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(a) If produced from the sap of nipa, coconut, cassava, camote, or buri palm or ..... flavoured vodkas under the brand "
World Trade Organisation Panel Proceedings

Philippines — Taxes on Distilled Spirits (DS396 and DS403)

First Written Submission of the European Union

Geneva 2 September 2010

Philippines — Taxes on Distilled Spirits DS403

First Written Submission of the European Union

Table of Contents

TABLES OF CASES ................................................................................................................................................ 1 I.

INTRODUCTION .......................................................................................................................................... 2

II.

PROCEDURAL HISTORY........................................................................................................................... 3

III.

THE FACTS.................................................................................................................................................... 4

A. B. C. D.

IV.

THE PRODUCTS ............................................................................................................................................. 4 THE MEASURES AT ISSUE .............................................................................................................................. 4 BRIEF HISTORY OF THE LEGISLATION IN THE PHILIPPINES ............................................................................. 8 THE FILIPINO MARKET FOR DISTILLED SPIRITS ............................................................................................ 10 1. In general .............................................................................................................................................. 11 2. Main market players ............................................................................................................................. 12 3. Main types of spirits.............................................................................................................................. 14 LEGAL ARGUMENT ................................................................................................................................. 17

A. B. C. D. 1. 2. E. 1. 2. 3.

THE LEGAL PROVISIONS .............................................................................................................................. 17 SUMMARY OF EU'S CLAIMS ........................................................................................................................ 18 THE EXCISE TAX REGIME CONSTITUTES "INTERNAL TAXATION" ................................................................ 19 GATT ARTICLE III:2, FIRST SENTENCE ....................................................................................................... 19 Spirits produced from the designated raw materials and spirits produced from other raw materials are 'like products'.................................................................................................................................. 20 The taxes applied to the imported products are ‘in excess of’ those applied to the like domestic products................................................................................................................................................. 33 GATT ARTICLE III:2, SECOND SENTENCE................................................................................................... 35 Imported products and domestic products are ‘directly competitive or substitutable products' .......... 36 Spirits are ‘not similarly taxed’ ............................................................................................................ 50 Taxation is applied so as to afford protection to domestic production................................................. 52

V.

NULLIFICATION AND IMPAIRMENT.................................................................................................. 59

VI.

CONCLUSION ............................................................................................................................................. 59

LIST OF EXHIBITS .............................................................................................................................................. 61

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Philippines — Taxes on Distilled Spirits DS403

First Written Submission of the European Union

TABLES OF CASES GATT DISPUTE SETTLEMENT AND WORKING PARTY REPORTS Short Title

Full Case Title and Citation

Japan – Alcoholic Beverages I

GATT Panel Report, Japan – Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages, L/6216, adopted 10 November 1987, BISD 34S/83

Spain – Unroasted Coffee

GATT Panel Report, Spain – Tariff Treatment of Unroasted Coffee, L/5135, adopted 11 June 1981, BISD 28S/102

US – Superfund

GATT Panel Report, United States – Taxes on Petroleum and Certain Imported Substances, L/6175, adopted 17 June 1987, BISD 34S/136

WTO DISPUTE SETTLEMENT REPORTS AND ARBITRATION AWARDS Short Title

Full Case Title and Citation

Argentina – Hides and Leather

Panel Report, Argentina – Measures Affecting the Export of Bovine Hides and Import of Finished Leather, WT/DS155/R and Corr.1, adopted 16 February 2001, DSR 2001:V, 1779

Canada – Periodicals

Panel Report, Canada – Certain Measures Concerning Periodicals, WT/DS31/R and Corr.1, adopted 30 July 1997, as modified by Appellate Body Report WT/DS31/AB/R, DSR 1997:I, 481

Chile – Alcoholic Beverages

Appellate Body Report, Chile – Taxes on Alcoholic Beverages, WT/DS87/AB/R, WT/DS110/AB/R, adopted 12 January 2000, DSR 2000:I, 281

Chile – Alcoholic Beverages

Panel Report, Chile – Taxes on Alcoholic Beverages, WT/DS87/R, WT/DS110/R, adopted 12 January 2000, as modified by Appellate Body Report WT/DS87/AB/R, WT/DS110/AB/R, DSR 2000:I, 303

EC – Bananas III

Appellate Body Report, European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997, DSR 1997:II, 591

Japan – Alcoholic Beverages II

Appellate Body Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, 97

Japan – Alcoholic Beverages II

Panel Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/R, WT/DS10/R, WT/DS11/R, adopted 1 November 1996, as modified by Appellate Body Report WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, DSR 1996:I, 125

Korea – Alcoholic Beverages

Appellate Body Report, Korea – Taxes on Alcoholic Beverages, WT/DS75/AB/R, WT/DS84/AB/R, adopted 17 February 1999, DSR 1999:I, 3

Korea – Alcoholic Beverages

Panel Report, Korea – Taxes on Alcoholic Beverages, WT/DS75/R, WT/DS84/R, adopted 17 February 1999, as modified by Appellate Body Report WT/DS75/AB/R, WT/DS84/AB/R, DSR 1999:I, 44

Mexico – Taxes on Soft Drinks

Panel Report, Mexico – Tax Measures on Soft Drinks and Other Beverages, WT/DS308/R, adopted 24 March 2006, as modified by Appellate Body Report WT/DS308/AB/R, DSR 2006:I, 43

US – Gasoline

Panel Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/R, adopted 20 May 1996, as modified by Appellate Body Report WT/DS2/AB/R, DSR 1996:I, 29

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Philippines — Taxes on Distilled Spirits DS403

First Written Submission of the European Union

I.

INTRODUCTION

1.

The principle of national treatment, embodied in Article III of the GATT 1994, constitutes, together with the most-favoured-nation (the MFN) principle enshrined in Article I, one of the two main pillars on which the whole GATT is founded. The purpose of Article III is to guarantee equality of treatment of imported and domestic goods, once imported goods have passed customs1, and in this way avoid protectionism in the application of internal tax and regulatory measures2. In other words, Article III obliges WTO Members to provide equality of competitive conditions for imported products in relation to domestic products3. In particular, this provision aims at safeguarding the integrity of consolidated tariffs4. Consolidated tariffs of WTO Members create certain expectations about the competitive opportunities of imported goods after customs duties have been paid. These expectations may not be blotted out by creating new hurdles in the way of imported like or competitive products by imposing higher taxes on them than on the domestic products.

2.

This dispute concerns precisely a blatant violation of Article III, and more specifically of Article III:2 first and second sentences.

3.

For many decades, the Philippines have applied lower internal taxes to domestically produced distilled spirits than to like or directly competitive and substitutable distilled spirits imported from the European Union (the "EU") and other WTO Members. Regrettably, over the past years, the discrimination against imported distilled spirits has even worsened, as the tax differential between domestic products and imported products has progressively widened.

1

Appellate Body Report, Canada — Periodicals, p. 18. Appellate Body Report, Japan — Alcoholic Beverages II, p. 16. 3 Appellate Body Report, Japan — Alcoholic Beverages II, p. 16, quoting Panel Reports in US — Superfund, para. 5.1.9; and Japan — Alcoholic Beverages II, para. 5.5(b). 4 Appellate Body Report, Japan — Alcoholic Beverages II, pp. 16-17. 2

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First Written Submission of the European Union

II.

PROCEDURAL HISTORY

4.

On 29 July 2009 the EU requested consultations with the Philippines under Article XXII:1 of the GATT 1994 and Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU") with respect to the discriminatory taxation applied on imported alcoholic beverages by the Philippines (WT/DS396/1).

5.

Consultations between the EU and the Philippines were held in Manila on 8 October 2009 with the participation of the Unites States (the "US") as third party. Unfortunately, these consultations failed to settle the dispute.

6.

On 10 December 2009, the EU requested the establishment of a Panel pursuant to Article 6.1 of the DSU (WT/DS396/4). At its meeting of 19 January 2010, the Dispute Settlement Body (the "DSB") agreed to that request.

7.

On 14 January 2010 the US requested its own consultations with the Philippines pursuant Article XXII:1 of the GATT 1994 and Article 4 of the DSU with respect to the same measures (dispute DS403, Philippines — Taxes on Distilled Spirits, WT/DS403/1). These consultations were held in Geneva on 23 February 2010 with the participation of the EU as third party. However, also these consultations have failed to settle the dispute.

8.

On 26 March 2010 the US requested the establishment of a Panel pursuant to Article 6.1 of the DSU (WT/DS403/4). At its meeting of 20 April 2010, the Dispute Settlement Body (the "DSB") agreed to that request. The DSB also decided that, pursuant to Article 9.1 of the DSU, the Panel established on 19 January 2010 would examine both the complaint by the European Union (DS396) and the complaint by the US (DS403).

9.

On 25 June 2010, the European Union and the United States requested the Director-General to determine the composition of the panel, pursuant to paragraph 7 of Article 8 of the DSU. On 5 July 2010, the Director-General accordingly composed the Panel. The terms of reference of this Panel are the following (WT/DS396/5):

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Philippines — Taxes on Distilled Spirits DS403

First Written Submission of the European Union

"To examine, in the light of the relevant provisions of the covered agreements cited by the parties to the dispute, the matter referred to the DSB by the European Union and the United States in documents WT/DS396/4 and WT/DS403/4 and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."

III.

THE FACTS

A. The products 10.

The products at issue in this dispute are distilled spirits falling within the heading 2208 of the Harmonised System (the "HS"), including, among others, whisky, gin, brandy, rum, vodka, tequila, liqueurs. These products will be collectively referred to as "distilled spirits" or as "spirits".

B. The measures at issue 11.

The measures at issue (the "Excise Tax Regime") is provided for in the following legal provisions, insofar as they relate to distilled spirits:



Section 141 of the National Internal Revenue Code of 1997, Republic Act No. 8424, an Act amending the National Internal Revenue Code as amended and for other purposes, Official Gazette 1 June 19985, as subsequently amended, particularly by Section 1 of Republic Act No. 9334, an Act increasing the excise tax rates imposed on alcohol and tobacco products, amending for the purpose Sections 131, 141, 142, 143, 144, 145 and 288 of the National Internal Revenue Code of 1997, as amended6; and, to the extent relevant with respect to the implementing measures set out below, Section 1 of the preceding and related Republic Act No. 8240, an Act amending Sections 138, 139, 140 and 142 of the National Internal Revenue Code, as amended, and for other purposes7;



Sections 3.I, 4 and 5 of the preceding and related Revenue Regulations No. 02-97 Governing Excise Taxation on Distilled Spirits, Wines and Fermented Liquors, implementing the relevant provisions of Republic Act No. 82408;

5

Exhibit EU-1. Exhibit EU-2 7 Exhibit EU-3. 8 Exhibit EU-4. 6

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Philippines — Taxes on Distilled Spirits DS403

12.

First Written Submission of the European Union



Section 1 of Revenue Regulations No. 17-99, Implementing Sections 141, 142, 143 and 145(A) and (C) (1),( 2), (3) and (4) of the National Internal Revenue Code of 1997 relative to the Increase or the Excise Tax on Distilled Spirits, Wines, Fermented Liquors and Cigars and Cigarettes Packed by Machine by Twelve Per Cent (12%) on 1 January 20009;



Section 3 of Revenue Regulations No. 9-2003 Amending Certain Provisions of Revenue Regulations No. 1-97 and Revenue Regulations No. 2-97 Relative to the Excise Taxation of Alcohol Products, Cigars and Cigarettes for the Purpose of Prescribing the Rules and Procedures To Be Observed in the Establishment of the Current Net Retail Price of New Brands and Variants of New Brands of Alcohol and Tobacco Products10;



Section 2 of Revenue Regulations No. 23-2003 Implementing the Revised Tax Classification of New Brands of Alcohol Products and Variants Thereof Based on the Current Net Retail Prices Thereof as Determined in the Survey Conducted Pursuant to Revenue Regulations No. 9-200311;



Section 2 A, B and C(2)(a) of Revenue Regulations No. 12-2004 Providing for the Revised Tax Rates on Alcohol and Tobacco Products introduced on or before 31 December 1996, and for those Alcohol and Tobacco Products Covered by Revenue Regulations No. 22-2003 and 23-2003, Implementing Act No. 9334; otherwise known as ''An Act Increasing the Excise Tax Rates Imposed on Alcohol and Tobacco Products, Amending for the Purpose Sections 131, 141, 142, 143, 144, 145, and 288 of the National Internal Revenue Code of 1997, as Amended12; and



Sections 1 to 9 of Revenue Regulations No. 3-2006 Prescribing the Implementing Guidelines on the Revised Tax Rates on Alcohol and Tobacco Products Pursuant to the Provisions of Republic Act No. 9334, and Clarifying Certain Provisions of Existing Revenue Regulations Relative Thereto13.

Notably, Section 141 of the National Internal Revenue Code of 1997 provided as follows: "Distilled Spirits. – On distilled spirits, there shall be collected (…) excise taxes as follows:

9

Exhibit EU-5. Exhibit EU-6. 11 Exhibit EU-7. 12 Exhibit EU-8. 13 Exhibit EU-9. 10

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Philippines — Taxes on Distilled Spirits DS403

First Written Submission of the European Union

(a) If produced from the sap of nipa, coconut, cassava, camote, or buri palm or from the juice, syrup or sugar of the cane, provided such materials are produced commercially in the country where they are processed into distilled spirits, per proof liter, Eight pesos (P.8): Provided ,That if produced in a pot still or other similar primary distilling apparatus by a distiller producing not more than one hundred (100) liters a day, containing not more that fifty percent (50%) of alcohol by volume, per proof liter, Four pesos (P4.00) (b) If produced from raw materials other than those enumerated in the preceding paragraph, the tax shall be in accordance with the net retail price per bottle of seven hundred and fifty milliliter (750 ml.) volume capacity (excluding the excise tax and the valueadded tax) as follows: (1) Less than Two hundred and fifty pesos (P250) – Seventy-five pesos (P.75), per proof liter; (2) Two hundred and fifty pesos (P250) up to Six hundred and Seventy-five pesos (P675) – One hundred and fifty pesos (P150), per proof liter; and (3) More than Six hundred and seventy-five pesos (P675) – Three hundred pesos ( P.300), per proof liter."

13.

Republic Act no. 9334 increased those rates by 30% in the case of spirits under paragraph (a), and 50% in the case of spirits under paragraph (b) of Article 141 of the NIRC, resulting in the following rates: (a) If produced from the sap of nipa, coconut, cassava, camote, or buri palm or from the juice, syrup or sugar of the cane; Thirteen pesos and fifty-nine centavos (P. 11.65) (b) If produced from raw materials other than those enumerated in the preceding paragraph, and the net retail price (excluding the excise and the value-added taxes) per bottle of seven hundred and fifty milliliter (750 ml.) volume capacity is: (1) Less than Two hundred and fifty pesos (P250) – One hundred forty-six pesos and ninety-seven centavos (P.126), per proof liter; (2) Two hundred and fifty pesos (P250) up to Six hundred and Seventy-five pesos (P675) – Two hundred ninetythree pesos and ninety-three centavos (P252), per proof liter; and (3) More than Six hundred and seventy-five pesos (P675) – Five hundred eighty-seven pesos and eighty-seven centavos (P.504), per proof liter."

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Philippines — Taxes on Distilled Spirits DS403

14.

First Written Submission of the European Union

According to the same Republic Act no. 9334, the amount of these tax rates is increased every two years until January 2011. In particular, according to Section 3, the rates effective as from January 2009 are as follows: (a) If produced from the sap of nipa, coconut, cassava, camote, or buri palm or from the juice, syrup or sugar of the cane; Thirteen pesos and fifty-nine centavos (P. 13.59) (b) If produced from raw materials other than those enumerated in the preceding paragraph, and the net retail price (excluding the excise and the value-added taxes) per bottle of seven hundred and fifty milliliter (750 ml.) volume capacity is: (1) Less than Two hundred and fifty pesos (P250) – One hundred forty-six pesos and ninety-seven centavos (P.146,97), per proof liter; (2) Two hundred and fifty pesos (P250) up to Six hundred and Seventy-five pesos (P675) – Two hundred ninetythree pesos and ninety-three centavos (P293.93), per proof liter; and (3) More than Six hundred and seventy-five pesos (P675) – Five hundred eighty-seven pesos and eighty-seven centavos (P.587,87), per proof liter."

