Japan and the European Union on Feb. 3 formally agreed to the terms by which Tokyo will reduce the tax disparity between "shochu" domestic spirits and whiskey and other liquor, Japanese officials said Feb. 3.

According to letters exchanged between Foreign Minister Yukihiko Ikeda and Sir Leon Brittan, vice president of the European Commission, Japan would apply one tax rate to liquors, distilled spirits and shochu while reducing the rate difference between whiskey and shochu to 3 percent. The corrections would be made in two or three stages from October, depending on the grade of shochu, and be completed by October 2001. At the same time, from Oct. 1, 1998, the import tariff on whiskey and brandy would be reduced by the equivalent of liquor tax disparities remaining between these and shochu.

In addition, the agreement says that in the event import tariff reductions are also offered to the United States and Canada, which have not yet approved Japan's proposed timetable, these reductions would similarly be offered to the EU. The EU, together with the U.S. and Canada, brought the liquor tax issue before the World Trade Organization, saying Japan's tax system discriminated against imports. Their stance was upheld by the WTO, forcing Japan to promise to correct its liquor tax system in fiscal 1997.

But Washington charges that Japan's timetable is too slow and has called for WTO arbitration to settle the issue -- a move expected Feb. 14. Vice Finance Minister Tadashi Ogawa said Feb. 3 that the government would continue efforts to win the "understanding" of the U.S. Bills to start the necessary changes in October have already been approved by the Cabinet and are to be submitted to the current Diet session.