PUBLIC RECORD OFFICE
Reference :-
LIC.O. 882
ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH-NOT TO
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and in all probability the imposition of import duties, a measure that would be intensely unpopular in the Colony, and would, in the opinion of many, be highly detrimental to the commercial prosperity of the island.
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6. Returning now to the first-mentioned consideration, the desirability, namely, restricting, as far as may be practicable, the local consumption of opium, I have no hesi- tation whatever in declaring that the abolition of the farm would be followed by a large increase in the local consumption. If the farm were abolished, the alternatives open to the Government would be the adoption of the bonded warehouse system, or a recurrence to the issue of licenses. (There is a third alternative, to which, indeed, the adoption of either of these two would speedily lead, viz., the abandonment of the attempt to derive revenue from opium; but it may be left out of account, as the effect that it would have on local consumption is sufficiently obvious). Under the bonded warehouse system it would be quite impossible for the Government to levy such a duty on removals from the warehouse as would restrict local consumption within its present limits. If it were to attempt to do so raw material would be smuggled in all over the Colony, and once landed it could be openly prepared, and could not be shown not to have paid duty. The farmer is able to protect himself against smuggling, while charging a very high price for his prepared opium, by reason of the existing prohibition of the possession by any one except himself of raw opium in quantities less than one chest, and by reason of the extreme efficiency of his preventive service. The price which he charges not ouly renders it possible for him to pay a large sum for the farm, but it obviously tends also to restrict local consumption. An apprehension is expressed in the Despatch under reply that the farmer may lower his price in the hope of making a larger profit by means of an increased consumption. There are no grounds for this apprehension. Those of his customers who are well to do would not smoke more opium if the price were reduced, and the remainder have only a limited amount of money to spend under any circum- stances on purchasing the drug. It is clear, therefore, that while a reduction of price would induce a larger consumption by the latter class, it would diminish and not increase the total of the farmer's profits. His receipts being the same in any case, his profits would be decreased to the extent of the cost price of the additional opium consumed, The only check on the price that can be charged by the farmer is the danger of smug. gling if he raises his price inordinately, and he may be thoroughly trusted always to charge the very highest possible price. In fact, it was one of the complaints made against the farming system by Mr. Whitehead in the Legislative Council during the Session of 1891 when advocating the establishment of a bonded warehouse system, (vide page 30 of Hansard for 1891,)* that the farmer was able to " an appalling extent, i.e., to extract an extremely high price from them for his opium, squeeze" his customers to that he did so, and would certainly continue to do so. ment could not charge such a duty on removals from a bonded warehouse as would It may be asked why Govern. bring the price to the consumer to about what he now pays to the farmer. is that the Chinese are extraordinarily adroit smugglers, that opium is valuable enough The answer to be worth smuggling in very small quantities, and, therefore, a very easy article to amuggle, and that the circumstances of Hong Kong, including the number of local junks and other small craft afford exceptional facilities for smuggling. True, the farmer has to contend with all these difficulties, but where he succeeds the Government would intallibly fail. The farmer is a Chinaman, and he interests his relations and dependents In his venture by giving them a share in the profits of the farm, and he thus commands a preventive force incomparably more zealous and efficient than any that could be orga- nised by the Government. The measure of the difference of the price to which opium could be brought, and at which it could be maintained under a Government bonded warehouse system as compared with the farming system is the difference between the zeal and efficiency of the preventive service employed and constantly supervised by the farmer whose fortune is at stake, and that of a preventive service employed and paid by ae Government. The extent of that difference can be fully appreciated only by one who has some acquaintance with local conditions and the circumstances of the case. Personally, I have no doubt that if a bonded warehouse system were substituted for the farm, local consumption would in a very short time be at least doubled. This consider- ation' is in itself alone faral, in my opinion, to the adoption of the bonded warehouse system. 7. If on the other hand we were to adopt the other alternative, and revert to the issuc of licenses, it is equally certain that the change would result in a vast increase in the local consumption. It is true that it would be to the interest of all the licensees to prevent smuggling into the island, and it they were loyally to combine for this purpose they
• See Enclosures 4 and 5 in No. 22.
