667.003/156

The High Commissioner at Constantinople ( Bristol ) to the Secretary of State

No. 469

Sir: I have the honor to enclose a copy in the original French and in translation of a note of August 22, 1921 which I have received from the Allied High Commissioners on the subject of a return to [Page 909] the ad valorem system of taxation while increasing the rate of such taxation to 15% and allowing the Ottoman Treasury to benefit to the full extent of this increase. This note is in reply to my note of July 22nd to the High Commissioners, copy of which was transmitted to the Department in my despatch No. 381 of July 26, 1921. I am also enclosing a copy of my reply to the High Commissioners under date of September 15, 1921.

On September 13th there appeared in the daily press the text of a decree law issued by the Ottoman Government providing for a return to the 11% ad valorem system of taxation on imports. The Department will note from the enclosed text of this decree law22 that the pre-war regime is modified in certain important respects, and notably by the establishment of a Commission to pass on the valuation of commodities and by suppressing the right to pay taxes in kind. While no mention is made of the consumption taxes in the new decree, I have ascertained that they are to be continued, and it is believed that this arrangement has been approved by the Allied High Commissioners.

The decree law of September 13th was discussed by the Advisory Trade Commission, consisting of representatives of the Allied and Associated Governments, and the Committee has now unanimously recommended to the High Commissioners the sending of a collective note to the Sublime Porte in which it shall be stated that it is impossible to accept the decree law of September 13th since it provides for a return to the 11% ad valorem system in a form substantially different from that which obtained before the war.

I have [etc.]

Mark L. Bristol
[Enclosure—Translation23]

The Allied High Commissioners at Constantinople to the American High Commissioner

No. 362

The High Commissioners of France, Great Britain, and Italy have taken note of the letter addressed to them by His Excellency Admiral Bristol, United States High Commissioner, on the 22d of July, concerning the reestablishment of the ad valorem duties and their increase to 15 percent. This question had already been the object of a note from His Excellency Admiral Bristol to the three High Commissioners, dated the 29th of January, 1921,24 which concerned also the abolition of the specific tariff.

[Page 910]

His Excellency Admiral Bristol was answered by a collective note of the three High Commissioners, dated the 11th of February.25

The undersigned High Commissioners, referring to this answer, find that there is occasion to add the following details:

It does not suffice that the governments give their sanction to the proposed measure. It must be observed, in fact, that, owing to the decree of Mouharrem and the annexed decree, any excess of the receipts from customs resulting from the modification of the tax rates returns to the Administration of the Ottoman Public Debt. This Administration could not renounce its rights unless so authorized by the bondholders. The question would have to be submitted to them, and it would be indispensable to call them together in general assemblies in each of the countries interested.

If in 1914 this increase seemed easy to obtain, it was because, in virtue of a clause of the decree of Mouharrem and the annexed decree, three fourths of the surplus of the receipts of the Public Debt, after the bond service is assured, must return to the Ottoman Government.

At that time, the total revenue yielded was sufficient for the payment of the coupons, and the increase which was to result from the raising of the duties from 11 to 14 percent (new rate now proposed) would have been acquired to the extent of three fourths by the Ottoman Government, by the simple operation of the existing laws, without it being necessary to consult the bondholders.

Today the situation is quite different. The whole of the revenue gathered by the Administration of the Ottoman Public Debt is less than the needs, and the service of the bonds remains in suspense.

Moreover, the Public Debt has a claim of about 5,000,000 L Tqs. against the Ottoman Government, resulting from the fact that the stipulations of the Mouharrem decree have not been respected since 1916. Detailed information was furnished on this point to the Advisory Trade Committee on the 26th of April, 1921, by the representative of the Ottoman Public Debt and is annexed to the procès-verbal of that day’s session of the Committee.

It follows from the preceding—

(1)
That the increase to 15 percent of the tariff of the ad valorem customs duties, if applied, would actually benefit only the Administration of the Ottoman Public Debt, owing to the incontestable rights that it holds under the decree of Mouharrem;
(2)
That the Ottoman Public Debt could not renounce this right in favor of the Ottoman Government without the consent of the bondholders;
(3)
That obtaining this consent under the actual circumstances is quite improbable.

[Page 911]

The High Commissioners have just diminished the revenues of the bondholders by not recognizing the law of 1920 on spirits, owing to the opposition of the United States. The bondholders could not oppose this measure and will have to submit to it, but there is no reason to suppose that they will be disposed to renounce voluntarily their right to part of the customs receipts, an important source of income which legally belongs to them and which cannot be taken from them without their consent.

