What is different about the conditionality associated with the Supplementary Facility is the explicit recognition that the need of the borrowing countries to adopt adjustment policies, which will lead to a greater degree of balance in their external accounts, may be less a function of internal mismanagement of the economy than of structural changes in the world economy beyond the ability of the borrowing country to control.

Ibid., p. 16; [1978] U.S. Code Congressional and Administrative News, Vol. 4, ante, pp. 2545.

For Under Secretary Cooper's testimony, ante, see The Witteveen Facility and the OPEC Financial Surpluses, Hearings before the Subcomm. on Foreign Economic Policy of the Senate Comm. on Foreign Relations, 95th Cong., 1st sess. (1977), pp. 129, 141.

In regard to the provisions of sec. 5 of P.L. 95-435, embargoing trade with Uganda because of its "consistent pattern of gross violations of human rights," and in regard to the provisions of sec. 6, concerning IMF loans to countries supporting international terrorism, see this Digest, Ch. 3, § 6, pp. 468 469 and 494, respectively.

The Senate Committee on Banking, Housing, and Urban Affairs also reported on the legislation; its report, inter alia, detailed the history of exclusion of U.S. participation in the IMF from the U.S. budgetary process.

S. Rept. 95-698, 95th Cong., 2d sess. (1978), pp. 13–19; [1978] U.S. Code Congressional and Administrative News, Vol. 4, ante, pp. 2577-2583.

Appropriations of $1,831,640,000 were provided in P.L. 95-481, approved Oct. 18, 1978 (92 Stat. 1591, 1600), for U.S. participation in the Supplementary Financing Facility.

Exchange Rates

Dollar Strengthening Measures

On November 1, 1978, President Carter announced that, pursuant to his request that strong action be taken to correct the recent excessive decline in the dollar, the Department of the Treasury and the Federal Reserve Board were initiating measures in both domestic and international monetary fields to assure the strength of the dollar. The President added that the international components of the program had been developed with other major governments and with central banks, and that they intended to cooperate fully with the United States in attaining its and their mutual objectives.

Weekly Comp. of Pres. Docs., Vol. 14, No. 44, Nov. 6, 1978, p. 1909; Dept. of State Bulletin, Vol. 78, No. 2021, Dec. 1978, p. 31.

The joint statement issued by Secretary of the Treasury W. Michael Blumenthal and Federal Reserve Board Chairman G. William Miller read:

Recent movement in the dollar exchange rate has exceeded any decline related to fundamental factors, is hampering progress toward price stability and is damaging the climate for investment and growth. The time has come to call a halt to this development. The Treasury and Federal Reserve are today announcing comprehensive corrective actions.

In addition to domestic measures being taken by the Federal Reserve, the United States will, in cooperation with the Governments and central banks of Germany and Japan, and the Swiss National Bank, intervene in a forceful and coordinated manner in the amounts required to correct the situation. The United States has arranged facilities totaling $30 billion in the currencies of these three countries for its participation in the coordinated market

intervention activities. In addition, the Treasury will increase its gold sales to at least 12 million ounces monthly beginning in December.

The currency mobilization measures, described in the attached annex, include drawings on the U.S. reserve tranche (shares) in the IMF (International Monetary Fund), for part of which we contemplate that the General Arrangements to Borrow (GAB) will be activated; sales of Special Drawing Rights (SDR's); increases in central bank swap facilities, and issuance of foreign currency denominated securities by the U.S. Treasury.

Fundamental economic conditions and growth trends in the four nations are moving toward a better international balance. This will provide an improved framework for a restoration of more stable exchange markets and a correction of recent excessive exchange rate movements.

The annex:

A. Actions in the International Monetary Fund:

1. Drawing of U.S. reserve tranche, $3 billion.

(United States would draw DM [deutsche marks] and yen totaling the equivalent of $2 billion immediately. An additional $1 billion equivalent drawing would be made shortly thereafter, for which GAB activation would be contemplated.)

2. Sale of SDR, $2 billion.

B. Actions increasing Federal Reserve swap lines:

1. Increase in swap lines with Bundesbank to $6 billion.
2. Increase in swap line with Bank of Japan to $5 billion.

3. Increase in swap line with Swiss National Bank to $4 billion.

C. Issuance of foreign currency denominated securities up to $10 billion. Total, $30 billion. (Of this total, approximately $1.8 billion has been utilized in earlier operations under Fed swap lines, but the total excludes Treasury swap facility with Bundesbank.)

