Cobden-Chevalier Treaty: Free Trade & Customs Unions
The Cobden-Chevalier Treaty: A Cornerstone of Free Trade
What was the Cobden-Chevalier Treaty?
- The treaty stipulated that Britain would eliminate all tariffs on imports of French goods, with the exception of wine and brandy. The British considered these luxury goods, allowing Britain to retain a small tax for revenue purposes. This was also influenced by Britain’s traditional economic ties with Portugal, a wine producer, ensuring Portugal maintained priority in the UK market.
- France, in turn, lifted its prohibition on imports of British textiles and lowered tariffs on a wide array of British products to a maximum of 30%. The average tariff was approximately 15% ad valorem. France effectively abandoned strict protectionism in favor of moderate protectionism.
A crucial element of the treaty was the inclusion of a “Most Favored Nation” (MFN) clause. This meant that if either party negotiated a treaty with a third country, the other party would automatically benefit from any lower tariffs granted to that third country. France subsequently negotiated a network of treaties across Europe, and other European countries also established treaties with each other, all incorporating the MFN clause. Consequently, whenever a new treaty came into effect, a tariff reduction occurred. For approximately a decade, between 1860 and 1870, Europe experienced a period of near-complete free trade, a level not seen again until after the Second World War.
The impact of this network of trade agreements was significant. International trade, already accelerating due to British reforms in the 1840s, grew by roughly 10% annually for several years. The majority of this growth was in intra-European trade, although overseas nations also participated. The American Civil War, which began the same year the Cobden-Chevalier Treaty was signed, had a contrasting effect.
The Union blockade of the Confederacy prevented Southern exports, causing a “cotton famine” in Europe, particularly impacting Lancashire. It also limited the export of consumer goods and capital from Europe to the South. Another consequence of the treaties, especially in France but also in other countries, was industrial restructuring. Increased competition forced inefficient firms, previously shielded by tariffs and prohibitions, to modernize, improve their technology, or exit the market. The treaties, therefore, fostered technical efficiency and boosted productivity.
Free Trade Areas vs. Customs Unions: Key Differences
What is the difference between a free trade area and a customs union?
- Free Trade Area: An agreement between two or more countries to eliminate customs duties and other trade barriers among themselves, while *each country maintains its own independent trade policy towards non-member countries*. A historical example is the application of the Cobden-Chevalier treaty.
- Customs Union: A free trade area that *also establishes a common external tariff*. Member states adopt a unified trade policy towards non-member states. A primary goal of customs unions is to enhance economic efficiency and unity among member states. Historical examples include the Zollverein and Benelux.
In a free trade area, because each state has a different foreign trade policy, rules of origin and border checks are necessary. This prevents goods from entering the trade bloc through the state with the lowest tariff and then being transferred to a state with a higher tariff. Conversely, a customs union, with its common external tariff, eliminates the need for internal border checks. Any product imported from a non-member state is subject to the same tariff regardless of its port of entry.
While a free trade area offers greater financial autonomy to member countries, a customs union simplifies the handling of re-exports and imported goods, as these are subject to uniform tariffs regardless of the entry point.