interest, however, were unable to demonstrate conclusively that the U.S. subsidy had adversely affected their trade. The United States also agreed to consult in 1968 and 1969 with the EC, first under article XXII and subsequently under article XXIII: 1, on the alleged impairment of U.S. tariff concessions to the EC arising from legislative changes affecting the U.S. duty on imports of reprocessed wool fabric. Settlement of this issue is still pending. The United States agreed to hold initial consultations with the EC in April 1970 and with Spain in February 1971 under article XXIII:1 on the U.S. import prohibition applicable to all firearms "not suitable for sporting purposes" under the U.S. Gun Control Act of 1968 and its implementing regulations Spain and the EC noted that the U.S. action nullified a U.S. tariff concession to that country. The case is still pending. Meanwhile, the U.S. Government has been studying results of tests to establish objective standards for firearms preparatory to submitting legislative proposals applicable to both the importation and interstate sales of guns. At the request of the European Communities, the United States in July 1972 consulted under article XXIII: 1 regarding the EC allegation that the Domestic International Sales Corporation (DISC) provisions of the Internal Revenue Code of 1954, as amended, are in violation of the GATT and damage EC interests. The United States maintained that the DISC is not a prohibited subsidy under the terms of GATT article XVI and, in fact, yields less benefits to exporters than the tax practices of our major trading partners. The 1972 consultations failed to resolve the issue. (See below, U.S. request for consultation on certain tax practices of three EC countries.) With respect to the trade effects of income tax systems, the United States has taken the position that existing GATT rules are not adequate, and a negotiating forum should be established to arrive at new rules rather than attempting to extend the old rules to cover the DISC. By the United States To date the United States has not suspended concessions or obligations with respect to any country under article XXIII. However, the United States has invoked article XXIII on a number of occasions to dissuade other countries from imposing new import restrictions or to obtain removal of existing restrictions that are inconsistent with the GATT. The concern of foreign governments over the consequences to their trade should the United States retaliate in accordance with article XXIII: 2 has no doubt been a major factor contributing to the settlement of trade disputes on which the United States has consulted with other countries under article XXII or XXIII: 1. Article XXIII has also served as a deterrant to new restrictions. This occurred when the EC Commission proposed a tax on oilseeds, including soybeans and soybean products. This measure, if implemented, would have cut back imports of these products from the United States. The United States warned publicly that the proposed measure, if carried out would bring swift retaliatory action against EC products. Similar warnings have been conveyed privately to head off anticipated EC restrictions on other U.S. exports. Following article XXII consultations with Norway several years ago, that country reduced or removed a number of restrictions which were burdensome to selected U.S. agricultural exports. Austria re duced sharply the number of items subject to quantitative import restrictions after a series of article XXII consultations held during 1963-64 which the United States initiated. Japan has long maintained import quotas on some of our exports. These restrictions were carried over into the GATT by Japan at the time of its accession in 1955 and became illegal under that GATT during 1963 when it renounced the balance-of-payments justification for their retention. In 1968 bilateral representations, the United States gave clear indication to Japan of our intention to press article XXIII: 2 action against it in GATT unless the pace of its liberalization program was accelerated. Subsequently, Japan reduced the number of its illegal quotas and announced a schedule for the elimination of additional restrictions. More recently, the United States has continued to press Japan to remove unjustifiable import restrictions, particularly in the wake of the large deficit in U.S. trade with that country. In response to representations from the United States and from other countries, Japan reduced the number of items subject to residual import restrictions from 120 in April 1969 to 90 at the end of 1970 to 40 at the end of 1971 and to 33 as of April 1973. The United States is continuing to press Japan on further reducing its import restrictions. In late 1970, the United States consulted with Denmark under article XXIII concerning an embargo on corn imports announced for the 1970-71 season. Denmark agreed to eliminate the restriction and gave assurances that no new measures would be adopted during the crop year. The United States accordingly agreed to drop its GATT case. Directly following the July 1972 consultations with the EC on DISC (noted above) consultations under article XXIII: 1 were held at U.S. request with France, Belgium, and the Netherlands regarding certain of their tax practices and the relationship of such practices to exports. These countries denied the U.S. claim that their tax systems result in prohibited subsidies. Since no agreement was reached, the United States has kept under consideration what future action may be appropriate. In the past year, the United States has used article XXIII: 2 procedures in three cases. These are with respect to certain quota restrictions maintained by France, with respect to quotas maintained by the United Kingdom on certain products from dollar area countries: and with respect to compensatory taxes charged by the European Community in excess of GATT bindings. In the case of the United Kingdom: The United Kingdom continues to apply quotas on certain products imported from 18 so-called dollar area countries, primarily Caribbean countries. Following unsatisfactory conclusion of article XXIII: 1 bilateral consultations, the United States requested the GATT Council to consider the problem under article XXIII: 2, to rule on the legality of the quotas, to recommend their removal, and to authorize U.S. withdrawal of concessions on products of United Kingdom origin. An impartial panel was formed to consider the matter under article XXIII: 2. The panel issued an interim report to the contracting parties and recommended that the United States and the United Kingdom consult bilaterally once more in an effort to resolve the matter. It promised to issue a final recom mendation within 30 days if bilateral agreement on a solution could not be reached.1 In the case of France: In September 1972, the United States referred to the GATT Council, under article XXIII: 2, the matter of quota restrictions applied against U.S. products in contravention of the general agreement. The United States requested authorization to withdraw concessions on products of French origin. Following U.S. referral of the problem to the GATT, France entered bilateral consultations concerning the amount of withdrawals to be made. During the course of these consultations, the United States was able to negotiate an agreement with the Government of France to phase out quota restrictions on all but one of the products on which we desired solutions. On six products liberalization will occur on January 1, 1975. One other product will be liberalized on January 1, 1978. During the interim period, quotas will be increased by 35 percent each year. Each yearly increase will be based on the previous year's enlarged quota. Discussions continue on one remaining product. Since withdrawals do not help producers of items subject to quotas, the Government of France's agreement on liberalization is very important to U.S. exporters of the products in question. In the case of the European Community: The European Community (EC) authorized the imposition of compensatory taxes on agricultural products to offset the effect of exchange rate changes, made by some of the member states, on the operation of the EC's common agricultural policy. In many cases the addition of a compensatory tax to the duty caused the charge collected on the import to exceed the bound rate. Informal representations to the EC by the United States and a formal written representation under article XXIII: 1 failed to resolve the problem. Thus the United States requested for contracting parties to investigate the matter and take appropriate action. Some $40 million of U.S. exports appeared to be affected. Following our request and before the contracting parties could consider the matter, the EC agreed to stop collecting the compensatory taxes on at least 98 percent of those products that the United States complained about. The EC also committed itself to rescind the remaining taxes as soon as feasible. Conclusion The GATT lays great stress on consultation and conciliation for the resolution of trade disputes. It does, however, envisage circumstances under which retaliation would be permitted. This gives force to the procedures for consultation to help solve bilateral trade problems and to keep at a minimum the instances when the injured country finds it necessary to resort to the sterner measures possible under article XXIII: 2 to protect its trade interests. 1 Subsequent to the completion of this paper, the United States and United Kingdom reached agreement on a program for elimination of the quotas and the United States withdrew its complaint against the United Kingdom. R. Other Agricultural Products.. 2. Not Yet Subject to the CAP. S. Nonagricultural Products- 48 |