The Reciprocal Trade Policy of the United States: A Study in Trade Philosophy [Reprint 2016 ed.] 9781512807684

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THE RECIPROCAL TRADE POLICY OF T H E U N I T E D STATES

THE RECIPROCAL TRADE POLICY OF THE UNITED STATES A Study

in Trade

Philosophy

By

HENRY J. TASCA, PH.D.

Philadelphia U N I V E R S I T Y OF PENNSYLVANIA PRESS LONDON: HUMPHREY MILFORD: OXFORD UNIVERSITY PRESS

1938

Copyright 1938 UNIVERSITY OF PENNSYLVANIA PRESS Manufactured in the United States of America

To GROVER G .

HUEBNER

For whose friendship and inspiration I am deeply grateful

PREFACE THIS book offers an inquiry into the nature and scope of the new American tariff bargaining policy. A functional analysis has been employed largely because of the inherent nature of the reciprocal trade program. American bilateralism is concerned fundamentally with an improvement in world economic conditions rather than particular relations with individual nations. Essentially, it is a program of concerted economic collaboration implemented by bilateral commercial agreements. An additional reason for this approach is that it permits a better perspective of American policy to be obtained than might have been possible under an alternative method of treatment. Underlying this entire study is the basic "value-judgment" that the orthodox theory of international trade provides a desirable quaesitum in the commercial relations between nations. Stated differently, it is believed that the maximization of real income through an expansion of international division of labor must be the goal of an acceptable economic foreign policy. T h e ultimate criterion of evaluation in the following pages rests, therefore, upon the effectiveness of the program in promoting international economic liberalism. It can be stated unequivocally that success or failure in this direction will affect significantly the economic, political, and social problems facing the world today. T h e author is indebted to the Brookings Institution and the University of Pennsylvania for a fellowship which made an extended stay in Washington possible. Various officials of the Departments of State, Agriculture and Commerce, and the United States Tariff Commission contributed by clearing up several obscure points concerning which available data has been lacking. T o D r . Grover G. Huebner, of the University of Pennsylvania, the author owes more than words could express. His deep and sincere interest in the author's intellectual development combined with his great sympathetic insight have proved a real inspiration. D r . Roland L . Kramer, also of Pennsylvania, asvii

Vili

PREFACE

sisted materially during the early stages of the study and carefully proofread the manuscript. The author takes this opportunity to thank also Dr. Charles O. Hardy, Dr. Leo Pasvolsky, and Miss D . C. Schmidt, all of the Brookings Institution, and Dr. R. L . Young and Dr. E . M . Patterson, of the University of Pennsylvania, for their assistance in various capacities. Any shortcomings in this book and all conclusions and statements of opinion are to be attributed, however, solely to the author. HENRY J . TASCA

Washington,

D.C.

CONTENTS Page

Chafter I. I N T R O D U C T I O N

i

T h e Lack of Equilibrium in International Economic Relations . Methods of Approach T h e New Conventional T a r i f f Policy of the United States II. T H E E V O L U T I O N ICY

OF

AMERICAN

RECIPROCAL

7

POL10

T h e Background of the Reciprocal Trade Movement T h e Rise of T a r i f f Bargaining Sentiment T h e Reciprocal T r a d e Movement in 1 9 3 3 III. T H E

i 4

T R A D E A C T OF

1934

T h e Legislative History of the Act of 1 9 3 4 Implications of the Reciprocal T r a d e Act IV. E X E C U T I V E A G R E E M E N T S AS A OD OF T A R I F F REVISION

10 14 18 29 29 38

METH-

T h e T r a d e Agreements Organization Procedural Aspects Conclusion V. A D M I N I S T R A T I V E P R O G R E S S A N D P R O B LEMS

45 45 56 70 74

T h e Progress of the Reciprocal Trade Program Hull-Peek Controversy New Deal Legislation and the Reciprocal Trade Program Conclusion

92 97

VI. T H E P R O B L E M O F M O S T - F A V O R E D - N A TION TREATMENT

100

Bilateralism and Most-Favored-Nation Treatment Most-Favored-Nation Treatment under Non-Tariff Trade Controls ix

74 82

100 ill

CONTENTS

X

An Analysis of the Most-Favored-Nation Policy of the United States VII. F O R M A L

BILATERALISM

122

Reciprocal Trade Agreements under the Unconditional Clause Tariff Bargaining and the Requirement of Generalization The Policy of Generalization Conclusion VIII. R E C I P R O C A L

TARIFF

116

122 135 147 166

CONCESSIONS . . .

169

Foreign Tariff Concessions to the United States . . . . T h e Downward Revision of the American Tariff . . The Cuban Agreement

170 179 195

IX. QUOTAS UNDER ING POLICY

A

TARIFF

BARGAIN198

Some Aspects of Quotas as a Method of Trade-Control Quota Provisions in the Trade Agreements Conclusion

198 202 225

X. E X C H A N G E PROVISIONS IN T H E T R A D E AGREEMENTS

228

Some Tendencies in the International Exchange Situation Since 1929 Exchange Provisions in the Trade Agreements . . .

228 231

XI. ADMINISTRATIVE PROTECTIONISM . . . . Other Minor Provisions XII. RESULTS OF T H E PROGRAM

246 261

RECIPROCAL

TRADE

Comments on the Trade Effects of the Agreements . . Statistical Aspects of the Reciprocal Trade Agreements XIII. CONCLUSION The Liberalization of American Commercial Policy . T h e Improvement of Commercial Relations

265 265 266 283 283 285

APPENDIX

295

Message from the President of the United States . . . A Bill to Amend the Tariff Act of 1 9 3 0 — H . R . 8430 An Act to Amend the Tariff Act of 1 9 3 0 — H . R . 8687 An Act to Amend the Tariff Act of 1 9 3 0

299 302 304 306

CONTENTS Treaties and Executive Agreements of the United States Containing the Most-Favored-Nation Clause Summary

XI

31 o 313

BIBLIOGRAPHY

337

Official Publications of the United States Government League of Nations Other Official Sources Books Pamphlets Articles Newspapers

337 346 348 348 352 354 366

INDEX

367

TABLES Table I . United States Foreign T r a d e with T r a d e Agreement Countries

267

I I . United States T r a d e , Calendar Y e a r s 1935 and 1936

272

I I I . United States Foreign T r a d e with Certain Countries with

which

Trade

Agreements

Have

Been

in

Effect One Year

274

I V . United States Exports to and Imports from Countries with which T r a d e

Agreements

Have

Been

in

E f f e c t for at Least O n e Y e a r

275

V . United States Exports to and Imports from Countries with

which T r a d e

Agreements

Have

Been

in

E f f e c t for O n l y Part of 1936

276

APPENDIX

I . Abortive Attempts at Reciprocity I I . Reciprocal Executive Agreements

297 Under the

Mc-

Kinley T a r i f f A c t of 1890

297

I I I . Reciprocal Executive Agreements U n d e r the T a r i f f A c t of 1897

298

I V . Information in Regard to Ratification of O u r T r a d e Agreements by the Legislatures of the

Foreign

Countries Concerned, as of Jan. 27, 1937 V . Dutiable Imports into the United States from Specified Countries of Articles for W h i c h Each Country, xiii

309

civ

TABLES Respectively, Is the Leading

Source of Supply,

I93I V I . Samples of

3H New

Classifications under the

Trade

Agreements V I I . Quota Provisions in the Belgian Agreement

315 316

V I I I . Quota Concessions Granted by the Netherlands and the Netherland Indies to the United States

317

I X . Quota Concessions Granted to the United States by Switzerland

319

X . French Quota Concessions to the United States in Schedule I I I and Protocol

320

X I . Customs Quotas Granted by the United States to Canada

325

X I I . Foreign T a r i f f Concessions to the United States . . .

326

X I I I . T a r i f f Concessions Granted by the United States . . .

328

X I V . Reductions under the T r a d e Agreements as Compared with Increases in the Act of 1 9 3 0

329

X V . Value of United States Imports from All Countries, from Geographical Sections, and from Countries with which Agreements Have Been Concluded . .

330

X V I . Value of Exports of the United States to All Countries, to Geographical Sections and to Countries with which Agreements Have Been Concluded . .

332

X V I I . United States Exports and Imports to and from Countries with which T r a d e Agreements W e r e in E f fect for Only Part of 1 9 3 6

334

X V I I I . United States Foreign T r a d e with Leading NonAgreement Countries

335

I INTRODUCTION T H E L A C K OF E Q U I L I B R I U M

IN

INTERNATIONAL

ECONOMIC RELATIONS H I S T O R Y of the American tariff records the triumph of special interests over the general welfare. 1 T h i s has been made possible by the serious vulnerability of democratic legislative procedure to the pressures of organized minority groups. 2 W h i l e public opinion, whose will legal acts are supposed to reflect, apparently approved the concealed subsidies inherent in tariff protectionism, this has been chiefly the result of a misunderstanding of the economic implications of a protective tariff. Simple arguments with specious plausibility can be expected to attract more attention than the subtle economic reasoning underlying the accepted theory of international trade. THE

B e f o r e the war, the effects upon the world economy of the consistent and cumulative rise of the American tariff were modcrated to some extent by the debtor position of the United States and the relatively high degree to which international economic relations were integrated. T h e beginning of the post-war period, however, witnessed basic and far-reaching changes in both these respects—important economic consequences of the war. W i t h a suddenness unprecedented in the history of international financial relations the United States became a creditor nation. 3 Moreover, governmental interference with economic activity, such as is implicit in military conflict, combined with the nationalistic 1 F . W . T a u s s i g , Tariff History of the United States, G . P . Putnam's Sons, New York, 1 9 3 1 . ' E . E . Schattschneider, Politics, Pressures and the Tariff, Prentice-Hall, Inc., New York, 1935.

* T h e process whereby E n g l a n d became a mature creditor has been estimated to have covered a period of seventy-five years. W . T h o r p , " S o m e Angles of O u r T a r i f f P r o b l e m , " Economic Forum, S p r i n g , 1 9 3 4 , p. 2 1 1 .

1

2

RECIPROCAL T R A D E

POLICY

repercussions of a war psychology led to grave, persisting strains and stresses upon the economic links between nations. The failure of the United States to grasp the full significance of the situation constitutes a vital element in the economic developments of the post-war period. Since the United States had become a creditor on international capital account and a major component of the world economy, the commercial policy which it pursued was crucial to the establishment of an enduring economic equilibrium.4 That the necessary adjustments in commercial policy were not made is a familiar story. T h e settlement of financial claims against foreign countries was achieved, it is true, but only because of the phenomenal growth of tourist expenditures and the reinvestment of proceeds accruing from the newly established creditor position of the United States/ In this manner, the urgent need for lower barriers, rather than such legislation as the Fordney-McCumber Act of 1922, was concealed to a large extent. By the time of the World Economic Conference of 1927, it appeared that the world was progressing toward a resolution of the economic maladjustments which had characterized international economic relations during the early post-war years. Stabilization of the major currencies had apparently been achieved and there was promise that in the immediately succeeding years trade barriers might be demobilized. The persistence of agricultural depression and the growth of agrarian protectionism, however, provided an outward manifestation of serious underlying weaknesses in the situation. There were factors present which simply could not avoid breaking again the ill-repaired economic bonds binding together the interdependent units of the world economy. The maldistribution of 4 The term "equilibrium" as used here and subsequently, unless specifically stated otherwise, refers to the price and cost relationships in the various economies, the interrelations of national price systems, and finally to the long and short term international debt situation from the standpoint of its size, the currency in which it is stated, and its distribution. ° For a detailed description of this process, see R . A. Young, The International Financial Position of the United States, National Industrial Conference Board, New York, 1929.

INTRODUCTION

3

gold, the undervaluation of the franc, the overvaluation of the pound, the trade policies of creditor nations, credit policies of the Federal Reserve system, the trend towards economic selfsufficiency, international political and economic indebtedness were some of the more important of these interrelated elements. B y 1929 it was clear that a new unhinging of international economic relations, such as had characterized the early post-war years, was impending. T h e preceding year had already seen the decline of American capital exports, a process which delayed and concealed the necessity of downward revision of the American tariff. Debtor countries were faced with gaps in their balances of payments which could only be met under the circumstances by a drainage of gold reserves. T h e post-war tendency of declining commodity prices was thus hastened. Depression in these countries deepened. T h e injection of the Hawley-Smoot Act of 1 9 3 0 into an unbalanced world economy intensified the disturbances in the balances of payments of foreign countries. Moreover, if there had been any hope of concerted action after the Geneva conference of 1 9 2 7 towards the gradual liberalization of trade barriers, it was dispelled by this Act. T h e failure of the tariff truce proposals of 1 9 3 0 and 1 9 3 1 can be attributed in a large measure to the upward revision of the American tariff at a crucial moment. With the international financial crisis in Austria in 1 9 3 1 , the world was well on its way back to the dislocations and maladjustments of earlier post-war years. Not only were quotas, exchange controls, and higher tariffs again resorted to, but the scope and variety of the first two of these were greatly extended. N o mere statement of these non-tariff trade controls could adequately portray the extent to which trade restrictionism became the order of the day. 6 T h e rise of these barriers was intended in part by various national economies to ward off the attacks caused by a disjointed world economy. However, the burden of these defensive movements fell upon other economies, but only with rebounding effect. ' T h e s e w i l l be considered l a t e r in the v a r i o u s chapters to w h i c h they are relevant.

RECIPROCAL TRADE

4

POLICY

Thus, out of the economic interrelationships of nations arose a cumulative tendency towards increased world trade barriers. T h e resulting degeneration of this movement into a vicious spiral of increasing restrictionism was accompanied by an inevitable deflation of international trade. W o r l d trade declined from $68,622,000,000 in 1929 to $23,288,000,000 in 1934, a decline of 66.1 percent. 7 T h e foreign trade of the United States was even more severely hit, shrinking for $9,495,000,000 in 1929 to $2,229,000,000 in 1934, or 76.5 percent. 8 It is clear that the mechanism of exchange had collapsed under the impact of highly restrictive trade barriers and world depression, the roots of which were deeply embedded in the economic disequilibria present during the entire post-war period in varying degrees. If international trade is to be rehabilitated, a frontal attack upon customs barriers must be one of the indispensable prerequisites. Moreover, this must go beyond the liquidation of the enormous superstructure of restrictions erected since 1929. T h e danger of stabilization of barriers at the higher levels to which they were raised during the first decade of the post-war period lies in the implicit acceptance of a permanently decreased international division of labor. 9 METHODS OF APPROACH

If international trade is to be reconstructed, the United States must play a significant role in the process. American post-war 7

League

of

Nations,

Review

of

World

Financial 1936. II. A . 14. pp. 9-10. These F o r the m e t h o d of c o n v e r s i o n , ibid., *Ibid.,

p.

34.. T h e q u a n t u m

of

American

1935,

imports

and

II.

Economic

a r e in t e r m s of g o l d

and

dollars.

p. 8.

of w o r l d t r a d e d e c r e a s e d

these y e a r s c o m p a r e d w i t h a d e c l i n e o f quantum

Trade, figures

26.5

percent

during

3 4 . 5 p e r c e n t a n d 4 4 . 0 p e r c e n t in the

exports

respectively.

The

difference

is

g r e a t e r f o r e a r l i e r y e a r s . I n t e r n a t i o n a l t r a d e r e v i v e d s o m e w h a t in 1 9 3 5 f o r a l l c o n t i n e n t s e x c e p t E u r o p e , the seat of the m o v e m e n t most severe c o n t r o l s o f i n t e r n a t i o n a l t r a d e . Ibid., * For

details concerning

the

statements m a d e

t o w a r d autarchy and

above, voluminous

is a v a i l a b l e . T h e most s a t i s f a c t o r y o f f i c i a l studies in the series of studies on i n t e r n a t i o n a l

economic

the

p p . 7, 1 0 , 34. field

relations published

literature

a r e p e r h a p s the b y the

League

of N a t i o n s c i t e d , w i t h d i v e r s u n o f f i c i a l m o n o g r a p h s a n d p e r i o d i c a l m a t e r i a l , in the b i b l i o g r a p h y f o l l o w i n g the a p p e n d i x .

INTRODUCTION

5

commercial policy was responsible, in an important measure, for the maladjustments outlined above. If debtor countries are to service their financial obligations, and if American export markets abroad are to be recovered and expanded, then the American tariff must come down. T h e alternatives are a surrender of the financial stake of the United States abroad and drastic readjustments in the internal economy. T h r e e avenues of approach seem to be available through which a liberalization of American commercial policy might be achieved: 1 . Unilateral Downward Tariff Revision. 2. Bilateral Action. 3. Multilateral Conventions. These are not, of course, mutually exclusive lines of attack but conceivably could be combined, though with greater difficulties of implementation. Of these three, bilateral action appears most feasible under existing conditions. It permits a f u l l frontal attack upon trade barriers in foreign countries as well as a revision of the American tariff. Non-tariff trade controls, which have been so destructive of international trade in recent years, can in this manner be reached directly. T h i s implies, further, that attention can be concentrated upon those restrictions which have been especially detrimental to American exports. 10 Moreover, bilateral action avoids to a great extent the political implications of an autonomous downward tariff revision in the United States. U n d e r any ordinary circumstances, it would be exceedingly difficult to achieve a substantial liquidation of the American tariff. Protectionism is a deeply ingrained institution in the United States. T o attempt to combat the special interests in the United States during the years after 1929 by unilateral action would have been an extraordinarily difficult if not impossible line of procedure. 1 1 Tariff negotiations lessen these difficul10

T h e s e statements a r e not to be taken as prejudicing- the necessity f o r a

g r e a t e r r e l a t i v e increase in i m p o r t s into the U n i t e d States as c o m p a r e d exports. 11

C f . , infra,

Chapter II.

with

6

RECIPROCAL T R A D E

POLICY

ties somewhat by making it possible to point to similar action on the part of foreign countries. T h e history of the American tariff-making process offers additional evidence weighing against unilateral action. In a democracy in which legislative procedure bears the force of the activity of pressure groups, Congressional tariff-making is open to serious question.12 It would hardly have been surprising if the net effect of any autonomous efforts in this direction were a more restrictive tariff wall. Bilateral action implicitly takes the tariff revising process out of the hands of Congress. It permits, if properly conducted, a partial insulation, at any rate, of the procedure against the exertions of minority interests. It can permit, in short, a more objective consideration of the whole tariff question. There are, however, two types of bilateral action—substantive bilateralism and formal bilateralism. The basic point of difference lies in the exclusive nature of the former. Substantive bilateralism makes each pact a separate and distinct arrangement from which other nations derive no benefits. The term "reciprocity" is frequently restricted to apply to arrangements of this nature. 13 Formal bilateralism, on the other hand, provides bilateral action with multilateral implications. Through the use of the unconditional most-favored-nation clause, third countries derive some benefits from these contractual arrangements and are not discriminated against even temporarily. Traditional European tariff-bargaining procedure provides an illustration of this type of commercial policy. For many reasons formal bilateralism is to be preferred to rigid, pure reciprocity.14 a The difficulties in the process itself, excluding the activity of pressure groups, are overwhelming. Infra, p. 70 et seg. U. S. Tariff Commission, Reciprocity and Commercial Treaties, Washington, 1 9 1 9 , p. 17. For a broader application of this term, see League of Nations, Commercial Treaties: Tariff Systems and Contractual Methods, II. Economic and Financial 1927. II. 26, pp. 10-14. " Detailed discussion of various aspects of the two types of bilateral action is presented infra, Chapters VI-VII. See also L. Pasvolsky, "Bilateralism in International Commercial Relations," Harvard Business Review, Spring, 1936. It may be noted that the use of the conditional most-favored-nation clause

INTRODUCTION

7

T h e adoption of a policy of bilateral actions does not preclude the use of multilateral conventions to liquidate trade barriers. D u r i n g the post-war period various attempts to proceed upon this basis have met with little success. It is the method itself which possesses weaknesses in certain respects. T h e complexities i n v o l v e d in such a program of concerted action arise in part out of the fundamental variations in national tariff systems. T h i s means that practically only horizontal reductions in tariffs can be considered feasible. But the differences in the economies concerned and their varying positions in the w o r l d economy d e m a n d reductions in trade barriers according to the circumstances in each case. M o r e o v e r , the diffusion of responsibility g r o w s with the number of prospective contractants. Nations became less concerned with the failure of a projected plurilateral pact and more with the possibility of yielding more in the way of concessions than other nations. THE

NEW

CONVENTIONAL OF

THE

UNITED

TARIFF

POLICY

STATES

In 1934 the U n i t e d States officially abandoned its traditional single column autonomous tariff system. 1 5 Bilateralism, the basis of recent international commercial relations, was adopted in its stead. T h i s shift in commercial policy is profoundly significant. T h e success or failure of this program may be expected to exert a decisive influence upon the course of international economic relations. T h e analysis in the succeeding chapters seeks to answer certain questions concerning bilateralism as an integral part of American commercial policy. W h a t was the process by which the U n i t e d States adopted this policy? W e r e there factors present which hindered progress in this direction? T o what extent did the legislative procedure necessary to provide the Executive powers would

ultimately

d e s t r o y the p r i n c i p l e

of f o r m a l bilateralism.

Empirically,

it

has m e a n t little m o r e than strict r e c i p r o c i t y . " Autonomous unilaterally.

in the sense t h a t

rates w e r e

constructed

and

put

into

effect

8

RECIPROCAL TRADE

POLICY

for bilateral action modify and restrict the powers sought by the new administration? How extensive was the authority delegated to the President? What are the objectives of the new policy? These aspects of the subject are treated in Chapters I I and I I I . In Chapter I V , the new method of tariff-making is carefully scrutinized and evaluated. W h a t was the organizational set-up to administer the Reciprocal Trade Act? How is it functioning? W 7 hat is the procedure followed with respect to the promulgation of bilateral trade pacts? On the basis of available evidence did the program function smoothly during the first years of its life? What elements conditioned the rate of speed with which trade agreements were put into force? Are these factors still present? In short, what administrative problems have been met and what progress has been made towards their solution? (Chapter V ) In Chapters VI and V I I many questions concerning mostfavored-nation treatment are considered. What effect did the spread of substantive bilateralism have upon the problem of discrimination? What of the new measures of trade controls and the clause? What part did the accentuation of economic disequilibria during recent years play in the question of equality of treatment and the most-favored-nation clause? W h a t have the trade agreements done with respect to mostfavored-nation treatment? How have they met the problem of non-tariff trade controls? Has the United States successfully met the alleged incompatibility of bilateral action and the unconditional clause? What of the American policy of generalization? Can discrimination be considered an adequate criterion here? Finally, what is, in summary form, the present most-favorednation policy of the United States? Have the reciprocal agreements progressed substantially in the direction of demobilizing trade barriers? Has this been true with respect to tariffs? Quantitative restrictions? Exchange controls? Administrative protectionism? Is the American tariff coming down? T o what extent? What were the problems involved in each of these methods of protectionism? These questions indicate generally the scope of Chapters V I I I to X I , which deal with

INTRODUCTION

9

trade barriers under the new bilateral policy of the U n i t e d States. Chapter X I I presents certain aspects of the trade effects of the agreements in operation at present. I s a statistical evaluation of these agreements possible at the present time? W o u l d it be possible in the future after the elapse of a longer period of time? W h a t can be gleaned from data available at the present time? I n the final chapter the entire discussion is drawn together. W h a t , in brief, is the new commercial policy of the U n i t e d States? Is it fulfilling its objectives? Is it providing the necessary changes in American commercial policy? W h a t of its future against the background of the problem of international economic relations? T h e s e questions indicate, in a general way, the scope and aims of the ensuing discussion. T h e future position of the U n i t e d States in the world economy lies, to a large extent, in the answers to these questions. 16 " T h e Economic Committee of the League of Nations declared in 1 9 3 4 : " C l e a r l y , the use which the President of the United States now intends to make of his new powers will have a profound influence on the international trade." League of Nations, Evolution of Commercial Policy Since the Economic Crisis, II. Economic and Financial 1 93+, II. B . 1 , p. 1 5 .

II T H E

E V O L U T I O N

O F

A M E R I C A N

P O L I C Y

T H E DISLOCATION of international economic relations and the rise of the Democratic party 1 to political power presaged certain shifts in American commercial

policy. A s

will

subsequently

appear, these changes were not the outcome of consistent objectives logically pursued. Inconsistencies, conflicts of policy, and varied opinions marked the early growth of a new American trade philosophy. It is, therefore, necessary that some attention be given to the evolutionary aspects of the Act of 1 9 3 4 . Fair evaluation of any policy is hardly possible without an adequate consideration of its origins. T H E B A C K G R O U N D OF T H E R E C I P R O C A L T R A D E

MOVEMENT

Economic protectionism has been an integral factor in the degree of divergence of the utilization of productive resources in the United States from the principle of comparative advantage. 2 Infringement of tariff protection has been, with considerable consistency, vigorously opposed. 3 E v e n after 1 9 2 9 , when 1 T h i s fact fer se did not indicate an impending d o w n w a r d revision of the t a r i f f , f o r it appears difficult, notably so since the w a r , to d r a w any sharp line of demarcation between the t w o m a j o r political parties on the tariff question. F o r a statement of the difficulties involved, see E . E . Schattschneider, Politics, Pressures and the Tariff, Prentice-Hall, Inc., N . Y . , 1 9 3 6 , pp. 7-9.

See F . W . T a u s s i g , Tariff History of the United States, G . P . Putnam's Sons, New Y o r k and London, 1 9 3 1 , pp. 4 1 8 - 4 1 9 , f o r his statement on the differences between a "competitive t a r i f f " and one based upon the so-called "cost of production p r i n c i p l e " ; also, M . Gideonse, " L e s Accords Commerciaux Réciproques et L'Administration R o o s e v e l t , " Revue Économique Internationale, Aôut, 1 9 3 6 , p. 2 8 7 . As a political proposition and in the light of existing economic conditions, changes could be anticipated. " S u c h l a w s as the Wilson-Gorman T a r i f f A c t of 1 8 9 4 and the Underwood T a r i f f of 1 9 1 3 merely constituted plateaus preceding further tariff increases. ' When this tariff tradition is combined with the violent transition of the United States to the position of a creditor on international capital account,

10

EVOLUTION OF AMERICAN POLICY

n

the necessity of a more liberal commercial policy seemed evident, public sentiment was far from unanimous on the subject of revision." T h e r e were, in brief, general and specific factors impeding any approach to a more rational economic foreign policy. Not infrequently in the past, the recession phase of the business cycle in the United States has been the occasion for an agitation for upward tariff revision. Falling prices necessarily disturb price and cost relationships within an economy. From the standpoint of industry the consequences are twofold. First, there arises a tendency to restrict production and thus reduce the quantity of the factors of production employed. F r o m this it follows that there is a contraction in money incomes. This leads to further price declines which, due to cost rigidities, produce a further restriction of output. Thus a vicious circle ensues. A second and perhaps more relevant consequence of the downward swing of the business cycle is the increase in the intensity of competition for a diminishing quantity of liquid purchasing power. In this manner, inter-commodity as well as intra-commodity competition is accentuated. W h e n imports are a source of this competition, pressure is exerted upon the government to provide relief. In this way a movement for upward revision is generated. 5 On the side of agriculture smilar results ensue. Falling prices in economic recessions lead to a type of perverse elasticity. Production is expanded with the expectation of maintaining a given volume of money income in the face of declining unit prices. T h e drying up of demand and the increased supply lead to further price declines. 6 Under circumstances similar to those affecting inconsiderable light is shed upon the growth of international disequilibrium durng the post-war period. ' T h i s was in spite of the serious economic consequences of post-war American tariff policy. 5 T h e growing volume of unemployment during such periods offers a persuasive supporting argument. Early in 1933 the Republicans announced their desire to strengthen the protective features of the tariff as a depression remedy. Neui York Times, January 22, 1 9 3 3 . ' T h e terms demand and supply are used in the market sense.

RECIPROCAL T R A D E

POLICY

dustry, increased protection is sought. While agricultural products on an export basis do not, generally speaking, benefit from an import tariff, farmers have been carried along, in the past, with the tide of protectionist sentiment. They failed to comprehend fully the economic implications of a tariff on these items.7 A priori, therefore, it was to be expected that during the recent depression there should be a strong segment of the country supporting a drive for greater protection. T h e available evidence substantiates this position.8 In addition to the falling prices discussed above, there appear to be other factors which brought about tendencies in the same direction. Currency depreciation, so rampant abroad after the Creditanstalt episode, led to considerable argument for compensating surtaxes.® In 1 9 3 1 , for example, numerous bills and resolutions were introduced into Congress directed at imports from depreciated currency countries.10 In the same manner, the N I R A provided an argument in favor of higher import duties. 11 It may be noted, parenthetically, that section 3 ( e ) of this act conferred broad powers over imports upon the President in order not "to render ineffective or seriously to endanger the maintenance of any code or agreement." 12 Again, practically the same results may be observed under the operation 7 In connection with this discussion, it is interesting to note that certain economists believe it unwise to revise the tariff downward during the recession phase of the cycle. F o r an attempted correlation of revision with the business cycle, see International Economic Relations, Report of a Commission of Inquiry into National Policy in International Economic Relations, University of Minnesota Press, Minneapolis, Minn., 1 9 3 4 , p. 164. * D . C. Roper, U. S. House of Representatives, Reciprocal Trade Agreements, Hearings before the Committee on Ways and Means, 73d Congress, 2d Session, Washington, 1934., p. 61 ; Congressional Record, Volumes 75, 76, 77, Indexes, contain a history of the numerous bills providing f o r higher duties; P. W . Bid well, Tariff Policy of the United States, Report to the Second International Studies Conference on the State and Economic L i f e , New Y o r k , 1 9 3 3 , pp. 5 7 , 61 ; B. W. Patch, " T a r i f f s and T r a d e Barriers at the London Conference," Editorial Research Reports, June 1 2 , 1 9 3 3 , p. 4 2 4 ; New York Times, M a y 6, 1 9 3 4 . 'Infra, Chapter X . 10 Some sixteen bills were offered during this year. See the Index to Congressional Record, Volume 75, 72d Congress, 1st Session, 1 9 3 2 , f o r a legislative history of these bills. F o r subsequent years, see the corresponding Index volume. " Infra, Chapter V. " Seventeenth Annual Report of the United States Tariff Commission, Washington, 1 9 3 3 , p. 55.

E V O L U T I O N OF A M E R I C A N

POLICY

of the A A A . 1 3 In both, the policies pursued presented an attempt to insulate the internal economy from external economic factors in order to simplify the internal recovery program undertaken. An economic repercussion of the war was the growth of a tendency towards greater economic self-sufficiency. National and international political instability is a destructive force operating against international division of labor. The latter implies an interdependence which came to be viewed as undesirable from the standpoint of political security. Hence, the movement towards economic autarchy. 14 The disturbed economic conditions, so evident after 1929, contributed toward this tendency. In the United States, as well as in Europe, there were those who urged economic self-sufficiency as a desirable quaesitum.15 Here lies another factor opposing the reconstruction of American foreign trade policy. It would appear, then, that after 1929 there were three potent interrelated factors which might obstruct any contemplated revision of the economic foreign policy of the United States: T h e depression itself, the domestic measures seeking some order out of chaos, and the dogma of economic self-containment. All three buttressed the movement for higher trade barriers. When the vested marginal interests, which have been a powerfully organized minority, are brought into the picture, the obstacles to a new policy assume even a greater importance. There was, on the other hand, almost complete unanimity among experts in the field of international economic relations with regard to the urgency of a revision of commercial policies. Repeatedly it was posited that a more rational attitude towards foreign trade policy was an urgent prerequisite to the establishment and maintenance of international economic equilibrium. 16 " Infra, Chapter V. 14 It has been argued that greater economic stability results from economic self-sufficiency, e.g., W. B. Donham, National Ideals and International Idols, supplement to the April, 1 9 3 3 , issue of the Harvard Business Review; S. Crowther, America Self Contained, Doubleday, Doran and Company, Inc., Garden City, N . Y . , 1 9 3 3 ; S. Crowther, "America's Foreign Trade Policy," Economic Forum, Spring, 1934 (especially p. 154.). 15 Ibid. "E.g., League of Nations, The World Economic Conference, Final Report, C.E.I. 44 ( 1 ) , pp. 10, 27, Geneva, 1 9 2 7 ; World Economic Survey, 1 9 3 1 - 3 2 , II. Economic and Financial 1932. II. A. 18, p. 1 5 5 ; Draft Annotated Agenda,

14

RECIPROCAL T R A D E

POLICY

More concretely, it was deemed indispensable that commercial policies be liberalized. T H E R I S E OF T A R I F F B A R G A I N I N G S E N T I M E N T

As the world depression deepened and the exigencies of the situation became more apparent, there developed a gradual movement towards the reciprocal reduction of tariffs and trade barriers. It was felt, it may be added, that as an alternative approach unilateral action was politically inexpedient. 17 As early as June 1 9 3 1 , Cordell H u l l , then a member of Congress, proposed reciprocal pacts as an instrument of commercial policy. 18 H e offered at that time, however, no specific proposals. During the following August, his proposal was taken up by Senator K . McKellar in a more definite fashion. T h e latter advocated the repeal of the Hawley-Smoot Act combined with an immediate horizontal cut of 25 percent. As a bargaining concession, an additional reduction of 25 percent was to be conceded to each nation increasing its purchases of American products by a like percentage. 19 In November of the same year, M r . H . T . Rainey, a member of the House of Representatives, urged that the American tariff be lowered substantially. H e argued, however, that this could be safely accomplished only through the adoption of a reciprocal trade policy.20 H e put forward, accordingly, a tariff bill stipulating Monetary and Economic Conference, Preparatory Commission of Experts, I I . Economic and Financial 1 9 3 3 , II. Spec. 1 , pp. 2 6 - 2 7 ; Reports Approved by the Conference on July 27, rgjj, and Resolutions Adopted by the Bureau and the Executive Committee, I I . Economic and Financial 1 9 3 3 . I I . Spec. 4, p. 2 3 ; U. S. Department of State, Report of the Delegates of the United States of America to the Seventh International Conference of American States, Montevideo, U r u g u a y , December 3-26, 1 9 3 3 , Conference Series No. 19, Washington, 1 9 3 4 , p. 1 9 7 ; Report of the Commission of Inquiry into National Policy in International Economic Relations, International Economic Relations, University of Minnesota Press, Minneapolis, 1 9 3 4 , p. 5. " R e p o r t of Commission of Inquiry, op. cit., p. 72. "New York Times, June 2, 1 9 3 1 . F o r a somewhat detailed discussion of Hull, see infra, Chapter V. " New York Times, August 1 6 , 1 9 3 1 . T h i s was a thoroughly unsatisfactory plan from every view. ™ M r . Rainey claimed tariffs were too high to reduce by unilateral revision without " a flood of imports." New York Times, November 1 0 , 1 9 3 1 .

EVOLUTION OF AMERICAN POLICY

15

a contingent schedule of reduced duties to be effective " when as to some items or group of items, foreign countries establshed the same or lower tariff rates." 2 1 T h e American Exporters and Importers Association also petitioned Congress for a reciprocal tariff law. 2 2 Reciprocal arrangements were to be established, under this proposal, subject to congressional ratification. Further, their scope was to be limited to selected items and they were to be bottomed upon the conditional most-favored-nation clause. 23 These early proposals, while crude in their nature, indicate the early sentiment for reciprocal tariff relations. B y 1 9 3 2 , the adherents of this commercial policy instrument increased in number. Perhaps the outstanding development in 1 9 3 2 , f r o m the standpoint of this discussion, was the Colier tariff bill. 24 T h i s was introduced into the House of Representatives January 4, 1 9 3 2 . T h e section of interest here was the provision for the negotiation of reciprocal trade agreements by the President. 2 5 In the report on the bill by the House W a y s and Means Committee the reciprocity provision was deleted. 26 It was felt that the establishment of reciprocal trade relations would conflict with the unconditional most-favored-nation obligations of the United States. 27 H o w e v e r , Senator Harrison with the assistance of other Democratic Senators reintroduced the reciprocity section.28 A reason stated for the latter action was the probable adoption of a trade 21

Ibid. Again, a crude proposal. " Ne P' 35944

Ibid. " Italics the author's. "New York Times, J a n u a r y 5, 1 9 3 4 . Peek had already declared himself in f a v o r of a separate and distinct organization earlier. New York Times, December 9, 1 2 , 1 9 3 3 . He maintained this position later. Christian Science Monitor, October 28, 1 9 3 6 . * Executive Order, No. 6 6 5 / , March 2 3 , 1 9 3 4 . (Italics the author's.) T h e text may also be found in Press Releases, Weekly Issue No. 2 3 5 , March 3 1 , 1 934> PP- 1 7 7 3 > issued by the State Department.

ADMINISTRATIVE

PROGRESS

87

tee" referred to above and of which Peek was chairman. Parts of this Executive Order indicate the extent of control over foreign trade given to Peek. Whereas the guidance of public policy in relation to international commerce has tended, in recent years, to encounter increasingly complex problems, which can be solved only upon the basis of the comprehensive analysis and coordinated utilization of those of our resources which relate to trade with other countries; and Whereas this analysis and utilization require that the fowers and duties assigned to various executive establishments and agencies for the purpose of promoting, reinforcing, or protecting the foreign trade of the United States be coordinated and the work of such establishments and agencies be made as effective as possible. ( 2 ) ( a ) T h e Special Adviser, in order to effectuate the general purposes of this order, and to keep me informed with respect to our foreign trade, is authorized to obtain, review, and coordinate the information, statistics, and data with reference to the foreign trade of the United States collected or prepared by any department or other establishment or agency of the Federal Government . . . or elsewhere. ( b ) In connection with the foreign trade activities, the Special Adviser is authorized to carry on negotiations with respect to specific trade transactions with any individual, corporation, association, group, or business agency interested in obtaining assistance from the Federal Government through ( 1 ) financing transactions, ( 2 ) barter transactions, or ( 3 ) other forms of Governmental participation authorized by law. . . . ( 5 ) ( b ) T h e formulation of commercial policies with respect to foreign trade and the effecting of general foreign trade agreements will remain in the department or other agency now charged by law with responsibility therefor. 4S T h e influence of Peek which resulted in this Order accounts to a great degree for the failure of the program to achieve material results during the initial three years of operation. T h i s is v e r y evident from the Executive Order establishing Peek's new office. In the first place, the Special Adviser is charged with the task of coordinating the foreign trade activities of the various gov" T h i s probably refers to the Executive Commercial Policy Committee.

88

RECIPROCAL

TRADE

POLICY

ernmental organizations, a function which had been conferred upon the Executive Committee on Commercial Policy. 49 Secondly, Peek was authorized to gather and analyze vast information concerning American foreign trade. This, when the Reciprocal Act became effective, directly impinged upon the work of the trade agreements organization outlined earlier. Moreover, Peek's views made it likely that the data compiled with the aid of the various governmental agencies would not be of the type or scope of that gathered by the reciprocal trade mechanism described in the preceding chapter. With a tremendous amount of research necessary to effectuate the Reciprocal T r a d e Act, this was a factor of some importance to the progress of the program. Finally, the provision making possible the barter arrangements referred to by Roosevelt in setting up a "temporary committee" in 1 9 3 3 was directly antithetical to the trade philosophy of H u l l and the entire new program. T h e President appears to have been aware or informed of the difficulties in the situation, for a few days after promulgating the first Executive Order he issued another seeking to resolve the situation. 50 It declared: Whereas it is desired that the provisions of said Executive O r d e r supra shall not interfere unth the cmitinuance of the junctions now exercised by the Executive Committee on Commercial Policy and that the Special Adviser shall cooperate with and, in the field of duties defined by the said Executive O r d e r , supplement the work of the said Executive Committee on Commercial Policy . . . it is hereby ordered that the said Executive Committee on Commercial Policy as established by the letter of November I I , 1 9 3 3 , f r o m the President to the Secretary of State shall continue to exercise its present functions f o r the purpose of coordinating the commercial policy of the United States. 5 1 " U. S. State Department, Press Releases,

Weekly Issue No. 217, November

25. ' 9 3 3 . P - 283. w

Executive Order No. 6656, March 27, 1934. " Italics the author's. F o r the text of this letter, see U. S. Department of State, Press Releases, Weekly Issue No. 217, November 25, 1933, p. 283.

