PARAGRAPH 1-ACIDS.

GALLIC AND PYROGALLIC ACIDS.

STATEMENT OF WILLIAM A. WHITE, OF HARTFORD, REPRESENTING THE EASTERN CHEMICAL WORKS.

The CHAIRMAN. We will now hear Mr. William A. White, representing the Eastern Chemical Works.

Mr. WHITE. Mr. Chairman, we have made our brief filed before. the Finance Committee of the Senate a part of this brief, and I think, perhaps, I had better read from that first. [Reading:]

GALLIC AND PYROGALLIC ACIDS.

This company was organized in 1910, and after extensive experiments purchased land, erected buildings, and had special machinery constructed for the manufacture of pyrogallic and gallic acids, which are at present entirely imported from Germany. The prospects of success were based upon the assumption that an infant industry such as this, struggling against great odds, would be protected from ruinous competition from abroad. The foreign manufacturers of the above-mentioned products are unquestionably in a much better position, for they enjoy the advantages of enormous capital, long established works, sales organizations, extensive experience in the art and particularly cheap manual and professional labor. In order to succeed in the manufacture of these chemicals in the United States, it was necessary to work out entirely different processes in order to avoid manual labor as far as possible. After the expenditure of much time and money we are now so far advanced that the appearance of our product on the market is only a matter of a few months.

If, however, the proposed bill should be enacted into law, all our labor and money will be lost for the following reasons.

Pyrogallol was not specifically mentioned in the tariff act of August 5, 1909; it came in under the head of a "medicinal preparation not specially provided for" (Schedule A, 65) at 25 per cent ad valorem-we would call attention to the fact that it is a United States Pharmacopoeia article-later it came in under the head of "all other products or preparations of coal tar, not colors or dyes and not medicinal, not especially provided for" (Schedule A, 15) at 20 per cent ad valorem. And this in Ispite of the fact that it is a medicinal preparation mentioned in the United States Pharmacopoeia and is also used as a dye in dyeing furs.

Gallic acid enters under the specific duty of 8 cents per pound (Schedule A, 1). The proposed bill makes a specific duty of 4 cents per pound on gallic acid and of 6 cents per pound on pyrogallic acid. Gallic acid can not be made in this country under so small a protection, until the manufacturers have become well known to the trade and have had time to refine the processes so as to reduce the cost of production as much as possible. The reasons for this are that the raw material, nutgalls, must be imported at great risk to the buyer, as shipments are very irregular and at times impossible on account of the political conditions in the only countries where this crop is gathered, namely, China, Turkey, and Persia. This is shown by the imports of gall nuts during the last six months. Under normal conditions the crop is gathered so that the first shipments start about August and most of the crop follows during the fall and winter, but during the six months ending March 1, 1912, we can only get a record of a few small lots. Another very important "reason' is that the consumption of gallic acid is not great enough to warrant its manufacture in large quantities at one time, which means that the labor element constitutes a very large proportion of the cost of production; and it must also be mentioned that the manufacture requires skilled labor and a well-trained chemist.

It is a well-known fact that as soon as the manufacture of any kind of chemicals is taken up here, the foreign manufacturer reduces his price, and this is well illustrated in the case of hydroquinone, which is used in photography for same purpose as pyro. Here we are told that the only American producer has been forced to sell his product at so near cost as to leave scarcely any profit, and were it not for the loss in capital invested in machinery etc., would abandon the manufacture at once.

This gallic acid is the product of which pyrogallic acid is made, and theoretically 2 pounds of pyro will be produced from 3 pounds of gallic, but in actual practice the yield does not approximate any such amount on account of the unavoidable losses in operation. It will therefore be seen that in this case the duty on the prime material (gallic acid) is virtually higher than that on the finished product (pyrogallic acid);

PARAGRAPH 1-ACIDS.

for example, 3 pounds of gallic acid with the proposed duty of 4 cents per pound amount to 12 cents, while the duty on the pyro that can be obtained from 3 pounds of gallic acid would amount to only about 9 cents at proposed rate of 6 cents per pound. That was our brief before the Senate Finance Committee.

Mr. HARRISON. But the ad valorem equivalents are very much the same thing on the figures taken from the Treasury books, in one case 10.14, and in the other 9.60. Those are the only figures we can go by.

Mr. WHITE. Yes; but you are taking the figures of the proportionate tariff per pound or per dollar's worth, but gallic acid is practically a raw material for pyrogallic acid.

Mr. KITCHIN. How much is the product in the United States for 1912?

Mr. WHITE. How much was it?

Mr. KITCHIN. How much did it amount to, the American product? Mr. WHITE. I have no report for 1912, but I gave it in my previous evidence for 1907, 1908, 1909, 1910 and 1911. The Oil, Paint, and Drug Report gives it for 1907, 1908, 1909, 1910, and 1911. It was 38,000 pounds for 1907. This is merely in thousands.

Mr. KITCHIN. How much is that in dollars? How much would it be, about?

