Gerard Distilled Spirits

453
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On 19 January 2010, the Dispute Settlement Body ,DSB`, o the \orld
1rade Organization ,\1O`, established a panel to reiew the Luropean
Communities` ,LC`, challenge against the Philippines` excise tax regime on
distilled spirits.
1
1he complaint, docketed as DS 396, was a result o a series o
unsuccessul consultations between the LC and the Philippines initiated back in 29
July 2009.
2
A similar complaint, docketed as DS 403, was iled by the United
States ater the breakdown o similarly unsuccessul consultations.
3
On 20 April
2010, pursuant to the rule on multiple complaints
4
, the DSB reerred the US
Complaint to the panel reiewing the LC Complaint.
5

Cite a. Gerard L. Chan, Covtivvivg tbe iqvor 1a Ca.e. aga, Pbitiive. - 1ae. ov Di.tittea irit.: .
Criticat .vat,.i., 85 PlIL L.J.453 ,page cited, ,2011,.
!!
LL.M., !itb Di.tivctiov, International 1rade and Commercial Law, Uniersity o Durham, United
Kingdom ,2010,. LL.B., Cvv avae, Uniersity o the Philippines ,2005,. B.S. Legal Management, Cvv
avae, Ateneo de Manila Uniersity ,2000,. Recipient, Shell Centenary Cheening Scholarship ,2009,.Asst.
Manager, Risk Management Group, BDO Unibank Inc. Lecturer, John Gokongwei School o Management,
Ateneo de Manila Uniersity ,2011,. Proessorial Lecturer, College o Law, Uniersity o the Last ,2008-
present,. Consultant, Asian Deelopment Bank Administratie 1ribunal ,200-2009,. Court Attorney VI,
Oice o Associate Justice Lucas Bersamin, Supreme Court ,2009,. Associate, Angara Abello Concepcion
Regala & Cruz Law Oices ,2006-2008,. Vice Chair, PlILIPPINL LA\ JOURNAL ,2002, 2004,.
1
\orld 1rade Organization, Pavet to avive | Covtaivt ov Pbitiive 1ae. ov irit., \1O News, 20
April 2010, araitabte at http:,,www.wto.org,english,news_e,news10_e,dsb_20apr10_e.htm ,last isited 2
June 2010,.
2
a., Bayan Cae International 1rade LLC, !1O Di.vte etttevevt oa, Pvt. Pbitiive ci.e 1a ov
Di.tittea irit. ov .gevaa, Asia 1rade Bulletin, January-lebruary 2010, araitabte at
http:,,www.bryancaetrade.com,sitebranches,publications,docs,BCI120Asia201rade20Bulletin_Ja
n-leb2010.pd ,last isited 5 July 2010,.
3
ee .vra note 1.
4
Article 9.1, 1he Uruguay Round Understanding on Rules and Procedures Goerning the Settlement
o Disputes ,DSU`,.
5
ee .vra note 1.
454 PlILIPPINL LA\ JOURNAL |VOL. 85

In their respectie requests or consultation, the LC and the US alleged
that the Philippine excise tax system on distilled spirits unairly discriminates
against imported spirits by taxing the latter at substantially higher rates than their
domestic counterparts.
6
According to the complainants, imported spirits, such as
Spanish brandies, Scotch and American whiskies, are taxed 10 to 50 times higher
than similar domestic spirits.
Consequently, exporters rom the LC and the US

were unable to compete airly in the Philippine market, causing a signiicant all in
exports to the Philippines.
8
It is argued that this discriminatory tax regime, which
has been in place since 199, is inconsistent with the National 1reatment
obligation under Article III:2 o the General Agreement on 1aris and 1rade
,GA11`,.
9
1he complainants point out that Philippine excise tax laws, which
subject spirits made rom domestic raw materials to much lower tax rates than
sprits made rom other raw materials, discriminate against imported spirits which
are either similar or directly competitie or substitutable to domestic distilled
spirits.
10

1he Philippines acceded to the \1O on 1 January 1995 and committed
to aithully comply with all its obligations therein. 1he present dispute, entitled
Pbitiive.-1ae. ov Di.tittea irit. ,Pbitiive.`,, not only puts to test the
Philippines` idelity to this commitment, it also continues the long standing
discourse on the concept o like` and directly competitie or substitutable`
products under the GA11`s National 1reatment Principle and adds to the eer
increasing jurisprudence in this area. 1his essay intends to be a modest
contribution to this discourse. It shall take an in depth look at Pbitiive. in an
attempt to determine whether the Philippines indeed breached its obligations

6
ee .vra note 2.
Cahiles-Magkilat, B., | rivg. !1O Ca.e r. RP ov 1ae. ov vortea irit., B-2, Manila Bulletin, 31
July 2009, araitabte at http:,,www.allbusiness.com,trade-deelopment,international-trade-export,12599468-
1.html ,last isited 14 May 2010,.
8
a., According to LU 1rade Commissioner Catherine Ashton, while sales o local spirits hae grown
oer 8 since 2005, oerall sales o imported spirits hae declined during the same period. lrom 2004 to
200, LU exports o spirits to the Philippines ell rom around 3 million Luros to 18 million Luros. 1he
international \ine and Spirits Record estimated that consumption o spirits in the Philippines in 200 was
about 4 million cases ,o nine litres,, making it one o the largest spirits market in the Asia-Paciic region.
9
ee .vra note 2, Republic Act No. 8240, adopted by the Philippines on Noember 1996, imposed a
lower lat excise tax rate on spirits produced rom raw materials such as the sap o palms, the juice, sugar or
syrup o cane which were produced commercially in the country where they were processed into distilled
spirits.`, See at.o ovgrvvvivg 1ariff eva Re.vtt. iv !1O Ra-|, 8 1he Daily 1ribune, 4 August 2009,
araitabte at http:,,www.tribuneonline.org,business,20090804bus1.html,last isited 14 May 2010,.
10
a.
2011| 1AXLS ON DIS1ILLLD SPIRI1S 455

under the GA11. In the process, it will reisit the releant rules, goerning
principles and standing jurisprudence on the National 1reatment Principle under
the GA11. It aims to clariy the arious issues surrounding the dispute and to aid
in gaining a more inormed understanding o this increasingly complex area o
international trade law.

$)-** 2%++.-0 "7 #"#83%0!-%9%#.$%"#4 $.-%77 :%#3%#'01 9"0$
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Discriminatory trade policies and protectionism are antithetical to a
multilateral trade system.
11
1he GA11, an international treaty aimed at eliminating
discriminatory treatment in international commerce, limited taris and controlled
the use o non-tari barriers.
12
Its main substantie eature is the imposition o
tari bindings upon member countries. Under Article II o the GA11, member
states exchange tari concessions and agree not to raise taris beyond committed
leels.
13
1hese tari commitments are not ound in any binding agreement but are
instead listed by indiidual member states in the schedules annexed to the
Marrakesh Protocol to the GA11.
14
By way o tari bindings, member states
commit to cut and bind` their custom duty rates, in some instances een cutting
taris down to zero.
15
\hile it is possible or member states to break` a
commitment by raising taris beyond the bound rate, they can only do so ater
haing negotiated with members most concerned with the planned tari
increase.
16

1wo other proisions directly supplement tari bindings in Article II,
these are the Most laored Nation ,MlN`, Principle in Article I and the
National 1reatment ,N1`, Principle in Article III. 1hese three obligations, i.e.,
tari bindings, MlN and N1, make up the three pillars o the Non-Discrimination
Principle and constitute the core discipline o the world trading system since the

11
Awanish Kumar & Aritra Chatterjee, Reftectiov. ov tbe vbbte of i/eve.., 16 ,2, International 1rade
Law and Regulation 51 ,2010,.
12
Chi Carmody, !bev Cvttvrat aevtit, !a. ôt .v ..ve: 1biv/ivg .bovt Cavaaa-Certaiv Mea.vre.
Covcervivg Perioaicat.` 30 Law & Policy in International Business 232, 252 ,1998-1999,.
13
a.
14
\orld 1rade Organization, 1ariff.: More ivaivg. ava Cto.er to Zero, Understanding the \1O, araitabte
at http:,,www.wto.org,english,thewto_e,whatis_e,ti_e,agrm2_e.htm,last isited 5 July 2010,.
15
a.
16
a.

GA11`s inception in January 1948.
1
In essence, the non-discrimination
obligation prohibits \1O members not only rom discriminating against goods
18
,
serices,
19
and intellectual property rights
20
originating rom among the dierent
member states but also rom discriminating in aor o those originating
domestically within the member state.
21

\hereas the MlN Principle requires member states to grant eery other
member state the most aorable treatment it grants to any other country with
respect to imports and exports o products,
22
the N1 Principle requires members
to treat oreign products no dierently rom similar or directly competitie or
substitutable domestic products in terms o laws, regulations and other internal
requirements. In other words, while the MlN Principle prohibits a country rom
discriminating betreev otber covvtrie., the N1 Principle prohibits a country rom
discriminating agaiv.t otber covvtrie..
23
1hus, under the N1 Principle, once oreign
products hae cleared customs and became part o internal commerce, members
are prohibited rom maintaining laws and requirements which discriminate
between domestic and imported products.
24

9"0$ 7.;"-*3 #.$%"# 2-%#!%2+*4 $)* */$*-#.+ 3%9*#0%"# "7
#"#83%0!-%9%#.$%"#

1he MlN principle, a cornerstone o the GA11 and a pillar o the
international trading system, is essential in a multilateral trading system such as the
\1O.
25
Article I:1 o the GA11 proides that any adantage, aour, priilege
or immunity granted by any contracting party to any product originating in or
destined or any other country shall be accorded immediately and unconditionally
to like products originating in or destined or the territories o all other contracting

1
ee .vra note 12 at 253.
18
Article I, General Agreement on 1aris and 1rade ,GA11`,.
19
Article II, General Agreement on 1rade in Serices.
20
Article IV, 1rade-Related Aspects o Intellectual Property Rights.
21
SlARIl BlUI\AN, NA1IONAL LA\ IN \1O LA\ 45 ,200,.
22
a. at 44.
23
PL1LR VAN DLN BOSSClL, 1lL LA\ AND POLIC\ Ol 1lL \ORLD 1RADL ORGANIZA1ION 321
,2008,.
24
25
MI1SUO MA1SUSlI1A L1 AL. 1lL \ORLD 1RADL ORGANIZA1ION: LA\, PRAC1ICL, AND POLIC\
146 ,2006, citivg Appellate Body Report, Cavaaa - Certaiv Mea.vre. .ffectivg tbe .vtovotire vav.tr,,
\1,DS139,AB,R, \1,DS142,AB,R, adopted 19 June 2000, DSR 2000:VI, 2985, par. 69.

parties.`
26
1hus, under the MlN Principle, eery concession a member makes to
another member state becomes generalized in aor o all the other members o
the \1O
2
such that av, adantage granted by a member to any product rom or
or another country must be granted to att like products rom or or att otber
members.
28
lurthermore, any adantage granted by a member state to a non
\1O member must also be granted to all other \1O members.
29

1his unconditional` MlN treatment drastically reduces transaction costs
inoled in negotiating indiidual bilateral agreements, something deeloping
countries, which do not hae the capacity to bargain or better terms o trade rom
countries with more adanced and progressie economies, ind especially
beneicial.
30
1he MlN Principle also aoids the prisoner`s dilemma` in trade
negotiations whereby a party attempts to cheat the system by pocketing any beneit
deried rom the negotiation without conceding something in return. Under the
MlN Principle, the ruits o any bargain would immediately be claimed by all the
other member states.
31

1he MlN Principle allows or two major exceptions, howeer, irst, it
does not prohibit tari and trade preerences in connection with customs unions
and ree trade areas,
32
second, it does not prohibit trade preerences in aor o
deeloping countries.
33

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#"#83%0!-%9%#.$%"#

\hereas Article I o the GA11 goerns external trade, Article III o the
GA11, embodying the N1 Principle, goerns domestic trade.
34
Article III

26
1he GA11 contains a number o other proisions requiring MlN or MlN-like treatment, to wit:
Article III: ,internal quantitatie regulations,, Article V ,reedom o transit,, Article IX:1 ,marking
requirements,, Article XIII ,the non-discriminatory administration o quantitatie restrictions,, and Article
XVII ,state trading enterprises,, ee .vra vote 23 at 322.
2
28
29
a.
30
31
a.
32
Article XXIV, GA11.
33
Article XXV:5, GA11.
34
PL1ROS MAVROIDIS, 1RADL IN GOODS: 1lL GA11 AND 1lL O1lLR AGRLLMLN1S RLGULA1ING
1RADL IN GOODS 193-194 ,200,.

prohibits the use o internal measures to accord protection to domestic
production.
35
It imposes an obligation o non-discrimination and like treatment
between domestic and imported goods.
36
Under the N1 Principle, once imported
products hae cleared customs and paid their ticket to entry by way o taris or
duties, they must be assimilated into domestic commerce and subjected to an
identical regulatory regime. lailure to do so would deeat the tari concessions
and bindings granted under the MlN Principle.
3

1he N1 Principle ensures that domestic measures do not subert tari
bindings under Article II and limits national protectie measures to border
controls.
38
It prohibits the use o internal taxes and other internal regulatory
measures to aord protection to domestic production
39
and aims to secure an
equal opportunity or imported products to compete with similar local products
within the domestic market o a member state.
40
1he N1 Principle is thus an
insurance against the risk that tari commitments, which were obtained through
multilateral negotiations, would be rendered meaningless and inutile by unilaterally
deined internal policies.
41
It also seres as an incentie or members to continue
negotiating and urther liberalizing trade,
42
secure with the knowledge that the
ruits o their negotiation will not be undone through subsequent unilateral acts
they are unable to inluence.
43
Its obious aim is to establish a leel playing ield`

35
ee .vra note 34.
36
PL1ROS MAVROIDIS, 1lL GLNLRAL AGRLLMLN1 ON 1ARIllS AND 1RADL: A COMMLN1AR\ 128
,2005,, ee at.o \ON-MOG ClOI, LIKL PRODUC1S` IN IN1LRNA1IONAL 1RADL LA\: 1O\ARDS A
CONSIS1LN1 GA11,\1O JURISPRUDLNCL 105 ,2003,, 1he Appellate Body Report in ]aav-1ae. ov
.tcobotic ererage. stated that the broad and undamental purpose o Article III is to aoid protectionism
in the application o internal tax and regulatory measures. More speciically, the purpose o Article III is to
ensure that internal measures not be applied to imported or domestic products so as to aord protection to
domestic production`. 1owards this end, Article III obliges Members o the \1O to proide equality o
competitie conditions or imported products in relation to domestic products. 1he national treatment
obligation is, hence, a promise gien by each \1O Member to its trading partners, and at the same time a
sanction: policies will be unilaterally deined, and they will eentually hae international spill oer
,externalities,, adherence to national treatment guarantees that tolerance` o their international spill oer.`
,\1,DS8,AB,R, \1,DS10,AB,R, \1,DS11,AB,R, adopted 1 Noember 1996, DSR 1996:I, 9,.
3
ee .vra note 25 at 156, ee at.o note 34 at 193-194.
38
ee .vra note 25 at 15, ee at.o Panel Report, ]aav - 1ae. ov .tcobotic ererage., \1,DS8,R,
\1,DS10,R, \1,DS11,R, adopted 1 Noember 1996, as modiied by Appellate Body Report
\1,DS8,AB,R, \1,DS10,AB,R, \1,DS11,AB,R, DSR 1996:I, 125, par. 6.13.
39
40
ee .vra note 25 at 15, ee at.o |vitea tate.-ectiov of tbe 1ariff .ct of 10, Noember 1989,
GA11 BISD ,35
th
Supp., 345, para. 5.13 ,1990,.
41
42
a.
43

o air competitie conditions in the domestic market or both imported and
domestic products.

