In the 1980s and 1990s international institutions became the subjects of renewed scholarly interest but their utility was disputed. Neorealists claimed institutions “have no independent effect on state behavior” because they easily rupture when power shifts and interests change.Footnote 1 Neoliberal institutionalists, by contrast, sought to demonstrate that international institutions mattered, but they initially focused more on regime formation than on their impact.Footnote 2 Building on the earlier neoliberal institutionalist approach, analysts later moved to correct this deficiency by highlighting how differences in specific institutional features of negotiated environmental, security, human rights, and, to a lesser extent, trade agreements explain variations in state behavior.Footnote 3 Rational choice institutionalists within the Rational Design Project (RDP) had rediscovered the importance of institutional form that historical institutionalists long emphasized, but under a new name. What neoliberals now call variations in “regime design,” historical institutionalists in the pre-1945 period mapped in a large body of comparative studies on international institutional forms. Although their insights were relatively unsystematic, institutionalists nonetheless highlighted the impact of variations in international institutions on uncertainty reduction, executive flexibility, and mobilization of social forces.Footnote 4 Many of the insights, however, were lost mainly because early institutionalists focused more on policy formulation than theoretical construction, and their successors tended to abandon the study of extant international trade institutions.Footnote 5
The 1970s oil shock, and the different national responses the single stimulus elicited from institutionally dissimilar governments arrayed along the strong-weak state continuum, led post–World War II historical institutionalists to shift their prewar focus away from international institutions to domestic structures.Footnote 6 Contemporary historical institutionalists studying trade policy therefore ignore pre–World War I international institutions and their role in the evolution of the world economy and, with few exceptions, the early institutionalist literature.Footnote 7 Instead, they focus on variations in domestic institutions, or on how variations within and/or across countries lead to different outcomes even when states face the same international stimulus.Footnote 8 In response to all these approaches, this study deploys historical institutionalism to prewar Western European commercial relations, and constructs the first hard-test of nineteenth-century international institutional autonomy.
My argument might at first seem counterintuitive. It was the unprecedented institutional form/design of the French-initiated and led conventional tariff system (CTS) regime, not British hegemony, that through institutionalized interstate practices autonomously maintained the world trading system amid multiple shocks in the 1870s. The CTS regime, inaugurated by France in the 1860 Cobden-Chevalier Treaty, shifted tariff-making away from the porous legislature into insulated, bilaterally negotiated unconditional most-favored-nation (MFN) international tariff-treaties/conventions.Footnote 9 Tariff-making in treaties was then coupled with conventionalization: the reduction and binding of customs duties for ten to twelve years with no possibility of change unless all parties mutually agreed.Footnote 10 The informal regime's simple design privatized trade, solved long-standing collective action problems, induced interstate cooperation without coercion, established international constraints on autonomous tariff-making, reduced uncertainty about trading-partners' future behavior, restrained domestic protectionists, and provided a powerful decentralized enforcement mechanism against defection.
However, the only commercial instrument more neglected by successive generations of scholars than the MFN clauseFootnote 11 is the informal CTS regime it underpinned. The institution received cursory mentions in prewar scholarship but no systematic explication. I pull together the old institutionalist literature to unpack the CTS regime's design features that underpinned prewar system stability without hegemonic leadership and formal organization.
The first section in this article begins by examining the 1870s puzzle and the methodology employed to investigate it. The second section theoretically describes the unconditional MFN clause and explains how its institutionalization within the neglected CTS regime both created and maintained the prewar multilateral trading order. The third section proceeds to empirically unpack how neglected derived rights created a powerful yet decentralized multilateral enforcement mechanism whose negarchical structure autonomously blocked France's 1872 attempt to exit the regime and maintained an extraordinarily high level of international cooperation. The final section concludes with the implications raised by the CTS regime.
The 1870s Puzzle
A puzzling anomaly motivated this inquiry: hegemonic leadership and stabilizing bipolarity were notably absent in the period, but there was the presence of commercial order amid severe politico-economic shocks. The 1870s was a turbulent decade in the world economy. A number of destabilizing developments threatened to destroy the liberal trade regime inaugurated by the ten-year 1860 Cobden-Chevalier Treaty. First, Charles Otto von Bismarck's bid for German unification through force—culminating in the 1864 Prussian-Danish, 1866 Prussian-Austrian, and 1870–71 Franco-Prussian wars—tore to pieces the 1815 Congress of Vienna treaties, changed the map of Europe, redistributed power on the continent, and created the Third French Republic and the Second German Empire “by one and the same stroke of destiny.”Footnote 12 The military and political primacy France had enjoyed in Europe “for two centuries and a half” shifted to Germany in 1870.Footnote 13 Bueno De Masquita traces the origin of German hegemony to the seven weeks 1866 Prussian-Austrian War.Footnote 14 But the new power relations were codified in the 1871 peace settlement, the Treaty of Frankfort, which according to Giesberg “was a monument to the great fact of the day in European diplomacy: the emergence of a united Germany as the leading power of western and central Europe.”Footnote 15
Simultaneously, the initiator of the liberal trade regime, Napoleon III, became on 2 September 1870 a prisoner of Prussia, a capture that led to the immediate collapse of his Second Empire, a personal regime. On the heels of this collapse, the Third Republic was proclaimed on 4 September 1870 with M. Louis Adolphe Thiers as the new president, France's leading protectionist.Footnote 16 Thiers “hated Napoleon III and all his works, both political and economic,” and was committed to destroying the regime.Footnote 17 Meanwhile, Britain—after experimenting with heretical positive free trade, tariff-treaties, from 1860 to 1865—reverted back to negative free trade.Footnote 18 Kindleberger acknowledges that “there were occasions when Britain was either not involved or stood aside, as in 1873 when Central Europe and the United States shared a long depression.”Footnote 19 Further destabilization came along with the U.S. Civil, Prussian-Austrian, and Franco-Prussian wars that “increased the financial exigencies of these States,” made tariff reductions “literally impossible,” and made “irresistible” the nationalistic temptation to undo the liberalization “done only a few years before.”Footnote 20 The ten-year 1860 treaty was scheduled to expire in 1873 since all its provisions became effective in 1863. Finally, the 1873 Vienna stock market crash triggered the “Great Depression” of 1873–96.Footnote 21 Why then did the liberal trade regime survive until 1914?
The Literature and the Puzzle
Economic historian Kindleberger established leadership theory in his study of the 1930s Great Depression. He argued that the hegemon led by unilaterally lowering tariffs to inspire emulation, provided essential services, and absorbed the costs of system maintenance. A variant of Kindleberger's insight entered international relations as a more rigid notion called “hegemonic stability.” To some, the idea meant that a coercive power was required to manipulate systemic incentives and disincentives to induce states to cooperate and overcome dilemmas of collective action.Footnote 22
How well do leadership and hegemonic stability theories explain the prewar regime and system maintenance? Britain is widely viewed as the system leader in the crucial years of the midnineteenth century. But neither leadership theory nor hegemonic stability theory (HST)Footnote 23 explains the trade regime as it evolved by 1870. With the 1846 Repeal of the Corn Laws, Britain simultaneously institutionalized five principles that made active regime creation and maintenance normatively inappropriate: unilateral free trade, laissez-faire, economic noninterference, political nonintervention in Europe and the United States, and the autonomous tariff principle.Footnote 24 The latter held that tariffs were purely a domestic matter to be decided individually by each country's legislature in accordance with its own interest, and without any external interference whatsoever.Footnote 25 Britain rejected tariff treaties in the early 1840s as unwise government intervention inconsistent with laissez-faire and institutionalized negative free trade in 1846.Footnote 26 The trade regime began in 1860 when a feared French invasion forced England to conclude the normatively objectionable Cobden-Chevalier Treaty, but only to improve dangerously strained Anglo-French relations.Footnote 27 Britain in 1865 again abandoned tariff treaties and failed to maintain the regime in the 1870s.Footnote 28 The unfalsifiable “second face of hegemony” claim that Britain, by lowering its tariff to influence free trade coalitional alignments abroad, “consciously or unconsciously” exercised “subtle and indirect” hegemonyFootnote 29 cannot explain regime maintenance. In 1873 Prime Minister William Ewart Gladstone argued that Britain, by renewing the expired 1860 treaty “with France, would interfere in the purely internal struggle in that country between protectionists and free traders.”Footnote 30
Neorealism's and neoliberalism's conventional emphasis on leadership cannot explain the commercial order during the 1870s for two reasons: the theories are ahistorical and underestimate institutional autonomy. Neorealists ignore prewar commercial policy and deny institutional autonomy. Neoliberals' initial objective was to explain regime maintenance in the 1970s, not in the 1870s. The RDP's narrow definition of institutions unsurprisingly excludes the prewar regime by explicitly omitting “tacit bargains and implicit guidelines.”Footnote 31 Neoliberals also made weak claims on institutional strength and autonomy, arguing that international institutions “sometimes matter,” are “created in response to state interests, and … their character is structured by the prevailing distribution of capabilities.”Footnote 32 Neoliberals within the RDP later conclude that “states rarely allow institutions to become significant autonomous actors”Footnote 33 and make one related, but unsupported, conjecture salient to the prewar regime. Uncertainty about the state of the world leads to institutional flexibility, that is, escape clauses in trade.Footnote 34
Even Wendt argues that the RDP's “apparent empirical strength” on the “treatment of uncertainty” is because the logic of appropriateness is “relatively weak” in economic issues. Therefore, “actors will have little incentive to bind themselves to inflexible rules over which they lack individual control.”Footnote 35 However, nineteenth-century states did inflexibly bind themselves in the CTS regime for invaluable compensations: “to exert a similar influence” on trading partners and secure reciprocal “stability and certainty for [their export-oriented] commercial interests.”Footnote 36 The regime reduced uncertainty about trading partners' future behavior and underpinned an extraordinarily high level of prewar institutional autonomy unappreciated by either neoliberals or constructivists.
