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Dispute Settlement: The Chicken War

Published online by Cambridge University Press:  28 March 2017

Herman Walker
Herman Walker*
Affiliation:
Duke University
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Extract

“Chicken War” is a quip for a long-festering controversy that in the summer of 1963 bristled with menace of a possible trade war between the United States and the European Economic Community. Actually, no outbreak of hostilities eventuated; for, in good time, basis for a détente was found. This entailed resort to a dispute-resolution machinery, made possible because of the existence of an organized international forum in which countries have gained experience in the tasks of harmonizing trade interests. How the controversy started, burgeoned and was disposed of illustrates the complications arising from the creation of the Common Market and the ways devised for coping with these and other complications afflicting international trade.

Type
Research Article
Information
American Journal of International Law , Volume 58 , Issue 3 , July 1964 , pp. 671 - 685
Copyright
Copyright © 1964 by The American Society of International Law

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References

1 This tripling of rate, it may be noted, reflected only in part an increase in protective incidence (designed to offset local production costs, e.g., grain prices and the state of technology). In part, the increase represented commutation of the national subsidy theretofore paid local producers but discontinued under the E.E.C. regulations. Note: trade statistics cited in this paragraph are on a German-import basis, converted from marks to dollars, rounded.

2 The recent record of U. S. exports to E.E.C. has been as follows (in billions of dollars): 3.46 (1960), 3.55 (1961), 3.63 (1962), 3.77 (1963, prelim.). Imports: 2.26 (1960), 2.23 (1961), 2.45 (1962), 2.48 (1963, prelim.).

3 While Germany has been the main foreign market developed to date, the recent drop-off there amounts to the equivalent of only about 1% of total American poultry production, as measured by 1961 and 1962 statistics.

4 The technique efficiently combines organization, management, selective breeding and an extremely low feed-meat conversion ratio. The one “natural” advantage the Americans have, so long as agricultural policy within E.E.C. keeps grain prices high, is cheaper feed; as offset the Europeans have the advantages of propinquity and lower transportation and labor costs.

5 The legislative history of the current trade agreements law, the Trade Expansion Act of 1962 (76 Stat. 872), suggests Congressional desire for a stiffening of the Government's posture in dealing with foreign harassments of American trade. Accordingly, the President's retaliatory authority, as previously set out in Sec. 350 (a) (5) of the Tariff Act of 1930 as amended, was considerably amplified during the bill's passage (Sec. 252, as enacted). See the pertinent Committee reports: House Report No. 1818 (pp. 21-22, 42-43, 72) and Senate Eeport No. 2059 (pp. 2-3, 17-18), 87th Cong., 2d Sess.

6 The current text is reproduced in Department of State Pub. 7182 (1961), The General Agreement on Tariffs and Trade. The version originally signed is T.I.A.S. No. 1700, Oct. 30, 1947; for chronology of increments and revisions, see Treaties in Force. Members (“contracting parties“) numbered 62 in April, 1964. To “bind” means to establish contractually the maximum rate permissibly chargeable on a given product (or specifically guarantee customs treatment otherwise).

7 Special contingencies are also provided for in Arts. XVIII (measures for Economic Development) and XIX (Emergency Action to deal with unforeseen serious injury or threat thereof).

8 The Conference agenda included also a ‘ ‘ second phase,'’ negotiations for reciprocal tariff reductions of the usual sort (the so-called “Dillon round“).

9 Actually, E.E.C. is a customs union in posse, pending consummation of the current “transitional period.” This is logged for 1972 at latest, though as of now, E.E.C. is several years ahead of schedule and may hence complete its transition to full-blown customs union in esse much earlier. As provided in Arts. 14 and 23 of its Charter (the Treaty of Eome, signed March 27, 1957), during the first stage its constituents reduce their tariffs inter se in three successive installments of 10% each; and upon thus attaining a 30% dismantling of “internal” tariffs, each makes the first adjustment in its tariff on trade with outside countries, by stepping 30% of the way toward the E.E.C. common “external” tariff, upward or downward as the case may be.

