(9) Notwithstanding subdivision (1) of this subsection, no Philippine import duty shall be levied, collected, or paid upon American cigarettes, brought into the Philippines from the United States, within the quotas hereinafter established. For the period July 4, 1946, through December 31, 1946, the said quota shall amount to one billion one hundred and twenty-five million cigarettes. For the calendar year 1947 the quota shall be two billion one hundred million cigarettes and for each calendar year thereafter the quota shall be the same as the quota for the immediately preceding calendar year less one hundred and fifty million cigarettes. The exclusive preferences provided for in subdivision (1) of this subsection shall not apply to any American cigarettes entered or withdrawn from warehouse, for consumption in excess of the said quotas.

(10) The said agreement shall continue in effect through December 31, 1960, subject to the right of either party to terminate the agreement, at any time on or after July 4, 1953, upon giving two years' prior notice, and subject to such provisions as may be included in the agreement pursuant to subsection (b) of this section.

(c) Nothing contained in this section shall be construed to modify or affect in any way any provision of this Act relating to the procedure leading up to Philippine independence or the date upon which the Philippines shall become independent.

Sec. 18. (a). As used in sections 6, 10, and 13 of this Act―

(1) The term "United States," when used in a geographical sense, but not the term "continental United States," includes all Territories and possessions of the United States, other than the Philippines.

(2) The term "cordage" includes yarns, twines, cords, cordage, rope and cable, tarred or untarred, wholly or in chief value of manila (abaca) or other hard fiber, but does not include binding twine described in paragraph 1622 of the Tariff Act of 1930 (47 Stat. 672).

(3) The term "Philippine Government" means the Government of the Commonwealth of the Philippines.

(4) The term "United States duty," when used in connection with the computation of export taxes, means the lowest rate of ordinary customs duty in effect at the time of the shipment of the article concerned from the Philippines and applicable to like articles imported into the continental United States from any foreign country, except Cuba, or when more than one rate of ordinary customs duty is applicable to such like articles, the aggregate of such rates.

(5) The term "United States duty," when used in any other connection, means the lowest rate of ordinary customs duty applicable at the port of arrival in the United States, at the time of entry, or withdrawal from warehouse, for consumption of the article concerned, to like articles imported from any other foreign country, except Cuba, or when more than one rate of ordinary customs duty is applicable to such like articles, the aggregate of such rates.

(6) The term "refined sugars" possesses the same meaning as the term "direct-consumption sugar" as defined in section 101 of the Sugar Act of 1937. (7) The term "Philippine article" means an article the growth, produce, or manufacture of the Philippines, in the production of which no materials of other than Philippine or United States origin valued in excess of 20 per centum of the total value of such article was used and which is brought into the United States from the Philippines.

(8) The term "American article" means an article the growth, produce, or manufacture of the United States, in the production of which no materials of other than Philippine or United States origin valued in excess of 20 per centum of the total value of such article was used and which is brought into the Philippines from the United States.

(9) The term "Philippine import duty" means the lowest rate of ordinary customs duty applicable at the port of arrival, at the time of entry, or withdrawal from warehouse, for consumption of the article concerned, to like articles imported into the Philippines from any other foreign country, or when more than one rate of ordinary customs duty is applicable to such like articles, the aggregate of such rates.

(b) As used in subsection (a) of this section

(1) The term “includes" shall not be deemed to exclude other things otherwise within the meaning of the term defined.

(2) The term "ordinary customs duty" shall not include any import duty or charge which is imposed to compensate for an internal tax imposed in respect of a like domestic product or in respect of a commodity from which the imported product has been manufactured or produced in whole or in part.

Sec. 19. (a) The proceeds of the excise taxes imposed by section 6021⁄2 of the Revenue Act of 1934 (48 Stat. 763), as amended, and of the import taxes imposed by section 601 (c) (8) (C) of the Revenue Act of 1932, as amended (52 Stat. 569), collected on or after January 1, 1939, and accrued prior to July 4, 1946, and required to be held in separate or special funds and paid into the Treasury of the Philippines, together with any moneys thereafter appropriated in accordance with the authorization contained in section 503 of the Sugar Act of 1937 (50 Stat. 915) by virtue of accruals of excise and import taxes prior to July 4, 1946, shall be held as separate funds and paid into the Treasury of the Philippines to be used for the purpose of meeting new or additional expenditures which will be necessary in adjusting Philippine economy to a position independent of trade preferences in the United States and in preparing the Philippines for the assumption of the responsibilities of an independent state: Provided, however, That the portion of such funds expended by the Government of the Commonwealth of the Philippines, shall be budgeted, appropriated, and accounted for separately from other moneys of that government.

