TWN Info Service on WTO and Trade Issues (Dec10/02)
1 December 2010
Third World Network
WTO rules against Thailand
in cigarette dispute
Published in SUNS #7043 dated 19
November 2010
Geneva, 18 Nov
(Kanaga Raja) -- The World Trade Organization (WTO) this week ruled
that customs and fiscal measures imposed by Thailand on imports of cigarettes from the Philippines were inconsistent with Thailand's obligations
under the WTO.
Subject to any appeal that either party may prefer
on grounds of law to the Appellate Body (AB) and the AB's ruling, the
panel report and recommendations are to be automatically adopted by
the Dispute Settlement Body (DSB) within 60 days.
In a ruling issued on 15 November, the panel recommended
that the Dispute Settlement Body request Thailand
to bring its inconsistent measures into conformity with its obligations
under the GATT 1994 and the WTO Agreement.
On 7 February 2008, the Philippines
had requested consultations with Thailand
on its customs and fiscal measures on cigarettes imported from the Philippines.
When consultations failed to resolve the dispute,
a panel was established on 17 November 2008, with the panel's membership
settled on 16 February 2009.
The Philippines had identified several Thai measures
at issue in the dispute including measures pertaining to customs valuation;
Thailand's Value-Added Tax (VAT) regime; Thailand's VAT-related
requirements on wholesale and retail sellers of cigarettes; and other
Thai fiscal measures.
Also at issue in the dispute were Thailand's health
tax regime; Thailand's television tax regime; Thailand's administration
of its customs and fiscal measures as well as of its legal provisions
pertaining to guarantees; and an investigation by Thailand's Department
of Special Investigation (DSI) of the Thailand branch office of Philip
Morris (Thailand) (PM Thailand) in relation to the declared customs
value of imports from the Philippines.
Other measures at issue also included undue delay
in Thailand's administrative decision-making; and failure to provide
for judicial or administrative review of the customs authorities' decisions
relating to the imposition and collection of guarantees, pending the
issuance of a notice of assessment, covering the customs duties and
excise, health and television taxes that may become payable.
In its report, the panel said that on 27 March
2009, it had received a request from a private entity wishing to submit
information to the panel with regards to this dispute. On 17 April 2009,
the panel responded by requesting that such amicus curiae briefs be
addressed directly to the parties and third parties to the dispute.
"Upon receiving such briefs, the parties and third parties would
decide whether and how to use such briefs and/or any information contained
therein in their submissions and arguments to the panel in these proceedings."
[In a post on the International Economic Law and
Policy (IELP) blog, US trade lawyer Simon Lester noted that a couple
of months earlier, the panel in the Australian apples dispute (brought
by New Zealand) had
"accepted" an amicus brief. However, the Thailand - Cigarettes
panel report suggests that "there may still be some differences
of opinion on that issue," he said. Lester added: "This Panel
seemed to take the view that panels shouldn't accept these briefs directly,
but rather everything should be filtered through the parties."]
In its overview of the matters in the dispute,
the panel said that the Philippines advances claims against certain Thai
customs and fiscal measures affecting cigarettes imported from the Philippines. The
Philippines claims
that these measures violate Thailand's
obligations under various provisions of the Customs Valuation Agreement
and Articles III: 2, III: 4 and X of the GATT 1994.
Under the Customs Valuation Agreement, the Philippines submits that Thai Customs
improperly rejected the transaction values of the cigarette entries
that were cleared between 11 August 2006 and 13 September 2007 in violation
of Articles 1.1 and 1.2(a). The Philippines further claims that Thai
Customs applied the deductive valuation method inconsistently with the
obligations under Articles 5 and 7 in determining the customs value
of the subject cigarettes. The Philippines
also takes the position that Thailand
violated procedural obligations under both Article 10 not to disclose
confidential information and Article 16 to provide an explanation for
the determination of the final customs value.
The Philippines also
challenges a number of measures imposed on imported cigarettes under
the Thai VAT regime. It argues that Thailand
determines the tax base for VAT imposed on imported cigarettes in the
manner in which imported cigarettes are subject to a VAT in excess of
that imposed on like domestic cigarettes in violation of the first sentence
of Article III: 2 of the GATT 1994.
The Philippines further
claims that imported cigarettes are also subject to the VAT liability
in excess of that applied to like domestic cigarettes in violation of
the first sentence of Article III: 2 through the VAT exemption afforded
only to domestic cigarette resellers. The excessive tax liability imposed
on the imported cigarette resellers also allegedly entail additional
administrative requirements for those selling imported cigarettes. This
results in less favourable treatment for imported cigarettes in violation
of Article III: 4.
Finally, said the panel, the Philippines
asserts that Thailand
violates various obligations under Article X of the GATT 1994 in connection
with its customs and fiscal measures. The Philippines
claims that Thailand
violates Article X: 1 by failing to publish laws and regulations pertaining
to the determination of a VAT for cigarettes and the release of a guarantee
imposed in the customs valuation process.
The Philippines also challenges the Thai government
system under which certain government officials simultaneously serve
on the board of TTM (Thailand Tobacco Monopoly), a state-owned domestic
cigarette manufacturer, which, according to the Philippines, is inconsistent with
the obligations under Article X: 3(a) to administer customs matters
in a reasonable and impartial manner. It is also claimed that Thailand violates
Article X: 3(a) through the alleged unreasonable delays caused in the
BoA (Thai Board of Appeals within the Ministry of Finance) review process
for appeals against customs determinations.
Thai Excise's determinations of the tax base for
VAT as well as its use of a guarantee value in calculating the excise,
health and television taxes, the Philippines argues, are non-uniform,
unreasonable and partial, and therefore in violation of Article X: 3(a).
The Philippines further
claims that Thailand
failed to maintain an independent tribunal or process for the prompt
review of administrative actions relating to customs matters, particularly
customs value decisions and guarantee decisions inconsistently with
the obligations under Article X: 3(b), said the panel.
On the parties' claims on the scope of the panel's
terms of reference in this dispute, the panel concluded that:
-- the Philippines' claim under Article X: 3(a)
(of the GATT 1994) with respect to the Thai VAT system is outside the
Panel's terms of reference because the Philippines failed to plainly
connect the challenged measure with Article X: 3(a) in its panel request;
-- the Philippines'
claim under Article X: 3(a) with respect to the excise, health and television
taxes are within the Panel's terms of reference;
-- the Thai Customs' valuation determinations
for the imported cigarettes at issue that were cleared between 11 August
2006 and 13 September 2007 are within the Panel's terms of reference
and appropriately presented for the Panel's examination; and
-- the December 2005 MRSP (Maximum Retail Selling
Price) Notice, the September 2006 MRSP Notice, the March 2007 MRSP Notice,
and the August 2007 MRSP Notice are within the Panel's terms of reference.
On the Philippines' claims
under the Customs Valuation Agreement, the panel concluded that:
-- Thailand does
not maintain or apply a general rule requiring the rejection of the
transaction value and the use of the deductive valuation method;
-- Thailand's rejection of the PM (Philip Morris)
Thailand's declared
transaction values for the [[xx. xxx. xx]] entries at issue is inconsistent
with Articles 1.1 and 1.2;
-- Thailand acted inconsistently with Article
1.2(a) by failing to communicate within the meaning of Article 1.2(a)
the Thai Customs "grounds" for considering that the relationship
between PM Thailand and PM Philippines influenced the price;
-- Thailand acted
inconsistently with Article 16 by failing to provide an adequate explanation
on how Thai Customs determined the customs values for imported cigarettes;
-- Thailand acted
inconsistently with Article 7.1 by improperly assessing the deductive
value of the imported cigarettes concerned;
-- Thailand acted inconsistently with Article
7.3 by failing to properly inform PM Thailand in writing of the customs
value determined under Article 7 and the method used to determine such
value; and
-- Thailand acted
inconsistently with Article 10 by disclosing to the Thai media the confidential
customs valuation information provided by PM Thailand to Thai Customs.
On the Philippines' claims
under the GATT 1994, the panel concluded that:
-- regarding the determination of the MRSPs (Maximum
Retail Selling Price) for VAT on imported cigarettes, Thailand acted
inconsistently with Article III: 2, first sentence by subjecting imported
cigarettes to a VAT liability in excess of that applied to like domestic
cigarettes with respect to the MRSPs for the December 2005 MRSP Notice,
the September 2006 MRSP Notice, the March 2007 MRSP Notice, and the
August 2007 MRSP Notice;
-- regarding the VAT exemption for domestic cigarette
resellers, Thailand acted inconsistently with Article III: 2, first
sentence by subjecting imported cigarettes to a VAT liability in excess
of that applied to like domestic cigarettes by granting the exemption
from the VAT liability only to domestic cigarettes resellers; and
-- regarding the VAT exemption for domestic cigarette
resellers, Thailand acted inconsistently with Article III: 4 by subjecting
imported cigarettes to less favourable treatment compared to like domestic
cigarettes by imposing additional administrative requirements, connected
to VAT liabilities, on imported cigarette resellers.
With respect to the Philippines'
claims under Article X of the GATT 1994, the panel concluded that:
-- Thailand acted
inconsistently with Article X: 1 of the GATT 1994 for failing to publish
the methodology used to determine the tax base for VAT;
-- Thailand did not
act inconsistently with Article X: 1 by failing to publish the methodology
and data necessary to determine ex factory prices for domestic cigarettes;
-- Thailand acted
inconsistently with Article X: 1 of the GATT 1994 by failing to properly
publish the general rule pertaining to the release of guarantees;
-- Thailand did not
act inconsistently with Article X: 3(a) by appointing certain government
officials to the Board of Directors for TTM (Thailand Tobacco Monopoly);
-- Thailand acted
inconsistently with Article X: 3(a) because of the delays caused in
the decision-making process of the Thai Board of Appeals;
-- Thailand acted
inconsistently with Article X: 3(b) by failing to maintain or institute
independent review tribunals or processes for the prompt review of customs
valuation determinations; and
-- Thailand acted
inconsistently with Article X: 3(b) by failing to maintain or institute
independent review tribunals or process for the prompt review of guarantee
decisions.
Regarding the Philippines'
claim under Article 4 of the Customs Valuation Agreement, the panel
concluded that the Philippines' claim
cannot form part of its request for findings and recommendations because
the request was not made in a timely manner.
The panel also concluded that the Philippines'
sequencing claim under Article 7.1 of the Customs Valuation Agreement
cannot form part of the Philippines'
request for findings and recommendations because it was not presented
in a timely manner.
It further considered that Article 7.1 of the
Customs Valuation Agreement does not constitute the basis for an independent
sequencing claim under the Customs Valuation Agreement.
Noting that under Article 3.8 of the DSU (Dispute
Settlement Understanding), in cases where there is an infringement of
the obligations assumed under a covered agreement, the action is considered
prima facie to constitute a case of nullification or impairment, the
panel concluded that, to the extent that the measures listed in the
conclusions are inconsistent with the Customs Valuation Agreement and
the GATT 1994, they have nullified or impaired benefits accruing to
the Philippines under those Agreements.
Accordingly, the panel recommended that the Dispute
Settlement Body request Thailand to bring
these inconsistent measures as listed above into conformity with its
obligations under the GATT 1994 and the WTO Agreement.
Regarding its findings in respect of the September
2006 MRSP Notice, the March 2007 MRSP Notice, and the August 2007 MRSP
Notice, the panel said that "it is not entirely clear to us whether
and, if so, to what extent, these MRSP Notices will have effects on
the subsequent MRSP Notices."
"Our recommendations with respect to these
MRSP Notices, therefore, apply only to the extent they continue to have
effects. We do not make a recommendation for the December 2005 MRSP
Notice as it is not disputed that it has expired and does not continue
to exist for purpose of Article 19.1 of the DSU," the panel further
concluded. +
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