1 see the Ministerial Declaration which launched the negotiation, approved at Tokyo on 14 Sept. 1973, GATT Doc. Min (73)1, reprinted in GATT, 20th Supp. Basic Instruments and Selected Documents (hereinafter BISD) 19 (1974). See also the United States Trade Act of 1974 Pub. L. No.93–618, §121, 88 Stat. 1978 (1975) (codified at 19 U.S.C. §§2101–2487, Supp. V, 1975).

2 A domestic law analogy would be that of a carefully crafted private contract between business firms, employing “concurrent conditions” to obligations on each side.

3 See generally, work by the same author entitled: World Trade and the Law of Gatt —A Legal Analysis of the General Agreement on Tariffs and Trade (1969) (hereinafter cited as World Trade and the Law of Gatt ).

4 Jackson, , The General Agreement on Tariffs and Trade in United States Domestic Law 66 Mich. L. Rev. 249, 285, n. 199 (1967)Google Scholar. See UN Doc. EPCT/C.II /PV2 at 8 (1946).

5 Senate Comm. On Finance, Trade Reform Act of 1974, S.Rep. No.93–1298, 93d Cong. 2d Sess. 83 (1974).

6 Address by Mr. Olivier Long, Director General, General Agreement on Tariffs and Trade to the Zurich Economic Society, Zurich, 9 Nov. 1977, GATT press release 1199 at 10.

7 These cases are reported in a series of GATT documents, most important of which are those giving the report of the various panels; regarding DISC, GATT doc. L/4422 of 2 Nov. 1976, reprinted in 23d Supp. BISD 98 (1977); Income Tax Practices Maintained by Belgium, L/4424 of 12 Nov. 1976, reprinted in 23d Supp. BISD 127 (1977); Income Tax Practices Maintained by France, L/4423 of 12 Nov. 1976, reprinted in 23d Supp. BISD 114 (1977); and Income Tax Practices Maintained by the Netherlands, L/4425 of 12 Nov. 1976, reprinted in 23d Supp. BISD 114 (1977).

8 Id.; International Revenue Code of 1954 [hereinafter cited as I.R.C] §§881–882; U.S. Dept. of Treasury, Tax Reform Option Paper on International Taxation, reprinted in International Trade Reporters U.S. Export Weekly, #177 , Oct. 11, 1977, Section M, particularly at M-2; see generally Nolan, United States Taxation of Export Income and the DISC Proposal, 2 J. Mar. L. & Com. 779–786 (1971). The panel did not consider the effect of the 1975 and 1976 amendments to DISC. Tax Reform Act of 1976, Pub.L. No.94–455, §1101, 90 Stat. 1520 (1976); Tax Reduction Act of 1975, Pub.L. No. 94–12, §603, 89 Stat. 26 (1975). In an attempt to eliminate the motive of domestic corporations to seek foreign tax havens the Congress included a series of regulations designed to reduce the tax benefits achieved through domestic control of foreign corporations in the Revenue Act of 1962. I.R.C, §A7951;-964; see also B. Bittkeh & L. Ebb, United States Taxation of Foreign Income and Foreign Persons 338–348 (2d ed. 1968); L. Krause & K. Dam , Federal Tax Treatment of Foreign Income 30–43 (1964). Further limitations are placed on the tax haven status of foreign countries by the definitions of foreign source income. I.R.C. §§861–864.

9 As described in GATT documents L/4423,L/4424,andL/4425,supra note

10 I.R.C. §§901, 904–905.

11 N.Y. Times, March 26, 1957, at 12, col. 1.

12 The subject is termed “Border Tax Adjustments,”see GATT ART.II fi2(a)and III : 2, VI: 4, XVI, XX and interpretive notes relating to Arts.II, III, and XVI: World Trade and the Law of Gatt, $12.7 at 29

13 U.S. Dept. of Treasury, 1976 Annual Report to Congress on the Operation and Effect of the Domestic International Sales Corporation Legislation, ch.5, DISC and Foreign Tax Practices, reprinted in International Trade Reporters U.S. Export Weekly,# 203 , April 18, 1978, Section M, particularly at M-10. Congressional resentment of the European border tax adjustment actions can be seen reflected in the Trade Act of 1974, supra note 1, §121 (a)(5).The Administration justified the 1971 DISC legislation to Congress as a response to European border tax adjustment actions. Hearings on the Nomination of John B. Connolly to be Secretary of the Treasury Before the Senate Coram, on Finance, 92d Cong., 1st Sess. 40 (1971) (statement of John B. Connally). It should be noted, however, that the DISC is an “income tax” measure, whereas the European border tax adjustment relates to a “value added tax” (V.A.T.) which has been considered a tax on products, or “indirect” tax. Only the latter can take advantage of the GATT Border Tax rules. A recurring complaint of the United States is that by relying on the income tax for most of its government revenue, it is put to a disadvantage under the GATT trade rules compared to the Europeans who rely more heavily on the V.A.T.

