Papers Relating to the Foreign Relations of the United States, With the Annual Message of the President Transmitted to Congress December 2, 1902

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 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 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.

A. E. Buck.

[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, 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 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 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.