THERE is a curious reversal in the attitudes taken by France and the United States in their controversy regarding tariff rates. France now takes a position which, though she once held it, was given up by her at a date comparatively recent. The United States on her part now holds to one which she has chosen within a very few years, abandoning that which she had maintained through the greater part of her history. The United States once held to reciprocity, and now stands by the policy of most-favored-nation treatment. France once held to the most-favored-nation policy, and now stands by reciprocity.

France, as need hardly be said, has proposed, in the now pending negotiations, to deal with the United States separately, -- quite without regard to what she may do for other countries. What rates of duty she may impose on products from Germany or Italy have no necessary bearing on her commercial relations with the United States. Each and every country is to be dealt with on the merits or demerits of the individual case; it is a matter of quid pro quo with each. This is what has come to be called the policy of reciprocity; a somewhat narrow use of the term, but one convenient for understanding the existing international complications.

Reciprocity in this sense has not always been the French policy. For a generation after the Anglo-French commercial treaty of 1860 -- the famous treaty negotiated by Cobden and Chevalier, the starting point in the history of commercial policy in modern Europe -- France pursued the quite different policy of most-favored-nation treatment. The treaty of 1860 provided for reciprocal reductions of duties. England, already on a free trade basis in almost every respect, carried free trade to its final stage by admitting French silks free; and she lowered her revenue duties on French wines and spirits. France substituted for a highly protective régime, which had indeed been carried in many instances to the point of complete prohibition, one of moderate and simple rates. These moderate rates were subsequently applied, through the most-favored-nation clause, to imports from other countries. A succession of treaties, with Belgium, Spain, Italy, Switzerland, Austria, Sweden, Norway, Germany (i. e. the German Zollverein), provided for mutual treatment of this kind. Central Europe was gradually covered by an interlacing network of engagements, the general effect of which was to bring about equality of treatment on all hands, and -- what of course is the thing of importance -- a much moderated range of duties all around. This situation was chained down, so to speak, by the Treaty of Frankfurt (1871), which formally closed the war of 1870-71. Germany and France then guaranteed to each other most-favored-nation treatment; not indeed universally so by the express terms of the treaty, but so widely that the effect was to make the arrangement of far reaching importance. As regards the important countries, it may be said to have been of almost universal application, with the one striking exception of the United States. This country always stood quite outside the system; and France was quite free to deal with us independently, and steadily did so. But in Europe the system was not only of far reaching application, but of indefinite duration. The stipulations under the Treaty of Frankfurt were not limited as to time, and were not terminable except by something which would terminate the entire treaty; it needed the great crash of 1914 to put an end to their binding force, and so to sweep away the whole complex of engagements.

Even before 1914, however, some disintegration had begun. These commitments, apparently destined to permanence, became irksome, and were shaken or worn away at this point and at that. The system was in a fair way of disappearing even before the great cataclysm suddenly broke it up. It is of no great concern for the present discussion to consider how and why the protectionist spirit grew in all Europe and made the moderated duties unwelcome. It is easy to see that the binding effect of the Treaty of Frankfurt should have been irritating to both French and Germans, and should have led both to try to circumvent the liberal commercial article. Like most countries of the Continent, France turned more and more to protection, and more and more to arrangements with other countries which, so far as the engagement of 1871 with Germany made possible, gave her some special and privileged advantages, granting in return reciprocal treatment calculated to be just enough (no more) to purchase these advantages of her own. And finally, when the Treaty of Versailles set her free in 1919, she began to pursue openly and vigorously the policy of special bargaining, of dealing with each country on a quid pro quo basis. Of the degree of success she has had in the wider application of this policy, and of its meaning for world affairs, I shall say more presently. It led inevitably to her present attitude toward the United States. She proposes to deal with us quite independently of what she may be doing with other countries, and to offer us any favors extended to them, in whole or in part, only if satisfied with what we on our side may grant to her. So she had done, as regards the United States, even in prewar days; so she proposes still to do.

