KLL4301

Proceeding - Kuala Lumpur International Business, Economics and Law Conference 4 (KLIBEL4)
Vol. 3. 31 May – 1 June 2014. Hotel Putra, Kuala Lumpur, Malaysia. ISBN 978-967-11350-3-7

THE EARLY STAGE OF BILATERAL TRADE AGREEMENT
IN SOUTHEAST ASIA IN SEVENTEENTH CENTURY
Miss Natsuda Kiripet
Graduate Student, Thammasat International Trade Law and Economics Program
Thammasat University, 2 Prachan Road, Bangkok 10200 Thailand
Email: nokyoongnatsu@gmail.com, Tel: +668-6665-7916
ABSTRACT
Before the theory of free trade was well known in the international trade system, many countries
created free trade areas by themselves. The bilateral trade agreement (BTA) was formed a long
time ago to support free trade. The objectives of agreements are to exchange benefits and give
trading privileges to each other. That means the parties in the agreement got more benefits from
trade together if they followed conditions in their agreements. However, the result from
agreements did not show only advantageous effects: some of them caused negative results to
another party.
In the seventeenth century, the golden age of marine commerce in Southeast Asia, European
merchants from Portugal, Spain, The Netherlands and England were in contact with Asian states
to purchase local products (such as pepper, spices, wood and rice) and imported products (such as
Chinese goods; silk, ceramics and tea) which were valuable goods in Europe in that time. Because
of the high demand for Asia’s goods in Europe’s market, so merchants got huge profits from their
Asian trade. Finally, marine commerce between Southeast Asia and Europe expanded, and the
competition between European nations in Southeast Asia ports occurred. They found the best
method to establish good relations with authorities in those ports to support their trade.
The signing of a bilateral trade agreement (BTA) became one selected method. European
merchants believed that a BTA could guarantee their trade benefits and keep them away from
unstable regulations. On the other hand, how was the BTA feedback in Southeast Asia? The aims
of this paper are to outline the factors in trade negotiation between Europe and Southeast Asia, and
the reasons why Southeast Asia had to accept some unfair BTAs.
The scope of this paper covers bilateral trade agreements of the Dutch East India Company, also
known as the VOC (short for Vereenigde Oost-Indische Compagnie) with Siam (now Thailand)
and the VOC with Java (now part of Indonesia)
Keywords: Bilateral Trade Agreement (BTA), Contract, Trade Negotiation
INTRODUCTION
“Treaty”, “Agreement” or “Convention” has the same meaning in the Vienna Convention on the
Law of Treaties (VCLT) 1969, a treaty concerning the international law on treaties between states.
Reference is here made to article 2(1)(a)--treaty means an international agreement concluded
between State instrument or in two or more related instruments and whatever its particular
designation--(United Nations, 2005, p.3). This article was defined after the treaty had been in use
for a long time. It seemed to be that the treaty was acceptable in the international relations system,
because of it is an important source of International Law.

By the way, the Vienna Convention on the Law of Treaties 1969 was determined in the early
twentieth century, when most states in the world understood the treaty concept. However, in the
seventeenth century, only European states well knew the root of the treaty concept is “pacta sunt
servanda” or promises shall be kept, the root coming from the Roman Empire’s law. On the other
hand, Asian states had did not have the same concept of treaty as Europe. It was quite hard for two
states, which had a difference basic perception of law, to sign a treaty together. How was treaty
acceptance, and enforcement between states or parties?
Harrison Theeuwes (2008, pp. 163-164) in “The Economic Functions of Contract Law,
concluded that the basic of contract or agreement concept is the way that people create obligations
beyond those when they make contracts. The definition of contract in law is an agreement that is
supported by consideration. Consideration is what one party gives in exchange for the act
(performance) or promise of the other party. Hence, my assumption for Asia is that were accepted
the treaty from Europe cause of obligations in treaty conditions.
Regarding to my research’s objectives, I decided to use “agreement” instead “treaty”, because the
case studies in this paper happened before the Vienna Convention on the Law of Treaties 1969.

