is the subject of my Trade Tripper column this Friday-Saturday issue of BusinessWorld:
As mentioned last week, after the country’s historic WTO Appellate Body win in our Thai Cigarettes case, news came that the Philippines disappointingly lost in Philippines -- Taxes on Distilled Spirits (docketed as DS396 and DS403). As reported by BusinessWorld, a WTO panel, “in a confidential report circulated to the parties involved in the dispute, had ruled that the Philippines’ taxes discriminate against brands such as Jack Daniel’s and Jim Beam as well as Spain’s Brandy de Jerez, while favoring domestic producers catering to the country’s $3-billion spirits market.”
Following WTO practice, the panel ruling itself is confidential until its formal release in August. This is to “provide sufficient time for the Members to consider panel reports,” which shall be considered for adoption by the Dispute Settlement Body only after 20 days from the date of circulation to the WTO members. After which, WTO members objecting to the panel report “shall give written reasons to explain their objections” at least 10 days prior to the DSB meeting.
In any event, the reactions of the disputants were quite predictable. US Ambassador Henry K. Thomas “welcomed” the panel ruling. The Distilled Spirits Association of the Philippines (DSAP) was reported by BusinessWorld as urging the government to immediately appeal the case to the WTO’s Appellate Body. In its statement, DSAP bravely declared that “the battle isn’t over for the local distilled spirits industry ... The Philippines needs to appeal WTO’s findings because of its adverse impact on local manufacturers, allied industries, Filipino consumers and the economy in general.”
An appeal would certainly be quite interesting. There have been three (only three, although there is also the ongoing DS423, Ukraine -- Taxes on Distilled spirits, filed by Moldovia) previous liquor tax disputes that went through the gauntlet of the WTO dispute system and all three were resolved in favor of the complainants. Theoretically, stare decisis is not followed in international law. Nevertheless, recent empirical studies have disturbingly shown that complainants in WTO disputes remarkably win almost 90% of the cases that go into litigation. This is a win-rate far above that of any domestic tribunal.
In a 2010 paper by New York University’s Mathew Turk (“Why Does The Complainant Always Win At The WTO: A Reputation-Based Theory of Litigation at the World Trade Organization”), he found that “the tendency towards complainant success is also not reversed under any subset of disputes. Maton and Maton found an 81.9 percent success rate in Panel rulings, and a 78.4 percent success rate in Appellate Body rulings. xxx In summary, while statistical studies of WTO outcomes use a variety of methods, their results are all substantially the same: the complainant almost always wins. Colares’ study, which coded its data most analogously to research on civil litigation, reported win-rates approaching 90 percent. Furthermore, these win-rates did not significantly decline for any subset of complainants or substantive area of dispute. Thus, the threshold counterargument -- that there is no empirical puzzle to explain because studies use the label ‘win’ incorrectly and fail to capture the true significance of litigation outcomes should be rejected.” Significantly, the foregoing corroborates the findings of Andrew Guzman of the University of California (“The Political Economy of Litigation and Settlement at the WTO”) and Juscelino Colares of Syracuse University (“A Theory of WTO Adjudication”).
Going back to the previous liquor cases, the first dispute, Japan -- Alcoholic Beverages (DS8, 10, 11), concerned the Japanese Liquor Tax Law’s system of internal taxes. The AB agreed -- ruling, amongst others, that the panel’s finding that vodka was taxed in excess of shochu was correct. It also accepted the panel’s interpretation that Art. III:2, first sentence, requires a determination of the presence of two elements: (i) whether the taxed imported and domestic products are like; and (ii) whether the taxes applied to the imported products are in excess of those applied to the like domestic products.
The second case, Korea -- Alcoholic Beverages (DS75, 84), relates to Korea’s multi-tiered taxation regime (the Liquor Tax Law of 1949 and the Education Tax Law of 1982) on the sale of alcoholic beverages. The complaint centered on GATT Article III:2. In this case, the AB held, amongst others, that evidence of “present direct competition” and the panel’s approach of grouping the liquor products were appropriate.
Finally, Chile -- Alcoholic Beverages (DS87, 110) dealt with the “Additional Tax on Alcoholic Beverages” (“Impuesto Adicional a las bebidas Alcoholicas”), levying an excise tax on the sale and importation of alcoholic beverages. The complaint again looked at GATT Art. III:2, second sentence. The AB found that an examination of the design, architecture, and structure of Chile’s tax law tended to reveal that the application of dissimilar taxation of directly competitive or substitutable products would “afford protection to domestic production.”
