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XXIII

EFFECT OF 'MOST-FAVOURED-NATION" CLAUSE

IN COMMERCIAL TREATIES

THE most-favoured-nation clause is one which it has become customary to insert in treaties of commerce, providing that if any reductions of tariff or other advantages are granted by either co-contracting State to any third State, the other shall have the benefit of them. In Europe this clause has been uniformly treated as applying to all reductions of tariff without distinction. The United States interpretation, on the other hand, distinguishes between reductions of a general character and reductions made specifically in return for reductions by some other State. The latter do not come within the operation of the clause, and a co-contracting State is only entitled to obtain extension of them to itself by granting similar concessions. In other words, special concessions to any co-contracting State are only allowed gratuitously to a third co-contracting State, when nothing is given for them, the clause not covering advantages granted in return for advantages.

In a despatch of July 17, 1886, to the American Minister in China, Mr. Bayard explained the American view in the following

terms:

"In its commercial aspects the expediency of an unqualified favoured. nation clause is questionable. The tendency is towards its formal qualification, by recognising in terms what most nations hold in fact and in practice, whether the condition be expressed in the clause or not, that propinquity and neighbourliness may create special and peculiar terms of intercourse not equally open to all the world; or by providing that the most-favoured treatment, when based on special or reciprocal concessions, is only to be extended to other Powers on like conditions."1

This is still the United States view, as is set out in a luminous article in the November (1905) number of the North American Review, on "The Alternative of Reciprocity Treaties, or a Double

1 See Wharton's Digest on the International Law of the United States, sec. 134. It is interesting to recall the interpretation by the United States Government of the 8th Article of the Convention for the cession of Louisiana, providing that after the expiration of twelve years from the date of that Treaty, the ships of France should be treated upon the footing of the most favoured nation in the ports of the ceded territory. It was con. tended by France that this was an absolute agreement, irrespective of the conditions upon which favours were granted to other nations, and that, therefore, when a favour should be granted to another nation for a consideration (reciprocal or otherwise), or upon a condition, France was entitled to enjoy the same favour without consideration or condition. This was denied by the United States. The claim was abandoned by France in the Treaty of 1831 (Bancroft Davis, Treaties of the United States, 1873, p. 127).

Tariff," by Mr. John Osborne, chief of the Bureau of TradeRelations, State Department, and late Secretary of the Reciprocity Commission, a gentleman eminently competent to describe the contemporary American standpoint. Mr. Osborne maintains that "it is evident that the gratuitous extension to third Powers of commercial advantages exchanged in reciprocity between two countries, is absolutely inconsistent with the true principles of reciprocity as understood in the United States; it would not only seriously impair and even tend to destroy the value of the original grant, but it would also involve duty reductions upon the entirety, or, at least, the bulk of importations from the world, of the articles of merchandise affected, thus constituting a serious sacrifice in national revenues."

This is an argument of policy, and not one, properly speaking, of interpretation or construction. No strictly judicial argument can be urged in support of the American view. Whether a reduction "bought," as it were, by a counterreduction is affected by a "most-favoured-nation" clause depends, from a judicial point of view, solely on the wording. of the clause.

There seemed to be a possibility that this would become the judicial construction in America under a decision of the United States Supreme Court (Bartram v. Robertson), but the question a few months later came up again in Whitney v. Robertson (Supreme Court of the United States, 1887, 124 United States, 190), when the official view, on the contrary, was strongly endorsed. The plaintiffs in the action were merchants doing business in the city of New York. They imported a large quantity of sugars, produce of the island of San Domingo, similar in kind to sugars produced in the Hawaiian Islands, which were admitted free of duty under a treaty with the government of those islands. The treaty provided for the importation into the United States, free of duty, of various articles, "the produce and manufacture of those islands, in consideration, among other things, of like exemption from duty, on the importation into that country, of sundry specified articles which are the produce and manufacture of the United States." The first two articles of the treaty, which recited the reciprocal engagements of the two countries, declared that they were made in consideration "of the rights and privileges" and "as an equivalent therefor," which the one conceded to the other. The plaintiffs relied for a like exemption of the sugars imported.

