CHANAKYA

NATIONAL

LAW

UNIVERSITY

PROJECT WORK ON

Korean Soju Dispute

SUBMITTED TO: Dr. P.P. Rao

(Faculty of International Trade Law)

SUBMITTED BY: Krishna Chaitanya

Roll No.: 935
6th Semester

ACKNOWLEDGEMENT

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Writing a project is one of the most significant academic challenges I have ever faced.
Though this project has been presented by me but there are many people who remained in
veil, who gave their support and helped me to complete this project.
First of all I am very grateful to my subject teacher Dr. P.P. Rao without the kind
support of whom and help; the completion of the project was a Herculean task for me.
He gave his valuable time from his busy schedule to help me to complete this project
and suggested me from where and how to collect data.
I am very thankful to the librarian who provided me several books on the topic which
proved beneficial in completing this project.
I acknowledge my friends who gave their valuable and meticulous advice which proved
to be very useful and could not be ignored in writing this project. I want to convey a most
sincere thanks to my seniors for helping throughout the project.

********************

AIM & OBJECT OF STUDY:

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The aim and object of the study are the following:

1. To know about the basic principle of National Treatment in context of GATT and WTO.
2. To outline the various issues raised in Korean Soju Case.
3. To analyse the observations laid out in the case and its effect on international trading regime.

HYPOTHESIS:
The hypothesis of the researcher is that the National Treatment principle, along with the MostFavoured-Nation (MFN) principle, constitute the two pillars of the non-discrimination principle
that is widely seen as the foundation of the GATT/WTO multilateral trading regime.

RESEARCH METHODOLOGY:
In this project doctrinal method of research will be used. Doctrinal method refers to library
research, research done upon some texts, writings and documents. It also includes the research
done upon the internet and other resources

TABLE OF CONTENTS
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1. National Treatment A Basic Principle of WTO

.................................................................................................................05
2. The Korean Soju Dispute Case Analysis
.................................................................................................................10
3. Analysis of the Observations made out
.................................................................................................................14
4. Concluding Remarks
.................................................................................................................18
Bibliography
.................................................................................................................20

National Treatment A Basic Principle of WTO

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Non-discrimination is a key concept in WTO law and policy. The National Treatment principle,
along with the Most-Favoured-Nation (MFN) principle, constitute the two pillars of the nondiscrimination principle that is widely seen as the foundation of the GATT/WTO multilateral
trading regime. The principle of National Treatment as embodied in Article III of General
Agreement on Tariffs and Trade (GATT) prohibits discrimination between domestic and foreign
goods in the application of internal taxation and government regulations after the foreign goods
satisfy customs measures at the border.
Under the national treatment rule, contracting parties must not accord discriminatory treatment
between imports and like domestic products -- with the exception of the imposition of tariffs,
which is a border measure. This is to prevent countries from taking discriminatory treatment to
imports on the one hand, and to prevent countries from offsetting the effects of tariffs through
non-tariff measures. An example of the latter could be where a contracting party A reduces the
import tariff on Product X from 10% to 5%, only to impose a 5% domestic consumption tax only
on imported Product X, effectively offsetting the five percentage point tariff cut. The purpose of
the national treatment rule is to eliminate hidden domestic barriers to trade in WTO members
by banning this kind of discriminatory treatment between domestic and imported goods. The
adherence to this principle is important to maintain the balance of rights and obligations, and is
essential for the maintenance of the multilateral trading system.
National treatment has a long history dating back to ancient Hebrew law. It was introduced in
various commercial agreements concluded in Europe in the Middle Ages, in a number of
shipping treaties between European countries in the 17th and 18th centuries, and became quite a
common part of many trade agreements since the late 19th century.1 This principle has been
multilateralized through inclusion in the Havana Charter for an International Trade
Organization and, subsequently, in the General Agreement on Tariffs and Trade (GATT). In the
World Trade Organization (WTO), it also appears in the GATS and TRIPS Agreement.