A more accurate analysis of this case would have to wait for August. In the meantime, nevertheless, it still boils back to that old dictum: in vino veritas.
7.7.11
30.6.11
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.
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.
29.6.11
Philippines said to have lost liquor tax dispute
reported in today’s BusinessWorld:
Taxes levied by the Philippines on alcoholic drinks from the European Union and United States are illegal under global rules, the world’s trade dispute body ruled on Monday, according to sources close to the case.
Washington’s envoy in Manila said he welcomed the decision, while the Philippines’ tax chief -- insisting that the duty system was not discriminatory -- said it would be up to legislators to change relevant laws.
Sources said that a World Trade Organization (WTO) legal panel, in a confidential report circulated to the parties involved in the dispute, had ruled that the Philippines’ taxes discriminate against brands such as Jack Daniel’s and Jim Beam as well as Spain’s Brandy de Jerez, while favoring domestic producers catering to the country’s $3-billion spirits market.
The ruling is confidential until its publication in August, and trade officials for the EU and US were unable to comment on its contents. But it is being eyed keenly by Spanish brandy makers and US firms such Brown-Forman Corp. , which owns Jack Daniel’s, and Fortune Brands Inc., which makes Jim Beam.
“We have long questioned the Philippines’ discriminatory tax approach. We are optimistic of a positive result from the WTO panel, which will be particularly welcomed by Spain since Spanish brandy constitutes the main EU spirits export to the Philippines,” said Jamie Fortescue, director general of the European Spirits Organization.
The ruling dismissed Manila’s argument that imported whiskey and brandy do not compete with locally made alcohol and that differing taxes -- set according to the raw material used -- should therefore be legal, sources said.
It found that the purpose of a lower tax on domestic alcohol that can be directly substituted for imports was to protect domestic producers, an illegal aim under WTO rules.
The EU, whose annual global spirits exports amount to about 7 billion euros ($10 billion), blames the tax for halving EU spirits sales to the Philippines between 2004 and 2007 to 18 million euros. Brussels lodged a WTO challenge against the Philippines in January last year.
The United States, which followed suit with a similar challenge in April last year, similarly says the Philippines’ tax system -- imposing duties 10-40 times higher on spirits not distilled from materials such as sugar cane and molasses produced in the Philippines -- means it has failed to gain more than 5% of the country’s market.
In Manila, US Ambassador Henry K. Thomas said Washington welcomed the WTO’s preliminary decision.
“The US looks forward to a level playing field in the country, since the consumer benefits with fair prices even from goods coming from outside the Philippines,” Mr. Thomas Jr. said at the sidelines of a Management Association of the Philippines press conference.
Bureau of Internal Revenue (BIR) Commissioner Kim S. Jacinto-Henares, meanwhile, said it would be up to Congress to amend the country’s tax laws once the WTO ruling becomes final.
“I will still collect excise taxes, as stated in the National Internal Revenue Code (NIRC). There will be no changes until Congress amends the law,” Ms. Henares told BusinessWorld.
Under Section 141 of the NIRC, alcohol products produced from the sap of nipa, coconut, cassava, camote, buri palm or from the juice, syrup or sugar of the cane are charged an P8 excise tax per proof liter.
Alcohol products not made from the identified raw materials are levied an excise tax of between P75 to P300 per proof liter Imported spirits tend to fall under this category because they are usually made of barley, wheat and grapes, Ms. Henares explained.
Taxes levied by the Philippines on alcoholic drinks from the European Union and United States are illegal under global rules, the world’s trade dispute body ruled on Monday, according to sources close to the case.
Washington’s envoy in Manila said he welcomed the decision, while the Philippines’ tax chief -- insisting that the duty system was not discriminatory -- said it would be up to legislators to change relevant laws.
Sources said that a World Trade Organization (WTO) legal panel, in a confidential report circulated to the parties involved in the dispute, had ruled that the Philippines’ taxes discriminate against brands such as Jack Daniel’s and Jim Beam as well as Spain’s Brandy de Jerez, while favoring domestic producers catering to the country’s $3-billion spirits market.
The ruling is confidential until its publication in August, and trade officials for the EU and US were unable to comment on its contents. But it is being eyed keenly by Spanish brandy makers and US firms such Brown-Forman Corp. , which owns Jack Daniel’s, and Fortune Brands Inc., which makes Jim Beam.
