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Complaints by the European Communities and the United
On 4 April 1997, the EC requested consultations with Korea in
respect of internal taxes imposed by Korea on certain alcoholic beverages
pursuant to its Liquor Tax Law and Education Tax Law. The EC contended
that the Korean Liquor Tax Law and Education Tax Law appear to be
inconsistent with Korea’s obligations under Article III:2 of GATT 1994. On
23 May 1997, the US requested consultations with Korea in respect of the
same measures complained of by the EC. The US also alleged violations of
On 10 September 1997, the EC and the US requested the
establishment of a panel. At its meeting on 25 September 1997, the DSB
deferred the establishment of a panel.
Panel and Appellate Body proceedings
Further to a second request to
establish a panel by the EC and the US, the DSB established a panel at its
meeting on 16 October 1997. Canada and Mexico reserved their third-party
rights. On 26 November 1997, the EC and the US requested the
Director-General to determine the composition of the Panel. On 5 December
1997, the Panel was composed. The report of the Panel was circulated to
Members on 17 September 1998. The Panel found that:
- 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.
On 20 October 1998, Korea notified its intention to
appeal certain issues of law and legal interpretations developed by the
Panel. The report of the Appellate Body was circulated to Members on 18
January 1999. The Appellate Body upheld the panel’s findings on all
The DSB adopted the Panel and Appellate Body Reports on 17 February
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 DSB’s
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
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.
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