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Japan – Taxes on Alcoholic Beverages, 1998

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Submitted By thereseabennett
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Case: Japan – Taxes on Alcoholic Beverages, 1998

Facts: Japan has imposed a higher tax on imported vodka than that of the local manufactured shochu, an alcoholic beverage. The US, Canada, and the EU view this as a violation of GATT Article III, paragraph 2, which states imported products should be taxed the same as similar domestic products. Japan and the US want this to be interpreted according to an “aim-and-effect” test. Japan also does not believe vodka is a similar product to shochu and the tax on the alcoholic beverages did not violate Art. III:2 because its the tax/price ratio was neutral.

Procedure: World Trade Organization, Dispute Settlement Panel

Issue: 1- Can the aim-and-effect test be applied to this situation? 2- Are vodka and shochu similar products? 3- Will a neutral tax/price ratio be sufficient enough to meet the Art. III:2 requirements?

Holding: (1- No, 2- Yes, 3- No) Japan has to bring their taxes on alcoholic beverages into compliance with Art. III:2.

Reasoning: (Lacarte-Muro, Bacchus, and El-Nagga)
A. Rule: Art. III:2 has a requirement for all WTO members which states that all states should enforce the same internal taxes on products as they do on similar domestic products. Similar products have to follow the principles of paragraph 1. Art III:1, which states taxes cannot be enforced to protect a domestic production. Similar products are determined one case-by-case basis with familiar end-users and the same physical characteristics.

B. Application: 1- Using the “aim-and effect” test would be too difficult to apply and to determine the real aims of limited legislation, which is based on the goals set out in Art. III:1. 2- Vodka and shochu will be bought and used by the same consumers and the filtration is different, however they have identical physical characteristics, therefore should be treated as similar products. 3- A

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