The Ambassador in Japan (Grew) to the Secretary of State
[Received March 7—11:14 a.m.]
154. Department’s 65, February 19, 1 p.m.27
1. The text in translation of the reply of the Foreign Office received today is as follows:
“Ministry of Foreign Affairs, Tokyo, March 5, 1938. American I, No. 27, note verbale.
The Imperial Ministry of Foreign Affairs has the honor to take note of the views set forth in the American Embassy’s aide-mémoire of February 21, 1938 with regard to the application to American citizens resident in Japan of the North China Incident special income tax and of other taxes which may be set up in the future for the purpose of securing funds for military purposes of the Empire in China, and to present a reply, as follows:
Law number 85 (extraordinary military expenditures special account law) of 1937 provides, in article 2 thereof that ‘expenditures under the War and Navy Departments for the North China Incident, the first reserve fund for expenditures under the Finance Department for the North China Incident, and revenues to be applied to such expenditures are to be transferred to this account (denned by article 1 of this law) and adjusted’. However, the premise exists that the revenues of this special account essentially belong to the general account and have the character of general sources of revenue; the foregoing method of accounting has been employed wholly for reasons of convenience in adjusting the accounts, and the character of the special taxes has thereby in no sense been changed. Law number 66 (North China Incident special taxes) of 1937 does not in any way specify the purposes to which the taxes are to be applied, and until the above mentioned special account law became effective all the revenues from the special taxes under reference were paid into the general account, as is also to be done with all revenues accruing from the China Incident special tax law, which is to become effective from the coming fiscal year. Accordingly, the question of what method is used to account for such revenues is a matter to be decided entirely from the standpoint of convenience in adjusting the accounts of the Government. Further, the revenues from the special taxes under reference are appropriated, [Page 615]whether for military purposes or for non-military purposes, to meet the general expenditures, and the Imperial Government, therefore, regrets that it cannot assent to the American view that the provisions of the various laws cited prove that the incomes derived from the special taxes under reference are not paid into the exchequer and that they are reserved and expended entirety for military purposes.
It is also desired to draw the attention of the American Embassy to the fact that, with reference to the term ‘military exactions or contributions’ found at the conclusion of the fourth paragraph article I of the Treaty of Commerce and Navigation of 1911, the Imperial Government believes that it is proper to define that term as meaning military requisitions or military contributions or other urgent and extraordinary levies made in unavoidable circumstances. In other words, that term involves the principle of assessment and requisition by the military authorities, and even if not so assessed and requisitioned the term in its strict sense would apply only to those things supplied to the military forces. The North China Incident special taxes, after enactment by normal legislative procedure, are assessed and collected uniformly within the country by the normal taxation agencies, and are not applied solely for military purposes in the precise meaning of the term. Accordingly, the Japanese Government maintains the view that American citizens resident in Japan cannot escape from the obligation imposed on them by the second paragraph of article II of the above mentioned Treaty to pay taxes equally with Japanese subjects.
With regard to law number 3 (extraordinary special tax) of 1906 , a question similar to the present question arose at the time of the Russo-Japanese war with foreign nationals residing in Japan, and the Imperial Government then took precisely the same position with regard to the various treaties of commerce and navigation that it takes in the present case. Despite the fact that the then current Anglo-Japanese Treaty of Commerce and Navigation (concluded in 1899)28 contained at the end of the second article the same language as that employed in paragraph 4 of article I of the present Treaty of Commerce and Navigation between the United States and Japan, the British Government concurred in the view that such provision was inapplicable to the extraordinary special tax and that there was no warrant for British [nationals] residing in Japan claiming exemption from such extraordinary special tax.
The Imperial Government accordingly regrets that it cannot comply with the request of the American Embassy for assurance that measures now being taken for the collection of the taxes under reference will be discontinued.”
2. We are studying the reply and will forward shortly for the Department’s consideration certain points which might be incorporated in our forthcoming reply. Will the Department indicate in due course whether it desires that the rejoinder be drafted by us?[Page 616]
3. I recommend the Department’s permission to instruct the Consul General29 substantially as follows:
“It is requested that you inform the offices within your supervisory jurisdiction of the action taken by the Embassy and suggest that they advise American citizens to refuse payment of the income special tax and other taxes under reference. American citizens should be further advised that if they are threatened with distraint, they should pay the taxes under protest pending the conclusion of discussions between the Embassy and the Foreign Office.”