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  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 
 
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  ANNEX A-1 
 
EXECUTIVE SUMMARY OF THE FIRST WRITTEN SUBMISSION OF  
THE EUROPEAN UNION 
 
 
I. INTRODUCTION 
1. The present dispute concerns a blatant violati on of Article III:2 first and second sentences. 
For many decades, the Philippines have applied lo wer internal taxes to domestically produced 
distilled spirits than to like or directly competitiv e and substitutable distilled spirits imported from the 
European Union (the "EU") and other WTO Members. Regrettably, over the past years, the 
discrimination against imported distilled spirits ha s even worsened, as the tax differential between 
domestic products and im ported products has progressively widened.  
2. The Filipino authorities have in several occasions publicly acknowledged the 
WTO-incompatibility of the measures at dispute. In f act, in the past years, several draft bills were 
proposed to reform the Excise Tax Regime. Some of these draft bills envisaged the creation of a single tax structure for all alcohol products, based on alcohol content rather than on the raw materials 
used. These proposals met however the strong resist ance from the local spirits industry and were 
never approved.  
3. The Filipino market for spirits is currently estimated to amount to ca. 49 million nine litre 
cases per year, making it one of the largest spirits mark ets in the Asia-Pacific region. This market is 
largely dominated by domestic products which togeth er account for almost 98% of total consumption, 
leaving to imported spirits a share of less than 2,5%. It is also a rather oligopolistic market since three 
large Filipino corporations enjoy circa 90% of the overall spirits market.  
4. The EU is the leading exporter worldwide of sp irits, with an annual value of exports of over 
EUR 5 billion. In the Philippines alone, imports from the European Unio n amount currently to 
ca. EUR 18 million per year.  
II. LEGAL ARGUMENT 
5. The Philippines are in breach of their obliga tions under GATT Article III:2, first and second 
sentence, since pursuant to the Excise Tax Regime it applies on imported distilled spirits (i) internal 
taxes which are in excess of those applied on like pr oducts, and (ii) higher internal taxes so as to 
afford protection to its domestic industry. 
6. Preliminarily, the EU points out that the measure s at issue constitute "internal taxes" within 
the meaning of Article III:1 and III:2 of the GATT 1 994 since they are levied on all distilled spirits 
intended for consumption in the Philippines, whether locally produced or imported, and not "on" or 
"in connection with" importati on of distilled spirits.   
A. GATT
 ARTICLE  III:2,  FIRST SENTENCE  
7. It is settled case-law that a tax measure violat es Article III:2, first sentence, when: (i) the 
taxed imported and domestic products are 'like'; and (ii) the taxes applied to the imported products are 
'in excess of' those applied to the like domestic products. Importantly, a measure which meets these 
two requirements can be ipso facto  considered to infringe Article III:2, first sentence. In fact, the 
general principle of Article III:1 informs also the fi rst sentence of Article III:2. As such, in order to  WT/DS396/R 
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  establish a violation of the latter provision it is unnecessary to show that the measures at issue are 
applied " so as to afford protection to domestic production ".  
1. Spirits produced from the designated raw materials and spirits produced from other 
raw materials are 'like products' 
8. In Japan – Alcoholic Beverages II and Canada – Periodicals , the Appellate Body endorsed 
the approach previously followed by several GATT pa nels in deciding that the term "like products" 
should be assessed on a case-by-case basis. In particular , the Appellate Body held that some criteria 
for determining whether a product is "like" are: th e product's end-uses in a given market; consumers' 
tastes and habits; the product's properties, nature and quality. Moreover, a uniform tariff classification 
of products can also be relevant in determining what  products are "like". It should be recalled that like 
products need not be identical in all respects. W ith regard to alcoholic beverages, the Panel in Japan – 
Alcoholic Beverages I  has held that " minor differences in taste, colour and other properties (including 
different alcohol contents) did not prevent products qualifying as "like products" ". The Panel also 
added that " "like" products do not become "unlike" merel y because of differences in local consumer 
traditions within a country (…) or differences in th eir prices, which were often influenced by external 
government measures (e.g. customs duties) and market conditions (e.g. supply and demand, sales 
margins) ". 
9. The EU submits that the measures at issue have the effect of applying dissimilar internal taxes 
to several like products. Indeed, domestically produced spirits are subject to lower excise duties than 
imported spirits which have identical end-uses; respo nd to the same consumers' tastes and habits; have 
same properties and nature; fall within the same tariff classification. The EU does not necessarily 
claim that all spirits under HS code 2208 are "like produc ts". Yet, it is the opinion of the EU that – at 
the very least – and irrespective of the type and or igin of the raw materials used for their production, 
all gins sold in the Philippines are like products, a ll brandies sold in the Philippines are like products, 
all whiskies sold in the Philippines are like produ cts, all vodkas sold in the Philippines are like 
products, all rums sold in the Philippines are like products, and so on. The EU finds that, in the 
present case, it would be unnecessary for the Panel to d ecide what types of spirits are "like" other 
types of spirits (e.g. whether a gin is like a vodka). I ndeed, within the very same type of spirits (gin, 
brandy, whisky, rum, vodka etc.) the Philippines legislation applies discriminatory taxation against 
imported products.  
10. In the first place, distilled spirits have in gene ral the same end uses. All of them are drunk 
"straight", "on the rocks", or diluted with other al coholic drinks or, more frequently, with water or 
non-alcoholic drinks (e.g. juices, soft drinks). A ll of them are drunk with the same purpose: thirst 
quenching, socialization, relaxation, pleasant intoxica tion. Notably, all drinking styles often co-exist 
and are used alternatively, depending on the occasi on and the whim of the consumer. In fact both 
Filipino and non-Filipino companies present thei r products (on their web-sites or through 
advertisements) in similar ways: e. g. as products that can be drunk straight or in cocktails. The raw 
materials used for distillation do not affect at all the drinking styles. This is confirmed by the recent 
Euromonitor Consumer Preference Survey.  
11. In the second place, consumers' tastes and habits  are not affected by the raw materials used 
for the distillation. In fact, both local and importe d spirits can be purchased by the consumers in the 
same outlets: on-premises outlets (e.g. pubs, bars, restaurants, clubs, discotheques) and off-premises 
outlets (e.g. supermarkets).  All these spirits (irrespective of the raw materials used for production) can 
be drunk at home, at friends' place, or in public places such as restaurants and bars. They can be 
consumed before, after or during meals. Moreover,  the occasions in which they are consumed are 
largely the same, as confirmed by the Euromonitor Consumer Preference Survey. This is further 
evidenced by company advertisements: many prod ucers (Filipino and non-Filipino) present their WT/DS396/R 
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  products as "ideal" for some particular moment s or circumstances (e.g. to celebrate reunions, 
important events, birthdays, or successes in business,  or ideal for romantic moments). Lastly, 
evidence demonstrates that all these spirits are widely drunk by all categories of consumers, 
regardless of age, sex, occupation. Indeed, the same consumers often drink a variety of spirits, 
depending on the occasion and the circumstances. 
12. In the third place, the basic physical properties of all distilled spirits – irrespective of the raw 
materials used for distillation – are essentially the sam e: all spirits are concen trated forms of alcohol 
produced by the process of distillation. Together, et hyl alcohol and water account for more than 99% 
of the volume of all distilled spirits. At the point of  distillation, all spirits are nearly identical, which 
means that raw materials used in this process ha ve almost no impact on the final product. Post-
distillation processes such as ageing, dilution with wa ter and additional flavourings have a relatively 
more important bearing on the final product. An d in fact Filipino manufacturers openly present their 
products as having been processed and/or having been flavoured in the same manner of the 
corresponding imported products. For example, local gin brands all highlight the presence of the 
essence of juniper berries, which is what trad itionally gives gin its distinguishing flavour. 
Furthermore, local vodka brands mention the process of charcoal filtration which is an essential step 
in the production of vodka. In essence, what is impor tant is that all products at issue are distilled 
spirits, with high alcoholic content, having simila r colours, tastes and smells, bottled and labelled 
essentially in the same manner. In fact, average alcohol content for both spirits from designated raw 
materials and spirits from other raw materials range s from 25% to 40%. Furthermore, spirits of the 
same category and the same variet y have the same alcohol content.  Regarding colour, one notes that 
all products of the same type and variety have the same or very si milar colour. Regarding smell and 
taste, it can be observed that spirits obtained fro m the designated raw materials obtain, often by 
employing extracts and flavouring, a similar tast e and nose to spirits manufactured from other raw 
materials.  
13. In the fourth place, the physiological and psycho logical effects of spirits on human beings are 
essentially due to the presence of ethyl alcohol. These e ffects are determined by a number of factors: 
e.g. type and quantity of alcohol consumed; age,  weight and gender of the consumer; food in the 
stomach; situation in which drinking occurs. Yet,  the raw material from which the spirit has been 
distilled does not have any influence in this respect. In fact, countries' legislation which restricts e.g. 
consumption, manufacture, advertising, sale, use of  alcoholic beverages generally do not distinguish 
between spirits made from certain raw materials a nd similar spirits made from other raw materials. 
This is so including in the Philippines: see e.g. re gulations on drunk driving or on sale and distribution 
of alcoholic beverages.  
14. In the fifth place, all the products at issue fall w ithin heading 2208 of the HS, which refers to 
"undenatured ethyl alcohol of an alcoholic strengt h by volume of less than 80 % vol; spirits, liqueurs 
and other spirituous beverages". The HS comprises al l distilled spirits in the same heading and divides 
them into sub-groups according to the type of spir it. The raw material used for the production of the 
different types of spirits is mostly irrelevant: a whisky, a vodka, a gin and a rum always fall within a 
specific sub-heading, irrespectively of whether they  were produced with e.g. sugar cane, coconuts, 
grapes, wheat, potatoes etc. Data provided by the Philippines and which concern exports of Filipino 
spirits confirms that local spirits bear the sa me HS sub-heading of spirits imported into the 
Philippines, even if made from different raw material s. In this context, it should be remembered that 
in Japan – Alcoholic Beverages II , the Appellate body stressed the importance of HS headings to 
ascertain the likeness of products. 
15. In conclusion, it is manifest that spirits produ ced from the designated raw materials and spirits 
produced from other raw materials are "like" products. Should not all di stilled spirits be "like" within 
the meaning of Article III:2, then it is submitted that  at least all products falling within the same type  WT/DS396/R 
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  so are. Interestingly, in Japan – Alcoholic Beverages II , the Panel found that two different types of 
alcoholic beverage (shochu and vo dka) were "like" products pursuant to Article III:2, first sentence. A 
fortiori , a similar reasoning should, in th e case at hand, lead to consider  that products are "like" when 
belonging to the same type of spirit. It can also be pointed out that the facts of  the present case are to a 
certain extent similar to those examined in the Mexico – Taxes on Soft Drinks case where Mexico 
applied dissimilar taxation to two materials ( one domestically produced: cane sugar; and one 
imported: beet sugar) which were both used to manufacture the same products (soft drinks and 
syrups). In that case, the Panel concluded that beet  sugar and cane sugar were "like" products within 
the meaning of the first sentence of Article III:2.  
2. The taxes applied to the imported products  are 'in excess of' those applied to the like 
domestic products 
16. According to the Appellate Body in Japan – Alcoholic Beverages II , the prohibition of 
discriminatory taxes in GATT Article III:2, first sent ence, is not conditional on a 'trade effects test' 
nor is it qualified by a de minimis  standard. Indeed, under this provision, even the smallest amount of 
"excess" is too much.   
17. In the present case, the measures at dispute s ubject spirits distilled from non-designated raw 
materials to a much higher internal tax than that applied to spirits produced from the designated raw 
materials. It is useful to recall that the vast majority of imported products are subject to the higher tax 
rates whereas all local products enjoy the lower tax rate. It has just to be pointed out that the fact that 
few imported products may also enjoy the lower tax rate does not exclude that the measures violate 
Article III:2, first sentence. As the Panel in Argentina – Hides and Leather  made it clear, 
"Article III:2, first sentence, is applicable  to each individual import transaction. " It is thus sufficient 
to establish a breach of that provision that some im ported product is taxed in excess of a like domestic 
product.  
B. GATT  ARTICLE  III:2,  SECOND SENTENCE  
1. Imported products and domestic products are 'directly competitive or substitutable 
products' 
18. In Japan - Alcoholic Beverages II , the Appellate Body stated that a determination of whether 
two products are "competitive or substitutable" must be made on a case-by-case basis, and in the light 
of "all the relevant facts in that case ". Preliminarily, it should be recalled that the second sentence of 
Article III:2 is about imperfectly  substitutable products, since perfectly  substitutable products fall 
within the first sentence of the same provision. Moreover, this provision is concerned not only with differences in taxation be tween products which are actually  competitive on a given market, but also 
with differences in taxation between products which are potentially  competitive. Indeed, whereas 
consumer tastes and habits may differ from one market  to another, tax measures should not be used to 
"freeze" consumers' preferences for domestic products.  For this reason, evidence that two products are 
not competing in a market at a given point in time is irrelevant if the absence of actual competition is 
due, at least in part, to the tax measures in dispute. In Korea – Alcoholic Beverages,  the Appellate 
Body stressed that competition in the market pl ace is a dynamic, evolving process and thus the 
concept of “directly competitive or substitutable” cannot be limited to " situations where consumers 
already regard products as alternatives "; adding that " [i]f reliance could be placed only on current 
instances of substitution, the object and purpose of Ar ticle III:2 could be defeated by the protective 
taxation that the provision aims to prohibit ".  
19. At the outset, the EU wishes to recall that the WTO adjudicatory bodies have in previous 
disputes found that all types of spirits falling with in HS classification 2208 are "directly competitive WT/DS396/R 
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  or substitutable products". The EU would also like to point out that the Filipino producers themselves 
publicly acknowledge that competition in the spirits market is intense not only within the various 
types of spirits, but also between different categories of spirits.  
20. In the first place, the basic physical properties of all distilled spirits – irrespective of the raw 
materials used for distillation – are essentially the same. A ll spirits are concentrat ed 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 pro cess have almost no impact of the final product. 
Notably, in Chile – Alcoholic Beverages  the Panel regarded " the aspect of a product being a potable 
distilled spirit with a high alcohol conten t as an important defining characteristic ". On the contrary, 
the Panel found that even " post-distillation differences due to filtra tion, colouring or aging process 
are not so important as to re nder the products non-substitutable ". Similarly, in Korea – Alcoholic 
Beverages , the Panel considered sufficient to note that all products at issue " ha[d] the essential 
feature of being distilled alcoholic beverages " and were " bottled and labelled in a similar manner ". 
Conversely, the small differences in the filtration or aging process or in colour and flavouring were 
considered insufficient to render the products non comp etitive or substitutable. What is crucial in the 
present dispute is that all products at issue are di stilled spirits, with high alcoholic content, having 
similar colours, tastes and smells, and being bottle d and labelled essentially in the same manner.  
21. In the second place, all spirits share same end u ses and are advertised in a similar manner. In 
Japan – Alcoholic Beverages II , the Appellate Body agreed with the Panel in finding that the decisive 
criterion in order to determine whether two produc ts are directly competitive or substitutable is 
whether they have common end-uses. One has however  to bear in mind that this commonality of end 
uses need not be perfect. As the Panel in Chile – Alcoholic Beverages  noted, " it is sufficient that there 
is a pattern that they may be substituted for some purposes at some times by some consumers". 
Moreover, current overlaps between different uses ca n be limited because of, e.g., protective tariffs or 
other trade barriers which make price of imported pr oducts significantly higher than local ones. Thus, 
the Panel in Korea – Alcoholic Beverages , looked at common end uses in order to establish a 
competitive relationship between products either immediately or only in the " near and reasonably 
predictable future ".  
22. Notably, all distilled spirits are drunk in simila r ways: "straight", "on the rocks", or diluted 
with other alcoholic drinks or, more frequently, with  water or non-alcoholic drinks. All of them are 
drunk with the same purpose: thirst quenching, socia lization, relaxation, pleasant intoxication. All of 
them may be consumed before, after or during meals.  All of them may be consumed at home or in 
public places (restaurants, bars, pubs, discotheques etc.).  
23. Moreover, the fact that spirits all compete with  one another (irrespective of the raw material 
used for distillation) for the same uses appears in all evidence when one looks at the marketing 
strategies adopted by spirit producers. It can be recalled that, as the Panels in Korea – Alcoholic 
Beverages  and 
Chile - Alcoholic Beverages  stressed, marketing strategies are particularly useful in 
determining whether products are substitutable. Indeed, " marketing strategies that highlight 
fundamental product distinctions or, alternatively,  underlying similarities may be useful tools for 
analysis ". In the case at hand, it is particularly rema rkable how Filipino manufacturers try and present 
their products as being similar or equivalent to, or even better th an, competing imported spirits. For 
instance, local brandies are clearly portrayed as simila r to either Spanish brandies or French brandies. 
Many Filipino brandies not only have a Spanish brand, but on their labels they also carry words and 
images which unmistakably refer to Spain. In thei r attempt to compare local brandies with imported 
brandies, Filipino companies even advertise some  of them in manners which tend to give the 
impression that they are produced from grapes (just like imported brandies), which is obviously not 
the case. Analogous marketing strategies are adopted by Filipino spirits producers also with regard to 
the other types of spirits: e.g. whisky, gin, rum, vodka , tequila, etc. Finally, it can be noted that several  WT/DS396/R 
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  Filipino producers also adopt adve rtising campaigns which imply that  their products can compete on a 
worldwide basis, with regard to popularity or quality, with any other spirit.  
24. In the third place, an additional indication of substitutability between spirits from the 
designated raw materials and spirits from non designate d raw materials is the fact that they uses the 
same channels of distribution and sale. With regard  to distribution, one can observe that both domestic 
and imported spirits follow similar distribution networks.  
25. As for the points of sale, all of them can be purchased by Filipino customers either in retail 
outlets or in on-premises outlets. Notably, in reta ils outlets, they share the same shelf areas, where 
imported and local products are presented side-t o-side. This shelving is clearly responsive to 
consumers' needs to make choices between compe ting and substitutable products. Equally significant, 
on the shelves behind the bar of on-premises outlets in the Philippines, such as pubs and restaurants, 
one inevitably finds a mix of bottles of local br ands and imported ones. Also beverages catering 
companies offer their customers both local and non local spirits. A brief look at the collection of 
photos they publish on their web-sites suffices to see the concurrent use of all types of spirits. 
26. In the fourth place, it can be noted that although local brands tend to be sometimes cheaper 
and imported brands to be often more expensive, this is not alwa ys the case. Both in supermarkets and 
in bars one finds that several imported brands a nd local brands have comparable prices. Competition 
between different spirits brands in the Philippines ther efore does occur also on pricing, and this is true 
both among the different brands of the same type of spirit and among brands of different types of 
spirit. This competition based on price is overt ly recognised even by local producers.  
27. In Japan – Alcoholic Beverages II , the Appellate Body stated that the use of cross-price 
elasticity of demand is one among the criteri a for determining direct competitiveness and 
substitutability, but should not be considered the d ecisive one. A comparison of the current prices of 
the spirits marketed in the Philippines should, however , take into account the fact that the actual price 
of imported spirits is, in all evidence, significantly infl uenced by the very measures at issue. In fact, if 
imported spirits were taxed at the same level of domestic products their final resale prices could 
diminish of as much as 40%. Moreover, one should al so bear in mind that th e measures at issue seem 
to have also a perverse effect in that they also impact the valued  added tax ("VAT") applicable upon 
imported spirits in the Philippines. In fact, as the European Union understands it, the taxable basis for 
VAT is the “total landed cost”: i.e. the total value u sed by the Bureau of Customs in determining tariff 
and customs duties, plus customs duties and excise taxes. 
28. In addition, it must be noted that, especially in recent years, local producers have developed a 
number of premium brands so to compete more effe ctively with imported ones for the relatively more 
expensive segments of the spir its markets. Filipino spirits producers openly acknowledge this. Mutatis 
mutandis , the situation appears similar to th at examined by the Panel in the Korea – Alcoholic 
Beverages  dispute, where the Panel considered relevant the fact that Korean companies " met the 
potential threat of imports of western-style b everages by creating and selling premium diluted soju ". 
2. Spirits are 'not similarly taxed' 
29. As the Appellate Body has confirmed in  Japan – Taxes on Alcoholic Beverages II , two 
competitive and substitutable products must be consid ered as "not being similarly taxed" whenever 
the difference in taxation between them is more than de minimis . According to the same report, 
whether any particular tax differential is or not de minimis  must be determined on a case-by-case 
basis.  WT/DS396/R 
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  30. In the Philippines, spirits produced from non-d esignated raw materials are subject to a tax 
which may, according to the price band in which they  fall, be 10.8 times higher, 21.62 times higher or 
43.23 times higher, than that applied to spirits pr oduced from designated raw ma terials. Notably, this 
tax differential has also increased  in the last years: between 1988 and 2011 the tax rate applied to 
spirits produced from designated raw materials grew  of 84% whereas that applied spirits produced 
from non-designated raw materials grew of 112%.  
31. These tax differentials are extremely significan t. Or, paraphrasing what the Appellate Body 
found in Canada – Periodicals , one could say that the magnitude of the dissimilar taxation in the 
present case is " beyond excessive, indeed it is prohibitive ". In fact, in the previous alcohol cases WTO 
adjudicatory bodies have found that less signi ficant tax differentials were more than de minimis . 
3. Taxation is applied so as to afford  protection to domestic production 
32. In Japan – Alcoholic Beverages II , the Appellate Body laid down the approach for 
establishing whether dissimilar taxation of directly competitive or substitutable products is applied "so 
as to afford protection to domestic production". This  approach was subsequently further developed 
and applied in the following cases. In particular, WTO adjudicatory bodies have considered, among 
other things, the structure of the measures, thei r overall application on domestic as compared to 
imported products, as well as the statutory aims pursued by those measures. In the present case, 
several and important facts and circumstances cons titute irrefutable evidence that the Excise Tax 
Regime is applied "so as to afford prot ection" to Filipino spirits producers. 
33. In the first place, it should be recalled that in the previous alcohol cases, the WTO 
adjudicatory bodies found that the very magnitude of  the difference in taxation between the different 
distilled spirits was sufficient evidence to conclude th at the measures at dispute were applied so as to 
afford protection to local products. Notably, the tax di fferentials in those cases were, in each of them, 
lower (and sometimes much lower) than the differentia ls which are provided for in the Filipino Excise 
Tax Regime. In the present dispute, the tax differentia ls are thus so large that they constitute clear 
evidence that the measures at dispute are applied so as to afford protection to the domestic producers.  
34. In the second place, it must be emphasized that the Filipino Excise Tax Regime distinguishes 
arbitrarily between spirits produced from the designa ted raw materials and spirits produced from other 
raw materials. No objective reason of this di fferentiation was ever provided by the Filipino 
authorities. Further, no apparent reason can be discerned from the design and architecture of the 
measures. There appear to be no rationality or logi c in the measures if one excludes the most obvious 
one: helping local spirits producers. Indeed, all designated raw materials are indigenous to the 
Philippines. Therefore, local distillers can buy lo cally the raw materials used for distillation, and 
manufacture products which are be taxed less than most of the products manufactured elsewhere and 
subsequently shipped to the Philippines.  
35. In the third place, all spirits produced in the Philippines are subject to the lower tax rate 
(being produced from the designated raw materials) whereas the vast majority of imported spirits 
(being produced from other raw materials) are subj ect to the higher tax rates. The protectionist 
application of the measures at issue is further evid enced by the fact that, in  some cases (e.g. 'Malibu' 
rum) even imported spirits produced from the designa ted raw materials are applied the higher tax rates 
instead of the lower rate, which they are in principle entitled to. Notably, in Korea – Alcoholic 
Beverages , the Appellate Body found that the fact that th e tax at dispute operated in such a way that 
the lower tax brackets covered almost exclusivel y domestic products whereas the higher tax brackets 
embraced almost exclusively imported products was supporting the conclusion that the measure was 
applied as to afford protection to domestic production.  Importantly, the fact that some imported spirits 
may be applied the lower tax rate is irrelevant. In Canada – Periodicals , the Appellate Body held that  WT/DS396/R 
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  "dissimilar taxation of even some imported produc ts as compared to directly competitive or 
substitutable domestic products is inconsistent with the provisions of the second sentence of 
Article III:2 ". Similarly, in Chile – Alcoholic Beverages , the Panel emphasized: " it does not save a 
measure from running afoul of Article III:2, second sentence, merely because there are domestic 
products taxed at the same level as the imported products ". 
36. In the fourth place, Filipino authorities openl y acknowledged the WTO incompatibility of the 
measures at issue and their discriminatory effect vis- à-vis imported spirits in many official statements. 
For instance, Sen. Ralph G. Recto (who sponsored  Senate Bill 1854, later to became RA 9334) during 
the Senate deliberations in 2004. More recently, th e Department of Finance in two letters to the 
Spanish Ambassador in the Philippines (December 2007)  and to the 'Consejo Regulator del Brandy de 
Jerez (March 2009). Again, on 11 May 2009, the Depa rtment of Trade and Industry when, writing to 
the Chairman of the Committee on Ways and Mean s of the Filipino House of Representatives, it 
recommended adoption of the proposed  amendments to the Excise Tax Regime. Lastly, Senate 
President Mr Enrile in the hearing of 15 Sept ember 2009 before the Committee on Ways and Means.  
37. In the fifth place, it is significant that there exist also one piece of legislation (Revenue 
Regulation 2-97) which, in relation to the measu res at issue, explicitly distinguishes "imported 
distilled spirits" from "domestic distilled spirits". In the EU's view, this sort of "slip of the pen" of the 
Filipino legislator is very revealing of the aim of the measures at dispute. 
III. CONCLUSION 
38. The EU respectfully requests the Panel: (i) to find that, by applying lower taxes to distilled 
spirits "produced from the sap of nipa, coconut, cassava,  camote, or buri palm or from the juice, syrup 
or sugar of the cane, provided such materials ar e produced commercially in the country where they 
are processed into distilled spirits", the Philippines ha ve acted inconsistently with its obligations under 
Article III:2 first and second sentence, of th e GATT 1994, thereby nullifying and impairing the 
benefits accrued to the European Union under that  Agreement; and (ii) to recommend the Philippines 
adopt the necessary measures to bri ng the Excise Tax Regime into conformity with its obligations 
under the GATT 1994.  
 
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 ANNEX A-2 
 
EXECUTIVE SUMMARY OF THE FIRST WRITTEN SUBMISSION OF  
THE UNITED STATES 
 
 
I. FACTUAL BACKGROUND  
1. The Philippines protects its domestic production of distilled spirits by applying very low tax 
rates to spirits produced from a limited set of lo cal raw materials, while applying much higher tax 
rates to other spirits which are largely imported.  It do es so despite the fact that there is a great deal of 
substitutability among all types of distilled spirits , and specifically between imported brands and 
Philippine domestic brands.  By arbitrarily applyi ng a very low tax rate to products produced from 
local raw materials and a much higher rate to imported spirits, the Philippine measures protect 
domestic spirits production, very much like the measures found to be WTO-inconsistent in the 
disputes Japan – Alcoholic Beverages II , Korea – Alcoholic Beverages , and Chile – Alcoholic 
Beverages . 
2. The Philippine tax system for distilled spirits is set out in Section 141 of the National Internal 
Revenue Code, as enacted by Republic Act 8424 of  1997 and amended by Republic Act 9334 of 
2004.  Section 141 sets out the tax rates, the categor ies of products to which the rates apply, and 
procedures for calculation of the applicable tax for each product. 
3. Section 141 divides spirits into two broad cate gories, reflected in sections 141(a) and 141(b) 
of the statute.  A single low rate applies to all spirits under section 141(a) and one of three possible 
higher rates applies to spirits under 141(b), depe nding on the net retail price of a 750 milliliter bottle 
of the spirit.  Section 141 further provides that the rates on spirits shall be adjusted upward over time. 
4. The low tax rate under Section 141(a) applie s to products distilled from nipa, coconut, 
cassava, camote, buri palm, or sugar cane.  In add ition, for a distilled spirit made from one of these 
materials to qualify for the low rate, the raw materi al must be produced commercially in the country 
where it is processed into the distilled spirit. All of the raw materials listed in Section 141(a) are 
produced in the Philippines.  
5. In fact, the Philippines has acknowledged that  lower taxes on products distilled from these 
raw materials means lower taxes on products from indigenous material s.  The Department of Trade 
and Industry Development Plan 200[4] stated, "Exc ise taxes on distilled spirits impose a lower tax on 
products made from materials that are indigenously available ( e.g., coconut, palm, sugarcane)." 
6. All spirits not produced from one of these typical  Philippine raw materials fall into the second 
category under its tax system, provided for in Sectio n 141(b) of the National Internal Revenue Code. 
Products in this second category are subject to one of thr ee tax rates, depending on  the retail price of a 
750 milliliter bottle of the spirit.  All of the rate s under the second category are significantly higher 
than the low rate levied on products produced from indigenous materials.  The lowest rate in the 
second category is 146.97 pesos/proof liter and the highest is 587.87 pesos/proof liter.   WT/DS396/R 
 WT/DS403/R 
 Page A-11 
 
 
 Spirit Tax Category by Raw Material & Price (per proof liter)  
 
 Tax as of 1/1/2009  Tax as of 1/1/2011 
(8% scheduled increase)  
141 (a) – Local Raw Materials  13.59  14.68  
141(b) – Other Raw 
Materials  Price for 750 ml bottle    
From P0 to P250  146.97  158.73  
From P250 to P675  293.93  317.44  
More than P675  587.87  634.90  
 
7. All the rates are set in pesos per proof liter.  The tax on a particular distilled spirit may be 
calculated using a standard formula. For example, the tax on a 750 ml bottle of local White Castle 
Whisky (80 proof, or 40% alcohol) with the 2009 tax rate of 13.59 pesos/proof liter, would be 
calculated as follows: 
13.59 x (40/100) x 2  x (750/1000)= 8.15 pesos 
  The tax on a 750 ml bottle of imported Jim Beam  black whiskey (86 proof, or 43% alcohol), 
with the 2009 tax rate of 293.93 pesos/proof liter, would be: 
 
293.93 x (43/100) x 2  x (750/1000)= 189.5 pesos 
 8. In the Philippines, regulations promulgated unde r the distilled spirits tax law which specify a 
"net retail price" for each brand and the applicable  tax.  The regulations list brands sold in the 
Philippines, specifying for each brand the net retail pr ice per bottle and resultant amount of applicable 
tax. These regulations separate products eligible for the low tax rate ("local" products) from those 
subject to the higher tax rate. 
II. LEGAL ARGUMENT  
A. T
HE PHILIPPINE MEASURES ARE INCONSISTENT WITH GATT 1994  ARTICLE  III:2 
9. Article III:2 of the GATT 1994 applies to internal taxes, such as the domestic excise tax at 
issue in this dispute.  Article III:2 of the GATT 1994 provides that: 
"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. Moreover, no c ontracting party shall otherwise apply 
internal taxes or other internal charges to imported or domestic products in a manner 
contrary to the principles set forth in paragraph 1."  
 Paragraph 1 in turn 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 impor ted or domestic products so as to afford 
protection to domestic production." WT/DS396/R 
WT/DS403/R Page A-12 
 
 
 10. An Ad note to paragraph 2 provides that "A tax conforming to the requirements of the first 
sentence of paragraph 2 would be considered to be inconsistent with the provisions of the second 
sentence only in cases where competition was invol ved between, on the one hand, the taxed product 
and, on the other hand, a directly competitive or subs titutable product which was not similarly taxed."  
11. The Philippine excise tax measures on distilled spir its are inconsistent with the obligations of 
both Article III:2, first sentence and Article III: 2 second sentence, because they subject imported 
products to internal taxes in excess of those app lied to like domestic products, and because they are 
applied to imported products so as to afford pr otection to domestic production.  Article III:2, second 
sentence is examined first below, followe d by the first sentence of Article III:2. 
B. P
HILIPPINE MEASURES ARE INCONSISTENT WITH GATT 1994  ARTICLE  III:2,  SECOND 
SENTENCE  
12. The Philippine tax system on distilled spirits is inconsistent with the second sentence of 
GATT Article III:2.  Consistent with the approach used by prior panels and the Appellate Body, to 
demonstrate that a measure is inconsistent with  Article III:2, second sentence, a complaining party 
must show that: 
 The imported products and the domestic prod ucts which are in competition with each 
other are "directly competitive or substitutable"; 
 
 The directly competitive or substitutable imported and domestic products are "not 
similarly taxed"; and  
 
 The dissimilar taxation of the directly co mpetitive or substitutable imported products 
is "applied . . . so as to afford protection to domestic production." 
 
