The American Delegation to the Secretary of State
[Received September 11.]
Sir: For the convenience of the Department, and as a means of summarizing, as well as supplementing, the official Proceedings of the Special Conference on the Chinese Customs Tariff, a full set of which is enclosed herewith,84 and copies of which have been furnished to the Department as they were issued, we have the honor to submit the following report concerning the work of the Conference to date:
The First Plenary Session, October 26, 1925.
The First Plenary Session of the Special Conference on the Chinese Customs Tariff was held at Peking on Monday, October 26, 1925, at 10:20 o’clock a.m., in the Chu Jen Tang, Chung Hai, Winter Palace. His Excellency, Shen Jui-lin, Minister for Foreign Affairs of the Republic of China, presided, and after formally opening the Conference, introduced the Chief Executive of the Chinese Republic, Tuan Chi-jui, who delivered an address of welcome. (See Minutes of First Plenary Session, October 26, 1925, for text of address). After the Chief Executive’s address the Conference was organized for work, His Excellency, Mr. Shen Jui-lin, Minister for Foreign Affairs, being elected Chairman of the Conference on motion of Mr. Oudendijk, the Netherlands Delegate. The Chairman thanked the Delegates for the honor they had conferred upon him, and after a brief address of welcome, introduced Dr. C. T. Wang, who laid before the Conference the proposals of the Chinese Government on the question of Tariff Autonomy. Dr. Wang referred to the fact that at the Paris Peace Conference in 1919 the Chinese Delegation had presented the question of Tariff Autonomy, but that it was not discussed on the ground that it did not come within the scope of the Conference. He also stated that it was brought up at the Washington Conference and discussed but that it was not accepted in toto whereupon the Chinese Delegation at that Conference had declared, at the Seventeenth Meeting of the Committee on Pacific and Far Eastern Questions on January 5, 1922, that it was their intention to bring up the question of Tariff Autonomy again [Page 768] for consideration on all appropriate occasions in the future.85 He cited particularly Section I of Article I of the Nine Power Treaty relating to Principles and Policies, by which the signatory powers agreed to respect the sovereignty, the independence and the territorial and administrative integrity of China.86 Dr. Wang stated that the Government of the Republic of China attached great importance to that declaration and considered that the Special Conference afforded an appropriate opportunity to renew the request for Tariff Autonomy. He thereupon submitted the following proposals for the removal of the restrictions imposed by the existing treaties with respect to the Chinese Customs tariff:
- The participating Powers formally declare to the Government of the Republic of China their respect for its tariff autonomy and agree to the removal of all the tariff restrictions contained in existing treaties.
- The Government of the Republic of China agrees to the abolition of likin simultaneously with the enforcement of the National Tariff Law which shall take effect not later than the 1st day of January in the 18th year of the Republic of China. (1929)
- Previous to the enforcement of the Chinese National Tariff Law, an interim surtax of 5% on ordinary goods, 30% on A grade luxuries (namely, Wine and Tobacco) and 20% on B grade luxuries shall be levied in addition to the present customs tariff of 5% ad valorem.
- The collection of the above-mentioned interim surtaxes shall begin three months from the date of signature.
- The decisions relative to the above four articles shall be carried into effect from the date of signature.
Following this announcement brief addresses were made on behalf of each Delegation by the following Delegates: American, Mr. Mac-Murray; Belgian, Mr. de Warzée; Danish, Mr. Kauffmann; French, Count de Martel; British, Sir Ronald Macleay; Italian, Mr. Cerruti; Japanese, Mr. Hioki; The Netherlands, Mr. Oudendijk; Norwegian, Mr. Michelet; Portuguese, Mr. de Bianchi; Spanish, Mr. Garrido; Swedish, Mr. Ewerlof. The text of all these addresses may be found in the Proceedings of the First Plenary Session, October 26, 1925. After all the Delegations had responded to the address of welcome, Dr. Hawkling Yen was elected Secretary-General of the Conference and the Chiefs of each Delegation, together with Dr. C. T. Wang, were appointed a Committee on Programme and Procedure. With the fixing of 11 o’clock a.m., October 27, as the time for the meeting of the Committee on Programme and Procedure, the First Plenary Session was adjourned subject to the call of the Chairman.[Page 769]
Meeting of the Committee on Programme and Procedure, October 27, 1925.
At the meeting of the Committee on Programme and Procedure, held October 27, 1925, Dr. C. T. Wang was unanimously elected Chairman and, after expressing his thanks for the honor conferred upon him, he pointed out that the Agenda (See p. 22, Minutes of October 27, 1925), presented three different sets of questions to be discussed namely:
- Tariff Autonomy.
- Provisional Measures.
- Related Matters.
Dr. Wang suggested that there should be three different committees, one dealing with each of these three sets of questions, and that a fourth committee, a Drafting Committee, be appointed later. After brief debate this suggestion prevailed and each Delegation was requested to submit the names of the Delegates or experts to be included as members of the four committees.
In the course of the meeting suggestions were made by Sir Ronald Macleay, Mr. Cerruti and others that it would be well to make some rearrangement of the Agenda, as some of the questions seemed to be inappropriately placed. Dr. Wang voiced vigorous objection to any change being made in the Agenda on the ground that it had been sent out by the Chinese Government and accepted by the different Delegations and should therefore not be changed. A difference of opinion immediately arose as to whether the Agenda had actually been accepted by the participating governments and Mr. Oudendijk explained how the matter had been handled by him in his capacity as Senior Minister. He stated that the Agenda, with certain slight modifications which had been made after discussion in a meeting of the Diplomatic Body, had been telegraphed by his colleagues to their respective governments for approval. The modifications contemplated omitting the item of “Abolition of Likin” from “A”, and making it a separate subject on the Agenda called “B”, thus making the heading, “Provisional Measures”, come under “C”. “Related Matters” would then be called “D” and under this heading was the question of the Board of Reference authorized by a resolution adopted at the Washington Conference. Most of the Governments concerned approved the Agenda as modified, but when the matter was submitted to the Chinese Government the Chinese Committee of the Conference held that the time was too short to make alterations. There the matter had rested, according to Mr. Oudendijk. Notwithstanding Dr. Wang’s insistence that the Agenda had been accepted, it was clear that this view was not shared by other Delegates, notably Count de Martel, Mr. Cerruti and Sir Ronald Macleay. [Page 770] Considerable debate ensued and various suggestions were made with a view to a modification of the Agenda and since Dr. Wang would not agree to a change it was finally suggested by Mr. MacMurray that he (Dr. Wang) should draft a statement to be formally recorded in the Minutes to the effect that the Chinese Government proposed, in connection with Articles 1 and 2 under Section B, to include a discussion of the disposal of the proceeds of the surtaxes. This suggestion, by way of compromise, was accepted by Dr. Wang and the following statement was made a part of the Minutes:
“The question of the disposal of the proceeds from the surtaxes as provided in items 1 and 2 under “B” (Provisional Measures to be taken during the Interim Period) will be discussed when the Committee on Section B meets.”
Sir Ronald Macleay appeared not to be entirely satisfied with this statement, since he feared that the Delegates might be debarred from discussing any of the questions raised in the Nine-Power Treaty, such as the steps to be taken for the abolition of likin, the levying of the 2½% surtax on ordinary articles, the 5% surtax on luxuries and the purposes, time and conditions of the surtax. At the suggestion of Sir Ronald Macleay, Mr. MacMurray’s statement was amended so as to read as follows:
“It is understood that the question of the disposal of the proceeds from the surtaxes as provided in Items 1 and 2 under B (Provisional Measures to be Taken During the Interim Period) as well as the questions of the date of enforcement and of the conditions subject to which they are imposed, will be dealt with by the Committee on Section B.”
This amended statement was adopted and made a part of the Minutes.
At this point Mr. MacMurray suggested that the Agenda under which the Conference would work contained no reference to the so-called Board of Reference authorized by one of the Washington Conference Resolutions,87 and he proposed that provision should be made for discussing and dealing with that matter. Dr. Wang, after stating that the matter was not embraced in any treaty signed at the Washington Conference, but was merely a resolution, said quite frankly that the Chinese people seriously objected to the Board of Reference and requested Mr. MacMurray to withdraw the suggestion, as he did not consider it advisable to bring up matters which might seriously delay or hinder the successful conclusion of the Conference. Mr. MacMurray replied that while he would not insist upon an immediate discussion, he wished to make it clear that the American Delegation, first of all, was under instructions to fulfill its duties [Page 771] under the Washington Conference provisions and that the Delegation would reserve the right at any time that was appropriate during the Conference to discuss and dispose of all the questions which by the treaty or resolution were imposed upon them at this Conference. Sir Ronald Macleay made a similar reservation and the general debate that ensued divulged the fact that the Delegates wished it to be understood that the Agenda covered all points arising from the Washington Treaty and resolution for the purpose of which the Conference had been convened.
It was agreed that the official language of the Conference should be Chinese and English, but that any Delegate who so preferred could speak in French.
The Rules of Procedure were then taken up and, after discussion, were adopted with slight amendments. A copy of the Rules of Procedure as adopted may be found on p. 23 of the Minutes of the Committee on Programme and Procedure, October 27, 1925.
After deciding to issue a brief press communique the Committee adjourned.
Committee on Tariff Autonomy, First Meeting, October 30, 1925.
The third meeting held under the auspices of the Special Conference was that of the Committee on Tariff Autonomy which was held on October 30, 1925. At the suggestion of Mr. Oudendijk, Dr. C. T. Wang was elected Chairman of the Committee and in taking the chair he referred to the Proposals on Chinese Tariff Autonomy presented at the Plenary Session of October 26, and to the proposals presented by the Chinese Delegation at the Paris Peace Conference in 1919 (See p. 3, et seq., of Minutes of October 30, 1925). He praised the spirit of the Washington Treaty, but stated that the Chinese people found it difficult to accept the conditions of the Treaty. He stated that the Chinese people were determined to exercise what was due China as a sovereign nation and that it had often been said that the right of tariff autonomy had been denied to China because of a lack of unity in the country, but that this seemed to him in the nature of a vicious circle. He stated also that the Government, in order to function properly should have freedom of action in fiscal matters and that China, by reason of various treaties with the foreign powers, was bound hand and foot and was not able to increase its revenues without the consent of the Powers concerned. In commenting on the fear expressed in some quarters that the additional revenues which might accrue to China would be squandered, he stated that no portion of the customs revenues had ever been dissipated. He spoke also of the overdue obligations of the Chinese Government and the need for the economic development of the country, especially railway construction. He asked for the views of [Page 772] other Delegates and Mr. Hioki responded with a detailed statement of the views of the Japanese Government on the proposals of the Chinese Government (See p. 8, et seq., of Minutes of October 30, 1925). Mr. Hioki stated that his remarks were a continuation of the statement made by him at the opening session of the Conference. At this point Sir Ronald Macleay sought the views of the Chairman on the question of Likin, but Dr. Wang, before passing to that question, preferred to hear from all the Delegations on the subject of Tariff Autonomy. Mr. Strawn responded on behalf of the American Delegation, saying that he assumed that each of the Powers represented at the Conference recognized the sovereign right of China to enjoy tariff autonomy, when conditions should warrant it. He voiced the view that the American Government would be glad to see the time arrive when China should enjoy full tariff autonomy. Mr. Strawn, like Sir Ronald Macleay, requested the views of the Chairman on the question of the abolishment of likin, especially since it appeared that this question was so closely related to Tariff Autonomy that the latter could not be discussed without some knowledge of the plans of the Chinese Government for the abolishment of likin. He stated also that the American Delegation was prepared to act immediately upon anything which came within the purview of the Washington Treaty, but that matters outside that category would have to be referred to his Government for instructions. He reiterated that the American Delegation had come to the Conference with open minds in the hope of arriving at an understanding which would be to the mutual benefit of all. The Chairman, in reply, stated that the Chinese Government was determined to abolish Likin as soon as possible and that the plan contemplated its abolishment within three years, or not later than January 1, 1929, and even possibly by the first part of 1928. At this point the Chairman announced that after the Powers represented at the Conference should agree to tariff autonomy the Chinese Government, for its part, would agree to the abolition of Likin. Thereupon Mr. Strawn remarked that he did not think it would be very satisfactory to have a statement from each of the Powers that it was willing to concede tariff autonomy to China unless it could be known when and how tariff autonomy was to be enjoyed, whether likin was to be abolished and how that would affect the Treaty Powers. He pointed out that the mere statement by the Powers that they respected and conceded the right of China to enjoy tariff autonomy was easily made, but this did not, in his opinion, advance their position to any great extent. He reiterated the statement that the American Delegation was prepared to do all in its power to bring about at the earliest possible moment the aspirations of the Chinese Government, but it seemed to him that tariff autonomy [Page 773] should be coincident with the abolition of likin. He thereupon asked for a frank statement as to the way in which it was proposed to abolish likin. The Chairman called upon the other Delegations for a statement of their views and Mr. de Warzée announced that Belgium in principle was willing to grant China tariff autonomy, provided a transitory period should precede its coming into force. He stated that, in his opinion, tariff autonomy should be simultaneous with the abolition of likin. Count de Martel stated that he was “prepared to consider in the most friendly and generous spirit and to submit to my (his) Government any reasonable proposal which may be put forward, with a view to meet the aspirations of the Chinese Nation in regard to their Customs tariff.” Mr. Oudendijk stated that he believed that the right of Tariff Autonomy was an inherent right which belonged to the right of sovereignty, and that the Netherlands Delegation would do its best to meet the wishes of the Chinese Government. Mr. Cerruti stated that the Italian Government was in great sympathy with the wishes of the Chinese Government to attain full tariff autonomy, but that he considered the abolition of likin and tariff autonomy connected questions and that the abolition of likin must precede full tariff autonomy. Mr. Bianchi of the Portuguese Delegation took a similar view and asked for a statement of China’s plan for the abolition of likin. Dr. Wang stated that the Chinese plan for the abolition of likin would be presented later and that he wished to hear from the other Delegates who had not spoken on the subject of tariff autonomy. Mr. Kauffmann, of the Danish Delegation, said that his views were similar to those expressed by Mr. Strawn; and Mr. Michelet of the Norwegian Delegation declared that his Government was prepared in principle to grant tariff autonomy, but that it would be necessary to have more definite information concerning the proposals of the Chinese Government before giving up any of the stipulations contained in the Treaty between Norway and China. The Spanish Delegate, Mr. Garrido, in very general terms, expressed sympathetic interest in the aspirations of China and Mr. Ewerlöf, the Swedish Delegate, stated that he was “very willing to discuss, in the most liberal spirit, the proposals of the Chinese Government,” but that he could not accept them without instructions from his Government. The Chairman then expressed his appreciation of the declarations made by most of the Delegates present agreeing to accept in principle the proposal of the Chinese Government for full tariff autonomy. The Chairman thereupon placed in the hands of the Delegates two memoranda88 and a Table showing the Chinese plan for the [Page 774] Abolition of Likin. These memoranda and the Table, together with explanatory remarks by Dr. Wang may be found on p. 22, et seq., of the Minutes of the Meeting of the Committee on Tariff Autonomy, October 30, 1925.
Committee on Tariff Autonomy, Second Meeting, November 3, 1925.
The Second Meeting of the Committee on Tariff Autonomy was held on
November 3, 1925, and at this meeting Sir Ronald Macleay, on behalf of
the British Delegation, gave his interpretation of the Chinese position
on the question of Tariff Autonomy, citing particularly the first two
proposals of the Chinese as follows:
Sir Ronald inquired of the Chairman whether it was his wish that the Delegates should agree to these two Articles and on being informed affirmatively he stated that it would not be possible for him to agree to the phraseology proposed, although he was prepared to declare that tariff autonomy was an inherent right of sovereignty and that he was fully prepared to discuss the question. Sir Ronald said that he had not the power to agree to the removal of all tariff restrictions contained in existing treaties; that a statement in the phraseology used in the Chinese proposals would in effect be a renunciation of the present treaty provisions. The Chairman replied that while the Chinese Delegation wished the Powers to agree to the removal of the tariff restrictions contained in the present treaties, he did not mean that they should be brushed aside, leaving a vacuum. What he wished, he said, was the substitution of a bilateral treaty for a unilateral one and that, as he understood Sir Ronald’s remarks, Great Britain was agreeable in principle to granting China tariff autonomy, but new treaties were necessary and had to be discussed. The wording of the Chinese proposal was further discussed, with the result that the British attitude could only be made clear by the submission of a formal statement reading as follows:
“The British Delegation, recognizing the inherent right of all independent and sovereign states to tariff autonomy, and considering that the fulfilment of the provision of the Treaty of Washington of February 6th, 1922, will constitute a step towards the attainment by China of such autonomy, formally declare that in addition to the [Page 775] carrying out of the terms of that Treaty, they are willing to submit to the ratification of their Government such further measures as may be devised and agreed upon at this Conference, with a view to ensuring within a reasonable period the full realization of China’s claim to complete liberty of action in matters relating to her tariff.”
The Swedish Delegate, Mr. Rwerlof, agreed with Sir Ronald’s statement and Mr. Hioki of the Japanese Delegation then presented a formal statement of the Japanese view89 (See pp. 9 and 10 of the Minutes of November 3, 1925). Mr. MacMurray of the American Delegation then presented the American proposals,90 which had been worked out more in detail than any of the other proposals (See pp. 10, 11 and 12 of the Minutes of November 3, 1925). Sir Ronald Macleay said that on general outlines the American proposals seemed to be based very largely on China’s own idea, which was the abolition of likin, and seemed to be one to which the British Delegation could commit itself, at least in principle. Sir Ronald also said that the Japanese and American schemes seemed in effect to be very similar. The Chairman declined to commit himself to the American plan because he had not had time to study it, although he remarked that it contained a number of things which had already been mentioned in the Chinese proposals. Count de Martel reserved the right to discuss fully the matter of the readjustment of the special relations which have been in force between China and French Indo-China since 1886, with regard to the Customs tariff. Mr. Oudendijk stated that from a superficial examination it seemed to him that the Japanese and American proposals covered practically the same ground, the main difference being that the American proposals, in which he was in full sympathy, were more detailed. He suggested, therefore, that the Committee consider the possibility of combining the two proposals into one, which would simplify and expedite the work of the Committee. The Chairman opposed this suggestion because, in his opinion, the American plan contained “many objectionable points which the Chinese Delegation would wish to reserve for answer after the statement had been examined into.” The Chairman declared also that while it was true that the two propositions had a number of points in common, yet the American plan contained a number of other things which were not found either in the proposals of the Chinese Government or in those of the Japanese Delegation. Dr. Wang proposed that the Committee proceed to a discussion of the Japanese plan, but objection was made by Sir Ronald Macleay. Dr. Wang, however, took occasion to say that the Japanese plan did not contemplate raising enough revenue to “enable the Chinese Government [Page 776] to abolish likin once for all as they had determined to do,” and that the revenue “would not be sufficient to meet the purposes which the Chinese Government had in mind.” A discussion ensued as to the functions of Committees A and B, Mr. Strawn remarking that the personnel was substantially the same and that there was no material difference between the work assigned the two Committees. Mr. Strawn again declared that the American Delegation desired to give China everything that was authorized by the Washington Treaty, which the Delegation could do without reference to its Government, and that the Delegation was prepared to recommend to its Government the speedy adoption of a new treaty which would give China something with which to abolish likin; that the American plan was designed to furnish sufficient revenues to meet the needs of China, but that the Japanese plan seemed to fall short in this respect. It was admitted that the surtaxes contemplated under the Washington Treaty would be insufficient for the purposes of China. After further debate, confined largely to a discussion of the functions of the two Committees and the personnel composing them, the Chairman submitted, just before adjournment, the Declaration of the Chinese Government regarding the Abolition of the Likin system91 (See pp. 25 and 26 of the Minutes of the Committee on Tariff Autonomy, November 3, 1925).
Committee on Provisional Measures, First Meeting, November 1925.
The first meeting of the Committee on Provisional Measures was held on November 6 and Dr. C. T. Wang, upon the proposal of Mr. Oudendijk, was elected Chairman. Dr. Wang read a brief formal statement on the subject of abolishing likin. It was maintained by Dr. Wang that while the Chinese Government realizes that the compensation for likin is not one of the intended purposes for the levying of the 2½% and 5% surtaxes of the Washington Treaty, it was the purpose of the Chinese Government to earmark a portion of these revenues for the purpose of abolishing likin, in addition to the special fund which would be created by the interim surtaxes (See pp. 2 and 3 of the Minutes of the Committee on Provisional Measures, November 6, 1925, for Dr. Wang’s statement). Dr. W. W. Yen then addressed the Committee, explaining the work which had been mapped out for the Committee, and emphasizing the fact that the Committee would be called upon to consider only provisional measures and not fundamental principles, which are permanent. He stated that Tariff Autonomy was the end and provisional measures the means to that end, and that in the very nature of things the provisional measures must not be allowed to delay the arrival of tariff autonomy. At the [Page 777] conclusion of his address, Dr. Yen read a formal statement showing the proposals of the Chinese Government on the rates of the interim surtaxes on dutiable commodities into China (See pp. 6 and 7 of the Minutes of the Committee on Provisional Measures, November 6, 1925).
