III. PURCHASE IN AMERICAN MARKETS UNDER RÉGIE

CONTRACTS.

The method pursued by France to secure for her purposes the needed tobacco has already been given. In this country, France and Spain buy through their consuls; letting their bids to the lowest bidder. Formerly Austria and Italy pursued the same course. The effect of this was that many parties were bidding for the tobacco of the farmers in order to meet their contracts. Inquiry among the traders in tobacco in Virginia who dealt in these foreign orders develops the fact that in their judgment the effect of the old system was to increase the value of the farmer's tobacco.

For instance, in Virginia, when the representatives of Italy and Austria contracted with various parties to furnish the quantity of tobacco needed, these parties competed with each other on the State markets in order to secure tobacco of the character required by their contracts. At that time there were about 24 dealers in Virginia who contracted for the Italian and Austrian tobacco. Some were in Richmond, some in Lynchburg, some in Petersburg, some in Farmville, and others at other points. From many points of view this system was better for the local markets, better for the dealers, and better for the producers than the one afterwards adopted. This is the consensus of opinion among the dealers.

Latterly, however, the governments of Italy and Austria have pooled their interests, so to say, and buy through one man in a State. In Virginia, where 24 or more dealers formerly engaged in filling these contracts, one man now fills the entire contract for this State for Austria and Italy, respectively. This has not only affected detrimentally the price of the tobacco needed for the contracts, but has deranged the local markets. The class of tobacco suited for the orders of the Austrian and Italian governments is not adapted to the demands of other dealers to such an extent that there is much competition to secure it. Hence one man, representing these governments, is practically able to fix the price at which he will take the tobacco required for this particular trade. In addition, he is able to designate the markets where he will buy this tobacco, and the producer perforce must go to this market. It is estimated that the two governments take about 7,000,000 pounds from Virginia. Each government takes three classes of tobacco, two in a class, grading down. It is stated that since the change in system of buying from the one formerly in vogue to the present one, of the two governments buying through one man, the price of the tobacco in the first of the above classes has fallen about $3 in the 100, which represents a large proportion of the profits of the producer in raising this variety of tobacco.

It is easier, however, to state a condition than to furnish a remedy. If the two foreign governments mentioned above have deliberately changed their system of buying, it must have been done on the ground that the new system promised better results to these governments, either in getting better tobacco at the same price, or in getting the same tobacco at better prices, which after all amounts to about the same thing to the governments interested.

If it can be ascertained that the governments are not getting their tobacco at better rates, but that under the new system the one contracting agent not only gets all the profits formerly made by the numerous contractors, but in addition the profits represented by the difference in the prices then obtained by the producers and those now obtaining, it should not be difficult, upon representations emanating from this government, to induce these countries to return to the former system. But if the change has inured to their substantial money advantage, then some compensating inducement must be offered to induce them to return to old conditions.

Inquiry among the producers and the dealers in Virginia, the parties most concerned, finds them bitterly complaining of present conditions, but utterly without suggestions to meet these conditions, or correctives for their troubles.

While the inquiry has been conducted among the dealers and producers in this State who are concerned and interested in the Austrian and Italian orders, the conditions revealed do not exist in the State of Virginia alone.

There are other communities-notably Kentucky-which raise tobacco suitable for the demands of these two governments, and the same troubles which afflict the Virginia dealers and producers affect the producers in those States.

IV. PRACTICES OF COMMISSION MERCHANTS AND BROKERS.

It appears that in England the practice does exist of commission merchants selling tobacco through brokers, who act for themselves or for others, and who in such cases are paid a brokerage, which in any case would be charged by the commission merchant as one of the fixed charges against the shipper.

The evidence in support of this statement is taken from the printed record in the case of Halsey against Bird, found in the clerk's office of the circuit court of appeals of the United States at Richmond, Va.

It appears from this record that one Halsey shipped to one Bird, of England, a number of tierces of tobacco, for sale by Bird as a commission merchant.

A controversy arose between Bird and Halsey touching the sales of this tobacco and the management of Halsey's interest by Bird. The controversy culminated in a suit by Bird against Halsey, brought in the circuit court of the United States in the western district of Virginia, at Lynchburg.

A number of depositions of English brokers and other persons were taken in the progress of the controversy, Such portions of these depositions as throw any light upon the matter in hand are here inserted.

Mr. Frederick Victor Chalmers, of London, England, made the following statements in the course of his testimony: (Mr. Chalmers is a tobacco broker and merchant and importer in London.)

"Q. (By counsel for Halsey.) Did you act as broker for Bird & Co.?-A. Frequently.

Q. Did you look at these tobaccos (Halsey's tobaccos) for the purpose of dealing with them as the broker for Bird & Co.?-A. If opportunity occurred, we would act as brokers.

