COMMERCIAL TREATIES AFTER THE WAR The War made a serious breach in the commercial treaty sys tem. It is true it did not alter the basic principles of the policy of concluding commercial treaties, but it brought financial and protectionist interests so strongly into the foreground that the interest in international trade was extraordinarily restricted and is only now beginning to receive greater recognition. Two forms are characteristic for all modern commercial treaties : tariff rates and the most favoured nation clause. By tariff rates are meant the concessions in the rates of the customs tariffs on both sides.
Treaties which embrace both forms are called tariff treaties and are preferred by states which carry on a very active commerce with one another. By far the greatest number of all commercial treaties are restricted to the most favoured nation (M.F.N.) clause ; they are called most favoured nation treaties, for, although the first type also include M.F.N. treatment, this is subordinated to the tariff rates which constitute their chief feature. Treaties of a different type, merely comprising tariff rates without M.F.N. treatment, were of rare occurrence and were mostly a survival of an earlier period.
Most Favoured Nation Clause.—M.F.N. treatment secures to the treaty state equality of position with those foreign coun tries which receive most favourable treatment. In the form in which it has developed since the year i 86o, it secures for this state not merely all the privileges which any other state has received in the past and still enjoys, but also those which it will receive in future, and moreover immediately and without addi tional compensation.
There is, it is true, a still more favourable treatment than the foreign parity given by the M.F.N. clause, viz., inland parity or national treatment, which places the persons and goods of the country concerned on an equality, not with those of other foreign countries, but with those of the nationals of the country itself ; but its sphere of application is a different and at the same time a more limited one. By its nature it only applies to such economic measures as are not confined to foreign goods and persons, such as import duties, admission of consuls, etc., but may affect both domestic and foreign goods and persons, so that discrimination in their treatment would constitute a new and arbitrary protec tion for the home country; e.g., taxes on consumption, admission to trade and settlement, conditions for the use of railways and roads, etc. In oriental countries in which foreigners received special privileges, it sometimes occurred that the foreign parity was more favourable than the inland parity.
Reciprocity, by virtue of which a favour is only accorded to the treaty state in return for an equivalent compensation, is less favourable than M.F.N. treatment or foreign parity. This prin ciple was to be found in many commercial treaties down to the middle of the i 9th century and still exists in later commercial treaties, in cases where it is not merely a matter of passive per mission, but of an active intervention on the part of the state; e.g., the admission of joint-stock companies, privileges for com mercial travellers, the granting of benefits of workers' in surance, etc.
There are several varieties of M.F.N. treatment. The uncon ditional is to-day the most common, but the conditional is also to be found, by virtue of which the treaty state has a right to a privilege granted to another country if it was given without compensation, but can only secure it for an equivalent compen sation if this privilege has been acquired by the other country as a result of a concession on its part. This latter form is dis tinguished from reciprocity by the fact that it contains an obliga tion to grant equality of position when the necessary condition is fulfilled, which is not the case with reciprocity. Unconditional M.F.N. treatment has, it is true, the disadvantages (r) that it diminishes the value of every concession, because the area to which this applies is extended, (2) that it hinders a concession to one treaty state, because this would subsequently benefit auto matically a stronger competitor, (3) that by adapting the con cession to the special conditions of the treaty state, its extension to the other most favoured countries can in practice be excluded. It has, however, the great merit that it guarantees to the treaty state equal competitive conditions in the territory of the other for the whole period of the treaty and greatly facilitates the con clusion of commercial treaties.
Conditional M.F.N. treatment involves fresh negotiations with the other states on the conclusion of each tariff treaty, and may give rise to technical and political difficulties which may endanger the whole treaty structure. The post-War period has brought about an interesting and characteristic change ; while the United States, in contrast to the European countries, maintained before the War conditional M.F.N. treatment which, by its nature, is relatively unfavourable to the treaty method, they have gone over in the later commercial treaties, e.g., the treaty with Ger many of Dec. 8, 1923, to unconditional M.F.N. treatment. This change is attributable to an alteration in their commercial inter ests. Formerly they supplied mainly raw materials (cotton, copper, etc.), which the European states needed urgently for industries, while they constituted an important market for Euro pean manufactures and therefore were in a strong position when treaties were negotiated. Now, however, the export interests of their industries have come into greater prominence and demand a modification of their foreign commercial relations. On the other hand, France, which before the War had not favoured the treaty method, is now contemplating, in accordance with the law of July 20, 1919, the conclusion of commercial treaties in which reciprocal tariff concessions are granted, and has thus in theory returned to the principle of reciprocity. This policy has, it is true, been substantially modified in practice, for France has not merely allowed the former M.F.N. treaties to continue in force, but has also adopted M.F.N. treatment in newly concluded com mercial treaties, though subject to considerable restrictions.
M.F.N. treatment as a rule binds both contracting parties to reciprocal treatment, but this is not a necessary condition, for in the treaties with countries in the East it only applies unilater ally in favour of the European states. The victorious states also chose the unilateral form for the Peace Treaties of 1919, but only for a period of five years; the Council of the League of Nations has made no use of the power granted to it to extend the application of this clause. In many commercial treaties of the former enemy states, the limitation was already set aside at an earlier date.
