Bilateral treaties and the most-favored-nation clause: The myth of trade liberalization in the nineteenth century

World Politics

Volumn 60, Issue 2, 2008, Pages 147-188

  Accominotti, Olivier ^a   Flandreau, Marc ^a  

^a SCIENCES PO   (France)

Author keywords

[No Author keywords available]

Indexed keywords

BILATERAL AGREEMENT; ECONOMIC HISTORY; EMPIRICAL ANALYSIS; INTERNATIONAL TRADE; NINETEENTH CENTURY; TRADE AGREEMENT; TRADE LIBERALIZATION;

EID: 48749103414     PISSN: 00438871     EISSN: None     Source Type: Journal    
DOI: 10.1353/wp.0.0010     Document Type: Article

References (193)

1. Kyle Bagwell and Robert W. Staiger, "Economic Theory and the Interpretation of GATT/WTO," American Economist 46, no. 2 (2002).
2. Jock A. Finlayson and Mark W. Zacher, write that "Reciprocity (...) does work to constrain progress toward liberalization by ensuring that concessions requested by state A will only be offered by state B to the extent that B can in turn obtain concessions from A"; see Finlayson and Zacher, "The GATT and the Regulation of Trade Barriers: Regime Dynamics and Functions," in Stephen D. Krasner, ed., International Regimes (Ithaca, N.Y.: Cornell University Press, 1983), 306);
3. and Jagdish N. Bhagwati, The World Trading System at Risk (Princeton: Princeton University Press, 1991).
4. See Michael A. Bailey, Judith Goldstein, and Barry R. Weingast, "The Institutional Roots of American Trade Policy: Politics, Coalitions, and International Trade," World Politics 49 (April 1997).
5. Robert W. Staiger and Guido Tabellini, "Discretionary Trade Policy and Excessive Trade Protection," American Economic Review 77, no. 5 (1987), 825.
6. Kyle Bagwell and Robert W. Staiger, "An Economic Theory of GATT," American Economic Review 89, no. 1 (1999);
7. idem, "GATT-Think," NBER Working Paper, no. 8005 (Cambridge, Mass.: National Bureau of Economic Research, 2000); Bagwell and Staiger (fn.1).
8. Robert O. Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (Princeton: Princeton University Press, 1984).
9. Rudiger Dornbusch, "Policy Options for Freer Trade: The Case for Bilateralism," in Robert Z. Lawrence and Charles L. Schultze, eds., American Trade Strategy: Options for the 1990s (Washington, D.C.: Brookings Institution, 1990).
10. Jacob Viner, "The Most Favored Nation Clause in American Commercial Treaties," Journal of Political Economy 32, no. 1 (1924), 105;
11. Harry G. Johnson, "An Economic Theory of Protectionism, Tariff Bargaining and the Formation of Customs Unions," Journal of Political Economy 73, no. 3 (1965);
12. Robert Pahre, "Most-Favoured Nations Clauses and Clustered Negotiations," International Organization 55, no. 4 (2001).
13. Andrew Caplin and Kala Krishna, "Tariffs and the Most-Favored-Nation Clause: A Game Theoretic Approach," Seoul Journal of Economics 1 (Fall 1988).
14. Viner (fn. 8).
15. Jacob Viner, International Economics (Glencoe, Ill.: Free Press, 1951);
16. see also Robert Pahre, Politics and Trade Cooperation in the Nineteenth Century: The Agreeable Customs of 1815-1913 (Cambridge: Cambridge University Press, 2008), 293.
17. Robert Pahre, "Multilateral Cooperation in an Iterated Prisoner's Dilemma," Journal of Conflict Resolution 38, no. 2 (1994).
18. Rodney D. Ludema, "International Bargaining and the Most-Favored Nation Clause," Economics and Politics 3, no. 1 (1991).
19. Rodney D. Ludema and Anna M. Mayda, "Do Countries Free Ride on MFN?" CEPR Discussion Paper, no. 5160 (London: Centre for Economic Policy Research, 2005).