1he N1 obligations are set orth in Article III o the GA11. Article III:1
begins by reiterating the general principle that internal measures should not be
applied so as to aord protection to domestic production.
44
Article III:2 goerns
internal tax measures, such as alue added taxes, sales taxes and excise duties, while
Article III:4 coers internal regulatory ,non-tax, measures, such as regulations
aecting the sale and use o products.
45

Article III:2 consists o two sentences, each o which coers a particular
aspect o the N1 obligation. 1he irst sentence reers to the internal taxation o
like products`. It states that imported products should not be subject to internal
taxes or other charges in excess o those applied to like` domestic products.
46

1he second sentence on the other hand, prohibits the application o internal tax
measures contrary to the terms o Article III:1.
4
An Ad Note` to Article III:2
explains that a iolation o Article III:2 is committed when imported directly
competitie or substitutable products` are taxed in excess o domestic like
products` so as to aord protection to domestic production.
48

44
Article III:1 proides: 1he contracting parties recognize that internal taxes and other internal
charges, and laws, regulations and requirements aecting the internal sale, oering or sale, purchase,
transportation, distribution or use o products, and internal quantitatie regulations requiring the mixture,
processing or use o products in speciied amounts or proportions, should not be applied to imported or
domestic products so as to aord protection to domestic production.`, ee at.o note 23 at 34.
45
Article III:4 proides: 1he products o the territory o any contracting party imported into the
territory o any other contracting party shall be accorded treatment no less aourable than that accorded to
like products o national origin in respect o all laws, regulations and requirements aecting their internal
sale, oering or sale, purchase, transportation, distribution or use. 1he proisions o this paragraph shall not
preent the application o dierential internal transportation charges which are based exclusiely on the
economic operation o the means o transport and not on the nationality o the product.`, ee at.o note 23 at
350, 368-369.
46
Article III:2, irst sentence, proides: 1he products o the territory o any contracting party
imported into the territory o any other contracting party shall not be subject, directly or indirectly, to
internal taxes or other internal charges o any kind in excess o those applied, directly or indirectly, to like
domestic products.`
4
Article III:2, second sentence, proides: Moreoer, no contracting party shall otherwise apply
internal taxes or other internal charges to imported or domestic products in a manner contrary to the
principles set orth in paragraph 1.`
48
Ad Note to Article III:2 proides: A tax conorming to the requirements o the irst sentence o
paragraph 2 would be considered to be inconsistent with the proisions o the second sentence only in cases
where competition was inoled between, on the one hand, the taxed product and, on the other hand, a
directly competitie or substitutable product which was not similarly taxed.`, ee Aaditya Mattoo & Arind

Under Article III:2, internal taxes, while not bound`, as taris are, hae
to be applied to both domestic and imported products in a non-discriminatory
manner.
49
It contemplates o both in law` ,ae ;vre, and in act` ,ae facto,
discrimination.
50
lence, taxes and regulatory measures, which are on their ace
origin-neutral` with respect to imports and domestic products, but hae
discriminatory eects when applied, will be deemed incompatible with Article III.
51
1he reach o the N1 Principle is ar and wide, as it coers irtually att
goernmental policies o att the members states, be they taxes, laws, regulations,
etc., which aect the conditions or the sale and distribution o imported products
and serices. Moreoer, it coers not only explicitly discriminatory internal
measures, but also acially neutral measures haing discriminatory consequences.
52

. <)%0=5 %0 . <)%0=5 %0 . <)%0=54 +%=* 2-"3&!$01 $)*"-5 .#3
2-.!$%!*

As mentioned aboe, Article III:2, consisting o two sentences, goerns
two distinct situations: the irst concerns like products` and the second concerns
directly competitie or substitutable products ,DCS`,.`
53
In assessing the
compatibility o internal tax measures with Article III:2, irst sentence, it is
necessary to determine ,a, whether the imported and domestic products subject o
the tax are like`, and ,b, whether taxes applied to the imported products are in
excess o` those applied to like` domestic products.
54
In contrast, in assessing
the compatibility o tax measures with Article III:2, second sentence, it is necessary
to determine ,a, whether the imported and domestic products are directly
competitie or substitutable`, and ,b, whether the directly competitie or
substitutable imported products are not similarly taxed`, and ,c, whether the

Subramanian, Regvtator, .vtovov, ava Mvttitaterat Di.citive.: 1be Ditevva ava a Po..ibte Re.otvtiov 1
International Journal o Lconomic Law 303, 304 ,1998, , ee at.o note 23 at 348.
49
50
51
ee .vra note 25 at 13, beginning with ]aav-.tcobotic ererage. in 198, the GA11 and \1O
panels hae unequiocally ruled that ae facto discrimination iolates Article III.
52
lenrik lorn & Petros Maroidis, titt a, .fter .tt 1be.e Year.: 1be vterretatiov of âtiovat
1reatvevt iv C.11,!1O Ca.ear ov 1a Di.crivivatiov 15,1, Luropean Journal o International Law 39, 40
,2004,.
53
Ole Kristian lauchald, teibitit, ava Preaictabitit, vvaer tbe !orta 1raae Orgaviatiov`. ôvDi.crivivatiov
Ctav.e. 3,3, Journal o \orld 1rade 443, 452 ,2003,.
54
ee .vra note 36 at 106-10.

dierence in tax treatment is imposed so as to aord protection` ,SA1AP`, to
domestic production.
55

lence, i it were established that a particular pair o imported and
domestic products are like`, and thereore alling under Article III:2, irst
sentence, then any tax imposed on the oreign products which is in excess` o
that imposed on domestic products would be in breach o Article III:2.
56
On the
other hand, i the oreign and domestic products are not like` but are instead only
DCS, hence alling under Article III:2, second sentence, then mere dierence in
tax treatment would not automatically constitute a breach o Article III:2, it would
hae to be shown that the dierence in treatment was SA1AP to domestic
production.
5
1hus, whereas Article III:2, irst sentence, demands absolute
equality o taxation and admits o no lexibility, in that een the slightest tax
dierential would lead to the conclusion that the internal tax imposed on the
imported products is inconsistent with the national treatment obligation, Article
III:2, second sentence, permits o some lexibility, in that the tax dierential has to
be more than ae vivivi. or the tax imposed on imported products to be ound in
breach o Article III:2, second sentence, a small dierential in taxation is generally
not considered as being imposed SA1AP to domestic production.
58
1hereore, a
complainant seeking to ile a claim or iolation o the N1 obligation under Article
III should show either that ,a, the domestic and the oreign products are like`
and that ,b, the latter is taxed in excess` o the ormer, or that ,a, the two
products are DCS but ,b, are not similarly taxed and ,c, the dissimilar taxation
operates SA1AP to domestic production.
59
lence, central to any inestigation
concerning an alleged breach o the N1 obligation is the determination o whether
the imported and domestic products concerned are either like` or DCS`.

Like products` is a central concept in \1O trade agreements and
appears in numerous proisions o the GA11. Unortunately, while the concept
o like products has been in place since 194, when the GA11 initially came into

55
56
5
a.
58
ee .vra note 23 at 364, note 48 at 304, note 25 at 10, note 34 at 222-223.
59
ee .vra note 34 at 216, ee at.o JOlN JACKSON L1 AL. LLGAL PROBLLMS Ol IN1LRNA1IONAL
LCONOMIC RLLA1IONS: CASLS, MA1LRIALS AND 1LX1 ON 1lL NA1IONAL AND IN1LRNA1IONAL
RLGULA1ION Ol 1RANSNA1IONAL LCONOMIC RLLA1IONS 551-552 ,2008,, ee at.o .vra note 52 at 41.

existence, the term has neer been ormally deined.
60
As a result, the concept o
like products has shited oer the years and has generated a air number o
disputes, the latest o which is Pbitiive..

Panels hae always considered likeness` to be a luid concept. 1he 190
\orking Party Report on oraer 1a .a;v.tvevt stated that likeness` should be
examined on a case-by-case` basis to allow a air assessment o the dierent
elements which constitute a similar` product. It suggested the examination o,
among others, the product`s end-users in a gien market, the consumers` tastes and
habits, and the product`s properties, nature and quality in determining whether two
products are similar`.
61
]aav - .tcobotic ererage. ,]aav`, clariied the oraer
1a .a;v.tvevt. criteria by stating that the deinition o like products` depends on
where it is ound in the \1O Agreement, employing the now classic image o the
accordion, it ruled thus:

1he concept o likeness` is a relatie one that eokes the image o an
accordion. 1he accordion o likeness` stretches and squeezes in dierent
places as dierent proisions o the \1O Agreement are applied. 1he width
o the accordion in any one o those places must be determined by the
particular proision in which the term like` is encountered as well as by the
context and the circumstances that preail in any gien case to which that
proision may apply.
62

In Meico-1ae. ov oft Driv/.,
63
the Panel, in determining whether beet
sugar and cane sugar are like` products, considered the products` properties,
nature and quality, their end-uses in a gien market, consumers` tastes and habits,
and the tari classiication o the products based on the larmonized System.`
64
It

60
MARCO C.L.J. BRONCKLRS, A CROSS SLC1ION Ol \1O LA\ 15 ,2001,, the draters o Article III
ormulated no precise deinition or the term "like products," deciding instead to leae the task to the then
proposed International 1rade Organization ,I1O`,. loweer, since the I1O neer came into existence,
the term was neer oicially deined. lence, despite the powerul scope o the term, the GA11 has neer
unctioned without a clear deinition o like products` since its inception, .ee Richard L. Matheny, v tbe
!a/e of tbe tooa: i/e Proavct. ava Cvttvrat Proavct. .fter tbe !orta 1raae Orgaviatiov`. Deci.iov iv Cavaaa
Certaiv Mea.vre. Covcervivg Perioaicat. 14 Uniersity o Pennsylania Law Reiew 245, 251 ,1998-1999,.
61
Report o the \orking Party on oraer 1a .a;v.tvevt, GA11 Doc. L,3464, BISD 18S>9, 2
December 190, par. 18, ee at.o note 23 at 352.
62
Appellate Body Report, ]aav - 1ae. ov .tcobotic ererage., \1,DS8,AB,R, \1,DS10,AB,R,
\1,DS11,AB,R, adopted 1 Noember 1996, DSR 1996:I, 9, 21. ,]aav-1ae. ov .tcobotic ererage.`,
63
Panel Report, Meico - 1a Mea.vre. ov oft Driv/. ava Otber ererage., \1,DS308,R, adopted 24
March 2006, as modiied by Appellate Body Report \1,DS308,AB,R, DSR 2006:I, 43.
64
ee .vra note 63 at par. 8.29.

concluded that beet sugar and cane sugar, both sweeteners in the production o
sot drinks and syrups, are like` products.
65
In Dovivicav Revbtic-vort ava ate
of Cigarette.,
66
the Panel, in examining whether the Selectie Consumption 1ax was
consistent with Article III:2, irst sentence, considered: as products alike` to the
imported cigarettes, those domestic cigarettes that were sold at a similar price.`
6

It considered imported Viceroy cigarettes to be like` domestic Lider cigarettes
since both were sold at similar prices.
68

. <)%0=5 :5 .#5 "$)*- #.9*4 3%-*!$+5 !"92*$%$%;* "-
0&:0$%$&$.:+* 2-"3&!$0

DCS products are products which are interchangeable or oer
alternatie ways o satisying a particular need or taste.`
69
1wo products are DCS
i one is able to use the product ,a, in place o the other ,b, or the similar purpose
o satisying a particular need or taste and ,c, without signiicant reduction o
consumption utility.
0
1he concept o DCS products is broader than the concept
o like products` as it encompasses een distinctly dierent kinds o goods.
1
By
establishing a concurrent application between the irst and the second sentences o
Article III:2, the N1 obligation reaches een products with absolutely no physical
similarity to each other.
2

Like products are a subset o DCS products, hence, all like products are,
by deinition, DCS, whereas not all DCS products are like`.
3
Indeed, i the
concepts o like`, identical`, similar` and dierent` were to be plotted on a
continuum, the concept o like` and identical` would be ound on one extreme
while the concept o dierent` would be ound on the other extreme.
4
In

65
a. at par. 8.36.
66
Panel Report, Dovivicav Revbtic - Mea.vre. .ffectivg tbe vortatiov ava vtervat ate of Cigarette.,
\1,DS302,R, adopted 19 May 2005, as modiied by Appellate Body Report \1,DS302,AB,R, DSR
2005:XV, 425.
6
a. at par. .336
68
a., ee at.o note 23 at 354.
69
Appellate Body Report, Korea - 1ae. ov .tcobotic ererage., \1,DS5,AB,R, \1,DS84,AB,R,
adopted 1 lebruary 1999, DSR 1999:I, 3. ,Korea-1ae. ov .tcobotic ererage.`,, ee at.o note 36 at 1.
0
1
a. at 109.
2
a.
3
Like products are er .e DCS, ee .vra note 36 at 130-131, ee at.o Korea - 1ae. ov .tcobotic ererage..
4

between these two ends would be ound the concepts o similar`, directly
competitie or substitutable` and indirectly competitie or substitutable`.
5

In ]aav,
6
the Japanese Liquor 1ax Law subjected predominantly western
drinks ,i.e, odka, liqueurs, gin, geneer, rum, whisky and brandy, to a heaier tax
than domestically produced drinks ,i.e. shochu,. As a result, sochu was subjected
to less burdensome taxation than, odka and other alcoholic beerages
predominantly produced in Lurope and the US. 1he Appellate Body stated that
the concept o like products` should be interpreted narrowly because o the
existence o the concept o DCS products in Article III:2, second sentence,
such
that while imported and domestic products may not be like products` under
Article III:2, irst sentence, they may all under the broader category o DCS
products under Article III:2, second sentence.
8
In addition to the oraer 1a
.a;v.tvevt criteria,
9
the Appellate Body in ]aav also considered the tari
classiication` o the products in question as releant and helpul in determining
product similarity.
80
1he Appellate Body ruled that shochu and odka were like
products`. 1hus, by taxing odka in excess o` shochu, the Japanese Liquor 1ax
Law contraened Article III:2, irst sentence. lurthermore, it also ruled that
shochu and whisky, brandy, rum, gin, geneer, and liqueurs were DCS products
but were taxed dierently SA1AP to domestic production. lence, the Japanese
Liquor 1ax Law was also ound to be in iolation o Art. III:2, second sentence.

