TAIPEI - Taiwan found recently that World Trade Organization (WTO) membership
can be a pain in the proverbial when it announced a drastic tax cut on locally
brewed rice wine.
Taipei's intention to halve the bottle price of home-produced rice wine did not
go down well with the United States and the European Union (EU), the biggest
exporters of alcoholic beverages to the Taiwanese market. Both Washington and
Brussels allege that after the tax cut the local liquor will become an unfair
competitor to imported whisky, cognac and brandy.
The US and the EU consider Taiwan's move a violation of WTO regulations and
have threatened to fight it out in the international trade body's
dispute-settlement system. In its defense, Taiwan's government has cited
surveys that say Taiwanese would never
contemplate using rice wine for anything other than cooking. Therefore, even if
a bottle (about 750 ml) costs 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.
French exporters of alcoholic beverages to Taiwan don't seem too concerned
about possible repercussions of the tax cut. "People who drink rice wine will
never in their lives buy our cognac," Guillaume Cadilhac of French winemaker
Remy Martin's Taiwan distribution office said in an interview with Asia Times
Online. "However, the tax cut might hurt makers of whisky in the lowest price
categories, since the cheapest whisky here in Taiwan sells for as little as
US$6."
When exactly in ancient times the Taiwanese started brewing rice wine isn't
clear. What's known is that it has always been the choice of the working class
and for cooks who have for centuries poured it generously into pots with winter
warmers such as ginger duck or sesame chicken. The latter is also a staple food
for mothers during "post-partum 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.
The timing of the entry of foreign liquors into Taiwan's ordinary men's lives
is easier to determine. 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 market and the index rose from 1,000 to 12,054 in
a very short period. From then, the market shares of posh foreign wines and
liquors grew steadily and Taiwan, with its population of around 20 million,
consequently became one of the world's largest export markets for alcoholic
beverages.
However, record growth in sales rates came to a sudden stop when in 2008 the
global financial crisis spoiled the party and led to a drop in liquor and wine
imports. In 2008, the amount of foreign wine shipped to Taiwan decreased by
14%, and in 2009 by another 33%. Amid these decreasing sales, neither the US
nor the EU is willing to make concessions on the seemingly harmless rice wine.
Under an amendment to Taiwan's Tobacco and Alcohol Tax Act, which was recently
ratified, the rice wine will be taxed as a culinary wine instead of as a
distilled liquor. According to estimates by Taiwan's Taxation Department under
the Ministry of Finance, this will lead to a tax loss of US$62 million per
year. However, the Taxation Department said that sales were expected to surge
from 7.5 million bottles per year to 210 million.
The cries of the US and EU of foul play are based on the WTO principle of trade
without discrimination, which states that after foreign goods have entered a
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 local alcohol.
According to WTO regulations, whether the liquor's purpose is drinking or
cooking isn't relevant because a different treatment for alcoholic products
based on their ingredients or usage is not accepted. The argument is simple -
only the alcohol level determines the tax categories for alcoholic products.
To convince its fellow WTO members, Taiwan's government argues that to 96% of
Taiwanese, rice wine is mostly a chicken marinade, and thus has nothing more in
common with the imported delicacies than its alcohol content. Taiwanese
newspapers have called for a "cultural outreach" to Westerners to make them
understand that's Taiwan is not a place where rice wine is drunk.
Taiwanese lawmakers even went so far as to suggest that visiting dignitaries be
treated to an obligatory Taiwanese chicken soup to make the genuine purpose of
rice wine known internationally - consequently convincing the US and the EU to
drop the WTO complaint.
Taiwan is, however, highly unlikely to get away with its "cooking only"
argument. Its neighbors to the north, Japan and Korea, in the past tried a
similar trick with their sake and soju to no avail. 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 the WTO says, it won't affect the rice wine tax break since, as the
Taiwanese government assesses, any WTO litigation 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 be to
raise the price back to the original level. In the meantime, Taiwanese voters
in the low-income classes 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, and Guillaume
Cadilhac of Remy Martin's Taiwan distribution office can't wait for 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 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."
Jens Kastner is a freelance journalist based in Taipei.
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