Foreign Relations of the United States Diplomatic Papers, 1934, The Far East, Volume III

693.11245/31

The Inspector General of Chinese Customs (Maze) to the American Minister in China (Johnson)⁴⁶

Shanghai, January 18, 1934.

My Dear Mr. Johnson: I have received your letter of 30th December, 1933,⁴⁵ forwarding a list of three cases in which you consider that the Customs have acted arbitrarily towards American firms, together with an outline of the grounds on which your opinion has been formed. The three cases dealt with in your letter are as follows:—

• Socony Vacuum Lungkow confiscation case;
• Frazar, Tsingtao case; and
• International Truck & Storage Company case, Shanghai.

The facts in these cases have been exposed in official correspondence, and I do not propose to refer to them in this letter except where necessary to assist in the consideration of the arguments contained in your letter under reply.

With regard to the Socony-Vacuum case, I am glad that a reconsideration of all the circumstances disclosed grounds upon which the penalties imposed could be revised, and an equitable adjustment made. For the sake of record, and to avoid possible future misunderstanding, I should like to point out that the reason I was able to recommend the settlement of the case to the Government was—not the fact that the cargo was owned by an American firm or the action of the Deputy Commissioner at Lungkow in confiscating and selling the oil, but—the discovery that Customs stations on the Shantung Coast had, albeit unauthorisedly, on several occasions permitted the entry of junks from Dairen whose cargo was covered by documents forwarded by post to local agents and not carried on the vessel itself. In view of this new evidence, it was clear that the absence of covering documents in the junk seized at Lungkow did not, necessarily, indicate intention to smuggle, and I was therefore in a position to suggest a mitigation of the penalty.

With regard to the Frazar case at Tsingtao, I notice that you state that two issues are involved:—(1) the responsibility of the Frazar Company for the duty which did not reach the Customs receiving bank; and (2) the arbitrary measures adopted by the Commissioner at Tsingtao in an attempt to force the American Company to assume the responsibility for such payment.

With regard to the first point, Article XXII of the Treaty of Tientsin (United States)⁴⁷ states that “the duties shall be paid to the shroffs authorized by the Chinese Government to receive the same”. It is admitted that Messrs. Frazar did not pay the duty to the “authorized shroff” (i. e., the Customs Bank) and it is, therefore, not understood how they can refuse to accept responsibility.

You state that you are of the opinion that, if the Customs feel their claim is just, action against the Company should be taken in the American Court. But you may possibly concur with me that it is unnecessary for the Customs to secure through the American Court satisfaction of a claim to which they are clearly entitled by treaty. It is obvious, of course, that American citizens have the right by treaty to engage in legitimate trade at the ports but I hold that to enjoy that right they must abide by the terms of the treaties. In other words the treaty right of merchants to trade in China is conditioned by the treaty obligation to pay duty to the office appointed to receive it.

Incidentally, in view of your suggestion that the Customs should take action against the Frazar Company in an American Court, I have been given to understand, since our recent conversation in Shanghai, that the United States Court for China holds the view that the Chinese Government cannot take legal proceedings in any Consular Court of the United States in China against United States citizens. If this view is correct, it would render it impossible, even if desirable, for the Customs to follow the course which you now recommend.

Turning to the Company’s claim, with which you state that you concur, that if there was fraud on the revenue in this case it involved the Customs organization as seriously as it involved the employees of the Company, the view of the Chinese Government is that under the Treaties duty is a debt to the Government which the foreign merchant is obliged to liquidate, and that neglect on the part of the Customs does not release him from this obligation.

Recent developments in the Frazar case, however, indicate that it is not complicated by any question of the complicity of Customs employees. I have received a report from the Tsingtao Commissioner, stating that Frazar’s clerk, Wang Feng-to, has been tried in the local Court, found guilty of unauthorized use of seals and embezzlement of moneys entrusted to him by Frazar Fed., Inc., and sentenced to a term of 18 months imprisonment. The Customs ex T’ingch’ai, Hsü Ting-sheng, whom Frazar’s clerk named as his accomplice, was also tried in the Chinese Court and acquitted. It follows, therefore, that there are no grounds for suspecting that any Customs employee was involved in this fraud on the revenue.

In passing, I should like to draw attention to the consequences of the acknowledgment of the principle that complicity of a Customs employee in fraud relieves the merchant from his obligation to pay duty evaded, and to express the opinion that the acceptance of such a doctrine would invite attempts at evasion of duty by dishonest merchants acting in collusion with their own employees, with or without the connivance of subordinate Customs employees.

With regard to the second point, a review of the action taken by the Tsingtao Commissioner in an effort to induce Messrs. Frazar to pay the duties due from them to the Chinese Government does not show that it was arbitrary. After the discovery of the fraud, the Company asked for time to make investigations, and the Commissioner acceded to their request. It was only after the lapse of a month that the Commissioner, as a result of the refusal of the Company to pay the duty or to give security therefor, informed them that he could not pass any more cargo for them until the sum owing to the Government had been paid. The motorcar and tyres which the Customs subsequently declined to release were detained—not confiscated—in consequence.

