(No. 8.) Sir,
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Inclosure 1 in No. 1.
Consul-General Fulford to Sir J. Jordan.
Mukden, December 22, 1906. I HAVE the honour to inform you that the British-American Tobacco Company's District Manager in Newchwang, Mr. Henckendorff, has complained to me that the cigarettes of the Company are being taxed in Tiehling, one of the marts in Manchuria opened to foreign trade by the Japan-China Treaty of December 1905. The Chinese agents of the Company have paid a considerable amount in this manner. In informing me of this, Mr. Henckendorff added that Japanese cigarettes were being forced to pay the same duties at Tiehling, but that they were being levied on the Chinese clients of the Japanese importers.
As nearly all the cigarettes of the British-American Tobacco Company are manufactured in Shanghae and classed and taxed there as "native goods," I am in some doubt as to whether it would be correct to demand for them in Treaty ports exemption from any further taxation beyond that prescribed by the Treaty Tariff as in the case of foreign goods.
I presume that ordinary native goods conveyed from one Treaty port or mart to another by foreigners for local consumption by the Chinese are not entitled to exemption from further taxation beyond that of the Treaty Tariff in the port of destination, at least when they have arrived in Chinese hands.
The question also of transit taxation on such goods between the Treaty ports connected by railway presents some difficulty. In the case of these cigarettes being sent from Shanghae to Newchwang via Chin Wang Tao, I have ascertained that, in addition to the usual coast trade duty of one and a-half times the export duty, a transit duty of half the export duty has been regularly levied to free them of li-kin along the railway. This duty is levied on the ground that they are native produce. Foreign goods are passed free under exemption certificates.
I should be glad to be instructed as to the claim for exemption from taxation in Treaty marts, as the Company wishes to apply for a refund of the duties paid as above described in Tiehling.
I have, &c. (Signed)
(No. 2.) Sir,
Inclosure 2 in No. 1.
Mr. Hosie to Sir J. Jordan.
H. E. FULFORD.
Office of the Commercial Attaché, Shanghae, January 17, 1907.
I HAVE the honour to acknowledge the receipt of your despatch No. 1 of the 3rd instant, inclosing copy of a despatch from His Majesty's Consul-General at Mukden regarding the taxation of the British-American Tobacco Company's cigarettes in Manchuria, and directing me to inquire into the whole subject of the manufacture of these cigarettes and their treatment by the Imperial Maritime Customs at this port.
The history of the customs duty on cigarettes at Shanghae dates back to the year 1892, when a small factory called the Commercial Tobacco Company was established in Hongkew and manufactured cigarettes almost entirely for local consumption. There was an insignificant export and on this the Customs levied a duty of 4 m. 5 c. per picul, classing it, as there was no heading "Cigarettes" in the Tariff as prepared tobacco, and subjecting it to the same amount of duty,
The Treaty of Shimonoseki of 1895 authorized Japanese subjects and, by the most-favoured-nation treatment, other foreigners to engage in all kinds of manu facturing industries in the open cities, towns, and ports of China, and many industries, including the manufacture of cigarettes on a large scale, at once began to spring up in Shanghae, and the export duty of 4 m. 5 c. per picul on cigarettes was continued until the 22nd January, 1904, when an Order (No. 601), copy of which I inclose, was posted at the custom-house giving notice that Chinese manufactures of
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foreign type would from that date be liable to a single 5 per cent. ad valorem duty, and thereafter be free from further taxation. No reference to an export duty on goods manufactured by Japanese in China is made in the Treaty of Shimonoseki, but Article III of the Protocol supplementary to the Japanese Treaty of Commerce and Navigation of the 21st July, 1896, lays down that "the Government of Japan concedes the right of the Chinese Government to enforce on articles manufactured by Japanese subjects in China such a tax as may seem expedient, provided that the same tax shall not differ from or exceed the tax paid by Chinese subjects," and on this Article, which reads more like the imposition of an excise tax than a customs duty, is based the claim of the Imperial Maritime Customs to levy export and coast-trade duties. On receipt of your despatch now under acknowledgment I called upon Mr. Hobson, Commissioner of Customs, who informed me that the amount levied on the cigarettes was the duty on local machine-made goods, and that he would look into the matter and give me details later. The same day be forwarded to me a Memorandum, copy of which I inclose.
At the time that Customs Order No. 601 was issued the British-American Tobacco Company's factory was undergoing reconstruction, and it was not until July of 1904 that the Company was again prepared to export cigarettes. It then found that the 5 per cent. duty was in force and had to be paid. Against this the Company vigorously protested, and a lengthy but fruitless correspondence took place between its Director and the Commissioner of Customs. The former thereupon forwarded copies of all the correspondence to His Majesty's Consul-General, wao referred the matter to the Legation. The case was laid by Sir Ernest Satow before the Wai-wu Pu, and I inclose copy of Prince Ching's final reply of the 26th December, 1904, agreeing to the former's contention that duty should continue to be paid on the cigarettes at the rate of 4 m. 5 c. per picul, but while agreeing the Prince stated that "the rule applicable to native products must be applied, that if, after payment of export duty, there is a re-entry into another port, coast-trade duty must be paid, and, if there is a further conveyance into the interior, customs dues must be paid at customs stations, and li-kin at li-kin stations."
I inclose a copy of a letter from the British-American Tobacco Company accepting the above conditions. I take these conditions to mean that when the cigarettes have paid coast trade duty in a port-and coast trade duty is payable only once, however many ports are visited-en route to destination, they are not liable to any further taxation whatsoever in that port. After leaving the port they would of course be subject to such taxes as are legitimately leviable in the interior.
Mr. Fulford, in the third paragraph of his despatch, presumes that " ordinary native goods conveyed from one Treaty port or mart to another by foreigners, for local consumption by the Chinese, are not entitled to exemption from further taxation beyond that of the Treaty Tariff, in the port of destination, at least when they have arrived in Chinese hands"; but goods manufactured by foreigners in the open ports of China are not ordinary native goods, and the Treaty of Shimonoseki distinctly provides that such manufactured goods shall be treated as regards inland taxation on the same footing as foreign imports. The second paragraph of section 4 of Article VI of that Treaty lays down that "All articles manufactured by Japanese subjects in China shall, in respect of inland transit and internal taxes, duties, charges, and exactions of all kinds, and also in respect of warehousing and storage facilities in the interior of China, stand upon the same footing and enjoy the same privileges and exemptions as merchandize imported by Japanese subjects into China." Foreign goods, no matter whether in the hands of foreigners or Chinese, are exempt from taxation in a port after payment of Tariff import duty, and the above section of the Shimonoseki Treaty places goods manufactured by foreigners in the open ports of China on the same footing. The framers of the Shimonoseki Treaty do not appear to have contemplated that goods manufactured by foreigners in China would be, as they are, exported to foreign countries and other Chinese ports; but when, in the latter case, they have satisfied the Imperial Maritime Customs by payment of export and coast trade duty, they should be exempt from further taxation in the port of such final duty payment, whether it is a sea, river, or, inland port, and if inland and the goods have to be conveyed to it from another port by rail, there should be no railway transit taxes, for it may be taken for granted that the Chinese authorities are quite capable of exercising control over goods unloaded at stations between ports.
may add that I visited the factory of the British Cigarette Company in November last where cigarettes of pure American leaf were being turned out at the rate of 8,000,000 a day; that no suitable blend of American and Chinese tobaccos
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