PHL distillers to appeal WTO ruling on liquor taxes

The industry group of Philippine distillers said it will work with the Office of the Solicitor General to appeal a World Trade Organization (WTO) panel ruling that said the country's tax system discriminates against foreign brands of alcoholic beverages. “The battle isn’t over for the local distilled spirits industry. The Philippines needs to appeal WTO’s findings because of its adverse impact on local manufacturers, allied industries, the Filipino consumers and the economy in general. DSAP believes that until the is resolved by WTO’s Appelate Body, the rulings are not binding on the parties," the Distilled Spirits Association of the Philippines (DSAP) said in a statement. It said "the Philippines has never discriminated against any imported product. There’s a whole range of imported brands in the country. Products such as Jack Daniel’s, Jim Beam are priced much higher than domestic brands even without the taxes. Hence, they simply do not compete in the same market as local brands." Global trade rules Taxes levied by the Philippines on alcoholic drinks from the European Union and United States are illegal under global trade rules, the world's trade dispute body ruled, according to Reuters sources close to the case. In a confidential report circulated to the parties involved in the dispute, a WTO legal panel ruled that Philippine taxes on spirits discriminate against brands such as Jack Daniel's and Jim Beam as well as Spain's Brandy de Jerez, while favoring domestic producers catering to the archipelago's $3-billion market, according to the Reuters report. The ruling is confidential until its publication in August, and trade officials for the EU and United States were unable to comment on its contents. But it is being eyed keenly by Spanish brandy makers and US firms such as Brown-Forman Corp., which owns Jack Daniel's, and Fortune Brands Inc., which makes Jim Beam. Different liquor markets Consolidated Distillery Inc., Far East Alcohol Inc., Central Azucarera de Tarlac, Berbacs Chemicals, Destileria Limtuaco, San Miguel Corp., Ginebra San Miguel Inc., Tanduay Distillers Inc., Emperador Distillers, and Alcohol Distilleries-Absolute Chemicals Inc. are members of the DSAP. The association argued that almost all of the distilled spirits consumed in the country are of the low-priced or economy brands with an average retail price of P65 per 700 ml bottle. “About 98% of Philippine households can only afford P60 per week for distilled spirits. Jack Daniel’s retails at P825/750 ml bottle and the net retail price (without VAT and excise tax) is P560/750 ml bottle. This shows that said imported brands are clearly priced way out of the reach of the ordinary man on the street," the DSAP said. The group also warned that any new or higher taxes on alcohol products will result in "a substantial contraction in the market demand given the very low elasticity of demand for distilled spirits in the Philippines." US, Europe questions PHL approach "We have long questioned the Philippines' discriminatory tax approach. We are optimistic of a positive result from the WTO panel, which will be particularly welcomed by Spain since Spanish brandy constitutes the main EU sprits export to the Philippines," said Jamie Fortescue, director general of the European Spirits Organisation. The ruling dismissed Manila's argument that imported whiskey and brandy do not compete with locally made alcohol and that differing taxes — set according to the raw material used in making the spirit — should therefore be legal, sources said. It found that the purpose of a lower tax on domestic alcohol that can be directly substituted for imports was to protect domestic producers, an illegal aim under WTO rules. The EU, whose annual global spirits exports amount to about 7 billion euros ($10 billion), blames the tax for halving EU spirits sales to the Philippines between 2004 and 2007, to 18 million euros. Brussels lodged a WTO challenge against the Philippines in January last year. The US, which followed suit with a similar challenge in April last year, similarly says the Philippines' tax system — imposing duties 10-40 times higher on spirits not distilled from materials such as sugar cane and molasses produced in the Philippines — means it has failed to gain more than 5 percent of the country's promising market. — With Reuters/Earl Rosero/VS, GMA News