No. 381.
Mr. Bayard to Mr. Curry.

No. 56.]

Sir: My instruction No. 39, of 23d February last, brought to your attention the subject of the discriminating duties which continue to oppress the trade of the United States with Cuba and Porto Rico, notwithstanding the stipulations of the commercial agreement of January 2–February 13, 1884. In the brief interval since my No. 39 was sent no reply has been received from you, but it is assumed that the matter is receiving your attention, and that your report in the case will soon be made.

In the mean time the repeated representations which are made to this Department touching the anomalous discriminations that burden our intercourse with the Spanish Antilles constrain me to recur to the subject and urge your best efforts to bring about an understanding in the true interest of both countries.

The existing differential duty, which practically prohibits a vessel of the United States from carrying to Cuba productions of another country, even when shipped from the United States, is described as ruinous to the owners of American ships. Messrs. James E. Ward & Co., who own the only wholly American line trading with Cuba, have lately been obliged to sell one of their steamers because they could not carry goods in competition with Spanish bottoms.

Another line, sailing from New York under a foreign flag, has been obliged, for the purpose of this particular trade, to purchase and run a steamer under the Spanish flag. This latter fact is significant because showing that the discrimination may be evaded by a subterfuge in favor of foreign ship-owners from which American owners are prohibited.

Probably no question between the United States and Spain has been more involved and misunderstood than the relative discriminations which have existed and still exist in one shape or another.

[Page 792]

At the time Mr. Foster concluded the agreement of January 2–February 13, 1884, a complex system of retaliatory duties, which had long existed between the United States and Spain, had recently been abruptly altered by the revocation of the royal decree of 1867. A practical balance of disfavor had grown up, and under its operation a successful American carrying trade had been established with the Spanish Antilles. Singularly enough the abrogation of the decree of 1867, while removing part of the discrimination against the products of the United States, made this restoration of favor dependent upon carriage in Spanish bottoms, and in effect threatened to extinguish the trade that had been slowly and laboriously created. It was doubtless intended to have such an effect, for the revocation coincided with propositions for some reciprocal commercial interchanges which should enlarge Cuban exports. And out of these propositions (as to which negotiation is still pending) sprang the agreement of 1884 as a modus vivendi, to prevent abruptions of trade relations pending an arrangement covering the whole field.

It was the intent of the negotiators that this arrangement should reciprocally terminate all discriminations affecting trade between the United States and the Spanish Antilles. Article I explicitly declares that the arrangement made “implies [on the part of Spain] the suppression of the differential flag duty,” and Article II stipulates, on the part of the United States, the removal of the only discrimination here imposed, to wit, the 10 per centum ad valorem additional duty. The one was designed to compensate for the other, and, by our laws, the suspension of the additional 10 per centum duty is conditional upon the total removal by the other party of all discrimination “upon the produce, manufactures, or merchandise imported in vessels of the United States from the United States or from any foreign country.” (Rev. Stat., sec. 4228.)

Now, if in fact Spain has not removed all discriminating duties of impost upon merchandise, of whatever origin, imported into Cuba and Porto Rico in vessels of the United States, the President’s proclamation suspending the additional 10 per cent, customs duty has been erroneously issued, being without the consideration commanded by the statute.

In fact Spain has not “suppressed * * * the differential flag duty.” Merchandise of foreign origin, whether shipped from the United States or from a third country, and merchandise the production of the United States when shipped from a third country in vessels of the United States must pay on entering Cuba and Porto Rico the higher duties of the fourth column, while if carried in a Spanish vessel they pay the lower duties of the third column. To understand this clearly it is necessary to glance at the respective discriminations which existed from 1867 until the decree of that year was repealed in 1883, and to note the effect of such repeal, and it will then be seen what discriminations the agreement of January 2–February 13, 1884, purported to remove but has not removed.

Prior to 1867 Spain maintained a discrimination against the United States with respect to the flag. Goods carried from any foreign country in Spanish vessels paid lower custom duties, according to the third column of the tariff, than when carried under the flag of the United States (fourth column).

Under the statutes of 1828, 1830, and 1832 (now section 4228, Revised Statutes), the United States, in view of the differential flag duty imposed by Spain levied 10 per centum additional duty on all goods, wares, [Page 793] and merchandise (of whatever origin) imported in vessels of Spam. It is to be noted that this discrimination fell only upon Spanish vessels, and not upon Spanish products as such, for they could come under the flag of the United States or under any foreign flag entitled to treaty equality without paying additional duty.

The royal decree of March 12, 1867, as a professedly retaliatory measure imposed on all merchandise (without regard to origin), when shipped from ports of the United States to Cuba in Spanish vessels, the highest duties of the fourth column.

This converted the partial discrimination against the flag of the United States into a total discrimination against all merchandise shipped from the United States. Spain had thus virtually two discriminations to our one.

