Court Opinion

ID: 9654059
Source: CourtListenerOpinion
Date Created: 2023-08-23 18:04:42.635597+00
Date Added: 2024-06-11T18:13:05.554633
License: Public Domain

DONLON, Judge (dissenting).
I do not concur. In my opinion, the previous decisions in the Bohemian and Vernon cases, cited by the majority, have little relevance. The situation now before us is different, because the law we are called upon to construe is different. The differences are not unimportant. They are significant.
The tariff provision applicable to this merchandise is a provision of the General Agreement on Tariffs and Trade (GATT), not the binational trade agreements with Great Britain, Canada, and Cuba that were construed in the earlier cases. The internal tax here challenged was laid on this merchandise under the Revenue Act of 1951, legislation that had not yet been enacted at the time the Bohemian and Vernon merchandise was entered.
It is not necessary to consider whether the internal tax here in issue was directly discriminatory against the foreign merchandise. The language of GATT with respect to prohibition of direct discrimination in internal tax does not differ substantially from the similar provisions of the British, Canadian, and Cuban trade agreements that were construed in the Bohemian and Vernon cases. Counsel in those cases seem to have understood that indirect internal tax discrimination was not an issue there. The court found there was no direct internal tax discrimination.
For that matter, plaintiff does not argue that the internal tax laid on this merchandise offends against the GATT ban on direct discrimination. Plaintiff argues and, in my opinion, with merit, that it is indirect discrimination, newly prohibited by GATT, against which this tax offends.
The substance of plaintiff’s argument, on the evidence of record, seems to be that this merchandise is foreign under-proof gin in bottles, which is sold commercially in competition with domestic underproof gin in bottles; that the instant merchandise was imported in 1952 from the Netherlands and from Great Britain, both of which countries were then parties to GATT, as was also the United States; that this gin was subjected to internal tax higher than the internal tax applied to the like and competitive domestic product, underproof gin *949in bottles; that this discrimination was effected, under section 2800(a) (1) of the Internal Revenue Code, by reason of the provisions thereof laying tax on proof and overproof spirits on the proof gallon and on underproof spirits on the wine gallon; that application of these differentials affords a loophole for the discrimination, and this is availed of by the domestic industry; that it is the uniform and well-known practice of the domestic industry to withdraw gin from bond while it is overproof and unbottled, pay internal tax under section 2800(a) (1) on the proof gallon, and, thereafter, merely by adding water and bottling the watered-down gin, a domestic product is obtained which is commercial underproof gin in bottles, and this domestic product is then sold in competition with the imported product; that this is not a casual or occasional occurrence, but the consistently regular advertent practice of the domestic industry; that it has the effect of giving the domestic product the advantage of lower internal tax than the imported product pays; that internal tax is applied, under section 2800(a) (1), indirectly, to domestic commercial under-proof gin in bottles at a rate more favorable than the internal tax applied directly to the like imported product, foreign commercial underproof gin in bottles, for the reason that tax is laid on the imported product on the wine gallon and, by indirection, on the domestic product on the proof gallon; that this is a discrimination effected indirectly by application of section 2800(a) (1), and that it is a discrimination prohibited by the agreement of the contracting parties to GATT, including the United States and Great Britain and the Netherlands, in Part II, Article III, paragraph 1; that section 2800(a) (1) was enacted in 1939, prior to GATT, and, therefore, must be deemed modified by the provision of GATT, cited, which became effective January 1, 1948; that internal tax on imported underproof gin in bottles, as of the date this merchandise was entered, had been leveled down, by operation of GATT, so as to eliminate this indirect discrimination; that such elimination has the effect of reducing internal tax on this merchandise to the tax applied indirectly to the like domestic product.
Much of this argument is plausible. It is not, however, the whole of the story.