(b) If the President of the United States finds that the Government of the Commonwealth of the Philippines has failed or is about to fail to comply with any requirement of subsection (a) of this section, he shall direct the Secretary of the Treasury of the United States to withhold during any period or periods: of time specified by the President of the United States, or to discontinue permanently, further payments in whole or in part.

(c) The provisions contained in the Revenue Act of 1934, as amended, prohibiting further payments in the event that the Government of the Commonwealth of the Philippines should provide by law for the subsidization of producers of copra, coconut oil, or allied products, and the provisions contained in the Sugar Act of 1937, specifying the purpose for which said appropriations could be used by the said Government and in the manner and condition of transfer, shall not apply to any moneys collected or appropriated pursuant to said Acts on or after January 1, 1939, and to this extent, are hereby repealed: Provided, however, That the restriction contained in the proviso to section 503 of the Sugar Act of 1937 shall continue in full force and effect.

(d) Nothing contained herein shall be construed as obligating the United States to continue for any period of time any or all of the excise and import taxes imposed by section 6021⁄2 of the Revenue Act of 1934, as amended, by section 601 (c) (8) (C) of the Revenue Act of 1932, as amended, or by title IV of the Sugar Act of 1937.

(e) Notwithstanding the provisions of section 4 of the Act of March 8, 1902 (32 Stat. 54), or of any other provisio nof law, all customs duties collected on or after the first day of the second month following the passage of this Act on articles brought into the United States from the Philippines, except as otherwise provided in this section, shall be covered into the general fund of the Treasury of the United States and shall not be paid into the Treasury of the Philippines.

Section 19 as proposed by the bill would amend section 6022 of the Revenue Act of 1934, as amended [Act of May 10, 1934 (48 Stat. 763), as amended by the Act of June 22, 1936 (48 Stat. 1742), as amended by section 703 of the Revenue Act of 1938 (52 Stat. )], as follows: There is hereby imposed upon the first domestic processing of coconut oil, palm oil, palm-kernel oil, fatty acids derived from any of the foregoing (whether or not such oils, fatty acids, or salts have been refined, sulphonated, sulphated, hydrogenated, or otherwise processed), or any combination or mixture containing a substantial quantity of any one or more of such oils, fatty acids, or salts, a tax of 3 cents per pound to be paid by the processor, but the tax under this section shall not apply (1) with respect to any fatty acid or salt resulting from a previous first domestic processing taxed under this section, or upon which an import tax has been paid under section 601 (c) (8) of the Revenue Act of 1932, as amended, or (2) with respect to any combination or mixture by reason of its containing an oil, fatty acid, or salt with respect to which an import tax has been paid under such section 601 (c) (8). There is hereby imposed (in addition to the tax imposed by the preceding sentence) a tax of 2 cents per pound, to be paid by the processor, upon the first domestic processing of coconut oil or of any combination or mixture containing a substantial quantity of coconut oil with respect to which oil there has been no previous first domestic processing, except that the tax imposed by this sentence shall not apply when it is established, in accordance with regulations prescribed

by the Commissioner with the approval of the Secretary, that such coconut oil (whether or not contained in such a combination or mixture) (A) is wholly the production of the Philippine Islands or any other possession of the United States, or (B) was produced wholly from materials the growth or production of the Philippine Islands or any other possession of the United States, or (C) was brought into the United States on or before the thirtieth day after the date of the enactment of this Act or produced from materials brought into the Unied States on or about the thirtieth day after the date of enactment of this Act, or (D) was purchased under a bona fide contract entered into prior to to April 26, 1934, or produced from materials purchased under a bona fide contract entered into prior to April 26, 1934. All taxes collected under this section with respect to coconut oil wholly of Philippine production or produced from materials wholly of Philippine growth or production, shall be held as a separate fund and paid to the Treasury of the Philippine Islands [but if at any time the Philippine Government provides by any law for any subsidy to be paid to the producers of copra, coconut oil, or allied products, no further payments to the Philippine Treasury shall be made under this subsection.]