Mr. WHITE. For the fiscal year 1908-9 the average invoice price was $1.04. This is the price on which duty was computed. In 1908, it was 32,000 pounds, 23,000 pounds in 1909, 37,000 pounds in 1910, 22,000 pounds in 1911. [Reading:]

Since appearing before the Committee on Finance of the United States Senate, we have entered the market and we have found that the statements made in our brief submitted to that committee and hereto appended have been fully substantiated by the facts brought to light by our actual manufacturing experience. Especial attention should be called to the fact that we find the item for wages and salaries to all employees to constitute about 35 per cent of the present selling price. This item alone is well known to be at least twice as high as that borne by the German manufacturer and is the chief reason why we are compelled to ask for a continuance of the present rate of 25 per cent ad valorem for pyrogallic acid and of 8 cents per pound on gallic acid. The now existing rates are barely sufficient to equalize the difference in the item of wages and salaries above mentioned.

Another reason is that the revenue would decrease, for the amount of pyrogallic and gallic acids imported would not increase at all by any lowering of the duty, since at present the entire consumption of this country is imported from Germany, and consequently the revenue would be smaller in exactly the same proportion as the duty is lowered. The Germans and their agents here would be the only ones benefited by such a measure. The manufacture of these articles, which is a difficult one, would be ruined by their competitive practices and they would be given the monopoly which we are now trying to wrest from them. As they are not hindered, and, if anything, encouraged to form syndicates, which are unlawful in this country, they will dump their goods on our market until we are ruined and then reimburse themselves by fixing the prices so high after that end is once attained that the consumer will be much worse off than if through a slight protection competition had been kept alive. The practice here mentioned is proven by the statistics of importations. For instance, during the fiscal year 1908-9 the average invoice price of pyrogallic acid was $1.04. In 1909-10 the average invoice price of pyrogallic acid was $0.68. In 1910-11 the average invoice price of pyrogallic acid was $0.641.

That was owing to the tremendous competition between manufacturers in Germany who afterwards got together, and the price for the last quarter of 1911 and 1912 was 95 cents.

We have invested a large sum of money in experiments to adapt this difficult industry to the peculiar conditions existing here, and more money was spent in buying land and building and equipping a factory. The equipment is all of such a nature that it had to be designed and built specially for our particular needs, and if we are

PARAGRAPH 1-ACIDS.

ruined by any lowering of the present duties on the articles in which we are interested nearly all this could not be sold or utilized for any other purpose, but would be scrapped at a total loss.

For the reasons above set forth we would respectfully ask for a continuance of the present duty of 25 per cent ad valorem on pyrogallic acid and of 8 cents a pound on gallic acid, which, all things considered, are not too high and would not create a monopoly on this side. We shall then in this country be enabled to fight the German monopoly and to gradually build up an independent industry.

We may sum up the consequence of any lowering of the tariff on pyrogallic acid and gallic acid thus:

First. Smaller revenue for the United States Treasury.

Second. Higher prices to the consumer.

Third. Strengthening of the grip of the German monopoly.

Fourth. Ruin of a young industry which now promises to create competition and ultimately reduce the price to the consumer.

Mr. KITCHIN. How long do you think it would take, with this present tariff, for that industry to become an old industry-that is, not an infant industry-one that would not need this protection?

Mr. WHITE. It is somewhat difficult to say, but if we should be able to get hold of the market firmly in five years we should accomplish a great deal, I think.

Mr. KITCHIN. You would not need much protection, then?

Mr. WHITE. I do not think we would. I think as soon as we have become known to the trade and have a chance to refine our methods. so as to reduce the labor element as far as possible, we shall not object to a reasonable lowering of the tariff; but we shall always have the element of low wages paid to foreign labor to contend with. In Germany, in a continuous process, the laborers work 12 hours a day. They have two shifts which work the entire 24 hours. Our laborers work 9 hours. If we put on continuous process we must have three shifts of 8 hours. We could not get laborers to work 12 hours here. Not only that, but we pay our laborers $12 to $15 a week. Over there they pay not over half of that.

Mr. HILL. Gallic acid is made from nutgalls, which are on the free list?

Mr. WHITE. Yes, sir.

Mr. HILL. Pyrogallic acid is made from gallic acid?

Mr. WHITE. Yes, sir.

Mr. HILL. This bill of last session cuts the duties on both of them about 60 per cent, from 25 to 10. The question I want to ask is, Can you continue to manufacture the gallic and pyrogallic acid if nutgalls remain on the free list, as they are now, with a reduction of 60 per cent of the present duty without cutting your wages?

Mr. WHITE. We can not do it under any conditions.

Mr. HILL. Then, you can not continue the manufacture at all? Mr. WHITE. No, sir.

Mr. HARRISON. What is the process of making pyrogallic acid out of gallic acid?

Mr. WHITE. It is a secret process. I can tell you in a general way. Mr. HARRISON. Is it an expensive process? Is it a high grade of manufacture?

Mr. WHITE. It is not a high grade of manufacturing, as classed with watchmaking, perhaps, or something of that character, but it requires a class of labor that we pay from two to two and a half dollars a day.