The 1870s trade regime therefore provides an unexplored historical vista from which to make some strong institutionalist claims. First, France's CTS regime created and maintained the prewar international trading system. Second, the regime's design made it ontologically independent from the configuration of interstate power and interest that originally created the institution. Third, the institution autonomously changed states' interests after 1860 from what they would have been in its absence, and the regime was self-enforcing.
Methodology
Historical institutionalismFootnote 37 makes three general claims central to understanding prewar regime maintenance. First, a methodological emphasis on institutional form, rather than the focus on function of rational choice institutionalists, gives greater explanatory mileage.Footnote 38 Second, executive officials manipulate domestic (and, as I will show, international) institutional arrangements to enhance state autonomy vis-à-vis social forces and pursue their interests. Third, states are rational unitary actors, or organizational structures composed of laws and domestic (plus, I include, international) institutional arrangements shaped by previous events. State institutions, once formed, tend to endure and constrain states' choices even after the constellation of interests, coalitions, ideas, and/or politico-economic conditions that originally gave rise to them no longer prevails or exists.Footnote 39 Institutions are minimally defined as explicit or implicit, formally negotiated or informal, intersubjective arrangements among actors that facilitate some behaviors but constrain others.
To deliberately construct a more rigorous hard-test of institutional autonomy than realism's test of institutional inefficacy, I apply the same “least-likely” hard-test methodFootnote 40 Grieco deployed for the 1970s to the more turbulent 1870s. International institutions, Grieco claims, were marginal to the 1970s Tokyo Round's outcomes, which were instead dictated by considerations of relative gains.Footnote 41 This finding raises serious implications if the prewar regime autonomously shaped outcomes, and relative gains considerations did not impede nineteenth-century commercial cooperation, especially under conditions in which it is theoretically proposed they should:Footnote 42 in an extremely competitive multipolar international security environment among real and potential military revivals.
Constructing the strongest hard-test of institutional autonomy requires that the research design achieve two simple objectives: (1) isolate the impact of the CTS on states' behavior by examining a period in which the underlying political conditions and interests that gave rise to the regime rapidly changed but the institution remained relatively constant,Footnote 43 then (2) specify whether and why states' behaviors were incongruent with executive preferences. Strong institutionalist claims are least likely to be validated in the prewar era amid a rapid succession of system-threatening crises, the absence of hegemonic leadership, and bipolarity. One could therefore argue a fortiori that if an informal MFN-based international institution had strong causal effects among military rivals in the multipolar 1870s, it is all the more likely that a formal institution at least mattered among alliance partners in the bipolar 1970s.Footnote 44
The MFN Clause, Multilateralism, and the Negarchical Conventional Tariff System Regime
The MFN clause is a rule of international law that guarantees equality of treatment—equally favorable or unfavorable—to create a simple civil regime of negative rights and positive obligations. Contracting states are granted the negative right of freedom from discrimination and are in return legally bound to confer the positive obligation of equality of treatment/nondiscrimination. Contemporary scholars, however, conflate the MFN clause with Britain's distinctly different unilateral free trade policy. They then erroneously claim that the MFN clause makes trade a public good, leads to free-riding, impedes cooperation, and creates high transaction costs because its constitutive nondiscrimination norm precludes exclusion.Footnote 45 Unlike Britain's unilateral free trade, the prewar unconditional MFN clause merely obligated states to “automatically and immediately,” not unconditionally, generalize tariff reductions to treaty-powers: states not party to the original agreement but enjoying MFN status for having formerly concluded unexpired treaties in which they made past reciprocal tariff reductions. A treaty-power did not acquire a gratuitous gift but “paid for it in advance.”Footnote 46 “Gratuitous concession taken in a literal sense is unknown.”Footnote 47
The MFN clause was devised to reduce uncertainty by automatically preventing discrimination against treaty-powers and repetitive treaty renegotiations “every time conditions are altered by a new commercial treaty.”Footnote 48 To fulfill the double objectives, the clause is an equality-of-treatment “legal contract” that embodies “two kinds of rights”: original and derived.Footnote 49 Original rights are the bilaterally negotiated tariff reductions and privileges that the directly contracting parties reciprocally exchange for ten to twelve years. Derived rights, however, “accrue indirectly through the operation of the clause.”Footnote 50 They are the legal guarantee of equal treatment to all past, present, and future treaty-powers with unexpired conventions that they will automatically receive every concession granted in past and future accords, even without being original/present co-contractants. “The clause is … self-executing, that is to say, that any … favor granted by one State to another is immediately secured to the nations enjoying the privileges of the clause, as though the favor had been expressly granted to them simultaneous with the original grant or favor.”Footnote 51 Newly granted rights are automatically generalized backward—and past original rights generalized forward—to all treaty-powers as their temporal derived rights (that is, new rights derive from pre-existing or newly acquired treaty-power status). Derived rights therefore bind states together, making each responsible not only for obligations undertaken with an original party but also to all their past and future treaty-powers.
Bilaterally Negotiated Multilateralism
Derived rights transformed a series of bilaterally negotiated treaties into a multilateral regime. “The conclusion of a number of reciprocal treaties or conventions results, therefore, in the formation of a single [multilateral] conventional tariff consisting of the lowest rates granted in any of those treaties and [is] applied uniformly to all foreign countries entitled to favored nation treatment.”Footnote 52 A state undertaking MFN “obligations places itself in a system of economic units … Were trade essentially bilateral—that is, isolated between pairs of nations—there would be no need for the clause.”Footnote 53 Therefore, a “bilateral treaty is to a certain extent converted into a multilateral treaty by the unconditional most-favored-nation principle.”Footnote 54 Bilateralism, however, differs from “the method of negotiating bilaterally to open up markets for multilateral trade. Cobden and Chevalier showed … in 1860 that the bilateral method of negotiation can be used effectively to stimulate a world-wide expansion of multilateral trade, and that in doing so, good use can be made of the unconditional form of most-favored-nation treatment.”Footnote 55 Nonetheless, the same MFN clause that underpinned the fabulously successful prewar CTS regime was blamed for unspecified “problems during the nineteenth century,” system collapse in the 1920s and 1930s, and the difficulties during the 1970s and 1980s.Footnote 56
What Is the Conventional Tariff System?
