Zenith Radio Corporation v. United States – Oral Argument – April 25, 1978

Media for Zenith Radio Corporation v. United States

Audio Transcription for Opinion Announcement – June 21, 1978 in Zenith Radio Corporation v. United States
Audio Transcription for Oral Argument – April 26, 1978 in Zenith Radio Corporation v. United States


Warren E. Burger:

We will hear arguments next in Zenith Radio Corporation against the United States.

Mr. Ikenson, I think you may proceed when you are ready.

Mr. Chief Justice, and May it please the Court.

This case presents the question whether the forgiveness of a commodity tax on the exportation of certain consumer electronic products from Japan is a bounty or grant under our countervailing duty law.

The petitioner is a domestic producer of such consumer electronic products as television sets, radios and the like.

In 1970, the petitioner filed a complaint with the Treasury Department, claiming that Japan conferred a bounty or grant upon the exportation of like products by reason of the remission of a commodity tax on exportation.

In January of 1976, the Secretary of the Treasury made a determination that no bounty or grant was paid or bestowed on exportation.

Under a then recently enacted statute, the petitioner sought and obtained judicial review over the secretary?s negative determination in the United States Customs Court.

From the pleadings filed by the parties in the Court, it became clear that the essential facts were not in dispute.

Japan imposes a commodity tax on certain products when shipped from the manufacturer?s factory for domestic consumption, that is consumption in Japan, however, the same products when shipped for export from Japan are exempt from payment of the commodity tax.

Each of the parties moved for summary judgment.

Petitioner arguing that as a matter of law, the remission of the tax on exportation constituted a bounty or grant, the government arguing the contrary.

A three-judge panel of the Customs Court agreed with the petitioner and awarded a summary judgment.

On appeal, the Court of Customs on Patent Appeals, reversed in a 3 to 2 decision and on February of this year, this Court granted certiorari.

We say, Your Honors, that the tax remission clearly is a bounty or grant on exportation and that off setting duties called countervailing duties, should be assessed on imported products from Japan which benefit from the tax remission.

The Countervailing Duty Law as it now exists has remained essentially unchanged since the first general countervailing duty law was enacted as Section 5 of the Tariff Act of 1897.

Since that time the law was re-enacted five times and it was twice construed by this Court in the Downs case and in the Nicholas case.

Both decisions make clear that the statute?s coverage is extremely broad and particularly with respect to the remission of tax and exportation that that event is a bounty or grant.

In Downs, the first of the two of countervailing duty cases considered by this Court, the Court had before it a very complex Russian program which sought to control the production, price and exportation of sugar.

The scheme was extremely complicated, but it included two facts which this Court considered most important.

Fact number one, all sugar sold domestically was subject to an excise tax.

Fact number two, all sugar exported from Russia was exported free of such tax.

The Court proceeded to state that whenever a tax is imposed upon all sugar produced, but is remitted on all sugar exported then by whatever process or in whatever manner or under whatever name it is disguised, it is a bounty upon exportation.

Now, it is true there was another aspect of the Russian plan which the Court considered.

Exporters of sugar received certificates which were marketable and valuable.

The Court discussed whether or not these certificates also constituted a bounty or grant.

The Court said that it did, but that does not detract from the Court?s very forceful language that the principle and the key facts in the entire scheme were the two that I mentioned to Your Honors, that all sugar sold in the home market was taxed and that all sugar exported was sold free of tax.

This language of this Court declaring that the remission of tax under such circumstances is a bounty or grant, requiring the imposition of countervailing duties is not or was not unguarded language as the government would characterize it.

That language is consistent with repeated statements of this Court, both in the Downs case and in cases subsequent to and prior to Downs.

In the Nicholas case, the only other countervailing duty case this Court cited as an example of a bounty or grant on exportation, the remission of the tax when that tax is levied on products sold in the home market.

Audio Transcription for Oral Argument – April 26, 1978 in Zenith Radio Corporation v. United States


In an earlier case, in Passevant, the Court expressed its recognition as to why governments remit taxes on exportation.

The Court said, ?Doubtless, to encourage exportation, to encourage the introduction of domestic goods into export markets, taxes are remitted on exportation.

There was no mystery about the benefits of tax remission on exportation.

The Court perceived the benefit and the Court deemed such a benefit to be a countervailable bounty or grant.

