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Yünnan. Mr. Litton urged that the prohibition, which is contained in Article XI of the Convention of 1894 between Great Britain and China, against the passage of Yunnan opium in bond through British India should be removed, in the interest of the trade of Burmah, and his Lordship desired to be informed of our opinion on this proposal.
2. We inclose, for your information, copies of the correspondence which has taken place with the Governn.ent of Barmah on the subject. Mr. Litton's original proposals, which were very vague and indefinite, have been amplified, and are now formulated in a manner sufficiently precise to admit of their detailed discussion. The essential features of the scheme which he now suggests, and which the Government of Burmah recommend for adoption, are as follows :--
His Majesty's Government should intimate their willingness to allow the tran-port of opium from Yunnan through Burmah in bond, en route for the eastern ports of China, and the Chinese authorities should be approached with the view of obtaining their consent to a waiver of China's right to prohibit the export of the drug to Burmah. The particular form in which these negotiations should be conducted is a matter for the consideration of His Majesty's Government. It will be necessary, however, as an integral part of the negotiations, to arrange that the opium exported from Yuunan viâ Burmal shall be permitted to enter China by sea on payment of customs duties at a fixed rate, which must be much lower than that levied on "foreign" opium. Under the system at present in force, all opium which passes through non-Chinese territory is treated, for customs purposes, as "foreign" opium; but the tariff on the *
"foreign" drug is so high that it is essential that exports from Yüunan should be readmitted into China at a favourable rate, if the traffic is to be attracted to the Tengyueh-Bhamo-- Rangoon route. Assuming that arrangements of this nature can be made, Mr. Litton is of opinion that the Imperial Customs duty on the drug should be levied on export at Tengyuch in one consolidated payment; and he considers that it would also be advisable to arrange for the collection of the provincial li-kin for Yünnan, and for the province of destination, by officials of the Chinese Imperial Customs service, all sums collected on account of li-kin being handed over in fall to the provincial authorities. It is also proposed that a transit due should be imposed on the passage of the drug through Burmah, to be enhanced or reduced at the sole discretion of the Government of India.
3. The various objections which may be urged against the acceptance of this scheme, and the advantages which may possibly accrue from its introduction, have been fully discussed in the correspondence which is inclosed with this despatch; but it will be convenient to recapitulate the more important arguments which have been advanced during the course of the discussion.
Mr. Litton contends that no material expansion of the trade between Burniah and Yunnan is possible, so long as the export to Burmah of opium, which is the chief product of Yunnan, is prohibited. He anticipates that the removal of this artificial restriction will result in a rapid increase of trade, and will also materially strengthen our political position on the Burmese frontier. While we are disposed to attach great weight to the latter contention, we are doubtful whether the disadvantages involved in the acceptance of the scheme have been fully appreciated, and whether the opinion held by the local authorities as to the probable effect on trade is not unduly sanguine.
4. Under Mr. Litton's scheme it is essential that the initiative should be taken by His Majesty's Government, and that the Chinese Government should be induced to levy on opium imported from Yunnan vià Burmah a lower rate of duty than they at present impose. We consider that, in respect of both these matters, any action which may be taken by this Government or by His Majesty's Ministers will be peculiarly fiable to misrepresentation; and we are of opinion that the inadvisability of entering upon negotiations calculated to revive a general discussion regarding our opium policy has been but imperfectly appreciated. Again, although the immediate effect of the removal of the existing prohibition will doubtless be considerable, the trade directly secured will be a transit trade only, and there is no guarantee that it will be accompanied by a corresponding inflow of goods into Yunnan from British India. It is also questionable whether Indian merchants will be able to retain any considerable share of the Yunnan trade when the railway passing through the Red River Valley is completed. In the Report forwarded with his Confidential letter, dated the 1st October, 1903, addressed to the Marquess of Lansdowne, Mr. Litton expressed the opinion that the railway would probably altogether prevent the import of foreign goods to Yunnan-fu viâ Tengyach; and he considered that, although the Ta Li and Yung Chang districts might not be directly affected, the railway would probably have a disastrous effect on trade generally between Burmah and Yüuoan.
