WTO case: Philippine taxes on distilled spirits

is the subject of my Trade Tripper column in this Friday-Saturday issue of BusinessWorld:

As we mentioned, after the country’s historic win at the WTO in the Thai Cigarettes case, the Philippines is again before a WTO panel tangling this time with the European Commission. The EC’s complaint points to GATT Article III, the "national treatment" provision, and alleges that the Philippine tax structure (under RA 9334) on distilled spirits discriminates against imported products. The United States later filed its own separate complaint, with Australia, China, India, Mexico, Thailand, and Chinese Taipei coming in as third-party complainants.

The case is formally lodged as Philippines -- Taxes on Distilled Spirits (docketed as DS396; with DS403 being the US complaint). Interestingly enough, when consultations for this case began in October 2009, the EC and Uruguay had just announced settlement of their own WTO case. The EC’s claim centers on the allegation that Uruguay imposed a discriminatory excise tax on imported Scotch whisky. Uruguay agreed to amend its laws, thus averting WTO litigation.

National treatment is one of two foundational principles that run through the WTO Agreements (the other being the "most favored nation" principle, more popularly known as "mfn"). Both, though appearing to be quite simple, are rather complex in application and have given rise to a large number of problems in interpretation and implementation. Figuring highly in these discussions is the term "like products," a highly complex term as well and actually the focal point of the deliberations in the three previous WTO alcoholic beverage cases involving respondents Japan, Korea, and Chile, respectively. All three cases had the EU and US as complainants and all three resulted in wins for them.

The problem with the national treatment principle is that its enforcement leaves a lot of room for varying interpretations and approaches. On the whole, such ambiguity seems to have favored those asking for implementation of the same. WTO panels (as well as free trade agreements) have applied standards such as "intent," "likeness" (or "regulatory purpose"), "necessity," and "discriminatory treatment." This fact seems to be very much on the mind of the EC when it filed its first submission last November:

"105. In the light of the above, it is useful to recall once again that the vast majority of imported products are subject to the higher tax rates whereas all (or most of) local products enjoy the lower tax rate. It has just to be pointed out that the fact that few imported products (e.g. ‘Bacardi’) may also enjoy the lower tax rate does not exclude that the measures violate Article III:2. As the Panel in Argentina -- Bovine Hides made it clear: ‘Article III:2, first sentence, is applicable to each individual import transaction.’ It is thus sufficient to establish a breach of that provision that some (or even one) imported product is taxed in excess of a like domestic product."

From the above, one can see that the EC is leaving no room for chance, essentially making (as far as I can make it out) a play for the "likeness" and "discriminatory treatment" standards. As a commentator puts it, the EC claim effectively lays "the different options for non-discrimination standards in front of the panel."

The US seems to be taking the same approach as well, staking a claim on "intent," "likeness," and "discriminatory treatment." The US (judging from its Nov. 17, 2010, opening statement) is obviously unimpressed with the Philippine submission:

"7. While the facts and the law in this dispute are quite straightforward, the Philippines has attempted, through its lengthy first submission, to add confusion and complexity. The United States will not describe in detail each of the Philippines’ attempts to complicate the facts or law before the Panel. Instead, we will respond to several of the main arguments raised by the Philippines."

"42. In its submission, the Philippines takes issue with some aspects of the U.S. evidence, but it cannot wipe away the picture they show: Philippine spirits are made and marketed specifically to compete directly with imported products. The United States has more than met the complainant’s burden of making a prima facie case on the question of ‘like product’."

"43. Regarding the second element of a case under the first sentence of Article III:2, the Philippines offered no rebuttal to the information that the United States provided confirming that imported products are taxed in excess of domestic products. As is plain from the Philippines’ law and regulations, the tax applied to brands not made from local raw materials -- namely, imports -- is from about 10 to 40 times greater per proof liter than the rate applied to domestic brands."

Clearly, it would’ve been nice to discuss how the Philippines argued back on the foregoing. But, unlike the easily available EC and US documents (Australia’s as well; their governments’ transparency is such a nice thing indeed), it’s just quite difficult to find the Philippine submissions on the Internet. If ever it was posted at all, that is.