Trade Agreements: A Study in Democratic Methods 9780231876704

Table of contents :
Foreword
Acknowledgments
Contents
Part One. Is the Trade Agreements Process Constitutional?
I. The Trade Agreements Act and the Critics
II. Appropriate Checks and Balances
Part Two. Is the Trade Agreements Organization and Procedure Democratic?
III. The Representative Character of the Trade Agreements Organization
IV. Public Participation in Trade Agreements Procedure
Part Three. The Trade Agreements and Previous Methods of Tariff-Making
V. The Congressional Method of Setting Tariff Rates
VI. The Cost-Equalization Formula and Administrative Rate-Making
VII. Conclusion
Index

Citation preview

TRADE

AGREEMENTS

N U M B E R ONE OF INTERNATIONAL EDITED

THE

ECONOMIC

BY E U G E N E

HANDBOOKS

STALEY

FOR

T H E D I V I S I O N OF E C O N O M I C S AND Η I S T O R Y OF T H E C A R N E G I E E N D O W M E N T INTERNATIONAL

PEACE

FOR

By J O H N

DAY

LARKIN

T R A D E

AGREEM ENTS A Study in Democratic Methods

NEW COLUMBIA

YORK

U N I V E R S I T Y PRESS 1940

Copyright CARNEGIE

ENDOWMENT

FOR

Published COLUMBIA

UNIVERSITY

IQ-fO INTERNATIONAL

PEACE

I940 PRESS,

NEW

YORK

Foreign Agents: OXFORD UNIVERSITY PRESS, Humphrey M i l f o r d , Amen House, London, E.C., 4, England, AND Β. I. Building, Nicol Road, Bombay, India ; MARUZEN COMPANY, Ltd., 6 Nihonbashi, Tori-Nichome, Tokyo, J a p a n MANUFACTURED

IN

THE

UNITED

STATES

OF

AMERICA

Foreword IS T H E F I R S T of a series of small volumes on the international economic relations of the United States to be issued under the auspices of the Carnegie Endowment f o r International Peace, Division of Economics and History, of which J a m e s T . Shotwell is the Director. Other topics already planned in the series are: the economic power of the United States; the consumer and foreign trade, and a survey of researches by the United States Government in the field of international economic relations. T h e importance of a wise policy by the United States in its international economic relations during the years immediately ahead can hardly be exaggerated. Measured in raw material output and industrial productive power, the United States is something like one-third of the world economy. T h e influence of its leadership, for good or ill, will grow as other countries exhaust themselves in war. It is very likely that America will set the fashion in international economic policies for the decade of the 1940's. THIS

W e did set the fashion for the 1930's. T h e worldwide influence of American policy was never more dramatically shown than in the after-effects of the Hawley-

vi

Foreword

Smoot tariff. First of all, this drastic increase in the trade barrier around the greatest creditor country, coming at a critical moment when a depression was just getting under way ( 1 9 3 0 ) , made it more difficult than ever for debtor regions to pay their current bills, let alone past debts. This intensified the strain on weak currencies and helped to precipitate the financial collapses which deepened and darkened the world depression. Furthermore, our policy of higher barriers against foreign goods led other countries to imitate and to retaliate. T h e powerful impetus given by the United States helped along those forces in the world that were already making for a general stampede to national economic exclusiveness. Demagogs and dictators thereafter found national economic exclusiveness, as practiced by the great "have" powers of the earth, a made-to-order excuse for leading their people on aggressive, imperialistic ventures. After all, they said, nations that want higher living standards cannot count on peaceful trade for access to markets and materials and the other means of life j they must conquer their own "living space." Once again great decisions in American trade policy are impending. Once again they are being debated in a critical year. This time the decisions made here may go far to determine whether the new and more lasting peace we all hope to see at the end of the present wars can actually be achieved. For a new peace settlement will be no more durable than the last unless the governments of the world—including especially the American gov-

Foreword

vii

ernment, which controls the largest market in the world and is in a position to lead—are willing to work out policies that will permit a great expansion in mutual trade. If goods cannot cross boundaries, soldiers will. It is to provide materials which may help the American people to think through these problems of economic policy, so vital in the quest for enduring peace, that this series is inaugurated. This first volume bears on a major issue in American economic foreign policy at the present time. It discusses the procedural side of the reciprocal trade agreements policy. Much of the argument over the renewal or nonrenewal of the Trade Agreements Act takes the form of questioning as to whether this particular method of dealing with foreign trade relations and adjusting tariff rates is suitable for our form of government. Does the Trade Agreements Act delegate too much power to the Executive? Is it constitutional? Should trade agreements be submitted to the Senate for ratification as treaties? Do interested parties have an adequate chance to be heard in connection with trade agreement negotiations, or are "star chamber" methods used? What is the alternative to the trade agreements method of tariffmaking? Should Congress resume its old practice of setting each particular rate in the tariff schedule? Has the congressional method of tariff-making in the past been better or worse, from the point of view of giving due weight to all national interests, than the trade agreements method? If we agree that congressional logrolling

Foreword

viii

and the complications of modern trade make it desirable to delegate powers for tariff rate-making to the President, should the President be directed to bargain with foreign countries, or should he be told to use the costequalization formula tried in the 1920's? T h e s e questions were put to D r . John D . Larkin, and in this little volume he gives his answers to them. D r . Larkin writes as a political scientist, that is, as a professional student of government and its workings. H e has had practical contact with the process of tariffmaking, for during the preparation of the H a w l e y Smoot bill he acted as assistant to a Senator f r o m one of the N e w E n g l a n d states in gathering information on tariff matters. H e wrote a doctoral thesis, published in 1935, on The President's Control of the Tarif, which was a study of the administration and the practical working of the so-called "flexible tariff" based on the costequalization formula introduced in the 1920's. T h e reader will find in the chapters that follow a dispassionate and enlightening discussion of a number of issues that, with less objectivity than in these pages, are today being debated from the housetops. EUGENE Fletcher

School

of Laze and

Medjord,

Massachusetts

February,

1940

Diflomaci

STALEY

Acknowledgments that this brief study has been taking shape I have become indebted to so many people for aid that it seems better to thank them collectively than to list them all by name. T h e officials of the Departments of State, Commerce, and Agriculture, and those of the Tariff Commission, have been most helpful. In New York, a number of persons interested in customs regulation—both within and without official circles— have kindly lent assistance. T o all of these I wish to express gratitude. D U R I N G T H E F E W MONTHS

JOHN

Armour Institute of Chicago,

Illinois

February,

1940

Technology

DAY

LARKIN

Contents FOREWORD

BY

EUGENE

STALEY

V

ACKNOWLEDGMENTS

IX

Part One Is the Trade Agreements Process Constitutional? I.

