taken up. In submitting In submitting them to the Committee, Senator Underwood said, in part:

The importance of this Agreement in reference to trade conditions in China, which to a large extent were controlled by the duties levied at the customs house, went, Senator Underwood thought, much further than the mere question of the money involved. As he had stated some time ago, he thought one of the principal causes of irritation and difference between the nations of the world arose from their trade conditions, and when one nation felt that it was not standing on an equality with another nation it was likely to bring about conditions of unrest and might lead in the end to war; and the great purpose of this convention was to eliminate the causes. of war. Therefore Senator Underwood thought that the members of the committee could congratulate themselves at this time that they had reached, in the report that he would present, an understanding to wipe out the discriminations on the border of China in reference to customs duties and that would make all the countries of the world feel that they would hereafter have an open door that meant equal opportunity of trade.

The agreement in its present form, Senator Underwood said, contained provisions relating to two distinct phases of tariff readjustment, namely, those which might become immediately applicable without taking treaty form requiring ratification and those which must be embraced in a treaty and which would require ratification. The first of these related to the immediate revision of the present tariff to a basis of 5 per cent effective and the second related to subjects to be dealt with in a special conference which would be charged with taking measures looking to the speedy abolition of likin and the application of surtaxes, together with the realization of the principle of uniformity in the rates of customs duties on all frontiers whether land or maritime.

The stages, therefore, of applying the terms of the agreement were as follows:

1. A committee of revision would meet forthwith at Shanghai to revise the present tariff to a basis of 5 per cent effective. This

'What follows is quoted or paraphrased from the report given in U. S. Senate Document No. 126, 67th Congress, 2d session, pp. 589 ff.

revision would become effective two months after publication without awaiting ratification. It would provide an additional revenue amounting to about $17,000,000 silver.

2. Immediate steps would be taken for a special conference representing China and the Powers charged with the duty of preparing the way for the speedy abolition of the likin and the bringing into effect of the surtaxes provided for in the treaties between China and Great Britain of 1902 and China and the United States and Japan of 1903. The Special Conference would likewise put into effect a surtax of 21 per cent ad valorem, which would secure additional revenue amounting to approximately $27,000,000 silver, and a special surtax on luxuries, not exceeding 5 per cent ad valorem, which would provide a still further revenue amounting to $2,167,000 silver. The additional revenue from customs duties provided in the present agreement would fall into four categories, as follows: 1. Increase to 5 per cent effective, $17,000,000 silver. 2. Surtax of 21 per cent, $27,000,000 silver.

3. Surtax not exceeding 5 per cent on luxuries, $2,167,000 silver. 4. Total additional revenue, $46,167,000 silver.

With the completion of the work of the Special Conference carrying into effect the abolition of likin and the application of the surtaxes provided in the treaties with Great Britain, Japan, and the United States, the additional revenue provided should amount to $156,000,000 silver. The present tariff produced revenue at the rate of $64,000,000 silver for 1920. If to this were added the additional revenue provided for in the agreement, the total yield from customs duties would amount to $110,167,000 silver. Aside from these measures, there were important provisions in the agreement relating to future revisions of the tariff with a view to maintaining it on a correct basis of valuation so that it might produce revenue at the effective rates to which China was entitled. Following the immediate revision there would be a second revision in four years and subsequent revisions every seven years.

Heretofore there had been some difficulty encountered in securing revisions regularly. The special conference was charged with the duty of providing means whereby future delays in revision might be avoided. Carrying into effect the general agreement already

adopted by this Conference, there was a provision in the present agreement for effective equality of treatment and of opportunity. This provision carried with it an important recognition of the principle of uniformity in the rates of customs duties levied on all frontiers, which meant the abolition of discriminatory practices in relation to goods imported by land.

Senator Underwood said he felt that for the first time measures had been taken which effectually removed the highly unjust and controversial preferences with which the foreign trade of China had heretofore been encumbered. Those nations which had enjoyed the advantages of preferential treatment across their land frontiers had acted with commendable foresight and altruism in surrendering those minor advantages in trade to the broader principles of equality of treatment and the general betterment of the conditions of friendly trade competition. This appeared to him to represent a signal achievement, not only in the interest of China and of each of the Treaty Powers, but also in the interest of trade in general and of peace itself.

