667.003/156
The High Commissioner at Constantinople
(
Bristol
)
to the Secretary of
State
Constantinople
,
September 23,
1921
.
[Received October 14.]
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.]
[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.
Constantinople,
August 22,
1921.
-
Pellé
-
Horace Rumbold
-
Garroni
[Enclosure 2]
The American High
Commissioner at Constantinople to the Allied High Commissioners
26
[
Constantinople
,]
September 15, 1921
.
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