THE

TRADE

AGREEMENTS

ACT

AND

THE

CRITICS II.

3

APPROPRIATE

CHECKS

Part

AND

BALANCES

13

Two

Is the Trade Agreements Organization and Procedure Democratic? III.

THE THE

IV.

REPRESENTATIVE TRADE

CHARACTER

AGREEMENTS

PUBLIC

PARTICIPATION

MENTS

PROCEDURE

OF

ORGANIZATION

IN T R A D E

43

AGREE6$

xii

Contents Part

Three

The Trade Agreements and Previous Methods of Tariff-Making V.

THE TING

VI.

THE

CONGRESSIONAL TARIFF

COST-EQUALIZATION

ADMINISTRATIVE VII.

METHOD

OF

SET-

RATES

89 FORMULA

RATE-MAKING

AND 109

CONCLUSION

122

INDEX

129

Part One Is the Trade Agreements Process Constitutional?

Chapter I: The Trade Agreements Act and the Critics

F

OR TARIFF-MAKING PURPOSES practically a l l congress-

men may be divided into, two groups: those who are frankly on the protectionist side at all times and are willing to give any interested group whatever it seeks in the way of protective rates; and those who are in principle opposed to this sort of protection, but who feel that while a tariff bill is in the making they must not let their constituents down. Consequently, in recent years congressional tariff-making has reached a point where only tariff bills with rates generally higher than those in previous legislative acts can be successfully passed. Some practical means of avoiding the evils of logrolling have been sought through legislation establishing policies of a general sort which are to be carried out by the administration. T h e so-called flexible tariff plan, embodied in the Fordney-McCumber Act of 1 9 2 2 , was supported by a number of congressmen who felt confident that the President would use the powers therein delegated to reduce some of the excessive rates in that act. Chairman Reed Smoot of the Senate Finance Committee assured his

4

The Act of 1934 and Its Critics

colleagues from the floor of the Senate that the President was going to use the powers provided in the administrative provisions of the act to " l o w e r " the existing duties. B u t the experience of the next eight years proved that the Senator was wrong. T h e President lowered the rates of duty on live bobwhite quail ( f r o m M e x i c o ) and paintbrush handles (largely imported from a subsidiary company in Canada), but increased the tariff rates on almost everything else that was brought to his attention. Again, when the same flexible powers were about to be stricken from the Hawley-Smoot bill in 1930, the public was given to understand that President H o o v e r wished to have them retained so that he could weed out some of the abominations of that tariff act. But experience did not prove M r . H o o v e r to be much more successf u l in reducing trade restrictions by means of the flexible provisions than his predecessors had been. T o the discerning person, the reasons were quite obvious. T h e policy provided in that act was one of "cost equalization." T h a t is, the President was authorized to "increase or decrease" tariff rates as much as fifty percent wherever necessary to equalize the difference between the cost of producing an article in a foreign country and the cost of producing a comparable article in the United States. 1 T h e primary reason for moving goods in foreign trade is to get the advantages of lower costs. Equalize the differences in production costs and the practical exclusion 1 Section 3 1 5 of the F o r d n e y - M c C u m b e r T a r i f f A c t of 1 9 2 2 ; Section 336 of the Hawley-Smoot T a r i f f Act of 1930.

The Act of 1934 and Its Critics

5

of all goods to which this principle applies may be assured. It is in effect an embargo policy. T h e Hawley-Smoot Tariff Act of 1930, together with its cost-equalization administrative features, was followed by such a flood of reprisals against the trade and commerce of the United States that some effective remedy which a majority of congressmen could agree upon seemed necessary. With the situation described above, it was obvious that any general tariff revision by Congress would be likely to exaggerate rather than to alleviate the existing evils. T h e only practical solution appeared to be a change in plan to guide the President in making the tariff modifications. Congress, therefore, adopted the bargaining principle whereby some tariff rates might be lowered in the public interest without opening up a logrolling orgy. What the Trade Agreements

Act

Provides

T h e Trade Agreements Act passed by Congress on June 1 2 , 1934, provided that the President might "enter into foreign trade agreements." For purposes of bargaining, the Chief Executive was authorized " T o proclaim such modifications of existing duties and other import restrictions . . . as are required or appropriate to carry out any foreign trade agreement that the President has entered into hereunder." H e was also authorized to provide a "continuance . . . of existing customs or excise treatment of any article covered by foreign trade agreements." That is, he was allowed to guarantee to the other

6

T h e A c t of 1 9 3 4 and Its Critics

contracting party that for the duration of the agreement, not only would certain import duties be reduced, but also excise taxes, import quotas, and other trade restrictions would be "bound" or continued at the level existing at the time the agreement was concluded.2 Section 4 of this act provided that "Before any foreign trade agreement is concluded . . . reasonable public notice of intention to negotiate . . . shall be given in order that any interested person may have an opportunity to present his views to the President, or to such agency as the President may designate, under such rules and regulations as the President may prescribe} and before concluding such agreement the President shall seek information and advice with respect thereto from the United States Tariff Commission, the Departments of State, Agriculture, and Commerce and from such other sources as he may deem appropriate." Thus, while public notice, public hearing, and expert advice are all required before the President concludes an agreement, the final authority and discretion rest with him. In practice the agreements are framed and negotiated by an interdepartmental Trade Agreements Committee, after the notice has been given and the hearing has been conducted by the Committee for Reciprocity Information. (These two committees are coordinate to the extent that the members of the latter are also members of the 2

48 Stat. 943. Renewed in 1937 (50 Stat. 24) f o r another threey e a r period to June, 1940. T h i s 19 provided as an amendment to the Hawley-Smoot T a r i f f Act of 1930, Section 350. T h e italics a r e added.