15.

In essence, under the Excise Tax Regime, distilled spirits produced from the sap of nipa14, coconut, cassava15, camote16 or buri palm17, or from the juice, syrup or sugar of the cane (the "designated raw materials"), provided that such materials are produced commercially in the country where they are processed into distilled spirits, are subject to a flat tax rate of, currently, 13.59 Pesos per proof litre ("ppl")18. The designated raw materials are indigenous to the Philippines where

14

Nipa (or Nypa Palm) refers to the plant whose scientific name is "Nypa fruticans". The flower cluster (inflorescence) can be tapped before it blooms to yield a sweet, edible sap used to produce alcoholic beverages. 15 Cassava ("Manihot esculenta"), also called yuca or manioc, is a woody shrub of the Euphorbiaceae extensively cultivated as an annual crop in tropical and subtropical regions for its edible starchy tuberous root. The plant is also known in the Philippines as "kamoteng kahoy" or "balanghoy". 16 Camote is a sweet potato ("Ipomoea batatas") that belongs to the family Convolvulaceae. Its large, starchy, sweet tasting tuberous roots are an important root vegetable, used as a source of starch and alcohol and eaten as a vegetable. 17 Buri Palm ("Corypha elata") is a genus of six or seven species of palms (family Arecaceae), native to India, Malaysia, Indonesia, the Philippines, New Guinea, and northeastern Australia. They are fan palms with the leaves with a long petiole terminating in a rounded fan of numerous leaflets. 18 A proof litre is a litre of volume with 50% alcohol content (National Internal Revenue Code of 1997, s. 141, as amended by Republic Act n.o. 93354).

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First Written Submission of the European Union

they are used for the manufacturing of spirits19. The interpretation of the additional condition that the designated raw materials are "produced commercially in the country where they are processed into distilled spirits" remains unclear20. However, this seems aimed at ensuring that spirits benefiting from the lowest flat tax rate use indigenous raw materials. As a result, all domestic distilled spirits are subject to the Pesos 13.59 ppl rate. At the same time, spirits produced from other raw materials (in practice, imported spirits) are subject to a system of three price bands at substantially higher tax rates (currently, 146,97 Pesos, 293,93 Pesos and 587,87 Pesos ppl), according to their net resale price (the "NRP").

C. Brief history of the legislation in the Philippines 16.

The excise tax structure applying to spirits in the Philippines has undergone several major revisions over the years.

17.

The distinction of tax rates based on raw materials for distilled spirits appears to date back to colonial times. Republic Act no. 2339 of 1914 ("1914 Act") and Commonwealth Act 466 of 1939 ("1939 Law", now known as the "National Internal Revenue Code", the "NIRC") established different tax rates for spirits “produced from sap of the nipa, coconut, or buri palm, or from the juice, syrup, or sugar of the cane” and spirits produced from any other material. The 1939 Law also refers to “cassava and camote”. However, the condition that the designated raw materials be “produced commercially in the country where they are processed

19

According to the 2008 Selected Statistics on Agriculture of the Bureau of Agriculture Statistics of the Philippines Department of Agriculture, coconut, sugarcane, cassava and camote together accounted for more than 50% of production of agricultural crops in the Philippines in 2007 (sugarcane had the biggest share with 28%). In terms of area planted/harvested, those crops accounted together for more than 32%. The vast majority of spirits produced in the Philippines, including rum but also Filipino whisky, gin, vodka and tequila, are made from sugar cane. Other domestic spirits in the Philippines have coconut as raw material, like 'lambadog', which is made from distilling the sap of an unopened coconut flower and is commonly described as coconut wine or coconut vodka. The alcoholic industry in the Philippines also uses cassava as an alternative source of raw material for ethanol production. Filipino spirits are, to a lesser extent, also produced from the sap of the nipa and the buri palm. Both the nipa and are the buri palm are plants which grow in Southern Asia. The flower cluster (inflorescence) of the nipa can be tapped before it blooms to yield a sweet, edible sap used to produce a local alcoholic beverage called tuba. Regarding buri palm, in the Philippines this palm is widely scattered in some regions and particularly abundant in low and medium altitudes. In the Philippines, people extract "tuba" or toddy which is made into vinegar and wine by local distillers. See Exhibit EU-10. 20 See e.g. declaration of Sen. Ralph G. Recto (who sponsored the bill which later became RA 9334, the 'Sin Tax Law') before the Filipino Senate in 2004, Exhibit EU-74, pag. 31.

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Philippines — Taxes on Distilled Spirits DS403

First Written Submission of the European Union

into distilled spirits” was only introduced by Section 138 of Executive Order No. 273 of 1987 ("1987 Executive Order"), which is now part of Section 141 of the NIRC. 18.

According to the information provided by the Philippines authorities, until 1984, the excise tax system was a pure specific tax system. Between 1984 and 1986, a combined specific and ad valorem system was applied to spirits. Then, between 1986 and 1996, a pure ad valorem system applied.

19.

In the late 1990's, the Filipino government increased taxes on alcoholic beverages as part of a more general initiative designed to address revenue shortages (the "Comprehensive Tax Reform Program"). In particular, Republic Act no. 8240 (entered into force on 1st January1997) changed again the system into the specific tax system with the four tax tiers which exist still now. Subsequently, Republic Act no. 8424 ("The Tax Reform Act of 1997") increased the tax rates by 12% with effect from 1st January 2000. Finally, Republic Act no. 9334 ("RA 9334", also known as the "Sin Tax Law") in 2004 increased the tax rates by between 30% (spirits from designated raw materials) and 50% (spirits from other raw materials) compared to the previous year. This legislation has also introduced a mechanism whereby the excise tax would be increased by 8% every second year until January 2011.

20.

The NRP is defined in Republic Act no. 8240, Annexes A, B, C and D and Revenue Regulation no. 2-97 which lists spirits brands and their defined tax band for products which existed in the market before 1st January 1997. The reclassification of brands is prohibited unless revised by congress (Revenue Regulation no. 3-2006, ss 4-5). Section 2.9 of Republic Act no. 8240 also included guidelines for determining the NRP for new brands by reference to the retail price applying in outlets in Metro Manila or, for brands marketed only outside Metro Manila, retail outlets in the region in question.

21.

In summary, the tax discrimination against imported spirits has not only been consolidated over the years but has been progressively aggravated. As the European Union understand it, the tax discrimination was as follows (all tax rates indicated are per proof litre): 9

Philippines — Taxes on Distilled Spirits DS403

First Written Submission of the European Union

Designated raw Other raw materials Differential materials (× times higher rate) 1914 Act 25 c. 70 c. × 2.8 1939 Law 38 c. 1.30 P. × 3.4 1972 Presidential Decree 85 c. 20 P. × 23.5 1986 Presidential Decree 5 P. 35 P. ×7 1987 Executive Order 3.20 P. 25 P. × 7.8 1987 Republic Act 8240 4 P. 75/150/300 P. × 18.75/37.5/75 1999 Revenue Regulation 4.48 P. 84/168/336 P. × 18.75/37.5/75 17-99 2005 Republic Act 9334 11.65 P. 126/252/504 P. × 10.8/21.6/43.2 13.59 P. (2009) 146.97/293.93/587.87 P. (idem) c.= centavos/cents P. = pesos

22.

In the past years, several draft bills were proposed to reform the Excise Tax Regime. In particular, some of these draft bills envisaged the creation of a single tax structure for all alcohol products, based on alcohol content rather than on the raw materials used. For instance, such a structure was proposed in House Bill 6079, of which the Filipino Department of Trade and Industry (the "DTI") recommended adoption so as "to remove the manifest violation of the [WTO] national treatment principle"21. In the explanatory note drafted by the members of the House of Representatives which sponsored the bill, it is indicated that, among others, the bill "also addresses the issue of unfair competition between manufacturers of locally produced and of imported alcohol products"22. Likewise, another proposal to reform the measures at issue (Senate S. No. 3190) was introduced to address the problem of a tax system which has "severely favored locally produced brands"23.

23.

These proposals met however the strong resistance from the local spirits industry24. Eventually, the Filipino Parliament (Fourteen Congress) did not pass any new legislation in this field before it was dissolved for the general elections which took place on 10 May 2010.

D. The Filipino market for distilled spirits

21

Exhibit EU-11. Exhibit EU-12. Page 3. 23 Exhibit EU-13. 24 Exhibit EU-14. 22

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Philippines — Taxes on Distilled Spirits DS403

1. 24.

First Written Submission of the European Union

In general

The Filipino market for spirits is estimated to amount to ca. 49 million nine litre cases per year, making it one of the largest spirits markets in the Asia-Pacific region. This market is largely dominated by domestic products which together account for almost 98% of total consumption, leaving to imported spirits a share of less than 2,5%, as the following chart illustrates well25.

Imported products Local products

25.

Spirit consumption has steadily grown in the last years (2005-2009) by ca. 3% on a yearly basis. However, the whole growth of the market has been absorbed by local products since imports of spirits saw a small decline over the same period (0.6%).

26.

The high rates of excise taxation applying to imported spirits also create significant economic incentives to smuggling. Press reports indicate that a study committed by the Filipino Ministry of Finance in 2005 into revenue losses from non-tax paid import channels on alcohol and other products, concluded that the revenue forgone between 2000 and 2005 as a result of non-tax paid activity amounted to some Pesos 22.3 billion in the spirits sector alone (i.e. 43% of total revenue lost). It was estimated that up to 80% of imported spirits entered the market through non-tax paid channels26.

25

IWSR data, see Exhibit EU-15. In year 2009 (with 2008 data), it was calculated that the market share of imported spirits could be sub-divided in the following manner, according to the tax rate applied: 2.05% lowpriced tier, 0.44% mid-priced tier, 0.03% high-priced tier. 26 See Exhibit EU-16.

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2. 27.

First Written Submission of the European Union

Main market players

Although there exist also a number of small and medium-sized distilleries and manufacturers in the Philippines, the market is rather oligopolistic. In fact, three Filipino corporations enjoy jointly over 90% of the overall spirits market. All three companies are large and powerful conglomerates with important financial data.

28.

To begin with, San Miguel Corporation describes itself as Southeast Asia's largest publicly listed food, beverage and packaging company with over 15,000 employees in over 90 major facilities throughout the Asia-Pacific. One of the Philippines' leading business conglomerates, San Miguel carries the brand names of some of the most formidable players in the Philippine food and beverage industry, including San Miguel Pale Pilsen, Ginebra San Miguel, Monterey, Magnolia, and Purefoods. San Miguel Beer--the company's flagship product--is one of the largest selling beers and among the top 10 beer brands in the world. 27

29.

Notably, the group reported in fiscal year 2009 net sales of Pesos 174.2 billion (up 4% from the previous year); operating income of Pesos 19.7 billion (up 33%), net income of Pesos 57.8 billion (a 199% improvement), and a return on average stockholders equity of 31.78%28. It operates in the spirits market mainly through its subsidiary Ginebra San Miguel, Inc ("San Miguel").

30.

Next, Alliance Global Group Inc. ("Alliance Global") presents itself as one of the Philippines’ largest conglomerates, with interests in the food and beverage industry, real estate development and quick service restaurants. AGI is a holding company for a group of companies controlled by the Tan Family. Through its subsidiaries, associates and other investments, the Company operates a diversified range of businesses in the Philippines that focus on developing products and services that cater to the growing Philippine middle class.29

31.

According to its Annual Report for fiscal year 2007, the company reported a sales growth of 210% (totalling sales for Pesos 27.3 billion), a net income growth of 467%, a return on investment of 4%. Interestingly, the brandy business contributed

27

See San Miguel Corp's website. Exhibit EU-17. Ibidem. 29 Alliance Global's web-site. Exhibit EU-18. 28

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First Written Submission of the European Union

Pesos 7.1 billion to overall sales, representing not less than 26% of total revenues30. It operates in the spirits market primarily through its subsidiary Emperador Distillers, Inc. 32.

Tanduay Distillers Inc. ("Tanduay") is also a company with interests in diversified sectors of business (e.g. chemicals, finance). Its Annual Report for fiscal year 2007 reports revenues for Pesos 9,8 billion, an income before tax of Pesos 159 million, and a net income of Pesos 89 million. As the Company itself explains, the consolidated revenues for 2007 increased by 49% (from Pesos 6.6 billion to Pesos 9.8 billion) thanks also to an increase in liquor sales by 16%31.

33.

Another important spirit producer, although smaller in comparison with the three previosly indicated, is Destileria Limtuaco & Co. Inc. ("Limtuaco"), which claims to be the oldest in the Philippines and has a particularly ample portfolio of products, covering – among others - whisky, brandy, gin, rum, tequila, vodka, and different types of liqueurs32.

34.

All these companies have operations which extend well beyond their home market. In fact, large Filipino spirits manufacturers realise significant exports of their products. The most striking example is 'Brandy Emperador' (of Alliance Global) which has been recognized as the world's top selling brandy in 2006 by the famous UK magazine "Drinks International"33. Similarly, San Miguel presents its 'Ginebra San Miguel' as the "world's largest selling gin"34. San Miguel has manufacturing operations in Hong Kong, China, Indonesia, Vietnam, Thailand and Malaysia and exports its products to 60 markets around the world35. Likewise, on its web-site, Tanduay indicates that it markets its products through a network of distributors, dealers, wholesalers, and retailers not only in the Philippines but also in China,

30

Pag. 24 of Annual Report for FY2007. For excerpts of the Annual Report see Exhibit EU-19. The whole report is available on the internet at: http://allianceglobalinc.com/financial-highlights.html. 31 Pagg. 12-14 of Annual Report for FY2007. For excerpts of the Annual Report see Exhibit EU-20. The whole report is available on the internet at http://www.tanduay.com/tdy_sec_17a_april2008.pdf. 32 See Limtuaco's web-site. Exhibit EU-21. 33 See Annual Report, pages 2 and 5. Exhibit EU-19. 34 See Exhibit EU-22. 35 See Exhibit EU-17.

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Hong Kong, North America, Malaysia, Guam, Singapore, Hawaii, Thailand, Australia, Saipan, and New Zealand36.

3. 35.

Main types of spirits37

Three categories of spirits – gin, brandy, and rum, lead spirits consumption in the Philippines, accounting for over 97% of overall consumption:

36.

- Gin:

36,8%,

- Brandy:

34,2%,

- Rum:

26,4%.

Gin consumption is almost 100% domestic production. The leading brand is 'Ginebra San Miguel', produced by San Miguel. It is by far the best selling spirit brand in the Philippines: alone, it accounts for almost 36% of the overall spirits market and more than 97% of the gin market. San Miguel offers also different varieties of the product: 'GSM Blue' (targeting especially young people) and 'Ginebra San Miguel Premium Gin' (the premium brand). 'Gilbey's gin' (product of the UK group Diageo but manufactured in the Philippines on the basis of sugar cane) accounts for less than 0,4% of the overall spirits market. Other well-known local brands of gin include 'London Dry Gin' (produced by Tanduay), 'Britannia London Dry Gin', and 'Ginebra Kelly Gin' (both produced by Limtuaco). In 2008, Alliance Global launched a flavoured gin: 'The Bar - Lemon-and-Lime Gin'. All these (domestic) products are subject to the lowest internal tax of Pesos 13.59 ppl.

37.

Imported gins sold in the Philippines (with minimal market shares) include 'Bombay Sapphire' and 'Tanqueray'. All imported gin products are subject to the higher internal tax of Pesos 146.97, 293.93, or 587.87 ppl.

