(d) Percentage of More Taxed Products in Imported Products

508. The European Communities further points out that in contrast, nearly all imports of spirits will be taxed at the highest rate. As shown in Table 19 above, imports of whisky, gin, vodka, rum and tequila (all of which will be taxed at the rate of 47 % ad valorem) account for more than 95 % of imports of spirits into Chile.
509. The European Communities contests the Chile argument that the New Chilean System is "neutral" because some domestic production will be taxed at the highest rate. In reality, however, the share of current domestic production falling within the most taxed category is relatively small: between 15 % and 25 %. Furthermore, sales of domestic spirits with a minimum alcohol content of more than 35° represent as little as 6 % of total domestic production. In turn, domestic spirits with a minimum alcohol content above 39° account for barely 2.7 % of total domestic production, based on the data shown in Table 19 above. Thus, potentially nearly all domestic production of spirits qualifies for the lowest or the intermediate tax rate. For comparison, in Japan � Taxes on Alcoholic Beverages I and II²⁵¹, the share of domestic production falling within the less taxed category was 80 %.
510. The European Communities also considers that in any event, as Chile itself has acknowledged, previous panel reports confirm that the presence of some domestic production in the most taxed category does not exclude a violation of Article III:2, second sentence. Thus, for example, in Japan � Taxes on Alcoholic Beverages II²⁵², domestic production accounted for no less than 75 % of the sales of whisky, 72 % of the sales of brandy, 82 % of the sales of spirits and 97 % of the sales of liqueurs. In Korea � Taxes on Alcoholic Beverages, 80% of gin, 50 % of rum and 30 % vodka were imported. ²⁵³ What really matters is whether the majority of domestic production falls within the favoured category.
511. The European Communities further claims that unlike pisco those spirits do not have the flexibility to move down the scale in order to benefit from the lowest tax rate. In conformity with Chilean regulations, all of them must be bottled at a minimum alcohol content of 40° and, therefore, are automatically locked in to the highest rate of 47 %.
512. In rebuttal, Chile contests the EC complaint that Chilean Law 18,455 will prevent producers of distilled spirits such as whisky, gin and rum from marketing their products at the lowest rate of taxation, because Chilean regulations under that law established minimum alcohol standards for those products that preclude sale at less than 40° of alcohol. That misstates the requirements of Chilean Law 18,455 and regulations thereunder, which in any event are not at issue in this dispute. It is true that products cannot be marketed, for example, as "whisky" unless the product contains at least 40° alcohol. However, there is nothing in Chilean law or regulations that preclude a whisky producer from adding water to the product to reduce its strength to 35° before bottling, so long as the product is not marketed as whisky.
513. In the view of Chile, while producers of whisky (or rum, gin, etc.) might prefer to market their products under the traditional type name, those producers cannot have it both ways when seeking the benefits of Article III. The distilled spirits industry cannot insist when taxation is at issue that all distilled spirits products be treated in the identical way as measured by whatever standards of equivalency best suit the commercial interests of the large export industries, but then claim at the same time that fine distinctions between essentially identical products, often based almost exclusively on origin or minute differences of process or ingredients, be vigorously enforced and accommodated.
514. Chile goes on to state that whisky producers in Europe, like whisky producers in Chile, cannot market their product as whisky in Chile unless it is at least 40° alcohol by strength. That is a requirement of both European Communities and Chilean regulations, and in both cases it is applied equally to imported and domestic products. That is, a product that is "like" whisky in every way but its alcohol strength cannot be marketed as whisky. ²⁵⁴
515. Chile states that it is ironic that the European Communities also requires minimum alcohol levels in order to be able to market products in the Community as different kinds of spirits. For example, the commercially desirable name of Scotch whisky can only be applied to a product that meets the minimum alcohol standard imposed by the European Communities²⁵⁵, as also confirmed by the ECJ. ²⁵⁶ An imported product that is identical in every other way cannot use this desirable term Scotch whisky if it has one percent less alcohol than the minimum -- yet, such distinctions have not been considered to violate Article III:4 requirements for no less favorable treatment with respect to internal laws, regulations and requirements.
516. According to Chile, the EC's own practice under the national treatment provisions of the Treaty of Rome has developed in such a way that, according to the European Communities, "Article III:2 of GATT contains provisions broadly corresponding to Article 95 [EEC]". ²⁵⁷ In interpreting the national treatment rules of Article 95 of the Treaty of Rome, the European Court of Justice stated that:

