Demand for beer in Newland

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Traditionally, Newland is a wine-drinking country. However, recent market research has shown that demand for beer in Newland is now high and likely to grow further in the future. Superbrew Inc. of Richland, one of the world’s largest beer producers, therefore wants to increase its exports of lager beer, speciality beers and non-alcoholic beer to Newland. Before its accession to the WTO, Newland limited the importation of beer of any kind to a meagre 50,000 hectolitres per year. This quantitative restriction was put in place in the late 1950s to protect the many winegrowers in Newland from competition from imported beer. The National Association of Wineries (NAW) was, and still is, a powerful lobby in Newland’s politics. On accession to the WTO, Newland abolished the quantitative restriction on the importation of beer and introduced customs duties instead.

Since 1995, Newland imposes the following ad valorem customs duties:

  • 10 per cent on wine;
  • 20 per cent on lager beer and non-alcoholic beer; and
  • 30 per cent on speciality beers.

Newland has exempted the following beverages from customs duties:

  • speciality beers produced in the United States; and
  • speciality beers produced in micro-breweries.

Since last year, when a case of serious customs fraud was discovered, Newland has required that all beer be imported through two designated ports only. This requirement does not apply, however, to beer imported from neighbouringNearland, a country currently negotiating accession to the WTO. Shortly after Newland joined the WTO, it also revised its tax regime for alcoholic and non-alcoholic beverages. The following VAT rates apply:

  • 2 per cent on domestically produced non-alcoholic beverages and non-alcoholic beverages produced in the United States; and
  • 5 per cent on all other imported non-alcoholic beverages.

The following excise tax rates apply:

  • 15 per cent on wine;
  • 15.5 per cent on lager beer and non-alcoholic beer; and
  • 30 per cent on speciality beers.

In Newland, beer, whether domestic or imported, may only be sold by licensed beer merchants and may not be sold in supermarkets. No such restrictions exist on the sales of domestic or imported wine. In addition, they do not apply to Australian lager beer. Superbrew Inc. not only wants to sell its beer in Newland’s supermarkets, it also wants to establish a wholesale trade company in Newland as well as a network of retail shops to handle the distribution of its beer. Superbrew has been told it can do neither.

 

Many municipalities in Newland prohibit the consumption of beer in public on Sundays. Sunday is a divine day and therefore a day for wine. Furthermore, in support of the national wine industry, Newland’s National Federation of Restaurateurs, a government-sponsored organization, has instructed its 10,000 members not to serve beer with traditional Newland dishes. Note also that, since the Armed Forces Reform Act of 1996, the armed forces of Newland are required by law to buy domestic alcoholic beverages.

 

Finally, CoolBrew Inc., a subsidiary of Superbrew Inc. specializing in themaintenance of beer-cooling installations, wants to employ in Newland engineers from Richland for short-term repair jobs. However, CoolBrew Inc. has been informed that, under Newland’s Regulated Professions Act of 1997, onlyengineers with a degree obtained in Newland or the United States are allowed to work in Newland.

 

Note that Newland’s Schedule of Specific Commitments contains national treatment commitments for ‘wholesale trade’ services and ‘maintenance and repair of equipment’ services with respect to all modes of supply. For ‘wholesale trade’ services, however, ‘commercial presence’ is subject to the limitation that foreigners may never own more than 70 per cent of wholesale trade companies established in Newland. Newland’s Schedule does not refer to retailing services. Finally, Newland did not include any measures relating to distribution or other business services in the Annex on Article II Exemptions.

Superbrew Inc. decide to take their cases to WTO Dispute Settlement Body (DSB).  Superbrew Inc.  alleges, among other claims: –

  1. Breach of National Treatment provided within GATT 1994 and GATS; (how far Superbrew Inc.  will succeed? (20 marks)