Commercial Treaties

I COMMERCIAL TREATIES

Commercial Treaties, formal agreements concluded between states for the purpose of establishing mutual rights to, and regulating conditions of, trade and navigation in the territories of the signatories. Provisions often cover the rights of nationals of one party to reside in the territory of the other and to acquire and hold property there;

Consular jurisdiction.
Rights of asylum in time of war.
Fishing rights; regulation of free ports.
Conditions governing the collection of debts due a foreign trader and those governing the Taxation of foreign investors.

II CONDITIONS OF TREATIES

Present-day commercial treaties are ratified according to the constitutional procedures of the participating parties. The treaties may be terminated unilaterally on notice of six months or a year. However, termination also may occur if the time period during which the treaty is in force expires, if the same parties negotiate another treaty on the same subject, or if the political status of a signatory changes.

The outbreak of war suspends but does not terminate commercial treaties. If a dispute arising among signatories over the interpretation of commercial treaties cannot be settled by direct negotiation, it may be settled by rules of international law. Such disputes must be submitted to the International Court of Justice if the signatories have mutually accepted the jurisdiction of that court in advance .

III TRADE AGREEMENTS

In addition to formal agreements between modern states having important economic ties with each other, less formal and durable agreements relate to such matters as tariff rates, navigation dues, customs formalities, air-transport clearance arrangements, quantity restrictions on trade in specific commodities, regulation of commercial, financial, transportation, and communication facilities, standards of commercial and maritime law, commercial arbitration, patents, trademarks, and copyright.

Reciprocal trade agreements characteristically provide that import duties on products originating in the signatory countries be lower than the duties on the same classes of articles imported from other nations. Although tending to discriminate against third countries, such special arrangements can be justified when political, economic, and geographical ties are particularly close, as in the Commonwealth of Nations or among Latin American countries. The advantages thus obtained are offset in part through operation of the most-favored-nation clause.
IV MOST-FAVORED-NATION CLAUSE

The most-favored-nation clause stipulates that a nation will extend to other signatories treatment comparable to that accorded any other nation with which it has, or may have in the future, a commercial treaty. Under such a clause, all existing rights and privileges granted to other nations became immediately applicable to the signatory nations, and all rights and privileges granted to other nations in later treaties become applicable to the parties to the most-favored-nation agreement as soon as those treaties take effect.

The clause may be either unconditional, that is, applicable to all subjects omitted from the negotiations as well as to those included; or conditional, that is, limited to particular items or areas of trade. The basis for restriction of the applicability of the clause is the theory, once widely held, that concessions granted to one nation in return for special advantages should not be granted to other nations without similar considerations. Although a conditional form of the most-favored-nation clause was at one time included in most commercial treaties made by the United States, the simpler unconditional and mandatory form has been used in all U.S. commercial treaties concluded since 1922.

VII HISTORY OF COMMERCIAL TREATIES

Commercial treaties have a history going back to ancient times. With the resurgence of trade in the early medieval period, the commercial treaty began its modern evolution. This early commercial treaty was usually bilateral, and its prime objective was to establish the legal rights of alien traders, the idea of “national treatment.” Removal of obstructions to trade was only a secondary motive.

1. National Treatment

The attainment of national treatment through treaty was strengthened in the 13th century. Venice, an Italian city-state that traded chiefly with Central and East Asia, exacted by treaty from the sultan of Ḩalab (Aleppo) the right to have its merchants equip their own quarter in his city and to have their own jurisdiction in civil and criminal cases. By the mid-19th century national treatment was so completely achieved that full protection of the rights and property of alien traders was the norm. Merchants traveled freely without passport or visa, and removing obstructions to trade became the main objective.

2. Protectionism

The Anglo-French Treaty of 1860—sometimes called the Cobden Treaty after the British economist and statesman Richard Cobden, who negotiated it—exemplified this change. This important treaty, meant to promulgate free trade by reducing and eliminating all tariffs between the two signatories, induced them to initiate a round of bilateral tariff reduction treaties with almost every other European nation. Almost all commercial treaties from then on included the most-favored-nation clause, which effected equal trading opportunity and opened the way for multilateral trade.

Ominous signs soon threatened this growing network of world trade. Imperialism, with its concomitant national economic rivalry and tariff warfare, became widespread. Germany reintroduced tariff protectionism in 1879, and the United States followed a high tariff policy in the post-Civil War period.

Although World War I (1914-1918) did damage to this trade network, it was more the state interference in economic affairs, the high taxation rates, and the principle of state nationalization of foreign enterprise that effectively disrupted world trade in the interwar period.

The cosmopolitan climate of the 19th century with its laissez-faire attitudes, that is, the noninterference by governments in economic matters, gave way to economic nationalism in the 20th century, especially after the depression of 1929 to 1933. The general principle of recognition of property rights went into decline.

3. Freer Trade

Hopeful omens, however, began to appear. In 1934 the United States passed the Reciprocal Trade Agreement, by which the president was empowered to lower import duties on a country's goods if that country reciprocated. The United States thereby moved from a protectionist policy to one of freer trade.

In 1947 the General Agreement on Tariffs and Trade (GATT), designed to reduce tariffs and eliminate discriminatory practices in international trade, was signed by 23 countries, including the United States. Eventually more than 100 countries signed GATT. In 1994 GATT signatories signed a new trade agreement that cut tariffs overall by one-third, protected intellectual property rights, and opened trade in investments and services.

This agreement also created the World Trade Organization to enforce its provisions starting in 1995. Regional groupings, established to eliminate tariff barriers among members and to promote mutual cooperation and trade, include the European Union (formerly called the European Community or the Common Market, established in 1957), the European Free Trade Association (EFTA, 1960), the Latin American Integration Association (LAIA, 1980), and the Central American Common Market (CACM, 1960).

The complex modern structure of the commercial treaty has been significant in stabilizing international trade and standardizing trade practices. An important commercial treaty, which also overcame ideological barriers, was signed by the United States and the Union of Soviet Socialist Republics in 1972; it also resolved long-standing differences in shipping and previously outstanding debts and provided a new framework for long-range trade.

Another significant accord, the North American Free Trade Agreement (NAFTA), which took effect in January 1994, outlined tariff cuts and the elimination of trade barriers between the United States, Canada, and Mexico.