Long-running tariff feud results in WTO rap — EU

A long-standing complaint on “unfair” and “discriminatory” excise taxes the government imposes on European distilled spirits has forced the European Union (EU) to bring it to the attention of the World Trade Organization (WTO) in Geneva, it was learned.

The EU “considers (the taxes) to be discriminatory and therefore in breach of international trade rules,” in an information relayed to the Philippines News Agency by the EU in Manila said.

The measures “are in clear violation of Article III: 2 of the General Agreement on Trade and Tariffs (GATT),” according to the EU.

The Undersecretary for International Economics Relations (UIER), Edsel Custodio of the Department of Foreign Affairs, could not be reached for comments on the feud.

The EU claimed it 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.”

“While sales of local spirits have grown by over eight percent since 2005, overall sales of imported spirits have actually declined during the same period,” the EU indicated.

From 2004 to 2007, EU exports of spirits to the Philippines fell from around 37 million euros to 18 million euros because of such exorbitant taxing system.

The complaints mentioned that such imported spirits as Spanish brandy and Scotch whisky are taxed up to 50 times higher than those on domestic products, resulting in a “significant” fall in exports to the Philippines.

“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,” EU Trade Commissioner Catherine Ashton was quoted as saying.

The EU claimed that the “tax regime” for spirits production in the Philippines is also disadvantageous to imported spirits.

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, it claimed.

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.

In a backgrounder provided by the EU, consumption of spirits in the Philippines in 2007 was estimated by the International Wine and Spirits Record (IWSR) at about 47 million cases (of nine liters), making it one of the largest spirits markets in the Asia-Pacific region.

This estimate includes just over one million cases of imported spirits, and the remainder is comprised of domestic spirits produced mainly from sugar cane, it said.

EU spirits sold in the Philippines are mainly Spanish brandy and Scotch whisky.

Republic Act 8240, which was 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.”

These sources were produced commercially in the country where they were processed into “distilled spirits” and are the 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 percent for primarily locally-produced spirits and by 50 percent 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 request for consultations formally begins 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. –Daily Tribune