The work of the Pan-American Union should also be mentioned in connection with trade promotion. Since its organization in 1907 it has done exceptionally good work in developing closer commercial relations between the United States and Latin America.

Not the least among the ways in which the Government may promote the commerce of the United States is by the enactment of legislation permitting the establishment of free ports where required by the national needs. A free port or zone is an instrumentality of commerce and does not affect the established tariff policy of the country. The Tariff Commission says:5

A free zone may be defined as an isolated, inclosed, and policed area, in or adjacent to a port of entry, without resident population, furnished with the necessary facilities for lading and unlading, for supplying fuel and ship's stores, for storing goods and for reshipping them by land and water; an area within which goods may be landed, stored, mixed, blended, repacked, manufactured, and reshipped without payment of duties and without the intervention of customs officials. is subject equally with adjacent regions to all the laws relating to public health, vessel inspection, postal service, labor conditions, immigration, and indeed everything except the

customs.

It

The purpose of the free zone is to encourage and expedite that part of a nation's foreign trade which its government wishes to free from the restrictions necessitated by customs duties. In other words, it aims to foster the dealing in foreign goods that are imported, not for domestic consumption, but for reëxport to foreign markets, and for conditioning, or for combining with domestic products previous to export.

While the dangers connected with unrestrained competition among nations should be recognized, the error

5 Free Zones in Ports of the United States," Report of United States Tariff Commission to the Senate Committee on Commerce with reference to Senate Bill 4153, 62d Cong., 2d Sess. (1918). Chapters XI and XII.

of condemning international trade and its promotion should not be made. It may be that the system is wrong and that Governments, as has been suggested, should make buying and selling between nations a Government monopoly. In the absence of such drastic action, however, it is incumbent upon each nation to further its own interests in the rivalry for markets. Just as there are some ways by which export trade should not be promoted, there are some ways by which it should. Unless America has commercial interests abroad, her moral influence in the elimination of unfair practices and discrimination in international trade will be weak. The American public asks that unfair methods be avoided in export trade, but it is willing that our export interests. be pressed with the utmost vigor and promoted by every legitimate means. The extension of American export trade in manufactured good is not necessarily made at the expense of our foreign competitors. The consuming capacity of most of the importing countries will increase. With the normal growth of population and wealth in the older countries and the continued development of new countries like Argentina, Brazil, and the British selfgoverning dominions, the volume of international trade will grow steadily. Moreover, the probable increased purchasing power of the masses in countries such as China and India, where modern industrialism is supplanting primitive methods, will doubtless be an important factor in the world trade of the future.

National and business interests run parallel up to a certain point. The policy of the Government fighting business is antiquated. Industry and trade are not things apart from our national life but an essential element of it. But in recognizing frankly the desirability of foreign trade and the necessity for organization in

many lines, we must avoid the extreme of approving all that may be done in the guise of export organization. Our duty is not done when business men have been allowed to organize in order to meet on an equality their foreign competitors. The day of letting business alone or ignoring it is passed. Liberty in foreign trade is as much an anachronism as it is in domestic trade. We have removed the restraints of the Sherman law in export trade because they applied a wholly inconsistent and undesirable rule in trade between nations. But that is only one side of the shield; the other is strict regulation and control. We have permitted our business men to organize not that they may exploit foreign peoples, not that they may make exorbitant profit, not that they may go forward and embroil this country in economic difficulties with other peoples, but that our resources and industrial development may continue along sound lines increasing the prosperity of the American people and assisting other nations in their upward progress toward material prosperity.

7 See Chapter XI.

CHAPTER X

BARGAINING TARIFFS TO PREVENT DISCRIMINATIONS

Tariff discriminations classified-Those based on policy Concealed discriminations - Open discriminations-Necessity of bargaining provisions in a nation's tariff laws - Penalty duties Section 2 of the Tariff Act of 1909 Its defects Commercial treaty provision of the Tariff Act of 1913 — A proposal for penalty duties - General and conventional tariff system of Germany - Maximum and minimum tariff system of France Most-favored-nation clause in commercial treaties - The American or conditional form and interpretation of this clause-Opinions of Federal courts and the Department of State The European or unconditional form and interpretation of the most-favored-nation clause — The spirit in which a flexible tariff should be enacted - The principle of equality of treatment.

Tariff discriminations for our purpose may be divided, broadly speaking, into three classes. The first are those that are not generally recognized as subjects for bargaining among nations. They include preferential tariffs or national reciprocity treaties or arrangements that are expressions of settled policies of peoples toward their colonies or toward other nations. Within this class fall, among others, preferential tariffs between parts of the British Empire, the colonial tariffs of France, and the reciprocity policies of the United States under the Tariff Acts of 1890 and 1897. These discriminations raise an essentially international question and will be considered when the world aspects of commercial policy are discussed.1

The second class of tariff discriminations are concealed discriminations. Sometimes they exist in the administration of customs regulations or in the enforcement of 1 Chapters XIV-XVI.

inspection or sanitary laws. On ostensibly sanitary grounds, for example, Germany from 1883 to 1891 prohibited the importation of American hogs, pork, and sausages. In reality this action was taken to protect the German agrarian classes. After many efforts to remove this unjust discrimination against American producers Congress enacted a bargaining clause which was in part as follows (Sec. 5, Meat Inspection Act of August 30, 1890):

That whenever the President shall be satisfied that unjust discriminations are made by or under the authority of any foreign State against the importation to or sale in such foreign State of any product of the United States, he may direct that such products of such foreign States so discriminating against any product of the United States as he may deem proper shall be excluded from importation to the United States; and in such case he shall make proclamation of his direction in the premises, and therein name the time when such direction against importation shall take effect, and after such date the importation of the articles named in such proclamation shall be unlawful. The President may at any time revoke, modify, terminate, or renew any such direction as, in his opinion, the public interest may require.

Moreover, the Tariff Act of 1890 authorized the President to impose penalty duties on certain products when imported from countries whose treatment of American products was not "reciprocally equal and reasonable." To forestall the application of these laws against her, Germany, in the Saratoga Convention of 1890,2 agreed to remove the objectionable discriminations. Sometimes discriminations are concealed in tariff classifications where, under the guise of equality of treatment, tariff rates are made higher on the goods that are peculiarly the products of one country and lower on the peculiar 2 Sen. Ex. Doc. 119, 52d Cong., 1st Sess., p. 110.