Admiral Tsai Ting-kan then presented to the Committee three statements in the form of Annexes, as follows:
- Annex I: Reasons for the Proposal to Levy on Ordinary Goods a 5% Surtax During the Interim Period.
- Annex II: Reasons for the Proposal of the Chinese Government Regarding “A” Grade Luxuries.
- Annex III: Reasons for the Proposal of the Chinese Government Regarding “B” Grade Luxuries.
These three Annexes, together with the Lists of “A” Grade and “B” Grade Luxuries, may be found on p. 9 et seq., of the Minutes of the Committee on Provisional Measures, November 6, 1925. Following the presentation of these documents, Mr. Yoshizawa read a statement on behalf of the Japanese Delegation, giving in considerable detail the views of that Delegation on the subject of the Washington Treaty surtaxes and interim surtaxes, likin and tariff autonomy (See pp. 16 and 17 of the Minutes mentioned next above).
Mr. Strawn made a detailed explanation of the proposals submitted by the American Delegation on November 3. He declared that it was the intention and purpose of the American Delegation to accord, so far as possible, with the wishes of the Chinese Delegation, and that primarily it was the duty of the American Delegation to fulfill the provisions of the Washington Treaty authorizing the 2½% surtax on necessities and the 5% surtax on luxuries. He suggested the implementing of the Washington Treaty surtaxes with as little delay as possible. As for a new treaty granting larger surtaxes, Mr. Strawn stated that this was a constitutional function which must be exercised by the President with and by the consent and advice of the Senate of the United States, and that the American Delegation could go no further than to fulfill the provisions of the Washington Treaty and to recommend a new treaty to its Government. He then explained the American proposal regarding Article VI of the Washington Treaty concerning the rates of duty on land and maritime frontiers,92 and proceeded to a discussion of the question of abolishing likin, devoting particular attention to the rates of surtaxes. He referred to the advisability of continuing the present Customs Administration both for the collection and custody of the customs funds as contemplated by Paragraph 7 of Article 3 of the American Plan.93 [Page 778] He referred also to the various small internal taxes related to likin, stating that he realized that all local activities of the provinces could not be stifled and that some arrangements would be necessary whereby some local taxes should be collected. In explaining Paragraph 5 of the Plan Mr. Strawn said with a view to keeping the funds intact and appealing to the business sagacity of those financiers who might be in a position to help China work out a plan of financial readjustment, the American Plan provided that if likin should be collected anywhere in violation of the Agreement for its abolition the tax payers should be entitled to a refund from the Customs Administration of the full amount paid as likin, the rebate being charged against the province in the distribution of customs revenues, the purpose of such a provision being to prevent the collection of customs duties and likin on the same commodity. Dr. Yen brought up the question of administrative expenses and debt consolidation and stated that he assumed that unsecured debts would naturally refer first to domestic and then foreign loans. Mr. Strawn replied that the two categories of loans would have to be treated on a parity and that no distinction should be made between loans obtained from individuals in China and those from individuals abroad, no preferential rights to be enjoyed by either. He stated that it had been suggested by some that those who had furnished materials for China’s railways should have preferential rights, but on this point he expressed no opinion, confining himself to a citation of a ruling of a Federal Court of the United States that in the event of the insolvency of railroads those who had furnished materials within a period of six months prior to the insolvency had a preferential claim.
In connection with Paragraph 9 under Article III, Mr. Strawn emphasized the fact that it would be necessary to refer any treaty which the American Delegates might negotiate to the Senate of the United States for ratification. To obviate any long delay on the part of any signatory power in ratifying the treaty, he suggested that perhaps something could be worked out whereby the treaty might become effective when a certain number of the countries had ratified the treaties, or a certain number of countries representing a certain amount of foreign trade in China had ratified the treaty. Mr. Strawn also briefly discussed the provision in the American Plan calling for another Conference in 192894 for the purpose of declaring that likin had been abolished and of negotiating any further agreements that the situation might require.
The question of the levying of surtaxes at land frontiers was again brought up by Count de Martel, and Mr. Strawn reiterated that [Page 779] Article VI of the Washington Treaty, in express terms provided that there should be no distinction in the rate of taxes collected at the land and maritime frontiers, and after reading Article VI he stated that if there exists anything inequitable about the situation it was the function of the Conference to remove the inequalities. Count de Martel reserved the right of making further statements on this point and after further discussion Mr. MacMurray was requested to give an explanation of what took place at the Washington Conference on this subject. He stated that it was the purpose of the Washington Conference to abolish all distinction between land and maritime frontiers save as might be required in view of any reciprocal arrangement which was not capable of being withdrawn. To state it more clearly, it was his understanding that in cases where in return for the reduction in Chinese duties at the land frontiers there had been given an advantage which could not be reconsidered, the adjustment would, in some way, have to be made equitable, but on the mere ground of reciprocity, there was no distinction to be made between land and sea frontiers.
A suggestion was then made by Colonel Peel that the American, Chinese and Japanese Plans be made a composite plan for purposes of discussion, the American Plan being, in the opinion of Colonel Peel, the most complete in form and the one which would make a very good basis for such discussion. There was general agreement that a composite plan should be put before the Conference for discussion and it appeared that there was a decided preference on the part of a considerable number of the foreign Delegates in favor of using the American Plan as the basis of the composite plan for discussion as it was complete in form, yet simple and concise in defining proposals. Colonel Peel suggested that the Chinese Delegation particularly should follow the American Plan as regards form and that in order to weld all the schemes into one and accomplish something for China it would be necessary to work in a spirit of mutuality and reciprocity. Colonel Peel also stated that the British Delegation did not contemplate proposing a plan, but would be content to proceed on the basis of the three plans already submitted. Other Delegations, on inquiry by the Chairman, stated that they had no definite plan to submit, but were prepared to proceed on the basis of a composite plan made up of the American, Japanese and Chinese proposals. The Italian Delegate, Mr. Cerruti, however, read a formal statement (See pp. 42 and 43 of the Minutes of November 6, 1925). It was finally agreed that the three plans, i. e., American, Chinese and Japanese, should be arranged in the forqri of a table of three columns, each proposal side by side, for convenient consideration at the next meeting.[Page 780]
Committee on Provisional Measures, Second Meeting, November 13, 1925.
At the second meeting of the Committee on Provisional Measures, held on November 13, 1925, the Chinese Delegation, following the suggestion made at the last meeting of the Committee, submitted a table showing the proposals of the Chinese Delegation side by side with those of the Japanese and American Delegations (See p. 2 et seq., of the Minutes of November 13, 1925).
The Chinese Delegation also presented the following documents:
- A declaration on the Purposes to Which the Proceeds from the Interim Surtaxes are to be Devoted.
- A Table of Estimated Revenue from the Proposed Surtaxes on Foreign Imports according to the Customs Returns of 1924 and the Revised Import Tariff of 1922.
- The Regulations Governing the Establishment of the Commission for the Interim Customs Surtax Sinking Fund, and
- General Observations of the Chinese Delegation on the American and Japanese Proposals.
These documents may be found on p. 7 et seq., of the Minutes of November 13, 1925. The Declaration of the Chinese Delegation on Purposes to which the Proceeds from the Interim surtaxes are to be put contained the views of the Delegation concerning the Special Fund for the Abolition of Likin, the consolidation of Inadequately Secured Debts, Domestic and Foreign, Expenditures for Constructive Projects, and Urgent Administrative Expenses. The estimate of revenues from the proposed surtaxes indicated that the Chinese expected to receive from “A” Grade Luxuries (Wine and Tobacco), 30% surtax, $22,000,000 Mex.; “B” Grade Luxuries, 20% surtax, $50,000,000 Mex.; and Ordinary goods, 5% surtax, $30,000,000 Mex., making a total of $102,000,000 Mex.
Under the heading of General Observations, the Chinese Delegation explained its position on Tariff Autonomy, Abolition of Likin, Disposal of the Proceeds from the Surtaxes, Necessity for Higher Taxes, Early Enforcement of the Washington Treaty, Surtaxes, and Reciprocal Treaties.
Sir Ronald Macleay laid before the Committee what he described as a “scheme of agenda”, in order that various points raised in the Committee might be discussed in orderly sequence (See pp. 25, 26 and 27 of Minutes of November 13, 1925). Some question arose as to the need of supplementing the Agenda which had already been adopted and Mr. Oudendijk reviewed the work of the Conference up to November 3. In the course of this review he remarked that a certain laxness in parliamentary procedure had prevailed, stating that things had been declared adopted, which, he was sure, had not been adopted. He cited particularly the question of surtaxes, stating that the Delegates [Page 781] had agreed only in a general way that the 2½% surtax could be instituted at once, but that so far as the interim surtaxes were concerned no Delegation, with the exception of the American Delegation, had even intimated a view on the subject. The same was true concerning the question of the allocation of these funds as well as of other subjects. At this point Count de Martel made formal reservation on several points in the Chinese proposal. His statement may be found on pages 32, et seq., Minutes of November 13.
The Swedish Delegate, Mr. Ewerlöf, and the Danish Delegate, Mr. Kauffmann, made reservations, protesting that they had not committed their Governments to the extent claimed by the Chinese Government. Mr. MacMurray took occasion to say, in behalf of the American Delegation and in order that there might be no misunderstanding, that his Delegation could not go beyond the immediate provisions of the Washington Treaty and that there was therefore nothing to which they could agree with finality except after approval and ratification by his Government. He stated that he wished to make it clear that in the case of the American Delegation they had agreed only tentatively and provisionally in those matters which went beyond the terms of the Washington Treaty. With reference to such provisional and tentative agreement he said that he should point out that, apart from the recognition of certain general principles, there was nothing to which they had agreed, or could agree, other than a general agreement upon some homogeneous, coherent plan that covered not only simply certain principles but the details for the working out of those principles. It was therefore necessary to have a basis of discussion—a program which appeared to cover all the proposals made in the three plans already submitted—and he considered the British supplemental agenda a suitable vehicle for that purpose, since it afforded an opportunity to proceed to a point beyond that authorized by the agenda previously adopted. He wished a detailed and concrete agenda under which to work and the British program met that requirement. Mr. Bianchi also favored the British programme. Dr. Yen then discussed in a general way the procedure of the Committee and suggested that the Chinese Delegation, in an effort to present a harmonious whole, might make a further study of the three schemes that had been submitted. Mr. Strawn said that, in his opinion, the proposal of the British Delegation did not conflict in any way with the main agenda, since it arrived at no conclusion and asserted no personal viewpoints. He felt that the Conference had dealt in generalities long enough and that it was time to deal with concrete facts and arrive at definite results. After further discussion, participated in by several Delegates, Mr. Strawn suggested that it was the obvious duty of the [Page 782] Delegates, if they wanted to proceed in an orderly way with the work of the Conference, to discuss whether they wanted to effectuate the Washington Treaty as soon as possible, and that this question came within the scope of Proposal No. 1 of the British supplemental Agenda. Colonel Peel gave his views on this phase of the Committee work and suggested, on behalf of the British Delegation, that a Drafting Committee be authorized to draw up a diplomatic protocol with a view to making possible the collection of the Washington Treaty surtaxes at once. Mr. MacMurray concurred with this view and submitted for the consideration of the Drafting Committee a concrete proposal for such an Agreement. (See p. 50 of the Minutes of November 13, 1925.) Colonel Peel stated that the American proposal was acceptable, although it might require some alteration by the Drafting Committee, and Dr. Yen said that it was well worded but he mentioned the question of the uniform rates on maritime and land frontiers, stating that this question had not been discussed at all and was not sure whether the Delegates were in accord on the subject. Mr. Strawn then suggested that the question be discussed, but Dr. Wang remarked that this would be bringing up a question which had not yet been presented by the Chinese Delegation. Although Mr. Strawn urged that the question be discussed at once, since it was within the scope of the Washington Treaty and so admitted by Dr. Wang, the latter said that the Chinese Delegation was not in position to discuss the question at that time and Count de Martel also requested a postponement Further discussion took place with reference to the subject, or subjects, which would be first considered by the Committee and after finally agreeing that Articles I, II, III and IV (relating to Tariff Autonomy and Likin) of the American [British] proposal would be discussed, Dr. Wang stated that the Chinese Delegation wished to reiterate the position which it had taken on the question of the abolition of likin, to wit, that China voluntarily, but resolutely, declared her firm purpose to abolish likin and considered it to be an internal measure, for which reason a solemn declaration on the part of the Chinese Government to abolish likin would be sufficient. Colonel Peel remarked that he did not see why the discussion of Tariff Autonomy and Likin as related subjects should prejudice those questions and that he could not understand why such discussion should prevent them from also discussing the question of the 2½% surtax. Mr. Strawn referred to Article II of the Washington Treaty95 and read: “Immediate steps shall be taken through a special conference to prepare the way for the speedy abolition of likin and for the fulfillment of other conditions laid [Page 783] down in Article VIII” (Treaty of 1902.96) Mr. Strawn remarked that he conceived it to be a part of the duty of the American Delegation to collaborate with the Chinese Delegation to find a way which would be satisfactory to all Powers, especially to China, for the abolition of likin, a duty which he did not assume that the Chinese Delegation, on its sole responsibility, would undertake to do without assistance from the other Powers. Dr. Wang said that he thought that the position of the Chinese Delegation differed from that of the American Delegation, and Mr. Strawn inquired of Dr. Wang whether he considered that the Chinese proposal complied with Article II of the Washington Treaty and whether it was the position of the Chinese Government that none of the other Powers would have anything to say in the Conference concerning the manner in which China should abolish likin and that China would not want any assistance from the other Powers. The only response of Dr. Wang was that the Chinese Delegation had presented to the Committee the measures whereby likin could be abolished. Mr. Strawn said that his understanding was that the purpose of the Conference was to discuss whether the Delegations were in accord with China’s proposal and whether it was sound and effective. He said that some doubt might arise in the minds of the Delegates whether China would be able to abolish likin in the manner proposed by the Chinese Delegation. He said that it seemed quite necessary to discuss the Chinese plan, and that while everyone earnestly hoped and expected that likin might be abolished, the duty of the American Delegation, under the terms of the Washington Treaty, was to come to an accord with China as to the manner in which it should be abolished. He reminded the Chinese Delegation that the Chinese Government owed it to the other Powers with which it had treaties to come to an agreement as to the manner in which likin could be abolished. Colonel Peel supported this view and said that it would be necessary to discuss the abolition of likin because part of the revenues which were to be given for the abolition of likin would come from the proposed increase of the customs duties. The Chairman remained obdurate and addressing Mr. Strawn said that he desired to point out that the Chinese proposal presented at the plenary session did not say that tariff autonomy was to be enjoyed by China as a result of the abolition of likin. Mr. Strawn remarked that he had so interpreted the Chinese proposal and the Chairman again read the two points in the Chinese plan concerning tariff autonomy and likin, as follows: First, “The participating Powers formally declare to the Government of China their respect [Page 784] for its tariff autonomy and agree to the removal of all the tariff restrictions contained in existing treaties;” Second, “The Government of the Republic of China agrees to the abolition of likin simultaneously with the enforcement of the Chinese National Tariff Law.” Dr. Wang then said that Tariff Autonomy was a principle which the Powers had already conceded and that China had agreed to the abolition of likin simultaneously with the enforcement of the Chinese National Tariff Law. Mr. Strawn remarked that he understood that to be a condition precedent to the enforcement of the National Tariff Law, that is, that likin should be abolished. On being again informed by Dr. Wang that the Chinese Delegation had presented the different measures for the abolition of likin to the various delegations, Mr. Strawn said that it was his understanding that the time had arrived, or would soon arrive, when the Delegates would take up in an orderly way and discuss the different measures and that he did not understand that the Chairman had put the proposals on the table and said, “Take it or leave it.” It was pointed out that the American Delegation did not put its proposals forward as an ultimatum, but as the basis of discussion. On inquiry by Dr. Wang as to whether the Chinese proposals were satisfactory, Mr. Strawn replied that that was the very question which the Delegates wanted to discuss. Mr. Strawn quoted the language of the Chinese proposal: “The Government of the Republic of China agrees to the abolition of likin simultaneously with the enforcement of the Chinese National Tariff Law,” and inquired with whom the Chinese Government agreed unless with the Delegates who were sitting at the Conference. In other words, if China was going to abolish likin and did it in her own way, and at her own pleasure, there certainly was not any agreement about it. His recommendation was that the subject should be set aside for discussion at a subsequent meeting of the Committee if it was not agreeable to discuss it then. Dr. Wang then admitted that it was not the purpose of the Chinese Delegation to decline to discuss the question of the abolition of likin, but to have all the Delegations recognize this problem as one of domestic concern. Mr. Strawn agreed with Dr. Wang on this point, saying that the foreign powers were going to furnish the wherewith to enable China to solve this domestic problem. He considered, however, that the amount wherewith, when and how it would be furnished, how it would be safeguarded in the interim were subjects for discussion. Dr. Wang said that on that point there was no disagreement, to which Mr. Strawn replied that he was glad to be so informed. The colloquy ended by the Chairman suggesting that the question of surtaxes be discussed, together with the ways and means necessary for the abolition of likin, and inquired whether that was agreeable. [Page 785] After an affirmative answer had been given Mr. Yoshizawa inquired whether the question of tariff autonomy would be excluded, whereupon Dr. Wang replied that he thought tariff autonomy had been recognized, since all the Delegations had made their declarations. Mr. Yoshizawa said that he had made the inquiry because a few minutes before it had been suggested that Articles 1, 2, 3 and 4 of the British agenda should be discussed together and now the Chairman had said that they were going to discuss the question of surtaxes, together with the ways and means for the abolition of likin and not including the tariff autonomy question. Dr. Wang said that he did not mean that and that the question of Tariff Autonomy could be further discussed if the Delegates so desired.
At this point Colonel Peel pointed out that the British Delegation had made a definite proposal to support the immediate imposition of the 2½% surtax and 5% surtax on luxuries, which proposal had been supported by the American Delegation. He said that at least two Powers, therefore, had made a distinct promise to do what they could for China immediately and he wanted to know why they could not go on with that proposal immediately. Dr. Wang replied that Count de Martel and Admiral Tsai were not prepared to discuss the question at that time, but the Admiral stated that he was prepared to go ahead. Mr. Strawn, at this point, made it clear that the position of the American Delegation was that they were agreeable to giving China the 2½% surtax on necessities and 5% surtax on luxuries at the earliest possible moment, the money to be impounded by the Customs Administration to await disposition by the Conference. Again Dr. Wang placed an obstacle in the way by insisting that the question of Tariff Autonomy and the question related to the enforcement of the National Tariff Law to give effect to Tariff Autonomy should be discussed together. Mr. Strawn remarked that he did not want the Chinese Delegation to get the impression that they were holding back what China was entitled to receive under the Washington Treaty while they discussed a new treaty. It was the desire of the American Delegation to fulfill the terms of the Washington Treaty at once and they would give more as soon as they could agree on what it should be. Colonel Peel said that this represented the British view also, and the Japanese Delegation, while in accord with this plan, made it plain that the 2½% and 5% surtax agreement would require ratification by the Emperor, so far as Japan was concerned, before it could become effective under Japanese law. Adjournment was taken with the understanding that items 1, 2, 3 and 4 would be discussed together at the next meeting of the Committee.[Page 786]
Committee on Provisional Measures, Third Meeting, November 14, 1925.
The third meeting of the Committee on Provisional Measures was held on the morning of November 14, at which time the Chinese Delegation presented the following resolution:
“The Contracting Powers other than China hereby declare their recognition of China’s right to enjoy tariff autonomy.
“China hereby declares her intention to abolish likin, and further declares that the Chinese National Tariff Law will come into force upon the abolition of likin.”
Colonel Peel announced that at least some of the foreign Delegates could not agree to the resolution as submitted by Dr. Wang without referring it to their governments and going through the whole process of ratification because they were not authorized to go that far. What he wished to do, and what some of the other Delegations wished to do, notably the American Delegation, was to implement the Washington Treaty, but he understood that the Chinese Delegation, and possibly some other Delegations, were not anxious for these surtaxes to be levied at once. He proposed the following declaration in the preamble of the instrument authorizing the levying of these surtaxes:
“The Delegations of the Contracting Powers, other than China, having declared their intention to recommend to their respective governments the immediate adoption of a treaty which shall recognize the principle of China’s right to enjoy Tariff Autonomy, and China having declared her intention to abolish likin, it is agreed that the treaties shall provide that China’s National Tariff Law shall come into effect upon the abolition of likin.”
