Papers Relating to the Foreign Relations of the United States, Transmitted to Congress, With the Annual Message of the President, December 3, 1888, Part I
No. 536.
Mr. Phelps
to Mr. Bayard.
London, September 14, 1888. (Received September 24.)
Sir: I have the honor to transmit herewith a report by Mr. White, first secretary of this legation, upon the third session of the international sugar bounties conference, with the documents therein referred to.
This report will, I think, be found both accurate and full, and I can add nothing to what it contains.
I have, etc.,
Mr. White to Mr. Bayard.
London, September 10, 1888.
Sir: I have the honor to acquaint you that the third session of the international conference on the sugar bounties question was held in London towards the end of [Page 746] last month, and that its labors were brought to a conclusion by the signature on the 30th ultimo of a convention for the abolition of bounties “on the manufacture or exportation of sugar” by the plenipotentiaries of Great Britain, Germany, Austria-Hungary, Belgium, Spain, Italy, the Netherlands, and Russia.
I inclose herewith copies of a supplement to the London Gazette of the 6th instant,* containing translations into English of—
- (a)
- The proceedings of the second session of the conference, the originals of which, in French, were forwarded to you in my dispatches numbered 726, 747, 752, 754, and 760.
- (b)
- The communications received by Her Majesty’s Government with respect to the draught convention annexed to the protocol of May 12, 1888, from the United States, Germany, Belgium, Brazil, Denmark, Spain, Austria-Hungary, France, Italy, the Netherlands, Russia, and Sweden.
- (c)
- The procès-verbal of the twenty-third, twenty-fourth, twenty-fifth, and twenty-sixth meetings of the conference. (The original, in French, is also transmitted.)
- (d)
- The convention.
- (e)
- A declaration annexed thereto, providing for the creation of a special commission (as distinct from the permanent commission created by Article VI of the convention) to examine and report upon the existing or proposed legislation in the different countries for bringing the convention into force.
- (f)
- A protocol, also annexed to the convention, embodying “declarations” by Brazil, Denmark, France, and Sweden, who declined to sign it; by Austria-Hungary; and by the British plenipotentiaries in behalf of Egypt, whose adhesion to the convention was thereby given, together with a statement made by one of the Belgian plenipotentiaries, in behalf of his Government, at the twenty-sixth meeting of the conference, which it was agreed should have the same effect as the “declarations “embodied in the protocol.
The chief differences to be noted between the convention as finally signed and the draught convention of last May are—
- First. The disappearance of Article IV of the latter document, which I ventured to predict in my report of the first session of the conference would occur, and the insertion in its place of a new article whereby Great Britain and her colonies are bound neither to impose differential duties on foreign sugar nor discriminating duties on beet sugar imported from countries taking part in the convention.
- Second. Verbal alterations in Article VI, and the addition of an important paragraph, at the instance of the French ambassador, to Article VII.
- Third. The date at which the convention shall be put in force is postponed to September 1, 1891.
It will be seen from the documents herewith transmitted that Denmark is unable to sign the convention, owing to a belief that Article VII (the “penal clause” referred to at length in my reports of the first and second sessions of the conference) conflicts with the most-favored-nation clause in several of her treaties; that France is unwilling to commit herself to the abolition of bounties until all the sugar-producing countries of the world have agreed to do likewise; that Austria-Hungary only signed the convention on the understanding that if all the European sugar-producing countries have not become parties thereto before September 1, 1891, she shall have the right of deciding whether or not, she will then put it into force; that Brazil adheres in principle, and reserves the right to join the convention after its adoption by the signatory powers; and that Sweden maintains an attitude of reserve.
It will be observed that under Article VI any country which levies no duty on sugar or which gives no drawback may become a party to the convention without being compelled to adopt the system of manufacturing and refining in bond provided for by Articles II and III; and that the permanent commission created by Article VI, to see that the terms of the convention are carried out, is to “collect, translate, arrange, and publish information of all kinds respecting legislation on and statistics of sugar, not only in contracting countries, but in all other countries as well.” Among the latter it is quite certain that the United States will come in for an important share of the commission’s attention.