Any concessions which may now be obtained from
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China in respect of the import duty on Chinese opium transiting foreign territory can be claimed at any time by France under the most-favoured-nation clause; and, as the Yuunan-fu-Mengtse-Tonquin route is probably preferable to the Bhamo-Tengyneh - Rangoon route, even under present conditions, and will certainly afford a better outlet for the trade of Yunnan on the completion of the railway, it would appear that, if Mr. Litton's surmise prove to be correct, His Majesty's Government may expose themselves to much adverse criticism in negotiating a concession which will be advan- tageous chiefly to our trade rivals.
5. We recognize, however, that the removal of the existing prohibition will necessarily be accompanied by some expansion of the trade between Burmah and Yünnan, and we do not underrate the advantages which Indian traders will enjoy in competition with the French, owing to their being first in the field. The political advantages which may be expected to accrue from an extension of trade have already been alluded to, aud we are of opinion that this aspect of the case is of great importance. For these reasons, and as the proposal has been strongly supported by the Government of Burmah and by the Rangoon Chamber of Commerce, and appears to be regarded favourably by Lord Lansdowne, we have no objection to negotiations being entered into with the Chinese Government, with the object of securing the concessions which it will be necessary to obtain before the traffic can be diverted to the Bhamo Rangoon route. In view, however, of the considerations stated in paragraph 4 above, and of the uncertainty which we feel as to the results of the experiment, we are strongly of opinion that pressure should not be exercised upon the Chinese authorities in order to induce them to accept the scheme; and we are not prepared to purchase their consent by granting concessions of any material value in other directions.
6. The nature of the concessions which must be obtained before the opium traffic can be diverted to the Burmah route is fully explained in Mr. Litton's Memorandum, dated the 16th November, 1904. We agree generally with the specific recommendations which he has made, but consider that the rates proposed for the consolidated Customs duty, and for the Burmah transit fee, are unsuitable. The information available regarding the total incidence of taxation and transport charges by the various alternative routes from Yünuan to the eastern ports of China is admittedly incomplete, and may possibly be inaccurate in certain respects; but it appears probable that Yunnan opina cannot be delivered at Canton, under existing conditions, for less than 200 rupees per picul, exclusive of profit and of the initial cost of the drug. If the specifie proposals made by Mr. Litton and supported by the Government of Burmah, were accepted, it would be possible to sell Yunnan opium in the eastern ports at a rate approximately 32 rupees per picul lower than the current rate, and there can be no doubt that in a short time the sales of Indian opiam would be adversely affected, owing to the com- petition of the cheaper drug.
7. We consider that, in fixing the rates of duty to be levied, regard should be had to the following principles, viz., that the total charges on the drug should be maintained at approximately the same level as at present; that the Chinese Government should be permitted to retain as large a share as possible of the total taxation on opiom transported through Burmah; and that the transit due should be utilized as an adjusting factor to regulate prices in the eastern ports, if necessary, and to prevent the diversion of the trade to any other route. We attach great importance to the power to regulate prices by enhancing the transit due, as this may at any time become necessary in order to prevent Yunnan opium from competing on unduly favourable terms with the Indian drug; but, while we are of opinion that entire freedom of action in this respect must be reserved, we do not desire to divert to the Indian exchequer any portion of the increased taxation which it may be necessary from time to time to impose. The objects in view are to some extent irreconcileable, inasmuch as the greater portion of the total taxation levied on the drug cannot be made over to China without reducing to a minimum the margin available for diminishing the cost of transit by the Burmah route. We recognize the difficulty, but consider that the question of obtaining a sufficient margin of taxation for this purpose must be subordinated to the more important considerations referred to above.
8. We would, therefore, suggest that the following specific proposals, which have been framed in accordance with the principles explained in the preceding paragraph, should be adopted as the basis of the negotiations:-
The Imperial Customs consolidated export and re-entry fee shall be fixed at 50 rupees per picul for a period of three years. The transit due to be levied at the outset shall be 12 rupees per picul. During this period the consolidated duty levied by