Papers relating to the foreign relations of the United States, 1929, Volume I

611.003/1511

Memorandum by the Assistant Chief of the Treaty Division (McClure)

[Washington,] March 30, 1929.

Mr. Secretary: During recent months information has multiplied to the effect that the commercial policy of the United States, as expressed in its laws and treaties, is exciting increased antagonism in certain other countries. The exact extent of such opposition is difficult, perhaps impossible, to measure, but sufficient evidence of it has reached the Department to make it seem incumbent upon the Treaty Division, which has the duty of negotiating commercial treaties for the purpose of furthering this policy, to bring the situation to your attention.

The immediate occasion for so doing is the receipt of a despatch from the American Embassy at Berlin discussing several elements of opposition.⁸ Among them is the suggestion, appearing in a Berlin newspaper, that other countries might retaliate against the United States by enacting provisions in their tariff laws which would result in the duty on the importation of goods into such other countries from the United States being measured by the import duties which the United States imposes upon their goods.

The Department is on record as holding that duties differentiated in this manner violate the most-favored-nation clause in commercial treaties whenever applied to the disadvantage of the goods of a country which is a party to such a treaty.

It is true, however, that in respect of a number of tariff items, such provisions occur in the tariff law of the United States. Consequently, this Government could hardly protest the violation of the treaty through the application of such provisions, no matter how disadvantageous such application might become to products originating in the United States.

By a letter of February 26, 1929, Mr. Kellogg requested the Chairman of the Ways and Means Committee to take steps to repeal the provisions in question. There is little doubt that such repeal can take place without affecting any American interest. So important is the matter, however, from the point of view of the integrity of our commercial policy, that it is thought you may care to take advantage of the present occasion again to lay the matter before the Committee and to urge the repeal.

The question of the compatibility of these provisions of the tariff act and the most-favored-nation clause has been referred to the Department of Justice by the Secretary of the Treasury for a ruling. It is understood informally that those who have considered the matter in the Department of Justice are in accord with the Department of State in considering that the application of the provisos to the disadvantage of the goods of another party to a most-favored-nation treaty contravenes such treaty. An additional question has, however, emerged in connection with the case. Some of the experts of the Department of Justice take the position that a most-favored-nation clause in a commercial treaty is not self-executing, and accordingly can not supersede a provision of a tariff law unless both houses of Congress enact a statute for the purpose of giving execution to the treaty. The case was put before the Department of Justice at the instance of Germany. This fact seems to give a certain significance to discussion of the question in Germany.

Were the European discussion of our tariff and most-favored-nation policy confined to the foregoing considerations, our concern might be relatively little. Unfortunately, however, this discussion is only one item concerning which opposition to American policy is being felt.

The practice of the United States from the beginning of our national history has usually been to maintain a uniform tariff equally applicable to the products of all countries. That practice was written into our stated policy and into our treaties beginning with the year 1923. The underlying cause was the vast increase in the surpluses of manufactured goods which must find a market, if at all, outside the United States. The process of increasing production of manufactured goods has been going on for more than a generation. Such increase was particularly rapid during the World War period and resulted in careful study of our treaty policy by the United States Tariff Commission and the subsequent decision of President Harding to base the commercial treaty system of the country upon the unconditional most-favored-nation clause. President Harding felt authorized to do so particularly because of the provisions of Section 317 of the Tariff Act of 1922 which empowered him to retaliate against commercial practices of other countries which might discriminate against the United States. Since that date eight treaties containing the most-favored-nation clause have been signed, five of them have been put into effect, and this Government has entered into executive agreements with more than a dozen other countries for the purpose of maintaining unconditional most-favored-nation treatment reciprocally in respect of customs and other commercial matters.

The program of commercial treaties included not only their conclusion with all countries with which treaties were not in effect, but the revision of old treaties so as to put them in line with the new policy. The progress of this program has been painfully slow. In the first place, the Department itself lacked the personnel to take advantage of the opportunities which were presented to it to push forward its own policy. In the second place, serious opposition has been encountered in a number of quarters. In Latin America offers to enter into unconditional most-favored-nation treaties have, on the whole, been coolly received and in a number of instances have been flatly turned down. In Europe, efforts to enter into such a treaty with Spain early proved unsuccessful, though a modus vivendi with that country has been maintained.⁹ The center of opposition has, however, been in France.

