The Reciprocal Trade Agreements Act of 1934 - The American Economic Review

TheAmerican Economic Review

Vol. XXV SEPTEMBER, 1935 No. 3

THE REaPROCAL TRADE AGREEMENTS ACTOF 1934

The Trade Agreements act of 1934, like tedpiodt^ measuies in general, rqiiesentsa foim of tariff discontent. Recent commercial policies have heen highly restrictive,being a phase of the intense economic and political nationalism which developed duriitgand after the World War. The Act authorizes the Piesident within certain limits toenter into reciprocal agreements with foreign powers making mutual tiade concessionsfor the puipose of cxpandiqg foreign markets for American products. In carrying outthis purpose' the Department of State has insisted upon the application of the principleof the most-favored nation treatment in its unconditioned fonn. Up to May. 1933. tiadeagreements had heen completed with Cuha, Biazil. Belgium and Haiti, and negotiationsare in progress with several other countries. The concessions in the treaties alieuly con-cluded Eie substantial and cover a luge part of the commerce hetween the negotiatingparties. The realization of the purpose embodied in the Act will depend in large partupon the number and commercial status of the countries with which agreements aremade. One difficulty in bringing negotiations to a successful dose is the opposition ofnumerous small and high-cost industries.

General Nature and Significance

American tari£F policy since the passage of the Hawley-Smoot act of1930 bas been showing signs of teaction against the growth of the intenseeconomic nationalism which found expression in that act and in the Ford-ney-McCumbei law of 1922. While this reaction has by no means developedinto a policy looking toward a reversal of tari£F attitude, the law passed byCongress in June, 1934, granting the President the power within certainlimits to enter into reciprocal treaties with foreign countries making mu-tual trade concessions shows some appreciation of the rdle that foreigncommerce plays in the country's economic life and the implications of thatr61e. The inconsistency of putting forth vigorous efforts to develop a greatexport trade, build a large merchant marine to carry the bulk of our foreigncommerce and maintain the status of a creditor country, and at the sametime erect high tari£F barriers against imports is being realized—at leastdimly—by an increasing proportion of our business population.

Reciprocity and tarifiF protecdon are not inconsistent policies. In theUnited States a regime of high protection has usually been accompaniedor followed by some demand for special trade concessions between this andother countries in the interest of commercial ej^ansion. In other words,reciprocity movements are, in considerable measure, a response to tariffdiscontent. While treaties resulting from sucli movements do not as a

412 Abraham Berglund [Septembei

rule affect materially the price levels of the canunodides involved—at leastwhere they do not include all countries fumishing ot capable of furnishingdie entile supply of a given product—they still bave a significance as effortsto mitigate the effects of trade lestrictions.

Factors Shaping Recent Commercial Folides

Before discussing the legislation modifying the Tariff act of 1930 andthe treaties entered into under this legislation, some consideration shouldbe given to the influences at work in the development of recent tradepolicies. Proper consideration of tarifiFs and otber restrictive measutes in-volves mote than a simple sutvey of ioapott duties, quotas, exchange ma-nipulations, and the like. Such instances ate mete surface indications ofgovetnmental attitudes towatd commetce as a whole, and ate mote orless bound up with current philosophies concerning national well-being.A particular industiy, for example, may succeed in obtaining some specialfavor from the government in the way of a subsidy or a tariff safeguardagainst foreign competition. Such a favor, however, becomes typical of ageneral trade tendency only when a governmental regime has as one ofits objects a large measure of state or national self-sufficiency as a matterof economic or political policy.

Attempts to shape the course of commetce since the dose of the WorldWar, both in this country and in foreign lands, have been ptofoundlyinfluenced by the growth of an accentuated nationalism. This exaggeratednationalism arose out of a set of conditions whose origin may be tracedto the World War. Such conditions are not peculiar to any one worldstruggle ot long-continued conflict. They existed in Europe, and to someextent in the United States, after the dose of the Napoleonic wars. Theywere active as a determining influence in American tariff policy after theGvil Wat. They were especkdly potent after the close of the World War,overcoming for a time at least the effects of an industrial technique makingfor enlarged trade and world markets.

These conditions are associated with one ot both of two groups of phe-nomena: the establishment within a country during a period of interruptedtrade of new industries whose products had formerly been imported; andthe development of a spirit of political and military loyalty in a time ofnational emergency. With respect to the first it was interrupted commercein the years immediately following 1914 that led to the establishmentof a large proportion of out ptesent chemical and fetro-alloy industriesand to a renewed interest in shipbuildiiig and the development of an ex-tensive national mercantile marine. These industries as a matter of self-protection urged tariff safeguards, subsidies, and other governmental aidsas preventives of foreign industrial invasion. Special industrial interestswere thus identified wiOi natimial economic interests.