The practical effects of this were:

In Cuba, to prevent all traffic in foreign goods transshipped in ports of the United States, and to confine the direct traffic to such productions of the United States as could find a market notwithstanding the favored competition of other foreign shipments under the Spanish flag.
In the United States, to exclude Spanish vessels from the carrying trade, no matter whence they came, although Spanish productions were unaffected if brought under the flag of the United States, or of any power whose flag was entitled to equality with ours in our ports.

There was, however, nominally, no discriminating flag duty in Cuba against the vessels of the United States as compared with those of Spain when those vessels carried products of the United States to Cuba.

The revocation in 1884 of the royal decree of March 12, 1867, would have operated to restore the old flag discrimination against all vessels of the United States in Cuba, no matter what cargo they carried, while abandoning the general discrimination against the productions of the United States when coming from the United States under any flag.

It is now asserted that the agreement of January 2–February 13, 1884, only operated to prevent a part of this flag discrimination from taking effect. By expressly favoring the productions of the United States when carried directly from the United States, the flag discrimination as to that national trade was removed from all vessels of any nationality whatsoever.

The fact that it left an important discrimination, to obstruct and well-nigh ruin the very trade we supposed that it would assist to build up, was not at first understood. The President’s proclamation of February 14, 1884, issued immediately on receipt by telegraph of the amended text of the agreement signed the preceding day, was based on the belief that the agreement operated as a complete “suppression of the differential flag-duty “on the part of Spain, and responded by a complete and positive suspension of all such duty on the part of the United States.

It may be alleged that the President’s proclamation, by adopting the phraseology of the agreement as to the precise concession granted by Spain, and reciting the concession on the part of the United States as being an equivalent, therefor accepts the unequal privilege which results and precludes appeal to the unrecited general declaration of the agreement touching the suppresssion of the flag-duty. To this it should be replied that neither the intent of the statute, nor the purpose of the United States in negotiating the agreement, permit the surrender of the whole for a part. The case comes under the general rule of interpretation that the extent of the grant shown to have been necessarily and evidently in the mind of the grantee and known to the granter, [Page 794] is the measure of the intent of the grantor. As Chancellor Kent has well said, “the true principle of sound ethics is to give the contract the sense in which the party making the promise believes the other party to have accepted it.” If the grantor reserves less, without making his reservation distinctly known, there is a failure to agree.

This precludes any argument as to the significance of the words of Spanish concession, as they appear in Article I of the agreement and in the President’s proclamation. The “products of and articles proceeding from the United States” to which the duties of the third column are applied irrespective of the carrying flag, are the same as “los productos y procedencias de los Estados Unidos de America” of the Spanish text. The record of the negotiation shows that the English phraseology was based upon and designed to be equivalent to the Spanish text; and the Spanish phrase is understood to mean “the products of the United States when proceeding from the United States.”

The case rests on broader grounds. If, in the negotiation, Spain meant that this stipulation should in its application be so limited as to leave an important flag discrimination unremoved, and did not make that reserved meaning clearly known, and if the United States relied upon the explicit declaration that the differential flag-duty, which had been in dispute between the two Governments for many years, was absolutely and wholly suppressed, and believed that it was attaining that result in the agreement, and consequently gave full equivalence for that measure of privilege, there was in fact no agreement.

It remains for the Government of Her Majesty the Queen Regent to decide whether the supposed agreement was not an agreement at all, or by so applying it as to suppress entirely the differential flag-duty, to give the agreement full force and effect according to its intent.

I cannot believe that there is room for hesitancy as to which course will be followed by the Government of Her Majesty.

The disposition of the United States to deal most liberally with Spain in all that concerns her Antillean trade is shown by the provisions of the shipping act of June 26, 1884, which freely gives, without conditional equivalent, to all vessels coming from Cuba and Porto Rico to the United States, an important reduction of tonnage duties, and exhibits our desire to promote good neighborhood.

This instruction supplements my No. 39 of February 23. Taken with the correspondence on file in your legation relative to the subject, your course in dealing with it is made easy. In this connection I refer you to Mr. Frelinghuysen’s instruction to Mr. Foster, No. 164, of April 18, 1884, with its accompanying memorandum, without, however, instructing you to regard the alternative suggestions of modes of settlement contained therein as prescribed for your guidance or to be proposed by you in those terms. Your own discretion will dictate what details of arrangement, whether suggested by the Spanish Government or appearing to you to be feasible, are to be recommended to this Government for adoption. I would prefer to leave the choice of a remedy to Her Majesty’s Government, in the confidence that it is its desire and purpose fully to execute the provisional agreement of 1884, according to its clear intent.

I need not suggest the embarrassing effect which the recall of the President’s proclamation of February 14, 1884, might have on pending negotiations for more liberal intercourse between the two countries.

I am, &c.,