I inclose herewith leading articles from the Times, Daily News, Standard, and Daily Telegraph newspapers* with reference to the convention; and letters on the same subject from Mr. Webster, member of Parliament for one of the St. Pancras divisions of London; from Sir Thomas Farrer, late permanent secretary to the board of trade; from Mr. Martineau, and from Mr. Neville Lubbock (whose letter to me on the sugar-bounties question was transmitted to yon in my dispatch No. 757). These articles and letters set forth the views of those who are in favor of and of those who are opposed to the abolition of sugar bounties in this country.
Mr. Webster claims that we are still giving a bounty of 50 shillings per ton in the [Page 747] United States; and in this connection I venture to refer to my dispatch No. 785 of June 20 last.
It is provided by Article VII of the convention that “the fact of the existence in any country” of a system of open or disguised bounties on sugar shall be established by the decision of a majority of the signatory powers; and I feel convinced from what I observed at the two sessions of the conference which I attended that if any such vote were taken at the present moment it would be to the effect that a disguised bounty exists in the United States. Moreover, I doubt very much whether, so long as our system is maintained of charging duty on the raw material and of giving a drawback on the exportation of the manufactured article, it would be possible to obtain a majority of the Governments represented at the conference to vote otherwise, even if our rate of drawback were still further reduced; as most of them believe it to be impossible to fix any rate of drawback which would be the exact equivalent of the duty levied on the raw material. The reasons for this are stated in my report upon the first session of the conference.
The proceedings of the two last sessions having been made public, my dispatches Nos. 722, 726, 729, 747, 752, 754, 760, and 785 need no longer be considered as confidential.
In the translation herewith forwarded, I am reported, by a clerical error, to have referred, at the ninth meeting of the conference, to a report of the Secretary of the Treasury upon the national “defenses.” It should be, and is in the French original and in the translation of what I said on that occasion, inclosed in my dispatch No. 722, “finances.” It will also be found upon reference to the procès-verbal in French, of the same meeting (forwarded in my dispatch No. 726), that I did not say that our rate of drawback had been reduced in consequence of “representations made by this legation,” as stated in the translation, but “after” such representations had been made.
I have, etc.,
Mr. Webster to the editor of the Times.
Sir: No one can doubt that before long a great deal of attention will be given to the result of the conference now being held respecting sugar bounties, and that the vast majority of those who have carefully considered this question sincerely trust that the result of this conference may be the termination of the present pernicious system, which it appears evident all foreign governments themselves are almost ashamed of as a system at once rotten in itself and a large drain on the national exchequers.
In the first instance no doubt they did not know they were giving bounties to their sugar refiners, and at the present time, although the United States Government is giving a bounty equal to about 50 shillings a ton, the fact of such being the case is not openly avowed. The reason that they profess not to be giving bounties is the manner in which they levy the duties. Our competitors in the industrial markets of the world, as most of us are aware, put a tax upon sugar, and at the same time they say to the sugar refiners and sugar growers, if you send any sugar out of the country we shall give you the tax back again and call it a drawback. The original idea was, if you pay £4 or £6 per ton duty upon the sugar you produce, we will give you back an equivalent sum if you sell this article to foreign consumers.
In precisely the same way our own malt tax used to be levied, the tax upon British beer being then levied not on the beer but on the malt, and the drawback the British farmers used to receive for feeding cattle was equal to the amount of the tax.
Precisely the same thing is done in France, Germany, Belgium, and Holland in regard to sugar. Instead of taxing the sugar they tax the roots from which the sugar is made, and they, when the sugar is exported, pay a drawback upon the actual sugar. In fixing the quantity of sugar which it is arbitrarily considered can be extracted from the beet-root care is taken by the sugar refiners that the estimated yield is calculated on as small a basis as possible, and in Germany the quantity is 8 tons in 100 tons of beet-root. The refiner on purchasing the beet-root pays the duty on this estimate on every 100 tons. But as a matter of fact, owing to improved modes of cultivation and improved machinery, the actual yield, instead of being only 8£ tons in 100 tons of beet, is often 12 tons and even, it is said, higher. Therefore, as the tax on the domestic sugar is £6 a ton, the grower will pay for 100 tons of beet £51 of taxes, and when he exports it will receive from the Government £75 back, by which means he gains as nearly as may be £24; in reality about £2 per ton upon every ton of sugar exported.