Colonel Peel believed that these surtaxes, which they were authorized to impose, should not come into force until the signature of the new Treaty. Admitting that he did not know the exact meaning of the word “likin”, Colonel Peel stated that he wished to guard his Delegation against accepting a Chinese word, of the exact meaning of which he was not sure. Dr Wang did not agree with the form of the declaration offered by Colonel Peel, and Mr. MacMurray, in discussing the Chinese declaration, said that it went not only beyond the powers of the American Delegation as negotiators, but beyond the powers of even the American Chief Executive. Since it involved a power which could be exercised only by the President, by and with the advice and consent of the Senate, it would be quite impossible for the American Delegates to accede to the resolution in the form proposed by the Chinese. It would be worse than useless and the American Delegation was therefore disposed to accept the British proposal which embodied the same purport, but in a form which fell within [Page 787] the scope of the powers of the American Delegation. If the Chinese were not satisfied it was suggested that a drafting committee could quite readily iron out the difficulties and the 2½ per cent and 5 per cent surtax agreement would be effectuated. Dr. Wang objected, however, and desired the matter referred to a smaller committee in which suggestion Mr. MacMurray acquiesced. Mr. Oudendijk suggested a substitute resolution, but it was the sense of the committee that the matter could be resolved only by the appointment of a small special committee to compose the differences. Such a committee composed of Mr. Oudendijk, Mr. Strawn, Mr. Hioki, Sir Ronald Macleay and Dr. Wang, was appointed and the committee adjourned subject to the call of the chair.
Sub-Committee of Committee II, First Meeting, November 17, 1925.
The Sub-Committee appointed by the Committee on Provisional Measures at its meeting on November 14, met on November 17 and Dr. Wang submitted the following declaration for consideration:
“The contracting Powers other than China hereby recognize China’s right to enjoy Tariff Autonomy; agree to remove the tariff restrictions which are contained in existing treaties between themselves respectively and China; and consent to the going into effect of the Chinese National Tariff Law on January 1st, 1929.
“The Government of the Republic of China declares that likin shall be abolished simultaneously with the enforcement of the Chinese National Tariff Law; and further declares that the abolition of likin shall be effectively carried out by the first day of the first month of the eighteenth year of the Republic of China (January 1st, 1929).”
Some discussion followed as to whether the declaration would form a preamble or an article of a treaty. Before this question was settled, however, Mr. Hioki brought up the question of a conventional tariff between China and Japan. He said that while the Japanese Delegation had endeavored repeatedly to make it plain that Japan was prepared to assist China in realizing her national aspiration in regard to tariff autonomy, Japan’s important and special trade relation with China made it imperative to conclude a conventional tariff, as had been previously stated. Mr. Hioki asked if the Chinese Delegation was in a position to make a definite declaration of their readiness to enter into an agreement with Japan in the matter of a conventional tariff. Citing certain statements made at the First Plenary Session and at the Third meeting of Committee II, Dr. Wang stated that China was prepared to enter into a reciprocal tariff agreement with Japan or with any other Power which desired to enter into such a reciprocal agreement. It was pointed out that no such agreement then existed between Japan and China, but that in case one should be negotiated it would come into force [Page 788] either before or after the enforcement of the National Tariff Law, item 5 of which relates to the subject.
Mr. Oudendijk inquired whether a reciprocity treaty such as described would contain a “most favored nation clause.” Dr. Wang replied that it could be so made if there were things for exchange on the basis of reciprocity.
The question again arose as to whether the declaration submitted by the Chinese Delegation should be a preamble or an article in the treaty. Dr. Wang took the position that it would constitute an article, or two articles, of the treaty that was being negotiated at the Conference. Mr. Oudendijk favored the language in the American proposal,97 as it was more emphatic. Mr. Strawn said that the first part of the American proposal, namely, “The Contracting Powers other than China recognize the right of China as a sovereign State to Tariff Autonomy”, was put in because China had by previous treaties given away the sovereign right of tariff autonomy and it was now proposed to have China recover it and as a condition to regaining it and enjoying full tariff autonomy it would be necessary to remove the tariff restrictions contained in existing treaties. Further discussion on this point, participated in by several Delegates, and consideration of an amendment offered by Mr. Hioki, resulted in the adoption of the following preamble to the Chinese resolution, or proposed treaty articles, which had the unanimous approval of the Delegates:
“The Delegates of the Powers assembled at this Conference resolve to adopt the following proposed article relating to tariff autonomy, with a view to incorporating it, together with other matters to be hereafter agreed upon, in a treaty which is to be signed at this Conference.”
After the approval of the preamble and articles Colonel Peel again inquired as to the exact meaning of the word “likin” and the chairman replied that likin included all taxes of a transit nature, whether they came under that name or not and on inquiry of Mr. Teichmann, one of the British technical advisers, by Mr. Strawn, Mr. Teichmann replied that his definition would be that contained in Article VIII of the Mackay Treaty, which referred to likin and other dues on [Page 789] goods at the place of production, in transit and at destination. Mr. Strawn considered this the best definition he had heard and later he and Colonel Peel emphasized the necessity of having a clear definition of the word “likin” in order to guard against a misunderstanding of the meaning of the term. The chairman remarked that the Chinese Delegation had already defined likin as all duties of a transit nature, but their definition seemed too vague and Mr. Oudendijk, Mr. Strawn and Colonel Peel expressed the opinion that there should be a definition of “likin” in exact terms.
The following draft Resolution, or Declaration, was read and unanimously adopted for presentation to the full Committee:
“The Delegates of the Powers assembled at this Conference resolve to adopt the following proposed article relating to tariff autonomy with a view to incorporating it, together with other matters, to be hereafter agreed upon, in a treaty which is to be signed at this Conference:
“The Contracting Powers other than China hereby recognize China’s right to enjoy tariff autonomy; agree to remove the tariff restrictions which are contained in existing treaties between themselves respectively and China; and consent to the going into effect of the Chinese National Tariff Law on January 1st, 1929.
“The Government of the Republic of China declares that likin shall be abolished simultaneously with the enforcement of the Chinese National Tariff Law; and further declares that the abolition of likin shall be effectively carried out by the First Day of the First Month of the Eighteenth Year of the Republic of China (January 1st, 1929).”
(See page 15 of Minutes of November 17 for American draft of preamble of treaty relating to Tariff Autonomy.)97a
Committee on Provisional Measures, Fourth Meeting, November 19, 1925.
The Fourth Meeting of the Committee on Provisional Measures was held on November 19 and the first business before the Committee was the Resolution on Tariff Autonomy adopted on November 17 by the Subcommittee of the Committee on Provisional Measures, the text of which may be found in the resume of the proceedings of the Subcommittee meeting of November 17. Mr. Strawn formally moved the adoption of the Resolution, but Mr. de Warzée, Count de Martel, Mr. Cerruti and Mr. Ewerlöf, while all expressing their personal pleasure that the subcommittee had evolved so satisfactory a formula, announced that if it was intended that the Resolution should be incorporated into a treaty it would be necessary, under the Constitution of their respective governments, to refer the instrument to their home governments for approval. Mr. Bianchi, Mr. Garrido, Mr. Michelet [Page 790] and Mr. de Kauffmann expressed their satisfaction with the terms of the Resolution and the chairman expressed his thanks on behalf of the Chinese Delegation and said that he felt that the Delegates should congratulate themselves on having set a milestone for fair and just dealing between China and the participating Powers. Dr. Wang thereupon declared the Resolution unanimously adopted by the Committee on Provisional Measures, notwithstanding several Delegates had given notice that ratification would be required on the part of their Governments before it could become effective as a part of a treaty. Dr. Wang suggested that while they were sitting as Committee II they might consider the Resolution as having been passed by both Committees I and II since the personnel of the Committees was the same. Dr. Yen expressed his appreciation of the work of the subcommittee and proceeded to explain in detail the Purposes to which the proceeds would be put. Dr. Yen said that since some of the Delegates not present at the Washington Conference might unintentionally give the word “purposes” a significance not intended by those who introduced it, he thought it well to give a brief historical review of its origin and significance. After reviewing the discussion which took place at the Washington Conference on “purposes” (see pages 4, 5, and 6 of Minutes of November 19), Dr. Yen explained seriatim the four purposes outlined in the Chinese declaration. The first purpose was the abolition of likin, which would require about $90,000,000, or possibly $100,000,000. The second purpose was debts. Dr. Yen said that at the time of the Washington Conference the foreign debts of China amounted to only $260,000,000 and the domestic debts about $100,000,000, an amount not at all exorbitant, and which could have been financed from 10 per cent of the 2½ per cent surtax, according to Senator Underwood, leaving a surplus of approximately $35,000,000 to $40,000,000 for governmental purposes. Dr. Yen stated that the total amount of the debts now approximated $800,000,000, an amount which seemed rather startling in view of the comparatively short time which had elapsed since the Washington Conference. He cited the several causes for this increase, one being the difference in the rate of exchange, as instanced by the increase in the value of the Pound Sterling by one third in the last four years. The second cause he attributed to accumulated interest and compound interest. The third was the general practice of increasing by one per cent the rate interest when a loan agreement was renewed after becoming due. He felt that it was very unfortunate for China that the Conference had been so long delayed thus causing the great increase in China’s indebtedness.
Dr. Yen then gave an explanation of the view of the Chinese Delegation on Constructive Purposes. He said that while it was [Page 791] true that the duty was paid in the first instance by the merchants, it was really the consumer that ultimately paid, and for that reason he considered it only just and right that the Chinese people should share the benefits to accrue from the increased revenues. He considered it a particularly opportune time to start a constructive program in China and put an end to the destructive forces and to avoid the criticism that China had no constructive program. From the standpoint of intelligent and patriotic Chinese he pointed out, the Conference could be said to be successful only should something be done for the social and economic welfare of the Chinese people. He would not go into details, but mentioned such enterprises as railway construction—the completion of certain trunk lines—national road building, conservancy works and industrial developments. He particularly favored setting aside some money to improve the culture of tea, silk and cotton.
Dr. Yen then referred to the question of administrative expenses. He reminded the Delegation, in summing up, that a certain amount of discretion should be left to the Chinese Government and that it would be well for the Delegates to endeavor, as much as possible, to avoid any semblance of the Purposes not having been adopted at the initiative of the Chinese Government. He suggested, in conclusion, a discussion of the question of Rates because he felt that it would be useless to spend all the time discussing Purposes without knowing exactly how much fresh revenue would be derived from the new taxes.
Mr. Hioki suggested the appointment of two subcommittees, one on Surtaxes and the other on Purposes, saying, at the same time, that it would be rather difficult to discuss the question of surtaxes until the Purposes had been fully determined. A discussion of the approximate revenues and needs ensued and it was finally decided that no real progress could be made until the serious questions under discussion had been considered by subcommittees of Delegates or Technical Advisers. Many of the questions that arose during the discussion were technical in character and involved classifications of commodities, luxury lists, money values, and related questions. Admiral Tsai said that, for the convenience of the Delegates and Technical Advisers, the Chinese Delegates would prepare and circulate an amplified and enlarged list of luxuries for consideration in the subcommittee meetings. Sir Ronald Macleay supported Mr. Hioki’s view that it would be necessary to know how much money was needed before they could approach the question of the surtaxes and the question of luxuries and that they should also know the amount needed to fund the outstanding debts before taking up the question of the amount to be raised. Pursuant to this view, Sir [Page 792] Ronald suggested that there should be two subcommittees; one to deal with likin and to make estimates of what would be required for its abolition, etc., and the other to deal with the consolidation of debts and the other Purposes, and also to form an estimate of the amount needed. A rather lengthy discussion ensued as to the number and functions of the subcommittees and whether they would be composed of Delegates or technical advisers and the method of appointing members and, further, whether the subcommittees would themselves be permitted to have subcommittees. This discussion finally ended in the committee agreeing that there should be two-subcommittees, one on purposes and one on rates, each of which would be permitted, if it chose to do so, to divide into subcommittees of Technical Advisers or others and each Delegation having the right to signify whether it desired to participate in either one of the subcommittees or both of them. The Committee on Provisional Measures resolved itself into a subcommittee on Purposes and proceeded to its business.
Subcommittee on Purposes, First Meeting, November 19, 1925.
Committee II having resolved itself into a sub-committee on Purposes, that sub-committee began its work at 11:30 a.m., November 19, 1925.
After a brief discussion among the Delegates concerning the division of work of the sub-committee, Dr. Yen said that the Chinese Delegation had hoped that an agreement could be reached in regard to customs duties without going into the financial condition of the Chinese Government. He distinctly discouraged any plan which contemplated any exploring of this subject. His view was that the question of debts was outside the scope of the word “purposes”. While professing to be willing to give all needful information, he wished the subcommittee to confine itself to defining principles to be followed under the heading of “purposes.” Sir Ronald Macleay said that no Delegation, so far as he was aware, desired to impose anything on the Chinese Government, but unless they should go into the question of debts it would obviously not be possible to determine how much money was needed. Admiral Tsai agreed that the question of debts and likin were matters in which the foreign Powers could properly interest themselves, but administrative expenses was one which belonged solely to the Chinese. Colonel Peel remarked that there was no disposition on the part of the foreign Delegates to interfere in Chinese domestic affairs, but they did wish to know how China proposed to abolish likin and how the revenues would be applied to that purpose and how the question of the consolidation of debts would be solved. He suggested the appointment of two subcommittees, one to deal with likin and the other one the question of [Page 793] consolidating the debt, both of which intimately concerned the Foreign Powers. As for constructive purposes and administrative expenses, the foreign Powers wished only to know what aggregate amount would be needed for these purposes. Dr. Yen said that he fully appreciated the spirit in which Colonel Peel spoke, but he did not wish the impression to go out that the Conference had resolved itself into a debt collecting agency. He said that it would be very unfortunate if such a false impression should prevail. He considered that it would be sufficient to have two sub-committees, one on likin and one on other Purposes. Mr. MacMurray supported Dr. Yen’s suggestion, as did Count de Martel and Mr. Cerruti, with the understanding, however, that the debt question would be examined into. Mr. Hioki explained that it was far from the thought of the Japanese Delegation to impose anything that would be disagreeable to the Chinese Delegation, or that would appear to interfere with the sovereign rights of China. After further discussion the chairman summed up the results of the meeting by saying that the subcommittee on Purposes had agreed to have two sub-committees of technical advisers, or other members whom each Delegation would choose, one to sit as a sub-committee on Likin and the other as a sub-committee on Other Purposes. He pointed out that the subcommittee on Rates, authorized by the Committee on Provisional Measures, had not had a meeting, but that the first meeting of the sub-committee on Likin would be held Saturday morning, November 21, 1925.
Proceedings of the Technical Committee on Likin, November 21, 1925.
The First Meeting of the Technical Committee on Likin was held on Saturday, November 21, 1925, and on the suggestion of Mr. Mac-Murray, Mr. T. K. Tseng was elected chairman. Mr. Tyndall Wei of the Chinese Delegation read a paper on “Remarks on the Technical Side of the Question of Likin”. This paper, together with a series of tables and annexes, may be found on page 2, et seq. of the Minutes of November 21, 1925 (morning session). These papers relate to the technical side of the likin question, likin collections in various provinces, revenue collected by native customs, goods tax collection on Tientsin-Pukow Railway, and compensation for discharged officers and employees of likin offices. Mr. Stewart of the British Delegation inquired whether it was a general principle in the Chinese scheme that the Central Government should pay the Provinces annuities in lieu of likin; whether the estimated sum needed for this purpose was $80,000,000 with an additional $10,000,000 for discharged officers and employees; whether these annuities would take precedence [Page 794] over appropriations to be allotted for other purposes, such as, Debt Consolidation, Constructive and Administrative Purposes. He received affirmative answers to all these questions. A further discussion took place with reference to the amount required for the compensation of the provinces and a doubt was expressed whether China would be able actually to abolish likin. The chairman said, however, that the Chinese Government did not want to minimize the difficult undertaking but that it was the firm determination of China to abolish likin and that the public would be duly notified when that had been accomplished. Mr. MacMurray raised the question as to what would be the alternative if, for any reason, it should, at the end of three years, be found impossible to effectuate the abolition of likin. The chairman replied that such a possibility had not been considered by the Chinese, as they were really determined to abolish likin within the stated time.
Mr. Strawn then inquired whether there had been given any concrete definition of the word “likin” and to this the chairman replied that the Chinese Delegation had always understood likin to be a tax on goods in transit or a transit duty. Mr. Strawn inquired whether that covered all taxes at points of origin and destination as well as in transit and the reply was simply that it covered all taxes on goods in transit. Mr. Strawn thereupon referred to the provision in the treaty of 1903 between China and the United States98 which authorized the collection of surtaxes on imported goods which would free such goods from all further taxation. He considered this to mean that this provision covered the abolition not only of likin but of all other taxes on foreign goods. To guarantee that such additional taxes would not be levied the American Plan contemplated that if such taxes were collected in violation of the new treaty, the taxpayer from whom the taxes had been collected would have recourse to the Customs for a refund. It was his thought therefore, that likin should be clearly defined and his idea of likin was that it should mean that any foreign articles imported into China upon which the authorized Chinese Maritime Customs Duty should have been paid should not be subject to any further taxation,—neither likin, or destination tax, or consumption tax, or protection fee or any tax of whatever nature, levied indirectly or directly upon the conveyance or handling of any such article. He had no complaint to make about just taxation because he felt that his nationals were perfectly willing to pay any taxes that they should pay, but he did not want to see the taxes so high that trade would be stifled. He asked therefore for a concrete definition of likin and Mr. Stewart supported the request, reading [Page 795] an extract from the treaty of 1902 between Great Britain and China, as follows:99
“The Chinese Government recognizing that the system of levying likin and other goods taxes [dues on goods’] at the place of production, in transit and at destination, impeded [impedes] the free circulation of commodities.”
He said that this recognized the fact that the whole system of multiple taxes on goods was one that was not considered proper in well-organized countries. He cited particularly the case of a province in China in which a 20 per cent consumption tax was being charged on cigarettes and inquired whether that would be regarded as a legal tax in the future. The chairman replied that China was not the only country that imposed a consumption tax. Mr. Stewart said that it was not customary and he feared that if the tax on cigarettes should be considered legal it might be assessed on other goods. The chairman replied that it was not their intention to do so. A discussion ensued concerning various kinds of taxes and the method of assessing and collecting them, and the question of discriminatory practices also arose. This discussion brought out the fact that discriminations, either in rates or otherwise, in favor of one commodity as against another, both foreign and domestic, would not be countenanced. A Chinese member (Mr. Wei) pointed out that the “destination taxes” were really outside the scope of the subcommittee to which view Sir Ronald Macleay dissented. Mr. Strawn stated that the Delegates did not wish to invade the province of China by discussing internal taxation matters, but in discussing likin they wanted to know what the term embraced and this might bring in other matters incidentally. Mr. Wei described in great detail the origin of the “lo-ti-shui” tax1 and an extended debate took place on the question of defining “likin” every effort being made but without success, to obtain from the Chinese a concrete definition of the word. Various phases of the tariff system were discussed, Mr. MacMurray detailing his first experience with the “lo-ti-shui” tax, and observing that it seemed to him that a proper definition of “likin” should take into account the principle that no taxation should be levied in connection with the movement of goods, whether it be levied while the goods were still in transit or after they had surrendered the transit pass which was their protection, or after they had in one way or another ceased to be protected. The chairman said that this view would be taken into consideration in later offering a concrete definition [Page 796] of likin. After discussing the question of compensation, or bonus, for dismissed officers and employees of the likin offices which would be abolished the sub-committee adjourned.
Technical Committee on Other Purposes, First Meeting, November 21, 1925.
At the first meeting of the Technical Committee on Other Purposes held on November 21, Mr. Tseng, the Vice Minister for Foreign Affairs, was elected chairman. Mr. Tseng called upon Mr. Yih, who laid before the sub-committee Tables of Inadequately Secured Foreign Loans under the charge of the Ministry of Finance, compiled by the Commission for the Readjustment of Finance. A statement explaining the Tables was read by Mr. Yih and may be found on page 2, et seq. of the Minutes of the Technical Committee Meeting of November 21, 1925, and the Tables may be found on page 10, et seq. of the same Minutes. Discussion developed that it was expected that the Tables would be revised and added to before any attempt at consolidation should be undertaken. Mr. Yih mentioned particularly the inadequately secured foreign loans under the charge of the Ministry of Communications. He endeavored to make it plain that under his instructions he could give information only and that he was not in a position to propose any concrete plan of consolidation; that he would be glad to receive information from any of the foreign Delegations concerning items owing their nationals which were not included in the schedules submitted. Colonel Peel, on behalf of the British Delegation, expressed a willingness to submit his list of unsecured debts and said that he wished to arrive at an exact figure, not an estimate of the total indebtedness of the Chinese Government. Dr. Tsur, at this point, said that the Commission for the Readjustment of Finance had gone into the question of debts very thoroughly and that it was his understanding that it was the intention of the Chinese Government to appoint the Commission for the Readjustment of Finance to undertake the consolidation of debts and suggested that the foreign creditors communicate directly with the Commission, since it would not seem to be a question connected with the Conference. Colonel Peel dissented from that view, however, but Dr. Tsur reiterated the statement, saying that it was not the purpose of the Conference to consolidate the debts, much less the purpose of the Technical Committee, and that the plan of having the consolidation done by a special organ under the control of the Chinese Government had had the approval of the Cabinet. Mr. Tripier of the French Delegation, read a formal statement of the French Government’s attitude on debt consolidation (see page 28 of Minutes of the Technical Committee Meeting of November 21, 1925). Mr. Evans endeavored to ascertain whether the material debts would be included [Page 797] in the statement which had been promised from the Ministry of Communications but Dr. Tsur was not prepared to answer. In closing the meeting Dr. Tsur said that he had communicated informally the information concerning the plans of the Chinese Government to create a special organ to consolidate the debts and that he could not, under his instructions, give formal notice.