1Michael Trebilcock, The National Treatment Principle in International Trade Law, American Law &
Economics Association Annual Meetings, Working Paper 8 (2004), p. 1.
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Legal Framework An Overview2

(i) GATT Article III
GATT Article III requires that contracting parties provide national treatment to all other
contracting parties. First, Article III:1 stipulates the general principle that contracting parties
must not apply internal taxes and other internal charges, and laws, regulations and requirements
affecting imported or domestic products so as to afford protection to domestic production. In
addition, Article III:2 stipulates that contracting parties must not use internal taxes or other
internal charges to discriminate between imported goods and like domestic goods, or between
imported goods and a directly competitive or substitutable product, which is a broader concept
than like product. Further, Article III: 4 stipulates that contracting parties must not discriminate
between imported goods and like domestic goods regarding laws, regulations, and
requirements.
In determining the likeness of like products, panel conclusions in the past have relied on a
number of criteria including tariff classifications, the product's end uses in a given market,
consumer tastes and habits, and the product's properties, nature, and quality. There is no problem
with according different treatment to different products (say apples and oranges), but when
likeness has been affirmed, the national treatment rule obligates countries not to discriminate in
their treatment. Should a country's domestic tax code clearly state that domestic products and
foreign products were to be treated differently with regard to origin, it would obviously be in
violation of GATT Article III. But an Article III violation may also be found even if
discrimination is not clearly stated in the law, if as a result differential treatment is accorded to
products that are considered to be like, and products of other contracting parties are placed at a
disadvantage. For example, suppose a country applies a differential internal tax rate to wines
which use a certain variety of grape. If that wine is considered to be a "like product" with other
wines, and that variety of grape in fact grows mainly in domestic regions, the internal tax may
have a discriminatory effect on imports, and thus may be considered in violation of the national
treatment principle (U.S. panel on alcoholic beverages).

2 https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds75_e.htm last accessed on 26/04/2016

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(ii) Exceptions to GATT Article III (National Treatment Rule)

Although national treatment is a basic principle under GATT, the GATT provides for certain
exceptions as follows3:
A. Government Procurement
GATT Article III: 8(a) permits governments to purchase domestic products preferentially,
making government procurement one of the exceptions to the national treatment rule. This
exception is permitted because the contracting parties recognized the role of government
procurement in national policy. For example, there may be a security need to develop and
purchase products domestically, or government procurement may, as is often the case, be used as
a policy tool to promote smaller business, local industry, or advanced technologies. While the
GATT made government procurement an exception to the national treatment rule, the Plurilateral
Agreement on Government Procurement resulting from the Tokyo Round mandates signatories
to offer national treatment in their government procurement. However, the contracting parties to
the WTO are under no obligation to join the Agreement on Government Procurement. In fact, it
has mostly been developed countries which have joined the Agreement. Therefore, in the context
of government procurement, the national treatment rule applies only between those who have
signed the Agreement. For others, the traditional exception is still in force.
B. Domestic Subsidies
GATT Article III: 8(b) allows for the payment of subsidies exclusively to domestic producers as
an exception to the national treatment rule, under the condition that it is not in violation of other
provisions in Article III and the Agreement on Subsidies and Countervailing Measures. The
reason for this exception is that subsidies were recognized to be an effective policy tool, and is
recognized to be basically within the latitude of industrial policy authorities. However, because
subsidies may have a negative effect on trade, the Agreement on Subsidies and Countervailing
Measures imposes strict disciplines on the use of subsidies.

3 http://www.meti.go.jp/english/report/data/g400012e.html last accessed on 26/04/2016

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C. GATT Article XVIII

Less-developed countries can raise their standard of living by promoting the establishment of
infant industries, but this may require government support and the goal may not be realistically
attainable with measures that conform to the GATT. In such cases, countries can use the
provisions of GATT Article XVIII:C to notify WTO members and initiate consultations. After
consultations are completed and under certain restrictions, these countries are then allowed to
take measures that violate GATT provisions excluding Articles I, II, and XIII. Unlike the trade
restrictions for balance of payments reasons in GATT Article XVIII:B, the Article XVIII:C
provisions allow both border measures and violations of the obligation to national treatment in
order to promote domestic infant industries. At this time, there are no developing countries that
are currently invoking these provisions.
D. Other Exceptions to National Treatment
Exceptions peculiar to national treatment include the exception on cinematograph films under
Article III:10 and Article IV. The provisions of GATT Article XX on general exceptions, Article
XXI on security exceptions, and Article XXV on waivers also apply to the national treatment
rule. (Most-Favored-Nation Treatment).
(iii) National Treatment Rules Outside of GATT Article III4
The idea of national treatment has been extended by the WTO Agreement, although in a limited
fashion, to areas of trade in services and intellectual property. Article XVII of the General
Agreement on Trade in Services provides for national treatment for services and service
providers; Article III of the Agreement on TRIPs, for the protection of intellectual property
rights. The plurilateral Agreement on Government Procurement also contains a national
treatment clause.