M.F.N. treatment can, however, be restricted not only in its form, but in its contents. In its widest scope it covers all matters of trade and shipping, but in all cases it applies to the customs tariff and customs procedure. In the post-War period some states have restricted it to certain customs items or parts of the customs tariff. On the other hand, the commercial treaty between Eng land and Germany concluded on Dec. 2, g24, contains reciprocal, unconditional, unlimited M.F.N. treatment.
The single-line tariff which Great Britain and some countries of northern Europe have applied, necessarily involves 1VLF.N. treatment, because it leaves no room for tariff concessions; but there is the possibility, of which formerly Belgium has taken advantage, of granting tariff concessions by commercial treaties which are then taken over into the single-line tariff and thereby extended to all countries, whether or not they have granted M.F.N. treatment by treaty. In the general-conventional tariff which is predominant in Germany and other Central European states, the chief emphasis lies in tariff treaties with M.F.N. treat ment. The maximum-minimum tariff is less favourable to the treaty method. This, although of Spanish origin, can to-day be described as the French tariff system, because the unilateral and therefore relatively high minimum rates offer small inducement to the conclusion of commercial treaties, and their autonomous regulation affords no security against subsequent increases. In its most extreme form it might result in the same article being subject to divergent tariff rates according to the country of origin, which would naturally exclude any M.F.N. treatment. Even if France herself has never gone so far as this, her com mercial treaties in the post-War period exhibit great specializa tion. In these treaties she grants some tax rates of the minimum tariff, then some rebates from the tariff rates of the maximum tariff and applies elsewhere the maximum tariff.
In the compensation treaties the state declares that it will supply specified quantities of certain goods, in return for which it receives others of which it is urgently in need. Here the obligation to deliver is in the foreground, since it is mainly a matter of essential goods, such as wheat, coal, etc. Occasionally, as for example in the case of France in relation to Switzerland, there was also an obligation to accept delivery, when the other party was at pains to secure at least part of a market for its high-grade luxury products (embroideries) which it had lost as a result of the War. A condition of these treaties was the sup pression of private trade and the setting up of state Centrales for the most important goods, because the state administration can only deliver goods which are under its own control.
The treaties with quotas which arose later are distinguished from the above by the fact that the treaty states do not pledge themselves to the delivery of goods against goods, but merely agree to the issue of export licences for specified quotas of goods, for which it was also necessary that an import licence should be granted by the receiving state, but whose actual delivery, where the goods were not still subject to state control, remained in the hands of private trade. Such treaties were often not published at all but only communicated to the government departments and the undertakings concerned.
After the War, normal market conditions gradually returned, though less owing to a rise in production than to a general fall in purchasing power. The consequence of this equalization of supply and demand on a lower level was that the struggle for foreign markets gave place to a struggle for the retention of the home market. Protection came so strongly to the fore that even England had to sacrifice part of its traditional free-trade policy. The protectionist tendency was appreciably strengthened by the currency depreciation in many countries, which results in an export bounty for the products of the country concerned. The countries with high exchanges protected themselves against such exchange dumping by raising their import duties or by special additional duties (e.g., Spain, Czechoslovakia). The countries with weak exchanges in turn were forced to prohibit imports of luxury goods, and to hinder payments to foreign countries by controlling exchange transactions, in order to prepare for stabil ization by improving the balance of payment. Hence it resulted that the protectionist system was even accentuated by a system of prohibitions such as people had believed to have finally dis appeared with mercantilist ideas by the middle of the i9th century.
It is true that gradually the need for normal commercial treaties with M.F.N. treatment and tariff rates has been receiving great recognition, but the after-effects of the conditions of political and commercial war have by no means vanished. The commercial treaties concluded before the War were determined by the belligerent Powers contrary to former custom, when their operation used merely to be suspended for the period of the War. Negotiations entered into since then have been confronted with such great conflicts of interest and uncertainty of conditions, that often agreements could only be made for a year, terminable at three months' notice, whilst formerly they used to hold good for ten years and more. M.F.N. treatment amongst the European states has often been only conditionally granted, and restricted to certain categories of goods. Further, events in Russia have caused a severe dislocation of the old-established trade relations, for she demanded the recognition of her state monopoly of the export trade and of the abnormal political institutions of the Soviet regime.
On the other hand, owing to the economic crisis and the political unrest of Europe, endeavours have been made to join certain states into a customs union by abolishing the customs duties between them. Thus abortive proposals were made that Austria, whose continued existence appeared hopeless, should be united to Germany or should join with other neighbouring states into a Danubian Federation. Schemes for economic union have also been discussed in the Balkans and between the Baltic states. But such preferential relations arouse political objections, because the union of economic interests may also bring about political ties, and are also impeded by the fact that the states receiving M.F.N. treatment are not willing to be excluded from the ad vantages of preferential relations. Up to the present these ideas have nowhere been realized. (See also TREATIES.) BIBLIOGRAPHY.-Josef Gruntzel, Handelspolitik (3rd ed., Vienna, Bibliography.-Josef Gruntzel, Handelspolitik (3rd ed., Vienna, 1921) , and Economic Protectionism (1916) ; T. E. Gregory, Tariffs (1921). (C. M. K.; J. G.)