Commercial Treaties

Commercial Treaties. A commercial treaty is a contract between states relative to trade. It is a bilateral act whereby definite arrangements are entered into by each contracting party towards the other—not mere concessions. As regards technical distinctions, an “agreement,” an “exchange of notes,” or a “convention” properly applies to one specific subject; whereas a “treaty” usually comprises several matters, whether commercial or political.

In ancient times foreign intercourse, trade and navigation were in many instances regulated by international arrangements. The text is extant of treaties of commerce and navigation concluded between Carthage and Rome in 509 and 348 B.C. Aristotle mentions that nations were connected by commercial treaties; and other classical writers advert to these engagements. Under the Roman empire the matters thus dealt with became regulated by law, or by usages sometimes styled laws. When the territories of the empire were contracted, and the imperial authority was weakened, some kind of international agreements again became necessary. At Constantinople in the 10th century treaties cited by Gibbon protected “the person, effects and privileges of the Russian merchant”; and, in western Europe, intercourse, trade and navigation were carried on, at first tacitly by usage derived from Roman times, or under verbal permission given to merchants by the ruler to whose court they resorted. Afterwards, security in these transactions was afforded by means of formal documents, such as royal letters, charters, laws and other instruments possessing the force of government measures. Instances affecting English commercial relations are the letter of Charlemagne in 796, the Brabant Charter of 1305, and the Russian ukase of 1569. Medieval treaties of truce or peace often contained a clause permitting in general terms the renewal of personal and commercial communication as it subsisted before the war. This custom is still followed. But these medieval arrangements were precarious: they were often of temporary duration, and were usually only effective during the lifetime of the contracting sovereigns.

Passing over trade agreements affecting the Eastern empire, the modern commercial treaty system came into existence in the 12th century. Genoa, Pisa and Venice were then well-organized communities, and were in keen rivalry. Whenever their position in a foreign country was strong, a trading centre was established, and few or no specific engagements were made on their part. But in serious competition or difficulty another course was adopted: a formal agreement was concluded for the better security of their commerce and navigation. The arrangements of 1140 between Venice and Sicily; the Genoese conventions of 1149 with Valencia, of 1161 with Morocco, and of 1181 with the Balearic Islands; the Pisan conventions of 1173 with Sultan Saladin, and of 1184 with the Balearic Islands, were the earliest Western commercial treaties. Such definite arrangements, although still of a personal character, were soon perceived to be preferable to general provisions in a treaty of truce or peace. They afforded also greater security than privileges enjoyed under usage; or under grants of various kinds, whether local or royal. The policy thus inaugurated was adopted gradually throughout Europe. The first treaties relative to the trade of the Netherlands were between Brabant and Holland in 1203, Holland and Utrecht in 1204, and Brabant and Cologne in 1251. Early northern commercial treaties are those between Riga and Smolensk 1229, and between Lübeck and Sweden 1269. The first commercial relations between the Hanse Towns and foreign countries were arrangements made by gilds of merchants, not by public authorities as a governing body. For a long period the treaty system did not entirely supersede conditions of intercourse between nations dependent on permission.

The earliest English commercial treaty is that with Norway in 1217. It provides “ut mercatores et homines qui sunt de potestate vestra liberè et sine impedimento terram nostram adire possint, et homines et mercatores nostri similiter vestram.” These stipulations are in due treaty form. The next early English treaties are:—with Flanders, 1274 and 1314; Portugal, 1308, 1352 and 1386; Baltic Cities, 1319 and 1388; Biscay and Castile, 1351; Burgundy, 1417 and 1496; France, 1471, 1497 and 1510; Florence, 1490. The commercial treaty policy in England was carried out systematically under Henry IV. and Henry VII. It was continued under James I. to extend to Scotland English trading privileges. The results attained in the 17th century were—regularity in treaty arrangements; their durable instead of personal nature; the conversion of permissive into perfect rights; questions as to contraband and neutral trade stated in definite terms. Treaties were at first limited to exclusive and distinct engagements between the contracting states; each treaty differing more or less in its terms from other similar compacts. Afterwards by extending to a third nation privileges granted to particular countries, the most favoured nation article began to be framed, as a unilateral engagement by a particular state. The Turkish capitulations afford the earliest instances; and the treaty of 1641 between the Netherlands and Portugal contains the first European formula. Cromwell continued the commercial treaty policy partly in order to obtain a formal recognition of the commonwealth from foreign powers. His treaty of 1654 with Sweden contains the first reciprocal “most favoured nation clause”:—Article IV. provides that the people, subjects and inhabitants of either confederate “shall have and possess in the countries, lands, dominions and kingdoms of the other as full and ample privileges, and as many exemptions, immunities and liberties, as any foreigner doth or shall possess in the dominions and kingdoms of the said confederate.” The government of the Restoration replaced and enlarged the Protectorate arrangements by fresh agreements. The general policy of the commonwealth was maintained, with further provisions on behalf of colonial trade. In the new treaty of 1661 with Sweden the privileges secured were those which “any foreigner whatsoever doth or shall enjoy in the said dominions and kingdoms on both sides.”