38.

Brandy is another type of spirit largely consumed in the Philippines. In recent years its consumption has grown significantly. In years 2004-2008, the growth has been estimated to be at 130%, with domestic product consumption increasing at

36

See Exhibit EU-23. Market shares in this section of the First Written Submission of the European Union are based on the data contained in the latest ISWR Report. See Exhibit EU-15.

37

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149%, and imported product consumption growing at the lower pace of 2.5%. In fact, the imported share of the brandy market has declined in these years: from 13% in 2004 to 6% in 2008. Three brands account for over 90% of the total market for brandy (and more than 1/3 of the total spirits market): 'Emperador' and 'Generoso' (both produced by Alliance Global), and 'Gran Matador' (by San Miguel). Other local brands with significant sales include: 'Barcelona' (by Tanduay) and 'Napoleon VSOP' (by Limtuaco). All these (domestic) products are subject to the lowest internal tax of Pesos 13.59 ppl since they are produced from sugar cane38. 39.

The best selling imported brand is Spain's 'Fundador' whose sales amount to a share of less than 2,5% of the brandy market and of less than 1% of the overall spirits market. Other imported brandies sold in the Philippines include Spain's 'Alfonso', 'Tres Cepas', 'Carlo I' and France's 'Hennessy' and 'Remy Martin'. None of them, however, comes close to a share of even 1% of the overall spirits market. All imported brandies are subject to the higher internal tax of Pesos 146.97, 293.93, or 587.87 ppl, according to their NRP.

40.

Rum consumption is also almost wholly domestic production. The dominant brand is 'Tanduay 5 years gold' (produced by Tanduay), which accounts for almost one quarter of the overall Filipino market for spirits (24,8%) and enjoys a 93% market share among rums. Tanduay markets also other 9 varieties of its rums. Other domestic rums include 'Añejo Rum' and 'Toñdena Manila Rum', both produced by San Miguel (together they account for ca. 0,5% of the overall spirits market) and 'Palawan Blanco Rum', 'Inferno Flaming Rum', and 'Old Captain Rum'39, manufactured by Limtuaco. All these (domestic) products are subject to the lowest internal tax of Pesos 13.59 ppl.

38

However, as the European Union understands it, Filipino technical regulations provide that a distilled spirit can be sold as "brandy" only when obtained from grapes. Only "compounded brandy" can be produced with certain other raw materials. Consequently, it would seem that local brandies are not entirely compliant with the domestic legislation on brandy insofar they are not marketed as "compound brandy". See the Standards Administrative Order no. 358 of 1978 regarding brandy (which defines "brandy" as "obtained solely from the fermented juice of fresh, ripe and sound grapes"). Exhibit EU-24. The case may be, mutatis mutandis, similar for whisky, according to Standards Administrative Order no. 259 of 1976. 39 The latter rum is available in 3 different varieties, according to ageing: 5, 8 and 12 years old.

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Philippines — Taxes on Distilled Spirits DS403

41.

First Written Submission of the European Union

The most-selling imported rum is 'Bacardi gold' which is produced on the basis of sugar cane and is applied the lower internal tax of Pesos 13.59 ppl. Another imported rum available in the Philippines is 'Malibu' which, in spite of being produced in Barbados on the basis of coconut, is subject to the higher tax rates like other imported spirits, and reports almost insignificant sales. Revenue Regulation 23-2003 also lists other imported rums40.

42.

Together, whisky, vodka and tequila account for barely 0,5% of the overall spirits market (even if vodka has significantly grown in the last years). While in the past these spirits were predominantly imported, in recent years the Filipino industry has developed and marketed new products in order to compete with imported ones. For instance, Limtuaco sells two types of whisky: 'White Castle 5 Years Old Whisky', and 'White Castle Calibre 69 Whisky'. Also San Miguel markets one whisky under the brand 'St. George Premium Whisky'. Several local vodka brands are now available from different producers: 'Toska Vodka' (Limtuaco), 'Antonov Vodka' (San Miguel)41, 'Cossack Vodka' (Tanduay)42, and 'Gilbey's vodka' (Diageo). Between 2008 and 2010, Alliance Global launched three types of flavoured vodkas under the brand "The Bar": Orange Vodka, Apple Vodka and Strawberry Vodka. Regarding tequila, main local products are 'El Hombre Tequila Gold' and 'El Hombre Tequila Silver' (Limtuaco), 'Mojitos Silver Tequila' (Premiere Beverage Corp) and 'Don Enrique Mixkila' (San Miguel), which is not branded as tequila but (given the marketing, presentation, name, taste etc.) is basically competing with other tequila brands43. All these products are subject to the lowest internal tax of Pesos 13.59 ppl.

43.

On the contrary, imported whisky (such as 'Johnny Walker', 'Chivas Regal' and 'J&B Rare'), vodka (such as 'Smirnoff', 'Skyy' and 'Stolichnaya') and tequila (such

40

See infra, footnote 195. Recently, San Miguel has also launched a second version of 'Antonov Vodka', called Antonov 'Vodka Apple Mixed Drink'. 42 This 'Cossack vodka' should not be confused with the 'Cossack vodka' produced in Australia and exported to the Philippines until 2005 by Diageo. This Cossack vodka was classified as "Distilled spirits produced from Grains and Cereals" in the Revenue Regulations 02-1997. 43 In fact, San Miguel on its internet web-site presents the product as follows: "Don Enrique Mixkila Distilled Spirit is designed for those who drink without rules, Don Enrique Mixkila has 40% alcohol volume and is made with distilled spirits and choice imported essences of tequila. It offers the same premium quality and packaging as those of imported brands, but at a much lower price" (emphasis added). See Exhibit EU25. 41

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as 'José Cuervo'), are subject to the higher internal tax rates of Pesos 146.97, 293.93, or 587.87 ppl, according to their NRP. 44.

There are finally a large number of distilled spirits, both domestic and imported, sold in the Philippines, which do not belong to the types of spirits just described, and are usually regarded as "liqueurs".

IV.

LEGAL ARGUMENT

A. The legal provisions 45.

The most relevant legal provisions of the GATT 1994 in the present dispute are as follows.

46.

Article III:1 and 2 provide: Article III: National Treatment on Internal Taxation and Regulation 1. The contracting parties recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production. 2. The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, 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 forth in paragraph 1.

47.

The interpretative Note to Article III:2 states: A tax conforming to the requirements of the first sentence of paragraph 2 would be considered to be inconsistent with the provisions of the second sentence only in cases where competition was involved between, on the one hand, the taxed product and, on the other hand, a directly competitive or substitutable product which was not similarly taxed.

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B. Summary of EU's claims 48.

In substance, the EU claims that the Philippines is in breach of its obligations under GATT Article III:2, first and second sentence, since pursuant to the Excise Tax Regime it applies on imported distilled spirits (i) internal taxes which are in excess of those applied on like products, and (ii) higher internal taxes so as to afford protection to its domestic industry.

49.

The EU considers, in the first place, that spirits produced from the designated raw materials are "like" spirits produced from other raw materials. However, if this Panel were not persuaded that some or all of those spirits are "like" within the meaning of GATT Article III:2, first sentence, subordinately, the EU submits that they are "directly competitive or substitutable" pursuant to GATT Article III:1 and III:2, second sentence.

50.

In this submission, the EU will firstly deal with the breach of Article III:2, first sentence, and will subsequently examine the breach of Article III:2, second sentence.

51.

In this context, the EU would like to remind what the Appellate Body has established on the relationship between the first and the second sentences of Article III:2. In Korea — Alcoholic Beverages, the Appellate Body, on the basis of constant case-law, observed: "Like" products are a subset of directly competitive or substitutable products: all like products are, by definition, directly competitive or substitutable products, whereas not all "directly competitive or substitutable" products are "like". The notion of like products must be construed narrowly but the category of directly competitive or substitutable products is broader. While perfectly substitutable products fall within Article III:2, first sentence, imperfectly substitutable products can be assessed under Article III:2, second sentence.44

52.

This means that if the Panel were to establish that the Philippines violate Article III:2, first sentence, it would not necessarily need to analyse a breach of the second

44

Appellate Body Report, Korea — Alcoholic Beverages, para 118.

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sentence of the same provision45: such a breach would inevitably be covered. Conversely, the Panel may decide (in the exercise of its discretion and in the interest of judicial economy) to examine directly the breach of Article III:2, second sentence. Since this part of the GATT provision lays down a distinct and autonomous obligation46, a violation of that obligation is in itself sufficient to conclude that the measures at issue do not conform to GATT Article III:2 and to recommend the DSB to request the Philippines to bring the Excise Tax Regime into conformity with its obligations under the GATT. The latter analysis is what, e.g., the Panel in Korea- Alcoholic Beverages has done47.

C. The Excise Tax Regime constitutes "internal taxation" 53.

Before analysing in turn each of these two claims, the EU would briefly like to point out that the measures at issue constitute "internal taxes" within the meaning of Article III:1 and III:2 of the GATT 1994.

54.

In fact, excise taxes are levied on all distilled spirits intended for consumption in the Philippines, whether locally produced or imported, and not "on" or "in connection with" importation of distilled spirits.

D. GATT Article III:2, first sentence 55.

Article III:2, first sentence, provides: The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products.

56.

It is settled case-law that a tax measure violates Article III:2, first sentence, when:

45

Cf. Appellate Body Report, Canada — Periodicals, pp. 22-23: “[T]here are two questions which need to be answered to determine whether there is a violation of Article III:2 of the GATT 1994: (a) whether imported and domestic products are like products; and (b) whether the imported products are taxed in excess of the domestic products. If the answers to both questions are affirmative, there is a violation of Article III:2, first sentence. If the answer to one question is negative, there is a need to examine further whether the measure is consistent with Article III:2, second sentence.” 46 Appellate Body, Japan — Alcoholic Beverages II, p. 19. 47 See Panel Report, Korea- Alcoholic Beverages, para 10.36 and 10.104.

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(i) the taxed imported and domestic products are ‘like’; and (ii) the taxes applied to the imported products are ‘in excess of’ those applied to the like domestic products48. 57.

Importantly, a measure which meets these two requirements can be ipso facto considered to infringe Article III:2, first sentence. In fact, the general principle of Article III:1 informs also the first sentence of Article III:2. As such, in order to establish a violation of the latter provision it is unnecessary to show that the measures at issue are applied "so as to afford protection to domestic production".49

1.

58.

Spirits produced from the designated raw materials and spirits produced from other raw materials are 'like products'

The GATT does not define the notion of "like products". However, there is now ample case-law on how this term should be interpreted.

59.

In Japan — Alcoholic Beverages II and Canada – Periodicals, the Appellate Body endorsed the approach previously followed by several GATT panels in deciding that the term "like products" should be assessed on a case-by-case basis. In particular, recalling the Report of the Working Party on Border Tax Adjustments, adopted by the CONTRACTING PARTIES in 1970, the Appellate Body held that some criteria for determining whether a product is "like" are: the product's enduses in a given market; consumers' tastes and habits; the product's properties, nature and quality. Moreover, a uniform tariff classification of products can also be relevant in determining what products are "like"50.

60.

It is true that the term like products should be construed narrowly51. Yet, like products need not be identical in all respects52. With regard to alcoholic beverages,

48

Appellate Body Report, Japan — Alcoholic Beverages II, pp. 18-19; Appellate Body Report, Canada — Periodicals, p. 18. 49 Appellate Body Report, Japan — Alcoholic Beverages II, pp. 18-19; see also Appellate Body Report of 25 September 1997, EC – Bananas III, p. 20. 50 Appellate Body Report, Japan — Alcoholic Beverages II, p. 21-22. Appellate Body Report, Canada — Periodicals, pp. 20-21. 51 Appellate Body Report, Japan — Alcoholic Beverages II, p. 20. 52 Panel Report, Japan — Alcoholic Beverages II, para. 6.21. See also GATT Panel Report, Japan — Alcoholic Beverages I (adopted), para. 5.5.

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a Panel has in fact held that "minor differences in taste, colour and other properties (including different alcohol contents) did not prevent products qualifying as "like products"". The same Panel has also added that ""like" products do not become "unlike" merely because of differences in local consumer traditions within a country (…) or differences in their prices, which were often influenced by external government measures (e.g. customs duties) and market conditions (e.g. supply and demand, sales margins)"53. 61.

The EU submits that the measures at issue have the effect of applying dissimilar internal taxes to several like products. Indeed, domestically produced spirits are subject to lower excise duties than imported spirits which – as it will be shown – have identical end-uses; respond to the same consumers' tastes and habits; have same properties and nature; fall within the same tariff classification.

62.

The EU does not necessarily claim that all spirits under HS code 2208 are "like products" within the meaning of Article III:2, first sentence, of the GATT. Yet, it is the opinion of the European Union that – at the very least – and irrespective of the type and origin of the raw materials used for their production, all gins sold in the Philippines are like products, all brandies sold in the Philippines are like products, all whiskies sold in the Philippines are like products, all vodkas sold in the Philippines are like products, all rums sold in the Philippines are like products, and so on.

63.

The European Union finds that, in the present case, it would be unnecessary for the Panel to decide what types of spirits are "like" other types of spirits (e.g. whether a gin is like a vodka). Indeed, within the very same type of spirits (gin, brandy, whisky, rum, vodka etc.) the Philippines legislation applies discriminatory taxation against imported products.

(a) End-uses 64.

It is almost unnecessary to point out that distilled spirits in general have the same end uses. All of them are drunk "straight", "on the rocks", or diluted with other

53

Panel Report, Japan – Alcoholic Beverages I, para. 5.9.

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alcoholic drinks or, more frequently, with water or non-alcoholic drinks (e.g. juices, soft drinks). All of them are drunk with the same purpose: thirst quenching, socialization, relaxation, pleasant intoxication. 65.

Notably, all drinking styles often co-exist and are used alternatively, depending on the occasion and the whim of the consumer. By way of example, San Miguel describes its 'GSM Blue' gin as a spirit which "may be savored straight, on the rocks, or mixed"54 and its 'Antonov Vodka' as a spirit with "a neutral taste and aroma, that makes it great straight-up or mixed with their favourite cocktails"55. Likewise, Limtuaco presents its two brands of gin ('Britannia London Dry Gin' and 'Ginebra Kelly Gin') as "ideal drink that is taken straight or mixed as a cocktail"56. The same distiller also portrays its 'Old Captain 5 Years Old Rum' in the following manner. "You can drink it neat or on the rocks. It makes a great base for cocktails, blending well with other ingredients such as fruit juices, liqueurs and other mixers without concealing the rum taste"57

66.

Imported spirits, made from other raw materials, are presented analogously. For example, 'Tanqueray gin' is described by the producer as a spirit which "mixes beautifully but is every bit as rewarding all by itself"58. Similarly, on the web-site of 'Skyy vodka' one reads that it is "ideal straight or as a perfect start to any cocktail".59

67.

If anything, the particular end-use depends sometimes on the type of spirit consumed60 (or even on the variety of the type of spirit consumed61). The raw materials used for the distillation of that type of spirit do not affect at all the drinking styles. This is confirmed by a recent survey made by Euromonitor

54

See Ginebra San Miguel's 2004 Annual Report, p. 34. Excerpts of this Annual Report are in Exhibit EU26. The complete Annual Reports from year 2004 onwards can be found on Ginebra San Miguel's web-site at http://www.ginebrasanmiguel.com. 55 Exhibit EU-27. 56 Exhibit EU-28. 57 Exhibit EU-29 58 Exhibit EU-30. 59 Exhibit EU-31. 60 Exhibit EU-32. 61 E.g. aged rums are largely drunk neat whereas white young rums are often used in cocktails. Similarly, gold tequilas are regularly used for shots while silver tequilas are frequently mixed with other drinks.

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International's on consumers perceptions in the Philippines (the "Euromonitor Consumer Preference Survey ")62. 68.

