APPENDIXES

Appendix A.-MERCHANDISE ADJUSTMENTS

The officially recorded export and import statistics of the United States are not an exact measure of the cash claims involved in the country's international merchandise transactions. Certain commodity transactions, such as the sale and purchase of ships and bunker fuel, are not reported in the official customs figures. Transactions arising from the provisioning and repairing of ships are only in part covered by the merchandise trade data. Until the repeal of the prohibition amendment, payments for smuggled liquors represented a substantial item not recorded in the official statistics. Allowance must be made for smuggled narcotics and for diamonds and jewelry brought into the country surreptitiously to evade the payment of duty. Parcel-post exports and imports are only partly included in the customs figures.

On the other hand, certain reported data represent transactions which do not involve the international transfer of funds. For example, the recorded values of household goods brought into the country by immigrants and of similar goods taken out by departing aliens involve no transfer of funds. American corporations, operating properties in foreign countries, often import the products of their operations and employ all or a large part of the proceeds in meeting administration expenses of their home offices. Imports of copper from American mines in Chile, sugar imports from American-owned plantations in Cuba, petroleum shipments to the United States from wells in Mexico and Venezuela operated by American capital, and pulpwood and newsprint received from United States properties in Canada, all are typical of this type of import transaction. Were accurate data available this adjustment should properly be made in the estimated return on American direct investments abroad. In the absence, in many instances, of separate financial statements for foreign subsidiaries or producing units of domestic corporations such a procedure would, however, be impracticable. Furthermore, the effort would be rendered all the more difficult if applied to the data of the last 2 years because of the complicated foreign exchange situation discussed below.

During the last 3 years attention has also been called in this annual survey to the fact that certain exports of American corporations to their foreign subsidiaries similarly involve no transfer of funds. Examples are the shipment of second-hand machinery and equipment to points of foreign operations.

Remittances by charitable, religious, and other institutions often assume the form of supplies purchased in the United States and, therefore, involve no transfer of funds. Owing to the fact that the annual estimate of total remittances by such institutions includes all contributions, whether in goods or funds, the adjustment is automatically made in the recorded "invisible" import item and no deduction from merchandise exports is necessary.

The recorded values of imports subject to ad valorem duties tend on the whole to be understated. Bad debt losses represent minor, but not necessarily negligible, factors requiring adjustments of both export and import data. Consignment shipments may result in understatement or overstatement of foreign trade figures for balance-of-payments purposes. In the case of cash discount terms of sale the actual receipts may be slightly less than the recorded export values. The net result of these factors is not possible of accurate statistical determination. However, in the aggregate they are sufficiently important to justify a rough estimate based on known factors which featured export and import trade during the year.

The suspension of gold payments and the fluctuations of the dollar introduced new difficulties during 1933 in the efforts to evaluate accurately the import and export values for balance-of-payments purposes. In certain cases imports have been paid for in balances blocked abroad. In such instances imports may have been valued at nominal gold parity but paid for in part by foreign currency balances converted from export or other receipts at a lower rate, but not sur(63)

rendered in full under the exchange control.

Unless account be also taken of this type of transaction in estimating the year's net change in blocked accounts outstanding abroad there would be a tendency for the imports to be correspondingly overvalued. During times of currency fluctuations it is possible that often the funds accumulated in foreign currencies from the proceeds of exports do not correspond to the invoice values.

In 1931 a special credit item of $9,000,000 was included in merchandise adjustments to cover roughly the gain which accrued to United States importers of goods coming from England and other countries whose currencies had suffered sudden declines when their respective Governments suspended gold payments. It was pointed out that an average of 1 month was allowed, as a reasonable period, during which values of imports from such countries were entered in the customs statistics at exchange rate values prevailing prior to the sudden break in exchange rates. Calculations based on the imports received from countries in this group indicated that even maximum estimated deductions were comparatively small in relation to the volume of trade involved. Except in case of such unusual situations as those of September 1931, when England and a group of important commercial countries suspended gold payments, it is not likely that such "corrections" are very important. Hedging operations and the usual speculative influences tend in the long run to balance the gains and the losses in any particular market.

