WORLD TRADE WT/DS8/20
WT/DS10/20
ORGANIZATION WT/DS11/18
12January 1998
(98-0139)
Original: English
JAPAN -TAXES ONALCOHOLIC BEVERAGES
Mutually Acceptable Solution onModalities forImplementation
Thefollowing communication, dated 9January 1998, from thePermanent Mission ofJapan
andthePermanent Mission ofCanada, together withenclosures, iscirculated toMembers attherequest
ofbothdelegations.
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TheGovernments ofCanada andJapan wishtonotify theDispute Settlement Body ("DSB")
thattheyhavereached amutually satisfactory solution regarding theimplementation byJapan ofthe
conclusions andrecommendations adopted bytheDSB inthedispute "Japan -Taxes onAlcoholic
Beverages". Accordingly, Canada andJapan consider thatArticle 21.6oftheUnderstanding onRules
andProcedures Governing theSettlement ofDisputes nolonger requires thatthisitemremain onthe
agenda oftheDSB.
Please findattached thetextoftheexchange ofletter of16and19December 1997 onthis
subject.
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Enclosure 1:Letter Ambassador Mr.Takashi Tajima toDeputy Minister Robert G.Wright
ofCanada
Irefertotheconsultations between theofficials ofourtwogovernments ontheliquor taxissue.
Iampleased toinform youthattheGovernment ofJapan (GOJ) hasdecided totakethefollowing
measures, whose adoption willbeinaccordance withthenecessary domestic legislative procedures,
toimplement therecommendations andrulings oftheWTO Dispute Settlement Body pursuant tothe
panel andtheAppellate Body reports on"Japan -Taxes onAlcoholic Beverages".
Based ontheoutcome oftheconsultations referred toabove, andhaving carefully considered
theWTO 'sarbitration award issued on14February 1997, theGOJwillrevise thecurrent liquor tax
scheme andwillcarry outtariff reductions andeliminations ontheapplied ratebasis asdescribed in
detail inAnnex 1,titled "Elements ofSettlement forDispute onJapanese Liquor Taxation", attached
tothisletter.
Ascompensation forthelonger implementation period intheamended Liquor TaxLawfor
thenewtaxation scheme, from1April 1998 onward, theGOJwilleliminate tariff ratesontheitems
inAnnex 1instages asspecified therein. Forthispurpose, theGOJwillsubmit adraftlawamending
theCustoms Tariff LawandTemporary Tariff Measures Lawtothenextordinary session oftheDietWT/DS8/20
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tobeconvened inJanuary 1998, andwilldoitsutmost toobtain Dietapproval ofsuchanamendment.
TheGOJwillnotraisetariff ratesabove those specified inAnnex 1.
Inaddition, through thetariff reductions andeliminations tobeprovided byJapan asaresult
ofnegotiations oncompensation regarding theliquor taxissue, Canada willreceive atleastcomparable
tariff reductions andeliminations tothose which Japan willgrant totheUnited States andtheECas
shown inAnnex 2,titled "The Tariff Rates", attached tothisletter.
Iconfirm thatattherequest ofeither party consultations ontheimplementation oreffects of
anyaspect ofthismutually satisfactory solution totheliquor taxissuewillbeheldexpeditiously with
aviewtoreaching asatisfactory solution.
Iwould appreciate yourconfirmation thatimplementation ofthemeasures setoutinthisletter,
together withtheamendments totheLiquor TaxLawpromulgated inMarch 1997, willbeamutually
satisfactory solution tothedispute between Canada andJapan concerning thetaxation ofdistilled spirits.WT/DS8/20
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ANNEX 1
Elements ofSettlement forDispute onJapanese Liquor Taxation
1. TheGovernment ofCanada accepts thefollowing elements asamutually satisfactory solution
forsettling theliquor taxissue between Japan andCanada.
2. TheGovernment ofJapan (GOJ) hasdecided totakethefollowing measures toimplement the
findings andconclusions oftheWTO Panel Report on"Japan -Taxes onAlcoholic Beverages" as
modified bytheAppellate Body andadopted bytheDispute Settlement Body on1November 1996.
