JAPAN - TAXES ON ALCOHOLIC BEVERAGES
Document: Mutually Acceptable Solution on Modalities for Implementation
Date: 12 January 1998
Document codes: WT/DS8/19; WT/DS10/19; WT/DS11/17; WT/DS11/8
Complainant: EU
Respondent: Japan
Dispute stage: Appellate Body
Agreements cited: Art. III:2  GATT 1994

JAPAN - TAXES ON ALCOHOLIC BEVERAGES
Mutually Acceptable Solution on Modalities for Implementation
The following communication, dated 9 January 1998, from the Permanent Mission of Japan
and the Permanent Mission of the United States, together with enclosures, is circulated to Members
at the request of both delegations.
The Governments of the United States of America and Japan wish to notify the Dispute Settlement
Body ("DSB") that they have reached a mutually satisfactory solution regarding the implementation
by Japan of the conclusions and recommendations adopted by the DSB in the dispute "" (). Accordingly, the United States and Japan consider that
Article 21.6 of the Understanding on Rules and Procedures Governing the Settlement of Disputes no
longer requires that this item remain on the agenda of the DSB.
Please find attached the text of the exchange of letters of 15 December 1997 on this subject.
Enclosure 1: Letter from Ambassador Kunihiko Saito of Japan to Ambassador Charlene Barshefsky
of the United States
I refer to the consultations between the officials of our two governments on the liquor tax issue,
the most recent sessions of which were held in Vancouver in November, in Geneva and in
Washington, D.C. in December 1997. I am pleased to confirm, on behalf of the Government of Japan
(GOJ), that the GOJ has decided to take the following measures, whose adoption will be in accordance
with the necessary domestic legislative procedures, to implement the recommendations and rulings
of the WTO Dispute Settlement Body pursuant to the panel and the Appellate Body reports on "".
Based on the outcome of the consultations referred to above, and having carefully considered
the WTO arbitration award issued on 14 February 1997, the GOJ will revise the current liquor tax
scheme as described in detail in Annex A to this letter, and will carry out tariff eliminations and
reductions on the applied rate basis as described in detail in Annex B to this letter.
As compensation for the longer implementation period in the amended Liquor Tax Law for
the new taxation scheme, from 1 April 1998 onward, the GOJ will apply reduced tariff rates and in
some cases zero tariffs on the items in Annex B to this letter as specified therein. For this purpose
the GOJ will submit a draft law amending the Customs Tariff Law and the Temporary Tariff Measures

Law to the next ordinary session of the Diet to be convened in January 1998, and will do its utmost
to obtain Diet approval of such an amendment. The GOJ will not raise tariff rates above those specified
in Annex B. Furthermore, the GOJ will apply the rates listed in Annex B in full recognition that Japan's
WTO bound rates are higher and intends to bind these tariff reductions in the WTO at the next possible
opportunity to modify the Schedule of Japan following a multilateral, multisectoral negotiation. In
addition, the United States will receive at least comparable tariff eliminations/reductions to those which
Japan may grant to the EC, Canada or any other WTO Members (if any) as a result of negotiations
on compensation regarding the liquor tax issue.
Any measures, including subsidies, to be taken for domestic producers of distilled spirits in
relation to the settlement of the liquor tax issue will be fully consistent with the GOJ's obligations under
the WTO Agreement, and will in no way nullify or impair the benefits provided by the GOJ to the
United States as a result of this mutually satisfactory solution to the liquor tax issue.
With regard to subsidies, tax measures or other measures of Japan that may alter the conditions
of competition between imported and domestic distilled spirits, the GOJ confirms that it cannot be
anticipated that the United States Government (USG) is aware of existing measures other than those
listed in Annex C.
In addition, the GOJ confirms that it will neither grant nor maintain subsidies or special tax
measures or other measures benefiting domestic producers of distilled spirits which would have effect
of displacing or impeding the export to Japan of distilled spirits from the United States and other
countries.
The GOJ will provide the USG, upon request, relevant information on such measures for domestic
producers of distilled spirits unless such information is of a confidential nature and its provision would
impede enforcement of domestic laws and regulations or would prejudice the legitimate commercial
interests of particular enterprises.
I confirm that at the request of either party, consultations on the implementation or effects
of any aspect of this mutually satisfactory solution to the liquor tax issue will be held expeditiously
with a view to reaching a satisfactory solution.
I would appreciate your confirmation that implementation of the measures set out in this letter,
together with the amendments to the Liquor Tax Law promulgated in March 1997, will be a mutually
satisfactory solution to the dispute between the United States and Japan concerning the taxation of distilled
spirits.