\hile physical characteristics, common end-uses, and tari classiication
are the elements taken into account when determining whether two products are
DCS, it has also been ruled that it is the consumers in the marketplace who
ultimately decide whether two products are indeed in competition or substitutable
with each other.
81
As between the like products` and the DCS products` rules

5
a.
6
]aav - 1ae. ov .tcobotic ererage..
See supra note 23 at 352.

8
]aav - 1ae. ov .tcobotic ererage., 25.
9
lactors in determining likeness` include: the product`s end-uses in a gien market, consumers`
tastes and habits, which change rom country to country, the product`s properties, nature and quality.
80
It ruled that: a uniorm tari classiication o products can be releant in determining what are like
products`. I suiciently detailed, tari classiication can be a helpul sign o product similarity.`, ee at.o
Panel Reports on C-Mea.vre. ov .vivat eea Proteiv., L,4599 - 25S,49, 14 March 198, ]aav-.tcobotic
ererage. , L,6216 - 34S,83, 10 Noember 198, and |vitea tate. - tavaara. for Reforvvtatea ava Covrevtiovat
Ca.otive, \1,DS2,R, adopted 20 May 1996, as modiied by Appellate Body Report \1,DS2,AB,R, DSR
1996:I, 29.
81
]aav - 1ae. ov .tcobotic ererage., ee at.o note 34 at 221.

under Article III:2, the latter embodies the ideal o unettered global ree trade
since it captures internationally traded products based on their competitie
relationship een i they share no physical similarity.
82

In Cavaaa - Perioaicat.,
83
the United States argued that the Canadian
Lxcise 1ax Act, which imposed excise taxes on split-run periodicals,
84
created an
artiicial distinction between split-run magazines and other types o magazines.`
According to the US, by taxing only split-run magazines, Canada discriminated
against imported magazines and aored like` domestic magazines. Canada
argued that since editorial content was an essential characteristic o a periodical,
periodicals with Canadian market-speciic editorial content were distinguishable
rom split-run periodicals reproducing oreign editorial content, hence, the two
types o periodicals were not like products`.
85
1he Panel ound that imported
split-run periodicals and domestic non split-run periodicals were like products`
within the meaning o Article III.2 and that the Canadian excise tax on magazines
was inconsistent with Article III:2, irst sentence. On appeal, the Appellate Body,
while upholding the Panel`s indings and conclusions on the applicability o Article
III:2 to Canada`s Lxcise 1ax Act, reersed its inding that said tax is inconsistent
with Article III:2, irst sentence. Instead it ruled that Canada`s Lxcise 1ax Act is
inconsistent with Article III:2, second sentence, and ound that split-run and non-
split-run periodicals are DCS products in so ar as they are part o the same
segment o the Canadian market or periodicals. 1he Appellate Body ruled that, to
be DCS, products do not hae to be perectly substitutable.
86

In Korea-.tcobotic ererage. ,Korea`,
8
, the US and LC claimed that
Korean tax measures, which imposed dierent tax rates or dierent categories o
distilled spirits, aored distilled and diluted Korean soju oer similar imported
liquor products such as odka, whiskies, rum, gin, brandies, cognac, liqueurs,
tequila and ad mixtures. 1he Appellate Body upheld the Panel's conclusion that

82
83
Appellate Body Report, Cavaaa - Certaiv Mea.vre. Covcervivg Perioaicat., \1,DS31,AB,R, adopted 30
July 199, DSR 199:I, 449 ,Cavaaa - Certaiv Mea.vre. Covcervivg Perioaicat.,.
84
A split-run periodical is a periodical whereby dierent editions are distributed in dierent countries.
1he dierent editions hae the same or substantially the same content, diering only in the adertisements
which ocus on the local markets o each speciic edition.
85
Robert Lberschlag, Cvttvre Cta.b: Cavaaiav Perioaicat Poticie. ava tbe !orta 1raae Orgaviatiov 26,1,
Manitoba Law Journal 65, ,1998-1999, .
86
Cavaaa - Certaiv Mea.vre. Covcervivg Perioaicat., 43, ee at.o note 23 at 361.
8
Korea - 1ae. ov .tcobotic ererage..

the Korean tax measures at issue were inconsistent with Art. III:2, second
sentence. 1aking ]aav one step urther, the Appellate Body in Korea explained that
the term DCS describes a particular type o relationship between two products,
one imported and the other domestic` and that the term DCS implies that the
competitie relationship between products is vot to be analyzed ectv.iret, by
reerence to cvrrevt consumer preerences` since the word substitutable` indicates
that the requisite relationship va, exist between products that are not, at a gien
moment, considered by consumers to be substitutes but which are, nonetheless,
caabte o being substituted or one another.`
88
lence, products are competitie
or substitutable when they are interchangeable or i they oer.attervatire ra,. of
.ati.f,ivg a articvtar veea or ta.te.`
89
1he Appellate Body also ruled that, in
examining whether products are DCS, an analysis o tatevt as well as etavt demand
is required since competition in the marketplace is a dynamic, eoling
process`.
90

$)"& 0).++ #"$ :*''.- $)5 #*%'):"&-4 $)* 0.$.2
2-")%:%$%"#

It is not suicient or the complainant to show that a pair o products are
DCS to establish a breach o Article III:2, second sentence, it has to additionally
demonstrate that the dierence in taxation was SA1AP to domestic production.
1his entails going behind the law to ascertain its protectionist intent, a task which
is next to impossible gien the dierse legal systems and legislatie processes o the
member states. Panels hae howeer ruled that a measure`s protectie application
may neertheless be discerned rom a, the design, b, the architecture, and c, the
reealing structure o a measure.
91
lor instance, the act that a tax measure
operates in such a way that domestic products are classed under lower tax brackets
while imported products are classed under higher tax brackets, seres as a strong

88
ee supra note 8 at par. 114.
89
a. at par. 114-115, italics supplied.
90
ee .vra note 23 at 362, citivg Korea - 1ae. ov .tcobotic ererage., par. 120, Korea explained the dynamic
iew o the concept o DCS products, thus: In iew o the objecties o aoiding protectionism, requiring
equality o competitie conditions and protecting expectations o equal competitie relationships, we decline
to take a static iew o the term directly competitie or substitutable`. 1he object and purpose o Article III
conirms that the scope o the term directly competitie or substitutable` cannot be limited to situations
where consumers atreaa, regard products as alternaties. I reliance could be placed only on current
instances o substitution, the object and purpose o Article III:2 could be deeated by the protectie taxation
that the proision aims to prohibit.`
91
]aav - 1ae. ov .tcobotic ererage., 120, ee at.o note 23 at 366.

indication that the tax measure is imposed SA1AP to domestic production.
92
1he
magnitude o the tax dierential is also an indication o the protectie application
o a tax measure.
93
lence, the tax dierential between a pair o DCS products
either by itsel, when the magnitude o the tax dierential is great, or in
conjunction with other actors, such as the design, architecture and reealing`
structure o the measure, when the tax dierential is more than ae vivivi. but less
than signiicant, establishes a iolation o the SA1AP prohibition.
94

In Cbite-.tcobotic ererage. ,Cbite`,,
95
Chilean law distinguished between
three categories o alcoholic beerages: drinks with alcoholic content o less than
35, between 35 and 39, and, more than 39. \hereas, the products in the irst
and second categories were taxed at 2 aa ratorev, the products in the last
category were taxed at 4 aa ratorev. 1he US and LC argued that some imported
distilled spirits, such as whisky, brandy and cognac, which hae alcoholic contents
o slightly more than 39, were taxed at the higher 4 rate than the DCS Chilean
pisco. 1he latter has an alcoholic content o less than 35 and was taxed at the
lower 2 rate resulting in a tax dierential which operated SA1AP to the
domestic spirits.
96
Chile pointed out that majority o the products hit by the
higher tax rates in the oer 39 tax category were domestic products such that no
protection could hae resulted rom such a taxation scheme.
9
1he Appellate
Body, while agreeing that most o the alcoholic drinks hit by the higher tax rates
were o Chilean origin, neertheless ruled that the more than ae vivivi. tax
dierential ,i.e., a 20 dierence between the two tax rates, was signiicant and
operated SA1AP to Chilean pisco.
98

92
See supra note 23 at 366.
93
a.
94
ee .vra note 52 at 51
95
Appellate Body Report, Cbite - 1ae. ov .tcobotic ererage., \1,DS8,AB,R, \1,DS110,AB,R,
adopted 12 January 2000, DSR 2000:I, 281 ,Cbite - 1ae. ov .tcobotic ererage.`,.
96
a. at par. .83, ee at.o note 23 at 360.
9
98
ee .vra note 36 at 139 , In par. 6, the Appellate Body urther stated that: 1he relatie proportion
o domestic ersus imported products within a particular iscal category is not, in and o itsel, decisie o
the appropriate characterization o the total impact o the New Chilean system under Article III:2, second
sentence, o the GA11 1994. 1his proision, as noted earlier, proides or equality o competitie
conditions o all directly competitie or substitutable imported products, in relation to domestic products,
and not simply, as Chile argues, those imported products within a particular iscal category. 1he cumulatie
consequence o the New Chilean System is, as the Panel ound, that approximately 5 percent o all
domestic production o the distilled alcoholic beerages at issue will be located in the iscal category with the
lowest tax rate, whereas approximately 95 percent o the directly competitie or substitutable imported
products will be ound in the iscal category subject to the highest tax rate.`, ee at.o note 52 at 48-49.

2)%+%22%#*0"$./*0 "# 3%0$%++*3 02%-%$04 . !-%$%!.+ .#.+50%0

In their respectie requests or the establishment o a Panel, the LC
99
and
the US
100
alleged that the Philippines` excise tax regime with respect to distilled
spirits is inconsistent with Article III:2, irst and second sentences. More
speciically, they point to Section 141 o the Philippine National Internal Reenue
Code o 199 ,NIRC`, as haing a discriminatory structure and adersely
aecting imports o distilled spirits into the Philippines.

Section 129 o the NIRC
101
proides that excise taxes shall be imposed on
goods manuactured or produced in, or imported into, the Philippines.
102
Chapter
III 1itle VI o the NIRC, entitled Lxcise 1ax on Alcohol Products` consists o
three sections
103
coering three dierent kinds o alcoholic products: distilled
spirits,
104
wines
105
and ermented liquor.
106
Section 141 o the NIRC ,Section
141`,,
10
imposing excise tax on distilled spirits, in part proides:

99
\1,DS396,4, dated 11 December 2009.
100
\1,DS403,4, dated 29 March 2010.
101
Rep. Act No. 8424, 1his is the 1ax Reorm Act o 199, araitabte at
http:,,www.lawphil.net,statutes,repacts,ra199,ra_8424_199.html ,last isited 5 July 2010,.
102
129 proides: Goods subject to Lxcise 1axes. - Lxcise taxes apply to goods manuactured or
produced in the Philippines or domestic sales or consumption or or any other disposition and to things
imported. 1he excise tax imposed herein shall be in addition to the alue-added tax imposed under 1itle IV.
lor purposes o this 1itle, excise taxes herein imposed and based on weight or olume capacity or any
other physical unit o measurement shall be reerred to as 'speciic tax' and an excise tax herein imposed and
based on selling price or other speciied alue o the good shall be reerred to as 'ad alorem tax.`
103
141, 142 and 143.
104
141.
105
142. !ive.. - On wines, there shall be collected per liter o olume capacity, the ollowing taxes:
,a, Sparkling wines,champagnes regardless o proo, i the net retail price per bottle
,excluding the excise tax and the alue-added tax, is:
,1, lie hundred pesos ,P500.00, or less - One hundred orty-ie pesos and sixty
centaos ,P145.60,, and
,2, More than lie hundred pesos ,P500.00, - lour hundred thirty-six pesos and
eighty centaos ,P436.80,.
,b, Still wines containing ourteen percent ,14, o alcohol by olume or less, Seenteen pesos
and orty-seen centaos ,P1.4,, and

Section 141. Di.tittea irit.. - On distilled spirits, there shall be collected,
subject to the proisions o Section 133 o this Code, excise tax as ollows:
,a, I produced rom the sap o nipa, coconut, cassaa, camote, or buri
palm or rom the juice, syrup or sugar o the cane, proided such materials
are produced commercially in the country where they are processed into
distilled spirits, per proo liter, Lleen pesos and sixty-ie centaos ,P11.65,,
,b, I produced rom raw materials other than those enumerated in the
preceding paragraph, the tax shall be in accordance with the net retail price
per bottle o seen hundred ity milliliter ,50 ml., olume capacity
,excluding the excise tax and the alue-added tax, as ollows:
,1, Less than 1wo hundred and ity pesos ,P250.00, - One hundred
twenty-six pesos ,P126.00,, per proo liter,
,2, 1wo hundred and ity pesos ,P250.00, up to Six hundred and
seenty-ie pesos ,P65.00, - 1wo hundred ity-two pesos ,P252.00,, per
proo liter, and

,c, Still wines containing more than ourteen percent ,14, but not more than twenty-ie
percent ,25, o alcohol by olume, 1hirty-our pesos and ninety-our centaos ,P34.94,.
lortiied wines containing more than twenty-ie percent ,25, o alcohol by olume shall be taxed as
distilled spirits. 'lortiied wines' shall mean natural wines to which distilled spirits are added to increase their
alcohol strength. xxx ,as amended by RA 9334,
106
143. ervevtea iqvor.. - 1here shall be leied, assessed and collected an excise tax on beer, lager
beer, ale, porter and other ermented liquors except tvba, ba.i, tvv, and similar ermented liquors in
accordance with the ollowing schedule:
,a, I the net retail price ,excluding the excise tax and the alue-added tax, per liter o olume
capacity is less than lourteen pesos and ity centaos ,P14.50,, the tax shall be Light pesos and
twenty- seen centaos ,P8.2, per liter,
,b, I the net retail price ,excluding the excise tax and the alue-added tax, per liter o olume
capacity is lourteen pesos and ity centaos ,p14.50, up to 1wenty-two pesos ,P22.00,, the tax shall
be 1wele pesos and thirty centaos ,P12.30, per liter,
,c, I the net retail price ,excluding the excise tax and the alue-added tax, per liter o olume
capacity is more than 1wenty-two pesos ,P22.00,, the tax shall be Sixteen pesos and thirty-three
centaos ,P16.33, per liter.
Variants o existing brands and ariants o new brands which are introduced in the domestic market
ater the eectiity o this Act shall be taxed under the proper classiication thereo based on their suggested
net retail price: Proriaea, borerer, 1hat such classiication shall not, in any case, be lower than the highest
classiication o any ariant o that brand.
A 'ariant o a brand' shall reer to a brand on which a modiier is preixed and,or suixed to the root
name o the brand.
lermented liquors which are brewed and sold at micro-breweries or small establishments such as pubs
and restaurants shall be subject to the rate in paragraph ,c, hereo. xxx` ,as amended by RA 9334,.
10
Rep. Act No. 9334, entitled .v .ct vcrea.ivg tbe ci.e 1a Rate. vo.ea ov .tcobot ava 1obacco
Proavct., .vevaivg for tbe Pvro.e ectiov. 111, 112, 11, 111, 11: ava 2 of tbe âtiovat vtervat Rerevve Coae of
1, a. avevaea` was signed into law on 21 December 2004 and took eect on 1 January 2005. It increased
excise tax rates o primarily locally produced spirits by 30 and imported spirits by 50., araitabte at
http:,,www.lawphil.net,statutes,repacts,ra2004,ra_9334_2004.html ,last isited 5 July 2010,.

