TEQUILA TAXES CASE

1. TEQUILA TAXES CASE White & Cage LLP GDL Foreign trade practice

2. FACTS • The exports of Tequila to China have been stopped due to new restrictive internal taxes and charges to the imported liquor. • Chinese national drink Maotai has been excused of the charges. • Drinks like GIN, VODKA, WHISKEY are recently being imported without any internal taxation, and they go through the custom inspection in delays of time inferiors.

3. Main GATT Principles Transparency • Degree to which trade policies and practices, and the process by which they are established, are open and predictable. (Art. II Schedules of Concessions) Non- Discrimination • MFN Most-favoured-nation treatment (GATT Article I, GATS Article II and TRIPS Article 4), the principle of not discriminating between one’s trading partners. • National treatment The principle of giving others the same treatment as one’s own nationals.

4. Non-discrimination principle • National Treatment. Art. III. • Most Favoured Nation Treatment. Art. I

5. National Treatment. Art. III. • (1) Internal taxes and other charges…, should not be applied to imported products so as to afford protection to domestic production. • (2) [Foreign products] imported in the territory of a contracting party shall not be subject… to internal taxes… in any kind of excess of those applied… “to like domestic products”.

6. Most-Favoured-Nation TreatmentArt. I • (1)With respect of duties and charges…in connection to exportation or importation…and in respect with all matters referred to in paragraph 2 and 4 in article III, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded, immediately and unconditionally to the “like product” originating or destined for the territories of all other contracting parties.

7. “LIKE PRODUCT” To apply non-discrimination principle under Art. I & III, we have to establish LIKENESS in products: MAOTAI, GIN, VODKA, WHISKEY v. TEQUILA

8. PHYSICAL CHARACTERISTICS • The first criterion of likeness: more two products have the same physical characteristics, the more “like” they can be said to be. The greater the physical identity of two products the more likely it is that they are interchangeable. Physical characteristics is so often the first criterion that legal decisions look to.

9. 1970 report of a Working Party onBorder Taxes Product is “similar”: the product’s end-uses in a given market; consumers’ tastes and habits, which change from country to country; the product’s properties, nature and quality. • Australian Subsidy on Ammonium Sulphate, Germany -- Treatment of Imports of Sardines, EC Measures on Animal FeedProteins, Spain -- Tariff Treatment of Unroasted Coffee.

10. Alcoholic Beverages • Alcoholic beverages are drinks containing ethanol. Ethanol, also known as ethyl alcohol or grain alcohol, is a flammable, colorless chemical compound, one of the alcohols that is most often found in alcoholic beverages. Most distilled liquors are 40% alcohol by volume.

11. The concentration of alcohol in an alcoholic beverage may be specified in percent alcohol by volume (ABV), in percentage by weight (sometimes abbreviated w/w for weight for weight), or in proof. (e.g. 80 proof = 40% ABV).

12. GIN • Gin is a spirit, or strong alcoholic beverage. It is made from the distillation of white grain spirit and juniper berries, which provide its distinctive flavour. Plymouth Gin is 41.2% alcohol by volume. There is also a 'navy strength' variety available which is 57% abv.

13. VODKA • Vodka is a typically colourless liquor, usually distilled from fermented grain. The classic Russian vodka is 40 percent (80 degrees proof).

14. WHISKEY • Malt whisky consists of whisky made from 100 percent malted barley; malt whisky from one distillery is called single malt to distinguish it from blended varieties. Crown Royal is a blended Canadian whisky, 40% alcohol (ethanol) by volume, 80 proof.

15. TEQUILA • Tequila is a strong distilled alcoholic beverage made from the agave plant. Tequlia has an average of 40% alcohol by volume.

16. MAOTAI • Maotai is a famous Chinese liquor, distilled from fermented sorghum. Maotai has an alcohol content of 65% by volume but recently ranging down from 35% to 47%.

17. Denomination of Origin • Alcoholic Beverage commonly have an Appellation d'Origine Contrôlée (AOC), which translates as “denomination of origin”

18. COMPETITIVENESS • The obvious reason for preventing differences in treatment is to prevent distortions in competition between otherwise competitive goods.

19. DRINKS MARKET IN CHINA • VODKA • GIN • WISKEY • TEQUILA • MAOTAI • FISH WINE • The alcoholic drinks market in China has been fuelled by a buoyant economy in 2004, with total value and volume sales reaching about RMB385 billion and 33 billion litres, up by 7% in current value and 6% in volume terms from 2003.

20. SUBSTITUTABILITY • First criteria -- the extent to which consumers perceive two products as functionally equivalent, measured by the consumer’s willingness to substitute one for the other, a willingness which in turn is usually measured by the extent to which relatively small changes in price affect consumer preferences for one or the other. MENUES AT BARS MENUES AT DISCOTECS

21. FUNCTIONAL LIKENESS • Second criteria, the extent to which the two products do in fact perform the same function. LIFE STILE IS CHANGING

22. Japan Alcoholic Beverages cases • Shochu and vodka are like products and Japan, by taxing the latter in excess of the former, is in violation of its obligation under Article III:2, first sentence, of the General Agreement on Tariffs and Trade 1994. • Shochu, whisky, brandy, rum, gin, genever, and liqueurs are "directly competitive or substitutable products" and Japan, by not taxing them similarly, is in violation of its obligation under Article III:2

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