1933] Reciprocal Trade Agreements 413

In tegatd to the secood of our two gioups of phenomena, great inter-national struggles like the Napoleonic wars and the recent World Wartend to stimulate devotion to what are regarded as national interests orideals. Each belligerent country, notwithstanding associated efforts as allies,becomes keenly alive to what it considers its own rights or claims. Ques-tions concerning the settlement of political boundary lines, shares in thespoils of war, control of resources affecting directly or indirectly militarystrength, are debated and answered from the standpoint of the real orsupposed interests of individual nations. Suspicions regarding the motivesof foreign statesmen foster an attitude toward problems of intemationalrelationships which is opposed to the spirit of what is sometimes calledinternationalism. The creation of several new and independent states outof parts of the former Russian, Austrian-Hungarian and German empiresserved to foster this general trend toward nationalism with its inevitableaccompaniment of high tariff barriers and other trade restrictions. Politicalpower must have an economic basis. One of the most obvious methods ofestablishing such a basis is to encourage home industry by restricting com-petition fiom abroad.

This intense nationalistic attitude generally survives after the conditionswhich led to its development have passed away. An observer at the LondonGmference of 1933 makes the following comment on the spirit prevail-ing at that gathering:

While the London Gmference staggered on from crisis to adjournment,one general conviction diat began only as a prophetic and pessimistic surmisehas quietly grown to a cextainty. Put bnitally, it is that—barring a politicalmiracle—ihs whole world is in for the worst dose of economic nationalismthat it has ever seen. Worst because it will be deliberate; because the tods areat hand to make it more absolute than ever before; and because the condi-tions are present that will probably make the resulting dislocation of existingnational economics more painful tlum ever before.

The accuracy of the writer's portrayal of the spirit that pervaded theconference can hardly be questioned. The direful forecast contained inthis portrayal, however, ignored important developments which were grad-ually undermining or at least modifying the nationalistic spirit which haddeveloped as a result of the World War. In 1929 occurred the financialcollapse which ushered in the present business depression. World com-merce, based upon the reports of 109 countries, declined from a turnovervalue (exports and imports) of 168,132,300,000 in 1929 to about124,000,000,000 in 1933.* The share of the United States in this commerce

' W. Y. Elliott in the Atlantic Monthly, October, 1933, p. 424.'Foreign Commerce Year Boot, 1933, p. 342. Press lelease. Department of States

Address of Hon. Cordell Hull, Secretary of State at the World Trade Dinner, Hotelcommodore. New York Gty, Nov. 1,1934.

414 Abraham Berglund [September

for the same period declined from $10,030,840,000 to 13,443,305,000."This fall in the value of tbe commodities entering into international traderepresented a real reduction in volume as well as in value.

The early stages of this decline were marked by various restrictive meas-ures designed to limit possible foreign competition. In 1930 Congresspassed the Smoot-Hawley TarifiF act, which increased materially the im-port dudes on a variety of products over those of the Act of 1922. Withthe decline of commodity prices as the business depression became moreacute, the specific rates in this act became greater on an ad valorem basis;and hence more restrictive. In foreign countries limitations were also beingplaced on imports. In addition to tarifiFs, various kinds of quantitative re-strictions were employed. Among the more common of tliese were thelinked-purchasing or mixing regulations, the various quota systems, theestablishment of import monopolies licensed by the govemment to receivegiven products, and governmental limitation of the amounts of foreignexchange which importers could obtain for the purchase of their commodi-ties from abroad. These quantitative restricdons were for the most partnew devices in the regulation of international trade. Up to 1928 importshad been limited mainly by tariff duties. Sanitary restrictions had indeedbeen in efiPect in several countries, largely to prevent the spread of plantdiseases; but they played a secondary rdle. Since 1928, and especially after1929, the quandtative measures mentioned have assumed great prominence.

Such limitations could not but affect—and that profoundly—a worldeconomy geared to a heavy interchange of commodities between nations.Probably no country has greater potentialities for the development of a"self-contained" economy dian our own. Nevertheless, many of our leadingmanufacturing industries are dependent for raw materials upon foreignlands. Some of our most important manufacturing concerns are organizedto serve foreign as well as domestic markets. In the field of agricultureand closely related manufactures many of our leading products are nor-mally sold in large quantities abroad. A compiladon made by the Depart-ment of Agriculture a few years ago of certain farm commodities averagedfor the years 1926-1930 showed the following ratios of net exports todomesdc production: cotton, 38.8 per cent; prunes, 49.7 per cent; to-bacco, 33.9 per cent; raisins, 33.8 per cent; lard, 31 per cent; rye, 30per cent; apples, 20.2 per cent; and wheat, 18.3 per cent* Such a showinghas a very obvious bearing on the relationdiip of American farm prosperityto foreign trade.

