WTO win on cigarettes

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

Lost amidst the Manny Pacquiao fight and the marvelously ridiculous twisting of the Pope’s words by the pro-RH group, is the Philippine win at the WTO in case DS371, otherwise known as Thailand -- Customs and Fiscal Measures on Cigarettes from the Philippines. The case was initiated by the Philippines in February 2008, under the able stewardship of then DTI Undersecretary Tom Aquino and Assistant Secretary Tong Buencamino, and that early the case was tagged among international trade lawyers as Thai Cigarettes II (a landmark trade case during the GATT days relating to health measures). The WTO panel released its report on the case last Nov. 15, 2010 (and if you’re interested, you can view a copy of the 426 page report at http://www.wto.org/english/tratop_e/dispu_e/371r_e.pdf).

The case had to do with Thai taxes imposed on imported cigarettes, with Philippine total exports of our cigarettes significantly declining for the two years prior to the filing of the complaint. Notably, Philip Morris Philippines Manufacturing Inc.’s shipments to Thailand have been described as making up to 95% of its total exports, with the alleged cause of the slowdown said to be the Thai measures. 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.

Or, more accurately, the complaint revolved on whether violations or inconsistencies exist between the Thai measures and various provisions of the Agreement Implementing Article VII of GATT 1994 and the GATT itself. This would cover the areas of customs valuation, excise tax, health tax, TV tax, VAT regime, retail licensing requirements, and import guarantees, along with the national treatment provisions of the WTO.

An interesting aspect of the case is the Philippine allegation that "Thailand requires that tobacco and/or cigarette retailers hold separate licenses to sell domestic and imported cigarettes, respectively." 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.

In the end, the panel did reject Philippine claims under Article X:3(a) of the GATT, as well as Articles 4 and 7.1 of the Customs Valuation Agreement. But the panel did find that the Thais acted inconsistently with the provisions of Articles 1.1, 1.2, 1.2(a), 7.1, 7.3, 10, and 16 of the Customs Valuation Agreement; and Articles III.2 and III.4, as well as X.1, X.3(a), and X.3(b) of the GATT. The panel found also that "Thailand does not maintain or apply a general rule requiring the rejection of the transaction value and the use of the deductive valuation method."

At this point, the Thais have 10 days prior to the DSB meeting at which the panel report is to be considered with which to object to the report. 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 the Thais (or even the Philippines in relation to the portions of its claim not considered by the panel positively) formally notify 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.

This is a pretty nice victory for the country, particularly considering that the livelihood of hundreds, if not thousands, of Filipino farmers were at stake. For Filipino lawyers, it also represents the first time that the country won in an international dispute at the State-to-State level (there was previously the ICSID case involving the NAIA3 contract that the Philippines also won as well but that was on a State-to-private company level dispute). Previous to DS371, the Philippines had eight previous cases at the WTO, none of which resulted in a win. So I hope I be permitted in saying that I’m quite happy to at least have a small participation in this case as then legal adviser to the Philippines.

I’ll devote articles in the future to parse through some of the more interesting analysis and findings of the panel. If and when an appeal is made, your friendly Trade Tripper shall report on that as well. For the moment, a win is a win. Although, it would be interesting to see how the other WTO case (DS396 and DS403) turns out, this time involving the EC’s and the US’ complaint that Philippine excise taxes on distilled liquor discriminate against imported whiskey.

Hopefully, the whiskey case is as well managed and argued as the cigarette case was. It would be really interesting to see if a victory drink is forthcoming.