(b) End-uses

102. The European Communities argues that having the same basic physical characteristics, pisco and the other distilled spirits are intrinsically suitable for the same end-uses. Furthermore, there is evidence that, despite the competitive distortions caused by the current taxation conditions, pisco and the other distilled spirits are already being employed by the Chilean consumers for similar end-uses.
103. According to the European Communities, at the request of the EC spirits industry, Search Marketing S.A., a market research consultant based in Santiago, conducted in December 1997 a comprehensive survey of the drinking habits of a representative sample of spirits consumers (hereafter, the "1997 SM survey"). ⁷⁷ The findings of this study show that pisco and the other distilled spirits are drunk in similar styles, in the same occasions and places and by essentially the same categories of consumers.
104. Chile argues that to accept that all spirits have the same end-uses, because their basic constitution is water and alcohol, is to say that the only consideration for the consumer is the alcohol, no matter in which beverage it is contained.

(i) Drinking styles

105. The European Communities presents Table 9 which summarises the findings of the 1997 SM survey with respect to drinking styles. ⁷⁸ According to the European Communities, it shows that pisco and the other distilled spirits are consumed in the same styles (straight, diluted with water, ice, soft drinks or fruit juice and in cocktails), even if the order of preferences may vary.
106. The European Communities explains that "mixed with a soft drink" is the most usual style for drinking pisco and all the other spirits, with the only exception of whisky. Nevertheless, the survey shows that there is also substantial overlapping of end-uses between whisky and pisco: the leading usage of whisky ("with ice") is also the third preference for pisco, whereas the leading usage of pisco ("mixed with soft drinks") is the third preferred style for drinking whisky. Moreover, both whisky and pisco are drunk "straight" and in "cocktail" by a significant percentage of respondents.

Table 9 ⁷⁹

Drinking styles

	Pisco	Whisky	Gin	Vodka	Tequila	Rum	Brandy
With soft drink	83	21	65	51	41	68	64
Lemon ("sour")	31	-	-	3	11	2	2
Water	-	1	8	2	5	3	-
"On the rocks"	22	75	31	36	16	30	28
Cocktail	9	5	12	29	33	7	4
Straight	9	24	16	18	31	15	36
Other	3	1	-	-	-	-	-
Not Applicable/No response	-	1	-	-	-	-	-

Basis: % of consumers of each type of spirit

(ii) Drinking occasion

107. According to the European Communities, Table 10 sets out the findings of the 1997 SM survey with respect to drinking occasions. ⁸⁰ It shows a marked convergence across all spirits types. Not only are all spirits consumed in the same types of occasions, but the order of preference also tends to be the same. Thus, at "parties" and "with friends" are mentioned as the two top preferences in connection with pisco and all the other types of spirits, with only the exception of liqueurs.

Table 10 ⁸¹

Drinking occasions

	Pisco	Whisky	Gin	Vodka	Tequila	Rum	Brandy	Liqueur
Parties	61	55	54	59	62	54	57	20
With friends	59	64	77	65	72	72	65	42
Family meetings	46	43	23	29	22	33	35	27
Week-ends	34	24	23	35	24	18	27	6
Aperitif	15	14	8	15	8	9	9	8
After work	10	6	8	11	4	3	6	-
During week	8	6	8	7	4	3	6	-
Digestive	7	12	6	9	6	11	9	42

Basis: % of consumers of each spirit

(iii) Drinking place

108. According to the European Communities, Table 11 summarises the results of the 1997 SM survey with respect to the place of consumption. ⁸² Again, it shows a remarkable convergence across all spirits types. Off-premise consumption "at home" and at "friends' houses" stand out as the two main preferences for drinking both pisco and all the other spirits.

Table 11 ⁸³

Drinking places

	Pisco	Whisky	Gin	Vodka	Tequila	Rum	Brandy
Home	72	65	57	53	51	67	75
Friends' house	60	58	62	55	67	61	56
Restaurant	31	18	13	16	14	9	13
Disco	20	19	26	35	28	23	14
Pub	20	16	30	42	31	18	12
Bar	12	9	1	22	14	21	5

Basis: % of consumers of each type of spirit

(iv) Consumer profile

109. According to the European Communities, Table 12 shows that both pisco and the other distilled spirits are widely consumed across all social and age segments. ⁸⁴