The CTS regime is the multilateral institutional foundation of the world economy.Footnote 57 The then “well-known”Footnote 58 but now forgotten prewar general-and-conventional tariff system had six reciprocally reinforcing international and domestic institutional features. The three international components were:
1. The institutionalization of the legally self-executing unconditional MFN clause in a negotiable tariff.
2. The negotiable tariff coupled with rate reductions and conventionalization to contractually ensure tariff stability, equality of treatment, and the maximum international constraints on autonomous tariff-making by sovereign states.
3. The explicit legal requirement that mutual agreement be attained for upward alterations of conventionalized tariffs within MFN treaties in force. This implicitly established an informal multilateral regime predicated on bilateral consultation among treaty-powers as the mode of resolving potential disputes.
Domestically the CTS was underpinned by statist machinery. Institutionally speaking:
4. The prevailing autonomous tariff principle was abandoned. Tariff-making power was shifted away from the porous legislature and concentrated in the insulated executive branch for negotiating tariff-treaties, or conventions as they were called in Europe. Legislators' responsibility “to their constituents would … be done away with, and the voters would be deprived of whatever direct control they may exercise now over tariff legislations.”Footnote 59
5. Commercial policies were jointly formulated by technocrats in executive-controlled domestic institutions embodying “embedded autonomy,”Footnote 60 and by diplomats in international conventions to place tariff-making above legislative mischief and permit minimal to no opportunities for legislative input after negotiations.
6. Independent information-gathering and data-analyzing capacities were institutionalized within the executive department of government to weaken domestic producers operating through the legislature.Footnote 61
Above all, the CTS “must have as its underlying basis the unlimited application of the most-favored-nation principle.”Footnote 62 The clause by itself, however, did not create an international trade regime. With the exception of the period from 1830 to 1860, the instrument had been the dominant feature in commercial treaties since the thirteenth century. The CTS regime was established in 1860 only by combining the clause, conventionalization, and a negotiable tariff—creating an international contractual environment. The combination in the 1860 treaty and subsequent agreements constituted “in their modern form, a whole new body of international practice”—which was “a collective contract based on equality of treatment guaranteeing to the countries concerned what they regard as the indispensable minimum of commercial policy.”Footnote 63 “After 1860 the clause was generally included in treaties between European states and its nonexistence in the arrangements between any two countries was evidence of strained relations.”Footnote 64 How did a decentralized MFN-based regime privatize trade, prevent free-riding, induce interstate cooperation, and maintain commercial order amid anarchy? The answer resides in institutionalized exclusion operationalized by the double-schedule regime design and decentralized enforcement.
The Double-Tariff Regime
France in the 1860 Cobden-Chevalier Treaty inaugurated the double-schedule general-and-conventional tariff system. The higher and pre-existing autonomous general tariff was fixed by the legislature, applied to states that did not conclude tariff-treaties with France, and could be autonomously raised anytime. The new conventional tariff, by contrast, was mutually set in international treaties by diplomats assisted by executive-controlled tariff commissions and applied only to treaty-powers.Footnote 65 The conventions specified “the exact rates to be respectively applied to each other's products, and such rates [could] not be raised during the [ten-year] life of the treaty” unless the parties mutually consented.Footnote 66 Unlike Britain's tariff- autonomy-based unilateral free trade policy, France's CTS regime was contractual.
The CTS regime was achieved by a basic institutional innovation: France's shift from simple MFN agreements to MFN-based tariff-treaties. The technical distinction between the two is critical to understanding the fundamentally changed interstate practice after 1860. Parties concluding simple MFN agreements maintained tariff autonomy and left their duties unmodified. They retained the right to increase tariffs anytime but mutually promised not to discriminate against each other by exchanging MFN pledges. Governments concluding tariff-treaties or conventions, by contrast, contractually relinquished tariff autonomy by mutually reducing and binding duties for ten to twelve years. Venerable MFN agreements were consistent with Britain's autonomous tariff principle; recent tariff-treaties were not.Footnote 67
The formal repudiation of tariff autonomy “marked a complete change in the significance of treaties of commerce.”Footnote 68 The practice of revising and binding all the tariffs of states in international conventions was “without precedent or example, and the whole [new] course of procedure had to be created.”Footnote 69 Negotiations took place “on the basis of complete freedom” and with “no limit to the reductions which might … be made.”
When such reductions, or series of reductions, as [sequentially] negotiated with different countries and embodied in separate treaties are reduced to formal order, and are extended freely or in virtue of the most-favoured-nation clause to a large number of trading nations, there is consequently obtained a second tariff, the conventional tariff, which is so-called because all its elements are contained in different treaties; the autonomous [general] tariff, which formed the basis for negotiations, still applying to countries whom no arrangements have been concluded. In this way the bilateral tariff takes one particular form—that known as the … conventional tariff. The net effect of such an arrangement is to tie the contracting party for a series of years, in so far as the conditions stipulated in the conventions are concerned.Footnote 70
Napoleon III and Chevalier deliberately generalized the exclusionary conventional schedule under the clause but applied the general tariff to nonsignatoriesFootnote 71 to privatize trade among signatories, prevent free-riding, and induce interstate cooperation. Britain's unilateral free trade led to free riding before 1860. But fear of facing the general tariff and concomitant trade diversion, while competitors received the lower conventional schedule, forced states to conclude treaties quickly with France.Footnote 72 The 1860 treaty “was the first step in a deliberate policy which led Napoleon within the next few years to the conclusion of similar treaties with almost every European country except Russia.”Footnote 73 The regime “was the outgrowth of a policy of Napoleon III, who, largely for political reasons, aimed at removing existing tariff barriers in the international trade of France, his treaties having for their object and effect the adoption of what came to be very near free trade.”Footnote 74 In the 1860s “Britain signed only four more tariff-treaties; and France had signed a treaty with three of those four countries before Britain.”Footnote 75 See Table 1.
TABLE 1. Constituent members of France's conventional tariff system
Derived Rights and Regime Maintenance
Derived rights maintained the regime by establishing a self-enforcing multilateral sanctioning mechanism against defection, which was made up of an intricately interlocking institutional architecture. Bilaterally negotiated accords were interlinked via the “double operation” of MFN-based tariff-treaties—opening markets to foreign industries and guaranteeing that no member could reduce tariffs “without all the other members at once partaking in the increased trading facilities thereby created.”Footnote 76 But derived rights are double-edged, generalizing both tariff reductions and increases to all treaty-powers in order to uphold the cardinal nondiscrimination norm. Upward tariff revision in a single bilaterally negotiated agreement therefore did not solely affect the original contracting party but also violated the derived rights generalized to every treaty-power.
By interlocking all the bilaterally negotiated commercial treaties of a state into a single network, derived rights erected a potent multilateral, but decentralized, enforcement mechanism that was the commercial equivalent of a self-enforcing collective security regime. Unlike the case of dubious collective security in defense matters,Footnote 77 a tariff increased on one infringed on the tangible interests of all. The interrelationships among national tariff systems made every state within the CTS a highly interested stakeholder in regime maintenance. A country contemplating tariff increases was consequently exposed to multilateral retaliation from every treaty-power in the form of discriminatory treatment at best, or exclusion at worst, in their markets.
Self-help and anarchy did not lead to the absence of decentralized institutional structures that autonomously constrained nineteenth-century states. Britain's preferred autonomous tariff principle made international trade anarchical before 1860. But the interstate practices institutionalized in France's CTS—conventionalization and derived rights—thereafter transformed commercial relations from anarchy to a contractual negarchy. The neglected third organizing principle—developed to explain the 1787–1861—is a liberal/republican system of decentralized institutional constraints deliberately situated between the hierarchy-anarchy continuums to prevent the emergence of both extremes. But negarchy is also applicable to nineteenth-century Western European commercial relations since its “overall system architecture negates.”Footnote 78 While treaties were in force, the reduced rates stipulated within them could not “be raised without the consent of the other party.”Footnote 79 The CTS's legal requirement that states first secure mutual agreement to modify conventionalized tariffs was fundamentally transformative. The explicit obligation implicitly established a highly articulated but informal multilateral regime predicated on bilateral consultation between original contracting parties and all treaty-powers for upward tariff revision. Conventions were interlinked by the MFN clause contained within each “into a [single] system in which a change in any country's import policy was bound to affect all its trading partners. In practice that meant that tariff changes required negotiations.”Footnote 80
Entering the CTS was easily achieved via bilaterally negotiated tariff reductions, but exiting under derived rights required a diplomatic mission impossible. “In order to affect any [upward] alteration in the conventional tariff system it is necessary to obtain the [unanimous] consent of all foreign nations which were parties to the original” treaty along with the consent of all treaty-powers.Footnote 81 Derived rights maintained the regime by making legal upward revision of a single bilaterally negotiated treaty an impossibly arduous multilateral enterprise—and the penalty for illegal unilateral revision widespread retaliation. The negarchical regime underpinned unprecedented system stability by freezing autonomous tariff-making in a cryonic bath of crushing multilateral institutional constraints that no normal state could violate without ruinous consequences.
