[This Document is the Property of His Britannic Majesty's Government]
AFFAIRS OF CHINA.
CONFIDENTIAL.
1)
[6099]
No. 1.
415 8011
+16 MARIC
[February 21.]
SECTION 2.
(No. 36.) Sir,
Sir J. Jordan to Sir Edward Grey.~(Received February 21.)
Peking, January 27, 1910. IN my despatch No. 343 of the 21st September last I stated the grounds on which a suspicion had arisen that large quantities of foreign goods from Japan were entering Manchuria by way of the leased territory of Kuantung free of import duty, and I added that the acting inspector-general of customs had called for a report from the commissioner of customs at Dairen (Dalny) which might throw light on the question.
The substance of the reply from the commissioner of customs, and the result of further investigation by the acting British vice-consul at Dairen were contained in Mr. Gordon's despatch to Sir Claude MacDonald, No. 55, Confidential, of the 29th October, a copy of which has probably been sent to you from Tokyo. It has been shown, I think, that although the discrepancy appearing in the customs statistics was justly called attention to, and cannot be said to have been quite satisfactorily explained, it is in fact impossible that smuggling into China by the South Manchurian Railway can be carried on to anything like the extent that was suspected. There is, moreover, reason to believe that the result of the attention given to this question by writers in the American press and elsewhere has been to ensure a closer co-operation on the part of the Japanese railway authorities with the Chinese customs to prevent smuggling.
A recent despatch from the acting British consul-general at Mukden, copy of which I have the honour to enclose herewith, shows that the minds of the Chinese authorities in Manchuria are still exercised with the question of evasion of duty. The remedy, which, according to Mr. Willis, is advocated by the commissioner of customs at Mukden, is the same as that proposed by Mr. Tachibana, the commissioner of customs at Dairen, namely, a fundamental change in the Dairen customs agreement so as to put the customs on the same footing as at Kiaochow.
It is unlikely, however, as Mr. Gordon pointed out in his despatch above quoted, that the Japanese Government could be induced to abolish the free area in the leased territory. At the time the agreement was made, I believe Sir Robert Hart endeavoured to have it modelled on the Kinochow customs ordinance of December 1905, but the Japanese insisted on adhering to the original Kiaochow procedure, and there is no reason to suppose that they would now be willing to alter their decision.
In the correspondence regarding the alleged smuggling of imports, however, a subject has been included which is really quite distinct, namely, the duty-free passage into the interior of goods manufactured in the leased territory. At present the only factory of any importance in the leased territory (besides bean mills) is the Onoda cement factory, and as the cement is chiefly used on the Japanese railway, British or Chinese cement would have little chance of competing, even under fair fixed conditions. But the question may very easily become important to other manufacturing interests. The Japanese Government laboratory at Dairen is engaged in more or less successful experiments with the products of Kuantung and the Hinterland; and the free port of Dairen will probably soon attract capital to such enterprises as the manufacture of bean soap, kaoliang spirits, paper, glass, silk, &c. Cement passes free into the interior apparently under a clause subsequently added to the provisional customs regulations of June 1907 (see Hertslet's China Treaties, vol, 2, p. 1205), which gives goods manufactured from products of the leased territory the option of "receiving the same treatment as Chinese goods or products" in lieu of paying import duty. Such a provision would be fair enough if the Chinese authorities had the power of taxing such goods in the same way as Chinese goods, but owing to the special conditions created by the Japanese railway and railway settlements, the Chinese authorities have no such power. The clause in question has been probably given an interpretation more extended than it was designed to have, and I am confident that the Japanese Government would be willing to agree to a modification if
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