20. Paul Bairoch, "European Trade Policy, 1815-1914," in Peter Mathias and Sidney Pollard, eds., The Cambridge Economic History of Europe, vol. 8, The Industrial Economies: The Development of Economic and Social Policies (Cambridge: Cambridge University Press, 1989), 36.
21. Douglas A. Irwin, "Multilateral and Bilateral Trade Policies in the World Trading System: An Historical Perspective," in Jaime de Melo and Arvind Panagariya, eds., New Dimensions in Regional Integration (New York: Cambridge University Press, 1993), 95.
22. Kevin H. O'Rourke and Jeffrey G. Williamson, Globalization and History (Cambridge: Cambridge University Press, 1999), 38.
23. Even Robert Pahre's (fn. 11) more critical account that emphasizes earlier episodes of cooperation does recognize that the 1860 treaty did "spur [cooperation] in the 1860s" (p. 321).
24. Irwin (fn. 16).
25. Ibid., 97.
26. David Lazer, "The Free Trade Epidemic of the 1860s and Other Outbreaks of Economic Discrimination," World Politics 51 (July 1999).
27. Anthony Howe, Free Trade and Liberal England, 1846-1946 (Oxford: Clarendon Press, 1997), 93.
28. Pahre (fn. 11).
29. A. A. Iliasu, "The Cobden-Chevalier Commercial Treaty of 1860," Historical Journal 14, no. 1 (1971).
30. Charles P Kindleberger, "The Rise of Free Trade in Western Europe, 1820-1875," Journal of Economic History 35, no. 1 (1975).
31. Daniel Verdier, "Democratic Convergence and Free Trade," International Studies Quarterly 42, no. 1 (1998).
32. Irwin (fn. 16);
33. and Lazer (fn. 20).
34. Rose argues that trade between members of the GATT/WTO is not significantly higher, other things being equal, than trade between nonmembers or between members and nonmembers; Andrew K. Rose, "Do We Really Know That the WTO Increases Trade?" American Economic Review 94, no. 1 (2004).
35. Goldstein, Rivers, and Tomz distinguish between "formal members" of GATT/WTO, "nonmember participants," and "nonparticipants" and find that the GATT/WTO promoted trade for both formal members and nonmember participants; Judith L. Goldstein, Douglas Rivers, and Michael Tomz, "Institutions in International Relations: Understanding the Effects of the GATT and the WTO on World Trade," International Organization 61, no. 1 (2007);
36. "Do We Really Know That the WTO Increases Trade? Comment," American Economic Review 97, no. 5 (2007).
37. Subramanian and Wei show that the GATT/WTO had little effect on the imports of developing countries but that it strongly promoted imports of developed countries; Arvind Subramanian and Shang-jin Wei, "The WTO Promotes Trade Strongly but Unevenly," Journal of International Economics 72, no. 1 (2007).
38. Gowa and Kim argue that GATT had a large, positive, and significant impact on trade but only between five member states. They also report evidence that interwar trade blocs survived within the GATT era. They relate these findings to specific features of the GATT bargaining protocol; Joanne S. Gowa and Soo Y. Kim, "An Exclusive Country Club: The Effects of the GATT on Trade, 1950-1994," World Politics 57 (July 2005).
39. Finally, Felbermayr and Kohler and Helpman, Melitz, and Rubinstein find that the GATT/WTO contributed to the formation of new bilateral trading relationships. See Gabriel Felbermayr and Wilhelm Kohler, "Does WTO Membership Make a Difference at the Extensive Margin of World Trade?" CESifo Working Paper, no. 1898 (Munich: CESifo, 2007);
40. and Elhanan Helpman, Marc Melitz, and Yona Rubinstein, "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Paper, no. 12927 (Cambridge, Mass.: National Bureau of Economic Research, 2007).
