EXHIBIT No. 3.

REPORT OF THE ACTING INSULAR COLLECTOR OF CUSTOMS.

OFFICE OF THE INSULAR COLLECTOR OF CUSTOMS,

Manila, August 31, 1907.

SIR: Complying with directions received from your office, I have to transmit herewith an annual report covering the transactions of the bureau of customs during the fiscal year 1907.

On September 28, 1906, Mr. W. Morgan Shuster, insular collector of customs, was appointed a member of the Philippine Commission, and since that date the undersigned has been in charge of the bureau as acting insular collector of customs.

All positions of special agents were abolished by the reorganization act and none have been in the service since the commencement of the fiscal year 1906. On this account, this office has no direct means of supervising the execution or administration of customs laws at subports of entry, and has been compelled to rely entirely on reports rendered by collectors of customs. Experience has demonstrated the necessity of a careful supervision over customs administration at all ports of entry throughout the islands by means of specially qualified customs officers, who directly represent the insular collector. This work does not involve in any way the mere auditing of office accounts, for it is much broader in its scope and effect. It includes investigations into violations of the customs revenue laws, correct classification of imported merchandise, administration by collectors of customs at subports of entry, and many other questions of prime importance to successful administration of the customs service. Until provision can be made for special agents, this work will be done as circumstances permit by one of the officers of the bureau specially selected therefor.

ACTS OF THE PHILIPPINE COMMISSION AFFECTING THE CUSTOMS SERVICE.

Mention is made below of the legislation affecting the customs service enacted during the past fiscal year, with notations of the action taken thereon.

Act. No. 1522, enacted August 7, 1906, amends act No. 780 by providing certain qualifications necessary for the issuance of a license to marine officers.

Act No. 1523, enacted August 9, 1906, prohibits the importation of lottery tickets or advertisements into the Philippine Islands. Under this act, numerous shipments of lottery tickets have been seized by customs officers. The tickets so seized were destroyed as provided by law, and the violators of the law delivered to the prosecuting attorney.

Act No. 1528, enacted August 22, 1906, amends section 201 of act No. 355 so as to permit the exportation of salvage gear and apparatus from the Philippine Islands for temporary use abroad, and its reimportation into the Philippine Islands upon proper identification without the payment of duty. No advantage has, up to the present date, been taken of this act.

Act No. 1538, enacted August 31, 1906, repeals the provisions of the tariff laws imposing tonnage dues on vessels arriving from a port or place outside of the Philippine Islands. This act became effective September 1, 1906, and since that date no tonnage dues have been collected at entry ports in the Philippine Islands. The reduction in the revenue from this source amounted to approximately 60,000, Philippine currency, during the past fiscal year.

Act No. 1566, enacted December 7, 1906, provides for the free entry of material and supplies to be used in the construction of the railroads granted concessions by acts Nos. 1497 and 1510, and authorizes the insular collector of customs to prescribe suitable and necessary regulations thereunder. These regu

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lations were published in Customs Administrative Circular No. 424 and have been effective since December 19, 1906.

Act No. 1574, enacted December 14, 1906, continues in force the existing rates of duty on rice husked, unhusked, and in flour-until May 1, 1908. Had this act not been passed the duty on rice imported into the Philippine Islands would have increased on January 1, 1907, as follows: Rice, husked, from 60 cents, United States currency, per 100 kilos to 80 cents; rice, unhusked, from 75 cents, United States currency, per 100 kilos to $1; rice flour, from $1.75, United States currency, to $2.

Act No. 1576, enacted December 14, 1906, provides that the decision of the insular collector of customs shall be final in all seizure cases in which the appraised value is less than 200. This act has made possible the prompt settlement of minor violations of the customs law, with substantial justice to both the public and the government.

Act No. 1602, enacted March 12, 1907, amends section 1 of act No. 780 and authorizes the appointment of a board to be known as the "board on Philippine marine examinations." This board was appointed by Manila Custom-House General Order No. 115, dated April 2, 1907; the order also provides rules and regulations for the government of the board in the execution of its duties.