The Washington Post (final ed., Nov. 2, 1978), p. A5, cols. 2-4. See further, the Dept. of State Bulletin, Vol. 78, No. 2021, Dec. 1978, p. 31.

President Carter had also announced on Nov. 1 that, effective immediately, the Federal Reserve (Board of Governors) was raising the discount rate from 8% to 92 percent, and was imposing a supplementary reserve requirement (upon member banks of the Federal Reserve System) equal to 2 percent against time deposits in denominations of $100,000 or more. As to the former, see amendments to Regulation A, “Extensions of Credit by Federal Reserve Banks," issued by the Board of Governors under date of Nov. 8, Fed. Reg., Vol. 43, No. 223, Nov. 17, 1978, pp. 53707-53708 (to be codified to 12 CFR 201.51, 201.52, and 201.53). As to the latter, see amendment to Regulation D, "Reserves of Member Banks," issued by the Board of Governors under date of Nov. 1, 1978, ibid., No. 218, Nov. 9, 1978, pp. 52202-52203 (to be codified to 12 CFR 204.5).

A seven-nation economic summit conference to develop a strategy for global economic recovery was held at Bonn, Germany, from July 16-17, 1978. The participants included, besides President Jimmy Carter of the United States, Prime Minister Pierre Elliot Trudeau of Canada, President Valéry Giscard d'Estaing of France, Chancellor Helmut Schmidt of the Federal Republic of Germany (also

representing the European Community as President of the European Council), Prime Minister Giulio Andreotti of Italy, Prime Minister Takeo Fukuda of Japan, Prime Minister James Callaghan of the United Kingdom, and President Roy Jenkins of the European Commission of the European Community.

Conference discussions focused upon five principal areas: growth, employment and inflation, energy, trade, relations with developing countries, and international monetary policy. A Declaration, issued at the end of the conference on July 17, 1978, set out mutually agreed conclusions and individual, as well as common, commitments.

Weekly Comp. of Pres. Docs., Vol. 14, No. 29, July 24, 1978, pp. 1310-1315; Dept. of State Bulletin, Vol. 78, No. 2018, Sept. 1978, pp. 1-4.

Countervailing Duties

Import Control

In Zenith Radio Corporation v. United States, 437 U.S. 443 (1978), the United States Supreme Court on June 21, 1978, affirmed a decision of the United States Court of Customs and Patent Appeals, which had held that remission of a Japanese commodity (consumption) tax upon certain consumer electronic products, when exported, did not constitute bestowal of a "bounty or grant" within the purview of the United States countervailing statute, section 303 (a) of the Tariff Act of 1930, 46 Stat. 687, as amended, 19 U.S.C. 1303 (a), even though the tax were otherwise imposed if the products were sold within Japan. (The term "remission" encompassed exemption from imposition of the tax on products shipped directly for export from the factory and also refund to an exporter of any tax already paid on products not directly shipped for export from the factory.)

The Acting Commissioner of Customs had ruled against the plaintiff American manufacturer in a final negative countervailing duty determination, approved by the Acting Assistant Secretary of the Treasury on December 31, 1975 (see Fed. Reg., Vol. 41, No. 4, Jan. 7, 1976, p. 1298). The manufacturer then sought review in the United States Customs Court, pursuant to section 516(d) of the Tariff Act of 1930, as amended by the Trade Act of 1974, Public Law 93-618, January 3, 1975, 88 Stat. 2048, 19 U.S.C. 1516(d).

The Customs Court, basing its decision upon Downs v. United States, 187 U.S. 496 (1903), ruled in favor of the petitioning manufacturer and directed the Secretary of the Treasury to order United States customs officers to assess countervailing duties on all Japanese consumer electronic products specified in the petitioner's complaint (Zenith Radio Corporation v. United States, 430 F. Supp. 242 (Cust. Ct. 1977)). On appeal by the United States, the Court of Customs and

Patent Appeals reversed the Customs Court in a 3 to 2 decision, and remanded the case for entry of summary judgment in favor of the United States (United States v. Zenith Radio Corporation, 562 F.2d 1209, 1223 (C.C.P.A. 1977)).

