PHL reports full compliance in distilled spirits dispute, urges Thailand to follow suit in cigarettes case

A January 30, 2013, press release from the Department of Foreign Affairs

The Permanent Mission of the Philippines to the World Trade Organization (WTO) reported to the Department of Foreign Affairs that during the WTO Settlement Body (DSB) meeting held on January 28, the Philippines informed the membership of its full compliance to the DSB recommendations and rulings in the dispute Philippines-Taxes on Distilled Spirits (DS396/DS403).

The Philippines reported that Republic Act (RA) No. 10351, entitled “An Act Restructuring the Excise Tax on Alcohol and Tobacco Products,” was passed by the Philippine Congress last December 11 and approved by the President on December 19. The corresponding Implementing Rules and Regulations were subsequently promulgated by the Bureau of Internal Revenue (BIR Revenue Regulation 17-2012) on December 28. This operationalizes the application of an ad valorem tax rate of 15% of the NRP per proof and a specific tax of P20.00 per proof liter, which took effect last January 1.

The Philippines stated that the new tax system adopts a uniform tax that applies equally to all distilled spirits, and thus eliminates the system of taxation found to be discriminatory by the WTO Panel and the Appellate Body—both in law and in fact. The Philippines noted that the adoption of this new tax system completes the Philippines’ implementation of the findings and recommendations of the Panel and the Appellate Body in this dispute.

“President Benigno S. Aquino has time and again stated that the Philippines is open for business, and that we play by the rules. International trade and investments have been significant catalysts in the record-breaking economic growth and development achieved in the first two years of the Aquino administration,” noted Ambassador Esteban B. Conejos, Jr., the Philippines’ Permanent Representative to the WTO.

“Our compliance with this WTO ruling is a living testament of our desire to balance legitimate domestic objectives and the concerns of our foreign investors. It is also a concrete manifestation that President Aquino’s good governance thrust applies not only within our borders, but also in our adherence to our international commitments,” he said.

The United States (U.S.) welcomed this development. “We are very pleased at the efficient work by the Philippines in undertaking this reform, and we appreciate the Philippines’ commitment to implement the DSB’s recommendations and rulings in this dispute,” the U.S. delegate said. “The new tax system eliminates the use of raw material type as a basis for applying different tax rates to distilled spirits, and which is an excellent step forward,” he added.

The European Union (EU) expressed pleasure that President Aquino approved RA 10351 reforming the Philippines’ tax regime for alcohol. “The EU is encouraged by the fact that the Act removes discrimination against imported spirits,” the EU delegate remarked. “The EU trusts that the implementing rules and regulations that the Government of the Philippines recently published are equally consistent with the national treatment principle enshrined in Act 10351,” he added. The EU also thanked the Philippines for the transparency it has demonstrated during the implementation phase.

In ending, both the US and the EU looked forward to the implementation of the law. The US noted it will continue to closely watch the law’s implementation because the system has been in place for only a few weeks. The EU said it is analyzing the implementing rules, and may need to seek clarifications on their practical functioning.

The Philippines reported full compliance with the WTO ruling ahead of the March 8, 2013, expiry of the reasonable period of time to implement that was agreed upon with the EU and the U.S.

The Philippines thanked the U.S. and the EU for being constructive partners throughout the dispute settlement process. The coordination and open communication has enabled the Philippines to meaningfully engage the various stakeholders and to implement a WTO-compatible excise tax regime for distilled spirits.

Also during the DSB Meeting, the Philippines continued to raise concerns regarding outstanding issues in the dispute Thailand – Customs and Fiscal Measures on Cigarettes from the Philippines (DS371).

The Philippines recounted the outstanding issues in the dispute, including a ruling by the Thai Customs’ Board of Appeals that raises numerous concerns under the Customs Valuation Agreement and the GATT 1994. Among other matters, Thailand’s reference to additional guidance from its Revenue Department concerning amended value-added tax (VAT) rules also raises questions of WTO-consistency.

In its status report and in its statement at the meeting, Thailand referred to its readiness to continue discussions on the Philippines’ remaining concerns. The Philippines welcomed Thailand’s readiness for continued bilateral discussions at the appropriate level. The Philippines however noted that while there was preference to resolve the dispute by means other than continued litigation, further progress was expected in the coming month.