Papers Relating to the Foreign Relations of the United States, Transmitted to Congress, With the Annual Message of the President, December 1, 1890
Mr. Sato to Mr. Blaine.
Washington, July 28, 1890. (Received July 29.)
Sir: Referring to your note under date of the 18th March, 1890, in reference to the question of the right of the Imperial Government to levy a license and internal or stamp tax on an American medical preparation known as “Scott’s Emulsion,” I have the honor to inform you that I have received an instruction from Viscount Aoki, His Imperial Majesty’s minister of state for foreign affairs, on the same subject, dated the 5th instant, and setting forth the reasons why the Imperial Government find it impossible to concur in the view of the United States Government, as so ably defined in your instruction to the United States minister in Tokio, under date of the 18th March last, which was transmitted by him to the viscount.
As directed by Viscount Aoki, I beg to inclose herewith a copy of his instruction to me, and at the same time take pleasure in complying with his instruction to express to you the hope that the assurances he [Page 616] has given will satisfy the Government of the United States of the perfect good faith of the Imperial Government and of the entire absence of any desire on their part to discriminate in any wise against the Government or citizens of the United States.
I avail, etc.,
Viscount Aoki to Mr. Sato.
Tokio, the 6th day of the 7th month, 23d year of Meiji (July 5, 1890).
Sir: I have to acknowledge the receipt of your two dispatches, Nos. 15 and 16, bearing date the 15th and 27th March, 1890, respectively, in which you inform me of the steps taken by you in pursuance of my instruction No. 13 of the 7th of the previous month, in reference to the question of the right of the Imperial Government to levy a license and internal or stamp tax on an American medical preparation known as Scott’s Emulsion. Your action as reported is approved.
On the 28th April last I received from the United States minister at this court the copy of an instruction on the same subject, which had been addressed to him by the honorable the Secretary of State of the United States, under date of the 18th March, 1890. I inclose for your information a copy of that instruction, as well as copies of Mr. Swift’s covering note and my reply thereto of even date, herewith.
The conclusions arrived at by Mr. Blaine are, you will not fail to observe, identical with the opinions contained in his note to you of the same date.
The ability and clearness displayed in the presentation of the considerations upon which these conclusions are predicated are recognized; nevertheless, I find it impossible to concur in the view that in levying the taxes in question the Imperial Government are exceeding their right.
The right of taxation is, it must be admitted, a sovereign right, inherent in every independent state, and the real question at issue in the present case is: How far has the right of Japan in that behalf been de facto and dejure limited or qualified by conventional stipulations?
Mr. Blaine has, however, suggested, as bearing upon the case, several collateral considerations, which it is well to dispose of before entering upon a discussion of the main question.
He declares that in consequence of the imposition of the license and stamp taxes in question upon Scott’s Emulsion, Japanese merchants were unable any longer to deal in the preparation, and were compelled to return the stock on hand to the importers.
Having in view the resolution taken by certain Japanese dealers in Tokio, which resolution was frankly explained to Mr. Swift in my note of the 17th January last, I am constrained to think that the imposition of the license and stamp tax may have occasioned some temporary inconvenience, but whatever momentary and local effect the action of the Imperial Government may have had on the sale of Scott’s Emulsion, I am happy to be able to show that no permanent injury to the trade was caused thereby.
I inclose herewith two marked copies of the Nichi Nichi Shimbun, one of the leading Tokio journals. These inclosures bear date the 26th August, 1889, and the 25th May, 1890, respectively. The items marked are the China and Japan Trading Company’s advertisement of Scott’s Emulsion. The former, which bears date just prior to the opening of the present discussion, contains the names of eleven authorized retail Japanese agents for the sale of the preparation, while the latter gives the names of seventeen retail and two wholesale agents. Similar announcements, emanating from the same source, have appeared in most of the prominent newspapers in the Empire, and the fact that all the agents now dealing in the article have, without exception, fulfilled every requirement of law in respect of licenses and taxes certainly justifies the assumption that there has been at least a corresponding increase in the sale of that commodity, and will also, I venture to hope, dispel the apprehensions entertained by the Government of the United States that the levying of the license and stamp taxes upon Scott’s Emulsion will have the effect of causing a decrease in the consumption of that article.