"Q. Did you deal with any of these tobaccos as brokers for Bird & Co.?-A. We have handled them as brokers many times.

"Q. When you acted as broker did not Bird & Co. pay you your brokerage?—

A. Bird always paid us brokerage when we acted for them as brokers.

66

"Q. Then it is customary for the commission merchant to charge the shipper with this brokerage, is it not?-A. I believe so.

did.'

Q. Did you sell any of it as a broker?-A. We made purchases.

Q. Did you sell any of it as a broker?-A. I believe we did.

Q. How about the X. C. L.?-A. We purchased it.

Did you purchase for yourself?—Â. As far as my memory goes, I believe I

The witness went on to say that he sold some of the Halsey tobacco in Bird's hands as a broker, and that he bought some of the tobacco on his own account. Mr. George A. Willis, another witness:

"Q. Were any of these tobaccos, the Halsey tobaccos, offered to you by Chalmers?-A. I can not tell; they may have been.

"Q. Were they ever offered directly by Bird & Co.?-A. Certainly."

The witness added that the tobaccos were offered sometimes to him by the brokers, and sometimes directly by Bird.

Mr. Chalmers was recalled:

"Q. (By counsel for Bird.) You have stated that in a number of instances you dealt with brokers that represented the banks with which these tobaccos were hypothecated. Did you receive brokerage from this tobacco in any such case as that?-A. No.

"Q. Do I understand that the broker or brokers representing the bank or the broker or brokers representing Walter Bird & Co. would receive brokerage out of the tobacco?-A. Brokers always receive a brokerage when selling for merchants, but it is never or hardly ever given when the brokers are dealing with brokers, because they have only one brokerage when dealing with the original broker, which in this case would be Walter Bird or the bank, so that if they gave him a brokerage in this case they would practically be working for nothing.

"Q. In one of your answers you said that you did not deal in these businesses direct with Walter Bird, but dealt with other brokers, either brokers representing him or representing the bank. Is it not true that you did yourself buy of Bird some of Halsey's tobacco, and that in those cases you were paid the usual brokerage?-A. When we purchased the tobaccos from Walter Bird we should be paid the usual brokerage. In all cases that we bought tobacco from Walter Bird we were paid the usual brokerage. We bought in October, 1893, some of Halsey's tobacco from Bird and were paid the usual brokerage.

"Q. Will you state the names of the parties who got the tobacco which you bought from Bird?—A. I cannot divulge that. That is the private business of my buyer."

James Chambers, another witness and a tobacco broker in London, England: "Q. Produce the paper memorandum, and say whether the prices attached are the prices which you received on the occasion of those sales.-A. These are the prices which we obtained from our buyers. Our principle as brokers, and simply brokers, is that we never make any alteration between the price to the seller and the price to the buyer.

"Q. Who paid you brokerage on the sales of the tobacco held by Bird for Halsey, as his commission merchant, and which Bird hypothecated with the bank? A. The National Provincial Bank."

Mr. Lamotte, another tobacco broker of London, stated that he had sold some of the Halsey tobacco in the hands of Bird to Messrs. Taddy & Co., for which a brokerage was paid by Bird.

The court in the above case also gave the following instruction, which was excepted to by counsel for Halsey: "It has appeared in evidence that a uniform charge of 10 shillings per hogshead or tierce upon all tobacco sent to and sold in the English market is always made against the shipper, whether the sale is effected directly by the commission merchant or through the intervention of brokers, and therefore the payment of such brokerage or its allowance to a broker who took the tobacco on his own account is not damage to Halsey, the consignor."

The foregoing matter is taken from the printed record in the above case on file in Richmond City, in the clerk's office of the circuit court of appeals of the United States. It is found on page 41 of the record, and between pages 99 and 155, to which reference can be made.

CONCLUSION.

It must be apparent from a perusal of this report, and consideration of the facts reported, that however prejudicial may be the régie system, prevailing in certain countries of Europe, and in Japan, to the interests of the producers in this country, it is no easy task to induce those countries to change their established policies. By long operation it has become a fixed portion of their fiscal systems, and a large source of their annual revenues for the support of government.

The following table will show the amount of revenue derived from the tobacco monopoly in Italy, France, and Austria. Turkey and Spain do not publish a statistical abstract, and there are no figures obtainable on the subject of the revenue derived from the tobacco monopoly in Japan, which is of recent institution. Revenue derived from tobacco,

When a country has once established a system so productive of revenue as this régie system, it is a gigantic task to induce it to abolish or modify it upon the representations of a foreign country that a change or abolition would promote the interests of the country asking the change or abolition. Some substantial reasons looking to the advantage of the country approached with such a proposition must be adduced.

