The Supreme Court decision yesterday rejecting the Zenith Radio Corporation's challenge to Japan's practice of exempting her exports from commodity taxes has averted what officials say could have been major international trade crisis.
While the 9 to 0 decision will have no impact on present policy, officials say if the court decision had gone the other way it could have wrecked the current multilateral trade negotiations, stifled the July economic summit and disrupted world trade for months.
The Carter administration, which wasn't sure how the high court would rule on the issue, had developed an emergency "contingency" plan for quick action by Congress in case the justices had sided with Zenith. And both Japan and Western Europe had braced for the worst.
"It would have put an absolute freeze on everything," said Richard Rivers, general counsel for the office of Special Trade Representative Robert S. Strauss. "The trade negotiations would have come to a complete stand-still, and nobody would have known where things stood for months."
The reason so seemingly arcane a court case would have had such sweeping impact was partly because of its substance and partly a result of timing. While the issue is a narrow one, officials say it could have set a precedent affecting broad areas of trade - just when the talks are in balance.
In the narrowest sense, the issue was simply whether the Japanese should be allowed to "get away with" exempting their electronics exports from an 8 per cent commodities tax that otherwise would have been imposed if the goods had been sold at home.
The Treasury, acting under longstanding U.S. policy, had decided the Japanese tax did not qualify as a "bounty" or "grant" and so shouldn't be penalized by imposition of countervailing duties. Zenith disagreed, and a Customs Court last year went along with the firm.
But the Zenith challenge was just the tip. In a similar case, the United States Steel Corp. has filed suit protesting the rebates that European countries allow their exporters on value-added taxes. That case, now pending in Custom Court, is expected to be dismissed.
In all, trade experts estimate that if the court challenge had been successful, it could have affected more than half of the $147 billion in manufacturing imports that flow into the United States every year.
With that much at stake, any decision requiring the Treasury Department to begin imposing countervailing duties on such imports would be bound to have a stifling effect on world trade. Overseas manufacturers would be loathe to ship goods here. And other nations could retaliate.
Almost as unnerving to policymakers here, the case came just at a time when the U.S. and its major trading partners are in the final stages of negotiations on a new multilateral trade pact ostensibly designed to reduce trade barriers, not increase them.
As American officials can testify, the negotiations have been delicate enough without the added blow of a new court-ordered push to impose countervailing duties. Yet, the Zenith case so worried European and Japanese negotiators, it was brought up repeatedly at the talks.
The Carter administration had developed a last-ditch contingency plan. End the court ruled in favor of Zenith, Strauss would have gone to Congress with an emergency request to pass legislation declaring indirect taxes not a valid reason for imposing countervailing duties.
However, officials conceded that the political climate for such action is far from auspicious. If anything, Congress seems to some observers to have turned more toward protectionist measures, as domestic industries have stopped up complaints about imports.
Yesterday's decision is expected to avert all that. While the steel case still technically is on the docket in Customs Court, most observers doubt the lower court will depart from yesterday's precedent. (The steel case is different in detail, but involves the same principle.)
Meanwhile Zenith confined its comments yesterday to expressing "disappointment" about the decision. John Nevins, the company's chairman, said that "in light of the court's unanimous opinion, it was improbably that the company would have any further comment."
Zenith still has another court action pending, this one involving an antitrust and antidumping suit against a number of Japanese companies, claiming they are selling their products here at below fair market value and have conspired to divide up the U.S. market.