Apr 26, 1991

BRAZILíS DISPUTE AGAINST U.S. REFERRED TO PANEL.

GENEVA, APRIL 24 (CHAKRAVARTHI RAGHAVAN) Ė The GATT Council Wednesday referred to a panel a dispute raised by Brazil against the U.S. of discrimination and violation of the GATTís MFN clause in not applying the "injury" test against subsidised imports before levying a countervailing (CV) duty.

Brazilís complaint, relating to an old dispute with the U.S., is on the ground that in dealing with signatories to the Tokyo Round subsidies code (under which the U.S. gave up its grandfather clause privileges and agreed to implement in relation to signatories the "injury" test required in the GATT provisions), the U.S. discriminated against Brazil and did not extend the same treatment it did to India, Trinidad and Tobago and more recently to Mexico.

The case originated in 1974, when the U.S. imposed CV duties on imports of non-rubber footwear from Brazil without the injury test. On 1 January 1980, when the subsidies code became effective (with U.S. and Brazil both original signatories), Brazil asked U.S. to undertake an injury review of the CV duty. In May 1983, the U.S. reached a negative finding of injury and revoked the duty, but only effective from the date of the Brazilian request for review.

Brazil has been arguing this revocation should have been done effective entry into force of the subsidies agreement (which it contends has been done by the U.S. vis-a-vis India, another original signatory as well as with others when they signed the code).

Brazil has estimated an $80 million loss, from CV duties and interest on them, for the period Jan 1980 to October 1981. The U.S. has rejected this arguing that it could not be held responsible for Brazilís failure to seek a review immediately the code came into effect.

The subsidies code committee had set up a panel in October 1988 to hear Brazilís complaint and submitted its report in October 1989 ruling against Brazil.

Questioning the panelís interpretation of the General Agreement and of the code Brazil asked the subsidies Committee to postpone the consideration of the report.

In bringing up the issue before the GATT in terms of its GATT rights of MFN treatment under Art. 1, Brazil has said that it was not trying to attempt an appeal against the subsidies code panel, but raising the issue of its rights and the violation of GATT's most fundamental provision of non-discrimination.

Brazil has contended that the subsidies committee panel did not go into the GATT MFN issue, but dealt with the dispute only in terms of the subsidies code provisions, and that the U.S. action was a clear violation of the GATT MFN clause since it had more generously treated imports of lime from Mexico, carbon steel wire rods from Trinidad and Tobago and industrial fasteners from India.

When this issue had come up before the Council at its March meeting, the U.S. had held up reference on the ground that the issue had been agitated in the subsidies committee panel.

But most of the contracting parties who spoke at the March Council and on Wednesday appeared to agree with Brazil that the subsidies panel had not dealt with the violation of GATT Art. 1 and hence Brazil had a right to seek a GATT panel and get adjudication.

Chile complained over the extension by the U.S. of marketing orders on imports of Kiwis from Chile. The orders, Chile said, violated the national treatment requirements in that Chilean imports were inspected (for health and other requirements) only on entry, resulting in costly unpacking and packing of the imports, whereas the U.S. products were imported on the farm. The U.S., it noted, had not agreed to conduct similar inspections of the Chilean kiwis in Chile, even though Chile had agreed to meet the costs.

The U.S. did not agree to a panel request, arguing that the marketing orders had no adverse impact on Chilean trade and Chile had not made out a case of inconsistency in respect of the marketing orders, which were used to protect consumers. If Chile showed that its trade was being damaged, the U.S. would look into it. In a new dispute case, Canada sought the establishment of panel to examine measures of the U.S. federal and state authorities affecting the pricing, distribution and sale of alcoholic and malt beverages, in particular beer, wine and cedar.

Canada complained that the Federal and State regulations discriminated against imports vis-a-vis domestic products, in violation of national treatment principle and obligations. Canada noted that in relation to a U.S. complaint over Canadian import of such beverages, and on which a panel had ruled against Canada, it was taking "significant steps" to meet its obligations. Under the U.S. 1990 Budget reconciliation law, Canada complained, the excise duty on beer had been raised to $ 18/- per barrel, but domestic producers enjoyed a seven dollar rate on 60,000 barrels of production if their overall production was less than two million barrels. This amounted to a potential $660,000 tax reduction per producer of the more than 200 U.S. brewers. Foreign brewers were not entitled to the reduced tax. Similar increased duties for wine and cedar imports, vis-a-vis domestic products, were also there.

In virtually all of the U.S. States, there were a number of practices involving the pricing, availability for sale and distribution of beer, wine and cedar which discriminated against imports. All these were contrary to the U.S. obligations and should be adjudicated by a panel since bilateral consultations had failed.

The U.S. blocked reference arguing that Canada in the consultations had not adequately documented its complaints of discrimination and hence the U.S. had not had adequate time to consult its States whose regulations were being attacked.

Australia supported Canada and said it too had an interest in the case relating to its exports of beer to the U.S. Under "other business", Peru complained of import restrictions being put in place by countries against imports from Peru on account of the cholera epidemic and pointed out that these had not even been notified to the GATT as required. Such measures should be notified and consultations held as appropriate, failing which Peru would reserve its GATT rights.

The European Community and the U.S. raised the move for a common market of Argentina, Brazil, Uruguay and Paraguay (the MERCOSUR) and wanted further details of the agreement signed by these four countries and for the normal GATT examination of this through a working party. Argentina took note of the request. The EC also raised the issue of what it called "forum shopping" in dispute settlement and need for a debate and consultations within the GATT.

The EC grievance related to the U.S. taking up the complaint against German subsidy to the European Airbus through guarantees about exchange rates, where the U.S. has insisted on agitating its complaint before the Subsidies Code Committee and the terms of the code rather than the Trade in Aircraftís code and its provisions.