Now, the argument may be adduced by some: If you are getting sugar £2 cheaper per ton—that is, for £18 instead of £20 per ton—is not that a great gain to the country, [Page 748] and ought we not, therefore, to encourage this system instead of seeking to abolish it? To that I would reply, what is good in one occupation is good in all, and that, as the majority of the inhabitants of these islands are engaged in industrial occupations, if all the various industries in this country were subject to this bounty system, what would be the good of cheap sugar or any other commodity if you had not the money to buy it with? Now, let us carefully consider why the foreigner pursues this aggressive protective system within our snores. Does he do it for philanthropic motives; to give us sugar more cheaply? Not a bit of it. The object in the first instance is to cripple the industry, and, if possible, to destroy it within our borders.
Take for instance the possibility that these bounties are kept on for twenty years. The chances are that by that time our colonial and British sugar trade would cease to exist. Some might say if they were taken off you would have a chance of getting the trade back. To any one who understands what the loss of a connection means this argument is without force. There are many firms in this country making large profits on the reputation acquired by their predecessors. If the foreigner gets the business completely in his hands he will take the bounty off and the price of sugar will rise enormously.
At present it is only calculated to give us sugar at one-fourth pence per pound cheaper. If, indeed, it does that, and if a free-trade market was established in this country for the sale of sugar, and not a protected one in favor of the produce of the foreigner and against the British colonial producer, the British manufacturer, and workingman, competition would soon keep the price of sugar at its present level; but the produce would come from British colonies and give from that fact tenfold the employment to British industries than is the case by our purchasing this artificially bolstered-up industry from the beet-root sugar-producing countries.
We are told that the French alone are throwing difficulties in the removal of these duties. Whether that is so or not the papers which will in due course be presented to Parliament will alone show. The English market I find is rather an important factor in French external commerce, and France can not afford to trifle with us if we are really in earnest in determining to abolish by the best practical means at our command this insidious system of veiled bribes, which has already partially destroyed an important industry in the British Empire. France on an average of years exports £32,000,000 of her products to the United Kingdom; we send to France annually of our goods less than half that annual value, or about £15,000,000. Of the goods of Germany, Holland, and Belgium, we purchase £63,000,000, and sell to them somewhere about £30,000,000. But, taking France alone, our imports of manufactured goods and goods partly manufactured, leaving out breadstuffs and other alimentary substances, are about £23,000,000 per annum; while our exports to France are about £13,000,000. These facts give me scope for imagining, if we are only firm, that the French nation will see the desirability of at some time taking off their own shoulders the heavy impost they now have in the payment of these sugar bounties, and not needlessly causing irritation in the minds of a nation whose commercial dealings with them are of such magnitude, and whose statesmen unanimously condemn the present system of bounties; and not only is the feeling against this secret protective system strongly felt by ministers and ex-ministers of the Crown, but also by the great bulk of the working classes of the country.
Now, sir, what do the working classes of this country say would be the best remedy to prevent the continuance of this system. Some say, let them continue their bounties if they are foolish enough to do so, and pay annually away (mainly to their manufacturers) £7,000,000 or £8,000,000 a year. We will stand at the port of entry of this commodity into this country and simply demand an equivalent in the shape of a countervailing duty, equivalent to the actual bounty received, and give this sum in aid of the taxation in the United Kingdom. Others, again, say the best way to deal with the bounty-protected commodities sent to our shores which destroy the principles of free trade, that is, equality of competition, is to keep them out. To put it in the wards of one of the delegates at an important conference recently held of the London Trades’ Council at the Westminster Palace Hotel, who thus put it: “We will say to France, we do not want your sugar; keep it. But we will not trench upon your free-trade principles and practices, whether you or others do so. We have the right and power to prevent your bounty-fed goods from coming into Great Britain, and that power we will use in self-defense.” This, he said, was the way out of the difficulty, and while he sympathized with the idea that we should not do anything to harass any other nations, it seemed to him the only possible alternative, and on this line a unanimously carried addendum to a resolution on the subject was proposed by Mr. Shipton, as follows: “That, without attempting to prejudge the opinion of any organization, this conference believes the policy of total prohibition of bounty-fed, products to be the most acceptable remedy to bring about the abolition of foreign state bounties.”