Table 12 ⁸⁵

Consumer profile

	Socio-economic segment			Age			Gender
	High	Middle	Low	20/34	35/44	45+	Male	Female	Total
Pisco	93	88	97	89	96	93	91	93	92
Whisky	66	55	39	51	46	54	56	44	51
Tequila	43	43	27	58	24	17	34	42	37
Chilean Brandy	7	17	30	19	16	25	21	19	20
Liqueur	15	15	20	19	11	18	11	25	17
Vodka	21	16	15	25	7	10	19	13	16
Rum	20	18	10	23	8	12	17	14	16
Gin	13	17	9	20	11	8	17	10	14
Brandy	1	3	2	4	-	3	3	2	3

Basis: % of consumers of each spirit

110. In rebuttal, Chile points out that with regard to end-uses of different spirits, Table 9 demonstrates significant differences in the way consumers use the products, most notably the totally different tendency of pisco and whisky drinkers to consume the respective products as mixed drinks.
111. Chile indicates that as to places of consumption and occasions for consumption, the survey shows little more than that most Chilean vodka drinkers have a markedly greater tendency to consume that product in discos and that Chileans generally prefer to consume all the different types of products with friends (except liqueurs, which inexplicably attract a less sociable Chilean consumer). Otherwise, this study has approximately the same probative value as if, in trying to decide whether meat and bread were directly competitive or substitutable, a study were produced demonstrating that both tended to be consumed at meal times (and with friends or family, Chile would guess).
112. Chile disagrees with the 1997 SM survey conclusion that "... pisco and other distilled spirits are drunk in the same styles, in the same occasions and places and by essentially the same categories of consumers". While it is not Chile's aim to rebut each one of these findings, Chile disagrees that these findings (even if they were true) are conclusive of "direct competition or substitutability" as required by GATT Article III:2, second sentence.
113. Chile argues that following the EC's reasoning, it must conclude that all type of food are directly competitive, because they are eaten basically by the same category of consumers (actually everybody has to eat), in the same occasions and places (home, friend's home, restaurants, etc) and is consumed in the same styles (cooked, raw, mixed with other food).
114. Chile further casts doubt on the conclusions drawn by the European Communities regarding drinking style. As it can be seen from Table 9, pisco is mostly drunk with a soft drink (83% of consumers) while whisky is mostly drunk "on the rocks" (75%); 31% of consumers drink pisco as a "sour drink", while the closer spirit would be tequila, with a mere 11% of its consumers. Table 9 shows that drinking styles are shared (actually it will be difficult to discover another drinking style), but nobody could draw the conclusion that all distilled spirits are similarly drunk.
115. The European Communities contests Chile's argument that, in any event, the responses to the EC consumer surveys "do not establish that the products are directly competitive or substitutable". For instance, contrary to the claims of Chile, Chilean vodka drinkers do not "have a markedly greater tendency to consume that product in discos". In fact, according to the 1997 SM survey, consumption of vodka at discos only comes fourth after consumption "at home", "at friends' places" and "at pubs".
116. In the view of the European Communities, the survey data concerning places of consumption are by no means irrelevant in order to establish substitutability. That type of information is regularly tracked by the spirits industry for marketing purposes. Further, the European Communities notes that Korea built its unsuccessful defence in the recent Korea � Taxes on Alcoholic Beverages case on the allegation that soju was drunk in different places than western spirits.
117. According to the European Communities, the fact that Chilean consumers prefer to drink spirits "with friends" is also far from irrelevant. This points to one of the specific uses which distinguish distilled spirits from other beverages: promoting socialisation. While many people prefer to drink spirits with friends, most people would answer that they drink water when they are thirsty and not when they are with friends.

(v) Advertising

118. The European Communities points out that when it markets its product, the pisco industry appears to entertain no doubts with respect to the substitutability of pisco with other distilled spirits. Quite to the contrary, pisco's promotional claims tend to emphasise the similarity of pisco with other distilled spirits, both in terms of physical characteristics and usage.
119. According to the European Communities, by way of example, Control's Internet homepage answers to the question "what is pisco?" with the following description of its characteristics:

Combine the dryness of Gin, the versatility of Vodka, the raciness of Rum and the bouquet of a delicate Cognac and you will discover the only distillation with this unique and aromatic result. ⁸⁶

120. According to the European Communities, also in its Internet homepage, Control describes the end-uses of pisco as follows:

The distinct flavour and fresh aroma of Pisco control can be enjoyed by itself, on the rocks, with lemon or fruit juice, your favourite cocktail or mix as well as with popular soft drinks. ⁸⁷

