THE CUSTOMS COURTS ruling on Japanese television sets comes pretty close to being a disaster. It threatens to impose tremendous tariffs not just on Japanese goods, but on nearly everything that the United States imports from any industrial country except Canada. If it's upheld, this decision will impose the most costly kind of disruption on this country's foreign trade. Even if it's ultimatily reversed, a year or two from now, it will have set off a round of inflationary price increases. Since administration officials say that they expected the decision, you might think that they would have had a remedy ready. But they don't. In fact, there may not be one.
The court's decision turns on a point absurdly small in proportion to its implications. Japan collects an excise tax on manufactured goods, but it remits that tax on its exports. An American manufacturer, Zenith Radio Corporation, claimed that the remitted tax constituted an illicit subsidy to its Japanese competitors. Zenith cited a vague prohibition against "bounties or grants" to imports in an 1897 statute. The Customs Court agreed.
Part of the trouble here is the difference in the ways that nations impose taxes. The United States and Canada depend mainly on income taxes. Most of the other industrial countries prefer a variety of sales taxes, excise taxes and value-added taxes. All nations lift these taxes from the goods that they sell abroad.The practice is explicity sanctioned under the General Agreement on Tariffs and Trade, the internalional rules of fair trade.
If the Customs Court's decision applies on Japanese electronics equipment, it also applies to European steel. It applies to cars, clothes and machinery. But there's more. That 1897 statute also says that the Treasury must impose countervailing U.S. duties on all of these imports, equal to the taxes being remitted on them at home. In the case of the Japanese television sets, it's 15 per cent. In the case of European steel, it's 30 per cent - a prohibitive barrier. While the appeals are going forward, importers have to post bonds for these duties. If the decision is eventually upheld, all of those duties will have to be paid.
Immediately, some American importers will refuse to bring in goods with this gigantic liability attached to them. Other importers will raise prices as insurance against the possibility of huge retroactive tax payments. Imports have been a crucial force to restrain prices in this country: As the imports drop and their prices rise, you can be certain that American manufacturers will raise their own prices. The Customs Court has done serious damage to this country's hopes of pushing down the inflation rate over the next couple of years.
The administration will doubtless ask the higher courts to speed up their consideration of the appeals. But no case of this magnitude can be speeded up very much. The adminstration might also go to the Congress with a plea to rewrite the law. But there's a stalemate in Congress on the trade issues. The protectionists can't pass the bills that they want, but they appear to have enough strength to prevent any loosening of the present laws. As long as the unemployment rate is over 7 per cent, Congress isn't likely to be very helpful.
Orderly world trade is the requisite for stable economies and societies. Most other nations are far more dependent on trade than the United States, and this abrupt bar to the world's richest market can affect jobs, living standards and eldctions far beyond our borders. It is now necessary to expect retaliation against American goods. The consequences of this deplorable decision will begin with the trade flow, but they won't end there.