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The 19th century saw the substitution of mercantilist politics with more liberal, free-trade oriented commercial policy. An important example is the repeal of the Corn Laws in Britain in 1846. Conventional wisdom states that another important step to achieve trade liberalization in this period was bilateral cooperation, that is the conclusion of treaties regarding commercial policy (tariffs, prohibitions) and other aspects of foreign trade, between Britain and European governments, both free trade oriented and more protectionist.
The most prominent of these agreements was the Cobden-Chevalier treaty concluded in 1860 between Britain and France. This treaty has been described as the priming of a “free trade epidemic” (David Lazer) that infected the European continent and led to a “swift break with centuries of protection”. The virus, bilateral preferential trade agreements (PTAs) that stipulated preferential tariffs and unconditional most-favoured nation (MFN) treatment, was disseminated in a contagion process in which outsiders aimed for equal treatment on insiders’ markets, thereby causing further outsiders to be exposed to discrimination and the incentive to sign treaties. Over a period of 15 years, this led to the conclusion of 56 similar PTAs in Europe, liberalizing trade to an extent that was internationally unmatched until the end of the Tokyo round of the GATT. In contrast to the latter, each treaty was valid only between its two signatories, although the mutual concession of unconditional MFN status automatically transmitted preferences between treaties of the same country with different parties, thereby giving an informal multilateral quality to the evolving network (1). As an institution, the Cobden-Chevalier network might therefore be understood as similar to modern-day free trade areas, but with residual elements of internal discrimination since in no way all tariffs were eliminated.
In a recent article forthcoming in the Economic History Review, I have investigated the determinants of the evolution of the spread of this wave of bilateralism, using standard and less-standard insights from economic theory, a new detailed dataset and statistical analysis. Was it the aim of governments to maximize economic welfare by facilitating cheap imports and international specialization? Was it assistance to exporters to overcome other parties’ high trade barriers? Was it the fear of exclusion from neighbouring markets due to the diversion of trade flows towards countries that were willing to cooperate?
My empirical analysis shows that all these aspects contribute to the understanding of the Cobden–Chevalier network. In line with the results of recent studies on PTAs after World War II, variables like market size, distance and factor endowments that model the expected welfare gains from PTAs, formed the basis of 19th Century bilateralism. However, these economic fundamentals do not tell the whole story: The difference in market size (GDP) between two countries influenced negatively the probability that both sign a bilateral treaty, while the potential size of their joint market had a positive influence. This shows made cooperation difficult for small countries who could not offer access to a large market, although their willingness to cooperate in principle should have been large, given their higher dependence on foreign trade. Small countries found themselves in a disadvantageous situation of having to ‘accede’ to the state of negotiation established by larger countries in earlier treaties, while only being able to bargain on a small range of issues not covered by the initial treaties.
Actually, ceteris paribus, high initial tariffs influenced bilateral cooperation positively. This is understandable if we consider tariffs as something that can be changed through international cooperation. It does not necessarily imply that national tariffs were set to extort concessions; high duties simply constituted political barriers to trade whose removal was worth something.
Also, fears of trade diversion, modelled by the share of imports and exports of a potential treaty partner already under the provisions of bilateral treaties with others, were clearly positively correlated with the probability of concluding such an agreement.
At the same time, these results –comparable to those obtained for post-1945 PTAs, hint at several problems of “pure” bilateralism. For example, the combination of potential partners’ trade already covered by PTAs and their bilateral distance — which is one of the “economic fundamentals” and affects negatively the probability of bilateral treaty-making — explains why the network was geographically constricted to Europe. Higher distance decreased the probability of PTA conclusion, which led to relatively low potential welfare gains and trade diversion fears outside Europe. This implies that the Atlantic Ocean, the Mediterranean Sea, and the Russian Empire constituted a sort of natural border for the expansion of the network.
If the network integrated European trade, one might ask whether it should be seen as the predecessor of a European common market and thus, whether it had the potential to lower tariff duties to zero and additionally deepen cooperation in other fields. The finding that high autonomous tariffs made (partner) cooperation more casts doubt on the potential for a ‘second round’ of negotiations that might have deepened the results of the treaties concluded until 1875, and history confirms this. After 1875, the Cobden–Chevalier network did not collapse, but also did not advance further on the way to free trade. According to the political economy theory, the only feasible way to achieve further reduction of barriers to trade would have been the multilateralization of negotiations. This, however, did not happen in the context of ‘struggle for colonies’ and arms races among European. The importance of potential trade diversion and high tariffs highlighted above indicates that it would have taken very strong political determination to multilateralize the network.
Highlighting this, the results of my historical case study of ‘pure’ bilateralism not ‘interfered’ by a multilateral world trade order, also allow to appreciate the positive contributions of having an institutional framework to multilaterally deal with the deepening of trade integration.
1. Actually, not all treaties included specific liberalizations; an increasing proportion of the agreements concluded in the late 1860s and 1870s convened pure mutual MFN status only, thereby “only” closing gaps in the network.
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Lampe, M. (2010), ‘Explaining nineteenth-century bilateralism: economic and political determinants of the Cobden–Chevalier network’, Economic History Review
Ethier, W. J. (2004), ‘Political externalities, nondiscrimination, and a multilateral world’, Review of International Economics, 12, pp. 303–20.
Lazer, D. A. (1999), ‘The free trade epidemic of the 1860s and other outbreaks of economic discrimination’, World Politics, 51, pp. 447–83.
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Markus Lampe is Assistant Professor at the Department of Economic History and Institutions at University Carlos III Madrid in Spain. His PhD thesis (University of Münster, 2008) and recent publications deal with the evolution and effects of the Cobden-Chevalier Network of bilateral commercial treaties after 1860. He is also interested in the Danish dairy industry in the 19th Century.