Explaining the 1870s Puzzle: Institutional Stability Amid Change
The CTS regime underpinned system stability despite dramatically altered conditions. The ten-year 1860 treaty was concluded by Napoleon III and Chevalier to overcome domestic constraints and autonomously prevent future defection by redistributing preference within France. In 1852, Napoleon III began a Saint-Simonian/statist economic liberalization program via imperial decrees, but the initiative stalled in 1856 when the protectionist legislature led by Thiers rallied in defense of the existing tariff regime.Footnote 82 Chevalier then convinced Napoleon III to invoke Article VI of the 1852 Constitution “whereby tariff rates stipulated in treaties of commerce, signed by the Emperor, had the force of law” without legislative ratification.Footnote 83 In a 12 May 1860 interview, Chevalier explained that for years “I always told [Cobden] that [tariff reductions] could be affected only by a treaty.”Footnote 84 Treaty supporters predicted that binding tariffs for a decade would provide sufficient time for the growth of export interests within France. These interests would then form a countervailing coalition against entrenched protectionism “superior to those political changes which from time to time alter the condition of the world.”Footnote 85 The 1870s powerfully tested the prediction.
Unimaginable opportunities opened to France's protectionists in the 1870s. The Franco-Prussian War deposed Napoleon III. All the regime's supporters “were violently expelled and smeared as the collaborators of ‘the despot.’”Footnote 86 Thiers, Napoleon's strongest protectionist opponent, became president of the Third Republic in February 1871. He was a leader “of unusual vigor and ability” and “undoubtedly the most popular man in France.”Footnote 87 In a 5 April 1862 interview, Thiers claimed Napoleon III, through the 1860 treaty, had “wantonly ruined our manufactures.”Footnote 88 The regime became his target. Thiers ousted free-traders from the Superior Council of Commerce and Industry and appointed protectionists to the body and as ministers of commerce and finance.Footnote 89
The survival of the unpopular economic reforms Napoleon III autocratically initiated, through a treaty scheduled to expire in 1873, would be remarkable given France's chronic political instability.Footnote 90 In 1864 Cobden wrote Chevalier: “I confess I am not satisfied that you do not continue to make further reforms … Time is passing … Are you sure that in 1870 you will be so completely under the Free Trade régime as to prevent the government of that day (God knows what it may be) from going back to protection after the Anglo-French Treaty expires?”Footnote 91 The unpopular 1860 treaty was “a private conspiracy” among Chevalier, Cobden, and the Emperor. “The Franco-Prussian War threw discredit on everything imperial, encouraged national antagonisms, [and] demanded additional fiscal measures.” It might “have been easily predicted that, as soon as the Empire fell, France would retrogress” toward protectionism.Footnote 92 But “contrary to conventional wisdom, there was no popularly mandated scuttling of Napoleon III's free trade policies and no return to protection after 1870.”Footnote 93
What window of opportunity the war opened to protectionists was slammed shut by the international constraints institutionalized in the negarchical CTS regime. Thiers's effectiveness as a government minister and parliamentarian in blocking tariff reforms from 1834–36, in 1851, and again in 1856Footnote 94 inspired the very institutional design that would bring his downfall. In 1860 he forced Napoleon III to bypass the assembly to secure the goal of internationalizing France's tariff within the French-led Napoleonic treaty network. Napoleon had two policy objectives: to place rate-making in international conventions and inflexibly bind duties to place tariffs beyond tampering by protectionist legislators,Footnote 95 Thiers principal among them.
Thiers Versus the CTS
The war's disastrous aftermath presented the ideal crisis conditions for French defection. The new government faced two staggering tasks conducive to tariff increases: restoring internal order and raising revenues to pay the war indemnity. Germany obligated France to pay 5,000 million francs, the extraordinary sum of $1 billion at the time, in reparation for Bismarck's premeditated war. The Preliminary Peace Treaty specified that German troops would not be completely withdrawn from France until Prussia was paid in full.Footnote 96
Raising revenues to end foreign occupation created a postwar financial crisis that provided Thiers with an opportunity to reimpose protection. An indirect and invisible moderate tariff increase, rather than direct and visible income taxation, was the most politic choice for the new and weak Third Republic. Thiers admitted the invisibility of his tariff tax proposal was its principal advantage.Footnote 97 He thought he could raise about 350 million francs via various forms of internal taxation; the rest would have to be collected through tariff increases. “His … main anxiety at this time was to secure revenues.”Footnote 98 But as time passed, Thiers realized the financial crisis provided the ideal opportunity to reverse the economic liberalization Napoleon III had institutionalized in the secretly negotiated 1860 treaty, then autocratically imposed on France without legislative consent and with the threat of force.Footnote 99
The institutional design of the CTS, however, thwarted Thiers's protectionist initiative. States receiving “most-favored-nation treatment … [were] practically guaranteed a certain lower schedule of duties, which the country granting them [was] under [contractual] obligations never to raise during the life of the commercial treaties between it and its fellow powers.”Footnote 100 Conventions could only be denounced after their ten-year expiry by giving an advance year's notice.Footnote 101 Aware of international obligations, Thiers acknowledged tariff increases “were forbidden by commercial treaties.” France therefore opened negotiations with treaty-powers to secure their consent for upward revisions.Footnote 102
Thiers's Diplomatic Mission Impossible
Beginning with Britain, Thiers commenced the laborious diplomatic process to achieve bilaterally negotiated unanimous consent. He admitted the feasibility of his tariff increase proposal “was subject to the success of our negotiations with the various Powers to whom we were bound by commercial treaties.”Footnote 103 But if he secured Britain's imprimatur for moderate upward revisions, it would be easier to convince the other treaty-powers. Thiers believed Britain would be accommodating due to expected tariff increases under Napoleon III after the Treaty expired in 1873 and Britain's traditional policy. The 1868 legislative réaction protectionniste against the treaty systemFootnote 104 forced the government in 1870 to appoint a tariff commission to make adjustments at treaty expiry. Had the Second Empire survived the Franco-Prussian War, “England would have been asked to consent to the revision of the Treaty of 1860 in the direction of higher protection.”Footnote 105 Thiers in March 1871 told Lord Lyons, England's ambassador, that he liked the “traditional British policy of letting each nation regulate its own commercial legislation” and had no plans “to reverse the imperial policy of moderate protection; nor did he desire to renounce the treaty of 1860.” Instead he “sought an early agreement with England chiefly because her devotion to free trade was so well known that any increases of duties that she accepted would not be rejected as unduly protective by other states having treaties with France.” Thiers wanted to “get rid of the whole system of commercial treaties.” But he continued “to speak of the importance of making all changes by mutual agreement, and of the overwhelming need for more revenue.”Footnote 106 Britain refused to negotiate upward tariff revision.
