Japan doesn't give its manufacturers an illegal competitive edge over American rivals by levying a "commodity tax" on television sets and other electronic products when they are sold at home but not when they are sold abroad, a unanimous Supreme Court ruled yesterday.
Acting in a case that held major implications for both the domestic economy and international trade, the court held that the tax exemption for exports is not a "bounty" requiring the United States to impose countervailing duties.
The ruling ends a seven-year legal battle by Zenith Radio Corp., heads off possible retaliation in kind by members of the European Economic Community, Canada and other countries, and averts possible disruption of the multilateral trade negotiations under way in Geneva. [Story, D10.]
The decision also sets back American electronics producers and unions that joined Zenith in urging the court to force the Treasury Department to impose countervailing duties to stem what they termed a "flood" of Japanese color sets.
Japan enacted the tax in 1962. For electronics products it ranges from 5 to 20 percent of the manufacturers' sales prices. Japan "remits" it for exports, much as other countries exempt exported products from excise and value-added (VAT) taxes.
In April 1970, Zenith, a leading maker of TV sets in the United States, petitioned Treasury to offset Japanese tax remissions with countervailing duties, claiming that the remissions were a "bounty or grant" prohibited by the Tariff Act of 1930.
Treasury solicited the views of concerned parties, made an investigation, and ruled in January 1976, five years and nine months later. The ruling was that "no bounty or grant is being paid or bestowed, directly or indirectly. . . ."
Zenith appealed to the U.S. Customs Court in New York City. Treasury defended the ruling on the ground that a countervailing duty was not required because the remission of taxes was "nonexcessive," meaning that it did not exceed the tax imposed on electronic products sold in Japan.
The department also pointed out that in saying nonexcessive remissions were not bounties, the 1930 law was unchanged from the first countervailing duty statute enacted in 1897, and was consistent with five different Treasury interpretations from 1898 onward.
But the Customs Court, citing a 1903 Supreme Court decision involving a complicated Russian scheme to regulate and sell sugar, partly with remission of excise taxes, rejected the government case and ruled for Zenith.
Last July, however, the U.S. Court of Customs and Patent Appeals, dividing 3 to 2, reversed and entered a summary judgment for the United States.
In determining whether a bounty has been paid, "it is the foreign government's action which controls," the appeals court said. Its decision relied on "long-continued" and "uniform" administrative practice, and on congressional "acquiescence" in the form of repeated reenactment of the controlling statutory language.
Supported by major steel companies as well as other domestic TV set producers, Zenith asked the Supreme Court "to correct this mischief" - judicial cooperation in the refusal to the executive branch "to honor the exercise by the Congress of its constitutional power and duty to regulatre foreign commerce by commanding" Treasury to impose countervailing duties.
But Solicitor General Wade H. McCree said that a ruling for Zenith "not only would risk a significant breakdown in international trading agreements and retaliatory actions from our trading partners, but also could undermine our negotiating flexibility" in the multilateral talks in Geneva.
In the opinion for the unanimous court, Justice Thurgood Marshall wrote that Treasury's "far from unreasonable" interpretation of the countervailing duty law "is as permissible today as it was in 1898," and that nothing has happened since then to argue convincingly for abandoning it.
From the start, Marshall recalled, the department's position was that tax remission of the kind at issue was not a subsidy by a country of its exports. Rather, he said, it "was viewed as a reasonable measure for avoiding double taxation of exports - once by the foreign country and once upon sale in this country."
Zenith cited "modern" economic theory that remission may create an incentive to export. It also cited arguments that remission may favor producers in certain countries.
But even if such arguments are "at all relevant," Marshall said, "they do not demonstrate the unreasonableness" of Treasury's position. He noted that even "modern" economists disagree on the effect of remission.