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would be free to accept or reject. This declaration, together with other circum- stances, apparently gave rise to reports that His Majesty's Government were endeavouring to break up the Tariff Conference. On the 8th May, the United States Chargé d'Affaires delivered to the Foreign Office a message from his Government to the effect that the United States delegation had reported that the British delegation appeared reluctant to continue further negotiations at Peking; that the United States delegation considered that such an adjournment would be extremely dangerous: that the Japanese delegation were already authorised to continue negotiations, even without British collaboration, for implementing the Washington Treaty and for concluding a treaty providing for the interim surtaxes; that the French and Netherland Ministers also personally favoured such action; and that the United States delegation accordingly proposed to proceed with the conference so far as political conditions would permit, despite the refusal of other foreign delegations to participate. The United States Government considered that the Powers should exhaust every effort to fulfil the promises made to the Chinese Government at Washington and sincerely hoped His Majesty's Government would be able to continue their co-operation and to conclude the task begun last October.
XI.
On the 28th May a memorandum was handed to the United States Embassy (see Annex I), in which it was explained that His Majesty's Government regarded it as a matter of vital importance that the promises made at Washington in 1921 in regard to the grant of customs surtaxes should be implemented without delay, and that the fulfilment of these promises should not be subordinated to the imposition upon China of a scheme for the consolidation of her unsecured debt and extension of foreign control over her customs revenues.
XII.
With regard to the Washington surtaxes, the course of events subsequent to the disappearance of the Chinese delegation is fully detailed in the memorandum of the 19th July, last paragraph on p. 3 to the end (Č.P. 308 (26), Annex I),
XIII.
The memorandum of the 30th July, 1926 (C.P. 308 (26)), in considering our future policy, lays emphasis on the fact that, "Our first step must be to implement the Washington promises, and we are now endeavouring, in anticipation of the reopening of the conference, to find some certain means of granting these surtaxes which the other Powers, following our lead, will find themselves unable to reject." The plan we had in mind was to accept the assurances already given by the Chinese delegation as to the use that would be made of the proceeds of the surtaxes and to propose that the conference should forthwith authorise their levy without further insisting on conditions, purposes or guarantees. The effect of this would be that the new revenues would not be subject to the Custodian Bank Agreement of 1912, so that, if Canton or any other semi-independent regional Government laid claim to the proceeds, the Inspector-General could yield to force majeure and hand them over to the local authorities without coming into collision either with the Central Govern ment or the foreign Powers (see C.I. 308 (26), Annex I, bottom of p. 5).
XIV.
In view of the conditions prevailing in Canton, the policy of Washington surtaxes without conditions was tantamount to an offer to Canton of the proceeds of these surtaxes. One of the arguments in support of the policy was the belief, long cherished by the Foreign Office, that such an offer might prove sufficient inducement to Canton to call off the existing anti-British boycott which had been rigidly maintained at that port since June 1925, and that by allowing the Canton Government a share in the customs revenue we might encourage them to foster the trade which produced those revenues, instead of damaging it by further boycotts in the future. (For negotiations and subsequent developments in regard to the Canton boycott, see Annex II.)
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XV.
On the 18th September, Mr. Eugene Chen, Acting Minister for Foreign Affairs at Canton, wrote to His Majesty's acting consul-general stating that the boycott would be ended on or before the 10th October, and that the proper Chinese authorities would levy a special consumption tax of 21 per cent. on ordinary imports and 5 per cent, on imported luxuries, together with a special production tax of 2 per cent. on exports. It was proposed to calculate the new rate on customs memoranda and to arrange for Customs authorities to clear papers only on production of vouchers verifying payment of such new special taxes. Mr. Chen further explained to His Majesty's consul-general that these taxes would be levied on goods of all nationalities, with no discrimination against the British. The British authorities were not asked for formal agreement or for assistance with the Customs; they were only asked not to raise objections.
XVI.
After consultation with Sir R. Macleay, Mr. Brenan was instructed to send a mere formal acknowledgment of the letter of the 18th September notifying imposition of the new taxes, and it was decided to adopt the policy of tacitly acquiescing in the levy of the taxes, and endeavouring to secure (1) that they should be levied by the Customs; (2) that the position should be regularised not merely in Canton, but also in other centres which might put forward similar claims-by ex post facto negotia- tions. As the Cantonese had themselves expressed a desire for Customs assistance, we decided to adopt a merely passive attitude and wait for the situation to develop. We decided to make no communication to the Powers, but, if approached by them, to reply that we were waiting to see whether the Canton Government were making genuine efforts to bring the boycott to an end; if so, we would probably be disposed to acquiesce in the new taxation (see our telegram to Peking, No. 277).
XVII.
The reasons which prompted the Foreign Office to acquiesce in the new Canton taxes, in spite of their illegality, were as follows:-
The Powers had promised China certain tariff increases (known as the Washington surtaxes) nearly five years ago, but their delegates assembled in the Tariff Conference at Peking had failed to implement these promises, because the Powers were determined that the increases should be granted only upon conditions which guaranteed that the greater part of the proceeds would be applied towards the liquidation of their own debts. The Foreign Office had all along wished to grant these surtaxes without conditions, but had failed to carry this policy into effect, partly owing to the greed of the other Powers and partly owing to the opposition of our own delegation, who thought that China was not yet fit for such an access of liberty in tariff matters. The Foreign Office had also wished to offer the proceeds of the surtaxes to Canton as an inducement to call off the boycott, but had not There seems no succeeded in finding any method of making this experiment.
prospect of the Tariff Conference meeting again, owing (1) to the disunion in China, and (2) to the growing demand for complete tariff autonomy, so that it is very improbable that the surtaxes will ever be granted by any process of negotiation with a central Government. When, therefore. Canton proceeded to help herself to the surtaxes, without negotiation, the Foreign Office did not feel that it would be either just or politic to raise any serious objection. Canton was, in fact, carrying into effect the policy long pressed by the Foreign Office, and Sir R. Macleay, who had hitherto opposed this policy, was now converted to our view, and agreed that the right course was to acquiesce, The development at Canton seemed to be a proof that the Foreign Office policy had been fundamentally right from the beginning.
XVIII.
Having decided to acquiesce in the new taxes our chief anxiety was now to ensure that they should be collected by the Maritime Customs, for it was feared that if a rival organisation were set up to collect what were in effect customs duties it might seriously undermine and endanger the Maritime Customs Administration.
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