893.24/11431/11
Memorandum by the Chief of the Division of Near Eastern Affairs (Murray)
Reference is made to Rangoon’s telegram of July 7, 3 p.m.,14 stating that the Government of Burma is about to consider a proposal to levy transit duties on imports for transhipment to China on a tonnage basis rather than at the existing one-percent-ad valorem rate. The proposed tonnage tax would produce approximately the same amount of revenue as the ad valorem transit duty but would not constitute a step in the direction of waiving transit charges.
This proposal suggests that consideration might well be given to the policy of the Government of Burma in levying transit duties in any form upon importations through Burma of war materials and related supplies consigned to the Chinese Government or its agencies for use in resisting Japanese aggression, with particular reference to such materials and supplies purchased upon the basis of American credits or “lend-lease” arrangements. Under present conditions the Chinese Government is almost entirely dependent upon “the Burma gateway” for the importation of its supplies and upon the United States as a source of these materials. A large proportion of American war materials shipped to China through Burma are financed by credits extended by the Government of the United States. However, before these materials can be delivered to China, they are subject to a levy by the Government of Burma amounting to one percent of their value. This levy is paid by the Chinese Government, to be sure, but the Chinese Government is primarily dependent upon the Government of the United States for financial support. It may be stated, therefore, with substantial accuracy that the United States is paying, or eventually will pay, indirectly the transit duties exacted by the Government of Burma on American “aid-to-China” supplies. For this reason, the question of these transit duties, which formerly may have been merely the domestic concern of a foreign country, has now become a matter of immediate financial interest to the Government of the United States.
[Page 673]The question may be considered also in a broader aspect. The President has indicated clearly that it is the policy of this Government to extend all possible aid to the British Empire and to China in resistance of aggression. It is, broadly speaking, a great cooperative enterprise on the part of all three countries. It appears, therefore, to be inconsistent with the mutuality of this undertaking that one of the parties involved should utilize this undertaking as a means of raising revenue at the expense of the others.
The Chinese Government has attempted unsuccessfully to have the transit duty abolished, although it was instrumental in preventing the imposition of a similar tax upon exports. In defending its position, the Government of Burma claims that it needs the revenue from the transit duties and should be recompensed for additional labors on the part of the customs authorities in connection with the clearance of Chinese cargoes. It should be pointed out, however, that the transit duty on Chinese imports, which amounted to $484,936 during the fiscal year ending March 31, 1941, constitutes an abnormal source of revenue which has become available only during the past two and a half years, and it may, by no means, be regarded as a basic or traditional source of official income. Furthermore, the actual need of the Government of Burma for this revenue is open to question. It is believed that the loss of such revenue could be compensated for without undue hardship by a serious effort on the part of the Government of Burma to effect economies in the notoriously topheavy governmental establishment. (At this point it may be of interest to observe parenthetically that the Chief Justice of Burma receives a higher salary than the Chief Justice of Canada and that numerous other comparisons of a similar character might be made.)
Aside from transit duty receipts, Burma has profited considerably from the new Chinese trade. The Consulate at Rangoon reports that “from the time of the opening of the Burma Road in February, 1939, to the end of October 1940 payments to the Burma Railways for the Chinese Government traffic provided by the Southwest Transportation Company in the period stated amounted to Rupees 4,053,889, or approximately $1,236,436 at the average rate of exchange for that period.” The railway administration itself has admitted that the Chinese traffic has enabled the state-owned railways to show a profit for the first time in several years. Expenditures for haulage, storage, and numerous miscellaneous services and local purchases by the Chinese have also contributed to the economic well-being of Burma. It appears, therefore, that the China transit trade would continue to prove of considerable benefit to the country even if the transit tax were abolished.
The principal obstacle to the abolition of the tax is the attitude of the Burmese Ministry. In a recent despatch the Consul at Rangoon [Page 674] stated, “While the revenue is only a small part of the total customs receipts, it is important to Burma, and the Burma Government, which means the Ministry made up of Burmans, and which has little interest in China’s struggle against Japan (reference Premier’s statement in despatch no. 428, of April 5, 194115), and no interest at all in granting China concessions that would involve loss of income, could be counted on to oppose any British move to abolish the duty in question.” This Burmese attitude, while meriting consideration, is largely obstructionist. Burmese politicians have opposed the building of the Burma Road and a proposal to construct a railway between China and Burma; they have advocated the imposition of full customs duties on imports in transit to China and a transit duty on Chinese exports. In all of these matters they have been over-ruled by the British Government, which is not unduly hesitant, when expedient, in offending the sensibilities of Burmese political obstructionists.
In as much as the British Governor of Burma did not hesitate to announce the entry of Burma into the war against Germany and Italy by proclamation without consulting the Burmese Ministry, it is considered that the British Government may desire to contribute to the common cause against aggression by exercising its influence to have the Burmese transit tax on Chinese cargoes abolished, particularly with respect to goods purchased on the basis of credits extended by the Government of the United States.
Under the dyarchial system of government in effect in Burma, matters relating to revenue are within the jurisdiction of the Burmese Minister of Lands and Revenue, and matters pertaining to foreign relations are under the direct control of the Governor. If the Minister of Lands and Revenue should prove adamant in refusing to abolish the transit tax, it is believed that the Governor could certify the matter as a “foreign relations” question and take direct action himself or through the Defense Department of the Government of Burma. It is unlikely, however, that he would take such action unless instructed by London to do so. There is the possibility, of course, that the Burmese Ministry could be prevailed upon to accept the abolition of the tax, thus obviating the necessity of action by the Governor.
In seeking the abolition of the tax obviously it would be unwise to precipitate a domestic political crisis in Burma all out of proportion to the advantages gained. For this reason it is suggested that the Consul at Rangoon be requested to express his opinion as to whether the abolition of the tax would be likely to provoke a crisis, as well as to whether the Government of Burma could compensate for the loss of revenue involved by a genuine effort to effect governmental economies.
[Page 675]If it appears that such action is not likely to cause the Government of Burma undue embarrassment, it is suggested that the Embassy at London be instructed to request the British Government to take measures to abolish the Burmese transit tax on all war materials and related supplies imported into Burma for transhipment to China or at least on all such supplies financed by United States Government funds.