Derived rights, not laissez-faire Britain, created the insurmountable obstacles to French defection. “France was bound by her treaties of commerce until 1877,”Footnote 107 because the ten-year 1867 Portugal Accord, the last of the 1860s treaties, would expire in 1877. The original rights granted Britain in 1860 and automatically generalized to subsequent treaty-powers had to remain in effect until the last treaty expired to avoid violating the derived rights of states with unexpired conventions. The 1867 Portugal treaty was consequently not an isolated bilateral agreement, but a multilateral accord containing extensive derived rights from the 1860 treaty and subsequent conventions. The “unconditional form of the clause … was a potent means of restraining tariff increases during the latter part of the nineteenth century.” The treaties “which ran for long periods contained provisions binding tariff items against increase. This had the effect of preventing, during the currency of the treaty, any increase of duties on a large list of imports. Since every country had many treaties containing such provisions and expiring at different dates, it became difficult to embark upon whole-sale tariff increases.”Footnote 108
Exasperated with Britain's refusal to negotiate tariff increases in the 1860 treaty, Thiers in 1871 issued an ultimatum. Either Britain negotiate upward revisions or he would renounce the accord, deny England MFN status, and place British commerce and navigation at differential disadvantage vis-à-vis other states in the lucrative French market by imposing the general tariff. Then “Thiers told Lyons that he had always thought the treaty of 1860 disastrous for France, although beneficial for England, and that he had always wanted its denunciation.”Footnote 109 British recalcitrance led him to act on his threat. The two most important conventions, the 1860 Cobden-Chevalier and 1861 Franco-Belgian treaties, were the only accords that could be legally denounced in December 1871. Thiers did so to raise revenues on 15 March 1872.Footnote 110
After rejecting the use of an income tax, Thiers sought to raise revenue by reimposing the tax on raw materials that Napoleon III had abolished.Footnote 111 On 12 June 1871, Thiers introduced a tariff bill in the National Assembly that imposed rate increases on raw materials that Napoleon III had placed on the free list, reimposed export duties, levied harbor dues (or surtaxes de pavillon) on foreign-flagged ships, and, despite treaty prohibition, increased ad valorem tariff on textiles and manufactured goods by 20 percent. Incredibly, “Thiers claimed that he could raise duties on imports without violating the terms of the treaties … In practice the attempt would have been difficult, because of the binding force of existing treaties, and especially difficult in the face of the treaty with England, about to expire in February, 1873.”Footnote 112 Although Thiers acknowledged treaties prohibited increasing tariffs on manufactured goods, he had no “doubt as to France's right to tax … raw materials.”Footnote 113
The National Assembly, the majority of whom were protectionists, rejected Thiers's proposed tariff. Even protectionists considered the services the regime provided “indispensable”: equality of treatment, a guarantee against sudden tariff changes, predictable contractual environment for long-term planning, stable market access, and duty-free raw materials. The defeat of his bill led Thiers to promptly resign on 20 January 1872, but the National Assembly rejected his resignation.Footnote 114
Three days later, Thiers sent a second tariff bill to the assembly, but with lower proposed tariff increases. The assembly appointed a fifteen-member Parliamentary Committee of eminent experts to inquire whether Thiers's raw material tax “could be made productive” and imposed under treaty obligations. The committee consulted with Chevalier, John Stuart Mill, and sixty other prominent French and British experts before presenting its findings to the assembly on 3 July 1872. The body was split ten to five on the merits of the raw material tax, with the majority dissenting, but unanimous on its imposition. The Parliamentary Committee concluded: “France is bound by certain treaties of commerce which do not expire until 1878, and the Committee finds the proposed tax incompatible with these treaties.”Footnote 115 Thiers dismissed committee members as narrow “specialists” blind to the full situation and argued France's liberty to impose raw material taxes was compromised by the Second Empire but not destroyed. When challenged by committee member M. Rouher—former minister of commerce, and French negotiator and signer of the 1860 treaty—Thiers exploded, arguing that “in spite of the treaties you made our liberty exists, and we are using it to negotiate with the Governments concerned, which have shown great good sense and the best of dispositions towards us.”Footnote 116 Rouher replied he would sign the treaties again, acknowledging that France's liberty was indeed “compromised, but the engagement is on the basis of mutual [restraints and] benefits. It must not be forgotten that most nations of Europe … are also governed by their treaties of commerce.”Footnote 117 Thiers's shipping surtax and emasculated tariff bill nonetheless passed on 26 July 1872.Footnote 118
Thiers's 1872 tariff and earlier renunciation of the Anglo-French and Franco-Belgian treaties were tactical maneuvers designed to force England to the negotiating table, not regime defection. The Napoleonic treaty network remained the “most serious obstacle to the restoration of high protection.”Footnote 119 “France was bound [until 1877] by the network of commercial treaties, of which the English Treaty of 1860 was the foundation, with respect to most of the duties that could be increased. She would have to negotiate for the modification of [all] these treaties or else denounce them … before their expiration, at the risk of injuring her trade through reprisal, and possibly her political relations.”Footnote 120 Modifications in one bilaterally negotiated treaty could “only produce changes in the conventional tariff” and had to “be applied to all countries.”Footnote 121 Theirs admitted that “the tax on raw material, as far as its collection went, was subject to the success of our negotiations with the various Powers to whom we were bound by commercial treaties.”Footnote 122
Thiers desperately needed a new accord with Britain to facilitate agreements with treaty-powers. He demanded that Britain renegotiate the Anglo-French Treaty to incorporate the rate increases in his 1872 tariff, or face the punitive general tariff. England had returned to negative free trade in 1865 and “was not so favourable to the idea of commercial treaties as they had been in 1860.”Footnote 123 Although not frightened by Thiers's threat to denounce the treaty,Footnote 124 Britain was terrified of being denied MFN status in the French market—the second largest in the world. Having unilaterally reduced her tariffs without reciprocal compensation, Britain had “no concessions to offer … and [had to] be satisfied with benefit reflected to it merely through its most-favored-nation clause.”Footnote 125 Lord Lyons asked Thiers to grant Britain MFN status. But the “President said that he could not give England most-favored-nation treatment for an unlimited period because that would prevent him from increasing the French tariff in the future by compelling him, either to get the consent of all other powers with whom France had commercial treaties, or wait until those treaties had expired.”Footnote 126
War-shattered France at its nadir forced “hegemonic” England to again deviate from its autonomous tariff preference. Britain's refusal to negotiate after the denunciation of the 1860 treaty left Thiers with one remaining option. He threatened to impose the general tariff on British commerce and the new shipping surtax on its navigation if the 1860 accord expired before a new treaty was concluded.
Thiers would be legally free to tax British goods and ships in French ports as much as he liked and England would find herself in a very disadvantageous position as compared with other nations with whom France had treaties of commerce and navigation. Her only security then would lie in making the French fear that she would levy duties on their goods in reprisal. Yet it would be difficult to arouse that fear, because England could not actually make such reprisal, since they would violate the principle of free trade to which she had declared herself firmly attached.Footnote 127
On 5 November 1872, Thiers forced Britain to conclude a tariff-treaty on the basis of his 1872 legislation. “England's fear of discrimination against her shipping and of being placed in a less advantageous position than other nations … in trade with France was a factor of importance in the Anglo-French negotiations. Without this factor it seems probable that England would have allowed Thiers to break off the negotiations entirely.”Footnote 128
France in return pledged not to impose some rate increases on raw materials contained in the 1872 tariff and granted England MFN treatment and exemption from the shipping surtax.Footnote 129 Thiers wrote: “I reckoned that as soon as England accepted the compensating duties, Belgium and Italy would accept them in their turn, since they could no longer cite the example of England to justify their opposition. And our treaty once signed with that Power, Belgium hastened to sign a similar one.”Footnote 130 After initial resistance, he reached agreement with Belgium by making further pledges not to impose some rate increases on additional raw materials.Footnote 131 Thiers diplomatically succeeded with Belgium and “hegemonic” Britain. But the derived rights of other treaty-powers contained in the successfully renegotiated 1860 Anglo-French and 1861 Franco-Belgian treaties would still prove his undoing.
