WORLD TRADE WT/DS8/18
ORGANIZATION WT/DS10/18
WT/DS11/16
15September 1997
(97-3783)
Original: English
JAPAN -TAXES ONALCOHOLIC BEVERAGES
Status Report byJapan
Thefollowing communication, dated 10September 1997, fromthePermanent Mission ofJapan
tothePermanent Delegation oftheEuropean Commission, thePermanent Missions ofCanada and
theUnited States andtotheDispute Settlement Body iscirculated attherequest ofJapan.
_______________
Status Report onImplementation oftheRecommendations andRulings of
theDispute Settlement Body Regarding “Japan -Taxes onAlcoholic Beverages ”
(WT/DS8/11, WT/DS10/11, WT/DS11/8)
PursuanttoArticle21.6oftheUnderstandingonRulesandProceduresGoverningtheSettlement
ofDisputes (“DSU”),theGovernment ofJapan ("GOJ") hereby presents thisfirststatus report on
theimplementation oftherecommendations oftheDispute Settlement Body (“DSB”)regarding
“Japan -Taxes onAlcoholic Beverages ”.
On 1November 1996, the DSB adopted the Appellate Body report on
“Japan -Taxes onAlcoholic Beverages ”(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R) and
thepanel report on“Japan -Taxes onAlcoholic Beverages ”(WT/DS8/R, WT/DS10/R, WT/DS11/R)
asmodified bytheAppellate Body report. On20November 1996, theGOJinformed itsintentions
inrespect ofimplementation oftherecommendations oftheDSBandadvised theDSBthata“reasonable
period oftime”would berequired inwhich tocomply withtherecommendations.
Theadjustment oftheliquor taxratewhich isnecessary toimplement therecommendations
oftheDSBrequires theamendment totheLiquor TaxLaw. Theamendment tothetaxsystem, including
theliquor tax,ofeachfiscal yearneeds tobedecided intheformoflegislation along withannual budget
which begins inApril andendsinMarch. Thelegislation needs approval inbothchambers ofthe
Dietwithamajority voteandtheexecutive branch isrequired tosubmit thedraftamendment tothe
nextfiscal year’staxsystem totheDietbytheendofJanuary. Itshould bealsonoted that,inorder
tosubmit thedraftamendment oftaxlegislation totheordinary session oftheDiet, thecontent ofthe
draftamendment mustbedecided bythemiddle ofDecember. Under these strict procedures forthe
amendment ofthetaxlegislation, theLiquor TaxLawwasamended asfollows asapartoftheFY1997
TaxAmendments, withaviewtoensuring earliest possible implementation oftherecommendations
oftheDSB.
Since theGOJ informed theDSB ofitsintentions inrespect ofimplementation ofthe
recommendations, itheldaseries ofconsultations withalltheother parties tothedispute concerningWT/DS8/18
WT/DS10/18
WT/DS11/16
Page2
measures tobetaken inconjunction withtheimplementation oftherecommendations andtheperiod
forimplementation. After examining theresult ofthese consultations aswellasallrelevant aspects
ofdomestic situations, theGOJdrew upareform planfortheliquor taxsystem, which wasdecided
bytheResearch Commission ontheTaxSystem oftheruling Liberal Democratic Party on
18December1996.TheGOJdecidedofficiallyontheOutlineofTaxAmendmentsincludingtheLiquor
Taxamendment on10January 1997, andsubmitted itsdraftamendment totheLiquor TaxLawto
theDieton31January 1997 tobeenacted asthenextfiscal year’staxlegislation. Onthesame date,
theEuropean Communities (“EC”)andJapan formally reached amutually acceptable solution inthe
form ofanexchange ofletters regarding themodalities fortheimplementation bytheGOJofthe
recommendations oftheDSBinaccordance withthesaiddraftamendment, asnotified jointly tothe
WTO bybothgovernments on15July1997 (WT/DS8/17, WT/DS10/17, WT/DS11/15).
