Work on the Fort Peck Dam has progressed at a remarkable rate, and at the present time is 50 percent completed. The first funds for this project were received on October 31, 1933, and on the same day 341 men were put to work. Within less than 2 years a complete town has been built for the accommodation of 4,000 employees; 14 miles of railroad and a bridge across the Missouri River have been installed; a 183-mile power transmission line has been constructed; four 26-foot diversion tunnels, except linings, are practically completed; a steel sheet pile cut-off wall across the dam site has been driven; and more than 7,000,000 cubic yards of material have been placed into the body of the dam. The expenditures to August 1, 1935, have been over $33,000,000.

The decision of the Supreme Court limiting the diversion of water from the Great Lakes has made it essential that the existing locks and dams on the Illinois River be replaced by two new locks and dams to insure a dependable channel. I urgently recommend that funds be made available for this purpose at an early date, since otherwise the reduced diversion will materially hamper navigation on this connecting waterway between the Great Lakes and the Gulf of Mexico.

Work has been continued on the Lower Mississippi River, both for the maintenance of the navigable channel and on the flood-control program adopted by Congress under the act of May 15, 1928. This program is now well ahead of schedule and is within the estimates prepared by the Department. The Chief of Engineers has recently recommended to Congress a modification of the program, which will provide an even greater measure of safety for the population and property of the region, and will include control measures for the Yazoo and St. Francis River Basins, which have suffered so severely and so frequently from floods in the past.

Construction progress on the navigation and power project at Bonneville, Oreg., has been maintained at a most satisfactory rate, and indicates completion on, or ahead of, schedule.

THE PASSAMAQUODDY PROJECT

The War Department has been charged with the construction of the Passamaquoddy project, at Eastport, Maine, which represents the first major development involving the utilization of tidal power for the generation of hydroelectric energy. Engineering details of the design and construction of this project are of especial interest. Field parties have been assembled, plans and specifications are being prepared, and construction work will shortly be under way.

The Corps of Engineers, during the past year, has continued to make many investigations for the emergency agencies, and has loaned its officers to the National Emergency Council and to the Works Progress Administration to aid in the administration of their affairs. Studies for the improvement of the waterways of the country and their development in the interests of flood control, navigation, the development of hydroelectric power, and irrigation, have been continued so that the valuable data collected in the past may be kept up to date and wisely utilized.

BUREAU OF INSULAR AFFAIRS

The Philippine Islands.-One of the important features of the nonmilitary activities of the War Department is that of handling the affairs pertaining to the Philippine Islands. The event of greatest significance during the year was the meeting of the Philippine Constitutional Convention, which, pursuant to the provisions of section 1, Public, No. 127, Seventy-third Congress, approved March 24, 1934, convened at Manila on July 30, 1934, to draft a constitution for the government of the Commonwealth of the Philippine Islands. The deliberations of the convention continued until February 8, 1935. On March 18, 1935, the constitution as drafted by the convention was presented to the President of the United States for certification. On March 23, the President certified to the Governor General of the Philippine Islands that the constitution of the Philippines, as submitted, with ordinance appended thereto, conform substantially with the provisions of the Independence Act. The proposed constitution was then submitted to the Philippine people, for ratification, at an election held May 14, 1935. The total number of votes cast was 1,258,009, of which 1,213,046 votes were for ratification and 44,963 against ratification.

Upon its ratification by the people, the Governor General of the Philippine Islands issued a proclamation for the election of officers of the Commonwealth government as provided in the constitution, to be held on September 17, 1935. It is now contemplated that the new Commonwealth government will be inaugurated on November 15, 1935. Thereafter, the United States will be represented in the Islands by the United States High Commissioner to the Philippine Islands as provided in section 7 of the Independence Act.

