President's proclamation are based upon the computations set forth in the report of Professor Emory R. Johnson, a copy of which is forwarded herewith for delivery to Sir Edward Grey, and that the tolls which would be paid by American coastwise vessels, but for the exemption contained in the Act, were computed in determining the rate fixed by the President.

By reference to page 208 of Professor Johnson's report, it will be seen that the estimated net tonnage of shipping using the canal in 1915 is as follows:

Coast to coast American shipping----

American shipping carrying foreign commerce of the United States___ Foreign shipping carrying commerce of the United States and foreign countries

Tons.

1,000,000 720,000

8, 780,000

It was on this estimate that tolls fixed in the President's proclamation were based.

1

Sir Edward Grey says, "This rule [1 of article 3 of the HayPauncefote Treaty] also provides that the tolls should be 'just and equitable.' The purpose of these words," he adds, "was to limit the tolls to the amount representing the fair value of the services rendered, i. e., to the interest on the capital expended and the cost of the operation and maintenance of the Canal." If, as a matter of fact, the tolls now fixed (of which he seems unaware) do not exceed this requirement, and as heretofore pointed out there is no claim that they do, it is not apparent under Sir Edward Grey's contention how Great Britain could be receiving unjust and inequitable treatment if the United States favors its coastwise vessels by not collecting their share of the tolls necessary to meet the requirement. There is a very clear distinction between an omission to "take into account the coastwise tolls in order to determine a just and equitable rate, which is as far as this objection goes, and the remission of such tolls, or their collection coupled with their repayment in the form of a subsidy.

The exemption of the coastwise trade from tolls, or the refunding of tolls collected from the coastwise trade, is merely a subsidy granted by the United States to that trade, and the loss resulting from not collecting, or from refunding those tolls, will fall solely upon the United States. In the same way the loss will fall on the United States if the tolls fixed by the President's proclamation on all vessels represent less than the fair value of the service rendered, which must necessarily be the case for many years; and the United States will, therefore, be in the position of subsidizing or aiding not merely its own coastwise vessels, but foreign vessels as well.

2

Apart from the particular objections above considered, it is not understood that Sir Edward Grey questions the right of the United States to subsidize either its coastwise or its foreign shipping, inasmuch as he says that His Majesty's Government do not find "either in the letter or in the spirit of the Hay-Pauncefote Treaty any surrender by either of the contracting Powers of the right to encourage its shipping or its commerce by such subsidies as it may deem expedient."

To summarize the whole matter: The British objections are, in the first place, about the Canal Act only; but the Canal Act does not fix the tolls. They ignore the President's proclamation fixing the tolls which puts at rest practically all of the suppositious injustice and inequality which Sir Edward Grey thinks might follow the administration of the Act, and concerning which he expresses so many and grave fears. Moreover, the gravamen of the complaint is not that the Canal Act will actually injure in its operation British shipping or destroy rights claimed for such shipping under the Hay-Pauncefote Treaty, but that such injury or destruction ma possibly be the effect thereof; and further, and more particularly. Sir Edward Grey complains that the action of Congress in enacting the legislation under discussion foreshadows that Congress or the President may hereafter take some action which might be injurious to British shipping and destructive of its rights under the treaty. Concerning this possible future injury, it is only necessary to say that in the absence of an allegation of actual or certain impending injury, there appears nothing upon which to base a sound complaint. Concerning the infringement of rights claimed by Great Britain, it may be remarked that it would, of course, be idle to contend that Congress has not the power, or that the President, properly authorized by Congress, may not have the power to violate the terms of the Hay-Pauncefote Treaty, in its aspect as a rule of municipal law. Obviously, however, the fact that Congress has the power to do something contrary to the welfare of British shipping or that Congress has put or may put into the hands of the Presideat the power to do something which may be contrary to the interests possessed by British shipping affords no just ground for complaint. It is the improper exercise of a power and not its possession which alone can give rise to an international cause of action; or to put it in terms of municipal law, it is not the possession of the power to trespass upon another's property which gives a right of action in trespass, but only the actual exercise of that power in committing the act of trespass itself.