T i i e A c t of 1 9 3 4 and Its C r i t i c s

7

former, but the members of the Committee for Reciprocity Information do not comprise the full membership of the Trade Agreements Committee.) In practice, too, the President sometimes blue-pencils the recommendations of the Committee and allows the Secretary of State to do the same. But neither seems to exercise this prerogative except in rare instances. Section 2 (a) of the T r a d e Agreements Act provides that "sections 336 and 5 1 6 (b) of the Tariff Act of 1930 shall not apply to any article with respect to the importation of which into the United States a foreign trade agreement has been concluded pursuant to this Act, or to a provision of any such agreement." Section 336 here referred to contains the so-called flexible tariff provisions of the earlier act, so this simply means that in setting up a trade agreement the cost-equalization policy prescribed in the act of 1930 need not be the controlling factor. Since there are forces at work to restore this policy as a check upon the administrative hand in trade agreements, more will be said in Chapter V I of the wisdom of the cost-equalization formula. Section 5 1 6 (b) of the 1930 act provided domestic producers with an opportunity to protest the classification by customs authorities of goods coming into the country. In this way, a manufacturer could intervene and tie up in litigation imports of goods which might compete with his. Such cases were usually dragged out in the courts for months and finally dropped. T h e provision thus became a tool for allowing men who could never

8

T h e A c t of 1934 and Its Critics

win a suit to harass importers. Hardly a judge in the Customs Court, regardless of his political predilections, could find a favorable word in support of this pernicious bit of legislation. What the Critics Are Saying about the Trade Agreements Act Late in August, 1939, Governor Vanderbilt of Rhode Island announced that the lace manufacturers of his state were being injured by the importation of laces from abroad. The trade agreement with France was held directly responsible j and the Governor publicized his promise to the lace workers to have the Attorney General of his state look into the matter of the constitutionality of the Trade Agreements Act. A few days later Governor Vanderbilt was again reported in the New England press as having put his legal advisers to work to determine the validity of this statute. The Christian Science Monitor for September 22 carried another press release from Providence. Governor Vanderbilt still believed the Trade Agreements Act to be unconstitutional and again the public was led to believe that a learned legal opinion was soon to be expected from Attorney General Louis V. Jackvony. As this goes to press, the public is still waiting. Early in October an effort was made by direct correspondence to obtain a copy of Attorney General Jackvony's opinion on this subject. Some two weeks later, on the 18th, the Attorney General stated that his de-

T h e A c t of 1 9 3 4 and Its Critics

9

partment had advised with eminent counsel who had had a great deal of experience in attacking the trade agreements, but that no official conclusion had been reached as to just what could be done in the matter. By the first week in December, 1939, Governor Vanderbilt had made further news on the subject. This time the financial page of the Chicago Daily Tribune for December 7 gave an account of the Governor's address before the grateful lace workers who had honored him with a dinner. And again, the public (as well as the lace workers) was given to understand that the legal department of the state of Rhode Island was preparing an opinion on the question of the constitutionality of the trade agreements. With the steady increase in the size of the Governor's audience, soon every literate person in the United States will have heard that he believes the act to be unconstitutional. And no doubt it is Governor Vanderbilt's fond hope that all who read will believe with him. Many undoubtedly will. The Federal government's attorneys, on the other hand, have met all legal attacks that have been made against the Trade Agreements Act. They would welcome a suit in the Supreme Court on the subject. They feel confident that victory would have been theirs even before the more conservative justices retired from the Supreme bench. And they still think that a decision by the high court would spike such rumors as those of Governor Vanderbilt, and thus put the act on a firmer footing in the popular mind. In short, by way of attack-

ίο

T h e A c t of 1934 and Its Critics

ing the trade agreements, there is more to be gained by periodically publicizing the alleged unconstitutionality of the act than there would be in actually getting a case into the Supreme Court where the chances are much in favor of victory for the government. But if the public can be led, through this kind of publicity, to believe that the act is invalid, then Congress may be prevailed upon to let the trade agreements program lapse instead of renewing it before it expires in June, 1940. T h e question as to whether the tariff should be high enough to exclude imported lace and thus protect the lace manufacturers of Rhode Island, or should be low enough to allow lace to be imported and thus enhance the customs revenues while allowing the public to buv lace at a lower price, is not a judicial question. It is a matter which Congress must determine. That being the case, the only remaining question of constitutionality concerns the formal procedure which Congress has prescribed to effectuate its plan. T h e following chapter is devoted to a fuller consideration of the two principal questions raised under the Constitution: Are the trade agreements treaties which require ratification by two-thirds of the Senate to make them valid? Also, has Congress delegated legislative discretion to the President without properly prescribing a plan to guide him? As to whether the legislature should delegate power to the President, congressional opinion has generally shifted with the party shifts. T h a t is, when the Republicans were in power and were delegating a wide discretion

T h e A c t of 1934 and Its Critics

11

in tariff matters to the Chief Executive, many Democrats were of the opinion that such things as the flexible tariff were unconstitutional. But when the Democrats attained power and discovered that the only sensible way to regulate the tariff question in the national interest was through the use of administrative discretion (but acting under a different policy) they were quick to grant the discretion. On the other hand, many of the Republicans who found the original flexible tariff plan valid are now loudly joining with Governor Vanderbilt in proclaiming the present trade agreements plan invalid. T h e r e are a few exceptions to this rule. Senator William E . Borah and Congressman J a m e s M . Beck vigorously opposed the cost-equalization flexible tariff scheme as being an unconstitutional delegation of legislative discretion. Senator Borah continued to say the same thing with regard to practically all delegations of discretionary authority to the President. But these men were exceptions to the general rule. A n d so, too, are a few other Republicans who, having supported the earlier delegation of tariff powers, do not now contend that the trade agreements are invalid. In spite of Senator Borah's reputation as a great constitutional lawyer, the weight of authority is definitely against his contention that discretion of the kind found in the Trade Agreements Act cannot be delegated to the administration. T h e same is true of his contention that executive agreements of this sort cannot be made without formal Senate ratification. These points are discussed at length in the following chapter.