,3, More than Six hundred and seenty ie pesos ,P65.00, -lie
hundred our pesos ,P504.00,, per proo liter.
xxx
Spirits or distilled spirits' is the substance known as ethyl alcohol,
ethanol or spirits o wine, including all dilutions, puriications and mixtures
thereo, rom whateer source, by whateer process produced, and shall
include whisky, brandy, rum, gin and odka, and other similar products or
mixtures. xxx

1he LC and US alleged that distilled spirits produced rom raw materials
enumerated in paragraph ,a, o Section 141,which are indigenous to the
Philippines, are subjected to a lower tax rate compared to distilled spirits produced
rom other raw materials, which are taxed at rates 10 to 40 times higher, depending
on their price bands. According to them, this regime not only taxed imported
distilled spirits made rom non-indigenous` raw materials in excess o` like`
domestic spirits,
108
it also taxed DCS imported distilled spirits in a way that
aords protection to domestic spirits.
109
1hey claim that Section 141 is
inconsistent with the Philippines` N1 obligations under the GA11 and nulliies
and impairs the beneits otherwise accruing to them under the GA11.

. <"+7 %# 0)**2#0 !+"$)%#'? . 3* 7.!$" 3%0!-%9%#.$%"#
.#.+50%0

Paragraph ,a, o Section 141 applies a lower excise tax rate to distilled
spirits produced a, using raw materials listed therein, which are b, produced
commercially in the country where they are processed into distilled spirits.`
Paragraph ,b, o Section 141 on the other hand applies higher tax rates on distilled
spirits produced using raw materials other than those listed in paragraph ,a,. Since
Section 141 taxes distilled spirits based on the raw materials used, it appears that,
riva facie, no distinction is made between imported and domestic distilled spirits.
lence, as long as it can be demonstrated that any distilled spirit was produced
using any o the raw materials listed in paragraph ,a, and that these raw materials
were produced commercially in the country where the distilled spirit was made,
then, regardless o origin, the distilled spirit will be taxed under the lower rate
proided in paragraph ,a,.

108
\1,DS396,4, dated 11 December 2009.
109
\1,DS403,4, dated 29 March 2010.

It appears howeer that most o the raw materials under paragraph ,a, o
Section 141 are indigenous to the Philippines and other tropical countries. It also
appears that most, i not all, domestic distilled spirits are manuactured rom these
indigenous raw materials. lence, domestic distilled spirits are automatically taxed
at the lower rate proided in paragraph ,a,. In contrast, it is unlikely or imported
distilled spirits to hae been manuactured rom these indigenous raw materials,
much less is it likely that such raw materials be produced commercially in countries
such as the LC or the US. lence, most imported distilled spirits are taxed at the
higher rates proided in paragraph ,b,.

1his point brings to mind the three liquor tax cases o ]aav, Korea and
Cbite inoling accusations o ae facto tax discrimination. Interestingly, the LC and
the US were also the complainants in all these three cases. In these cases, the tax
measures in question, while ov tbeir face neutral and do not distinguish between
products based on their origin, had the eect o discriminating against like` or
DCS imported products rbev atiea.
110
In ]aav, the products concerned were
ound to be DCS and, one pair, odka and sochu, were deemed to be like
products`. In Korea, Korean laws were ound to be in iolation o Article III:2 or
haing imposed heaier taxes on imported drinks than on soju, a DCS product to
the imported spirits. Cbite arried at a similar result since the products concerned
were ound to be DCS and the dierential taxation operated in aour o
domestically produced pisco.
111

In the aboe cases, since most sochu is produced in Japan, most soju in
Korea, and most pisco in Chile, the taxation systems in Japan, Korea and Chile
respectiely, while on their ace non discriminatory, had the eect o conerring an
adantage on these predominantly national products, to the prejudice o their
imported counterparts.
112
Similarly, in |-Matt ererage.,
113
the State o
Mississippi applied a lower excise tax rate on wines made rom a certain grape
ariety. 1he Panel ruled that while the excise tax structure did not on its ace
discriminate against imports, since the aored grape ariety was grown only in the

110
111
a.
112
a.
113
|-Mea.vre. .ffectivg .tcobotic ava Matt ererage., DS23,R - 39S,206, 19 June 1992, GA11 B.I.S.D.
,39
th
Supp.,.

State o Mississippi and Mediterranean regions, the tax dierential was deemed
discriminatory. lollowing the reasoning behind the aboe cited cases, it is
reasonable to beliee that the Panel reiewing Pbitiive. will ind that, as applied,
Section 141 discriminates against imported distilled spirits.

<.+=0 +%=* . 3&!=1 ,&.!=0 +%=* . 3&!=1 %0 %$ . 3&!=? . +%=*
2-"3&!$0 .#.+50%0

Are domestic distilled spirits made rom indigenous raw materials like`
imported distilled spirits made rom other raw materials Case law suggests that
likeness,` under Article III:2 irst sentence, can be determined by examining,
among others, the product`s end-users in a gien market, consumers` tastes and
habits, the product`s properties, nature and quality,
114
tari classiication,
115
and
price.
116
Under this physical characteristics test`, a case-speciic assessment and
comparison is made o two or more products. 1he term like product` is
construed narrowly in Article III:2, irst sentence, gien the broader concept o
DCS products in Article III:2, second sentence.
11

1he properties, nature and quality o the distilled spirits in question, are
deined by the respectie product standards authorities in the Philippine, LC and
US.
118
\hereas Philippine brandies are obtained solely rom the ermented juice
o resh, ripe and sound grapes`,
119
brandies in the LC are produced rom wine
spirit`
120
while US brandies are distilled rom ermented juice, mash, or wine o

114
Report o the \orking Party on oraer 1a .a;v.tvevt, GA11 Doc. L,3464, BISD 18S>9, 2
December 190, par. 18, ee .vra note 23 at 352.
115
Panel Reports on C-Mea.vre. ov .vivat eea Proteiv., L,4599 - 25S,49, 14 March 198, ]aav-
.tcobotic ererage. , L,6216 - 34S,83, 10 Noember 198, and |vitea tate. - tavaara. for Reforvvtatea ava
Covrevtiovat Ca.otive, \1,DS2,R, adopted 20 May 1996, as modiied by Appellate Body Report
\1,DS2,AB,R, DSR 1996:I, 29.
116
Panel Report, Dovivicav Revbtic - Mea.vre. .ffectivg tbe vortatiov ava vtervat ate of Cigarette.,
\1,DS302,R, adopted 19 May 2005, as modiied by Appellate Body Report \1,DS302,AB,R, DSR
2005:XV, 425.
11
ee .vra note 23 aboe at 352, ee also note 25 at 159.
118
ee Appendix A.
119
2.1.1., Standards Administratie Order No. 558, series o 198, Bureau o Standards, Department
o 1rade and Industry, Republic o the Philippines., araitabte at
http:,,www.bad.go.ph,deault.cmpage_id~83 ,last isited 6 July 2010,.
120
Annex II, Section 5,a,,i,, LC Regulation No. 110,2008, 15 January 2008, araitabte at
http:,,www.mee.goernment.bg,ind,doc,LexUriSer.pd ,last isited 6 July 2010,.

ruit, or rom the residue thereo.`
121
\hereas Philippine brandies hae a
minimum ethyl alcohol content o 32.5 by olume,
122
its LC counterpart has a
minimum alcoholic strength o 36 by olume.
123
\hereas Philippine and US
whiskies are distilled rom a ermented mash o grain`,
124
LC whiskies are
distilled rom a mash made rom malted cereals with or without whole grains o
other cereals`.
125
\hile Philippine whiskies hae an alcoholic content o at least
32.5 by olume,
126
LC whiskies hae a minimum alcoholic content o 40 by
olume.
12
\hereas Philippine and US rums are made rom alcoholic distillate
obtained solely rom ermented juice or sugarcane, sugarcane molasses or other
sugarcane by-products`,
128
LC rums are produced either rom molasses or syrup
produced in the manuacture o cane sugar or rom sugar-cane juice`.
129
linally,
while Philippine and US odkas are obtained rom neutral spirit iltered through
actiated carbon ,charcoal,` made rom ermented grain, potato, or any other
source o ermentable carbohydrates`,
130
LC odkas are obtained ollowing

121
1itle 2, Part 5, Subpart C, Chapter 5.22 ,d,, Code o lederal Regulations, United States o America,
araitabte at http:,,ecr.gpoaccess.go,cgi,t,text,text-
idxc~ecr&sid~b60b05b2c359324b25a1a5119140&rgn~di8&iew~text&node~2:1.0.1.1.3.3.25.2&i
dno~2 ,last isited 6 July 2010,.
122
Standards Administratie Order No. 558, .vra note 119.
123
Annex II, Section 5,a,,i,, LC Regulation No. 110,2008, .vra note 120..
124
o 1rade and Industry, Republic o the Philippines, araitabte at
http:,,www.bad.go.ph,deault.cmpage_id~83 ,last isited 6 July 2010,, 1itle 2, Part 5, Subpart C,
Chapter 5.22 ,b,, Code o lederal Regulations, United States o America, araitabte at
http:,,ecr.gpoaccess.go,cgi,t,text,text-
125
Annex II, Section 2,a,, LC Regulation No. 110,2008, 15 January 2008, araitabte
athttp:,,www.mee.goernment.bg,ind,doc,LexUriSer.pd ,last isited 6 July 2010,.
126
Standards Administratie Order No. 259, .vra note 124.
12
Annex II, Section 2,a,, LC Regulation No. 110,2008, .vra note 125.
128
o 1rade and Industry, Republic o the Philippines, araitabte
athttp:,,www.bad.go.ph,deault.cmpage_id~83 ,last isited 6 July 2010,, 1itle 2, Part 5, Subpart C,
Chapter 5.22 ,,, Code o lederal Regulations, United States o America. araitabte
athttp:,,ecr.gpoaccess.go,cgi,t,text,text-
129
Annex II, Section 1,a,, LC Regulation No. 110,2008, 15 January 2008, araitabte
athttp:,,www.mee.goernment.bg,ind,doc,LexUriSer.pd ,last isited 6 July 2010,.
130
o 1rade and Industry, Republic o the Philippines, araitabte at
http:,,www.bad.go.ph,deault.cmpage_id~83 ,last isited 6 July 2010,, 1itle 2, Part 5, Subpart C,
Chapter 5.22 ,a,,1,, Code o lederal Regulations, United States o America, araitabte at
http:,,ecr.gpoaccess.go,cgi,t,text,text-

ermentation with yeast rom either potatoes and,or cereals or other agricultural
raw materials`.
131

A cursory comparison o the properties, nature and quality o Philippine
and imported distilled spirits will show that while these properties are not entirely
like`
132
each other, they are at least similar`
133
to each other, both haing similar
characteristics and component materials, thereby enabling them to perorm the
same unctions and be commercially interchangeable. lurthermore, under Chapter
22 o the Asean larmonized 1ari Nomenclature Book,
134
brandy, whisky, rum,
gin and odka are all listed under heading 22.08 entitled undenatured ethyl o an
alcoholic strength by olume o less than 80 ol., spirits, liqueurs and other
spirituous beerages`.
135
lence, ollowing settled case law,
136
which ruled that
product properties, nature and quality as well as tari classiication are indicators
o likeness, these distilled spirits can be treated as like products`. It will also be
recalled that in ]aav, the AB ound odka to be like` Japanese sochu.

1he United States, in its written submission, points out that the aboe
process o analysis is not een applicable to the present. It posits that the aboe
analysis is applicable in cases where two dierent types o spirits are being
compared, or instance imported odka is-a-is domestic .o;v, as in the case o

131
Annex II, Section 15,a,, LC Regulation No. 110,2008, 15 January 2008, araitabte at
132
Article 15 o the Customs Valuation Agreement proides a deinitie interpretation o the concept
o identical`: Identical goods means goods which are the same in all respects including physical
characteristics, quality and reputation. Minor dierences in appearance would not preclude goods otherwise
conorming to the deinition rom being regarded as identical.` araitabte at
http:,,www.worldtradelaw.net,uragreements,customsaluationagreement.pd ,last isited 6 July 2010,, ee
at.o note 36 at 12.
133
Article 15 o the Customs Valuation Agreement also proides a deinitie interpretation or the
concept o similar goods`: Similar goods means goods which, although not alike in all respects, hae like
characteristics and like component materials which enable them to perorm the same unctions and to be
commercially interchangeable. 1he quality o the goods, their reputation and the existence o a trademark
are among the actors to be considered in determining whether goods are similar.` araitabte at
http:,,www.worldtradelaw.net,uragreements,customsaluationagreement.pd ,last isited 6 July 2010,, 1he
reerence to similar` as a synonym o like` echoes the lrench ersion o Article III:4, roavit. .ivitaire`
and the Spanish ersion roavcto. .ivitare.`, ee note 23 at 329, ee at.o note36 at 13.
134
araitabte at http:,,www.taricommission.go.ph,Al1N20Chapter22.pd ,last isited 6 July
2010,.
135
ee Appendix B.
136
Panel Reports on C-Mea.vre. ov .vivat eea Proteiv., L,4599 - 25S,49, 14 March 198, ]aav-
.tcobotic ererage. , L,6216 - 34S,83, 10 Noember 198, and |vitea tate. - tavaara. for Reforvvtatea ava
Covrevtiovat Ca.otive, \1,DS2,R, adopted 20 May 1996, as modiied by Appellate Body Report
\1,DS2,AB,R, DSR 1996:I, 29.

