The Distilled Spirits Association of the Philippines (DSAP) said Tuesday calls by the United States and European Union for the Philippine government to heed a World Trade Organization (WTO) ruling declaring local taxes on distilled spirits illegal and discriminatory were premature.
In a statement, DSAP president Olivia Limpe-Aw said the decision of the WTO panel on the Philippines-Taxes on Distilled Spirits case was not yet binding until the appeal was taken into consideration and processed by the WTO Appellate Body.
DSAP said Malacañang earlier said it would appeal the panel report to the WTO Appellate Body and pursue the Philippines’ rights under GATT 1994 and the WTO dispute settlement system.
The Department of Trade and Industry, for its part, said it would thoroughly study recommendations made by industry stakeholders in formulating the country’s appeal for reconsideration of the WTO ruling.
Trade Undersecretary Adrian Cristobal Jr. said the government had 60 days from the issuance of the report last Monday to file an appeal.
The DTI, the Office of the Solicitor General, the Department of Finance and other relevant government agencies, and the DSAP will work together in formulating the appeal.
Once filed, the Appellate Body is expected to take 90 days to come out with its findings and conclusions.
Upon the request of local distillers, House Speaker Feliciano Belmonte Jr. also ordered the suspension of deliberations on all bills seeking to amend the excise tax laws pending before the House of Representatives’ ways and means committee while the government was pursuing its WTO appeal.
In its 112-page panel report, the WTO ruled that “through its excise tax, the Philippines subjects imported distrilled spirits made from raw materials other than those designated in its legislation to internal taxes in excess of those applied to domestic spirits made form designation raw materials, and is thus acting in a manner inconsistent with Article III: 2, second sentence, of the GATT 1994,” the report said.
DSAP said the WTO Panel did not seriously and carefully analyze the Philippines’ basic defenses.
The group, composed of the country’s top alcohol producers and distillers, stressed that the Philippines does not discriminate against imported products.
“The rates that apply to distilled spirits produced from raw materials such as sugar of the cane (molasses), buri palm, coconut, cassava, camote, etc., under Section 141(a) of the Tax Code are enjoyed by both domestic and imported spirits,” Ms. Limpe-Aw said.
“For example, locally made Tanduay Rum and imported Bacardi Rum pay the same rate of excise tax at P14.68/proof liter and yet their net retail prices (750ml, excluding excise tax and VAT) are worlds apart—Tanduay at P50 and Bacardi at P430,” Limpe-Aw added.
DSAP sees the EU export slump and the US financial woes as main reasons behind the WTO suit filed against a small developing country like the Philippines. Limpe-Aw said despite their own economic hardship, Philippine distillers had basically kept to their own, supplying Filipinos with distilled spirits and drinks that the mass market can afford.
“The decline in US and EU exports to the Philippines cannot be attributed to our taxation system but is due to many factors such as sluggish economy, low purchasing power, inflation, etc. Even domestic spirits have experienced lower consumption this year,” Limpe-Aw said.
In separate letters to Speaker Belmonte and ways and means committee chairman Hermilando Mandanas, DSAP members raised concerns that the Philippine government’s chances of success could be imperiled if Congress continued to deliberate and comment on the country’s excise tax system while the case is pending before the WTO.
The letters were signed by tycoons Ramon Ang of San Miguel Corp., Lucio Tan of Tanduay Distillers Inc., Andrew Tan of Emperador Distillers Inc., and Limpe-Aw of Destileria Limtuaco & Co. Inc. The four represent the country’s biggest distillers and alcohol producers.
The taipans underscored the huge economic impact of the WTO ruling that threatened the very survival of the distilled spirits manufacturing sector including allied and downstream industries. They said DSAP members produced some 66 million cases of distilled spirits in 2010 with gross sales of close to P50 billion.