The Chargé in China (Tenney) to the Secretary of State

No. 3207

Sir: I have the honor to enclose herewith the translation of a note received from the Chinese Foreign Office on February 27, 1920, in which the Ministry announces the intention of the Government to proceed at once with the increasing of import duties and the abolition of likin. The note recounts recent suggestions made to the Government that steps be taken to implement Article VIII. of the British Commercial Treaty of 1903 [1902], and gives an undertaking that after the abolition of likin and the increase of import duties;

“likin will not again be levied, either directly or indirectly, in the interior of China on goods of foreign nations on which there has already been paid the increased import duty”.

Throughout the note no reference is made to an increase in the export tariff, probably because with the present charge of two and one-half per cent for an outward transit pass, the proposed maximum of seven and one-half per cent is already attained, but I do not feel that any significance need be attached to this omission.

Exactly one month previous to the date of this note Mr. P’an Fu, Vice Minister of Finance, called at the Legation and announced the fact that the Government was going to take this step toward the abolition of inland taxation of commerce. He stated that he feared Japanese opposition and asked for the support of this Legation, of which he was thereupon given assurance.

Under date of March 17, 1920, the Dean of the Diplomatic Body circularized a communication received from the British Chargé d’Affaires in which the latter pointed out that the Chinese Government in its note desired a second revision of the import tariff in order to secure an effective five per cent and that it further desired [Page 732] that this revision should take place before the date recommended by the Tariff Revision Committee, i.e. two years after the ratification of peace, on the plea that this higher valuation would be needed in addition to the surtax to compensate for the loss of likin receipts. While opposing any advancement of the tariff revision the British Chargé d’Affaires recommended that the Diplomatic Body assure the Chinese Government as follows:

  • “(A) That each of the Treaty Powers will be prepared to nominate a representative to commence the work of bringing the tariff to an effective 5% on a specified date (say August 1st, 1921); and
  • (B) That the levy of a surtax (say equivalent to one and one half times the said duty) will be agreed to. This assurance is based upon the understanding that the abolition of likin and all other exactions to which Chinese and foreign goods are now subjected, whether at the place of production, in transit, or at destination, will be guaranteed by the Chinese Government on the enforcement of the tariff as revised.”

Since the Legation has already had occasion to transmit to the Chinese Government from the Department of State expressions of the sympathy of the American Government with this reform I should have felt no hesitation in joining my colleagues in giving this assurance at once, but they deemed it necessary to refer the matter to their respective Governments.

With especial regard to the Department’s instruction No. 529, of January 8, 1909,82 (File No. 788/193) in which reference is made to the possible necessity for concluding a loan in connection with this project, I have the honor to observe that while the visit of Mr. Thomas W. Lamont has been an occasion for discussing loans for various other purposes it has not, to my knowledge, been proposed to use any portion of the mooted reorganization loan in connection with the abolition of likin.

It must be conceded that at the present time the Central Government does not appear to possess the power necessary to uproot what is probably one of the most vastly ramifying vested interests in the world, the system of provincial taxation of trade in China. The independence and truculence of the innumerable military leaders who rear their heads throughout the Republic have their origin in this source of revenue. Nevertheless, it is my considered opinion that the attempt to effect this reform would prove in the end an excellent means of solidifying the position of the Government. The measure is one whose propriety no one could impugn, and it would have behind it the moral force of an international engagement that must be carried out. I have the honor therefore, to request that the Legation [Page 733] be authorized to give to the Chinese Government the assurance suggested by my British colleague.

I have [etc.]

Charles D. Tenney

The Chinese Ministry of Foreign Affairs to the American Chargé (Tenney)83

No. 1133

Sir: The Chinese Government has long had in mind the question of the abolition of likin. As the question, however, concerns the annual income of the Central Government, and as the Provinces depend on likin largely for their administrative expenses, it has naturally been found difficult to arrange for its abolition, unless some other reliable form of income were found to take its place. In May of last year (1919) this Ministry received from the Ministers of the Powers which had sent representatives to sign the revised tariff agreement communications stating that the matter of the levying of internal duties in China was one which was having an extremely injurious effect on the advancement of trade between China and foreign nations, and that they greatly hoped that some method might be devised for the abolition of such duties. Again on January 22d of the present year (1920) the British Minister addressed a Note to this Ministry in which he stated:

“The Association of the British Chambers of Commerce in China at the time of the recent conference at Shanghai advocated the carrying out of the various clauses of Section 8 of the Commercial Treaty of the 28th Year of Kuanghsü (1902), with the proviso that, before giving the necessary consent to an increase in the import duties, the various Treaty Powers should obtain from the Chinese Government satisfactory guarantees that the Government would not in future proceed to levy any other form of either direct or indirect taxation on goods; reminding the Government, also, of the earnest hope of everyone,—namely, that the Chinese Government should become united, a question which necessarily preceded any discussion of revenue collection, for the reason that without a united Government there could be no uniformity of revenue collection.”

For this advice the Chinese Government is very grateful. It has to observe that the question of arranging a method for the abolition of likin and the increasing of import duties is one which is engaging the attention at the present moment of the various departments of the Government concerned. It can be clearly stated in advance, that when, in future, the time comes that likin is actually abolished and [Page 734] import duties are increased likin will not again be levied, either directly or indirectly, in the interior of China on goods of foreign nations on which there has already been paid the increased import duty. The praiseworthy sentiment expressed by the British Minister that schemes for a uniform collection of revenue must be preceded by plans for a unified Government meets with the hearty concurrence of the Chinese Government. There are, however, at present certain circumstances in the internal administration of China which unavoidably prevent the unification of the country by force. On the other hand, there has been in the past unity as regards foreign questions. In view, moreover, of the fact that the abolition of likin and the increasing of import duties is a national project, the Chinese Government profoundly believes that the Northern and Southern Provinces cannot but act in accord in this matter,—this, it is believed, can also be confidently stated in advance.

There is still another phase of the question that demands consideration:—After import duties have been increased and the Chinese Government has completely abolished likin, and it is found, after due consideration of the true circumstances of the matter, that the additional import revenue is not sufficient to make up for the losses arising out of the abolition of likin, the Chinese Government naturally cannot but make some arrangement for making up the deficit. In consideration of the fact that the Ministers of the various Powers concerned agreed, at the time, that, in view of the fact that the fixing of prices of commodities under the Revised Tariff had been made during the period of the European War, last year, they were to be subject to further revision two years after the conclusion of peace, therefore the Chinese Government considers that before the procedure now in contemplation for the increasing of import duties and the abolition of likin has actually been put in force it should request the various foreign Powers concerned to take part in a prior revision of the import tariff to make the listed values of commodities correspond with actual values, and to raise an income sufficient, also, to compensate for the loss due to the abolition of likin.

In view of the foregoing considerations, the Chinese Government expresses the hope that the American Government will carry out the arrangement above proposed, so that the friendly relations of the two nations may be strengthened. This Ministry has the honor to bring to your attention, Mr. Chargé, the fact of the Chinese Government’s intention to proceed at once with the increasing of import duties and the abolition of likin, and has the honor to request that you inform your Government accordingly.

(Seal of the Ministry of Foreign Affairs)
  1. Not printed.
  2. Inadvertently omitted from despatch no. 3207 of Apr. 7, supra. Forwarded in despatch no. 4, June 14; received July 21 (file no. 693.003/580).