H F r-NRLF THE GOLDEN GATE Report to the United States Tariff Commission by the Committee on Free Port appointed by the San Francisco Chamber of Commerce 1918 SAN FRANCISCO CHAMBER OF COMMERCE % COMMITTEE ON FREE PORT U^ 1OO4 MERCHANTS EXCHANGE BUILDING ^ ^, SAN FRANCISCO February 28, 1918 Honorable William Kent, United States Tariff Commission, Washington, D. C. Dear Sir: The committee appointed by the San Francisco Chamber of Commerce to take up the question of the advisability of recommending to Congress the establishment of Free Ports, or Zones, has completed its labors and respectfully encloses a complete copy of its findings and recommendations which it is trusted may be found of value. Thanking you for the opportunity thus given, Yours respectfully, GEO. A. NEWHALL, R Chairman iiiiiiiiiiuiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiuiiiiiiiiiiiiiiiiiiiiiiiiiniiiiii^ L\ c. id- jg FOREWORD A New The question of establishing "FREE PORTS" in the Policy United States as a new national policy has been raised in Congress, and to Hon. William Kent, a member of the United States Tariff Commission, has been assigned the duty of collecting and preparing data on the subject for trans- mission to Congress. The consideration of tine matter before the San Francisco Chamber of Commerce was inaugurated by Mr. Kent at a meeting held October 23, 1917, which was attended by repre- sentatives of the mercantile and shipping interests around San Francisco Bay, and this report is the result of the investiga- tion that ensued. Meaning of A brief explanation of the nature and purposes of Free Port what is meant by a "FREE PORT" may be of service in comprehending the following argument in favor of its institution. Common. Free ports, or free zones in portions of harbors, Elsewhere have long been known in Europe and Asia, but the subject is much misconceived in the United States because of the ambiguity of the word "free". Freedom from It does not mean freedom from harbor or Customs Control port charges, such as tolls or wharfage on cargoes, dockage on ships, pilotage, towage, etc. Nor does it involve any change in tariff policy. Briefly, it means freedom from customs control. Physical A reasonably large part of a port is segre- Arrangements gated for the conduct primarily of foreign commerce, and in order to guard against intrusion by unauthorized persons and for the better enforce- ment of laws and regulations it is enclosed by substantial bar- riers on both land and water sides. This constitutes the "free zone", and from it all customs-house activities, except precau- tions against smuggling, are excluded. How It Here the imported merchandise is landed, and when Works the imports pass through the land or water gates of the enclosure into the country elsewhere, then at that time and at the gate, theoretically, the duties incident to the illlllllllllllllllllllillllllllllllllHIIIItllllllllllllllllllllllllW^ 374419 lllllliilHillll!lllllhll!;illll,'llllllli>lt1llll!IIMIim^ collection of the tariff dues begin and all the complicated rules and regulations of the customs service first go into operation. If the imports are not taken for domestic consumption, they may be re-exported, whether in the original packages or other- wise, without payment of tariff dues or interference by customs officials. The same is true of foreign raw materials landed and worked up into manufactures inside the free port, and designed for re-export. Handling and While the imports are in the free zone Freighting Without they may be stored in non-bonded ware- Molestation houses or handled ad libitum by the parties interested with absolute freedom, and may be prepared for shipment either into the country or for trans- shipment or re-export to foreign countries and started on their way, without the onerous impediments now caused by customs- house supervision, red-tape and penalties. It is merely a new system of customs collection and super- vision. The customs-house, so to speak, is removed from the ship and wharf, where it now holds sway, and is set up at the gates of the free zone. Tariff Policy The proposed change does not in any way affect Not Affected the nature or size of the tariff dues, simply the method and manner of their collection and the places where the customs activities shall be exercised. The aim is to put them outside the free zone entirely. Ample in Of course, the enclosed area of water and land in- Size and side the free zone must be sufficiently large to Facilities accommodate the foreign commerce of the port, and it should be provided with all the necessary wharves, non-bonded warehouses, railways, spur-tracks, and devices required for the rapid and economical handling of cargoes. This report was prepared on behalf of the San Francisco Bay conference alluded to by Mr. J. J. Dwyer, former President of the Board of State Harbor Commissioners in charge of the Port of San Francisco. ^tllllfllllllllllllllllllllllllUIIIIIIIIIIIIIHIIIIIIIIIIHIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIinillllllllHIIIIIIIIIIIIHIIIIIIIIIIIIIIIIIIIH FREE PORTS AS A NATIONAL POLICY We have reached the conclusion without a dissenting voice that a national policy of "Free Ports" should be inaugurated by the Federal Government, for the reason that such a policy would directly tend Free ports in a marked degree, well worth the cost advocated of the necessary changes in the present system, to increase profitable foreign trade and build up a merchant marine, whether the latter is to remain privately owned and operated, or be more or less governmentally owned or controlled or operated. In giving our reasons in detail, we shall try to avoid anything like an essay on the theory of the subject, or an attempt at a summary of the practice and expe- rience of foreign free ports, which would be only a useless repetition of matters better stated in other compilations and reports. Of such reports No essay of American origin, we refer particularly attempted to those emanating from the Merchants Association of New York, which we have found most illuminating, and have studied, with hope, with profit. We may say, briefly, that the New York conclusions seem to us well-founded and their reasons clearly stated and very persuasive in favor of the idea. We have no hesitation in saying that we share their convictions most decidedly. Page Seven We had attempted a treatment of the subject in the abstract, but on perusing the argument in favor of the installation of a Free Port on New York Harbor, which was submitted to the United States New York Tariff Commission by the Industrial reports Bureau of the Merchants Association of New York, it became apparent that much of our matter could be eliminated as mere repetition of what is there contained in more cogent form, and therefore what we have to say will be largely supple- mentary to that argument or illustrations drawn from our local experience. THE PORTS OF NEW YORK AND SAN FRANCISCO ANALOGOUS IN FOREIGN OUTLOOK The geographical situation of San Francisco Bay, with respect to the Pacific Ocean trade of the United States, is justly comparable with that of New York, with respect to the Atlantic trade, even if the New York trade partakes in larger measure of the char- acter of world trade. This analogy holds good both as regards back country in America and as regards foreign countries facing us. Russia, through Siberia, Japan, China, Java, Australia, New Zealand and even British India now have trade The ocean unites, relations of great volume and value if does not divide with and through San Francisco. This is true also of the eastern shores of the Pacific, South America, Central America, Mexico and Canada. Statistics to justify this statement are readily available and need not be cited here. The names of these countries alone call 1 to mind enormous populations, hungry for our manu- P a g e Eight factures, cotton, steel, metals and food products and other raw materials, and themselves teeming with food products and raw materials which we need and \ must have, not only for our domestic use but also indispensable if we propose to compete successfully with Europe in supplying the world trade. Expatia- tion on this idea would be easy, but its applications are obvious. The reasons that are valid in New York are valid here. So, like New York, we approach this subject in no small or local spirit. We have tried to measure it on the national scale. Is the "Free' Port" policy a wise departure for the nation? Will The question it pay? Will the results justify the national, cost? Are its manifest advantages off- set by any demonstrable disadvantages, that either outweigh the advantages or come so near balancing the scale that the change is not worth while? Can the present customs system, the growth of a century of experience, be remodeled in its operative methods and adapted to the free port idea without disadvantage to the customs revenues either in cost of collection or security against smuggling? We have kept these fundamental questions in mind in reaching our conclusions. We assume that foreign trade is a Foreign trade and d thi eyen an indispensable merchant marine. \ < j national blessings thln g> for OUr COuntr y' and We as - sume that a merchant marine owned and operated by our own people, under either public or private auspices, is highly advantageous, and, in fact, that recent experience due to the world war has demonstrated that a merchant marine is al- P a g e Nine most vital to the preservation of our political and in- dustrial system, let alone a profitable enterprise in itself. For the present purpose such assumptions will he made. We believe in both of them most religiously. Arguments as to them belong elsewhere and are readily available. But it is proper to say that San Francisco it is our profound faith in both as- a commercial sumptions that makes us vividly re- commumty alize the tremendous importance of the free port idea. San Francisco is a commercial community. For the seventy years of its existence it has thrived on foreign commerce. Its future is bound up in its expansion and extension in all directions and to all countries. Our horizon is the world. We want our markets eventually to be every- where, but without any boasting we have Our horizon the vision to see that the present begin- is the world nings in the Orient and on this side of the Pacific will in the immediate future grow by leaps and bounds, provided we are not handi- capped in the race by governmental regulations that unnecessarily impede foreign trade and which can be removed by wise changes and no corresponding loss. Natural ^ ur natura ^ advantages of geographical advantages situation, the possession of a harbor al- for shipping most unequaled in size and conveniences, with deep water, negligible tides, no storm damage, a mild, even