12

T h e A c t of 1 9 3 4 and Its Critics

Other criticisms of the trade agreements plan were heard at one time to the effect that the administrative process in use in this connection was undemocratic. Charges were made that secret diplomacy and star chamber proceedings had been used in bringing about the agreements. This raises a series of questions. Does the system set up to effectuate the plan of Congress provide for getting all the pertinent facts and material evidence? Are there proper safeguards against undue pressure from selfish interests and a reasonable consideration for the general welfare? Is there adequate regard for the special and private interests concerned? Finally, is this approach to the problem of adjusting trade relations realistic in the sense that its congressionally prescribed standards can be substantially complied with? T h e first three of these questions are considered in Part I I . The final one leads to a brief discussion, by way of contrast, of other methods of tariff adjustment used by the United States. This will be found in Part I I I .

Chapter II: Appropriate Checks and Balances

O

N E OF T H E

MOST C O N T R O V E R S I A L POINTS i n (ΤΟΠ-

Ι nection with the T r a d e Agreements Act is that of adequate legislative control. Protectionists, who see in it a modification of the policies which they have so long championed, raise three points of attack: first, that it violates the constitutional provision authorizing the President to make treaties by and with the advice and consent of the Senate, provided two-thirds of the senators present concur; second, that in making modifications of existing duties the President is really performing a legislative, not an executive, function; and finally, that the provision denying the application of Section 5 1 6 (b) of the Tariff Act of 1 9 3 0 to goods covered by the provisions of a trade agreement is a denial of due process of l a w . 1 Such objections resolve themselves into two 1 Section 516 (b) provides the machinery whereby a domestic manu f a c t u r e r or producer, who believes that a competitive imported product is being assessed with too low a rate of duty, may bring an action in the courts to h a v e judicially determined the correct classification or rate of duty of such imported article. B y a special amendment in the T r a d e Agreements Act, such intervention is denied the domestic producer if the imports in question are covered by a trade agreement.

14

Appropriate Checks and Balances

principal issues: Is the trade agreements process legally correct or constitutional? Is it a desirable method for our purposes of democratic government? Senate Ratification: the Constitutional

Issue

W h e t h e r trade agreements are treaties and therefore subject to the customary Senate ratification seems to be the principal issue. This leads to the question of whether formal treaties are the only type of contractual agreement that can be made between the United States and foreign governments. If no agreement can be made except by the process designated in Article I I , Section 2, of the Constitution, which applies specifically to treaties, then the trade agreements are void for failure to meet that standard. T h e act gives the President authority to enter into negotiations with foreign governments and to offer concessions in the form of tariff rate reductions in exchange for similar concessions on the part of other contracting parties. T h e agreements are concluded by 'he administration without any further reference to Congress and with no regard to the question of Senate ratification. Opponents of the program contend that all such contracts with foreign powers are treaties and are not valid unless ratified by the Senate. Its proponents contend, however, that such agreements are no different in principle than (and hence are just as valid as) the executive agreements which by long established custom have been entered into by the United States, either upon the

A p p r o p r i a t e Checks and Balances

15

authority granted by Congress or by the Chief Executive acting upon his own prerogative. Since 1784, binding executive agreements have been concluded by the United States without the necessity of subsequent Senate ratification.2 The validity of such agreements has never been questioned by the courts. Postal conventions regulating the reciprocal treatment of mail matter, money orders, parcel post, and the like have been concluded by the Postmaster General with various countries under several acts of Congress, beginning with the Act of February 20, 1792 ( 1 Stat. 232, 239). Agreements having to do with the registration of trade-marks have been concluded by the Executive under the Act of March 3, 1881 (21 Stat. 502). Twelve executive agreements relating to customs duties were concluded by the administration under the Dingley Act of 1897 (30 Stat. 1 5 1 , 203-204). The legal adviser of the Department of State stated in September, 1935, that: Since 1 9 2 8 , for e x a m p l e , no less than s e v e n t y - e i g h t executive a g r e e m e n t s have been c o n c l u d e d w i t h f o r e i g n g o v e r n m e n t s . T h e s e a g r e e m e n t s have had to do w i t h such subjects as q u a r antine 2

inspection

of

vessels, . . . reciprocal

exemption

of

J o h n Bassett Moore, Λ Digest of International Lavi ( W a s h i n g ton: Government Printing Office, 1906), V , 2 1 0 - n ; " T r e a t i e s and Executive Agreements," Political Science Quarterly, X X (1905), 385-420. C h a r l e s Cheney Hyde, International Law Chiefly as Interpreted and Applied by the United States (Boston: Little B r o w n and Co., 1 9 2 2 ) , pp. 2 7 - 3 4 ; S. B . C r a n d a l l , Treaties, Their Making and Enforcement (2d ed., W a s h i n g t o n : J . Byrne & Co., 1 9 1 6 ) , pp. 1 0 2 - 4 0 .

i6

Appropriate Checks and Balances

pleasure yachts f r o m navigation dues,

. . . relief f r o m d o u b l e

i n c o m e t a x o n s h i p p i n g p r o f i t s , t h e a d m i s s i o n o f civil a i r c r a f t .

