Exhibit B., January 25, 1878

Exhibit B.

Major Wodehouse:

Sir: I have now to supply you on your return to your post with instructions in regard to the recent commercial negotiations with Mr. Carter, the Hawaiian envoy to this country, in connection with the discussion between Her Majesty’s Government and the Hawaiian Government relative to the infringement of the provisions of the treaty of July 10, 1851, between Great Britain and the Sandwich Islands, by the manner in which the reciprocity treaty of January 30, 1875, between the United States and the Sandwich Islands has been put into operation by the Hawaiian Government.

Mr. Carter had his first interview with me on the 27th of August. I expressed to him in general terms the friendly sentiments of Her Majesty’s Government towards the King and people of Hawaii; and as the question respecting which he had come to treat involved matters in detail, I then referred him for the discussion of these points to Mr. Lister and Mr. Kennedy. Previously to Mr. Carter’s arrival, Mr. Mauley Hopkins, the Hawaiian consul-general in London, had given notice of the desire of the Hawaiian Government to terminate, under the terms of article 17 of the treaty of July 10, 1851, articles 4, 5, and 6 of that treaty. He announced at the same time that a special envoy was coming to this country from Hawaii for the purpose of settling the differences which had arisen, or at best of explaining fully the position of the Hawaiian Government in the matter. This communication was made, in a friendly sense, and it thus coincided with the report on the subject contained in your dispatch No. 2, commercial, of the 23d of May, 1877; but in its terms this notice went beyond the actual requirements of the case; for while the points in discussion were limited to the first paragraph of article 4, Mr. Manley Hopkins gave notice to terminate the whole of that article, and also articles 5 and 6. Mr. Carter explained at length, in several conversations, the reasons which had induced the Hawaiian Government to enter into the reciprocity treaty of 1875 with the United States. The question in discussion was, however, further complicated by a tariff law passed by the Hawaiian legislature in 1876, by which the Hawaiian Government, besides exempting the goods specified in the schedule to article 2 of that reciprocity treaty from payment of custom duties, had augmented the rates of custom duties previously levied on mixed textiles and on certain other goods of British manufacture which are of much importance in the trade between this country and the Hawaiian Islands. The Hawaiian Government have thus not only infringed the stipulations of their treaty with this country by refusing to admit British goods on the same terms as United States goods, but they have increased the rate of the differential duty, which, contrary to treaty, they have thus established, by raising that duty in certain cases from 10 to 25 per cent., and they have apparently proceeded to levy these duties without waiting for the expiration of the twelve months’ notice given for the termination of article 4 of the British treaty of 1851. This state of things gave Her Majesty’s Government ground for serious complaint. But they were unwilling, if it could be avoided, to depart from the friendly policy which they have hitherto maintained towards the Hawaiian Islands. Mr. Carter then communicated, as an alternative plan for the settlement of this matter, the accompanying drafts of Additional Article and of Declaration. But these documents would merely give the sanction of the two governments to the course which has been taken by the Hawaiian Government. They are each alike opposed to the view of the whole question taken by Her Majesty’s Government, and to their interpretation of article 4 of the treaty of 1851. I therefore caused you to be instructed to supply a statement of the points under consideration with especial reference to their bearing on British commercial interests; and, after considering the subject, in order to act as far as possible in accordance with the friendly policy of Her Majesty’s Government towards the Hawaiian Islands, without insisting as a step preliminary to negotiation on the removal or modification of causes or complaint, I addressed Mr. Carter the inclosed note, proposing for his acceptance a draft of declaration, prepared with the object of making the difference between the two Governments simply a difference of interpretation, and by taking that basis to facilitate a settlement of the points at issue. It was understood that if Mr. Carter accepted this declaration, he would also accede to the suggestions made in my note of the 11th July, that the notice of termination of these articles should not take effect; and it was explained to him that the schedule annexed to the draft of declaration was open for modification; namely, that if he so wished, the designation of goods mentioned therein in general terms might be limited to certain classes of them, and that some of the goods mentioned, carriages, for example, might be altogether omitted from the list. Mr. Carter, however, did not proceed with the negotiation on this basis; and at an interview with me on the 9th of November, he communicated to me a memorandum, in which, by referring to correspondence in 1856, when a previous reciprocity treaty, which was not ratified and therefore never came into operation, was in discussion, and to correspondence in 1867 about consular privileges, he sought to controvert the interpretation given by Her Majesty’s Government to article 4 of the treaty of 1851. But these matters are, in the opinion of Her Majesty’s Government, beside the question now at issue. The correspondence in 1856 was incomplete, for it related to a state of things which, as that reciprocity treaty did not come into operation, in reality never arose. The consular question is obviously quite a different subject.