The United States, as I have intimated, has changed her ways in just the opposite direction. She long held to a policy of separate reciprocal arrangements. She did so as regards the formal interpretation of the most-favored-nation clause in treaties; she did so too as regards some important arrangements with other countries.

The formal interpretation of the most-favored-nation clause by the United States is significant not so much for the concrete effects which it had on our treaties and our trade as for the general attitude it showed. The United States long maintained that when such a phrase as "most favored nation" appeared in a treaty signed by her, it should mean, not that she undertook to give the other signatory country identically the same treatment as the best (most favorable) given anywhere else, but merely as good treatment as was warranted by the treatment reciprocally given then and there. It was to be understood merely to promise what was fairly equivalent to what the other country did. A shrewd Yankee to whom I once tried to explain this way of interpreting the most-favored-nation clause remarked, "Ah! thus understood, the clause means not that you engage to give the other fellow exactly as good terms as you give the rest, but only that you give him as good a trade." Precisely; the United States long planted herself on the Yankee position of giving as good a trade, and this only. It was not an unnatural ground for a young and comparatively weak country, dealing with the experienced negotiators of older countries and somewhat suspicious of their maneuvers and intents.

The substantive effects of this general attitude, -- trade for trade, concession for concession, -- appeared not so much in the formal interpretation of the most-favored-nation clause as in some negotiations on specific tariff arrangements. Treaties on the reciprocity basis in this sense were concluded or proposed especially with some South American countries. These date back to the 90'ties, to the days of Secretary Blaine and to the earlier and domineering stage of our attempts at closer affiliation with our South American neighbors. In the end the reciprocity arrangements of that time, like the interpretation of the most-favored-nation clause, had in few cases any outcome of much economic or political consequence. Those with Hawaii and Cuba did indeed lead to important results, as is familiar enough; and a somewhat ambiguous arrangement with Brazil persisted, and was not without some importance.

In the main, however, the United States, while rejecting overtly the most-favored-nation principle and even seeming to insist on the opposite policy with some self-righteousness, in fact was dealing with almost every country on precisely that basis. As matters turned out, we treated all alike, barring our relations with dependencies and semi-dependencies. It was therefore not difficult to make a change. A complete volte face was made in 1923, when Mr. Hughes was Secretary of State. The immediate occasion for the change seems to have been the termination by the United States of that ambiguous arrangement with Brazil, to which I have just alluded; an arrangement curious in form as well as in substance, by which the United States really gave nothing yet got something. It was a good riddance. And yet is not easy to understand just what considerations led the State Department to make a complete sweep, or why it was made at this precise date. It was not in accord with the previous policy of the Republican Party; rather, it was such as might have been expected from the Democrats, especially when they were under President Wilson's leadership. But made it was. We turned suddenly to the policy of complete most-favored-nation treatment. And apparently this new basis is established for good. There has been no whisper of any modification. We now offer to all countries identically the same treatment, and expect from each of them complete equality of treatment. No longer trade for trade, no complicated negotiations. Whereas France, to repeat, wants trade for trade. She wants reciprocal and special engagements such as seem to her (and she hopes would seem to us also) mutually reasonable, regardless of what either country may arrange with third parties.

It is to be observed that Congress has passed no legislation embodying in set terms this new American policy. Inferentially, to be sure, Congress has sanctioned it. The Tariff Act of 1922, that now in force, has a provision (Section 317) which authorizes the President to impose retaliatory duties on the products of countries which fail to extend to producers of the United States the same treatment as they get elsewhere, -- countries which impose on American products "any unreasonable charge, exaction . . . not equally enforced upon the like articles of every foreign country." While thus setting up a means of compelling equal treatment to ourselves, there is no authorization for any inequality of treatment for others, -- no discretionary power granted to the President or any one else to lower a single duty imposed by Congress. There can be no bargaining under the statute, and no discrimination except when called for as a combative measure, a means of enforcing equality of treatment to ourselves.

So much as to the position now taken by the two countries. What is to be said on the merits?

