The following is the consultation request by the Philippines for the dispute docketed as DS371:
Request for Consultations by the Philippines
The following communication, dated 7 February 2008, from the delegation of the Philippines to the delegation of Thailand and to the Chairman of the Dispute Settlement Body, is circulated in accordance with Article 4.4 of the DSU.
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My authorities have instructed me to request consultations with the Kingdom of Thailand pursuant to 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"), and Article 19 of the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (the "Customs Valuation Agreement") with respect to the measures and claims set out below.
I. Claims under Article X:3(a) of the GATT 1994
1. The Philippines is a major exporter of cigarettes to Thailand. The Thai Tobacco Monopoly ("TTM") is the only business entity authorized by Thai law to produce cigarettes in Thailand. TTM has a market share of approximately 80 per cent. TTM's products are, therefore, the main competitor of the Philippines cigarettes in the Thai cigarette market.
2. There are numerous personal and institutional links between the Thai government and TTM that create serious conflicts of interests in the administration of Thai fiscal and customs legislation pertaining to cigarettes, and lead to biased, partial, and unreasonable administration of Thai law. By way of example, TTM is a business unit of the Thai Ministry of Finance, which is responsible for the administration of the value added, excise, health and "television" or "TV" taxes, as well as of customs charges. Furthermore, the Minister of Finance has authority to appoint and remove directors on the TTM Board of Directors, and the TTM Board of Directors includes or has included senior Ministry officials, such as the Director General for Excise and the Director General for Customs, who are engaged in the administration of duties and charges on cigarettes.
3. These pervasive institutional and personal links between TTM and the Thai government lead to conflicts of interest and partial and unreasonable administration of Thai fiscal and customs measures. In particular, Thailand administers in a partial and unreasonable manner:
· the customs valuation measures in paragraph 7;
· the excise tax measures in paragraph 13;
· the health tax measures in paragraph 14;
· the TV tax measures in paragraph 15; and
· the value added tax ("VAT") measures in paragraph 20.
4. In addition, in determining the guarantee or cash amount that importers of cigarettes may be required to deposit upon entry, Thailand administers its legal provisions pertaining to guarantees in a partial and unreasonable manner. In particular, Thailand administers in a partial and unreasonable manner:
· the provisions of the Customs Act B.E. 2469[1] (1926) (as amended) in respect of guarantees (specifically, Sections 112, 112 bis, 112 ter, and 112 quater);
· Customs Regulation No. 2/2550 (2007) Guideline to determine customs price valuation; and,
· any amendments, implementing measures, or measures related to the measures listed in this paragraph.
5. Thailand thereby violates Article X:3(a) of the GATT 1994.
II. Claims Pertaining to Customs Valuation
6. Between 2003 and August 2006, the Customs Department of the Kingdom of Thailand ("Thai Customs") routinely accepted as the basis for customs valuation the transaction value declared by importers on entries of imported cigarettes. However, since August 2006, Thai Customs has rejected the transaction value declared by importers on such entries as the basis for valuation, both for purposes of determining the amount of monies that importers are required to deposit as guarantees for the duties that may be payable on such entries, as well as for purposes of the final assessment of duties. Instead, on a general and prospective basis, Thai Customs arbitrarily pre-determines values that are higher than the declared transaction values and applies these values to all entries of imported cigarettes, in place of the declared transaction values. Thai Customs allows the importer to withdraw the subject goods from customs only if the importer makes a payment on the basis of the declared transaction value and deposits a guarantee of customs duties covering the difference between the declared transaction value and the applicable pre-determined value. Subsequently, Thai Customs issues a final assessment of customs value that is higher than the declared transaction value and that reflects the applicable pre-determined value, which is changed from time to time.
7. The measures at issue include:
· the general rule and/or methodology providing for the systematic rejection of transaction value, and the imposition of a higher pre-determined value, including any calculation methodology underpinning the pre-determined value. This measure (or measures) applies at the time of entry as well as at the time of final assessment;
· individual determinations made by Thai Customs for entries of cigarettes exported from the Philippines and landed between 4 August 2006 and today, including:
(a) the Notices of Assessment for the entries listed in Annex I to this request; and,
(b) the assessments of value for purposes of setting the guarantee or cash deposit at the time of entry for the entries listed in Annex II to this request;
· Customs Act, B.E. 2469 (1926) , including all amendments;
· Ministerial Regulation No. 132 B.E. 2543 (1990) issued under authority of the Customs Act B.E. 2469 (1926) and the amending Ministerial Regulation No. 145 B.E. 2547 (2004) and Ministerial Regulation No. 146 B.E. 2550 (2007):
· Notification No. 23/2549 (2006) of Thai Customs, containing guidelines on customs valuation;
· Customs Regulation No. 2/2550 (2007) Re: amendment of the Customs Formalities and Guidelines Code B.E. 2544 (2001) re: Customs formalities to prevent Customs value duty evasion, and amendment of Customs Department Regulation No. 14/2549 (2006) re: Guideline for Fixing of Customs Value;
· Customs Regulation No. 14/2549 (2006), re Guideline for Fixing of Customs Value, as amended by Customs Regulation No. 2/2550 (2007);
· Customs Notification No. 29/2549 (2006) Procedure in requesting duty fee assessment; and
· any amendments, implementing measures, or measures related to the measures listed in this paragraph.
