File No. 893.512/31.
Minister Reinsch to the Secretary of State.
Peking, March 10, 1914.
Sir: With reference to the Department’s instruction No. 685 of December 22, 1909,43 which was in reply to the Legation’s despatch No. 1287 of November 8, 1909,43 and to Mr. Calhoun’s No. 660 dated November 11, 1912,43 with which was enclosed a translation of the law regulating the imposition of the stamp tax, I have the honor to report that in reply to the note of the Wai Chiao Pu, cited in Diplomatic Circular No. 210, copy of which is enclosed,43 the Diplomatic Body on the 17th ultimo decided to send a collective note in the form contained in Diplomatic Circular No. 39, hereto annexed.43 This collective note was forwarded to the Foreign Office on February 28.
Under the terms of this note, the Ministers of the Powers here represented are now referring the question of the stamp tax law to their respective Governments for instructions.
In its instruction No. 685 of December 22, 1909, the Department took the position that the stamp tax law, in the form then proposed,
* * * would in effect constitute an extra charge on foreign goods, in contravention of Articles XI and XII of the Japanese Treaty of 1896.44
In the Legation’s despatch No. 660 above mentioned, which deals with the law in its present form, the American Minister, William J. Calhoun, Esquire, takes the position that,
* * * if the burden is not too heavy, then in view of China’s great need of additional revenue and of the further fact that other countries, including our own, do impose or have imposed similar taxes, it is a question whether or not in fairness to China the foreigners ought to object to these taxes. This, however, is only a matter of first impression.
In asking for the instructions of the Department in this matter, I have the honor to submit the following considerations:
The treaty between the United States and China concluded in 1903,45 after making provisions for the eventual abandonment of likin in return for a surtax to be imposed upon foreign goods imported and on Chinese produce destined for export, makes the following reservation, which does not occur in any other treaty of a foreign power with China:
Nothing in this article [IV] is intended to interfere with the inherent right of China to levy such other taxes as are not in conflict with its provisions.
An interchange of notes accompanying the conclusion of this treaty contains the following statement made by the Chinese Commissioners (vide Customs collection of “Treaties between China and Foreign States,” Volume I, p. 553):
In our discussions we have on several occasions insisted that this treaty should embody the provisions contained in the revised British Commercial Treaty recognizing the right of China to collect consumption duty and excise duty, and also her right to levy production duty in order to make good the duty which would have been leviable on goods in transit by the native customhouses inland, now abolished. While you have not agreed to embody these provisions in your treaty, you have constantly replied that the United States has no intention of limiting in this treaty the sovereign rights of China excepting as specified therein.
It was our intention to write a dispatch to be an annex to the treaty specially affirming the right of China to levy the taxes mentioned above. However, you have at our urgent request inserted in the 4th article of this treaty a very broadly worded clause 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.”
This more completely covers the ground than such a dispatch would have done. We therefore only desire now to state again that China reserves her right to levy any and all taxes, provided only that they do not conflict with the provisions of our treaty with you.
To which the American Commissioners replied as follows:
In framing this treaty we have endeavored to recognize the right of China as a sovereign state to levy such taxes as are not in conflict with the provisions of this treaty, which is intended to extend the commercial relations between, and promote the best interests of, the people of the two countries. With this end in view, we inserted at your request in Article IV the clause, “Nothing in [Page 121] 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.” We, with your excellencies, appreciate the fact that this clause is comprehensive and conserves to the fullest extent the sovereign rights of China except as specified in this treaty.
It seems, therefore, that in these negotiations and in their result, the Government of the United States intended to acknowledge completely China’s sovereign rights of taxation in so far as they were not specifically limited by the terms of the treaty itself; that is, in so far as they did not affect taxation of imports and exports. The treaty does not claim for American citizens the total exemption from all charges provided for by Article XL of the French Treaty of Tientsin of 1858, to the effect that “it is understood that any obligation not admitted expressly in the present convention shall not be imposed upon [French] consuls or consular agents nor upon their nationals.”
The question now arises whether, by the admission of the sovereign rights of taxation contained in Article IV of the Treaty of 1903, the American Government has foregone, in behalf of its citizens, the extensions by means of the most-favored-nation clause of the exemption contained in the French Treaty of 1858.