climate the year round, these give us the necessary basis for foreign trade in a measure rarely equaled. Page Ten HELPS AND HINDRANCES What remains is for us to see that the legitimate artificial helps are speeded up and that the artificial hindrances are reduced to a minimum. Briefly, the artificial helps directly under our con- trol come under the domain of transportation, ship, rail and otherwise, switching and other conveniences; and under the head of general harbor Artificial helps facilities, including quicker and to commerce cheaper warehousing and freight- handling in every department. These cannot be discussed here, but must be mentioned, be- cause they must all be connected up with the free port idea most intimately and definitely before the latter can be even understood and especially before the latter can be seen to be an appreciable step in advance. It is because and principally because the combination of artificial helps alluded to, in themselves capable of indefinite improvement, will work better and flourish and grow better under free port arrangements than under the present system, that the free port idea is at all to be considered. r The difficulty about the argument for! Free ports * 6 theoretically t " e * ree P ort i rom the theoretical side is that it is so obviously sound as to be axiomatic, and discussion or expatiation tends rather to obscurity than clarification. Working with- ^ s a matter of course > freedom from out shackles customs control, and the incidental delays, costs, vexations and losses, must inevitably benefit foreign trade. To argue other- wise is to say that a man can work faster or better with a couple of fingers or a hand tied up or missing. Page Eleven It would be foolish to say that the freedom of the port in and of itself alone makes a port great in its volume of foreign trade. We have great ports that are not free ports. It would be ridicul- Only one factor ous to contend that the trade of Lon- in port's don or Hamburg, for example, has prosperity been due solely or even mostly to the kind of "freedom" involved in the free port idea. Many factors and causes, some natural, as above stated, some artificial, of the kind alluded to, others that belong under the head of financial organization, labor conditions, government aid, etc., etc., in varying degrees in different great ports, go to make up the sum, but what is in point here is to note and make plain that the freedom of a | port from unnecessary interference by government officials and rules and restrictions, whether customs or otherwise, must necessarily and to an appreciable de- gree be a real factor to be reckoned with. It may not be so easy to see this in the case of London and Ham- burg, where the other factors are so overshadowingly important, but it is very easy to see it in the examples of Hongkong and Singapore on the Pacific, and it has been made quite apparent in the recent brief trial in Copenhagen in Europe. We must content our- selves to mere references on these aspects of the subject. If the freedom of a port is a measur- But that factor aWe factQr ifl itg prosperity it follows counts i i that conceivably it may in many cases be the deciding factor as between it and its foreign rivals. Page Twelve LOOK ACROSS THE PACIFIC A general survey of Pacific Hongkong and ~ 1 1 c . . Ocean commerce will in our Singapore, great international markets judgment warrant the con- clusion that a national free port policy applied to San Francisco Bay would mean in a short time the establishment of an international market on San Francisco Bay comparable in import- ance with Hongkong and Singapore. When we consider how much of the trade of both these great world ports is directly and plainly trace- able, in the first place, to wise governmental helps of an affirmative character, and, secondly, to Largely the absence of customs control or inter- artificial ference, that is to say, to the fact that they are "free ports," we arrive at some compre- hension of the degree in which it is true to say thatj the greatness of both ports has been largely artificially established by England. Both these ports are, on the one hand, practically "branch stores," as they have been aptly called, for the sale in the Orient of goods from all nations, and, on the other hand, they are the assembly World places of the innumerable cargoes, large and stores small, that come not only from their respec- ( tive immediate neighborhoods but from all over the Orient, and whose ultimate destination is Europe or the Americas. In this way are collected, and then sorted, graded and packed, the spices, cocoa, teas, vegetable oils, tin and other ores, rubber, copra and other raw materials, in immense volumes, that might indeed have been gathered up elsewhere, but are gathered up and re-exported by Singapore and Page Thirteen Hongkong largely because of their superior port ar- rangements based on the free port policy. These arti- ficial arrangements have been main, if not controlling, factors in making them, the distribution centers and market-places both for imports to and the exports from the Orient. THE PACIFIC OCEAN OF OPPORTUNITY San Francisco ought to ful- San Francisco, a half- fin similar f unct ions as be- way station and market- \ r\ j o 1 place between Orient tween the Onent and S P anish and Spanish-America America, and we believe the free port system would help appreciably in giving a strong impetus to the creation and indefinite expansion of that branch of foreign commerce which embraces the re-export trade. The trans- ^ e ar g ument must be brought down shipment trade pointedly to that particular depart- ment of foreign commerce which in- volves trans-shipment or re-export. IS THE TRANS-SHIPMENT TRADE WORTH SEEKING? We will fail to understand the question in its nature or magnitude unless we start with a fair appreciation not only of the utility of foreign trade as a whole, but also a sufficient estimate of the large Its importance department of foreign trade which not appreciated consists simply of the processes of handling over and over again the same things, in their passage from the fields of their production to the factories where they are turned into goods or to the shops where they are delivered to cus- tomers, and, conversely, the repeated handling of the Page F ourteen finished products on their way out from the factory to their markets the world over. Of Its vast and in- course the profits are in proportion to creasing volume the volume handled. The profits of this merchandising commerce go to the ports best equipped by natural and artificial ad- vantages and with highly developed financial and business organizations. It is a commercial truism that trade will, within limits, follow the lines of least re- sistance. And, of course, where customs regulations are absent, to that extent indubitably will trade flow preferably through free channels. Shall America The trans-shipment business of the j share this trade? world runs annually into billions of dollars. Good authority makes the figure over four billions. Up to the world war much the greater part was done in free ports. It is well worth the effort to get our share. Our share Comparatively, but a very small propor- small ti n f America's trade with foreign na- tions has come under this head, but its growing importance has been made more and more manifest by the developments and changes due to the present war. Its centers That business in the Occident has here- tofore centered in the neighborhood of the British Channel and the North Sea, and in the Orient at Singapore and Hongkong. If American ports want to compete ! Clear the path , u TT j of unnecessary successfully with European and obstacles Asiatic ports in this rich sphere of trade, we will be handicapped in the Page Fifteen race just in so far as that trade is artificially hindered by the manner and method of the enforcement of the customs laws. Nothing is here said or intended for or against either a high or low tariff or for or against a protective or revenue system of tariff taxes. We mean to confine ourselves solely to the manner and method of enforcing the collection of the tariff taxes, whatever be the particular policy in force, as to Tariff policy the kind or amount of the customs dues. not affected We are familiar with and know from experience the costs, delays, vexations and losses due to customs red-tape and supervision. They are, we believe, a very serious impediment to the re-export trade and foreign commerce, generally. If removed, the gain will be enormous. If they can be removed by the simple process of putting the customs- house and its red-tape wholly outside the "free zone" or "free port", without any loss to Costs of instal- the government in revenue, with- lation of free ports out any increase in the cost of col- borne by the lecting the taxes and without any localities favored greater risk of smuggling, surely nothing remains of the argument except the single question as to whether in the older ports the change can be effected without too great a cost for the physical constructions or re-arrangements necessary to install the free port system. In the newer ports, where there is much virgin territory to work on, of course this part of the problem is of easier solution. In the latter aspect it is proper to point out that on San Francisco Bay the present situation lends itself admirably to the proposed change. It would be idle to go too deeply into that question at this time. If Page Sixteen the policy be a wise one nation- San Francisco Bay ally, the natural advantages above an ideal site for adverted to, an inspection of the free port g an Francisco harbor on both sides of the Bay of San Francisco, a consideration of the commercial propensities and aptitude of our people, the evidence furnished by immense recent outlays for harbor improvements and the superior facilities now available, all combined demonstrate the justness of the conclusion that San Francisco Bay is an ideal site for a "free port". In the arguments and data appended to this report, contributed by sub-committees, and which are incor- porated herein in support of our conclusions, the argu- ment from economy frequently appears. It may be reinforced in another way. The multiplication table, it must be remembered, will be industriously at work. It figures enormously in the balance of advantages. Even the smallest economy in handling freight due to the superior arrangements practicable only in a free port with well co-ordinated transportation systems and freight-handling devices, multiplied by the number of times the operation takes place in the course of a year, soon runs into fabulous figures. People are astonished to be informed that it often costs as The argument much to transfer a box of apples from from economy one