8. As a result of these measures, Thailand fails to use transaction value as the basis for customs value, contrary to Articles 1.1, 1.2(a), and 1.2(b) of the Customs Valuation Agreement and the interpretative Notes to these provisions, as well as paragraphs 1 and 2 of the General Introductory Commentary. In so doing, Thailand fails to communicate the grounds for considering that the relationship between the parties influenced the declared price, as required by Article 1.2(a). Thailand also fails to conform to the sequence of valuation methods mandated by the Customs Valuation Agreement, and uses a valuation method that has no basis in the Customs Valuation Agreement. These actions are inconsistent with Articles 2, 3, 4, 5, 6, and 7, as well as the relevant interpretative Notes. These measures are also inconsistent with Article 13 of the Customs Valuation Agreement, as well as Article II:1(b) and II:3 of the GATT 1994.
9. Thailand has failed to provide an explanation for the determination of the pre-determined values applied to entries at the time of importation and at the time of final assessment, breaching its obligations under Article 16 of the Customs Valuation Agreement.
10. The Philippines considers that, for all these reasons, Thailand acts inconsistently with Articles VII:1, VII:2(a), VII:2(b), and VII:2(c) of the GATT 1994. Moreover, Thailand fails to publish the bases and methods for determining the value of cigarettes imported from the Philippines. This is in violation of Article VII:5 of the GATT 1994.
11. Further, Thai government officials appear to have publicly disclosed CIF values of imported cigarettes in the Thai media. The public disclosure of such business-confidential information is in violation of Article 10 of the Customs Valuation Agreement.
III. Claims pertaining to the Excise Tax, Health Tax and TV Tax regimes
12. Thailand imposes an ad valorem excise tax, health tax, and "television" or "TV" tax, on both imported and domestic cigarettes. For imported cigarettes, the basis for all these taxes is the CIF customs value as determined by the Thai customs authorities, whereas for domestic cigarettes, it is an ex-factory price determined by the Director-General for Excise.
13. The Philippines understands that Thailand operates the excise tax regime through measures including:
· the Tobacco Act B.E. 2509 (1966), Section 5 ter;
· Notices of Director-General for Excise, setting out the ex-factory prices. The currently applicable ex-factory prices are set out in the Notice B.E. 2550 (2007) of 29 August 2007; and,
· any amendments, implementing measures, or measures related to the measures listed in this paragraph.
14. The Philippines further understands that Thailand operates the health tax regime through measures including the Health Promotion and Foundation Act, B.E. 2544 (2001), in particular Sections 11, 12, and 13 thereof, and any amendments, implementing measures or other related measures.
15. The Philippines further understands that Thailand operates the TV tax regime through measures including the Thai Public Broadcasting Service Act 2551 (2008), in particular Sections 12, 13, and 14 thereof, and any amendments, implementing measures or other related measures.
16. As developed in Section II, Thailand determines excessive customs values for Philippine exports of cigarettes inconsistently with the Customs Valuation Agreement, and because these customs values serve as the tax basis for imposing the excise tax, the health tax and the TV tax, Thailand imposes a higher tax burden on imported products than on like and/or directly competitive or substitutable domestic products.
17. By so doing, Thailand acts inconsistently with Article III:2, first and second sentence. This discrimination against imported cigarettes is compounded by the fact that Thai law contains no procedure for cigarette importers to claim a refund of the portion of the excise tax, health tax and TV tax paid as a result of the excessive customs valuation. The failure of Thailand to provide for such a refund procedure results in a violation of Article III:2, first and second sentence. It also constitutes partial and unreasonable administration of the measures referred to in paragraphs 13, 14, and 15, contrary to Article X:3(a) of the GATT 1994.
18. Thailand also has not published the regulations pertaining to the determination of the ex-factory prices, which constitute the tax basis for Thailand's imposition of the excise, health and TV taxes on domestic cigarettes. As a result, Thailand is in violation of Article X:1 of the GATT 1994, which requires governments to publish trade laws and regulations of general application.
