May 4, 1992

GATT PANEL RULES AGAINST U.S. ON ALCOHOLIC BEVERAGES.

GENEVA, APRIL 30 (TWN/CHAKRAVARTHI RAGHAVAN) -- The United States administration is embarking on a process of consultations with all the States on the GATT ruling holding a number of state-level measures and some federal regulations on sale of beer, wine and cider to be discriminating against imports and thus GATT illegal.

The panel has recommended that the U.S. be asked to bring federal and state regulations in this area in line with the GATT.

The panel ruling which was issued on 16 March came up before the GATT Council Thursday, when Canada (the complainant) and other Contracting Parties urged its acceptance.

The U.S. GATT Representative, Rufus Yerxa said this was the first time that a GATT dispute settlement report had addressed the practices of the (its constituent) states and U.S. obligations with respect to them. The administration, he added, had embarked on a full range of consultations with the states, which were not yet complete, and hence the U.S. was not ready to allow the adoption of the report. He however promised a more positive response the next time, the issue comes up before the Council.

Yerxa also claimed that the cumulative trade effects of the measures complained of were "negligible" and in the U.S. market commercial competitiveness decided success.

Canada however questioned this, arguing that the U.S. measures had clear adverse effects on Canadian producers.

Japan, Australia, New Zealand and the European Community were among those who expressed "disappointment".

The next meeting of the Council is set for mid-June, but there could be an earlier meeting in May to deal with an Egyptian request for waiver. But in practical terms such a meeting seems unlikely before end on May.

The three-member GATT panel, chaired by Amb. Julio Lacarte-Muro ruled that various measures maintained at U.S. federal and state levels on sales of imported beer, wine and cider were contrary to the GATT rules in Article III of national treatment between domestic and imported products, and hence illegal.

The complaint against the U.S. was brought by Canada in May 1991 and a three-member panel was set up mid-July 1991. The panel has presented a voluminous report on its examination of some 78 individual measures: 76 of 44 states and two at federal-level.

The panel held that:

-- The provision of lower rates of excise duties or excise tax credits, whether at federal or state level, on certain domestic beer and wine, but which is not available to imported beer and wine, is inconsistent with Article III: 2 which requires equal treatment for imported and domestic products.

The discriminate taxes on imported products cannot be justified by Article III: 8 (b) which only clarifies that the provisions of Article III does not prevent payment of producer subsidies financed from proceeds of internal taxes applied consistent with Article III.

-- Exemption of local producers from state requirements to use wholesalers, but which applies to imported beer and wine, is inconsistent with Article III: 4 and has not been justified under Article XX (a) - the general exceptions clause.

-- The application of a higher licensing fee for imported beer and-or wine than for like domestic product is inconsistent with Article III: 2 in one case and Article III: 4 in another.

The exemption by one state of domestic in-state wine, but not like imported product, from decisions to prohibit the sale of alcohol within political subdivisions of the state was inconsistent with Article III: 4, whether or not the law is being implemented.

-- The price affirmation requirements for imported beer and wine in certain states, which are not applicable to the like domestic products, are inconsistent with Article III: 4, whether or not these requirements are being enforced.

-- The listing and delisting practices maintained by liquor control boards in certain states which accord less favourable treatment to imported wine than to like domestic product are inconsistent with Article III: 4.

-- The record does not support a finding that state wholesaler distribution arrangements are "mandatory existing legislation" in terms of the Protocol of Provisional Application (and thus saved).

-- The U.S. has not demonstrated to the panel that the conditions for application of Article XXIV: 12 (which requires contracting parties to take "reasonable measures" to ensure observance of GATT provisions by regional and local governments and authorities) has been met.

The panel however held that some non-discriminatory requirements, including on labelling and points of sale, based on alcohol content of beer, are not inconsistent with Article III.

Since the panel has held that some of the measures are GATT illegal, it has not found it necessary to go into the question whether there has been any nullification or impairment of U.S. tariff concessions on beer, wine and cider.

The panel recommended that the CONTRACTING PARTIES ask the U.S. to bring the inconsistent federal and state measures into conformity with GATT obligations.

Lacarte told the Council that the panel had been unable to complete its work and submit its findings within the stipulated six month period simply because of the sheer volume of the measures to be examined. Also, more intensive bilateral consultations between the two parties before the establishment of the panel might have resulted in an earlier clarification of the disputed facts, some of which remained disputed between the parties until the end of the panel proceedings.

Noting that more complete consultations would have permitted bilateral resolution of some of the matters at hand, the panel stressed the importance of thorough bilateral consultations and efforts at bilateral resolution of the dispute to enable rapid and efficient completion of GATT dispute settlement procedures.