41. Lucy Brown, The Board of Trade and the Free Trade Movement, 1830-1842 (Oxford: Clarendon Press, 1958).
42. Irwin (fn. 16), 95;
43. Peter T. Marsh, Bargaining on Europe: Britain and the First Common Market, 1860-1892 (New Haven: Yale University Press, 1990).
44. Kindleberger (fn. 24).
45. Iliasu (fn. 23).
46. Irwin (fn. 16), 95-96.
47. Irwin (fn. 16).
48. Lazer (fn. 20).
49. Paul Bairoch, Economics and World History: Myths and Paradoxes(Chicago: University of Chicago Press, 1993).
50. Irwin (fn. 16), 95.
51. John V. Nye, "The Myth of Free Trade Britain and Fortress France: Tariffs and Trade in the Nineteenth Century" Journal of Economic History 51, no. 1 (1991);
52. idem, "Reply to Irwin on Free Trade," Journal of Economic History 53, no. 1 (1993);
53. idem, War, Wines and Taxes (Princeton: Princeton University Press, 2006).
54. Arthur Lewis, "The Rate of Growth of World Trade," in Sven Grassman and Erik Lundberg, eds., The World Economic Order: Past and Prospects (London: Macmillan, 1981);
55. Paul Bairoch, Commerce extérieur et développement économique de l'Europe an XIXe siècle [External Trade and European Economic Development in the 19th Century] (Paris: Mouton, 1976);
56. idem, "Geographical Structure and Trade Balance of European Foreign Trade from 1800 to 1970," Journal of European Economic History 3, no. 3 (1974).
57. For more details on this, see Pahre's extensive Trade Agreements Database (TAD) (fn. 11).
58. Bairoch (fn. 38, 1976).
59. Ibid., 65.
60. Ibid., 67. "Of course, the liberalization policy adopted by the United Kingdom was a key factor for this strong acceleration of trade. And it was especially so because, as we have seen, following Britain's success (British trade doubled between 1846 and 1856), almost all European nations, after France, liberalized their custom policy after 1860."
61. Bairoch gives a list of European trading powers circa 1860 (in descending order): United Kingdom, France, Germany, Austria-Hungary, Russia, Italy, Belgium, Switzerland, Spain, Sweden. He excludes Holland because of "uncertainty in trade statistics," adding that in 1860 it would have occupied the ninth or tenth place; Bairoch, "European Foreign Trade in the XIXth Century: The Development of the Value and Volume of Exports (Preliminary Results)," Journal of European Economic History 2, no. 1 (1973), 3.
62. Note also that Bairoch's definition of "Germany" is unclear. Since systematic annual aggregate data for "Germany" are not available, we have excluded them from the sample in this section (although data for bilateral trade flows relating to Bremen, Hamburg, Lübeck, and Zollverein are included in the background data set for the regressions in Section IV). Our index thus covers nine of the ten major European trading nations of the time, plus the United States.
63. Notable attempts for individual countries include McCloskey and Irwin: Deirdre N. McCloskey, "Magnanimous Albion: Free Trade and British National Income, 1841-1881," Explorations in Economic History 17, no. 3 (1980);
64. Douglas A. Irwin, "New Estimates of the Average Tariff of the United States, 1790-1820," Journal of Economic History 63, no. 2 (2003);
65. and idem, "Tariff Incidence in America's Gilded Age," Journal of Economic History 67, no. 3 (2007).
66. In comparison with 1860s, the 1840s had earlier attracted greater interest. Other discussions and measurement of trade liberalization in the 1840s include Douglas A. Irwin, "Welfare Effects of British Free Trade: Debate and Evidence from the 1840's," Journal of Political Economy 96, no. 6 (1988);