“We have long questioned the Philippines’ discriminatory tax approach. We are optimistic of a positive result from the WTO panel, which will be particularly welcomed by Spain since Spanish brandy constitutes the main EU spirits export to the Philippines,” said Jamie Fortescue, director general of the European Spirits Organization.
The ruling dismissed Manila’s argument that imported whiskey and brandy do not compete with locally made alcohol and that differing taxes -- set according to the raw material used -- should therefore be legal, sources said.
It found that the purpose of a lower tax on domestic alcohol that can be directly substituted for imports was to protect domestic producers, an illegal aim under WTO rules.
The EU, whose annual global spirits exports amount to about 7 billion euros ($10 billion), blames the tax for halving EU spirits sales to the Philippines between 2004 and 2007 to 18 million euros. Brussels lodged a WTO challenge against the Philippines in January last year.
The United States, which followed suit with a similar challenge in April last year, similarly says the Philippines’ tax system -- imposing duties 10-40 times higher on spirits not distilled from materials such as sugar cane and molasses produced in the Philippines -- means it has failed to gain more than 5% of the country’s market.
In Manila, US Ambassador Henry K. Thomas said Washington welcomed the WTO’s preliminary decision.
“The US looks forward to a level playing field in the country, since the consumer benefits with fair prices even from goods coming from outside the Philippines,” Mr. Thomas Jr. said at the sidelines of a Management Association of the Philippines press conference.
Bureau of Internal Revenue (BIR) Commissioner Kim S. Jacinto-Henares, meanwhile, said it would be up to Congress to amend the country’s tax laws once the WTO ruling becomes final.
“I will still collect excise taxes, as stated in the National Internal Revenue Code (NIRC). There will be no changes until Congress amends the law,” Ms. Henares told BusinessWorld.
Under Section 141 of the NIRC, alcohol products produced from the sap of nipa, coconut, cassava, camote, buri palm or from the juice, syrup or sugar of the cane are charged an P8 excise tax per proof liter.
Alcohol products not made from the identified raw materials are levied an excise tax of between P75 to P300 per proof liter Imported spirits tend to fall under this category because they are usually made of barley, wheat and grapes, Ms. Henares explained.
25.6.11
Decoupling WTO from Doha
Can the WTO be decoupled from Doha? is the question that seems to be on everybody’s mind these days, particularly considering that most likely Doha will not be concluded this year (if at all). Excerpt of an article by Ujal Singh Bhatia, Former Indian Ambassador and Permanent Representative to the WTO in Geneva:
“The first will arrest the continuing erosion of the non-discrimination principle. The second will thwart the trend towards unequal rules being incorporated into RTAs. Together, they will reinforce the centrality of the WTO in the global trading system. The prolonged standoff over “new” market access, by preventing the WTO from fulfilling these objectives, is causing serious damage to the global trading system. The solution to the WTO’s problems, therefore, lies not in decoupling the WTO from the Doha Round, but in enabling it to achieve an ambitious Doha outcome based on its development mandate.
There are a number of factors that lend credence to the view that the support and leadership of the US and EU for the multilateral process is diminishing. First, both continue to be preoccupied with the management of the aftermath of the financial and economic crisis. Second, the political dynamic in the WTO has shifted towards greater equality of voice among members and it has become difficult for the erstwhile leaders to have a decisive say in moulding outcomes. The increasing focus of the US and the EU on RTAs is a response to this development. The ACTA negotiations (anti-counterfeiting trade agreement) are another manifestation of this response.”
“The first will arrest the continuing erosion of the non-discrimination principle. The second will thwart the trend towards unequal rules being incorporated into RTAs. Together, they will reinforce the centrality of the WTO in the global trading system. The prolonged standoff over “new” market access, by preventing the WTO from fulfilling these objectives, is causing serious damage to the global trading system. The solution to the WTO’s problems, therefore, lies not in decoupling the WTO from the Doha Round, but in enabling it to achieve an ambitious Doha outcome based on its development mandate.
There are a number of factors that lend credence to the view that the support and leadership of the US and EU for the multilateral process is diminishing. First, both continue to be preoccupied with the management of the aftermath of the financial and economic crisis. Second, the political dynamic in the WTO has shifted towards greater equality of voice among members and it has become difficult for the erstwhile leaders to have a decisive say in moulding outcomes. The increasing focus of the US and the EU on RTAs is a response to this development. The ACTA negotiations (anti-counterfeiting trade agreement) are another manifestation of this response.”
