U.S. Wins Philippines Liquor Dispute as WTO Upholds Ruling

The World Trade Organization upheld a ruling that Philippine taxes on imports of spirits such as whiskey and brandy made by Brown-Forman Corp. and Pernod Ricard SA (RI) are illegal, a victory for the U.S. and European Union.

The decision released today may help European and U.S. companies boost their share of the Philippines’ $3 billion liquor market. WTO judges in Geneva rejected the Philippines’ argument that imports such as Jim Beam whiskey (FO), Brandy de Jerez and Southern Comfort don’t compete with locally produced spirits and therefore different taxes based on the raw material used to make the liquor should be legal.

The Philippines applies a lower tax rate on sugar and palm- based drinks produced within the country. Levies on foreign spirits in some cases may be almost 50 times higher than those on domestic liquor, according to the EU. The Philippines should revise its tax to meet its WTO obligations, a panel of judges said in a ruling posted on the trade arbiter’s website.

“This is an important victory for American distilled spirits producers and workers,” U.S. Trade Representative Ron Kirk said today in a statement. “The Philippine tax system for these products is discriminatory, plain and simple.”

Members of the Distilled Spirits Association of the Philippines produced 66 million cases last year with gross sales of almost 50 billion pesos ($1.15 billion), according to the organization.

EU Exports Decline

The 27-nation EU, the world’s biggest liquor exporter with sales exceeding 7 billion euros ($9.15 billion) last year, shipped 16.5 million euros of spirits to the Philippines in 2010, down from almost 37 million euros in 2004, according to the European Commission in Brussels. Trade between the two economies was worth 9.1 billion euros last year.

“The discriminatory taxation system has led to a decline of overall consumption of imported spirits of 1 percent since 2005, while consumption of local spirits has grown over 8 percent in the same period,” according to the commission.

U.S. distilled-spirits exports worldwide averaged more than $1 billion a year from 2006 through 2009. Philippine imports of liquor haven’t exceeded 5 percent of total sales of spirits in the nation since 2003.

“The Philippines’ excise tax system is a textbook case of discrimination against imported products,” Peter Cressy, president of the Distilled Spirits Council in Washington, said today in a statement. “We urge the Philippines to take immediate steps to bring its tax system into compliance with WTO rules.”

The EU lodged its complaint in July 2009 and the U.S. followed six months later. According to industry statistics cited by Kirk’s office, U.S. distilled-spirits companies contributed to more than $113 billion of economic activity and more than 1.2 million jobs in 2007.

To contact the reporters on this story: Eric Martin in Washington at emartin21@bloomberg.net

To contact the editor responsible for this story: Steve Geimann at sgeimann@bloomberg.net

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