part of a city to another as to ship it across the continent. And similar amazement will follow the institution of a free port, where, under freedom from customs interference, cars, ships, warehouses and all the other means and methods of collecting, transporting, sorting, cleaning, packing, grading and other manipulation of goods Page Seventeen and materials, are brought into closest juxtaposition, and consequently where all these intricate and complex things may be done with the minimum of friction, delay, cost, vexation and loss. A saving in the smallest point of the entire operation multiplied by the endless repetitions of the same thing year in and year out, what will the figures amount to? Our new habits of thrift may give some faint idea of the total. The argument Opponents of the free port policy will contra point out that our present enormous foreign trade has grown up in the absence of the free port policy, and that it will un- doubtedly develop indefinitely under the present system of customs collection, with such modification as may be suggested by experience as we go along, and that such a radical departure as that involved in the establishment of free ports is for that reason unnecessary and, because of the cost and confusion of the proposed changes, unwise. It is plain that the argument for the new policy will fail unless we demonstrate that the gains in efficiency and economy will probably outweigh the costs and other disadvantages of the change. GIVE FOREIGN COMMERCE WINGS, NOT SHACKLES Anything like an exact calculation of such obscure and complex factors is extremely difficult, but our best judgment, based on the experience of foreign ports, a working acquaintance with our own Advantages present customs and harbor systems, and summarized a study of the question in the abstract, has convinced us that under a free port system foreign trade will be expanded and its profits enhanced in the following ways: Page Eighteen Re-exportation FirSt: Xt is self - evident th *< re- stimulated exportation, even in original pack- ages, will be facilitated, speeded up and cheapened, if the goods and materials do not have to pass through the customs-house at all. Second: Storage in non-bonded warehouses will be facilitated, accelerated and cheapened. The ideal arrangement is to have them right alongside the land- ing places. Right alongside the ware- Storage houses should be the railroad switch yards, improved connected up with the many trans-contin- ental and state systems that may be brought to the wharf directly or by a connecting belt railway switching system. The bonded warehouse would not be eliminated, but would be provided outside and not inside the free zone. Its present advantages could thus be retained. Third: Inside the free port re-packing, blending, mixing, cleaning and other legitimate commercial manipulation of merchandise des- Commercial treat- tined for re-export is facilitated. ment of imports These things can go on in the made possible warehouses of the free port or in open places provided. In bonded warehouses these processes are "cribbed, cabined and confined" in a way that not only seriously impedes but often in instances totally prevents the business. Fourth: Foreign merchants can maintain sample or consignment stocks therein without duty unless finally admitted into the country. The customs-house only protects itself from smuggling. A real trading That would be a great advantage. It market has been proposed, since the Panama Canal opened, to have a perpetual Page Nineteen exposition of goods on the Isthmus, where foreign and American merchants could maintain sample and con- signment stocks. That would be advantageous to both sides. And why not in free ports elsewhere? Fifth: Quickened and cheapened distribution of goods into the interior or to other nations on our other frontiers. This would tend to build Improved distri- up distribution centers. The geo- bution facilities graphical location and the topo- graphical features of San Francisco Bay make it ideal for a vast distributing center and international market-place. Cx i- Sixth: For steamships, emphatically Steamships . u , unchained time is money. If we could eliminate or materially lessen the delays due to the customs-house, so much the better for the ships already in the trade; so much greater the inducement for other ships to come. r Seventh : The free port tends strongly Full cargoes both ways to ma ^e ships sure of cargoes both going / and coming, by making practicable the distribution of incoming cargoes to, and the assembly of out-going cargoes from, tributary territory, thereby attracting ships which would otherwise go elsewhere. General freight- Ei S hth : The re q uired facilities ing unmolested would be furnished for all freight- ing operations between ocean and rail carriers and warehouses and to and from all of them, without customs impediments, until the freight was about to enter customs territory. Ninth: It results in saving, due to such freedom, in time, labor, worries and losses in transfer of freight. Page Twenty Handling, drayage and other ex- Savings in many P enses would be reduced. There directions would still be customs-house brokers, but cargoes would not have to deal with them or through them while the goods were in the free port. There is no doubt that their business would be simplified by an arrangement where the customs-house is at the gates of the free port. The chan e Tenth : From the pecuniary standpoint, would pay tne one from which we ultimately look at this problem, the returns must un- doubtedly be correspondingly enhanced both to the carriers, ship and rail, and to the merchants, importer and exporter. Eleventh: The greater the natural advantages of the port from its geographical and topographical features and from its market and trade connections, and the better its harbor improvements and Works with facilities, the more surely and immedi- nature ately and largely would the benefits flowing from the institution of the free- dom-f rom-customs control system be reaped. Freedom alone will not make a port big or prosperous. It is simply one of the desirable factors. ALL INTERESTS BENEFITED BY FREE PORTS The free port system certainly adds to the pleasure of foreign business, adds to its profits and adds to its volume. The benefits may be considered from different standpoints. First, from that of the owners or charterers lp of the ships. It is self-evident that the Page Twenty-one ship's owners and the charterers would be benefited enormously. The system would strongly tend to build up a self-sustaining national merchant marine. Second, from the standpoint of the The merchant , . , merchants, importer or exporter, the advantages are equally plain. Third, from the standpoint of harbor administra- tion. If the customs-house toll gates were at the entrance of the free port, harbor arrangements would inevitably be in far better shape. The customs-house man and his necessary interference The port on the wharves would be eliminated. administration In our experience in San Francisco we found that many times consignees are unfair in a practice of making the customs-house an excuse for keeping cargoes on the wharf longer than they should be kept; and freight congestion is alleged to be due to inadequate wharf arrangements, when, in fact, it is frequently a case of juggling in order to secure free storage on the piers. It means much to the port to have this congestion reduced to the lowest terms. It is a very serious and costly detri- ment to a port to have the wharves piled up with goods because real, and frequently pretended, customs- house requirements compel it. Fourth, from the standpoint of customs-house admin- istration. We are aware that this is one of the hard knots of the problem. From the customs standpoint the free port arrangements must, of course, be entirely consistent with the sure and cheap The customs collection of the customs tariff; but the administration experience of the free ports of other nations, even with high tariffs of a Page Twenty-two protective nature, would indicate that customs ex- perts can find a solution of that feature of the prob- lem. We appreciate the fact that the burden is on the advocates of a free port policy to show that present customs arrangements operate on foreign trade as a handicap of really serious proportions, that they not only increase unduly the operative cost of the foreign trade we now have, but also in all likelihood prevent new trade coming or otherwise hinder its growth, or give rival ports, without these hindrances, just that much advantage in the contest. We have tried to keep the practical in mind and avoid anything that savors of the academic. In this view we sought the advice of experienced customs-house brokers, because in the end the decision arrived at by Congress will doubtless be based largely on what may be thought to be the teachings of customs-house experience. An article on the subject from this standpoint by Mr. F. F. G. Harper, who has had many years experience in San Francisco as a customs-broker, is appended and will no doubt be found instructive. Fifth, from the standpoint of the manufacturer. We refer, firstly, to manufactures within the free port for export to foreign countries of products wholly or partly made from imported raw materials, which under the present system, would be The subject to duty in the first instance and Manufacturer upon which draw-backs are now al- lowed when exported. The draw- back system is so little in vogue in San Francisco that our experience is an insufficient guide as to its real merits. The consensus of opinion is that up to date it has not been of much use. It is generally denomin- Page Twenty -three ated by those who have sought to use it a nuisance rather than a genuine stimulus to such trade. We must leave the draw-back question to the experience of larger manufacturing centers. Of course, if such manufactures were centered within the enclosures of the free port, it would require just so much more land area, a consideration that, generally speaking, would probably confine that department of the free port within comparatively small proportions. Probably the principal advantage that the freedom of the port would contribute to the American manu- facturing industry as a whole, not only in regions near the ports but throughout the country, would result from the creation in such ports of international market-places for the assembly of foreign raw ma- terials needed by our manufacturers. This feature of the subject is ably set forth at length in the New York article alluded to and we leave the matter there. ADDITIONAL REPORTS Foreign trade We also append an article prepared considered by Mr. John Clausen, of the Crocker National Bank, on behalf of our sub- committee on Foreign