include Article XIX-which authorizes members to withdraw tariff concessions when increased imports threaten injury to a domestic industry, and Article XXVIII-which provides the procedures by which member countries may withdraw or modify tariff concessions and renegotiate new tariff relationships. Also discussed are Articles XXII and XXIII, which provide for resolution of disputes among members of the GATT who feel that their trade agreement rights are being threatened or impaired by actions of other GATT members. The dispute settlement procedure of the GATT has generally been one of consultation and compromise by the countries affected. No. 12. The Common Agricultural Policy of the European Community (August 1973-pp. 161-215) This study provides an overall examination of the Common Market's Common Agricultural Policy, the so-called CAP. It discusses the use of variable levies imposed upon agricultural imports to avoid disruption of the agricultural price support system inside the Common Market. The specific application of the CAP to a number of agricultural products is discussed. The restrictive effect which the CAP has had on exports of U.S. agricultural commodities to the Common Market is also analyzed. No. 13. An Analysis of Whether or Not Greater Flexibility in Foreign Exchange Rates Would Serve in the Interests of United States and World Trade (October 1973—pp. 217-219) This study discusses the question: (1) whether greater exchange rate flexibility can facilitate a rational expansion of world trade as a result of a better world payments equilibrium, and (2) whether exchange rate flexibility would reduce the volume of world trade given the costs attributable to increased monetary risks in international transactions. Both questions, subject to certain qualifications, are answered in favor of increased trade. The study concludes that the advantages to trade of a flexible exchange rate system outweigh any adverse technical effects adherent in such a system. Application of domestic taxes to imports- Tax treatment of exports-"Indirect" taxes--- IV. Direct and indirect taxes: Tax shifting assumptions and Corporate income taxes in Europe and the United Study No. 1.-Tax Adjustments in International Trade: GATT Provisions and EEC Practices 1. Introduction Some American businessmen have expressed concern that their competitive positions, both in their home market and in markets abroad, have been disadvantaged because other countries levy heavy consumption taxes on imports and grant exemptions or rebates of such taxes on their exports. They do not consider the levying of consumption taxes on imports into the United States and exemption or rebate on export of American consumption taxes as comparable because such taxes are collected at relatively low rates, are primarily collected by state and local governments rather than the Federal Government, and are not as visible as systems in other countries. Although virtually all countries have a general consumption tax system with the inevitable levy on imports and rebate or exemption on exports, the complaints by our businessmen are primarily voiced in terms of tax adjustments on goods in Europe-specifically the tax-on-value added. Many of these businessmen also believe that the direct tax burden (corporate income tax) in Europe is much lighter than it is in the United States, and since the provisions of the General Agreement on Tariffs and Trade (GATT) permit tax adjustments on imports and exports for consumption taxes but not for income taxes, American producers are disadvantaged. This paper explores GATT provisions on tax adjustments for imports and exports, tax adjustments on traded goods in the European Economic Community, direct and indirect taxes and tax shifting assumptions, corporate profits taxes among the major trading countries, efforts to resolve the issue, and the relationship between the remission on exports of indirect taxes and countervailing duties. II. GATT Provisions Application of Domestic Taxes to Imports The GATT prohibits levying on imported products any "internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products" (Article III:2) and enjoins the use of such internal taxes in such a manner as to afford protection to domestic products.1 The GATT allows countries to impose on imported products (at the time of importation or subsequently) 1 A similar prohibition in Article II (see Annex for text) relates only to items contained in the schedules of concessions, bound against increase in duties or other charges. Items not so bound are not covered by Article II. Articles II and III, when read together, suggest that the drafters of the GATT may have had in mind the fact that, unlike tariffs, internal taxes are generally not the subject of traditional trade negotiations and it is therefore important to ensure that protection is achieved by tariffs rather than internal taxes. all consumption taxes up to the amount which would have been imposed on those products had they been produced and sold domestically; the GATT prohibits imposing internal taxes on imported products in excess of internal taxes on like domestic products. Countries have traditionally imposed domestic consumption taxes on imports. Provisions similar to those in the GATT have been used in commercial treaties and agreements for over a hundred years and were contained in bilateral trade agreements between the United States and other countries from almost the beginning of the reciprocal trade agreements program in 1934. This concept was carried over into the GATT in 1947, as proposed by the United States and other countries, reflecting the practical view that governments and businessmen would not have accepted procedures which exempted competing imported goods from consumption taxes imposed on similar domestic goods.2 Countries apply the GATT provisions in accordance with their own domestic consumption tax system. In countries where multistage consumption taxes are levied on all transactions, whether wholesale or retail, such as under the tax-on-value added which is imposed at the same rate on imported and domestic goods (discussed in later paragraphs), the tax is levied on imports at the border and on subsequent transactions. In countries without multistage taxes, domestic consumption taxes are usually levied on imports at the import stage, if that corresponds to the stage at which the tax is imposed domestically, or at stages subsequent to the import stage. The Canadian Federal 12 percent manufacturers sales tax and provincial retail sales taxes, the United States Federal and state excise taxes and state and local retail sales taxes in 46 states and the District of Columbia, and the British purchase tax (collected at the wholesale stage) are all imposed on imports in the same manner and rate as they are imposed on domestic products. They may be less visible to the foreign exporter if they are collected subsequent to the import stage. The GATT provisions on tax treatment of imports apply to all consumption tax systems without regard to their form. The purpose of taxing imports-whether at the time of importation or subsequently-is to ensure that foreign products do not receive more favorable tax treatment than similar domestic products. To 9 The records of the Committee on Finance indicate the difficulties which can arise when a country deviates from this practice. As indicated in the Report of the President's Commission on International Trade and Investment Policy (GPO, July 1971, footnote at 105), the United States attempted a limited type of border tax adjustments freeze early in the trade agreements program. The United States inserted provisions in three early bilateral agreements (with Brazil, Colombia and Cuba) negotiated under the 1934 Reciprocal Trade Agreements Act freezing internal taxes on imported products with respect to which tariff concessions had been granted. Practical problems emerged almost immediately, however, and the policy was abandoned in 1935. Subsequent agreements contained a provision permitting either party to apply to imports a tax equivalent to any internal tax imposed on products produced and sold domestically. See Extending the Reciprocal Trade Agreements Act, Hearings before the Committee on Finance, United States Senate, 75th Congress, 1st Session, at 39. |