Mr. Gresham to Baron Saurma.

Excellency: I have the honor to inclose for your information copy of a communication which I addressed to the President on the questions raised by your protest of August 28 against the additional duty of one-tenth of a cent a pound imposed by our tariff act of that date on sugars which are imported from or are the product of a country that pays a bounty on the exportation of sugars; also, copy of the President’s annual message to Congress, from which I quote the following:

The German Government has protested against that provision of the customs tariff act which imposes a discriminating duty of one-tenth of 1 cent a pound on sugars coming from countries paying an export bounty thereon, claiming that the exaction of such duty is in contravention of articles 5 and 9 of the treaty of 1828 with Prussia.

In the interests of commerce of both countries, and to avoid even the accusation of treaty violation, I recommend the repeal of so much of the statute as imposes that duty, and I invite attention to the accompanying report of the Secretary of State, containing a discussion of the questions raised by the German protest.

Accept, etc.,

W. Q. Gresham.
[Inclosure.]

The President:

The note of the German ambassador of August 28, 1894, protests against the additional duty of one-tenth of a cent a pound imposed by the tariff act of that date on sugars which are imported from, or are the product of, a country that pays a bounty on the exportation of such sugars.

The protest is based upon “the fact that such a measure could not be reconciled with the most-favored-nation clause which governs the economic relations of the two countries,” but that it is “rather a differentiation whereby the exportation of German sugar to the United States” is “more unfavorably treated than that of several other European countries.” In this relation the German ambassador says:

The granting of an export bounty is a domestic affair of Germany. An intent not to fulfill its treaty stipulations based upon the most-favored-nation clause can not, therefore, be inferred from this by any other country.

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He also declares that—

The view which has been manifested by the legislative bodies of the United States would render the effects of the most-favored-nation clause illusory, and that it would expose the contracting parties to the adoption of arbitrary duties, which it is the object of treaties containing a most-favored-nation clause to prevent.

By the tariff act of October 1, 1890, an additional duty of one-tenth of a cent a pound was imposed on sugars imported from countries that paid a greater bounty on the exportation of refined sugar than was paid on raw sugar. Against this additional duty it does not appear that the German Government protested. The reason, however, why no such protest was made may, perhaps, be discovered by a comparison of the provisions of the two acts. By the act of 1890 the additional duty was imposed only on sugars above No. 16 Dutch standard, and on them on the conditions above stated. By the act of 1894 the additional duty is imposed on all sugars, whether above or below that standard.

The value of sugars imported into the United States from the German Empire has been more than $15,000,000 annually. Of this aggregate, only $200,000 or $300,000 worth, or about one seventy-fifth, was above No. 16 Dutch standard. The effect, therefore, of the additional duty of one-tenth of a cent under the tariff act of 1890 was comparatively insignificant.

The effect of the additional duty on all sugars under the act of 1894 is most important, since, other things being equal, the importer would not take the more highly dutiable German sugars till other sugars not subject to the additional duty had been absorbed. The additional duty under the act of 1894 affects, therefore, the whole of our large trade in German sugars.

We are now brought to the consideration of the legal aspects of the German ambassador’s protest.

The treaty between the United States and Prussia of May 1, 1828, on which the protest is based, contains two stipulations that bear on the present question.

Article 5 provides:

No higher or other duties shall be imposed on the importation into the United States of any article the produce or manufacture of Prussia, and no higher or other duties shall be imposed on the importation into the Kingdom of Prussia of any article the produce or manufacture of the United States, than are or shall be payable on the like article being the produce or manufacture of any other foreign country.

Article 9 provides:

If either party shall hereafter grant to any other nation any particular favor in navigation or commerce, it shall immediately become common to the other party, freely, where it is freely granted to such other nation, or on yielding the same compensation, when the grant is conditional.

The stipulations of these two articles place the commercial intercourse of the United States and Prussia, not the entire German Empire, on the most-favored-nation basis—the first, by providing that the duties shall not be higher than “on the like articles being the produce or manufacture of any other foreign country;” the second, by providing that any particular favor granted by either party “to any other nation” shall “immediately become common to the other party.”

In other words, these stipulations give either party the right, special engagements of reciprocity being excepted, to take the duties levied by the other on articles the produce or manufacture of any other country, and to demand the same treatment for its own product and manufactures. It is obviously no answer to this to say that certain, discriminating [Page 238]duties levied by one party on the products or manufactures of the other are not confined to the latter, or to any country by name, but apply equally to all countries that may happen to fall in a certain category. If there is any other country, or if there are other countries, which, either by name or by a general classification, are exempt from the duty (special engagements of reciprocity being excepted), the requirements of the treaty are not fulfilled. To say that the discrimination is not specifically and explicitly national, or that it applies to more than one country, is a mere argumentative subterfuge, inconsistent with the clear intention of the treaty.