When, and if, complaint is made by Great Britain that the effect of the act and the proclamation together will be to subject British vezels as a matter of fact to inequality of treatment, or to unjust and inequitable tolls in conflict with the terms of the Hay-Pauncefote Treaty, the question will then be raised as to whether the United States is bound by the treaty both to take into account and to collect tolls from American vessels, and also whether under the obligations of that treaty British vessels are entitled to equality of treatment in all respects with the vessels of the United States. Until these objections rest upon something more substantial than mere possibility, it is not believed that they should be submitted to arbitration. The existence of an arbitration treaty does not create a right of action; it merely provides a means of settlement to be resorted to only when other reSources of diplomacy have failed. It is not now deemed necessary, therefore, to enter upon a discussion of the views entertained by Congress and by the President as to the meaning of the Hay-Pauncefote Treaty in relation to questions of fact which have not yet arisen, but may possibly arise in the future in connection with the administration of the Act under consideration.

It is recognized by this Government that the situation developed by the present discussion may require an examination by Great Britain into the facts above set forth as to the basis upon which the tolls fixed by the President's proclamation have been computed, and also into the regulations and restrictions circumscribing the coastwise trade of the United States, as well as into other facts bearing upon the situation, with the view of determining whether or not, as a matter of fact, under present conditions there is any ground for claiming that the Act and proclamation actually subject British vessels to inequality of treatment, or to unjust and inequitable tolls.

If it should be found as a result of such an examination on the part of Great Britain that a difference of opinion exists between the two Governments on any of the important questions of fact involved in this discussion, then a situation will have arisen, which, in the opinion of this Government, could with advantage be dealt with by referring the controversy to a Commission of Inquiry for examination and report, in the manner provided for in the unratified arbitration treaty of August 3, 1911, between the United States and Great Britain.1

The necessity for inquiring into questions of fact in their relation to controversies under diplomatic discussion was contemplated by both Parties in negotiating that treaty, which provides for the institution, as occasion arises, of a Joint High Commission of Inquiry, to which, upon the request of either Party, might be referred for impartial and conscientious investigation any controversy between them, the Commission being authorized upon such reference "to examine into and report upon the particular questions or matters referred to it, for the purpose of facilitating the solution of disputes by elucidating the facts, and to define the issues presented by such questions, and also to include in its report such recommendations and conclusions as may be appropriate.”

This proposal might be carried out, should occasion arise for adopting it, either under a special agreement, or under the unratified arbitration treaty above mentioned, if Great Britain is prepared to join in ratifying that treaty, which the United States is prepared to do.

You will take an early opportunity to read this despatch to Sir Edward Grey; and if he should so desire, you will leave a copy of it with him.

I am [etc.]

P. C. KNOX.

File No. 811f. 812/400.

The British Ambassador to the Secretary of State.

BRITISH EMBASSY, Washington, February 27, 1913.

SIR: His Majesty's Government are unable before the Administration leaves office to reply fully to the arguments contained in your despatch of the 17th ultimo to the United States Chargé d'Affaires at London regarding the difference of opinion that has arisen between

1 Ratification advised by the Senate on March 5, 1912, but not yet ratified by the President; see Charles' Treaties, vol. 3, p. 485 et seq.

our two Governments as to the interpretation of the Hay-Pauncefote Treaty, but they desire me in the meantime to offer the following observations with regard to the argument that no case has yet arisen calling for any submission to arbitration of the points in difference between His Majesty's Government and that of the United States on the interpretation of the Hay-Pauncefote Treaty, because no actual injury has as yet resulted to any British interest and all that has been done so far is to pass an Act of Congress under which action held by His Majesty's Government to be prejudicial to British interests nright be taken.

From this view His Majesty's Government feel bound to express their dissent. They conceive that international law or usage does not support the doctrine that the passing of a statute in contravention of a treaty right affords no ground of complaint for the infraction. of that right, and that the nation which holds that its treaty rights have been so infringed or brought into question by a denial that they exist, must, before protesting and seeking a means of determining the point at issue, wait until some further action violating those rights in a concrete instance has been taken, which in the present instance would, according to your argument, seem to mean, until tolls have been actually levied upon British vessels from which vessels owned by citizens of the United States have been exempted.

