Mr. Buck to Mr.
Hay.
United
States Legation,
Tokyo, November 15,
1901.
No. 599.]
Sir: Referring to my dispatch No. 591 of the
24th ultimo, inclosing a note from his excellency the minister for
foreign affairs, stating the position of the Japanese Government in
respect of taxation of buildings erected on lands held under leases in
perpetuity in the former
[Page 689]
foreign settlements of the Empire, I have the honor to inclose herewith
a memorandum submitted to me in behalf of foreign holders of such
leases, contending that, under treaty provisions, buildings on the lands
so leased became a part of the property to be exempted from tax equally
with the lands.
In dispatches heretofore submitted with inclosed memoranda prepared in
behalf of American and other leaseholders, giving their grounds of
opposition to the tax on buildings and other taxes, the question has
been quite exhaustively discussed; but since transmitting the note of
the minister for foreign affairs above mentioned and the receipt of the
inclosed memorandum, I have thought proper to make further inquiry into
the merits of the matter as presented in the note of the minister for
foreign affairs and as traversed in the memorandum.
In the second paragraph of the memorandum it is claimed that “in case of
failure to pay the annual ground rent reserved, the land and buildings
revert to the Japanese Government.” This seems to be an incorrect
statement. In such case, the condition, as expressed in the title,
reads:
This deed shall become null and void and the buildings on the
said land shall become the property of the Japanese
Government.
There can be no reversion, as the buildings were
not a part of the property leased, but become the property of the
Government only by breach of contract.
As to the expression in the third paragraph respecting the use of the
word “fudosan,” upon investigation I learn that in the Japanese version
of the treaty with the United States the word “zaisan” and not “fudosan”
is used, as it is also in the treaty with Great Britain and some other
powers. “Zaisan” means “things” or “property.” In the German treaty the
word “jisho” is used, which means “land.” The use and meaning of these
different words in the treaties is explained in Mr. Wilson’s dispatch of
April 1 last.
In respect of the claim made in paragraph 4, subdivision (a) as to the understanding of the negotiators of
the several treaties with Japan now in force, I find in paragraph 3 of
the diplomatic note of the minister for foreign affairs of Germany,
addressed to Viscount Aoki, then minister of Japan in Berlin, of date of
April 4, 1890, as the treaty was about to be signed by them, the
following—
That since the right of property in the land in the foreign
settlements mentioned in Article XXIII of the treaty will in
future also belong to the Japanese State, the owners thereof, or
their successors, shall not be obliged to pay for their land any
taxes or duties of any kind, except the rent settled by the
lease—
which would seem to cover land only. The terms of this
note were agreed to by the Japanese minister.
In this connection my attention has been called to the British
Parliamentary Blue Book, Japan, No. 1, 1894, pages 108 and 114, in
which, during the negotiation of the treaty, the following British
proposition appears:
When such incorporation takes place the existing leases in
perpetuity under which property is now held in the said
settlements shall be confirmed and no increase of rental nor any
additional charges or other conditions whatsoever shall be
imposed in respect of such property.
The expression “increase of rental of the property” would seem to refer
to land. At the instance of the Japanese Government the
[Page 690]
phraseology was changed to that as it
appears in the treaty. As regards the understanding of the negotiators
of the other treaties with Japan, whether or not the facts in respect to
them justify the statement made in the memorandum, I can find no
authority on the subject.
In consideration of the several previous dispatches relating to the tax
on buildings, among other questions which have been raised concerning
rights of perpetual lease holders in the foreign settlements, I need not
touch further upon the points made in the argument in support of the
contention as presented in the memorandum. If the argument is not
convincing, it is a very plausible presentation of the question.
* * * * * * *
I have, etc.
[Inclosure.]
Notes on the sole reason given by the Japanese
Government for insisting on its contention that buildings are
not included in the word “property” as it occurs in the
treaty.
- 1.
- In some of the earlier grants of perpetual leases the Japanese
Government inserted, as a condition of the grant, the
requirement that houses should be erected on the land.
- 2.
- In Yokohama the conventions governing these land grants
contain a provision, inserted by the Japanese, that in case of
failure to pay the annual ground rent reserved, the land and
buildings on it shall revert to the Japanese Government.
- 3.
- When the text of the new treaties was officially promulgated
in Japanese by the Japanese foreign office, immediately after
their negotiation, the equivalent used by them for the word
“property” was the word “fudosan,” which is denned by the
Japanese civil code as “land and things fixed thereto.” The
civil code now in force provides that the word “fudosan”
includes land and all accessories attached to it by the same
owner. The act recently passed by the Japanese Diet, in article
1, states that the holders of these perpetual leases have all
the rights of ownership.
