Origins and Fiscal Impact
of the Capitulations
As it entered World War I, the Ottoman Empire abrogated all of its bilateral trade treaties known as capitulations. The occasion sparked joyous celebrations across the shrinking empire, whose subjects had come to consider the capitulations demeaning and a terrible fiscal burden. The date of their abrogation became a holiday.1 Crafted by Muslim rulers and their counterparts in Christian Europe, the capitulations provided extraterritorial privileges to foreign merchants conducting business in lands under Islamic law. That they imposed costs on the local population is undeniable. By the twentieth century the capitulations were exempting foreigners, and to a degree even their protégés, from taxes, tolls, and fees paid by Ottoman subjects. They were also restricting the Ottoman government’s ability to raise taxes. On these grounds, many writers hold the capitulations responsible for the Middle East’s current economic woes.2 They also treat the Muslim rulers who issued capitulations as irrational.3
However unfavorable the consequences of the capitulations for certain groups in the modern era, they do not explain the emergence of these trade treaties in the Middle Ages. The capitulations emerged because they provided identifiable benefits to constituencies in both western Europe and the Middle East. For many centuries, they facilitated trade relations within the Mediterranean marketplace. It is not self-evident why they turned into sources of abuse.
The westerners trading with the Middle East belonged to societies that were developing institutions to enhance contract credibility, promote impersonal exchange, limit arbitrary taxation, and align