4 file:///C:/Users/admin/Downloads/The_National_Treatment_Principle_in_Inte.pdf last accessed on

26/04/2016
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(iv) Economic Implications

There is a tendency for importing countries to attempt to use discriminatory application of
domestic taxes and regulations to protect national production, often as the result of protectionist
pressures from domestic producers. This distorts the conditions of competition between domestic
and imported goods and leads to a reduction in economic welfare. The national treatment rule
does not in principle permit these sorts of policies designed to protect domestic products. GATT
Article II does permit the use of tariffs as a means of protecting domestic industry, but this is
because tariffs have high degrees of transparency and predictability since they are published and
committed to in concession schedules.5 On the other hand, domestic taxes and regulations are
hidden barriers to trade that lack both transparency and predictability, which means that they
have a large trade-distortionary impact.
The existence of GATT Article III generally impedes the adoption of policies and measures
aimed at domestic protection, and promotes trade liberalization. In addition, as regards tariff
concessions, GATT Article II recognizes tariffs as tools for domestic industrial protection, and
having done so, sets a course for the achievement of liberalization through gradual reductions.
Even if tariff reductions are made as a result of trade negotiations, if domestic taxes and
regulations are applied in a discriminatory fashion to protect domestic industry simultaneously,
then effective internal trade barriers would remain. The national treatment rule prohibits
countries from using domestic taxes and regulations to offset the value of tariff concessions and
is, therefore, a significant tool in promoting trade liberalization.

5 http://cale.law.nagoya-u.ac.jp/_userdata/CALE%20Book%203.pdf last accessed on 26/04/2016

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The Korean Soju Dispute Case Analysis

ISSUE: Soju is the most famous traditional Korean alcoholic beverage. There are two kinds of
Soju i.e., one is distilled and the other is diluted. Korean Soju has been manufacturing by diluted
way which is different from that of Whisky or Brandy. Usually, Soju has 25% proof of alcohol
whereas under 20% proof-soju has become more and more famous. With this low alcohol proof,
there is another reason why soju is so popular among people is that the price of Soju is the
cheapest among alcoholic beverages in Korea. However, the European Communities (the EC)
and the U.S. brought a complaint against Korean liquor tax policy on Soju for unfair
competition. They insisted that Korea offer a preference to tax on Soju as compared with certain
imported western-style alcoholic beverage and this is inconsistent with Article 3:2 of the GATT
1994. Therefore, in 1999, the World Trade Organization (the WTO) Dispute Settlement Body
(the DSB) decided that the Korean government should make a partial amendment of policy
related to liquor taxes. The partial amendment on liquor tax policy became unavoidable as the
Korean government was a member of the WTO. Therefore, Korean government amended the tax
rate of Soju from 35% to 80% and promised to raise the tax of it continuously until the tax rate of
Whisky become same with that of Soju. Therefore, the Soju Case Study will focus on the
Korean Soju Industry and the effects of DSB's decision that the government charges a higher tax
on Soju and a lower tax on whiskey.
The issue was the consistency of two Korean laws: the Korean Liquor Tax Law of 1949 and the
Korean Education Tax Law of 1982 with the "National Treatment" principle of WTO. The
European Communities and the United States, the main complainants, were of the view that
under the Liquor Tax Law, Korea had created various categories of distilled spirits on which it
imposed different and discriminatory ad valorem taxes. While an ad valorem tax rate from 35 to
50 per cent was applicable on Korean soju, imported alcoholic beverages were taxed from 80 to
100 per cent. Under the Education Tax Law of 1990, a tax surcharge was levied on the sale of a
variety of items, including most alcoholic beverages. For alcoholic beverages, the applicable rate
was determined by reference to another tax the applied liquor as rate. For those assessed
liquor tax rate of 80% or greater, the law imposed an education surtax calculated as 30% of the
liquor tax imposed. For alcoholic beverages assessed a liquor tax rate of less than 80%, the law
imposes an education surtax calculated as 10% of the liquor tax as imposed. Thus under the two
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Korean laws, the native soju had a lower applied tax rate as well as a lower surcharge. This
favourable government policy had precedents in that until 1 January, 1989, imports of distilled
spirits in bulk were subject to quotas, and imports of distilled spirits in bottles were prohibited
until July 1, 1989, and thereafter subject to quantitative restrictions until January 1, 1990.
The net result, according to the EC, was that soju overwhelmingly dominated the Korean spirits
market. The 1996 sales of soju amounted to 810 million litres, which represented as much as
94% of the distilled spirits market. However, the removal of quotas and lowering of duties on
imports began to witness soju's market position being eroded by growing sales of imported
spirits and liqueurs. This was reflected in the fact that the market share of soju in the domestic
market fell from 96.37 % in 1992 to 94.39% in 1996.
The problems of the local soju were also compounded, according to the European Communities,
by the filet that Korean consumers were beginning to feel that the distilled variety of soju was of
inferior quality, had a harsh taste and produced hangover effects when compared to western
style distilled liquors
The Original Panel hearing the dispute concluded that6:
a. Soju, a traditional Korean alcoholic beverage, and imported products such as whiskies,
brandies, rum, gin, tequila and liqueurs were directly competitive or substitutable products;
b. These products competing for a share of the same market, were being taxed dissimilarly; and
c. This dissimilar taxation resulted in a protection to the locally produced soju over the imported
products.
The Panel recommended that Korea be requested by the Dispute Settlement Body to bring both
the laws into conformity with the country's obligations under GATT 1994. Korea appealed the
Original Panel's report. Korea's submission before the Appellate Body wholly rested on the
contention that the Original Panel had erred in categorising the native soju and the imported
whiskies, brandies, rum, gin, etc., as products that were directly competing with each other or
were substitutable one by the other.