Sakdal disturbances.-Conditions in the Philippines continue to be generally satisfactory. With the exception of the so-called "Sakdal uprising", peace and order have generally prevailed throughout the islands. The Sakdal party is composed of a small minority group whose activities are directed against the existing government and particularly against the leaders of the political party in power. A serious disturbance of the peace occurred on May 2 and 3 at several points in the area immediately surrounding the city of Manila due to agitation of the Sakdal party leaders. Reports received indicate that the causes were political rather than economic. Disturbances occurred simultaneously at several points in the four provinces of Bulacan, Rizal, Cavite, and Laguna.

The beginning of the uprising was marked by an interruption of telephone and telegraph communications into the city of Manila and by assemblies of Sakdalistas in several towns in the provinces named. Local constabulary units were immediately sent to the various points and quickly restored order, in some cases without serious incidents, in others with regrettable loss of life and a number of wounded. Clashes in which casualties occurred took place at Santa Rosa, Laguna Province; at San Ildefonso, Bulacan Province; and at Cabuyao,

Laguna Province. The total casualties resulting from these clashes were: 4 members of the constabulary killed and 10 wounded; of the Sakdalistas 56 killed and 69 wounded, of which 52 were killed and 39 wounded at the town of Cabuyao.

Following the disturbances the Acting Governor General promptly directed an investigation into the situation. A number of the leaders have been arrested, against whom proceedings have been instituted. The entire situation was handled by the constabulary forces of the Philippine Government. No United States troops took any part whatever in the affair.

Health conditions were in general satisfactory. No epidemics of any importance have been reported.

A number of severe typhoons visited different parts of the islands, causing a loss of about 125 lives, rendering thousands of people homeless, and causing great damage to crops in the stricken localities. The most destructive one occurred on October 16, 1934, in central Luzon, centering around Manila, causing a loss of 50 lives, the destruction of thousands of lightly constructed houses, and immense damage to crops, especially coconut trees, with a total estimated damage of $3,500,000. On October 20, 1934, another storm visited southern Luzon taking 25 lives with property damage estimated at $1,500,000. In November heavy damages resulted from a typhoon in the Visayan Islands and Mindoro. On November 28 the Island of Cebu was visited by a typhoon with a loss of 22 lives. Early in April 1935 the province of Samar was visited by a storm which took a toll of 33 lives. The American Red Cross, always ready to assist in emergencies, promptly appropriated funds in the amount of $25,000 for assistance in the area stricken by the typhoon of October 16, 1934. In all cases prompt measures were taken by the Governor General and agencies of the insular government to extend relief in the storm-stricken areas.

Commerce and finance. The establishment of a sugar quota for the Philippine Islands by the Agricultural Adjustment Administration pursuant to the provisions of the Jones-Costigan Act, resulted in curtailment of sugar production in order to bring production in line with the requirements of the quota for the United States market, for home consumption, and a reasonable reserve. However, as there was an overquota surplus of several hundred thousand tons of Philippine sugar on hand in the United States at the beginning of 1935, the quota for the current year has been reduced to about one-half of the 1933 shipments. Accordingly, it is to be expected that there will be a considerable further falling off in insular revenues from this source during the current year. It is expected that the adjustment will be approximately completed by the end of 1935.

Reports from the Governor General indicate that the coconut industry has been adversely affected by the provisions of section 6022 of the Revenue Act of 1934. Due to the increased prices that were received for this product during a part of the year, it is not yet clear to what extent the tax has been detrimental to the interests of the islands. Up to June 30, 1935, there had been accumulated in the Treasury of the United States $16,013,673.36 from the processing tax on coconut oil, none of which had been remitted to the insular government.

The external trade of the Philippine Islands for 1934 showed a gratifying increase, being $194,010,747 as compared with $173,132,516 for the previous year. This represents a 12-percent increase in value. Imports increased 24 percent and exports 43 percent. There was an increase both in volume and value for all products exported except coconut oil and leaf tobacco. As usual, the islands had a substantial balance of trade in their favor resulting entirely from a favorable balance with the United States in the amount of $37,467,916. The islands' trade with foreign countries had an unfavorable balance of $10,671,391, thus leaving a net favorable trade balance of $26,796,525.