In the present state of Community law Article 95 EEC does not prohibit Member-States, in the pursuit of legitimate economic or social aims, from granting tax advantages, in the form of exemptions from or reduction of taxes, to certain types of spirits or to certain classes of producers, provided that such preferential systems are extended without discrimination to imported products conforming to the same conditions as the preferred domestic products. ²⁵⁸

517. Chile states that it is interesting to note that the European Court of Justice decided that:

A system does not favor domestic producers if a significant proportion of domestic production of alcoholic beverages falls within each of the relevant tax categories. ²⁵⁹

518. Chile goes on to state that the same can be inferred from a contrario analysis of the European Court of Justice ruling that:

[A] criterion for the charging of higher taxation which by definition can never be fulfilled by similar domestic products cannot be considered to be compatible with the prohibition of discrimination laid down in Article 95 of the Treaty ... ²⁶⁰

519. Thus, Chile mentions that the European Communities recognizes that "Article III:2 is concerned with the protection of competitive opportunities and not of actual competition". (emphasis supplied by Chile) It is clear from the preceding arguments that EC producers of alcoholic beverages have the same competitive opportunities as domestic producers of spirits and it is up to EC producers to seize the opportunities that the New Chilean System offers them.
520. Chile contests the objection of the European Communities that the New Chilean System results in relatively high taxes on many imports and relatively lower taxes on many domestic products. That may be true, assuming that the current configuration of EC (and Chilean) production continue. But it is equally true that the New Chilean System results in relatively high taxes of high alcohol premium domestic products, which constitute a substantial and growing segment of Chilean production, a pattern of consumption which is consistent with the level of distribution and income of a developing country. In fact the New Chilean System is biased in tax terms against relatively high alcohol products and against relatively expensive products, but that does not constitute a violation of the "so as to afford protection to domestic production" standard.
521. Chile argues that it is also essential to note in this regard that, unlike systems based on distinctions between different types of distilled spirits, it is a relatively simple matter for foreign and domestic producers to adapt to the neutral and objective standards of the Chilean system. A whisky producer cannot readily become a pisco producer, but a producer of any spirit of 40° alcohol can readily dilute the product to 35° . The European Communities already produces many products (grappa, fruit liqueurs, etc.) that qualify for the lowest taxes and even more products that would qualify if only, as the European Communities suggests be done for pisco, ²⁶¹ some water is added to the current high alcohol products before bottling. Article III simply does not obligate sovereign Member governments to harmonize their neutral taxation system to the convenience of foreign producers in the way sought by the European Communities in this case. The New Chilean System affects domestic producers of spirits in the same manner as it affects importers of alcoholic beverages, and does not prevent foreign producers of spirits from importing any low alcohol content spirits benefiting from a lower level of taxation on the basis of their alcohol content.
522. In the view of Chile, the overriding requirement of Article III:2 is not to discriminate in favor of domestic goods and against imported goods on the basis of national origin of a product. Almost all cases brought to GATT and WTO panels under Article III:2 have involved measures that, on their face, afforded more favorable treatment to some or all domestic goods than to imported goods.
523. Chile states that a legislator should also be aware that a measure that formally does not discriminate based on nationality may nevertheless be found to contravene Article III:2, second sentence, if the effect of the measure is to make more favorable treatment available exclusively or virtually exclusively to domestic products to the disadvantage of imported products. GATT and WTO panels have gone furthest in extending the concept of de facto discrimination based on national origin of a product in the recent alcoholic beverage taxation cases against Japan and Korea. Both of those countries had tax systems in which one type of distilled spirit was taxed at a far lower rate than other distilled spirits. Further, in each case, domestic producers accounted for virtually all domestic consumption of shochu or soju, because various measures effectively prevented imports of shochu/soju from competing in the domestic market. In these circumstances, where there was no possibility for foreign producers to obtain the benefits of the low tax accorded to shochu/soju, and where the panel found that the favoured product was like or directly competitive or substitutable with other types of distilled spirits, these systems were held to contravene Article III:2.