Korea. In this case, the products being compared are imported rbi./, and domestic
rbi./,. 1hus, whereas in other disputes the question beore the Panel and
Appellate Body is whether roa/a is like .o;v` or as to be shown below, whether
i.co is DCS with rbi./,` 1he appropriate question in this case is whether rbi./,
is like rbi./,`
13
1he answer is painully obious.

Are like` Philippine and imported distilled spirits taxed similarly as
required by Article III:2, irst sentence Under Section 141, distilled spirits
produced using indigenous raw materials are taxed at a speciic lat rate o Php
11.65 per proo litre. On the other hand, distilled spirits produced using any other
raw materials are taxed based on the net retail price per bottle ,aa ratorev, ranging
rom Php 126.00 per proo litre to Php 504.00 per proo litre. 1his translates to a
tax dierential o between Php 114.35 to Php 492.35. Lidently, imported
distilled spirits, manuactured using non-indigenous raw materials, are taxed in
excess o` similar domestic spirits.

Section 2 o Reenue Regulations 12-2004 ,the Regulations`,
138
, which
implements Section 141, is reealing. It lists the excise taxes applicable to arious
brands o distilled spirits under either o these two headings: a, ocat Distilled
Spirits Brands Produced rom Sap o Nipa, Coconut, etc. coered by Section 141
,a, and b, vortea Distilled Spirits Brands Produced rom Grains, Cereals, and
Grains coered by Section 141 ,b,. \hereas Section 141 subtly went around the
product origin discrimination, imposing excise taxes based on the raw materials
used, resulting in a ae facto discrimination, the slip o the pen`
139
in the
Regulations, unequiocally distinguishing between local` and imported distilled
spirits, resulted in a ae ;vre discrimination.

13
Second \ritten Submission o the United States, paragraphs 21-22, araitabte at
http:,,www.worldtradelaw.net,wtodisputesubmissions,us,DS403_USSecond\rittenSubmission.pd ,last
isited 6 lebruary 2011,.
138
1his regulation, entitled 1a Rate. for .tcobot ava 1obacco Proavct. ivtroavcea ov or before Decevber 1,
1 ava tbo.e evvveratea vvaer Rerevve Regvtatiov. ô. 22200 ava 22001` was issued on December 29, 2004
and implements the proisions o Republic Act No. 9243, entitled .v .ct Ratiovatiivg tbe Prori.iov. ov tbe
Docvvevtar, tav 1a ;D1) of tbe âtiovat vtervat Rerevve Coae ;^RC) of 1, a. .vevaea, ava for Otber
Pvro.e.`. araitabte at tp:,,tp.bir.go.ph,webadmin1,pd,15439rr04_12.pd ,last isited 6 July 2010,.
139
lirst \ritten Submission o the Luropean Union, paragraph 18, araitabte at
http:,,www.worldtradelaw.net,wtodisputesubmissions,eu,DS396_LUlirst\rittenSubmission.pd ,last
isited 6 lebruary 2011,.

1o illustrate, under the Regulations, Ginebra San Miguel, a amous local
gin is taxed at Php 4.11, while the Gordon Gin, a similarly amous, albeit imported
gin, is taxed at Php 10.15, resulting in a tax dierence o around Php 103.03
between these two brands. 1he local \hite Castle \hisky is taxed at Php 8.80
while the low-priced` imported Scottish Leader, o similar proo, is taxed at Php
95.23, the medium-priced` imported Canadian Club, o similar proo, is taxed at
Php 190.4 and the high-priced imported Martell XO, o similar proo, is taxed
at Php 380.94. 1his amounts to a dierence o Php 86.43, Php 181.6 and Php
32.14 across the three whisky price ranges, a categorization which incidentally is
ound only in imported brands. linally, Napoleon VSOP Brandy, a amous local
84 proo brandy is taxed at Php .41 while Napoleon Brandy, an imported 84
proo Spanish brandy, which interestingly has a similar name, is taxed at Php
100.00, resulting in a dierence o Php 92.59 between local and imported Spanish
brandies. 1he discriminatory eect o the two-tiered tax structure set orth in
Section 141 is diicult to escape notice. As applied to speciic brands sold in the
market, the conclusion is ineitable that taxes on imported distilled spirits are not
only in excess` o domestic spirits, the tax dierential is also more than ae vivivi.,
resulting in a iolation o both the irst and second sentences o Article III:2.

<%++ . <)%0=5 :5 .#5 "$)*- #.9* $.0$* .0 0<**$? . 3!0
.#.+50%0

Assuming or the sake o argument that domestic and imported distilled
spirits are not like products`, may they be considered DCS products under the
less stringent substitutability` test under Article III:2, second sentence It will be
recalled that DCS products are products which are interchangeable and oer
alternatie ways o satisying a particular need or taste`
140
and that the concept o
DCS is broad enough to encompass een distinctly dierent kinds o goods.
141

lor instance, an internal tax on imported oravge. may be disallowed when such tax
results in aording protection to domestic ate. which hae been granted tax
exemptions.
142
lurthermore, in determining whether two products are DCS,

140
Korea - 1ae. ov .tcobotic ererage., ee .vra note 35 at 1.
141
142

panels hae considered not only ei.tivg competition but also otevtiat
143
and een
fvtvre competition.
144

1wo products are DCS i one is able to use the product ,a, in place o the
other, ,b, or the similar purpose o satisying a particular need or taste, and ,c,
without signiicant reduction o consumption utility.
145
Local and imported
distilled spirits, apart rom diering in brand and price, hae similar properties,
nature and qualities, hence one may easily be used in place o the other. In act,
domestic and imported distilled spirits are oten mistaken or each other because
o the otentimes similar packaging and imported sounding` brand names o local
distilled spirits. Moreoer, either ariant o distilled spirits may be used to satisy a
particular need or taste without any signiicant eect on consumption utility.
Prescinding rom the oregoing, it is sae to conclude that domestic and imported
distilled spirits are DCS products. Indeed, i domestic and imported distilled
spirits may be considered like` products, with all the more reason may they be
considered DCS products.

As discussed aboe, imported distilled spirits are taxed in excess` o
domestic spirits and that the tax dierential is more than ae vivivi.. Did this
dierence in taxation operate SA1AP to domestic production An examination o
whether dissimilar taxation has been applied SA1AP requires a comprehensie and
objectie analysis o the structure and application o the disputed measure on
domestic as compared to imported products.
146
As mentioned aboe, while the
protectie aim o a measure may not easily be ascertained, its design, architecture
and reealing structure may howeer gie an indication o the measure`s protectie
application.
14
Indeed, an objectie examination o a tax measure`s underlying
criteria, structure, and oerall application will reeal whether it is applied in a way
that aords protection to domestic products.
148

143
]aav - 1ae. ov .tcobotic ererage., Cavaaa - Certaiv Mea.vre. Covcervivg Perioaicat.; Korea - 1ae. ov
.tcobotic ererage..
144
Korea - 1ae. ov .tcobotic ererage..
145
146
14
]aav - 1ae. ov .tcobotic ererage., at 120, VAN DLN BOSSClL,.vranote 23 aboe, at 366.
148

Comparing the structure o Section 141 ,Distilled Spirits, to Sections 142
,\ines,
149
and 143 ,lermented Liquors,
150
all o which are ound in Chapter III
1itle VI ,Lxcise 1ax on Alcohol Products, o the NIRC, it is at once noticeable
that the two-tiered` system o imposing excise taxes, irst distinguishing
according to the raw materials used, then distinguishing according to net retail
price, is ound only in Section 141. In contrast, Section 142 taxes sparkling wines
based only on the net retail price and taxes still wines based only on their alcoholic
content. Section 143 on the other hand taxes ermented liquor based only on
alcoholic content. Unlike Section 141, both Sections 142 and 143 are indierent
to the raw materials used and the origin o said raw materials. lurthermore, a
comparison between the Philippines` excise tax structure or distilled spirits and
those o its neighbouring countries
151
reeal that only the Philippines distinguishes
distilled spirits based on the raw materials used.

1his reealing structure` o Section 141, betrays an underlying
protectionist agenda. Such agenda is conirmed by the act that Section 141, a.
atiea, results in domestic spirits, mostly made rom indigenous raw materials,
being classiied under the lower tax bracket while the imported spirits, mostly
made rom other` raw materials, being classiied under the higher tax bracket.
1his discriminatory eect is a strong indication that Section 141 is imposed
SA1AP to domestic production.
152
1he Regulations implementing Section 141
urther conirmed this suspicion when it explicitly and unequiocally distinguished
between local` and imported` distilled spirits.

1he ery magnitude o the tax dierential between domestic and
imported spirits also eidences this protectionist objectie.
153
As mentioned
aboe, the tax dierential under Section 141 makes imported spirits more
expensie by an aerage o Php 114.35 to Php 492.35 er bottte compared to their
domestic counterparts, a disparity which can hardly be considered ae vivivi.. As
applied to certain brands, this dierential translates to imported gins being about
Php 103.03 more expensie, imported whiskies about Php 86.43 to Php 32.14

149
142, ee note 105.
150
143, ee note 106.
151
ee Appendix C on the distilled spirits excise tax structure o China, Japan, Korea, 1hailand and
Vietnam.
152
153
]aav - 1ae. ov .tcobotic ererage., ee .vra note 23 at 366.

more expensie, and imported brandies about Php 92.59 more expensie than
their local counterparts. Gien the magnitude o the tax dierential between local
and imported distilled spirits, the design, architecture and reealing` structure o
Section 141 and the Regulations, it is diicult not to conclude that Philippine
excise tax law on distilled spirits discriminates against imported DCS spirits
SA1AP to domestic spirits.
154

1he protectionist agenda behind the Philippine`s excise tax regime is also
betrayed by statements made by the Philippine negotiating team in Pbitiive.-
1ae. ov Di.tittea irit.. In particular, they state that "the Philippines notes that
this issue has implications or distilled spirits rom ery speciic type o produce
like nipa, coconut, cassaa, camote, buri palm, and sugar cane, which are home-
grown by lilipino armers as well as other nations` armers`
155
and that the case
implicates the lielihood o small-scale industries and manuacturers o distilled
spirits locally sourced rom indigenously grown crops such as nipa, camote,
coconut, cassaa, buri, palm and sugar cane, grown by lilipino armers.`
156
It can
be inerred rom these statements that Philippine excise tax law on distilled spirits
is aimed at the protection o botb domestic distilled spirits and the armers o
indigenous raw materials. By giing preerential tax treatment to distilled spirits
manuactured using indigenous raw materials, Philippine excise tax laws ensure
that distilled spirits manuacturers will preer to use these raw materials oer other
types o raw materials and in the process continue to take adantage o the lower
tax rates.

lurthermore, the position paper o the Oice o Policy and Research o
the Philippine Department o 1rade and Industry ,D1I`,, dated 11 May 2009
15

154
155
Irma Isip, RP to |.e | Ca.e .rgvvevt iv | vit ov Di.tittea irit, Malaya, 18 January 2010, araitabte
at http:,,www.malaya.com.ph,01182010,busi8.html ,last isited 6 July 2010,.
156
Max De Leon & Lstrella 1orres, RP oe. for Re.otvtiov of !1O Ca.e, A1, BusinessMirror, 31 July
2009, araitabte
athttp:,,businessmirror.com.ph,index.phpoption~com_content&iew~article&id~1392:rp-hopes-or-
resolution-o-wto-case&catid~23:topnews&Itemid~58 ,last isited 6 July 2010,.
15
Position Paper o the Oice o Policy and Research o the Department o 1rade and Industry
addressed to Congressman Lxequiel B. Jaier, Chairman o the \ays and Means Committee o the louse o
Representaties, entitled: D1 Po.itiov ov Proo.ea Mea.vre. Re.trvctvrivg tbe ci.e 1a ov .tcobot ava 1obacco
Proavct.`.

and 8 September 2009,
158
commenting on the proposed amendments to Section
141, all but admitted that Section 141 is in iolation o the GA11. 1herein the
D1I stated that the proposed amendments will align RA 9334
159
with the General
Agreement on 1aris and 1rade ,GA11, 1994 o the \orld 1rade Organization
,\1O, o which the Philippines is a signatory. 1he current tax structure under
RA 9334 is inconsistent with GA11 1994 as it gies preerential treatment to
domestic alcohol products produced rom indigenous or locally sourced raw
materials.`
160

3%77*-*#$ 2-%!*0 @ 3%77*-*#$ 9.-=*$0 A 3%77*-*#$
2-"3&!$0?
.# .#.+50%0 "7 $)* 2)%+%22%#*0# 3*7*#0*0

1he Philippines deended its excise tax regime on distilled spirits and stressed
that imported spirits rom the US and LU cater to markets dierent rom those
targeted by local brands.
161
Philippine Permanent Representatie to the \1O
Ambassador Manuel 1eehankee noted that a closer look at the products inoled,
their price ranges and the consumers they cater to will show that LU products are
in an altogether dierent market rom those targeted by local brands.`
162
1he
Philippines argue that notwithstanding the act that producers in the Philippines
and other Member states who export into the Philippines both produce distilled
spirits such as whisky, brandy, odka and rhum, the Philippine market should be

158
Position Paper o the Oice o Policy and Research o the Department o 1rade and Industry
addressed to Senator Panilo M. Lacson, Chairman o the \ays and Means Committee o the Senate,
entitled D1 Po.itiov ov iv 1ae.`.
159
Rep. Act 9334-.v .ct vcrea.ivg tbe ci.e 1a Rate. vo.ea ov .tcobot ava 1obacco Proavct., .vevaivg
for tbe Pvro.e ectiov. 11, 111, 112, 11, 111, 11: ava 2 of tbe âtiovat vtervat Rerevve Coae of 1, ..
.vevaea. araitabte at http:,,www.lawphil.net,statutes,repacts,ra2004,ra_9334_2004.html , last isited 5
July 2010,.
160
It urther stated that: It is imperatie, thereore, to amend RA 9334 to remoe the maniest
iolation o the national treatment principle. It should not make any distinction between alcohol products
made rom materials that are obiously produced in tropical countries like the Philippine and those made
rom other materials. It should enorce a single tax structure or all alcohol products based on alcohol
content rather than on raw material used. It is important that the tax rates applied to domestic and imported
alcohol products be uniied. Since imported alcohol products are more expensie on a per liter basis than
domestic alcohol products, then the tax incidence on the ormer will naturally be higher, but the rate will
remain uniorm and non-discriminatory. lor tobacco products, the same tax structure will be applied.`
161
RP Defeva. ci.e 1a ov Di.tittea irit., Manila Bulletin, 25 August 2009,
http:,,www.allbusiness.com,goernment,international-organizations,1244852-1.html,last isited 5 July
2010,.
162
ee .vra note 160.

diided into dierent segments based on price, such that Philippine domestic
products compete in a totally dierent market segment.
163

1he Philippines point out that it is not illegal to hae a progressie excise tax
scheme since all that the GA11 requires is or both imported and local brands
occupying the same price band to be taxed at the same rates.
164
1he spokesperson
o leading alcohol producers in the Philippines,
165
Oliia Limpe-Aw, stressed that
they are against the single tax rate because it will create a situation where luxury
alcohol products cost|ing| by the thousands, will be taxed |at| the same |rate| as the
lowly tvba made rom coconuts or rhum rom molasses. 1his is grossly unair to
low income consumers who can only aord low-priced spirits.`
166
She asks:
should Kia, or instance, be taxed |at| the same |rate| as Mercedes Benz simply
because they are both cars and sere the same purpose \hy, then, should tuba or
rhum be taxed the same as Cognac, or example, simply because they are both
made rom alcohol`
16

In a nutshell, the Philippines claim that since domestic and imported distilled
spirits are sold at dierent prices, imported luxury` spirits being substantially
more expensie than lowly` local spirits, they are deemed to be targeting dierent
market segments ,i.e., imported spirits targeting the higher income groups while
local spirits targeting the lower income groups, and should not be considered like
or DCS products. Neither should they be taxed similarly.

