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 against the doctrines of free trade. Hungary, on the other hand, was still in favour of free trade, for there were no important manufacturing industries in that country, and it required a secure market for agricultural produce. After 1875 the commercial treaties expired; Hungary thereupon also gave notice to terminate the commercial union with Austria, and negotiations began as to the principle on which it was to be renewed. This was done during the year 1877, and in the new treaty, while raw material was still imported free of duty, a low duty was placed on textile goods as well as on corn, and the excise on sugar and brandy was raised. All duties, moreover, were to be paid in gold—this at once involving a considerable increase. The tariff treaties with Great Britain and France were not renewed, and all attempts to come to some agreement with Germany broke down, owing to the change of policy which Bismarck was adopting at this period. The result was that the system of commercial treaties ceased, and Austria-Hungary was free to introduce a fresh tariff depending simply on legislation, an “autonomous tariff” as it is called. With Great Britain, France and Germany, there was now only a “most favoured nation” agreement; fresh commercial treaties were made with Italy (1879), Switzerland and Servia (1881). During 1881–1882 Hungary, desiring means of retaliation against the duties on corn and the impediments to the importation of cattle recently introduced into Germany, withdrew her opposition to protective duties; the tariff was completely revised, protective duties were introduced on all articles of home production, and high finance duties on other articles such as coffee and petroleum. At the same time special privileges were granted to articles imported by sea, so as to foster the trade of Trieste and Fiume; as in Germany a subvention was granted to the great shipping companies, the Austrian Lloyd and Adria; the area of the Customs Union was enlarged so as to include Trieste, Istria and Dalmatia, as well as Bosnia and Herzegovina. In 1887 a further increase of duties was laid on corn (this was at the desire of Hungary as against Rumania, for a vigorous customs war was being carried on at this time) and on woollen and textile goods. Austria, therefore, during these years completely gave up the principle of free trade, and adopted a nationalist policy similar to that which prevailed in Germany. A peculiar feature of these treaties was that the government was empowered to impose an additional duty (Retorsionszoll) on goods imported from countries in which Austria-Hungary received unfavourable treatment. In 1881 this was fixed at 10% (5% for some articles), but in 1887 it was raised to 30 and 15% respectively. In 1892 Austria-Hungary joined with Germany, Italy, Belgium, and Switzerland in commercial treaties to last for twelve years, the object being to secure to the states of central Europe a stable and extended market; for the introduction of high tariffs in Russia and America had crippled industry. Two years later Austria-Hungary also arranged with Russia a treaty similar to that already made between Russia and Germany; the reductions in the tariff secured in these treaties were applicable also to Great Britain, with which there still was a most favoured nation treaty. The system thus introduced gave commercial security till the year 1903.

Each of the financial and economic reforms described above was, of course, the subject of a separate law, but, so far as they are determined at the general settlement which takes place between Austria and Hungary every ten years, they are comprised under the expression “Ausgleich” (compact or compromise), which includes especially the determination of the Quota, and to this extent they are all dealt with together as part of a general settlement and bargain. In this settlement a concession on commercial policy would be set off against a gain on the financial agreement; e.g. in 1877 Austria gave Hungary a share in the management of the bank, while the arrangement for paying the bonus on exported sugar was favourable to Austria; on the other hand, since the increased duty on coffee and petroleum would fall more heavily on Austria, the Austrians wished to persuade the Hungarians to pay a larger quota of the common expenses, and there was also a dispute whether Hungary was partly responsible for a debt of 80 M.