CO129-496 - Public Offices - 1926 — Page 538

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24. A memorandum by Mr. Pratt on the position of the Customs Administration in regard to the new taxation proposals is annexed.*

25. The possibility of taking other measures at Canton short of a blockade in the event of the Cantonese Government having failed to carry out their assurances on the 10th October was carefully considered by the Departments concerned at a meeting on the 4th October, and they had in particular under examination the proposal of the Commodore at Hong Kong, which was to contain Chinese cargo junks in a state of inactivity under threat of seizure, an essential feature of his plan being that Shameen should not be evacuated. This plan was found to be open to the following grave objections :-

(a.) No guarantee could be given by the naval authorities that the military forces which would have to be sent to garrison Shameen could in case of necessity be safely withdrawn.

(b.) The proposal entailed in the last resort a willingness to bomb or bombard Canton, ie, as the only possible answer to a Cantonese attack on the Shameen garrison.

(c) In default of willingness to resort to this measure the plan was in the

nature of bluff.

(d) There was no sufficient guarantee that the plan would prove efficacious.

26. It was therefore the unanimous opinion of the naval and military experts that, given the non-evacuation of Shameen as an essential premise, no effective action could be taken on the 11th October beyond the preventive measures against pickets which had already been adopted, together with a show of force in Canton harbour. It was decided, therefore, that unless the Governor or Mr. Brenan could suggest any fresh measures it would be necessary to leave Mr. Brenan to continue the efforts he had already made to get the boycott removed on whatever lines he thought best, subject to the instructions he had already received. A telegram to this effect was sent to Sir R. Macleay and to Sir C. Clementi on the 7th October.

27. On the 9th October Mr. Brenan reported that the Minister for Foreign Affairs had communicated to all the foreign consuls the text of a mandate introducing the new taxes. According to the terms of this mandate the internal taxes were to be levied on consumption or production of articles of trade between the two provinces of Kwangtung and Kwangsi on the one hand and other provinces of China and foreign countries on the other. The rate was to be half the maritime or native customs tariff on general articles and the full tariff on articles of luxury such as silk, toilet articles, fur and leather articles, decorations, precious stones, &c. Tobacco, imported wines, kerosene and gasoline, being subject to other special taxes, were to be exempt from this new taxation. The taxes were to be collected at or near the customs barrier. The mandate was to come into effect on the 11th October.

28. The note transmitting this mandate emphasised that the new taxes were internal taxes and that the Canton Government had no intention of interfering with the maritime customs, though friction would be avoided if the Customs would Co-operate in the collection of the new taxes by the fiscal authorities appointed by the new Government.

29 Mr. Brenan did not send any written acknowledgment to this note, but told the Minister for Foreign Affairs that the taxes were a clear violation of existing treaties, and that His Majesty's Government were waiting to see the extent to which the boycott would be removed before indicating their attitude in the matter.

30. On the instructions of the Acting Inspector-General of Customs at Peking. the Commissioner of Customs informed the Cantonese Government that the customis administration would be unable to assist in the collection of the new taxes without the acquiescence of the Powers.

31. Mr. Brenan reported at the same time that there had been no recent change in the boycott situation beyond a slight slackening in picket activity. Anti-British agitation still continued; but the Minister for Foreign Affairs had emphatically assured him that the boycott would be publicly declared at an end at noon on the 10th October. Mr. Chen also promised to deal with any cases of intimidation of British employees which might be brought to his notice.

32. The question of the new taxation was discussed by the diplomatic body in Peking on the 7th and 8th October. Sir R. Macleay reported that the unanimous view of his colleagues was that the taxes were a clear violation of treaties and that the proposed action of the Cantonese Government raised very grave issues. It was

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thought that tacit acquiescence might lead to eventual provincial or regional tariff autonomy, and that separate negotiations with the Canton Government with the object of regularising the situation would amount in practice to the recognition of their independence. They considered that a joint protest should be lodged, but Sir R. Macleay made it clear that, in view of his instructions, he could not join in any such protest without further reference to his Government. A draft protest for presentation to the Peking Government was, however, prepared and telegraphed by the foreign representatives to their Governments. In the course of the discussion upon this draft it became clear that the Japanese Government would oppose any attempt to identify the new taxation with the Washington surtaxes, the true, if unavowed, reason for their objection being that such identification would imply a readiness on the part of the Powers to grant the Washington surtaxes uncon- ditionally. This would, of course, render impossible the devotion of the proceeds to debt consolidation, a point to which the Japanese attach the highest importance.

33. Some of the foreign representatives decided to protest individually through their consuls at Canton without waiting for an agreement upon a joint protest.

34. On the 13th October Mr. Brenan sent two telegrams, in which he reviewed the situation up to that date. The substance of these telegrams is as follows:—

(1.) The promised declaration of the termination of the boycott and blockade was issued on the 10th October, not by the Canton Government itself, but by the Strike Committee and the Central Executive Committee of the Kuo Min-tang. The declaration, however, added that an intensive anti- imperialist struggle would be continued on a national scale until the independence of China was completely secured.

(2.) Pickets were no longer functioning and the stike examination shed had been dismantled. Chinese were coming back to Shameen in large numbers and British firms were getting back most of their native staffs. No cases of intimidation had been reported.

(3.) The strike and blockade were over, but it was still uncertain to what extent the agitation against British trade would prove effective. Chinese merchants were hesitating to resume shipment to Hong Kong, but it was hoped that a start would soon be made.

(4.) The Canton Government had opened a tax office near the Customs and were levying the 21 per cent. duty. They were not yet collecting the 5 per cent. duty, owing to technical difficulties.

(5.) No protests against the taxation had yet been made by the foreign consuls. In fact, the consular body, the foreign chambers of commerce and the Commissioner of Customs were all of opinion that the tax, if levied at all, should be collected by the Customs, otherwise the Government would set up an organisation of their own composed of officials who would merely be strike pickets in disguise.

(6.) His own opinion was that, if the Powers protested against the taxes without backing their protest up by force, they would merely be encouraging the establishment of a separate customs organisation, and this would jeopardise the existence of the maritime customs organisation.

35. It remains to record two démarches made by the Peking Government in regard to the relations between His Majesty's Government and the Government of Canton. Early in August the Peking Government became alarmed at the possibility that His Majesty's Government might recognise the Canton Government, and made an official enquiry as to our intentions. They were informed that no question had arisen of recognising the Canton Administration as other than the Provincial Government of Kwangtung. A few days later a note was received from the Chinese Government, expressing the hope that no funds would be provided directly or indirectly to the Canton Administration so as to enable them to prolong the struggle against the Central Government and thus delay the reunification of China. His Majesty's Government replied that they had no intention of furnishing Canton with funds for military purposes, but that they must be guided by the circumstances of the situation as to the means which could best be adopted for a settlement of the anti-British boycott in South China.

W. STRANG.

Foreign Office, October 13, 1926.

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