524. Chile goes on to state that on the other hand, laws and regulations based on objective criteria such as those used in the New Chilean System have rarely been challenged in the GATT and have never been successfully challenged, even when the tax system may result in less favorable treatment for some or many imported goods than for some or many domestic goods. For example, in the United States - Taxes on Automobiles case, the panel found that the United States had not breached Article III:2 by imposing a luxury tax on vehicles above a certain threshold value. ²⁶² The U.S. tax resulted in far higher taxes on certain European products, which dominated the U.S. market for cars priced significantly above the threshold price and thus the vast majority of the revenue collected from the tax on European cars. However, far more imports, including a significant number of imports in the price categories most directly competitive with U.S. "luxury cars," paid a minimal tax or no tax at all.
525. Chile states that while the reasoning of the United States - Taxes on Automobiles Panel (the so-called "aims and effects" test) was not followed subsequently by the Appellate Body, Chile believes that the result would have been the same under the three part test applied by the Japan � Taxes on Alcoholic Beverages II Appellate Body. ²⁶³ The luxury tax imposed by the United States was based on objective criteria (a tax on the value of cars in excess of a fixed luxury level) that applied to both domestic and imported cars, and imported cars could and did benefit from the tax exemption granted to all cars below the exemption.
526. Chile further argues that comparing that system to the Chilean system of taxation of alcoholic beverages, it might be noted that it is easier as a practical matter for foreign producers to adapt the alcohol strength of their product than for car producers to reduce their prices.
527. Also, Chile maintains that similarly, even though specific taxes such as those imposed on alcoholic beverages in several EC Member States have a marked discriminatory effect on low priced imported products relative to high priced domestic products such as Scotch whisky or even imported high priced products such as U.S. or Canadian whisky, Chile has believed that a challenge of such tax systems under Article III (or Article I which requires most favoured nation treatment with respect to matters covered by Article III:2) would probably not be successful because the tax standard is objective, even if its effect disfavours low price products.
528. Chile notes that it is likewise inconceivable that members of the WTO, particularly developing country members, thought or think that, in joining the WTO and accepting thereby the obligations of Article II:2, they were foregoing the right to use fiscal policy tools such as luxury taxes or exemptions or reduced taxes for goods purchased primarily by poor consumers, even if such policies result in higher taxes on many imports than on many like or directly competitive products.
529. Chile believes that the European Communities errs in the following principal ways chiefly because the European Communities ignores significant differences between the Chilean law and market and those of Japan and Korea or because the European Communities tries to equate differences between the Chilean and EC systems of taxation with a violation of Article III:2.
530. Chile argues that the European Communities ignores that, unlike the situation under the Japanese and Korean Systems, imported products can readily benefit from the lowest rates of taxation in Chile.
531. In the view of Chile, the European Communities accepts taxation based on alcohol content, but tries to argue that such taxes must be both specific and strictly proportional to alcohol content, when such a test is not required by Article III, not equitable by many standards, and not consistent with wine tax policies and policies such as luxury taxes.
532. According to Chile, the European Communities asks this Panel to assess the Chilean objective tax system in terms of its effect on precisely the subjective categorisation system that is abandoned in the New Chilean System.
533. Chile maintains that having successfully argued in the Japan and Korea cases that a subjective system for typing and naming products cannot necessarily justify different treatment of those products under Article III:2, the European Communities now tries to argue that there is an affirmative duty to ensure even objective criteria -- such as those employed by Chile -- accommodate the subjective marketing system. This is tantamount to creating a new intellectual property right and insisting that Article III affirmatively protect that right.
534. Chile considers that panels and the Appellate Body applied the broadest interpretation of Article III:2 in the recent cases against Japanese and Korean alcoholic beverage taxes. In those cases, the measures in question were held inconsistent with Article III:2, second sentence, even though:

1. there was no explicit discrimination based on nationality; and
2. at least in the case of Japan, there was very substantial domestic production of unfavourably taxed products that the panel found to be directly competitive or substitutable.