[The bill adds section 19 to the act of March 24, 1934, the provisions of which are set forth above. This new section prescribes the purposes for which these funds may be used by the Commonwealth Government and grants to the President the power to discontinue or withhold further payments should the Commonwealth authorities fail to satisfy these requirements.]

For the purposes of this section the term "first domestic processing" means the first use in the United States, in the manufacture or production of an article intended for sale, of the article with respect to which the tax is imposed, but does not include the use of palm oil in the manufacture of tin plate or terne plate, or any subsequent use of palm oil residue resulting from the manufacture of tin plate or terne plate.

Section 19 as proposed by the bill would amend section 503 of the Sugar Act of 1937 (50 Stat. 915), as follows:

There is authorized to be appropriated an amount equal to the amount of the taxes collected or accrued under title IV on sugars produced from sugarcane grown in the Commonwealth of the Philippine Islands which are manufactured in or brought into the United States on or prior to June 30, 1941, minus the costs of collecting such taxes and the estimates of amounts of refunds required to be made with respect to such taxes, for transfer to the Government of the Commonwealth of the Philippines [for the purpose of financing a program of economic adjustment in the Philippines, the transfer to be made under such terms and conditions as the President of the United States may prescribe]:

[The bill adds section 19 of the act of March 24, 1934, the provisions of which are set forth above. This new section prescribes the purposes for which these funds may be used by the Commonwealth Government and grants to the President the power to discontinue or withhold further payments should the Commonwealth authorities fail to satisfy these requirements.]

Provided, That no part of the appropriations herein authorized shall be paid directly or indirectly for the production or processing of sugarcane in the Philippine Islands.

Section 4 of the Act of March 8, 1902 (32 Stat. 54), reads as follows: "That the duties and taxes collected in the Philippine Archipelago in pursuance of this Act, and all duties and taxes collected in the United States from articles coming from the Philippine Archipelago and upon foreign vessels coming therefrom, shall not be covered into the general fund of the Treasury of the United States, but shall be held as a separate fund and paid into the treasury of the Philippine Islands, to be used and expended for the government and benefit of said islands."

[By virtue of the provisions of the act of March 8, 1902, the proceeds of the import tax imposed on Philippine articles by section 601 (c) (8) (C) of the Revenue Act of 1932, as amended, are "paid into the Treasury of the Philippine Islands, to be used and expended for the government and benefit of said islands."

Section 19 as proposed by the bill would require these funds, as well as the proceeds of the processing tax on Philippine coconut oil and any moneys appropriated pursuant to the Sugar Act of 1937, “to be used for the purpose of meeting new or additional expenditures which will be necessary in adjusting Philippine economy to a position independent of trade preferences in the United States and in preparing the Philippines for the assumption of the responsibilities of an independent state" and would subject these funds to the other limitations set forth in this section.

Section 19 (e) would amend section 4 of the Act of March 8, 1902, by prohibiting the refund of "customs duties collected on or after the first day of the second month following the passage of this act on articles brought into the United States from the Philippines, except as otherwise provided in this section * * *."]

The Act of June 14, 1935 (49 Stat. 340) reads as follows:

"That, effective May 1, 1935, and for three years thereafter, the total amount of all yarns, twines, cords, cordage, rope, and cable, tarred or untarred, wholly or in chief value of manila (abaca) or other hard fiber, produced or manufactured in the Philippine Islands, coming into the United States from the Philippine Islands, shall not exceed six million pounds during each successive twelvemonth period, which six million pounds shall enter the United States duty free. "The amount or quantity of such articles which may be so exported to the United States shall be allocated under export permits issued by the Government of the Philippine Islands, to the producers or manufacturers thereof. This allocation shall be made by the Governor General of the Philippine Islands prior to the inauguration of the Commonwealth of the Philippines, and thereafter by the President of said Commonwealth, unless otherwise provided by the legislature of the Commonwealth.

"SEC. 2. Pending the final and complete withdrawal of American sovereignty over the Philippine Islands, the President of the United States may, by proclamation, at least ninety days prior to the expiration of the three-year period provided in section 1 hereof, extend the operation of this Act for an additional period of three years or more, provided such extension is accepted by the President of the Commonwealth of the Philippines.