1. Philippine distilled spirits are directly competitive or substitutable with imported 
distilled spirits 
13. Several previous panels and the Appellate Body have considered the issue of whether certain 
distilled spirits are "directly competitive or substitu table" within the meaning of the second sentence 
of Article III:2 of the GATT 1994.  The WTO panels that examined this i ssue all used a similar 
approach, evaluating factors including physical characte ristics, channels of distribution, and end-uses, 
and to determine whether the products at issu e are "directly competitive or substitutable." 
14. Philippine distilled spirits and im ported spirits share similar physical characteristics, end uses, 
channels of distribution, substituta bility, and tariff classification.  Following the approach of prior 
WTO panels, these similarities demonstrate that Phili ppine distilled spirits are directly competitive or 
substitutable with imported distilled sp irits in the Philippine market. 
Physical Characteristics  
 
15. Philippine and imported distilled spirits have  similar physical characteristics, including 
attributes such as appearance, color, and alcohol content. 
16. Exhibit US-38 contains pictures of Philippine and imported products, along with descriptions 
of these products drawn from advertising, other co mpany representations, and consumer statements.  
As is evident from these materials, the Philippine  products are similar in color to the imported 
products – for example, both Philippine whiskeys  and imported whiskeys are brown spirits and 
Philippine vodkas and imported vodkas are clear.   WT/DS396/R 
 WT/DS403/R 
 Page A-13 
 
 
 17. Manufacturers, distributors, and retailers use similar terms to describe domestic and imported 
products in local advertising.  For example, a dvertising for both importe d and domestic brandies 
emphasizes the aroma and smoothness of the brands concerned. 
18. Descriptions and photos by Philippine compan ies squarely place them as substitutes with 
international products, having similar attributes to their foreign competitors.  Domestically produced 
Ginebra San Miguel is a "dutch-type" gin for whic h the "predominant flavor emanates from juniper 
berries that are imported from Europe."  Gran Matado r Solera Gran Reserva is made with "carefully 
selected Solera Gran Re serva brandy concentrates from Spai n."  St. George Premium Whisky 
"approximates the taste, aroma, and alcohol kick of imported whiskies." 
19. Domestic and imported brands are not distinguishable from one another on the basis of 
alcohol content, which is anothe r important physical characteristic.  For example, under Philippines 
standards, all whiskies, regardless of raw material, must have an ethyl alcohol content of at least 
32.5%.  
20. Thus, based on physical attributes such as app earance, taste, color and alcohol content, 
distilled spirits made of indigenous materials in the Philippines are directly competitive or 
substitutable with imported distilled spirits. 
Channels of Distribution  
 
21. Philippine and imported brands ar e sold in the same channels of distribution.  Rules and 
regulations concerning distribution and sales of spir its apply to all types of spirits, supporting the 
conclusion that they are sold by the same retail ers and wholesalers in the same places of business.  
Regulations on sales and distribution do not distingui sh between domestic and imported spirits, nor do 
they separate spirits products by the raw material u sed in production.  For example, the "Checklist of 
Requirements for Food Establishments," though app licable widely to wholesalers, importers, and 
exporters, does not apply different rules for different  products.  Similarly, the authority to apply 
municipal taxes applies to all liquors, spirits, and wines regardless of the raw material, or whether 
products are imported or domestic.  
22. In addition, photographs from stores in the Philippines show imported and domestic brands 
available to Philippine consumers side by side, frequently on the same sh elves.  Exhibit US-30 
provides concrete examples of domestic and import ed products sold in the same channels of 
distribution in the Philippines, including multiple examples of store displays showing domestic and 
imported distilled spirits sold side by side in the same stores.   
23. As these examples demonstrate, domestic and imported brands are sold in the same channels 
of distribution, providing further evidence for th e fact that they are directly competitive or 
substitutable. 
End Uses of Spirits  
 
24. The end uses of products produced from indigenous materials and those produced from non-
indigenous materials also demonstrate that domes tic distilled spirits are "directly competitive or 
substitutable" with imported distille d spirits.  Data collected direc tly from consumers, as well as 
evidence depicting how products are presented to c onsumers in stores, restaurants, and bars, all 
support the conclusion that these products have similar end uses. 
25. Euromonitor International undertook a study of consumers in the Philippines, in order to 
understand consumers' perceptions of different brands of distilled spir its, both domestic and imported.  WT/DS396/R 
WT/DS403/R Page A-14 
 
 
 The resulting study provides detailed information on end uses of spirits in the Philippines, including 
end-use as it concerns the drink itself ( e.g., whether the spirit is consumed straight) and end-use as it 
concerns the setting for consuming drinks ( e.g., home or elsewhere).  
26. The results of this study confirm that domes tic and imported brands have comparable end 
uses.  Survey respondents indicated that they c onsume both imported and dom estic brands straight, 
with water, or in a mixed drink.  Respondents al so indicated that they consume both domestic and 
imported brands in a similar range of places, such as bars, discos, restaurants and sporting events.  
Consumers drink domestic versus imported brands at similar ti mes and in similar settings ( e.g., both 
imported and domestic produc ts are consumed after work, before dinner). 
27. Photographs from stores and restaurants in the Philippines are consistent with consumers' 
responses to the Euromonitor Consumer Preference Survey, and confirm that end-uses for imported 
and domestic brands are the same.  Domestic and im ported brands are displayed together in bars and 
supermarkets, and they are so ld together on drinks menus. 
28. Thus, information from consumers as well as ev idence from the marketplace demonstrates 
that the end uses of domestic and imported brands are the same. 
Price Substitutability  
 
29. Evidence also suggests that pr oducts produced from indige nous materials and products 
produced from non-indigenous materials are substitut able depending on price.  If the Philippines 
removed the discriminatory aspects of its tax on imported spirits, the price difference between 
imported and domestic products w ould be reduced.  The results of the Euromonitor Consumer 
Preference Survey of Philippine consumers rega rding whether they would replace some purchases of 
domestic products with imported pr oducts if the difference in pr ice between them  were smaller 
demonstrate that price changes result in consum ers purchasing more imported spirits and fewer 
domestic spirits.  
Harmonized Tariff System Classification  
 
30. Regardless of raw material, distilled spirits products are classified under heading 2208.  
31. In summary, Philippine distilled spirits are "directly competitive or substitutable" with 
domestic distilled spirits.  Philippine producers of  distilled spirits produce spirits from local raw 
materials, which are then regulated, marketed, an d sold side-by-side with imported products and 
consumed for similar reasons in the same types of places.  These products are directly competitive or 
substitutable with the products produced by their in ternational competitors, yet, are subject to a 
significantly lower tax rate.   
2. Philippine products and imported products are not similarly taxed 
32. Under the second sentence of Article III:2 of th e GATT 1994, a complaining party must show 
that the domestic products and the imported produc ts are "not similarly taxed."  In Philippine 
regulations listing brands of spirits  and applicable taxes, products ar e divided into two groups:  "local" 
and "imported."  Products made from local raw ma terials and eligible for the low tax rate under 
Section 141 (a) are included in one list, and all other products  – those subject to the higher tax rates – 
are another list.   
33. Revenue Regulations 12-2004 is the most recen t regulation listing pr oducts and the taxes 
applied to different brands.  For "local" products taxed at the lowe r rate, listed at Annex A of the  WT/DS396/R 
 WT/DS403/R 
 Page A-15 
 
 
 regulation, the tax per bottle (as adjusted for proof liters) is very low.  As to 2009, taxes for 750 ml 
bottles range from 6.35 pesos (for a 750 ml bottle of Tanduay rum) to 9.24 pesos (for the same size 
bottle of local Gordan's gin). 
34. By contrast, taxes are significantly higher fo r all products listed in Annex B, "Imported 
Distilled Spirits Brands Produced from Grains, Cere als and Grains covered by Section 141(b)." The 
products are divided by price into three categories, reflecting the three tax rates under Section 141(b).  
The maximum and minimum tax (in pesos) per 750 ml bottle for imported products, as listed in the 
Annex, are: 
 Maximum 2009 Minimum 2009 Maximum 2011 Minimum 2011 
Premium 379.17 352.72 409.51 380.94 
De-Luxe 189.59 154.31 204.75 166.66 
Standard 99.21 79.36 107.15 85.71 
 35. In other words, the minimum tax per 750 ml bottle for an Annex B product,  P79.36, is nearly 
nine times the maximum tax per 750 ml  bottle for an Annex A product. 
3. The taxation of distilled spirits protects domestic Philippine production  
 36. The third element of the second sentence of GA TT Article III:2 requires that the differential 
taxation is applied "so as to afford protection" to domestic production.  In this case, the Philippines 
itself has acknowledged that the measures are struct ured to favor products made from local raw 
materials, and an objective examination of the meas ures' structure leads to the conclusion that they 
protect domestic products.  
37. The sheer magnitude of difference in the tax rate for products made from typical local 
materials compared to that for all other products supports the conclusion that the measures operate to 
afford protection to domestic production.  
38. The lowest tax rate in the Philippine system for products not made of typical local materials is 
146.97 pesos/proof liter, more than ten times the rate applied to local products.  The highest tax rate is 
more than 40 times the low rate. The extent of discriminati on under the Philippine tax regime dwarfs 
the tax differentials found to afford protec tion to domestic production in prior disputes. 
39. The Appellate Body in Japan – Alcoholic Beverages II  noted that in some cases, the 
difference in taxation itself will be enough to establis h the protection of the domestic industry.  Given 
the magnitude of discrimination in the Philippine s, this alone supports the conclusion that the 
measures "afford protection to domestic production." 
40. Although the magnitude of the difference in ta xation between domestic and imported brands 
is sufficient to show that the Philippine measures protect domestic industry, other facts also support 
this conclusion.  
41. The Philippine measures divide distilled spirits into two broad categories, based on the raw 
material from which the individual spirits are di stilled.  As explained above the Philippine and 
imported products are substitutable,  and the raw materials that are designated as inputs for products 
eligible for the low tax rate all thrive in the Philippines.  The Philippine system, like the system 
analyzed in Korea – Alcoholic Beverages , "operates in such a way that the lower tax brackets cover 
almost exclusively domestic production, whereas the higher tax brackets embrace almost exclusively 
imported products."  Moreover, the Philippine la w requires that for a product distilled from the WT/DS396/R 
WT/DS403/R Page A-16 
 
 
 typically local raw materials to receive the low tax treatment, not only must the raw material used to 
produce the spirit be among those on the select list of  indigenous products, but also that raw material 
must be produced commercially in the country where the spirit is produced.  This imposes an 
additional barrier to low tax treatme nt on par with Philippine products. 
42. In summary, the Philippines measure is structured to favor domestic products, by virtue of the 
separation of products made from typical Phili ppine raw materials and all other products. 
C. F
IRST SENTENCE , GATT 1994  ARTICLE  III:2:  IMPORTED DISTILLED SPIRITS ARE LIKE 
PHILIPPINE DISTILLED SPIRITS AND TAXED IN EXCESS OF DOMESTIC PRODUCTS  
43. To establish that a Member's internal tax is inc onsistent with the first sentence of Article III:2, 
one must demonstrate that (1) the taxed imported and domestic products are "like"; and (2) the taxes 
applied to the imported products are "in excess of" t hose applied to the like domestic products.  As 
explained below, the measures in question are also in consistent with the first sentence of Article III:2. 
1. Philippine distilled spirits are "like" imported distilled spirits 
44. As with determining whether products are "direc tly competitive or substitutable," in order to 
determine whether imported and dom estic distilled spirits are "like products" previous panels have 
assessed factors such as the products' physical characteristics, channels of distribution, end uses, 
consumer tastes and habits, and tariff classification.   
45. Rather than specifying a particular type of  spirit for preferential treatment, the measures 
discriminate by specifying the raw materials used to produce the product – raw materials that are 
largely used to produce Philippine "local" spirits, not imported products.  This is similar to the facts in 
Mexico – Taxes on Soft Drinks , where both cane sugar and beet suga r were used to produce the soft 
drinks affected by Mexico's measure.  These two ma terials were both used to manufacture the same 
products.  Examining the characteristics and uses of th e two materials, the panel determined that the 
downstream products were "like" products. 
46. The Philippines produces a range of products fro m the local materials designated in the 
statute.  The Ginebra San Miguel Company alone pr oduces brandy, vodka, gin, tequila and whiskey.  
For the Philippines, the evidence supports the conclu sion that local products made from typical local 
raw materials (e.g., gin, whiskey, vodka, brandy ) compete with, and are "like," their  imported 
counterparts.     
47. For brandy, whiskey, and vodka, the Philippines has promulgated Standard Administrative 
Orders (SAOs) on product standards that very plainly st ate that different raw materials can be used to 
make the same "type" of spirit. This supports the conclusion that, for purposes of the Philippine 
measures, the "local" product is "like" the imported product. 
48. With respect to whiskey and brandy, the S AOs explicitly provide that "whiskey" and 
"brandy" can be made from different raw mate rials.  Specifically, "compounded" brandy and 
"compounded" whiskey can by made from "neutral spirits." The SAO for vodka does not mention raw 
material at all in the definition of vodka, but simply  states that it is obtained from "neutral spirit" from 
"fermented grain, potato, or any other source."  By the Philippines' own standards, Philippine vodkas, 
whiskeys, and brandies are "like" imported vodkas, whiskeys, and brandies.  
49. Not only are Philippine products directly compe titive or substitutable with imported products, 
based on both physical characteristics and how th e products are marketed and sold, Philippine 
products are "like" domestic products  WT/DS396/R 
 WT/DS403/R 
 Page A-17 
 
 
 50. Each type of Philippine distilled spirit is virt ually identical to its imported counterpart in 
terms of color, packaging, and alcohol content.   For example, gin and vodka are clear, whether 
imported or domestic, and that whis kies and brandies are golden.  A dvertising uses similar terms to 
describe the color and taste of imported and domestic brands.   
51. Other factors (end uses, channels of distributi on, substitutability) also support the conclusion 
that the Philippine products subject to the lower ta x rate are "like" imported products subject to the 
higher rate.  For example, with respect to channels  of distribution, importe d and domestic brands of 
the same type are grouped together in stores and di splays, demonstrating that the raw material is 
irrelevant to how the brands are sold.  The second photograph in Exhibit US-30 depicts imported 
whiskies (Maker's Mark, Jack Daniel's, J&B) and domestic White Castle on the same set of shelves. 
52. The labels of the individual brands also em phasize the "likeness" of Philippine and imported 
products.  For example, the local White Castle wh isky and imported Jim Beam whiskey both use red, 
gold, black and white in their label designs, as well as seals and natural images.  Don Enrique tequila 
features a sombrero, signaling association with Mexico.  
53.  Evidence from the Philippine market (the surv ey results prepared by Euromonitor) shows 
that imports are no different – from a consumer perspective – than locally manufactured distilled 
spirits made of local raw materials.  In short, for every variety of distilled spirit available, the 
Philippine product – made from local raw materials – is "like" the imported product.  As such, these 
products are "like" domestic products within the mean ing of the first sentence of Article III:2 of the 
GATT 1994.  
2. Imported products are "taxed in excess" of Philippine products 
54. As noted above, a measure is inconsistent w ith the first sentence of GATT 1994 Article III:2 
where (1) the domestic and imported products are " like" products; and (2) the imported like product is 
taxed in excess of the domestic product.  The di fference in taxation between domestic and imported 
products in the Philippines is so large that the lowest  tax rate per bottle for im ported products is nearly 
nine times above the highest rate per bottle applied to  domestic products in r ecent regulations.  Thus, 
imported products are clearly "taxed in excess" of domestic products. 
III. CONCLUSION  
55. For the reasons set out above, the United States r espectfully requests the Panel to find that the 
Philippine measures with respect to th e taxation of distilled spirits are: 
 inconsistent with Article III:2 of the GATT 1994, second sentence, as a tax applied 
on imported distilled spirits which are dir ectly competitive or substitutable with 
domestic distilled spirits which are "not similarly taxed"; and 
 
 inconsistent with Article III:2 of the GATT 1994, first sentence, as a tax on imported 
distilled spirits "in excess of those a pplied to like domestic products."  
   WT/DS396/R 
WT/DS403/R Page A-18 
 
 
 ANNEX A-3 
 
EXECUTIVE SUMMARY OF THE FIRST WRITTEN SUBMISSION OF  
THE PHILIPPINES 
 
 
I. INTRODUCTION 
1. 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. 
2. An important tenet of the Philippines' fiscal objective is equitable taxation.  Article VI, 
Section 28(1) of the Constitution of the Philippines pr ovides that "the rule of taxation shall be uniform 
and equitable.  The Congress shall evolve a progres sive system of taxation."  This means, among 
other things, that taxation should be based on the taxpayer's individual ability to pay.  Therefore, 
higher-priced goods, typically bought by wealthier c onsumers, should bear a higher absolute tax than 
lower-priced goods, typically bought by less affluent consumers. In the Congressional deliberations at 
the time of the adoption of Section 141 of the Nati onal Internal Revenue Code, it was stated that the 
proposed tax system would be fair as "It will be  based on the ability to pay … because the tax will 
depend on whether the product is high priced or lo w priced … [This] will accommodate or answer the 
constitutional requirement of equitable taxation." 
3. The jurisprudence of the WTO has long recogni zed the right of WTO Members to establish 
and apply their own tax policies.  As WTO Member s are "free to tax distilled alcoholic beverages on 
the basis of their alcohol content and price", they are equally free to tax distilled alcoholic beverages 
on the basis of the raw materials used.   
II. FACTUAL BACKGROUND 
4. The materials-based excise tax system for distilled spirits in the Philippines is non-
discriminatory, in law and in fact. It appli es a specific tax on distilled spirits produced from 
designated raw materials, and a three-tiered ta x on spirits produced from other materials. The 
distinction in tax rate is based on the objective criterion of raw materials and not on whether the 
products are domestic or imported.  The language of the statute is clear on this point: Section 141(a) 
states that the specific rate applies to distilled spirits produced from the designated raw materials 
"provided such materials are produced commerciall y in the country where they are processed into 
distilled spirits."    
5. The raw materials identified in Section 141(a)  are grown in numerous countries in various 
parts of Asia, Australia, Africa, North America (United States), Central America and South America. 
According to the United Nations Food and Agricu lture Organization, the Philippines ranked 10th in 
the world in terms of production of sugar cane in 2008. Given the global availability of all of these 
materials, particularly sugar, the measure does not  favour domestic producers.  Thus, whether on a de 
jure or a de facto basis, the measure is origin-neutral. 
6. The raw materials-based distinction in Section 141 can be traced to the American colonial 
period in the Philippines. The US colonial admini strators imposed a specific tax on distilled spirits 
"produced from sap of the nipa, coconut, or buri palm, or from the juice, sirup, or sugar of the cane."  
Nearly a century later, Section 141 of the NI RC uses almost identical language, providing for a 
specific tax on distilled spirits "produced from the sa p of nipa, coconut, cassava, camote, or buri palm 
or from the juice, syrup or sugar of the cane". It is  undisputed that the complainants in this case carry  WT/DS396/R 
 WT/DS403/R 
 Page A-19 
 
 
 the burden of proving their claims that the Ph ilippines has violated its obligations under GATT 
Article III:2. They cannot merely assert a violation; th ey must prove the elements of a violation. Both 
the United States and the EU have failed to dischar ge this burden in relation to all their claims 
concerning the products in question.  
III. THE PHILIPPINES' EXCISE TAX RE GIME FOR DISTILLED SPIRITS IS 
CONSISTENT WITH ARTICLE III:2, FIRST SENTENCE 
A. NON-SUGAR -BASED DISTILLED SPIRITS ARE NOT "LIKE" SUGAR -BASED DISTILLED SPIRITS1 
7. The concept of "like products" under Article III: 2 must be examined on a case-by-case basis, 
and the Appellate Body has stressed that this c oncept "must be construed narrowly so as not to 
condemn measures that its strict terms are not me ant to condemn."  A very important element of 
"likeness" relates to the physical characteristics of  the product in question.  Market segmentation 
based on price is also a very important aspect in the determination of likeness under Article III:2, first 
sentence.   
1. Physical Characteristics 
8. The non-sugar-based distilled spirits originating in  the EU and the United States are not "like" 
the sugar-based spirits produced in the Philippines.  The physical differences are substantial and in 
turn affect the quality, price, brand reputation and other characteristics of the products.   
9. The difference in raw materials causes differe nces in the production processes for sugar-based 
and non-sugar-based distilled spirits.  The most important differences are found in fermentation, 
distillation and aging. 
10. For sugar-based spirits, fermented sugar-cane mo lasses is subjected to continuous distillation 
so that it is completely stripped of congeners, which are the chemical compounds responsible for 
giving alcoholic beverages their taste, flavour and ar oma. The resulting alcohol is a neutral spirit that 
does not retain any of the attributes (taste, colour  or odor) of the raw material from which it came.  
Neutral spirits rely on flavouring extracts or concentr ate, or natural, nature-identical or artificial 
flavours and essences, for their taste, flavour  and aroma. Thus, for sugar-based spirits, the end goal of 
distillation is to come up with a neutral spirit, i. e., a spirit that is tasteless, odorless and colourless, 
and that is devoid of the attributes of the raw material from which it came . 
11. For non-sugar-based spirits, on the other hand, the fermented raw material is distilled in a way 
that permits retention of the conge ners unique to the raw material, thus giving the resulting alcoholic 
beverage its distinctive taste, flavour and aroma. For these non-sugar-based spirits, the fermented raw 
material ( i.e., grape or fruit wine, or fermented mash of grain) is distilled only up to the point where 
the level of flavour desired by the distiller is achieved.  The end goal of distillation is to balance, 
enhance, highlight, combine and/or contrast the different flavours naturally occurring in the raw 
                                                      
1 Section 141(a) of the NIRC refers to specific materials, i.e., "sap of nipa, coconut, cassava, camote, or 
buri palm or from the juice, syrup or sugar of the cane."  Because this phra se is cumbersome to use throughout 
the text, we refer to the spirits and liquors produced fr om the Section 141(a)-enumer ated materials as "sugar-
based" spirits and liquors.  We believe that adopting su ch a convention will enhance the narrative discussion of 
the tax structure and the distinction between Section 141(a) and Section 141(b) without creating the 
misimpression that Section 141(a) refers only to sugar as a raw material, which it clearly does not.  At other 
times in this submission, the use of the phrase "sugar -based" spirits and liquors will be restricted to those 
products produced from sugar as a raw material.  This s hould be clear from the cont ext, and should not cause 
confusion. WT/DS396/R 
WT/DS403/R Page A-20 
 
 
 material . Finally, while non-sugar based spirits undergo an aging process of differing duration, sugar-
based spirits do not.  
12. Physical differences are more sp ecifically described as follows: 
 Whiskey:  EU and US whiskey use grains or cereals as the primary basis for this 
product.  By contrast, Philippine "whiskey",  like all other distilled spirits produced in 
the Philippines, is a sugar-based neutral spir it (ethyl alcohol) to which flavouring is 
added.  Philippine sugar-based whiskey would be prohibited from being marketed 
as "whiskey" under both EU law and United States law.   
 Brandy : is a spirit based on wine, grape or other fruit – not sugar.  There is a 
fundamental difference in the physical char acteristics of sugar-based brandy produced 
in the Philippines and non-sugar-based brandy produced in the EU and United States.  
Once again, the sugar-based brandy is made  from ethyl alcohol derived from sugar, 
stripped of practically all congeners, to  which the flavourings are added.  Philippine 
sugar-based brandy would not be permitted to be marketed as "brandy" under the 
domestic laws of the EU or the United States .   
 Vodka  produced from sugar molasses cannot be considered "like" vodka produced 
from grains or cereals.  The Panel in Japan – Alcoholic Beverages II  found that 
shochu and vodka were like products because they were "both white/clean spirits, 
made of similar raw materials  and the end-uses were virtually identical."  Sugar-
based vodka and grain-based vodka are not made from "similar raw materials."  The 
difference in raw materials affects the taste and flavour of the product.  
 Gin:  Gas chromatography tests performed on non-sugar-based gin and sugar-based 
gin yielded results supporting the conclu sion that gin made from different raw 
materials cannot be considered the same.  
 Tequila  is a distilled spirit made from agave, a plant that grows chiefly in Mexico.  It 
is not "like" the tequila-flavoured spirits that are produced by Filipino distillers.  
 Rum:   The Philippines does not contest that  imported rum and locally produced 
sugar-based rum are made from the same ra w material: sugar.  Accordingly, the 
Philippines taxes all imported rums, properly declared to be made from sugar, at the 
tax rate under Section 141(a).  
2. Consumer tastes and preferences 
13. In considering the perceptions a nd behaviour of consumers, it is important to stress that the 
market in the Philippines for non-sugar-based dist illed spirits and sugar-based distilled spirits is 
highly segmented. The purchasing power of the vast majority of Philippine consumers is very low.  This means that the tastes and habits of consumer s are objectively determined and constrained by the 
amount of disposable income available to be spent on  alcohol consumption.  This important factor is 
critical to assessing the tastes and preferences of consum ers in the market segments in the Philippines.  
There exists at least two different  groups of "consumers" in the Phili ppines, each with a different set 
of tastes, habits, perceptions and behaviour and levels of disposable  income. Neither the United States 
nor the EU has presented any credib le evidence to suggest that the distilled spirits sold in these 
different market segments in the Philippines are in terchangeable. Indeed, the United States did not 
make any arguments regarding consumer tastes and preferences.  WT/DS396/R 
 WT/DS403/R 
 Page A-21 
 
 
 3. Tariff classifications 
14. The Philippine Tariff and Customs Code (TCC)  distinguishes between each category of 
distilled spirits. More specifically, it uses indi vidual categories for each of the non-sugar-based 
distilled spirits; and, uses a separate category for sugar-based liquors. Thus, each type of distilled 
spirit, internationally distinguished and identifie d by the different raw materials used in their 
production, has its own individual tariff line. The EU  has misunderstood the TCC when it asserts that 
"[a] whisky, a vodka, a gin/geneva and a rum fall alwa ys within a specific sub-heading, irrespectively 
of whether they were produced with e.g., sugar cane, coconuts, grapes, wheat, potatoes etc."  It is only 
when they are made from sugar that they will fall within heading 2208.40. The United States did not 
offer any evidence on tariff classification in support of its argument that certain distilled spirits are 
like products. 
4. End-uses 
15. The end-use of the products at issue is objec tively the same in that they are alcoholic 
beverages that will be ingested for the same purpose, i.e., relaxation. However, that does not mean 
that they are "like products." The Panel in Japan – Alcoholic Beverages II  stressed that "the term 'like 
products' suggests that for two products to fall unde r this category they must share, apart from 
commonality of end-uses, essentially the same physical  characteristics."  Thus, any overlap in end-use 
for non-sugar-based distilled spirits and sugar-based di stilled spirits is insufficient to overcome the 
clear differences in physical characteristics.  
16. When the elements of "likeness" are consid ered in their totality, including physical 
characteristics, consumer tastes and habits, market segmentation, tariff classifications and end-use, 
non-sugar-based distilled spirits cannot be cons idered "like" sugar-based distilled spirits. 
B. LEVEL OF TAXATION  
17. The Philippines considers that as the first part of  the test under Article III: 2, first sentence, has 
not been met, i.e., the products are not "like", there is no need  to proceed to the analysis of the second 
part of the test, namely, whether  one group of di stilled spirits is taxed "in excess of" another group of 
distilled spirits.  
IV. THE PHILIPPINES EXCISE TAX REGI ME FOR DISTILLED SPIRITS IS 
CONSISTENT WITH ARTICLE III:2, SECOND SENTENCE 
A. NON-SUGAR -BASED DISTILLED SPIRITS AND SUGAR -BASED DISTILLED SPIRITS ARE NEITHER 
"DIRECTLY COMPETITIVE " NOR "SUBSTITUTABLE " 
18. The ordinary meaning of the term "directly" is  "completely, absolutely, exactly."  Thus, 
products can only be regarded as "directly comp etitive" if the "degree of proximity" in the 
competitive relationship between the sugar-based and non-sugar-based products is such that they 
could be considered to be in "complete, absolute , or exact" competition with one another. Moreover, 
the appropriate place to examine whether products are "directly competitive or substitutable" is the 
marketplace. The need for a case- by-case examination, based on th e peculiarities of the individual 
marketplace means that prior cases are of limited  relevance in determining whether non-sugar-based 
distilled spirits and sugar-based liquors can be consid ered as directly competitive or substitutable. In 
none of the three prior WTO alcohol cases were th e Panels presented with the type of highly 
segmented market that exists in the Philippines, in which sugar-based spirits are produced for low-
income consumers, and where high cost non-sugar-ba sed spirits are priced ou t of reach for the vast 
majority of the population .  WT/DS396/R 
WT/DS403/R Page A-22 
 
 
 1. The Philippine market 
19. In the specific context of the Philippine market , sugar-based domestic liquors, which are sold 
at very low prices, do not offer an "alternative way[] of  satisfying the same consumer demand in the 
marketplace" as that offered by  high-priced non-sugar-based spirits .  There is no "close", "direct" or 
"proximate" competitive relationship between these products.  Non-sugar-based spirits cannot offer 
such an alternative even for th e foreseeable future, given the magnitude of the gap in purchasing 
power in these different market segments. Such  non-sugar-based distilled spirits are simply too 
expensive to be an affordable option for the vast  majority of Philippine consumers – regardless of 
any tax.  
2. Price and elasticity of substitution 
20. The Philippine market for alcoholic beverages is stratified in such a way that non-sugar-based 
distilled spirits at their pre-tax prices are simply no t an affordable option for the vast majority of 
consumers, given their low income.  This means that non-sugar-based distilled spirits and sugar-based 
spirits are not in direct competition in the Philippine market.  
21. The gap between the average pre-tax price of non-sugar based spirits and sugar-based spirits 
is simply insurmountable for the vast majority of F ilipinos.  This gap is so great that the price of non-
sugar-based spirits prevents their purchase, as indi cated in the Euromonitor Consumer Preference 
Survey which found that "[e]ven at a 40% price decrease of imports and a 100% to 200% price 
increase in domestics, imported brands are typically  more than twice as expensive as domestic ones."   
22. The University of the Philippi nes econometrics study shows ve ry low price elasticity and a 
very weak degree of substitutability. The United States points to the Euromonitor survey as an 
indication of price elasticity.  However, these findi ngs reflect that any competitiveness between sugar-
based and non-sugar-based distilled spirits is limi ted to a very small and highly unrepresentative 
segment of the Filipino market. Moreover, even for these individuals, it took dramatic decreases in the 
prices of non-sugar-based spirits, coupled with even  more significant increases in the prices of sugar-
based products, to affect consumer choices. Thus, ev en for the class of Filipinos who have the option 
of buying non-sugar-based spirits, there w as very weak elasticity of substitution. 
3. Distribution channels 
23. That sugar-based spirits and non-sugar-based spirits are sold in structurally different markets, 
and are not directly competitive or substitutable, is al so reflected in their manner of distribution.  In 
the Philippines, non-sugar-based distilled spirits and sugar-based spirits are sold through distribution 
channels that are almost entirely different . Periodic retail trade audits show that sari-sari  stores 
consistently accounted for roughly 85% of off-premi se sales of sugar-based spirits. By contrast, non-
sugar based spirits are almost never  sold in sari-sari  stores. Another price survey which covered 43 
sari-sari  stores located all over Metro Manila, revealed that not a single sari-sari store carried non-
sugar-based spirits
. No market exists for non-sugar-based sp irits through this principal distribution 
chain.  
24. Distribution channels for sugar-based and non-suga r-based spirits also differ when it comes to 
on-premise sales. Sugar-based spirits are generally not  sold in hotels, high-end restaurants and bars 
where non-sugar-based spirits are so ld. Instead, they are sold in carinderias , lugawans  and gotohans , 
and in beer gardens, beer houses and ihaw-ihaws (grilled meat stalls), wher e, in turn, non-sugar-based 
spirits are not sold.    WT/DS396/R 
 WT/DS403/R 
 Page A-23 
 
 
 4. Physical characteristics 
25. The products in the present case are indeed "phy sically quite different", as described in the 
section on "like" products, and th is places a "higher burden" on th e EU and the United States to 
establish that, despite these differences, there is a competitive relationship between them.  
5. End use and advertising 
26. Any overlap in end-uses cannot by itself overc ome the clear physical differences in the 
products, or, more significantly, market segmentation caused by very material price differences. It 
follows that any overlap in advertising strategies is also of limited relevance. The EU points to 
instances where the producers of sugar-based products  have sought to market their products by 
making references to the country where the spirit is traditionally made, or referring to traditional 
appellations or ingredients.  However, this only c onfirms that the marketing campaigns are attempting 
to overcome differences in perceptions affecting economic decisions held by consumers between non-
sugar-based distilled spirits a nd sugar-based distilled spirits. 
6. Tariff classification 
27. The classification of these products under the Philippine Tariff and Customs Code tariff 
schedule also supports the conclusion that these produc ts are not directly competitive or substitutable.  
As noted above, the TCC uses individual categori es for each of the non-sugar-based distilled spirits, 
but a separate category for sugar-based liquors.  
28. In sum, the complainants have failed to prove  that the products in question are directly 
competitive or substitutable in the Philippine market. 
B. NON-SUGAR -BASED DISTILLED SPIRITS AND SUGAR -BASED SPIRITS ARE "SIMILARLY 
TAXED " 
29. Should the Panel find, despite compelling evid ence to the contrary, that non-sugar-based 
spirits and sugar-based spirits are dire ctly competitive or substitutable, the de minimis difference in 
the relative tax burdens borne by the products at  issue is permissible under Article III:2, second 
sentence.  
30. The comparison to be made is not between th e nominal tax rates applied to non-sugar-based 
and sugar-based products, but rath er their relative tax burdens. 
31. The 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 competitio n of products in the market in question.  If the 
difference in tax burden has little or no impact on c onsumer decisions, it is appropriately deemed to 
be de minimis .  As noted above, the average net retail pr ice of the non-sugar-based spirits indicates 
that, regardless of the tax rate imposed, the vast ma jority will not be able to afford these products. In 
other words, the difference in the level of taxatio n has no effect in the Philippine market on the 
decision to purchase or not to purchase, as affirmed  by both the complainants' Euromonitor Consumer 
Preference Survey and the University of the Philippines econometrics study.  
32. Moreover, as there is "no set level of tax differential which can be considered de minimis in 
all cases" the Panel has a certain amount of discretion in determining where the line for de minimis 
taxation will be drawn.  In exercising this discretio n, a Panel must take into account the particular 
market situation.  In the case of the Philippines, we ight should be given to the fact that the Philippine WT/DS396/R 
WT/DS403/R Page A-24 
 
 
 taxation system has the effect of taxing those w ho can afford what are effectively luxury goods at 
higher levels than those who cannot.  
C. T
HE EXCISE TAXES ARE NOT APPLIED "SO AS TO AFFORD PROTECTION " TO DOMESTIC 
PRODUCTION  
33. Should the Panel find, despite compelling evid ence to the contrary, that the products in 
question are directly competitive or substitutable and the difference in taxation is more than de 
minimis , both the history and the current use of the mate rials-based excise tax system refute the notion 
that it has been applied "so as to afford protection."   
34. Section 141(a) provides this designated rate for all distilled spirits made from sugar, whether 
they are imported or locally produced.  If the le gislators had intended to "protect" the domestic 
distilled spirits industry, this preferential rate would not have been accessible for imported products.  
The significance of the fact that both imported and distilled spirits can access the preferential tax rate 
is illustrated by the fact that rums  constitute one of the most popular distilled spirits in the Philippines, 
making up over one-fourth of the total distilled spirits market.  
35. More importantly, none of the materials eligible for th e lower tax rate are found exclusively 
in the Philippines .  Indeed, as noted, the raw materials liste d in Section 141(a) are grown all over the 
world.   
36. GATT Article III protects equality of competitive c onditions.  This logically means that if the 
measure does not in fact impact on competitive c onditions, it cannot violate GATT Article III.  The 
competitive opportunities for non-sugar-based distilled spir its in the Philippines are determined by the 
high price of such products and the low purchasing power of the vast majority of consumers – not the 
excise tax.  This is a "real fact in a real case in the real world."  Thus, the Philippines submits that any 
dissimilarity in the level of taxation is not imposed  "so as to afford protection" to domestic producers 
of sugar-based liquors. 
V. CONCLUSION 
37. For the reasons set forth above, the Philippin es requests the Panel to reject all of the 
complainants' claims under GATT Article III:2. 
 
