The Minister in China (Reinsch) to the Acting Secretary of State

No. 2615

Sir: I have the honor to enclose Despatch No. 120, from the Consul-General at Moukden, which deals with two matters:

The attempt of the Japanese authorities to levy an Income Tax on Americans living in the Japanese Concession; and
The question as to whether within the Japanese Concession and Railway Zone, Americans may be arrested by an American Marshal without previous consent on the part of the Japanese authorities; and are Japanese police to be allowed the right to arrest Americans within these areas.

Both of these matters are very important and full of difficulty. The instructions sent the Consul are herewith enclosed: Nos. 4296 and 4300, of March 31st. Your early instructions on these questions are respectfully requested.

I have [etc.]

Paul S. Reinsch
[Page 445]
[Enclosure 1]

The Consul General at Mukden (Baker) to the Minister in China (Reinsch)

No. 120

Subject: Japanese Attempt to Levy Tax on Americans in Mukden.

Sir: I have the honor to transmit herewith a copy of a personal letter from Mr. M. J. Grey, Assistant Manager of the Standard Oil Company here, with regard to the subject above mentioned and to state that similar information has been given verbally by other Americans living in the Japanese settlement.

There are now six American families living in the Japanese railway concession and it is desirable that not only a general policy be adopted as regards the extent of Japanese jurisdiction but that a definite expression of opinion be given to Americans as to just what steps they should take in a given set of circumstances, like those described by Mr. Grey, for instance. The Americans realize that it is not desirable to admit in any way the right of the Japanese to exercise political jurisdiction over them, but they point out that the Japanese hold their settlement by lease and are in a position, more or less, to dictate the terms on which buildings there are to be occupied, by Japanese or by foreigners, and that some means must be employed by them to obtain money for municipal expenses by collecting from those who enjoy the benefit of good roads, light, police and fire protection. It is, of course, a practical as well as a theoretical question—more practical, in fact, than theoretical—but it is believed that some solution can be found by which the Japanese may obtain money from all who enjoy municipal privileges but without bringing them all under Japanese political jurisdiction. However, if the Japanese are making a deliberate attempt to establish a precedent by exercising sovereign rights over Americans and other foreigners who happen to reside in their concession the solution may not be so readily found.

I told the Americans to tell the Japanese that they would act upon the advice of their American consular authorities and would wait until it could be obtained, but if the Japanese forced the issue they might agree to make some voluntary contribution toward the municipal maintenance fund on the understanding that it is a sort of free will offering and not a tax, and is merely paid to equalize the burden of keeping up the settlement, they being exempt from the regular levy.

Some question may arise as to how far the Japanese police might go if an American is found disturbing the peace or driving at a furious speed down the Japanese streets, or committing some other misdemeanor. [Page 446] Does the American government admit the right of the Japanese police to arrest such Americans provided they are turned over at once to their American consular authorities, and is it held that Japanese railway police or gendarmes along the railway have a similar right? Does the American government consider that an American marshal should obtain the consent of the Japanese authorities before making an arrest in the Japanese settlement, on a Japanese railway platform or in a Japanese train in such a place as Mukden? If a deserter, for instance, comes through on a Japanese train what would be the proper procedure in this regard if his commanding officer asked us to arrest him here and if he could only be found on the Japanese train and had no intention of alighting? These are very delicate and important questions and are not simply academic in character. Such cases may arise at any moment, and this office should know just how far the American government would support us in disregarding Japanese jurisdiction over foreigners in their railway area. We do not wish to do any more or any less than the American government would approve of, but knowledge of the government’s policy in advance of any such contingency might prevent a very serious complication, and it is for this reason that I desire specific instructions.

The most sensible thing might be for the American and Japanese governments to recognize frankly the difficulties which might arise from Americans living under what the Japanese think is their jurisdiction and to agree on some joint policy which could be communicated to American and Japanese officials. These officials would then know just what to do and just how far government support would be forthcoming. If we wait until an American marshal and a Japanese policeman get into a death grapple over some prisoner in some public place we will have a problem on our hands which cannot be settled in a calm, judicial way on its own merits, but the question of “losing face” will come in, and the dispute might become very heated and bitter and might bring about very unpleasant international relations, with newspapers on both sides trying to egg the officials on and adding fuel to the flames.