23.6.11
Philippines’ WTO win on cigarettes
is the subject of my Trade Tripper column in this Friday-Saturday issue of BusinessWorld:
The country finally got good news in the international front when the WTO’s Appellate Body released last June 17, 2011, its report on Thailand -- Customs and Fiscal Measures on Cigarettes from the Philippines (docketed as DS371). The dispute is quite important considering that the livelihood of thousands of Filipino farmers was at stake. It should also quiet local critics of the WTO: say what they will, it cannot be denied that without the WTO’s highly efficient dispute settlement system, the country would not have been able to protect its interests as well as it did.
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. 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 the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU"), the General Agreement on Tariffs and Trade 1994 (the "GATT 1994," which is actually GATT 1947), and the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (the "Customs Valuation Agreement"). The main cause of action of the Philippine complaint is whether Thailand is violating WTO national treatment provisions.
The WTO panel released its report last Nov. 15, 2010 (a copy of the 426 page report can be viewed at http://www.wto.org/english/tratop_e/dispu_e/371r_e.pdf). The WTO panel found 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."
On promptly appealing to the AB, Thailand focused on the panel’s findings under Article III:2, Article III:4, and Article X:3(b) of the GATT 1994. With its report, the AB essentially upheld all of the panel’s key findings and, thusly, an overwhelming victory for the Philippines. A copy of the AB report can be found in http://www.worldtradelaw.net/reports/wtoab/thailand-cigarettesphilippines(ab).pdf. The report, in conclusion, pointedly found:
"223. For the reasons set out in this Report, the Appellate Body:
"(a) with respect to the Panel’s findings under Article III of the GATT 1994 concerning Thailand’s treatment of resellers of imported cigarettes, as compared to its treatment of resellers of like domestic cigarettes:
"(i) upholds the Panel’s finding, in paragraph 8.3(b) of the Panel Report, that Thailand acts inconsistently with Article III:2, first sentence, of the GATT 1994 by subjecting imported cigarettes to VAT liability in excess of that applied to like domestic cigarettes;
(ii) with respect to the Panel’s findings under Article III:4 of the GATT 1994:
"- finds that the Panel did not err in concluding, in paragraph 7.738 of the Panel Report, that Thailand accords less favourable treatment to imported cigarettes than to like domestic cigarettes; xxx and
"(b) upholds the Panel’s finding, in paragraph 8.4(g) of the Panel Report, that Thailand acts inconsistently with Article X:3(b) of the GATT 1994.
"224. The Appellate Body recommends that the DSB request Thailand to bring its measures, found in this Report, and in the Panel Report as modified by this Report, to be inconsistent with the Agreement on Customs Valuation and the GATT 1994, into conformity with its obligations under those Agreements."
This is a good win for the country. It also clearly demonstrated how important it is for local industry to cooperate and work well with (rather than antagonize or take a suspicious stance vis-a-vis) our trade officials in handling disputes. In this case, the supportive attitude and competence of Philip Morris is to be commended. For Filipino lawyers, it also represents the first time the country won in an international dispute at the state-to-state level (the ICSID case involving the NAIA3 contract was on a state-to-private company level dispute). Prior to DS371, the Philippines had won none of its eight previous cases at the WTO (none also for the International Court of Justice). So I hope I be permitted in saying that, alongside trade officials Tom Aquino and Tong Buencamino and lawyers Dondi Teehankee and JV Chan-Gonzaga, I’m quite happy to at least have a small participation in this case as then legal adviser to the Philippines.
I’ll devote a future article to parse through some of the more interesting analysis and findings of the AB, as well as consequences moving forward. For the moment, a win is a win. 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, aside from the smokes, a victory drink would be forthcoming as well.
The country finally got good news in the international front when the WTO’s Appellate Body released last June 17, 2011, its report on Thailand -- Customs and Fiscal Measures on Cigarettes from the Philippines (docketed as DS371). The dispute is quite important considering that the livelihood of thousands of Filipino farmers was at stake. It should also quiet local critics of the WTO: say what they will, it cannot be denied that without the WTO’s highly efficient dispute settlement system, the country would not have been able to protect its interests as well as it did.
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. 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 the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU"), the General Agreement on Tariffs and Trade 1994 (the "GATT 1994," which is actually GATT 1947), and the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (the "Customs Valuation Agreement"). The main cause of action of the Philippine complaint is whether Thailand is violating WTO national treatment provisions.