The finances of the insular government continued in excellent condition. Income exceeded expenditures. The insular government has met all its bonded obligations both as to sinking funds and interest. There were called for redemption in the course of the year $2,556,000 of outstanding bonds. The Independence Act provides that after the acceptance of the act by the people of the Philippines there shall be no obligation on the part of the United States to meet the interest or principal of bonds or other obligations of the Philippine Government issued thereafter during the continuance of United States sovereignty in the Philippine Islands, and that such bonds shall not be exempt from taxation in the United States or by authority of the United States. No new issues of bonds were made during the calendar year 1934. The outstanding bonded debt is well below the limit authorized by Congress, the total amount outstanding, as of December 31, 1934, being $67,422,700, consisting almost entirely of bonds held in the United States and payable, both as to interest and principal, at the Treasury of the United States.

Currency reserves are maintained at a level in excess of the maximum required by law.

This Department has consistently taken the position that Congress ought not to enact laws tending to infringe the implied agreements of the Independence Act since its acceptance on May 1, 1934, by the Philippine Legislature, without a mutual understanding. Certain laws having this effect, enacted by the Seventy-third Congress, were referred to in my report of last year. During the first session of the Seventy-fourth Congress there was enacted Public, No. 137, approved June 14, 1935, entitled "An act to protect American and Philippine labor and to preserve an essential industry, and for other purposes. ." This act in effect amends section 6 (c) of the Philippine Independence Act by increasing the amount of cordage that may enter the United States annually from the Philippine Islands duty free from 3,000,000 pounds to 6,000,000 pounds. It is more restrictive in its effect than is contemplated in section 6 (c) of the Independence Act in that the quota limitation becomes effective as of May 1, 1935, instead of on the date of the inauguration of the Commonwealth government, and further, the stated quota may not be exceeded in amount under any conditions.

The Tydings-McDuffie Act provides for the allocation of quotas, under export permits issued by the government of the Commonwealth of the Philippine Islands, to the producers or manufacturers "proportionately on the basis of their exportation to the United States in the preceding year", whereas Public, No. 137, Seventy

fourth Congress, places the responsibility for equitable suballocation of the cordage quota on the insular government where it properly belongs. As the Commonwealth government will be inaugurated before the end of the current year, the advantages as regards the amount of the quota appear to outweigh the disadvantages, and as the act is the result of an agreement between the United States cordage interests, the Philippine cordage interests, and the Philippine political leaders who were in the United States at that time, the War Department interposed no objection to the legislation as finally enacted.

The government of the islands has been ably conducted under the administration of Governor General Frank Murphy. As a fitting recognition of his spendid service the President has appointed him as the first United States High Commissioner to the Philippines, to take office upon the inauguration of the Commonweath government under the provisions of the Independence Act.

DOMINICAN CUSTOMS RECEIVERSHIP

The annual inspection of the Dominican customs receivership was made in December 1934. The receivership continues to maintain a high degree of efficiency and the accounts were in satisfactory condition.

The customs collections for 1934 amounted to $3,189,200.12, an increase of $189,622.19, or 6.32 percent, over the customs collections for 1933. Contributing to the gain in customs revenue were the advances in value of imported merchandise and a gradual betterment of commerce in general.

Internal revenue taxes, independent of customs duties, but collected at the custom houses under administration of the receivership by virtue of a special agreement with the Dominican Government, produced the sum of $2,040,972.75, an increase of $351,518.94, or 21 percent, compared with 1933.

The cost of operating the receivership was well within the 5 percent allowance provided in the convention, being 4.19 percent of the customs receipts for the year. The cost of internal revenue collections made through the receivership was 2.89 percent of the gross collections, the allowance under the agreement with the Dominican Government being 4 percent. The combined cost of the services was 3.68 percent of the total receipts.