Foreign Relations of the United States Diplomatic Papers, 1933, The American Republics, Volume IV

611.3531/120

The Secretary of State to the Chargé in Argentina (White)

No. 709

Washington, May 23, 1933.

Sir: The Department refers to your telegram No. 14 of January 26, 1933, 6 p.m.,⁷⁸ and to your despatch No. 1947 of January 27, 1933. The Department has postponed its reply to these communications for the reason that the modifications reported to have been made in the Argentine-Chilean modus vivendi appear to have removed therefrom the practical inconveniences to American exporting houses, and because the Department was disposed to avoid, as far as possible, action which would discourage the Argentine Government in its policy of trade promotion with another country.

The foregoing considerations, however, in no sense reduce the importance which the Department attaches to a correct interpretation of the most-favored-nation clause. Indeed, at the present moment, in view of possible developments in the commercial policy of the United States, the Department is more than ever anxious that the principles of equality of treatment, maintained through the most-favored-nation clause, shall be confirmed and established.

You are requested, accordingly, to reply to the note of the Argentine Foreign Office, dated January 23, 1933, and to seek orally to impress upon the Minister for Foreign Affairs the correctness of the position which the Department has taken in the case at issue.

With reference to the note of January 23, it must be observed that the point raised by this Government has not been met. The arguments of the Argentine Government are for the most part directed to the maintenance of the position that the most-favored-nation clause contained in Articles 3 and 4 of the treaty of 1853 is conditional and not unconditional. This is, of course, likewise the position of the American Government. The proposition maintained by this Government is that the favors accorded by Argentina to Chile for a compensation were generalized to Great Britain, France, and Italy gratuitously; that as a consequence they must be accorded, without compensation, to the United States under Article 3 of the treaty. It is of no concern, therefore, that the favors were granted to Chile on a reciprocal basis.

The Government of Argentina, in overlooking this fundamental position, has advanced no argument in opposition to it. In impressing upon the Minister of Foreign Affairs the soundness of the American contention you may avail yourself of the following discussion. In doing so you should stress the proposition that it is immaterial that the treaty between the United States and Argentina is of the conditional type.

Under the facts in this case (the favor having been gratuitously conferred) no distinction lies between the conditional and the unconditional most-favored-nation clause. It is the purpose of the most-favored-nation clause to ensure commercial equality and to level artificial inequalities. Thus it has been stated by the Economic Committee of the League of Nations (C.427.M.177.1931 II.B, p. 9)—

“In the first place, it should be pointed out that the most-favoured-nation clause has two objects: (a) to secure to the country enjoying its benefits a total of the advantages represented by all the customs concessions and privileges granted to third countries and by all the concessions made by autonomous act and (b) to ensure absolute equality of treatment by guaranteeing to all countries which enjoy its benefits equal terms in all matters covered by commercial treaties and, as a result, the free development of their economic aspects.”

This government seeks no more than the benefit of the commercial advantages conceded to the European States and the guaranty of equality of treatment.

There can be no doubt but that the favors accorded Great Britain, France, and Italy were gratuitous, that they are enjoyed without compensation. Reciprocity was not contemplated. Secretary of State Bayard wrote in an instruction to Japan (5 Moore, Digest, 273)—

“… concessions are only gratuitous (and so transferable) as to third parties when not based on reciprocity or mutually reserved interests as between the contracting parties.”

Further, it seems clear that the compensation contemplated by the conditional type of treaty must be of a special nature and that it must respond directly to the grant of favor. Thus, Secretary of State Hay stated (For. Rel., 1899, p. 301)—

“If the compensatory privileges should be extended to any third nation, which has given no special compensation for them, it is evident that as to that nation the grant would be gratuitous, and, by the express provision of Article XXVI, ‘shall immediately become common to the other party, freely.’”

The provisions of the conditional type of treaty contemplate, moreover, a particular and distinct reciprocity in each particular case. Thus, a favor can not be said to be in return for compensation simply because of the mutual obligations incurred by the parties in entering into the treaty. The Argentine Government can not maintain that the general obligations assumed by Great Britain, for example, in their treaty are compensation for the present grant of favor.

It follows, in the present case, that the grant of favor must be considered gratuitous because: no equivalent was required by Argentina; there was no special compensation relating directly to the grant in issue; the provisions of conditional treaties contemplate a particular and distinct reciprocity, not present in this case.

