WTO Arbitration over Cigarette Taxes again Likely

Source from:  Business World Online  03/19/2014

THE PHILIPPINES will likely hale Thailand back to arbitration should the pending tax evasion case against the Bangkok-based unit of Philip Morris International, Inc. negate a World Trade Organization (WTO) decision in 2011, a Cabinet official yesterday said.

The case, filed last August by Thailand's Department of Special Investigations against Philip Morris Thailand Limited, is preventing the cigarette tax dispute between the Philippine and Thailand from being put to rest, Trade Secretary Gregory L. Domingo yesterday said, on the sidelines of the Philippine Economic Briefing at the Philippine International Convention Center in Pasay City.

"There is a period in the case against Philip Morris Thailand which covers the same period in our case against Thailand at the WTO. If that will be affected, yes we will go back to arbitration," said Mr. Domingo, adding: "We have to force compliance if they do not comply."

The Trade chief also said: "We have to look for some other forms of compensation." He declined to elaborate.

Trade Undersecretary Adrian S. Cristobal, Jr. said last month that "[t]here is no threat to exports of tobacco from the Philippines to Thailand anymore."

"Customs valuations, excessive taxes... these have already been settled," he then said.

"But, there are pending charges in their Attorney-General's office against Philip Morris Thailand, which involves some of the customs transactions during the period covered by the case with the WTO. So, we are looking for assurance that the entire WTO decision is respected not just now but also in the future," he added.

Bangkok Post reported on Aug. 18 last year that Philip Morris Thailand was being accused of under-declaring the value of its cigarette imports between 2003 and 2007, thereby avoiding about $2 billion in duties and import taxes.

Mr. Cristobal had said it is important that these developments in Thailand "will not negate decisions made at the WTO."

"If that happens, the WTO decision now becomes useless," he then said.

Bilateral meetings between the Philippines and Thailand over the latter's compliance with the WTO ruling have been ongoing since May last year. Thailand has been required to implement reforms after it lost, in 2011, a case involving claims of the unfair taxation of cigarettes from the Philippines.

To comply, the Geneva-based WTO said Thailand had to, among other things, implement a general rule for customs valuation of imported cigarettes, use the same computation for the maximum suggested retail prices of both imported and locally made cigarettes, and establish independent review tribunals or processes for the prompt review of customs valuations.

The case stemmed from a 2006 complaint filed by the Philippines on behalf of Philip Morris Philippines Manufacturing, Inc., claiming a bias against imported cigarette brands in Thailand.

Thailand was found granting less favorable treatment to imported cigarettes by exempting similar domestic cigarettes from administrative requirements like filing tax returns, filing revenue and expense reports, and related sanctions for the failure to report.

The original deadline for the reforms was October 2012, but the Philippines allowed Thailand some leeway as some changes may require legislation.

If the Philippines is unsatisfied with the implementation of Thailand, WTO rules state that the country can seek further arbitration or ask the Geneva-based agency to impose limited trade sanctions. Enditem