total receipts from all sources for 1897, all under Spanish rule; only 18 per cent less than the average yearly revenues for the islands from all sources of income for the eight years in the period 1890-1897.

If the average of the past six months, including August, 1900, should be maintained the result will be an annual income from customs more than three times the receipts therefrom in the Spanish year 1897, the highest mark reached under that administration, and nearly four times as great as the average customs receipts for the last eight years of that rule; 25 per cent greater than the average annual income of the islands from all sources for the years 1890-1897, inclusive, under Spanish rule, and but 9.6 per cent less than the entire revenues for the year 1896, which were the highest for that period, and which amounted to 18,664,588.31 pesos.

The total cost of the collection of customs receipts for the fiscal year ending June 30, 1900, was less than 2 per cent of the receipts. The smallness of this rate is largely due, of course, to the employment in the customs service in many cases of officers and enlisted men, whose pay is not included in the estimate thereof and can not, therefore, be expected to be maintained in the future as these give way to civilian employees exclusively.

Every effort has been made to keep abreast of the volume of business which has marked the administration of the customs from the opening of the ports, and at Manila, where the pressure is greatest, the available wharfage since American occupation has been increased over 40 per cent and the trackage for the carrying of goods between the wharves and the godowns or storehouses by more than 30 per cent. Three large godowns have been erected during the past year, and a new building, giving needed increase in office accommodations, is in course of construction. By the additions that have been made the superficial area for storing and handling merchandise has been increased more than 70 per cent. Arrangements have been perfected for the lighting of the entire custom-house property by acetylene, that work at night may be carried on advantageously when necessary. Notwithstanding these improvements, additional facilities for the prompt and efficient handling of the constantly increasing business will be required. in the near future, and prudence would suggest the acquirement by the Government of title to land in the immediate vicinity of the custom-house for future use. At the other ports of entry the capacity of the structures in use is sufficient for the present volume of business, but these are leased by the Government, and it would be wise policy for the Government to acquire ground at these ports before prices advance upon which suitable buildings can be eventually constructed. The present customs tariff and regulations in force in the archipelago are based upon the Spanish regulations in existence at the time of American occupation. The history of their adoption by the United States and the modifications that were made at the time have been stated in the report of the collector of customs, which was made an exhibit to the last annual report of the military governor, and but few changes have been made in them since the publication of this report. The tariff as now constituted possesses, in addition to substantial objections to the rates of duties imposed, formal ones due to the manner in which these are expressed and required to be computed. Each item of import is subject to a fixed duty under the existing schedules, but this consists in some instances of as many as six component parts,

separately expressed, all of which must, in such cases, be calculated before the total duty can be ascertained. This is due to the Spanish Government having, in adding to the duties from time to time, kept the original and the additional charges separate and distinct, rather than proceeding by substitution and amendment. Among the charges thus added were two, established respectively in the years 1896 and 1897, and consisting of 2 per cent and 6 per cent so-called "ad valorem" charges. These were determined not by appraisement or ascertainment of the real value of the importation, but by a table of arbitrary values originally established for Spain and extended to the archipelago in August, 1896. The principal change in the American regulations, so far as the form of the tariff is concerned, has been the consolidation of these 2 per cent and 6 per cent "ad valorem" charges into one of 8 per cent.

It will thus be seen that, notwithstanding this so-called "ad valorem" charge, the present tariff is wholly specific, and that for every dutiable article the customs dues are fixed and determined irrespective of the real value of the importation.

The board of officers appointed by General Orders, No. 80, current series, this office, under the direction of the War Department, to revise the United States provisional customs tariff and regulations in the Philippine Islands, submitted to you early in its session a recommendation that the various component charges constituting the existing duties be reduced to one specific charge in each instance, and that the duties so consolidated be published for immediate application. This was ordered done that unnecessary labor and possible error might be avoided during the continuance of the present tariff. The duties thus consolidated have been published for the convenience of importers and the guidance of the customs officials.

The board of officers above referred to completed its work on August 25, 1900, submitting a proposed revision of existing tariff, and this, in accordance with instructions from the War Department, was, on August 29, 1900, transmitted to the United States Philippine Commission for its consideration. A copy is attached to this report.

