Replying to an inquiry in regard to the effect upon the trade of the United States of a failure by Brazil to issue a proclamation continuing the preferences, the Secretary of Commerce said:

An analysis of the export trade in American products to Brazil under the preferential arrangement, and a comparison of the list of articles admitted at preferential rates of duty from the United States with those admitted from Belgium, lead me to the conclusion that the loss of preference in the case of the articles not covered by the Belgian list is not likely to result in a sufficient reduction in our trade to justify the United States Government in taking any action that would be inconsistent with the commercial policy implied in Section 317 of the new Tariff.1

President Harding, addressing the Secretary of State, determined the question as follows:

I think it altogether desirable that you should instruct our 'Ambassador at Rio de Janeiro that this government will not renew the usual request for the continuation of preferential duties, and that we will content ourselves with most favored nation treatment at the hands of Brazil in precisely the same manner as is expected and accepted at the hands of other nations with whom we maintain commercial relations.2

Thus were accomplished the first fruits of the policy expressed in Section 317. It is pleasant to note that the new policy was initiated by an act which not only involved, on the part of the United States, a recognition of the inconsistency between an old practice and the new policy, but which at the same time was essentially generous toward a

'Letter to the Secretary of State Jan. 3, 1923. Quotation courteously permitted by Mr. Hoover and Mr. Hughes.

'Letter of Jan. 3, 1923. Quotation courteously permitted by Mrs. Harding and Mr. Hughes.

great republic of South America. It occurred opportunely on the eve of the Fifth Pan-American Conference, the first to be held since the United States and Brazil, and other Latin American countries, were allies in the World War.1

54. ACCEPTANCE BY THE EXECUTIVE OF THE POLICY OF UNCONDITIONAL MOST-FAVORED-NATION TREATMENT

In taking the indicated action in regard to the Brazilian preferences the United States was fully aware that there was a corresponding positive side to the new policy and that the latter should not be neglected. Explaining the Government's attitude to the American Manufacturers Export Association the State Department said:

In view of the adoption of the Tariff Act of 1922, section 317 of which authorizes the President to declare additional duties upon the products of any country that may discriminate against the commerce of the United States, it was felt that this Government could not consistently ask the Brazilian Government to grant to American goods rates lower than those accorded to similar imports from other countries. A request of this nature by this Government would in effect be a request to Brazil to practice with respect to other countries discriminations which, if applied to the trade of the United States, might call forth a presidential proclamation levying additional duties upon Brazilian trade.

It is the policy of this Government to seek from Brazil and

'That Brazil was not without embarrassment in connection with its differential tariff practice is indicated by the following excerpt from an article in Wileman's Brazilian Review (Rio de Janeiro), June 27, 1923:

"The question of preferential tariffs has led to misunderstandings between Brazil and Great Britain and to much criticism on the other side. After all, equal treatment of all countries, i. e., no 'favors to anyone, is the best policy and one which avoids misunderstandings and even bad feeling. Once Great Britain sees that she is trading in this country on an equal footing with other countries, there will be a change in British sentiment and it is possible that British investors may again turn their attention to Brazil, where there is much scope for capital."

other countries treatment for American goods as favorable as may be accorded by them to the products of any other country. It is believed that in the long run this policy offers larger commercial advantages to American trade, and that the possibility of adverse effects in the case of American trade with Brazil must be weighed against the advantage to American commerce of having this Government in a position to stand vigorously and without any inconsistency for equality of treatment for American exports entering all foreign countries.1

The opportunity was, undoubtedly, an admirable one for inaugurating the full policy expressed in Section 317 by undertaking the negotiation of an agreement with Brazil reciprocally pledging unconditional most-favored-nation treatment. While asking no favors the United States would surely be disposed to brook no discriminations. If the preferences which Brazil formerly granted to Belgium should be continued, if the special treatment of certain imports from Argentina should prove detrimental to the export trade of the United States or should any other country obtain advantages in the Brazilian market, the policy of Section 317 required the extension of the same favors to this country. However, for the United States to enter into an agreement with another country in which it should expressly promise to accord unconditional most-favored-nation treatment involved, obviously, an important decision essentially affecting its general commercial policy. The question of making this decision was clearly one for the President.

