WORLD TRADE  
ORGANIZATION   
WT/DS396/R 
WT/DS403/R 15 August 2011 
 
(11-3966) 
 Original:   English 
  
 
     
 
 
PHILIPPINES – TAXES ON DISTILLED SPIRITS 
 
 
Reports of the Panel 
 
 
   
 
     
 
    
__________________________________________________________________________________ 
 
The present document contains the two reports of the Panel in the disputes WT/DS396 and 
WT/DS403.  The document comprises a common c over page, a common Descriptive Part and a 
common set of Findings in relation to the complainants' claims.  This document also contains Conclusions and Recommendations that, unlike the D escriptive Part and the Findings, are separate for 
each of the complainants.  Specifically, in the Conclusions and Recommendations, separate document 
numbers/symbols have been used for each of the complainants (WT/DS396 for the complaint brought 
by the European Union and WT/DS403 for th e complaint brought by the United States).  
  WT/DS396/R 
 WT/DS403/R 
 Page i 
 
 
  TABLE OF CONTENTS 
 
Page 
I.  INTRODUCTION .................................................................................................................. .. 1 
A.  REQUEST FOR CONSULTATIONS  ................................................................................................... 1  
B.  ESTABLISHMENT AND COMPOSITION OF THE PANEL  ................................................................... 1  
C.  PANEL PROCEEDINGS  .................................................................................................................. 2  
II.  FACTUAL ASPECTS .............................................................................................................. 4 
A.  THE EXCISE TAX ......................................................................................................................... 4  
B.  PRODUCTS AT ISSUE  .................................................................................................................. 11  
1.  Products at issue ............................................................................................................. ......... 11 
2.  Characteristics of distilled spirits ..........................................................................................  12 
3.  Distilled spirits market in the Philippines............................................................................. 14  
4.  Tariff classification ......................................................................................................... ........ 21 
5.  Gin ........................................................................................................................... ................. 24  
6.  Brandy ........................................................................................................................ .............. 27  
7.  Rum ........................................................................................................................... ............... 30  
8.  Vodka ......................................................................................................................... .............. 32  
9.  Whisky ........................................................................................................................ ............. 35  
10.  Tequila ....................................................................................................................... .............. 37  
III. PARTIES' REQUESTS FOR FIND INGS AND RECOMMENDATIONS....................... 39  
IV.  ARGUMENTS OF THE PARTIES ...................................................................................... 41  
V.  ARGUMENTS OF THE THIRD PARTIES ........................................................................ 41  
VI.  INTERIM REVIEW ............................................................................................................... 41 
A.  INTERIM REVIEW CHANGES TO THE DESCRIPTIVE SECTIONS  ................................................... 41  
B.  INTERIM REVIEW CHANGES TO THE FINDINGS SECTION  .......................................................... 42  
C.  INTERIM REVIEW CHANGES TO THE CONCLUSIONS AND RECOMMENDATIONS 
SECTION  .............................................................................................................................. ...... 49 
D.  MINOR CORRECTIONS AND ADDITION OF REFERENCES  ........................................................... 49  
VII. FINDINGS ...................................................................................................................... ......... 49 
A.  CLAIMS AND ORDER OF ANALYSIS  ............................................................................................ 49  
1.  The complainan ts' claims ...................................................................................................... . 49 
2.  Applicable provisions.......................................................................................................... .... 51 
3.  Order of analysis ............................................................................................................. ........ 52 
B.  BURDEN OF PROOF  .................................................................................................................... 53  
C.  CLAIMS UNDER THE FIRST SENTENCE OF ARTICLE  III:2  OF GATT 1994 .................................. 54  WT/DS396/R 
WT/DS403/R Page ii 
 
 
  1.  The complainan ts' claims ...................................................................................................... . 54 
2.  The Philippines'  response ..................................................................................................... .. 55 
3.  Panel's analysis .............................................................................................................. .......... 56 
(i)  Products' properties, nature and quality .................................................................................. 57  
(ii)  End uses ...................................................................................................................... .............. 61  
(iii) Consumers' tastes and habits .................................................................................................. .. 61 
(iv)  Tariff class ification ......................................................................................................... .......... 65 
(v)  Internal regulations .......................................................................................................... ........ 67 
(vi)  Conclusions on "likeness" ..................................................................................................... .... 67 
(vii) Excess taxation ............................................................................................................... .......... 70 
(viii) Conclusions regarding the claims under the first sentence of Article III:2 of 
GATT 1994 ..................................................................................................................... ........... 70  
D.  C
LAIMS UNDER THE SECOND SENTENCE OF ARTICLE  III:2  OF THE GATT 1994 ...................... 71  
1.  Complainants' claims........................................................................................................... ... 71 
2.  The Philippines'  response ..................................................................................................... .. 71 
3.  Panel's analysis .............................................................................................................. .......... 71 
(a)  "Directly competitive or substitutable products" ...................................................................... 72  
(i)  Introduction .................................................................................................................. ............ 72  
(ii)  The competitive relationship between the products at issue ..................................................... 74  
(iii) Products' channels of distribution ............................................................................................  80 
(iv)  Products' properties, nature and quality .................................................................................. 80  
(v)  End uses and marketing ........................................................................................................ .... 81 
(vi)  Tariff class ification ......................................................................................................... .......... 82 
(vii) Internal regulations .......................................................................................................... ........ 83 
(viii) Conclusions on "directly comp etitive or substitutable" ............................................................ 83  
(b)  "Not similarly taxed" ......................................................................................................... ....... 83 
(i)  Introduction .................................................................................................................. ............ 83  
(ii)  Arguments of the parties ...................................................................................................... ..... 84 
(iii) Consideration by the Panel .................................................................................................... ... 86 
(c)  "So as to afford protection to domestic production" ................................................................. 90  
(i)  Introduction .................................................................................................................. ............ 90  
(ii)  Arguments of the parties ...................................................................................................... ..... 90 
(iii) Consideration by the Panel .................................................................................................... ... 93 
(d)  Conclusions regarding the claim under the second sentence of Article III:2 of 
GATT 1994 ..................................................................................................................... .......... 96 
E.  SPECIAL AND DIFFERENTIAL TREATMENT  ................................................................................ 96   WT/DS396/R 
 WT/DS403/R 
 Page iii 
 
 
  VIII. CONCLUSIONS AND RECOMMENDATIONS ................................................................ 97  
COMPLAINT BY THE EUROPEAN UNION (DS396):   CONCLUSIONS OF THE PANEL  ................ 98A  
 C OMPLAINT BY THE UNITED STATES (DS403):   CONCLUSIONS OF THE PANEL  .................... 98B WT/DS396/R 
WT/DS403/R Page iv 
 
 
  LIST OF ANNEXES 
 
ANNEX A 
 
FIRST WRITTEN SUBMISSIONS OF THE PARTIES 
 
Contents Page 
Annex A-1 Executive summary of the first wr itten submission of the European Union A-2 
Annex A-2 Executive summary of the first wr itten submission of the United States A-10 
Annex A-3 Executive summary of the first written submission of the Philippines A-18 
 
ANNEX B 
 
SUBMISSIONS OF THE THIRD PARTIES 
 
Contents Page 
Annex B-1 Executive summary of the written submission of Australia B-2 
Annex B-2 Written submission of Mexico B-5 
 
ANNEX C 
 
ORAL STATEMENTS OF THE PARTIES  
AT THE FIRST SUBSTANTIVE MEETING 
 
Contents Page 
Annex C-1 Executive summary of the opening oral statement of the European Union 
at the first substantive meeting C-2 
Annex C-2 Closing oral statement of the European Union at the first substantive 
meeting C-7 
Annex C-3 Executive summary of the opening oral statement of the United States at 
the first substantive meeting C-8 
Annex C-4 Closing oral statement of the Unite d States at the first substantive meeting C-16 
Annex C-5 Executive summary of the opening oral statement of the Philippines at the 
first substantive meeting C-17 
Annex C-6 Closing oral statement of the Phili ppines at the first substantive meeting C-21 
 
ANNEX D 
 
ORAL STATEMENTS OF THE THIRD PARTIES 
 
Contents Page 
Annex D-1 Oral statement of Australia at the first substantive meeting D-2 
Annex D-2 Oral statement of India at the first substantive meeting D-4 
Annex D-3 Oral statement of Chinese Taipei at the first substantive meeting D-6 
  WT/DS396/R 
 WT/DS403/R 
 Page v 
 
 
  ANNEX E 
 
SECOND WRITTEN SUBMISSIONS OF THE PARTIES 
 
Contents Page 
Annex E-1 Executive summary of the second written submission of the 
European Union E-2 
Annex E-2 Executive summary of the second written submission of the United States E-10 
Annex E-3 Executive summary of the second written submission of the Philippines E-19 
 
ANNEX F 
 
ORAL STATEMENTS OF THE PARTIES  
AT THE SECOND SUBSTANTIVE MEETING 
 
Contents Page 
Annex F-1 Executive summary of the opening oral statements of the Philippines at 
the second substantive meeting  F-2 
Annex F-2 Closing oral statement of the Philippines at the second substantive 
meeting F-7 
Annex F-3 Executive summary of the opening oral statement of the European Union 
at the second substantive meeting F-9 
Annex F-4 Executive summary of the closing or al statement of the European Union at 
the second substantive meeting F-14 
Annex F-5 Executive summary of the opening oral statement of the United States at 
the second substantive meeting F-15 
 
ANNEX G 
 
VARIOUS RELEVANT DOCUMENTS 
 
Contents Page 
Annex G-1 Request for the Establishment of a Panel by the European Union G-2 
Annex G-2 Request for the Establishment of a Panel by the United States G-5 
Annex G-3 Working Procedures for the Panel (28 July 2010) G-7 
Annex G-4 Additional Working Proce dures Concerning Business Confidential 
Information (31 August 2010) G-10 
 WT/DS396/R 
WT/DS403/R Page vi 
 
 
  TABLE OF WTO CASES CITED IN THESE REPORTS 
 
Short Title Full Case Title and Citation 
Argentina – Hides and 
Leather Panel Report, Argentina – Measures Affecting the Export of Bovine Hides and 
Import of Finished Leather , WT/DS155/R and Corr.1, adopted 16 February 
2001, DSR 2001:V, 1779 
Canada – Periodicals Appellate Body Report, Canada – Certain Measures Concerning Periodicals , 
WT/DS31/AB/R, adopted 30 July 1997, DSR 1997:I, 449 
Canada – Periodicals Panel Report, Canada – Certain Measures Concerning Periodicals , 
WT/DS31/R and Corr.1, adopted 30 July 1997, as modified by Appellate Body 
Report WT/DS31/AB/R, DSR 1997:I, 481 
Chile – Alcoholic Beverages Appellate Body Report, Chile – Taxes on Alcoholic Beverages , 
WT/DS87/AB/R, WT/DS110/AB/R, adopted 12 January 2000, DSR 2000:I, 
281 
Chile – Alcoholic Beverages Panel Report, Chile – Taxes on Alcoholic Beverages , WT/DS87/R, 
WT/DS110/R, adopted 12 January 2000, as modified by Appellate Body Report 
WT/DS87/AB/R, WT/DS110/AB/R, DSR 2000:I, 303 
China – Auto Parts Appellate Body Reports, China – Measures Affecting Imports of Automobile 
Parts , WT/DS339/AB/R, WT /DS340/AB/R, WT/DS342/AB/R, adopted 
12 January 2009 
China – Auto Parts Panel Reports, China – Measures Affecting Imports of Automobile Parts , 
WT/DS339/R, WT/DS340/R, WT/DS342/R and Add.1 and Add.2, adopted 
12 January 2009, as upheld (WT/DS339/R) and as modified (WT/DS340/R, WT/DS342/R) by Appellate Body Reports WT/DS339/AB/R, 
WT/DS340/AB/R, WT/DS342/AB/R 
EC – Asbestos Appellate Body Report, European Communities – Measures Affecting Asbestos 
and Asbestos-Containing Products , WT/DS135/AB/R, adopted 5 April 2001, 
DSR 2001:VII, 3243 
EC – Asbestos Panel Report, European Communities – Measures Affecting Asbestos and 
Asbestos-Containing Products , WT/DS135/R and Add.1, adopted 5 April 2001, 
as modified by Appellate Body Report WT/DS135/AB/R, DSR 2001:VIII, 3305 
EC – Chicken Cuts Appellate Body Report, European  Communities – Customs Classification of 
Frozen Boneless Chicken Cuts , WT/DS269/AB/R, WT/DS286/AB/R, adopted 
27 September 2005, and Corr.1, DSR 2005:XIX, 9157 
EC – Chicken Cuts (Brazil) Panel Report, European  Communities – Customs Classification of Frozen 
Boneless Chicken Cuts, Complaint by Brazil , WT/DS269/R, adopted 27 
September 2005, as modified by Appellate Body Report WT/DS269/AB/R, 
WT/DS286/AB/R, DSR 2005:XIX, 9295 
EC – Chicken Cuts (Thailand) Panel Report, European  Communities – Customs Classification of Frozen 
Boneless Chicken Cuts, Complaint by Thailand , WT/DS286/R, adopted 
27 September 2005, as modified by Appellate Body Report WT/DS269/AB/R, 
WT/DS286/AB/R, DSR 2005:XX, 9721 
EC – Hormones Appellate Body Report, EC Measures Concerning Meat and Meat Products 
(Hormones) , WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, 
DSR 1998:I, 135 
EC – IT Products Panel Report, European Communities and its member States – Tariff Treatment 
of Certain Information Technology Products , WT/DS375/R, WT/DS376/R, 
WT/DS377/R, adopted 21 September 2010  WT/DS396/R 
 WT/DS403/R 
 Page vii 
 
 
  Short Title Full Case Title and Citation 
Indonesia – Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry , 
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R and Corr.1 and 2, 
adopted 23 July 1998, and Corr. 3 and 4, DSR 1998:VI, 2201 
Japan – Alcoholic  
Beverages II Appellate Body Report, Japan – Taxes on Alcoholic Beverages , 
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, 97 
Japan – Alcoholic  
Beverages II Panel Report, Japan – Taxes on Alcoholic Beverages , WT/DS8/R, WT/DS10/R, 
WT/DS11/R, adopted 1 November 1996, as modified by Appellate Body Report 
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, DSR 1996:I, 125 
Korea – Alcoholic Beverages Appellate Body Report, Korea – Taxes on Alcoholic Beverages , 
WT/DS75/AB/R, WT/DS84/AB/R, adopted 17 February 1999, DSR 1999:I, 3 
Korea – Alcoholic Beverages Panel Report, Korea – Taxes on Alcoholic Beverages , WT/DS75/R, 
WT/DS84/R, adopted 17 February 1999, as modified by Appellate Body Report WT/DS75/AB/R, WT/DS84/AB/R, DSR 1999:I, 44 
Korea – Various Measures on Beef Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled 
and Frozen Beef , WT/DS161/AB/R, WT/DS169/AB/R, adopted 10 January 
2001, DSR 2001:I, 5 
Korea – Various Measures on 
Beef Panel Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen 
Beef, WT/DS161/R, WT/DS169/R, adopted 10 January 2001, as modified by 
Appellate Body Report WT/DS161/AB/R, WT/DS169/AB/R, DSR 2001:I, 59 
Mexico – Taxes on Soft Drinks Appellate Body Report, Mexico – Tax Measures on Soft Drinks and Other 
Beverages , WT/DS308/AB/R, adopted 24 March 2006, DSR 2006:I, 3 
Mexico – Taxes on Soft Drinks Panel Report, Mexico – Tax Measures on Soft Drinks and Other Beverages , 
WT/DS308/R, adopted 24 March 2006, as modified by Appellate Body Report 
WT/DS308/AB/R, DSR 2006:I, 43 
Thailand – Cigarettes (Philippines) Appellate Body Report, Thailand – Customs and Fiscal Measures on Cigarettes 
from the Philippines , WT/DS371/AB/R, adopted 15 July 2011 
Thailand – Cigarettes 
(Philippines) Panel Report, Thailand – Customs and Fiscal Measures on Cigarettes from the 
Philippines , WT/DS371/R, adopted 15 July 2011, as modified by Appellate 
Body Report WT/DS371/AB/R  
US – Cotton Yarn Appellate Body Report, United States – Transitional Safeguard Measure on 
Combed Cotton Yarn from Pakistan , WT/DS192/AB/R, adopted 5 November 
2001, DSR 2001:XII, 6027 
US – Cotton Yarn Panel Report, United States – Transitional Safeguard Measure on Combed 
Cotton Yarn from Pakistan , WT/DS192/R, adopted 5 November 2001, as 
modified by Appellate Body Report WT/DS192/AB/R, DSR 2001:XII, 6067 
US – Shrimp Appellate Body Report, United States – Import Prohibition of Certain Shrimp 
and Shrimp Products , WT/DS58/AB/R, adopted 6 November 1998, DSR 
1998:VII, 2755 
US – Shrimp Panel Report, United States – Import Prohibition of Certain Shrimp and Shrimp 
Products , WT/DS58/R and Corr.1, adopted 6 November 1998, as modified by 
Appellate Body Report WT/DS58/AB/R, DSR 1998:VII, 2821 
US – Wool Shirts and Blouses Appellate Body Report, United States – Measure Affecting Imports of Woven 
Wool Shirts and Blouses from India , WT/DS33/AB/R, adopted 23 May 1997, 
and Corr.1, DSR 1997:I, 323 WT/DS396/R 
WT/DS403/R Page viii 
 
 
  Short Title Full Case Title and Citation 
US – Wool Shirts and Blouses Panel Report, United States – Measure Affecting Imports of Woven Wool Shirts 
and Blouses from India , WT/DS33/R, adopted 23 May 1997, as upheld by 
Appellate Body Report WT/DS33/AB/R, DSR 1997:I, 343  WT/DS396/R 
 WT/DS403/R 
 Page ix 
 
 
  LIST OF ABBREVIATIONS USED IN THESE REPORTS 
 
 
BIR Philippines' Bureau of Internal Revenue 
DSB Dispute Settlement Body 
DSU Dispute Settlement Understanding GATT General Agreement on Tariffs and Trade GATT 1994 General Agreement on Tariffs and Trade 1994 HS Harmonized Commodity Description and Coding System 
HSEN HS Explanatory Notes 
ml millilitres NIRC Philippines' National Inte rnal Revenue Code of 1997 
NRP Net retail price PHP Philippine Pesos 
ppl per proof litre 
SAO Philippines' Standards Administrative Orders WTO World Trade Organization   
 
  WT/DS396/R 
 WT/DS403/R 
 Page 1 
 
 
  I. INTRODUCTION 
A. REQUEST FOR CONSULTATIONS  
1.1 On 29 July 2009, the European Uni on (then the European Communities1), and on 
14 January 2010, the United States, separately re quested consultations with the Philippines pursuant 
to Article XXII of the General Agreement on Ta riffs and Trade 1994 ("GATT 1994") and Article 4 of 
the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") with 
respect to the taxation of imported distilled spirits by the Philippines.2  The United States and the 
European Union each requested to be joined in the consultations requested by the other Member.  The 
Philippines accepted the requests of both the United  States and the European Union to join the 
consultations.3 
1.2 Consultations were held between each co mplaining party and the Philippines.  The 
European Union and the Philippines held their co nsultations on 8 October 2009 in Manila.  The 
United States and the Philippines held their c onsultations on 23 February  2010 in Geneva.  The 
United States and the European Union each atte nded the consultations requested by the other 
Member.  These consultations did not lead to a mutually satisfactory resolution of the dispute.4 
B. ESTABLISHMENT AND COMPOSITION OF THE PANEL  
1.3 On 10 December 2009, the European Union, and on 26 March 2010, the United States, 
requested the Dispute Settlement Body ("DSB") to establish a panel pursuant to Articles 4 and 6 of 
the DSU, with standard terms of referen ce as set out in Article 7.1 of the DSU.5  At its meetings on 
                                                      
1 The European Union's request for consultations was filed before the entry into force of the Treaty of 
Lisbon amending the Treaty on European Union and the Treaty establishing the European Community  (done at 
Lisbon, 13 December 2007).  On 30 November 2009, the World Trad e Organization received a Verbal Note 
(WT/L/779) from the Council of the European Union and the Commission of the European Communities stating 
that, by virtue of the Treaty of Lisbon , as of 1 December 2009, the "Europ ean Union" replaces and succeeds the 
"European Community".  On 13 July 2010, the World Trade Organization r eceived a Verbal Note (WT/Let/679) 
from the Council of the European Union confirming that , with effect from 1 D ecember 2009, the European 
Union replaced the European Community and assumed all the rights and obliga tions of the European 
Community in respect of all Agreements for which the Di rector-General of the Worl d Trade Organization is the 
depositary and to which the European Community is a si gnatory or a contracting party.  We understand the 
reference in the Verbal Notes to the "European Communi ty" to be a reference to the "European Communities".   
Thus, we will refer to the European Union in these reports. 
2 Philippines – Distilled Spirits , Request for Consultations by the European Communities 
(WT/DS396/1), 30 July 2009; and Request for Consultations by the United States (WT/DS403/1), 18 January 
2010.  In addition to Article 4 of the DSU, the European Union also cited Article 1 of the DSU as a basis for its 
request for consultations. 
3 See Philippines – Distilled Spirits , Request to Join Consultations:  Communication from the United 
States (WT/DS396/2), 12 August 2009 ;  Acceptance by the Philippines of the Request to Join Consultations 
(WT/DS396/3), 27 August 2009:  Request to Join Consultations:  Communication from the European Union 
(WT/DS403/2), 29 January 2010;  and, Acceptance by the Philippines of the Request to Join Consultations 
(WT/DS403/3), 3 February 2010. 
4 Philippines – Distilled Spirits , Request for the Establishment of a Panel by the European Union 
(WT/DS396/4), 11 December 2009, attached  as Annex G-1 of the reports;  a nd Request for the Establishment of 
a Panel by the United States (WT/DS403/4), 29 March 2010,  attached as Annex G-2 of  the reports.  See also 
European Union's first written submission, paras. 4-5 and 7;  United States' first written submission, para. 4;  
United States' comments on the draft descriptive sections of the Panel Reports (6 April 2011). 
5 Philippines – Distilled Spirits , Request for the Establishment of a Panel by the European Union 
(WT/DS396/4), 11 December 2009;  an d Request for the Establishment of a Panel by the United States 
(WT/DS403/4), 29 March 2010. WT/DS396/R 
WT/DS403/R Page 2 
 
 
  19 January and 20 April 2010, the DSB established a single Panel for both complaints in accordance 
with Articles 6 and 9 of the DSU.
6 
1.4 The Panel's terms of reference are the following: 
"To examine, in the light of the relevant provisions of the covered agreements cited 
by the parties to the dispute, the matter referred to the DSB by the European Union 
and the United States in documents WT/DS396/4 and WT/DS403/4 and to make such 
findings as will assist the DSB in making the recommendations or in giving the 
rulings provided for in those agreements."7 
1.5 On 25 June 2010, pursuant to Article 8.7 of the DSU, the European Union and the 
United States requested the Director-General to de termine the composition of the panel.  On 5 July, 
the Director-General com posed the Panel as follows: 
 Chairman: Mr Eirik Glenne 
  Members: Mr Minn Naing Oo 
   Ms Claudia Orozco 
 1.6 Australia, China, Colombia, the European Uni on, India, Mexico, Chinese Taipei, Thailand, 
and the United States, reserved their rights to par ticipate in the Panel proceedings as third parties.
8 
C. PANEL PROCEEDINGS  
1.7 On 14 July 2010, the Panel held its organizationa l meeting with the parties to seek their views 
on the proposed timetable and working procedures.   At this meeting, the Philippines proposed 
language to be added to the draft working pr ocedures with respect to the protection of 
business confidential information ("BCI").  The comp lainants made a number of comments on this 
proposal. 
1.8 On 28 July 2010, taking into consideration the comments made by the parties both during and 
after the organizational meeting, the Panel adopt ed its timetable and working procedures.  On 
31 August, the Panel also adopted addi tional working procedures concerning BCI.9 
1.9 The Panel received written submissions from the complainants and the Philippines on 
2 September and 14 October 2010, respectively.  In  accordance with the Panel's working procedures, 
each party submitted an executive summary of its written submission.  Australia and Mexico filed 
third-party written submissions on 25 October.  Au stralia submitted an exec utive summary of its 
third-party written submission. 
                                                      
6 See minutes of DSB meetings held on 19 January 2010 and on 20 April 2010 (documents 
WT/DSB/M/278 and WT/DSB/M/282, respectively). 
7 Philippines – Distilled Spirits , Constitution of the Panel Established at the Requests of the European 
Union and the United States:  Note by the Secretariat (WT/DS396/ 5 and WT/DS403/5). 
8 The European Union and the United States reserved their rights to participate as third parties with 
respect to each other's complaints;  Colombia is a third party with respect to the dispute brought by the 
United States (WT/DS403).  See Philippines – Distilled Spirits , Constitution of the Panel Established at the 
Requests of the European Union and the United Stat es:  Note by the Secr etariat (WT/DS396/5 and 
WT/DS403/5). 
9 The Panel's working procedures and the Panel's a dditional working procedures concerning business 
confidential information are att ached as Annexes G-3 and G-4, respectively, of the reports.  WT/DS396/R 
 WT/DS403/R 
 Page 3 
 
 
  1.10 The Panel held its first substantive meeting w ith the parties on 17 and 18 November 2010.  It 
met with the third parties on 18 November;  in th is meeting, Australia, India, and Chinese Taipei 
delivered oral statements.  On 23 November, the Pa nel sent written questions to the parties and the 
third parties.  On 8 December, the Panel recei ved responses to the questions from the European 
Union, the United States, the Philippines, Australia, India, and Mexico. 
1.11 Parties filed their written rebuttals on 22 Dece mber 2010.  In accordance with the Panel's 
working procedures, each party submitted an  executive summary of its written rebuttal. 
1.12 The Panel held its second substantive mee ting with the parties on 9 February 2011.10  O n  
15 February, the Panel sent written questions to the pa rties.  On the same date, the Philippines sent a 
written question to the European Union.  On 24 February, the Panel received responses to the 
questions from the European Union, the United States and the Philippines.  On 3 March, the European 
Union and the United States submitted comments on the Philippines' replies, and the Philippines 
submitted comments on the European Un ion's and the United States' replies.11 
1.13 On 23 March 2011, the Panel issued the draft descriptive (factual and arguments) sections of 
its reports.  On the same date, Australia, India,  Mexico and Chinese Taipei were sent excerpts from 
the descriptive sections containing the summary of th eir respective arguments.  On 6 April, the Panel 
received comments from the European Union, the United States and the Philippines on the draft 
descriptive sections of the reports.  It also r eceived comments from Australia on the summary of its 
own arguments. 
1.14 The Panel issued its interim reports to the parties on 4 May 2011.  On 25 May, the European 
Union, the United States and the Philippines request ed the Panel to review precise aspects of the 
interim reports.  On 8 June, the parties subm itted written comments on each other's comments and 
requests for interim review.  Neither party request ed an interim review meeting with the Panel. 
1.15 The Panel issued its final reports  to the parties on 27 June 2011. 
                                                      
10 At the second substantive meeting, the European Union and the United States requested the Panel to 
issue separate reports for each of the disputes in a single document.  They further suggested th at this document 
should contain the conclusions and recommendations for each of the disputes on separate pages, with each page 
bearing only the report symbol relating to that dispute.  The Philippines did not object to such request.  The 
Panel's findings are therefore issued in the form of a single document, containing two separate reports. The 
Panel's conclusions and recommendations for each of the di sputes are set out on separate pages, with each page 
bearing only the report symbol relating to that dispute. 
11 In its comments on the Philippines' responses to Panel questions, the European Union submitted 
exhibit EU-118, and asserted the existence of "good cause", pursuant to paragraph 12 of the Panel's working 
procedures, for submitting this document at that stage.  On 4 March 2011, the Panel invited the Philippines and 
the United States to comment on the submission of exhibit EU-118 by the European Union.  In response to the 
Panel's invitation, on 9 March the Philippines and the United States provided comments on exhibit EU-118.  In 
their respective comments, the Philippines and the United States did not object to the filing of the document in 
exhibit EU-118. WT/DS396/R 
WT/DS403/R Page 4 
 
 
  II. FACTUAL ASPECTS
12 
A. THE EXCISE TAX 
2.1 The measure at issue in the present case is de fined by the European Union as "the excise tax 
regime in force in the Philippines with respect to distilled spirits", or simply the "excise tax regime".13  
Similarly, the United States refers to the measure at issue as the "Philippines tax system for distilled 
spirits."14  For ease of reference, we will refer to th e measure at issue as the "excise tax".  As 
described by the complainants in their respective panel requests, the "excise tax" is regulated through 
the following instruments: 
(a) Section 141 of the National Internal Revenue Code of 1997 , Republic Act No. 842415, 
as subsequently amended, particularly by Section 1 of Republic Act No. 933416; 
(b) Republic Act No. 8240, an Act amending Sections 138, 139, 140 and 142 of the 
National Internal Revenue Code, as  amended, and for other Purposes17; 
(c) Revenue Regulations No. 02-97 Governing Excise Taxation on Distilled Spirits, 
Wines and Fermented Liquors , implementing the relevant provisions of Republic Act 
No. 824018; 
(d) Revenue Regulations No. 17-99, Implemen ting Sections 141, 142, 143 and 145(A) 
and (C) (1), ( 2), (3) and (4) of the Nati onal Internal Revenue Code of 1997 relative 
to the Increase of the Excise Tax on Dis tilled Spirits, Wines, Fermented Liquors and 
Cigars and Cigarettes Packed by Machine by Twelve Per Cent (12%) on 1 January 
200019; 
(e) Revenue Regulations No. 9-2003 Amendi ng Certain Provisions of Revenue 
Regulations No. 1-97 and Revenue Regula tions No. 2-97 Relative to the Excise 
Taxation of Alcohol Products, Cigars and Cigarettes for the Purpose of Prescribing 
the Rules and Procedures To Be Observed in the Establis hment of the Current Net 
Retail Price of New Brands and Variants of New Brands of Alcohol and Tobacco 
Products20; 
(f) Revenue Regulations No. 23-2003 Implementing the Revised Tax Classification of 
New Brands of Alcohol Products and Variants Thereof Based on the Current Net 
                                                      
12 This section describes the evidence before the Panel.   It includes uncontested facts, as well as factual 
arguments presented by one or more of the parties that  are contested, with the Panel's assessment of those 
arguments.  The Panel used these facts and its factual findings to draw legal conclusions on the claims before it.  
Those legal conclusions are set forth in Section VII of these reports. 
13 Philippines – Distilled Spirits , Request for the Establishment of a Panel by the European Union 
(WT/DS396/4), 11 December 2009, p. 1.  See also European Union's first written submission, para. 11. 
14 See e.g. United States' first written submission, para. 8. 
15 Exhibits EU-1 and US-1. 
16 Exhibits EU-2, US-2 and PH-4. 
17 Exhibits EU-3, US-3 and PH-31. 
18 Exhibits EU-4 and US-4. 
19 Exhibits EU-5 and US-5. 
20 Exhibits EU-6 and US-6.  WT/DS396/R 
 WT/DS403/R 
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  Retail Prices Thereof as Determined in  the Survey Conducted Pursuant to Revenue 
Regulations No. 9-200321; 
(g) Revenue Regulations No. 12-2004 Providing for the Revised Tax Rates on Alcohol 
and Tobacco Products introduced on or before 31 December 1996, and for those 
Alcohol and Tobacco Products Covered by  Revenue Regulations No. 22-2003 and 
23-2003, Implementing Republic Act No. 933422;  and, 
(h) Revenue Regulations No. 3-2006 Prescribing the Implementing Guidelines on the 
Revised Tax Rates on Alcohol and Tobacco Products Pursuant to the Provisions of 
Republic Act No. 9334, and Clarifying Cert ain Provisions of Existing Revenue 
Regulations Relative Thereto .23 
2.2 Under the excise tax, taxes are collected on di stilled spirits in accordance with the criteria 
set out in Section 141 of the Philippines' National Internal Re venue Code of 1997 (the "NIRC"), as 
amended.24  In essence, the excise tax creates a system that combines specific and ad valorem  taxes.25 
2.3 Distilled spirits produced from the sap of the nipa, coconut, cassava, camote , or buri palm, or 
from juice, syrup or sugar of the cane (the designated raw materials) fall under Section 141(a) of the 
NIRC, and are subject to a flat tax rate.26  Section 141(a) also requires that the "designated raw 
materials" be "produced commercia lly in the country where they ar e processed into distilled spirits".27  
The excise tax rates under Section 141  have been periodically increased since this provision was 
                                                      
21 Exhibits EU-7 and US-7. 
22 Exhibits EU-8 and US-8. 
23 Exhibits EU-9 and US-9. 
24 Section 141  of the NIRC was enacted by Republic Act 8424 of 1997, as amended by Republic Act 
9334 of 2004, which gives this provision its current text.  See exhibits EU-1, US-1 and EU-3, US-3, PH-4, 
respectively. 
25 Until 1996, and with the exception of a br ief period between 1985 and 1987 (when an ad valorem  tax 
applied to "compounded liquor"), the Philippines always had a pure specific tax system for distilled spirits.  In 
1996, when Republic Act 8240 introduced for the first time the three-tiered tax rates based on the net retail price 
of spirits made from "other raw materials" , the current system combining a specific and ad valorem  tax was 
created.  European Union's first written submission, pa ras. 18–19;  Philippines' first written submission, 
paras. 30-33.  But see Philippines' comments on the draft descriptive sections of the Panel Reports 
(6 April 2011). 
26 European Union's first written submission, para. 15;  United States' first written submission, para. 11;  
Philippines' first written submission, para. 22.  The Philippi nes has generally referred in its submissions to these 
spirits as "sugar-based spirits".  It has referred to distilled spirits produced from other raw materials as 
"non-sugar-based spirits".  We note, however, that all distilled spirits, irrespective of the raw material on which 
they are based, are made from the fermentation of sugars.  See 2.23 below.  See also  European Union's response 
to Panel question No. 11, paras. 1-2;  United States' opening statement at second substantive meeting, paras. 7-8;  
United States' response to Panel question No. 11, paras. 1-2;  Philippines' first written submission, footnote 8 to 
para. 10;  Philippines' response to Panel question No. 11.  Accordingly, we will refer to distilled spirits made 
from the "designated raw materials" and to distilled spirits  made from "other raw materials".  Parties have also 
referred to sugar cane molasses, which is a juice or syru p of the cane and would therefore be a designated raw 
material. 
27 European Union's first written submission, para. 12;  United States' first written submission, para. 11;  
United States' second written submission, para. 47;  Ph ilippines' response to Panel question Nos. 60 and 68.  
Unlike the "raw material" requirement, which has existe d under Philippine law as far back as 1914 (with the 
enactment of Act 2339 – exhibit PH-9), the "commercially produced" requirement was introduced for the first 
time in 1983 (with the enactment of Executive Order 923 – Exhibit PH-3).  European Union's first written 
submission, para. 17;  Philippines' first written submi ssion, footnote 13 to para. 19 and paras. 26-29. WT/DS396/R 
WT/DS403/R Page 6 
 
 
  enacted in 1997.
28  As from 1 January 2011, spirits falling under Section 141(a)  are subject to a flat 
tax rate of Philippine Pesos (PHP) 14.68 per proof litre ("ppl"). 
2.4 Distilled spirits produced from raw materials ot her than those indicated above (other raw 
materials) fall under Section 141(b)  of the NIRC, which provides for three tax rates that apply 
depending on the "net retail price" ("NRP")29 of a 750 millilitres (ml) bottle of the spirit.30 As from 
1 January 201131, spirits falling under Section 141(b)  are subject to a tax of: 
(a) PHP 158.73 ppl, if their NRP is less than PHP 250.00; 
(b) PHP 317.44 ppl, if their NRP is PHP 250.00 up to PHP 675.00;  or, 
(c) PHP 634.90 ppl, if their NRP is more than PHP 675.00. 
2.5 All the rates under Section 141  are set in "proof litres".32  Because distilled spirits have 
different alcohol contents (proof) and bottle volum es, the appropriate excise tax applicable to a 
particular spirit will vary depending on these factors.33 
                                                      
28 Republic Act 8424 of 1997 determined that the tax rates under Section 141  were to be increased 
12 per cent as from January 2000.  Subsequently, Republic Act 9334 of 2004 increased the tax rates by between 
30 per cent (for spirits from "designated raw materials") and 50 per cent (for spirits from "other raw materials") 
compared to the previous year.  Republic Act 9334 also determined that the tax rates were to be increased 
8 per cent "every two years starting on January 1, 2007 until January 1, 2011."  See also Revenue Regulations 
3-2006, pp. 7-8 (exhibits EU-9 and US-9), which contains a table indicating all the Section 141  tax rate 
increases for 2005, 2007, 2009, as well as the current ra tes for 2011.  European Union's first written submission, 
paras. 13, 14 and 19;  United States' first written submission, para. 12. 
29 The NRP is determined by the Philippines' Bureau of Internal Revenue ("BIR") through a 
price survey conducted by itself or by the National Statis tics Office.  For brands marketed within Metro Manila, 
the NRP is the price at which the distilled spirit is sold on retail in at least 10 major supermarkets in Metro 
Manila, excluding any applicable excise and value-added taxes.  For brands marketed outside Metro Manila, the 
NRP is that at which the distilled spirit is sold in at least 5 major supermarkets in the region, excluding any 
applicable excise and value-added taxes.  See Republic Act 9334 of 2004, Sec. 1, page 3, in exhibits EU-2, US-
2 and PH-4.  See European Union's first written submission, para. 20;  United States' first written submission, 
para. 17.  See also para. 2.9 below. 
30 European Union's first written submission, para. 15;  United States' first written submission, para. 11;  
Philippines' first written submission, para. 22. 
31 The excise tax rates under Section 141  have been periodically incr eased since this provision was 
enacted in 1997.  See footnote 28, above. 
32 Under Philippine law, a "proof litre" is defined as a "liquor containing one-half (½) of its volume of 
alcohol of a specific gravity of seven thousand nine hundred and thirty-nine ten thousandths (0.7939) at fifteen 
degrees centigrade (15 C)."  Republic Act 9334, Sec. 1, page 3, in exhibits EU-2, US-2 and PH-4.  See also 
European Union's first written submission, footnote 18 to para. 15. 
33 This means that the more alcohol content and volume a bottle of a given distilled spirit has, the 
higher the applicable tax will be.  The applicable tax of a particular bottle can be determined by using the 
following formula: 
 
Tax Rate x % of alcohol x 2 x Bottle Volume = Tax 
 
So, for example, under the current Section 141(a)  rate of PHP 14.68 per proo f litre, the excise tax on a 
750 ml bottle of local White Castle Whisky , made from designated raw materials (in this case, cane sugar), 
80 per cent proof (or 40 per cent alcohol), would be calculated as follows: 
 
14.68 x (40/100) x 2 x (750/1000) = PHP 8.81 
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  2.6 With respect to the requirement in Section 141(a) that the "designated raw materials" be 
"produced commercially in the count ry where they are processed into distilled spirits", the Philippines 
explained that "there should be no restriction as to the origin of the raw materials used in production, 
so long as they are also produced commercially  in the country where the distilled spirit is 
manufactured."34  This means that under the measure , imported distilled spirits made from 
"designated raw materials" may fall under Section 141(a)  or Section 141(b)  depending on the country 
where the distilled spirit (the ethyl alcohol or the finished product, as the case may be) is manufactured.
35 
2.7 More specifically, distilled spirits (including  ethyl alcohol) made from "designated raw 
materials" and imported from c ountries where these raw materi als are "produced commercially" 
would be subject to the flat tax rate under Section 141(a) .  This is the case even if the "designated raw 
material" used to produce the sp irit came from a third country.36  Likewise, a distilled spirit made 
from "designated raw materials" and imported into the Philippines from a country which does not 
produce the designated raw materials commercially w ould still be subject to the flat tax rate under 
Section 141(a)  if the ethyl alcohol on which the spirit is  based was distilled in a third country where 
the designated raw materials are produced commercially.37 
2.8 The transformation of the designated raw materi als into distilled spirits (including ethyl 
alcohol) in countries where these raw materials are not "produced commercially" would not allow the 
resulting spirits to enjoy the flat tax rate under Section 141(a) ;  these spirits are instead subject to one 
of the three tax rates under Section 141(b) .38  This will be the case even if the "designated raw 
material" used to produce the sp irit came from a third country where the material is indeed 
"produced commercially".39 
2.9 Based on the above criteria, each brand of distille d spirit sold in the Philippines is classified 
as falling under Section 141(a)  or (b) by the Philippine Bureau of In ternal Revenue ("BIR") according 
to its constituent raw material and, if applicable, its NRP.  Spirits that are not made from "designated 
raw materials", or that are made in countries where these materials are not "produced commercially", 
                                                                                                                                                                     
The excise tax on a 750 ml bottle of imported Jim Beam Black Whiskey , made from other raw 
materials, 86 per cent proof (or 43 per cen t alcohol), would be calculated as follows: 
 
317.44 x (43/100) x 2 x (750/1000) = PHP 204.75 
 
See United States' first written submission, para. 14 (submitting identical examples, but based on the 
2009 applicable tax rates). 
34 Philippines' response to Panel question No. 60.  S ee also European Union's first written submission, 
para. 20;  European Union's second  written submission, paras. 15-17. 
35 See Philippines' response to Panel question Nos. 60 and 68. 
36 See e.g. United States' second written submission,  para. 46.  See Philippines' response to Panel 
question No. 60 (submitting two BIR rulings:  a 1997 BIR ruling with respect to rum imported from Trinidad 
and Tobago, in which this country was considered to be a sugar cane producer, and a 2007 BIR ruling with 
respect to rum imported from France, which was also considered to be a sugar cane producer country because 
the rum came from Martinique, a French territory in the We st Indies).  See exhibits PH-62 and PH-71.  See also 
European Union's second written submission, footnote 14 to para. 16. 
37 See Philippines' response to Panel question No. 68.  See also the European Union's comments on the 
Philippines' response to Panel question No. 68, para. 5. 
38 See European Union's second written submission, para. 16;  European Union's comments on 
Philippines' response to Panel question No. 68, paras. 4-9;  Philippines' response to Panel question No. 60. 
39 Philippines' response to Panel question Nos. 60 and 68.  See also European Union's comments on 
Philippines' response to Panel question No. 68, paras. 4-9. WT/DS396/R 
WT/DS403/R Page 8 
 
 
  need to have their NRP established so as to be cl assified under one of the three rates indicated in 
Section 141(b) .
40 
2.10 With respect to the payment of Section 141  excise taxes, the following situations may arise.  
If a domestic producer buys ethyl alcohol made from "designated raw materials" from a domestic 
supplier in order to manufacture spirits, the latter is liable to pay the Section 141(a)  tax on the ethyl 
alcohol.  Alternatively, if a domestic producer im ports such ethyl alcohol (made from the designated 
raw materials in a country where these ma terials are produced commercially), the Section 141(a)  tax 
on this product has to be paid to Customs by the "owner or importer" before the good can be 
released.41  Finally, with respect to certain spirits  that contain more than one material, Section 141  
provides that the excise tax is paid on the component of the mixture, and not on the mixture itself.42  
The Philippines explains that:  
"If the beverage producer imports non-sugar b ased ethyl alcohol or distilled spirits for 
blending to make into a whisky or brandy for instance, whether straight, blended or compound spirits, the excise tax under 141 (b) is paid before the goods can be released from the Philippine customhouse. 
Hence, the amount of excise tax on a par ticular product depends on the ratio of 
sugar-based to non-sugar based spirit (whe ther 99:1, 90:10; 60:40, 10:90, etc.) 
contained in the blend or the co mpound of a distilled spirits product."
43 
2.11 The classification and applicable tax of "existi ng brands" and "new bra nds" of distilled spirits 
is generally indicated in the anne xes to relevant acts and regulations.  These annexes are presented in 
the form of separate tables for spirits made from "designated raw materials" and for spirits made from 
other raw materials.  These tables contain inter alia  the following information:  the brand name of the 
spirit, its bottle size (in ml), its proof litre, its NRP.44 
2.12 "Existing brands" include those brands that were registered before  1 January 1997, the 
classification of which, if applicable, was based on the NRP of these products as of 1 October 1996.45  
Many, but not all, of the "existing brands" are listed in Annex A to Republic Act No. 824046 and 
                                                      