78959°-VOL 1-13- -3

PARAGRAPH 1-ACIDS.

Mr. HARRISON. You make it out of gallic acid?

Mr. WHITE. Yes. We are now trying to make our own gallic acid. We expect to make our own gallic acid. We have large quantities of nutgalls now on the way from China, and while we have not yet made our gallic acid so as to be able to compete with the gallic acid we can buy abroad, we fully expect to do it, and we can say it is an assured thing.

Mr. KITCHIN. About how much of this acid is consumed in the United States?

Mr. WHITE. I do not know.

Mr. KITCHIN. We imported only about $9,000 worth of it last year, and I believe your figures there gave a production of about $22,000, so that would indicate we did not consume over $32,000 all over the United States.

Mr. WHITE. The Treasury figures, or the import figures, are very misleading.

Mr. KITCHIN. There must have been some smuggling going on. Mr. WHITE. Oh, no, sir. I beg your pardon. The acid comes in under "Other articles not specifically mentioned."

Mr. KITCHIN. No, it comes in under "gallic acid."

Mr. WHITE. Pyrogallic acid, too.

Mr. KITCHIN. What I wanted to get at is this: Is it a big industry? Do we make as much as $1,000,000 worth in the United States? Is there much of it consumed?

Mr. WHITE. No, sir. At present it is impossible to ascertain the exact amount of pyrogallic acid imported. It is well known to the trade that the actual amount imported is much larger than the Treasury reports show. We have been told by Mr. O. P. Austin, of the Bureau of Statistics, that this is on account of pyrogallic acid not being specially mentioned in the tariff act of August 5, 1909. It is optional with the importer to enter it as pyrogallic acid or as "an acid not specially provided for." (Schedule A, par. 1.) Reliable estimates place the actual importation at between 100,000 and 150,000 pounds annually.

The CHAIRMAN. You have passed over your time considerably. Is that all you desire to say?

Mr. WHITE. That is all.

Mr. LONGWORTH. Is your labor any more efficient than similar labor in Europe?

Mr. WHITE. No, sir; I do not believe it is.

Mr. RAINEY. Does Germany get her supply of nutgalls from China also?

Mr. WHITE. Yes, sir.

Mr. RAINEY. The world's supply comes from China?

Mr. WHITE. Practically. Some comes from Persia and some from Turkey, but practically all from China.

PARAGRAPH 1-ACIDS.

BRIEF OF BAKER & ADAMSON CHEMICAL CO., EASTON, PA.

Hon. OSCAR W. UNDERWOOD,

EASTON, PA., January 27, 1913.

Chairman, Ways and Means Committee,

House of Representatives, Washington, D. C.

SIR: So far as this company's interests are concerned the changes proposed in the Underwood bill (H. R. 20182) would be injurious only in respect to the following reductions in the duties on five photographic chemicals, all of which are coal-tar products, except pyrogallic acid:

1. Mono-methyl-para-amido-phenol (known as "metol"): Present duty, 20 per cent (par. 15); proposed duty, 15 per cent (H. R. 20182, par. 22).

2. Diphenyl oxide: Present duty, 20 per cent (par. 15); proposed duty, 15 per cent (II. R. 20182, par. 22).

3. Cinnamic acid: Present duty, 25 per cent (par. 1); proposed duty, 15 per cent (H. R. 20182, par. 1).

4. Pyrogallic acid: Present duty, 25 per cent (par. 1); proposed duty, 6 cents per pound (H. R. 20182, par. 1).

5. Hydroquinone (hydrochinon): Present duty, 25 per cent (par. 65) or 20 per cent (par. 15); proposed duty, 15 per cent (H. R. 20182, par. 22).

Since our domestic trade in these articles is controlled by Europe, and since European exportations to the United States are sold at prices having no relation to the rate of duty, we think it certain that a moderate increase in the rate of duty would not tend to increase domestic prices.

We, therefore, suggest an advance of duty to 30 or 35 per cent ad valorem generally on all coal-tar chemicals covered by paragraph 22 of the bill under consideration, and on cinnamic acid and pyrogallic acid belonging to paragraph 1.

Practically the entire domestic consumption of fine chemicals, especially coal-tar products such as the five above specified, is and always has been imported from Europe, where the production and sale are controlled by "convention" embracing substantially all the manufacturers. As a consequence, exportations to the United States are sold at prices generally very much in excess of cost, since very few of the articles are manufactured in this country. On the other hand, the European prices to the United States for those few articles which domestic manufacturers have lately attempted to produce and sell in competition with the foreign "convention are frequently, if not generally, below cost in accordance with the avowed and determined policy of European manufacturers to stamp out all attempted American competition in this entire field.

This is the case with the five articles above specified. Until 1910 none of them was manufactured in this country. Since that time we have manufactured and sold each of them in quantities which are relatively small as compared with the European exportations to this country. The following table of domestic prices for these articles in 1910 and 1913 illustrates both the excessive European prices for fine chemicals when not produced in this country and the European cutthroat prices for those few which domestic manufacturers attempt to