Decisions of the Appellate Body of the World Trade Organization

Korea-Taxes on Alcoholic Beverages

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Joel P. Trachtman

WTO Appellate Body Report, Korea-Taxes on Alcoholic Beverages, AB-1998-7, WT/DS75/AB/R; WT/DS84/AB/R (99-0010), adopted by Dispute Settlement Body, 17 February 1999. Korea, Appellant; European Communities and the United States, Appellees, Mexico, Third Participant. Division: Matsushita, Ehlermann and Feliciano. Major Topics Addressed by Appellate Body: Discrimination under art. III:2 of GATT; directly competitive or substitutable products.

1. Abstract

This case, following the Appellate Body Report on Japan -- Taxes on Alcoholic Beverages II, applied the prohibition on discriminatory taxation under art. III:2 of GATT to the Korean liquor tax regime. Specifically, the panel and Appellate Body found that Korea had applied its liquor tax regime in a discriminatory fashion among imported and domestic directly competitive or substitutable products, so as to afford protection to domestic production. This measure was thus found to violate the second sentence of art. III:2. While this decision broke little new ground, it confirmed and articulated some of the Appellate Body's earlier holdings. In the current decision, the Appellate Body found that a panel may consider potential competition, or latent consumer demand, in order to determine whether products are "directly competitive or substitutable."

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