535. Then Chile argues that though those elements might suggest a non-discriminatory system, there were critical additional aspects to both systems. In those cases, the tax systems of Japan and Korea discriminated according to type of distilled spirit, and the type that was most favorably taxed was virtually entirely insulated from import competition. That is the element that does not exist in the New Chilean System.
536. In the view of Chile, the European Communities criticised Chile because it mis-described shochu and soju as "inherently" domestic products. Indeed, that was not the panel finding in either case. Instead the panel found that those particular types of distilled spirits in those countries were essentially insulated from import competition by Japanese and Korean measures. Thus imports could not benefit from the lower rate of taxation. They could not benefit by producing shochu or soju, because those products effectively could not be imported. They could not benefit otherwise, because only the product named shochu or soju could benefit, and the criteria for using those names did not allow adaptation of other products to qualify as shochu/soju.
537. Chile notes that the European Communities also seems to imply that there was an opportunity for imports to take advantage of the low tax category in the Korean and Japanese systems, when in fact the panels found quite the contrary. Notwithstanding the existence of productive capacity abroad, the panel found that domestic production of shochu and soju were insulated from that competition. Foreign shochu/soju producers could not enter the relevant markets because of trade restrictions, and foreign producers of other distilled spirits could not alter their products to make them into shochu or soju. Whisky could not be diluted into soju or shochu, and Vodka could not simply rename itself without changing its production method and becoming subject to essentially insuperable trade barriers.
538. Chile argues that by contrast, the Chilean system, using alcohol content without type distinctions, allows imports to take advantage of the low tax category of Chile.
539. Chile thus concludes that the Japanese and Korean systems employed subjective distinctions, while the Chilean System is objective. Use of type names to make tax categories had the effect in Japan and Korea of excluding from the lowest tax category distilled spirits not meeting the standards to be called shochu or soju. At the same time, import restrictions prevented products that could qualify as soju or shochu from entering. Thus, once the panel determined that shochu and soju were competitive or substitutable with other products, the panel could also conclude that a virtually exclusively domestic product was being afforded protection by dissimilar taxation.
540. In rebuttal, the European Communities stresses the unequal impact of the measure on imported as compared to domestic products. The measure's structure ensures that between 75 % and 85 % of Chile's domestic production of spirits (including more than 90 % of all pisco sales) will be eligible for the lowest tax rate possible. In contrast, 95 % of imported products (including all imports of whisky, vodka, rum, gin and tequila) will be taxed at the highest rate possible.
541. In the view of the European Communities, Chile has not challenged those figures. Still, Chile pretends that the measure affords the same competitive opportunities to the EC exporters than to the Chilean producers of pisco. According to Chile, the EC exporters of whisky could take advantage of the lowest rate simply by diluting their whisky to 35° . Yet, that diluted beverage would no longer be considered as whisky in most countries. In Chile itself, the law prescribes that whisky must have no less than 40 ° . This means that if the EC producers diluted whisky to 35° , the resulting product could not be sold under the term "whisky". As mentioned before, the same minimum alcohol content requirement applies also to gin, rum, vodka and tequila.
542. The European Communities notes that likewise, the fact that a few imports of low strength liqueurs will benefit from the lowest tax rate does not exclude a violation of Article III:2, second sentence. The possibility to dilute high strength spirits to 35° is not a real option for the EC spirits producers. To begin with, because by doing so the EC producers of spirits would forfeit the right to sell their products under their traditional, well reputed names. Moreover, the degree of alcohol content is one of the essential features which define the identity of each type of spirit. Whisky drinkers would simply not consider diluted whisky as real whisky.
543. The European Communities states that it seems almost unnecessary to state that this is not really an option for the EC producers of spirits. In the first place, as acknowledged by Chile, whisky, vodka, gin, rum and tequila (which together account for 95 % of imports) simply could not be lawfully marketed at 35° or less, unless at the price of losing their names.
544. The European Communities notes that Chile seems to consider as an obvious fact that foreign producers "could not hope to sell something called shochu in the Japanese or Korean market". On the other hand, it pretends that selling in Chile something called "aguardiente de cereales" would be no more difficult than selling something called "whisky". This is incorrect. "Whisky", "rum", "gin", "vodka" and "tequila" are all well-established product names which enjoy worldwide consumer recognition. In order to build up a totally new product name with the same reputation as "whisky", the EC producers would have to invest considerable financial resources over a long a period of time. Asking the EC producers to forfeit the prestigious name "whisky" in order to qualify for the lowest tax rate amounts to asking them to write off all their previous marketing efforts in Chile. If Chile is truly convinced that the use of a well-known and reputed name does not improve the "competitive opportunities" of a spirit, why does it insist on reserving the name "pisco" exclusively for domestic pisco?
545. The European Communities further notes that Chile quotes the following passage of the ECJ decision in the Case 319/81, Commission v. Italy, as supporting a contrario Chile's argument that the presence of domestic products in the more taxed category excludes protective application:

... a criterion for the charging of higher taxation which by definition can never be fulfilled by similar domestic products cannot be considered to be compatible with the prohibition laid down in Article 95 of the Treaty ...

