611.6231/189a
The Secretary of State to the Chairman of the Senate Committee on Foreign Relations (Lodge)
My Dear Senator Lodge: I understand that questions have been raised with respect to certain clauses in the treaty with Germany now pending before your Committee. In view of the importance of these clauses, I desire to emphasize the considerations which led to their inclusion in the treaty.
It is hardly necessary for me to refer to the general situation with respect to our commercial treaties. With a number of countries we have no commercial treaties, and the treaties we have should be supplemented and brought up to date. Important subjects are not covered and as to other subjects more precise and definite provisions are required. We are therefore faced with the necessity of negotiating commercial treaties which should be responsive to our needs, and to this end there has been a most careful study of the questions presented. In this examination we have been led to consider the fundamental policies which our commercial treaties should embody. The result of this examination appears in the pending treaty with Germany.
[Page 184]I understand that the difficulties, which your Committee has met, relate to two classes of provisions,—(1) those providing for “national” treatment, and (2) those providing for “most-favored-nation” treatment.
First. National treatment. These provisions give
to the nationals of the contracting Powers reciprocally the same
privileges which the contracting Powers respectively accord to their own
nationals in relation to the subject described. Thus the pending treaty
with Germany provides in Article VII as follows:
The policy reflected in these articles is not new. Thus Article II of the Treaty of 1815 with Great Britain provides:
“No higher or other duties or charges shall be imposed in any of the ports of the United States on British vessels than those payable in the same ports by vessels of the United States; nor in the ports of any of His Britannick Majesty’s territories in Europe on the vessels of the United States than shall be payable in the same ports on British vessels.
“The same duties shall be paid on the importation into the United States of any articles the growth, produce or manufacture of His Britannick Majesty’s territories in Europe, whether such importation shall be in vessels of the United States or in British vessels, and the same duties shall be paid on the importation into the ports of any of His Britannick Majesty’s territories in Europe, of any article [Page 185] the growth, produce or manufacture of the United States, whether such importation shall be in British vessels or in vessels of the United States.
“The same duties shall be paid, and the same bounties allowed, on the exportation of any articles the growth, produce or manufacture of His Britannick Majesty’s territories in Europe to the United States, whether such exportation shall be in vessels of the United States or in British vessels; and the same duties shall be paid, and the same bounties allowed, on the exportation of any articles the growth, produce or manufacture of the United States, to His Britannick Majesty’s territories in Europe, whether such exportation shall be in British vessels or in vessels of the United States.
“It is further agreed that in all cases where drawbacks are or may be allowed upon the re-exportation of any goods the growth, produce or manufacture of either country, respectively, the amount of the said drawbacks shall be the same, whether the said goods shall have been originally imported in a British or an American vessel; but when such re-exportation shall take place from the United States in a British vessel, or from the territories of His Britannick Majesty in Europe in an American vessel, to any other foreign nation, the two contracting parties reserve to themselves, respectively, the right of regulating or diminishing, in such case, the amount of the said drawback.” (Malloy’s Treaties, Vol. I, 625, 626.)
There are similar provisions in Articles IV, V and VI of
our Treaty of 1853 with the Argentine Republic, as follows:
Similar provisions for reciprocal national treatment are found in our Treaty of 1826 with Denmark; of 1827 with Norway (Sweden and Norway); of 1846 with Colombia (New Granada); of 1851 with Costa Rica; of 1852 with the Netherlands; of 1858 with Bolivia; of 1859 with Paraguay; of 1864 with Honduras; of 1871 with Italy; of 1875 with Belgium; of 1902 with Spain; and of 1911 with Japan.
It is manifest that to refuse to provide for such reciprocal national treatment in the negotiation of our new commercial treaties would be a clear departure from our policy embodied in these existing treaties. Further, there is no provision in many of these existing treaties for the abrogation of the provisions in question without abrogating the whole treaty. Some of our treaties, as those with Great Britain and the Argentine Republic, have no provision for termination and, assuming that they could be terminated on reasonable notice, they could be terminated in this way only as a whole and not in part. It would, however, be a serious thing for us to dispose of all our commercial treaties without negotiating new treaties to take their place. If we were to abrogate existing treaties before undertaking such negotiations we should be in an unfortunate situation, and, if we were to undertake to negotiate substitute treaties without such abrogation, we should not be likely to get terms more favorable to the United States than the terms of the existing treaties unless we paid for them with substantial concessions.