14 Hearings on the Administration's Legislative Tax Proposals Included in the Economic Program Released on Aug. 15, 1971 Before the House Comm. on Ways and Means, 92d Cong. 1st Sess. 530 (1971) (statement of Melvin C. Holm). Because DISC was perceived as retaliation to European border taxes, Congressional refusal to repeal DISC totally through the 1975 or 1976 amendments was in part based upon the desire to keep DISC as a “bargaining chip” in future trade negotiations. 122 Cong. Rec. S9101 (daily ed. June 11, 1976) (remarks of Sen. Williams).

15 No action was taken on the original Disc legislation introduced on Nov. 19, 1969 in H.R. 14870 as part of the Trade Act of 1969. The House passed the DISC legislation as part of the Trade Act of 1970 in H.R. 18970, 91st Cong., 2d Sess. §§401–408 (1970). The bill, however, died in Senate committee after an attempt was made to attach it as a rider to more popular social security legislation. The DISC legislation was finally passed as part of the Revenue Act of 1971, Pub. L. No. 92–178, §§501–507, 85 Stat. 497 (1971). The legislative history of DISC includes the following Committee Reports: H.R. Rep. No. 92–533, 92d Cong., 1st Sess. (1971), reprinted in [1971] U.S. Code & Ad. News 1825, 1918; S. Rep. No. 92–437, 92d Cong., 1st Sess. (1971), reprinted in [1971] U.S. Code & Ad. News 1825, 1918; H.R. (Conference) Rep. No. 92–708, 92d Cong., 1st Sess. (1971), reprinted in [1971] U.S. Code & Ad. News 1825, 2053.

16 U.S. Dept. of Treasury, Domestic International Sales Corporation—A Handbook for Exporters (1972); Pub. L. No. 92–178, §§501–507 (codified in scattered sections of 26 U.S.C) ; see also description in Note, , Domestic International Sales Corporation—A Tax Incentive for Exporters, 56 Minn L. Rev. 407–462 (1972)Google Scholar; Note, , Domestic International Sales Corporations—A New Concept for American Trade Policy, 4 N.Y.U.J. Int'l. L. & Pol. 92–105 (1971)Google Scholar; Rindel, , Use of A Domestic International Sales Corporation to Reduce Federal Income Tax on Export Earnings, 11 San Diego L. Rev. 138–178 (1973)Google Scholar.

17 U.S. Dept. of Treasury, 1976 Annual Report to Congress on the Operation and Effect of the Domestic International Sales Corporation Legislation, ch. 4, Effect of DISC on Tax Revenue, supra note 13. New revenue cost estimates and data are on the basis of the current (1977–78) law, after the revisions of 1975 and 1976 which reduced the revenue cost of the original DISC provision of 1971. See also note 56 infra.

18 see International Trade Reporters’ Export Weekly, # 168 Aug. 9, 1977, 0–1 to 0–7. Telfer, , U.S. Retention of DISC Held Vital to Trade, J. Com., Aug. 3, 1977, at 1 Google Scholar; Mullaney, , Defending the DISC Export-Aid Plan, N.Y. Times, Aug. 5, 1977, at D1 Google Scholar.

19 See World Trade and the Law of Gatt, ch. 8; R. Hudec, The Gatt Legal System and World Trade Diplomacy (1975); Jackson, , GATT As An Instrument for the Settlement of Trade Disputes, 61 ASIL Proc. 144 (1967).Google Scholar

20 GATT Article XXIII “Nullification or Impairment” reads in full as follows:

21 World Trade and the Law of Gatt, at 183;see note 19 supra.

22 GATT, 2d Supp. BISD 188 (1952).

23 World Trade and the Law of Gatt, at 182; GATT, 11th Supp. Bisd 95, 100 (1963).

24 The only case of permitted “suspension of obligations” under Article XXIII in GATT was one involving a complaint by the Netherlands against United States quotas on the importation of dairy products. The Netherlands was permitted by the GATT in a 1953.