_______________ 
 
 
  WT/DS396/R 
 WT/DS403/R 
 Page B-1 
 
 
 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 
 
 WT/DS396/R 
WT/DS403/R Page B-2 
 
 
 ANNEX B-1 
 
EXECUTIVE SUMMARY OF THE WRITTEN SUBMISSION  
OF AUSTRALIA 
 
 
I. INTRODUCTION 
1. The proceedings, initiated separately by the Eur opean Union and the United States in relation 
to the Philippines' distilled spirits excise tax regi me, raise systemic issues concerning the application 
of the national treatment principles contained in Ar ticle III:2 of the General Agreement on Tariffs and 
Trade 1994 (GATT 1994). 
II. THE GENERAL AGREEMENT ON T ARIFFS AND TRADE (GATT 1994)  
A. A
RTICLE  III:2,  FIRST SENTENCE  
2. A key issue raised in the dispute is whether spirits which fulfil the raw materials requirement1 
and those that do not are "like products" under the first sentence of Article III:2 of GATT 1994.  The 
Appellate Body has previously construed the te rm "like products" narrowly and undertaken a case-by-
case analysis through the application of criteria su ch as the product's end-uses in a given market and 
its properties, nature, and quality.2  Australia notes that no one cr iterion is determinative and the 
evidence as a whole must be examined.3   
3. The complaining parties' argument in respect of "like products" raises three possibilities for 
the Panel to determine on the facts: firstly that a ll distilled spirits are "like products"; secondly that 
distilled spirits falling within the same "type" (i.e . imported and domestic vodka) are "like products"; 
and lastly that spirits of a different "type", but which utilise the same raw materials are "like products" 
(e.g. would Philippines brandy be considered "like" imported rum as both are made from the same 
raw material?4).   
4. Australia notes that the Philippines' submissi on emphasises the differences in the physical 
characteristics of the distilled spirits under exam ination, primarily based on the different raw 
ingredients used in their production.  Australia notes that the panel in Japan – Alcoholic Beverages II  
found that shochu and vodka were "like products" alt hough they contained "similar" and not identical 
raw materials.5  Australia observes that the present facts app ear to indicate that the raw material used 
does not materially alter consumer perception of the product; rather such perception appears to be 
affected by the addition of flavouring and the marketing of the end products as brandy, gin, etc.  
                                                      
1 Section 141 of National Internal Revenue Code of 1997  (Philippines) applies a lower rate of tax to 
spirits made from specified raw materials which are commercially produced in the same country where they are 
processed into distilled spirits.  Australia refers to th is requirement as the 'the raw materials requirement'. 
2 Appellate Body Report, Japan – Alcoholic Beverages II,  pp. 20-22. 
3 Appellate Body Report, EC – Asbestos , para. 109. 
4 The Philippines claims that all rum would be affo rded the lowest tax bracket under the excise tax 
measure (although presently this is not the case in practice) (see Philippines'  first written submission, 
paras. 172-175).  Australia notes that in addition to requ iring that the distilled spirit be made from the specified 
raw materials, the raw material requirement requires that the raw ingredient be commercially produced in the same country in which the alcohol is distilled. 
5 Panel Report, Japan – Alcoholic Beverages II, para. 6.23.  Similarly, the panel in Mexico – Soft Drinks  
found that beet sugar and cane suga r are "like products" within the mean ing of Article III:2 (para. 8.36).  WT/DS396/R 
 WT/DS403/R 
 Page B-3 
 
 
 5. The qualifying issue is whether the taxes are applied to imported products "in excess of" like 
domestic products.  The Appellate Body has indicated that 'in excess of' is to be interpreted strictly 
and "even the smallest amount of 'excess' is too much" and that further such an assessment is not 
conditional on a trade effects test or de minimis  standard.6   
6. Australia notes that the measures at issue do not  directly discriminate between imported and 
domestic goods.  However Australia notes that the Appellate Body in Korea – Various Measures on 
Beef confirmed that a measure which appears on its face  to be origin-neutral may nevertheless give 
rise to de facto  discrimination7.  Australia submits that a measure which does not expressly apply 
different tax rates based on whether a product is imported or domestic may nevertheless be 
inconsistent with the first sentence of Article III:2 of GATT 1994 on the basis that the actual tax 
burden applied results in an economic impact on the competitive conditions for imported compared 
with like domestic products8.  
B. ARTICLE  III:2,  SECOND SENTENCE  
7. The second sentence of Article III:2 applies to a broader range of products than the first 
sentence9; however each panel must consider on a case-by-case basis how broad the scope is.10  
Previous panels have developed criteria which ma y be applied to determine whether products are 
"directly competitive" under the second sentence of Article III:2 including "physical characteristics, 
end-uses, channels of distribution and prices".11 
8. Australia's view is that a "directly competitiv e" relationship should be  determined in the 
context of the particular market conditions.  The Philippines submits that its consumer market is 
driven by price and is segmented into at least two different groups with different tastes, habits, 
perceptions and behaviour.12 Australia notes that previous panels  have found that products with 
different net retail prices can be "directly compe titive" within the context of a segmented market 
driven by price, on the basis that the impact of the price on the market can be affected by the nature of 
the product itself as well as the relative competiti on within and across sp ecific market segments.13   
9. In contrast to the characterisation of "like products" under the first sentence, Australia notes 
that the panel in Japan – Alcoholic Beverages II found that "the term 'directly competitive or 
substitutable' does not suggest at all that physical resemblance is required... [T]he decisive criterion... 
is whether they have common end uses, inter alia , as shown by elastic ity of substitution".14  Australia 
further notes the complaining parties' assertions th at domestically produced and imported spirits are 
marketed as the same "type" of spirit, often using similar packaging and branding15 and that the nature 
and content of the products' marke ting strategies seem to indicate that they are competing for a similar 
market segment.16  In assessing such assertions, the Panel ma y again wish to consider the relationship 
                                                      
6 Appellate Body Report, Japan –- Alcoholic Beverages II,  p. 23. 
7 Appellate Body Report, Korea – Various Measures on Beef , para. 137. 
8 Panel Report, Argentina  Hides and Leather,  paras. 11.182-183. 
9 Appellate Body Report, Korea – Alcoholic Beverages , para. 118. 
10 Panel Report, Korea – Alcoholic Beverages , para. 10.38, citing EPCT/A/PV/9, p. 7; 
E/Conf.2/C.3/SR.11,p. 1 and Corr.2; and E/Conf.2/C.3/SR.40, p. 2. 
11 Panel Report, Korea – Alcoholic Beverages , para. 10.43; Panel Report, Chile - Alcoholic Beverages , 
para. 7.30. 
12 Philippines' first written submission, para. 179. 
13 Panel Report, Korea – Alcoholic Beverages , para. 10.74; Panel Report, Chile – Alcoholic Beverages, 
para. 7.37. 
14 Japan – Alcoholic Beverages II, Panel Report, para. 6.22; Appellate Body Report, p. 25. 
15 United States' first written submission, para. 97.   
16 European Uion's first written submission, para. 77. WT/DS396/R 
WT/DS403/R Page B-4 
 
 
 between all distilled spirits, between types of distilled spirits, or across types with different names, but 
made from the same raw materials
17 (see paragraph 3 above).   
10. The term "not similarly taxed" in the second sentence of Article III:2 of GATT 1994, requires 
more than a de minimis  standard18.  Under the excise tax measure the lowest tax on spirits which do 
not meet the raw materials requirement amounts to more than ten times the tax which is applied to 
spirits which meet the requirement.  Australia not es that while the determination must be made on a 
case-by-case basis19, the comparative difference in this dis pute is in excess of what has been 
considered as reaching the de minimis standard in previous panel decisions.20    
11. The second sentence of Article III:2 of GATT 1994 , also requires that the measure is not 
"applied... so as to afford protection to domestic products". The Appellate Body has stated that 
"protective application can most often be discer ned from the design, the architecture, and the 
revealing structure of the measure".21   
12. In Australia's view such an analysis  should include consideration of:  
 the legal and historical development of the excise tax measure; 
 comparison of the Philippines' stated objective of the excise tax measure22 and the application 
of the measure; 
 the difference in the scale of the tax rates;  
 the growth in annual sales in domestic spirits in  the Philippines compared with the decrease in 
imports of spirits into the Philippines23; 
 that imported spirits account for less than four per cent of the market share in 2006, but 
accounted for 36 per cent of tax revenue raised from spirits;  
 some imported spirits made from the same raw material as domestic spirits are not afforded 
the lowest tax rate24; and 
 the requirement that the raw materials be pr oduced in the country in which the spirit is 
manufactured. 
 
III. CONCLUSION 
13. Australia considers that there are two critical ques tions in this dispute.  First, whether spirits 
which meet the raw materials requirement and thos e that do not can be classified as "like products" 
and/or "directly competitive or substitutable products" (whether between or across types of spirits, or 
between all spirits).  Second, whether the measure is  "applied... so as to afford protection to domestic 
products", for the purposes of the second sentence of  Article III:2, based on a consideration of not 
only the application of the excise tax measure, but also its design and architecture. 
 
                                                      
17 In Japan – Alcoholic Beverages II , the panel found that the range of spirits "shochu, whisky, brandy, 
rum, gin, genever, and liqueurs were 'directly compet itive or substitutable products' " for the purposes of 
Article III:2 (para. 7.1).  See also Panel Report , Korea –Alcoholic Beverages , para. 10.67. 
18 Japan – Alcoholic Beverages II, Panel Report, para. 6.33 ; Appellate Body Report, p. 27 . 
19 Appellate Body Report, Japan – Alcoholic Beverages II, p. 27 . 
20 Panel Report, Japan – Alcoholic Beverages II , para. 6.33. 
21 Appellate Body Report, Japan – Alcoholic Beverages II, p. 29. 
22 Philippines' first written submission, para. 32. 
23 United States' first written submission, paras. 32-33. 
24 United States' first written submission, para. 30; Philippines' first written submission, para. 175.  WT/DS396/R 
 WT/DS403/R 
 Page B-5 
 
 
 ANNEX B-2 
 
WRITTEN SUBMISSION OF MEXICO 
 
 
I. GENERAL 
1. These proceedings arise out of the continued en forcement by the Philippines of a special tax 
regime on distilled spirits, if produced from the sap of nipa, coconut, cassava, camote , or buri palm or 
from the juice, syrup or sugar of the cane, provided that such materials are produced commercially in 
the country where they are processed into distilled spirits, in which case a specific tax is imposed.  
Furthermore, if the distilled spirits have been prod uced from raw materials other than those mentioned 
above, they are subject to a different tax. 
II. LEGAL ARGUMENTS 
A. LIKE PRODUCTS WITHIN THE MEANING OF ARTICLE  III:2,  FIRST SENTENCE , OF THE 
GATT 1994 
2. The United States indicates that the measures app lied by the Philippines are inconsistent with 
the provisions of Article III:2, first sentence, of  the GATT 1994, inasmuch as they establish internal 
taxes in excess of those applied to "lik e domestic products".  Regarding product " likeness ", the Panel 
in Korea –Alcoholic Beverages , noted that: 
"… the concept of "likeness" in Article III:2, first sentence, is to be narrowly 
construed.  The question is whether the prod ucts are sufficiently close in nature that 
they fit within this narrow category."1 
3. According to various WTO Panel and Appellate Body precedents, the criteria that have been 
taken into account to determine whethe r products are "like" are the following2: 
(i) The physical properties of the products; 
(ii) the extent to which they may be destined  to serve the same end-uses or similar 
end-uses; 
(iii) the extent to which consumers perceive and treat them as different possible means of 
fulfilling certain functions in order to satisfy a specific need or demand; 
(iv) the international tariff classification of the products. 
4. The Philippines argues that the pr oducts in the instant case cannot be considered to be like 
products if account is taken of the raw materials from which the distilled spirits were produced and 
the terms used by the manufactur ers to describe each product.  It also points out that likeness cannot 
be measured on the basis of the four-digit tariff classification in the Harmonized System. 
                                                      
 Original Spanish. 
1 Panel Report on Korea – Taxes on Alcoholic Beverages ,  para. 10.103. 
2 See Appellate Body Report on Korea –Alcoholic Beverages , supra  and Appellate Body Report on 
Japan – Taxes on Alcoholic Beverages II . WT/DS396/R 
WT/DS403/R Page B-6 
 
 
 5. As has been indicated, various precedents in this matter show that, in order for a product to be 
considered "like" another product, account must be taken, inter alia , of:  the physical properties of the 
products;  the extent to which they may be destined to serve the same end-uses or similar end-uses;  
the extent to which they are perceived and treated by consumers as serving to fulfil certain functions 
with a view to satisfying a specific need;  and th e international tariff classification of the products. 
6. Accordingly, the Panel should pay particular a ttention to the possibility that the products are 
to be considered as "like" products.  In this conn ection, in accordance with Article III:2, first sentence, 
of the GATT 1994, Mexico considers that the analys is of this matter requires a narrow determination 
to be made as to whether the domestic products are pr oducts sufficiently close in nature that they fit 
within this narrow category. 
7. Given that the burden of proof rests on the (c omplaining or defending) party that asserts the 
affirmative of a particular claim or defence, it w ill be for the complaining party to demonstrate that 
the domestic products are like the imported products  within the meaning of Article III:2, first 
sentence, of the GATT 1994. 
B. DIRECTLY COMPETITIVE PRODUCTS WITHIN THE MEANING OF ARTICLE  III:2,  
SECOND  SENTENCE , OF THE GATT 1994 
8. If the Panel determines that the products in question are not like products, Mexico considers 
that, in any case, they would be directly competitiv e or substitutable products within the meaning of 
Article III:2, second sentence, of the GATT 1994.  In the Korea – Alcoholic Beverages  case, the 
Appellate Body held that: 
"The term 'directly competitive or substitu table' describes a particular type of 
relationship between two products , one imported and the other domestic.  It is evident 
from the wording of the term that the essence of that relationship is that the products 
are in competition.  This much is clear bo th from the word 'competitive' which means 
'characterized by competition', and from the word 'substitutable' which means 'able to 
be substituted'.  The context of the co mpetitive relationship is necessarily the 
marketplace since this is  the forum where consumers choose between different 
products.  Competition in the marketplace is a dynamic, evolving process.  Accordingly, the wording of the term 'directly competitive or substitutable' implies 
that the competitive relationship between prod ucts is not to be analysed exclusively 
by reference to current consumer preferen ces.  In our view, the word 'substitutable' 
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".3  (Emphasis added.  Footnotes not 
included.) 
9. It is also important to note that the Appellate Body, in Korea –Alcoholic Beverages,  held that 
"like" products are a subset of directly competitive or substitutable products.  Similarly, it stated that 
"… all like products are, by definition, directly competitive or substitutable products, whereas not all 
'directly competitive or substitutable' products are 'like'.".4  (Emphasis added.  Footnotes not 
included.) 
10. For its part, the Philippines in its written submis sion states that the differences between the 
various beverages or distilled spirits lie in th e raw materials from which they are made (fruits, 
                                                      
3 Appellate Body Report on Korea –Alcoholic Beverages , supra , para. 114. 
4 Appellate Body Report on Korea –Alcoholic Beverages , supra , para. 118.  WT/DS396/R 
 WT/DS403/R 
 Page B-7 
 
 
 grains, etc.), as well as whether or not sugar is us ed in their production, and points out that, for the 
production of every beverage or distilled spirit,  different production processes are carried out, 
including the processes of fermentation, distillation and ageing of each of the beverages.  The 
Philippines argues that non-sugar-based distilled sp irits are not in competition with, and cannot 
therefore be viewed as substitutes for, sugar-based sp irits.  Moreover, they are consumed by different 
publics.5 
11. In accordance with the foregoing, the Appellate Body in Canada – Periodicals  found that 
products are competitive or substitutable when they are interchangeable6 or if they offer alternative 
ways of satisfying a particular need or taste.7  In other words, contrary to what is stated by the 
Philippines, if the products in question cover a speci fic need and are interchangeable or substitutable, 
Mexico considers that they are directly "compe titive" products, regardless of the raw materials from 
which they have been produced, the production process es or the type of consumers of the products.  
Likewise, the Appellate Body, in Chile – Taxes on Alcoholic Beverages , held that Article III:2, second 
sentence, of the GATT 1994 provides for equality  of competitive conditions of all directly 
competitive or substitutable imported produc ts, in relation to domestic products.8 
12. Mexico is of the opinion that the Panel shoul d carefully analyse the possibility that the 
distilled spirits referred to by the Philippines are directly competitive or substitutable products, in 
accordance with Article III:2 of the GATT 1994 and the aforementioned precedents of the various 
panels and the Appellate Body. 
13. In the light of those precedents, the products th at are the subject of this dispute, namely 
"distilled spirits", must be considered as directly competitive products, since they satisfy the criteria 
established in previous WTO disputes ( Korea – Alcoholic Beverages , Japan – Alcoholic Beverages II , 
and Chile – Alcoholic Beverages ).  In other words, the following criteria are to be taken into account: 
That both the domestic and the impor ted products compete with each ot her and are substitutable in the 
marketplace;  
that the domestic and imported products are subject to  a different tax regime and, therefore, that the 
taxes applicable to domestic pr oducts are lower than the taxes applicable to imported products, 
making it appear that the domestic industry is being protected.  
III. CONCLUSION 
14. In view of the foregoing, Mexico requests the Panel to carry out an objective assessment of 
the issue placed before it, taking into account the pr ecedents that have been established by the Panels 
and the Appellate Body in the cases cited. 
 
_______________ 
 
 
                                                      
5 Written submission of the Philippines, presented on 14 October 2010 in Philippines – Taxes on 
Distilled Spirits , supra, para. 283. 
6 Appellate Body Report, Canada – Periodicals , WT/DS31/AB/R. 
7 Appellate Body Report on Korea – Alcoholic Beverages , supra, para. 115. 
8 Appellate Body Report on Chile –Alcoholic Beverages , para. 67.  WT/DS396/R 
 WT/DS403/R 
 Page C-1 
 
 
  
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 or al 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 
 
 WT/DS396/R 
WT/DS403/R Page C-2 
 
 
 ANNEX C-1 
 
EXECUTIVE SUMMARY OF THE OP ENING ORAL STATEMENT OF  
THE EUROPEAN UNION AT THE FIRST SUBSTANTIVE MEETING 
 
 
I. INTRODUCTION 
1. Preliminarily, the EU emphasizes that in their first written submissions, the EU and the US 
have provided extensive evidence that the excise ta x regime in the Philippines has been, and still is, 
conceived and applied so as to shield Filipi no spirit producers from the competition of imported 
products. It then observes that, in its first writte n submission, the Philippines simply re-runs old 
arguments which, however, have already been rej ected by WTO adjudicators in very similar cases. 
Moreover, the Filipino authorities also make so me statements which are factually wrong.  
2. The EU notes that previous jurisprudence mak es it quite clear that "like products" are a sub-
family of "directly competitive and substitutable products". The idea behind both these concepts is 
that of similarity  between goods. Basically, there are three categories of products under article III:2: 
"like products", "directly competitive and substitutabl e products", and finally (what could be called) 
"dissimilar products". However, there is no bright line to distinguish between these categories. The 
more two products are similar, the more they can  be considered "like" products, the lesser the 
similarities, the more these two products could only be regarded as "directly competitive and 
substitutable". Eventually, when similarities are not de emed sufficient, the products are neither "like" 
nor "directly competitive and substitutable" and, thus, fall outside the scope of Article III:2. 
Moreover, there is no precise and closed check-list of  aspects to compare. Similarly, there is no single 
and specific aspect or piece of evidence which dete rmines (or excludes) 'likeness' or 'substitutability'. 
An adjudicator called upon to evaluate the similarity  of two (or more) goods, needs to make an overall 
and global assessment of all the elements which may be  relevant to establish if, and to what degree, 
these products are similar. The jurispru dence is consistent on these points. 
II. THE BURDEN OF PROOF 
3. The EU stresses that if one looks at the EU first written submission, one finds a very 
extensive and thorough examination of why spirits made from the designated raw materials and spirits 
made from the non-designated raw materials are si milar. The EU has submitted over 50 exhibits on 
these issues. Further elements – if necessary and in response to the arguments advanced by the 
Philippines – would be provided in the course of this  hearing as well as in the remainder of these 
proceedings.  
4. Given that the idea behind both concepts is that of similarity  between products, all the 
elements put forward in the whole of the first written submissions of the EU and US should be 
examined to see whether they demonstrate similarity, and to what extent.  
5. Looking specifically at the first written submissi on of the EU, one needs just to compare the 
arguments and evidence with previous case-law to  realise that in the present case the EU has 
examined far more aspects of similarity than what has been considered sufficient to establish likeness 
or substitutability by the WTO adjudicators in previo us cases. For each type of spirit, the EU has duly 
illustrated: the commonality of end-uses, how they satisfy the same consumers' tastes and habits, the 
similarity of their properties, characteristics and nature, the comparable advertising campaigns, the 
identical physiological effects on human beings, the analogous legal regulations applying to them, the 
identical tariff classification, the largely similar systems of distribution and sale, the comparable 
pricing policies.   WT/DS396/R 
 WT/DS403/R 
 Page C-3 
 
 
 III. LIKENESS AND SUBSTITUTAIBILITY/COMPETITIVENESS OF SPIRITS FROM 
THE DESIGNATED RAW MATERIALS AND FROM THE NON-DESIGNATED RAW MATERIALS 
6. In the first place, when reading the Philippines'  first written submission one has inevitably the 
impression that the Filipino authorities try to presen t their products as lower quality products, cheap 
products for low-income people, sort of replicas of  the original products distilled elsewhere. However, 
it is clear that this is not the case, at least for several local spirits. The EU takes as an example 'Gran 
Matador Brandy' and 'Tanduay 1854 Rum' which, as stated on their labels, have won several awards, 
not only in the Philippines, but also in the rest of the world, including in Europe.  
7. In fact, the existence of fierce and growing co mpetition between local and imported brands is 
openly admitted by the Filipino companies them selves, for instance in their Annual Reports. 
Importantly, Annual Reports are offici al documents which must be truthful and transparent, which are 
checked by independent firms, and which are then submitted to public authorities of control. Indeed, 
the incorrectness or incompleteness of Annual Reports is subject to various types of sanctions, which 
may even include criminal sanctions. So, statements made in this context s hould be taken seriously.  
8. Then, the EU observes that th ere is a second feeling which one inevitably has upon reading 
the first written submission of the Philippines. It  concerns the extraordinarily narrow reading they 
suggest for Article III:2 of the GATT 1994. In s ubstance, the interpretation put forward by the 
Philippines would reduce Article III:2 of the GATT to apply only where goods have virtually no 
difference at all (e.g. commodities). In fact, for ma nufactured goods, it is the very name of the game 
that products are – to a certain extent – differe nt. A minor product differentiation (e.g. in quality, 
organoleptic properties, price etc.) is evidence of hea lthy competition, not of a lack of competition. In 
a free market-based economy, different companie s try and manufacture goods which can compete 
with the existing products, thanks to the fact that they have been improved or  differentiated in one or 
more respects. This is recognised by a wide bod y of well-established econom ic literature, including, 
inter alia , the models relied upon by th e Philippines' economic experts 
9. Minor differences, which – according to the Ph ilippines – would prove that products do not 
compete are, therefore, not only absolutely normal but even necessary in a healthy market-place based 
on free and fair competition. The EU emphasizes that the reading of Article III:2 proposed by the 
Philippines cannot be retained. And it is in f act not the interpretation relied upon by the WTO 
adjudicators thus far.  
10. As a next point, the EU deals with the Philippi nes' argument according to which Filipino and 
non-Filipino spirits would not compete because price differences would be so large that for most 
consumers imported products would no t constitute real alternatives to  local ones. The EU notes that 
this argument is circular and has been rejected by both panels and the Appellate Body in the past. In 
practice, the Philippines is trying to justify the ex istence of the measure by pointing to the negative 
and discriminatory effects that the measure itself produces. 
11. In any event, not only has the EU provided various examples of actual and direct price 
competition between local products a nd domestic products (e.g. in shops , bars, restaurants), but even 
the Philippines itself has provided evidence that befo re taxes (i.e. without excise tax and value added 
tax), several domestic products and im ported products are comparably priced. In this context, the EU 
refers the Panel to the Price Survey annexed as Exhi bit PH – 19. The EU underlined that what is most 
relevant when comparing prices is that there exis t a significant number of instances of competition. 
Average prices calculated on the basis of a limited sa mple are irrelevant: in the real world, when 
consumers go to the supermarket or to the restau rant, they find a variety of products offered at 
different prices, they do not find average products offered at average prices.  WT/DS396/R 
WT/DS403/R Page C-4 
 
 
 12. In order to properly assess the prices of the products  at issue, the EU prepared a table with the 
data taken from this Exhibit PH-19 in which it h as compared the Net Retail Price (NRP) of a number 
of spirits: for each type of spirit, one can find some domestic as well as some imported brands 
(Exhibit EU-80.) A brief look at this list show s that the NRP of many imported products is 
comparable to the price of some domestic ones. This is so before taxes, becau se once the excise tax is 
included, and the VAT is added on top of it, all imported products inevitably become significantly 
more expensive.   
13. The EU gives first as an example a comparison of Filipino 'Brandy Gran Matador Gran 
Reserva' (700 ml) with Spanish 'Brandy Alfonso I So lera' (700 ml) since both products have almost 
the same NRP (between 164 and 166 P.). The EU goes on to observe that the final price of these 
products does not mirror any longer the NRP: the ta xes collected are almost four times higher on the 
imported product. Subsequently, the EU compares tw o products, with the local product having a NRP 
far higher than the imported one (almost triple): 'Tanduay 1854 Rum' (700 ml) and 'Bacardi Superior' 
(750 ml). It then notes that, in spite of the fact th at the imported product is mu ch cheaper before taxes, 
it is subject to taxes which are more than four tim es higher then those applied to the more expensive 
domestic product. In conclusion, the EU emphasizes  that imported products are not always more 
expensive than their domestic counterparts but it is ra ther the discriminatory fiscal treatment that they 
receive which often makes them more expensive.  
14. Incidentally, the EU remarks that this Exhib it PH-19 is revealing in two other important 
respects. In the first place, it demonstrates the fallacy  of the argument put forth by the Philippines that 
the Excise Tax Regime is designed to implement a progressive taxation system whereby the more expensive products are subject to higher taxes. Lastly , this Exhibit also proves that many rums (12 out 
of the 13 listed) are not being ta xed at the level of domestic pro ducts, even if produced from sugar 
cane.  
15. Next, the EU indicates that the distinction made by the Philippines between sugar-based 
spirits and non-sugar based spirits is both untrue and misleading. In the first place, a very typical spirit 
produced in (and even exported by) the Philippines is  'Lambanog'. This is a spirit made from coconut 
(see Exhibit EU-81) which is subject to the low ex cise tax rate (like all other domestic products). In 
the second place, the measures at issue notably di stinguish between spirits produced from the so-
called "designated" raw materials (not only suga r cane but also nipa, coconut, cassava, camote and 
buri palm) and those produced from other raw materials.  This shows that all the arguments relating to 
the alleged differences between sugar based pr oducts and non sugar based products made by the 
Philippines (e.g. on the methods of productions) are t hus irrelevant insofar also some non sugar based 
products benefit from the low tax rate.  
16. The EU turns next to some other arguments made by the Philippines and which concern 
similarity. The Philippines contends that Filipino br andies and whiskies are, according to Filipino own 
legislation, not real brandies and whiskies but only c ompound  brandies and c ompound  whiskies. In its 
view, the sales of these products would be prohi bited in the EU. However, the EU observes the 
following: (i) nowhere on the labels, packaging, we b-sites, advertisements of these products is it 
indicated that they would not be, technically speaking, brandies and whiskies, but only compound  
brandies and compound  whiskies; they are indeed sold to customers as brandies and whiskies tout 
court ; (ii) these products are, in fact, exported to the EU as their marketing and sale are not prohibited 
in the EU [see Exhibits EU-54 and EU-82], (iii) most importantly, Filipino products are not 
discriminated against in the EU, and instead re ceive the same tax treatment as local products. 
17. Then, the Philippines contends that local bra nds are traditional drinks, typically bought by 
farmers and low-income people, people that are allege dly not interested in imported drinks. However, 
the EU stresses that this argument has been alread y rejected by WTO adjudicators more than once.  WT/DS396/R 
 WT/DS403/R 
 Page C-5 
 
 
 The case-law tells us that discriminatory measures should not be used to "freeze" or "crystallize" 
consumers' habits. Furthermore, the Panel in Chile – Alcoholic Beverages  correctly noted the 
circularity of such an argument: it amounts to a diffe rence in perception that is reinforced by the tax 
system and then used as justification to maintain the favourable tax system itself . Moreover, Filipino 
producers themselves in their annual reports emph asize how consumers' habits and traditions are 
rapidly, and continuously, changing. 
18. Next, the EU notes that the arguments made by the Philippines regarding the outlets for spirits 
have been already dismissed by previous WTO adjudi cators: it is irrelevant if one or the other group 
of spirits is not sold in some outlets insofar as in several other outlets these products are indeed 
offered side-by-side on the shelves as well as in th e beverages lists. And, indeed, ample evidence 
shows that this is the case in the Ph ilippines. Furthermore, with regard to sari-sari  stores, the EU 
underscores that the measure at issue, by raising th e costs of the imported alcohol, and by working to 
freeze the habits of Filipino consumers, certainly pl ays a major role in the choice of supplies made by 
sari-sari shop owners.  
19. Then the EU points out that it is incorrect what the Philippines tells us about sugar-based 
Filipino spirits being always exported to othe r countries under tariff heading 2208.40. The EU 
observes first that the Philippines does not submit  any other piece of evidence to support this 
allegation. It also notes that Exhibit EU-54 positively demonstrates that each type of Filipino spirit, in 
spite of being distilled from sugar cane, is exported to third countri es under the specific tariff heading 
relating to that type of spirit. In the light of this, it appears barely necessary to add that the fact that all 
spirits fell under the four-digit tariff headi ng 2208 was considered a positive indication of 
likeness/substitutability by previous WTO adjudicators.  
20. Then the fact that a large portion of the populatio n has a low income can hardly be considered 
an element which justifies higher taxation only for imported products, when local products 
(irrespectively of their price) pay a flat and low tax rate. Furthermore, the Philippines itself 
acknowledges that in the country there is an "uneve n distribution of resources". Thus, if there exist 
part of the population which perhaps cannot afford th e priciest products on a regular basis, there are 
conversely other parts of the population which can ind eed regularly pay for them. In addition, the EU 
recalls that a similar argument was rejected by the Panel in Korea – Alcoholic Beverages  
(incidentally, rejecting a comparison identical to  that suggested by the Philippines regarding 
automobiles).  
IV. DE MINIMIS 
21. The EU stresses again that the tax on imported products is, depending on the tax tier, more 
than 10 times higher, or more than 20 times higher or  more than 40 times higher that that applied to 
local spirits. The EU also underscores th at it is not correct to calculate the average  tax burdens, as the 
Philippines does: averages would always be sign ificantly influenced by the existence of some 
particularly cheap local products as well as by some  particularly expensive imported products. What a 
Panel is required to do (as the case-law makes very  clear) is to look at the actual tax burden on the 
like/competing products. Lastly, the EU invites the Panel to carefully look at the previous alcohol 
cases: contrary to what the Philippines states, the tax differential examined in past cases (and 
considered above de minimis ) were smaller than those provided for in the Filipino Excise Tax 
Regime. 
V. SO AS TO AFFORD PROTECTION 
22. As a preliminary note, the EU observes that, in their submission, the Philippines does not 
really develop many arguments on the issue of wh ether the measure is applied "so as to afford WT/DS396/R 
WT/DS403/R Page C-6 
 
 
 protection". The main argument advanced appears to re late to the fact that the system is, on its face, 
origin neutral. However, the EU points out that the notion that tax regimes which are not overtly 
discriminating on the basis of the origin of the go ods cannot breach Article III:2 has been rejected by 
constant jurisprudence. It would in fact allow WT O members to easily circumvent their obligations. 
Indeed, the vast majority of measures which have b een found to be inconsiste nt with Article III:2 in 
the past were origin-neutral. 
23. The EU stresses that it is irrelevant that th e designated raw materials can be produced also 
outside the Philippines and reminds the Panel that, in any event, there are several imported spirits 
which are made from the designated raw materials but which are still subject to the high tax rates. The 
EU then notes that the scope of Article III is to  ensure equal competitive opportunities to imported 
goods after customs duties have been  paid. This principle of affo rding equal competitive opportunities 
would be hardly compatible with the idea that  foreign producers should switch to different raw 
materials and different methods of production – incurring large and unnecessary costs – only to 
benefit from a lower tax rate in the Philippines. Su ch an argument was in fact dismissed by previous 
panels, e.g. in Chile – Alcoholic Beverages .  
VI. CONCLUSION  
24. The EU concludes by noting that – contrary to what is argued by the Philippines - the 
measures at issues do not appear either necessary or capable to meet the objectives of uniformity, 
equity and progressivity, enshrined in Article VI, Se ction 28(1) of the Constitution of the Philippines. 
In fact, the level of taxation of spirits does not de pend on prices but on the raw materials used. Even 
when local products cost 5 or 10 times more than a corresponding imported product, they still are 
subject to a tax which is more than 10 times less th an that applied to imported products. In addition, 
the EU emphasizes that the measures at issue are severely trade restrictive. 
25. The EU notes that if the Philippines really wanted to develop a uniform, equitable and 
progressive system of taxation it could do it in a num ber of other ways which would, while genuinely 
pursuing the objectives listed in its Constitution, be fa r less restrictive with regard to international 
trade (e.g. ad valorem  system, taxation based on alcohol content,  etc.) and which, if applied correctly, 
be compliant with Article III:2 GATT. 
 
   WT/DS396/R 
 WT/DS403/R 
 Page C-7 
 
 
 ANNEX C-2 
 
CLOSING ORAL STATEMENT OF THE EUROPEAN UNION AT THE FIRST 
SUBSTANTIVE MEETING 
 
 1. The EU believes that this has been a useful h earing, with a frank, animated and interesting 
exchange of views between the Parties. 
2. We listened with attention to the statements made by our distinguished Filipino colleagues. 
Yet, we did not hear any new argument. Their main line of defence seems to be that concerning prices. According to the Philippines, imported produc ts are more expensive and thus are legitimately 
subject to higher taxes. 
3. However, there is ample evidence before the Pa nel that also on this aspect, as for all other 
aspects examined in the course of these proceedings, there are several and important overlaps. Many 
imported products have comparable prices to domes tic products. This is so in spite of the severely 
discriminatory taxation they face. And it would be ev en more so were this discriminatory taxation to 
be removed. 
4. And the undeniable existence of these overlaps is  a sufficient element to establish a violation 
of Article III:2 – as per settled jurisprudence 
5. Exhibit EU-83 (bottles of several Filipino and EU spirits) will shed further light on a number 
of other reasons of similarity which have not b een discussed during this first hearing (e.g. labels, 
colour of the spirits, packaging). 
6. The only new element we heard yesterday seems to relate to the efficiency of the fiscal 
system in the Philippines. Yet, this defence has not  been elaborated and remains – to date – pretty 
unclear. We have several important doubts on this poin t. In the first place, there is no evidence on this 
issue before the panel, and we wonder whether – acc ording to the rules of procedure – there would be 
still a possibility for the Philippines to submit any evidence. In the second place, we fail to understand 
why removing discrimination and thus subjecting all products to the same taxation rules would 
complicate the system rather than simplify it. Thirdl y, we believe that such an argument would be – in 
this case – examined under Article XX, not under Article III:2, insofar as it would not exclude 
discrimination between imported and domestic products. Yet, the Philippines has not raised any 
Article XX defence so far. 
7. Distinguished Members of the panel: the facts are clear, the applicable law is uncontested, 
and the case-law is ample, constant, and unambiguous.  
8. This concludes our closing statement. We take  the opportunity to thank again the panel and 
WTO secretariat and we look forward to continuing  to work with you, the Philippines and the US, 
towards the settlement of this dispute 
 
 WT/DS396/R 
WT/DS403/R Page C-8 
 
 
 ANNEX C-3 
 
EXECUTIVE SUMMARY OF THE OP ENING ORAL STATEMENT OF  
THE UNITED STATES AT THE FIRST SUBSTANTIVE MEETING 
 
 1. The Philippines does not dispute the essential fa cts about its measures and how it taxes local 
spirits compared to imported spirits.  The Philippi nes does not protect just one type of domestic 
product.  Philippine producers use local raw material s, sugar in particular, to make many different 
types of distilled spirits including brandy, whiske y, vodka, gin, and tequila.  Philippine brands like 
Emperador Brandy, London Gin, and White Cas tle Whiskey compete directly with imported 
counterparts like Fundador, Bombay Sapphire, and Jack Daniels.  Yet, because the Philippine versions 
of these products are made with the local type of ra w material – sugar – they are subject to a very low 
excise tax.  Excise taxes on locally produced produc ts are a fraction of the taxes on imported products 
– Philippine products made from sugar presently are ta xed at 13.59 pesos per proof liter, and products 
from other raw materials are taxed at much higher ra tes – from 146.97 to 587.87 pesos per proof liter.  
2. Filipinos overwhelmingly choose the lower-tax ed local products.  Despite high per capita 
alcohol consumption and a generally  strong market for spirits, barely any imports are sold in the 
Philippines.  Imported spirits are only about 2.4% of the Philippine market, and the top ten local 
brands comprised almost 96% of the Philippine  market for distilled spirits as of 2009.  The 
Philippines does not dispute that its market is dominated by local brands, nor that these brands are taxed at a lower rate than imported brands. 
3. As the United States and the European Union de tailed in their respective submissions, and the 
European Union discussed earlier today, the Philippines'  taxes are inconsistent with Article III:2 of 
the General Agreement on Tariffs and Trade 1994  ("GATT 1994").  Specifically, they are 
inconsistent with both the first and second sentences of that paragraph.   
4. The issues in this dispute are straightforward.   Several WTO panels already have applied 
Article III:2 of the GATT 1994 to discriminatory taxa tion systems for distilled spirits.  Even though 
the Panel's findings in this dispute will be based on the Philippines measures at issue and information 
about the Philippine market for distilled spirits , the panel and Appella te Body reports in Japan –
Alcoholic Beverages II , Korea –Alcoholic Beverages , and Chile – Alcoholic Beverages  provide 
guidance on a clear path forward. 
5. Nor are the facts particularly complex – the Philippine tax system specifically singles out 
distilled spirits made from local raw materials for th e much lower tax rate.  And Philippine domestic 
products are made from local raw materials, sugar in  particular.  Its tax system, favoring products 
made from local materials, has been in place for more  than a century.  It has persisted over the years, 
even as the international trading system has changed,  including most critically for today, the creation 
of the World Trade Organization dispute settlement system.  While Filipino policymakers have tried to address the discriminatory nature of the tax syst em and several reform measures are pending before 
the Philippine Congress, none of these refo rm efforts have been successful.  
6. While the facts and the law in this dispute are quite straightforward, the Philippines has 
attempted, through its lengthy first submission, to add confusion and complexity.  The United States 
will not describe in detail each of the Philippines' at tempts to complicate the facts or law before the 
Panel.  Instead, we will respond to several of  the main arguments raised by the Philippines.  WT/DS396/R 
 WT/DS403/R 
 Page C-9 
 
 
 7. We will address the following points in turn. 
 First, contrary to what the Philippines claims, the fact that Philippine producers use  different 
raw material to make brandy, whiskey, and othe r types of distilled spirits from that used to 
make the corresponding imported distilled spir it does not permit the conclusion that the 
products are not "like" or not "directly compe titive or substitutable" with imported products.  
(To the contrary, the different raw material is pa rt of the structure of the Philippines' measures 
that results in the WTO inconsistency.) 
 