In the revision thus proposed and recommended specific duties have been fixed in almost every case. The reasons advanced by the board for this are the difficulties and confusion that would probably attend the unavoidable mistakes of importers in changing to an ad valorem system when the commerce of the islands has been built up under a system of specific duties. This objection, considered with the opportunities for fraud afforded by a system of charges based upon consular invoices and the consequent temptation to undervaluation of entries, would, it was felt, outweigh the advantages to be had from the more equitable distribution of charges attainable under an ad valorem system when this can be administered with the earnest and intelligent cooperation of all concerned in the successive steps and processes of importation.

It was concluded that under existing conditions the best results would be obtained from a tariff as largely specific in the duties levied as is possible, the history of customs administration in the Philippines teaching that its inhabitants are not yet prepared to give that support under which only an ad valorem tariff can be successfully applied, and that a change from the system that has controlled in the past to one largely of ad valorem charges would be especially unfortunate at this

the methods of importers, material and expensive departures in the administration of customs would be necessitated. A board of competent appraisers would have to be employed, composed of trained and skilled experts, to be paid large salaries, and the clerical force would need to be otherwise materially increased. In favor of the specific tariff in the archipelago are the positive elements of simplicity, economy, directness, and expedition, with the minimum opportunities for avoiding the payment of the prescribed duties, a practice that largely obtained even under the present system prior to American occupation.

As is referred to in the report of this board, it would seem that the United States, at the proceedings resulting in the conclusion of the treaty of peace between it and Spain, announced through its commissioners the purpose to extend to all countries the privileges in the way of the entry of merchandise into the Philippines which the treaty definitely accorded to Spain for the period of ten years from the exchange of its ratifications. In the absence of anything in the instructions to the board communicated by the War Department at variance with this, the board did not consider itself authorized to recommend a tariff which would result in granting exceptional privileges to American importations.

Under the present tariff the duties upon many articles of general consumption, especially in the case of food products, are inordinately high. They were apparently made so in order that Spain, through the differential at the time existing in her favor, might in these lines shut out competing countries. Material reductions have been made in these in the proposed revision, with the result, it is believed, that their adoption would cause the importation of American products in large quantities, to the benefit of the consumer, the raising of the standard of living above that now controlling, and without any material loss, if any, to the Government in the matter of revenues. Agricultural machinery is recommended to be allowed entry free from duty, with the same provision for a limited period in the case of railroad equipments and machinery and structural iron and steel when imported direct by persons or corporations residing or transacting business in the Philippines for their exclusive use.

It is also recommended that the duty be materially reduced upon flour, which even now is chiefly imported from the United States. In this connection attention is called to the report of the collector of customs of the islands and of the chief port of Manila, wherein it is stated that the large quantity of flour imported to the Philippines from Hongkong is almost wholly from America, but is credited to Hongkong because invoiced there, where many of the larger importers have their principal houses, the customs rules requiring that the country in which imported merchandise is invoiced shall be considered the country whence this is imported.

It is believed that the adoption of the proposed revision of tariff charges would directly and immediately benefit the American manufacturer and producer, and that by the free entry of agricultural and railroad machinery, and all other machinery at the low duty recommended therefor, 15 per cent ad valorem, the productiveness of the islands would be so increased with a corresponding change in consump tion that these would soon afford a most valuable market for American products. The inhabitants of the archipelago would themselves

receive the greater share of the resulting benefits, and it is not believed that the income of the Government from customs charges would be materially affected.

IMMIGRATION.

The enforcement of the immigration laws is at present in charge of the customs service, which in the last year was charged with the application of these in the case of more than 25,000 Chinese entering and leaving the islands, in addition to a large number of other immigrants of different nationalities. The present facilities are inadequate to the needs of this branch, the required inspection frequently having to be made on board ship. The system is unsatisfactory, and an immigration station is needed where immigrants can be landed and a systematic examination had of them and their belongings. By a moderate outlay Government property at the mouth of the Pasig River could be adapted for this purpose.