In the same connection Mr. Blaine declares that a Japanese imitation of Scott’s Emulsion has been placed on the market and is having an extensive sale. It is true the honorable Secretary attributes the use of the simulated article in place of the [Page 617] original medicament very largely to the previous advertising of the American commodity by the importers, but he would hardly have drawn attention to this phase of the question in the context in which it appears, in his communication now under reply, had he not supposed that the imposition of the license and stamp taxes upon the imported preparation had measurably contributed to bring about the conjuncture to which he alludes. It can not be denied but what that presumption would have been well founded if the Imperial Government had in the matter of taxation discriminated in favor of the Japanese preparation and against its American prototype. The Imperial Government were not aware of the existence of the imitation complained of until the receipt of the communication now under reply, and in the absence of specific information they have failed to discover it; but, assuming that it does exist, the fact that the Japanese imitation equally with the original article is subject to the revenue laws of the Empire, and that no exemption can be claimed in favor of one that can not be equally enjoyed by the other, will, I am confident, induce Mr. Blaine to agree with me that the imposition of the same taxes upon Scott’s Emulsion as are leviable upon any imitation of that article can not, relatively speaking, work to the disadvantage of the imported preparation.
Mr. Blaine also asserts that the present contention of the Imperial Government is in conflict with the uniform practice of the Japanese Government during the 30 years the treaty of 1858 has been in operation, and he thereupon expresses the conviction that if the Imperial Government possess the power now claimed by them, the efforts on the part of Japan to secure a readjustment of her conventional tariff are misdirected and unnecessary.
Both of these propositions were raised by Mr. Swift in our interview of the 23d of January. I did not then attempt at length to controvert them. The date of the law in question, and the essential difference in principle between customs duties and internal taxes: and the impossibility in practice of substituting one system of taxation in place of the other rendered, it seemed to me, an exhaustive discussion of the question unnecessary. The revival of the contention at the present time, however, serves to demonstrate the inaccuracy of my assumption.
The law prescribing for the first time in the history of Japan a stamp tax on licensed medicines was promulgated on the 27th of the 10th month of the 15th year of Meiji. It has only been in operation a little over 7 years, and consequently there can be no question of an uniform practice extending over a period of 30 years.
The duty of collecting the Imperial revenues devolves upon the local authorities, and while the Imperial Government have never given any ruling inconsistent with their present claim, it is not unlikely that in the local application of the law referred to there has been some diversity of interpretation. The present discussion has, however, had the effect of causing His Imperial Majesty’s Government to enter upon a careful investigation of the question, and I am consequently able to declare that whatever local diversity of construction did exist has absolutely and finally disappeared, and that every medical preparation, without exception, coming within the purview of the law in question, domestic as well as foreign, and irrespective of the place of production or consumption, or the nationality of the manufacturer or importer, is, when brought into consumption in Japan, subjected to the prescribed stamp tax, and that every Japanese trader dealing in any such preparation is required to take out the prescribed license and to pay therefor the prescribed license fee.
In reference to the next point raised by Mr. Blaine, I wish to say that I find myself unable to admit that the recognition of Japan’s right to levy an excise tax upon imported articles would satisfy the demands of the Imperial Government in connection with the revision of their conventional tariff.
A customs import duty is a tax imposed solely upon imports, and, whether the object of the tax be revenue or protection, the inevitable consequence is a discrimination to the extent of the tax against imported articles as compared with domestic production. An excise or internal tax is, on the other hand, a tax levied primarily on domestic articles. In order, however, to maintain the differential treatment between domestic and imported productions, created by the customs tariff and to prevent fraud, the tax is incidentally applied as well to imports.
While the fiscal and economical policy of a state alone determines what imports shall be subject to its statutory tariff, there are but few articles that readily lend themselves to a system of internal taxation, and in the selection and classification of those articles no government has displayed greater discernment than the United States. I need, therefore, offer no explanation for appealing finally to the action of the American Government in support of my contention.
By section 2504 (p. 480) of the Revised States of the United States, imported “proprietary medicines” were made subject to an import duty of 50 per centum ad valorem. The same medicines were in addition compelled, under section 3435 (p. 677) of the same statutes, to pay a stamp tax. It is true the law imposing the stamp tax upon “proprietary medicines” has been repealed, but that fact does not affect the principle, [Page 618] as several other articles of import are, I am given to understand, still subject under the revenue laws of the United Statesto the dual system of taxation. It may be urged that the positions of Japan and the United States, so far as the right of taxation is concerned, are not identical, for the reason that one power is bound by a conventional tariff, while the other enjoys perfect tariff autonomy. The distinction can not, of course, be denied; but that aspect of the question will be discussed later on in this instruction. My present object in referring to the action of the United States is to show that in practice that power does not even regard its own excellent system of internal taxation as a satisfactory substitute for customs duties, otherwise it would hardly go to the expense and trouble of levying two separate and distinct duties on the same article of import.
