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Thai appeals WTO’s favorable ruling on PH cigar tax dispute

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By Bernie Cahiles-Magkilat

Thailand has appealed the second compliance panel report of the World Trade Organization ordering the ASEAN country to implement the tax valuation reforms and correct the discriminatory higher tax it imposed on Philippine cigarettes.

According to the WTO, Thailand filed the appeal on Monday, September 9, concerning the WTO compliance panel report in the cigarette tax case (DS371) brought by the Philippines against Thailand. The compliance panel report was circulated to WTO members on 12 July 2019.

WTO said that parties to a dispute can appeal a panel’s ruling, based on points of law, such as legal interpretation but they cannot re-open factual findings made by the panel.

Each appeal is heard by three members of an Appellate Body comprising persons of recognized authority and unaffiliated with any government. Each member of the Appellate Body is appointed for a fixed term. Generally, the Appellate Body has up to 3 months to conclude its report. WTO said that further information about the Thai appeal will be available within the next few days.

The latest (July 12, 2019) WTO decision means Thailand has already lost all three panel and appellate rulings on the cigarette tax dispute against the Philippines.

The Philippines is the No. 1 imported cigarette supplier of Thailand through Philip Morris Philippines Manufacturing Inc.

In 2010 alone, the Philippines holds an estimated 2/5 share of the Thai domestic cigarette market. Since 1990, the numbers have risen steadily. Local exporters place the value of Philippine current share of the $849 million Thai domestic cigarette market at around $200M.

Tobacco is among the fast-growing resource-based exports of the Philippines. Data from the Bureau of Export Trade Promotions (BETP) showed that tobacco exports amounted to $266 million in 2010.

The country’s tobacco markets include Germany, Hong Kong, Singapore, United States, Russia, and Japan among others. According to the National Tobacco Authority, the industry provides direct livelihood to 43,960 farmers and over a million industry workers and their dependents.

The National Tobacco Administration reported that the Philippine tobacco industry produced P5.3 billion worth of tobacco in 2011, with $91.1M (roughly P3.9 billion) exported to overseas markets, including Thailand.
Thailand is the Philippines’ major export market for finished tobacco goods.

During the course of the dispute, the Philippine tobacco industry suffered a 20 percent decline in exports in 2009 alone, in part due to the Thailand cigarette tax issue. The decline has since substantially hurt tobacco farmers in the South.

The industry also provides livelihood to 54, 337 farmers and their families, and to thousands of manufacturing workers, traders, and retailers. In 2008, the industry contributed P32.3 billion to government coffers through taxes, duties, and other fees on tobacco products.

When the latest WTO ruling was issued, Trade and Industry Secretary Ramon M. Lopez challenged the fellow ASEAN country to accept the decision and implement the tax valuation reforms.

Based on the panel report, upholding anew the Philippines’ claims initiated in 2008, Thailand violated WTO law on Customs violation. In the case, the Philippines protested Thailand’s discriminatory tax imposed on cigarette exports by Philip Morris Philippines.

“The Panel therefore concludes that Thailand has failed to implement the recommendations and rulings of the DSB to bring its measures into conformity with its obligations under the Customs Valuation Agreement. The recommendations and rulings of the DSB in the original proceeding in DS371 remain operative, to the extent that Thailand has failed to comply with them,” the WTO ruling stated.

Lopez described the WTO measures unlawful saying these “threaten criminal prosecution and even the imprisonment of a number of employees of the importer in Thailand, Philip Morris International Thailand (PMTL).”

He added that, Thailand’s insistence on these measures also “threaten the viability of the private sector both in the Philippines and in Thailand, harm Philippine tobacco farmers, and are inimical to the overall export interests of the Philippines.”

The prolonged tax dispute, he said, also placed bilateral relations of the fellow ASEAN countries on a “sour note”.

Lopez noted adding that Thailand is a strong supporter of the WTO multilateral trading system, and currently chairs the WTO General Council.
Thailand is also ASEAN host for 2019. Accepting the panel report in this dispute would be a clear demonstration of Thailand’s responsibility and leadership in the WTO and in ASEAN.

With the recent WTO ruling, Thailand has now lost three WTO panel proceedings. In the original proceedings, a WTO panel and the Appellate Body ruled in 2010 that the Thai customs valuation measures violated the CVA and other WTO rules.

Following this ruling, Thailand brought further new, WTO-inconsistent customs valuation measures against Philippine cigarettes and filed criminal charges against PMTL for under-declaration. The Philippines successfully brought a first set of WTO compliance proceedings; in November 2018, the WTO compliance panel found that the new customs valuation measures and the first criminal charges violate the CVA.

While these proceedings were ongoing, Thailand issued a second set of criminal charges, forcing the Philippines to initiate second WTO compliance proceedings. This latest WTO panel ruled on 12 July that these second charges also violate the CVA.

Thailand has yet to implement the WTO rulings, amend its customs valuations policy and practices, and withdraw the two criminal charges which based, in the first instance, on WTO-illegal measures.

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