ADMINISTRATIVE PROGRESS

89

This Order appears to have settled the question of the incidence of the coordinating and centralizing functions. 52 But it did not dispose of the question of authority to institute barter arrangements, evidence of the continuing influence of Peek. 5 3 This authority remained in force until the late spring of 1 9 3 5 when the N I R A was invalidated by the United States Supreme Court. 54 With the impending passage of H . R . 8687, now the Reciprocal T r a d e Act of 1 9 3 4 , two questions arose; first, whether it was advisable to set up a distinct organization to handle the entire program; second, whether the program should be administrated by H u l l or Peek. Apparently, wavering between the pressures exerted by Peek and H u l l , the President was for a while undecided upon these questions. F o r a time it appeared as though Peek had triumphed and that he would negotiate the reciprocal agreements as the head of a new foreign trade organization. 55 In fact, as late as June 26, 1934, two weeks after the passage of the Act, it was believed by many that Peek would be chosen over Hull. 5 0 H o w e v e r , on J u n e 29, it was officially announced that Cordell H u l l and the State Department would bear the brunt of putting the Act of 1 9 3 4 into effect. 57 T o appreciate the full significance of this struggle between Peek and H u l l for control of the trade agreements and the formulation of American policy, one must consider the trade philosophy advocated by Peek. Peek's position, like H u l l ' s may be outlined summarily under M

T h e Executive Committee was organized, as noted earlier, " f o r the purpose of coordinating- the commercial policy of this Government, with a view to centralizing in the hands of one agency supervision of all Government action affecting our import and export trade." Ibid. Note the similarity to the section of the preamble, quoted above, establishing the Office of the Special Adviser. "Supra, p. 8 6. T h e Reciprocal T r a d e Act during this period was under consideration by Congress. M As must be evident to the reader, this whole situation is simply a continuation of the lack of well-defined policy in 1 9 3 3 discussed in a preceding chapter. Sufra, Chapter I I . "New York Tunes, January 5, March i , March 30, April 4, M a y 25, 1 9 3 4 . New York Times, June 27, 1 9 3 4 . "New York Times, June 30, 1 9 3 5 .

RECIPROCAL

TRADE

POLICY

four principal tenets. First, he was an adherent of high tariffs in line with the historical American tariff policy. 58 With this as the starting point he then advanced a program of trade bargaining on a strictly substantively bilateral basis with pure barter deals a vital part. 58 Implied here was the abandonment of the unconditional clause in American commercial treaties. Peek desired a return to the pre-war traditional American position on most-favored-nation treatment. 60 Finally, he viewed the depression, strange as it may seem, as entirely a domestic problem resulting from the disparity between agricultural income and industrial income. 61 T h e following statement by Peek states these tenets in his own words: We

should check competitive a g r i c u l t u r a l and industrial

by tariffs, quotas, e m b a r g o e s o r otherwise and give the

imports

American

f a r m e r and industrial w o r k e r the full benefit of the domestic m a r k e t , so that w e can r e m a i n m o r e nearly on a self-sustaining basis. . . . W e should abandon the unconditional m o s t - f a v o r e d - n a t i o n policy a n d r e gain our b a r g a i n i n g p o w e r . . . . W e should trade selectively both as to imports and exports, dealing c o u n t r y by c o u n t r y , and if necessary, as in the case of c o t t o n , c o m m o d i t y by c o m m o d i t y . W e should i n a u g u r a t e a simplified system of i n t e r - n a t i o n bookkeeping so that w e can k n o w at all times w h e r e w e stand in our c o m m e r c i a l and

financial

relations

with any given c o u n t r y . 6 2

In contradistinction to Hull's doctrine, very little can be said to support Peek's theses. His position not only completely 58 Neiv York Times, April 6, 8, 1 9 3 + ; G. N. Peek, "America's Choice," Economic Forum, Winter, 1 9 3 6 , p. 2 4 3 ; Why Quit Our Own (with S. Crowther), D. Van Nostrand Company, Inc., New Y o r k , 1936, p. 1 1 ; Christian Science Monitor, October 28, 1 9 3 6 . K Economic Forum, Peek reiterated this position emphatically, time and again. See U. S. Senate, Causes of the Loss of Export Trade and the Means of Recovery, Hearings before the Committee on Agriculture and Forestry, 74th Congress, 1st Session, 1 9 3 5 , pp. 184-1 85. " Ibid. n Why Quit Our Own, pp. 1 5 7 - 1 5 8 , 3 4 1 . It may be added that Peek favored, the use, consistently enough, of various types of non-tariff trade restrictions, and export price discrimination, where necessary, to "promote" exports. E.g., see his statement in favor of clearing agreements. Ibid., p. 269.

" G. N. Peek, " A r e T r a d e Treaties Beneficial," Christian October 28, 1 9 3 6 .

Science

Monitor,

ADMINISTRATIVE

PROGRESS

91

ignores accepted international trade theory but presents a narrow short-sighted view with the strong probability of dangerous political, economic, and social repercussions following the adoption of such a program. T h e unfortunate element in the situation was the continued, though gradually waning, influence of Peek upon the President until well into I 9 3 5 . " 3 W i t h the demise of the N I R A , Peek officially passed out of the picture. 64 It can be safely posited, however, that during the period he was eng a g e d by the President, he definitely hindered the progress of the trade agreements program. 0 5 T h e r e was thus a clear conflict of opinion in administration circles as to the type of trade policy which should be pursued. 66 Important in this conflict was the apparent approval by Secretary of Agriculture H . A . W a l l a c e of a program of bilateral balancing between pairs of countries. 07 Both Peek and W a l l a c e were members of the Executive Committee on Commercial Policy. T h e y thus had ample opportunity to make their views felt. 6 8

Had

Peek triumphed, the American trade policy would have been directed toward rigid, narrow bilateralism with all its serious ™ Peek was well pleased with the exclusive nature of the Cuban trade agreement and entertained hopes this would characterize all subsequent trade pacts which might be arranged. Why Quit Our Oixm, D . Van Nostand Company, Inc., 1 9 3 6 (with Crowthcr) , p. 260. 44 He remained active, however, and joined forces with the Republican opposition publicly attacking;, from time to time, the reciprocal trade program. His attack of the Canadian agreement is an illustration. New York Times, J u l y 3, 1 9 3 6 , and August 1 6 , 1 9 3 6 . " S e e New York Times, August 1 3 , December 20, 1 9 3 4 ; National Foreign T r a d e Council, Weekly Release, No. 1 7 , August 9, 1 9 3 4 ; Peek was vociferous in making his presence felt in the interdepartmental structure set up to negotiate agreements. Constant bickering and the initiation of irrelevant studies indubitably retarded the new trade program. M

Peek apparently failed to realize that the Act of 1 9 3 4 provided in its text f o r the unconditional most-favored-nation clause which is incompatible with exclusive reciprocal trade relations. 67

Supra, Chapter I I I , note 1 3. See America Must Choose, World A f f a i r s Pamphlet No. 3, Foreign Policy Association, New Y o r k , World Peace Foundation, Boston, 1 9 3 4 , p. 28. H . A . W a l l a c e has since in effect recanted his earlier views, f o r he has outspokenly argued f o r the trade agreement program. Of late he appears to have become again critical. N5> 39') 414-415-

ADMINISTRATIVE PROGRESS

95

acter of the powers conferred upon the President in both cases lessened the possibility of conflict. H o w e v e r , it appears that the N I R A was a definite factor retarding the progress of the trade-agreements program. And this flowed from the antithetical relation to the tariff law. Granted that little action increasing import barriers was taken under section 3 ( e ) , it appears most probable that the State Department had to be cautious in granting concessions on industrial products. 70 It would probably have been inconsistent for the administration on one hand to increase costs of production through the codification of industry, then simultaneously lower tariff barriers and increase the competition of foreign products with the marginal production in the United States. 77 In principle, section 3 ( e ) also exercised a restrictive effect upon exports. 78 T h e consequent raising of costs and prices entailed a greater difficulty of competing in foreign markets. T o the extent that the comparative advantage of export industries would '* Out of fifty-six formal complaints by domestic producers under section 3 ( e ) , eighteen were recommended for further action, seven were dismissed, eight were withdrawn, and twenty-three were pending when the N I R A was invalidated by the Schechter Decision on M a y 27, 1 9 3 5 . Of the seventeen recommended f o r further action, relief was granted to four and approved in respect to one, five were dismissed after analysis by the T a r i f f Commission and seven were pending. Office of National Recovery Administration, Division of Review, Foreign Trade under the National Industrial Recovery Act, Vol. I., Washington, M a r c h 1 9 3 6 , pp. 9, 105 et seq. T h e section was administered by the Imports Division of the N I R A with the assistance of the T a r i f f Commission and other governmental agencies. " F o r a f a i r l y exhaustive analysis of section 3 ( e ) , procedure, problems, and organization of the N I R A and its relation to foreign trade, see ibid., Volumes I, I I . F o r a brief presentation, see U. S. T a r i f f Commission, Eighteenth Annual Report, 1 9 3 4 , pp. 2 - 5 , 42 et. seq. T h e same question arose under the Black-Connery Wages and Hours Bill proposed in 1 9 3 7 . New York Times, J u n e 30, 1 9 3 7 , article by Arthur K r o c k . re Under the N I R A policy the export trade in its codes was exempt from all provisions other than those affecting labor (i.e., unfair competition, conditions of sales, credit terms, e t c . ) — A . A . Berle et al. America's Recovery Program, O x f o r d University Press, London, 1 9 3 4 , p. 234. T o the extent that industries relied upon imports to carry on their production, currency depreciation raised their monetary costs and in the case of export industries this tended to counteract any benefits they might have reaped from the decline in the foreign exchange value of the dollar.

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POLICY

have been offset by increased costs, exports were retarded and conceivably, other things remaining equal, might result in a flow of imports of these commodities. Actually, however, the situation was not as serious as it seemed at the time. Depreciation of the external value of the dollar appears to have offset, temporarily at least, the impact of the costraising techniques of the N R A upon the world economy. 79 On the side of imports, depreciation caused imports to be expensive; while from the export view American commodities were cheaper in terms of world prices. T o the extent that the activities of the N R A and devaluation neutralized each other, the rising domestic costs of production under the N R A did not hamper the T r a d e Agreements organization in offering concessions upon American tariff items. T h e possibility of conflict, it may be noted, was not resolved in so far as the internal value of the dollar might be expected to rise to a level of equilibrium with world prices. T o the extent that this contingency had to be given weight, tariff negotiations concerning items produced under code regulation were necessarily circumscribed. 80 Attention may now be termed briefly to the A A A in its relation to the reciprocal trade program. Generally speaking, it does not appear to have been a factor of any great importance in the progress of the Reciprocal trade program. 8 1 T h e major problem was to prevent the trade agreements from nullifying the agricultural program and vice versa. Whether the philosophy and methods of the A A A are considered desirable or not is beside the point. What is significant is the fact that both were instituted ™ W. L . Thorp, "International Aspects of Recovery," American Exporter, J a n u a r y , 1 9 3 4 , p. 3 6 ; U. S. House of Representatives, Reciprocal Trade Agreements, p. 66 (statement by D. C. Roper, Secretary of Commerce) ; Office of National Recovery Administration, op. cit., Volume I, p. 1 3 2 . Equilibrium is used here in the sense of there being neither an overvaluation nor an undervaluation of a currency. " H. A . Wallace has frequently declared his whole-hearted support f o r the program. E.g., H. A . Wallace, Farmers and the Export Market, December 1 9 3 5 (issued by Department of Agriculture), p. 7 ; U. S. Senate, Extending Reciprocal Trade Agreement Act, Hearings before the 75th Congress, 1st Session, Washington, 1 9 3 7 , p. 1 5 9 .

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97

as policies of the new administration and therefore had to be reconciled. A major function of the representation of agricultural interests in the reciprocal trade organization and procedure was for just this purpose. T h e AAA presented a barrier to progress only to the extent that any proposed tariff modification was conditioned by the necessity of safeguarding the AAA program. 82 T h e r e were, of course, political implications which were involved in any concessions upon farm products but these did not flow from the AAA program. CONCLUSION

There were, thus, six factors slowing the operation of the reciprocal trade program of the United States. T h e tremendous amount of research necessary and the caution and care exercised in the administration of the Act tended to retard the process of negotiation considerably. Tariff pressure groups continued, as in the past, to exert their influence though probably with much less effect than previously. Progress was also impeded by the basic analyses which foreign countries found necessary to the conclusion of a trade agreement with the United States. An additional factor here was the indispensable reconciliation of basic foreign commercial policies when they differed to any important degree from American policy. T h e Peek-Hull controversy provided the fifth and probably one of the most important conditions hindering American foreign trade policy. And, finally, the so-called New ™ Certain sections of the A A A and its amendments relate to foreign trade but are not significant to the present chapter. Section 1 5 ( e ) provided for the levying of processing taxes on imports of commodities subject to production control in the United States. Section 8 provided for marketing agreements which combined with the funds provided by Section 1 2 , led to a subsidization of the export of 28 million bushels of wheat (see J . S. Davis, Wheat and the AAA, Brookings Institution, Washington, 1 9 3 5 , Chapter I X , for details). For the text of these Sections see U. S. Department of Agriculture, Agricultural Adjustment, A report of Administration of the Agricultural Adjustment Act, M a y 1 9 3 3 February 1 9 3 4 , Washington, 1 934, pp. 363-364, 366, 367. An amendment, Section 32, was passed August 1 9 3 5 providing for export subsidies. T h i s appears to duplicate Section 12. Another amendment enacted in February 1 9 3 6 , section 22, provided for import quotas, whenever necessary, to prevent the volume of imports from interfering with the domestic agricultural

9

RECIPROCAL TRADE

8

POLICY

Deal legislation led to statutes creating inconsistencies and conflicts with the aims and operations of the new trade policy. With the exception of the legislation invalidated by the Supreme Court and the Hull-Peek controversy, these factors have continued to affect American policy up to the present time. Considerably more progress, however, was made in 1 9 3 6 than during the first year and a half of operation. Within the six months ending J u l y 1 , 1 9 3 6 , eight agreements became effective, or twice as many as in the entire eighteen months preceding. Among these were the agreements with France and Canada. T h e last six months of 1936 saw two additional agreements entering into force, with another one being signed. On the other side of the ledger, negotiations have been suspended with Italy and Spain. In addition, as was pointed out earlier, no public announcement of intention to negotiate has been issued since April 1935. 8 3 F r o m this general analysis it may be concluded that the program has been meeting real obstacles. This is not to say that the program has been a failure, but simply to make clear that the problem of the readjustment of American international trade policy is not a simple one. T o determine whether or not the program has made a substantial contribution to this problem program or lessening the amount of commodities processed in the United States. (See infra, p. 2 2 5 , note 99. F o r texts—Statutes of the U.S.A., Session L a w s , 74th Congress, 1st Session, Washington, 1 9 3 5 , pp. 7 7 3 - 7 5 ; U. S. T a r i f f Commission, Twentieth Annual Report of the United States Tariff Commission, 1 9 3 6 , Washington, 1 9 3 7 , p. 70. Unfortunately Section 32 is being used of late to stimulate the exports of minor agricultural commodities. U. S. Department of Agriculture, Agricultural Situation, March 1 9 3 7 , p. 10. Section 22 has not been used yet, but studies are in progress in the Department of Agriculture which may lead to its employment. U. S. House of Representatives, Independent Offices Appropriation Bill, 1 9 3 8 , Hearings before the Subcommittee of the Committee on Appropriations, 75th Congress, 1st Session, Washington, 1 9 3 7 , p. 564.. 81

Since this was written preliminary announcement that negotiations are contemplated with Venezuela has been made and formal notice of intention to negotiate has been issued with respect to Ecuador and Czechoslovakia. U. S. Department of State, Press Releases, October 25, M a y 1 0 , August 30, 1 9 3 7 . In addition, the trade agreements signed with Costa Rica and E l Salvador have become effective. Press Release, M a y 1 , J u l y 3, 1 9 3 7 .

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99

necessitates an analysis of the provisions and scope of the reciprocal trade agreements themselves. Attention is, therefore, directed in the remaining chapters of this study to a functional dissection and analysis of the various agreements negotiated by the United States with foreign countries.

VI THE

PROBLEM NATION

OF

MOST-FAVORED-

TREATMENT

B I L A T E R A L I S M AND MOST-FAVORED-NATION

TREATMENT

years under the stress of the dislocations and disturbances characterizing international economic relations, there has been a widespread movement towards bilateralism in commercial relations. 1 To lessen the crushing force of shrinking international trade caused by an interrelated repercussive group of factors, nations have resorted to bilateral trade agreements. These have varied markedly in nature and scope, ranging from relatively few fairly broad bilateral arrangements to a multitude of rigid, substantive, and trade-deflating pacts.2 In the more rigid types of agreements, quotas and clearing agreements have played a most prominent part supported by compensation, barter, and payments arrangements. A frequent aim has been the bilateral balancing of trade and payments between pairs of countries. Where a passive trade balance with any one country existed, this was seized upon as a IN RECENT

1

League of Nations, Review of World Trade, 1 9 3 5 , II. Economic and Financial 1936. II. A. 14, p. 63. Other issues in this series discuss the same tendency. As the economic committee of the League posits, the tendency has been overwhelmingly of a substantively or rigid bilateral nature. For a brief analysis of some 1 2 0 European agreements, see H. Chalmers, Eurofean Trade A greements and the Operation of the American Trade Agreements Program, Official Report of the Twenty-First National Foreign Trade Convention, 1934, p. 58 et seq. * U. S. Department of Commerce, Current Trends in Foreign Tariffs and Commercial Policy Review of 1931, Trade Information Bulletin No. 790, Washington 1 9 3 2 ; Foreign Tariffs and Commercial Policies During 1932, T r a d e Information Bulletin No. 8 1 2 , Washington, 1 9 3 3 ; "Foreign Tariffs and Commercial Policies During 1 9 3 3 , " Commerce Reports, Feb. 24, 1 9 3 4 ; "Foreign T a r i f f s and Trade Controls During 1 9 3 4 , " ibid., Feb. 9, 1 9 3 5 , "Foreign T a r i f f s and Commercial Policies During 1 9 3 5 , " ibid., Feb. 1 5 , 1 9 3 6 . These have all been prepared by Dr. Henry Chalmers.

100

MOST-FAVORED-NATION T R E A T M E N T

ioi

weapon to bring about arrangements directed at a removal of this condition. 3 T h e economic bases of multilateral settlement of debits and credits in a nation's balance of payments have been completely disregarded under the pressure of economic maladjustments. N o r can these rigid bilateral arrangements be said to have succeeded in their purpose, aside from their fundamental antithesis to accepted international trade theory. Through the intricate economic relationships of the various national economies, the depressing effect of diverting trade from accustomed channels, based upon comparative advantage, has spread to other areas. In numerous cases this has forced the adoption of similar trade policies by other nations.4 Through these repercussions the situation has been aggravated for all countries. Not only have these trade balancing aims been very difficult to attain, but in most cases there has been a strong tendency toward a deflation of imports by the nation with a passive trade balance with another country, rather than an increase in imports by the latter. 5 Since one nation's imports are another's exports, the effects soon permeated the entire international trade structure with disastrous influences upon world economic conditions.6 T h e inescapable corollary of the decline in triangular trade implicit in the above tendencies finds expression in widespread 'League of Nations, Review of World Trade ¡933, II. Economic and Financial 1934. II. A. 12, p. 65. For a summary view of the whole movement with some of its implications, see Folke Hilgerdt, " T h e Approach to Bilateralism, a Change in the Structure of World Trade," Index, Svenska Handelsbanken, August, 1935. * Rigid bilateralism may be said to have originated in Europe, but Latin America of late has shown a "reaction to these trade balancing pressures" in the form of a similar tendency. U. S. Department of Commerce, "Foreign Tariffs and Commercial Policies During 1 9 3 5 , " Commerce Reports, Feb. I J , 1936, reprint, p. 5. ' T h i s is especially evident in the so-called clearing agreements negotiated between pairs of countries to obviate the necessity of foreign exchange. League of Nations, Enquiry into Clearing Agreements, II. Economic and Financial 1935. II. B. 6, pp. 12, 15. 8 League of Nations, Review of World Trade 1933, II. Economic and Financial 1934.. II. A. p. 65; World Economic Survey, 1932-33, 1933. II. A. 16, p. 2 0 1 ; World Economic Survey, 1935-36) 1936. II- A. 15, p. 184.

RECIPROCAL

TRADE

POLICY

discrimination a g a i n s t certain national economies. I f

the

prin-

ciple t h a t " t h e sources of a c o u n t r y ' s i m p o r t s are not necessarily the best m a r k e t f o r its e x p o r t s n o r t h e source f r o m w h i c h it d r a w s its c a p i t a l " is s u b o r d i n a t e d to that of e n d e a v o r i n g to d i v e r t t r a d e in l i n e w i t h t h e t r a d e balances a n d t h e b a l a n c e of p a y m e n t s existi n g w i t h i n d i v i d u a l nations, t h e n it is e v i d e n t that the t r a d e position of t h i r d countries is h a r m f u l l y d i s t u r b e d . 7 D i s c r i m i n a t i o n is, t h e r e f o r e , o n e of t h e consequences of a p o l c y of substantive bilateralism. T h e p r o b l e m of discrimination is not, h o w e v e r , a n e w o n e . I n d e e d , it has so l o n g been r e c o g n i z e d t h a t a definite i n s t r u m e n t of c o m m e r c i a l p o l i c y

in the f o r m of t h e

most-favored-nation

clause has a l r e a d y been d e v i s e d to c o m b a t it. 8 T h e r e a r e , h o w e v e r , t w o interpretations of the c l a u s e — t h e conditional a n d unconditional.®

In

principle,

both

are

intended

to

provide

for

' L e a g u e of Nations, World Economic Survey, 1 9 3 2 - 3 3 , loc. cit. " A generic term applied to provisions in commercial treaties and agreements dealing with the customs treatment of imports. For the general types of the most-favored-nation clause and the principles involved, see U. S. Tariff Commission, Reciprocity and Commercial Treaties, Washington, 1 9 1 9 , pp. 389-393, 445-450; for the traditional American interpretation, ibid., pp. 3 9 3 - 4 1 3 , 416-444. A fairly lengthy historical treatment is to be found in J . Ebner, La Clause de la Nation la Plus Favorisée en Droit International Public, Libraire General de Droit et de Jurisprudence, Paris 1 9 3 1 , Chaps. I-IV. See also the following: T . E. Gregory, Tariffs: /i Study in Method; Charles Griffin and Co., Ltd., London, 1 9 2 1 , Chap. X ; W. S. Culbertson, International Commercial Policies, D. Appleton and Co., N.Y. 1 9 2 5 , Chap. I l l ; League of Nations, The Most-Favored-Nation Clause, V. Legal 1927. V. 10, Geneva 1 9 2 7 ; S. K . Hornbeck, "Most-Favored-Nation Clause," Amer. Journal of International Law, 1909, pp. 619-647, 797-827; D. Makovski, The Most-Favored-Nation Clause in Commercial Treaties, Historical Outline, Moscow, 1 9 1 7 . While the author has not read this article, written in Russian, reliable authority stamps it as one of the best treatments of the subject available. * The following statement presents the essential difference between the two in principle: " T h e unconditional form of the obligation is simply a promise to refrain from any discrimination, and to apply to all products of the other country every advantage that may be granted to the like product of any other foreign country. . . . " I n contrast, although conditional most-favored-nation treaties also obligate this Government to extend to the other party every concession made to any third country, this obligation is qualified by the very important condition that if the concession to the third country was granted in exchange only for an equivalent,

MOST-FAVORED-NATION T R E A T M E N T

103

equality of treatment; in practice they diverge diametrically in their effects as instruments of trade policy. Briefly, it may be stated that the conditional most-favorednation clause has proven unsatisfactory as a basic pillar of commercial foreign policy. It cannot be recommended, therefore, in the present situation. Combined with bilateralism, empirically it has meant not equality of treatment but exclusive narrow reciprocity—i.e., substantive bilateralism. 10 Its advocacy by some and the dissatisfaction expressed concerning the unconditional clause make a brief consideration of the disadvantages and inadequacy of the conditional form feasible. T h e conditional clause, it may be noted first, thwarts its very purpose, for it inevitably leads to discrimination. Concessions, except in the unimportant cases where " f r e e l y " granted, are extended to third countries only for equivalent compensation. Even putting aside the extraordinary difficulties involved in the question of what constitutes equivalent customs concessions, each agreement negotiated involves a consideration of all concessions granted in previous pacts—i.e., concessions fro fraeterito—along with those suggested in the contemplated agreement. 11 Not only this, but each bilateral arrangement concluded may impinge upon concessions granted to other countries in agreements previously negotiated. These countries must then reopen the bargaining process to restore the status quo. In the meantime, the concession granted in the pact being promulgated provides an act of discrimination against the latter and all other third countries. There is, as it were, a period of unavoidable discrimination. But what becomes significant is that empiricism has indicated that the discrimination tends to remain because of the inherent difficulties in the administration of the clause itself and the it will be extended under the treaty only for an equivalent." (Italics the authors.) U. S. T a r i f f Commission, Tariff Bargaining under Most-FavoredNation Treaties, Report No. 652, 2d series, Washington, 1 9 3 3 , p. 4. 10 Henry Wheaton. Elements of International Law, Vol. I, p. 5 4 1 . Stevens and Sons, Ltd., Sixth edition, London, 1 9 2 9 . 11 F o r the difficulties involved in the question of equivalence, see S. H . Bailey, "Reciprocity and the Most-Favoured-Nation Clause," Economica, November 1 9 3 3 , p. 443 et seq.

RECIPROCAL TRADE

POLICY

desire of nations to make bilateral arrangements exclusive in character. 12 U n d e r these circumstances, therefore, there is a lessening of multangular trade as determined by the principle of comparative advantage. 1 3 Moreover, the differentiation of custom treatment of imports from various countries necessitated under the conditional clause complicates the technique of foreign commerce from the view of those engaged in foreign trade and multiplies the already burdensome administrative difficulties of customs officials. In short, an additional barrier to foreign trade, of much the same nature as those more commonly recognized, is created. T h e conditional clause leads, accordingly, to increased international trade discrimination; the necessity of endless bargaining, a process which inherently is a time-consuming one; a destruction of triangular trade, the very foundation of the objective of the most effective utilization of the world's resources; and, finally, it produces an additional impediment to the flow of goods among nations.14 It is not, in view of these circumstances, an instrument 11

Professor T . E. Gregory correctly argues that a conventional tariff based upon the conditional interpretation of most-favored-nation treatment is, practically, an impossibility. Tariffs: A Study in Methods, Charles Griffin Co., Ltd., London, 1 9 2 1 , p. 457. " The recent decline in the multangularity of world trade may be said to have resulted largely from substantive bilateral arrangements such as would occur with the conditional clause. League of Nations, Review oj World Trade '93-f, II. Economic and Financial 1935. II. A. 8, p. 70; of. cit., 1 9 3 5 , pp. 64-65. " T h e above discussion does not exhaust the arguments against the unconditional form. For an extended criticism of the conditional interpretation, sec J . Viner, "Most-Favored-Nation Clause," Index, Svenska Handelsbanken, January 1 9 3 1 (especially pp. 2 - 1 7 ) . Further disadvantages of this interpretation will become evident when the advantages of the unconditional interpretation are considered. " T h e conditional most-favored-nation principle has inevitably degenerated into a vast and complicated system of bilateral arrangements which have made international commerce, in effect, commercial warfare, with countries forced to buy from each other which are not, in a true sense, trade building concessions, but rather tribute for immunity from acts of commercial aggression." H. F. Grady (former Chief of Division of Trade Agreements, U. S. Department of State), " T h e New Trade Policy of the United States," Foreign A fairs, January 1936, p. 288. This article gives a brief criticism of the conditional form, pp. 285 et. seq.

MOST-FAVORED-NATION T R E A T M E N T

105

affording protection against discrimination. 15 It is not surprising, therefore, that for all practical purposes the conditional clause has ceased to exist. Only forty-eight agreements or treaties out of 625 contain the conditional form. Out of this total thirty-one were negotiated before 1870 and fifteen more before 1 9 1 4 . Moreover, nearly all the countries signatory to these forty-eight pacts grant unconditional most-favored-nation treatment in practice. 16 There remains, as an alternative, the unconditional interpretation of the most-favored-nation clause. At this point a distinction must be made between equality of treatment and most-favorednation treatment. T h e former implies the absence of discrimination against the exports of any foreign country. It need not rest upon any contractual obligation but may come simply from unilateral choice. Nations have been wont, however, to guarantee, by the assumption of a contractual obligation, equality of treatment to other nations. This is the function of the most-favorednation clause in commercial treaties and agreements. It is possible, therefore, to have most-favored-nation obligations only with some countries yet to extend equality of treatment to all. Contrariwise, equality of treatment may be extended only in those cases where guaranteed by treaties and agreements. 17 15 D r . J . Viner has stated: " T h e conditional form of the pledge of niostfavored-nation treatment is, in practice . . . a meaningless pledge, imposing- no real obligation on the country granting it, and conferring no genuine protection on the country receiving it." "Comments on the Improvement of Commercial Relations between Nations," The Improvement of Commercial Relations between Nations and the Problem of Monetary Stabilization, Joint Committee, Carnegie Endowment-International Chamber of Commerce, Paris, 1 9 3 6 , p. 96. W U . S. T a r i f f Commission, Extent of Equal Tariff Treatment in Foreign Countries, Washington, 1 9 3 6 , pp. 2 0 - 2 1 , 24. ( M i m e o g r a p h e d ) Empirically, according to the views above, the conditional clause and a policy of discriminatory treatment of imports according to national origin are synonymous. 11

Where conditional and unconditional treaties or agreements are found together in a nation's contractual obligations, the effect is to render the conditional promises unconditional, since concessions are generalized " f r e e l y " to third countries through the unconditional clause and must, accordingly, be extended to countries with which conditional most-favored-nation obligations exist. See Foreign Relations of the United States, 1899, Washington, 1 9 0 1 , p. 3 0 1 ; S. K . Hornbeck, " T h e Most-Favored-Nation Clause," American Journal of International Law, 1 9 0 9 , p. 8 2 2 ; infra, p. 1 1 8 , note 48.

io6

RECIPROCAL T R A D E POLICY

A s has been noted above, the conditional interpretation breaks down as a guarantee of equality of treatment. A much more successful instrument for this purpose is the unconditional clause generalizing automatically to all other countries the concessions granted to any third country. 18 Perhaps the oustanding advantage of this interpretation lies in the fact that it is completely in line with the orthodox theory of comparative advantage. Equality of treatment means that though trade barriers exist, the world's economic resources will be utilized in the most effective manner possible under the conditions prevailing. Discrimination, inherent in the operation of the conditional form and present in tariff bargaining systems based upon an exclusive preferential exchange of customs concessions, leads further away from the principle of comparative advantages, inevitably lowering the real income of the world. 1 9 Unconditional most-favored-nation treatment and multangularity of trade go hand in hand. As a broad basis of commercial policy, unconditional mostfavored-nation treatment affects the whole external trade of a country rather than the trade with particular countries. It is concerned not with imports from specific national sources, but imports in general. T h e r e is, therefore, less governmental interference with the trend of a nation's foreign trade. T h e government simply provides a broad and relatively unobstructive environment in which commerce is able to flourish under the economic forces of the market. M

C e r t a i n e x c e p t i o n s m a y be consistently m a d e . C h a p t e r V I I , infra, p p .

126,

128. T h e u n c o n d i t i o n a l clause m a y be c o m b i n e d w i t h a s i n g l e - c o l u m n a u t o n o m o u s t a r i f f , in w h i c h case g e n e r a l i z a t i o n

is not a f a c t o r since no b a r g a i n i n g

takes

place. " T h i s thesis m a y be f u r t h e r substantiated, f r o m a t h e o r e t i c a l v i e w , as f o l l o w s . F i r s t , assume the c o m p l e t e absence of t r a d e b a r r i e r s . U n d e r this c i r c u m stance the u t i l i z a t i o n of the w o r l d ' s resources f o l l o w s c o m p l e t e l y the p r i n c i p l e of

comparative

are

introduced

though

there

advantage. but

S e c o n d l y , assume that i n t e r n a t i o n a l t r a d e

equality

is a lessening

of of

treatment the r e a l

is e x t e n d e d

i n c o m e of

to a l l

they

are

relatively

Here,

the w o r l d , n o n e the less

d i v i s i o n of l a b o r tends to p e r m i t n a t i o n s to p u r s u e to some e x t e n t in w h i c h

barriers

nations.

most e f f e c t i v e . F i n a l l y ,

discrimination

industries through

p r e f e r e n t i a l a g r e e m e n t s m a y be i n j e c t e d into the situation. U n d e r these conditions there is the definite possibility of a w i d e d i v e r s i o n of t r a d e to less e f f e c t i v e c h a n n e l s o r a w a y f r o m the most e f f e c t i v e u t i l i z a t i o n of the w o r l d ' s resources.

MOST-FAVORED-NATION

TREATMENT

107

O n the other hand, it is by no means meant to be i n f e r r e d that the operation of the clause in its unconditional f o r m has brought about everything to be desired. I n d e e d , it has been subject to criticism f o r decades. It has been condemned on many grounds. B u t so long as nations desire equality of treatment f o r their exports, and it is hardly conceivable that any country w o u l d w i l l i n g l y assent to destructive discrimination, then reciprocation is necessary. 20 W h i l e a detailed discussion of the various grounds of attack w o u l d constitute too great a digression f r o m the scope of this chapter, some f u r t h e r comment may be made. A distinction must be made between periods when maladjustments greatly distort the mechanism of international trade and those in which relatively stable conditions prevail. A s to the first, f r o m i 8 6 0 to 1 9 1 4 , a period of expansion in w o r l d commerce, the clause operated in a fairly satisfactory and acceptable manner. T h i s was due to the existence of three fundamental conditions: (1)

Freedom to trade in goods without quantitative limitation— although subject to customs duties; ( 2 ) Unhampered convertibility of currencies in the international market; ( 3 ) Currency stability in such a degree as to preclude sudden disturbances of the competitive bases and to allow at any rate approximate estimates of profit and loss to be made. 21 T h e Economic Committee of the L e a g u e of Nations, in a s u m m a r y study of the w h o l e question of most-favored-nation treatment, declared in reference to these conditions: So long as the world market continues to represent a progressively increasing quantity, or so long as it is not under the influence of K

"Since the time when means of communication became so widely developed sufficiently as to make it possible to speak of world trade in the present sense of the term, no country has been w i l l i n g or able to admit the application to its exports in the country of destination of higher or more burdensome customs duties or other import charges than those applicable on the importation to the goods of other countries." League of Nations, Economic Committee, Equality of Treatment in the Present State of International Commercial Relations: The Most-Favored-Nation Clause, II. Economic and Financial 1 9 3 6 . H. B . 9, p. 5. " Ibid., p. 6.

io8

RECIPROCAL

T R A D E

POLICY

q u a n t i t a t i v e restrictions h i n d e r i n g its d e v e l o p m e n t , t h e n o r m a l

ex-

pansion of a c o u n t r y ' s e x p o r t s d e m a n d s n o m o r e t h a n ability to c o m pete in the m a r k e t on e q u a l t e r m s . E a c h c o u n t r y in s u c h c i r c u m s t a n c e s w i l l c l a i m m o s t - f a v o r e d - n a t i o n t r e a t m e n t , a n d , in o r d e r to obtain it, w i l l a c c o r d it to others. B u t w h e n the w o r l d m a r k e t represents a p r o g r e s s i v e l y c o n t r a c t i n g total, t w o changes occur. (1)

The

p r o t e c t i o n of the h o m e m a r k e t b e c o m e s a m u c h

more

e n g r o s s i n g c o n s i d e r a t i o n t h a n the d e v e l o p m e n t of e x p o r t s ; (2)

I n so f a r as e x p o r t s are still essential, it is n o l o n g e r s u f f i c i e n t to be assured of equality of t r e a t m e n t : it is necessary to s e c u r e as substantial a share as possible of this d i m i n i s h i n g of t r a d e at the price of special concessions. C o n t r o l of the t r a d e - b a l a n c e , c o m p e n s a t i o n a n d c l e a r i n g a g r e e m e n t s a n d the like n e u t r a l i z e the p r a c t i c a l benefit of the m o s t - f a v o r e d - n a t i o n clause

even

if the l e g a l r i g h t r e m a i n s a n d a l t h o u g h the clause c o n t i n u e s to operate in r e g a r d to c u s t o m s duties. B u t a disaster such as a catastrophic collapse in the v o l u m e of t r a d e never comes alone. A

d e c l i n e in the v o l u m e of t r a d e is i n e v i t a b l y

a c c o m p a n i e d by a s u d d e n fall in v a l u e — i . e . , in p r i c e s — b y w h i c h t h e w h o l e balance of p a y m e n t s is placed in j e o p a r d y . T h i s process has resulted in c e r t a i n c o u n t r i e s in d e v a l u a t i o n

and

instability, in t e r m s of g o l d , of c u r r e n c i e s w h i c h had a b a n d o n e d t h e i r f o r m e r g o l d parities; in others the f u n c t i o n of c u r r e n c y as an i n t e r n a tional m e d i u m

of p a y m e n t has been l i m i t e d or e n t i r e l y

suppressed

by the establishment of f o r e i g n - e x c h a n g e c o n t r o l f o l l o w e d by c l e a r i n g and compensation agreements. I n others, a g a i n , f r e e d o m of trade w a s restricted by the i n t r o d u c tion of d i f f e r e n t systems of i m p o r t q u o t a s . T h e s e t h r e e f u n c t i o n a l disturbances of the i n t e r n a t i o n a l

organism

h a d n o s o o n e r c o m e into operation in d i f f e r e n t parts of the w o r l d t h a n t h e y b e g a n to m a k e t h e i r i n f l u e n c e f e l t f r o m one c o u n t r y to a n o t h e r , a n d e v e n t u a l l y , by r e c i p r o c a l i n t e r a c t i o n , a c c e n t u a t e d the

disorder

o r i g i n a l l y caused by the disastrous fall of prices to such a p o i n t that the m o s t - f a v o r e d - n a t i o n clause w a s n o l o n g e r able e f f e c t i v e l y t o p e r f o r m its f u n c t i o n s . . . , 2 2 " O f . cit., pp. 6-7. See also League of Nations, Report to the Council on the Work of the Forty-First Session, Economic Committee, II. Economic and Financial 1934. II. B. 1, p. 11 et seq.

