[WTO Case Review Series No.11] Philippines—Taxes on Distilled Spirits (WT/DS396/DS403): Liquor tax system in developing countries and the national treatment

In the Philippines, domestic distilled spirits that are made mainly from sugar cane molasses are produced through a unique production process, that may involve stripping the ethyl alcohol from its natural congeners and later adding natural or artificial flavorings so as to ensure that they are replicated as close as possible to imported distilled spirit made from traditional materials, including grapes, grains, and potatoes. As a result, domestic distilled spirits share the same physical characteristics—including color, flavor, and aroma—with imported ones, while materials and production methods differ. Moreover, labels of domestic distilled spirits tend to mimic the names of products and designs of imported ones, and they may also be sold in the Philippines as gin, brandy, or whisky even though they are all made from sugar cane molasses. Therefore, domestic distilled spirits are presented to consumers so as to be indistinguishable from imported ones. Under the measure at issue, distilled spirits made from sugar cane molasses are subject to the lower specific tax, while distilled spirits made from other traditional material are highly taxed in accordance with the idea of progressive taxation. However, all domestic distilled spirits fall under the former, and the vast majority of imported spirits are categorized into the latter. Based on these characteristics that are unique to the current dispute, this article examines the decisions by the Panel and the Appellate Body, and aims to explore the implications for further clarifying the disciplines under Article III:2 of the GATT.