Trade. His committee circulated questionnaires, of which a sample is attached, among those interested in the foreign trade. An admirable answer was received from Mr. J. H. Polhemus, of the Hamberger-Pol- hemus Company, a long established firm of exporters and importers, in San Francisco. We incorporate this in our report, as written, as an illustration of what our merchants have learned from actual experience, touching on the free port idea. Page Twenty -four We have accepted Mr. Kent's suggestion that until Congress has first declared in favor of a free port policy by general legislation, arguments in favor of a particular locality as a suitable site for a free port will not be opportune. We recog- Select ion of free nize that they will be appropriate port sites an after for later consideration, either by consideration Congress, if it directly names the sites, or by the Executive Depart- ment or other bodies to which that duty may be dele- gated under general laws. However, as certain pre- liminary reports on the suitability of San Francisco harbor, on both sides of the Bay of San Francisco, have been submitted, we take the liberty of forward- ing them for filing, to be presented later at the proper time. CONCLUSION In conclusion, we desire to emphasize the desira- bility of as quick a decision as possible by Congress on this weighty question. Space will permit of only the barest reference to the profound Full speed changes in the currents of the world's ahead commerce that will surely result from the world war and the full use of the Panama Canal. The enormous merchant marine in process of creation must continue to be used when peace returns. Preparedness for peace cannot be neglected except for war measures, but should go on where consonant with them. And it is difficult to see in what better . . direction preparedness for peace could gigan ic move t han in perfecting our harbor fa- harbor . j,- facility cilities for handling foreign commerce. The free port arrangement is simply Page Twenty-five a gigantic harbor facility, and, we believe, one that can be made most fruitful in its application to our country. It will take much time and labor and money to carry it out, and the period of indispensable preparation should not be postponed longer than is necessary. I* age Twenty-six ADDENDA REPORT OF SUB-COMMITTEE ON CUSTOMS MATTERS Concrete examples We have given considerable time to the of obstacles to effort to obtain concrete examples of foreign trade delays and expense that the importers and vessel owners have been put to by reason of having to comply with customs, rules and regulations, confining ourselves to those that would be eliminated by the establishment of a free port. Very rightly it has been said that customs is the first and last word on this subject, and our committee has endeavored to forecast the movements of the foreign commerce of this port with respect to sources and classes of merchandise in order to understand where this increased commerce would encounter delays and expense due to customs supervision. We have also had to take into consideration that the present tariff is one mainly for revenue only and that another Administration might revert to larger and more numerous protection features, and hence many articles such as coal, hides, coffee, etc., in the line of bulk goods, and numerous manufactured or packed goods now on the free list might again become dutiable and require weighing, gauging, measur- ing, appraising, etc., as w.ell as examination by the Pure Food Inspector, Bureau of Animal Industry, etc. Therefore, although we are able to report on some of the hindrances that have existed in the last few years, undoubtedly there are many more difficulties, which existed under other tariffs and would recur with a change of tariff laws. Advantages detailed, In enumerating some of the advantages if obstacles removed to shipping by eliminating customs con- trol, we summarize as follows : Page Twenty-seven SAVING OF TIME AND EXPENSE TO VESSELS (a) Delays due to customs boarding officers would be obviated. (b) Prompt docking and uninterrupted discharge of cargo. (c) Omitting necessity of giving heavy bonds to customs, obligating steamship agents to pay any loss of duty by fire, theft, casualty, etc., and the consequent delay while these matters are adjusted with the customs. (d) Not being required to make application to customs, obtain permit and pay for Inspectors' services when it was desirable or necessary to work early or late hours, or on Sundays and holidays. (e) Bonded and/or foreign cargo laden or unladen at will. (f) Vessel's discharge not stopped because of some error or delay in customs papers, which, at times, besides the cost by reason of delay, has entailed fines to vessels ranging from $100.00 to $5000.00. (g) Not being required to keep draw-back goods separate from other cargo and give to the customs officials six official hours notice before lading same. (h) No further holding of teams on the dock until Customs Inspector is able to check all bonded goods teams may have, before loading on vessel, or unladen bonded goods teams may have, for export vessel, bonded warehouse or appraiser's store; this checking would be done outside of free port. Once goods were placed on the dock, either from or for the vessel, no customs delay could occur, thus securing more prompt clearing of docks. Considering the foregoing few items Savings in stevedor- ^^ ^ . g io perceive that there ing and other charges . would be a great saving in stevedoring and other charges because of frictionless handling, it not being necessary to stop and learn whether the customs had passed this or checked that draw-back or bonded package if outgoing, or any and all packages if incoming, which, if it had not been inspected, would have to be passed by or moved aside until the Customs Official was done with it. Also, if I understand correctly the methods in force at Hamburg, a violation of the Chinese Exclusion Act and violations because of the desertion of Governmental inspec- alien seamen in this port, would be practi- tions facilitated cally impossible as to those vessels whose cargo was all foreign and could be dis- Page Twenty-eight charged at the free port and take on other cargo which have been assembled there for them, because then these vessels would not touch at other shores of San Francisco Bay, and the watchman of the vessel and Harbor Police would see that these people were kept on the vessel and the customs would be the guards at the other gate of the free harbor to stop them, provided they had eluded the first two systems of guarding. At the outer gate those with the right to enter the United States would be examined and passed, or they could be taken direct from the vessel on the tug to Immi- gration Station. _ f All shipping men are very familiar, to Onerous fines, often . undeserved their sorrow, with the very heavy fines paid for violations of these laws. We will note a half dozen items of fines charged covering the recent record of a little over one year of fines assessed to vessels in this port out of about forty different causes: Vessel fined for failure to produce duplicate bill of health, maximum fine $5000.00 Area for steerage passengers not posted, fine $ 340.00 And additional fine against the master of $ 100.00 Failure to include certain items on the outward mani- fest of vessel, fine $ 500.00 Discharge of foreign merchandise without authority in absence of inspector, fine Treble the value of merchandise and forfeiture of vessel In this case the master had gone ashore, and the barge man and the mate, who were unfamiliar with Customs regulations, agreed that the barge could receive cargo in the stream, remaining alongside vessel until next morning. But later in the day as it appeared a storm was coming up, the barge man moved the barge to the dock. In view of these cir- cumstances, the fines were mitigated to a charge against the vessel of $ 700.00 and against the barge owner of $ 200.00 These were paid, with the attorneys' costs and there was also the loss of time in preparing and presenting defense, etc. Failure to make entry and enter merchandise at the Customs House $1800.00 Page Twenty-nine Failure to enter within twenty-four hours $ 100.00 Bonds are now required to be given for residue cargo which is to be discharged at following foreign ports and in order to cancel said bonds a lading cer- tificate or other evidence is required from abroad. This is a heavy obligation and it is sometimes diffi- cult for steamship owners to obtain the necessary certificates to cancel said bonds. There are many more cases of minor infractions of our Customs rules, some perhaps because the Government under whose flag the vessel sails, does not enforce certain rules that we do, such, to give a few examples, as those in our so- called seamen's bill, those laws requiring the marking of part of the equipment of a vessel, and the maintenance of two compartments exclusively for hospital. Frequently, fines are assessed for breaking the Customs seals, and for error in, or for not filing, complete store list of vessel. These fines are sometimes mitigated and sometimes remitted. But in such cases the offense has been trivial, or there were exten- uating circumstances. Nevertheless, discharge of vessel has been stopped, master or owner has had to attend at the Customs House and expense has been incurred in defending the charge. The foregoing few items clearly indicate that Tramp steamers & attracted a * ree zone > eliminating such annoyances and losses undoubtedly is beneficial to vessels and particularly attractive to new liners or tramps, they knowing that costly fines and delays encountered with Cus- toms would not be possible at the San Francisco Free Harbor. For to steamships, most emphatically, time is money, and the knowledge that all Customs requirements were done away with, would be the greatest inducement possible to offer for other ships to come to this port. ... A seaport originates and grows principally Free ports act like . J magnets to trade because of the export and import trade of its own country. But the facilities devel- oped for this trade render such a port also the natural center where trade between neighboring foreign countries will focus. The small ports of Mexico, of Central America, even the Page Thirty Atlantic ports of South America, cannot have direct sailings to and from all Oriental ports. It will be natural for many of the goods from these ports to be transshipped here, especially as San Francisco is but four or five hundred miles off the great circle steamer track between the Panama Canal and the ports of China, Japan and Siberia. But as long as we maintain a tariff, means must be provided to diminish or eliminate entirely the avoidable obstacles which it presents