- 4.
- The Government of Great Britain has officially informed the
Japanese Government that under its legal interpretation the word
“property” includes, with the land, the buildings on it, and
that the word as used in this treaty is to be so construed. The
Government of France has notified the Japanese Government that
it places the same construction on the word “propriétés” in its
treaty. The Government of Germany, it is understood, has made,
in effect, the same announcement.
While the Government of the United States has, for reasons of
courtesy and fairness, refrained from making any announcement of its
views pending the statement of a position by the Government of
Japan, it is well known that its views as to the inclusive force of
the word “property” in its treaty are similar to the views expressed
by the Government of Great Britain.
- (a)
- It has been supposed that, in construing a treaty, it is
proper to attempt, on broad lines, to discover the purposes and
understanding which were uppermost in the minds of the
negotiators at the time that the treaty was made and concluded,
giving full weight to the established custom and usage, to
admitted history, and to all circumstances which surrounded the
subject-matter of the treaty and which led to its negotiation.
If this course were followed in the present case no doubt could
be entertained as to the fact that houses attached to the
granted lands had been treated as a part of the lands for all
purposes, and that that understanding was accepted and acted
upon by all the negotiators (both Japanese and foreign) who took
part in the negotiation of the treaties that Japan has
made.
- (b)
- The diplomatic note recently issued by the Japanese Government
indicates clearly, however, that that Government does not wish
to follow this broad and fair rule of interpretation, but
wishes, rather, to confine the discussion to the strictly
technical meaning of a phrase and a reference in the foreign
text (sole official text) of the treaties, the force of which,
as authoritatively given by the foreign governments, in whose
language the treaties were drawn and concluded, they do not
understand, or do not wish to understand. It is narrowly
insisted by the Japanese, in their recent diplomatic
announcement, that the reference made in the treaties to
properties,
[Page 691]
textually
includes only the naked property as it existed at the time of
the grant, and that, since, at the time of the grant, there were
no houses on the land, houses which had been attached to the
land can not be included with it to make up the properties as
they had been held, and as they had been referred to in the
treaties. They wish to give to the word “property” the narrow
meaning of the naked land stripped of all of its fixtures and
improvements, which the intent of the land grants and custom and
usage had attached to it. They forget that the status of the
property to be considered is not its status at the time of the
making of the grants (covering a period running back about forty
years), but is its status at the time of the making of the
treaties.
- (c)
- The paragraph to which the Japanese note refers as supporting
its technical contention indicates, in its opening phrase, the
time which the negotiators selected for establishing the status
and component character of the properties that they referred to;
it reads as follows:
- “When such incorporation takes place, existing leases in
perpetuity by virtue of which property is now held in the
settlements shall be confirmed, and no conditions whatever other
than those contained in such existing leases shall be imposed in
respect of such property.”
- (d)
- The first treaty making this provision was negotiated in 1894,
and all treaties took effect in 1899. The first phrase of the
above quotation fixes the time at which the property, included
in its provisions, is to be determined as the time of the taking
effect of the treaties (1899); the second phrase refers to the
property “which is now held under the leases” (1894). There is
no room left, even on the most narrow technical construction of
the treaties, for the supposition that the negotiators meant to
strip their reference down to the naked land of the original
grants, which were, in many cases, about forty years old at the
time of their discussion.
- (e)
- At the time of the making of the treaties, and at the time of
their taking effect, these properties were, unquestionably, held
under exterritorial law, which fully recognized not only on
established legal principle, but by official records, that the
properties were, unless divided by specific contract, held as
solid properties, including land and its fixtures and
improvements.
- (f)
- It is undoubtedly true that the treaty should be construed, in
its reference to these properties, according to the law of the
exterritorial jurisdiction in force and applicable at the time
that the treaty was made, with due respect to the laws, usages
and customs in force at the time and the place when and where it
was to take effect. Under this exterritorial law, in force at
the time that the treaties were made, and at the time and place
that they took effect, the house was recognized, by both foreign
and native authorities, as a part of the properties held by
virtue of the leases in perpetuity, and, therefore, on any
reasonable and fair construction of the words of the treaty, the
improvements and fixtures must be taken to have formed a part of
the properties referred to by the negotiators.
