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I explained to Mr. Levy that in so doing the Indian Government were only acting up to the spirit of the agreement with China, and I could not identify myself with any protest against their action. He contended that 16,000 chests could not possibly be consumed outside China, and that a large part of this amount would, in point of fact, be purchased in the Straits Settlements and re-exported to China. Such re-exports had hitherto been legitimate, but would henceforward be smuggled into China to the detriment of the trade he represented. The consumption in the Far East other than China, he said, had decreased largely, and therefore (since there was no reduction in the 16,000 available chests) the surplus could only be smuggled into China.
The consump- tion in Formosa, he said, had fallen from 1,550 chests in 1907 to 600 in 1910, and Manila had ceased to be a purchaser.
5. I pointed out that from the figures already quoted it appeared that the quantities of opium (other than legitimate imports into China) exported over-seas by the Indian Government had been as follows -
1907 1908
1909
Chests.
19,859
20,049
14,664
(E.g., the difference between the quantities actually imported into China, and the total exported from India.)
The Indian estimate of 16,000 had been largely exceeded in the first two years, and the fact that it had not been reached in 1909 was admittedly due to the enhanced prices in China in that year. Stocks elsewhere had probably been depleted in order to realise high prices in the China market. It was obvious, I added, that the cases marked for China at the Calcutta auction would realise higher prices than the other 16,000, since they were for sale in a better market. He insisted that this would give rise to smuggling (a view in which I entirely concurred), and said that, as requested in the draft telegram, the only remedy was for India to still further reduce her exports. I replied that that course did not seem to me reasonable. In the first place, it had by no means been demonstrated that the world's requirements of Indian opium (China excepted) was less than 16,000 chests, as he averred. In the second place, I thought such a demand, in the interests of dealers here, would be unfair both to the Indian producer and to the Indian revenue, of whom heavy sacrifices had been demanded. Finally, his statements practically involved a charge against the Straits Settlements Government of inadequate checks to prevent smuggling on a large scale to China.
6. I suggested that if he and his colleagues considered that they had a just cause of protest they should cause representations to be made on their behalf to the Govern- ment of India by their corresponding firms in India. This he said they had already done, with the result that, for the first time on record, the Indian Government had postponed the auctions from the 4th to the 10th instant in order to consider the protest. I assured him of my sympathy in the matter of the illegal restrictions lately imposed by the Viceroy of Canton, and added that I should have no objection to sending a telegram in the terms of that attached as enclosure 4. He agreed, and I accordingly dispatched the telegram. I have submitted the foregoing résumé in the hope that it may be of interest, and I trust that my action has your approval.
I have, &c.
F. D. LUGARD.
P.S.-Since writing the above I have received a reply from the Governor-General of India. (Copy attached.)
It may perhaps be well for me to elaborate at somewhat greater length the argument concerning the 16,000 chests exported by India for countries other than China, It will be remembered that the proposal of China was to limit the amount of opium which might be imported into China, This would have left the Indian Government free to export over-seas as much as they wished without any diminution. Being aware, however, of China's inability to check smuggling, the Indian Government made a counter proposal very much more favourable to China, viz., that the actual sources of supply should be annually reduced, at a great loss to Indian revenue. doing so the Indian Government estimated the amount taken by China to be 51,000 chests and the consumption of other countries to be 16,000. The latter quantity she did not propose to reduce. Actual figures of the first year, 1906, showed that China only imported 47,141, leaving 19,859 as the consumption of other countries. Thus the consumption of China had been over-estimated and that of other countries under-
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estimated. But it is an undoubted fact that the steps taken by other countries (simultaneously with China) to check opium smoking had led to a very great decrease in the demand for opium, and, since the 16,000 chests are not reduced annually, it is probable that they are largely in excess of the quantity actually in demand by those other countries." Thus the intention of the Indian Government to export only such an amount as would allow of an annual decrease by one-tenth of the Chinese imports is, in point of fact, to some extent nullified. The Chinese suggested the marking of the chests destined for China, and the Indian Government agreed. This effectually limits the amount which may be legitimately imported, but does not dispose of the fact that there will be a considerable quantity of opium exported from India in excess of the probable requirements of other countries, and which, though not ear-marked for China, will no doubt be smuggled into the country.
Enclosure 2 in No. 1.
Hong Kong Opium Merchants to Government of India.
F. D. L.
(Draft.) (Telegraphic.)
[Undated.] HONG KONG opium merchants unanimously object to the novel distinction suggested by the Board of Finance between Indian opium exported to China and exported elsewhere. They are of opinion that it is impossible for so large a quantity as 16,000 chests to be consumed outside China, and they represent that a considerable amount of the nominal export to the Straits has always been re-exported to China. They consider that a reasonable figure for consumption outside China would be 8,000 chests, and that if a higher figure is given it must result in smuggling to China of opium not covered by certificates. They would prefer that no distinction should be made, but, if that is not now possible, they suggest that the total number of Bengal chests sold for export from India to all countries including China during 1911 should be 24,000 chests instead of 31,440 chests.
They also wish that, in order to prevent smuggling from Hong Kong, opium exported to Hong Kong should be under certificate, as in the case of opium exported to China, provided always that the Hong Kong opium farmer should be allowed the 900 chests he is allowed by his contract with the Hong Kong Government to draw in 1911 for local consumption.
Enclosure 3 in No. 1.
Governor Sir F. Lugard to Government of India.
(Telegraphic.)
Hong Kong, January 7, 1911. OPIUM merchants at Hong Kong assert that 8,000 chests of opium sufficient for normal consumption outside China, and that great many of 16,000 chests of opinm will be smuggled into China to the detriment of import trade, accuracy of the statement cannot be verified locally. As I understand you propose to mark chests of opium which may be imported into China, I venture to suggest that Government of India avail of opportunity to insist that illegal restriction in Canton should be withdrawn in return for this very valuable, if reasonable, concession.
Enclosure 4 in No. 1.
Government of India to Governor Sir F. Lugard.
(Telegraphic.)
YOUR telegram of 7th January.
Calcutta, January 11, 1911.
We are giving most careful consideration to important question you have mentioned.
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