6 https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds75_e.htm
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Korea made the following observations with respect to physical characteristics, end-use, place
of consumption and pricing7:
1. Soju and the imported products were not physically identical merely because they shared the
essential feature of being distilled alcoholic beverages. Korea argued that if similarity in raw
materials used or the method of manufacture were the criteria for putting products under the
same category, then paint thinners and rubbing alcohol could also be deemed to be directly
competing products.
2. Soju had a different flavour when compared to the imported products.
3. Diluted soju was consumed along with meals, which was not so the case with the other
products in question.
4. The huge price difference between diluted soju and most of the imported beverages also
indicated that they were competing for different segments of the market and thus it would not be
proper to use the reasoning of directly competing or substitutable products.
The ECs reply was as follows:
1. The fact that a 'minor' difference such as flavour had been mentioned by Korea to differentiate
between the domestic and imported products was proof enough to suggest that the products were
nearly identical. The EC cited the example of a purchaser choosing a green coloured tie rather
than a red one since he preferred the green colour. The colour, according to the EC, was a
relatively minor feature of neckties and this difference in colours did not make the different
coloured ties other than directly competing products.
2. The Original Panel was right in accepting the EC's example of generic and branded aspirin and
rejecting Korea's example of tap and bottled water. The two aspirin, were identical or nearly
identical products, but it was open to question whether the two waters, tap and horded, had close
physical characteristics though they had the same physical appearance.
3. As regards to the contention of Korea that soju and the imported beverages had to be on a
different footing as the former was drunk, with meals and at homes or friends' places while the
7 https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds75_e.htm
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western spirits were standalone drinks consumed at restaurants and bars, the EC argued that a
Nielsen Study had indicated that 5.8% of Korean respondents drank whisky with meals. This
type of consumption would go up under a more equitable tax regime that would bring the
western style spirits in direct competition with the native soju.
The Appellate Body was of the view that common characteristics, end-uses and channels of
distribution and price, confirmed the correctness of the Original Panel grouping soju and the
imported beverages as directly competitive or substitutable products.
With the Appellate Body confirming this aspect of the argument, the next conclusion on the
protection being given to the native Korean brew was only matter of course due to the substantial
tax differentials between soju and the imported western-style spirits. The Appellate Body
recommended that the dispute Settlement Body request Korea to bring the Korean Liquor Tax
Law of 1949 and the Korean Education Tax Law of 1982 into conformity with its WTO
obligations.8

8 . Both the liquor tax and the education tax on alcoholic beverages are imposed at the wholesale level.
The tax is payable by the manufacturer of the beverages or, in the case of imports, by the importer.
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Analysis of the Observations made out

Soju is cheaper than any other alcohol in Korea. That can be one of the reasons why Soju is the
most popular traditional drink in Korea. The Korean government had been supporting this Soju
industry with lower taxes compared to other alcohol from foreign countries. In 1997, the EC and
the U.S. claimed that the contested measures are inconsistent with Article 3:2 of the GATT 1994
because they accord preferential tax treatment to diluted Soju as compared with certain imported
"western-style" alcoholic beverages.

