SOME U.S. CV DUTY PROVISIONS HELD GATT ILLEGAL.

Jan 24, 1992

SOME U.S. CV DUTY PROVISIONS HELD GATT ILLEGAL.

GENEVA, JANUARY 23 (CHAKRAVARTHI RAGHAVAN) -- Some provisions of U.S. laws relating to Counter-Vailing (CV) duty procedures and provisions are inconsistent with the U.S. most-favoured-nation treatment and non-discrimination obligations under the General Agreement, a GATT panel has ruled.

The ruling has been given in a complaint brought by Brazil against the United States on the levy of such duties on non-rubber footwear in a dispute dating back to 1980 when the U.S., as a result of the Tokyo Round subsidies code, had to apply an "injury test" to its domestic producers before levying CV duties.

A related dispute between Brazil and U.S. over the CV duty levies on the same non-rubber footwear imports from Brazil were looked into by a panel in the subsidies code. But the panel report, like several others in the Subsidies Committee, has not been adopted, with Brazil holding up adoption in this particular case over some substantive and procedural issues of the panel.

The issue of inconsistency of provisions and procedures of U.S. CV duty actions under three different laws, mandating discriminatory treatments to different Contracting Parties, in relation to Art I: 1 of the GATT had been the subject of U.S.-Brazil consultations in October 1990 and following the failure to resolve the issue, Brazil brought it before the GATT Council in February 1991 and a panel was established with standard terms of reference in April 1991.

The panel has now ruled that the U.S. in failing to grant, under S. 104 (b) of its Trade Agreements Act of 1979, to Contracting Parties who are signatories to the Subsidies Agreement the same backdating of relief (when there is a finding of no-injury and the CV duties are revoked) as it grants to products from GSP beneficiary-countries has now been issued and will come up before the GATT Council next month.

Beyond seeking a general ruling on this Brazil had not sought any specific recommendation to the CONTRACTING PARTIES and the panel report has confined itself to this general finding.

But the ruling is expected to have a bearing on pending litigation in U.S. courts involving some 100 million dollars for payment of the CV duties.

There are three different CV duty laws in the U.S.: S. 301 of the Tariff Act of 1930, S. 331 of the Trade Act of 1974 and Sections 701 and 104 of the Trade Agreements Act of 1979.

The 1930 law provides for levy of CV duties on any dutiable imported product, which enjoys a subsidy from the government of the exporting country. When the General Agreement came into force, its subside provisions (Art VI: 6a) required a determination of injury to domestic producers of like products before any CV duty actions can be made and duties levied.

However the U.S. law, as existing legislation, was saved under the GATT’s Protocol of Provisional Application (PPA), the so-called grandfather clause.

Of all the GATT CPs, the U.S. has been alone in maintaining this provision long after the General Agreement entered into force, and its use of the law was a source of running dispute with its major trading partners.

Under the Tokyo Round, the issue was sought to be resolved through the Subsidies Code, and which (with other Tokyo Round codes and agreements) unlike the GATT, became a regular ratified treaty under U.S. law. The U.S. under the Subsidies Code was obliged to apply the injury test before CV duties could be levied.

But the 1930 trade law provision is still on U.S. statute books and applied to imports of dutiable products from all countries, excepting signatories to the Subsidies Code.

A 1974 U.S. trade law (S. 331 of the Trade Act) amended its CV duty provisions and making them applicable to all duty-free imports. Such duty-free imports enter the U.S. under the GATT MFN provisions as a result of some "bound concessions" as also under various preferential schemes - like the GSP, Caribbean basic initiative, etc.

But the law was not covered by the PPA and thus provided for application of the "injury test" mandated by GATT before CV duty actions could be commenced or levied. It applies to all GATT CPs and not merely to those of signatories to the Subsidies Agreement.

The 1979 Trade Agreements Act (to enable the implementation of the results of the Tokyo Round, provided under S. 701 for the application of the injury test in CV duty cases to all signatories of the Subsidies Code. S. 104 of the same law also enabled review of CV duty orders in force on 1 January 1980, thus enabling Subsidies Code signatories to reopen orders issued without injury test before that date.

The non-rubber footwear imports from Brazil had been subject to countervailing duties since 1974, and Brazil in October 1981 sought a review. The U.S. International Trade Commission conducted a review and found a negative injury determination and gave a ruling on 23 October 1981 from which date the CV duties on Brazilian imports were rescinded and duties provisionally collected ordered to be refunded on those products.

The Brazilian complaint related to injury reviews of imports of duty free products from India and Trinidad and Tobago and later from Mexico (when it joined GATT) where on a negative determination of injury relief was backdated to the date of entry into force of the Subsidies Agreement - as provided in the U.S. law applicable to these cases.

Brazil complained that there was thus discrimination in the relief granted and thus the U.S. violated Art. I: 1.

Besides Brazil, India appeared before the panel as an interested party and supported Brazil's contention that the Subsidies Code obligation to apply the injury test became effective for the U.S. from 1 January 1980 and hence the U.S. was bound to apply the injury test unconditionally to all signatories from that date and any levies without such a test would be inconsistent with the GATT.

But India also raised the more general issue that of the U.S. obligation to extend the MFN treatment to all Contracting Parties in terms of the 1979 decision of the CPs in incorporating the Tokyo Round agreements into the GATT – "... that existing rights and benefits under the GATT of Contracting Parties not being parties to these Agreements, including those derived from Art. I, are not affected by these Agreements".

The panel has however not gone into the question, on the ground that the Brazilian complaint itself had not raised it and interventions could not raise other issues.

The U.S. had argued before the panel that the differing procedures and treatments under the U.S. CV duty laws - one to products entering the U.S. under duties and others duty-free - did not violate Art. I since that provision only dealt with "advantages" granted to Contracting Parties in connection with imports of "like products".

The panel ruled that the rules and formalities applicable to CV duties, including those applicable to revocation of CV duty orders, were those imposed in connection with importation and thus covered by Art. I: 1.

The automatic backdating of the effect of revocation of a pre-existing CV duty order (for duty free imports) without the country concerned requesting an injury review was an "advantage" and this was not granted to CPs who were signatories of the Subsidies Agreement.

The panel rejected the U.S. argument that the advantage in each case had to be balanced by the disadvantages and said that Art I: 1 did not permit such balancing of more favourable treatment under some procedure against a less favourable treatment under others. Such an interpretation would defeat the very purpose of the unconditionality of the MFN obligation.

While Art. I would permit a CP to have different CV duty laws and procedures for different categories of products or even exempt some products altogether from CV duty, it "clearly prohibits a CP from according an advantage to a product originating in another country while denying the same advantage to a like product in the territories of other CPs".

The backdating provisions of the 1974 and 1979 laws were mandatory legislations and hence the provisions as such were violative of the GATT, the panel ruled.

While the 1979 "Enabling Clause" for special, differential and more favourable treatment to developing countries enabled developed Contracting Parties to provide preferences to developing countries without having to extend it to everyone, this was limited to GSP tariff preferences only and there was no decision of CPs justifying the grant of non-tariff advantages, the panel further ruled.

Thus the discrimination in treatment of CV duty actions and their reviews - one relating to the duty free products of the 1974 law and the other to dutiable products under the 1979 law for subsidies code signatories - were not saved.