In decision that has widespread ramifications for world trade and the potential to trigger an international trade war, the U.S. Customs Court today ruled that Japanese electronic products sold in the United States are being indirectly subsidized by the Japanese government.
The subsidy, according to the ruling, originated through Japanese government refunds to that country's manufacturers of a domestic consumption tax when the items are exported.
If upheld, the ruling on the case brought by the Zenith Radio Corp. would require the Secretary of the Treasury to impose countervailing duties equal to the amount of the alleged subsidy.
The tax would amount to between 13 and 15 per cent on most of the covered products, which include television sets, stereo equipment, citizen's band radio's AM and FM radios, tape decks and other electronic equipment. Total annual exports to the United States are estimated at $1.5 billion annually, putting the duties at about $200 million.
Although the Treasury has already decided to appeal the decision to the Court of Customs and Patent Appeals in Washington and will seek an expedited hearing, the 80-year-old counter-vailing duty law under which the case was brought requires that importers immediately begin posting bonds on the potential duties.
That could lead to quick price increases on many of the products involved in the ruling as importers try to set aside funds in case the decision is upheld.
The result could possibly include discruption of commrcial relationships as some retailers switch suppliers rather than absorb the 13 to 15 per cent price increase.
Beyond the dollars involved, what gives the ruling importance is the fact that the Japanese government remits taxes to manufacturers on virtually all consumer goods that are exported, and the floodgates may now be open to similar cases from a large number of U.S. companies.
Furthermore, the U.S. Steel Corp. has brought a very similar case in U.S. Customs COurt involving $2.5 billion in annual European exports of carbon steel to the United States.
U.S. Steel contends taht nine European Economic Community governments, by refunding a 30 oer cent value added tax to manufacturers when the product leaves their boundaries, are subsidizing their steel exports and has asked that countervailing duties be levied a sa result.
U.S. Steel has indicated that it would seek a summary or immediate judgement on its case if Zenith was successful. But today, company officials would say only that they were studying the situation.
If U.S. Stell receives a summary judgement, taht would both considerably widen the dollar amount of trade affected and raise the number of major U.S. trading partners involved in a serious showdown over trade to 10.
Even before today's ruling, many government officials and businessmen had expressed concern about a growing protectionist spirit in trade. president Carter last week refused to impose penalties on shoe imports despite a ruling by the U.S. International Trade Commission claiming that shoes were being 'dumped" in this country unless than fair market value. He faces a similar decision on Japanese color television sets. And there are also recommendations to lower the quotas on how much sugar can be imported.
Federal Reserve Board chairman Arthur Buras, in a major speech prepared for delivery tonight, warned of the vulnerability of the international financial system and said that protectionism must be scrupulously avoided by governments' if stability to be maintained."
It's very messy>" peter O. Such-deputy assistant treasury secretary for tariff affairs commented on today's customs court ruling. "There is not queston we want to have it resolved one way or the other as soon as possible." He indicated the government though it would get a reversal on appeal.
"But if the courts are going to sustain this position," Suchman warned, "we will have to seek legislation" to change the countervailing duty law. 'But we don't think they will."
One high Carter administration official indicated taht 4 ruling against the Japanese was expected from the Customs Court because it "historically has been very hesitant to strike out in any bold directions. In making this decision they have simply followed the line of argument used in two very old Supreme Court cases that didn't really hold the language which the opinion seems to say.
"The next court, so the other hand, has been must more willing to take a broad look and concede to the executive branch a wider latitude in interpreting the laws, and we are hopeful they will do so in this case."