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UPDATE 1-WTO rules Philippine liquor tax illegal - sources
June 27, 2011 / 4:10 PM / 6 years ago

UPDATE 1-WTO rules Philippine liquor tax illegal - sources

* WTO says tax on foreign liquor discriminatory - sources

* Ruling could help EU, U.S. access $3bn spirits market

(Adds detail, companies affected, comment from European Spirits Organisation)

By Juliane von Reppert-Bismarck

BRUSSELS, June 27 (Reuters) - 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 on Monday, according to sources close to the case.

In a confidential report circulated to the parties involved in the dispute, a legal panel at the World Trade Organization ruled the Philippines’ spirits taxes discriminate against brands such as Jack Daniel’s and Jim Beam as well as Spain’s Brandy de Jerez, while favouring domestic producers catering for the archipelago’s $3 billion spirits market, the sources said.

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 U.S. firms such Brown-Forman Corp. (BFb.N), which owns Jack Daniel‘s, and Fortune Brands Inc , which makes Jim Beam.

“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 for 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 United States, 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.

Reporting by Juliane von Reppert-Bismarck; Editing by Rex Merrifield and Mark Trevelyan $1 = 0.698 Euros

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