10 The E.E.C's constituents, nevertheless, proceeded with their first step to the common external tariff. The problem raised by so altering duty rates before completion of negotiated agreement about them was attenuated by the fact that the changes, besides being fractional, involved more lowering than raising of rates. This resulted from an E.E.C. decision (May, 1960) that this first step would as a rule be scaled as though the common external tariff (typically, an average of the national rates) had been reduced by 20%. Furthermore, the contentious “variable-fee” agricultural products wereleft alone de facto. It was tacitly understood that the six months allowed by Art. XXVIII, for the taking of redressive action by a dissatisfied party, would not toll until the end of the Conference. (Otherwise the right of retaliation, accruing in default of agreement, would have lapsed six months following May 29, 1961, when E.E.C. officially notified the contracting parties of the “withdrawal” of the old national bindings).

11 T.I.A.8. Nos. 5018, 5021, 5033, 5034 and 5035. The first two contained the lists of tariff concessions agreed in the XXIV:6 and Dillon-round phases, respectively; and these were subsequently integrated into the schedules of the multilateral instrument that consolidated the results of the Conference and brought it formally to conclusion, the Protocol to the General Agreement on Tariffs and Trade Embodying Eesults of the 1960-61 Tariff Conference, opened for signature at Geneva July 16, 1962 (T.I.A.S. No. 5253). The other three, to which the E.E.C.'s member states were individually party as well as E.E.C. itself, were not so integrated. For summary of the results of the XXIV: 6 negotiation, as completed to this point, see Analysis of United States Negotiations, 1960-61 Tariff Conference, Vol. I, pp. ii, iii, iv-v, 1-8, 27 (Department of State Pub. 7349, released March, 1962).

12 T.I.A.S. No. 5035. More exactly, the commodity covered is “blé de qualité,” which comprehends a greater range of varieties than the American term “hard wheat,” here used loosely. Correspondingly, the residual range of varieties (loosely termed “soft wheat,” but more accurately designated as “blé ordinaire“) cuts off at a lower point in the array of descending hardness than does American “soft wheat.” E.E.C. found it feasible to single out hard wheat for a commitment because it is a type not grown in the E.E.C. area, owing to lack of proper soil and climatic conditions; hence it was expected that E.E.C. consumers would continue to be dependent on foreign sources for their requirements.

14 The agreement in effect commits E.E.C. in a general way regarding continued access for hard wheat. The commitment is not as precise as a normal “binding,” but the general aim was to work out a mutually acceptable substitute in due course that would afford equivalent protection for the trade. This was accompanied by interim assurances regarding maintenance of the established volume of trade.

15 In the run-of-the-mill Art. XXVIII case (as well as the XVIII and XIX contingencies, note 7 above), a rate is unbound precisely because it is to be raised or otherwise restrictively modified; and consequently the remedy is perforce compensation rather than restoration. This is apart from the Art. XXVIII situation arising because a country is changing over to a new tariff classification system without intent of raising general incidence, a mixed situation analogous in microcosm to that arising in the formation of a customs union.

16 An illustrative computation of the sort, prepared by U. S. technicians, may be found in the table printed on p. 7 of the Analysis cited in note 11 above.

17 The main new agricultural concession citable for “ credit “ was the alignment to zero of the Italian 6% duty on cotton, an essential industrial-use raw material not produced in Western Europe. The United States has traditionally been preponderant supplier (about $75 million to Italy in 1958, and 63% of the E.E.C. area's total import); and suppression of the small Italian duty was unlikely to effect any visible betterment in the trade.

18 The rate then actually being applied was slightly higher (by about one percentage point) than the former bound rate of 15%, as consequence of Germany's having meanwhile taken the first step to an 18% rate originally fixed in the common external tariff and later abandoned by E.E.C. in favor of the variable import fee.