40 United States' first written submission, para. 15;  Philippines' response to Panel question No. 47. 
41 Philippines' response to Panel question Nos. 59 and 69(a)-(c).  See Sections 130 and 131 of the 
NIRC, in exhibit PH-79. 
42 Section 141  states that "... the tax should attach to [the] substance as soon  as is in existence as such, 
whether it be subsequently separated as pure or impure spirits, or transformed into any other substance either in 
the process of original production or by any subsequent process."  So, for example, a whisky from 90 per cent 
straight whisky and 10 per cent sugar cane neutral spirit would be taxed as follows:  the 90 per cent straight 
whisky component would be subject to one of the three Section 141(b)  taxes, while the 10 per cent sugar cane 
neutral spirit component would fall under the Section 141(a)  flat tax.  See Philippines' response to Panel 
question Nos. 24 and 25. 
43 Philippines' response to Panel question No. 69(a). 
44 The Annexes that contain the classification of spirits falling under Section 141(b)  are further divided 
into three sub-categories of spirits:  "Premium" (high-pr iced);  "De Luxe" (medium priced);  and, "Standard" 
(Low-priced).  See European Union's first written submissi on, para. 20;  Philippines' response to Panel question 
No. 65. 
45 Philippines' response to Panel question No. 65.  See also Republic Act 8240 in exhibits EU-1 and 
US-1. 
46 Republic Act 8240 in exhibits EU-1 and US-1, in which the taxation of distilled spirits was based on 
Section 138 (later replaced by Section 141 ).  WT/DS396/R 
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  Revenue Regulations 2-97.47  "New brands" refer to those brands  that were registered and classified 
after  1 January 1997.48 
2.13 Revenue Regulations 23-200349 and Revenue Regulations 12-200450 are the two most recent 
public listings of "existing brands " and "new brands".  Revenue Re gulations 23-2003 implemented the 
revised tax classifications of certain "new brands", including variants thereof.51  Revenue 
Regulations 12-2004 set out the new revised tax rates (based on Republic Act 9334) of all "existing 
brands" that were classified under Section 141(a)52 and also include the rates for a number of 
additional "existing brands" that  were not published before.53  There is no updated, comprehensive list 
of brands which were introduced after 31 December 2003.54 
2.14 In the case of "new brands" of imported distilled spirits, the "suggested" NRP of spirits falling 
under Section 141(b)  is ascertained based on a "sworn statemen t" by the importer.  Such "suggested" 
NRP is later analysed and validated by the BIR.55 
                                                      
47 Revenue Regulations 2-97 in exhibits EU-1 and US-1.  According to Republic Act 9334, "existing 
brands" are not only those set forth in "Annex A" of that  Act, but also those that "were registered and were 
being commercially produced and marketed on or after October 1, 1996, and which continue to be commercially 
produced and marketed after the effectivity of this Ac t ..."  See Republic Act 9334, in exhibits EU-2, US-2 
and PH-4. 
48 The effective date of Republic Act 8240 is 1 January 1997.  "New brands" are defined in Republic 
Act 9334 (exhibits EU-2, US-2 and PH-4) and Revenue Regulations 3-2006 (exhibits EU-9 and US-9). 
49 Revenue Regulations 23-2003 in exhibits EU-7 and US-7. 
50 Revenue Regulations 12-2004 in exhibits EU-8 and US-8.  See also United States' first written 
submission, paras. 68-69. 
51 Such revision was based on a nationwide survey of current NRP conducted by the BIR pursuant to 
Revenue Regulations No. 9-2003.  See Philippines' first written submission, para. 173;  Philippines' response to 
Panel question No. 65. 
52 These 24 brands were originally listed in "Annex A" of Republic Act No. 8240. 
53 See Philippines' response to Panel question No. 65. 
54 Ibid. 
55 Philippines' response to Panel question Nos. 47 and 66.  Revenue Regulations 3-2006, in exhibits 
EU-9 and US-9, set out the procedure for the submission of the importer's sworn statement and the 
determination of the NRP.  More specifically, as explai ned by the Philippines, Section 23 of said regulations: 
 
" ... provides that prior to the importation of a ne w brand or a variant of an existing brand, an 
application for registration thereof must be filed with th e office of the BIR where the importer is registered or 
required to be registered as an excise taxpayer.  Th e application must be accompanied by, inter alia, a duly 
notarized importer's sworn statement for each brand an d variant of the brand showing, among others, the 
following information:  Name, address, tax identification number and assessment number of the importer;  
Complete root name of the brand as well as the comple te brand name with modifiers, if any;  Complete 
specifications of the brand detailing the specific measurements, weights, manner of packaging, etc.;  Name(s) of 
the region(s) where the brand is/are to be marketed;  Wh olesale price per case, gross and net of value added tax 
(VAT) and excise tax;  Suggested retail price, gross and net of VAT and excise tax, per bottle;  Detailed 
importation costs and all other expenses incurred or to be incurred until the product is finally sold (e.g. 
materials, labor, overhead, selling and administrative expenses) per case;  Applicable rate of excise tax per unit 
of measure or value, as the case may be;  and Corresponding excise and VAT per case.  The importer must 
submit thereafter an updated sworn statement of the brand on or before the end of the months of June and 
December of the year.  Within 45 days immediately afte r the end of 3 months from the product launch, the BIR 
or the National Statistics Office (NSO), when deputized by  the BIR for the purpose, sh all conduct a price survey 
to validate the suggested net retail price of the new brand as declared in the importer’ s sworn statement, against 
the surveyed net retail price.  Based on the results of the price survey, the BIR sha ll determine the correct tax 
bracket to which such brand of alcohol shall be classified.  A further review is conducted after the end of 18 
months from the initial validation, in order to determine the proper tax bracket to which such brand shall be 
classified." WT/DS396/R 
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  2.15 Once a specific brand is classified as falling under Section 141(a)  or (b), the reclassification 
of that brand is not foreseen and therefore may not occur, except through an Act of Congress.
56  With 
respect to spirits falling under Section 141(b) , reclassification in a different tax tier is not foreseen, 
even when the NRP of the spirit concerned changes after the original classification has been made.57 
2.16 In case an importer of a spirit falling under Section 141  considers that the classification of 
such spirit has not been made corr ectly, the Philippines explains that: 
"The affected taxpayer may request a ruling from the Commissioner of Internal 
Revenue (the head of the Bureau of Internal  Revenue) for the proper tax treatment of 
the product.  Section 4 of the NIRC provides that the 'power to interpret the 
provisions of this Code and other tax laws  shall be under the exclusive and original 
jurisdiction of the Commissioner [of Internal  Revenue], subject to review by the 
Secretary of Finance.'  Rulings interpreting the provisions of the NIRC are issued by the Commissioner of Internal Revenue unde r the power granted to the Commissioner 
pursuant to this section. In case of an adverse ruling by the Commissioner, the 
taxpayer may seek the review of such ruling by the Secretary of Finance."
58 
2.17 According to the evidence, all distilled spirits  produced in the Philippines are made from 
designated raw materials and the base spirit has been processed from the designated raw materials 
either in the Philippines or in other countries wh ere those raw materials are produced commercially.  
More specifically, and as it will be further described below59, most of the distilled spirits produced in 
the Philippines are made from one particular designated raw material:  sugar cane molasses.60  
Accordingly, all distilled spirits produced in the Philippines are s ubject to the current Section 141(a)  
flat tax rate of PHP 14.68 ppl.  In contrast, the vast majority of distilled spirits imported into the 
Philippines are made from other raw materials and are t hus subject to one of th e three current tax rates 
                                                      
56 See Sections 4 and 5 of Revenue Regulations 3-2006.  See also European Union's first written 
submission, para. 20;  United States' first written submi ssion, para. 16;  Philippines' first written submission, 
para. 306;  Philippines' response to Panel question No. 66. 
57 Philippines' first written submissi on, para. 306;  Philippines' response to Panel question No. 66. 
58 Philippines' response to Panel question No. 67 (also submitting exhibit PH-78, containing 
Department Order 7-02, which provides for implementing rules for the relevant part of Section 4 of the NIRC).  
See also European Union's comments on Philippines' response to Panel question No. 67, paras. 1-3;  
United States' comments on Philippines' response to Panel question No. 67, paras. 1-2. 
59 See paras. 2.61, 2.68, 2.74, 2.80, 2.86 and 2.92 below. 
60 There are however domestic distilled spirits that are made from designated raw materials other than 
sugar cane molasses (i.e. from the sap of the nipa, coconut, cassava, camote , or buri palm)  One example of 
such a product is " lambanog ", a local spirit made from coconut.  European Union's first written submission, 
footnote 19 to para. 15;  European Union's first written submission, para. 20;  European Union's opening 
statement at first substantive meeting, para. 58;  Philippi nes' first written submission, para. 51;  exhibits EU-41, 
EU-81 and PH-8.  According to an estimate provided by the United States, sales of lambanog  represented 
approximately 0.011 per cent by volume, and 0.004 per cent by value, of total sales of distilled spirits in the 
Philippines in the year 2008.  See tables 1 and 2 in exhibit US-40.  Spirits made from the sap of the nipa, 
camote , or buri palm are not produced in the Philippines in commercial quantities and are only limited to 
artisanal producers.  Philippines' response to Panel question No. 20;  European Union's opening statement at 
second substantive meeting, para. 68;  exhibit EU-81.  Pointing to exhibits EU-45 and EU-105, the European 
Union suggests that there is evidence that other raw materials (such as camote ) are currently used by Philippine 
manufacturers in the production of distilled spirits.  S ee European Union's comments on the draft descriptive 
sections of the Panel Reports (6 April 2011).  Exhibits EU-45 and EU-105 contain excerpts from the 2008 and 
2009 annual reports of a local manufact urer.  The excerpts suggest that the manufacturer is exploring options to 
produce alcohol from agricultural raw materials other than sugar cane molasses and is showcasing opportunities 
for local farmers.  There is no evid ence in any of these exhibits that raw materials other than sugar cane 
molasses are currently used by Philippine dis tilled spirits producers in commercial quantities.  WT/DS396/R 
 WT/DS403/R 
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  under Section 141(b) :  PHP 158.73 ppl, PHP 317.44 ppl or PHP 634.90 ppl, depending on their 
NRP.61 
B. PRODUCTS AT ISSUE  
1. Products at issue 
2.18 In both the European Union's and the United St ates' panel requests the relevant products are 
defined as "distilled spirits".62 
2.19 The European Union provides further details on the products at issue: 
"[D]istilled spirits falling within the headi ng 2208 of the Harmonised System (the 
'HS'), including, among others, whisky, gin,  brandy, rum, vodka, tequila, liqueurs.  
These products will be collectively referred to  as 'distilled spirits' or as 'spirits'."63 
2.20 In turn, the United States describ es the products at issue thus: 
"Distilled spirits are alcoholic beverages made  'from wine or other fermented fruit or 
plant juice or from a starchy material (suc h as various grains) that has first been 
brewed.'  By heating the fermented or brew ed material, the alcohol is evaporated and 
captured.  This alcohol is the 'distilled spir it.'  Distilled spirits are distinguished from 
other alcoholic beverages, such as beer a nd wine, by the higher alcohol content.  
Exhibit US-12, Encyclopedia Britannica Artic le on Distilled Spirits.  Distilled spirits 
fall under Heading 2208 of the Harmonized Tariff System, and they include many 
types of spirits, such as gin, vodka, brandy, whiskey, tequila, rum, and liqueurs.  See, 
e.g., Exhibit US-13, Harmonized Tariff System."64 
2.21 For the purpose of this dispute, we will refer to "distilled spirits" generally, or to specific 
types of distilled spirits, such as gin, brandy, ru m, vodka, whisky, and tequila or tequila-flavoured 
spirits.  The Philippines has issued  Standards Administrative Orders (SAOs) for brandy, rum, vodka, 
                                                      
61 European Union's first written submission, paras. 105 and 161;  European Union's opening statement 
at first substantive meeting, para. 81;  United States' fi rst written submission, paras. 73 and 99;  United States' 
opening statement at first substantive meeting, para. 43-46;  United States' opening statement at second 
substantive meeting, para. 48;  United States' response to Panel question No. 56, para. 56.  According to the last 
list of brand classification, contained in Revenue Regulation 12-2004, Annexes A and B (based on the 2011 
Section 141  rates and adjusted ppl and bottle  volume), the current amount of ex cise tax applicable to certain 
brands of "local distilled spirits" made from designated raw materials in 750 ml bottles can range from PHP 6.86 
(for Tanduay ESQ ) to PHP 9.98 (for domestically-produced Gordon  gin and Oxford  gin).  Conversely, the 
current amount of excise tax applicable to certa in brands of "imported distilled spirits" made from 
other raw materials in 750 ml bottles can range from PHP 85.71 ( Fundador  and Veterano Osborne , both 
brandies) to a maximum of PHP 409.51 (for Johnny Walker Blue Label , Johnny Walker , Old Parr , Swing  and 
Glenlivet , all whiskies).  See exhibits EU-8 and US-8.  See also United States' first written submission, 
paras. 68-69 (and footnote 83 to para. 68). 
62 Philippines – Distilled Spirits , Request for the Establishment of a Panel by the European Union 
(WT/DS396/4), 11 December 2009, p. 3.  See also Eur opean Union's first written submission, para. 122.  
Philippines – Distilled Spirits , Request for the Establishment of a Panel by the United States (WT/DS403/4), 
29 March 2010, p. 1. 
63 European Union's first written submission, para. 10 .  See also European Union's response to Panel 
question No. 64, paras. 1-3. 
64 United States' first written submission, footnote 1 to para. 1. WT/DS396/R 
WT/DS403/R Page 12 
 
 
  and whisky detailing the standards that these products  must meet to be sold in the Philippines under 
each of these designations.
65 
2. Characteristics of distilled spirits 
2.22 In terms of physical characteristics, distilled spirits relevant in the present dispute are 
concentrated forms of potable alcohol (suitable for human consumption) obtained through the process 
of distillation.66  Combined, ethyl alcohol and water account for more than 99 per cent of the content 
of all distilled spirits.67  The average alcohol content for distille d spirits relevant in the present dispute 
ranges from around 25 per cent to 40 per cent by volume (or 50 to 80 US proof).  Spirits of the same 
category tend to have similar alcohol content.68 
2.23 The production of distilled spirits starts with the fermentation of feedstock.  Fermentation 
results in the breakdown of sugars  and the production of ethyl alc ohol (ethanol), carbon dioxide and 
small amounts of other by-products.  Feedstock for the production of ethyl alcohol can consist of any 
raw material that contains natural sugar or other car bohydrates that can be converted into sugars (such 
as sugar-cane, molasses, sugar beet, roots, juice of grapes, or mash of grains or cereals).69  A f t e r  
fermentation, the elaboration of spirits involves th e distillation of ethyl alcohol by boiling the product 
and separating its components based on the differe nces in their respective volatilities.  When the 
different components evaporate, they are captured in separate containers.70  Depending on the raw 
material used, different congeners are naturally  formed during the process of fermentation.  
Congeners are chemical compounds associated with the flavour and aroma characteristic of specific 
alcoholic beverages, such as acetal, acetaldehyde , ethyl acetate, isoamyl acetate, isoamyl alcohol, 
isobutanol, methanol and n-propanol.71  Levels and combinations of various congeners vary according 
to the type of spirit, and even according to the br and of the same spirit.  As noted by the parties, 
congeners may make up less than one per cent of the volume of the final product.72 
2.24 In certain cases, the flavour and aroma of specific distilled spirits may depend on the raw 
materials used in their production.  The flavour and aroma may also be affected by post-distillation 
processes such as ageing, blending, filtering, d iluting with water and incorporating additional 
                                                      
65 United States' first written submission, paras. 27-30. 
66 European Union's first written submission, paras. 79 and 121;  Philippines' response to Panel 
question No. 11;  exhibit EU-99. 
67 European Union's first written submission, para. 79. 
68 Ibid., para. 84.  See also exhib its EU-55 and EU-79.  Referring to an argument in its first written 
submission, the Philippines contests our conclusion that spirits of the same category tend to have similar alcohol 
content.  See Philippines' first written submission, para . 136;  Philippines' comments on the draft descriptive 
sections of the Panel Reports (6 April 2011).  The Philippines' argument, however, refers to differences in 
alcohol content between a particular domestic whisky and imported whiskies.  In our view, it does not affect our 
general conclusion. 
69 European Union's response to Panel question No. 11, paras. 1-2;  European Union's second written 
submission, para. 19;  United States' response to Panel que stion Nos. 11 and 31, paras. 1-2 and 18;  Philippines' 
first written submission, paras. 100-101;  Philippines' response to Panel question No. 11.  See also exhibits 
EU-84, US-12, PH-26 and PH-28. 
70 United States' response to Panel question No. 11, paras. 1-2;  Philippines' first written submission, 
paras. 106-107;  exhibit PH-28. 
71 Philippines' first written submission, paras. 102-10 5, 138, 149 and 164;  Philippines' response to 
Panel question No. 11.  See exhibits PH-26, PH-40 and PH-80. 
72 European Union's second written submission, paras. 60-65;  European Union's comments on 
Philippines' response to Panel question No. 70, paras. 10-13;  Philippines' opening statement at second 
substantive meeting, para. 13;  Philippines' response to Panel question No. 70;  exhibits EU-92, PH-40 and 
PH-80.  WT/DS396/R 
 WT/DS403/R 
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  flavourings.73  Indeed, the trace of the original raw materi als in the taste of the final product may be 
altered by the addition of natu ral or artificial flavourings.74 
2.25 As explained below, the colour, odour and taste normally associated with certain types of 
spirits, such as brandy, rum, whisky or tequila, are natural results of the distillation of ethyl alcohol 
from certain raw materials, such as wine or fortified wine, sugar molasses, wheat, barley or malt, or 
agave, respectively, and their respective process of production.  For other types of spirits, such as gin 
and vodka, the ethyl alcohol is normally stripped of its  congeners, so as to obtain a neutral spirit.  In 
the Philippines, most types of spirits (such as gin, brandy, rum, vodka, whisky and tequila or 
tequila-flavoured spirits) are distilled from s ugar cane molasses (one of the designated raw 
materials).75  In the case of Philippine brandy, vodka, wh isky and tequila or tequila-flavoured spirits, 
the ethyl alcohol is stripped of its congeners to pr oduce a neutral spirit.  Sp ecial additives are then 
incorporated into the cane sugar-based  spirit in order to ensure, as much as possible, that it has the 
colour, odour and taste traditionally associated with brandy, whisky or tequila.76 
2.26 Different brands of spirits of the same type may have differences in taste and aroma, and a 
consumer may prefer one product ove r another.  However, there is no evidence to suggest that a 
non-expert consumer would be able to distinguish between imported and domestic spirits of the same 
type based only on the different raw ma terials used in their respective production.77  Distilled spirits 
relevant in the present dispute have colours that  range from clear (transparent) to golden or 
mahogany. 
2.27 Many of the physiological effects on humans as sociated with the consumption of distilled 
spirits, such as intoxication, are due to the pr esence of ethyl alcohol.  These effects may vary 
according to many factors, including the type and qua ntity of spirit consumed, the weight, gender and 
age of the consumer, body chemistry, food in the stomach and drinking experience.  There is no 
                                                      
73 European Union's first written submission, pa ra. 82;  Philippines' first written submission, 
paras. 108-110.  But see Philippines' comments on the dr aft descriptive sections of the Panel Reports (6 April 
2011). 
74 Philippines' first written submission, paras. 108 and 112;  exhibits PH-26 and PH-34. 
75 The ethyl alcohol distilled from one of the designa ted raw materials and used by Philippine spirits 
producers may be made in the Philippines or imported from another country.  Philippines' first written 
submission, para. 301. 
76 European Union's second written submission, paras. 5-6;  United States' response to Panel question 
Nos. 21 and 23, paras. 11 and 13;  Philippines' first written submission, paras. 11, 98, 118-119, 134, 141, 143 
and 169;  Philippines' response to Panel question Nos. 17, 20, 31 and 32.  According to the Philippines, these 
additives include "nature-identical flavourings", which ar e "chemically identical to natural flavourings but are 
prepared or extracted using chemical methods.  They are identi cal to the molecules found in nature and the body 
cannot distinguish between them.  Natu re identical flavouring substances include: ethyl acetate (identical in 
nature to many fruits) and decanal (nature identical  to orange)."  Philippines' first written submission, 
footnote 129 to para. 108. 
77 European Union's response to Panel question Nos. 29 and 31, paras. 27-28 and 36-38;  exhibits 
EU-86 and PH-43.  The Philippines refers to a statement in the Euromonitor International  survey ("Consumer 
perceptions regarding substitutability in the Philippines di stilled spirits market", in exhibits EU-41 and US-41, 
p. 19), as evidence that non-expert consumers may be able to distinguish between imported and domestic spirits 
based on the different raw materials used in their respective production. See Philippines' first written 
submission, para. 130;  Philippines' second written submi ssion, paras. 34-38;  Philippines' response to Panel 
question Nos. 29, 31 and 32;  Philippines' comments on  the draft descriptive sections of the Panel Reports 
(6 April 2011).  In our view, however, the consumers responses cited in the Euromonitor International  survey 
do not disprove our conclusion.  Consumers consulted in this survey were not subject to a blind test, but were 
rather expressing personal preferences, based on pe rceptions, between more-expensive imported spirits and 
less-expensive domestic spirits. WT/DS396/R 
WT/DS403/R Page 14 
 
 
  evidence of any difference in this regard between imported and domes tic spirits, nor between spirits 
made from the designated materials and those made from other materials.
78 
2.28 Distilled spirits are normally bottled.  Freque nt bottle presentations are 750 ml and 700 ml, 
but also 375 ml, and 1,000 ml.79  Bottles carry labels, which have d esigns that tend to be similar for 
specific types of distilled spirits.80 
2.29 The cost of the raw materials used in the pr oduction of the base spirit may bear little relation 
with the price of the final product.  Depending on the specific product, bottling, packaging, aging, 
marketing and promotion can have a significant impact on the total cost.81 
2.30 With respect to domestic regulations on distille d spirits in the Philippines, local ordinances 
against drunk driving do not distinguish between im ported and domestic spirits, nor between spirits 
made from the designated materials and those made fr om other materials.  Nor is any such distinction 
made in local ordinances with respect to "the sal e, dispensation and/or distribution of alcoholic 
beverages".82 
3. Distilled spirits market in the Philippines 
2.31 According to figures submitted by the European Union, the population in the Philippines was 
about 91,983,102 for the year 2009.83  The Philippines has provided information on the income and 
expenditure of Philippine households.  By 2006,  45 per cent of the population earned less than 
2 United States dollars a day.84  In the same year, the poorest 30 per cent of the Philippine population 
would have received 10 per cent of the total in come, while the richest 10 per cent would have 
received 34 per cent of the income.85  Food and non-alcoholic beverages would account for 
42 per cent of household expenditures in the Philip pines;  alcoholic beverages would account for 
1.2 per cent.86 
                                                      
78 European Union's first written submission, para. 88;  Philippines' first written submission, para. 175.  
See also exhibit EU-50. 
79 European Union's first written submission, para. 83 .  International Wine and Spirit Research (IWSR) 
report in exhibits EU-15 and US-15, and exhibits EU-80 and PH-19. 
80 European Union's first written submission, para . 83.  See exhibits EU-55, EU-79 and US-38. 
81 European Union's response to Panel question No. 77, paras. 19-20;  European Union's comments on 
the Philippines' response to Panel question No. 77, para s. 39-40;  United States' response to Panel question 
No. 77, paras. 9-13;  Philippines' response to Panel question Nos. 76 and 77;  Philippines' comments on the 
European Union's and on the United States' responses to Panel question No. 77, paras. 14-16.  Referring to its 
response to questions 76 and 77 and to its comments on the European Union's and on the United States' 
responses to question 77, the Philippines contests our conclusion that the cost of raw materials may bear little 
relation with the price of the final product.  See Phili ppines' comments on the draft descriptive sections of the 
Panel Reports (6 April 2011).  The Philippines' arguments regarding alleged differences in cost between spirits 
made from the designated materials and those made from other materials, however, do not affect our general 
conclusion regarding the price of final products, which depends also on other factors. 
82 European Union's first written submission, paras. 90-91;  European Union's opening statement at 
second substantive meeting, para. 62;  United States' firs t written submission, paras. 53-55.  See also exhibits 
EU-51, EU-52, EU-53, US-28, US-29. 
83 European Union's first written submission, para. 4. 
84 Philippines' first written submission, para. 42 ;  exhibits PH-8 and PH-21 (figures in 2005 
international prices, adjusted at purchasing power parity). 
85 Philippines' first written submi ssion, para. 42;  exhibit PH-8. 
86 Philippines' first written submi ssion, para. 44;  exhibit PH-8.  WT/DS396/R 
 WT/DS403/R 
 Page 15 
 
 
  2.32 The following table, provided by the Philippines, divides the population in five on monthly 
household expenditures.  The bottom two classes, spending less than PHP 45 per week on alcoholic 
beverages, would make up 72.7 per cen t of the total Philippine population:87 
Class by Household monthly income % of population Total monthly 
expenditure (PHP) Weekly expenditure on 
alcoholic beverages (PHP) 
AB (PHP 50,000 and more) 2.1 50,007 – 353,512 150 – 1,061 
Upper C (PHP 30,001 – 50,000 5.5 30,022 – 49,979 90 – 150 
Lower C (PHP 15,001 – 30,000) 19.7 15,001 – 29,997 45 – 90 
D (PHP 8,001 – 15,000) 29.9 8,001 – 14,995 24 – 45 
E (less than 8,000) 42.8 343 – 8,000 1 – 24 
 
2.33 According to figures submitted by the United St ates, annual sales of distilled spirits in the 
Philippines have risen "from just over 400 million lit ers to just under 600 million liters over the past 
ten years [2000-2009], with the highest figures (in value as well as volume) in 2009".88  As shown 
below, in 2009 three types of distilled spirits (gin , brandy and rum) constituted 97.4 per cent of these 
sales:  gin represented some 36.8 per cent, brandy some 34.2 per cent and rum some 26.4 per cent.  
The remaining 2.6 per cent of the Philippines' sal es were split between vodka, whisky, tequila or 
tequila-flavoured spirits, and assorted local spirits.89 
                                                      
87 Philippines' response to Panel question No. 72;  exhibits PH-8, PH-18 and PH-22.  See also 
Philippines' first written submission, pa ras. 44-46 and 181;  Philippines' second written submission, paras. 50-
54.  But see European Union's comments on the Philippines'  response to Panel question No. 72, paras. 19-20;  
United States' comments on the Philippines' response to Panel question No. 72, para. 12. 
88 United States' first written submission, para. 31.  See Euromonitor International , "Consumer 
perceptions regarding substitutability in the Philippines di stilled spirits market", in exhibits EU-41 and US-41, 
p. 11.  See also United States' first written submission, para. 32, as well as the estimates in International Wine 
and Spirit Research (IWSR) report in exhibits EU-15 and US-15. 
89 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15.  See also 
Euromonitor International , "Country Sector Briefing" (March 2009), in exhibit US-40;  European Union's first 
written submission, para. 35;  United States' first writte n submission, paras. 31-33;  United States' second 
written submission, para. 49;  United States' response to Pa nel question No. 85, paras. 29-32;  Philippines' first 
written submission, para. 298.  Referring to its comme nts on the European Union's and on the United States' 
responses to Panel question No. 83, paras. 19-23, the Phil ippines contests our estimations on the relative shares 
of the different spirits in its market.  Philippines' comme nts on the draft descriptive sections of the Panel Reports 
(6 April 2011).  The Philippines, however, has not submi tted alternative estimations on the relative shares of the 
different spirits in its market.  Furthermore, the Philip pines comments on responses to Panel question 83, refer 
to the Euromonitor International  study in exhibits EU-41 and US-41, and not to the International Wine and 
Spirit Research (IWSR) report in exhibits EU-15 and US-1 5, on which our estimations are based.  Indeed, in its 
comments on responses to Panel question 83, the Philippines stated that the IWSR figures are "closer to the 
Philippine industry figures than the Euromonitor's figures."  Philippines' comments on the European Union's and 
on the United States' responses to Panel question No. 83, para. 22. WT/DS396/R 
WT/DS403/R Page 16 
 
 
  Percentage distribution of distilled spirits sales in the Philippines in the year 2009
90 
 
Gin (36.8%)
Brandy (34.2%)
Rum (26.4%)
Other spirits (2.6%)
 
2.34 According to estimates submitted by the Eur opean Union and the United States, domestic 
products accounted for 97.7 per cent of spirits c onsumption in the Philippines during the year 2009, 
while imported spirits accounted for the remaining 2.3 per cent of consumption.91 
2.35 The European Union and the United States provi ded the following estimates to the Panel, 
regarding the domestic consumption of distilled spir its in the Philippines during the year 2009, as well 
as the percentage of imported spirits:92 
 Gin Brandy Rum Vodka Whisky Tequila93 
Domestic consumption in 2009 
(in thousands of 9-litre cases) 18,075 16,802 12,972 132 85 24 
Percentage of imports 0.01% 5.4% 0.02% 28.44% 100%94 100%95 
                                                      
90 See International Wine and Spirit Research (I WSR) report in exhibits EU-15 and US-15. 
91 Ibid., p. 7.  See also European Union's first written submission, para. 24;  and United States' first 
written submission, para. 33.  But see Abrenica & Ducanes, "On Substitutability between Imported and Local 
Distilled Spirits" (University of Philippines School of Economics Foundation), in exhibit PH-49, p. 14 
(estimating that imported spirits would account for a 9.4 per cent market share in the Philippines in April 2010).  
The Philippines contests our estimations on the relative sh ares of domestic and imported distilled spirits in its 
market, referring to the impact that smuggling may have on the market share of imported spirits.  Philippines' 
comments on the draft descriptive sections of the Panel Reports (6 April 2011).  See e.g. Philippines' first 
written submission, para. 41.  The Philippines, however, has not submitted alternative estimations on the relative 
shares of domestic and imported dis tilled spirits in its market, nor on th e impact that smuggling may have on 
those shares. 
92 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15.  See also 
European Union's first written submission, para. 36.  Refe rring to its response to Panel question No. 86, as well 
as to its comments on the European Union's and on th e United States' responses to Panel question Nos. 83, 
paras. 19-23, and 86, the Philippines contested our estimat ions on the domestic consumption of distilled spirits 
in the Philippines, as well as the percentage of importe d spirits.  Philippines' comments on the draft descriptive 
sections of the Panel Reports (6 April 2011).  The Philippines, however, has not submitted alternative 
estimations.  Furthermore, the Philippines comments on responses to Panel question No. 83, refer to the 
Euromonitor International  study in exhibits EU-41 and US-41, and not to the International Wine and Spirit 
Research (IWSR) report in exhibits EU-15 and US-15, on which our estimations are based.  Indeed, in its 
comments on responses to Panel question 83, the Philippines stated that the IWSR figures are "closer to the 
Philippine industry figures than the Euromonitor's figures."  Philippines' comments on the European Union's and 
on the United States' responses to Panel question No. 83, para. 22. 
93 Includes tequila and tequila-flavoured spirits. 
94 Imports represented almost 100 per cent of whisky consumption in the Philippines in the year 2009. 
95 Imports represented almost 100 per cent of the consumption of tequilas and tequila-flavoured spirits 
in the Philippines in the year 2009.  WT/DS396/R 
 WT/DS403/R 
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2.36 Generally speaking, imported brands tend to be more expensive in the Philippines (even 
before taxes) than the corresponding domest ic brands of the same type of spirit.96  However, as will be 
noted below with respect to specific types of sp irits, there are a number of high-priced domestic 
spirits, as well as less expensive imports.97 
2.37 All gins, brandies, rums, vodkas, whiskies and te quilas or tequila-flavoured spirits made in 
the Philippines are subject to the lower excise tax ra te as they are produced from sugar cane molasses, 
one of the designated raw materials.98  In contrast, imported gins, brandies, vodkas, whiskies and 
tequilas sold in the Philippines are produced with raw materials ot her than those designated in the 
challenged measure and are subject to higher tax rates.99  In the case of imported rums, some products 
such as Bacardí Superior  (which represented 80 per cent of the imported rum consumed in the 
Philippines in the year 2009) and Bardinet , are subject to the lower excise tax rate applicable to spirits 
produced with designated raw materials100, while some others, such as Havana Club  and Myers's , are 
subject to the higher excise tax rates applicable to spirits produced with other than the designated raw 
materials.101 
                                                      
96 See Euromonitor International , "Consumer perceptions regarding substitutability in the Philippines 
distilled spirits market", in exhibits EU-41 and US-41, p. 9;  exhibits PH-19 (original), PH-19 (amended) and 
PH-77.  See also Philippines' first written submission, para. 227;  and exhibits EU-103, PH-51 and PH-83. 
97 See exhibits PH-19 (original), PH-19 (amended) and PH-77.  See also exhibits EU-80 and EU-118;  
European Union's first written submission, paras. 154- 157;  European Union's opening statement at first 
substantive meeting, paras. 34-54;  European Union's second written submission, paras. 3-4, 35-52;  European 
Union's opening statement at second su bstantive meeting, paras. 51-60;  European Union's response to Panel 
question Nos. 30, paras. 29-30, 33, paras. 39-43, 49, para. 78, and 73, paras. 13-18;  European Union's response 
to Philippines' question, paras. 54-60;  European Union's comments on Philippines' response to Panel question 
No. 75, paras. 23-31;  United States' second written submission, paras. 29-31;  United States' opening statement 
at second substantive meeting, paras. 28-29;  United States' response to Panel question Nos. 33, paras. 19-21, 
57, para. 64, and 73, paras. 4-6;  United States' comments on Philippines' response to Panel question Nos. 74-75, 
paras 13-14;  Philippines' first written submission, paras. 14, 36-39, 177, 226-251;  Philippines' opening 
statement at first substantive meeting, paras. 9, 27 -30 and 34-35;  Philippines' second written submission, 
paras. 16-17 and 28;  Philippines' opening statement at second substantive meeting, paras. 9, 27-30 and 34-35;  
Philippines' response to Panel question Nos. 17, 35, 53, 54, 74 and 75;  Philippines' comments on the European 
Union's and on the United States' responses to Panel question No. 73, paras. 6-13;  Philippines' comments on the 
European Union's response to Philippines' question, pa ra. 29.  In its first written submission, the Philippines 
provided information on the net retail prices (before excise tax and value-added tax) for September 2010 of a 
number of distilled spirits, both domestic and imported, in exhibit PH-19 (original).  During the first meeting of 
the Panel with the parties, the Philippines amended the price information in exhibit PH-19 (amended).  In its 
second written submission, the Philippines provided yet further new price information, in exhibit PH-77, to 
replace the one previously submitted. 
98 European Union's first written submission, paras. 36, 39, 40 and 42. 
99 Ibid., paras. 37, 38 and 43. 
100 Ibid., para. 41;  United States' opening statement at second substantive meeting, para. 42;  
Philippines' first written submission, para. 39;  Philippine s' opening statement at second substantive meeting, 
paras. 36-37;  Philippines' closing statement at second substantive mee ting, para. 6(d);  Philippines' response to 
Panel question Nos. 60 and 67.  See also exhibits PH-62 and PH-71. 
101 European Union's first written submission, paras. 41, 70 and 177;  European Union's opening 
statement at first substantive meeting, paras. 52-54;  European Union's second written submission, paras. 7 and 
110-116;  European Union's opening statement at second substantive meeting, para. 70;  European Union's 
response to Panel question No. 34, para. 48;  United Stat es' first written submission, paras. 30 and 89;  United 
States' second written submissi on, paras. 46-49;  Philippines' first wr itten submission, paras. 94, 171-174 and 
303;  Philippines' opening statement at second substantive meeting, para. 37;  Philippines' response to Panel 
question No. 17.  See also para. 2.74 below. WT/DS396/R 
WT/DS403/R Page 18 
 
 
  2.38 As noted by the European Union, "distilled spirits  in general have the same end uses ...  All of 
them are drunk with the same purpose:  thirst  quenching, socialization, relaxation, pleasant 
intoxication."
102  Those end uses do not depend on the origin of the spirits (domestic or imported), nor 
on the raw materials used in their respective production. 
2.39 Distilled spirits can be drunk straight or with i ce, diluted with soft drinks or fruit juices or 
used in the preparation of cocktails.103  The promotional materials prepared by manufacturers and 
distributors of both domestic and imported spirits sold  in the Philippines suggest almost identical uses 
for each category of spirit.  In other words, for pr oducts such as gin, brandy, rum, vodka, whisky and 
tequila or tequila-flavoured spirits, whether the spirit is  drunk straight, with ice, mixed or used in the 
preparation of specific cocktails does not depend on th e origin of the spirit, nor on the raw materials 
used in its production.104 
2.40 Distilled spirits, regardless of their respective origin or the raw materials used in their 
production, are drunk at home, in the homes of family or friends or in public places, such as restaurants, bars, pubs, clubs and discotheques.  The evidence suggests that premium distilled spirits 
are largely consumed on premise (in restaurant s, bars, pubs, clubs and discotheques), while 
less-expensive spirits may be proportionally mo re consumed off premise (in private homes).
105  They 
can be consumed before, during or after meals.   The occasions and the manner of consuming a 
specific spirit, for example, whether it is consum ed as an aperitif or after a meal, depend on the 
particular tastes of the consumer and on the type of  spirit and not on the spirit's origin or on the raw 
materials used in its production.106  As noted in the promotional materials prepared by manufacturers 
and distributors of both domestic and imported spir its sold in the Philippines, these products can be 
consumed on a number of occasions, such as parties, reunions, celebrations and romantic 
encounters.107  Consumers tend to drink more e xpensive spirits on special occasions.108 
                                                      
102 European Union's first written submission, para. 64.  See also ibid., para. 125;  European Union's 
second written submission, para. 82;  Philippi nes' first written submission, para. 201. 
103 European Union's first written submission, paras.  64-70 and 125;  European Union's second written 
submission, paras. 89 and 104-107;  United States' first written submission, para. 61;  Euromonitor 
International , "Consumer perceptions regarding substitutability in the Philippines distilled spirits market", in 
exhibits EU-41 and US-41, p. 8;  and exhibits EU-27 and US-46. 
104 European Union's first written submission, paras. 65-70;  European Union's response to Panel 
question No. 49, para. 79.  See exhibits EU-26, EU-27, EU-28, EU-29, EU-30, EU-31, EU-32, EU-33, EU-34, 
EU-35, EU-36, EU-37, videos in EU-38, US-40 and US-46.  The Philippines suggests that there is evidence that 
less-expensive domestic distilled spirits are largely used as mixers, while more expensive (premium) spirits may 
be consumed by shots.  See Philippines' comments on the draft descriptive sections of the Panel Reports (6 April 
2011).  The evidence indicated by the Philippines, however, refers only to vodka.  Furthermore, the evidence 
suggests a difference in the mode of consumption of more-expensive (premium) spirits compared to 
less-expensive spirits.  This does not imply a difference in the mode of consumption of imported and domestic 
spirits, nor between spirits made from the designated materials and those made from other materials. 
105 Philippines' first written submission, paras. 263- 266;  International Wine and Spirit Research 
(IWSR) report in exhibits EU-15 and US-15. 
106 European Union's first written submission, paras. 73 and 125;  European Union's response to Panel 
question No. 49, para. 79;  United States' first written submission, para. 61,  Euromonitor International , 
"Consumer perceptions regarding substitutability in the Ph ilippines distilled spirits market", in exhibits EU-41 
and US-41, pp. 8-9.  See also exhibits US-26 and US-32. 
107 European Union's first written submission, paras. 74-75.  See exhibits EU-39, EU-40, EU-62, as 
well as videos in EU-38 and Euromonitor International , "Consumer perceptions regarding substitutability in the 
Philippines distilled spirits market", in exhibits EU-41 and US-41. 
108 See Euromonitor International , "Consumer perceptions regarding substitutability in the Philippines 
distilled spirits market", in exhibits EU-41 and US-41, p. 8.  See also European Union's response to Panel  WT/DS396/R 
 WT/DS403/R 
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  2.41 Evidence submitted by the parties suggests that the same outlets where imported spirits are 
sold either for consumption on the premises (restau rants, bars, pubs, clubs, discotheques, hotels, etc.) 
or off the premises (stores or supermarkets) also offer domestic spirits.109  The opposite is not always 
the case:  many establishments (especially, small reta il stores) that offer domestic spirits do not carry 
imported spirits.110 
2.42 The evidence suggests that the marketing campaigns of all di stilled spirits, whether imported 
or domestic, and irrespective of the specific type of spirit and the raw materials used in their 
respective production, are very similar.  Adver tising campaigns, including printed material and 
videos, tend to associate consumption of spirits with the enjoyment of friendship and romantic 
moments by young people, or the celebration of import ant events, in parties, in bars or clubs, or in 
houses or parks.  In the case of premium spirits, na mely those that are priced relatively higher, the 
campaigns also emphasize an image of class and glamour.111 
2.43 A survey of consumer perceptions produced by Euromonitor International  and submitted by 
the European Union and the United States suggests th at local consumers in the Philippines would be 
"more willing to purchase [imported spirits]" when th e price of those spirits decreases and the price of 
domestic spirits increases, even if "import prices continued to be at least twice as expensive as 
domestics".112  According to this survey, "[o]n averag e, at an import price decrease of 25% and 
domestic increase of 50%, consumers were 4.9% mo re willing to purchase imports and 4.0% less 
                                                                                                                                                                     
question No. 35, para. 55;  United States' opening statement at first substantive meeting, para. 34;  and United 
States' response to Panel question No. 35, para. 27. 
109 European Union's first written submission, para s. 72, and 141-143;  European Union's second 
written submission, para. 109;  European Union's response to Panel question Nos. 51, paras. 82-84, and 71, 
para. 8;  United States' first written submission, paras.  56-58, 62 and 96;  United States' opening statement at 
first substantive meeting, para. 33;  United States' response to Panel question Nos. 55, para. 53, and 71, para. 3;  
Philippines' first written submission, paras. 260-262;  Philippines' response to Panel question No. 71.  See 
exhibits EU-66, EU-67, EU-68, EU-69, EU-70, EU-71, EU-104, US-30, US-31, US-42 and US-43.  But see 
Philippines' first written submission, paras. 26 0-270;  exhibits PH-19, PH-57 and PH-60. 
110 European Union's opening statement at first substantive meeting, paras. 70-72;  European Union's 
second written submission, para. 98;  European Union's opening statement at second substantive meeting, 
paras. 39-41;  European Union's response to Panel qu estion Nos. 49, para. 83, and 71, paras. 9-12;  United 
States' response to Panel question No. 71, para. 3;  Ph ilippines' first written submission, paras. 253-255 and 257-
259;  Philippines' response to Panel question Nos. 71 and 76.  See exhibits PH-19, PH-53, PH-54, PH-55, 
PH-56, PH-58 and PH-59. 
111 European Union's first written submission, paras. 64-70, 74-75, 77-78, 126-127 and 136;  European 
Union's second written submission, paras. 90-94,  United States' first written submission, para. 48;  exhibits 
EU-27, EU-28, EU-29, EU-30, EU-31, EU-32, EU-33, EU-34, EU-36, EU-37, EU-38, EU-39, EU-40, EU-44, 
EU-45, EU-46, EU-56, EU-57, EU-58, EU-59, EU-60, EU-62, EU-63, EU-64, EU-65.  But see Philippines' first 
written submission, paras. 184-187 and 283.  The Philippi nes suggests that there is evidence of substantial 
differences in the marketing campaigns of imported an d domestic spirits.  See Philippines' comments on the 
draft descriptive sections of the Panel Reports (6 April 2011);  Philippines' response to Panel question No.  76.  
The evidence indicated by the Philippines, however, suggests that differences in marketing campaigns, if any, 
would be between more-expensi ve (premium) spirits and less-expensive spirits.  This does not necessarily imply 
differences between imported and domestic spirits, nor between spirits made from the designated materials and 
those made from other materials. 
112 See Euromonitor International , "Consumer perceptions regarding substitutability in the Philippines 
distilled spirits market", in exhibits EU-41 and US-41, p. 9.  See also European Union's response to Panel 
question No. 83, paras. 35-35;  United States' opening statement at first substantive meeting, paras. 21-26;  
United States' response to Panel question No. 83, paras. 21-25;  Philippines' first written submission, paras. 180-
182, 240-241 and 268;  Philippines' comments on the European Union's and on the United States' responses to 
Panel question No. 83, paras. 19-23;  exhibit US-52. WT/DS396/R 
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  likely to purchase domestics."
113  Moreover, "[o]n average, at an import price decrease of 40% to 60% 
and domestic increase of 100% to 200%, consumers were 10.1% more willing to purchase imports 
and 6.5% less likely to purchase domestics."114  The survey concludes that , "[i]f price were no issue, 
on average, consumers were 43% more likely [to]  purchase local brands and 86.2% more likely to 
purchase imported ones."115 
2.44 In turn, the Philippines has submitted a survey by Abrenica & Ducanes fro m the University of 
Philippines School of Economics that concludes that  distilled spirits have lo w own- and cross-price 
elasticity in the Philippine market and that "local and imported brands [of spirits are] 
non-substitutable".116  According to this survey, a narrowing of price differentia ls between imported 
and domestic spirits would only result in a sma ll change in their respective market shares.117  T h e  
same survey concludes that if excise taxes were completely removed thereby reducing prices for all 
distilled spirits, the market share of imported di stilled spirits would increase from around 9.4 per cent 
to around 11.7 per cent.118 
2.45 Both the survey of consumer perceptions subm itted by the European Union and the United 
States and the Abrenica & Ducanes survey subm itted by the Philippines suggest that certain 
constraints (such as price, information, distributio n and brand recognition) affect consumer choices in 
the Philippines' distilled spirits market.  The Abreni ca & Ducanes survey notes that custom and tastes 
also create a brand loyalty that prevents many consumers from switching brands.119  As noted by this 
survey, the characteristics of specific spirits are known to consumers through product reputation or 
personal experience.120  The Euromonitor International  survey points out availability, in addition to 
price, as one of the most cited reasons why Philippine consumers select domestic, as opposed to 
imported spirits;  domestic products are often the only option available.121  Despite their 
shortcomings122, both studies suggest that, within the Phili ppines' market, a simultaneous increase in 
the price of domestic spirits and decrease in the price of imported spirits, such as that which would 
                                                      
