KOREA – TAXES ON ALCOHOLIC BEVERAGES
Document: Arbitration under Article 21.3(c) of the Understanding on Rules and Procedures Governing the Settlement of Disputes Award of the Arbitrator Claus-Dieter Ehlermann
Date: 4 June 1999
Document codes: WT/DS75/16; WT/DS84/14
Complainant: EU
Respondent: South Korea
Third parties: Canada, Mexico
Dispute stage: Appellate Body
Agreements cited: Art. III:2  GATT 1994

KOREA – TAXES ON ALCOHOLIC BEVERAGES
Arbitration
under Article 21.3(c) of the
Understanding on Rules and Procedures
Governing the Settlement of Disputes
Award of the Arbitrator
Claus-Dieter Ehlermann

I. Introduction
1. On 17 February 1999, the Dispute Settlement B ody (the "DSB") adopted the Appellate Body
Report1 and the Panel Report, 2 as upheld by the Appellate Body Report, in . The measures in dispute in the underlying proceedings are contained in Korea's
Liquor Tax Act and Education Tax Act. 3 The Panel concluded that "soju (diluted and distilled),
whiskies, brandies, cognac, rum, gin, vodka, tequila, liqueurs and ad-mixtures are directly competitive
or substitutable products" and the measures in dispute result in "dissimilar taxation ... applied in a
manner so as to afford protection to domestic production," and, therefore, the measures are
inconsistent with Article III:2, second sentence, of the GATT 1994.
4 This conclusion was upheld by
the Appellate Body.5 The Appellate Body and the Panel recommended that the DSB request Korea to
bring the Liquor Tax Act and the Education Tax Act into conformity with its obligations under the
GATT 1994.
6
2. On 19 March 1999, Korea informed the DSB, pursuant to Article 21.3 of the Understanding
on Rules and Procedures Governing the Settlement of Disputes (the "DSU"), that it would implement
the recommendations and rulings of the DSB in this dispute. Korea indicated that it was
impracticable to comply with the recommendatio ns and rulings immediately, and that it would
therefore require a reasonable period of time to complete the implementation process.
3. Following the meeting of the DSB on 19 March 1999, the European Communities and Korea
held consultations to determine a mutually agreeable period of time for implementation. The United
States and Korea also held consultations on this matter.
4. By communication of 9 April 1999, the European Communities and the United States
requested that the reasonable period of time be determined by binding arbitration, pursuant to
Article 21.3(c) of the DSU. In a joint letter dated 23 April 1999, Korea, the European Communities
and the United States informed the Chairman of the DSB that they had agreed that I should act as
Arbitrator. In this letter, the parties noted that a period of 90 days is set forth in Article 21.3(c) of the

1Appellate Body Report, (" Korea – Alcoholic Beverages "),
WT/DS75/AB/R, WT/DS84/AB/R, adopted 17 February 1999.
2Panel Report, ("Korea – Alcoholic Beverages "), WT/DS75/R,
WT/DS84/R, adopted 17 February 1999.
3Ibid., paras. 2.1-2.23.
4Ibid., para. 11.1.
5Appellate Body Report, Korea – Alcoholic Beverages, supra, footnote 1, para. 169.
6Panel Report, Korea – Alcoholic Beverages , supra, footnote 2, para. 11.2; Appellate Body Report,
Korea – Alcoholic Beverages, supra, footnote 1, para. 170.

