This suggestion was adopted by the chamber of commerce. A committee was
formed, including representatives of every branch of commerce, and was
divided into subcommittees. These subcommittees are now engaged in
compiling materials for sectional reports. To these reports will be
added such further information as may be obtained from the chambers of
commerce at the treaty ports.
The chamber has adopted the plan of forwarding to the foreign
representatives copies of each sectional report as soon as it is
prepared. I have received the report of the sectional committee on
cotton mills, and I inclose a copy thereof herewith. This report sets
forth the reasons and arguments on which foreign cotton mill owners in
Shanghai base their claim to moderate taxation of their manufactures.
The question of raising the tariff rate is left out of consideration.
This question can not be entirely eliminated from a discussion on
taxation. The sole purpose of China is to raise more revenue, of which
it stands in great need. Whether such revenue shall be raised by
increasing the tariff only, or by local taxation, or by both means, must
be discussed and decided.
The report under consideration assumes that, under the fourth clause of
the second section of Article VI of the Shimoneseki treaty, articles
manufactured in China were to stand on the same footing as imported
articles. It concedes that this provision has been surrendered by Japan
(see 2616 of October 20, 1896), but it claims that the cotton mills,
which were organized before the annulment of this clause, and on the
assumption that they would be exempt from taxation, are entitled to
exemption. How this contention might affect claims for damages need not
now be discussed, but that it would legally bar the levy of any tax can
not be admitted, more especially as China always disputed the Japanese
construction of the clause as to taxation.
This portion of the report is, therefore, not entitled to any
consideration.
The first principle enunciated is that the cotton industry should be
fostered by freedom from taxation, but if that be impossible, “the duty
or excise should never exceed the duty levied upon imported yarn [Page 89] less the transit duty paid upon
the raw cotton which enters into its manufacture.”
For the argument on this subject I refer to the report itself.
The second suggestion is that raw cotton purchased in the interior for
treatment in the mills shall pay transit duty as if destined for export,
and no other duty.
The third suggestion is that all imported cotton should be free from
duty.
The fourth suggestion is that foreign-owned mills shall enjoy the same
privileges as native mills.
The committee proceeds to state that any higher taxation than that
suggested will result in the loss of China’s advantageous position as a
manufacturing country. The committee enlarges on the advantages of cheap
labor and raw material, the value of the trade to China, the absence of
taxation on cotton in India and America, the injustice of a 10 per cent
tax, and other matters going to support the argument in favor of a low
taxation.
It is apparent from this report that the committee looks chiefly to
securing benefits for the foreign mill owner operating in China.
Incidentally the benefits to accrue to China are considered. Nowhere,
however, is any question raised as to the interests of the manufacturers
in the United States and in Europe. As I have repeatedly stated in
former dispatches, I am unable to see how the interests of my own
country are to be forwarded by fostering cotton manufacturing in China.
I believe, also, that all questions affecting taxation of foreign goods
should be treated together.
I await your instructions on the questions involved.
[Inclosure in No. 2670.]
Report of the sectional committee on cotton
mills, in which are set forth the reasons and arguments on which
foreign cotton-mill owners in Shanghai base their claim to
moderate and equitable taxation of their
manufactures.
In the communication addressed to the doyen of the corps
diplomatique, at Pekin, by the chamber of commerce on 17th September
were contained certain suggestions as to the taxation of locally
spun yarns, together with an outline of the procedure which, in the
chamber’s opinion, would best serve to foster a new industry and, at
the same time, benefit the Imperial revenue. Those suggestions were
put forward, however, upon the supposition that a revision of the
treaty tariff was under contemplation, and the chamber of commerce
was, at that date, unacquainted with the since-published text of the
treaty of commerce and navigation between China and Japan. But
since, by Article XXVI of that treaty, the question of tariff
revision appears to be removed from the necessity of immediate
consideration, the suggestions submitted by the chamber, so far as
they are based on that expectation, are no longer pertinent. This
committee begs, therefore, to reopen the subject and, putting aside
all question of increased import duties, to deal with the position
of Shanghai foreign-owned cotton mills.
And first this committee would point out that, though the importation
of industrial machinery was not excluded under treaty rights, all
doubt on the subject was removed on the concession by China of
manufacturing rights under the Shimonoseki treaty, and the
commencement of foreign-owned mills was the result. The terms of
that concession have, it is true, been materially affected since
then by the protocol of 19th October (Article III), but it was owing
to the nature of the terms set forth in the Shimonoseki treaty that
capital was forthcoming to establish these enterprises, and this
committee ventures to submit that, howsoever those terms may have
been modified by subsequent negotiations between China and Japan,
all mills built before the publication of the protocol are morally
entitled to such advantages as they would have enjoyed under the
terms of the treaty itself. The existing mills [Page 90] were established and much capital
invested therein on the assumption that they would be exempt from
taxation; and to impose a high rate of duty now would, in this
committee’s opinion, be an act not only highly prejudicial, but one
from which the Government would derive no lasting benefit.
After mature deliberation on the subject, the committee urges as
conditions essential to the prosperity of the cotton industry in
China:
1. That the industry should be fostered by freedom from taxation, but
if this be impossible and the Chinese Government determined to tax
it, the duty, or excise, should never exceed the duty levied upon
imported yarn less the transit duty paid upon the raw cotton which
enters into its manufacture.