My own sympathies are with the principle adopted by the United States, not with that to which this country so long had professed adherence, and which France now maintains. The most-favored-nation basis is simple, reasonable, commendable. It leaves every country free to settle its tariff policy according to its own good or bad judgment; to determine for itself what it believes to be for its advantage, and to regulate its industrial development as it may think fit. No one would question that this is a matter upon which, amid the clash of differing opinions, every country must decide for itself. Having settled its policy, each country then deals with others on that footing and on no other. It asks no special favors and grants no special favors. Nor is it inconsistent with the simplicity of this procedure that there should be countervailing or supposedly punitive duties on imports from countries that fail to give equal treatment. Retaliation of this kind is to be regarded as an unwelcome but inevitable adjunct to the effectiveness of the general plan. No doubt the practice of retaliation often fails to bring about the desired result of equal treatment. It may lead to substantial and permanent modifications in the tariff rates of the maneuvering countries, and so to excesses not expected and presumably unwelcome. On the whole, however, it is to be admitted that consequences of this kind, while not impossible in connection with most-favored-nation treatment, bring no serious danger of modifying its single-minded character; nor can it be said that they are inconsistent with a sincere desire to maintain that character.

As regards the general tone of foreign relations, their friendly acceptance, their continuing smoothness, the most-favored-nation basis is more promising than that of reciprocity. Reciprocal dealings, conducted more or less at arms length, lead almost of necessity to bickering and friction. So it was with that interpretation of the most-favored-nation clause to which the United States formerly adhered, namely that of giving, not equal terms but as good a trade. What are reciprocally equal terms, and what is as good a trade? On these questions the opinions of the negotiating parties commonly are far apart. Each party scans suspiciously the offers of the other, and schemes to get as much as it can for as little as possible. The diplomats and experts who conduct the negotiations take a certain sporting pleasure in the game, exaggerate the importance of minor moves and nominal concessions, and lead their constituents also to regard the whole performance as one of fence and parry.

No better illustration of this inherent difficulty can be found than in the experience of France both before the Great War and since. Before the war, France -- so far as its treaty commitments allowed of a departure from the policy of equal treatment, -- entered into negotiations and was involved in controversies with several countries, conspicuously with Switzerland and Italy. The outcome was depressing. Tariff wars resulted, punitive duties were imposed on both sides, trade which had been advantageous to both was disrupted, and finally compromises were accepted which at the best left matters as they had stood before. Since 1919, again, France has negotiated on the same plan; and while the consequences have not been as regrettable as in former days, nevertheless they have been far from satisfactory.[i] France has endeavored to arrange for favors to herself from Poland, Czechoslovakia, Italy, Belgium, Austria. She has not stipulated that they shall be confined to her; but they have been such as to inure most to the advantage of her trade. In return she has given concessions in the way of moderated duties on her own part, -- concessions not greater than the course of the negotiations seemed to render necessary. The dominant political and military position of France with regard to some of these countries has enabled her to conclude treaties which from her point of view were advantageous, yet not without a strain on friendly relations. In other cases she has quite failed to attain the desired object. She has certainly left in the wake of all some feeling of irritation, of suspicion, of unwilling acceptance of unwelcome terms. And finally she is compelled to reconsider her entire position because of her negotiations with Germany. It will be remembered that the Treaty of Versailles compelled Germany to give most-favored-nation treatment to all the Allies, but did not compel the Allies to give Germany similar treatment. That provision in the treaty endured for five years only, and lapsed in 1925. Since then Germany has frankly pursued the policy of most-favored-nation treatment all around, and has offered to deal with France on that basis and on that basis only. France has finally acceded, in substance though not in so many words or in every detail. There can be no question that as between the two old enemies this basis for their commercial and industrial relations will conduce to mutual good feeling and to the permanency of peace.

And yet something more is to be said. The position taken by France is not entirely stubborn, is not entirely without explanation, and is not entirely without justification. This is to be admitted as regards the relations between France and almost all the countries she has been dealing with; and it is so particularly as regards the United States.

