Mar 14, 1991

WIDE SUPPORT FOR BRAZILíS CV DUTY DISPUTE WITH U.S.

GENEVA, MARCH 12 (CHAKRAVARTHI RAGHAVAN) Ė Brazil received wide support, from 20 delegations representing 35 countries, in the GATT Council Tuesday on its efforts to GATT adjudication over its old dispute with the U.S. over levy of countervailing (CV) duties on imports of non-rubber footwear.

The Council was unable to act with the U.S. objecting to the reference on the ground that the issue had been already gone into by a panel under the subsidies code.

But Brazil maintained its complaint, arguing that the issues before the subsidies committee panel, in terms of the provisions of that code, were different from the complaint to the GATT council involving U.S. violation of the most-favoured-nation Article I of GATT. The U.S., Brazil has contended, had not extended to it the same treatment as it had done in similar cases to India, Mexico and Trinidad and Tobago.

The issue will come up again at the next meeting of the GATT council where, in terms of the mid-term review procedures for GATT dispute settlements, the reference to a panel is automatic unless the Council decides otherwise by consensus.

The case itself goes back to the levy in September 1974 of CV duties by the U.S. on imports of non-rubber footwear from Brazil, without applying an injury test. Though such a test is required under Article VI of GATT, the U.S. has used its "grandfather" clause privileges under the Provisional Protocol of Application (PPA) of GATT, not to comply with this obligation.

Under the Tokyo Round agreements, the U.S. agreed to apply the test to signatories of the subsidies code, which entered into force on 1 January 1980. Both Brazil and U.S. are original signatories.

On 28 October 1981, Brazil asked the U.S. to undertake an injury review of the duties in accordance with the provisions of the Code. In May 1983, the U.S. gave negative findings of injury and revoked the duty with effect from the date of Brazilís request for review.

Brazil however maintained that the revocation should have been from the date of entry into force of the Subsidies code and put its estimated loss at $80 million in CV duties and interest for the period January 1980 to October 1981.

In October 1988, the Subsidies Committee appointed a panel to look into this dispute and the panel gave a finding that the levy was consistent with U.S. obligations under the Code.

It is Brazilís contention that the issue of violation of the MFN principle - in terms of the differing treatments accorded to India, Mexico and Trinidad and Tobago - was not within the terms of reference of the subsidies code panel, even though the Chairman of that panel had made some references to this, and that the U.S. violation of this fundamental GATT right should be adjudicated.

The report of the panel itself was not adopted by the Subsidies Committee. The Committee has a history of panel reports whose adoption have been blocked by one side or the other.

In bringing up the case now before the GATT Council, Brazilís Amb. Rubens Ricupero contended that despite its apparent technical complexity, the case was really simple, namely, the basic right of any Contracting Part to submit to dispute settlement process complaints concerning violation of the non-discrimination principle.

The ability of the U.S. to levy CV duties on imports of Brazilian products without an injury test, Ricupero contended, had expired on the day both Brazil and U.S. became parties to the Subsidies Code. The injury determination and the removal of duties should have been with effect from 1 January 1980.While the U.S. had removed the duties on Brazilian imports with effect from the date when the review was sought, it had acted differently in respect of imports of "fasteners" from India, wire rods from Trinidad and Tobago and Lime and certain Textile Products from Mexico. The dates when these countries sought review was not taken into account, but the CV duties were removed from the date of the U.S. obligation under the Subsidies Code to these countries.

The issue was one of implementation in a consistent manner of an obligation - "not in one way for some countries and in another different way for others". Ricupero contended that the Brazilian request for panel adjudication could not be denied on the "false ground" of its being an appeal from the report of the subsidies code panel. It was not Brazilís intention now to reopen the issues that were the subject of the Subsidies Code proceedings, which were in terms of the provisions of the Code.

The issue of non-discrimination under Article 1 of GATT had not been before that panel, but Brazil had referred to it in support of its position of U.S. illegality. Apart from mentioning this in the narration of Brazilís position, the panel had no made no reference to the issue. The statement of the panel chairman was "a subjective statement of a generic nature" and was not supported by the findings and conclusions of the Panel report.

The U.S. said it was unable to agree to the establishment of the panel since it would be going into the same issues as those dealt with before the subsidies panel.

However some 20 different delegations representing 35 countries, including the EC, supported the Brazilian right to have a panel even in terms of the situation on this particular dispute.

Observers of the GATT noted that with the U.S. itself involved in forum shopping in its disputes (choosing the subsidies committee, rather than the trade in civil aircraftís Committee for adjudicating the airbus subsidy dispute) and the advantages in terms of adjudication this provides, others are looking beyond the dispute, apart from the support garnered by Brazil in its dispute.

The U.S. also argued that apart from its legal objections, the matter related to levies collected over 10 years ago and noted that 80 percent of the U.S. market was by imports and Brazil was the second largest supplier.

Earlier, the U.S. again held up adoption by the GATT Council of a panel ruling against it over levy of CV duties on imports of pork and pork products from Canada. The U.S. has been holding it up for several meetings on the ground that an U.S.-Canada bilateral panel under their free trade agreement was also looking into the matter.

The U.S. advised the Council that the panel had now concluded that the alleged injury to the U.S. producers had not in fact existed. In this situation the CV cases would terminate and deposits required for imports pending the resolution of the case would be refundable. However, this action would be subject to any appeal procedures against the findings of the bilateral panel.

Canada again expressed disappointment with the U.S. position and argued that adoption of the report would contribute to GATT jurisprudence, a view supported by Japan and the EC.

On the issue of Japanese implementation of a panel report on imports of agricultural products (dairy products and starch) where Japan has held up implementation and the U.S. has brought up the matter before the Council, a number of countries (New Zealand, Thailand, Australia, Chile, Uruguay, Canada, Argentina and the EC) also expressed an interest in the matter. Japan has said that it has agreed to hold bilateral consultations with the U.S. But the U.S. has said that in view of the wider interest there should be plurilateral consultations. The Japanese delegation has promised to refer the matter to Tokyo.

On the U.S. customs user fees, where the U.S. has sought to implement a panel ruling against it through its amending legislation in 1990, the EC raised the question whether the new levies would comply with the panel ruling that the user fees must be commensurate with the services rendered. The EC however agreed that the new system had just come into force and they had to wait for a while to see how it was administered in practice. Peru raised under "any other business" the excessive restrictions being imposed by countries on Peruvian exports on the ground of the prevalence of Cholera in Peru. Not only were countries restricting imports of agricultural and fish products, Peruís Deputy Permanent Representative Jaime Stiglich complained, but even consumer products like clothing, handicrafts, etc. Among the countries or areas where restrictions were being imposed he cited Latin American, the EC and EFTA countries. A Peruvian State Organisation, he added, was carrying out extensive inspections of exports and without its certification no exports were allowed.

Japan complained over the U.S. failure to implement the ruling of a panel that held illegal and discriminatory U.S. procedures under S.337 of its Tariff Act for dealing with complaints of violation of Intellectual Property protection in respect of imports. The panel report has been adopted by the GATT Council, but the U.S. has tied its implementation to the outcome of the Uruguay Round. Japan complained that recently the U.S. International Trade Commission (ITC) had initiated investigations under S.337 for alleged infringement of IPRs by a Japanese company.

The U.S. representative agreed to take note of the complaint and refer it to Washington.