CO129-491 - Public Offices - 1925 — Page 65

63

17

and cloth manufactured in China, as one of the conditions of the imposition of the surtax of 7 per cent. This excise is to be collected by the maritime customs, and is to apply not only to products manufactured by foreigners, but to those There is a provision for rebate manufactured by "Chinese anywhere in China.' of customs duty to the extent of 10 per cent. ad valorem on raw cotton imported for use in mills in China, and for the total remission of taxation on native-grown cotton used for the same purpose. The next paragraph extends the same principle and procedure to all products of foreign type turned out by machinery," with an exception in favour of Government works.

It is evident that the practical application of this provision may give rise to great administrative difficulties. The British delegates will have to satisfy them- selves that the Chinese maritime customs organisation is in a position to levy an excise fairly on all products of the type referred to manufactured anywhere in China, and that the effect of the provision will not, in spite of the terms of the treaty, be to differentiate between Chinese and foreign enterprise.

The original intention of the provision was to prevent the increase of customs duties from having the effect of protecting native industry and excluding foreign If any attempt is made to goods rather than of increasing the customs revenue. attack this principle, the British delegates should bear in mind—

1. That the provision for an excise forms an integral part of the whole scheme

of article 8, and could not be modified without compensation.

2. That the special conference is not empowered to modify that article.

3. That other delegations will not improbably take a strong view against any

weakening of the provision for an excise.

On the other hand, it should be noted that no treaty except the Mackay Treaty provides expressly for the levy of an excise, so that it is competent for His Majesty's Government, if convinced that such a course is desirable, to agree to a modification of the terms of section 9, which relate to excise by bilateral agreement with China. The British delegates should bear in mind the possibility of using a concession on this point as a means of obtaining the revision or abolition of the provisions of section 8, which relate to consumption tax and which also appear only in the British treaty. In case a suitable opportunity should occur, the British delegates are authorised, if in their judgment it is expedient, to agree that the excise contemplated under section 9 should be limited to the rate of the surtax on foreign imports (ie., 7 per cent. ad valorem) in place of double import duty (.e., 10 per cent.), as provided in section 9. There should, of course, be a corresponding limitation of the rebate on imported raw materials, which under the amended scheme should simply be exempted from the 7 per cent. surtax. It is, however, to be remembered that article 4 of the United States Treaty of 1903, though it does not provide expressly for an excise, does provide for a rebate of 10 per cent. ad valorem on the imported cotton used in native manufacture. To this extent, therefore, it would be necessary to obtain the consent of the United States delegates to the proposed amendment.

In article 4 of the scheme contained in Annex (M) provision is made for an excise on native manufactures, including wines and tobacco products, at a rate corresponding to, but less than, the import duties levied on similar articles from abroad, with the object of raising additional revenues for the administrative purposes of the Central and Provincial Administrations, in return for the abolition of other forms of internal taxation on such goods. In this connection, it may be borne in mind that the principle of an excise is already in existence in China in the "Privileged Factory Treatment" (under which foreign-style manufactures produced in China are granted the privilege of paying a 5 per cent. duty collected by the Maritime Customs, which frees them from all further inland taxation with the exception of the Peking octroi), and in the existing system of taxing native wine and tobacco products, as, for instance, the factory tax paid by the B.A.T. Company to the Wine and Tobacco Administration under their special agreement with the latter. It may with some reason be argued that it is not altogether in accordance with the liberal spirit in which His Majesty's Government are approaching the Special Conference to make any attempt to bind China by treaty to the imposition of a specified excise, and it may be found politic and desirable rather to take the line that the Chinese Government should be encouraged to undertake on their own volition to reorganise their internal fiscal system by the imposition of regular excise on native products, to be collected by a well-organised administration in place of the present irregular system of production, transit and destination taxes.

7

IV. UNIFORMITY IN CUSTOMS DUTIES AT LAND AND SEA FRONTIERS. Under article 6 of the Chinese Customs Tariff Treaty of Washington, it is the duty of the special conference to make arrangements to give practical effect to the principle of uniformity in the rates of customs duties levied at all the land and maritime frontiers of China, with power to make equitable adjustments in those cases in which a customs privilege to be abolished was granted in return for some local economic advantage."

His Majesty's Government attach great importance to this article, which establishes a principle for which they have long contended.

As regards the "equitable adjustments" contemplated in the article, His Majesty's Government are not aware of any cases in which this question will arise in practice except in the case of (a) the Anglo-Chinese Treaty of 1894, which pro- vided for special reductions of duty on the Burmah-Chinese frontier, and (b) the Franco-Chinese Treaty of 1887, which established a preferential régime on the Indo- Chinese frontier. With regard to (a), the question of adjustments was settled at Washington by an exchange of notes (see Annex (E)) between the Indian and Chinese representatives. All that will therefore be necessary is to obtain the confirmation of this arrangement by the special conference. As regards (b), the British delegates should urge the French and Chinese representatives to come to a direct under standing, if possible, outside the conference, as to any adjustments which may be mutually acceptable, as this will save the conference from a difficult and tedious task. It is to be observed that, if it be found impossible to obtain an agreement between the parties as to the "equitable adjustments," the preferential rates on land-borne trade must nevertheless be abolished. In that event, which it is to be hoped will not occur, the conference has the duty of acting in an arbitral capacity with regard to the adjustments necessary. Every effort should be made to avoid this necessity by encouraging direct arrangements between the parties.

>>

It would appear from a strict reading of article 6 of the treaty that the only "local economic advantages to be taken into account in making adjustments are those which are expressly provided for in the same treaty in which the customs preference was granted, and which it is reasonable to regard as having constituted. or formed part of, the consideration for the grant of that preference. From the discussions which took place at Washington, however, it seems not unlikely that the French delegates may attempt to contest this view. In that event, while taking the line indicated, the British delegates should use their discretion as to agreeing to any equitable settlement which may meet with general acceptance.

It will be seen from Annex (F) that the Japanese delegation at Washington expressly stipulated that the Chinese Government should undertake to put an end to the preference on the land frontier between China and Russia at the same time as it abolished the preference on other land frontiers.

The only other arrangement" which the special conference has to make under this article would seem to be the date on which the abolition of the preference shall take effect. It would probably be simplest to make that date synchronise with the application of the new surtax, as this would reduce the number of changes of duty at the land frontiers.

V. THE SPECIAL SURTAX ON LUXURIES.

In accordance with article 3 of the Chinese Customs Treaty of Washington, it is the duty of the special conference to draw up a list of articles of luxury which, in their opinion, could bear a surtax of 5 per cent. ad valorem instead of the general surtax of 24 per cent. without unduly impeding trade.

Although the special conference is not expressly forbidden to authorise surtaxes intermediate between 24 per cent. and 5 per cent., His Majesty's Government is opposed to the establishment of any such intermediate rates which appear to them unnecessary in view of the low minimum limit for the surtax on luxuries, while the recognition of intermediate rates would be a long step towards substituting a graduated tariff for the present simple and uniform arrangement. Such graduation, while international control continues, would open the door to an undesirable form of indirect discrimination and international jealousies.

The British delegates at the special conference should endeavour to secure the acceptance of the following principles :-

(a.) Only two rates of surtax, viz., 24 per cent, and 5 per cent., should be

recognised.

1