WORLD TRADE  
ORGANIZATION  G/C/W/574 
13 March 2007 
 
 (07-1045) 
Council for Trade in Goods Original:   English 
  
 
THAILAND – CUSTOMS VALUATION AND DOMESTIC TAX PRACTICES AFFECTING 
THE IMPORTATION OF CIGAR ETTES FROM THE PHILIPPINES 
 
Communication from the Philippines
 
 
 
 The following communication, dated 12 March 2007, is being circulated at the request of the Delegation of the Philippines.  
_______________ 
 
  
I. INTRODUCTION 
1. The Thailand Tobacco Monopoly (TTM), which is under the control of the Ministry of 
Finance of Thailand, is the only company allowe d to produce cigarettes in Thailand.  All other 
cigarettes are thus imported.  Despite gains in ma rket share in recent years by foreign tobacco and 
cigarette companies, TTM remains to be the market leader with an estimated 79.2% share in 2006 of a 
market that has fluctuated between 35 and 43 billi on sticks of cigarettes in the last 6 years.   
2. A number of actions taken by Thailand since August 2006, with regard to the importation of 
cigarettes manufactured in the Philippines, have severely affected the co mpetitiveness of these 
imported products compared to those produced domestically by TTM.   
3. These actions involved, initially, customs valu ation practices and, subsequently, domestic 
taxation.  The Philippines considers that these practi ces are not consistent w ith Thailand’s obligations 
in the WTO because they are discriminatory and they  unjustifiably impede the flow of trade.   
A. 
CUSTOMS VALUATION  
4. The Philippines started to export cigarettes to  Thailand in 2003, largely encouraged by 
preferential arrangements in the ASEAN Common Exte rnal Preferential Tariff scheme.  The exporter 
from the Philippines and the importer in Thailand are both affiliates of a multinational corporation.  
5. Prior to 2003, cigarettes were imported from I ndonesia.  During that time, the Thai Customs 
Authority challenged the declared invoice price.  Following a three-year long customs review, Thai 
Customs accepted since March 2003 the importer’s declared invoice prices of cigarettes from the 
Philippines. 
6. In addition, the Thai importer has annually  tested the transaction value as per the WTO 
Customs Valuation Agreement (CVA) and communicated  the results to Thai Customs.  This tests 
whether the invoice price used as customs value properly resembles the profitability of domestic 
distributors in the Thai market.  It sets out a range of gross profit margins for the Thai importer, which G/C/W/574 
Page 2  
 
  needs to be supported with annual documentary su bmissions.  The test method is also meant to 
provide comfort to Thai Customs that the invoice value is based on an arm’s length transaction.  
7. On 4 August 2006, Thai Customs refused to cl ear cigarettes imported from the Philippines at 
their invoice prices, without providing any reason or explanation. On 11 August, Thai Customs 
temporarily and unilaterally imposed guarantee va lues that exceed the declared invoice price of 
Philippine cigarettes by 13 to 16%, depending on the brand name.
1  On 15 August, the importer had 
no recourse but to clear shipments from Thai Customs under protest, posting bank guarantees for the import duties and excise duties based on the imposed guarantee values for an estimated 
US$37 million on an annualized basis. 
8. It was only in December 2006 that Thai Cu stoms communicated that the basis for the 
investigation was the fact that the exporter and impor ter are related parties.  Thai Customs, however, 
did not provide sufficient explanation – as required by WTO rules – as to why the customs value, 
evaluated under a rigorous price testing exercise, was rejected.   
9. It must be emphasized that the declared invoice prices had been  accepted by Thai Customs as 
the appropriate value for levying import duties withou t any argument, refusal or request for additional 
bank guarantees since March 2003.  We are concer ned that the practice of imposing these guarantee 
values departs from the price-testing function as pr ovided under the CVA, and moves clearly into the 
realm of price-setting.   
10. The Philippines is also concerned with media releases in Thailand that the investigation of 
Philippine cigarettes was sparked by an observation th at the declared invoice price is far lower than 
the price at which the domestic duty free operator in Thailand purchases its cigarettes.  If this is 
accurate, then the investigation is unwarranted for a number of reasons, for instance, because the Thai 
importer is at the beginning of the distribution chain,  while the duty free operator is close to, if not at, 
the end of that chain. 
B. 
DOMESTIC TAXATION  
11. On 18 September 2006, the Thai Ministry of Finance (MOF) announced new maximum retail 
selling prices (MRSP) for various imported ciga rettes, increasing them by between 10% and 28%, 
depending on the brand. MRSP’s for domestic bra nds remained unchanged.  Again, based on media 
reports, this action was taken by the Director  General for Excise to complement the on-going 
investigation being conducted by the Director Ge neral for Customs to force the Philippine exporter 
and Thai importer to increase the declared invoice price. 
12. As the value added tax (VAT) assessment  is based on the MRSP, this announcement 
increased the fiscal burden for imported cigarettes w ithout affecting locally produced cigarettes. For 
the Thai importer of cigarettes from the Philippines, the value of this incremental VAT assessment is 
over US$8 million on an annual basis.  
13. By the end of 2006, a draft amendment to th e tobacco law was prepared. This draft would 
empower the MOF not only to establish maximum retail selling prices, but also to establish minimum 
retail selling prices. The draft law allows significan t discretion to the MOF in setting these prices and 
would provide for the possibility that different mi nimum prices could be established for different 
brands. In addition, the draft would empower the MOF to choose from a number of options to 
determine the excise tax base, without explaining the mechanism to be followed for choosing the base 
to be applied for individual companies or brands.   
                                                      
1 Based on Notification No. Gor Kor 0519(3)/107, dated 9 August 2006.  G/C/W/574 
 Page 3 
 
 
  14. The Philippines could find such ac tion tolerable if only it affects all cigarettes, whether they 
are domestically produced or imported, and in the sa me way.  Unfortunately, that is neither clear in 
nor assured by the draft law.   
II. CONCLUSION 
15. The Philippines considers that the actions and ev ents described above constitute practices that 
are not consistent with, inter alia , the Customs Valuation Agreemen t, the provisions of GATT 1994, 
and Thailand’s basic obligations w ith respect to transparency.   
16. The Philippines requests Thailand to adjust its practices in line with the WTO Agreements so 
that the unjustifiable impediment to trade in cigarettes will be removed. 
 
__________