Watered whisky dilutes free trade: Tax break for Japan's distillers upsets EC

THERE were times when a barman could be shot for serving watered-down liquor. But in Japan, a new practice of selling pre-watered whisky and brandy is being called either a marketing coup or a gross violation of free-trade principles.

Despite strenuous protests by the European Community, Japanese whisky makers last week released bottles and, worse, cans of whisky and brandy with water added. The water brings the alcohol content of the mix down to 8-12 per cent, and allows the manufacturers to pay a lower tax rate. Suntory hopes to sell a million cases of its 'Black Label' and 'White Label' mixes this year.

In the small bars in Tokyo's Ginza and Akasaka districts frequented by salarymen after work, everyone drinks mizuwari, whisky diluted with a liberal dose of water and much ice. This weak concoction has evolved for good biogenetic reasons: it slows down the intoxication process of the Japanese, who, like the Chinese, lack an enzyme that other peoples use to break down alcohol.

Cans of whisky mixed with water may be alcohol's equivalent of the TV dinner, but if that is what the punter wants, the self-appointed guardians of good taste and single malts can only bow their heads.

The real argument concerns the pricing of this new 'convenience tipple'. Under a revision of Japan's liquor tax regulations, the lower alcohol content of the new mix makes it liable for a tax rate approximately one-fifth of that which would apply to the same amount of undiluted whisky.

EC regulations prohibit the export of whisky or brandy with an alcohol content below 40 per cent, so EC members cannot sell the drinks mixed with water. The Japanese producers of whisky knew this when they lobbied their government to change the tax law.

'The effect of the new legislation is discriminatory,' said Ron Brown, head of the European Business Council's Alcoholic Beverage Committee, which represents the European liquor trade in Japan. 'It is impossible for European whisky to compete.' Tokyo says the EC rules should change.

Underlying the latest mizuwari debacle is the larger issue of Japan's protection of its domestic liquor industry and its refusal to comply with a Gatt ruling on harmonisation of its liquor taxes. In 1987 a Gatt council found that the taxes on liquor in Japan unfairly favoured domestic producers. After import duties, tax and other costs, a glass of Scotch costs about pounds 6 in a Tokyo bar.

The makers of shochu, a traditional spirit distilled from potatoes and grains, and the Japanese distillers of whisky, have strong lobbying powers with the government, and have been able to block the full implementation of the Gatt ruling.

But with Japan's trade surplus rising to unprecedented heights, the government finds it hard to justify the barriers to foreign liquor. The next problem to confront the whisky-mix makers, meanwhile, is how to introduce unmeltable ice- cubes into their bottles.