the area and yet resist its applicability to trade outside the area or, if the protectionist argument is adopted that weaker industries should be sheltered from outside competition, it is difficult to see why they should not be protected against internal competition, in both cases so long as the purely economic standpoint is adhered to. If the case for intermediate duties is granted, then again the difficulty arises; either the duty is sufficient, in which case the external tariffs are too high, or it is insufficient, in which case a protectionist should oppose the union.

The only approach to the problem which seems logically consistent is the one which asserts that the united area forms "natural economic whole " with such balanced parts that though temporarily union is likely to result in difficulties to certain industries, yet the whole is naturally so fitted for self-sufficiency that in the long run the various parts will be complementary, and can meet the full needs of the population. A gradually declining intermediate duty will give the weaker industries time to adjust themselves, whilst protection against the outside world, just because the area is self-sufficing and complementary, can be safely maintained, and in the interests of national independence, ought to be maintained.1 question of the policy to be pursued under such circumstances, assuming that they exist, is beyond our subject, but it must be insisted that this argument assumes the self-sufficiency of the area and this is a question of fact: and the further practical question arises as to whether the autonomous development of each part has not proceeded so far that, though an adjustment of interests might have been possible on the basis of complementary natural resources of the component areas, actual adjustment is no longer possible or desirable.

(b) Opposition of Interests beyond the Area-i.e., as against Third States. It is not likely that both areas will have identical interests in importation from, or exportation to, third states. Consequently there at once arises the necessity of adjusting the interests of different parts of the union. The industrial areas will desire protection on manufactured goods,

1 This imperative may, of course, be questioned: it does not follow that because a thing could be done, therefore it ought to be done. The purely economic side of the situation requires the further question to be answered; if it is done, will the economic advantages outweigh the disadvantages? But if the validity of the ideal of national independence is granted, purely economic issues are not necessarily the decisive ones.

free trade in foodstuffs and raw materials, the agrarian areas will desire the reverse.

Assuming that compromise is possible on the basic principles of the tariff policy to be pursued, important questions of detail still arise. Ought the degree of protection to be adjusted to the needs of the weakest or the strongest portions of the industrial or agricultural system of the joint area? If the weakest industrial area and the strongest agricultural area or vice versa are situated in different portions of the joint area, ought agriculture desiring cheap imports of manufactures in return for exports of food to be sacrificed to the needs of the weaker industries, if these are threatened : ought the stronger industries to be deprived of their opportunities for export by retaliation on the part of third states owing to their food exports being threatened in order to protect the weaker agricultural areas?

If it be argued that the uniting states, in order to overcome these difficulties, should pursue, not a joint external policy, but a separate tariff and treaty policy, the resulting system will simply be one of internal preference or free trade. But, from whatever point of view regarded, considerable difficulties still remain. For one or both states may find that the grant of preference to the other has weakened its power of obtaining concessions from a third state; whilst it may equally be found that concessions to a third state have lowered the value of the preference or the free trade arrange

ment.

Difficulties may also arise in the interpretation of treaties, for should one of the parties have concluded most favoured treaties with a third state, is not this state entitled to these privileges? The answer may be made that a union abolishes the customs duality of the two states; consequently that most-favoured-treatment cannot be used by a third state to claim these rights. But this simply raises in an acute form the problem, what is a customs union? To admit the claim for a generalisation of these privileges is of course to reduce their value but to refuse their extension is to risk retaliation. If the burden of any such retaliation hits one part of the union, whilst the preferences redound to the benefit of the other part, it is not likely that considerable friction will result.

Here, then, are many causes of possible friction. If these causes find an emollient in the shape of a strong national ·

.

sentiment of unity, they are more capable of adjustment : if to them are added strong differences of political outlook,. national sentiment, historical associations, they will prevent the union being successful or permanent. It does not follow that the existence of such a desire for political association will necessarily yield the requisite basis for union, but its absence simply emphasises the inherent economic difficulties.1

It is the merit of the already mentioned work of Dr. Pentmann's to have analysed very fully the relations between the historical advocacy of the customs union principle and the political economic movements of the successive decades of the 19th and the 20th centuries. From this analysis it appears fairly clearly that the practicability of the customs union is bound up strictly with the principle of nationality and that it was at the time when the free trade movement and the idea of national unity were mutually compatible that the union movement achieved its greatest success.3 Historically the movement has found no firm basis but these two in combination: for Imperialism, though it desires a world state, is opposed to the subordination to the will of others which the give and take of a union requires : Imperialist States desire to control, and not to share control; whilst the National State, once founded on the basis of national sentiment, is averse to any movement interfering with the. right of "self-determination," even in customs matters. Hence the customs union principle in the last third of the 19th century represented, in the main, reaction from the dominant ideals: it was the protest of free traders like Molinari against the growing exclusiveness of the Nationalist State, or of agrarians against over-seas competition, or of European industrialism afraid of the "American danger." 4

1 If Diehl (op. cit., p. 12) says that "a zollverein is only then in place if the economic circumstances appear to warrant its purposiveness," and emphasises that the political cannot possibly be decisive," he is not contradicting,

6

but enforcing the argument in the text.

