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excise duty on the native drug, and in any case a specific duty on foreign opium would have a greater chance of acceptance by ns than any ad valorem taxation.
I then brought up the question of the treatment to be accorded to opium in stock in China at the date of the enforcement of any agreement, and informed Dr. Yen that my instructions were that such opium must be treated as earmarked opium.
Dr. Yen said he had no knowledge of what the stocks amounted to, and it would be necessary to make enquiries, as, if large, their admission on such terms would nullify the reduction of import secured by the agreement for this year unless a propor- tionate deduction were made in the export from India, and he remarked that the existence of these stocks could only mean that the spirit of the 1907 arrangement had not been carried out. This was, moreover, a new point, and would come, he feared, as a blow to the board.
I explained that instructions had been received from His Majesty's Govern- ment on this point on the 30th November last, but owing to the action of the Chinese Government in abruptly breaking off negotiations, there had been no oppor- tunity of discussing it, and now the necessity of dealing with the matter promptly, in order to avoid its complications, which only increased with delay, was an additional argument for coming to a speedy agreement on the whole question.
I also referred to the history of the 1907 arrangement, and reminded Dr. Yen that its particular form had been chosen by the Chinese Government, while no one at the time fully foresaw the difficulty regarding the 16,000 chests originally consumed else- where, but since attracted in part to China, but as it was we had been endeavouring ever since last July to induce the Chinese Government to come to a fresh agreement, and so minimise a difficulty which owed its present importance largely to China's procrastination.
At the conclusion of this meeting I requested Dr. Yen to make it clear to the board that, in order to enable these negotiations to progress towards a settlement, it was essential that articles 4 and 7 of the Chinese memorandum (relating to equality of treatment and The Hague Conference) should be eliminated and an anti-restriction article inserted, while at the same time we expected the Canton regulations to be suspended forthwith. In my telegram No. 51 of the 17th instant I had the honour to inform of the views expressed by Dr. Yen on the question of stocks, and in drawing attention to the difficulties presented by this matter I submitted that the principle of a time-limit to allow holders to dispose of their stocks before enforcing the new agreement should be adhered to.
you
On the following day, the 18th instant, I had an interview with the Grand Secretary Na Tung at which Dr. Yen was also present. I repeated my objections to articles 4 and 7 and to the omission of the anti-restriction article from the Chinese proposals, and laid stress on the fact that the negotiations could only proceed
on the basis already formally laid down and agreed to in the correspondence between myself and the beard. I then referred to the Canton regulations and declared that, in the event of these negotiations not proving successful, the action of the Viceroy in imposing further illegal taxation could not fail to form the subject of very serious representations to the Chinese Government.
The Grand Secretary deprecated even the suggestion that an agreement might not be reached, and assured me that the illegal taxation in Canton would not be tolerated. I pressed for the issue of instructions to the Viceroy in this sense and was assured that such would be sent, though up to the present no information whatever had been received by the board from Canton regarding the regulations.
As regarded article 7, a change in the wording might, he suggested, meet the case; but I replied that no form of wording could render this article, which was both unnecessary and irrelevant, acceptable.
The Grand Secretary finally informed me that it would be necessary to refer these points to Prince Ching, who had been following the negotiations, and he promised that Dr. Yen should bring me a definite answer at our next meeting.
I was disappointed to find that, in spite of my repeated and emphatic declarations as to the unacceptable nature of the proposals contained in these two articles 4 and 7, Dr. Yen could only inform me, when he came to the fourth meeting on the 21st instant, that he had been instructed by the board to submit them again in a new form as shown in the enclosed copy of the draft which he then handed to me.
Article 4 had been made to read that all anti-opium regulations might be made applicable to the foreign drug on the consent of His Majesty's Government being first obtained in each case. This provision, Dr. Yen stated, the board felt bound to insert in order to satisfy the Imperial commissioners for the suppression of opium.
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I pointed out that such an article would only open the door to continual agitation, the whole time of this legation would be taken up in dealing with continual applications for the enforcement of all sorts of restrictions on Indian opium, and instead of providing a settlement of the question, which it was the aim of any agreement to do, the result of this article would be to keep the question open indefinitely.
I challenged Dr. Yen to name any single contingency which might justify the necessity for such a provision, but he admitted his inability to do so. I then again declared that any such article was both unnecessary aud objectionable, and that it was useless to discuss it further.
Hardly, however, had I turned to the discussion of the provisions for shortening the period of import, which, as Dr. Yen had himself admitted would practically place the whole position in China's own hands if, as he had claimed, cultivation were extinguished within two years, when, to my surprise, the Chinese delegate once more reverted to the subject of his revised draft of articles 4 and 7.
I said at once that, in view of his persistence in introducing extraneous matter, it had come to the point now when I must ask him to refer to the official correspondence which set forth clearly the basis on which these negotiations were to be conducted and from which it was quite impossible for me to depart. I then handed him my notes to the board of the 23rd and the 31st December, 1910, and the replies received by me on the 29th December, 1910, and the 8th February, 1911. After reading these, Dr. Yen contented himself with repeating a statement he had previously made to the effect that the board considered that negotiations on the subject of opium should, in view of the moral considerations involved, be conducted on lines less strict than those usually followed in ordinary diplomatic matters.
It was evident that we were face to face now with a serious risk of having to abandon the negotiations, and rather than precipitate such an unfortunate breach I stated that in the last resort I would be prepared-on the distinct understanding that articles 4 and 7 were to be eliminated altogether--to suggest to you the inclusion in the agreement of a clause which I worded as follows;—
Should it be found necessary during the unexpired period of seven years to modify this agreement, it be revised by mutual agreement between the two high contracting parties,"
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I handed to Dr. Yen a copy of this draft clause, together with a re-draft, as enclosed herewith, of the anti-restrictive clauses 1 (d), (e), (†), and (g) of our memorandum of the 1st November, 1910, and I requested him to obtain the views of the board
upon them.
Dr. Yen, quick to pursue the idea of a bargain, then urged that I should under- take to concede the principle of an increase of the duty on an ad valorem basis in exchange for a favourable consideration of our modified anti-restriction clause, but I had to remind him again that we were getting away from the original basis of negotiation, and that it was impossible for me to give any undertaking with further instructions from you.
In support of his previous arguments in favour of an ad valorem basis for the increased duty, he now handed me a memorandum of the subject, copy of which I have the honour to enclose, which purports to show that an ad valorem duty on opium is feasible and presents few difficulties.
After reading this memorandum, I remarked that it still left the question in some doubt, and asked whether Dr. Yen could state exactly what the Chinese Government wanted, He replied that the idea was to levy a 30 per cent. ad valorem duty on the Indian auction price plus freight and insurance.
I pointed out that we were not in possession of exact information regarding the practice at the Indian auction sales; it was possible, for instance, that the auction prices included the amount of the Indian taxation, and, if this were the case, such amount could clearly not be subjected to duty in China; in short, we were not in a position to assume that the auction price could be taken as a workable basis for taxation."
I asked what such a duty would be likely to amount to per chest, and on Dr. Yen's replying that it was estimated to work out to between 400 and 500 taels, I said at once that I could hold out no hope of any such demand being acceded to by His Majesty's Government.
The discussion then turned on the subject of stocks, and I asked Dr. Yen whether he had ascertained the views of the board on this question. Dr. Yen said that the board felt that it was quite impossible for them to consent to the admission of these in addition to the agreed import for this year, and that it must be left to His Majesty's
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