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Japan Distilled Spirits Agreement (1997)

EXECUTIVE OFFICE OF THE PRESIDENT

THE UNITED STATES TRADE REPRESENTATIVE

WASHINGTON, D.C. 20008

DEC 1 5 1997

His Excellency Kunihiko Saito

Ambassador of Japan

Embassy of Japan

2520 Massachusetts Avenue, N.W.

Washington, D.C. 20008

Dear Ambassador Saito:

I am pleased to receive your letter of today's date concerning the liquor tax issue. I confirm, on behalf of the United States Government, that this exchange of letters, together with the amendments to the Liquor Tax Law promulgated in March 1997, resolves the dispute on liquor taxes between the United States and Japan.

I welcome the commitments made by your government with regard to subsidies and other measures in relation to the settlement of the liquor tax issue. I also welcome the GOJ's commitment, expressed in your letter, to provide relevant information on measures for domestic producers of distilled spirits.

I note that it is jointly understood that acceptance by the United States of Japan's proposals to settle this dispute can not be interpreted as in any way prejudging the position of the United States in the WTO with regard to the definition of de minimis differentials or the "reasonable period of time" for implementation. In particular, this arrangement is without prejudice to the question of whether the differential in tax rates between brown and white spirits that will remain as of I October 2000 is a de minimis differential or would constitute a de minimis differential in any other market or under any other factual circumstances.

This exchange of letters is without prejudice to the rights and obligations of the United States under the WTO Agreement. If this mutually satisfactory solution to the liquor tax issue is not implemented fully, the United States reserves its rights to resort to dispute settlement under the WTO Agreement.

Sincerely,

Charlene Barshefsky

EMBASSY OF JAPAN

WASHINGTON, D.C.

December 15, 1997

Dear Ambassador Barshefsky:

I refer to the consultations between the officials of our two governments on the liquor tax issue, the most recent sessions of which were held in Vancouver in November, in Geneva and in Washington, D.C. in December 1997. I am pleased to confirm, on behalf of the Government of Japan (GOJ), that the 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 "Japan-Taxes on Alcoholic Beverages."

Based on the outcome of the consultations referred to above, and having carefully considered the WTO arbitration award issued on 14 February 1997, the GOJ win revise the current liquor tax scheme as described in detail in Annex A to this letter, and will carry out tariff eliminations and reductions on the applied rate basis as described in detail in Annex B to this letter.

As compensation for the longer implementation period in the amended Liquor Tax Law for the new taxation scheme, from I April 1998 onward the GOJ will apply reduced tariff rates and in some cases zero tariffs on the items in Annex B to this letter as specified therein. For this purpose the GOJ will submit a draft law amending the Customs Tariff Law and the 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 B. Furthermore, the GOJ will apply the rates listed in Annex B in full recognition that Japan's WTO bound rates are higher and intends to bind these tariff reductions in the WTO at the next possible opportunity to modify the Schedule of Japan following a multilateral, multisectoral negotiation. In addition, the United States will receive at least comparable tariff eliminations/reductions to those which Japan may grant to the EC, Canada or any other WTO Members (if any) as a result of negotiations on compensation regarding the liquor tax issue.

Any measures, including subsidies, to be taken for domestic producers of distilled spirits in relation to the settlement of the liquor tax issue will be fully consistent with the GOJ's obligations under the WTO Agreement, and will in no way nullify or impair the benefits provided by the GOJ to the United States as a result of this mutually satisfactory s o16 ti o - n to the liquor tax issue.

With regard to subsidies, tax measures or other measures of Japan that may alter the conditions -of -competition between imported and domestic distilled spirits, the GOJ confirms that it cannot be anticipated that the United States Government (USG) is aware of existing measures other than those listed in Annex C.

In addition, the GOJ confirms that it will neither grant nor maintain subsidies or special tax measures or other measures benefiting domestic producers of distilled spirits which would have effect of displacing or impeding the export to Japan of distilled spirits from the United States and other countries.

The GOJ will provide the USG, upon request, relevant information on such measures for domestic producers of distilled spirits unless such information is of a confidential nature and its provision would impede enforcement of domestic laws and regulations or would prejudice the legitimate commercial interests of particular enterprises.

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 to the dispute between the United States and Japan concerning the taxation of distilled spirits.

Sincerely,

Kunihiko Saito

Ambassador of Japan

The Honorable Charlene Barshefsky

United States Trade Representative

Office of the United States Trade Representative

600 17th Street, N.W.

