File No. 693.116/46.
The American Minister to the Secretary of State.
Peking, November 22, 1910.
Sir: I have the honor to bring to the notice of the Department the numerous complaints which are being made, particularly in the Manchurian Provinces, regarding the imposition of illegal taxes on foreign products after passing into Chinese hands. The Chargé has been made, notably by the Standard Oil Co., of the frequent petty taxes to which their products have been subjected, in spite of the payment of the customary surtax. While the legation has endeavored to settle such abuses where possible by local means, and has instructed its consular representatives to seek cooperation with their colleagues whose nationals suffer similarly, it would withal be too optimistic to hope that such remonstrances alone will suffice to correct this evil which is now engaging the attention of the diplomatic body. At the present the latter is endeavoring to ascertain the precise nature of these taxes, since it is quite possible that a close understanding of the same will facilitate the settlement of a somewhat complicated question.
While these taxes vary considerably at different localities, the following are among those described by the Newchwang agency of the Standard Oil as exacted at Kirin, where the abuse appears to be the greatest:
The hill and sea tax, 15 candareens per case; seven and four li tax, equals 0.011 per cent on value; business on sales 1 per cent; then there is a small tax for writing out a receipt for the payment of the hill and sea tax.
The Chinese argument to justify such taxation is, that while the payment of the customs surtax protects the goods during their period of transit until their place of destination, after the latter are sold to Chinese subjects, and when the latter sell to each other, they must pay the inland taxes according to regulations. Needless to say this view has so far been strenuously resisted by all foreign interests concerned.
It is obvious that though additional direct taxation on foreign goods may perhaps be prevented by strenuous diplomatic action, other means could be found to accomplish the same result. Were an income tax, for instance, feasible in China, the revenue derived from [Page 73] the sale of foreign goods could not properly be separated from that obtained by the sale of native products. Moreover, at a time when both the Central and Provincial Governments are in such urgent need of revenue, it would seem inequitable to take refuge in the strict interpretation of treaties, which could always be circumvented by indirect taxation. Under the existing conditions it would rather seem the part of wisdom to arrive at a mutual understanding which would do away with the more onerous and annoying aspects of the present taxation at the same time as it afforded a proper source of revenue for China. The Department will remember that a consumption tax is provided for by section 8 of the British commercial treaty of 1902 and perhaps implied by a paragraph in Article IV of our own treaty of 1903, as follows:
Nothing in this article is intended to interfere with the inherent right of China to levy such other taxes as are not in conflict with its provisions—
together with the interpretation given to this by the Chinese treaty commissioners. (See Treaties between China and Foreign States, 1, 553.) The argument in favor of further taxation is, therefore, not without some ground and it would seem both impolitic and inequitable to resist it altogether. Should you approve, the legation will use its best efforts to seek a solution, subject, of course, to your final approval, on a basis more friendly to Chinese fiscal interests than is comported by the present attitude of hostility to any and every form of local taxation. In this, as in other instances, I feel satisfied that we can safely leave the onus of combating any attempts at exacting exaggerated taxation to the powers more keenly interested than ourselves and confine our own efforts to the part of a mediator between the Chinese and such nations. In the meantime this will not prevent the legation taking all proper measures to seek to remedy such abuses as occur. (See Inclosure.)
It should also be noted that one element of discrimination in the situation exists. And that is, where Japanese merchants retail the merchandise, they refuse to pay this local tax, and the Chinese authorities let them alone. The same may be said of the Standard Oil Co. when it sells its own oil, it refuses to pay the tax, and no further effort is made to collect the same. But when the merchandise is in the possession of the Chinese merchant he is compelled to pay.
I have, etc.,