In contemporary treaties France obtained from Spain (1659) that French subjects should enjoy the same liberties as had been granted to the English; and England obtained from Denmark (1661) that the English should not pay more or greater customs than the people of the United Provinces and other foreigners, the Swedes only excepted. The colonial and navigation policy of the 17th century, and the proceedings of Louis XIV., provoked animosities and retaliatory tariffs. During the War of the Spanish Succession the Methuen Treaty of 1703 was concluded. Portugal removed prohibitions against the importation of British woollens; Great Britain engaged that Portuguese wines should pay one-third less duty than the rate levied on French wines. At the peace of Utrecht in 1713 political and commercial treaties were concluded. England agreed to remove prohibitions on the importation of French goods, and to grant most favoured nation treatment in relation to goods and merchandise of the like nature from any other country in Europe; the French general tariff of the 18th of September 1664, was to be again put in force for English trade. The English provision was at variance with the Methuen Treaty. A violent controversy arose as to the relative importance in 1713 of Anglo-Portuguese or Anglo-French trade. In the end the House of Commons, by a majority of 9, rejected the bill to give effect to the commercial treaty of 1713; and trade with France remained on an unsatisfactory footing until 1786. The other commercial treaties of Utrecht were very complete in their provisions, equal to those of the present time; and contained most favoured nation articles—England secured in 1715 reduction of duties on woollens imported into the Austrian Netherlands; and trading privileges in Spanish America. Moderate import duties for woollens were obtained in Russia by the commercial treaty of 1766. In the meanwhile the Bourbon family compact of the 15th of August 1761 assured national treatment for the subjects of France, Spain and the Two Sicilies, and for their trade in the European territories of the other two states; and most favoured nation treatment as regards any special terms granted to any foreign country. The first commercial treaties concluded by the United States with European countries contained most favoured nation clauses: this policy has been continued by the United States, but the wording of the clause has often varied.

In 1786 France began to effect tariff reform by means of commercial treaties. The first was with Great Britain, and it terminated the long-continued tariff warfare. But the wars of the French Revolution swept away these reforms, and brought about a renewal of hostile tariffs. Prohibitions and differential duties were renewed, and prevailed on the continent until the sixth decade of the 19th century. In 1860 a government existed in France sufficiently strong and liberal to revert to the policy of 1786. The bases of the Anglo-French treaty of 1860, beyond its most favoured nation provisions, were in France a general transition from prohibition or high customs duties to a moderate tariff; in the United Kingdom abandonment of all protective imposts, and reduction of duties maintained for fiscal purposes to the lowest rates compatible with these exigencies. Other European countries were obliged to obtain for their trade the benefit of the conventional tariff thus established in France, as an alternative to the high rates inscribed in the general tariff. A series of commercial treaties was accordingly concluded by different European states between 1861 and 1866, which effected further reductions of customs duties in the several countries that came within this treaty system. In 1871 the Republican government sought to terminate the treaties of the empire. The British negotiators nevertheless obtained the relinquishment of the attempt to levy protective duties under the guise of compensation for imposts on raw materials; the duration of the treaty of 1860 was prolonged; and stipulations better worded than those before in force were agreed to for shipping and most favoured nation treatment. In 1882, however, France terminated her existing European tariff treaties. Belgium and some other countries concluded fresh treaties, less liberal than those of the system of 1860, yet much better than anterior arrangements. Great Britain did not formally accept these higher duties; the treaty of the 28th of February 1882, with France, which secured most favoured nation treatment in other matters, provided that customs duties should be “henceforth regulated by the internal legislation of each of the two states.” In 1892 France also fell out of international tariff arrangements; and adopted the system of double columns of customs duties—one, of lower rates, to be applied to the goods of all nations receiving most favoured treatment; and the other, of higher rates, for countries not on this footing. Germany then took up the treaty tariff policy; and between 1891 and 1894 concluded several commercial treaties.

International trade in Europe in 1909 was regulated by a series of tariffs which came into operation, mainly on the initiative of Germany in 1906. Austria-Hungary, Belgium, Bulgaria, Germany, Italy, Rumania, Russia, Servia and Switzerland, were parties to them. Their object and effect was protectionist. The British policy then became one of obtaining modifications to remedy disadvantages to British trade, as was done in the case of Bulgaria and Rumania. An important series of commercial arrangements had been concluded between 1884 and 1900 respecting the territories and spheres of interest of European powers in western, central and eastern Africa. In these regions exclusive privileges were not claimed; most favoured nation treatment was recognized, and there was a disposition to extend national treatment to all Europeans and their trade.