Mr. Harding's answer was contained in a letter of February 27, 1923, to the Secretary of State:

1

I am well convinced that the adoption of the unconditional

1Excerpt from letter published in Weekly Export Bulletin, April 14, 1923.

2 See supra, ch. v.

favored nation policy is the simpler way to maintain our tariff policy in accordance with the recently enacted law and is probably the surer way of effectively extending our trade abroad. If you are strongly of this opinion you may proceed with your negotiations upon the unconditional policy.1

Negotiations were accordingly undertaken with Brazil and, on October 18, 1923, the following exchange of notes was effected, as a result of which the United States and Brazil mutually convenanted to accord to each other unconditional most-favored-nation treatment in customs matters:

[The Secretary of State to the Ambassador of Brazil.]
DEPARTMENT OF STATE,

Excellency:

Washington, October 18, 1923.

I have the honor to communicate to Your Excellency my understanding of the views developed by the conversations

'The preceding portion of the letter was as follows:

"You wrote me under date of January 15th, relative to the policy to be followed in the negotiation of commercial treaties with newly established states, and the revision of long-standing treaties which have become obsolete or impracticable, because of changed conditions. You enclosed to me with your letter the communication of Mr. W. S. Culbertson, of the Tariff Commission, in which he commended, very impressively, the adoption of the unconditional clause in the most favored nation treatment in all our commercial relations. I have gone over your letter and the argument of Mr. Culbertson with some considerable deliberation, and I am pretty well persuaded that the negotiation of the unconditional provision is the wise course to pursue. I am wondering at the moment what this change of policy would effect in our relationship with Cuba, whose very existence seems more or less dependent upon a favoring provision in our tariff law. Our peculiar relation to Cuba apparently imposes something of an obligation, but I assume that if that favoring arrangement is going to disarrange the conditions of our entire foreign trade it would be better to cancel the Cuban provision. This relationship does not seem to be touched upon by either your letter or that of Mr. Culbertson and I may be attaching to it a greater importance than the situation actually justifies."

Publication courteously permitted by Mrs. Harding and Mr. Hughes.

which have recently taken place between the Governments of the United States and Brazil at Washington and Rio de Janeiro with reference to the treatment which shall be accorded by each country to the commerce of the other.

The conversations between the two Governments have disclosed a mutual understanding which is that in respect to customs and other duties and charges affecting importations of the products and manufactures of the United States into Brazil and of Brazil into the United States, each country will accord to the other unconditional most-favored-nation treatment, with the exception, however, of the special treatment which the United States accords or hereafter may accord to Cuba, and of the commerce between the United States and its dependencies and the Panama Canal Zone.

The true meaning and effect of this engagement is that, excepting only the special arrangements mentioned in the preceding paragraph, the natural, agricultural and manufactured products of the United States and Brazil will pay on their importation into the other country the lowest rates of duty collectible at the time of such importation on articles of the same kind when imported from any other country, and it is understood that, with the above mentioned exceptions, every decrease of duty now accorded or which hereafter may be accorded by the United States or Brazil by law, proclamation, decree, or commercial treaty or agreement to the products of any third power will become immediately applicable without request and without compensation to the products of Brazil and the United States, respectively, on their importation into the other country.

It is the purpose of the United States and Brazil and it is herein expressly declared that the provisions of this arrangement shall relate only to duties and charges affecting importations of merchandise and that nothing contained herein shall be construed to restrict the right of the United States and Brazil to impose, on such terms as they may see fit, prohibitions or restrictions of a sanitary character designed to protect human, animal, or plant life, or regulations for the enforcement of police or revenue laws.