WTO Panel Report Confirms that the Philippines' Tax Regime Discriminates EU Imports of Distilled Spirits

The EU had raised the issue with the Philippines repeatedly over the past years without success, and WTO consultations held with the Philippines in Manila in October 2009 had failed to lead to a satisfactory solution.

Aug 16 2011 --- A recently circulated WTO panel report confirms that the excise tax applied on distilled spirits in the Philippines discriminates against imported spirits and is therefore in violation of the principle of non-discrimination enshrined in the General Agreement on Tariffs and Trade (GATT), the European Commission writes. The EU had raised the issue with the Philippines repeatedly over the past years without success, and WTO consultations held with the Philippines in Manila in October 2009 had failed to lead to a satisfactory solution.

EU Trade Spokesman John Clancy said: "The panel report is the confirmation of what is a clear case of tax discrimination which has been and still is an important obstacle to imports into the Philippines. In light of the clear findings of the panel, we hope the Philippines will take the necessary steps to remedy this longstanding situation without further ado".

The taxes applied on imported distilled spirits are ten to 50 times higher than those applied on spirits manufactured in the Philippines. It was estimated that, from 2004 to 2007, EU exports of spirits to the Philippines had more than halved (from around €37 million to €18 million) due to the Excise Tax Regime, notably since a new legislation introduced in 2004 aggravated the tax discrimination.

The Philippine market for distilled spirits has an important potential, with a steady increase in demand over the last years. However, the discriminatory taxation system has led to a decline of overall consumption of imported spirits since 2005, while consumption of local spirits has significantly grown in the same period.

Imported spirits have been experiencing a longstanding discriminatory excise taxation regime in the Philippines market. According to this regime, spirits produced from certain raw materials are taxed at a flat specific rate. This category of products corresponds essentially to domestically produced spirits. All other spirits (mostly imported) are subject to a system of price bands at substantially higher taxes.

Following complaints by the EU industry, the European Commission has been working on the resolution of this situation with Philippine authorities over the past years, with no satisfactory result to date.

On 29 July 2009, the European Union requested WTO consultations with the Philippines. Consultations were held in Manila on 8 October 2009, with the United States participating as a third party. These consultations did not lead to a satisfactory solution.

Therefore, the EU in December 2009 requested the WTO to establish a dispute settlement panel. The US filed a similar case in March 2010. A single panel to deal with the two cases was established on 20 April 2010 and composed by the WTO Director General on 5 July 2010.

The final report of the panel, issued today, confirms the EU and US allegations that the excise tax regime on distilled spirits of the Philippines is in clear violation of article III: 2 of the GATT.

The panel report will be adopted by the WTO Dispute Settlement Body within 60 days, unless the Philippines introduce an appeal against the report within this period.