some extent. Should the present unfavorable outlook for the 1937 Chinese wheat crop continue (outlook for the crop being only 70% of the 1936 production) it is possible that the Chinese Government might consider a reduction in wheat and flour duties, but no significant reduction in the differential between the two. A reduction in the differential of 1 to 1% would probably meet unyielding opposition from commercial millers who are still largely in the hands of banking institutions closely connected with Government finance. Arnold agrees to this point of view. 8. It is my opinion, based on above statements of fact, that there is little prospect of any beneficial effect upon the situation to be derived from friendly representations by this Government, although if future wheat prospects retail [at] price as calculated by Dawson an effort might be made in season or later to capitalize the resulting situation with a view to persuading the Chinese Government to lower the tariffs. It is Arnold's belief that something might be accomplished through a reciprocal tariff arrangement which might cover a long list of products, both in imports and exports, making tariff changes possible on a bargaining basis. Since 1927 there has been a continuous decline in the importations [of] all foreign flours. It is our opinion that the radical relative decline in imports into China of American flours is due to the relatively higher price of American flour as compared with world prices. The great decline in the importation of foreign flour into China is no doubt due to the expansion of China's domestic milling industry, with consequent increased ability to provide for domestic needs, and it is therefore felt that, other factors remaining unchanged, a bad wheat crop conditions during the next few years would result in greater imports of wheat rather than flour. It is our belief that Chinese mills which produce only a "straight" flour offer a product that is better in quality than the American "clears" which in the past have comprised the bulk of Chinese importations of American flour. JOHNSON 693.113 Cereal Products/131 The Secretary of State to the Ambassador in China (Johnson) No. 59 WASHINGTON, February 8, 1937. SIR: With reference to the Embassy's telegram No. 6 of January 7, 3 p. m., and to previous correspondence in regard to Chinese duties on wheat and wheat flour, there is enclosed, for the information of the Embassy, a copy of a self-explanatory letter under date February 4, 1937,50 addressed by the Department to Mr. O. D. Fisher, Chairman, Special Committee, North Pacific Millers' Association. It is the Department's desire that the Embassy continue to follow closely any developments of importance relating to the subject under discussion. It is also the Department's desire that, with a view to making appropriate use of such opportunities as may occur for the advancement in China of American flour and milling interests, the Embassy give particular study to the possibilities referred to in the concluding paragraph of the Department's letter of February 4 addressed to Mr. Fisher.51 Very truly yours, For the Secretary of State: 893.61331/87 : Telegram The Secretary of State to the Ambassador in China (Johnson) WASHINGTON, March 25, 1937-7 p. m. 60. Reference your 129, March 23, 9 a. m.,52 and Shanghai's 140, March 20, noon, and 144, March 24, noon,5 transmitting information from the Acting Commercial Attaché in regard to the proposed increase in Chinese tax on cigarettes. 1. A careful examination of these telegrams and other pertinent correspondence indicates to the Department that the proposed increased tax on cigarettes may have two effects both of which would be distinctly detrimental to American exports to China: (1) the imposition of the consolidated tax of Chinese $800 per case on those cigarettes in grade 1 which are imported and have paid the customs import duty (Section 4 paragraph 2 of your telegram) would it seems affect very seriously exports of American cigarettes to China; and (2) the high percentage of increase in the tax on cigarettes in the new grades 2 and 3 would, it is believed, have a decidedly adverse effect on exports of American leaf tobacco to China inasmuch as it is understood that a large proportion of the leaf used in these cigarettes. is imported from America. 2. With reference to paragraph 5 of your telegram, the Department is of the opinion that the absence of treaty grounds for making a formal protest should not necessarily prevent representations being made when, as it appears in this case, American export trade interests are threatened by a prospective course of action to be adopted by the Chinese Government. This Government, being desirous of decreas 51 Mr. Fisher was informed that the Government Departments concerned would continue to follow closely any developments in the situation in the hope that ways and means might be found to assist American flour milling interests in their endeavors to increase their export trade with China (693.113 Cereal Products/129). ing and removing barriers to an exchange of goods in foreign commerce, is disposed to take all practicable steps toward dissuading other governments from imposing additional restrictions upon foreign trade. 3. The Department therefore desires that you make a thorough investigation of the matter and, in the event your investigations confirm present indications that the proposed tax increase would, if implemented, impose burdensome restrictions upon American exports of cigarettes and leaf tobacco to China, you should take all practicable steps, including appropriate representations to the Chinese Foreign Office, toward safeguarding the American interests concerned and toward dissuading the Chinese Government from taking action restrictive of trade between the United States and China. Please keep the Department promptly and fully informed. HULL 893.61331/88: Telegram The Ambassador in China (Johnson) to the Secretary of State 138. My 129, March 23, 9 a. m.54 NANKING, March 26, 1937-9 a. m. [Received 1:40 p. m.] 1. Following [three] paragraphs are from an urgent telegram to me from Gauss. March 23, 3 p. m. American leaf tobacco interests point out that under the proposed