On the other hand, if we continue to be bound by the provisions for national treatment in the existing treaties, there would seem to be little in the point that we should reserve in relation to other countries rights of discrimination by refusing national treatment. This would practically be a threat of discrimination against certain countries, inviting reprisals, while at the same time our hands would be tied in carrying out a similar policy as to the countries with which we have treaties of the sort above described.
Apart from these considerations the policy of giving reciprocal national treatment as embodied in existing treaties so far as they go, and as denned in the clauses in the pending treaty with Germany, is believed to be a sound one.
Take, for example, the case of a tonnage duty. This is imposed upon a vessel entering a port and is measured according to the net registered tonnage of the vessel. It is a duty on the ship as such, and is the price exacted by the territorial sovereign for the privilege given the vessel to enter with its cargo. It becomes of the highest importance to the shipowner, foreign or domestic, that his vessel be not subjected to a heavier tax than that imposed upon rival vessels under any flag. The rivals of an American vessel entering, for example, a European port called X, are not merely the vessels of third States but the vessels of X itself. Thus, in entering into a [Page 187] treaty providing for tonnage duties, the problem is not to secure such benefits as the other contracting party may yield to third States, but rather to safeguard one contracting State (such as the United States in its treaty) against special concessions or discriminations which the other contracting State might otherwise make in favor of its own vessels. The manifest reason for this policy is that the ships of each contracting party are competitors of the ships of the other. This fact has led to the practice of the United States, evidenced by the treaties above described, in providing for reciprocal national treatment of tonnage duties in treaties with maritime States. This has the sanction of our statutory law in relation to tonnage duties. (U. S. Rev. Stat. sec. 4219; Act of June 26, 1884, c. 121, sec. 14, 23 Stat. 57; June 19, 1886, c. 421, sec. 11, 24 Stat. 81; April 4, 1888, c. 61, sec. 1, 25 Stat. 80; August 5, 1909, c. 6, sec. 36, 36 Stat. 111.)
If the United States is to have its proper place as a maritime Power and its vessels are to enter the ports of the world, it must insist upon freedom from discriminations in such ports by the respective sovereigns in relation to their own vessels. How is the United States to obtain such freedom from discrimination? It is said that it may retaliate, but, in this sense, retaliation is only a means to an end, and the end is to obtain the desired freedom from discrimination. The way to assure this freedom is by agreement and, of course, what the United States asks it must give. Thus we have, as a natural result, the historic provisions of our commercial treaties with respect to reciprocal national treatment. Provisions of this type have become common to and appear in the treaties of practically all nations.
Again, a cargo duty represents the effort of a State to exact a charge by reason of the carriage of a cargo of a vessel under a particular flag. A State doubtless may, in the absence of a treaty, impose cargo duties that discriminate in its own favor by exacting a heavier charge on cargoes carried in foreign bottoms than on those carried in its own ships. Here again it appears, as in the case of tonnage duties, that a maritime State about to contract with another finds its competitor in the State with which it deals and must be on its guard lest that State be left free to discriminate in favor of its own shipping through impositions of cargo duties which place a heavier burden on cargoes carried in foreign vessels than on those carried in its own. This danger has led to the practice of the United States in incorporating in its treaties provisions for reciprocal national treatment of cargo duties. This policy is supported by the provisions aimed at securing protection from discrimination which are found in Article 317 of the Tariff Act of 1922.11 In this [Page 188] case, as in the case of tonnage duties, the object is attained when another State is willing to agree not to impose discriminatory exactions upon our commerce and this, of course, calls for similar agreement upon our part. Either we are to have a policy of discriminations or a policy of obtaining immunity from discriminations. If the latter policy is adopted, then we achieve our purpose in securing agreements by which States will not discriminate against us.
