The EC (European community) and the U.S (United States) disliked the fact that there alcoholic drinks are biting the dust, because soju had an advantage on pricing, which is derived from low tax rates imposed, which came into conflict with the article 3:2 of the GATT 1994 and blamed the Korean government of unfair competition. Political and economic factors:
The dispute aroused due to the political context, which was by and large led by the economical factor of alcoholic drinks and the taxes imposed on them. It clearly stated that free market practice can sometimes hit the indigenous industries adversely. Korea’s taxation system was not customized for soju itself, it was a result of a very detailed taxation system of the country. The EC and U.S also implied that, lower tax rate on soju means that it’s exporters have more political weight then foreign importers. Korea also highlighted the point that soju is not in direct competition with whisky and those types of imported alcoholic beverages. The consumers in Korea are very much price conscious and the imported beverages are seen as luxury items. Pressure from DSB (Dispute Settlement Body) forced the taxes to increase from 35% to 80%. The increment in the tax rates applicable on Soju was majorly due to the political reasons but the economical factor also acted as the pivotal role.