25 See note 19 supra; World Trade and the Law of Gatt, at 177; GATT docs.Com.TD/F/1–4;Com.Td/F/W/1–7(1966–67).See also notes 5 and 6 supra. For a survey of actions brought to GATT though its art. XXIII dispute settlement process see Staff of Senate Comm. On Finance, 93d Cong., 2d Sess., Executive Branch Gatt Studies 155 (Comm. Print 1974). For a detailed description of a particular dispute settlement through GATT processes, the conflict between the United States and the European Community concerning processed fruits and vegetables, see European Community Restrictions on Imports of United States Specialty Agricultural Products:Hearings on H.R. 238 and H.R. 320 Before the Subcomm. on Trade of the House Comm. on Ways and Means, 95th Cong., 1st Sess. 21 (1977) (statement of James Starkey).

26 See e.g., GATT, 7th Supp. Bisd 24 (1959). A major concern of Article XXIII reform is preserving the effectiveness of consultation when a less-developed contracting party is involved. See GATT, 14th Supp. BISD 18 (1966); GATT doc. L/2614 of 5 April 1966, reprinted in 14th Supp. BISD 129 (1966).

27 See Jackson, J.,Legal Problems of International Economic Relations, §12.3 (1977)Google Scholar; Barcelo, , Subsidies and Countervailing Duties—Analysis and Proposal, 9 L. & Pol. Int'l. Bus. 779 (1977)Google Scholar; and works therein cited.

28 GATT Article VI, flfl 3, 4, 5, 6:

29 See World Trade and the Law of Gatt, §15.3, at 371.

30 19 U.S.C. §1303; see also note 27 supra. See also Trade Act of 1974, §331 and corresponding House and Senate reports. The countervailing subsidies issues are considered by many to be the highest priority issue for the Geneva “Tokyo Round” negotiations. The issue has been accentuated by the procedural amendments to the U.S. Countervailing Duty Law contained in the Trade Act of 1974. See United States v. Zenith Radio Corp., 562 F.2d 1209 (C.C.P.A. 1977), aff'd United States v. Zenith Radio Corp., 98 S.Ct. 2441 (1978).

31 The following GATT documents are relevant to support the facts outlined in the text: C /M/71 of 2 Sept. 1971, at 4; L/3574 of 13 Sept., 1971; C/M89 of 30 July 1973; L/4422 of 2 Nov. 1976; L/3860 of 17 May 1973.

32 See World Trade and the Law of Gatt, 172–173; Jackson, supra note 19 at 147; and particularly the panel for the Uruguayan complaints in 1962, GATT, 11th Supp. BISD 95 (1963) and the panel set up at the 9th Session of the Contracting Parties in 1955 to investigate all complaints at that session, GATT, 3d Supp. BISD 77, 81 (1955).

33 U.S. Dept. Of Treasury, 1976 Annual Report, ch. 5, Border Tax Adjustments, supra note 13, at M-10. Hearings on Tax Reform Before the House Comm. on Ways and Means, 94th Cong., 2d Sess. 12 (1975) (statement of William E. Simon).

34 For example, the Panel Report in the case of Italy v. Sweden, GATT Doc. L/386 (1955), reprinted in 3d Supp. BISD 81 (1955).

35 In this article I will not deal with a number of minor or subsidiary issues, for example: the U.S. DISC law provision which allows 10% of export promotion expenses to be assigned to the DISC (see L/4422 if 49); the provision allowing a DISC to make loans to help finance U.S. production; the allocation of freight expenses; nor to the “flag discrimination” feature of the DISC legislation (see L/4422, U 63). It should also be recalled that the U.S. Congress amended the DISC law in 1975 and 1976 in ways that reduce its impact and its tax cost. See Tax Reform Act of 1976, Pub. L. No. 94–455, §1101, 90 Stat. 1520 (1976); Tax Reduction Act of 1975, Pub. L. No. 94–12, §603, 89 Stat. 26 (1975).

36 There could be an argument under GATT “precedent” that a domestic subsidy caused import displacement and was a “prima facie” nullification and impairment when applied on products for which tariff concessions had been granted, but this argument was only made by the Canadians, briefly mentioned in the report (GATT DISC Report L/4422, 1f62) and not considered in the panel conclusions. It depends on the reasoning that the subsidy enabled domestic producers to sell at a lower price so as to compete more effectively against imports. Such a showing in this case would undercut the bilevel pricing argument, and the “subsidy,” if it were one, spread over a much higher quantity of domestic goods (as well as exported goods) would have had even less impact on the price per product (and therefore “competitiveness” or injury).

37 Report adopted 19 November, 1960, GATT doc. L/1381, reprinted in GATT, 9th Supp. BISD 185, at 186–187 (February 1961).

38 L/4422, 1f 28 and If 31, 33, 42.

39 L/4422, If 71.

40 L/4422, f 25.

41 Note, Minn. L. Rev., supra note 16, at 461; U.S. House of Representatives, Budget Committee, Staff of Task Force on Tax Expenditures, An Analysis of Domestic International Sales Corporations, Sept. 1975, Part II A, reprinted in International Trade Reporters’ Export Weekly #75, Sept.30, 1975, at M-2.

