Japan-Taxes on Alcoholic Beverages

World Trade Organization, Dispute Settlement Panel, 1998. Panel Reports WT/DS8R, WT/DS10/R, WT/DS11/R.

II. FACTS:   Canada, the EU, and the U.S. alleged that Japan imposed lower taxes on its domestically manufactured alcoholic beverage, shochu, than it did imported alcoholic beverages such as vodka, which is a violation of Article III, paragraph 2, of the 1994 GATT.   The Dispute Settlement Panel has noted that the complainants are asserting that the some inconsistency exists between the GATT Article III: 2 and the Japanese Liquor Tax Law.

III. PROCEDURE:   Japan is appealing from the Dispute Settlement Panel’s conclusions, in addition to some of the legal interpretations reached by the Panel.  

IV. ISSUE:   1) Whether the panel misinterpreted Article III: 2, first and second sentences, with regards to Article III:1. 2) Whether the products in this case are like products. 3) “Whether vodka is taxed in excess of the tax imposed on shochu under the Japanese Liquor Tax Law.” 4) Whether Japan’s policy of taxing imported vodka at a higher rate than Japanese shochu was a violation of GATT Article III. 5) Whether Japan’s legislation, by keeping the tax/price ratio “roughly constant,” can be considered trade neutral and accordingly “no protective aim and effect of the legislation can be detected.”

V. HOLDING:   The Panel came to the conclusion that by taxing vodka more than shochu, Japan is in violation of its obligations under Article III: 2, first sentence.   Furthermore, the Panel discovered that “shochu, whiskey, brandy, rum, gin, genever, and liqueurs are competitive or substitutive goods, and Japan, by using dissimilar tax measures, violated its responsibility under Article III: 2 second sentence of GATT 1994.   Consequently, Japan is being held accountable and was given instructions to bring the liquor tax in compliance with GATT 1994.

VI. REASONING:   The WTO Dispute Settlement Panel in this case dismissed...