THE MOST-FAVORED-NATION CLAUSE *

Interpretation

Before turning to consider the views of several of the leading writers who have discussed the theory and practice of the mostfavored-nation clause, it will be well to get clearly in mind certain circumstances which have attended its use in different periods. A knowledge of the time when a treaty was made will be found to be absolutely essential in many cases if we wish to arrive at a proper interpretation of some of its clauses.62

In the first place, and of primary importance, most-favorednation treatment has now, and had in the eighteenth century, a different meaning in European policy from that which attached to it between 1825 and 1860. While European countries now give the clause a form and an interpretation corresponding approximately to that in vogue in the eighteenth century, the universalizing of favors, which, through the intricacy of modern treaty systems, that old form might be expected to entail, is largely modified by the mechanism of modern tariff policy.

We have already indicated that the eighteenth century was that of the unconditional clause, and we have noted that the United States in 1778 entered the arena of world-commerce with the principle of opening her ports and guaranteeing equal treatment to all comers upon a basis of reciprocity. This policy, which did not preclude the granting of special privileges, was clearly a policy of do ut des, and it was indicated that it was such by the use of the conditional form of the clauses. Among the states which made use of the clause in that century, Great Britain lead in the number of favored-nation treaties, while the United States came second.

Continued from the April Number, pp. 395–422.

62 For an exhaustive study from this point of view, Dr. Glier's Die Meistbeguenstigungsklausel is invaluable.

In the first quarter of the nineteenth century the tide set strongly toward the general adoption of a policy of freedom of commerce. At the same time the American principle of "compensations" was written into a widening circle of treaties wherein this extension of commercial privileges was regulated on a basis of reciprocity. The unconditional form of the most-favored-nation clause began to be superseded by the conditional. The first treaty between European states in which there appeared the form originated by the United States was that between Great Britain and Portugal, Feb. 19, 1810. In this treaty, article II, we find the guarantee that any favor, etc., granted by either of the contracting parties to a third nation shall be accorded to the other

gratuitously if the concession in favor of that other state shall have been gratuitous, and on giving, quam proxime, the same compensation or equivalent, in case the concession shall have been conditional.

In 1824 the United States made a treaty with Colombia which marks the introduction of the clause to South American practice. This was followed in 1825 by a similar treaty of the United States with the Central American Confederation, and thenceforth for twenty-five years South and Central American treaties regularly contained the conditional form.

Of the important treaties made between 1826 and 1830, numbering about a score, only about one-fourth contain the unconditional form of the clause. Among others containing the conditional form, on the basis of reciprocity, we find treaties between: the United States and Denmark, April 26, 1826; the Hanse Cities, Nov. 27, 1827; Prussia, May 1, 1828; Brazil, Dec. 12, 1828; Austria, Aug. 27, 1829; Brazil and the Hanse Cities, Nov. 27, 1827; Prussia, April 18, 1828; Colombia and the Netherlands, May 1, 1829. Five of these were still in force at the end of the century.

Although the point of the wedge had entered, European countries still held in their treaties inter se to the unconditional form of the clause until about 1830. Then, as international trade was rapidly increasing, and as the influence of American commercial practice began to be felt, the principle of reciprocity was eagerly seized upon

The

in Europe, and a whole series of treaties upon this basis ensued. period from 1830 to 1859 was outspokenly a reciprocity period. In treaties the unconditional form of the most-favored-nation clause appeared more and more rarely, and where it did appear its guarantee was usually only unilateral. England forms somewhat of an exception. She was conservative, and her treaties exhibit a tendency to retain the unconditional clause, while some of the northern states also held to that form. But even England did not abstain altogether from the use of the conditional. We have cited the treaty of 1810

with Portugal. To this may be added a treaty of July 3, 1838, with Austria, in which, article XI, we find

et leurs majestés *** s'engagent réciproquement à n'accorder aucunes faveurs, privelèges [etc. to a third state] qui ne soient en même temps accordés [to the co-contractant] gratuitement, si la concession * a été gratuite, ou en donnant, en autant qu'il sera possible, le même équivalent, dans le cas ou la concession aura conditionelle.

In January, 1843, Great Britain made a treaty with Russia containing the same formula. The treaty with Liberia, Nov. 21, 1848,63 contained the conditional form, and the same appears in treaties. which Great Britain made between 1849 and 1853 with Costa Rica, Dominica, Peru, Hawaii, Sardinia, Ecuador, and Paraguay.

