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U.S. Files WTO Case Challenging Philippine Excise Taxes

Washington, D.C. -- United States Trade Representative Ron Kirk announced today that the United States has requested World Trade Organization (WTO) dispute settlement consultations with the Philippines regarding the Philippine excise taxes on imported distilled spirits such as whiskey and gin. The Philippines taxes imported distilled spirits at significantly higher rates than domestic distilled spirits.

"We are going to the WTO today because we want to ensure that U.S. producers have access to their markets overseas," Kirk said. "Although the United States has raised this issue many times, the Philippines continues to tax distilled spirits from the United States at much higher rates than distilled spirits produced in the Philippines. We urge the Philippine government to eliminate that discrepancy and level the playing field for our exports immediately."

BACKGROUND

The Philippines applies tax rates to distilled spirits that differ depending on the product from which the spirit is distilled. The Philippines taxes distilled spirits made from certain materials that are typically produced in the Philippines, such as sugar and palm, at a low rate (e.g. 13.59 pesos per proof liter in 2009). Imported distilled spirits are taxed at significantly higher rates (from approximately ten to forty times higher) than the low rate 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).

WTO rules generally bar WTO Members from discriminating between imported and domestic products in their tax regimes.

The U.S. Government has raised concerns over this issue with the Philippines over the past several years, both bilaterally and in WTO forums. In addition, the EU requested WTO dispute settlement consultations on these taxes in July 2009, and the United States joined these consultations and participated in meetings between the EU and the Philippines in October 2009.

Between 2006 and 2008, 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. However, since 2003, imports-including U.S. products-never exceeded 5 percent of total sales of spirits in the Philippine market. 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.

The first step in a WTO dispute is for both parties to consult formally. If consultations fail to resolve the dispute, the United States will be entitled to request that a panel be established to determine whether the Philippines is acting consistently with its WTO obligations.