Notwithstanding the teachings of this Court which are quite clear, the Secretary of the Treasury has developed a practice under the countervailing duty law of excusing from countervail remissions of indirect tax.

The practice unquestionably conflicts with decisions of this Court.

Now, as I said earlier, the Congress re-enacted the statute five times since 1897 and it re-enacted it several times after this Court?s Downs decision and after this Court?s Nicholas decision.

Of course, the Congress re-enacted the statute after the administrative practice began to be put into place.

A fundamental question arises, by re-enactment of the statute after this Court?s decision and after the administrative practice of the Secretary, what did Congress have in mind?

Did Congress intend to ratify the practice or did Congress intend to ratify this Court?s decisions?

The question is so simple —

Or neither?

That is always a possibility, Your Honor, except that I think it is a rather well settled principle that when Congress re-enacts a statute after a judicial interpretation of the statute becomes known to it, it is deemed to have ratified that interpretation.

Warren E. Burger:

Or is it possible that the problem was regarded as so delicate and difficult that they would rather have this Court decide it?

I think not, Your honor.

I think, clearly the Congress —

John Paul Stevens:

But your point is that this Court did decide it, in the Downs case, is it not?

That is correct.

Our point is this. Congress was aware of the Downs case and certainly by the time of the last re-enactment in the Trade Act of 1974, it was aware of the Nicholas case, it was aware of the administrative practice.

How did Congress respond in the Trade Act of 1974?

Firstly, it opened the courts to American manufacturers by providing especially for judiciary review over negative countervailing duty determinations by the Secretary.

This enabled the American manufacturers who were aggrieved by the non-assessment of countervailing duties on imports which were benefited by tax remission on export to come to the courts and to invoke this Court?s teachings of Downs and Nicholas.

The Congress went further.

The key committees of the Congress discussed the administrative practice in the legislative history of the Trade Act and said that ?We are neither approving nor disapproving of that practice.

They rather invited resolution of the question of the courts, by making judicial review available to American manufacturers, by stating clearly that they were not expressing approval or disapproval of the administrative practice.

Byron R. White:

Mr. Ikenson, can I ask you a factual question about the Downs case because it is kind of a hard case to understand?

Yes, Your Honor.

Byron R. White:

The Solicitor General says that the actual countervailing duty that was assessed there was measured by the value of the certificates rather than the certificates plus the Russian tax.

Do you agree with that analysis as a matter of fact?

I know you would draw a different inference, but can we accept that as a correct interpretation?

Audio Transcription for Oral Argument – April 26, 1978 in Zenith Radio Corporation v. United States


I must preface my response to Your Honor by saying that the value of the grant in the Downs case was not before the Court.

It was the understanding of the parties at the time and of the courts below that the amount of countervail was not judicially reviewable.

The sole question was whether or not the entire Russian scheme constituted a conferral of a bounty or grant.

So whether or not the actual amount of countervailing duty was correct was never put before the Court.

Now, to respond more directly to Your Honor?s question, the amount of countervail put on by the Secretary of the Treasury was equal to what the Secretary determined to be the profit gained by the Russian exporter by reason of the export certificate.

I would not say that the amount of countervail equaled the value of the certificate.

It was based upon the Secretary?s determination of profit that was earned.

Byron R. White:

I see.

When the Court discussed the certificate and indicated what value it felt the certificate had, it said clearly the value of the certificate is 1.25 rubles per pood which was the unit of weight because that was the amount of money that an exporter could receive for his certificate.

The Court looked differently at the value of the certificate than the Secretary of the Treasury, but I hope I have not given Your Honor too long an answer to a short question.

Byron R. White:

No, no, it is a very helpful answer and I thank you for it.

William H. Rehnquist:

Mr. Ikenson, what is the role of the administrative practice in a case such as this?

Is there latitude for the Secretary of the Treasury as the statute is presently drawn to decide one way or the other and be affirmed by the courts in either case?

We say, Your Honor, that there is no latitude at all.

The statute is mandatory.

It is clear, and as understood by Congress the amount of discretion given to the Secretary of the Treasury is very slight if existent at all.

The Secretary has discretion to determine the amount of a bounty or grant.

He does not have discretion to determine what a bounty or grant is.

Byron R. White:

Well, do not you more accurately say, in response to my brother Rehnquist?s question, if this amounts to a bounty or grant then he has no discretion whatsoever?

That is true, Your Honor.

Byron R. White:

And you further say that as a matter of law this is a bounty or grant?