. . m o s t f a v o r e d n a t i o n t r e a t m e n t in c u s t o m s m a t t e r s a n d

commercial

relations

generally,

international

claims,

radio

broadcasting, etc.3

Writers on international law, and the Supreme Court in its decisions, have had occasion to distinguish between executive agreements of this kind and formal treaties.4 The Court, whenever it has been called upon to deal with such executive agreements, has expressly recognized their validity and constitutionality. The case of Field v. Clark involved the legality of Section 3 of the Tariff Act of 1890 under which the President concluded a number of reciprocity agreements with foreign countries. The act was challenged "as delegating to him both legislative and treaty-making powers." After a lengthy opinion holding that the act did not constitute an unconstitutional delegation of legislative power, the Court added: "What has been said is equally applicable to the objection that the third section of the act invests the president with treaty-making power." 3 A m e r i c a n B a r Association Journal, X X I (September, 1935), 57071. See also Charles Cheney Hyde, "Constitutional Procedure f o r International Agreements by the United States," Proceedings of the A m e r i c a n Society of International L a w , X X X I (1937), 45-55; and Francis B. Sayre, The Way Forward ( N e w Y o r k : Macmillan Co., J 939)> chap. vii. 4 D a v i d Hunter Miller, Treaties and Other International Acts of the United States of America (Washington: Government Printing O f fice, 1931), I (Short Print), 1 3 - 1 4 ; Field v . Clark, 143 U.S. 649, 681, 694 (1892) ; B. Altman and Co. v . United States, 224 U.S. 583, 601 (1912) ; and United States v . Belmont, 301 U.S. 324, 330-31 (1937).

A p p r o p r i a t e Checks and Balances

17

The Altman case involved a similar commercial agreement concluded under Section 3 of the Tariff Act of 1897, which authorized the President "to enter into negotiations . . . with a view to the arrangement of commercial agreements in which reciprocal and equivalent concessions may be secured in favor of the products and manufacturers of the United States." As an inducement to other countries to accept the offer, the President was authorized to extend the benefits of lower United States duties on certain articles coming from other countries. An agreement with France, which had been concluded under this act, was involved in the case of B. Altman and Co. v. United States. In passing upon the case the Supreme Court stated that it was "not a treaty possessing the dignity of one requiring ratification by the Senate," but accepted it as a legitimate "international compact." Chief Justice Taft, while Solicitor General, ruled that Congress could authorize the Postmaster General to adhere to postal conventions with foreign countries without Senate ratification.5 More recently Chief Justice Hughes stated in Monaco v. Mississippi that the Federal government may effect an international settlement "through treaty, agreement of arbitration, or otherwise." And M r . Justice Sutherland, speaking of "treaties, international understandings and compacts," went on to distinguish "the power to make such international agree5 6

Opinions of the Attorneys General, X I X (1890), 513, 520. 292 U.S. 313, 331 (1934).

18

Appropriate Checks and Balances

ments as do not constitute treaties in the constitutional sense." While this power is not "expressly affirmed by the Constitution, nevertheless [it] exists as inherently inseparable from the conception of nationality." 7 In the case of United States v. Belmont,8 the Government was taking over properties which it had acquired through an adjustment of claims made with the Soviet Union. This settlement was brought about by the President as an incident to his recognition of the government of the Soviet Republics. His power to conclude an agreement of this kind in connection with the act of recognition was the principal issue in the case. Again, M r . Justice Sutherland spoke for the Court, saying: T h e recognition, establishment of diplomatic relations, the assignment, a n d agreements and understandings in respect thereto, w e r e all parts of one transaction, resulting in an international compact between the t w o g o v e r n m e n t s . . . and in respect of w h a t w a s done here, the E x e c u t i v e had authority to speak as the sole organ of that g o v e r n m e n t . T h e assignment and the agreements in connection therewith did not, as in the case of treaties, as that term is used in the treaty m a k i n g clause of the Constitution ( A r t . I I , 2 ) , require the advice and consent of the Senate.

Referring to the trade agreement under consideration in the Altman case as being comparable, M r . Justice Sutherland concluded as follows: "But an international 7

United

States

v . Curtiss-Wright

(1936)· 8

301 U . S . 324, 330-31 ( 1 9 3 7 ) .

Export

Corp.,

299 U . S . 304, 318

A p p r o p r i a t e C h e c k s and B a l a n c e s

19

compact, as this was, is not always a treaty which requires the participation of the Senate. There are many such compacts, of which a protocol, a modus vivendi, a postal convention, and agreements like that now under consideration are illustrations." 9 In addition to formal treaties, which require Senate ratification, executive agreements have been a common practice throughout our country's history. Such agreements are often concluded by the Executive upon his own authority. But where the matter involved has to do with the field of legislative discretion (as in customs or postal regulations) the President acts under special enabling legislation. None of the authorities has attempted to draw a rigid line of distinction as to where the formal treaty power ends and the executive agreement power begins. But at least one writer on the subject is of the opinion that the President's prerogative in foreign affairs is practically unlimited. 10 A l l other authorities on the subject, while not attempting to draw a distinguishing line, leave the impression that they believe such a line to exist.

Senate Ratification: Is it Practical and Desirable? Those who would have the trade agreements subject to Senate ratification are for the most part interested in 9 T h e terms "treaty," "convention," "protocol" are discussed by Moore in " T r e a t i e s and Executive A g r e e m e n t s , " Political Science

Quarterly, 10

XX

(1905),

388-98.

