World Trade
Organization
|
WT/DS87/R
WT/DS110/R
15 June 1999
(99-2313)
Original: English |
Chile � Taxes On Alcoholic Beverages
Report of the Panel
The report of the Panel on Chile � Taxes on Alcoholic Beverages is
being circulated to all Members, pursuant to the DSU. The report is being
circulated as an unrestricted document from 15 June 1999 pursuant to the
Procedures for the Circulation and Derestriction of WTO Documents
(WT/L/160/Rev.1). Members are reminded that in accordance with the DSU
only parties to the dispute may appeal a panel report. An appeal shall be
limited to issues of law covered in the Panel report and legal
interpretations developed by the Panel. There shall be no ex parte
communications with the Panel or Appellate Body concerning matters under
consideration by the Panel or Appellate Body.
Note by the Secretariat: This Panel Report shall
be adopted by the Dispute Settlement Body (DSB) within 60 days after the
date of its circulation unless a party to the dispute decides to appeal or
the DSB decides by consensus not to adopt the report. If the Panel Report
is appealed to the Appellate Body, it shall not be considered for adoption
by the DSB until after the completion of the appeal. Information on the
current status of the Panel Report is available from the WTO Secretariat.
Table of Contents
I. Procedural Background
II. Factual Aspects
A. Measures in Issue
1. Transitional System
2. New Chilean System
B. Products in Issue
1. Pisco
2. The Other Spirits in Issue
C. History of taxation of alcoholic
beverages in Chile
III. Claims of the Parties
IV. Arguments of the Parties
A. Overview
1. GATT Article III:2, second
sentence
2. Transitional System
3. New Chilean System
B. "directly competitive or
substitutable"
1. Overview
2. General Consideration
3. Potential Competition
4. Relevant Factors and Their
Evidentiary Weight
a. Relevant Factors
b. Evidentiary Weight
i. Physical Characteristics
ii. End-uses
iii. Tariff Classification
iv. Market Place
5. Product Categories
6. Arguments on Each Factor
a. Physical Characteristics
b. End-uses
i. Drinking styles
ii. Drinking occasion
iii. Drinking place
iv. Consumer profile
v. Advertising
c. Tariff Classification
d. Channels of Distribution
e. Price Differentials
f. Cross-Price Elasticity
i. Market developments
ii. The 1998 Search Marketing
Survey
iii. The 1995 Gemines Study
iv. The 1996 Gemines Study
v. The Adimark Survey
vi. Position of Domestic
Industry and the Government of Chile
C. "not similarly
taxed"
1. Overview
2. EC Main Argument
a. Transitional System
b. New Chilean System
3. Chile - "Objective
Criteria" Argument
4. Reach of Japan/Korea � Taxes
on Alcoholic Beverages cases
5. "Direct
Proportionality" Argument
D. "so as to afford protection
to domestic production"
1. Overview
2. Transitional System
3. New Chilean System
a. Magnitude of Tax
Differentials
b. Legislative Objective
c. Percentage of Less Taxed
Products in Domestic Products
d. Percentage of More Taxed
Products in Imported Products
e. Position of Domestic Industry
toward New Chilean System
f. Low Import Duty on Alcoholic
Beverages
V. Third-Party Arguments
A. Canada
1. Introduction
2. Legal Arguments
a. "directly competitive or
substitutable"
b. "not similarly
taxed"
c. "so as to afford
protection"
B. Mexico
1. Introduction
2. Legal Arguments
a. "directly competitive or
substitutable"
i. Physical Characteristics
ii. End-uses
iii. Tariff Classification
iv. Recognition of Government
of Chile
b. "not similarly
taxed"
c. "so as to afford
protection"
C. Peru
D. United States
1. Introduction
2. Legal Arguments
a. General
b. Old Chilean System:
Background
c. Transitional System
d. New Chilean System
VI. Interim Review
VII. Findings
A. Claims of The Parties
B. Interpretation of Article III:2
C. "directly competitive or
substitutable"
1. General
2. Evidentiary matters
a. Potential competition
b. Product categories
3. Product comparisons
a. General
b. End-uses
c. Physical characteristics
d. Channels of distribution and
points of sale
e. Prices
4. Conclusions with respect to
"directly competitive or substitutable"
D. "not similarly taxed"
1. General
2. Transitional System
3. New Chilean System
E. "so as to afford protection
to domestic production"
1. General
2. Transitional System
3. New Chilean System
a. Arguments
b. Discussion
VIII. Conclusions
I. Procedural Background
- This proceeding has been initiated by a complaining party, the
European Communities.