IV. Claims Pertaining to Thailand's Value-Added Tax ("VAT") Regime
A. Thailand's VAT regime
19. Under Thailand's fiscal regime, VAT on cigarettes is calculated by reference to brand-specific maximum retail selling prices ("MRSPs"). These MRSPs are determined by the Thai Government through executive acts applying solely to domestic cigarettes on one hand, and separate executive acts applying solely to imported cigarettes on the other hand. The MRSPs are modified from time to time. In the last two and a half years, the MRSPs for imported cigarettes have been changed more frequently than those for domestic cigarettes.
20. The Philippines understands that Thailand operates the VAT regime for cigarettes through measures including:
· Sections 79/5 and 81 of the Revenue Code of Thailand;
· Section 23 of the Tobacco Act B.E. 2509 (1966);
· Royal Decree, issued under the Revenue Code, Governing the Reduction of the Value Added Tax Rates (No. 465), B.E. 2550 (2007);
· Royal Decree issued under the Revenue Code Governing Exemption from Value Added Tax (No. 239) B.E. 2534 (1991);
· Order of the Revenue Department No. Por 85/2542 (1999);
· Notification of the Director-General of the Revenue Department on VAT (No. 10);
· MRSP Notices issued by the Director-General for Excise. The currently applicable MRSPs are set out in the Notice B.E. 2550 (2007) of 29 August 2007 (for domestic products) and in the Notice B.E. 2550 (2007) of 29 August 2007 together with Notice B.E. 2550 (2007) of 18 December 2007 (for imported products); and
· any amendments, implementing measures or other measures related to the measures listed in this paragraph.
21. The MRSPs for imported brands of cigarette, including those exported by the Philippines, are set at significantly higher levels than the MRSPs for like and/or directly competitive or substitutable domestic brands. Moreover, the MRSPs for imported cigarettes are set significantly above the actual retail selling price of those cigarettes, whereas the MRSPs for domestic cigarettes are set at the level of the actual retail selling price of those cigarettes. The higher MRSPs for imported products result in a higher fiscal burden for these products than for like and/or directly competitive or substitutable domestic products, and thereby afford protection to the domestic products. Therefore, the Philippines considers that the VAT imposed on imported products as a result of these measures is inconsistent with Article III:2, first and second sentence, of the GATT 1994.
22. Thailand also has not published the regulations pertaining to the determination of the MRSPs, which constitutes the tax base for Thailand's imposition of VAT on domestic and imported cigarettes. This failure is a violation of Article X:1 of the GATT 1994.
B. Other VAT-related requirements
23. Thailand imposes different VAT-related requirements on wholesale and retail sellers of cigarettes, depending on whether they sell domestic or imported products. In particular, these sellers are subject to VAT when they sell imported products but are exempt when they sell like and/or directly competitive or substitutable domestic products. Moreover, because wholesale and retail sellers of imported cigarettes are subject to VAT, whereas wholesale and retail sellers of domestic cigarettes are not, the former are also subject to VAT administrative requirements that are not imposed on sellers of the like and/or directly competitive or substitutable domestic product. The Philippines understands that the measure in which these discriminatory requirements are contained include Section 81 of the Revenue Code, Royal Decree issued under the Revenue Code Governing Exemption from Value Added Tax (No. 239) B.E. 2534 (1991), and Order of Revenue Department Por 85/2542, and any amendments, implementing measures or other related measures.
24. The Philippines considers that these measures are inconsistent with Articles III:4 and III:2, first and second sentence, of the GATT 1994.
V. Claims Pertaining to Retail Licensing Requirements
25. 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.
26. The Philippines considers that this dual license requirement, based purely on the origin of the products sold, is inconsistent with Article III:4 of the GATT 1994, because it provides less favourable treatment for imported products than for like domestic products.
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The Philippines reserves its right to raise further factual claims and legal matters during the course of consultations.
We look forward to receiving your reply to the present request and to fixing a mutually convenient date for consultations.
[1] The "B.E" year number designates the year in the Buddhist calendar. The year number in parentheses designates the corresponding year A.D.
ANNEX I
LIST OF ENTRIES FOR WHICH DEFINITIVE ASSESSMENT NOTICES
HAVE ALREADY BEEN ISSUED
ANNEX II
LIST OF ENTRIES FOR WHICH VALUE HAS BEEN ASSESSED
FOR PURPOSES OF SETTING THE GUARANTEE OR CASH DEPOSIT
AT THE TIME OF ENTRY AND FOR WHICH DEFINITIVE ASSESSMENT NOTICES
HAVE NOT YET BEEN ISSUED
The case is now awaiting "consultations" in accordance with the WTO DSU procedures and the reported venue of the same is Bangkok, Thailand.