Washington, D.C. 20506

The Liquor Tax Rates (Annex A) (per kilolitre)

* All values in Yen

Categories

Degree of Alochol

< 30 Sept 1997 *

1 Oct 1997 - 30 Apr 1998 *

1 May 1998 - 30 Sep 1998 *

1 Oct 1998 - 30 Sep 2000 *

1 Oct 2000 *

Shochu A

25 degrees

(6,228)
155,700

(8,076)
201,900

(9,924)
248,100

(9,924)
248,100

(9,924)
248,100

Shochu B

25 degrees

(4,084)
102,100

(6,028)
150,700

(6,028)
150,700

(7,976)
199,400

(9,924)
248,100

Whiskies

40 degrees

(24,558)
982,300

(13,775)
651,000

(10,225)
409,000

(10,225)
409,000

(10,225)
409,000

Spirits

37 degrees

(9,927)
367,300

(9,927)
367,300

(9,927)
367,300

(9,927)
367,300

(9,927)
367,300

Liqueurs

12 degrees

(8,217)
98,600

(9,824)
119,088

(9,824)
119,088

(9,824)
119,088

(9,824)
119,088

(Note) The rates in brackets are tax rates per kilolitrer per degree of alcohol.

The Tariff Rates (Annex B)

Categories

1 April 1998

1 April 1999

1 April 2000

1 April 2001

1 April 2002

1 April 2003

1 April 2004

HS 2208. 30-011
HS 2208. 30-017
Bourbon whisky

10.3%

7.9%

5.4%

3.0%

0%

---->

---->

HS 2208. 40-000
Rum and tafia

18.0%

13.6%

9.0%

4.5%

0%

---->

---->

HS 2208. 50-000
Gin and Geneva
(see note)

77.00yen/liter
17.5%

57.75yen/liter
13.1%

38.50yen/liter
8.8%

19.25yen/liter
4.4%

0
0%

---->

---->

HS 2208. 60-020
Vodka

16.0%

12.0%

8.0%

4.0%

0%

---->

---->

HS 2208. 70-000
Liqueurs and cordials

yen/liter
126.00

yen/liter
94.5

yen/liter
63.00

yen/liter
31.50

0

---->

---->

(Note) Ad valorem duty or specific duty, whichever lower, Is implied for Gin and Geneva

WORLD TRADE ORGANIZATION

Committee on Subsidies and Countervailing Measures

G/SCM/N/5/JPN

17 November 1997

Original: English

SUBSIDIES

Updating Notifications Pursuant to Article XVI.1 of the GATT 1994 and Article 25 of the Agreement on Subsidies and Countervailing Measures

The following communication, dated 7 October 1997. has been received from the Permanent Mission of the Japan.

Japan submits this notification in accordance with its obligations under Article XVI. I of the GATT 1994 and Article 25 of the Agreement on Subsidies and Countervailing Measures. This notification does not prejudge the legal status, effects or nature of the notified programmes or measures under GATT 1994 and the Agreement on Subsidies and Countervailing Measures.

FINANCIAL MEASURES FOR SHOCHU B MANUFACTURERS

1. Title of the subsidy Programme

Financial Measures for Shochu B Manufacturers

2. Period covered by the notification

3. Policy objective and/or purpose of the subsidy

To reform the structure of Shochu B industry and to help the modernization of its environmental protection facilities.

4. Background and authority for the subsidy

The Ministry of Finance.

5. Legislation under which it is granted

Special Measures Law concerning the stability of the Sake Brewing and Related Manufacture

6. Form of the subsidy (i.e. grant, loan, tax concession, etc.)

Interest-free loan to "the Shochu B Manufactures Industry Funds" and Grants

7. To whom and how the subsidy is provided

Japan Brewers Association.

8. Subsidy per unit, or in cases where this is not Possible.

The Funds' running profit: T1.06 billion

Grants from the State budget: TO.33 billion

9. Duration of a subsidy and/or any other time limits attached to it .

Duration of the interest-free loan is limited to ten years.

10. Statistical data permitting an assessment of the trade effects of a subsidy'

Quantity of Shipment of Shochu B - (kl)

Year

1994

1995

1996

Domestic

287,211

296,621

318,076

Import

43

42

537

Total

287,254

296,663

318,613

--------------------------------------------------------------------------------

Statistics of production, consumption, imports and exports:

(i) for the three most recent years for which statistics are available.

(ii) for a previous representative year, which, where possible and meaningful, should be the latest period preceding the introduction of the subsidy or preceding the last major change in the subsidy.


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