Indeed, customers purchase a vodka produced from the designated raw materials (e.g. sugar cane) for exactly the same reasons he/she would buy a vodka produced from other raw materials (e.g. potatoes or wheat). It is well known that one of the most typical ways to drink vodka everywhere in the world, and especially for young people, is diluted with soft drinks and/or fruit juices. In fact, on the San Miguel's web-page of 'Antonov Vodka'63, one reads: "Made from high-grade alcohol, Antonov is pure vodka that minimizes hangover. Antonov undergoes double distillation and charcoal filtration. It has a neutral taste and aroma, making it great to drink neat or mixed. Screwdriver64 or Bloody Mary65, anyone?

69.

In the same vein, on the official web-page of Limtuaco, they list among the cocktails to make with their 'Toska Vodka' the "Screwdriver", the "Bloody Mary" together with a number of other famous cocktails66 made anywhere in the world with any brand of vodka (i.e. usually vodka made with other raw materials)67.

70.

Unsurprisingly, also the local producers of rums present and advertise their rums as ideal to make the very same cocktails which are worldwide made with rums which do not enjoy the lower tax rate in the Philippines (e.g. 'Malibu' or 'Havana Club'68). So, Tanduay, on their official web-page, contains a "cocktail guide" for its best-selling 'Tanduay' rum. Among these cocktails, one can find the well known "Cuba Libre" (rum and cola), "Pina Colada" (rum, pineapple juice and coconut milk), and "Zombie" (rum and different fruit juices) cocktails 69.

62

See "Consumer perceptions regarding substitutability in the Philippines distilled spirits market", by Euromonitor International, August 2010 (Exhibit EU-41, pag. 20). 63 Exhibit EU-33. Emphasis added. 64 The "Screwdriver" is a cocktail made with vodka and orange juice. 65 The "Bloody Mary" is a cocktail containing vodka, tomato juice, and usually other spices or flavourings. 66 See Exhibit EU-34. Among these world renowned cocktails: "White Russian", "Black Russian", "Caipirosca", "Cosmopolitan", "Long Island", "Sea Breeze", and "Sex on the Beach". 67 Exhibit EU-35. 68 Exhibit EU-36. See also Exhibit EU-35. 69 Exhibit EU-37. Tanduay rum is also advertised on television as being ideal for a "Mango Sling" cocktail. See television advertisement: http://www.youtube.com/watch?v=F_cYzC86384. Exhibit EU-38 (Video 1).

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(b) Consumers' tastes and habits 71.

Consumers' tastes and habits are in all evidence not affected by the raw materials used for the distillation of the spirits consumed.

72.

In the first place, both local and imported spirits can be purchased by the consumers in the same outlets: on-premises outlets (e.g. pubs, bars, restaurants) and off-premises outlets (e.g. supermarkets).

73.

In the second place, all these spirits (irrespective of the raw material used for their production) can be drunk at home, at friends' place, or in public places such as restaurants, bars, pubs, clubs, discotheques, etc. They can be consumed before, after or during meals70. There is no such case of, e.g., a vodka made from sugar cane being drunk only before meals and a vodka made from wheat or potatoes being drunk exclusively after meals.

74.

In the third place, the occasions in which spirits are consumed are largely the same. The Euromonitor Consumer Preference Survey fully confirms this71. In addition, company advertisements also reflect this, since many producers (Filipino and non-Filipino) present their products as "ideal" for some particular moments or circumstances. For example, Filipino consumers purchase an imported brandy made from the distillation of grapes for the very same occasions for which they purchase a brandy made from the distillation of sugar cane. If one looks at some commercials of both Filipino brandies (e.g. 'Emperador'72, 'Gran Matador'73) and of non-Filipino brandies (e.g. France's 'Hennessy'74, Greece's 'Metaxa'75) he/she would see that they are all advertised as spirits ideal to drink with friends or family to celebrate reunions, important events, birthdays, or successes in business etc.

70

See pag. 22 of the Euromonitor Consumer Preference Survey (Exhibit EU-41). Ibidem, pag. 21. 72 See for instance 2 advertisements of 'Emperador Brandy', available on the internet at the following addresses: http://www.youtube.com/watch?v=vjtwDDqSGhQ; and http://www.youtube.com/watch?v= gmRgY4o56-w. See also Exhibit EU-38 (Videos 2 and 3). 73 http://www.youtube.com/watch?v=GvYmgIec30Q. See also Exhibit EU-38 (Video 4). 74 See Exhibit EU-62. 75 See TV advertisement: http://www.youtube.com/watch?v=38E506AANe4. See also Exhibit EU-38 (Video 5). 71

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Philippines — Taxes on Distilled Spirits DS403

75.

First Written Submission of the European Union

Spirit producers, both local and non-local, also market their products as ideal for romantic moments: see e.g. commercials of Filipino brandies 'Barcelona'

76

and

'Gran Matador'77, and of France's brandy 'Courvoisier'78, Italy's brandy 'Stock 84'79, as well as Italy's 'Martini Bianco'80. Furthermore, spirit producers often present their products as ideal for gifts. See e.g. Scotland's whisky 'Johnny Walker'81 or Philippine's 'Napoleon VSOP Brandy'82 and 'Paradise Mango Rum'83. 76.

In the fourth place, as the recent Euromonitor Consumer Preference Survey shows, all these spirits are widely drunk by all categories of consumers, regardless of age, sex, occupation84. In fact, in its 2005 Annual Report, San Miguel emphasizes how its brand has become "attractive not only to traditional drinkers, but also to female and young professionals traversing age groups and social classes".85 Indeed, the same consumers often drink a variety of spirits, depending on the occasion and the circumstances. Again, San Miguel, in its 2005 and 2006 Annual Reports often refers to multi-beverages consumers, stressing how consumer preferences shift and evolve continuously86.

77.

An additional proof that customers are essentially the same comes from a comparison of the different advertising campaigns (both television and press) that are adopted by both Filipino and non-Filipino spirits producers. In fact, it can be observed that the groups of customers specifically targeted by spirits advertisings are broadly the same. For instance, all types of local spirits (e.g. brandy87, gin88,

76

http://www.youtube.com/watch?v=Rf_lvwUPkQc. See also Exhibit EU-38 (Video 6). http://www.youtube.com/watch?v=EXlX0FWMZSE; http://www.youtube.com/watch?v=nfldruIJAxk. See also Exhibit EU-38 (Videos 7 and 8). 78 http://www.youtube.com/watch?v=b1fsR3HIxZo. See also Exhibit EU-38 (Video 9). 79 http://www.youtube.com/watch?v=zNYuZ160lCw. See also Exhibit EU-38 (Video 10). 80 http://www.youtube.com/watch?v=NWWwznXGtJQ. See also Exhibit EU-38 (Video 11). 81 http://www.youtube.com/watch?v=g3W2QEkd5YI. See also Exhibit EU-38 (Video 12). 82 See Exhibit EU-39. 83 See Exhibit EU-40. 84 Exhibit EU-41 85 Pag. 34. Excerpts of the 2005 Annual Report are in Exhibit EU-42. 86 In its 2005 Annual Report, it wrote: "our growth would also depend on our ability to quickly diversify our product offering, penetrate new segments, and tap into the emerging market of the multi-beverage consumer" (Exhibit EU-42). In its 2006 Annual Report, it spoke of a "competitive marketplace characterized by shifting consumer preferences [and] multi-product consumption" and of "evolving consumer preferences" (Exhibit EU-43). 87 See television advertisements of 'Brandy Generoso': http://www.youtube.com/watch?v=NpJuOXmJxpo and of 'Brandy Gran Matador': http://www.youtube.com/watch?v=EXlX0FWMZSE. See also Exhibit EU38 (Videos 13 and 7). 77

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rum89, vodka90) run in the Philippines campaigns targeting in particular young people. It is not surprising that very similar advertisements are used worldwide for the same types of spirits (not made from the designated raw materials): e.g. brandy91, gin92, vodka93. All these commercials, in the Philippines as well as in other countries, show groups of happy young people, during parties or in bars or clubs, while dancing, laughing, enjoying friendship. 78.

In brief, advertisement of spirits (irrespective of the raw materials used for distillation) manifestly target the same group of customers, who drink these products in the same type of occasions and in the same manner.

(c) Product's properties and nature 79.

Importantly, the basic physical properties of all distilled spirits – irrespective of the raw materials used for distillation – are essentially the same. All spirits are concentrated forms of alcohol produced by the process of distillation. Together, ethyl alcohol (what is generally referred to as simply "alcohol") and water account for more than 99% of the volume of all distilled spirits.

80.

At the point of distillation, all spirits are nearly identical, which means that raw materials used in this process have almost no impact on the final product. In fact, in its Annual Report 2008, San Miguel's Chairman and President states the following:

88

See television advertisement of 'Ginebra San Miguel': http://www.youtube.com/watch?v=05FQ_--hFw8. See also Exhibit EU-38 (Video 14). 89 See television advertisement of 'Tanduay rum': http://www.youtube.com/watch?v=MLzoBVqpPZ4. See also Exhibit EU-38 (Video 15). 90 See the newspaper advertisement of 'Antonov Vodka' in Exhibit EU-44. 91 See television advertisements of brandy 'Courvoisier', of brandy 'Remy Martin'. (http://www.youtube.com/watch?v=aUd65gjOUBw), and of brandy 'Hennessy' (http://www.youtube.com/ watch ?v=aADXwW_2xWM). See them also in Exhibit EU-38 (Videos 9, 16 and 17). 92 See some television advertisements of 'Gordon's gin': http://www.youtube.com/watch?v=qqNbVFX4N7Y, and http://www.youtube.com/watch?v=BZjLB4721m8 See them also in Exhibit EU-38 (Videos 18 and 19). 93 See television advertisement of 'Absolut Vodka': http://www.youtube.com/watch?v=RKfFbWV0EMw. See also Exhibit EU-38 (Video 20).

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"The search for alternative raw materials and fuel to bring down the cost of alcohol production in light of increasing fuel and fuelrelated costs has made us look into possible options. We have begun rehabilitating our existing facilities and reconfiguring our operations. Our distillery in Bago, NegrosOccidental will have the flexibility to process agricultural raw materials other than molasses into alcohol."94

81.

If the raw materials used for distillation were able to significantly affect the taste, quality, characteristics and flavour of the spirits obtained from them, certainly the absolute leader among Filipino spirit producers would not even consider using alternative raw materials for its best-selling products.

82.

Post-distillation processes such as ageing, dilution with water and additional flavourings have a relatively more important bearing on the final product. And in fact Filipino manufacturers openly present their products as having been processed and/or having been flavoured in the same manner of the corresponding imported products. For example, local gin brands all highlight the presence of the essence of juniper berries, which is what traditionally gives gin its distinguishing flavour95. Furthermore, local vodka brands mention the process of charcoal filtration which is an essential step in the process of producing vodka96. Also local whiskies refer to malt even if they are distilled from sugar cane: on the label of 'St. George Premium Whisky' one reads "an imported blended whisky that captures the bold fusion of exquisite malt flavours"97. Similarly, the back label of 'Gran Matador' states: "Made with carefully selected Spanish brandy concentrate expertly blended according to the Gran Solera tradition"98. Again, on the back label of 'Mojitos Gold Tequila' one reads "specially blended from the finest ingredient from South America"99.

83.

In essence, what is important is that in the present dispute all products at issue are distilled spirits, with high alcoholic content, having similar colours, tastes and

94

Pag. 4. Emphasis added. Exhibit EU-45. See e.g. Exhibits EU-22 and EU-28. 96 See e.g. Exhibits EU-33 and EU-46. 97 Exhibit EU-47. 98 Exhibit EU-48. 99 Exhibit EU-49. 95

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smells, bottled (often in bottles of 0.75 lit.) and labelled essentially in the same manner100. 84.

To begin with, average alcohol content for both spirits from designated raw materials and spirits from other raw materials ranges from 25% to 40%. Furthermore, spirits of the same category and the same variety have the same alcohol content. For example, most of brandies of highest quality have the highest alcohol content (40%)101. Regardless of the materials used for distillation, there is no difference in alcohol content for vodka (either 25% or 40% degree), tequila (between 36% and 40%) or rum (depending on rum type, 40% or 16 to 20%).

85.

Regarding colour, one notes that all products of the same type and variety have the same or very similar colour. For example, Filipino brandies 'Gran Matador' and 'Generoso' have an old gold/golden mahogany colour as imported brandies 'Fundador' and 'Tres Cepas', while Filipino 'Emperador' has a deep rich gold colour as Spain's 'Alfonso I'. The same can be said about vodka, since – whatever the raw materials used fort distillation - all vodkas have a clear colour. This is the case also for gin: both imported and local gins have a clear colour102.

86.

Regarding smell, it can be pointed out that products of the same type have similar nose. In fact, domestic spirits (distilled from the designated raw materials) often use extracts to obtain a smell and taste similar to imported spirits (which were distilled from other raw materials). For example, both imported and domestic vodkas have a neutral nose, sometimes with a slight cent of ethanol (e.g. Filipino 'Cossak' and 'Antonov' vodkas, and Russian 'Smirnoff')103.

87.

With respect to taste, it can be stressed that spirits obtained from the designated raw materials obtain, often by employing extracts and flavouring, a similar taste to spirits manufactured from other raw materials. For instance, vodka (regardless of the raw material used for distillation) has predominantly a neutral and clean taste.

100

See Exhibits EU-55 and EU-79. E.g. Filipino 'Napoleon Quinte Anos Brandy' and Spain's 'Carlos I Solera Gran Reserva'. 102 See Exhibit EU-55. 103 See Exhibit EU-55. 101

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All gins, both domestic and imported, have a predominant flavour from juniper berries104. 88.

Furthermore, the physiological and psychological effects of spirits on human beings are essentially due to the presence of ethyl alcohol. These effects are determined by a number of factors: type and quantity of alcohol consumed; age, weight and gender of the consumer; body chemistry; food in the stomach; drinking experience; situation in which drinking occurs105. Yet, the raw material from which the spirit has been distilled does not have any influence in this regard. From this point of view, there is no material difference between drinking a glass of whisky of 40° made from sugar cane and drinking a glass of whisky of 40° made from grains.

89.

This is the reason why most countries worldwide have a variety of legislation which restricts e.g. consumption, manufacture, advertising, sale, possession of alcoholic beverages as well some activities which can (or cannot) be done after consumption (e.g. driving). As far as the European Union is aware, these regulations generally do not distinguish between spirits made from certain raw materials and similar spirits made from other raw materials.

90.

For instance, restrictions which concern the possibility of driving vehicles after having drunk are most of the times based on blood alcohol concentration ("BAC"). It is usually considered that individuals with a certain level of BAC have similar impairments of their abilities and senses, such as alertness, visual acuity, capacity to distinguish sensory signals etc. Clearly, it is totally irrelevant whether a given BAC was due to the consumption of alcohol obtained, e.g. from sugar cane or from wheat. As far as the European Union is aware, the Philippines are currently lacking a general law on drunk driving but there exist a number of city ordinances restricting and sanctioning drunk driving106. In addition, the Filipino Parliament is in the process of approving a bill penalising driving under the influence of alcohol and other intoxicating substances (House Bill 7083 or the "Driving Under the

104

See above para 82. See also Exhibit EU-55. Exhibit EU-50. 106 Exhibit EU-51. 105

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Influence of Alcohol (DUIA) Act of 2010")107. As the European Union understands it, neither this draft bill nor the existing city ordinances make any differentiation whatsoever on the raw materials used for the distillation of the alcohol assumed by the driver. The effects on the human body and behaviour are essentially the same and, consequently, the regulatory response as well. 91.

Similarly, local authorities often regulate sale and distribution of alcoholic beverages, but no difference is made between spirits made from certain raw materials and spirits produced from other raw materials. This is so including in the Philippines: see e.g. Ordinance no. 066 of 2007 of the City of Valenzuela, Metropolitan Manila108.

