Lighting up at the WTO (hopefully)

. . . is the topic of my latest Trade Tripper column in this Friday-Saturday issue of BusinessWorld:

As reported in the newspapers last month, expect the report of the WTO panel on the case formally entitled "Thailand -- Customs and Fiscal Measures on Cigarettes from the Philippines" (docketed as DS371) to come out soon. The dispute is quite important considering that the livelihood of hundreds, if not thousands, of Filipino farmers is at stake. One thing should also be remembered: counting from the eight previous cases we’ve been a party to, we’ve never won yet at the WTO.

The request for consultations for this case was initiated way back on Feb. 7, 2008. 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 dispute, as a whole, covers the areas of customs valuation, excise taxes, health and TV tax, VAT, and dual licensing requirements. Specifically, it 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"). 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.

Following procedure, the panel should issue an interim report to the parties, including both the descriptive sections and the panel’s findings and conclusions. A party may submit a written request for the panel to review precise aspects of the interim report and to hold a further meeting with the parties on the issues identified in the written comments. If no comments are received from any party within the comment period, the interim report shall be considered the final panel report and circulated promptly to the members.

The 153-member Dispute Settlement Body of the WTO shall then have 20 days to "adopt" the report. A WTO member having objections to a panel report shall give written reasons to explain their objections and circulated 10 days prior to the DSB meeting at which the panel report is to be considered. Within 60 days after the date of circulation of a panel report to the members, the report shall be adopted at a DSB meeting unless a party to the dispute formally notifies the DSB of its decision to appeal. If an appeal is made, it shall be before the Appellate Body, which may then uphold, modify or reverse the legal findings and conclusions of the panel. The appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel.

Once the report becomes truly final, the same would normally contain a statement (which is what we’re hoping for) that the subject law or measure is inconsistent with the WTO Agreements and shall recommend that the member concerned bring the measure into conformity with the said agreements. In addition to its recommendations, the panel or Appellate Body may suggest ways in which the member concerned could implement the recommendations (and prompt compliance with recommendations or rulings of the DSB is essential). It must be said, however, that damages are rarely, very rarely, awarded at a WTO dispute.

Hopefully, this is the case that the Philippines finally gets its way in the WTO. As Chris Nelson of Philip Morris Philippines said in an earlier newspaper interview: "The issue is predictability. The [cost] differential is a financial burden. But we are hopeful that the panel agrees with the Philippine government which has put forward a strong case." There are pretty good reasons to think the Philippines may have something to celebrate. Recent research findings, most notably Andrew Guzman’s of the University of California, Berkeley, in his paper "The Political Economy of Litigation and Settlement at the WTO" (corroborated in recent empirical analysis by Juscelino Colares of Syracuse University), showed that complainant countries in WTO disputes win cases almost 90% of the time.

Hopefully, we don’t fall into that 10% exception. And for which, a nice cigarette (or cigar) break would be welcome indeed. After that, the question then becomes if a celebratory drink would be in order as well.