The terms of the Proclamation issued by the President fixing the Canal tolls, and the particular method which your note sets forth as having been adopted by him, in his discretion, on a given occasion for determining on what basis they should be fixed do not appear to His Majesty's Government to affect the general issue as to the meaning of the Hay-Pauncefote Treaty which they have raised. In their view the Act of Congress, when it declared that no tolls should be levied on ships engaged in the coasting trade of the United States, and when, in further directing the President to fix those tolls within certain limits, it distinguished between vessels of the citizens of the United States and other vessels, was in itself and apart from any action which may be taken under it, inconsistent with the provisions of the Hay-Pauncefote Treaty for equality of treatment between the vessels of all nations. The exemption referred to appears to His Majesty's Government to conflict with the express words of Rule 1 of Article 3 of the Hay-Pauncefote Treaty, and the Act gave the President no power to modify or discontinue the exemption.

In their opinion the mere conferring by Congress of power to fix lower tolls on United States ships than on British ships amounts to a denial of the right of British shipping to equality of treatment, and is therefore inconsistent with the treaty irrespective of the particular way in which such power has been so far actually exercised.

In stating thus briefly their view of the compatibility of the Act of Congress with their Treaty rights His Majesty's Government hold that the difference which exists between the two Governments is clearly one which falls within the meaning of Article I of the Arbitration Treaty of 1908.

As respects the suggestion contained in the last paragraph but one of your note under reply His Majesty's Government conceive that Article I of the Treaty of 1908 so clearly meets the case that has now

arisen that it is sufficient to put its provisions in force in whatever manner the two Governments may find the most convenient. It is unnecessary to repeat that a reference to arbitration would be rendered superfluous if steps were taken by the United States Government to remove the objection entertained by His Majesty's Government to the Act.

His Majesty's Government have not desired me to argue in this note that the view they take of the main issue-the proper interpretation of the Hay-Pauncefote Treaty-is the correct view, but only that a case for the determination of that issue has already arisen and now exists. They conceive that the interest of both countries requires that issue to be settled promptly before the opening of the Canal, and by means which will leave no ground for regret or complaint. The avoidance of possible friction has been one of the main objects of those methods of arbitration of which the United States has been for so long a foremost and consistent advocate. His Majesty's Government think it more in accordance with the General Arbitration Treaty that the settlement desired should precede rather than follow the doing of any acts, which could raise questions of actual damage suffered; and better also that when vessels begin to pass through the great waterway in whose construction all the world has been interested there should be left subsisting no cause of difference which could prevent any other nation from joining without reserve in the satisfaction the people of the United States will feel at the completion of a work of such grandeur and utility.

I have [etc.]

JAMES BRYCE.

EXTRADITION ARRANGEMENT EFFECTED BY EXCHANGE OF NOTES BETWEEN THE UNITED STATES AND GREAT BRITAIN, PROVIDING FOR EXTRADITION BETWEEN THE PHILIPPINE ISLANDS OR GUAM AND BRITISH NORTH BORNEO. SIGNED SEPTEMBER 1-23, 1913.

File No. 211.41/15.

No. 231.]

The British Ambassador to the Secretary of State.

BRITISH EMBASSY, Dublin, N. H., Sept. 1, 1913. SIR: Under instructions from my Government I have the honour to request you to be so good as to inform me whether the United States Government would be willing to enter into an arrangement with the Government of His Britannic Majesty by virtue of which fugitive offenders from the Philippine Islands or Guam to the State of North Borneo, or from the State of North Borneo to the Philippine Islands or Guam shall be reciprocally surrendered for offences specified in the existing treaties of extradition between the United States and His Britannic Majesty, so far as such offences are punishable both by the laws of the Philippine Islands or Guam and by the laws of the State of North Borneo.

Should your Government agree to this arrangement I should be glad to receive from you an assurance that this note will be consid