In 1952, when this gin was entered, GATT contained an agreement, in Part II, Article III, not unlike the agreement which plaintiff cites. That citation is the original agreement. It was amended in 1948. In respect of the issue before us, the language of GATT in 1952 was even clearer and more precise than the original GATT agreement on which plaintiff seems to rely. The applicable provision is relevant to my opinion, and the exact language of the agreement is worth noting. It is as follows;
“Article III — National Treatment on Internal Taxation and Regulation
“1. The contracting parties recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production.
“2. The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1.” Protocol Modifying Part II and Article XXVI of the General Agreement on Tariffs and Trade (T. *950D. 52167), 62 Stat. 3680. [Emphasis supplied.]
Before considering, on the record here developed, whether or not the internal tax applied to this merchandise was in excess of the internal tax applied, indirectly, to the like domestic product, it would be well first to make certain that the cited GATT agreement is effective with respect to this tax. Plaintiff seems to assume that it is. That is not quite so simple as to permit of assumption.
It is clear that this GATT agreement did not take effect on January 1, 1948, so as to override the internal tax imposed by section 2800(a) (1) of the Revenue Act of 1939, or any amendment thereto, enacted prior to January 1, 1948. The terms upon which the United States recorded its accession to GATT state, in specific language, an important reservation in that respect. The United States (and, for that matter, Great Britain and the Netherlands also) were signatories to the Protocol of Provisional Application of the General Agreement on Tariffs and Trade, which contains the following:
“1. The Governments of the * * * Kingdom of the Netherlands * * *, the United Kingdom of Great Britain * * *, and the United States of America, undertake, * * * to apply provisionally on and after January 1, 1948:
-X- * * * * -»
“(b) Part II of that Agreement to the fullest extent not inconsistent with existing legislation.” [Emphasis supplied.]
Whether the internal tax enacted by Congress as section 2800(a) (1) of the Internal Revenue Code, as modified by the Revenue Act of 1943 (58 Stat. 21), was or was not discriminatory against imported commercial underproof gifi in bottles, under the indirect GATT provision in Part II, Article III, paragraph 1, as plaintiff contends, the fact is that, by the express terms of accession to GATT, the United States limited its entire agreement in Part II, including Article III, paragraph 1, to future legislation. If there was discrimination in existing legislation, the GATT Part II provisions did not become effective on January 1, 1948, to the extent that those provisions were inconsistent with such legislation. Certainly the Revenue Acts of 1939 and 1943 were, on January 1, 1948, existing legislation within the meaning of the protocol reservation.
My view in this respect is fortified by the report of the United States Tariff Commission, prepared under the President’s Executive Order No. 9832 of February 25, 1947, U.S. Code Cong Service 1947, p. 1994. This report was published in 1949. It is a comprehensive analysis of the trade agreement program, prepared by Presidential directive. The opinions expressed are entitled to respectful consideration, even though not binding on the courts. The Tariff Commission had closely followed the GATT negotiations and was in a favorable position to report the intended significance of negotiated provisions.
In the second part of its report (Report No. 160, Second Series), the Commission has something to say about Part II of GATT and, in particular, about Article III and the effects of the accession reservation above cited. On page 45, the report states as follows:
“All signatories pledge themselves to extend national treatment to imports (art. III). The provisions for national treatment with respect to taxation are broader than similar provisions of pre-Geneva agreements in that they include a commitment against the use of taxes not only on imported articles which are “like” domestic articles but also on those which are not “like” domestic articles but which are “directly competitive” with or “substitutable” for domestic products which are not similarly taxed. Existing protective taxes in this class may continue but are subject to negotiation for their reduction or elimination. However, no new or increased taxes *951of this kind may be imposed. * * *” [Emphasis supplied.]
If this were the end of the matter, I would concur with the majority, although for reasons other than those stated in their opinion. But it is not the end of the matter.
The Revenue Act of 1951 increased the internal tax on spirits, under section 2800(a) (1) to $10.50 per proof gallon or wine gallon, as the case might be. This was new legislation. It was not legislation existing on January 1, 1948, within the meaning of the protocol reservation. Section 451(a), Revenue Act of 1951, 65 Stat. 524. This amendment took effect on November 1, 1951, a date antecedent to the entry of this merchandise.