The WTO panel released its report last Nov. 15, 2010 (a copy of the 426 page report can be viewed at http://www.wto.org/english/tratop_e/dispu_e/371r_e.pdf). The WTO panel found 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."
On promptly appealing to the AB, Thailand focused on the panel’s findings under Article III:2, Article III:4, and Article X:3(b) of the GATT 1994. With its report, the AB essentially upheld all of the panel’s key findings and, thusly, an overwhelming victory for the Philippines. A copy of the AB report can be found in http://www.worldtradelaw.net/reports/wtoab/thailand-cigarettesphilippines(ab).pdf. The report, in conclusion, pointedly found:
"223. For the reasons set out in this Report, the Appellate Body:
"(a) with respect to the Panel’s findings under Article III of the GATT 1994 concerning Thailand’s treatment of resellers of imported cigarettes, as compared to its treatment of resellers of like domestic cigarettes:
"(i) upholds the Panel’s finding, in paragraph 8.3(b) of the Panel Report, that Thailand acts inconsistently with Article III:2, first sentence, of the GATT 1994 by subjecting imported cigarettes to VAT liability in excess of that applied to like domestic cigarettes;
(ii) with respect to the Panel’s findings under Article III:4 of the GATT 1994:
"- finds that the Panel did not err in concluding, in paragraph 7.738 of the Panel Report, that Thailand accords less favourable treatment to imported cigarettes than to like domestic cigarettes; xxx and
"(b) upholds the Panel’s finding, in paragraph 8.4(g) of the Panel Report, that Thailand acts inconsistently with Article X:3(b) of the GATT 1994.
"224. The Appellate Body recommends that the DSB request Thailand to bring its measures, found in this Report, and in the Panel Report as modified by this Report, to be inconsistent with the Agreement on Customs Valuation and the GATT 1994, into conformity with its obligations under those Agreements."
This is a good win for the country. It also clearly demonstrated how important it is for local industry to cooperate and work well with (rather than antagonize or take a suspicious stance vis-a-vis) our trade officials in handling disputes. In this case, the supportive attitude and competence of Philip Morris is to be commended. For Filipino lawyers, it also represents the first time the country won in an international dispute at the state-to-state level (the ICSID case involving the NAIA3 contract was on a state-to-private company level dispute). Prior to DS371, the Philippines had won none of its eight previous cases at the WTO (none also for the International Court of Justice). So I hope I be permitted in saying that, alongside trade officials Tom Aquino and Tong Buencamino and lawyers Dondi Teehankee and JV Chan-Gonzaga, I’m quite happy to at least have a small participation in this case as then legal adviser to the Philippines.
I’ll devote a future article to parse through some of the more interesting analysis and findings of the AB, as well as consequences moving forward. For the moment, a win is a win. 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, aside from the smokes, a victory drink would be forthcoming as well.
19.6.11
AB report on DS371 Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines
The WTO Appellate Body released its findings in DS371 Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines last 17 June 2011. Below is the summary of findings from the WTO website. The full report can be found here.
Summary of key findings
Thailand's appeal was limited to certain of the Panel's findings under Article III:2, Article III:4, and Article X:3(b) of the GATT 1994. The Appellate Body upheld the core findings challenged by Thailand on appeal.
The Appellate Body upheld the Panel's finding that Thailand acts inconsistently with Article III:2, first sentence, of the GATT 1994 by subjecting imported cigarettes to internal taxes in excess of those applied to like domestic cigarettes. The Thai measure at issue consists of an exemption from value added tax (“VAT”) liability for resellers of domestic cigarettes, together with the imposition of VAT on resellers of imported cigarettes when they do not satisfy prescribed conditions for obtaining input tax credits necessary to achieve zero VAT liability. The Appellate Body agreed with the Panel that this measure affects the respective tax liability imposed on imported and like domestic products. The Appellate Body therefore rejected Thailand's characterization of the measure as “administrative requirements”, as well as Thailand's argument that the measure should have been examined under Article III:4, and not Article III:2, of the GATT 1994.
