That World Trade Organization (WTO) membership can be a pain in the proverbial, Taiwan found out the latest when it recently announced a drastic tax cut on its rice wine. Taipei’s intention to halve the price per bottle doesn’t go down well with US and EU, the biggest importers of alcoholic beverages on the Taiwanese market. Both Washington and Brussels allege that after the tax cut, the local liquor, which can hardly be called drinkable, will be nothing but an unfair competitor to classy foreign whiskey, cognac, brandy and their likes. Whereas US and EU consider Taiwan’s move a violation of WTO regulations and threaten to fight it out with help of the trade body’s dispute settlement system, Taiwan’s government resorts to citing surveys according to which the Taiwanese would never contemplate using rice wine for purposes other than cooking. Therefore, even if the bottle were to cost US$0.78 instead of US$1.56, neither Taiwan’s commitment to the global trade body nor the interests of foreign brewers would be undermined, so the Taiwanese authorities.
Unlike American and European bureaucrats, at least the French among the importers of alcoholic beverages don’t seem too concerned about repercussions Taiwan’s rice wine tax cut could bring about to their businesses.
“People who drink rice wine will never in their lives buy our cognac”, says Guillaume Cadilhac of French winemaker Rémy Martin’s Taiwan distribution office in an interview with Asia Times Online. “However, the tax cut might hurt makers of whiskeys in the lowest price categories since the cheapest whiskey here in Taiwan sells for as little as US$6.”
When exactly in ancient times the Taiwanese started brewing rice wine isn’t all too clear. What’s known is that the booze has always either been choice of the working class or the cooks who have for centuries been pouring it generously into pots with winter warmers such as ginger duck or sesame chicken. The latter is also a staple food for mothers during ‘postpartum confinements’, a Chinese tradition that strictly instructs women what to do and, even more so, what to refrain from doing in the month after they have given birth.
By contrast, the timing of entry of foreign liquors into Taiwan’s ordinary men’s lives is somewhat easier to define. Between 1987 and 1990, the island witnessed one of the greatest stock market bubbles in history. Workmen, farmers and office workers alike began to invest in the stock market in times when within an blink of an eye the index rose from 1,000 to 12,054. From then on the market shares of posh foreign wines and liquors grew steadily, and Taiwan, with its population of 20-odd million, consequently became one of the world’s largest export markets for alcoholic beverages. However, record growths in sales rates came to a sudden stop when in 2008 the global financial crisis spoiled the party and led to a drop of liquor and wine imports. In 2008, the amount of foreign wine shipped to Taiwan decreased by 14%, and in 2009 by another 33%. Therefore, on the background of decreasing sales, neither US nor EU signal any willingness to make concessions on the seemingly harmless rice wine matter.
Under the amendment to Taiwan’s Tobacco and Alcohol Tax Act which has recently been ratified by Taiwan’s legislature, the rice wine will be taxed as a culinary wine instead of a distilled liquor. According to estimates by Taiwan’s Taxation Department under the Ministry of Finance, the tax reduction will lead to a tax loss of US$62 million per year. However, the Taxation Department concedes that the loss may shrink considerably since it has to be taken into account that through the lowered prices, sales are expected to surge from 7.5 million bottles per year to 210 million.
US and EU cries of foul play are based on the WTO principle of trade without discrimination which states that after foreign goods have entered the market, imported and locally-produced goods should be treated equally. Since Taiwan’s alcohol tax is an excise tax, which simply put is an inland tax, as opposed to a customs duty, American and European liquors may not be subject to different tax rates than the local alcohol. According to the WTO regulations, whether the liquor’s purpose is drinking or cooking isn’t relevant because adifferent treatment for alcoholic products based on their ingredients or the purpose of usage aren’t not accepted. The formula is simple: It’s nothing but the alcohol level that determines the tax categories for alcoholic products.
To convince its fellow WTO members, Taiwan’s government argues that to 96% of the Taiwanese, rice wine is to soak the chicken in only, and thus has nothing more in common with the imported delicacies than its alcohol contend. Taiwanese newspapers have called for a ‘cultural outreach’ to the westerners to make them understand what Taiwan is really like, and that’s not a place where rice wine is drunk. Taiwanese lawmakers even went so far to suggest that foreign dignitaries visiting Taiwan ought to be treated to an obligatory Taiwanese chicken soup to make the genuine purpose of rice wine known internationally and consequently convince US and EU to drop the plan to go ahead with the WTO complaint.
That Taiwan will get away with its ‘meant for cooking only’ argumentation is highly unlikely; its neighbors to the north, Japan and Korea, had in the past tried a similar trick with their sake and soju, respectively. However, to no prevail. Still, although Taiwan’s government acknowledges that there’s little chance left that its fellow WTO members will eventually give in, it has made public that there’s a ‘Plan B’. Whatever WTO will have to say, it won’t affect the rice wine tax break since, as the Taiwanese government assesses, any WTO litigations would drag on for years. According to unnamed officials of the Taiwan Tobacco and Liquor Company, if Taiwan finally were to lose the lawsuit, all it would need to do would only be to raise the price back to the original level. In the meantime, Taiwanese voters in the low-income class would have enjoyed cheap rice wine for a period of time that almost certainly would have covered the important five special municipality elections to be held later this year.
However things will eventually work out for Taiwan’s rice wine, Guillaume Cadilhac of Rémy Martin’s Taiwan distribution office can’t wait the tax cut to be implemented. He says: “For me it’s good, I actually like to drink that stuff, especially after having Taiwanese food.” And as another indication that Taiwan’s government’s claim that the Taiwanese just do not drink rice wine is not quite bulletproof, Cadilhac tells of his girlfriend’s father, who is Taiwanese. He says: “Every time we visit him, he pulls out the rice wine; he cooks with it, and he drinks it.”