Japan - Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages
Japan Alcoholic Beverages I (Source: GATT Analytical Index)
|Products at issue
Wines and alcoholic beverages
|Type of product
Key legal aspects
|Manuel Tello (Mexico)
|Delfino Bondad (Philippines), Christian Kauter (Switzerland)
|Legal basis at issue
|Claims at issue
|Defences at issue
|No of Pages (total / legal reasoning)
|40 (and 8 annex)
|Request for consultations
|Request for establishment
|Adoption of report
|Outcome of the proceedings
|L/6216 (22/09/1987) Japan - Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages - Report by the Panel: The Panel concluded that the ordinary meaning of GATT Article III:2 in its context and in the light of its object and purpose supported the past GATT practice of examining the conformity of internal taxes with Article III:2 by determining, firstly, whether the taxed imported and domestic products are "like" or "directly competitive or substitutable" and, secondly, whether the taxation is discriminatory (first sentence) or protective (second sentence). The Panel further found that imported and Japanese-made gin, vodka, whisky, grape brandy, fruit brandy, "classic liquors", still wine and sparkling wine should be considered as "like products" in terms of Article III:2 in view of their similar properties, end-uses and usually uniform classification in tariff nomenclatures. Since consumer habits vis-à-vis these products varied in response to their respective prices, their availability through trade and their other competitive inter-relationships, the Panel also concluded that the following imported and Japanese-made alcoholic beverages could, among each other, be considered to be "directly competitive or substitutable products" in terms of Article III:2, second sentence: distilled liquors (including all grades of whiskies/brandies, vodka and shochu); liqueurs; unsweetened and sweetened wines; and sparkling wines.
The Panel concluded that (special and first grade) whiskies/brandies imported from the EEC were subject to internal Japanese taxes "in excess of those applied ... to like domestic products" (i.e. first and second grade whiskies/brandies) in the sense of Article III:2, first sentence; that the imposition of ad valorem taxes on wines, spirits and liqueurs imported from the EEC, which were considerably higher than the specific taxes on "like" domestic wines, spirits and liqueurs, was inconsistent with Article III:2, first sentence; and that the imposition of internal taxes to imported liqueurs and sparkling wines with high raw material contents in excess of those applied to like domestic liqueurs and sparkling wines with lower raw material contents, which was not justified as resulting from a non-discriminatory internal tax on the raw material content concerned, was inconsistent with Article III:2, first sentence.
The Panel found that the following factors were sufficient evidence of fiscal distortions of the competitive relationship between imported distilled liquors and domestic shochu affording protection to the domestic production of shochu: the considerably lower specific tax rates on shochu than on imported whiskies, brandies and other spirits; the imposition of high ad valorem taxes on imported whiskies, brandies and other spirits and the absence of ad valorem taxes on shochu; the fact that shochu was almost exclusively produced in Japan and that the lower taxation of shochu did "afford protection to domestic production"; the mutual substitutability of these distilled liquors, as illustrated by the increasing imports into Japan of "Western-style" distilled liquors and by the consumer use of shochu blended in various proportions with whisky, brandy or other drinks.
The Panel concluded from the text, system and objectives of the General Agreement that, even though each contracting party retained broad freedom as to its internal tax policy also in respect of its internal taxation of goods, the General Agreement did not provide for the possibility of justifying discriminatory or protective taxes inconsistent with Article III:2 on the ground that they had been introduced for the purpose of "taxation according to the tax-bearing ability" of domestic consumers of imported and directly competitive domestic liquors.
Finally, the Panel did not dispose of evidence and was unable to find that the use by Japanese manufacturers of labels written partly in English (in the case of whisky and brandy) or in French (in the case of wine), the use of the names of varieties of grapes (such as "Riesling" or "Sémillon"), or the use of foreign terms to describe Japanese spirits ("whisky", "brandy") or Japanese wines ("château", "réserve", "vin rosé") had actually been to the detriment of "distinctive regional or geographical names of products" produced and legally protected in the EEC. Nor could the Panel find that Japan - given, for example, its participation in the Madrid Agreement for the Repression of False or Deceptive Indications of Source on Goods and its internal laws and regulations on labelling and on the protection of distinctive regional or geographical names (such as "Armagnac" or "Chianti") - had failed to meet its obligation to cooperate pursuant to GATT Article IX:6.