[Table: Comparison Liquor Tax Amount per liter]9

Source : Korean Liquor Taxation Report on Amedment : 1999. 9. 14 Korean Ministry of Finance and Economy

Item

The
Nam Cost
Ad Valorem
e of Pric
Tax
Bran e
rate(%)
d (won
)

Diluted
Jinro
299
Soju(25%) 360ml

Tax
amount
per liter

Tax
amount
per 1%
/liter

35%

291

12

80%
(amendment)

664(amendme 26(amendme
nt)
nt)

Whisky(40 Imperi 10,53

al
100%
3
%)
500ml

21,066

527

Larger
Beer(4.5%) 500ml 346

900

200

130%

According to the EC, in Article3:2 of the GATT 1994, the notion of "like product" in the first
sentence is construable narrowly and the EC notes according to the "Appellate Body Report on
Japan - Taxes on Alcoholic Beverages" that minor differences in taste, colour and other
properties (including differences in alcohol contents) do not prevent products from qualifying as
like products. However, Korea stresses the importance of the methodology used to compare
domestic and imported products under Article 3:2*. It considers that the Panel committed a
major legal error in wrongly defining the comparison it had to undertake. The Panel grouped
together products that are not physically identical; are used different ways by different
9 Source : Korean Liquor Taxation Report on Amedment : 1999. 9. 14 Korean Ministry of Finance and
Economy
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manufacturers using different raw materials; taste differently; are used differently; are marketed
and sold differently at considerably different prices and are subject to different tax rates in Korea.
The Panel also failed to carry out a separate analysis for diluted and distilled soju. Korea urges
that the panel erred in conducting its analysis on the basis of an agglomeration of the
characteristics of two such different products. To extend conclusions that are primarily based on
diluted soju to distilled soju is unacceptable logic. Further, by treating diluted soju and distilled
soju together, the Panel overlooked the relevance of the considerable price differential between
diluted soju and whisky. Nevertheless, WTO DSB concluded that Korean government should
raise the liquor tax rate of soju into 100%, same rate as whisky. Because the WTO Appellate
Body has confirmed that Korea's tax regime is in violation of is WTO obligations under GATT
Article 3: 2(non-discrimination between imported and domestic products), Korea levies liquor
tax at significantly lower rates on soju, which is almost exclusively produced in Korea, than on
other categories of spirits. This follows victory for the EU, when the original WTO panel found
that Koreas law was in breach of international trade rules. Both the European industry, which
has suffered serious trade damage from the current Korean regime, and the European Comission
are expected to closely follow the implementation of the ruling.
*Article 3:2 reads:
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 changes to
imported or domestic products in a manner contrary to the principles set forth in paragraph1.
(The Results of The Uruguay Round of Multilateral Trade Negotiations: The Legal Texts,
Geneva: GATT Secrestariat, 1994)
GATT Article 3.1 which is referred to in Article 3:2, reads:
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

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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.

FORUM AND SCOPE

Korea maintains a multi-tiered taxation regime on the sale of alcoholic beverages. Under the
Liquor Tax Law 1949, as amended, Korea creates various categories of distilled spirits, on which
it imposes different ad valorem taxes. Under the Education Tax Law 1982, as amended, Korea
assesses a surtax on certain of these sales, determined as a percentage of the established liquor
tax. Both the liquor tax and the education tax on alcoholic beverages are imposed at the
wholesale level. The liquor Tax law lays down a system of excise taxes applicable to all
alcoholic beverages intended for consumption in Korea. The taxes applied to the categories in
dispute are in the form of ad valorem taxes. Under the Education Tax Law of 1990 is assessed as
a surtax on the sale of a variety of items, including most alcoholic beverages. For alcoholic
beverages, the applicable rate is determined by reference to another tax-the applied liquor tax
rate. For those assessed a liquor tax rate of 80% or greater, the law imposes an education surtax
calculated as 30% of the liquor tax imposed. The applicable rates on the categories concerned by
this dispute, expressed as a percentage of the amount payable pursuant to the Liquor Tax, is as
follows.