The Appellate Body also upheld the Panel's finding that Thailand acts inconsistently with Article III:4 of the GATT 1994 by according less favourable treatment to imported cigarettes than to like domestic cigarettes. The Thai measure at issue consists of an exemption from three sets of VAT-related administrative requirements for resellers of domestic cigarettes, together with the imposition of these requirements on resellers of imported cigarettes. The Appellate Body found that the Panel properly analyzed this measure and its implications in the marketplace, and therefore agreed with the Panel that this measure accords less favourable treatment to imported cigarettes by imposing the additional administrative requirements only on resellers of imported cigarettes. The Appellate Body further found that the Panel did not fail to ensure due process or to comply with its duty under Article 11 of the DSU by accepting and relying upon evidence, submitted by the Philippines late in the Panel proceedings, relating to one of the administrative requirements. Due to an error in the Panel's identification of the basis for its finding, the Appellate Body reversed the Panel's finding that Thailand had not satisfied its burden of proving its defence under Article XX(d) of the GATT 1994. In completing the legal analysis, however, the Appellate Body found, as had the Panel, that Thailand failed to establish that the administrative requirements at issue are justified under Article XX(d) of the GATT 1994.
Finally, the Appellate Body upheld the Panel's finding that Thailand acts inconsistently with Article X:3(b) of the GATT 1994 by failing to maintain or institute independent tribunals or procedures for the prompt review of customs guarantee decisions. Thai Customs requires importers to provide a guarantee in order to obtain the release of goods from customs pending a final determination of customs value. The Appellate Body saw no error in the Panel's conclusion that Thailand's system for the review of guarantees does not comply with the obligation to ensure prompt review under Article X:3(b) because such review is not available until after a final determination of customs value has been made.
Summary of key findings
Thailand's appeal was limited to certain of the Panel's findings under Article III:2, Article III:4, and Article X:3(b) of the GATT 1994. The Appellate Body upheld the core findings challenged by Thailand on appeal.
The Appellate Body upheld the Panel's finding that Thailand acts inconsistently with Article III:2, first sentence, of the GATT 1994 by subjecting imported cigarettes to internal taxes in excess of those applied to like domestic cigarettes. The Thai measure at issue consists of an exemption from value added tax (“VAT”) liability for resellers of domestic cigarettes, together with the imposition of VAT on resellers of imported cigarettes when they do not satisfy prescribed conditions for obtaining input tax credits necessary to achieve zero VAT liability. The Appellate Body agreed with the Panel that this measure affects the respective tax liability imposed on imported and like domestic products. The Appellate Body therefore rejected Thailand's characterization of the measure as “administrative requirements”, as well as Thailand's argument that the measure should have been examined under Article III:4, and not Article III:2, of the GATT 1994.
The Appellate Body also upheld the Panel's finding that Thailand acts inconsistently with Article III:4 of the GATT 1994 by according less favourable treatment to imported cigarettes than to like domestic cigarettes. The Thai measure at issue consists of an exemption from three sets of VAT-related administrative requirements for resellers of domestic cigarettes, together with the imposition of these requirements on resellers of imported cigarettes. The Appellate Body found that the Panel properly analyzed this measure and its implications in the marketplace, and therefore agreed with the Panel that this measure accords less favourable treatment to imported cigarettes by imposing the additional administrative requirements only on resellers of imported cigarettes. The Appellate Body further found that the Panel did not fail to ensure due process or to comply with its duty under Article 11 of the DSU by accepting and relying upon evidence, submitted by the Philippines late in the Panel proceedings, relating to one of the administrative requirements. Due to an error in the Panel's identification of the basis for its finding, the Appellate Body reversed the Panel's finding that Thailand had not satisfied its burden of proving its defence under Article XX(d) of the GATT 1994. In completing the legal analysis, however, the Appellate Body found, as had the Panel, that Thailand failed to establish that the administrative requirements at issue are justified under Article XX(d) of the GATT 1994.
Finally, the Appellate Body upheld the Panel's finding that Thailand acts inconsistently with Article X:3(b) of the GATT 1994 by failing to maintain or institute independent tribunals or procedures for the prompt review of customs guarantee decisions. Thai Customs requires importers to provide a guarantee in order to obtain the release of goods from customs pending a final determination of customs value. The Appellate Body saw no error in the Panel's conclusion that Thailand's system for the review of guarantees does not comply with the obligation to ensure prompt review under Article X:3(b) because such review is not available until after a final determination of customs value has been made.