Derived Rights as International Constraints
Derived rights, by creating a nexus between all of a state's commercial treaties, presented Thiers with an insoluble dilemma. He could either leave other treaty-powers in possession of the 1860 and 1861 conventional rates by imposing his new 1872 tariff solely on Britain and Belgium or impose it equally on all treaty-powers to uphold nondiscrimination. The former would derogate the regime's constitutive nondiscrimination norm, but the latter would violate the derived rights of states with unexpired conventions. Retaliation would certainly follow. “The system of commercial treaties, most of which were framed to last for long periods, could not be immediately broken up without exciting great political as well as industrial frictions.”Footnote 132
Thiers's only legal option “to avoid flagrant discrimination against England and Belgium, who had reluctantly negotiated new agreements,” was “to secure the modification of the treaties with France with the other states of Europe. His supreme error was his failure to realize that none of the states to whom France was bound was willing to modify their treaty in a protectionist sense.”Footnote 133 Thiers argued that tariff increases were intended to pay war reparations, not re-establish protection. But his well-known protectionism undermined the diplomatic initiative: “in all the countries of Europe Thiers was known to be an ardent protectionist. He had defended the old system of prohibitions before 1860.” Therefore, “none of the treaty states were prepared to consider the modification of their agreement with France.”Footnote 134
The CTS and Thiers's Downfall
The negarchical regime's institutional design changed the state interest of France and prevented its defection by simultaneously unifying international opposition before violation and empowering the institution's domestic supporters. Derived rights thwarted Thiers's attempt to reimpose surtaxes de pavillon on foreign-flagged ships. The surtaxes were “virtually abolished” under Napoleon III by the Act of 19 May 1866. The 1866 Austro-French Commercial and Navigation Treaty was framed on the new law and “through the most-favored-nation clause, was extended to most of the other states of Europe”Footnote 135 as their derived rights. Since the Cobden-Chevalier Accord “scarcely touched on … navigation,”Footnote 136 the Austro-French Treaty “became of great importance” to treaty-powers when Thiers re-established the surtaxes in 1872. “As long as the [1866] treaty and their most-favored-nation agreements with France were in force, the reimposition of these [shipping] taxes did not apply to their commerce.”Footnote 137 France therefore requested that Austria relinquish its navigation privileges under the 1866 treaty, but Bismarck weighed in. Austria, under German pressure, refused. Bismarck on 26 April 1872 sent Austria a grateful dispatch:
The [commerce and navigation] treaties which France in this case proposes to modify, continue in force until 1876 … So long as these treaties with Austria are in force, the rights therein guaranteed to that Power will be enjoyed by all countries which are entitled to be treated by France, on the same footing as the most favored nation. These treaties were part of a liberal commercial system which France had the credit of initiating.Footnote 138
Bismarck concluded:
It is, therefore, the common interest of all the European States that the commercial treaties concluded by France at a former period shall remain in force until public opinion in France had overcome the now prevailing inclination in favor of a protective tariff … It is … a fortunate circumstance for the commercial development of Europe, that the Government … which the present situation has accorded so decisive an influence on the politico-commercial development of Europe clearly recognizes the obligation this situation imposes, and is ready to discharge it.Footnote 139
“This meant that the surtaxes voted by the National Assembly could not be applied to the ships of most European states.”Footnote 140
The regime also defeated Thiers's tariff increases by strengthening his domestic opponents.Footnote 141 Liberal traders in the assembly—aware that the CTS prohibited increasing tariffs on manufactured goods—shrewdly married the proposed raw material taxes with the conventionalized tariffs on manufactured goods, to Thiers's admitted “astonishment.” “They pretended that we could only impose a tax on raw materials if, by way of compensation to our manufactures, we taxed at the same time foreign goods made with these materials; but … these taxes were forbidden by commercial treaties, the Powers to whom we were bound by these treaties would certainly not authorize us to establish them. Therefore, according to our opponents, the [raw material] tax we proposed was impossible.”Footnote 142
Napoleon III triumphed again through his institutional legacy. Thiers's 1872 tariff “could not be carried into execution, owing to the resistance made by the states with which France had treaties of commerce, and was therefore repealed.”Footnote 143 On 14 March 1873, the assembly voted “that the conventional tariffs then in force, which were those of the treaties of 1860 and 1861 with England and Belgium respectively, should remain in force until new ones had been put into operation.”Footnote 144 Thiers's inability to secure the consent of other treaty-powers for upward revision led him to offer his second resignation in May 1873. Marshal MacMahon assumed the presidency. He “immediately restored the ousted free traders and commissioned the council to draw up plans to liquidate Thiers's fiscal and tariff policies.”Footnote 145 The numerous exceptions to the 1872 tariff and shipping surtaxes incorporated in the renegotiated British and Belgian treaties and “the practical impossibility of doing anything with the proposed duties on raw materials”—due to unexpired conventions—“brought the National Assembly to the uselessness of the two enactments.” Both were repealed in July 1873.Footnote 146 “Within two months of his fall from office Thiers saw all his efforts to change the tariff policy of France checked.”Footnote 147
The regime's multilateral, but decentralized and self-enforcing, sanctioning mechanism blocked French defection through negative linkages. Derived rights transformed bilaterally negotiated MFN treaties into multilateral instruments with corresponding multilateral obligations by interlocking national tariff systems into one network. No state could therefore autonomously revise tariffs upward without unraveling the delicately interwoven tapestry of international commercial relations and threatening the tangible economic interests of all. John Stewart Mill admitted that his despair over the wanton violations of the political (and nonself-enforcing) Vienna treaties when the “interest and that relative strength” of the parties changed finds no parallel in contemporaneous commercial conventions.Footnote 148 The regime's self-enforcing character was underpinned by the same self-interested individual rationality that collective action theory predicts will impede cooperation under the clause.Footnote 149 But derived rights aggregated the narrow self-interests of individually rational egoists, tied them into a multilateral cluster of mutually interconnected legal obligations, made a breach against one a breach against all, and thereby gave states a broader collective rationality and overwhelming incentive to maintain the collective good.
Even in the absence of central enforcement, unadulterated self-interest dictated French compliance with treaty obligations. Upward revision of a single bilaterally negotiated treaty would ripple across the multilateral regime, injuring the tangible interests of all. Treaty-powers would individually respond, spontaneously producing a collective retaliatory avalanche that would rain down on France at its lowest moment and exacerbate, rather than ameliorate, the country's economic difficulties. The costs of unilaterally tinkering with the Napoleonic regime would simply dwarf any expected benefits. The editor-in-chief of the Economiste Français noted in 1879: “Though this [1860] treaty has been denounced for nearly ten years, nothing has yet been found to substitute it. It has been prorogued from year to year without the power, without the daring to modify it.”Footnote 150 When France threatened to nullify the 1862 Franco-Prussian/Zollverein Treaty during the peace negotiation, Bismarck said that he would “rather begin a shooting war again than to become involved in a tariff war.”Footnote 151 As Gorter observes, “some of our strongest institutions depend very little upon formal legal contract to spell out the duties, rights, and obligations of their members. Mutual interest in the survival of the … institution plus common understanding … among the members suffice to perpetuate it.”Footnote 152
When the MacMahon government “proposed a return to the 1860 conditions in 1873, it was surprised to find itself coldly received by the British.”Footnote 153 Gladstone, the sole champion of the 1860 treaty in Lord Palmerston's cabinet, was prime minister in 1871 and “in an even more favorable position to determine the commercial policy of England than he had been in 1860. But, since Cobden's death in 1865, opposition to commercial treaties had become strong in England and Gladstone had gone over to it.”Footnote 154 In an 1872 Foreign Office memorandum, Gladstone consciously rejected even “subtle and indirect” leadership:
We made in the case of the Treaty of 1860 a great and marked exception to a well established rule for what we thought well defined and very strong reasons. We seem by this means to have given considerable force to the Free Trade movement on the continent of Europe. When these powerful considerations are removed, and not only removed but reversed, is not our safest course to fall back upon our old basis, namely that the cause of freedom in commerce will, as a rule, be most effectively advanced by leaving each nation to consider the subject in light of its own interests?Footnote 155
Britain responded to MacMahon's proposal by informing France that England “had had enough of commercial treaties and that she believed in the freedom of each country to set its own tariffs subject only to security for British trade and navigation against any special disfavour.”Footnote 156
