assent of the United States to the modification required by the convention should have been solicited; and secondly, having emphasized the principle involved, namely the right of the United States under the convention to have its agreement or consent a prerequisite to any modification in the import duties, you will say that this Government reserves for the present its right hereafter to make any specific objections to the recently levied duties which further careful study and examination may show to be necessary. You will represent that from the preliminary study already made it would, however, appear that the recently approved municipal taxes of the commune of Santo Domingo, at least, threaten injuriously to affect the import customs revenues, which so largely serve the bond issue with which the Dominican Republic is discharging its obligations to its creditors and concessionaires. Moreover, it would seem that the recent legislation is likely to prove prejudicial to the best interests of the Republic in the matter.

You will then in connection with the receiver general of the Dominican customs proceed to make a most careful study and investigation of these laws and of the results of their operation (conferring and cooperating in this matter with the receiver general of the Dominican customs, who will be appropriately instructed by the War Department) to the end that you may be prepared to submit to this Department for its consideration the final opinion and judgment of yourself and the receiver general regarding the effect of the operation of these two statutes. You will report your results to the Department so soon as they are obtained, in order that you may be appropriately advised at an early date regarding the attitude which this Government must take upon these specific statutes.

I am, etc.,

P. C. KNOX.

File No. 639.003/28.

No. 47.]

The American Minister to the Secretary of State.

AMERICAN LEGATION, Santo Domingo, April 26, 1911.

SIR: Referring to your No. 29 of March 1, 1911, in regard to [etc.], I have the honor to report that I have brought this matter to the attention of Mr. Velázquez in accordance with your instructions.

In the first place I have handed Mr. Velázquez a memorandum setting forth the position of our Government in regard to these taxes. This memorandum was carefully gone over, and the minister stated that he would like to answer by a countermemorandum, copies and translations of which I herewith inclose. I have had frequent interviews with the general receiver of customs on this subject, and I will send in my full report on the workings of the two taxes in question as soon as I can obtain all the data from the receiver's office.

I have, etc.,

WILLIAM W. RUSSELL.

[Inclosure 1.]

The American Minister to the Acting Minister for Foreign Affairs.

[Memorandum.]

[The memorandum begins with a verbatim copy of the Secretary's despatch No. 29. above, from the first paragraph, “On August 16, 1910," etc., to the end of the sixth paragraph, “as required by article 3 of the convention of February 8, 1907." It then proceeds :]

In thus emphasizing the principle involved, namely, the right of the United States under the convention to have its agreement or consent a prerequisite to any modification in the import duties, the Government of the United States reserves for the present its right hereafter to make any specific objections to the recently levied duties aforesaid which further careful study and examination may show to be necessary.

From the preliminary study already made it would, however, appear that the recently approved municipal taxes of the Commune of Santo Domingo, at least, threaten injuriously to affect the import customs revenues, which so largely serve the bond issue with which the Dominican Republic is discharging its obligations to its creditors and concessionaires. Moreover it would seem that the recent legislation is likely to prove prejudicial to the best interests of the Republic in the matter.

APRIL 12, 1911.

[Inclosure 2.]

The Acting Minister for Foreign Affairs to the American Minister.

[Counter memorandum-Translation.]

OFFICE OF THE SECRETARY OF STATE FOR FINANCE AND COMMERCE,
Santo Domingo, April 16, 1911.

DEAR MR. RUSSELL: The position taken in your memorandum against the right of the Dominican Republic to sanction the municipal surtax for the city of Santo Domingo, and the stamp tax, is not in accordance with the opinion of the Government on that point.

The convention celebrated on February 8, 1907, between the United States of America and the Dominican Republic provides, in article 3, that the import duties of the Dominican Republic can not be modified except by previous agreement between the two Governments. But the same article, in establishing the condition that said import duties must never fall below $2,000,000 annually, excludes all idea except that the said modification is what might reduce the revenues. The United States, in stipulating that condition, could have had no other object in view than that of protecting the interests of the holders of Dominican bonds; and these are perfectly safeguarded as long as the customs import duties are not reduced to $2,000,000.

The stamp tax you refer to is not a creation of latter days. It was voted In 1904, reformed in 1906, and again reformed in 1910; but not only is it anterior to the convention, which did not annul it, but when reformed in 1910 was notably reduced as regards articles of import. There is no ground then to suppose that the modification of the stamp tax law is prejudicial to the customs revenues since, instead of reducing them, the probabilities of their being increased have been augmented.