The cross-currents of international exchange in 1933 do not permit quite so simple an explanation of the effect of exchange rates on the official foreign trade data for balance-of-payments purposes. As explained in the section, The Dollar in Foreign Exchange in 1933, the decline in the dollar in terms of gold currencies was intermittently very sharp. The situation was complicated by the fact that the majority of foreign countries were either on a depreciated paper basis or kept their currencies nominally at gold parity through exchange controls. Nevertheless, the very uncertainty of the dollar exchange situation provided correctives. For example, the sharp decline in the dollar in terms of gold as well as most paper currencies during the 2-week period immediately following April 20, should theoretically have led to an "understatement" of the dollar value of imports, especially those from gold-standard countries. Yet in practice this was only partly true. Available evidence indicates that the critical banking situation of February-March, to which has been properly attributed a marked flight of capital, became the signal for a large volume of forward buying by Americans of foreign exchange in anticipation of commercial needs later in the year. Such buying took place at intervals throughout the year with the result that "protective" gains on foreign exchange purchases became an offset to the "theoretical" losses on import costs as reflected in the customs data. Again, the same influences which induced dollar funds to "flee" abroad and depress the dollar encouraged some American exporters to sell in foreign currencies, particularly sterling, rather than in dollars. In many other cases exporters either sold only for cash at time of shipment or required definite assurance that dollar funds would be made available upon arrival of the goods abroad. Whether the required adjustments of recorded exports and imports not otherwise accounted for offset each other to an important degree cannot be ascertained.

One of the most important entries in this miscellaneous group is that of silver movements. During the year exports amounted to roughly $19,000,000 and imports to $60,000,000.

The Bureau of Navigation of the Department of Commerce reports that $557,000 was paid to the United States by foreigners for vessels purchased here while payments to foreigners by Americans for vessels aggregated approximately $1,500,000. Sales of bunker coal in the United States to foreign vessels amounted to $4,557,000 while sales of bunker oil amounted to $13,566,000. Purchases of bunker fuel abroad can be only roughly estimated. In view of the fact that the total tonnage of American vessels clearing for foreign ports during 1933 showed a comparatively small increase over that of 1932 and because of the depreciation of the dollar, this item is estimated at $5,500,000 as compared with $5,000,000 in 1932.

Another balance-of-payments item not recorded in the official trade statistics is that of ship repairs and provisions sold in this country to foreign passenger ships. The depreciation of the dollar and the failure of retail prices to rise proportionately probably caused such purchases to be more freely made in American ports in 1933 than in 1932. However, owing to the sharp decline in the number of tourist sailings from American ports and the fact that the 1932 estimate now appears to have been somewhat liberal it seems reasonable to accept the same

figure for 1933, namely $30,000,000.

The estimated value of repairs and provisions purchased abroad by American vessels is placed at $15,000,000. This represents a deduction of $5,000,000 from the estimate af 1932. Although the American tonnage cleared from United States ports was slightly higher than in 1932 it is probable that the depreciation of the dollar limited foreign purchases to those essential to the return trip or to the vessel's safety. Attention is called to the fact that part of the purchases of ship repairs abroad enter into the official import figures owing to the duty of 50 percent on equipments purchased except where such purchases were necessary to secure the safety of the vessel to enable her to reach her port of destination.

The recorded values of United States exports and imports by parcel post during the first 6 months of 1933-after which compilation of these statistics was discontinued as part of the economy program-were $4,117,721 and $8,532,242, respectively. These figures are, therefore, included in our official foreign trade figures. Inasmuch, however, as a substantial portion of parcel-post exports is not normally recorded the omission of such exports from the published data is considerably more than that part omitted because of the change in practice at the end of the 1932-33 fiscal year.

It is impossible to determine the exact proportion of our parcel-post imports recorded by the customs. American tourists while abroad send large numbers of parcels to their relatives and friends in this country. Many of the thousands of Americans permanently residing abroad send gifts to friends in the United States. Thus items which should be here omitted because they are included in tourist expenditures or should be classed as gifts are certain to be reported-at least in part-in the customs statistics. It is probable that some of these imports are covered in immigrant remittances inasmuch as aliens resident here often remit funds to relatives for special purchases in the home country. Owing to the strong probability of some duplication it is reasonable to believe that all parcelpost imports not recorded in the official customs are fully covered in the invisible import items.

In the case of parcel-post exports from the United States, declarations are required only when the shipment is made by one business firm to another and then only in case the value is $25 or more. A special survey conducted by the New York post office in 1924 showed that the average value per pound was $2.40. On the assumption that half of the shipments constituted gifts, the balance-ofpayments value of each pound was considered to be $1.20. In view of the fact that between 1924 and 1933 commodity prices declined about 33 percent, it is probably safe to assume that the average price decline applicable to the more or less specialized goods entering into parcel-post shipments was not over 30 percent. It is, therefore, estimated that the value of all parcel-post exports, the total weight of which was 22,576,972 pounds, was approximately $18,000,000. Inasmuch as only $4,000,000 is entered in the official import data, an estimate of $14,000,000 is included in the item of merchandise adjustments.