Sub-Committee on Rates of Surtaxes, First Meeting, November 23, 1925.
The Sub-Committee on Rates of Surtaxes held its first meeting on November 23, 1925, and, on motion of Mr. Hioki, Admiral Tsai was elected chairman. Admiral Tsai presented a revised list of “B” grade luxuries (see Annex I next after page 14 of Minutes of November 23, 1925). He also read a statement in explanation of the Estimated Revenue of Proposed Surtaxes from Foreign Imports (see page 3 of Minutes of November 23, 1925). Mr. Strawn remarked that it seemed to him that before they could come to an understanding on rates they must know to what purposes the revenues would be put and what amount would be required. Since there had been no report from the subcommittee on Purposes, he asked whether it would be appropriate to discuss the different rates before they knew the amount and purposes for which the money would be used. He expressed the view that under the Washington Treaty the Conference was required to consider what were the means of abolishing likin, how much money would be required for that purpose and how much money would be required to help China out of the present financial difficulty. He considered that the Delegates could interest themselves in these questions without any intention of interfering with China’s internal affairs. Dr. Yen agreed with Mr. Strawn, but pointed out that the Conference was really going beyond the terms of the Washington Treaty and were negotiating a new treaty. For that reason Dr. Yen considered that it would be necessary for the subcommittee to agree upon certain principles before proceeding, the first being whether it was the sense of the subcommittee that the 2½ per cent surtax must be exceeded during the interim period and as to how much money would be required to meet China’s needs. Mr. Strawn pointed out, as he had done several times before, that the American Delegation was prepared to give China the 2½ per cent and 5 per cent surtax at once and proceed to the negotiation of a new treaty for the so-called interim surtaxes. For his part, he felt that the subcommittee should take up each of the subjects within the scope of the subcommittee’s work and dispose of them as they could agree and leave for later decision those upon which they could not agree. He considered that the uses to which the money would be put and the [Page 798] rates, were necessarily related and it seemed to him that they ought to be discussed together. Mr. Hioki agreed with this view and particularly with the order of procedure suggested by the American Delegation, and the Delegates from Belgium, France and Denmark also endorsed Mr. Strawn’s statement. A discussion ensued as to the classification of certain articles, the method followed in preparing the Luxury List, and the approximate revenues to be derived from the several plans. Mr. Strawn remarked that if the rates proposed were not high enough he favored considering higher rates or a readjustment which would bring in the necessary amount of revenue. He said also that the American Delegates would not insist on the adoption of their plan if some better plan could be evolved, the American proposal having been submitted merely as a basis of negotiation. Mr. Stewart announced that the British Delegation was not prepared to discuss even the main principles suggested by Dr. Yen because these principles depended, largely, upon what they had been discussing at other meetings. Briefly, the position of the British Delegates was that it was premature to discuss the principles in the mind of Dr. Yen until several other important questions connected with the Conference had either been thoroughly discussed or agreed upon. Mr. Stewart suggested that, before going further, they should postpone the meeting until some of the Delegates had expressed themselves as ready to discuss the proposals made by the Chinese, American and Japanese Delegations. He considered this to be most essential, but Admiral Tsai wished his “B” Grade Luxury list discussed either by the Delegates or Technical Advisers. Mr. Oudendijk suggested, however, that the “B” Grade Luxury List properly belonged to all three proposals that had been submitted and that it could be taken to their homes or offices and studied in preparation for another meeting of the subcommittee, at which time more definite figures might be available as to the amounts of money required to meet the purposes of the Chinese Government. It was agreed that this should be done.
Sub-Committee on Rates of Surtaxes, Second Meeting, November 30, 1925.
At the second meeting of the subcommittee on Rates of Surtaxes, November 30, the chairman submitted two documents, as follows, both of which may be found in the Minutes for November 30.
“Explanation of “B” Grade Luxuries”
“Detailed Explanations for the Estimated Revenue of Proposed Surtaxes from Foreign Imports.”
The last named document contained tables showing the estimated revenues from proposed surtaxes on foreign imports based on Customs [Page 799] returns of 1924, the estimated revenue from wine, beer, spirits, et cetera, estimated revenue from tobacco, estimated revenue from “B” Grade Luxuries, and estimated revenues from ordinary goods.
There was no discussion on the various documents submitted to the sub-committee.
Committee on Provisional Measures, Fifth Meeting, December 10, 1925.
At the fifth meeting of the Committee on Provisional Measures, held on December 10, 1925, Admiral Tsai read two documents, one “Remarks Regarding the Valuation of Commodities” and the other “Proposal of the Chinese Delegation Concerning the Revision of the Customs Tariff Schedule” (see pages 2 to 6 inclusive of the Minutes of December 10, 1925.) The first named paper recited that the Washington Treaty relating to the Customs Tariff provides that the Special Conference shall prescribe rules by which further tariff revisions are to be effectuated; that inasmuch as the Conference had unanimously recognized China’s right to tariff autonomy and that it will be enforced from January 1, 1929, it would be conceded that from that date the valuation of commodities will be done according to the laws to be promulgated by the Chinese Government. With that end in view for the interim period, and in harmony with the spirit of the Washington Conference, draft regulations relating to the revision of Chinese tariff schedules were submitted. These regulations (page 3 et seq of Minutes of December 10) go into great detail as to how the interim revisions shall be made and in the preamble, as a basis for the regulations, is quoted Article IV of the Nine-Power Treaty relating to the Chinese Customs Tariff.
Colonel Peel proceeded to analyze the regulations and said that the only kind of rules the Delegates were authorized to make under their powers given them by the Washington Treaty were rules for the guidance of an International Commission. He did not consider that they were authorized to make any rules for a purely Chinese Revision Commission. He did say, however, that he would be very glad to recommend to his Government for its consideration the Chinese proposal and to name the reasons that prompted the Chinese to suggest the rules. He asked for information concerning the kind of Commission that the Chinese proposed to institute. Admiral Tsai said that the Chinese Government had both Chinese experts and experts from the foreign staff of the Chinese Customs and as a basis of valuation they also had the prices in Shanghai, Hankow, Canton, Tientsin and Dairen as representing the four geographical centers of the Country. A further explanation was made by Admiral Tsai as to plans for the revision, but it did not appear that the Delegates wished to discuss the question further, whereupon the chairman [Page 800] submitted two documents, one a “Declaration of the Chinese Government Regarding the Levying of Duties and Taxes on Foreigners Residing in China” (see page 11 et seq of the Minutes of December 10, 1925), and the other a “Declaration of the Government of the Republic of China Regarding the Abolition of the Export Duty and Coast Trade Duty on Native Goods not Destined for Exportation to Foreign Countries” (see pages 15 and 16 of Minutes of December 10, 1925.)
Regarding the question of the taxation of foreigners, it was pointed out by the Chinese Delegates, in their statement, that in no treaty is there to be found any provision which concedes to foreigners living in or outside the settlements in China an exemption from taxation. However, the practice had grown up of foreigners declining to pay such taxes in the Settlements because they had not received instructions from their Governments. This practice had also extended to foreigners residing outside the Settlements and in the Railway Zones and even the Chinese had resorted to the practice of not paying their taxes in the Settlements and Railway Zones. This, according to the Chinese view, ran counter to the spirit of the Washington Conference which was designed to respect the territorial and administrative integrity of China. The statement submitted gave a brief historical and legal review of the question of the taxation of foreigners in the Settlements.
The Declaration Regarding the Abolition of the Export Duty and Coast Trade Duty, as its name implies, proposed to discontinue the collection of export duty on native goods not destined for exportation to foreign countries and on native commodities entering into the coast trade. This was announced to be an initial step in the direction of the ultimate abolition of likin. After Sir Ronald Macleay had expressed his appreciation of this practical demonstration of the intention of the Chinese Government to make early progress toward the abolition of likin, the Committee adjourned.
Sub-Committee on Rates of Surtaxes, Third Meeting, December 23, 1925.
Admiral Tsai opened the third meeting of the subcommittee on Rates of Surtaxes by presenting a condensed list of “B” Grade Luxuries. The old “B” Grade Luxury List containing 152 items, was reduced to 104 items. Mr. Fox, on behalf of the British Delegation, inquired whether the reclassification would increase the revenues, and if so, he would like some statement with regard to it. Other inquiries were made in this regard, but no reply was forthcoming. Mr. Hioki wished to know what was meant by Article 4 of the Rules which read as follows: “The final decision in any future case of dispute as to what is covered by each item in this List of Luxuries [Page 801] is to be given solely by the ‘Board of Review’.” The chairman replied that it was intended to create a Board, consisting of the Shui-Wu-Chu,2 the Ministry of Finance and the Ministry of Agriculture and Commerce, and also technical advisers, to pass on questions relating to goods and imports.
Committee on Provisional Measures, Sixth Meeting, February 18, 1925 .
At the beginning of the Sixth meeting of the Committee on Provisional Measures, held on February 18, 1926, Dr. Yen presented, on behalf of the Chinese Delegation, two resolutions, one “Regarding the Estimated Amount of Customs Revenue Derivable from the Interim Surtaxes” (see page 3 of Minutes February 18, 1926) and the other “Relative to the Levying of the Surtaxes as Provided in Article III of the Treaty Relating to Chinese Customs Tariff signed at Washington February 6, 1922” (see page 4 of Minutes of February 18, 1926). In presenting the statements, Dr. Yen stated that the public might think that the Conference had had rather a long vacation, but that, as a matter of fact, there had been frequent and informal exchanges of views and the first resolution embodied a part of the result achieved in the interim. It was pointed out that the period since the last meeting had been devoted to a careful study of the requirements of the Chinese and it had not been an easy matter to reach an understanding, as there were a large number of correlated questions. While they had not reached a complete agreement, it seemed reasonably certain that the figure stated in the Resolution, namely, between ninety and one hundred million dollars, Chinese Currency, as the sum required to meet the needs of the Chinese Government, was really necessary and he felt that the passing of such a resolution would create a most excellent impression not only in China but elsewhere and would prove that the Conference had been progressing in a really friendly and sympathetic spirit.
Colonel Peel protested against so important a resolution being circulated so late. He voiced vigorous objection to that part of the Resolution reading: “do resolve and agree that the annual revenue derivable from the interim surtaxes on foreign imports shall amount to between ninety and one hundred million dollars,” and said that it seemed quite impossible to assert in a resolution that the revenue from any particular tax would yield a definite sum. He thought all that could be done would be to agree to the levying of certain definite taxes and to express the hope that these would bring in certain sums. He particularly emphasized that all the discussions which their experts [Page 802] had had on the subject of surtaxes and the views which they had expressed as being willing to agree to certain taxes, were entirely dependent on the other parts of the treaty being satisfactory. Colonel Peel discussed in a general way the abolition of likin, the purposes to which the new revenues would be put, compensation to the Provinces, transit passes and the consolidation of the unsecured debts as these questions relate to the general Chinese plan of raising more money from Customs duties. Colonel Peel wished particularly to know the aggregate amount of the debts to be consolidated, how the debts would be consolidated, what security there would be and whether any special treatment would be given for railways, and whether the debt of the Ministry of Communications would be taken care of in the general consolidation or in some other plan. He called attention to the fact that expenditure for constructive purposes would depend upon how these questions were solved. This was true he said also of administrative expenses. He discussed rather in detail various phases of the financial difficulties of the Chinese Government and said, in conclusion, that, in his opinion, it would be premature to pass the resolution until a clearer idea could be had of the Chinese program with reference to likin, debts, constructive plans and various other correlated subjects. Mr. MacMurray concurred in Colonel Peel’s view and recalled that the work of the Conference was, after all, to authorize the levying of a surtax on dutiable imports as from such date, for such purposes and subject to such conditions as the Conference may determine. The amount of surtaxes to be levied and the conditions had been the subject of their whole deliberation which during the past month had been carried on with a surprising degree of success as seen in the very gratifying progress made in the informal conversations which had done much to clear up misunderstandings and harmonize divergent views. For the purpose of these conversations, it was necessary to adopt certain hypotheses, one of which related to the amount of money that it was expected would be raised from the surtaxes over and beyond those authorized by the Washington Treaty. The informal conversations had brought out fairly definitely that probably between ninety and one hundred millions of dollars would be necessary and could be raised, but Mr. MacMurray, in his discussion of the subject, made it plain that this was simply a tentative hypothesis on which to work out the terms and conditions upon which the surtaxes would be granted. It appeared to him that the effect of the passing of the resolution as proposed in Yin 703 would be an acceptance of the hypothesis as a fact, which would vastly complicate matters and retard the work of the Conference. Mr. MacMurray said that, for his part, he was quite [Page 803] unable to accept the proposal that they should, prior to the working out of the conditions, agree to a definite amount of money to be raised by the surtaxes. He spoke of the ambiguity of the wording of the Resolution, to which Colonel Peel had also referred, and which possibly left it to be assumed that the Powers would guarantee or subsidize the Chinese revenue in order to make up the amount specified. He felt that the adoption of the Resolution would be a very considerable departure from the purposes which they were endeavoring, with a gratifying degree of success, to work out through other means, and that the passage of the Resolution would be premature. He suggested that the matter be dropped until after they had made further progress with the purposes laid down by the terms of the Treaty.
Admiral Tsai said that he did not believe that the Chinese Delegation ever intended that the Delegations of foreign Governments should guarantee or subsidize the amount. He said, further, that he thought Dr. Wang had in mind naming the $90,000,000 or $100,000,000 merely as a hypothetical sum on which they could begin the discussion of the 2½ and 5 per cent surtax question. Admiral Tsai said that what he had in mind principally was the preparation of the way for beginning the collection of these taxes with as little delay as possible, as the Chinese Government was losing $2,500,000 a month by not being able to collect these duties.
Mr. Strawn remarked that, at the very beginning of the Conference, the American Delegation offered to the Chinese Delegation the immediate implementing of the Washington Treaty surtaxes of 2½ and 5 per cent, and that he heard at that time no dissenting voice except that of China. He said that the American Delegation was still willing to allow it to go into effect immediately, or as soon as possible, and that if China was being deprived of the 2½ per cent it was not the fault of the foreigners, so far as he was able to discover. Admiral Tsai then said that Mr. Strawn was right and that the reason China did not accept the 2½ per cent surtax without condition or understanding was because of the state of public opinion last autumn which would have exposed the Chinese Delegation to the charge of accepting only the 2½ per cent in order to get something for government expenses and letting the rest go. However, as the public had become aware that the foreign Delegations had really approached the matter in a most generous spirit the fear of the Chinese Delegation had passed away and they were ready to begin the collection of the 2½ per cent surtax. Mr. Strawn suggested that other Delegations should be heard from on the subject and Mr. de Warzee and Count de Martel gave their consent to the imposition of the 2½ per cent surtax as early as possible, but they both voiced [Page 804] disapproval of the plan to consider Yin 70 which named the specific sum of $90,000,000 or $100,000,000 as being the amount which it would be necessary to raise. Count de Martel then laid before the Conference a resolution designed to put into force the 2½ and 5 per cent surtaxes (see page 14 of Minutes of February 18, 1926). Mr. de Kauffmann expressed approval of the remarks made by members of the American and British Delegations with reference to the 2½ and 5 per cent surtaxes but objected to the consideration of the resolution concerning the sum of $90,000,000, which resolution he considered premature. He said that, on the whole, the work of the Conference had been proceeding satisfactorily and that nothing should be done to interrupt this orderly procedure. He referred to the fact that when the American Delegation, near the beginning of the Conference, had expressed a desire to effectuate the Washington Treaty at once, the Danish Delegation had supported the suggestion and it now renewed that assurance. Mr. Oudendijk confirmed Mr. Strawn’s statement that when an offer was made by the American Delegation to put in force the Washington Treaty surtaxes immediately the only dissenting voice was the Chinese. He reiterated the willingness of the Netherlands Delegation to proceed at once to the implementing of the Washington Treaty surtaxes and to that end it seemed to him that Count de Martel’s proposal covered the same ground as the original American proposal. Like other foreign Delegates who had previously spoken, Mr. Oudendijk voiced objection to Yin 70 which named the $90,000,000 or $100,000,000 as the amount required to meet China’s needs. Mr. Bianchi also objected to any action looking to the formal passing of Yin 70 but was quite prepared to approve the 2½ and 5 per cent surtax resolution, as he had been all along prepared to do. Mr. Garrido agreed with Mr. Oudendijk’s views and Mr. Cerruti agreed with the views of the American and British Delegations and said that, like the American Delegation, the Italian Delegation had from the beginning been willing to give the 2½ per cent authorized by the Washington Treaty. Mr. Hioki acquiesced in the views expressed by the other foreign Delegates concerning Yin 70 and Yin 71,4 and suggested that, since there were some technical matters connected with Yin 71 it would be advisable to refer the matter to a small sub-committee for consideration. Mr. Michelet agreed with his colleagues concerning Yin 70, and especially with the views expressed by Mr. Oudendijk. He suggested, however, that the scheme of levying the taxes be simplified as much as possible and to that end suggested that it would be well to have the 2½ per cent on ordinary goods and 5 per cent on luxuries, enforced at the same time. Mr. Ewerlöf [Page 805] opposed the proposal contained in Yin 70, but approved that contained in Yin 71 and supported Mr. Hioki’s suggestion that the matter be referred to a small subcommittee.
Dr. Yen said that the Chinese Delegation had no desire to force anything on the foreign Delegations. He voiced the belief, however, that the various Delegations were really agreed on the content of the two resolutions, although they did not quite agree as to the form in which they had been put. To sustain his point, he said that the French Delegation had presented a resolution which seemed to combine both the resolutions he had introduced. Dr. Yen took occasion to explain that at the beginning of the Conference the Chinese Delegation had thought that the 2½ per cent surtax would not be sufficient for the various purposes and for that reason they had declined it. They were now, however, ready to proceed and he thought Mr. Hioki’s suggestion that it be referred to a small subcommittee was a good one. Such a subcommittee, in his opinion, could consider the original American proposal, the Chinese proposal and the French proposal and he suggested that the subcommittee resolution be prefaced with a suitable introduction combining the three proposals. Mr. Strawn expressed doubt as to whether Yin 70 and Yin 71 could be combined and, on behalf of the American Delegation, said that they would not want any suggestion in Yin 70 as to the amount which it might be expected could be raised from these revenues. He again reiterated the willingness of the American Delegation to give the 2½ per cent and 5 per cent at the earliest possible moment, but he did not think it would be well to attempt to combine the two proposals.
Dr. Wang went into great detail in explaining the reasons prompting the Chinese to submit the two resolutions and he said that it seemed necessary to fix some sum as the approximate figure around which it would be necessary to work and that, since the general discussion had seemed to lead to a belief that the approximate amount required for the abolition of likin, the consolidation of debts and other needs would be in the neighborhood of ninety or one hundred million dollars that figure had been named in the Chinese resolution. He emphasized the need for completing the construction of certain railways and conservancy projects, for entering upon certain judicial reforms, for placing the diplomatic service on a sound financial basis and for disbursements for educational purposes. He suggested that Yin 70 and Yin 71 should be combined into one resolution and he took occasion to say that the reason the Chinese Delegation did not accept the American proposal to put immediately into force the 2½ per cent and 5 per cent surtaxes was because that at the time the proposal was first made there was a general [Page 806] outcry by the Chinese people against the convening of the Special Conference for fear that it would do nothing further than to carry out the terms of the Washington Treaty which would be quite inadequate for the abolition of likin, or for the consolidation of the inadequately secured debts. This fear, however, had now been overcome as the foreign Delegations, by their sympathetic attitude, had won over the opinion of the Chinese people. He cited particularly letters which he had received from leaders of Chinese political thought, such as Mr. Tang Shao Yi, and persons holding responsible positions in the Canton Government, who had expressed satisfaction with the work of the Conference. After proposing an Amendment to Count de Martel’s resolution by which, in the second paragraph he would insert the so-called ninety or one hundred million dollars provision, Dr. Wang endorsed Dr. Yen’s suggestion that the matter be referred to a small subcommittee. After further discussion, participated in by Sir Ronald Macleay and Mr. Strawn, it was agreed to refer the matter to a special subcommittee of six to be appointed by the chairman on which the Chinese Delegation should be represented. The chairman thereupon appointed a subcommittee composed of members from the American, British, Japanese, French, Netherlands and Chinese Delegations, and it was agreed that the subcommittee should meet on Saturday morning, February 20.