To show that the Japanese police are disposed to exercise authority over Americans I will mention an instance which recently occurred. An American buyer of furs living and having offices in the Japanese settlement was unable to get his remittance from the Japanese bank (the Japanese afterward said that it went to Kobe instead of Mukden), and could not pay certain Chinese for their furs which he was shipping by Japanese post (to escape the export duty—as the Japanese do). The Chinese were afraid that they might not be paid and took the matter up with the Japanese police asking them to [Page 447] prevent the American from shipping. A Japanese policeman promptly went to the American’s house and was carrying a rope, but when the American saw the rope and saw the terrified look on his house-boy’s face he forced the Japanese policeman to leave. If the Japanese police could receive instructions, as above suggested, such incidents would be far less frequent and much trouble might be avoided.

Awaiting the Legation’s instructions, I have [etc.]

E. Carleton Baker

Mr. M. J. Grey to the Consul General at Mukden (Baker)

Dear Mr. Baker:

. . . . . . .

This morning a representative of the Tax Office of the S.M.Ry came to our office to inquire into the incomes of the various members of the Staff who are living in the S.M.Ry leased land in Moukden.

This information in regard to incomes was necessary so that an assessment pro rata on individual incomes could be made to cover a so-called Municipal Tax.

This Municipal tax cover[s] road up-keep, fire and police protection etc.

While I am willing to contribute to this fund, for benefits received yet I am not prepared to meet their wishes by stating my income and being levied accordingly.

However, I am of the impression that a nominal income statement is all that is required and that they will be satisfied so long as they receive something toward this Municipal tax.

I am therefore declaring an income of G.Y. 100 per month which according to their tariff sheet will require a quarterly payment of G.Y. 5.00, which I am willing to pay.

I give you the above for your information and your views on the question.

Yours sincerely,

[No signature indicated]
[Enclosure 2]

The Minister in China (Reinsch) to the Consul General at Mukden (Baker)

No. 4296

Sir: I have to acknowledge your Despatch No. 120, dated February 6th, which deals with an attempt on the part of the Japanese [Page 448] to levy an Income Tax on American residents in the Japanese Concession at Moukden.

While it seems proper that American citizens living within the Japanese Concession should contribute their reasonable share to the cost of Municipal services, the levying of an Income Tax does not seem to be a suitable manner of accomplishing this. There is an underlying difference in principle between the taxation of real property and personal taxation. In giving a “concession” to a foreign power, the land itself is made the subject of an agreement between China and the grantee Government; it would therefore seem logical to conclude that, together with the land the Chinese Government might delegate to the grantee Government the right to levy thereon charges necessary for maintaining the local Municipal service. This is done, for instance, in the British Concession where, however, the principle of representative Government is applied and a vote is given to every rate-payer in controlling the Municipal services and finances.

As, however, the Chinese Government has no right itself to levy personal taxes on foreign residents, such a right cannot be given by it to any other Government or organization within China.

This matter has been referred to the Department of State for its instructions. Pending its reception, no admission is to be made of the right of the Japanese authorities to levy an Income Tax, or any other Tax, upon American citizens.

I am [etc.]

Paul S. Reinsch
[Enclosure 3]

The Minister in China (Reinsch) to the Consul General at Mukden (Baker)

No. 4300

Sir: With respect to the second point raised in your Despatch No. 120 of February 26th [6th]; namely, the question of the arrest of Americans made within the Japanese Concession, or Railway Zone, I have to state that this matter has been referred to the Department with a request for their early instructions.

For your guidance meanwhile, I would make the following observations: No right to arrest Americans could have been conferred by the Chinese to [on] the Japanese Government as the Chinese Government itself does not possess the right. Japanese authorities could therefore obtain this right only through direct concession through the American Government.

Should an American be found in the commission of a crime of violence it is, under common law, proper for anyone, either private, [Page 449] individual, or official, to restrain him and to deliver him to the American authorities to be dealt with. Japanese policemen acting in such a case would be exercising no unusual powers.

Whether an American Marshall shall effect the arrest of Americans without the previous consent of the Japanese authorities is questionable. On the one hand the substantive right undoubtedly exists in behalf of American public authorities of seizing Americans wherever they may be found in China, yet international comity requires, for instance, that the premises of the subject of some other nation should not be invaded for this purpose without obtaining the previous consent of the authorities of the representative nation. In the case of the Japanese concession, it would seem proper, without raising the question of the rights involved, as a matter of courtesy to give notice to the authorities and possibly to request their co-operation in making such arrests. With respect to the Railway Zone, the right of the Japanese authorities to exercise police powers over other foreigners has not been admitted.

I am [etc.]

Paul S. Reinsch