(d) Tariff classification 92.

All the products at issue, as indicated above, fall within heading 2208 of the HS, which refers to "undenatured ethyl alcohol of an alcoholic strength by volume of less than 80 % vol; spirits, liqueurs and other spirituous beverages".

93.

Heading 2208 is sub-divided into seven sub-headings: 2208.20 - Spirits obtained by distilling grape wine or grape marc 2208.30 - Whiskies 2208.40 - Rum and other spirits obtained by distilling fermented sugarcane products 2208.50 - Gin and Geneva 2208.60 - Vodka 2208.70 - Liqueurs and cordials 2208.90 - Other

94.

The HS therefore comprises all distilled spirits in the same heading and divides them into sub-groups according to the type of spirit. The raw material used for the production of the different types of spirits is mostly irrelevant. A whisky, a vodka, a gin/geneva and a rum fall always within a specific sub-heading, irrespectively of

107

Exhibit EU-52.

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whether they were produced with e.g. sugar cane, coconuts, grapes, wheat, potatoes etc109. Data provided by the Philippines during consultations and which concern exports of Filipino spirits fully confirm this: local spirits bear the same HS sub-heading of spirits imported into the Philippines, even if made from different raw materials110. 95.

In this context, it should be remembered that in Japan – Alcoholic Beverages II, the Appellate body has stressed the importance of HS headings to ascertain the likeness of products111. A uniform tariff classification of products can be relevant in determining what are "like products". If sufficiently detailed, tariff classification can be a helpful sign of product similarity. Tariff classification has been used as a criterion for determining "like products" in several previous adopted panel reports. For example, in the 1987 Japan - Alcohol Panel Report, the panel examined certain wines and alcoholic beverages on a "productby-product basis" by applying the criteria listed in the Working Party Report on Border Tax Adjustments, (…) Uniform classification in tariff nomenclatures based on the Harmonized System (the "HS") was recognized in GATT 1947 practice as providing a useful basis for confirming "likeness" in products.

96.

In fact, tariff classification has been considered as a criterion for determining likeness of products in several panel reports, both in the old GATT system112 and in the WTO system113.

(e) Conclusion

108

Exhibit EU-53. Arguably, only brandy could fall within 2 different sub-headings: 2208.20 if manufactured by distilling grapes and 2208.40 if produced by distilling sugar cane. In reality, even though distilled from sugar cane, Filipino brandies are exported under the same sub-heading of other brandies (i.e. brandies distilled from grapes). 110 Exhibit EU-54. 111 Appellate Body Report, Japan – Alcoholic Beverages II, pages 21-22. Footnotes in the original text omitted. 112 See GATT Panel report (adopted), Spain - Tariff Treatment Of Unroasted Coffee. 113 See Panel Reports in US - Gasoline, and in Mexico – Taxes on Soft Drinks. 109

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97.

First Written Submission of the European Union

In conclusion, it is manifest that spirits produced from the designated raw materials and spirits produced from other raw materials are "like" products. Should not all distilled spirits be "like" within the meaning of Article III:2, then it is submitted that at least all products falling within the same type so are: a vodka is like a vodka, a gin is like a gin, a whisky is like a whisky, a rum is like a rum, a brandy is like a brandy and so forth, regardless of whether they are produced from one or another raw material.

98.

Interestingly, in Japan – Alcohol II, the Panel found that two different types of alcoholic beverage (shochu and vodka) were "like" products pursuant to Article III:2, first sentence, given that: (a) they shared most physical characteristics, (b) their end-uses were virtually identical, and (c) the products fell within the same tariff classification (HS2208). This was so in spite of the fact that: (i) raw materials used were not entirely identical (but only similar), (ii) the production process was in part different (shochu is obtained by non-continuous distillation and cannot be charcoal filtered, unlike vodka), (iii) the alcoholic strength of the two beverages was not the same, and (iv) the products fell within different subheadings of the HS (2208.60 and 2208.90)114. A fortiori, a similar reasoning should, in the case at hand, lead to consider that products are "like" when belonging to the same type of spirit, being presented to the consumer as the same spirit, classified as the same spirit, the only difference between them being the raw material used for distillation.

99.

It can also be pointed out that the facts of the present case are to a certain extent similar to those examined by the WTO adjudicating bodies in the Mexico – Taxes on Soft Drinks case where Mexico applied dissimilar taxation to two materials (one domestically produced: cane sugar; and one imported: beet sugar) which were both used to manufacture the same products (soft drinks and syrups). The Panel, after reviewing the products' properties, nature and quality; their end-uses in a given market; consumers' tastes and habits; and the tariff classification of the

114

See Panel Report, paras. 6.23-6.24. Point confirmed on appeal by the Appellate Body.

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products, concluded that beet sugar and cane sugar were "like" products within the meaning of the first sentence of Article III:2115.

2.

100.

The taxes applied to the imported products are ‘in excess of’ those applied to the like domestic products

According to the Appellate Body in Japan – Alcoholic Beverages II, the prohibition of discriminatory taxes in GATT Article III:2, first sentence, is not conditional on a ‘trade effects test’ nor is it qualified by a de minimis standard. Indeed, under this provision, even the smallest amount of "excess" is too much116.

101.

In Argentina – Hides and Leather, the Panel further noted it is necessary to recall the purpose of Article III:2, first sentence, which is to ensure "equality of competitive conditions between imported and like domestic products". Accordingly, Article III:2, first sentence, is not concerned with taxes or charges as such or the policy purposes Members pursue with them, but with their economic impact on the competitive opportunities of imported and like domestic products. It follows, in our view, that what must be compared are the tax burdens imposed on the taxed products. We consider that Article III:2, first sentence, requires a comparison of actual tax burdens rather than merely of nominal tax burdens.117

102.

In the present case, the measures at dispute subject spirits distilled from nondesignated raw materials to a much higher internal tax then that applied to spirits produced from the designated raw materials. In addition, the Philippines excise tax regime establishes a taxation method for imported spirits (i.e. three-tier tax rates based on NRP) that is more burdensome than the taxation method for domestic spirits (i.e. a flat rate regardless of the NRP), and this despite of the fact that some domestic spirits have similar prices as some imported spirits. In fact, the threetiered taxation method of imported spirits requires the manufacturer or importer to provide detailed data regarding NRP, if in disagreement with the classification made by the BIR.

115

See Panel Report in Mexico – Taxes on Soft Drinks, paras. 8.26-8.36. Appellate Body, Japan – Alcoholic Beverages II, pag 23. 117 Panel Report, Argentina – Hides and Leather, paras 11.182-11.183. 116

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103.

First Written Submission of the European Union

The Excise Tax Regime in fact provides that the tax at issue is imposed in the following manner:

Spirits produced from designated raw materials

Flat rate

Spirits produced from other raw materials

According to the net retail price per bottle of 750 ml. volume capacity

104.

P 13,59 ppl Less than P 250

P 146,97 ppl

Between P 250 and P 675

P 293,93 ppl

More than P 675

P 587,87 ppl

The following chart shows visually the difference of the actual tax burden placed upon the different spirits marketed in the Philippines

600 spirits from designated raw materials

500 400

spirits from non-designated raw materials < Pesos 250

300

spirits from non-designated raw materials Pesos 250675

200 100

spirits from non-designated raw materials > Pesos 675

0 Pesos

105.

In the light of the above, it is useful to recall once again that the vast majority of imported products are subject to the higher tax rates whereas all (or most of)118 local products enjoy the lower tax rate119. It has just to be pointed out that the fact that few imported products (e.g. 'Bacardi') may also enjoy the lower tax rate does not exclude that the measures violate Article III:2. As the Panel in Argentina – Bovine Hides made it clear: "Article III:2, first sentence, is applicable to each individual import transaction."120 It is thus sufficient to establish a breach of that

118

The European Union is unaware of any locally manufactured spirit which is subject to the higher tariff rates. 119 See above paras. 36 seq. 120 Panel Report, Argentina – Hides and Leather, para 11.260.

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First Written Submission of the European Union

provision that some (or even one) imported product is taxed in excess of a like domestic product. 106.

In the present case, it must be therefore concluded that the taxes applied to (the vast majority of) imported spirits are ‘in excess of’ those applied to the like domestic products.

E. GATT Article III:2, second sentence 107.

Article III:2, second sentence, provides: Moreover, 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 forth in paragraph 1.

108.

Article III:1, in the relevant part, reads as follows: The contracting parties recognize that internal taxes … should not be applied to imported or domestic products so as to afford protection to domestic production

109.

The interpretative Note to Article III:2 states: A tax conforming to the requirements of the first sentence of paragraph 2 would be considered to be inconsistent with the provisions of the second sentence only in cases where competition was involved between, on the one hand, the taxed product and, on the other hand, a directly competitive or substitutable product which was not similarly taxed

110.

According to settled case-law121, a tax measure is contrary to Article III:2 second sentence when the following three conditions are met: (1) the imported products and the domestic products are ‘directly competitive or substitutable products’ which are in competition with each other; (2) the directly competitive or substitutable imported and domestic products are ‘not similarly taxed’; and (3) the dissimilar taxation of the directly competitive or substitutable imported products is ‘applied … so as to afford protection to domestic production’.

121

See e.g. Appellate Body Report, Canada — Periodicals, pag. 24-25; Appellate Body Report, Japan – Alcoholic Beverages II pag. 24.

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111.

The European Union will address each of these conditions below.

1.

112.

First Written Submission of the European Union

Imported products and domestic products are ‘directly competitive or substitutable products'

In Japan- Alcoholic Beverages II, the Appellate Body stated that a determination of whether two products are "competitive or substitutable" must be made on a case-by-case basis, and in the light of "all the relevant facts in that case"122.

113.

As a preliminary point, it should be recalled that the second sentence of Article III:2 is about imperfectly substitutable products, since perfectly substitutable products fall within the first sentence of the same provision123.

114.

Moreover, it is important to note that article III:2, second sentence, is concerned not only with differences in taxation between products which are actually competitive on a given market, but also with differences in taxation between products which are potentially competitive. Indeed, whereas consumer tastes and habits may differ from one market to another, tax measures should not be used to "freeze" consumers' preferences for domestic products. For this reason, evidence that two products are not competing in a market at a given point in time is irrelevant if the absence of actual competition is due, at least in part, to the tax measures in dispute124. In Korea — Alcoholic Beverages, the Appellate Body further elaborated on this principle, and stressed that competition in the market place is a dynamic, evolving process and thus the concept of “directly competitive or substitutable” cannot be limited to "situations where consumers already regard products as alternatives". The Appellate Body then goes on to state that "[i]f reliance could be placed only on current instances of substitution, the object and purpose of Article III:2 could be defeated by the protective taxation that the provision aims to prohibit". On this basis, the Appellate Body concluded that the

122

Appellate Body Report, Japan- Alcoholic Beverages II, pag. 25. Appellate Body Report, Korea – Alcoholic Beverages, para. 118. See also Appellate Body Report, Canada – Periodicals, pag. 28. 124 Panel Report, Japan- Alcoholic Beverages II, para 6.28. see also Appellate Body Report, Canada – Periodicals, pag. 28. 123

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term “directly competitive or substitutable” may include the analysis of latent as well as extant demand125. 115.

In Japan — Alcoholic Beverages II, the Appellate Body endorsed the Panel’s illustrative enumeration of the factors which could be considered in deciding whether products are “directly competitive or substitutable”: among others, the nature of the compared products, and the competitive conditions in the relevant market, in addition to their physical characteristics, common end-use, and tariff classifications. In Korea — Alcoholic Beverages, in order to assess whether there was a competitive or substitutable relationship between the imported and domestic products, the Appellate Body reviewed, inter alia, the physical characteristics, end-uses including advertising activities, channels of distribution, price relationships including cross-price elasticities of the products.

116.

In the following pages the European Union will address in turn each of these criteria. Before analysing them, the European Union wishes to recall that, on the basis of these criteria, the WTO adjudicatory bodies have in previous disputes found that: (i) schochu, whisky, brandy, rum, gin, and liqueurs are "directly competitive or substitutable products" (case Japan - Alcoholic Beverages II); (ii) soju (diluted and distilled), whisky, brandy, cognac, rum, gin, vodka, tequila, liqueurs and ad-mixtures are "directly competitive or substitutable products" (case Korea — Alcoholic Beverages); and (iii) pisco and distilled spirits falling within HS classification 2208 are "directly competitive or substitutable products" (case Chile- Alcoholic Beverages). Certainly, each case must be adjudicated on its own merits. However, the European Union believes that these findings may be of some guidance to the Panel insofar there may not be significant differences between the Filipino market and the markets of other countries (such as Japan, Korea, and Chile) where same/similar spirits are consumed.126

125

Appellate Body Report, Korea — Alcoholic Beverages, paras. 116-124. In fact, in Chile- Alcoholic Beverages the Panel – when dealing with this very issue - stated: "There have been two relatively recent disputes dealing with taxes on alcoholic beverages, Japan – Taxes on Alcoholic Beverages II and Korea – Taxes on Alcoholic Beverages. The findings in these two cases can offer, in our view, instructive guidance on the determination of the various questions at issue in this dispute. However, we are mindful of the statement of the Appellate Body in Japan – Taxes on Alcoholic Beverages II, that these disputes must be determined on a case-by-case basis taking into account the conditions prevailing in the particular market at issue" (para 7.17). 126

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117.

First Written Submission of the European Union

At the outset, the European Union would just like to point out that the Filipino producers themselves acknowledge that competition in the spirits market is intense not only within the various types of spirits, but also between different categories of spirits. For instance, in its 2005 Annual Report, San Miguel spoke of an emerging market of "multi-beverage consumer" and added: "In the past, we could easily distinguish the gin market from the brandy market. In a span of two years, consumer preference has immensely diversified. More and more consumers are reaching out for multiple types of alcoholic beverages".127

118.

In the following year, in its Annual Report, the same company referred once again to the evolving consumer preferences and to multi-product consumption, emphasizing that "competition within and among product categories further intensified".128

119.

Lastly, it seems almost unnecessary to add that the arguments and evidence illustrated above regarding likeness of the spirits129 are, a fortiori, valid to show that they are competitive or substitutable products.

(a) Physical characteristics 120.

As shown above, the basic physical properties of all distilled spirits – irrespective of the raw materials used for distillation – are essentially the same. All spirits are concentrated forms of alcohol produced by the process of distillation. At the point of distillation, all spirits are nearly identical, which means that raw materials used in this process have almost no impact of the final product.

121.

Notably, in Chile- Alcoholic Beverages the Panel regarded "the aspect of a product being a potable distilled spirit with a high alcohol content as an important defining characteristic". On the contrary, the Panel found that even "postdistillation differences due to filtration, colouring or aging process are not so

127

Exhibit EU-42. Exhibit EU-43. 129 Part IV.D.1 of this First Written Submission of the European Union. 128

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First Written Submission of the European Union

important as to render the products non-substitutable"130. Similarly, in KoreaAlcoholic Beverages, the Panel considered sufficient to note that all products at issue "ha[d] the essential feature of being distilled alcoholic beverages" and were "bottled and labelled in a similar manner". Conversely, the small differences in the filtration or aging process or in colour and flavouring were considered insufficient to render the products non competitive or substitutable131. 122.

Furthemore, as explained above, also in the present dispute, all products at issue are distilled spirits, with high alcoholic content, having similar colours, tastes and smells, and being bottled (often in bottles of 0.75 lit.) and labelled essentially in the same manner132.

(b) End uses and advertising 123.

In Japan- Alcoholic Beverages II, the Appellate Body agreed with the Panel in finding that the decisive criterion in order to determine whether two products are directly competitive or substitutable is whether they have common end-uses133. However, this commonality of end uses need not be perfect. As the Panel in ChileAlcoholic Beverages noted, "products do not have to be substitutable for all purpose at all times to be considered competitive. It is sufficient that there is a pattern that they may be substituted for some purposes at some times by some consumers"134.