Sub-Committee to Draft a Resolution on the Levying of the Interim Surtaxes, First Meeting, February 20, 1926.
The Subcommittee to Draft a Resolution on the Levying of the Interim Surtaxes met on February 20 and two resolutions, one by the Chinese Delegation and one by the American Delegation—designed to effectuate the Washington Treaty, were introduced (see pages 1 and 2 of the Minutes of February 20 for the text of these resolutions). A discussion ensued as to the differences between these two resolutions and between them and the resolution presented by Count de Martel at the meeting of the Committee on Provisional Measures on February 18. Various questions of a technical character were discussed and considerable attention was devoted to the question of whether ratification would be required on the part of any of the participating governments to make the treaty effective. The committee proceeded to a discussion of the paragraph containing the reference to the ninety million dollars which it was estimated would be required to meet the needs of the Chinese Government. The chairman (Dr. Yen) defended the language of the paragraph and said that instead of being a part of the Resolution it was not put in as a statement of fact or a supposition in the preamble and he considered that this would remove objections voiced at the last Committee meeting. Count de Martel, Colonel Peel, Mr. Hioki and Mr. Strawn voiced objection to the naming of a specific [Page 807] sum and Mr. Strawn once more reminded the Chinese Delegation that the American Delegation had announced last November that they were willing to let China have the 2½ per cent authorized by the Washington Treaty and the Chinese Government declined to accept it because it feared that acceptance would result in the interim surtaxes not being provided. However, the present negotiation, Mr. Strawn pointed out, should plainly show that the foreign Delegations were both willing and anxious to allow surtaxes higher than those authorized by the Washington Treaty. These negotiations, he considered, had progressed satisfactorily, but had not reached the point where it could be said that $90,000,000 was the sum required to meet China’s needs. He thought it premature to name any specific sum and to obviate this difficulty Mr. Oudendijk proposed that after the words in the American resolution “whereas the representatives of the Powers assembled at this Conference are engaged in the negotiation of a treaty wherein provision is to be made for the levying of surtaxes at higher rates” there should be added the phrase “with a view to meeting the amounts required for the various purposes which are being considered at this Conference”. Mr. Oudendijk thought that this might satisfy the Chinese Delegation and at the same time, not mention the amount to which most of the Delegations had objected. Dr. Yen replied that the Chinese Delegation laid great emphasis on the figure and Mr. Strawn supported Mr. Oudendijk’s suggestion, saying that the Delegates were earnestly endeavoring to meet the wishes of the Chinese Government and that he could not see how it would be encouraging or discouraging to anybody to state the amount. The point was not decided and the subcommittee passed on to the question of impounding the funds, the Luxury List and other phases of the resolutions. Colonel Peel supported the American resolution and he suggested a committee of experts to consider the question of classification of luxuries and the simplifying of procedure in administering the Customs laws. In this connection Mr. Strawn suggested that a simple way of disposing of the matter would be to prepare a list of commodities paying 5 per cent and then to have all other commodities pay 2½ per cent. His idea was to make the luxuries definite so that there would be no difficulty for the Customs Administration to determine which were luxuries and which necessities. Dr. Yen remarked that the idea of the American Delegation that the levying of both surtaxes should commence at the same time was an excellent one and Mr. Strawn, in reply to a suggestion from Colonel Peel that there would be a further long period of waiting unless the Delegates were given a simple list of luxuries, said that the idea the American Delegation had in mind was that China was just as much entitled to the 5 per cent as to the 2½ per cent and the quicker this was granted the better it would be.[Page 808]
Mr. Hioki at this point raised a question as to the effective date of surtaxes, and Mr. Strawn said that it would be two months after the signing of the resolution, provided, however, that goods shipped into China before the expiration of two months should pay only the duties then in force. Mr. Hioki thought that it would be fair that the levy should begin on the arrival of the goods since if they should decide to make the new duties effective on the date of shipment the Japanese goods would arrive in China much earlier than goods shipped from Europe. Mr. Strawn remarked that if the case were otherwise Japan would have two months’ advantage over the other countries. It seemed to Mr. Oudendijk, also, that if the case were otherwise it would give Japan a much longer period during which Japanese goods could still come in at the lower rate. Mr. Strawn said that the sole purpose was to place every country on a parity. As this question gave promise of prolonged debate without arriving at any definite decision, Mr. Strawn passed on to the next paragraph of the American proposal which provided that the increased revenue which would accrue from the Washington Treaty surtaxes should be held by the Customs Administration for the purpose of being applied to the carrying out of such plans as shall be agreed upon by the Conference and that the funds should not be pledged or hypothecated to secure any indebtedness. In explaining this provision Mr. Strawn said that it was not intended as a reflection on the gentlemen who were trying to negotiate the treaty, but had been put in as a protection to the Chinese Delegation in anticipation of the importunities of Tuchuns and warlords by putting it beyond the power of anybody to raise any money on that anticipated revenues. Dr. Yen objected to this provision and said that the Chinese Delegation could not consent to the imposing of such humiliating conditions, whereupon Mr. Strawn remarked that they were not humiliating, but protective, and that in view of the financial situation in China the problem might just as well be faced squarely and frankly. Count de Martel supported Mr. Strawn, remarking that the last loan floated was secured on funds available after two years, for which reason he considered that there should be some guarantee against such transactions. Count de Martel said that he was ready to adhere to practically all of the American proposal because it covered nearly all of the ground in the French proposal and was better worded. Mr. Hioki said that he considered the American draft better than the Chinese draft, but he could not commit himself until he had made a more thorough study.
At this point in the proceedings the third paragraph was reached and Mr. Strawn offered an amendment which would omit any reference to the “ninety million dollars” or to any other specific sum, merely “authorizing the levying of surtaxes at rates higher than [Page 809] those provided in Article III” of the Washington Treaty. Dr. Yen again entered protest against omitting the ninety million dollars from the paragraph and finally said that the Chinese Delegation would make a reservation on the point. Other paragraphs more or less technical, were read and discussed in order, but no definite decision concerning any of them was reached, it being the sense of the meeting that the questions should be considered by the technical advisers.
On reading the last paragraph of the American proposal, Dr. Yen again entered vigorous protest against the provision prohibiting the pledging or hypothecating of any of the accumulated funds. He thought that this phase of the matter could be covered by the clause, “the proceeds of these surtaxes shall be employed for such purposes and subject to such conditions as this Conference may determine.” Dr. Yen said that the Chinese Delegation could not go beyond the plain terms of the treaty. He contended that there was no occasion to provide a protective measure, but Colonel Peel and Mr. Strawn dissented from this view, the latter because he wanted to make certain that the militarists could not seize the funds. A prolonged discussion ensued covering this paragraph and numerous amendments were offered, but no definite decision was reached. The insistence of Dr. Yen that the wording of the Washington Treaty should be followed and that no reference to “custodian banks” should be made in the last paragraph made it impossible to agree upon a resolution (see pages 30, 31 and 32 for texts of Chinese and American resolutions relative to levying the Washington surtaxes).
Sub-Committee to Draft a Resolution on the Levying of Interim Surtaxes, Second Meeting, February 24, 1926.
At the second meeting of the Sub-Committee appointed by Committee II to draft a resolution on the levying of the interim surtaxes, Dr. Yen, the chairman, submitted an amended draft of a resolution designed to effectuate the Washington Treaty. (See page 34 of Minutes of February 24, 1926). Dr. Yen said that the amended draft was based largely on the one previously submitted by the American Delegation. The first and second paragraphs followed exactly the words of the American resolution, but the third paragraph was altered so as to bring in the sum of ninety million dollars in the preface. Mr. Strawn immediately protested this wording and said that he saw no necessity for inserting the figure and suggested that it be omitted. Mr. Hioki offered an amendment designed to obviate the necessity of inserting a specific amount in the resolution and Colonel Peel said that none of the foreign members of the subcommittee wished to commit themselves in the preamble to anything in the new treaty. Dr. Yen persisted in his effort to prevail [Page 810] on the foreign Delegates to consent to the naming of $90,000,000 as the sum which was to be raised and the foreign Delegates, in turn, as strongly opposed any such commitment. Mr. Oudendijk attempted to conciliate the differences and suggested that the words, “with a view to meeting the amounts required for the various purposes which are being considered at this Conference”, be substituted for the so-called ninety million dollar clause. Mr. Oudendijk considered that this wording was substantially the same as the Japanese wording. Mr. Strawn agreed, on behalf of the American Delegation, to accept the Japanese draft, as did Count de Martel, who also said that he would be willing to accept the Chinese draft if the Chinese Delegation would be willing to omit the figure $90,000,000. Mr. Oudendijk again attempted a compromise wording but Mr. Strawn said that the American Delegation considered it to be entirely out of place to make any mention of the $90,000,000 because it was necessary first to know the purposes to which the money would be put and the rates which would be required; that the foreign Delegations were working to that end intelligently, faithfully and persistently. Once more Mr. Strawn emphasized the desire of the American Delegation to give the 2½ and 5 per cent surtaxes at once and also to negotiate a new treaty giving additional revenues to the amount required to meet the needs of the Chinese Government. Mr. Strawn expressed the fear that a great deal of misapprehension would arise in America, as well as in China, if the Delegates agreed to the raising of the 90 million dollars without the purposes having been defined. He did not wish a false impression to go out and he did not understand why, when they were approaching an agreement on the subject, the Chinese Delegation should insist upon naming in the resolution the sum of 90 million dollars as the amount required, particularly since the resolution dealt with the 2½ and 5 per cent treaty surtaxes and not the larger interim surtaxes. Mr. Strawn stated that he had no objection to an amalgamation of the Chinese and Japanese resolutions except that he would insist, persistently and continually, for the reasons he had already named, that there should be no insertion of a specific amount in the resolution. After a further unsuccessful effort was made to reconcile the differences in the resolution under discussion, Dr. Yen said that he would insist on his reservation regarding the 90 million dollars, whereupon Count de Martel observed that he thought the item was being inserted for the purpose of obtaining credit. Dr. Yen then suggested that the subcommittee make its recommendations to Committee II and let that Committee decide the point, but Mr. Strawn considered that plan futile because at the last meeting of Committee II not a single foreign Delegation had expressed a willingness to accept the item, [Page 811] although, if it chose to do so, the Chinese Delegation could make a minority report and the full Committee could accept either the majority or minority report. Further efforts to conciliate the differences were made by Mr. Oudendijk and others, but a compromise could not be agreed upon because of the persistency of Dr. Yen in declining to accept any draft which did not contain the 90 million dollars item. A large number of amendments were offered designed to satisfy the Chinese viewpoint, but they were all promptly and emphatically rejected because they did not concede the 90 million dollars.
Dr. Yen considered that it would be better to permit the 2½ per cent surtax to go into effect at once and the 5 per cent tax on luxuries to go into force at a later date, not exceeding two months, in order to allow more time for preparing a list of luxuries. Mr. Strawn assented to this, although he felt that it would simplify matters if both rates went into force at the same time. A discussion ensued as to whether the 2½ and 5 per cent surtaxes should be based on actual rates then being paid which were slightly less than the rate of 5 per cent provided in the Customs treaty. It was brought out that one of the periodical revisions of the schedules of rates would probably be necessary within the next few months. It was agreed that the Inspector General of Customs should be consulted concerning this point. Colonel Peel said that in his opinion, it would be preferable to have the 2½ and 5 per cent surtaxes go into effect at the same time and that everything should be done to simplify administrative matters. He emphasized the need for a short luxury list and suggested that the advisers be instructed to prepare one at once, in which suggestion Mr. Strawn concurred. A rather prolonged discussion took place as to the effective date of the new rates and Mr. Hioki was pronounced in his view that the levying of the new duties, after due notice had been given, should, as is the universal practice, begin at the moment the goods have arrived at the port of entry. This, he considered, would be a simple method of procedure, and would place all goods on an equal basis at the customs houses. Mr. Strawn and Colonel Peel contended for the date of shipment rather than for the date of arrival for putting into force the new rates. The advantages and disadvantages of the two proposals were discussed at length, during the course of which Mr. Oudendijk suggested the deletion of the words “country of origin” and the substitution of the words “goods shipped to China”, his point being that the country of shipment was not always the country of origin. Both Mr. Strawn and Colonel Peel agreed with Mr. Oudendijk’s views on this point. As the discussion developed very divergent views and [Page 812] technical phases of the question arose, it was deemed advisable to refer the matter to a committee of technical advisers.
Mr. Hioki proposed an amendment to the last paragraph of the Chinese proposal concerning the impounding of the revenues derived from the surtaxes and the custodian-ship of the funds (see page 27 of the Minutes of February 24, 1926). This amendment was a remodeling of the American proposal. The provision relating to custodian banks provoked considerable adverse criticism and in reply to Mr. Strawn’s inquiry as to the purpose of the last line of his suggestion, “in such manner as shall have been agreed upon at this Conference”, Mr. Hioki stated that that referred to the principle upon which the Customs revenue was to be apportioned to the different banks, whether it was to be according to the credit which each nation had, or to the trade, or to something else. A series of amendments were then submitted designed to simplify the language and to provide a guarantee against the dissipation of the funds. In discussing the amendments Dr. Yen again referred to the 90 million dollar clause and said that the Chinese Delegation would be prepared to go as far as possible to meet the wishes of the foreign Delegates in regard to the security of the funds. He referred to Count de Martel’s statement that the foreign delegates did not want to name the figure because they feared that the Chinese Government might use the money, or that figure, as security for making a loan. Count de Martel replied that his objection was made because he happened to remember an instance in which the Chinese Government pledged the surtaxes contemplated in the Washington Treaty within a few months after the end of the Washington Conference, and that evidence to this effect was in the files of the French Delegation. Dr. Yen said that he had no knowledge of such a transaction but that there were certain instances when foreign creditors had insisted upon the proceeds of the 2½ per cent surtaxes being guaranteed to them. Count de Martel said that the case he had in mind was the Kiangnan Arsenal at Shanghai in connection with which the Minister of Finance offered the surtaxes as security. Count de Martel said that he would favor ruling out such a pledge and Colonel Peel expressed a similar view and said, too, that the surtaxes had also been pledged to secure payment of certain British creditors. The sub-committee returned to a discussion of Mr. Oudendijk’s amendment designed to take the place of paragraphs 3 and 4 of the Chinese draft and reconcile the differences between the Delegates concerning the reference to the $90,000,000, but it developed that no agreement could be reached and the sub-committee adjourned (see page 34 of Minutes of February 24, 1926, for Japanese draft resolution on effectuating the Washington Treaty).[Page 813]
Technical Committee to Draw up a List of Luxuries, First Meeting, February 25, 1926.
Pursuant to the desire of the subcommittee appointed by Committee II to draft a resolution to levy the Washington surtaxes, the Committee of Technical Advisers met on February 25, 1926, to draw up a list of luxuries for submission to the sub-committee above mentioned. The Chinese Technical Advisers submitted two tables, one giving the estimated revenues to be derived from surtaxes shown in Yin 67 and the other the estimated revenues on the basis of certain percentages (see pages 2 and 3 of Minutes of February 25, 1926). Mr. Stewart of the British Technical staff inquired what amount it would be expected the Washington surtaxes would produce. He surmised, by a method of calculation based on luxuries listed in “A”, “B” and “C”, that the amount would approximate $3,200,000. Mr. Perkins read pertinent portions of the Washington Treaty and said that the matter of arriving at what constituted a luxury rested entirely in the discretion of the Conference. He suggested that the lists of “A”, “B” and “C” grade articles should be taken as a tentative basis of discussion, with the understanding that any Delegation could make a reservation, for good and substantial reasons, on any particular item which they did not believe to be properly placed. Mr. Perkins made it plain that the lists were purely tentative and were not intended to have any bearing on or any connection with the interim rates of surtaxes which were to be incorporated in the proposed new treaty. The chairman remarked that according to Mr. Perkins’ suggestion, “A”, “B” and “C” grades would yield $9,063,000, which answered Mr. Stewart’s inquiry, and that grades “D”, “E”, “F” and “G” would yield $23,456,000, making a total of $32,519,000 which could reasonably be expected, if the figures submitted by the Chinese were correct. Mr. Hornbeck suggested that the purpose of the meeting was to discuss the division between the 2½ per cent and the 5 per cent and to draw up a schedule for the 5 per cent luxuries to be levied under the provisions of Article III of the Washington Treaty and not to discuss any amounts of money to be raised.
Mr. Stewart suggested that to begin the discussion, the Advisers should accept at once and without alteration “A” and “B” in the Chinese classification as coming within the 5 per cent basis.
Mr. Hornbeck objected to this because he feared that the acceptance of these two classes might ultimately lead to including in the luxury list only the commodities in those two grades. He said that the attitude of the American Advisers in regard to “A” and “B” depended somewhat on the attitude of the other Advisers in regard to articles in Class “C”. The plan of procedure adopted was that the chairman should read out the list item by item, and ask if any [Page 814] one had any objection to the inclusion of a particular item in the 5 per cent list.
Beginning with the Commodities in Class “A” the list was read item by item and various reservations were made.
There had been such a large number of reservations on the “A”, “B” and “C” lists that at the suggestion of Mr. Stewart, concurred in by Mr. Perkins, it was deemed inadvisable to proceed to the reading of the “D” and “E” classes of commodities.
It was agreed to leave these two lists for consideration at a further meeting, at which the reservations made on the “A”, “B” and “C” could be adjusted. For a table of estimated revenues derivable from the proposed surtaxes see Appendix 1, Minutes of February 25, 1926, and for a table showing the value of the import trade of China for 1924 on which duty was assessed see Table I in same Minutes. For value of “free goods” see Table II and for value of dutiable goods specially exempted from duty in 1924 see Table III in Minutes of February 25. In the same Minutes may be found the Tables, with explanatory notes, showing the items in Grades “A”, “B”, “C”, “D”, “E”, “F” and “G”.
Technical Committee to Draw up a List of Luxuries, Second Meeting, March 2, 1926.
At the second meeting on March 2 of the Technical Committee to Draw up a List of Luxuries, Admiral Tsai submitted a list of all the articles on which reservations had been made by the different members of the Technical Committee, together with a table showing the rates of import duties in foreign countries on the goods on which reservations had been made, and also a list of the revised terms in Classes “A”, “B” and “C”. These documents may be found on page 2 et seq of the Minutes of March 2, 1926.
Mr. Saburi read from the Minutes of the Washington Conference, in connection with the inquiry made by Mr. Stewart at the last meeting as to the amount of revenues expected from the Washington surtaxes, showing that Senator Underwood’s estimate was $46,167,000.5 Mr. Saburi pointed out that this figure differed greatly from the figure named at the last meeting. Admiral Tsai remarked that the situation in China was now quite different from what it was at the time of the Washington Conference. Mr. Stewart emphasized the need of disposing of the Washington surtax question with as little delay as possible as the American Delegation had originally proposed, so that the Conference would be free to deal with the new situation which had arisen since the Washington Conference. He expressed the, hope that everyone would show the same liberal spirit and open-mindedness which would help matters along.[Page 815]
The chairman proceeded to read out the list of reservations item by item and in a considerable number of cases the reservations were maintained, but in others they were withdrawn. The few reservations made by the American Advisers at the previous meeting were withdrawn and Mr. Hornbeck announced that the American Advisers were willing to accept the “A”, “B” and “C” lists in their entirety. As a possible means of speeding up the work, Mr. Hornbeck expressed the hope that other Delegations would also withdraw their reservations on at least some items. Following this suggestion several individual reservations were withdrawn and the Portuguese, Norwegian, Swedish and Danish representatives all, in turn, pursuant to the American suggestion, accepted in toto, the “A”, “B” and “C” lists. The meeting developed that there still remained 14 reservations in the “C” class, but since 11 items had been transferred out of “D” and “E” there seemed to be substantially a balance and that it was therefore considered that it was in order to report the lists to the subcommittee to levy the Washington surtaxes.
Sub-Committee to Draft a Resolution on Levying Washington Surtaxes, Third Meeting, March 8, 1926.