MOST-FAVORED-NATION

TREATMENT

109

T h i s excerpt is especially applicable to the economic situation prevailing since 1 9 2 9 . W h a t has occurred, therefore, has been the development of a situation which threw the limitations of the clause into the limelight and minimized its advantages. T h e clause has been charged with injuries resulting from a collapse of international trade which cannot occur "without depriving the clause of a great part of its effectiveness." T h u s , the major attacks on the clause during depression emerge as symptoms of the strangling effects of international economic disturbances upon the national economies. But it is to be noted that while the benefits of the clause may be diminished during such periods, the necessity of its maintenance as a governor of commercial policy remains. T h e diversion of trade from economic channels through trade control measures cannot but produce serious effects upon the countries discriminated against and through them permeate the entire world economy. Quoting again the Economic Committee: F i n a l l y , a n d more t h a n is c o m m o n l y recognized, the economic w e l f a r e a n d stability of the m o d e r n w o r l d has, until recently, been d e p e n d e n t upon the t r a d i n g mechanism by w h i c h the whole body of i n t e r n a t i o n a l economic a n d financial relations was linked in one c o n t i n u o u s chain of t r a d i n g transactions. N o t only were commodities e x c h a n g e d , but national price levels were a d j u s t e d , a n d production a n d i n v e s t m e n t regulated, by a w o r l d - w i d e t r a d i n g system w i t h m a n i fold ramifications a n d inter-connections. T h e breaking of essential links in the chains of transactions has been a m a j o r cause of the u n p r e c e d e n t e d fluctuations of prices, disorganization of production, d e f a u l t on financial obligations and piling u p of stocks t h a t have been characteristic of the recent years of depression. A t t e m p t s to f o r m n e w t r a d i n g connections a n d to dispose of stocks or surplus production h a v e led, a n d are still leading, to fresh disturbances of international e c o n o m i c relations. T h e whole world was o r g a n i z e d as a series of closely connected a n d i n t e r d e p e n d e n t m a r k e t s , the smoothness of w h o s e a d j u s t m e n t led perhaps to an underestimate of their value. T h e substitution of m o r e rigidly planned and directed systems of indep e n d e n t s and closely regulated, if not closed m a r k e t s has not eliminated b u t e x a g g e r a t e d fluctuations of prices a n d production, and at the same t i m e has destroyed a large part of the specialized i n t e r n a t i o n a l

RECIPROCAL

T R A D E

POLICY

cooperation by w h i c h the rapid advance of living standards has in the past been m a d e possible. 23 A s a m a t t e r o f p r i n c i p l e a n d e v e n w h e n it w a s o p e r a t i n g in a desirable m a n n e r , the unconditional most-favored-nation

clause

h a s b e e n c o n t i n u o u s l y s u b j e c t e d to criticism on s u n d r y g r o u n d s . A d i s c u s s i o n o f t h e E u r o p e a n a t t a c k s , n o t a b l y in F r a n c e , a g a i n s t t h e clause w o u l d constitute too g r e a t a digression. N o t o n l y this, but t h e r e is a v a i l a b l e a n a b u n d a n c e

of a u t h o r i t a t i v e discussion

re-

f u t i n g t h e c o n t e n t i o n s of t h o s e l o o k i n g w i t h d i s f a v o r u p o n t h e c l a u s e . 2 4 S u f f i c e it to p o i n t o u t t h a t d e s p i t e criticisms t h e u n c o n d i t i o n a l f o r m h a s h a d c o n s i s t e n t l y , in p r o s p e r i t y a n d d e p r e s s i o n , t h e o v e r w h e l m i n g s u p p o r t of a u t h o r i t a t i v e o p i n i o n . 2 5 T o no nation

will

exports. T o during

or

can p e r m i t

obtain equality

periods

of

discriminatory

of t r e a t m e n t

e c o n o m i c recession

reiterate,

treatment

of

it m u s t g r a n t

it.

t h e e f f e c t i v e n e s s of

its If the

" L e a g u e of Nations, World Economic Survey, 1 9 3 5 - 3 6 , II. Economic and Financial 1 9 3 6 . II. A . 1 5, p. 1 84. M F o r a summary presentation of these contentions and a rebuttal, see League of Nations, Equality of Treatment in the Present State of Commercial Relations: The Most-Favored-Nation Clause, pp. 1 7 - 2 0 . 23 League of Nations, The World Economic Conference, Final Report, M a y 1 9 2 7 , C. E . 1. 44 ( 1 ) , p. 27. International Chamber of Commerce, The International Chamber of Commerce and the A p plication of the Policy of the World Economic Conference, Brochure No. 8, Paris, 1928, p. 9; J . Viner, "MostFavored-Nation Clause," Index, Svenska Handelsbanken, January 1 9 3 1 ; League of Nations, Recommendations of the Economic Committee Relating to Tariff Policy and the Most-Favored-Nation Clause, II. Economic and Financial 1 9 3 3 . II. B. 1, p. 7 ; U. S. Department of State, Treaty Information Bulletin No. 5 1 , December, 1 9 3 3 , p. 8, January, 1 9 3 4 , p. 19 (the resolutions adopted at the Seventh Inter-American Conference at Montevideo) ; League of Nations, Reports Approved by the Conference on July 27, '933, and Resolutions Adopted by the Bureau and the Executive Committee, II. Economic and Financial 1 9 3 3 . II. Spec. 4, London, 1 9 3 3 , p. 2 3 ; League of Nations Economic Committee, Report to the Council on the Work of the Forty-First Session, II. Economic and Financial 1 9 3 4 . II. B. i , p. 1 8 ; League of Nations, Equality of Treatment in the Present State of International Commercial Relations, The Most-Favored-Nation Clause, p. 2 5 ; Joint Committee, Carnegie Endowment, International Chamber of Commerce, The Improvement of Commercial Relations between Nations and the Problem of Monetary Stabilization, Paris, 1 9 3 6 , p. 4 1 0 ; Pan-American Union, Inter-American Conference for the Maintenance of Peace, Congress and Conference Series, No. 22, Washington, ' 9 3 7 . P- «9-

MOST-FAVORED-NATION

TREATMENT

m

clause is impaired, its alternatives do not correct the m a l a d j u s t ments but a g g r a v a t e them. 2 6 MOST-FAVORED-NATION TREATMENT UNDER NON-TARIFF TRADE CONTROLS I t w o u l d be impossible to g r a s p the f u l l significance of A m e r i can policy without reference to non-tariff

measures of

control as they i m p i n g e upon the most-favored-nation

trade clause.

Discrimination is almost inherent in these restrictions on trade because of the fact that they are not o n l y difficult to administer impartially but also that their popularity

is d u e in no s m a l l

measure to the v e r y fact that t h e y do permit discriminatory treatment. 2 7 M a n i f e s t l y , the foremost question to be m e t is w h e t h e r or not these restrictions f a l l within the scope of the clause. 2 8 T h e r e appear to be two schools of t h o u g h t on this point. O n one hand, it is a r g u e d that the clause does not a p p l y here since not only h a v e the existing commercial contractual obligations not p r o v i d e d f o r the n e w barriers but equality of treatment is impossible to attain in these respects. 2 8 O n the other side, t h e conM

In a subject of such complexity and broadness, diverse questions relating to the clause have been omitted, e.g., exceptions, which though vital aspects to the clause none the less do not fall within the scope of the present chapter. " U. S. Department of Commerce, "Foreign Tariffs and Commercial Policies During 1 9 3 3 , " Commerce Reforts, February 24, 1934, p. 1 (reprint) H. Chalmers, p. 1 ; H. Chalmers, "Depression and Foreign Trade Barriers," Annals of the American Academy of Political and Social Science, July 1934, p. 91 ; League of Nations, Review of World Trade, 193$, II. Economic and Financial 1934. II. A. 1 2, p. 65. It may be noted that France, in the administration of its quota system, initially endeavored to apply the principle of equality of treatment but later declared that the clause was not applicable to quotas. U. S. Tariff Commission, Extent of Equal Tariff Treatment in Foreign Countries, Washington, 1936, p. 166 (mimeographed). " This question has been the subject of considerable controversy. See statement by D. Serruys, League of Nations, International Conference for the Abolition of Import and Ex-port Prohibitions, 1928, II. 7. Proceedings, p. 78. a As examples of this view, see B. Nolde, La Clause de la Nation Plus Favorisée et les Tarifs Preferentials, La Haie, Academie de droit International, Recueil des Cours, 1932, Vol. I, p. 80; N. Ito, La Clause de la Nation la Plus Favorisée, Les Editions Internationale, Paris, 1930, p. 222 (Conventional quotas only considered without the scope of the clause). F . A. Haight, French

112

RECIPROCAL TRADE

POLICY

trary is argued. 30 T w o further questions present themselves under this view. Is express stipulation in commercial treaties and agreements necessary? Again, how are the new trade-control measures to be administered if substantial equality of treatment is to be achieved? Considering the first point, it may be stated that it appears difficult to deny the applicability of the clause under these circumstances. T h e unconditional most-favored-nation clause, as has already been pointed out, is simply a legal embodiment of the principle of equality of treatment. Its source was the desire to prevent discrimination against a nation's trade. This is the fundamental fact to be borne in mind in any discussion of the question. In the past it has been applied only to tariffs and related matters not because all other barriers to trade were intended to be excluded, but because tariffs were far and away the most important obstacle to international trade. It appears little short of absurd to argue, as some have, that the non-tariff trade barriers are without the scope of the clause. W h a t can a guarantee of equality of treatment, as expressed in the unconditional clause, mean if it is to be vitiated in a most flagrant manner through the discriminatory administration of quotas, exchange controls, and related impediments to trade? N o r can it be posited that the impossibility of affording full equality of treatment under these controls be considered an argument of any telling weight against the views advanced above. F u l l economic equality of treatment is an ideal which would be extraordinarily difficult to achieve. It is, then, a matter of degree of equal treatment afforded that is involved. Under a régime of Import Quotas, P. S. K i n g and Son, Ltd., London, 1935, p. 93. Evidence of confusion reigning over the entire question may be found in the League of Nation study of 1933, Recommendations of the Economic Committee Relating to Tariff Policy and the Most-Favored-Nation Clause, II. Economic and Financial 1933. B . 1. " G . Haberler, Liberate und Planwirtschaftliche Handelsfolitik, Junker unde Dunnhaupt, Verlag, 1934, p. 87; League of Nations, Evolution of Commercial Policy Since the Economic Crisis, II. Economic and Financial 1934. II. B. 1, p. 1 3 ; C. Rist, " T h e Past and Future of the Most-Favored Nation Clause," The Improvement of Commercial Relations between Nations and the Problem of Monetary Stabilization, Joint Committee, Carnegie Endowment-International Chamber of Commerce, Paris, 1936, p. 120.

MOST-FAVORED-NATION

TREATMENT

113

tariff barriers alone, a greater d e g r e e of equality of t r e a t m e n t is assured than is possible u n d e r non-tariff t r a d e barriers. I t is, m o r e o v e r , chiefly because discrimination and absence of equality of treatment are more obvious u n d e r quotas and e x c h a n g e controls that the w h o l e question appears to i n v o l v e d i f f e r e n t principles. A principle cannot be limited arbitrarily in the fashion that the negative v i e w attempts to do. I t f o l l o w s f r o m the above that express stipulation in commercial treaties or agreements cannot be said to be a condition precedent to the applicability of the clause. 3 1 T h e purpose a n d aim of the clause and the intent of the contractants is equality of treatment to the fullest extent possible. 3 2 Stipulation m a y be desirable to prevent any controversies f r o m arising, but in principle, f r o m this v i e w it does not seem to be a necessary condition. A consequence of the general a r g u m e n t presented a b o v e is the statement that there has been since 1 9 2 9 a w i d e s p r e a d violation of international contractual obligations of equality of t r e a t m e n t . 3 3 T h u s , arise the declarations that the clause has lost a g r e a t part of its efficiency. 34 T h i s , h o w e v e r , appears to be too strong a posi11 The Anglo-Italian Treaty of October 3 1 , 1925, contained a stipulation making quotas granted to any country by treaty or agreement subject to mostfavored-nation obligations. N. Ito, op. cit., p. 223. In a treaty between Great Britain and Rumania in 1931 quantitative restrictions were stipulated as falling within the scope of the clause. Royal Institute of International Affairs, The Most-Favored-Nation Clause as an Instrument of International Policy, Chatham House, London, 1933, pp. 3-4. B Of course, since treaties and agreements are in the nature of contracts, the scope of the clause may be expressly limited to the traditional customs and related matters, to which it has been customarily applied in the past. This, however, which is hardly conceivable as a more or less permanent measure, presents a different question. See T . E. Gregory, op. cit., p. 450. " U. S. House of Representatives, Department of State Appropriation Bill for 1935, Hearing before the Subcommittee of House Committee on Appropriations, 73d Congress, 2d Session, Washington, 1934, pp. 1 7 - 1 9 ; U. S. Senate, Causes of the Loss of Export Trade and the Means of Recovery, Hearings before the Committee on Agriculture and Forestry, 74th Congress, 1st Session, Washington, 1935, p. 48; J . M. Jones, Tariff Retaliation, University of Pennsylvania Press, Philadelphia, 1934 (the whole book is essentially a discussion of the disrepute of the clause) j see supra, p. 100, note 2. ** International Chamber of Commerce, Commercial Treaty Policy and Trade Barriers, Report of a Special Committee of the American Section, Washington, 1 9 3 3 , p. 1 0 ; League of Nations, Draft Annotated Agenda, Monetary and Economic Conference, II. Economic and Financial 1933. II. Spec. 1 , p. 235 Inter-

ii4

RECIPROCAL

TRADE

POLICY

tion, f o r in spite of the difficulties present, tariff barriers remain the most important barrier to trade and the functioning of the clause has not been interrupted in this respect. 35 I f quotas are within the scope of the clause, and they are according to the v i e w presented here, how are they to be administered if the principle of equality of treatment is to be followed? T h r e e possibilities present themselves. 1. Arithmetical method (equal quotas) 2. Unallocated global quotas 3. Proportional method U n d e r the first, absolutely equal quotas are granted to all nations. T h i s is unsatisfactory since it tends to stimulate exports f r o m countries usually accounting a relatively small percentage of a nation's imports; and conversely it blocks imports f r o m countries favorably situated f r o m an economic view. T h e second method of global quotas, i.e., without allocation, is unsatisfactory for practical and administrative reasons, though it might be viewed as most closely achieving equality of treatment. 3 6 T h e

third

method of "proportional quotas" has been found to be the most practicable. U n d e r this system a basic reference period prior to the initiation of quantitative controls is taken, and contingents are allocated to each country according to the share it supplied during the base period. 3 7 national Institute of Intellectual Cooperation, The

Slate

and

Economic

Life,

L e a g u e of Nations, Sixth International Studies C o n f e r e n c e , L o n d o n , M a y June 2, 1 9 3 3 , Paris, 1 9 3 4 , p. 6 8 ; Joint Committee, C a r n e g i e International lations

Chamber of Commerce,

between

Nations

and

the

The

Problem

1 9 3 6 , p. 4 0 7 ; L e a g u e o f Nations, Equality International

Commercial

Relation:

The

Improvement

of Commercial

of

Stabilization,

Monetary

of

Treatment

29-

Endowment—

in Present

Most-Favored-Nation

ReParis,

State

Clause,

of II.

E c o n o m i c and F i n a n c i a l 1 9 3 6 . I I . B. 7, p. 25. U . S. T a r i f f C o m m i s s i o n , Extent

of Equal

Treatment

in Foreign

Countries,

W a s h i n g t o n , 1 9 3 6 , p. 10 ( m i m e o g r a p h e d ) . " W h a t , f o r e x a m p l e , is to be done w i t h merchandise at the border when the g l o b a l quota has been

filled?

M o r e o v e r , an a d v a n t a g e accrues to neighbor-

i n g countries since they can rush in their exports and g a i n in this manner a g r e a t e r r e l a t i v e share of the g l o b a l quota at the expense of countries w h i c h are more efficient producers. " Haberler

suggests that an ideal system of quotas m a y be conceived

of.

E v e r y quota, he argues, corresponds to a g i v e n effective tariff rate w h i c h may

MOST-FAVORED-NATION T R E A T M E N T

115

This basic period formula purports to give fair and equitable treatment to the extent possible under the operation of the new measures of trade control. Of course, it is evident that difficulties present themselves in practice. T h e choice of a suitable base period is difficult itself and "in view of the rapidity with which, at the present time, changes take place in production and sales conditions in the various countries, it is impossible to discover, among the statistics of the past, a basis which satisfies equally the present needs of all countries."38 Moreover, quotas themselves are an instrument associated with shrinking trade, and tend to "freeze" or make static the international trade position of the various countries. But these do not lessen the need for mostfavored-nation treatment in their application. In spite of the difficulties present, the clause must be considered applicable in principle to these restrictions and in practice the latter must be employed, to as great an extent as possible, in harmony with equality of treatment. Mutatis mutandiy the above discussion applies to exchange control and monopoly purchases. T h e proportional method can be used in the allocation of foreign exchange, though this may conflict with one of the aims of the control, i.e., discrimination. Often the latter distinguishes between indispensable and dispensable imports. Necessarily, this leads to discrimination between countries. In these cases the clause is violated. Clearing agreements are counter to the clause in that trade is often diverted from its previous channels in violation of the principle of comparative advantage.89 be imposed and all nations thus given legal equality of treatment. Liberate unde Plamvirtschaftliche Handehfolitik, Junker unde Dunnhaupt, Verlag 1934, p. 92. It may be noted that this does not apply to situations in which quotas are used as bargaining weapons and to intentionally divert trade. " L e a g u e of Nations, Equality of Treatment in Present International Commercial Relations: The Most-Favored-Nation Clause, p. 14. See also Haight, of. cit., pp. 20, 24. Needless to point out, the use of base years facilitates trade discrimination. " L e a g u e of Nations, Enquiry into Clearing Agreements. T h e purchasing from and selling to countries with which a national's government has not entered into a clearing arrangement may be made more difficult. Government monopolies and the clause will be further considered in the next chapter.

116

RECIPROCAL

TRADE

POLICY

W h e r e official m o n o p o l i e s exist f o r certain c o m m o d i t i e s , as t h e F r e n c h tobacco m o n o p o l y , or state control of f o r e i g n t r a d e obtains, t h e a p p l i c a t i o n of t h e clause is e x t r e m e l y difficult. P e r h a p s t h e m o s t t h a t can be a c h i e v e d is the p r o m i s e that t h e activities of such m o n o p o l y w i l l be g u i d e d b y such considerations as w o u l d influence a p r i v a t e i n d i v i d u a l or corporation in t h e pursuit of econ o m i c activities u n d e r t h e profits m o t i v e . T h i s is v a g u e , of c o u r s e , a n d r e l a t i v e l y easy to e v a d e , but c a r e f u l s t u d y s h o u l d r e v e a l in the m a j o r i t y o f cases w h e t h e r or not discriminatory t r e a t m e n t is being accorded by a monopoly.40 AN

ANALYSIS

OF

THE THE

MOST-FAVORED-NATION UNITED

POLICY

OF

STATES

W i t h n o t a b l e consistency, t h e U n i t e d States u p to the W o r l d W a r e m p l o y e d a n d , on n u m e r o u s occasions, d e f e n d e d the conditional f o r m of t h e m o s t - f a v o r e d - n a t i o n clause. I n 1 9 1 9 , h o w e v e r , a f t e r e x h a u s t i v e s t u d y t h e U n i t e d States T a r i f f C o m m i s sion r e c o m m e n d e d : 4 1 Finally, it cannot be too much emphasized that any policy adopted by the United States should have for its object, on the one hand, the prevention of discrimination and the securing of equality of treatment of A m e r i c a n commerce and for American citizens, and, on the other hand, the frank offer of the same equality of treatment to all countries that reciprocate in the same spirit and to the same effect. T h e United States should ask no special favors and should grant no special favors. It should exercise its powers and should impose its penalties, not for the purpose of securing discrimination in its favor, but to prevent discrimination to its disadvantage. I n 1 9 2 2 , t h e l e g i s l a t i v e e m b o d i m e n t of the principle of equality of t r e a t m e n t w a s e n a c t e d in the f o r m of section 3 1 7

of t h e

F o r d n e y - M c C u m b e r A c t . B r i e f l y , this p r o v i d e d f o r t h e penalization of i m p o r t s f r o m countries discriminating against A m e r i c a n 40

T h i s is essentially the problem involved in the use of the clause in com-

mercial relations with Russia in which a state monopoly of all foreign trade exists. It must be noted that this promise does not guarantee or assure national treatment o r "inland p a r i t y . " " Reciprocity

and Commercial

Treaties,

p. i 5.

MOST-FAVORED-NATION T R E A T M E N T exports.42 I n first

1923

the diplomatic counterpart of 3 1 7

117

found

f o r m a l e x p r e s s i o n in t h e c o m m e r c i a l t r e a t y n e g o t i a t e d

Germany

in t h a t y e a r . T h i s p r o v i d e d f o r r e c i p r o c a l a n d

stricted unconditional most-favored-nation treatment. W i t h treaty the U n i t e d States completely revolutionized

its

with unrethis

t h e basis of

its c o m m e r c i a l p o l i c y . 4 3 W h a t f a c t o r s w e r e p r e s e n t in t h e p o s t - w a r s i t u a t i o n j u s t i f y i n g t h i s s h i f t in p o l i c y ?

In

the

first

place, A m e r i c a n

exports

had

c h a n g e d in c h a r a c t e r a n d w e r e n o w v u l n e r a b l e t o d i s c r i m i n a t i o n in f o r e i g n m a r k e t s . 4 4 M a n u f a c t u r e d g o o d s c a m e t o f o r m a s u b s t a n t i a l p a r t of A m e r i c a n

exports and these w e r e

not

comple-

m e n t a r y but competitive with E u r o p e a n industry. F u r t h e r , other " T h e scction as stipulated in the Act of 1 9 2 2 reads in part: "Sec. 3 1 7 ( a ) T h a t the President when he finds that the public interest « ¡ 1 1 be served thereby shall by proclamation specify and declare new or additional duties as hereinafter provided upon articles wholly or in part the growth or product of or imported in a vessel o f , any foreign country whenever he shall find as a fact that such countr)— Imposes, directly or indirectly, upon the disposition in or transportation in transit through or reexportation from such country of any article wholly or in part the growth or product of the United States any unreasonable charge, exaction, regulation, or limitation, which is not equally enforced upon the like articles of every foreign country; or Discriminates, in fact, against the commerce of the United States, directly or indirectly, by law or administrative regulation or practice, by or in respect to any customs, tonnage, fort duty, fee, charge, exaction, classification, regulation, condition, restriction, or prohibition, in such manner as to place the commerce of the United States at a disadvantage compared with the commerce of any foreign country." (Italics the author's.) Section 338 of the Act of 1 9 3 0 substantially reenacted this provision, U. S. T a r i f f Commission, Comparison of Tariff Acts of 1913, 1922 and 1930, Washington, 1 9 3 0 , pp. 207-208. " T h e exchange of notes with Brazil in 1 9 2 2 was the first official intimation that a new interpretation of the clause would be adopted. T h e Payne-Aldrich Act of 1909 in its maximum and minimum (the general rates) provisions anticipated later developments, f o r it provided for the application of the maximum or penalty rates against articles imported from countries unduly discriminating against the United States. F . W . Taussig, Tariff History of the United States, G . P. Putnam's Sons, New Y o r k , 1 9 3 1 , pp. 403 et seq. 44 Professor T . E . Gregory recognized this situation as early as 1 9 2 1 . Tariffs: j4 Study in Method, Charles Griffin and Co., Ltd., London, 1 9 2 1 , p. 480. He stated in part: "Countries which predominantly export manufactured articles are much more vulnerable to retaliation than countries which import manufactured articles and export raw materials."

118

RECIPROCAL TRADE

POLICY

areas producing agricultural products have come to offer American exports of these products considerably more competition than ever before. Retaliation against attempts to initiate strict reciprocity arrangements as special departures from a highly protective autonomous tariff policy were not only possible but also feasible from the point of view of some. Secondly, discrimination, which had now become of prime importance to the United States, was even more rampant abroad during the early post-war years than before. But the conditional clause had definitely proved to be an instrument leading to international friction and ill-will.45 The very inherent qualities of the conditional form of most-favored-nation treatment itself encouraged not a mitigation but an intensification of international economic discriminations.46 Related to the preceding factor was the enormously increased complexity of tariff schedules. Tariff laws no longer comprised a few items occupying several pages on the statute books. If the problem of determining a quid fro quo necessitated by the conditional clause was difficult before the World War, it now appeared well nigh insuperable.47 Finally, American industrial technology had advanced to such a stage that there was no longer any need to seek special favors in selected markets to enable American exports of manufactured goods to compete successfuly abroad. All that appeared necessary was equality of treatment. In the light of these factors, omitting consideration of the basic impracticability of the conditional form, the recommendations of the Tariff Commission pointed to the unconditional clause.48 " U. S. T a r i f f Commission, Recifrocity " U. S. T a r i f f Commission, Dictionary 1 9 2 4 , p. 4 9 3 .

and Commercial Treaties, p. 1 0 . of Tariff Information, Washington,

" T o some extent this discussion reflects some of the disadvantages of the conditional f o r m . T h e discussion of the advantages of the unconditional clause, to be subsequently considered, sheds further light in this direction. ** T h e r e were probably other factors operating, but these appear to be the more important. D r . J . Viner, for example, mentions the difficulties of renewing old or promulgating new conditional treaties and the threat of other countries to adopt the conditional form as further factors. In reference to the latter, this

MOST-FAVORED-NATION T R E A T M E N T

119

T o throw further light upon the setting of the operation of the clause under the present trade program, a further examination of the change in commercial policy noted above is necessary. T h e philosophy of section 3 1 7 was indubitably violated by eleven clauses contained in the same act providing for contingent duties on certain specified imports. 49 That is, the United States government on one hand declared it would seek equality of treatment through the threat of penalty duties or complete prohibition, while in the same breath it stipulated that on certain items, if the duty in foreign countries were higher than in the American tariff, there was to be levied an additional duty on those items when imported into the United States. W h a t is to be noted is that these provisions were operative regardless of whether or not the foreign country was already pursuing a policy of equality of treatment. 50 F r o m another view, as pointed out by Haberler, it provided strict reciprocity antithetical to the philosophy of section 3 1 7 . 5 1 Another statutory provision inconsistent with the unconditional most-favored-nation clause arose out of the Revenue Act of 1 9 3 2 . It provided that additional tariff levies in the guise of excise taxes were to be levied on a specified list of items. Coal and coke were exempt in the cases of those countries to which the United States had exported more than it had imported during the prerightly inferred that the United States would no longer obtain the benefits of generalization of reductions accorded in bilateral agreements by foreign countries, i.e., where foreign

countries have both conditional and

unconditional

treaties, they must generalize to all since freely given to third countries with which an unconditional obligation exists. J . Viner, " T h e Clause," Index,

Most-Favored-Nation

Svenska Handelsbanken, J a n u a r y , 1 9 3 1 , pp. 1 5 ,

16.

" T h e s e were the same contingent duties referred to in Chapter I V K

and

supra.

T h o s e provisions appear to have been aimed at Canada. See B. B. W a l l a c e H.

V.

Fav,

Weltwirtschaftliches

"Die Archiv,

jüngste

Handelspolitik

der

Vereinigten

Staaten,"

J u l y 1 9 3 6 , p. 49. These were, in the main, items

in which there was a great excess of exports over imports. Only in contiguous countries where the t w o - w a y trade was more nearly balanced could they be effective, i.e., Canada and the United States. " G . V . Haberler, The

Theory

of International

Trade,

Translated from the

German by A . Stonier and F . Benham, William Hodge and Co., Ltd., London, 1 9 3 6 , p. 3 6 7 .

RECIPROCAL TRADE

POLICY

ceding calendar year. 5 2 Great Britain and Germany did not fall within this category. T h e courts, however, held that since mostfavored-nation obligations existed, the United States was barred from discriminating in this fashion. 53 E v e n omitting the question of treaty obligation, this provision does not harmonize with the American policy of offering equality of treatment to all nations, irrespective of legal obligation. In substance, it provides f o r additional charges where a bilateral balance of imports and exports or an excess of exports in reference to specific items does not exist between certain pairs of countries; a concept wholly untenable f r o m the standpoint of the unconditional clause. U n d e r the traditional, high single column autonomous tariff employed by the United States, the efforts to establish unconditional most-favored-nation relations with foreign countries failed signally. Germany was the only major country with which the United States was able to conclude an unconditional most-favorednation treaty before April 1933, 5 4 It is true that the United States accorded most-favored-nation treatment to all countries (with the exception of the contingent duty clauses) but this was no guarantee of reciprocal treatment. 55 A n y extended attempt to explain this situation would be without the scope of this discussion. A policy offering an extremely high single column nonbargaining tariff on the one hand and implemented with such means as provided in section 3 1 7 on the other could not be fruit" Public No. 1 ¡4, yzd Congress, H.R. 10236, p. 1 0 1 . F o r the list of countries which were subjected to this tax in 1 9 3 6 , see Treasury Decisions No. 48146, February 6, 1 9 3 6 , p. 2 9 1 . U. S. State Department, Treaty Information Bulletin No. 45, J u n e 1 9 3 3 , pp. 9 - 3 3 . (Domestic Fuel Corf oration and George E. Warren Corf. v. United Stales) ; also N o . 56, M a y 1 9 3 4 , pp. 1 9 - 2 3 . T h e T r e a t y with Great Britain dated back to 1 8 1 5 and was of the conditional variety. But, since the exemption was " f r e e l y " extended to certain other countries, it had to be granted unconditionally to Great Britain. T h e subsequent abrogation of unconditional clause in the commercial treaty with Germany in 1 9 2 3 made her again subject to the provisions of the Revenue Act. " U. S. T a r i f f Commission, Tariff Bargaining under Most-Favored-Nation Treaties, Report No. 65, Second Series, Washington, 1 9 3 3 , pp. 1 5 - 1 6 . " U n d e r a modus vivendi concluded in 1 9 2 7 , France accorded the United States the lowest tariff rates on certain specified American products. Ibid., p. 1 5 .

MOST-FAVORED-NATION

TREATMENT

121

ful. 5 6 T h e policy appears to have been of a coercive nature under conditions distasteful to foreign countries. 57 In summing up this brief historical survey, it must be noted that, juridically, foreign nations had no cause of complaint against American policy so long as equality of treatment was extended. T h e problem involved was really one of reconciling the legal bases of most-favored-nation treatment with the economic implications possible under an autonomous, single column tariff system. H a d the U n i t e d States combined its adoption of the unconditional clause with tariff bargaining, it w o u l d have sought protection for its exports by the concessional method of formal bilateralism. A s it was, it chose a single column

autonomous

system with the penalization provisions in Section 3 1 7 as the weapon of protection against discrimination. " F. Affairs,

W . Taussig,

"Necessary

Changes

in o u r C o m m e r c i a l

Policy,"

Foreign

A p r i l 1 9 3 2 , p p . 3 9 7 - 4 0 5 , f o r a n e l a b o r a t i o n o f this v i e w w h i c h T a u s s i g

terms a " c l u b p o l i c y . " "Commenting

u p o n the p o l i c y d e s c r i b e d a b o v e , D r . J . V i n e r s t a t e d in 1 93 1 :

" A s a safeguard

against discrimination

nation

its u n c o n d i t i o n a l

clause

in

C o m m e r c i a l and Financial

form

in f o r e i g n is l a r g e l y

P o l i c y , " Institute

of

m a r k e t s , the a

Politics,

failure."

most-favored"International

R e p o r t o f the

T a b l e s a n d G e n e r a l C o n f e r e n c e at the E l e v e n t h S e s s i o n , 1 9 3 1 , p .

174.

Round

VII F O R M A L

B I L A T E R A L I S M

RECIPROCAL TRADE AGREEMENTS UNDER THE UNCONDITIONAL CLAUSE

THE American use of the unconditional interpretation during the post-war period 1922 to 1932 may fairly be termed a failure. T h i s , however, did not lessen the desirability and advantages of a policy of equality of treatment embodied in the unconditional clause. Indeed, as has been pointed out, the spread of trade discrimination after 1929 made the unconditional interpretation more vital than ever to the foreign commerce of the United States. T h e pressing need was, accordingly, not a shift to the conditional f o r m of most-favored-nation treatment, but some means of reenforcing and rejuvenating the already

existing

policy. T h e U . S. Tariff Commission in 1933 was requested under paragraph 10 of S. Res. 325 to report upon T h e e x t e n t to w h i c h e x i s t i n g c o n d i t i o n a l a n d u n c o n d i t i o n a l m o s t f a v o r e d - n a t i o n clauses in c o m m e r c i a l treaties, listed f o r

convenient

reference, m a y a f f e c t tariff bargaining w i t h foreign countries, having in v i e w e a r l y a n d r e c i p r o c a l r e d u c t i o n s in t a r i f f rates in the U n i t e d States a n d f o r e i g n c o u n t r i e s a n d increased t r a d e a n d c o m m e r c e t w e e n the U n i t e d States a n d f o r e i g n

be-

countries.1

In line with its position in 1 9 1 9 , the Commission recommended that " t h e bargaining should be as far as practicable on the basis of unconditional most-favored-nation treatment.'" T h e passage 1 Tariff Bargaining under Most-Favored-Nalion Treaties, Report No. 65, Second Series, p. 1. ' Ibid., p. 2. It may be pointed out that an abandonment of the unconditional interpretation would have necessitated not only the abrogation of the post-war American agreements and treaties (4.7 on June 12, 193+) based upon the unconditional interpretation but would also have affected commercial relations with other countries since the practice of the United States has been to treat

123

FORMAL

123

BILATERALISM

of the Reciprocal T r a d e Act of 1 9 3 4 in pursuing this recommendation provided an exit to the impasse in American commercial policy. Tariff bargaining was combined with the unconditional clause. This constituted an abandonment of the historic American policy of tariff autonomy; a policy which had caused much adverse criticism of the unconditional clause during the post-war period. T h e relevant provisions of the Act of 1 9 3 4 provided: T h e proclaimed duties and other import restrictions shall apply to articles the g r o w t h , produce, or manufacture of all foreign countries, whether imported directly, or indirectly: Provided,

T h a t the Presi-

dent m a y suspend the application to articles the g r o w t h , produce, or m a n u f a c t u r e of any foreign

country because of its discriminatory

treatment of A m e r i c a n commerce or because of other acts or policies w h i c h in his opinion tend to defeat the purposes set forth in this section. 3

T h e r e appear to be two essential parts to these provisions. F o r one thing, the concessions granted in any agreement may be extended, as a general rule, to all third countries irrespective of whether or not there exists any most-favored-nation obligation to do so.4 However, the President at his discretion could make exceptions to this general rule because of trade discrimination by third countries against American exports or because of "other acts or policies" tending to hinder the fulfillment of the purposes of the Act. This latter condition, which will presently be elaborated upon somewhat, obviously grants wide discretion to the President. Moreover, as will soon be pointed out, the test of discrimination was by no means a rigid one. Administrators of the program were entrusted with the task of establishing, in both conditional obligations unconditionally and to extend unconditional treatment to all countries irrespective of contractual obligation. See U. S. House of Representatives, Extending Reciprocal Foreign Trade Agreement Act, Hearings before the Committee on Ways and Means, 75th Congress, 1st Session, Washington, 1 9 3 7 , p. 1 1 7 (memorandum submitted by F . B . Sayre). *Statutes of the U.S.A., Session Laws, 73d Congress, 2d Session, 1 9 3 4 , Washington, 1 9 3 4 , p. 944. ' T h i s is in line with the recommendation of the T a r i f f Commission, o f . cit.,

p. 2.

RECIPROCAL TRADE

POLICY

cases, rules of action which would be of great importance in shaping the character which the trade policy would eventually assume. Manifestly, in view of the discriminatory practices so prevalent abroad and in the face of the myriads of trade barriers to international trade, these provisions could be so interpreted as to lead to a more or less rigid bilateral policy. Another relevant provision in the act repealed, as was noted earlier, the contingent duties contained in the tariff laws of 1 9 2 2 and 1 9 3 0 . 5 These duties have been the subject of diplomatic protests in the past as a violation of the most-favored-nation obligations of the United States. 6 Stipulating discriminatory higher duties, they were without question inconsistent with American most-favored-nation policy and their abrogation must be considered a step forward. T o get a f u l l comprehension of American policy, it is necessary to examine its concrete expression in the various reciprocal agreements negotiated along with the policy of generalization followed with reference to specific countries. In this manner the basic philosophy of most-favored-nation treatment being pursued by the United States can be brought to light. T h e preambles of nine of the first sixteen trade agreements negotiated explicitly advance equality of treatment as a basic objective. 7 F o u r of the remaining establish the facilitation and development of trade as the essential aim. T h e Belgian agreement, in the form of an exchange of notes, contains no preamble. Cuba constitutes an exceptional case, while France granted a somewhat limited most-favored-nation concession to the United States.8 8

Chapter I I I , p. 32. * Statement by F . B . Sayre, U. S. House of Representatives, Recifrocal Trade Agreements, Hearings before the Committee on Ways and Means, 73d Congress, 2d Session, Washington, 1 9 3 4 , p. 3 7 5 . * I.e., Brazil, Haiti, Sweden, Honduras, Nicaragua, Guatemala, Finland, Costa Rica, E l Salvador. * With the exception of agreements with France, K i n g d o m of the Netherlands, E l S a l v a d o r and Costa Rica, all the other pacts have been printed in the Executive Agreement Series of the State Department. T h e i r numbers and date of publication are as f o l l o w s : Cuba, No. 67, Washington, 1 9 3 4 ; Brazil, No. 82, 1 9 3 6 ; B e l g o - L u x e m b u r g Economic Union, No. 7 5 , 1 9 3 5 ; Haiti, No. j8, 1 9 3 5 ; Sweden, No. 79, 1 9 3 5 1 Colombia, No. 89, 1 9 3 6 ; Canada, No. 91,

FORMAL

125

BILATERALISM

These latter cases will be subsequently considered in some further detail. T h e most-favored-nation provisions of the various reciprocal agreements may be divided into three broad types. First, the usual and customary matters to which the clause has been applied in the past. T h e n , there are the provisions relating to the new trade-control measures hampering foreign commerce. Finally, there is a miscellaneous group of provisions dealing with special problems involved in the cases of the several countries with which the agreements have been negotiated. It may be pointed out, parenthetically, that in view of the importance of non-tariff trade barriers, the policy reflected in the second category becomes of crucial importance to the entire principle of most-favored-nation treatment and its ultimate success as the basis of the American reciprocal trade program. T h e first group comprises matters which are recognized as customary provisions within the scope of the clause. Such matters as customs duties, subsidiary charges of every kind, the method of levying duties, formalities and charges related to the process of clearing goods through the customs, all laws and regulations concerning the sale or use of imports, and all internal taxes or levies are to be found within this category. 8 Included also in 1936;

H o n d u r a s , No.

86,

95> i 9 3 6 j G u a t e m a l a , No.

1936; 92,

S w i t z e r l a n d , No.

go,

1 9 3 6 ; F i n l a n d , No.

1936;

Nicaragua,

No.

