DISPUTE SETTLEMENT: DISPUTE DS371
Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines
This summary has been prepared by the Secretariat under its own responsibility. The summary is for general information only and is not intended to affect the rights and obligations of Members.
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Key facts back to top
(as cited in request for consultations)
|Request for Consultations received:|
|Panel Report circulated:||15 November 2010|
|Appellate Body Report circulated:||17 June 2011|
Summary of the dispute to date back to top
The summary below was up-to-date at
See also: One-page summary of key findings of this dispute
Complaint by the Philippines.
On 7 February 2008, the Philippines requested consultations with Thailand concerning a number of Thai fiscal and customs measures affecting cigarettes from the Philippines. Such measures include Thailand's customs valuation practices, excise tax, health tax, TV tax, VAT regime, retail licensing requirements and import guarantees imposed upon cigarette importers. The Philippines claims that Thailand administers these measures in a partial and unreasonable manner and thereby violates Article X:3(a) of the GATT 1994.
In addition, the Philippines makes separate claims in respect of various customs valuation measures affecting imports of cigarettes. The Philippines claims that as a result of thse measues, Thailand acts inconsistently with varous provisions of the Customs Valuation Agreement and the interpretative notes to these provisions, as well as paragraphs 1 and 2 of the General Introductory Commentary; and various provisions of Articles II and VII of the GATT 1994. According to the Philippines, Thailand does not use transaction value as the primary basis for customs valuation as required and fails to conform to the sequence of valuation methods mandated by the Customs Valuation Agreement, rather it uses a valuation method with no basis in the Agreement.
The Philippines also claims that Thailand's ad valorem excise tax, health tax and TV tax, on both imported and domestic cigarettes, are inconsistent with Article III:2, first and second sentence and Article X:1 of the GATT 1994 which requires the publication of trade laws and regulations of general application.
The Philippines also claims that Thailand's VAT regime is inconsistent with Articles III:2, first and second sentence, III:4 and X:1 of the GATT 1994.
In addition, the Philippines claims that Thailand's dual license requirement that requires that tobacco and/or cigarette retailers hold separate licenses to sell domestic and imported cigarettes is inconsistent with Article III:4 of the GATT 1994, because it provides less favourable treatment for imported products than for like domestic products.
On 20 February 2008, the European Communities requested to join the consultations.
On 29 September 2008, the Philippines requested the establishment of a panel. At its meeting on 21 October 2008, the DSB deferred the establishment of a panel.
Panel and Appellate Body proceedings
At its meeting on 17 November 2008, the DSB established a panel. Australia, the European Communities, Chinese Taipei and the United States reserved their third-party rights. Subsequently, China and India reserved their third-party rights. On 16 February 2009, the panel was composed. On 3 September 2009, the Chairman of the panel informed the DSB that due to the complexity of the dispute, and the administrative and procedural matters involved, the panel is not able to complete its work in six months. The panel expected to issue its final report to the parties in the course of March 2010. On 17 March 2010, the Chairman of the panel informed the DSB that due to procedural delays caused by the administrative matters involved and the complexity of the dispute, the panel now expected to issue its final report to the parties in the course of June 2010.
On 15 November 2010, the panel report was circulated to Members.
The Philippines' claims under the Customs Valuation Agreement
The Philippines claimed that Thai Customs improperly rejected the transaction values of the cigarette entries that were cleared between 11 August 2006 and 13 September 2007 in violation of Articles 1.1 and 1.2(a) of the Customs Valuation Agreement. Under the Customs Valuation Agreement, the main basis for the valuation of imported goods is the transaction value declared by the importer. When Customs questions the declared transaction value, it must follow the procedural rules set out in the Customs Valuation Agreement in examining the circumstances of the transaction between the importer and the exporter and respect the sequential order of valuation methods in using another method to establish the valuation.