 Second, contrary to the Philippines argument,  evidence before the Panel confirms that 
Philippine consumers would be more likely to purchase imported products, as substitutes for 
domestic products, if the pri ce difference were smaller. 
 
 Third, alleged segmentation of the Philippine market would not, as the Philippines suggests, 
preclude the products at issue –  Philippine and imported brandy, whiskey, gin, vodka, etc. –  from being substitutes for one another.  
 
 Fourth, the United States and European Union have provided the Panel ample evidence to 
make out their claims against the Philippine measures. 
 8. In Part D of its submission, the Philippin es describes in detail the production process for 
distilled spirits made from different raw materials.  It argues that its distilled spirits – made from sugar 
– cannot be "like" other distilled spirits because of physical differences.  We will address this 
contention first.   
9. To be sure, physical differences are an important part of determining whether domestic and 
imported products are substitutes, but substitutability also depends on other criteria, including end 
use, consumers' tastes and habits, and the produc ts' nature and quality, and must be made on a case-
by-case basis appropriate to the measures and the ma rket of concern.  The Philippines relies heavily 
on the fact that local raw materials are used in the production of the domestic products at issue to 
argue that these products are physically distinct fro m imported distilled spirits.  Contrary to what the 
Philippines asserts, the mere fact that local raw materi als are used in the production of domestic spirits 
does not render the products at issue physically distinct in any meaningful way.  Rather, the 
Philippines measures depend on the use of local ra w materials to discriminate against imported 
products.  The United States respectfully requests that  the Panel consider the Philippines' evidence on 
raw materials in that context.  
10. Furthermore, all distilled spirits are made from a natural raw material that has sugar content, 
whether sugar cane, fruit, grain, or some other produ ct.  As discussed in the Philippines' submission, 
regardless of the raw material, the alcohol pr oduction process involves fermentation of the raw 
material to produce the alcohol, a nd subsequent distillation of the fe rmented material to separate out 
the alcohol product. 
11. Scientists can analyze the final distilled spirits  to determine the chemical composition of the 
products. The Philippines cites such technical, laborat ory results in support of its argument that its 
whiskies and brandies are different from imported wh iskies and brandies.  Gas chromatography, for 
example, can be used to determine whether a produc t has isoamyl acetate or isoamyl alcohol.  But, a 
Philippine consumer is very unlikel y to know about gas chromatography analysis, nor are such results 
relevant to determine whether the pr oducts are substitutes.  Even "like products" need not be identical.  
12. More importantly, other aspects of the produc tion process that the Philippines cites as 
differences between its domestic spirits and imports  – distillation process and aging –  are directly WT/DS396/R 
WT/DS403/R Page C-10 
 
 
 related to the Philippine producers' efforts to ma ke their brands as much like imported products as 
possible. 
13. For example, the Philippines describes how its  sugar-based products may be distilled longer 
in order to make a neutral spirit that does not retain  the flavors of naturally occurring congeners.  But, 
a longer distillation process is not particul ar to production of spirits from sugar  –  in fact any raw 
material can be distilled to the po int that it loses its naturally occu rring flavors and is just neutral 
spirit.  In the Philippines, the sugar-based spirits ar e distilled to the point that  they lose their natural 
flavors specifically so that they can be combined w ith "flavouring extracts or concentrate, or natural, 
nature identical or artificial flavours and essences" in  order to mimic the natural congeners of spirits 
from other raw materials.  In other words, the di fferences in the distillation process enable production 
of the same types of spirits from different raw materials. 
14. Similarly, the Philippines points to the fact th at its producers do not age sugar based whiskey 
and brandy as a difference between domestic a nd imported products.  However, its sugar-based 
products, made from neutral spirits, would not necessar ily age in the same way and produce the same 
flavor profile and other characteristics.  Inst ead of aging its sugar-based products, Philippine 
producers add flavors to mimic aged whiskies and brandies.  Like the difference in distillation 
process, the Philippine producers intentionally do not use an aging process to minimize differences 
between their products and the imports against whom they compete.  In addition, the Philippines' 
claim that all scotch whiskies must be aged twelve years is mistaken; some whiskies, including Scotch 
whisky, may be aged for a much shorter period. 
15. The Philippines' own regulations are consistent w ith the fact that their domestic products are 
like imported products. The Philippines claims that  the United States is incorrectly reading its 
Standard Administrative Orders for brandy and whiskey, because only "compound" whiskey or 
brandy may be made from sugar.  (It makes no su ch rebuttal argument on vodka, where there is no 
"compound" variety identified in the SAO.)  But "compound" whiskey or brandy is still whiskey or 
brandy – it is defined by the standard for whiskey or brandy, respectively, just like other sub-types 
like "blended," "malt," or "straight."  Moreover, "c ompound" does not appear on  labels of many major 
Philippine brands.  The Panel can see this for itself in the examples provided today, as well as pictures 
already on the record.  And any purported difference is likely not apparent or recognized by 
consumers.   
16. In its discussion of physical differences between imported and domestic products, the 
Philippines points to the standards in the Unite d States and the European Union, under which 
Philippine sugar-based products could not be sold as wh iskey or brandy in those markets.  However, 
these standards simply are not relevant to assessi ng whether Philippine and imported products are 
substitutes in the Philippine market.  The fact that a Philippine whiskey could not be labeled 
"whiskey" – compound or otherwise – if sold in the United States could be a factor in understanding 
how products compete in the US market.  But in th e Philippines, both sugar-based and other whiskies 
are labeled as "whiskey," sugar-based and other brandies are labeled as "brandy," sugar-based and 
other gins are labeled as "gin", and so on.  More over, the United States recalls that products may be 
"like" even if they go by different names.  The Panel in Japan – Alcoholic Beverages II  confirmed this 
by finding vodka to be like Japanese shochu.   
17. The products that result from the Philippine pr oducers' distillation process are "like" imported 
products.  The colors of the Philippine whiskies, brandies, and gins are like those of imported 
whiskies, brandies, and gins, and the descriptions of their flavors emphasize their physical similarities.  
These attributes in the final product are the ones on which a consumer will make an assessment – not 
the details of the distillation process, or a lab repor t on the chemicals in a distilled spirit.  Given the 
pains to which Philippine producers go to mimic impo rted brands and market them as comparable, it  WT/DS396/R 
 WT/DS403/R 
 Page C-11 
 
 
 is not really credible to say that Philippine Wh ite Castle whiskey is not a substitute for imported 
whiskey. 
18. The next part of the Philippines' presentation we will address is their discussion of price 
elasticity and the evidence before the Panel on the substitutability among imported and Philippine 
distilled spirits.   
19. Like the Philippines' raw materials argument s, its discussion of price responsiveness also 
must be put into context: it is just one of several  relevant factors, including end uses and physical 
characteristics, for determining whether products are " like" or "directly competitive or substitutable."  
And, as noted above, the appropriate analysis is case-by-case, depending on the particulars of the 
market concerned.   
20. Nonetheless, the evidence of price substitutab ility does support the fact that imported and 
domestic products compete in the Philippine ma rket.  The United States and European Union 
provided the Panel a reliable, focused study by Eu romonitor on several aspects of consumer views 
and preferences in the Philippines.   Yet, the Philippines suggests that the Panel should disregard the 
Euromonitor Consumer Preference Survey as not representative or otherwise not indicative of the 
substitutability between importe d and domestic products. 
21. In fact, the participants in Euromonitor's surv ey were identified using criteria specifically 
selected to result in knowledgeable, valid respon ses to questions comparing imported and domestic 
brands of distilled spirits.  As described in th e Euromonitor report, the final survey sample was 
selected based on criteria specifically relevant to  answering questions comparing domestic and 
imported spirits.  Participants were asked whethe r they consumed spirits, and what kinds.  The 
resulting sample was precisely the group with information about bot h imported and domestic brands 
in the best position to answer questions comparing the two groups.  
22. The Methodology section of the Euromonito r report describes how the population was 
selected.  The respondents were sc reened to include only those who consumed alcohol, which was 
necessary to collect useful results.  Euromon itor also notes its additional work to assure 
representativeness of the sample, and that the r espondents had access to both imported and domestic 
brands of spirits. 
23. In short, although there may be some differenc es between the average survey respondents and 
the average Filipino, Euromonitor sought and coll ected data specific to the Philippine market 
precisely from those individuals in the best positi on to provide the data:  Filipinos who consume 
spirits and have access to both imported and domestic products. 
24. As to the results of the Euromonitor survey, they reflect consumers' modest movement to 
imported products in response to changes in pri ce.  The Philippines critic izes the fact that the 
magnitude of this change is small.  But recall: imports were still more expensive in each of the 
scenarios described in the survey, making it partic ularly telling that cons umers would consider 
changing their consumption patterns in favor of im ports.  The respondents in the survey were willing 
to consider changing brands even if the pr ice differences were not entirely eliminated. 
25. The United States is not asserting that imported products would receive a particular share of 
the Philippine market in the absence of the discrimin atory  tax system, nor is it required to make such 
a showing in order to prove substitutability.  Ra ther, the evidence of price substitutability simply 
demonstrates that imported whiskey, brandy, and gin are substitutes for Philippine whiskey, brandy, 
and gin.  When imports are relatively less expensiv e, consumers are more likely to choose them over 
domestic products.   WT/DS396/R 
WT/DS403/R Page C-12 
 
 
 26. The Philippines has prepared its own survey  on price substitution, as rebuttal to the 
straightforward consumer response data from Eurom onitor.  Specifically, it prepared two reports, the 
Abrenica and Ducanes Report, and the Clarete Re port, which used data from the Abrenica and 
Ducanes piece. 
27. As an initial matter, it should be noted that even the Philippine studies support the conclusion 
that there is some price substitutability between domestic and imported products.  Nevertheless, the 
United States would like to bring to the Panel's attention several aspects of the studies' methodology that are problematic.  For example:  
 The survey treated all drinking occasions as hom ogeneous.  That is, the responses were based 
on whether a consumer would choose a different  spirit without regard to the occasion. 
However, the setting for consuming spirits may affect a consumer's choices. For example, as the Euromonitor Consumer Preference Survey confirms, a consumer in the Philippines might 
be willing to pay more for an imported spirit for a special occasion.  But, he or she might not show willingness to purchase a pricier brand on an  ordinary basis. These occasional purchases 
are lost and are not considered in the Philippines' survey.   
 
 The analysis of the survey questions in th e Abrenica and Ducanes report did not account for 
product quality.  More expensiv e products may be perceived as higher quality and, if so, 
make consumers more willing to pay more.  La ck of accounting for quality may have reduced 
the willingness to pay more for perceived hi gher-quality products, including imports. 
 
 The construction of the choices in the Abre nica and Ducanes survey tends to reduce 
respondents' responsiveness to changes in price.  Oddly, the predicted value of liquor sales 
based on the survey results suggest that the consumption of some products actually decrease  
in response to a reduction in price.  This r esult does not comport with elementary rules of 
demand theory. 
 
28. In short, the statistics that the Philippines h as provided shed little light on consumer attitudes 
in the Philippines, nor on consumer views on whet her Philippine and imported spirits are "like" or 
directly competitive or substitutable.  
29. The next main theme of the Philippines' subm ission concerns its attempt to divide the 
Philippine market into two parts:  lower income  Filipinos who shop at sari sari stores, and more 
wealthy consumers.  Since lower-income consumers would not be able to af ford imported products, 
the Philippines' logic goes, imported an d domestic products are not substitutes. 
30. The Philippines' specific arguments on sari-sar i stores concern whether imports and domestic 
products are sold in the same channels of distributio n, a factor that other WTO panels have used in 
analyzing the substitutability between imported and domestic brands of distil led spirits.  As with 
elasticity of substitution and physical characteristics, this must be considered in the context of the 
Philippine market.  Given that all imported spirits comprise only about 2.4% of that market, it would 
be surprising to see imports in most local or sm aller shops.  If demand shifted – whether because of 
changes in price, income, or simple consumer pr eference – a small sari sari store could quickly adapt 
and add some bottles of imported spirits to its shel ves.  In fact, the United States understands that 
many sari sari stores simply purchase their inventory from larger stores and resell it in the smaller shop where their local customers have better access. 
31. In Korea – Alcoholic Beverages
, the Appellate Body discussed the issue of possible or latent 
demand in determining whether products are directly competitive or substitutable.  It stated: "the competitive relationship between products is not to be analyzed exclusively  by reference to current  WT/DS396/R 
 WT/DS403/R 
 Page C-13 
 
 
 consumer preferences.  In our view, the word 'subs titutable' indicates that the requisite relationship 
may exist between products that are not, at a given moment, considered to be substitutes but which 
are, nonetheless, capable of being substituted for one another. . . . Particularly in a market where there 
are regulatory barriers to trade or to competiti on, there may well be latent demand."  Current 
conditions of competition in the Philippines are influenced by several factors, including the 
discriminatory taxes.  It would be unfair to compla inants to use the lack of  current sales as evidence 
that imported products would not compete if given the opportunity to do so on an equal basis.  
32. Instead of focusing on where imported products are not presently sold in the Philippines, it 
makes sense to pay attention to the market segme nt in which imported products – products which 
comprise 2.4% of the market – are sold.  And, as  the pictures provided by the United States and the 
European Union show, where imported spirits are so ld, they are sold side-by-side with domestic 
products, completely undifferentia ted for the consumer.  In fact, it is usual to see domestic and 
imported spirits of a type, such as brandy, clustere d together.  The United States would like to draw 
the Panel's attention in particular to Exhibit US-30. 
33. Moreover, the Philippines' emphasis on sari sari st ores in its argument regarding channels of 
distribution is misplaced.  A channel of distribution is not just one type of store or another, but how 
the products are distributed and how consumers can  access those products.  The same consumer who 
usually purchases local products from a sari sari store might shop for a holiday gift of a higher-end spirit at a different shop.  The gift is not a different product by virtue of the fact that it was purchased 
in a different store – what matters is whether th e consumer views it as a substitute for the everyday 
brand also available through that channel of distribu tion.  For example, if a consumer were offered a 
choice between two brandies – Phili ppine and imported – at a party,  would the consumer think of 
them as different products or just alternative dri nks?  The evidence in this  case suggests the latter. 
34. Finally, the United States would like to take  this opportunity to rebut the Philippines' 
assertion that the United States did not present a prima facie case.  A prima facie case requires only 
that a party provide evidence in support of each of its  claims sufficient to raise a presumption that the 
claim is true.  By providing the specific facts regarding each element of its GATT 1994 Article III:2 
claims, the United States has met its burden. 
35. The first and second sentences of GATT 1994 Article III:2 are separate obligations with 
different elements. The first sentence concerns " like" products, and a finding requires two specific 
elements:  First , that the imported products and th e domestic products are "like," and Second , that the 
imported products are taxed "in excess of" domestic products. 
36. "Likeness" of imported and domestic products is  determined on a case by case basis, using 
factors such as the products' physical  characteristics.  As the panel in  Japan – Alcoholic Beverages II  
stated, panels have used factors "such as the produc t's properties, nature and quality, and its end-uses, 
consumers' tastes and habits, which change from country to country; and the product's classification in 
tariff nomenclatures" to determine likeness. 
37. These are the same types of factors panels ha ve used to determine whether products are 
directly competitive or substitutable; accordingly, the Panel may rely on the same information about 
the Philippine market to determine whether im ported products are "like" domestic products and 
whether they are directly competitive or substitutable products.  It is just a question of the extent of 
substitutability – "like" products are relatively more substitutable than products that are just "directly 
competitive or substitutable."  In Japan – Alcoholic Beverages II , the Panel emphasized physical 
characteristics over other factors, such as end use,  in finding vodka like shochu, but as noted above 
the analysis of substitutability does vary from market to market.   WT/DS396/R 
WT/DS403/R Page C-14 
 
 
 38. The United States and the European Union provided evidence on relevant factors about the 
Philippine market to enable the Panel to assess th e substitutability of impor ted brands of distilled 
spirits in the Philippines compared to domestically produced brands. 
39. Notably, in this dispute, the domestic product is not one single national product like shochu, 
soju, or pisco as in the Japan – Alcoholic Beverages II, Korea  – Alcoholic Beverages , and Chile  – 
Alcoholic Beverages cases, but many different types of spirits.  Philippine producers make brandy, 
whiskey, gin, vodka – and indeed, could manufacture any type of spirit – and, by virtue of the Philippine measures' preference for locally prod uced raw materials, the domestic products would 
receive favorable tax treatment.  Accordingly, the complainants provided information on several 
different types of spirits, both imported and domestic, to characterize the Philippine market. 
40. The United States provided information on: 
 Physical characteristics:  requirements under the Philippines' own Standard Administrative 
Orders for whiskey, vodka, and brandy; alc ohol content for brands of brandy, whiskey, 
vodka, gin, rum, and tequila; and pictures and descriptions of brands of tequila, brandy, 
whiskey, gin, and vodka. 
 
 Marketing and channels of distribution : numerous pictures of stores selling imported and 
domestic spirits side by side (gin, vodka, rum,  tequila, whiskey, brandy), and advertisements 
and labels for examples of gin, brandy, vodka, tequila, and whiskey, all showing the striking 
similarity between domestic and imported brands. 
 
 End uses:  menus with drinks by type, such as brandy, without differentiation between 
imported and domestic brands, and survey results directly from Filipino consumers 
confirming that they use imported and do mestic brands for the same end-uses. 
 
 Price elasticity:  specific survey results from Filipino consumers, showing that even if 
imported products remain more e xpensive, a reduction in price would result in relatively more 
purchases of imported brands compared to domestic brands. 
 
 Tariff classification: Information on the tariff classification of distilled spirits, all of which 
are classified under HS 2208. 
 
41. In its submission, the Philippines takes issue with some aspects of the US evidence, but it 
cannot wipe away the picture they show:  Philippine  spirits are made and marketed specifically to 
compete directly with imported products. The Unite d States has more than met the complainant's 
burden of making a prima facie case on the question of "like product." 
42. Regarding the second element of a case unde r the first sentence of Article III:2, the 
Philippines offered no rebuttal to the information that the United States provided confirming that 
imported products are taxed in excess of domestic pr oducts.  As is plain from the Philippines' law and 
regulations, the tax applied to brands not made fro m local raw materials – namely, imports – is from 
about 10 to 40 times greater per proof liter than the rate applied to domestic brands. The price 
information provided in the Philippines' own exhib its shows that, given the discriminatory excise tax 
structure, the differential in tax burden between an individual domestic bottle and an equivalent 
imported bottle of the same type of spirit can be upwards of 60%.  
43. For its claim on the second sentence of GATT 1994 Article III:2, the United States presented 
evidence on three elements.  WT/DS396/R 
 WT/DS403/R 
 Page C-15 
 
 
  First, whether Philippines domestic products are di rectly competitive or substitutable with 
imported products;  
 
 Second , whether Philippines domestic products and imported products are not  similarly taxed; 
and 
 
 Third,  whether the dissimilar taxation is applie d so as to product domestic production. 
 44. For the first element, whether Philippine brands of whiskey, brandy, and others are directly 
competitive or substitutable with their imported count erparts, the United States will not recite the 
evidence again.  It suffices to say that the same type of evidence that shows products are "like" also 
shows they are "directly competitive or substitutable. "  The difference is that "directly competitive or 
substitutable" is a lower bar. 
45. On the second two elements, the difference in taxation and the protection of domestic 
industry, the United States showed that the mini mum difference in taxati on between domestic and 
imported brands is more than ten times – a magnitude of discrimination that dwarfs that found to be 
inconsistent with the GATT 1994 in prior disputes.  By design, the Philippines' tax system enables 
local producers to make any product they can to comp ete with imported products and, so long as they 
continue to use the protected local  raw materials, the distilled spirits  producers continue to receive the 
tax benefit. 
46. The Philippines argues that the difference in ta xation is insufficient to support the US and 
European Union's claims, because even if there were no difference in ta xation, imported products 
would still be much more expensive and it is unlik ely that there would be much difference in the 
market.  First, the United States has introduced evid ence that a lesser price differential would affect 
relative market share, so the Philippines's confidence  is misplaced that eliminating the tax difference 
would not affect the market.  In addition, the Un ited States recalls that the tax on higher priced 
imported spirits is as much as 62% of the bottle pr ice calculated using the Philippines' own studies – 
hardly negligible.  
47. For all these reasons, the Philippine submission fails to counter the US claims: Philippine 
products compete with imported products, and the Philippines tax system favors the Philippine 
products.  The United States respectfully requests that the Panel find the Philippines tax system 
inconsistent with the first and sec ond sentences of GATT 1994 Article III:2. 
 
 WT/DS396/R 
WT/DS403/R Page C-16 
 
 
 ANNEX C-4 
 
CLOSING ORAL STATEMENT OF THE UNITED STATES AT  
THE FIRST SUBSTANTIVE MEETING 
 
 1. On behalf of the United States delegation, I would like to thank you for your time and 
attention during the first substantive meeting of the Panel in this dispute, and also extend our thanks 
and appreciation to the Secretariat.  We had a livel y discussion.  We hope it has been useful to the 
Panel, and provided clarification that the Panel sought on the claims by the United States and the 
European Union.  We appreciate the opportunity to respond to the Panel's questions during this 
meeting, and look forward to provid ing additional responses in writing. 
2. The co-complainants in this dispute, the European Union and the United States, have 
presented copious evidence demonstrating that Phili ppine distilled spirits (w hether whiskey, gin, 
brandy and the like made from local raw materials)  compete with their imported counterparts.  A 
Filipino consumer, like most consumers worldwide, considering what product to buy, is likely to 
consider whether he or she wants a brandy or a gi n, and is not thinking about whether one brand was 
produced from a sugar-based neutral spirit and a nother was produced from another raw material – 
particularly since Philippine producers go to great  lengths to make thei r products as similar as 
possible. 
3. The consumer is likely, however, to notice the pr ices of different brands , and here we can see 
the result of the discriminatory taxation measure s challenged by the co-complainants. In the 
Philippines, as a result of the discriminatory tax sy stem, imported products are subject to significantly 
higher taxes that make imported products notably more expensive than they otherwise would be.  
Philippine products are subject to excise taxes of  13.59 pesos per proof liter, and other spirits are 
subject to taxes from 146.57 to as high as 587.87 peso s per proof liter. The taxes protect domestic 
industry and are in violation of the Philippin es WTO commitments under Article III:2 of the 
GATT 1994. 
4. Mr. Chairman, members of the Panel, again thank you.  This concludes our closing statement.  
We look forward to responding to your written questions.   
  WT/DS396/R 
 WT/DS403/R 
 Page C-17 
 
 
 ANNEX C-5 
 
EXECUTIVE SUMMARY OF THE OPENING ORAL STATEMENT 
OF THE PHILIPPINES AT THE FIRST SUBSTANTIVE MEETING 
 
 1. The Philippines is a developing country that does not have the luxury of an efficient direct tax 
system. Instead, faced with a messy reality with  a large informal economy, chronic smuggling along 
thousands of kilometers of coastline of more th an 7,000 islands, and a stre tched tax administrative 
apparatus facing severe enforcement challenges, the Ph ilippines uses indirect taxes and excise taxes to 
collect revenue.  In order to ensure the progr essiveness of this tax syst em, and to avoid unduly 
burdening the 80% of Filipinos whose average family  income is 278 pesos per day (approximately 
7 US dollars), the excise tax system is structured to ensure that higher taxes are collected on higher-
value products.   
2. The raw material-based distinction of Secti on 141 of the National Internal Revenue Code 
reflects both the functioning of the Philippine mark et as well as the Constitutional mandate for a 
progressive tax system.  Lower taxes are imposed on sugar-based liquors, which are lower-priced and 
within the economic reach of the Filipino consum ers; higher taxes are imposed on non-sugar-based 
liquors, which are higher-priced and are essentiall y luxury goods consumed by only the most 
economically-privileged part of Filipino society.  The progressiveness of the system is reinforced and 
enhanced by a tiered system under Section 141(b), wher e the range of prices is much wider than under 
Section 141(a).   
3. This is the important factual context in which this Panel must consider the allegations made 
against the Philippines in this case. Article III:2 requi res an inquiry of whether the products are "like" 
each other in the Philippine market , and/or whether they are "directly competitive or substitutable" in 
the Philippine market .  As the Appellate Body has acknowle dged, these analyses must be done on a 
case-by-case basis. The peculiarities of  the Philippine market make this analysis different from the 
analysis that other panels and the Appellate Body have done in other cases. The Philippines 
respectfully submits that the complainants have failed to meet their burden of providing evidence and 
relevant legal argument to support their claims  in relation to the Philippine market.    
4. Sugar-based and non-sugar-based spirits are not  "like" each other for the purposes of 
Article III:2.  There is no treaty-defined list of fact ors to be taken into account in characterizing two 
discrete products as "like" or "not like" in a particul ar market. Nor is there a closed list of factors to 
consider in making a determination of likeness for the purposes of Article III:2.  The Appellate Body 
has stated that "there can be no one precise and absolu te definition of what is 'like' ", and that likeness 
"must be determined by…the context and the circums tances that prevail in any given case to which 
that provision may apply ".  
5. The products in question are not made from the sa me raw materials.  And, the difference in 
raw materials has consequences throughout the produc tion and commercial chain:  the different raw 
materials are processed differently, these different pr ocesses cause differences in physical properties 
of the final products (including a different chem ical composition and organoleptic properties), and 
these different physical properties in turn affect the marketing, sales, and consumption of the spirits.  
These are real world effects of the differences in raw materials.   
6. The European Union and the United States have recognized these differences in their 
domestic regulatory regimes.  They themselves di stinguish between the products based on the raw 
material from which the spirits are made, which is pr ecisely the criterion used in the Philippine excise 
tax system. It is also the basis of distinction in  the Explanatory Notes to the Harmonized Commodity WT/DS396/R 
WT/DS403/R Page C-18 
 
 
 Description and Coding System. The Philippines agrees that this is a relevant basis for distinguishing 
spirits, and it applies the same logic to all distilled spirits.   
7. The Appellate Body in Chile – Alcoholic Beverages  noted that "Members of the WTO are 
free to tax distilled alcoholic beverages on the basis of their alcohol content and price."
1  It follows 
that Members are also free to tax distilled alcoholic bevera ges on the basis of the universally-
recognized, accepted criterion of the raw materi al base used to produce the beverage. 
8. The Philippines believes that the differences in ph ysical properties alone may be sufficient for 
the panel to conclude that sugar-based spirits  and non-sugar-based spirits are not like products.  
However, mindful that the "like product" analysis can  take into consideration many factors, we submit 
that the manner in which these products compete in th e Philippine market is also relevant to the like 
product analysis.  The Filipino public does not treat th ese products as "like" each other.  In fact, there 
are at least two different groups of "consumers" in the Philippines, defined and separated by their 
relative purchasing power, each with a different set of  habits, perceptions and behaviour.  This price 
difference relative to purchasing power of the consumi ng public is a critical component of the relevant 
"context" and "circumstances that prevail" in the market under examination. The market segmentation 
is so pronounced in the Philippines that it aff ects the question of whether the products can be 
considered "like" products for the purposes of Article III:2, first sentence. After all, if the products do 
not compete in the same market or market segment , then the objective of Article III: 2 – to provide 
"equality of competitive conditions" – is me aningless. "Likeness" for goods under the GATT 
Article III:2 cannot be assessed in the abstract; it must be framed in relation to the market in which the 
goods are being sold and in which they compete.     
9. The EU and the US emphasize the common e nd-uses of non-sugar-based spirits and sugar-
based spirits to argue their case of "likeness".  Howeve r, this fact is insufficient to render the products 
"like" – after all, beer, wine and soft drinks are also consumed for enjoyment and relaxation purposes.  
The Appellate Body has also recognized the limite d value of the end-uses criterion in determining 
likeness.  It stated, in EC – Asbestos  that "although the end-uses  are . . . ' equivalent' , the physical 
properties of the products are not ther eby altered; they remain different."2 
10. The products at issue in this case do not meet the high standard for being considered "like" 
products.  As the first part of the test under Article I II:2, first sentence, has not been met, there is no 
need to proceed to the analysis of the second part of the test, namely, whether one group of distilled 
spirits is taxed "in excess of" a nother group of distilled spirits. 
11. The determination of whether two products ar e directly competitive or substitutable under 
Article III:2, second sentence, requires the consider ation of two important elements. The first is 
whether there is direct competition: the complainan ts have failed to show that that the products 
compete in any meaningful way. The Philippines has produced evidence showing that the competition 
between sugar-based and non-sugar-based spirits – meas ured through an analysis of the cross-price 
elasticity of the products – is extremely low, reflec ting the significance of what economists refer to as 
an "access cost" barrier separating the market segme nts.  Thus, the relationship between the products 
at issue is outside the parameters of what Article III:2 seeks to regulate.   
12. Second, the assessment of the direct competiti on must be conducted in the context of the 
specific market in question. The Appe llate Body stated that this must  be so because "this is the forum 
where consumers choose between different products".3  Thus, the question in this case is whether non-
                                                      
1 Appellate Body Report, Chile –  Alcoholic Beverages , paras. 59-60. 
2 Appellate Body Report, EC – Asbestos , para.112. 
3 Appellate Body Report,  Korea – Alcoholic Beverages , paras. 114-115.  WT/DS396/R 
 WT/DS403/R 
 Page C-19 
 
 
 sugar-based spirits are an alternative way of satisfyi ng the particular needs or tastes of the Filipino 
consumer who purchases sugar-based spirits.  
13. A simple example shows just how out of reach non-sugar-based spirits are for these 
households:  Expenditures for alcoholic beverages acc ounts, on average, for only 1.2% of total family 
expenditure4 – that is, a maximum of 60 pesos per week.  Th at is 1 US dollar,  40 cents per week for 
90% of the consumers of sugar-based spirits.  Sixty pesos will allow the consumer to purchase a bottle 
of Ginebra San Miguel, the most popular sugar-based  gin, which is priced at 57 pesos, with tax 
included.  The same 60 pesos is a little over one-tenth  of the price of Plymouth, the lowest priced non-
sugar-based gin, which is priced at 517 pesos, with ta x.  Clearly, it is no overstatement to say that, at 
this le vel, expensive non-sugar-based liquors are not an opti on, let alone a viable "alternative", for the 
great majority of the Philippine population.  
14. The complainants' claim of substitutability assume s that the Filipino consumer is willing and 
able to substitute a product well within his or he r budget with something more than ten times beyond 
that budget.  The average Filipino consumer cannot a fford – and therefore does not buy – spirits made 
from raw materials not listed in Section 141(a). 
15. The existence of separate and distinct mark ets for non-sugar-based spirits and sugar-based 
spirits is highlighted by, and explains, the distin ct channels of distribution for these products. The 
Panel in Chile – Alcoholic Beverages  made the important observation that "if products have quite 
distinctive channels of distribution that could be a negative indicator with respect to substitutability." 
In this case, non-sugar-based distilled spirits and sugar-based spirits are sold through distribution 
channels that are almost  entirely different . Sari-sari stores consistently account for roughly 85% of 
off-premise sales of sugar-based spirits. By contr ast, the market for non-sugar-based spirits through 
this distribution chain simply does not exist .  
16. To the extent that a there is a very small segme nt of the Philippine population that can afford 
to buy non-sugar-based spirits on occasion, even th is small and unrepresentative demographic group 
regards the price of non-sugar-based spirits as a si gnificant issue. Moreover, the capacity of a tiny 
segment of the population to purchase non-sugar-based  spirits should not be used as the basis for 
determining that these products are dire ctly competitive or substitutable.   
17. The tests to be applied under Article III:2 ar e deliberately intended to recognize and give 
proper regard to the factual differences in each market. The Panel in Japan – Alcoholic Beverages II  
stressed this point noting that Article III:2 and its interpretative note "permits one to take into account 
specific characteristi cs in any single market; consequently, tw o products could be considered to be 
directly competitive or substitutable in market A, but the same two products would not necessarily be 
considered to be directly competitive or substitutable in market B."5  The Philippines has 
demonstrated that the products at issue are not direc tly competitive or substitutable in the Philippines.   
18. In the event that the Panel should find that the products are directly competitive or 
substitutable, the tax differentia l between sugar-based and non-sugar-based spirits is not more than de 
minimis .  While the complainants have merely pointed to the differences in the specific tax rates, the 
real issue that must be examined is the effective tax burden borne by the various products at issue, in 
the light of the policy objectives. The Philippine excise tax system reflects the policy goals of 
progressive taxation as higher absolute taxes are co llected on higher priced products. The difference 
in the tax burdens for the products at issue is not  substantial: they are almost 13 per cent for sugar-
                                                      
4 FIES study. 
5 Panel Report, Japan  – Alcoholic Beverages II , para. 6.22. (emphasis added). WT/DS396/R 
WT/DS403/R Page C-20 
 
 
 based spirits and 22 per cent for non-sugar based spirits. A difference of 9 percentage points is a de 
minimis  difference in the context of the segmented Philippine market. 
19. Moreover, in the light of the Panel Report in Chile – Alcoholic Beverages , the proper test for 
de minimis  is whether the tax differential has an impact on conditions of competition in the 
marketplace. The evidence submitte d by the complainants themsel ves in the Euromonitor Study 
shows the levels of taxation have  little effect on the choices of even that select group of respondents 
who participated in the Study.  That evidence states that " [e]ven at a 40% price decrease of imports 
and a 100% to 200% price increase in domestics, impor ted brands are typically more than twice as 
expensive as domestic ones. "  A tax differential of 9 percentage points does not make a difference in 
such conditions.  
20. Finally, should the Panel find that the products in question are directly competitive and that 
non-sugar-based spirits are taxed above de minimis  levels, these rates are not applied so as to afford 
protection to the domestic distilled spirits industry.  Any distilled spirit from any country in the world 
made from these raw materials is entitled by Philippi ne law to the Section 141(a) tax rate, provided 
that the conditions of the Act have been met.  If the legislators had intended to "protect" the domestic 
distilled spirits industry, this preferential rate w ould not have been accessible for imported products.   
21. Importantly, none of the materials eligible for th e lower tax rate are found exclusively in the 
Philippines. All of the Section 141(a) materials ar e found in many other countries. Indeed, the United 
States is consistently a top-20 producer of sugar cane and frequently outstrips the Philippines in terms 
of production.  
22. We recall that the three-part test in Article III:2, second sentence, is cumulative .  The 
complainants have not demonstrated that the spirits at issue are directly competitive or substitutable; 
nor have they shown that they are dissimilarly taxed or that the measure affords protection to 
domestic production.  Therefore, the test under Ar ticle III:2, second sentence, has not been met.  
23. Article III does not guarantee market shares, and especially for products which, by nature and 
by price, are simply beyond the means of the consuming public in the Philippines. 
 