9 7 , 1 9 3 6 (these a r e in the

orders s i g n e d ) . T h o s e not in this f o r m are a v a i l a b l e in U . S. D e p a r t m e n t of State, Press Costa

Rica,

Releases,

Netherlands, D e c e m b e r 2 0 , 1 9 3 5 ; F r a n c e , M a y 1 3 ,

November

30,

1936;

El

Salvador,

February

19,

1937

1936; (all

in

m i m e o g r a p h ) . H e r e a f t e r in the chapter, reference w i l l s i m p l y be m a d e to the name of the country with the article f o l l o w i n g . * T h e stipulations in reference to internal taxes and levies a r e u s u a l l y in a separate a r t i c l e s p e c i f y i n g national treatment in addition to m o s t - f a v o r e d - n a t i o n treatment. T h e second article cited f o r each country r e f e r s to this p r o v i s i o n . Cuba,

VIII

Colombia, Switzerland,

( a special c a s e ) ; Brazil, VII, III;

Canada,

X , I X ; Nicaragua,

I, V I ;

I , V I I ; Haiti, Honduras,

X , I V ; Guatemala,

i n g customs d u t i e s ) , V I I I ; Finland,

X I , V ; Costa

V I I , I V ; Sweden,

IX, III;

X, I V ; France, Rica,

I, V I ;

Netherlands, X , I V ; El

I

I,

V;

(excludSalvador,

IV, X . B e l g i u m a g a i n is an exception. T h i s e x c h a n g e of notes w a s p r o v i s i o n a l and a m o r e complete trade a g r e e m e n t in the usual f o r m m a y be expected.

See

E x e c u t i v e A g r e e m e n t Series, N o . 7 5 , p. 3 0 4 f o r a statement to this e f f e c t . A n illustration of the concrete benefits derived f r o m these p r o v i s i o n s is f u r -

126

RECIPROCAL

T R A D E

POLICY

nearly all the reciprocal agrements is the standard clause presenting the essence of the unconditional clause. T h e following quotation offers an illustration: A n y advantage, f a v o r , privilege or i m m u n i t y w h i c h has been or m a y hereafter be granted by the U n i t e d States of A m e r i c a or

the

U n i t e d States of B r a z i l , in regard to the above-mentioned matters, to a natural or m a n u f a c t u r e d product originating in any third country or consigned to the territory of any third country shall be accorded mediately

and without

compensation

im-

to the like product originating

in or consigned to the territory of the U n i t e d States of B r a z i l or the U n i t e d States of A m e r i c a , respectively. 1 0

It is this clause which sharply distinguishes unconditional treatment from conditional, specifically providing, as it does, for the automatic extension of concessions given previously to other countries, fro fraeterito, and those which may be granted in the future, fro fuiuro.11 This provision in the agreements is made applicable to both imports and exports. There is yet a third class of items within the category of customary provisions. These are such exceptions to most-favorednation treatment as prohibitions and restrictions on imports or exports for moral or humanitarian purposes, to protect human, animal, or plant life, treatment of prison-made goods, to enforce police or revenue laws, to prevent such fraudulent practices as misbranding, adulteration, and such other activities of this nature as may be provided for in the laws of either country participating in a trade agreement. In eight of the agreements, these sections nished by the Canadian agreement. By virtue of the grant of most-favorednation treatment the United States gained concessions concerned with the treatment of commercial travelers' samples and transit handling of imports from non-Empire countries through the United States. F o r details, see U. S. T a r i f f Commission, Trade Agreement with Canada, Washington, 1 9 3 6 , pp. 1 0 2 - 1 0 3 . 10 Italics the author's. Brazil, I. Substantially the same clause is found in the other agreements in the first of the articles cited in footnote 9 with the exception of Cuba, France, and Belgium. In the last instance the text of the notes exchanged provides to the same effect; Belgium, pp. 2, 40. n T h e conditional form, a factum de contrahendo, from the standpoint of international law, deals only with concessions fro fraeterito in that there is no obligation undertaken in reference to concessions granted in the future by either contractant to third parties except to offer to reopen negotiations.

FORMAL

BILATERALISM

127

are broad and apply to all provisions included within the arrangements. 12 Six of the remaining eight stipulate these exceptions with reference to the imposition of quantitative controls on items enumerated in the appended schedules. 13 These do not specifically refer to most-favored-nation treatment. T h e only provisions relevant here are those providing "sympathetic consideration to such reasonable representations as the other government may make regarding . . . the application of sanitary laws and regulations for the protection of human, animal, or plant life." 14 I n case of unavoidable discriminatory treatment, this section makes it possible to lessen ill feeling. Another variety of provisions falling into this class is that declaring that none of the provisions in the agreements is to be interpreted as preventing either contractant f r o m instituting prohibitions or restrictions "with respect to the control of the export or sale for export of arms, ammunitions, or implements of war, and in exceptional circumstances, all other military supplies. 15 This is a recognized exception to the principle of mostfavored-nation treatment. 1 6 It grants the American government in this respect, a free hand in coping with the problems of neutrality in the event of war abroad. Before turning to the question of the new trade-control measures and the clause, some word may be said concerning the territorial application of the clause as provided for in the various "Brazil, I I ; Haiti, V I ; Sweden, X I I ; Canada, X I I ; Netherlands, XI; Switzerland, X I V ; France, X I I (in reference to French concessions to the extent that most-favored-nation treatment is granted) ; Finland, X V I . " Colombia, V ; Honduras, V ; Nicaragua, V I ; Guatemala, V I ; Costa Rica, V I ; El Salvador, VI. "Quoted from Colombia, V I I I ; f o r the others, Honduras, XII; Nicaragua, X I ; Guatemala, X I ; Costa Rica, X I I I ; El Salvador, X I I I . These recognized exceptions are, of course, subject to the proviso that there be no arbitrary discrimination between nations. 15 Cuba, X ; Brazil, I X ; Haiti, I X ; Sweden, X I I ; Canada, X I I ; Honduras, X I I I ; Netherlands, X V I ; Switzerland, X I V ; Nicaragua, XIV; Guatemala, X I V ; France, X I I ; Finland, X V I ; Costa Rica, X I V ; El Salvador, XIV. There was no analogous provision in the Colombian agreement, while the Belgian exchange of notes, as in other matters, is incomplete. " N. Ito, La Clause de la Nation tionales, Paris, 1 9 3 0 , p. 2 1 8 .

la Plus Favorisée,

Les Editions Interna-

128

RECIPROCAL TRADE POLICY

agreements. The grant of most-favored-nation treatment by the United States is applicable to articles originating in or destined to any territory under its sovereignty or authority, with the exception of the Panama Canal Zone.17 This includes the Philippine Islands, the Virgin Islands, American Samoa, and the Island of Guam. However, the advantages which the United States, Cuba and these countries, including the Panama Canal Zone, extend inter se are specifically excluded from the scope of the mostfavored-nation provisions in the agreements.18 Reciprocally, the foreign contractants, with the possible exception of France, grant the United States full unconditional treatment with certain well-recognized exceptions. In a number of the agreements customs concessions to facilitate frontier traffic and any customs union of which either contractant is or may become a party are definitely excepted from the scope of the most-favored-nation provisions.19 Sweden, under the "Scandinavian Clause," excepts any reciprocal advantages exchanged with Norway or Denmark. Canada exempts the British Empire.20 In the cases of Honduras, Nicaragua, Guatemala, Costa Rica, and El Salvador the "Central American Clause" excludes the United States from any preferential concessions granted among themselves so long as other third countries do not receive the benefits of these reciprocal arrangements. This is true also of "Brazil, X ; Haiti, X I ; Sweden, X I I I ; Colombia, V I I ; Canada, XIII; Honduras, X I I I ; Netherlands, X I I I ; Switzerland, X I I I ; Nicaragua, XIV; Guatemala, X I V ; France, X I V ; Finland, X V ; Costa Rica, X I V ; El Salvador, X I V . T h e Cuban Agreement is exclusive not only in relation to foreign countries but also the Philippine Islands, Virgin Islands, the Island of Guam, and the Panama Canal Zone, Cuba, X V . " Ibid. T h i s provision remains in force irrespective of any change which may take place in the political status of the Philippine Islands. ' Brazil, Colombia, Honduras, Switzerland, Haiti ( V I ) , Nicaragua, Guatemala, France (frontier clause only, Art. X I I ) ; Finland, Costa Rica, E l Salvador. Ibid. France cannot be said to grant f u l l unconditional treatment in view of the fact that list A of Schedule I grants the U. S. only intermediate duties and list B , minimum duties only f o r a specified quantity. F o r an opposing view, see U. S. T a r i f f Commission, Extent of Equal Treatment in Foreign Countries, Washington, p. 1 7 3 (mimeographed c o p y ) . 20

C f . supra note 1 7 .

FORMAL

BILATERALISM

129

the earlier exceptions noted. 2 1 Finland excepts advantages extended to Estonia in line with the "Baltic Clause." 22 Finally, Netherlands and France may exchange concessions with their overseas territories or their respective territories may grant concessions among themselves without violation of the most-favorednation obligations assumed in the agreement with the United States. 23 T h e most important most-favored-nation provisions in the reciprocal agreements, f r o m the view of the immediate present, may be fairly stated to be those dealing with the various widespread quantitative and exchange controls impeding international trade in recent years. These reach the very heart of the problem of discriminatory trade practices. Because of this and their comparatively recent existence they constitute a question of signal importance to the principle of the unconditional most-favorednation clause. Considering quantitative restrictions first, provisions are to be found in all of the agreements seeking to achieve equality of treatment in reference to these controls. T h e essential objective has been to word the relevant section so that the contractant "will give the widest possible application to the most-favored-nation principle and will administer any such prohibition or restriction in such a way as not to discriminate against the commerce of the other country." 24 An analysis of the divers agreements promulgated brings to light the scope of American policy in this respect. Enunciating the principle of equal treatment, the United States has secured the promise that American exports will not be the object of any quantitative restriction or prohibition which is not applicable to like products of third countries. W h e r e such restrictions exist or may be established in the future, certain corol"

Ibid. Ibid. T h e various clauses mentioned here are examples of the "limitrophe clause." F o r further details, see R. Riedl, La Clause de la Nation la Plus Favorisée, Comité National Autrichien de la Chambre de Commerce Internationale, Vienna, 1 9 2 8 , pp. 1 1 0 - 1 1 8 . a Ibid. 22

M

Brazil,

II.

130

RECIPROCAL TRADE

POLICY

lary principles come into play. Basic to the policy propounded here is the rule that aggregate quotas must be allocated in such a fashion as to ration to the United States a contingent representing the proportion which it supplied during a "representative period" previous to the initiation of such controls. 25 A "representative period" has been officially defined as " a series of years during which trade in a particular article was free from restrictive measures of a discriminatory character and was not affected by unusual circumstances such as, for example, a crop failure in the case of an agricultural product." 2 6 T h e application of quotas upon this basis is considered fair and equitable treatment. Should there be an increase or decrease in the quota permitted to enter during the quota period used (e.g., yearly, quartely, monthly basis) the basic period is to remain the rule of treatment of imports. Should there be simply a global, i.e., unallocated, quota in effect, then the issuance of import licenses is not to be such as would prejudice the interests of American exporters and in this way devitalize the principle of equality of treatment. Finally, with respect to all rules, formalities or charges connected with the imposition of quantitative restrictions every favor granted to any third country is to be granted to the United States. It is to be noted that the principles described above also apply, reciprocally, to the treatment accorded by the United States to imports from the foreign contractants. 27 15

These principles are applicable to tariff or customs quotas as well as import quotas. T h e former provide for a lower duty on a specified quantity of imports. Allocation of this quantity would be upon the basis of the rules formulated above. " U . S. Department of State, Press Releases, Weekly Issue No. 288, April 6, 1935, P- 213• 27 These principles are derived from the following articles: Brazil, I I ; Haiti, V I I ; Sweden, I I ; Colombia, V I I ; Canada, I I ; Honduras, V I ; Netherlands, V I ; Switzerland, V I I ; Nicaragua, V I I ; Guatemala, V I I ; France, VI; Finland, V I I I ; Costa Rica, V I I ; El Salvador, VII. T h e Belgian Agreement simply provided that where import quotas are specified in the schedule of concessions, there is to be no reduction in the quota stipulated; Belgium, pp. 2, 40. A provisional agreement was concluded with Czechoslovakia by an exchange of notes on April 2, 1934, specifically extending the scope of the clause to quotas, import monopolies, and exchange control measures. In addition, any advantages which have been or may be accorded by Czechoslovakia to Austria, H u n g a r y , J u g o -

FORMAL BILATERALISM In addition to the above principles, the trade agreements also attempt to apply the most-favored-nation principle to the purchasing activities of government monopolies or centralized agencies established " t o import, produce or sell a particular commodity." 2 8 T h e exports of the government, other than the one sponsoring such an enterprise, are assured so far as is possible of fair and equitable treatment. This is to be secured by the promise that the purchases of any such institution "will be influenced solely by those considerations, such as price, quality, marketability, and terms of sale, which would ordinarily be taken into account by a private commercial enterprise interested solely in purchasing such product on the most favorable terms." 2 9 T h e trade agreements, pioneering in this field, also endeavor to bring the operation of exchange controls, and indirect quantitative control of foreign trade, within the scope of the most-favorednation clause. Again, in view of the extent to which they are used and their degree of development, this constitutes an important phase of the reciprocal trade program. Brazil and the United States in their reciprocal trade pact "agree that if they shall establish or maintain a control of the foreign exchanges, they will accord to the nationals and commerce of each other the most general and complete application of the unconditional most-favored-nation principle." 30 This basic clause, with some unimportant variations in wording, is to be found in most of the agreements. 31 In those which do not expressly proslavia, and Rumania are explicitly excepted from the operation of the mostfavored-nation clause (the latter two at least until a more comprehensive agreement is negotiated with the United States). Cf. U. S. Department of State, Press Releases, Weekly Issue, No. 288, April 6, 1 9 3 5 , pp. 220-222. 28 Canada, VIII. ™ Ibid. For the analogous articles in other agreements, see Brazil, V ; Haiti, V I I ; Sweden, V I I I ; Canada, V I I I ; Honduras, V I I ; Netherlands, VIII; Switzerland, V I I I ; Guatemala, V I I I ; France, I X ; Costa Rica, V I I I ; Finland, I X . With the exceptions of Belgium, a provisional arrangement, and Cuba, a special case, only the agreement with Colombia does not contain an analogous article. Article I X of the French agreement permits mutual freedom of action in cases "in which the interests of national defense shall be at issue." " Brazil, VI. ** Colombia, France, Netherlands, Switzerland, and Belgium are the exceptions (Cuba provides a special case and cannot be considered an integral part

RECIPROCAL T R A D E POLICY vide for exchange control, there is the broad provision to the effect that the adoption of any measure which, though not violating any terms of the agreement, tends greatly to impair or nullify its purposes, may be considered sufficient cause for terminating the entire arrangement, if no mutually satisfactory solution can be reached. With unconditional most-favored-nation treatment stipulated as the rule of operation to be followed in the utilization of exchange controls, a definition is then given of what may be considered fair and equitable treatment. As to commercial transactions, the share of exchange allotted by either party to the other must not be less than that enjoyed in a basic "representative period" prior to the institution of such control. 32 With respect to non-commercial transactions the provision simply prohibits discrimination against nationals of the other contractant in favor of any third country. 33 To implement these principles, an additional relevant stipulation is included in a number of the pacts. This makes the entire grant of reciprocal concessions subject to the condition that fair and equitable treatment is to be granted the contractant in the operation of any exchange controls already in existence or established in the future. 34 Moreover, sympathetic consideration is to be given to representations of either party concerning matters which may arise out of the above provisions for controls. The third group of provisions in the agreements relating to the most-favored-nation clause, while of a miscellaneous character, are none the less not insignificant. They shed considerable light upon the scope of the clause under American application. Categorically, of the new policy). In the Belgian, French, Swiss, and Netherlands agreements, other broad clauses can be used to cover the situation. C f . Belgium, p. 3 ; France, X I I ; Switzerland, X V ; Netherlands, XII. ** T h e following articles deal with exchange control: Brazil, V I ; Haiti, V I I ; Sweden, I X ; Canada, I X ; Honduras, V I I I ; Nicaragua, IX; Guatemala, I X ; Finland, X ; Costa Rica, I X ; El Salvador, I X . " This, while found in only two agreements, definitely falls within the scope of the most-favored-nation exchange control provisions of the other agreements. Guatemala, I X ; Costa Rica, I X . "Sweden, I X ; Canada, I X ; Honduras, V I I I ; Nicaragua, IX; Guatemala, I X ; Finland, X ; Costa Rica, I X ; cf. footnote 3 1 .

FORMAL

BILATERALISM

133

the exemption of the Stresa countries in the French agreement, the several commodity exceptions and the withdrawal clause form the components of this group. An interesting provision is to be found in the French agreement relating to certain eastern and central European states. Preferences which France may grant to these countries in line with the recommendations of the Stresa Conference of September 20, 1 9 3 2 , are excepted from the most-favored-nation commitments France has made to the United States. 35 As a safeguard, should these preferential advantages impair the agreement, negotiations may be entered into to modify its terms accordingly. While existing French treaty obligations made this provision necessary, it establishes a potentially dangerous precedent from the view of the effective operation of the clause. In several of the agreements certain commodities may be placed without the scope of the most-favored-nation clause should existing legislation so require. Referring specifically to coal and coke and briquettes of coal and coke, this stipulation permits a discriminatory tax to be levied upon imports of such commodities from France and the Netherlands. 36 H o w e v e r , under the interpretation placed by the Treasury upon the proviso in the Revenue Act to the effect that such a tax shall not be levied in cases in which "treaty provisions of the United States otherwise u France XV. This clause is also being used by France and Germany in their commercial treaties with other governments. U. S. Senate, World Trade Barriers in Relation to American Agriculture, Document No. 70, 73d Congress, 1st Session, Washington, 1933, pp. 75-76; U. S. Department of Agriculture, Foreign Agriculture, January, 1937, p. 47. For a statement on the Stresa Conference, see League of Nations, Evolution of Commercial Policy Since the Economic Crisis, II. Economic and Financial 1934. II. B. 1, p. 1 7 ; Report by the Stresa Conference for the Economic Restoration of Central and Eastern Europe, VII. Political 1932. VII. 1 1 .

" S e e supra, p. 157. The articles providing these exceptions are France, I I ; Netherlands, I. In a note appended to the text of the French agreement, Hull recognized the inconsistency of these commodity exceptions and promised to attempt to persuade Congress to remove the discriminatory taxes on coal and coke. Obviously, this preceded the Treasury interpretation referred to below. France, last page; New York Times, August 7, 1937. Such a list is often termed a negative most-favored-nation commodity list in contradistinction to those cases in which a list of articles to which the clause is to apply is stipulated (i.e., positive).

134

RECIPROCAL TRADE

POLICY

provide," this tax has not been assessed against such imports from these countries. T h a t is, trade agreements have been interpreted as falling within the scope of this proviso. T h e exception in the trade agreements must, therefore, be based upon the possibility that this interpretation may be subsequently modified. 37 Should this occur, diplomatic difficulties such as arose in the cases of Germany and Great Britain would probably be avoided. I n the agreements with Belgium, Sweden, Canada, Switzerland, Netherlands, and France, provision is made for the withdrawal of concessions should third countries derive the major benefits of such concessions and thereby cause "an unduly large increase" in the imports of the articles concerned. 38 This constitutes an attempt to restrict the results of the generalization of concessions required by the unconditional interpretation. An alternative to withdrawal is the imposition of quantitative restrictions upon imports of such items. M o r e will be said of this proviso later. 39 Generally speaking, it may be said that the principles embodied in the trade agreements are of a broad nature. Not only is the unconditional clause made an integral part of each agreement but, to eliminate elements of doubt, the clause is made expressly applicable to the new measures of trade control. 40 Moreover, the " T h e new Russian agreement contains the same coal provision. In this case, the grant of full and unrestricted unconditional most-favored-nation treatment by the United States resulted in the removal of the coal tax subject to the proviso that the Treasury interpretation is not modified. U. S. Department of State, Press Release, August 6, 1 9 3 7 ; Treasury Decisions, No. 49118, August 9, 1 9 3 7 , p. 3. "Belgium, pp. 3, 4 3 ; Sweden, X I V ; Canada, X I V ; Switzerland, XVI; Netherlands, X I V ; France, X I I (couched in more general terms). " Before this proviso is utilized, notice must be given to the government whose exports are involved. If no agreement is reached after consultation, provision is made for the termination of the entire agreement upon thirty days' written notice. Obviously, extreme care would be taken before a country would take advantage of this clause. Infra, Chapter X , for comments upon the usefulness of "escape clauses" of this nature. T h i r d countries in some few instances have derived the major benefit from certain individual concessions. See U. S. Senate, Extending Reciprocal Trade Agreement Act, Hearings before the Committee on Finance, 75th Congress, 1st Session, Washington, 1 9 3 7 , P- 33934, PP- 1 9 - 2 0 . lM Treasury Decisions, No. 47865, September 1 9 3 5 , pp. 2 4 7 - 2 4 8 ; U. S. Department of State, Letter from the President to Secretary of the Treasury, press release, December 2, 1 9 3 5 , Ne45,438 19,195 57,8o2 11,156 64,945 25,235 '38,787 50,202

Based on rates actually paid1

Computed at trade agreement rates*

Per cent 38.2 55.6

Per cent

35-i 21. i 3

23,892 53,547 21,648

valorem imports

67.3 89.i4 38.5 83-9 45-3 24.8

35-1 54.8 29.7 16.8 57-4 82.6 36.8 44-9 43-9 23.6 78.9 51.2

4,45°

79-4 57.8

1 ,270 9,482

63.6 24.8

"7,794

35-3

57-4 23-9 339

>644,843

46.7

40.7

1 O w i n g to t h e f a c t t h a t the C u b a n a g r e e m e n t was in effect from S e p t e m b e r 3 to D e c e m b e r 31, 1934, t h e r a t e s in this column are lower t h a n would o t h e r w i s e have been the case to t h e e x t e n t t h a t the r e d u c t i o n s g r a n t e d to C u b a h a v e affected the total figures. T h i s f a c t o r is not significant except for Schedule 5 a n d possibly Schedule 7. ' R a t e s in t h e t r a d e a g r e e m e n t s with Brazil, Belgium, H a i t i , Sweden, Colombia, C a n a d a , H o n d u r a s , N e t h e r l a n d s , Switzerland, N i c a r a g u a , G u a t e m a l a , F r a n c e , and F i n l a n d h a v e b e e n applied to i m p o r t s f r o m all countries except G e r m a n y ; rates in the C u b a n a g r e e m e n t h a v e been applied only to i m p o r t s from C u b a . 3 If t h e t r a d e a g r e e m e n t with C u b a h a d not become effective u n t i l the end of 1934 the e q u i v a l e n t ad valorem for this schedule would have been 95.5 per cent i n s t e a d of 67.3 per c e n t . T h i s assumes t h a t the q u a n t i t y a n d v a l u e of i m p o r t s would h a v e r e m a i n e d u n c h a n g e d . 4 N o t giving effect to t h e concessions g r a n t e d on tobacco and tobacco p r o d u c t s in t h e C u b a n a g r e e m e n t which were t e r m i n a t e d effective M a r c h 17, 1936. S o u r c e : U . S. T a r i f f C o m m i s s i o n .

cause the ad v a l o r e m e q u i v a l e n t to f a l l (i.e., r a t i o of duties collected to total d u t i a b l e i m p o r t s ) . T h e reverse of this situation m a y result in a rise in the computed ad valorem equivalent.

TARIFF

CONCESSIONS

account the exclusive nature of the concessions granted to Cuba. 66 In the second place, to the extent that imports would have changed in value and quantity under the impetus of lower conventional rates, these statistics must be accepted only with some qualification. With the above considerations in mind, attention may now be concentrated upon the accompanying table. 67 Taking all the schedules together, it would seem that had trade agreement duties been in effect in 1934, the computed ad valorem rate would have been six percentage points less than it actually was. According to these figures the American tariff appears to have been reduced by 1 3 percent. 08 A further inspection shows that the greatest reductions are bunched in six schedules. 00 These rank as follows: ( 8 ) spirits, wines, and other beverages; ( 1 2 ) silk manufactures; ( 6 ) tobacco and manufactures thereof; ( 1 3 ) manufactures of rayon and other synthetic textiles; ( 3 ) metals and manufactures; ( 1 ) chemicals, oils and paints. T h e equivalent ad valorem reduction in the first group was almost six times as great as that in the second and over twelve times as large as the last group above. 70 Omitting the "spirits, wines and other beverages" schedule which is dominated by the tariff reduction 011 whiskey, it might be concluded that American tariff revision has not progressed very f a r under the new trade policy. 71 It may be submitted that M

Germany

is e x c l u d e d ,

and

imports of

concession

items

w h i l e included, are believed to be insignificant, U . S. T a r i f f

from

Australia,

Commission.

*' Owing- to changes in classification of tariff items, an estimate had to be made in some cases of the p r o p o r t i o n

of imports of a class of

items

which

percent less than 4 6 . 7 . T h e s e statistics

would

w o u l d h a v e been subject to l o w e r rates had they been in e f f e c t . I.e.,

the

figure

40.7

is 1 3

have been c o r r e s p o n d i n g l y less if the s u g a r schedule had been e x c l u d e d . Since dutiable s u g a r conies almost e x c l u s i v e l y f r o m C u b a the tariff reduction m a y be considered as a p p l y i n g to p r a c t i c a l l y a l l dutiable s u g a r imports. E x c l u d i n g the s u g a r and molasses schedule which has been a f f e c t e d b y the preferential

reduction

accorded

Cuba.

If

included

this

would

have

ranked

second. ' " T h e reductions in percentage points are 3 9 . 0 , 6.6 and 3 . 1

respectively.

T h e duty reductions in this schedule w e r e , f o r the most p a r t , to the f u l l 50 percent permitted by l a w , Changes Tariff

Act of 1930,

in Import

third edition, p. 2 5 .

Duties

since the Passage

of the

RECIPROCAL TRADE

POLICY

such a conclusion is not as warranted as might appear at first sight. In the first place, as was pointed out earlier, the program has only completed the initial stage of negotiating Executive commercial agreements with foreign countries. M a n y of the first sixteen countries which have concluded pacts with the U n i t e d States enjoy the American free list upon a large proportion of their exports to the United States. T h e second point revolves about the inherent difficulty in statistically measuring changes in tariff duties. It will be recalled that an underlying assumption of the table preceding was that imports would have remained unchanged in quantity and value had trade agreement rates been in effect. T o some extent, at any rate, this would probably not hold true. Since the so-called "Costigan lists" have been to a large degree the basis of American duty reductions, there is some support for the statement that imports would have changed. 72 N o statistical analysis is possible which would give full weight to the extent to which imports would have varied both in quantity and price. 73 T h e inevitable conclusion is, therefore, that the average ad valorem equivalent method of measuring changes in duties, while significant, must be supplemented by additional data if any fair evaluation is to be reached. W h e n the number of tariff items affected, the proportion of " T h i s is especially true of lists 3 and 4 — i . e . , articles of which imports h a v e substantially decreased since 1 9 2 9 and articles on which tariff rates exceed 5 0 percent ad v a l o r e m — a s s u m i n g

foreign countries could export to the United

States under l o w e r rates and assuming that with reference to list 1 , duties have been a factor.

competitive and with respect to which f o r e i g n countries possess T h e s e might also be expected to be exported more f r e e l y , ceteris U . S. Department of Commerce, An the United

States

higher

List 4 contains dutiable articles more or less non-

and Belgium,

Analysis

of the Trade

advantages. See

faribus.

Agreement

between

press release, M a r c h 1 , 1 9 3 5 , p. 8.

" E v e n assuming this were possible, the results w o u l d by no means be f u l l y satisfactory. F o r illustration, it may be noted that to the extent that relatively high duties are reduced and imports tend to increase, the resulting ad v a l o r e m equivalent might w e l l appear higher than had no duty changes been made. It may be noted that the problem of estimating w h a t w o u l d have been imported had duties been l o w e r is practically insoluble. T h i s w o u l d necessitate a quantitative analysis i n v o l v i n g a l l the economic forces of the market.

TARIFF

CONCESSIONS

191

dutiable imports upon which concessions have been granted, the percentum reductions in the pre-agreement rates, and the average ad valorem equivalents of new and old duties are considered together, it appears a warrantable conclusion to say that the American tariff is being moderately revised downward. T h e 1 3 percent reduction which is the ad valorem equivalent, subject to the above qualifications, is by no means an insignificant figure.74 W h e n it is remembered in addition that tariff revision is still in process, further support exists for the position taken above. 75 U p to this point discussion has centered about duty reductions. These are, of course, the core of the American concessions granted to foreign countries. These reduced duties are, moreover, consolidated during the life of the trade agreements. 70 In addition, other tariff items have been incorporated in the agreement schedules enumerating specified commodities in the Act of 1930. B y virtue of this inclusion, under the general provisions of the agreements the customs treatment of these articles is likewise bound against any upward revision. 77 '* Excluding- sugar this figure would be smaller. It is estimated that the Hawley-Smoot Act raised the duties by i 2 percent ad valorem. B. B. Wallace, H. V. V. Fay, " D i e jiingste Handelspolitik der Vereinigten Staaten," Weltwirtschaftliches Archiv, J u l y 1936, p. 16. This figure i m p r e s s e s the w r i t e r , h o w e v e r , as b e i n g t o o l o w .

'"See League of Nations, World Economic Survey, 193-1-35, II. Economic and Financial 1 9 3 5 . II. A . 14., p. 18. T h e Revenue Act of 1932 in placing import taxes upon coal, oil, copper, and lumber affected about eight percent of the free list on the basis of imports in 1 93 1. Due partly to the fact that these were all specific duties, the ad valorem equivalents of these duties in 1 9 3 3 were quite substantial. T h e Revenue Act of 1934. cut further into the free list to the extent of two percent on the basis of statistics for 1 9 3 3 (affected chiefly palm and coconut o i l ) . This was further broadened in 1936 to include other oils. For details see U. S. Department of Agriculture, Tariff Rates on Principal Agricultural Products, Washington, 1 9 3 6 , pp. 64-66; B. B. Wallace and H. V. V. F a y , of. cit., p. 23 et. seq. T h e present administration may also be censured for raising four tariff rates on minor items in 1936 under the "equalization of costs" provisions of the Act of 1930. U. S. T a r i f f Commission, Twentieth Annual Report of the United States Tariff Commission, 1 9 3 6 , Washington, 1 9 3 7 , p. 3+. ™ Brazil, I V ; Belgium, p. 2 ; Haiti, I I ; Sweden, I V ; Colombia, I I ; Canada, I V ; Honduras, I I ; Netherlands, I I I ; Switzerland, I I ; Nicaragua, I I ; Guatemala, I I ; France, I I ; Finland, I I ; Costa Rica, I I ; El Salvador, II. "Ibid.

RECIPROCAL

192 While discussed,

T R A D E

POLICY

the benefits of tariff consolidation some

further

word

appears

have already

necessary

at

this

been point

c o n c e r n i n g A m e r i c a n concessions of this nature.78 T h e b i n d i n g of existing tariff t r e a t m e n t of i m p o r t s f r o m t h e v a r i o u s

agreement

c o u n t r i e s , a s i d e f r o m t h e c o n v e n t i o n a l i z a t i o n of r e d u c e d

duties,

has been of n e g l i g i b l e significance.78 I n direct contrast to t h e " f r e e z i n g " of t h e d u t y

this,

f r e e status of i m p o r t s has been

an

i m p o r t a n t source of A m e r i c a n concessions. I n seven of t h e a g r e e m e n t s , this constituted t h e principal concession to the extent t h a t 9 0 p e r c e n t or o v e r of i m p o r t s into t h e U n i t e d S t a t e s f r o m t h e s e countries w a s b o u n d a g a i n s t t r a n s f e r e n c e to the d u t i a b l e For

five

countries, the corresponding

figure

runs over

50

list.80 per-

cent.81 I n the B e l g i a n , S w i s s , a n d F r e n c h a g r e e m e n t s this t y p e " T h e conventionalization of tariffs has always been a very desirable objective. League of Nations, Commercial Treaties: Tariff Systems and Contractual Methods (prepared by D . S e r r u y s ) , p. 1 4 . ™ U. S. Department of State; analyses of the various agreements issued upon signing. On the basis of imports in 1 9 3 4 , it may be pointed out that the duties on items composing 3.1 percent were bound against increase. U. S. T a r i f f Commission, Concessions Granted by the United States in the Trade Agreement with Canada, Washington, 1 9 3 6 , p. vii. In the Swiss Agreement the same percentage was duty bound, about 6.4 ( 1 9 3 4 imports). U. S. Department of State, Trade Agreement between the United States and Switzerland, J a n u a r y 9, 1 9 3 6 , pp. 3 6 - 4 1 . E x c l u d i n g duplications—i.e., concessions granted more than once in different agreements—twenty-eight items in the first fifteen agreements (Cuba excluded) were duty bound. Infra, appendix, table X I I I . U. S. Department of Commerce; Trade Agreement between the United States and Brazil Exchanges Reciprocal Concessions and Assurances, press release, February 7, 1 9 3 5 , p. 2 0 ; U. S. Department of State, Trade Agreement between the United States and Honduras, December 1 8 , 1 9 3 5 , p. 8 ; Trade Agreement between the United States and Nicaragua, March 1 1 , 1 9 3 6 , p. 8 ; Trade Agreement between the United States and Guatemala, M a y 2, 1 9 3 6 , p. 1 0 ; Trade Agreement between the United States and Finland, M a y 1 8 , 1 9 3 6 , p. 2 6 ; Trade A greement between the United States and Costa Rica, November 30, 1 9 3 6 , p. 7 ; Trade A greement between the United States and El Salvador, February 20, 1 9 3 7 , p. 7. T h e figures in the discussion at this point are based upon 1 9 3 4 imports with the exception of Brazil, Haiti, and Colombia, f o r which 1 9 3 3 has been used. 81 U. S. Department of Commerce, Trade Agreement between the United States and Haiti Exchanges Reciprocal Concessions and Assurances, press release, p. 1 5 ; U. S. Department of State, Trade Agreement Signed by the United States and Sweden, press release, M a y 2 5 , 1 9 3 5 , p. 1 2 ; Trade Agreement be-

TARIFF

CONCESSIONS

193

of concession may be considered negligible for all practical purposes.82 There appears to be some question concerning the importance of this guarantee of the free entry of specified commodities.83 On one hand, it is argued that these items would have remained on the free list anyhow because of traditional American policy in this respect. Moreover, it is urged that because of this fact it is unreal to picture these concessions as sacrifices, by the United States.84 The implication of this view is that tariff concessions, particularly with reference to the eight Latin American countries, have been granted to the United States without any quid fro quo. T h e opposite view is predicated upon the tendency abroad towards a narrowing of the free list and the imposition of quantitative restrictions upon imports.85 T h e position of the State Department on this matter has been summarized as follows: T h e U n i t e d States is one of the v e r y f e w c o u n t r i e s w h i c h d o n o t levy duty upon i m p o r t s of coffee. I n all others, coffee has r e g u l a r l y been subject to d u t y . I n the m a j o r i t y of the c o u n t r i e s of C o n t i n e n t a l E u r o p e the duty is equivalent to over ten cents a pound, a n d r a n g e s as high as

fifty-nine

cents. M o r e o v e r , in m a n y E u r o p e a n

countries

tixeen the United States and Colombia, October 9, 1935, p. 35; Trade Agreement between the United States and the Kingdom of the Netherlands, December 21, 1935, p. 22. U. S. Tariff Commission, o f . cit., loc. cit. In the cases of Sweden, Colombia, and Netherlands the figure is 60 percent or more. " U. S. Department of State, The Trade Agreement Signed by the United States and Belgium, press release, February 27, 1935, pp. 1 4 - i j ; Trade Agreement Signed by the United States and Switzerland, January 9, 1936, pp. 2, 41 j Trade Agreement between the United States and France, M a y 13, 1936, p. 6. No free list items were bound by the French agreement owing to the nature of French exports to the United States. ** E. Dana Durand, "Measurement of Effects of Reciprocal Trade Agreements," Journal of the American Statistical Association, March 1937, p. 53; and comments by F. W . Fetter, ibid., pp. 62-63; P- W . Bidwell, " T h e Yankee Trader in 1936," Yale Review, Summer 1936, p. 709. " P. W . Bidwell, op. cit., loc. cit. E. Dana Durand, o f . cit., loc. cit. The United States has bound itself, with certain exceptions, against the imposition of quantitative controls. Infra, Chapter IX. K

194

RECIPROCAL

T R A D E

POLICY

t h e i m p o r t a t i o n of c o f f e e is n o w s u b j e c t to i m p o r t l i c e n s e o r q u o t a , s e v e r a l of these c o u n t r i e s i m p o s i n g r e s t r i c t i v e l i m i t a t i o n s on the q u a n tity of c o f f e e that m a y be i m p o r t e d , as a w h o l e o r f r o m areas. U n d e r

the p r e s e n t A g r e e m e n t , the

United

particular

States gives

Co-

l o m b i a a s s u r a n c e of the c o n t i n u e d d u t y - f r e e a n d u n r e s t r i c t e d a d m i s s i o n of its c o f f e e into the A m e r i c a n m a r k e t f o r the d u r a t i o n of the A g r e e ment.86 O n e test as t o w h e t h e r o r not this t y p e of concession is i m p o r t a n t lies in t h e a t t i t u d e of t h e f o r e i g n c o u n t r i e s c o n c e r n e d .

European

restrictions, f o r e x a m p l e , h a v e a d v e r s e l y a f f e c t e d t h e e c o n o m i e s of t h e c o f f e e p r o d u c i n g states so t h a t t h e y h a v e b e e n c o n c e r n e d o v e r t h e possibility of this o c c u r r i n g in t h e U n i t e d S t a t e s . 8 7 non-tropical

countries

enjoying

the

consolidation

of

The

specified

f r e e list i t e m s p r o b a b l y h a v e e v e n m o r e to f e a r in t h i s d i r e c t i o n as t h e possibility of c o m p e t i t i o n w i t h A m e r i c a n p r o d u c t i o n

in-

creases t h e v a l u e of this t y p e of concession. I f t h e d e s i r a b i l i t y of d e m o b i l i z i n g f o r e i g n t a r i f f b a r r i e r s be c o n c e d e d , t h e n it is h a r d l y f a i r to a r g u e t h a t a n A m e r i c a n t r a d e a g r e e m e n t is o p e n to c e n s u r e because t h e r e w e r e no d u t i e s w h i c h c o u l d be r e d u c e d . A t t e n t i o n s h o u l d be t u r n e d not to t r a d e a g r e e m e n t s of this n a t u r e w h i c h h a v e b e e n c o n c l u d e d b u t t o possible M

U. S. Department of State, Trade Agreement between the Unite J States and Colombia, press release, October 9, 1 9 3 5 , p. 8. T h e same tenor of this statement appears in two other agreements with reference to bananas. Trade Agreement between the United States and Honduras, December 18, 1 9 3 5 , p. 8. Trade Agreement between the United States and Guatemala, March 1 1 , 1 9 3 6 , p. 8. In inserting the authority to bind existing customs treatment into the bill which eventually became the Reciprocal Trade Act of 1 9 3 4 , F . B. Sayre declared: "When it comes to bargaining with Latin American countries, we have on the free list numbers of tropical products which cannot be produced in the United States, but it is always open to Congress to make dutiable for revenue purposes; and there is considerable bargaining power in agreeing to continue articles on the free list during the continuance of the bargaining agreement." U. S. House of Representatives, Reciprocal Trade A greements, Hearings before the Committee on Ways and Means, 73d Congress, 2d Session, Washington, 1 934> P- 368. " B. B. Wallace and H. V. V. Fay, Weltwirtschaftliches Archiv, of. cit., p. 56. This article points further to the demand of certain fruit growers for a duty on bananas. Ibid.