to the class of trade just described. Three different plans have been devised. Two of them the draw-back system, and the system of bonded warehouses are in use at American ports. If they were adequate, this report would not have been written. We should provide a better means of procedure for export trade, leaving the bonded warehouse to supply a necessary method of handling foreign goods for domestic consumption. THE BONDING SYSTEM Under the bonded warehouse system, dutiable Bon aed warehouses goods may, before the duty is paid, be taken from wharf to warehouse; whence, at any time -within three years they may be exported. At the end of three years the duty must be paid ; likewise, if it is at any time desired to use the goods in the United States. And to insure that the goods be not used without payment of duty the hauling to and from dock and the storage must be done by business concerns who have given heavy bonds to the Government. In addition, the owner of the goods must also be bonded in the amount of double the duty that would have to be paid, should the goods be smuggled, lost, 'stolen or destroyed. The movements of the goods have all to be Restricted , , & operations under the supervision of Customs Inspectors, and the bonded warehouse is in charge of a Customs Storekeeper, by whom it is closed with a special Government lock during the noon hour and outside of business hours, so that not even the owner of the warehouse may enter during his absence. No work within the warehouse is possible out- side of these hours without special permission and heavy Page Thirty-one expense for Customs overtime. Goods must be piled so that they can be checked at any time by special Treasury Depart- ment Agents. A multitude of other rules must be observed far too numerous to mention, so numerous in fact, that they occupy three chapters of the present Customs regulations. It is obvious that the expense of the bonds and the required supervision, in transit, upon receipt, while in warehouse, upon delivery, and again in transit, not only directly increases the expense of handling and storage, but also indirectly, through the slower move- ment entailed. W rkin ith There are otner disadvantages, altogether too hands tied numerous to be detailed here. We will briefly hint at one or two. Cases can be opened only when damage to the goods is threatened and special permis- sion first must be obtained and the work done in presence of Customs officers. Goods cannot be transferred to other cases, either in whole or in part. Duty, if paid, must be based on original value, and must be paid on full contents of the package, even when there has been deterioration during storage. We will merely hint at the expense involved in general orders to store goods as unclaimed and at the further stringent rules applicable to warehouses bonded for special classes, such as spirits and tea. Enough has been said to show that the device of bonded warehouses falls far short of meeting the requirements of a large foreign trade under competitive conditions. THE DRAW-BACK When the dutiable article is a raw material used in manu- facture either alone or with other raw materials native or foreign, the bonding system of course cannot be used, and the Customs provides that, upon the export of such manufac- ture, a rebate of the duty is granted on such part of the actual foreign material as is contained in the exported manu- facture. To illustrate, imported chicle is used in the manu- facture of chewing gum ; imported feathers in making pillows and mattresses; foreign tin plate was formerly used in large quantities in making cans for our salmon and fruit. When Page Thirty-two the gum is exported the duty of 15 cents per pound on the chicle is subject to draw-back (after deducting 1%) and similarly, as to the feathers and the tin plate actually used in the cans. Here again, however, is a complicated A complicated system, r hating, vexatious and difficult system. The imported goods must be kept separate in the factory, its records must be kept as prescribed, and both goods and records must be open to inspection at any time. If the factory is incorporated, its articles of incorporation must be filed at the Customs House; six official hours notice of lading upon export vessel must be given, so that the inspector may be present and check the goods ; oaths to all transactions must be filed by importer, foreman, superin- tendent and exporter; trade secrets as to manufacture must be disclosed. Finally, evidence of foreign landing, or a bond to obtain such evidence, must be furnished. If all this, and still other details, be properly attended to, the draw-back is payable thirty days after shipment. So complicated and unsatisfactory is this system that it can be used with profit only in a very large export business. Quite a few of our local merchants, after experience, aban- doned all thought of applying for the draw-back. IMPORTATIONS FOR CONSUMPTION IN THE UNITED STATES ., , .. The matter of valuation is one of the most Valuations a great puzz l e difficult features, and one about which all importers have at one time or another some trouble with the Customs. The value must be the wholesale market value in the principal markets of the country or place of shipment at the time of shipment. Frequently, goods are bought under contract, or for some reason the shipper sells at a lower price. The chairman of this sub-committee was recently told the following instance by an importer : Under a previous tariff hides were dutiable. A Mexican rancher had shipped some hides to this importer. In that country, hides are a sort of by-product, of practically no value, so a nominal Page Thirty-three value was placed on the invoice. This was raised by the Customs, and the importer was required to pay a heavy fine, the reason for which the shipper is naturally quite unable to understand. Using the Spanish for "Never Again," he is shipping no more hides to this port. A large shipment of refrigerated egg meat in tins Illustrations , r x->. . , , . ' arrived on one of our Oriental liners some time ago. The goods could not be landed until arrangements had been completed to haul at once to a bonded refrigerated warehouse. But there was no wholesale market at the place of shipment, and the question of value required telegrams, cables and much discussion with the Customs, and caused heavy expense because of delay to vessel, of overtime charges at vessel and at warehouse charged by draymen, stevedores, ship's clerks, Customs Inspectors, weighers and custom's storekeeper. In a similar New York case, the importer, to keep the vessel moving, took a chance on his invoice value, and had to pay some thirty thousand dollars in fines. In addition to the rules designed to in- Numerotts other laws and rules ' sure collection of the duty, the Customs is charged also with the enforcement of certain other complicated laws, such as the Chinese Exclusion Act, the Pure Food Law, the laws under the Bureau of Animal Industry, the Copyright Law, etc. . , . . When damaged goods arrive, they must be Disputes multiply J needlessly held on the wharf until the Customs adjust with the importer. Frequently, marks are obliterated. Sometimes the condition is such that it is im- possible to get a count of the damaged portion. Conse- quently, there is apt to be a dispute involving the importer, vessel and Customs. The importer is not permitted to recon- dition the goods, because the identity would be lost or it would be impossible to keep such a check that proper duties would be paid. In many cases it is cheaper to accept the only method provided by Customs laws and abandon the goods, provided that the portion damaged is more than 10% of the shipment. But the damage must be discovered and the goods abandoned within ten days after making entry. Page Thirty -four THE FREE PORT AS AN INDISPENSABLE AID TO RE-EXPORT TRADE Enough has been said to show how utterly impossible it is to think of our controlling any large amount of the trans- shipping trade between foreign ports until some means is adopted to avoid entirely the Customs barrier as regards such trade. The only method that has been suggested is the Free Port. We shall endeavor to illustrate by concrete examples the various advantages which have been set forth, and we think it can be shown that the establishment of Free Ports in this country would benefit not only the seaports at which they might be located, but would also be of immense advantage to the export trade, to manufacturers, to banking interests and to the country generally. The interrelations of the various factors of trade are such that each reacts on all the others. Any facility which in- creases trade thereby brings nearer the range of possibility larger facilities which would involve too much capital or too much space for the smaller trade. Increased quantities mean lower prices and cheaper freight and these again open new markets and again increase quantities. In this way the vari- ous advantages which we can anticipate if Free Ports be legalized would be cumulative, and the ultimate development might very well surprise the most optimistic. This aspect of the question should be borne in mind in what follows. GRADING, REPACKING AND SORTING If after goods were landed in the Free Port, sorting and grading by the importer showed that some portion would not be allowed into this country, such goods would be regraded and packed for any foreign markets available. If it were desired to ship two or three articles out of one case to Salvador and two or three others to Guatemala, and so on, it could be done. This would increase imports greatly, since, first, the cost abroad would be less (buying in bulk and unsorted, etc.), and, second, the larger quantities purchased would aid in lowering the cost price. Page Thirty-five There are undoubtedly many articles that could be im- ported into a Free Port and regraded, repacked, or recondi- tioned, or small quantities of which could be taken out of one case and used to fill into cases with other goods suitable for certain foreign markets. As one example, beans. In 1910, when I returned from a trip to the Orient, I mentioned to one of the large bean dealers of this city that an immense amount of beans was to be had in Japan, Manchuria and Siberia. He replied that they would buy shiploads of this commodity if they were able to buy graded goods; that the main trouble was that the Oriental shipper did not know how to grade, or would not do it, and when the goods arrived here it was impossible for the importer to sell them. I expressed surprise because we grew beans to such a large extent here, but he said that the demand was so great that they could take any amount of beans and sell from this market if they only had a way of selecting, grading and packing such goods