That this question has been for a long time rankling in the minds of many of those who have given their attention to it as a burning injustice to British industry I think [Page 749] few can dispute. It is not my intention to here dwell at length on the great loss it is to many industries besides the industry immediately concerned, such as the shipping, the engineering, the colliery interest, the sack-making, etc., and which have indirectly been to some extent the sufferers by this pernicious system. Nor do I here propose to deal at any length with the vast displacement of capital which has resulted by our allowing the great cane-producing industries in our colonies to be unfairly attacked, and practically in many instances completely abolished by means of these bounties paid by foreign governments in British markets. These facts are known too well. It seems to me time the question was grappled with in earnest, and I believe, and believe with confidence, that it is now in the hands of ministers of the Crown who are determined to spare no effort to solve the question satisfactorily, who will not enter into the subject brimful of antediluvian theories of political economy, but who will not shrink from their determination to give equality of competition to British labor and fair play to this or any other industry which is attacked in an insidious and underhand manner.
I am, sir, etc.,
Blackford, Perthshire, N. B.
Sir Thomas Farrer to the editor of the Times.
Sir: The result of Baron de Worms’ labors is before us. The mountain has brought forth!
All the nations who joined in the conference pronounce sugar bounties to be bad things, except the United States, who maintain a cautious silence. England, Germany, Belgium, Spain, Italy, and Russia promise one another that they will boycott bounty-fed sugar, wherever it comes from.
The United States hold aloof altogether; Austria reserves her final adherence until all European sugar-producing and consuming countries also adhere; Brazil reserves her freedom; Denmark refuses to boycott because it would be a breach of treaties; France reserves her adherence until all sugar-producing and consuming countries adhere, and until she is satisfied with their laws; Sweden refuses to bind herself in any way.
France, Austria, and Brazil are great sugar-producing countries. Except ourselves, the United States are the largest consumers of sugar in the world, and they are also large producers.
Consequently, the effect of our boycotting bounty-fed sugar will not be to prevent its being made or sold, but only to prevent our own people from getting the benefit of it. France, Austria, Brazil, the United States, or other sugar-producing countries, may continue to give bounties, and the only effect or tendency of the convention will be to make it dearer here than it is now, and cheaper in non-boycotting countries. Any countries which still choose to give bounties will find markets in the United States and elsewhere.
The convention is to be worked as follows: The countries which are really parties to it are, besides ourselves, Germany, Holland, Belgium, Russia, Spain, and Italy, of which Germany, Holland, Belgium, and Russia are large sugar-producers. Egypt may be left out of the question.
These six nations, with ourselves, are to constitute a commission, which is to sit in London. This commission is to report what sugar in any country is bounty-fed, and, if bounty-fed, to what extent. This is one of the most perplexing technical questions which financial necessities have ever inflicted upon legislators—a question which all the cleverest experts of the ablest governments have hitherto been unable to solve. Upon reports thus obtained a majority of the signatories to the convention is to decide, and their decision is to rule the action of the Governments parties to the convention, and to bind those Governments to boycott sugar, from whatever country or colony it may come, which is that determined to be bounty-fed. In other words, Germany, Holland, Belgium, Russia, Spain, and Italy, or any four of them, being themselves competitors in our markets for the sale of their own sugars, are to determine whether we shall buy sugar from the United States and Sweden, who will certainly not be parties to the convention, or from France, Denmark, Austria, and Brazil, who at present reserve their adherence and may probably not be parties to it, or from any other sugar-producing countries. Germany, Holland, Belgium, and Russia get from us a promise that we will boycott any sugar from other countries which they or a majority of the parties to the convention for the time being pronounce to be bounty-fed, the only consideration which they give us for this mischievous and embarrassing obligation being a promise on their part that they will not themselves send us cheap bounty-fed sugar or receive it themselves.
