The European Union has requested consultations with the Philippines at the World Trade Organisation (WTO) regarding excise taxes on distilled spirits, which the EU considers to be discriminatory and therefore in breach of international trade rules. Imported spirits including Spanish brandy and Scotch whisky can face taxes 10 to 50 times higher than those on domestic products, and exports to the Philippines have fallen significantly as a result. The EU has raised the issue repeatedly in recent years without success, and now hopes to use the WTO consultation process to arrive at a mutually satisfactory solution.
EU Trade Commissioner Catherine Ashton said: "This long-running problem has prevented EU exporters from competing fairly in the Philippine market, and has led to a sharp decrease in imports of European spirits. I hope that we can still find an amicable solution to this issue through the consultation process."
European industry has raised concerns about the Philippine excise tax regime for a number of years. Spirits produced from certain raw materials typically used domestically in the Philippines are taxed at a specific flat rate while other spirits, including most imported products, face a much higher tax.
This taxation regime has prevented EU exporters from fully participating in the Philippine market for alcoholic beverages, which has seen steady growth in recent years. While sales of local spirits have grown by over 8% since 2005, overall sales of imported spirits have actually declined during the same period. From 2004 to 2007, EU exports of spirits to the Philippines fell from around €37 million to €18 million. .
Consumption of spirits in the Philippines in 2007 was estimated by the International Wine & Spirits Record (IWSR) at about 47 million cases (of nine litres), making it one of the largest spirits markets in the Asia-Pacific region. This estimate includes just over 1 million cases of imported spirits; the remainder is comprised of domestic spirits produced mainly from sugar cane. EU spirits sold in the Philippines are mainly Spanish brandy and Scotch whisky.
The legislation (Republic Act No. 8240) adopted by the Philippines in November 1996 placed a lower flat rate of excise tax on spirits produced from various sources, including the sap of palms such as nipa, coconut and buri, or the juice, sugar or syrup of cane, "where produced commercially in the country where they were processed into distilled spirits". These are raw materials typically used domestically in the Philippines. Other spirits, which include most imported alcoholic products, are subject to a system of price bands at substantially higher taxes.
In 2004 the Philippines introduced further legislation which established an increase of the excise tax rates by 30% for primarily locally-produced spirits and by 50% for most types of imported spirits. Taxes paid on imported spirits are now 10 to 50 times higher than for domestic products, depending on the net retail price of the imported product.
The EU considers that the discriminatory measures are in clear violation of Article III: 2 of the General Agreement on Trade and Tariffs (GATT). The request for consultations formally initiates a dispute under the WTO dispute settlement rules. Bilateral consultations give WTO members the opportunity to discuss the matter and to find a satisfactory solution without resorting to litigation. If these consultations fail to reach a satisfactory solution within 60 days after the receipt of the request for consultations, the complaining party may request the establishment of a WTO panel.