The Secretary of State to the Consul General at Mukden (Baker)
Sir: The Department is in receipt of your despatch No. 229 of September 4, 1919, with further reference to the action of the Japanese authorities in attempting to levy an income tax for municipal purposes on American citizens in the Japanese settlement at Mukden, [Page 456]in which you enclose copies of communications exchanged between you and the Japanese Consul General on the subject. It is noted that in the communication said to have been received by the Japanese Consul General from the President of the South Manchuria Railway Company, it is stated that in Article VI of the Agreement under which the Chinese Eastern Railway was organized, it is expressly stipulated that the administrative power of Russia in the railway zone is absolute and exclusive; that the zone together with the power was transferred to Japan by the Russo-Japanese Treaty of 1905; that the Government of Japan has delegated the administration of the concession to the South Manchuria Railway Company by an order under which the Company was organized; that the right to assess public expenses in the zone is based on the aforementioned Governmental concession, and that beyond question, residents in the area regardless of their nationality are liable to such expenses.
The Department does not find in Article VI of the Agreement referred to that such broad power as indicated by the President of the Railway was conferred thereby upon the Russian Government. The article in question reads as follows:
“As regards the land required by the Company for constructing, managing, and protecting the line and adjacent land, for procuring sand, earth, stones, and lime, if the land be Government land, it will be given the Company without payment. If privately owned, the Company will provide funds for payment to the proprietors at market rates, either in one payment or as yearly rent. All the Company’s land will be exempted from land tax. As soon as the land comes under the management of the Company,59 they may erect thereon any buildings and carry on all kinds of work, they may establish a telegraph line thereon worked by the Company for the Company’s use. With the exception of mines, for which special arrangements must be made, all receipts of the Company for transport of passengers and freight, telegram[s], etc., will be exempt from all taxation.”
As was pointed out in the Department’s instruction of June 3 last, to the Minister at Peking,60 and as had been repeatedly stated theretofore and admitted by the Russian Government in connection with the discussion in 1908 and 1909 of the efforts of the Chinese Eastern Railway to establish a municipality at Harbin, the contracts under which the Railway is and was then operating were merely for the establishment of a business enterprise and did not contemplate an exercise by the Company of political powers. Moreover, the exercise [Page 457]of such powers would, as heretofore stated, be entirely inconsistent with the Treaty rights granted by China to other powers, including the United States, and could not be admitted by this Government.
Since, therefore, the Railway Company has no right to exercise political powers in the Railway Zone and a fortiori no right to in any way exercise control or jurisdiction over the person or property of American citizens therein, it follows that the Railway officials have no authority to impose upon such citizens any charge or form of taxation. In the opinion of this Government it would be particularly inappropriate for an industrial enterprise to impose a tax in the levy of which the personal and business affairs of such citizens are inquired into by foreign officials in derogation of their extraterritorial rights and by which they are required to contribute according to their respective earning capacities or financial ability, rather than in proportion to the benefit derived from enjoyment of the public improvements.
While the foregoing expresses in brief the Department’s views as to the legal phase of the case this Government is quite willing to concede, as indicated in the Department’s above mentioned instruction of June 3 and in your communication of May 19, 1919, to the Japanese Consul General, the justice of American citizens’ meeting their fair share of public expenses in municipalities in which they may reside, but when, as in this case, such municipalities are located in a territory in which this Government retains exclusive jurisdiction over its nationals, it would want to be consulted as to the reasonableness of the rates and the manner of levying and collecting the assessments.
The American citizens to whom you refer may be informed in the sense of the foregoing and told that unless, and until this Government is approached by the Japanese Government and some satisfactory understanding is reached any payments made by them to the South Manchuria Railway officials should be with the clear and distinct understanding that they are merely voluntary contributions on their part and wholly void of official sanction. Should the Railway officials or Japanese authorities approach you on the subject you should report the facts to the Department and await its further instructions. Meanwhile, you may discreetly ascertain the attitude of the representatives at Mukden of other governments and report to the Department.
I am [etc.]