Chinese Statement. Dr. Koo, responding to the remarks and report of Senator Underwood, took the opportunity of making the following formal statement, in behalf of the Chinese Government, regarding the re-establishment of China's tariff autonomy-a matter to which, he said, the Chinese people attached great importance:

On November 23 last, I had the honor, in behalf of the Chinese Delegation, to lay the tariff question of China before the committee. Three propositions were submitted. The principal one of them was for the restoration to China of her tariff autonomy: the other two being intended merely as provisional measures to prepare the ground for the early consummation of the main object. At the same time I stated that it was not the intention of the Chinese Government to effect any change that might disturb the present administration of the Chinese maritime customs, though this statement obviously could not be reasonably construed to preclude China's legitimate

aspirations gradually to make this important branch of the Chinese Government more national in character.

I explained the reasons why China was desirous of recovering her freedom of action in respect to the matter of levying customs duties. The committee, after some discussion, referred the whole question to a sub-committee, of which Senator Underwood has been the distinguished chairman. The results of the discussions in the sub-committee are embodied in an agreement which has just been laid before you. It is a valuable agreement, embodying, as it does, a number of important points connected with the effective application of the present régime of treaty tariff. But it will be noted that the question of the restoration of tariff autonomy to China is not included, it being the opinion of some members of the sub-committee that it would not be practicable to fix at present a definite period within which the existing treaty provisions on tariff were to be brought to an end, and that the question should be decided in the light of conditions that might arise in the future.

The Chinese Delegation, however, cannot but wish, that a different view had prevailed. Tariff autonomy is a sovereign right enjoyed by all independent states. Its free exercise is essential to the well-being of the state. The existing treaty provisions, by which the levy of customs duties, transit dues, and other imports is regulated, constitute not only a restriction on China's freedom of action, but an infringement on her sovereignty. Restoration to her of tariff autonomy would only be recognition of a right which is hers and which she relinquished against her will.

The maintenance of the present tariff régime means, moreover, a continued loss of revenue to the Chinese Government. The customs import duty under this régime is limited to the very low rate of 5 per cent ad valorem for all classes of dutiable goods, compared with the average rate of 15 per cent to 60 per cent levied by other countries. In fact, because the duties are levied on the basis of a previously fixed schedule, the actual collections amount to only 3 per cent effective. The customs revenue, therefore, constitutes only about 7 per cent of China's total revenue, while the average for the principal countries in the west ranges from 12 per cent to 15 per cent at present, and still higher before the war. When

the proposed surtax of 21 per cent for ordinary articles and of 5 per cent on certain luxuries eventually goes into effect, more revenue will be produced, but even then it will hardly be commensurate with the rapidly growing needs of the Chinese Government. Much of the elasticity of the fiscal systems of other States depends upon their freedom to regulate their customs duties. To provide the fullest and most unembarrassed opportunity to China to develop and maintain for herself an effective and stable government, it is necessary to restore tariff autonomy to her at an early date.

The necessity to levy a uniform low duty has encouraged a disproportionate increase in the import of luxuries such as wine and tobacco; and apart from the loss of revenue consequent upon giving these things the same rate as is levied on the necessaries of life, the effect on the social and moral habits of the Chinese people has been altogether deleterious. A beginning has been made in the agreement before the committee in authorizing a levy of an additional surtax of 2 per cent on certain articles of luxury, but it is apparent that a greater increase is needed if a restraining influence is to be exercised in the use of these articles of luxury.

Nor is it to be overlooked that the present treaty tariff régime is an impediment to China's economic development. Under this régime China enjoys no reciprocity from any of the Powers with which she stands in treaty relations. Though every Treaty Power enjoys the advantage of having its wares imported into China at the exceptionally low rate of 5 per cent ad valorem, the Chinese produce and merchandise, on entering into any of these countries, is subjected to the maximum rates leviable, which are in some cases 60 or 70 times the rate which she herself levies on foreign imports. The necessity of levying uniform duties on all articles imported into China, on the other hand, makes these duties on such articles as machinery and raw materials for Chinese industries a handicap to China's industrial development. At present there are more than 1000 Chinese factories employing foreign machinery and methods and engaged in over 30 different kinds of important industries. To enable them to live and develop and thereby contribute to the growth of China's foreign trade in which all nations are deeply interested, some latitude is necessary in the regulation of the customs duties.