I should hardly think it necessary to argue the question whether a policy of discriminations, as an end in itself, would be in our interest, for our history would seem sufficiently to show that it would not. Discrimination in favor of our own vessels will certainly produce retaliation by foreign States whose tonnage is adversely affected by the American discriminatory action. If we impose discriminatory tonnage or cargo duties, they will be imposed by foreign Powers against our vessels. The effect of such retaliatory measures would probably be that if American ships coming from abroad entered American ports with full cargoes they would go back empty. Any attempt by Congress to alleviate the situation by lessening charges for transportation could be met by like action on the part of the foreign State to which exports from the United States were destined. A policy of discrimination and retaliation, as an end in itself, would be a policy fatal to our interest, not only in the highest degree embarrassing so far as our shipping interests are concerned, but having by-products in resentment and ill-will and in the encouragement of other efforts to cripple our trade which would make us pay dearly for our experiment. A policy of discrimination and retaliation, not as an end in itself, but merely to enforce proper regard for our own interests by freeing us from discriminations abroad would find its aim achieved in agreements such as the pending treaty with Germany and other treaties of like import, under which discriminations would be impossible.
That a policy of discrimination if entered upon by this Government in favor of national shipping would certainly be met by retaliation is a conclusion fortified by recent events. The British Imperial Conference which recently met in London is understood to have adopted the following Resolution:
“In view of the vital importance to the British Empire of safeguarding its overseas carrying trade against all forms of discrimination by foreign countries, whether open or disguised, the representatives of the Governments of the Empire declare—
- “(1). That it is their established practice to make no discrimination between the flags of shipping using their ports, and that they have no intention of departing from this practice as regards countries which treat ocean-going shipping under the British flag on a footing of equality with their own national shipping.
- “(2). That in the event of danger arising in future to the overseas shipping of the Empire through an attempt by a foreign country to discriminate against the British flag, the Governments of the Empire will consult together as to the best means of meeting the situation.”
The Statute with respect to the International Regime of Maritime Ports approved by the Second General Conference on Communications and Transit at Geneva in December, 1923, contained the following provision in the first paragraph of Article VIII:
“Each of the Contracting States reserves the power, after giving notice through diplomatic channels, of suspending the benefit of equality of treatment from any vessel of a State which does not effectively apply, in any maritime port situated under its sovereignty or authority, the provisions of this Statute to the vessels of the said Contracting State, their cargoes and passengers.”
It may be observed that Article II of the same Statute contemplates reciprocal national treatment of vessels in the following terms:
“Subject to the principle of reciprocity and to the reservation set out in the first paragraph of Article 8, every Contracting State undertakes to grant the vessels of every other Contracting State equality of treatment with its own vessels, or those of any other State whatsoever, in the maritime ports situated under its sovereignty or authority, as regards freedom of access to the port, the use of the port, and the full enjoyment of the benefits as regards navigation and commercial operations which it affords to vessels, their cargoes and passengers.
“The equality of treatment thus established shall cover facilities of all kinds, such as allocation of berths, loading and unloading facilities, as well as dues and charges of all kinds levied in the name or for the account of the Government, public authorities, concessionaries or undertakings of any kind.”
The abandonment of reciprocal national treatment with the design of permitting discriminatory tonnage and cargo duties favorable to American shipping would mark the beginning of a bitter strife in which reprisal would follow reprisal and the very interests sought to be benefited would be jeopardized. To seek such a war as an end in itself would seem to be a desperate recourse. It is believed that American shipping will prosper far more greatly by a policy which ensures for it through appropriate international agreements immunity from unjust discriminations.
Second. Most-favored-nation treatment. I suppose that no one would object to the inclusion of the usual most-favored-nation provisions in our commercial treaties. I take it for granted that we desire to obtain in our treaties the same benefits for the United States that the other contracting Powers give to third States. The [Page 190] question which has arisen, with respect to the most-favored-nation clauses in the pending Treaty with Germany grows out of the fact that these clauses provide reciprocally for most-favored-nation treatment without regard to the question whether a favored third State shall have been accorded the favor gratuitously or in return for special compensation. In other words, the pending Treaty applies what is termed the “unconditional” most-favored-nation principle. This is indeed a departure from our former practice but it is believed to be a wise departure.
The traditional policy of the United States in respect to most-favored-nation treatment was developed on the theory that privileges and concessions in the field of duties on imports or exports should be granted only in return for privileges and concessions reciprocally accorded. Thus there was almost uniformly written into the treaties to which we became a party the provision that most-favored-nation treatment should be conditional: The benefit of concessions or reductions of duties made to third States by either contracting Power should accrue to the other contracting Power freely, if freely made to the third State, but only in return for an equivalent if made to the third State for a reciprocal concession or reduction.