Thailand contested the Philippines' claims and claimed that Thai Customs acted consistently with its obligations under the Customs Valuation Agreement in rejecting PM Thailand's declared transaction value. Although the main basis for valuation of goods is the importer's declared transaction value under the Customs Valuation Agreement, in a related-party transaction as was the case here, customs authorities may examine the circumstances of the sale to determine the acceptability of the declared transaction value (i.e. that it was at arms' length). In doing this, however, the customs authority must follow certain procedural obligations set out in Articles 1.1, 1.2(a) and 16 of the Customs Valuation Agreement, including the obligation to give the importer a reasonable opportunity to respond to the customs authority's preliminary consideration. In this regard, Thailand mainly took the position that the burden of establishing that the relationship did not influence the transaction price was on the importer under the Customs Valuation Agreement. According to Thailand, therefore, the decision by its Customs office to reject PM Thailand's (the importer) declared transaction value was consistent with the obligations under the Customs Valuation Agreement because the importer had failed to provide Thai Customs with sufficient information to prove that its relationship with the exporter (PM Philippines) did not influence the transaction price.
The Panel found that the valuation decisions by Thai Customs were inconsistent with both substantive and procedural obligations under, inter alia, Articles 1.1 and 1.2(a), and 16 of the Customs Valuation Agreement. The record at the time of Thai Customs' decision to reject PM Thailand's declared transaction value, showed Thai Customs' explanation that the importer had failed prove that its relationship with PM Philippines did not influence the price. The Panel found this explanation insufficient as a basis for Thai Customs' decision to reject the importer's declared transaction value and to give a different customs value to the transaction. As a result, its final valuation decisions were found to be invalid under the obligations of the Customs Valuation Agreement. Particularly, the Panel also found that Thai Customs failed to “examine” the circumstances of sale in accordance with the obligations under Article 1.2(a).
The Philippines further argued that Thai Customs applied the deductive valuation method inconsistently with the obligations under Articles 5 and 7 in determining the customs value of the cigarettes. The Philippines also submitted that Thailand violated procedural obligations under both Article 10, not to disclose confidential information, and Article 16, to provide an explanation for the determination of the final customs value.
The Panel found that Thailand failed to apply the alternative valuation method it used in this case — the deductive valuation method — in accordance with the principles set forth in Articles 7 and 5. Thailand attempted to justify its application of the deductive valuation method to the cigarettes at issue, but failed to disprove the Philippines' argument that Thai Customs had not consulted the importer for any further relevant information as required under Article 7 of the Customs Valuation Agreement. Nor had Thai Customs deducted certain expenses that should have been deducted in accordance with Article 5 of the Customs Valuation Agreement.
The Philippines' claims under Article III of the GATT 1994
The Philippines also challenged a number of measures imposed on imported cigarettes under the Thai VAT regime. It argued that Thailand determined the tax base (MRSP) for VAT on imported cigarettes in such a way that the VAT on imported cigarettes is in excess of that imposed on like domestic cigarettes, in violation of the first sentence of Article III:2 of the GATT1994. The Philippines further claimed that imported cigarettes are also subject to VAT liability in excess of that applied to like domestic cigarettes, in violation of the first sentence of Article III:2, as the VAT exemption is only given to domestic cigarette resellers. According to the Philippines, the excessive tax liability imposed on the imported cigarette resellers also results in additional administrative requirements for these resellers.
Thailand argued that in deciding the tax base for VAT, it had applied a general methodology in the same manner to both imported and domestic cigarettes. Further, under Thai law, resellers of domestic cigarettes are exempt from a VAT liability and the related administrative requirements. Thailand argued that this exemption given only to resellers of domestic cigarettes did not result in an excess tax as resellers of imported cigarettes receive tax credits for the potential liabilities.
In the specific instances that were at issue in this case, the Panel concluded that Thai Excise had deviated from its general methodology in determining the tax base for VAT for imported cigarettes, while at the same time applying this methodology to domestic cigarettes. This resulted in excess taxation for imported cigarettes in a manner contrary to Article III:2, first sentence of the GATT 1994. Moreover, given the strict standard under Article III:2, first sentence of the GATT 1994, the Panel found that even the mere possibility of imported cigarettes being subject to an internal tax in excess of that which is applied to domestic cigarettes was inconsistent with Thailand's obligations under Article III:2, first sentence. The Panel found therefore that these specific aspects of the Thai VAT regime violated Thailand's obligations under Articles III:2 and III:4 of the GATT 1994.
The Philippines' claims under Article X of the GATT 1994
The Philippines asserted that Thailand violated various due process obligations under Article X of the GATT1994in connection with its customs and fiscal measures.
