This case brief summarizes a 1998 World Trade Organization dispute between Canada, the EU, and the US against Japan regarding taxes on alcoholic beverages. The complaining countries argued that Japan imposed lower taxes on its domestic shochu beverage compared to imported products like vodka, in violation of WTO agreements. The panel determined that vodka and shochu were "like products" under the rules. It also found that Japan taxed vodka higher than shochu. Therefore, Japan was in violation of its trade obligations by favoring domestic shochu over imported vodka through tax policy.

1. Mariam Khan
AIU Online
BUS638
Graduate International Business Law Course
September 19, 2010
International Trade
Legal Case Brief
Japan – Taxes On Alcoholic Beverages
World Trade Organization, Dispute Settlement Panel, 1998.
Facts
“Canada, the EU, and the United States complained that Japan imposed lower taxes on shochu, a
locally produced alcoholic beverage, than it did on imported alcoholic beverages, including
vodka, in violation of Article III, paragraph 2, of GATT 1994” (August, Bixby, and Mayer,
2009, p. 352). Japanese shochu and American or European vodka are alcoholic beverages. Japan
was charging more tax on foreign imported vodka than on domestically supplied shochu, thereby
creating a cheaper price for its shochu to consumers. This, allegedly, created an unfair market
advantage to Japan for its shochu and Canada, the EU, and the United States took the dispute to
the DSP of the WTO in 1998.
Issues
Whether the Japanese Liquor Tax Law is inconsistent with the GATT Article III:2 and whether
vodka is taxed in excess of the tax imposed on shochu under the Japanese Liquor Tax Law and
whether Japanese legislation kept the tax/price ratio roughly constant, thereby ensuring that
legislation is trade neutral and consequently no protective aim and effect of the legislation can be
detected.
Rules
GATT Article III:2, briefly, states that imported products from one territory to another foreign
territory shall not directly or indirectly be charged internal taxes or other internal taxes in excess
of those directly or indirectly applied to “like” domestic products.
GATT Article III:1, referred to in Article III:2, briefly, states that domestic production shall not
be protected by being affected by the application of internal taxes, internal charges, laws,
regulations, requirements that affect the internal sale, offer of sale, purchase, etc. on imported or
domestic products.
The 1987 Panel Report had reached a conclusion that the DSP relied on in this 1998 case.
Analysis
The panel determined that as to the “likeness” of vodka and shochu, Article III:2 determines that
“likeness” does not necessarily mean completely “identical”…“they must share essentially the
same physical characteristics” (August, Bixby, and Mayer, 2009, p. 353). Direct competitiveness
or substitutability need to be determined to gauge “likeness”. Furthermore, while two products

2. may be competitive or substitutable in one market, the two products may not necessarily be so in
another market. Consequently, the conclusion was that “vodka and shochu are like products”
(August, Bixby, and Mayer, 2009, p. 353). The Panel used the decisions of the 1987 Panel
Report to come to this conclusion.
In regards to whether vodka is taxed in excess of the tax imposed on shochu under the Japanese
Liquor Tax Law, the Panel determined that specific taxes are imposed on alcoholic beverages
relating to alcoholic strength. Therefore, an alcoholic beverage with a higher numerical value for
strength is taxed more per kiloliter than an alcoholic beverage that has a lower numerical value
for strength per kiloliter. The Panel concluded that obviously “the taxes imposed on vodka are
higher than those imposed on shochu” (August, Bixby, and Mayer, 2009, p. 354).
In regards to Japan's claim that it's legislation keeps the tax/price ratio “roughly constant”
thereby, having legislation that is trade neutral, the Panel rejected the claim due to Japan not
achieving neutrality and horizontal tax equity. This is so because Article III:2, first sentence, was
violated when Japan imposed a tax on a like product (vodka). Also, Japan could not compare
tax/price ratios on all alcoholic beverages because domestically produced alcoholic beverages
were excluded from the calculation. Another consideration was that many alcoholic beverages
within Japan were sold at a discount in Tokyo producing unreliable prices and therefore,
unreliable tax/price ratios. Third and finally, a “roughly constant” tax/price ratio was an ex post
facto rationalization that had not been incorporated into the legislation.
Conclusion
“…the Panel concluded that, by taxing vodka in excess of shochu, Japan is in violation of its
obligations under Article III:2, first sentence.” (August, Bixby, and Mayer, 2009, p. 354).
Observations
There was a significant, detailed discussion in the text outlining this case as to the definition of a
“like product”. The discussion was over-analyzed and in outlining the details of all of the views,
there was a clearer understanding of the discussion once the 1987 Panel Report was introduced
into the discussion of the case. The second issue of whether Japan was indeed imposing higher
tax amounts on imported alcoholic beverages compared to taxes on domestic alcohol was a very
clearly outlined discussion. The reasoning behind the panel's rejection of the Japanese argument
went into more detail than simply the higher numerical value of the tax related to the higher
numerical value associated with alcoholic strength. The issue was answered with more than a
simple yes or no.
In evaluating how this WTO ruling applies to the view of the EU’s actions in adopting the 100%
tariff on pediatric polio drugs whose country of origin is other than one within the EU or a
former colony of an EU member in Africa or Asia, it may be determined that it applies because
the pediatric polio drugs are deemed to be of a similar “likeness” to other drugs (eg. like
domestic products), in which case they should not be taxed more or less than the other drugs and
should be provided to the market with no advantage of a lesser price of competitive drugs. The
ruling could then be used by Miecha as proving precedence for such a decision in not allowing
the tariff as it would be found to be illegal. However, the ruling may not apply if it is determined
that the drugs are not of a similar “likeness” to other competitive pediatric polio drugs and the
tariff would be determined to not be illegal. Therefore, the case would be irrelevant and
immaterial to Miecha’s situation with Saving Drugs Corporation. The case would have to be first

3. taken to the WTO who would make the determination of the “likeness” or lack thereof to other
competitive drugs on the market.
In a critique of Miecha’s recommendation of the EU project to the Saving Drugs Corporation’s
Board, it is recommended that Miecha, in the future, should not make generalizations or reason
that the EU would never go through with a certain measure based on an assumption of an
opinion that a member nation of the EU would not enact a measure in violation of an
international trade treaty. Such assumptions in making generalizations about an issue disregard
the fact that a member nation of the EU can also made a decision which is in violation of
international law and therefore be taken to the WTO for a dispute in which they are the
defendant. Any country can make a mistake and be held to a decision by a tribunal rectifying that
mistake.
References
August, R., Bixby, M., and Mayer, D. (2009). International Business Law: TEXTS, CASES, AND
READINGS. (5TH
Ed.). Upper Saddle River, NJ: Pearson – Prentice Hall.
4Lawschool Case Brief Bank. (2006). How to brief a case. Retrieved April 30, 2010 from
4Lawschool.com at
http://www.4lawschool.com/howto.htm