Among the anomalies of American commercial policy has been an at-tempt to maintain the creditor status achieved during tbe World War and

* Statisticd Abstract, 1934, p. 403.* World Trade Barriers in Relation to American Agricdture. Letter fiom Sectetuy of

Agriculture transmitting a Report on Senate Resolution no. 280. 72nd Congtess, FirstSession, p. 18.

1935] Rgciprocal Trade Agreements 415

the position of a leading metchant marine nation. In addition to the na-tional war debts, the Bureau of Foreign and Domestic Gimmerce esti-mated "our net private long-term foreign investments" in 1932—mostlymade after the war—at $12,000,000,000, practically the same as the out-standing obligations of foreign governments held by our government'During the World War and the two or three years following its close thegovernment of the United States built or acquired a mercantile fleet of14,703,281 dead-weight tons at a cost of over 3 billion dollars.* A de-clared policy of the government was to maintain a merchant marine capableof carrying over SO per cent of the country's foreign commerce.^ Underthe Merclmit Marine act of 1928 our government advanced loans for theconstruction and reconditioning of vessels which by June 30, 1934, hadamounted approximately to $108,000,000, and had paid in subsidies tosteamship lines, $119,000,000.* This attempt coincided with a policy de-voted to the erection of high trade barriers making it difficult for foreigndebtors to meet their obligations and limiting the opportunities of Ameri-can ship-owners to expand or even maintain their foreign services. Thepractical repudiation of most of the war debts due us by foreign govern-ments and the dubious status of much of the country's private investmentsabroad are not unrelated to a trade policy inconsistent with a creditorstatus. As for the e£Forts to maintain a large merchant marine on the highseas—i.e., export transportation service— the conflict between these effortsand our tariff policy is at least partially indicated by a practically steadydecline of over 30 per cent in the gross tonnage of American vessels en-gaged in foreign trade between the years 1921 and 1934.*

The Reciprocal Trade Agreements Act

How much of the recent decline in American commerce is to be attributedto this country's tariff policy, how much to trade restrictions abroad, andhow much to other factors entering into the present industrial depressionare of course impossible to determine. It is reasonable, however, to assumethat the rdle played by high tariff barriers and other trade restrictions wasan important one, and still acts as an impediment to trade recovery. Thisattitude was the one taken by the Congress which passed the ReciprocalTrade Agreements act of 1934.

* DqMttment of Commerce, Bureau of Foteign and Domestic Commeice, Tbi Balaiu§of Intenutiontd Payments of the United States in 1932, p. 32.

* Report of the Intenlepaitmental Committee on Shippiqg Poiicy (mimeognph copy),p. 26.

' Merchant Marine act of 1920.* Rqmrt of Intetdepartmental Committee on Shipping Policy, pp. 32 and 33."The actual decline according to the Bgates published by the Camminianer of Navi-

gation was from 11,077.398 gross tons in June, 1921, to 4,397,386 gross tons in June, 1934.Bureau of Navigation and Steamboat Inspection, MtrcboM Mtrhu Suaistics, 1934, p. 30.


This act takes the form of an amendment to the Tariff act of 1930, andis an addition at the end of Title III of that act. As already mentioned,power is given the President to enter into reciprocal treaties with foreigncountries on the basis of mutual trade concessions. The passage of the lawis "for the purpose of expanding foreign markets for the products of theUnited States (as a means of assbting in the present emergency in restor-ing the American standard of living, in overcoming domestic unemploy-ment and the present economic depression, in increasing the purchasingpower of the American public, and in establishing and maintaining a betterrelationship among various branches of American agriculture, industry,mining, and commerce)." The President is "to proclaim such modificationsof existing duties and other import restrictions, or such additional importrestrictions, or such continuance, and for such minimum periods, of existingcustoms or excise treatment of any article covered by foreign trade agree-ments, as are required or appropriate to carry out any foreign trade agree-ment that the President has entered into hereunder."'"

The power of the President in these trade agreements is subject to im-portant limitations. "No proclamation shall be made increasing or de-creasing by more than 30 per centum any existing rate of duty or transfer-ring any article between the dutiable and free lists." The authority giventhe President by this act terminates on the expiration of three years fromthe date of its enactment. Nothing in this law is to be construed as givingany authority to cancel or reduce in any manner, any of the indebtednessof any foreign country to the United States. There was also imposed anobligation to give reasonable public notice of the intention to negotiatean agreement in order that any interested person may have an opportunityto present his views and seek information and advice from the UnitedStates Tariff Commission, the Departments of State, Agriculture and Com-merce, and from such other sources as the President may deem appro-priate.