42 L/4422, n 64–66.

43 Ibid., 1155. Interestingly enough, some of the American Law Reform literature performs this exercise in detail and very ably. Yet, there is no hint in the GATT DISC Panel Report, that there ever was consideration by the GATT DISC Panel of any of the published secondary literature on the DISC (or related cases), and this author has been informed orally that it is unlikely that the Panel did consider any of the secondary literature. Concerning the potential price effect of the DISC (before it was amended in 1975 and 1976), see note 8 supra. Law review literature which analyzes the potential price effect of DISC tax benefits includes: Considine, , The DISC Legislation: An Evaluation, 7 N.Y.U. J. int'l. L. & Pol. 217, 237 (summer, 1974)Google Scholar, estimating the price effect to be from 1.4 to 1.8% Enninger, , DISC and GATT: Inter-national Trade Aspects of Bringing Deferral Home, 13 Harv. int'l. L. J. 391, 408 (1972)Google Scholar, estimating the price effect from 1.0 to 1.5%. See also Note, Minn. L. Rev., supra note 16, at 443; Schmalz, , Domestic International Sales Corporation as a Subsidy Under GATT: Possible Remedies, 5 Case W. Res. J. int'l. L. 87, 99 (1972)Google Scholar.

44 Staff of the Senate Comm. on the Budget, 95th Cong., 1st Sess., Background Paper on U.S. Government Involvement in Commercial Exports 19 (1977); U.S. Dept. of Treasury, 1976 Annual Report to Congress on the Operation and Effect of the Domestic International Sales Corporation Legislation, supra note 13, ch.3, Estimating the Impact Effect of DISC on U.S. Exports at M-4; Library of Congress, Report on Disc and its Effect on Exports and Unemployment, Part III, The International Monetary System, International Trade Reporters’ Export Weekly, #105 , May 4, 1976, at 0–2. See also, Hearings on the Trade Reform Act of 1973 Before the Senate Comm. on Finance, 93d Cong., 2d Sess. 1644 (1974) (statement of Fred Bergsten).

45 Uruguayan recourse to Article XXIII, GATT Report adopted 16 Nov. 1962, L/1923, reprinted in 11th Supp. BISD 95, 101.

46 GATT Doc. L/4423, L/4424, L/442S, supra note 7.

47 See World Trade and the Law of Gatt, §3.2, at 60; Jackson, supra note 4, at 294 48 See text quoted in note 28 supra. 49 L/4423 re France, fl 56; L/4424 re Belgium, If 43; L/4425 re Netherlands, If 43.

50 GATT Doc. L/309 (19 January 1955), reprinted in L/2375 (19 March 1965).

51 GATT Council agenda and information supplied by staff of the Office of the U.S. Special Representative for Trade. 52 U.S. Special Representative for Trade.

52 ATT Doc. L/4505 of 3 June 1977.

53 GATT Doc. C/99 of 15 March 1977, third paragraph.

54 GATT Doc. C/97, Add. 1, of 21 July 1977, and C/97/Rev. 1 of 21 March 1977.

55 GATT Doc. C/102 of 24 November 1977, third paragraph.

56 Lynch, , Disc's Demise—Corporate Tax Break on Exports is Likely to be Rescinded Soon, Wall St. J., Jan. 5, 1977 at 1 Google Scholar; Connors, Carter Tax Reform Plan Likely to End DISC Referral Break, J. Com., July 20, 1977, at 1; Farnsworth, Washington and Business—Carter vs. Industry on DISC Benefits, N.Y. Times, Aug. 18, 1977, at 55; U.S. Dept. of Treasury, Tax Reform Option Paper on International Taxation, supra note 8, at M-l; U.S. Dept. of Treasury, 1976 Annual Report to Congress, supra

57 For some suggestions regarding improvements to the GATT dispute settlement process see Report of the Panel on International Trade Policy Institutions Ofthe American Society of International Law, Remaking the System of World Trade: A Proposal for Institutional Reform, Studies in Transnational Legal Policy #12 (1976); Jackson, , The Crumbling Institutions of International Trade 12 J. World Trade L. 93 (1978)Google Scholar. See also, Trade Act of 1974, §121, supra note 1; R. Hudec, supra note 19; Aba Summary of Action of the House of Delegates, Reports of Sections, No. 102 (Feb. 1978). note 13, ch. 2, History and Provisions of DISC's Statute, at M-3. See also, notes 17 and 18 supra.