The Turkish Capitulations (q.v.) are grants made by successive sultans to Christian nations, conferring rights and privileges in favour of their subjects resident or trading in the Ottoman dominions, following the policy towards European states of the Eastern empire. In the first instance capitulations were granted separately to each Christian state, beginning with the Genoese in 1453, which entered into pacific relations with Turkey. Afterwards new capitulations were obtained which summed up in one document earlier concessions, and added to them in general terms whatever had been conceded to one or more other states; a stipulation which became a most favoured nation article. The English capitulations date from 1569, and then secured the same treatment as the Venetians, French, Poles and the subjects of the emperor of Germany; they were revised in 1675, and as then settled were confirmed by treaties of subsequent date “now and for ever.” Capitulations signify that which is arranged under distinct “headings”; the Turkish phrase is “ahid nameh,” whereas a treaty is “mouahedé”—the latter does, and the former does not, signify a reciprocal engagement. Thus, although the Turkish capitulations are not in themselves treaties, yet by subsequent confirmation they have acquired the force of commercial treaties of perpetual duration as regards substance and principles, while details, such as rates of customs duties, may, by mutual consent, be varied from time to time.

The most favoured nation article already referred to concedes to the state in the treaty with which it is concluded whatever advantages in the matters comprised within its stipulations have been allowed to any foreign or third state. It does not in itself directly confer any particular rights, but sums up the whole of the rights in the matters therein mentioned which have been or may be granted to foreign countries. The value of the privileges under this article accordingly varies with the conditions as to these rights in each state which concedes this treatment.

Colonies.—The application of commercial treaties to colonies depends upon the wording of each treaty. The earlier colonial policy of European states was to subordinate colonial interests to those of the mother country, to reserve colonial trade for the mother country, and to abstain from engagements contrary to these general rules. France, Portugal and Spain have adhered in principle to this policy. Germany and Holland have been more liberal. The self-government enjoyed by the larger British colonies has led since 1886 to the insertion of an article in British commercial and other treaties whereby the assent of each of these colonies, and likewise of India, is reserved before they apply to each of these possessions. And further, the fact that certain other British colonies are now within the sphere of commercial intercourse controlled by the United States, has since 1891 induced the British government to enter into special agreements on behalf of colonies for whose products the United States is now the chief market. As regards the most favoured nation article, it is to be remembered that the mother country and colonies are not distinct—not foreign or third—countries with respect to each other. The most favoured nation article, therefore, does not preclude special arrangements between the mother country and colonies, nor between colonies.

Termination.—Commercial treaties are usually concluded for a term of years, and either lapse at the end of this period, or are terminable then, or subsequently, if either state gives the required notice. When a portion of a country establishes its independence, for example the several American republics, according to present usage foreign trade is placed on a uniform most favoured nation footing, and fresh treaties are entered into to regulate the commercial relations of the new communities. In the case of former Turkish provinces, the capitulations remain in force in principle until they are replaced by new engagements. If one state is absorbed into another, for instance Texas into the United States, or when territory passes by conquest, for instance Alsace to Germany, the commercial treaties of the new supreme government take effect. In administered territories, as Cyprus and formerly Bosnia, and in protected territories, it depends on the policy of the administering power how far the previous fiscal system shall remain in force. When the separate Italian states were united into the kingdom of Italy in 1861, the commercial engagements of Sardinia superseded those of the other states, but fresh treaties were concluded by the new kingdom to place international relations on a regular footing. When the German empire was established under the king of Prussia in 1871, the commercial engagements of any state which were at variance with a Zollverein treaty were superseded by that treaty.

Scope.—The scope of commercial treaties is well expressed by Calvo in his work on international law. They provide for the importation, exportation, transit, transhipment and bonding of merchandise; customs tariffs; navigation charges; quarantine; the admission of vessels to roadsteads, ports and docks; coasting trade; the admission of consuls and their rights; fisheries; they determine the local position of the subjects of each state in the other country in regard to residence, property, payment of taxes or exemptions, and military service; nationality; and a most favoured nation clause. They usually contain a termination, and sometimes a colonial article. Some of the matters enumerated by Calvo—consular privileges, fisheries and nationality—are now frequently dealt with by separate conventions. Contraband and neutral trade are not included as frequently as they were in the 18th century.

The preceding statement shows that commercial treaties afford to foreigners, personally, legal rights, and relief from technical disabilities: they afford security to trade and navigation, and regulate other matters comprised in their provisions. In Europe the general principles established by the series of treaties 1860-1866 hold good, namely, the substitution of uniform rates of customs duties for prohibitions or differential rates. The disadvantages urged are that these treaties involve government interference and bargaining, whereas each state should act independently as its interests require, that they are opposed to free trade, and restrict the fiscal freedom of the legislature. It may be observed that these objections imply some confusion of ideas. All contracts may be designated bargains, and some of the details of commercial treaties in Calvo’s enumeration enter directly into the functions of government; moreover, countries cannot remain isolated. If two countries agree by simultaneous action to adopt fixed rates of duty, this agreement is favourable to commerce, and it is not apparent how it is contrary, even to free trade principles. Moreover, security in business transactions, a very important consideration, is provided.

Our conclusions are—

(1) that under the varying jurisprudence of nations commercial treaties are adopted by common consent;

(2) that their provisions depend upon the general and fiscal policy of each state;

(3) that tariff arrangements, if judiciously settled, benefit trade;

(4) that commercial treaties are now entered into by all states; and that they are necessary under present conditions of commercial intercourse between nations.

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