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Government of Hong Kong and the Straits Settlements, we have quite recently indicated our readiness to substitute a system of direct sales at the option of the purchasing Governments, in lieu of the present system of auction sales to private traders.
3. In these circumstances we do not think that we shall be regarded as having been indifferent to the principle that opium transactions in the Far East should be confined to legitimate trade and consumption; and, now that a new proposal is put forward from outside, ostensibly for the furtherance of this object, we feel that we have the right to examine it carefully, in order to see how far it is likely to affect our remaining export trade and to influence our future action generally.
4. We would accordingly observe that any scheme which contemplates a compact between the opium producing and the opium consuming countries in southern and eastern Asia, under which the former will sell only to the latter, will in practice apply to India alone. The only other producing country in the Far East is China, and although information received by us some time ago pointed to an attempt being made to dispose of Chinese opium outside Chinese territory, it is obvious that China is estopped by her public pledges and diplomatic obligations from entering openly into such transactions, or from being in any way a party to an agreement of the kind under consideration; indeed, if she maintains her avowed intention of entirely suppressing the cultivation of poppy, she will no longer be a producer at all.
5. The practical effect therefore of the proposal put forward by the Netherland Government would be that India would engage to sell only to certain Governments which adopt a State-monopoly system of regulation, and to discontinue entirely any exports to countries the Governments of which do not possess a monopoly system, and also to those whose Governments, although possessing a monopoly system, do not become parties to the proposed agreement. It seems clear that such a scheme cannot profitably be considered by India until the attitude of the opium consuming countries generally has become known. We have already limited our total exports to an amount which, we believe, is not in excess of legitimate external consumption. If the whole or practically the whole of the Governments which take Indian opium under the present conditions are prepared to adhere to the suggested agreement, it will then be time to consider whether suitable terms for our adherence can be arranged; but the recom- mendation of one or two only of the parties concerned cannot, we think, be regarded as a sufficient basis for further action and discussion on our part.
6. In point of fact, we consider that the avowed object of the proposed agreement, namely, the prevention of the smuggling of opium into countries possessing a monopoly system, must, in view of the conditions established by the discontinuance of the China trade and by the strict limitation of our non-China exports, be regarded as already substantially attained. If further assistance is required, we ourselves, as already stated, are able and willing to help, owing to the fact that the departure of opium from the Indian ports is under strict regulation. If, however, it be the case that smuggling takes place after the arrival of the opium at its original port of destination, the matter would appear to be one for negotiation between the countries affected and those from which the smuggled opium is distributed, as has already been recognised in the case of Macao, 7. We observe that under article 5 of the Netherland draft convention presented at The Hague Conference, the price at which the producing country would sell to the consuming country would be fixed by the former, and that, according to the explanatory memorandum attached to the draft, it is contemplated that that price would bear a direct relation to the cost of production. Such a proposal could not, of course be accepted. The normal export price of Indian opium is far in excess of the cost of production, and, indeed, bears no sort of relation thereto, and the sacrifice on our part of the profits thus obtained would simply mean the transfer of those profits to the purchasing countries, which ex hypothesi already possess monopoly systems, and themselves derive very considerable profits from the trade. In this connection we beg to invite your Lordship's attention to pages 247 and 298-299 of the Report of the Shanghai Opium Commission, 1909, volume II, which show the large revenue derived by the Government of the Straits Settlements under the farming system in the recent past, and the profits made by the Government of the Dutch East Indies from the opium monopoly.
8. To sum up, we do not anticipate that early progress can be made with the proposed scheme on the lines put forward, and we look rather to the eventual settlement of this question by direct arrangements with the individual Governments concerned, in the manner contemplated in the correspondence ending with your Lordship's telegram dated the 17th March, 1914, regarding the supply of opium to the Straits Settlements. Under article 3 (b) of The Hague Opium Convention of 1912, if a country prefers to
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allow the importation of raw opium under Government monopoly alone, the contracting exporting Governments will practically have no alternative but to limit exportation to that country in the manner desired. Among the Governments mostly concerned, Great Britain, the Netherlands, China, and Persia, were parties to the convention, Turkey alone being so far unwilling to accede. The first step, therefore, that appears to be necessary is to secure the ratification of the convention by the interested Governments and to have it brought into force. It can then be more expediently considered how far the terms of the convention can with advantage be supplemented by special agreements between some of the Governments which have adopted it, and whether, as above suggested, individual agreements of this character may not be found more suitable than a single general engagement.
We have, &c.
R. W. CARLYLE. HARCOURT BUTLER,
S. A. IMAM.
R. H. CRADDOCK.
W. S. MEYER.
R. W. GILLAN,
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