That is true, Your Honor.

William H. Rehnquist:

Would you not allow for any situations where the Secretary in a close case might decide something was or was not a bounty or grant and say that his determination should be affirmed by the Customs Court in either event or do you say flatly, ?no,? that it goes either one way or the other depending on how the Court decides?

I would say that as a matter of law, a program is or is not a bounty or grant.

They —

Byron R. White:

But we do not need to win that argument, though, because it has already been decided, you say, whether it is or is not?

That is correct.

My next point was, Your Honor, that in this particular case, with this particular type of program, the Court has determined that as a matter of law a tax remission on export is a bounty or grant.

I would like to comment further —

Byron R. White:

You know in some other context, sometimes a Court has approved a decision of an administrator construing a statute and two or three years later or 10 years later he comes back with a different construction of the statute and he gets affirmed here then too?

Audio Transcription for Oral Argument – April 26, 1978 in Zenith Radio Corporation v. United States


Yes, but in those cases the administrator is conferred a broad discretion in administering the statute —

Byron R. White:

He has always got as the words of the statute to interpret and enforce and he does it one way in one decade and another way in another way?

William H. Rehnquist:

Every eight years in the case of the Labor Board?

Well, in this particular statute, Your Honor, the Secretary of the Treasury is not even named as the person who shall determine whether a bounty or grant is bestowed instead the statute has read consistently whenever a bounty or grant is bestowed, etc., then the Secretary shall determine the amount of bounty or grant and assess the duty.

Byron R. White:

So as far as the statute reads he has no role in determining one way or another?

As a practical matter —

John Paul Stevens:

But somebody has to have (Inaudible)

That is correct and I should say that this has already been discussed by a lower court in 1940.

The Court of Customs and Patent Appeals noted that the statute does not even provide that the Secretary should make the initial determination, however, as a matter of custom and common sense it should be the Secretary to make this determination.

Mr. Ikenson, do we know here, exactly what principle the Secretary applied in reaching this decision?

We do not know, Your Honor.

The Secretary did not offer any explanation as to his reason for not countervailing.

However, we do not claim that that is an error in this case because we view the role of the Customs Court as being a court that accords trial de novo, and we are not reviewing it under the general terms of general standards of review.

We look to an administrative record or the standards of arbitrariness and propitiousness and the like.

We had a trial de novo available to us in the Customs Court and under those circumstances we do not feel that it was error for the Secretary not to have elaborated on his reasons for his negative determination.

I would like to comment briefly on a point made by the Chief Justice regarding the Congress? awareness of the sensitivity of this problem.

There is no question that Congress appreciates that the application of countervailing duties is a very delicate issue, that the application of countervailing duties by the United States unilaterally, certainly can cause international friction.

Congress was aware of this when it enacted the Trade Act and it devised a master plan to deal with countervailing duties.

On the one hand, it was concerned about promoting international harmony and international trade.

On the other hand, it was concerned about permitting domestic industry to stand by and suffer because it had to compete with unfair competition with bounty fed or subsidized competition.

So Congress struck a very delicate balance.

It directed the executive branch to try to negotiate an agreement on the application of countervailing duties.

On the other hand, it directed the Secretary of the Treasury to enforce the countervailing duty law by putting time limits on him in handling countervailing duty petitions.

It also provided for judicial review of negative determinations.

Congress had to do more to prevent American manufacturers? suits from upsetting the international applecart.

So what Congress did was to give limited discretion to the Secretary of the Treasury to postpone the assessment of countervailing duties in cases where bounties or grants were bestowed.

This is the way that international friction could be avoided under the congressional plan.

This is what Congress provided.

However, the government was not content with this plan.

Rather the government has chosen to call to Your Honor?s attention the alarming consequences that could follow from a reversal by this Court.

Audio Transcription for Oral Argument – April 26, 1978 in Zenith Radio Corporation v. United States


We say that those consequences need not occur and, furthermore Congress was aware of the danger of such consequences, it provided for it and any consideration of them by this Court would be unnecessary, it would be improper.

It is not part of the Congressional contemplation.

I would reserve the balance of my time for rebuttal, Your Honors.

Warren E. Burger:

Mr. Solicitor General, would you prefer to begin in the morning, there are four minutes now?

I would prefer to begin in the morning.

Warren E. Burger:

Very well, we will let you begin at 10 o’clock tomorrow morning.

Thank you.