By the second article of the commercial convention between the United States and Great Britain of July 3, 1815, it is provided, in language almost identical with that in the subsequent treaty with Prussia, that—

No higher or other duties shall be imposed on the importation into the territories of His Britannic Majesty in Europe of any articles the growth, produce, or manufacture of the United States than are or shall be payable on the like articles being the growth, produce, or manufacture of any other foreign country.

By the general customs act of 7 William IV, section 60 (1836), it was provided:

That the duty upon rice, rough or in the husk, imported from the “west coast of Africa, shall be, per quarter, one penny.”

Under this act the general duty on the same kind of rice, which was commonly called rough rice, or paddy, was 2s. 6d. per bushel. By some members of the British board of trade it was argued that the discrimination was not inconsistent with the provisions of the convention, since it gave an advantage, not to the produce of any particular country, but only to articles of commerce shipped from a particular place, and treated the product of all countries alike.

Against this contention the United States protested.

In a note to Lord Palmerston, of February 1, 1841, Mr. Stevenson, the minister of the United States in London, said:

If it be admitted, as it must be, that, by the provisions of the existing law, all rice, wherever produced (and, of course, that of Africa), can be imported into British ports at the low duty of a penny per quarter, upon what principle can it be maintained that Africa is not thereby placed upon the footing of a favored nation, with advantages given to her produce which the treaty intended equally to secure to the United States? Can the stipulations of the treaty be defeated or evaded by Great Britain allowing Africa to import from her coasts not only her own rice, but that of other nations?

The result of this protest was that the British Government equalized the duties on rough rice imported from the United States and from the western coast of Africa. (House Ex. Doc. No. 2, Twenty-seventh Congress, second session, pp. 47–57.)

The discrimination in the act of 1894 is even more pointedly at variance with the treaty stipulations in question than was the discrimination in the British act of 1836, since it imposes, expressly, an additional duty on an article, as the produce or manufacture, and because it is the produce or manufacture of a country that may happen to fall within a disfavored category.

It is scarcely necessary to say that the question now under consideration can not be affected by the form in which the discrimination is created—whether it is created by granting a duty lower than the general duty or by imposing a duty in addition to the general duty. The form in which the discrimination is created is no criterion either of its extent or of its effect. In reality, in the present case, the discrimination, so [Page 239]far as its effect is now ascertained, would fall on Germany and Austria-Hungary alone. If it fell on only one country, or on three or more, the question of treaty construction would remain so long as there was any other country that was favored.

Another question, however, is yet to be considered. Can the payment by a government of a bounty on the exportation of an article of its produce or manufacture be considered in the light of a discrimination which may warrant another government in laying on the importation of such article an additional or discriminating duty, in spite of a most-favored-nation stipulation?

The answer seems to be plain, that the payment by a country of a bounty on the exportation of an article of its produce or manufacture for the purpose of encouraging a domestic industry can no more be considered as a discrimination than can the imposition of a protective or practically prohibitive duty on the importation of an article the produce or manufacture of a foreign country for the same purpose be so considered. The two measures are the same in principle; the question as to which shall be adopted is a matter of domestic policy. It is a matter in respect of which nations, in stipulating for equality of treatment, have preserved liberty of action. The protective duty on importation and the bounty on exportation are alike intended, what ever may be their effect, to create a national advantage in production or in manufacture. As between the two, the bounty is the more favorable to the inhabitants of foreign countries, since it tends to enable them to get cheaper articles at the expense of the bounty-paying government.

Formerly, the Government of the United States paid a bounty on all exported pickled fish that were derived from the fisheries of the United States (sec. 2, act of July 29, 1813, Stat. L., vol. 3, p. 50). This act was continued in force in 1816, its duration having originally been limited to the period, whatever it might be, covered by the war with Great Britain and a year thereafter (act of February 9, 1816, Stat. L., vol. 3, p. 254). It remained in force for many years; it seems still to have been in force in 1845. It probably never was imagined that this act created a discrimination which might expose the United States to retaliatory or discriminating duties at the hands of foreign governments.

Inlaying protective duties on foreign articles instead of paying bounties on domestic products, the immediate effect, if not the object, of the law is to curtail importations; but, so long as the duties imposed are equal on the products or manufactures of all nations, though in practice they may operate most unequally, foreign nations can not object on legal grounds. They can not allege discriminations in the treaty sense. It is understood, when treaties against discriminating duties are made, that governments reserve the right to favor (by duties or by bounties) their own domestic production or manufacture.

The additional duty, therefore, levied by the act of 1894 on all sugars coming from bounty-paying countries is not responsive to any measure that may be considered as constituting a discrimination by those countries against the production or manufacture of the United States, but is itself a discrimination against the produce or manufacture of such countries. It is an attempt to offset a domestic favor or encouragement to a certain industry by the very means forbidden by the treaty.

I assume that the German Government does not claim the treaty affords any just ground for protest against the additional duty on sugars not shown to be the produce or manufacture of Prussia.

Respectfully submitted.

W. Q. Gresham.