121. The European Communities points out that the versatility of pisco is also emphasised in the drink recipe brochures (recetarios) distributed by Control and Capel in Chile and abroad. ⁸⁸ Those brochures promote the use of pisco in the same styles that are also characteristic of the other distilled spirits: straight, on the rocks, with lemon or fruit juice, or with cola or soda.
122. The European Communities further notes that the recipe brochures of both Capel and Control go as far as to recommend the use of pisco in place of other distilled spirits that are customarily used in well-known mixed drink recipes. Thus, for example, Capel suggests preparing "caipirinhas" with pisco instead of cachaca (so-called "pisquinhas"), Manhattans with pisco instead of whisky (so-called "Chilean Manhattan"), or "margaritas" with pisco instead of tequila. Similarly, Control's brochure provides recipes for preparing "pisco tonics" and "Control Manhattans".
123. Chile challenges the EC argument, saying that the European Communities also looks to the internet for examples of common styles of advertising. Ironically, the European Communities chooses to quote a pisco producer who concludes by calling pisco "the only distillation with this unique and aromatic result". If the European Communities will scan further in the Internet, Chile believes the European Communities will discover that everything a human being can ingest is advertised in rather similar terms on the internet.
124. The European Communities further responds that it has failed to find any Internet information showing that the Chilean farmers make advertising claims in the Internet comparing the "versatility" of milk to that of vodka or the "bouquet" of garlic to that of a "delicate Cognac".

(c) Tariff Classification

125. The European Communities notes that pisco and all the other distilled spirits fall within the same HS heading, namely HS 22.08.
126. The European Communities points out that non-alcoholic beverages, as well as alcoholic beverages obtained by fermentation such as beer or wine fall within other HS positions. As mentioned above, the characteristic of being a "distilled alcoholic beverage" is sufficient to establish that all spirits have common end-uses and, therefore, that they are "directly competitive or substitutable".
127. The European Communities further points out that within HS Chapter 22, HS 2208 is at the same level as the tariff positions for non-sweetened or flavoured water (HS 2201), flavoured or sweetened water (HS 2202), beer (HS 2203), wine (HS 2204) vermouth (HS 2205) and vinegar (HS 2209). Arguably, each of those products constitutes (at the very least) a single category of "directly competitive or substitutable products".
128. The European Communities explains that the sub-headings within HS 2208 correspond each to a well known type of spirit. The reason why specific sub-headings were created for those spirits, and not for the other spirits, was simply that brandy, whisky, gin, vodka, rum and liqueurs are the spirits which are internationally traded in largest volumes. Thus, in the 1996 HS a new tariff sub-heading was created for vodka, which previously had been classified into the residual "other" sub-heading, in recognition of the growing trade in that spirit.
129. In rebuttal, Chile states that it concedes the obvious point that all distilled spirits share a common tariff category, however, a point which is of virtually no legal significance. It is obvious that two products falling within the same four digit HS category are not necessarily "directly competitive or substitutable" because applying this reasoning, oxygen and arsenic should be considered "substitutable" because both fall under HS 2804; the same could be said then to aviation gas and vaseline white oil (HS 2710); mackerel and caviar (HS 1604) lobster and crabmeat meal (HS 0306); and ivory and nails (HS 0507). Therefore this evidence should also be rejected.

To continue with Channels of Distribution

⁷⁷ EC Exhibit 21.

⁷⁸ 1997 SM survey, at p. i and Section 4.3 (EC Exhibit 21).

⁷⁹ EC First Submission, Table 12.

⁸⁰ 1997 SM survey, p. ii and Section 4.3 (EC Exhibit 21).

⁸¹ EC First Submission, Table 13.

⁸² 1997 SM survey, p. iii and Section 4.3 (EC Exhibit 21).

⁸³ EC First Submission, Table 14.

⁸⁴ 1997 SM survey, p. iv (EC Exhibit 21).

⁸⁵ EC First Submission, Table 15.

⁸⁶ EC Exhibit 53. The European Communities notes that the same claim is made in Control's recipe brochure (EC Exhibit 51). It is worth noting that Control makes the same claim in the Spanish version of its home-page.

⁸⁷ EC Exhibit 53.

⁸⁸ EC Exhibits 50 and 51. The European Communities notes that the recipe brochures of Capel and Control are very similar to the promotional brochures published by the Scotch Whisky Association attached as EC Exhibit 55. According to the European Communities, that similarity constitutes a further indication of substitutability between pisco and whisky.