DSU for completion of arbitration proceedings and the issuance of an arbitration award. For this
arbitration, however, the parties requested that this period be extended for a period of twenty
additional days, that is, until 7 June 1999. The parties were informed, by letter of 26 April 1999, that
I had accepted the appointment.
5. Korea, the European Communities and the United States filed written submissions on
4 May 1999. In response to my request, Korea provid ed English-language translations of provisions
of certain Korean laws on 11 May 1999. An oral hearing was held on 12 May 1999. On
18 May 1999, Korea provided a revised translation of certain of its laws.
II. Arguments of the Parties
A. Korea
6. Korea requests that the arbitrator declare 15 months as the reasonable period of time for
implementation. Korea states that it intends to implement the DSB rulings and recommendations
through an increase in tax rates applicable to soju, which requires an amendment of its Liquor Tax
Act. Korea states that this legislative amendment will take at least 15 months because it involves
actions of the executive branch and the National Assembly, as well as additional administrative
actions for its full implementation.
7. According to Korea, any acts related to budget ary changes are reviewed and passed at the
regular session of the National Assembly. The Korean Government intends to submit a bill to amend
the Liquor Tax Act to the National Assembly’s regular session this year, which commences on
10 September 1999. Since its enactment in 1949, the Liquor Tax Act has been amended 23 times, 22
of which were during a regular session of the National Assembly. The one instance where an
amendment was passed during an extraordinary session was exceptional, involving a bill that did not
entail changes in the budget.
8. Korea argues that the initial executive procedure will take seven months. Korea explains that
when the executive branch submits a bill to the National Assembly, the procedural rules set out in the
Regulation on the Procedures of Legislative Activities (the "Regulation") must be observed. Under
the Regulation, sufficient time must be secured for consultations between relevant agencies, including
the Office of Government Legislation. According to Korea, this means that it takes at least four
months for the relevant Ministry, in this case the Ministry of Finance and Economy, to prepare the
draft amendment. During this period, the Ministry is required to consult with local governments and

private interest groups, including the relevant domestic industries and consumer groups. Barring
serious opposition, a first draft of the amendment could be ready by June of this year.
9. Korea explains that the draft amendment will then be submitted to the relevant ministries for
comments. This comment period normally takes one month. In addition, if the amendment involves
issues that require economic policy coordination, an inter-agency meeting will be convened for this
purpose. At the end of this process, the draft amendment will be made public in the Official Gazette
and, if necessary, through other means. Korea calculates that this process will be completed by the
end of August, at the earliest. At this stage, the draft amendment must be submitted to the Office of
Government Legislation for review, a process that takes approximately one to one and a half months.
After these procedures, the bill could be sent to the National Assembly by the end of September this
year at the earliest. In addition to the requirements described above, the relevant ministry must hold a
party-government consultation, to generate political support in the National Assembly.
10. Since the change in the liquor tax rates will have an impact on tax revenues, Korea states that
the draft bill should be attached to the global budget bill for the upcoming fiscal year, which is to be
passed at the regular session of the National Assembly. Korea explains that the executive branch will
formulate the budget bill and submit it to the National Assembly ninety days before the beginning of
the fiscal year, i.e., by October 2. Because the early part of the regular session will be allocated to an
inspection of state affairs, the review of the budget bill will not take place until mid-October.
Following approval by certain committees, the bill will be submitted to the plenary for deliberation.
The formal legislative process, including the promulgation by the President, will be completed by the
end of December, provided there is no political or social opposition.
11. Korea claims that after the bill is passed by the National Assembly, an additional five months
is necessary to complete "follow-up measures", including related changes in Presidential and
Ministerial Decrees, enforcement regulations and administrative procedures. This period also
includes an adjustment period of at least 30 days before its actual implementation, pursuant to
Article 13-2 of the Act on the Promulgation of Acts and Decrees, etc.
12. In addition, Korea argues that, independent of its arguments relating to the time needed for
implementation under Korea's domestic legal system, Article 21.3(c) of the DSU provides 15 months
as a guideline for the implementation period, only to be adjusted depending upon "particular
circumstances". Korea submits that unless such "particular circumstances" are presented and
successfully argued by the complaining parties, the 15-month period should be granted to the
implementing Member. In support of this argument, Korea cites the statement of the arbitrator in