163
ee .vra note 13.
164
ee .vra note 160.
165
Composed o Destileria Limtuaco & Co. Inc., Asian Alcohol Corp., Absolute Chemicals Corp.,
1anduay Distillers, Consolidated Distillers o the lar Last, Lmperador Distillers Inc., lar Last Alcohol
Corp., Berbacs Distillery, Kool Distillery, 1arlac Distillery, and Alco Distillery and International
Pharmaceuticals.
166
.tcobot Ma/er. tav Cor`t ia. for C, People`s Journal, 5, 11 August 2009, Industry representatie
Oliia Lim-Aw added that some oreign liquor brands are een sold cheaper than their local counterparts,
indicating that the ormer enjoy a lower excise tax. She pointed out that a bottle o Alonso brandy has a net
retail price o Php 10.00 while the locally produced Napoleon brandy is sold at Php 113.00 per bottle.
lurthermore, she claimed that local distillers paid Php 4 billion in excise taxes in 2008 as against the Php 36
million paid by distributors o oreign liquor brands.
16
a., She urther expressed concern oer the domestic agricultural sector since it is closely tied to the
local alcohol industry gien that most local spirits secure their alcohol rom molasses, a sugar by-product.
1he sugar industry produces about 900,000 metric tons o molasses annually, equialent to about 480 million
proo liters o alcohol-with an estimated alue o Php 1.3 billion. Oer 40,000 armers, 500,000 arm and
plant workers and about ie million direct and indirect dependents rely on this sector or lielihood, ee at.o
ig iqvor irv. Cavtiov Cor`t r.. C Covtaivt, Standard 1oday, B3, 11 August 2009.

1his approach is hardly justiiable. lirstly, both local and imported brands
are sold at a range o prices such that some imported brands are een priced less
than domestic brands.
168
Secondly, i the Philippine excise tax regime indeed
genuinely utilizes price` as a actor in segmenting the market, as it claimed, then it
makes no sense to initially dierentiate products based on raw materials used`
and place o production`, as Section 141 does. Unless o course i we allow or
the possibility that the Philippine excise tax regime actually discriminates based on
raw materials used` and place o production` such that the proposed market
segmentation approach` based on price is but a mere aterthought to deend an
otherwise untenable position. 1hirdly, to use price` in dierentiating the
Philippine domestic market ,i.e. cheaper brands, rom other markets ,i.e. expensie
brands, begs the question. 1his case precisely pertains to the Philippines`
discriminatory excise tax regime`s impact on price such that the high excise taxes
imposed on imported distilled spirits resulted in higher prices or imported spirits
is-a-is domestic spirits. lor the Philippines to use discriminatory excise taxes
and make local products cheaper then turn around and use the act that consumers
choose local products because o their lower prices, aoiding a inding o
discriminatory taxation, allows it to hae its cake and eat it too.

1he Philippines` argument echoes the deendant`s reasoning in Korea.
1herein, Korea argued that its tax system could not be held discriminatory since,
the products concerned were not DCS in the irst place--the price o ,diluted, soju
being a small raction o the price o the western drinks subject o that case.
169

Similar to Korea, the Philippines` argument assumes that price is the only actor
that determines whether products are like` or DCS, such that i two products
belong to dierent price ranges, they will not be considered like` or DCS.
Indeed while selling price is a actor in determining whether products are like` or
DCS,
10
it is by no means the ovt, actor, as the Philippines` arguments imply. In
Korea, the Panel and the Appellate Body held the iew that, despite the disparity in
price, the domestic and imported products concerned were in a DCS relationship.

As demonstrated by the liquor tax cases ,]aav, Korea and Cbite,, the ultimate
arbiter o likeness` or DCS-ness` is the marketplace, thus: |t|he context o the

168
ee .vra note 13 at paragraph 31.
169
10

competitie relationship is necessarily in the marketplace since this is the orum
where consumers choose between dierent products.`
11
1his marketplace
approach` consolidates the dierent and disparate criteria in determining whether
two products are like` ,i.e. physical characteristics, end use, price, channels o
distribution, etc., and allows them to be gien their proper weight in a coherent
analysis.
12
lence, price alone cannot be used as the sole determining actor in
determining whether two products are like or DCS.

1he Philippines alleged that there is no sizable market or imported distilled
spirits in the Philippines.
13
1he Chairman o the \ays and Means Committee o
the Philippine louse o Representaties, Lxequiel Jaier, considered the case
unair since there is no sizable market or imported distilled spirits in the
Philippines
14
and that imported spirits allegedly account or only two to ie
percent o the total market.
15
1he Philippines also cite the income distribution in
a Member state as aecting whether or not products are like` or DCS.

1his argument claims that since there is limited trade in imported distilled
spirits in the Philippines, the eect, i any, o the alleged discriminatory excise tax
regime is insigniicant or een negligible. 1his argument lost sight o the act that
it is irreleant that the trade eects` o the tax dierential between imported and
domestic products, as relected in the olumes o imports, are insigniicant or een
non-existent,`
16
since Article III protects expectations not o any particular trade
olume but rather o the equal competitie relationship between imported and
domestic products.`
1
lence, a demonstration that a measure inconsistent with
Article III:2, irst sentence, has no or insigniicant eects would thereore in the
iew o the Panel not be a suicient demonstration that the beneits accruing
under that proision had not been nulliied or impaired een i such a rebuttal
were in principle permitted.`
18
Moreoer, the proposed income distribution

11
Korea - 1ae. ov .tcobotic ererage., at par. 114, Bronckers, .vranote 60 at 18.
12
13
Jose Romero Salas o the Spanish Chamber o Commerce conirmed that LU Liquor brands do not
hae a big share o the market, ee vote 11.
14
Jose Romero Salas o the Spanish Chamber o Commerce conirmed that LU Liquor brands do not
hae a big share o the market, .ee Dennis Gadil, RP`. !1O Ca.e Ma, .ffect 1vva, tectrovic ort., A1,
Malaya, 19 August 2009, araitabte at http:,,www.malaya.com.ph,aug19,busi3.htm ,last isited 5 July 2010,.
15
a.
16
]aav - 1ae. ov .tcobotic ererage,.
1
a., .ee at.o |-1ae. ov Petrotevv, L,615 - 34S,136, 1 June 198.
18
|-1ae. ov Petrotevv, L,615 - 34S,136, 1 June 198, par. 5.1.9.

approach` is in conlict with settled Panel and Appellate Body rulings in
determining whether products are in a like or DCS relationship, said rulings rely on
the goods themseles, ,i.e., physical characteristics, tari classiication, uses, etc.,
rather than the aordability o said goods.
19

linally, the Philippines cite the administratie diiculties in collecting
taxes aced by a deeloping country like itsel. It points out that as a deeloping
country it has to rely on indirect ,excise, taxes and could not administer an aa
ratorev tax system.
180
1his argument taxes credulity. It appears that the present tax
regime under Section 141, which entails a three-tiered process o analysis and
ealuation, is administratiely more cumbersome than a straight aa ratorev system
o taxation. Under Section 141, the Philippine tax authorities would irst hae to
eriy whether the raw materials used to produce a brand o distilled spirit is one
o those enumerated therein, this step entails examining the product literature,
brochures, and other documentary proo and, i possible, |conduct| laboratory
tests o the sample.`
181
1hereater, it would hae to eriy that the distilled spirit is
produced in a country where the raw material is commercially produced` in order
to determine whether said product qualiies or preerential tax treatment under
Section 141 ,a,.
182
I the product does not qualiy under the aboe criteria, the
taxing authority would then hae to impose the tax based on the net retail price o
the product as proided under Section 141 ,b,. 1his three-tiered approach`,
which has long been in place, is more cumbersome than a simple aa ratorev tax
system. It is thus diicult to gie credence to the deense that an aa ratorev tax
system, which incidentally has long been used or other alcoholic products ,i.e.,
Sections 141 ,b,, 142 and 143,, is more diicult to administer than the existing
three tiered` indirect tax system.

-%')$%#' <-"#'04 2-"2"0*3 .9*#39*#$0 $" 0*!$%"# BCB

Recently, seeral bills hae been submitted by legislators in both houses o
Congress proposing amendments to Section 141 intending to make said proision
compliant with GA11 requirements. Most notable among these proposed

19
vra note 13, paragraph 35.
180
a., at paragraph 38.
181
a., at paragraph 44.
182
a.

legislations are louse Bill No. 609
183
and Senate Bill Nos. 2980
184
and 3190
185

which propose that Section 141 be amended to read as ollows:

Section 141. Distilled Spirits - On distilled spirits, there shall be collected,
subject to the proisions o Section 133 o this Code, excise taxes in
accordance with alcoholic content as ollows:

,a, 45 alcohol by olume and less-

\ear 1 - P30.00 per proo liter,

Proided, that, on the ourth year and eery year thereater, the excise
tax rates prescribed herein shall be adjusted to its present alue using an
appropriate price index or alcoholic drinks, as published by the National
Statistics Oice ,NSO,,

,b, More than 45 alcohol by olume -P150.00 per proo liter

Proided, that, on the ourth year ater the eectiity o this Act and
eery year thereater, the excise tax rates prescribed herein shall be adjusted
to its present alue using an appropriate price index or alcoholic drinks, as
published by the National Statistics Oice ,NSO,,

1he respectie explanatory notes accompanying the proposed bills expressed
the intent to sole the issue o discriminatory treatment between imported and
local distilled spirits and to replace the multi-tiered and complex tax structure
goerning said products with a unitary system o taxation.

It is immediately noticeable that these proposed measures, which are
intended to modiy the preious system o taxing distilled spirits, eliminated raw
materials used, the origin o said raw materials, and net retail price, as the criteria in
determining the excise tax to be imposed. 1he proposed measures instead chose
to apply a lat excise tax rate based solely on the distilled spirits` alcoholic content.
By using alcoholic content as criterion, it aoids unnecessary entanglement with

183
Introduced by Representaties Jocelyn S. Limkaichong, George P. Arnaiz and Pryde lenry A.
1ees.
184
Introduced by Senator Panilo M. Lacson.
185
a.

the product`s origin, raw materials, or price, thereby lessening the risk o ae facto
discrimination. 1he choice o 45 alcoholic content as the demarcation point
between the two tax brackets is likewise suiciently origin neutral.

It will be recalled that in Cbite, the deendant adopted a scheme which
distinguished between two categories o alcoholic beerages: below 39 ,taxed at
2, and aboe 39 ,taxed at 4,. Incidentally, many western products had an
alcoholic content o slightly more than 39 and were taxed at 4 while the
Chilean pisco had an alcoholic content o less than 35 and was taxed at 2. In
contrast, the use o 45 alcoholic content in the proposed bills is suiciently
origin neutral in that majority o botb domestic and imported distilled spirits are
below the 45 alcoholic content threshold
186
and would hence be taxed at the
lower rates.

. $-%.+ :5 2**-04 . +""= .$ $)* <$" 3%02&$* -*0"+&$%"#
2-"!*00

Dispute settlement in the multilateral \1O trading system is administered by
the Dispute Settlement Body ,DSB`, which is composed o all \1O members.
Under the \1O`s dispute settlement process, parties must irst attempt to resole
their dierences through consultations, ailure o which, a Panel o independent
experts may be established to rule on the dispute.
18
1he Panel consists o three to
ie experts rom dierent countries who examines the eidence and issues a
ruling in the orm o a Report to the DSB.

186
Under Philippine Standards Administratie Order Nos. 558, 259 and 258 goerning the
manuacture o Philippine brandies, whiskies and odkas, the minimum ethyl alcohol content shall be 32.5
by olume in brandies, not be less than 32.5 by olume in whiskies, and, 42.85, 40.01 or 3.15 by
olume ,25, 30 or 35 degrees under proo, or odkas. Under Annex II o LC Regulation No. 110,2008, the
minimum alcoholic strength by olume shall be 36 or brandies, 40 or whiskies, 3.5 or rums, and
3.5 or odkas.
18
Article 4.3 o the DSU proides: I a request or consultations is made pursuant to a coered
agreement, the Member to which the request is made shall, unless otherwise mutually agreed, reply to the
request within 10 days ater the date o its receipt and shall enter into consultations in good aith within a
period o no more than 30 days ater the date o receipt o the request with a iew to reaching a mutually
satisactory solution. I the Member does not respond within 10 days ater the date o receipt o the request,
or does not enter into consultations within a period o no more than 30 days, or a period otherwise mutually
agreed, ater the date o receipt o the request, then the Member that requested the holding o consultations
may proceed directly to request the establishment o a panel.`, ee at.o note 59 at 269.