At the third meeting of the Sub-committee to Draft a Resolution on Levying the Washington Surtaxes, the chairman stated that Mr. Strawn had been good enough to prepare a composite draft of the resolution embodying the various ideas which had been brought forth at the previous meetings and that with but few changes the Chinese had practically adopted the same wording in their draft, which he proceeded to read to the sub-committee. (See pages 1 and 2 of Minutes of March 8 for revised Chinese draft.) The first three paragraphs were approved without amendment, but the fourth paragraph brought on considerable discussion and several amendments were offered. Dr. Yen suggested that they revert to the original Chinese idea, but both Colonel Peel and Count de Martel warned that it would be useless to attempt again to bring in the 90 million dollar clause. The chairman, however, further along in the discussion stated that the Chinese Delegation thought it would be better to insert this figure in the fourth paragraph and that an oral reservation would be made regarding it. He proceeded to read the fifth paragraph of the preamble and thereafter the first paragraph of the resolution itself. He insisted that the principle of making the duties effective at date of landing instead of date of shipment should be maintained. He explained that it was not so much the amount of money involved as it was a desire to establish a principle that prevailed in practically all other countries. He expressed a desire that the procedure would be so arranged that no injustice or hardship would befall the merchants [Page 816] of countries remote from China. The matter of the effective date brought on considerable discussion and Colonel Peel remarked that as contracts were all based on the date of shipment to enforce the principle of the date of landing would produce a great deal of confusion in the business world as the merchants would suddenly be confronted with a different rate. Various suggestions were made to conciliate this question but it was found impossible to arrive at a satisfactory solution. The Japanese insisted upon the date of landing, whereas Colonel Peel and others insisted upon the date of shipment. A considerable number of amendments designed to simplify administrative features of the paragraph were offered and practically all of them were rejected. Several of the Delegates thought it advisable to adhere to the usual practice in China of giving at least sixty days’ notice. Colonel Peel announced that he would not, under any circumstances, accept less notice than sixty days. Mr. Strawn announced that he would not be disposed to change the practice with reference to notice so as to accelerate the effective date and thereby preclude his nationals from completing contracts which they might have with the Chinese for the delivery of goods. He anticipated that if such a change were made there would be protests and in any event he did not consider that the American Delegation had authority to give their assent to a change of this character. He emphasized the point that he wished to move along the line of least resistance otherwise it might delay the effectuating of the Washington Treaty. Mr. Hioki continued vigorously to oppose the adoption of the date of shipment, but notwithstanding the efforts of Mr. Oudendijk to reconcile the differences, the question remained unsettled.
Mr. Strawn emphasized the need of avoiding controversial subjects by pursuing the methods that hitherto obtained in China, so that nothing would arise to prevent the new tariff duties from becoming effective at the earliest possible moment.
The paragraph relating to the impounding of the increased Customs revenues, free from all encumbrances, by the Chinese Customs Administration was then read for discussion and the chairman explained that the Chinese Delegation had practically embodied the ideas of the other Delegations in this paragraph. He explained further that in order to avoid any prejudicial or controversial questions, the Chinese Delegation had used the exact wording of the Washington Treaty as concerns purposes and conditions. The last part of the Chinese Delegation’s original resolution had therefore been changed to read “as for such purposes and subject to such conditions as the Special Conference may determine”. Various amendments were offered to this paragraph, the most important one being that of Mr. Hioki who suggested that at the end of the paragraph a reference should be made to the question of custodian banks. He submitted a revised form (see [Page 817] page 26, Minutes of March 8, 1926) and said that the “custodian banks” mentioned in his draft would be different from the so-called custodian banks at present, and that as to the manner of deposit of the money, it was intended to propose a different basis from that in effect at the present. The chairman objected to taking up the question of custodian banks on the ground that he did not wish to complicate the question under consideration. Mr. Hioki replied that the 2½ and 5 per cent surtaxes could not be levied unless the Conference fixed the purposes and the conditions and the date, and that in his opinion the fixing of the custodian banks was one of the conditions which was meant in the Treaty. Colonel Peel remarked that he was quite content to leave the matter of the deposit of the surplus funds to the Chinese Government and the Customs Administration. Mr. Strawn said that he thought the revenues ought to be divided among the different banks of the several countries. The chairman continued vigorously to oppose the inclusion in the agreement of any provision relating to custodian banks, preferring, as he said, to defer the matter until the question of levying the interim surtaxes should be taken up. Mr. Strawn said that his solicitude about deferring the proposition to a later date arose from the fact that he desired to safeguard these revenues in such a way as to put them beyond the power of anyone to put any lien on them. Since the sub-committee was unable to agree upon this point, Mr. Hioki made a reservation on the question and proceeded to read a proviso which he deemed prudent to add to the paragraph which had just been under discussion. (See page 30 of Minutes of March 8, 1926.) The purpose of this proviso was to guard against the contingency of an inability to agree upon the distribution of the money collected from the surtaxes in which event the money already accumulated was to be disposed of by the Conference. Mr. Strawn said that he did not believe that the situation justified Mr. Hioki’s apprehension that the Conference might possibly not agree upon the purposes to which the funds would be applied. Since it was not possible for the sub-committee to agree on this paragraph, adjournment was taken with the understanding that at the next meeting the questions of shipping and landing and of custody of funds would be taken up.
(See Appendix I for Japanese [Chinese] draft of resolution relative to the levying of Washington surtaxes and Appendix II for the American draft on the same subject, Minutes of March 8, 1926)
Sub-committee to Draft a Resolution on the Levying of the Washington Surtaxes, Fourth Meeting, March 12, 1926.
At the Fourth Meeting of the subcommittee to draft a resolution on the levying of the Washington surtaxes, held on March 12, 1926, the chairman announced, at the beginning of the meeting, that there [Page 818] were only two or three points on which agreement could not be obtained at the last meeting, on the resolution implementing the Washington Treaty. The question of the date of shipment arose and Colonel Peel remarked that at the previous meetings he had objected to the principle of the date of landing on the ground that it would be a handicap to British trade and he said that he was still of that opinion. However, he announced that he had been instructed by his Government to abandon, for the sake of harmony, the principle of the date of shipping if they were allowed three months’ notice from the date of passage of the resolution. Count de Martel supported Colonel Peel in this position. The chairman emphasized the need of introducing the surtaxes with as little delay as possible and said that every day of delay would cause less money to be available to meet the purposes which might be agreed upon. He considered that the Chinese Delegation had been very liberal in consenting to give seventy days’ notice, which was only a difference of about twenty days from the three months’ period suggested by Colonel Peel. Mr. Strawn concurred in Colonel Peel’s suggestion and Mr. Oudendijk expressed a desire to expedite the passage of the resolution with as little further discussion as possible. Mr. Hioki said that his proposal in connection with using the date of landing was based strictly upon a question of principle and that so long as that principle was admitted he had no objection to the ninety days’ notice. The chairman, however, declined to agree to the three months, saying that the original idea was only one month, which had been changed to a month and a half, and ten days and again to two months and ten days, and now the Delegates had asked for ninety days. He felt compelled, therefore, to make a reservation on the point.
The sub-committee passed on to the paragraph relating to the custody of the funds and Mr. Hioki submitted a new draft on this point, prepared by the Japanese Delegation6 (see page 4 of Minutes of March 12, 1926). Dr. Yen said that the Japanese draft introduced an entirely new idea, that in his opinion the proviso defeated the very purpose for which the sub-committee was sitting, that is, the subcommittee [Page 819] was trying to agree upon the levying of surtaxes on a certain day and the proviso practically made it impossible for the surtaxes to become effective on that day. He disliked also to note what he called an implied want of confidence in the work of the Conference and that it seemed to be an admission that the Conference had done almost nothing and that there was little likelihood of anything being done by June 15. A further objection was that the Japanese proviso would be a weapon which could be used to upset the Conference entirely, since there might be disagreement as to the purposes and conditions, in which case it would be possible, in effect, to cancel the Washington Treaty. Mr. Hioki took issue with Dr. Yen and stated that if the Conference allowed the Chinese Government to begin the levying of surtaxes without fixing the conditions, then they were in position to violate the Washington Treaty. He considered that the proviso, instead of delaying matters indefinitely, would impel them to finish their work with greater energy than before because they would all be determined to come to an agreement just to avoid the difficulties to which they might be brought by force of circumstances. He said that he had offered the proviso with the best of intentions and in the hope of arriving at a conclusion at the earliest moment. Dr. Yen replied that the latter part of the first sentence of Mr. Hioki’s draft, namely “to be applied later for such purposes and subject to such conditions as shall have been agreed upon at this Conference” practically covered all that was necessary or essential, so that he did not see the necessity of the negative side of the proviso. Dr. Yen remarked that the main purpose was to make provision for the safe-keeping of the revenues and to make it impossible for others to tamper with them. Mr. Strawn remarked that he could not share the chairman’s solicitude in any of the respects he had voiced concerning Mr. Hioki’s resolution. He said that he did not wish to be unpleasant by recurring to the fact that the American Delegation had offered last fall to put the Washington surtaxes into force, which offer had been rejected by the Chinese, and that had they availed themselves of the opportunity, the Conference could have proceeded immediately to consider the subject of conditions and purposes. He did not consider that the resolution manifested any lack of confidence on the part of the Powers, and he pointed out that if there were such a lack of confidence it would impel them not to do anything about the treaty until the purposes and conditions had been agreed upon. A lengthy discussion ensued particularly on the subject of purposes and Mr. Oudendijk pointed out that the purposes which the Conference should agree upon would be exactly the same for the 2½ per cent surtaxes as they would be for the surtaxes of the interim period. Mr. Oudendijk also said that he concurred with Mr. Hioki’s view that the Japanese proposal would [Page 820] accelerate the work of the Conference. Count de Martel also shared this view. However, the chairman remained obdurate. In the course of the discussion Mr. Strawn expressed the view that the purposes and conditions connected with the 2½ and 5 per cent surtaxes were likewise applicable to the interim surtaxes and that there was no difference in principle as between the two. Count de Martel then pointed out that if they proceeded to levy the surtaxes without having agreed upon the purposes, they were no longer within the scope of the Washington Treaty. Mr. Hioki continued to press his resolution and said that there was no better evidence of the bona fide intentions of the foreign Delegates than the discussions about the 90 million dollars; that this controversy showed the difficulties under which the foreign Delegates were attempting to do their work. Failing to arrive at an understanding on this point, the sub-committee passed on to a discussion of the provision relating to custodian banks. The chairman opposed the Japanese proposal on the grounds, as he had said before, that he did not wish to prejudice a future case by discussing a question then which ought only to be discussed later. He considered that this question belonged exclusively to Committee III, which Committee, Mr. Oudendijk pointed out, had not then been created. Mr. Oudendijk concurred in the suggestion that the question properly belonged to Committee III, if and when appointed, and he suggested to Mr. Hioki that the paragraph should not be insisted upon at that time. On the understanding that the question would be taken up and discussed in another Committee, therefore, Mr. Hioki said that he was willing to defer the question. In summing up the action taken by the subcommittee, the chairman said that they had practically agreed on everything except the proviso and the period of three months’ notice.
Sub-Committee to Draft a Resolution on the Levying of the Washington Surtaxes, Fifth Meeting, March 18, 1926.
In calling to order the fifth meeting of the Sub-Committee to Draft a Resolution on the Levying of the Washington Surtaxes, the chairman announced that they were practically agreed on the preamble and the first part of the body of the resolution but that there was still a reservation on his part regarding the length of time as to notification and that the Japanese proviso submitted at the last meeting did not have the approval of the Chinese Delegation. After reading the Japanese proviso in an amended form, proposed by the Chinese Delegation (page 1 of Minutes of March 18, 1926), the chairman reviewed the course of the discussion at the last meeting and at some of the other meetings of the subcommittee. In concluding his review the chairman expressed the earnest hope that they could come to some sort of conclusion on that day. Mr. Hioki said that he saw no reason why the Japanese [Page 821] proviso should be amended as he understood that it had been agreed upon by all of the members of the sub-committee except the Chinese at the last meeting. He said also that he must frankly confess that he then saw greater need of adopting the proviso than prevailed at the last meeting. He saw difficulties in fixing the percentage of the allocation of the sum and, if this question should be settled, it would then follow that the question of the custodian banks would have to be brought up again. For these reasons he thought it would be better to drop the amendment and agree to the original proviso which was almost approved by the sub-committee at its last meeting. Mr. Hioki and Count de Martel referred to certain loan negotiations which had created suspicion and which had made it more necessary than ever to guard against the dissipation of the funds. In the course of the discussion Colonel Peel said that he rather preferred the original American draft on this subject but Mr. Hioki said that he was not prepared to accept that draft, whereupon Mr. Strawn said that at the last meeting he had, on behalf of the American Delegation, agreed to accept the Japanese draft, and that he did not consider it prejudicial in any way to the rights of the Chinese Government. The chairman again expressed the willingness of the Chinese Delegation to accept the American draft with perhaps the change of a word or two but they could not accept the Japanese proviso. Count de Martel reiterated his support of the Japanese draft but the chairman was unwilling to give his assent and he suggested that the Chinese, Japanese and American drafts should be submitted to the full committee. Mr. Strawn, Colonel Peel and Count de Martel considered that this would not be a procedure which would expedite matters and Mr. Strawn suggested that the matter lie dormant until an agreement could be reached. Mr. Oudendijk, in an effort to have the committee arrive at a definite conclusion said that he thought the question should be further discussed with a view to overcoming the difficulties. He thought that a mere postponement would be of no use and he urged the subcommittee to accept the Japanese proposal as it stood. He could not see that it involved any danger to the Chinese Government, and as he had previously said, would expedite the work of the Conference. He strongly urged the Chinese Delegation to reconsider its position and to come to an agreement which he thought was also the position of the other five members of the subcommittee. Mr. Hioki said that the only alternative which the Japanese Delegation would accept was that the levying of the surtaxes should be allowed to begin only when the conditions and purposes should have been agreed upon. The chairman said that it seemed useless to discuss the matter further and that Mr. Strawn’s suggestion to defer action would be followed. After considerable further debate it seemed reasonably [Page 822] certain that the Chinese would yield no ground with reference to the Japanese proviso and with reference to the ninety days’ notice. Count de Martel, at this point, reminded the Chinese Delegation that with reference to the landing they had won on principle and the chairman replied that China had won on principle so often that he hesitated to win much more on it. The reading of the resolution, so far as it had been agreed upon, then took place (see pages 14 and 16 of Minutes of March 18, 1926). With certain corrections noted it appeared that the resolution had the unanimous approval of the Delegations composing the sub-committee, with the exception of the Chinese Delegation who had made three reservations, one with respect to the 90 million dollar clause; another with respect to the three months’ notice and a third with respect to the Japanese proviso. Adjournment was taken with the understanding that the chairman would consider the question whether the sub-committee would make a majority and a minority report, or whether they would allow the matter to stand in statu quo holding another meeting with a view to arriving at a definite understanding.
Technical Committee to Draw up a List of Luxuries for the Levying of the Washington Surtaxes, Third Meeting, April 9, 1926.
The third meeting of the Technical Committee to Draw up a List of Luxuries for the Levying of the Washington Surtaxes, was held April 9, 1926, and various items on the so-called Luxury List which had been discussed at previous meetings were taken up and disposed of. Considerable discussion took place as to whether the classification of an article by number would be the guide for the Customs authorities in determining the duty to be paid upon a given commodity. Since there had been some confusion in the numbers in making up the revised list considerable difficulty was encountered in fixing the exact classification of some of the commodities previously agreed upon. With a view to simplifying matters Mr. Hornbeck suggested that the practical thing to do was for the Chinese Delegation to withdraw from the list then under discussion such numbers as did not appear in the list which they had discussed and agreed upon at the last meeting. As Yin 77 was the list referred to, a checking up of the numbers of the two lists (Yin 77 and Yin 85) showed considerable change of numbers of commodities, and the sub-committee consumed considerable time in straightening out this tangle. Practically all of the time of this meeting was consumed in discussing articles which had by rearrangement been transferred from one list to another, or added to a list through the interchange of certain index numbers. The chief difficulty of the Advisers was in arriving at a definite idea as to what constituted the articles in Classes “A”, “B” and “C”, and also to determine whether they would use the index [Page 823] numbers or the names of the articles in making up the final list. Mr. Fox suggested that there be but one list prepared, namely a list of articles paying 5 per cent, and that all other articles would be considered as paying 2½ per cent surtax. Mr. Saburi said that the Japanese Delegation was preparing a list according to tariff numbers only and that it would be submitted in due course. Mr. Van Haute of the Belgian Delegation said that he would also prepare a list giving the tariff numbers. It was finally agreed that the Chinese Delegation should prepare a complete new list giving the tariff number and the definition, and that the list would be circulated with the time allowance of one week within which any Delegation might make a recommendation or reservation as to a particular item. (See Appendix I, Minutes of April 9, 1926, for revised list of articles liable to a total surtax of 5 per cent; commodities being re-arranged so that all goods of the same kind are kept together; See Appendix II for list of articles liable to a surtax of 5 per cent as agreed upon at the meeting of March 2, 1926; See Appendix III for list of articles reserved by certain foreign Technical Advisers for further consideration at the meeting held on March 2; see Appendix IV for summary of replies from foreign Delegations in regard to articles liable to surtax of 5 per cent and articles reserved for consideration.)
The first section of this report having been confined to a review of the proceedings of the formal sittings of the Conference and its Committees and Sub-committees, it seems appropriate now to give a brief resume of the proceedings of the informal meetings of the Delegates and the Technical Advisers which have been held at intervals since October, 1925, at the headquarters of the various foreign Delegations.
Much of the real work of the Conference has been accomplished at these informal sittings which have become more and more necessary as the local political situation became increasingly chaotic. Several of the Chinese principal Delegates and Advisers having fled from Peking in March and April, and the two remaining Chinese Delegates, Dr. Yen and Admiral Tsai Ting Kan, having been principally engaged in trying to find means of preserving order and reestablishing a Government, only a few formal meetings were held after the middle of March. Since the informal meetings were held at irregular intervals and no fixed program was arranged, it is deemed advisable, for purposes of convenience, briefly to summarize, by subjects, the activities of the Conference as they developed at these meetings.[Page 824]
The principal subjects under discussion at these informal meetings were as follows:
- Likin and Tariff Autonomy
- Rates of Surtaxes
- Consolidation of Debts
- Washington Treaty Surtaxes
- Compilation of Tables
- Miscellaneous Questions Incident to the Conference.
No attempt will be made to go into details as many of the discussions involved meticulous consideration of technical questions which had no important bearing on the general work of the Conference. It will be sufficient, therefore, to give only a brief summary of the more important developments at these meetings and to enclose, for the purpose of a more complete record, copies of memoranda covering the meetings and of pertinent documents submitted from time to time on the several subjects under discussion.
Likin and Tariff Autonomy.
The question of Likin and Tariff Autonomy did not occupy the attention of the Delegates and Technical Advisers outside of the formal meetings to any considerable extent, except as it indirectly related to the question of Rates, Purposes and Debts. The principle of Tariff Autonomy and the abolishment of likin was discussed at length at formal Committee and Sub-committee meetings, and these discussions are summarized in Section I of this report. The discussion of these questions at the informal meetings took on the character of their bearing on the general work of the Conference, the definition of the word “likin”, the various taxes such as transit, consumption and destination taxes, the financing of likin abolition, likin revenues and general plans to enable the Chinese to effectuate the abolition of likin.
It seemed clear from the discussions that the British were more interested in likin than any other Delegation, and by common consent they took the lead in this question and evolved certain plans designed to make possible its gradual and ultimate abolition.
In general the British proposals contemplated leaving to the Chinese Government and the Provincial authorities, as far as possible, the actual abolition of likin, the foreign interest in the question being confined to agreeing to the imposition of a special likin compensation tax on foreign imports and articles manufactured by foreigners in China, the proceeds of which would be allocated to the Provinces in lieu of likin. In return for the acceptance by the foreign Powers of the likin compensation tax, it was proposed that the Chinese Government should, first, undertake to impose the said tax impartially on all foreign [Page 825] imports and on Chinese and foreign local manufactures and products paying excise; second, to allocate the proceeds of the tax to the Provinces in lieu of likin; and, third, to free all goods paying the likin compensation tax from likin and all other internal taxation. It was to be understood that the Chinese Government would obtain the cooperation of the Provincial authorities in enforcing any plan which might be adopted, and that the principle of uniform taxes for foreign and domestic goods would be recognized both by the Central and Provincial Governments; that the likin compensation tax would be collected by the Maritime Customs and the proceeds deposited in banks to be designated by the Chinese Government at Shanghai as a special Likin Compensation Fund to be disbursed by a Likin Compensation Committee composed of representatives of the Central Government, the Provincial Governments and the National Association of Chambers of Commerce.
With reference to the definition of the word “Likin”, the British Delegation held that the abolition of likin meant the abolition of all dues on goods in transit and at destination, including taxes and fees levied on means of conveyance which fall directly on the goods themselves; that abolition should include the removal of all tax stations and barriers; that all foreign imports and local manufactures or products paying excise will be subjected to no taxation whatsoever except the regular import duties and excise, plus the likin compensation tax either merged therein or collected simultaneously therewith. While the American Delegation was disposed to leave to the British the details of working out a satisfactory plan for the abolition of likin, it did not entirely concur in the British plan.
