Reported liquor loss for next week

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

For now, we’ll discuss certain points of the Philippine win embodied in the WTO Appellate Body’s report in Thailand -- Customs and Fiscal Measures on Cigarettes from the Philippines (docketed as DS371). The case had to do with Thai taxes imposed on imported cigarettes covering the areas of customs valuation, excise taxes, VAT, and dual licensing requirements. Some commentators referred to the Philippine complaint as Thai Cigarettes II (a landmark case during the GATT days relating to health measures), as well as purportedly containing elements of the Korea -- Beef case.

The dispute 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, and Article 19 of the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (the “Customs Valuation Agreement”). A portion of the case deals with the validity of dual retail requirements, the Philippine complaint alleging that Thailand requires tobacco and/or cigarette retailers to hold separate licenses to sell domestic and imported cigarettes, respectively. The issue essentially is how the dual licensing requirement leads to discriminatory treatment against the imported cigarettes and thus is a violation of Article III.4 of the GATT.

A WTO 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. 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.”

On appeal to the Appellate Body, Thailand focused on the panel’s findings under Article III:2, Article III:4, and Article X:3.b of GATT 1994. The AB basically upheld practically all of the panel’s findings, finding that Thailand did violate Article III:2, first sentence, Article III.4, and Article X.3.b of GATT 1994. The AB concurred with the panel that Thailand’s measures created a discriminatory tax liability against imported like products. The Thai VAT exemption effectively subjected Philippine exported cigarettes to taxes not applied to like domestic cigarettes. Denying the defense that the subject measures constitute necessary “administrative requirements,” it was found by the AB that Thailand failed to prove that such could be justified under Article XX.d of GATT 1994. It was also found by the AB that Thai Customs failed to provide an adequate “independent tribunals or procedures for the prompt review of customs guarantee decisions,” any such review being available only after customs had made final determination on the matter.

The interesting thing about it is that, after all is said and done, where a panel or the AB concludes that a law or measure is inconsistent with a WTO agreement, it merely recommends “that the Member concerned bring the measure into conformity with that agreement.” A finding of damages, unlike in domestic litigation, is rarely given in a WTO proceeding. Furthermore, it’s not, technically, the panel or the AB that “decides” a case. That power is with the Dispute Settlement Body, which is composed of the 153 members of the WTO, voting by way of a bizarre, quite futile, procedure called the “reverse consensus.”

Thailand actually has several options at its disposal at this point. It could, within 30 days after the date of adoption of the AB report by the DSB, inform the DSB of its intentions regarding the implementation of the recommendations and rulings of the DSB. If it is impracticable to comply immediately with the recommendations and rulings, the member concerned shall have a reasonable period of time in which to do so. What is “reasonable period of time” is unfortunately an issue-laden matter. Thailand could also raise the question as to whether it already acted in consistency with a covered agreement of measures taken to comply with the recommendations and rulings in relation to the subject dispute. In which event, such shall be decided through recourse to dispute settlement procedures, perhaps involving even the original panel. All this time, it must be said, the DSB shall be monitoring the implementation of the adopted recommendations or rulings. The issue of implementing the recommendations or rulings may be raised at the DSB by any WTO member at any time following their adoption.

The Philippines, however, is not without recourse: should Thailand not implement the AB recommendations and rulings within a reasonable timeframe, the Philippines may request compensation or for suspension of concessions. Compensation is voluntary and, if granted, shall be consistent with the covered agreements. If Thailand’s compensation offer be unsatisfactory, then the Philippines may request authorization from the DSB to suspend the application to Thailand of concessions or other obligations under the covered agreements.

More to come about this case (and our alleged sad loss in the liquor case) in future articles.