124.

Moreover, current overlaps between different uses can be limited because of, e.g., protective tariffs or other trade barriers which make price of imported products significantly higher than local ones135. Thus, the Panel in Korea — Alcoholic Beverages, looked at common end uses in order to establish a competitive

130

Panel Report, Chile- Alcoholic Beverages, paras 7.53-7.54. Panel Report, Korea- Alcoholic Beverages, para 10.67. 132 See especially Exhibits EU-55 and EU-79. 133 Appellate Body Report, Japan- Alcoholic Beverages II, pag. 25. 134 Panel Report, Chile- Alcoholic Beverages, para 7.43. See also Panel Report (adopted) in Japan – Alcoholic Beverages I, para 5.7, in which the Panel found direct competition or substitutability among the liquors concerned "even if not necessarily in respect of all the economic uses to which the products may be put". 135 See Panel Report, Chile - Alcoholic Beverages, para 7.32. 131

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relationship between products either immediately or only in the "near and reasonably predictable future"136. 125.

We have noted above that all distilled spirits have essentially the same end uses. All of them are drunk in similar ways: "straight", "on the rocks", or diluted with other alcoholic drinks or, more frequently, with water or non-alcoholic drinks (e.g. juices, soft drinks). All of them are drunk with the same purpose: thirst quenching, socialization, relaxation, pleasant intoxication. All of them may be consumed before, after or during meals. All of them may be consumed at home or in public places (restaurants, bars, pubs, discotheques etc.). In the present case, therefore, commonality of end-uses between locally manufactured products and imported products is complete and actual.

126.

This is not all. The fact that spirits all compete with one another (irrespective of the raw material used for distillation) for the same uses appears in all evidence when one looks at the marketing strategies adopted by spirit producers. It can be recalled that, as the Panels in Korea — Alcoholic Beverages and Chile- Alcoholic Beverages stressed, marketing strategies are particularly useful in determining whether products are substitutable. Indeed, "marketing strategies that highlight fundamental product distinctions or, alternatively, underlying similarities may be useful tools for analysis"137.

127.

In the case at hand, it is particularly remarkable how Filipino manufacturers try and present their products as being similar or equivalent to, or even better than, competing imported spirits.

128.

The case of brandy is particularly striking. Local brandies are clearly portrayed as similar to either Spanish brandies or French brandies. By way of example, 'Gran Matador', 'Emperador', 'Barcelona'138, 'Generoso' not only all have a Spanish brand, but on their labels they also carry words and images which unmistakably

136

Panel Report, Korea — Alcoholic Beverages, para 10.78. Panel Report, Korea — Alcoholic Beverages , para 10.95, Panel Report, Chile- Alcoholic Beverages, para 7.45. 138 Until 2002, Tanduay's brandy 'Barcelona' was also (illegitimately) sold and advertised as "Brandy de España". However, following a "Cease and Desist Order" of the Filipino Department of Trade and Industry, the false claim was dropped. 137

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First Written Submission of the European Union

refer to Spain139. All these brandies indicate on their label "solera", which is a process for aging liquids typical of Spanish brandies (even though, as far as the European Union knows, this method is not used for all these brandies). Moreover, some of them ('Gran Matador', 'Emperador') have on the front label images of bullfighting, which is clearly not a tradition of the Philippines140. On the back label brandy 'Generoso' also refers to "Spanish traditions". Conversely, Filipino brandy 'Napoleon VSOP' is manifestly presented as similar to French brandies (cognac) and in particular (because of its name and the way it is advertised) to French cognac 'Courvoisier'141. Furthermore, on the label, one can read V.S.O.P which, according to the Bureau National Interprofessionnel du Cognac, stands for "Very Superior Old Pale" and, in the Cognac Appellation, is the ageing mention which indicates that the youngest eau-de-vie in the blend has aged at least for four years. 129.

In their attempt to compare local brandies with imported brandies, Filipino companies even advertise some of them (e.g. 'Barcelona', 'Gran Matador') in manners which tend to give the impression that they are produced from grapes142 (just like imported brandies), which is obviously not the case.

130.

As for whisky, it is evident that local products are being presented as comparable to famous scotch whiskies. Again, it is not only a question of brands (e.g. 'White Castle Calibre 69 Whisky', 'St. George Premium Whisky') but also of marketing and labelling. Take for instance 'White Castle Calibre 69 Whisky': the name (containing the number 69) and label (black, with a golden symbol above the name) are almost identical to 'VAT 69', a scotch whisky produced by William Sanderson143. The other variant of this brand sold by the same distillery ('White Castle 5 Years Old Whisky') is described on the web-site of the producer as "a premium yet competitively priced whisky, comparable in taste to many imported

139

See Exhibit EU-48. See also the comparison between the labels of 'Generoso' and 'Emperador' with Spain's 'Fundador' in Exhibit EU-79. 140 As San Miguel, producer of 'Gran Matador', acknowledges in its 2008 Annual Report. See Exhibit EU45. 141 See the striking similarities of commercial campaigns of both companies in Exhibit EU-56: both companies run campaigns with the same images of the famous French General "Napoleon Bonaparte". 142 See Exhibit EU-57. See also Exhibit EU-38 (Video 4). 143 Exhibit EU-58. See also the comparison between the labels of 'White Castle Calibre 69 Whisky' and of US' 'Jim Beam Bourbon Whisky in Exhibit EU-79.

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First Written Submission of the European Union

brands"144. But also 'St. George Premium Whisky' is openly compared to imported whiskies on the web-site of the producer: "GSMI's entrant to the local whisky market, is a high quality whisky product that approximates the taste, aroma, and alcohol kick of imported whiskies."145 131.

As for vodka, most of their names clearly refer to Russian (or north / easternEuropean) traditions: 'Antonov', 'Cossack', 'Toska'. Also the marketing strategies adopted by Filipino producers endeavour to present them in the same manner. San Miguel describes its 'Antonov' vodka as follows: "Vodka, a distinctly Russian drink embraced by people the world over because it can be mixed with virtually anything, is now made more affordable with Antonov Vodka"146. Tanduay, similarly, states on their web-site: "This vodka is treated through carbon and force-filtered in the true, Russian tradition to produce a premium, high quality vodka that captures the spirit of Russia"147. Also 'Toska Vodka' is openly compared to imported vodkas: "Toska Vodka is the most versatile cocktail base product in the Philippines, having the fine qualities of a good vodka: tasteless and odorless. Toska has a sophisticated packaging design coupled with premium quality which makes it comparable with other imported vodka brands in the market"148.

132.

Moreover, when looking at the bottle and label of 'Cossack Vodka', one cannot but notice the great similarities with some other vodkas produced elsewhere in the world (e.g. Polish 'Iganoff' vodka, Russian 'Smirnoff' vodka): same colours in the label (red and white), same images such as the double-headed eagle (originally symbol of the Czar, today symbol of Russia)149.

133.

With regard to gin, again it can be noted that most local brands bear obvious references to English places, with words such as London, Oxford, Britannia etc. In the label of Tanduay's 'London Dry Gin' one can also observe the image of the

144

Ibidem. Emphasis added. Exhibit EU-59. 146 Exhibit EU-33. 147 Exhibit EU-46. 148 Exhibit EU-60. 149 Exhibit EU-61. 145

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famous Westminster Palace (also known as the "Houses of Parliament") with its world-famous clock tower (also known as "Big Ben")150. 134.

Local rums too are presented to Filipino consumers as being "comparable to international brands", "competitively priced as compared to its imported counter part", "comparable to imported brands", "at par with the world’s best dark rum brands", or "at par with the world's best premium rums".151

135.

Also local tequilas are portrayed as being comparable to imported tequilas. On San Miguel's website, one reads: "Don Enrique Mixkila has 40% alcohol volume and is made with distilled spirits and choice imported essences of tequila. It offers the same premium quality and packaging as those of imported brands, but at a much lower price"152. On Limtuaco's web-site, it is stated: "El Hombre Silver offers luxurious taste and quality comparable to the world’s best silver tequilas at a very affordable price". Designs of both products very much resembles imported tequilas (yellow and gold label like e.g. Mexico's 'Jose Cuervo') and contain symbols usually associated with Mexico (e.g. Bolero or sombrero hat)153.

136.

Filipino producers also adopt advertising campaigns which imply that their products can compete on a worldwide basis, with regard to popularity or quality, with any other spirit. For example, Tanduay, the leader manufacturer of rum in the Philippines, with its "One World – One Spirit" campaign, advertises its rums and other spirits as world-class and stresses how they have received several international awards, as no other producer154. By the same token, Alliance Global presents its 'Emperador' brandy it as the "World's No. 1 Brandy"155. For its part, San Miguel advertises its 'Ginebra San Miguel' as the "world's largest selling gin"156.

150

Exhibit EU-46. Exhibit EU-29. 152 Exhibit EU-25. 153 Exhibit EU-63. See also labels comparison in Exhibit EU-79. 154 Exhibit EU-64. 155 Exhibit EU-65. 156 Exhibit EU-22. 151

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(c) Channels of distribution and sale 137.

An additional indication of substitutability between spirits from the designated raw materials and spirits from non designated raw materials is the fact that they uses the same channels of distribution and sale.

138.

With regard to distribution, one can observe that both domestic and imported spirits follow similar distribution networks.

139.

Domestic spirits are, from the manufacturing sites, delivered to area depots/warehouses throughout the country. From these depots/warehouses, owned and operated by the manufacturer/brand owner's, spirits are sold to the appointed regional distributors, which in turn handle booking and sales to wholesalers and retailers. Large customers, e.g. nation-wide retailers, are however often in direct contact

with

the

producers

and

receive

shipments

from

the

main

depots/warehouses. 140.

Non-Filipino spirits are usually imported by so-called 'in-market companies' (the "IMCs"). IMCs are owned by the producer or brand owner (or co-owned through a joint-venture) and are directly involved in the importation, distribution and marketing of the spirits brands they import. Once the IMCs have paid the required tax and duties, they store the spirits in their depots/warehouses. From the depots, spirits are sold to the appointed regional distributors, which in turn handle bookings and sales to both wholesalers and retailers. Also with imported spirits, large national retailers are often serviced directly by the IMCs, without passing via the regional distributors.

141.

As for the points of sale, we have above noted that all of them can be purchased by Filipino customers either in retail outlets or in on-premises outlets (e.g. pubs, bars, discotheques, restaurants etc.).

142.

Notably, in retails outlets, they share the same shelf areas, where imported and local products are presented side-to-side157. This shelving is clearly responsive to consumers' needs to make choices between competing and substitutable products.

157

See pictures takes in Manila outlets in Exhibit EU-66.

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First Written Submission of the European Union

This does not only happen in large supermarkets but also in smaller shops, where shelf space is more limited158. Also in the windows of the shops one can find e.g. a bottle of 'St. George's Whisky' (local), shown above cases of 'Fundador' brandy (imported) and of 'Tanduay's rum' (local), and next to stickers advertising 'Gilbey's gin' (local) and 'Bailey's Irish cream' (imported)159. 143.

Equally significant, on the shelves behind the bar of on-premises outlets in the Philippines, such as pubs and restaurants, one inevitably finds a mix of bottles of local brands and imported ones. So, bottles of e.g. 'Gran Matador' brandy, 'St. George Whisky', 'Antonov Vodka', 'Tanduay's rum' and 'GSM Blue' gin will be standing among other bottles of e.g. 'Tanqueray' gin, 'Stolichnaya' vodka, 'Malibu rum', 'Jack Daniels'' whisky, or 'Fundadior' brandy160. In the same manner, on menus and list of beverages of on-premises outlets imported spirits are offered alongside local ones161.

144.

Also beverages catering companies (often called "Mobile Bars") offer their customers both local and non local spirits. A brief look at the collection of photos they have posted on their web-sites suffices to see the concurrent use of all types of spirits, Filipino and non-Filipino162.

(d) Pricing policies 145.

In Japan- Taxes on Alcoholic Beverages II, the Appellate Body stated that the use of cross-price elasticity of demand is one among the criteria for determining direct competitiveness and substitutability, but should not be considered the decisive one163.

146.

Indeed, as the Panel in Chile- Alcoholic Beverages found

158

Exhibit EU-67. Exhibit EU-68. 160 Exhibit EU-69. 161 Exhibit EU-70. 162 See Exhibit EU-71. 163 Appellate Body Report, Japan- Taxes on Alcoholic Beverages II, pag. 25. 159

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"customs, traditions and consumer preferences embodied in brand loyalties could render demand less sensitive in the short run to changes in price and income than would otherwise be expected. It has been noted that alcoholic beverages are "experience goods" for which demand changes only slowly as consumers become gradually more familiar with new products."164

The Panel also found that "The level of the elasticity may be a function of actual retail price levels, which could be influenced by taxation and other factors such as past measures, including tariffs, as well as higher distribution costs and other factors resulting from lower volumes".165

147.

In Japan – Alcoholic Beverages I, the Panel also hold The Panel was of the view that the use of product and tax differentiations with the view of maintaining or promoting certain production and consumption patterns could easily distort pricecompetition among like or directly competitive products by creating price differences and price-related consumer preferences which would not exist in case of non-discriminatory internal taxation consistent with Article III:2.166

148.

As it has happened in other cases where the home market was largely shielded from imports167, also in the present case data on imports do not allow detailed calculations on actual cross-price elasticity ratios over the past years168. Yet, a comparison of the current prices of the spirits marketed in the Philippines is not only possible but also enlightening. This examination should be done, however, keeping in mind that the actual price of imported spirits is, in all evidence, significantly influenced by the very measures at dispute: for spirits whose NRP is below Pesos 250, as well as for those whose NRP is between Pesos 250 and 675, the excise tax may account for as high as 50% of the final resale price. This means that if they were taxed at the same level of domestic products their final resale prices could diminish of as much as 40%169.

164

Panel Report, Chile- Alcoholic Beverages, para. 7.72. Ibidem, para. 7.78. 166 Panel Report (adopted), Japan – Alcoholic Beverages I, para. 5.13. 167 See Panel Report, Korea – Alcoholic Beverages, para. 10.87. 168 See however the very interesting study made by Euromonitor International (Exhibit EU-41, pages 30 seq). 169 If 'Fundador' were taxed at the domestic rate the price could fall to P. 205.83, that is a 40.5% reduction See estimation in Exhibit EU-72. 165

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Philippines — Taxes on Distilled Spirits DS403

149.

First Written Submission of the European Union

Furthermore, there are several other elements which negatively affect the market price of imported spirits: among others, custom duties, costs of transport (and related insurance), higher distribution costs due to lack of economies of scale170.

150.

Moreover, one should also bear in mind that the measures at issue seem to have also a perverse effect in that they also impact the valued added tax ("VAT") applicable upon imported spirits in the Philippines. In fact, as the European Union understands it, the taxable basis for VAT (Section 107 of the National Internal Revenue Code) is the “total landed cost”: i.e. the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties and excise taxes171.

151.

In the light of the above, it is not surprising that if one looks at the prices generally applied by both off-premises outlets and in-premises outlets, he/she can observe that often imported spirits are somewhat more expensive than local ones. Yet, this difference of price is not always there, being sometimes minimal or inexistent. In reality, in the Philippines there exist no real gap in the price line of products: there is only a continuum of prices from very cheap brands to very expensive ones. Many local products tend to be on the lower part of this priceline, and many imported product tend to be on the upper part.

152.

