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Enclosure 3 in No. 1.
Memorandum respecting Royalty on Compounds of Opium and Morphine.
THE origin of the legislation in this colony imposing a royalty on compounds of opium was a complaint made in December 1903 by the opium farmer that, owing to the increased price of prepared opium, there had been a large increase in the consumption of opium pills and opium wines, originally intended for the cure of the habit of smoking opium, but before long used as a substitute for it, because, being manufactured outside the colony (from Chinese opium) or within the colony (from opium dross), they were much cheaper than the opium farmer's prepared opium.
Accordingly, after prolonged consideration of the matter, an ordinance (No. 10 of 1904) was passed in September 1904 to amend "The Prepared Opium Ordinance, 1891." In this Bill the principle of imposing royalties on compounds of opium imported for use in the colony was for the first time introduced. Section 4 of the Bill contained the following provision
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"Every importer of any compound of opium which is intended for sale or for use in the colony shall pay to the opium farmer a royalty thereon calculated at the rate of 3 dollars per tael of opium."
On the 19th June, 1906, the Executive Council advised that Ordinance No. 10 of 1904 should be amended so as "to include such goods as morphine, which are extracts from opium and do not contain opium." A draft of such a Bill, prepared and submitted by the Crown Solicitor on the 30th July, 1906, provided that a royalty of 3 dollars should be payable to the opium farmer both on compounds of opium and also on morphine imported for sale or use in the colony; but in the first printed proof of the Bill, dated the 8th September, 1906, this section was altered to read :-
Every importer of morphine or any compound of opium which is intended for sale or use in the colony shall pay to the opium farmer a royalty thereon calculated at the rate of 30 dollars per tacl of morphine and 3 dollars per tael of opiun."
There is no correspondence on record showing why this change was made while the bill was in the press, and on the 10th October, 1906, the Crown Solicitor
wrote:-
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"I wish to draw attention to the fact, which may have been overlooked, that the proposed royalty of 30 dollars per tael of morphine is extraordinarily high. Mr. Frank Browne (the Government analyst) informs me that the cost of morphine is 8s. 6d. (say 5 dollars) per tael, so that the proposed duty is at the rate of about 600 cent. Ás chemists are obliged to keep morphine in stock for the purpose of making up prescriptions, and this drug is, I believe, freely used by the local medical men, the effect of imposing such a royalty will be to increase the cost to Europeans of all prescriptions containing morphine; and as there will be no royalty on patent medicines, if they are exempted, the net result would be to encourage the consumption of patent medicines in preference to medicines prepared by qualified medical men-a result which hardly can be intended by the promoters of this Bill."
Upon this the Acting Colonial Secretary, Mr. Sercombe Smith, minuted on the 11th idem
"The question of the royalty on morphine was discussed in Executive Council, and it was advised that there was no substance in the point about chemists' charges. I notice, however, that in China the tariff is 3 taels an ounce and Japan 4654 yen per kin of 1-32277 lb. avoirdupois."
Sir M. Nathan decided, in a minute of the same date, to make no change in this section, and the Bill was passed by the Legislative Council without further discussion on that date, and assented to by Sir M. Nathan on the 8th November, 1906. (Ordinance No. 15 of 1906.)
I have examined both the minutes of Executive Council and the Hansard reports of debates in Legislative Council for the year 1906, and I cannot find any mention in them of the royalty on morphine, or any statement of the reason why it was fixed at 30 dollars per tael; nor can I find at whose suggestion this was done.
No protest was made by the local chemists against Ordinance No. 10 of 1904,
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because, as was explained in a letter dated the 20th June, 1907, addressed by Messrs. A. S. Watson and Co. to the Hong Kong Chamber of Commerce, the definitions in the ordinance "were so loosely drawn that chemists and druggists were successfully able to take up the position that the ordinance did not apply to morphia or to imported. patented medicines containing either opium or morphia." But as soon as Ordinance No. 15 of 1906 became law, Messrs. J. D. Humphreys and Son, on behalf of A. S. Watson (and Co., interviewed the then Acting Colonial Secretary, Mr. Sercombe Smith, on the matter, and were advised by him not to take any action. As, however, they considered that their compliance in this respect might subsequently be construed into a waiver of their objection, they wrote to Mr. Sercombe Smith, under date of the 22nd November, 1906, asking exemption from the Prepared Opium Ordinance for a long list of preparations sold by them which contained opium or its alkaloids, classified under six schedules, viz. :-
(u.) Officiale., British Pharmacopoeia preparations.
(b.) Unofficial, but often prescribed or asked for, and therefore kept in stock. (c) Medicines of which the firm of Burroughs, Wellcome, and Co. were the owners. (d) Medicines imported from Europe or America.
(e) Medicines prepared locally.
(f) Medicines sold locally, already exempted from the operation of the Prepared Opium Ordinance.
The Colonial Secretary, Mr. F. H. May, replied on the 15th March, 1907, that all the medicines in schedule (c) had been exempted by the governor in council as well as seven other medicines mentioned by name.
Messrs. A. S. Watson and Co. being dissatisfied with this reply, as the great majority of the medicines mentioned in their list bad not been exempted, requested the Hong Kong Chamber of Commerce to take up the matter, and on the 19th September, 1907, the chairman of the chamber wrote to the Colonial Secretary, pointing out that "The exempted medicines are nearly all those of one firm (Messrs. Burroughs, Wellcome, and Co.), and that the specialities of Hong Kong firmus are excluded, even though they are prepared and put up in England. Such a restriction practically amounts to giving Messrs. Burroughs, Wellcome, and Co., a monopoly of this class of trade as a free gift, and my committee contend that had such a result been contemplated when the Bill was before the Legislative Council it would never have become law, especially had it been seen that local firms, to whom all possible support should be extended, vis-à-vis firms having no local connection, would suffer a loss of trade for the benefit of outsiders. A point which seems worthy of special notice is that the opium farmers' monopoly in its original form was never intended to cover the sale of the drug as a medicine, and it seems unfair, particularly in this free port, to bar a drug, expensive in itself, to such a degree as will make its use prohibitive in medicines in such common use as rheumatic mixture,' Asiatic cordial,' wild cherry cough syrup, balsam of aniseed,' &c., which are classed in Messrs. Watson's schedule (e). The committee therefore suggest for the consideration of his Excellency the governor that, if the Government were not able to allow chemists and druggists a free hand in dispensing opium and morphia as distinct from other dangerous drugs, that they should be allowed to dispense opium and morphia on condition that they record all their transactions in these drugs in separate books, which shall be open to a periodical inspection by the Government's nominee in order to safeguard the opium farmers' interests."
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On the 2nd November, 1907, Mr. Humphreys wrote to the Colonial Secretary, saying that by arrangement Messrs. A. S. Watson and Co. were paying the opium farmer 3 dollars per tacl royalty on the morphine sold by the firm locally and not 30 dollars, and that, in spite of this tremendous reduction, the company had been forced to increase prices 20 per cent., and in consequence brought about a serious falling off in local sales. "The opium farmer," he added, "himself realises that 30 dollars per tael could only result in extinction of the business altogether or fraud on a colossal scale. In the few cases where he enforces the tax, he accepts analyses of probably fraudulent samples without question. Apart from the practicability or otherwise of the 30 dollars tax, it would seem that it is wrong in theory. The tax on opium is 3 dollars per tael, the tax on morphia 30 dollars for the same quantity, yet the dose of opium is only four times that of morphia; thus the latter, though only four times as potent in its effect as the former, is taxed ten times as much. From a theoretical point of view the tax on morphia should be 12 dollars not 30 dollars.”
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