INTERNATIONAL TRADE, THE OLD RELATIONSHIP BETWEEN EUROPE AND
ASIA.
The trade between Europe and Asia started since the sixteenth century, the high-value products,
like pepper and spices, attracted the European merchants to sail to Asia. Portugal and Spain
opened trade networks and routes between Europe-Asia. This route became popular among
European merchants, due to the high profit from the pepper and spice trade returned to them. After
that other European states such as England, The Netherlands and France sailed their ships direct to
Asia too.
The objective of economics theory was an important reason which impelled the European states to
concentrate on international trade, especially the Europe-Asia network. Mercantilism was a
popular economic theory during the sixteenth to eighteenth centuries. The primary objective of
Mercantilism was to increase the power of the nation state by getting the advantage from
international trade (Reynolds, 2000). That is why European states were in competition and tried to
monopolize Asia trade.
The maritime trade in Asia had been formed a long time ago by China and India. However, the
scope of international trade was limited to intra-Asian trade. China was the greatest empire among
Asian states, Chinese merchants played an important role in intra-Asia trade, they were big traders
in dealing in export and import goods (Ota, 2013). Most states in Asia gratefully combined their
maritime trade with China by the Tribute system1, were called Tributary states, and hoped to get
trade privileges from China. It was not easy for European merchants to succeed in their trade in
Asia. They had to adjust themselves and their trade policy following Asia tradition.
1The tribute system (Chinese: chaogongtizh) is a widely used term in the studies of traditional
Chinese foreign relations. It is generally accepted that the tribute system embodied a set of
institutions and social and diplomatic norms that dominated China’s relations with the non-
Chinese world for two millennia, until the system’s collapse toward the end of the nineteenth
century (Zhang BUZAN 2012).

After European merchants could contact China and others, they found that except pepper and
spices, the Chinese goods such as tea, ceramics, silk etc, were popular both in the intra-Asia
market and the European market.
The international trade of the Europe-Asia network was the main objective of European
merchants. At the beginning of the seventeenth century, the modern type of merchants group
started to have contact with Asian states. Joint-stock companies were invested in by merchants and
the states general. English merchants operated the first joint - stock company in 1600, named the
England East India Company or EIC. Two years later, the Dutch East India Company or VOC
(shortened from: Vereenigde Oost-Indische Compagnie) was founded with registration capital
nearly of 6 MB guilders, tenfold the amount of EIC capital (Smith, 1977)
HOW A JOINT STOCK COMPANY FROM THE NETHERLANDS BECAME A MAIN
TRADER IN SOUTHEAST ASIA
In 1602 the VOC was established by government support, obtaining an exclusive license (Charter)
to monopolize trade in the East. Moreover, the charter allowed the VOC quasi-governmental
powers, including the ability to wage war, imprison and execute convicts, negotiate treaties, coin
money, and establish colonies (Smith, 1977). Carlos Nicholas (1988) and Lucassen (2004)
called the VOC the first multinational corporation of the World, because they built offices
(“factories”), godowns or warehouses in each state (Cruysse, 2002) and set up management teams
to support its own business.
In the beginning of the VOC’s business, it was interested in pepper and spice trade only. It got a
huge profit from the Maluku spice trade. A few years later the competition in pepper and spice
trade increased, there was over supply in the European market (Ota, 2013). The prices declined
and the VOC also was affected by this situation, their profit decreased. After that the VOC added
its activity, from pepper and spice trade between Europe and Asia only to be an investor and
trading among the Asian states (the intra-Asian trade).
The VOC had strength in ship innovation. Bruijn (1993) compared Dutch shipping with
commercial rivals, like English shipping. Most results show the VOC had the advantage over
others, such as the VOC ships use the fewer crew members and their capacity was also higher.
Moreover, except Chinese and Indian merchants other native merchants had less skill to sail long
distance ships. This weakness of Asian merchants helped the VOC become a middleman in the
intra-Asia trade easily.
In 1619 Batavia (present-day is Jakarta) was founded as the VOC’s headquarters in Asia, its
administrative stay here to manage its imported goods from Southeast Asia before shipping them
on to East Asia and Europe (see figure 1). The VOC kept its old target, which was to monopolize
trade with Maluku while developing trade with China in a middleman’s role, but it failed to
establish direct trade with China. After that, the VOC changed its attention to Japan.


