Does GATT liberate or impede international trade? In 1981, the National Pasta Association, in Arlington, Va., decided to protest the European Community's subsidies on exported pasta. The NPA asked the US government to appeal to GATT for relief. What follows is the five-year chronological attempt to untangle the knots in the pasta subsidies case, which somewhere along the line became tied in with preferential tariffs for citrus. Today, domestic producers say they may as well stop making pasta and just import it. 1981: The National Pasta Association petitioned the US government seeking relief from European Community subsidies on pasta exported to US. (Export subsidies violate the GATT subsidies code.) The US government decided to raise case in GATT. 1982: After failing to work out the dispute through consultation, the US requested a GATT panel late in the year to rule on the validity of US allegations. 1983: The GATT panel issued a report that concluded the EC subsidy was an export subsidy on a processed product, and therefore violated the GATT subsidies code.
The US tried to bring the GATT panel decision to the full Subsidies Code Committee. Through procedural maneuvers, the EC prevented the matter from being considered.
Meanwhile in the US, the NPA pressed the Reagan administration to retaliate against the EC for refusing to acknowledge the GATT panel's decision. 1985: The GATT panel said the EC's extension of preferential tariffs to citrus products coming from North Africa and Mediterranean countries was a violation, because the tariff was discriminatory. Again the EC suppressed consideration of the GATT panel's report on citrus.
In June, the US threatened to retaliate by imposing a 40-percent tariff on pasta. In July, the EC entered into an interim agreement with the US, saying that by Oct. 31, 1985, the EC would come forward with a settlement on the citrus case, which had been going on for 17 years. The EC also agreed to reduce the level of pasta subsidy in the interim. In return, the US agreed to suspend the imposition of the retaliatory tariffs.
By the Oct. 31 deadline, however, there was no agreement. Moreover, the pasta subsidy actually had increased by 176 percent from July 20 to Oct. 31, from 2.5 cents per pound to 6.9 cents per pound.
Therefore, President Reagan imposed a 40-percent tariff on pasta imports from the EC. During the next few months negotiations proceeded, but no settlement resulted. 1986: The EC through the subsidy had more than offset the 40 percent tariff; the subsidy was 13 cents a pound, more than 50 percent of the value of a pound of imported pasta. This gave a net subsidy of 3 cents a pound. The effect of retaliation was negated; in fact, the imports started to increase again.
The US agreed to remove the retaliatory tariffs on pasta, and the EC would partly eliminate some of its preferential tariffs on citrus. By removing the retaliatary tariff at a time when the pasta subsidy was higher than 14 cents, however, the industry was left exposed to its highest level of subsidy. The pasta producers received a commitment to a timetable for settling their dispute by July 1, 1987. Source: Collier, Shannon, Rill & Scott, counsel to National Pasta Association