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Next step will be for the Chinese to ask for the collection of the stamp tax from "non-Chinese in the Settlement,” as well as the forthcoming business tax.

7. German Consul General proposed that if it is desired to allow prosecution of the Russian involved in the present case, consular body should waive objection to such prosecution only on the ground that the offender is a national of a "nontreaty power” it being understood that the term "treaty power” includes all powers having treaties and conventions with China.

8. The powers having assented to the application of the rolled tobacco consolidated tax to Chinese residents of the International Settlement, failure [to apply?] tax to “nontreaty power” nationals or to nationals of “non-extraterritorial powers" (or even to nationals of “extraterritorial powers") resident within the Settlement will obviously work to cause discrimination in favor of nationals of such powers as contrasted with Chinese within the Settlement or the nationals of extraterritorial powers outside the Settlement who are paying the tax.

9. Senior Consul's circular relating as it does to questions of Settlement administration should have been referred only to the consuls of powers having extraterritorial treaties and therefore concerned with reference to administration of the Settlement.

10. Legation is of the opinion that extraterritorial powers are within their rights in seeking to devise a means whereby discrimination in the incidence of such taxation may be eliminated but believes that this should be done by modification of agreement through further exchange of notes with director of consolidated tax administration. 11. Department's instructions are requested.


893.512/1149 : Telegram The Acting Secretary of State to the Minister in China (Johnson)

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WASHINGTON, July 27, 1931–11 a. m. 249. Your 380, June 30, 5 p. m., 432, July 17, 6 p. m.," and Depart

5 ment's 220, July 3, 4 p. m.

1. With regard to the surtax on customs duties at Foochow, Department approves protest concurrent with that of other Consuls on ground of violation of principle of uniformity of customs tariff on all frontiers. Department doubts need of supplementary statement insisting on non-discriminatory treatment.

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2. In case authorities attempt to collect this surtax, you should endeavor informally to persuade Minister for Foreign Affairs to have its collection discontinued and in presenting the case, you might be guided by the following:

The Chinese Government in proclamation of July 20, 1927, announced its intention to abolish all forms of taxation levied in the name of “likin" and destination taxes. This policy was confirmed in Annex III of the Sino-British Tariff Treaty of 1928.51 By Chinese Government Mandate of January 17, 1930, and supplementary Mandate of October 6, 1930, the abolition was made applicable to all parts of China and effective as from January 1, 1931. In view of the history of the negotiations whereby there were concluded the treaties establishing China's tariff autonomy, and of the provisions of those treaties, relating to national tariffs, uniformity of duties on all Chinese frontiers, and most-favored-nation treatment; and in view particularly of the items cited above, it would appear entirely out of harmony with the letter and the spirit of the pronouncements and pledges of the Chinese Government for that Government or its provinces or municipalities to establish provincial import duties or to reestablish under any names or forms taxes equivalent thereto or to taxes which have been abolished in pursuance of pledges.

3. With regard to the "products tax” referred to in the second paragraph of your telegram, No. 380, it is not clear whether this is a production tax levied upon all wood oil produced in the province of Hunan or whether it is a tax levied only upon exports of wood oil. If the levy is assessed on exports in addition to the national export tax, it would seem that this tax warrants, for the reasons stated above, the making of a protest by the Consul General at Hankow and/or by the Legation.

4. The Hopei provincial taxes referred to in paragraph 3 of your telegram No. 380 would also appear to constitute an import tax imposed by the provincial government and would, therefore, seem to warrant an objection on similar grounds.

5. Referring to the wharfage dues and the dike surtax mentioned in your No. 432, Department considers that, as both are surtaxes on imports and exports, the instructions given above are also applicable to both. To the levying of a surtax for conservancy purposes, the Department would perceive no objection, provided arrangements for collection of such are embodied in an agreement similar to the arrangements in force with regard to such at certain other treaty ports.

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See telegrams No. 756, July 26, 1927, 4 p. m., and No. 765, July 27, 6 p. m., from the Minister in China, Foreign Relations, 1927, vol. II, p. 400.

League of Nations Treaty Series, vol. xc, pp. 337, 354.

In case it were proposed that there be levied a municipal tax not based on imports or exports and for conservancy purposes, the Department would perceive no objection, and for guidance in such case you should consult the Department's previous instructions with regard to payment of municipal taxes by American citizens.


893.512/1152: Telegram The Acting Secretary of State to the Minister in China (Johnson)

WASHINGTON, July 31, 1931—2 p. m. 256. Your 456, July 23, 3 p. m.

1. While Department has not yet received copy of Shanghai Senior Consul's circular of June 15, 1931,53 referred to in paragraph 1 of your telegram under reference, Department concurs in Legation's views as expressed in paragraph 10 of telegram under reference that any change in existing arrangements should be made by modifying present agreement, following same procedure which resulted in conclusion of present agreement. Any such modification should be referred to Department before Legation gives its assent thereto.


