SCOTCH whisky's long campaign against Japanese tax discrimination is on the brink of final success, it was revealed last night. The result could be a huge increase in Scotch exports.

A formal announcement is expected this morning in Brussels from the European Commission, which backed Britain in supporting the fight for Scotch last year.

A report from the World Trade Organisation panel investigating Japanese discrimination against imported spirits is understood to include a ``complete vindication'' of the Scotch industry's argument.

The panel's decision was met with delight by the Scotch Whisky Association, whose chief executive, Mr Hugh Morison, said last night: ``This is very good news for the whole Scotch whisky industry.''

Japan was already a major export market for Scotch and now there was new potential for growth. ``We will wait to see whether the Japanese government will accept this finding but, given our understanding of the strength of the WTO conclusions, we hope they will not appeal. Indeed, we hope they will proceed rapidly to implement the findings.''

In a typical Japanese supermarket, a bottle of non de-luxe Scotch costs about #8. However, a bottle of the local drink shochu can cost as little as #2.

The findings could lead to increased exports not just to Japan but to other markets which also discriminate against Scotch, including areas of South America and South-east Asia.

Copies of the final report will be handed today to the WTO's contracting parties in Geneva.

The matter will then go to a disputes settlement body for further consideration and a ruling but that is expected to be a formality before the Japanese are brought to book.

As a result, the Japanese government will now be required to make substantial alterations to its liquor tax regime so that discrimination against Scotch and other imported spirits will be stopped during the next financial year.

It is likely the European Commission will demand that Japanese tax on whisky and the local drink shochu - a white, rice-based spirit which is normally much weaker than Scotch - should be based on pure alcohol per litre which is standard procedure in most OECD countries.

The WTO panel, which has studied the dispute since September last year, has upheld complaints by the Scotch industry that Japan wrongly discriminated against imported whisky by imposing tax differentials on it of up to 710%.

The Japanese have long resisted attempts to have shochu and imported spirits treated similarly. The EU, which represents member states in trade disputes of this nature, was backed against Japan by the United States and Canada.

Scotch exports to Japan were worth #67m a year in 1987 when a ruling by the old Gatt organisation - forerunner of the WTO - was issued in favour of exporters of spirits. When Japan's whisky tax was equalised to stop discrimination in favour of local spirits, except shochu, the value of Scotch exports rose to #120m.

Scotch sales have been falling in Japan recently. Last year, they were down 25% by volume and 11% by value.