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Mr. Gauss reports that the increase in the taxes has been substantially reduced and that the tax rate on cigarettes selling from $200 to $300 per case is only increased by $20 instead of by $120 as at first proposed. He states that the reason for this adjustment is not certain; it may have been brought about as a result of the representations made by the American and British authorities; and on the other hand he has heard from the Yee Tsoong Tobacco Company that they threatened drastic price readjustments on several brands offering strong competition to brands manufactured by the Nanyang Brothers Tobacco Company unless the consolidated tax rates were reduced. This threat, according to a member of the Yee Tsoong Tobacco Company, was promptly reported to Mr. T. V. Soong, who now owns a controlling interest in the Nanyang Brothers Tobacco Company, and resulted in Mr. Soong taking up the question of consolidated tax rates on cigarettes with the Ministry of Finance.

Mr. Gauss states that the action of the Ministry has resulted in only a slight increase in the rate of taxation on cigarettes using American leaf, the majority of such cigarettes selling for from $200 to $300, and is of assistance to importers of American leaf. He adds, however, that this adjustment in rates is only temporary and may not be made effective beyond the end of this year. Respectfully yours,

NELSON TRUSLER JOHNSON

693.003/1213
The Consul General at Canton (Linnell) to the Ambassador

in China (Johnson)

67

No. 74

CANTON, June 15, 1937. SIR: I have the honor to refer to this Consulate General's despatches No. 41 of February 15, 1937 and No. 67 of April 27, 1937, concerning the Conservancy Tax at Canton, and to now report that the Consul of France at Canton today informed this office that under instructions from his Government he would address the Commissioner of Customs at Canton informing him that the French Government considered the Conservancy Tax at Canton as contrary to the provisions of the Nine-Power Treaty signed at Washington on February 6, 1922. He said his letter would be very mildly worded and not a “letter of protest”, since the French at Canton have little to gain by raising the question due to the smallness of their import-export trade with Canton. Respectfully yours,

IRVING N. LINNELL Copy transmitted to the Department by the Ambassador in China in his despatch No. 1299, June 24; received July 26.

67

REPRESENTATIONS BY THE UNITED STATES AGAINST THE

ESTABLISHMENT OF MONOPOLIES IN CHINA 6

893.6583/24 : Telegram

The Secretary of State to the Ambassador in China (Johnson)

WASHINGTON, January 26, 1937—7 p. m. 18. Your telegram 30, January 15, 6 p. m.,6° in regard to China Vegetable Oil Corporation. It is the Department's desire that the Embassy in its further study of this subject, as indicated in the concluding paragraph of your telegram under reference to give special consideration to reports indicating that the Vegetable Oil Corporation will in the future work in close conjunction with the Government Testing Bureau.

In the opinion of the Department, the possibility that the Corporation might seek to exercise even a measure of control over the testing of foreign-owned oil should receive particular attention.

HULL

893.6583/31

The Ambassador in China (Johnson) to the Secretary of State

No. 1148

PEIPING, March 23, 1937.

[Received April 19.] Sir: I have the honor to refer to the Embassy's despatch No. 1082 of March 3, 1937,69 and previous correspondence in regard to the vegetable oil monopoly, and to enclose for the information and records of the Department copies of the Embassy's note of March 10, 1937, to the Foreign Office 69 on the subject.

The Embassy stated in the note above-mentioned that it was becoming increasingly clear that the real objective of the China Vegetable Oil Corporation was to achieve monopolistic control of an industry which heretofore had flourished and had served as a happy trade medium between the United States and China. The Embassy remarked that it was difficult to believe that the Chinese Government would promote or even formally sanction any Government or semi-Government organ the functioning of which would impair the freedom of action in an industry from which for so many years such great mutual benefit to the two countries had been derived. The Embassy referred to its previous note of September 4, 1936," and expressed the hope that it might have, as requested in that note, a clear and concise assurance, based not only upon such treaty rights as might be applicable but upon amity and traditional good will, that the China Vegetable Oil Corporation had not been and would not be vested with any prerogatives which would constitute a monopoly or which would lead to the application of restrictions upon the legitimate trade of American citizens in China now or hereafter engaged in the purchase, sale, storage, refining, financing, testing, or transportation of oil products. The Embassy stated that an assurance to this end would do much to remove the deplorable uncertainty that now existed.

68 Continued from Foreign Relations, 1936, vol. IV, pp. 600-628. 69 Not printed.

10 This paragraph indicated that the Embassy was giving consideration to a course of action designed ao safeguard American tung oil interests in China from the activities of the China Vegetable Oil Corporation.

" See despatch No. 692, September 4, 1936, Foreign Relations, 1936, vol. IV, p. 613.

In its consideration of this matter, the Department is respectfully referred to the Ambassador's despatch to the Department No. 372, dated at Nanking March 9, 1937,72 entitled "Plans of Chinese Government for Economic Reconstruction and the Promotion of Commerce and Industry”, which deals in part with the general question of Chinese government monopolies. Respectfully yours,

For the Ambassador:

FRANK P. LOCKHART Counselor of Embassy

893.6583/35

The Ambassador in China (Johnson) to the Secretary of State

No. 1348

PEIPING, July 17, 1937.