The recorded merchandise export and import statistics include several groups of nontrade items; that is, items which do not give rise to offsetting cash claims. These items are more or less unrelated to each other and there is no definite rule, other than perhaps that of convenience, which serves as a guide to the proper method whereby account may be taken of them in the balance of international payments. All groups involve relatively small amounts and, owing to the fact that the first statistical reference to them appears in the merchandise statistics, it is believed that account may properly be taken of them in the miscellaneous merchandise adjustments.

In 1933 exports of household goods by departing aliens amounted to approximately $7,740,000 while imports were $3,320,000. To compensate for this excess of exports which involved no international payments a debit item of $4,420,000 is included in merchandise adjustments.

Among other factors which tend to influence the actual amount of funds transferred as a result of the various international merchandise transactions are (1) the tendency toward understatement of import values in the case of goods subject to ad valorem duties, (2) bad-debt losses by foreigners here and by Americans abroad, (3) possible losses or gains on consignment shipments, (4) deductions under cash-discount terms of sale, and (5) payments by United States exporters of fees on consular invoices.

In the item of merchandise adjustments allowance is also made for the estimated value of smuggled liquors and narcotics and of diamonds and jewelry brought into the country under concealment for the purpose of avoiding the payment of duty. The smuggling of liquor was not as important a factor during 1933 in the

balance of payments as in other recent years but owing to the fact that the repeal of prohibition did not become legally effective until close to the end of the year it is necessary to take account of purchases of foreign liquors and payment therefor made by American buyers during 1933 in all cases where the importation of such purchases was not effected until 1934.

The aggregate receipts or credits in 1933 under merchandise adjustments are estimated at $85,000,000 and the total payments or debits at $162,000,000 with a resultant debit balance of $77,000,000.

Appendix B.-FREIGHT AND SHIPPING ACCOUNT

RECEIPTS FROM FOREIGNERS

Estimated freight and shipping receipts and expenditures, which enter the United States balance of international payments, are influenced by the methods employed in recording the values of merchandise exports and imports. Our export statistics are supposed to show the value f.o.b. United States port, or, in case of transport by land vehicle, at the border point of shipment. Therefore, this country's receipts from foreigners for merchandise sold include not only the recorded value of the goods, but also freight earnings on those exports shipped abroad on American vessels.

The United States Shipping Board Bureau has computed receipts of American vessels for the carriage of our exports in 1933 at $29,404,549 as compared with $70,080,747 earned by foreign vessels. The former figure represents a balanceof-payments receipt, or "credit", and is entered at $30,000,000 in order to cover small but unestimated earnings of American vessels for the carriage of freight cargoes from one foreign port to another.

United States railways, as well as shipping lines, perform certain services for foreigners such as (1) the carriage of wheat and other breadstuffs from the Great Lakes to the Atlantic coast ports and from points in western Canada to United States Pacific coast ports, (2) the carriage in bond of Canadian imports from overseas via United States ports, and (3) the transport of United States exports to Canada whose declared value in the export declarations excludes freight to the border. The first two of these freight services-especially the second-are comparatively unimportant from the standpoint of the international balance.

Receipts of American railways from foreigners for the carriage across United States territory of Canadian exports to, and imports from, overseas countries are entered at $3,000,000. The goods carried are largely wheat and other breadstuffs from the Great Lakes to the Atlantic coast ports. In 1933 such haulage amounted to 1,407,000 short tons as compared with 936,000 short tons in 1932. Wheat constituted over 90 percent of the total. Since more than 80 percent of the products involved are normally carried to export shipping points within the New York customs area and freight rates from the lake points of shipment to each of the five principal Atlantic seaports vary relatively little, the Buffalo-to-New York rate on wheat shipments is applied to the total volume of breadstuffs carried. This rate in 1933 averaged between 9 and 10 cents per 100 pounds and the estimated earnings were, therefore, somewhat in excess of $2,500,000.

A third credit item covers freight earnings by United States railways for the carriage of goods whose declared value in the export declarations excludes freight to the border. The regulations of the Department of Commerce indicate that in declaring the value of exports, freight to the border should be included but in actual practice only certain exports, notably coal, are so valued. This item is estimated at $16,000,000.