893.156/44 : Telegram The Minister in China (Johnson) to the Acting Secretary of State

PEIPING, August 11, 1931–6 p. m.

[Received 8:19 p. m.54] 508. Department's 230, July 15, 3 p. m. With the Department's approval I propose to address a formal note to the Ministry of Foreign Affairs regarding this matter, the pertinent portions of which read as follows:

1. "An examination of the regulations issued by the Municipality of Shanghai and forwarded to me by the American Consul General at that port indicate that they seriously impair, if indeed they do not arbitrarily destroy existing rights in immovable property lawfully acquired and long enjoyed by American nationals. These rights are evidenced by title deeds duly stamped by the appropriate Chinese authorities or by Shengko receipts issued by the Whangpoo Conservancy Board pursuant to paragraph 5, supplementary article 12 of the Whangpoo Conservancy agreement of 1912. The regulations appear to prevent American nationals acquiring or using foreshore property as provided for in the Conservancy agreement mentioned,

* Not printed

Telegram in four sections.

the continued effectiveness of which was expressly recognized by the Chinese Government in article 129 of the Treaty of Versailles and article 114 of the Treaty of Saint-Germain-en-Laye. Furthermore, the regulations appear to make possible the arbitrary confiscation or expropriation without compensation of foreshore rights and property thus invalidating and undermining legitimate property rights.

2. As Your Excellency is doubtless aware it is the general practice of nations to make no charge for the use of the foreshore, it being recognized that such use is a natural one and inherent in riparian ownership. Riparian property acquired by American firms or citizens was obviously acquired for the use of the foreshore for such purposes as berthing vessels, et cetera. The levy of fees on such property therefore constitutes a serious interference with legitimate commercial activities, and is one to which I feel sure Your Excellency's Government is fundamentally opposed. There is the further consideration that under the existing treaties American firms and nationals are not legally liable for the payment of suck fees. I therefore have the honor to request that the regulations be canceled or modified so as to ensure that the right of American owners of riparian property shall in no wise be impaired and that the owners may continue freely to use their respective water frontages, this being a right inherent in riparian ownership and confirmed by the general practice of nations."

3. As regards the point raised in second paragraph of Department's July 15, 3 p. m., the organic law of municipalities promulgated by the Chinese Government on May 20, 1931, provides inter alia that "a municipality shall adhere to the following matters insofar as they do not conflict with the laws and orders of the central authorities and those of higher organs: (item 22) waterways, harbor works and the management of matters connected with navigation.” Furthermore, that a municipality may make appropriate rules and regulations. There therefore appears to be no question as to the competency of the Shanghai municipality to issue regulations governing the use of foreshore property and for this reason I have not raised this point. The British have also refrained from raising this question.

4. British have already forwarded note requesting cancellation of regulations. Japanese and French apparently waiting to see outcome of British efforts.


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893.5034 Business Tax/87

The Minister in China (Johnson) to the Acting Secretary of State No. 1123

PEIPING, August 17, 1931.

[Received September 14.] SIR: I have the honor to refer to my despatch No. 1075 of July 7, 1931,56 regarding the new Business Tax Law and to enclose a copy of

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my formal note of August 7, 1931, to the Minister for Foreign Affairs, the substance of which was telegraphed to the Department in my No. 503, August 10, 6 p. m.,58 pointing out various objectionable features of the new law and requesting that this whole question be given further careful consideration.

I have incorporated in the note the various objections and suggestions made by Mr. C. H. French, President of the American Chamber of Commerce at Shanghai, Mr. Julean Arnold,57 and various American business men, and for the information of the Department enclose memoranda and letters from the individuals mentioned.58 Copies of Legation's circular instruction No. 137 of August 13, 1931, to American consular officers in China regarding the new Business Tax have been forwarded to the Department.58 Respectfully yours,



The American Minister (Johnson) to the Chinese Minister for Foreign

Affairs (C. T. Wang) No. 335

PEIPING, August 7, 1931. EXCELLENCY: I have the honor to acknowledge the receipt of Your Excellency's formal note of June 3, 1931,58 requesting that American firms be instructed to pay the new business tax which Your Excellency characterizes as non-discriminatory, beneficial to commerce, and in conformity with the general principles of taxation.

While I have not been officially apprised of the promulgation of the new National Business Tax Law or of the regulations for its enforcement; and while I have not received from Your Excellency the text of the new law, it is my understanding that it was promulgated by mandate of the National Government dated June 13, 1931.

The question of the payment of taxes by American citizens is, as Your Excellency knows, even now a matter subject to negotiation and agreement between our two countries in connection with the general question of extraterritoriality, and until those negotiations have been completed and an agreement reached and ratified, I am not in a position to inform American citizens that they should comply with the law which imposes a tax upon their several businesses.

Because of the important bearing that such a law has upon the welfare of American citizens in China, and more particularly in view of the current negotiations relating to the relinquishment of extraterritorial rights, I have caused this law and the regulations for its

* No. 503 not printed. 5 Commercial Attaché in China. "Not prioted.

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