RESTRICTED
WORLD TRADE WT/DSB/M/25
28November 1996
ORGANIZATION(96-5037)
DISPUTE SETTLEMENT BODY
29October and1November 1996
MINUTES OFMEETING
Held intheCentre William Rappard
on29October and1November 1996
Chairman: Mr.Celso Lafer (Brazil)
Subjects discussed:
Page
1. Japan -Taxes onalcoholic beverages 1
- Report oftheAppellate Body andreport ofthepanel 1
2. Ruleofquorum 4
- Statement byJapan 4
On29October 1996, priortotheadoption oftheagenda therepresentative ofJapan requested
aclarification concerning theruleofquorum fortheconduct ofbusiness.
TheChairman saidthattheruleonquorum provided forasimple majority ofMembers, namely
63delegations under thepresent WTO Membership. According topastpractice thequorum wasverified
onlywhen arequest tothiseffect wasmade atthebeginning ofmeetings. Healsonoted thatthiswas
thefirsttimeintheWTO thatarequest toverify thequorum wasmade. Hethenrequested the
Secretariat totakeacount ofdelegations present. Since only38delegations were present, heasked
thedelegation ofJapan whether itwould agree ornottoproceed withthebusiness ofthemeeting.
Therepresentative ofJapan saidthathisdelegation would continue tobeveryflexible innormal
meetings devoted toexchange ofviews butwhen theDSBhadtomake important decisions which
required consensus, hebelieved thatthequorum requirement should beobserved.
TheChairman therefore proposed toadjourn themeeting andtoreconvene iton1November.
TheDSBsoagreed.
Themeeting wasreconvened on1November 1996.
1. Japan -Taxes onalcoholic beverages
- Report oftheAppellate Body (WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)
andreport ofthepanel (WT/DS8/R, WT/DS10/R, WT/DS11/R)
TheChairman drew attention tothecommunication from theAppellate Body circulated in
document WT/DS8/10, WT/DS10/10, WT/DS11/7, transmitting thereport oftheAppellate Body in
"Japan -Taxes onAlcoholic Beverages", inaccordance withArticle 17.5oftheDSU, circulated inWT/DSB/M/25
Page2
document WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R. Herecalled thatinaccordance with
theDecisiononProceduresfortheCirculationandDerestrictionofWTODocuments(WT/L/160/Rev.1)
adopted bytheGeneral Council on18July1996, theAppellate Body report hadalready beenissued
asanunrestricted document. Thepanel report which hadbeenissued asarestricted document prior
totheDecision oftheGeneral Council hadbecome unrestricted inpursuance ofthatDecision. He
thencitedArticle 17.14 oftheDSU which stipulated that"anAppellate Body report shallbeadopted
bytheDSB andunconditionally accepted bytheparties tothedispute unless theDSB decides by
consensus nottoadopt theAppellate Body report within 30daysfollowing itscirculation tothe
Members".
Therepresentative oftheEuropean Communities saidthattheCommunities weresatisfied that
theAppellate Body hadconfirmed themain thrust oftheirarguments. TheCommunities accepted
theconclusions oftheAppellate Body that:(i)vodka andshochu werelikeproducts, butvodka was
taxed inJapan inexcess ofshochu; (ii)distilled spirits andliqueurs were directly competitive or
substitutable products toshochu, buttheywerenotsimilarly taxed under theJapanese Liquor TaxLaw
which afforded protection todomestic production ofshochu inviolation ofArticle III:2,second sentence,
ofGATT 1994.
TheCommunitiesrequestedthattheDSBadopttheAppellateBodyreportatthepresentmeeting,
which would bewithin the30-day period following itscirculation on4October 1996, asstipulated
inArticle 17.14 oftheDSU. Having conducted dispute settlement procedures against Japan onthis
issue foratotaloftenyears, andhaving wontwopanel reports andoneAppellate Body report, the
Communities sincerely hoped thatJapan would nowbring itslegislation intoconformity withits
obligations under theGATT 1994 speedily, fullyandcorrectly. Anyother course ofaction byJapan
would undermine thecredibility oftheWTO dispute settlement system. There wastoomuch atstake
inthissystem forallMembers, andnotleastforJapan, totakesucharisk.Therefore, theCommunities
expected Japan toinform theDSB, within thenext30days, ofitsintentions inrespect ofimplementation
oftherecommendations oftheAppellate Body. TheCommunities hoped andexpected thatthenecessary
changes totheJapanese legislation would bemade intimeforthenewtaxstructure toapply inthe
forthcoming Japanese fiscal year. TheCommunities would continue discussions withJapan withregard
tothenature ofthese necessary changes.
