Phl to appeal WTO ruling on excise tax on imported liquors

MANILA, Philippines - The Philippines will appeal the World Trade Organization (WTO) ruling that declared as illegal taxes imposed by the Philippine government on imports of spirits such as whiskey and brandy made by Brown-Forman Corp. SA. 

Trade and Industry Secretary Gregory L. Domingo said they will consider inputs from the industry before finalizing an appeal.

The WTO Panel circulated its ruling on Aug. 15 to the WTO members which include its findings and recommendations on the case.

DTI said they are thoroughly reviewing the WTO report while at the same time working closely with stakeholders to present a strong case. The Philippines has 60 days to appeal the panel’s findings before the WTO.

The Philippine government team led by the Office of the Solicitor General (OSG) is working with the Distilled Spirits Association of the Philippines (DSAP) in appeal process.

It normally takes the WTO appellate body 90 days to decide on an appeal. 

The Philippine distilled spirits industry generated close to $1 billion revenues in 2010. It also employs around five million direct and indirect workers, industry reports showed.

‘Not just yet’

The Distilled Spirits Association of the Philippines (DSAP) said the decision of the WTO Panel is not yet binding on the parties “until the appeal is taken to and processed by the WTO Appellate Body.”

In a statement, DSAP president Olivia Limpe-Aw said the WTO Panel did not carefully analyze the Philippines’ basic defenses. 

“The rates that apply to distilled spirits produced from raw materials such as sugar of the cane (molasses), buri palm, coconut, cassava, camote etc. under Section 141 (a) of the Tax Code are enjoyed by both domestic and imported spirits. For example, locally-made Tanduay Rum and imported Bacardi Rum pay the same rate of excise tax at P14.68/proof liter and yet their net retail prices (750ml, excluding excise tax and VAT) are worlds apart - Tanduay at P50 and Bacardi at P430,” Limpe-Aw said.

DSAP sees the EU export slump and the US financial woes as main reasons behind the WTO suit filed against the Philippines.

“The decline in US and EU exports to the Philippines cannot be attributed to our taxation system but is due to many factors such as sluggish economy, low purchasing power, inflation etc. Even domestic spirits have experienced lower consumption this year,” she said.

The WTO on Monday ruled as illegal a Philippines’ excise tax on imported alcohol after complaints by US and European exporters, the US trade representative and the WTO said Monday.

The WTO said that the excise tax, designed to help domestic distilled alcohol producers who use local cane and palm sugar, unfairly disadvantaged imported hard liquor like Jack Daniel and Spain’s Brandy de Jerez.

The complaints from the US and the EU argued that because the Filipino products were marketed as whiskey, gin, vodka, and tequila just like the foreign products, they should be taxed at the same rate, even though they are made from different materials.

The Philippine government argued however that the base materials used in distilling were different, making the products different.

“Because imported spirits are taxed less favorably than domestic spirits, the Philippine measure, while facially neutral, is nevertheless discriminatory,” the Geneva-based WTO said in its ruling.

The European complaint had said that the tax had helped limit foreign products to just 2.5 percent of the domestic market, which it called “rather oligopolistic,” controlled by three large Filipino groups.

“Today’s ruling demonstrates the commitment of the United States to combat trade barriers wherever they occur,” said US Trade Representative Ron Kirk in a statement. 

“We urge the Philippine government to comply swiftly with the panel’s recommendations and rulings, and level the playing field for our exports immediately,” Kirk said.

EU spokesman John Clancy also pressed the Philippines to end the discriminatory tax system “without further ado.”

The EU and US are the world’s No. 1 and No. 2 exporters of distilled spirits, but have been all but shut out of the Philippines, one of the largest markets for alcohol in the Asia-Pacific region.

In separate cases filed at the WTO, Brussels and Washington complained the Philippines had violated global trade rules by taxing foreign alcoholic beverages at rates 10 to 40 times higher than brands made in the Philippines from home-grown materials such as sugar and palm.

The WTO generally bars its members from discriminating between imported and domestic products in their tax regimes.

The US brought two legal claims against the Philippines’ measures, and prevailed on both, USTR said.

“We urge the Philippines to abide by the ruling and quickly replace its current regime with a fair, nondiscriminatory excise tax system,” said Peter Cressy, president of the Distilled Spirits Council, a US industry group.

Brown-Forman, based in Louisville, Kentucky, owns the Jack Daniel’s brand, and Fortune Brands, headquartered in Deerfield Illinois, produces Jim Beam whiskey.

Brandy de Jerez is a grape brandy from the area around Jerez de la Frontera in Andalusia, Spain and is a protected designation that includes its traditional method of production.

Marie Audren, director for Trade and Economic Affairs at the European Spirits Organization, also hailed the ruling.

“We have been struggling with this issue for a long time, and this is a very positive outcome,” she said.