Brussels, 21 December 2011: In a report circulated today, the World Trade Organisation’s (WTO) Appellate Body confirms the findings of the panel report circulated on 15 August according to which the excise tax applied on distilled spirits in the Philippines discriminates against imported spirits and is therefore in violation of the principle of non-discrimination enshrined in the General Agreement on Tariffs and Trade (GATT).
"The Appellate Body has confirmed that the excise tax regime in the Philippines is designed and applied to protect the domestic industry against the competition of imported spirits and violates the important principle of non-discrimination enshrined in the WTO Agreements.", said EU Trade Commissioner Karel De Gucht. "This longstanding tax discrimination remains an important obstacle to imports of spirits into the Philippines. We hope the Philippines will promptly take the necessary steps to remedy this longstanding situation in light of the clear findings of the WTO Appellate Body".
The taxes applied on imported distilled spirits are ten to 50 times higher than those applied on spirits manufactured in the Philippines. It was estimated that, from 2004 to 2007, EU exports of spirits to the Philippines had more than halved (from around €37 million to €18 million) due to the Excise Tax Regime, notably since a new legislation introduced in 2004 aggravated the tax discrimination.
The Philippine market for distilled spirits has an important potential, with a steady increase in demand over the last years. However, the discriminatory taxation system has led to a decline of overall consumption of imported spirits since 2005, while consumption of local spirits has significantly grown in the same period.
Imported spirits have been experiencing a longstanding discriminatory excise taxation regime in the Philippines market. According to this regime, spirits produced from certain raw materials1 are taxed at a flat specific rate. This category of products corresponds essentially to domestically produced spirits. All other spirits (mostly imported) are subject to a system of price bands at substantially higher taxes.Following complaints by the EU industry, the European Commission has been working on the resolution of this situation with Philippine authorities over the past years, with no satisfactory result to date.
On 29 July 2009, the European Union requested WTO consultations with the Philippines. Consultations were held in Manila on 8 October 2009, with the United States participating as a third party. These consultations did not lead to a satisfactory solution.
Therefore, the EU in December 2009 requested the WTO to establish dispute settlement panel. The US filed a similar case in March 2010. A single panel to deal with the two cases was established on 20 April 2010 and composed by the WTO Director General on 5 July 2010.
The final report of the panel, issued on 15 August 2011, confirmed the EU and US allegations that the excise tax regime on distilled spirits of the Philippines is in clear violation of Article III: 2 of the GATT.
The Philippines introduced an appeal of the WTO report on 23 September 2011. The EU introduced a counter-appeal on 28 September 2011. The report of the WTO Appellate Body issued today confirms the findings of the WTO panel and upholds the EU claim in its counter-appeal by completing its findings on the violation of the non-discrimination obligations of the Philippines with respect to the EU complaint.
1. Republic Act No. 8240 adopted in November 1996 referred to spirits produced from the sap of nina, coconut, cassava, camote or buri palm or the juice, sugar or syrup of cane, "where produced commercially in the country where they were processed into distilled spirits".