546. In the view of the European Communities, Chile's argument provides an excellent illustration of the well-known fact that a contrario inferences are often wrong. It is obvious that from the fact that a condition which cannot be fulfilled by domestic production is contrary to Article 95 ECT, it cannot be logically inferred that all other conditions are always compatible with Article 95. By now, it is a well-established principle of both EC law and GATT law that de facto discrimination (as opposed to de jure discrimination, including indirect de jure discrimination such as the one at issue in Case 319/81) is contrary to Article 95 of the Treaty of Rome and Article III GATT, respectively.
547. The European Communities further argues that on the other hand, it is worth noting that this ECJ judgement refutes Chile's dilution argument. The measure in dispute in case 319/81 was the application by Italy of the VAT at a higher rate on spirits which benefited from a designation of origin (e.g., Cognac). This condition could not be met by domestic production, because Italian law does not recognise designations of origin for spirits. If one follows Chile's logic, there would be no violation of Article 95, because foreign producers could avoid paying the higher tax simply by selling their products under a generic name. For instance, the exporters of cognac would have qualified for the lowest rate simply by selling its product under the name "wine brandy", something which according to Chile would not have impaired their competitive opportunities.
548. According to the European Communities, moreover, even if Chilean regulations were amended so that whisky, gin, rum, vodka and tequila could be lawfully marketed at 30° -35° without forfeiting their name, the New Chilean System would still fail to afford "equality of competitive opportunities". Contrary to Chile's argument, minimum alcohol standards are not a capricious invention of some wicked multinationals. The level of alcohol content is one of the essential characteristics which define the identity of each type of spirit. Consumers associate each type of spirit with a certain range of alcohol content. For many whisky consumers, whisky of 30° would simply not be "real" whisky, irrespective of the name written on the label. It is in recognition of this fact that the regulations of both Chile and the European Communities, and of many other countries, prescribe a minimum alcohol content for whisky of 40° .²⁶⁴
549. The European Communities also argues that in practice, by putting forward its dilution suggestion Chile admits that its New Chilean System places foreign producers in the following dilemma. Those producers can either choose to preserve their products' name, as well as the properties with which they are traditionally known in Chile and worldwide at the cost of being subjected to higher tax rates. Or they can obtain a more favourable tax treatment, but at the price of losing both the product's name and the product's identity.
550. The European Communities further claims that that sacrifice is not required of the producers of pisco. Indeed, pisco does not need to forfeit its name or suffer any alteration of its traditional characters in order to benefit from the lowest tax rate and thus can "have it both ways".
551. According to the European Communities, already more than 90% of pisco is 35° or less and, therefore, qualifies for the lowest tax rate. Moreover, pisco producers could dilute the remaining production to 35° , without losing the right to use the name "pisco". All they would lose is the right to use the names "gran pisco" and "pisco reservado". Those names enjoy less consumer recognition than names such as "whisky" and have only a limited commercial value.
552. In the view of the European Communities, moreover, unlike in the case of whisky and the other main types of imported spirits, a relatively high alcohol content is not one of the essential features that define the identity of pisco. To the contrary, traditional pisco is 30° -35° (recall that pisco of 30° to 35° is called precisely "tradicional"). Thus, consumers of pisco, unlike consumers of whisky, would be neither surprised nor disappointed by pisco diluted to 35° . Chile's argument to the effect that sales of high strength pisco have grown rapidly over the last decade only serves to underscore that high strength is not one of the traditional characteristics of pisco. The growth of high strength pisco is the result of a relatively recent marketing strategy which could be easily reversed so as to take advantage of the lowest tax rate.
553. Further, the European Communities maintains that the positions taken by the pisco industry during the process leading to the adoption of the New Chilean System confirms beyond any possible doubt that, for the pisco industry, the "sacrifice" of gran pisco and pisco reservado is indeed a small one, compared to the benefit they derive from the application of a higher tax rate to whisky. As explained below, the pisco industry petitioned the Chilean Parliament to increase the tax rate on spirits of 40° (including pisco reservado) to 50% (instead of 45%, as proposed by the Government) and the rate on spirits of 43° (including gran pisco) to 73% (instead of 65%). Later on, the pisco industry opposed an amendment of the Government proposal that would have lowered the rate on both pisco reservado and gran pisco to 40-45% (instead of 50 % and 65 %, respectively, as proposed originally by the Government).
554. In the view of the European Communities, the truth of the matter is that the Chilean Government does not really believe that dilution is a realistic option for the EC spirits producers. The "dilution" argument is but an ex-post facto rationalisation. When estimating the impact on the level of tax revenue of the New Chilean System, the experts of the Chilean Ministry of Finance assumed that all whisky would continue to be sold at the same strength as before. Chile now describes that assumption as "arbitrary". However, given that maintaining the level of tax revenues is one of Chile's paramount objectives, making that assumption would have been not only "arbitrary" but also irresponsible.
555. Chile replies that as can be seen in the EC's own Table 8 above, the last stage of production of distilled spirits of virtually every kind is to add water to achieve the desired alcohol strength. EC producers have themselves produced lower alcohol versions of virtually all types of spirits sold in the European Communities, and could do so again.
556. Chile notes that the European Communities and the intervening parties have objected that they do not want to have to dilute their products further in order to qualify for a lower tax rate in Chile, and that EC and Chilean regulations would preclude marketing their products under certain type names unless minimum alcohol strength requirements for those types are observed. Chilean producers of Pisco Reservado and Gran Pisco have made the same objection. However, neither the Chilean nor the EC regulations governing minimum alcohol contents for marketing distilled spirits under particular type names are at issue in this Panel proceeding. Further, Article III does not require WTO members to design their laws and regulations to accommodate the manner or name under which foreign producers might prefer to market their products. The benefit of marketing under particular type names such as Gran Pisco or whisky is similar to the benefits from marketing under marks of origin or trademarks. Article III does not require protection or accommodation of rights or regulations, so long as the law does not impose discriminatory restrictions.
557. In the view of Chile, some producers also complain that dilution with water will affect the taste of their products. However, most products are consumed diluted by the consumer. Producers of the few products that are most often consumed undiluted (such as cognac or Gran Pisco), may decide not to lower their alcohol content, but these products tend all to be taxed with one another at the highest tax level in any case. In its support, Chile refers to Table 38 above.