19 There is also a category of lower rank, the “substantial supplier,” entitled only to “consultation,” although also authorized to retaliate if dissatisfied.

20 The task of up-dating these figures comprehensively during the early stages of the Conference would have been extremely laborious, as it would have required the conversion of statistics collected in terms of the several and differing national nomenclatures into the nomenclature of the common external tariff.

21 Imports from Denmark, as against those from the U. 8., were as follows (in $ millions): 13.0 vs. 12.5 (1959), 20.0 vs. 23.0 (I960), 27.5 vs. 35.5 (1961). In the four years 1958—1961, the U. S. thus moved from $5 million behind to $8 million ahead.

22 Annex I of the GATT, note 4 ad Article XXVIII.

23 This appears to have been based on a market analysis taking account of rate of growth, in light of supporting information concerning performance after September, 1960. The $46 million happens to equal 1960 actual statistics plus 100%.

24 28 Fed. Beg. 8066. Hearings were slated to open Sept. 4, 1963.

25 Press release GATT/817, Oct. 30, 1963 (Information Services of the GATT, Villa le Boeage, Geneva).

26 Text as released by the official spokesman of the E.E.C., Brussels, Nov. 21, 1963, No. IP(63)197; reprinted in 3 Int. Legal Materials 116.

27 As guide to probability, the panel examined experience in a nearby market (Switzerland) that was free of quantitative restrictions; and generally verified its calculations by reference to experience in Germany during the twelve months following repeal of Germany's discriminatory restrictions (April, 1961). The panel did not reveal the details or mechanics of its arithmetic; but the result corresponds to the actual trade during the period July, 1959-June, 1960 ($17.9 million) adjusted upward by roughly 45%.

28 Note 11 above.

29 T.I.A.S. No. 5018.

30 Par. 3 (a) of Art. XXVIII provides that the dissatisfied party has the right to “withdraw … substantially equivalent concessions initially negotiated” between it and the offending party.

31 This is the approach visualized as being appropriate by a responsible official of the E.E.C. Commission (press conference held in Brussels, Oct. 16, 1963, for purpose of announcing the plan for the panel procedure: background notes prepared for the press, but not available for quotation).

32 The rationale of this position would presumably involve the following considerations: that the negotiating rights preserved by B were patently those defined by the GATT; that A was calculated, in effect, to maintain unbroken the continuity of the old duty commitments; and that the caveat in C was unqualified.

33 28 Fed. Reg. 13247.

34 The products and rate changes are: Trucks valued over $1,000 ( 8 ½% to 25%), brandy valued over $9 per gallon ($1.00/1.25 to $5.00 per gallon), potato starch (1 to 2½¢ per pound), dextrine (1.125¢ to 3¢ per pound). Over half the trade is in the first-named item, German-produced. On the heels of the duty increase, the price of “Volkswagen trucks, delivered at East Coast ports, was raised by $237 (Journal of Commerce, New York Times, Jan. 7, 1964). During the first four months of 1964 (a period, however, too short to be conclusive), imports of German trucks were at a level about 60% below the 1963 showing.

35 A dispatch datelined London in the Herald Tribune for Jan. 13, 1964, reported a Board of Trade opinion to the effect that the small but hopeful American market for British light vans had been destroyed by the duty increase; and that the British Government therefore ought to demand recompense.

36 A spokesman for a leading poultry export firm is reported to have urged that a settlement be sought on the basis of a fee rate of 10¢ per pound (Journal of Commerce, Dec. 26, 1963, p. 19, col. 3), as a compromise that would be more constructive than a retaliation which helped poultry not at all. Earlier, the E.E.C. had offered to settle on the basis of a one-tenth reduction in the fee (bringing it down to approximately 12¢ per pound), in return for an American quit-claim; but this amelioration was not sufficient to be acceptable. (AP dispatch, Washington Evening Star, Sept. 25, 1963, p. A-10, col. 2).

