JAPAN - TAXES ON ALCOHOLIC BEVERAGES
Document: Original: English JAPAN - TAXES ON ALCOHOLIC BEVERAGES Request for the Establishment of a Panel by the European Communities
Date: 15 September 1995
Document codes: WT/DS8/5; WT/DS8/1
Complainant: EU
Respondent: Japan
Dispute stage: Appellate Body
Agreements cited: Art. III:2  GATT 1994

JAPAN - TAXES ON ALCOHOLIC BEVERAGES
Request for the Establishment of a Panel by the European Communities
The following communication, dated 14 September 1995, from the Permanent Delegation of
the European Commission to the Permanent Mission of Japan is circulated at the request of the Permanent
Delegation of the European Commission.
On 21 June 1995, the European Communities requested consultations with Japan under
Article XXII:1 of the General Agreement on Tariffs and Trade 1994 ("GATT 1994") and Article 4
of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") with
regard to the internal taxation of certain alcoholic beverages in Japan ().
The European Communities and Japan held consultations in Geneva on 20 July 1995 with a
view to reaching a mutually satisfactory solution. Unfortunately, the consultations failed to settle the
dispute.
The European Communities hereby request that a panel be established at the next meeting of
the Dispute Settlement Body ("DSB") pursuant to Article XXIII:2 of GATT 1994 and Article 6 of
the DSU.
The European Communities claim that:
- Japan had acted inconsistently with Article III:2, first sentence, of the GATT 1994
by applying a higher tax rate on the category of "spirits" than on each of the two
subcategories of shochu, thereby nullifying or impairing the benefits accrued to the
European Communities under the GATT 1994; and that
- Japan has acted inconsistently with Article III:2, second sentence, of the GATT 1994
by applying a higher tax rate on the category of "whisky/brandy" and on the category
of "liqueurs" than on each of the two subcategories of shochu, thereby nullifying or
impairing the benefits accrued to the European Communities under the GATT 1994.
In the event that the liquors falling within the category of "spirits" were found by the Panel
notto be "like products" toshochu within the meaning of the firstsentence of Article III:2, the European
Communities further claim that:
- Japan has acted inconsistently with Article III:2, second sentence, of the GATT 1994
by applying a higher tax rate on the category of "spirits" than on each of the two
subcategories of shochu, thereby nullifying or impairing the benefits accrued to the
European Communities under the GATT 1994.
The above claims are set out in detail in the following paragraphs.

The European Communities request that the panel be established with the standard terms of
reference as set out in Article 7 of the DSU.
1. Article III:2, first sentence
Under the Japanese Liquor Tax Law, different tax rates are applied to each of the two
subcategories of shochu and to the category of "spirits". The rate per litre of "shochu B" is always
lower than the rate levied on "spirits". The rate per litre of "shochu A" is also lower than the rate
per litre of "spirits" for beverages with an alcohol content of less than 36-37 . Above that percentage,
the rate on "shochu A" is higher. However, in accordance with the legal definition of "shochu A"
contained in the Liquor Tax Law, the maximum alcohol content of this liquor is 36 . Thus, in practice,
the rate per litre of "spirits" is always higher than the rate per litre of "shochu A". If the tax rates
per litre of pure alcohol, instead of the rates per litres of each beverage, are compared, the rate applied
to "spirits" is also higher.
The European Communities consider that the two subcategories of shochu and all distilled liquors
falling with the category "spirits" are "like products" within the meaning of the first sentence of
Article III:2 of the GATT 1994.
Therefore, the European Communities claim that by levying a tax on the distilled liquors falling
withinthe category "spirits"whichisinexcess of the tax appliedtoeach of the twoshochusubcategories,
Japan violates Article III:2, first sentence, of the GATT 1994.
2. Article III:2, second sentence
The tax rate per litre of "whisky/brandy" is always higher than the rates per litre of "shochu A"
and of "shochu B". Likewise, the tax rate per litre applied to "liqueurs" is always higher than the
tax rate per litre of "shochu B". The rate per litre of "shochu A" is lower than the rate on "liqueurs"
at an alcoholic strength below 32-33 . Above that strength, the rate on "shochu A" is higher.
Nevertheless, most of the "shochu A" sold on the Japanese market has 25 or less. Thus, the rate
per litre of "shochu A" is as a general rule lower than the rate on "liqueurs". The tax rates per litre
of pure alcohol levied on "shochu A" and "shochu B" are also lower than the corresponding rates on
"whisky/brandy" and "liqueurs".
The EuropeanCommunities considerthatthe twosubcategoriesof shochuand the liquorsfalling
within the categories of "whisky/brandy" and "liqueurs" are "directly competitive or substitutable"
products within the meaning of the Explanatory Note to Article III:2, second sentence, of the GATT
1994.
Should any of the liquors falling within the category "spirits" be found by the Panel not to
be a "like product" to shochu, the European Communities claim that, at the very least, they would
still be "directly competitive or substitutable" products.
The European Communities believe that the above-mentioned tax differentials between the two
subcategories of shochu and the categories of "whisky/brandy" and "liqueurs" cannot be regarded as
"de minimis". The tax differentials between the two shochu subcategories and the "spirits" category
to which reference has been made in paragraph 1 are also above the "de minimis" level.
The European Communities note that whisky, brandy and most of the distilled liquors falling
within the categories of "spirits" and "liqueurs" are primarily produced in countries other than Japan
and exported in substantial quantities to Japan. In contrast, shochu is primarily manufactured in Japan
and almost all shochu consumed in Japan is domestically produced.

For the above reasons, the European Communities claim that, by applying a higher tax on
the categories "whisky/brandy" and "liqueurs" and on distilled liquors falling within the category "spirits"
(to the extent that they are not "like products" to shochu) than on the subcategories "shochu A" and
"shochu B", Japan affords protection to its domestic production of shochu, thereby violating Article III:2,
second sentence, of the GATT 1994.