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present situation. His view seems to be that it would be no great hardship to the Indian Government to take back the goods which they sold, and to refund the price with some addition to the merchants; that they ought not to have sold the stocks now with the merchants; and that they have made 6,000,000%. out of the Opium Agreement more than they expected. The Indian Government do not accept this estimate of the situation. Their case is that the amount which it is proposed that India should make good to the merchants is more than double what was received on account of the stocks by the Indian exchequer; that the sale of these stocks was fully warranted under an agreement entered into by the British Government, on the validity of which the Government of India as much as anybody else was entitled to rely; that the sales could not in fact have been avoided without breach of engagements to the public; and that no such unlooked-for profit as 6,000,000l. has accrued to ludia. These three points are discussed at length in a memorandum attached to this letter to which attention is invited. If the Indian contention regarding them is, as is thought, established, there is no case for fixing upon India, the obligation to take over the stocks and satisfy the claims of the merchants and bankers
The Secretary of State in Council considers that the position of the Government of India is one of very great strength, the more so that Sir John Jordan's proposal is based on a consideration of advantages which will accrue to British rather than Indian interests.
I am, &c.
T. W. HOLDERNESS.
Enclosure in No. 1.
Memorandum on the Attitude of the Government of India towards the China Opium Trade, 1912 and 1913. (Confidential.)
SIR JOHN JORDAN has on several occasions strongly expressed the view that the Government of India are responsible for the present impasse in respect of the opium stocks in China, and that they should bear any pecuniary burden arising from it. The main grounds of his contention are two, viz. :—
(1.) That it was by the Government of India's refusal to suspend the sales in June 1912 that opium was sold for China after that date to the amount of 8,103 chests; and
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(2.) That they have received a "surplus over the estimated revenue from opium during the last three years amounting to more than 6,000,000l. and that they therefore "can well afford" to make restitution.
This memorandum is intended to show the actual circumstances in respect of both these arguments.
1. The agreement of the 8th May, 1911, worked without friction until the overthrow of the Manchu régime. But the Republican Government, established at the end of 1911, had little control over the provincial authorities, and cultivation of native opium began at once to revive, while by proclamations and more violent steps, at variance with the agreement, the provincial officials actively impeded the entrance of Indian opium. Sir J. Jordan reported, on the 29th May, that "Government here are probably unable to impose their will upon provinces, but in the case of opium they no longer make any real effort to do so.'
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2. The result was that considerable stocks of certificated opium accumulated in the treaty ports. The merchants represented the danger of serious loss to themselves and to the exchange banks, and urged suspension of the Indian auction sales. The consul-general at Shanghai reported that the stocks at that port alone amounted to 19,300 chests, as compared with 10,400 chests at the same period in 1909, 8,900 chests in 1910, and 14,900 chests in 1911. The Government of India at the same time The telegraphed that they considered that the question had become “
very serious. Secretary of State asked the Government of India to consider the question whether their sales and the Malwa sales should be suspended.
8 The Government of India replied that they considered the merchants' request for postponement or discontinuance of the sales entirely inadmissible. Their detailed reasons will be found in their telegram of the 6th June, 1912, printed among the appendices to this memorandum. It is to be noted that they deal with the question in the form in which it then arose, viz., as a proposal for a concession meant to relieve
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the opium merchants from their difficulties. Broadly, the Government of India's position was this:-
(1.) Their published conditions of sale prevented them from making any change in the sale programme without giving three months' notice;
(2.) They were not responsible for the inflated prices which the firms had chosen to establish for certificated opium. During 1911 the price of this opium was practically doubled. Merchants in Shanghai, who were asking the Indian or the Chinese Government to take over their stocks, or to compensate them for what they termed their losses, a few months before refused to sell at very satisfactory prices;
(3.) The Indian Government had to regard not only the interests of the Indian taxpayer, but also those of the Indian growers and dealers in Malwa opium, and of the native States. These interests would be seriously affected if the export of Malwa opium was summarily suppressed; and
(4.) The enforcement of the provisions of the treaty would become more difficult by voluntary relinquishment of rights secured by it.
4. It is further to be noted that after the sales beld early in June there remained only 2,680 chests unsold of the year's quota of certificated Bengal opium (of which 2,010 chests would have been sold in July, August, and September, the three months covered by the necessary notice of suspension), and 2,663 chests of Malwa opium, the export right in which was to be disposed of at the auction sales of July and August. It is, therefore, clear that the necessity for giving three months' notice would, so far as the sale programme of 1912 was concerned, have prevented a suspension of the sales from having any important effect on the immediate situation, even if the other considerations urged by the Government of India were set aside.
5. The result was that the Government of India's refusal to suspend the sales was approved; and Sir Edward Grey summed up his views, in telegraphing to Sir J. Jordan on the 17th June, 1912, in the following words :-
"It would be unfair to expect Indian Government to make such a sacrifice for the Shanghai market, to bring financial loss on itself, on the native States, and the native cultivators, and to lay itself open to a charge of inconsistency and breach of faith, in order to enable a few firms interested in the opium trade in China 10 realise, a profit."
6. The sales of certificated opium for the last six months of 1912 (after which no sales were made) were as follows:-
1912-
July
August September.. October
November..
December..
Date.
Bengal Certificated.
Maiwa.*
Chests.
Chests.
670
1,835
670
1,828
670
Nil.
670
Nil
Nil.
1,880
Nil
1,880+
* Malwa opium at no stage belonged to the Government of India. It was private property, bought by the exporters from the merchants in the native States. The Government levied a pase duty on it, and sold the right of export by suction. Of the proceeds, the Government of India retained three-quarters of the pass duty and one-half of the auction proceeds, paying the remainder over to the native States.
† Right of export and for the two first months of 1913.
The actual amounts sold, at dates which would have come after the expiry of three months' notice given in June 1912, was, therefore, 3,430 chests, including 2,760 chests for export in 1913 as part of the quota for that year.
7. The following points, which are frequently overlooked in the latter discussions, but are of the greatest importance in forming a just estimate of India's refusal to suspend the sales in June 1912, are worth stating, at the risk of repetition
(a.) The proposal to suspend the sales at that period was put forward solely on the ground of the difficulties of the merchants. The Chinese Government made no such demand.
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