The municipal surtaxes are likewise not a creation posterior to the convention. Since the birth of the Republic the constitution has recognized in the municipalities the right to create usance and consumption taxes for the commune, which are made legal by Congress.

The schedule of municipal surtaxes at present in force in the city of Santo Domingo is a modification of a tax that was in existence for many years previous.

And what influence that tax has in reducing the customs revenues is shown by the income from the Santo Domingo customhouse last year, when the new municipal surtax went into effect, compared with the year 1909. The revenue increased, as is shown by figures, since the surtax is so low that it can not reduce consumption.

44773°-F B 1911-15

But it is pertinent to observe that, even in the excessive case, scarcely probable, that a reduction of the customs revenues is produced as a necessary consequence of the establishment of these municipal consumption taxes, it would be indispensable, in changing the laws by which they were instituted, as a condition sine qua non, that the customs revenues were not exceeding $2,000,000 annually.

Outside of that case the reduction of the customs revenues below the minimum established by the convention-no criticism can be made of any consumption tax whatever that the Republic sees fit to establish, as the previous agreement between the two Governments under the convention of February 8, 1907, is only necessary for the modification of the import customs duties, with special care that the customs revenues of this nature do not fall below a certain and definite sum.

The convention has not touched on the sovereign right of the Dominican Republic to create taxes of all sorts, as, for example, an export tax, more directly connected with import duties than municipal taxes. It is understood that the convention having had for its object the guarantee of the import duties for the payment of the 5 per cent bonds, the agreement of both Governments, in accordance with the provisions of the convention, is indispensable for any modification of the working of the tariff, any change in which might make a notable and perennial reduction in said import duties.

But that agreement is not necessary nor proper, neither under the convention nor under our laws, while the tariff remains intact, and when, moreover, there is no ground for foreseeing an alarming reduction of said duties. That would be contrary to the spirit and letter, not only of our laws, but of the convention itself. It would be contrary to the interests of the parties, both charged with the development and prosperity of the Dominican Republic, in a national sense, as well as in its municipal functions.

Yours, truly,

FEDCO. V. VELÁZQUEZ H.

File No. 639.003/28.

No. 53.]

The Secretary of State to the American Minister.

DEPARTMENT OF STATE,

Washington, June 15, 1911. SIR: The Department acknowledges the receipt of your dispatch No. 47, of April 26, 1911, relative to the law of the Dominican Republic providing for the imposition of a stamp tax on foreign and domestic letters of exchange, etc., and a resolution of the Dominican Congress approving and putting into operation a municipal surtax upon articles of import levied by the commune of Santo Domingo.

If you have not already done so, you will reiterate and reaffirm the views of this Government as to the proper interpretation of the convention of February 8, 1907, as contained in the Department's instruction No. 29 of March 1, 1911, and the accompanying data. The Department awaits your full report on the workings of the taxes in question.

I am, etc.,

File No. 639.003/29.

No. 64.]

P. C. KNOX.

The American Minister to the Secretary of State.

[Extract.]

AMERICAN LEGATION, Santo Domingo, July 8, 1911.

SIR: I have the honor to acknowledge the receipt of your communication No. 53 of June 15, and to say that in accordance with

your instructites I have now reiterated and reaffirmed the views of Our Gitarment as to the proper interpretation of the convention of February & 197, sending a note to the foreign offce with a copy of the menim forwarded in my No 47 of April 26, 1911.

I have been in confernce with the general receiver of Dominican extes, mi in geiting from him ústa on the working of the taxes in question, and will endeavor to send in a report by the next

I have etc

WILLIAM W. RUSSELL

Fie No. 639 403, IL

No. 65-]

AMERICAN LEGATION,

Santo Domingo, July 15, 1911.

SIR: Referring to your No. 29 of March 1, and to your No. 33 of June 15, I have the honor to report as follows on the working of the municipal surtax upon articles of import levied by the commune of Santo Domingo:

As stated in my No. 64 of July 8, this municipal surtax as enacted by the municipality and approved by Congress was not a consumption tax. At first it had the effect of imposing a double tax on merchandise shipped from the commune of Santo Domingo to interior cities in other communes, as the municipalities in the interior also collected a similar surtax. The complaints and protests were so numerous that the municipality of Santo Domingo about December, 1910, decided not to collect the tax on goods invoiced direct from here to the interior, and to refund the tax by means of a “waybill rebate." This was done by administrative action, and nothing is known of any action of Congress in the matter. So that at present the municipal surtax is a consumption tax.

