treaties is a greater or smaller evil than the possibility of a greater approximation in the tariff levels of some countries, coupled with more differentiation due to the smaller number of countries between which treaties are concluded. If we agree with Fontana-Russo that it is not the absolute height of the tariff wall in the case of a given country that is so objectionable to the exporter to that country as the existence of differentiation in its tariffs, we shall prefer the unconditional form, if we believe that the absolute height of the wall is the greater evil, we shall, on the whole, prefer the conditional form, other things equal.

But, of course, other things are not always equal, and before we can finally dispose of the subject we must investigate the factors on which these general conclusions finally rest.

(a) The first of the unequal factors is the nature of the exports of the country in question. Countries which predominantly export manufactured articles are much more vulnerable to retaliation than countries which import manufactured articles and export raw materials. It is no mere coincidence that the period of the supremacy of the unconditional form in Europe should also be the period of industrial expansion. To all "manufacturing nations" differentiation is the greatest evil they have to face, and they have a collective interest in seeing that the degree of differentiation should be cut down, as well as an individual interest. But the same is by no means so true of the raw material States: the danger of retaliation is not so great to them, positively, because their export products are the basis of the manufacturing power of the industrial states, negatively, because they can inflict severe loss on the retaliating manufacturing nation by counter retaliation. Hence, it is only recently, when the United States is passing from the raw material exporting stage, to the manufacturing stage, that the desirability of the retention of the conditional form is being seriously discussed. But this matter has already been referred to in previous sections.2

(b) The second of the disturbing factors is the general belief or disbelief in the virtues of freer or more restricted

1 Op. cit., p. 654.

2 See above, §§ 10, 11.

trade. That in this respect a great change has come over European nations since the era of the Cobden Treaty needs no mention, and the causes thereof fall outside the scope of this work. But it is on reflection clear that apart from the technical merits of either form, the conditional fits much better the aspirations of a protectionist régime. And this for the reason that directly the unconditional form seems to require a greater immediate sacrifice than the conditional. The fact that in the long run all nations benefit from the extension. of trade which freer intercourse brings with it, so that the apparent sacrifice may be amply requited, is a point that is the fundamental assumption of free trade, but it is a point that is not equally attractive at all times and to all schools of thinkers.

Some of the resentment which is felt at the unconditional form is, no doubt, the result of careless thinking. It is overlooked that "two can play at the game," and that if a country imposes conditions, the co-contractants will ask conditions of it. There are but few exceptions to this general rule. The first, the nature of a country's exports, we have already examined. The second great exception is the power of a victor. He can impose any conditions on an enemy he likes, and if he imposes on his enemy the unconditional form and restricts. his own counter-concession to the conditional form, he is more generous than he strictly need be, for he might have conferred nothing, and demanded the unconditional form nevertheless. But whether it is worth while even in this case to break the great principle of reciprocity is a wider question which we will leave unanswered.

The final question which demands an answer is the future of the M.F.N. clause. Here the position is uncertain. In the first place, the war has enormously stimulated the anti-foreign feeling in most countries, and this is itself unfavourable to the unconditional form. In the second place, the feeling that it is desirable that Allies should be better treated than neutrals and ex-enemies is a further factor making in the same direction. During the War itself, a good deal of ink was spilled in Germany and Austria in defending the position that in the future special concessions made to the Middle European States must be excluded from the content of the M.F.N. clause. In this way

there would arise a new limiting principle, though the demand that the clause should in the future be used only in the conditional form played, so far as my knowledge goes, no rôle in these discussions. Similarly, in the United Kingdom we find the Balfour of Burleigh Commission attempting to work out a practicable scheme by which the Allies could benefit more than the neutrals. Two ideas presented themselves : the first the granting to them of concessions on those articles in which they possessed particular interests, so that, though treaties with neutral States were continued, the latter could not benefit therefrom, or only to a restricted extent. The second alternative was the denunciation of all existing treaties, and the granting of concessions de novo to the Allies. It is not quite clear as to whether, in the latter case, only the Allies are to be given reductions from the tariff to be established, or whether the report contemplates, as a possibility, a neutral as well as an allied tariff schedule. In any case the report came to the conclusion that any "action in the direction of preferential treatment of our Allies should be of a kind compatible with the maintenance of our existing commercial treaties—namely, the grant to such of the Allies and Neutrals as may be prepared to reciprocate, reductions from the general rates of duty in respect of such classes of goods subjected for any reason to import duties as may be of particular interest to them, those classes of goods being so selected that the reductions would be of no practical use to other States to which they might nominally be extended by virtue of the "mostfavoured-nation clause."1 Here it is clear that the difficulties of a special preference to the Allies have caused the idea to be implicitly dropped, and they are assimilated to the neutrals. But the passage also shows that the wish to limit as far as possible the value of the M.F.N. clause has by no means disappeared.