T A R I F F

J

CONCESSIONS

95

t r a d e p a c t s w i t h c o u n t r i e s o f f e r i n g g r e a t e r possibilities f o r tariff reductions.88 T H E CUBAN AGREEMENT B e c a u s e o f t h e special n a t u r e of C u b a n - A m e r i c a n

commercial

r e l a t i o n s , t h e t a r i f f p r o v i s i o n s of t h e C u b a n a g r e e m e n t h a v e b e e n o m i t t e d f r o m t h e p r e c e d i n g discussion w h e r e v e r possible.

This

a g r e e m e n t is s i m p l y a n e x t e n s i o n a n d e l a b o r a t i o n of t h e

reci-

p r o c i t y t r e a t y c o n c l u d e d in 1 9 0 3 . 8 9 I t is e x c l u s i v e a n d p r e f e r e n t i a l in c h a r a c t e r a n d constitutes a n e x c e p t i o n to t h e A m e r i c a n p o l i c y o f f o r m a l b i l a t e r a l i s m . U p o n t h e s i g n i n g of this a g r e e m e n t t h e State D e p a r t m e n t declared: Although

this a g r e e m e n t

has been

concluded

u n d e r the

Trade

A g r e e m e n t s A c t of J u n e 1 2 , 1 9 3 4 , it s t a n d s , n e v e r t h e l e s s , in a s e p a r a t e c a t e g o r y . G e o g r a p h i c a l p r o p i n q u i t y a n d historical c o n s i d e r a t i o n s h a v e given

rise

to

especially

close

economic

relationships

between

the

U n i t e d S t a t e s a n d C u b a . R e c i p r o c i t y w i t h C u b a still " i s a proposition that stands entirely a l o n e . " T h e

Commercial

C o n v e n t i o n of

1902

t o o k c o g n i z a n c e of these special c o n s i d e r a t i o n s in e s t a b l i s h i n g p r e f e r e n t i a l r a t e s of d u t y f o r the p r o d u c t s of each c o u n t r y w h e n e n t e r i n g the other The

country. p r e s e n t a g r e e m e n t c o n t i n u e s this special c u s t o m s

treatment.

E a c h c o u n t r y , in a d d i t i o n to p l e d g i n g r e d u c e d rates of d u t y f o r c e r tain p r o d u c t s of s p e c i a l interest to the o t h e r , g r a n t s e x c l u s i v e

and

p r e f e r e n t i a l r e d u c t i o n s in d u t y . 9 0 The

general

exclusive

provisions

margins

of

of

the a g r e e m e n t

preference

reciprocally

provide

that

exchanged

the must

" It should be pointed out that it is very difficult to evaluate precisely the benefits to be derived from a consolidation of customs treatment, since they vary with the possibility of further import restrictions being levied. For detailed discussion concerning the history, provisions, and trade effects of this treaty, sec Laughlin and Willis, Reciprocity, Baker and Co., New Y o r k , 1 9 0 2 , Chapters X , X I ; U. S. T a r i f f Commission, Reciprocity and Commercial Treaties, Washington, 1 9 1 9 , pp. 3 1 7 - 3 4 4 ; Effects of the Cuban Reciprocity Treaty, Washington, 1 9 2 9 . U. S. Department of State, Trade Agreement Signed by the United States and Cuba, press release, August 25, 1 9 3 4 , p. 1. In the event of the expiration or denunciation of this agreement provision is made for the automatic reentry into force of the treaty concluded in 1 9 0 3 . Cuba, X V I .

196

RECIPROCAL

TRADE

POLICY

apply to the lowest rates of duties in effect. 9 1 M o r e o v e r , unlike the T r e a t y of 1 9 0 3 , in many cases the maximum duty which may be levied is specified in the appended schedules of tariff concessions. 92 Dutiable items not specified in either schedule are to be granted the preferential rate they w o u l d have enjoyed had they been imported on the day of the signature of the agreement. 9 3 A long and impressive list of American agricultural and manufactured products are the subject of preferences ranging f r o m one-fifth to one-half and in some cases even three-fifths of the general rates. 94 In addition, duties are reduced in some cases not only by this increased preference but by a reduction in the base rate. A n examination of this schedule makes it apparent that Cuba " h a s granted the United States increased tariff advantages on most of those commodities which have been of outstanding interest to . . . exporters to C u b a . " 9 5 T h e increased preferential treatment accorded under this agreement should tend to divert further Cuban purchases to the U n i t e d States. 90 " Cuba, I I , I I I . Items not specified in the agreement and enjoying the free list on the day of the signature of the agreement are guaranteed the continuance of this treatment. Cuba, I. " Under the old arrangement with only the margin of preference stated, it was possible to increase the unconsolidated base rate from which the preference was calculated. U. S. T a r i f f Commission, Effects of the Cuban Reciprocity Treaty, p. 25. T h e U. S. T a r i f f Commission has condemned reciprocal tariff concessions based upon percentage reductions with the actual rates not being considered. Tariff Bargaining under Most-Favored-Nation Treaties, Washington, 1 9 3 3 , p. 3. Cuba, I I , I I I . T h e margins of preference are, of course, consolidated for the life of the agreement. "Cuba, Schedule I ; U. S. Department of Commerce, Nevi Trade Agreement with Reciprocal Concessions Concluded between Cuba and the United States, press release, August 26, 1934., p. 4, et. seq. ™ U. S. Department of Commerce, op. cit., p. 1 . F o r details concerning specific commodities and groups of commodities, see ibid., and U. S. Department of State, op. cit. T h e T r e a t y of 1 9 0 3 provided f o r preferential margins upon specified commodities of 25, 30 and 40 per cent, and 20 percent for all unspecified articles. U. S. Department of State, Convention and Supplementary Convention between the United States of America and Cuba, T r e a t y Series, Nos. 427 and 4 2 8 , Washington, 1 9 3 2 , Articles I I I , I V .

TARIFF

197

CONCESSIONS

Reciprocally, the U n i t e d States granted exclusive preferences of 20, 4 0 and 5 0 percent below the general rates on well over 9 0 percent of Cuba's exports to the U n i t e d States. 97 T h e margin of preference on sugar and tobacco, the most important

of

these, was fixed at 2 0 percent. T h e reduction in the base rate to which this margin applies was made contingent upon the continuance of the agricultural adjustment program with reference to these commodities. Furthermore, quantitative restrictions were placed upon imports of sugar and tobacco into the United States. 68 T h e s e reciprocal tariff concessions are, as noted above, substantively bilateral in nature and therefore unaffected by the unconditional most-favored-nation policy of the United

States."

U n l i k e the other agreements it is a pure reciprocity arrangement. W i t h reference to other customs matters Cuba is only bound to refrain f r o m discriminating against the United States. 100 " Cuba,

Schedule I I ; U . S. D e p a r t m e n t of C o m m e r c e , op. cit., loc. cit. U n d e r

the old treaty a 20 percent p r e f e r e n c e w a s accorded to a l l C u b a n exports. U . S. D e p a r t m e n t of State, Convention United 88

States

See infrat

of America

and

and

Cuba,

Supplementary

Convention

between

the

Article II.

C h a p t e r I X , p. 2 2 0 , f o r a discussion of s u g a r quotas under the

J o n e s - C o s t i g a n A c t and the limitation

of tobacco imports which became

in-

operative upon the invalidation of the A A A by the S u p r e m e C o u r t . " It m a y be noted that due to consolidated preferences accorded C u b a , additional duty reductions m a y accrue to C u b a as a result of subsequent concessions to trade agreement countries. E.g., cent to C u b a ) . Cuba, Duties 100

the duty concession to H a i t i on rum ( 2 0 p e r -

Schedule I I ; U . S. T a r i f f Commission, Changes

since the Passage

of the Tariff

Act of ¡930,

in

Import

p. 2 5 .

Because of the f a c t that o n l y t a r i f f s are i n v o l v e d in the reciprocal-preferences

accorded, C u b a is discussed in the r e m a i n i n g chapters, a l o n g with the other a g r e e m e n t s , w h i c h concern non-tariff trade b a r r i e r s . T h e discussion a b o v e does not consider the desirability of p r e f e r e n t i a l relations between the United States and C u b a . I t is difficult to j u s t i f y f r o m a n y v i e w this d e r o g a t i o n of the spirit of the m o s t - f a v o r e d - n a t i o n clause.

IX QUOTAS U N D E R A T A R I F F BARGAINING POLICY SOME ASPECTS OF QUOTAS AS A METHOD OF TRADE-CONTROL

feature of recent commercial policies has been the rise and development of quantitative restrictions upon foreign trade. F a r from an innovation, such restrictions were known and defended even before the W o r l d W a r . 1 But if they are not new in principle, their scope and technique of application during recent years most certainly presents a commercial policy development of prime significance.2 In an environment of falling commodity prices, domestic unemployment of productive factors, cessation of long-term capital movements, currency and financial derangements, rising trade barriers and gaps in the balances of payments in the various countries, any instrument of tradecontrol which could permit quick action in spite of conventionalized tariffs, provide a means of differential treatment of imports according to national origin, and finally promise a precise and flexible restrictive adjustment of imports, was bound to be a popular one. 3 A N OUTSTANDING

Quotas, by far the most important and most representative measure of quantitative control, appeared to fulfill these conditions. Unquestionably, they made any time-consuming process such as tariff deconsolidation unnecessary as a prerequisite to action. B y simple executive decree, imports could be abruptly 1

See J . Grunzel, Economic Protectionism, Clarendon Press, London, 1914.. ' L e a g u e of Nations, World Economic Survey, 1 9 3 2 - 3 3 , II. Economic and Financial 1 9 3 3 . I I . A. 1 6 , p. 1 9 7 . * For a statement enumerating the purposes for which quotas have been adopted, see International Economic Relations, Report of Commission of Inquiry into National Policy in International Relations, University of Minnesota Press, Minneapolis, 1 9 3 4 , p. 3 1 5 . 198

QUOTAS UNDER BARGAINING a n d s h a r p l y restricted. 4 M o r e o v e r , quotas m a d e a direct limitation of imports possible. U n d e r increased tariffs the extent to which imports w i l l be shut out is unpredictable since the elasticities of s u p p l y a n d d e m a n d m a y be such that a h i g h e r d u t y m a y f a l l f a r short of its anticipated restrictive effect. F u r t h e r m o r e , t h e subsidization of exports directly t h r o u g h indirectly t h r o u g h currency depreciation

export bounties a n d t e n d e d to m a k e

im-

port duties e v e n less effective. 5 U n d e r quantitative restrictions, h o w e v e r , the forces of the market are r u d e l y interrupted a n d the price mechanism barred f r o m effecting a n y r e a d j u s t m e n t s f r o m the side of s u p p l y or d e m a n d . I m p o r t s of a c o m m o d i t y

are

definitely limited to a specified v a l u e or quantity b y executive decree. T h i s apparent predictability of effect w a s u n d o u b t e d l y an attraction to m a n y countries. 6 W h e n quotas w e r e first re-adopted in 1 9 3 1 , the a t t e m p t w a s m a d e to treat all countries equitably. 7 B u t it w a s not l o n g bef o r e they

were

utilized

as weapons

of

discrimination

partly

f o r retaliatory purposes and partly to redress the trade balance and relieve the existing pressures on the balance of p a y m e n t s . 8 4

League of Nations, Evolution of Commercial Policy since the Economic Crisis, II Economic and Financial, 1934, II. B. 1, p. 9. This was the important factor in the adoption of the quota system by France in 1 9 3 1 . E. Dietrich, "French Import Quotas," Journal of Political Economy, December 1933, p. 663. Seventy-two percent of the French tariff structure had been bound against increases in various tariff treaties previously entered into. 5 League of Nations, World Economic Survey, 1935-36, II. Economic and Financial 1936. II. A. 15, p. 1 8 3 ; U. S. Senate, World Trade Barriers in Relation to Agriculture, Document No. 70, 73d Congress, 1st Session, Washington, 1933, pp. 79-86. * For a view questioning the extent to which the effects are predictable, see U. S. Department of State, Press Release, March 1 7 , 1934. Speech to be delivered by Mr. Herbert Feis before the Foreign Policy Association of Utica, New York, March 17, 1934, p. 9. Quotas have constituted the chief measure by which creditor countries have sought to maintain the gold parity of their currencies in the face of a disparity between the internal and external values of the currency unit—t.e., an attempt to avoid the necessary internal price deflation. League of Nations, Review of World Trade, 1934, II. Economic and Financial 1935. II. A. 8, p. 74. U. S. Tariff Commission, Extent of Equal Tariff Treatment in Foreign Countries, Washington, 1936, p. 166. 8 U. S. Department of Commerce, "Foreign Tariffs and Commercial Policies During 1 9 3 3 , " reprint from Commerce Reports, February 24, 1934, p. 1 ;

200

RECIPROCAL TRADE

POLICY

F r o m this it was but a short step to quota agreements exchanging a variation in base period, increased contingents, and freedom of certain commodities f r o m quantitative restrictions for counter-concessions from other countries. 9 These were frankly discriminatory in nature since it was argued by some, notably France, that most-favored-nation obligations were inapplicable to such non-tariff trade barriers as quotas. 10 U n d e r these circumstances quotas appeared attractive as a method of restricting imports since they constituted, in addition, a bargaining weapon of considerable force and an instrument to implement a policy of bilateral balancing of trade between pairs of countries. T o divert trade in this fashion bv conscious effort violated the fundamental principle underlying international trade that imports should be supplied by countries able to produce them most effectively under the existing distribution of the world's material and immaterial resources. In the light of these conditions the deadly effects of quotas upon international trade have been an inescapable consequence. T h e application of quota restrictions to exclude imports abruptly contributed to an aggravation of economic conditions in countries that had once exported the commodities in question. This directly and indirectly operated to reduce exports of the country applying the quotas. Action and reaction soon meant a vicious spiral of trade deflation with all its implications. T h e relative decline in Europe's share in world trade in 1 9 3 5 was not unconnected with the fact that quantitative controls of foreign trade find their most extensive use in the countries of Europe. 1 1 "Foreign T a r i f f s and Trade Controls During 1 9 3 4 , " reprint from Commerce Reports, February 9, 1 9 3 5 , p. 2. * U. S. House of Representatives, Reciprocal Trade Agreements, Hearings before the House Committee on Ways and Means, 73d Congress, 2d Session, Washington, 1934, p. 20. The employment of quotas in trade bargaining tends to lessen the advantage of flexibility which they are believed to possess as a measure of trade control. 10 U. S. Tariff Commission, op. cit., H. Chalmers, " T h e Depression and Foreign Trade Barriers," Annals of the American Academy oj Political and Social Science, J u l y 1934, p. 91. " L e a g u e of Nations, World Economic Survey, 1935-36, II. Economic and Financial 1936. II. A. 1 5 , p. 1 8 5 . Review of World Trade 1935, II. Economic

QUOTAS UNDER

BARGAINING

201

Import quotas thus constitute a trade control measure of tremendous destructive force upon the flow of international trade. 1 2 T h e preceding analysis confined itself to the major reasons for the widespread adoption of direct quantitative restrictions upon foreign trade. But quotas possess other, and important, disadvantages which provide further ground for their elimination as soon as possible. Particularly is this true of the administrative aspects of quantitative restrictions. T h e problems to be faced involve extremely complex and important decisions with reference to the establishment of global quotas, allocation among the various exporting countries, and among importers along with necessary correlation of these to the functioning of the internal economy. If economic planning can be defined as interfering with the forces behind the equilibrating factors of supply and demand, then quotas constitute a long step forward towards regimented economy. 1 3 If economic freedom of action be desirable in principle, then quotas lead to its antithesis to an extent which appears undesirable from the standpoint of the present organon of economic thought. In view of the numerous disadvantages there appears to be ample ground for the hope that quotas will be discarded as an instrument of commercial policy as soon as possible. 14 Reand Financial 1 9 3 6 . II. A. 1 4 , p. 7. T h e foreign trade of Europe declined by two percent in gold value in 1 9 3 5 while that of all other continents was increasing by six percent. " S e e League of Nations, World Economic Survey, 1 9 3 2 - 3 3 , p. 2 0 3 , Review of World Trade, 1 9 3 3 , II. Economic and Financial 1 9 3 4 . I I . A . 1 2 , pp. 67-68 (effect of quotas on triangular trade) ; Review of World Trade, 1 9 3 5 , loc. cit.; Joint Committee, Carnegie Endowment—International Chamber of Commerce, The lm-provement of Commercial Relations between Nations; The Problem of Monetary Stabilization, Paris, 1 9 3 6 , pp. 4 0 6 - 4 0 7 . " F i x i n g the global quotas "in the case of a producers' good, involves ascertaining the relative needs of each industrialist who uses it; this in turn implies a control of production; and the economy comes more and more under the sway of the State and of those bodies or associations to which it may delegate its powers." G . V. Haberler, The Theory of International Trade, William Hodge and Co., Ltd., London, 1 9 3 6 , p. 348. See also League of Nations, World Economic Survey, 1 9 3 5 - 3 6 , I I . Economic and Financial 1 9 3 6 , I I . A . 1 5 , p. 202. 14

Officials of the French Government, which has utilized quotas to a greater extent than other countries, have expressed their dissatisfaction with the whole

202

RECIPROCAL TRADE

POLICY

sponsible opinion has repeatedly condemned quotas as exercising a pernicious influence upon international commercial relations. 1 5 It must be noted however, that, in addition to the special circumstances which led to their adoption, strongly entrenched vested interests have been created which will resist the abolition of these quantitative restrictions upon imports. 16 But the strangling effects of these measures upon international trade, to say nothing of the administrative difficulties involved, may compel these minority interests to yield. Compared with tariffs, quotas provide an economic protectionism considerably less subtle in its restrictive effect upon economic development. QUOTA

PROVISIONS

IN T H E

TRADE

AGREEMENTS

A basic purpose of the trade policy of the United States is the mitigation and removal of trade barriers in order to promote a restoration of w o r l d commerce. Quantitative

restrictions, ac-

cordingly, must be the object of a frontal attack of one f o r m or another. T o what extent have the trade agreements progressed in this direction? T h e use of quotas and allied measures of direct quantitative restrictions upon

foreign trade has been confined chiefly to

system. Sec L e a g u e of Nations, Remarks Economic

Relations,

on the Present

Phase

of

International

I I . E c o n o m i c and F i n a n c i a l 1 9 3 3 . I I . B . i i , p. 2 9 — f o o t -

note 2. 15

In addition to the previous citations the f o l l o w i n g m a y be added. L e a g u e

of Nations, Re-ports Approved tions Adopted

by the Bureau

by the Conference and the Executive

on July

27, 1933 and

Committee,

Resolu-

M o n e t a r y and E c o -

nomic Conference, I I . E c o n o m i c and F i n a n c i a l 1 9 3 3 . I I . Spec. 4, L o n d o n , 1 9 3 3 , p. 2 2 ; U. S. D e p a r t m e n t of State, Report of America

to the Seventh

ference

Series,

Tariff

Commission,

International

of the Delegates Conference

N o . 19, W a s h i n g t o n , 1 9 3 4 , p. 261 The

Tariff

and

its History,

L e a g u e of Nations, Equality

of Treatment

Commercial

Most-Favored-Nation

Relations;

the

of the United

of American

States

States,

Con-

(resolution L X V I I ) ; U. S. Washington,

in the Present

1 9 3 4 , p.

State of

Clause.

63.

International

II. E c o n o m i c

and

Financial 1936. II. B. 9, p. 25. 10

Sec statement by F . B. Sayre, U. S. House of Representatives,

Reciprocal

Foreign

Trade

Agreement

Act,

Extending

H e a r i n g s before the House C o m m i t -

tee on W a y s and Means, 75th Congress, 1st Session, W a s h i n g t o n , 1 9 3 7 , p. 1 1 4 ; also F . A . H a i g h t , French pp. 1 1 6 , 1 20.

Import

Quotas,

P. S. K i n g and C o . , L o n d o n , 1935,

QUOTAS

UNDER

BARGAINING

continental European countries. 1 7 O n l y four of the countries with which reciprocal agreements have been negotiated utilize quotas to any considerable extent. 1 8 I n two of these, France and the Netherlands, extensive quota provisions have been written into the respective trade agreements with the United States. But while the remaining twelve countries do not restrict their imports by quantitative measures, generally speaking, the United States has chosen to safeguard its economic relations with these countries against any such imposition. M o r e o v e r , in a few of these eleven pacts specific commodity provisions may be found dealing with the imposition of quantitative limitations. I t is convenient, therefore, to divide the ensuing discussion into three parts. First, the general provisions more or less common in one form or another to all of the agreements consummated may be discussed. Secondly, detailed attention may be focussed upon the four "quota countries." Finally, specific commodity provisions both in the general provisions and the appended schedules may be analyzed. A basic provision in the first category is to the effect that quantitative restrictions are not to be imposed, except under specified conditions,

upon

items enumerated

in the

various

schedules. 1 9 Article I I of the Brazilian agreement, for example, provides— N o prohibitions, import or customs quotas, import licenses or any other f o r m

of quantitative

restriction

or

control shall be

by the U n i t e d States of B r a z i l on the importation 17

imposed

or sale of a n y

U. S. Department of Commerce, Foreign Tariffs and Commercial Policies During ¡93S, reprint from Commerce Reports, February 1 5 , 1 9 3 6 , p. 1 ; U. S. T a r i f f Commission, Regulation of Tariffs in Foreign Countries by Administrative Action, Washington, 1 9 3 + , p. 2. 18 Belgium, Netherlands, Switzerland, and France. U. S. T a r i f f Commission, op. cit. 10 Cuba, V ; Brazil, I I ; Haiti, V I ; Sweden, V I I ; Colombia, V ; Canada, V I I ; Honduras, I ; Netherlands, V I I (duty concession items); Switzerland, VI; Nicaragua, V I ; Guatemala, V I ; France, V (items not now subject to any quantitative restrictions) ; Finland, V I I ; Costa Rica, V I ; El Salvador, VI. T h e provisional Belgium agreement contains no such provisions but stipulates that any measure impairing or nullifying any object of the agreement is to be the subject of representation and adjustment. Belgium, pp. 3, 4 1 .

RECIPROCAL TRADE

POLICY

article the growth, produce or manufacture of the United States of America enumerated and described in Schedule I annexed to this Agreement, nor by the United States of America on the importation or sale of any article the growth, produce or manufacture of the United States of Brazil enumerated and described in Schedule I I annexed to this Agreement, and made a part thereof. . . . T h e chief purpose of this provision is to prevent the i m p a i r m e n t or nullification of tariff concessions which m a y be accorded to t h e U n i t e d States. 2 0 T o t h e limited extent to which quantitative measures of restriction have been or m a y be used by t h e U n i t e d States it also protects foreign countries against any reduction in t h e value of American concessions. F r o m a broader view this clause also tends to discourage the use of quotas and allied tradecontrol measures to restrict imports. T h e assurance against the imposition of quantitative restrictions may, t h e r e f o r e , be said t o act as a stabilizing factor in t h e trade relations of t h e U n i t e d States with t h e various contracting countries and for t h e world economy as a whole. 2 1 Certain

exceptions are provided

to t h e limitation

on

the

f r e e d o m of action of foreign countries. Six of t h e a g r e e m e n t s specify in t h e same article containing the above provision that it is not applicable to prohibitions or restrictions " ( a ) relating to public security; ( b ) imposed on m o r a l or humanitarian g r o u n d s ; ( c ) designed to protect h u m a n , animal, or plant life . . . ;

(d)

relating to prison-made g o o d s ; ( e ) relating to the enforcement o f police or revenue laws. . . . " 2 2 E i g h t of the remaining agreem e n t s contain a broader wording and m a k e these exceptions applicable to all provisions that may be stipulated in t h e agreew U. S. Department of State, Trade Agreement between the United States and Nicaragua, press release, March n , 1 9 3 6 , p. 2. 71 U. S. Department of State, Trade Agreement between the United States and Finland, press release, M a y 1 8 , 1 9 3 6 , p. 2. 22 Colombia, V ; f o r the others, Cuba, V ; Honduras, V ; Nicaragua, VI; Guatemala, V I ; Costa Rica, V I ; El Salvador, V I . These are really general reservations applicable to all provisions of the agreements.

These have been, moreover, generally recognized exceptions. See U. S. Department of State, Abolition of Import and Export Prohibitions and Restrictions, Convention and Protocol between the United States and other Powers, T r e a t y Series, No. 8 1 1 , Washington, 1 9 3 0 , pp. 6-7.

QUOTAS UNDER

BARGAINING

ments. 23 These exceptions are deemed necessary from the standpoint of public policy and have also constituted recognized exceptions to the principle of equality of treatment. 24 Another exception to the stipulation that no quantitative restrictions may be imposed by either contracting country concerns "governmental measures operating to regulate or control the production, market supply, or prices of like domestic articles, or tending to increase the labor costs of production of such articles." 25 A l l the agreements, except the one with Belgium, contain this proviso. 26 F r o m an American standpoint this permits, without violation of contractual obligations, action such as the extension of the principle of the Jones-Costigan Act to other commodities, the utilization of section 22 of the A A A , and activity under such legislation as section 3 ( e ) of the now defunct N R A . M o r e will be said of these later in this chapter. In most of the agreements, it may be pointed out, stipulation is made in the event this provision is taken advantage of. Before any quantitative restriction is introduced under the authority provided, written notice must be given to the party whose exports will be affected and if no mutually satisfactory " T h e Belgian exchange of notes is incomplete, as has been stated earlier and therefore contains no such provision. For the eight, Brazil, I I ; Haiti, V I ; Sweden, X I I ; Canada, X I I ; Netherlands, X I ; Switzerland, X I V ¡ France, X I I ; Finland, X V I . " S e e supra, Chapter V I I , p. 126. Five of the agreements specifically exempt "measures directed against misbranding, adulteration and other fraudulent practice, such as are provided for in the pure food and drug laws of the United States of America, or the application of measures directed against unfair practices in export trade such as are provided f o r in section 337 of the United States T a r i f f Act of 1 9 3 0 " — H o n d u r a s , V ; Nicaragua, V I ; Guatemala, VI; Costa Rica, V I ; El Salvador, VI. " Canada, V I I . 20 T h e relevant articles for the other agreements are as f o l l o w s : Cuba, V ; Haiti, V I ¡ Sweden, V I I ; Colombia, V ; Honduras, V ; Netherlands, V I I ; Switzerland, V I ; Nicaragua, V I ; Guatemala, V I ; France, V ; Finland, V I I ; Costa Rica, V I ; El Salvador, V I . T h e Netherlands agreement provides in addition that an exception is made "to such necessary measures as may be adopted in extraordinary and abnormal circumstances to protect the vital economic or financial interests of the country." Ibid. T h e agreements with Cuba, Brazil, Haiti, Sweden, Co'ombia, Netherlands and France do not contain the " l a b o r costs" provision

2O6

RECIPROCAL TRADE POLICY

agreement can be reached within the succeeding thirty days, t h e limitation may be imposed but the affected government may within fifteen days after the imposition give written notice and at the expiration of thirty days terminate the entire agreement. 2 7 T h e effect of this termination clause is to cause the co-contractants to weigh carefully the possible benefits of any contemplated imposition of quotas against the advantages accruing f r o m the entire agreement. T h e most-favored-nation provisions in reference to quantitative controls have already been discussed. 28 Briefly, in review, it may be stated that unconditional most-favored-nation treatment is provided not only in respect of quotas and allied measures but also of any rules, formalities, or charges connected with their administration. T h e latter provisions aim to prevent any concealed discriminatory treatment from diverting trade away from the U n i t e d States. F r o m another view it is a recognition of the destructive possibilities of administrative protectionism. Quite a number of the reciprocal agreements provide that quantitative limitation by the use of import licenses or permits is prohibited unless the global quota is fixed, not to be less than for a period of three months, and the regulations covering the issuance of such license or permits are published before they become effective. 2 9 T h i s provision, of course, refers to those instances in which the contracting countries have not bound themselves against the imposition of quantitative

restrictions

upon imports. 2' Brazil, I I ; Sweden, V I I ; Colombia, V ; Canada, V I I ; Honduras, V ; Netherlands, V I I (in reference to duty concessions not now subject to quantitative restrictions); Switzerland, V I ; Nicaragua, V I ; Guatemala, V I ; France, V I (same as Netherlands) ; Costa Rica, V I ; El Salvador, VI.

M

See supra, Chapter V I I , pp. 1 2 9 et seq. Brazil, I I ; Honduras, V I ; Switzerland, V I I ; Nicaragua, VII; Guatemala, V I I ; Finland, V I I I ; Costa Rica, V I I ; El Salvador, V I I I . T h e French agreement simply states that equality of treatment is to be accorded under these circumstances by the French government. France, V I ; the other agreements referred to here make the conditions reciprocal. Unless specifically stated otherwise, this is also true of the other provisions discussed in this chapter. 20

T h e three-month period has been widely used by the French. F . A . Haight, French Imfort Quotas, P. S. K i n g and Son, Ltd., London, 1 9 3 5 , pp. 1 9 - 2 0 .

QUOTAS UNDER BARGAINING Eight agreements state explicitly that in the event any quantitative restrictions on imports are established, certain steps must be followed. T h e Brazilian pact, for example, requires public notice of the global import or tariff quota established. If these quotas are allocated into national contingents, public notice is stipulated concerning such allotment and upon request information must be presented at all times relative to the extent to which such contingents have been filled. Finally, sympathetic consideration shall be given to any representations of the contracting nation to the effect that imposition or administration of quantitative measures is detrimental to its trade. 30 These provisions are an endeavor to prevent an obstruction to American exports through the technique and administration of quantitative controls. T h e quantitative provisions in agreements with the "quota countries" may now be discussed. T h e general provisions will be considered individually only to the extent that quantitative provisions in addition to those presented above are incorporated in the arrangements. In the Belgian provisional exchange of notes, the Belgo-Luxemburg Economic Union promised that import contingents such as are included in Schedule I would not be reduced. 31 This was a consolidation of existing and liberalized quota allocations to the United States. Table V I I in the appendix summarizes the Belgian concessions in this field to the United States and gives an approximation of their relative importance. 32 On the basis of trade statistics for 1 9 3 3 , 1 6 . 1 6 percent of the total Belgian concessions involved quantitative controls. Linseed oil cake was freed from the former quota restriction to which it was subjected. Contingents to the United States were liberalized on lard, corn starch, pork, non-silk hosiery, unornamented and x Brazil, II. For similar reciprocal provisions in other agreements, see Haiti, X (sympathetic consideration proviso only) ; Honduras, V I ; Netherlands, VI (ibid.)-, Switzerland, VI, V I I ; Nicaragua, V I I ; Guatemala, V I I ; Finland, V I I I ; Costa Rica, V I I ; El Salvador, VI.

F o r some of the intricacies involved in the administration of quantitative restrictions, see International Chamber of Commerce, Invisible Trade Barriers, Berlin Congress, 1 9 3 7 . Document No. 10. " Belgium, pp. 2, 4.0. "Infra, p. 3 1 6 .

2O8

RECIPROCAL TRADE POLICY

non-silk women's clothing, and collars and cuffs. T h e former constitutes 9.18 percent and the latter group 5.65 percent of the total Belgium concessions. Total quota concessions covered $2,638,782 of Belgian imports in 1 9 3 3 of $43,268,000 or 6.08 percent. T h e corresponding figure for all concession items, tariff and non-tariff, is $ 1 6 , 3 3 5 , 0 0 0 or 37.90 percent. T h e Kingdom of the Netherlands, while using quotas extensively, has done so only as a defense mechanism. Traditionally a low tariff country, quantitative controls were adopted primarily to secure greater export markets or to forestall any further shrinkage of particular foreign markets. 33 U n d e r a series of "crisis acts" beginning in 1 9 3 1 , Netherlands has placed quantitative restrictions upon a considerable portion of her imports of manufactured goods and on some agricultural commodities. 34 While, in reference to manufactured goods, the proportional basic period formula has been used, in 1 9 3 4 specific national contingents were drastically reduced and supercontingents were available only through trade agreements with the Netherlands. 3 5 T h e trade agreement with the Netherlands, accordingly, makes stipulations not common to the other agreements insofar as quantitative controls are concerned. U n d e r Schedule I V specific minimum quota concessions are granted to the United States. 36 These are, moreover, consolidated by Article V I . As to items subject to quantitative restrictions and which are not included in the list of concessions, the treatment extended on February 1 , 1936, is bound against change. 37 Should either the United States or the Netherlands impose any new import or custom quotas, the "representative" or basic period formula is to be followed as in the other agreements. T h e Netherlands 13 U. S. T a r i f f Commisison, Concessions Granted by the United States in the Trade Agreement vnth the Kingdom of the Netherlands, Washing-ton, 1 9 3 6 , p. x x v . M Ibid. T h e r e is centralized control of all phases of the economy in which agricultural commodities move; i.e., production, export, import and domestic trade.

" Ibid. " Netherlands, " Netherlands,

Schedule I V . VI.

QUOTAS UNDER BARGAINING

209

agreed further that if any consolidated contingent to the United States, whether in Schedule I or non-concession items, is reduced, advance notice of at least thirty days must be given and sympathetic consideration accorded to any representations the American government may make. In the event of a failure to reach any mutually satisfactory agreement during this period, the United States may give thirty days' written notice to terminate the entire agreement. 3 8 This applies only to changes made after February 1 , 1 9 3 7 . In any case, the reduction in the American contingent must be in proportion to the reduction in the global quota unless the agreement specifically provides otherwise. Finally, the general provisions stipulate that both governments will endeavor to facilitate the exhaustion of the allotted contingents and give "the most sympathetic consideration" to any representations of the other government to effectuate this purpose. T h e quota concessions by the Netherlands and the Netherlands Indies are contained in Schedule I V , sections A and B appended to the agreement. It may be noted at this point that in Schedule I I I , the Netherlands agreed to purchase American wheat flour to the extent of five percent of its annual total wheat flour consumption, and five percent of its total annual milling wheat imports. In both cases the price must be competitive with the world price for wheat or flour of a comparable grade and quality. 39 These constitute a concession to the United States under the mixing regulations which the State monopoly control over wheat and flour require. 40 It is Schedule I V , however, which provides important quota concessions to the United States. Table I X in the appendix presents these concessions in tabular form. 4 1 As the Tariff Commission has pointed out, no accurate comparison can be made "

Ibid.

** T h e A m e r i c a n a n n u a l contingent is to be d i v i d e d into t w e l v e equal parts, and a n y deficit in one month need not be added to the next months' purchases. 40

U . S. T a r i f f C o m m i s s i o n , loc. cil. Because of the d r o u g h t - c r e a t e d shortage

of p r o d u c t i o n in the U n i t e d States no a d v a n t a g e has been derived f r o m this concession as yet. 41

Infra,

p. 3 1 7 .

210

RECIPROCAL TRADE

POLICY

between the " a g r e e d " quotas under this Schedule and the preagreement status, since the unilateral autonomous quota system operated by the Netherlands simply states a maximum upper limit to imports from each country without the establishment of national contingents. Since the quota concessions are conventionalized or consolidated minimum quantities, the two are not comparable. 42 T h u s , while quantitatively certain of the listed minimum contingents of products such as nitrates are less than imports into the Netherlands in 1 9 3 5 , this means simply that under the agreement a minimum is guaranteed subject to supercontingents or additional allotment. In most cases statistics, where available, show the " a g r e e d " quotas providing a guaranteed contractual minimum contingent to constitute sizable increases over purchases in previous years. In some cases the quota concessions have clarified the situation concerning the existing quantitative controls over certain American imports listed in the Schedule/ 3 Since customs duties are relatively moderate in the Netherlands, the chief concessions to the United States lie in the quota provisions discussed above. 44 Under these circumstances it is expected that these liberalized contingents will be "the principal means whereby the market opening for American products in the Netherlands can now be enlarged" through a trade agreement. 45 L i k e the Netherlands, Switzerland placed few restrictions upon imports in the past.40 However, with a decline in such " Op. cit., p. x x x v i i i . U. S. Department of State, Trade Agreement between the United States and the Kingdom of the Netherlands, press release, December 20, 1 9 3 5 , p. 1 0 . 44 Schedule I binds the present moderate customs treatment of American imports, and in some cases import monopoly fees which play a significant rôle in the "crisis control" instituted have been reduced and consolidated. These concessions affect 35 percent of American exports in 1 9 2 9 and 45 percent in 1 9 3 1 . U. S. Department of State, o f . cit., p. 10.

Import monopoly fees will be considered in the following chapter. "ibid., p. 8. While none of the quotaed commodities appear among the leading twenty-five items imported into Netherlands, most of the latter commodities appear in Schedule I. F o r the leading items, see ibid, p. 2. 41 U. S. T a r i f f Commission, Concessions Granted by the United States in the Trade Agreement with Switzerland, Washington, 1 9 3 6 , p. vi.

QUOTAS UNDER BARGAINING

211

credit items in her international balance of payments as exports, tourist expenditures and servicing on foreign debts, Switzerland attempted to redress her trade balance by restricting imports. 47 Under the laws of December 2 3 , 1 9 3 1 , and October 1 4 , 1 9 3 3 , quantitative restrictions upon imports became the chief weapon in this direction. 48 T h e only general provision in the text of the Swiss agreement not found in the "non-quota countries" with which agreements have been negotiated is to the effect that quota concessions enumerated in Section B of Schedule I are conventionalized during the life of the agreement. 49 A list of these items, including the old and new quotas, may be found in the appendix. 50 Under these quota concessions, approximately 40 percent of Swiss imports from the United States are affected. 51 Since these quantitative restrictions are the foremost Swiss trade-control measure and since they applied to over 50 percent of all American exports to Switzerland, these quota relaxations were "the primary aim of negotiations." 52 It is anticipated that the contingents prescribed above will enable "most important American products to move into Switzerland in sufficient quantities to fill the normal consumer demand." 5 3 T h i s would appear entirely possible under the liberalization and consolidation of quotas conceded by Switzerland. 54 Attention may now be focused in some detail upon France, the fourth of the "quota countries" with which a reciprocal trade 47

¡bid. ** Ibid., p. vii. 43 Switzerland, I. 50 Infra, p. 3 1 9 . 51 U. S. Department of State, Trade Agreement between and Switzerland, press release, J a n u a r y 9, 1 9 3 6 , p. 1.

the United

States

12

U. S. T a r i f f Commission, o f . cit., pp. vi-vii. " U. S. Department of State, loc. cit. M F o r support for this statement, see U. S. T a r i f f Commission, o f . cit., pp. x-xiii, and U. S. Department of State, o f . cit., pp. 1 0 - 1 6 . A l l Swiss concessions affect about 70 percent of total Swiss imports from the United States on the basis of trade figures for 1928 and 1 9 3 1 , while for 193 + and 1 9 3 5 the corresponding figure was 60 percent. U. S. T a r i f f Commission, o f . cit., p. ix.

212

RECIPROCAL TRADE

POLICY

agreement has been negotiated. It is in this country that the quota as an instrument of international trade control was first revived after 1929. It is here also that it has found its most extensive employment and greatest development. The trade agreement negotiated with the United States might be described as the logical outcome of the arrangements entered into in 1932. In the spring of that year, the United States vigorously protested against the discriminatory manner in which France had fixed unilateral quotas upon American goods. 55 On May 3 1 , an agreement was reached whereby France promised most-favored-nation treatment on the basis of prior importations.50 Moreover, the contingents granted were not to be less than 10 percent of importations in 1 9 3 1 where total imports of the respective commodities were equal to or greater than this figure; where less than 10 percent, the quota was to be fixed at the 1931 level. Near the end of 1933 France introduced a new policy which allotted to foreign countries only 25 percent of their proportional quota, and left the remaining 75 percent to be bargained for by the respective foreign countries.57 Because of the wine concessions granted by the United States, France, in a note to the American Embassy in Paris, declared that the United States would be excepted from this policy and that the arrangements of 1932 would continue in force. 58 The French trade agreement with the United States, as might M

See New York Times, A p r i l i 6, 1 7 , 1 9 3 2 . It was stated by the press at that time that officials were contemplating the use of Section 338 of the T a r i f f Act of 1 9 3 0 . Unilateral quotas, or contingentements d'autorité, are to be contrasted with bilateral " a g r e e d " quotas or contingentements amiables. " U. S. Department of State, Press Releases, • 9 3 * , PP- 563-564" F . A . Haight, French M

Import

Weekly Issue No. 1 4 1 , June 1 1 ,

Quotas, pp. 1 0 4 - 1 0 5 .

