Of cigarettes and the WTO

Several interesting developments occurred in the dispute settlement front of the WTO. Rulings gave losses to the US on anti-dumping cases relating to India and Thai shrimps, while China is reported to have suffered it’s first ever defeat in a WTO dispute (on auto parts). Meanwhile, the US continues to defend its use of the zeroing methodology for anti-dumping cases. While some may interpret the same as reflecting something amiss amongst the relationships between the trading nations, I tend to view the disputes as a sign that the state of international trade and the world economy in general as relatively healthy despite all the fears about a US recession. It also confirms the much talked about efficiency of the WTO’s dispute system.

In any event, the most relevant of the dispute developments have to do with the case filed by the Philippines against Thailand at the WTO relating to Thai taxes imposed on imported cigarettes. According to reports, Philip Morris Philippines Manufacturing Inc. declared difficulty in attaining export growth targets, with total exports declining from two years ago. PMPMI’s shipments to Thailand have been described as making up to 95 percent of its total exports. The alleged cause of the export slowdown is said to be the Thai measures. Indeed, as alleged in the Philippine complaint, the Thai government does control a major tobacco company, the Thai Tobacco Monopoly, which “is the only business entity authorized by Thai law to produce cigarettes in Thailand”. The main cause of action of the Philippine complaint, therefore, is whether Thailand is violating WTO national treatment provisions.

The case is formally entitled Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines, and docketed as DS371. For purposes of full disclosure, I have to say that I had a hand in the research and analysis relating to the areas on customs valuation and excise tax, which now forms some portions of the Philippine complaint. The complaint also covers health and TV tax, VAT, and dual licensing requirements.
The complaint (actually a “request for consultations”) was dated 7 February 2008. Tellingly, analysis and commentary were already being made on the case by foreign lawyers and in websites as early as 13 February 2008, with BusinessWorld being the first to report on the matter to the Filipino public on 15 February 2008.
Some commentators point to the interesting timing of the complaint, following as it did the news regarding the Altria Group Inc.’s planned spinoff of Philip Morris International and, more substantively, the fact that the complaint came at the same time that negotiations on a protocol to the Framework Convention on Tobacco Control relating to illicit trade in tobacco products began. The effect these developments have on the case (or vice-versa), nevertheless, remains unclear.
The dispute, as a whole, involves the provisions of Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU"), Article XXII:1 of the General Agreement on Tariffs and Trade 1994 (the "GATT 1994", which is actually GATT 1947. Confused?), and Article 19 of the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (the "Customs Valuation Agreement").
Some commentators have referred to the Philippine complaint as Thai Cigarettes II (a landmark trade case during the GATT days relating to health measures), as well as containing elements of the Korea - Beef case. The latter case deals with the validity of dual retail requirements. Indeed, the Philippine complaint does allege that “Thailand requires that tobacco and/or cigarette retailers hold separate licenses to sell domestic and imported cigarettes, respectively. The Philippines understands that the measure in which these discriminatory requirements are contained include the Excise Department Announcement by the Director-General of Excise, dated 12 September 1991, issued pursuant to Article 4, Ministerial Regulation No. 17 B.E. 2534 (1991) under the Tobacco Act B.E. 2509 (1966), and any amendments, implementing measures or other related measures.”
The question, therefore, is how the dual licensing requirement leads to discriminatory treatment against the imported cigarettes and thus a violation of Article III.4 of the GATT, which states that "The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. "
As provided by the rules, the case is now awaiting consultation between the parties. Considering that the livelihood of hundreds, if not thousands, of Filipino farmers are at stake here, this is one trade matter that all Filipinos should be vigilantly monitoring and supporting. One thing should be remembered: of the 9 cases we’ve been a party to in the WTO, we’ve never won yet.