On certiorari, the Supreme Court confirmed the Treasury Department's longstanding interpretation of the United States countervailing duty statute, that if the remission of an indirect tax were "nonexcessive," i.e., if it did not exceed the amount of tax paid or otherwise due in the absence of remission, the statute did not require assessment of a countervailing duty. The Supreme Court also reconciled its ruling on the Japanese commodity tax with its 1903 finding in Downs v. United States, that Russian bestowal of partial excise tax forgiveness on domestic sugar sales, in addition to the entire remission of excise tax on any sugar exported, constituted a bounty to the extent of such forgiveness.

Writing for the Court, Justice Thurgood Marshall said in part: (footnotes selectively omitted)

II

A

The language of the 1897 statute evolved out of two earlier countervailing duty provisions that had been applicable only to sugar imports. The first provision was enacted in 1890, apparently for the purpose of protecting domestic sugar refiners from unfair foreign competition; it provided for a fixed countervailing duty on refined sugar imported from countries that "pay..., directly or indirectly, a [greater] bounty on the exportation of" refined sugar than on raw sugar. Tariff Act of 1890, ¶ 237, 26 Stat. 584. Although the congressional debates did not focus sharply on the meaning of the word "bounty," what evidence there is suggests that the term was not intended to encompass the nonexcessive remission of an indirect

tax ..

This concept of a "net" bounty-that is, a remission in excess of taxes paid or otherwise due-as the trigger for a countervailing duty requirement emerged more clearly in the second sugar provision, enacted in 1894. Tariff Act of 1894, ¶ 1821/2, 28 Stat. 521. The 1894 statute extended the countervailing duty requirement to all imported sugar, raw as well as refined, and provided for payment of a fixed duty on all sugar coming from a country which "pays, directly or indirectly, a bounty on the export thereof." A proviso to the statute made clear, however, that no duties were to be assessed in the event that the "bounty" did not exceed the amount of taxes already paid.

The 1897 statute greatly expanded upon the coverage of the 1894 provision by making the countervailing duty requirement applicable to all imported products. Tariff Act of 1897, § 5, 30 Stat. 205 ..

There are strong indications, however, that Congress intended to retain the "net bounty" concept of the 1894 provision as the criterion for determining when a countervailing duty was to be imposed. Although the proviso in the 1894 law was deleted, the 1897 statute did provide for levying of duties equal to the "net amount" of any export bounty or grant. And the legislative history suggests that this language, in addition to establishing a responsive mechanism for determining the appropriate amount of countervailing duty, was intended to incorporate the prior rule that nonexcessive remission of indirect taxes would not trigger the countervailing requirement at all.

B

Regardless of whether this legislative history absolutely compelled the Secretary to interpret "bounty or grant" so as not to encompass any nonexcessive remission of an indirect tax, there can be no doubt that such a construction was reasonable in light of the statutory purpose

...

In deciding in 1898 that a nonexcessive remission of indirect taxes did not result in the type of competitive advantage that Congress intended to counteract, the Department was clearly acting in accordance with the shared assumptions of the day as to the fairness and economic effect of that practice. The theory underlying the Department's position was that a foreign country's remission of indirect taxes did not constitute subsidization of that country's exports. Rather, such remission was viewed as a reasonable measure for avoiding double taxation of exports-once by the foreign country once upon sale in this country

C

The Secretary's interpretation of the countervailing duty statute is as permissible today as it was in 1898. The statute has been reenacted five times by Congress without any modification of the relevant language,. and, whether or not Congress can be said. to have "acquiesced" in the administrative practice, it certainly has not acted to change it. At the same time, the Secretary's position has been incorporated into the General Agreement on Tariffs and Trade (GATT), which is followed by every major trading nation in the world; foreign tax systems as well as private expectations thus have been built on the assumption that countervailing duties would not be imposed on nonexcessive remissions of indirect taxes. In light of these substantial reliance interests, the longstanding administrative construction of the statute should "not be disturbed except for cogent reasons."

...

III

Notwithstanding all of the foregoing considerations, this would be a very different case if, as petitioner contends, the Secretary's