U. S. Department of State, Press Releases,

Weekly Issue No. 224, J a n u a r y

1 3> 1 9 3 4 . P- 8Great Britain and Germany strenuously protested this apparent discrimination. F . A . Haight, o f . cit., pp. 1 0 5 - 1 0 7 . Both cases were satisfactorily settled. T h i s arrangement was continued in substance with some changes by an agreement on J a n u a r y 2 1 , 1 9 3 5 . It is interesting to note that in spite of these arrangements, Secretary Hull warned France concerning existing discriminations against the United States. New York Times, A p r i l 3, 1 9 3 5 .

QUOTAS UNDER

BARGAINING

213

be expected, deals to a greater extent than any of the others with the problem of quantitative restrictions. As in the case of the other "quota countries" discussed above, only those provisions will be considered here which are not standard provisions common to most of the trade agreements. Article I bars France f r o m increasing customs duties, or levying any other new or higher duties, fees, or charges of any kind on any products enumerated or described in Schedule I I I except under the authority of French legislation in force on the day of the signature of the agreement. 5 9 W i t h respect to customs duties, increases are also possible if deemed necessary "with a view to protecting the essential economic and financial interests of the country." France is obliged, however, to give notice of fifteen days before increasing any import duty, and, during the life of the agreement, increases can become effective only on the first day of a full calendar quarter. T h i s introduces an element of stability into the export trade in commodities covered by quotas. Moreover, if, before the expiration of thirty days after the effective date of the increase, no satisfactory arrangement providing for compensatory modification in other terms of the agreement can be reached, the entire pact terminates automatically at the end of this period. T h e chief purpose of these provisions is to prevent any additional customs duty or other charges f r o m impairing materially the quota concessions given to the United States by making it difficult or impossible to exhaust the allotted contingent. 60 In Article VI it is stipulated that where global quotas, unallocated into national contingents, are employed they are to be subject to import licenses. 61 T h e issuance of these permits is to be upon the basis of the principle of complete equality of treatFrance, I. T h i s and the f o l l o w i n g related provisions are applicable to Schedule I I also which provides f o r duty concessions. In common with all agreements, Article I , stipulates that all quantitative restrictions established or maintained must be allocated on the basis of the "representative p e r i o d " f o r m u l a . 80

U. S. Department of State, Trade A greement between the United States and France, press release, M a y 1 3 , 1 9 3 6 , p. 1 0 . Analysis of the General Provisions and Reciprocal Concessions. 81 France, V I . T h e United States reciprocally promises to do likewise.

214

RECIPROCAL TRADE

POLICY

ment. It further provides that France will accord supplementary quotas to the United States in addition to those previously allocated under the "representative period" formula. T h e amounts are not to be less than those specified in Schedule I I I . T h e s e additional quotas may be revised on J u l y i of 1937 and the succeeding years but before any reduction is made, notice in writing must be given and not less than thirty days provided for discussions. If at the end of this period no agreement can be reached or compensatory modifications determined upon, the entire agreement automatically ceases to have force thirty days after the effective date of the proposed change. These supplementary quotas appear inconsistent f r o m the standpoint of American policy. T h e United States has vigorously argued that it seeks its proportional share of the imports of various commodities which it supplied in a "representative period" prior to the imposition of existing quantitative trade-control measures. Y e t here it has acquired what appears to be more than its porportional share. This constitutes a violation of the only satisfactory formula thus far devised to reconcile quota controls and the most-favored-nation clause. T r u e , it is an improvement in the American position, but this must be balanced against the inconsistency in its application of a principle of considerable importance. 82 In addition to the provisions in the text of the agreement and Schedule I I I , further stipulations regarding quantitative controls m See U. S. Department of State, Trade Agreement between the United States and Francet pp. 1-4.. It may be observed that a similar situation appears to arise in those cases in which specified minimum quotas are so large that the foreign country cannot give other countries a representative share of the imports of the commodity in question because they do not consider it feasible to enlarge sufficiently the total quotas established f o r all countries.

It also appears in this connection that where the United States is allocated a share of the imports of a commodity equal to that supplied during a "representative" period f u l l equality of treatment is accorded only if no other country is granted a share greater than it supplied during the same period. In this case, "equitable" rather than most-favored-nation treatment is secured. If this formula does not appear satisfactory in all respects the remedy lies in the abolition of the pernicious system of quotas.

Q U O T A S UNDER BARGAINING

215

are to be found in the appended Protocol. Paragraphs 4 to 8 elaborate somewhat the technique of administration to be followed with respect to concession items under quotas. T h e U n i t e d States is to be informed quarterly through the Embassy in Paris of the publication of the global quotas or any change therein and of the contingents allotted to the United States. 63 Consideration is to be given to any requests by the United States for the re-allocation to the current quota period of unused portions of industrial quotas of the preceding quarter. In allotting contingents on a quarterly basis, the seasonal character of certain imports is to influence French action. In line with France's policy heretofore, France promises to abide by requests by the United States that the administration of certain industrial quotas be entrusted to qualified American organizations. 84 Somewhat related to the latter provision is the stipulation concerning the establishment of a new quantitative restriction upon the importation of an industrial product. In this case a provisional quota corresponding to importations in the previous year is to be accorded the United States, "in order to permit conversations between representatives of the interested industries, with the object of reaching an understanding, acceptable to the two Governments, on the definitive bases for calculating the quota to be allotted to the United States." 85 T h i s provision has been incorporated in France's trade agreements with other nations forming the basis of the so-called contingentements amiables.66 If no agreement is reached, or none which is satisfactory to the French "* T h e U n i t e d States r e c i p r o c a l l y p r o m i s e s t o d o l i k e w i s e in the e v e n t it s h o u l d establish q u a n t i t a t i v e r e s t r i c t i o n s u p o n F r e n c h

imports.

" F r a n c e has d o n e this to a c o n s i d e r a b l e e x t e n t in the a d m i n i s t r a t i o n o f quota

system.

A

global

quota

is

allotted

to

the

foreign

country,

and

the an

o r g a n i z a t i o n in the l a t t e r c o u n t r y r e g u l a t e s e x p o r t s o f t h a t c o m m o d i t y to F r a n c e . T h i s has also been a p o i n t o f c r i t i c i s m in F r a n c e . F . A . H a i g h t , French Quotas,

pp.

Import

32-34.

M

France,

M

See F . A . H a i g h t , o f . cit.,

P r o t o c o l , p . 2. p . 2 9 et seq.

T h i s t e r m a p p l i e s a l s o to

quotas

e s t a b l i s h e d b y n e g o t i a t i o n s b e t w e e n g o v e r n m e n t s in a b a r g a i n i n g p r o c e s s . W h e r e i n d u s t r i e s in the t w o c o u n t r i e s c o n f e r as a b o v e , i n d u s t r i a l e n t e n t e s r e s u l t a n d t h e p e r t i n e n t e x p o r t s o f o n e m a y be s u b j e c t to the f o r m a l i t y of e x p o r t in a d m i n i s t e r i n g the q u o t a a l l o t t e d .

certificates

216

RECIPROCAL T R A D E POLICY

Government, then the "representative period" formula is to be used. France and the United States reciprocally promise to do their utmost to facilitate the f u l l utilization of the allotted contingents. Moreover, when France considers American quotas exhausted according to French statistics, the American Embassy in Paris must be notified before further imports are barred. Notice of exhaustion to importers must be delayed ten days to give the United States an opportunity to offer statistics which might justify a change in the decision to suspend further imports. Should the contingent be actually exhausted, then imports in excess of the allotment are to be charged against the quota for the following period. Paragraph 1 0 retains the arrangements existing previously to the agreement with reference to items upon which quantitative restrictions are imposed but which are not included in Schedule I I I . 6 7 In addition to the application of the "representative period" formula required by Article V I of the text, it is stipulated that in no case are the quotas allotted to be less than 10 percent of total importations in those instances in which imports in the last year prior to the imposition of quantitative restrictions were equal to or greater than 1 0 percent. Where imports were less than 1 0 percent, quotas are to be fixed at the amount imported in that year. 88 Conceivably, this could lead to a departure from the basic period formula just asunder Article V I described above. U n d e r paragraphs 1 2 and 1 3 , quota concessions on apples, pears, and oranges are provided as shown in the table of concessions included in the appendix. 09 T h e quota for any quarter on apples and pears may be reduced by not more than 60 percent, but the deduction must be distributed among the subsequent quarterly contingents prior to the end of the following crop year in the same seasonal proportions as are provided for the supplementary quotas on apples and pears. " France, Protocol, pp. 2-3. 88 These provisions are not applicable to quantitive restrictions on agricultural and fisheries products. 89 Infra, p. 320.

QUOTAS UNDER BARGAINING

217

In the Protocol, France also promised that the French tobacco monopoly would purchase not less than 48,568,000 francs in value and not less than 9,300,000 kilograms in weight of American tobacco during 1936. If in succeeding years a similar guarantee is not accorded, the United States may terminate the entire agreement under Article X I unless a satisfactory arrangement can be reached. 70 Table X in the appendix presents the contents of Schedule I I I , the Protocol, and the pre-agreement quotas allocated to the United States upon which the supplementary quotas are superimposed. These forty-four concessions affect American exports to France to the extent of $ 1 3 , 7 3 0 , 0 0 0 on the basis of statistics f o r 1 9 3 5 , or 55.9 percent of the total exports upon which the United States received concessions ($24,500,000). Further, these items constituted 1 1 . 8 percent of all French imports from the United States which amounted to $ 1 1 6 , 9 2 0 , 0 0 0 in the same year. It may be noted that total concessions from France affected 20.9 percent of all American exports to France. 7 1 Since these statistics are based upon trade in 1 9 3 5 , they underestimate the scope of the quota concessions, since American exports were restricted in that year by these very quantitative controls. An examination of the enumerated items reveals what appear to be substantial concessions on most of the commodities. In some cases the situation was clarified by the definite allocation of articles previously unallocated. T h e most important quota concessions were obtained on fresh apples and pears, canned salmon, logs and lumber, silk hosiery, passenger automobiles and automobile bodies, agricultural machinery and tractors, radios and radio tubes, electrical household refrigerators and other refrigerating apparatus, and typewriters and certain tools. 72 This article provides, in part, for termination in cases in which the foreign co-contractant adopts measures which, while not conflicting with the terms of the agreement, tend to materially impair or nullify "any important object" of the agreement, France, X I . T1 These statistics are based upon data contained in the State Department's analysis. Of. cit., pp. 4, 7. 72

F o r comments on the individual importance of concessions on these various items, see ibid., pp. 1 4 - 2 0 .

2 I 8

RECIPROCAL T R A D E

POLICY

T h e provisions of Schedule I, Section B , provide for what are in principle tariff quotas. 73 Preserved fish ("others" Pilchards), refined borate of soda, chromates and bichromates of potassium, and chromates and bichromates of soda are to be admitted under the French minimum schedule of duties only within the limit of specified quantities.74 Since the concessions on fish are also subjected to an import quota restriction, an example is provided of the use of import and customs quotas side by side. Imports of a specified quantity are subjected to the minimum duties; any quantity in excess may come in only under higher duties, and only to the extent permitted by the import quota set.75 T h e United States was unable to secure, as it had in all the other agreements, full consolidation of the quantitative concessions granted in the French agreement. France has made it a point of policy to endeavor to retain full liberty of action with Upon the devaluation of the franc, France eliminated certain quotas and reduced tariff rates upon a number of commodities. T h e chief benefits to the United States, according- to officials in Washington, accrued through the tariff cuts. New York Times, October 4, 1 9 3 6 . T h i s must be considered in connection with the relationship between world prices and French prices in terms of francs. Officials, however, attached great significance to the French relaxation of quotas as a step towards their ultimate abolition. U. S. Department of State, Press Releases, Weekly Issues, No. 365, September 26, 1 9 3 6 , p. 267. An import quota refers to the quantity or value of a commodity which will be permitted to enter. A customs or tariff quota, on the other hand, provides f o r a lower duty upon a specified quantity with imports in excess of this tariff quota subject to a higher rate of duty. Customs quotas are not new in the field of commercial policy. T h e Franco-Belgian agreement of 1 9 2 3 provided for tariff quotas on horses imported into France. F . A . Haight, op. cit., p. 94, note 1 . In the trade agreements, tariff quotas as well as import quotas are subject to the representative period formula. ( T h r o u g h o u t the discussion in this book, unless specifically stated otherwise, the term " q u o t a " is used with reference to import quotas.) " France, Schedule I, Section B , 1 , 0 0 0 ; 1 , 5 0 0 ; 3 7 3 ; 1 , 4 1 8 quintals respectively. " Finland granted the United States a tariff quota, in its usual f o r m , on lard. T h e duty on lard is reduced from 6.00 to 4.00 Finnish marks per kilo on 1,000,000 net kilograms ( 2 , 2 0 1 , 0 0 0 pounds) while all imports in excess of that are required to pay the higher rate. ( A t the rates of exchange as of M a y 1 9 3 6 , one Finnish mark per kilo almost exactly equals one cent per pound.) U. S. Department of State, Trade Agreement between the United States and Finland, press release, M a y 1 8 , 1 9 3 6 , p. 3 ; Finland, Schedule I.

QUOTAS UNDER BARGAINING

219

respect to the operation of the instruments of commercial policy employed. U n d e r Article I , under certain circumstances, duties, charges, and fees on imports may be increased as described earlier. B y virtue of Article V I , supplementary quotas may be reduced subject to the conditions provided therein. In Schedule I I I , quotas may be reduced on butyl alcohol, butyl acetate, and circular saws and other specified tools. France has thus retained considerable freedom of action in respect to the quota concessions.70 E v e n under these conditions, however, France has gone considerably further in restricting her liberty of action, as the earlier discussion demonstrates, than has been customary in her trade agreements with foreign countries. American negotiators in concluding an agreement with France were particularly concerned with French quantitative controls. French customs duties have been comparatively moderate, and such important American commodities as cotton, copper, tobacco, raw hides and skins, undressed furs, and crude coal tar have been on the free list for years. 77 American exports have suffered chiefly from the new quantitative trade-control measures of which France is probably the leading exponent from the standpoint of quotas. T h e quota provisions of the trade agreement constitute a definite step towards a mitigation of these barriers. It is true, however, that more might have been accomplished in the way of consolidation and greater liberalization of quota controls. 78 On the other hand, when post-war Franco-American commercial relations are considered along with the exigencies facing the French economy when the agreement was signed, the quantita' 8 See F . A . Haight, Trench

Import

Quotas, p. 96 et seq. French policy is

really one of semi-consolidation with freedom of action under certain contingencies and circumstances remaining, but with stipulations permitting the foreign

country

concerned

to adopt compensatory

trade barriers.

Freedom

of

action is maintained also in respect of customs duties. U. S. Department of State, of.

cit., p. 4..

" U. S. Department of State, op. cit., p. 3. " A c c o r d i n g to H u l l ' s statement before the W a y s and Means Committee, it may be expected that modifications may be made in these directions when deemed possible. U. S. House of Representatives, Extending eign

Trade

Agreement

Act,

Reciprocal

Hearings before the Committee on W a y s

Means, 75th Congress, 1st Session, Washington, 1 9 3 7 , p. 6.

Forand

220

RECIPROCAL T R A D E POLICY

tive concessions described above, including substantial mostfavored-nation treatment, appear impressive. T h e United States on its part simply promised most-favorednation treatment in respect of customs and import quotas on the basis of the "representative period" formula should it establish in the future quantitative restrictions upon commodities of interest to France. 79 H o w e v e r , both countries bind themselves not to impose any quantitative restrictions on items not subject to such restriction prior to the agreement. 80 This general provision found in the other agreements bars any quota imposition on French products except under the circumstances described earlier. 81 T o complete this analysis it is necessary to discuss certain quantitative provisions which deal with American concessions and which are to be found in the trade agreements with the "non-quota countries." T h e r e are three instances in this category: sugar quotas and the drawback allowed under section 3 1 3 of the Act of 1 9 3 0 ; the provisions for sugar and tobacco in the reciprocal arrangement with Cuba; and the tariff quotas in the Canadian agreement. In the agreements with Nicaragua, Haiti, and E l Salvador it is provided that so long as sugar imports into the United States are subject to quantitative restrictions, sugar imported into the United States upon which a drawback is paid upon its reexportation to other countries shall not be charged against the contingents allocated to Haiti and Nicaragua. 82 This assures these countries that their sugar exports to the United States for consumption will not be lessened by existing American quota restrictions. Under the Cuban agreement a reduction in the duty on sugar from 1.5 to 0.90 cents per pound was provided. 83 This commodity had been brought within the scope of the A A A by the Jones15

France, V I . France, V. *' Sufra, p. 203. "Haiti, I I ; Nicaragua, I I ; El Salvador, II. M T h e duty under the Act of 1 9 3 0 was 2.0 cents per pound. T h i s was reduced to 1.5 on J u n e 8, 1 9 3 4 , under section 336 ( " f l e x i b l e " provision). U. S. T a r i f f Commission, Changes in Import Duties since the Passage of the Tariff Act of 1930, Washington, 1 9 3 6 , p. 1 7 . 80

QUOTAS UNDER BARGAINING

221

Costigan Act of M a y 9, 1934. T h e main purpose of this act was to alleviate the plight of domestic sugar producers. 84 Moreover, it was intended "to arrest the decline of the imports of Cuban sugar into the United States in order to increase the Cuban market for American products." 35 T o accomplish this, offshore quotas on the basis of average continental consumption during 1 9 3 1 - 3 3 were established. T h e reduced customs duty stipulated in the agreement therefore applied to the contingent allotted under the Jones-Costigan Act. 80 In the event that this quantitative control should be abrogated under the note included in Schedule I I the duty concession to Cuba is withdrawn and the import duty in effect the day of the signature of the agreement becomes effective again. T h e text of the agreement provides in this case, however, that either government may terminate the entire agreement upon thirty days' notice.87 Although the A A A has been invalidated by the Supreme Court, the Jones Costigan Act has remained in force so that no problem has arisen as yet under this provision. Parenthetically, it may be noted that this concession has proved of considerable benefit to Cuba. Tariff protection to sugar has been replaced by a considerably more restrictive protectionism in the form of quantitative control of imports. It grants Cuba a subsidy, in effect, upon sugar exports to the United States, for it is put in a preferential position in a restricted market. 88 T h e " U. S. Department of Agriculture, Agricultural Adjustment in 1934; a report of the administration of the A A A , February 1 5 , 1 9 3 4 to December 3 1 , 1 9 3 4 , Washington, 1 9 3 5 , p. 1 6 1 . Under the Sugar Act of 1 9 3 7 , the provisions of the Jones-Costigan Act have been substantially reenacted. For the main provisions of the new l a w , see U. S. House of Representatives, Sugar Act of 1937, Report No. 1 1 79, 75th Congress, 1st Session, Washington, 1 9 3 7 . K

Ibid., p. 1 6 2 . Note the recognition of the relation of imports to exports. T h e initial quota allotted was 1 , 9 0 1 , 7 5 2 short tons. Ibid., p. 1 6 4 . T h i s was subsequently revised so that for 1 9 3 4 , 1 9 3 5 , and 1 9 3 6 the quotas were 1 , 8 6 1 , 9 7 7 , 1 , 9 9 5 , 5 3 6 , and 1 , 9 2 5 , 8 0 7 short tons respectively. U. S. Senate, Extending Reciprocal Foreign Trade Act, Hearing before the Committee on Finance, 75th Congress, 1st Session, Washington, 1 9 3 7 , p. 1 7 2 . M

87 w

Cuba,

XVII.

B. B. Wallace and H. V. V. F a y , " D i e jiingste Handelspolitik der Vereinigten Staaten." Weltivirtschaftliche Archiv, J u l y 1 9 3 6 , pp. 3 1 - 3 2 .

222

RECIPROCAL

T R A D E

POLICY

l a t t e r g i v e s C u b a t h e b e n e f i t o f s u c h h i g h e r p r i c e s as m a y

result

f r o m the control p r o g r a m . N e e d l e s s to point out, the a g r e e m e n t h a s b e e n criticised o n t h i s s c o r e . 8 9 C u b a n e x p o r t s of tobacco to the U n i t e d States are also subj e c t e d to q u a n t i t a t i v e

restrictions.

The

quantity

imported

for

consumption m a y not exceed 1 8 percent of the total quantity of tobacco u s e d in t h e m a n u f a c t u r e o f c i g a r s d u r i n g t h e

preceding

c a l e n d a r y e a r . 9 0 T h e d u t y u n d e r t h e a g r e e m e n t is r e d u c e d f r o m $ 3 . 6 0 p e r p o u n d a n d 2 0 p e r c e n t a d v a l o r e m to $2.25

per pound

a n d 1 2 } ^ p e r c e n t a d v a l o r e m . 9 1 S i m i l a r to t h e s u g a r p r o v i s i o n , it is stipulated w i t h r e f e r e n c e to this concession that the h i g h e r d u t y w i l l a g a i n b e c o m e e f f e c t i v e s h o u l d t h e d o m e s t i c c o n t r o l of t o b a c c o u n d e r t h e A A A b e a b a n d o n e d . 9 2 A g a i n , s h o u l d this occur e i t h e r government notice. T h e tingency

may

denounce

the

agreement

i n v a l i d a t i o n of t h e A A A

becoming

a reality.

Both

upon

thirty

h a s r e s u l t e d in t h i s

the quantitative

days' con-

restriction

u p o n tobacco a n d t h e d u t y concession w e r e a b r o g a t e d t o g e t h e r . 9 3 T o the extent that Cuba is the chief supplier of sugar, the preferential status becomes of less and the duty reduction of greater importance to the Cubans. M E.g., Congressional Record, Volume 8 1 , 75th Congress, 1st Session, February 4, 1 9 3 7 , pp. 1 0 5 2 - 1 0 5 4 (unbound); U. S. House of Representatives, Extending Reciprocal Foreign Trade Agreement Act, Hearings before the Committee on Ways and Means, 75th Congress, 1st Session, Washington, 1 9 3 7 , p. 224-225. Cuba, Schedule II, Paragraph 605 of the Havvley-Smoot Act. T h i s is based upon a ten-year average and approximates the customary Cuban exports to the United States. B. B. Wallace and H . V. V. F a y , o f . cit., p. 63. T h i s subsidy on the basis of the duty on sugar in 1 9 3 4 ( 1 . 5 cents per pound) is estimated to have amounted to $24,279,492 in 1 9 3 5 and $ 2 7 , 7 7 5 , 7 3 9 in 1 9 3 6 (quota increased 14.4 percent). U. S. House of Representatives, Independent Offices A ppropriation Bill, 1938, Hearings before the Subcommittee of the Committee on Ways and Means, 75th Congress, 1st Session, Washington, 1 9 3 7 , p. 5 7 1 (S. M o r g a n , U. S. T a r i f f Commission). n

U. S. T a r i f f Commisison, op. cit., p. 1 7 . T h i s tobacco concession includes cigars, cigarettes, cheroots of all kinds, and paper cigars and cigarettes including wrappers. T h e quantitative restriction refers to the unstemmed equivalent of these and unstemmed and stemmed leaf tobacco. " Cuba, ibid.; U. S. Department of Agriculture, op cit., Chapter 7. (Summary view of the internal tobacco control program.) "* U. S. Senate, The Significance of Agricultural Imports, Doc. No. 263, 74th Congress, 2d Session, Washington, 1 9 3 6 , p. 1 8 . Cuba retains a preferential reduction below that accorded to the Netherlands

QUOTAS UNDER BARGAINING

223

As yet the Cuban authorities have not acted. It would hardly be expedient for them to do so, for sugar is of far more vital concern to their economy than tobacco. Another agreement containing quantitative provisions is that with Canada. T h e United States, willing to give concessions on items competitive with domestic production, yet of material importance to Canada, utilized tariff or customs quotas to limit the scope of the reductions. Under this restriction tariff reductions were granted on cream, cattle weighing over 700 pounds each, calves weighing under 1 7 5 pounds, certified seed potatoes, and sawed lumber and timber of Douglas fir and western hemlock.94 These concessions, while of considerable importance to the Canadian economy, are relatively insignificant from the standpoint of domestic production of these commodities. T h e concession on cream, a reduction from 56.6 cents per gallon to 35 cents, applies to 1,500,000 gallons of imports. F r o m 1928 to 1932 cream imports averaged 4,392,000 gallons. Only threefourths of one percent of the average annual slaughter of cattle weighing over 700 pounds come in under lower duties. Onefourth of one percent of the same base is affected by the concessions on calves weighing under 1 7 5 pounds. Certified seed potatoes coming in under a lowered tariff rate composed 5.5 percent of domestic production during the five years preceding the agreement. T h e concession on lumber reduces the duty on a volume of imports constituting 5.5 percent of domestic production of these species in 1934. 0 5 These items are, of course, competitive with American production. Tariff quotas, therefore, appeared to the negotiators to be a method whereby concessions could be given to Canada without upsetting the internal structure of production. T o the relatively smaller Canadian economy these restricted tariff concessions form on other types of tobacco. U. S. T a r i f f Commission, Changes in Import Duties Since the Passage of the 1930 Act, T h i r d Ed., Washington, 1 9 3 7 , p. 19. M See infra, T a b l e X I , Appendix, p. 3 2 5 , f o r the former duties and new conventional rates on these items. M

F o r further details, see ibid. T h e analysis of these reductions as tariff concessions has already been undertaken in an earlier chapter. Sufra, chapter V I I I .

224

RECIPROCAL TRADE

POLICY

an important potential stimulus to greater exports of these commodities into the tremendous American market. 96 It is to be noted that the customs quotas prescribed by the United States are unallocated global quotas and may be filled from any source. T h e imports under these quotas, however, come almost exclusively from Canada. 97 Since these tariff quotas are not allocated into national contingents some of the administrative difficulties inherent in the quota system are thereby avoided. Moreover, this also means that the only restriction upon imports in excess of the stipulated quantities lies in their being subject to a higher rate of duty. It is this aspect of customs quotas which sharply distinguishes them from import quotas. T h e sugar drawback provisions in the Haitian and Nicaraguan agreements, the sugar and tobacco concession in the Cuban agreement, and the tariff quotas accorded Canada constitute the very limited extent to which the United States has given specific concessions with reference to quantitative controls. As a general policy, the United States has avoided quotas and other instruments of quantitative trade control. 08 T h e sugar and tobacco restrictions are emergency measures linked with internal pro96 T h e concession on cattle weighing over 700 pounds, for example, affects about 1 5 percent of total Canadian production. Congressional Record, Volume 8 1 , 75th Congress, 1st Session, February 9, 1 9 3 7 , p. 1 2 5 9 .

" U. S. T a r i f f Commission, Concessions Granted by the United States in the Trade A greement with Canada, Washington, 1 9 3 6 , p. 9 7 ; U. S. Department of State, The Midwest and the Trade-Agreements Program, Washington, 1 9 3 6 , pp. 60-62. 1,8 For a statement of Hull's position to this effect, see New York Times, September 20, 1 9 3 4 . From time to time, however, quotas as an instrument of policy have been viewed by some as desirable. E.g., New York Times, J a n u a r y 2 9 i i 933 i U. S. House of Representatives, Reciprocal Trade Agreements, Hearings before the Committee on Ways and Means, 73d Congress, 2d Session, Washington, 1 9 3 4 , p. 2 2 4 ; New York Times, M a y 6, 1 9 3 4 ; Journal of Commerce, March 26, 1 9 3 6 .

It was reported in J a n u a r y 1 9 3 4 , that F . B. Savre had submitted a plan to the President f o r tariff adjustment which included the use of quotas. New York Times, J a n u a r y 5, 1 9 3 4 . Under the withdrawal clause, should any third country obtain the major benefit of any concession, the United States may w i t h d r a w the concession or place a quantitative restriction upon imports of the item in question. Supra, p. 1 9 3 .

QUOTAS UNDER

BARGAINING

duction and marketing schemes. As to the use of tariff quotas, they have been employed to permit a greater reduction in the general or Hawley-Smoot level of duties than might have otherwise been considered feasible. In these respects, therefore, the use of quantitative controls by the United States has very limited significance and a character far different from those implementing commercial policies abroad. T h e r e have been other cases in which quantitative controls have been contemplated and even employed, but these are exceptions to American commercial policy apparently dictated by the exigencies of the circumstances present." T h i s is not to dispute their inconsistency with the general lines of American policy but simply to give a fair perspective of their relative importance. CONCLUSION

Can it be fairly said in the light of the preceding discussion that the United States has been successful in its frontal attack upon quantitative trade controls? T h e achievements of the reciprocal agreements in this direction appear threefold. First, P o w e r to impose quantitative restrictions has not been lacking-. Under section 3 ( e ) of the N I R A the President had the authority to impose any type of import restriction he saw fit. Section 22 of the A A A (passed August 24, 1 9 3 5 ) provides similar powers with reference to the agricultural program undertaken by the United States. T h e latter stipulates that no quantitative restrictions imposed are to restrict imports to less than 50 percent of the average imports from 1 9 2 8 - 3 3 inclusive. F o r the texts of these sections, see Seventeenth Annual Report of the United States Tariff Commission, ig¡¡, Washington, 1 9 3 4 , p. 5 5 ; Nineteenth Annual Report of the United States Tariff Commission, 193;, Washington, 1 9 3 6 , p. 4 5 . Section 3 ( e ) of the N I R A was not used, to any great extent. T h i s was chiefly due to the fact that Japanese producers of wood-cased lead pencils and cotton rugs, and Canadian producers of red cedar shingles agreed to limit shipments to the United States. T h e United States has utilized quotas to regulate imports of petroleum, lumber and timber and alcoholic beverages into the United States, upon the repeal of the Eighteenth Amendment. In addition, imports of cordage and coconut oil from the Philippines have been placed upon quota restrictions. F o r details, see Office of National Recover)' Administration, Foreign Trade under the National Industrial Recovery Act, Division of Review, March 1 9 3 6 , pp. 1 3 5 - 1 3 7 , 2 5 4 - 2 7 0 ; C. R . Whittlesey, "Import Quotas in the United States," Quarterly Journal of Economics, November 1 9 3 7 , pp. 37-65. See supra, p. 27.

226

RECIPROCAL

T R A D E

POLICY

and perhaps foremost from the short-run view, the attempt to secure equality of treatment by obtaining from other countries specific application of the most-favored-nation clause to quantitative controls appears to have been signally successful. W h i l e the "representative period" formula is open to some objections, up to the present it has proved the most feasible method yet devised to bring quotas within the scope of the clause. 100 As this aspect of American policy has already been reviewed in some detail, no further discussion is necessary at this point. 101 Secondly, pending an abrogation of quotas, the United States has been able to secure certain promises with reference to the administration of quantitative controls which may be expected to lessen their restrictive effect upon American exports. 102 T h e technique of administration of these controls is inherently a complicated one, and any steps which may lessen the possibility of administrative protectionism and discrimination are to be welcomed. A t best, however, one must agree with the following statement by a committee of experts : T h e application by States of the above principles w o u l d at least have the e f f e c t of

reducing

the inconveniences of the system

those directly concerned. B u t neither these principles nor the

for pre-

c e d i n g r e c o m m e n d a t i o n s can render acceptable a system w h i c h is at best an e m e r g e n c y r e g i m e , fated to disappear as soon as circumstances permit.103

T h e third accomplishment of the reciprocal trade policy falls into three parts. With reference to the "non-quota countries," 100

o

see supra, pp. 1 1 4 et seq. *" Supra, Chapters V I and V I I . While quotas are necessarily emphasized in the discussion presented, the most-favored-nation provisions apply to any type of quantitative control that is in use or may be devised. 1M T h e trade agreements in this respect f o l l o w closely the recommendations of seventeen of the world's leading economists. Joint Committee, Carnegie Endowment-International Chamber of Commerce, The Improvement of Commercial Relations between Nations and the Problem of Monetary Stabilization, Paris, 1 9 3 6 , p. 409. Ibid., p. 4 1 0 . T h e "preceding recommendations" refer to the possibility of a multilateral agreement on the need for the abolition of import quotas, the employment of tariff quotas as a means of transition, and the elimination of industrial quotas within twenty-four months. Pp. 407-408.

QUOTAS UNDER BARGAINING

227

the United States has obtained a guarantee that concession items enumerated in the respective schedules will not be subjected to any quantitative restrictions. Further, quotas may be applied to non-concession articles of interest to American exporters only under certain conditions. T h e freedom of action of the countries signing trade agreements with the United States is, in these respects, considerably circumscribed. In the reciprocal arrangements with the "quota countries," a liberalization of contingents allocated to the United States has been secured. Since, in general, these have dealt with items of which the United States is a chief supplier, and in view of the fact that only equality of treatment has been sought, there is no reason to fear that any canalization of trade away from the principle of comparative advantage will result. 104 In addition, with the possible exception of France, these countries have consolidated their quota concessions to the United States during the life of the agreement. F r o m the standpoint of stability of trade relations and in view of the fluidity of commercial policies in recent years, this is a concession of considerable importance. Perhaps the most crucial aspect of American policy as revealed in the above discussion lies in the conscious efforts of the United States to influence foreign countries towards a more rational economic foreign policy. An increase in the volume of world trade based upon the principle of equality of treatment are the basic objectives of American policy. T h e quota provisions of the trade agreements and the application of the most-favored-nation clause to quantitative controls appear to aim accurately at these objectives. It cannot be emphasized too much, however, that quotas must go. A force so destructive of international trade and constituting such a threat to economic freedom cannot be sanctioned as a permanent instrument of commercial policy. 104

F o r some qualifications to this statement, see supra,

note 62.

X E X C H A N G E

PROVISIONS

IN

T H E

T R A D E

A G R E E M E N T S SOME T E N D E N C I E S

IN

THE

INTERNATIONAL

SITUATION S I N C E

EXCHANGE

1929

T H E Credit Anstalt episode in 1 9 3 1 may well be viewed as the igniting force to the international financial conflagration which subsequently swept the world economy. T h e ensuing drain upon the exchange and currency reserves of the countries involved led to direct interference with the transfer mechanism. 1 But more deep-seated factors than these immediate stimuli underlay the exchange disturbances of the years following 1 9 3 0 . T h e sudden and more rapid decline of already falling commodity prices, the drying up of international capital movements, the rapid shifting of "panic funds" from financial center to financial center, national currencies depreciating and depreciated, the contraction of credit items in the balances of payments, and the rise of trade barriers all contributed as repercussive, interrelated forces to the disintegration of the international monetary mechanism. 2 Under these conditions gaps appeared in the balances of payments of numerous countries. Exchange controls and/or currency depreciation seemed inevitable for certain debtor coun1 U. S. Department of Commerce, Current Trends in Foreign Tariffs and Commercial Policy Review of 1931. Trade Information Bulletin, No. 790, Washington, 1 9 3 2 , p. 1 2 . T h e decline in agricultural prices during the postwar period, agricultural protectionism, and the cessation of American capital exports had hit several countries as early as 1929. J . B. Condliffe, "Vanishing World Markets," Foreign Affairs, J u l y 1 9 3 3 , pp. 649-650. 2

This discussion does not purport to portray adequately the whole picture, which would take volumes to do, but simply to present some background f o r a perspective of the accomplishments and problems of the trade agreements in this field. 228

EXCHANGE

PROVISIONS

229

tries. 3 Others, seeking to avoid both currency depreciation and exchange controls, endeavored to readjust their international economic position through internal deflation of the price and cost structure accompanied by quantitative restrictions upon imports. 4 T o the first group of countries the question involved was whether the pressure of the balance of payments should be surrendered to, and depreciation of the external value of the currency relied upon to bring about a readjustment, or whether the mechanism of payments, and perhaps trade, should be subjected to control. 5 Exchange controls are the fruit of the latter policy. 6 T h e endeavor to maintain the external purchasing power of the currency meant, for the most part, the isolation of national price structures, an indication of the collapse of the international monetary system. Exchange regulation, among other things, appeared to some countries to obviate the need for internal deflation or the danger of depreciation. Like prohibitive tariffs and quotas, exchange controls destructively impinge upon the flow of goods and services in international trade. 7 T a r i f f s are restrictive through their effect on pricesj quotas cut through the price mechanism to limit rigidly the value or quantity of imports 5 exchange controls restrict imports through the means of payment. T h e foremost problem in the administration of exchange controls from the standpoint of ' League of Nations, Remarks on the Present Phase of International Economic Relations, I I . Economic and Financial 1 9 3 5 . II. B. 1 1 , p. 1 3 . Certain European countries and many Latin American countries f a l l within this group. Debtor countries would be interested, other circumstances permitting, in avoiding depreciation since this would tend to increase the incidence of their debts. * E.g., France up until September 1 9 3 6 , when the franc was devalued. 8 In some cases, these controls were utilized to prevent the currency from depreciating further than it already had. U. S. Department of Agriculture, World Trade Barriers in relation to agriculture, Washington, 1 9 3 3 , p. 64. * E x c h a n g e controls take various forms. F o r a good picture of their extensive scope, see P. E i n z i g , Exchange Control, Macinillan and Co., Ltd., London, 1 9 3 4 (chart f o l l o w i n g p. 1 9 5 ) . T h e employment of exchange controls to avoid depreciation or deflation was an illusory measure of readjustment f o r the very existence of such controls implied the presence of economic disequilibrium. ' League of Nations, Evolution of Commercial Policy Crisis, I I . Economic and Financial 1 9 3 4 . I I . B . 1 , p. 1 0 .

Since

the

Economic

RECIPROCAL TRADE

POLICY

foreign trade is the allocation of exchange. T h e emergency principle of allocating exchange upon the basis of so-called "indispensable" imports such as raw materials and foodstuffs was followed at first by most countries. 8 Later, this principle was applied more restrictively by alloting no exchange for commodities that could be produced within the domestic economy. 9 I t was but a short step to a consideration of the state of the balance of trade and payments with individual countries as a criterion of allocation. 10 An inevitable corollary of these developments was the differential treatment of imports according to national origin. This discriminatory policy led to a strong tendency towards a diversion of trade contrary to the basic economic principle that imports should be supplied by areas able to produce them most effectively. This governmental restriction and allocation of the means of international payments bore severely upon commerce between nations. International trade is still composed predominantly of individual transactions. These transactions must necessarily be discouraged if traders are unable to transfer payments. T h e accumulation of frozen commercial claims or "blocked accounts" is but symptomatic of the breakdown of the transfer mechanism. Clearing agreements in eliminating the use of the foreign exchange market vividly illustrate further the extent of the breakdown. 11 Another manifestation in this direction lies in the recent tendency towards transfer or payments and clearing and payments agreements providing for the allocation of exchange to cover invisible items, especially debt service and blocked commercial balances, in the commercial relations between nations. 12 "Thus, the whole range of payments across national frontiers— " U. S. Department of Agriculture, of. cit., p. 65. 'Ibid. 10 U. S. Department of Commerce, Foreign Tariffs and Commercial Policies During 1932, Trade Information Bulletin No. 8 1 2 , Washington, 1 9 3 3 , p. 5. " Clearing agreements have been authoritatively characterized as " a reversion to the primitive system of barter." League of Nations, Enquiry into Clearing Agreements, II. Economic and Financial 1 9 3 5 . II. B. 6. pp. 14, 48. " L e a g u e of Nations, World Economic Survey, 1935-36, II. Economic and Financial, 1936, II. A. 15. p. 2 1 2 . They frequently cover the allocation of exchange in settlement of current commercial claims.