67. idem, "Political Economy and Peel Repeal of the Corn Laws," Economics and Politics 1, no. 1 (1989);
68. and Jeffrey G. Williamson, "The Impact of the Corn Laws Just Prior to Repeal," Explorations in Economic History 27, no. 2 (1990).
69. Nye (fn. 37, 1991).
70. Douglas A. Irwin, "Free Trade and Protection in Nineteenth Century Britain and France Revisited: A Comment on Nye," Journal of Economic History 53, no. 1 (1993).
71. Incidentally, Figure 3 also shows that the conventional opposition between Britain and France, as Nye had argued, is inexact. A more relevant one would be between "laissez-faire" Holland, Switzerland, or Belgium and "fortresses" U.S., Spain, or Russia. In between the two, France, Italy, or Britain are not dissimilar.
72. Emile Levasseur, Histoire du commerce de la France, Deuxième partie: De 1789 à nos jours [History of France's Foreign Trade, Second Part: 1789 to Present Times] (Paris: A. Rousseau, 1912).
73. Table 3 ignores some navigation treaties with Latin American nations and a few European ones as well. See note to Table 3.
74. To our knowledge, the only other pre-1870 bilateral trade database is the one used in Flandreau; Marc Flandreau, "The Economics and Politics of Monetary Unions: A Reassessment of the Latin Monetary Union, 1865-1871," Financial History Review 7, no. 1 (2000). Its size is more limited, however, and it relies mostly on data from Brian R. Mitchell, completed by some information from Swiss and Belgian trade returns.
75. By 1865, 44.5 percent of the treaties had been signed.
76. Irwin provides an exploration of the incidence of Federation on Australian trade in 1901. He finds little change in intra-Australian trade patterns in the period immediately following the formation of the Federation; Douglas A. Irwin, "The Impact of Federation on Australds Trade Flows," Economic Record 82, no. 258 (2006).
77. Barry Eichengreen and Douglas A. Irwin, "Trade Blocs, Currency Blocs and the Reorientation of World Trade in the 1930's," Journal of International Economics 8, no. 1-2 (1995);
78. and Mathilde Maurel, Régionalisme et désintégration en Europe centrale et orientale: une approche gravitationnelle [Regionalism and Disintegration in Eastern and Central Europe: A Gravity Approach] (Paris: Editions du CNRS, 1998).
79. We think that this takes care of the vexatious lack of control for trade policy, which is characteristic of gravity models. This formulation is also superior to that used in Flandreau and Maurel where trade policy is proxied by possibly endogenous apparent protection; Marc Flandreau and Mathilde Maurel, "Monetary Integration, Trade Integration and Business Cycles in 19th Century Europe," Open Economies Review 16, no. 2 (2005).
80. I-Hui Cheng and Howard J. Wall, "Controlling for Heterogeneity in Gravity Models of Trade and Integration," Federal Reserve Bank of St. Louis Review 87, no. 1 (2005).
81. With GLS, the language effect is not significant.
82. Cheng and Wall (fn. 55) note that "the literature has not tended to find a consistent sign" for the coefficient of population in the gravity equation (p. 8).
83. E.g., Irwin (fn. 16).
84. It is not clear how this can be reconciled with the view that Britain was "laissez-faire." If it was so, how could its concessions be more generous? And if Britain extended its concessions to France, why did it sign four MFN treaties (with Zollverein, Austria-Hungary, Italy, and Belgium) in the following years?
85. Bairoch (fn. 38, 1976);