EC Measures Concerning Meat and Meat Products (Hormones) (" European Communities –
Hormones") that "[i]n my view, the party seeking to prove that there are ‘particular circumstances’
justifying a shorter or longer time has the burden of proof under Article 21.3(c)." 7 Korea also refers
to the Awards of the Arbitrators in European Communities – Regime for the Importation, Sale and
Distribution of Bananas ("European Communities – Bananas ")8 and Japan – Taxes on Alcoholic
Beverages ("Japan – Alcoholic Beverages")9 in support of its position.
13. Korea also maintains that each implementing Member should be accorded a measure of
discretion in choosing the modalities of implementation, as long as these are consistent with the
recommendations and rulings of the DSB and with the covered agreements. Thus, the decision by a
Member concerning the precise means of implementation should be honoured even if it may seem
unsatisfactory to the complaining parties, as long as the implementation period does not exceed 15
months.
14. Finally, Korea argues that there is no reason it should be accorded treatment different than
that given to Japan in Japan – Alcoholic Beverages . The European Communities and United States
argued before the Panel that Korea’s liquor tax system was very similar to the Japanese system
challenged in the Japan – Alcoholic Beverages case, and Korea sees no reason why it should be given
less than the 15 months Japan was given to implement changes to its liquor tax law.
B. European Communities
15. The European Communities argues that the "reasonable period of time" for implementation of
the recommendations and rulings of the DSB in this dispute should be no more than six months from
17 February 1999, the date of adoption of the Appellate Body Report and the Panel Report, i.e., by
17 August 1999.
16. In the view of the European Communities, Me mbers are not automatically entitled to the 15-
month period noted in Article 21.3(c) of the DSU. This period is merely a guideline for the arbitrator.
The European Communities refers to the statement of the arbitrator in European Communities –
Hormones that the reasonable period of time "should be the shortest possible within the legal system
of the Member to implement the recommendations and rulings of the DSB."
 10 The European
Communities cites statements by the arbitrators in Indonesia – Certain Measures Affecting the

7Award of the Arbitrator, WT/DS26/15, WT/DS48/13, 29 May 1998, para. 27.
8Award of the Arbitrator, WT/DS27/15, 7 January 1998, para. 19.
9Award of the Arbitrator, WT/DS8/15, WT/DS10/15, WT/DS11/13, 14 February 1997, para. 27.
10Supra, footnote 7, para. 26.

Automobile Industry ("Indonesia – Automobiles")11 and Australia – Measures Affecting Importation
of Salmon ("Australia – Salmon")12 for the same proposition.
17. The European Communities argues that, in determining what period of time is "reasonably
practicable" for implementation, the arbitrator should consider exclusively: 1) the degree of
complexity of the measures to be adopted (e.g., drafting a sanitary standard may require more time
than a simple change of a tariff or tax rate); 2) the legal nature of the required implementing act (e.g.,
whether legislative or administrative measures are needed); and 3) the procedures which must be
followed in order to adopt that type of act under the domestic law of the Member concerned.
18. In referring to the Award of the Arbitrator in Indonesia – Automobiles ,
13 the European
Communities notes that the political, economic or social consequences of the required measures are
not pertinent considerations for the arbitrator. If those consequences were to be taken into account, it
could have the paradoxical result that the greater the degree of inconsistency with the WTO
obligations, the longer the period of time a Member may be granted for implementation.
19. In the view of the European Communities, the legislative procedure for amending the Liquor
Tax Act and the Education Tax Act can be completed much earlier than December 1999. Korea is not
required to wait until the opening of the regular session of the National Assembly in September 1999.
The Korean Constitution provides that an extraordinary session of the National Assembly may be
convened at any time, a procedure that is frequently invoked.
20. The European Communities argues that the necessary legislative amendments are fairly
simple. All that would be needed is to change the tax rates applicable to soju and/or imported distilled
spirits. Thus, the Ministry of Finance and Economy should be able to prepare the draft bill within a
relatively short period of time. The legislative procedure (including the promulgation of the
amendments) could be completed within 5 to 7 mont hs from the adoption of the Appellate Body and
Panel Reports, i.e., between 17 July and 17 September 1999.
21. The European Communities further argues that even if it were not possible to convene an
extraordinary session of the National Assembly, nothing prevents Korea from completing all the
requisite preparatory steps preceding the introduction of the bill into the National Assembly well

11Award of the Arbitrator, WT/DS54/15, WT/DS 55/14, WT/DS59/13, WT/D S64/12, 7 December 1998,
para. 22.
12Award of the Arbitrator, WT/DS18/9, 23 February 1999, para. 38.
13Supra, footnote 11, para. 23.

