Does Japanese Liquor Taste Different?: Empirical analysis on the national treatment under the WTO

Author Name OHASHI Hiroshi (The University of Tokyo / Faculty Fellow, RIETI) / NAKAJIMA Kentaro (Hitotsubashi University) / DOI Naoshi (The University of Tokyo / Research Assistant, RIETI)
Creation Date/NO. November 2010 10-E-058
Research Project Empirical Analysis of Trade Policy and Corporate Behavior
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The national treatment obligation, along with most favored nation obligation, is an important principle of non-discrimination adopted by the WTO. It requires that foreign products be treated no less favorably than national products. This paper empirically examines the 1996 WTO recommendation that a Japanese distilled alcohol beverage, shochu, is a 'directly competitive or substitute product' to other distilled drinks, and thus not taxing similarly is in violation of its national treatment obligation. Demand estimates obtained from a three-stage nested logit model reveal that shochu and other distilled beverages are matched substitutes for each other. Upon the recommendation by the WTO Appellate Body, Japan changed its liquor tax rates closer to the optimal level.

Published: Doi, Naoshi, and Hiroshi Ohashi, 2017. "Empirical analysis of the national treatment obligation under the WTO: The case of Japanese shochu," Journal of the Japanese and International Economies, Vol. 46, pp. 43-52