France is in an exceptional position. To a considerable extent her exports consist of articles of luxury, such as silk goods, gloves, laces, fine grades of woolens, wines, perfumes, the so-called articles de Paris. On such things other countries, sorely in need of revenue, are likely to levy high duties. And these high duties, while levied ostensibly for revenue, often have behind them something more: a lurking desire, perhaps an overt purpose, to protect and strengthen the domestic industries producing the same or competing articles. Of this combination of motives and pretexts there is no more striking illustration than the duties which the United States long has imposed upon silk goods. They have been for many years among the highest of our duties. They were originally made high because of revenue needs. They still are often defended on the ground that luxuries should be highly taxed. But they are also defended, and undoubtedly have their main strength, because they protect the domestic silk manufacture. Something of the same sort is true of our duties, no less extreme, on the fine grades of woolen cloths for men and dress goods for women. Most irritating of all, from the French point of view, is our way of treating her wines: high duties in old days, prohibition now. Before prohibition, the French had a suspicion, by no means unfounded, that our duties on their wines were not merely revenue duties, but were imposed partly because they gave protection to the wine producers of California and other regions. And nowadays they find us quite incomprehensible. To a Frenchman it is incredible that the glass of wine consumed habitually and soberly by every class in his country should be regarded as more damaging or immoral than the American's cup of coffee. He is not to be blamed if he has a suspicion that there is something more than high moral fervor behind our prohibition régime. Are not our vineyards in California prosperous? And may not the French suffer from an intolerant and hypocritical obstruction of their commerce?

It is, I suspect, the peculiar character of the goods so largely exported by France which goes far to explain the policy she has pursued since 1919. No doubt other elements enter. The French have a bad taste in the mouth as regards the most-favorednation clause. Imbedded as it had been in the Treaty of Frankfurt, it recalls a period of bitter humiliation. And further, the French themselves, it must be freely admitted, are no less resolutely and uncompromisingly protectionist than the United States. In France, as in this country and in every country, each interested group and each constituency clamors for protection, and tariff legislation and tariff policy are enormously influenced by the necessity of bringing all within the scope of the system. It is thus true that France grants concessions sparingly and unwillingly, as would the United States if she granted any at all. None the less she has more solid grounds for granting concessions only in exchange for concessions to her own commodities, than is the case with most countries and certainly than is the case with the United States.

There is a more general consideration; one that bears not only on the French attitude and ours, but on all commercial relations. The word "favor" in the discussion of most-favored-nation treatment would seem to mean something. It implies some degree of friendliness, some real concession, something more than bare equality of treatment. The United States, it is true, offers the same terms to all countries; but in substance there are favors to not one. The countries with whom we deal may well say to themselves, even though they cannot well say it in the formal communications of their foreign representatives, that while we offer everybody the same treatment, we merely offer the same bad treatment all around. Our rates are so high, our policy of protection is so intolerant, so all-embracing, so inclined to extension to every blessed article on the demands of each interested group of producers, that our most-favored-nation policy amounts to universal severity and universal ill treatment. Under such circumstances can we expect any warmth of feeling, any cordial response to our newly taken basis of negotiation?

This reflection has a wider bearing. It is applicable to the situation in which Europe finds herself to-day. Something in the nature of a contest has been going on ever since the war between the two opposing principles, that of reciprocity and that of most-favored-nation treatment. There is nothing sacrosanct about either; they must be judged by their fruits. It is pretty well agreed on all hands that a satisfactory economic development for Europe, and especially for the continent of Europe, is dependent on the resumption of a ready flow of trade throughout its area and on a lowering of the cumbersome and artificial barriers which have multiplied so much in consequence of the redistribution of European territory. I will not stop to debate whether complete free trade might be desirable for the whole region. It may be granted unhesitatingly that there are unanswerable political reasons, and some cogent economic reasons, that work against a universal application of free trade. At all events a United States of Europe having the same freedom of intercourse throughout its length and breadth as that enjoyed by the United States of America is quite outside the realm of things practicable. But some lowering of the barriers which now impede an obviously beneficial course of trade, some mitigation of intolerant protection, seem to me quite possible and eminently desirable. Removal of duties on foodstuffs and on fundamental raw materials, moderation in the duties on manufactured goods, the restriction of revenue duties to commodities to which they are really applicable and in such manner that they shall be in fact revenue duties, and finally reciprocal most-favored-nation treatment all around, -- these seem to be the lines upon which real progress is feasible. And these are the lines along which, on the whole, the League of Nations has proceeded, or at least thrown its influence. They are not, upon the whole, the lines upon which France has proceeded. Nor are they in substance, though they may be in form, those on which the United States is now proceeding. France may set no good example, but we set none better.