before the opening of the regular session in September 1999. Accordingly, even if the bill were
submitted during the regular session, the amendments could still be promulgated by the end of
October 1999.
22. The European Communities notes a claim made by Korea during consultations that the
proposed amendments were to be part of a larger effort to "streamline and enhance the transparency of
the existing tax system." In response, the European Communities states that any plans to "streamline"
the Korean tax system are not a relevant circumstance for this arbitration.
23. In response to a claim by Korea during consultations that the revenue from the tax measures
at issue finances local governments and local education, the European Communities responds that
even if some of the tax revenue is ear-marked for local authorities, there is no requirement to consult
those authorities before amending the measures, let alone to obtain their consent. Moreover, Korea
may implement the recommendations and rulings of th e DSB without altering the current level of tax
revenue and without modifying the destination of the tax proceeds.
24. The European Communities fails to understand why a change in tax rates would require the
adoption of any implementing administrative measures at all, given that tax rates are not regulated in
the Presidential Decrees or in the Notices. In any event, such measures would only be purely
technical adaptations not involving the exercise of administrative discretion. Furthermore, there is
nothing that prevents the Korean authorities from preparing those amendments in advance, in parallel
with the legislative changes. Past practice demonstrates that changes in tax rates have often taken
effect within a few days of their promulgation.
25. Finally, the European Communities asserts that Korea simply wants to avoid the adoption of
an unpopular measure before elections to the National Assembly that are due to take place in
April 2000. The European Communities reiterates that the electoral needs of the ruling party are not a
relevant circumstance in determining the duration of the "reasonable period of time."
C. United States
26. The United States argues that Korea's legal system, as evidenced by past practice, is such that
Korea could have complied with the rulings and recommendations of the DSB within six months of
their adoption. The United States contends that it is possible for Korea to comply by the end of
October 1999, and in any event, no later than 1 January 2000.
27. The United States argues that compliance by Korea in this case involves only a change in the
relative tax rates applied to soju and Western distilled spirits under the Liquor Tax Act and the

Education Tax Act. The United States therefore does not accept the schedule for implementation
envisaged by Korea - waiting seven months to submit legislation and spending five months in
regulatory activity all for a very simple change in the law. In the view of the United States, the real
purpose of the Korean schedule is to delay meeting its WTO obligations because of pending general
elections scheduled for April 2000.
28. The United States notes that the 15-month period provided for by Article 21.3(c) of the DSU
is a guideline, not a rule,
14 and that the text "does not mean ... that the arbitrator is obliged to grant 15
months in all cases." 15 According to the United States, it is clear from the context of Article 21.3(c)
that prompt compliance is the overriding objective. This principle is also emphasized in Article 3.3 of
the DSU. These considerations have led previous arbitrators to rule that the "reasonable period of
time" for implementation be the "shortest period possible within the legal system of the Member to
implement the recommendations and rulings of the DSB.
 "16
29. The United States argues that, to determine which "particular circumstances" warrant a period
of time less than 15 months, arbitrators have focused on the requirements of the particular legal
system at issue.
17 By contrast, the reasonable period of time must not encompass time for structural
adjustments to be made by the protected domestic industry.18
30. In the view of the United States, under Korea's legal system, there is no regulatory reason for
the effective date of the new tax measure to be later than 1 January 2000. The United States notes that
it is far from rare that tax legislation is amended during extraordinary sessions of the National
Assembly. According to the United States, once a bi ll has been submitted to the National Assembly,
the legislative process should be completed within a month, the prescribed time for an extraordinary
session. In any event, Korea has acknowledged that the process can be finished in two and a half
months. Prior drafting, inter-ministerial consultations and the public comment period for a law prior
to its submission to the National Assembly should not take more than two months. Thus, Korea still
has ample time to call an extraordinary session of the National Assembly and adopt tax rate changes
by no later than November 1999.

15Australia – Salmon, supra, footnote 12, para. 30.
16European Communities - Hormones, supra, footnote 7, para. 26; Australia – Salmon, supra, footnote 12,
17Australia – Salmon, supra, footnote 12, para. 38.
18Indonesia – Automobiles, supra, footnote 11, para. 23.