113 See Euromonitor International , "Consumer perceptions regarding substitutability in the Philippines 
distilled spirits market", in exhibits EU-41 and US-41, p. 9. 
114 Ibid. 
115 Ibid. 
116 See Abrenica & Ducanes, "On Substitutability between Imported and Local Distilled Spirits" 
(University of Philippines School of Economics Foundation), in exhibit PH-49, pp. 2 and 20.  The survey used 
23 distilled spirits brands, of which 14 domestic and 9 im ported.  The distilled spirits brands selected include:  
6 gins (4 domestic, 2 imported);  6 brandies (3 domestic, 3 imported);  2 rums (1 domestic, 1 imported);  
5 vodkas (4 domestic, 1 imported);  and, 4 whiskies (2 domestic, 2 imported).  See also European Union's 
second written submission, paras. 85-89 and 97-102;  United States' opening statement at first substantive 
meeting, paras. 27-29;  United States' second written submission, para. 51, and KPMG for The Scotch Whisky 
Association, "The substitutability of imported and loca lly produced spirit s in the Philippines" (December 2010), 
in exhibits EU-102 and US-48. 
117 See Abrenica & Ducanes, "On Substitutability between Imported and Local Distilled Spirits" 
(University of Philippines School of Economics Foundation), in exhibit PH-49, p. 14.  See also Philippines' first 
written submission, para. 235. 
118 See Abrenica & Ducanes, "On Substitutability between Imported and Local Distilled Spirits" 
(University of Philippines School of Economics Foundation), in exhibit PH-49, p. 14.  See also European 
Union's comments on Philippines' response to Panel question No. 89, paras. 44-46;  Philippines' first written 
submission, para. 236;  Philippines' response to Panel question No. 89. 
119 Abrenica & Ducanes, "On Substitutability be tween Imported and Local Distilled Spirits" 
(University of Philippines School of Economics Foundation), in exhibit PH-49, pp. 7, 10, 12 and 20. 
120 Ibid., p. 2. 
121 Euromonitor International , "Consumer perceptions regarding substitutability in the Philippines 
distilled spirits market", in exhibits EU-41 and US-41, pp. 8-9 and 17-18. 
122 See paras. 7.62, 7.76 and 7.112 below.  WT/DS396/R 
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  result from an equalization in the respective level of the excise tax, could result  in the substitution of 
the consumption of imported spirits  in lieu of domestic spirits.123 
4. Tariff classification 
2.46 The "Harmonized Commodity Description and Coding System" ("Harmonized System" or 
"HS") was established under the "Internationa l Convention on the Harmonized Commodity 
Description and Coding System" ("HS Convention") a nd entered into force on 1 January 1988.  Since 
its entry into force, the HS has been partially am ended every four to six years.  These amendments 
entered into force on 1 January 1992 (HS1992), 1 January 1996 (HS1996), 1 January 2002 (HS2002) 
and 1 January 2007 (HS2007).124  The HS2007 is the current version of the HS.125 
2.47 As explained by a previous panel: 
"The preamble of the HS Convention sets out the objectives of the HS including 'to 
facilitate international trade', 'to facilitate the collection, comparison and analysis of 
statistics', 'to reduce the expense incurred by re-describing, reclassifying and recoding goods as they move from one classification system to another in the course of international trade', and 'to facilitate the standardisation of trade documentation and 
the transmission of data'.  The HS C onvention aims to achieve these objectives 
through the HS, which establishes an inte rnational standard for product nomenclature 
for more than 5,000 commodity groups, and includes approximately 1,200 headings that are grouped into 21 sections compri sing 99 chapters.  Product groups are 
organized systematically and each group is identified by a 'heading', represented as a four-digit code.  The first two digits indicate the chapter to which they correspond, while the two subsequent digits indicat e the position within the heading of a 
particular chapter.  HS headings are so metimes further divided into subheadings, 
which are identified by a six-digit code, which is the maximum level of disaggregation permitted by the HS.  The last two digits then indicate the relevant HS subheading. 
The HS Convention requires contracting parties to the HS to ensure that their laws are 
in conformity with the HS.  Article 3.1(a)(i) of the HS Convention provides in 
particular that HS contracting parties shall use, in respect of their customs tariff and 
                                                      
123 See for example United States' opening statement at first substantive meeting, para. 28;  United 
States' second written submission, para. 52;  United Stat es' comments on Philippines' response to Panel question 
No. 89, paras 26-28;  Philippines' response to Panel ques tion No. 89.  See also exhibit PH-51.  The Philippines 
contests our conclusions regarding the Euromonitor International  and the Abrenica & Ducanes surveys.  
Philippines' comments on the draft descriptive sections of the Panel Reports (6 April 2011).  While in our view 
the surveys have significant limitations, we believe our statement is a fair characterization of conclusions that 
can be inferred from both. 
124 For an explanation by the WCO Secretariat of the list of the amendments, see:  TAR/W/91 
(HS1996), G/MA/W/26 (HS2002), G/MA/W/76 (HS2007). 
125 In their respective responses to Panel question No. 41 , the parties have confirmed that the text of the 
HS they have referred to in the present dispute correspon ds to that of HS2007.  The European Union, however, 
has qualified its response stating that the alleged inconsistencies of the measure at issue started before the 2007 
version of the HS came into effect.  Accordingly, unless otherwise noted, a ll references in these reports to any 
HS material (chapters, headings, subheadings, etc.) should be understood as references to the 2007 version of 
the HS (HS2007). WT/DS396/R 
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  statistical nomenclatures, all the HS head ings and subheadings 'without addition or 
modification, together with their related numerical codes'. ... "
126 
2.48 Article 6 of the HS Convention establishes an  HS Committee composed of representatives 
from each of the Contracting Parties that meets at least twice annually.  Unde r Article 7(1)(b) of the 
HS Convention, the HS Committee prepares HS Explanatory Notes (HSEN), classification opinions and other advice as guidance  to secure uniformity in the interpretation of the HS.  The HSEN provide 
guidance for interpreting the terms of a specific HS  heading;  pursuant to Article 3.1(a) of the 
HS Convention, the HSEN are not binding.
127 
2.49 Distilled spirits at issue in this di spute fall within the HS heading 2208128, which refers to 
"undenatured ethyl alcohol of an alcoholic strength by volume of less than 80% vol;  spirits, liqueurs 
and other spirituous beverages".129 
2.50 Heading 2208 comes under Chapter 22 of the HS, which is entitled "Beverages, spirits and 
vinegar".  Besides the product descriptions for he adings 2207 and 2208, Ch apter 22 also contains 
descriptions for the following products:  various ki nds of "waters" and certain "other non-alcoholic 
beverages" (headings 2201 and 2202);  "beer made  from malt" (heading 2203);  various kinds of 
"wine", including "fortified wine" and "vermout h" (headings 2204 and 2205); "other fermented 
beverages", such as "cider" (2206); and "vinegar" (2209).130 
2.51 Under the HS, certain spirits can fall within h eading 2207, which has the following structure: 
Heading HS 6-digit Code Description 
22.07  Undenatured ethyl alcohol of an alcoholic strength by volume 
of 80% vol or higher;  ethyl alcohol and other spirits, 
denatured, of any strength 
2207.10 - Undenatured ethyl alcohol of an alcoholic strength by volume 
of 80% vol or higher 
2207.20 - Ethyl alcohol and other spirits, denatured, of any strength 
 
                                                      
126 Panel Report, EC – IT Products , paras. 7.32-7.33 (original footnotes omitted). 
127 See e.g. Appellate Body Report, EC – Chicken Cuts , para. 224, and Panel Reports, China – Auto 
Parts , para. 7.410.  See also European Union's response to Panel question Nos. 42, paras. 62-66, and 78, 
para. 25;  United States' response to Panel question Nos. 42, paras. 31-33, and 78, para. 14;  Philippines' 
response to Panel question No. 42. 
128 The text of HS heading 2208 has been provided in exhibit US-13. 
129 European Union's first written submission, para. 192;  European Union's opening statement at first 
substantive meeting, para. 76;  European Union's first written submission, para. 96;  European Union's response 
to Panel question No. 64, para. 3;  United States' first written submission, para. 65;  United States' opening 
statement at first substantive meeting, para. 41;  United States' second written submission, footnote 27 to 
para. 27;  United States' response to Panel question No. 64, para. 1;  Philippines' first written submission, 
paras. 194, 196-200;  Philippines' opening statement at first substantive meeting, para. 19. 
130 The entire text of Chapter 22 of the HS, including its headings and subheadings, was provided in 
exhibit US-13.  WT/DS396/R 
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  2.52 At the 6-digit code level, HS heading 2208, which refers to the distilled spirits at issue in this 
dispute, divides spirits into different subheadings: 
Heading HS 6-digit Code Description 
22.08  Undenatured ethyl alcohol of an alcoholic strength by volume 
of less than 80% vol;  spirits, liqueurs and other spirituous 
beverages 
2208.20 - Spirits obtained by distilling grape wine or grape marc 
2208.30 - Whiskies 
2208.40 - Rum and other spirits obtained by distilling fermented 
sugarcane products 
2208.50 - Gin and Geneva 
2208.60 - Vodka 
2208.70 - Liqueurs and cordials 
2208.80 - Other 
 
2.53 In relevant part, the HSEN to heading 2208131 reads as follows: 
"The heading covers, whatever their alcoholic strength : 
(A) Spirits  produced by distilling wine, cider or other fermented 
beverages or fermented grain or other vegetable products, without 
adding flavouring; they retain, wholly or partly, the secondary 
constituents (esters, aldehydes, acids, higher alcohols, etc.) which give the spirits their peculiar individual flavours and aromas. 
(B) Liqueurs  and cordials , being spirituous beverages to which 
sugar, honey or other natural sweet eners and extracts or essences 
have been added (e.g., spirituous be verages produced by distilling, or 
by mixing, ethyl alcohol or distilled spirits, with one or more of the following : fruits, flowers or other parts of plants, extracts, essences, essential oils or juices, whether or not concentrated). ... 
(C) All other spirituous beverages not falling  in any preceding 
heading of this Chapter. 
Provided that their alcoholic strength by volume is less than 80% vol , the heading 
also covers undenatured spirits (ethyl alc ohol and neutral spirits) which, contrary to 
those at (A), (B) and (C) above, are ch aracterised by the absence of secondary 
constituents giving a flavour or aroma.  These spirits remain in the heading whether 
intended for human consumption or for industrial purposes. 
In addition to undenatured ethyl alcohol of  an alcoholic strength by volume of less 
than 80 % vol, the heading includes, inter alia : 
                                                      
131 The HSEN to heading 2208 has been provided in exhibit PH-46.  See also European Union's 
response to Panel question Nos. 42, paras. 62-66;  an d 78, paras. 21-26;  United States' response to Panel 
question Nos. 42, paras. 31-33, and 78, paras. 14-17;  Philippines' first written submission, para. 191;  
Philippines' response to Panel question No. 78.  See para. 2.48 above. WT/DS396/R 
WT/DS403/R Page 24 
 
 
  (1) Spirits obtained by distilling grape wine or grape marc (Cognac, 
Armagnac, brandy, grappa, pisco, singani, etc.). 
(2) Whiskies and other spirits obtained by distilling fermented mash 
of cereal grains (barley, oats, rye, wheat, corn, etc.). 
(3) Spirits obtained exclusively by  distilling fermented products of 
the sugar cane (sugar-cane juice, sugar-cane syrup, sugar-cane molasses), e.g., rum, tafia, cachaça. 
(4) Spirituous beverages known as gin or Geneva, containing the 
aromatic principles of juniper berries. 
(5) Vodka obtained by distilling fermented mash of agricultural 
origin (e.g., cereals, potatoes) and sometimes further treated with activated charcoal or carbon."
132 
2.54 As seen above, the HSEN describes certain  types of distilled spirits falling within 
heading 2208 in various ways.  With respect to the sp irits at issue in this dispute, the HSEN makes the 
following clarifications: 
(a) "Gin and Geneva" are described as spir ituous beverages "containing the aromatic 
principles of juniper berries"133; 
(b) "Brandy" is cited as an example of a spirit "obtained by distilling grape wine or grape 
marc"; 
(c) "Rum" is cited as an example of a spirit obtained "exclusively by distilling fermented 
products of the sugar cane"134; 
(d) "Vodka" is described as a spirit that is obtained by distilling "fermented mash of 
agriculture origin (e.g., cereals, potatoes) and sometimes further treated with 
activated charcoal or carbon"135;  and, 
(e) "Whiskies" are described as types of spirits made from a "mash of cereal grains" 
(such as barley, oats, rye, wheat, corn, etc.). 
5. Gin 
2.55 Gin is traditionally produced by redistilling a hi gh proof neutral spirit with juniper berries and 
other botanicals;  indeed, the characteristic flavour of gin is associated with the presence of juniper 
                                                      
132 The HSEN's list goes on to include other spirits, such  as liqueurs, 'crèmes', ratafias, aquavit, arrack, 
alcoholic aperitives alcoholic lemonade, and spirituous food supplements. 
133 See European Union's response to Panel question No. 78, paras. 22-24;  United States' response to 
Panel question No. 78, para. 17;  Philippines' response to Panel question No. 78. 
134 See European Union's response to Panel question No. 79, paras. 27-30;  United States' response to 
Panel question No. 79, para. 18;  Philippines' response to Panel question Nos. 78, 79 and 80. 
135 See European Union's response to Panel question Nos. 78, para. 25, and 80, para. 31;  United States' 
response to Panel question Nos. 78, para. 17, and 80, para . 19;  Philippines' response to Panel question Nos. 78 
and 80.  WT/DS396/R 
 WT/DS403/R 
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  berries.136  Regardless of the raw materials used in thei r production, and whether they are domestic or 
imported, gins have a similar clear (transparent) colour.137  When gin is made from a non-cane sugar 
based spirit, as is traditionally the case,  the original spirit is stripped of its congeners so as to result in 
a more neutral taste;  in contrast, when a cane suga r-based spirit is used, it is allowed to retain its 
congeners.138  As explained by the Philippines, domestic gin is produced "using a 'cold compounding' 
method, which is essentially mixing sugar-based alc ohol with water, flavours and essences.  The 
product is not redistilled with ... j uniper berries and other botanicals"139, but has "the organoleptic 
characteristics of [traditional] gin".140  Gin can be drunk straight or with ice, diluted with soft drinks 
or fruit juices or used in the pr eparation of cocktails, such as " gin and tonic ".141 
2.56 There is no standards administrative order (SAO) or other internal regulation that defines 
what can be considered gin in the Philippines.142  HS subheading 2208.50 covers "Gin and Geneva", 
which are described in the HSEN to heading 2208 as spirituous beverages "containing the aromatic 
principles of juniper berries".143 
2.57 The domestic gin most sold in the Philippines is Ginebra San Miguel ;  its sales in 2009 were 
equivalent to almost a 100 per cent of domest ic consumption of gin in the Philippines.144  Ginebra San 
Miguel  has a 40 per cent alcohol content and is so ld in bottles of 250 ml, 350 ml, 700 ml and 
1,500 ml.145  Other domestic gins sold in the Philippines are Britannia London Dry Gin , which has a 
45 per cent alcohol content and is sold in bottles of 50 ml and 750 ml146, and Gilbey's .147  As noted 
above, the domestic gin most sold in the Philippines ( Ginebra San Miguel ) has a Spanish name;  the 
other domestic gins most sold in the Philippines ha ve English or English-associated names, such as 
                                                      
136 European Union's first written submission, paras. 82 and 87;  European Union's response to Panel 
question No. 78, paras. 22-24;  United States' response to Panel question Nos. 43, para. 35, and 78, para. 17;  
Philippines' first written submission, pa ra. 162;  Philippines' response to Panel question No. 78.  See exhibits 
EU-22, EU-28, EU-55, US-22, US-26, US-38, US-45, PH -28, PH-36 and PH-37.  See also Philippines' response 
to Panel question No. 26;  Philippines' comments on the European Union's response to Panel question No. 78, 
paras. 17-18. 
137 European Union's first written submission, para. 85;  United States' opening statement at first 
substantive meeting, para. 18.  See also exhibits EU-55, US-22, US-38 and PH-32. 
138 Philippines' first written submission, para. 165.  See also ibid., footnote 131 to para. 109 (stating that 
Philippine gin is "intentionally not neutral") and exhibit EU-99. 
139 Philippines' response to Panel question No. 26.  See also Philippines' comments on the European 
Union's response to Panel question No. 78, para. 18. 
140 Philippines' comments on the European Union's response to Panel question No. 78, para. 18.  
[[XXXX]]  The Philippines defines "organoleptic properties" as the "properties perceived by the senses".  
Philippines' first written submission, para. 159. 
141 European Union's first written submission, paras. 64-70 and 125;  exhibits EU-26, EU-28, EU-30, 
EU-32, EU-35, EU-41, EU-46 and US-41. 
142 Philippines' response to Panel question No. 26. 
143 See paras. 2.52 to 2.54 above.  The European Union and the United States have stated that, under 
their respective domestic classification systems, a spirit that has the "organoleptic characteristics of gin" would 
be classified as gin, irrespective of the raw material from which it is made.  See European Union's response to 
Panel question No. 78, paras. 22-24;  United States' response to Panel question No. 43, paras. 34-35. 
144 See International Wine and Spirit Research (IW SR) report in exhibits EU-15 and US-15, and 
exhibits EU-26 and US-51.  See also United States' response to Panel question No. 23, para. 13;  European 
Union's response to Panel question No. 88, paras. 38-40;   United States' response to Panel question Nos. 83, 
para. 25, and 88, paras. 33-34;  Philippines' response to Panel question No. 35.  In promotional materials, 
Ginebra San Miguel  refers to its product as "the world's largest selling gin".  Exhibit EU-26. 
145 See exhibit EU-22.  See also European Union's response to Panel question No. 88, para. 39;  
figure 3 in United States' first written submission;  Philippines' response to Panel question No. 88;  
exhibit PH-32. 
146 See exhibit EU-28. 
147 See exhibits EU-55 and US-38. WT/DS396/R 
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  London , Gilbey's , Oxford  or Brittania .
148  Domestic gins made in the Philippines display the words 
Gin or Ginebra , or both words, on their labels.149 
2.58 The imported gin most sold in the Philippines is Bombay Sapphire , an English gin that has a 
47 per cent alcohol content;  its sales represented 40 per cent of the imported gins consumed in the 
Philippines in 2009.150  Another imported gin is Tanqueray , an English gin that has a 47.3 per cent 
alcohol content.151 
2.59 The information on the net retail prices (before excise tax and value-added tax) for 
September 2010 provided by the Philippines for four of the imported gin products most sold in the 
Philippines ( Bombay Sapphire , Tanqueray , Gordon's  and Plymouth )152 is summarized below:153 
 Exhibit PH-19 
(original) Exhibit PH-19 
(amended) Exhibit PH-77154 
Bombay Sapphire PHP 620.00 Idem  Idem  
Tanqueray PHP 583.00 Idem  Idem  
Gordon's PHP 501.00 Idem  Idem  
Plymouth PHP 292.50 ---- ---- 
 
All prices are for 750 ml bo ttles, except in the case of Plymouth , for 700 ml bottles.  No information was 
provided by the Philippines in exhibit PH-19 (amended) or in exhibit PH-77 on the net retail price of Plymouth . 
 
2.60 The information on the net retail prices (before excise tax and value-added tax) for 
September 2010 provided by the Philippines for four of the domestic gin products most sold in the 
Philippines ( Gilbey's London Dry Gin , Brittania London Dry Gin , Ginebra Especial  and Gin Kapitan ) 
is summarized below:155 
                                                      
148 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15 and 
Philippines' first written submission, pa ra. 37.  See also exhibit EU-55. 
149 See exhibits EU-22, EU-26, EU-28, EU-55, EU-68, US-22 and US-38 .  See also Philippines' 
response to Panel question No. 39. 
150 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15.  See also 
figure 3 in United States' first written submission. 
151 See figure 3 in United States' first written submission. 
152 The products chosen are among the gins most so ld in the Philippines, according to information 
contained in the International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15.  The 
Philippines argues that "[i]t is unclear on what basis the Panel is characterizing these gi ns as the four 'most sold' 
products."  See Philippines' comments on the draft descrip tive sections of the Panel Reports (6 April 2011).  We 
have not suggested that these are the four most sold imported gins in the Philippines, but that they are among the 
most sold, according to the IWSR report in exhibits EU-15 and US-15.  The Philippines also objects to similar 
statements in other paragraphs in this section (see paras. 2.60, 2.66, 2.67, 2.72, 2.73, 2.78, 2.79, 2.84, 2.85, 2.90 
and 2.91 below).  The Philippines has not provided rebutting evidence that would suggest that these spirits are 
not among the most sold in the Philippines. 
153 See also exhibit EU-80;  Euro pean Union's second written submissi on, paras. 43-52;  European 
Union's response to Panel question No. 73, paras. 13-18;  United States' response to Panel question No. 73, 
paras. 4-8. 
154 Exhibit PH-77 in the Philippines'  second written submission replaces exhibits PH-19 (original) and 
PH-19 (amended). 
155 See also exhibit EU-80;  Euro pean Union's second written submissi on, paras. 43-52;  European 
Union's response to Panel question No. 73, paras. 13-18;  United States' response to Panel question No. 73, 
paras. 4-8;  footnote 86 in Philippines' response to Panel question No. 53.  WT/DS396/R 
 WT/DS403/R 
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   Exhibit PH-19 
(original) Exhibit PH-19 
(amended) Exhibit PH-77156 
Gilbey's London Dry Gin PHP 150 Idem Idem 
Brittania London Dry Gin PHP 115 Idem Idem 
Ginebra Especial San Miguel PHP 43 Idem Idem 
Gin Kapitan PHP 17 Idem Idem 
 
Prices for Gilbey's London Dry Gin  in 1,000 ml bottles, Britannia London Dry Gin  in 700 ml bottles, Ginebra 
Especial  in 750 ml bottles, and Gin Kapitan  in 350 ml bottles. 
 
2.61 All gins made in the Philippines are produ ced from sugar cane molasses, one of the 
designated raw materials, and are subject to the Section 141(a)  flat excise tax rate of 14.68 PHP ppl.  
Imported gins sold in the Philippines are subject to one of the three excise tax rates of PHP 158.73 ppl,  PHP 317.44 ppl or PHP 634.90 ppl applicable under Section 141(b)  to spirits 
produced with other than the designated raw materials, depending on their NRP.
157 
6. Brandy 
2.62 Brandy is traditionally produced from th e fermentation of grapes or other fruit.158  In Europe 
it is traditionally made from the distillation of wine or fortified wine.159  The colour, odour and taste 
normally associated with brandy is a natural result of the distillation of ethyl alcohol from wine or 
fortified wine (in some cases, caramel may be added to provide a deeper colour160);  in this case, the 
alcohol is not stripped of its specific congeners.161  In contrast, brandy is produced in the Philippines 
by stripping the ethyl alcohol made from sugar can e molasses of the congeners that provide its 
original aroma and taste, and subsequently adding  flavouring and other ingredients (including, in 
some cases, brandy) to the resulting neutral spirit,  so that the final product has the taste normally 
associated with brandy.162  Most of the higher-priced brandies have a similar alcohol content, of 
around 40 per cent.163  Regardless of the raw materials used in their production, and whether they are 
domestic or imported, brandi es have a similar colour that goes from golden to mahogany.164  H S  
subheading 2208.20 covers "Spirits obtained by disti lling grape wine or grape marc";  the HSEN to 
heading 2208 cites "brandy" as an example of such spirits.165  Brandy can be drunk straight or with 
ice, diluted with soft drinks or fruit juices or used in the preparation of cocktails, such as " sidecar " or 
"stinger ".166 
2.63 The Philippines' Standards Administrati ve Order (SAO) No. 358 of 1978 defines brandy  as 
"an alcoholic distillate obtained sole ly from the fermented juice of fresh, ripe and sound grapes.  The 
                                                      
156 Exhibit PH-77 in the Philippines'  second written submission replaces exhibits PH-19 (original) and 
PH-19 (amended). 
157 European Union's first written submission, paras. 36-37 and 38-39. 
158 Philippines' first written submissi on, paras. 11, 98 and 141-142.  See also exhibits EU-99, PH-27 
and PH-36;  and United States' response to Panel question No. 43, para. 35. 
159 Philippines' first written submission, para. 141.  S ee also exhibits EU-99, PH-26, PH-27, PH-37 and 
PH-41. 
160 Philippines' first written submission, pa ra. 148;  exhibits PH-26 and PH-27. 
161 Philippines' first written submission, paras. 11 and 141. 
162 Ibid., paras. 11, 98, 141 and 143.  See also exhibit PH-26. 
163 European Union's first written submission, para. 84.  See exhibits EU-99 and PH-27. 
164 European Union's first written submission, para. 85;  United States' opening statement at first 
substantive meeting, para. 18.  See exhibits EU-55, US-22, US-38 and PH-27. 
165 See paras. 2.52 to 2.54 above. 
166 European Union's first written submission, paras. 64-70 and 125;  Exhibits EU-32, EU-35, EU-41, 
EU-43, US-41 and PH-61. WT/DS396/R 
WT/DS403/R Page 28 
 
 
  distillation shall be carried out in such a way th at the spirit possesses the na tural [...] principles 
already present in grapes or [...] fermentation".
167  SAO No. 358 of 1978 refers to four different types 
of "brandies":  (i) Brandy  (made "from the fermented juice of fresh, ripe and sound grapes");  
(ii) Fruit Brandy  ("made from wine or from fermented juice of peaches, apples, cherries, other fruits 
and other [...] materials");  (iii) Blended Brandy  ("A mixture of at least 5 percent grape brandy with 
other brandies or neutral spirits");  and (iv) Compounded Brandy  ("A product obtained by mixing 
neutral spirits or alcohol with brandy essences, w ith permissible coloring and flavoring materials").168  
SAO No. 358 of 1978 adds that "[t]he minimum ethyl alcohol content in brandies shall be 
32.5 percent by volume", that brandy "shall be  free from added coloring matter except caramel 
prepared from sugar" and that brandies "sha ll possess the characteristic aroma and taste".169  All 
brandies made in the Philippines are made from cane-sugar-based alcohol and would correspond to 
the definition of Blended Brandy  or that of Compounded Brandy  in SAO No. 358 of 1978.170 
2.64 Spanish brandies represented some 99.6 per cent of the imported brandies consumed in the 
Philippines in 2009;  indeed the sales of three Spanish brandies ( Fundador , Alfonso I  and Tres 
Cepas ), represented 88.8 per cent of the total consumpti on of imported brandies in the Philippines that 
year.171  Fundador  brandy has a 36 per cent alcohol content.172  The labels of the Spanish brandies 
Fundador , Alfonso I  and Tres Cepas  contain coats of arms and heraldic symbols;  the labels 
prominently display the word " Solera " immediately under the name of the respective brand;  the 
labels also separately claim that each of the brandies was produced using the Solera  method.173 
2.65 The domestic brandies most sold in the Philippines have Spanish names, such as Emperador , 
Gran Matador , Generoso , and Barcelona ;  as noted on the labels of the bottles, these brandies claim 
to have been made following the Spanish Solera  method.174  Emperador  brandy has a 36 per cent 
alcohol content and is sold in bottles of 375 ml, 750 ml and 1,750 ml.175  Generoso  brandy has a 
32.5 per cent alcohol content and is sold in bottles of 375 ml and 700 ml.176  Gran Matador  has a 32.5 
to 36 per cent alcohol content and is sold in bottles of 350 ml and 700 ml.177  The labels in the bottles 
of Emperador , Gran Matador , Generoso  and Barcelona  brandies carry images of coats of arms;  the 
labels of " Emperador " and " Gran Matador " additionally carry images of bullfighters.178  O t h e r  
domestic brandies sold in the Philippi nes have French names, such as Napoleon  or Bouchard .179  
                                                      
167 See SAO No. 358 of 1978, in exhibits EU-24 and US-24, para. 2.1.1.  See also Philippines' first 
written submission, paras. 144-145. 
168 See SAO No. 358 of 1978, in exhibits EU-24 and US-24, paras. 2.1.1 to 2.1.4.  See also Philippines' 
first written submission, para. 144. 
169 See SAO No. 358 of 1978, in exhibits EU-24 and US-24, para. 4.  See also United States' first 
written submission, paras. 47 and 50. 
170 Philippines' first written submission,  para. 145.  See also European Union's first written submission, 
footnote 38 to para. 38. 
171 See International Wine and Spirit Research (I WSR) report in exhibits EU-15 and US-15. 
172 See figure 3 in United States' first written submission. 
173 See exhibits EU-55, US-34 and US-38. 
174 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15 and 
exhibits EU-48, EU-55, EU-65, EU-79, EU-94, US-34 and US-38.  See also European Union's first written 
submission, para. 128. 
175 See exhibit EU-19.  But see figure 3 in United States' first written submission. 
176 See exhibit EU-19. 
177 See figure 3 in United States' first written submission and exhibit PH-32. 
178 See exhibits EU-48, EU-55, EU-57, EU-65, EU-79, EU-94, US-34, US-38 and PH-32.  See also 
European Union's first written submission, para. 128, and exhibit EU-45. 
179 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15.  See also 
European Union's first written submission, para. 128;  Philippines' comments on the European Union's response 
to Panel question No. 91, paras. 27-28;  exhibits EU-39 and EU-56.  WT/DS396/R 
 WT/DS403/R 
 Page 29 
 
 
  Napoleon  brandy has a 36 to 40 per cent alcohol content.180  Domestic brandies made in the 
Philippines display the word Brandy  on their labels.181  At least one of the Philippine brandy products 
uses the acronym VSOP in its label, which is tr aditionally used for some types of French aged 
brandies (cognacs).182  Labels of brandies made in the Philippines do not use the expressions Blended 
Brandy  or Compounded Brandy ;  nor does the Philippines' SAO No. 358 of 1978 require that they do 
so.183 
2.66 The information on the net retail prices (before excise tax and value-added tax) for September 
2010 provided by the Philippines for seven of the imported brandy products most sold in the 
Philippines ( Hennessy VSOP  in two different presentations, Carlos I , Fundador , Alfonso I , Tres 
Cepas  and Carlos II ) is summarized below:184 
 Exhibit PH-19 
(original) Exhibit PH-19 
(amended) Exhibit PH-77185 
Hennessy VSOP (1) PHP 6,400 Idem Idem 
Hennessy VSOP (2) PHP 1,677 Idem Idem 
Carlos I PHP 742 Idem Idem 
Fundador PHP 255 Idem Idem 
Alfonso I PHP 166 Idem Idem 
Tres Cepas PHP 159 Idem PHP 140  
Carlos II PHP 16 Idem ---- 
 
All prices for 700 ml bottles.  No information was provided in exhibit PH-19 (amended) or in exhibit PH-77 on 
the net retail price of Carlos II . 
 
2.67 The information on the net retail prices (before excise tax and value-added tax) for September 
2010 provided by the Philippines for seven of the do mestic brandy products most sold in the 
Philippines ( Napoleon VSOP  in two different presentations,  Gran Matador , Emperador , Generoso , 
Barcelona , and  Maximo ) is summarized below:186 
                                                      
180 See figure 3 in United States' first written submission;  exhibit EU-39. 
181 See exhibits EU-39, EU-48, EU-55, EU-56, EU-57, EU-65, EU-79, US-22, US-34 and US-38 . 
182 European Union's first written submission, para . 128;  exhibits EU-39, EU-56 and EU-99. 
183 See exhibits EU-48, EU-55, EU-57, EU-65, EU-79, EU-94 and US-38.  See also United States' 
opening statement at first substantive meeting, para. 16;  European Union's opening statement at first 
substantive meeting, para. 65;  Philippines' response to Panel question Nos. 37 and 38. 
184 See also exhibits EU-67 and EU-80;  European Union's first written submission, para. 154;  
European Union's second written submission, paras. 43-52;  European Union's response to Panel question No. 
73, paras. 13-18;  United States' response to Panel question Nos. 57, para. 64, and 73, paras. 4-8;  Philippines' 
response to Panel question Nos. 54 and 62. 
185 Exhibit PH-77 in the Philippines'  second written submission replaces  exhibit PH-19 (original) and 
PH-19 (amended). 
186 See also exhibits EU-67 and EU-80;  European Union's first written submission, para. 154;  
European Union's second written submission, paras. 43-52;  European Union's response to Panel question No. 
73, paras. 13-18;  United States' response to Panel question Nos. 57, para. 64, and 73, paras. 4-8;  Philippines' 
response to Panel question Nos. 54 and 62. WT/DS396/R 
WT/DS403/R Page 30 
 
 
   Exhibit PH-19 
(original) Exhibit PH-19 
(amended) Exhibit PH-77187 
Napoleon VSOP (tin can) PHP 212 ---- Idem  
Napoleon VSOP (regular presentation) PHP 182 ---- Idem  
Gran Matador PHP 53 ---- Idem  
Emperador PHP 53 ---- Idem  
Generoso PHP 46 ---- Idem  
Barcelona PHP 37 PHP 24 PHP 48 
Maximo PHP 26 ---- Idem  
 
Prices in PH-19 (original) and PH-77 for Gran Matador , Generoso , Barcelona , and Maximo  in 700 ml bottles;  
Napoleon VSOP  in its two different presentations and Emperador  in 750 ml bottles.  The only net retail price of 
domestic brandies provided in exhibit PH-19 (amended) was that of Barcelona  in 350 ml bottles. 
 
2.68 All brandies made in the Philippines are produ ced from sugar cane molasses, one of the 
designated raw materials, and are subject to the Section 141(a)  flat tax rate of 14.68 PHP ppl.  
Imported brandies sold in the Philippines are subject to one of the three excise tax rates of 
PHP 158.73 ppl,  PHP 317.44 ppl or PHP 634.90 ppl applicable under Section 141(b)  to spirits 
produced with other than the designated raw materials, depending on their NRP.188 
7. Rum 
2.69 Rum is traditionally produced from the fermentation of sugar cane molasses.189  In this 
respect, there is no difference between rum produced in the Philippines and imported rum.190  More 
generally, parties agree that rum produced in the Philippines and imported rum are "like products".191  
HS subheading 2208.40 covers "Rum and other sp irits obtained by distillin g fermented sugarcane 
products";  rum is described in the HSEN to heading 2208 as an example of a spirit obtained 
"exclusively by distilling fermen ted products of the sugar cane".192  Depending on the brand and 
presentation, rum can have a colour that ranges from clear (transparent) to golden or mahogany.193  
Rum can be drunk straight or with ice, diluted with soft drinks or fruit juices or used in the 
preparation of cocktails, such as " Cuba libre ", "Daiquirí ", "Mojito " or " piña colada ".194 
2.70 The Philippines' Standards Administrative Order (SAO) No. 257 of 1976 defines rum as "the 
alcoholic distillate obtained solely  from fermented juice of sugarcan e, sugarcane molasses or other 
sugarcane by-products distilled at less than 190 US proof  whether or not such proof is further reduced 
to not less than 60 proof prior to  bottling, in such a manner that  the distillate possesses the taste, 
                                                      
187 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and 
PH-19 (amended). 
188 European Union's first written submission, paras. 36-37 and 38-39. 
189 Philippines' first written submission, para. 171.  S ee also exhibits EU-99, PH-26, PH-28, PH-36 and 
PH-37.  Parties use the words "rum" or sometimes "rhum";  we will generally use the word "rum". 
190 Philippines' first written submission, pa ra. 171.  See also exhibit PH-26. 
191 See for example European Union's first written su bmission, para. 97;  United States' first written 
submission, para. 30;  Philippines' first written submission, para. 171. 
192 See paras. 2.52 to 2.54 above.  The United States has stated th at, under its domestic system, an 
imported rum with added flavour enhancers, which constitu ted less than 5.5 per cent of the volume of the spirit, 
was still classified under subheading 2208.40.  See United States' response to Panel question No. 79, para. 18.  
See also European Union's response to Panel question No. 79, paras. 27-29;  European Union's comments on the 
Philippines' response to Panel question No. 78, para. 41. 
193 See exhibits EU-55, US-22, US-38 and PH-28. 
194 European Union's first written submission, paras. 64-70 and 125;  Exhibits EU-29, EU-32, EU-34, 
EU-35, EU-36, EU-37, EU-41, US-41 and PH-61.  WT/DS396/R 
 WT/DS403/R 
 Page 31 
 
 
  aroma and characteristics generally attributed to  rum and known to the trade as such and includes 
mixtures solely of such distillates."195  SAO No. 257 of 1976 notes that rum can be classified as either 
"white rum" or "colored rum";  that it "shall po ssess the color derived from wood during maturation";  
that "[o]ther coloring substances may be adde d provided it is approved by the Food and Drug 
Administration";  that "[r]um possess[es] the character istic taste and aroma associated with rum";  that 
it "shall be matured in wood" a nd "when labelled as 'matured', sh all be matured for the period 
specified in the label".196 
2.71 The domestic rum most sold in the Philippines is Tanduay ;  its sales in 2009 were equivalent 
to 94 per cent of domestic consumption of rum in the Philippines.197  Tanduay  has a 40 per cent 
alcohol content.198  Tanduay  rum is sold in several presentations, including Tanduay Centennial Dark 
Rhum , Tanduay Rhum Extra Strong , Tanduay 5 years Dark Rhum  and Tanduay White Rum .199  The 
imported rum most sold in the Philippines is Bacardí , with a 40 per cent alcohol content;  its sales 
represented 80 per cent of the imported rum consumed in the Philippines in 2009.200 
2.72 The information on the net retail prices (before excise tax and value-added tax) for September 
2010 provided by the Philippines for five of the imported rum products most sold in the Philippines 
(Captain Morgan , Bacardí 151 Proof , Bacardí White , Myers's Rum Original Dark  and Bacardí 
Superior ) is summarized below:201 
 Exhibit PH-19 
(original) Exhibit PH-19 
(amended) Exhibit PH-77202 
Captain Morgan PHP 470 ---- ---- 
Bacardí 151 Proof PHP 270 PHP 587 Idem  
Bacardí White PHP 252 PHP 420 Idem  
Myers's Rum Original Dark PHP 212 PHP 388 PHP 212 
Bacardí Superior PHP 131 PHP 420 Idem
 
All prices for 750 ml bottles.  No information was provided in exhibit PH-19 (amended) or in exhibit PH-77 on 
the net retail price of Captain Morgan . 
 
2.73 The information on the net retail prices (before excise tax and value-added tax) for 
September 2010 provided by the Philippines for five of the domestic rum products most sold in the 
                                                      
195 See SAO No. 257 of 1976, in exhibit US-27, para. 2.1.1. 
196 Ibid., para. 4. 
197 See International Wine and Spirit Research (I WSR) report in exhibits EU-15 and US-15. 
198 See figure 3 in United States' first written submission. 
199 See exhibits EU-93, PH-19 (original), PH-19 (amended), PH-52 and PH-77.  See also European 
Union's response to Panel question No. 90, paras. 41-46;  European Union's comments on the Philippines' 
response to Panel question No. 90, paras. 47-50;  United St ates' response to Panel question No. 90, paras. 35-36;  
United States' comments on Philippines' response to Panel question No. 90, paras 29-30;  Philippines' response 
to Panel question No. 90;  Philippines' comments on the European Union's response to Panel question No. 90, 
paras. 25-26. 
200 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15 and 
figure 3 in United States' first written submission. 
201 See also exhibits EU-29, EU-73 and EU-80;  Eu ropean Union's first written submission, paras. 152 
and 154;  European Union's second written submission, paras. 43-52;  European Union's response to Panel 
question No. 73, paras. 13-18;  United States' response to  Panel question No. 73, paras. 4-8;  Philippines' 
response to Panel question No. 54. 
202 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and 
PH-19 (amended). WT/DS396/R 
WT/DS403/R Page 32 
 
 
  Philippines ( Paradise Mango Rum , Tanduay Rhum Extra Strong , Tanduay 5 years Dark Rhum  and 
Tanduay White Rum ) is summarized below:
203 
 Exhibit PH-19 
(original) Exhibit PH-19 
(amended) Exhibit PH-77204 
Paradise Mango Rum (tin can) PHP 256 PHP 342 PHP 352 
Paradise Mango Rum (regular presentation) PHP 526 PHP 350 PHP 334 
Tanduay Rhum Extra Strong PHP 138 PHP 125 Idem  
Tanduay 5 Years Dark Rhum PHP 62 Idem PHP 49 
Tanduay White Rhum PHP 27 PHP 38 PHP 39 
 
Prices for Paradise Mango Rum  in its two presentations and for Tanduay Rhum Extra Strong  in 700 ml bottles;  
prices for Tanduay White Rum  and Tanduay 5 years Dark Rhum  in 750 ml bottles. 
 
