beyondbrics

Do Taiwanese people drink rice wine or cook with it? The answer is probably both, but the question is threatening to spark a trade dispute between Taiwan and major WTO members such as the US and EU countries.

The issue is that when Taiwan joined the WTO in 2002, part of its commitments were that the government would raise taxes on rice wine, or mijiu, to T$185 per litre to match tax rates imposed on other hard liqour. This was to prevent discriminatory tax against foreign imports such as whiskey and brandy.

The problem, however, was that rice wine is a kitchen staple in many Taiwanese households, and those people who would drink it as a beverage are typically on lower incomes. Both of these factors meant that when taxes were raised, sales of legal mijiu plummeted and fake and black market rice wine flooded the market.

The Taiwan government has since adjusted tax on rice wine – instead of a flat T$185 per litre, it was reduced to T$2.5 per degree of alcohol content per litre last year, which at 30 degrees alcohol works out to T$75 per litre. Now, the government is proposing to go further by lowering the tax to T$9 per litre, to match the rate it imposes on other cooking wines.

This is where the question of how Taiwanese use rice wine comes in. Japan and South Korea have both previously lost WTO disputes when they tried to lower tax on sake and soju respectively – both are rice wines.

Taiwan argues, however, that mijiu is different because it is largely not drunk straight out of the bottle. Sean Chen, vice premier, said this week the government would be happy to invite people to taste rice wine chicken soup to understand the popular usage for mijiu. A Taiwan government survey shows some 95 per cent of respondents using mijiu for cooking rather than drinking.

One European diplomat pointed out, however, that the WTO has taken a slightly different view. The report from this year’s WTO trade policy review on Taiwan, completed last month, notes that mijiu is “a staple ingredient in local cuisine and production of medicinal tonics, as well as a major alcoholic drink for many low-income people”. It did note, however, that “the authorities indicated that . . . there is no substitution effect between imported distilled spirits and mijiu wine.”

The issue in Taiwan is further complicated by the fact that the state-owned Taiwan Tobacco and Liquor Company produces the vast majority of the island’s rice wines, which are sold at a regulated price of no more than T$50 per 600ml bottle.

However, with the tax reduction not scheduled to be discussed and signed into law until the end of the year, the issue is unlikely to boil over any time soon. The concerns expressed to the Taiwan government were more “in the line of seeking clarification” rather than a threat to take the matter to the WTO, according to the diplomat.

Still, any foreigner invited for a tasting of rice wine chicken soup or ginger duck pot (also made with rice wine) by the government should be careful not to drive home afterward – one Taiwanese man made the local news last year for arguing with the police over a drunk driving charge after a ginger duck pot dinner.