To continue with Position of Domestic Industry toward New Chilean System

²⁵¹ Panel Report on Japan - Taxes on Alcoholic Beverages II, supra., para 4.95.

²⁵² Ibid., Annex IV.

²⁵³ See Panel Report on Korea - Taxes on Alcoholic Beverages, supra., para. 3.17.

²⁵⁴ Council Regulation 1576/89 of 29 May 1989 Establishing General Rules on the Definition, Description and Presentation of Spirits, Art. 5, 1989 J.O. (L160) 1.

²⁵⁵ Ibid.

²⁵⁶ Case C-136/96, Scotch Whisky Association v Compagnie Financiere Europeenne de Prises de Participation, 696J0136, 1998 ECJ Celex Lexis 1211 (16 July 1998).

²⁵⁷ Case 148/77, H. Hansen jun. & O. C. Balle GmbH & Co. v Hauptzollamt Flensburg, 1978 E.C.R. 1787, 1 C.M.L.R. 604 (1979).

²⁵⁸ Case 196/85, Natural Sweet Wines: Commission v. France, 1987 E.C.R. 1597, 2 C.M.L.R. 851 (1988); See also, Case 127/75, Bobie Getrankevertrieb GmbH v Hauptzollamt Aachen-Nord, 1976 E.C.R. 1079; and Case 148/77, H. Hansen jun. & O.C. Balle GmbH & Co. v. Hauptzollamt Flensburg 1978 E.C.R. 1787, 1 C.M.L.R. 604 (1979).

²⁵⁹ Case 243/84, John Walker & Sons Ltd v. Ministeriet for Skatter og Afgifter, 1986 E.C.R. 875, 2 C.M.L.R. 278.

²⁶⁰ Case 319/81, Commission v Italy, 1983 E.C.R. 601, 2 C.M.L.R. 517, para. 17.

²⁶¹ Chile notes that producers of pisco reservado or gran pisco might choose not to dilute, because they would then lose the right to market under those more prestigious names, which are also associated with more elaborated processes and select ingredients.

²⁶² Panel Report on United States - Taxes on Automobiles, supra.

²⁶³ See Appellate Body Report on Japan - Taxes on Alcoholic Beverages II, supra.

²⁶⁴ See US Exhibit 1.