by them from San Domingo upon Article IX. of the treaty with the Dominican Republic, which is as follows: "No higher or other duty shall be imposed in the importation into the United States of any article of growth, produce, or manufacture of the Dominican Republic, or of her fisheries; and no higher or other duty shall be imposed on the importation into the Dominican Republic of any article the growth, produce, or manufacture of the United States or their fisheries, than are or shall be payable on the like articles, the growth, produce, or manufacture of any other foreign country, or its fisheries." In Bartram v. Robertson, the Supreme Court had held that brown and unrefined sugars, the produce and manufacture of the island of St. Croix, a Danish possession, were not exempt from duty by force of the treaty with Denmark, though similar goods from the Hawaiian Islands were thus exempt. The first article of the treaty with Denmark provided that the contracting parties should not grant "any particular favour" to other nations, in respect to commerce and navigation, which should not immediately become common to the other party, who should enjoy the same freely if the concession were freely made, and upon allowing the same compensation if the concession were conditional. Article IV. provided that no higher or other duties should be imposed by either party on the importation of any article of its produce or manufacture, into the country of the other party, than were payable on like articles, being the produce or manufacture of any other foreign country. The Supreme Court had held that

"Those stipulations, even if conceded to be self-executing by the way of a proviso or exception to the general law imposing the duties, do not cover concessions like those made to the Hawaiian Islands for valuable consideration. They were pledges of the two contracting parties, the United States and the King of Denmark, to each other, that in the imposition of duties on goods imported into one of the countries which were the produce or manufacture of the other, there should be no discrimination against them in favour of goods of like character imported from any other country. They imposed an obligation upon both countries to avoid hostile legislation in that respect. But they were not intended to interfere with special arrangements with other countries founded upon a concession of special privileges."

In Whitney v. Robertson, counsel for the plaintiffs contended that the omission from the treaty with the Republic of San Domingo of the Danish-American provision as to free concessions, and concessions upon compensation, precluded any concession in respect of commerce and navigation by the U.S. Government to another country without that concession being at once extended to San Domingo. The Supreme Court, however, held that the absence of this provision did not change the obligations of the United States; that Article IX. of the treaty with San Domingo was "substantially like Article IV. in the treaty with the King of Denmark." It was a pledge of the

contracting parties that there should be no discriminating legislation against the importation of articles which were the growth, produce, or manufacture of their respective countries, in favour of articles of like character imported from any other country, but "it had no greater extent." "It was never designed to prevent special concessions, upon sufficient considerations, touching the importation of specific articles into the country of the other." "It would require the clearest language to justify a conclusion that the U.S. Government intended to preclude itself from such engagements with other countries, which might in the future be of the highest importance to its interests."

With all respect to the great authority of the decisions of the United States Supreme Court, the language of the Treaty in question seems of the clearest, and diametrically opposed to its ruling.

The treaty regulating the trade relations between Great Britain and the United States (July 3, 1815), continued in force 1 and reported in an official return to the British Parliament, Commercial No. 4, 1907, to be in operation between the two countries down to January 1, 1907, is practically in the same terms, providing that

"No higher or other duties shall be imposed on the importation into the territories of His Britannic Majesty in Europe of any articles of growth, produce, or manufacture of the United States, and no higher or other duties shall be imposed in the importation into the United States of any articles the growth, produce, or manufacture of His Britannic Majesty's territories in Europe, than are or shall be payable on the like articles, being the growth, produce, or manufacture of any foreign country" (Art. II.).

1 Continued in force by Treaties of October 20, 1818, and August 6, 1827, the latter terminable after twelve months' notice.

The form adopted in the treaty between Great Britain and Uruguay of July 15, 1899, leaves nothing to construction; it specifically restricts the application of the clause :

"It was also agreed that the stipulations contained in the Treaty which is to be renewed do not include cases in which the Government of the Oriental Republic of Uruguay may accord special favours, exemptions, and privileges to the citizens or products of the United States of Brazil, of the Argentine Republic, or of Paraguay in matters of commerce. Such favours cannot be claimed on behalf of Great Britain on the ground of most-favoured-nation rights as long as they are not conceded to other States. It is, nevertheless, understood that the said special favours, exemptions, and privileges shall not be capable of application to products similar to those of Great Britain, nor be extended to navigation.

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