The Revenue Act of 1951 did more, relevant to the situation before us, than merely to levy an increased tax under section 2800(a) (1). In express terms, Congress recognized the possibility that some of the enactments of the Revenue Act of 1951 might contravene treaty obligations of the United States and stated, in clear language, its intention that any amendment made by the Revenue Act of 1951 should not be applied where its application would be contrary to a treaty obligation. This is section 615 of the Revenue Act of 1951, 65 Stat. 569, 26 U:S.C. § 2800 note, entitled “Treaty Obligations,” which reads as follows:
“No amendment made by this Act shall apply in any case where its application would be contrary to any treaty obligation of the United States.”
The internal tax legislation enacted by Congress in 1951, section 451(a), is the most recent expression of congressional intention, as to tax rate, prior to entry of this merchandise. As such, and under established rules of construction, it would — but for section 615— prevail over the GATT agreement, even though in contravention of it. Ribas y Hijo v. United States, 194 U.S. 315, 24 S.Ct. 727, 48 L.Ed. 994.
It is the duty of the courts to construe the law and apply it. It is for Congress to make the law. Here, Congress has given the courts, in section 615, a guide to use in applying the amendments of the Revenue Act of 1951. Those amendments are not to apply in any case where application would be contrary to any treaty obligation of the United States.
The question is, is this such a case? In my opinion, it is.
It probably is not necessary to cite authority for the proposition that GATT, a multiparty trade agreement, has the legal force of a treaty and that its obligations are treaty obligations, within the scope of section 615 of the Revenue Act of 1951. The rule was laid down in B. Altman & Co. v. United States, 224 U.S. 583, 32 S,Ct. 593, 56 L.Ed. 894. The Supreme Court there had before it a commercial reciprocal agreement with France, negotiated under authority of the Tariff Act of 1897. The issue was whether plaintiff could appeal directly to the highest court, under the statute giving the right of direct appeal in cases involving construction of treaties. The Court held that the French commercial agreement was a treaty for purposes of such appeal. I am of opinion that GATT is a treaty, for purposes of section 615 of the Revenue Act of 1951, and that the obligations of the United States thereunder are treaty obligations.
Next, we should consider the language “shall not be subject, directly or indirectly,” as used in Part II, Article III, paragraph 2, of GATT. Does the record before us show that an internal tax was laid on this imported merchandise which is in excess of the internal tax “indirectly” laid on like domestic merchandise ?
“Indirectly” is an adverb. The adjective from which the adverb derives is, of course, “indirect.” There are several shades of meaning indicated in the definition of that word. The one applicable here, as taken from Webster’s New International Dictionary, second edition, is the following:
“indirect * * * d Not resulting directly from an act or cause, *952but more or less remotely connected with, or growing out of, it; as, indirect results.”
The Supreme Court had occasion to construe the meaning of “indirectly” in Hafemann v. Gross, 199 U.S. 342, 26 S.Ct. 80, 50 L.Ed. 220. The Court there said:
“ * * * the statute expressly forbids the doing of the prohibited thing, either ‘directly or indirectly;’ and prohibits ‘any agreement or contract,’ in any way or manner whatsoever, by which the title to be derived from the government of the United States should inure, in whole or in part, to the benefit of any person except the pre-emptor. It is clear, to my mind, that the words ‘directly or indirectly and in any manner’ were obviously intended to embrace evasions and subterfuges by which the policy of the statute might be frustrated, — that is, the prohibition against giving to another person than the pre-emptor the benefit, in whole or in part, of the results of acquiring the land from the United States.” (199 U.S. at page 350, 26 S.Ct. at page 84.)
It is not necessary to consider, as the Court did there, whether the tax consequences here result from “evasions and subterfuges.” It is enough for us to consider whether the policy of GATT is frustrated by something not resulting directly from the tax under section 451 (a), but more or less remotely connected with, or growing out of it, that is, indirectly.
