US wins trade dispute with Philippines over distilled-spirits excise tax

The United States won a trade dispute Monday with the Philippines over excise taxes on imported distilled spirits.

U.S. Trade Representative Ron Kirk announced that the World Trade Organization (WTO) determined that the the Philippines were violating provisions of a trade agreement by imposing higher "discriminatory" taxes on imported distilled spirits, such as whiskey and gin, than on domestic distilled spirits.

“Today’s ruling demonstrates the commitment of the United States to combat trade barriers wherever they occur,” Kirk said. “We urge the Philippine government to comply swiftly with the panel’s recommendations and rulings, and level the playing field for our exports immediately.”

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 won both decisions. 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, a violation of the General Agreement on Tariffs and Trade (GATT).  

The tax rates on distilled spirits with materials typically produced in the Philippines, such as sugar and palm, are generally lower, while imported distilled spirits are taxed at rates ranging from approximately 10 to 40 times higher. In the Philippines, producers use domestic materials, such as sugar, to create a variety of 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 U.S. government raised concerns over this issue with the Philippines in the past, bilaterally and in WTO forums. The U.S. sought WTO consultations on the matter in January 2010, and a WTO panel was formed in July 2010. 

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 of economic activity and over 1.2 million jobs in 2007, according to USTR.