Act No. 1610, enacted March 14, 1907, authorizes the insular collector of customs to prescribe the number and class of marine officers to be carried on coastwise vessels. The regulations made necessary by this act have been prepared and forwarded to the secretary of finance and justice for approval.

Act No. 1655, enacted May 18, 1907, is known as the "pure food and drugs act." General regulations for its enforcement were compiled by the insular collector of customs, the collector of internal revenue, and the director of health, and were approved by the secretary of the interior on May 23, 1907. Special regulations for the guidance of collectors of customs in connection with their duties under this act have been published in Customs Administrative Circular No. 439.

TONNAGE DUES.

On August 31, 1906, the Commission passed an act abolishing tonnage dues on vessels arriving in the Philippine Islands from foreign ports. This act became effective on September 1, 1906, and the revenues decreased from $50,560.83 in 1906 to $10,712.77 in 1907, a decrease of $39,848.06.

This legislation has had a beneficial effect. It has encouraged vessels plying between Australian, Chinese and Japanese ports to make Manila a port of call, and has also encouraged the large steamers engaged in the Pacific Ocean trade to enter Philippine ports. No reason now exists, except lack of trade, why vessels of large tonnage should not regularly enter Philippine ports, as the port charges are practically nil.

DRAWBACK OF IMPORTED DUTIES PAID.

Drawback of duties paid on imported merchandise used in the manufacture of articles exported from the Philippine Islands has not assumed any importance. During the past fiscal year thirty-five drawback entries were filed and coursed, and refunds in the total sum of $552.77, United States currency, were approved. Thirty-one of these entries covered paper used in the manufacture of cigarettes and four covered material used in the manufacture of straw hats: the refund amounting to $507.88 and $44.89, respectively.

The drawback regulation now in effect should be a material benefit to manufacturing industries using imported materials, which may hereafter be established, where the fabricated article is for exportation.

FOREIGN SHIPPING.

The statistics show marked change in the carrying trade during the past year, compared with the previous year.

Of the import trade, British vessels carried in 1907, 56 per cent of the entire volume, increasing from $14,940,984 in 1906 to $16,697,111 in 1907.

Of the export trade, British vessels carried more than 76 per cent, increasing from $25,294,385 in 1906 to $26,015,019 in 1907.

Of the import trade, Spanish vessels show an increase from $5,820,663 in 1906 to $6,195,281 in 1907, and a proportionate increase in carrying the export trade.

German vessels increased about a million dollars in carrying the import trade, and show a slight increase in carrying the export trade.

American vessels show a marked decline in carrying import trade, falling from $1,783,266 in 1906 to $942,940 in 1907, and an equally marked decline in carrying the export trade. This reduction can be attributed in some degree to the destruction of two of the largest American vessels on Pacific waters.

At this time it is deemed expedient to direct attention to the fact that by the provisions of the act of Congress of April 30, 1906, the navigation laws of the United States apply to the Philippine Islands on and after April 11, 1909. By the provisions of this act, all merchandise coming to the Philippine Islands from the United States and all merchandise going to the United States from the Philippine Islands must be carried in American bottoms. During the fiscal year 1907 the value of the merchandise imported into the Philippine Islands from the United States was $5,664,254 ; and of this amount merchandise to the value of $942,940 was brought to the islands in American bottoms, showing that the merchandise carried by American ships was 16.6+ per cent of the importations from the United States.

During the year the value of the merchandise exported from the Philippine Islands direct to the United States was $12,082,364, and the value of this merchandise carried in American bottoms was $831,463, which is 6.8+ per cent of the merchandise exported from here to the United States.

The application of the navigation laws of the United States to the Philippine trade must result in one of two things-either enough American ships for the purpose of carrying this trade must be available at freight rates considerably less than those now prevailing or the trade which is now going to the United States will be diverted to foreign countries. As the law above referred to was passed by Congress with the evident intention to benefit American bottoms, it would seem to be incumbent upon American shipping interests to make the necessary arrangements for the proper handling of this business. It is an easy

deduction to arrive at the conclusion that unless such action is taken the American exporter to the Philippine Islands must suffer a material decrease in his Philippine trade.

Japanese vessels have again entered the field, carrying $760,718 of the import trade and $558,026 of the exportations during the year 1907.

