File No. 639.003/49.
Memorandum of the Solicitor for the Department of State (Woolsey) regarding presidential approval of the Executive orders proposed by the Military Government of Santo Domingo for revision of the import duties of Santo Domingo
i. facts
On November 23, 1909, the ley sobre aranceles de importación y exportatión, which purports to be a complete piece of legislation [Page 393] including all export and import duties, was adopted with the approval of the United States as required by Article 3 of the convention of 1907. It appears, however, that there exist at the present time in the internal revenue laws of the Dominican Republic two laws which are properly import-duty legislation. They are the ley sobre estampillos or stamp tax, and the ley sobre la renta de alcoholes. There appear also to be municipal surtaxes laid on imports which are not included in the general customs revenue laws of the Dominican Republic. The fact that the internal revenue laws of the country thus included taxes on imports, and the additional fact that these laws were not approved by the United States as required by Article 3 of the convention of 1907 was brought to the attention of this Government.1 The lack of approval of the United States Government was made the subject of an instruction to the American Minister at Santo Domingo dated March 1, 1911.2 It now appears from a letter of Admiral Knapp, Military Governor of Santo Domingo, to the Secretary of the Navy, for the State Department, dated November 6, 1918, that the United States subsequently consented to such taxes as were then in existence but reserved the right to have submitted to it for approval any such proposed scheme of taxation in the future. The Military Governor also reports that he has refused municipalities permission to raise revenue by surtaxes subsequent to the discovery of the existing surtaxes. In the new law of internal revenue, Executive Order No. 197, issued by the Acting Military Governor of Santo Domingo on August 19, 1918, the law of stamps and the law of alcohol, so far as they related to imports, were omitted from the scheme of internal revenue taxation.
The Military Governor now proposes in his letter of November 6, 1918, to the Secretary of the Navy, above referred to, to repeal the law of stamps dated July 2, 1910, and the law of alcohol promulgated June 16, 1909, to take effect January 1, 1919. This is indicated in draft of proposed Executive order “A” attached to Admiral Knapp’s letter. In his draft of proposed Executive decree “B”, he purposes to incorporate the features of the law of stamps and the law of alcohol, so far as they deal with import duties, in the law of import and export duties of November 23, 1909, reducing the amount of the tax somewhat. This order is to take effect January 1, 1919. Article 4 of this proposed decree provides:
The additional duties accruing from the application of the above-mentioned surtaxes shall be assessed and collected at the respective customhouses at the time and in the same manner as the regular import duties, but they shall be accounted for separately and the total amount thereof shall be delivered by the General Receiver of Dominican Customs to the Contaduría General de Hacienda for the Dominican Government accompanied by detailed statements of the accounts.
Admiral Knapp states that the approval of this Article 4 of the proposed decree is very much desired by the Military Government, inasmuch as by this method the revenue, which is at present raised by the law of stamps and the law of alcohol, and goes toward payment of the current expenses of the Dominican Government will be retained for that purpose, for which it is very much needed. In this connection it is pertinent to observe that the convention of [Page 394] 1907 deals with the customs revenues only, and that the Dominican Government is not in any way responsible to the United States for the collection and disbursement of the internal revenue receipts.
Article 3 of the convention of 1907 provides:
3. Until the Dominican Republic has paid the whole amount of the bonds of the debt its public debt shall not be increased except by previous agreement between the Dominican Government and the United States. A like agreement shall be necessary to modify the import duties, it being an indispensable condition for the modification of such duties that the Dominican Executive demonstrate and that the President of the United States recognize that, on the basis of exportations and importations to the like amount and the like character during the two years preceding that in which it is desired to make such modifications, the total net customs receipts would at such altered rates of duties have been for each of such two years in excess of the sum of $2,000,000 United States gold.
It should also be noted in this connection that Article 1 of the convention, after providing for appointment of a General Receiver of the customs revenues and providing for the application of the customs revenues collected to payment of the expenses of the receivership, payment of interest on bonds, amortization payments of bonds, purchase and cancellation of bonds, and for the payment of the remainder thereafter to the Dominican Government, provides as follows:
Provided, that in case the customs revenues collected by the General Receiver shall in any year exceed the sum of $3,000,000, one half of the surplus above such sum of $3,000,000 shall be applied to the sinking fund for the redemption of bonds.
ii. question
Should the decrees proposed by the Military Government of the Dominican Republic be approved by agreement of the United States?
iii. discussion
As to proposed Executive order “A”, there can be no objection, for the enactment of import duties under the guise of internal revenue was improper in the first place. However, inasmuch as they were really import-duty laws in the first instance, a modification of them or their repeal would now require the assent of this Government under Article 3 of the convention as a modification of import duties.
