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The Pamphlet Collection of Sir Robert Stout: Volume 56

Laws Regulating the Collection of Duties

Laws Regulating the Collection of Duties.

From April 27, 1816, down to the outbreak of war in 1861, there were eleven prominent enactments levying rates of duty, approved respectively, on April 20, 1818, April 18, 1820, May 22, 1824. May 19, 1828, May 20, 1830, July 14, 1832, March 2, 1833. September 11, 1841, August 30, 1842, July 30, 1846, and March 3, 1856.

There were, during the same period, eleven or more enactments regulating the collection of duties, some of them punishing frauds, approved, respectively, March 3, 1817, April 20, 1818, March 1, 1823, May 19, 1828, May 28, 1830, July 14, 1832, August 30, 1842, July 30, 1846, August 6, 1846, March 3, 1851, and March 3, 1857.

1818.—After the enactment of the tariff law of April 27, 1816, which levied ad valorem rates that were exceedingly low in comparison with page VII those levied to-day, the House of Representatives, on February 28, 1817, directed the Secretary of the Treasury to report to Congress at their next session "such measures as may be necessary for the more effectual execution of the laws for the collection "of the duties on imported goods, wares and merchandise." Under this law of 1810 only fifteen per cent, ad valorem was levied on linen and silk bindings, on blankets, bleached linens, bunting, burlaps, cambric linen and cambric handkerchiefs, and cashmere shawls; only twenty per cent, was levied on manufactures of copper, on cutlery, glassware, all manufactures of hemp, woollen, worsted or cotton hosiery, all manufactures of iron, and screws; only twenty-five per cent, on carpets and carpeting, manufactures of cotton of all descriptions, flannels, and manufactures of wool: and only thirty per cent, on brushes of all kinds, cabinet-wares, carriages, ready-made clothing of all kinds, hats and bonnets, and all manufactures of leather.

On January 18, 1818, my very able and distinguished predecessor, Mr. Crawford, made an elaborate report, which was printed in Executive Document No. 58, First Session, Fifteenth Congress. Immediately after the resolution of the House had been sent to him he addressed on May 7, 1817, a circular letter to collectors of customs, saying to them that a general impression appeared to prevail that frauds of a glaring nature were frequently committed upon the revenue, especially in importations upon consignments, and requesting them to communicate to him every circumstance tending to show the evasion of the provisions of the existing laws, accompanied by suggestions of ways and means to repress the evil. The Secretary in his report informs Congress that the Collectors of Customs "made no communication upon the subject;" but, in spite of what he describes as "the tacit evidence that the provisions of the Collection Laws are not materially defective," he nevertheless states that in his opinion,-"notwithstanding the result of these experiments, there is just reason to believe that frauds to a considerable extent have been and are now committed upon the revenue in the importation of articles upon consignments paying ad valorem duties." Mr. Crawford then proceeds in this report to make declarations to Congress in respect to evasions of the customs law, which well describe the conditions under which importations are, by so many intelligent observers, believed to be made in the present year of 1886. He says:

"The practice of shipping merchandise from Europe to the United States on account of the foreign shipper has greatly increased since the late peace. The immediate cause of this increase may be probably found in the general distress which at, and since that epoch, pervaded universally the manufacturing establishments, from whence our supply page VIII of foreign merchandise has been principally derived. The manufacturers unable to dispose of the products of their labor in their accustomed markets, assumed the character of exporting merchants, and shipped their merchandise directly to the United States, where it has been sold by their agents or consignees. In adopting this course, not only the fair profit of the manufacturer and exporting merchant is concentrated in the hands of the latter, but also the loss which the revenue sustains by invoicing the merchandise at the actual cost of the raw material and the price of the labor employed in its manufacture. Should any part of this profit not be realized, from the circumstances of the merchandise being sold in a glutted market, or from any other cause, the articles reached the hands of the consumer at a rate lower than it could be sold by the fair American importer. In either event the honest American merchant is driven from the competition, and in the latter, the domestic manufacture is deprived of the protection which was intended to be secured by the legislature.