I have been very often in conference with the general receiver of Dominican customs, and from a memorandum furnished me by him, as to the practical working of the municipal surtax, I quote as fol

lows:

As to the practical effect of this tax on commerce of the country, it must be admitted and understood that the ordinary commercial statistics such as prepared by the receivership, covering foreign trade, would not in themselves be conclusive. There are innumerable conditions and circumstances which would affect such a showing in addition to this single item of taxation. For instance, the new customs tariff which went into effect January 1, 1910, provided substantially reduced rates on many articles of importation, and even though such articles had not previously been taxed by the municipality, or had been taxed at a lower rate than provided in the new municipal tariff law, the net result would be a reduction and therefore would not tend to curtail or shut out such importations. On the contrary, such importations might increase in volume owing to the tariff encouragement. The general conditions and prosperity of the country also affect such a statistical showing. Hence, any specific figures showing the quantities of rice, flour, cement, etc., imported during the previous years as compared with the same importations for the past year would be entirely misleading if intended to demonstrate that the recargo municipal has had the actual effect in practice of restricting importations. One way of determining the result of the new municipal tax would be a comparison of the amounts collected by the municipality under the old tariff and under the

new. The figures obtained from the Ayuntamiento covering the past 10 years' transactions are stated herewith:

NOTE. Or a yearly average of $18,198; new recargo only in operation during concluding part of 1910.

The member of the Ayuntamiento who prepared the new tariff estimated that it would yield $40,000 per year. That yield will bear comparison with the table incorporated above, and furnishes answer to the question propounded as to the practical effect. However, it must be added that the same member now states that the annual expectation will not reach $40,000, on account of having been changed to conform to a consumption tax. On July 11, 1911, actual payments were commenced by the Ayuntamiento to merchants for and on account of taxes previously paid on imported goods sold outside of the comun.

Very late official information, dated July 13, 1911, direct from the Ayuntamiento, has been obtained, to wit:

In the six months there has been collected from the entrances of this year $9,066.57 and of 1910 consigned as values to the collection in the budget $7,745.34 that make a total of $16,811.91. There is still much to collect of the first six months.

The items pending collection, as stated, from the half year 1911, just closed, will offset those due in the earlier period, but collected January-June, inclusive, 1911, so that the total reported, $16,811.91, may be accepted as normal for a half year under the new recargo. It certainly furnishes further answer, and of a concrete nature, too, of the practical effect concerning which particular information is sought.

It should not be necessary to attempt to prove by statistics the effect of any tax or multiplication of taxes. The principle of supply and demand governs. There is a limit to taxation on commerce beyond which it can not carry the load.

The lapse of nearly one year since the indirect tariff legislation went into effect, and since the first report on the subject was prepared and submitted, BIA, August 29, 1910, general receiver to the Bureau of Insular Affairs, has brought forth developments which afford food for reflection and a new viewpoint from which a further discussion can be had.

The Dominican customs tariff of 1910, compiled and drafted by the general receivership and submitted to the Dominican Government for its consideration and subsequent enactment, has been in operation since January 1, 1911. Its success has exceeded sanguine expectations, and the encouragement it gave many lines of trade in the Republic, long stifled by improvident tariff laws and rulings, has made possible a net result entirely satisfactory, in the face of and notwithstanding obstacles in its path. Such was the recargo municipal for Santo Domingo, considered untimely, ill advised, and unwarranted because ultra vires if a plain interpretation be given Article III of the AmericanDominican convention of February 8, 1907. This provision bears drectly upon and was framed to control any modification of the customs tariff, assumed to refer to both direct and indirect acts or attempts in contravention of the law cited.

From the very first the position taken by the receivership has been that the issue raised was one of principle, not practice. The safeguards incorporated

Im

1 At first glance the 1907 collections will appear abnormal, and so was the case. portations of that year actually were less at port of Santo Domingo than in 1908, yet recargo municipal tax collected in 1907 more than doubled that of 1908. Explanation offered is that in 1907 the treasurer in charge was a very old man, perhaps of 80 years a virtual pensioner. His office work became so much in arrears that the president of the Ayuntamiento took matters in hand, appointed extra collectors, who rushed matters and not only collected on current accounts but many items due and pending from previous years (a customary state of affairs in Dominican fiscal matters), so that the year's showing was a record breaker, as indicated in the tabulated statement.