2.74 All rums made in the Philippines are produ ced from sugar cane molasses, one of the 
designated raw materials, and are subject to the Section 141(a)  flat excise tax rate of 14.68 PHP ppl.205  
Some imported rums, such as Bacardí  (the brand that represents 80 per cent of the imported rum in 
the year 2009) and Bardinet , are also subject to the Section 141(a)  flat excise tax rate applicable to 
spirits produced with designated raw materials.206  Other imported rums sold in the Philippines, 
despite being produced from the designated raw materi als, are subject to one of the three excise tax 
rates of PHP 158.73 ppl,  PHP 317.44 ppl  or PHP 634.90 ppl applicable under Section 141(b)  to 
spirits produced with other than the designa ted raw materials, depending on their NRP.207  T h e  
following are some of the imported rums subject to the excise tax rates in Section 141(b) :  Havana 
Club Añejo Reserva , Lemon Hart Jamaica Rum , Lemon Hart White Rum , Malibu Caribbean White 
Rum w/ coco , Malibu Rum , Myers's Rum , and Myers's Rum Planters Punch .208  The Philippines states 
that, if the importers of the latter imported rums were  to file the proper sworn declarations and excise 
tax returns, the products would receive the tax treatment set out in Section 141(a) .209 
8. Vodka 
2.75 Vodka is a neutral spirit that can be produced from the distillation of many different products, 
such as wheat, beets, corn, rye, potatoes, grapes or sugar cane.210  It is commonly obtained by 
stripping the ethyl alcohol from its congeners and often filtering it through activated charcoal or 
                                                      
203 See also exhibits EU-29, EU-73 and EU-80;  Eu ropean Union's first written submission, paras. 152 
and 154;  European Union's second written submission, paras. 43-52;  European Union's response to Panel 
question No. 73, paras. 13-18;  Unite d States' response to Panel question No. 73, paras. 4-8;  Philippines' 
response to Panel question No. 54. 
204 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and 
PH-19 (amended). 
205 European Union's first written submission, para. 40. 
206 Ibid., paras. 41 and 177;  exhibits PH-45, PH-62 and PH-71. 
207 European Union's first written submission, para. 41;  European Union's second written submission, 
para. 7. 
208 European Union's first written submission, para. 176;  European Union's second written submission, 
paras. 110-116.  See exhibits EU-96, US-7 and PH-64. 
209 Philippines' first written submission, para. 174.  Response by the European Union in its second 
written submission, para. 110-116. 
210 Philippines' first written submission, paras. 153-157.  See also European Union's response to Panel 
question No. 43, para. 69;  exhibits EU-90, EU-99, PH-28, PH-37, PH-42 and PH-43.  WT/DS396/R 
 WT/DS403/R 
 Page 33 
 
 
  carbon.211  Regardless of the raw materials used in thei r production, and whether they are domestic or 
imported, vodkas have a simila r clear (transparent) colour.212  HS subheading 2208.60 covers 
"Vodka";  vodka is described in the HSEN to h eading 2208 as a spirit that is obtained by distilling 
"fermented mash of agriculture origin (e.g., cerea ls, potatoes) and sometimes further treated with 
activated charcoal or carbon".213  Vodka can be drunk straight or with  ice, diluted with soft drinks or 
fruit juices or used in the prep aration of cocktails, such as " black Russian ", "bloody Mary ", 
"screwdriver " and " white Russian ".214  Evidence suggests that premium vodkas may be consumed by 
shots, while less less-expensive vodkas may be largely used as mixers.215 
2.76 The Philippines' Standards Administrative Order (SAO) No. 258 of 1976 defines vodka  as 
"the distilled liquor obtained from neutral spirit filte red through activated carbon (charcoal) so as to 
render the product without distinctive character, aroma or taste".216  SAO No. 258 of 1976 adds that 
"[v]odka shall be the distilled alcoholic beverage  ... which may be obtained from fermented grain, 
potato, or any other source of fermentable carbohydra tes in such a manner that the distillate is free 
from color and odor and possess the characteristics gene rally attributed to vodka" and that its "ethyl 
alcohol content shall be 42.85, 40.01, or 37.15 percent by volume (25, 30 or 35 degrees under 
proof)".217 
2.77 Domestic products represented 71.6 per cent of the vodka consumed in the Philippines in 
2009.218  Antonov , a domestic brand that represented 16.6 per cent of the vodka sold in the Philippines 
in the year 2009, has a 40 per cent alcohol content.219  The imported vodka most sold in the 
Philippines is Absolut , with a 40 per cent alcohol content.220  Finlandia , another imported vodka, also 
has a 40 per cent alcohol content.221  Domestic vodkas made in the Philippines display the word 
Vodka  on their labels;  some of these vodkas use names with Slavic or Russian connotations, such as 
Antonov , Cossack  or Toska .222 
                                                      
211 European Union's first written submission, para. 82;   Philippines' first written submission, para. 109.  
See exhibits EU-33, EU-46, EU-99 and PH-26.  See also United States' response to Panel question No. 43, 
para. 35. 
212 European Union's first written submission, pa ra. 85;  United States' first written submission, 
para. 46.  See also exhibits EU-55, EU-100, US-22 and US-38. 
213 See paras. 2.52 to 2.54 above.  The European Union and the United States have stated that, under 
their respective domestic classifica tion systems, an imported vodka made from any agricultural material 
(including cane sugar) would be classified under subheading 2208.60.  See European Union's response to Panel 
question Nos. 43, paras. 67-69, 79, para. 30, and 80, para. 31;  United States' response to Panel question 
Nos. 43, paras. 34-35, and 80, para. 19. 
214 European Union's first written submission, paras. 64-70 and 125;  Philippines' comments on the 
draft descriptive sections of the Panel Reports (6 April 2011);  Exhibits EU-27, EU-31, EU-32, EU-33, EU-34, 
EU-35, EU-41, EU-110, US-40, US-41, PH-43 and PH-61. 
215 Philippines' comments on the draft descriptive sections of the Panel Reports (6 April 2011);  Exhibit 
US-40. 
216 See SAO No. 258 of 1976, in exhibit US-23, para. 2.1.1.  See also Philippines' response to Panel 
question No. 27. 
217 See SAO No. 258 of 1976, in exhibit US-23, paras.  3.1 and 3.3.  See also United States' first written 
submission, paras. 47 and 50. 
218 See International Wine and Spirit Research (I WSR) report in exhibits EU-15 and US-15. 
219 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15 and 
figure 3 in United States' first written submission. 
220 Ibid. 
221 Ibid. 
222 See exhibits EU-21, EU-27, EU -33, EU-34, EU-44, EU-46, EU-55, EU-60, EU-61, US-22 and 
US-38.  See also Philippines' response to Panel question No. 39. WT/DS396/R 
WT/DS403/R Page 34 
 
 
  2.78 The information on the net retail prices (before excise tax and value-added tax) for 
September 2010 provided by the Philippines for eight of  the imported vodka products most sold in the 
Philippines ( Millenium , Stolichnaya  in its regular and flavoured presentations, Finlandia , Absolut 
Blue, Arkan , Skyy and Vodka Cruiser  in different presentations) is summarized below:
223 
 Exhibit PH-19 
(original) Exhibit PH-19 
(amended) Exhibit PH-77224 
Millenium  PHP 1,004 ---- ---- 
Stolichnaya PHP 635 Idem  PHP 367 
Finlandia PHP 392 Idem  Idem  
Absolut Blue PHP 335 Idem  Idem  
Arkan PHP 260 Idem  Idem  
Skyy PHP 232 Idem  Idem  
Stolichnaya  (5 flavours)  PHP 203 Idem  Idem  
Vodka Cruiser  (275 ml bottles) PHP 71 PHP 67  Idem 
 
Prices for Stolichnaya  in its flavoured presentations, Finlandia , Absolut Blue , and Skyy all in 750 ml bottles, 
Arkan  in 1,000 ml bottles, Stolichnaya  in 700 ml bottles and Vodka Cruiser  in 275 ml bottles;  no information 
on size was provided by the Philippines in exhibit PH-19 (amended) or in exhibit PH-77 on the net retail price 
for Millenium . 
 
2.79 The information on the net retail prices (before excise tax and value-added tax) for September 
2010 provided by the Philippines for six of the domestic vodka products most sold in the Philippines 
(Gilbey's 1857 , Gilbey's Premium , Toska , Antonov , The Bar  and Cossack ) is summarized below:225 
 Exhibit PH-19 
(original) Exhibit PH-19 
(amended) Exhibit PH-77226 
Gilbey's 1857 PHP 258 Idem PHP 116 
Gilbey's Premium PHP 119 Idem  Idem  
Toska PHP 94 Idem  Idem  
Antonov PHP 82 Idem  Idem  
The Bar PHP 56 Idem  Idem  
Cossack PHP 46 Idem  Idem  
 
All prices for 700 ml bottles. 
 
2.80 All vodkas made in the Philippines are produ ced from sugar cane molasses, one of the 
designated raw materials, and are subject to the Section 141(a)  flat tax rate of 14.68 PHP ppl.227  
Imported vodkas sold in the Philippines are subj ect to one of the three excise tax rates of 
                                                      
223 See also exhibit EU-80;  Euro pean Union's second written submissi on, paras. 43-52;  European 
Union's response to Panel question No. 73, paras. 13-18;  United States' response to Panel question No. 73, 
paras. 4-8. 
224 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and 
PH-19 (amended). 
225 See also exhibit EU-80;  Euro pean Union's second written submissi on, paras. 43-52;  European 
Union's response to Panel question No. 73, paras. 13-18;  United States' response to Panel question No. 73, 
paras. 4-8. 
226 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and 
PH-19 (amended). 
227 European Union's first written submission, para. 42.  WT/DS396/R 
 WT/DS403/R 
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  PHP 158.73 ppl,  PHP 317.44 ppl or PHP 634.90 ppl applicable under Section 141(b)  to spirits 
produced with other than the designated raw materials, depending on their NRP.228 
9. Whisky 
2.81 Whisky is traditionally produced from the distillation of a mash of cereals or grains.  The 
production of whisky in each country tends to be based on the raw materials that are grown most 
efficiently in that region.229  Whisky is normally made from wheat, barley or malt in Scotland and 
Ireland, from corn in the United States, from ry e in Canada, and from sugar molasses in the 
Philippines.230  The colour, odour and taste normally associated with whisky is a natural result of the 
distillation of ethyl alcohol from products such as wheat , barley or malt;  in this case, the alcohol is 
not stripped of its specific congeners.231  In contrast, whisky is produced in the Philippines by 
stripping the ethyl alcohol made from sugar molasses of the congeners that provide its original aroma 
and taste, and subsequently adding flavouring an d other ingredients (including, in some cases, 
whisky) to the resulting neutral spirit, so that th e final product has the taste normally associated with 
whisky.232  Regardless of the raw materials used in thei r production, and whether they are domestic or 
imported, whiskies have a similar golden colour.233  HS subheading 2208.30 covers "Whiskies", 
which are described in the HSEN to heading 2208 as types of spirits made from a "mash of cereal 
grains" (such as barley, oats, rye, wheat, corn).234  Whisky can be drunk straight or with ice, diluted 
with soft drinks or fruit juices or used in the preparation of cocktails, such as " Irish coffee ", 
"Manhattan " or " whisky sour ".235 
2.82 The Philippines' Standards Administrative Order (SAO) No. 259 of 1976 defines whisky  as "a 
spirit suitably aged in wood, obtained from th e distillation of a fermented mash of grain".236  SAO 
No. 259 of 1976 refers to four different types of " whiskies":  (i) Straight Whisky  ("distilled off at a 
proof not exceeding 160, aged in a new charred white oak barrel for at least two years and reduced by 
the addition of water at the time of bottling to not lower than 80 proof.  Nothing may be added other 
than the water);  (ii) Malt Whisky  ("produced from the fermented mash  of malted or unmalted cereals 
or a mixture of both");  (iii) Blended Whisky  ("A mixture containing at least 20 percent by volume of 
                                                      
228 Ibid., para. 43. 
229 Philippines' first written submission, para. 118.  Pa rties use the words "whisky" or "whiskey";  we 
will generally use the word "whisky". 
230 Ibid., paras. 11, 98 and 118-119;  European Union's second written submission, para. 66.  See also 
exhibits EU-99, PH-24, PH-26, PH-28, PH-35, PH-36, PH-37, PH-38 and PH-39. 
231 Philippines' first written submission,  paras. 11 and 135.  See also exhibits EU-92, EU-99, PH-26 and 
PH-36. 
232 Philippines' first written submission, paras. 11, 98, 118-119 and 134.  See also exhibits EU-58, 
EU-59, EU-98 and PH-26. 
233 See exhibits EU-55, US-22 and US-38.  See also  United States' first written submission, para. 46;  
United States' opening statement at fi rst substantive meeting, para. 18. 
234 See paras. 2.52 to 2.54 above.  The United States has stated that, under its domestic classification 
system, a whisky made from sugar cane spirit would not be classified under subheading 2208.30 (whiskies), 
unless it was blended with grain-based whisky.  Such a cane sugar-based whisky could instead fall under 
2208.90 (other spirits).  See United States' response to Panel question No. 43, paras. 34-35.  The Philippines has 
stated that, under its domestic classifi cation system, blended whiskies containing at least 20 per cent volume of 
100 proof straight whisky and neutral spirits would likely be classified under subheading 2208.90 (other), while 
compound whiskies would likely be classified under either 2208.90 (other), or, if the neutral spirit is made from 
sugar-cane and no grain-based whisky is added to the compound whisky, under 2208.40 (spirits obtained by 
distilling fermented sugar-cane products).  See Ph ilippines' response to Panel question No. 46. 
235 European Union's first written submission, paras. 64-70 and 125;  Exhibits EU-32, EU-34, EU-35, 
EU-41, US-41 and PH-61. 
236 See SAO No. 259 of 1976, in exhibit US-25, para. 2.1.1.  SAO No. 259 of 1976 uses the variant 
spelling "whiskey". WT/DS396/R 
WT/DS403/R Page 36 
 
 
  100 proof straight [whisky] and separately or in co mbination, [whisky] or neutral spirits, if such 
mixture at the time of bottling is not less than 65 proof");  and (iv) Compound Whisky  ("The product 
obtained by mixing neutral spirits or alcohol dis tilled from any material at above 190º proof, with 
[whisky] or [whisky] essence, permissible flavoring and coloring materials, and reduced at the time of 
bottling to not less than 65 proof").
237  SAO No. 259 of 1976 adds that "[t]he ethyl alcohol in whiskies 
shall not be less than 32.5 percent by volume", that whisky "shall be free from added coloring 
materials except caramel prepared from sugar" and that "[i]t shall have the characteristic taste and 
aroma".238  All whiskies made in the Philippines are made from cane-sugar-based alcohol and would 
correspond to the definition of Compound Whiskey  in SAO No. 259 of 1976.239  Domestic whiskies 
made in the Philippines display the word Whisky  on their labels.240  Labels of whiskies made in the 
Philippines do not use the expression Compound Whisky ;  nor does the Philippines' SAO No. 259 of 
1976 require that they do so.241 
2.83 Scotch whiskies represented 73.9 per cent of the whiskies consumed in the Philippines in 
2009;  indeed the sales of two Scotch whiskies ( Johnnie Walker Black Label  and Chivas Regal 
12 years ), represented 55.7 per cent of the total consump tion of whisky in the Philippines that year.242  
Jack Daniel's , an imported whisky from the United States with a 40 per cent alcohol content, 
represented 16.4 per cent of the whiskies consumed in the Philippines in 2009.243  White Castle 
Calibre 69 , the domestic whisky most sold in the Phili ppines in the year 2009, has a 34.5 per cent 
alcohol content and is sold in bottles of 187.5 ml, 375 ml and 700 ml.244  The domestic whiskies most 
sold in the Philippines have English names, such as Embassy , St George , and White Castle .245 
2.84 The information on the net retail prices (before excise tax and value-added tax) for 
September 2010 provided by the Philippines for six of the imported whisky products most sold in the 
Philippines ( Johnnie Walker Blue Label , Johnnie Walker Black Label , Cutty Sark , J&B, Benmore 
4 Casks  and Benmore Blended ) is summarized below:246 
                                                      
237 SAO No. 259 of 1976, in exhibit US-25, paras. 2.1.2 to 2.1.6.  See also Philippines' first written 
submission, para. 121. 
238 See SAO No. 259 of 1976, in exhibit US-25, para. 4.  See also United States' first written 
submission, paras. 47 and 50. 
239 Philippines' first written submission, para. 123. 
240 See exhibits EU-21, EU-47, EU-55, EU-58, EU-59, EU-79, US-22 and US-38 . 
241 See exhibits EU-47, EU-55, EU-58, EU-79 and US-38.  See also European Union's opening 
statement at first substantive meeting, para. 65;  United States' opening statement at first substantive meeting, 
para. 16;  Philippines' response to Panel question Nos. 37 and 38. 
242 See International Wine and Spirit Research (I WSR) report in exhibits EU-15 and US-15. 
243 See ibid. and figure 3 in United States' first written submission. 
244 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15;  figure 3 in 
United States' first written submission;  and exhibit PH-32. 
245 Exhibits EU-47, EU-55, EU-58, EU-79, US-34, US-36 and US-38. 
246 See also exhibit EU-80;  Euro pean Union's second written submissi on, paras. 43-52;  European 
Union's response to Panel question No. 73, paras. 13-18;  United States' response to Panel question No. 73, 
paras. 4-8.  WT/DS396/R 
 WT/DS403/R 
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   Exhibit PH-19 
(original) Exhibit PH-19 
(amended) Exhibit PH-77247 
Johnnie Walker Blue Label PHP 5,690 Idem  Idem  
Johnnie Walker Black Label PHP 864 PHP 699 Idem  
Cutty Sark PHP 649 PHP 560 PHP 649 
J&B PHP 505 Idem Idem  
Benmore 4 Casks PHP 150 ---- ---- 
Benmore Blended PHP 153 Idem  Idem  
 
All prices for 700 ml bottles, except in the case of J&B, for 750 ml bottles.  No information was provided in 
exhibit PH-19 (amended) nor in exhibit PH-77 on the net retail price of Benmore 4 Casks , allegedly because this 
price "could not be verified". 
 
2.85 The information on the net retail prices (before excise tax and value-added tax) for September 
2010 provided by the Philippines for four of the domestic whisky products most sold in the 
Philippines ( Embassy , St George , White Castle 5 Years  and White Castle Calibre 69 ) is summarized 
below:248 
 Exhibit PH-19 
(original) Exhibit PH-19 
(amended) Exhibit PH-77249 
Embassy PHP 130 Idem  Idem  
St George PHP 123 PHP 108 Idem  
White Castle 5 Years PHP 121 Idem  Idem  
White Castle Calibre 69 PHP 58 Idem  Idem  
 
All prices for 700 ml bottles. 
 
2.86 All whiskies made in the Philippines are pr oduced from sugar cane molasses, one of the 
designated raw materials, and are subject to the Section 141(a)  flat excise tax rate of 14.68 PHP ppl.250  
Imported whiskies sold in the Philippines are subj ect to one of the three excise tax rates of 
PHP 158.73 ppl,  PHP 317.44 ppl or PHP 634.90 ppl applicable under Section 141(b)  to spirits 
produced with other than the designated raw materials, depending on their NRP.251 
10. Tequila 
2.87 Tequila is traditionally produced in Mexico  from the fermentation of the agave plant.252  The 
colour, odour and taste normally associated with tequ ila is a natural result of the distillation of ethyl 
alcohol from agave;  in this case, the alcohol is no t stripped of its specific congeners.  In contrast, 
tequila or tequila-flavoured spirits are produced in the Philippines by stripping the ethyl alcohol made 
from sugar molasses of the congeners that provide its original odour and taste, and subsequently 
                                                      
247 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and 
PH-19 (amended). 
248 See also exhibit EU-80;  Euro pean Union's second written submissi on, paras. 43-52;  European 
Union's response to Panel question No. 73, paras. 13-18;  United States' response to Panel question No. 73, 
paras. 4-8. 
249 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and 
PH-19 (amended). 
250 European Union's first written submission, para. 42. 
251 Ibid., para. 43. 
252 Philippines' first written submission, paras. 168- 169.  See also United States' response to Panel 
question No. 43, para. 35;  exhibits PH-28 and PH-36. WT/DS396/R 
WT/DS403/R Page 38 
 
 
  adding flavouring and other ingredients to the resulti ng neutral spirit, so that the final product has the 
taste normally associated with tequila.
253  Regardless of the raw materi als used in their production, 
and whether they are domestic or im ported, tequila or tequila-flavoured  spirits have a similar colour 
that can be either clear (transparent) or pale gold.254  HS heading 2208 does not contain a subheading 
for "tequila", nor is there is any specific me ntion to tequila in the HSEN to heading 2208.255  Tequila 
is protected in some countries as a geographical indication.256  There is no standards administrative 
order or other internal regulation that defines wh at can be considered as tequila in the Philippines.257  
Tequilas or tequila-flavoured spirits can be drunk strai ght or with ice, diluted with soft drinks or fruit 
juices or used in the prepar ation of cocktails, such as " Margarita ", "tequila sunrise ".258 
2.88 The main domestic tequilas or tequila-flavoured spirits sold in the Philippines have Spanish 
names, such as Don Enrique , Mojitos  and El Hombre .259  Some of the domestic tequilas or 
tequila-flavoured spirits made in the Philippines display the word Tequila  on their labels, either alone 
or in combination with other words.  The label of Don Enrique  describes the product as a "Mixkila 
Distilled Spirit";  Mojitos  is described in its label as "Gold Tequ ila" or "Silver Tequila";  and the label 
of El Hombre  describes the product as a "Tequila Flavored Spirit" (the word "Tequila" in the phrase 
being displayed in larger letters ) and carries the image of a man wearing what appears to be a 
Mexican-hat.260 
2.89 The most-sold imported brand, José Cuervo , with a 38 per cent alcohol content, represented 
70.1 per cent of the tequilas consumed in the Philippines in 2009.261  The domestic product 
El Hombre  has a 40 per cent alcohol content.262 
2.90 The information on the net retail prices (before excise tax and value-added tax) for September 
2010 provided by the Philippines for six of the importe d tequila products most sold in the Philippines 
(Añejo Patrón Gold , Tequila Rose , José Cuervo Gold  (in 1,000 ml and 700 ml bottles), José Cuervo 
Clásico , Sombrero Negro  and Sombrero Gold ) is summarized below:263 
                                                      
253 Philippines' first written submission, paras.  98 and 169;  exhibits EU-63 and PH-44. 
254 See exhibits EU-55, US-38, PH -28 and PH-44.  See also United States' first written submission, 
para. 46. 
255 See paras. 2.52 to 2.54 above.  See also Philippines' response to Panel question No. 78.  The 
European Union and the United States have stated that, under their respec tive domestic classification systems, 
an imported tequila would be classified under subheading 2208.90 (other spirits).  The United States has added 
that a tequila or tequila-flavoured spirit made from materials other than agave would not be covered by the 
tequila 8-digit subheading 2208.90.50 in the United St ates' domestic nomenclature.  See European Union's 
response to Panel question No. 78, para. 21;  United States ' response to Panel question Nos. 43, para. 35, and 78, 
para. 17. 
256 See European Union's response to Panel question No. 78, para. 21.  See also exhibit PH-36. 
257 Philippines' response to Panel question No. 27. 
258 European Union's first written submission, paras. 64-70 and 125;  Exhibits EU-32, EU-35, EU-41, 
EU-63, US-41, PH-44 and PH-61. 
259 Philippines' first written submission, para. 37;  ex hibits EU-49, EU-55, EU-63, EU-79 and PH-44. 
260 See exhibits EU-21, EU-25, EU-49, EU-55, EU-63, EU-79, US-34, US-38 and PH-44.  See also 
Philippines' response to Panel question No. 39. 
261 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15 and 
figure 3 in United States' first written submission. 
262 See figure 3 in United States' first written submission. 
263 See also exhibit EU-80;  Euro pean Union's second written submissi on, paras. 43-52;  European 
Union's response to Panel question No. 73, paras. 13-18;  United States' response to Panel question No. 73, 
paras. 4-8.  WT/DS396/R 
 WT/DS403/R 
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   Exhibit PH-19 
(original) Exhibit PH-19 
(amended) Exhibit PH-77264 
Añejo Patrón Gold PHP 2,655 ---- ---- 
Tequila Rose PHP 587 Idem  Idem  
José Cuervo Gold (1,000 ml bottles) PHP 479 Idem  Idem  
José Cuervo Gold (700 ml bottles) PHP 444 Idem  Idem  
José Cuervo Clásico PHP 363.5 Idem Idem
Sombrero Negro / Sombrero Gold PHP 282 ---- ---- 
 
Prices for Añejo Patrón Gold  and Tequila Rose  in 750 ml bottles;  José Cuervo Clasico , Sombrero Negro  and 
Sombrero Gold  in 700 ml bottles.  No information was provided in exhibit PH-19 (amended) nor in exhibit 
PH-77 on the net retail price of Añejo Patrón Gold , Sombrero Negro  and Sombrero Gold , because these prices 
"could not be verified". 
 
2.91 The information on the net retail prices (before excise tax and value-added tax) for 
September 2010 provided by the Philippines for five  of the domestic tequilas and tequila-flavoured 
spirits products most sold in the Philippines ( El Hombre Gold , Mojitos Gold , El Hombre Silver , 
Mojitos Silver  and Don Enrique Mixkila ) is summarized below:265 
 Exhibit PH-19 
(original) Exhibit PH-19 
(amended) Exhibit PH-77266 
El Hombre Gold PHP 208 Idem  Idem  
Mojitos Gold PHP 198 Idem  PHP 206 
El Hombre Silver PHP 152 Idem  PHP 114 
Mojitos Silver PHP 134 Idem  Idem  
Don Enrique Mixkila PHP 129 Idem  Idem  
 
All prices for 700 ml bottles. 
 
2.92 All tequilas or tequila-flavoured spirits made in the Philippines are produced from sugar cane 
molasses, one of the designated raw materials and are subject to the Section 141(a)  flat excise tax rate 
of 14.68 PHP ppl.267  Imported tequilas are subject to one of the three excise tax rates of 
PHP 158.73 ppl,  PHP 317.44 ppl or PHP 634.90 ppl applicable under Section 141(b)  to spirits 
produced with other than the designated raw materials, depending on their NRP.268 
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS 
3.1 The provisions of the WTO covered agreements raised by the complainants are Article III:1 
and Article III:2, first and second sentences, of  GATT 1994.  The complainants have made the 
following claims: 
                                                      
264 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and 
PH-19 (amended). 
265 See also exhibit EU-80;  Euro pean Union's second written submissi on, paras. 43-52;  European 
Union's response to Panel question No. 73, paras. 13-18;  United States' response to Panel question No. 73, 
paras. 4-8. 
266 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and 
PH-19 (amended). 
267 European Union's first written submission, para. 42. 
268 Ibid., para. 43. WT/DS396/R 
WT/DS403/R Page 40 
 
 
  (a) That the excise tax imposed by the Philippin es constitutes an internal tax applied to 
imported distilled spirits "in excess" of those a pplied, directly or indirectly, to "like" 
domestic products and is, therefore, inc onsistent with the first sentence of 
Article III:2 of GATT 1994;  and, 
(b) That the Philippines does not apply the excise tax to imported distilled spirits and 
"directly competitive or substitutable" domes tic distilled spirits "similarly", and such 
tax is applied "so as to afford protecti on to domestic production".  This tax is, 
therefore, inconsistent with the sec ond sentence of Article III:2 of GATT 1994. 
3.2 The Philippines argues that the claims under Articles III:1 and III:2 should be rejected 
because the imported and domestic products at issue are neither like nor directly competitive or substitutable.  With respect to the claim based on the second sentence of Article III:2, the Philippines 
argues further that, even if the products at issue we re directly competitive or substitutable, the claim 
should nevertheless be rejected because:  (1) domes tic and imported products are in fact similarly 
taxed;  and, (2) even if they are not similarly taxed,  the excise tax at issue is not being applied so as to 
afford protection to domestic production. 
3.3 The Philippines has additionally stated that: 
"The claims by the European Union and th e United States in this dispute threaten a 
fundamental right enjoyed by each WTO Member:  the right to determine its own tax policy.  The claims thus have potentially significant ramifications that go far beyond the specific facts of this dispute.  This case involves the right of a developing country WTO Member to impose a tax regime that is best suited to achieve the fiscal objectives set out in its Constitution in light  of the administrative and enforcement 
constraints it faces with respect to tax collection."
269 
3.4 The Philippines states that the fiscal objectives in its legislation are linked to achieving a 
progressive system of taxation that imposes higher taxes on "higher-priced goods, typically bought by 
wealthier consumers" and lower taxes on "lower-p riced goods, typically bought by less affluent 
consumers."270  The constraints with respect to tax colle ction identified by the Philippines include the 
fact that the country "possesses a large informal economy, widespread poverty, a large geographical 
area and an extensive coast line to administer  and monitor... and lim ited taxation resources".271 
3.5 In response to a question from the Panel, the Philippines has explicitly clarified that the 
statements it has made: 
"[Are] not a reference to any of the provi sions of Article XX of GATT 1994.  The 
Philippines believes that its excise tax system embodied in Section 141 of the National Internal Revenue Code is not inc onsistent with Article III, and therefore 
there is no need to invoke the provisions of Article XX."
272 
                                                      
269 Philippines' first written submission, para. 1. 
270 Ibid., para. 2.  See also ibid., paras. 32 and 296;  Philippines' opening statement at first substantive 
meeting, paras. 5-9;  Philippines' opening statement at second substantive meeting, paras. 3-5;  Philippines' 
response to Panel question Nos. 16 and 62. 
271 Philippines' response to Panel question No. 62.  See also Philippines' opening statement at first 
substantive meeting, para. 4;  Philippines' closing statement at first substantive meeting, para. 4;  Philippines' 
opening statement at second substantive meeting, paras. 3 and 38;  Philippines' response to Panel question 
Nos. 16 and 63. 
272 Philippines' response to Panel question No. 16.  WT/DS396/R 
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  IV. ARGUMENTS OF THE PARTIES 
4.1 The arguments of the parties, as set fort h in the executive summa ries of their written 
submissions and oral statements to the Panel, are attached to these reports as Annexes (A, C, E and F) 
(see List of Annexes, pages iv and v).273  The replies of the parties to questions and the parties' 
comments on each other's replies to questions are not attached to these reports as annexes.  They are, 
however, reflected in the findings section of these reports where relevant. 274 
V. ARGUMENTS OF THE THIRD PARTIES 
5.1 The arguments of the third parties, as set fo rth in the executive summaries of their written 
submissions and oral statements to the Panel, are at tached to these reports as Annexes (B and D) (see 
List of Annexes, pages iv and v).275  The replies of the third parties to questions are not attached to 
these reports as annexes.  They are however reflec ted in the findings section of these reports where 
relevant.276 
VI. INTERIM REVIEW 
6.1 The Panel issued its interim reports to the parties on 4 May 2011.277  On 25 May, as 
foreshadowed in item (l) of the Timetable for the Panel Proceedings and in accordance to Article 15 
of the DSU as well as paragraph 16 of the Worki ng Procedures, the European Union, the United 
States and the Philippines requested the Panel to re view precise aspects of the interim reports.  On 
8 June, as foreshadowed in item (m) of the Timetabl e for the Panel Proceedings, the parties submitted 
written comments on each other's comments and requests for interim review.  Neither party requested 
an interim review meeting with the Panel. 
6.2 Where appropriate, the Panel has modified certain aspects of its interim reports, in the light of 
the parties' comments and requests, as explained be low.  The Panel has also made certain revisions 
and corrections for the purposes of clarity and accura cy.  Section VI of these reports summarizes these 
changes.  References to paragra ph numbers and footnote numbers used in Section VI are to those in 
the interim reports, except as otherwise noted. 
A. INTERIM REVIEW CHANGES TO THE DESCRIPTIVE SECTIONS  
6.3 The United States requests the inclusion of a new paragraph before paragraph 2.1 of the 
interim reports so as to clarify the relationship be tween the descriptive and findings sections of the 
reports and "how the Panel has based its legal conclusions on the facts before it."278  The Philippines 
and the European Union did not comment on this re quest.  The Panel has included the United States' 
proposed text, with a minor change, as a footnote to paragraph 2.1. 
                                                      
273 The Annexes may contain instead an actual subm ission or statement when no executive summary 
was provided because that subm ission or statement did not exceed the page  limit established in paragraph 13 of 
the Panel's working procedures. 
274 As established by paragraph 9 of the Panel's working procedures. 
275 Only Australia and Mexico made third party written submissions, and only Australia, India and 
Chinese Taipei made third party oral statements.  Th e annexes may contain instead an actual submission or 
statement when no execu tive summary was provided because that submission did not ex ceed the page limit 
established in paragraph 13 of the Panel's working procedures. 
276 As established by paragraph 9 of the Panel's working procedures. 
277 See also para. 1.14 above. 
278 United States' request for review of the interim reports (25 May 2011), para. 3. WT/DS396/R 
WT/DS403/R Page 42 
 
 
  6.4 The European Union requests the deletion of th e word "normally" in the first sentence of 
paragraph 2.8 of the interim reports because "there  is no evidence on the record that a spirit distilled 
from one of the designated raw materials in a country  where such a raw material is not produced on a 
commercial scale has ever been taxe d at the low and flat rate provided for in Section 141(a) of the 
NIRC."
 279  The Philippines and the United States did not comment on this request.  The Panel has 
made the change requested by the European Union. 
6.5 The European Union requests adding to foot note 66 to paragraph 2.22 references to 
paragraph 13 of the Philippines' opening stat ement at second substantive meeting and to the 
Philippines' response to Panel question No. 70.280  The Philippines and the United States did not 
comment on this request.  The reference request ed by the European Union has been added to 
paragraph 2.23, since it relates to the factual description of congeners. 
6.6 The European Union requests adding to footnote 67  to paragraph 2.22 a reference to exhibits 
EU-55 and EU-79.281  The Philippines and the United States did not comment on this request.  The 
Panel has added the reference to the exhi bits requested by th e European Union. 
6.7 The European Union requests replacing the word s "may depend" with the word "depends" in 
footnote 80 to paragraph 2.29.282  The Philippines and the United States did not comment on this 
request.  The Panel has made the change  requested by the European Union. 
6.8 The European Union suggests adding to footnot e 101 to paragraph 2.38 a reference to a 
finding by the panel report in Chile – Alcoholic Beverages II .283  While the United States did not 
comment on this request, the Philippines rejects it because the proposed addition refers to the 
summary of arguments by the parties and to findings made by another panel in another case.284  In the 
Panel's view, the findings of the report cited by the European Union, which refer to a different market, 
are not relevant to the specific factual finding cont ained in this paragraph.  Accordingly, the Panel 
sees no reason to make the proposed addition. 
B. INTERIM REVIEW CHANGES TO THE FINDINGS SECTION  
6.9 The United States requests inserting the expression "4-digit" before "HS tariff heading" in 
paragraph 7.23 because "although the distilled spirits at  issue are all classifiable under HS 2208, they 
fall under different classifications at the six digit level."285  The Philippines and the European Union 
did not comment on this request.  The Panel has made the change requested by the United States. 
6.10 The United States requests replacing the word s "determinations made" with the words 
"reasoning used" in the first sentence of paragraph 7.32 because the original wording "could be read 
to suggest that the panel is applying the specific le gal findings in another dispute to this dispute."286  
The Philippines and the European Union did not comment on this request.  The Panel has made the 
change requested by the United States. 
                                                      
279 European Union's request for review of the interim reports (25 May 2011), para. 1. 
280 Ibid., para. 2. 
281 European Union's request for review of the interim reports (25 May 2011), para. 3. 
282 Ibid., para. 4. 
283 Ibid., para. 5. 
284 Philippines' comments on the European Union's and the United States' requests for review of the 
interim reports (8 June 2011), para. 1. 
285 United States' request for review of the interim reports (25 May 2011), para. 4. 
286 Ibid., para. 5.  WT/DS396/R 
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  6.11 The European Union requests adding a footnote to the fourth sentence of paragraph 7.32 with 
a reference to the panel report on Japan – Alcoholic Beverages II .287  The Philippines and the 
United States did not comment on this request.  The Panel does not consider that it would be 
appropriate to include the reference requested by the European Union. 
6.12 The European Union requests adding a new last sentence in paragraph 7.37 noting that "the 
production processes employed to manufacture spirits  from the designated raw materials are largely 
similar to those used to produce sp irits from the other raw materials."288  The European Union further 
requests the addition of a footnote making referenc e to some submissions by it and the Philippines 
that would support such a statement.289  The Philippines rejects the inclusion of the references to the 
Philippines' submissions as they do not support the additional statement requested by the European Union's.
290  The United States did not comment on this request.  In paragraph 7.37, the 
Panel notes that it would focus on the physical qualiti es and characteristics of the distilled spirits as 
final products, and not on those of the raw materi als or production processes used to make the final 
products.  Accordingly, the Panel sees no need to ma ke the addition requested by the European Union. 
6.13 The Philippines requests the text of footnote 341 to  paragraph 7.38 to be modified to reflect 
the fact that the Philippines did not concede that imported and domestic rums are like products within 
the meaning of the first sentence of Article III:2.291  While the United States did not comment on this 
request, the European Union rejects it because the footnote correctly reflects the position of the 
Philippines on this issue.292  The Panel sees no reason to make the proposed change, as the text 
accurately reflects the position expressed by the Philippines on this issue. 
6.14 The European Union requests adding to foot note 344 to paragraph 7.40 references to 
paragraphs 63-65 of the European Union's second written submission and to exhibit EU-92.293  
The Philippines and the United States did not comment on this request.  The Panel has added the 
references requested by the European Union to  its second written submission.  The Panel sees no 
reason, however, to add the reference to exhibit EU-92, as it concerns only whiskies made from other 
than the designated raw materials. 
6.15 The Philippines requests footnote 344 to paragraph 7.40 to be modified, so as to reflect the 
fact that it provided concentration data in gas chro matography results in whiskies for eight congeners.  
The European Union and the United States did not co mment on this request.  The Panel has made the 
change requested by the Philippines and has inserted a clarification in the footnote with respect to 
congener concentration data re ported as "Not Detectable". 
6.16 The Philippines considers that the statement in paragraph 7.40 is incorrect as the Philippines 
has presented evidence on the sign ificance of the raw materials used on the final organoleptic 
properties of the particular type of distilled spirit and on how such differenc es were perceptible to 
consumers.  The Philippines thus requests the Pane l to either address such evidence or modify the 
sentence that there is no evidence.294  European Union and the Unite d States reject this request 
because, in their view, the Panel considered all rele vant evidence with respect to the relevance of the 
                                                      
287 European Union's request for review of the interim reports (25 May 2011), para. 6. 
288 Ibid., para. 7. 
289 Ibid. 
290 Philippines' comments on the European Union's and the United States' requests for review of the 
interim reports (8 June 2011), para. 2. 
291 Philippines' request for review of the interim reports (25 May 2011), p. 1. 
292 European Union's comments on the Philippines' and the United States' requests for review of the 
interim reports (8 June 2011), para. 1. 
293 European Union's request for review of the interim reports (25 May 2011), para. 8. 
294 Philippines' request for review of the interim reports (25 May 2011), p. 1. WT/DS396/R 
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  alleged differences between the or ganoleptic properties between impor ted and local distilled spirits 
and concluded that such differences  do not support the division of these spirits into "two separate and 
identifiable groups".
295  Noting the evidence on record, in paragraph 7.40 the Panel states that 
different types of distilled spirits have specific or ganoleptic properties.  As stated in the same 
paragraph, however, there is no evidence that thes e differences in organoleptic properties create a 
distinction between two separate and identifiable groups:  distilled spirits made from the designated 
materials and distilled spirits made from other mate rials.  Accordingly, the Panel sees no reason to 
make the proposed change. 
6.17 The European Union requests adding a footnot e to paragraph 7.43 making reference to 
paragraph 143 of the Philippines' first written submission.296  The Philippines and the United States 
did not comment on this request.  The Panel sees no reason to make the requested change as the 
citation to the Philippines' submission is already co ntained in footnotes to paragraphs 2.25 and 2.62, 
which are cross-referenced in footnote 348 to paragraph 7.43. 
6.18 The European Union requests adding a footnot e to paragraph 7.45 making reference to 
paragraph 36 of the Philippi nes' second written submission.297  The Philippines considers that the 
reference, in fact, contradicts the statement made  by the Panel in paragraph 7.45 and should be 
referenced as such.  The United States did not comment on this request.  Having considered the 
statement made by the Philippines in its second wr itten submission, in para graph 2.26 the Panel 
concluded that, although different bra nds of spirits of the same type may have differences in taste and 
aroma, there is no evidence to suggest that a n on-expert consumer would be able to distinguish 
between imported and domestic spirits of the same type based only on the different raw materials used 
in their respective production.  Accordingly, th e Panel sees no need to make the proposed change. 
6.19 The European Union requests adding a footnot e to paragraph 7.46 making reference to 
paragraph 119 of the Philippines' first written submission.298  The Philippines and the United States 
did not comment on this request.  The Panel sees no reason to make the requested change as the 
citation to the Philippines' submission is already co ntained in footnotes to paragraphs 2.25 and 2.81, 
which are cross-referenced in footnote 351 to paragraph 7.46. 
6.20 The Unites States requests the deletion of the second sentence of paragraph 7.49 so as to 
avoid the possible implication that the section on "Consumers' tastes and habits", under which this 
paragraph belongs, be un derstood as the only one relevant one for the issue of "the competitive 
relationship between th e relevant products." 299  The Philippines and the European Union did not 
comment on this request.  In order to avoid the possible confusion identified by the United States, the 
Panel has deleted the sentence. 
6.21 The Philippines requests that paragraph 7.50 be amended to state that, in addition to brand 
loyalty, price is an important factor with respect to consumers' choice.  The Philippines adds that the 
Abrenica & Ducanes study "shows that price exerts  the most significant influence on consumers' 
choice".300  The European Union and the United States re ject this request becau se the issue of price 
and consumer's choice was adequately and extensivel y addressed by the Panel in various parts of the 
                                                      
295 European Union's comments on the Philippines' and the United States' requests for review of the 
interim reports (8 June 2011), para. 2;  United States' comments on the Philippines' request for review of the 
interim reports (8 June 2011), para. 4. 
296 European Union's request for review of the interim reports (25 May 2011), para. 9. 
297 Ibid., para. 10. 
298 Ibid., para. 9. 
299 United States' request for review of the interim reports (25 May 2011), para. 6. 
300 Philippines' request for review of the interim reports (25 May 2011), p. 2.  WT/DS396/R 
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  reports.301  In the Panel's view, the role of price in c onsumers' decisions is adequately discussed in the 
reports, including in the first sentence of paragraph 7.50.  Accordingly, the Panel sees no need to 
make the proposed change. 
6.22 Regarding distribution channels, the Phili ppines requests that paragraph 7.51, and 
consequently also paragraph 7. 123, be amended so as to adequately address distribution of 
"non-sugar-based spirits" in the Philippines, in partic ular with respect to sari-sari stores as well as the 
evidence that these products  are put to different use when sold in outlets that sell both imported and 
local spirits.302  The European Union and the United States re ject this request because in their view the 
Panel adequately dealt with the issue of the distribu tion channels in various pa ssages of its reports and 
the Philippines has offered no evidence for its asserti on that domestic spirits are put to different use 
when sold side-by-side with imported spirits.303  In the Panel's view, the importance of distribution 
channels is adequately discussed in the reports.  Accordingly, the Panel sees no need to make the 
proposed change. 
6.23 Regarding marketing campaigns, the Philippi nes requests that paragraph 7.51, and 
consequently also paragraph 7. 131, be amended so as to address the evidence submitted by the 
European Union that "importers have had to h eavily distinguish their brands from local brands."304  
The European Union and the United States reject this request because the Panel reviewed all the 
evidence submitted by the parties on this matter a nd concluded that the marketing campaigns of both 
imported and domestic sprit producers are "largely the similar".305  The European Union adds that the 
evidence referred to by the Philippines, a paper pr oduced by Dr. Parplies, was merely pointing out 
that the Abrenica & Ducanes report failed to take in to account the influence that the long application 
of the discrimination against imported spirits had to c onsumers' perception.  In this context, the paper 
indicates that, as a result of such tax discrimination,  "the only chance of surviving for many importers 
was to try to present their products to potential cu stomers as somewhat different from the (sometimes 
cheaper) local ones."306  In the Panel's view, the importance of marketing campaigns is adequately 
discussed in the reports.  Based on the evidence on record, including that referred to in paragraph 
2.42, the Panel concluded that "marketing campaigns for distilled spirits are very similar".  The fact 
that through these marketing campa igns, each producer may attempt to achieve differentiation for its 
respective brands does not affect this conclusion.  Accordingly, the Panel sees no need to make the 
proposed change. 
6.24 The Philippines requests paragraph 7.55 to be amende d to reflect the fact that in their view the 
Abrenica & Ducanes study is an "econometric study" rather than a "marketing analysis".307  While the 
United States did not comment on this request, the European Union does not consider this change 
                                                      
301 European Union's comments on the Philippines' and the United States' requests for review of the 
interim reports, para. 4 (8 June 2011);  United States' comments on the Philippines' request for review of the 
interim reports (8 June 2011), para. 5. 
302 Philippines' request for review of the interim reports (25 May 2011), p. 2. 
303 European Union's comments on the Philippines' and the United States' requests for review of the 
interim reports (8 June 2011), para. 3;  United States' comments on the Philippines' and the European Union's 
requests for review of the interim reports (8 June 2011), para. 6. 
304 Philippines' request for review of the interim reports (25 May 2011), p. 2. 
305 European Union's comments on the Philippines' and the United States' requests for review of the 
interim reports (8 June 2011), para. 11.  See also Unite d States' comments on the Philippines' request for review 
of the interim reports(8 June 2011), para. 7. 
306 European Union's comments on the Philippines' and the United States' requests for review of the 
interim reports (8 June 2011), paras. 6-7. 
307 Philippines' request for review of the interim reports (25 May 2011), p. 3. WT/DS396/R 
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  necessary as the "crucial input data" of this stu dy was generated by a marketing analysis, i.e. a 
"conjoint analysis".
308  The Panel has made the cha nge requested by the Philippines. 
6.25 The European Union suggests that a reference be added at the end of paragraph 7.57 to certain 
findings made by the panel in Chile – Alcoholic Beverages , which the European Union considers to be 
useful despite the fact that they were made in th e context of an analysis under the second sentence of 
Article III:2.309  The Philippines and the United States did not comment on this request.  The Panel 
sees no need to make the proposed change. 
6.26 The European Union suggests adding a new pa ragraph between para graphs 7.57 and 7.58 
recalling statements made in the Abrenica & Du canes survey suggesting the existence, among 
Filipino consumers, of traditional habits and tast es which might create brand loyalty that can limit 
their propensity to switch brand.  Additionally, the new paragraph could state, citing in support a 
GATT case, that the large tax defere ntial applied to the products at issue contribute to reinforce or 
"freeze" such habits and tastes.  The Philippin es and the United States did not comment on this 
request.  In the Panel's view, the discussion of br and loyalty in the Abrenica & Ducanes survey is 
adequately addressed in the reports, including in paragr aph 7.50 in the same section.  Accordingly, the 
Panel sees no need to make the proposed change. 
6.27 The European Union requests adding a sentence at the end of paragraph 7.61 noting that, 
according to the evidence in the record, imported spirits share the same shelving space of domestic 
spirits in most outlets, and that previous panels found this to be an indication of substitutability 
between these products.310  The Philippines and the United States did not comment on this request.  
The Panel has noted elsewhere in the reports, incl uding in paragraph 7.51, that some outlets where 
imported spirits are sold also offer domestic Phili ppine spirits.  Some evidence on record, including 
that identified by the European Union311, suggests that, in at least some of those outlets, imported 
spirits share the same shelving space of domestic sp irits.  The Panel does not find, however, enough 
evidence on record to suggest that this is the situation of "most outlets" in the Philippines.  
Accordingly, the Panel sees no need  to make the proposed change. 
6.28 The Philippines requests paragraph 7.62 to be am ended "to reflect the fact that, despite their 
willingness, the vast majority of consum ers cannot afford non-sugar-based spirits."312  T h e  
European Union and the United States reject this re quest because in their view a contrary conclusion 
regarding the affordability of imported spirits was al ready reached by the Pane l in several passages of 
the interim reports.313  In the Panel's view, the issue of the income and expenditure constraints faced 
by the Philippines' consumers is adequately discussed  in the reports.  As noted by the Panel, the 
evidence on record suggests that because of those constraints a large proportion of the Philippine 
population has a limited ability to purchase distilled sp irits beyond certain price levels.  The Panel has 
found, however, no evidence of two separate distilled  spirit markets in the Philippines that reflect 
different levels of purchasing power, i.e. one that would consume distilled spirits made from 
designated raw materials, and another that woul d consume distilled spirits made from other raw 
materials.  Accordingly, the Panel sees no  need to make the proposed change. 
                                                      