The extension of the immigration laws of the United States to the archipelago without substantial exceptions and modifications to meet local conditions has proven of doubtful expediency. Especially is this so with regard to the provisions of the contract-labor law. The situation as existing here does not require the protection which this law was designed to afford to the residents of the United States. It is essential for the mercantile houses of foreign ownership located here that many employees be secured from abroad. This can not be done without employer and employee entering into a contract that is within the letter of and forbidden by the United States law. These employees are essential to the development of commerce, and without them business of all kinds must suffer. They do not come in competition with the native residents, and their exclusion can subserve no beneficial purpose, but may, by its enforcement, seriously retard the growth of business and the development of the islands. The local requirements are so different from those prevalent in America that there is need for a change in the existing immigration regulations of the United States before their application here.

COASTING TRADE.

The administration of the coastwise trade of the islands is given to the customs service, and its regulation provided for by General Orders, No. 69, this office, series of 1899, under which no vessel is permitted to engage in this trade except when licensed in accordance with the provisions thereof, which require in every case the possession of the certificate of protection provided for by tariff circular No. 81, of the War Department, dated Washington, July 8, 1899.

Since the promulgation of the above-mentioned order there have been regularly opened to trade thereunder seventy interior ports, the names of which, together with the dates when they were opened, are given in the report of the collector of customs of the islands.

The first license issued thereunder was at Manila, on January 6, 1900, and between that date and June 30, 1900, there were issued at the various ports of entry of the islands 843 licenses and certificates of protection for vessels having an aggregate tonnage of 50,984.80. Between July 1 and August 14, 1900, the date of the report of the collector of customs of the islands and of the chief port, there were issued at the port of

Manila licenses and certificates of protection to 152 vessels, with an aggregate tonnage of 5,956.80, the number issuing at the other entry ports for this period not having then been reported.

Experience showed that the limitation by General Orders, No. 69, of the right to engage in the coasting trade to vessels holding certificates of protection, which could be issued at ports of entry only, precluded, by the expense and inconvenience of obtaining such, the engaging of many small craft in limited local trade between adjacent ports, which had in the past largely prevailed. Accordingly General Orders, No. 38, current series, of this office, was promulgated, by which boats having less capacity than 15 tons gross burden were permitted, by taking out a special license therein provided for, to ply between an open port and near-by ports within a territory limited in the license issued. While thus enabling this class of boats to engage in this limited trade without obtaining the certificates of protection, this order does not prevent their obtaining such, together with a license of either the first or second class therewith, when so desired.

These provisions have worked satisfactorily, and it is not thought that any change or amendment is required in them until the entire subject shall have received legislative action.

The number of ships now engaged in this trade, while larger than ever before in the history of the islands, is nevertheless inadequate to the present demands, and an increase in their number is to be looked for in the near future.

In the fiscal year ending June 30, 1900, there were 3,346 entrances of vessels in the coastwise trade at the various ports of entry, with a tonnage of 459,075, and clearances of 3,666 vessels, with a tonnage of 480,992.

DEPARTMENT OF INTERNAL REVENUE.

The instructions of the President to the major-general commanding the army of occupation in the Philippines contained among other provisions the following:

The taxes and duties payable by the inhabitants to the former government become payable to the military occupant unless he sees fit to substitute for them other rates or amounts of contribution for the expenses of the government.

At the time of our occupation the existing system of internal-revenue taxation, the continuance of which was thus sanctioned, recognized the following principal sources of revenue:

1. Industrial tax.

2. The urbana tax.

3. The stamp tax.

4. The cédula tax.

5. The capitation tax on Chinese.

6. The vassalage tax.

7. Discount of 10 per cent on salaries of certain classes of officials. 8. Lottery taxes.

9. Monopoly tax.

10. Provisional and transitory taxes, of which there was a considerable number.

Of these, numbers 6, 7, 8, 9, and 10 have never been enforced by the military government. Numbers 4 and 5, the cédula taxes, were practically abrogated as a source of revenue by orders of the military governor, under the terms of which the cédulas, theretofore divided into