Considerations of justice and equity would favor the claim of the Chinese Government to the right to impose the stamp tax on commercial papers if reasonable in amount; and this form of taxation is one that, while it does import a certain inconvenience to commerce, is nevertheless in accord with approved fiscal methods. In order to have contracts or other commercial papers respected as valid and in force, foreigners must rely upon the courts of the Chinese Government whenever Chinese citizens are concerned. It would seem to be a justifiable exercise of China’s sovereignty to prescribe the general conditions of validity of contracts and of their enforcibility in courts, so long as there would be no attempt to make rules unduly harassing to commerce or unfavorable to foreign merchants. To ask the Chinese Government for the use of its courts and of its legal protection while refusing to contribute to the maintenance of that Government any charges except the small import and export duties would certainly not seem to be an attitude consonant with a respect for the rights of the Chinese Government and nation.
The tendency to interpret the extraterritoriality of foreigners in China as implying entire exemption from all duties ordinarily imposed by sovereign governments upon persons residing within their territory is certainly not in accord with equity nor with sound policy. Were the position taken by the Government of the United States in the Treaty of 1903 to be generally accepted by the Powers, it would be possible for the Chinese Government gradually, in a measure as its efficiency increased, to develop its just powers of sovereignty throughout the Republic. But by construing extraterritoriality as implying an absolute exemption, the current international practice in China stands in the way of the development of an efficient and adequate government.
On the other hand, it is unquestionably true that were the just rights of foreigners not carefully guarded, they would often be subjected to burdens of impositions, unjust and intolerable. As long as the whole question is dealt with on the basis of the outside nations [Page 122] trying to enforce absolute immunity of their nationals, the Chinese, on the other hand, will not be free from a desire to take advantage of every opportunity offered, regardless of principle, to get the better of the foreigner. This situation can be remedied only if due recognition, under severe tests of efficiency, is given to the efforts of the Chinese Government to reform and improve the methods of governmental business. Such recognition can come only by allowing the exercise of the sovereign powders of China, where such exercise seems reasonable and just according to the general principles of government practiced by the nations of the world.
Should the Department be of the opinion that the Chinese Government should be accorded the right of imposing a stamp tax, as far as American citizens are involved, this recognition could either be limited to the principle that whenever proof of a document may be eventually necessary in a Chinese court, it must bear the required stamps; or it might be accompanied by a regulation affecting the United States Court for China and the consular courts to the effect that, for instance, “No document liable to stamp duty under the Chinese law, to which this Government has assented, shall be received as creating, transferring or extinguishing any right or obligation, or as evidence in any civil procedure unless such document is stamped according to said Chinese law.” This arrangement could be carried out through a regulation to be made by the American Minister under Section 4086 of the Revised Statutes of the United States. Should the Department decide, on principle, to support the exercise of sovereign power by China, in this matter, the discussion of minor items in the bill which might be found unduly onerous by American merchants in China, if any such objection there be, might still be reserved for further reference to you; and the time for communicating to the Chinese Government the support of the United States in this matter might be fixed in accordance with convenience determined by other negotiations and with some reference to the action of the other Powers.
On the basis of the facts and considerations as reported, I have the honor to ask for your instructions.
I have [etc.]
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- Treaty of commerce
and navigation between China and Japan; signed July 21,
1896;
- Article XI. It shall be at the option of any Japanese subject desiring to convey duly imported articles to an inland market to clear his goods of all transit duties by payment of a commutation transit tax or duty equal to one half of the import duty in reject of dutiable articles, and two and a half per cent upon the value in respect of duty-free articles; and on payment thereof a certificate shall be issued which shall exempt the goods from all further inland charges whatsoever. It is understood that this Article does not apply to imported opium.
- Article XII. All Chinese goods and produce purchased by Japanese subjects in China elsewhere than at an open port thereof, and intended for export abroad, shall in every part of China be freed from all taxes, imposts, duties, likin, charges, and exactions of every nature and kind whatsoever, saving only export duties when exported, upon the payment of a commutation transit tax or duty calculated at the rate mentioned in the last preceding Article, substituting export duty for import duty, provided such goods and produce are actually exported to a foreign country within the period of twelve months from the date of the payment of the transit tax; all Chinese goods and produce purchased by Japanese subjects at the open ports of China, and of which export to foreign countries is not prohibited, shall be exempt from all internal taxes, imposts, duties, likin, charges, and exactions of every nature and kind whatsoever, saving only export duties upon exportation; and all articles purchased by Japanese subjects in any part of China may also, for the purposes of export abroad, be transported from open port to open port, subject to the existing Rules and Regulations.
[Translation contained in “Treaties between China and Foreign States,” 2d edition, vol. ii, p. 609.]
↩ - For. Rel. 1903, p. 91.↩