The Japan Liquor Tax Law, or Shuzeiho, taxes liquors sold in Japan based on the type of beverage. There are ten categories of beverage (the categories are sake, sake compound, shochu, mirin, beer, wine, whiskey/brandy, spirits, liqueurs, and miscellaneous). Shochu is distilled from potatoes, buckwheat, or other grains. Shochu and vodka share many characteristics. However, vodka and other imported liquors fall in categories with a tax rate that is seven or eight times higher than the category for shochu. Foreign spirits account for only 8 percent of the Japanese market, whereas they account for almost 50 percent of the market in other industrialized countries. The United States, the European Union, and Canada called for consultations and brought this complaint at the WTO. The panel held that the Japanese tax law violated GATT, and Japan appealed to the Appellate Body.
1. What is the purpose of GATT's Article III and how is that purpose ensured?
2. Is it necessary that the complaining party show that a discriminatory tax has a negative effect on trade? Is a remedy possible even where the discrimination has no adverse impact on the sales volume of the imported products?
3. How does a WTO Panel determine whether two products are "like products" for purposes of the first sentence of Article III:2 or "directly competitive or substitutable products" that fall within the domain of the second sentence of Article III:2?