Figure 1: Maritime Asia in the 17th and 18th Centuries
Source: Nippon Communications Foundation (online: www.nippon.com)
Shimada (2010) said the important trade network of the VOC in seventeenth century was like the
triangle (see Figure 2) or “Triangular Trade” because it consisted of three states: Japan, India and
Siam, were encourage the international trade to each others. The precious metals (silver, gold and
copper) from Japan were brought to India to exchange with Indian textiles and cotton. Then all
Indian products were shipped to Southeast Asia, especially Siam, where Indian textiles and cotton
were luxury goods. Finally, forest and fishery products (deerskins, sapanwood and rayskins) were
exported to Japan and exchanged for precious metal again. The huge profit from this “Triangular
Trade” network was invested in pepper and spice islands, Indonesia, where the VOC had
monopoly rights to purchase all products from native people.
Figure 2: Triangular Trade of VOC in 17th Century


SIAM AND JAVA, THE CONSIGNEES OF THE VOC’S AGREEMENTS
To preserve its monopoly trade and trade privileges, the VOC found a method to make the
condition with their main supplier as Siam and Java. Therefore, the VOC selected signing bilateral
trade agreements to make a law with their supplier.
Ayutthaya in Siam was an important port of Southeast Asia, suitably located and connected by the
Chao Phraya River to the transoceanic trade via the Gulf of Siam (Gunn, 2011) and the trade
policy of the King was to allow all overseas merchants to trade in Siam. Therefore, Siam was
filled with imported products from overseas merchants such as Chinese, Japanese, French,
Portuguese and Indians included rich forest and agricultural products. Especially, forest products
were the main exported goods to Japan for a long time, and it provided the main international
trade income for Siam’s court too (Eoseewong, n.d). After 1630 Japan under Tokugawa policies
limited Japanese contact with the outside world. They allowed only two trading nations still to
trade with them, the Chinese and the Dutch.
The VOC got more benefits than other European merchants from Tokugawa policy, they wished
to monopolize the trade route between Siam and Japan after that policy (sakoku policy) prohibited
Siamese merchants from going to Japan. In fact, Siam still traded with Japan during the period of
this Tokugawa policy via Chinese merchants. The international trade in Siam was under royal
control, or Royal Crown trade. Na Pombejra (2003) said that the Siamese court hired Chinese to
sail Siam’s ships, due to their excellent sailing skills which were better than those of the Siamese.
By the way, the VOC was important a middleman to ship siamese products to Japan too (Na
Pombejra, 1998), but it was not a position in Japan market that the VOC planed. Siamese royal
crown trade was a commercial rival of the VOC thus the Dutch wished to reduce Siam’s trade role
in the Japan market.
The Indonesian archipelago started relations with Dutch merchants before the VOC was even
founded, since the end of the sixteenth century. In the early seventeenth century, the VOC
obtained monopoly control over trade with the Moluccas (Maluku). After that it invaded and
occupied the Banda Islands, part of the Moluccas, in 1621. Two years later, the VOC successfully
chased the Portuguese from their remaining base in Southeast Asia on Tidore and Ambon. The
Dutch annexation of Indonesia began in earnest. Following the charter that the VOC got from the
Dutch government, warships replaced trading ships and the battle for the archipelago commenced
(Gunn, 2011).
In 1619, the VOC had established a base of operations in Batavia on Java. The next conquests
would be Malacca (Melaka) in 1641, Ceylon in 1658 and the Malabar Coast in 1661. Because of
its stronger power than the native states, the VOC used brutal methods to maximize profits from
the spice trade. In an effort to limit production of nutmeg to their islands of Banda and Amboina,
they systematically destroyed the trees on other islands. When the natives of Banda continued to
sell nutmeg to English merchants, the Dutch killed or deported the entire population and replaced
them with indentured labourers and when prices for cinnamon or other spices fell too low in
Amsterdam, they would burn the crops (Department of Information, Republic of Indonesia, n.d).
THE MAIN FACTORS TO ENFORCEMENT BILATERAL TRADE AGREEMENT
As we know, in the seventeenth century there was no international law or international
organization to control and lay down guidelines about bilateral trade agreement enforcement. The
perspectives of bilateral trade agreement between Europe and Asia were different. The objectives