[Table: Liquor and Education Tax Rate in Korea] 10

source : Korean Taxation: 1997, 3(b) p.188, Korean Ministry of Finance and Economy

Item

Ad Valrem
Education
Tax
Tax
Rate(%)Rate(%)
Liquor

Diluted soju

35

10

Distilled soju

50

10

Whisky

100

30

Brandy

100

30

10 source : Korean Taxation: 1997, 3(b) p.188, Korean Ministry of Finance and Economy
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General distilled
liquors(Vodka, gin,
rum)

80

30

General distilled
liquors containing
whisky or brandy

100

10

Liquor

50

10

- with 35% or more

alcohol

80

30

- with less than 25%

alcohol

70

10

-Which contain
20% or more
whiscky or brandy

100

30

Other liquors:

According to the Korean law, every consumption tax is based on ad valrem tax system, so it is
difficult to switch from ad valrem tax system to specific tax system only for Liquor case. This
taxation system depends on situation of the member countries and WTO commits this matter to
them. But the EU and the U.S. claimed that Korea should raise the liquor tax amount of soju
according to the specific tax system, not to the ad valrem tax system. DSB, however, concluded
that Korea should amend the soju tax rate within a Korean tax system. EU and the U.S follow the
specific tax system so the Liquor tax amount is decided according to alcohol proof. Moreover,
International regulation on Liquor tax rate is based on the princple of High amount of tax rate
on high proof, low amount of tax rate on low proof. So, It is term advantageous to Korean
Alcohol which has lower proof than Whisky.
However Korea justified its laws on the ground that the locally made soju and the imported
spirits were not like products, and thus discrimination was not involved. The appellate body, in
its report of January 18, 1999, concluded that common characteristics, end-uses and channels of
distribution and prices showed that both soju and imported spirits were directly competitive or
substituted products. Korea was asked to bring its tax laws in conformity with the WTO
agreement and the basic national treatment principle.11
11 WTO: Texts & Cases by Rao Palle Krishna pg. 255
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CONCLUDING REMARKS
The core WTO principle of National Treatment was the focus of the Korean Soju dispute.
National Treatment is one of the fundamental principle of the WTO Agreement. A product that
has entered the domestic product, after having been levied the applicable duties, should be
treated on par with locally-made products in matters regarding sale, distribution and promotion.
This case law that came under the National Treatment clause was over alleged imposition of
discriminatory taxes and distribution restrictions on certain alcoholic beverages imported into
Korea.
Under scrutiny were the Korean Liquor Tax Law of 1949 and the Korean Education Tax Law of
1982. The European Communities, the complaining country argued that these two laws favoured
the Korean local spirit called soju and discriminated against imported spirits and liqueurs. The
two law according to the European communities, resulted in lower price of soju. In 1997, the EC
and the U.S. claimed that the contested measures are inconsistent with Article 3:2 of the GATT
1994 because they accord preferential tax treatment to diluted Soju as compared with certain
imported "western-style" alcoholic beverages. WTO Distribute Settlement Body gave a
conclusion that Korea government should harmonize existing 35% tax rate of Soju with 100%,
same as Whisky. However, the Korean Liquor Tax Law imposes an ad valorem tax on all
alcoholic beverage and it is different from the Liquor tax law imposing a specific tax of most
WTO member countries include the U.S. and the EU. Under the ad valorem tax law, the EU and
the U.S. insisted that it is violation of the Article 3: 2 of GATT regulation.
Thus soju got additional protection when facing competition from imported whisky, rum brandy
and vodka etc. However Korea justified its laws on the ground that the locally made soju and the
imported spirits were not like products, and thus discrimination was not involved. The appellate
body, in its report of January 18, 1999, concluded that common characteristics, end-uses and
channels of distribution and prices showed that both soju and imported spirits were directly
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competitive or substituted products. Korea was asked to bring its tax laws in conformity with the
WTO agreement.

In July 2000, Korea government increased tax rate on Liqour from 35% to 80%. It was
unavoidable decision as a member of WTO because if the member doesnt perform its duty, the
other members can inflict serious loss on that member country. The U.S. and the EU were putting
in a claim for increasing 20% more tax rate on soju. And the Korean government made a
declaration of performing it step by step. Despite increased tax rate on soju from 35% to 80%,
the price of it still has much more gap with that of Whisky. That will be helpful to Korean
government on revenues while that will burden the people who are the major consumer of Soju
with higher price.

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BIBLIOGRAPHY:Books Referred:

General Agreement on Tariffs and Trade (GATT) and World Trade Organisation (WTO):

Law, Economics and Politics by Koul, Autar Krishan

WTO: Texts & Cases by Rao Palle Krishna
Trade in Goods: The other WTO Agreements by Mavroids, Petros C
International Trade Law by Myneni, S.R.

Websites Referred:

http://www1.american.edu/TED/soju.htm
https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds75_e.htm
http://jeanmonnetprogram.org/archive/papers/01/013201-05.html
file:///C:/Users/admin/Downloads/The_National_Treatment_Principle_in_Inte.pdf
http://www.meti.go.jp/english/report/data/g400012e.html

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