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Ambassador Kirk Announces U.S. Win in WTO Dispute Challenging Philippine Excise Taxes on Distilled Spirits

12/21/2011

Washington, D.C. – United States Trade Representative Ron Kirk announced today that the World Trade Organization (WTO) Appellate Body agreed with the United States that Philippine excise taxes on imported distilled spirits were discriminatory and inconsistent with the Philippines’ WTO obligations. The Appellate Body affirmed similar findings made by a WTO panel earlier this year. The Philippines imposes taxes on imported distilled spirits, such as whiskey and gin, at significantly higher rates than on domestic distilled spirits.

“This is an important victory for American distilled spirits producers and workers,” said Ambassador Kirk. “The Philippine tax system for these products is discriminatory, plain and simple. Today’s Appellate Body Report affirms the decisive U.S. victory in this dispute. We urge the Philippine government to comply swiftly with the Panel and Appellate Body findings and eliminate the discriminatory treatment of imported distilled spirits in its market.”

Between 2006 and 2010, U.S. distilled spirits exports worldwide averaged more than $1 billion per year, making the United States one of the world’s largest exporters of spirits. According to industry figures, the U.S. distilled spirits industry contributed to more than $113 billion dollars of economic activity and over 1.2 million jobs in 2007.

BACKGROUND

The Philippines imposes different tax rates on distilled spirits depending on the product from which the spirit is distilled. Its tax rates on distilled spirits made from materials that are typically produced in the Philippines, such as sugar and palm, are generally low. However, imported distilled spirits are taxed at rates from approximately ten to forty times higher than those applied to domestic products. In the Philippines, producers use domestic materials, such as sugar, to create a variety of different distilled spirits, including whiskey, brandy, gin, vodka, and tequila. These distilled spirits compete with U.S. imports of the same spirits made from other materials, such as whiskey distilled from wheat.

The WTO generally bars its Members from discriminating between imported and domestic products in their tax regimes. The United States brought two legal claims against the Philippines’ measures, and prevailed on both. On August 15, 2011, the Panel found that the Philippines applies higher taxes to imported distilled spirits than to “like” or “directly competitive or substitutable” domestic distilled spirits, in violation of the first and second sentences of Article III:2 of GATT 1994.

The Philippines appealed both of these findings. A hearing was held before the WTO Appellate Body in Geneva on October 25-26, 2011, and the report addressing the Philippines’ appeal was issued today. In its report, the Appellate Body upheld the Panel’s conclusions on both the U.S. claims. It confirmed that the Philippines’ measures are inconsistent with both the first and second sentences of Article III:2 of GATT 1994.

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