Memorandum by the Counselor of Embassy in China (Peck) of a Conversation With the Third Secretary of the Japanese Embassy in China (Okumura)63

Mr. Okumura called and inquired of Mr. Peck about the position taken by the American Embassy with respect to this surtax.64 He said that the tax imposed a burden of between $600,000 and $700,000 annually on Japanese shipping and merchants and that the Japanese Consul General had repeatedly protested against it on the ground that its collection, without consultation with the Japanese authorities, constituted a violation of the Japanese-Chinese Treaty of 1930 conceding tariff autonomy to China.

Mr. Peck observed that according to his recollection, the American Consul General at Canton had reported that the view of the Japanese Consul General at Canton was that since the collection of Customs [Page 655] surtaxes for conservancy and other purposes was not among the matters specifically listed in the “tariff autonomy treaties” as being within the sole competence of China, it remained among those matters which, according to earlier treaties, required mutual consultation between the Chinese and foreign authorities.

Mr. Okumura said that this was the position taken by the Japanese authorities. He observed that the position of the British authorities seemed to be that the “tariff autonomy treaties” had deprived Great Britain of the right to insist that Customs surtaxes for conservancy purposes should not be collected except after consultation with the British authorities; Mr. Okumura remarked, with a smile, that the attitude taken by the British authorities in connection with the Chefoo Harbor conservancy matter had indicated this stand quite clearly.

Mr. Peck said that he thought the British were quite convinced that their Government had relinquished, through the British treaty with China restoring tariff autonomy, all right to intervene either in the collection or amount of conservancy surtaxes, or in the matter of how the proceeds were utilized. He said that the Department of State had never informed the Chinese authorities that it regarded its right to protest against such surtaxes as revoked by the treaty of 1928 restoring tariff autonomy to China, but the Chinese Government might argue that the treaty in question had produced this result. However, the State Department took the position that the Chinese Government was still committed to the principle of maintaining uniformity between the taxes levied on foreign trade at land frontiers and at water frontiers, a principle enunciated in the Washington Conference Treaty concerning Customs matters.

The net result was, Mr. Peck said, that the American Government had never abandoned its theoretical right to be consulted in regard to Customs conservancy surtaxes, but was inclined in practice to argue such matters on a basis of rationality, that is, on the basis of reasonableness of amount, justifiability of the purpose of collection, and discrimination. So far as the conservancy surtax at Canton was concerned, the tax seemed to impose a negligible burden on American firms and did not seem to arouse much opposition from them. Consequently, the American Embassy had decided not to protest against the collection of the tax for the time being.

In order that Mr. Okumura might have a more adequate picture of the American position in respect to taxes of the sort under discussion, Mr. Peck told Mr. Okumura that the Embassy had filed a protest with the National Government against the increase of the dike tax at Hankow,65 put into effect recently. The arguments presented in this [Page 656] case were based upon equitable, rather than legalistic grounds, exception being taken to the fact that the increase bore exclusively on foreign trade.

Mr. Okumura said that, to return to the Canton surtax, the reply of the Chinese had been that the tax was small and was collected in support of a purpose which was beneficial to everybody concerned at Canton and, therefore, should be paid by Japanese firms. Mr. Okumura said that one thing which the Japanese strongly objected to was the fact that the surtax was collected on goods arriving by vessel, whereas it was not collected from goods arriving by railway. He said that the Embassy had just about arrived at the conclusion that further protests against the surtax would be unavailing and should not be made, since nothing was to be gained by keeping alive controversies with the Chinese authorities when there was no prospect of success.

Mr. Peck observed that the American Embassy had come to a somewhat similar conclusion in regard to certain taxes levied in the interior of China, for example, the $1.00 tax on petroleum products in Fukien. In the Fukien controversy the Embassy had, in theory, gained its point, since it had reason to believe that instructions were actually issued by the National Government to the Provincial authorities to cease the collection of the objectionable tax. However, the tax was still collected and the Embassy had reason to believe that it would continue to be collected until such time as the National Government could supply the Provincial authorities with a substitute source of revenue. The same practical condition existed in reference to other improper Provincial taxes. The American Embassy had fallen into the practice of not pressing protests against such taxation when the circumstances indicated that the National Government was unable to supply substitute sources of revenue and thus to gain its point that a particular tax should be terminated by Provincial authorities.

Mr. Okumura thanked Mr. Peck for his explanation of the position of the American Embassy toward the Canton conservancy surtax.

Willys R. Peck
  1. Copy transmitted to the Department by the Ambassador in China in his despatch No. 495, June 9; received July 12.
  2. The conservancy surtax at Canton.
  3. Protest not printed; for attitude of the Department, see Foreign Relations, 1932, vol. iv, pp. 596 ff.