The American Delegation, for example, was not disposed to favor the introduction of the idea of an excise on foreign and domestic goods because in agreeing to taxation of this kind the way might be opened up for the general taxation of all foreigners in China. The action of the foreign tobacco companies in agreeing, independently, to the payment of an excise on their products in China was cited and it was contended that the British plan, in this regard, simply meant the recognition of that system and its extension to other products. The American Delegation felt also that with an excise the question of rates of duty would be reopened, especially upon raw products, such as leaf tobacco, and that a lower rate might be required. The American Delegation was doubtful also of the advisability of accepting the suggestion that Provincial approval should be required in connection with any plan for the abolition of likin. Doubt was likewise expressed concerning the composition of the Likin Compensation Committee and it was the opinion of the American Delegation that there should be foreign representation on the Committee, that a Committee [Page 826] composed entirely of Chinese might not make a judicious expenditure of the funds. The American Delegation also felt that some provision should be made for a system of rebates, or other assurance, for the protection of the foreign trader in the event that transit passes and exemption certificates were not honored and additional taxes collected.
The Japanese opposed the British plan in several particulars, notably the rate of the Likin Compensation Tax, the omission of a refund system for illegally collected taxes, and the abolition of the coast-trade duty and the inland export duty. The Chinese likewise voiced objection to various phases of the British plan, particularly the treatment to be accorded native goods and the allocation to the Provinces of the likin compensation tax.
Generally speaking, the Chinese, endeavoring to impress upon the Delegates that this was a matter largely of domestic concern, contended for as much freedom as possible in concluding arrangements for the complete abolition of likin. No Delegation other than the American, British, Japanese and Chinese seemed to have any considerable interest in the matter of working out the details of likin abolition.
While the British plan was not definitely accepted, it may form the basis of further discussion when the active work of the Conference is resumed. Various memoranda and documents relating to these several subjects are enclosed herewith and are enumerated in the list of enclosures under the heading of Likin and Tariff Autonomy.7
Rates of Surtaxes.
Unlike the questions of Likin and Tariff Autonomy, the question of Rates of Surtaxes occupied to a considerable extent the attention of the Delegates and Technical Advisers in informal conferences. Perhaps more time was devoted to this particular subject than to any other phase of the work, with the possible exception of debt consolidation. Many interests directly concerned with the question of rates of duty to be assessed against a given article had representatives in Peking from the very beginning of the Conference. The tobacco and oil interests were particularly concerned and kept highly paid representatives here throughout the time the question of Rates was under discussion. The California Raisin Growers, automobile and tire manufacturers, ginseng growers, and various other interests were directly concerned and took occasion to express their views either in oral or written form. Many informal conferences were held with the tobacco and oil representatives who were most anxious to keep the rates at the lowest possible figure.[Page 827]
While there was general interest in the whole question of rates by all the Delegations, as evidenced by the official proceedings of the Subcommittee on Rates, the American, Japanese and British Delegations evinced much more interest in this subject than did the others. The Japanese were perhaps more vitally concerned, as the rates affected a wider range of Japanese commodities than of any other country. From the beginning it was clear that they would contend for as low rates as could be obtained, especially on low-grade cotton goods and low-priced commodities of Japanese manufacture. It was a slow and tedious process to bring them to assent to a program which would yield approximately $90,000,000, knowing, as they did, that such a program would require a substantial increase in rates over those they had at first expected to obtain. It was only by Mr. Saburi’s special trip to Japan in January that the Japanese Delegates were enabled to revise their program in such way as to fall in with the general desire to accord rates high enough to yield $90,000,000 per annum. The attitude of the American Delegation was one of liberality towards the Chinese as far as the American trade could consistently bear the burden. While tobacco was looked upon by the American Delegation as a luxury, care was taken not to allow the rate to be fixed so high that the trade in American raw tobacco would either disappear or be seriously affected. Oil took the grade of a necessity and revenue producer with a moderate rate. Great Britain’s prime interest was in high grade piece goods, woollens and sugar.
Practically all of the work of fixing the rates of surtaxes may be said to have been done in informal conferences among the Delegates and Technical Advisers. To have attempted to thresh out these questions in formal sittings of the Delegates or Advisers would have been a prolonged, and perhaps futile, task and the expeditious and satisfactory manner in which it was handled does great credit to the Technical Advisers who bore the brunt of this work. Much of it was of a technical character and involved a knowledge of values and commodities which some of the Delegates could not be expected to possess. It was for this reason that it was deemed advisable to leave this work largely to the Japanese, British and American Advisers.
The position of the American Delegation regarding rates of interim surtaxes was that as a tentative basis of negotiation, it was prepared to go as high as 25 to 30 per cent on manufactures of tobacco, 20 to 25 per cent on tobacco not manufactured, 25 to 35 per cent on wines, beers and liquors, which it was made plain were not American products. The American Delegation objected to the placing of shoes and boots, leather and soles, cream and milk, evaporated, sterilized or condensed, [Page 828] electrical materials, indigo and India rubber manufactures and a few other articles in the list of “B” Grade luxuries. On the broad principle of a schedule of rates the American and British Delegations favored higher rates, on an average, than those proposed by the Japanese. Except for individual items in the schedules, the other foreign Delegations did not evince any considerable interest in the question of rates, with the exception of the French and Italian Delegations, who followed the negotiations rather closely and submitted carefully prepared proposals and estimates.
The British and Italian Delegations proposed a 10 per cent flat rate on all imports, with surtaxes of a flat 5 per cent on “B” Grade luxuries and a flat 15 per cent on “A” Grade luxuries. The Japanese proposed a minimum rate of flat 7½ per cent on their low-priced imports into China and 10 per cent on some items admitted to be luxury goods. The American Delegation felt that a flat 15 per cent duty on all “B” Grade luxuries would bear very unevenly upon the commodities which had been listed as “B” Grade; that some commodities in the “B” Grade should bear less than 15 per cent and some more than 15 per cent. So many distinctions and apparent discriminations arose that the American Delegation proposed that there should be created, instead of the three classes already proposed, some six to eight grades of rates, ranging from low grade necessary goods at 7½ per cent to highest grade luxuries at 25 per cent, keeping in mind what rate a given commodity might bear without substantial diminution of the trade in it. This suggestion was adopted by the Chinese in revising their classifications. The American, British, French and Italian Delegations were in substantial accord with regard to the amount of revenues to be raised by the increase of duties and following numerous informal discussions a schedule of rates and classifications was finally agreed upon by the foreign Technical Advisers but the schedule has not yet been approved by the full Committee having jurisdiction over rates.
As concerns the Washington Treaty surtaxes, the general plan involved the preparation of a list of luxuries which would bear the higher surtax rate of 5 per cent and all other commodities to bear the 2½ per cent surtax. Many revisions were required and many schedules, estimates and tables were prepared, both as regards the interim surtaxes and the Washington surtaxes. A considerable number of these will be found as enclosures to this report, as also will memoranda showing the attitude of the various Delegations.8[Page 829]
Consolidation of Debts.
As in the case of Rates of Surtaxes, the question of the Consolidation of Debts required many informal conferences among the Delegates and Technical Advisers. In fact, except in an incidental way, this subject was discussed but little at any formal sittings of a committee or sub-committee. The interests, both foreign and domestic, were so divergent and the Chinese Delegates were so sensitive to a public airing of this question, that practically all discussion and negotiation in connection with this important phase of the Conference work took place in informal sessions of the Delegates and Technical Advisers. There was an evident desire on the part of all Delegations not to create the impression that the Conference was a debt-collecting agency. Again, the American, British and Japanese, having more at stake than the other participating governments, took the lead in this work and evolved most of the plans which were submitted for consideration looking to early settlement of this problem. The Nishihara loans, as might well have been expected, created difficulties from the beginning. Next to rates of surtaxes, the Japanese displayed most interest in the question of debts. The Nishihara loans constituted the bulk of the Japanese loans and the Japanese Delegation diligently pursued a policy of having all these loans included in any consolidation scheme which might be evolved.
In general the Japanese were disposed to favor a long period of time at a low rate of interest. The American Delegation, at the very outset of the Conference, was importuned by numerous American creditors of the Chinese Government, who had either themselves come to Peking or sent representatives to be present during the Conference, to make provision for the payment of the more than $30,000,000 gold, due them for money loaned and materials furnished the Chinese Government. A sympathetic hearing was invariably given to these gentlemen and on many occasions they availed themselves of an opportunity to submit statements of their views. In all schemes proposed for the Consolidation of Debts, efforts were made by the American Delegation to safeguard the interests of the American creditors, and while no definite plan has yet been agreed upon and while it will be impossible to evolve a scheme which will be satisfactory to all, it is felt that the American creditors, except in one or two isolated cases, realize the obstacles that have faced the Delegates and the futility of hoping for a solution which will speedily and at the same time satisfactorily clear up the debt situation in China. This question proved more vexatious than any other, at least so far as the American Delegation was concerned, and it is a matter of great regret that the impossibility of negotiating the interim surtax treaty has thus far prevented the adoption of a plan [Page 830] by which all of the debts of the Chinese Government, both foreign and domestic, would be liquidated in due course of time. This is a matter which must necessarily be deferred until the Conference renews its work. It should be remarked that some of the American creditors voiced great disappointment that any consolidation plan which gave promise of acceptance contemplated putting the domestic debts on a parity with the foreign debts. They considered this unfair, since many of the foreign debts antedated the domestic debts and many domestic loans had been made on security already pledged on foreign loans. However, since it was clear that no distinction could be made between domestic and foreign debts in any scheme designed completely to clear the slate and re-establish the credit of the Chinese Government both at home and abroad, which was one of the primary objects of the Debt Consolidation plan, the Delegates proceeded on the basis that all debts which are actually owed by the Central Government itself or which have been guaranteed by a Ministry of the Central Government, or which have been officially authorized or recognized by a Ministry or Bureau of the Central Government, should be included in any scheme which had for its purpose the complete rehabilitation of Chinese finance.
The British, Dutch, Belgian and Japanese Delegations evinced great interest in the debt question, the first three particularly as regards the railways, and the last named, as already stated, on the Nishihara loans. The other Delegations showed only a passive concern, with the exception of the French and Italian Delegations, who submitted concrete recommendations.
The British Delegation put forward views largely at variance with those of the American and Japanese Delegations with respect to the allocation of funds. The British plan, as already stated, contemplated that one-fourth of the Customs collections on imports should be set aside as a special likin abolition tax, not to form a part of the Customs revenues proper. After the payment of the existing charges on the Customs revenue, the British plan contemplated the disposition of the surplus by percentages: three-fourths to be used for the service of the new consolidated bonds and one-fourth to be used for constructive and administrative purposes. However, with regard to the percentages to be used for constructive and administrative purposes, there should be a first charge up to ten million dollars to be known as a “railway contingent fund”. This fund was to be used, in so far as necessary, to meet interest charges on Chinese Government railway bonds which might be in default. Under this proposal the “likin abolition tax” and the “railway contingent fund” would, in effect, become absolutely guaranteed charges on the Customs revenue, whereas, the consolidated bonds would be in a much weaker position, [Page 831] their service being limited to the amount that three-fourths of the surplus, as above described, would provide. The American and Japanese Delegations, whose views very largely coincided, felt that the British proposals did not adequately provide for the funding of the unsecured debt of China and that they favored unduly the service of the railway loans. The plan put forward by the American Delegates contemplated that the whole Customs revenue would be treated as a unit on which the first charge would be the loans and indemnities already secured thereon. The second charge should be whatever amount or percentage of the Customs collections on imports might be agreed upon as a fund for the abolition of likin. The third charge should be the full service of the interest upon the consolidated bonds, provided that, in any case, three-fourths of the remaining revenue should be reserved for the service of the consolidated bonds. The remaining one-fourth should be reserved for constructive and administrative purposes, subject to any amount that might be needed for the service of the interest upon the consolidated bonds. The American plan also accepted the British proposal for a railway contingent fund as a first charge upon the “one-fourth” for constructive and administrative purposes, subject to the reservation for interest upon the consolidated bonds. Details of the railway contingent fund were never definitely worked out.
The discussion of these provisions of the Consolidated Plan led to a sharp division of opinion with the result that no definite decision as concerns the whole plan, could be reached before the departure of Colonel Peel and Mr. Stewart for England early in May.
On May 3, at a meeting of the Technical Advisers, Mr. Stewart announced that he could no longer carry on the informal conversations that had been in progress on Debts because the British Delegation, as well as the British Government itself, believed it inadvisable to join in any definite program for presentation to the Chinese Government. He stated, further, that there was no Chinese Government to which a program could be presented and that, in any event, whatever the Conference might agree upon would become public and the foreign Powers would be held rigidly to that program in future negotiations. Mr. Stewart said that the British Government did not wish to be bound by any such restrictions in future negotiations with China, This attitude on the part of the British Delegation created a situation which made it impossible to continue the negotiations. The conciliatory attitude of the American Delegation towards the British proposals is evidenced by the fact that the following points were conceded to the British: (1) one-fourth of the import revenues for a likin compensation scheme; (2) the Hukuang and Tientsin–Pukow Railway charges should not be placed upon the likin compensation [Page 832] fund; (3) that amortization of the bonds should be placed after other purposes; (4) that the Hukuang and Tientsin–Pukow charges should be placed on the railway contingent fund; (5) that the contingent fund be fixed at a sum which, during the first five years, would be greater than the sum which would be realized under the British proposal of a 75 per cent—25 per cent division of funds. The termination of these informal conferences by the British Delegation came as a distinct disappointment to the American Delegation who believed that no opening should be left for the Chinese to say that the foreign Delegations were not seriously attempting to help China and that they were not acting in good faith. The American Delegation believed that the Powers’ representatives should continue to endeavor to get an agreement upon a concrete program to form the basis of a new treaty with China. Having come to such an agreement among themselves the Delegates could, if there were no Chinese Government competent to sign a treaty, conscientiously lay the program on the table to be taken up at an appropriate time. Since the American Delegation, however, could not bring itself to approve a program which would offer creditors new consolidation bonds for their old securities at lower rates of interest, a longer maturity and in some cases, a reduction in principal, to say nothing of new bonds with an arrangement for interest and principal payments based on the allocation of a percentage of an unknown sum of money, and since the British Delegation quite deliberately ended the negotiations, it seemed futile further to attempt a solution of this problem.
Notwithstanding the British Delegation had previously let it be known that they were only mildly interested in the question of debt consolidation, but greatly interested in trade, they seemed more persistent, as this resume will indicate, in defending their principles in the question of debts than in any other. It was evident that they were taking every precaution especially to see that British investors in Chinese railway securities would not suffer, whatever the plan of consolidation might be. The situation in South China seemed also to influence the British attitude on this question, as well as on other questions before the Conference. The memoranda herewith enclosed covering the meetings of the Technical Advisers on the subject of debts will be of especial interest.9
Much remains to be done on this question, since the disappearance of a responsible government in Peking coupled with the uncompromising attitude of the British Delegation made it impossible to evolve the larger scheme of rehabilitating Chinese finances through the means of interim Customs surtaxes in excess of those authorized by [Page 833] the Washington Treaty. The portion of the funds which will be allotted for the payment of debts from the Washington surtax revenues will afford but little relief when the whole debt question is taken into consideration. This gives promise of being more difficult to solve than any other problem within the scope of the Conference when negotiations are resumed in the autumn.
Numerous memoranda, statements, pamphlets and tables prepared in connection with this subject form enclosures under the heading of Consolidation of Debts.9a
Washington Treaty Surtaxes.
The question of implementing the Washington Treaty arose more often during the Conference than did any other question. A reference to the first section of this report will reveal the oft-repeated efforts which were made to bring into force, with as little delay as possible, the Washington Treaty, a task which, at the beginning of the Conference, seemed comparatively simple. On each and every occasion the Chinese Delegation would find some reason, either real or fancied, to defer action. It was not until all hope was abandoned of being able to negotiate, before next autumn at least, the larger interim surtax treaty, that the necessity of agreeing upon a draft treaty for submission to the Chinese in fulfillment of the Washington Treaty arose in the informal meetings of the Delegates and Technical Advisers. The sub-committee of Six Delegates appointed for this purpose, who sat in formal session, had substantially agreed upon a draft, but the Chinese member was unwilling to accept it. (See official Minutes of meeting of March 18, 1926). At an informal meeting of the Delegates on May 6 it was agreed that, since no further formal meetings had been held of the Committee of Six, and none was in prospect, the American Delegation should produce a new draft. The American Delegates accordingly instructed their Advisers to produce a revised draft and with the co-operation of the British and Japanese Advisers, after a series of informal meetings, such a draft was submitted for approval to the Advisers of the other foreign Delegations. With minor amendments the draft was approved and submitted for consideration to the foreign Delegates at an informal meeting on May 15, at which time it was approved.10
There was a fundamental difference between the draft under discussion then and the one substantially agreed to by the Committee of Six at its last formal meeting on March 18, a report of which, as previously stated, may be found in the Official Minutes of that date. [Page 834] The draft of the Committee of Six was such, in terms, that, under it, the levying of the Washington surtaxes could not go into effect until after the terms for the distribution of the proceeds should have been elaborated and approved by the various Delegations in the form of the larger (new) treaty which was being negotiated. The revised draft submitted by the Technical Advisers was such, in terms, that the levying of the Washington surtaxes might become effective independently of and regardless whether the Conference should succeed in agreeing upon a new treaty. Another fundamental difference was that whereas the draft of the Committee of Six provided for the impounding of the whole of the collections from the surtaxes, the revised draft provided for the distribution of practically one-half of the collections and the impounding of the other half during such period as might intervene until the new treaty providing for the distribution should come into effect, within the limit of two years, with the proviso that if no treaty or agreement should become effective within two years, then some special agreement should be made with regard to the principle for distribution of the accumulated fund.
At the meeting on May 15 the Advisers were instructed to prepare recommendations for the Delegates upon the subject of Custodian Banks. At subsequent meetings of the Technical Advisers the American Advisers proposed that the subject should be dealt with in two parts; first, with reference to the custody of the Washington surtax revenues; and second, with reference to customs funds in general. The American, British and Japanese Advisers all prepared drafts and these were used as the basis of negotiations. On May 21 a tentative agreement based on the American draft was arrived at with regard to the resolution on this subject to be annexed to the Washington Treaty surtax agreement. On May 25 the British Advisers proposed several verbal changes which opened the way for new proposals on the part of the Japanese Advisers for change in substance. A draft, however, was agreed upon on that date, and meanwhile the American Advisers had circulated a revised copy of the draft on the subject of the custody of funds in general. At a meeting on May 26 the British Advisers introduced a draft and the Japanese made a reservation on the whole of it and the American Advisers on three articles. The central principle of this draft was that the existing customs revenues should be divided on the principle that since 70 per cent was required for the service of existing loans and indemnities, this portion should be deposited in custodian banks, including Chinese, and the remaining 30 per cent should be left at the free disposal of the Chinese Government. The American draft, on the contrary, provided that the entire net customs revenue should be deposited in custodian banks and of the portion required for the service of foreign obligations [Page 835] the distribution should be among foreign custodian banks. No agreement was reached and at subsequent informal meetings between the American and British Advisers the latter yielded with reference to the 30–70 per cent division and accepted the principle of requiring deposit of all net customs funds in custodian banks, and the American Advisers accepted the principle of requiring that percentages be fixed for the distribution among the banks, of the portion to be deposited for the service of the foreign loans and indemnities. The British also proposed an amendment which would require naming the banks and specifying the percentages, but the American Advisers could not accept this amendment. All differences were finally composed, however, and a complete agreement arrived at between the American, British and Japanese Advisers on the whole draft and at a meeting of the foreign Advisers on June 1 the composite draft was adopted. A meeting had been called for June 3 of the Delegates but at the request of the Japanese Minister, who was awaiting instructions from his Home Government, the meeting was postponed. On June 10 the postponed meeting was held and Sir Ronald Macleay, at the beginning of the meeting, suggested that, since the draft agreement implementing the Washington Treaty had been referred to the various Governments concerned, it would be in order to ask for the replies of the various Delegations. A poll was taken and the British Delegation said its Government agreed, with the understanding that the draft was merely to form the basis of discussion with the Chinese. The French and Belgian Delegations said their Governments assented and the Italian Delegation referred to a reservation made in a document circulated a few days previously. The Swedish Delegate said that, since his Government was undergoing a change he could give no definite reply, but that he hoped to give a favorable reply shortly. The American, the Danish, the Norwegian, the Spanish and the Netherlands Delegations announced that their Governments approved. The Japanese Delegation, through Mr. Hioki, went into a detailed explanation of what the Conference had been doing for some months past and, after saying that until definite instructions had been received from his Government no commitment could be made, evinced a desire to proceed with the general work of the Conference and emphasized the need of adjusting the debt question. After a lengthy discussion on the work of the Conference, Mr. Strawn urged that the proposal to implement the Washington Treaty be acted upon, since it was most important that this be done without further delay. Mr. Hioki inquired if it was still the sense of the Delegates that they would sign a Washington Surtax Agreement with any Chinese Government that might be present when the foreign Delegates had reached a point among themselves of readiness to negotiate with the Chinese.[Page 836]
Sir Ronald Macleay said that this question would have to be submitted to his Government when the moment for signing arrived. Mr. Strawn drew a distinction between signing with a given group an agreement concerning the Washington surtaxes and signing with that same group a larger and more important treaty concerning the interim surtaxes. In connection with the former he suggested that the Delegates could accompany their assent with specifications laid down in a separate document which would impose obligations and limitations. Mr. Strawn also said that the Diplomatic Body, by being present and remaining here, gives an implied recognition to such Government as exists; that they could not consistently stay here and yet affirm that there is no Chinese Government. Mr. Cerruti shared this view and Mr. Kauffmann said that he shared the view of the Japanese, i. e., that the implementing of the Washington surtaxes might be the concluding and final act of the Conference. After further discussion it was agreed that nothing further could be done until the Japanese had heard from their Government.
