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covenant, when necessary, it is difficult to see how the court can give effective legal recognition to its factual existence. Many courts, however, have failed to perceive that in origin good will is largely personal. They have confused the result with the means. The rigid classification of good will into local and personal has obscured the issue in many cases. The question is not: Is the good will personal? The solution of any controversy regarding good will seems to be dependent upon two questions: 1. Does good will in fact exist? 2. May the benefit of it, under the circumstances, be made available to the vendee without fraud upon the public? If these two questions can be answered in the affirmative, what the source of the good will was, would appear to be of no consequence. If the law is to be consonant with fact, the court must recognize good will as far as is effectively possible. To the extent that it fails, it fails as an instrument of justice.

The American Interpretation of the Most Favored Nation Clause*


A good many articles and a good many books have been written on the most favored nation clause, and nearly all of the authors devote the major part of their labors to the conditional interpretation: the European writers to showing its absurdity and utter lack of justification; the early American writers to condoning it; and the later American writers to condemning it. None of these writers, however, have attempted to show the nature of this apparently aberrant form of the clause, or to explain why it ever came into existence. There is an old proverb which says that where there is much smoke, there is at least a little fire, which is applicable to this problem, for it would seem that nothing as wrong and valueless, as the conditional form of the clause is claimed to be by the European and later American writers, could ever have received the vigorous and faithful support that that form of the clause has received from the American State Department. Before we go into the conditional clauses, however, it would perhaps be well to say a few words about the clause in general.

The most favored nation clause is the collective term used to designate a group of provisions found in most commercial treaties providing that the nationals of the contracting parties will receive treatment in the territories of the other at least as favorable as that

"This article is the result of a report prepared under the direction of Dean C. K. Burdick of the Cornell Law School for Hon. George W. Wickersham, for his use as member of the Commission of Jurists for the Progressive Codification of International Law.

'The following list is a select bibliography of the clause. It is not exhaustive, but contains all the more valuable treatises: CALwer, Die MeisTBEGUNSTIGUNG DER VEREINIGTEN Staaten von NORDAMERIKA (1902); Cavaretta, La Clausola della Nazione la piu FavORITA (1906); CULBERTSON, INTERNATIONAL ECONOMIC POLICIES (1925); GLIER, DIE MEISTBEGUNSTIGUNGSKLAUSEL (1905); HEROD, Most Favored Nation Treatment (1901); Herrera, LA CLAUSULA DE LA NACION MAS FAVORECIDA (1926); Hornbeck, The Most Favored Nation Clause in Commercial Treaties, WISCONSIN UNIVERSITY BULLETIN, 1908, ECONOMICS AND POLITICAL SCIENCE No. 6 (2), and in 3 AMERICAN JOURNAL OF INTERNATIONAL LAW 395, 619, 797 (1908); McClure, A New American Commercial Policy, Columbia University Dissertation, 1924, No. 173 (1924); Schraut, System der HandeLSVertrage und die Mesitbegunstigung (1884); United States Tariff COMMISSION, RECIPROCITY AND COMMERCIAL TREATIES (1919); Viner, The American Interpretation of the Most Favored Nation Clause, 32 JOURNAL OF POLITICAL ECONOMY 101 (1923); Visser, La Clause de la Nation la plus Favorisée dans les Traités de Commerce, 4 REVUE de Droit INTERNATIONAL, II série (1902); VON MELLE, DIE MeistbegunstiGUNGSKLAUSEL, IN HOLTZENDORFF'S HANDBUCH DES VOLKERRECHTS (1889).

granted to third nations. The chief object of commercial treaties is, naturally, to secure to each of the contracting parties as many advantages from the other as it is possible to get, and so, for the most part, commercial treaties are made up of specific provisions setting out the definite concessions which the parties are willing to make. Along with these special provisions, however, it has been found to be essential to include others which guarantee that the favors secured by the treaty will not be rendered less valuable by the granting of greater favors to another nation. These clauses all tend in the end to prevent discrimination, for if all nations have them in their treaties with each other, the nationals of all foreign countries must be treated alike in the territory of any one country. There are two forms of these discrimination-preventing clauses: those providing for national treatment, and those providing for most favored nation treatment.

A national treatment clause provides that the nationals of each country shall be treated in the territories of the other just as if they were native citizens; in other words, it promises that there will be no discrimination at all. This is the usual form of clause governing shipping and navigation, and has been used extensively, though sporadically, in most of the other fields covered by commercial treaties. A good example of this form of the clause:

"No other or higher duties or charges shall be imposed in any of the ports of the United States on British vessels than those payable in the same ports by vessels of the United States; nor in the ports of His Brittanic Majesty's territories in Europe on the vessels of the United States than shall be payable in the same ports on British vessels."

