2. Colonial Preference and a Pure Policy of Protection.-The preceding discussion has raised in a direct form the question whether colonial preferences can be reconciled with a strict interpretation of the principle of protection of "Home interests," whether these interests be those of the colony or the metropolitan area. In the concrete the answer must necessarily turn upon the value of the preference and the interpretation of the phrase ' interest." The acceptance of the protectionist standpoint involves the possibility of sacrificing the consumer's interest to that of the producer, and even if it be assumed that the security afforded the producer, and the economies of large scale production which a closed market affords him are capable of reconciling these possible antagonisms, a policy of protection for producers in any case involves some check to the flow of competing imports, whilst the grant of preference will quicken this flow. Hence, in so far as competing imports are concerned, a limit to the degree of preference is at once given, a protective policy being assumed. In so far as non-competing imports are concerned, the area of concession is at first sight wider. Here it is a question only of choosing between alternative sources of supply, and no direct limit of the degree of preference is afforded unless (a) revenue considerations come into question, (b) it is hoped to stimulate home production: so that the flow of imports can be held to be fatal to the prospects of a potential "infant industry."

Even here, however, an important indirect limit exists. in the fact that a preferential concession may limit the extent to which concessions may be obtained from another area. This case presents no particular theoretical difficulties, since it is logically analogous to those cases in which the prior existence of unconditional most-favoured-nation treaties, or the suspicion that they will subsequently be granted, imposes difficulties in the negotiation of strict reciprocity treaties.

It may be argued that a method exists by which some of the practical inconveniences associated with the reconciliation of colonial preferences with extra-national treaties can be overcome. It may, for instance, be argued that a colonial preference is a domestic concern of the Empire which no foreign country has any business to inquire into. The force of such an argument depends, however, on the willingness of other Powers to accept it, or on the ability

to enforce that point of view in case it is actively resisted. If the Foreign Power is weak in the special circumstances of the case, the argument will be accepted: if it is strong, there may be no difficulty in getting a tacit acceptance of the argument, accompanied by the offer of a smaller concession than would otherwise have been the case.

In any case, both the internal needs-i.e., the pressure of domestic producers-and the external needs may lead to a situation in which preferences still exist, whilst their amount, relative to the duties imposed on non-preferential supplies, is a steadily diminishing one.1

3. The Policy of Assimilation. We now come to the last point requiring discussion at this stage-the practicability and expediency of assimilation, in the sense of creating for a Colonial Empire a common uniform tariff against the rest of the world. This is a question, however, which affects not only the relations between colonies and their home country, but also, as already pointed out, the formation of customs unions or federations between independent States.

It might be thought sufficient to the point to the practical fact that the French policy of assimilation is rapidly losing ground in favour of the policy of differentiation. It is best, however, to approach the matter from the theoretical standpoint. The real difficulty is, of course, the fact that the economic situation, and, therefore, the needs of different portions of a widely scattered Empire are very diverse, and hence, if the tariff is to correspond to those needs, it must

1 Cf. O. D. Skelton, "The Canadian Reciprocity Treaty," in Ec. J., vol. xxi., p. 280. if the British tariff reformer complains that the negotiations with France and Italy and now with the United States have involved whittling down the British preference, he should reflect that were protection re-established in Britain, with an initial perference to Canada, negotiation with foreign countries to secure more favourable entry for British manufactures would inevitably result in whittling down the Canadian preference." As for the difficulty of reconciling protection with reciprocity and preference, cf. the following letter of Sir James Graham to Peel (dated 30/12/1842), “I wrote a memorandum a few days ago on the policy of a commercial treaty with the United States, under which Indian corn might be admitted duty free in return for a more favourable tariff as affecting the import of our more staple manufactures into America. . Stanley's despatch to Bagot (the Governor of Canada) is more strongly expressed than caution justifies. This may be considered as an engagement binding in honour, and if so, it must be fulfilled. But it will be found a very inconvenient and dangerous operation in the present temper of our agricultural supporters. It will excite as much opposition as a greater change, and it will not really effect the purpose of opening extensively the American market." Parker's "Life and Letters of Sir James Graham," 1792-1861, vol. i., p. 331.

be differentiated. The same applies, mutatis mutandis, to any attempted commercial rapprochement in the shape of a commercial union, where the parties thereto are on very unequal cultural and economic levels. Professor Grunzel has illuminated these points by his distinction between the customs area and the economic area, pointing out that even inside a geographically contiguous, politically unitary state the economic areas are not necessarily co-extensive with the customs boundaries.1

The greater the geographical dispersion, therefore, the greater the chances are that a common uniform tariff will be inapplicable, and that some parts of the area must suffer in consequence.