31. The United States notes that Korea wants to submit the tax amendments in the overall budget
package because it intends to include them in a package of additional reforms. The United States
maintains that the amendments do not have to be part of a broader tax rationalization plan.
32. The United States further argues that Korea can, in any event, implement the tax rate changes
by 1 January 2000. The United States notes that Korea has not explained precisely what aspects of its
administrative regulations need to be changed, and th at the two most recent amendments to tax rates
in the Liquor Tax Act took effect only a few days after their promulgation.
33. According to the United States, even if changes to the Presidential Decrees or ministerial
ordinances were required, such changes would only be technical, not substantive, corrections. Thus,
they can hardly require five additional months of regulatory activity. Moreover, Korea's assumption
that the regulatory process has to be sequential to the legislative process is belied by past practice.
III. The Reasonable Period of Time
34. My mandate in this arbitration is governed by Article 21.3(c) of the DSU. It provides that
when the reasonable period of time is determined through arbitration:
… a guideline for the arbitrator should be that the reasonable period of
time to implement panel or Appellate Body recommendations should
not exceed 15 months from the date of adoption of a panel or
Appellate Body report. However, that time may be shorter or longer,
depending upon the particular circumstances.
35. The precise meaning of this provision becomes clear when it is read in its context.
Paragraph 1 of Article 21 provides:
Prompt compliance with recommendations or rulings of the DSB is
essential in order to ensure effective resolution of disputes to the
benefit of all Members.
36. Under Article 21.3 of the DSU, if it is impr acticable to comply immediately with the
recommendations and rulings of the DSB, the Member concerned shall have a reasonable period of
time for implementation. When the reasonable period of time is determined through arbitration, the
guideline for the arbitrator is that it should not exceed 15 months from the date of adoption of the
panel and/or Appellate Body reports. This does not mean, however, that the arbitrator is obliged to

grant 15 months in all cases. The reasonable period of time may be shorter or longer, depending upon
the particular circumstances.19
37. The most important factor in establishing the length of the reasonable period of time is set out
in the Award of the Arbitrator in European Communities – Hormones, where it is stated:
… it is clear that the reasonable period of time, as determined under
Article 21.3(c), should be the shortest period possible within the legal
system of the Member to implement the recommendations and rulings
of the DSB.20
38. In the present case, the parties agree on the necessity to amend Korea's tax legislation in order to
properly implement the recommendations and rulings of the DSB. In fact, Korea has indicated that it
intends to increase the tax rates applicable to soju, which requires an amendment of its current Liquor
Tax Act.21
39. According to Korea, its tax legislation cannot be amended, in this case, before the end of
December 1999.22 Korea asserts that the initial executive procedure, preceding the submission of the tax
bill to the National Assembly, will take seven months. Therefore, the bill can be sent to the National
Assembly by the end of September at the earliest.23 Korea maintains that the change in the liquor tax
rates will have an impact on tax revenues, and that, therefore, this bill should be attached to the global
budget bill for the upcoming fiscal year, which is to be passed at the regular session of the National
Assembly, commencing on 10 September 1999.
24
40. According to the United States, the preparatory steps prior to the submission of the bill to the
National Assembly should not take more than two months.25 The European Communities submits that
these steps require, as a general rule, from two to four months, but may be completed within a much
shorter period of time in cases of urgency. 26 Both the United States and the European Communities
argue that the tax bill could, and should, be adopted in the course of an extraordinary session of the
National Assembly which, according to Korea's Constitution, can be convened upon the request of the
President or of one fourth or more of the members of the National Assembly. An extraordinary session

19Article 21.3(c) of the DSU.
20Supra, footnote 7, para. 26; quoted with approval in Indonesia – Automobiles , supra, footnote 11,
21Written Submission of Korea, para. 3.
22Ibid., para. 24.
23Ibid., paras. 4-14.
24Ibid., para. 16.
25Written Submission of the United States, para. 15.
26Written Submission of the European Communities, para. 27.

