File No. 893.512/54.

Chargé MacMurray to the Secretary of State.

No. 687.]

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.]

J. V. A. MacMurray.
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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.]

Chou Hsueh-Hsi.
[Inclosure 2.]

Chargé MacMurray to the Minister for Foreign Affairs.

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 [Page 229]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.]

J. V. A. MacMurray.
  1. Not printed.