308 European Union's request for review of the interim reports (25 May 2011), para. 14. 
309 Ibid., para. 12. 
310 European Union's request for review of the interim reports (25 May 2011), para. 14. 
311 See exhibits EU-66, EU-67, EU-68, EU-69, EU-71 and EU-104. 
312 Philippines' request for review of the interim reports (25 May 2011), pp. 2-3. 
313 European Union's comments on the Philippines' and the United States' requests for review of the 
interim reports (8 June 2011), para. 13;  United States ' comments on the Philippines' request for review of the 
interim reports (8 June 2011), para. 8.  WT/DS396/R 
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  6.29 The European Union requests a clarification in  paragraph 7.77 by rephrasing "distilled spirits 
at issue" to "distilled spirits made from the desi gnated raw materials and distilled spirits made from 
other raw materials".314  The United States supports the proposed change.315  The Philippines did not 
comment on this request.  In the Panel's view, the language of the paragraph is clear.  The Panel's 
finding covers the distilled spirits at issue in  the dispute, whether imported or domestic, and 
irrespective of the raw materials from which they are made;  i.e., whether made from the designated 
raw materials or from other raw materials.  Accordi ngly, the Panel sees no need to make the requested 
change. 
6.30 The European Union requests adding a footnote at the end of paragraph 7.80 referring to 
paragraphs 2.25 and 7.38 of the interim reports.316  Neither the Philippines nor  the United States made 
comments on this request.  The Panel has made th e change requested by the European Union. 
6.31 The United States requests changing the phrase "m ore specifically sugar cane molasses" to 
the more general term "designated raw materials" throughout paragraph 7.85 so as to more accurately 
reflect the fact that the Excise Tax divides spirits  between those made from designated raw materials 
and those made from other raw materials.317  The Philippines does not object to the change, but 
requests that should changes be made that they also  include references to th e specific factual evidence 
the Panel relied upon.318  The European Union did not comment on this request.  The United States is 
correct that the measure at issue creates a dis tinction between spirits made from designated raw 
materials and those made from other raw material s.  As the Panel notes in paragraph 2.17, "all 
distilled spirits produced in the Philippines are made  from designated raw materials".  At the same 
time, the domestic spirits that were relevant in the dispute were all made from sugar cane molasses.  As noted by the Panel in paragraph 2.17 and footno te 59, "most of the distilled spirits produced in the 
Philippines are made from one particular designated raw material:  sugar cane molasses."  Indeed, 
"[t]here is no evidence … that raw materials other than sugar cane molasses are currently used by 
Philippine distilled spirits producers in commercial qua ntities."  Accordingly, the Panel has made the 
change requested by the United States. 
6.32 The European Union requests adding a refe rence to exhibits EU-101 and EU-102 in 
footnote 448 to paragraph 7.110.
319  The Philippines and the United States did not comment on this 
request.  The Panel has added the refere nce requested by the European Union. 
6.33 The European Union requests amending paragr aph 7.118 to mention the fact that the 
Philippines mostly referred to average prices rather than to actual prices of single products, and that 
similar arguments were discarded by the panel on Korea – Alcoholic Beverages .320  The Philippines 
and the United States have not made comments on this request.  The Panel reports note elsewhere that 
the Philippines has often referred to average prices of distilled spirits in its market.321  The Philippines' 
argument noted in paragraph 7.118 "that instances of price overlap between domestic and imported 
distilled spirits are 'exceptions and aberrations'", however, does not refer to average prices but to 
prices of single products.  Accordingly, the Pane l sees no need to make the requested change. 
                                                      
314 European Union's request for review of the interim reports (25 May 2011), para. 15. 
315 United States' comments on the Philippines' request for review of the interim reports (8 June 2011), 
para. 2. 
316 European Union's request for review of the interim reports (25 May 2011), para. 16. 
317 United States' request for review of the interim reports (25 May 2011), para. 7. 
318 Philippines' comments on the European Union's and United States' request for review of the interim 
reports (8 June 2011), para. 4. 
319 European Union's request for review of the interim reports (25 May 2011), para. 17. 
320 Ibid., para. 18. 
321 See, for example, paras. 7.143 and 7.162-7.163. WT/DS396/R 
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  6.34 The European Union requests adding a footnote to  the third sentence of paragraph 7.121 by 
making reference to the Appellate Body report in Korea – Alcoholic Beverages .
322  The Philippines 
and the United States did not comment on this request.  The Panel sees no reason to make the 
requested change as the citation to the Appellate Body report is already contained in footnotes 426 
and 427 to paragraph 7.100, which is mentione d in the first sentence of paragraph 7.121. 
6.35 The European Union requests adding a new pa ragraph after paragraph 7.121 to include 
statements from domestic Philippine companies stating that their products face competition from 
imported spirits, and that their marketing strategies convey an image of their products as drinks that 
can and do compete with the best imported distilled sp irits.  The European Union considers this to be 
additional evidence supporting the existence of a competitive relationship between the products at 
issue and additionally requests that a footnote be inser ted at the end of this new paragraph referencing 
the panel report in Chile – Alcoholic Beverages .323  The Philippines and the United States did not 
comment on this request.  In the Panel's view, th e statements from domestic Philippine companies 
referred to by the European Union relate to act ual competition discussed in paragraph 7.120, rather 
than to potential competition discussed in paragra ph 7.121.  Accordingly, the Panel has added a 
reference to the statements from domestic Philippine  companies, to certain EU exhibits and to the 
panel report on Chile – Alcoholic Beverages  to footnote 472 to paragraph 7.120. 
6.36 The European Union requests adding a sentence at  the end of paragraph 7.123 noting that in 
most outlets the products at issue share the same shelving space, and that previous panels (such as 
Chile – Alcoholic Beverages ) found this to be an indication of substitutability between the different 
products.324  The Philippines and the United States did not comment on this request.  The Panel has 
already rejected a similar request made by the Eu ropean Union regarding paragraph 7.61.  For the 
same reasons, the Panel sees no need to make the proposed change. 
6.37 The European Union requests adding either in th e text of paragraph 7.127 or in footnote 485 
references to the panel reports on Chile – Alcoholic Beverages  and Korea – Alcoholic Beverages .325  
The Philippines and the United States did not comment on this request.  The Panel has added 
references to the panel reports on Chile – Alcoholic Beverages  (paragraph 7.53) and Korea – 
Alcoholic Beverages  (paragraph 10.67) to footnote 486.  The Panel does not consider that it would be 
appropriate to include a reference to  paragraph 7.83 of the panel report on Chile – Alcoholic 
Beverages . 
6.38 The European Union suggests adding in footnote 494 to paragraph 7.131  references to 
paragraphs 10.65, 10.79 and 10.80 of the panel report in Korea – Alcoholic Beverages .326  
The Philippines and the United States did not co mment on this request.  The Panel has added a 
reference to the panel report on Korea – Alcoholic Beverages  (paragraph 10.65) in a new footnote at 
the end of paragraph 7.131.  The Panel does not cons ider that it would be appropriate to include a 
reference to paragraphs 10.79 a nd 10.80 of the panel report on Korea – Alcoholic Beverages . 
6.39 The United States requests amending paragraph 7.14 7 to clarify that the approach advanced 
by the United States is specific to the present dis pute by adding the phrase "in this case" following the 
                                                      
322 European Union's request for review of the interim reports (25 May 2011), para. 19. 
323 European Union's request for review of the interim reports (25 May 2011), para. 20. 
324 Ibid., para. 21. 
325 Ibid., para. 22. 
326 Ibid., para. 23.  WT/DS396/R 
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  words "the correct approach".327  The Philippines and the European Union did not comment on this 
request.  The Panel has made the ch ange proposed by the United States. 
6.40 The Philippines requests amending paragraph 7.159 to note that the Excise Tax on 
"non-sugar-based" spirits "is also a specific tax, not an ad valorem  tax", although these products are 
tiered according to their NRP.328  The United States disagrees and finds that the term " ad valorem " is 
appropriate to describe the Excise Tax, because the ti ered tax rates depend on the net retail price.  The 
United States does not object, however, an additi onal clarification by the Panel on this issue.329  The 
European Union did not comment on this request.  The Panel has described the Excise Tax rates in 
paragraphs 2.2 to 2.5 of the reports.  This factua l description was not contested by the parties.  As 
noted in those paragraphs, spirits made from designated raw materials are subject to a flat tax rate.  In 
contrast, spirits made from other raw materials are subject to three different tax rates, depending on 
their net retail price (NRP).  While these three tax rates are not imposed as a percentage of the NRP of 
the products, the tax ultimately depends on the valu e of the spirit.  In this sense, it is an ad valorem  
tax.  With this clarification, the Pane l sees no reason to make the requested change. 
C. INTERIM REVIEW CHANGES TO THE CONCLUSIONS AND RECOMMENDATIONS SECTION  
6.41 The United States requests amending paragraph 8.1 to clarify the fact that the reports contain 
common finding sections, but separate conclusions and recommendations for each complainant.330  
The Philippines and the European Union did not comment on this request.  The Panel has made the change proposed by the United States. 
D. M
INOR CORRECTIONS AND ADDITION OF REFERENCES  
6.42 As a result of comments from the parties, minor typographical corrections were made to 
paragraphs 7.50, 7.101, 7.105 and 7.185.  The Pane l also made a clerical co rrection to footnote 210 to 
paragraph 2.75. 
VII. FINDINGS 
A. CLAIMS AND ORDER OF ANALYSIS  
1. The complainants' claims 
7.1 The complainants present their respective clai ms under the two sentences of Article III:2 of 
GATT 1994 differently.  The European Union genera lly starts its argumentation with the first 
sentence of Article III:2.331  It articulates its claim under the second  sentence as an alternative, in the 
event that it does not succeed, either partially or tota lly, in its claim under the first sentence.  Indeed, 
in its first submission, the European Union explains that: 
"[I]f this Panel were not persua ded that some or all of those spirits are 'like' within the 
meaning of GATT Article III:2, first sentence, subordinately , the EU submits that 
                                                      
327 United States' request for review of the interim reports (25 May 2011), para. 8. 
328 Philippines request for review of the interim reports (25 May 2011), p. 3. 
329 United States' comments on the Philippines' request for review of the interim reports (8 June 2011), 
para. 9. 
330 United States' request for review of th e interim report (25 May 2011), para. 9. 
331 See European Union's first written submission, para. 50. WT/DS396/R 
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  they are 'directly competitive or substitutable' pursuant to GATT Article III:1 and 
III:2, second sentence."
332 (emphasis added) 
7.2 In contrast, the United States presents its  claims under each of the two sentences as 
independent claims;  it specifically requests finding s that would cover all distilled spirits under both 
the first and the second sentences of Article III:2.333 
7.3 The Philippines generally responds to the co mplainants' arguments under Article III:2 by 
starting with the first sentence.334  The Philippines submits that each of the two sentences of 
Article III:2 establishes independent and distinct oblig ations and, consequently, a separate and distinct 
analysis is required for each.335 
7.4 Concerning the products covered by the dispute, the European Union indicates that its claim 
under the first sentence of Article III:2 is that for each type of distilled spirit relevant in the present 
dispute (gin, brandy, rum, vodka, whisky and te quila), products made from the designated raw 
materials are "like" imported products that are ma de from other materials and are being taxed "in 
excess".336  The European Union states that it "does no t necessarily claim that all spirits under HS 
code 2208 are 'like products' within the meaning of  Article III:2, first sentence, of the GATT", but 
that: 
"[A]t the very least – and irrespective of the type and origin of the raw materials used 
for their production, all gins sold in the Philippines are like products, all brandies sold 
in the Philippines are like products, all wh iskies sold in the Philippines are like 
products, all vodkas sold in the Philippines are like products, all rums sold in the 
Philippines are like products, and so on."337 
7.5 With respect to its alternative claim under th e second sentence of Article III:2, the European 
Union argues that all distilled spirits falling unde r HS heading 2208 are "directly competitive and 
substitutable", irrespective of the raw materials from which they are distilled.338  The European Union 
submits, to illustrate the point, "that imported gi n is directly competitive and substitutable with 
Filipino vodka, that imported brandy is directly  competitive and substitutable with domestic whisky, 
etc."339  However, the European Union subordinately argu es that, if the Panel were to conclude that all 
or some distilled spirits are not "directly competitiv e and substitutable", then "for each type of spirit 
(e.g. gin, vodka, whisky, rum, brandy, tequila et c.), the products distilled from the designated raw 
materials are 'directly competitive and substitutable'  with those distilled from the non-designated raw 
materials".340  In other words, the European Union s ubmits that "a whisky produced from the 
                                                      
332 Ibid., para. 49.  The European Union adds that "if the Panel were to establish that the Philippines 
violate Article III:2, first sentence, it would not necessarily need to anal yze a breach of the second sentence of 
the same provision".  European Union's first written submission, para. 52.  See also European Union's response 
to Panel question Nos. 18, paras. 9-12, and 64, paras. 4-5. 
333 See, e.g. United States' first written submission, paras. 37 and 100, where it claims, without any 
qualifications, that the measures violate both sentences of Article III:2.  See also United States' second written 
submission, paras. 3-4 and 24;  United States' response to Panel question No. 64, para. 2. 
334 See for example Philippines' first written submi ssion, paras. 73-204 and 205-314;  Philippines' 
second written submission, paras. 19-45 and 46-82. 
335 Philippines' first written submission, paras. 56-58. 
336 See European Union's first written submission, para. 62;  European Union's response to Panel 
question Nos. 18, para. 11, and 64, para. 5. 
337 European Union's first written submission, para. 62. 
338 European Union's response to Panel question No. 18, para. 11. 
339 Ibid. (footnote omitted). 
340 European Union's response to Panel question No. 18, para. 12.  WT/DS396/R 
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  designated raw materials is directly competitive a nd substitutable with a whisky produced from other 
raw materials;  a gin produced from the designated raw materials is directly competitive and 
substitutable with a gin produced from other raw materials;  a vodka produced from the designated 
raw materials is directly competitive and subs titutable with a vodka produced from other raw 
materials; etc."341 
7.6 With respect to product coverage, the United States suggests that the Panel may compare 
"Philippine and imported brands of each type of spirit, in order to evaluate whether the measure itself 
… is consistent with the Philippines' obligations."  On that basis, the Pa nel could conc lude "that 
domestic spirits of all types made from protected ra w materials are not only 'directly competitive or 
substitutable' with imported distilled spirits, but would indeed be 'like products' with certain of their 
imported counterparts."342  Specifically, with respect to the fi rst sentence of Article III:2, the United 
States asks the Panel to "review the evidence of  Philippine domestic bran ds and their imported 
counterparts to confirm that Philippine 'brandy' is  like imported 'brandy,' Philippine 'gin' is like 
imported 'gin,' etc."343 
2. Applicable provisions 
7.7 Parties have brought claims under the two sentences of Article III:2 of the GATT 1994. 
7.8 We recall that the first sentence of Article III:2 of the GATT 1994 reads: 
"The products of the territory of any contr acting party imported into the territory of 
any other contracting party shall not be subject , directly or indirectly, to internal taxes 
or other internal charges of any kind in ex cess of those applied, di rectly or indirectly, 
to like domestic products." 
7.9 The second sentence of Article III:2 of the GATT 1994 provides that: 
"Moreover, no contracting party shall otherw ise apply internal taxes or other internal 
charges to imported or domestic products in  a manner contrary to the principles set 
forth in paragraph 1 [of Article III]." 
7.10 In turn, Article III:1 of the GATT states that: 
"The contracting parties recognize that intern al taxes and other internal charges, and 
laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative 
regulations requiring the mixture, processing or use of products in specified amounts 
or proportions, should not be applied to im ported or domestic produc ts so as to afford 
protection to domestic production. " (emphasis added). 
7.11 Finally, we observe that the Ad Note to Article III:2 of the GATT provides that: 
"A tax conforming to the requirements of th e first sentence of paragraph 2 would be 
considered to be inconsistent with the provisions of the second sentence only in cases 
where competition was involved between, on the one hand, the taxed product and, on 
                                                      
341 Ibid. 
342 United States' response to Panel question No. 18, para. 7. 
343 United States' second written submission, para. 24 (footnote omitted).  See also United States' first 
written submission, paras. 82 and 90;  United States' response to Panel question No. 64, para. 2. WT/DS396/R 
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  the other hand, a directly competitive or substitutabl e product which was not similarly 
taxed. " (emphasis added). 
3. Order of analysis 
7.12 Previous panels have approached the order of analysis of simultaneous claims under the first 
and second sentences of Article III:2 differently. 
7.13 Most panels faced with claims under both senten ces of Article III:2 have started their analysis 
with the first sentence.  The panels in Japan – Alcoholic Beverages II  and Mexico – Taxes on Soft 
Drinks  (with respect to the claims concerning Mexico 's treatment for sweeteners) considered first 
whether the challenged measures were inconsistent with the first sentence of Article III:2, and 
subsequently went on to consider whether they were also inconsistent with the second sentence.
344 
7.14 The panel in Korea – Alcoholic Beverages , however, began its analysis with the second 
sentence, noting that it found it logical to examin e "the broader category [of directly competitive or 
substitutable products] first."345  That panel found that the challe nged measure was inconsistent with 
Article III:2, second sentence, but made no findings under Article III:2, first sentence, as it found 
insufficient evidence that the relevant products were "like products".346 
7.15 In some instances, claims under the two senten ces in Article III:2 have been presented by the 
complainants as alternativ es.  Such was the case in Canada – Periodicals , in Mexico - Taxes on Soft 
Drinks  (with respect to claims regarding taxes on soft drinks and syrups) and in China - Auto Parts .  
The three panels were faced with primary claims under Article III:2, first sentence, and alternative 
claims under Article III:2, second sentence.  Once th e panels concluded that the challenged measures 
were inconsistent with the first sentence, they fo und no need to make additional findings with respect 
to the second sentence.347 
7.16 In Indonesia – Autos , even though the claims were not presented as alternatives, the panel was 
of the view that, having found that the tax pr ovisions of the Indonesian car programmes were 
inconsistent with Article III:2, first sentence, it was unnecessary to examine the same programmes under the second sentence.
348 
7.17 In the current case, as explained in paragraphs 7.1 to 7.6, we have two different sets of 
complaints.  First, a complaint presented by the European Union, which includes a principal claim 
under the first sentence of Article III:2 of the GAT T 1994 and an alternative claim concerning the 
second sentence of Article III:2.  Second, two inde pendent claims presented by the United States 
under the first and second sentences of Article III:2.  We  will start our analysis with the first sentence 
of Article III:2 and subsequently assess the claims under the second sentence. 
                                                      
344 Panel Report, Japan – Alcoholic Beverages II , paras. 6.27, 6.33 and 7.1;  Panel Report, Mexico – 
Taxes on Soft Drinks , paras. 8.59 and 8.96. 
345 Panel Report, Korea – Alcoholic Beverages , para. 10.36. 
346 Ibid., para. 10.104. 
347 Panel Report, Canada – Periodicals , paras. 3.111, 5.27 and 5.30;  Panel Report, Mexico – Taxes on 
Soft Drinks , para. 8.161;  and Panel Reports, China – Auto Parts , para. 7.226.  In the case of Canada – 
Periodicals , the claim under the second sentence of Article III:2 was eventually analysed by the 
Appellate Body, which found it necessary to "complete th e analysis" after it had reve rsed the panel's finding 
under the first sentence (Appellate Body Report, Canada – Periodicals , DSR 1997:I, 449, at 468). 
348 Panel Report, Indonesia – Autos , paras. 14.115-14.117.  WT/DS396/R 
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  B. BURDEN OF PROOF  
7.18 The general rule is that the burden of proof rests upon the party, whether complaining or 
defending, who asserts the affirmative of a particular claim or defence.349  Following this principle, 
the Appellate Body has explained that the comp laining party in any given case should establish a 
prima facie  case of inconsistency of a measure with a provision of the WTO covered agreements, 
before the burden of showing consistency with th at provision or defending it under an exceptional 
provision is passed to the defending party.350  According to the Appellate Body, a prima facie case is 
"one which, in the absence of effective refutation by the defending party, requires a panel, as a matter 
of law, to rule in favour of the complaining party presenting the prima facie  case."351 To establish a 
prima facie  case, the party asserting a particular claim must adduce evidence sufficient to raise a 
presumption that what is claimed is true.  In this regard, precisely how much and what kind of 
evidence will be required to establish a presumption th at a claim is valid will necessarily vary from 
case to case.352 
7.19 The Philippines argues that both the European Union and the United States have failed to 
discharge their burden of proof.353  The Philippines submits that th e European Union inappropriately 
assumes that the finding of a breach of the first sentence of Article III:2 of the GATT 1994 inevitably 
entails a breach of the second sentence;  in the Philippines' view, the obligations in each of the 
sentences are separate and distinct and each requires a separate and distinct analysis.354  T h e  
Philippines adds that the United States appears to re ly on findings made by panels and the Appellate 
Body in previous cases involving alcoholic beve rages.  Such precedents would constitute "an 
inadequate evidentiary basis" for the determinati ons to be made in the present case, which should be 
based instead on the circumstan ces of the Philippines market.355  The Philippines also argues that the 
complainants have failed to provide a complete anal ysis regarding the likeness of each distilled spirit 
"on a product-by-product basis".356  In the Philippines' view, the co mplainants have instead produced 
limited evidence regarding a limited number of dis tilled spirits, which would be insufficient to 
establish a violation of Article III:2 of the GATT 1994.357  The Philippines submits that "[i]f the Panel 
pursues a 'grouping' approach in this case [for all distilled spirits in HS heading 2208], it must exercise great care to ensure that the categories of products they are grouping together are 'sufficiently 
similar' in terms of 'compositi on, quality, function and price'."
358  Finally, the Philippines argues that it 
has "presented evidence to rebut the complainants' assertions, including the types of evidence that 
previous panels have required in their Article III:2 analysis".359 
                                                      
349 Appellate Body Report, US – Wool Shirts and Blouses , p. 14, DSR 1997:I, p. 323 at p. 335.  Panel 
Report, US – Shrimp , para. 7.14. 
350 Appellate Body Report, EC – Hormones , para. 104. 
351 Ibid. 
352 Appellate Body Report, US – Wool Shirts and Blouses , p. 14, DSR 1997:I, p. 323 at p. 335. 
353 Philippines' first written submission, para. 70.  See also Philippines' opening statement at first 
substantive meeting, paras. 11-13;  Philippines' second  written submission, paras. 6-18;  Philippines' opening 
statement at second substantive meeting, paras. 7-9;  Philippines' response to Panel question Nos. 17 and 51. 
354 Philippines' first written submission, paras. 56-58. 
355 Ibid., paras. 59-60.  See also Philippines' s econd written submission, paras. 11-12 and 15-18. 
356 Philippines' first written submission, para. 62. 
357 Ibid., paras. 61-71.  See also Philippine s' second written submission, paras. 7-10. 
358 Philippines' second written submission, para. 14. 
359 Philippines' opening statement at second substantive meeting, para. 10.  See also Philippines' second 
written submission, para. 18;  Philippines' response to Panel question No. 51. WT/DS396/R 
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  7.20 The European Union and the United States reject the Philippines' arguments and submit that 
they have produced sufficient eviden ce to support their respective cases.
360  The complainants argue 
that they have produced "a very extensive and thorough examination of why distilled spirits made 
from designated raw materials are similar to dist illed spirits made from the non-designated raw 
materials."361  This examination demonstrates that, irresp ective of the raw materials used in their 
production, the relevant distilled spirits are "like", or, "at the very least", directly competitive and 
substitutable.362  The European Union adds that: 
"[G]iven that both like and directly compe titive and substitutable products are part of 
the same broad category of similar products , all evidence advanced with respect to 
each element of the similarity assessment (concerning physical characteristics, end uses, consumer tastes and preferences, channels of distribution, prices, etc.) is relevant to the consideration of the products as either like, or as directly competitive 
and substitutable."
363 
7.21 In this dispute, the initial burden of proof rests upon each complainant to establish a prima 
facie  case that the measure at issue is inconsistent with Article III:2 of  the GATT 1994.  If we were to 
find that the complainants have established a prima facie  case of inconsistency of the challenged 
measure with the relevant provisions, the burden will then fall on the Philippines to rebut such claims. 
C. CLAIMS UNDER THE FIRST SENTENCE OF ARTICLE  III:2  OF GATT 1994 
1. The complainants' claims 
7.22 The European Union and the United States cl aim that the Philippines' excise tax is 
inconsistent with the first sentence of Article III:2. 
7.23 The European Union and the United States argue  that domestic Philippine distilled spirits 
produced from the raw materials designated in the excise tax law are "like" imported spirits produced 
with other raw materials.364  In the complainants' view, the basi c physical properties of all distilled 
spirits, irrespective of the raw materials from whic h they are produced, are "essentially the same"365;  
distilled spirits in general have the same end uses366;  the consumers' tastes and habits are not affected 
                                                      
360 See European Union's opening statement at first substantive meeting, paras. 7 and 13-18;  United 
States' opening statement at first substantive meeting, paras. 35-48. 
361 European Union's second written submission, para. 23.  See also European Union's opening 
statement at first substantive meeting, paras. 14 and 17;  European Union's second written submission, 
paras. 26-34. 
362 European Union's second written submission, para. 23.  See also European Union's opening 
statement at first substantive meeti ng, paras. 17-18;  United States' opening statement at first substantive 
meeting, paras. 31-45;  United States' second written su bmission, paras. 3-11;  United States' opening statement 
at first substantive meeting, para. 18. 
363 European Union's second written submission, para. 25.  See also European Union's opening 
statement at first substantive meeting, para. 15;  United States' opening statement at first substantive meeting, 
paras. 36-38. 
364 See for example European Union's first written submission, paras. 49 and 58-99;  United States' first 
written submission, paras. 37 and 80-98;  United States' ope ning statement at first substantive meeting, para. 42. 
365 See for example European Union's first written submission, paras. 79-88;  European Union's second 
written submission, paras. 28 and 78-84;  European Unio n's opening statement at second substantive meeting, 
paras. 20-24;  United States' first written submission, paras. 90-94. 
366 See for example European Union's first written submission, paras. 64-70;  European Union's second 
written submission, paras. 28 and 104-107;  Un ited States' first written submission, para. 95.  WT/DS396/R 
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  by the different raw materials used in their production367;  all distilled spirits fall under the same 
4-digit HS tariff heading and the classification of different types of spirit into sub-groups does not 
depend on the raw material used in their production368;  and internal regulations in the Philippines as 
well as other countries do not distinguish between spir its on the basis of the raw material from which 
they are distilled.369 
7.24 The complainants add that imported distilled sp irits produced with raw materials other than 
those designated in the excise tax law are being taxed "in excess" of domestic Philippine distilled 
spirits produced from the designated raw materials.370 
7.25 The European Union and the United States concl ude that the Philippines' excise tax imposed 
on distilled spirits is inconsistent with the first sentence of Article III:2 of the GATT 1994.371 
2. The Philippines' response 
7.26 The Philippines responds that the complainants have failed to provide the required evidence 
to allow the Panel to conclude that the products in the dispute are "like".372 
7.27 In addition, the Philippines states that dis tilled spirits produced from the raw materials 
designated in the excise tax law ar e not "like" distilled spirits produced with other raw materials.  In 
the Philippines' view, there are significant physical differences between both categories of spirits373;  
distilled spirits produced from the raw materials desi gnated in the excise tax law do not compete in 
the market with distilled spirits produced with othe r raw materials because of market segmentation in 
the Philippines374;  and tariff classification based on the Harmonized System groups distilled spirits on 
the basis of the raw materials used in their respective production.375  The Philippines adds that, 
although all distilled spirits have the same end uses,  this does not mean that they are like products.376 
                                                      
367 See for example European Union's first written submission, paras. 71-78;  European Union's second 
written submission, paras. 28 and 85-95, 97-103 and 108-1 09;  United States' first written submission, paras. 96-
98. 
368 See for example European Union's first written submission, paras. 92-96;  European Union's second 
written submission, para. 96. 
369 See for example European Union's first written subm ission, paras. 89-91;  United States' first written 
submission, paras. 37 and 83-89. 
370 See for example European Union's first written submission, paras. 100-106;  European Union's 
second written submission, para. 127;  United States' fi rst written submission, para. 99;  United States' opening 
statement at first substantive meeting, para. 43;  United States' second written submission, para. 13. 
371 See for example European Union's first written submission, paras. 48-49 and 106;  United States' 
first written submission, paras. 37 and 79-99;  United States' opening statement at first substantive meeting, 
paras. 36-43;  United States' second written submission, para. 56. 
372 Philippines' first written submissi on, paras. 62-72 and 81;  Philippi nes' opening statement at first 
substantive meeting, para. 13;  Philippines' second written submission, paras. 7-9. 
373 See for example Philippines' first written submission,  paras. 10-13, 85-88 and 94-175;  Philippines' 
opening statement at first substantive meeting, para s. 12-24;  Philippines' second written submission, 
paras. 19-33. 
374 See for example Philippines' first written submission, paras. 89-90 and 176-188;  Philippines' 
opening statement at first substantive meeting, paras. 21 -22;  Philippines' second written submission, paras. 34-
42 and 50-75;  Philippines' response to Panel question Nos. 35 and 36. 
375 See for example Philippines' first written submission, paras. 189-200;  Philippines' opening 
statement at first substantive meeting, para. 19;  Philippines' second written submission, paras. 43-45. 
376 Philippines' first written submission, paras. 201- 203;  Philippines' opening statement at first 
substantive meeting, para. 23. WT/DS396/R 
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  7.28 The Philippines considers that, because the releva nt products are not "like", there is no need 
for the Panel to proceed to consider whether one gr oup of distilled spirits is  being taxed "in excess of" 
another group of distilled spirits.
377 
7.29 Finally, the Philippines states that the distincti on in its legislation between distilled spirits 
made from designated raw materials and those made from other raw materials does not seek to protect 
domestic production, but rather to enforce "a tax re gime that is best suited to achieve the fiscal 
objectives set out in [the Philippines'] Constitution in  light of the administrative and enforcement 
constraints [the Philippines] faces with respect to tax collection."378  The fiscal objectives in its 
legislation are linked to achieving a "progressive" system of taxation that imposes higher taxes on 
"higher-priced goods, typically bought by wealthie r consumers" and lower taxes on "lower-priced 
goods, typically bought by less affluent consumers."379  The constraints with respect to tax collection 
identified by the Philippines include the fact that  the country "possesses a large informal economy, 
widespread poverty, a large geographical area and an extensive coast line to administer and monitor ... 
and limited taxation resources".380 
3. Panel's analysis 
7.30 As articulated by the Appellate Body in its report in Canada – Periodicals , the analysis of 
whether a measure is inconsistent with the firs t sentence of Article III:2 of the GATT 1994 requires a 
two-step test: 
"[T]here are two questions which need to be  answered to determine whether there is a 
violation of Article III:2 of the GATT 199 4:  (a) whether imported and domestic 
products are like products;  and (b) whethe r the imported products are taxed in excess 
of the domestic products.  If the answers to both questions are affirmative, there is a 
violation of Article III:2, first sentence."381 
7.31 The consistent interpretation by disput e settlement bodies under the GATT 1947 and the 
WTO is that whether products are "like" under Article III:2, first sentence382 must be determined "on a 
case-by-case basis, by examining relevant factors".383  These factors include "the product's properties, 
nature and quality";  "the product's end-uses in a gi ven market";  and "consumers' tastes and habits, 
which change from country to country".384  Another relevant factor id entified by the Appellate Body 
is the tariff classification, which, if sufficiently deta iled, "can be a helpful sign of product similarity", 
                                                      
377 Philippines' first written submission, para. 204;  Philippines' opening statement at first substantive 
meeting, para. 24.  See also European Union's second  written submission, para. 127;  United States' second 
written submission, para. 13;  Philippines'  second written submission, para. 4. 
378 Philippines' first written submission, para. 1.  See also Philippines' response to Panel question 
No. 16. 
379 Philippines' first written submission, para. 2.  See also Philippines' first written submission, 
paras. 32 and 296;  Philippines' opening statement at firs t substantive meeting, paras. 5-9;  Philippines' opening 
statement at second substantive meeting, paras. 3-5;  Philippines' response to Panel question Nos. 16 and 62. 
380 Philippines' response to Panel question No. 62.  See also Philippines' opening statement at first 
substantive meeting, para. 4;  Philippines' closing statement at first substantive meeting, para. 4;  Philippines' 
opening statement at second substantive meeting, paras. 3 and 38;  Philippines' response to Panel question 
Nos. 16 and 63. 
381 Appellate Body Report, Canada – Periodicals , pp. 22-23, DSR 1997:I, p. 449, at p. 465-66. 
382 In the French and Spanish versions of the GATT 1994, the equivalent expressions to "like products" 
are "produits similaires " and " productos similares ", respectively. 
383 Appellate Body Report, Canada – Periodicals , p. 21, DSR 1997:I, p. 449, at p. 466.  See also, 
Appellate Body Report, Japan – Alcoholic Beverages II , p. 20, DSR 1996:I, p. 97, at p. 113. 
384 GATT Report of the Working Party on Border Tax Adjustments , BISD 18S/97, para. 18, as quoted 
in Appellate Body Report, Japan – Alcoholic Beverages II , p. 20, DSR 1996:I, p. 97, at p. 113.  WT/DS396/R 
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  and has been used to assess likeness in several adopted panel reports.385  In addition to the tariff 
classification, previous panels have looked at other internal regulations as a useful indicator of the 
degree to which a Member would tend to re gard different products as being similar.386  The Appellate 
Body has noted that a panel should examine the ev idence relating to each of these four criteria and, 
then, weigh all of that evidence, along with an y other relevant evidence, in making an overall 
determination of whether the products at issue may be characterized as "like".387 
7.32 We will take into account the reasoning used by other panels and the Appellate Body in 
previous cases, including those made in cases invol ving challenges against internal taxes on distilled 
spirits.  Our analysis will focus on the relevant mark et in the present case;  namely, the Philippines' 
market.388  We will keep in mind the Appellate Body's st atement that the definition of "like products" 
under Article III:2, first  sentence, must be construed narrowly.389  We understand this to mean that 
likeness under the first sentence of Article III:2 is not limited to products that are identical.  Indeed, 
had this sentence intended to cover only identical pr oducts, the agreement would have used the word 
"identical", instead of using the expression "like products" (and the expressions " productos similares " 
and " produits similaires " in the corresponding texts in Spanish and French, respectively).  Likewise 
the Appellate Body, in describing like products, has ne ver indicated that the first sentence covers only 
identical products. 
7.33 In order to address the likeness requirement of the first sentence of Article III:2, we will 
consider the evidence presented by the parties regard ing the products' properties, nature and quality;  
their end uses, with reference to the Philippine mark et;  Philippine consumers' tastes and habits;  the 
tariff classification of the products based on the Ha rmonized System;  and other relevant internal 
regulations in the Philippines.  We will construe  the likeness test in a narrow manner in accordance 
with previous interpretations of the fi rst sentence of Article III:2 of the GATT 1994.390 
(i) Products' properties, nature and quality 
7.34 As noted by the Appellate Body, "properties, nature and quality" may be seen "as intended to 
cover the physical qualities and characteristics of the products".391 
7.35 All distilled spirits relevant in the present di spute (gin, brandy, rum, vodka, whisky, tequila 
and tequila-flavoured spirits) are concentrated form s of potable alcohol obtained through the process 
of distillation.  Ethyl alcohol and water combined acc ount for almost all of their content.  The average 
alcohol content for distilled spirits relevant to  the present dispute ranges from around 25 per cent to 
40 per cent (50 to 80 degrees under proof).  Distilled sp irits of the same type tend to have similar 
alcohol content.392  They are all translucent, with colours th at range from clear (transparent) to golden 
                                                      
385 Appellate Body Report, Japan – Alcoholic Beverages II , pp. 21-22, DSR 1996:1, p. 97, at p. 114. 
386 See for example Panel Report, Thailand – Cigarettes (Philippines) , paras. 7.441-7.442.  See also 
European Union's opening st atement at second substantive meeting, para. 62. 
387 Appellate Body Report, EC – Asbestos , para. 109. 
388 See Panel Report, Japan – Alcoholic Beverages II , para. 6.22;  Panel Report, Korea – Alcoholic 
Beverages , para. 10.57.  See also Philippines' first written submission, para. 59;  Philippines' second written 
submission, paras. 16-17. 
389 Appellate Body Report, Japan – Alcoholic Beverages II , pp. 19-21, DSR 1996:1, p. 97, at 112-114. 
390 Appellate Body Report, Canada – Periodicals , p. 21, DSR 1997:I, p. 449, at p. 468.  See also, 
Appellate Body Report, Japan – Alcoholic Beverages II , pp. 19-21, DSR 1996:1, p. 97, at pp. 112-114. 
391 Appellate Body Report, EC – Asbestos , para. 110 (the reference in that case was to the likeness 
analysis under Article III:4 of the GATT 1994, rather th an under Article III:2.  We find no reason, however, 
why the statement should not also be applicable to Article III:2). 
392 See paras. 2.22, 2.57, 2.58, 2.62, 2.63, 2.64, 2.65, 2.70, 2.71, 2.76, 2.77, 2.82, 2.83 and 2.89 above. WT/DS396/R 
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  or mahogany.
393  Consumption of distilled spirits may cau se similar physiological effects on humans, 
due to the presence of ethyl alcohol.394 
7.36 Traditionally, the colour, flavour and aroma a ssociated with specific distilled spirits are a 
result of the particular distillation of ethyl alcohol fro m certain raw materials, such as wine or fortified 
wine, sugar molasses, wheat, barley or malt, or agave, and of its production process. 
7.37 Alternative processes involve the use of non- traditional raw materials in creating final 
products that closely mimic traditional products.  In these circumstances, a panel should focus its 
"likeness" analysis on the physical qualities and ch aracteristics of the final product, and not on the 
different raw materials used.  The difference in raw ma terials would only be relevant to the extent that 
it results in final products that are not similar.   This approach was followed by the panel on Mexico – 
Taxes on Soft Drinks , when comparing beet sugar with cane sugar, and when comparing soft drinks 
and syrups sweetened with non-cane sugar sweeteners  (including high-fructose corn syrup) with soft 
drinks and syrups sweetened with cane sugar.395  We consider that this is the approach we should use 
in the present case.  We will therefore focus on the physical qualities and characteristics of the 
distilled spirits as final products, and not on those of  the raw materials or production processes used to 
make the final products. 
7.38 The evidence suggests that distilled spirits pr oduced in the Philippines from the designated 
raw materials (specifically, sugar cane molasses) closel y replicate, in terms of physical characteristics, 
including colour, flavour and aroma, the distilled sp irits, such as gin, brandy, vodka, whisky or 
tequila, produced from other raw ma terials through traditional methods.396  Producers of distilled 
spirits from designated raw materials achieve such  similarity through the production process.  
Depending on the specific spirit being produced, this  process may involve stripping the ethyl alcohol 
made from designated raw materials from its natura l congeners, and/or adding  natural or artificial 
flavourings. 
7.39 With respect to these physical qualities and characteristics – colour, flavour and aroma – on 
the basis of the evidence before us, we conclude that there is no difference between imported and 
domestic Philippine distilled spirits, nor between di stilled spirits made from the designated materials 
and those made from other materials. 
7.40 The Philippines refers to differences in the ch emical composition of different brands of 
spirits, as well as in the organoleptic properties of different spirits.397  In terms of chemical 
composition, the Philippines compares the congener content of a number of "sugar-based spirits" with 
that of a number of "non sugar-based spirits" of the same type (gins, brandies and whiskies).  The gas 
chromatography studies indeed show evidence of differences in the chemical composition between 
the brands.398  However, we do not consider that this evidence assists us in  our likeness analysis 
because the differences in chemical composition be tween spirits made from the same raw materials, 
as reported in these gas chromatography studies, are in most cases greater than those between spirits 
                                                      
393 See paras. 2.25, 2.26, 2.55, 2.62, 2.69, 2.70, 2.75, 2.76, 2.81 and 2.87 above. 
394 See para. 2.27 above. 
395 Panel Report, Mexico – Taxes on Soft Drinks , paras. 8.30-8.31 and 8.131. 
396 See paras. 2.25, 2.55, 2.62, 2.75, 2.81 and 2.87 above.  For the purpose of the current dispute, this 
point is irrelevant in the case of rum.  As will be not ed below, rum is produced through the traditional method, 
from the fermentation of sugar cane molasses, both in the Philippines and abroad.  Moreover, the parties agree 
that imported and domestic rums should be considered "like products".  See para. 7.44 below. 
397 See Philippines' first written submission, paras. 105, 138, 149 and 164;  exhibit PH-80. 
398 See European Union's second written submission, paras. 60-67;  United States' opening statement at 
first substantive meeting, para. 12.  WT/DS396/R 
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  made from different raw materials.399  Consequently, the difference in chemical composition does not 
show a distinction between spirits made from desi gnated raw materials and those made from other 
raw materials.  We also find evidence that each of the different types of distilled spirits has specific 
organoleptic properties.  Furthermore, within each t ype of distilled spirit, di fferent brands, and even 
subproducts within each brand, may have differences in colour, flavour and aroma.  There is, 
however, no evidence that these differences in orga noleptic properties create a distinction between 
distilled spirits made from the designated material s and distilled spirits made from other materials 
such that they could be divided in to two separate and identifiable groups.400 
7.41 We now address the physical properties of specific types of distilled spirits relevant for this 
dispute. 
7.42 With respect to gin, all gins are transparent a nd all have the characteri stic flavour and aroma 
associated with the presence of juniper berries.  Th e spirit can also have traces of other botanical 
products.  Irrespective of the raw materials from which they are made, all the gins at issue share the 
same organoleptic characteristics, which are common to traditional gins.401  This is so, even though 
gas chromatography indicates that there may be diffe rences in the chemical composition of different 
brands of gins, which may not necessarily result from th e use of different raw materials.  Accordingly, 
there is no evidence of perceptible differences between the physical qualities and characteristics of 
imported gins and domestic Philippine  gins, nor between those of gins made from the designated raw 
materials and gins made from other raw materials.402 
7.43 Turning to brandy, according to the evidence, all the brandies at issue have an alcohol content 
of between 32.5 and 40 per cent and a colour that, depending on the specific brand, ranges from golden to mahogany, regardless of the raw materials used in their production, and whether the brandy 
is domestic Philippine or imported.  Traditional brandies retain the el ements that naturally result from 
their distillation process.  In contrast, domestic Philippine brandies are produced by stripping the ethyl alcohol made from sugar cane molasses of the conge ners that provide its original colour, odour and 
taste and subsequently adding flavouring and other i ngredients to the resulting neutral spirit, so that 
the final product has the taste normally associated  with brandy.  This is so, even though gas 
chromatography indicates that there may be diffe rences in the chemical composition of different 
brands of brandies, which may not necessarily result from the use of different raw materials.  
Therefore, irrespective of the raw materials from wh ich they are made, all the brandies in the current 
dispute share the same organoleptic characteristics.  Accordingly, there is no evidence of perceptible 
                                                      
