File No. 639.003/28.

The American Minister to the Secretary of State.

No. 47.]

Sir: Referring to your No. 29 of March 1, 1911, in regard to [etc.], I have the honor to report that I have brought this matter to the attention of Mr. Velázquez in accordance with your instructions.

In the first place I have handed Mr. Velázquez a memorandum setting forth the position of our Government in regard to these taxes. This memorandum was carefully gone over, and the minister stated that he would like to answer by a countermemorandum, copies and translations of which I herewith inclose. I have had frequent interviews with the general receiver of customs on this subject, and I will send in my full report on the workings of the two taxes in question as soon as I can obtain all the data from the receiver’s office.

I have, etc.,

William W. Russell.
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[Inclosure 1.]

The American Minister to the Acting Minister for Foreign Affairs.


[The memorandum begins with a verbatim copy of the Secretary’s despatch No. 29, above, from the first paragraph, “On August 16, 1910,” etc., to the end of the sixth paragraph, “as required by article 3 of the convention of February 8, 1907.” It then proceeds:]

In thus emphasizing the principle involved, namely, the right of the United States under the convention to have its agreement or consent a prerequisite to any modification in the import duties, the Government of the United States reserves for the present its right hereafter to make any specific objections to the recently levied duties aforesaid which further careful study and examination may show to be necessary.

From the preliminary study already made it would, however, appear that the recently approved municipal taxes of the Commune of Santo Domingo, at least, threaten injuriously to affect the import customs revenues, which so largely serve the bond issue with which the Dominican Republic is discharging its obligations to its creditors and concessionaires. Moreover it would seem that the recent legislation is likely to prove prejudicial to the best interests of the Republic in the matter.

[Inclosure 2.]

The Acting Minister for Foreign Affairs to the American Minister.

[Counter memorandum—Translation.]

Dear Mr. Russell: The position taken in your memorandum against the right of the Dominican Republic to sanction the municipal surtax for the city of Santo Domingo, and the stamp tax, is not in accordance with the opinion of the Government on that point.

The convention celebrated on February 8, 1907, between the United States: of America and the Dominican Republic provides, in article 3, that the import duties of the Dominican Republic can not be modified except by previous agreement between the two Governments. But the same article, in establishing the condition that said import duties must never fall below $2,000,000 annually, excludes all idea except that the said modification is what might reduce the revenues. The United States, in stipulating that condition, could have had no other object in view than that of protecting the interests of the holders of Dominican bonds; and these are perfectly safeguarded as long as the customs import duties are not reduced to $2,000,000.

The stamp tax you refer to is not a creation of latter days. It was voted in 1904, reformed in 1906, and again reformed in 1910; but not only is it anterior to the convention, which did not annul it, but when reformed in 1910 was notably reduced as regards articles of import. There is no ground then to suppose that the modification of the stamp tax law is prejudicial to the customs revenues since, instead of reducing them, the probabilities of their being increased have been augmented.

The municipal surtaxes are likewise not a creation posterior to the convention. Since the birth of the Republic the constitution has recognized in the municipalities the right to create usance and consumption taxes for the commune, which are made legal by Congress.

The schedule of municipal surtaxes at present in force in the city of Santo Domingo is a modification of a tax that was in existence for many years previous.

And what influence that tax has in reducing the customs revenues is shown by the income from the Santo Domingo customhouse last year, when the new municipal surtax went into effect, compared with the year 1909. The revenue increased, as is shown by figures, since the surtax is so low that it can not reduce consumption.

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But it is pertinent to observe that, even in the excessive case, scarcely probable, that a reduction of the customs revenues is produced as a necessary consequence of the establishment of these municipal consumption taxes, it would be indispensable, in changing the laws by which they were instituted, as a condition sine qua non, that the customs revenues were not exceeding $2,000,000’ annually.

Outside of that case—the reduction of the customs revenues below the minimum established by the convention—no criticism can be made of any consumption tax whatever that the Republic sees fit to establish, as the previous agreement between the two Governments under the convention of February 8, 1907, is only necessary for the modification of the import customs duties, with special care that the customs revenues of this nature do not fall below a certain and definite sum.

The convention has not touched on the sovereign right of the Dominican Republic to create taxes of all sorts, as, for example, an export tax, more directly connected with import duties than municipal taxes. It is understood that the convention having had for its object the guarantee of the import duties for the payment of the 5 per cent bonds, the agreement of both Governments, in accordance with the provisions of the convention, is indispensable for any modification of the working of the tariff, any change in which might make a notable and perennial reduction in said import duties.

But that agreement is not necessary nor proper, neither under the convention nor under our laws, while the tariff remains intact, and when, moreover, there is no ground for foreseeing an alarming reduction of said duties. That would be contrary to the spirit and letter, not only of our laws, but of the convention itself. It would be contrary to the interests of the parties, both charged with the development and prosperity of the Dominican Republic, in a national sense, as well as in its municipal functions.

Yours, truly,

Fedco. V. Velázquez H.