  WT/DS396/R 
 WT/DS403/R 
 Page C-21 
 
 
 ANNEX C-6 
 
CLOSING ORAL STATEMENT OF THE PHILIPPINES AT THE  
FIRST SUBSTANTIVE MEETING 
 
 1. We said in our opening statement that this case would challenge you to apply familiar legal 
concepts to the peculiarities of the Philippine mark et.  Our experience at the hearing confirms our 
expectation.  The Philippine market is very different  from the markets that have  been examined in the 
previous alcohol cases. Our laws may seem puzzling to those more familiar with the systems of 
developed countries, who are not usually constr ained in the same way as we in their policy 
implementation choices.     
2. Despite these constraints, the Philippines has creat ed an excise tax system that is consistent 
with its own domestic objectives of tax collecti on and progressivity, as well as its international 
obligations under the WTO Agreements. We hope th at this hearing has he lped emphasize several 
basic points, which I will now outline. 
3. First, the excise tax regime does not discriminate on the basis of origin.  Rather, it uses an 
internationally-recognized and accepted criterion to di stinguish between distilled spirits; namely, their 
raw material base. The lack of discrimination against imports is shown by two compelling facts:  first, 
that imported, properly-declared sugar-based spirits ar e taxed at exactly the same rate as domestically-
produced sugar-based spirits, and second, that the Ph ilippines imports significant quantities of ethyl 
alcohol made from sugar from overseas markets, all of which is taxed at th e rate applying to sugar-
based spirits. 
4. Second, this system is designed to simplify ta x collection and to collect progressively more 
taxes on higher-valued products.  The distinction in raw materials is a reflection of a central reality: 
spirits distilled from the Section 141(a) materials are typically significantly cheaper than spirits 
distilled from any other raw material base.  I would take this opportunity to remind you that the term 
"sugar-based", refers to spirits made from all Sectio n 141(a) listed materials. The introduction of tiers 
in Section 141(b) adds more progressivity.  A simple review of Annex A to Republic Act 8240 
(PH-31, column (e)) shows the progressive nature of the taxes clearly, and provides the Panel the most straight-forward view of the design, architectur e, and revealing structure of Section 141.  We 
realize that other countries might not use the same a pproach, but, most probably, that is because they 
do not face the same problems and resource constrai nts that we face in the Philippines.  We look 
forward to the opportunity to explain these challe nges further so that there can be a greater 
understanding of the context in whic h Section 141 is being applied.  
5. Third, when applying the concepts of "likeness"  and "directly competitive or substitutable" in 
its Article III:2 analysis, the Panel must be clear about which products are being compared.  We are 
confident that gin is not like whis key, and we are just as confident that a grain-based whiskey is not 
like the sugar-based "whiskey".  Most importan tly, these products simply do not compete in the 
Philippines market.  And why do they not compete?  Is it because of the taxes under analysis?  No, it 
is not.  Rather, it is because the products are so di fferent and – even after stripping out all taxes - are 
priced so differently relative to the income of mo st Filipinos.  The tax does not create an incentive to 
the Filipino consumer to buy a sugar-based spirits – he or she does not need an incentive because that 
is the only product that is within reach.  Nor do es it provide a disincentive to buy non-sugar-based 
spirits because, regardless of tax, the net retail pri ces of non-sugar-based products are typically so far 
beyond the means of the vast majority of the populati on that the excise tax imposed is inconsequential 
to the purchasing decisions of these consumers.  We  have demonstrated, I trust, in our first written 
submission (for example, in paragraph 231) that ther e are significant price differentials, net of taxes. WT/DS396/R 
WT/DS403/R Page C-22 
 
 
 The Government imposes higher taxes on the expens ive, non-sugar-based spirits basically because it 
can.  It can raise revenue from those who can afford it, without burdening average Filipinos with taxes 
on the only spirits that they can enjoy. 
6. We would also like to address the issue of "lat ent demand," which was raised in some of the 
comments yesterday.  The United States raised this in paragraph 32 of its oral statement, and claimed 
that it would be "unfair to complainants to use the lack of current sales as evidence that imported 
products would not compete if given the opportunity to  do so on an equal basis."  But, the Philippines 
has addressed this issue in its ev idence, providing econometric simulations of competition without the 
excise tax, and also with aggressive assumptions su ch as a 30% increase in the average income of the 
Philippine population.  These simulations still show an extremely low response to these dramatic price 
changes in the Philippine market, corroborating the findings of the complainants own evidence in the 
Euromonitor Survey.  Contrary to the statement made  by the United States (para. 21), we do not want 
the Panel to disregard the Euromonitor Survey:  co mbined with other evidence, it shows just how far 
out of reach non-sugar-based imports are for almost all Filipinos.  
7. Finally, we ask that the Panel avoid the inv itation to infer competition from some of the 
evidence that has been presented.  Pictures of two products on the same supermarket shelf, just like 
the bottles of spirits brought from Manila, are not evidence that the same consumer can buy either 
product.  And, the question, it seems to us, is not  (as the United States posits in para. 34) whether a 
consumer offered different  products at a party would be indiffe rent – the better question might be 
whether the party organizer would have the wh erewithal to purchase both Ginebra San Miguel and 
Johnnie Walker Black, and to offer it to his guests as alternative drinks.  That party does not happen, 
to my knowledge, in the Philippines. 
8. I would also like to recall that our disti nguished colleague from the EU described the 
Philippines’ argument as circular.  We looked closel y at the indictment of circularity. We found that 
the EU was in point of fact making two assumptions: it was, firstly, assuming, without proving, that 
sugar-based spirits were in direct competition with  and substitutable for non-sugar-based spirits; it 
was also assuming, again without proving, that th ere was a relationship of causation between Section 
141(a) and (b) and the great price-disparity separ ating sugar-based and non- sugar-based spirits. The 
discovery of these two assumptions of the EU broug ht to my mind my old professor of Philosophy 
101 – Logic, Aristotelian and Symbo lic – who would not countenance ci rcularity however briefly, and 
who would have vehemently rej ected those two assumptions as petitio principii  - begging the very 
issues to be resolved. 
9. In closing, we would reiterate that the pr ovisions of the GATT in question today require 
consideration of the particular market in ques tion. Assumptions based on experience in any other 
market do not help, and they very likely could impe de the Panel from reaching the correct decision.  
The products treated differently under Section 141(a)  and (b) do not compete in segmented Philippine 
market with or without the excise tax, and there is no violation, in our respectful submission, of 
Article III:2 of GATT 1994. 
10. Mr. Chairman, members of the Panel, the Govern ment of the Philippines thanks you – as well 
as the Secretariat staff - for the time and e ffort that you are dedicating to this case. 
 
_______________ 
  WT/DS396/R 
 WT/DS403/R 
 Page D-1 
 
 
 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 D-2 
 
 
 ANNEX D-1 
 
ORAL STATEMENT OF AUSTRALIA AT  THE FIRST SUBSTANTIVE MEETING 
  
I. INTRODUCTION 
1. Thank you for the opportunity to present Austra lia's views on this dispute, which raises 
systemic and interpretive issues concerning the application of Article III:2 of the General Agreement 
on Tariffs and Trade 1994  (GATT 1994). 
2. In its written submission, Australia has identifie d some key issues of legal interpretation and 
application raised by this dispute, including a pa rticular focus on two questions.  Firstly, whether 
spirits which meet the Philippines' excise tax raw materials requirement and those that do not can be 
classified as "like products" under the first senten ce of Article III:2 of GATT 1994 and/or as "directly 
competitive or substitutable products" under the second sentence of Article III:2.  Secondly, whether 
the Philippines' excise tax measure is "applied... so as to afford protection to domestic products", for 
the purposes of the second sentence of Article III:2.   
A. QUESTIONS
 FOR  THE  PANEL'S  CONSIDERATION 
1. Case-by-case application 
3. Australia's view is that the application of bot h the first and second sentence of Article III:2 of 
GATT 1994 is to be determined by the Panel on a case-by-case basis1 through an analysis of the 
factual evidence provided by the parties to the dispute.   
4. Australia further recognises the guidance provided to  the Panel in undertaking this analysis by 
previous panel and Appellate Body decisions on Article III:2 of GATT 1994, and in particular the 
decisions in disputes concerning the treat ment of imported alcoholic beverages: Japan – Alcoholic 
Beverages II; Chile – Alcoholic Beverages;  and Korea – Alcoholic Beverages .  While those cases are 
particularly helpful in clarifying the meaning and application of Article III:2, a case-by-case analysis 
allows for both the differences and similarities betw een this and previous disputes to be recognised 
and thus enables this Panel to draw its own conc lusions on the particular facts of this dispute. 
2. "like products" (Article III:2, first sentence)  and "directly competitive or substitutable 
products" (Article III:2, second sentence) 
5. In its written submission Australia briefly outli ned the different criteria which have been 
applied in previous panel decisions to determin e whether products are "like products" for the purposes 
of the first sentence of Article III:2, and whether products are "directly competitive or substitutable 
products" for the purposes of the second sentence of that article.    
6. In undertaking this consideration, Australia subm its that the Panel must determine the weight 
to be placed on particular factors and criteria in th e interpretation of Article III:2 and should not apply 
such criteria in a manner that is formulaic or inflex ible.  In Australia's view the evaluation of these 
factors will differ in relation to the first and second sentence of Article III:2, noting that "like 
products" can be described as a narrower subset of the broader category of "directly competitive or 
substitutable products"2.  However, Australia agrees with the decision of the Appellate Body in EC – 
                                                      
1 Appellate Body Report, Japan – Alcoholic Beverages II,  p. 20; and Canada – Periodicals,  p. 21. 
2 Appellate Body Report, Korea – Alcoholic Beverages , para. 118.  WT/DS396/R 
 WT/DS403/R 
 Page D-3 
 
 
 Asbestos  that no one criterion should be considered determinative and the evidence as a whole must 
be examined to determine the charact erisation of the products at issue.3 
7. As outlined in our written submission, in applyi ng Article III:2 to this dispute, the Panel may 
choose to consider the characterisation of a numbe r of different groupings of products.  The Panel 
may undertake a comparison between all distilled spir its; a comparison of the same types of distilled 
spirits (e.g. imported and domestic vodka); and/or a comparison of different types of spirits which are 
produced from the same raw materials. 
8. A key issue in this dispute is the comparison of the physical characteristics of the distilled 
spirits produced from different raw materials.  Howe ver, we note that previous panels have not found 
this distinction to be determinative on its own.  For example, the panel in Japan – Alcoholic 
Beverages II  found that shochu and vodka were "like pr oducts" within the meaning of the first 
sentence of Article III:2 although they contai ned similar but not identical raw materials4.  Further, in 
considering whether shochu and imported spirits we re "directly competitive or substitutable" under 
the second sentence of Article III:2 the Panel in Japan – Alcoholic Beverages II  found that the term " 
'directly competitive or substitutable' does not suggest at all that physical resemblance is 
required…the decisive criterion… is whether they have common end uses"'.5    
9. Australia further notes that in considering wh ether products are “directly competitive or 
substitutable” it is important to take into account product competition within the relevant market6.  In 
particular, we note that the report of the panel in Korea–Alcoholic Beverages  indicated that products 
with significantly different retail prices can be dir ectly competitive, noting that even a lower income 
earner "can afford to purchase a bottle of a mo re expensive beverage at least occasionally".7   
3. "applied... so as to afford protection to domestic products" 
10. Finally, Australia submits that wh ether the measure is "applied... so  as to afford protection to 
domestic products" for the purposes of the second senten ce of Article III:2 is determined not only by 
examining the application of the measure, but also its design and architecture8.  In paragraph 44 of its 
written submission Australia has identi fied factors which in Australia's view should form part of the 
consideration of this question. 
11. In particular, Australia notes the discrepancy be tween the Philippines' stated objective of the 
excise tax measure, being to minimize "the regressive  effects of the tax by distinguishing between 
lower-priced goods... and high-priced goods"9, and the architecture and design of the measure10 which 
distinguishes between the raw materi als used in the production of the product, rather than net retail 
value of the product. 
II. CONCLUSION 
12. Mr Chairman, members of the Panel, Australia would be pleased to respond to any questions 
from the Panel on these or any other matters related to the dispute. 
                                                      
3 Appellate Body Report, EC – Asbestos , para. 109. 
4 Panel Report, Japan – Alcoholic Beverages II, para. 6.23. 
5 Panel Report, Japan – Alcoholic Beverages  II, para. 6.22. 
6 Appellate Body Report, Japan – Alcoholic Beverages  II, p. 25. 
7 Panel Report, Korea – Alcoholic Beverages , para. 10.74. 
8 Appellate Body Report, Japan –  Alcoholic Beverages  II, p. 29. 
9 Philippines' first written submission, para. 32. 
10 Appellate Body Report, Japan – Alcoholic Beverages  II, p. 29. WT/DS396/R 
WT/DS403/R Page D-4 
 
 
 ANNEX D-2 
 
ORAL STATEMENT OF INDIA AT THE FIRST SUBSTANTIVE MEETING 
  
1. Mr. Chairman and distinguished members of the Pa nel, India thanks the Panel for giving this 
opportunity to present its views relating to this dispute in the Third Party Session.   
2. In the subject dispute, the US and EU have  challenged Philippines excise tax measures being 
inconsistent with the principle of national treat ment contained in Article III.2 of GATT 1994.  At 
issue in the dispute are a number of Philippines legal provisions, and in particular the National 
Internal Revenue Code of 1997  which sets out the product categories and applicable tax rates for 
distilled spirits.  The European Union and the Unite d States argue that the relevant provisions ('the 
excise tax measure') create a tiered system of taxation by applying a lower rate of tax to spirits made 
from specified raw materials (sap of the nipa, coc onut, cassava, camote, or buri palm, or from juice, 
syrup of sugar of the cane) which are commerciall y produced in the same country where they are 
processed into distilled spirits ('the raw materials requirement')  Spirits which do not meet the raw 
materials requirement are further differentiated in to three categories with differing and higher tax 
rates, determined by the net retail price of the spirit.   
3. In its written submissions, Philippines relies on WTO jurisprudence establishing the right of 
WTO Members to establish and apply their own tax policies WTO Members are "free to tax distilled 
alcoholic beverages on the basis of their alcohol cont ent and price", thus Philippine argues it is free to 
tax distilled alcoholic beverages on the basis of the raw materials used.  
4. Mr. Chairman, in our view, the interpretation of ' like products' is a very important issue in this 
dispute.  India will confine its statement on this aspect only.   
5. Mr. Chairman, the over arching approach take n by the Appellate Body and WTO Dispute 
Settlement Panels is that the term 'like products' should be examined on a case by case basis.  
A. S
COPE OF GATT  ARTICLE  III:2,  FIRST SENTENCE  
6. Philippines argues that the first sentence of Artic le III:2 deals with "like products", while the 
second sentence concerns "directly competitive or subs titutable" products.  Philippines has argued that 
imported spirits made from differe nt raw materials are not "like" products comparable with the 
whisky produced in Philippines from sugar.   
7. WTO jurisprudence indicates that the determination of likeness under GATT Article III:2 
involves a weighing and balancing of various criteria, including the physical characteristics or 
"properties, nature and quality of the product" as de termined by input materials used. The greater the 
number of differences in their essential characteris tics, the less probable it is that these products can 
reasonably be considered "like".  
8. Philippines has argued that the concept of "lik e products" under Article III:2 be examined on 
a case-by-case basis, this concept "must be construe d narrowly so as not to condemn measures that its 
strict terms are not meant to condemn."  A very im portant determinant for "likeness" is the physical 
characteristics of the product.  There are signifi cant physical differences between non-sugar-based 
distilled spirits and sugar-based spirits, as  a result of the raw materials used.  
9. As explained by Philippines, EU and US whisky use grains or cereals as the primary basis for 
this product. By contrast, Philippine "whisky", like all other distilled spirits produced in the  WT/DS396/R 
 WT/DS403/R 
 Page D-5 
 
 
 Philippines, is a sugar-based neutral spirit (ethyl alcohol) to which flavouring is added. Philippine 
further argues that sugar-based whisky would be pr ohibited by law from being marketed as "whisky" 
in both the EU and the United States.   
10. In the case of India, we have also a somewh at similar experience as regards classification of 
India's 'whisky' produced from molasses which is sugar based, when exported to the EU.  Whereas the 
whisky produced and exported by the EU and US is largely malt or cereal based.  As in the case of 
Philippines, the EU has not recognised our molasses  based whisky as 'whis ky' for the purpose of 
imports in the EU. The underlying reasons give n for non-acceptance of recognition of molasses based 
'whisky' as whisky by the EU is on the ground of th e raw material used for production.  As argued by 
Philippines, the use of raw material has the effect on the product's properties.  In our view, this should 
be an important factor to determine the 'like product' in this dispute.    
B. WHETHER NON-SUGAR -BASED DISTILLED SPIRITS AND SUGAR -BASED PRODUCED SPIRITS 
ARE "DIRECTLY COMPETITIVE " OR "SUBSTITUTABLE " IN THE PHILIPPINES  
11. Chair, for interpretation of 'like product' for the purpose of second sentence of paragraph 2 of 
Article III of GATT, we may have to look carefully  whether the taxed products and the domestically 
produced products are directly competitive or substitu table.  In this respect, we would refer to the 
Philippines submission that this issue should be ex amined in the specific context of the Philippine 
market.  Sugar-based domestic liquors, which are sold  at very low prices, do not offer an "alternative 
way of satisfying the same consumer demand in th e marketplace" as that offered by high-priced non-
sugar-based spirits . There is no "direct" or "proximate" competitive relationship between these 
products.  
12. Further the imported spirits, being generally higher priced, compete in a different market 
segment.  The Panel has therefore, to come to  its own conclusions whether the non-sugar based 
distilled spirits (largely imported) and sugar based spir its (largely produced in Philippines) are directly 
competitive or substitutable.  
13. Chair, we again thank the panel for this opportunity.   
 
 WT/DS396/R 
WT/DS403/R Page D-6 
 
 
 ANNEX D-3 
 
ORAL STATEMENT OF CHINESE TAIPEI  
AT THE FIRST SUBSTANTIVE MEETING 
 
 1. The Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu would like to thank 
the Panel for this opportunity to present its views as  a third party in this proceeding.  TPKM makes 
this oral statement in light of our interests in the proper interpretation and application of relevant 
provisions in the General Agreement on Tariffs a nd Trade 1994("GATT 1994"), and in particular, the 
second sentence of Article III:2 and the Interpretive Ad Note to Article III:2 of the GATT 1994. 
2. It is well-established in WTO jurisprudence that  in order to find an internal tax measure 
inconsistent with the second sentence of Article III: 2, three separate elements must be satisfied: 
(a) the imported products and the domestic products must be "directly competitive or 
substitutable products," which are in competition with each other; 
(b) the directly competitive or substitutable imported and domestic products are "not 
similarly taxed"; and  
(c) the dissimilar taxation of the directly co mpetitive or substitutable imported domestic 
products must be "applied . . . so as to afford protection to domestic production."
1  
3. For this oral statement, the Separate Cust oms Territory of Taiwan, Penghu, Kinmen and 
Matsu would like to just focus on the first element of this test. 
4. Under this first element, in order to determ ine whether a product is directly competitive or 
substitutable, the Appellate Body has confirmed for numerous times previously that -- while this 
category is broader than the "like" product cate gory under the first sentence of Article III:2 – this 
analysis must still be done on a case-by-case, fact-intensi ve basis.  Indeed, to ma ke this determination, 
the Appellate Body has required complainants to look at a myriad of factors such as physical 
characteristics, common end-uses, tariff classifications , and the marketplace, including the elasticity 
of substitution between produc ts, marketing strategies, and consumer preferences.2 
5. In light of this well-established, the Separate  Customs Territory of Taiwan, Penghu, Kinmen 
and Matsu would simply note that establishing this  first element requires rigorous analysis, with a 
need to set forth all the necessary f acts for the particular products at issue in the particular market at 
issue.   
6. The Separate Customs Territory of Taiwan, Pe nghu, Kinmen and Matsu would also note that 
this rigorous analysis must be done by the comp lainant as an initial matte r, so as to make its prima 
facie  case that there exists a potential GATT Article III:2 violation, and without which the burden of 
proof does not shift at all to the respondent. 
7. In sum, the Separate Customs Territory of Ta iwan, Penghu, Kinmen and Matsu would like to 
respectfully remind the panel of the fact-intensive nature of an Article III:2-second- sentence analysis 
which requires a high standard of burden of proof by the complainants.   
                                                      
1 Appellate Body Report, Japan – Alcoholic Beverages II,  p. 24.  This test was subsequently applied in 
the Korea – Alcoholic Beverages  and Chile –Alcoholic Beverages . 
2 Appellate Body Report, Japan – Alcoholic Beverages II,  p. 25.    WT/DS396/R 
 WT/DS403/R 
 Page D-7 
 
 
 8. We thank the Panel once again for the opportunity to make this statement, which we hope is 
of assistance to the Panel. 
 
_______________ 
  WT/DS396/R 
 WT/DS403/R 
 Page E-1 
 
 
 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 
 
 WT/DS396/R 
WT/DS403/R Page E-2 
 
 
 ANNEX E-1 
 
EXECUTIVE SUMMARY OF THE SECOND WRITTEN SUBMISSION 
 OF THE EUROPEAN UNION 
 
 1. At the outset, the EU observes th at, in its written submissions, the Philippines itself has had to 
recognize that its defences have li mited validity. There are always unavoidable facts that disqualify its 
arguments, or exceptions which show the inevitable lim its of the justifications it attempts to provide 
for its discriminatory tax system.  
2. In the first place, the EU notes that the Philippi nes concedes that the designated raw materials 
are indigenous to the Philippines but adds that they  are also indigenous to other countries world-wide. 
In this regard, the EU fails to see why this should exclude the fact that the measures at issue may be 
discriminatory and thus breach Article III:2. The fact  that, in principle, spirits from the designated raw 
materials could be produced elsewhere does not ex clude that the Philippines may illegitimately favour 
its domestic spirits over imported lik e/substitutable spirits. In a globalized world there is virtually no 
product which can be manufactured only in one country. The Philippines is proposing an 
interpretation of Article III:2 so na rrow as to basically read it out of the GATT itself. In fact, it can be 
noted that all of the three cases decided under the WTO dispute settlement  mechanism and which 
concerned taxation on alcoho lic beverages involved, like the present dispute, de facto  discrimination.  
3. Regarding the requirement that raw material s are produced commercially in the country 
where they are processed into distilled spirits, th e EU observes this additional condition further 
aggravates the discrimination based on the raw mate rial requisite. In fact, a spirit produced in 
countries where the climate or agronomic conditions  do not permit the cultivation and production on a 
commercial scale of any of the designated raw mate rials would never be taxed at P. 13,59 ppl, even 
when produced from the designated raw materials and in the same manner of Filipino spirits.  
A. B
URDEN OF PROOF  
4. Regarding the burden of proof, the EU emphasi zes that it has made a very extensive and 
thorough examination of why distilled spirits made  from designated raw materials are similar to 
distilled spirits made from the non-designated raw materi als.  Since it is well established in the case-
law that the category of like products is a subset of  those products which are directly competitive and 
substitutable, all evidence advanced with respect to each element of the similarity assessment is 
relevant to the consideration of the products as eith er like, or as directly competitive and substitutable. 
The issue which must be determined by the Panel is whether the weight of the evidence submitted by 
the Complainants demonstrates similarity and, if  so, to what extent. Depending on the degree of 
similarities observed, the products will be considered  'like', 'directly competitive and substitutable', or 
neither. Considering specifically the first written su bmission of the EU, it clearly lays out extensive 
arguments and evidence with respect to simila rity between distilled spirits generally. Specific 
references to certain distilled spirits, including wh isky, gin, rum, vodka, brandy and tequila, rather 
than to every kind of distilled spirit, were made  by way of example. The EU does not consider 
necessary in this case to embark in a repetitive account of each difference between imported and 
domestic products for every single type of distilled sp irit. However, for the sake of clarity, in its 
second written submission, the EU lays out in detail  all the similarities which it has already shown 
with respect to each type of distilled spirit.   WT/DS396/R 
 WT/DS403/R 
 Page E-3 
 
 
 B. SIMILARITY  
1. Prices 
5. Preliminarily, the EU wishes to recall that im ported spirits, unlike domestic ones, are subject 
to: (i) an excise tax which is 10 to 43 higher; a nd (ii) customs duties raging between 10 and 15% ad 
valorem. Moreover, since VAT is applied on top of customs duties a nd excise tax, the VAT inevitably 
affects more heavily imported spirits rather than local ones. Thus, the EU emphasizes once again that 
the Philippines' arguments is basically an attempt to  justify the existence of the measure at issue by 
pointing to the very negative and discriminatory e ffects that its taxation system itself produces. In 
addition, the EU expresses its doubts about the exact  scope of the Filipino argument on pricing. The 
EU does not know whether the Philippines is arguing that local products are always , or typically , or 
often  or on average  less expensive. In fact, insofar as  the Philippines acknowledged that there 
currently exist a number of imported products which are less expensive than some local products (and 
in spite of the fact that current end prices are aff ected by the discriminatory tax rates) the EU wonders 
whether the argument is worth consideration at all. In  fact, implicitly, the Philippines is admitting that, 
for some imported products, there is competition also with respect to price and yet, in spite of this, 
they still pay a 10 to 43 times higher taxation. In fact, Article III:2 is violated even if some  imported 
products are discriminated against, compared to some similar domestic products. A breach of this 
provision does not require that all imported products are discriminated against, when compared to all 
domestic products.  
6. Next, the EU expresses surprise and perplexity  about the several and significant changes 
made by the Philippines to its Exhibit PH-19. In fact, the new Exhibit PH-19 amended appears to be 
erroneous, or at least incomplete, in  several regards. Preliminarily, the EU wishes to stress that the 
Philippines seems to have made ch anges based on a sort of virtual reality. In fact, the Philippines 
states that it has made changes in order to reflect the " excise tax that should have been paid ", 
corrected entries that " seemed to be incorrect ", and eliminated " suspected mistakes ". The EU doubts 
that any meaningful reasoning could be based on a document which the Philippines has prepared 
according to its own impressions  or suspicions . Moreover, the EU does not understand why many 
products were removed from the survey because, a llegedly, price data could not be verified " as of this 
corrigendum ". The EU wonders why prices needed to be verified some two months after they were 
observed in the market. In addition, the EU expres ses its surprise that many of the products which 
were removed because, allegedly, their price could not be verified, are precisely the imported products whose prices were most similar to  the local ones. Furthermore, the EU finds rather odd the fact that 
only one local brandy is now listed in Exhibit PH-19 amended, finding it doubtful that the Philippines 
could not verify the prices of best-selling domestic brandies. On the basis of the above, the EU urges 
the Panel to consider carefully whether the price data contained in the new Exhibit PH-19 amended 
can be relied upon. Furthermore, since the price data contained in the old Exhibit PH-19 are – according to the Philippines – erroneous or not veri fied, the EU believes that the Panel cannot but 
disregard also the average prices indicated in th e Philippines' First Written Submission, having been 
calculated on the basis of that survey.  
2. Production processes 
7. 
Regarding production processes, the EU preliminarily notes that the Philippines could not 
identify numerous or significant differences, in spite of the length and complexity of the process of 
spirits production overall. In addition, the EU examines the few differences identified by the 
Philippines so as to show that these alleged differen ces are either erroneous or entirely insignificant. 
Regarding fermentation, the EU stresses that the di fference alleged by the Philippines is not valid for 
spirits produced from some raw materials others than sugar cane, some of which in fact also benefit WT/DS396/R 
WT/DS403/R Page E-4 
 
 
 from the low tax rate provided for in the measures at  issue. Moreover, the EU notes that fermentation 
from grape wine is a relatively simple and rapid process, not less than that for sugar cane.  
8. With regard to distillation, the EU reiterates that  whether a given hint of flavour, colour, or 
aroma, is produced by the congeners or by the adde d flavouring is quite irrele vant, and that congeners 
represent a minimal part of the products. Indeed, conge ners usually make up far less than 1% of the 
final product. Further, the EU stresses that an y comparison between different spirits (quite 
independently of whether they are Filipino or not) would show differences in  congeners which may be 
larger or smaller, depending on the case. Taking whis kies as an example, the EU notes that one of the 
whiskies the Philippines has chosen  for the comparison is a Tennessee whisky which has particularly 
high levels of congeners. However,  had the Philippines chosen a different type of imported whisky, 
the differences in congeners as between their dom estic products and the im ported ones would have 
been far less significant and observable. In this c ontext, the EU exhibits a comparison of the major 
volatile congener concentrations of  different types of world whiskies made in a scientific publication 
of some years ago. From this comparison, it can be observed that Canadian whisky has very low 
levels of congeners, similar to Filipino whiskies. As a second matter, this comparison shows that other 
types of whiskies also have low levels of cert ain congeners and that differences between various 
imported spirits are as significant as those between so me imported spirits and Filipino spirits. The fact 
that these differences in congeners are minor for pur poses of an analysis of physical characteristics 
under Article III:2 is quite clear.  No two whiskies sold  in the world are identical with respect to the 
levels and combinations of various  congeners. Each whisky has differe nt levels of va rious congeners, 
just like each whisky has its own peculiarities w ith regard to smell, taste and colour.  
9. In the second place, the EU recalls that the Ph ilippines itself admitted that all raw materials 
(designated and non-designated raw materials) could be distilled so as to be completely stripped of 
congeners, confirming that raw materi al is not particularly important in this regard. Furthermore, the 
Philippines has also recognised that it is not true that all imported spirits retain much taste and aroma 
from the materials they are distilled. In fact, gin a nd vodka are distilled to a very high concentration of 
alcohol so that the basic spirit is effectively neutra l. Gins are then flavoured with juniper berries and 
other botanicals. Conversely, some Filipino gins are not neutral as they are supposed to retain the 
flavour deriving from the raw materials used. Last ly, rums (imported or local) are not made from 
neutral alcohol. To this, it should be added that so me imported spirits do not use pot stills: e.g. scotch 
grain whisky is distilled in a continuous process us ing a column still. On the contrary, some Filipino 
spirits are not produced by using column stills, but pot stills (e.g. 'Old Captain 12 Years Old Superior 
Rum').  
10. With respect to ageing, the EU points out that, on the one hand not all spirits produced from 
the non-designated raw materials are aged (e.g. vodk as, gins), and (ii) conversely, some spirits 
produced from the designated raw materials in th e Philippines are aged (e .g. several rums from 
Tanduay). 
3. Physical characteristics 
11. The EU notes first that the Philippines can only point to some minor dissimilarities between 
imported and domestic products  relating to colour, smell and taste. These minor differences would be 
relevant if under Article III:2 produc ts would be required to be identi cal in all respects. This, however, 
is not the case, neither under the first sentence nor  the second sentence of the provision. In fact, the 
interpretation put forward by the Philippines woul d reduce Article III:2 of the GATT to apply only 
where goods have virtually no differences between them  at all. In consequence, Article III:2 would 
essentially only apply to commodities. In fact, for manufactured goods, minor differences in, for 
example, colour, smell, price, and taste, are not  only absolutely normal, but even necessary in a 
healthy market-place based on free and fair competition.   WT/DS396/R 
 WT/DS403/R 
 Page E-5 
 
 
 12. Next, the EU observes that the intoxicating effect  of spirits on human beings is, without any 
doubt, a defining characteristic of spirits. One of  the main purposes for people consuming distilled 
spirits is precisely to experience that pleasant int oxication that drinking spirits induces. The EU also 
notes that the Philippines does not contest that these effects occur regardless of the raw materials 
used. In this context, the EU wishes to recall that, in EC – Asbestos , the Appellate Body found that 
evidence relating to the health risk s associated with a product may be pertinent in an examination of 
"likeness". Furthermore, it almost goes without saying  that, contrary to what the Philippines contends, 
wine and beer do not have the same effects on hum ans as spirits, given their significantly different 
alcoholic content.  
4. Consumer Tastes and Preferences 
13. In answering the criticism expressed by th e Philippines on the Euromonitor Survey 
(Exhibit EU-41), the EU notes, firstly, that, accordi ng to the most recent data, in spring 2009, around 
1/3 of the Filipino population (i .e. 29,7 million persons) had access to the internet. Then, the EU 
observes that Euromonitor makes it very clear that the persons drawn for the on-line panel have been 
selected at random and were considered to be representative of the Philippines' population, with 
specific adjustments to age, gender and living loca tion that allowed for closer alignment with the 
entire Filipino population. The EU emphasizes that th e Euromonitor report shows very clearly that 
consumption patterns of domestic a nd imported spirits in the Philippines are largely similar: very little 
variation exists on why, how and when domestic an d imported spirits are consumed. The EU further 
notes that the Philippines has not even  attempted to rebut these findings. 
14. Regarding advertising campaigns, the EU reject s the Philippines' arguments on their lack of 
probative value. Firstly, the EU observes that it has not only shown that both Filipino and non-Filipino sprit producers target young people and pre sent their products as ideal for being consumed 
with friends. The EU has also pointed to a numbe r of other similarities between the advertising 
campaigns: both Filipino and non-Filipino producers a dvertise their products as ideal to drink when 
celebrating important events, or for romantic moments or  to be offered as gifts. In substance, what the 
EU has observed is that advertisement of spirits (i rrespective of the raw materi als used for distillation) 
manifestly target the same group of customers, who drink these products in the same type of 
occasions and in the same manner, which appears to be a very relevant finding for an analysis of 
likeness/substitutability under Article III:2. In th e second place, the Philippines seems to forget that 
many spirits are products of large multinationals which are active internationally and market their 
products almost everywhere in the world. Ofte n, advertising campaigns are conceived and run 
internationally and are not tailor-made for one or  more specific countries. Moreover, the Appellate 
Body has consistently stated that " evidence from other markets may be pertinent to the examination of 
the market at issue, particularly when demand on that market has been influenced by regulatory 
barriers to trade or to competition ". This appears to be in fact th e case in the Philippines. In the third 
and final place, the Philippines has overlooked the relevance of comparing advertising campaigns. 
Their relevance has already been stressed by previous WTO adjudicators, which have found that 
marketing strategies that highlight fundamental pr oduct distinctions or, alternatively, underlying 
similarities may be useful tools for analysis. 
15. Another element which shows how Filipino produ cers try to adapt to the changing consumers' 
habits and preferences, just like their foreign c ounterparts, can be observed with respect to the 
development and marketing of new products. In fact, it is evident that Filipino spirits producers, too, 
follow the same trends which are followed by non Filipino spirits producers in the global market. A 
good example can be the recent launch in the Philippi nes' market of two vodkas flavoured with apple 
after a number of similar products were introduced into the world spirits market.  WT/DS396/R 
WT/DS403/R Page E-6 
 
