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The Treaty stipulated that no tax higher than the tax charged for an equal amount of French wines could be charged for Portuguese wines (but see below) exported to England, and that English textiles exported to Portugal wouldn't be charged any taxes, regardless of the geopolitical situation of each of the two nations (this was to make sure that England would still accept Portuguese wine in periods when not at war with France).
Some authors claim that the deal was negative for Portugal, since it meant that the country would not develop its industrial infrastructures (and therefore lost the industrial race) and other types of agricultural products. This is however, debatable, since this period saw the appearance of other industries in Portugal, like the manufacturing of porcelain. Some of the factories that appeared in this period have lasted until today.
Thanks to this treaty, Portugal retained a strong political position on a stage that revealed itself to be fundamental in preserving the territorial integrity of its most important colony, Brazil (as argued by the Brazilian economist Celso Furtado in his work "Brazilian Economic Foundation").
At the start of the War of Spanish Succession Portugal had allied with France. As part of this treaty the French had guaranteed the Portuguese naval protection. In 1702, the English navy sailed close to Lisbon on the way to and from Cadiz proving to the Portuguese that the French could not keep their promise. They soon began negotiations with the Grand Alliance about switching sides.
The Methuen treaty was negotiated by John Methuen (c.1650-1706) who served as a member of Parliament, Lord Chancellor of Ireland, Privy Councilor, envoy and then ambassador extraordinary to Portugal where he negotiated the "Methuen" Treaty of 1703; the Treaty cemented allegiances in the War of Spanish Succession.
The early years of the War of Spanish Succession, in Flanders, had been rather fruitless. The Tory party in England was concerned about the cost of the war and felt that naval warfare was a much cheaper option with greater potential for success. Portugal offered the advantage of a deep-water ports near the Mediterranean which could be used to counter the French Naval base at Toulon.
There were three major elements to the Methuen Treaty. The first was the establishment of the war aims of the Grand Alliance. Secondly the agreement meant that Spain would become a new theatre of war. Finally, it regulated the establishment of trade relations, especially between England and Portugal.
Until 1703 the Grand Alliance had never established any formal war aims. The Methuen Treaty changed this as it confirmed that the alliance would try to secure the entire Spanish Empire for the Austrian claimant to the throne, the Archduke Charles, later Charles VI of Austria.
The Treaty also established the numbers of troops the various countries would provide to fight the campaign in Spain. The Portuguese also insisted that Archduke Charles would come to Portugal to lead the forces in order to ensure full allied commitment to the war in Spain.
In addition, the Treaty helped to establish trading relations between England and Portugal. The terms of the Treaty allowed English woolen cloth to be admitted into Portugal free of duty. In return, Portuguese wines imported into England would be subject to a third less duty than wines imported from France. This was particularly important in helping the development of the port industry. As England was at war with France, it became increasingly difficult to acquire wine and so port started to become a popular replacement.
The Treaty, signed 27 December 1703, was subsequently known colloquially as the "Port Wine Treaty".
Cypher and Dietz, in the book ″The Process of Economic Development″, say that: "Portugal specialized in a commodity that did not have the same growth potential as did cloth for England. Portugal's economy suffered consequently, as the productive structure and institutions were moulded in the direction of wine production. In fact, after trade was rapidly expanded following the Methuen Treaty in 1703, Portugal was left with a sizeable deficit as its exports to England fell short of its imports from England. The boom in Portuguese-English trade fortuitously coincided with a gold rush in Brazil, Portugal's colony, enabling the Portuguese to cover their deficit for a time with a colonial gold flow, but the benefits of specialization and trade over the longer term were illusive."
- Francis, A.D. John Methuen and the Anglo-Portuguese Treaties of 1703. The Historical Journal Vol. 3, No. 2, pp. 103 – 124.