2 See above, § 7, note, p. 15.

3

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Emphasised also by Jastrow, Die mitteleuropaische Zollan näherung und die Meistbegünstigung," 1915, pp. 11. 12.

Pentmann, op. cit., pp. 125-9. If our author stresses the antagonism between the Imperial position and the standpoint of the supporters of the customs union by saying that the one represents "world economics and world policy," the latter "isolation and limitation to a geographically defined area (p. 126), he is using the phrase Imperialism in rather a different sense than the sense he has himself assigned to it in a previous section (p. 97), when he defines it as "the effort of modern states to expand politically and economically by the aid of the power of the state,

§ 9. We are not without an illustration of the dangers to which a customs union may be exposed in the event of one or more of the members resenting the association. The history of the tariff relations between Austria and Hungary provide the illustration we require. Even had the war not destroyed the pre-existing relations subsisting between these. two states, it is doubtful whether they would have continued in their old form after 1917.

The customs union between Austria and Hungary was the result of an agreement first concluded in 1867 and celebrated under the name of the "Ausgleich" or compromise. The compromise itself rested on the Constitutional Laws of Austria and Hungary, which divided the affairs of the Empire into two classes: (a) Joint affairs. (b) Affairs to be settled in common-i.e., matters in which both parties retained independence, but which it was desirable to settle on a uniform basis. The conclusion of treaties was an affair of the first type, the tariff relations of the Empire was an affair of the second. On the basis of this constitutional position, it was inevitable that sooner or later the treaty powers would be involved in the tariff powers, and in fact it was very soon the policy of Hungary to identify the two matters. Tariffs were to be submitted to the two legislatures after an agreement had been reached as to their content by the appropriate Ministers of the two countries.

We

The history of this preparatory meeting of the Ministers itself shows some of the difficulties of the situation. may quote Grunzel's statement.3

this expansion at the same time being directed primarily to the agrarian areas of the world outside Europe, with the object of attaining territorial sovereignity over these." There would seem to be territorial limitation (Beschränkung) here also. It is the difference in spirit that really distinguishes the "Colonial World State" from the "autonomously determined Customs Union."

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1 Grunzel, Handelspolitik und Ausgleich in Oesterreich-Ungarn," 1912; P. Westphal," Die Krise zwischen Oesterreich und Ungarn," 1906; Lájos Lang, Hundert Jahre Zollpolitik"; Matlekovits, “Die Handelspolitschen Interessen Ungarns" in S.V.S.P., vol. xciii., 1901; Petritsch," The Fiscal Question and the Experience of the Austro-Hungarian Empire," in Ec., J. vol. xiv.; Jarray, "Les Dispositions Economiques du Nouveau Compromis Austro-Hungrois," in R.E.I., 1908; Michels," Die Zolltrennung Oesterreich-Ungarn," in Schmollers Jahrbuch, vol. xxxii., pp. 557-620.

The text of these Acts will be found in Dareste," Les Constitutions Modernes "; the Austrian Act will also be found in Dodd, "Modern Constitutions." It is to be noted that the two Acts are not in complete accord.

3 Op. cit., pp. 147-8; cf. Lang, op. cit., pp. 208-211.

"In the compromise of 1867 the Hungarians agreed to the formation of such an organ, but attempted nevertheless to reduce its powers and position as much as possible, in order to prevent the development of a kind of centralised Customs Parliament therefrom, on the model of the German Zollverein. In this way there arose the institution of the Customs and Commercial Conference, composed of the respective Ministers of Commerce and Finance, and, in so far as relations with foreign countries came into account, of the common Minister of Foreign Affairs, or his representative. The compromise of 1907 added the two Ministers of Agriculture. It was further possible to call representatives of chambers of commerce from time to time, and since 1907 representatives also of agricultural corporations, who possessed no voting rights. The calling of the conference lies in the hands of either government, and, in consequence of a case of a refusal to attend on the part of Hungary, it was expressly laid down in the compromise on 1878 that attendance at the conference could not be refused.

The form of the union was declared in the first paragraph of the compromise. The two states were to be surrounded by a uniform customs wall, and should not impose on their mutual commerce any import, export, or transit taxes, but, whilst previously to 1907 the talk had been of "AustroHungarian Customs Territory" and the "Austro-Hungarian Customs Tariff," in the compromise of 1907, the phrase " treaty customs area" (Vertrags Zollgebiet der beiden Staaten der Monarchie) was substituted; a change of title which was significant of a growing desire of Hungary to shake off the union altogether, for, as Jarray sums up the results of the 1907 compromise: "the second preoccupation of the negotiations is the desire to make a clean sweep in 1917: from that time it is recognised that any economic treaty with a foreign power cannot be concluded for a period subsequent to that date without the constitutional ratification of each country, and that a single one of the two states may, at its desire, denounce the existing treaties. In their mutual economic relations, the final article of the Ausgleich does indeed pre-. visage negotiations in 1915, but for the first time since 1867, as well in the actual compromises, as in those projected, one no longer finds 'la clause de la tacite réconduction,' the silence of the two governments is sufficient for Hungary to