[Received August 9.] Sir: I have the honor to refer to the Embassy's despatch No. 1148 of March 23, 1937, with which there was transmitted a copy of the Embassy's note of March 10, 1937, to the Foreign Office 73 in regard to the vegetable oil monopoly, and to enclose for the Department's information and consideration a copy in translation of the Foreign Office's note 73 in reply thereto of May 29, 1937.

The Department will recall that in its note to the Foreign Office of March 10, 1937, the Embassy expressed the hope that it might have a clear and concise assurance, based not only upon such treaty rights as might be applicable but upon amity and traditional good will, that the China Vegetable Oil Corporation had not been and would not be vested with any prerogatives which would constitute a monopoly or which would lead to the application of restrictions upon the legitimate trade of American citizens in China now or hereafter engaged in the purchase, sale, storage, refining, financing, testing, or transportation of oil products. The Embassy added that an as

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surance to this effect would do much to remove the deplorable uncertainty that now existed. The Foreign Office states in its reply of May 29, 1937, that:

There is certainly nothing to be said to the effect that there has been violation of the essence of the treaties and of former international relationships. In summary, since the Chinese Government does not give the China Vegetable Oil Corporation any monopoly rights and at the same time does not limit the enterprises of foreign merchants, the while trade matters of price, method, and transportation are business liberties of the merchants and are not encompassed by the treaties, it is difficult to give such assurances (as you have requested) ..!"

This statement of the Foreign Office is somewhat ambiguous, not only in the English translation made by the Embassy but in the original Chinese text as well. The Foreign Office states that the Chinese Government does not grant any monopoly rights to the China Vegetable Oil Corporation and does not limit the enterprises of foreign merchants. The Foreign Office appears to point out, however, that matters of price, method and transportation are "business liberties” of the merchants, not encompassed by the treaties, and for this reason the Foreign Office apparently finds it difficult to give the clear and concise assurance requested by the Embassy.

The Foreign Office note is not as satisfactory as might be hoped for, but I do not see what good purpose would be served by requesting an elucidation of the ambiguous statement in question. I consider that it would be sufficient for the Embassy to address a communication to the Foreign Office, stating that the Embassy is gratified to receive the assurance of the Foreign Office that the Chinese Government does not grant any monopoly rights to the China Vegetable Oil Corporation and does not limit the enterprises of foreign merchants. Before doing so, however, I will appreciate receiving the comments of the Department on the Foreign Office note and its instructions in regard to any further action which it considers the Embassy should take in the matter.

There is also enclosed 75 for the Department's information and consideration a copy of despatch No. 458, dated June 19, 1937, from the Consul General at Hankow 76 to the Embassy, with which there is transmitted a copy of a memorandum dated June 17, 1937, prepared for Mr. R. C. Mackay ?? by Mr. A. E. Marker, a British subject and Hankow manager of the Arnhold Trading Company, Limited, a British concern. The memorandum, which deals with the history and aims of the China Vegetable Oil Corporation, is written from the viewpoint of a private exporter who is faced with the possibility that his export business will be seriously curtailed by the operations of the corporation. It is understood that a copy of the memorandum was sent by Mr. Marker to Mr. Mackay before the latter's departure from China for the United States. The Embassy commends the memorandum and Mr. Josselyn's covering despatch to the careful consideration of the Department.

75 Enclosures not printed.

Paul R. Josselyn. * Of the Division of Far Eastern Affairs.

The Department will note that in the last paragraph of Consul General Josselyn's despatch mentioned above he states that "if there is no truth in the report of negotiations between the China Vegetable Oil Corporation and the Import-Export Bank, I believe it might be well for the Embassy to authorize me to inform Mr. Marker to that effect in response to his inquiry”. The Embassy informed Mr. Josselyn in its instruction of July 17 that it had received no reports of any negotiations between the Import-Export Bank and the China Vegetable Oil Corporation and that he might confidentially inform Mr. Marker to that effect. Respectfully yours,

NELSON TRUSLER JOHNSON

893.6583/35 : Telegram

The Secretary of State to the Ambassador in China (Johnson)

WASHINGTON, October 11, 1937–6 p.m. 317. Reference your despatch No. 1348, July 17, 1937, in regard to the vegetable oil monopoly. The Department feels that, in view of the present situation in China, no useful purpose would be served by replying to the Foreign Office's note at this time.

HULL

893.6354/45 : Telegram

The Secretary of State to the Consul General at Canton (Linnell)

WASHINGTON, December 4, 1937—3 p. m. Your November 29, 1 p. m.78 Following for Yunnanfu:

"Your November 29, 12 p. m. The matter of possible American participation in the development of the Yunnan tin industry has been referred to the appropriate Government authorities who are of the opinion that American interests would not care to participate in this

One of the factors which have assisted the Department in reaching a decision not to encourage American participation is its traditional attitude in opposition to Government monopolies.” Canton repeat to Embassy at Hankow.

HULL

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