PAYMENTS TO FOREIGNERS

United States import statistics show the value of our foreign merchandise purchases at the foreign point of shipment. The inclusion of freight and insurance, therefore, gives our imports at the time of entry a higher value than that recorded in our official import statistics. According to the United States Shipping Board Bureau's computation the cost to American importers of ocean and Great Lakes freight service amounted to $71,513,766, of which $45,229,299, enters the balance of payments because earned by foreign-owned vessels.

1 "The values stated should be the actual cost or selling price, if the goods are sold, including the cost of cases and other containers and actual or estimated inland freight charges from the interior place of shipment to the seaport or border point of exportation. If shipped on consignment without a sale having been made, the market value at the time of exportation in the ports of the United States from which exports should be stated." Statistical Classification of Domestic Commodities Exported from the United States.

The most important United States payment to foreign railroads is that for the carriage of imports from the point of inland shipment to foreign or lake shipping point from which the goods are shipped to this country. In 1933 total imports which entered the United States by land vehicles were valued at $162,000,000, or $24,000,000 more than in 1932. Inasmuch as only a small fraction of this traffic takes place across the Mexican border no separate estimate covering the latter is attempted. The Dominion Bureau of Statistics estimated that in 1931 Canadian freight receipts on goods shipped to the United States were approximately $12,000,000 (Canadian currency). On the basis of a decline of approximately 25 percent in the value of the "land vehicle" imports in 1933 as compared with 1931 and a slightly greater discount on the Canadian dollar in 1933 than in 1931, it is estimated that payments to Canada in 1933 under this item were about $9,000,000. In order to allow for freight upon water-borne imports from foreign points of origin to foreign seaports in other countries and for payments to Mexican railways this estimate is raised to $10,000,000.

Finally, payments are made to Canadian railways for United States exports carried in bond across Canadian territory and for the carriage of United States imports "in transit" through Canada. The Dominion Bureau of Statistics reports monthly the volume of agricultural, animal, mineral, forest, and manufactured products, respectively, "received from foreign connections destined to foreign points" and transported over Canadian railways. The total of such freight in 1933 amounted to 8,503,818 tons. Normally about 25 percent of this traffic represents United States exports to oversea customers and includes exports of lumber and grain from the northwest via Vancouver and of meat products from the Middle West packing centers via Montreal. Freight on such shipments is collected by the Canadian railways from the buyer and does not, therefore, enter into the United States balance of payments. The remainder represents largely "in transit" traffic, mostly in southern Ontario, about one-fourth of which is carried on Canadian lines and three-fourths on United States railroads operating in Ganada but with their head offices, where payments are received, in the United States. Estimated payments to Canadian railroads and that part of the estimated funds paid to American-owned lines not employed within the United States represent payments to Canada in the balance of payments as an offset to the corresponding receipts from abroad by American exporters. On the assumption that these were transported an average distance of 300 miles, at a rate of about 1 cent per ton-mile, it is estimated that the payments to Canadian lines amounted to roughly $5,000,000. Approximately an equal amount, it is estimated, should be included to cover the other freight payments. This estimate is probably sufficient to include payments made for the carriage of 22,712 hundredweights of raw silk carried "in transit" across Canadian territory. A total entry of $10,000,000 is, therefore, made.

Appendix C.-UNITED STATES-CANADIAN TOURIST ACCOUNT

Since 1928 the Finance and Investment Division has collected annual data on expenditures in Canada by United States automobile tourists, through the use of post-card questionnaires handed to returning motorists by Canadian border officials. In the distribution of these questionnaires account is taken of the changes in the volume of tourist traffic during the different months of the year as well as of the relative importance of such travel on each day of the week. The results of the 1933 post-card canvass are shown in table I.

During 1933 the total number of United States automobiles "imported into Canada for tourist purposes" was 3,096,887, approximately 25 percent less than in 1932 and 43 percent below the figure for the peak year 1930. A total of 2,233,418 cars entered on 24-hour permits, 863,136 were admitted for a period not exceeding 60 days, and 333 entered on 6-month permits. (See table III.) The estimated expenditures per car were based, as in other recent years, on the returns to post-card questionnaires distributed through the courtesy of Canadian border officials to returning United States motorists. Approximately 7,000 questionnaires were thus distributed for return to the Finance and Investment Division of the Bureau of Foreign and Domestic Commerce. The Dominion Bureau of Statistics based its compilation of estimated Canadian motor tourists' expenditures in the United States upon the returns to similar questionnaires distributed at the border to Canadian automobile travelers entering the United States. in other recent years the respective United States and Canadian Government bureaus collaborated in the compilation of the estimates entering the tourist accounts of the two countries.

As