The Chairman of the United States Tariff Commission (Marvin) to the Secretary of State

My Dear Mr. Secretary: The Tariff Commission has given consideration to the request in your letter of the 13th instant (EA 660f.116/15), concerning Czechoslovakia’s restriction upon the importation of automobiles.

From the facts reported to the Department by the Legation at Prague it appears that the European countries exporting automobiles to Czechoslovakia, notably Italy, France, Austria, and Germany, are unable to sell in that country as many cars as they are permitted to enter: whereas the demand for American cars is so great that a much larger number could be sold than are allowed to be imported. Italy and France, for example, sold only 692 and 507 respectively during the quota year ended November, 1927, though their quotas were 800 each. On the other hand, it is reported that the contingent of 800 cars which [Page 705] had been allotted to the United States for the current quota year ending November next was exhausted on February 15, and that import licenses for the year will be limited to 1300, although at least 2500 American cars could be sold within that period. In other words, the contingent system of Czechoslovakia as currently applied restricts the sale of American cars in that market and does not in fact restrict the sales of French and Italian cars. The difference between the treatment which Czechoslovakia accords to the United States on the one hand, and to France and Italy on the other, is therefore not merely a difference in the degree of restriction, but in effect is a difference of kind—a restriction as contrasted with freedom to import greater numbers than are actually sold.

Czechoslovakia has an unquestionable right to restrict imports which compete with domestic production. The United States can scarcely object on the ground that such restriction is accomplished not only by import duties but by the less common method of limiting the number of cars to be imported. But when the total cars allowed entry are apportioned among the various exporting countries in such manner that the trade of the United States is seriously restricted while that of several other countries is in fact left without restriction, there is a manifest interference with equal competitive conditions and a plain denial of equal treatment, restricting the market for American cars through government action just as truly as would a discriminatory import duty.

Section 317 of the tariff act of 1922 provides for possible action against any country which

“discriminates in fact … directly or indirectly, by law or administrative regulation or practice, by or in respect to any … classification, regulation, condition, restriction, or prohibition, in such manner as to place the commerce of the United States at a disadvantage compared with the commerce of any foreign country.”

The words “in fact”, “indirectly”, and “by any practice” clearly indicate the intent of Congress to go beyond a mere formal equality of treatment and to comprehend every sort of action which affects unequally the similar products of different foreign countries so as to place the commerce of the United States at a real disadvantage, regardless of the forms under which the disadvantage may be concealed.

The commission does not ignore the argument that the Government of Czechoslovakia discriminates in favor of the United States by admitting in practice roughly twice as many American cars as French or Italian cars. This departure from formal equality in the number of import licenses allowed to each producing country seems rather to constitute an admission on the part of Czechoslovakia that a mere formal equality does not satisfy the equities of the case. The [Page 706] formal discrimination in favor of the United States mitigates, but does not essentially change, the real disadvantage arising from the limitation which Czechoslovakia imposes upon the importation of American cars while imposing no restriction in fact upon like imports from certain other countries. It is therefore apparent that the effect of the apportionment in question is, in the words of the statute, a limitation, restriction, or prohibition which places the commerce of the United States at a disadvantage compared with the commerce of other foreign countries.

It should be observed, however, that in cases where the sales restriction or disadvantage in competition results from unequal apportionment of import quotas, the foreign government may be in a position to remove the inequality without removing the restriction, and therefore without improving the competitive position or sales prospect of the American article in that market. In the present instance for example, the Czechoslovak government might contrive to remove the unequal treatment complained of without increasing the import quota for American cars. This might be done either by reserving a larger proportion of the total sales in that country for the domestic automobile industry and reducing the import quotas of all countries, or by reducing the existing treaty quotas several hundred cars annually so that the import prohibition beyond the permitted number would become operative also against other countries besides the United States. Such a revision of quotas might avoid the charge of unequal treatment within the terms of section 317, but would not improve the position of American cars because no more would be admitted than before.

It will always be difficult and often impossible to secure equal treatment for all countries in cases where the inequality or the disadvantage in competition results from unequal apportionment of import quotas rather than from discriminatory duties. Even after the unequal import restriction has been adjusted so as to be operative also against other foreign countries, the revised quotas might still involve a more severe restriction against the American article than against the similar products of competing countries. A severe restriction upon American cars and a light restriction upon European cars would still be unequal treatment; but where the inequality is a matter of degree, it is practically impossible, in view of the shifting and changing fortunes of a given commodity in a given market, to so apportion the respective quotas from season to season as to assure exact equality of treatment to all parties. As a matter of fact, any quota system is fundamentally incapable of establishing and maintaining such equal competitive conditions as most-favored-nation treaties are designed to secure to the parties thereto.

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While therefore, in the opinion of the commission, the import restrictions in question are imposed in such manner as to constitute unequal treatment, placing the commerce of the United States at a disadvantage compared with the commerce of other foreign countries within the meaning of the statute, there may be a question whether the public interest would be served by applying retaliatory measures in a case of this kind where the unequal treatment complained of might be removed without improving the competitive position of the American product or enlarging its market in that country. The commission understands that existing quotas are fixed by treaty; but those treaties are terminable on short notice and in any case can always be amended by mutual agreement, for which express provision is made in Article 29 of the treaty of 17 August, 1923, between Czechoslovakia and France.43


Thomas O. Marvin
  1. League of Nations Treaty Series, vol. xliv, pp. 21. 41.