W a l l a c e M c C l u r e , "Democracy in T r e a t y - M a k i n g ; or Executive International A g r e e m e n t s ' (Unpublished manuscript, December,

>939)·

20

Appropriate Checks and Balances

having the act rendered ineffectual. T h e Senate's record in ratifying treaties—especially reciprocity treaties involving tariff adjustments—is sufficient to give some indication of this. T h e few reciprocity treaties that have been successfully put through between the United States and other countries have been achieved more through political than economic considerations. T h e one with Hawaii in 1875 was definitely designed to bring that politically impotent state under the influence of the United States at a time when other and more imperialistic powers were casting eyes in the direction of the islands. That with Cuba in 1902 was inspired by similar motives, giving Cuba a special status with the United States. T h e first reciprocity treaty between the United States and Canada concluded in 1 8 5 4 , was the product of some ten years of negotiation and came along with an attempt to settle the long-contested Fisheries Question. 1 1 During the period from 184.4 t 0 ^ O 2 » t e n other reciprocity treaties were negotiated under the general treatymaking powers of the Executive, but not a single one of these became effective. T h e Tariff Act of 1897 provided for the use of both the treaty method and the executive agreement plan for reciprocity. Section 3 of the act provided for executive agreements, which, however, were to be limited to a prescribed list of dutiable articles5 this method of 11 United States T a r i f f Commission, Reciprocity and Commercial Treaties ( 1 9 1 9 ) , pp. 58 et seq.; 2 1 1 et seq. 12 United States T a r i f f Commission, Tariff Bargaining under Most-Favored-Nation Treaties ( 1 9 3 3 ) , p. 1 1 .

Appropriate Checks and Balances

21

restricting the Executive's discretion was used instead of limiting the amount of reduction that he could make to a m a x i m u m of 50 pcrccnt as does the current act of 1934. U n d e r this provision, which remained in operation with some success for more than ten years, agreements were concluded with nine countries. T h e y were terminated by the Payne-Aldrich A c t of 1909. Section 4 of the D i n g l e y Act of 1897 provided for the negotiation of reciprocity treaties in which the reductions offered to foreign countries were not limited to any prescribed list. T h e entire dutiable list was open to the field of negotiation, but the duty reductions were not to exceed 20 percent and such agreements were to be f o r m a l treaties and were specifically made subject to Senate ratification. U n der this section of the act, John A . Kasson, acting for the administration, concluded twelve treaties, but not one of these was ever ratified by the necessary two-thirds Senate majority. 1 3 Actually they were pigeonholed by the Senate C o m m i t t e e on F o r e i g n Relations. I n v i e w of our treaty experiences, one may be pardoned for questioning the sincerity of those w h o say they f a v o r reciprocity but insist that it should be effected only through the treaty process. F r o m a practical point of v i e w , anyone w h o is seriously interested in improving foreign trade w o u l d scarcely advocate the treaty-making process when the executive agreement

process is es-

tablished upon the soundest precedents and has enjoyed 1 3 U.S. T a r i f f Com., Reciprocity 31, 216-27.

and Commercial

Treaties,

pp. 28-

22

A p p r o p r i a t e Checks and Balances

a measure of success where the treaty method has more often failed. Placing control of such matters in the hands of a Senate minority (one-third of the Senators, w h o may represent much less than one-third of our population) is not only highly impractical, but may be much less in accord with good democratic practice than giving the authority to the Executive, within limits specified in an enabling act. The Delegation

of Discretionary

Power

to the

President T h e delegation of legislative power to the President has been the basis of the most frequent charges concerning the validity of the T r a d e Agreements Act. T h e fact that, in the spring of 1935 (just as the trade agreements program was getting under w a y ) , the Supreme Court declared the National Industrial Recovery Act unconstitutional, on the ground that the act had not confined the President within proper limits, gave high hopes to those w h o wished to defeat the purposes of the trade agreements program. T h e taxing power and the power to regulate foreign commerce are legislative powers. T h e Constitution makes that clear in Article I, Section 8. T h e President has only the executive power, but this means that he has the power to carry out the policies and plans prescribed by Congress. T h e only question is whether in a particular case Congress has defined carefully enough its plan for executive guidance. I f the legislature has properly set forth its objectives and has defined the

Appropriate Checks and Balances

23

means to effectuate them, then the Chief Executive may do what is reasonably necessary to bring them about. Such is the accepted principle of separation of powers. Such a manner of coordinating the functions of the legislative and administrative departments of the government is not a recent development. On the contrary, this scheme of things has been accepted throughout the history of the United States. Beginning with an act in 1794, President George Washington was authorized by Congress to issue certain regulations controlling foreign trade, and "whenever, in his opinion the public safety shall so require . . . to lay an embargo on all ships and vessels in the ports of the United States . . . under such regulations as the circumstances of the case may require, and to continue to envoke the same whenever he shall think proper." 1 4 This was promptly followed by a series of other discretionary acts which allowed the President to suspend certain duties and other trade restrictions which Congress had placed upon imports from other countries, whenever he was satisfied that such countries had suspended their discriminatory restrictions upon the goods and vessels of the United States. This was the type of reciprocity in vogue a hundred years ago. It appeared in one form or another in eight or ten acts between 1800 and ι830. 1Γ> A l l such acts carried with them executive discretion to suspend certain duties or embargo 14

1 Stat. 372. Revised Statutes, Section 4228 ; 4 Stat. 308. T h e author discusses these in more detail in The President's Control of the Tariff ( C a m b r i d g e : H a r v a r d University Press, 1 9 3 6 ) , pp. 38-42. 15

24

A p p r o p r i a t e C h e c k s and

Balances

restrictions whenever the President was satisfied of the good faith and reciprocal intentions of the other countries concerned. T h e current type of reciprocal trade agreement had its genesis some fifty years ago. It was at this time that the distinction between treaties and executive trade agreements arose. Shortly after 1880, treaties were negotiated with Mexico, with Spain (for Cuba and Puerto Rico), and with the Dominican Republic, but they were never ratified. After President Harrison's election in 1888, Secretary Blaine set out to develop " a system of reciprocity not in conflict with the protective tariff but supplementary thereto." Congress responded by enacting Section 3 of the McKinley Act of 1890, which set up a provisional list of penalty duties which were to be held in abeyance, but which the President could impose upon the products imported from a country whose treatment of United States trade was, in his opinion, "unequal and unreasonable." This kind of "reciprocity" provision was largely the handiwork of M r . McKinley. Instead of extending an offer to reduce duties in return for reciprocal treatment, it stood as a threat to impose duties where none were in force. A reciprocal trade agreement provision not unlike the present one appeared first in the Dingley Act of 1897. Section 3 of that act went a step further than the same section of the act of 1890, and set up a bargaining list of items which the President might use to induce other countries to give concessions to the United States. B y this

