The panel found that Thailand’s value added tax (VAT) policies constituted a violation of the WTO obligations governing international trade.
In 2006, Thailand passed new tax laws which, according to the Philippines, prejudiced foreign-made cigarettes in favour of those produced domestically in Thailand.
From 2006 to 2008 both countries engaged in bilateral negotiations to resolve the issue, and brought the matter before the dispute resolution body of the Association of Southeast Asian Nations, but the discussions did not produce a useful solution.
The Philippines brought a complaint before the WTO in November 2008, arguing that Thailand imposed a higher value added tax (VAT) on imported cigarettes, which resulted in a competitive disadvantage for cigarettes imported from the Philippines.
Thailand was also accused of improperly inflating the customs values for Philippine made cigarettes, which serve as the basis upon which different taxes are calculated. The retail prices of the cigarettes, which determines the amount of VAT that will be imposed, were also allegedly inflated.
Philip Morris, the world’s largest cigarette maker, has two manufacturing facilities in the Philippines.
While Thailand did admit that cigarette importers were subject to VAT, they argued that the tax was not imposed in practice.
The US, EU, and Taiwan all submitted statements to the WTO supporting the Philippine’s position.
The panel found that Thailand had violated article 3 of the General Agreement on Tariffs and Trade (GATT) on National Treatment Rules on Internal Taxation and Regulation.
In the decision, the WTO orders Thailand to set uniform taxes on foreign and locally made cigarettes.
"The panel recommends the dispute settlement body request Thailand to bring inconsistent measures...in conformity with WTO rules," the decision stated.
“Philip Morris Philippines Manufacturing welcomes the decision of the WTO over the tax dispute between the Philippines and Thailand,” said Chris Nelson, managing director of Philip Morris’s local office, in a statement.
At this point, the ruling is provisional. Both sides will have 60 days to appeal the decision to the Appellate Body of the WTO, and it must also be approved by the entire WTO membership.
Should Thailand choose to appeal, the proceedings will probably continue for an additional six to seven months before the WTO renders another decision.