Therepresentative ofCanada saidthathercountry waspleased withtherecommendations of
thepanel andtheAppellate Body. Itregretted thefactthatJapan hadnotimplemented thefindings
oftheGATT panel1,andthatasecond panel hadbecome necessary. Canada hadastrong systemic
andcommercial interest inthiscaseasreflected inastatement issued on4October 1996, byCanada 's
Minister forInternational Trade, Mr.A.Eggleton, inwhich hehadurged Japan "tocarry outtheruling
quickly". Accordingly, Canada requested thatJapan implement therecommendations without delay,
inorder tobring thislong-standing dispute toanend.Inthisconnection, Canada would closely examine
thedetails oftheinformation which itexpected toreceive from Japan ontheimplementation ofthe
recommendations.
Therepresentative oftheUnited States welcomed thattheAppellate Body report andthepanel
report, totheextent notmodified bytheAppellate Body report, would beadopted atthepresent meeting.
Hiscountry waspleased thattheAppellate Body hadconfirmed thepanel'sfindings thattheJapanese
Liquor TaxLawwasinconsistent withJapan'sobligations under Article III:2oftheGATT 1994.
Itwasalsogratified thattheAppellate Body hadagreed withpoints raised bytheUnited States inthe
course oftheappeal process. TheAppellate Body haddemonstrated itswillingness tothoroughly review
andmodify panel reports, andtowork toward providing Members greater clarity withrespect totheir
1"Japan -Customs Duties, Taxes andLabelling Practices onImported Wines andAlcoholic Beverages",
BISD 34S/83.WT/DSB/M/25
Page3
rights andobligations. Thiscould onlystrengthen theWTO system andreinforce confidence inthe
quality ofWTO dispute settlement. TheUnited States looked forward tohearing from Japan onthe
timing andmanner ofimplementation oftherecommendations oftheDSB. TheDSBmeeting had
come ingood timeforthenecessary changes tobemade inthebudget forthenextJapanese fiscal
yearandtobeimplemented on1April 1997. Anearly implementation oftherecommendations was
appropriate, considering thatthisdispute hadahistory covering aten-year period.
Thiswasthesecond timethatJapan'strading partners hadtobring thismatter todispute
settlement. From thepanel andAppellate Body reports itwasclearthatafterthefirsttimethisproblem
hadbeenaddressed intheGATT panel report adopted in19872,Japan simply hadnotgonefarenough
inresolving theproblem. TheUnited States would closely follow Japan'simplementation measures
withthehopeandexpectation thatthiswould bethelasttimethatthisissue needed tobebrought to
theWTO. Iturged theimplementation ofamarket-opening solution byJapan, acountry which had
benefited greatly fromthetrade liberalization achieved inthepast50years under theGATT andthe
WTO, andwhich hadbeenaleading participant inandbeneficiary oftheUruguay Round.
Therepresentative ofJapan expressed hiscountry 'sgratitude totheAppellate Body foritsefforts
toexamine thiscaseandforitsreport. Japan hadconsidered thatthePanel initsreport haderred in
thelegalinterpretation ofArticle III:2ofGATT 1994, anditsapplication tothiscase. Consequently,
on8August 1996, Japan hadappealed totheAppellate Body requesting thereview ofthelegal
interpretation bythePanel anditsconclusions thattheJapanese liquor taxsystem wasinconsistent
withtheabove-mentioned provision oftheGATT 1994.
JapanregrettedthattheAppellateBodyhadnotadoptedmanyofitsargumentsandhadconcluded
thatJapan'sliquor taxsystem wasnotconsistent withArticle III:2ofGATT 1994. Itshould benoted,
however, thattheAppellate Body hadaccepted someJapanese arguments andconsequently made several
important corrections totheerrors inthepanel report. Forexample, theAppellate Body, afterhaving
acknowledged Article III:1oftheGATT 1994asestablishing thegeneral principle fortheinterpretation
ofthewhole Article III,hadfound that"thePanel erred inlawinfailing totakeintoaccount Article
III:1ininterpreting Article III:2, firstandsecond sentences".3TheAppellate Body report hadalso
stated that"thePanel erred inlawinfailing toexamine 'soastoafford protection 'inArticle III:1
asaseparate inquiry from'notsimilarly taxed'intheAdArticle toArticle III:2, second sentence".4
Japan appreciated thattheAppellate Body hadcorrected suchimportant errors inlawinthepanel report.