A committee known as the Committee for Reciprocity Information wasestablished by Executive Order to receive information and views fromparties interested. * This committee held its first meeting on July 3, 1934,under the chairmanship of United States Tariff Commissioner, ThomasWalker Page. At this session it adopted regulations for the guidance of

"An Act to Amend the Tariff Act of 1930 (H.R. 8687—73rd Congress), Part III,section 330 (a) .

"The memhers of this committee were the following: Thomas Walker Page, vice-chairman, U. S. Tariff Commission; Robert Fnzer, American Consul General, Depart-ment of State; Leslie A. Wheeler, in charge of Foreign Agricultural Service, Departmentof Agriculture; Heniy Chalmen, Chief, Division of Foreign Tariffs, Department of Com-merce (acting); John Lee Coulter, farmer member of the U. S. Tariff Commission, andnow contiected with the Ofiice of the Spedal Adviser to the President on Foreign Trade;and H. D. Gresham. actiqg chief. Imports Division, National Recovery Administration(acting).


persons desiring to present their views in connection witb any proposedagreement.

The legislation described proposes a method of tarifip-making which isdesigned to give greater scope to the demands of national welfare and lessto those of special or local interests. Hon. Robert L. O'Brien, chairmanof the United States TarifiE Commission, in a recent radio address thusdescribes tari£F-making as it has been done in this country in the past:

Tariff-making, as Americans have known it, is not a process which can beexpected to increase foreign trade. Its aim has usually been to restrict im-ports. . . . Tariff-making in the past has been a congressional job. . . . A ses-sion in which tariff revision was taking place was always a Roman holidayfor lobbyists and petitioners. It was a time when every producer, every manu-facturer, no matter how poor his claim, how high his costs, how wastefulhis mediods, or how small his industry, begged, cajoled, or demanded theadded tariff which he maintained was necessary to keep his shop open. Itmattered not if the process was ill-suited to American labor. It mattered notif the whole Nation was heavily taxed for the sake of a neighborhood. Itmattered not if the exclusion of the foreien product lost us better customersabroad than ever the protected industry codd offer. . . . It is a matter of smallwonder that the resulting tariff act, instead of giving reasonable protectionyet preserving the main channels of foreign trade, represented all too oftena complex schedule of ill-considered subsidies. *

The new trade-agreements program, while seeking an increase in theforeign commerce of the United States, does not abandon the principleof "reasonable" protection. It "recognizes that trade is a business of bothbuying and selling, and that if we do not buy we cannot sell." Out of themass of data collected by the recently-formed Interdepartmental TradeAgreements Committee and such special committees as may be organizedby the trade agreements committee two groups of items are compiled.One consists of concessions on the part of the foreign power with whichhave begun negotiations promising the largest gain for American exportsto that country, and the other of concessions wbich the United States cansafely make on the imports supplied by that country. Tbe avowed purposeof the law is to create employment, increase workers' wages thus raisingthe general standard of living while at the same time protecting Americanindustries.^' The criterion adopted in making concessions, although notalways stated, seems to be whether a given reduction in tari£F rates promisesfor this country greater industrial expansion and more employment asa result of tbe concessions made abroad than the possible loss to the laborand capital employed in the industries directly affected by reduced dutiesat home.

"Reciprocd Trade Agreements and tbe Recovery Program. Addresses by Hon. CoidellHull and Hon. Robert L. O'Brien, Match 23. 1933 (Washington. Supt. of Docs.), pp. 9and 10.

'* Ibid., pp. 10 asid 14.


The Department of State tmd the Most-Favored-Nation TreatmentIn announcing the President's proclamation of the trade agreement with

the Belgo-Luxemburg Economic Union, the Department of State declaredthat "the commercial policy of the United States must, in the interest ofour foreign trade, be designed to accomplish two objects: namely, (1)mutual and reciprocal reductions in trade barriers, and (2) the removal orprevention of discriminations against American commerce. It is hopedto accomplish the first object by means of trade agreements such as thatwith the Belgo-Luxemburg Eccmomic Union, involving reciprocal reduc-tions in barriers to trade. It is hoped to accomplish the second object bymeans of the policy described below.""