shall not exceed 30 days. 27 According to the United States and the European Communities, the
discussion and adoption of the bill by the National Assembly could be completed within one month,
whether submitted during a regular or an extraordinary session.28 Both of these parties cite a number of
amendments of tax laws which have been adopted in extraordinary sessions of the National Assembly.29
41. The parties agree that a tax bill with budgetary implications should normally be submitted to the
National Assembly at a regular se ssion, together with the draft budget for the following fiscal year.
They disagree on whether the proposed amendments to Korea's tax legislation in this case could be
passed in an extraordinary session of the National Assembly.
42. Although the reasonable period of time should be the shortest period possible within the legal
system of the Member to implement the recommendations and rulings of the DSB, this does not require
a Member, in my view, to utilize an extraordinary legislative procedure, rather than the normal
legislative procedure, in every case. Taking into account all of the circumstances of the present case, I
believe that it is reasonable to allow Korea to follow its normal legislative procedure for the
consideration and adoption of a tax bill with budg etary implications, that is, to submit the proposed
amendments to the next regular session of the National Assembly. For the same reasons, I consider it
reasonable that the new tax legislation should be enacted by the National Assembly in the course of the
next regular session, and promulgated by the President before the end of this year.
43. According to Korea, an additional period of five months is necessary to complete certain
"follow-up measures", including related changes to Presidential and Ministerial Decrees, enforcement
regulations and administrative procedures.30 This period of five months includes an adjustment period
of at least thirty days, Korea argues, as required by Article 13-2 of the Act on the Promulgation of
Acts and Decrees, etc.
31
44. The United States and the European Communitie s contest the need for amendments to these
regulatory instruments. They consider that even if amendments to these regulatory instruments were
required, such amendments would only be technical corrections.32 They argue that these amendments

27Written Submission of the European Communities, para. 44; Written Submission of the United
States, paras. 14-15.
28Written Submission of the European Communities, para. 28; Written Submission of the United
States, para. 15.
29Written Submission of the European Communities, para. 24; Written Submission of the United
States, para. 14.
30Written Submission of Korea, para. 25.
31Ibid., para. 26.
32Written Submission of the European Communities, paras. 54-55; Written Submission of the United
States, paras. 18-20.

could be prepared in advance, in parallel with the legislative amendments. Past practice, they
maintain, shows that the regulatory instruments implementing new tax legislation have been amended
within days, and the new tax legislation has entered into force a few days after promulgation.
33
45. My mandate in this arbitration relates exclusively to determining the reasonable period of
time for implementation under Article 21.3(c) of the DSU. It is not within my mandate to suggest
ways and means to implement the recommendations and rulings of the DSB. Choosing the means of
implementation is, and should be, the prerogative of the implementing Member, as long as the means
chosen are consistent with the recommendations and rulings of the DSB and the provisions of the
covered agreements.
34 I consider it, therefore, inappropriate to determine whether, and to what extent,
amendments to various regulatory instruments are required before the new tax legislation comes into
effect.
46. However, assuming that amendments to these regulatory instruments are necessary, I am not
convinced that they can only be prepared after the promulgation of the amendments to the tax
legislation. On the contrary, in the light of past experience, I consider that it is possible to prepare
such measures during the course of the legislative process. The amendments to the tax legislation
could, in my view, be promulgated together w ith any required amendments to the regulatory
instruments by 1 January 2000.
47. Bearing in mind Article 13-2 of the Act on the Promulgation of Acts and Decrees, etc., which
provides for a thirty-day grace period for enforcement of certain acts, Presidential Decrees, and other
instruments, I consider that it is reasonable to allow Korea an additional thirty days, after the
promulgation of the amendments to the tax legislation and the amendments to the regulatory
instruments, as part of the reasonable period of time.
35

33Written Submission of the European Communities, para. 56; Written Submission of the United
States, para. 21.
34European Communities – Hormones, supra , footnote 7, para. 38; quoted with approval in Australia –
Salmon, supra, footnote 12, para. 35.
35I recognize that this period of time is shorter than the 15 month period granted by the Arbitrator in
Japan – Alcoholic Beverages . I would note, however, that the arbitration proceedings in these two cases took
place at different times in the respective legislative and budgetary processes of Korea and Japan.

IV. The Award
48. In light of the above considerations, I determine that the reasonable period of time for Korea
to implement the recommendations and rulings of the DSB in this case is 11 months and two weeks,
that is, from 17 February 1999 to 31 January 2000.
Signed in the original at Geneva this 31st day of May 1999 by:
Claus-Dieter Ehlermann