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1897, in which he pressed the arguments against a mileage basis of calculation and favour of the speed of transit over the various sections being taken into con- Cideration in apportioning the contribution, and further urged the burden on the Colony involved by increases in gold payments with a falling value of silver.

6. In July, 1898, the questions at issue between the Postmaster General and the Secretary of State for India as to the proportion of the cost of the Eastern Mail service to be charged to the Government of India were submitted to the arbitration of the EARL OF MORLEY, The case of the Post Office dated the 22nd of July, 1898, is printed as Appendix I to this Minute. It embodied the same principle in its 23rd paragraph as the proposals of the Treasury letter of the 30th October, 1896. The total amount of the subsidy for the Indian and Eastern service was taken as £245,000, a further sum of £85,000 being taken to be the share to be paid for the Australian service.

7. Lord MORLEY's award dated November 8th, 1898, is printed as Appendix II to this Minute. It adopts the principles above referred to subject to (a.) the desirability when the contract expired of separate contracts being entered into for the Indian and Eastern and for the Australian services; (b.) India only paying transit rates and not towards the subsidy on the sections between Colombo and Shanghai; (c.) the net receipts of the two countries on account of mails being pooled and equally divided between them; and (d.) India bearing the whole expense of sea-sorting on the Bombay Line.

8. Clause (c.) of Lord MORLEY's award subsequently formed the subject of the correspondence which is printed as Appendix III to this Minute.

9. A full expression of the views of the Governors of Hongkong and Sing- apore upon the question of accepting the application of Lord MORLEY'S award to the Eastern Service was invited by Mr. CHAMBERLAIN on the 13th July, 1900, and Sir HENRY BLAKE again consulted the Chamber of Commerce who on the 11th of September of that year simply desired to reiterate and emphasise the remarks made in their former letter. They considered that the loss of Revenue due to the adoption of the penny postage rate throughout the Empire, which had been forced on Hongkong by the Imperial Government furnished "another strong argument why this Colony should not be called upon to make good the losses on correspond- ence passing through it to the Chinese Treaty Ports.

10. Sir HENRY BLAKE in despatches dated the 10th of August and the 14th September, 1900, objected to accepting Lord MORLEY'S awards on the grounds that— (a.) The sum of £85,000 proposed to be regarded as the cost of the Australian service was too small. (It was below the amount which would have been arrived at by adopting the same mileage basis as proposed for the Eastern Colonies.)

(6.) The section Hongkong-Shanghai should not be taken into con- sideration in the apportionment. "The comparatively small value to this Colony of the mail matter from the North, combined with the threatened increased cost and the fact that owing to the number of steamers running to and from the Northern Ports this Colony is quite independent of the P. & O. Company's steamers, would justify the contention that the subsidised mail service should not be carried beyond Hongkong."

(c.) The pooling and equal division of net receipts on account of mails

was not applicable to the Colony.

(d) The mileage basis for the apportionment of the subsidy was unfair.

Sir HENRY BLAKE further objected to the number of letters apart from printed matter being taken as a criterion of the general value of the service to the com- mmunity and to the choice of the year 1901 for statistics as a basis for payment by the Colony, the mails to Hongkong and the North being abnormal in that year by reason of the disturbances in China.

11. The division of cost between the United Kingdom, India and the Eastern Colonies in accordance with the principles embodied in Lord MORLEY's award was worked out by the Imperial Post Office. The result is printed in Appendix IV to this Minute and shows with regard to Hongkong an annual payment of £13,131