permitted vary a good deal from case to case; sometimes the nature of the material, sometimes the area of sale is restricted. These regulations attempt to summarise the provisions of the Tariff Act, paragraphs M and N of § IV., though the manufacture of rice in bond goes back to 1874.1

The essence of the system is extremely simple: the manufacturer must account to the authorities for every amount of dutiable material used by him. This is achieved in two ways, first, the dutiable material used must be stored apart in rooms separated from the remainder of the premises, and secured by customs locks, to be used exclusively for the

1 For the detailed regulations, see Customs Regulations of the U.S.A., Arts. 747-800.

storage and keeping of all imported merchandise, and of domestic spirits,1 or other materials subject to internal revenue tax transferred into such warehouse for manufacture. A like compartment will be provided, which shall be used exclusively for the storage and keeping of merchandise or articles manufactured" (Art. 751). The second step taken is very strict control over the details of manufacture, by requiring the production of exact formulæ of manufacture. It consequently becomes easy to estimate the amount of product which ought to be turned out from a given amount of raw material entered to the warehouse in question. Further, by requiring the manufacturer not to depart from the formula which he has submitted, the checking of the quantities actually used in manu facture is simplified.

Under 89 of the Australian Customs Act, 1901-10, and under regulation 70 of the Customs Regulations—

Manufacturing may be carried on in a manufacturing warehouse under and subject to these regulations—

(a) Imported and manufactured goods may be used in the manufacture.

(b) Australian and imported goods shall, until used, if the collector so directs, be kept separate from each other.

(c) All operations shall, subject to these regulations, be conducted in such manner as the Comptroller directs.

(d) The manufacturer shall keep such books and accounts, and render such returns as the Comptroller directs.

(e) The labelling and marking of the goods manufactured shall be subject to the approval of the collector.

(f) The collector may make such allowances for waste as he deems just, subject to the approval of the Comp troller.

(g) The goods manufactured shall be subject to the control of the customs until delivery for home consumption or until exportation.”

Article 71 of the regulations deals with the articles which may be manufactured in bond for home consumption, Article

1 This was before the days of Prohibition.

73 with those which may be so manufactured for export: whilst Article 72 contains some interesting regulations as to the duties to be imposed on goods so produced.1

1 The conditions are as follows:-Articles free of duty, if imported, are also free if manufactured in this way. It may be asked why in this case the goods should be produced under bond. The answer is that the raw materials may still be dutiable though the finished product need not be-though such a case would indicate extremely bad tariff-making.

Secondly, if the duties on goods used in a manufacturing warehouse for the manufacture of articles for home consumption, after due allowance for waste, total less than the import duty on the finished article, then the finished article may be cleared for home consumption on payment of such total. In other cases the finished article shall be dutiable as if it had been imported in its finished state. But no finished article subject to duty of excise shall be cleared for home consumption without payment of such duty.

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Thirdly, the article, if containing spirits, shall be dutiable with the customs duty if the spirits are foreign, but if the spirits used are Australian, the duty shall be equal to the excise duty plus the customs duty on the other dutiable ingredients an amount equal to the import duty on the finished article," though "if the duty chargeable" under the second alternative "be less than the excise duty on the spirit contained in the article, the goods may be delivered for home consumption on payment of such excise duty.”

CHAPTER X.-Continued.

THE IMPROVEMENT TRADE.

§ 16. In the case of the continental countries, although the principle of bonded manufacture is known-it was, for instance, adopted by the signatories to the Brussels Sugar Convention, and occurs in other excise regulations-yet, so far as the working up of imported materials is concerned, the more important device is the free admission of products for free working / up or improvement-the system, in other words, of the Improvement Trade " or "Admission Temporaire."

It

is with the problems of this system that we must next deal. We may describe the improvement trade as consisting in the free admission of materials or semi-manufactured, articles into the customs area of a country with a view to subsequent re-exportation in a more finished state, or in the exportation of goods with free re-admission in a more finished state later on. But this definition conceals a difficulty which it is well to face at the outset of our inquiry. It is possible for the customs authorities to maintain two attitudes and these two attitudes lead, or may lead, to very different results in practice, so far as the nature of re-exportation is concerned. There may be insistence on the maintenance of identity throughout-that is, the goods exported must be shown to be the goods originally imported if the payment of duty is to be avoided, and this provision may lead to seals and other external marks of recognition being affixed to the goods by the customs authorities themselves, or to a prohibition of the improvement trade in these articles of processes in which no such proof is possible. Or there may be only a demand for equivalence : for a given amount of goods imported, a given amount must be shown to be exported or the duty accruing on the imported goods will become payable, but strict proof of identity will not be demanded. So long as the imports and the exports balance, and so long as the goods are of a character that cannot be produced at home at all in their entirety, so that

substitution is impossible, there is no real difference between the first and the second types, except as regards the customs formalities required; but the matter becomes very different if what is imported is retained in the country, and what is exported is an article entirely of domestic origin, and not a true re-export at all. Consequently, when the latter state of affairs arises, we have really to deal with a new kind of trading altogether, the disadvantages and advantages of which must and will be separately discussed under the section "Compensatory Trade Systems." The compensatory trade systems arise historically from the improvement trade, but lead too far away from the improvement trade to justify their being indiscriminately jumbled up with the latter.

The reader will see that in § 3 of the chapter the improvement trade has been subdivided into two sub-classes, the improvement trade and the frontier improvement trade. The justification for this step cannot be found in any logical difference: the reason for the distinction arises on administrative grounds. The customs laws of a good many countries make this distinction, though, as will be obvious on reflection, there is really no difference between re-export or re-import after improvement, if the process takes place within a defined distance from the frontier, or if it takes place at any other spot within the country, though this is the essence of the administrative distinction. The explanation lies in the administrative necessity of a different régime in the districts. immediately abutting on the frontier (rayon frontière), which is usually reflected in the volume of customs control deemed advisable, and, on the other hand, in the difficulties which frontiers create for the inhabitants of frontier regions, whose economic affiliations are in large part affected by local considerations. But the nature of the improvement trade as an economic fact is not affected by these administrative difficulties, although a description of the customs régime cannot help adverting to them.

The customs laws of various countries make further distinctions to which it is necessary to refer in passing. There is, firstly, the distinction between the autonomous improvement trade and the conventional, which refers to the nature of the instrument by which the trade is regulated-the conventional trade referring to such trade as has been the subject of a convention between two countries. There is,