17.6.11
EO 45, designating DOJ as Competition Authority
Here's the full text of Executive Order No. 45, Series 2011:
MALACAÑAN PALACE
MANILA
BY THE PRESIDENT OF THE PHILIPPINES
EXECUTIVE ORDER NO. 45
DESIGNATING THE DEPARTMENT OF JUSTICE AS THE COMPETITION AUTHORITY
WHEREAS, Section 20, Article II of the 1987 Constitution provides that the State recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investments;
WHEREAS, Sections 13 and 19, Article XII of the 1987 Constitution provide that the State shall pursue a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity and shall regulate or prohibit monopolies when the public interest so requires;
WHEREAS, recent developments from the World Trade Organization (WTO), the ASEAN Free Trade Area (AFTA), and the trade liberalization initiatives under the Asia Pacific Economic Cooperation (APEC) forum advocate competition in domestic and international trade;
WHEREAS, there is a need to promote competition and level the playing field in the market;
WHEREAS, Republic Act No. 4152 approved on 20 June 1964 vests upon the Secretary of Justice the duty “to study all laws relating to trusts, monopolies and combinations, to draft such legislation as may be necessary to update or revise existing laws to enable the Government to deal more effectively with monopolistic practices and all forms of trusts and combination in restraint of trade or free competition and/or tending to bring about non-competitive prices of articles of prime necessity, to investigate all cases involving violations of such laws, and to initiate and take such preventive or remedial measures, including appropriate judicial proceedings to prevent or restrain monopolization and allied practices or activities of trust, monopolies and combinations”;
WHEREAS, Act No. 3247 enacted on 1 December 1925 and Article 186 of the Revised Penal Code, as amended, both penalize monopolies and combinations in restraint of trade;
WHEREAS, the Department of Justice (DOJ) is the principal legal counsel and prosecution arm of the government under Section 3, Chapter 1, Title III, Book IV of Executive Order No. 292 (Administrative Code of 1987) and also the central authority for matters requiring international legal cooperation;
WHEREAS, the DOJ likewise serves as the principal agency mandated to enforce the rule of law and investigate and prosecute offenders; and,
WHEREAS, the President, under Article VII, Section 17 of the Constitution; has the power and control over executive departments, bureaus and offices, as well as the continuing authority under existing laws to reorganize such executive departments, bureaus and agencies.
NOW, THEREFORE, I, BENIGNO S. AQUINO III, President of the Philippines, by virtue of the powers vested in me by law, do hereby order:
SECTION 1. Designation of Competition Authority. The DOJ is hereby designated as the Competition Authority with the following duties and responsibilities:
a.Investigate all cases involving violations of competition laws and prosecute violators to prevent, restrain and punish monopolization, cartels and combinations in restraint of trade;
b.Enforce competition policies and laws to protect consumers from abusive, fraudulent, or harmful corrupt business practices;
c.Supervise competition in markets by ensuring that prohibitions and requirements of competition laws are adhered to, and to this end, call on other government agencies and/or entities for submission of reports and provision for assistance;
d.Monitor and implement measures to promote transparency and accountability in markets;
e.Prepare, publish and disseminate studies and reports on competition to inform and guide the industry and consumers; and
f.Promote international cooperation and strengthen Philippine trade relations with other countries, economies, and institutions in trade agreements.
SECTION 2. Office for Competition. There is hereby created the Office for Competition under the Office of the Secretary of Justice to carry out the duties and responsibilities set forth in Section 1. The Office shall be manned by such number of staff including legal and technical experts, consultants and resource persons to effectively and efficiently pursue its mandate. The Secretary of Justice shall designate the Chief/Head and members of the said Office.
SECTION 3. Funding. To carry out the provisions of this Order, initial funds for the operations of the Office for Competition shall be taken from the available funds of the DOJ. Thereafter, such amount as may be deemed necessary for the annual operations of said Office, shall be incorporated and included in the annual budgetary appropriations of the DOJ.
SECTION 4. Separability Clause. If any provision of this Executive Order is declared invalid or unconstitutional, the other provisions not affected thereby shall remain valid and subsisting.
SECTION 5. Repealing Clause. All orders, rules, regulations, and issuances, or part thereof, which are inconsistent with this Executive Order, are hereby repealed, amended, or modified accordingly.
SECTION 6. Effectivity. This Executive Order shall take effect immediately upon publication in a newspaper of general circulation.
DONE, in the City of Manila, this 9th day of June, in the year of our Lord, Two Thousand Eleven.
(Sgd.) BENIGNO S. AQUINO III
By the President:
(Sgd.) PAQUITO N. OCHOA, JR.