in the Orient, so that when they arrived here they could be immediately sold and dispatched. Mani- festly, a Free Port here would put the importer in the posi- tion as though his beans were in the foreign country just outside of his door. In other words, he would step across to the Free Zone, do the packing, regrading, etc., himself, pay his duty on the portion which he desired consumed in the United States and export the other without molestation from officials. Other familiar examples are pepper from Singapore, rice from China, coffee from Central America, matches from Japan and gums from Java. The resorting, regrading, repacking, etc., of these goods into such shape as is necessary for cus- tomers at other foreign points, our merchants cannot handle because of Customs hindrances, whereas a Free Port would permit all of this. Very recently the Customs regulations have been changed as to the bonds given by importers so that one bond given by an importer obligates him to fulfill all of the terms of the laws under the Customs and other before-mentioned Acts, and it frequently occurs that shippers sometimes without knowing better, and at other times for the purpose of Page Thirty-six "getting by", send articles to importers which are in violation of the aforesaid laws and the importer knows nothing about it until after his entry has been made and he has become the victim and therefore must pay the penalties. Had the goods been landed at a Free Port, he would have taken his samples, probably place some of the goods in warehouses of the Free Port, and there made his entry for those goods which were in the proper condition for making entry. A Free Port would obviate much of the disturbance inci- dent to a change of tariff. To illustrate : Coffee, tea, and other commodities, which are free of duty are collected at this port, often in small lots, and when foreign orders are received, they are filled from these shipments. When upon our declaration of war, it became necessary to devise addi- tional taxes, it was proposed to levy a duty upon these commodities. What a Free port easily con- r ,, . , .,, jt ^ - .,/ furore this created with the trade. Con- forms to tariff changes tracts for either foreign or local trade, made at prices based on no duty, could not have been filled without loss, because it would have been impossible to find transportation for a sufficient quantity before the new law would have become effective. If we had had a Free Port the foreign trade would have continued without interruption, while, on all goods finally entering the United States for consumption, the Gov- ernment would have received its duty in due time. Further- more, owing to the increase of business which this existence of a Free Port here would bring about, as previously explained, the stocks on hand, being graded and awaiting foreign orders, would have been so much larger than were actually on hand, that existing local contracts could have been completed before the duty would have become effective. Recently an order came here from Russia for 100,000 bags of coffee. Had coffee not been free of duty and no Free Port here, this market could not have had that trade because the answer to the prospective buyer must have been : "It is too bad, but we have paid duty on this coffee and cannot now quote you a good price." Page Thirty-seven BENEFITS TO THE INTERIOR TO THE WHOLE UNITED STATES Although it might seem that the freedom of the port would contribute mainly to the encouragement of importations from foreign ports, yet it is manifest that such encouragement to come to this port would thereby be given to so many steam- ship lines, and to tramps and sailing vessels, that our whole state and other states of the United States that produced anything suitable for a foreign market would also be very greatly benefited, because there would always be .vessels here ready to move their commodities. The interior merchant, manufacturer and farmer would not find to his sorrow, that his shipment was not on the ocean, but held with some thousands of cars of freight in this port that are destined for the Orient, Australia, etc., for which we have no vessels and no warehouses, as is the condition today. And such loss would not be avoided in many cases, even in times of peace. Hamburg ^ s ^ Hamburg, I recall some ten years or so ago, long before the war, a forwarder of Hamburg came to the United States and made contracts with large houses all over the Union, at both sea-ports and interior cities, to furnish them with their goods from Germany and Austria within a certain period. There was to be no uncertainty about receiving Christmas, Easter, or other seasonal goods, in time. He secured a large business. Necessarily, that meant that he visited the factories all over Germany and Austria, and instructed these people when and how to for- ward the goods by rail or river or canal up to the Free Port; here he sorted the assembled goods and marked them, and when the steamer arrived in the Free Port of Hamburg, the vessel got quick dispatch and the shipper low freight rates. There was no such disorganization as we have in recent years witnessed at East and West ports in the United States, loaded cars shunted here and there awaiting steamers, perishable goods spoiled, sales lost, because goods did not reach destination on time, and the interior farmer merchant or banker disgusted with efforts to do foreign business. Page Thirty-eight Copenhagen In tne Free Port of Copenhagen, the importer can secure up to 75% of the value of his stored goods. Though it is a little out of the province of this Sub- Committee, we may be pardoned for calling attention to the opportunities which the banks might anticipate through loans on goods temporarily in port. The large item of handling exchange on all the greatly increased shipments is obvious. It is recognized that we are a producing country now, with a surplus to dispose of, and foreign markets are absolutely necessary. Our people only faintly apprehend the degree to which our foreign commerce is dominated by Customs control. Every move made by vessel or cargo, master or importer, respect- ing foreign goods must first have sanction of Customs. We hear the cry of "crowded docks". "If we could only make consignees take the cargo away". You say, "Con- signees make the excuse, 'Customs have not issued permits;' we want more docks". What good would more docks do other than to make more room on docks for importers to use as warehouses, unless you get customs dispatch? Does it not seem clear that a Free Port solves the problem as to foreign cargo and further, thereby, releasing other docks for domestic cargoes? THE OPPORTUNE TIME America is now about to get its ships. Millions will be spent on the shores of this harbor for shipbuilding plants. Other millions will be devoted to harbor facilities to take care of the trade the ships will bring. We are told that the Government is to" build fleets of river boats. The railroad terminals will be enlarged with reference to the harbor plans. A period of tremendous trade development is certainly imminent. Is all this to go on without any provision for the elimination of the intolerable friction inseparable from present arrangements? It is unthinkable. No comprehen- sive plan for harbor development can be undertaken unless provision is included for the establishment of a Free Port on such a basis that its facilities for years to come can keep abreast of the harbor's increasing trade. Page Thirty-nine REPORT OF SUB-COMMITTEE ON FOREIGN TRADE So numerous are the angles of approaching the subject of a Free Port or Free Zone policy that a great deal of time and space could be devoted to its discussion. Foreign experience The T ^ d and Sub Stantial growth of Free teaches Ports operated by other nations, whose business consists mainly in transshipment and exportation, however, furnish convincing data in favor of such a national move. The universal testimony appears to be that a Free Port has aided immensely in quickly building up both the foreign and domestic trade of every harbor where it has been prop- erly established. Exam les ^ nen we realize that Hamburg in 1913 had forged abroad ahead until its foreign trade surpassed London by One Hundred Million Dollars and far exceeded Liverpool in imports, notwithstanding the fact that England is a free-trading country; that Hamburg's total foreign com- merce was only Six Million Dollars under that of New York, and that Hongkong surpassed New York in clearing foreign trade tonnage several years before the war, Singapore advancing as a collecting and distributing center, and Copen- hagen winning the trade of the Baltic, it becomes apparent that the Free Port is not a mere theory, but a practical producer of prosperity. Traveling and visiting many harbors, making observations and holding discussions with captains and shippers large and small, will demonstrate to anyone the important place that harbor facilities occupy in the commercial development of a city. Industrial and commercial development Transportation, back- bone of commerce are dependent upon transportation. The efficiency of transportation, rail or water, is measured by the cost and speed of handling goods. Inadequate harbor facilities poorly correlated with rail- road transportation are prime contributors to the high cost of living, as slow and expensive circulation of supplies Page Forty inevitably add to their cost. It is obvious that the more hands through which goods pass from producer to con- sumer, the more the public must pay. Seek sea- efficiency The Wal " haS made OUr P e P le appreciate more than ever before that we cannot claim or hold commercial supremacy, if we are inefficient on the sea. At the opening of the Civil War American ships were carrying 70% of our exports and 65% of our imports. , At the opening of the world war in Revive our merchant mar ; ne August, 1914, Great Britain, Germany, France, Italy, Japan, Austria-Hungary, Russia, and Belgium controlled 72% of the world's ocean carrying capacity, and although our foreign trade, exports and imports combined, amounted to Four and a Half Billion Dollars, or more than one-tenth the world's business, our merchant marine was capable of transporting only nine per cent, of it. At the end of the war we will have materially gained in tonnage, and Old Glory will be floating from the taffrail of a powerful merchant fleet. It is then that the need of Free Zones in the United States will become immediately apparent and immeasurably valu- able. ~ . . Your Sub-Committee on Foreign Trade sent (Questionnaire sent out out a questionnaire a copy of which is hereto attached to leading firms engaged in or inter- ested in shipping activities, and obtained much helpful information regarding advantages which a Free Port would lend to develop Foreign Trade through the Port of San Francisco. This was supplemented by individual research and investigation, personal interviews and discussions, o f , As a result of this work we are able to Resume of advantages to foreign commerce present a resume containing a variety of arguments showing the benefits of a developed and properly organized Free Port. Page Forty-on 1 Ports are the gateways through which commerce must pass. Every form of waste, whether of time or money, that can be eliminated, means to that section and to the country added facilities. 