In elaborating on the second object the declaration states that "equalityof treatment is the keynote of the foreign commercial policy of the gov-ernment of the United States. The United States neither seeks nor accordspreferential, discriminatory treatment— it asks only that a foreign countrytreat American commerce no worse than it treats the commerce of anythird country, and in turn accords equality of treatment to the commerceof foreign countries." In conformity with this policy the reduced dutiesproclaimed under these trade agreements are extended immediately to likearticles of all countries in return for non-discriminatory treatment of Ameri-can commerce. The proclaimed duties become minimum duties, and arewithheld only from those countries which discriminate substantially againstAmerican trade. This non-discriminatory policy applies to all forms of con-trol measures including quotas, exchange control, and any other means notspecifically dealt with in existing treaties or agreements. "The governmentof the United States does not presume to say what should be the tariff orother commercial policy of any foreign country, provided merely that it isnon-discriminatory and insures fair and equitable treatment to Americancommerce."^*

The policy here described in attaining the second objective mentionedin the declaration of the State Department is what is called the most-favored-nation treatment in its unconditioned form. It signifies that theduty applied is no higher than that applied to the same or like commodityof any third country. In its unconditioned form the most-favored-nationtreatment means that an agreement with a third country resulting in furtherreductions in rates on products from this country automatically brings aboutequivalent reductions on the same commodities from the country withwhich the earlier treaty was made.

Non-discriminatory treatment in the case of quantitative restrictions likequotas and exchange control is less susceptible of predse definition than

" Piess lelease, Department of State, April 1,1933, p. 1."Ibid., pp. 1 and 2.


in the case of customs duties. Generally speaking, however, non-discrimi-natory treatment where quotas exist may be defined as meaning the allot-ment to any foreign country of a share of the total quantity of an articleto be imported equivalent to the proportion of the total importation ofthat article which tbe foreign country supplied during a previous represen-tative period when quota restrictions did not apply. A somewhat similardefinition is given in the case of licensed import monopolies. Where therestriction t a ^ tbe form of exchange control, in addition to an allotmentbased upon a previous representative period, adjustment should be madeto the natural flow of trade and not in accordance with the theory thatthe exchange granted for importations from a particular countty shouldbe regulated by the amount of exchange created by exports to that country.The latter would force a bilateral balancing of trade between each pairof countries and therefore tend to prevent a natural triangular or multi-lateral trade movement, thus reducing the total volume of world trade.

In adopting the policy of equality of treatment in the case of countriesnot discriminating against the commerce of the United States, there is oneexception. On the ground of the peculiar relations, historical and otber,which have existed between this country and Cuba, preferential treatmentis accorded.

Trade Agreements CompletedBefore the dose of 1934 notices had been issued concerning proposed

agreements with fifteen countries, nine of which were in Latin America.Other notices have followed since the beginning of the present year. ByMay reciprocal trade agreements had virtually been concluded witb fourcountries—Cuba, Brazil, Belgium (Belgo-Luxemburg Economic Union),and Haiti. (Since this was written the trade agreement with Sweden hasbeen concluded. This treaty is characterized by features similar to tbose ofthe agreements discussed in the text.) The one with Brazil, at the presentwriting (May, 1933), still awaits final ratification by the Brazilian Con-gress. The odiers have already been proclaimed by the President.

In these treaties the concessions nude by the contracting parties includesubstantial reductions in tari£F rates on a large proportion of the dutiablecommodities exchanged between them, agreements in other instances notto raise existing import duties during the life of the treaty or place on thedutiable list certain goods already admitted free ("bound" rates), andrelaxation of quantitative restrictions or provision against future increasesof such restrictions. While several concessions apply to important competi-tive products, they are not as a rule of sufficient amount to a£Fect materiallyindustries supplying the greater part of the domestic consumption. Mostrate reductions affect the products of small business concerns employingrelatively few workers. To say this, however, does not mean that the con-


cessions are not material. Some of the worst abuses in recent tariff legis-lation, both in this and other countries, have been those connected withefforts to establish or safeguard numerous small industries generally un-suited to the home environment and demanding high rates.

The trade agreement with Cuba was completed on August 24, 1934.This agreement, as has already been noted, stands in a relationship by itself,following a policy dating from the Gunmercial Convention of 1902. Eachcountry, in addition to pledged reductions in tarifiF rates applicable to cer-tain products of special interest to the other, grants exclusive and prefer-ential duties. American products entering Cuba will be accorded reductionsvarying from 20 to 60 per cent below these established for the same prod-ucts from third countries. In like manner the United States grants certainpercentages of preferences to Cuban products. Hence the mutual conces-sions given under this agreement "are not generalized to third countrieson the basis of most-favored-nation treatment."^*

The economy of Cuba is built largely upon the export of sugar and sugarproducts. According to Cuban official statistics the total exports of thatcountry to the United States in 1929 were valued at $208,774,000, ofwhich $137,609,000 represented sugar. In 1933 the Cuban total haddeclined to $37,112,000, of which sugar constituted $39,748,607," orapproximately 70 per cent. The Hawley-Smoot Tariff of 1930 increasedthe rate of duty on Cuban raw sugar (96 degrees) from 1.76 to 2.00 centsper pound. This increase dealt a staggering blow to a foreign industry al-ready crippled by the Fordney-McCumber act of 1922, and was followedby drastic reductions in the importations of American products.

