CO129-457 - Public Offices - 1919 — Page 650

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that figure. We consider that it would be reasonable for us to claim a price of at least 4,000 rupees under any new agreements now entered into, unless for diplomatic reasons in order to secure a settlement you are constrained to fix a price slightly below that level.

9. In regard to the transhipments mentioned in your telegram, we conclude that you refer to Persian opium transhipped at Bombay for the Far Eastern market, and we shall be glad to receive your instructions whether control is to be established or not over this trade also. Basrah is the principal port from which this opium is despatched and would probably be the most suitable place at which to control it; but it may be pointed out that any action which we may take there will probably divert the trade to other ports or overland routes. It must also be recognised that really effective control could only be established in Persia itself, and its institution there in present circumstances does not appear very probable.

10. There is finally the difficult question of opium smuggling from the Shan States into China of which apparently much capital is being made by the Chinese and of which Sir John Jordan in his despatch, dated the 30th December last, advocates the immediate suppression. With regard to the allegations made, it is clear that such smuggling as is taking place over the frontier is being actively encouraged and supported by the Chinese authorities, ride the Tengyueh opium reports which formed enclosures to Sir John Jordan's despatch, dated the 30th December, 1918. The task of active control of cultivation and export in the remote and inaccessible tracts which border on the Chinese frontier would be one of great difficulty and delicacy and would undoubtedly be liable to result in unrest and disturbances. While, therefore, we are again addressing the Burma Government and consulting it regarding the practicability of a policy of increasing the restriction on the Shan production and traffic, we feel that we are entitled to ask what co-operation Burma will be able to expect in this difficult task from the Chinese authorities.

My Lord,

We have, &c.

Enclosure 2 in No. 1.

CHELMSFORD.

C. C. MONRO.

C. SANKARAN NAIR. G. R. LOWNDES.

W. H. VINCENT.

J. S. MESTON.

T. H. HOLLAND.

R. A. MANT.

Mr. Montagu to Government of India.

India Office, September 11, 1919.

I HAVE considered in Council the letter from your Excellency's Government in the Financial Department, dated the 21st May, 1919, on the subject of the export of Indian opium to the Far East, and the suppression of the cultivation of the poppy in the frontier tracts of Burma bordering on China.

2. In his despatch of the 30th December, 1918, Sir J. Jordan invited attention to the desirability of prohibiting the export of Indian opium to the Far East; he con- sidered that the financial advantages now accruing from such export must be so trifling in comparison with the larger issue which has already been faced, and so unworthy of consideration in relation to the national stigma involved, that the con- tinuance of the trade was unthinkable. Your Excellency's Government is unable to accept this view, You point out that India has already given ample proofs of her willingness to adopt any practical measures of co-operation or restriction which may be required to secure the complete suppression of the illicit opium traffic with China, and has willingly accepted heavy losses of revenue in order to further the attainment of this end; and you regard it as unreasonable that India should be called on to make still further sacrifices, at the cost of the Indian tax-payer, where there is but little hope that these sacrifices would in fact benefit China.

3. On the conclusion of the agreement with China in 1911, a limit was imposed voluntarily upon the total amount of Indian opium which could be exported in any one year to all consuming countries other than China. This limit-which was fixed

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at 13,200 chests a year, and has now been in operation for the past seven years-was determined after careful examination of the volume of exports over a period when no inducement existed for the smuggling of the drug into Chinese territory. The results of this statistical examination of the problem were supplemented by such further direct enquiries as were possible; and on a review of all the facts, 13,200 chests a year was accepted as the most accurate estimate that could be made of the legitimate demands of all countries, other than China, which imported opium for smoking or eating. The export of Indian opium to China has now ceased. Further, in pur- suance of a policy which has been kept steadily in view, your Excellency's Government has entered into arrangements with the Governments of Siam, the Dutch East Indies, Hong-Kong, the Straits Settlements, and British North Borneo, under which their requirements are imported by them direct. With the extension of the system of direct sales the quantity offered at auction has been gradually reduced, and in 1918 only 42 per cent of the total limit of 13,200 chests referred to above was disposed of in this manner. In 1919, owing to special reasons, only 3,600 chests were offered at auction. With the exception of small shipments to Ceylon and Mauritius, opium purchased at the Calcutta auctions is exported to Saigon and Japan.

4. It is only, therefore, in respect of the quantity auctioned in India that any question of responsibility arises. There can unfortunately be little doubt that an illicit trade with China on a large scale exists, and there is evidence that poppy cultivation has revived over large areas in China itself. But although the most rigid limitation of exports from India, or even the complete stoppage of the illicit trade in Indian opium, might still fail to benefit China, none the less I consider that every effort should be made to limit exports from India to the legitimate requirements of the consuming countries.

The expedient of consular certificates is for many reasons objectionable, and I would prefer to adopt the alternative suggested by you of attempting to extend the system of direct sales by entering into contracts with the Governments of Japan, French Indo-China, Ceylon, and Mauritius. If this be done, and if exports be limited to the quantity certified by the Government of each consuming country to be required for legitimate purposes, the responsibility for abuses, if any should occur, will rest with the Government of the importing country. I suggest that your Excel- lency's Government should now enter into communication for this purpose with the Governments of Ceylon and Mauritius, and I propose to request the Foreign Office to initiate negotiations with the Governments of Japan and France, explaining the reasons which have led to this offer being made, and making it clear that the quantities to be covered by the contract are those required for legitimate purposes only.

I foresee the possibility that if these arrangements are made, Indian opium in the illicit trade may be replaced by Turkish or Persian opium, but I am not without hope that this result may not follow, as Indian opium is valued for its special pro- perties, and as, under Article 295 of the Treaty of Peace with Germany, ratification of the treaty will be regarded as ratification of the Opium Convention of 1912. the obligations of that convention are not evaded, the illicit trade should be reduced or disappear, and the Japanese Government have recently declared publicly that all necessary action will be taken when the Hague Convention becomes operative.

If

5. In the letter from your Excellency's Government in the Financial Department, dated the 20th April, 1917, the question of the methods to be adopted in order to arrive at a suitable price basis for opium sold direct to other Governments was discussed, but no definite conclusions were reached. So long as moderately large quantities are offered for sale, the results of the Calcutta auctions afford the most direct and reliable basis for fixing the price at which the drug should be supplied to other Governments; but as your Excellency's Government recognised, it will not always be either safe or desirable to attempt to secure the full benefit of any tempo- rary inflation of prices. If and when the Calcutta sales cease, the only indications will be the prices realised for Persian and Turkish opium, and the prices obtained for Indian opium sold to morphia manufacturers in England. Difficulties will pro- bably he experienced in obtaining reliable information as to the prices of Persian and Turkish opium, or as to the quantities offered for sale; the conditions that may be expected to exist after the war may restrict the demand; and marked fluctuations of prices may occur. There is the further consideration, mentioned by you, that Indian opium supplies a special demand, and commands a higher price than the Persian or Turkish drug. As regards opium sales in England, the position is at present so uncertain that no trustworthy estimate can be made either of the total quantity likely to be sold or the price that will be obtained. In any case the price basis is wholly

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