An examination of the treaties made in this period by Austria, Belgium, France, Holland, Portugal, Sardinia, Sicily, Spain, and the Zollverein, as well as those already mentioned, shows a large return of clauses in the conditional form with the definite stipulation that compensation must be made for privileges demanded. Moreover, an examination of commercial and tariff history shows that reciprocity was the guiding principle in the commercial relations of all western nations from 1825 and 1860. Dr. Glier exhibits thirty-eight treaties of the German states alone in which, of twenty-one made with American states all use the conditional form, while the seventeen with European states almost without exception stipulated in one form or another for the conditional treatment.64

63 See p. 417.

64 ❝ Hunderte von Vertraegen sind abgeschlossen worden, in denen der Mitgenuss der an dritte Staaten gewaehrten Verguenstigungen von einer Gegenleistung

It should be kept in mind that where most-favored-nation treatment is promised the guarantee usually occurs in double form, representing both the positive and the negative sides, the latter usually preceding the former. Upon the negative side it is promised that “no higher duties shall be imposed upon the products of either party in the territories of the other than are payable upon like products of any other foreign land." But this must be read in connection with the statement of the positive side which accompanies it; if either party makes special concessions to a third, the other shall be accorded the same but (when the conditional form of the clause is used) only upon offering an equivalent for the compensation which was made by the third, in case there was a compensation. This qualifying clause appears in most of the treaties of the period under discussion. Furthermore, certain treaties which at first sight appear to have been unconditional, are found upon examination to have been modified and made conditional by supplementary conventions. 65 There are still a goodly number of treaties of that period in force, not American alone, but many European as well.66

While reciprocity was unquestionably in the ascendant, and while the conditional clause was generally adopted it would be wrong to infer that the unconditional form went entirely out of use. Most of the important states adopted, and made their treaties according to, the prevailing principle, yet the retention of the unconditional form of the favored-nation clause in many English treaties and in those of the northern states is not to be overlooked, while in the fifties we find this form reappearing in certain treaties of south-central Europe.67 In 1850 Cavour began in Sardinia a commercial policy which led abhaengig gemacht war. Dies war von 1825-1860 weitaus die Regel." Glier, 16. In this period, "In erster Linie waren es in Europa die heute im Deutschen Reich geeinten Staaten welche den Reziprocitaetsgedanken pflegten. Glier, 123.

obe. g. Treaty between France and Liberia, April 17, 1852, supplemented by an agreement, April 21. See other French treaties.

GG United States' treaties of that period still in force include those with Argentina, Austria, Bolivia, Colombia, Costa Rica, Denmark, Great Britain, Norway, Persia, Russia, Siam, Sweden, Turkey, and Zanzibar.

67 Examples: Great Britain-Holland, Oct. 27, 1837; Sardinia-Switzerland, June 8, 1851; Zollverein-Austria, Feb. 19, 1853.

within the next two years to the making of eight treaties in which, in addition to the most-favored-nation clause, the important feature was that tariff reductions to be made were specified. These were, then, tariff treaties, which may be remembered when we think of the prominent place treaties of that form have been given among the commercial instruments of the countries of Middle Europe in the last fifteen years. Belgium, Holland, and Sicily at once followed the example of Sardinia in the use of the tariff-treaty.

Between 1850 and 1865 the tariff policy of Europe underwent a complete transformation. In spite of the influence of such economists as List and Carey, protectionist principles and traditions were completely abandoned. The turning point is usually dated at the Cobden treaty between England and France, Jan. 23, 1860. There were precedents for this treaty in those of Great Britain with Sicily, April 29, 1845; the Sardinian treaties with Belgium, Switzerland, and Austria, 1851, and the Belgian treaty with Holland, Sept. 20, 1851. In a treaty which Russia made with France, June 2-14, 1857, we find most-favored-nation treatment in a conditional clause (article XIV); but in the treaty which Russia concluded with Great Britain, Jan. 12, 1859, the clause appears (article X) in the unconditional form. This treaty contains no hint of the compensation principle. Yet Russia was an outspoken reciprocity state. The inference as regards the British attitude and influence is obvious.

In the Cobden treaty, article XIX, each of the high contracting parties agrees to give the other every favor, etc., on the articles "mentioned in the present treaty" which it may grant to any third power. This partial statement was supplemented by the real and extensive most-favored-nation clause which appeared in the complementary convention of Nov. 16, 1860, in which article V reads:

Each of the High Contracting Powers engages to extend to the other any favor, any privilege or diminution of tariff which either of them may grant to a third Power in regard to the importation of goods whether mentioned or not mentioned in the treaty of 23rd of Jan. 1860.

No suggestion is made of any compensation.

England was not alone in abandoning the old, and setting the seal of approval upon the new, commercial policy. European nations