Further, the parties to the convention undertake that the most-favored-nation [Page 750] clause, which is, of course, an obstacle to boycotting, “shall not be pleaded with a view to evading the consequences of the stipulation for the exclusion of bounty-fed sugar.” This is all very well as regards the signatories to the convention; but as regards other countries we are not parties to it, it has no effect at all, and since we have most-favored-nation treaties with many of such countries, we shall expose ourselves to just complaint and retaliation on their part if we boycott their sugars at the instance of competing nations who are parties to the convention. According to a return made in 1879, we have most-favored-nation treaties with the Argentine Republic, Austria, Chili, China, Denmark, Portugal, Sweden, Turkey, and the United States, not to mention less important countries.
Further, there are in the convention stipulations binding our colonies to adhere to it, but providing for their withdrawal. The operation of these clauses is obscure, and may not be unimportant if, as I believe to be the case, some of them do now give bounties. It would be a curious operation of the convention if we were forced by it to boycott our own colonies. But, however this may be, one thing is quite clear, viz, that we promise, both for ourselves and for all our colonies, that we and they will not, under any circumstances, show any favor to the sugars of our West Indian and other colonies or possessions over that shown to the beet sugars of their rivals in Europe.
I might go further and show how the convention will operate in throwing upon us and upon the other Governments parties to the convention the obligation, not only of examining and supervising the management of all sugar factories and refineries in countries parties to the convention, but also of forming a judgment on the operations of manufacture in countries not parties to the convention. But it is scarcely necessary to go further. It is obvious that the stipulations noticed above will entangle us in a web of complicated and embarrassing commercial and financial restrictions. They will not put an end to bounties; but they will tend to make sugar cheaper to non-boycotting nations and dearer to ourselves; they will involve us in vexatious prohibitory legislation; and will probably also involve us in breaches of valuable commercial treaties.
These observations on the details of the convention leave almost untouched the larger question, whether under any circumstances it can be right for this country to retaliate upon foreign bounties for the purpose of putting an end to them. Foreign bounties are very bad things, but foreign protective duties are worse. We do not retaliate upon foreign protective duties, which have no compensatory advantages for us, because it is not our interest to do so. And a fortiori, it is not to our interest to retaliate upon bounties the compensatory advantages of which to us are very great, and probably, in the case of sugar, preponderate over the disadvantages.
Putting aside for the moment this larger question, on which there is a great deal to be said, it is obvious that this convention, while it may help some other countries to improve their own foolish systems of taxation, must embarrass and injure us. It restricts our freedom, it is the first great departure from the wise policy of the last fifty years, and it throws doubt on our advocacy of the principle of free imports. It does not put an end to bounty-fed sugar, but it diverts the stream from countries which are foolish enough to boycott it to countries which are wise enough to receive it, and thus tends to make sugar cheaper to our neighbors and rivals and dearer to ourselves.
It is well that the ratification of such a convention should be delayed for two years. Much may happen in that time. If this and no more than this is the result of Baron de Worms’ much betrumpeted exertions, we may conclude that their real object is rather to produce an effect on certain constituencies than to form a ground for practical legislation. But, even if no further harm ensues, we may be permitted to regret the somewhat undignified spectacle of an English minister making the round of Europe, cap in hand, teaching foreign finance ministers their business, advising them not to tax their own people for our benefit, and humbly beseeching them not to make us a present of cheap sugar. What wonder if they make such a minister their cat’s-paw.
Bounties, like protective duties, are bad things; but this is not the way to get rid of them.
Mr. Lubbock to the editor of the Times.
Sir: The letter in your columns of yesterday on the subject of the sugar bounties convention from Sir T. H. Farrer will be read with the attention to which anything coming from the pen of the late permanent chief of the board of trade is naturally entitled. That the convention should be as gall and wormwood to him will cause no surprise those who have for years past watched the intense—I have almost said the acrimonious—zeal which he has displayed in preventing anything whatever being done to bring about a cessation of bounties.