1he Panel`s ruling may be appealed to the Appellate Body ,AB`, who has
the power to reerse, modiy or airm Panel decisions.
188
1he AB is composed o
seen permanent members who sere our-year terms. An appeal is heard by three
members o the AB who has the power to uphold, modiy or reerse the Panel`s
legal indings and conclusions.
189
In deciding upon an appeal, the AB typically
recommends that the oending member brings the oending measures into
conormity with \1O norms. \1O dispute settlement rules urther require a
losing respondent to indicate what actions it plans to take to implement the AB`s
ruling.
190
I the losing party ails to implement the decision, the preailing party is
entitled to seek compensation or to resort to retaliation by suspending concessions
preiously made.
191
1hese concessions usually correspond to the same obligations
ound to be iolated, ,e.g., preerential tari rates, although cross-retaliation is
permitted in certain circumstances.
192
1he AB`s decisions are implemented and
monitored by the DSB.
193

Panel and AB decisions, een i adopted, are not binding precedents to
uture cases inoling the same questions. As in other areas o international law,
there is no rule o .tare aeci.i. in \1O dispute settlement.
194
lence, neither the
Panel nor the AB is obliged to adopt preious AB rulings een i the issues beore
them hae consistently been decided in a particular way.
195
In practice, howeer,
reerence to precedent is common and prior decisions, which are well-reasoned
and persuasie, play an important role in \1O dispute settlement.
196
lor
instance, in briv-1vrtte,
19
the AB chastised the Panel or ailing to adopt its
approach in |-Ca.otive.
198
In |-vv.et Rerier. of .vtiDvvivg Mea.vre. ov Oit

188
\ORLD 1RADL ORGANIZA1ION SLCRL1ARIA1, A lANDBOOK ON \1O DISPU1L SL11LLMLN1
S\S1LM 24-25 ,2004,.
189
\orld 1rade Organization. . |viqve Covtribvtiov, Understanding the \1O, araitabte
athttp:,,www.wto.org,english,thewto_e,whatis_e,ti_e,disp1_e.htm ,last isited 5 July 2010,.
190
Article 21.3, DSU, ee at.o note 185 at 89, note 59 at 269.
191
Article 22.1, DSU.
192
193
a. at 269.
194
a. at 91.
195
a.
196
AMRI1A NARLIKAR, 1lL \ORLD 1RADL ORGANIZA1ION: A VLR\ SlOR1 IN1RODUC1ION 94
,2005,.
19
Appellate Body Report, |vitea tate. - vort Probibitiov of Certaiv briv ava briv Proavct.,
\1,DS58,AB,R, adopted 6 Noember 1998, DSR 1998:VII, 255, par. 119.
198
Panel Report, |vitea tate. - tavaara. for Reforvvtatea ava Covrevtiovat Ca.otive, \1,DS2,R,
adopted 20 May 1996, as modiied by Appellate Body Report \1,DS2,AB,R, DSR 1996:I, 29.

Covvtr, 1vbvtar Cooa. frov .rgevtiva
1
, the AB explicitly stated that prior AB
rulings hae precedent eect upon panels.
200
It is submitted that, ollowing the
reasoning and ruling in ]aav, Korea and Cbite the panel reiewing Pbitiive. will
arrie at the same result.

Notwithstanding the breakdown o consultations and the commencement o
Panel proceedings, parties are not precluded rom pursuing eorts in inding a
mutually agreeable solution.
201
In act, Panels are required to regularly consult the
parties and gie them adequate opportunity to arrie at a mutually satisactory
solution.
202
Upon the request o the complaining party, the Panel may een
suspend proceedings to achiee this purpose.
203
In one case, the parties reached a
mutually agreed upon solution prior to the issuance o the interim report.
204
In
another, they did so ater the issuance o the interim report but prior to the
issuance o the inal report.
205
In still another case, the parties amicably settled
ater the issuance, but prior to the circulation, o the Panel report to all
Members.
206
lurthermore, een during appeal, the appellant may withdraw the
appeal at any time upon reaching a mutually agreed upon solution.
20

Senate Bill Nos. 2980 and 3190 and louse Bill No. 609 iled during the
lourteenth Congress are steps in the right direction. 1hese measures indicate the
Philippines` sincerity in complying with its obligations and the possibility o

199
Appellate Body Report, |vitea tate. - vv.et Rerier. of .vtiDvvivg Mea.vre. ov Oit Covvtr, 1vbvtar
Cooa. frov .rgevtiva, \1,DS268,AB,R, adopted 1 December 2004, DSR 2004:VII, 325, par. 118.
200
a. at par 118: 1hus it was appropriate or the panel, in determining whether the SPB is a measure,
to rely on the Appellate Body`s conclusion in that case. Indeed, ollowing the Appellate Body`s conclusion
in earlier disputes is not only appropriate, but is what would be expected rom panels, especially where the
issues are the same.` In ]aav-.tcobotic ererage. the Appellate Body opined: Adopted panel reports are
an important part o the GA11 acquis. 1hey are oten considered by subsequent panels. 1hey create
legitimate expectations among \1O Members, and, thereore, should be taken into account where they are
releant to any dispute. loweer, they are not binding, except with respect to resoling the particular
dispute between the parties to that dispute. In short, their character and their legal status hae not been
changed by the coming into orce o the \1O Agreement.`
201
See .vra note 59 at 93.
202
Article 11, DSU.
203
Article 12.12, DSU.
204
Panel Report, |vitea tate. - .vtiDvvivg Dvt, ov D,vavic Ravaov .cce.. Mevor, evicovavctor.
;DR.M) of Ove Megabit or .bore frov Korea, \1,DS99,R, adopted 19 March 1999, DSR 1999:II, 521.
205
Panel Report, vroeav Covvvvitie. - 1raae De.critiov of catto. -Reqve.t b, Cavaaa, \1,DS,R, 5
August 1996, unadopted, DSR 1996:I, 89, Panel Report, vroeav Covvvvitie. - 1raae De.critiov of catto. -
Reqve.t. b, Perv ava Cbite, \1,DS12,R, \1,DS14,R, 5 August 1996, unadopted, DSR 1996:I, 93.
206
Panel Report, vroeav Covvvvitie. - Mea.vre. .ffectivg vtter Proavct., \1,DS2,R, 24 Noember
1999, unadopted.
20

reaching an amicable solution to the dispute een beore the Panel issues its
indings. It also aoids the scenario o the Philippines being ound remiss in its
GA11 commitments. As Robert ludec pointed out, goernments regard it as
unacceptable to hae their patently innocent and sensible regulations branded as a
iolation` o the \1O agreements in any sense-including being branded as a
iolation o Article III`.
208
Unortunately these proposed measures ailed to see
the light o enactment as the lourteenth Congress adjourned without these bills
being signed into law. All is not lost howeer, since these bills may be re-iled and
re-deliberated during the liteenth Congress, and hopeully be signed into law.

2-"9%0*0 .-* 9.3* $" :* :-"=*#4 $)* *!"#"9%!0 "7
3%0!-%9%#.$%"#

\1O disputes are essentially about broken promises. A dispute arises when
a member state adopts a measure or takes an action which other member states
consider to be in breach o \1O commitments.
209
In its 15-year existence, the
Panel has issued 115 Reports, o which, or around 6, hae been appealed to
the AB.
210
\hy do states persist on reneging upon their GA11 commitments and
delay compliance A possible answer may be ound in the ery nature o the
\1O dispute resolution system.

One eature which distinguishes \1O litigation rom domestic litigation is
the act that settlements and rulings in the \1O are political in nature and result
in non zero-sum` payos.
211
In domestic litigation, settlements and judgements
are satisied by the payment o money. 1hus, a ,monetary, gain by one party
corresponds to a ,monetary, loss by the other, thereby achieing a zero-sum`
result.
212
lurthermore, absent a restraining order, a deendant who, pending the
inal outcome o a case, persists in doing an illegal act, will be called upon to
compensate the complainant or all the damages it suered during the pendency o
the case.
213
1hereore, by continuing with the illegal act until a inal judgement is

208
Donald Regan, vrtber 1bovgbt. ov tbe Rote of Regvtator, Pvro.e |vaer .rticte of tbe Ceverat .greevevt
ov 1ariff. ava 1raae . 1ribvte to ob vaec 3,4, Journal o \orld 1rade 3, 49 ,2003,.
209
210
\orld 1rade Organization. tati.tic. Di.vte etttevevt, araitabte at
http:,,www.wto.org,english,tratop_e,dispu_e,stats_e.htm ,last isited 6 July 2010,.
211
Andrew Guzman, 1be Potiticat covov, of itigatiov ava etttevevt at tbe !1O UC Berkeley Public Law
Research Paper No. 98, ,2002,, araitabte at http:,,ssrn.com,abstract~335924 ,last isited 6 July 2010, .
212
a.
213
a.

issued, the deendant increases the amount o damages it is liable to pay by an
amount equialent to the loss suered by the complainant.
214

\1O litigations do not hae this zero-sum` character. States generally
do not settle their disputes by way o cash payments, neither do \1O rules
require the losing party to pay any compensation to the preailing party.
215
\hile
a State which loses an appeal is expected to end the inringing practice, it is not
liable or its past conduct.
216
lurthermore, while the preailing party may impose
economic sanctions i a losing party reuses to comply with the AB`s ruling, such
sanctions are prospectie in nature and are intended only to ensure compliance,
not to compensate or past losses.
21
lence, the ,monetary, alue o withdrawn or
suspended concessions can neer be equialent to, much less exceed, the
,monetary, loss suered as a result o the ongoing inringement, i.e., a non zero-
sum` result.
218

1his dierence between domestic and inter-state litigation, whereby the
beneits` deried rom iolating \1O norms ar outweigh the costs o
compliance, explain why some member states choose to delay compliance with
\1O obligations
219
or een to misuse domestic regulatory measures or
protectionist purposes.
220
lrom the deendant`s perspectie, all else being equal,
delay in compliance is desirable since dispute settlement rules not only allow the
deendant to continue with its illegal acts during the pendency o the case, it also
ails to penalize any damage caused by said misconduct.
221
1his is ineitable
especially where the commercial interests o oreign states hae little or no
representation in the political lie o the state enacting the measure.`
222
It is
unortunate that by persisting in iolating \1O rules, political leaders o the
oending state continue to receie political and economic beneits rom the

214
a.
215
a. at 8.
216
a.
21
a.
218
a.
219
a. at 16.
220
Robert ludec, C.11,!1O Re.traivt. ov âtiovat Regvtatiov : . Reqviev for av .iv ava ffect.` 1e.t
32 International Lawyer 619, 620 ,1998,.
221
222
a. at 2.

inringing actiity, while the complainant continues to suer harm without
compensation.
223

!"#!+&0%"#

Notwithstanding objections against possible limitations on national
soereignty, the \1O remains as the only iable structure or multilateral trading
and the eritable orum or the deelopment o international trade law. 1he
alternatie to \1O is isolation, stagnation, i not economic sel-destruction. Duly
enriched with original membership, keenly aware o the adantages and
disadantages o globalization with its on-line experience, and endowed with a
ision o the uture, the Philippines now straddles the crossroads o an
international strategy or economic prosperity and stability in the new
millennium.`
224
Such were the words which sealed the Philippines` commitment to
the \1O.
225
1hirteen years later, its idelity to this unique institution is under trial.

1he Philippines` excise tax regime on distilled spirits is eidently
inconsistent with its GA11,\1O obligations. \hile it is unortunate that the
proposed bills seeking to make Philippine excise tax laws \1O-compliant ailed to
be signed into law, it is neertheless a recognition by the Philippines that it has
been remiss in its international commitments and an indication that it is exerting
eort to correct this omission and be a responsible participant in the global
economic order. Indeed, reusal to heed the call o other member states,
particularly the LC and the US, to reorm its excise tax regime, is not a iable
option. It would compromise the internationalist economic principles the
Philippines has adhered to or the past decade and make it a pariah in the world
trading system, damaging its oreign commercial goodwill in the process and

223
a. at 16.
224
1avaaa r. .vgara, G.R. No. 118295, 2 May 199, araitabte at
http:,,sc.judiciary.go.ph,jurisprudence,199,may199,118295.htm,last isited 6 July 2010,.
225
1avaaa r. .vgara is the Philippine Supreme Court`s decision on the constitutionality o the
Philippines` accession to the \1O. 1he petitioners ,1anada, et at, argued that ,1, the \1O requires the
Philippines to place nationals and products o member-countries on the same ooting as lilipinos and local
products` and ,2, that the \1O intrudes, limits and,or impairs` the constitutional powers o both
Congress and the Supreme Court. 1hey assailed the \1O Agreement or iolating the mandate o the 198
Constitution to deelop a sel-reliant and independent national economy eectiely controlled by lilipinos
x x x ,to, gie preerence to qualiied lilipinos ,and to, promote the preerential use o lilipino labor,
domestic materials and locally produced goods.` In a unanimous decision, the Supreme Court upheld the
legality o the Philippine Senate`s concurrence in the ratiication o the \1O Agreement which paed the
way or the Philippines` accession to the \1O on 1 January 1995 as an original member thereo.

tarnishing its image as a law abiding global citizen.
226
It would also permit the LC
and the US to take retaliatory action in the orm o trade sanctions.
22

Pbitiive.-1ae. ov Di.tittea irit. adds another chapter to the alcoholic
beerages tax saga and continues the like` and DCS products` discourse started
by ]aav, Korea and Cbite. In all these cases, domestic protection policies were
subordinated to economic transparency and the deendants, Japan, Korea and
Chile, were called to task or their trade distorting actions. \hile it is undeniable
that the tari binding system, MlN and N1 principles hae their share o laws
and shortcomings, it is equally undeniable that this inherent bias against, and
concern with, domestic legislatie and regulatory conduct is what made the
GA11,\1O an eectie trading system or the past 50 years. 1here is likewise
no denying that these core pillars hae successully brought together into greater
interaction economies o dierse backgrounds, sizes and importance or the
beneit o all member states.
228

226
ee .vra note 85 at 8, As Robert ludec has pointed out, goernments regard it as unacceptable to
hae their patently innocent and sensible regulations branded as a iolation` o the \1O agreements in any
sense-including being branded as a iolation o Article III, een i rescue under Article XX is possible, .ee
.vra note 205 at 49.
22
1he Luropean Union is the Philippines' 4th largest trading partner, accounting or 12 o total
trade in goods or a alue o t 9 billion and is the 5th largest source o Philippine merchandise imports
behind China, Japan the US and ASLAN countries. On the other hand, two-way merchandise trade between
the US and the Philippines amounted to >12.6 billion in 2009. 1he Philippines ranks as the US` 30th-largest
export market and 34th-largest supplier and is the ith-largest beneiciary o the US Generalized System o
Preerences program or deeloping countries. Philippine trade assistant secretary Jose Antonio
Buencamino reported that the country may lose large orders o canned tuna and electronic products rom
Luropean Union ,LU, countries i the dispute beore the \orld 1rade Organization oer the alleged
discriminatory local taxation on liquor products drags on. le reported that retaliation is a likely LU option
and canned tuna and electronic products are the most ulnerable targets, .ee Luropa. | Reqve.t. !1O Pavet
Orer Di.crivivator, 1aatiov of Di.tittea irit. iv tbe Pbitiive., 11 December 2009, araitabte at
http:,,europa.eu,rapid,pressReleasesAction.doreerence~IP,09,1904 ,last isited 6 July 2010,, U.S.
Department o State. ac/grovva ôte ov tbe Pbitiive., araitabte at
http:,,www.state.go,r,pa,ei,bgn,294.htm ,last isited 6 July 2010,, ee at.o .vranote 169.
228
MACMILLAN, M. 1RADL AND CUL1URL: CONlLIC1ING DOMLS1IC POLICILS AND
IN1LRNA1IONAL 1RADL OBLIGA1IONS` ,1999, 9,5, \indsor Reiew o Legal and Social Issues 5, 28-29,
BlUI\AN, .vra note 21 aboe at 43, Matheny, .vra note 60 aboe at 250.