A p p r o p r i a t e C h e c k s and B a l a n c e s

25

section he was authorized to enter into executive agreements and to impose lower rates of duty on certain articles coming from countries which in return would agree to give tariff concessions in favor of American products. It was left to the discretion of the President to determine when the concessions granted by the other country were "reciprocal and equivalent" to those granted by the United States. T h e constitutionality of Section 3 of the McKinley Act of 1890 was contested in the Supreme Court on the ground that it delegated legislative power to the President. Justice Harlan's lengthy opinion in the case of Field v. Clark is now famous as an example of judicial approval of the delegation of powers by Congress to the Chief Executive. " T h a t Congress cannot delegate legislative power to the President is a principle universally recognized as vital to the integrity and maintenance of the system of government ordained by the Constitution." But the learned Justice continued: " T h e Act of October 1 , 1890, in the particular under consideration is not inconsistent with that principle. It does not, in any real sense, invest the President with the power of legislation . . . " I n the more succinct words of another court " . . . the legislature cannot delegate its power to make a law; but it can make a law to delegate a power to determine some fact or state of things upon which the law makes or intends to make its own action depend . . . " 1 0 So it has continued with a wide range of Presidential 1C

Locke's

Appeal,

72 Pa. 494, 498.

20

Appropriate Checks and Balances

discretion in customs matters. Congress enacts a policy and states the method to be used by the E x e c u t i v e to effectuate its ends. I n carrying out the method, the congressional act is m e r e l y being administered, e v e n if it is being done with the exercise of considerable executive discretion. It is not the action of the President which makes the law. H e m e r e l y puts into effect the policy set forth in the law. Such is the accepted theory. Section 3 1 5 of the F o r d n e y - M c C u m b e r A c t of

1922

provided the President with sweeping powers to raise rates to equalize differences in cost of production between foreign and domestic goods. Section 3 1 6 of the same act declared " u n l a w f u l . . . unfair methods of competition and unfair acts in the importation of articles into the U n i t e d States, the effect or tendency of which is to destroy or substantially impair an industry efficiently and economically operated in the United S t a t e s . " A f t e r an investigation by the T a r i f f Commission

into such

alleged u n f a i r practices, the President was authorized to put an end to them by imposing an additional duty not exceeding 50 percent and not less than 1 0 percent, or by the total exclusion of the goods, as the President deemed p r o p e r . 1 7 O d d l y enough, one of the powers now being used by President F r a n k l i n D . R o o s e v e l t , and which is being roundly criticized as pernicious N e w D e a l i s m , is a power 17 T h e H a w l e y - S m o o t A c t continues this p r o v i s i o n in Section 3 3 7 , but the 50 p e r c e n t duty is omitted, l e a v i n g only the e x e c u t i v e p o w e r to exclude s u c h g o o d s . T h i s p o w e r h a s not been e x c e s s i v e l y used. T h e T a r i f f C o m m i s s i o n h a s confined its i n v e s t i g a t i o n s u n d e r this section to p a t e n t i n f r i n g e m e n t s a n d the like.

A p p r o p r i a t e C h e c k s and Balances

27

first delegated by a Republican Congress in the FordneyMcCumber Act, and later continued by another Republican Congress in the Hawley-Smoot bill. Section 3 1 7 of the act of 1922, which is continued as Section 338 in the latter, is the basis of the unconditional most-favorednation practice now followed in generalizing all concessions made in the trade agreements. This section provides a threat of administrative retaliation against all forms of discrimination against American trade. T h e granting of preferential tariff advantages to a third country without extending the same favors to the United States would, of course, be a discrimination against which the President would be authorized to take counter action. 18 T o be prepared to enforce this principle, the United States must abide by it. Consequently, when the Trade Agreements Act was adopted in 1934, as an amendment to the Tariff Act of 1930, the two had to be harmonized. Either the United States would have to repeal Section 338 or apply the principle of nondiscrimination to all countries. The policy of nondiscrimination was adopted. Thus, when the United States duties are reduced in a trade agreement concluded with one country, the reduced duties (except in the case of the Cuban agreement) 1U are generalized to all foreign countries except those found by the President to be discrimi1S W a l l a c e M c C l u r e , A Ne under the T r a d e Agreements Act, 3 ff., 5 ff., 22-32, 44-45; under the Hawley-Smoot Act, 4-5; under the Dingley Act, 17, 25; under the M c K i n l e y Act, 25; under the Payne-Aldrich Act, 109; public notice and hearing requirements, 66 f . ; delegation o f : constitutional, 10-11, 28 f., 38, opposed by protectionists, 13-14, made to avoid pressure politics, 103 f . ; separation of discretionary and legislative powers, 40 Pressure politics, 93 f., 124; f e a r of, in public participation, 68; and congressional procedure, 96 ff.; and the PayneA l d r i c h Act, 99 ff.; and delegation of powers, 103 ff.;