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might succeed in organising as effective a preventive service as that of the farmer. In that case they would, by the thorough prevention of smuggling, be in a position to charge as high a price for their opium, if it were their interest to do so, as that charged by the farmer.
But it is hardly necessary to point out that it would be the direct interest of every licensee to undersell his fellows with a view to securing as large a portion as possible of the custom of the consumers. The farmer has no competitor but the smuggler: every licensee would have to face, in addition to this competitor, the competition of every other licensee, and the result would be that, whatever regulations might be made to the contrary, the actual selling price would be quickly reduced to a minimum, and local consumption enormously increased.
8. Thus I have shown that one result of abolishing the farm would be, for different reasons, according as either of the available alternatives might be adopted, a vast increase in the local consumption of opium.
9. The remaining consideration adverted to above is that of the obligation that we have contracted under the agreement of 1886 to do what is possible to prevent the smuggling of opium from Hong Kong into China. The obligation is one which we are morally bound to fulfil, and China will have fair cause for complaint if we fail in this duty. The substitution of the bonded warehouse system for the farm would necessarily involve the abolition of the main check on such smuggling, viz., the existing prohibition, which is stipulated for in the agreement in question, against the possession by more than one person in the Colony of raw opium in quantities less than one chest. And it would indefinitely multiply the existing opportunities and temptations to smuggle into China. At present, if we except the case of opium smuggled into the Colony, the farmer is the only person in Hong Kong who has any temptation to smuggle into China, and it is comparatively easy to keep a watch on his proceedings. Under the bonded warehouse system it would be a temptation to every one to smuggle into China, and it would be wholly impracticable to prevent continual smuggling.
10. The establishment of a number of licensees, again, would mean the creation of a corresponding number of centres for smuggling into China, and the abolition of the prohibition against the possession by more than one person in the Colony of raw opium in quantities of less than one chest, which would be a necessary concomitant of the change of system, would require the assent of China to the revision of the agreement of 1886. Lord Knutsford points out that Sir James Russell observes that the licensing system adopted in 1883 might, if it had been kept up for some years, have proved the best system for the Colony. I have some reason to believe that Sir James Russell no longer maintains that opinion, but in any case the point is immaterial, for, as Sir James Russell himself observes, the last issue of licenses took place before we had contracted the obligation towards China that I have mentioned, and the altered conditions which have been introduced by the agreement of 1886 render a reversion to the issue of licenses entirely out of the question.
11. From what I have said it is, I submit, plain that the abolition of the farm rust result not only in a vast increase in the local consumption of opium, but also in an indefinite increase in smuggling from the Colony into China and a breach of treaty obligations on the part of Great Britain towards the Chinese Empire.
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12. I have stated that the abolition of the farm would cause a serious and immediate falling off in the revenue derived from opium, and would almost certainly be followed after a short interval by the total extinction of that revenue, My reasons for this opinion are as follows: in paragraph 6 I have explained the circumstances which must preclude, under a bonded warehouse system, the levy of a high rate of duty on removals from the warehouse. To what is there mentioned I would add that, no matter what rate of duty were fixed, a very large proportion of the opium locally consumed would, under that system, undoubtedly be smuggled into the island. One immediate conse quence of the alteration of system would therefore be a large decrease of revenue. like effect would ensue if a system of licenses (to which it will have been seen that there are other insuperable objections) were substituted for the farm. This is not matter of surmise; we have here recent experience to guide us. In 1883 a system of licenses was substituted for the farm in order to meet a combination amongst the farming class. The increase in that year in the revenue from opium was entirely due to the fortuitous circumstance that there was a great rush to get opium into America before the enhanced rate of import duty came into operation there. In the following year the receipts fell off to such a serious extent that we had to revert to the system of farming. The
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