399 For example, in the case of the gas chromatography results provided by the Philippines on whiskies, 
the differences in five of the eight  identified congeners (acetal, acetaldehy de, isoamyl alcohol, methanol and 
n-propanol) are reported to be greater between two "non-sugar based" whiskies, than between one "non-sugar 
based" and one "sugar-based" whisky.  In the case of the gas chromatography results provided by the 
Philippines on brandies, the differences in five of th e seven identified congeners (acetal, acetaldehyde, isoamyl 
alcohol, isobutanol and methanol) are reported to be greater between two "non-sugar based" brandies, than 
between one "non-sugar based" and one "sugar-based" bra ndy.  Finally, in the case of the gas chromatography 
results provided by the Philippines on gins, the differences in four of the five identified congeners (isoamyl 
alcohol, isobutanol, methanol and n-propanol) are reported to be greater between two "sugar based" gins, than 
between one "non-sugar based" and one "sugar-based" gi n.  See European Union's second written submission, 
paras. 63-65;  Philippines' first written submission, paras.  138, 149 and 164.  See also exhibit PH-80.  For the 
purpose of comparing the congener concentrations reported by the Philippines, the Panel assumed that the 
values identified as "Not Detectable " (ND) are equal or close to zero. 
400 See para. 2.26 above. 
401 As noted above, the Philippines agrees that domestic  gins have "the organoleptic characteristics of 
[traditional] gin".  See para. 2.55 above;  Philippines' co mments to European Union's response to Panel question 
No. 78, para. 18. 
402 See paras. 2.25 and 2.55 above. WT/DS396/R 
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  differences between the physical qualities and characteristics of imported brandies and domestic 
Philippine brandies, nor between brandies made from the designated raw materials and brandies made 
from other raw materials.
403 
7.44 With regard to rum, all rums, both importe d and domestic Philippine, are made from the 
fermentation of sugar cane molasses.  Depending on their brand and presentation, rums have a colour 
that ranges from transparent to go lden or mahogany.  All parties ag ree that there is no difference 
between the physical qualities and characteristics of  imported rums and domestic Philippine rums and 
that both should be considered "like products".404 
7.45 In the case of vodka, all vodkas are neutral spir its.  Irrespective of the raw materials from 
which they are made, all relevant vodkas in th e current dispute share the same organoleptic 
characteristics, including the fact that they are tr ansparent.  Accordingly, there is no evidence of 
perceptible differences between the physical qua lities and characteristics of imported vodkas and 
domestic Philippine vodkas, nor betw een those of vodkas made from the designated raw materials and 
vodkas made from other raw materials.405 
7.46 In the case of whisky, irrespective of the raw materials from which they are made, all the 
whiskies at issue share the same organoleptic charact eristics, including the fact that all have a golden 
colour.  Traditional whiskies retain the elements th at naturally result from their distillation process.  In 
contrast, domestic Philippine whiskies are produced by stripping the ethyl alcohol made from sugar 
cane molasses of the congeners th at provide its original colour, odour and taste, and subsequently 
adding flavouring and other ingredients to the resulti ng neutral spirit, so that the final product has the 
taste normally associated with whisky.  This is so, even though gas chromatography indicates that 
there may be differences in the chemical composition of different brands of whiskies, which may not 
necessarily result from the use of different raw material s.  Therefore, irrespective of the raw materials 
from which they are made, all the whiskies in th e current dispute share the same organoleptic 
characteristics.  Accordingly, there is no evidence of perceptible differences between the physical 
qualities and characteristics of imported whiskies  and domestic Philippine whiskies, nor between 
whiskies made from the designated raw materials and whiskies made from other raw materials.406 
7.47 Finally, all tequilas and tequila-flavoured spirits , irrespective of the ra w materials from which 
they are made, share the same organoleptic charac teristics, including the fact that all are either 
transparent or pale gold in colour.  Traditional tequi las retain the elements that naturally result from 
their distillation process from agave.  In contrast , domestic Philippine tequilas and tequila-flavoured 
spirits are produced by stripping the ethyl alcohol  made from sugar cane molasses of the congeners 
that provide its original colour, odour and tast e, and subsequently addi ng flavouring and other 
ingredients to the resulting neutral spirit, so that  the final product has the taste normally associated 
with tequila.  Accordingly, there is no evidence of perceptible differences between the physical 
qualities and characteristics of imported tequi las and domestic Philippine tequilas and 
tequila-flavoured spirits, nor between tequilas or tequila-flavoured spirits made from the designated 
raw materials and traditional tequilas made from agave.407 
                                                      
403 See paras. 2.25 and 2.62 above. 
404 See para. 2.69 above. 
405 See paras. 2.25 and 2.75 above. 
406 See paras. 2.25 and 2.81 above. 
407 See paras. 2.25 and 2.87 above.  WT/DS396/R 
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  (ii) End uses 
7.48 We will now focus on the extent to which the diffe rent types of spirits at issue are capable of 
serving the same, or similar, end uses.  In this resp ect, the evidence suggests that all distilled spirits 
relevant in the present dispute share the same e nd uses, namely "thirst quenching, socialization, 
relaxation, pleasant intoxication".408  In addition, all distilled spirits ma y be drunk straight or with ice, 
diluted with soft drinks or fruit juices or  used in the preparation of cocktails.409  The end uses of each 
distilled spirit, and the manner in which each is dr unk, does not depend on the origin of the spirit 
(domestic or imported), nor on the ra w materials used in its production.410  In other words, there is no 
evidence of any differences between the end uses of the relevant imported spirits and domestic 
Philippine distilled spirits, nor between the end uses of spirits made from the designated raw materials 
and those made from other raw materials. 
(iii) Consumers' tastes and habits 
7.49 We now turn to consider the extent to wh ich consumers are willing to use the different 
products to perform the same, or similar, functions ("consumers'  tastes and habits").411 
7.50 We have noted above that the evidence suggests that in the Philippines'  market for distilled 
spirits certain factors, such as price, but also info rmation, distribution, brand recognition, habits and 
tastes, limit the ability or willingness of consumers to  switch brands.  As indicated in the survey by 
Abrenica & Ducanes from the University of Philippines School of Economics provided by the Philippines, the characteristics of specific distilled spirits are known to consumers through personal 
experience or product reputation.  Even if consumer s have information about specific products, habits 
and tastes may create brand loyalty that can limit their propensity to switch brands.
412  Furthermore, a 
large proportion of households in the Philippines have  significant income and expenditure constraints, 
which in turn limit the ability of certa in consumers to purchase distilled spirits.413 
7.51 We have also noted that, generally speaking, im ported brands tend to be more expensive in 
the Philippines (even before taxes) than the co rresponding domestic brands of the same type of 
distilled spirit.  However, there are a number of high-priced domestic Philippine distilled spirits, as 
well as less expensive imports.414  Although some establishments (especi ally small retail stores) that 
offer domestic Philippine distilled spirits do not ca rry imported distilled spirits, other outlets where 
imported spirits are sold either for consumption on th e premises (such as bars or restaurants) or off the 
premises also offer domestic Philippine spirits.415  Marketing campaigns for distilled spirits are very 
similar;  there is no indication that those campaigns  are different for imported distilled spirits than for 
domestic Philippine distilled spirits, nor for spirits made from the designated raw materials than for 
those made from other raw materials.416 
7.52 With regard to the competitive relationship be tween the relevant products, parties have 
provided different studies of consumers' perceptions in the Philippines' distilled spirits market.  The 
complainants submitted a survey by Euromonitor International  suggesting that consumers in the 
Philippines would be more willing to purchase importe d distilled spirits if the price of those spirits 
                                                      
408 European Union's first written submissi on, para. 64.  See para. 2.38 above. 
409 See para. 2.39 above. 
410 See paras. 2.38 and 2.39 above. 
411 Appellate Body Report, EC – Asbestos , para. 117. 
412 See para. 2.45 above. 
413 See paras. 2.31-2.32 above. 
414 See para. 2.36 above. 
415 See para. 2.41 above. 
416 See para. 2.42 above. WT/DS396/R 
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  decreases and the price of domestic Philippine spirits increases, even if the prices of imported spirits 
remains higher than those of domestic spirits.
417  In turn, the Philippines submitted a survey by 
Abrenica & Ducanes that concludes that there is low price elasticity in the Philippine domestic 
distilled spirits market and, therefore, local  and imported brands of  distilled spirits are 
non-substitutable.  The same survey suggests that  narrowing price differentials between imported 
distilled spirits and domestic Philippine distilled spir its would only result in a small change in their 
respective market shares.418 
7.53 The Philippines and the complainants have criti cized the methodology and the conclusions of 
the studies on consumers perceptions  submitted by the opposing party.419  The Philippines questions, 
for example, whether the Euromonitor International  survey can serve as an indication of price 
elasticity of substitution between distilled spirits made from the designated raw materials and those 
made from other raw materials.420  Likewise, the complainants raise doubts about the "validity of [the] 
findings on cross-price elasticities" contained in the Abrenica & Ducanes survey.421 
7.54 The Euromonitor International  survey is described as an evaluation on "consumers' 
price-based purchase preferences for different distilled spirit types across consumers in the 
Philippines that consume distilled spir its at least one time per month".422  It states that it is based on "a 
quantitative online survey, carried out by a struct ured standard questionnaire with closed-end 
questions applied to individuals of a represen tative sample of the population under review".423  The 
survey report contains a section on "price elasticity",  which concludes that "[o]verall, the closer the 
price between imported and domestic spirits, the more likely consumers are to increase their 
consumption of imports while decreasi ng their consumption of domestics."424  In the same section, the 
report adds that: 
"On average, at an import price decrease of 25% and domestic increase of 50%, 
consumers were 4.9% more willing to purchase imports and 4.0% less likely to 
purchase domestics";  "On average, at an import price decrease of 40% to 60% and domestic increase of 100% to 200%, consumers were 10.1% more willing to purchase 
imports and 6.5% less likely to purchase domestics"
425;  and, "If price were no issue, 
on average, consumers were 43% more likely [to] purchase local brands and 86% 
more likely to purchase imported ones."426 
                                                      
417 Euromonitor International  survey in exhibits EU-41 and US-41.  See para. 2.43 above. 
418 Abrenica & Ducanes survey from the University of Philippines School of Economics in exhibit 
PH-49.  See para. 2.44 above. 
419 See for example European Union's second written submission, paras. 97-103;  United States' second 
written submission, paras. 51-52;  Philippines' first written submission, paras. 180-182, 240-241 and 268;  
Philippines' second written submission, paras. 66-67;  Philippines' opening statement at second substantive 
meeting, paras. 25, 29 and 33;  Philippines' comments to European Union's and United States' responses to 
Panel question No. 83, paras. 19-23;  and exhibits EU-101, EU-102 and US-48. 
420 Philippines' first written submission, para. 241. 
421 See for example European Union's second written submission, para. 101.  See also United States' 
second written submission, paras. 51-52. 
422 Euromonitor International, "Consumer perceptio ns regarding substitutability in the Philippines 
distilled spirits market", in exhibits EU-41 and US-41, p. 5. 
423 Euromonitor International, "Consumer perceptio ns regarding substitutability in the Philippines 
distilled spirits market", in exhibits EU-41 and US-41, p. 6. 
424 Ibid., p. 9. 
425 Ibid. 
426 Ibid., pp. 30 and 33.  WT/DS396/R 
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  7.55 The survey by Abrenica & Du canes is an econometric study based on a marketing analysis 
that attempts to estimate cross-price elasticity for imported distilled spirits and domestic Philippine 
distilled spirits.  It states that it is based on a "conjoint choice experiment" "using stated preferences of 
consumers in response to hypothetical adjustments in prices".427  According to this survey, a 
narrowing of price differentials between imported distilled spirits and domestic Philippine distilled 
spirits results in a small change in their respective market shares.428  The same survey also concludes 
that, if the excise tax is imposed at a uniform rate on all distilled spirits in the Philippines, the share of 
imported spirits would increase between 16 and 17 per cent (from a current level of 9.4 per cent to 
between 10.9 to 11 per cent).  Likewise, if  the excise tax is imposed at similar ad valorem  rates on all 
distilled spirits in the Philippines, the share of imported spirits would increase to between 13 and 
19 per cent (from a current level of 9.4 per cent to be tween 10.6 to 11.2 per cent).  Finally, the survey 
concludes that if the excise tax is completely rem oved on all distilled spirits, the market share of 
imported spirits would increase by about 24.5 per cen t (from a current level of 9.4 per cent to around 
11.7 per cent).429  Similar variations are reported in the survey to occur in the market shares of 
specific imported distilled spirits such as gin, br andy, vodka and whisky.  In contrast, no significant 
variation is reported to occur in the shares of imported rum in these scenarios.430  The Abrenica & 
Ducanes survey estimates cross-price elasticities fo r imported and domestic distilled spirits in the 
Philippines market to range between -0.01 and 0.07,  which it considers "low".  The authors then 
conclude that "local and imported brands [of distilled spirits are] non-substitutable".431 
7.56 The Euromonitor International  report is not an attempt to estimate and provide figures for the 
cross-price elasticity for imported distilled spir its and domestic Philippine distilled spirits.  
Furthermore, the conclusions in both the Euromonitor International  report and the Abrenica & 
Ducanes survey with respect to variations in the quantities consumed of imported distilled spirits and 
domestic Philippine distilled spirits are based on scen arios where the prices of imported and domestic 
spirits are both said to change at the same time.432  Accordingly, it is not possible to conclude from 
either the Euromonitor International  survey or the Abrenica & Ducanes survey whether the 
hypothetical increase in consumption of imported distille d spirits would be attributable to the increase 
in price of domestic Philippine spirits, or to the reduction in price of imported spirits, or to some 
combination of both factors. 
7.57 We will consider the studies of consumers' percep tions provided by the parties in more detail 
when looking at the issue of the competitive rela tionship in the Philippines' market between the 
distilled spirits relevant in the present dispute, u nder the second sentence of Article III:2.  For now, it 
is sufficient to recall that we have already noted433 that both studies suggest that a simultaneous 
                                                      
427 Abrenica & Ducanes, "On Substitutability be tween Imported and Local Distilled Spirits" 
(University of Philippines School of Economics Foundation), in exhibit PH-49, p. 2. 
428 See Ibid., p. 14. 
429 See Ibid., p. 14. 
430 See Abrenica & Ducanes, "On Substitutability between Imported and Local Distilled Spirits" 
(University of Philippines School of Economics Foundation), in exhibit PH-49, pp. 13-14.  The survey 
considered selected distilled spirits brands of gin, brandy , rum, vodka and whisky.  It did not include brands of 
tequila or tequila-flavoured spirits.  The lack of significant variation in the market share of imported rum 
reported in the survey may be related to th e fact that the imported rum brand selected ( Bacardí ) enjoys the 
Section 141(a)  flat tax rate applicable to spirits produced with designated raw materials.  See para. 2.74 above. 
431 See Abrenica & Ducanes, "On Substitutability between Imported and Local Distilled Spirits" 
(University of Philippines School of Economics Foundation), in exhibit PH-49, pp. 2 and 20.  It is worth noting 
that the same study concludes that "beer and liquor [distilled spirits] are substitutes."  Ibid., p. 16. 
432 For example, the structure of the choices given to  respondents creates a starting point bias, as well 
as some shortcomings associated with the regression model used for the calculations (a mixed logit model).  See 
exhibits EU-101, EU-102 and US-48. 
433 See para. 2.45 above. WT/DS396/R 
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  increase in the price of domestic Philippine dis tilled spirits and decrease in the price of imported 
spirits, such as that which would result from an equali zation in the respective levels of the excise tax, 
could result in the substitution of the consumption of domestic spirits for imported spirits in the 
Philippines market.  This refers both to distilled spirits as a general category, as well as to specific 
spirits such as gin, brandy, vodka and whisky. 
7.58 The Philippines has also argued that, because of the difference in the purchasing power of its 
population, the Philippine domestic market is se gmented into two groups.  According to the 
Philippines, one of these segments, corresponding to the majority of the Philippine population, would 
only be able to consume distilled spirits made from designated raw materials.  In contrast, the other 
segment, which would represent a minority of the po pulation, would consume distilled spirits made 
from other raw materials.
434  The Philippines suggests that the market segmentation "reflects the 
existence of at least two different groups of 'consumers' in the Philippines, each with a different set of 
tastes, habits, perceptions and behaviour."435  This market segmentation would be a result of the 
purchasing power disparity in the Philippine popul ation, as well as the "significantly different" 
attributes offered by imported spirits and domestic spirits.436 
7.59 The evidence suggests that, becau se of their income and expenditure constraints, a large 
proportion of the Philippine population has a limited ability to purchase distilled spirits beyond certain 
price levels.  The Philippines' argument on market  segmentation, however, assumes the existence of 
two separate population groups, with distinct consumption patterns.  The Philippines has not provided 
any evidence to substantiate this assertion.  While , generally speaking, imported brands tend to be 
more expensive than the corresponding  domestic brands of the same type of distilled spirit, there are a 
number of high-priced domestic Philippine sp irits, as well as less expensive imports.437  Further, in 
terms of income, the population in the Philippines do es not appear to be divided into two separate 
groups, but is rather distributed along a continuum of income brackets.  A large proportion of Philippine consumers may not have access to high- priced spirits, including those made from other 
than designated raw materials.  Many consumer s, however, may be able to purchase high-priced 
spirits, at least on special occasions.  The situation in this respect is similar to that examined by the 
panel on Korea – Alcoholic Beverages , when considering the argument of whether high-priced spirits 
are akin to luxury automobiles: 
"Korea offers an analogy between the alcoho lic beverage market and the automobile 
market which we do not find particularly useful.  Korea argues that the imported products are Ferraris compared to soju's Renau lt Clio.  However, the analogy is inapt.  
Automobiles are durable goods of great va lue relative to income that are only 
purchased periodically, generally only once ever y several years.  It is probable that 
the purchaser of a Renault Clio has no optio n to purchase a Ferrari which might cost 
considerably more than the Clio purchaser 's annual salary.  Alcoholic beverages, on 
the other hand, are consumer goods which are purchased frequently, and even the 
Clio purchaser can afford to purchase a bottle of a more expensive beverage at least 
occasionally.  The ratios between $10 and $100  products may be the same as between 
                                                      
434 See for example Philippines' first written submissi on, paras. 177-188;  Philippines' second written 
submission, paras. 3, 40 and 42. 
435 Philippines' first written submission, para. 178.  See also Philippines' response to Panel question 
No. 17, paras. 19-23. 
436 Philippines' first written submission, para. 178.  As  noted below, this argument was not raised as a 
request for differential and more-favourable treatment as a developing country Member under the WTO 
Agreements.  See pa ra. 7.195 below. 
437 See paras. 2.36 and 7.51 above.  WT/DS396/R 
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  $10,000 and $100,000 products, but the purch asing decisions of ordinary consumers 
in the two situations are quite distinct."438 
7.60 We find no evidence of the existence of two sep arate distilled spirit markets in the Philippines 
that reflect different levels of purchasing power, i.e. one that would consume distilled spirits made 
from designated raw materials, and another that w ould consume distilled spirits made from other raw 
materials. 
7.61 As an additional point related to consumer perceptions, we not e that the domestic distilled 
spirits in the Philippines, irrespec tive of the raw materials from which they are made, are labelled as 
either gin, brandy, rum, vodka, whisky, tequila or tequila-flavoured spirits.  In the case of brandy and 
whisky, for example, the domestic Philippine prod ucts are labelled as "brandy " or "whisky", and not 
as "blended brandy", "compounded brandy" or " com pound whisky".  Generally speaking, labels of 
domestic Philippine distilled spirits made from the de signated raw materials tend to mimic or replicate 
the names of products and designs of the similar impo rted spirits made from other raw materials.  The 
raw materials used in the manufacture of domestic Ph ilippine distilled spirits are not mentioned on the 
labels.  Thus, there is nothing that would suggest to the consumer that these products are different 
from imported spirits made from other raw materials.439 
7.62 In conclusion, the evidence suggests that, with r espect to their tastes and habits, consumers in 
the Philippines are willing to consume distilled spir its, whether imported or domestic, irrespective of 
the raw materials from which they are made, to perform  similar functions.  In other words, despite the 
shortcomings of the studies submitted by the par ties with regard to the competitive relationship 
between the relevant products, we consider that there is enough evidence to suggest a significant 
degree of competitiveness or substitutability for t hose distilled spirits in the Philippines market. 
(iv) Tariff classification 
7.63 All distilled spirits at issue in this dispute, whether imported or domestic, and irrespective of 
the raw materials from which they are made, fall wi thin the Harmonized System (HS) heading 2208, 
which refers to "undenatured ethyl alcohol of an alcoholic strength by  volume of less than 80% vol;  
spirits, liqueurs and other spirituous beverages".440  We consider that the fact that all distilled spirits at 
issue in this dispute, irrespective of the raw ma terials from which they are made, fall within the 
Harmonized System (HS) heading 2208 provides an indication of similarity. 
7.64 With respect to specific distilled spirits, at the six-digit code level there are differences for 
each type of distilled spirit relevant in the present dispute, namely, gin, brandy, rum, vodka, whisky, 
tequila and tequila-flavoured spirits.  We consider, not only the descrip tion of the relevant products in 
the HS subheadings, but also the text of the HS Explanatory Notes (HSEN).  Although the HSEN are 
not binding, for the reasons explained below we find them to be useful for our analysis.441 
7.65 In the case of gin, HS subheading 2208.50 covers  "Gin and Geneva", irrespective of the raw 
materials from which they are made, as spirituous beverages "containing the aromatic principles of 
juniper berries".442  In other words, the six-digit subheading for gin does not distinguish between 
spirits based on the raw materials from which they are made. 
                                                      
438 Panel Report, Korea – Alcoholic Beverages , para. 10.74. 
439 See paras. 2.57, 2.63, 2.64, 2.65, 2.77, 2.82, 2.83 and 2.88 above. 
440 See para. 2.49 above. 
441 See Appellate Body Report, EC – Chicken Cuts , para. 224;  Panel Reports, China – Auto Parts , 
para. 7.410;  Panel Report, EC – IT Products , para. 7.1450. 
442 See para. 2.52-2.54 and 2.56 above. WT/DS396/R 
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  7.66 In the case of brandy, HS subheading 2208.20 covers "brandy" as a "[Spirit] obtained by 
distilling grape wine or grape marc";  accordingly,  brandies made from sugar cane molasses (or other 
designated raw materials) would not fall under this subheading.
443  In other words, brandies may be 
classified in different six-digit subheadings, de pending on the raw materials from which they are 
made.  This is confirmed by the statem ents of all the parties and Australia.444 
7.67 In the case of rum, HS subheading 2208.40 covers all rums relevant in this dispute, whether 
imported or domestic, as they are all "[S]pirits obtained by distilling fermented sugarcane products" 
(more specifically, sugar cane molasses).445 
7.68 In the case of vodka, HS subheading 2208.60 covers "Vodka", irrespective of the raw 
materials from which it is made.446  In other words, the six-digit subheading for vodka does not 
distinguish between spirits based on the raw materials from which they are made.447 
7.69 In the case of whisky, subheading 2208.30 covers  "Whiskies", as spirits made from a "mash 
of cereal grains" (such as barley, oats, rye, wheat, corn);  accordingly, whiskies made from sugar cane molasses (or other designated raw material s) would not fall under this subheading.
448  In other words, 
it seems that whiskies may be classified in diffe rent six-digit subheadings, depending on the raw 
materials from which they are made.  This is confirmed by the statements of the parties and 
Australia.449 
7.70 Finally, there is no specific six-digit subheadi ng for "tequila" or "tequila-flavoured spirits".450  
In other words, tariff classification provides no additional guidance at this level to determine 
similarity among tequila a nd tequila-flavoured spirits. 
7.71 The review above indicates that at a six-digit level the HS is not conclusive.  The product 
description in the HS subheadings for brandy, rum a nd, to a lesser extent, whisky, in light of the 
applicable HSEN, takes into account the raw material used for the production of the distilled spirit.  
At the same time, for other relevant  distilled spirits such as gin, vodka  and tequila the distilled spirit is 
classified irrespective of the raw material used fo r the production of the ethyl alcohol used for the 
spirit.  Consequently, we take note that, at the six- digit level, the HS classification does not give us a 
conclusive guidance. 
                                                      
443 See para. 2.52-2.54 and 2.62 above. 
444 European Union's first written submission, footnote 109 to para. 94;  European Union's response to 
Panel question No. 43, paras. 67-69;  United States' response to Panel question No. 43, paras. 34-35;  
Philippines' first written submission, paras. 190-200;  Philippines' response to Panel question No. 43;  
Australia's response to Panel question No. 1.  But see India's response to Panel question No. 1. 
445 See para. 2.52-2.54 and 2.69 above. 
446 See para. 2.52-2.54 and 2.75 above. 
447 European Union's response to Panel question No. 43, paras. 67-69;  United States' response to Panel 
question No. 43, paras. 34-35;  Philippines' first written submission, paras. 190-200;  Philippines' response to 
Panel question No. 43;  India's response to Panel question No. 1.  But see Australia's response to Panel question 
No. 1. 
448 See para. 2.52-2.54 and 2.81 above. 
449 United States' response to Panel question No. 43, paras. 34-35;  Philippines' first written submission, 
paras. 190-200;  Philippines' response to Panel question No. 43;  Australia's response to Panel question No. 1.  
But see European Union's response to Panel question No. 43, paras. 67-69;  India's response to Panel question 
No. 1. 
450 See para. 2.52-2.54 and 2.87 above.  WT/DS396/R 
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  (v) Internal regulations 
7.72 With respect to domestic regulations on distilled spirits in the Philippines, we have noted that 
local ordinances against drunk driving do not dis tinguish between imported and domestic spirits, nor 
between spirits made from the designated materials and those made from other materials.  Nor is a distinction made in local ordinances with respect to "the sale, dispensation and/or distribution of 
alcoholic beverages".
451 
7.73 We find further confirmation of similarity in th e language used in the Philippines' domestic 
legislation.  Republic Act No. 9334, one of the re levant instruments in the present dispute, defines 
"Spirits or distilled spirits" as "the substance kno wn as ethyl alcohol, ethanol or spirits of wine, 
including all dilutions, purifications and mixtures thereof, from whatever source, by whatever process 
produced , and shall include whisky, brandy, rum, gin and vodka, and other similar products or 
mixtures."452  In other words, Republic Act No. 9334 refers  to distilled spirits as "similar", without 
distinguishing between spirits made from differe nt raw materials or through different production 
processes. 
7.74 We note the Philippines' argument that whisky  and brandy made from the designated raw 
materials would be prohibited by law from being ma rketed as whisky or brandy in the European 
Union and the United States, as those products would not meet the applicable standards.453  Even if 
this is the case, however, we find this to be irrele vant for our analysis.  As the Philippines argues, the 
relevant market in which to make the determina tion of "likeness" is the Philippines market, and not 
others.  In the words of the Philippines, "[t]he Pa nel must ... examine whether the evidence shows that 
the products are 'like' products and/or 'directly  competitive or substitutable' in the Philippines 
market."454  The important issue for us is that the Ph ilippines allows whisky and brandy made from 
the designated raw materials to be marketed as whisky or brandy. 
(vi) Conclusions on "likeness" 
7.75 Based on the above analysis, we find that, with respect to the physical qualities and 
characteristics of the products, as well as with regard to their end uses, there is similarity between all 
the relevant imported and domestic distilled spirits, irrespective of whether they are made from the 
designated raw materials or from other raw materials. 
7.76 With respect to consumers' tastes and habits , some elements, such as the manufacturers' 
marketing campaigns, suggest similarity between all distilled spirits relevant in the present dispute.  
Despite the shortcomings of the studies submitted by the parties with regard to the competitive 
relationship between the releva nt products, we have also found enough evidence to suggest a 
significant degree of competitiveness or substitutability  for those distilled spirits in the Philippines 
market.  Moreover, the labels of domestic distille d spirits made from designated raw materials do not 
suggest to the consumer that these products are di fferent from imported spirits made from other raw 
materials.  With respect to tariff classification, the fact  that all distilled spirits at issue in this dispute, 
irrespective of the raw materials from which they are made, fall within the HS heading 2208 is a 
further indication of their similarity.  Finally, domestic regulations on distilled spirits in the 
Philippines do not distinguish between imported a nd domestic spirits, nor between spirits made from 
the designated raw materials and those made from other raw materials. 
                                                      
451 See para. 2.30 above. 
452 See exhibits EU-2, US-2 and PH-4, p. 3 (emphasis added). 
453 Philippines' first written submission, paras. 11-12,  125-128, 131-133, 141-143;  Philippines' opening 
statement at first substantive meeting, para. 16. 
454 Philippines' first written submission, para. 59. WT/DS396/R 
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  7.77 Having considered all these factors, we conclude  that the distilled spirits at issue in the 
present dispute, whether imported or domestic, and irrespective of the raw materials from which they 
are made, are "like products" within the meanin g of the first sentence of Article III:2 of the 
GATT 1994. 
7.78 In addition, since the complainants have asked for determinations concerning specific types of 
distilled spirits, we now turn to each type of sp irit (gin, brandy, rum, vodka, whisky, tequila and 
tequila-flavoured spirits), in order to consider whether those spirits, imported or domestic and 
irrespective of the raw materials from which they are distilled, are "like products". 
7.79 Specifically, in the case of rum, all parties agr ee that both domestic and imported spirits are 
made from the same raw material (namely, sugar cane molasses) and are like products.
455 
7.80 With regard to the physical qualities and char acteristics of the remaining distilled spirits 
relevant in the present dispute (gin, brandy, vodka , whisky, tequila and tequila-flavoured spirits), 
there is similarity between imported spirits and do mestic Philippine spirits, irrespective of the raw 
materials from which they are made.  We consid er it particularly important that the production 
process for each type of distilled spirit in the Philippi nes is designed to ensure, as far as possible, that 
the final product has similar physical  characteristics, in terms of its colour, flavour and aroma, to 
distilled spirits made from other raw materials.  In other words, the process of production is such that 
the organoleptic physical qualities and characteristics of imported gin are similar to those of domestic 
Philippine gin, irrespective of the raw materials fr om which they are made;  those of imported brandy 
are similar to those of domestic Philippine brandy, irrespective of the raw materials from which they 
are made;  those of imported vodka are similar to those of domestic Philippine vodka, irrespective of 
the raw materials from which they are made;  those of imported whisky are similar to those of 
domestic Philippine whisky, irrespective of the raw materials from which they are made;  and those of 
imported tequila are similar to those of domestic  Philippine tequila or tequila-flavoured spirits, 
irrespective of the raw materials from which they are made.456 
7.81 With regard to the end uses of specific types of  distilled spirits, there is similarity between 
imported and domestic spirits, irrespective of the raw materials from which they are made.  Specific types of distilled spirits share the same end u ses common to all distilled spirits, namely "thirst 
quenching, socialization, relaxation, pleasant intoxication".
457  Additionally, each specific type of 
distilled spirit, imported or domestic, is normally consumed in a similar manner (straight or with ice, 
diluted with soft drinks or fruit juices or used in the preparation of the same type of cocktails) 
irrespective of the raw materials from which it is made.458 
7.82 With regard to the consumers' tastes and habits  for specific types of distilled spirits, there is 
enough evidence to suggest similar ity between imported spirits a nd domestic Philippine spirits, 
irrespective of the raw materials from which they are made.  Manufacturers' marketing campaigns make no distinction among the specific types of spirits , which suggests a closer similarity than the 
general similarity we have already found between all distilled spirits  relevant in the present dispute.  
We have already found that the evidence submitte d by the parties suggests a significant degree of 
competitiveness or substitutability for those distilled sp irits in the Philippines market.  We have also 
noted that the Abrenica & Ducanes survey submitte d by the Philippines notes how a change in the 
rates of the excise tax on distilled spirits could lead  to an increase in the share of specific imported 
                                                      
455 See para. 2.69 above. 
456 See paras. 2.25and 7.38 above. 
457 See paras. 2.38 and 7.48 above. 
458 See paras. 2.39 and 7.48 above.  WT/DS396/R 
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  spirits such as gin, brandy, vodka and whisky.459  Moreover, as noted above, the labels of domestic 
Philippine distilled spirits made from designated raw materials do not suggest to the consumer that 
these products are different from imported spirits made from other raw materials. 
7.83 With respect to tariff classification, the ev idence suggests that the respective six-digit 
subheadings for gin and vodka (2208.50 and 2208. 60, respectively) make no distinction between 
different distilled spirits based only on th e raw materials from which they are made.460  Tariff 
classification provides no guidance at this level to de termine similarity in the case of tequila and 
tequila-flavoured spirits.461  The evidence suggests that brandi es and whiskies may be classified in 
different six-digit subheadings, depending on the ra w materials from which they are made.  In other 
words, only brandy based on grap e wine or grape marc (and not brandy made from the designated raw 
materials, including sugar cane molasses) would be covered by HS subheading 2208.20 and only 
whisky made from cereal grains, such as barley, oa ts, rye, wheat and corn (and not whisky made from 
the designated raw materials, including sugar can e molasses) would be covered by HS subheading 
2208.30.462  Based on the totality of the evidence, we consider that tariff classification does not 
exclude the similarity between domestic and im ported distilled spirits, made respectively from the 
designated materials or from other raw materials. 
7.84 Finally, we have noted that domestic regulations  on distilled spirits in the Philippines do not 
distinguish between imported sp irits and domestic spirits, nor between spirits made from the 
designated materials and those made from other materials.463 
7.85 Having considered all these factors, we conclude  that the specific distilled spirits at issue in 
the present dispute – namely, gin, brandy, rum, vo dka, whisky, tequila and tequila-flavoured spirits – 
whether imported or domestic, and irrespective of the raw materials from which they are made, are 
"like products" within the meaning of the fi rst sentence of Article III:2 of the GATT 1994.  
Specifically: 
(a) Gin made in the Philippines from the designate d raw materials  is "like" imported gin 
made from other raw materials, within the meaning of the first sentence of 
Article III:2 of the GATT 1994; 
(b) Brandy made in the Philippines from the desi gnated raw materials  is "like" imported 
brandy made from other raw materials, with in the meaning of the first sentence of 
Article III:2 of the GATT 1994; 
(c) Rum made in the Philippines is "like" impor ted rum, within the meaning of the first 
sentence of Article III:2 of the GATT 1994; 
(d) Vodka made in the Philippines from the designated raw materials  is "like" imported 
vodka made from other raw materials, within  the meaning of the first sentence of 
Article III:2 of the GATT 1994; 
(e) Whisky made in the Philippines from the desi gnated raw materials  is "like" imported 
whisky made from other raw materials, with in the meaning of the first sentence of 
Article III:2 of the GATT 1994;  and, 
                                                      
459 See Abrenica & Ducanes, "On Substitutability between Imported and Local Distilled Spirits" 
(University of Philippines School of Economics Foundation), in exhibit PH-49, pp. 13-14. 
460 See paras. 7.65 and 7.68 above. 
461 See para. 7.70 above. 
462 See paras. 7.66 and 7.69 above. 
463 See paras. 2.30 and 7.72 above. WT/DS396/R 
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  (f) Tequila and tequila-flavoured spirits made in the Philippines from the designated raw 
materials  are "like" imported tequila ma de from other raw materials, within the 
meaning of the first sentence of Article III:2 of the GATT 1994. 
(vii) Excess taxation 
7.86 As noted above, the European Union and the United States argue that the excise tax on 
imported distilled spirits made from raw materials other than those designated in the Philippines' 
legislation is "in excess" of that imposed on th e like domestic spirits made from designated raw 
materials.
464  The Philippines does not dispute this.  The Philippines argues only that, because the 
relevant products are not "like", there is no need for the Panel to proceed to consider whether one 
group of distilled spirits is being taxed "i n excess of" another group of distilled spirits.465 
7.87 Past panels have interpreted the term "in excess of" to encompass even the slightest difference 
in the levels of taxation imposed  on imported and domestic products.  Indeed, the Appellate Body has 
noted that, under Article III:2, first sentence: 
"Even the smallest amount of 'excess' is t oo much.  'The prohibition of discriminatory 
taxes in Article III:2, first sentence, is not conditional on a "trade effects test" nor is it 
qualified by a de minimis standard.'"466 
7.88 The excise tax imposed on imported distilled spir its made from raw materials other than the 
designated raw materials is well "in excess of" th at applied to domestic spirits made from the 
designated raw materials.  As noted above, this diffe rence in taxation may be as much as between ten 
and forty times the rate imposed on the domestic spirits, depending on the specific tax bracket for 
imported spirits.467 
7.89 De jure , the Philippines' excise tax is in principle origin-neutral as the lower tax for spirits 
made from designated raw materials (currently, PHP 14.68 ppl) and the much higher tax rates for 
spirits made from other raw materials (currently , from PHP 158.73 ppl to up to PHP 634.90 ppl) apply 
irrespective of where the spirits originate.  De facto , however, as noted above, all distilled spirits 
produced in the Philippines enjoy the lower tax rate, wh ile the vast majority of spirits imported into 
the Philippines are made from other raw materials a nd are thus subject to one of the three higher tax 
rates.468 
(viii) Conclusions regarding the claims under the first sentence of Article III:2 of GATT 1994 
7.90 In the light of the above, we conclude that, through its excise tax, the Philippines subjects 
imported distilled spirits made from raw materials ot her than those designated in its legislation to 
                                                      
464 See for example European Union's first written submission, para. 106;  United States' first written 
submission, paras. 37 and 79 and 99;  United States' op ening statement at first substantive meeting, para. 43. 
465 Philippines' first written submission, para. 204;  Philippines' opening statement at first substantive 
meeting, para. 24.  See also European Union's second  written submission, para. 127;  United States' second 
written submission, para. 13;  Philippines'  second written submission, para. 4. 
466 Appellate Body Report, Japan – Alcoholic Beverages II , p.23, DSR 1996:I, p. 115.  See also Panel 
Report, Argentina – Hides and Leather , para. 11.243. 
467 See para. 2.17 above.  See also United States' first written submission, paras. 73 and 99;  United 
States' second written submission, paras. 13 and 56;  EU's first written submission, paras. 21 and 159;  European 
Union's opening statement at first substantive meeting, para. 81. 
468 See para. 2.17 above.  This is confirmed by the Philippines' own statement that " [a]ll distilled spirits 
currently commercially produced in the Philippines market  are sugar-based distilled spirits."  Philippines' first 
written submission, para. 23 (emphasis added).  WT/DS396/R 
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  internal taxes in excess of those applied to lik e domestic spirits made from the designated raw 
materials, and is thus acting in a manner inconsis tent with Article III:2, first sentence, of the 
GATT 1994. 
D. CLAIMS UNDER THE SECOND SENTENCE OF ARTICLE  III:2  OF THE GATT 1994 
1. Complainants' claims 
7.91 The European Union and the United States cl aim that the Philippines' excise tax is 
inconsistent with the second sentence of Article  III:2 of the GATT 1994 be cause it is dissimilarly 
applied to domestic distilled spirits, which ar e produced from designated raw materials, and to 
"directly competitive or substitutable" imported di stilled spirits, which are produced with other raw 
materials, in a manner "so as to affo rd protection to domestic production".469 
7.92 As mentioned in paragraphs 7. 1 and 7.2, the complainants present their respective claims 
under the two sentences of Article III:2 of GATT 1994 differently.  The European Union articulates 
its claim under the second sentence as an alternative, in the event that it does not succeed, partially or 
totally, in its claim under the first sentence.  In contrast, the United States presents its claims under 
each of the two sentences independently. 
7.93 In its claim under the second sen tence of Article III:2, the United States specifically requests 
findings that would cover all distilled spirits.  In  its alternative claim under the second sentence of 
Article III:2, the European Union argues as its princi pal argument that all dis tilled spirits falling under 
HS heading 2208 are "directly competitive and subs titutable", irrespective of the raw materials from 
which they are distilled.  Within this alternativ e claim under the second sente nce, the European Union 
advances a subordinate claim in case the Panel were to conclude that all or some distilled spirits are 
not "directly competitive and substitutable".  In such case, the European Union asks the Panel to 
consider subordinately "that, for each type of spirit (e.g. gin, vodka, whisky, rum, brandy, tequila 
etc.), the products distilled from the designate d raw materials are 'directly competitive and 
substitutable' with those distilled fro m the non-designated raw materials".470 
2. The Philippines' response 
7.94 The Philippines submits that the complainants  claims under Article III:2, second sentence, 
should be rejected because the im ported and domestic products at issue are not directly competitive or 
substitutable.471  The Philippines further argues that, even if the products at issue were directly 
competitive or substitutable, the claim should neve rtheless be rejected because (i) domestic and 
imported products are in fact similarly taxed;  and, (i i) even if they are not similarly taxed, the excise 
tax at issue is not being applied so as to afford protection to domestic production.472 
3. Panel's analysis 
7.95 We recall our findings in paragraph 7.90 that, through its excise tax, the Philippines subjects 
imported distilled spirits made from raw materials ot her than those designated in its legislation to 
internal taxes in excess of tho se applied to like domestic distilled spirits made from the designated 
                                                      
469 See for example European Union's first written submission, paras. 48-49 and 107-189;  United 
States' first written submission, paras. 37-78;  United States' opening statement at first substantive meeting, 
paras. 44-48;  United States' second written submission, paras. 6 and 14-16. 
470 European Union's response to Panel question No. 18, para. 12.  See also para. 7.5 above. 
471 See for example Philippines' first written submission,  paras. 14-15, 210-285;  Philippines' second 
written submission, paras. 7, 18, 46-82. 
472 See for example Philippines' first writte n submission, paras. 16-17, 286-314. WT/DS396/R 
WT/DS403/R Page 72 
 
 
  raw materials, and is thus acting in a manner inconsistent with Artic le III:2, first sentence, of the 
GATT 1994.  We also note that the European Uni on's claim under the second sentence of Article III:2 
was only made in the alternative, in case we had not found that the Philippines' excise tax at issue is 
inconsistent with the first sentence of Article III: 2.  At the same time, the United States' claim 
concerning the second sentence of Article III:2 was ma de as a separate and independent claim.  We 
will therefore proceed with our analysis of the co mpatibility of the Philippines' excise tax with the 
second sentence of Article III:2 with respect to the Un ited States' claim.  Our consideration of this 
issue will take account of all the arguments and evidence on record, including those submitted by the 
European Union and third parties
473, where relevant. 
7.96 For a panel to find that a tax measure is incons istent with the second sentence of Article III:2 
of the GATT 1994, three issues have to be consider ed and established separately by a complainant.  
As explained by the Appellate Body, these issues are the following:  (i) whether the imported and 
domestic products at issue are " directly competitive or substitutable " with respect to each other; 
(ii) whether these directly competitive or substitutable products are " not similarly taxed "; and, 
(iii) whether the dissimilar taxation of these dir ectly competitive or substitutable products is " applied 
... so as to afford protec tion to domestic production ".474 
7.97 We will start our analysis with the first issue,  which in this dispute is whether the imported 
and domestic distilled spirits at issue are " directly competitive or substitutable products ." 
(a) "Directly competitive or substitutable products" 
(i) Introduction 
7.98 In Korea – Alcoholic Beverages  the Appellate Body observed that: 
"'Like' products are a subset of directly competitive or substitutable products:  all like 
products are, by definition, directly co mpetitive or substitutable products, whereas not 
all 'directly competitive or substitutable' products are 'like'."475 
7.99 We have found at paragraph 7. 77 that the imported and domestic distilled spirits at issue in 
the present dispute are "like products" within the meaning of the first sentence of Article III:2.476  
Nonetheless, as noted by the Philippines, a breach of the first sentence of Article III:2 does not 
automatically imply a breach of the second senten ce, as these two sentences establish "separate and 
distinct obligations."477  In effect, the question of whether the relevant products are directly 
competitive or substitutable is only the first of the th ree elements we will consider when assessing the 
consistency of the Philippine excise tax with the second sentence of Article III:2.  If the imported and 
domestic distilled spirits at issue in the present disp ute are "like" under the first sentence, it follows 
that, in principle, they would also be "directly co mpetitive or substitutable" within the meaning of the 
second sentence of Article III:2.478  However, we will consider the issue of "direct competitiveness or 
                                                      
473 We also recall that the European Union is a third party in this dispute with respect to the complaint 
brought by the United States.  See para. 1.6 above. 
474 See Appellate Body Report, Japan – Alcoholic Beverages II , DSR 1996:1, p. 97, at p. 116;  
Appellate Body Report, Korea – Alcoholic Beverages , para. 107;  Appellate Body Report, Chile – Alcoholic 
Beverages , para. 47;  and Appellate Body Report, Canada – Periodicals , DSR 1997:1, p. 449, at p. 470. 
475 Appellate Body Report, Korea – Alcoholic Beverages , para. 118. 
476 We have also additionally found above at para. 7.85 that the specific  distilled spirits at issue in the 
present dispute – namely, gin, brandy, rum, vodka, whisky, tequila and tequila-flavoured spirits – are also "like 
products". 
477 Philippines' first written submission, para. 58. 
478 See also United States' opening statement at first substantive meeting, para. 45.  WT/DS396/R 
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  substitutability" under the second sentence of Article III:2 as if arguendo  we had found that the 
products at issue were not like. 
7.100  We recall that the Appellate Body has clarified that products are " directly competitive or 
substitutable " within the meaning of the second sentence of Article III:2 if these products are 
interchangeable or if they offer "alternative wa ys of satisfying a particular need or taste".479  The term 
"directly competitive or substitutable" implies a relationship between th e imported and domestic 
products at issue that can essentially be d escribed as "in competition" in the marketplace.480  This is a 
"dynamic, evolving process"481, which means that "the competitiv e relationship between products is 
not to be analyzed exclusively  by reference to current  consumer preferences". 482  Thus, the expression 
"competitive or substitutable" in Ad Note to Article III:2, second sente nce, "indicates that the requisite 
relationship may exist between products that are not, at a given moment, considered by consumers to 
be substitutes but which are, nonetheless, capable  of being substituted for one another".483 
7.101  The question before us under Article III of th e GATT 1994 is not so much what the "degree 
of competition" between the products at issue is, but  what is the "nature" or "quality" of their 
"competitive relationship".484  The term "directly", as used in the Ad Note to Article III:2, "suggests a 
degree of proximity in the competitive relations hip between the domestic  and imported products."485  
However, we disagree with the Philippines that  this means that the imported and domestic 
distilled spirits at issue will only be directly comp etitive or substitutable if they are in "'complete, 
absolute or exact' competition with one another."486  We consider that the Philippines' reading of the 
word "directly" is too narrow and does not co nform with a proper interpretation of the 
second sentence of Article III:2 as clarified by the A ppellate Body and by other panels.  We agree 
with the complainants that requiring "complete, absolute or exact" competition between the products 
at issue as a condition to be considered direc tly competitive or substitutable would "blur" the 
distinction between this categor y of products under the second sentence of Article III:2 of the 
GATT 1994 and that of "like products" under the first sentence of that provision.487  It would also go 
against the understanding that the competitive relatio nship under the second sentence of Article III:2, 
as stated above, deals not only with actual , but also with potential  competition.488 
                                                      
479 Appellate Body Report, Korea – Alcoholic Beverages , para. 115.  See also Appellate Body Report, 
US – Cotton Yarn , para. 91, and the Panel Report, Mexico – Taxes on Soft Drinks , para. 8.68. 
480 See Appellate Body Report, Korea – Alcoholic Beverages , para. 118. See also Appellate Body 
Report, US – Cotton Yarn , para. 91, and Panel Report, Mexico – Taxes on Soft Drinks , para. 8.68. 
481 Appellate Body Report, Korea – Alcoholic Beverages , para. 114.  See also Appellate Body Report, 
US – Cotton Yarn , para. 91. 
482 Appellate Body Report, Korea – Alcoholic Beverages , para. 114 (emphasis original). 
483 Ibid., para. 114.  See also Appellate Body Report, US – Cotton Yarn , para. 91. 
484 Appellate Body Report, Korea – Alcoholic Beverages , paras. 128-131 and 132-134.  But see ibid., 
paras. 127-131. 
485 Appellate Body Report, Korea – Alcoholic Beverages , para. 116 (adding that this term "does not, 
however, prevent a panel from considering both latent and extant demand.").  See also Appellate Body Report, 
US – Cotton Yarn , paras. 97-98. 
486 Philippines' first written submission, para. 214 (a lso stating that "the relationship described in 
Article III:2 second sentence is one that requires a very high degree of proximity.").  See also Philippines' 
opening statement at first substantive meeting, para. 26;  Philippines' second written submission, paras. 46-49;  
Philippines' opening statement at seco nd substantive meeting, para. 24. 
487 European Union's response to Panel question No. 48, para. 74.  The European Union additionally 
states that "... not even under the first sentence of Article III:2 can one always  describe the competitive 
relationship between products as ' complete, absolute, or exact '...").  (emphasis original).  Ibid.  See also the 
United States' response to Panel question No. 48, paras. 36 -41;  Australia's response to Panel question No. 2. 
488 See also the European Union's response to Panel question No. 48, para. 75-77. WT/DS396/R 
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  7.102  To assess whether the imported and domestic products are directly competitive or 
substitutable, we will examine several of the factor s considered under the analysis of "like products" 
of Article III:2, i.e.  consumers' tastes and habits , in terms of the competitive relationship between the 
products;  channels of distribution;   the products' properties, nature and quality;  their end uses in a 
given market;  the tariff classification of the products  based on the HS system;  and relevant internal 
regulations in the Philippines.
489  
7.103  Parties have discussed extensively the issue of the competitive relationship between the 
products at issue (domestic and im ported distilled spirits, made from different raw materials) in the 
relevant market (the Philippines' market).  Therefore,  we will start our analysis with this factor.  This 
does not mean however that the other factors listed a bove, in particular the physical characteristics of 
the products, are not relevant, or even less important.  As the panel in Korea – Alcoholic Beverages  
stated: 
"It would be an incorrect reading of the law to argue that products' physical 
similarities were somehow less relevant fo r the category of directly competitive or 
substitutable products than for the subcategor y of like products.  To put it another 
way, if two products are physically identical or nearly so, it is highly probable that they are 'like.'  They should not then be  found to be not directly competitive or 
substitutable because marketing campaigns (or government tax regimes) have created 
a distinction in consumer perceptions.  Su ch consumer perception distinctions are 
relevant but not determinative when the ques tion is the nature of an actual or potential 
competitive relationship rather than merely  a quantitative analysis of the current 
extent of competition.  To find otherwise might allow allegedly discriminatory government measures to create self-justifying  product distinctions between identical 
or nearly identical products."
490 
(ii) The competitive relationship between the products at issue 
7.104  We start by looking at the direct competitive re lationship between the re levant products, i.e. 
the extent to which consumers are willing to use the di fferent products to satisfy the same, or similar, 
needs ("consumers' tastes and habits").491  We will focus our analysis on how those products relate to 
each other in the market.  Although at some level al l products may be said to be "at least indirectly 
competitive," given that consumers have limited di sposable income for competing needs, the second 
sentence of Article III:2 only regulates situ ations where products compete directly.492  
7.105  As stated at paragraph 7.101, the question befo re us under Article III of the GATT 1994 is not 
so much what the "degree of competition" between the products at issue is, but what is the "nature" or 
"quality" of their "competitive relationship".493  Therefore, as noted by previous panels, we should not 
place too much emphasis on quantitative analyses wh ere "systems of government tax policies may 
                                                      
489 See e.g. Appellate Body Report, Japan – Alcoholic Beverages II , DSR 1996:1, p. 97, at p. 117;  
Panel Report, Korea – Alcoholic Beverages , para. 10.61;  Panel Report, Mexico – Taxes on Soft Drinks , 
para. 8.68.  See also Panel Report, Chile – Alcoholic Beverages , paras. 7.14 and 7.30;  and United States' 
opening statement at first substantive meeting, para. 38. 
490 Panel Report, Korea – Alcoholic Beverages , para. 10.66. 
491 See Appellate Body Report, EC – Asbestos , para. 117;  Appellate Body Report, Korea – Alcoholic 
Beverages , para. 115. 
492 Panel Report, Korea – Alcoholic Beverages , para. 10.40.  But see above at para. 7.101, where we 
disagreed with the narrow interpretation of  "directly" advanced by the Philippines. 
493 Appellate Body Report, Korea – Alcoholic Beverages , paras. 128-131.  WT/DS396/R 
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  have the effect of freezing consumer preferences in place of or in favour of the domestic product" 
because such policies tend to unders tate the competitive relationship.494 
7.106  Additionally, as stated at paragraph 7.100, the second sentence of Article III:2 protects both 
actual  and potential  competition in a given market.  In this respect, even in cases where there is no 
actual competition, a complainant may satisfy the requirements of the second sentence of Article III:2 
by showing that the products potentially have a directly  competitive relationship.  This is especially so 
if there are indications that the challenged measure may have the effect of freezing consumer preferences for certain products.
495 
7.107  The Philippines argues that a competitive relations hip can only be analysed in the context of 
the market realities of each country and whethe r a competitive relationship exists depends on the 
market that exists for the majority of consumers.496  To support its argument, the Philippines points to 
the panel report on Chile – Alcoholic Beverages , which stated that, although the products do not 
necessarily have to be substitutable all the time, th ere still must be a pattern of substitutability for 
some consumers .  Some consumers , the Philippines argues, must be a representative sample of the 
entire market.  Therefore, isolated and excep tional competition, such as that resulting from 
"occasional substitutability on special occasions", s hould be ignored when it contradicts general 
market trends.497 
7.108  The competitive relationship between relevant  products may be assessed through cross-price 
elasticity studies, which can be a useful analytical  tool to determine the degree of substitutability 
between two goods or if they are in a competitive relationship.498  The Appellate Body has noted that, 
while cross-price elasticity is not necessarily a "decisi ve criterion" when looking at the conditions of 
competition between products at issue in the relevant market, it is not inappropriate to consider it "as 
one means of examining those relevant markets".499 
7.109  With regard to the competitive relationship between  the products at issue, we have noted that 
parties have provided different studies of consumers'  perceptions in the Philippines' distilled spirits 
market.  The complainants submitted a survey by Euromonitor International  suggesting that 
consumers in the Philippines would be more willing to purchase imported distilled spirits if the price 
of those spirits decreases and the price of domestic Philippine spirits increases, even if the prices of 
imported spirits remains higher than those of domestic spirits.500  In turn, the Philippines submitted a 
survey by Abrenica & Ducanes fro m the University of Philippin es School of Economics that 
concludes there is low price elasticity in the Philippine  domestic distilled spirits market and, therefore, 
local and imported brands of distilled spirits are non-substitutable.  The same survey suggests that 
                                                      
494 Panel Report, Japan – Alcoholic Beverages II , para. 6.28.  See also Panel Report, Korea – Alcoholic 
Beverages , para. 10.44;  Appellate Body Report, Japan – Alcoholic Beverages II , p. 25, DSR:  1996:I, p. 97, at 
p. 117;  Panel Report, Chile – Alcoholic Beverages , para. 7.15. 
495 Appellate Body Report, Korea – Alcoholic Beverages , paras. 119-120.  For example, potential 
competition was particular relevant in Chile – Alcoholic Beverages  because the evidence showed the existence 
of a substantial tax differential betwee n the relevant products, as well as other measures that greatly influenced 
market conditions.  Panel Report, Chile – Alcoholic Beverages , para. 7.25. 
496 See generally Philippines' first written submission, para s. 210-219;  Philippines' oral statement at the 
first substantive meeting, para. 10;  and Philippines' response to Panel question No. 17. 
497 Philippines' second written submission, paras. 65-68. 
498 See for example Panel Report, Japan – Alcoholic Beverages II , para. 6.22.  See also Appellate Body 
Report, Japan – Alcoholic Beverages II , p. 25, DSR 1996:1, p. 117;  Appellate Body Report, Korea – Alcoholic 
Beverages , para. 121;  Panel Report, Thailand – Cigarettes (Philippines) , para. 7.451. 
499 Appellate Body Report, Japan – Alcoholic Beverages II , p. 25, DSR 1996:1, p. 117. 
500 Euromonitor International  survey in exhibits EU-41 and US-41.  See para. 2.43 above. WT/DS396/R 
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  narrowing price differentials betw een imported and domestic distilled spirits would only result in a 
small change in their respective market shares.
501 
7.110  Both the Philippines and the complainants have criticized the methodology and the 
conclusions of the studies on consumers pe rceptions submitted by the opposing party.502  The 
Philippines questions, for example, whether the Euromonitor International  survey can serve as an 
indication of price elasticity of substitution be tween distilled spirits made from the designated 
raw materials and those made from other raw materials.503  Likewise, the complainants raise doubts 
about the "validity of [the] findings on cross-pri ce elasticities" contained in  the Abrenica & Ducanes 
survey from the University of Philippines School of Economics.504 
7.111  In principle, the estimation of cross-price elasticity requires the use of an econometric 
analysis of historical quantity and price data of the goods at issue in a given market.  In the absence of 
historical data, it is possible to estimate cross-price elasticity through the use of survey data, that is, 
data collected by means of questionnaires.  To prod uce reliable results, the su rvey would have to be 
based on an appropriate methodology and be conduct ed on a sample that is representative of the 
consumer population.  However, an estimate of cross-price elasticity on the basis of surveys has 
limitations, when compared to traditional estimates made using historical data.  This is primarily 
because the data on quantities consumed would not reflect actual choices of consumers, but only 
hypothetical choices, which may not match consumer behaviour when faced with real life situations. 
7.112  Neither the Euromonitor International  survey, nor the Abrenica & Ducanes survey, is based 
on historical quantity and price data.  The Euromonitor International  survey is described as an 
evaluation on "consumers' price-based purchase pr eferences for different distilled spirit types across 
consumers in the Philippines that consume di stilled spirits at least one time per month".505  T h i s  
survey is not, in our view, an attempt to estimate and provide figures for the cross-price elasticity for 
imported and domestic distilled spirits.  The Abrenica & Ducanes survey, in turn, estimates cross-price elasticities for imported and domestic dis tilled spirits in the Philippines market to range 
between -0.01 and 0.07, which the authors consider "low".  The authors then conclude that "local and 
imported brands [of distilled spirits are] non-substitutable".
506  Furthermore, the conclusions in both 
the Euromonitor International  report and the Abrenica & Ducanes su rvey, with respect to variations 
in the quantities consumed of imported and domestic distilled spirits, are based on scenarios where the 
prices of imported and domestic distilled spirits  are both said to change at the same time.507  T h e  
                                                      
501 Abrenica & Ducanes survey from the University of Philippines School of Economics in exhibit 
PH-49.  See para. 2.44 above. 
502 See for example European Union's second written submission, paras. 97-103;  United States' second 
written submission, paras. 51-52;  Philippines' first written submission, paras. 180-182, 240-241 and 268;  
Philippines' second written submission, paras. 66-67;  Philippines' opening statement at second substantive 
meeting, paras. 25, 29 and 33;  Philippines' comments to European Union's and United States' responses to 
Panel question No. 83, paras. 19-23;  and exhibits EU-101, EU-102 and US-48. 
503 Philippines' first written submission, para. 241. 
504 See for example European Union's second written submission, para. 101.  See also United States' 
second written submission, paras. 51-52;  and exhibits EU-101 and EU-102. 
505 Euromonitor International , "Consumer perceptions regarding substitutability in the Philippines 
distilled spirits market", in exhibits EU-41 and US-41, p. 5. 
506 See Abrenica & Ducanes, "On Substitutability between Imported and Local Distilled Spirits" 
(University of Philippines School of Economics Foundation), in exhibit PH-49, pp. 2, 11, 12 and 20.  It is worth 
noting that the same study concludes that in the Philippine market "beer and liquor [distilled spirits] are 
substitutes."  Ibid., p. 16. 
507 For example, the structure of the choices given to  respondents creates a starting point bias, as well 
as some shortcomings associated with the regression model used for the calculations (a mixed logit model).  See 
exhibits EU-101, EU-102 and US-48.  WT/DS396/R 
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  conclusions in both studies regarding the compe titiveness or substitutability between imported and 
domestic products in the Philippines distilled spirits market would have been clearer had the studies 
attempted to isolate the effects of an increase in the price of domestic spirits on the quantities 
consumed of imported spirits (for example, by leaving the price of imported spirits fixed). 
7.113  Nonetheless, the studies support the proposition that there is a significant degree of 
competitiveness or substitutability in the Philippines' market between the distilled spirits at issue in 
the present dispute.  This refers both to distilled spirits as a general category, as well as to specific 
types of distilled spirits such as gin, brandy, vodka and whisky.508 
7.114  The Philippines states that its domestic distilled sp irits market is different from those of other 
countries involved in previous alcoholic beverages cases (Japan, Chile and Korea)509, because of the 
impact that price and income play on consum ers' ability to purchase both domestic and imported 
spirits.510  The Philippines argues that there is a huge  gap in its market between the prices of 
"non-sugar based spirits" and "sugar-based spirits", which results from market forces and not from the 
excise tax511, and is compounded by the huge discrepancy in incomes indicated by the economic 
profiles of Philippine consumers.512  The income disparity, together with the general gap in prices, 
prevents most consumers from purchasing distilled spirits irrespective of the raw materials from 
which they are made, thus creating two market segments:  one for distilled spirits made from 
designated raw materials and another for distille d spirits made from all other raw materials.513  F o r  
this reason, the Philippines concludes that distille d spirits made from designated raw materials and 
spirits made from other raw materials are not directly competitive or substitutable.514 
7.115  The European Union and the United States disag ree with the notion that income distribution 
is a valid distinction for determining whether products are directly competitive or substitutable.515  
The United States argues: 
"If income distribution could affect whet her goods are 'substitutable' for the purposes 
of GATT Article III:2, it would draw emphasis away from the goods themselves and 
                                                      
508 See also para. 7.57 above. 
509 Philippines' first written submission, paras. 220 and 221.  See also Philippines' oral statement at the 
second substantive meeting, para. 7. 
510 Philippines' oral statement at the second substantive meeting, paras. 8-9 and 17. 
511 Philippines' first written submission, paras. 36-37 and 231;  Philippines response to Panel question 
No. 53;  Philippines' oral statement at  the second substantive meeting, para. 17.  See also Philippines' oral 
statement at the second substa ntive meeting, paras. 4-5. 
512 Philippines' first written submission, paras. 42-44, 224 and 233;  Philippines' oral statement at the 
first substantive meeting, para. 26;  Philippines' second written submission, paras. 50-54;  Philippines' response 
to Panel question No. 72.  See also para. 2.31 above.  But see United States' comments on the Philippines' 
response to Panel question No. 72;  and European Uni on's comment on Philippines’ response to Panel question 
No. 72. 
513 Philippines' second written submission, para. 66.  See also exhibits PH-22 and PH-18;  Philippines' 
oral statement at the first substantive meeting, paras. 20-21 and 27;  Philippines' response to Panel question 
Nos. 17 and 50;  Philippines' oral statement at the seco nd substantive meeting, para. 6;  and Philippines' oral 
statement at the second subs tantive meeting, para. 18. 
514 Philippines' first written submission,  para. 46, 226-227, 233-234, 248;  Philippines' oral statement at 
the first substantive meeting, para. 28;  Philippines' res ponse to Panel question Nos. 35 and 89;  Philippines' 
second written statement, para. 42. 
515 See European Union's oral statement at the first substantive meeting, para. 77;  United States' 
response to Panel question No. 30;  United States' second written submission, para. 35.  But see Philippines' oral 
statement at the second subs tantive meeting, para. 19. WT/DS396/R 
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  whether they may be substituted, where it belongs, and allow purchasing power or 
affordability to affect whether such goods are substitutes."
516 
7.116  The complainants argue that, although distilled spirits made from other raw materials are 
generally more expensive than distilled sp irits made from designated raw materials517, there is no 
clear gap in prices between them.518  Rather, any notion that the mark et is segmented is defeated by 
the fact that both groups of distilled spirits are priced on a continuum, resulting in a significant 
amount of overlap.519  Further, both complainants argue that  any comparison of the relevant distilled 
spirits' current prices should take into account the fact  that the measure at issue significantly raises the 
final prices of imported distilled spirits.  Conse quently, the measure masks a significant amount of 
latent demand and prevents importers from real izing economies of scale in the Philippine market 
because they are unable to sell at efficient quantities.520 
7.117  Finally, the United States stresses that even if  the market is indeed segmented, imported and 
domestic distilled spirits are directly competitive and substitutable for those consumers who compose 
the market segment where impor ted products are affordable.521  Both the United States and the 
European Union argue that it is not accurate to conc lude that just because some Philippine consumers 
can afford expensive distilled spirits, the r est of consumers can never afford them.522 
7.118  We have found at paragraph 2.36  that, generally speaking, impor ted brands of distilled spirits 
tend to be more expensive in the Philippines, ev en before taxes, than the corresponding domestic 
brands of the same type of distilled spirit.  At the same time, in the Philippine market there are a 
number of high-priced domestic distilled spirits, as well as less expensive imports.  The Philippines 
contends that instances of price overlap be tween domestic and importe d distilled spirits are 
"exceptions and aberrations".523  However, evidence shows that the overlap in prices of imported and 
domestic distilled spirits is not exceptional and that it occurs for both high- and low-priced 
products.524  In this regard, we note the statement of the panel on Chile – Alcoholic Beverages  that 
"[p]roducts do not have to be substitutable fo r all purposes at all times to be considered 
competitive."525  Therefore, we find that the overlap in prices between imported and domestic 
distilled spirits in the Philippine market, irrespec tive of the raw materials from which they are made, 
                                                      
516 United States' second written submission, para. 37. 
517 European Union's first written submission, para. 157. 
518 European Union's first written submission, para. 15 1;  European Union's response to Panel question 
Nos. 30, 33, 35 and 49;  European Union's oral statement at the second substantive meeting, paras. 55-58;  
United States' second written submission, paras. 30-31;  United States' response to Panel question Nos. 30 
and 33.  See e.g. exhibit EU-80.  European Union's second written submission, para. 38. 
519 European Union's first written submission, paras. 152 and 154-157;  European Union's oral 
statement at the first substantive meeting, paras. 26 and 37-40.  See also exhibits EU-15, EU-26, EU-29, EU-43, 
EU-72 and EU-80. 
520 European Union's first written statement, paras. 148-150;  European Union's oral statement at the 
first substantive meeting, para. 67;  European Union's oral statement at the second substantive meeting, 
paras. 48-49;  United States' oral statement at the second substantive meeting, paras. 20-21 and 28-29. 
521 European Union's first written submission, paras. 114 and 123;  European Union's oral statement at 
the first substantive meeting, para 17;  European Union's response to Panel question No. 48;  United States' first 
written submission, para. 64;  United States' oral statement at the first substantive meeting, paras. 32-33;  United 
States' second written submission, paras. 32-33;  exhibit US-40. 
522 United States' response to Panel question Nos. 35, paras. 25-27, and 54, paras. 51-52.  See also 
European Union's second written submission, paras. 39-41;  United States' oral statement at the second 
substantive meeting, para. 32;  United States' oral statem ent at the second substantiv e meeting, paras. 20-21 and 
28-29. 
523 Philippines' second written submission, para. 56. 
524 See e.g. paras. 2.36, 2.66, 2.67, 2.72 and 2.73. 
525 Panel Report, Chile – Alcoholic Beverages , para. 7.43.  WT/DS396/R 
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  suggests that the market is not segmented and th at in some cases imported and domestic products 
compete with respect to price. 
7.119  With regard to the argument advanced by th e Philippines concerning the purchasing power of 
Philippine consumers526, we have already found at paragraph 7.59 that, while a large proportion of 
Philippine consumers may not currently have access to high-priced distilled spirits, including those 
made from raw materials other than those designated in the measure, many others may be able to 
purchase high-priced distilled spirits, at least on special occasions. 
7.120  The Philippines asserts that distilled spirits made  from other raw materials are out of reach for 
"most" or a "majority" of its population, or are only available to a "narrow segment" of the population.  
It argues that "the capacity of a limited segmen t of the population to purchase non-sugar-based spirits 
should not be used as the basis for determining that these products are directly competitive or 
substitutable."527  In our view, the Philippines' statement im plies that, at least a narrow segment of the 
market has access to both groups of spirits.528  Article III of GATT 1994 does not protect just some  
instances or most instances, but rather, it protects all instances of direct competition.529  It follows that 
the competitive relationship does not need to occur throughout the whole  market for a panel to find 
that a measure is inconsistent with the second senten ce of Article III.  We thus conclude that, even if 
the Philippine distilled spirits market were segmented, actual direct competition exists within at least a 
segment of that market.  We consider that th is is enough for us to find a direct "competitive 
relationship" for the purpose of the second sentence of Article III:2 of the GATT 1994.530 
7.121  Finally, as indicated at paragraph 7.100, th e competitive relationship protected under the 
second sentence of Article III:2 includes not only actual , but also potential  competition between the 
products at issue.  Therefore, the alleged absence  of actual competition within the majority of the 
market cannot decide the issue.  Rather, one must look at whether the products are capable  of being 
competitive.  The Philippines argues that since ther e is no evidence that the income distribution will 
drastically change in the near future, distilled spirits made from raw materials other than those 
designated in the measure will still be out of reach  for the majority of the Philippine population.531  In 
our view, an Article III analysis should not depe nd on predicting income distribution patterns, but 
rather on whether there is evidence that consumers ar e willing, or may be willing, to use the different 
products to satisfy the same or similar needs.  In  this respect, the instances of actual competition we 
                                                      
526 See para. 7.114 above. 
527 Philippines' first written submission,  para. 249;  Philippines' oral statement at the first substantive 
meeting, para. 29;  Philippines second written submission para. 64. 
528 See Philippines' first written statement, paras. 43, 46, 226, 230, 233 244, 248;  Philippines' oral 
statement at the first substantive meeting, para. 29;  Philippines' response to Panel question No. 52;  and 
Philippines' second written submission, para 55.  See also  Philippines' oral statement at the first substantive 
meeting, para. 27.  The existence of at least some degree of a competitive relationship between the relevant 
products seems to be confirmed by the statements fro m domestic Philippine companies that their products face 
competition from imported spirits, and that their marketing strategies convey an image of their products as 
drinks that compete with the imported distilled spirits.  See European Union's first written submission, 
paras. 127-136 and exhibits EU-22, EU-25, EU-29, EU-4 3, EU-58, EU-59, EU-60, EU-63, EU-64, EU-65 and 
EU-87.  See also Panel Report, Chile – Alcoholic Beverages , para. 7.85.  The European  Union notes that the top 
15 per cent of the population amounts to over 13.7  million citizens.  European Union's second written 
submission, para. 4;  European Union's opening statement at second substantive meeting, para. 34. 
529 Panel Report, Chile – Alcoholic Beverages , para. 7.43. 
530 See also the European Union's oral statemen t at the first substantive meeting, para. 77. 
531 Philippines' first written submission, para. 250;  Philippines' second written submission, para. 48;  
Philippines' response to Panel question No. 52.  See also Philippines' oral statement at the second substantive 
meeting, para. 24. WT/DS396/R 
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  noted in paragraph 7.118 are a clea r indication that the imported and dom estic products at issue in this 
dispute are indeed capable  of being directly competitive or substitutable in the future. 
(iii) Products' channels of distribution 
7.122  The complainants assert that in the Philippines,  all distilled spirits at issue use the same 
channels of distribution and sale.  For them, this is an indication that these products compete with 
each other in the Philippine market and are thus directly competitive or substitutable within the 
meaning of the second sentence of Article III:2.
532  The Philippines states in r esponse that the fact that 
distilled spirits made from designated raw materi als and distilled spirits made from other raw 
materials "operate in different markets, and are not directly competitive or substitutable, is also 
reflected in their manner of distribution.  In the Philippines, non-sugar-based distilled spirits and 
sugar-based  spirits are sold thro ugh distribution channels that are almost entirely different  – through 
'sari-sari' stores.533"534 
7.123  We note that the evidence shows that some estab lishments (especially small retail stores) that 
offer domestic Philippine distilled spirits do not carry  imported distilled spirits.  However, all outlets 
where imported spirits are sold either for consumpti on on the premises (such as bars or restaurants) or 
off the premises also offer domestic Philippine spirits.535  We consider that this is an indication of 
similarity between the products at issue. 
(iv) Products' properties, nature and quality 
7.124  The United States argues that "based on physical attributes such as appearance, taste, color 
and alcohol content, distilled spirits made of i ndigenous materials in the Philippines are directly 
competitive or substitutable with imported distilled spirits."536 
7.125  In turn, the European Union submits that: 
"[T]he basic physical properties of all distilled spirits – irrespective of the raw 
materials used for distillation – are essentiall y the same.  All spirits are concentrated 
forms of alcohol produced by the process of distillation.  At the point of distillation, 
all spirits are nearly identical, which means that raw materials used in this process 
have almost no impact [on] the final product."537 
                                                      
532 European Union's first written submission, paras. 137-144;  European Union's opening statement at 
first substantive meeting, paras. 69-72;  European  Union's second written submission, paras. 108-109;  
European Union's opening statement at second substantiv e meeting, paras. 38-42;  United States' first written 
submission, paras. 53-58;  United States' opening statement at first substantive meeting, para. 41;  United States' 
second written submission, paras. 8 and 11;  United States' comments on the Philippines' response to Panel 
question No. 76, para. 19. 
533 (footnote original)  "Sari-sari" is a Philippine word that means "variety". 
534 Philippines' first written submission, para. 253 (em phasis original).  See also Philippines' opening 
statement at first substantive meeting, para. 29;  Ph ilippines' second written submission, paras. 72-75;  
Philippines' opening statement at second  substantive meeting, para. 23;  Philippines' response to Panel question 
Nos. 71 and 76. 
535 See para. 2.41 above. 
536 United States' first written submission, para. 52.  See also United States' opening statement at first 
substantive meeting, paras. 10-18;  United States' sec ond written submission, paras. 7 and 11;  United States' 
opening statement at second substantive meeting, paras. 14-16. 
537 European Union's first written submission, para. 120.  See also European Union's first written 
submission, paras. 121-122;  European Union's second  written submission, paras. 78-84;  European Union's 
opening statement at second substantive meeting, paras. 18-37.  WT/DS396/R 
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  7.126  The Philippines responds that "the different phy sical characteristics" between the relevant 
products "are substantial"538, in particular given the fact that they are respectively made from different 
raw materials and using distinct distillation processes.  For many of the spirits at issue in the present 
dispute, the producers of distilled spirits from desi gnated raw materials strip the ethyl alcohol made 
(normally sugar cane molasses) of its natural congeners  and add natural or artificial flavourings.  In 
contrast, distilled spirits made from other raw material  are allowed to retain their natural congeners in 
order to distinguish the products.539 
7.127  In our discussion on the issue of the products' properties, nature and quality, as part of the 
"likeness" analysis under the first sentence of Article III:2, we stated that, according to the 
Appellate Body, such elements may be seen as c overing the physical qualities and characteristics of 
the products at issue.540  We concluded there, as we concl ude here, that the various elements 
associated with the properties, nature and quality of  the products at issue (such as alcohol content, 
colour, physiological effects on humans, process of production, organoleptic properties) suggest that 
there is a close similarity between these products.541  We consider that those various elements are also 
relevant to our inquiry under the second sentence.  As stated by the panel in Chile – Alcoholic 
Beverages , "the closer the physical similarity [between the products at issue] the greater the likelihood 
of a directly competitive or substitu table relationship [between them]."542 
(v) End uses and marketing 
7.128  The complainants argue that the products at issue have common end uses, as they are 
inter alia  drunk in the same way, place and occasions.543  The Philippines responds that any overlap in 
end uses "cannot by itself overcome the clear ph ysical differences in the products, or, more 
significantly, market segmentation caused by price differences."544 The Philippines further claims that 
given the market segmentation in the Philippines, ev en though the products at issue may satisfy the 
same needs (such as thirst quenching, relaxatio n, socialization), "they do so for different, 
non-interchangeable audiences." 545 
7.129  In our discussion on the issue of the relevant  products' end uses as part of the "likeness" 
analysis under the first sentence of Article III:2, we stated that we would focus on the extent to which 
the different types of spirits relevant for the present dispute are capable of serving the same, or 
similar, end uses.  We found no evidence of any differences between the end uses of imported and 
domestic distilled spirits at issue in the present dis pute, nor between the end uses of distilled spirits 
made from the designated materials and those made from other materials.546  We concluded there, as 
we conclude here, that the various elements asso ciated with the relevant  products' end-uses suggest 
that there is similarity between these products.547 
                                                      
538 Philippines' first written submission, para . 272.  See also ibid., para. 278. 
539 Philippines' first written submission, para. 274.  See also Philippines' second written submission, 
paras. 19-32. 
540 See para. 7.34 above. 
541 See paras. 7.75 and 7.80 above.  S ee also paras. 7.35 to 7.47 above. 
542 Panel Report, Chile – Alcoholic Beverages , para. 7.48.  See also Panel Reports, Chile – Alcoholic 
Beverages , para. 7.53, and Korea – Alcoholic Beverages , para. 10.67. 
543 European Union's first written submission, paras. 123-125;  European Union's second written 
submission, paras. 104-107;  United States' first writte n submission, paras. 59-63,  United States' opening 
statement at first substantive meeting, para. 41;  United States' second written submission, paras. 9 and 11. 
544 Philippines' first written submission, para. 281. 
545 Ibid., para. 282. 
546 See para. 7.48 above. 
547 See paras. 7.75 and 7.81 above. WT/DS396/R 
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  7.130  The complainants also argue that the fact that all distilled spirits producers use similar 
marketing strategies to advertise their products in  the Philippines indicates that the imported and 
domestic spirits at issue compete with each other in that market.
548  The Philippines responds that any 
overlap in advertising or marketing strategies is of "limited relevance", and that "different marketing 
techniques" are a result of the physical differen ces between the products at issue and the market 
segmentation caused by price differences. 549 
7.131  When addressing the "likeness" is sue under the first sentence of Article III:2, we noted that 
marketing campaigns for distilled spirits are very si milar and that there is no indication that those 
campaigns are different for imported distilled spirits  and domestic Philippine distilled spirits, nor for 
spirits made from the designated material s and those made from other materials.550  We also noted 
that the domestic distilled spirits in the Philippines,  irrespective of the raw materials from which they 
are made, are labelled as either gin, brandy, rum, vodka, whisky, tequila or tequila-flavoured spirits.551  
Further, generally speaking, labe ls of domestic Philippine distilled spirits made from the designated 
raw materials tend to either mimic or replicate the names of products and designs of the similar 
imported spirits made from other raw materials.552  All these factors, we believe, are additional 
elements that suggest that the products at i ssue are directly competitive and substitutable.553 
(vi) Tariff classification 
7.132  The complainants argue that another indication that the imported and domestic distilled spirits 
at issue are directly competitive or substitutable is  the fact that these products fall within the same 
HS heading, i.e. HS heading 2208.554  The Philippines responds that the tariff classification at the 
HS four-digit level is not "detailed enough" to su pport the complainants' view.  The Philippines notes 
that at the six-digit level the HS separates spirits between those made with sugar cane and those that 
are not made with sugar cane.  It argues that this demonstrates that the products at issue are not 
directly competitive or substitutable.555 
7.133  In our discussion with respect to the questi on of "likeness" under the first sentence of 
Article III:2 we considered the product descriptions  under the HS at both the four-digit level and 
six-digit level.  We consider, however, that the six-digit subheadings descriptions under the HS are 
relevant only for the discussion of the similarity of sp ecific types of distilled spirits, rather than for the 
whole category  of distilled spirits.  Accordingly, the f our-digit level of HS heading 2208 is the 
appropriate level for the purpose of the issue of "direct competitiveness or substitutability" of the 
whole category  of distilled spirits in the present case under the second sentence of Article III:2. 
                                                      
548 European Union's first written submission, paras. 126-136;  European Union's second written 
submission, paras. 90-94; European Union's opening statement at second substantive meeting, paras. 43-47;  
United States' first written submission, paras. 48-49;  United States' second written submission, para. 8 and 11;  
United States' comments on the Philippines' response to Panel question No. 76, para. 19. 
549 Philippines' second written submission, paras. 25 and 37.  See also Philippines' response to Panel 
question No. 76. 
550 See paras. 7.51, 7.76 and 7.82 above. 
551 See para. 7.61 above. 
552 See para. 7.61 above. 
553 See Panel Report, Korea – Alcoholic Beverages , para. 10.65. 
554 European Union's opening statement at first substantive meeting, para. 76;  European Union's 
second written submission, para. 96;  United States' first wr itten submission, paras. 44 and 65-66;  United States' 
opening statement at first substantive meeting, para. 41;  United States' second written submission, paras. 10, 11 
and 27.  See also United States' response to Panel question No. 42, para. 33. 
555 Philippines' first written submission, para. 284.  WT/DS396/R 
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  7.134  In our discussion under the first sentence of Article III:2 for the whole category  of 
distilled spirits, we concluded, as we conclude here, that the fact that all distilled spirits at issue fall 
within the HS heading 2208 is an indication of their similarity.556 
(vii) Internal regulations 
7.135  With respect to domestic regulations on distille d spirits in the Philippines, we have noted 
above in our "likeness" analysis that certain local ordinances against drunk driving do not distinguish 
between imported and domestic spirits, nor between  spirits made from the designated materials and 
those made from other materials.  Nor is any such di stinction made in local ordinances with respect to 
"the sale, dispensation and/or distribution of alcoholic beverages".557  We also found further 
confirmation of similarity in the language used  in Republic Act No. 9334, one of the relevant 
instruments in the present dispute.558  We consider that such determinations are also relevant here in 
that they constitute additional indications that th e products at issue may be considered directly 
competitive and substitutable. 
(viii) Conclusions on "directly competitive or substitutable" 
7.136  We found at paragraph 7.77 that the imported a nd domestic distilled spirits at issue in the 
present dispute are "like products" within the meani ng of the first sentence of Article III:2.  If the 
imported and domestic distilled spirits at issue in the present dispute are "like" under the 
first sentence, it follows that, in principle, they w ould also be "directly competitive or substitutable" 
within the meaning of the second sentence of Article III:2.  However, as explained above559, we 
decided to consider the issue of "direct compe titiveness or substitutability" under the second sentence 
of Article III:2 as if arguendo  we had found that the products at issue were not like. 
7.137  Based on the above analysis, we find that ther e is a direct competitive relationship between 
domestic and imported distilled spirits, made from di fferent raw materials, for the purpose of the 
second sentence of Article III:2 of the GATT 1994.  We also recall our conclusions above on the 
following elements:  (i) the products' channels of dist ribution; (ii) the products' properties, nature and 
quality;  (iii) the products' end uses and marketing;   (iv) the product descriptions under HS heading 
2208; and (v) certain domestic regula tions on distilled spirits in the Philippines.  We concluded that 
each of these elements constitute an indication of th e similarity between the products at issue.  We 
therefore consider that, together, these conclusions  suggest that those products may be directly 
competitive and substitutable. 
7.138  Having considered all the above factors and elemen ts, we conclude that the distilled spirits at 
issue in the present dispute, whether imported or do mestic, and irrespective of the raw materials from 
which they are made, are "directly competitive or substitutable" within the meaning of the second 
sentence of Article III:2 of the GATT 1994. 
(b) "Not similarly taxed" 
(i) Introduction 
7.139  Now that we have found that the domestic and im ported products at issue, irrespective of the 
raw materials from which they are made, are "direc tly competitive or substitutable", we continue our 
                                                      
556 See para. 7.63 and 7.76 above. 
557 See para. 7.72 above. 
558 See para. 7.73 above. 
559 See para. 7.99 above. WT/DS396/R 
WT/DS403/R Page 84 
 
 
  inquiry into the second question under the second sen tence of Article III:2 of the GATT 1994, i.e. 
whether these products are "not similarly taxed." 
(ii) Arguments of the parties 
7.140  The complainants assert that the tax differen tial applied to domestic and imported distilled 
spirits is "enormous"
560, with imported spirits being charged a pproximately 10 to 40 times the excise 
tax applied to directly competitive or substituta ble domestic products.  They submit that such a 
differential is much greater than the ta x differentials found to be more than de minimis  in previous 
similar disputes.  Consequently, they argue that the imported and domestic distilled spirits at issue are 
"not similarly taxed" within the meani ng of the second sentence of Article III:2.561 
7.141  The Philippines responds that, even if the distille d spirits at issue were  considered to be 
directly competitive or substitutable, any differen ce between the excise tax applied to them will only 
be de minimis  and, as a consequence, permissible under the second sentence of Article III:2.562  The 
Philippines argues that, in order to assess whether the taxation at issue is de minimis , the appropriate 
comparison is not between the nominal tax rates  applied to distilled spirits made from designated raw 
materials and those made from other raw materials, but rather between the relative tax burdens  of 
those products.563  The Philippines further elaborates on this view by articulating what it believes to 
be the correct " de minimis  test" under the second sentence of Article III:2, as follows: 
"[T]he concept of de minimis for the purposes of Article III:2, second sentence, is 
defined by the extent to which the tax burden affects the competition of products in the market in question.  If the taxation rate has little or no impact on consumer 
choice, it will be deemed to be de minimis ."
564 
7.142  Applying the above standard to the facts of this case and borrowing from its previous 
arguments made under the first el ement of the Article III:2 second sentence analysis, the Philippines 
asserts that the evidence indicates th at the average net retail price of distilled spirits made from raw 
materials other than those designated in the Philippines legislation is such that "the vast majority of 
consumers will not be able to afford these products ", irrespective of the amount of excise tax applied 
to them.565 
                                                      
560 European Union's second written submission, para. 129. 
561 European Union's first written submission, paras. 105, 158-165 and 170;  European Union's opening 
statement at first substantive meeting, paras. 81 and 83;  European Union's response to Panel question No. 56, 
para. 86;  European Union's second written submission, para. 129;  European Union's opening statement at 
second substantive meeting, para. 75; United States' first written submission, paras. 67-70, 73 and 79;  United 
States' opening statement at first substantive meeting, paras. 43-46;  United States' response to Panel question 
Nos. 56, paras 56-57, and 57, para. 60;  United States' second written submission, para. 56;  United States' 
opening statement at second substantive meeting, para. 48 .  See also Australia's third party written submission, 
para. 42, and Australia's response to Panel question No. 5. 
562 Philippines' first written submission, para. 286. 
563 Ibid., paras. 287 and 309.  See also Australia's  response to Panel question No. 5;  and India's 
response to Panel question No. 5. 
564 Philippines' first written submission, para. 289;  Philippines' opening statement at first substantive 
meeting, para. 33;  Philippines' sec ond written submission, paras. 77-79.  See also India's response to Panel 
question No. 4. 
565 Philippines' first written submission, paras. 286 a nd  289, referring to Euromonitor International, 
"Consumer perceptions regarding substitutability in the Ph ilippines distilled spirits market", in exhibits EU-41 
and US-41, and to Abrenica & Ducanes, "On Substituta bility between Imported and Local Distilled Spirits" 
(University of Philippines School of Economics Foundation) , in exhibit PH-49).  See also Philippines' opening  WT/DS396/R 
 WT/DS403/R 
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  7.143  The Philippines also claims that the difference in the relative tax burden  imposed on distilled 
spirits produced from designated raw materials as compared to that imposed on distilled spirits 
produced from other raw materials is a "minor differen ce, particularly in light of the significant price 
differences between non-sugar-b ased and sugar-based spirits".566  In support of its contention that the 
difference in the relative tax burden  is "minor", the Philippines estimates that the "average tax 
burden" on distilled spirits produced from designate d raw materials and that on distilled spirits 
produced from other raw materials, as provided by a sample of spirits in Republic Act 8240, would be 
13 per cent and 22 per cent, respectively.  The Ph ilippines asserts that this "difference of only 
9 percentage points" is "certainly not the degree of  higher taxation found to exist" in previous similar 
cases.567 
7.144  Finally, because in the Philippines' view de minimis  taxation is to be ascertained in light of 
the facts of each case, it asks the Panel to take in to consideration the particularities of the Philippine 
domestic market (composed mostly of low income c onsumers).  The Philippines also asks the Panel to 
take into consideration the mandate enshrined in  the Philippine Constitutio n requiring a "progressive 
system of taxation", which, in the case of the exci se tax on distilled spirits, is aimed at taxing those 
who can afford "luxury goods" more than those who cannot.568 
7.145  Based on the foregoing considerations, the Phili ppines claims that because the excise tax at 
issue "has no effect in the [Philippine] mark et" it results in a tax burden that is only de minimis .569  
Consequently, directly competitive and substituta ble imported and domestic distilled spirits are 
"similarly taxed" and the excise tax at i ssue is permissible under the second sentence of 
Article III:2.570 
7.146  The complainants disagree that this is the appropr iate standard applicable to an analysis under 
the second sentence of Article III:2. 
7.147  The United States argues that the correct approach  in this case should focus on the "size of the 
tax differential" betwee n the products at issue.571  In its view, the Philippines' approach is akin to a 
"trade effects" test.  Requiring that a measure must affect trade and consumer' choices for it to meet 
the more than de minimis requirement is, therefore, incorrect.  Such an approach would read 
Article III:2 backwards by requiring one to look first at  the trade effects before ascertaining if there is 
a difference in tax treatment.  Further, the United States argues that the standard advanced by the 
Philippines "could lead to extreme results" as it could allow a Member to have an explicitly 
discriminatory measure as long as this measure was put in place "before there was significant import 
penetration" in that market.572 
                                                                                                                                                                     
statement at first substantive meeti ng, para. 34;  Philippines' opening stat ement at second substantive meeting, 
para. 6(c). 
566 Philippines' first written submission, para. 290. 
567 Ibid., paras. 290-291;  Philippines' opening statement at first substantive meeting, para. 33. 
568 Philippines' first written submission, para. 291.  S ee also the Philippines' opening statement at first 
substantive meeting, para. 33. 
569 Philippines' first written submission, paras. 16 and 289. 
570 Ibid., paras. 286 and 290. 
571 United States' response to Panel question No. 56, para. 56. 
572 Ibid., paras. 56-59;  United States' opening statement at second substantive meeting, paras. 45-49.  
The complainants also argu e that, in any event, they have alread y demonstrated that eliminating the tax 
difference would indeed affect the market  and that they have shown that the different tax rates at issue in this 
dispute have resulted in a "dramatic impact" on products that are "clearly competing in the Filipino market".  
European Union's response to Panel question No. 56, para. 86.  See also United States' opening statement at first 
substantive meeting, para. 47. WT/DS396/R 
WT/DS403/R Page 86 
 