In order to induce such a change in any one of the régie countries, with which the United States already does a large trade, we could hardly threaten it with retaliatory legislation. Whatever product, or collection of products, of the country threatened might be selected as the subject of this retaliatory legislation, existing commerce in these products in the United States would be so seriously deranged as to produce the most strenuous remonstrance from our home people. Changes in existing business, or established industries at home, dealing in the products of the country sought to be coerced into a change in its method of dealing with tobacco, open up too large a field of disturbance to make it likely that the United States will adopt this method of causing a change in this particular policy of the countries complained of. On the other hand, if we seek to induce these countries to abolish the régie system, and throw their markets open to the American dealers, we shall be at a loss to find inducements of so considerable a character as to make it to the interest of these countries to wipe out policies which have become ingrained in their fiscal systems, which work with all the precision and celerity arising from long experience and continual manipulation, and which afford so considerable and steady an income.

The following suggestions may not be unworthy of consideration as having presented themselves to me in the progress of the work which I have been conducting. It should be the policy of this Government to seek to keep those markets open which are now open, and to that end its representatives in foreign countries should be instructed to keep diligent watch upon the progress of legislation in their respective countries.

Whenever any legislation is contemplated which would be to the detriment of the American producers, our representatives should promptly notify the home government, and before the policy becomes fixed or the legislation is enacted, commercial inducements might be offered from this country sufficient to ward off the proposed inimical changes.

It is obviously an easier task, through commercial and reciprocal advantages, to induce the countries which have now open markets to maintain them open than to induce a country like France or Italy to abolish or seriously impair the efficiency of the system in vogue. It is not perceived that any legislation, retaliatory or otherwise, can advance the interests of the tobacco producers in the countries which new make tobacco a government monopoly. But continual watchfulness on the part of our legations, judicious diplomatic representations, and wise treaty arrangements will continue open markets in many countries in both hemispheres and enable our tobacco dealers in time to build up a trade in those markets which will compensate for the losses resulting from existing monopolistic arrangements in other countries.

Argentina and Paraguay furnish an instance in point of what may be done by a reciprocal arrangement. This report shows that in consequence of a favorable differential tariff rate on the part of Argentina in return for rates made to her on other articles Paraguay furnishes the bulk of the raw tobacco imported by the former country.

Our diplomatic agents must be alert to make like arrangements with the countries of the world now open markets. Especially should they be diligent to avert in any open market the change to the régie system. Whatever can be done for the tobacco producer in respect to the matters which are the subject of this 1eport is to be done chiefly by diplomatic representation and commercial treaties, and not by any form of retaliatory legislation.

It is not proper in this report to undertake to afford, in any given instance, suggestions for any particular line of reciprocity with any designated country. This may be safely left to the representatives of the people, who are peculiarly charged with their interests in this particular.

The facts reported in this communication have been carefully gathered. On January 17, 1899, a circular from the Department of State was sent to the legations of the United States in the various countries of the world. This circular related to such investigations as would elicit all the facts in relation to the restrictions put upon the sale of American tobacco in foreign countries. Many replies more or less full and complete were received in response to this circular letter, and from these replies as well as from other sources much valuable matter has been culled.

In some instances, notably in the Spanish-American countries, the local unit has not been given its equivalent value in American currency. This is because the reports say that these units fluctuate in value to such an extent that such reductions would be of no particular value, and therefore they do not give them. The tariff rates are according to the latest consular reports. The values of the importations of American tobacco in all its forms into foreign countries and the amount of these importations are for the fiscal year 1898, the figures for the year 1899 not being altogether so available.

As an evidence of the enormous profit in the tobacco monopoly in France and an illustration of the consequent difficulty of inducing that country to change its system upon representations proceeding from this country, the value of the tobacco imported by France in the year 1897 will be given, and the value derived by the government from the manipulation of that tobacco will be contrasted with it.

Value of entire imports of tobacco into France for the year 1897.. Revenue derived from the tobacco monopoly for the year 1896 (the revenue for the year 1897 not being given, but that for the year 1896 sufficing for the purpose of comparison)

Francs. 28, 105, 111

376, 665,000

As the revenue from the tobacco monopoly, according to the tables, averages about 370,000,000 francs in France for the years 1892, 1893, 1894, 1895, and 1896, it is easy to see that the revenue from this source for the year 1897 will be about the same. A business which upon an investment by the government of 28,105,111 francs yields 370,000,000 francs and upward will not be lightly abandoned.

The same conditions prevail in Turkey, Roumania, Austria, Italy, and Spain. Respectfully submitted.

ROCKY MOUNT, VA., January 12, 1900,

E. W. SAUNDERS.