Acting on the basis of data submitted by the Tariff Commission, thePresident had reduced the duty on Cuban sugar (96 degrees) from 2.00cents per pound to l.SO cents. The trade agreement of August, 1934, stillfurther reduced the rate to .9 cents per pound. In this connection it shouldbe stated that Congress had recently enacted the Costigan-Jones sugar legis-lation providing for production control and the allocation of quotas amongthe various areas supplying the American market. The quota for Cubawas fixed at 1,902,000 short tons based upon an average for three yearsof low sales in the United States. This quota, though higher than theCuban sales of 1932 and 1933 may, if continued, prove an impediment toany real recovery of the market lost in the United States."

" Ptess telease. Depaitment of State, August 24, 1934, p. 2. Also Reciprocity TradeAgreement between the United States of America and Cuba, Execative Agreement Series,. . . £-1no. 67.

n Tariff Commission, Report on Sugar, no. 73.~ During the yeais 1922-26 Cuban svgar supplied about 96 per cent of the American

need. In 1933 this percentage had fallen to less than 26 per cent. The insular posses-sions of the United States by virtue of the protection afforded bj the Tariff acts of1922 and 1930 absorbed the greater part of the market left by the Cuban exporters. Only

1935] Redproctd Trade Agreements 421

The reduced sugar rate constitutes an important concession to Cuba, not-withstanding the present quota restriction. Less significant but substantialconcessions are made on various other Cuban products."

The favors granted American producers cover a variety of measures andproducts. Cuba agrees to a clarified tari£F structure, to several reductions ininternal taxes on commodities imported from the United States and tocertain customs duties "bound" against future increases. Among articlesexported by the United States to Cuba on which reduction in duty or otherconcessions are made are various foodstuffs, hog-lard, wheat fiour, hams orshoulders (cured or smoked), potatoes, textiles, automobiles, industrialmachines, radios, office machines, motion-picture sound equipment, ironand steel, copper, lumber, and electric-light bulbs.

The treaty with Brazil was completed on February 2, 1933. The majorexport from that country to the United States is coffee, which constitutesabout 83 per cent of the total coming to this country. This product withcertain other Brazilian commodities, sdso admitted free, makes up over 90per cent of our imports from that South American republic. Assurancesare given by the United States of continued duty-free admission of theseproducts, and in addition substantial reductions are made on manganeseore, Brazil-nuts, castor-beans, and a few other products.

Reductions of duty in the Brazilian tariff on American products cover abroad range of commodities, including 67 tariff classifications. In addition,assurances are given against increases of duties in the case of 39 tariffclassifications. Reductions in duties range from 20 to 67 per cent of thepresent rates, and cover 32.3 per cent and 23.8 per cent of United Statesexports to Brazil for the years 1929 and 1934, respectively.*"

The Belgian (Belgo-Luxemburg Economic Union) agreement was com-pleted on February 27, 1933. It is noteworthy as being the first concludedwith a European industrial nation. Notwithstanding its small size, Belgiumis a relatively important market for American exports. In an analysis of thistrade agreement the Department of Commerce stated that "the utmost carewas taken to seek from Belgium concessions with respect to those com-modities the marketing of which offers the best promise of aiding our ex-port industries and to meet Belgian requests for concessions as fully aspossible without undue injury to our industries.""

Duty reductions granted t^ Belgium to American products vary for themost part from 13 to 30 per cent, although on some classes of automobileparts they amount to 80 per cent. Summarized, the Belgian concessions area small part of it went to continental ptoduceis. See Tariff Q>mmission Report aboveatcd.

" Executive Agreement Series, no. 67, Schedule II, pp. 80-93."Press release. Department oJF Commerce, Feb. 7, 1933, pp. 1 and 2." Department of Commerce. An Analysis of the Trade Agreement between the United

States and Belgium (mimeograpb copy), Marcb I, 1933, p. 1.


as follows: 22 duties reduced (34 if sub-items are counted); 12 duties"bound"; 6 liberalizations of quota; 1 quota "bound"; 1 quota and duty"bound"; 1 quota suppressed and license tax reduced; and 2 luxury taxessuppressed. Over one-third of the American exports to Belgium benefitby die 45 concessions enumerated.*'

With respect to Belgian goods imported into the United States, slightlyless than one-quarter of the total value is a£Fected by American concessions.Reductions in duty are made in the case of 47 products, and these rangefrom 16 to 30 per cent (weighted average on the basis of the 1933 im-portations about 24 per cent). A significant statement of the Americanpolicy in granting concessions is made in the analysis of the Departmentof Commerce of the Belgian Trade Agreement: "Of the 47 duty reductionsgranted by us to Belgium, more than one-fifth relate to products or typesor grades of products with respect to which there is no domestic productionor with respect to which domestic production supplies only a negligiblepart of consumption." It is further stated that in the case of considerablymore than half the products on which reductions are made, "imports prob-ably will not supply more than two or three per cent of domestic consump-tion, notwithstanding the lower rates of duty. In general, these are prod-ucts on which domestic manufacturers have outstanding advantages.""

