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Inclosure 15 in No. 1,
Government of India to Government of Burman,
October 11. 1904.
I AM directed to acknowledge the receipt of your letter dated the 6th July, 1904, on the subject of the proposal to permit opium exported from Yünnan for the Chinese market to pass through Burmah in bond. Certain objections to this scheme were urged by the Government of India in my letter dated the 5th May, 1904, and these objections are dealt with in your letter under reply.
2. The Government of Burmah contend that--
(1.) The natural trade outlet of Western Yünnan is through Burmah, and not by way of the Red River Valley. Owing to the peculiar nature of the transport conditions, any movement of opium to Burmah must necessarily cause a permanent expansion of the import trade from Barmah into Yünnan; and, while the full extent of the expansion cannot be foreseen, the population which could be served by this route is so large as to justify the belief that it will be considerable.
(2.) The adoption of Mr. Litton's scheme will not necessarily make Yünuan opium any cheaper than it is at present in Canton. Moreover, the maintenance of the existing prohibition against import into Burmah does not assist in any way in keeping Yunnan opium out of Canton, and cannot prevent the drug from reaching that port by sea viâ Tonquin. It is difficult to suppose that the French will fail to see the advantage of concluding an arrangement with the Chinese Government under which Yunnan opium sent via Tonquin by sea will be admitted and taxed as native opium; and it appears probable that they will attempt to negotiate such an agreement as soon as their railway reaches Yünnan-fu, or even Mengtse. Unless they are anticipated all the Yünnan opium destined for Canton and Eastern China will ultimately go by the new railway to Tonquin and thence by sea; and the return trade with Yunnan will be lost to Burmah, Sir H. Barnes also indorses Mr. Litton's opinion to the effect that the Indian drug has obtained a market of its own in China. Its consumption is said to be con- fined to the wealthy and fastidious classes, and it is argued that in these circumstances the demand would be unaffected by the grant of facilities for the transport of Yünnan opium through Burmah to the Far East.
(3.) The probibition in the Barmah-China Convention against the importation of Chinese opium into Burmah was insisted on by the British Government in order to prevent any disturbance of the excise arrangements in force in Burmah; and all that is now suggested is that permission should be accorded to the Chinese Government to transport Chinese opium to Chinese ports by a route which passes through British territory, but which is more direct, safer, and more expeditious than the inland route. China will thereby be enabled to levy the full l-kin due upon the opium, while Burmah will benefit by the expansion of the trade with Yunnan, and possibly by the reduction Mr. Litton of the contraband trade in opium across the Yuunan frontier. anticipates that, if the good-will of Sir R. Hart be secured, the rule prescribing that all opium imported into China by sea shall be taxed as Iudian opium will probably be relaxed.
3. The Government of India have given this question their most careful con- sideration; and, although they are unable to accept all the arguments advanced by Mr. Litton and supported by Sir Hugh Barnes, they are inclined, on the facts as now presented, and in view of the importance of the political issues involved, to accept the general lines of the scheme put forward by the Government of Burmah. They agree that, if the transport of Yunnan opium be permitted, some expansion of the trade between Burmah and that province will necessarily occur; and although the extent of this expansion is problematical, they consider that it will in any case be of considerable political value, and may reasonably be regarded as sutficient to counterbalance, if not to outweigh, the disadvantages inherent in the scheme. They are also of opinion that one of the most important objections to the proposal, as originally submitted, can be removed by imposing a transit duty, leviable at such rates as may be fixed from time to time by the Government of India, on Yunnan opium passing through Burmah in boud. This would enable the Government of India to regulate to a considerable extent the price of the drug in the Far Eastern ports; and the power would be most useful, should it eventually prove that the sales of Indian opium were suffering owing to the com-
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petition of the cheaper drug. The proceeds of the duty would also cover the cost of the preventive establishments employed in connection with the scheme, and would compensate. in some degree for any loss of revenue which might occur owing to smuggling.
4. The Government of India are, however, somewhat doubtful as to the precise scope of the scheme recommended for adoption. Certain passages in the cor- respondence seem to imply that a mere waiver of the prohibition against the import of opium from Chinese territories into Burmah would be sufficient to divert the Yunnan opium traffic to the Bhamo-Tengyueh route. It is even stated that a powerful Syndicate of Chinese merchants has already been formed in Rangoon to operate at once in the event of the prohibition being removed. If these merchants, who have not apparently suggested the need for any special concessions at the hands of the Chinese Government, are prepared to start their operations on a basis which only requires the withdrawal of certain restrictions by the Government of India, and needs no antecedent negotiations with the Chinese Government, there would be an obvious advantage in at once making the necessary arrangements to admit Yünnan opium into Burmah, and in postponing the endeavour to obtain peculiar privileges from the Chinese Government, until the new traffic has been established, and until the merchants concerned are in a position, as the result of practical experience, to indicate clearly the disabilities under which they suffer and the means by which these might best be removed. On the other hand, the general tenour of the correspondence which has taken place regarding this subject points to the conclusion that a mere waiver of the Treaty right would be wholly inoperative, unless supplemented by a definite agreement with the Chinese Government under which Yunnan opium exported to China by sea would be permitted to enter that country at a favourable rate of duty as compared with Indian opium. This latter conclusion is also supported by independent considerations. At present Yunnan opium may be dispatched to the Far East by two routes: it may be forwarded via the Red River Valley and Tonquin, and thence by sea to China, or it may be sent overland. In the former case it would seem to be subject to taxation at the same rate as foreign opium on arrival in China; in the latter case it would be subject to the various li-kins and taxes levied by the Chinese Provincial Governments. The Government of India understand, however, that little or no opium produced in Yunnan is at present dispatched to China by the Touquin route, and the reason may be that the imposition upon such opium of the duty levied upon the foreign drug is, in fact, prohibitive. In these circumstances, if His Majesty's Government merely waive their right under the Convention, and permit the transport of the drug through Burmah, without negotiating for the admission of Yunnan opium into China at a favourable rate as compared with "foreign" opium, it is possible that the Yunnan opium trade will not follow the Bhamo-Tengyueh route any more than it at present follows the nearer Mengtse-Tonquin route; and the Government would have laid themselves open to misrepresentation of their opium policy, without having secured any compensating advantage.
It is essential that this question should be definitely settled before the Secretary of State can he addressed on the subject. If an arrangement with China constitutes an integral part of the scheme, as it apparently does, it will be necessary to place the matter before His Majesty's Government in sufficient detail to enable them to enter at once into the necessary negotiations. Mr. Litton explains that it will be necessary "to negotiate an arrangement with China which will include (1) arrangements with the Imperial Customs, i.e., Sir B. Hart; (2) with the Peking Government; (3) with the Yunnan provincial Government and li-kin authorities; (4) with the Canton and Liang Kiang (Nanking) Viceroys and their li-kin and provincial Governments."
The con- cession which should be obtained from each of these authorities are not, however, precisely stated, and I am therefore to request that detailed information may now be furnished regarding the privileges which it is considered necessary to secure, and the reasons which render them indispensable to the success of the scheme.
6. In particular, information should, if possible, be collected, sufficient to enable te Government of India to decide as to the rate of duty which should be proposed for adoption in the case of Yunnan opium entering China by sea. In order to deter- wine this, and also the rate of transit duty which may suitably be imposed in the first instance, it will apparently be necessary to ascertain the cost of land carriage and river or sea freight, including the provincial taxes and Customs dues actually levied on the drag during its passage across China and on re-entry at the Eastern ports, as compared with the freight and other necessary items of expenditure which would be incurred if the opium were forwarded via Tengyueh, Bhamo, and Rangoon. I am also to request
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