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veying the Eastern and Australian mails, when the Peninsular and Oriental and Orient contracts expire in 1905, will be determined by asking for sectional and through tenders for mail services to commence in 1908. 23. The remaining question to be answered is how is this interval of three years to be bridged over? Your Lordship is familiar with the communications which we have from time to time made to Mr. Austen Chamberlain and yourself, and with the negotiations which have been in progress between the Post Office and the Peninsular and Oriental Company with regard to an extension of their contract till the 31st January, 1908. We have viewed with some concern the necessity of dropping the mail contract with the Orient Company for the alternating fortnightly Australian service, especially as this is at variance with our general aim to encourage a number of good British fleets, but, considering the comparatively few really fast ships at this moment available, wo are satisfied that it is useless at once to ask for sectional tenders; and it is equally useless without asking for them to dislocate the present Peninsular and Oriental service, especially when the twenty-four hours' acceleration can be obtained for whicli the Government of India so strenuously presses. In Appendix Bto this report will be found the different schemes which the Peninsular and Oriental Company have put forward. With reference to these, we are opposed to an extension for seven or for five years; but a majority are in favour of an extension for three years with twent3 7 -four hours' acceleration and an annual subsidy increased by £10,000, making £340,000 in all; and a minority voted for accepting the offer of an extension for three years without acceleration and an annual subsidy decreased by £10,000, making £320,000 in all. All members, however, are united in recommending that the options offered by the company of an extension for five or seven years with retrospective reduction of subsidy should be embodied in any agreement that may be framed. In connection with the Australian mails, it is convenient to recall here that the Australian Attorney-General has given an official opinion that mails may, under section 69 of " The Commonwealth Post and Telegraph Act, 1901," be placed on board an outgoing vessel with a coloured crew, without any breach of section 16 of the same Act which prohibits any contract or arrangement for the carriage of Australian mails unless it contains a condition that only white labour shall be employed, The Australian Government, however, has explained that it will not enter into any undertaking to adopt the course indicated, but that each case will be treated as a separate incident, leaving the Commonwealth Postmaster-General free at his discretion to avail himself of the opportunity or not. 24. We desire to acknowledge the valuable assistance which we have received during the inquiry from Mr. Arthur G. Ferard, of the Post Office, who has acted as Secretary. We have, &c, (Signed) Evelyn Cecil, Chairman. H. Buxton Forman. John Anderson. Fred. C. Holiday. E. A. Doran (per the Secretary). Stephen J. Graff. W. E. Smith. T. W. P. Blomefield. Arthur G. Ferard, Secretary. 22nd January, 1904.

; APPENDIX A. . ' , Eastern Mail Service. Sectional Tenders. A. India. —Tenders to be invited for one weekly service or two alternating fortnightly services : — (1.) Between a port of South Europe and Bombay, via Aden in each direction. (2.) Between the Port of Aden and Karachi in each direction. B. Straits Settlements and China. —Tenders to be invited for one fortnightly service or two alternating four-weekly services: — (1.) (a.) Between a port of South Europe and Hongkong, vid Aden, Colombo, Penang, and Singapore in each direction, (b.) Ditto, with extension to Shanghai. (2.) («.) Between Colombo and Hong Kong, via, Penang and Singapore in each direction. (/>.) Ditto, with extension to Shanghai. 3. (a.) Between Madras and Hong Kong, via Penang and Singapore in each direction, connecting with the London-Bombay mail-service, (b.) Ditto, with extension to Shanghai. (4.) (a.) Between Singapore and Hong Kong. (&.) Ditto, with extension to Shanghai. C. Australia. —Tenders to be invited for one fortnightly service or two alternating fourweekly services: — (1.) (a.) From a port of the United Kingdom, calling at a port of South Europe, to Aden, Colombo, Fremantle, and Adelaide, and vice versa, (b.) Ditto, with extension to Melbourne and Sydney, and vice versa, (c.) Ditto, with extension to Melbourne, Sydney, and Pinkenba, and vice versd. (2.) (a.) From a port of South Europe to Aden, Colombo, Fremantle, and Adelaide, and vice versa, (b.) Ditto, with extension to Melbourne and Sydney, and vice versa,, (c.) Ditto, with extension to Melbourne, Sydney, and Pinkenba, and vice versa. (3.) From a port of the United Kingdom, calling at a port of South Europe, and Aden to Colombo, and vice versd. (4.) From a port of South Europe to Aden and Colombo, and vice versd.