File No. 893.512/54.
Chargé MacMurray to
the Secretary of State.
No. 687.]
American Legation,
Peking,
July 16, 1915.
Sir: I have the honor to transmit herewith a
translation of a note, under date of May 15 last, with which the
Ministry of Finance, at the request of the Legation, communicated a copy
of certain regulations under which it is proposed to levy destination
taxes upon foreign goods imported into the Province of Kiangsu and
particularly into the walled city of Nanking; also a copy of the note
which the Legation yesterday addressed to the Wai Chiao Pu, protesting
against the imposition of that tax.
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I beg to request the instructions of the Department on the issues thus
raised, more especially upon the contention that it is not competent to
the Chinese Government to impose upon foreign goods, as such and in
contradistinction to native goods, any taxes or dues other than the
import duty and optional transit-pass clues expressly stipulated in the
treaties, on the ground that such a differentiation would imply the
right (as in fact it would afford the opportunity and the temptation) to
discriminate against foreign imports.
Under the strict interpretation of the treaties upon which our Government
has insisted, transit-pass goods should be held to be exempt from all
other inland charges whatsoever, being thus entitled to conditions more
favorable than those of “national treatment.” Under the more liberal
construction conceded by the British, which admits that such goods pass
into the course of Chinese trade and become subject to “national
treatment” upon the cancellation of their transit passes at destination,
and therefore allows of the levy of such further taxes as may be
indiscriminately imposed upon that trade, it has been found necessary to
insist that all differentiation between foreign and native goods should
thereupon cease.
In protesting against the proposed regulations, it has seemed to me
advisable to adduce this further consideration, for two reasons:
- First, it seemed opportune to point out the fallacy of the
Chinese position in claiming the right to levy a destination tax
upon transit-pass goods after the completion of their transit on
the ground that they are then “on the same basis as all other
goods,” while at the same time taxing them under the terms of
regulations expressly applicable to them as foreign goods. It is
possible that a realization of the extent to which their general
contention as to the legality of destination taxes is weakened
by these regulations may be effective in inducing the Chinese
Government to withdraw the regulations—as it could hardly be
expected to do otherwise in view of the obduracy with which it
has hitherto ignored the protests against the imposition of
destination tax upon transit-pass goods and against treating
Nanking City as “interior” rather than as an open port.
- Second, in the event of such a general adjustment of questions
of taxation as was suggested in the Legation’s despatch No. 664
of June 11, 1915,17 it is possible that our Government might
consent to adopt the more liberal construction, in which the
British Government has acquiesced, as to the effect of the
treaties in entitling foreign goods only to “national treatment”
after completing their transit to an open port under exemption
certificates or to their destination in the interior under
transit pass. In that case it would be well to have on record
the contention that no regulation differentiating foreign from
native goods and imposing upon them other (even if not more
onerous) conditions, can be considered as compatible with the
“national treatment” which our Government might be disposed to
accept as applicable to imports from the United States.
I have [etc.]
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[Inclosure 1.]
The Minister of Finance
to Minister Reinsch.
Sir: I have the honor to acknowledge the
receipt of your note regarding the receipt by the American merchants
of Nanking of a notification that a destination tax would be levied
on all foreign goods coming to Nanking, and asking for a copy of the
regulations.
I would observe that miscellaneous foreign goods transported inland
to be sold, when covered by a transit pass, are exempt from all
taxation at any customs barrier en route from the treaty port to the
place of destination. When they have reached their destination the
transit pass is surrendered and cancelled. Thereupon the goods are
on the same basis as all other goods and should be treated according
to the regulations for the interior. This is the intention of the
treaties. The regulations of the late Ch’ing Dynasty for the
interior provide that after the pass has been cancelled the Chinese
merchants who take delivery of the goods shall pay a destination
(Loti) tax. When goods are not covered by a transit pass the
shippers must pay the half-duty provided for in the transit-pass
regulations at a customs station, whereupon they receive a pass in
four sections; after which they are exempt from examination on the
road. When the goods have arrived at their destination they must pay
the destination tax. This has been the practice for over twenty
years. This is a tax which is assessed on the Chinese merchants and
has nothing to do with the foreign merchants, nor does it conflict
in any way with treaty stipulations. I now have the honor to send
you the Nanking Destination Tax Regulations, as requested, for your
inspection.
With compliments [etc.]
[Inclosure 2.]
Chargé MacMurray
to the Minister for Foreign
Affairs.
American Legation,
Peking,
July 15th, 1915.
Excellency: I have the honor to advise you
that this Legation has received from the Minister of Finance a copy
of the Regulations governing the destination tax which it is
proposed to levy upon goods entering the City of Nanking. This was
in reply to the request of the Minister, who desired to reassure
himself that the proposed innovation would not affect the rights of
American citizens under the existing treaties.
I regret to advise your excellency that an examination of these
Regulations discloses several points which seem inconsistent with
the view of the treaties held by the American Government.
In the first article of the Regulations it is provided that they
shall be applicable in all parts of Kiangsu outside foreign
concessions and the treaty ports. Inasmuch as the City of Nanking
has been open to foreign trade under the terms of the French Treaty
of 1858, it would seem that the Regulations would not in any case be
applicable there.
As I need scarcely recall to your excellency, the American Government
has never recognized the propriety of levying a destination tax upon
goods which have paid the import duty and the transit-pass duty
entitling them under the treaties to exemption from “all further
inland charges whatsoever.”
The levy of such a destination tax could be justified, if at all,
only on the theory that transit-pass goods, having completed their
transit under protection of the treaties, are thereupon merged into
the trade of the country so as to be indistinguishable from native
goods. It is not consistent with that theory that a destination tax
should be made particularly applicable specifically to foreign
goods.
Even apart from that consideration, however, I would particularly
invite the attention of your excellency to the view that it is the
purpose of the existing treaties to specify and provide for all
duties and taxes leviable upon foreign imports as such; and that it
is therefore illegal to single out foreign goods in order to subject
them to further taxes other or higher than those levied upon native
goods. Even if the taxes so imposed upon foreign goods could be
shown to be no heavier than those imposed on native products, it is
evident that the purpose of the treaties in this regard would be
defeated if foreign goods, having
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paid all the duties and taxes provided by
treaty, were to be subject to further taxation levied upon them
especially, as distinguished from native goods.
I avail [etc.]
