Japan’s Trade Curbs Irk Wine Exporters : U.S., Common Market Charge That High Taxes Keep Superior Products Off Market

TOKYO —  Japan is headed toward a bitter dispute over wine with the United States and members of the European Communities.

American and European exporters accuse Japan of protecting an inefficient domestic industry by unfair means while keeping out superior foreign products with taxes and duties many times higher than those in the United States and Europe.

But Japanese officials and industry spokesmen argue that the high taxes are a reflection of Japanese attitudes toward alcohol in general and are not directed specifically against foreign products.

And while Japanese industry spokesmen admit that Japan is not a traditional wine-making country, they argue that Japanese wineries are better at blending wines to suit the palates of Japanese consumers.

European exporters, who have tended to be more vocal than their American counterparts, accuse the Japanese of protectionism and colonialism in erecting high barriers against the traditional products of other countries.

More Consumption Expected

The stakes are high because the industry expects wine consumption in Japan to increase dramatically in the lower-price “take-home market.”

This is dominated at present by Japanese makers, whom importers refer to derisively as “fillers” because they produce little wine of their own and fill their bottles with bulk wine from abroad, which they import at preferential duty rates.

Although Japanese wine consumption has doubled in the past 10 years and now accounts for $540 million in sales, it is still only about a tenth of U.S. consumption.

A U.S. Embassy report, citing the high Japanese level of disposable income, concluded that “there is still room for further growth.”

Imported wines account for about 10% of total wine sales.

Exports of California wines to Japan nearly tripled in the first nine months of last year, partly because of a boom in California wine coolers--wine mixed with carbonated water and fruit juices--and partly because of a sudden shift in purchases away from European wines in the aftermath of disclosures that some Austrian wines had been spiked with antifreeze.

Sales of German and some Japanese wines that had been blended with contaminated Austrian wine also suffered. Consumers also stayed away from Australian products because of the similarity in the way the words Austria and Australia are pronounced in Japanese.

California Success

The recent success of California wines has made diplomats here feel confident that American wines can find a fairly large niche in the market.

“If you can sell California wine with these kinds of barriers, it means there is a real potential,” said Suzanne Hale, an agricultural officer at the U.S. Embassy in Tokyo.

As of last July, however, California wine appeared to account for less than 2% of retail wine sales. The domestic bottlers, the so-called fillers that repackage bulk wine, accounted for 73%. According to the importers, the fillers sell so much because the market is distorted by taxes and tariffs.

A report compiled last year by a committee of businessmen from the European Communities said: “Pure Japanese wine is uncompetitive because Japanese grapes cost 500% to 900% more to produce than U.S. or E.C. grapes, Japanese grapes have low alcohol content (about 8%) due to excessive summer rainfall (and there is a) dearth of suitable arable land to expand production.”

A European businessman who contributed to the Common Market report accused the Japanese government of using taxes and tariffs to “reverse economics.”

The businessman, who requested anonymity, said: “The purpose is to make uneconomical Japanese wines sell cheaper than economical foreign wines. The mentality is import substitution even though there is no base for the domestic industry.”

The European report said that “the fundamental mechanism for overcoming the seemingly insurmountable problem of low-volume, low-quality, high-cost grape production is to allow wine with 5% Japanese content to be described as Japanese.”

Also working in favor of the fillers is Japan’s preferential treatment for bulk wine imports from Eastern Europe and Latin America. Bulk wine from Yugoslavia, for example, can be brought in at less than half the tariff on bulk wine from California or Italy.

Virtually no bulk wine is exported from California to Japan.

Big Tax Boost

Another device that importers of bottled wine point to as helping their filler competitors is a formula by which the tax on foreign bottled wines escalates suddenly, thereby making it impossible to sell efficiently produced high-quality foreign wines competitively on the retail market.

Foreign bottled wines rarely sell for below $6 in Japanese stores, whereas most Japanese brands retail far below that price.

The European report calculated that importers must land their wines in Japan at the equivalent of $3.12 per bottle if they want to get away with paying a combination of 46% duty and tax on their goods.

If the per-bottle cost, insurance and freight of the wine came to $3.13, the combined duty and tax suddenly jumps to 107%.

The report concluded that the Japanese government does not intend quality wines from abroad to do well in the Japanese market.

Claudio Bellavita, representative of an Italian bank specializing in loans to agriculture, said: “We have silk in Italy. Should we set up a kimono industry and protect it against Japanese imports? They (the Japanese) make good cars; we make good wine. How about free trade?”

Difference in Tastes

A spokesman for Kikkoman, whose Mann’s Wines is one of three companies that together control two-thirds of the Japanese retail wine market, said that Japanese consumers are not yet used to the taste of genuine foreign wines and that blending the wines results in a taste the Japanese prefer to imported wine.

The spokesman, Hirokazu Tanaka, said, “If we could find wine in France which suits the palates of the Japanese people, we would import it, but it will be a while yet before Japanese develop a taste for a great French wine such as a Chablis.”

As for the higher taxes and duties on foreign wines, a Japanese Foreign Ministry official said the high taxes “represent our attitude that people who can afford to pay more should do so. Domestically produced liquor is also taxed heavily on the high end.”

But a U.S. Embassy report disagreed. This report, made public earlier this year, accused Japan of charging a tax that is “three times higher for imported alcoholic beverages than it is for domestic products.

“Rather than generating revenue, the tax appears to play an important role in preventing imported alcoholic beverages from being marketed at competitive prices in Japan,” the report said.

Not Talks Topic

According to informed sources, Japan has resisted American attempts to include wine on a list of topics to be discussed in a series of U.S.-Japan market-opening negotiations known as the MOSS (market-oriented sector specific) talks.

“The Japanese fear that if they agree to discuss wine they will have to do something about the present system,” said a Western diplomat who asked not to be quoted by name.

Of four sectors included in a round of the MOSS talks that ended in early January, Japan made significant concessions in two fields--pharmaceuticals and telecommunications.

Although the U.S. and Common Market positions are not identical, both want Japan to bring duties on wine in line with much lower international levels, to adopt equal taxation on domestic and foreign products and to formulate strict and clear labeling laws indicating the variety of grape used and the origin of the contents.

A lowering of duties last year disappointed European businessmen because the reduction did not include top-of-the-line bottled wines.

An importer of French wines said: “There is no reason for Japanese consumers to pay $113 for a bottle of Chateau Margaux. Margaux is just as delicious for $28.”