A suggestion has been made for a way out. Apparently it came from France; and apparently it has not been rejected once for all by the United States. It looks to the utilization of the so-called flexible provisions of the Tariff Act of 1922 as a means for securing a reduction of our duties upon some French products.

These provisions, in the well-known section 315 of the Tariff Act of 1922, rest on the principle that duties should be in accord with the differences, as between the United States and foreign countries, in cost of production of the several commodities. Under them the United States Tariff Commission is authorized, and indeed called upon, to make investigations of costs of production in this country and in "the principal competing foreign country," and to report to the President what differences in cost it finds. The President then "shall" lower duties or raise them, to such an extent as to equalize competition between the domestic producers and the foreign; with the limitation that no changes may be made, up or down, of more than fifty percent or the duties fixed by the act of 1922.

The proposal to use this machinery as a makeweight in commercial negotiations, or indeed for any bargaining or political purpose, makes one pause. No such use was remotely anticipated when it was set up. Its purpose was supposedly scientific, and at all events quite without any preconceived object. Much was said at the time about the scientific fixing of rates of duty, the creation of something better than the haphazard procedure of Congressional committees and of Congress itself. A rigorous system, based upon a principle and not subject to whim or influence or political pressure, was to be substituted for the loose methods of former days. The Tariff Commission in its investigations, and the President in thereupon settling a duty, were supposed to be indifferent to the outcome. It might be to raise a duty, and it might be to lower one. To use this device as a means of securing some end had in view from the beginning would seem quite contrary to the intent and spirit of the entire plan.

We all know, however, that political devices sometimes have unexpected consequences, and are used in ways and for purposes not thought of when they are created. Just what the effect of these flexible provisions shall be depends not a little upon the manner in which they are administered. It is quite conceivable, nay, it might seem fairly probable, that a Commission with leanings against protection should happen to take up first and chiefly commodities upon which the duties were high, should find them greater than was warranted by the differences in cost, and in effect should use the provisions for bringing about reductions. And on the other hand a Commission made up of good protectionists might easily happen to give chief attention to articles on which duties were low and bring about increases. As a matter of fact the Commission, during the years in which the arrangement has been in effect, has given attention chiefly to commodities upon which duties were alleged to be unduly low, and the practical effect of its operations has been to screw them up somewhat. Only in a couple of quite insignificant cases has a change in the other direction been made. But these may be only the throes of youth and growth. It is the wish and hope of all observers and critics -- except some hide-bound protectionists -- that the Commission shall settle down to a strictly judicial attitude, and shall determine the field of its inquiries as well as the substantive conclusions without design of reaching a result aimed at from the start.

In the statute itself there is no intimation who shall take the initiative in this procedure. Heretofore the initiative has been taken in practice by interested parties -- either domestic producers who hope to secure an advance of rates, or importers or consumers who hope for a decrease. It would seem that almost any one can start the machinery; the President himself, or the Department of State, or the Commission, or an interested party. Somehow the Commission can easily be brought to making an investigation on any desired article. It might be led to turn, for example, to silk fabrics, articles of large economic importance, in which the French are particularly interested. There is no doubt in my mind, or in the mind of anyone having even superficial information on the subject, what would prove to be the general outcome of an investigation in this field. The duties on most silk goods are higher than suffices to equalize cost of production between the United States and France. How much higher, remains to be seen; and the range of difference would not be the same on all grades of goods. It is rather the medium and cheaper qualities than the finer which would be found to be now mulcted by duties higher than was warranted by the test of differences in cost. The general outcome, I feel sure, would be in the direction of lowered rates. The same sort of outcome, it might be added, would be reached if investigation were made upon the duties of cotton goods or woolen goods, indeed almost all textiles.