France, though according most-favored-nation treatment to a considerable number of countries, refuses to endorse most-favored-nation treatment as a policy and contends that it will negotiate separately with each country, and arrive at a separate bargain with each as to the application of its tariff. The United States offered to France a most-favored-nation treaty in 1927¹⁰ but has made no progress whatever toward negotiating the same. France stands strongly by the proposition that it will not promise most-favored-nation treatment to a country which maintains a tariff that is generally more obstructive to the importation of French goods than is the French tariff to the importation of the goods of such other country. The French argue that the American tariff is decidedly higher than their own and that it falls with particular weight upon the characteristic products of France.

Recent despatches from the Consulate General and from the Embassy at Berlin give evidence of considerable dissatisfaction in Germany with the most-favored-nation treaty in force with the United States and suggest the growth of sentiment in favor of a commercial policy such as that of France. Should this attitude become dominant, the commercial treaty signed in 1923 would probably be denounced as soon as the fixed term has expired. It is true that termination could not be effected until 1935 but the growth of dissatisfaction in so important a country as Germany, and any threat to subscribe to a policy contrary to that of the United States, must be viewed with concern by this Government. There is every reason to believe that the policy of equality of treatment, as put into effect by the most-favored-nation clause, is not only of advantage to American exporters but is from almost every point of view the fairest commercial policy that a country can maintain and the one that is best calculated to promote peace and good will among nations.

The situation evidenced by despatches from Germany is confirmed by documents emanating from Geneva. The Economic Committee of the League of Nations has for some time been giving very careful consideration to commercial policy in general and to the most-favored-nation clause in particular. While the report of the World Economic Conference of 1927¹¹ and other expressions of opinion through the League indicate a prevailing sentiment in favor of the most unconditional and unrestricted policy of most-favored-nation treatment, it is also evident that the French doctrine is receiving wide support throughout the continent of Europe and that it was directed particularly against the tariff of the United States. It would be impossible to maintain that such an attitude is wholly unreasonable. Obviously, the advantages of most-favored-nation treatment are greater where a tariff is moderate than where it is extremely high.

There is at present a movement, though apparently not a very strongly supported one, to enter into multilateral treaties for the purpose of reciprocally reducing tariff duties. In connection with this movement there has been some insistence that duties reduced by such multilateral agreements ought not to be subject to generalization to countries which are the other parties to bilateral most-favored-nation agreements in force with those countries that might subscribe to multilateral agreements. Such a doctrine is wholly at variance with the policy of the United States, and the influence of the United States should be directed against it in every way practicable. What the United States needs for the furtherance of its policy is not multilateral treaties for the purpose of altering tariff duties, but a multilateral treaty containing the most-favored-nation clause, such treaty to be accepted by the largest possible number of the countries of the world.

The International Chamber of Commerce is giving consideration to these problems and the American Section has recently taken strong ground against any limitation of the most-favored-nation clause in the event that multilateral treaties reducing tariffs should by any chance be entered into.

In view of the foregoing considerations, it is recommended:

(1) That careful consideration be given by the Department to the attitudes of other countries which may endanger the accomplishment of its commercial treaty program and that care be taken to avoid in all practicable cases increasing such opposition by unnecessary provisions of its tariff laws, either provisions inconsistent with the policy of equality of treatment or tariff rates that are unnecessarily high and provocative. Some of the administrative features of our tariff laws have excited bitter opposition and should be repealed wherever not absolutely essential to the enforcement of the law.

(2) That the Department give particular attention to strengthening its personnel where necessary to take full advantage of every opportunity to hasten the development and completion of its most-favored-nation treaties. The more treaties entered into the more difficult it will be for the enemies of the most-favored-nation principle to gain acceptance for their opposing policies.

The difficulties which the United States faces in carrying out its commercial policy are well recognized. A good example is found in the discussion contained in a recently published book by Professor Benjamin H. Williams, of the University of Pittsburgh, entitled “Economic Foreign Policy of the United States.” He concludes his discussion (page 302) with the remark that “it appears that in building a worldwide commercial treaty system incorporating unconditional most-favored-nation treatment the Department of State has encountered a formidable task”.

W[allace] McC[lure]

8. Despatch of March 6, 1929; not printed.
9. See Foreign Relations, 1923, vol. ii, pp. 831 ff.
10. See ibid., 1927, vol. ii, pp. 631 ff.
11. See ibid., vol. i, pp. 238 ff.