new regulation scale of consolidated taxes, the tax on cigarettes selling up to $200 a case will be increased 25%, on goods selling between $200 and $300 a case the increase in tax will be 150%, while on goods selling from 300 to 400 a case the increase will be only 25%. It is stated to me that practically all American leaf imported into China is used in cigarettes selling between $200 and $300 a case. Leaf tobacco dealers feel that the importation of American leaf will be very seriously reduced by the imposition of this 150% increase in tax on goods made of American leaf. They urge that you see the Minister of Finance concerning the matter before the Executive Yuan meeting on the 25th. (3) [sic] The Acting Commercial Attaché comments that 73% of China's exports abroad are agricultural products and that 34% of China's exports go where the duties on Chinese products are low or such products are duty free. (4) It is felt here that there is abundant ground for charging discrimination against American leaf tobacco through the heavy increase of consolidated taxes on grades which use American leaf. 2. Taking advantage of Kung's 55 presence in Nanking, I went to see him March 24 and left with him a short memorandum setting forth complaint of American tobacco interests at Shanghai. His reply was to the effect that the present increase in the consolidated tax on cigarettes was generally felt to be too slight and that tobacco merchants should be happy that those who favored a still higher tax (on the ground that China's tax was not as high as taxes prevailing in other countries) had not prevailed. 3. It is my view individually while increase of 150% in tax on cigarettes selling between Chinese $200 and $300 a case is in effect a discrimination against American leaf, this discrimination is probably due to the fact that practically only tobacco brought into China is American leaf and no tax could be put on tobacco products using American leaf without being in fact a tax on American products or discrimination in favor of the only other leaf used which is a product of China's farms. That is, the consolidated tax although imposed on domestic as well as imported tobacco will favor domestic tobacco through its relatively heavier taxation of those grades which cannot be produced within China, thus compels users to consume the cheaper Chinese grades. Since the Chinese have definitely entered upon policy of encouraging domestic agriculture and industry, it is inevitable that such policy will result in effective discrimination against products from abroad which compete with Chinese products and it will be difficult, however, for us to find persuasive ground for objecting to such policy under present world conditions. I have every reason to believe that proposed increases will be effected. 4. Sent to the Department, by mail to Peiping, Shanghai. JOHNSON 693.003/1208: Telegram The Ambassador in China (Johnson) to the Secretary of State NANKING, March 26, 1937-11 a. m. [Received 11: 50 a. m.] 139. 1. In a despatch dated February 15, the American Consulate General at Canton reported that the interested Consuls were considering whether the collection of the conservancy tax from foreign imports and native exports imposed by customs notification of February 2 was contrary to existing treaty provisions and that the Japanese Consul General was inclined to think that the tax contravened the principle of uniformity of customs duties as prescribed in article VI of the Washington Conference Treaty relating to the Chinese customs tariff.56 The Japanese Consul General felt that imposition of the tax without the prior consent of the Japanese Legation contravened article I of 56 Signed at Washington, February 6, 1922, Foreign Relations, 1922, vol. 1, pp. 282, 286. the Sino-Japanese agreement signed at Nanking May 6, 1930,57 since conservancy surtaxes are not listed in that article among matters to be regulated exclusively by Chinese law and therefore remain in the category of taxes which can be collected from Japanese only after mutual agreement. Canton telegraphed later that the Japanese Consul General on February 18 under instructions from Tokyo filed protest with the Commissioner of Customs. 2. The British Embassy takes the position that the Anglo-Chinese tariff treaty of December 20, 1928,58 granting tariff autonomy to China deprived Great Britain of any right to interfere with customs surtaxes at individual ports or with the harbor improvement and other projects which they support. 3. I am inclined to think that the tariff relations treaty of 1928 59 placed the United States in a similar position and that prior consultation in regard to customs surtaxes for conservancy and other purposes and conversations in regard to the conduct of such enterprises can no longer be insisted upon as a treaty right although protests can still be filed by the Embassy on ground of equity or expediency. The unrestricted right to impose surtaxes gives the Chinese authorities a powerful means of favoring one port at the expense of another. The principle of uniformity of import levies at land and maritime frontiers seems to me to have at least potentially a very important bearing on immunity of American imports from discriminatory treatment but I question whether the later tariff relations treaty of 1928 did not deprive the United States of the right to appeal to article VI or any other provision of the customs treaty of 1922. I should appreciate the Department's instruction on the position to be taken hereafter in regard to conservancy and other customs surtaxes in the light of all these circumstances. 4. Sent to the Department; by mail to Peiping. JOHNSON 893.61331/88: Telegram The Secretary of State to the Ambassador in China (Johnson) WASHINGTON, April 1, 1937-6 p. m. 65. Your No. 138, March 26, 9 a. m., and the Department's No. 60, March 25, 7 p. m., which apparently you had not received when your telegram was despatched. 1. The Department has noted the observations in the final substantive paragraph of your telegram under reference (particularly the 58 Signed at Nanking, December 20, 1928, ibid., vol. xc, p. 337. 59 Signed at Peking, July 25, 1928, Foreign Relations, 1928, vol. II, p. 475. |