 
 5. Tariff Classification 
16. The EU notes that previous WTO adjudicators cons idered the fact that all spirits fell under the 
four-digit tariff heading 2208 as a positive indicati on of likeness/substitutability and that evidence 
shows that the raw materials used are not determ inative of the classification of spirits under the 
different subheadings of tariff heading 2208. 
6. Elasticity of Substitution 
17. At the outset, the EU stresses two elements whic h the Philippines itself has pointed out in its 
submissions: (i) tax discrimination between local a nd imported spirits in the Philippines has existed 
for many decades; (ii) imported spirits are not avai lable in all shops of the Philippines. This means 
that in analysing the results of any study on cross- elasticity between local and imported spirits in the 
Philippines, one would have to take these uncontes ted facts into account. Local drinking traditions 
and habits have crystallized in decades and many Filipinos had few or no occasion(s) to try imported 
spirits. It is thus evident that one cannot expect that too many Filipinos, asked today of a hypothetical 
substitution of their traditional spirit with a new one, would do so. In fact, past WTO adjudicators 
were cognizant of this problem and, in previous  disputes, have emphasized how a tax system that 
discriminates against imports has the consequence of creating and even freezing preferences for domestic goods. 
18. The EU emphasizes several and important reservations it has regarding the Filipino study 
submitted as Exhibit PH-49. In the first place, th e Philippines' analysis does not address the central 
question at stake in the present cas e, that is, the competitive interaction between local and imported 
spirits under a WTO-compliant, non-discriminatory excise tax regime. By applying its empirical 
analysis to an already distorted market, the Philippi nes repeats the fundamental error of justifying the 
measure by the effects of the measure itself. In addition, the methodology and the numerical estimates 
proffered by the Philippines are ma rred by a number of serious fl aws, even when applied in the 
context of the prevailing discriminatory tax regime . Meanwhile, the Philippines' analysis confirms 
that product differentiation is a central competitive pa rameter in the spirits market: brands differ to 
some degree in terms of product characteristics and brand positioning, while addressing the same 
basic customer demand. The notion that products are to some degree differentiated but nonetheless 
compete with each other in the same product markets is well established among economists and, 
indeed, competition authorities around the world.  
19. This study has also been the subject of a critical evaluation by KPMG (Exhibit EU-102). The 
'KPMG Report' not only found in this study some key shortcomings and problems which compromise 
the validity of its findings on cross-price elasticities, but also concluded that both scientific literature 
on cross-price elasticity between alcoholic beverag es and anecdotal evidence from other markets (e.g. 
Australia, Japan, Korea) where tax rates have re cently changed, support the case that both domestic 
and imported products directly compete in the Phili ppines' market. In addition, the results of the 
Exhibit PH-49 appear difficult to reconcile with those stemming from the Euromonitor report (Exhibit 
EU-41) which found that Filipino consumers were consistently w illing to purchase imports with each 
price reduction and this even when imported spir its remained significantly more expensive. The 
Euromonitor report further concludes that, overa ll, the closer the price between imported and 
domestic products, the more likely consumers are to increase their consumption of imports while 
decreasing their consumption of domestics. Lastly, th e EU points out that there are a number of data 
in Exhibits PH-19, PH-49 and PH -51 which cannot be reconciled. These differences concern not only 
abnormal variations between the average retail pric es / net retail prices of some spirits, but also 
different excise rates. Some data contained in one or  more of these Exhibits must thus inevitably be 
erroneous.   WT/DS396/R 
 WT/DS403/R 
 Page E-7 
 
 
 7. End uses 
20. The EU observes that the Philippines does not adva nce any arguments against the fact that all 
spirits, regardless of the raw material used, have  the same end-uses. The EU stresses that the 
importance of the commonality of end-uses has been consistently emphasized in the jurisprudence. In 
fact, in the Japan – Alcoholic Beverages II  case, the Appellate Body ag reed with the Panel which 
went as far as describing common end-uses as a decisive criterion.  
8. Sale and distribution channels 
21. The EU emphasizes that, contrary to what th e Philippines seems to suggest, imported spirits 
are often sold in outlets which are neither luxurious nor for high-income people.  
C. DISCRIMINATION WITH REGARDS TO RUM  
22. Preliminarily, the EU points out that it does not understand whether the Philippines is arguing 
that some imported rums were in the past taxed wr ongly, but that they are now taxed at the correct 
P. 13,59 ppl rate, or that these rums are still  now taxed wrongly, but that is because the 
producers/importers have not filed the proper documentation disclosing the raw materials used in the 
production of these products. In par ticular, paragraph 141 of Philippi nes' first written submission is 
ambiguous in this regard. This c onfusion in the Philippines' submissions is quite telling about the 
embarrassing situation the Philippines is struggling to  explain. In substance, the Philippines would 
like us to believe that many large and sophisticat ed multinationals (like the producers of many world 
renowned rums) have preferred to pay millions of Pesos to the Philippines' Bureau of Internal 
Revenues (BIR) for several years in undue taxation, rather than sending one person to their office to 
declare the obvious fact that their rums are made from sugar cane. In any even t, the EU observes that 
Filipino legislation provides that the classification of each brand of distilled spirits based on the 
average net retail price shall remain in force until revised by Congress. To the knowledge of the EU, 
the Filipino Congress has not revised the list of beverages contained in Annex A of Revenue 
Regulation 23/2003 (which lists the imported spir its subject to the higher excise tax rates and 
includes, among others, several imported rums). In fact, even recently, Malibu Rum was taxed at the 
P. 293.93 ppl.  
23. In any event, it is clear that even if all rums (and all products  from sugar cane) were taxed at 
P. 13,59 the substance of the case would not be  any different. The discrimination which the 
Philippines' legislation establishes and which the EU  considers in breach of Article III:2, first and 
second sentence, is that between spirits produced from the designa ted raw materials and spirits 
produced from other raw materials. The fact that th is legislation is not applied correctly and even 
some imported products which should, in principle, benefit of the low tax rate are conversely taxed at 
higher rates, is just an aggravating factor which si gnificantly illustrates the protectionist application of 
the measures.  
D. THE EFFECTIVE TAXATI ON SYSTEM ARGUMENT  
24. The EU re-iterates its strong perplexities regard ing this defence. In the first place, the EU 
notes that the Philippines has confirmed in wr iting that it does not invoke any defence under 
Article XX of the GATT 1994. The EU believes that this element alone is sufficient to dismiss any 
argument on this point. In any event, on the mer its of the argument, the EU restates that the 
Philippines has not explained why discriminati ng between like/substituta ble products would be 
necessary for the efficiency of its taxation system . How its geo-economic particulars would make it 
necessary for the Philippines to employ discriminator y taxation for alcoholic beverages remains, to 
date, entirely unclear. Further, the Philippines seems to argue that it cannot impose an ad valorem  WT/DS396/R 
WT/DS403/R Page E-8 
 
 
 excise tax because that would prove inefficient. Bu t it has not explained why. In particular, this 
argument appears odd if one considers that importe d spirits are already evaluated when they pay 
customs duties calculated ad valorem  upon entering the Philippines. In addition, the EU notes that 
some other countries in the Asia Pacific region (such as Vietnam, Thaila nd, and Korea) use an ad 
valorem  excise system for alcoholic beverages. In any event, even if, for the sake of argument, one 
were to accept that an ad valorem  taxation system would not be feasible, the Philippines would have 
to explain why all products cannot be subject to the same tax rates. This coul d be done, in particular, 
by extending the low and flat rate provided by Sec tion 141(a) of the NIRC also to imported spirits, or 
by applying the 3 tax rates provided for in Secti on 141(b) of the NIRC, and based on the net retail 
price of products, also to local products.  
E. T
HE DIFFERENT LEV EL OF TAXATION  
25. The EU observes that neither in its first writte n submission, nor during the first substantive 
meeting, nor in its Responses to the Panel's Ques tions, did the Philippines advance any arguments to 
contest that spirits produced from the non designa ted raw materials are taxed in excess of spirits 
produced from the designated raw materials, pursuan t to Article III:2, first sentence, GATT. With 
respect to the second sentence of Article III:2, th e Philippines has attempted to argue that the 
difference in the relative tax burdens borne by th e products at issue is permissible because it is de 
minimis and has no effect in the market.  The EU has dealt with the issue of the level of taxation 
already in its previous submissions and will not reiterate its arguments. The EU will only take this opportunity to stress the following two points. In th e first place, the EU can agree that what is de 
minimis  can be only determined on a case-by-case basis a nd the point of reference is the market where 
competition between domestic and imported produc ts should take place. However, the EU cannot 
subscribe to the Philippines' proposed approach to this issue. In fact, it should be emphasized that, 
according to established case-law, the purpose of Article III:2 GATT is to protect WTO Members' 
expectations with respect to the competitive re lationship between importe d and domestic products. 
Whether a measure is consistent or inconsistent w ith Article III:2 depends on whether this measure is 
de facto  discriminatory not. Conversely, compliance with  Article III:2 does not depend on whether the 
removal or modification of the measure at issue w ould have some immediate and significant effect on 
the competition between domestic and imported products. In the second place, the EU does not 
consider that average tax burdens can be meaningful in this analysis. As explained already, the use of 
averages betrays the significant price differences resulting from the Filipino tax system. In fact, 
jurisprudence makes it clear that averages are irrelevant.  
F. S
O AS TO AFFORD PROTECTION  
26. The Philippines does not develop, in its submissions, many arguments on the aspect of 
whether the measure is applied "so as to afford pr otection". The few arguments which have been put 
forward by the Philippines have been already discussed in EU's previous submissions. The EU would just like to repeat that – whatever the value of the statements of Filipin o public officials – the fact that 
the measures at issue are applied so as to afford protection to domestic production can be easily seen 
by looking at the design, architecture, and reveali ng structure of the measures. The EU has already 
developed its arguments on this point, and notes that  the Philippines has failed to rebut its arguments 
and evidence.   WT/DS396/R 
 WT/DS403/R 
 Page E-9 
 
 
 G. CONCLUSION  
27. In conclusion, the EU emphasizes that the defe nce put forward by the Philippines constitutes 
an attempt to re-run old arguments which have  been, however, already dismissed by previous 
WTO adjudicators. In fact, hearing the arguments  submitted by the Philippines in the present dispute 
is like listening to the echoes of those advanced y ears ago by other WTO Members, in a vain attempt 
to justify systems of taxation which were less discriminatory than the one currently at issue. However, 
wrong legal arguments, unlike good spirits, do not get any better with aging.  
 
 
 WT/DS396/R 
WT/DS403/R Page E-10 
 
 
 ANNEX E-2 
 
EXECUTIVE SUMMARY OF THE SECOND WRITTEN SUBMISSION  
OF THE UNITED STATES 
 
 
I. INTRODUCTION 
1. This dispute concerns two specific legal claims  relating to fundamental obligations under the 
General Agreement on Tariffs and Trade 1994  ("GATT 1994") and a discriminatory tax system that 
has been in place in the Philippin es for decades.  Article III:2 of the GATT 1994 has been the subject 
of multiple DSB recommendations and rulings, and th e United States has presented the Panel with a 
clear, straightforward demonstration of why th e Philippines measures are inconsistent with 
Article III:2, using analysis that is consistent with  the approach taken by prior panels, but suited for 
the particular facts of the Philippine measures and market. 
2. In this submission, the United States will briefly discuss the issue of the scope of "like 
product" and "directly competitive or substitutabl e" products in the context of the Philippine 
measures.  Following that discussion, the United St ates will provide further comments on several of 
the main points presented by the Philippines:  a lleged segmentation of the market; administrative 
capacity of the Philippines; treatment of rum; and evidentiary concerns.  
II. EVIDENCE BEFORE THE PANEL SHOWS THAT THE PHILIPPINE MEASURES 
ARE INCONSISTENT WITH ARTICLE I II:2 OF GATT 1994, FIRST AND SECOND 
SENTENCES 
3. As the United States has explained in its previ ous submissions, the first and second sentences 
of GATT 1994 Article III:2 are separate obligations w ith different elements.  The first sentence 
concerns "like" products.  In order to establish that a measure is inconsistent with Article III:2, first 
sentence, one must demonstrate two specific elements:  first, that the imported and domestic products 
are "like," and second , that the imported products are taxed "in excess of" the like domestic products. 
4. The second sentence concerns "directly competitiv e or substitutable" products.  Per the note 
Ad Article III:2, establishing that a measure is inconsistent with Article III:2, second sentence 
requires: first, that the imported products are directly competitive or substitutable with the domestic 
products; second , that domestic products a nd imported products are not  similarly taxed, and third , that 
the dissimilar taxation is applied so  as to protect domestic production. 
5. The first element of the claim under each sent ence of Article III:2 – "like product" and 
"directly competitive or substitutable" product, r espectively – concerns the substitutability between 
imported and domestic products .  Panels have used similar fact ors in examining similarities among 
products under both claims, applying the factor s on a case-by-case basis as appropriate for the 
particular market.  Panels have used factors "suc h as the product's properties, nature and quality, and 
its end-uses; consumers' tastes and habits, which change from country to country; and the product's 
classification in tariff nomenclatures." 
6. Contrary to the suggestions by the Philippin es, the complainants have provided ample 
evidence to the Panel demonstrati ng the "likeness" and the "direct competitiveness or substitutability" 
of Philippine and imported brands.   
7. The United States provided information on the physical characteristics of imported and 
Philippine vodka, brandy, whiskey, gin, rum, a nd tequila, through evidence such as the Philippines  WT/DS396/R 
 WT/DS403/R 
 Page E-11 
 
 
 own standards (vodka, whiskey, and brandy), simila rity of alcohol content (with specific evidence 
provided for brands of brandy, whiskey, vodka, gin,  rum, and tequila), and photographic comparisons 
(type by type, of Philippine and imported brands of tequila, brandy, whiskey, gin, and vodka).  
Particularly in the context of the Philippine mark et – where the local producers make the same "type" 
of product as the importers – this evidence shows strong similarities between  imported and domestic 
goods. 
8. In addition to the information on physical characteristics, the United States provided 
extensive evidence showing that imported and domestic  products are marketed similarly and sold in 
the same channels of distribution.  Particularly telling are store displays where imported products are 
sold – they appear in example after example side by side with domestic pr oducts, and with different 
types of spirits all displayed together.  In addition, some of the labels of imported and domestic brands 
are so similar as to be difficult to tell apart. 
9. End uses is another critical factor, particularly  with regard to concluding that products are 
directly competitive or substitutable under the seco nd sentence of Article III:2 of the GATT 1994.  
While the conclusion that the products have sim ilar end uses is obvious from the fact that the 
Philippine and imported products are the same ty pes (brandy, vodka, etc.), the United States has 
submitted survey analysis that provides additiona l support for this conclusion.  The Euromonitor 
survey results – which cover all domestic and im ported types of spirits – confirm that Filipino 
distilled spirits consumers use imported and domestic  brands for the same end uses.  Moreover, the 
information on elasticity of demand in the Euromon itor survey and in the Philippines' own study show 
that if prices of more expensive imports go down, Filipinos are more likely to choose them over local brands.  This effect, though modest in both analys es, is real and supports the conclusion that the 
Philippine and imported products are substitutes. 
10. Finally, as all parties acknowledge, distilled spir its are classified under the same four digit 
heading in the Harmonized Tariff System.  Although not definitive, tariff classification can be an 
important factor concerning simila rity among products recognized by other panels and the Appellate 
Body. 
11. No single factor for "likeness" or "directly competitive or substitutable" is required or 
determinative.  Panels have weighed them on a ca se-by-case basis.  In this dispute, the Panel has 
evidence before it in all relevant areas – physical characteristics, marketing/channels of distribution, 
end use, price elasticity, and tariff schedule – to support findings regarding Philippine products. 
12. The remaining elements of the claims under Article III:2 both concern the extent of the 
discriminatory treatment of like/directly competitive or substitutable products.  Here also there should 
be no question that the Panel has ample evidence before it. 
13. To find that the Philippine measures are inconsis tent with the first sentence of Article III:2, 
the second element simply requires showing that the imported products are taxed in excess of 
domestic products.  This conclusion is evident from the face of the measures – including the 
implementing annexes, which separate "local" from other brands.  These documents show that nearly every imported product is taxed at one  of the high rates – from ten to 40 times the rate applied to local 
products on a proof liter basis.   
14. To find that the Philippine measures are incons istent with the second sentence of Article III:2, 
the second element requires evidence showing that the difference in taxati on between imported and 
domestic products is more than de minimis  and that the dissimilar taxation is applied so as to protect 
domestic production.   WT/DS396/R 
WT/DS403/R Page E-12 
 
 
 15. As noted above and the United States has stated before, the rate applied to products not made 
from favored local-type raw materials far exceed s the rate applied to other products; and the 
magnitude of the discrimination far exceeds that found to be inconsistent with the GATT 1994 in 
prior disputes.  Magnitude alone may be sufficient to conclude that a measure is applied "so as to 
protect domestic production" under the second sen tence of Article III:2 of the GATT 1994. 
16. But in addition, the structure of the measures al so favors discrimination on a very broad basis: 
because the measures are based on raw material, Ph ilippine producers can use favored raw materials 
to make different types of products ( e.g., vodka or gin) to compete against imports as the market 
changes and retain their favorable treatment.  On the other side, foreign firms that use the types of raw 
materials apparently favored by the Philippines – such as rum producers – still only receive equal tax 
treatment if they successfully navigate bureaucra tic obstacles.  The measures are structured to 
continue to favor domestic production.  
17. To conclude, the United States has presented mo re than sufficient evidence to the Panel on 
which to draw the conclusion that the Philippine m easures are inconsistent with WTO obligations that 
the Philippines has undertaken.  In the remainder of  this submission, the United States will discuss the 
appropriate parameters for these findings, and res pond to several specific points raised by the 
Philippines. 
III. SCOPE OF LIKE AND  DIRECTLY COMPETITIVE OR SUBSTITUTABLE 
DISTILLED SPIRITS 
18. In this dispute, the question of what is "like" and what is "directly competitive or 
substitutable" depends on the particular facts and circumstances of the Philippine measures and 
market.  In the Philippine market, the types of dis tilled spirits manufactured locally are the same types 
(e.g., whiskey) as those imported from abroad for sale in the Philippines.  The Philippines has 
acknowledged that "all sugar-based distilled spirits are labeled with the generic category name for the 
distilled spirit"  ( e.g., "whiskey"). 
19. Philippine manufacturers also adapt to changes in the marketplace by developing new types 
of products – based on "neutral spirits," stripped of the attributes of the raw material so that it can be 
flavored with essences, extracts or other additives.  For example, Ginebra Sa n Miguel Corporation has 
introduced several different types of be verages in the last several years ( e.g., vodka, whisky), which 
are taxed at the favorable rate because of the raw material used.  In addition, Philippine companies 
have introduced different versions  of their products, including "premium" varieties aimed at more 
elite consumers.  
20. In other distilled spirits disputes under Article III:2 of the GATT 1994, the complainants were 
concerned with the treatment of impor ted spirits compared to a particular type of domestic  spirit.  In 
that situation, the particular domestic distilled sp irit can be examined against the products it is most  
similar to ("like products").  Then, the particular  domestic distilled spirit can be examined against a 
wider, expanded circle of products to see whether the domestic distilled spirit is "directly competitive 
or substitutable" with additional pr oducts that it may not be "like."  The line between products with 
which the domestic distilled spirit is "like" and the products with which the domestic distilled spirit is 
"directly competitive or substitutable" is a line between the products it is 
most  similar to and other 
products that it is less similar to but are none theless directly competitive or substitutable. 
21. A different type of analysis is appropriate for the Philippines, becau se the same types of 
spirits are made in the Philippines and imported from abroad.  Indeed, applying the analysis from 
other disputes, it is unclear why there is any questi on at all in this dispute.  Whereas in the other 
disputes, the complainant might pose the questions "Is vodka 'like' shochu?" or "Is pisco 'directly  WT/DS396/R 
 WT/DS403/R 
 Page E-13 
 
 
 competitive or substitutable' with whiskey?," an analagous question here is "Is whiskey 'like' 
whiskey?"  The answer is "yes." 
22. Given this particular situation, the United States has provided evidence comparing particular 
imported and Philippine distilled spir its brands of different types.  These examples show that the 
difference between imported and dom estic brands that is decisive  for the discrimination under the 
Philippine excise taxes – raw material – is not in  any way apparent to a consumer, and that the 
obvious answer to the question "Is whiskey 'like' whis key?" – yes – is the correct one. This is equally 
true for all types of products in the Philippines – br andy, vodka, etc.  In this way, for each product 
within HS 2208, the United States has demonstrated th at a "like product" exists  in the Philippines that 
is taxed more favorably than the imported product. 
23. As to which products are "directly competitiv e or substitutable" a nd which products are 
"like," the United States notes that prior panels a nd the Appellate Body have  consistently recognized 
"like product" as narrower than "directly competitive or  substitutable."  Further, the Panel's analysis 
may depend on the order in which it analyzes the fi rst and second sentences of Article III:2.  In 
particular, there is no need to analyze whether "like products" are also "directly competitive or 
substitutable."  That conclusion follows from their "likeness."  
24. The United States is specifically requesting findings covering all distilled spirits under both 
the first and second sentences of Article III:2 of th e GATT 1994, but in different ways.  With respect 
to the first sentence, the United States asks the Pa nel to review the evidence of Philippine domestic 
brands and their imported counterparts to confirm that Philippine  "brandy" is like imported "brandy," 
Philippine "gin" is like imported "gin," etc.  With  respect to the second sentence of Article III:2, the 
United States requests that the Panel find that all imported distilled spirits are directly competitive or 
substitutable with all Philippine distilled spirits.    
25. This is consistent with the conclusion reach ed for distilled spirits by three other panels: 
different types of distilled spirits ( e.g., brandy, vodka) are "directly competitive or substitutable" with 
one another.  The findings in the individual disp utes vary in the details, including scope of products 
covered, but each was clear regarding the substituta bility among distilled spirits from type to type.  
The panel in Chile – Alcohol  found pisco directly competitive or  substitutable with products falling 
under HS 2208, the panel in Korea – Alcohol found soju, whisky, brandy, cognac, rum, gin, vodka, 
tequila, liqueurs and ad-mixtures directly comp etitive or substitutable, and the panel in Japan – 
Alcohol  found soju directly competitive or substitutabl e with whisky, brandy, rum, gin, genever and 
liqueurs. 
26. The Philippines suggests that the complainants' arguments should fail because of a lack of 
evidence, even going so far as to suggest that it is a critical flaw to focus on particular brands.  But 
this type of evidence – and its existence in the Ph ilippines – is the result of the Philippines' domestic 
production of the same types of spirits as importe d spirits.  As such, examples of Philippine gin 
juxtaposed against imported gin, or Philippine vodk a juxtaposed against imported vodka are not just 
isolated examples – they are a demonstration of the kind of competition that exists in the Philippines, 
the operation of its measure, and the discrimination in the Philippines market.  As such, they are 
particularly compelling evidence of the barriers to the market ( e.g., Philippine brands like "London 
Gin") faced by producers outside the Philippines. 
27. Even so, the Panel has not only the particular examples of different brands, but also other 
evidence, including regulations concer ning sales of distilled spirits (covering all distilled spirits) and 
store displays showing different types displayed to gether.  The United States has also provided survey 
evidence on end uses, reflecting data on all types of  distilled spirits.  The Euromonitor Report grouped 
data for different types of products together , broadly showing the similarities among uses across WT/DS396/R 
WT/DS403/R Page E-14 
 
 
 imported and domestic produc ts.  In fact, the same conclusions can be drawn from the data on end use 
collected by Euromonitor when sep arated by type of spirit.  Generally, Filipinos consume imported 
and domestic products in similar ways.  These data demonstrate that imported and domestic brands of 
distilled spirits are alternative ways to satisfy th e same needs and tastes.  Finally, the grouping of 
distilled spirits in the Harmonized System is it self a factor indicative of their similarity. 
28. For both the first and second sentences of Article  III:2, the conclusion should be guided by 
the ample evidence and the Philippine measures them selves, which cover all distilled spirits.  Under 
the measure, the Philippine domestic manufacturers can – and do – manufacture any type of distilled 
spirit and may enjoy the benefits of favorable tax tr eatment.  Accordingly, the Panel's findings should 
cover the same scope of products. 
IV. ACCEPTING THE PHILIPPINES' MARKET SEGMENTATION ARGUMENTS 
WOULD PRESERVE THE STATUS QUO OF WTO-INCONSISTENT 
DISCRIMINATORY TREATMENT OF IMPORTS   
A. T
HE PHILIPPINES ' APPROACH WOULD PERMIT MEMBERS TO JUSTIFY DISCRIMINATION BASED 
ON PRICE BY CITING THE PURCHASING PATTERNS CREATED BY THE DISCRIMINATION  
29. One theme of the Philippines is that, notwithst anding that both producers in the Philippines 
and producers in Members exporting to the Philippines manufacture whiskey and the like, the 
Philippine market should be divided into different segments based on price, and that as a result Philippine domestic products compete in an entirely different market segment. 
30. In one segment, the Philippines would place less expensive brands of distilled spirits, and in 
the other more expensive spirits.  Acceptance of th is approach requires treating "sugar based" – to use 
the Philippines' term – as a proxy for "less expensive."   
31. First, such a proxy does not work.  Both importe d brands and domestic brands are sold at a 
range of prices, and there are some brands of imported products that cost less than domestic 
counterparts, such as SKYY vodka and Gilbey's 1857 vodka.  Second, there is no need to have a 
proxy for "less expensive."  If the Philippine measures were really about price, it would not need to refer to the raw material used for production.  It  is only because the Philippine measures sort products 
by raw material (and discriminates on that basi s) that the Philippines takes its approach. 
32. This brings to light the fundamental probl em with the Philippine market segmentation 
proposal: it uses the mechanism of discrimination (price) to argue that imported and domestic 
products do not compete.  But the discriminatory impact on price from the discriminatory tax 
measures is the problem  that the United States is seeking to address in this dispute.  
33. The United States is not suggesting that, but for the excise taxes, imported and domestic 
products in the Philippines would all be the same pr ice in the Philippines.  But by the Philippines' own 
proposal for segmentation, price affects consumers' purchasing decisions, and the excise taxes are one component of the price of distilled spirits in th e Philippines.  If the Philippine arguments were 
accepted, it would mean that a Member could use ta xes to make local products relatively cheaper than 
imported products, and then use the fact that cons umers choose local products because of lower cost 
as the basis to avoid a finding that the taxes discriminate against imported products.  WT/DS396/R 
 WT/DS403/R 
 Page E-15 
 
 
 B. COMPETITION BETWEEN PRODUCTS IS NOT ABOUT INCOME DISTRIBUTION  
34. The Philippines proposes that the income dist ribution in a Member may affect whether 
products are "like" or "directly competitive or subs titutable."  However, this is at odds with the 
analytic approach taken by panels and the Appellate Body in the past. 
35. In particular, each of the factors relied upon by panels and the Appellate Body concern the 
goods themselves  – whether physical characteristics, distribu tion, uses, substitutes, tariff classification 
and the like.  In so far as purchasers are a factor, the emphasis is on the uses to which those goods will 
be put (that is, whether they are substitutes) and not  whether or not consumers can afford a good.   
36. Indeed, panels and the Appellate  Body have stated clearly that the absence of actual purchases 
(or even purchases in the near futu re) does not mean products cannot be  substitutes.  For example, the 
Appellate Body in Korea – Alcohol , noted the importance of considering latent demand, and whether 
products may be substituted, even if they are not purch ased under current conditions.  It stated that 
"the word 'substitutable' 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." 
37. If income distribution could affect whether goods are "substitutable" for the purposes of 
GATT Article III:2, it would draw emphasis away from the goods themselves and whether they may 
be substituted, where it belongs, and allow purchasing power or affordability to affect whether such 
goods are substitutes. 
V. ADMINISTRATIVE CHALLENGES DO NOT RELIEVE THE PHILIPPINES OF ITS 
WTO COMMITMENTS 
A. EACH WTO  MEMBER TAKES ON THE SAME COMMITMENTS  
38. The next theme of the Philippines relates to its  capacity as a developing country Member.  It 
cites the administrative difficulties it has faced in collecting taxes as support for two propositions:  the 
Philippines has to rely on indirect taxes such as excise taxes on distilled spirits, and it could not 
administer another system such as ad valorem . 
39. As an initial matter, it is unclear what these  arguments are intended to demonstrate.  The 
Philippines clarified that it is not raising an Article  XX defense.  Therefore, the arguments concerning 
capacity are apparently to assert, in some way, th at the Philippine measures are not inconsistent with 
the GATT 1994 because the Philippines does not have the capacity to manage a different system that 
would result in progressive taxation. 
40. In addition, it is difficult to understand how the Philippines system is "progressive," given 
that high excise taxes are applied to some products just  because of the raw material concerned.  As the 
United States has pointed out, some imported products are relatively less expensive before excise taxes, but when the taxes are added the cost to  consumers exceeds that of a local product.   
41. Both the United States and the Philippines have cited Japan – Alcohol  on the issue of a 
Member's ability to determine its own policy, wher e the Appellate Body states, "Members of the 
WTO are free to pursue their own domestic goals thr ough internal taxation or regulation so long as 
they do not do so in a way that violates Article  III or [other WTO Agreement commitments]."    
42. The Philippines proposes that Japan – Alcohol  supports the idea that its excise tax regime is 
within permissible bounds under the WTO, and it is  simply its policy choice to meet its fiscal WT/DS396/R 
WT/DS403/R Page E-16 
 
 
 objectives.  This interpretation is incorrect.  While  a Member retains the ability to determine its own 
tax policy, that discretion is subject to the oblig ations that the Member has agreed to assume under 
Article III:2 of the GATT 1994.  The Philippine excise ta x regime is inconsistent  with Article III:2 of 
GATT 1994.  The Philippines is free to pursue indirect, progressive taxation, but it must do so in a way that does not discriminate against imported goods. 
B. T
HE PHILIPPINES ' CURRENT SYSTEM , BASED ON RAW MATERIALS , REQUIRES PARTICULAR 
ADMINISTRATIVE BURDENS  
43. Moreover, it is difficult to reconcile some of  the Philippines' concerns about capacity for 
implementation of its tax policy with the description of the way in which its current measures are 
implemented. 
44. In its response to Question 47 from the Panel,  the Philippines describes the process by which 
its tax authorities identify and verify the raw materi als used to produce a brand of distilled spirit, as 
well as determining the net retail price.  To verify  the raw materials used for a distilled spirit, the 
Philippines Bureau of Internal Revenue may examine "product literature, brochures and other 
documentary proof and, if possible, [conduct] la boratory tests of the sample."  The Philippine 
authorities must also verify that the product is produ ced in a country where the particular raw material 
is "commercially produced," in order to determ ine whether the product qualifies for lower tax 
treatment under Section 141(a).  Each of these examinations is neces sary only because the 
Philippines' excise tax system applies different taxes to distilled spirits depending on the raw material.  
They are extra steps for Philippine administrators  that policymakers have elected to maintain. 
45. The United States is not taking a position on wh at measures the Philippin es should adopt, so 
long as those measures are not WTO-inconsistent.  At the same time, if the Philippines is arguing that 
it does not have capacity to operate a different syst em, it is curious that it would maintain a system 
which requires such additional steps.  And it is also  curious that the Philippines purports to operate a 
"progressive" tax system that differentiates by  value, but nonetheless administers it through 
requirements on raw materials and on commercial production. 
VI. THE POSSIBILITY FOR DIFFERENT TREATMENT OF RUM DOES NOT 
MITIGATE THE WTO-INCONSISTENCY OF THE PHILIPPINE TAX SYSTEM 
46. The Philippines has explained that it does not discriminate against rum, and describes how 
importers may verify that their products are made from local raw mate rials.  It also explains the 
interpretation of the "commercial production" require ment under which, according to the explanation, 
the production of the raw materials and the production of  the distilled spirit do not need to occur in the 
same country.  If the country where the spirit is di stilled also produces the raw material as a general 
matter, the distilled spirit may qualify for favorable tax treatment. 
47. In fact, notwithstanding this possibility, the Philippine measures place additional burdens on, 
and discriminate against, imports even when made  from favored raw materials.  For example, the 
"commercial production" requirement means that a number of countries who produce distilled spirits 
cannot qualify for favorable tax treatment.  Thus, the Philippine measures restrict the scope of 
imported products that may share the low tax treatm ent accorded to all Philippine products.  The only 
apparent reason behind such a restriction, which on ly affects imported products is to help protect 
domestic production.  As the United States explaine d in its First Written Submission, the Philippine 
measures are applied "so as to afford protectio n" to domestic production for the purposes of 
Article III:2 of GATT 1994 not only because of the sheer magnitude of the difference in taxation 
between imported and domestic products, but also because of the structure of the measure.  As the 
case of rum bears out, the structure of the measure includes both the requirement to use typical local  WT/DS396/R 
 WT/DS403/R 
 Page E-17 
 
 
 raw materials, and that such materials must be co mmercially produced in th e country where they are 
processed into distilled spirits. 
48. A further evidence of the protectionist nature of  the requirement is the fact that there are 
imported rums that continue to be  assigned the higher excise tax rates even though they are made 
from sugar, such as Malibu rum.  
49. In addition, even if some rum products benef it from low tax treatment, that does not mean 
that the Philippine measures are consistent with  its WTO obligations.  Imported rums are a tiny 
segment of the market – overall, rum accounts for approximately 29% of spirits sales in the 
Philippines, but rum imports  are only 0.6% of distilled spirits impor ts.  As such, even if some brands 
of imported rum receive the low tax rate, this would not change the fact that the Philippines' measures 
subject imported distilled spirits to discriminatory treatment.  
VII. THE PHILIPPINES' ADDITIONAL EVIDENTIARY COMPLICATIONS DO NOT 
CHANGE THE RESULT 
50. The Philippines has taken issue with the evid ence presented by the United States and the 
European Union, but its views about what would be the "right" type of evidence do not change the 
fact that there is ample evidence before the Panel.  For example, as noted in Section III above, the 
Philippines has taken issue with the use of specific examples of brands of gin, vodka, etc., but such 
examples are particularly relevant by nature of the Philippines measure, in showing that Philippine 
gins, vodkas, etc. do not look di fferent from imported products. 
51. Similarly, the Panel has different sources of information before it on consumer preferences, 
particularly elasticity of demand in response to changes in price ( e.g., Exhibits US-41, PH-49, 
PH-51).  The Philippines' studies are flawed in ways that suggest its results underestimate the substitutability of products ( see, e.g. Exhibit US-48 ).  Nonetheless, the weak results in the Philippines' 
study reflect substitutability among im ported and domestic products; as such this additional source of 
information merely adds to the record – it does not change the appropriate finding in this dispute.  
52. Similarly, the parties have presented different fo rms of evidence to the Panel in respect of the 
taxes applied to imported and domestic spirits.  I ndeed, it is difficult to identify the best way to 
explain the tax differential between  imported and domestic spirits.  Because the taxes for products 
made from non-local products vary by value, and all products are assessed on a proof liter basis, it is 
necessary to examine individual brands.  But, no si ngle brand can stand in for "all imports" or "all 
domestics."  The Philippines' emphasis on averages on ly serves its argument on market segmentation, 
and hides the variety – and extremes – of the taxes they impose.  
53. None of these differences among parties' presenta tions affect the appropriate findings in this 
dispute, however, because the evidence all points in  the same direction: higher taxes are imposed on 
imported products compared to local products.  The Panel may review the Philippines' Exhibit PH-19, 
data on prices and taxation from E xhibit PH-49 or review evidence on how taxes are reflected by 
prices in stores.  In addition, and perhaps most tellingly, the Panel may look directly at the 
Philippines' own implementing regulations for its measures.  The Philippines has compiled detailed 
annexes to its regulations with information on indi vidual brands sold in the Philippines and the tax 
applied, which show that the taxes on imported produc ts are higher than the taxes on local products.  
As the United States observed in that submission, even the lowest per-bottle taxes among the higher-
taxed products exceed the taxes on products liste d under the "local" annexes in these laws and 
regulations. WT/DS396/R 
WT/DS403/R Page E-18 
 