133

Schattschneider on, 107; v s . public interest, 115-18; and manganese ore rates, 116 f. Protectionists, and tariff rates, 3-4; opposition to the T r a d e Agreements Act, 13; and " r i g h t " of legal protest on customs rates, 32 ff.; M u n r o quoted, 64; and cost-equalization, 110, 126; argument of, 116-18 Public participation, 65-85; opponents' f e a r of pressure politics, 68; notices, 75 f . ; hearings: 75-79, congressional method of, 89-94 Public utility, rates, and tariff rates, 32 f. Puerto Rico, 24 Reciprocity Information, Committee for, 6 f., 48, 53Π, 56, 67, 78; functions, 69; personnel, 69-75; clearing house f o r inquiries, 79 f . ; no special investigatory powers, 84 f . Reciprocity treaties, 20 ff. Republican party, and delegation of power to the President, 101 1 ; and cost-equalization, 109 Reynolds, M a r y T . , Interdepartmental Committees in the National Administration, 46« Roosevelt, Franklin D., 26; policy of bilateral tariff bargaining, 45 f . ; statement in signing T r a d e Agreements Act, 69 Ryder, Oscar B., career, 70 f. Sayre, Francis B., 47, 70; opposed to public hearings, 65 f . ; " H o w T r a d e Agreements A r e

*34

Index

Sayre, Francis B. (Continued) M a d e , " 85«; " T h e Most-Favored-Nation Policy in Relation to T r a d e Agreements," 59»; The f f a y Forward, 16n, 59n, 62n, 80η Schattschneider, Ε. Ε., Politics, Pressure and the Tariff, 94n, 103η, iojn Senate, ratification unnecessary in postal conventions, 17, 126; procedure in tariff-making, 98102; p r i v a t e hearings, 102 Silk Association of America, 102 f. Smoot, Reed, 3-4, 120; see also Hawley-Smoot Act of 1930 Spain, 24 State Department, cooperation in t r a d e agreements program, 44 ff., 51 f . ; and country committees, S4 Steel, T a u s s i g on provisions of the Payne-AIdrich Act, 99-101 Stevens, R. Β., 48η Stinebower, L. D., 48η Supreme Court, distinction between executive agreements a n d formal treaties, 16; B. Altman and Co. v. U.S., 17; unconstitutionality of the NRA, 22 Sutherland, George, 12271; on treaties and international agreements, 17-18; quoted, on recognition of the Soviet Union, 18; on delegation of discretionary powers, 31-32; opinion on the effects of a tax alteration, 33η Switzerland, 61

T a f t , William H o w a r d , 70; ruling on postal conventions, 17; on cost-equalization, 28-30; on coordination of three branches of government, 40; creation of the T a r i f f Board, 67, n o T a r i f f , modification of rates, and the Presidency, 3 ff., 44; flexible: in the Fordney-McCumber Act, 3-4, in the HawleySmoot Act, 4-5, 7, opposition of Borah and Beck, 11; ratem a k i n g : a congressional, not a judicial, problem, 10, 37, 68, 77, congressional procedure in, 89-108, Senate procedure in, 98-103, and cost-equalization, 109-21, in early acts, 113 f.; preferential, 27; rates compared with public utility rates, 32 f. T a r i f f Act of 1897, see Dingley Act T a r i f f Act of 1922, see FordneyMcCumber Act T a r i f f Act of 1930, see HawleySmoot Act Tariff Board, creation, 67, n o T a r i f f Commission, 6, 26, 91; Reciprocity and Commercial Treaties, 20 n, 21 n; Tariff Bargaining under Most-Favored-Nation Treaties, 20n; membership, in t r a d e agreements program, 44 ff., 49, 52, 70; represented on country committees, 55; creation, 67; investigatory powers, 85 ; costof-production study division, no T a s c a , H e n r y J., The

Reciprocal

Index Trade Policy of the United. States, 85 η Taussig, F. W., quoted on PayneAldrich Act, 99-101; Free Trade, the Tariff and Reciprocity, ioin, 1 1 2 n ; quoted on cost-equalization, 1 1 2 Thatcher, Thomas D., opinion on T r a d e Agreements Act, 39 Tobacco, 61 T r a d e Agreements Act of 1934, criticisms of, 3 - 1 2 ; provisions, 5-8; powers delegated to the President, 5 ff., 22-32; Section 4: 6, 67; Section 2 ( a ) : 7; constitutionality, 8-10, 14 ff., 37, 39, 1 2 2 ; democratic process, 12, 43-85, 124; legislative control, 13 ff.; Senate ratification of agreements, 14-22; Section 338 of the Hawley-Smoot bill, 27; nondiscrimination policy, 27 f . ; concessions, 44; character and source of personnel, 44-58, 1 2 5 ; origin, 46; negotiations, 58-62; public hearings, 75-79 T r a d e Agreements Committee, 6 f., 537z, 67, 69; personnel and duties, 48-58, 70-75; information compiled by, 104 f. Trade-mark agreements, 15, 123 Treasury Department, statement concerning legal protest by domestic producers, 35; members as administrators of T r a d e Agreements Act, 44 ff. Treaties, and trade agreements, 1 0 ; Senate ratification, 13 ff.; and executive agreements,

compared, 15 ff.; U.S., procity, 20 Turkey, 61

135 reci-

Union of Soviet Socialist Republics, U.S. recognition, 18, 1 2 2 η ; manganese ore, 1 1 6 f. United States v. Belmont, 16η, 18, 122η United States v. Curtiss-W right Export Corporation, 31 United States v. Fox River Butter Co., 28η United States v. Sears Roebuck and Co., 28η Utility, public, see Public utility Vandenberg, Arthur H., 39 Vanderbilt, William H., and the constitutionality of the T r a d e Agreements Act, 8-10, 1 1 ; on constitutionality of delegation of legislative powers in tariff matters, 38 Wallace, Henry Α., 48η Washington, George, 122, 1 2 3 ; discretionary powers delegated by the act of 1794, 23 Ways and Means, Committee on, 65, 89; and congressional method, 9 1 ; and tariff procedure, 94 ff. Wheeler, L. Α., 48η White, Harry D., 72; career, 74 Whittlesey, C. R., "Excise T a x e s as a Substitute for T a r i f f s , " 127 η Young, James Y., career, 72 f .