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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; and conditions governing both the collection of debts due to a foreign trader and the taxation of foreign investors.


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. Termination, however, may also occur by the expiration of the time period during which the treaty is in force; by negotiation of another treaty on the same subject by the same parties; or by a change in the political status of a signatory, as by absorption by, or federation with, another state. The outbreak of war, however, is currently the occasion of suspension, rather than termination, of the operation of commercial treaties. Treaties of peace often stipulate whether such agreements shall be continued in force or terminated. If a dispute arising among signatories over the interpretation of commercial treaties cannot be settled by direct negotiation, it is under international law a matter for international adjudication. Such disputes must be submitted to the International Court of Justice if the signatories have mutually accepted the jurisdiction of that court in advance.


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, transport, and communication facilities, standards of commercial law 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 other 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-favoured-nation clause.


The most-favoured-nation clause stipulates that a nation will extend to other signatories treatment comparable to that accorded to 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 become 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-favoured-nation agreement as soon as those treaties take effect. The usual form of the clause is bilateral, that is, involving two nations in a reciprocal agreement. A most-favoured-nation clause may be tendered unilaterally, however, in response to extraordinary economic or political pressure. 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.


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. The 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.

A 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 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 travelled freely without passport or visa, and the removal of obstructions to trade came to be the main objective.

B 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-favoured-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 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 the foreign enterprise that effectively disrupted world trade in the inter-war period. The cosmopolitan climate of the 19th century with its laissez-faire attitudes, that is, the non-interference by governments in economic matters, gave way to economic nationalism in the 20th century, especially after the depression of 1929-1933. The general principle of recognition of property rights went into decline.

C Freer Trade

In 1947 the General Agreement on Tariffs and Trade (GATT) was signed by 23 countries, growing to 96 signatories by 1988. Its purpose was to reduce tariffs and eliminate discriminatory practices in international trade until it was superseded in this role by the World Trade Organization in 1993. Regional groupings, established to eliminate tariff barriers among members and to promote mutual cooperation and trade, include the European Union (EU, 1993), the European Free Trade Association (EFTA, 1959), the Latin American Integration Association (LAIA, 1981), 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. One of the most important commercial treaties, which also overcame ideological barriers, was the treaty signed by the United States and the Soviet Union in October 1972; it also resolved long-standing differences in shipping and previously outstanding debts and provided a new framework for long-range trade. See also International Trade.

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