As to proposed Executive order “B”, inasmuch as the rates are somewhat lowered by Admiral Knapp’s new scheme, and inasmuch as the taxes are being transferred from the internal revenue scheme to the customs-revenues law, the proposed decree must be considered to be a modification of import duties which will require the assent of this Government on the conditions set forth under Article 3 of the convention. That the rates are somewhat lowered is stated by Admiral Knapp on page 2 of his letter of November 6, 1918, in paragraph 7.
It will be observed that Article 3 provides that, in case of agreement by this Government to a modification of the import duties, the Dominican Executive must demonstrate and the President of the United States must recognize that the total net customs receipts will, under the altered rates of duties, amount to more than $2,000,000 United States gold under the circumstances which have obtained for the past two years. While specific figures are not given on this point, it appears from paragraph 6 of Admiral Knapp’s letter that the proposed change will increase the customs revenues, and that [Page 395] $4,000,000 is regarded as the minimum ever to be anticipated in the future with the present customs laws. It may be assumed from this that the $2,000,000 requirement is easily met with.
Such being the case, there can be no objection to the inclusion of the law of stamps and the law of alcohol, so far as they affect imports, in the general customs revenues laws of the Dominican lie-public, for all import duties properly belong in the latter law. However, there would appear to be some question as to the proposal in paragraph 4 of decree “B”, upon which the Military Governor puts so much emphasis. Apparently, the proceeds of the law of stamps and the law of alcohol are at present disposed of as if they were internal revenue, and hence are paid directly to the Dominican Government for current expenses. The purpose of the Military Government is apparently to keep these revenues, even when incorporated in the customs law, available for the current expenses of the Dominican Government. However, this would appear to run contra to the express stipulations of the convention of 1907. Article 1 of the convention as quoted above provides that in case the customs revenues exceed $3,000,000, one-half of the surplus above the $3,000,000 shall be applied to the sinking fund for the redemption of bonds. The customs revenues at the present time apparently amount to $4,000,000 or more, leaving $1,000,000, of which one-half automatically by the convention goes to the sinking fund for the redemption of bonds and the other half is apparently paid over to the Dominican Government for current expenses, inasmuch as the fixed charges under the convention seem to be less than $1,600,000. (See paragraph 6 of the Military Governor’s letter of November 6, 1918.) If the amount which will be produced by the law of stamps and the law of alcohol dealing with imports, is added to this surplus, it is apparent that the Dominican Government, instead of getting the full amount of the proceeds of these taxes for its current expenses, as it does at present, will, if the provisions of Article 1 of the convention of 1907 are strictly complied with, only get one half of the proceeds for current expenses, the other half going to the sinking fund. It is evidently this result of Article 1 of the convention of 1907 which the Military Government of the Dominican Republic wishes to obviate, although nothing expressly is stated as to this provision of the convention.
iv. conclusion
Therefore, it appears that paragraph 4 of proposed Executive order “B” is possibly in contravention of the proviso at the end of Article 1 of the convention of 1907, although it is difficult to arrive at any definite conclusion without having the exact figures as to the present customs revenues and the increase brought by the proposed change. If it is found that the proposed decree conflicts with Article 1 of the convention, the mere fact that the proceeds of these duties have been paid to the Military Government for its current expenses, apparently with the approval of the United States, should not properly affect the withholding of assent to the proposed change.
[Page 396]v. recommendation
It is recommended that exact figures as to the yield of the present customs revenues and of the increase by reason of the proposed change be obtained from Commander Hagner, Pay Corps of the United States Navy, who is stated by Admiral Knapp to be now in Washington (see paragraph 9 of his letter), and that, if practicable, some method be arrived at of making the proposed change, but at the same time observing the proviso in Article 1 of the convention of 1907. The agreement of this Government under Article 3 is also required when made upon the demonstration therein mentioned.
Note: That the Military Government is bound by the convention of 1907 appears from a memorandum of this office of February 28, 1918.