Ithoped thattheAppellate Body, aswellaspanels which would bedealing withfuture cases, would
make further efforts tomake appropriate interpretations andrulings withaviewtofurther enhancing
thecredibility ofthedispute settlement system intheWTO. Hisauthorities were nowconsidering
theresponse tothereports tobeadopted atthepresent meeting. Hewasnot,atthisstage, inaposition
toprovideanyindicationofJapan'sintentionwithrespecttotheimplementationoftherecommendations.
Hewould inform theDSBofJapan'sintention inregard tothismatter within thetime-period stipulated
inArticle 21.3oftheDSU.
TheDSBtooknoteofthestatements andadopted theAppellate Body report inWT/DS8/AB/R,
WT/DS10/AB/R, WT/DS11/AB/R andthepanel report inWT/DS8/R, WT/DS10/R, WT/DS11/R,
asmodified bytheAppellate Body report.
2BISD 34S/83.
3Appellate Body report, p.32.
4Ibid.WT/DSB/M/25
Page4
2. Ruleofquorum
- Statement byJapan
Therepresentative ofJapan, speaking under "Other Business", recalled thatinthecontext of
consideration oftheAppellate Body report onJapan'staxes onalcoholic beverages, thequestion of
thequorum requirement forconduct ofbusiness hadbeenraised. Hisdelegation noticed thatcertain
DSU provisions could notbeapplied ifcertain requirements intherules ofprocedure formeetings
oftheDSBwerenotmet.Hethendrewattention tothefactthatthenumber ofdelegations participating
inthepresent meeting would notmeetthequorum requirement. Thiswasofserious concern notonly
toJapan buttoallMembers, inparticular withregard totheDSBwhich hadtheauthority toestablish
panels, adopt panel andAppellate Body reports, maintain surveillance ofimplementation ofrulings
andrecommendations andauthorize suspension ofconcessions. Hebelieved thattheapplication of
therulesofprocedure oftheDSBwhich wasentrusted withthese important functions wasnotalways
possible andcould beproblematic, inparticular withregard tothetime-period requirements under
theDSU andtheapplication oftherulesofprocedure forDSBmeetings. Hisdelegation believed the
DSUasanintegral partoftheWTO Agreement, ratified byMembers, superseded therulesofprocedure
adopted bytheGeneral Council. Consequently, therulesofprocedure should nothamper thesmooth
operation oftheDSU. Therefore, therulesofprocedure formeetings oftheGeneral Council andthe
DSBneeded tobereviewed andamended attheearliest possible date. Hehoped thattheDSBand
theSecretariat would takethisintoaccount. Hewasnotsurewhether itwasappropriate toraisethis
question intheDSBorinother forasuchastheGeneral Council. Hehadraised thismatter atthepresent
meeting because ofearlier developments thathadtaken place attheopening ofthismeeting.
TheChairman thanked Japan forthestatement which hadraised animportant point. The
expanded WTO membership, theincreasing number ofWTO meetings andthecurrent preparatory
work fortheMinisterial Conference aswellasthefactthatasignificant number ofMembers didnot
havepermanent representations inGeneva tended tocreate frequent problems relating toattendance
atmeetings. Hetherefore requested Members toapproach suchproblems inaspirit ofconstructive
pragmatism which didnotexclude holding ofinformal consultations onthismatter byhimorbythe
Chairman oftheGeneral Council. Hebelieved thatitwould beadvisable toconsider thisissue after
the1996 Ministerial Conference.
Therepresentative ofNorway agreed withthestatement made byJapan concerning problems
thatmight arisewiththerules ofprocedure. Hesought clarification withregard toRule16inthe
rules ofprocedure formeetings oftheGeneral Council which stated that"asimple majority ofthe
Members shallconstitute aquorum". Since theword "quorum" inthelawdictionary wasdefined as
"thenumber ofmembers whomustbepresent inabodybefore business maybeconducted", heenquired
whether sucharequirement applied toholding adebate ortoavoteoradecision.
TheChairman, saidthattheWTO practice hadbeentoopenmeetings without verifying the
quorum requirement. Heacknowledged thatthismatter wasimportant andfuture consultations tobe
heldshould takeintoaccount thequestions raised byJapan andNorway.
TheDSBtooknoteofthestatements.