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23 January 2010

WTO to hear liquor tax dispute between Philippines and EU, US

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The World Trade Organization (WTO) has decided to form a panel that will decide whether Philippine taxes on liquor are indeed unfair to imports as alleged by the United States and the European Union (EU), reported Business World daily.

The move came after the EU asked for such a panel for the second time at a January 19 meeting in Geneva. It was a request the trade watchdog had to automatically honor under its dispute settlement process.

But the appointment of panelists will likely take longer than usual, an official said, since the WTO may first wait for a similar case recently instigated by the US against the Philippines.

Both Western economies allege that Philippine taxes on imported liquor are unfairly higher than those levied on locally made ones.

The EU cited Republic Act 9238, passed in 2004, which amended RA 8240 or the National Internal Revenue Code by raising excise taxes for locally produced spirits to 30 percent and at the same time slapping a higher 50 percent levy on "most types of imported spirits."

Sales of imported spirits have declined since 2005 even as sales of local products grew by 8 percent, the EU claims. The US for its part alleges that the market share of its imports have been limited to just 5 percent since 2003.

"Pursuant to WTO rules, if the EU renews for a second time its request for the establishment of a panel which occurred in the 19th of January, the [Dispute Settlement Body] will as a matter of course establish a panel," Ambassador Manuel A. J. Teehankee, the country's permanent representative to the WTO, said in an e-mail.

"The Philippines has expressed regret over the EU decision and at the same time is fully prepared to defend and present its position before the panel," he added.

The panel, which usually consists of three experts from different countries, will hear arguments and then draft a ruling that can only be rejected by consensus among all WTO members. All parties in the dispute have a say in who will make up the panel, but the WTO director-general may step in to appoint members if all sides cannot come to an agreement.

"The rules say the panel must be composed within 10 days from the establishment... but because the US also initiated consultations last January 14, there could be a delay in the EU-request panel composition process," Jose Antonio S. Buencamino, the Trade department's lead official on WTO matters, said in a text message.

"That means the relevant time frame [could be tied to] the US dispute [because] I don't think the EU will mind waiting," Buencamino said.

Previous panels on three other liquor tax disputes — all raised by the EU and US — have all decided in favor of the two major exporters, WTO records showed.

The Philippines has defended its liquor taxes, saying the difference between those levied on local and imported goods should not matter since the products cater to different markets and do not compete with each other.

The European Commission's delegation to Manila, for its part, has said it was ready to drop the case if the tax policy is changed.

Proposals for a unitary sin tax system have been filed but are unlikely to be passed before the 14th Congress' term ends in June.

Legislators have up to February 5 only to pass laws since Congress will take a break for the May election campaign. A final session from May 31 to June 4 will be held to canvass election results.


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