Bridges Weekly Trade News Digest • Volume 14 • Number 12 • 31st March 2010

US Ramps Up WTO Case Against Filipino Spirits

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The United States has asked that a WTO dispute settlement panel rule on the legality of duties that the Philippines slaps onto imports of distilled spirits, the Office of the US Trade Representative announced on Friday.

Washington initiated the dispute in January with an official request for consultations with the Philippines. Subsequent talks in February failed to generate a solution.

“Despite US efforts to resolve this issue through consultations, the Philippines continues to maintain its discriminatory tax regime on distilled spirits,” USTR spokeswoman Carol Guthrie said.

Washington’s complaint follows a similar case that the EU has brought against Filipino spirits tariffs. Both Washington and Brussels are alleging a ‘national treatment’ violation of the General Agreement on Tariffs and Trade, which prohibits parties from subjecting other member nations’ products to taxes in excess of those applied to domestic products.

Filipino tax laws have given favourable treatment to spirits typically produced from local resources like coconut, palm and sugarcane. Meanwhile, imports of distilled spirits have been saddled with duties that are 10 to 40 times the local rates, the US alleged in its complaint.

A win for the United States, which exports roughly US$ 1 billion worth of liquor each year according to the USTR, could help US distillers gain access to the Philippine’s US$ 3 billion spirits market, Reuters reported.

The Philippines’ ambassador to the WTO, Manuel Teehankee, reportedly plans to block Washington’s first panel request. WTO rules dictate that members cannot block a second request, however, so the US complaint will most likely be heard.

Teehankee has defended the higher taxes, saying that they are “applied neutrally,” that they benefit indigenous communities, and that imported spirits do not compete in the same market as local products. The last point will be the central issue of the case: Manila will likely argue that the domestically produced liquors are not “directly competitive or substitutable products,” and therefore fall under an exception to the GATT’s national treatment requirement, an argument that the US denies in its panel request.

But Manila may face an uphill battle after countries like Korea and Japan have had their own differentiating tax schemes on alcohol struck down as GATT-inconsistent.

ICTSD reporting; “US pursues liquor tax case against Philippines,” MANILA TIMES, 29 March 2010; “US joins EU in WTO case over Philippine booze tax,” THE STAR ONLINE, 15 January 2010; “RP to Block US plea for dispute panel on spirits,” MALAYA BUSINESS INSIGHT, 29 March 2010; “RP, US start WTO consultations on distilled spirits,” MANILA BULLETIN, 26 Febrary 2010; “Philippine alcohol tax bad for Jack Daniel’s - US,” REUTERS, 27 March 2010.