This conclusion finds further support in general statements and precedents. In his work entitled “La Clause de la Nation la plus Favorisée”, Riedl has stated, p. 49 [p. 7]—

“La clause conditionelle de la nation la plus favorisée a dominé la politique commerciale des Etats-Unis avant la guerre et a egalement passé, en grande partie, dans les traités des Etats de l’Amérique du Sud et de l’Amérique centrale. En raison de son imprécision qui a encore été accrue par l’obscurité de la formule employée, le sens et l’interprétation de la clause ont donné lieu à un grand nombre de divergences d’opinions et de différends. De toute manière, la clause entraînait de sérieux désavantages pour les Etats qui, ayant accordé le traitement conditionnel de la nation la plus favorisée à l’Amérique, concluai-ent avec des Etats d’Europe des traités renfermant la clause inconditionnelle de la nation la plus favorisée. En effet, tout avantage que ces Etats étaient tenus d’accorder à un autre pays quelconque en vertu de la clause inconditionnelle de la nation la plus favorisée, était ainsi consenti sans compensation, du moins dans le cas visé; en conséquence, cet avantage n’était plus susceptible de motiver une demande de compensation vis-à-vis des Etats-Unis qui ne concluaient que de traités comportant la clause conditionnelle de la nation la plus favorisée, c’est-à-dire des ‘traités de réciprocité’.”⁷⁹

Hornbeck (The Most-Favored-Nation Clause—3 Am. Jour. Int. Law, 1909, 395, 619, 797, at 822), states—

“One of the first impulses among those European nations which in recent years have felt themselves suffering on account of the interpretation placed upon the clause by the United States, was to accept the American interpretation in their dealings with the United States, while retaining the European usage in their dealings with their nearer neighbors. This, however, was impossible, for if they first use the American interpretation in dealing with European states, then follow the American interpretation in dealing with the United States, they have to give the latter all the advantages which they give ‘freely’ to other Europeans, and therefore their [sic] neither save themselves, nor do they retaliate on the United States. To illustrate: the German treaties concluded between 1903 and 1906 with the central European states were based on reciprocity, with mutual concessions, but later Germany, in fulfilling her favored-nation obligations, extended the conventional rates made up from these concessions, to Great Britain, France, and other states ‘freely’.”

In 1850 the United States entered into a treaty with Switzerland.⁸⁰ This treaty was later held to be of the unconditional type and constituted one of the few exceptions, until recent years, to the accepted American practice of executing only treaties of the conditional form. In 1898 Switzerland claimed the benefits of a reciprocity agreement between the United States and France. The soundness of the Swiss position was admitted by this government. Claims were preferred by other governments. The treaty was promptly denounced. Although the exact position of the various governments involved is hard to ascertain, it seems clear that the treaty would not have been denounced if this government had not felt itself to be under the necessity of yielding to countries having conditional treaties the concessions freely granted to Switzerland under the treaty of 1850. (See 5 Moore, Digest, 283; Reciprocity and Commercial Treaties—U. S. Tariff Commission—pp. 41, 208, 429; For. Rel. 1899, p. 748.)

The commercial relations between the United States and Germany, around the turn of the century, gave rise to similar issues. This government did not take full advantage of its treaty rights but the following quotation from Reciprocity and Commercial Treaties (p. 425) indicates the legal position which could be properly maintained.

“During the years 1891, 1892, and 1893, Germany concluded with European countries a series of bargaining treaties which became known generally as the ‘Caprivi treaties’.⁸¹ If the United States-Prussia treaty of 1828⁸² was still in force, the concessions granted by Germany in these new treaties to a number of the important countries of Europe should have been extended immediately to the United States. This was true no matter which interpretation of the most-favored-nation clause Germany chose to apply. Under the unconditional interpretation there could be no question: the United States would be entitled to any concessions granted to any other country under any circumstances whatsoever. Under the conditional interpretation, if Germany chose to apply that in dealing with the United States, the following considerations were applicable in support of the claim that the United States was entitled to the benefit of the concession. Germany had undertaken, by the Frankfurt treaty,⁸³ to extend to France immediately and unconditionally all concessions which she made to England, Belgium, Holland, Switzerland, Austria, and Russia. With or without compensation, it may be argued either way, Germany did so extend to France the concessions which she made to those countries. Further, Germany generalized her concessions in favor of European countries, among them Great Britain, even though on the part of Great Britain there was no giving of concessions in return by way of compensation. Hence, in Germany’s most-favored-nation treatment either of France or of Great Britain, or of both, there was a ‘free’ granting of favors without compensation. It would follow that even under the conditional interpretation of the most-favored-nation pledge the United States was entitled to the concessions—which Germany generalized in Europe—of the Caprivi treaties.”

The translation of the note accompanying the Embassy’s despatch of January 27, 1933, contains the following passage:

“… I must inform Your Excellency that this Chancellery regrets that it does not share the opinion expressed in the note of December 10th last, to which I am now replying, in which the same gratuitous extension of the reduction which was granted to the products of France, Great Britain and Italy by virtue of the modus vivendi with Chile is requested for products of the United States: the most-favored-nation clause cannot produce that effect; it establishes a relation between three entities, that is, between two contracting Powers and a third State; any commercial or tariff favor or advantage granted by one of the contracting Powers to the third State may be claimed by the other contracting State, gratuitously or conditionally, according to the form applied to the clause; but the treatment of the most favored nation is limited to those three entities, and not to the immediate consequences resulting from the co-existence of other treaties signed with other powers. Were such an interpretation admitted, negotiations would be impossible and the immediate object sought in contracting the most-favored-nation clause would be exceeded. For these reasons, it is not possible for this Chancellery to accord to the products of the United States gratuitously the reductions granted to similar products of France, Great Britain and Italy. Any claim must be in connection with privileges granted to Chile.”

