File No. 893.512/45.

The Acting Secretary of State to Chargé MacMurray.

No. 294.]

Sir: In acknowledging receipt of your No. 588 of March 22, 1915, relating to the imposition upon American goods of certain inland charges considered to be irreconcilible with treaty stipulations, the Department desires to express approval in general of the instruction sent by the Legation to the Consul General at Shanghai under date of July 25, 1914.

In doing this the Department is but adhering to the position which it has supported for many years past and which it believes should not for the present be abandoned.

The Department desires, however, to point out that the statement made on page 2 [under heading 1] of the Legation’s instruction just mentioned, to the effect that “the whole of any opened port and not merely a restricted area of it is open to foreign trade”, is a contention which the Department makes only with respect to ports opened by treaty and is not insisted upon in regard to ports opened by China of its own volition and with certain restrictions as to the area set aside for foreign residence and trade.

The Department, moreover, while still maintaining the view that goods covered by inland transit pass are properly subject to no further inland taxation either in transit or after arrival at their destination, whether in foreign or Chinese hands, would call attention to the observation made by Minister Calhoun in his despatch of July 2, 1912, to the effect that the phrase “all other inland charges whatsoever” can only mean charges on the goods while in transit; that the provisions of the treaties with respect to the inland transit tax was never intended to prevent the levy of local taxes upon foreign goods after they should have reached their destination; and that “a strict construction of the treaties seems to justify the Chinese in their contention that no such wholesale exemption of foreign goods from taxation (as is claimed by foreign merchants) was intended.”

The Department in replying to Mr. Calhoun under date of September 3, 1912, No. 278, said:

While this Government would not be disposed to look with disfavor, in any subsequent discussion of this question, upon such an interpretation as that recommended by the Legation, yet it is believed that the determination of [Page 222]this question might well await any conference of the representatives of the treaty powers at Peking that might assemble to discuss reforms and other questions arising out of the treaties or bearing on the general subject of reorganization in China.

The Department is in full sympathy with the desire of the Chinese Government to increase its revenues by legitimate forms of taxation and would not be indisposed to accept the Chinese view of the “destination tax” and other similar charges levied upon goods after their arrival at their destination, if some definite assurance could be had that the treaty provisions as to the commutation transit tax would not be evaded by a reimposition at the destination, under other names, of the likin, from the levy of which exemption had already been purchased. The Chekiang Loti Regulations, a copy of which you enclosed in your despatch under acknowledgment, show how such evasion of the treaty provisions is attempted when opportunity offers. The Department heartily approves of the protest made against these regulations, and while it may be true, as stated in the Legation’s instruction to Shanghai, that our protests against consumption or destination taxes will continue to be futile, such protest, it appears, will continue to be necessary until a general conference of the Treaty Powers shall agree to some such plan as was proposed in the Commercial Treaty of 1903 between the United States and China, whereby in return for the entire abolition of likin, an increase in the customs duties was to be allowed. When such revision of the commercial treaties is undertaken the Department hopes that due provision will be made at the same time to protect American goods against excessive local taxation.

I am [etc.]

John E. Osborne.