JAPAN - TAXES ON ALCOHOLIC BEVERAGES
Document: Mutually Acceptable Solution on Modalities for Implementation
Date: 12 January 1998
Document codes: WT/DS8/20; WT/DS10/20; WT/DS11/18
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 Canada, together with enclosures, is circulated to Members at the request
of both delegations.
The Governments of Canada 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, Canada 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 letter of 16 and 19 December 1997 on this
subject.
Enclosure 1: Letter Ambassador Mr. Takashi Tajima to Deputy Minister Robert G. Wright
of Canada
I refer to the consultations between the officials of our two governments on the liquor tax issue.
I am pleased to inform you that the Government of Japan (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's arbitration award issued on 14 February 1997, the GOJ will revise the current liquor tax
scheme and will carry out tariff reductions and eliminations on the applied rate basis as described in
detail in Annex 1, titled "Elements of Settlement for Dispute on Japanese Liquor Taxation", attached
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 eliminate tariff rates on the items
in Annex 1 in stages as specified therein. For this purpose, the GOJ will submit a draft law amending
the Customs Tariff Law and 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 1.
In addition, through the tariff reductions and eliminations to be provided by Japan as a result
of negotiations on compensation regarding the liquor tax issue, Canada will receive at least comparable
tariff reductions and eliminations to those which Japan will grant to the United States and the EC as
shown in Annex 2, titled "The Tariff Rates", attached to this letter.
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 tothe dispute between Canada and Japan concerning the taxation of distilledspirits.

ANNEX 1
Elements of Settlement for Dispute on Japanese Liquor Taxation
1. The Government of Canada accepts the following elements as a mutually satisfactory solution
for settling the liquor tax issue between Japan and Canada.
2. The Government of Japan (GOJ) has decided to take the following measures to implement the
findings and conclusions of the WTO Panel Report on "" as
modified by the Appellate Body and adopted by the Dispute Settlement Body on 1 November 1996.
Revision of current liquor tax scheme
(Rates in yen per kilolitre per degree of alcohol)
30 Sep.
1997
1 Oct.
1997
1 May 1998 1 Oct. 1998 1 Oct. 2000
(Current)
Whiskies 24, 558 13, 775 10, 225 10, 225 10, 225
Spirits 9,927 9,924 9,924 9,924 9,924
Liqueurs 8,217 9, 924 9,924 9,924 9,924
Shochu A 6,228 8,076 9,924 9,924 9,924
Shochu B 4,084 6,028 6,028 7,976 9,924
(a) acceleration of the liquortax rate adjustment for Whiskiesand Shochu A by five months
to be completed on 1 May 1998.
(b) acceleration of the liquor tax rate adjustment for Shochu B by a year to be completed
on 1 October 2000.
3. The Government of Japan provides tariff eliminations/reductions on rye whisky and vodka
as shown below and will also provide to Canada comparable tariff eliminations/reductions Japan will
grant to the United States on whisky as a result of negotiations on compensation.
Tariff Reduction
Tariff rates for rye whisky and vodka will be reduced as shown in the table below. These
tariff eliminations/reductions will be carried out on applied-rate basis and are subject to domestic
procedure.
As of April 1998 1999 2000 2001 2002 2003 2004
Rye whisky 13.4% 10.6% 7.8% 5.0% 0% 0% 0%
(HS 2208.30-021,029)
Vodka 16.0% 12.0% 8.0% 4.0% 0% 0% 0%
(HS 2208.60-020)

4. For "de minimis" and "reasonable period of time".
"It is confirmed that acceptance by the Government of Canada of the Japanese proposal to settle the
dispute cannot be interpreted as in any way prejudging the position of the Government of Canada in
the WTO with regard to the definition of "de minimis" differential including the appropriate base on
which such differentials should be calculated, or the "reasonable period of time" for implementation".