EXCHANGE

PROVISIONS

231

the invisible as well as the visible items—tends to come under national regulation and control.'" 3 T h e uneconomic canalization of trade and payments between pairs of countries, an important aim and result of exchange controls and clearing and payments agreements, has lessened considerably the effective utilization of the world's economic resources. Moreover, through the economic links between the various national units composing the world economy, the effects of such policies have not tended to solve the economic problems of the countries pursuing them, but rather to aggravate further existing maladjustments for all countries. 14 EXCHANGE

PROVISIONS

IN T H E

TRADE

AGREEMENTS

Narrow bilateral arrangements such as clearing, payments, clearing and payments, compensation, and barter agreements may be ascribed chiefly to the conditions outlined above. These have been devised, of course, chiefly to mitigate the restrictive effects of exchange regulation upon commerce and the transfer of payments. Their deflationary effect upon international trade, however, makes it necessary to characterize them as trade barriers. This, with their discriminatory nature, places them within the group of trade restrictions against which are directed the two broad objectives of American policy, viz., the revival of world trade by a reduction in trade barriers and equality of treatment for American exports. T h e question then arises as to what the trade agreements have accomplished in these directions. T h e application of the unconditional most-favored-nation clause to exchange restrictions has already been discussed.15 In 13

Ibid.,

p. 2 1 3 .

" L e a g u e of Nations, Draft nomic 15

Conference,

Supra,

Annotated

Agenda

of the

Monetary

and

Eco-

II. Economic and Financial 1933. II. Spec. i , pp. 2 1 , 24-25.

Chapter V I I , pp. 131 et seq.

T h e allocation of exchange leads to

what might be called " v a l u e quotas." It may be observed at this point that the currency provisions described below apply to the total trade rather than individual commodities as do the quota sections. Further, the existence side by side in foreign countries of these t w o types of control may lead to difficulties should available exchange be insufficient to meet payments f o r the imports permitted entry. " B l o c k e d "

commer-

cial payments, discouraging further imports, result from such a situation. It

RECIPROCAL

T R A D E

POLICY

m o s t cases t h e U n i t e d S t a t e s s e c u r e d , e i t h e r e x p l i c i t l y o r in g e n e r a l p r o v i s i o n , t h e p r o m i s e of e q u a l i t y o f t r e a t m e n t in t h e a l l o c a t i o n o f e x c h a n g e . T h e p r o v i s i o n s of t h e a g r e e m e n t s a l s o d e f i n e t h e r e q u i r e m e n t s o f m o s t - f a v o r e d - n a t i o n t r e a t m e n t in l i n e w i t h "representative

period"

formula.

With

reference

to

the non-

c o m m e r c i a l t r a n s a c t i o n s , t h e U n i t e d S t a t e s sets u p in s e v e r a l o f t h e r e c i p r o c a l p a c t s t h e r u l e t h a t e x c h a n g e c o n t r o l in e i t h e r c o u n t r y m u s t b e a p p l i e d " i n a n o n - d i s c r i m i n a t o r y m a n n e r as b e t w e e n t h e n a t i o n a l s of t h e o t h e r c o u n t r y a n d t h e n a t i o n a l s of a n y t h i r d c o u n t r y . " 1 8 T h e reciprocal tariff concessions, m o r e o v e r , are m a d e c o n t i n g e n t u p o n t h e a p p l i c a t i o n of t h e p r i n c i p l e of e q u a l i t y t r e a t m e n t w i t h r e f e r e n c e to e x c h a n g e controls. F i n a l l y , t i o n is m a d e

of

stipula-

in a n u m b e r of a g r e e m e n t s f o r s y m p a t h e t i c

con-

s i d e r a t i o n b y b o t h p a r t i e s of t h e r e p r e s e n t a t i o n s of e i t h e r c o n c e r n i n g t h e a d m i n i s t r a t i o n of e x c h a n g e c o n t r o l s . I n s o m e , it is f u r t h e r s t i p u l a t e d t h a t s h o u l d n o s a t i s f a c t o r y a d j u s t m e n t of t h e matter be reached, the entire a r r a n g e m e n t

m a y be

terminated

upon d u e notice.17 T h e U n i t e d States has specifically e x e m p t e d any possible e m would appear desirable to control imports, if such restriction be deemed necessary, simply by quotas. T h e effect upon the international position of the currency unit in question would be the same. T h e provisional commercial agreement recently signed between the United States and Italy stipulates that no restrictions whatever are to be placed by either party on the transfer of payments f o r or incidental to imports. T h i s has not been concluded under the Reciprocal T r a d e Act but is preliminary to a full treaty of commerce subject to Senate ratification. U. S. Department of State, Press Release, December 1 7 , 1 9 3 7 . " Guatemala, I X , also Costa Rica, I X , the Haitian agreement provides f o r unconditional treatment in the event either party "establishes or maintains any system of control of foreign exchange or enters directly or indirectly into any arrangement which affects in fact the provision of foreign exchange or the regulation or control of the transfer or disposition of means of payment, o r employs any other system of control or any other arrangement with respect to the settlement of international obligations." Haiti, V I I . Even though not explicitly stated, the rule quoted above from the Guatemalan pact applies to other agreements since it is merely a further elaboration of most-favored-nation treatment with respect to exchange controls. "Cuba, X I ; Honduras, V I I I ; Nicaragua, I X ; Guatemala, I X ; Costa Rica, I X ; El Salvador, I X . Most-favored-nation treatment includes the rate at which exchange is allotted as well as the quantity allocated. This is specifically provided f o r in the provisional agreement with Italy. T h e cross rates of exchange in some free market are suggested as the criterion to be used in the determination of mostfavored-nation treatment. U. S. Department of State, op. cit.

EXCHANGE

PROVISIONS

233

b a r g o e s o r restrictions u p o n t h e e x p o r t a t i o n o r i m p o r t a t i o n g o l d a n d s i l v e r f r o m t h e p r o v i s i o n s of t h e a g r e e m e n t s . 1 9

of

While

this g e n e r a l r e s e r v a t i o n is a r e c i p r o c a l o n e , it w a s i n s e r t e d at t h e instance of t h e U n i t e d S t a t e s to p r e v e n t a n y t r a d e

agreement

c o m m i t m e n t f r o m i m p i n g i n g u p o n f r e e d o m of action in t h e

field

of m o n e t a r y p o l i c y . I n v i e w of t h e p r e s e n t situation in t h e f o r e i g n e x c h a n g e s this r e s e r v a t i o n is, at p r e s e n t , c h i e f l y of historical interest. A n o t h e r i m p o r t a n t p r o v i s i o n to be f o u n d in m o s t of t h e t r a d e agreements

is

the

so-called

"Belgian

Clause."

The

Swedish

a g r e e m e n t states: I n the e v e n t that a w i d e v a r i a t i o n o c c u r s in the rate of e x c h a n g e b e t w e e n the c u r r e n c i e s of the U n i t e d S t a t e s of A m e r i c a a n d S w e d e n , the G o v e r n m e n t of e i t h e r c o u n t r y , if it c o n s i d e r s the v a r i a t i o n

so

substantial as to p r e j u d i c e the i n d u s t r i e s or c o m m e r c e of the c o u n t r y , shall

be

f r e e to propose n e g o t i a t i o n s

f o r the

modification

of

this

A g r e e m e n t ; a n d if an a g r e e m e n t w i t h respect t h e r e t o is not r e a c h e d w i t h i n t h i r t y d a y s f o l l o w i n g the receipt of such p r o p o s a l , the

Gov-

e r n m e n t m a k i n g such proposal shall be f r e e to t e r m i n a t e this A g r e e m e n t in its e n t i r e t y on t h i r t y d a y s ' w r i t t e n n o t i c e . 1 9 The

agreements

with

Brazil,

Haiti,

and

Colombia,

all

early

a g r e e m e n t s , d o not contain this s a f e g u a r d . 2 0 I n the F r e n c h agree,s

Cuba, X I ; Haiti, V I I ; Sweden, X I I ; Canada, X I I ; Honduras, XIII; Netherlands, X V I ; Switzerland, X I V ; Nicaragua, X I V ; Guatemala, XIV; France, X V I ; Finland, X V I ; Costa Rica, X I V ; El Salvador, X I V . T h e agreements with Brazil and Belgium contain no such clause. "Sweden, X ; also Belgium, pp. 2, 41 ; Canada, X ; Honduras, X I ; Netherlands, I X ; Switzerland, X I ; Nicaragua, X I I ; Guatemala, XIV; Finland, X I I I ; Costa Rica, X I I ; F.I Salvador, X I I . T h e Cuban agreement contains a similar provision in somewhat different form. Cuba, X . This will be discussed presently. This is called the "Belgian Clause" because it was first included in the Belgian trade agreement. M The Colombian agreement contains no provisions of any sort with reference to exchange controls, but Article X I I states that "the purpose of this agreement is to grant mutual and reciprocal concessions and advantages f o r the promotion of commercial relations between the two countries; and that each and every one of the provisions contained herein shall be complied with and interpreted in accordance with this intention." These three pacts were earlier agreements. Officials have endeavored to improve the provisions since they were negotiated.

RECIPROCAL TRADE

POLICY

ment, it is definitely implied that exchange control or currency instability would be considered as upsetting a basic element in the reciprocal arrangement. T h e preamble reads: T h e President of the United States of America and the Government of the French Republic, being equally desirous of contributing to the establishment of a more liberal economic policy between the nations by the relaxation of restrictions on trade, taking into account that there is no restriction either in the United States of America or in France upon the settlement of commercial obligations nor upon the circulation of capital and that there is stability in fact in the relation between their respective currencies, have decided to conclude an agreement. . . , 21 This stipulation appears to possess the same objectives as the "Belgian Clause." This standard provision is of considerable significance and merits some further examination. T h e "depreciation clause" seeks to resolve the problem present in any endeavor to demobilize trade barriers in the absence of currency stability. It involves, moreover, the battleground of the London Conference as to whether stabilization should precede the mitigation of trade restrictions or vice versa. 22 T h e American program is proceeding on the assumption that both should be sought together. Cordell H u l l has stated his position as follows in referring to the T h r e e P o w e r Monetary Pact of 1936. T h i s advance towards stability should also greatly facilitate the reduction of excessive phases of quotas, exchange controls, and of other impediments to commerce between nations which themselves were partly caused by exchange uncertainties, for it has been apparent for a substantial time that progress towards stability and the reduction of barriers to commerce should go forward concurrently, or as nearly as possible simultaneously. T h e step taken is in harmony with 21

France, preamble, see also Article VI which makes the quantitative provisions contingent upon the absence of "any restriction upon the settlement of commercial obligations." 22 See League of Nations, Reports Approved by the Conference on July 27, 1Ç33 and Resolutions Adopted by the Bureau and the Executive Committee, Monetary and Economic Conference, II. Economic and Financial 1 9 3 3 . II. Spec. 4, London, 1 9 3 3 , p. 22.

EXCHANGE

PROVISIONS

o u r reciprocity t r a d e - a g r e e m e n t s p r o g r a m , as it is a n

235 indispensable

part of any p r o g r a m for full a n d stable business r e c o v e r y . 2 3

Unquestionably increased tariffs, quotas, and exchange controls have been due in a large measure to exchange instability. Countries are hesitant, moreover, about reducing trade barriers so long as fluctuating currency values threaten their economies. On the other hand, stabilization without any frontal attack on world trade restrictions also presents difficulties. Without liberalization of commercial policies, repercussions might be produced in the respective balances of payments and thereby upset currency stabilization. 24 T h e most feasible policy, under these circumstances, appears to be that proposed by H u l l as quoted above. T h e "Belgian Clause" implements this policy by permitting the demobilization of trade barriers to proceed in the absence of stable currency relations. 25 So long as the threat of exchange instability exists, however, commercial agreements will necessarily be limited in scope. Trade-control restrictions will remain in force without any substantial reduction, nor will nations enter into any pacts of long duration—although long-term pacts were an element of much importance in the pre-war stability of international commercial relations. T h e Belgian Agreement illustrates these results to a marked degree. 20 On four different occasions, involving gold bloc countries, the United States was in a position to invoke this clause upon gold 23 U. S. Department of State, Press Releases, Weekly Issue, No. 365, September 26, 1 9 3 6 , p. 2 6 8 ; see also, U. S. Senate, The Causes of the Loss of Ex-port Trade and the Means of Recovery, Hearings before the Committee on A g r i culture and Foresty, 74th Congress, ist Session, Washington, 1 9 3 5 , pp. 5 0 - 5 1 . " This includes a liberalization beyond the removal of restrictions imposed since 1 9 2 9 and is especially applicable to the policies of creditor countries. 25 This clause was advocated by the Assembly of the League of Nations in a resolution on commercial policy in September, 1 9 3 5 . Société des Nations, Journal Officiel, October 1 9 3 5 , p. 16. ™ Belgium, pp. 2 - 4 2 ; U. S. Department of State, Trade Agreement Signed by the United States and Belgium, press release, February 27, 1 9 3 5 , especially pp. 1 4 - 2 0 ; U. S. Department of Commerce An Analysis of the Trade Agreement between United States and Belgium, press release, M a r c h 1 , 1 9 3 5 .

236

RECIPROCAL TRADE

POLICY

bloc countries, but in no case was official action taken. T h e devaluation of the belga, guilder, franc, and Swiss franc certainly, in the subsequent variation in the dollar exchange rate of these currencies, fell within the scope of the "Belgian Clause." 2 7 I n the case of Belgium the officials stated that they had negotiated the agreement with possibility of devaluation in mind and had, accordingly, been particularly cautious with respect to reductions in the American tariff. Again, it was argued, the standard currency clause had been incorporated in the agreement and could be utilized should the effects of devaluation upon American industry and commerce prove different from what had been anticipated. Finally, the Belgian government promised to supervise the prices quoted by Belgian exporters and, where considered necessary, to subject products to the formalities of export licenses.28 It must be admitted that American officials had ample grounds for not taking advantage of the "Belgian Clause." With respect to the revaluation of the guilder, franc, and Swiss franc, no similar explanation has been issued. T h e decline of French prices in terms of other currencies tends to increase the ability of imports from France to scale the American tariff wall. Conversely the French tariff is, for the time being, horizontally increased since foreign currencies become more expensive in terms of francs. It is easily observable that under these conditions the calculations of American officials based upon exhaustive study and cautious action were probably upset. 29 Similar considerations apply to the depreciation of the guilder and the Swiss franc. It might be argued that the United States should have sought 21 New York Times, September 26, 29, 1 9 3 6 . T h e belga was devalued in February 1 9 3 5 , New York Times, March 27, 29, 1 9 3 5 .

Exports of cotton and wool rugs, cement, bricks, table glassware, and crushed stone were immediately subjected to export licenses. F o r the f u l l statement of the State Department and the Belgian note to the United States, see U. S. Department of State, Press Releases, Weekly Issue No. 290, April 20, 1 9 3 5 , pp. 243-2+5. This could not have been substantial since devaluation of gold bloc currencies has been considered more or less an imminent step undoubtedly recognized as such by the American officials. See U. S. Senate, Extending Reciprocal Trade Agreement Act, Hearings before the Committee on Finance, 75th Congress, 1 st Session, Washington, 1 9 3 7 , pp. 91-92 (statement by F . B. S a y r e ) .

EXCHANGE

PROVISIONS

237

compensatory adjustments or even termination of the entire agreement in these cases. This would have been a short-sighted move. For one thing, it must be borne in mind that the effects of a devalued currency upon trade, when not offset by other factors, are temporary in their nature. Sooner or later, the internal value of the currency in question may be expected to fall and an equilibrium of the two currency values reestablished. 30 In the second place, the entire agreement with its advantages must be set off against the act of devaluation. T h e United States, implicitly, has not deemed it expedient to terminate the entire agreement even though devaluation has nullified considerably concessions given by France and the Netherlands. Moreover, to have done so would have been unreasonable and inconsistent, for the United States had depreciated its own currency under no such severe international economic pressure as that from which the French economy was suffering at the time of devaluation. Such an inconsistent step would have provided a severe reverse to the attainment of more favorable Franco-American commercial relations. I n view of these considerations, the standard currency or "escape clause" appears to be subject to definite limitations. Only in extreme cases of wide currency fluctuations resulting in obvious deleterious repercussions to the American economy would it prove useful. In other cases, an agreement resulting from long and careful study and providing for a liberalization of commercial policies is probably too important to set aside merely because of temporary derangements which may result f r o m depreciation of a currency. Nor can it be said that the "escape clause" would deter foreign countries f r o m acting, for when a matter so crucial to the economy as devaluation is involved, a trade agreement with a foreign country would hardly bar a contemplated action. 31 '"Partly due perhaps to devaluation and partly to priccs are rising rapidly and checking the differential New York Times, February 1 7 , 1 9 3 7 . The above statement is made with reference to present no offsetting depreciation by the United States. " These considerations would probably apply to any might be devised.

other factors, French in favor of the franc. conditions and assumes "escape clause" which

238

RECIPROCAL TRADE

POLICY

Special provisions in the Cuban and Brazilian agreements have an important bearing upon the relationship between the movement of foreign exchange rate and the trade agreements. T h e Cuban pact provides that if either country should devalue its currency by more than 1 0 percent of its legal gold content as of J u n e 1 , 1 9 3 4 , the other may increase, on a specific basis, its tariff rates upon imports of the other country to an extent sufficient to compensate for the reduction in gold content. 32 This applies to specific rates of duty which, following the anticipated rise in internal prices caused by depreciation, bear with less incidence upon imports. These increased charges must, however, be levied proportionately against like commodities of other foreign countries. 33 T h e remoteness of the possibility of devaluation by either country makes this provision relatively insignificant. Another provision in the reciprocal arrangement with Cuba stipulates that both contractants " w i l l refrain f r o m subjecting payments or the transfer of means of payment or the disposition thereof to any regulation, restriction, charge, or exaction other or higher than was in force on April 1 , 1 9 3 4 . . . This specifically refers to any action which impairs any provisions of the agreement, places an undue burden upon trade between the nationals of the two countries, or affects the transference or availability of funds which nationals of either country find reasonably necessary for residence, business, or travel in the territory of the other country. Should either violate this provision, and if no satisfactory adjustment is reached after formal complaint, the other government may terminate the entire agreement upon thirty days' notice. This reciprocal promise is intended to prevent the adoption of any exchange controls that might nullify or seriously impair the concessions granted in the trade agreement. E

CubaJ

X.

" During the interval between the rise in prices internally, the application of this provision would increase the burden of the tariff as an addition to the immediate retarding effect of devaluation itself upon imports (assuming a depreciated rather than a depreciating currency). ** Cuba, X I . T h e reciprocal customs preferences are conditioned upon compliance with this provision.

EXCHANGE PROVISIONS

239

In an exchange of notes dated February 2, 1 9 3 5 , the trade agreement with Brazil was supplemented by an elaboration of the financial provision in Article V I . T h e promise of f u l l unconditional most-favored-nation treatment with respect to exchange is elaborated upon by Brazil as follows: 1. T h e Bank of Brazil agrees to allot exchange for the settlement of all current commercial claims and sufficient exchange to liquidate gradually "blocked" balances due American importers. T h e amount of exchange allocated to the United States is to be slightly more than the share American exports to Brazil formed in the latter's total imports during a representative period (previous ten years). 3 5 2. In the allocation of exchange for the transfer of dividends and profits American companies are not to receive less favorable treatment than that accorded to any other foreign companies. 3. In the event that contemplated banking credits are secured, sufficient exchange will be allocated to assure continued servicing on bonds floated in the United States during the post-war period in accordance with the arrangement of February 5, 1934. 3 6 Brazil suggested, moreover, that the Bank of Brazil cooperate with the Federal Reserve Board of N e w Y o r k in interchanging foreign exchange records and reports to assist in developing trade between the two countries. This is the only trade agreement which has contained definite financial concessions of this nature. With reference to the first section above, it should be noted that " This deals only with "blocked accounts" which have accumulated since the arrangement of 1 9 3 3 . Frozen commercial claims before that period have been dealt with in the 1 9 3 3 agreement. See Commercial and Financial Chronicle,| June 1 7 , 1 9 3 3 , p. 4 1 8 3 , for a summary of this settlement. Balances of over $50,000 were amortized over a seventy-two-month period, while those under this amount were to be paid off within ninety days. No more favorable arrangement could be made with any other country nor could any agreement interfering with fulfillment of the American arrangement be entered into. " Brazil, pp. 34-35. T h e arrangement of February 5, 1934., classified Brazilian bonds into eight groups with varying allocations of exchange for each group. T h i s drastically reduced Brazilian obligations to pay for a period of four years with the hope that at the end of this period Brazil would be able to resume normal debt servicing. For details, see Commercial and Financial Chronicle, February 10, 1 9 3 4 , p. 9 1 2 . These credits were not obtained. Economist ( L o n d o n ) , March 2, 1 9 3 5 , p. 476.

RECIPROCAL T R A D E

POLICY

it goes beyond the "representative period" formula, the criterion of equality of treatment in exchange matters. Unless Brazil is able to afford the same treatment to other foreign countries, there would be a violation of the principle of most-favorednation treatment. On February n , 1935, a few days after the signing of this agreement, Brazil practically freed all foreign exchange business from exchange regulations. 31 Drafts had to be sold to authorized banks, however, which in turn were required to remit 35 percent of the proceeds from exports to the Bank of Brazil to enable liquidation of the government's and the Bank's foreign obligations.38 This meant that Brazil's promise to allocate exchange for current commercial claims became practically redundant, but this was to be welcomed in view of the movement towards liberalization of trade restrictions which the step implied. The merchandise export surplus fell so far short of expectations during the first quarter of 1935, however, that reimposition of direct control of foreign exchange was necessary. 30 American exports gained by the interim relaxation of control even though the Brazilian agreement did not become effective until January 1 , 1936. 40 " Commercial and Financial Chronicle, February i 6, 1 9 3 5 , p. 1 0 2 0 . * For the complete provisions of this change in policy, see Economist (Lond o n ) , March 2, 1 9 3 s , pp. 475-4.76. T h e transfer of profits and dividends remained subject to official examination and regulation. " Reimposed J u n e 27, 1 9 3 5 . Economist, London, J u l y 6, 1 9 3 5 , p. 19. For a general discussion of the exchange problems confronting Brazil at this time, see ibid., August 3, 1 9 3 5 , pp. 2 3 6 - 2 3 7 . U. S. Department of Commerce, Commerce

Reports,

A p r i l 6, 27 and M a y

4> I 935> PP- 2 2 9 > 2 77> a ° d 2 &7 respectively. American exports have, however, been handicapped in competing in the Brazilian market against Germany, which has been employing Aski or Compensation marks as a method of subsidizing German exports to Brazil. During the first half of 1 9 3 6 , Germany supplanted the United States as the chief supplier of Brazilian imports. T h i s trend has continued up to the present. New York Times, December 6, 1 9 3 6 . October 1 7 , 1 9 3 7 . F o r an elaboration of German policy, see League of Nations, World Economic Survey, 1935-36, I I . Economic and Financial 1 9 3 6 . II, A . 1 5 , pp. 1 9 6 - 2 0 0 . A special AmericanBrazilian committee is now studying the matter. U. S. House of Representatives, Extending Reciprocal Foreign Trade Agreement Act, Hearings before the Committee on Ways and Means, 75th Congress, 1st Session, Washington,

EXCHANGE PROVISIONS

241

T h e s e are, in brief, the exchange provisions to be found in the

first

sixteen

trade

pacts negotiated.

The

achievements,

g e n e r a l l y speaking, are the application of the

unconditional

clause to exchange controls and the standard currency variation clause. In the agreement with Cuba exchange restrictions were conventionalized or consolidated, the only case in which this was done, as of June 1, 1934. Brazil was the only country from which specific concessions with reference to frozen commercial claims and servicing on long-term debts were obtained. It may be inquired w h y the agreements did not go further and contain commitments such as are found in the Brazilian reciprocal arrangement. W h y , more specifically, were not arrangements made for the liquidation of "blocked accounts" in the agreements with the other Latin American countries with which pacts were concluded: 4 1 W h y , again, were not the defaulted Cuban and other bonds considered? Finally, could not the U n i t e d States have obtained a relaxation of exchange controls in the L a t i n American agreements? 4 2 In answer to these questions the possible lines of action which were open to the U n i t e d States may be considered. Broadly, there appear to have been two possibilities. American officials m i g h t have attempted to force the other countries to accord favorable treatment to the United States with reference to the allocation of exchange for both commercial and non-commercial debts. In some cases even preferential treatment might have been sought. But w o u l d this have been to the national interest of the U n i t e d States? International economic relations would have been subjected to further restriction and control contrary to the aim of American policy to lead the world away f r o m • 9 3 5 ) P' 97- N o t e also t h a t G e r m a n y has a n n o u n c e d h e r i n t e n t i o n to abolish this system. New 41

York

Times,

February

R i c a , a n d N i c a r a g u a , see Ne T h i r d Edition, Washington, 1 9 3 7 , pp. 1 7 , 44. " U. S. House of Representatives, Reciprocal Trade Agreements, Hearings before the Committee on Ways and Means, 73d Congress, 2d Session, Washington, 1 9 3 4 , pp. 9, 3 7 1 - 3 7 3 ; Amend Tariff Act of 1930: Reciprocal Trade Agreements, p. 1 5 (definitely in the n e g a t i v e ) , House Report N o . 1 0 0 0 , 73d Congress, 2d Session, Washington, 1 9 3 4 ; U. S. Senate, Reciprocal Trade Agreements, Hearings before the Committee on Finance, 73d Congress, 2d Session, Washington, 1 9 3 4 , pp. 7 1 , 3 5 0 . " A p p e n d i x , p. 305. 44 U. S. House of Representatives, Extending Reciprocal Foreign Trade Agreement Act, p. 2 0 1 . U. S. Senate, Extending Reciprocal Trade Agreement Act, p. 38. Illustrative of the type of excise taxes which can be reduced are those on oil and copper which section 601 of the Revenue Act specifically states shall be treated as import taxes. U. S. Senate, ibid., p. 35.

256

RECIPROCAL TRADE

POLICY

ment cannot violate statutory law, and a later legislative act would supersede the provisions of the trade agreements in this respect. 45 T h e value of the excise provisions lies in the improbability of congressional enactment of such taxes under the administration sponsoring the program. 46 T h e trade agreements in a number of cases provide that only nominal penalties are to be imposed where errors in documentation are clearly clerical in origin. 47 Drastic customs fines are thus avoided in all cases in which fradulent intent is absent. In quite a few cases, it is stipulated that the methods and bases of determining dutiable value and of converting currencies may not be modified to the disadvantage of the other contractant. 48 In so f a r as the first of these is concerned, this is an important provision, for a specified ad valorem rate can mean a much more severe burden upon, imports under one method or basis of determining dutiable value than under another. M o r e specifically, this might be illustrated by considering the incidence of an ad valorem duty on the basis of "foreign v a l u e " as compared to "American selling price." T h e latter would necessarily give a larger base from which the ad valorem duty would be computed. 49 T o illustrate the importance of this provision, the Canadian system of arbitrary valuation, aimed primarily at the United States, may be considered. T h e legal basis for this system is to be found in sections 43, 3 7 , and 3 6 ( 2 ) of the Canadian Cus" See Congressional Record, of. cit., February 9, p. 1 2 5 7 ; February 23, p. 1845. " The contemplated excise tax on sugar definitely violates Article VIII of the Cuban agreement. This has been recognized by officials and if passed will necessitate consultation with Cuban authorities. New York Times, March 3, 1937"Haiti, X ; Honduras, X I I ; Nicaragua, X I I I ; Guatemala, X I I I ; Finland, X I I ; Costa Rica, X I I I ; El Salvador, X I I I . 48 Cuba, V I I ; Haiti, V ; Sweden, V ; Honduras, I V ; Switzerland, V ; Nicaragua, V ; Guatemala, V ; Finland, V I ; Costa Rica, V ; El Salvador, V. " A 50 percent ad valorem duty on an article valued at i i o o for customs purposes, differs from the same rate applied to a duitable valuation of the same item of $200.

ADMINISTRATIVE

PROTECTIONISM

toms Act. 5 0 U n d e r the first, arbitrary valuation in the f o r m of a minimum fixed valuation per unit irrespective of invoice value resulted in the difference being assessed as a " d u m p i n g duty." 5 1 In some cases a fixed amount per unit was added to the invoice price; this " a d v a n c e " was then also levied as a " d u m p i n g d u t y . " Section 36 ( 2 ) stipulated that to the actual cost of production of goods at date of shipment direct to Canada is to be added a "reasonable

advance

for selling cost and profit." Inflated

valuations resulting in " d u m p i n g duties" were the outcome of this section since the Minister of National Revenue was the sole j u d g e of what was a "reasonable advance." 5 2 U n d e r section 37 the usual discounts afforded by American exporters from list prices were lowered by Canadian customs officials for valuation purposes, thus g i v i n g a larger base to which an ad valorem duty would apply. 5 3 A l l three of these violate the "fundamental principle of valuation under Canadian l a w , as under that of the United States, which is the fair market value of the commodity in the country of export." 5 4 Canadian concessions contained in Schedule I, and the Canadian note on valuation, provide a considerable force towards the removal of this obnoxious discriminatory system. W h i l e Canada reserved the right in Schedule I to continue the system of arbitrary valuations with a few exceptions on some items, "arbitrary advances" were entirely canceled. 55 In all cases no " a d v a n c e " in the future may exceed 80 percent of the lowest advance imposed during the calendar years 1933-35. 56 B y virtue of the provisions of the note, arbitrary valuations were canceled with respect to an additional list of items. 57 °° U. S. T a r i f f

Commission,

The

Trade

Agreement

vrith

Canada,

Report

N o . 1 1 1 , Second Series, W a s h i n g t o n , 1 9 3 6 , pp. 95-96. "Ibid., 52

Ibid.,

p. 96. p.

101.

"ibid.,

p. 100. T h i s w a s especially burdonsome with respect to automobiles.

"Ibid.,

p. 95.

M M

Canada,

Schedule I , items 84, 85, 87, 92-95.

Ibid.

"Ibid.,

p. 29. B y virtue of the most-favored-nation clause, additional can-

258

RECIPROCAL TRADE

POLICY

T h e Canadian note also considered sections 3 6 ( 2 ) and 37. With reference to the latter, no rate of discount "set under the authority of this section may operate to increase the value for duty of any American goods beyond the price at which they are freely offered for sale in the country of export." 58 Under the former section no advance may be made for selling cost or profit in excess of "that which is added in the ordinary course of business under normal conditions by producers in the country of export." 59 This whole discussion illustrates vividly the complexities which arbitrary shifts in valuation bases and methods may lead to. Similar considerations, in general, apply to the question of conversion of currencies for the purposes of assessment and collection of duties. Section 522 of the Hawley-Smoot Act places the task of establishing the rate of conversion between the dollar and the foreign currencies upon the Treasury Department. 60 The foreign contractants reciprocally promise to refrain from any changes in the method of conversion which may be prejudicial to American export trade. T h e restrictive effect of a disadvantageous rate of exchange for assessment and collection purposes is very similar as an unfavorable change in valuation basis.61 Both enlarge the base to which a particular ad valorem duty is applicable. cellations accrued to the United States as a result of the exchange of notes between J a p a n and Canada. The Trade A greement ixith Canada, p. 99. 58 The Trade A greement VÌ

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316

RECIPROCAL

T R A D E

TABLE

POLICY

VII

Q U O T A PROVISIONS IN T H E B E L G I A N A G R E E M E N T Amount of Percentage trade affected of total (.1933 basis) concessions

Binding of present duty and quota Patent leather Binding of present quota Hides and skins, painted or moroccoed, except goat, kid, sheep and other small skins Suppression of import quota restriction and reduction of license tax Linseed oil cake (10.00 to 7.50 fcs.) Liberalization of quota Lard, natural Corn starch Pork other than simply salted Hosiery of pure silk and mixed with silk Clothing for women other than with ornaments or containing silk Collars, cuffs, etc. Quota concessions

2,638,782

Total trade affected by all concessions Total Belgian Imports (1933)

Quota

Stipulated

Old

New

Kilos

Kilos

>'35,503

•83

38,000

38,ooo

81,982

.50

10,300

10,300

',497,335

9.18

923,962

5.65

16,335,000 43,268,000

none 606,400

3 , 2 0 7 , ooo 1 678,528

I,019,000

i,044,ooo1

1,400

6,000

3-50O 350

6,000 i ,000

16.16

37-9'

1

Allocations on the basis of average Belgian imports from the United States, 1 9 2 9 - 1 9 3 3 inclusive. * Percentage of total Belgian imports from the United States upon which concessions were granted. Source: Compiled from statistics and schedules in Trade Agreement signed by the United States and Belgium, Press release, Feb. 27, 1 9 3 5 , U. S. Department of Commerce; An Analysis of the Trade Agreement between the United States and Belgium, Press release, M a r c h 1 , 1 9 3 5 , U . S. Department of State.

APPENDIX

317

TABLE V I I I QUOTA CONCESSIONS G R A N T E D BY THE N E T H E R L A N D S AND THE N E T H E R L A N D INDIES TO THE U N I T E D S T A T E S ( S c h e d u l e I V of t h e A g r e e m e n t s i g n e d D e c e m b e r 2 0 , 1 9 3 5 )

Commodity

Minimum quantity to be admitted 1929 annually Unit of from the quantity United States under new quota Quantity Value

'934

Quantity

1000 florins Scheduli IV Section A—Netherlands Horse meat, salted Soybean cake Portland cement Nitrate, Chilean, including synthetic Wire nails and tacks Drawn wire, iron and steel Locks and parts Sheet zinc "Peeled" and cleaned or polished rice Matches U p p e r leather, lining leather, and chamois leather F o o t w e a r , chiefly of leather Footwear, other Fabrics, manufactured of: Artificial silk Artificial silk mixed with other material Cotton, bleached Cotton, printed, dyed woven figured Wool and mixtures Ribbons, tape, elastic bands, etc. 1

Ton 1 Ton Ton Ton Ton

I ,ooo 2,500 80 4,508 svn.) 73«

Ton Kilo Ton

2,762 1,000 69

Ton Kilo

Value 1000 florins

{in

Europe)

4,591 None 59

1,875 None 7

1,087 None 72

None "5

None 63

3,9io 73«

409 None 4 188 71

4 3 Not available 31s I7 2

214 2,774 Not available 18 69

3.500 11,149s

6,102 10,000

1,441 9

2,005 19,107

259 5

Ton

I484

40

674

128

7'4

Pair Pair

10,000 7,700 (rubbers)

1,500 24,000

11 69

1,266 5 >498

3 13

Kilo

1,410

Not available

Not available

Kilo Kilo

170 2,114

Not available I,1035 46

Not available 2s 2,481'

Kilo Kilo

20,164 25,000

16,329 s

86s 85

34,55'6 2,417s

26 s j5

Kilo

7,500

18,617

45

5,662

II

593*

Tons are metric tons of 2204.6 pounds. Includes wire. 3 Conditional on use for making paper advertising matches. 4 For statistical number 667-672 and 674. To be used chiefly for chrome tanned goat and kid upper leather (See Agreement). 2

318

RECIPROCAL

T R A D E

POLICY

T A B L E V I I I (Continued)

Commodity

Minimum quantity to he admitted f929 annually Unit of jrom the quantity United States under new quota Quantity Value

'934

Quantity

1000

1000

florins Scheu 'ule IV M e n ' s outerclothing, without rubber Kilo Ladies' outerclothing including infant's wear without rubber Kilo Stockings and socks Doz. prs. Knitted wear Kilo Underclothing Kilo Shirts' Kilo Printing and writing paper and cardboard paper Kilo "Other paper" Kilo Paper products Kilo

Seen on

605

5,5oo 30,000 36,036 2,693 5,400

3 99,000 51,273 21,000 1,000

168,600 98,183 197,300

149,490 163,765 s 281,290

Euro P') 458

4

793 >39 100 8

None 26,740 27,152 2,955 6,831

106 2 1 3 , 1 6 8 189 s 1 2 4 , 5 7 6 ' 340 244,687 5,992'

chedule I V .'ection

1

(in therlands

Total section A Fertilizers, unspecified

florins

A—Ne

4,500

Ton

20%» of average total imports 1931-32

Value

72 796 132 2,431'

B--Netherli md

Indies

1,495

432*

8,730

None 134 41 12 22

36»

Incomplete due to changes in classification. • Import statistics include collars and cuffs. 7 Approximations only, due to changes in classification and unavailable statistics. • T h i s would amount to 3,063 tons. '1933Source: U. S. Tariff Commission, Concessions Granted by the United States in the Trade Agreement with the Kingdom oj the Netherlands, Wash., 1936, pp. X X X I X

APPENDIX TABLE

319

IX

Q U O T A C O N C E S S I O N S G R A N T E D TO T H E U N I T E D S T A T E S BY S W I T Z E R L A N D

Commodity

Wheat Rice, milled Apples, pears and apricots, fresh Prunes and plums, dried Other dried fruits, pitted Canned vegetables Lard'

Softwood Wallboard of vegetable fibre Pneumatic tubes and tires Socks and stockings Petroleum residues, for fuel Refrigerating apparatus Oil-burners and parts Automobiles and parts R a d i o apparatus and parts 4 Benzine and benzol, for motors Kerosene Lubricating oils, mineral

Old Quintals = 220 lbs. Zero 20,000 24,146 15,000 10,600 6,500 embargo

62,765 800 6,048 15 127,819» 2,015 200 2,406 3 500 195,167« 51,168» 144,800"

New Quintals = 220 lbs.

U. S. Exports in 1929 {1,000' 0} dollars

1,180,000 20,000 24,146

4,162 164 127 220 261

24,709 11,000 10,000 9 0 % of total Swiss imports when resumed 75,000

243

262 not available 1,218 58 546

6,912 3° 300,000 2,821 280 4, 81 23 800 650,000 117,000 145,000

}

>69 8,273 not available 4,834 671 1,233

1 I.ard imports to be resumed within three months following the cffcctive date of the agreement. 1 Imports for 1934. » Units. 4 800 quintals corresponds to 5,600. Separately imported parts and accessories to be charged against the quota in the proportion of 100 kilos is equivalent to 7 sets. Source: U. S. Department of State. Reciprocal Trade Agreement between the United States 0) America and Switzerland, Executive Agreement Series, No. 90, pp. 1 8 - 2 0 ; Trade Agreement between the United States and Switzerland, press release, J a n . 9, 1936, pp. 1 7 - 2 2 .