- (g)
- The Japanese argument also attempts to ignore the fact that
some of the earlier grants of land provided, as a condition of
the title, that houses should be built, and to ignore the fact
that, as to all titles in Yokohama, in the provision for the
reversion of the land to the Japanese Government, in case of
failure to pay the ground rent, it was expressly provided that
the houses, though to be erected after the grant, were to revert
with the land to the Japanese Government. It seems, therefore,
that at the time of the grants it was intended that the houses,
when erected, should become a part of the land.
- (h)
- The Japanese argument also loses sight of the fact that in the
preliminaries of all of the conventions which led to the making
of the grants it was distinctly understood that the Japanese
Government recognized that in order to live in Japan foreigners
must have land on which to erect structures for residence and
business purposes, and the lands were conveyed to them by the
Government for this special purpose.
- (i)
- But leaving aside all these side lights of history and
established usage and custom and confining ourselves to the
technical letter of the treaties, we find that the paragraph of
the treaties on which the technical position assumed in the
Japanese diplomatic note rests is as follows:
- “When such incorporation takes place existing leases in
perpetuity under which property is now held in the said
settlements shall be confirmed, and no conditions whatsoever
other than those contained in such existing leases shall be
imposed in respect of such property.” (This quotation is taken
from the British treaty.)
- The French treaty states that “the properties of this nature
shall not be made to bear any imposts, taxes, charges,
contributions, or conditions other than those expressly
stipulated in the leases in question.”
- (j)
- The clause protecting the properties against the imposition of
taxes and new
[Page 692]
conditions is (in the above quotation from the British treaty)
the second clause, and the phrase “such property “at the end of
this clause refers to the phrase in the first clause, where the
word “property” first occurs, and where it is described as that
property which is held by virtue of leases in perpetuity at the
time of the making of the treaty. In the text of the British
treaty the description of the property is, property held “under”
the leases; in the text of the United States treaty, property
held “upon” the leases, and in the text of the French treaty,
property held “by virtue of” the leases. (It must be kept in
mind that the time referred to for this description of the
property is fixed as the time of the making of the
treaty—1894—and not the time of the grants.)
- (k)
- The technical textual effect of all of these phrases, in their
proper construction and natural meaning, is to describe the
property held in 1894 or 1899 as a result of the making of the
leases. The houses were certainly built and attached to the
lands as a result of the receipt of the leases. As has been
seen, some of the earlier grants made the building of a house a
condition of the title granted, and as to all grants, they were
made by the Japanese Government, not to be held for investment
or speculation, but for the specific purpose of enabling
foreigners to erect buildings for residence and business
uses.
- (l)
- Further than this, under exterritorial law which has governed
and controlled these properties and their ownership for years,
and which governed and controlled them at the time that the
treaties took effect, the houses have been so completely
attached to and merged into the land that, with the exception of
those cases where they have been separated by specific
agreement, there is no record of a title to a house, and if a
householder were to-day required to show a recorded title to his
house he could do so only by showing a recorded title to the
land on which it stands. A situation could not well be conceived
of which would more clearly show that the houses were held as a
result of the making of the leases.
- (m)
- The necessary answer to the Japanese argument may be
summarized, on this point of the technical construction of the
treaty text, as follows: They make the mistake of basing their
argument on the assumption that the properties referred to in
the protective clauses of the treaty are the properties as they
were included in the original grants, at the time of the grants,
under the component conditions then relating to them. The
language of the treaty is perfectly clear and fully disposes of
any reasoning based on this assumption. Under the treaty text
the properties protected from taxation and the imposition of new
conditions are not the properties as they existed at the time of
granting, but the properties “now held” by foreigners under the
original grants, i. e., in 1894, the date of the treaty, or in
1899 the time of the taking effect of the treaty. No reference
is made to the conditions influencing the composition of the
properties at the time of the grants—in fact such a reference is
positively precluded by the phrase “now held.” There is and can
be no dispute as to what this property consisted of under
exterritorial law and on the consular property records of the
various nationalities at the time that the treaty was
negotiated, 1894, or at the time that it took effect,
1899.
- (n)
- While it can have no logical or legal bearing on the technical
construction of the treaties, which must be taken to finally
establish the rights and exemptions of foreigners, it may be
interesting to call attention to a few practical considerations
relating to this house tax which the Japanese insist, in the
face of the provisions of the conventional grants and in the
face of the treaties, that they have a right to levy on
foreigners who hold property in Japan:
- (1)
- The house tax is not controlled by the Central
Government, but is levied and collected by the local
assembly of the ken (provincial district) and by the
local assembly of the municipality.
