CO129-382 - Public Offices - 1911 — Page 488

(No. 2.) Sir,

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Enclosure 1 in No. 1.

Acting Consul-General Willis to Sir J. Jordan,

Mukden, January 9, 1911. IN continuation of my despatch No. 7 of the 16th February last, and previous correspondence as to the taxation to be levied on the products of the British-American company's factory at Mukden, I have the honour to report as follows:-

On the 17th August Mr. Han, the commissioner of the Foreign Board, addressed to me a despatch (copy enclosed), in which he repeated his former arguments in favour of a general tax of 5 per cent. ad valorem, and threatened that if these terms were not agreed to the provincial authorities would be compelled to increase the production tax on raw tobacco.

I replied to the commissioner on the 21st September to the effect that it would not be possible for the Mukden factory to compete with the Shanghai establishment on a 5 per cent, scale of taxation, and if this was insisted upon there would be no alternative but to close the factory. I added that the question was in the hands of His Majesty's Minister, and therefore I could not on my own responsibility accept If, however, the commissioner could anything but the Shanghai and Hankow terms.

see his way to propose a compromise between the 5 per cent. ad valorem basis and the Shanghai conditions I would be willing to submit it for your consideration.

At the same time I handed the commissioner & memorandum, copy of which in Chinese and English is enclosed herewith, in which I gave figures showing clearly that a 5 per cent. charge rendered it impossible for the Mukden factory to compete with the other establishments of the tobacco company in Manchuria open marts, and as a compromise I suggested for his consideration:

1. Shanghai terms to be granted on shipments to all points in China proper.

2. A uniform tax of 1 tael per picul on all goods sold in Manchuria, irrespective of treaty or non-treaty mart.

I ascertained, by telegraphic communication with the London office of the tobacco company, that this arrangement would be acceptable to them.

During the past three months I have had several conversations with Mr. Han on this subject. The local taxation on cigarettes in Manchuria averages rather more than 10 per cent., ad valorem; and, from the first, Mr. Han has said the revenue departments would never agree to abandon this scale outside the treaty mart limits. He also has drawn attention to the difficulty in the interior of differentiating between the products of the various establishments of the tobacco factory. About the middle of last month Mr. Han told me that he bad, after great difficulty, obtained the consent of the Kirin and Hei Lung Chiang treasurers to the tax of to 1 tael within treaty mart limits, and he hoped that I would urge the company accept this as a compromise, and endeavour to obtain your approval. We bad some conversation as to the exact significance of "limits of the treaty marts,' which ended in my saying that any proposal would be rejected unless it was made quite clear that the payment of 1 tael freed goods inside the cities of the open marts and the adjoining suburbs from all payments whatever.

On the 30th December Mr. Han addressed to me a letter in the sense of this conversation, copy of which is enclosed.

I communicated Mr. Han's proposal informally to Mr. Heuckendorff, the local manager of the tobacco company, and asked him to ascertain, by telegraph, the views of his director upon it. Mr. Heuckendorff called on me on the 7th instant, and informed me that the London Board still wished to press for the Shanghai terms, as promised long ago by the Revenue Council.

I told Mr. Heuckendorff that I considered the present proposal of the Manchuria Government a reasonable compromise. The provincial authorities had never accepted the ruling of the Revenue Council in this matter, and I regarded it as unlikely that the central Government would force the Shanghai terms on the Viceroy against his will. I also drew attention to Mr. Ilan's argument as to the number and proximity of the open marts.

per

The main contention of the company up to the present had been under a 5 cent. ad valorem payment, it would be impossible to compete against the Shanghai factory in open marts. By their own admission when they agreed to the proposal set out in

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my memorandum of the 19th September, a payment of 1 tael would not place the Mukden factory at any disadvantage, and if they could compete in open marts, they would obviously be able to do so in the interior. Further, a tax of 1 tael per picul is on the average quality of cigarettes made by the Mukden factory, not more than 2 per cent. ad valorem.

I added that if the companyrejected this proposal, it was in my opinion useless to continue negotiations here, and I should have no choice but to again refer the question to the legation.

I understood from Mr. Heuckendorff that he would telegraph my views to his London directors.

(Translation.) Sir,

Enclosure 2 in No. 1.

I have, &c.

ROBERT WILLIS.

Foreign Board to Acting Consul-General Willis.

Mukden, August 17, 1910. WITH reference to the duties which it is proposed to levy on cigarettes manufactured by the British and American Tobacco Company, and in continuation of my despatch No. 23, in which I pointed out that, owing to the number and proximity of the various centres open to trade in Manchuria it was impossible to adopt the practice prevailing at Shanghai and Hankow, I have now the honour to inform you that after comparing the different descriptions and values of cigarettes manufactured here by the company, I find that in no case would the duty levied under this system amount to as much as 1 per cent. of their value.

The quantity of cigarettes actually sold by the company in the interior is, we are informed, quite insignificant, and the amount levied in li-kin from this source need hardly be taken into consideration. It is further to be remembered that Manchuria is itself a tobacco producing province. Tobacco can be purchased direct from the producer and is only subject to a production tax of 16 cash per pound, after payment of which it is immediately available for the manufacture of cigarettes. In Shanghai and Hankow on the other hand, the raw material is either imported from abroad or is purchased from other provinces. It is subject to import duties and to li-kin during the various stages of its transit to its destination. These duties reach a much higher figure than they do in Manchuria.

The proposal now put forward for your consideration, viz., that the company should, by a single payment, secure themselves against all further taxation, would appear to be calculated to give satisfaction both to the company and to the Chinese Government, particularly in the future, when the company extend their business in

the interior.

A table has been prepared showing the different descriptions of cigarettes and their values, and I have the honour to express the hope that you will see your way to consent to the tax suggested in my previous despatch that I may be in a position to approach the Viceroy in the matter.

If the company refuse to agree to this suggestion, I can see no alternative but to increase the amount of the production tax in order to make up the loss sustained by the revenue. I shall be glad to be furnished with your views in the

matters.

Enclosure 3 in No. 1.

I have, &c.

Memorandum respecting Taxation on Cigarettes manufactured in British-American Tobacco Factory at Mukden. -(Handed by Acting Consul-General Willis to Mr. Han, September 17, 1910.)

IT is maintained that it would be difficult for the Mukden factory to compete with the Pootung factory, even if the taxes were identical, and that with a 5 per cent. ad valorem tax it would be impossible, and there would be no alternative but to close the Mukden factory.

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