 
 54. In short, the complaints of the Philippin es about the kind of evidence provided by the 
complainants do not change the fact that the eviden ce plainly shows that the Philippines' excise taxes 
on distilled spirits are inconsistent with Article III:2 of the GATT 1994.  
VIII.  CONCLUSION 
55. This dispute does not present novel legal issues, nor does it involve a particularly complicated 
set of facts.  The Philippines applies tax rates to spirits not produced from local-type materials far in 
excess of those applied to "like" local distilled spir its – from ten to 40 times higher.  These Philippines 
and imported spirits are also "directly competitiv e and substitutable," and the Philippines imposes the 
differential tax in order to prot ect domestic production.  Accordingly, the United States respectfully 
requests that the Panel find that the Philippines me asures are inconsistent with the first and second 
sentences of Article III:2 of the GATT 1994. 
  WT/DS396/R 
 WT/DS403/R 
 Page E-19 
 
 
 ANNEX E-3 
 
EXECUTIVE SUMMARY OF THE SECOND WRITTEN SUBMISSION  
OF THE PHILIPPINES 
 
 
I. INTRODUCTION 
1. The Philippine measure being challenged does not  differentiate between imports and domestic 
products.  It distinguishes among distilled spirits on the basis of a well-recognized, contextually-
relevant, and neutral criterion (the raw material ba se).  The evidence shows that, even without the 
taxes in question, the products for which the co mplainants assert discrimination are treated as 
different products in the Philippine market, beyond th e means of the vast majority of the consuming 
public.   
2. The evidence that the Philippin es has provided shows three incontrovertible facts that are at 
the heart of this matter: first, the Philippine mark et is dominated by consumers with very limited 
income; second, the prices of non-sugar-based spirits  are simply beyond the reach of those consumers, 
such that sugar-based and non-sugar based spirits do  not compete in the Philippines market in any 
meaningful way; and third, desp ite the obvious efforts of producers to have the sugar-based products 
appear to be as similar as possible to the non-suga r-based spirits, the products are not sufficiently 
"like" each other such that they can compete meaningfully in the segmented Philippines market.  In 
short, sugar-based and no n-sugar-based spirits are different pro ducts serving different consumers in 
the Philippine market.  Article III:2 does not require uniform tax treatment in such circumstances.   
II. THE COMPLAINANTS HAVE NOT DISCHA RGED THEIR BURDEN OF PROOF 
A. THE COMPLAINANTS HAVE FAILED TO SHOW THAT SUGAR -BASED SPIRITS AND 
NON-SUGAR -BASED SPIRITS ARE "LIKE" OR "DIRECTLY COMPETITIVE OR SUBSTITUTABLE " 
IN THE PHILIPPINE MARKET  
3. By this stage in the proceedings, it should be clear to the parties and to the Panel precisely 
what products form the basis of the discrimination cl aim.  The complainants have failed to make this 
clear.  The Philippines highlighted some of the short- comings of the complainants' evidence in its first 
written submission ("FWS"),1 calling to the Panel's attention the fact that the complainants have not 
undertaken a complete analysis of any single distilled sp irits category.  In other words, contrary to the 
complainants' claims, the eviden ce they produced was in relation to distilled spirits as a genus. 
Neither the EU nor the United States has provided th e Panel with the necessary evidence to find that 
any single category of non-sugar-based spirit is "like"  or directly competitive or substitutable with a 
flavoured distilled spirit made from sugar in  the context of the Philippines market.  
4. In its answers to the Panel's Questions, the Un ited States also seems to invite the Panel to 
approach the analysis for both "like" products a nd "directly competitive or substitutable" products on 
a category-by- category basis,2 without offering the Panel evidence th at would enable it to follow this 
option.  Also, the US position in its answer differs  from the US's argumentation in its FWS, where it 
                                                      
1 Philippines' first written submission, paras. 59-72. 
2 See US Replies to Question from the Panel (US Replies to Questions), Question 18; see also, 
Question 51, para. 47. WT/DS396/R 
WT/DS403/R Page E-20 
 
 
 stated that the product categories are "all Philippine distilled spirits" compared with "all imported 
distilled spirits."
3   
5. Further, while the complainants  have asked the Panel to find all distilled spirits are "directly 
competitive or substitutable,"4 they do not submit evidence on all spirits in the Philippines market. 
Indeed, the complainants submit only very limited evidence or argumentation regarding a very small 
number of brands. This insufficient to support a fi nding of direct competition or substitutability in 
relation to all brand. Also, the complainants have not shown that the few brands for which evidence or 
argumentation was presented are representative of the universe of the distilled spirits in the Philippine 
market.   
B. THE "GROUPING " OF THE PRODUCTS DOES NOT RELIEVE THE COMPLAINANTS OF THE 
BURDEN OF PRODUCING EVIDENCE WITH RESPECT TO ALL DISTILLED SPIRITS FOR WHICH 
THEY WISH THE PANEL TO MAKE FINDINGS , NOR SHOULD "GROUPING " MASK THE 
INDIVIDUAL CHARACTERISTICS OF THE PRODUCTS WITHIN THESE CATEGORIES  
6. The Panel and the Appellate Body in Korea – Alcoholic Beverages  approved "grouping" as a 
methodological tool for the requisite comparison under Article III:2, second sentence. However, it 
was emphasized that findings could only be made w ith respect to products for which evidence was 
presented. 
7. Further, the Appellate Body made clear that a pa nel should be careful to ensure that any such 
grouping does not result in overlooking or ignoring in dividual characteristics of products forming part 
of that group.  If the Panel pursues a "grouping" appr oach in this case, it must exercise great care to 
ensure that the categories of products they are groupi ng together are "sufficiently similar" in terms of 
"composition, quality, function and price". Moreove r, the Panel must ensure that when the 
comparison between product groups is made, the in dividual product characteristics are given proper 
consideration, including their quality, price and composition.    
C. THE FACT THAT THE APPELLATE BODY HAS FOUND DISTILLED SPIRITS TO BE DIRECTLY 
COMPETITIVE OR SUBSTITUTABLE IN OTHER MARKETS IS IRRELEVANT TO DETERMINING 
WHETHER THE PRODUCTS ARE DIRECTLY COMPETITIVE OR SUBSTITUTABLE IN THE 
PHILIPPINE MARKET  
8. The Philippines has emphasised that determinati ons by previous panels and the Appellate 
Body in other cases involving other, non-Philippine, ma rkets are irrelevant to determining whether the 
products are "like' or "directly competitive or substitutable" in the Philippine market.5   
9. The consideration of whether products are "like"  or directly competitive must be done in the 
context of the relevant market. This is not an abst ract philosophical issue.  The market – and not the 
products per se  – determines the competitive relationship be tween those products, as confirmed by the 
existing WTO jurisprudence. The complainants have  been unable to produce sufficient evidence to 
show that the products at issue here are directly competitive or substitutable in the Philippine  market. 
In contrast, the Philippines provided evidence to show that they are not. 
                                                      
3 US first written submission, paras. 66 and 100. 
4 US first written submission, paras. 66 and 100; EU FWS, para. 49 . 
5 Philippines' first written submission, paras. 59-6 0, paras. 217-222. Philippines' oral statement, 
paras. 10 and 32.  WT/DS396/R 
 WT/DS403/R 
 Page E-21 
 
 
 III. SUGAR-BASED AND NON-SUGAR-BASED SPIRITS ARE NOT "LIKE" OR 
"DIRECTLY COMPETITIVE OR SUBSTITUTABLE" IN THE PHILIPPINES 
A. THE DIFFERENCES IN THE PHYSICAL CHARACTERISTICS OF SUGAR -BASED AND NON-
SUGAR -BASED PRODUCTS RENDER THEM "UNLIKE " 
1. The physical differences between non-sugar-based and sugar-based spirits are 
substantial and lead to material differences throughout the production, distribution and 
marketing processes. 
10. The Philippines has demonstrated that the physi cal differences between sugar-based whiskies, 
brandies, vodkas, gins and tequilas are substantial.6 The only similarity among these products is that 
they are all distilled spirits in the generic sense of th e word. The EU and the US have not been able to 
produce evidence showing a degree of similarity th at would permit the products to be considered 
"like" within the narrow meaning of the term under Article III:2, first sentence. 
11. "Likeness" by itself, has no intrinsic meaning a nd has to be determined in relation to the 
market. The characterization of whether two or more  products are "like" each other cannot be made in 
the abstract and must relate to economic decision making that concerns trade, including the decision 
by the consumers in the relevant market to pur chase or not to purchase these particular products. 
12. In this case, it may be said that different ph ysical characteristics (arising from the use of 
different raw materials – 141 (a) raw materials on one hand and 141 (b) raw materials on the other) 
lead to different production processes7 of different time durations8. These, in turn, result in different 
production costs9 which, together with the manufacturer's customary margins, will require different 
distribution systems and costs as well as different ma rketing techniques.  At the end, different net 
retail prices will result.  This, in turn, will ultima tely affect the consumer's decision whether to 
purchase a particular product.  That decision will refl ect the consumer's perception of whether or not 
two or more products are "like" or "d irectly competitive or substitutable."  
13. In the Philippines' view, the fact that flavour ings and additives are necessarily added to sugar-
based spirits illustrates how different the products act ually are. Physical differences must exist if 
additives and flavourings must be added to sugar-based  spirits to make them approximate the taste of 
non-sugar-based spirits.  This is also consistent  with the US and EU's own domestic regulations, 
which view brandies made from raw materials other than grapes to be different from brandies made 
from other raw materials and whiskeys  made from grains to be differ ent from those made  from sugar. 
The Philippines' view is consistent with the narro w interpretation of "likeness" adopted by previous 
panels.  
14. The Philippines agrees that all the factors for whic h evidence has been provided should be 
taken into consideration by the Panel when de termining whether sugar-based spirits and non-sugar-
based spirits are "like", however, the differences in  physical characteristics of the products resulting 
from the different raw materials used should be  afforded greater significance given the well-
recognized, inextricable link between a distilled sp irit's product identity and the raw materials and 
ingredients from which they are made.10   
                                                      
6 Philippines' first written submission, paras. 95- 170. 
7 Philippines' first written submission, paras. 97 to 99, 108 and 109. 
8 Philippines' first written submission, paras. 115 and 116. 
9 Philippines' first written submission, paras. 110 and 111. 
10 Philippines first written submission, para. 96. WT/DS396/R 
WT/DS403/R Page E-22 
 
 
 2. Differences in raw materials alter consumer  perception of non-sugar-based and sugar-
based distilled spirits and these differences are apparent to 'normal' consumers   
15. As the Philippines noted in its answers to Ques tions 29 and 31, the use of sugar cane molasses 
instead of the other raw materials alters consumer  perception of those products, including their taste, 
aroma, and status in the market. Furthermore, these differences are perceived by consumers.   
16. The complainants' own evidence confirms that th ese differences are apparent to consumers. 
The Euromonitor survey, referring to the segment of  the population that has tasted both non-sugar-
based and sugar-based spirits, notes that "they agree 2 to 1 that they did not like the taste of local 
spirits. They also overwhelmingly concur that local liquors are of inferior quality, socially 
unacceptable and poor mixers."
11 The survey shows that, in the minds of consumers, there is a clear 
difference, in both taste and quality, between s ugar-based and non-sugar-based spirits, supporting the 
findings produced by the Philippines' expert.12 The differences are also apparent from the dramatically 
different pricing of the products, which reflects the different physical char acteristics and corresponds 
to the expectations of consumers when purchasing these products.  
3. Price differentials materially affect the d ecision of the consumer in buying or rejecting 
one product as a substitute for another pr oduct, as like or unlike the former product 
17. The price of non-sugar-based spirits and sugar-b ased spirits is also a relevant criterion for 
determining likeness, as supported by the jurispruden ce. Price may not be a significant factor in the 
like product analysis in every case, but it is important  in this case.  As the Philippines has explained, 
the like product analysis for the purposes of Article  III:2 is flexible enough  to take into account 
market-specific factors that affect the key questi on, which is whether the products under analysis 
compete in the relevant marketplace.  The Appellate  Body has expressly recognized that a Panel must 
also consider "other criteria that may also be re levant in certain cases" to arrive at a conclusion 
regarding the "likeness" of products.13   
18. The Philippines points to the Panel in Dominican Republic – Cigarettes  case as an instance in 
which the Panel responded to the particular facts of  the case to take into account "other criteria that 
may also be relevant", consistent with the Appe llate Body's statements. These arguments are also 
supported by the reasoning of the Panel in the recent case of Thailand – Cigarettes  (Philippines) , 
which adopted a similar approach to evaluating for "likeness".  Furthermore, when considering 
consumer habits and preferences, the Panel cons idered "switching evidence and price elasticity, and 
two economic studies on the elasticity of substitutio n and the cross-price elasticity of demand."14 
19. The evidence in this case shows that Philippine consumers do not treat sugar-based spirits and 
non-sugar-based spirits as "like" each other.  In fact, these products operate in different market 
segments, defined by the price of the distilled spirits  relative to the incomes of the consumers.  The 
differences are of such significance in the market as to render the pr oducts unlike for the purposes of 
Article III:2, first sentence, of GATT 1994.   
                                                      
11 EU-41; US-41: Euromonitor Consumer Preference Survey, August 2010, p. 19. 
12 See PH–30: Philippines' first written submi ssion, paras. 139, 150-151, 159, 162.   
13 Appellate Body Report, Japan – Alcoholic Beverages  II, p. 19. 
14 Panel Report, Thailand – Cigarettes (Philippines) , para. 7.442.  WT/DS396/R 
 WT/DS403/R 
 Page E-23 
 
 
 4. The Tariff Classifications applied by the United States and Australia also recognize 
differences between distilled spirits based on the raw materials used 
20. The Philippines draws the Panel's attention to th e fact that the answers provided by the United 
States and Australia show that their tariff classifi cations recognize that distilled spirits made from 
sugar cane molasses are different from distilled spirits  made from other raw materials, regardless of 
whether they are called "whiskey," "brandy," "gin," etc.  The Philippines respectfully submits that, at 
this point in the proceeding, there can be no doubt  that the tariff schedules recognize the importance 
of raw materials in classifying distilled spirits.  Simply stated, it is one of the primary bases for 
distinguishing between types of spirits.  This is hi ghly consistent with the Philippines' arguments in 
this case, and the basis for the distin ction in the Philippine tax provision under analysis in this case.  
B. NON-SUGAR -BASED SPIRITS ARE NOT DIRECTLY COMPETITIVE WITH OR SUBSTITUTABLE 
FOR SUGAR -BASED SPIRITS  
1. Article III:2, second sentence requires the comp etition to be "direct" meaning that the 
competitive relationship between non-sugar-b ased and sugar-based products must be 
highly proximate 
21. The Philippines has emphasised, and the compla inants agree, that the nature of the 
competition between products being analyzed under Ar ticle III:2, second sentence, must be "direct".15  
The jurisprudence has confirmed that this refers  to the "degree of proximity" in the competitive 
relationship between the products.16 The Philippines has argued that, in order to give proper meaning 
and effect to the term "directly", recourse can be had to the ordinary meaning of the term: 
"completely, absolutely, exactly".  While the United States objects to this characterisation, noting that 
the products described in the second sentence of Article  III:2  "is a broader set of products than those 
that are 'like'"17, the physical similarities between the produc ts speak to a question that is different 
than the proximity of the competitive relations hip between the products. One does not necessarily 
follow the other.  Nor is requiring complete, absolute or exact competition between products 
inconsistent with the fact that direct competition can involve "potential" competition.18 The 
Philippines agrees that the scope of Article III: 2, second sentence, may include latent demand.19  
However, in keeping with the meaning of the term  "directly competitive", previous panels and the 
Appellate Body have emphasised that there is a tempor al limit to this exercise (the near future), in 
recognition of the fact that the objective sought by  undertaking the inquiry into potential competition 
is to determine whether the products are capable  of having a relationship that is as highly proximate 
as Article III:2, second sentence demands.20  To do away with this temporal limitation and to treat 
vague potentiality in the indefinite, ever-unfoldi ng, future as sufficient would reduce to nonsense the 
requirement of direct competition or substitutability. 
                                                      
15 US Replies to Questions, paras. 36-41; EU Replies to Questions,, para. 70. 
16 Appellate Body Report, US – Cotton Yarn , paras. 97- 98; Appellate Body Report, Korea – Alcoholic 
Beverages , para. 116. 
17 US Replies to Questions, para. 40. 
18 EU Replies to Questions, para. 75. 
19 Philippines' Replies to Questions, Answer to Question 52. 
20 Appellate Body Report, Korea – Alcoholic Beverages , para. 114; Panel Report, Korea-Alcoholic 
Beverages , para. 10.48. WT/DS396/R 
WT/DS403/R Page E-24 
 
 
 2. The extremely low purchasing power of the g reat majority of Filipinos relative to the 
price of non-sugar-based spirits segments the Philippine market 
22. The Philippines has explained and demonstrated  that the Philippine consumer market for 
distilled spirits is segmented by the purchasi ng power of the population relative to the pre-tax prices 
of distilled spirits.
21 Thus, the Philippines has shown that the cause of the lack of competition between 
non-sugar-based spirits and sugar-based spirits is a product of market forces unrelated to the existence 
or content of  the measure at issue. 
23. The Ocelot Report, the quarterly survey undertaken by Ginebra San Miguel, shows that 
approximately 90% of consumers of sugar-based spirits earn up to a maximum of 20,000 pesos per 
month.  Approximately 85% of the Philippine popul ation earns up to a maximum of approximately 
20,000 pesos per month, per family. Of this 85%, th e majority earns less than 10,000 pesos per month 
per family. The FIES shows that those in the 10th de cile earn between two and three times as much as 
85% of the population per month  and over 5 times as much as 60% of the population  per month. 
These figures are not per individual, but per family, and the average family in the Philippines is made 
up of 4.8 persons. Putting these income figures in the c ontext of the pre-tax pricing of distilled spirits, 
the market segmentation is strong and clear.  The mark et is segmented into what may be referred to as 
"majority" market (including the great majority of  Filipino consumers) and a "minority" market. The 
price differential between non-sugar-based spirits a nd sugar-based spirits compar ed to the income of 
the great majority of Filipinos prevents consumer s from the majority market from considering non-
sugar-based spirits as an "alternative way[] of  satisfying a particular need or taste",22 or, as the 
Appellate Body put it, considering that the products  "offer alternative ways of satisfying the same 
consumer demand in the marketplace."23  
24. The pre-tax prices of non-sugar-based spirits ar e out of reach for the great majority of 
consumers. The maximum weekly expenditure for alcoholic beverages is only 60 pesos for 85% of 
consumers.  The amount of 60 pesos is only 1 percent of the pre-tax price of a bottle of Remy Martin 
XO cognac (average NRP PhP 5,919.39) or Johnni e Walker Blue Label whiskey (average NRP 
PhP 5,690.10), and less than 13 percent of the pre- tax price of a bottle of Stolichnaya vodka (NRP 
PhP 559.14 ) or Jose Cuervo Gold tequila (NRP PhP 479.14).24 
25. In response to the Panel's question 33, the United States discusses one non-sugar-based spirit 
that is priced lower than one s ugar-based spirit at the NRP level.25  Even if this price comparison had 
                                                      
21 Philippines, Replies to Questions 35 and 36; PH -49 and PH -51; Philippine FWS, paras. 226-236. 
22 Appellate Body Report, Korea – Alcoholic Beverages , para. 115. 
23 Appellate Body Report, US – Cotton Yarn , para. 91. 
24 The Philippines acknowledges, with regret, that th ere were errors in the original price survey 
appearing in PH–19, which were corrected during the First Substantive Meeting of the Parties through the 
Submission of PH–19 (Amended).  In its answers to the Panel's questions, the United States noted that there 
appeared to be a further mistake with PH–19 (Amended), as many of the local brandy prices had been removed without explanation.  This comment led the Philippines to conduct a thorough review of the pricing information, 
which revealed additional mistakes. The Philippines is including as an attachment to the second written 
submission a corrected version of the pr ice survey in PH-19, which and this corrected version is referred to as 
PH–77.   
25 US Replies to Questions, para. 21.  The US price comparison of Gilbey's 1857 Vodka to SKYY 
Vodka revealed another error in the database, which has now been corrected in PH-77.  While regrettable, the 
error was obvious from the context.  PH-19 Amended showed two entries for Gilbey's 1857 Vodka: 1) a one 
liter bottle selling in the Supermarket A channel for 177.0 PhP, and in Supermarket B for 182 PhP; and 2) a 700 
ml (smaller) bottle with a price of 298 PhP in the Supe rmarket A category.  The US  price comparison used the 
298 price, even though it would not make sense for a product with 30% less volume to sell for a 66% higher 
price.  On a volume equivalent basis, the price chosen  by the United States for its comparison is more than  WT/DS396/R 
 WT/DS403/R 
 Page E-25 
 
 
 been correct, it would show, at best, only a marginal price overlap at a price range that is well beyond 
what the great majority of Filipinos can afford a nd would be willing to spe nd.  Showing an occasional 
price overlap in the abstract does not show that the products compete and that the consumers would 
substitute one product for the other. 
26. The Philippines believes strongly that the Pane l should base its decision in the case on the 
normal pricing in the market, being careful to avoid reliance on outliers or aberrations.  This is one of 
the reasons that the Philippines h as used average prices, as averages tend either to expose aberrations 
or soften their effect.  Still, an over-reliance on s pot transactions creates the risk that the Panel's 
decision will be based on pricing that is aberrationa l, and outside the mainstream of commerce. There 
is evidence in this case that can help the Panel avoid reliance on outliers.  The complainants' own 
evidence states that, "even at a 40%  price decrease of imports and a 100% to 200% price increase in 
domestics, imported brands are typically more than twice as expensive as domestic ones."26 Also, the 
price survey and the related studies provided by the Philippines demonstrate the significant 
differences in the average net retail prices for each  type of spirit.  The differences between the 
imported and local prices are significant,  as described in the Philippines' FWS.27  The corrections to 
the underlying data do not change the average net price analysis.   
27. Further, as the Philippines explained in respon se to Question 52, the results of the studies 
conducted by the University of the Philippines Schoo l of Economics show that there is no meaningful 
potential for future competition. 
3. Non-sugar-based and sugar-based spirits do no t compete in the market segment that is 
representative of the Philippine market 
28. As explained in the Philippines' response to  the Panel's Question 36, the assessment of 
whether sugar-based and non-sugar-based products are competitive in the Philippines must be done in 
relation to the market that is most representative of the market as a whole. In other words, it must be 
done in relation to the market where most Filipino c onsumers participate. In the Philippines, this is 
clearly not the market of the top 10% inco me decile, earning an annual income of over six times that 
of 50% of the population.  
29. Not only is an analysis based on the representa tive group of the Philippine market the most 
consistent with achieving the objectives of Article I II:2, as explained in the Philippines' Replies to 
Questions,28 it is also the most consistent with the ju risprudence. The Philippines notes that the Panel 
in Chile-Alcoholic Beverages  noted that while it is unnecessary to show that the products are 
substitutable for all purposes at all times to be consider ed substitutable, "it is sufficient that there is a 
pattern that they may be substituted for some purposes at some times by some consumers."29  
However, a careful reading of the application of th is reasoning by the Panel shows that the Panel was 
referring to a representative sample of the entire ma rket when it used the term "some consumers." 
This reasoning supports the logical  and rational position that the evidence of substitutability for the 
purposes of Article III:2 second sentence must emanate from a segment of the population that is 
genuinely and realistically representative of the ma rket in which the products are consumed. It is 
insufficient to present evidence, as  the complainants have done, that substitutability may occur at low 
levels in a very small segment of the overall mark et in question, a segment in which the economic 
                                                                                                                                                                     
double the other observed prices.  When the researchers were  asked to re-check this price, they found the correct 
price for the 700 ml bottle to be 128 PhP, which is the price reported in PH-77. 
26 Exhibit EU-41; Exhibit US-41, p. 30. 
27 Philippines' first written submission, para. 231. 
28 Philippines' Replies to Question 36. 
29 Panel Report, Chile – Alcoholic Beverages , para. 7.43. WT/DS396/R 
WT/DS403/R Page E-26 
 
 
 means are vastly different than the majority segme nt. The complainants have not offered any evidence 
showing that any competition, direct or othe rwise, exists in the majority market.   
30. The complainants also attempt to show occasional substitutability on special occasions. 
However, again, the complainants make assertions that this substitutab ility is possible in the majority 
market, but fail to provide any such evidence. Furthe r, the fact that the hypothetical consumer is not 
buying his usual product on that occasion, and, instea d, is making an "exceptional" decision, is telling. 
The products do not satisfy the same need or consum er demand. From the EU's own hypothetical, it is 
clear that the demand is not the same in nature  or in frequency and does not involve the same 
purchasing considerations or motivations. If there are isolated instances of a family in an income 
bracket saving up to purchase a non-sugar-based spirit fo r a very special occasion, this is evidence of 
exceptionality, not of direct competition or substitu tability between non-sugar-based spirits and sugar-
based spirits.  The decision to purch ase in such a case is based on a different set of factors and fulfils a 
different need, demand or objective. 
4. The different distribution channels for su gar-based and non-sugar-based products 
reflect and reinforce the market segmentati on and lack of direct competition or 
substitution 
31. As the Philippines has shown in it FWS, the distribution channels for sugar-based and non-
sugar-based spirits are distinct, reflecting the different consumer markets they serve.
30 Local sari-sari 
stores, which are frequented by all except the most affluent of consumers, account for approximately 
85% of off-premise sale of sugar-based spirits.31  One of the surveys conducted showed that not a 
single sari-sari store carried non-sugar-based spirits.32 Further, the 2010 International Wine and Spirits 
Record (IWSR) report submitted by the complainants33 show that non-sugar-based spirits are 
overwhelmingly (as much as 90%) sold through on- premise channels as opposed to off-premise 
channels (as little as 5%).  The reverse is true for sugar-based spirits, which are predominantly (as 
much as 90% for some spirit types) sold through off-premise channels. 
32. The United States and the EU have not been ab le to show that the minimal overlap in 
distribution channels are the same distribution channe ls frequented by the majority of the population. 
As noted above34, the on-premise sites where some sugar-b ased spirits and non-sugar-based spirits are 
offered to consumers are limited to on-premise retail ers whose price-ranges suggest that they are not 
frequented by Filipinos belonging to the majority market. The Panel in Chile – Alcoholic Beverages  
made the important observation that "if products have quite distinctiv e channels of distribution that 
could be a negative indicator with respect to s ubstitutability. For example, if the products were 
regularly presented separately , it would be one piece of evidence that perhaps consumers did not 
group them together in their perceptions."35 In light of the uncontroverted evidence regarding sari-sari 
stores, non-sugar-based spirits and sugar-based spir its are almost always presented separately, 
especially in the most representative market comprising the great majority of Filipino consumers.  
                                                      
30 Philippines' first written submission, paras. 252-271. 
31 Philippines' first written submission, paras. 255-259. 
32 Philippines' first written submission, para. 258. 
33 Exhibit EU-15; Exhibit US-15: Excerpts from the 2010 Report on the Philippines published by the 
International Wine and Spirit Record (ISWR). 
34 Section III.B. 3. 
35 Panel Report, Chile – Alcoholic Beverages , para. 7.59.  (emphasis added).    WT/DS396/R 
 WT/DS403/R 
 Page E-27 
 
 
 C. THE CONCEPT OF DE MINIMIS MUST BE ANALYSED IN RELATION TO WHETHER THE 
MEASURE AFFECTS THE COMPETITION OF PRODUCTS IN THE RELEVANT MARKET  
33. The Philippines believes that the concept of de minimis  is a market-based concept.  To be 
meaningful within the context of Article III:2, it should be defined by the extent to which the tax 
burden affects the competition of products in the market  in question. This is not a "trade effects" test 
as the United States asserts.36 Rather, following from the fact that there is no "set level of tax 
differential which can be considered de minimis  in all cases", the Panel in Chile-Alcoholic Beverages  
noted that "it is not necessarily true that small diff erences in tax levels will have an effect in the 
market."37  
34. Whether the difference should raise concerns unde r the WTO Agreements must be assessed in 
relation to the market in question, and specifically, wh ether consumer choices are affected by the tax.  
Such a reading is consistent with the purposes of  Article III:2 and the WTO Agreements as whole. 
Contrary to the EU's argument, whether the producer  of the goods is concerned about the level of the 
tax is not relevant for the purposes of Article III:2, second sentence.38 If this were a relevant factor, it 
would be difficult to foresee an excise tax differentia l that would not fall afoul of Article III:2, second 
sentence, as a producer could be expected to  be concerned with any tax differential. 
35. The Philippines has shown that the factors th at affect the choice between sugar-based and 
non-sugar-based spirits are unrel ated to the excise tax rates.39 Consequently, a tax differential that 
may appear significant in other cases or other markets may be de minimis  in this case, where the 
Philippines has shown that the majority of consumer s earn incomes that do not anyway permit them to 
select non-sugar-based spirits, even if sold at prices net of tax.  
D. THE EXCISE TAX HAS NOT BEEN APPLIED "SO AS TO AFFORD PROTECTION " AND SO ANY 
DIFFERENCES IN TAXATION ARE NOT IN VIOLATION OF ARTICLE  III:2,  SECOND SENTENCE  
36. The Philippines has demonstrated that the differenc es in the actual excise taxes due in the four 
tiers of Section 141 have not been applied "so as to  afford protection" to the any domestic industry. 
This is exemplified in two ways. First, the Phili ppines has shown that distilled spirits made from the 
designated raw materials under Section 141(a) are affo rded the lowest tax rates, regardless of their 
origin. The BIR rulings also show that the requireme nts of Section 141(a) are read and applied in an 
extremely permissive manner. Second, the Phili ppines has shown that local distillers source 
significant amounts of their ethyl alcohol from imports from all over the world, and, regardless of the 
origin of those raw materials, the spirits produc ed therefrom, if sugar-based, are taxed at the 
Section 141(a) rates.40 The global sourcing of Section 141( a) raw materials for production into 
distilled spirits in the Philippines also shows that th e Section 141(a) raw materials are not exclusive to 
the Philippines. Indeed, exhibits PH – 71 and PH – 69 show that exports from both the EU and the 
United States have been afforded Section 141(a) excise tax rates.     
37. This is not a case involving a certain national drin k that the excise tax is seeking to protect or 
even a case of de facto  discrimination involving a preference fo r materials that are found exclusively 
in the Philippines.41 All spirits, regardless of origin, are e ligible for and receive the Section 141(a) 
                                                      
36 US Replies to Questions, para. 59 
37 Panel Report, Chile – Alcoholic Beverages , para. 7.90. 
38 EU Replies to Questions, para. 93. 
39 PH-49. 
40 Philippines' first written submission, para. 25;  Philippines' Answers to Question 59; PH-69. 
41 Philippines' first written submission, paras. 292- 314. WT/DS396/R 
WT/DS403/R Page E-28 
 
 
 rates if the requirements of Section 141(a) are met. There is no protective application of the excise tax 
measure in this case. 
IV. CONCLUSION 
38. Article III:2 protects competitive opportunities.  Where products do not directly compete, and 
have little or no prospect of competing in the ne ar term, Article III:2 does not require that the 
domestic tax system treat the products similarly. Wit hout evidence of direct competition, and in light 
of the evidence that the products are not "like" each  other in the Philippines market, the Panel should 
find that the complainants have not shown that the challenged measure violates the obligations of the 
Republic of the Philippines under Article III:2 of the GATT 1994. 
 
