867n.01/428

The Secretary of State to the Ambassador in Great Britain ( Houghton )

No. 68

Sir: The Department refers to its written instructions Nos. 631 and 34 of April 21 and May 29, 1925, respectively,23 in the matter of the assurances desired by this Government from the British Government in connection with the ratification of the convention between the United States and Great Britain, signed at London on December 3, 1924, with respect to the rights of the two governments and their nationals in Palestine.

The Embassy’s memorandum of May 4, 1925, based on the Department’s instruction No. 631 of April 21, 1925, above mentioned, sets forth the assurances desired by this Government with regard to certain judicial questions arising out of the projected suspension of the extraterritorial privileges enjoyed by the United States in Palestine. In concluding this memorandum the Embassy states:

“The question of the imposition upon American nationals of the increased Palestine import duties which have not received the assent of the United States Government is reserved for further discussion.”

The imposition of the increased import duties referred to in this reservation was the subject of a general protest made by the American Consul at Jerusalem upon the occasion of the announcement of the increased duties. The only specific case in which a formal protest [Page 221] has been made to the Palestine Government is, however, that of Elimelech Sachs, which was the subject of the Department’s telegram No. 323 of September 15 and its written instruction No. 387 of October 20, 1924.24 It is reported by the American Consul at Jerusalem that apparently no objection has been raised by other American importers in Palestine to the payment of the increased duties affecting their importations. The duties affecting such importations are understood to have been increased by only three per cent, ad valorem, whereas the increase affecting the importation of matches by Mr. Sachs was approximately two thousand per cent.

The pertinent facts in the case of Mr. Sachs are as follows:

On August 15, 1924, there was published in the Official Gazette of the Palestine Government the text of an ordinance, entitled “The Customs Duties Amendment Ordinance 1924”, providing for certain changes in the Palestine tariff. One of the changes thus set forth increased the duty on matches from 11 per cent, ad valorem to P. T. 20 per gross boxes, not exceeding 10,000 matches, an increase approximately from P. T. 75 to P. T. 1,000 per shipping case of matches. The collection of duties under this ordinance was begun on August 16. Sometime previous to the promulgation of this ordinance (it is stated “in July”) Mr. Elimelech Sachs, an American citizen, had ordered a quantity (350 shipping cases or 17,500 gross boxes) of matches. His shipment arrived in Palestine on August 18, and duty was assessed thereon in the amount of L. E. 3,500 under the new tariff instead of L. E. 180 under the old tariff. The difference L. E. 3,320 was equivalent to slightly over $15,000 at the then prevailing rate of exchange. Mr. Sachs declined to pay the increased duty and protested to the Consul at Jerusalem. The Consul addressed a formal protest to the Palestine Government and informed the Department, which, through the Embassy at London, brought the matter to the attention of the British Foreign Office. On December 3 the Foreign Office inquired through the Embassy25 whether, in view of the signature of the Palestine Mandate Convention, it was desired to pursue further, amongst others, this matter. In replying under date of December 17,26 the Department stated, in part:

“This Government’s position regarding the indispensability of its assent to any dues or taxes to be imposed upon Americans in Palestine prior to the coming into effect of the Mandate Convention has not been changed by the signature of that convention. Meanwhile the Department would, however, be disposed to give favorable consideration to any reasonable request of the Mandatory Power that the [Page 222] United States assent to the collection of increased dues or taxes from Americans in Palestine as from the date of the communication of its assent to the British Government. A similar procedure was followed with respect to a contemplated increase of customs dues in Syria27 shortly after signature of the Syrian mandate convention between the United States and France.”28

Apparently no further action has been taken in this matter by the British Foreign Office, other than in its informal inquiry of March 7, 1925, through the Embassy, whether this Government was prepared to proceed to an exchange of ratifications of the Palestine Mandate Convention.

