In answer to the argument that the domestic industry has so well withstood the competition offered by what seem to be extremely low-cost Italian hats, it has been urged that the Italian producers are far from their market and that jobbers prefer a source of supply more conveniently at hand. This statement involves the admission of a competitive disadvantage suffered by the foreign producer, which is clearly not capable of being measured. However, the one statistically measurable marketing disadvantage of the foreign producer, referred to, was unfortunately neglected when the commission's data were assembled. As has been suggested, costs secured, though not used, for the American producer included his expense of placing his hats in condition ready for delivery to the jobber, but only those Italian costs were obtained which with transportation added bring the product to the docks at New York. Importers must incur the expense of handling and reselling before the product is ready for the jobbers. In so far as such importers perform the jobbers' functions, the objections stated may not be valid, but any importers' costs of reselling to jobbers should undoubtedly have been collected and considered.
It may further be noted that some American manufacturers actually sell their hats to retailers. Such domestic selling expenses were secured by the commission on its schedules, and there is reason to believe that certain overhead items in the assembled costs are probably larger than they would otherwise be because of the imperfect allocation of selling and manufacturing expenses.
Deficiencies in comparative overhead data.—More striking in some respects than the failure to secure importers' selling expenses is the contrast exhibited in the commission's report between overhead expenses in the United States and abroad. The foreign overhead expenses are mere estimates, since the commission's representatives were refused access to the original books and records by practically every foreign firm. It accordingly became necessary to resort to estimates based on flat percentages of prime costs or sales price. These were in fact submitted by Italian manufacturers and used by the commission's representatives. It now develops that these percentages have never been analyzed or justified. Indeed, there is no definite record of what expense items were included or neglected in such percentages. The overhead expenses in the United States include very considerable salaries paid to officers of the domestic manufacturing concerns, and the question is presented whether, as some accountants maintain, such salaries should not be charged exclusively to selling rather than manufacturing expenses, since such officers usually pay more attention to the selling end of the business. In the commission's records it appears that about 85 per cent of the total officers' salaries was charged to manufacturing and about 15 per cent to selling. The importance in cost investigations of scrutinizing high salaries should be evident, as they might easily be, although, in this instance it is not suggested that they have been, used to conceal profits. It is worthy of note that the average salaries allowed by the commission's representatives in the domestic costs of all the hats manufactured amounted to 69 cents per dozen—nearly as much as the entire average Italian overhead charge. It is to be remembered, as already stated, that this average amount does not include the additional item allowed in the selling expense for officers' salaries. It is of interest to note, further, that the American firms which complain most of Italian competition showed the largest salary accounts. One firm, in fact, had a salary expense, included in manufacturing cost, of more than $1 per dozen hats. Nevertheless, even after the payment of such salaries, it has been shown that the industry as a whole earned approximately 10 per cent on the invested capital during the period covered by the commission's investigation.
It would be obviously difficult to determine what salaries should reasonably be allowed, but, in view of such a showing, it might be argued with force that, as has been done in other investigations when data unsatisfactory for a fair comparison have been secured, such data on both sides should be excluded from the final calculation. To illustrate, the commission in the present investigation has eliminated the item of interest here and in Italy, since adequate data for the Italian industry were unobtainable. If this principle were followed in the matter of overhead, a conclusion might reasonably be based on the comparison of material and labor costs here and in Italy plus transportation from Italy to our principal market or markets.
To illustrate the possibility, already mentioned, of diverse conclusions from the commission's record, the difference between the material and labor costs here and in Italy, with transportation included, is shown in the following table:
| Domestic | Italian | |
| Material costs | $6.44 | $4.35 |
| Labor | 4.60 | .87 |
| Total | 11.04 | 5.22 |
| Difference | $5.82 | |
| Transportation to New York | 1.10 | |
| Final difference | 4.72 | |
| Foreign selling value | 6.42 | |
| Per cent | ||
| Ad valorem duty required to equalize on basis of foreign selling value | 74 | |
| Present duty | 60 | |
The failure to consider interest on investment in the overhead introduces another difficulty of some importance. If rents actually paid are included in costs, equality of treatment demands that interest on capital invested in plants owned, and therefore not rented, should be considered. In the costs of 14 of the American companies investigated the rent charge amounted to $0.29 per dozen for all styles of hats. It appears that there is no information to show that any one of the Italian companies covered rented its factory; therefore, the failure to include interest on the capital invested in the Italian factories may have overestimated the relative strength of Italian competition. The failure to include interest on invested capital in the Italian costs might justify the exclusion of the rent item from the American overhead costs.
It will, of course, be argued that to disregard all overhead costs in both the foreign and domestic figures in the way suggested would fail to measure the domestic disadvantage arising from relatively higher overhead expenses. There are, however, two considerations, discussed in detail in this statement, which tend to compensate for any inaccuracy which the above findings might imply. They are (1) the method of sampling employed by the commission; and (2) the failure to consider certain of the Italian industries' marketing expenses.
Conclusions.—The principal significance of the foregoing discussion is to be found in the conclusion that, in recommending under the law an increase in the present rate of duty on lower-priced hats from 60 to 88 per cent on foreign value, the statute is being liberally construed from the point of view of the domestic industry, in the effort to arrive at an equalization of costs in the United States and abroad. Regardless of the legal question as to whether transportation should or should not be included, any higher duty on any of the hats investigated than 88 per cent on foreign value—particularly so high a duty as 105 per cent, or the equivalent 50 per cent on American selling price, which has been suggested by certain commissioners—involves such a grave departure from the economic purposes sought to be promoted by section 315 as to make it highly desirable that the present investigation be reopened before any such increase in duty is proclaimed.
Reviewing, therefore, the whole record in this investigation and dismissing, though not without hesitation, the foregoing argument in favor of a lower rate of duty than 88 per cent, foreign value, on the lower-priced hats, it is submitted that under the law the data collected by the commission in this investigation warrant formal findings of fact to the following effect: