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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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