Revision ofcurrent liquor taxscheme
(Rates inyenperkilolitre perdegree ofalcohol)
30Sep.
19971Oct.
19971May 1998 1Oct.1998 1Oct.2000
(Current)
Whiskies 24,558 13,775 10,225 10,225 10,225
Spirits 9,927 9,924 9,924 9,924 9,924
Liqueurs 8,217 9,924 9,924 9,924 9,924
Shochu A 6,228 8,076 9,924 9,924 9,924
Shochu B 4,084 6,028 6,028 7,976 9,924
(a) acceleration oftheliquor taxrateadjustment forWhiskies andShochu Abyfivemonths
tobecompleted on1May1998.
(b) acceleration oftheliquor taxrateadjustment forShochu Bbyayeartobecompleted
on1October 2000.
3. TheGovernment ofJapan provides tariff eliminations/reductions onryewhisky andvodka
asshown below andwillalsoprovide toCanada comparable tariff eliminations/reductions Japan will
grant totheUnited States onwhisky asaresult ofnegotiations oncompensation.
Tariff Reduction
Tariff ratesforryewhisky andvodka willbereduced asshown inthetable below. These
tariff eliminations/reductions willbecarried outonapplied-rate basis andaresubject todomestic
procedure.
AsofApril 1998 1999 2000 2001 2002 2003 2004
Ryewhisky 13.4% 10.6% 7.8% 5.0% 0% 0% 0%
(HS2208.30-021,029)
Vodka 16.0% 12.0% 8.0% 4.0% 0% 0% 0%
(HS2208.60-020)WT/DS8/20
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4. For"deminimis" and"reasonable period oftime".
"Itisconfirmed thatacceptance bytheGovernment ofCanada oftheJapanese proposal tosettle the
dispute cannot beinterpreted asinanywayprejudging theposition oftheGovernment ofCanada in
theWTO withregard tothedefinition of"deminimis" differential including theappropriate baseon
which suchdifferentials should becalculated, orthe"reasonable period oftime" forimplementation".WT/DS8/20
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Page5ANNEX 2
TheTariff Rates
Categories 1April 1998 1April 1999 1April 2000 1April 2001 1April 2002 1April 2003 1April 2004
HS2208.20-100
Brandy
HS2008.90-111
(Seenote1)yen/litre
175.79yen/litre
170.56yen/litre
131.98yen/litre
93.56 0
HS2208.20-200
Brandy
HS2208.90-119
Fruit Brandy
(Seenote2)yen/litre
207.80yen/litre
201.60yen/litre
156.00yen/litre
110.60 0
HS2208.30-011
HS2208.30-019
Bourbon whisky10.3% 7.9% 5.4% 3.0% 0
HS2208.30-031
Whisky (other)
(Seenote1)yen/litre
183.62yen/litre
175.32yen/litre
133.81yen/litre
77.000
HS2208.30-032
Whisky (other)
(Seenote2)yen/litre
152.40yen/litre
145.60yen/litre
111.20yen/litre
77.00 0
HS2208.40-000
Rum andtafia18.0% 13.5% 9.0% 4.5% 0
HS2208.50-000
GinandGeneva
(seenote3)77.00 yen/litre
17.5%57.75 yen/litre
13.1%38.50 yen/litre
8.8%19.25 yen/litre
4.4%0
0WT/DS8/20
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Page6Categories 1April 1998 1April 1999 1April 2000 1April 2001 1April 2002 1April 2003 1April 2004
HS2208.70-000
Liqueurs and
cordialsyen/litre
126.00yen/litre
94.50yen/litre
63.00yen/litre
31.500
(Note 1) Ofanalcoholic strength byvolume of50% volorhigher, excluding those incontainers holding lessthan2l
(Note 2) Other thanNote 1
(Note 3) Advalorem dutyorspecific duty,whichever lower, isapplied forGinandGeneva.WT/DS8/20
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Enclosure 2:Letter from Deputy Minister Robert G.Wright ofCanada toAmbassador Takashi
Tajima, ofJapan
Inreply toyourletter of16December 1997 andfurther todiscussions thathavetaken place
between various officials ofourrespective governments, Iwishtoinform youofthefollowing:
TheGovernment ofCanada hasreviewed theoverall scheme thattheGovernment ofJapan
hasputforward asaresponse tothefindings andconclusions oftheJuly1996 WTO Panel Report
on"Japan -Taxes onAlcoholic Beverages" asmodified bythereport oftheAppellate Body adopted
bytheDispute Settlement Body on1November 1996.
