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

Washington, D.C. – United States Trade Representative Ron Kirk announced today that the United States has prevailed in a World Trade Organization (WTO) dispute with the Philippines challenging discriminatory Philippine excise taxes on imported distilled spirits. The Philippines imposes taxes on imported distilled spirits, such as whiskey and gin, at significantly higher rates than on domestic distilled spirits.

“Today’s ruling demonstrates the commitment of the United States to combat trade barriers wherever they occur,” said Kirk. “Today’s Panel Report confirms that the Philippines’ taxes on imported distilled spirits are discriminatory and inconsistent with WTO rules. We urge the Philippine government to comply swiftly with the Panel’s recommendations and rulings, and level the playing field for our exports immediately.”

BACKGROUND

The Philippines’ tax rates on distilled spirits differ 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 (currently 14.68 pesos per proof liter). 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. Specifically, the Panel found that the Philippines applies higher taxes to imported distilled spirits than to “like product” or “directly competitive or substitutable” domestic distilled spirits, in violation of the first and second sentences of Article III:2 of GATT 1994.

The U.S. Government raised concerns over this issue with the Philippines the past, both bilaterally and in WTO forums. The U.S. sought WTO consultations on the matter in January 2010, and a WTO Panel was composed in July 2010. The same Panel heard claims by the European Union on the same measures, and findings in that dispute were also issued today.

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.