of bilateral trade agreement in this early stage seem to make a law to enforce between states
parties.
Before they committed to signing a bilateral trade agreement, state parties had to negotiate and
draft their agreement.The international relations between state parties were important in
determining the type of bilateral trade agreement, depending on their own power and their state’s
benefit or interests.
The different roles of Siam and Java with the VOC in international trade caused conditions in
bilateral trade agreement and enforcement between states parties. The relation between Siam and
the VOC could be separated into two parts. Firstly , as close commercial partners, they supported
each other. Siam was a main supplier of the VOC in Southeast Asia. Smith (1977, p.89) has
shown the total value of VOC exported goods from Siam during 1633-1663 was 4,602,456
guilders. Japan was the mains market, importing 39% of the total amount and increased to 50.8%
during 1664-1694. The exported value also reflects Siam’s trade income.
Secondly, they were commercial rivals in the intra-Asia trade, specifically the Japan market. The
Siamese court also traded in Japan through Chinese merchants. The export products from Siam
had to be divided between the Royal crown trade and the VOC. Therefore, if Royal crown trade
could not operate in Japan, all exported goods in Siam were taken by the VOC. In the Dutch-
Siamese treaty signed on August 22, 1664, there are a few clauses which affected Royal crown
trade in Japan. For instance, the treaty prohibited the Siamese court to hire Chinese sailors on their
ship, while another clause confirmed the VOC’s animal skins export monopoly in Siam. The VOC
believed the 1664 Dutch-Siamese treaty gave them a trade advantage over Siam (Na Pombejra,
2003).
On the other hand, the relationship between the Dutch and Java had shown only one kind of
relation. The VOC on behalf of the Dutch exerted strong power over the native population through
a combination of military force and political manipulation. In their eagerness to boost local
production of valuable spices, the VOC tried forced cultivation in some areas (Atsushi Ota, 2013).
As a result the VOC made many agreements which were signed without any fair negotiation with
the island’s inhabitants since the beginning of relations; the following treaties also supported their
rights of monopoly over the local trade in spices (Gunn, 2011). The reason why the VOC used
brutal methods (as above) to control native population and theirs production, all profits from spice
trade belong to the Dutch only.
The difference between bilateral trade agreement enforcement between Siam and Java with the
VOC was that benefits and Dutch’s power. Knaap and Sutherland (2004, referred to in Gunn,
2011, p.195) stated that “the Dutch did not seek to eliminate the inter island trade entirely,
especially where they profited and where it did not impinge on their monopoly over the spice
trade” consistent with Atsushi Ota’s (2013) studies: “the VOC’s tactics, it played a vital role in
sustaining and encouraging trade in maritime Asia in seventeenth to eighteenth centuries. In most
of the countries where it established outposts, it used force of arms to prevail over the indigenous
rulers and any previously established commercial interests.
Comparing Dutch power in Siam and Java, Dutch power was stronger in Java since the beginning
of relation by combination of military force and political manipulation. If we compare the cost of
military use with Java it was less than the benefits that the Dutch received from spice trade. It was
therefore the suitable way to increase the state’s benefit: a stronger military (than that of the native
state) was one factor to enforce a bilateral trade agreement. Conversely, Siam and the Dutch

started their relations with diplomacy and commerce, so the benefit that Dutch received was quite
good as the middleman in the Siam-Japan route. However, in some situations the Dutch wanted to
reduce Siamese trade in the Japan market. However, there is no marginal-profit from theirs trade,
if they used military means with a strong state like Siam. A negotiation and exchange by which
both parties benefit together, by a bilateral trade agreement, was the most reasonable way.