Thisscheme anditsimplementation schedule weresetoutinrespect ofkeyalcoholic strengths
formainmarketsegmentsinAnnex1,"ElementsofSettlementofDisputeonJapaneseLiquorTaxation",
attached toyourletter of16December 1997, which reflects discussions between officials ofourtwo
governments.
Based onourreview andthose discussions, wehaveclarified certain details ofthescheme
including thefactthattaxes tobelevied onliquors between certain ranges ofalcoholic strengths will
bebased onflatratesperlitreofliquor rather thanperdegree ofalcohol.
Inaddition, wehaveexamined theproposed reduction andelimination ofapplied tariff rates
onryewhisky (HS2208.30-021 and2208.30-029) andvodka (HS2208.60-020) between April 1998
andApril 2002, which Japan hasoffered ascompensation forthelonger implementation period for
thenewtaxscheme.
TheGovernment ofCanada hereby confirms that,onthebasis ofAnnex 1,thisexchange of
letters, together withtheamendments totheLiquor TaxLawpromulgated inMarch 1997, resolves
thedispute onliquor taxes between Canada andJapan.
Iftheproposals arenotimplemented fully, Canada reserves itsrights toresort todispute
settlement under theWTO agreements.
Other measures tobeapplied areasfollows:
Through thetariffreductions andeliminations tobeprovided byJapan asaresult ofnegotiations
oncompensation regarding theliquor taxissue, theGovernment ofJapan willprovide tariffreductions
andeliminations onryewhisky andvodka asshown inAnnex 1,andwillalsoprovide toCanada tariff
reductions andeliminations atleastcomparable tothose which Japan willgrant totheUnited States
andtheECasspecified inAnnex 2,title"The Tariff Rates", attached toyour letter of
16December 1997.
Attherequest ofeither party, consultations ontheimplementation oreffects ofanyaspect
oftherevised Japanese taxscheme willbeheldexpeditiously withaviewtoreaching asatisfactory
solution. Itisunderstood inthiscontext thatanydiscriminatory effects onCanadian liquors resulting
from therevised Japanese taxscheme willbecorrected through appropriate adjustments tothetax
structure within areasonable timeperiod toremove suchdiscriminatory effects. Canada alsoreserves
itsrights toaddress suchissues, ifnecessary, inthecontext ofWTO dispute settlement.
Thecurrent Japanese definitions ofproducts willnotbeamended insuchawayastohave
adverse effects onCanadian exports. These definitions arethose referred tointheWTO panel reportWT/DS8/20
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aswellasthose given inthecourse ofCanada 'sevaluation oftherevised scheme (notably those referring
to"mixed drinks") andwillbetheonesvalid fortheamended liquor taxlawthatJapan started to
implement on1October 1997.
Furthermore, itisconfirmed thatacceptance bytheGovernment ofCanada oftheJapanese
proposals tosettle thedispute cannot beinterpreted asinanywayprejudging theposition ofthe
Government ofCanada intheWTO withregard tothedefinition of"deminimis" differentials, including
theappropriate baseonwhich suchdifferentials should becalculated, orthe"reasonable period of
time" forimplementation.
Finally, based onastatement made byJapanese representatives during bilateral discussions,
theGovernment ofCanada understands thattheShochu Bsubsidy programme willbemaintained only
within theframework ofJapan'sobligations under theWTO Agreement onSubsidies andCountervailing
Measures andisnotdesigned insuchawayastohaveadverse effects onCanadian exports.
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