37 Just how much would have depended on the E.E.C. 's final position regarding the law applicable. On the eve of the decision to establish the panel, the E.E.C. was willing to concede a maximum valuation of $19 million (AP dispatch cited note 36 above; New York Times, Oct. 30, 1963, p. 53, col. 1; E.E.C. information “backgrounder” of Aug. 9, 1963)—a figure got by adding 50% to the actual trade statistics for 1959 and rounding out the resulting sum. One possibility would have been to deduct this from the amount of the counter-retaliation. Another, inter alia, would have been to make no deduction, on the theory that the claim had been satisfied by virtue of the fact that Germany had demonstrably been allowing entry of $19 million and more since imposition of the E.E.C. import fee.

38 Counter-retaliation would have required concurrence of all Member States. Such concurrence had readily materialized on the previous occasion when the United States had unjustifiably, in E.E.C.'s view, raised duties seriously affecting E.E.C. trade (the hike in TJ. S. duties on carpets and glass pursuant to an “escape-clause action,” April, 1962). There the E.E.C.'s right to retaliate was unquestioned, even though the United States had offered to negotiate compensation. Here, however, scrupulous fidelity to GATT principles would have precluded further action until after appeal to the Contracting Parties under Art. XXIII (below) and their sanction. Or so it would appear. In the pre-panel period, there had been rumblings of an E.E.C. intent to counterretaliate, if the United States carried out the threatened $46 million retaliation; but whether, in that event, E.E.C. deemed prior resort to Art. XXIII necessary, is not clear.

39 The figure found by the panel meant that the United States was clearly principal supplier in fact.

40 There is, however, one feature that is not automatic: determination of “principal supplier.” Technically this is the function of the Contracting Parties; but in practice they do not exercise it unless appealed to. Had the United States wished to bring the poultry dispute before the Contracting Parties, this path could have been taken in lieu of going to Art. XXIII. Another technicality not observed in this case, apparently by tacit consent for reasons of mutual convenience, was the six-months’ limitation on taking of retaliatory action (note 10 above) ; otherwise the U. S. retaliatory right expired Dec. 31, 1962, at latest.

41 The E.E.C. might conceivably have gone to Art. XXIII at an earlier stage, had it wished, inasmuch as the grounds for invocation of it are stated broadly enough to have given the E.E.C. prima facie an appealable grievance as from the time the United States gave unmistakable evidence of an intent to retaliate in the summer of 1963. Among the considerations militating against such an E.E.C. initiative was, undoubtedly, its position that the bilateral agreement had taken the poultry matter outside the GATT.

42 The form Contracting Parties is that used in the GATT to denote the contracting parties acting jointly for the conduct of the GATT's corporate business.

43 Conversely, the terms of reference had the virtue of minimizing the extent to which the panelists might he forced into the position of seeming to take sides. This sort of consideration, as well as the corollary diffidence customarily shown by countries toward impleading or being impleaded in public view, doubtlessly tends to influence decision-making with reference to taking disputes to the Contracting Parties.

44 References to Art. XXIII proceedings are indexed under ‘’ Conciliation'’ or “Complaints—conciliation” in the GATT's annual gazette, the periodic Supplements to Basic Instruments and Selected Documents. For two recent examples of the techniques employed—playing for time and concord, nudging eomplainee to mend its ways while urging complainant to be forbearing—see handling of U. S. complaints against Canada and France. Ibid., Eleventh Supp. (1963), pp. 55, 88-95.

45 The panel's finding was $7 million above the figure advocated by E.E.C. and $20 million below that espoused by the U. S., and the correction factor it used was 45% as against the 50% and 100% used respectively by the two contestants in their analyses, it will be recalled.

46 It should be noted that the precedent consists in the way the panel came to be created and given its terms of reference, and in its functioning arbitrally, in direct relation to the two disputants and not intermediately. “Panels” as such have been used before, in the capacity of adjuncts to assist the Contracting Parties in acting oh complaints brought under Art. XXIII; and this embryonic experience with panels may be assumed to have helped pave the way for what was done in the chicken dispute.