ANNEX 2
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 2208.20-100
Brandy
HS 2008.90-111
(See note 1)
yen/litre
175.79
yen/litre
170.56
yen/litre
131.98
yen/litre
93.56 0
HS 2208.20-200
Brandy
HS 2208.90-119
Fruit Brandy
(See note 2)
yen/litre
207.80
yen/litre
201.60
yen/litre
156.00
yen/litre
110.60 0
HS 2208.30-011
HS2208.30-019
Bourbon whisky
10.3% 7.9% 5.4% 3.0% 0
HS 2208.30-031
Whisky (other)
(See note 1)
yen/litre
183.62
yen/litre
175.32
yen/litre
133.81
yen/litre
77.00
0
HS 2208.30-032
Whisky (other)
(See note 2)
yen/litre
152.40
yen/litre
145.60
yen/litre
111.20
yen/litre
77.00 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 3)
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

Categories 1 April 1998 1 April 1999 1 April 2000 1 April 2001 1 April 2002 1 April 2003 1 April 2004
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 1) Of an alcoholic strength by volume of 50% vol or higher, excluding those in containers holding less than 2l
(Note 2) Other than Note 1
(Note 3) Ad valorem duty or specific duty,whichever lower, is applied for Gin and Geneva.

Enclosure 2: Letter from Deputy Minister Robert G. Wright of Canada to Ambassador Takashi
Tajima, of Japan
In reply to your letter of 16 December 1997 and further to discussions that have taken place
between various officials of our respective governments, I wish to inform you of the following:
The Government of Canada has reviewed the overall scheme that the Government of Japan
has put forward as a response to the findings and conclusions of the July 1996 WTO Panel Report
on "" as modified by the report of the Appellate Body adopted
by the Dispute Settlement Body on 1 November 1996.
This scheme and its implementation schedule were set out in respect of key alcoholic strengths
for main market segments in Annex 1, "Elements of Settlement of Dispute on Japanese Liquor Taxation",
attached to your letter of 16 December 1997, which reflects discussions between officials of our two
governments.
Based on our review and those discussions, we have clarified certain details of the scheme
including the fact that taxes to be levied on liquors between certain ranges of alcoholic strengths will
be based on flat rates per litre of liquor rather than per degree of alcohol.
In addition, we have examined the proposed reduction and elimination of applied tariff rates
on rye whisky (HS 2208.30-021 and 2208.30-029) and vodka (HS 2208.60-020) between April 1998
and April 2002, which Japan has offered as compensation for the longer implementation period for
the new tax scheme.
The Government of Canada hereby confirms that, on the basis of Annex 1, this exchange of
letters, together with the amendments to the Liquor Tax Law promulgated in March 1997, resolves
the dispute on liquor taxes between Canada and Japan.
If the proposals are not implemented fully, Canada reserves its rights to resort to dispute
settlement under the WTO agreements.
Other measures to be applied are as follows:
Through the tariff reductions and eliminations to be provided byJapan as a result of negotiations
on compensation regarding the liquor tax issue, the Government of Japan will provide tariff reductions
and eliminations on rye whisky and vodka as shown in Annex 1, and will also provide to Canada tariff
reductions and eliminations at least comparable to those which Japan will grant to the United States
and the EC as specified in Annex 2, title "The Tariff Rates", attached to your letter of
16 December 1997.
At the request of either party, consultations on the implementation or effects of any aspect
of the revised Japanese tax scheme will be held expeditiously with a view to reaching a satisfactory
solution. It is understood in this context that any discriminatory effects on Canadian liquors resulting
from the revised Japanese tax scheme will be corrected through appropriate adjustments to the tax
structure within a reasonable time period to remove such discriminatory effects. Canada also reserves
its rights to address such issues, if necessary, in the context of WTO dispute settlement.
The current Japanese definitions of products will not be amended in such a way as to have
adverse effects on Canadian exports. These definitions are those referred to in the WTO panel report

as well as those givenin the course of Canada's evaluationof the revised scheme (notably those referring
to "mixed drinks") and will be the ones valid for the amended liquor tax law that Japan started to
implement on 1 October 1997.
Furthermore, it is confirmed that acceptance by the Government of Canada of the Japanese
proposals to settle the dispute cannot be interpreted as in any way prejudging the position of the
Government of Canada inthe WTO with regard to the definition of "de minimis" differentials, including
the appropriate base on which such differentials should be calculated, or the "reasonable period of
time" for implementation.
Finally, based on a statement made by Japanese representatives during bilateral discussions,
the Government of Canada understands that the Shochu B subsidy programme will be maintained only
withinthe frameworkofJapan'sobligationsundertheWTOAgreementonSubsidiesand Countervailing
Measures and is not designed in such a way as to have adverse effects on Canadian exports.