RESTRICTED
WORLD TRADE WT/DS8/1
29June 1995
ORGANIZATION
(95-1795)
Original: English
JAPAN -TAXES ON
ALCOHOLIC BEVERAGES
Request forConsultations bytheEuropean Community
Thefollowing communication dated 21June 1995 from thePermanent Delegation ofthe
Commission oftheEuropean Communities inGeneva tothePermanent Mission ofJapan iscirculated
inaccordance with Article 4.4oftheDSU.
_______________
Please findenclosed arequest bytheEuropean Communities tohold consultations with your
authorities under Article XXII:1 oftheGeneral Agreement onTariffs andTrade 1994 andunder Article 4
oftheUnderstanding onRules andProcedures Governing theSettlement ofDisputes (DSU) contained
inAnnex 2totheAgreement Establishing theWorld Trade Organization with regard totheinternal
taxation ofcertain alcoholic beverages inJapan.
Iamaddressing acopy ofthisrequest totheDirector-General oftheWorld Trade Organization
forcirculation toallmembers oftheOrganization. Iamalsoaddressing acopy ofthisrequest tothe
Chairpersons oftheDispute Settlement Body andtheCouncil forTrade inGoods fornotification in
accordance with Article 4:4oftheDSU.
Iamlooking forward toreceive thereaction ofyour authorities atyour earliest convenience.WT/DS8/1
Page2
REQUEST FOR CONSULTATIONS WITH JAPAN UNDER ARTICLE XXII:1 OF
THE GENERAL AGREEMENT ONTARIFFS AND TRADE 1994
Inaccordance with paragraph 1ofArticle XXII oftheGeneral Agreement onTariffs andTrade
1994(hereafterthe"GATT1994")andArticle4oftheUnderstandingonRulesandProceduresGoverning
theSettlement ofDisputes (hereafter the"DSU"), theEuropean Community requests consultations with
Japan.
Themeasures concerned bythisrequest aretheinternal taxes levied byJapan oncertain alcoholic
beverages pursuant totheLiquor TaxLaw.
Theproducts concerned areshochu andalltheother distilled spirits andliqueurs falling within
HS2208.20 ("Spirits obtained bydistilling grape wine orgrape marc"), 2208.30 ("whiskies") ,2208.40
("rum andtafia"), 2208.50 ("gin andgeneva") and2208.90 ("other" such asfruit brandies, vodka, ouzo,
korn, cream liqueurs and"classic" liqueurs).
TheEuropean Community considers thattheabove measures infringe thefirstandthesecond
sentences ofArticle III:2 oftheGATT 1994, thereby nullifying andimpairing thebenefits accrued
totheEuropean Community under thatagreement. Theclaims submitted bytheEuropean Community
aresetoutindetail insections IIandIIIofthisdocument.
TheEuropean Community recalls thaton10November 1987 theCONTRACTING PARTIES
totheGATT 1947 adopted, attherequest oftheEuropean Community, apanel report inwhich itwas
concluded thattheLiquor TaxLawwasinconsistent withArticle III:2 oftheGATT 1947. TheEuropean
Community understands that, following theadoption oftheabove-mentioned report, theLiquor Tax
Law hasbeen amended byJapan. TheEuropean Community considers that, despite such amendments,
some substantial aspects oftheLiquor TaxLaw areinconsistent with Article III:2 oftheGATT 1994.
Inaccordance with Article 4.4oftheDSU, theEuropean Community isnotifying theDispute
Settlement Body andtheCouncil forTrade inGoods ofthisrequest forconsultations.
I. Factual Aspects
TheEuropean Community understands thatunder theLiquor TaxLaw, thedistilled alcoholic
beverages covered bythisrequest areclassified intothefollowing four categories:
(i) "Shochu";
(ii) "Whisky/Brandy";
(iii) "Spirits", which includes allother distilled alcoholic beverages such asvodka, gin,rum,
ouzo andkorn; and
(iv) "Liqueurs", which includes both "classic" liqueurs andcream liqueurs
Thecategory "shochu" isfurther classified intotwosub-categories: "shochu Koh (A)" and
"shochu Otsu (B)".WT/DS8/1
Page 3
Different taxrates areapplied toeach oftheabove-mentioned categories orsubcategories.
Therates areexpressed asaspecific amount inJapanese Yenperlitreofeach category orsubcategory.