Under the tariff at present in force in Japan, prepared medicines are upon importation liable to a customs duty of 5 per cent, upon the original cost. To the extent, therefore, of that duty the domestic production was accorded in the markets of Japan an advantage over the imported article, and the Imperial Government are, it seems to me, clearly within their right in imposing upon the imported article such an internal tax as will maintain the relation established by the tariff between imported and domestic prepared medicines. Nothing more than this has been attempted by His Imperial Majesty’s Government, and, although they are constrained to think that the existing tariff is in many respects obsolete and irresponsive to the requirements of Japan’s present foreign commerce, the Imperial Government have no intention or desire to evade or supplement its provisions by indirect means.
The estimated revenue derivable from the internal tax on prepared medicines for the current fiscal year is 435,710 yen. During the year 1889, the total value of imported prepared medicines did not exceed 25,000 yen.
Assuming that no change in that trade occurs during the present year, a simple calculation will show that out of a revenue of 435,710 yen from prepared medicines the imported article will not contribute more than 2,500 yen. If anything in addition to the assurances I have already given were needed to show that the real object of His Imperial Majesty’s Government in enacting the law in question was the taxation of domestic, not imported, medicines, I can not doubt but what these figures would be regarded as conclusive.
In discussing the question of the right of the Imperial Government to levy a stamp tax upon imported articles in common with domestic productions, I do not deem it necessary to restate the arguments drawn from the verbal construction of the treaty of 1858, which have already been presented for the consideration of the United States Government. It is, however, proper for me to say in that connection that I have given the question further careful consideration, and that that consideration has only served to strengthen the conviction previously entertained by me on the subject. And that conviction, I may add, is reënforced by the fact that the tax in question could not have been contemplated when the treaty of 1858 was made, unless the restoration, which occurred 10 years later, could have been foreseen, because the system of government then in operation absolutely precluded the possibility of the imposition of such a tax.
At the present time over 15,000,000 yen, or nearly one-quarter of the entire ordinary revenue of the Empire accruing on account of imports, is derived from internal taxes on Saké. Those taxes taken together are about equal to 30 per cent, of the original value of the, Saké in respect of which they are imposed. The customs duty on imported Saké is only 5 per cent, ad valorem. If imported prepared medicines are entitled under the treaty to exemption from all internal taxation, it follows that imported Saké can properly claim the same immunity, and thus by manufacturing Saké abroad and importing it into Japan—an undertaking which, with an advantage of 25 per cent, in the matter of taxation, could be profitably carried on—the entire revenue system of the Empire would be destroyed.
Again, if it be admitted that the provision in article iii of the treaty of 1858 which accords to Japanese the right to keep, to use, and to traffic in articles sold to them by Americans prohibits the Imperial Government from imposing the tax in question, then it must be concluded as well that by the same stipulation His Imperial Majesty’s Government are prevented not only from extending to any article, domestic or foreign, acquired by a Japanese from an American the reasonable and wholesome laws of the Empire concerning, for instance, the sale or use of obscene and seditious literature, adulterated drugs and medicines, and tainted food, but from enacting and putting into general operation cattle and plant quarantine regulations, and, in short, from adopting many of those administrative, police, and sanitary measures which it is not only the sovereign right, but the supreme duty, of every independent state to adopt.
You correctly interpreted the sentiments of the Imperial Government when you assured the Secretary of State His Imperial Majesty’s Government would not hesitate to abolish the tax in question if it could be shown that in levying it they were not clearly within their right. If those portions of articles iii and iv of the treaty of 1858, to which Mr. Blaine refers, were only susceptible of the interpretation which the United [Page 619] States Government has placed upon them, and if the consequences which I have already foreseen would logically flow from that interpretation, then certainly the Imperial Government would not be justified in regarding themselves as bound by those stipulations.
Fortunately, however, it is unnecessary at the present juncture to deal with eventualities or to appeal to the postulate that no independent sovereign state can alienate its general right of internal taxation or evade by international engagements the solemn duty of preserving the peace and protecting the lives, property, and morals of its subjects. On the contrary, His Imperial Majesty’s Government are satisfied to rely solely upon what they are constrained to think is a fair and equitable construction of their conventional engagements. But should it be deemed desirable hereafter to widen the range of discussion, the Imperial Government, in support of their contention, will appeal to no authorities with greater confidence than they will to the official utterances of those eminent American statesmen who, by their writings, have done so much to elevate and to render more liberal and exact the principles of international law.
You are instructed to leave a copy of this communication with the honorable the Secretary of State, and to express to him the profound hope entertained by His Imperial Majesty’s Government that the assurances which I have been happy to be able to give will satisfy the Government of the United States of the perfect good faith of the Imperial Government and of the entire absence of any desire on their part to discriminate in anywise against the Government or citizens of the United States.
With respect, etc.,
His Imperial Majesty’s Minister of State for Foreign Affairs.