When the MacMahon government concluded a new Anglo-French agreement in 1873, “the whole system established by the Anglo-French Treaty of 1860 and its supplementary conventions were restored … England was left in possession of the moderate tariff duties in France to which she had been entitled before Thiers assumed office.” MacMahon was dissatisfied; he wanted more protection for French industry. But “the treaties of commerce with the other states of Europe remained in force and those states had signified their refusal to consent to their modification. Nothing effective could be done, therefore, toward a general revision of the French tariff before 1877 at the earliest.”Footnote 157 To renew the expiring accords, France concluded a series of tariff-treaties that were scheduled to expire in 1877 but could thereafter be renewed for three years until ten-year replacements were concluded. “The result was a scheme for a moderate tariff which reproduced almost without alteration the rates of duty established by the conventional tariff already in force [with the 1860 treaty].”Footnote 158
The regime's differential lever, embodied in the general-and-conventional tariff schedules, constrained and altered the behavior of even the unsupportive “hegemon.” The 1873 Anglo-French Treaty distressed England. “She had been obligated to consent to the revival of the system of 1860,” which was “a compromise forced by peculiar circumstances and far from wholly correct in principle or satisfactory in details.” French officials (and evidently HST's proponents) “seem to have been ignorant of England's indifference to the Treaty of 1860.”Footnote 159
Britain Exits
Despite the Vienna stock market crash and the resulting depression of 1873–96, Britain exited the regime in 1882. “France demanded reductions of duties on wines, but Great Britain would neither consent to that nor agree to guarantee that they would not be advanced during the life of the treaty.”Footnote 160 The Anglo-French Treaty of 1882 therefore “took the form merely of a [simple] most-favoured-nation agreement.”Footnote 161
France single-handedly maintained the 1860 regime until 1892. Beginning in 1881, France concluded a series of ten-year treaties and produced a new conventional tariff. It “included some 1,200 articles on which the rates of duties were either reduced or ‘conventionalised’—i.e., made unchangeable so long as the treaties would be in force—whilst 300 (including those on grain and cattle) remained subject in all cases to the rates of the general tariff.”Footnote 162 Agriculture was removed from regime governance—as textile in the 1960s was uncoupled from the General Agreement on Tariffs and Trade (GATT)Footnote 163 and agriculture never incorporated. Nonetheless, the 1880–82 treaties “replaced all of those duties, except those on agricultural products, with a new conventional tariff which by and large perpetuated the duties in effect since 1860. In this manner, the reforms of 1881–1882, far from re-establishing protection—as most textbooks still suggest they did—actually extended the free trade system of the Second Empire for ten more years.”Footnote 164 To “create a barrier against the protectionist reaction,” the treaties “were to remain in force for a period of ten years” and made “impossible” to change until expiry on 1 February 1892.Footnote 165 In 1890 “the government declared that ‘the tariff regime adopted ten years ago (1881) by France did not differ much from the direction given in 1860 to its commercial policy.’”Footnote 166
Protectionism led France to abandon the Napoleonic treaty network upon its 1 February 1892 expiry.Footnote 167 “The reason for the drastic change lies in the dissatisfaction with the conventional tariff, the inflexibility of ten-year treaties, and the prevalent unpopularity of the most-favored-nation clause.”Footnote 168 France's January 1891 notice that it would abandon the treaties led panicked German manufacturers to petition their government to end Bismarck's autonomous tariff policy (1879–92): the “possibility of a treaty-less condition frightened them.”Footnote 169 “No less than fifteen agreements would end on or around February 1, 1892.”Footnote 170 “Germany then could not well avoid playing the role, which to that time had been played by France, as a champion of a policy of tariff-treaties throughout Europe.”Footnote 171 After exploiting the “perpetual” MFN status France granted in the Frankfort Treaty to legally defect from 1879–92, Germany “stepped into the shoes” of France and in 1891 began concluding the Caprivi treaty network.Footnote 172 “All the treaties concluded hitherto go into effect on February 1 [1892], the identical day on which the French treaty arrangement ceases. They are to remain in force for a period of twelve years, and thereafter are terminable after a year's notice.”Footnote 173 “Europe—and, indeed, the whole world—was spared the impoverishment attendant upon a tariff war.”Footnote 174 Germany then led the CTS until World War I.Footnote 175
Conclusions
Fellow institutionalists now have a more rigorous hard-test of institutional autonomy. This study answers the question, “do institutions matter?” in the affirmative and shows how and why institutions autonomously produce powerful causal effects under unlikely conditions. The hard-test of institutional autonomy presented by the CTS makes a general case for studying how well-designed regime features influence states' behavior. “We know what came of the futile attempts of M. Thiers to reverse the whole [Napoleonic trade] policy.”Footnote 176 The MFN clause during the 1870s “represented too great a restraint on freedom of action.”Footnote 177 The CTS's very multilateralism, embodied in the MFN clause, explains the regime's survival. A mere substantive bilateral agreement would have easily collapsed amid British indifference and French hostility. The self-enforcing negarchical regime completely changed the behavior of France by making defection too costly. Derived rights imposed enormous institutional deterrence against autonomous upward tariff revision by legally compelling all states to first secure bilaterally negotiated multilateral consent from every treaty-power. But if deterrence failed, they automatically erected a potent multilateral enforcement mechanism against illegal upward revision. The resulting negative linkages produced unprecedented cooperation and tariff stability in a turbulent world economy underpinned by the much-maligned and misunderstood unconditional MFN clause.
The multilateral linkage logic underpinning the CTS has contemporary international security and economic implications. It explains the anomaly of U.S. President George W. Bush's puzzling insistence on “multilateral six-party talks” on nuclear nonproliferation with North Korea that has been infamous for breaking international commitments. U.S. officials strategically have sought “multilateral” negotiations since defection would also rupture North Korea's relations with China, South Korea, Russia, and Japan—exponentially increasing the costs via negative linkages. On the economic front, derived rights resemble cross-default clauses designed by private bank syndicates to help manage the 1980s debt crisis by interlocking their mutual interests to constrain unilateral actions.Footnote 178
Refocusing on historical institutional development can change conceptions of the past and shed light on the present. As Hoffmann noted: “Political scientists concerned with international affairs have concentrated on the politics of the post- war era; and when they have turned to the past, it has all too often been either in highly summary … almost ‘college outline’ fashion … It leads not only to the neglect of a wealth of past experiences … but also to a real deficiency in our understanding of the international system of the present.”Footnote 179
Lengthening the historical horizon to prewar tariff systems calls into question four central concepts in current international relations theory by suggesting their explanatory scopes are limited to the post–World War II era. First, the CTS weakens claims that “free trade” is “more likely within, rather than across, political-military alliances” and under bipolarity rather than multipolarity, because a bipolar system internalizes security externalities among allies and reduces the risks of exit.Footnote 180 The CTS regime not only emerged in an extremely competitive multipolar international security environment among actual and potential military rivals. It was also more nondiscriminatory and liberal than the U.S.-led GATT regime, instituted among allies under bipolarity. The clause prohibited discrimination in favor of allies by establishing the equality of treatment practice as the cardinal rule of interstate conduct, applicable to friends and foes alike within a single regime. Second, the regime therefore provides little evidence that relative gains considerations impeded prewar cooperation. Third, the CTS regime illustrates that multilateralism did not first arise in the post–World War II era due to U.S. hegemony and the shift from portfolio to relation-specific investments, the emergence of bipolarity, or bipolarity combined with the types of strategic games executive officials were confronted with in the international system.Footnote 181 A self-enforcing multilateral regime was inaugurated in 1860 by nonhegemonic France and maintained by institutionalized interstate practices, not hegemony. Regime stability was underpinned not by the concentration of power in a single state, but by the diffusion of interlocking institutionalized interests among all parties. Finally, implicitly showing that Britain was normatively prohibited by its 1846 principles from initiating and assuming hegemonic leadership of the prewar regime reduces HST to a single instance: United States from 1945–65.
British hegemonic management of the nineteenth-century system is a mythFootnote 182 that nonetheless informs current policy with disastrous consequences. The theoretical notion that one powerful country could manage the globe abysmally fails easy tests in Iraq and Afghanistan. History's most powerful hegemon—aided by its predecessor, the “coalition of the willing,” and supporting local governments—is bogged down in a seemingly intractable struggle to impose its writ on collapsed states. Potential “hegemonic” management of the international system is precluded by the rise of other power centers, the diffusion of military technologies, nationalism, and international norms delegitimizing coercion and overt interference. Studying how variations in institutional features facilitate or impede interstate cooperation is critical, since institutions must perforce play a larger role in managing international affairs. The challenge for policymakers is to carefully design informal and formal intersubjective arrangements to meet three objectives: make potential defectors stakeholders; multilateralize interests in regime survival; and establish a decentralized enforcement mechanism among members that, via negative linkages, targets and isolates defectors by making a single violation ripple across the entire membership. Scholars could draw from a vast reservoir of past informal and formal institutional practices.