A most favored nation clause provides that the nationals of each country will be treated in the territories of the other just as well as the nationals of any foreign country; in other words, it promises that there will be no discrimination among foreigners. This is the usual form of the clause governing tariffs and the importation and exportation of merchandise; though it is also used extensively in other fields as a sort of residuary clause: everything not granted national treat

For a fuller discussion, see UNITED STATES TARIFF COMMISSION, HANDBOOK OF COMMERCIAL TREATIES, in the introduction, p. 5; and Culbertson, op. cit., Ch. II.

"Treaty, United States-Great Britain, 1815. All treaties to which the United States is a party may be found in MALLOY'S AMERICAN TREATIES, SENATE DOCUMENTS 47-48, 61st Cong. 2nd Sess., arranged alphabetically by countries. All other treaties are to be found in DE MARTENS, RECEUIL DES TRAITES, or, after 1921, in the League of Nations Treaty Series.

ment is usually covered by a most favored nation clause. A fairly representative though simple form of the clause:4

"No higher or other duties shall be imposed on the importation into the United States of any article, the produce or manufacture of the dominions of His Majesty the King of Denmark; and no higher or other duties shall be imposed on the importation into the said dominions of any article, the produce or manufacture of the United States, than are or shall be payable on the like articles, being the produce or manufacture of any other foreign country." As has been said, the most favored nation clause is a sort of residual clause covering all favors not otherwise provided for; but the chief purpose in practice, and the only purpose of any importance, is to govern tariff relations. It may be said safely that ninety-five per cent of the claims made under the clause are for reductions of tariff, and in practically all the works on the clause, only that aspect is given serious consideration. For all practical purposes, then, the most favored nation clause may be characterized as the international governor of tariffs.

From a legal standpoint, the generic term most favored nation clause is somewhat misleading, for, as was intimated above, it is not a clause, but a group of provisions. There is no fixed form, and it rarely occurs in even a single treaty in a single definite article. The usual thing is to tack on to a number of articles containing specific concessions, a provision that with respect to the subject matter of that concession the promising nation will not grant greater favors to a third nation; and then to add a covering clause, either at the end or beginning of the treaty, providing that all favors granted to another country will be granted to the other contracting party. The clause may, therefore, appear in any number of articles in the same treaty: occasionally there is only a covering clause; usually there is a covering clause and from half-a-dozen to a dozen specific clauses; in a treaty like the Versailles treaty the number begins to read like the war debt, for in that treaty there is a specific most favored nation clause in practically every article from Art. 260 to Art. 380. The most usual subjects for the specific clauses are the ordinary ones of commercial intercourse: duties on imports and exports, shipping taxes, and rights of travel and business."

It will be readily seen, therefore, that the variety of forms in which the clause may appear is indeed infinite, since it may be

'United States-Denmark, Treaty of 1826, Art. IV.

"United States-Belgium, Treaty of 1875; United States-Japan, Treaty of 1854. 'See also, Japan-Greece, Treaty of 1899; Japan-Ecuador, Treaty of 1918. "HORNBECK, op. cit., supra note 1, 9.

limited or described in any way the contracting parties desire. As a generalization, it may be said that a limitation attached to a most favored nation clause may consist of any stipulation of which the parties are capable of contracting; but as a practical matter, most limitations are of three classes: either as to subject matter, as to the geographical districts to which they are to apply, or as to the political units to which they are to apply. The clauses limited as to subject matter are the specific clauses we have been discussing above: they form perhaps eighty or ninety per cent of the total body of most favored nation clauses, but they are not especially significant, for their meaning is clear if the contracting parties have been careful enough to express themselves clearly. The clauses limited as to geographical districts are also fairly common: the national treatment clause quoted above is a good example-limited to "His Majesty's ports in Europe" or the clause in the Louisiana Cession Treaty mentioned hereafter-limited to "ports in the ceded territory." The other class consists of those clauses which except from the operation of the clause, relations with certain peculiarly friendly countries. For instance, Norway and Sweden usually except from their clauses favors granted to Finland or to each other; England excepts favors granted to her dominions; the United States excepts favors granted to Cuba; and most of the South American states except favors granted to each other. But on the whole, though limited clauses comprise nearly ninety per cent of all most favored nation clauses, they are relatively unimportant from a historical or legal standpoint, for each is an individual provision, different from all the others, and depending for its interpretation only on the clearness of its wording.

Another characterization, which divides the clause into two fields, is the characterization as unilateral or reciprocal. This is a simple distinction: if only one party promises not to discriminate, the clause is unilateral; if the promises are mutual, the clause is bilateral or reciprocal. The latter is the regular form; the unilateral clause is exceptional, and its presence indicates a position of hopeless inferiority in the promisor nation. It is either so weak in a military way that it is not able to get any sort of consideration, as were Germany and Austria after the World War; or so weak in an economic way that it makes little difference whether or not it gets any consideration, as were the Barbary States in the seventeenth and eighteenth centuries; or it may be both, as are states like Korea, Siam or Afghanistan. But wherever this form of the clause appears,

Supra note 3.

'United States-France, Treaty of 1803, Art. VIII. Infra note 29.

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