An important amendment was one offered by the British designed to require the acceptance of the agreement by the Provinces before it should come into force. This amendment, however, as in the case of the whole draft, was left unapproved, since it seemed futile to proceed until the Japanese Delegation had received further instructions. The American Delegation had not, at the time of the meeting on June 10, definitely determined its attitude toward the amendment.
At an informal meeting at the American Legation with the Japanese Delegation on June 18, Mr. Hioki stated that his Government was willing to go ahead with the implementing of the Washington Treaty surtaxes, provided certain alterations could be made in the draft which had been submitted at the last meeting of the Delegates. The Japanese wished to delete the first two sections of the draft, but advanced no reason for desiring this change. They offered no substitute, however, for the two sections and announced that no instruction had been received from the Japanese Government on the subject of custodian banks. It was agreed that the Japanese Delegates should confer with the British Delegation with regard to the changes desired by the Japanese Government in the text of the draft agreement. The American Delegation made no commitment, but expressed a desire for a conference of the American, British and Japanese Delegates after the latter had conferred with the British. Mr. MacMurray took occasion to say, in connection with a suggestion made by the Japanese that there should be a recess for the summer, with a definite understanding that the Conference should reconvene at the end of September, that the American Delegation felt that the foreign Delegations should make no move which [Page 837] would give the Chinese opportunity, whether fairly or unfairly, to say that the foreign Powers had not performed their pledges and were not acting in good faith. He suggested that it would be well to avoid any adjournment or recess by formal action and that a recess simply by tacit consent would be preferable.
A final effort on the part of the foreign Delegates to come to an agreement on the question of implementing the Washington surtaxes was made on July 3. On that date a meeting was held at the Netherlands Legation and the draft protocol as adopted ad referendum on May 15 was discussed at length. Early in the course of the meeting the Japanese Delegation, under instructions from their Government, and through Mr. Hioki, presented the following statement:
“At the last meeting of June 10th I had occasion to state that it was the desire of the Japanese Government that we should continue our efforts for the solution of all the problems before the Conference, and further that in regard to the draft agreement for the levy of the Washington surtaxes we were awaiting instructions from Tokyo.
“We have subsequently received instructions according to which the position of the Japanese Government is as follows:
“The Japanese Government consider that the question of the Washington surtaxes and all other questions from the interim surtaxes and the consolidation of debts to the recovery of tariff autonomy by China constitute an inseparable entity. They believe that it is only by conceiving our task in this manner that we can deal successfully with the situation, which has developed since the Washington Conference, and which has been recognized by this Conference from the very outset. Accordingly, our Government deem it inadvisable to set aside the settlement of various questions relating to the so-called general treaty after the draft agreement for the levy of the Washington surtaxes shall have been adopted by the foreign delegations.
“However, in view of the desire expressed by other delegations of an early adoption of the draft agreement, the Japanese Government, animated by a spirit of mutual co-operation and concession, are prepared to accept it with an amendment that Clauses I and II concerning the coast trade duty and the transit pass dues shall be deleted therefrom. The Japanese Government believe that the disposal of the proceeds of the Washington surtaxes is a matter which can better be considered as part of the program relating to the general treaty to be taken up later except the allotment for administrative expenses [of] which the Chinese Government are in urgent need and which may properly be determined at this time.
“As the amendment of the draft agreement proposed by us concerns the points originally put forward by the British Delegation, we consider it proper to approach first our British colleagues for their favorable consideration of our proposal. These are the circumstances which have led us to hold conversation with our British friends before asking to have a meeting called at this Legation.”
Following the reading of the Japanese statement, Sir Ronald Macleay, on behalf of the British Delegation, made the following statement:
“His Majesty’s Government regret that in the recent informal discussions which have taken place between the foreign delegations in the absence of the Chinese in anticipation of the early resumption of the Conference and of the renewal of the request by the Chinese delegates for the immediate grant of the Washington surtaxes, it has not been found possible to reach complete agreement on the proposals to form a basis of discussion with the Chinese.
“In these circumstances His Majesty’s Government are of the opinion that no useful purpose will be served by the foreign delegations continuing these informal negotiations with a view to reaching a closer degree of agreement at the present stage and that it would be preferable to await the resumption of the Conference and the formulation of the Chinese proposals.
“His Majesty’s Government instruct me to state that it is their earnest desire and intention to implement the Washington Treaty with the least possible delay and to grant the surtaxes provided for therein, if this should be the wish of the Chinese Government, and that they are prepared to discuss any reasonable proposals put forward by the Chinese delegates to this end which are in harmony with the spirit and letter of the Washington Treaty.
“His Majesty’s Government also wish it to be clearly understood that in the event of the Chinese delegation on the resumption of the Conference tabling a proposal for the immediate enforcement of the Washington surtaxes, they have no intention, after agreement on such proposal has been reached, to suspend the proceedings of the Conference or to break off negotiations for the conclusion of a Tariff Treaty, which have been interrupted by recent political developments in China.”
Mr. MacMurray, at the conclusion of the British statement, said that, in
view of the attitude taken by the Japanese and British Delegations, it
appeared that a deadlock had been reached and that further progress at
that time was impossible. Mr. MacMurray said that the situation was most
disappointing to the American Delegates who had hoped that the draft
protocol of May 15 might be adopted as a first step toward tariff
autonomy. He voiced the opinion that under present circumstances no
further progress could be made until a new Chinese Government should
come into being and he particularly warned the Delegates that if a
discontinuance should lend itself to further nationalistic and
bolshevist propaganda in China serious consequences might ensue. Mr.
MacMurray then inquired whether the instructions of the Japanese and
British Delegates were so categorical as to permit of no compromise
which would enable an agreement to be reached with respect to the
Washington surtaxes and thus avoid the danger to which reference has
just been made. After general discussion of the question, Mr. MacMurray
suggested that the [Page 839] chairman
request the various Delegations to reply definitely to the following
To the first question all the Delegates replied in the affirmative with the exception of the Japanese and an indefinite reply by Sir Ronald Macleay who stated that he had been ready to proceed with the May 15 draft, but that the case had now developed somewhat differently.
In answer to the second question the British Delegate stated that he was unable to bind himself since his instructions were that he was to abstain from further informal negotiations until the Chinese were able to participate. The majority of the other Delegates also stated that they were unable to bind themselves on this plan since, unlike the British Delegation, they had not had an opportunity to refer such a proposal to their Governments. In general, however, they concurred in the position of the American Delegation, which was that although it preferred the draft protocol as adopted on May 15, it would be willing, for the sake of progress, to accept amendments offered by the Japanese in order to obtain some common agreement upon a draft which might be used as a basis of discussion with the Chinese.
It being evident at this point that unanimity could not be had with respect to further action at the present time, the question arose whether the foreign Delegates should undertake to agree among themselves upon a recess or permit the Conference to remain in statu quo pending further developments. After considerable discussion it was deemed advisable to take no action which might be construed as indicating a desire on the part of the foreign Delegates to bring about any definite adjournment of the Conference. The following statement was ultimately agreed upon and given to the press:
“The Delegates of the foreign Powers to the Chinese Customs Tariff Conference met at the Netherlands Legation this morning. They expressed the unanimous and earnest desire to proceed with the work of the Conference at the earliest possible moment when the Delegates of the Chinese Government are in a position to resume discussion with the foreign Delegates of the problems before the Conference.”
Thus one more effort to implement the Washington Treaty surtaxes failed and at the close of the meeting on July 3 it was generally understood [Page 840] among the Delegates that no further progress could be made until the formation of a new Government and that recognition of such new Government would, in all probability, be a condition requisite to resuming negotiations.
The element of uncertainty which had so often threatened completely to wreck the Conference had gained such momentum and was so persistent that the foreign Delegates were quite prepared to believe that it would be several months before the Conference would again be in a position to function. The Delegates and their respective staffs, at this writing, entertain but little hope that it will be possible for the Conference to resume its functions before the autumn, unless in the meantime a Government worthy of recognition is established at Peking. The political conditions, however, are such that this is a remote possibility, since Wu Pei-fu and Chang Tso-lin, notwithstanding professed friendship for each other, and outward evidence of co-operation in military and civil affairs, are known to distrust each other and to be maneuvering for such advantage as might be gained by controlling the increased Customs funds so far as the program of the foreign Delegates may permit.
The confused state of this question, in so far as the foreign Powers were concerned, was brought about by the action of the Japanese in insisting on the elimination of two of the most important sections of the agreement and in otherwise employing tactics which prevented further action being taken. The British also had a large part in the steps which caused the prolonged consideration of this question and its postponement to an indefinite date.
Copies of drafts, memoranda and documents showing the development of this matter through informal negotiations are enclosed herewith under the appropriate heading.11
In the preparation of data on the subject of Rates of Surtaxes, Likin, Consolidation of Debts, and other subjects under consideration by the Conference, innumerable tables have been prepared, both by the Chinese Delegation and by other Delegations. Many of the Tables prepared by the Chinese Delegation have been incorporated in the Official Minutes of the Conference, but few, if any, of those prepared by other Delegations have been made a part of the official proceedings. A considerable number of these Tables contain valuable statistical information which has a direct bearing on the work of the Conference and which it would seem desirable to preserve as a permanent part of the record.
The American Technical Advisers compiled a number of valuable Tables and these, together with Tables prepared by other Delegations, [Page 841] are enclosed herewith and are more fully described under the heading of “Tables” in the List of Enclosures.12 A separate section in this report has been especially devoted to this material because many of the Tables contain statistical data which had to do with the whole work of the Conference and could not well be classified separately under the several headings of this report without confusing subjects. The compilation of these Tables has been a tedious, but important, phase of the Conference work and without them a comprehensive understanding of the financial needs of the Chinese Government would have been impossible.
In the course of the informal conferences many matters of general policy were discussed and subjects were considered which did not come within the scope of the several headings into which the report has been divided. It is deemed advisable, therefore, to include a section in which might be embraced miscellaneous matters which have occupied the attention of the Delegates and Advisers at informal conferences. Such questions as Export Duties, Relations with Indo-China, The Spring Festival Loan, Board of Audit for the Control of the Customs Surtaxes, and other matters relating to the Conference were under general discussion and memoranda and other documents in relation thereto are enclosed herewith and are more completely described in the List of Enclosures under the heading “Miscellaneous.”12
It will be observed that some of the enclosures to this report are copies rather than originals. Some of the originals are being kept in the files of the Delegation pending the conclusion of the Conference and others are required for current use. It should be stated also that the files of the Delegation will be kept intact until the close of the Conference after which they will be forwarded to the Department pursuant to the Department’s telegraphic instruction No. 297, October 19, 1925, 6 p.m.12
A further report summarizing the work of the Conference from this date will be forwarded when final adjournment shall have taken place, which probably will be some months hence.
The Delegation has endeavored, as occasion arose, to keep the Department informed of important developments of the Conference and it has, in general, exerted the utmost effort to reduce the administrative expense to a minimum. Considering the unusual conditions in Peking, and the length of the Conference, the Delegation feels that, in comparison with the amount expended by other Delegations, notably the Japanese, the cost has been small. Normally the purpose for which the Conference was called would have been fulfilled long before [Page 842] now, but not since the fall of the Manchu regime in 1911 have conditions in China been so unsettled. The obstacles which have confronted the Conference, so far as the political situation is concerned, have ranged from the mere disappearance of the Chief Chinese Delegate, C. T. Wang, in March, to a state of siege in April, for the control of Peking by the Kuominchun Army on one side and the Chang Tso-lin and Wu Pei-fu Armies on the other, followed by the complete disappearance of a Government.
The period from January 1 to the present has been one during which there have been many Cabinet changes, so numerous that no attempt will be made to enumerate them all. Dr. C. T. Wang took office as Minister for Foreign Affairs on January 11, and a little over a month later (February 18), Premier Hsu abandoned office and fled from Peking. It was about this time that Dr. Wang and other Cabinet members and leaders of the Kuominchun were finding themselves in an increasingly uncomfortable position as the offensive by the Allied armies of Chang Tso-lin and Wu Pei-fu had begun against the Kuominchun. The Allied troops had already made steady advances and had gained much territory in the region north, east, south and southwest of Peking.
On March 5 Chia Te-yao was appointed Premier and Dr. W. W. Yen, Minister for Foreign Affairs. Dr. Yen, however, declined to accept office and an effort was made, but without success, to induce Dr. Wang to continue to retain the portfolio of Minister of Foreign Affairs. Following a series of demonstrations, ostensibly in connection with the so-called Taku Bar incident, a climax was reached on March 18 when a score or more of students were killed or wounded by Tuan Chi-Jui’s bodyguard when a large group of demonstrators attempted to enter the offices of the Chief Executive. This event created grave concern and both Chinese and foreigners entertained serious misgivings as to what the next turn of affairs would be. The military situation was daily growing more tense. At this time there was no Minister for Foreign Affairs and Hoo Wei-teh, to meet the emergency, was induced to take the office.
On the morning of April 10 a coup d’état brought about the sudden overthrow of the Tuan Government and Tuan, the Prime Minister and several members of the Cabinet fled to safety in the Legation Quarter. The siege for the capture of Peking had been in progress for some days at this time and a general retreat by the Kuominchun forces towards Nankow had already begun. Almost daily bombing of Peking by airplane was taking place and this added much to the anxiety of the populace. There were several killed and a number wounded from these attacks. Heavy cannonading to the east and south of Peking was heard on practically every night from April 11 [Page 843] to April 17. On the last named date a heavy attack by the Allied troops put the Kuominchun troops to flight and by the next day they had given up control of Peking and were rapidly withdrawing toward Nankow. Much looting by soldiers in the suburbs of Peking was a further factor contributing to an already deplorable situation.
After being in hiding for several days following the coup d’état, the Chief Executive returned on April 17 to his residence with the announced intention of continuing in office, but on April 19 he again took refuge in the Legation Quarter and on April 20 fled precipitately to Tientsin. Before his departure for Tientsin Tuan issued a Mandate resigning from office and accepting the resignation of the Cabinet en bloc. With the exception of such government as the military administered, there was no semblance of authority in Peking from this date until May 1. The military were aided by an unofficial Committee of Safety with Dr. W. W. Yen as Chairman. This committee functioned for some time after the advent of the Allied soldiers. On May 13 Dr. Yen assumed office as Premier and Acting Minister for Foreign Affairs in a so-called Regency Cabinet. In the meantime efforts had been made to restore Tsao Kun to the position of Chief Executive but he declined all overtures and elected to remain in semi-seclusion at Tientsin. In addition to the rapid and sudden changes of government and the constant activities of military rivals, there was an almost complete collapse of railway transportation in February, March and April. For several weeks in February and March, and in the early part of April, there were no trains in or out of Peking, except those operated by the military. This brief resume of the events which constantly retarded and disorganized the work of the Conference will indicate to the Department the insuperable obstacles which have been constantly arising to make the Conference abortive.
Almost from the beginning of the Conference the political condition in Peking has been such that the Chinese Delegates could not exercise a free and untrammeled course on any question. They have been constantly harrassed by opposing political and military factions and their lot has been a most unpleasant one. It is a great tribute to the courage, the perseverance and the patriotism of Dr. W. W. Yen and Admiral Tsai Ting-kan, the only two remaining Chinese Delegates, that they have weathered the storm and remained steadfast in the purpose to achieve something for China.
The American Delegation shares the disappointment that all the other Delegations, both Chinese and foreign, must feel that so little has been accomplished thus far towards the fulfillment of the terms of the Washington Treaty.[Page 844]
The Delegation desires to express its appreciation of the services rendered by the Technical and secretarial staffs and to say that more detailed comment in this regard will be sent in a separate despatch.14
We have [etc.]
Chairman, American Delegation, Special Conference on the Chinese Customs Tariff
American Delegate, Special Conference on the Chinese Customs Tariff
- Enclosures not printed. For proceedings of the Conference, see The Special Conference on the Chinese Customs Tariff, October 1925–April 1926 (Peking, 1928). A copy of this publication is available in the Library of Congress, and another in the Department of State filed as No. 500.A4e Minutes Special Conference/18.↩
- See Conference on the Limitation of Armament, Washington, November 12, 1921–February 6, 1922 (Washington, Government Printing Office, 1922), p. 1180.↩
- Foreign Relations, 1922, vol. i, pp. 276, 278.↩
- Resolution establishing a Board of Reference for Far Eastern Questions, adopted Feb. 4, 1922, Foreign Relations, 1922, vol. i, p. 289.↩
- See telegram of Oct. 31, 1925, from the Minister in China, Foreign Relations, 1925, vol. i, p. 871.↩
- See telegram of Nov. 4, 1925, from the Minister in China, Foreign Relations, 1925, vol. i, p. 875.↩
- Ibid. ↩
- See telegram of Nov. 4, 1925, from the Minister in China, Foreign Relations, 1925, vol. i, p. 875.↩
- Ibid., 1922, vol. i, pp. 282, 286.↩
- See telegram of Nov. 4, 1925, from the Minister in China, ibid., 1925, vol. i, p. 875.↩
- Art. iii, par. 10.↩
- Foreign Relations, 1922, vol. i, pp. 282, 284.↩
- Ibid., 1903, p. 551.↩
“Contracting Powers, other than China, recognize the right of China as a sovereign state to enjoy tariff autonomy, requiring for its full enjoyment the removal of tariff restrictions contained in existing treaties between themselves respectively and China; and consent to the going into effect of the Chinese National Tariff Law, subject to the carrying out of the provisions hereinafter agreed upon, on January 1, 1929.
The Government of the Republic of China agrees that likin shall be abolished simultaneously with the enforcement of the Chinese National Tariff Law; and declares that the abolition of likin shall be completely carried out by the first day of the first month of the eighteenth year of the Republic of China, January 1, 1929.” The Special Conference on the Chinese Customs Tariff, p. 250.↩
- See footnote 97.↩
- For text of the commercial treaty signed at Shanghai Oct. 8, 1903, see Foreign Relations, 1903, p. 91.↩
- Extract from art. viii, Preamble, corrected according to text printed in Foreign Relations, 1903, p. 553.↩
- A destination tax, levied on goods after arrival at destination. See The Special Conference on the Chinese Customs Tariff, p. 272.↩
- The Customs Revenue Council, created by edict May 9, 1906, to take charge of the Maritime Customs.↩
- Document No. Yin 70 was the first of the two resolutions presented by Dr. Yen Feb. 18. See The Special Conference on the Chinese Customs Tariff, p. 224.↩
- Document No. Yin 71 was the second resolution presented by Dr. Yen Feb. 18. See The Special Conference on the Chinese Customs Tariff, p. 224.↩
- See Conference on the Limitation of Armament, p. 1166.↩
“It is agreed that the increased Customs revenue which will accrue from the levying of these surtaxes shall be held, free from all encumbrances, by the Customs Administration, to be applied later for such purposes and subject to such conditions as shall have been agreed upon at this Conference, or provided for in the treaty or treaties negotiated at this Conference; with the proviso, however, that, in case the purposes and conditions for the expenditure of the increased revenue to be derived from these surtaxes shall not have been agreed upon at this Conference on a date earlier than the 31st day of May, 1926, the levying of these surtaxes shall take effect only on and from a date fifteen days after the day on which an agreement in regard thereto shall have been adopted.
“And it is further agreed that this increased Customs Revenue shall be deposited in custodian banks in the manner and the proportions which shall have been agreed upon at this Conference.” The Special Conference on the Chinese Customs Tariff, p. 476.↩
- Not printed.↩
- Not printed.↩
- Not printed.↩
- Not printed.↩
- See telegrams No. 37, May 12, from the Minister in China, and No. 39, May 17, from the American delegation, pp. 750 and 753.↩
- Not printed.↩
- Not printed.↩
- Not printed.↩
- Not printed.↩
- Not printed.↩