ANNEX A
The Liquor Tax Rates
(per kilolitre)
Categories Degree of Alcohol
Content
30 Sep. 1997 1 Oct. 1997
30 Apr. 1998
1 May 1998
30 Sep 1998
1 Oct 1998
30 Sep. 2000
1 Oct. 2000
Shochu A 25 degrees
(¥6, 228)
¥155,700
(¥8,076)
¥201,900
(¥9,924)
¥248,100
(¥9,924)
¥248,100
(¥9,924)
¥248,100
Shochu B 25 degrees
(¥4,084)
¥102,100
(¥6,028)
¥150,700
(¥6,028)
¥150,700
(7,976)
¥199,400
(¥9,924)
¥248,100
Whiskies 40 degrees
(¥24,558)
¥982,300
(¥13,775)
¥551,000
(¥10, 225)
¥409,000
(¥10,225)
¥409,000
(¥10,225)
¥409,000
Spirits 37 degrees
(¥9,927)
¥367,300
(¥9,924)
¥367,188
(¥9,924)
¥367,188
(¥9,924)
¥367,188
(¥9,924)
¥367,188
Liqueurs 12 degrees (¥8,217)
¥98,600
(¥9,924)
¥119,088
(¥9,924)
¥119,088
(9,924)
¥119,088
(¥9,924)
¥119,088
(Note) The rates in brackets are tax rates per kilolitre per degree of alcohol.

ANNEX B
The Tariff Rates
Categories 1 April 1998 1 April 1999 1 April 2000 1 April 2001 1 April 2002 1 April 2003 1 April 2004
HS 2208.30-011
HS 2208.30-019
Bourbon whisky
10.3% 7.9% 5.4% 3.0% 0%
HS 2208.40-000
Rum and tafia
18.0% 13.5% 9.0% 4.5% 0%
HS 2208.50-000
Gin and Geneva
(See note)
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
0%
HS 2208.60-020
Vodka
16.0% 12.0% 8.0% 4.0% 0%
HS 2208.70-000
Liqueurs and
cordials
yen/litre
126.00
yen/litre
94.50
yen/litre
63.00
yen/litre
31.50 0
(Note) Ad valorem duty or specific duty, whichever lower, is applied for Gin and Geneva

Annex C
WORLD TRADE G/SCM/N/25/JPN
17 November 1997
ORGANIZATION (97-5026)
Original: EnglishCommittee on Subsidies
and Countervailing Measures
SUBSIDIES
Updating Notifications Pursuant to Article XVI.1 of the GATT 1994 and Article 25
of the Agreement on Subsidies and Countervailing Measures
JAPAN
The following communication, dated 7 October 1997, has been received from the Permanent Mission
of the Japan.
Japan submits this notification in accordance with its obligations under Article XVI.1 of the
GATT 1994 and Article 25 of the Agreement on Subsidiesand Countervailing Measures. This notification
does not prejudge the legal status, effects or nature of the notified programmes or measures under GATT
1994 and the Agreement on Subsidies and Countervailing Measures.

FINANCIAL MEASURES FOR SHOCHU B MANUFACTURERS
1. Title of the subsidy programme
Financial Measures for Shochu B Manufacturers
2. Period covered by the notification
-
3. Policy objective and/or purpose of the subsidy
To reform the structure of Shochu B industry and to help the modernization of its environment
protection facilities.
4. Background and authority for the subsidy
The Ministry of Finance.
5. Legislation under which it is granted
Special Measures Law concerning the stability of the Sake Brewing and Related Manufacture.
6. Form of the subsidy (i.e. grant, loan, tax concession, etc.)
Interest-free loan to "the Shochu B Manufactures Industry Funds" and Grants
7. To whom and how the subsidy is provided
Japan Brewers Association.
8. Subsidy per unit, or in cases where this is not possible, the total amount or the annual amount
budgeted for that subsidy
- The Funds' running profit: ¥1.06 billion
- Grants from the State budget: ¥0.33 billion
9. Duration of a subsidy and/or any other time limits attached to it
Duration of the interest-free loan is limited to ten years.

10. Statistical data permitting an assessment of the trade effects of a subsidy1
Quantity of Shipment of Shochu B
(kl)
Year 1994 1995 1996
Domestic 287,211 296,621 318,076
Import 43 42 537
Total 287,254 296,663 318,613
Enclosure 2: Letter from Ambassador Charlene Barshefsky of the United States to Ambassador Kunihiko
Saito of Japan.
I am pleased to receive your letter of today's date concerning the liquor tax issue.
I confirm on behalf of the United States Government, that his exchange of letters, together with
the amendments to the Liquor Tax Law promulgated in March 1997, resolves the dispute on liquor taxes
between the United States and Japan.
I welcome the commitmentsmade byyourGovernment withregard tosubsidiesand othermeasures
in relation to the settlement of the liquor tax issue. I also welcome the GOJ's commitment expressed
in your letter to provide relevant information on measures for domestic producers of distilled spirits.
I note that it is jointly understood that acceptance by the United States of Japan's proposals to
settle this dispute cannot be interpreted as in any way prejudging the position of the United States in the
WTO with regard to the definition of de minimis differentials or the "reasonable period of time" for
implementation. In particular, this arrangement is without prejudice to the question of whether the
differential in tax rates between brown and white spirits that will remain as of 1 October 2000 is a de
minimis differential or would constitute a de minimis differential in any other market or under any other
factual circumstances.
This exchange of letters is without prejudice to the rights and obligations of the United States
under the WTO Agreement. If this mutually satisfactory solution to the liquor tax issue is not implemented
fully, the United States reserves its rights to resort to dispute settlement under the WTO Agreement.