2 The establishment of Free Ports will tend to encourage new business and make land area more valuable as a terminal and cheaper as an entrepot. Traffic follows the line of least resistance, with saving of time, labor and money. 3 By handling traffic more economically and expeditiously a Free Port or Free Zone will encourage and give impetus to surplus production, and benefit shippers, consignees and consumers. A Free Ports will be the means of saving interest on large sums of money by precluding the necessity of tying up funds for Customs duties whilst goods are held in warehouses. 5 Free Ports will increase the speed and decrease the cost of receiving, transferring and reshipping of mer- chandise. 6 Free Ports accord facilities for unloading goods which may be stored, packed, mixed, assembled, manipulated and even manufactured within the Free Zone with the greatest possible freedom. Manufacturers are accorded the privilege of exhibiting and demonstrating their goods, grading and altering same for domestic or export use. Buyers can examine, test and compare the commodities of the world before making purchases. 7 Well developed Free Ports or Free Zones in the United States stimulate the growth of exporting houses and enable them to hold goods for set periods without the payment of duties, often equal to the cost of the commodity itself. Besides supplying a more con- venient outlet for American goods, Free Ports will aid the American manufacturers in need of foreign sup- plies by bringing raw material to our shores cheaply for subsequent import or export, as the needs of the trade demand. Page Forty-two 8 The number, speed and efficiency of cargo boats will be greatly increased and in this direction a Free Port becomes a vital factor in enabling us to meet the foreign trade demands that will be placed upon us after the war. The harbor of San Francisco, when it San Francisco, a natural r , < , r -rt ,. , ' . first met the enraptured gaze of Por- tradmg and shipping r center between nation, tola > November 1st, 1769, possessed more advantages than others less richly endowed by nature. Since then its golden portals have been open the year round and never required dredging, maintaining a permanent unshifting depth of 48 feet. San Francisco Bay has always been able to admit the largest of the world's vessels, and all of them combined could find anchorage here and be sheltered in summer and winter from heat and cold, from heavy seas and squalls and storms. Gatewa between ^ an Francisco is not only the gateway of East and West tne Far West but it is the gateway to the Far East. More than half a century ago Bret Harte called San Francisco "the warden of two con- tinents". Gazing out through the Golden Gate across the broad expanse of the Pacific we look through the open door of China. What an inexhaustible market China would be for our products, if we went after it ! Japan, rapidly winning a place in the sun and becoming western in constitution, civilization and commercial relation- ships, offers a most attractive field for our products. A warm welcome awaits American representation and American goods in all Australasian markets. The Philippines present a pleasant picture. Ten years ago we furnished the Islands only 26% of their imports. We now supply 50%, and they would gladly buy the other 50% from us, if we could offer more adequate transportation facilities. And between ^" S we ^^ sout hward we see the Republics North and South f Central and South America, with enor- mous trade potentialities. How vast this Page Forty-three trade may become with proper attention, encouragement and systematic development can hardly be overestimated. Our foreign trade statistics offer convincing evidence. ..,, J , The immediate effect of war upon industrial What war has made clear an< ^ commercial policies is undoubtedly to prompt nations to make themselves as nearly as practicable independent in all things necessary to life and the national defense. When the war broke out, Great Britain found that the product of the Australian lead and zinc mines was under contract to German firms and that neither in Australia or Great Britain were there reduction works adequate in capacity to convert the Australian product into the munitions of war which were needed for the defense of the Empire. Likewise, the great textile industries of the United States, Great Britain and France, were found to be largely dependent upon German dyes. Ae . In the long" period of peace, international trade After the war, w h a t? relations had expanded and confidence in the maintenance of peace had grown, until in many instances the industries of countries had become more or less inter-dependent. Even the neutral countries, as those of South America, have found themselves seriously incon- venienced by the difficulties attendant upon transportation, and manifest an inclination to diversify and develop their home industries to a greater extent than before. In all conferences between representative men of the various dominions of the British Empire, there is expressed a senti- ment favorable to more intimate trade relations, and to recip- rocal policies which will tend to bring this about. It seems probable that steps in this direction will be taken, although serious difficulties are certain to develop when the attempt is made to reduce such a policy to tangible terms. Prepare for the ^ ma y ^> e expected that the alliances estab- readjustments of Hshed during the war will influence trade foreign trade policies to some extent after the war, and that commercial treaties will be made with a view of recog- nizing and promoting the friendly relations which exist. The antagonisms, in turn, which have been developed be- Page Forty -four tween enemy countries will, no doubt, affect trade relations for many years, no matter what the terms of the treaty of peace may be. On the whole, it may be expected that pro- tective tariffs will be in favor after the war, and that trade will be influenced to a considerable extent by commercial treaties. In this connection, it is to be considered that the United States, by reason of the great purchasing power of its people, is the most desirable market place in the world, and should be able to obtain as favorable terms for trade as are granted to any country. Page Forty-fiv QUESTIONNAIRE ADDRESSED TO SAN FRANCISCO'S FOREIGN TRADE 1 What particular products imported or exported by your firm would be affected most favorably by the special facilities offered by a Free Port, such as expeditious and economic handling of merchandise and free access to and control of your own goods, packing, mixing, sorting, labeling, manipulating, manufacturing, etc., without the customary "red tape" and restrictions connected with bonded warehouses? 2 What would be the specific advantages to you as regards the following: (a) Conditioning, (b) Assorting, (c) Repacking, (d) Stock carrying, (e) Firm sale basis for transactions. 3 What dutiable foreign materials do you import and utilize in articles that you re-export? 4 What products have you for export that require imported raw materials to manufacture? 5 What* is your annual volume of draw-backs? 6 What substantial benefits will be conferred upon ship pers, local and inland, consignees and consumers by attracting more cargo and ships, more transit traffic by making this harbor a base for transit and domestic im- ports? 7 What opportunities for foreign trade expansion do Free Port facilities offer? 8 What do you consider the special advantage from an eco- nomic, industrial and commercial standpoint that would result from the establishment of a Free Port Zone on San Francisco Bay, and what superior advantages have we to offer? 9 General remarks. Page Forty-six ANSWER TO QUESTIONNAIRE By J. H. Polhemus 1 Practically every article that we handle or would hope to handle we would greatly prefer handling in a free port, inasmuch as we do not confine ourselves to importing goods to go directly to consumption in the United States, but operate overseas with many districts, continuously endeavoring to bring goods in from one section and for- ward them on to another. 2_(A) CONDITIONING : In regard to conditioning the number of cases that can be quoted is unlimited. By way of mentioning a few we might state that corn from Spanish America arriving weevily can be fanned, put in new sacks and re-exported to some other Spanish-American or other oversea market and thus not make it necessary for the importer to agree to sell same in the United States under the Pure Food provisions of "Not for Human Consumption." Lots of coffee that might arrive too low to pass government specifications can be mixed and brought up to an admis- sible standard. Low grades of coffee can be shipped forward to the market and will probably reach here in quantity so that there might be a considerable volume of cheap, low-grade stuff that might find sale in some Asiatic market and the business might just as well be done from San Francisco as from some European port. Goods that might become damaged by heat in - hold could be examined and if their condition has changed so that they were not up to standard desired by buyers in the United States the duty has not been paid. Goods damaged by salt water would not automatically come under the head of condemnation on account of quality under Pure Food, etc. (B)_ ASSORTING: Various beans, gums, rices, etc., would afford distinct opportunities for taking advantage of the market. Goods that reached here and were considered not up to basis Page Forty-seven on which bought could be held in the free port and part accepted and part rejected. It would not be necessary to enter the entire amount covered by the bill of lading. (C) RE-PACKING: More stocks could be carried and be much more flexi- ble. This would enable dealers to quote lower prices as they would have a quicker turnover and not such high percentage interest per unit, or dead stock with a pros- pect of a loss. To illustrate our ideas, in many parts of Spanish-America some goods have to be packed for mule-back transportation, others in cases of a weight for llama transportation, and others in cases for cart trans- portation, etc. The currency in some countries demands a package that