File No. 893.512/53.

Chargé MacMurray to the Secretary of State.

No. 686.]

Sir: I have the honor to submit herewith for the consideration of the Department a copy of an instruction which the Legation is addressing under today’s date to the Consulate General at Hankow, in reference to a so-called “99 Mercantile Tax” which the provincial authorities of Kiangsi have attempted to establish. This tax is fixed at 1 per cent on the current price of goods of all kinds entering [Page 225] the Province of Kiangsi, and is declared to be “for the purpose of adjusting the value of the cash notes and assisting the financial position of this province”; and it is further provided that “the tax will be withdrawn as soon as all the cash notes have been redeemed.” Complaint against the proposed levy of this tax upon its products was made by the Kiukiang branch of the Standard Oil Company of New York, which, for the purpose of avoiding certain charges of the Maritime Customs for the bonding of warehouses, is accustomed to take its products into the interior of Kiangsi, not under the system of transit-passes provided by the treaties but under an arrangement for the payment to the Native Customs of a provincial tax known as “Pao Shang Piao,” which, for the same half-duty charge as the transit pass, assures to the goods while in transit in the province the same general exemptions from local taxation as does the transit pass. The exact nature of this Pao Shang Piao is unknown, as the Consulate General has been unable to procure a copy of the Regulations; but what appears to be the point most essential in this connection is covered by the following quotation from a communication on the subject which the Governor of Kiangsi addressed to the Consulate General on January 12 last:

The Pao Shang Piao was established in the twenty-ninth year of Kuang Hsu (1903–1904) and has been collected after the manner of the Maritime Customs tax. It is collected once for all by the Pao Shang Office, and the office issues a tax-receipt permitting that the goods be shipped to their destination (at the point of destination). When the goods and certificate are in accord, the certificate will be given to the office for cancellation. The goods will not be taxed a second time.* * * The goods which are covered by Pao Shang Piao and are imported into the interior through Hukow, shall not be interfered with, detained or further taxed by either the Hukow or other interior tax offices.

It was contended by the Standard Oil Company that the payment of this provincial tax, which is closely analogous to the transit-pass tax established by the treaties, should similarly entitle them to exemption from “all other inland charges whatsoever,” as the treaties provide in favor of transit-pass goods. In accordance with this view the Consulate General refused to recognize the legality of the tax, and so advised the American company. The British Consul at Kiukiang, apparently on the same grounds, advised his nationals in the same sense.

Although concurring in the conclusion that the “99 Mercantile Tax” is illegal as imposed upon goods that have paid Pao Shang Piao, the Legation nevertheless considers that its illegality arises not from any violation of the treaty stipulations in regard to transit-pass exemptions, but from the fact that the effect of payment of the Pao Shang Piao, as stated by the Governor in the communication quoted above, should be to relieve the goods from the incidence of all other local levies while in transit in the Province of Kiangsi.

I beg to request an expression of the views of the Department on the several questions thus raised.

I have [etc.]

J. V. A. MacMurray.
[Page 226]

Chargé MacMurray to Consul General Cunningham.

No. 1168.]

Sir: Referring to previous correspondence, and particularly to the Legation’s instruction (No. 1083) of May 11 last, and your despatches of May 18 and June 7 (Nos. 39 and 49, respectively), on the subject of the “99 Mercantile Tax” which the provincial authorities of Kiangsi are attempting to levy upon imports into that province, I have to advise you that, in the opinion of the Legation, there appears to be ample ground for the Consulate General to contest the legality of this tax upon such goods as have paid “Pao Shang Piao”—a provincial tax the precise terms governing which remain unknown, but which the Governor of Kiangsi described to you in a communication of January 12 last (quoted in your despatch of May 18) as exempting from further taxation during transit in the province the goods upon which it had been paid. The Legation therefore approves your action in advising American firms to refuse payment of the “99 Mercantile Tax” under the circumstances indicated, and in so informing the Governor of Kiangsi.

In order, however, to avoid a possibility of misunderstanding as to the principle upon which this view is based, it should perhaps be emphasized that the levy of the “99 Mercantile Tax” under such circumstances appears to the Legation to be illegal not because contrary to the treaty obligations of the Chinese Government but because incompatible with the terms (as stated by the provincial Governor) upon which the provincial “Pao Shang Piao” is levied. Although apparently professing to assure to goods in transit within the province the same general exemptions which they would enjoy under transit pass, that provincial tax does not appear to be wholly assimilable to the half-duty charge which the treaties stipulate as optionably payable in order to relieve imports from “all further inland charges whatsoever”; and the payment of that tax cannot therefore entitle goods to the exemptions specified in favor of transit-pass goods, but only to such exemptions as accrue to the goods under the regulations governing the tax.

The “99 Mercantile Tax” would, on the other hand, no doubt be held to be contrary to the provisions of the treaties if it were levied upon goods in transit under transit pass or exemption certificate, or if it were imposed in violation of the most-favored-nation principle on imports from a particular country, or if it were to violate the national-treatment principle by being directed (even though without actual discrimination in the amount, of the charge) specifically against foreign goods as such in contradistinction to native goods.

It would also seem (although on this point the Legation must reserve a decision) that the “99 Mercantile Tax” would not be illegal as applied (always assuming an absence of actual or potential discrimination as among foreign goods or against foreign goods in contradistinction to native) to imports sent into the interior without availing themselves of treaty exemptions under the system of transit passes or of exemption certificates.

I am [etc.]

J. V. A. MacMurray