[Page 751]Sir Thomas Farrer says: “Bounties, like protective duties, are bad things; but this is not the way to get rid of them.” Perhaps he then would explain how he would get rid of them. The doctrine was preached many years ago that foreign Governments, if left alone, would abolish bounties themselves. This has been tested for twenty-five years, with the result that the policy of giving bounties, so far from being abandoned, has been largely extended. Your correspondent taunts the Government with going cap in hand to foreign powers, but this has been rendered necessary by the commercial policy of this country for the last half century. Would he have wished the Government to follow the example of Spain, who, when she wished us to reduce the duties on her wines, did not come to us cap in hand, but imposed 30 per cent, extra duty on English goods going into Spain? Although this measure was successful, it was one which Sir Thomas Farrer would hardly wish to see imitated by our Government.
Your correspondent speaks more than once of cheap bounty-fed sugar in such a way as to lead any one who was excessively ignorant into the belief that bounty-fed sugar is cheaper than non-bounty-fed sugar. I need hardly say that this is not, and never can be, the case, either with or without the convention. Sugar, bounty-fed, or otherwise, will sell at the same price in the same market relatively to its value at all times.
Sir Thomas Farrer fears that we may possibly under the convention be prevented from buying sugar from the United States and Sweden. The United States produce less than 200,000 tons, and consume more than 1,200,000 tons, so that they are not likely to have any surplus sugar to send us for some time to come. Sweden may or may not export sugar, but if she does the quantity is so small that it finds no place in any published returns available to those interested in the sugar industry. He also throws out some doubts respecting France, Austria, Brazil, and Denmark. But the quantities of sugar we received from France and Austria are comparatively small, while from Denmark we receive none at all. But as regards Austria and Brazil, there can hardly be a doubt as to their adhesion to the convention, and I believe it will be found that France will also come in. But even if these powers remain outside, the total amount of sugar available for export from France and Austria is hardly one-twentieth of the world’s supply, and the effect of excluding their sugar would consequently be absolutely inappreciable upon the price. Moreover it must be borne in mind that it is only sugar receiving a bounty that will be boycotted. Brazil does not give a bounty, so that her sugar would in no case be shut out, and as for France and Austria, these powers are solemnly committed by their declarations in the protocol to the policy of suppressing bounties.
Further, a complaint is made that the process of ascertaining whether sugar is bounty-fed or not is one of the most perplexing technical questions which financial necessities have ever inflicted upon legislators, a question which all the cleverest experts of the ablest governments have hitherto been unable to solve. But this is a complete mistake. It is quite true that some of the authorities of the board of trade, while Sir T. Farrer was its chief, professed to find great difficulty in ascertaining whether bounties were granted or not in certain countries, but no such difficulty has been found by foreign officials, and the countries giving bounties are perfectly well known not only to them but to all concerned in the industry. I should be sorry to think that the officials of our own board of trade, under their late chief, were lacking in intelligence as compared with foreign officials; but if Sir T. Farrer, when alluding to “the cleverest experts of the ablest governments,” meant to refer to his own department, there is, I fear, no other conclusion to be arrived at.
Further, some alarm is expressed at the possible effect the convention may have in preventing our colonies from giving bounties, and that we may have to boycott their sugar. It is really quite amusing to see Sir Thomas Farrer posing as the friend of our colonial sugar industries, and professing alarm on their account, but I am happy to be able to reassure him. The colonies are included in the convention, and all their sugar industries are fully represented upon the British and Colonial Anti-Bounty Association, of which I am the chairman, and I am in a position to say that there is not the slightest fear of our having to boycott any colonial sugar whatever.
It is not for me to say whether Sir T. Farrer’s allusions to Baron Henry de Worms are in good taste; but I do know that those who are practically acquainted with the subject are best able to appreciate the great ability shown by the baron in overcoming the difficulties he has had to contend against—difficulties which Sir T. Farrer, in spite of his condemnation of bounties, has certainly not assisted to remove. I believe the services rendered by Baron de Worms will be more generously appreciated by an unprejudiced public, as I know they are by our sugar-growing colonies and the home industries connected with sugar.
I am, etc.,
Chairman of the British and Colonial Anti-Bounty Association.