 
  7.148  The European Union asserts that a de minimis  tax differential is one that is so small that it is 
"negligible" from the perspective of  both the consumers and producers.
573  Noting that the Appellate 
Body has not developed a specific list of criteria for analysing whether a given level of tax differential 
is more than de minimis , the European Union submits that a pa nel facing such a question could look at 
the following elements:  (i) the actual impact of the tax on the final price of the products;  (ii) the 
degree of proximity and similarity of the products;  and (iii) the degree of competition in the market 
and the relative strength of the companies produci ng the goods which are subject to different taxes.574 
7.149  The complainants also claim that comparing the average tax burdens of all imported spirits 
with the average tax burden of all domestic products is not appropri ate.  The United States considers 
that such an approach would "mask [the] tax discrimination among the same types of spirits."575  The 
European Union argues that the Philippines' approach is particularly problematic because the averages 
used are based on a very restricted sample of products.576  The European Union further states that 
because under the second sentence of Article III:2 it  is unnecessary to find that all imported and 
domestic products are similar, it follows that using average prices or average tax burdens is "quite 
irrelevant" to assess the claims in this dispute.577  The European Union claims that instead of looking 
at the "average" tax burdens, the Panel should look at the "actual" tax burdens on the competing 
products at issue.578  The United States further asserts that ev en if one were to accept the Philippines' 
own averaged numbers, they would still show that  the average excise tax applied to imported 
distilled spirits is "almost double" the average ex cise tax applied to dom estic distilled spirits.579 
(iii) Consideration by the Panel 
7.150  We start by recalling that in Chile – Alcoholic Beverages , developing its reasoning on this 
issue, the Appellate Body explained: 
"In  Japan – Alcoholic Beverages , we stated that 'to be "not similarly taxed", the tax 
burden on imported products must be heav ier than on "directly competitive or 
substitutable" domestic products, and that burden must be more than de minimis  in 
any given case.'  (...) we consider that this  is the appropriate le gal standard to apply 
under the second issue of 'not similarly taxed'.  We must, therefore, assess the relative 
tax burden imposed on directly competitive or substitutable domestic and imported 
products."580 
7.151  We will follow the Appellate Body's guidance mindf ul that a determination of what is or is 
not more than de minimis  can only be made on a case-by-case basis.581 
                                                      
573 European Union's response to Panel question No. 56, paras. 89, 90 and 94. 
574 European Union's response to Panel question No. 56, paras. 88, 91-93.  See also Australia's response 
to Panel question No. 4. 
575 United States' response to Panel question No. 57, para. 64. 
576 European Union's opening statement at first substantive meeting, para. 82.  See also United States' 
response to Panel question No. 57, paras. 62-64; European  Union's response to Panel question No. 57, paras. 95-
97; European Union's second written submission, para. 131. 
577 European Union's response to Panel question Nos. 57, paras. 96-97, and 92, paras. 51-53. 
578 European Union's opening statement at first substantive meeting, para. 82. 
579 United States' response to Panel question No. 57, para. 61. 
580 Appellate Body Report, Chile – Alcoholic Beverages , para. 49 (footnotes omitted) (citing the 
Appellate Body Report, Japan – Alcoholic Beverages II , DSR 1996:1, p. 97, at p. 119). 
581 Appellate Body Report, Japan – Alcoholic Beverages II , DSR 1996:1, p. 97, at p. 119.  See also the 
European Union's first written submission, para. 158 and European Union's response to Panel question No. 57, 
para. 95.  See further Australia's third party written submission, para. 41.  WT/DS396/R 
 WT/DS403/R 
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  7.152  We note that the Philippines relies on th e following passage from the panel report on 
Chile - Alcoholic Beverages  to support its interpretation of the de minimis  test: 
"In our view this means that panels should look at the particular market in question 
and the products themselves.  That is, ther e is no set level of tax differential which 
can be considered de minimis  in all cases.  This follows from the Appellate Body's 
observation that with respect to 'like pr oducts' the similarities between the products 
are so strong that it can be presumed that any differential in taxation will have an 
impact on the market.  However, when products are somewhat different, but are still 
directly competitive or substitutable, then de minimis  differences in taxation are 
permissible because it is not necessarily true that small differences in tax levels will have an effect in the market."
582   
7.153  We agree with the above statement by the panel in Chile – Alcoholic Beverages .  We note, 
however, that the differences in tax levels which, in  that panel's view, would not necessarily have an 
effect in the market were only those considered to be "small".  This is in line with the accepted 
meaning of the term de minimis , which is a "legal term describing that something is of little or no 
importance in the matter concerned."583  This is also how the term has been used by the Appellate 
Body.  Further, we note that in previous similar disputes significantly smaller tax differentials than 
those in the present case were nevertheless consid ered sufficient to support a finding of dissimilar 
taxation.584 
7.154  As we have already indicated above, all distille d spirits produced in the Philippines are made 
from the raw materials designated in the legi slation and thus subject to the current Section 141(a)  flat 
tax rate of PHP 14.68 ppl.  In contrast, the vast majority585 of distilled spirits imported into the 
Philippines are made from other raw materials and are t hus subject to one of th e three current tax rates 
under Section 141(b) :  PHP 158.73 ppl,  PHP 317.44 ppl or PHP 634.90 ppl, depending on their 
NRP.586  This results in imported distilled spirits bei ng subject to approximately  10, 20 or 40 times the 
excise tax applied to directly competitive or substituta ble domestic spirits.  We consider therefore that 
we are not presented here with "small differences  in tax levels" but rather, with large ones.587 
                                                      
582 Panel Report, Chile – Alcoholic Beverages , para. 7.90.  See also Philippines' first written 
submission, para. 288;  Philippines' second written submission, para. 77. 
583 Dictionary of Trade Policy Terms , W. Goode, CICS/WTO, fifth edition, 2007, p. 121 (emphasis 
added).  The term de minimis  comes from the Latin maxim " de minimis non curat lex ", which means "the law 
does not care for, or take notice of, very small  or trifling  matters." ( Black's Law Dictionary , abridged sixth 
edition, 1991, p. 297 – emphasis added).  See also The Shorter Oxford English Dictionary, sixth edition,  2007, 
Volume 1 (A-M), p. 640 (defining de minimis  as"[t]oo minor or trivial to merit consideration by the law.").  See 
further European Union's response to Panel question No. 56, para. 89. 
584 In Japan – Alcoholic Beverages II , the tax differential that was considered more than de minimis  
ranged from 1.3 to 9.6 times;  in Korea – Alcoholic Beverages , the tax differential that was considered more 
than de minimis  ranged from 1.4 to 2.8 times;  and in Chile – Alcoholic Beverages , the tax differential that was 
considered more than de minimis  was an overall differential of 1.75 times between the lowest ad valorem  rate 
(27 per cent) and the highest (47 per cent).  Further, in Chile – Alcoholic Beverages , even the incremental 
4 percentage point difference between each of the tax sub-categories of the New Chilean System, ranging from 
the 27 per cent and 47 per cent ad valorem  rates, was considered per se  as more than de minimis . 
585 As indicated in paras. 2.37 and 2.74 above,  some imported distilled spirits produced from 
designated raw materials (rums) are subj ect to the lower flat tax rate under Section 141(a) .  These imports 
represent less than 0.1 per cent of total imported distilled spirits.  See exhibits EU-15, pp. 7 and 57 and US-15, 
pp. 7 and 57. 
586 See para. 2.17 above. 
587 See also para. 7.140 above.  We further note that a similar magnitude of tax differential can be seen 
when looking at the actual amount of excise tax that is currently levied on certain imported and domestic WT/DS396/R 
WT/DS403/R Page 88 
 
 
  7.155  The Philippines does not contest that the nominal tax differential identified above is large.  
The Philippines argues instead that under the second sen tence of Article III:2, the dissimilar taxation 
must be assessed not in absolute but rather in re lative terms, i.e. based on the relative tax burden 
applied to the products at issue.  The Philippines calculates a relative tax burden by dividing the NRP 
of the distilled spirits brands listed in the a nnexes of Republic Act 8240 by the amount of the tax 
applicable to each of those brands.  It then aver ages the resulting relative tax burdens of each brand 
classified under Section 141(a)  and each brand classified under Section 141(b).  The result, claims the 
Philippines, is an average  tax burden of 13 per cent for distilled spirits made from 
designated raw materials and an average  tax burden of 22 per cent for distilled spirits made from 
other raw materials.  The Philippines argues that the 9 percentage point difference between these 
average tax burdens is "minor" and, thus, a de minimis one. 
7.156  We stated above that we would follow the Appellate Body's guidance that a finding of 
dissimilar taxation under the second sentence of Article III:2 would include an assessment whether the tax burden on imported products is "heavier" th an on the domestic products, and whether such 
burden is "more than  de minimis  in any given case."  We understand that the Appellate Body 
considered that in making such an analysis, a panel ipso facto  would be undertaking an assessment of 
the "relative tax burden" imposed on these products. 
7.157  We have already concluded that, in nominal  terms, the tax differential applicable to the vast 
majority of imported distilled spirits is larger (and,  thus, imposes a "heavier" burden) than that 
applicable to all domestic directly competitive or su bstitutable distilled spirits.  Therefore, from this 
perspective, we consider that such differential is more than de minimis  within the meaning of 
Article III:2 of the GATT. 
7.158  We further believe that, in relative  terms, the tax burdens of the products at issue are also 
more than de minimis . 
7.159  We recall again that, given the structure of the Philippine excise tax system, all domestic 
spirits are subject to a specific tax, whereas the vast  majority of imported spirits is subject to an 
ad valorem  tax.  This means that no matter what the NRP of domestic distilled spirits are, these 
products will always pay a flat rate tax of PH P 14.68 ppl.  As a result, the more expensive a 
domestic distilled spirit is, the lower the relative tax bur den of that spirit.  Even if we were to agree 
with the Philippines' description of its market  as segmented, this would mean that the 
domestic distilled spirits that are in greater competition with most imported products enjoy the lowest 
tax burden under Section 141 (a) . 
7.160  The evidence before us shows that, as applie d to specific imported and domestic brands of 
distilled spirits, the Philippine excise tax results in differences of relative tax burdens that are 
significantly more than de minimis .
588  The table below illustrates this very clearly:589  
                                                                                                                                                                     
brands.  As indicated above in footnote 61 to para. 2.17 , the current amount of excise  tax applicable to certain 
brands of "local distilled spirits" made from designated raw materials in 750 ml bottles can range from PHP 6.86 
to PHP 9.98.  Conversely, the current amount of excise tax applicable to certain brands of "imported distilled 
spirits" made from other raw materials in 750 ml bottles can range from PHP 85.71 to a maximum of 
PHP 409.51.  This corresponds to an actual tax differen tial of between 12 and 40 times for comparable spirits. 
588 See also United States' opening statement at firs t substantive meeting, para. 47 and United States' 
response to Panel question No. 57, paras. 62-63 (comparing the average tax burden of 9 imported and 14 
domestic spirits using information from the Abrenica and Ducanes Report (Exhibit PH-49), and claiming that 
such data reveal that the highest ta x burden faced by an imported spirit in the sample is almost 62 per cent ( Jack 
Daniel’s Tennessee Sour Mash Whiskey ), while the highest tax burden faced by a domestic spirit in the sample 
was 18 per cent ( Tanduay Rhum ESQ ).  See further the United States' second written submission, para. 54;  WT/DS396/R 
 WT/DS403/R 
 Page 89 
 
 
  Brand/Origin Type of spirit Volume 
bottle Relative tax burden 
(NRP/tax) 
Bombay Sapphire  (imported) gin  750 ml  33 per cent 
Ginebra Especial  (domestic) gin  750 ml  19 per cent 
Alfonso I  (imported)  brandy  700 ml  45 per cent  
Maximo  (domestic)  brandy  700 ml  27 per cent 
Stolichnaya  (imported)  vodka  1,000 ml   47 per cent  
Gilbey's 1857  (domestic)  vodka  1,000 ml   7 per cent  
Benmore Blended  (imported)  whisky  700 ml  108 per cent  
White Castle 5 Years  (domestic)  whisky  700 ml  6 per cent 
José Cuervo Gold  (imported)  tequila  700 ml  35 per cent  
El Hombre Gold  (domestic)  tequila-flavoured  700 ml  3.5 per cent 
 
7.161  It is clear therefore that the relative tax burdens imposed on imported and domestic 
distilled spirits, when calculated as a ratio of their st atutory NRP and the applicable tax rate, reveal tax 
differentials that are significantly more than de minimis . 
7.162  We now turn to the "averaging" approach a dvanced by the Philippines.  We recall the 
statement of the panel in Chile – Alcoholic Beverages  that for a finding of dissimilar taxation, "it is 
sufficient to find that certain  of the imports are taxed dissimilarly compared to certain  of the domestic 
substitutable products."590  Thus, there is no need to find that all domestic and im ported products are 
dissimilarly taxed.591  For the same reason, the fact that under the Philippine excise tax some brands 
of imported distilled spirits (specifica lly, some brands of imported rum592) are similarly taxed is 
irrelevant to the present analysis.   
7.163  Furthermore, if the "averaging" approach propo sed by the Philippines were to be used, it 
could result in a situation where the dissimilar taxa tion imposed on certain groups of products would 
be compensated or diluted when comp ared to the tax treatme nt received by other groups of products.   
7.164  For the foregoing reasons, we consider that the "averaging" of re lative tax burdens, as 
proposed by the Philippines, is not the appropriate standard applicable to an analysis under the second 
sentence of Article III:2. 
7.165  Even assuming that a de minimis analysis could be based on a comparison of average relative 
tax burdens of imported and domestic products, and accepting arguendo  the figures proposed by the 
                                                                                                                                                                     
European Union's first written submission, para. 164;  European Union's opening statement at first substantive 
meeting, paras. 43-46;  European Union's response to Panel question No. 56, para. 86. 
589 The examples correspond to some important domestic and imported distilled spirits sold in the 
Philippines, as listed above in the tables in paras. 2.59-2.60 (for gins);  2.66-2.67 (for brandies);  2.78-2.79 (for 
vodkas);  2.84-2.85] (for whiskies);  and 2.90-2.91 (for tequila and tequila-favoured spirits).  See also exhibit 
PH-77 (which uses the 2 009 excise tax rates). 
590 Panel Report, Chile – Alcoholic Beverages , para. 7.97 (emphasis added) (also citing the Appellate 
Body Report, Canada – Periodicals , DSR 1997:1, p. 449, at p. 474 and the Panel Report, Korea – Alcoholic 
Beverages , para. 10.100 (fn. 412)).  S ee also the European Union's first written submission, para. 177. 
591 Further, as stated by the Appellate Body in Japan – Alcoholic Beverages , the tax differential must 
be more than de minimis  "in any given case."  Appellate Body Report, Japan – Alcoholic Beverages II , 
DSR 1996:1, p. 97, at p. 11. 
592 See footnote 585 to para.7.154 above. WT/DS396/R 
WT/DS403/R Page 90 
 
 
  Philippines, the tax differential would still be more than de minimis .  The Philippines claims that the 
9 percentage point difference between these averages is  "minor".  However, an average tax burden of 
22 per cent imposed on imported distilled spirits made  from other raw materials is almost 70 per cent 
more that an average tax burden of 13 per cent im posed on domestic spirits made from designated raw 
materials.  We note that in Chile – Alcoholic Beverages , an incremental 4 percentage point difference 
between the tax sub-categories of the Chilean tax system was considered per se  t o  b e  m o r e  t h a n  
de minimis .
593 
7.166  Finally, the Philippines argues that the tax differential is de minimis  because imported and 
domestic distilled spirits do not compete against each  other in the Philippine market, given that the 
average domestic consumer cannot afford imports with or without taxes, so that the "taxation rate has 
little or no impact on consumer choi ce".  This however is a question that more properly falls under the 
first issue under Article III:2, second sentence; i. e. whether the products at issue are directly 
competitive or substitutable. 
7.167  For all the foregoing reasons, we find that unde r the Philippine excise tax imported distilled 
spirits and directly competitive or substitutable domes tic distilled spirits are not similarly taxed within 
the meaning of the second sentence of Article III:2 of the GATT 1994. 
(c) "So as to afford protection to domestic production" 
(i) Introduction 
7.168  Now that we have found that the domestic and imported products at issue are "not similarly 
taxed", we continue our inquiry into the third and final question under the second sentence of 
Article III:2, i.e. whether such dissimilar taxation is being applied "so as to afford protection" to 
Philippine domestic produc tion of distilled spirits. 
(ii) Arguments of the parties 
7.169  The complainants argue that the following fact s and circumstances regarding the structure, 
overall application and aim of the excise tax at issu e demonstrate that such measure is applied "so as 
to afford protection" to the Philippine production of distilled spirits. 
7.170  First, the magnitude of the tax differential a pplied to domestic and imported spirits is such 
that it alone would support the claim that the ex cise tax is applied "so as to afford protection".594 
7.171  Second, the structure  of the excise tax reveals that it has been designed to favour the domestic 
distilled spirits industry, as indicated by the following elements:  (i) the "lack of rationality" of the product differentiation used by the measure, as there is no "objective reason" for applying a lower rate 
to distilled spirits made from a certain set of raw materials (all grown in the Philippines) and much 
higher rates to spirits made from other raw materials (all grown outside the Philippines)
595;  (ii) the 
                                                      
593 See footnote 584 to para. 7.153 above. 
594 European Union's first written submission, paras. 167-170;  United States' first written submission, 
paras. 72-75; United States' opening statement at first substantive meeting, paras. 46-47; United States' second 
written submission, para. 15;  United States' comments on the Philippines' response to Panel question 
Nos. 68-69, para. 7. 
595 European Union's first written submission, paras. 171-173.  See also United States' opening 
statement at second substantive meeting, para. 25.  The complainants also claim that the Philippine excise tax, 
based on the type of raw material rather than on pri ce or alcoholic content of the distilled spirits, is neither 
necessary to attain nor capable of attaining the objectives enshrined in the Philippine Constitution of having a 
uniform, equitable and progressive tax system.  The complainants further note in this regard that the Philippines  WT/DS396/R 
 WT/DS403/R 
 Page 91 
 
 
  fact that the measure is de facto  discriminatory (although it is, in principle, origin-neutral) with 
respect to imported products.  This is so because mo st (if not all) domestic distilled spirits are made 
from designated raw materials, thus benefiting from the lower flat tax rate, while the vast majority of 
imported distilled spirits, which are not made from t hose designated raw materials, are subject to one 
of the three higher tax rates596;  and (iii) the additional requirement that distilled spirits made from 
designated raw materials must come from countries where these materials are "produced 
commercially", which further reduces the scope of  application of the lower tax rate under the 
measure.597  The European Union adds th at the "protectionist application" of the measure is also 
evidenced by the fact that  even some imported rums produced from  the designated raw materials (like 
Malibu Caribbean White Rum with Coco , Malibu Rum , Havana Club Anejo Reserva , Lemon Heart 
Jamaica Rhum , Lemon Heart White Rhum , Myers's Rhum  and Myers's Rhum Planters Punch ) are 
subject to the same higher rates applicable to distilled spirits made from other raw materials.598 
7.172  Finally, as some Philippine authorities were "aware" of the WTO incompatibility of the 
measures599 as well as that some domestic legislati on distinguishes between domestic ("local") and 
imported products600, these constitute further evidence of the protective application of the measure. 
                                                                                                                                                                     
has not invoked any defence under Article XX of the GATT 1994.  European Union's opening statement at first 
substantive meeting, paras. 90-95;  European Union's response to Panel question No. 16, para. 5;  
European Union's second written submission, paras. 117-126;  European Union's opening statement at second 
substantive meeting, paras. 71-72;  United States' second written submission, paras. 38-45; United States' 
opening statement at second substantive meeting, paras. 3-5 and 23-27. 
596 European Union's first written submission, paras. 174-175;  European Union's opening statement at 
first substantive meeting, paras. 85-86; European Union's second writte n submission, paras. 7 and 13;  
European Union's opening statement at second substantive meeting, para. 76;  European Union's closing 
statement at second substantive meeting, para. 3;  United States' first written submission, para. 76 and 78;  
United States' second written submission, para. 16. 
597 European Union's first written submission, paras. 14-17;  European Union's opening statement at 
second substantive meeting, paras. 64-70; European Union's comments on the Philippines' response to Panel 
question No. 68, paras. 4-9, United States' first writte n submission, para. 77;  United States' second written 
submission, para. 47;  United States' opening statement at second substantive meeting, paras. 12-13. 
598 European Union's first written submission, paras. 176-177 and footnotes 195-197 (citing the Panel 
Report, Chile – Alcoholic Beverages , footnote 438).  See also European Union's second written submission, 
paras. 9-13 and 111-116;  European Union's opening statement at first substantive meeting, paras. 87-89;  
European Union's comments on the Philippines' response to Panel question No. 67, para. 2;  United States' 
second written submission, paras. 48-49. 
599 European Union's first written submission, para. 178-185.  The European Union submits the 
following evidence in this regard:  December 2004 Statement of  Senator Ralph G. Recto , sponsor of Republic 
Act 9334 (which constitutes one of the instruments containi ng the measure at issue), explaining that under the 
bill that later became this legislation, while local spir its would enjoy lower taxes, imported spirits would face 
"much higher" ones; and also stating that the separate provision providing for a lower tax rate for spirits made 
from designated raw materials should be maintained as it " ... would be to the interest of the nation if we protect 
our local manufacturers" (Exhibit EU-74, at p. 30);  September 2007 Statement of the President of the Filipino 
Senate , Mr. Enrile, before the Ways and Means Committ ee of the country's House of Representatives, 
explaining that the purpose of subjecting spirits made from designated raw materials to a lower tax rate was "to 
protect the domestic people" (exhibit EU-77);  December 2007 Letter from the Philippines Department of 
Finance  to the Spanish ambassador to the Philippines, ackno wledging that the current ex cise tax system needed 
to be reformed so as "to make it consistent with the [Philippines'] commitments under the WTO agreement;" 
(exhibit EU-75); March 2009 Letter from the Philippines Department of Finance  to the " Consejo Regulador del 
Brandy de Jerez ", acknowledging that the current excise tax sy stem disfavours imported spirits made from raw 
materials other than indigenous ones (exhibit EU-76);  May 2009 Letter from the Philippines Department of 
Trade and Industry  to the Chairman of the Ways and Me ans Committee of the country's House of 
Representatives, supporting an amendment of Republic Act 9334 (one of the instruments containing the 
measure at issue) because it is "inc onsistent with GATT 1994 as it give s preferential treatment to domestic WT/DS396/R 
WT/DS403/R Page 92 
 
 
  7.173  The Philippines responds that the excise tax is not  applied "so as to afford protection" for the 
following reasons. 
7.174  First, because the magnitude of the tax differen tials applied to domestic  and imported distilled 
spirits is de minimis .
601 
7.175  Second, because the structure of the excise tax do es not indicate any protectionist intent.   The 
Philippines contends that its measure does not "lac k rationality" as it is "rooted in the historical 
association between liquor made from the designated raw materials and the average Filipino", who is 
a low income person.  Subjecting these consumers of mostly cane sugar-based spirits to a tax burden 
lower than that for the most affluent consumers of spirits made from other raw materials is not only a 
"legitimate tax policy" but also one that is mandated by the Philippine Constitution.602  Additionally, 
the fact that none of the raw materials indicated in the measure is grown exclusively in the 
Philippines, and are instead found all over the world, means that the lower tax rate is accessible to any 
country.  The Philippines argues that this demonstrat es that its excise tax is origin-neutral and does 
not discriminate, even on a de facto  basis.603  The Philippines also argues that the 
"produced commercially" requirement in the measure is not discriminatory as the distilled spirits of 
any country can be entitled to the lower rate of Section 141(a)  when they are made with ethyl alcohol 
from a designated raw material producing country.604  The Philippines further asserts that with regard 
to any instance in which imported distilled spirits  made from designated raw materials (like in the 
case of Malibu  rum and other imported rums) were classified as under the provision providing for 
higher taxes (i.e. Section 141(b) ), such a classification is ille gal and thus "null and void."605 
7.176  Third, the purpose of Article III:2 is  "the protection of competitive opportunities."  The 
Philippines argues that, given the low purchasing power  of the vast majority of the Philippine 
population as well as the pre-tax pr ice differences between  imported and domestic distilled spirits, it 
follows that the measure "is unable to impact on competitive conditions" an d thus cannot violate 
Article III:2.606 
                                                                                                                                                                     
products produced from indigenous or locally sourced raw materials." (exhibit EU-11).  See also 
European Union's first written submission, paras. 22-23 (ref erring to statements made in the context of certain 
draft bills proposed at the Philippine Parliament to chan ge the current excise tax system for distilled spirits – 
exhibits EU-11, EU-12, EU-13 and EU-14); European Union's response to Panel question No. 61, paras. 99-104;  
United States' response to Panel question No. 61, paras. 65-67. 
600 European Union's first written submission, para s. 186-189.  The European Union refers to 
Revenue Regulation 2-97 (exhibits EU-4 and US-4), pointing out the fact that Table A-1 of that legislation, 
which lists certain brands classified under the lower ta x rate for designated raw material spirits, is entitled 
"Local Distilled Spirits Brands Produced  From Sap of Nipa, Coconut etc. covered by Section 138(b)."  See also 
United States' first written submission, paras. 24-26. 
601 Philippines' first written submission, para. 309. 
602 Ibid., paras. 1-5, 7, 26, 31-32 and 296;  Philippines' opening statement at first substantive meeting, 
paras. 46-47;  Philippines' closing statement at first substantive meeting, paras. 2-4; Philippines' response to 
Panel question Nos. 62 and 63;  Philippines' second writte n submission, para. 1;  Philippines' opening statement 
at second substantive meeting, para. 3;  Philippines' closing statement at second substantive meeting, para. 7. 
603 Philippines' first written submission, paras. 8-9, 24 -26, 29, 297-302;  Philippines' opening statement 
at first substantive meeting, paras. 37-38;  Philippines'  second written submission, paras. 80-82;  Philippines' 
opening statement at second substantive meeting, para. 4. 
604 Philippines' response to Panel question No. 68(c). 
605 Philippines' first written submission, paras. 172-174,  303;  Philippines' opening statement at second 
substantive meeting, para. 37. 
606 Philippines' first written submission, paras. 310- 314;  Philippines' opening statement at first 
substantive meeting, para. 40;  Philippines' opening statement at second substantive meeting, para. 39.  WT/DS396/R 
 WT/DS403/R 
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  7.177  Fourth, the statements from some government offi cials are irrelevant as those statements are 
simply the personal opinions of such individuals, who are not experts in WTO law.  The Philippines 
contends that none of the statements reflects the o fficial position of the government, which is reflected 
in the Philippines' submissions in this dispute.607 
7.178  Finally, the use of the term "local" in Revenue Regulation 2-97 does not demonstrate the 
existence of an intentional legal distinction between  domestic and imported products as the use of this 
term in Annexes A-1 and A-2 of the regulation was merely a "technical error".  The Philippines considers that, in any case, the tables contained in  this and other Philippines regulations are just 
"illustrative" in nature and serve "an administrativ e purpose only:  to provide a clear and transparent 
description of how the excise tax will be calculate d and applied to those existing brands" listed 
therein.
608 
(iii) Consideration by the Panel 
7.179  We start by recalling that, as explained by the Appellate Body: 
"[A]n examination in any case of whether di ssimilar taxation has been applied so as 
to afford protection requires a comprehensiv e and objective analysis of the structure 
and application of the measure in question on domestic as compared to imported products.  We believe it is possible to examine objectively the underlying criteria used in a particular tax measure, its struct ure, and its overall application to ascertain 
whether it is applied in a way that affords protection to domestic products. 
Although it is true that the aim of a measure may not be easily ascertained, 
nevertheless its protective application can most often be discerned from the design, the architecture, and the revealing structure of a measure."
609 
7.180  Therefore, whether the dissimilar taxation afford s protection is not a question of intent or 
aim610, but rather one of the protective application  of the measure.611  This means that we should 
ascertain the protective application of the Philippine excise tax by examining its design, architecture, 
and revealing structure.612  The Appellate Body has explained that in some cases the dissimilar 
taxation may be so much more than de minimis  that "it will be clear from that very differential that the 
dissimilar taxation was applied 's o as to afford protection'."613  In such cases, such differential "may be 
                                                      
607 Philippines' first written submission, para. 308.  See also Philippines' response to Panel question 
No. 61;  exhibit PH-65. 
608 Philippines' first written submission, paras. 304-307. 
609 Appellate Body Report, Japan – Alcoholic Beverages II , p. 29, DSR 1996:I, p. 97, at p. 120. 
610 See ibid., p. 27, DSR 1996:I, 97, at p 119. 
611 See ibid., p. 29, DSR 1996:I, 97, at p. 120. 
612 This does not mean however that we cannot ta ke into consideration any other elements when 
considering this final question under the second sentence of Article III:2, if not to ascertain, at least to confirm 
the protective application of  a measure.  See, e.g., Appellate Body Report on Canada – Periodicals , pp. 31-32 
DSR 1997:I, 449, p. 475-476 (finding that statements made by public officials that the very design of the 
measure in question was to afford protection to domestic industry were probative);  Appellate Body Report, 
Chile – Alcoholic Beverages , para. 62  (considering that the "statutory purposes of objectives – that is, the 
purpose or objectives of a Member's legislature and gover nment as a whole – to the extent that they are given 
objective expression in the statute itsel f" are pertinent) and Panel Report on Mexico – Taxes on Soft Drinks , 
para. 8.91 (considering that "the declared intention of legislators and regulators of the Member adopting the 
measure should not be totally disregarded, particularly when the explicit objective of the measure is that of 
affording protection to domestic production."). 
613 Appellate Body Report, Japan – Alcoholic Beverages II , DSR 1996:1, p. 97, at p. 122. WT/DS396/R 
WT/DS403/R Page 94 
 
 
  enough to show a violation."
614  The Appellate Body also stated, however, that in "other cases, there 
may be other factors that will be just as relevant or more relevant to demonstrating that the dissimilar 
taxation at issue was applied 'so as to afford protection.'"615 
7.181  We now turn to the facts and arguments before us. 
7.182  Concerning the design, architecture and structure of the measure, we recall that the excise tax 
at issue creates a system th at combines specific and ad valorem  taxes.  Under this system, distilled 
spirits produced from certain designated raw materials (i.e. the sap of the nipa, coconut, cassava, 
camote , or buri palm, or from juice, syrup or sugar of the cane) are subject to a low flat tax rate of 
PHP 14.68 ppl.  In contrast, distilled spirits produc ed from raw materials other than those designated 
in the measure are subject to taxes that can vary between PHP 158.73 ppl to PHP 634.90 ppl, depending on their NRP.  All designated raw materials are grown in the Philippines
616 and all 
domestic distilled spirits are produ ced from designated raw materials.617  Conversely, the 
vast majority of imported distilled spirits are not made from designated raw materials.  This means 
that de facto  the measure results in all domestic distilled spirits enjoying the favourable low tax, while 
the vast majority of the imported spirits are subject to higher taxes.618 
7.183  As we have concluded at para graph 7.154, under the Philippine excise tax, the vast majority 
of imported distilled spirits is subject to taxes that are, in nominal terms, approximately 10 to 40 times 
that applicable to all domestic spirits.  This resu lts in a dissimilar level of  taxation between imported 
and domestic distilled spirits that is nominally large.619 
                                                      
614 Ibid.  See also Appellate Body Report, Canada – Periodicals , DSR 1997:1, p. 449, at pp. 475-476 
(considering that the design and structure of the measure, including the magnitude of the differential taxation, 
demonstrated that the measure was applied so as to af ford protection to domestic production);  Appellate Body 
Report, Korea – Alcoholic Beverages , para. 150 (upholding the panel's finding that the magnitude of the tax 
difference alone was sufficient to show the protective nature of the measures, although the panel still went on to 
look at, and based its decision on, other factors);  Appellate Body Report, Chile – Alcoholic Beverages , para. 66 
(considering that since, among other factors, the magnitude of the tax difference was "considerable", it followed 
that "the application of dissimilar taxation of directly competitive or substitutable products will 'afford 
protection to domestic production.'");  and Panel Report, Mexico – Taxes on Soft Drinks , para. 8.87 (finding that 
the "magnitude of the tax differential between imported and domestic products, resulting from the application of 
the soft drink tax and the distribution tax, is additional evidence of the protective effect of the measure on 
Mexican domestic production of sugar."). 
615 Appellate Body Report, Japan – Alcoholic Beverages II , DSR 1996:1, p. 97, at p. 122. 
616 So Philippine distilled spirits producers always qualif y under the other requirement of the excise tax, 
i.e. that the "designated raw materials" be "produced co mmercially in the country where they are processed into 
distilled spirits".  This may not necessarily be the cas e of producers from other countries.  See above at 
para. 2.17.  In this regard, we recall that the measure ha s been challenged by the complainants "as such", so we 
consider that the very existence of this additional requ irement in the measure, regardless of how or whether it 
has been applied in practice, is per se  another indication of its protective nature. 
617 More specifically, all domestic distilled spirits use ethyl alcohol as a base for their production.  The 
ethyl alcohol can be either distilled from sugar cane molasses produced in the Philippines or imported from, and 
distilled in, countries where sugar cane molasses are "produced commercially." 
618 As indicated above in footnote 585 to para. 7.154, some, but not all, rums imported into the 
Philippines are subject to the lower flat tax rate under Section 141(a) .  We also recall that imported rums 
represent less than 0.1 per cent of total imported dis tilled spirits.  See also United States' second written 
submission, para. 49.  In any case, we consider that just because some few imported products are subject to the 
same tax treatment as domestic products cannot change the protective nature of the measure overall. 
619 We have also concluded above at paras. 7.158 and 7.161 that even in relative terms the dissimilar 
level of taxation between these products is significantly more than de minimis .  WT/DS396/R 
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  7.184  With regard to the statements of various Philippine government offi cials submitted by the 
complainants as evidence of the protective nature of the measure620, we bear in mind the Appellate 
Body's statement that it is not necessary "to sort  through the many reasons legislators and regulators 
often have for what they do and weigh the rela tive significance of those reasons to establish 
legislative or regulatory intent" for "it is irre levant that protectionism was not an intended 
objective."621  Therefore, we will not review the statem ents submitted by the complainants in the 
present dispute. 
7.185  Finally, we understand the Philippines to be arguing that the measure cannot violate 
Article III:2 because it "is unable to impact on competitive conditions" in the Philippine market given 
the low purchasing power of the vast majority of th e Philippine population as well as the pre-tax price 
differences between the imported and domestic distilled spir its at issue.  In this respect, we note that 
the Appellate Body dealt with a very si milar argument in a previous case.  In Korea – 
Alcoholic Beverages , Korea claimed that the panel erred in failing to take into consideration the 
argument that the pre-tax price differences between  diluted soju and impor ted alcoholic beverages 
were so large that the Korean tax could not affect the competitive relationship between these 
products.622  The Appellate Body stated that in making these arguments, Korea seemed "to be 
revisiting the question whether the products can be treated as directly competitive or substitutable."623  
The Appellate Body then added that: 
"... Korea overlooks the fact that the two products have already been found to be 
directly competitive or substitutable.  Its arguments are, therefore, misplaced at this 
stage of the analysis and do not cast doubt on the Panel's finding that the contested 
measures afford protection to domestic production. 
Korea also seems to be insisting that a fi nding that a measure affords protection must 
be supported by proof that the tax difference has some identifiable trade effect.  But, 
as we have said above, Article III is not concerned with trade volumes.  It is, 
therefore, not incumbent on a complaining party to prove that tax measures are 
capable of producing any particular trade effect." 624 
7.186  We dismiss the Philippines' arguments for th ese same reasons.  We have already decided 
above that the products at issue are directly comp etitive and substitutable a nd, like the Appellate Body 
in Korea – Alcoholic Beverages , we also consider that the Philippine's arguments "are, therefore, 
misplaced at this stage of the analysis and do not cast doubt on the Panel's finding that the contested measures afford protection to domestic production." 
7.187  In light of the foregoing considerations, we find that the design, architecture, and structure of 
the measure, including the magnitude of the tax differential applicable to  imported and domestic 
products, reveal the protective nature of the measure .  In conclusion, the dissimilar taxation imposed 
by the Philippine excise tax on imported distilled sp irits and on directly competitive or substitutable 
domestic spirits is applied "so as to afford prot ection" to Philippine domes tic production of distilled 
spirits. 
                                                      
620 See a full description of these statements in footnote 599 to para. 7.172 above. 
621 Appellate Body Report, Japan – Alcoholic Beverages II , p. 27, DSR 1996:I, 97, at p 119. 
622 Appellate Body Report, Korea – Alcoholic Beverages , para. 151. 
623 Ibid., para. 152. 
624 Ibid., paras. 152-153 (footnotes omitted). WT/DS396/R 
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  (d) Conclusions regarding the claim under the second sentence of Article III:2 of GATT 1994 
7.188  For the reasons stated above, we conclude that , through its excise tax, the Philippines applies 
dissimilar internal taxes on domestic distilled sp irits made from designated raw materials and to 
directly competitive or substitutable imported disti lled spirits made from other raw materials in a 
manner so as to afford protection to the Philippine domestic production of dis tilled spirits and is thus 
acting in a manner inconsistent with Artic le III:2, second sentence, of the GATT 1994. 
E. S
PECIAL AND DIFFERENTIAL TREATMENT  
7.189  Pursuant to Article 12.11 of the DSU: 
"[W]here one or more of the parties is a developing country Member, the panel's 
report shall explicitly indicate the form in which account has been taken of relevant 
provisions on differential and more-favour able treatment for developing country 
Members that form part of the covered ag reements which have been raised by the 
developing country Member in the cour se of the dispute settlement procedures." 
7.190  In addition, the DSU provides in Article 12.10 that: 
"[I]n examining a complaint against a de veloping country Member, the panel shall 
accord sufficient time for the developing c ountry Member to prepare and present its 
argumentation." 
7.191  During the proceedings, we took into account th e respondent's status as a developing country 
Member, particularly when preparing the timetable for the process after having heard the views of the parties. 
7.192  We have also noted that the Philippin es has stated that the present dispute: 
"[I]nvolves the right of a developing country WTO Member to impose a tax regime 
that is best suited to achieve the fiscal obj ectives set out in its Constitution in light of 
the administrative and enforcement constraints it faces with respect to tax 
collection."
625 
7.193  The Philippines clarified that the fiscal objectiv es in its legislation to which it referred are 
linked to achieving a progressive system of ta xation that imposes higher taxes on "higher-priced 
goods, typically bought by wealthier consumers" and lower taxes on "lower-priced goods, typically 
bought by less affluent consumers."626  The constraints with respect to tax collection identified by the 
Philippines include that the country "possesses a larg e informal economy, widespread poverty, a large 
geographical area and an extensive coast line to  administer and monitor... and limited taxation 
resources".627 
                                                      
625 Philippines' first written submission, pa ra. 1.  See also para. 3.3 above. 
626 Philippines' first written submission, para. 2.  See also ibid., paras. 32 and 296;  Philippines' opening 
statement at first substantive meeting, paras. 5-9;  Philip pines' opening statement at second substantive meeting, 
paras. 3-5;  Philippines' response to Panel question Nos. 16 and 62. 
627 Philippines' response to Panel question No. 62.  See also Philippines' opening statement at first 
substantive meeting, para. 4;  Philippines' closing statement at first substantive meeting, para. 4;  Philippines' 
opening statement at second substantive meeting, paras. 3 and 38;  Philippines' response to Panel question 
Nos. 16 and 63.  See also para. 3.4 above.  WT/DS396/R 
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  7.194  In response to a question from the Panel, the Philippines did not refer to any provision in the 
WTO agreements on special and differential treatment  for developing countries and clarified that the 
statements it made: 
"[Are] not a reference to any of the provi sions of Article XX of GATT 1994.  The 
Philippines believes that its excise tax system embodied in Section 141 of the National Internal Revenue Code is not inc onsistent with Article III, and therefore 
there is no need to invoke the provisions of Article XX."
628 
7.195  In conclusion, the Philippines did not rais e any specific provisions on differential and 
more-favourable treatment for developing countr y Members that would require particular 
consideration by the Panel. 
VIII.  CONCLUSIONS AND RECOMMENDATIONS 
8.1 We recall the complainants' request that the Pa nel issue its findings in the form of a single 
document containing two separate reports with common sections but separate conclusions and 
recommendations for each complaining party.629  In accordance with the requests by the complaining 
parties, we therefore provide two separat e sets of conclusions and recommendations. 
 
                                                      
628 Philippines' response to Panel question No. 16.  See also para. 3.5 above. 
629 See para. 1.12 and its footnote 10 above. WT/DS396/R 
Page 98A  
 
   C
OMPLAINT BY THE EUROPEAN UNION (DS396):   CONCLUSIONS OF THE PANEL  
 8.2 With respect to the claims advanced by the Eu ropean Union, we find that, through its excise 
tax, the Philippines subjects imported distilled spirits made from raw materials other than those 
designated in its legislation to internal taxes in excess of those applied to like domestic spirits made 
from the designated raw materials, and is thus acting in a manner inconsistent with Article III:2, first 
sentence, of the GATT 1994. 
8.3 We abstain from making findings with respect  to the European Union's claim under the 
second sentence of Article III:2 of GATT 1994, because this claim was advanced as an alternative, 
only in the event that the Panel had not found that th e measure at issue is inconsistent with the first 
sentence of the same provision. 
8.4 Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations 
assumed under a covered agreement, the action is considered prima facie to constitute a case of 
nullification or impairment.  We conc lude that, to the extent that the measure at issue is inconsistent 
with the GATT 1994, it has nullified or impaired bene fits accruing to the European Union under that 
agreement. 
8.5 Pursuant to Article 19.1 of the DSU, we reco mmend that the Dispute Settlement Body request 
the Philippines to bring its measure into conf ormity with its obligations under the GATT 1994. 
 
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   WT/DS403/R 
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   C OMPLAINT BY THE UNITED STATES (DS403):   CONCLUSIONS OF THE PANEL  
 8.2 With respect to the claims advanced  by the United States, we find that: 
(a) Through its excise tax, the Philippines subj ects imported distilled spirits made from 
raw materials other than those designated in its legislation to internal taxes in excess 
of those applied to like domestic spirits made from the designated raw materials, and 
is thus acting in a manner inconsistent with Article III:2, first sentence, of the 
GATT 1994. 
(b) Through its excise tax, the Philippines app lies dissimilar internal taxes on domestic 
distilled spirits made from designated raw ma terials and to directly competitive or 
substitutable imported distilled spirits made from other raw materials in a manner so 
as to afford protection to the Philippine dom estic production of distilled spirits and is 
thus acting in a manner inconsistent w ith Article III:2, second sentence, of the 
GATT 1994. 
8.3 Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations 
assumed under a covered agreement, the action is considered prima facie to constitute a case of 
nullification or impairment.  We conc lude that, to the extent that the measure at issue is inconsistent 
with the GATT 1994, it has nullified or impaired be nefits accruing to the United States under that 
agreement. 
8.4 Pursuant to Article 19.1 of the DSU, we reco mmend that the Dispute Settlement Body request 
the Philippines to bring its measure into conf ormity with its obligations under the GATT 1994. 
 
_______________