The record before us establishes that' gin produced domestically is sold in the United States in competition with imported gin; that the commercial product is the same, whether domestic or foreign, that is, underproof gin in bottles; and that the internal tax, under section 451 (a) of the Revenue Act of 1951, on such imported gin is in excess of the internal tax indirectly paid by the like domestic product. This discrimination, by indirection, in application of internal tax to the imported gin, is contrary to the treaty obligations of GATT. Congress, therefore, has directed (sec. 615 of the Revenue Act of 1951) that tax legislated by the Revenue Act of 1951 be applied in such a way as not to contravene the treaty obligations.
How the tax shall be applied, so as to give effect to congressional intention, is the remaining problem.
At the opening of trial in this and the companion case, protest 192782-K, plaintiff seemed aware that an important, phase of its case was the proofs necessary for application of tax in this case, in such a way as to effectuate the intention, of Congress. Counsel outlined to the-court, in some detail, the separate proofs-in the two cases which he proposed to-introduce in support of alternate theories of application. (R. 17.) Largely for this reason, the two cases were not. consolidated, although they were tried together.
Along the way, this distinction seems-to have become blurred. Finally, it was all but obliterated when, on plaintiff’s. motion, the last of the separate evidence was cross-introduced into the record in the other case. (R. 141.)
Now, plaintiff seems to rely solely on the application of tax, both in this and the companion case, by substitution of the proof gallon, as tax base, for the wine gallon. Presumably to bolster this theory, plaintiff moved incorporation into the record in this and the companion case, of the record in Select Wines Company v. United States, 31 Cust.Ct. 310, Abstract 57648. Over defendant’s objection, the late Judge Ekwall ordered incorporation. (R. 174.) The record in the Select Wines case is now before us as a part of the record in this case.
The Select Wines case was submitted on an agreed statement of facts. The court held that gin from the Virgin Islands was subject to internal tax “equivalent to” internal tax on the like domestic product. Equivalency was achieved by using for the Virgin Islands product the domestic proof gallon basis, instead of the wine gallon basis, as assessed.
*953I am not persuaded that the tax now before us should be so applied. It may be so. However, a tax “not in excess of” another tax, is not necessarily the same as a tax “equivalent to” that other tax. The record is lacking and the briefs are not helpful, in that respect.
The parties have had ample time for trial and for briefs. It may be that plaintiff should not now have the privilege of further developing the record, not having made its case. If this and the companion case were isolated cases, that view might seem to be persuasive. But these are not isolated cases.
It is a well-known fact that there are tens of thousands of cases pending before this court in which the claims of plaintiffs are generally similar to the claim of this plaintiff. To be sure, many of these cases relate to tax transactions before January 1, 1948, to which the GATT ban on indirect discrimination in internal tax against imported merchandise could not possibly apply. Others are cases in which the tax transaction fell within the period between January 1, 1948, and November 1, 1951, when this obligation under GATT was in suspense. In still others, where tax transactions occurred on and after November 1, 1951, it may well be that there was no like domestic product or, for other reasons of proof, indirect discrimination against the imported product will not be found.
Nonetheless, here, and in at least some of these other cases, it is important to determine how the congressional intention is to be effectuated, when indirect discrimination has been proven. Plaintiff’s opening statement, on trial, suggested two possibilities. There may be others.
On the finding that the internal tax protested is contrary to the treaty obligation of GATT and that Congress expressed its intention that the tax should not be so applied as to be contrary to such obligation, and in order to give the parties an opportunity to develop proofs of record and to argue as to the method of applying tax in order to effectuate the intention of Congress, the case should be restored to an early calendar for that purpose.
At that time, plaintiff should, by appropriate proofs, identify those lots of the instant merchandise which are “simple” gin, and those (if any) in which rectification was part of the final process of reducing overproof gin in bulk to underproof gin in bottles.