Colonial Despatches

I am directed by the Lords of the Committee of Privy Council for Trade, to acknowledge the receipt of your letter of the 16th ult. transmitting for their consideration a copy of an Ordinance No 18 of 1867, recently passed by the Government of British Columbia, "to amend the duties of Customs," and annexing a copy of a report of the Commissioners of Customs on an Ordinance of the Government of the Gambia, whichbears bears upon the mode of levying duties provided by Section VII of the British Columbian Ordinance.

With respect to the general provisions of this Ordinance, I am to observe, that My Lords regret to perceive the rate of duty which is imposed on certain articles, such as Blankets, Books and Shoes, Bread, Medicines, Harness and Saddlery, Fresh meat and Poultry, Clothing, Soap, Ironwares, Window Sashes and doors, Manufactured Sails, and some other Articles, which appear to them to be in excess of the amount which sound economy would recommend, but they presume that they are imposed with reference to thefiscal fiscal exigences of the Colony, and not for protective purposes.

I am also to call attention to the duties upon Wines which appear to be imposed in a form which, although this is probably not intended, would give them a differential effect, upon the products of different countries. Thus 'China Medicated' (whatever that wine may be) is charged $1.50 per gallon, and 'California' red and white only 25 cents per gallon, Port and Sherry are charged 75 cents per gallon; while 'Claret' is only charged 20 cents per gallon. This favour to France it is true is to a certain extent neutralized bya a tax of $3 on Champagne and Moselle—but the scale appears open to some objection on the above grounds, and might lead to inconvenience if the trade were of sufficient magnitude to attract the attention of foreign countries.

As regards the VII Sec of the Act, which My Lords have considered in connexion with the Gambia Ordinance, and the Customs Report thereupon, I am to request that you will submit to the Duke of Buckingham and Chandos the following observations:

It would appear from the Customs Report, that the Lords of the Treasury apprehended in the case of the Gambia Act, that "ad valorem" duties charged on the Invoice price of goods at the place of shipment, would create a system of differential duties, upon goods identical in all respects and of the same price to the Consumer, according to the 'price' in the country from which they might happen to have been shipped.

If the doubt felt by the Lords of the Treasury, with respect to this clause, had reference to the omission of the charges of transport, insurance &c from the value upon which the dutywas was to be assessed, their apprehension would have been well founded, as My Lords will proceed to show in the subsequent part of this letter—but it would seem from the tenour of the Customs Report, that the question under consideration was not whether the basis of taxation should be the value at the port of shipment, or that in bond in the place of import, but whether it should be the market value in the country of production, and therefore differing according to the origin of the goods, or the marked value in the country of importation and therefore unnecessarily one and the same, whatever might be the origin of the goods.

If My Lords are right in this assumption, the following case will illustrate the view of the Lords of the Treasury: 100 yards of British Cotton Cloth arriving at the Gambia is worth, say £100/-. The same quantity of French Cloth, say £200/-.

If both these two pieces of cloth pay 10% ad valorem, it would amount on the first to 10s/-, and on the second to 20s/-, constituting, in the opinion of the Treasury, a differential tax of 100% against French Cloth.

This view appears to My Lords to rest upon a mis-apprehension of the meaning of the term 'differential' tax.

The principle to be observed in all customs taxation, is to impose the duty in such a manner as to leave the relativeconditions conditions of competition between different articles of the same kind, but of different value, the same as they would be under a system of free exchange, in short, to disturb, as little as possible, the natural course of trade.

From this point of view, all specific duties upon a given weight of an article irrespective of its value, are wrong in principle, although for convenience of administration, it is often found necessary to resort to them—the only duties on goods which do not violate this rule being ad valorem duties levied on their value in bond at the port of entry, which leave the relative profit on all importations thesame same as before the tax was imposed.

In the case supposed, instead of creating a differential duty against French Cloth, the ad valorem system would in no way disturb the relative conditions of the competing products, as the tax would bear the same relation as before to the profit of the importer, while if the same fixed sum, say ten shillings were charged on both, it would represent ten per cent on the value of the English Cloth, and only five per cent on the French, the former being thus placed at an unjust disadvantage.

It is unnecessary to observe that a similar injustice would be caused, if the same value was taken for both British, and FrenchCloth Cloth as the basis for assessing an ad valorem duty, a practice which it appears from the Customs report formerly prevailed in this Country.

But there is another point in connection with this subject, to which I have already referred, and to which, altho' not raised in the enclosed correspondence, My Lords desire to call the special attention of the Duke of Buckingham.

The VII clause of the basis of the British Columbian Act now under consideration provides that the basis of the 'ad valorem' tax shall be the "fair market value in the principal markets of the country whence the same were shipped or exported."

From this it would seem, that the charges for transport insurance &c to the Colony are not to be included in the value upon which the duty is to be assessed, and if this be so, My Lords desire to point out, that the provision in question fails to fulfil the conditions which (as they have already stated) ought to be observed in imposing ad valorem duties, viz. that the relative profit on all the transactions affected by them should remain undisturbed, this being a result which can only be secured by assessing the ad valorem duty on the value of the goods in bond at the port of entry.

The operation of the two systemswill will be clearly seen from the following examples.

Suppose the case of Goods worth £100 in a Country (A), and that it would cost another £100 to take them to another Country (B), also similar goods worth £100 in a third Country (C), from which it will only cost £50 to take them to the Country (B). If there are no duties in (B) the value of the Goods in that country would be £200 in the first case, and £150 in the second, or as 4 to 3. If 100 per cent duty is imposed on the Goods in question, and this duty is charged on the cost of the Goods in the Country of export, minus freight and charges &c, the Goods of (A & C) respectively, would be chargedthe the same, viz £100, and the goods of A would be worth (duty paid) £300, while those of C, would be worth £250, or in the proportion of 6 to 5, instead of as before, 4 to 3.

If on the other hand the basis of the tax be, the value of the goods at the Port of Entry, which of course includes the cost of carriage &c, the duty on the gooods of A, would be, in the case supposed, £200, while on the goods of C, it would only be £150. Their respective values (duty paid), would then be £400 and £300, or, (as before the tax was imposed), in the proportion of 4 to 3.

My Lords consider that it is important that this principle should be observed in the imposition of ad valorem duties in the BritishPossessions Possessions, and they would suggest that as the terms of the 7th Clause of the Ordinance under consideration imply that the charges of transport &c are to be omitted from the valuation of the goods for the assessment of duty, in British Columbia, the attention of the Governor should be directed to the question with a view to its amendment.