Philippines to appeal WTO spirits dispute ruling

The Philippine government has formally informed the World Trade Organization that it will appeal a panel report ruling in favor of the United States and the European Union regarding local taxes on distilled spirits.

“On 23 September 2011, the Philippines notified the Dispute Settlement Body of its decision to appeal the panel report in dispute cases DS396 and DS403, ‘Philippines–Taxes on Distilled Spirits,’” a statement posted on WTO’s official website stated.

In an earlier interview, Trade Undersecretary Adrian Cristobal Jr. said the government had 60 days from the issuance of the WTO Panel report last month to file an appeal with the WTO Appellate Body.

That 60-day period would lapse in mid-October.

The US and EU governments filed separate complaints against the Philippines last year regarding excise taxes slapped on distilled spirits.

Both complaints claimed that the country discriminated against imported spirits with its excise tax scheme, taxing locally made spirits lower than those manufactured abroad and sold here.

In its 112-page Panel report, the WTO ruled that “through its excise tax, the Philippines subjects imported distilled spirits made from raw materials other than those designated in its legislation to internal taxes in excess of those applied to like domestic spirits made from the designated raw materials, and is thus acting in a manner inconsistent with Article III:2, first sentence, of the (General Agreement on Tariffs and Trade) 1994.”

“Through its excise tax, the Philippines applies dissimilar internal taxes on domestic distilled spirits made from designated raw materials and to directly competitive or substitutable imported distilled spirits made from other raw materials in a manner so as to afford protection to the Philippine domestic production of distilled spirits and is thus acting in a manner inconsistent with Article III:2, second sentence, of the GATT 1994,” the report added.

Under the current excise tax structure, tax rates on distilled spirits vary according to raw material.

Spirits distilled from sugar and palm enjoy lower tax rates than those from other materials, such as wheat.

According to the US government, local distillers predominantly used sugar as their raw material in creating such spirits as brandy, gin, tequila, vodka and whiskey. US manufacturers, on the other hand, used other materials. From this stemmed the alleged discrimination in taxes.

The Distilled Spirits Association of the Philippines sought government’s help to appeal the ruling as, being a private entity, it could not lodge its own appeal with the WTO.

According to DSAP data, the local distilled spirits industry generated around $1 billion in revenue last year and employed five million people, directly and indirectly.