KOREA ALCOHOLIC BEVERAGES (DS75, 84)

ANBARASAN SUBRAMANIAN

11IP60002

Summary
PARTIES

COMPLAINANTS
RESPONDENT AGREEMENT

EUROPEAN COMMUNITIES, UNITED STATES

KOREA GATT ART. III:2, SECOND SENTENCE

TIMELINE OF THE DISPUTE ESTABLISHMENT OF PANEL 16 OCTOBER 1997

CIRCULATION OF PANEL REPORT

CIRCULATION OF AB REPORT ADOPTION

17 SEPTEMBER 1998
18 JANUARY 1999 17 FEBRUARY 1999

MEASURE AND PRODUCT AT ISSUE

Measure at issue:

Korea's tax regime for alcoholic beverages, which imposed different tax rates for various categories of distilled spirits.

Product at issue:

Imported distilled liquors and Soju (traditional Korean alcoholic beverage).

SOJU
distilled beverage native to Korea Soju was first distilled around the 13th century Jinro is the largest manufacturer of soju. Substitutable to whisky, brandy, rum, gin, vodka, tequila, liqueurs and ad-mixtures

Panel finding

soju (both diluted and distilled), is directly competitive and substitutable with the imported distilled alcoholic beverages that were in issue, namely, whisky, brandy, rum, gin, vodka, tequila, liqueurs and ad-mixtures. Korea has taxed the imported products in a dissimilar manner and that the tax differential was more than de minimis, and is applied so as to afford protection to domestic production. The Panel therefore concluded that Korea had violated Article III:2 of GATT 1994.

Minimal amounts of domestic support that are allowed even though they distort trade up to 5% of the value of production for developed countries, 10% for developing.

Implementation of adopted reports

At the DSB meeting on 19 March 1999, Korea informed the DSB that it was considering options for implementation of the DSBs recommendations. On 9 April 1999, the two complainants separately requested, pursuant to Article 21.3(c) of the DSU, that the reasonable period of time for Korea to implement the recommendations of the DSB be determined by arbitration. On 23 April 1999, the three parties to the dispute jointly informed the DSB that they had agreed on the appointment of an arbitrator for the determination of the reasonable period of time for implementation, and also that they had agreed that the arbitrator issue his arbitration award no later than 7 June 1999. On 4 June 1999, the arbitrator determined the reasonable period of time to be 11 months and two weeks. i.e. until 31 January 2000.

At the DSB meeting on 27 January 2000, Korea stated that it considered to have fully implemented the DSBs rulings and recommendations by amending its Liquor Tax Law and the Education Tax Law to impose flat rates of 72% liquor tax and 30% education tax on all distilled alcoholic beverages on a non-discriminatory basis.

9 WTO case(s) relevant to Alcoholic Beverages

Case No
DS8 DS10 DS11 DS75 DS84 DS87 DS109 DS110 DS411

Short title
Japan Taxes on Alcoholic Beverages Japan Taxes on Alcoholic Beverages Japan Taxes on Alcoholic Beverages Korea, Republic of Taxes on Alcoholic Beverages Korea, Republic of Taxes on Alcoholic Beverages Chile Taxes on Alcoholic Beverages Chile Taxes on Alcoholic Beverages Chile Taxes on Alcoholic Beverages Armenia Measures Affecting the Importation and Internal Sale of Cigarettes and Alcoholic Beverages

Complainant
European Communities Canada United States European Communities United States European Communities United States European Communities Ukraine

Date
21 June 1995 7 July 1995 7 July 1995 2 April 1997 23 May 1997 4 June 1997 11 Dec 1997 15 Dec1997

Provision of GATT involved

Article III - National Treatment on Internal Taxation and Regulation

1. The contracting parties recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production. 2. The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1.

Interpretation of Article III:2, second sentence

Mainly three issues are involved to make out the case:

the

imported products and the domestic products are directly competitive or substitutable products which are in competition with each other; directly competitive or substitutable imported and domestic products are not similarly taxed; and dissimilar taxation of the directly competitive or substitutable imported domestic products is applied so as to afford protection to domestic production.

the

the

Interpretation of Article III:2, second sentence

Burden In

of Proof

Japan- Alcohoic Beverages II

The complainants have the burden of proof to show

first, that the products concerned are directly competitive or substitutable and second, that foreign products are taxed in such a way so as to afford protection to domestic production.

Interpretation of Article III:2, second sentence

Burden

of Proof

In Korea Alcoholic Beverages

under Article III:2, second sentence, only with respect to products for which a prima facie case had been made out on the basis of evidence presented.
a presumption would be inconsistent with the rules on the burden of proof because it would prematurely shift the burden of proof to the defending party.

Interpretation of Article III:2, second sentence

directly

competitive or substitutable products

In Japan Alcoholic Beverages II

The Appellate Body found that it was not inappropriate to consider the competitive conditions in the relevant market, as manifested in the cross-price elasticity in particular.
In the Korea Alcoholic Beverages dispute The Appellate Body developed the above finding Cross-price elasticity as one means of examining a market involve an assessment of latent demand. Such studies attempt to predict the change in demand that would result from a change in the price of a product following, inter alia, from a change in the relative tax burdens on domestic and imported products

Cross price elasticity

Interpretation of Article III:2, second sentence

directly

competitive or substitutable products

Relevance of the market situation in other countries

In the Korea Alcoholic Beverages dispute

The Appellate Body addressed whether the market situation in other Members should be taken into consideration in evaluating whether subject products are directly competitive or substitutable products. The Appellate Body held that although not every other market would be relevant, evidence from other markets may be relevant to the analysis of the market at issue but not every other market because the consumer preference will differ from one market to other

Interpretation of Article III:2, second sentence

directly

competitive or substitutable products

Relevance of the market situation in other countries

In the Korea Alcoholic Beverages dispute

The Appellate Body considered the object and purpose of A. III [T]he object and purpose of Article III is the maintenance of equality of competitive conditions for imported and domestic products. It is, therefore, not only legitimate, but even necessary, to take account of this purpose in interpreting the term directly competitive or substitutable product.

Interpretation of Article III:2, second sentence

directly

competitive or substitutable products

Latent, extant and potential demand In the Korea Alcoholic Beverages dispute The Appellate Body considered directly competitive or substitutable implies that the competitive relationship between products is not to be analysed exclusively by reference to current (actual) consumer preferences

the Appellate Body concluded that the term

directly competitive or substitutable may include the analysis of latent as well as extant demand Term Directly

suggests a degree of proximity in the competitive relationship between the domestic and the imported products. The word directly does not, however, prevent a panel from considering both latent and extant demand.

Interpretation of Article III:2, second sentence

directly

competitive or substitutable products

other relevant factors

In the Korea Alcoholic Beverages dispute

The Appellate Body considered
1. 2.

Physical characteristics End uses including

1.
2. 3. 4.

Advertising activities
Channels of distribution Price relationships cross price elasticities Other charecteristics

Interpretation of Article III:2, second sentence

not

similarly taxed

de minimis standard

In the Japan Alcoholic Beverages II dispute

The Appellate Body interpreted the term not similarly taxed as requiring excessive taxation more than de minimis

Interpretation of Article III:2, second sentence

so

as to afford protection to domestic production

In the Japan Alcoholic Beverages II dispute The Appellate Body draw a distinction between the term not similarly taxed and the term so as to afford protection to domestic production The very magnitude of the dissimilar taxation in a particular case may be evidence of such a protective application, as the Panel rightly concluded in this case

Thank

you