320

RECIPROCAL

T R A D E

TABLE

POLICY

X

F R E N C H QUOTA CONCESSIONS TO THE U N I T E D S T A T E S IN S C H E D U L E I I I AND PROTOCOL

Description of Articles

Annual Supplementary Quotas (in Quintals, unless otherwise indicateti)

Preagreement quotas

(/ Quintals 220.4 pounds) Preserved fish, in brine or otherwise prepared: Salmon

Crustaceans preserved in the natural state or prepared

'935

(1,000 Francs)

1 0 , c o o until Dec 3 1 . 1936 1 2,500 for 1st quarter, I937 1

92

250 for 1st quarter, 1937 1

95

Note: The French Government expects that at the expiration of the first year of the present agreement the supplementary quotas allocated to the United States of America for preserved salmon and crustaceans will be transformed into normal quotas and it will endeavor to maintain them at the above mentioned quarterly amounts. Oranges (Provided for in Par. 13 of the Protocol to the agreement) For third quarter (July i - S e p t . 30) For fourth quarter (Oct. i - D e c . 3 1 ) For first quarter (Jan. i - M a r . 3 1 ) For second quarter (Apr. i - J u n e 30) Fresh apples and pears (Provided for in Par. 1 2 of the Protocol to the agreement) For third quarter (July i - S e p t . 30) For fourth quarter (Oct. i - D e c . 3 1 ) For first quarter (Jan. i - M a r . 3 1 ) For second quarter (Apr. i - J u n e 30)

Value of French Imports from U. S.

8 . 59%]of theglo 1 . 6 5 % I bal quo0 . 2 9 % [ t a for all o . 1 6 % J countries1

13,208 s

( 0-5%) ( 22.4%) ( 48.6%) ( 28.5%)

1,125 58,240 126,060 74,000

Total i 3 4 . 3 5 5 (ioo-o%) Common woods other than magnolia, yellow poplar and similar w o o d s . . . . 1 3 , 6 1 8 metric tons

259,425

674 30,095 65,297 38,289

17,332

45,813

I6,379

1 These will be total quotas for the United States since there are now no separate allocations for the United States. 2 Including grapefruit from J a n . 1 to April 30.

A P P E N D I X

321

SCHEDULE I I I AND PROCOTOL

(Continued)

Annual Supplementary Quotas (in Quintals, unless otherwise indicated)

Description 0} Articles

Value 0f French Imports Prefrom U.S. agreement '935 quotas

(/ Quintal= 220.4 pounds) C o m m o n w o o d s of m a g n o l i a , p o p l a r a n d similar w o o d s '

(1,000 Francs)

yellow 1 , 7 4 8 metric tons

10,700

9,oco4

A r t i f i c i a l a b r a s i v e s , pure o r m i x e d w i t h n a t u r a l a b r a s i v e s or o t h e r s u b s t a n c e s : C a r b o r a n d u m or c a r b o r u n d u m (silicon c a r b i d e ) , p o w d e r e d o r g r o u n d Applied abrasives: On c l o t h ; n a t u r a l a b r a s i v e s , a n d including g l a s s or silex a p p l i e d on cloth O n p a p e r , w o o d , etc.; n a t u r a l a b r a sives, and including glass o r silex applied on p a p e r , w o o d , etc H y d r a u l i c lime, in blocks or in p o w d e r , regardless o f the m e t h o d of p a c k i n g o r shipping B u t y l alcohol N o t e : T h e F r e n c h G o v e r n m e n t will end e a v o r to m a i n t a i n the a n n u a l s u p p l e m e n t a r y q u o t a at the figure of 2 0 0 q u i n t a l s , but reserves the right to red u c e it to 1 6 3 q u i n t a l s if u n f o r e s e e n c i r c u m s t a n c e s should m a k e this reduction necessary. B u t y l acetate N o t e : T h e F r e n c h G o v e r n m e n t will end e a v o r to m a i n t a i n the a n n u a l supp l e m e n t a r y q u o t a a t the figure of 3 0 0 q u i n t a l s , b u t reserves the right to red u c e it to 254 q u i n t a l s if u n f o r e s e e n c i r c u m s t a n c e s should m a k e the reduction necessary. V a r n i s h e s a n d assimilated p a i n t s o t h e r t h a n with alcahol, or with cellulose a c e t a t e or nitrocellulose base

650

2,144

342

120

182

211

165

1,124

952

1,000s 200

•83

36 29

300

232

830

1,000

1,878

729

' W o o d s reclassified f r o m fine w o o d s to c o m m o n w o o d s D e c . 7 , 1 9 3 5 a n d t h e r e b y p l a c e d u n d e r q u o t a restriction. R e d g u m is i n c l u d e d a m o n g these w o o d s . 4 E s t i m a t e d on the basis of i m p o r t s o f all fine w o o d s . 6 T h e s e will be total q u o t a s f o r the U n i t e d S t a t e s since there are n o w no s e p a r a t e allocations f o r the U n i t e d S t a t e s .

322

RECIPROCAL

TRADE

SCHEDULE I I I AND PROTOCOL

Description

of

Articles

POLICY {Continued)

Annual Supplementary Quotas (in Quintals, unless otherwise indicated)

Preagreement quotas

(1,000 Francs)

(/ Quintal= 220.4 pounds) Artificial t e e t h of porcelain, e n a m e l or similar m a t e r i a l s 28 R a d i o or wireless t u b e s 45 K n i t goods of silk or silk floss: Stockings and socks 11,880 doz. pairs M a c h i n e m a d e p a p e r n.e.s. ( o t h e r t h a n those benefiting by f a v o r e d tariff t r e a t m e n t p r o v i d e d for t h e s e k i n d s of p a p e r i n t e n d e d for use in p r i n t i n g , n e w s p a p e r s , magazines, periodicals, etc.) weighing m o r e t h a n 35 g r a m s per s q u a r e m e t e r 7,300 R o u g h c a r d b o a r d , in sheets, plates, rolls or spools, o t h e r t h a n i n s u l a t i n g board m o r e t h a n 10 millimeters in thickness 2,500 H i d e s or skins, p a t e n t , o t h e r t h a n kid, sheep a n d l a m b 101 H i d e s , curried, o t h e r s , t r e a t e d with tallow, waxed, of n a t u r a l color, d y e d , shagreened, goffered, g r a i n e d , glossed, s t a m p e d , moroccoed, dulled, blackened, p a i n t e d , checkered, colored, etc., of g o a t , k i d , sheep a n d l a m b . . . 37 S t e a m engines, s t a t i o n a r y , a n d m a r i n e ; in each case s e p a r a t e f r o m their boiler, s t e a m p u m p s , compressors, etc 3,400 Agricultural and other tractors 2,300 P r i n t i n g presses 1,000 Agricultural machinery: Cultivators 97 Mowers 817 Reapers, reaper-binders, combines. . i,477 Others 2,003 A p p a r a t u s for c i r c u i t - b r e a k i n g , regul a t i n g , p r o t e c t i n g , d i s t r i b u t i n g electric c u r r e n t , a n d including p a n e l b o a r d s , b a r e or e q u i p p e d : a) N o n - a u t o m a t i c a p p a r a t u s a n d a p p a r a t u s c a p a b l e of being trans-

Value of French Imports from U.S. '935

7 384

888 4,152

13,120

1,346

7,270

i,370

3,136

602

1,649

6,950

173

1,405

7,636 15,650

2,648

4,312

3.945 1,979

171 586 i ,012

45 99 92

2,773

432

APPENDIX S C H E D U L E I I I AND PROTOCOL

Description 0} Articles

323

(Continued)

Annual Supplementary Quotas (in Quintals, unless otherwise indicated)

Preagreement quotas

(1 Quintal— 220.4 pounds) formed into automatic a p p a r a t u s . 450' b) Automatic apparatus 8io! Radio telephone and telegraph appar a t u s (including their separate parts) 588 3.412 Electric domestic apparatus: Domestic refrigerators 502 8,498 Pneumatic hammers and tools 200 508 Typewriters and parts 200 2,552 Refrigerating apparatus 278 4.472 Twist and other drills, taps and dies, punchers and dies, reamers and cutters in one piece 1,200,000 francs 2 , 7 7 8 . 7 2 4 Circular saws (with non-replaceable teeth) for working metals when hot, circular saws for wood, endless band saws; hand and machine saws, files and rasps, rectangular scrapers, etc.; foundry tools (hooks, ladles and polishers); scrapers for machinists; vises of all kinds, screw chucks, saw sets, pawls, breast drills, hand-drills (witho u t adjustable wrenches with wooden handles, monkey wrenches and others); other non-cutting tools; other cutting tools (except pitchforks 2,800 2,044 and hooks) N o t e : T h e French Government will endeavor to maintain the annual supplementary q u o t a at the figure of 2,800 quintals but reserves the right to reduce it to 2,596 quintals if unforeseen circumstances should make this reduction necessary. Unspecified tools of copper 25 23 M a n u f a c t u r e of aluminum: 200 O t h e r articles 324

yalue of French Imports from U.S. 1935 (1,000 Francs) 446 2,878 11,316 12,400 1,973 Ii,299 4,837 2,171

4,986

i ,606 2,406

' These will be total quotas for the United States since there are now no separate allocations for the United States.

324

RECIPROCAL

TRADE

POLICY

SCHEDULE I I I AND PROTOCOL ( C o n t i n u e d )

Description of Articles

Annual Supplementary Quotas (in Quintals, unless otherwise indicated)

Preagreement quotas

(/ Quintal= 220.4 pounds) Passenger automobiles: Cars with bodies, complete or not. . Chassis without bodies imported at the reduced duties as provided for in Section A of Schedule II Bodies and parts of bodies, fitted or not Automobile parts and accessories under quota Rubber manufactures: Other manufactures Direct reading or registering apparatus for measuring pressure of gas, etc., and their separate parts

3.33" 3,062 3.419

Value of French Imports from U.S. '935 (1,000 Francs)

6,512' 932

7

4,848'

8,902

3.658 9.936

3,000

21.938

10,604

600

2,720

2.379

40

41

451

7 These figures include quantities shipped through Belgium (credited to Belgium) 1,440; 400; 160, respectively. Source: U. S. Department of State, Trade Agreement between the United States and France, press release, May 13, 1936, pp. 30-40.

Note: In addition to the above supplementary quotas. Schedule III contains an assurance of continuation of the present treatment of American motion picture films. (This is an abandonment of proposals made to more severely limit imports of foreign films) Cf. ex. 469 quater of French tariff.

APPENDIX

325

TABLE X I C U S T O M S Q U O T A S G R A N T E D BY THE U N I T E D S T A T E S TO C A N A D A

Old Duty

Cream

Conventional Rate

55.6 35 cts. cts. gal. gal.

Cattle weighing over 700 lbs. Dairy cows 3 cts. lb. Others 3 cts. lb. Calves weighing under 175 lbs. 2§ CtS. lb. Certified seed Potatoes 75 cts. lb.

1J cts. lb. 2 cts. lb.

Quota

Relation oj quota to domestic production

1,500,000 4,392,000 gal. average imports 1928-1932 20,000 f i of 1 % of ave. annual domestic 155.799 slaughter of cattle (1928-1932

(/,000's of dollars') Imports from Canada IÇ2Ç

'934

$5.184

O.I

500

2

9,900

4

1 Jets. lb.

51.933

ì of 1% of same base

1,000

3

45 cts. lb.1 (6of! Dec. 1 through Feb.)

750,000 bu.

5.5% of average production during the 5 years preceding the agreement

600

223

Sawed lumber and timber of Douglas fir and Western hemlock f i .00 >0.50 250,000 M 5% of domestic 12,000 tax $3' tax f l .¡o2 board feet production in 19343

105

1 Concession limited both quantitatively and seasonally. * Imposed under Revenue Act of 1932 and reduced in the trade agreement. ' All hemlock included both here and in value statistics for imports. Source: U. S. Department of State, Press Release, December 17, 1935; U. S. Tariff Commission, Concession Granted by the United States in the Trade Agreement with Canada, Wash., 1936, pp. 79, 89, 125, 145, 347; U. S. Department of State, The Midwest and the Trade Agreement Program, H. S. Patton, Wash., 1936, pp. 57-58.

TABLE X I I FOREIGN TARIFF CONCESSIONS TO THE UNITED STATES (I,OOO'S

of dollars) Trade

Country Year

Importance

Total Imports from the U. S.

Imports Affected by Tariff Concessions

Percentage oj Total Imports

Brazil Duty reduction Duty bound

1929

#108,787

>41.359 35.239 6,120

38.0 32.4 5.6

Belgium Duty reduction Duty bound

1933

46,196

13,812 9,878 3.934

32.0 22.9 9-1

Haiti Duty reduction Duty bound

1929

8,790

1.463 791 672

16.6 9.0 7.6

Sweden Duty reduction Duty bound Free list bound

'933

34.74°

15,122 1.674 5.390 8,058

61.1 6-7 21.8 32.6

Colombia Duty reduction Duty bound

1929

56.047

32,863 18,947 13,916

58.6 33-8 24.8

Canada Duty reduction Duty bound Free list bound

1929-30 (Fiscal year)

825,275

274,027 195.487 8,921 69,619

33-2 23-7 1.1 8.4

Honduras Duty reduction Duty bound

1929

12,719

2,692 861 1,831

21.1 6-9 14.2

Netherlands 1

1929

179,119

57.730 2

35-7

34,8u 22,919

21.5 14.2

Duty bound Free list bound Switzerland Duty reduction Duty bound

1929

i6,i37

22,204 2,408 19,796

39-6 4-3 35-3

Nicaragua Duty reduction Duty bound

1929

6,952

1,755 392 1.363

25.2 5.6 19.6

1 2

Includes entire Kingdom of the Netherlands. Monopoly fee and "crisis" tax concessions are also given on some of the items 3*6

APPENDIX TABLE X I I

(Continued) Trade

Country

327

Year

Total Imports from the U. S.

Guatemala Duty reduction Duty bound

1929

11.436

France Duty reduction Duty bound

'935

Finland Duty reduction Duty bound Free list bound

1934

Costa Rica Duty reduction Duty bound

1919

El Salvador Duty reduction Duty bound

1929

Importance Imports Affected by Tariff Concessions

Percentage of Total Imports 41.8

4,783 583 4,200

5-1 36-7

i16,920

8,700 3,56o 5,140

7-4 3 4-4

9,182

5.546

60.3 11 .0 18.7 30.6

I ,OII

1,721 2,814 8,261

2,440 1,126 I,3'4

7,983

904 391 513

29.J 13-6 15-9 113 4-9 6.4

' Q u o t a concessions are given on some of the items in addition to concessions regarding d u t y reductions and binding. Source: Compiled and calculated from data presented in the analyses of the State Department issued upon the signing of each agreement; also U. S. Tariff Commission, Trade Agreement with Canada, Wash., 1936, p. 83; Concessions Granted by the United States in the Trade Agreement with the Kingdom of the Netherlands, Wash., 1936, pp. I V , X X I X - X X X V I I ; Concessions Granted by the United States in the Trade Agreement with Switzerland, Wash., 1936, pp. I X - X , X I V - X V I I I .

328

RECIPROCAL

TRADE

POLICY

TABLE X I I I T A R I F F CONCESSIONS G R A N T E D BY THE UNITED S T A T E S Number oj Reduced Duties1 Brazil Belgium Haiti Sweden Colombia Canada Honduras Netherlands Switzerland Nicaragua Guatemala France Finland Costa Rica E l Salvador Total Excluding concessions granted more than once

7 78 5 44 I 66' 1 5« 84 1 1 95 8 1 —

Number 0} Bound Duties1 —

4 —

7 2 4 4 I 8 —

4 5 6 4 4

Number Bound on Free List 12 5 7 3 9 20 6 22 1 10 5 —

3 9 5

450

53

"7

448

28

79

1

Also bound by virtue of the general provisions of the trade agreements. * Due to the inclusion within the appended schedules to the agreements these items are bound at existing rates. A reduction to one country and the subsequent inclusion of the same reduction in a succeeding agreement has been counted as a duty binding to the latter country. • Includes reduction of excise tax on lumber provided under Sec. 601, Revenue Act of 1932. Source: U. S. Tariff Commission, Changes in Import Duties since the Passage oj the Tariff Act 0/1930, Wash., 1937, pp. 2-43.

A P P E N D I X TABLE

329

X I V

R E D U C T I O N S UNDER THE T R A D E A G R E E M E N T S AS WITH I N C R E A S E S IN T H E A C T OF

Increases Schedule number

under

Contents

Act 1930

I

1 3 4 5

6 7 8 9 10 11 12 13 14 15

Chemicals, oils and paints E a r t h s , earthenware, and glassware

47 122

M e t a l s and manufactures of W o o d and manufactures o f 1 S u g a r , molasses, and manufactures of T o b a c c o and manufactures of Agricultural products and provisions

105 17 14 2 250

Spirits, wines and other beverages Cotton manufactures

4 37 33 62 8

F l a x , hemp, jute, and manufactures of Wool and manufactures of Silk manufactures M a n u f a c t u r e s of rayon or other synthetic textiles Papers and books Sundries

Total 1

COMPARED

1930

the 0}

Number of reductions under the trade agreements 58 36 116 7 1 2 88 8 7 10 12

l6

12

11

18 156

J8

887

447

17

Reduction in excise tax on lumber in the Canadian agreement is excluded.

S o u r c e : U . S. T a r i f f Commission; Changes Tariff

in Import

Duties

since the Passage

of the

Act of f p j o , W a s h . , 1 9 3 7 , pp. 2 3 7 ; D a t a from the files of the U . S . T a r i f f

Commission.

TABLE V A L U E OF U N I T E D S T A T E S IMPORTS

1

FROM A L L C O U N T R I E S ,

FROM

AGREEMENTS

HAVE

(Thousands 1929 Value

%oj Geographical Sec turns

Grand Total—From All Countries 4,399.36I Total—From North American Countries

981,529

100.0

1931 %«/ Grand Total

Value

%oj Geographica Sections

%of Grand Total

100.0

2,090,635

22.3

5*7,041

100.0

24.7

90,059 760 266,268 11,870 SO,817 3,736 4,651 2,382 2,231 47

17-4 .2 51-5 23 9.8 •7 •9 •5 •4•

• 12.8 .6 24 .2 .3 .1 .1

100.0

207,42t 1,445 503.496 12,833 64,589 5.203 8,470 5.748 3.830 105

.2 51.3 1-3 6.6 •5 •9 .6 •4•

Total—From North American Countries with which agreements have been concluded

813,140

82.9

•8.5

432.82:

83.7

20.7

Total—From all other American Countries

168,38g

I7-I

38

84,220

16.3

40

639.758

100.0

14-5

307.190

IOO. O

14-7

207,686 1,171 103,525 132

32.4 .2 16.2

4-7

110,212 894 75,482 68

35-9 •3 24.6•

3-6

3",Si4

48.8

7.1

186,656

60.8

8.9

From From From From From From From From From

Haiti Canada Honduras Nether land West Indies Costa Rica Guatemala Nicaragua Salvador French West Indies

North

Total—From South American Countries From From From From

Brazil Netherland Guiana Colombia French Guiana

Total from South American Countries with which agreements have been concluded Total from all other American Countries

South

"•5 •3 1-5 .2 . •1

2.4•

5-3•

327,244

512

7-4

120,534

39-2

5-8

i >332,630

100.0

30.3

640,095

100.0

30.6

74,048 52,986 48,350 83,853 11,225 171.485

5-6 4.0 3-6 6-3 .8 12.9

1-7 1.2 1.9 .2 3-9

34.J4I 34,271 23.099 34,952 9,932 79,174

5-4 5-4 3-6 5-5 1-7 12.4

Total—From European Countries with which agreements have been concluded

441.947

33-3

IO.O

215,492

33-7

10.3

Total—From all other Countries

890,683

66.8

20.3

424,603

66.3

20.3

1,280,279

100.0

29.1

S74.30I

100.0

27-5

82,301 29

6.4•

1.9•

34,240 236

6.0•

1-7•

Total—From all other Asiatic Countries 1,197,949

03-6

27.2

539.825

94.0

25.8

108,608

100.0

2-5

32,888

100.0

1.6

4.382

40

.I

:,818

5.5 7.4

.1

2,792

2.6

.I

2,439

101,434

93-4

2.3

28,631

87.1

1-4

56,557

100.0

1-3

19,120

100.0

•9

Total—From Europe From From From From From From

Belgium Sweden Switzerland Netherlands Finland France

Total—From Asia From Netherland India From French Indochina

Total—From Africa From Algeria and Tunisia From Madagascar and other French Africa, not including Morocco Total—From all other African Countries Total—From Oceania

1.6 1.6 1.1 1-7 •5 3-8

.1

General imports, 1029, 1931, 1933; imports for consumption, 1934 and 1935. • Less than ooe-tenm of one per cent. Source: U. S. Department of Commerce, Foreign Commerce and Navigation of the United States. 1

33°

XV GEOGRAPHICAL SECTIONS, AND BEEN

FROM C O U N T R I E S

WITH

WHICH

CONCLUDED

of Dollars) '933

Value

'934

%oj Geographical Sections

*.449»559

%*/ Grand Total

Value

100.0

t ,636,003

'935

%oj Geographical Sections

%of Grand Total

Value

100.0

2,038,638

%°f Geographical Sections

%oj Grand Total 100.0

31 •9

391.045

100 .0

23-9

500,890

100 . 0

58,499 804 185,409 7,046 6,533 3,944 3.484 2, 225 2,108 91

18.4 •3 58.3 2.2 2.1 1.2 1.1 •7 •7

4.0 .t 1 2 .8 •5 •4 •3 2 2 1•

78,761 1,220 227,254 7,796 8,601 2,099 4.533 1,667 2,527 156

20 2 3 58 1 2 0 2 2 5 1 2 4 7

4.8 .1 13-9 •5 •5 .1 •3 .1 . •2

111,soi 1.158 285,141 6,338 13.173 3,089 6,137 2,615 4,918 216

22.3 .2 56.9 1.3 2.6 .6 1-3 •5 1 . 0•

14.0 •3 .6 .2 •3 .1 . •2

270,143

85.0

18.6

334,614

8s.6

20.5

434,286

86 7

21.3

47,626

150

3 3

56,431

14 4

3-4

66,604

13 3

3-2

202,280

100.0

14 0

226,964

100 0

13-9

279,006

100 0

13-7

82,628 1,230 47,636 37

40.8 .6 2 3 . 6•

S 7

40 s 4 2 0 7•

5-6 .1 2 . 9•

99,255 1,122 50,143 16

35 6 4 1 8 0•

4.9 .1

3 3•

9I.97S 846 46,96s 76

65.0

9 I

139,862

61 6

8.6

150.S36

54 0

7-4

3>7.767

131.531

100.0

24S 5-5

M

0

4 9

87,103

4

5-3

I28,470

46 0

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NEWSPAPERS The The The The The The

Capitol Daily. Christian Science Monitor. New York Times. Philadelphia Inquirer. Philadelphia Record. Washington Post.

INDEX AAA:

Commercial

as an obstacle to tariff revision, 1 3 ,

to,

27 relation o f , to new trade p r o g r a m , 197n>

96-97, 225n,

205,

5;

necessity

1 8 1 , 285,

1 9 2 1 , e f f e c t of

for,

169,

180-

293

maximum-and-minimum tem in,

29m

A n t i - d u m p i n g A c t of A c t of

220-223,

policy:

l i b e r a l i z a t i o n , methods of a p p r o a c h

tariff

sys-

32n

objective

of

United States,

39-40,

265

1 9 3 4 , on, 44_n

Argentine Sanitary Convention,

260-

Committees: Committee

261 Australia:

for

Reciprocity

Infor-

mation, 4 8 , 5 3 - 5 4 , 6 1 - 6 3 , 6 5 - 6 7 ,

discrimination

of,

against

the

73"

United States, 1 5 7 - 1 5 8 , ; e f f e c t of

C o m m i t t e e on G e n e r a l S u r v e y s , 5 5 n

n o n - g e n e r a l i z a t i o n on,

C o m m o d i t y Committees, 5 1 , 52

Austria,

financial

16+n

crisis of

1931,

3,

228

Special Committees, 5 1 , 5 2

B a r t e r a r r a n g e m e n t s , 2 7 , 2 8 n , 86

T r a d e Agreements Committee,

Bilateralism: a l t e r n a t i v e s f a c i n g the United States, 28 formal, advantages,

6

spread o f , b r o a d , 4 5 , mal bilaterialism,

as an

stacle to n e w p r o g r a m ,

74,

ob76,

8 1 - 8 2 , 2 8 6 ; e f f e c t of substantive, on f o r e i g n trade,

101

ratification of trade treaty of

C a n a d a , re-negotiation

of

agreement 1933,

26

agreement

w i t h , 2 8 7n Chalmers, Henry,

i65n

1933,

230,

242

Colombia,

proposed 26

228n

Costa R i c a , a g r e e m e n t w i t h , e f f e c t i v e , 98n C r e d i t o r position of the United States: 179 of

recognition

of,

288-

289, 293 sudden shift to, 1 , i n Cuba: continuance in t a r i f f bill of p r e f e r ential position in United

States,

34

C l e a r i n g agreements, i o i n , 1 1 5 , 231,

101

72

necessity

by, 81 n proposed

icy,

Condliffe, J . B.,

nize, 2 ,

26m

Brazil: in

advantage:

f a i l u r e of p o s t - w a r p o l i c y to r e c o g -

W a l l a c e , H e n r y , on, 49n Borchard, E.,

Comparative

principle o f , as guide to tariff p o l -

100-102 6;

49,

5 6 , 69, 7on m o s t - f a v o r e d - n a t i o n treatment,

substantive, distinguished f r o m f o r -

delay

C o u n t r y Committees, 5 1 , 5 7 , 68, 69 P l a n n i n g C o m m i t t e e , 5 0 , 56

trade

treaty

of

Senate a m e n d m e n t c o n c e r n i n g , 36 exclusive

character

with, i 2 8 n , 1 9 5 ,

of

agreement

222n

s u g a r concessions g r a n t e d to, 221

220-

368

RECIPROCAL T R A D E POLICY

tobacco concessions granted to, 222223 Culbertson, W i l l i a m S., 253n, 26on formal

Executive powers over customs matters, spread abroad o f , 45

announcement

concerning, Fetter, Frank W . ,

9$n provisional agreement with,

ljon,

control o f , background, 2 2 8 ; effect

Deimel, Henry L . , 68n

on foreign trade, 229 ; relation

Discrimination: classification of countries, and, 153158 of,

on

multangularity

of

trade, 1 0 1 - 1 0 2 , io4.n most-favored-nation tional

type,

clause,

102-105;

condi-

uncondi-

tional f o r m , advantages o f , 106 199-200

test of, as a criterion of generalization, 1 4 7 , 153, 1 60-161 vulnerability

of American

exports

to, 1 1 7 - 1 1 8

announcement

con-

cerning, 98n El

Salvador, agreement

with, effec-

tive, 98n

234-235,

244-245 Foreign trade : administrative protectionism, effect o f , on, 246-247 decline of w o r l d trade, 4 effect of exchange control on, 229,

export balance and, 289n exports, analysis of barriers affecting, preliminary to trade agreement, 58

clauses in the

agreements,

1 33> 134, 237 Exchange depreciation: after Creditanstalt episode, 12, 228,

229 with

gold

of,

imports, analysis of, preliminary to

use of terms, 2n, 96n

bloc

coun-

tries and, 235-237 " B e l g i a n clause" in the agreements and, 233-237 franc, o f , 21 8n cerning, 238 of N I R A and, 95-96

Excise taxes, 34, 1 1 9 , 133,

tariff reduction, 57, 181 relation to domestic prosperity, 2 5n, 39. 4o, 79, 285 variations in, 1 7 2 F o x , A . M . , 266n France : exceptions

to

most-favored-nation

treatment in the agreement with, i 76n future of quota system in, 2 0 i n

provision in Cuban agreement conSection 3 ( e )

demobiliza-

tion of trade barriers,

281-282

restoration of, 286-287

agreements

229-230 instability o f , and the

factors in recent improvement

Equilibrium:

"Escape"

1 1 3 , 1 1 6 , 1 3 1 - 3 2 , 2 3 1 - 2 3 2 , 240242 ; and allocation of payments,

effect of quotas on, 200-202

Dutiable value, 256-258 formal

to most-favored-nation treatment,

230-231

Durand, E. Dana, i93n Ecuador,

i93n

Foreign exchange (see Exchange depreciation)

157

quotas,

54,

88, 89n

Czechoslovakia:

effect

tee, 29, 30, 3 1 , 48, 49, 5 i n ,

253-256,

291 Executive commercial policy commit-

quota

system

of,

and

the

most-

favored-nation clause, 11 i n , 200, 212 Free list: penalty duties on products on, 35n binding of items on, 42, 1 7 7 , 192195

INDEX

369

Germany: a p p l i c a t i o n of c o u n t e r v a i l i n g duties a g a i n s t , 156-157 Aski m a r k t r a d i n g in B r a z i l , 24on desire f o r t r a d e a g r e e m e n t with the United States, 81-82 G r a d y , H e n r y F., 4 2 n , 46n, 4 9 n , 6 t n , 66n, 78n, 8 i n , i 0 4 n , i j i n G r e g o r y , T . E., I 0 4 n , i i 7 n G r u n z e l , Josef, i 9 8 n

M o n e t a r y stabilization, 25, 27n, 2 3 5 , 2 4 4 - 2 4 5 , 289 (lee F o r e i g n E x change) Montevideo Conference of 1933, i67n, i68n, 259-260 M o s t - f a v o r e d - n a t i o n clause (see D i s crimination) a l t e r n a t i v e f o r m s , 147 a u t h o r i t y to conclude a g r e e m e n t s , 36n

H a b e r l e r , G o t t f r i e d V., i n n , i i 4 n , 119n, 201 n, 2 9 o n H a i t i , delay in ratification of a g r e e ment b y , 8 i n H a w k i n s , H a r r y C., 49n H a w l e y - S m o o t Act (see T a r i f f ) Helfferich, Karl, 1 5 m H u l l , C o r d e l l , 18, 24, 30, 33, 39n, 46, 4 9 n , 60, 66-67, ? 8 n ) 79) Son, 8 2 - 8 5 , &9> !49 n > i 6 o n , i 6 8 n , I 7 9 n , i 8 o n , i 8 i n , 2 i 9 n , 22+n, 2 3 4 - 2 3 5 , 243, 2 5 m

benefits to t h i r d countries f r o m , 58, 161-164 benefits to the United States f r o m , 1 6 4 - 1 6 6 , 176, 177 Collier tariff bill, 16 compatibility with tariff b a r g a i n ing, 20, 35, 4 3 , 135, 147 customary provisions concerning, 125-127 effect of, on bilateral and m u l t i l a t e r a l agreements, 23, i67n, 168n equality of t r e a t m e n t , in Act of

I n t e r - g o v e r n i n e n t a l debts, 35, 292 I n t e r d e p a r t m e n t a l Advisory B o a r d on Reciprocity T r e a t i e s , 26 I n t e r n a t i o n a l C h a m b e r of C o m m e r c e , 2 4 6 n , 2 4 7 n , 248, 263 I n t e r n a t i o n a l Conference on Customs F o r m a l i t i e s , 2 4 6 - 2 4 7 , 249n Italy: m o d u s vivendi w i t h , 2 3 m , 2 3 2n negotiations w i t h , 74-76 Jones-Costigan Act, i 9 7 n , 205, 220222 League of Nations, E c o n o m i c C o m mittee o f , cited on m o s t - f a v o r e d nation clause, 1 0 7 - 1 0 8 ; on a d m i n istrative protectionism, 246-247, 2485 o n creditor countries, 293 London Economic Conference of >93 3» 21, 23, 24, 29, 234, 248, 251. 2 5 9 M a n g a n e s e , protests concerning reduction o n , 80-81 M c C l u r e , W a l l a c e , 73

duty

1934, 39> 4 ° excise taxes, 119, 133-134, 291 f o r e i g n trade monopolies, 116, 131, 159-160, 1 9 9 - 2 0 0 generalization of f o r e i g n concessions, 58, 176-177 legislative history of the Reciprocal T r a d e Act, 32 letters f r o m President to Secretary of T r e a s u r y concerning, 1 5 3 - 1 5 8 non-tariff t r a d e controls, a n d , (see "representative p e r i o d " ) f o r m u l a ) , 107, 1 1 1 - 1 1 6 , 1 2 9 - 1 3 2 , 152153, 306 " o t h e r acts or policies," in r e l a t i o n to, 123-124, 147-148 regional exceptions to, in the a g r e e ments, 1 2 8 - 1 2 9 , ' 3 ° , 1 6 7 - 1 6 8 "representative period" formula, 114, 1 3 0 - 1 3 2 , 2 1 4 - 2 2 0 , 226 Russian relations with the United States, 74n, I 3 4 n , 1 5 9 - 1 6 0 Section 317 of the H a w l e y - S m o o t Act, 1 1 6 - 1 1 7 statement of policy, 149-152

RECIPROCAL TRADE POLICY

370

Stresa exception,

133,

p r o c l a m a t i o n o f agreements, 69

167-168

tariff b a r g a i n i n g , 1 9 ; r e c o m m e n d a tions

of

United

States

Tariff

Commission, 20 127-129 i02n in

f o r m o f , the

agreements,

factors 117-118

7,

i67n,

168n

effect on tariff history, 1

Procedure

in

252-253

of

agree-

c h a n g e in, 6 5 , 7 o n criticism o f , 64 Quotas:

port

N e u t r a l i t y , relation of trade p o l i c y to

(see

Most-favored-nation

and

Export

Prohibitions

and

Restrictions, 204n customary reservations in the a g r e e -

problem o f , 2 6 1 - 2 6 2 , 288

ments, 204-205

NIRA: invalidation o f ,

effect o f , on f o r e i g n trade, 199-201

89

obstacle to tariff revision,

12,

25,

effect of provisions on, and duration of the a g r e e m e n t s

2 7 , 92-96 provisions in the a g r e e m e n t , 205

industrial, 21 5

quantitative

"quota

restrictions

and,

27,

205-206

c o u n t r i e s , " and

1934

lands,

208-210;

Switzerland,

2 1 0 - 2 1 1 ; France,

on, 4+n O ' B r i e n , Robert L . , 33, 48n, 6 i n , 6 j n , 66n Office of the Special A d v i s e r President on

to

the

Foreign Trade,

48n,

86-87 O h l i n , Bertil,

i34n,

29on

287 53n,

68n,

14m,

17m P a s v o l s k y , L e o , 6n, 2 5 ^ 1 4 m ,

i84n

P a y n e , A l d r i c h A c t o f 1 9 0 9 , 11

agreement, use o f , by

223-224

the

Rist, C h a r l e s ,

United

States,

27,

291 m n

85-92

rier to liberalization of c o m m e r c i a l p o l i c y , 13, 2 6 1 - 2 6 2 ,

287-288

views,

insertion

Roosevelt, 22,

Franklin

27n,

30-31,

86-89, 94> ' 4 8 n ,

D., 46,

16, 54,

17-18, 6o,

61,

299-301

R o p e r , D a n i e l C . , 33, 61 n Russia:

P o l i t i c a l instability, international, b a r -

of

Iey-Smoot A c t , 220 t a r i f f , 1 3on, 2 1 8 ; in the C a n a d i a n

Robbins, L i o n e l , 288n, 29on

W.,

Peek, G e o r g e N . ,

211-220

s u g a r , and section 3 1 3 of the H a w -

224-225,

O t t a w a agreements, obstacle to trade

Page, Thomas

agreements

with, Belgium, 207-208; Nether-

29m

Section 3 ( e ) , effect of A c t of

Presentation

71-73

negotiation

C o n v e n t i o n f o r the A b o l i t i o n of I m -

N a t i o n a l treatment, i i 6 n ,

program,

pro-

clause)

Mussolini, Benito, 2 8 8n

225n,

trade

289-290

ments

125

responsible f o r shift to, Multilateral

to new

u n d e r n e w trade p o l i c y ,

types of provisions c o n c e r n i n g , unconditional

obstacle

quota systems a n d , 202

types o f , definition o f , agreements,

as an

g r a m , 73n, 7 9 - 8 0 ,

territorial a p p l i c a t i o n o f , in a g r e e ments,

Pressure g r o u p s :

E x e c u t i v e agreements w i t h , 74 most-favored-nation

clause,

11 6

S a y r e , F r a n c i s B . , 30, 33, 36n, 39n, of

provisions f o r , 35, 37 President: p o w e r s o f , in tariff m a k i n g , 4 3 , 44n

46n,

48n,

49n,

6in,

65,

67,

79,

i23n, I24n, 137, I49n, I52n, 1 6 m , i 7 6 n , i 8 o n , 2o2n, 25411, 270, 285, 287n

INDEX Serruys, D . , i i i n , Spain,

19211,

negotiations

with,

371

26m

m u l t i p l e c o l u m n tariff a n d , 4 2 , 1 6 7

74.-76

proposed treaties of 1 9 3 3 , 2 6 , 78 reclassification,

Tariff : b a r r i e r s , s u p p l e m e n t a r y to, 34,

42

C o l l i e r tariff b i l l of 1 9 3 2 ,

consolidation, 191-195,

Taussig,

170-171,

124

177-178,

262-263

formalities,

provisions

in

249-

259-260

H a w l e y - S m o o t A c t , 3 , 1 6 9 ; section (anti-bounty

section)

44n,

1 5 6 ; section 3 1 1 , 3 2 n , 3 5 n , 3 6 n ; section 3 1 3 , 2 2 0 j section 3 1 7, 4 0 , 116-117,

'5M

23,

32.

3 3.

94,

291;

36".

section

116-117, 516(b),

section 3 3 6 , 34,

151,

43.

338,

161,

38, 2 4 8 n ;

40,

164;

in,

ion,

nyn,

1 2 in Termination

of

agreements,

provi-

263-264

T h r e e P o w e r M o n e t a r y P a c t of

1936,

2

34. 245 T r a d e b a r r i e r s , p r o v i s i o n in l a w demobilization o f ,

for

39

U n d e r w o o d A c t of 1 9 1 3 , i o n United

Kingdom :

O t t a w a a g r e e m e n t s and the, 2 8 7

522,

United States

287n

House of

Representa-

tives, t a r i f f bill introduced in

1934

b y R . L . D o u g h t o n , 3 1 ; report on, 33-35

changes

United

States Senate, requirement

a p p r o v a l of

190 170-

44,

r e v i s i o n , a u t h o r i t y in A c t

concern-

10-12

of

downward

revision 4 2 - 4 3 , 4 5 , 1 8 5 , as a m o d i f i c a t i o n in t a r i f f procedure, 70-73,

potentialities

tariff

189-191 making of,

45,

292

supplier

States

Tariff

Venezuela, preliminary

bargaining:

of 43-

Commission,

Senate resolutions: N o . 3 2 3 , 1 8 ; N o . 334, 21 ; No. 325,

180

revision in depression, method

trade a g r e e m e n t s ,

26on

United

171

concerning,

122 announcement

98n

V i n e r , J a c o b , i o 4 n , 1 0 5 , 1 1 on, I78n,

ii8n,

i87n

W a l l a c e , H e n r y A . , 3 3 , 4 9 n , 8on, 9 1 , 96n

formula

favored-nation clause) 278

178-179 W.,

44", 43,

p r o v i s i o n s in the a g r e e m e n t s ,

chief

19

negotiation w i t h ,

section

section

measurement of

in, 1 8 7 ,

as a

States 122-123

ion,

258. height of

Tariff:

Frank

sions f o r ,

the a g r e e m e n t s c o n c e r n i n g ,

303

Senate resolution N o . 3 2 3 , tariff padding,

15-16

17

c o n t i n g e n t duties, 3 2 , 3 8 n , 1 1 9 ,

250,

United

s u m m a r y of 1 9 3 3 b i l l , 2 2 - 2 3

competitive tariff, i o n ,

customs

of

T a r i f f Commission, 20,

b i n d i n g of e x i s t i n g t a r i f f t r e a t m e n t ,

ing,

141-144

recommendation

(see

inost-

136-141,

W i l s o n - G o r m a n A c t of 1 8 9 4 , W o r l d E c o n o m i c C o n f e r e n c e of i69n,

262

ion 1927,