Cotton in imported yarn does not yield revenue to the Chinese
Government as cotton, and were locally spun yarn to be taxed at the
same rate as imported yarn the cotton in it would be twice taxed,
first as cotton and secondly in yarn. Upon the scale of duty the
excise upon locally spun yarn would therefore be:
|
Hk. tls. |
| Import duty on 3 piculs Yarn |
2.10 |
| Less transit duty on 3 piculs 40 catties cotton used
to produce it. |
.60 |
| Leaving |
1.50 |
or 5 mace per picul as the duty or excise upon
locally spun yarn.
Upon payment of this excise a certificate should be issued entitling
the yarn to all the privileges and exemptions enjoyed by imported
yarn.
That upon payment of a further half duty, i.e., 3 mace 5 candareens
per picul, or, say, 1.05 taels per bale, transit certificate should
be issued which shall afford the yarn, whether sent inland or
shipped to other treaty ports for transmission to the interior,
freedom from likin, inland transit, internal taxes, duties, charges,
and exactions of all kinds.
2. That raw cotton purchased in the interior and brought to Shanghai,
or any other treaty port, for treatment in the mills, shall pay
transit duty as upon cotton destined for export, this payment
freeing it absolutely from all likin and other exactions en route,
and it is suggested that the amount collected in this way might be
devoted to the use of the provincial authorities concerned in its
levy.
3. That foreign-owned mills shall enjoy the same privileges as native
mills, i.e., that there shall be no differential taxation of any
sort. (N. B.—Article III of the Tokyo protocol provides for
condition.)
This committee is firmly convinced, by careful study of facts and
figures, that any attempt on the part of the Chinese Government to
provide a large immediate revenue by higher taxation of yarn than
that suggested above can have but one result, viz, the loss of
China’s advantageous position as a manufacturing country. Cheap
labor and raw material can enable her to compete with foreign
countries in the cotton manufacturing industry only so long as she
does not hamper that industry by impolitic and excessive taxation.
This committee would therefore urge the vital necessity which exists
for the Peking Government to restrain the provincial authorities
from imposing levies on the raw material which would check
production.
There can be little doubt that the manufacture of yarn in China, if
wisely safeguarded and developed, must rapidly produce a volume of
trade that will greatly contribute to the prosperity of the country,
compared to which the amount that might be levied by impolitic
taxation is a matter of insignificance; a trade which would not only
enrich the Imperial treasury, but which would give employment to
large and increasing numbers of the laboring classes. An unwise
fiscal policy at this juncture on the part of China will simply
result in benefiting other manufacturing countries at her expense,
and a new industry of great promise will be destroyed at its very
outset.
In foreign countries, such as India and America, which compete with
China as producers of the raw material, no taxes are imposed on
cotton. Similarly, in India and Japan (China’s competitors in the
yarn manufacture) no taxes are levied on the product of the mills.
The only charges, therefore, which Indian or Japanese yarns incur
are freight, insurance, and import duty.
Freight is a variable charge. From India it has been as low as 7 mace
per bale, and is at present the equivalent of 1.05 haikwan taels per
bale. Insurance is about 25 candareens per bale. Import duty is 2.10
haikwan taels per bale.
The total charge on Indian yarn varies, therefore, between 3.05 and
3.40 haikwan taels per bale, and on Japanese yarn, spun from Indian
and American cotton, it may be set down as being very little
higher.
In a recent proclamation, issued by the governor of Chekiang, new
cotton likin regulations are published. Amongst them is set forth
that the tax (likin) on seed cotton sent to Shanghai from that
province will be 40 cents a bale, which amounts to a tax of 2.65
haikwan taels on the quantity of cleaned cotton required to make a
bale of yarn and the average charges on Indian yarn, exclusive of
duty, being, say, [Page 91] 1.12
haikwan taels per bale, it is evident that under these regulations
the Shanghai spinner would be placed at considerable disadvantage.
If, in addition to this, the Tsung-li Yamên’s proposed 10 per cent
tax be imposed, the total taxation on locally-made yarn would amount
to 8.85 haikwan taels per bale, as against 2.10 haikwan taels, the
duty on imported yarn. In other words, foreign industry would be
protected against native to the extent of 6.75 haikwan taels per
bale. Such a policy could have but one result—native spinning being
rendered unprofitable, the industry would soon cease to exist.
It is the desire of this committee, and one for which they venture to
ask the earnest cooperation and support of the diplomatic body in
Pekin, that the tax on raw cotton in transit from the interior be
met by one payment of transit pass duty, such payment freeing the
cotton from likin and all other exactions, and that the central
Government be strongly urged to make and enforce a regulation to
this effect. Such transit duty, together with the proposed excise of
1.50 haikwan taels, as shown in paragraph 1, would amount to a total
payment of 2.10 haikwan taels per bale, against 2.10 haikwan taels
levied on foreign yarn, a tax which the mill-owners have some hope
that the industry could pay without endangering the financial
success of their enterprise.
At present Shanghai native-spun yarns pay no duty, so that by the
imposition of a reasonable tax on all mills, native and foreign, a
large and immediate increase will accrue to the Imperial revenue
without injury to manufacturing and commercial interests.
In conclusion, the committee feels that it can not do better than
quote the following just and reasonable words from the Tsung-li
Yamên’s memorial to the Throne (August, 1895):
“It is very necessary to settle uniform tariff regulations without
making distinctions by virtue of which some pay heavier and others
lighter duties, so that it may be easy for all to conform
therewith.”
It is the committee’s earnest hope that only such moderate and
equitable taxation may be imposed as shall tend to the mutual
benefit of the Imperial treasury and of the commercial enterprises
whose interests the committee represents.
-
E. A. Alford,
-
E. A. Probts,
-
F. Anderson,
Members Sectional Committee on Cotton
Mill Taxation.
Shanghai
,
December 7,
1896
.