"But, independent of this evasion of the revenue laws, which, by those who practice it, may be deemed consistent with the principles of morality, a practice of a less equivocal character is known to exist in importations, made by foreign merchants upon consignment. There is abundant reason to believe, that it is now customary in importations of this nature, to send with the merchandise, an invoice considerably below the actual cost, by which the entry is made and the duties secured. Another invoice at, or above, the actual cost, is forwarded to a different person, with instructions to take and sell the goods by such invoice. In this manner the person who enters the goods remains ignorant of the fraud to which he has been innocently made a party, and the fraudulent importer escapes with impunity. The facility with which frauds may be practiced by permitting entries to be made by persons who know nothing of the correctness of the invoices by which the duties are to be ascertained, so strongly invites to the substitution of false, for true invoices, that the practice must necessarily become universal, if suitable checks are not devised against it.

"It is also ascertained that resident merchants have in some instances connected themselves with foreign mercantile houses, which are in the habit of purchasing cloths of every description in their rudest state of manufacture, which are in their hands brought to the highest state of perfection by dyeing, dressing, or bleaching, according to the kind of cloth purchased. Such articles are invoiced at the price given for them in their unfinished state of manufacture, and upon those invoices the duties are estimated. Connections of this kind will necessarily increase, and eventually embrace the whole catalogue of articles paying ad valorem duties, unless checks calculated to repress the evil, are promptly devised and applied.

"The practice of entering goods without invoice is another mode now frequently resorted to, for the purpose of evading the payment of the duties which are legally demandable upon them. In these cases, and indeed in all cases, where the collector shall suspect that the invoices are fraudulent, the resort to appraisement authorized by law is generally found to be in favor of the importer, and against the Government. This may, in some measure, be attributable to the defect of the existing provisions upon that subject, but the universal experience of every department of the Government proves the danger there is of submitting any question to the decision of persons acting as arbitrators between the United page IX States and individuals. In most cases of this kind the appraisers are influenced by a morbid sensibility which almost invariably impels them to sacrifice the interest of the nation to that of the individual. Independent, however, of this indefensible principle of action, there must necessarily exist in most cases of appraisement under the collection laws, some individual bias in favor of the importer. The decision is to be made by merchants, and if made in favor of the Government, the reputation of the party in interest must be seriously affected. The persons called upon to decide may themselves be placed the next day in a situation to have their reputation assailed by the same means. The great body of the merchants may in the question under consideration be viewed as a distinct community, bound together by ties generally inscrutable to the collector; performing successively for each other, acts by which their pecuniary interests oftentimes acquire a unity, totally incompatible with the disinterested discharge of the duties of an appraiser. Should, however, the appraisement, in despite of all these obstacles, correspond with the impressions of the collector, and seizure of the merchandise be made, the party is allowed to prove the actual cost of the articles, and time is generally allowed by our courts, for the examination of witnesses beyond the seas. The result of an investigation under such circumstances can hardly be considered doubtful. In making these observations, no imputation upon the character of the American merchant is intended. As a body of men they are highly respectable for their intelligence, integrity and respect for the laws. So far as they are directly concerned in importations, I believe with the collectors of the customs that the revenue has been generally fairly paid. But it is impossible that the high character which they have hitherto maintained should be preserved against the ruinous competition in which they have, since the peace, been engaged, unless the frauds practised by the foreign importer shall be effectually restrained. Indeed, there is some reason to believe, that some among them have already resorted to practices, more effectual for evading the payment of duties justly demandable of them, than those which have been, with so much success, employed by foreign importers. It has frequently happened that a vessel bound to a particular port is freighted by merchants residing in the principal commercial cities. In such cases the goods have generally been entered by an agent or consignee, residing in the port where the vessel arrives, and the goods so entered are reshipped in their original packages to the ports where the owners severally reside, or to other ports of the United States. The entries are consequently made upon such in voices as are forwarded to the agent or consignee, of the correctness of which he is wholly ignorant. The goods thus reshipped in the original packages, having undergone no examination, are not subjected at the port to which they are reshipped to that kind of examination which they would have undergone had they arrived directly from a foreign port. The importer, therefore, not only avoids the necessity of swearing to the correctness of the invoices, but also eludes the vigilance of the custom-house, as his merchandise, at the port where it is opened and sold, has acquired the character of articles upon which the duties have been paid or secured. Cases of this kind have so greatly increased since the war, that it is difficult to avoid ascribing the increase in some degree to motives incompatible with the high character for integrity, and respect for the laws, which the American merchants as a body have so justly acquired.