However, there are several and important overlaps. Indeed, some Filipino brands are sold at higher prices than some imported brands. Even more so since, especially in recent years, local producers have developed a number of premium brands so to compete more effectively with imported ones for the relatively more expensive segments of the spirits markets. For instance, in the 2006 Annual Report, San Miguel explains the aim pursued with introduction in the market of the premium variant of its brandy ('Gran Matador Solera Gran Reserva') in the following manner: "to compete with imported brands and grab a bigger share of

170

For instance, in its 2006 Annual Report, San Miguel emphasizes the gains that a company can realise on distribution and operating efficiencies thanks to economies of scale (see Exhibit EU-43). 171 Section 107 of the National Internal Revenue Code (Value-Added Tax on Importation of Goods), as amended, provides the following: "(a) In General. There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%) [12% from 2006] based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from

47

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the growing brandy market"172. The same company has, in 2004-2005, also introduced, its 'Ginebra San Miguel Premium Gin' so as to "position [it] as a drink of choice for discriminating gin drinkers"173. For its part, Limtuaco describes its top-of-the line rum ('Old Captain 12 Years Old Superior Rum') as: "The only rum of its kind in the Philippines. At par with the world's best premium rums. Produced using the latest international technologies and married with the age old traditions of producing the finest rums in the world. Patiently and expertly aged in oak barrels, vatted and bottled to strength. Limited production makes it a very exclusive and valued product,"174

153.

Mutatis mutandis, the situation appears similar to that examined by the Panel in the Korea – Alcoholic Beverages dispute, where the Panel considered relevant the fact that Korean companies "met the potential threat of imports of western-style beverages by creating and selling premium diluted soju"175.

154.

In fact, several visits by officials of the European Commission in shops in the Philippines (between fall 2009 and spring 2010) revealed that local brands and imported brands in many instances do compete on prices in off-premises outlets. For instance, in a Manila shop one could find the (local) 'Tanduay Centennial Dark Rhum' (packaged in an elegant case) at a price of P. 3,980 whereas in the same shop one could buy an (imported) 'Tequila Jose Cuervo' at the much lower price of P. 1,000176. Similarly, in another shop in Manila imported brandies such as 'Fundador', 'Alfonso I' or 'Tres Cepas' were sold at prices between P 200 and 300, with local brandies (e.g. 'Napoleon') sold at comparable prices (according to the bottle, the price varied between P. 168.55 and P. 247.20)177. This price relationship appears confirmed by the data on pricing contained in the ISWR 2010 market survey: cf. prices of domestic 'Napoleon VSOP' and 'Amoroso' (respectively, P. 222.50 and 280, for a 70 cl. bottle in May 2007) with those of imported 'Tres

customs custody: Provided, That the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any (…)". 172 Exhibit EU-43. pag. 9. 173 Annual Report 2005, pag 12. see Exhibit EU-26. 174 See Exhibit EU-29. 175 Panel Report, Korea – Alcoholic Beverages, para 10.79. 176 Exhibit EU-73. 177 Exhibit EU-67.

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Cepas' and 'Rango VII' (respectively, P. 226.50 and 296.50, for a 70 cl. bottle in May 2007)178. 155.

If one looks at beverages lists of bars, restaurants, pubs, etc. he/she would find again that imported spirits are listed among and alongside local ones. In addition, one can observe that prices of some imported products do not differ much from those of local products. For instance in the beverages list of "Anthology Bar" two rums are available: imported 'Malibu' and local 'Tanduay 5 years'. The price difference between the two is roughly 10% (P. 105 the former, P. 95 the latter). In the beverages list of "Jack's", some local spirits ('Tanduay dark', 'Gilbey's gin') are priced at P. 138 whereas imported sprits can be slightly cheaper (e.g. 'Chivas Regal' whisky at P. 136), have the same price (e.g. 'Fundador' brandy) or be only to some extent more expensive (e.g. 'Carlos I' brandy at P. 175)179.

156.

Furthermore, on the basis of the prices indicated above, one can observe that price differences between different kinds of local brands (e.g. between Tanduay's cheapest rum and its most expensive one) are much more significant than price differences between some local brands and some imported ones of the same spirit (e.g. rum) or of different spirits (e.g. brandy or whisky). It should be noted that this element was considered relevant by the Panel in its analysis in the Chile Alcoholic Beverages case, where it noted that "differences in prices between different varieties of pisco can be as large as differences between prices of a particular variety of pisco and, say, whisky"180.

157.

Therefore, although local brands tend to be sometimes cheaper and imported brands to be often more expensive, this is not always the case. Both in supermarkets and in bars one finds that several imported brands and local brands have comparable prices. Competition between different spirits brands in the Philippines therefore does occur also on pricing, and this is true both among the different brands of the same type of spirit (e.g. 'Tanduay rum' versus 'Malibu rum') and among brands of different types of spirit (e.g. 'Tanduay centennial rum' versus 'Hennessy VSOP' brandy). This competition based on price is overtly recognised

178

Exhibit EU-15, pages 63-65. Exhibit EU-70. 180 Panel Report, Chile - Alcoholic Beverages, para. 7.74. 179

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First Written Submission of the European Union

even by local producers which describe their products as, e.g., "competitively priced as compared to its imported counter part."181

2. 158.

Spirits are ‘not similarly taxed’

As the Appellate Body has confirmed in Japan – Taxes on Alcoholic Beverages II, two competitive and substitutable products must be considered as "not being similarly taxed" whenever the difference in taxation between them is more than de minimis. According to the same report, whether any particular tax differential is or not de minimis must be determined on a case-by-case basis182.

159.

As mentioned above, in the Philippines, spirits produced from non-designated raw materials are subject to a tax which may, according to the price band in which they fall, be 10.8 times higher, 21.62 times higher or 43.23 times higher, than that applied to spirits produced from designated raw materials.

160.

Spirits produced from non-designated raw materials are therefore subject to a tax which is, according to the price band in which they fall, a tax 10.8 times higher, 21.63 times higher or 43.26 times higher, than that applied to like products. Notably, this tax differential has also increased in the last years. In fact, between 1988 and 2011 the tax rate applied to spirits produced from designated raw materials grew of 84% whereas that applied spirits produced from non-designated raw materials grew of 112%.

161.

The following table illustrates the actual tax discrimination index, taking as a basis (100) the flat tax rate for spirits produced from designated raw materials. Current Tax Rate

Tax discrimination index

Spirits produced from designated raw materials

P 13,59

100

Spirits produced from other raw materials < P 250

P 146,97

1081

181

Inferno Flaming Rum, produced by Limtuaco. Exhibit EU-29. Appellate Body Report, Japan – Taxes on Alcoholic Beverages II, pag. 29. See also Appellate Body Report, Chile – Alcoholic Beverages, para. 48. 182

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Philippines — Taxes on Distilled Spirits DS403

Spirits produced from other raw materials between P 250 and P 675 Spirits produced from other raw materials > P 675

162.

First Written Submission of the European Union

P 293,93

2163

P 587,87

4326

These differences of tax rates are extremely significant. Or, paraphrasing what the Appellate Body found in Canada – Periodicals, we could say that the magnitude of the dissimilar taxation in the present case is "beyond excessive, indeed it is prohibitive".183

163.

A brief comparison with previous disputes can be a good illustration of this. For instance, in the case Korea - Alcoholic Beverages, tax rates which were only 2.36 time and 3.38 times higher than those applied to imported spirits were considered by the Panel as being "clearly in excess of de minims levels"184. Equally, in Chile – Alcoholic Beverages, tax differential substantially lower than the ones of the present case were also considered to be "more than de minimis"185. In JapanAlcholic Beverages II the tax system found in breach of Article III:2 had different discriminatory tax rates, and the most discriminatory one (that on Whisky and Brandy) had a tax discrimination index of only 962, whereas in the present case the least discriminatory tax rate has an index of 1,081186.

164.

In order to have a better understanding on how these tax differentials can impact the final price of products, one would only have to think that, as a minimum, a 750 cl bottle of a spirit produced from non designated raw materials is applied a tax of P. 146.7, whereas some competing local spirits (bearing a tax of only P. 13.59) may cost, in retail outlets, as little as P. 60187. Thus, the mere cost of the tax on a bottle of an imported spirit may be almost the triple of the overall final cost of a bottle of local spirit. This, of course, when the tax on imports is applied at the lowest rate, since when it is applied at the higher rates of P. 293.93 and P. 587.87 the negative consequences on the final price of imported spirits are clearly further amplified.

183

Appellate Body Report, Canada – Periodicals, pag. 30. Panel Report, Korea - Alcoholic Beverages, para. 10.100. 185 Panel Report, Chile – Alcoholic Beverages, paras 7.96, 7.110, 7.111. 186 Panel Report, Japan - Alcoholic Beverages II , para 6.24. 187 See pictures in Exhibit EU-67. 184

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Philippines — Taxes on Distilled Spirits DS403

165.

First Written Submission of the European Union

It is therefore not surprising, that imported spirits (although holding a market share below 3%) contribute to the Filipino tax revenues, in proportion, largely more than local spirits. In particular, it was estimated that in year 2006 they contributed over 36% of all tax revenue raised from spirits188.

3.

166.

Taxation is applied so as to afford protection to domestic production

In Japan - Taxes on Alcoholic Beverages II, the Appellate Body laid down the following approach for establishing whether dissimilar taxation of directly competitive or substitutable products is applied "so as to afford protection to domestic production": we believe that an examination in any case of whether dissimilar taxation has been applied so as to afford protection requires a comprehensive and objective analysis of the structure and application of the measure in question on domestic as compared to imported products. We believe it is possible to examine objectively the underlying criteria used in a particular tax measure, its structure, and its overall application to ascertain whether it is applied in a way that affords protection to domestic products. Although it is true that the aim of a measure may not be easily ascertained, nevertheless its protective application can most often be discerned from the design, the architecture, and the revealing structure of a measure. The very magnitude of the dissimilar taxation in a particular case may be evidence of such a protective application, as the Panel rightly concluded in this case. Most often, there will be other factors to be considered as well. In conducting this inquiry, panels should give full consideration to all the relevant facts and all the relevant circumstances in any given case.189

167.

In the present case, the following facts and circumstances regarding the "structure of the measures", their "overall application on domestic as compared to imported products", as well as the aim of the measures, constitute irrefutable evidence that the Excise Tax Regime is applied "so as to afford protection" to Filipino spirits producers:

188

Estimation made by the International Wine and Spirits Association (the "IWSA") on the basis of the data obtained by the Filipino Bureau of Internal Revenue (the "BIR") and International Monetary Fund (the "IMF").

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- the very magnitude of the tax differentials; - the lack of rationality of the product differentiation; - the fact that most (if not all) domestic product benefit of the lower (flat) rate whereas the vast majority of imported products are applied the three higher tax rates; - the awareness among Filipino authorities of the WTO incompatibility of the measurse at dispute, and the strong resistance faced by draft reform laws; - the existence of legislation distinguishing between "domestic products" and "imported products".

(a) The magnitude of the tax differentials 168.

In Japan- Taxes on Alcoholic Beverages II, the Appellate Body found that the very magnitude of the difference in taxation between shochu and other distilled spirits was sufficient evidence to conclude that the Japanese Liquor Tax Law was applied so as to afford protection to the domestic production of shochu190. Likewise, the Panel in Chile- Alcoholic Beverages found that the large magnitude of the differentials over a short range of physical differences constituted evidence of the protectionist character of the measures at dispute191. Again, the Panel in Korea Alcoholic Beverages concluded that also in that case the Korean Tax Law had such large differences in levels of taxation to support the same finding192.

169.

The situation is similar, if not even more evident, in the present dispute. In fact, the tax differentials are so large that they constitute clear evidence that the measures at dispute are applied so as to afford protection to the domestic producers.

170.

Once again, it must be stressed that the tax differentials whose magnitude was found, by the WTO adjudicatory bodies, to constitute evidence of the protectionist nature of the measures at dispute in the three cases just mentioned, were, in each

189

Appellate Body Report, Japan- Taxes on Alcoholic Beverages II, pag. 29. See also See also Appellate Body Report, Chile – Alcoholic Beverages, para. 61. 190 Ibidem, pag. 29. 191 Panel Report, Chile- Alcoholic Beverages, para. 7.159. 192 Panel Report, Korea - Alcoholic Beverages, para 10.101.

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of them, lower (and sometimes much lower) than the differentials which are contained in the Filipino Excise Tax Regime.

(b) The lack of rationality of the product differentiation 171.

An additional proof of the fact that the measures at dispute are applied so as to afford protection to the domestic producers lies in the fact that the Filipino Excise Tax Regime distinguishes arbitrarily between spirits produced from the designated raw materials and spirits produced from other raw materials.

172.

No objective reason of this differentiation was ever provided by the Filipino authority. Further, no apparent reason can be discerned from the design and architecture of the measures. There appear to be no rationality or logic in the measures if one excludes the most obvious one: helping local spirits producers. Indeed, all designated raw materials are indigenous to the Philippines193. Therefore, local distillers can buy locally the raw materials used for distillation and manufacture products which would be taxed less than most of the products manufactured elsewhere and subsequently shipped to the Philippines.

173.

The measures are thus conceived to (or at very least it has the clear, inevitable and direct consequence of) benefit(ing) local spirits producers, giving them a significant tax advantage over their foreign competitors.

(c) Domestic vs imported spirits 174.

As mentioned already several times, the most manifest piece of evidence of the protectionist aim and/or effect of the measures at issue is the fact that all spirits produced in the Philippines are subject to the lower tax rate (being produced from the designated raw materials) whereas, the vast majority of imported spirits (being produced from other raw materials) are subject to the higher tax rates.

175.

Notably, in Korea – Alcoholic Beverages, the Appellate Body found that the fact that the tax at dispute operated in such a way that the lower tax brackets covered

193

See above para. 15.

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almost exclusively domestic products whereas the higher tax brackets embraced almost exclusively imported products was supporting the conclusion that the measure was applied as to afford protection to domestic production194. 176.

The protectionist application of the measures at issue is further evidenced by the fact that, in some cases (e.g. 'Malibu' rum195) even imported spirits produced from the designated raw materials are applied the higher tax rates instead of the lower rate, which they are in principle entitled to. This is another clear proof of the fact that the measures at dispute are applied so as to afford protection to domestic producers.

177.

In fact, the EU is only aware of one brand of imported spirits that has been classified as eligible for the lowest tax rate: 'Bacardi rum'. In any case, even if some imported spirits are also applied the lower tax rate, and/or that some local products may eventually be applied the higher tax rates (the European Union is not aware of any such case), this does not change this conclusion. In Canada – Periodicals, the Appellate Body held that "dissimilar taxation of even some imported products as compared to directly competitive or substitutable domestic products is inconsistent with the provisions of the second sentence of Article III:2"196. Similarly, in Chile – Alcoholic Beverages, the Panel emphasized: "it does not save a measure from running afoul of Article III:2, second sentence, merely because there are domestic products taxed at the same level as the imported products"197.

194

Appellate Body Report, Korea – Alcoholic Beverages, para 150. See also the Panel Report in the same case, para. 10.102. 195 'Malibu rum' is a white rum made in Barbados with natural coconut extract. The alcohol content by volume is 21.0% alcoholic proof. 'Malibu Caribbean White Rum with Coco' and 'Malibu Rum' are classified as imported distilled spirits under Revenue Regulation No. 23-2003, whose recommended excise tax rate is of P. 336 and 168 ppl respectively. It is also worth noting that other rums produced outside the Philippines are also classified as "imported" and thuis applied the higher taxe rates: e.g. 'Havana Club Anejo Reserva', with a recommended excise tax rate of P. 168 ppl, 'Lemon Hart Jamaica Rhum' and 'Lemon Hart White Rhum', with a recommended tax rate of P. 84 ppl and 'Myers Rum' and 'Myers Rum Planters Punch', with recommended excise tax rate of P. 336 ppl and 164 ppl respectively. 196 Appellate Body Report, Canada – Periodicals, pag. 29. 197 Panel Report, Chile – Alcoholic Beverages, para 7.158. See also case-law cited in footnote 438 of the Report.

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(d) The awareness among Filipino authorities of the WTO incompatibility of the measures at dispute, and the strong resistance faced by draft reform laws 178.