86. Irwin (fn. 16);
87. O'Rourke and Williamson (fn. 17).
88. Irwin (fn. 16).
89. To be completely fair, Bairoch (fn. 38) and Lewis (fn. 38) do provide some partial aggregate numbers. As suggested, the evidence from these numbers did not quite square with the conventional view. That the conventional view failed to acknowledge the irrelevance of the 1960s in view of existing numbers only makes its enduring success more puzzling.
90. Irwin (fn. 16).
91. As The Economist reminded its readers a few weeks after the Cobden-Chevalier Treaty was signed: "We [meaning England] cannot truthfully say to them [meaning France], 'If you will take our production free of duty, we will injure ourselves by taking yours free of duty,' because we believe that, by so taking those commodities, we shall not be injuring, but benefiting ourselves"; Economist, January 28, 1860.
92. Johnson (fn. 8).
93. Pahre (fn. 11).
94. Ibid., 284.
95. Ibid., 301-4, for a test of the assumption that MFN treaties reduce cooperative activity as measured by the number of treaties in effect for each country. As Pahre concludes: "the figures suggest that MFN clause inbibits treaty formation" (p. 305).
96. Kindleberger (fn. 24).
97. Bairoch (fn. 38, 1976);
98. Irwin (fn. 16).
99. André Maurois, La vie de Disraëli [Disraeli's Life) (Paris: Gallimard, 1927), 197.
100. Brian R. Mitchell, International Historical Statistics: The Americas, 1750-2000, 5th ed. (New York: Stockton Press, 2003).
101. Angus Maddison, The World Economy: Historical Statistics (Paris: OECD Development Centre Studies, 2003).
102. Mitchell (fn. 72).
103. Brian R. Mitchell, International Historical Statistics: Africa, Asia and Oceania, 1750-2000, 4th ed. (New York: Stockton Press, 2003).
104. Brian R. Mitchell, International Historical Statistics, Europe, 1750-2000, 5th ed. (New York: Stockton Press, 2003).
105. Ibid.
106. Ibid.
107. Mitchell (fn. 72).
108. Mitchell (fn. 76).
109. Statesman's Yearbook, Statistical and Historical Annual of the States of the World (London: Macmillan, various years).
110. Mitchell (fn. 72).
111. Ibid.
112. Mitchell (fn. 76).
113. Ibid.
114. Maddison (fn. 73).
115. Ibid.
116. Ibid.
117. Ibid.
118. Jan-Pieter Smits, Edwin Horlings, and Jan-Luiten Van Zanden, Dutch GNP and Its Components, 1800-1913 (Groningen, Netherlands: Growth and Development Centre, 2000).
119. Wray Vamplew, Australians, Historical Statistics (Broadway, Australia: Fairfax, Syme, & Weldon, 1987).
120. Mitchell (fn. 75).
121. Ana Nunes, Eugenia Mata, and Nuno Valerio, "Portuguese Economic Growth," Journal of European Economic History 18, no. 2 (1989).
122. Mitchell (fn. 76).
123. Maddison (fn. 73).
124. Mitchell (fn. 76).
125. Maddison (fn. 73).
126. Ibid.
127. Vamplew (fn. 91).
128. Maddison (fn. 73).
129. Max-Stephan Schulze, "Patterns of Growth and Stagnation in the Late Nineteenth Century Habsburg Economy," European Review of Economic History 4, no. 3 (2000).
130. Maddison (fn. 73).
131. Ibid.
132. Ibid.
133. Mitchell (fn. 76).
134. Statesman's Yearbook (fn. 81)
135. Maddison (fn. 73).
136. Ibid.
137. Mitchell (fn. 76).
138. Georgios Kostelenos, Emmanouil Kounaris, Socrates Petmezas, Michael Sfakianakis, and Dimitrios Vasiliou, "Gross Domestic Product 1830-1939," in Sources af Economic History of Modern Greece: Quantitative Data and Statistical Series, 1830-1939 (Athens: Historical Archives of the National Bank of Greece, 2007).
139. Michele Fratianni and Franco Spinelli, Storia monetaria d'Italia, L'evoluzione del sistema monetario e bancario (Milan: Arnoldo Mondadori Editore, 1991).
