Jun 19, 1987

GATT COUNCIL ADOPTS PANEL REPORT ON U.S. SUPERFUND LEVIES.

GENEVA JUNE 17 (IFDA/CHAKRAVARTHI RAGHAVAN) -- The GATT Council Wednesday adopted the report and recommendations of the GATT panel on the dispute over U.S. taxes on imported petroleum and petroleum products, and certain imported substances.

The panel ruled against the U.S. over the levy, effective January 1, 1987, under its superfund act of a discriminatory higher tax on imported petroleum and products, compared to domestic ones, to finance the cleanup of the environment.

On the tax on some imported substances under the same act, due to come into effect on January 1, 1989, the panel took note of an U.S. assurance that the discriminatory penal tax, incertain contingencies, on imported substances would in all probability be never enforced, and in this light did not find the U.S. tax contrary to GATT rules.

In the Council Wednesday, Mexico which had complained against the tax on petroleum welcomed the ruling.

The EEC and Canada, the other complainants also welcomed the ruling, but expressed some unhappiness with the ruling about imported substances - an issue which only they had raised.

The U.S. for its part welcomed the report and said it would agree to its adoption by the GATT Council, but gave no indication of what action the U.S. was going to take to implement the recommendation that the tax on imported petroleum and products should be brought into conformity with its GATT obligations.

The U.S. delegate, Amb. Michael Samuels merely told the GATT Council that the U.S. authorities were studying the legal implications of the ruling.

In the normal course in GATT, if a party does not carry out a panel's ruling and recommendations, the Contracting Parties affected are authorized to withdraw equivalent concessions to compensate themselves for the impairment or mollification of their GATT rights.

But over the current U.S. tax issue, there is a small catch in the panel's ruling.

While not contesting before the panel that the levy might be contrary to GATT article III (2), the U.S. had taken the position that the adverse trade impact was so small that there could not be said to be any nullification or impairment for other CPS.

In negativing this contention, the panel has said that its ruling was based on purely legal grounds, and it had not endorsed either the view of the U.S. that there had been no adverse trade impact or the views of Canada, EEC, and Mexico that there was.

The U.S. has said that the levy would result in reduction of demand for imported oil of no more than 900 barrels a day or six million per year in value at current prices, and hence could not be said to have a trade impact.

Canada, EEC and Mexico however noted that on the current 4.8 million barrels a day of imports, the tax would add 612 million dollars to U.S. revenues, and these were not "commercially insignificant".

If the U.S. in fact does not implement the ruling, by persuading the Congress to amend the law (and either reduce the higher levy on imported products or increase that on domestic ones), the question of actual trade effect and compensation to be permitted would become contentious in relation to nay retaliatory steps that could be authorised.