Vessels of the Philippine Islands entered more extensively into the foreign shipping during the year 1907 than ever before, increasing from $483,942 in 1906 to $662,901 in 1907, an increase of 50 per cent.

Prior to July, 1906, in reports on form No. 6 showing foreign shipping, foreign vessels, touching at various coastwise ports and being regularly reported from each were thus duplicated, thereby inflating the shipping report. Since July 1, 1906, by direction of the Bureau of Insular Affairs at Washington, supplementary reports have been made each month showing the foreign vessels touching at the various coastwise ports arriving from or clearing for another coastwise port in the Philippine Islands, and duplication of vessels and inflation of tonnage have been avoided.

The following is a summary of the said supplementary report for the fiscal year ended June 30, 1907, showing the number and tonnage of such vessels for each of the ports:

Supplementary report of foreign vessels entering from or clearing for other coastwise ports during fiscal year 1907.

IMPORT AND EXPORT TRADE BY COUNTRIES.

IMPORTS.

The table of statistics covering the import trade of the Philippine Islands by countries shows that, with few exceptions, the countries enjoy about the same relative proportion of trade, participating about equally in the general increase of the past year. The relative standing of the various countries is as follows: England, United States, East Indies (French), Chinese Empire, Spain, Australia, Germany, East Indies (British), Japan.

The total volume of import trade shows an increase of $3,855,047, or 15 per cent, in 1907 over the value for the previous year.

The United States shows an increase of $1,330,337, and England of $1,355,624, the proportion being practically the same.

The two countries furnished more than one-third of the entire import trade of the islands.

East Indies (French), for some years at the head of the list, fell from first place in 1905 to third place in 1907, the cause being marked decrease in the importation of rice which comes chiefly from East Indies (French).

While nearly all the countries show a material increase, East Indies (French) constitutes a marked exception.

Russian imports in 1905 represented a value of $302,646, and in 1907 dropped to $5,602. About the only product imported from Russia was petroleum, and the United States has again obtained complete control of that trade in these islands.

On account of the disturbed conditions, the trade with Japan had fallen from $1,018,983 in 1905 to $657,386 in 1906; but peace prevailing, the import trade increased 55 per cent last year, representing a value of $1,010,043, thus restoring Japan to her former position in the import trade of the islands and giving her ninth place in the list.

Forty-seven countries are represented in the import trade of the Philippine Islands, but the imports from only nine of these represent a value reaching $1,000,000, United States currency; the importation from many is utterly insignificant.

British Australasia maintained a steady increase in trade, having practically a monopoly of the fresh meat trade and furnishing a great quantity of vegetables and fruits. This country is also making great inroads in the flour trade. The real struggle for supremacy in the import trade of the Philippine Islands lies between the United States and England.

EXPORTS.

The export trade of the islands, as shown by the statistical table of exports by countries, shows but slight change as to relative position of countries. The United States, which represents more than one-third of the entire export values, easily holds first position, England second, and France third in importance.

Only six countries represent a value of over $1,000,000, United States currency; and only nine of the fifty-five countries participating in the export trade represent a value of over $100,000, United States currency; others, commercially considered, are of comparatively little importance; many, however, show a material increase, giving promise of more extensive trade relations in the near future.

GROSS CUSTOMS COLLECTIONS.

During the fiscal year 1907 the gross customs collections at all ports of entry in the Philippine Islands were $8,194,708.52 as against $7,553,206.06 for the fiscal year 1906. This is an increase of $641,502, United States currency, in favor of the fiscal year 1907 and shows an increase in business of 8 per cent.

In these collections is included the refundable duty paid on hemp exported to the United States from the ports of Manila and Cebu, these collections being $433,458.58 for the fiscal year 1907 as against $433,991.79 for the fiscal year 1906, a decrease of $533.21.

A substantial increase in business is shown at all ports of entry except the subport of Bongao. This port and the ports of Jurata, Sitanki, and Balabac were established primarily as outposts for the purpose of preventing to as great an extent as possible the smuggling of dutiable merchandise from the island of Borneo into the Philippine Islands through the small groups of islands in the