Is it desirable to deal in this way with the problem of our commercial relations with France? And is the procedure likely to be followed? I confess to doubts whether it is desirable; no less doubts whether it is likely to be followed. It is not desirable, because it endangers an interesting and in some ways unique experiment in tariff legislation. The Tariff Commission, to repeat, is supposed to be a judicial body and to undertake judicial tasks. One may or may not like the principle upon which it is supposed to act, that of equalizing differences in cost. For myself, I have no high opinion of its validity on strictly economic grounds. But such as it is, it should be adhered to without indirection. To plan the inquiries and calculations of the Tariff Commission with the expectation that the result should lend itself to a commercial policy indicated in advance seems hardly less than stultification. It is difficult enough at best to maintain the principle on which the establishment of the Commission rested, that of taking the tariff question out of politics. This proposed use of its powers and resources would serve not so much to take the tariff out of politics as to bring the Commission in.

Whether any such use of the flexible provisions will in fact be made, remains to be seen. The procedure would of course meet with stiff opposition. The American silk manufacturers are among the most uncompromising advocates of sustained high duties, and would contest the move with every ounce of their influence. They would have the support of the general body of fervent protectionists. There would be rumblings and upheavals in Congress, and in the staunch Republican press. The Administration itself, even though disposed to friendly relations with France, is quite as much disposed to friendly relations with its followers and supporters. When it is considered what it all might lead to, the feasibility of this way out becomes dubious.

A modus vivendi has been reached. The French have agreed to restore virtually the situation which existed before the present controversy began. This does not mean that the United States gets the full benefit of France's minimum tariff. We did not have that sort of most-favored treatment before, and indeed never had it during the whole period (since 1892) of the French maximum and minimum system. But it means that the move recently made by the French is taken back for the time being. The United States offers no change, standing pat on its newborn most-favored-nation policy. The agreement is avowedly temporary. The French are content, it would seem, to wait for a while and see whether the United States on further consideration will conclude to make some concessions.

What, then, will the United States finally do? The people of this country are recurrently called on to consider just how far they propose to carry their protectionist policy, and just how intolerant they propose to be in the way of keeping out every scrap of imported goods that might interfere with any clamorous domestic producer. Should we not consider these larger aspects of the tariff question in connection with the pending negotiations? We have proclaimed singlemindedness in tariff policy; and therein, as I have said, we are proceeding not unwisely. But does this necessarily mean complete disregard of other people? Even those who say most about holding aloof from European complications, say much also about the maintenance of friendly relations with all and the promotion of mutual good feeling. Now that we turn to a systematic policy of most-favored-nation treatment, why not put into it some element of real favor and of genuine friendliness? It needs no acumen to discern that France does not stand alone in her feelings about our tariff rates. Other countries may make no moves such as she has made, but none the less they shrug their shoulders at the contrast between our courteous gestures and our stern realities. We are eager to export, and above all to export manufactured goods. Our Department of Commerce bends its energy to the utmost toward promoting their sales. But when others wish to send goods to us, we bend our energies to erecting barriers as high as we can devise. It would be no bad outcome of the pending negotiations and debates if we were led to do something toward promoting beneficial trade and good relations not with France only, but with all the world?

[i] For an excellent account, see the article by H. van V. Fay, on "Commercial Policy in Post-war Europe," in the Quarterly Journal of Economics, May, 1927.

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  • F. W. TAUSSIG, Professor of Political Economy at Harvard University; Chairman of the United States Tariff Commission, 1917-1919; author of "Tariff History of the United States" and a number of other works
  • More By F. W. Taussig