The subsequent action of the British Government in denouncing its treaties indicates that it is hoped that changes in the commercial policy of the country may be effected, but, up to the moment of writing, no practical steps have been taken to enforce a new régime, which, to be effective, would require the previous construction of a tariff for the United Kingdom.

1 Cd. 9035, 1918, pars. 249-252.

APPENDIX I.

EXPORT ANd Transit DUTIES.

§ 1. WE have had occasion in previous chapters incidentally to deal with export and transit duties. In this appendix we can examine the matter more formally.

A certain prejudice attaches to export and transit duties which one does not find in the case of import duties. Thus, Vexport duties are forbidden under the American Constitution,i and transit duties are prohibited by § 69 of the German Federal Customs Law. It is fairly easy to see why transit taxes should not be popular, for they limit the competitive efficiency of the carrying services of a country. But export duties play a not unimportant rôle to-day, and are likely to play a more important rôle in the future.

When we investigate the cases in which export duties are levied, we find, however, that their frequency is in inverse ratio to the industrial development of the country, and in inverse ratio to the degree of finish of the article. Except in special cases-e.g., opium or arms and ammunition-export duties tend to be limited to raw materials.

§ 2. The fact that it is less advanced or raw material producing countries, that tend to rely to some extent on export duties, whilst manufacturing countries do not, is to a large extent due to the differences in the general economic level of such areas. Plantation areas are not suitable for direct taxation, and export duties on the staple crops represent a substitute for land taxes, just as import duties in the same areas tend to be a substitute for income taxes.

1 Art. I., § 9, clause 5, "No tax or duty shall be laid on articles exported from any State." Art. I., § 10, clause 2, "No State shall without the consent of Congress levy any imposts or duties on imports or exports except what may be absolutely necessary for executing its inspection laws." For the legal interpretations by which the meaning of exports has been limited to exports to foreign countries, see Willoughby on the Constitution, I. § 277, p. 608, et seq.

2" No duties shall be raised on transit."

When export duties are levied frankly as a substitute for direct taxation, the question of incidence hardly arises. But if the question as to who pays export duties is raised, is the answer more favourable to export duties on raw materials than to export duties on finished commodities? Who pays the export duty? The answer is that export duties are shifted on to the consumer only if his demand cannot be diverted\/ to other sources, and when we are comparing manufactured articles with raw materials as proper objects of export taxation we cannot deal with them as classes at all. In the case of a given manufactured article for which there is only one source of supply, the tax tends to be borne by the consumer whereas in the case of a raw material for which there are competing sources of supply, the tax will tend to be borne/ by the producer in the taxed area. There is, therefore, no essential difference in this respect.

The fact that the producer and not the consumer tends to pay the tax may be made a reason for imposing an export tax. For, if there are competing sources of supply, or substitutes, these will be preferred, and the demand for the taxed article will fall off. Hence, the local users of the commodity can obtain a cheaper article, whilst the local producers must put up with a lower price. On the other hand, it may be argued that it is easier as a general rule to obtain manufactured articles from a rival source than it is to obtain raw materials, so that export taxes represent a greater encouragement to competition in the former than in the latter case.

§3. To examine in detail the technical form of export taxes would be to go over again matters already discussed in previous chapters. Thus, we find taxes levied on number or tale, on value,2 and on quantity, just as we find the sliding scale. The utmost diversity prevails as to the articles which we find in these export duty schedules: they include gold (New Zealand), coal and coke (British Columbia), timber,

A classical instance of the divergence of interests between producers and users is to be found in the history of the English woollen industry, when the "landed interest" desired to export wool freely and the manufacturers desired prohibition of export in order to safeguard their raw material.

See the interesting Peruvian Tax Law of 10/5/1911, by which india rubber and other gums "shall pay duty at the rate of 8 per cent. ad valorem on their market value at Liverpool, in lieu of the specific duty now leviable thereon."

3 E.g., the sliding scale imposed on rubber in the Malay States, C.I.D., 1914, Appendix vii., p. 872.