These amounts areunrelated tothealcoholic strength ofthebeverages. Within each category or
subcategory, therate increases with thealcohol content, although notproportionately. Achart
summarizing therates applied ontheproducts concerned isprovided asAnnex 1.1
II. Article III:2, firstsentence
Under theTaxLiquor Law, different taxrates areapplied toeach ofthetwosubcategories of
shochu andtothecategory of"spirits". Asshown bythechart included inAnnex 1,therateperlitre
of"shochu B"isalways lower than theratelevied on"spirits".
Therateperlitreof"shochu A"isalsolower than therateperlitreof"spirits" forbeverages
with lessthan 36-37% alcohol content. Above thatpercentage, therateon"shochu A"ishigher.
However, almost all"shochu A"available ontheJapanese market isatanalcoholic strength ofbetween
20and30%, with 20% being themost common strength. Thus, inpractice, therateperlitreof"spirits"
isalways higher than therateperlitreof"shochu A".
Ifthetaxrates perlitre ofpure alcohol, instead oftherates perlitre ofeach beverage, are
compared, therateapplied to"spirits" isalsohigher:
Current TaxRate perLitre
ofPure AlcoholTax
Discrimination Index
shochu otsu (B)(20%) Y346.00 100
shochu koh(A)(20%) Y540.00 165
spirits (40%) Y992.73 287
TheEuropean Community considers thatthetwosubcategories ofshochu andalldistilled liquors
falling with thecategory "spirits" (such asvodka, gin,rum, ouzo andkorn) are"like products" within
themeaning ofthefirstsentence ofArticle III:2 oftheGATT 1994.
Therefore, theEuropean Community submits thatbylevying ataxonthedistilled liquors falling
within thecategory "spirits" which isinexcess ofthetaxapplied toeach ofthetwoshochu subcategories,
Japan hasviolated Article III:2, firstsentence, oftheGATT 1994.
III. Article III:2, second sentence
Asshown bythechart inAnnex 1,thetaxrateperlitreof"whisky/brandy" isalways higher
than therateperlitreof"shochu A"andof"shochu B".
Likewise, thetaxrateperlitreapplied to"liqueurs" isalways higher than thetaxrateperlitre
of"shochu B". Therateperlitreof"shochu A"islower than therateon"liqueurs" atanalcoholic
strength below 32-33%. Above thatpercentage, therateon"shochu A"ishigher. Nevertheless, as
1English only.WT/DS8/1
Page4
indicated above, almost all"shochu A"soldontheJapanese market isbetween 20and30%, with 20%
being themost common strength. Thus, again, therateperlitreof"shochu A"isinpractice always
lower.
Thetaxrates perlitreofpure alcohol levied on"shochu A"and"shochu B"arealsolower than
thecorresponding rates on"whisky/brandy" and"liqueurs":
Current TaxRate perLitre
ofPure AlcoholTax
Discrimination Index
Shochu otsu (B)(20%) Y346.00 100
Shochu koh(A)(20%) Y540.00 165
Liqueurs (40%) Y821.75 238
Whisky/Brandy (40%) Y2455.75 710
TheEuropean Community considers thatthetwosubcategories ofshochu andthebeverages
falling within thecategories of"whisky/brandy" and"liqueurs" are"directly competitive orsubstitutable"
products, within themeaning oftheExplanatory Note toArticle III:2, second sentence oftheGATT
1994.
Totheextent thatanydistilled liquors falling within thecategory "spirits" may noteventually
beconsidered tobe"like products" toshochu, theEuropean Community takes theview thattheywould
stillbe"directly competitive orsubstitutable" products.
TheEuropean Community believes thattheabove-described taxdifferentials between, onthe
onehand, thetwosubcategories ofshochu and,ontheother hand, "whisky/brandy" and"liqueurs" cannot
beregarded as"deminimis". Thetaxdifferentials between thetwoshochu subcategories andthe"spirits"
category towhich reference hasbeen made inparagraph IIarealsoabove the"deminimis" level.
TheEuropean Community notes thatwhisky, brandy andmost ofthedistilled liquors falling
within thecategories of"spirits" and"liqueurs" areprimarily produced incountries other than Japan
andexported insubstantial quantities toJapan. Incontrast, shochu isprimarily manufactured inJapan
andalmost allshochu consumed inJapan isdomestically-produced.
Fortheabove reasons, theEuropean Community submits that, byapplying ahigher taxonthe
categories of"whisky/brandy" and"liqueurs" andondistilled liquors falling within thecategory "spirits"
(totheextent thatthey arenot"like products" toshochu) than onthesubcategories "shochu A"and
"shochu B",Japan hasafforded protection toitsdomestic production ofshochu, thereby violating
Article III:2, second sentence, oftheGATT 1994.