With reference to your criticism of the Commissioner’s action in thus refusing to pass cargo for the Frazar Company until they had paid the duties owed to the Chinese Government, I may state that this method of procedure is sanctioned by custom and precedent, by instructions of the Chinese Government in specific instances, and by treaty. Vide article XLVI of the Treaty of Tientsin (1858) (Great Britain)⁴⁹ which reads:—

“The Chinese Authorities at each port shall adopt the means they may judge most proper to prevent the revenue suffering from fraud or smuggling”.

I note your opinion, referred to above, that if it is claimed that there was a fraud on the revenue our remedy was to have recourse to proper proceedings in the competent court and that any attachment of property must be made under the order of the Court and not by the Customs. As a statement of broad principle divorced entirely from post-treaty developments and from the practical requirements of commerce, no exception can be taken to this view provided the Customs were permitted to act in this way. But I request you to consider the effects which such an interpretation would have upon trade if it were generally acted upon. I have no hesitation in asserting that traders in general would prefer to submit to what I may term the summary jurisdiction of the Customs rather than find themselves obliged to answer to Customs charges in their national Courts. Moreover, it must not be overlooked that if the Customs have taken upon themselves certain powers which you conceive they have no right to exercise under the treaties, they have also secured for commerce very valuable privileges which those treaties do not confer. The circumstances in which the Customs function in China are not comparable with those obtaining in other countries and I suggest that it is wiser to attempt to adjust differences in a spirit of mutual accommodation rather than by invoking the treaties. If a merchant considers he has a grievance against the Customs he can at any time appeal to his national authorities and I think you will concede that the Inspectorate is always ready to give the fullest hearing to any representations made in this way—at any rate I claim that this is the case.

The report which, you state, your Legation has on record that the Customs applied to the Kiao-Tsi⁵⁰ Railway Authorities to detain any cargo shipped on the railway to the Frazar Company, is without foundation. It is possible that you may have in mind the peculiar action of the American Consul at Tsingtao, who is reported to have requested the Wharf Administration to refuse delivery to the Customs of certain imports consigned to the Frazar Company should the Customs decide to confiscate them,—a step which, I may add, was not contemplated but which the Consul evidently feared. The Wharf Administration, I understand, properly refused to accede to the Consul’s extraordinary request.

The report that the Customs applied to the Kiao-Tsi Railway to detain cargo consigned by rail to the Frazar Company, as well as other statements and innuendoes made in your despatch of 24th February, 1933, addressed to His Excellency the Minister for Foreign Affairs,⁵¹ force me to the conclusion that, throughout the whole course of the Frazar case, you have been misled and misinformed. The despatch to which I refer contains grave implications against the administration of the Tsingtao Customs, and the integrity of its staff. In particular, two Customs Assistants are mentioned by name, and of them you have categorically stated that “It is further very difficult to believe that one or both of the Customs assistants in the general office did not have knowledge of the fraud. If, however, they did not possess such knowledge it would appear that they were guilty of gross and inexcusable negligence in not previously discovering the irregularity”. I cannot permit such implications to pass unchallenged, and there is no evidence that either Assistant had knowledge of the fraud or was guilty of negligence.

In view of the verdict of the Court in the Frazar case, which removes suspicion of participation of Customs employees in the fraud, I feel confident that, in the interests of justice, you will wish to modify the criticism and innuendoes embodied in the despatch quoted above, which now forms part of the official files of the Ministry of Foreign Affairs.

With reference to the third case mentioned in your letter—that of the International Truck and Storage Co., Shanghai (in liquidation)—the record shows that the applications to ship the cargo concerned, which was proved to have been substituted, were signed by the Company acting as Customs Brokers and, therefore, assuming responsibility in the first instance for the duty evaded. There is the strongest evidence to show that one, at least, of the Company’s employees was involved in the fraud, but I have nevertheless given instructions that the case is not to be finally closed until the Company has had every opportunity of proving that the fraud was committed by a second party, and that neither they, nor any of their employees, were implicated.

In conclusion, I should like to reiterate that arbitrary action by the Customs against merchants is neither tolerated nor condoned by me. The policy of the Inspectorate is to extend all possible facilities to merchants and encouragement to trade consistent with the primary duty of protecting the Government’s revenue, and to treat all with fairness, courtesy and consideration.

Yours sincerely,

F. W. Maze

46. Copy transmitted to the Department by the Minister in China in his despatch No. 2523, February 7; received March 12.
45. Not printed.
47. Signed June 18, 1858, Hunter Miller (ed.), Treaties and Other International Acts of the United States of America, vol. 7, p. 793.
49. Signed June 26, 1858, British and Foreign State Papers, vol. xlviii, p. 47.
50. Kiaochow-Tsinan (Shantung).
51. Not printed.