893.512/839
The Secretary of State to the Minister in China (MacMurray)
Sir: In connection with the subject of tax agreements concluded by American firms with the Chinese authorities, you are informed that the Department has received from the American Consul General at Shanghai a strictly confidential despatch dated July 12, 1928, transmitting a copy of his despatch of that date to the Legation81 regarding an alleged violation by the Chinese provincial authorities of the petroleum tax agreement made by the Nationalist authorities with the Standard Oil Company of New York. The Department has received, also, without covering despatch, a copy of the Legation’s instruction in reply of August 22, 1928.82
In this exchange of correspondence the Consul General at Shanghai advanced, and the Legation approved, the view that there would be no objection to the Consulate General at Shanghai extending its good offices in endeavoring to have carried out the provisions of private agreements, such as the one in question, that have been entered into between American companies and the properly constituted Chinese authorities.
Embodying a different opinion, the Department has received from the American Consul General at Hankow, under date of September 13, 1928, a copy of his despatch of that date to the Legation81 reporting an attempt by the Chinese tax authorities in Hupeh to impose a fine upon the Standard Oil Company for an alleged failure to comply with the regulations of the Hupeh Kerosene Special Tax General Bureau. The despatch of the Consul General at Hankow contains the following paragraph:
“When the Standard Oil Company first requested my assistance in obtaining the cancellation of the proposed fine, I felt some hesitancy about taking official action, but finally concluded that if I refrained from touching upon the private tax agreement between the Standard Oil Company and the Nationalist authorities, I could with propriety make representations in the case.”
This statement made by the Consul General at Hankow indicates that he was not inclined to adduce the tax agreement concluded by the Standard Oil Company as a basis for his protest against the attempted fine, and presumably he would have been equally disinclined officially to protest against a violation of the agreement.
The Department considers it desirable that this difference in conception [Page 524] on the part of these two consular offices be adjusted. One reason for this view is that if the difference persists there may arise the erroneous assumption that the offices differ, as well, in the warmth of their desire to be of assistance to American interests.
In this connection, the Department refers to its telegraphic instruction to the Legation No. 278, dated July 7, 1927, 2 p.m.84 In this telegram the Department pointed out that this Government had not been associated in any way with private taxation agreements between American companies and the Wine and Tobacco Administration and it expressed the belief that private arrangements of this kind should not be made the basis of protests by American officials against Chinese national taxation policies. It may be argued that neither the violations of the petroleum tax agreement of March 1, 1927, referred to in the despatch from Shanghai of July 12, 1928, nor the fine which the Hupeh Kerosene Special Tax Bureau attempted to impose arose from the application by the Chinese of a national taxation policy. Without discussing this point, the Department desires to point out that in any case violations by the provincial authorities of private tax agreements made by American companies with the Nationalist Government are matters that lie within the province of the Nationalist Government to adjudicate. The degree of control that will ultimately be exercised by the Nationalist Government over the provincial authorities in matters of taxation has yet to be determined and, while the interests of foreign commerce have always seemed to require, and seem to require at present, that the authority to tax foreign commerce shall be centralized in the national government, the Department believes that expediency requires that the American Government and its officials in China shall abstain from interference in the process of adjustment, thus avoiding, so far as possible, incurring the hostility of either party to the controversy. This was the position taken by the Department in its telegram to the Legation of July 12, 1927,85 which advised, inter alia, that official protests against taxes should be limited to cases involving one or both of the following two grounds: (1) that the tax is contrary to existing treaty; or (2) that the tax discriminates against an American citizen or his interest.
In addition to the consideration that this Government desires to avoid, so far as that may be possible and expedient, being drawn into disputes between the Nationalist Government and the provincial authorities in the matter of taxation, and that it desires to avoid all commitments in the matter of taxation of foreign commerce before [Page 525] an eventual formal arrangement in regard thereto has been made through the medium of a treaty, there is the further consideration that this Government desires to act impartially as between and among all American citizens in China. This will be very difficult if in matters like the taxation of imports, a subject generally regulated by treaty and law, representations are made on the basis of so-called “private agreements”. Moreover, the Department does not regard a taxation agreement concluded by an American concern with a foreign government as, to quote the words of the Consul General at Shanghai, exclusively a “private business agreement”. The Nationalist authorities appear to have offered to large American concerns certain financial or other inducements to conform to special tax regulations, but it has subsequently appeared that these regulations were intended from the beginning to have the force of law and to apply generally. Therefore, if American consular officials had taken official cognizance of the so-called “private agreements”, or if they had lent support thereto, they would in fact have been indicating their official acquiescence in taxes levied in contravention of existing treaties and to a considerable extent would have compromised the position of this Government in relation to subject matter to be discussed in connection with the question of negotiating new treaties.
If anything further were needed to suggest the advisability of abstaining from official recognition of the so-called “private agreements”, it would be found in the right assumed by the Chinese authorities thereunder to inflict penalties for infractions, actual or alleged, of the rules or regulations appertaining to the agreements. Basing their action on alleged violations of the regulations, the Chinese authorities often seize American property on executive decision alone, with no pretense of legal authority or judicial process. If these agreements are to be accepted as a basis of American official action, it is obvious that the Department must accept stipulations which work in favor of the Chinese tax officials, as well as those which work in favor of the American parties, and the Department does not wish to be placed in the position of being obliged to condone, much less approve, actions repugnant to American conceptions of political and legal propriety.
The Department adheres, therefore, to the opinion that the Legation and American consular officials in China should avoid making tax agreements entered into by American companies with the Chinese authorities the basis of protests against taxes or other impositions.
I am [etc.]
- Neither despatch printed.↩
- Ante, p. 509.↩
- Neither despatch printed.↩
- Foreign Relations, 1927, vol. ii, p. 393.↩
- ibid., p. 397.↩