The argument may be put a fortiori thus-if, as in the case of such a geographically contiguous (and to some extent culturally uniform) area, such as Central Europe, the need for intermediate customs lines was felt to be a necessity, so much the more is this true of a widely scattered Colonial Empire. But geographical situation in part at least determines the relations to non-national areas, and, therefore, if the internal relations are such as to require some regard for local interests, the same must be equally true of external relations.

As has already been pointed out, internal freedom of trade need not be accompanied by homogeneity of external tariffs, and this disposes of those supporters of the idea of assimilation who desire a common external tariff because they desire a free internal market. It may be argued that a common tariff would enable trade relations with other countries to be conducted on more advantageous terms.3

1 Grunzel," Economic Protectionism," p. 19, et seq.

2 Professor Nicholson thinks that "internal free trade throughout the Empire, though possible without any customs union, would be promoted and strengthened thereby, and the benefits of real commercial union are too great to be cast aside on account of a literal interpretation of free trade . . . nor is there any reason to insist on the exact uniformity of the Imperial customs so long as the main ideas are realised...." Op. cit., p. 264. But "the negative argument (against protection) becomes overwhelming if we try to invent a complex and detailed protective system for the whole British Empire," (p. 265); also, we have to take account of geographical proximity, "trade with a near is more advantageous than trade with a remote country" (p. 267).

"Ein

'This comes out in the "Central Europe" discussion-e.g., Wolff, Deutschösterreichisch-ungarischer Zollverband," followed by Irresberger, "Das deutsch-oesterreichisch-ungarische Wirtschafts und Zollbündis.”

There is some ambiguity in this view. It may be true that a customs union would have to meet with less opposition than a policy of preferential relations, other things being equal. But other things are not always equal-i.e., it may be possible to follow an effective policy of preference, whilst a policy of federation or union might harbour so many oppositions of interest as to reduce its results in the conduct of negotiations below those which might have been produced by treaties, which assumed preference or reciprocity between the parties. These would now, of course, have to conclude separate treaties with third parties.

CHAPTER IX.

VALUATION AND ALLIED PROBLEMS.

§ 1. WE have seen in a previous chapter that in the case of ad valorem duties there exist two possible systems of assessment (1) on the basis of declarations furnished by the ment-(1) importer or his agent-i.e., current "values"; (2) on the basis of values fixed by the administrative authorities themselves. But whichever system be adopted it will, on reflection, appear obvious that certain principles as to what constitutes "the value of a commodity" must be laid down. We may leave official valuation on one side for the moment and confine our attention to the freer system of declared values. If the importer is not to be allowed arbitrarily to select the basis of value he must be given directions as to three essential elements in the situation.

(1) As regards the place at which the goods are valued. The value of articles changes constantly across space. This is perfectly natural, because goods placed on a truck at the factory have not as yet incurred a whole series of marketing and transport expenses which must be met before they can reach the final consumer, by which time the value of the goods will have risen correspondingly. We must, therefore, investigate carefully the point in space at which the goods are supposed to be for valuation purposes.

(2) As regards the time at which goods are valued. The value of goods fluctuates from day to day according to the changing currents of demand and supply. Is the value for tariff purposes to be the value of the particular consignment at the time of purchase: the value of the particular consignment at the time of export or import (in which case the value will not be changed if the goods have already been sold, but will have changed if the goods are merely consigned for sale); or, is it to be the value of a similar consignment on the day of export or of import? In this last case, since time is a function of the movement of goods, changes in value may have taken