In particular, the Philippines challenged the Thai government system under which certain government officials simultaneously served on the board of TTM, a state-owned domestic cigarette manufacturer. According to the Philippines, this is inconsistent with the obligations under Article X:3(a) to administer customs matters in a reasonable and impartial manner. The Philippines also alleged that Thailand acted inconsistently with Article X:3(a) through the alleged unreasonable delays caused in the administrative review process for appeals against customs determinations. Furthermore, the Philippines argued that the determinations by Thai Excise of the tax base for VAT as well as its use of a guarantee value in calculating the excise, health and television taxes, are non-uniform, unreasonable and partial, and therefore in violation of Article X:3(a).
Regarding the Philippines' Article X:3(a) claims, the Panel concluded that the Philippines failed to establish that appointing government officials to serve on the board of TTM was an unreasonable and partial administration of Thai customs and tax laws within the meaning of Article X:3(a). The Panel, however, found that Thailand acted inconsistently with Article X:3(a) through the delays caused in the administrative review process. As for the Philippines' claim on the use of a guarantee value in calculating the Excise, Health and Television taxes, the Panel concluded that the Thai government's use of the guarantee value as the tax base and the absence of an automatic refund mechanism for these taxes, concern the substantive aspects of such laws and regulations rather than the manner in which they are put into practical effect. Accordingly, the Panel found that the Philippines' claim under Article X:3(a) in respect of the administration of Thai Excise, Health and Television taxes was improperly brought under Article X:3(a).
The Philippines further claimed that Thailand failed to maintain an independent tribunal or process for the prompt review of administrative actions relating to customs matters, particularly customs value decisions and guarantee decisions, inconsistently with the obligations under Article X:3(b). The Panel found that Thailand violated Article X:3(b) by failing to maintain an independent tribunal for the prompt review of the concerned administrative actions relating to customs matters. The Panel also found that Thailand acted inconsistently with Article X:3(b) by failing to maintain or institute independent review tribunals or process for the prompt review of guarantee decisions.
The Panel also agreed with the Philippines that Thailand violated Article X:1 by failing to publish laws and regulations pertaining to the determination of a VAT for cigarettes and the release of a guarantee imposed in the customs valuation process.
The Panel recommended that the DSB request Thailand to bring these inconsistent measures into conformity with its obligations under the GATT 1994 and the WTO Agreement. Regarding its findings on some of the specific MRSP Notices at issue, the Panel did not find it entirely clear whether and, if so, to what extent such Notices would have an effect on subsequent MRSP Notices. The Panel's recommendations for these MRSP Notices, therefore, applied only to the extent they continue to have effects on the subsequent MRSP Notices. Further, the Panel did not make a recommendation for the December 2005 MRSP Notice as it was not disputed that it had expired and does not continue to exist for the purpose of Article 19.1 of the DSU.
On 3 December 2010, Thailand and the Philippines requested the DSB to adopt a draft decision extending the 60-day time period stipulated in Article 16.4 of the DSU, to 24 February 2011. At its meeting on 17 December 2010, the DSB agreed that, upon a request by Thailand or the Philippines, the DSB, shall no later than 24 February 2011, adopt the panel report, unless the DSB decides by consensus not to do so or Thailand or the Philippines notifies the DSB of its decision to appeal pursuant to Article 16.4 of the DSU.
On 22 February 2011, Thailand notified the DSB of its decision to appeal to the Appellate Body certain issues of law and legal interpretation covered in the panel report. On 21 April 2011, the Chair of the Appellate Body notified the DSB that it would not be able to issue it report within 60 days due to the time required for completion and translation. It was estimated that the report would be circulated to Members no later than 17 June 2011.
Summary of key findings
Thailand's appeal was limited to certain of the Panel's findings under Article III:2, Article III:4, and Article X:3(b) of the GATT 1994. The Appellate Body upheld the core findings challenged by Thailand on appeal.
