611.003/3822a

The Department of State to the British Trade Delegation39

Memorandum

While tariff specialization is in general undesirable, it is frequently impossible in fixing tariff rates to avoid classifications providing for differences in treatment between products which have a certain degree of similarity. This is particularly true in the case of conventional rates, since the establishment of such classifications may be the only practicable way of providing for desirable duty reductions.

The compatibility of specialized tariff classifications with the principle of most-favored-nation treatment depends essentially upon the reasonableness of the classifications. While it would be possible, by example, to indicate certain types of classifications which are clearly unreasonable and unjustly discriminatory, it is impossible to lay down any single criterion which may be used in determining whether goods are sufficiently similar to warrant identical customs treatment.

It is not possible, for example, to judge the similarity of goods solely by the uses for which they may be employed. Such a criterion would require the granting of identical treatment to goods which are intrinsically different in their physical characteristics and would go far beyond the purpose of the most-favored-nation assurance. The use which may be made of a product does not provide a reliable basis for determining similarity for customs purposes even in the case of products which are generically similar. It could not be reasonably urged, for example, that the most-favored-nation clause requires that all fish be subjected to the same rate of duty, despite the fact of their basic similarity both as to physical characteristics and use. The purpose of the clause is to assure equality of treatment to goods which are specifically similar.

Distinction between natural products of different species is a well-recognized form of customs classification. While it is possible to visualize the use of such a type of classification, based upon minor and unessential physical differences, for the purpose of establishing unfair [Page 35]discriminations, classifications of this nature are not per se inconsistent with the principle of equality of treatment. In fact, when they follow well-recognized popular or trade distinctions, they can be far more clearly justified than classifications based upon such widely-used criteria as value or weight. While classifications of the latter kind can in many cases be justified as to the range which they include, the exact point chosen for delimiting the classification must, as a rule, necessarily be arbitrary and hence discriminatory between essentially similar products falling on either side of the borderline. Such inequalities can be justified only by the reasonableness and purpose of the classification broadly considered.

The foregoing statement is in general accord with the views which have been stated by the Economic Committee of the League of Nations regarding the meaning of the term “like” or “similar” products as used in the most-favored-nation clause. The Committee has concluded that it is impossible to find a precise formula for determining the similarity of goods which could be applied to all cases. Furthermore, the Committee has pointed out that specialized classifications may in certain cases be in the interest of international traffic, “since they sometimes offer a very valuable means of enabling the products of a given country to obtain reductions of duties or customs facilities which could not be granted if they had to be extended to larger categories of goods.”

  1. Handed to the delegation by Mr. Hawkins on June 14, 1938.