The treaty with Haiti was completed March 28, 1933. In it there is areassertion of the general American policy "not only to promote trade be-tween the United States and Haiti, but also to stimulate triangular andpolyangular trade between the two signatory countries and other countries.In short, its object is trade expansion rather than trade diversion.""

As in the case of Brazil, a large part of the Haitian imports into theUnited States are admitted free—^9 per cent in 1933. The principal con-cession to Haiti therefore consists of a guarantee of continued free entryfor most of these products into this country during the life of the agree-ment. The principal imports from Haiti admitted free are logwood, cocoabeans, and sisal. These with co£Fee, bananas and ginger root are "bound"on the free list. Reduction in duties are made on rum, fresh pineapplesand certain fruit pastes.*"

Haiti accords reductions of duty on American products rangiqg fromone-fourth to two-thirds of the rates on a list of 13 items, and conditionalreductions on three items. A spedal classification transfers seed potatoesfrom the dutiable to the free list, l l ie Haitian tariff provides in most casesfor specific rates of duty with alternative ad valorem rates, and assessmentdepending on which provides tiie greater revenue. The concessions granted

"Ibid., pp. 2 mi 4. 'Ibid., p. 7.- Trade Agreement Signed by the United States and Hdti, Mmth 28, 1931. Sute De-

partment (mimeograph copy), p. 1.'Ibid., p. 9.


American products apply in some cases to one or the other kind of rates,and in other cases, to both. Among the more important commodities af-fected are certain leathers, sewing machines, certain fresh meats, variousfresh, canned and dried fruits, and certain dairy products. The total exportvalue of American commodities which will benefit under the terms of thetreaty, including both reductions and "bound" duties, amounted in 1929 to$1,464,000 and in 1933 to $623,000."' These amounts, however, are onlyabout one-fifth to one-sixth of the American totals for exports to Haitiin these years.

Negotiations with Other PowersIn announcing the completion of the Haitian Trade Agreement the State

Department said, "Negotiations, some of which are nearing completion, arenow in progress with thirteen other countries." The latter include Colum-bia, Costa Rica, Guatemala, Honduras, Nicaragua, Salvador, Sweden, Spain,Switzerland, The Netherlands including overseas possessions, Finland,Italy and Canada. On April 30,1933, the Department of State gave publicnotice that trade agreement negotiations were to be entered into with Franceand her colonies, dependencies and protectorates, other than Morocco.

The efforts of the United States looking toward some revision of hightari£Fs and other restrictions on international trade have not been withoutsome setbacks. Argentina had formerly been prominent in denouncing "theexaggeratedly high customs duties maintained by the United States." Formany years the Argentine govemment and press have criticized "the pro-hibitive" tariffs of the Northern Republic, and have pointed to them as themain barrier in the way of a closer and more sincere Pan-American under^standing. Now, however, Argentina bars all discussion of high customsduties from the agenda of the Pan-American Commercial Conference meet-ing in May in Buenos Aires.*' This attitude, while directly affecting tradepolicies designed to promote closer commercial relations among the variousnations on the American continent, has an obvious bearing upon the policyof the present Secretary of State in his aims looking toward a return of theworld to relatively unhampered trade and a saner economic interdepend-ence.

In addition to this attitude of opposition toward any revision of tariffpolicy is a certain amount of foreign antagonism to the policy of equalityof treatment. As has already been pointed out, one of die cardinal prin-ciples governing the action of the State Department in negotiating the newreciprocity agreements (barring the peculiar case of Cuba) has been themaintenance of the most-favored-nation treatment in its unconditionedform. On October 13, 1934, notice was given by the German Embassy ofthe intention of Germany to modify Article VII of the existing "Treaty

-Ibid., pp. 2 and 6. 'Sundi^ Star, Washington, D .C , liCaidi 31, 1933.


of Ftieodship, Gxnineice and Consular Rights between the United Statesand Geimany." In tbe absence of tbis modification tbe treaty would termi-nate October 14, 1935.'* Tbe change sought by Germany was^he elimina-tion of the most-favored-nation treatment accorded by each country to thegoods originating in the other.'* In order to maintain the Berlin pact theSecretary of State sanctioned the readoption of the 1923 Treaty removingthe clauses to which Germany objected. Tbis alteration, however, will af-fect a fundamental principle which the government of the United Stateshas sought to carry out in the various agreements already entered into or inprocess of negotiation.