- On 4 June 1997, the European Communities requested consultations
with Chile under Article XXII:1 of the General Agreement on Tariffs
and Trade 1994 ("GATT 1994") and Article 4 of the
Understanding on Rules and Procedures Governing the Settlement of
Disputes ("DSU") with regard to the Special Sales Tax on
Spirits of Chile (WT/DS87/1). Chile agreed to the request. Peru, the
United States, and Mexico requested, in communications dated 19 June
1997 (WT/DS87/2), 23 June 1997 (WT/DS87/3) and 20 June 1997
(WT/DS87/4) respectively, to be joined in those consultations,
pursuant to Article 4.11 of the DSU. Consultations between the
European Communities and Chile were held on 3 July 1997, in which
Peru, the United States and Mexico participated, but the parties were
unable to settle the dispute.
- On 3 October 1997, the European Communities requested the
establishment of a panel pursuant to Article 6 of the DSU (WT/DS87/5).
- In its panel request, the European Communities claims that:
Chile, by according a preferential tax treatment, through the
Special Sales Tax on Spirits, to pisco vis-�-vis certain
alcoholic beverages falling within HS heading 2208, has acted
inconsistently with Article III:2 of GATT 1994, therefore nullifying
or impairing the benefits accruing to the European Communities under
GATT 1994.
- The Dispute Settlement Body (DSB) agreed to this request for a panel
at its meeting of 18 November 1997, establishing a panel pursuant to
Article 6 of the DSU with standard terms of reference.
- Canada, Mexico, Peru and the United States reserved their rights to
participate in the Panel proceedings as third-parties.
- On 15 December 1997, the European Communities further requested
consultations with Chile under Article XXII:1 of GATT 1994 and Article
4 of the DSU with regard to the Additional Tax on Alcoholic Beverages
("Impuesto Adicional a las Behidas Alcoholicas"), as
modified by Law No. 19,534 (WT/DS110/1). The United States and Mexico
requested, in communications dated 23 December 1997 (WT/DS110/2) and
27 December 1997 (WT/DS110/3) respectively, to be joined in those
consultations, pursuant to Article 4.11 of the DSU. Also, on 16
December 1997, the United States requested consultations with Chile
under Article XXII of GATT 1994 and Article 4 of the DSU (WT/DS109/1).
Peru and Mexico requested, in communications dated 17 December 1997
(WT/DS109/2) and 27 January 1998 (WT/DS109/3) respectively, to be
joined in those consultations, pursuant to Article 4.11 of the DSU.
Joint consultations between the European Communities and the United
States, the requesting parties, and Chile, were held on 28 January
1998, in which Peru and Mexico participated, but the parties were
unable to settle the dispute.
- On 9 March 1998, the European Communities requested the
establishment of a panel pursuant to Article 6 of the DSU
(WT/DS110/4).
- In its panel request, the European Communities claims that:
Like the measures which are subject of the Panel established on 18
November 1997, the modifications introduced by Law No. 19.534,
including those to be applied on a transitional basis until 1 December
2000, are inconsistent with Chile's obligations under the GATT. In
particular, the modifications introduced by Law No. 19.534 impose a
lower tax rate on domestic pisco than on certain other like distilled
spirits and liqueurs imported from the European Communities, thus
infringing GATT Article III:2, first sentence. Those modifications
also impose a lower tax rate on domestic pisco than on certain other
directly competitive or substitutable distilled spirits and liqueurs
imported from the European Communities so as to afford protection to
Chile's domestic production, thereby violating GATT Article III:2,
second sentence.
- The DSB agreed to this request for a panel at its meeting of 25
March 1998, establishing a panel pursuant to Article 6 of the DSU with
standard terms of reference. At this meeting, the DSB further agreed,
pursuant to Article 9 of DSU, that the Panel established at the DSB
meeting of 18 November 1997, should also examine the complaint of the
European Communities in WT/DS110/4.
- The Panel has the following standard terms of reference:
To examine, in the light of the relevant provisions of the covered
agreements cited by the European Communities in documents WT/DS87/5
and WT/DS110/4, the matter referred to the DSB by the European
Communities in those documents and to make such findings as will
assist the DSB in making the recommendations or in giving the rulings
provided for in those agreements.
- Canada, Mexico, Peru and the United States reserved their rights to
participate in the Panel proceedings as third-parties.
