TWN Info Service on WTO and Trade Issues (Apr10/05)
12 April 2010
Third World Network

Philippines blocks panel request on distilled spirits dispute
Published in SUNS #6900 dated 9 April 2010

Geneva, 8 Apr (Kanaga Raja) -- A request by the United States for the establishment of a dispute panel over the taxation of distilled spirits by the Philippines was blocked by the Philippines at a meeting of the WTO Dispute Settlement Body (DSB) on Thursday.

This is a first-time request and panel establishment would be automatic when a second request by the United States comes up before the DSB.

In a communication to the DSB dated 26 March, the US said that the Philippines taxes distilled spirits at rates that differ depending on the product from which the spirit is distilled.

Distilled spirits produced from certain materials that are typically produced in the Philippines are taxed at a low rate. Other distilled spirits are taxed at significantly higher rates (for example, at a rate that is approximately 10 to 40 times higher than the rate for the domestic product).

According to the US communication, the Philippine taxes on distilled spirits do not appear to tax imported distilled spirits and directly competitive or substitutable domestic distilled spirits similarly.

The taxes appear to be applied in a way that affords protection to domestic production. In addition, the taxes appear to subject imported distilled spirits to internal taxes in excess of those applied to like domestic products, said the US.

The US communication lists a range of instruments reflecting the Philippine measures.

The US argued that the Philippine measures appear to be inconsistent with the first and second sentences of Article III: 2 of the GATT 1994.

[Article III: 2 states: The products of the territory of any [Member] imported into the territory of any other [Member] shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no [Member] shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1.

[The preceding Article III: 1 states: The [Members] recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production.]

In a statement at the DSB, the US said that it had been concerned with the Philippines excise tax on distilled spirits for many years.

According to trade officials, the US said that the Philippines taxes appeared to be applied in a way that afforded protection to domestic production.

The US expressed regret that the excise tax and its effect on market access with the Philippines had been raised several times without a resolution. Therefore, the US has requested the establishment of a panel.

The US voiced hope that the Philippines would take action soon to level the playing field for imported and domestic spirits in the Philippines market.

According to trade officials, the Philippines expressed regret that the US had chosen to request the establishment of a panel, given the constructive engagement towards clarifying the excise tax regime on distilled spirits.

The Philippines said that it was confident that its tax regime on distilled spirits would be determined to be fully consistent with WTO rules.

The Philippines further expressed hope that this matter could still be resolved to a mutual satisfaction and therefore believed that establishing a panel was premature.

In an intervention, the EU supported the US request for the establishment of a panel.

According to trade officials, the EU observed that this longstanding tax discrimination case had worsened over the years.

It said that currently, imported spirits were subject to an excise tax 10 to 50 times higher than the tax imposed on domestic spirits.

The EU further said that as a result of the increasing discrimination, its exports (of distilled spirits) to the Philippines more than halved between 2004 and 2007. +