In the absence of Mr. Lister, and as a proof of the constant desire of Her Majesty’s Government to act in a friendly manner towards the Hawaiian Government, I then placed Mr. Carter in semi-official communication with Lord Tenterden. But this course likewise failed to discover the means of arriving at a satisfactory settlement.

It was suggested to Mr. Carter that the Hawaiian Government should engage that the schedule of the United States treaty of 1875, or even a modified form of that schedule, should be annexed to the British declaration proposed to be substituted for the first paragraph of article 4, with a proviso that the duty of the goods comprised in it, when of British origin, shall not, while the reciprocity treaty of 1875 is in force, exceed 10 per cent. ad valorem; that the unnecessary denunciation of the remaining part of article 4 and of articles 5 and 6 should be withdrawn, and that effect should be given to these engagements in such manner as would be most in accordance with the Hawaiian constitution. But Mr. Carter was not willing to agree to these suggestions; and as an alternative plan he proposed that the most-favored nation stipulation in the treaty of 1851 should be held not to apply to the reciprocity treaty of 1875 or to concessions made by treaties between the Hawaiian Islands and countries in or bordering upon the Pacific Ocean. This plan, however, was found on examination to be the same as that proposed in the drafts of additional article and of declaration communication by Mr. Carter on the 13th September, and which, in my note of the 25th October, he had been informed could not be adopted by Her Majesty’s Government. He was accordingly again informed so. He was further asked to say whether he was willing to withdraw the denunciation of the articles 5 and 6 of the treaty of 1851, for in conversation the precise meaning of a statement on this point in his memorandum of the 9th of November was not very clear. Before, however, this answer could be sent off, he announced that he was about to leave for the Continent, and up to this time no reply has been received to the semi-official letter in which this answer was conveyed to him. Having now stated the course of the recent negotiations, I will proceed to make known to you the views of Her Majesty’s Government in the present position of the question. I have to observe, in the first place, that in dealing with it Her Majesty’s Government have to consider it not merely as regards the relations between Great Britain and the Hawaiian Islands. The arrangement which may be arrived at for its settlement will also have a bearing upon the commercial relations and engagements of this country with foreign states generally. Her Majesty’s Government cannot, therefore, be parties to any arrangement which would be opposed to their general commercial policy. They are willing to accept fully the explanation given by you and by Mr. Carter in regard to the reciprocity treaty between Hawaii and the United States, and they have no wish that that treaty should impair their friendly sentiments towards Hawaii. But, at the same time, as a necessary condition to this friendly understanding, Her Majesty’s Government expect that the Hawaiian Government will remove just causes of complaint; and the draft of declaration proposed in my note to Mr. Carter of the 25th of October last not having been accepted, you must not give any pledge that the offer then made will be repeated. In consideration of the peculiar circumstances of the commercial relations of the Hawaiian Islands, as explained by Mr. Carter, and the statements made by you after communication with British merchants interested in the trade with those islands, Her Majesty’s Government proposed this method of settlement of the points in discussion between the two governments. But it was only as a temporary arrangement, the reciprocity treaty of 1875 being limited in duration, and only under the peculiar circumstances of the case, that Her Majesty’s Government could agree to any sort of differential treatment of British goods, and a formal agreement to the reduction of the 25 per cent. duties to 10 per cent. as a maximum was a necessary condition of any such arrangement. Without reverting to questions of the interpretation of article 4 of the treaty of 1851, for the termination of which notice has been formally given by the Hawaiian Government, I have to instruct you, on your return to Honolulu, to make the following statements to the King and to the Government of Hawaii:

