Herewith is a tentative draft of a Declaration respecting Equality of Trade
Conditions. The attempt primarily has been to indicate the difficulties and
points of divergence which must or may arise.
[Enclosure 2]
Note on the Declaration for Equality of Trade
Conditions
The annexed tentative draft of a Declaration for Equality of Trade
Conditions9 perhaps only emphasizes the very great difficulties of the whole
subject.
Inevitably the difference between “economic units” and what may be
called, “units of sovereignty,” must be recognized. The text is not one
of continuous territory, for Alaska is a part of the United States,
Ireland of the United Kingdom, and Algeria of France. Article 1 adopts
the general definition that regardless of sovereignty, a “unit” with a
separate tariff system is a separate economic unit.
Article 2 states the general rule of equality and of the Open Door.
While possibly there might be substantially general agreement on Article
2 for the future, there are many existing trade arrangements which would
conflict with its language, strictly applied. For example, there are
so-called, “frontier arrangements” in Europe, and there are various
other kinds of reciprocal trade arrangements, sometimes between
neighboring countries and sometimes not. These will not be
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enumerated, but instances are
the United States and Cuba and the United States and Brazil.
Accordingly by Article 3 the continuance of existing preferential
arrangements is permitted.
By Article 4 permission is given so far as the self-governing Dominions
of Great Britain are concerned, for the continuance and even extension
of the British policy of preference within the Empire. So far as an
extension of this policy is concerned, it perhaps can hardly be defended
on principle, and the provision has been inserted under the theory that
it is a political necessity.
It will be observed that by Articles 2, 3 and 4 future arrangements in
the nature of reciprocity treaties would generally not be
permissible.
The question of customs unions or free trade between two or more economic
units is one which is extremely complex and one which it is very
difficult to treat generally. No objection could be seen, for example,
to such an arrangement between countries situated as Sweden and Norway,
or as Spain and Portugal, or among the Central American States or the
South American Republics; and, indeed, such an arrangement might be
highly advantageous in such cases as Finland and the rest of Russia and
the Balkan States, inter se. On the other hand, a
similar arrangement between China and Japan would be flying in the face
of the policy of the Open Door, and the existence of such conditions
between Great Britain and India could only be regarded as exploitation
by the former country of the latter.
A general solution of these difficulties has been attempted by Articles 5
and 6, which would permit agreements of customs unions within Europe and
within America respectively but not within Africa or Asia and not
between States situated in different continents outside of America.
Article 7 is intended to prevent what may be regarded as substantially a
pledge of the sovereignty of a State. Its language is drawn from the
agreement between Great Britain and Russia in respect of Tibet.10
The progress of States toward what is vaguely called “Socialism” or
“Nationalization of industry” requires the formulation of rules of
international law not now existing. It is the law in the United States
that a State which engages in a commercial transaction cannot, when in
Court, escape the general rules of law by reason of its sovereignty,
although it may not be sued. Considering the enormous possibilities of
this subject for the future, it is believed that a State should neither
be benefited nor burdened by the rules attached to the question of
sovereignty when commercial transactions are involved. Article 8 has
been drawn with this end in view. It should
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be added that the rule therein formulated would,
in respect of commercial transactions, place a neutral State in time of
war in the same situation as one of its citizens or subjects. The whole
question is one of great interest to the United States in view of its
present ownership (through the medium of a corporation) of a very large
merchant fleet.
It has been considered that the question of concessions will require at
least local and perhaps detailed statement in connection with the
particular countries.
General Note:
Under any agreement of such nature the national economic policy of each
country will remain for its own decision, and bounty systems,
nationalization of industries and Socialism generally will in fact
permit a country to attempt to favor its own trade or even to destroy
that of another. A State monopoly, run deliberately at a loss, may
produce results more disastrous than the German cartel system and
provoke counter measures.