can be sold at an established money value which is current there, and goods are desired to come already in such packages, as matches, etc. Many firms wish their own labels, and this matter could be facilitated. (D) STOCK CARRYING: One of the big factors in this heading would of course be the carrying of larger stocks as there springs up a big steamer service. This is not guess-work, it is a state- ment of fact based on what has happened in every other free port. Ships that go periodically from Europe clear through to some destination in Asia could much more readily call at San Francisco and discharge their cargoes. This means that instead of Vladivostock, or Darien, or Yokohama having a direct steamer from Europe every 60 days, these goods could be brought in steamers that would much more readily find a cargo if destined to San Fran- cisco and could go via the free port on steamers that would run continuously between here and the ports men- tioned. Merchants would rather buy from San Francisco, as they would not have to tie up so much money in the stock, ordering same every two weeks instead of ordering a three or six months supply at a time. The inaugura- tion of such routes would lead to other commodities being brought in and markets found for them, which helps work up a trade route. Page Forty -eight IT IS TRADE ROUTES THAT WORK UP THE BIG BUSINESS, STEAMSHIP OWNERS KNOW WHAT A DEAD LOSS EMPTY SPACE IS IN THEIR HOLDS AND WOULD MUCH RATHER KEEP THEIR VESSELS CONTINUOUSLY RUNNING IN AN ESTABLISHED TRADE ROUTE WITH FULL CARGOES. In this connection it is well to call attention to a funda- mental point that should not be overlooked and that is that the authorities should settle on a few ports and make a drive to develop them big. The big ports in the world have been developed by hard driving and concentration. (E) FIRM SALE BASIS FOR TRANSACTIONS: This is of fundamental importance and cannot be over- estimated. Many illustrations that probably have been given by ourselves as well as by others might be ex- plained at the moment as being articles that have not any duty, but Congresses are continuously changing, and tariffs in the light of past history are likely to change again. There is no reason why distribution to oversea ports should at all be interfered with by tariff considera- tion, which has only to do with the consumption of goods in the country itself. A .free port would give a steady sale basis for a port and establish it on a firm basis as being an exchange market on the world's highway of traffic. 3 This question we regard as being more applicable to those engaged in manufacture, but of course such articles as burlap is one that applies to every firm. 4 We regard this question likewise as applying principally to manufacturers and might call attention especially to fertilizing companies. 5 No answer. 6 Any merchant today has daily brought to his attention the opportunities that there would be for importation and exportation if he could get steamer space. Free ports develop trade routes and attract steamer space. As far Pag-e Forty -nine as aid to the merchants in the surrounding country there is no argument necessary to explain the advantage of being situated in a port that is directly connected with the different producing or manufacturing countries. 7 In answering this question it is necessary to consider the institutions that are in all lines of legitimate activity, or say, producer, banker, manufacturer, distributor, consumer. The producer would have outlets for his goods estab- lished by the inauguration of steamer routes and there- fore would have a wider field of marketing. The banker would have the opportunity of financing many different lines of commodities and on account of better transportation facilities would probably be working in a market that would furnish a great deal of short-term paper, as well as have their field of opportunity in foreign exchange greatly enlarged. A number of commodities from different parts of the world generally equalize a demand for money, so that same can be kept constantly employed and would not make it necessary to seek employment through the stock market's demands. This is something that is greatly appreciated in Europe, as produced goods are real wealth and must necessarily have real value, whereas many of the quotable stocks are never considered by the average speculator on their real intrinsic value but simply on what they will sell for as against tightness of money, etc. We believe that it is a state- ment of fact that articles of first necessity rarely stay for any prolonged time below the cost of production, and therefore have a fundamental value. Stocks can go to almost any figure irrespective of what their face values or book values might show. The manufacturers would have the advantage of direct communication with the source of supplies and/or in- creased distributing outlet. Distributors : In the established markets that are pre- eminently leaders and have had a long and extensive training practically all the exporting is done through Page Fifty export firms. These firms are almost ranked in the pro- fessional class on account of their intimate knowledge of the peoples, countries, trade customs, and general condi- tions of the foreign countries in which they operate. Such firms are already established in San Francisco and any manufacturer of any commodity, whether he was located in Denver, Spokane, Eureka or Sacramento can send cuts and data to these different houses, who would gladly take them up with a view to presenting them in a proper and attractive manner, give advice as to writing the de- scription in the language of the country to which they are addressed, and then bring them before the proper channels for distribution. The hit or miss system employed at present by every little manufacturer endeavoring to spend a lot of money in useless advertising and sending out circulars in the wrong language to irresponsible accounts in different foreign countries is simply a symp- tom of nervous energy that will ultimately dwindle down to the proper trade distribution as explained above, and as has been worked out in London, Hamburg, etc. At a free port trained houses as mentioned above will continue to be represented and will be augmented probably by others. Consumer : It is always hard to tell just how much of any benefit will reach the ultimate consumer, but there is no denying the fact that direct handling, and the creation of big openings of marketing opportunities such as a free port, on account of its increased operation and activities, permit the landing and marketing of goods on a cheaper basis. The free port likewise tends to do away with temporarily high prices on account of shortages due to lack of steamer service. In regard to the advantages of San Francisco Bay, these can be divided into w r hat can be termed Natural and Artificial. NATURAL ADVANTAGES It is one of the finest harbors in the world, with plenty of deep water and area for dockage. It is never frozen Page Fifty-one up and is situated in a climate where goods keep well as regards temperature and moisture. When one realizes the amount of tonnage that is handled at say Singapore, where big ships have to lay off, or in Hongkong, where there is a great amount of moisture and heat at different times of the year, and handling is all done by lighters, you can realize what a natural advantage this port has. Kobe, which is doing a tremendous business at present, has only a small area protected by a breakwater, and it is necessary sometimes for steamers to lay out beyond it on account of no space. Steamers are attended by lighters. San Francisco is likewise located in a position that would very easily supply the other ports on the north and south of it, such as Seattle, Portland, San Pedro, San Diego. It is a natural place to break cargo and distribute. ARTIFICIAL ADVANTAGES As regards artificial claims for San Francisco, we be- lieve that there is no port on the Pacific that contains as many merchants that have gone through foreign coun- tries and done so much work to establish connections and get intimately in touch with the conditions of such countries and the requirements of their trade and the personality of their merchants. San Francisco's trade at the present time is almost all its own and radiates on account of the activity of its merchants. In a word the position of San Francisco can best be understood by anyone that is at all familiar with foreign trade by say- ing that if a man in any foreign country has any com- modity, whether it is sugar, or coffee, or hemp or beans, or anything else, he wishes to know what the market is in San Francisco, New York, London and Hamburg. This is due to connections and banking, and the former took a great deal of time and represents a great deal of effort. 9 GENERAL REMARKS: The above having gone into detail quite extensively we only wish to add that one of the great factors that hangs over 100 per cent of the importers' heads is gov- Page Fifty -two ernment red tape. There may be ways of handling many things, but if a merchant spent the time to study them up he would not have time to do any foreign business. The word, "free" port, in itself is a call to freedom of exchange which is like an invitation to the foreigner to trade, as he does not fear Pure Food regulations, under valuation fines, or any technical local laws of a country, and the merchant located in the free port reciprocates the same feeling in the same way. Page Fifty-three COMMITTEE ON FREE PORT GEO. A. NEWHALL, Chairman H. M. NEWHALL & CO. JNO. H. ROSSETER, Vice-Chairman W. R. GRACE & CO. HON. T. S. WILLIAMS BOARD OF HARBOR COMMISSIONERS HON. JNO. H. MCALLUM BOARD OF HARBOR COMMISSIONERS HON. RICHARD J. WELCH BOARD OF SUPERVISORS HON. J. J. DWYER ATTORNEY C. K. MclNTOSH V. P., BANK OF CALIFORNIA J. R. HANIFY J. R. HANIFY & CO. LARRY W. HARRIS AMES, HARRIS, NEVILLE CO. JOHN CLAUSEN V. P., CROCKER NATIONAL BANK W. H. HAMMER PREST. FOREIGN TRADE CLUB F. F. G. HARPER CUSTOMS BROKER C. J. SULLIVAN THRIFT, INCORPORATED J. H. POLHEMUS HAMBERGER-POLHEMUS CO. GARY W. COOK AMERICAN-HAWAIIAN S. S. CO. E. O. McCORMICK SOUTHERN PACIFIC COMPANY W. G. BARNWELL A. T. & S. F. RAILWAY H. K. FA YE WESTERN PACIFIC RAILROAD Gov. GEO. C. PARDEE OAKLAND J. H. KING PREST. CHAMBER OF COMMERCE, OAKLAND A. W. MALTBY CONCORD, CONTRA COSTA CO. GEO. S. WALL RICHMOND INDUSTRIAL COMMISSION C. P. CONVERSE RICHMOND, CAL. SECRETARY Page Fifty -four 14 DAY USE RETURN TO DESK FROM WHICH BORROWED LOAN DEPT. This book is due on the last date stamped below, or on the date to which renewed. Renewals only: Tel. No. 642-3405 Renewals may be made 4 days prior to date due. Renewed books are subject to immediate recall. LD21A-50m-2,'71 (P2001slO)476 A-32 General Library University of California Berkeley