140. Maddison (fn. 73).
141. Mitchell (fn. 76).
142. Maddison (fn. 73).
143. John H. Coatsworth, "Mexico," in Joel Mokyr, ed., The Oxford Encyclopedia of Economic History, vol. 3 (Oxford: Oxford University Press, 2003), 501-7.
144. Smits, Horlings, and Van Zanden (fn. 90).
145. Vamplew (fn. 91).
146. Maddison (fn. 73).
147. Ibid.
148. Ola H. Grytten, "The Gross Domestic Product for Norway, 1830-2003," in Historical Monetary Statistics for Norway from 1819, Norges Bank Occasional Papers, no. 35 (2003), chap. 6.
149. Nunes, Mata, and Valerio (fn. 93).
150. Nicholas Crafts, "Patterns of Development in Nineteenth Century Europe," Oxford Economic Papers 36, no. 3 (1984).
151. Paul R. Gregory, Russian National Income, 1885-1913 (Cambridge: Cambridge University Press, 1982).
152. Mitchell (fn. 76).
153. Fratianni and Spinelli(fn. 111).
154. Mitchell (fn. 76).
155. Leandro Prados de la Escosura, El progreso economico de Espana: 1850-2000 (Madrid: Fundacion BBVA, 2003).
156. Olle Krantz and Lennart Schön, Swedish Historical National Accounts, 1800-2000 (Lund: Almqvist & Wiksell International, 2007).
157. Hansjörg Siegenthater, ed., Historische Statistik der Schweiz (Zurich: Chronos Verlag, 1996).
158. Susan B. Carter, Scott S. Gartner, Michael R. Haines, Alan L. Olmstead, Richard Sutch, and Gavin Wright, Historical Statistics of the United States: Earliest Time to the Present (Cambridge: Cambridge University Press, 2006).
159. Maddison (fn. 73).
160. Mitchell (fnn. 72, 75, 76).
161. Jürgen Schneider, Otto Schwarzer, and Friedrich Zellfelder, Wäbrungen der Welt, Europäische und Nordamerikanische Devisenkurse, 1777-1914 (Stuttgart: In Kommission bei Franz Steiner Verlag Stuttgart, 1991).
162. Markus A. Denzel, Währungen der Welt, vol. 11, Dänische und nordwestdeutsche Wechselkurse, 1696-1914 (Stuttgart: In Kommission bei Franz Steiner Verlag Stuttgart, 1999).
163. Kostelenos et al. (fn. 110).
164. Schneider, Schwarzer, and Zellfelder (fn. 133).
165. Jan T. Klovland, "Historical Exchange Rates Data, 1819-2003," in Historical Monetary Statistics for Norway from 1819, Norges Bank Occasional Papers, no. 35 (2003), chap. 7.
166. Schneider, Schwarzer, and Zellfelder (fn. 133).
167. Sveriges Riksbank, 1668-1924 Bankens Tillkomst Och Verksamhet (Stockholm: Kungl Boktryckeriet PA Norstedt & Söner, 1931).
168. Schneider, Schwarzer, and Zellfelder (fn. 133).
169. Carter et al. (fn. 130)
170. Mitchell (fn. 76).
171. Mitchell (fn. 76).
172. Maurice Levy-Leboyer and François Bourguignon, L'Economie française au XIXe siècle: analyse macroéconomique (Paris: Economica, 1985).
173. Mitchell (fn. 76).
174. Brian R. Mitchell, Abstract of British Historical Statistics (Cambridge: Cambridge University Press, 1962).
175. Siegenthaler (fn. 129).
176. Smits, Horlings, and Van Zanden (fn. 90).
177. Statistisches Jahrbuch des Deutschen Reichs (Statisches Reichsamt: Berlin).
178. Mitchell (fn. 76).
179. Mitchell (fn. 72).
180. Siegenthaler (fn. 129).
181. Smits, Horlings, and Van Zanden (fn. 90).
182. Gerhard Bondi, Deutschlands Aussenbandel, 1815-1870 (Berlin: Akademie Verlag, 1958).
183. Mitchell (fn. 76).
184. Smits, Horlings, and Van Zanden (fn. 90).
185. Mitchell (fn. 76).
186. Lewis (fn. 38).
187. Mitchell (fn. 76).
188. Lewis (fn. 38).
189. Siegenthaler (fn. 129).
190. Lewis (fn. 38).
191. U.S. Bureau of the Census, Historical Statistics of the United States, Colonial Times to 1957 (Washington, D.C.: U.S. Government Printing Office, 1960).
192. Bondi (fn. 154).
193. Lewis (fn. 38).