In a case with major implications for the economy and foreign relations, the Supreme Court is being asked to decide whether the government is letting certain exporters to the United States gain an illegal competitive advantage over their domestic rivals.
The case involves a commodity tax that Japan imposes on colored television sets and other consumer electronic products when they are sold in that country, but forgives or remits when they are exported for sale in the United States.
The court has before it a 3-2 decision by the U.S. Court of Customs and Patent Appeals that under the Tariff Act of 1930 Japan is not paying for or bestowing a bounty or grant requiring the United States to impose countervailing duties.
Zenith Radio Corporation asked the Supreme Court to correct the "mischief" of a decision that, if allowed to stand, "would constitute judicial cooperation in the executive's refusal to honor the exercise by Congress of its constitutional power and duty to regulate foreign commerce. . . "
For the United States, Solicitor General Wade H. McCree warned against reversal of the decision. He said it would "not only risk a significant breakdown in international trading agreements and retaliatory actions from our trading partners, but also would undermine our negotiating flexibility" in impending multilateral trade negotiations on "a wide range of practices inhibiting or distorting trade," including export subsidies or countervailing duties.
The justices are expected to act soon on the Zenith petition.
The Committee to Preserve Color Television (COMPACT), United States Steel Corporation, and Bethlehem Steel Corporation each has submitted a friend-of-the-court brief in behalf of Zenith, which has been the largest domestic producer of color TVs.
COMPACT, made up of industry and labor organizations seeking to end "the flood of Japanese color television sets now being imported into the United States," said that the decision to be made by high court will affect "the entire consumer electronics industry."
United States Steel asked the justices to review the decision in order to provide all American industry with guidance "as to their rights and remedies from what they perceive to be unfair competition from subsidized imports coming into this country."
Bethlehem, saying it is "likely to sustain substantial long-term harm" from an affirmance of the decision, contended that the case "is of the deepest concern to. . . the entire domestic steel industry."
The case dates back to April, 1970, when Zenith petitioned the Commissioner of Customs to assess countervailing duties on consumer electronic products that Japan was exempting from a commodity tax when exported. The tax, generally ranging from five to 40 per cent of manufacturers' sales prices, gives a bounty or grant under the 1930 Tariff law, Zenith claimed.
Almost five years later, Congress enacted the Trade Act of 1974, which required the Secretary of the Treasury to act within 12 months on a petition such as Zenith's.
A year after that, on January 7, 1976, Treasury ruled that "no bounty or grant is being paid or bestowed, directly or indirectly. . . " In Zenith's plea to the Supreme Court, the firm protested that Treasury gave no reason why forgiveness of the commodity tax did not constitute a bounty or grant.
Zenith carried its case to the U.S. Customs Court in New York City, which ruled for the company last April.
In July, however, the appellate court here reversed. The majority said the Treasury had made a "lawfully permissible interpretation" of the law under an "administrative practice of. . . uniformly considering a non-excessive remission of an excise tax as failing to constitute a bounty or a grant."
In the dissenting opinion, two judges wrote that instead of recognizing the controlling question to be a matter of law, the majority wrongly had decided the case on the basis of "a factual inquiry into the 'economic result' of the Japanese commodity tax."
Solicitor General McCree told the Supreme Court that, for at least 80 years, Treasury's steadfast position has been that a foreign country's remission of excise, sales or certain other "indirect" taxes is not an impermissible bounty or grant, while remission of income and other taxes imposed directly on the producer is.
"The basic theory of the distinction is that the imposition of indirect taxes is customarily left to the country where the products are ultimately sold or consumer consumed," the government brief said.
"Where a country like Japan imposes such a tax at only one stage --here upon manufactured -- the remission of such a tax upon export is regarded. . . as the elimination of the double taxation that would result from the imposition of similar taxes by the importing country," such as a state sales tax, the brief said.