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Decisions of the Appellate Body of the World Trade Organization
Chile-Taxes on Alcoholic Beverages
2. Facts
This case concerned Chile's Special Sales Tax on Spirits, as modified by the Additional Tax on Alcoholic Beverages. The new Chilean system, scheduled to be implemented from 1 December 2000, provides for taxation of spirits at varying ad valorem rates based on their alcohol content as follows: for alcohol content of 35 degrees or less, the rate is 27%, and the rate increases by 4 percentage points per additional degree of alcohol, up to a maximum of 47% for spirits over 39 degrees. The panel found that approximately 75% of domestic spirits would be taxed at 27% under this regime, while over 95% of imported spirits would be taxed at 47%.1 The European Communities (EC) argued that the Chilean system violates Article III:2, second sentence, of GATT, because it provides preferential treatment to a domestic alcoholic beverage, pisco. The panel found that the imported distilled beverages were `directly competitive or substitutable' with domestic products.
1
Panel Report, Chile-Taxes on Alcoholic Beverages, WT/DS87/R; WT/DS110/R, 15 June 1999, para. 7.158. The panelists
were Wilhelm Meier, Mohan Kumar and Colin McCarthy.
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