From a report dated March 4, 1925, from the American Consul at Jerusalem29 it would appear that, pending a decision as to the admissibility of this consignment under the previously prevailing duty, it has been refused entry except upon payment of the increased duty and has been held in the customs bonded warehouse at the port of Jaffa, where it has become subject to considerable storage charges. It appears to be clearly established that this shipment was such as might reasonably have been made to Mr. Sachs in the normal course of his dealings in matches and that his order therefor was not placed with any knowledge of or in anticipation of the subsequent increase in the Palestine import duty as affecting this commodity. Nor does there appear to be any doubt that, should he now be required to enter this shipment at the new rate of duty, he would sustain a considerable actual pecuniary loss. From a further report from the Consul at Jerusalem, dated June 17, 1925,29 it appears that such actual loss “would be 1400 Egyptian pounds besides accrued interest and storage charges”. The principal item included in this loss, that of 1400 Egyptian pounds, is attributed to the circumstance that “owing to active smuggling from Syria and Trans-Jordan matches are now sold here (Jerusalem) at a price that scarcely pays new duty, not to mention original costs”.

It will be obvious to the British Government that under the circumstances Mr. Sachs was entitled to have his shipment of matches enter at the former rate of duty which would have amounted to L. E. 180, instead of at the new rate which amounted to L. E. 3500. It is realized, however, that this would have allowed him a considerable advantage over competitors paying the new rate of duty by permitting him to undersell his competitors and still obtain a very large percentage of profit. While this Government does not desire to take advantage of the situation by insisting, as it might well do, that the [Page 223] matches should be entered at the duty obtaining at the time the purchase was made, it does consider that it is under the necessity of protecting Mr. Sachs against loss. This, it is believed, might be accomplished were the Palestine authorities who are now detaining Mr. Sachs’ matches to take over the shipment in toto and pay to him an amount which would reimburse him for his outlay and allow a reasonable profit, or were they to release the goods to him under such circumstances as will make such result possible. Should this second course be followed the Department is of the opinion that (1) accrued storage dues on the shipment of matches to Mr. Sachs should be remitted, (2) he should be indemnified for the difference between the market value in Palestine of the shipment and its original cost plus the present customs duty thereon, (3) he should be relieved of any loss of accrued interest he may have sustained, and (4) he should receive an amount equal to such reasonable profit as might have accrued on the sale of this shipment had the new duty not been put into effect.

The foregoing discussion of the case of Mr. Elimelech Sachs is communicated to you to the end that, providing the British Government is prepared to give the desired assurances with regard to the judicial questions which were the subject of the Department’s instruction No. 631 of April 21, 1925, you may be able to discuss informally with the British Foreign Office the further assurances desired by this Government in connection with the exchange of ratifications of the Palestine Mandate Convention. In discussing the case of Mr. Sachs with the British Foreign Office, you should point out that the Department, in again raising this question at this time, does not desire in any way to place any unnecessary difficulties in the way of the coming into effect of the Convention at the earliest possible moment, and that it is not disposed to make an issue of the omission of the British Government to seek and obtain the assent of this Government to the increase of the Palestine tariff affecting the shipment of Mr. Sachs. It is, however, the Department’s opinion, an opinion in which it is believed the British Government will readily concur, that, in the circumstances of the case of Mr. Sachs, adequate provision should be made to obviate the possibility of his sustaining any loss as a result of the application to his shipment of matches of the increased tariff of August 15, 1924.

In conclusion, you may, in your discretion, inform the Foreign Office that, should the British Government be prepared to give the desired assurances in connection with the case of Mr. Sachs, this Government will raise no further objection to the action of the British authorities, in providing for an increase in the Palestine tariff and in applying such tariff to the merchandise of American nationals, [Page 224] without first ascertaining that such increase was acceptable to this Government.

Enclosed with this instruction is this Government’s signed original of the Palestine Mandate Convention,30 ratified by the President under date of March 2, 1925. You will, of course, retain this document in your possession until the Department, after the receipt and consideration of your reports pursuant to its instruction No. 631 of April 21, 1925, and to this instruction, shall have authorized you to effect the exchange of ratifications.

I am [etc.]

Frank B. Kellogg
  1. Latter not printed.
  2. Neither printed.
  3. See telegram No. 516, Dec. 11, 1924, 4 p.m., from the Ambassador in Great Britain, Foreign Relations, 1924, vol. ii, p. 202.
  4. Ibid., p. 202.
  5. See Foreign Relations, 1924, vol. i, pp. 747749.
  6. For text of convention, see ibid., p. 741.
  7. Not printed.
  8. Not printed.
  9. Printed in Foreign Relations, 1924, vol. ii, p. 212.