- (2)
- The house tax under Japanese law may be levied by
these assemblies whenever in their opinion revenue
becomes necessary. It is therefore an unlimited tax,
since there is no limit to the number of levies that may
be made in a year. It is believed to be the only tax
which under the Japanese system is unlimited.
- (3)
- Foreign property holders (having the benefit of no tax
limitation) have and can have no representation in
either of the assemblies authorized to levy this
tax.
- (4)
- The house tax is levied, not on a building in the
abstract, but as a percentage on the number of square
feet of the superficial area or each floor of the
building. The foreigner, from long usage and the customs
of civilization, finds it impossible to house a whole
family in the space of one small room; he requires, not
only for reasonable comfort but for decency, more rooms,
and consequently more room space than the average
Japanese requires. The house tax therefore falls with
more weight on him than on the Japanese.
- (5)
- While the foreigner objects, as a matter of principle
controlling future liability, to the admission of the
right to levy this tax on him and his property, he has
[Page 693]
no
practical present objection to the single house tax now
levied, since it may as a matter of loose argument be
fairly conceded that it is not now very far without the
limits of financial reason and necessity (if the
treaties have not exempted him from it entirely), but
since there is no limit to the number of times that it
may be collected in a year, and the discretionary
authority to levy it is vested in a very roughly
constituted local assembly in which he can have no
representation, he feels certain that if the broad right
to levy is in a concessive spirit admitted, contrary, as
he believes, to the clear provisions of the treaties
that protect him, the house tax will very soon rise to
an annual percentage that will become most burdensome
and unfair.
- (6)
- Leaving the text of the last treaties entirely out of
the question, the foreign property holder can not admit
that the municipal assembly has the right to levy the
house tax on him and his property in the settlements,
since in the convention under which the grants were made
the Japanese Central Government, as the lord of the
land, assumed all municipal charges, and it is
distinctly stated that in paying his ground rent to the
Central Government he pays all municipal charges. The
foreigner admits that the municipal assembly may have
the abstract right to collect taxes for running
expenses, but not from him on his settlement properties,
because when the settlements were formed the Central
Government refused to allow him to have dealings of any
sort relating to fixed property and the charges incident
to it with native subjects, but said to him, “You must
deal directly with us and pay us your ground rent, which
covers and includes all municipal charges against you
and your property in the settlements, and we will take
care of all these charges for you.” The foreigner
believes that the city assembly should collect the tax
that it wishes to levy on these settlement properties by
securing it from the Central Government, which has
received it in the form of ground rent.
- (o)
- The foreigner can not see that there is now involved in the
discussion of this matter any general or moral question of his
duty to contribute to local expenses in the form of a house tax,
or to discuss the sufficiency of the contribution that he has
made in paying his ground rent; he has paid the ground rent
reserved in the lease contracts and confirmed as a duty by the
treaties, and he pays the other numerous taxes of Japan, to
which the treaties have made him subject, without objection. He
is not making a treaty—it is simply a question of the
enforcement of one that his Government made for his benefit
several years ago. The moral effect of the exemption of his
settlement property, held under old grants free of taxation
other than the stipulated ground rent, might have been discussed
in the making of a treaty, but not now in the carrying out of
the provisions of one made and in force. Neither is he nor his
Government called upon to show any specially concessive spirit
on moral questions of right, outside of the strict enforcement
of the terms of the treaties, since a spirit far from concessive
has been shown to him. The Japanese Government failed and
refused for more than two years to confirm his titles as the
treaties required, thus causing a reduction of their market
value and putting him to a heavy expense to secure recognition
of this important right; this recognition has been tardily and
grudgingly given in halting language. In every possible way and
on all collateral questions a wish has been clearly shown to
ignore and override without discussion rights that he honestly
believes he has under the treaties. When it has been impossible
to decide a question against him on the most technical
construction, he has been repeatedly informed that he must
continue to suffer infringement of his rights, satisfying
himself with a protest, “because the Central Government can not
control the action of local officials.” He knows that the
Government of Japan has more centralized power than most
governments, and he sees every day exhibitions of its power to
control absolutely the action of all officials in cases where it
wishes to do so. He learns from the constitution of Japan that
the treaties promulgated by His Majesty the Emperor form a part
of the higher law of the nation, and he wonders that the
Government admits a lack of ability to require and enforce
respect for that law, and concludes, with some reason, that the
trouble does not lie so much in a lack of ability on the part of
the Central Government as in the utter lack of any wish to hear
him and protect him.
The foreigner in Japan has been forced to ask for “his pound of
flesh” which the treaties have allowed him, since that is all that
he can hope to receive.
Yokohama,
October 26,
1901.