In the view of the Department this position is unsound. Not only is it opposed to the practice of nations, as shown by the quotations set out above, but also to the express language of the treaty itself. Article III expressly declares that the parties agree that any favor which either of them may grant to any other nation shall extend to the other party. There is no suggestion that such extension must be by treaty, whether a treaty of reciprocity or otherwise. It applies to the fact, not the manner, of extension. There is no question but that as a fact Argentina accorded certain favors to Chile and extended them to France, Great Britain, and Italy. It is difficult to read the language of Article III of the treaty of 1853 in any other way than as requiring such extension also to the United States, gratuitously if extended gratuitously to another country. The favors to Chile were extended for equivalent compensation, those to the other countries without compensation. But if extended to any country without compensation, the extension to the United States must be without compensation.

The expression “identity of cases and circumstances” in Article III appears to be fulfilled in the present case in view of the fact that the same varieties of goods from the United States are the ones competing with the goods from Europe to which the favors in question have been gratuitously extended by the Argentine Government.

With reference to the suggestion in the note of the Argentine Government of the fact that the treaty with Chile is a treaty with a bordering country, it should be observed that this exception to the most-favored-nation clause is not to be read into a treaty, but is applicable only if the treaty in question expressly states that it is to be regarded as an exception to the most-favored-nation clause. This Government has uniformly included in its treaties and agreements with other countries during recent years a specially stated exception in favor of its commerce with Cuba and also in favor of its commerce with its own dependencies. Further, in maintaining this position the Argentine Government again overlooks the true basis of the present claim for favor. This Government does not ask for the favors extended to Chile; it claims the benefit of the favors freely and gratuitously conferred on Great Britain, France, and Italy.

The Department is interested in continuing to receive full information with reference to the Argentine Commission created to study commercial relations, to which you refer in the last paragraph of your telegram under acknowledgment. It is the hope of the Department that no position will be taken by this Commission which might conflict with a possible reciprocity agreement with the United States in conjunction with an agreement under the terms of which each party would promise to accord to the other unconditional most-favored-nation treatment. The policy of reducing import duties by reciprocal agreement has, as you know, customarily been carried on upon the basis of obligation to generalize the lowered duties. Although the practice of exclusive reciprocity agreements has in the past made some headway in the Western Hemisphere, the requirements of the present complex economic situation can, it is believed, be met only by a continuation of a policy that is based fundamentally upon the principle of equality.

While you are not requested at the present time to discuss the foregoing questions of policy with the Argentine Government, you are authorized, in your discretion, on favorable opportunity, to mention them as constituting the principle upon which your Government may be in a position to negotiate with the Government of Argentina.

Very truly yours,

Cordell Hull

78. Not printed.

79. Translation:

    “The conditional most-favored-nation clause dominated the commercial policy of the United States before the war and has likewise gone, to a great extent, into the treaties of the South American and Central American States. By reason of its indefiniteness, which has further been increased by the obscurity of the formula employed, the sense and the interpretation of the clause have given rise to many differences of opinions and disputes. At any rate, the clause involved serious disadvantages for the States which, having accorded the conditional most-favored-nation treatment to the United States, concluded with European States treaties containing the unconditional most-favored-nation clause. In fact, any advantage that these States were obliged to accord to any other country by virtue of the unconditional most-favored-nation clause was thus consented to without compensation, at least in the case under reference: consequently, that advantage could no longer justify a request for compensation from the United States which concluded only treaties bearing the conditional most-favored-nation clause, that is, ‘treaties of reciprocity’.”

80. Miller, Treaties, vol. 5, p. 845.
81. The Caprivi treaties: treaties signed December 6, 1891, with Austria-Hungary, Belgium, and Italy, British and Foreign State Papers, vol. lxxxiii, pp. 47, 169, and 259; treaty signed December 10, 1891, with Switzerland, ibid., p. 548; treaty signed August 21, 1892, with Serbia, ibid., vol. lxxxvi, p. 577; treaty signed October 21, 1893, with Rumania, ibid., vol. lxxxvii, p. 977; the treaty negotiated with Spain in 1892 was ratified by the German Reichstag but proved unacceptable to the Spanish Cortes.
82. Miller, Treaties, vol. 3, p. 427.
83. Signed May 10, 1871, between France and Germany, De Clercq, Recueil des Traités, tome x, p. 472.