Thedraftamendment oftheLiquor TaxLawtoimplement thereform planaccepted bythe
ECwasconsidered andapproved bybothchambers oftheDietwithout modifications. TheAmendment
waspromulgated on31March 1997 (Law No.21,1997). Thefollowing istheoutline ofthe
Amendment. (SeealsoWT/DS8/17, WT/DS10/17, WT/DS11/15.)
- Asforthetaxrateonwhisky/brandy, theGOJshallreduce itbyabout 58percent
to409,000 yenperkilolitre (40degrees ofalcohol content, 10,225 yenperkilolitre
perdegree ofalcohol), through twostages ofreduction; firstreduction byabout 44per
centon1October 1997 andthesecond reduction byabout 26percentfromthelevel
of1October 1997 on1October 1998.
- AsforthetaxrateonShochu Aandliqueurs, theGOJshallincrease ittothelevel
ofthecurrent taxrateon“spirits ”interms oftaxrateperdegree ofalcohol content:
- ThetaxrateonShochu Ashall beincreased through thesame stages as
whisky/brandy to248,100 yenperkilolitre (25degrees ofalcohol content,
9,924 yenperkilolitre perdegree ofalcohol).
- Thetaxrateonliqueurs shallbeincreased on1October 1997to119,088 yen
perkilolitre (12degrees ofalcohol content, 9,924 yenperkilolitre perdegree
ofalcohol).
- Asaresult oftheabove adjustment, from 1October 1998, anidentical taxation on
Shochu A,“spirits ”andliqueurs interms oftaxrateperdegree ofalcohol content
willbebrought about andthetaxdifferential between Shochu Aandwhisky/brandy
willbereduced tothedeminimis levelof1.03times interms oftaxrateperdegree
ofalcohol content.
- AsforthetaxrateonShochu B,thetaxrateadjustment shallbecompleted through
three stages ofincreases on1October 1997, 1October 1998 and1October 2001 to
248,100 yenperkilolitre (25degrees ofalcohol content, 9,924 yenperkilolitre per
degree ofalcohol). Anadditional three year period from 1October 1998 to
1October 2001 isneeded inviewoftheeffects onbothconsumers andproducers of
thistaxincrease byasmuch as2.4times. Asaresult, ataxation onShochu B,“spirits ”
andliqueurs interms oftaxrateperdegree ofalcohol content willbecome identical
from 1October 2001.WT/DS8/18
WT/DS10/18
WT/DS11/16
Page3
Inaddition totheabove amendment totheLiquor TaxLaw, theGOJ, based upontherequests
oftheEC,willalsocarryoutascompensation autonomous reduction ofimport duties onwhisky/brandy,
thevalue ofwhich isequivalent tothatofthetaxdifferential which willremain withregard toShochu B
forathree-year period from 1October 1998 to1October 2001. With thismeasure, adverse effects
onimported whisky/brandy duetothetaxdifferential during thesaidperiod willeffectively bedissolved.
Meanwhile, theGovernment oftheUnited States (“USG”)requested, on24December 1996,
thatthe“reasonable period oftime”should bedetermined through binding arbitration asisprovided
forbyArticle 21.3(c) oftheDSU. On14February 1997, thearbitrator determined that“a‘reasonable
period oftime’within themeaning ofArticle 21.3(c) oftheDSU forJapan toimplement the
recommendations andruling oftheDSBof1November 1996inJapan -Taxes onAlcoholic Beverages
is15months ”(WT/DS8/15, WT/DS10/15, WT/DS11/13). Taking thisdetermination seriously, the
GOJ hasbeenexamining possible andpractical responses tothisissue. Atthesame time, theGOJ
hasbeenholding aseries ofdiscussions withtheUSGinorder tofindamutually acceptable solution
regarding themodalities oftheimplementation oftherecommendations oftheDSB.