The Acting Secretary of State to the Secretary of the Navy (Daniels)

Sir: I have the honor to acknowledge the receipt of your letter of March 20, 1919,48 in further relation to a proposed Executive Order to be issued by the Military Governor of San Domingo, providing for a transference to the customs collections of certain customs surcharges now collected as internal revenue under the existing alcohol and stamp laws and applied directly to the payment of the current expenses of the Government. It appears from the information communicated in your letter that such collections amount to about $200,000 a year, and that the effect of the transference will be to increase the customs collections by that amount.

In reply I beg to refer you, in the first instance, to the letter from this Department of January 11, 1919,49 wherein it was stated that, under Article I of the Treaty of 1907 between the United States and the Dominican Republic, it would not appear practicable for the Dominican Government to change the classification of a tax from internal revenue to customs revenue, and to apply it in the same manner as internal revenue is now applied, which appeared to be the plan that the Military Governor had in mind to accomplish by the proposed Executive Order. As stated in that letter from the Department, the application of customs revenue is governed by the provisions of said Article of the treaty, the proviso to which sets forth that, in case the total customs revenue exceeds $3,000,000 in any year, half the surplus above that amount must be applied to the sinking fund for the redemption of bonds. Therefore, as added in that letter, the Government of the United States could not well give its approval to any change in the customs laws of the Dominican Republic which would not make provision for observance of the treaty stipulations as to the disposition of the revenues arising from such laws.

However, from your letter under acknowledgment, it appears that the Military Governor of San Domingo is willing to amend the proposed Executive Order so as to provide for the application of the funds affected thereby in accordance with the treaty requirements.

Moreover, this Department has been supplied with a certificate of the Bureau of Insular Affairs, War Department, showing that the total net collections from customs in the Dominican Republic for the year 1917 was over $5,000,000, and for the year 1918, with one month missing, was nearly $4,000,000.

Article III of the treaty mentioned provides that an agreement between the United States and the Dominican Republic shall be [Page 163] necessary to modify the import duties of the Dominican Government, “it being an indispensable condition for the modification of such duties that the Dominican Executive demonstrate and that the President of the United States recognize that, on the basis of exportation and importations to the like amount and the like character during the two years preceding that in which it is desired to make such modification, the total net customs receipts would at such altered rates of duties have been for each of such two years in excess of the sum of $2,000,000 United States gold.”

In view of the foregoing, it may be said that the Dominican Executive has made the necessary showing under the provisions of the treaty as to the amount of the customs receipts for the past two years, and you are therefore authorized and directed to state to the Military Governor of San Domingo that the Government of the United States agrees to the proposed modification of the import duties, but only upon the condition that the receipts from the increased duties shall be applied in accordance with the provisions of the treaty of 1907.

I have [etc.]

William Phillips