- On 10 and 11 June 1998, the European Communities and Chile,
respectively, requested the Director-General, pursuant to Article 8.7
of the DSU, to determine the composition of the Panel. On 1 July 1998,
the Chairman of the DSB informed the parties that the Director-General
composed the Panel as follows:
Chairman: |
Mr. Wilhelm Meier |
Members: |
Mr. Mohan Kumar |
|
Professor Colin McCarthy |
- The Panel had substantive meetings with the parties on 6 and 7
October 1998, and on 11 November 1998.
II. Factual Aspects
A. Measures in Issue
1. Transitional System
- The measure at issue is the so-called "Additional Tax
on Alcoholic Beverages" ("Impuesto Adicional a las
bebidas Alcoh�licas", hereafter "ILA"), contained
in Law No. 19,534.1
- The ILA is an excise tax levied on the sale and importation of
alcoholic beverages. It is payable by the seller or, in the case of
imports, by the importer. The ILA takes the form of an ad valorem
tax. The tax basis is the same as for the assessment of the Value
Added Tax.
- Law No. 19,534 was signed by the President of the Republic of Chile
on 13 November 1997, and promulgated on 18 November 1997, and entered
into force as of 1 December 1997, replacing Decree-Law 825/1974, which
provided a tax system until 30 November 1997 (hereafter, the "Old
Chilean System"). Law No. 19,534 provides a new tax system which
will become applicable as of 1 December 2000, and a transitional
system which is applicable until 1 December 2000 (hereafter, the
"Transitional System").
- The Old Chilean System distinguished three types of distilled
spirits ("pisco", "whisky" and "other
spirits", a residual category comprising all distilled spirits
other than pisco and whisky) and applied to each of them a different ad
valorem tax rate. 2
The Transitional System also applies different rates of taxes
depending on whether the product is considered "pisco",
"whisky" or "other spirits," until 1 December
2000. Nevertheless, as a transitional measure, it provides for a
progressive reduction of the rate on whisky in accordance with the
schedule shown in Table 1 below, while applies the same rate to pisco
as the Old Chilean System until the new tax system takes effect on 1
December 2000. 3 4
Table 1
Applicable tax rates from 1 December 1997 to 1 December 2000
|
Whisky |
Pisco |
Other Spirits |
Until 30.11.1997* |
70 % |
25 % |
30 % |
From 1.12.1997 |
65 % |
25 % |
30 % |
From 1.12.1998 |
59 % |
25 % |
30 % |
From 1.12.1999/Until 1.12.2000 |
53 % |
25 % |
30 % |
*Old Chilean System
2. New Chilean System
- The new tax system introduced by Law 19,534 (hereafter referred to
as the "New Chilean System") abolishes the distinction
between pisco, whisky and "other spirits". Instead, all
distilled spirits are taxed according to a scale based on their degree
of alcohol content. 5
- Law 19,534 provides that, as shown in Table 2 below, all spirits
with an alcohol content of 35� or less are
taxed at the rate of 27 %. From that base, the rate escalates in
increments of 4 percentage points per additional degree of alcohol,
peaking at a rate of 47 % for all spirits bottled over 39�
.
Table 2 6
Tax rates applicable from 1 December 2000
Alcohol content |
Tax rate ad valorem |
Less or equal to 35� |
27 % |
Less or equal to 36� |
31 % |
Less or equal to 37� |
35 % |
Less or equal to 38� |
39 % |
Less or equal to 39� |
43 % |
Over 39� |
47 % |
To continue with Products in Issue
1 Law No. 19,534 of 13
November 1997, amending Article 42 of Decree Law 825/74 (hereafter,
"Law 19,534/97") (EC Exhibit 3). The European Communities claims
that the measure in issue is contained in Decree-Law No. 825, of 27
December 1974, on the Tax on Sales and Services (hereafter,
"Decree-Law 825/74" (EC Exhibit 4), amended by Law No. 19,534.
The text of this Decree-Law was replaced by Decree-Law No. 1606, of 30
November 1976 ("hereafter", Decree-Law 1606/76) (EC Exhibit 6).
In contrast, Chile claims that Law No. 19,534 constitutes an entirely new
law, repealing and replacing Decree-Law 825/74. The Panel considers that
there is no substantive difference between the two positions.
2 Article 42 of Decree
825/74, as lastly amended by Article 4.III of Law No. 18,413, of 8 May
1985 (hereafter, "Law 18,143/85") (EC Exhibit 11).
3 Transitional Article of
Law 19,534/97 (EC Exhibit 3).
4 EC First Submission,
Table 4.
5 Single Article of Law
19,534/97 (EC Exhibit 3).
6 EC First Submission,
Table 5.
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