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"There is some reason to believe that evasions are sometimes practised under the color of discounts allowed on the prices charged in the invoices. Under the Treasury regulations no conditional discounts are allowed; but it is extremely difficult to ascertain whether they are absolute or unconditional.

"In order to provide an adequate remedy against the frauds and evasions which already exist, and to prevent their further increase, it is respectfully submitted that provisions to the following effect be adopted."

Whereupon Mr. Crawford submitted to Congress twenty-four amendments to the law then existing and regulating the collection of duties, nearly all of which were embodied in the act of 1818. The ninth and tenth suggested amendments were these:

"9. In all cases where there shall be just grounds to suspect that goods paying ad valorem duties, have been invoiced below their actual costs, the collector shall order them to be appraised in the manner already described; if the appraisement shall exceed by—-per cent, the invoice prices, then, in addition to the—per cent, laid upon correct and regular invoices by the existing laws, there shall be added—per cent, upon the appraised value, upon which aggregate amount the duties shall be estimated.

"10. One-half the duties accruing upon such additional ten per cent, shall be distributed according to law between the custom-house officers of the port."

In addition to these twenty-four suggestions, a great part of which now, together with the law of 1799, constitutes the framework of the machinery for the collection of duties, Mr. Crawford advised Congress that:

"Whatever may be the reliance which ought to be placed in the efficacy of the foregoing provisions, it is certainly prudent to diminish, as far as practicable, the list of articles paying ad valorem duties. The best examination which circumstances have permitted, has resulted in the conviction that the following list of articles now paying ad valorem duties may be subjected to specific duties."

Mr. Crawford specifies over one hundred articles, the list of which is printed in his report, whereon he advised that the rates be changed from ad valorem to specific.

As to the invoice: The law of 1818 forbade the admission to entry of any foreign merchandise, subject to ad valorem rates, excepting when from a wreck, if "the original invoice thereof" shall not be presented, unless the Head of the Department assented, and provided that no entry the name of the real owner shall be declared, and an oath taken that the invoice exhibits the "true value," in the actual condition of the merchandise and the true value at the place from which brought hither. Nothing was said of date. If the owner was the manufacturer, he must swear that the invoice price is "the current value at the place of manufacture," (no allusion to date,) "and such as he would have received if the same had been there sold in the usual course of trade."

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As to appraisement: Two official appraisers were authorized at each of six ports, who, with a resident merchant chosen by the importer, should appraise all ad valorem merchandise suspected by the collector to be under-invoiced, and, if the appraised value exceeded by twenty-five per cent, the invoiced value, then fifty per cent, should be added to the appraised value, and one-half of the duty caused by the increase should be divided among the three chief officers of the port. But if the appraisal should be less than the invoice value, the rates should, nevertheless, be levied on the invoice value.

In this enactment is to be seen the germ of many of the existing intricate and complicated contrivances to baffle frauds. It required one package of every invoice to be opened, (which was a new requirement,) and also one of every fifty, and if found not to correspond with, or to be falsely charged in the invoice, then a full inspection of every package, and if in any package should be found an article not described in the invoice then that package should be confiscated. No new penalties were inflicted in 1818 for, or new definitions made of, false invoices. The law-makers chiefly confined their efforts to appraisements, and to increase of dutiable value if there was under-invoicing.