The Appellate Body upheld the Panel's finding that Thailand acts inconsistently with Article III:2, first sentence, of the GATT 1994 by subjecting imported cigarettes to internal taxes in excess of those applied to like domestic cigarettes. The Thai measure at issue consists of an exemption from value added tax (“VAT”) liability for resellers of domestic cigarettes, together with the imposition of VAT on resellers of imported cigarettes when they do not satisfy prescribed conditions for obtaining input tax credits necessary to achieve zero VAT liability. The Appellate Body agreed with the Panel that this measure affects the respective tax liability imposed on imported and like domestic products. The Appellate Body therefore rejected Thailand's characterization of the measure as “administrative requirements”, as well as Thailand's argument that the measure should have been examined under Article III:4, and not Article III:2, of the GATT 1994.
The Appellate Body also upheld the Panel's finding that Thailand acts inconsistently with Article III:4 of the GATT 1994 by according less favourable treatment to imported cigarettes than to like domestic cigarettes. The Thai measure at issue consists of an exemption from three sets of VAT-related administrative requirements for resellers of domestic cigarettes, together with the imposition of these requirements on resellers of imported cigarettes. The Appellate Body found that the Panel properly analyzed this measure and its implications in the marketplace, and therefore agreed with the Panel that this measure accords less favourable treatment to imported cigarettes by imposing the additional administrative requirements only on resellers of imported cigarettes. The Appellate Body further found that the Panel did not fail to ensure due process or to comply with its duty under Article 11 of the DSU by accepting and relying upon evidence, submitted by the Philippines late in the Panel proceedings, relating to one of the administrative requirements. Due to an error in the Panel's identification of the basis for its finding, the Appellate Body reversed the Panel's finding that Thailand had not satisfied its burden of proving its defence under Article XX(d) of the GATT 1994. In completing the legal analysis, however, the Appellate Body found, as had the Panel, that Thailand failed to establish that the administrative requirements at issue are justified under Article XX(d) of the GATT 1994.
Finally, the Appellate Body upheld the Panel's finding that Thailand acts inconsistently with Article X:3(b) of the GATT 1994 by failing to maintain or institute independent tribunals or procedures for the prompt review of customs guarantee decisions. Thai Customs requires importers to provide a guarantee in order to obtain the release of goods from customs pending a final determination of customs value. The Appellate Body saw no error in the Panel's conclusion that Thailand's system for the review of guarantees does not comply with the obligation to ensure prompt review under Article X:3(b) because such review is not available until after a final determination of customs value has been made.
At its meeting on 15 July 2011, the DSB adopted the Appellate Body report and the panel report, as modified by the Appellate Body report.
Reasonable period of time
On 11 August 2011, Thailand informed the DSB that it intends to implement the recommendations and rulings of the DSB in a manner that respects its WTO obligations and that it would need a reasonable period of time to do so. On 23 September 2011, Thailand and the Philippines informed the DSB that they had mutually agreed on the reasonable period of tiem for Thailand to comply with the recommendations and rulings of the DSB. With respect to the DSB's recommendation and rulings regarding paragraphs 8.3(b) and (c) of the panel report, the reasonable period of time to comply shall be 15 months, expiring on 15 October 2012. With respect to the DSB's recommendation and rulings regarding all other measures, the reasonable period of time to comply shall be 10 months, expiring on 15 May 2012.
On 1 June 2012, the Philippines and Thailand informed the DSB of Agreed Procedures under Articles 21 and 22 of the DSU.
At the DSB meeting on 28 January 2013, Thailand reported that it had completed the final outstanding steps in its implementation process. However, the Philippines did not agree that Thailand had fully implemented the DSB's recommendations and rulings. At the DSB meeting of 27 February 2013, the Philippines expressed concern that it had not been informed of any progress toward resolving the remaining WTO-inconsistencies and added that it would take appropriate steps shortly. At the DSB meeting on 18 June 2014, Thailand reported that it did not have to take any further action to implement the DSB's recommendations and rulings. The Philippines disagreed and was of the view that Thailand had failed to comply.
On 4 May 2016, the Philippines requested consultations pursuant to Article 21.5 of the DSU, in connection with a disagreement concerning Thailand's implementation of the recommendations and rulings of the DSB in this dispute. On 29 June 2016, the Philippines requested, pursuant to Article 21.5 of the DSU, the establishment of a compliance panel. At its meeting on 21 July 2016, the DSB agreed to refer to the original panel, if possible, the matter raised by the Philippines. Australia, Canada, China, the European Union, Japan, the Russian Federation, Singapore and the United States reserved their third party rights.
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