"SEC. 3. On and after the expiration of the operation of this Act the articles described in section 1 coming into the United States from the Philippines shall be subject to the provisions of section 6 of the Act of Congress approved March 24, 1934, entitled 'An Act to provide for the complete independence of the Philippine Islands, to provide for the adoption of a constitution and a form of government for the Philippine Islands, and for other purposes.'

"SEC. 4. Except as provided herein, nothing in this Act shall be construed to modify or repeal the provisions of any existing law.

"SEC. 5. The Secretary of the Treasury shall promulgate such rules and regulations as may be necessary to enforce the provisions hereof; and this Act shall be enforced as part of the customs law."

[Section 6 (f) (2) of the act of March 24, 1934, as amended by this bill would require that future quotas for cordage be allocated according to the formula which was adopted administratively immediately following the passage of the act of June 14, 1935, and which has been used continuously since that time. Upon the expiration of this act on May 1, 1941, the quotas provided for by this measure would be continued through July 4, 1946, by section 6 (e) of the act of March 24, 1934, as amended by the bill. Section 13 (b) (4) of the act of March 24, 1934, as amended by the bill requires the inclusion in the Executive agreement of a provision for the continuation of these quotas through 1960.]

The CHAIRMAN. Gentlemen, we are now starting hearings on a new bill, dealing with the Philippine Islands. This bill was drafted as a result of joint hearings, of hearings rather by joint committee representing the Government of the United States and representatives of the Philippine Government.

They made numerous recommendations in pamphlet form, as a result of which this bill was devised. I introduced it by request, not being familiar with all its ramifications, so that we could have discussion and see what amendments, if any, were necessary in order to

perfect the bill, or whether the committee wanted to recommend it or reject it as a matter of national policy.

We are now starting those hearings, and Mr. Sayre, who was on the committee representing the Government of the United States in these negotiations, will be our first witness. Mr. Sayre, Assistant Secretary of State:

STATEMENT OF HON. FRANCIS B. SAYRE, ASSISTANT SECRETARY OF STATE AND CHAIRMAN OF THE INTERDEPARTMENTAL COMMITTEE ON PHILIPPINE AFFAIRS

Mr. SAYRE. Mr. Chairman and gentlemen, members of the committee, might I suggest, if agreeable to you, that I first make a statement describing the bill and the purposes which we are seeking to attain, and then subject myself to questions at the end of the reading of my statement. Would that be agreeable to the committee?

The CHAIRMAN. Is that agreeable to the committee? Suppose you proceed in that fashion.

Mr. SAYRE. I appreciate this opportunity of explaining something of the background and some of the more outstanding features of the bill which lies before you. I also appreciate the chance of bringing before you in a general way the views of the Interdepartmental Committee on Philippine Affairs, of which I happen to be chairman. For over 4 years this Interdepartmental Committee, made up of representatives of all the Government departments concerned, has been wrestling with economic and commercial problems connected with the Philippines. For over a year another committee, called the Joint Preparatory Committee on Philippine Affairs, composed of both American and Filipino experts, and appointed at the suggestion of the Interdepartmental Committee, was studying trade relations between the United States and the Philippines and seeking to formulate a program for the adjustment of Philippine national economy in connection with approaching independence.

The bill which lies before you embodies the recommendations of that joint committee, as constituting the most practicable and the fairest way to give to the Filipino people a chance to achieve and maintain their economic independence, upon which alone can rest a stable political independence.

Senator VANDENBERG. Would it interrupt you if I asked you for a list of the membership of this joint committee?

Mr. SAYRE. I would be glad to insert that in the record.
Senator VANDENBERG. I would like to look at it.

The CHAIRMAN. I think it ought to be in the record.
Mr. SAYRE. Yes; I will put it in later.

These recommendations were unanimously agreed to by both the American and the Filipino members of the joint committee. They also have the unanimous approval of the Interdepartmental Committee on Philippine Affairs. The bill before you, embodying these recommendations, has their approval, as well as the approval of President Roosevelt. Subject to a few changes of phraseology, it also has the complete endorsement and approval of the commonwealth government of the Philippines and of President Quezon, a fact which I believe will be confirmed by the Honorable Sergio Osmena, vice president of the Philippines.