General ConsiderationsThe Reciprocal Trade Agreements act with the various negotiations and

treaties already entered into represents an e£Fort on the part of the UnitedStates to emerge from a commercial stalemate brougbt about in large meas-ure by a policy of trade restriction. Tbe Act, while far from abandoningthe policy of protective duties, does provide a way for making an appreci-able reduction in tbe trade barriers wbicb bave been erected during thepost-war period. The realization of the end sought, however, will dependupon the number and commercial status of the countries with which tradeagreements are made. At present (May, 1939) no treaty under the Acthas been concluded with any of the leading commercial nations of theworld, although negotiations with such countries are in progress. If, how-ever, the scope of these agreements embraces a large part of tbe commercialworld and includes a considerable proportion of tbe articles of commerce,tbe general effect with the application of the most-favored-nadon treat-ment should be an ultimate lowering of trade barriers. In other words, theresult would probably be somewhat similar to that produced in France be-tween 1830 and 1870 by tbe numerous reciprocity treaties entered intoby Louis Napoleon.'"

A very formidable obstacle to die consummation of any general eco-nomic or commercial gain is tbat represented by small group interests.When the treaty of Brazil was under discussion the prindpal opponents toits conclusion were the American producers of manganese ore—^muchof the imported ore coming from Brazil. Prior to 1922 manganese ore hadbeen on tbe free list. Under the Fordney-McCumber act it was made duti-able at one cent per pound of manganese content in the case of ore contain-ing in excess of 30 per cent metallic manganese. In the Hawley-SmootTariff act the duty was raised to one cent per pound of metal content inexcess of 10 per cent of metallic manganese.*^ This latter rate was equiv-

"The treaty went into effect October 14, 1923, and was to continue for a periodof ten years. A year's notice was requind for any desired modificatioa of its tenns.

" PRSS release. Department of State, May 1, 1933. Also New Yoik Times, May 2,1933.

"Percy Ashley. Modem Tariff History (new third edition), pp. 293-306." Tariff acts of 1922 and 1930, Schedule 3, par«graph 302.


alent, on an ad valorem basis, to mote than 100 pet cent at the time the actwas passed. Notwithstanding this heavy duty, imports in tecent years havesupplied almost exactly 80 per cent of the total American consumption.

Manganese is a necessary raw material in the production of practicallyall steel. Although the quantity used per ton is not large, when spread overthe total production—23 to 30 million tons annually—it is a factor of im-portance from the standpoint of total cost to the consumer. The entire laborforce required in the operation of domestic mines producing this ore hasnot in recent years beoi more than 100 to 200 men. The steel industrywhich is the principal consumer of manganese has during the same periodemployed on the average about 400,000 men. A large industry thereforewith a great labor force, and through it the general public, are thus made tosubmit to a tax in the interest of a small industry employing a mere handfulof wodcers.

The concession made in the trade agreement with Brazil—about 30 percent—still leaves manganese ore dutiable at a rate much higher than isordinarily allowed on raw materials. The opposition of these ore producersfailed to prevent reduction from the rates contained in the Tariff act of1930. How this reduction will affect the price of manganese in the UnitedStates will depend upon our commercial relations with other importantsources of supply like Russia and India. But it is noteworthy that, thoughthe opposition of these ore producers failed to prevent the concession madeto Brazil, it was sufficiently strong to illustrate the power that minoritiesoften have in tariff and otfier matters of public interest. "Majority rule"in Congress and in other law-making bodies has frequently meant the ruleof a majority of small and aggressive minorities.

The attitude of the manganese ore producers is typical of the kind ofopposition which any policy looking toward the breaking-down of presenthigh tariff barriers must face. Much of the development of modem indus-trial technique calls for world markets. The social gains to be had from thisdevelopment are largely dependent upon the free or relatively unhamperedflow of commodities between nations. The small producer, often a survivalof an earlier phase of industrial growth, whose market is local and whosecosts are high, can enlist public sympathy and legislative support wherethe large-scale operator is viewed with hostility. While there are often rea-sons for considering the needs of the "little fellow," there is an increasingnumber of instances where the interests of large-scale industry and large-scale operators more nearly coincide with those of the general public thando those of the "little fellow." While high tariffs have at times served theinterests of monopolistic concerns and may have contributed to theirgrowth, in the United States at the present time they are props of a vastnumber of small and often high-cost producers.

ABRAHAM BERGLUNDUniversity of Virginia

Education

The Reciprocal Trade Agreements Act of 1934 - The American Economic Review