A spirited appeal

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

The Philippines appealed its quite surprising and bizarre loss in “Philippines -- Taxes on Distilled Spirits” (docketed as DS396 and DS403) to the WTO’s Appellate Body last Sept. 23, 2011. With admirable tenacity and definitely sobriety, it is hoped that a victory can be achieved with the respected judicial body of the WTO similar to that achieved by the Philippines in its cigarette case against Thailand.

The appeal is made more interesting by the fact that, as reported by BusinessWorld, the Finance Department already came up with suggested legislation simplifying the excise tax structure on alcoholic products by adopting a so-called “unitary rate”. Thus, “Distilled spirits such as whiskey, brandy, rum, gin, and vodka will be taxed according to their alcohol content under the new bill. Those that contain 45% alcohol and below will be taxed P42 per proof liter next year, increasing to P80 in 2013 and P150 the following year. Distilled spirits that have a more than 45% alcohol content will be charged P150 per proof liter next year, P233.73 in 2013 and P317.45 in 2014.” The change was drafted with general welfare and health purposes in mind, as well as the additional income of P60 billion it was expected to generate. The foregoing is also in line with President Aquino’s categorization of the amendment as a “priority measure.”

Never mind that the WTO dispute settlement system seems to have a “tendency towards complainant success,” with one research discovering an 81.9% success rate in Panel rulings, and a 78.4% success rate in Appellate Body rulings for complainants. Not relevant as well is that our very own legislators and government officials were “‘aware’ of the WTO incompatibility of the measures as well as that some domestic legislation distinguishes between domestic (‘local’) and imported products,” a fact mentioned in the panel report (see Panel report, page 91, para. 7.172).

Thus, as seen in the Panel report, Senator Ralph Recto would be found commenting that it “would be to the interest of the nation if we protect our local manufacturers.” Senator Enrile [stated that the purpose of lower tax rates was] “to protect the domestic people.” The Department of Finance acknowledged that the current excise tax system needed to be reformed so as “to make it consistent with the [Philippines’] commitments under the WTO,” while the Department of Trade and Industry declared the excise measure “inconsistent with GATT 1994 as it gives preferential treatment to domestic products produced from indigenous or locally sourced raw materials.” The Panel, along with the EU in its first written submission and the US’ response to Panel questions, also noted the following admissions from the 14th Congress: HB 6079 (filed by Reps. Limkaichong. Armaiz, and Teves) -- “The bill addresses the issue of unfair competition between manufacturers of locally produced and of imported alcohol products”; SB 2980 (filed by Sen. Lacson) -- “The bill addresses the issue of unfair competition between manufacturers of locally produced and of imported alcohol products”; and SB 3190 (also by Sen. Lacson) -- “The price-based classification of these products have severely favored locally produced brands.” (see Panel report, page 91, footnote 599).

In any event, as to the appeal process itself, it must be considered that the Appellate Body cannot determine questions of fact but merely look at issues pertaining to specific points of law. The appeal itself shall be heard by a three member grouping of the AB, all of whom are persons of “recognized authority, with demonstrated expertise in law, international trade and the subject-matter of the covered agreements generally. They are also required to be unaffiliated with any government and are to be broadly representative of the Membership of the WTO.” The Philippines has had the honor of having two of its own be members of the AB: Florentino Feliciano, who served from 1995 to 2001, and currently with Lilia Bautista, whose term ends in December of this year. The AB’s current chairman is American lawyer Jennifer Hillman. Usually, the AB takes three months to wrap up the appeal, after which the report is made to the Dispute Settlement Body which actually votes and decides on the case.

The beauty (and the power) of the WTO dispute system has to do with its speed and efficiency. It is, simply put, the most effective international dispute settlement system around today. It has great credibility as well, the AB particularly for its reputation of real integrity, with its members known to be “independent, impartial, and avoid conflicts of interest.” It is obvious why people consider the WTO dispute settlement system as the “crowning jewel” of the Uruguay Round of negotiations. However, an international trade dispute is still no place for flaky thinking or grandstanding. Particularly because international trade litigations are hugely expensive (not to mention research intensive) affairs.

All in, evidently an appeal has to -- nay, must be -- made because it will benefit the country to do so. God knows how.