In practice, the application of the principle of granting special concessions in return for special concessions involved the upsetting of the equilibrium of conditions which it was in the interest of this country to maintain. It was the interest and fundamental aim of this country to secure equality of treatment but the conditional most-favored-nation clause was not in fact productive of equality of treatment and could not guarantee it. It merely promised an opportunity to bargain for such treatment. Moreover, the ascertaining of what might constitute equivalent compensation in the application of the conditional most-favored-nation principle was found to be difficult or impracticable. Reciprocal commercial arrangements were but temporary makeshifts; they caused constant negotiation and created uncertainty. Under present conditions, the expanding foreign commerce of the United States needs a guarantee of equality of treatment which cannot be furnished by the conditional form of the most-favored-nation clause.
While we were persevering in the following of the policy of conditional most-favored-nation treatment, the leading commercial countries of Europe, and in fact most of the countries of the world, adopted and pursued the policy of unconditional most-favored-nation treatment: Each concession which one country made to another became generalized in favor of all countries to which the country making the concession was obligated by treaty to extend most-favored-nation treatment. As the United States attained to a position of first rank as a World Power, we, in defence of our essential interests, [Page 191] became an active champion, in fact the foremost champion of the principle of the “open door” in the field of international commercial relations. To be consistent with our professions, and to conserve our interests it has become important that we make our commercial practice square in fact with the theory upon which our policy has been based. This explains the reason why, having examined with most minute care the history of the application of our conditional most-favored-nation principle, the Administration decided to abandon this practice and in its place to adopt the practice of unconditional most-favored-nation treatment. After the matter had been presented to President Harding he wrote me as follows, on February 27, 1923:
“I am well convinced that the adoption of [the] unconditional favored nation policy is the simpler way to maintain our tariff policy in accordance with the recently enacted law and is probably the surer way of effectively extending our trade abroad. If you are strongly of this opinion, you may proceed with your negotiations upon the unconditional policy.”
The Tariff Act of 1922 contains provisions which differentiated it from previous tariff legislation. Articles 315, 316 and 317 show that Congress realized that we had entered upon a new era, calling for new methods and a new attitude. The time has come for demanding that conditions of commercial competition be placed upon a basis which will both assure our own interests and contribute to the peace of the world by eliminating unnecessary economic contentions. As we seek pledges from other foreign countries that they will refrain from practicing discrimination, we must be ready to give such pledges, and history has shown that these pledges can be made adequate only in terms of unconditional most-favored-nation treatment. We should seek simplicity and good will as the fundamental conditions of international commerce.
There is one apparent misapprehension which I should like to remove. It may be argued that by the most-favored-nation clauses in the pending treaty with Germany we would automatically extend privileges given to Germany to other Powers without obtaining the advantages which the treaty with Germany gives to us. This is a mistake. We give to Germany explicitly the unconditional most-favored-nation treatment which she gives to us. We do not give unconditional most-favored-nation treatment to other Powers unless they are willing to make with us the same treaty, in substance, that Germany has made. Most-favored-nation treatment would be given to other Powers only by virtue of our treaties with them, and these treaties, so far as we have them, do not embrace unconditional most-favored-nation treatment. We cannot make treaties with all the [Page 192] Powers at the same moment, but if the Senate approves the treaty which we have made with Germany we shall endeavor to negotiate similar treaties with other Powers and such other Powers will not obtain unconditional most-favored-nation treatment unless they conclude with us treaties similar to the one with Germany.
In the same line I may observe, recurring to what I have said above with regard to national treatment of shipping, that the provisions of the treaty with Germany for such national treatment will not accrue to the benefit of other Powers with whom we do not make, or have not made, a treaty similar to the treaty with Germany and I may repeat that our existing commercial treaties contain provisions, so far as they go, for national treatment of shipping.
In short, if the treaty with Germany is approved, we shall be in a position to conclude negotiations with other Powers upon the same basis and in this way most effectively to remove whatever discriminations may now exist to the prejudice of the United States.
I remain [etc.]
- 42 Stat. 858, 944.↩