8 DED 8

.22*#3%/ .

3%0$%++*3 02%-%$0 !"92.-.$%;* $.:+*

3FGHFIIJK 0LFMFHG 2NFIFLLFOJG *PMDLJQO &OFDO &OFHJK 0HQHJG
Brandy An alcoholic
distillate obtained
solely rom the
ermented juice o
resh, ripe and
sound grapes. 1he
distillation shall be
carried out in such a
way that the spirit
possesses the
natural olatile
properties already
present in grapes or
ormed during
ermentation.
229

1he minimum ethyl
Brandy or !eivbrava
is a spirit drink:

,i, Produced rom
wine spirit, whether
or not wine distillate
has been added,
distilled at less than
94.8 ol., proided
that the distillate
does not exceed a
maximum o 50 o
the alcoholic content
o the inished
product.

,ii, matured or at
An alcoholic
distillate rom the
ermented juice,
mash, or wine o
ruit, or rom the
residue thereo,
produced at less
than 190 proo in
such manner that
the distillate
possesses the taste,
aroma, and
characteristics
generally attributed
to the product, and
bottled at not less
than 80 proo.
233

229
o 1rade and Industry, Republic o the Philippines, aailable at
http:,,www.bad.go.ph,deault.cmpage_id~83 ,last isited 6 July 2010,.

alcohol content in
brandies shall be
32.5 by olume.
230

least one year in oak
receptacles or or at
least six months in
oak casks with a
capacity o less than
1000 litres,

,iii, containing a
quantity o olatile
substances equal to
or exceeding 125
grams per hectolitre
o 100 ol. alcohol,
and deried
exclusiely rom the
distillation or
redistillation o the
raw materials used,

,i, haing a
maximum methanol
content o 200 grams
per hectolitre o
100 ol. alcohol.
231

1he minimum
alcoholic strength by
olume shall be
36.
232

\hisky A spirit suitably
aged in wood,
\hisky is a spirit
drink produced
An alcoholic
distillate rom a

233
1itle 2, Part 5, Subpart C, Chapter 5.22 ,d,, Code o lederal Regulations, United States o
America., aailable at http:,,ecr.gpoaccess.go,cgi,t,text,text-
dno~2 ,accessed 6 July 2010,.
230
a., 4.1.
231
Annex II, 5,a,,i,, LC Regulation No. 110,2008, 15 January 2008, aailable at
232
a., at 5,b,.

obtained rom the
distillation o a
ermented mash o
grain.
234

1he ethyl alcohol
content in whiskies
shall not be less
than 32.5 by
olume.
235

exclusiely by:

,i, Distillation o a
mash made rom
malted cereals with
or without whole
grains o other
cereals, which has
been: sacchariied by
the diastase o the
malt contained
therein, with or
without other natural
enzymes, ermented
by the action o
yeast,

,ii, one or more
distillations at less
than 94.8 ol. so
that the distillate has
an aroma and taste
deried rom the raw
materials used,

,iii, maturation o
the inal distillate or
at least three years in
wooden casks not
exceeding 00 litres
capacity.

1he inal distillate, to
which only water
and plain caramel
ermented mash o
grain produced at
less than 190
proo in such
manner that the
distillate possesses
the taste, aroma,
and characteristics
to whisky, stored in
oak containers
,except that corn
whisky need not be
so stored,, and
bottled at not less
than 80 proo,
and also includes
mixtures o such
distillates or which
no speciic
standards o
identity are
prescribed.
238

234
2.1.1., Standards Administratie Order No. 259, series o 196.
2:
vra note 233 at 4.1.
238
1itle 2, Part 5, Subpart C, Chapter 5.22 ,b,, Code o lederal Regulations.

,or colouring, may
be added, retains its
colour, aroma and
taste deried rom
the production
process reerred to
in points ,i,, ,ii, and
,iii,.
236

1he minimum
olume o whisky
shall be 40.
23

Rum Rum shall be the
alcoholic distillate
obtained solely rom
ermented juice or
sugarcane,
sugarcane molasses
or other sugarcane
by-products distilled
at less than 190 US
proo whether or
not such proo is
urther reduced to
not less than 60
proo prior to
bottling, in such a
manner that the
distillate possesses
the taste, aroma and
characteristics
to rum and known
to the trade as such
and includes
Rum is:

,i, a spirit drink
produced exclusiely
by alcoholic
ermentation and
distillation, either
rom molasses or
syrup produced in
the manuacture o
cane sugar or rom
sugar-cane juice itsel
and distilled at less
than 96 ol. so
that the distillate has
the discernible
speciic organoleptic
characteristics o
rum, or

,ii, a spirit drink
produced exclusiely
by alcohol
An alcoholic
distillate rom the
ermented juice o
sugar cane, sugar
cane syrup, sugar
cane molasses, or
other sugar cane
by-products,
produced at less
than 190 proo in
such manner that
the distillate
possesses the taste,
aroma and
characteristics
to rum, and bottled
at not less than 80
proo, and also
includes mixtures
solely o such
distillates.
242

236
Annex II, 2,a,, LC Regulation No. 110,2008, 15 January 2008.
23
a., at 2,b,.

mixtures solely o
such distillates.
239

ermentation and
distillation o sugar-
cane juice which has
the aromatic
characteristics
speciic to rum and a
olatile substances
content equal to or
exceeding 225 grams
per hectolitre o
100 ol. alcohol.

1his spirit may be
placed on the market
with the word
agricultural`
qualiying the sales
denomination rum`
accompanied by any
o the geographical
indications o the
lrench Oerseas
Departments and the
Autonomous Region
o Madeira as
registered in Annex
III.
240

1he minimum
olume o rum shall
be 3.5.
241

Vodka Vodka is the
distilled liquor
Vodka is a spirit
drink produced rom
Vodka is a neutral
spirits so distilled,

242
1itle 2, Part 5, Subpart C, Chapter 5.22 ,,, Code o lederal Regulations.
239
240
Annex II, Section 1,a,, LC Regulation No. 110,2008, 15 January 2008.
241
a., at 1,b,.

obtained rom
neutral spirit iltered
through actiated
carbon ,charcoal, so
as to render the
product without
distinctie character,
aroma or taste.
243

Vodka shall be the
distilled alcoholic
beerage made rom
neutral spirit which
may be obtained
rom ermented
grain, potato, or any
other source o
ermentable
carbohydrates in
such a manner that
the distillate is ree
rom color and odor
and possesses the
characteristics
to odka.
244

1he ethyl alcohol
content shall be
42.85, 40.01 or
3.15 by olume
,25, 30 or 35
degrees under
proo,.
245

ethyl alcohol o
agricultural origin
obtained ollowing
ermentation with
yeast rom either:

,i, potatoes and,or
cereals, or

,ii, other agricultural
raw materials,

Distilled and,or
rectiied so that the
organoleptic
characteristics o the
raw materials used
and by-products
ormed in
ermentation are
selectiely reduced.

1his process may be
ollowed by
redistillation and,or
treatment with
appropriate
processing aids,
including treatment
with actiated
charcoal, to gie it
special organoleptic
characteristics.
246

or so treated ater
distillation with
charcoal or other
materials, as to be
without distinctie
character, aroma,
taste, or color.
248

243
244
a., at 3.1.
245
a. at 3.3.
246
Annex II, 15,a,, LC Regulation No. 110,2008, 15 January 2008.

1he minimum
olume o odka
shall be 3.5.
24

.22*#3%/ :

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:*;*-.'*01 02%-%$0 .#3 ;%#*'.-

SSTEU &OKJOQHPMJK JHNVI QIWDNDI DX QO QIWDNDIFW GHMJOYHN ZV [DIP\J DX IJGG HNQO
UE] [DI^ GLFMFHG1 IF_PJPMG QOK DHNJM GLFMFHPDPG ZJ[JMQYJGT
2208.20 - Spirits obtained by distilling grape wine or grape marc:
2208.20.10 - - Brandy o an alcoholic strength by olume not exceeding 46 ol
2208.20.20 - - Brandy o an alcoholic strength by olume exceeding 46 ol
2208.20.30 - - Other, o an alcoholic strength by olume not exceeding 46 ol
2208.20.40 - - Other, o an alcoholic strength by olume exceeding 46 ol
2208.30 - \hiskies:
2208.30.10 - - O an alcoholic strength by olume not exceeding 46 ol
2208.30.20 - - O an alcoholic strength by olume exceeding 46 ol
2208.40 - Rum and taia:
2208.50 - Gin and Genea:
2208.60 - Vodka:
2208.0 - Liqueurs and cordials:

248
1itle 2, Part 5, Subpart C, Chapter 5.22 ,a,,1,, Code o lederal Regulations.
24
a. at 15,b,.

2208.90 - Other:
2208.90.10 - - Medicated samsu o an alcoholic strength by olume not exceeding 40
ol
2208.90.20 - - Medicated samsu o an alcoholic strength by olume exceeding 40 ol
2208.90.30 - - Other samsu o an alcoholic strength by olume not exceeding 40 ol
2208.90.40 - - Other samsu o an alcoholic strength by olume exceeding 40 ol
2208.90.50 - - Arrack and pineapple spirit o an alcoholic strength by olume not
exceeding 40 ol
2208.90.60 - - Arrack and pineapple spirit o an alcoholic strength by olume
exceeding 40 ol
2208.90.0 - - Bitters and similar beerages o an alcoholic strength not exceeding 5
ol
2208.90.80 - - Bitters and similar beerages o an alcoholic strength exceeding 5 ol
2208.90.90 - - Other
.22*#3%/ !

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!)%#. SEE`
SC`

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2208

Undenatured ethyl
alcohol o an
olume o less than
80 ol., spirits,
liqueurs and other
spirituous beerages:

20 - 1
RMB,Kg

22082000 00 - Spirits obtained by
distilling grape wine
or grape marc

20 - 1
RMB,Kg

22083000 00 - \hiskies 20 - 1 1 kg ~ 0.912 Litre

249
China Customs \ebsite: 200 Ceverat .avivi.tratiov of Cv.tov. ôtice ô. 2
http:,,www.customs.go.cn,publish,portal0,tab399,ino12829.htm, Cv.tov. vort ava ort 1ariff of tbe
Peote`. Revbtic of Cbiva 200, page 918.

RMB,Kg
22084000 00 - Rum and other
spirit obtained by
distilling ermented
sugarcane products

20 - 1
RMB,Kg

22085000 00 - Gin and genea 20 - 1
RMB,Kg

22086000 00 - Vodka 20 - 1
RMB,Kg

2208000 00 - Liqueurs and
cordials
20 - 1
RMB,Kg

22089010 00 - 1equila, Mezcal 20 - 1
RMB,Kg

22089090 10 Undenatured ethyl
alcohol o an
olume o less than
80 ol

5
22089090 20 Spirits by distilling
potatoes

20 - 1
RMB,Kg
1 kg ~ 0.912 Litre
22089090 90 Other spirits and
spirituous beerages
20 - 1
RMB,Kg

*/!%0* $./*0 "# .+!")"+ 2-"3&!$0 %# b.2.#
ScE

0LQMaIFOY .IWDNDI 3MFOaG ,beers, etc,: \ 200,liter

! Low Malt Beer ,ratio o malt not less than 25 and less than 50,: \
18.12,liter
! Low Malt Beer ,ratio o malt less than 25,: \ 134.25,liter
! Others ,except hop-base liquors,: \ 80,liter

7JM\JOHJK +F_PDM

250
Ministry o linance, Japan.

! Reined Sake: \ 120,liter
! \ine: \ 80,liter

0NDWNP, etc. ,20 alcohol,: \ 220,liter, plus \ 11,additional 1 alcohol

! \hisky, Brandy, Spirits ,3 alcohol,: \ 30,liter, plus \ 10,additional 1
alcohol

9FGWJIIQOJDPG +F_PDM ,20 alcohol,: \ 220,liter, plus \ 11,additional 1
alcohol

! Sake Compound: \ 100,liter
! Mirin: \ 20,liter
! Sweet \ine or Liqueur ,12 alcohol,: \ 120,liter, plus \ 10,additional 1
alcohol
! Powdered Liquor: \ 390,liter

*/!%0* $./*0 "# .+!")"+ 2-"3&!$0 %# ="-*.

0LFMFHG ,speciied tax system,: \5,000 per kiloliter ,kl, ,\600 is added or eery
additional
1 o alcohol content,

"HNJM +F_PDM ,ad alorem tax system,

,1, 1akju 5
,2, \akju 30
,3, Beer 2
,4, Cheongju 30
,5, lruit wine 30
,6, Distilled soju 2
,, Diluted soju 2
,8, \hisky 2
,9, Brandy 2
,10, General distilled spirits 2
,11, Liqueur 2
,12, Other liquors

a. Liquors made by ermentation other than ermented liquors--30
b. Liquors, except distilled liquor mixed with the ermented method and neutral
spirits o distilled liquor - 2

" 50 tax rate on aboe-mentioned tax rates is applied to traditional liquors
which all into the ollowing categories:4
! lermented liquors - up to 200kl when production is less than 500kl per year
! Distilled liquors-up to 100kl when production is less than 250kl per year

*/!%0* $./*0 "# .+!")"+ 2-"3&!$0 %# ;%*$#.9

+F_PDM

a, o 20
o
proo or higher
lrom 1 January 2010 through 31 December 2012 45
lrom 1 January 2010-06-22 50
b, o under 20
o
proo
25

:JJM

lrom 1 January 2010 through 31 December 2012 45
lrom 1 January 2013 5
*/!%0* $./*0 "# .+!")"+ 2-"3&!$0 %# $).%+.#3

2MDKPWHG !JFIFOY -QHJ 2MJGJOH !DIIJWHFDO -QHJ

Ad
Valorem
Speciic
Rate
Ad
Valorem
Speciic Rate

,, Baht,Liter
o Pure
Alcohol
,, Baht,Liter
o Pure
Alcohol
1. lermented Liquors

1.1 Beer 60 100 60 100
1.2 \ine and Sparkling \ine 60 100 60 100
1.3 Local lermented Liquor 60 100 25 0
1.4 Others 60 100 25 -

2. Distilled Spirits

2.1 \hite Spirit 50 400 50 120
2.2 Compound spirit 50 400 50 300
2.3 Special blended spirit 50 400 50 400
2.4 Special spirit 50 400

! \hisky 50 400
! Brandy 48 400
! Others 50 400
2.5 Absolute Alcohol 50 400

! Used in Industry 2 Bt. 1 , liter
! Used in Medicine 0.1 Bt. 0.05
,liter
! Others 10 6.0

Gerard Distilled Spirits

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453

!"#$%#&%#' $)* +%,&"- $./ !.0*0 0.'.1

Consequently, exporters rom the LC and the US

See supra note 23 at 352.

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