CONCLUSION
Ever since the old international trade system, and up till the modern international trade system, as
free trade, “cost and benefit” or “loss and gain” are main objectives when there are trade
negotiations. Bilateral trade agreements are signed after state parties traded off their costs and
benefits together. Nevertheless, international relations were also concerned from the beginning of
negotiations. From past to present, state power still played a main role in benefits exchange. The
balancing of state power is not in the World system, but signing bilateral trade agreement is the
one way for two states staying on the same level by negotiation, comparing between gain and loss
of each state’s benefit through signing an agreement. At least the results from bilateral trade
agreements give the positive effect to state parties together, better than signed bilateral trade
agreement concluded without any concern in respective parties’ gain and loss as in the past.
REFERENCES
Books Articles
Cruysse, D. Van der. (2002). Siam and the West 1500-1700.(Michael Smithies,
translator).Chiang Mai, Thailand: Silkworm Books.
Gunn, C,G. (2011). Southeast Asia. History without borders: The making of an Asian world
region, 1000–1800. Hong Kong: Hong Kong University Press.
Harrison, L.J.,Theeuwes. J. (2008). Law economics.
New York : W.W. Norton Co.,
Na Pombejra, D. (1998). Port, Palace, and Profit: An Overview of Siamese Crown Trade and the
European Presence in Siam in the Seventeenth Century, in Port cities and trade in Western
Southeast Asia (pp. 65-83). Bangkok: Chulalongkorn University.
Na Pombejra, D. (2003). The Dutch-Siam Conflict of 1663-1664: A Reassessment, in Leonard
Blusse (ed.). Around and About Formosa, Essays in honor of Professor Ts’ao Yung-ho
(pp. 291-306). Taipei: SMC Publishing Inc.
Shimada, R. (2010). Siamese Products in the Japanese Market during the Seventeenth and
Eighteenth Centuries, in: Yoko Nagazumi (ed.). Large and Broad: The Dutch Impact on
Early Modern Asia (pp. 147-165). Tokyo: The Toyo Bunko.
Smith, G., V. (1977). The Dutch in Seventeenth-Century Thailand.DeKalb: Northern Illinois
University.
Tracy, J., D. (1993). The Rise of merchant empires: long-distance trade in the early modern
world, 1350-1750

Cambridge [England]: Cambridge University Press
Vries, Jan de. (1997). The first modern economy: success, failure, and perseverance of the Dutch
economy, 1500-1815. Cambridge: Cambridge University Press.


Zhang, Y Buzan, B. (2012).The Tributary System as International Society in Theory and
Practice.Chinese Journal of International Politics, vol 5.
(pp. 3- 36).
Online
Ota Atsushi. (2013). The Dutch East India Company and the Rise of Intra-Asian
Commerce.Retrieved March 05, 2014, from http://www.nippon.com/en/features/c00105/.
Carlos, A. M., Nicholas, S. (1988). Giants of an Earlier Capitalism: The Chartered Trading
Companies as Modern Multinationals. The Business History Review, Vol. 62, No. 3
(autumn, 1988), pp. 398-419.Retrieved July 07, 2013, from
http://www.jstor.org/stable/3115542.
Department of Information, Republic of Indonesia. (n.d). Indonesia's History and Background.
Retrieved March 15, 2014 from http://www.asianinfo.org/asianinfo/indonesia/pro-history.
htm
Lucassen,J. (2004). A Multinational and Its Labor Force: The Dutch East India Company, 1595-
1795. In International Labor and Working-Class History, No. 66, New Approaches to
Global Labor History.(fall, 2004), pp. 12-39. Retrieved July 07, 2013, from
http://www.jstor.org/stable/27672956.
Eoseewong, N. (n.d).Ayudhya and the Japanese. Retrieved August, 2013,
from http://www.asianmonth.com/prize/english/lecture/pdf/10_04.pdf.
Reynolds. R,L. (2000). History of Economic Thought, Retrieved March 05, 2014, from
http://web1.boisestate.edu/econ/lreynol/web/
PDF_HET/MERCANTILIST.pdf.
United Nations. (2005). Vienna Convention on the Law of Treaties., inTreaty Series, vol.
1155.Retrieved March 05, 2014,
from http://www.gc.noaa.gov/documents/012780-vienna_treaty.pdf.

KLL4301

Recommandé

Recommandé

Contenu connexe

Similaire à KLL4301

Similaire à KLL4301 (17)

Plus de KLIBEL

Plus de KLIBEL (20)

Dernier

Dernier (20)

KLL4301