With historically myopic commentators bemoaning the temporary collapse on 29 July 2008 of the World Trade Organization (WTO) Doha Round at the time of this writing,Footnote 183 the past holds important general lessons for keeping the present regime open. Multilateralism could be exclusionary without being discriminatory. Four prewar design features privatized trade, solved the collective action problem, eliminated free-riding, and induced interstate cooperation. These were the exclusionary general-and-conventional tariff; the generalization of concessions only to treaty-powers under the MFN clause; bilaterally negotiated regime accession; and treaty expiry in a decade. Free-riding on the current regime is not an inherent feature of the clause. It was made possible by contemporary institutional design: the novel unconditionality and perpetuity of the unconditional MFN practice institutionalized in Article I of the 1947 GATT. “General Most-Favoured-Nation Treatment” obligates states to “immediately and unconditionally” extend concessions to “all other contracting parties,”Footnote 184 some of whom made little or no reciprocal tariff reductions, such as India. Combining the clause's new unconditionality with the GATT's institutional perpetuity created a free-rider's paradise. Unlike the permanent GATT, the expiry of prewar commercial treaties forced states, that is, Germany, to make reciprocal concessions or face exclusion. The 1979 Tokyo Round codes on subsidies and nontariff barriers, although erroneously criticized as deviating from multilateralism,Footnote 185 are examples of exclusions compatible with multilateralism.
Two implications for contemporary trade policy flow out of my analysis: the expiry of specific agreements “nested” within the permanent WTO should be allowed after ten to fifteen yearsFootnote 186 and nonsignatories should be excluded from their benefits. Under the CTS, the negative right of freedom from discrimination was tightly coupled with the reciprocal positive obligations to liberalize and extend nondiscriminatory treatment. The prewar regime was neither created nor maintained by the irresponsible unilateral free trade policy of Britain—which extended its low tariffs to all states and gave none an incentive to reduce their duties—but by contractual reciprocal tariff reductions and institutionalized exclusion backed by effective decentralized enforcement. The GATT (Articles XXII and XXIII) nonetheless replaced the negarchical prewar regime's decentralized enforcement mechanism with a quasi-formal monstrosity mislabeled a “dispute settlement provision,” which almost institutionalized impunity. The provision's unanimity requirement was analogous to a civil justice system in which a defendant sits on his/her own jury under the institutional rule of unanimous consensus for verdicts. The weaknesses of the poorly designed GATT—a hastily devised stopgap measure never intended to become the permanent governance structure of international trade it did after replacing the stillborn International Trade Organization (ITO)—does not undermine the efficacy of institutions. The prewar CTS shows that a well-designed informal commercial institution underpinned by, of all things, the unconditional MFN clause could be remarkably strong. But the GATT is often treated as the archetypical commercial institutional experience and single frame of reference on which overwhelmingly ahistorical studies of trade institutions extrapolate. Commercial institutions then are understandably weak, as exemplified by the RDP's uncertainty-flexibility conjecture. Important epistemological issues then emerge. Critics of commercial institutions are often unconsciously criticizing one flawed, among many possible alternative, institutional designs: the GATT. Could knowledge of comparative prewar regime designs illuminate mind-changing alternative conceptions of institutional efficacy foreclosed by fixating on the GATT/WTO? The CTS at least suggests some policy prescriptions.
The WTO's replacement of the GATT's unanimity rule with a judicial and binding dispute settlement mechanism is a distinct design improvement.Footnote 187 But a supplemental decentralized enforcement mechanism akin to the prewar system would markedly enhance the extant procedure. The WTO could establish an independent Compliance Committee and empower the body to make binding judicial findings on whether members are in compliance with tariff/nontariff regulations and issue a target-list identifying states out of compliance with a nested WTO accord. All contracting parties should be legally authorized and encouraged to individually restrict the top five to ten export items in the foreign trade of any target-listed signatory. The ITO's framers envisioned a decentralized enforcement mechanism operating identically to the one institutionalized in the prewar CTS: via exclusionFootnote 188 “likened to ostracism in the Greek city states or excommunication in medieval times.” The ITO would “release” states from their MFN obligations to an offending party: “any or all of them might then freely impose discriminatory duties on his trade, employ quantitative restrictions, or other weapons of economic warfare … restricted by the charter.”Footnote 189 Differential treatment for noncompliance is not technically discrimination since the offending party has temporarily forfeited its WTO membership and concomitant legal protection, which could be regained upon becoming regime-compliant.
Decentralized enforcement, underpinned by institutionally fostered negative linkages, holds great potential to strengthen the current system in two ways: by altering states' calculation on the international level and shaping domestic coalitional activities in liberal directions. First, myopic politicians would find less attractive election year “politricks,” that is, disingenuously imposing unsustainable higher steel tariffs, if all contracting parties are legally authorized to individually impose supplemental sanctions on top of institutional penalties. The prospect of entering a commercial state of nature would shift the cost-benefit calculus toward compliance—keeping even the powerful, Gulliver-size United States compliant by the prospect of a regime-mobilized combination of economic Lilliputians. Uncertainties about multiple trading partners' next moves, and the costs of dispatching diplomatic delegations across the globe to secure bilateral understanding would exercise potent international deterrents—tying-down potential defectors to regime norms solely through the brute force of rational calculations underpinned by the mere prospect of punitive decentralized institutional constraints. Like the prewar CTS, the regime would pre-emptively block defections before they occur by the latent threat of know and commercially destabilizing unknown consequences. Second, restricting the top five to ten export items in the foreign trade of offending states would also be domestically liberalizing. Competitive industries in noncompliant countries—now facing uncertainties and potential adverse actions to their overseas interests resulting from their home governments' protectionist policies intended to help weak domestic sectors—are likely to form potent and potentially decisive countervailing coalitions against protectionism.Footnote 190 States will have more incentives to make painful domestic adjustments, since exporting their problems would be prohibitively costly.
The applicability of prewar interstate practices to the current regime, however, is obscured by overdrawn distinctions between the past and present. One eminent economic historian, for example, erroneously claims the nineteenth-century regime had four disadvantages vis-à-vis the juxtaposed GATT. He argued that commercial treaties concluded after 1860 “ensured only non-discriminatory … treatment,” never created a single system, placed no limits on tariff rates, and left “each country free to set their tariffs without an effective external constraint on tariff behaviour.” “These [bilateral] arrangements arose without multilateral cooperation. Yet despite the lack of any oversight mechanism or institutional basis, this regime (if it can be called that) brought about relatively low trade barriers.”Footnote 191 But invisible and informal—without a building, bureaucracy, or budget—the prewar regime ironically imposed more effective international constraints on autonomous national action than its inferior, formally institutionalized GATT/WTO lineal descendant. The Franco-Prussian War would have made France eligible to invoke the vast array of escape clauses and exceptions institutionalized in the GATT/WTO under clausa rebus sic stantibus.Footnote 192 Institutional informality is not weakness.
The neglected nineteenth-century regime extends the theoretical and empirical boundaries of social scientific inquiry into the decentralized institutional sources of world order. The prewar regime speaks with great clarity and theoretical sophistication to contemporary concerns. Drawing on its insights sooner may have shifted institutionalist research into more fruitful directions earlier by obviating the misdirected effort expended in the 1980s on whether institutions matter. The prewar regime graphically shows they obviously do and under the most unlikely conditions. Ignoring the old institutionalist literature, the conventional European double-schedule, and autonomous U.S. single-schedule tariff regimes it documented severely limited our understanding of past and contemporary institutions. Fortunately, the defects are easily remedied by refocusing on variations in nineteenth-century international institutional forms: unglamorous comparative tariff systems.
