JAPAN - TAXES ON ALCOHOLIC BEVERAGES
Document: Status Report by Japan The followingcommunication, dated 10 September 1997, from the Permanent Mission of Japan to the Permanent Delegation of the European Commission, the Permanent Missions of Canada and the United States and to the Dispute Settlement Body is circulated at the request of Japan.
Date: 15 September 1997
Document codes: WT/DS8/18; WT/DS10/18; WT/DS11/16; WT/DS8/11; WT/DS10/11; WT/DS11/8
Complainant: EU
Respondent: Japan
Dispute stage: Appellate Body
Agreements cited: Art. III:2  GATT 1994

JAPAN - TAXES ON ALCOHOLIC BEVERAGES
Status Report by Japan
The followingcommunication, dated 10 September 1997, from the Permanent Mission of Japan
to the Permanent Delegation of the European Commission, the Permanent Missions of Canada and
the United States and to the Dispute Settlement Body is circulated at the request of Japan.
Status Report on Implementation of the Recommendations and Rulings of
the Dispute Settlement Body Regarding “ ”

Pursuant to Article 21.6 of the Understanding on Rules and Procedures Governing the Settlement
of Disputes (“ DSU” ), the Government of Japan ("GOJ") hereby presents this first status report on
the implementation of the recommendations of the Dispute Settlement Body (“ DSB” ) regarding
“ ” .
On 1 November 1996, the DSB adopted the Appellate Body report on
“ ” (, , ) and
the panel report on “ ” (, , )
as modified by the Appellate Body report. On 20 November 1996, the GOJ informed its intentions
in respect of implementation of the recommendations of the DSB and advised the DSB that a “ reasonable
period of time” would be required in which to comply with the recommendations.
The adjustment of the liquor tax rate which is necessary to implement the recommendations
of the DSB requires the amendment tothe Liquor Tax Law. The amendment to the tax system, including
the liquor tax, of each fiscal year needs to be decided in the form of legislation along with annual budget
which begins in April and ends in March. The legislation needs approval in both chambers of the
Diet with a majority vote and the executive branch is required to submit the draft amendment to the
next fiscal year’ s tax system to the Diet by the end of January. It should be also noted that, in order
to submit the draft amendment of tax legislation to the ordinary session of the Diet, the content of the
draft amendment must be decided by the middle of December. Under these strict procedures for the
amendment of the tax legislation, the Liquor Tax Law was amended as follows as a part of the FY 1997
Tax Amendments, with a view to ensuring earliest possible implementation of the recommendations
of the DSB.
Since the GOJ informed the DSB of its intentions in respect of implementation of the
recommendations, it held a series of consultations with all the other parties to the dispute concerning

measures to be taken in conjunction with the implementation of the recommendations and the period
for implementation. After examining the result of these consultations as well as all relevant aspects
of domestic situations, the GOJ drew up a reform plan for the liquor tax system, which was decided
by the Research Commission on the Tax System of the ruling Liberal Democratic Party on
18 December 1996. The GOJ decided officially on the Outline of Tax Amendments including the Liquor
Tax amendment on 10 January 1997, and submitted its draft amendment to the Liquor Tax Law to
the Diet on 31 January 1997 to be enacted as the next fiscal year’ s tax legislation. On the same date,
the European Communities (“ EC” ) and Japan formally reached a mutually acceptable solution in the
form of an exchange of letters regarding the modalities for the implementation by the GOJ of the
recommendations of the DSB in accordance with the said draft amendment, as notified jointly to the
WTO by both governments on 15 July 1997 (WT/DS8/17, WT/DS10/17, WT/DS11/15).
The draft amendment of the Liquor Tax Law to implement the reform plan accepted by the
EC was considered and approved by both chambers of the Diet without modifications. The Amendment
was promulgated on 31 March 1997 (Law No. 21, 1997). The following is the outline of the
Amendment. (See also WT/DS8/17, WT/DS10/17, WT/DS11/15.)
- As for the tax rate on whisky/brandy, the GOJ shall reduce it by about 58 per cent
to 409,000 yen per kilolitre (40 degrees of alcohol content, 10,225 yen per kilolitre
per degree of alcohol), through two stages of reduction; first reduction by about 44 per
cent on 1 October 1997 and the second reduction by about 26 per cent from the level
of 1 October 1997 on 1 October 1998.
- As for the tax rate on Shochu A and liqueurs, the GOJ shall increase it to the level
of the current tax rate on “ spirits” in terms of tax rate per degree of alcohol content:
- The tax rate on Shochu A shall be increased through the same stages as
whisky/brandy to 248,100 yen per kilolitre (25 degrees of alcohol content,
9,924 yen per kilolitre per degree of alcohol).
- The tax rate on liqueurs shall be increased on 1 October 1997 to 119,088 yen
per kilolitre (12 degrees of alcohol content, 9,924 yen per kilolitre per degree
of alcohol).
- As a result of the above adjustment, from 1 October 1998, an identical taxation on
Shochu A, “ spirits” and liqueurs in terms of tax rate per degree of alcohol content
will be brought about and the tax differential between Shochu A and whisky/brandy
will be reduced to the de minimis level of 1.03 times in terms of tax rate per degree
of alcohol content.
- As for the tax rate on Shochu B, the tax rate adjustment shall be completed through
three stages of increases on 1 October 1997, 1 October 1998 and 1 October 2001 to
248,100 yen per kilolitre (25 degrees of alcohol content, 9,924 yen per kilolitre per
degree of alcohol). An additional three year period from 1 October 1998 to
1 October 2001 is needed in view of the effects on both consumers and producers of
this tax increase by as much as 2.4 times. As a result, a taxation on Shochu B, “ spirits”
and liqueurs in terms of tax rate per degree of alcohol content will become identical
from 1 October 2001.

In addition to the above amendment to the Liquor Tax Law, the GOJ, based upon the requests
of the EC, willalsocarry outas compensationautonomousreductionof importdutiesonwhisky/brandy,
the value of which is equivalent to that of the tax differential which will remain with regard to Shochu B
for a three-year period from 1 October 1998 to 1 October 2001. With this measure, adverse effects
onimportedwhisky/brandyduetothe taxdifferentialduringthesaidperiodwilleffectively bedissolved.
Meanwhile, the Government of the United States (“ USG” ) requested, on 24 December 1996,
that the “ reasonable period of time” should be determined through binding arbitration as is provided
for by Article 21.3(c) of the DSU. On 14 February 1997, the arbitrator determined that “ a ‘ reasonable
period of time’ within the meaning of Article 21.3(c) of the DSU for Japan to implement the
recommendations and ruling of the DSB of 1 November 1996 in
is 15 months” (WT/DS8/15, WT/DS10/15, WT/DS11/13). Taking this determination seriously, the
GOJ has been examining possible and practical responses to this issue. At the same time, the GOJ
has been holding a series of discussions with the USG in order to find a mutually acceptable solution
regarding the modalities of the implementation of the recommendations of the DSB.