The Philippines has conveyed its readiness to conduct consultations with the US over alleged excise tax discrimination on American distilled spirits.

“The Philippines will conduct consultations with the US in pursuant to commitments to WTO to resolve the issue,” said Philippines Permanent Representative to the WTO Ambassador Manuel A.J.
Teehankee after the US on Thursday asked the WTO for direct consultations with the Philippines on excise taxation on distilled spirits.

The US move came after the failed consultations between the Philippines and EU, the first to sue the Philippines over distilled spirits tax issue before the WTO. EU has elevated the case by asking the WTO for the creation of a body that would hear the case.

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

The US, which used to join in the consultations with EU, now wants a direct consultation with the Philippines on distilled spirits.

Teehankee explained that the US case is separate and is still for consultation while the EU is already for hearing in the WTO panel.

But should the US and RP consultations fail, the US, just like the EU, may also file a case versus the Philippines by requesting WTO for the establishment of a WTO panel.

This would make two developed and giant economies ganging up on the Philippines for a bigger slice of this poor country’s distilled spirits market.

In its complaint, the US noted that the Philippines applies tax rates to distilled spirits that differ depending on the product from which the spirit is distilled.

The Philippines taxes distilled spirits made from certain materials that are typically produced in the Philippines, such as sugar and palm, at a low rate (e.g. P13.59 per proof liter in 2009).

Imported distilled spirits are taxed at significantly higher rates (from approximately ten to 40 times higher) than the low rate applied to domestic products.

In the Philippines, producers use domestic materials, such as sugar, to create a variety of different distilled spirits, including whiskey, brandy, gin, vodka, and tequila. These distilled spirits compete with US imports of the same spirits made from other materials (such as whiskey distilled from wheat).