• Her Majesty’s Government cannot admit the right of the Hawaiian Government to terminate the operation of the provisions of that article until the expiration of the twelve months’ notice which they have given. While it remains in force Her Majesty’s Government must require that it shall he faithfully observed, and consequently duties improperly levied must be repaid.
• Without further explanation to justify such a course, Her Majesty’s Government must regard the abrogation of articles 5 and 6 in the treaty of 1851, when the only point in discussion is the first paragraph of article 4, as an unnecessary and unfriendly act.
• Her Majesty’s Government must regard as a specially unfriendly act the levying, when the treaty stipulation for most-favored nation treatment in matters of tariff shall terminate, of a iv such differential rate of duty as 25 per cent. on British goods imported into the Hawaiian Islands. You will give a memorandum embodying these three statements to the Hawaiian minister with whom you may be in communication on your return to Honolulu, and, if you think fit, you may read this dispatch to him and supply him with a copy of it.

I am, sir, your most obedient, humble servant,

Sir: I have now the honor to inform you that Her Majesty’s Government have carefully considered the drafts of an additional article of the treaty of 1851 between Great Britain and the Hawaiian Islands, and of a declaration which you have communicated as alternative means of obviating any difficulties with respect to the interpretation of the fourth article of the treaty of 1851. I have, however, to inform you that Her Majesty’s Government see objections to accepting either of these documents. They are at the same time, after considering your explanation of the subject, desirous of snowing in their manner of dealing with the question their friendship for the King and people of the Hawaiian Islands, and of assisting as far as in their power the object of your mission, to remove any difference between the two countries. I have accordingly the honor to communicate to you herewith the draft of a declaration which, on the part of Her Majesty’s Government, I have caused to be prepared with the view to settle this difference of interpretation. I think it right to state that it is only in consideration of the peculiar circumstances of the commercial position of the Hawaiian Islands which you have explained that Her Majesty’s Government are willing to propose this mode of settlement, and that they regard their action in waiving the strict application of article 4 of the treaty of 1851, as it now stands, as an especial mark of friendship and good-will. At the same time I think it right to state, in order to avoid any possible misunderstanding, that in consenting to the proposed declaration and the alterations in the terms of article 4, Her Majesty’s Government maintain their interpretation of it while it remains in force, and that consequently any claims preferred on account of excessive duties levied in contravention of that article of the treaty should be entertained by the Hawaiian Government.

I have the honor to be, with the highest consideration, sir, your most obedient, humble servant,

draft of declaration.

The Government of Her Majesty the Queen of the United Kingdom of Great Britain and His Majesty the King of the Hawaiian Islands, being desirous of obviating any difficulties which may arise in regard to the interpretation of article 4 of the treaty of friendship, commerce, and navigation between Great Britain and the Hawaiian Islands, of the 10th of July, 1851, the undersigned, duly authorized for the purpose, have agreed upon the following provisions:

His Hawaiian Majesty engages to recommend to the legislative assembly of the Hawaiian Islands that the duty on the goods specified in the schedule attached to this declaration, the produce or manufacture or coming from the United Kingdom of Great Britain and Ireland, or of British Colonies or possessions, shall, upon their importation into the Hawaiian Islands, not exceed 10 per cent. ad valorem. As soon as an enactment to the above effect shall have been passed by the Hawaiian legislative assembly, the stipulations in regard to import and export duties contained in article 4 of the treaty of the 10th July, 1851, shall become and remain inoperative as long as the said law shall be in force.

schedule.

Tissues of all materials, pure or mixed.

Metals of all kinds, raw or manufactured, or in any stage of manufacture, pure or alloyed.

Cutlery, tools, and agricultural and other implements, with or without handles of wood or other material.

Machinery, complete or in pieces.

Saddlery and harness; floor oil-cloth.

Hats and caps of all kinds.

Boots and shoes.

Earthen, glass, and china ware.

Colors, paints and turpentine.

Cobra, linseed and cotton-seed oils.

Soap, scented or not.

Carriages, entire or the materials of.

Fire-bricks and fire-clay, Portland cement, lumber.