In these conditions the undersigned High Commissioners find that the only practical solution of the question would consist—

(1)
In the reestablishment of the customs duties of 11 percent ad valorem;
(2)
In maintaining at the same time the consumption taxes.

As the Delegate of the Ottoman Public Debt remarked in the report presented to the Advisory Trade Committee on the 26th of April, 1921, which has been mentioned above, the return to the ad valorem duties, if it were followed by the suppression of the consumption tax, would but procure the Ottoman Government some insignificant supplementary receipts and would insufficiently improve the situation.


  • Pellé
  • Horace Rumbold
  • Garroni
[Enclosure 2]

The American High Commissioner at Constantinople to the Allied High Commissioners 26

Excellency: I have the honor to acknowledge the receipt of the collective note of the Allied High Commissioners, dated August 22nd, in reply to my communication of July 22nd on the matter of a return to the system of ad valorem taxes and the increase of these taxes to 15% with the understanding that the Ottoman Treasury is to benefit to the full extent of this increase.

I have read with interest the views of the Allied High Commissioners and I have taken careful note of the several considerations emphasized by them. There is in particular one point concerning which I should be happy to receive a further expression of the view of the Allied High Commissioners. If, in order to permit the Ottoman Treasury to benefit to the full extent of the proposed increase to 15%, it is necessary, in accordance with the Decree of Mouharrem and its annex, to convene the bondholders in the various countries [Page 912] and secure their consent, why is it not considered equally necessary to ascertain the views of the bondholders regarding the disposition of the consumption taxes? From the standpoint of the spirit of the Decree of Mouharrem and its annex, I can see a mere verbal difference between allowing the Ottoman Treasury to benefit through an increase in the ad valorem rate of taxation and allowing such benefit through the collection of consumption taxes. I am quite unable to perceive, therefore, why any greater sensitiveness should be shown to the susceptibilities of the bondholders in the first case than in the second.

The plan set forth in my note of July 22nd is essentially a provisional measure pending the restoration of peace. There can be, therefore, in reality no question of asking the Public Debt to renounce its rights under the Decree of Mouharrem. The question is simply one of meeting a serious financial crisis of the Ottoman Government by an agreement to adopt for the time being a system of customs taxes, sound from the economic standpoint and calculated to give fair and honest treatment to the merchandise of all countries. The system described in my note of July 22nd has in my judgment precisely these characteristics. The adoption of this plan in sub-f stance requires no more than a simple acquiescence, so far as the Public Debt is concerned, in a state of things which the Allied High Commissioners themselves point out has existed since 1916, and against which, so far as I am aware, the bondholders of the Public Debt have not protested. I presume that the Allied High Commissioners do not consider that the Public Debt has lost any rights over the five million pounds which have accrued to the Public Debt since 1916 and which, it is to be supposed, are to be considered as a charge upon the Ottoman Government to be liquidated as soon as the state of Ottoman finances will permit. Such being the case, it would appear to be entirely pertinent to inquire why the taxes collected under the 15% rate cannot be treated simply as in the nature of a loan or advance from the Public Debt to the Ottoman Treasury to be refunded in such way and at such a time as may be agreed upon. The positive reasons favoring the proposed plan are of a convincing character. It is admitted on all sides that the condition of the Ottoman Treasury is desperate, and that, unless remedial measures are taken with the least possible delay, the consequences will be serious. The system of customs taxes which I am urging upon the Allied High Commissioners will be an effective commencement of the rehabilitation of Ottoman finances. This is the first positive reason for the adoption of the plan. In the second place, there is the essential and obvious economic soundness of the plan considered as a measure [Page 913] of taxation. The consumption taxes on the other hand, levied as they are on the prime necessaries of life and therefore paid by the poorest classes, constitute simply one more element making for both economic and political unrest and instability. Furthermore, the very recognition of such a principle of taxation is a constant menace to exporters and importers who can never feel sure that the list of commodities subject to the payment of consumption taxes will not be suddenly modified either through adding new commodities to the list or through removing some of those already on the list. Finally, the consumption taxes, as I have previously pointed out, in effect discriminate against merchandise of American origin and as such cannot be recognized by my Government. I may add in this connection, that I have recently been instructed by the Department of State to make it quite clear that the United States will not acquiesce in the system of consumption taxes.

Respectfully

Mark L. Bristol
  1. Not printed.
  2. File translation revised.
  3. See note to British High Commissioner, p. 891.
  4. Not printed; see despatch no. 68, Feb. 26, from the Acting High Commissioner, p. 892.
  5. Sent to the High Commissioners severally.