Executive Secretary
MALACAÑAN PALACE
MANILA
BY THE PRESIDENT OF THE PHILIPPINES
EXECUTIVE ORDER NO. 45
DESIGNATING THE DEPARTMENT OF JUSTICE AS THE COMPETITION AUTHORITY
WHEREAS, Section 20, Article II of the 1987 Constitution provides that the State recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investments;
WHEREAS, Sections 13 and 19, Article XII of the 1987 Constitution provide that the State shall pursue a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity and shall regulate or prohibit monopolies when the public interest so requires;
WHEREAS, recent developments from the World Trade Organization (WTO), the ASEAN Free Trade Area (AFTA), and the trade liberalization initiatives under the Asia Pacific Economic Cooperation (APEC) forum advocate competition in domestic and international trade;
WHEREAS, there is a need to promote competition and level the playing field in the market;
WHEREAS, Republic Act No. 4152 approved on 20 June 1964 vests upon the Secretary of Justice the duty “to study all laws relating to trusts, monopolies and combinations, to draft such legislation as may be necessary to update or revise existing laws to enable the Government to deal more effectively with monopolistic practices and all forms of trusts and combination in restraint of trade or free competition and/or tending to bring about non-competitive prices of articles of prime necessity, to investigate all cases involving violations of such laws, and to initiate and take such preventive or remedial measures, including appropriate judicial proceedings to prevent or restrain monopolization and allied practices or activities of trust, monopolies and combinations”;
WHEREAS, Act No. 3247 enacted on 1 December 1925 and Article 186 of the Revised Penal Code, as amended, both penalize monopolies and combinations in restraint of trade;
WHEREAS, the Department of Justice (DOJ) is the principal legal counsel and prosecution arm of the government under Section 3, Chapter 1, Title III, Book IV of Executive Order No. 292 (Administrative Code of 1987) and also the central authority for matters requiring international legal cooperation;
WHEREAS, the DOJ likewise serves as the principal agency mandated to enforce the rule of law and investigate and prosecute offenders; and,
WHEREAS, the President, under Article VII, Section 17 of the Constitution; has the power and control over executive departments, bureaus and offices, as well as the continuing authority under existing laws to reorganize such executive departments, bureaus and agencies.
NOW, THEREFORE, I, BENIGNO S. AQUINO III, President of the Philippines, by virtue of the powers vested in me by law, do hereby order:
SECTION 1. Designation of Competition Authority. The DOJ is hereby designated as the Competition Authority with the following duties and responsibilities:
a.Investigate all cases involving violations of competition laws and prosecute violators to prevent, restrain and punish monopolization, cartels and combinations in restraint of trade;
b.Enforce competition policies and laws to protect consumers from abusive, fraudulent, or harmful corrupt business practices;
c.Supervise competition in markets by ensuring that prohibitions and requirements of competition laws are adhered to, and to this end, call on other government agencies and/or entities for submission of reports and provision for assistance;
d.Monitor and implement measures to promote transparency and accountability in markets;
e.Prepare, publish and disseminate studies and reports on competition to inform and guide the industry and consumers; and
f.Promote international cooperation and strengthen Philippine trade relations with other countries, economies, and institutions in trade agreements.
SECTION 2. Office for Competition. There is hereby created the Office for Competition under the Office of the Secretary of Justice to carry out the duties and responsibilities set forth in Section 1. The Office shall be manned by such number of staff including legal and technical experts, consultants and resource persons to effectively and efficiently pursue its mandate. The Secretary of Justice shall designate the Chief/Head and members of the said Office.
SECTION 3. Funding. To carry out the provisions of this Order, initial funds for the operations of the Office for Competition shall be taken from the available funds of the DOJ. Thereafter, such amount as may be deemed necessary for the annual operations of said Office, shall be incorporated and included in the annual budgetary appropriations of the DOJ.
SECTION 4. Separability Clause. If any provision of this Executive Order is declared invalid or unconstitutional, the other provisions not affected thereby shall remain valid and subsisting.
SECTION 5. Repealing Clause. All orders, rules, regulations, and issuances, or part thereof, which are inconsistent with this Executive Order, are hereby repealed, amended, or modified accordingly.
SECTION 6. Effectivity. This Executive Order shall take effect immediately upon publication in a newspaper of general circulation.
DONE, in the City of Manila, this 9th day of June, in the year of our Lord, Two Thousand Eleven.
(Sgd.) BENIGNO S. AQUINO III
By the President:
(Sgd.) PAQUITO N. OCHOA, JR.
Executive Secretary
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