In Chile – Alcoholic Beverages, the Panel considered that the "stated objectives by the government of the Member concerned may be relevant in evaluating the design of a measure"198.

179.

In the present case, many official statements evidence that the Filipino government and Members of the Filipino Parliament are fully aware of the WTO incompatibility of the measures at dispute or, at the very least, that the effect of these measures was to discriminate against imported spirits. Even more: the recent increases in the tax rates pursued the very aim of aggravating the existing discrimination against imported spirits, in order to help local industry.

180.

In the first place, the transcripts of the Senate deliberations on Senate Bill 1854 (which later became RA 9334, the 'Sin Tax Law') reveal that the legislative intent underlying the tax provisions of this act were to increase the differentials between the various tax rates, so as to protect domestic spirit producers. Indeed, in its declarations during the Senate session, Sen. Ralph G. Recto (who sponsored the bill) openly acknowledged that (i) all local spirits, being produced from designated raw materials (in particular, sugar cane), would enjoy the lowest tax rate, (ii) imported spirits would be subject to "a much higher tax rate and a much higher incremental tax rate", and (iii) the aim of the bill was, "in the interest of the nation, [to] protect [Filipino] local manufacturers"199.

181.

More recently, Filipino authorities again recognised, in a number of occasions, the problematic legal issues arising from the Excise Tax Regime currently in place. For instance, in a letter addressed to the Spanish Ambassador in the Philippines, the Department of Finance of the Filipino Government (the "DOF") in December 2007, wrote:

198 199

Panel Report, Chile – Alcoholic Beverages, para. 7.118. Exhibit EU-74.

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"We regret that we were unsuccessful in the past to get Congress' approval of our proposed rationalization of the taxation of distilled spirits. We have made our legislators aware of the need to reform the tax structure for distilled spirits to make it consistent with our commitment under the WTO agreement".200

182.

Again, in a letter dated 2 March 2009, the DOF writes to the 'Consejo Regulator del Brandy de Jerez': "The DOF has long recognised the fact that by operation of the law, imported distilled spirits made out of raw materials other than indigenous are disadvantaged and had wanted to address the matter by proposing a single tax structure for all distilled spirits regardless of the raw material (…)"201

183.

On 11 May 2009, the DTI wrote to the Chairman of the Committee on Ways and Means of the Filipino House of Representatives: "The Department fully supports amendments to RA 9334 on the Excise Tax Law on Alcohol and Tobacco Products to conform with the General Agreement on Tariffs and Trade (GATT) 1994 of the World Trade Organization (WTO) of which the Philippines is a signatory. RA 9334 is inconsistent with GATT 1994 as it gives preferential treatment to domestic alcohol products produced from indigenous or locally sourced raw materials".202

184.

The DTI then goes on to explain the reasons of the government support for the amendment, indicating again the "patent inconsistencies of [the] present tax structure" as well as the "manifest violation of the national treatment principle". Incidentally, this letter is also particularly revealing of the aim of the present tax structure. In fact, in the letter, the DTI also wishes to re-assure the Chairman of the Committee that "[s]ince imported alcohol products are more expensive on a per litre basis than domestic alcohol products, then the tax incidence on the former will naturally be higher".203

185.

The aim of the measures at dispute was also openly admitted by the Senate President Mr Enrile in the hearing of 15 September 2009 before the Committee on Ways and Means of the House of Representatives where he stated that he believed

200

Exhibit EU-75.Emphasis added. Exhibit EU-76.Emphasis added. 202 Exhibit EU-11. Emphasis added. 203 Ibidem. 201

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Philippines — Taxes on Distilled Spirits DS403

First Written Submission of the European Union

that the "purpose of the low rate for alcohol produced from sugar cane [and other designated raw materials] is to protect the domestic people"204.

(e) Legislation distinguishing between "domestic products" and "imported products". 186.

Whereas the Filipino legislation at dispute normally distinguishes between spirits produced from the designated raw materials and spirits produced from other raw materials, there is also one piece of legislation which makes a distinction between "imported distilled spirits" and "domestic distilled spirits". In fact, Revenue Regulation 2-97, setting out the classification of existing brands of spirits into the appropriate tier, based on their average net retail price as of 1 October 1996, in Table A-1, indicating the brands which are to be classified within the lowest tax band is entitled: "Local Distilled Spirits Brands Produced From Sap of Nipa, Coconut etc. covered by Section 138(b)"205

187.

In the European Union's view, this sort of "slip of the pen" of the Filipino legislator is very revealing of the aim of the measures at dispute.

188.

The distinction that the Filipino Law meant to establish was between local producers (favoured by a flat and low tax rate) and foreign producers (applied substantially higher tax rates). The distinction between indigenous raw materials and other raw materials is merely an instrument to reach that aim. Thus, far from being only applied so as to afford protection to domestic products, the measures at dispute were also conceived for this very purpose.

189.

The European Union is aware that this element of intent need not be ascertained by the Panel, being unnecessary for a finding that the measures violate Article III:2 second sentence of the GATT. Yet, the European Union believes that it constitutes additional and irrefutable evidence that the Excise Tax Regime is applied so as to afford protection to domestic production.

204 205

Exhibit EU-77. Emphasis added. Exhibit EU-4. Emphasis added.

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Philippines — Taxes on Distilled Spirits DS403

V.

NULLIFICATION AND IMPAIRMENT

190.

Article 3.8 DSU provides that

First Written Submission of the European Union

In cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment. This means that there is normally a presumption that a breach of the rules has an adverse impact on other Members parties to that covered agreement, and in such cases, it shall be up to the Member against whom the complaint has been brought to rebut the charge.

191.

The European Union is the leading exporter worldwide of spirits, with an annual value of exports to third countries of over EUR 5 billion. In the Philippines alone, imports from the European Union amount currently to ca. EUR 18 million per year. Before the Republic Act 9334 was introduced, augmenting the tax rates for imported spirits, imports from the European Union amounted, on a yearly basis, to somewhere 30 and 50 million EUR206. Thus, the measures at dispute have had, and still have, severe adverse consequences on imports of spirits in the Philippines from the European Union.

VI.

CONCLUSION

192.

On the basis of the arguments and evidence illustrated above, and without prejudice to its right to submit further arguments, the European Union respectfully requests the Panel: - to find that, by applying lower taxes to distilled spirits "produced from the sap of nipa, coconut, cassava, camote, or buri palm or from the juice, syrup or sugar of the cane, provided such materials are produced commercially in the country where they are processed into distilled spirits", the Philippines have acted inconsistently with its obligations under Article III:2 first and second sentence, of the GATT 1994, thereby nullifying and impairing the benefits accrued to the European Union under that Agreement; and

206

Source of the data: Eurostat. Exhibit EU-78.

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Philippines — Taxes on Distilled Spirits DS403

First Written Submission of the European Union

- to recommend the Philippines adopt the necessary measures to bring the Excise Tax Regime into conformity with its obligations under the GATT 1994.

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Philippines — Taxes on Distilled Spirits DS403

First Written Submission of the European Union

LIST OF EXHIBITS EU-1

Section 141 of the National Internal Revenue Code of 1997, Republic Act No. 8424, an Act amending the National Internal Revenue Code as amended and for other purposes, Official Gazette 1 June 1998

EU-2

Section 1 of Republic Act No. 9334, an Act increasing the excise tax rates imposed on alcohol and tobacco products, amending for the purpose Sections 131, 141, 142, 143, 144, 145 and 288 of the National Internal Revenue Code of 1997, as amended

EU-3

Section 1 of Republic Act No. 8240, an Act amending Sections 138, 139, 140 and 142 of the National Internal Revenue Code, as amended, and for other purposes

EU-4

Sections 3.I, 4 and 5 of Revenue Regulations No. 02-97 Governing Excise Taxation on Distilled Spirits, Wines and Fermented Liquors

EU-5

Section 1 of Revenue Regulations No. 17-99, Implementing Sections 141, 142, 143 and 145(A) and (C) (1),( 2), (3) and (4) of the National Internal Revenue Code of 1997 relative to the Increase or the Excise Tax on Distilled Spirits, Wines, Fermented Liquors and Cigars and Cigarettes Packed by Machine by Twelve Per Cent (12%) on 1 January 2000

EU-6

Section 3 of Revenue Regulations No. 9-2003 Amending Certain Provisions of Revenue Regulations No. 1-97 and Revenue Regulations No. 2-97 Relative to the Excise Taxation of Alcohol Products, Cigars and Cigarettes for the Purpose of Prescribing the Rules and Procedures To Be Observed in the Establishment of the Current Net Retail Price of New Brands and Variants of New Brands of Alcohol and Tobacco Products

EU-7

Section 2 of Revenue Regulations No. 23-2003 Implementing the Revised Tax Classification of New Brands of Alcohol Products and Variants Thereof Based on the Current Net Retail Prices Thereof as Determined in the Survey Conducted Pursuant to Revenue Regulations No. 9-2003

EU-8

Section 2 A, B and C(2)(a) of Revenue Regulations No. 12-2004 Providing for the Revised Tax Rates on Alcohol and Tobacco Products introduced on or before 31 December 1996, and for those Alcohol and Tobacco Products Covered by Revenue Regulations No. 22-2003 and 23-2003, Implementing Act No. 9334; otherwise known as ''An Act Increasing the Excise Tax Rates Imposed on Alcohol and Tobacco Products, Amending for the Purpose Sections 131, 141, 142, 143, 144, 145, and 288 of the National Internal Revenue Code of 1997, as Amended

EU-9

Sections 1 to 9 of Revenue Regulations No. 3-2006 Prescribing the Implementing Guidelines on the Revised Tax Rates on Alcohol and Tobacco Products Pursuant to the Provisions of Republic Act No. 9334, and Clarifying Certain Provisions of Existing Revenue Regulations Relative Thereto

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First Written Submission of the European Union

EU-10

Excerpts from "Selected Statistics on Agriculture 2008", pubklished by the Filipino Bureau of Agricultural Statistics (BAS); and two print-outs from the web-site of Wikipedia on "Nipa" and "Buri Palm"

EU-11

Letter of the Filipino Department of Trade and Industry to the Chairman of the Committee of Ways and Means recommending adoption of House Bill No. 6079

EU-12

House Bill No. 6079

EU-13

Senate S. No. 3190

EU-14

Two press articles on the so-called "Sin Tax Law"

EU-15

Excerpts from the 2010 Report on the Philippines published by the International Wine and Spirit Record (ISWR)

EU-16

Press article on smuggling of alcohol in the Philippines

EU-17

Print-outs from San Miguel Corporation's web-site ('our company', 'financial performance' and 'investor relations')

EU-18

Print-out from Alliance Global Group's web-site ('Welcome to Alliance Global Group, Inc.')

EU-19

Excerpts from Alliance Global Group's Annual Report for FY2007

EU-20

Excerpts from Alliance Global Group, Inc.'s Annual Report for FY2007

EU-21

Print-out from Destileria Limtuaco's web-site ('Welcome to Destileria Limtuaco')

EU-22

Print-out from Ginebra San Miguel's web-site ('Ginebra San Miguel')

EU-23

Print-out from Tanduay Distillers' web-site ('International distributors')

EU-24

Philippines Bureau of Standards – Standards Administrative Order no. 358 of 1978 regarding brandy

EU-25

Print-out from Ginebra San Miguel's web-site ('Don Enrique Mixkila')

EU-26

Excerpts from Ginebra San Miguel's 2004 Annual Report

EU-27

Press advertising “Meet the new Antonov Vodka stars”

EU-28

Print-out from Destileria Limtuaco ('gin')

EU-29

Print-out from Destileria Limtuaco’s web-site ('rum')

EU-30

Print-out from Tanqueray’s web-site

EU-31

Print-out from Skyy’s Vodka's web-site

EU-32

Study on "Manner of Drinking Different Alcoholic Beverage Types", by IDP / Taylor Nelson

EU-33

Print-out from Ginebra San Miguel's web-site ('Antonov Vodka')

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First Written Submission of the European Union

EU-34

Print-out from Destileria Limtuaco's web-site ('Cocktails')

EU-35

Print-out from Wikipedia ('List of Cocktails')

EU-36

Print-outs from Malibu rum's web-site and Havana Club's web-site ('Cuba Libre')

EU-37

Print-out from Tanduay Distillers’s ('Cocktails Guide')

EU-38

CD-ROM with 20 videos

EU-39

Print-out from Destileria Limtuaco's web-site ('Brandy')

EU-40

Print-out from Destileria Limtuaco’s web-site ('Paradise Mango Rum')

EU-41

Market survey, "Consumer perceptions regarding substitutability in the Philippines distilled spirits market", by Euromonitor International

EU-42

Excerpts from Ginebra San Miguel's 2005 Annual Report

EU-43

Excerpts from Ginebra San Miguel's 2006 Annual Report

EU-44

Press advertising of Antonov Vodka

EU-45

Excerpts from Ginebra San Miguel's 2008 Annual Report

EU-46

Print-out from Tanduay Distillers’s web-site ('Tanduay's other products')

EU-47

Picture of St George Premium Whisky's

EU-48

Pictures of Gran Matador Brandy, Generoso Brandy, Barcelona Brandy and Emperador Brandy

EU-49

Picture of Mojitos Silver Tequila

EU-50

Print-outs from Encyclopaedia Britannica Online (“Alcohol Consumption”)

EU-51

Press article on drunk driving in the Philippines

EU-52

House Bill 7083 (“An act penalizing persons driving under the influence of alcohol”) and related press release from the House of the Representatives of the Philippines

EU-53

City of Valenzuela – Metropolitan Manila, Ordinance No. 66 of 2007

EU-54

Tables reporting value and volume of exports of the Philippines of distilled spirits for years 2000- 2008

EU-55

Comparison of different types of spirits with regard to appearance, colour, taste and smell, by Beam Global Spirits & Wine

EU-56

Press advertisings of “Napoleon VSOP Brandy” and “Courvoisier VSOP Cognac”

EU-57

Advertisings of “Barcelona Brandy” and “Gran Matador Brandy”

EU-58

Comparison of "VAT 69 Scotch Whisky" and "White Castle Calibre 69 Whisky" 63

Philippines — Taxes on Distilled Spirits DS403

First Written Submission of the European Union

EU-59

Print-out from Ginebra San Miguel's web-site ('St George Premium Whisky')

EU-60

Print-out from Destileria Limtuaco’s web-site ('Toska Vodka')

EU-61

Pictures of “Cossack Vodka”, “Iganoff Vodka” and “Smirnoff Vodka”

EU-62

Press advertising of “Hennessy”

EU-63

Print-out from Destileria Limtuaco’s web-site ('Tequila-flavored spirits')

EU-64

Print-outs from Tanduay Distillers’s web-site ('One World One Spirit' and 'Awards and Medals')

EU-65

Press advertising of “Emperador Brandy”

EU-66

Pictures of shops in the Philippines

EU-67

Pictures of shops in the Philippines

EU-68

Picture of the window of a shop in the Philippines

EU-69

Pictures of shelves in bars and restaurants in the Philippines

EU-70

Price-lists of drinks and beverages of bars in the Philippines

EU-71

Pictures of catering companies (mobile bars) in the Philippines

EU-72

Estimated price comparison if imported products were taxed at domestic rate

EU-73

Pictures of “Tanduay Centennial Rhum” taken in a shop in the Philippines

EU-74

Transcript of Senate hearing of 1st December 2004

EU-75

Letter of the Department of Finance of 7 December 2007 to the Spanish Ambassador in the Philippines

EU-76

Letter from the Department of Finance of 2nd March 2009 to the Consejo Regulador del Brandy de Jerez

EU-77

Transcript of the hearing before the “The Committee on Ways and Means” of 15 September 2009

EU-78

Statistical data of exports of distilled spirits from the EU to the Philippines (years 2000-2007)

EU-79

Comparison of product labels

64