_______________ 
 
 
  WT/DS396/R 
 WT/DS403/R 
 Page F-1 
 
 
 ANNEX F 
 
ORAL STATEMENTS OF THE PARTIES  
AT THE SECOND SUBSTANTIVE  MEETING 
 
Contents Page 
Annex F-1 Executive summary of the opening or al statement of the Philippines at the 
second substantive meeting  F-2 
Annex F-2 Closing oral statement of the Ph ilippines 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 
 
 WT/DS396/R 
WT/DS403/R Page F-2 
 
 
 ANNEX F-1 
 
EXECUTIVE SUMMARY OF THE OPENING ORAL STATEMENT 
OF THE PHILIPPINES AT THE SECOND SUBSTANTIVE MEETING  
 
 1. Taxation is a challenging issue in the Philippines.   We need a tax system to generate the 
revenue necessary to fund government services, but we ha ve to be fair and equitable, and we have to 
be especially sensitive to the potential regressive eff ects of taxes on a poor population. We also need a 
system that minimizes the chances for tax evasion or underpayment of taxes.  The excise tax system 
on distilled spirits is designed to strike a delicat e balance by imposing lower taxes on low-priced 
spirits made from the Section 141(a) materials and higher taxes on spirits made from other materials. 
In light of the income distribution in the Philippin es, the higher taxes of subsection (b) only apply to 
the products consumed by the small and wea lthy minority of the Philippine population 
2. Using raw materials as the basis of distinguish ing between these products is not arbitrary or 
discriminatory within the meaning of Article III:2. Sp irits made from Section 141(a) materials are of a 
relatively lower complexity, pedigree, cost, and price.  By contrast, spirits made from products such as 
grains and grapes are more expensive to pr oduce and have a higher value in the market. 
3. In the Philippine market, sugar-based and non-s ugar-based products are not treated as "like" 
or "directly competitive or substitutable" because they are different and because the non-sugar-based 
spirits are simply beyond the means of the vast majo rity of the Philippine consumers.  Where there is 
no meaningful competition or substitutability, there can  be no discrimination within the meaning of 
Article III:2. 
4. No previous Panel has examined these issues in  the context of the Philippine market, or in 
other markets having the characteristics of the Ph ilippines. The key issues in this case are novel and 
are being considered for the first time. 
5. It is incumbent on the complainants to pr esent evidence that products compete in the 
Philippines market.  This involves the developm ent and presentation of evidence for each product 
category and for each of the criteria of likeness, incl uding that they are within economic reach of the 
Philippine consumers. The EU and US, we submit, have not discharge d their burden. The EU claims 
in its Second Written Submission that it "does not cons ider [it] necessary in this case to embark in a 
repetitive account of each difference between imported a nd domestic products for every single type of 
distilled spirit".
1  But, this is the burden that follows from claiming discrimination in the context of the 
Philippine market.  The problem remains even at this late stage of the proceeding.   
6. In contrast, the Philippines presented evidence to  rebut the complainants' assertions. This 
included a survey of the actual prices in the Ph ilippine market, which was amended twice. While the 
Philippines regrets the mistakes, the Philippines re jects categorically the extraordinary suggestion 
made by the European Union that these changes were  made in order to manipulate the data or to 
achieve a desired result.  The Philippines as acted in good faith throughout the proceeding.  The Panel 
is charged with finding the truth, and it is for this reason that the Philippines undertook the initiative 
to provide a survey of prices in the Philippine market .  It is for this same reason that we have asked 
the Panel to allow us to remove mistakes from the data. 
                                                      
1 EU SWS, para. 26.  WT/DS396/R 
 WT/DS403/R 
 Page F-3 
 
 
 "Like" products  
 
7. The Philippines has shown that the raw material s used to make a distilled spirit affect the 
entire production chain of distilled spirits, leading to different products of differing character, taste 
and consequently, price. The EU has highlighted only minor similarities that necessarily follow from the fact that the products are all distilled spirits. Though the European Union attempts to downplay the 
role of the congeners in the produc ts made from different materials, congeners are to distilled spirits 
what DNA or genetic code is to the human being.  The fact is that brandy is different from whiskey, 
both are different from vodka, and gin would not be  confused with tequila, all of which relates 
directly to the congeners that remain or are removed in the distillation process.     
8. Previous panels have found that physical diffe rences disqualify a product from being seen as 
"like" another.
2  Moreover, these products are treated as unlike by Filipino consumers, who are the 
ultimate litmus test for "likeness".   
9. The EU and the US are very familiar with the importance of raw materials to the resulting 
finished distilled spirit. As the Philippines has s hown, both have recognized these differences in their 
domestic regulatory regimes for distilled spirits.   
10. Price, among other things, is a reflection of how a product is perceived in a relevant market.  
The pricing data provided by the Philippines leads to a picture that is not different from that emerging 
in EU – 41 and US – 41, the Euromonitor Report. The Euromonitor Report states unequivocally that "even at a 40% price decrease of imports and a 1 00% to 200% price increase in domestics, imported 
brands are typically more than twice as expensive as domestic ones."
3 Price is an important factor, 
particularly in this case, because it very materially  affects the ability of the products to compete with 
each other in the Philippine market. One product cannot  be said to be like another if its physical 
characteristics are so different that it is priced out of reach of the ordinary consumer.   
"Direct Competition/Substitutability" 
 
11. The Philippines notes that neither the EU nor the US has been able  to present sufficient 
evidence to show that Filipinos perceive these prod ucts to be directly competitive or substitutable. 
The Appellate Body has clarified the standard:  namely, whether the situ ation in the relevant market is 
such that consumers perceive non-sugar-based spirits  as an "alternative way[] of satisfying the same 
consumer demand"4. The Philippines has provided unrebutte d evidence as to the income of the 
population relative to the prices of certain non-sugar- based spirits. The evidence  shows that there is a 
significant divide in the distilled spirits market cr eated by the purchasing power of the great majority 
of Filipinos relative to the pre-tax  prices of sugar-based and non-s ugar-based spirits. We have shown 
that the very limited pricing overlap occurs at a price level that significantly exceeds the disposable 
incomes of the great majority of consumers.   
12. In response to this, the US has stated that "competition between products is not about income 
distribution". The Philippines submits that whether a consumer can or will  purchase one good or the 
other is precisely what competition is all about. A key determinant in that decision-making process is 
whether that consumer has the means to buy that  product. This was recognized by the Panel in Japan 
– Alcoholic Beverages II,  which noted that "[i]n the case of product demand and product 
                                                      
2 Philippines FWS, paras. 78-93; Philippines' respons es to first set of Panel questions, response to 
question 22, pp 7-8.; Philippines' SWS. paras. 29-33. 
3 Exhibit EU–41; Exhibit US–41, p. 30. 
4 Appellate Body Report, US – Cotton Yarn , para. 96. WT/DS396/R 
WT/DS403/R Page F-4 
 
 
 substitutbility …the relevant information includes prices, quantities, and incomes."
5 Disposable 
income relative to price is absolutely critical . There cannot be competition without the means to 
purchase.  
13. The emphasis in this case is not on income alone, but on income relative to price, the latter 
being an integral part of the good and a reflecti on of the good's value in the relevant market. The 
consumer's decision making at the moment of pur chasing is the key to any analysis of actual 
competition.  
14. The EU and US contend that the products are di rectly competitive, and they present pictures 
showing the imported and local spirits offered for sal e in certain supermarkets. But these pictures do 
not show us which consumers buy the products, with what frequency, or whether the typical consumer 
has the ability to purchase both products.  Phys ical proximity on a shelf is not evidence of 
competition.   
15. The Philippines recalls the evidence it has pr oduced showing that over 85% of sugar-based 
spirits are sold in sari-sari stores as opposed to other outlets.6  We also note the evidence of the 
complainants in the International Wine and Spirits Report7 which, consistent with the Philippines' 
evidence, shows that non-sugar-based spirits are ove rwhelmingly sold through different distribution 
channels. In this case, non-sugar-based distilled sp irits and sugar-based spirits are sold through 
distribution channels that are entirely different .  A few pictures do not change this fact or prove direct 
competition.  
16. Direct  competition or substitutability is the standard that must be applied to this case. This 
means that the complainants must show that the proximity of the competitive relationship between the 
products is very high. No such proximity has b een shown in this case. The Philippines has presented 
evidence showing that this is due to the high pre-tax price of non-sugar-based spirits relative to the 
income of the majority of consumers. The Philippin es has also proven that, in the near future, these 
products will not compete in the same market for the same reason.8  In light of the evidence on record, 
the facts of this case are outside the parameters of Article III:2 second sentence.  
Evidence of substitutability  
17. The concerns raised by the EU and the US rega rding the reliability of PH - 49 and PH -51 is 
surprising as each alleged methodological short-coming is either one that has been found to have been 
perfectly acceptable, if not preferable, by previous WTO panels, or is one that is also employed in the 
methodology used by the complainants in the Euromonitor Report9.  The complainants have failed to 
provide any compelling reason why th e Panel in this case should not take the findings of these studies 
into account.  They have also provided evidence of  substitutability using the same methodology they 
allege to be flawed.  
18. The evidence provided by the complainants a nd the Philippines demonstrate that there is 
insufficient degree of substitutability in the Philippi ne market for the purposes of Article III:2 second 
sentence. The Philippines has acknowledged that ther e is a very small segment of the Philippine 
population that can afford to buy non-sugar-based spirits on occasion. However, the capacity of this 
unrepresentative segment of the population to pur chase non-sugar-based spirits should not be used as 
                                                      
5 Panel Report,  Japan – Alcoholic Beverages II , para. 6.31. 
6 Philippines' FWS, paras. 257-260. 
7 EU-15; US–15. 
8 PH-49 and PH-51; responses to Panel question No. 52, pp. 26-27. 
9 EU-41, US-41  WT/DS396/R 
 WT/DS403/R 
 Page F-5 
 
 
 the basis for determining whether these products are directly competitive or substitutable in the 
Philippines market as a whole.   
19. The complainants are asking the Panel to infe r direct competition.  The EU claims in 
paragraph 4 of its second written submission that  the Philippines must concede that 13.7 million 
citizens have the means to treat non-sugar-based sp irits as a substitute for sugar-based spirits.  The 
Philippines makes no such concession, and it is precisely  this type of inference that the complainants 
in this case try to pass off as evidence of direct competition.  Direct competition should be 
demonstrated, not inferred, and especially not with this type of calculation.   
20. In estimating the percentage of Filipinos who might be able to consider purchasing non-sugar-
based products, a panel would have to consider that the net retail price of the cheapest of these 
products is approximately 150 pesos.  We previ ously explained that the household representing the 
85th percentile of the population only has 60 pesos per week to spend on any type of alcoholic 
beverage.10  Using the same calculation methodology and the data from the FIES study, we can 
calculate that the households with a budget of at  least 150 pesos per week for alcoholic beverages 
represent the top 1.4% of Philippine households.  And, given the extremely low elasticity of 
substitution shown by the econometric studies, the evid ence supports the notion that people in the top 
segment of society are motivated by factors other than price, including the prestige of drinking 
internationally-known brands of distilled spirits.  Pr ice proximity in this portion of the market is not 
evidence of direct competition or substitutability. 
So as to afford protection and the operation of Section 141 
21. Section 141 of the Philippines' National Internal Revenue Code as amende d is not applied so 
as to afford protection to the domestic industry.  The Philippines has demonstrated that the law 
operates to permit any spirit made from any of the S ection 141(a) materials to be taxed at the Section 
141(a) rates, regardless of origin. The example of rum illustrates the non-discriminatory application of 
this provision.  
22. The Philippines has provided evidence that certain imported rums are taxed at the 
section 141(a) rate when the proper declarations are filed upon importation.  This evidence has 
remained unrebutted.  The Philippines can only concl ude that if the importer follows the appropriate 
procedures under Philippine law to claim that the wrong tax was applied, and that it satisfies the 
conditions of section 141(a), any error will be corr ected.  The WTO is not the proper forum for the 
importer to pursue its reme dies under Philippine tax law. 
23. The administrative challenges the Philippines f aces in implementing a suitable tax structure 
are not presented as a defense to a supposed breach of its WTO commitm ents. Rather, they have been 
brought to the Panel's attention to illustrate the i ssues faced by a specific developing country dealing 
with specific problems as best it can.  Just as our  level of economic devel opment does not give us 
license to act inconsistently with our obligati ons, the measures that we take to address our 
development needs should not be presumed to be ill egal because they look different from measures 
applied in economically more advanced countries. 
                                                      
10 Answers to Panel question No. 35, pp. 14–16. WT/DS396/R 
WT/DS403/R Page F-6 
 
 
 24. Section 141 is a product of the Philippine rea lity.  Section 141 distinguishes between products 
based on raw materials, but it does not discriminate against "like" or "substitutable" products from 
other WTO Members within the meaning of Article III:2.  Some products do not sell well in the 
Philippine market at large.  But, the relationship of  price to income is the cause of this limitation, not 
excise taxes. In such a situation, a finding of  discrimination will assume competition in a market 
where none exists. The Philippines respectfully submits that this is not what Article III:2 was intended 
to achieve.  
  WT/DS396/R 
 WT/DS403/R 
 Page F-7 
 
 
 ANNEX F-2 
 
CLOSING ORAL STATEMENT OF THE PHILIPPINES AT THE  
SECOND SUBSTANTIVE MEETING 
 
 1. There has been a lot of disagreement during the proceedings, and, as always, there is a lot of 
information to process.  But, we also believe that  there has been some helpful convergence of views 
as a result of the back and forth with betw een the parties and with the Panel.   
2. As the Philippines sees it, certain things are ag reed, and the disagreement is clearly presented 
to the Panel for decision. 
3. An example of the latter is the issue of lik e products for the purposes of the particular 
Article III:2 claims in this case.  We can all agree that the concept of "like product" is narrower than 
the group of all products that compete with one anothe r in a particular market.  And, everyone agrees 
on the need to present evidence and establish that th e products in question are "like products" for the 
purposes of Article III:2.  We even agree that "like product" is not solely about the product itself, but 
about the market in which it is being analyzed and the purpose for which it is being analyzed.   
4. There is a clear disagreement as to the proper resu lts of the analysis.  The US has paraphrased 
its position by saying that the task is to determine whether a whiskey is like a whiskey.  The EU has 
emphasized that the only differences are minor, such as differences in the level of congeners.  The 
Philippines believes that the issue is a little more co mplicated than that.  To take the example of 
whiskey, the question is whether the whiskey ma de from Article 141(a) materials is like other 
whiskey taxed at a higher rate.  And yes, the level of congeners is an importa nt difference, even if 
they account for less than 1% by volume of the pr oduct.  Simply stated, they are what gives a malt-
based whiskey its essential character, which is decidedl y different when that essence is provided by an 
artificial flavoring.  And, there seems to be no doubt that the main distribution channel for sugar-
based products – the sari sari stores – do not sell non-sugar-based products.  The panel should reflect 
on this very basic fact that sometimes gets lost in all the details.  Would products which are "like" in 
the eyes of the consumers be treated so differently in th e market?  We think that this is very revealing.  
In any event, the facts are before you, and yo u need to weigh the facts and make a decision. 
5. There has also been a clarification of the positions with respect to the broader group of 
products that compete – that is, those which are dire ctly competitive or substitutable.  The US clarifies 
that it wants the Panel to find that "all importe d distilled spirits are directly competitive or 
substitutable with all Philippine distilled spirits."  He re, the Panel has a more difficult task.  Where is 
the evidence that a spirit made from nipa competes di rectly with Scotch whis key, or other non-sugar-
based products for that matter?  And, do we really  believe that a Philippine consumer of a Remy 
Martin brandy would be willing to  substitute an 80 peso bottle of Ginebra San Miguel?  Does that 
sound right to us?  Is this the type of direct co mpetition and substitutability that the Appellate Body 
described as being alternative ways to satisfy th e same demand?  We do not think so, and we do not 
think that there is enough evidence for the Panel to simply conclude that a ll imported distilled spirits 
are directly competitive or substitutabl e with all Philippine distilled spirits. 
6. And, the Philippines has provided substantial ev idence that the competition is very low or 
non-existent, and does not rise to the level of "direct" competition for the purposes of Article III:2.  
The major points are these: 
(a) The price data, combined with data rega rding income levels throughout Philippine 
society, shows that the cheapest of the non-sugar-based products are priced – on a net WT/DS396/R 
WT/DS403/R Page F-8 
 
 
 price basis -- at a level beyond the mean s of the vast majority of Philippine 
consumers.  In other words, any price pr oximity occurs at an income level above 
what the vast majority of the population can afford.  If consumers cannot afford the 
products, there is no meaningful competition or  substitutability, and especially not the 
type of direct competition that the Appe llate Body has characterized as competing 
products offering consumers alternative ways to satisfy the same demand. 
(b) The price elasticity analysis shows very lo w levels of substitution, even among the 
small part of the population who have the ab ility to choose.  Non-price factors appear 
to be strong in that small segment of the population that prefers internationally-
branded non-sugar-based spirits.  This is not surprising; instead, it is common sense 
validated by an econometrics analysis. 
(c) In these circumstances, any differences in tax rates is not meaningful.  It has no 
market affect.  What is the meaning of a 5, 10, or 20 per cent difference in tax treat on products that do not compete?  Nothing.  Which is why Article III:2 requires direct 
competition before any difference in tax treat ment is considered to be a violation. 
(d) Finally, the tax measure at issue is not designed to afford protection.  Let us not 
forget that the current system replaced a system that distinguished between imports 
and domestic products, or that  imports of sugar-based ethanol are significant and are 
taxed at the Section 141(a) rates.  The record  also shows that rum imports are taxed at 
the Section 141(a) rates.  If one were to d esign a tax to afford protection, it would not 
look like this. 
7. So, what is the purpose of this tax measure, with  all of its idiosyncrasies and quirks?  Simply 
stated:  to raise revenue, to avoid tax evasion or  underpayment, and to establish a progressive tax 
system on liquor. The other parties have indicated that they have no problem with a specific tax 
system, or the notion of specific taxes being applie d in a progressive manner to different price tiers. 
This is what the current system does, without discriminating in the terms of Article III:2. 
We take this final opportunity to thank the Panel and the Secretariat for its consideration of this issue, 
and we thank the representatives of the other parties for their work. 
 
  WT/DS396/R 
 WT/DS403/R 
 Page F-9 
 
 
 ANNEX F-3 
 
EXECUTIVE SUMMARY OF THE OPEN ING ORAL STATEMENT OF THE  
EUROPEAN UNION AT THE SECOND SUBSTANTIVE MEETING 
 
 
The EU initially emphasized that, as times goes by,  the discrimination against imported spirits 
in the Philippines becomes ev en worse. In fact, as of 1st January 2011, pursuant to Republic Act 
No. 9334, the excise rates for spirits have all been increased by 8%. This means that also the price gap 
between domestic and imported spirits has widened. The noted that Article III:2 is a key provision of 
the GATT and its importance was in fact recognised in the recent Panel Report in Thailand – 
Cigarettes , in which the Panel stated stressed that "the national treatment obligation must be 
interpreted strictly".  
Fundamentally, the EU finds that there is one issue which stands out from the different legal 
and factual aspects the Panel will need to examine an d adjudicate upon. In very simple terms, it could 
be put as follows: is a brandy like another bran dy? Does vodka compete with gin?  The European 
Union believes that there is ample and un-rebutted evidence in the file which points unquestionably to 
one clear answer to the above questions. It is th e answer which, most probably, the overwhelming 
majority of ordinary men and women in the street  would have given, without even looking at any 
evidence. However, since common wisdom is not enough in a DSU procedure and the burden of proof 
rests upon the applicants, the EU and US produced a very rich, meticulous and exhaustive evidentiary 
framework.  
It appears to the EU that the Philippines' SWS does not contain any new issues of law or fact. 
Essentially, it reiterates the arguments illustrated in previous submissions . Interestingly, in 
paragraph 25 of the SWS, the Philippines summarizes the alleged differences between spirits distilled 
from the designated materials and spirits distilled from the non-designated materials with one chart. 
The EU showed that, already in the record, there was sufficient ev idence that each of the "steps" 
identified in the chart is not correct. In other wo rds, the Philippines took some differences which may 
exist between certain loca l products and certain impor ted products and pretended that they apply to all 
domestic products with respect to all imported products. The EU also showed that analogous 
differences exist between different imported products  and this is necessarily so because the products 
subject to these proceedings are differentiated pr oducts, not commodities. Minor differences between 
the products must exist in such a market. Howeve r, these minor differences are essentially not due (or 
not only due) to the raw mate rial used for the distillation, but to a variety of reasons.  
So, to put it in very simple terms, it is the opi nion of the EU that one cannot put on one side 
all spirits from the designated raw materials and on th e other side all spirits from other raw materials. 
This grouping does not work. From whatever pers pective one would look at these two groups (e.g. 
production process, cost of the product, physical characteristics of the product etc.) there will always be some spirits produced from e.g. sugar cane that have more in common with some spirits produced 
from e.g. grape wine and vice versa. Not a single criterion of analysis would allow you to divide spirits on the basis of the designated raw material.  
In this context, the EU recalls that, as the Panel in Thailand – Cigarettes emphasized, the 
language of Article III:2, first sentence, does not in dicate that "all" imported products should be found 
like "all" domestic products. The Panel did not co nsider that a comparison between "all" imported 
cigarettes and "all" domestic cigarettes was require d for the analysis of likeness under Article III:2, 
first sentence. It thus examined whether the Phili ppines had established with supporting evidence that 
the imported cigarettes at issue were like at least some domestic cigarettes. Therefore, in essence, in 
the present case, the co-complainants would have me t their burden of proof and substantiated their WT/DS396/R 
WT/DS403/R Page F-10 
 
 
 claims under Article III:2 insofar as they have shown that some Filipino spirits are similar to some 
imported spirits and that Excise Tax Regime treats them dissimilarly.  
Examining in detail the chart, the EU in the fi rst place observed that it is untrue that different 
raw materials result in different physical characte ristics. In fact, the Philippines acknowledged that 
even if this step were true for other types of spirit (quod non), at least with regard to vodkas this 
would be incorrect: vodkas all have id entical or very similar physical characteristics. This was only an 
example taken from the SWS of the Philippines. In fact , in its SWS, the EU mentions are several other 
statements made by the Philippines in which it has conceded that in many cases different raw 
materials do not result in different physical character istics. In addition, the EU also showed that two 
products made from two different raw materials (Filipino sugar cane whisky and Canadian rye 
whisky) have very similar levels of congeners. So, apart from being vi rtually identical in 99% of their 
composition (water and ethanol), these two products ar e similar also with regard to the residual 1%. 
On the contrary, when the EU compared Canadian  whisky with a malt Scotch whisky, it showed 
differences in congeners which were much more si gnificant than those between Canadian whisky and 
Filipino whisky. Lastly, the EU finded it curious that, only a few months ago, in the Thailand – 
Cigarettes panel proceedings, the Philippines argued (and th e Panel accepted) that local and domestic 
cigarettes had similar physical characteristics in spite of being made from different varieties of tobacco and in spite of the fact that th ey contain different flavouring additives. 
In the second place the EU observed that different raw materials do not involve different 
production processes. In fact, the Philippines admits th at any vodka is "always distilled to the point of 
making a neutral spirit to which no additional in gredients need be added". Also, any vodka is 
produced through charcoal filtration. Similarly, th e Philippines confirmed that imported gins too are 
distilled to the point of making a neutral spirit and that imported gins, just like domestic gins, are 
always flavoured with juniper berries. With regard again to distillation, the EU wondered whether the 
Philippines is arguing that distilling alcohol fro m camote/sweet potato in volves a substantially 
different process from distilling alcohol from normal potato. Indeed, spirits distilled from these two 
very similar root vegetables are subject to very dissi milar tax rates. In this context, the EU recalled 
that Filipino spirit producers do not use only sugar can e for their alcohol production, but also other 
raw materials (including in fact camote/sweet potato) as confirmed in Ginebra San Miguel's 2009 
Annual Report (Exhibit EU-105). Moreover, the EU not ed that the Philippines' "Old Captain 12 Years 
Old Superior Rum" is produced by pot distillation,  just like French cognac. On the other hand, 
Philippines' "Ginebra San Miguel" is produced thro ugh continuous distillation, similarly to Scotch 
grain whisky. Lastly, with respect to ageing, the EU indicates that both domestic "White Castle 5 
Years Old Whisky" and "Napoleon VSOP Brandy" , and imported "Johnny Walker Whisky" and 
"Fundador Brandy" are aged in oak barrels.  
In the third place, the EU contends that diffe rent raw materials do not involve different time 
durations. In fact, it pointed out that fermentation of  grape wine or wine (which is the basis of many 
imported spirits) is a process that is simpler and fast er than fermentation of sugar cane (which is at the 
basis of most Filipino spirits). At the same time, generally imported vodkas and gins reach the market shortly after distillation. No additi onal substantial process is needed in the production of these spirits. 
On the contrary, a Filipino customer needs to wa it several years for some local products which are 
aged. 
In the fourth place, the EU stressed that it is incorrect to argue that different raw materials 
results in different production costs. In fact, production processes vary and those required to produce 
some spirits from the designated raw materials are not necessarily less costly and/or simpler and/or 
shorter. Producing, for example, a brandy or a rum which is aged for several years in an oak barrel is 
more expensive than producing a brandy or rum wh ich is not aged. Several Filipino brandies and rums 
are in fact aged and numerous imported grape wine or fruit brandies or rums are not aged.   WT/DS396/R 
 WT/DS403/R 
 Page F-11 
 
 
 In the fifth place, the EU observed that different raw materials do not result in different 
distribution systems. Firstly, the EU referred the Panel to its FWS in which it has highlighted the 
similarity of the distribution network (i.e. the system of wholesalers and distributors) between domestic and imported spirits. With regard to the points of sale, then, the EU addresses firstly the 
Philippines' statement according to which one of the surveys they conducted showed that not a single 
sari sari store carried non sugar-based spirits". The EU emphasized that the other survey conducted by 
the Philippines (Exhibit PH-55) showed that some sari sari stores do indeed sell some imported brands. In fact, among the imported spirits mentione d under the categories "usually carry", "usually 
kept in stock" and even under "most popular bran ds" appear (and often for more than one shop): 
"Fundador Brandy", "Alfonso I Brandy", "Absolut  Vodka", "Johnny Walker Whisky", "Hennessy 
Cognac". However, the EU found it obvious that sari sari stores sell mainly local products, since these shops have limited shelving space and predominantly serve low-income customers. Therefore, it is 
normal that sari sari shop-owner prefer to store and offer to their low-in come customers low-taxed 
products rather than high-taxed products. In this  regard, the EU observed that the Philippines was 
once again making the mistake they had repeatedly  made throughout these proceedings: attempting to 
justify the discriminatory measure by pointing to th e very negative effects produced by the measure. 
In any event, leaving aside the aspect of sari sari st ores, the EU pointed out that to the extent that 
supermarkets sell all spirits side-by-side, as do many  restaurants, bars, pubs and catering companies, 
the Philippines' argument is clearly unfounded. In this regard, the EU noted that in its Opening 
Statement, the Philippines acknowledge that ther e is a partial overlap of the sales channels. 
In the sixth place, the EU believed that different raw materials do not result in different 
marketing techniques. The EU firstly noted that in previous submissions, the Philippines has only 
included vague assertions on this aspect without no  supporting evidence. On the contrary, the EU 
stressed that it has shown that both foreign a nd Filipino spirits producers have largely similar 
television and press advertisements and that they  develop and market new products following the 
same global trends. 
The EU also referred to additional examples of similar marketing strate gies: sponsoring sports 
events (Exhibit EU-106); having famous actr esses and singers sponsoring their products 
(Exhibit EU-107); producing sponsored calendars with top models (Exhibit EU-108); organising 
itinerant tasting and promotion events (Exhibit EU -110) or seminars and co mpetitions in cocktail 
mixing (Exhibit EU-111). The EU also emphasized how press advertisings are sometimes 
extraordinary similar (see Exhibit EU-109).  
In the seventh place, according to the EU, differe nt raw materials do not result in different net 
retail prices. At the outset, the EU recalled that imported spirits pay customs duties ranging between 10 and 15% ad valorem and noted that these signifi cant duties are not taken into account when the 
Philippines speaks of "net retail prices" of spirits . Moreover, the EU added that since importers can 
only sell minimal quantities of their products, they incur disproportionate marketing, distribution and 
logistics costs, unlike local producers. It stressed  that the importance of economies of scale, apart 
from being recognised by established economic litera ture, is also openly voiced by Ginebra San 
Miguel. In spite of being the absolute market lead er in the Philippines (accounting for around half of 
the overall market for spirits) its CEO affirms that th ey need to sell more products year after year to 
achieve economies of scales – volumes to obtain more resources to pursue further growth 
(Exhibit EU-112). In this context, the EU also observed that a recent study reveals that, on a global 
basis, beverages companies (including spirits producer s) have been acquiring or partnering with other 
beverages companies outside their core product segme nts (e.g. in the soft drinks or fruit market 
segments) in order to realise economies of scale (Exhibit EU-113). As its 2009 Annual Report reveals, 
also Philippines' Ginebra San Miguel has recently do ne so, by integrating the non-alcoholic beverage 
business (NAB) into the alcoholic-beverage business (E xhibit PH-105). In the opinion of the EU, this 
shows that Filipino spirits producers follow world trends not only when it comes to, for example, WT/DS396/R 
WT/DS403/R Page F-12 
 
 
 marketing their products or developing new ones, but  also with regard to corporate strategies. In 
addition, the EU emphasized that large evidence demonstrates that, already now, several imported 
spirits show a price which is comparable to that of their domestic counterparts. And this is the case both in on-premises outlets and in off-premises outlets.  
The EU then reiterated its doubts on the completeness, correct ness and accuracy of 
Exhibit PH-77. Among other things, the EU noted that this third version of the price survey still lacked some important data. In fact, the net retail price of some imported spirits was missing from the document. This is considered a particularly serious flaw insofar as some of these spirits are precisely the least expensive spirits imported into the Philip pines' market. And this omission seemed also 
inexplicable given that the document does indicate th e average retail price (i.e. price including taxes), 
and the Philippines cannot ignore the tax applied on t hose products, since tax rates are provided for in 
its legislation. The EU then went on to give a few examples of imports where no net retail price is 
indicated and which concerned brands among the low est-priced imported spirits in the Philippines. 
Furthermore, the EU noted that also some local sp irits are missing from the list. In particular, the 
absence of "Tanduay Centennial Rum" is quite rema rkable since this domestic product is one of the 
most expensive spirits sold in the Philippines. In an y event, according to the EU, if one looks at those 
products which are mentioned in E xhibit PH-77 and whose net retail pr ice is in fact indicated, one 
would see that numerous imported pr oducts have prices comparable to their domestic counterparts. 
The EU then gave several examples of t hose spirits with comparable prices.  
In this context, the EU adds two small point s. In the first place, the EU notes that in 
paragraph 18 of its Opening Statement, the Philippin es agreed that there is already now some pricing 
overlaps of imported and domestic spirits. In the se cond place, the EU observes that in paragraph 35 
of its Opening Statement the Philippines stated that  the cheapest imported spirit brand has a Net Retail 
Price ("NRP") of around P. 150. However, the EU noted that in Exhibit PH-77 there were imported 
spirits with a NRP below P. 150.   
In conclusion, the EU found the illustrative chart presented by the Philippines manifestly 
wrong. An overwhelming amount of evidence disprov es every single assertion made in that chart. In 
this context, the EU recalled that it has also  shown that Filipino domestic regulations e.g. on 
distribution and drunk driving do not distinguish between different types of spirits, even if the 
Philippines contested the relevance of this aspect. The EU noted that the Panel in Thailand – 
Cigarettes appears to agree on this point since it conc luded that imported a nd domestic cigarettes 
were "like" also on the basis of the fact that all cigarettes were subject to "the same domestic 
regulations on advertising, marketi ng, distribution, as well as labelling". 
The EU concluded on likeness by noting that all the evidence shows that that what previous 
Panels have found in past cases appeared wholly co rrect also with regard to the Philippines. The EU 
did not find it surprising since a bottle of vodka remains a bottle of vodka wherever it is purchased. In 
fact, the purchaser will drink it in the same manner,  on the same occasions, a nd for the same reasons 
vodka is drunk everywhere in the world. Whether this vodka was distilled from potato, sugar cane, 
grain, grape wine or camote is something that th e average customer will not even be aware of, and 
certainly will not affect his/her choices.  
Having dealt with the main issues arising from the case, the EU pointed again to the 
inexplicable requirement that, in or der to benefit from the low and flat tax rate, the raw materials must 
be produced commercially in the country where they are processed into distilled spirits. This 
additional condition further aggravates the discrimin atory nature of the measures at issue. Indeed, 
whether a spirits distilled from one of the designate d raw materials can or cannot benefit of the low 
tax rate depends only on whether or not the climate or agronomic conditions of the country where it is  WT/DS396/R 
 WT/DS403/R 
 Page F-13 
 
 
 produced allow for a commercial production of that ra w material. This means that two products which 
may be identical might be treated differently only by reasons of their place of origin.  
The EU gave a concrete example to show its argument and stressed that it fails to see the 
logic of this requirement and how the Philippines can argue that the Excise Tax Regime is origin-
neutral and non-discriminatory. Lastly, the EU pointed out that, in response to Question 20 from the 
Panel, the Philippines had stated that with the ex ception of sugar cane and cassava, the distilled spirits 
made from the remaining Section 141(a) materials we re not produced in commercial quantities in the 
Philippines; their production being limited to artisan al producers. The EU therefore wondered whether 
spirits distilled from, for example, coconut ( like 'Lambanog') are wrongly taxed at P.13,59 and 
whether Ginebra San Miguel's products should be pr o rata taxed at higher rates when produced from 
camote. Concluding on this point, the EU emphasized that the major problem under WTO rules was the distinction between spirits produced from the designated raw materials and spirits produced from 
the non-designated raw materials. Th is is what results in a discrimination prohibited by Article III:2. 
Yet, this additional requirement on the production of the raw materials ( like, for instance,  the fact that 
many rums, in spite of being produced from sugar ca ne are still subject to the higher tax rates) was 
just an additional proof that behind the system there is pure and simple protectionism. 
The EU further observed that in its SWS th e Philippines did not elaborate at all on the 
tentative justification it had raised during the first hearing and which concerned the alleged 
effectiveness of the fiscal treatment . The EU pointed out that in the Thailand – Cigarettes case, the 
Panel correctly rejected a similar argument advanc ed by the defendant, noting that, in case, it could 
have only examined it under Article XX, but that the defendant had not raised an Article XX defence. 
The case is similar to the current dispute since the Philippines has confirmed more than once that no 
Article XX defence has been raised. 
In conclusion, the EU observed that, beyond th e several and key commonalities between these 
previous three alcohol cases and the present one, there were two dissimilar featur es in the latter. In the 
first place, in past cases, the tax differential be tween domestic products and imported products was of 
a lower magnitude. Never has a panel examined an  excise tax on alcoholic products which could be 
more than 43 times higher than that levied on similar domestic products.  
In the second place, and importantly, in past cases there was usually one typical or traditional 
domestic spirit (shochu, soju, or pisco) which was fis cally favoured over all other spirits. For all other 
types of spirits, and with the exception of the Japan – Alcohol dispute, normal competition could 
exist, irrespective of the origin of the products. Th is is not the case in the present dispute. In the 
Philippines, all domestic spirits (whatever the type , alcohol content, price, etc.) are favoured over 
virtually all imported products. It is hard to imagin e a tax system which is more discriminatory than 
this one. And, in fact, the EU did not find it surprising that this tax system had virtually annihilated foreign competition, squeezing all imported brands in to an insignificant 2-3% of the overall spirits 
market. 
 
 WT/DS396/R 
WT/DS403/R Page F-14 
 
 
 ANNEX F-4 
 
EXECUTIVE SUMMARY OF THE CLOS ING ORAL STATEMENT OF THE  
EUROPEAN UNION AT THE SECOND SUBSTANTIVE MEETING 
 
 
In the first place, the EU noted that there was some agreement between the Parties on the 
facts of the case. In this regard, the EU stressed th at it was important to distinguish between facts and 
legal characterisation of facts.  The complainants must adduce sufficient evidence to support the 
statements of facts which they make. Legal character isation is, on the other hand, a step beyond that, 
and it is a question of judgment which the Panel is here to adjudicate upon.  
In the second place, the EU noted that Mr. Allen of the Filipino Delegation confirmed several 
times that the raw materials that benef it of the low tax rate are those that " grow well in the 
Philippines ", "are cheap in the Philippines ", "are easily available in the Philippines ". On the 
contrary, raw materials which are " expensive in the Philippines " such as grape wine are not among the 
designated raw materials. This confirms what the EU has been arguing since the beginning: the 
measures at issue are designed and applied " so as to afford protection to domestic production ". In this 
context, the EU added that the fact that the m easures at issue replaced a measure which was openly 
discriminatory did not constitute a de fence. On the contrary, the EU re called that in past disputes the 
fact that a WTO Member replaced a measure which was overtly discriminatory with one which was 
only de facto  discriminatory was considered as a factor showing the willingness of that Member to 
prolong the effect of the overtly discriminatory measure (e.g. Panel Report in Australia – Automotive 
Leather (21.5) ). 
Finally, the EU emphasized that the test propo sed by the Philippines in its Closing Statement 
(that is, the co-complainants would need to show th at all imported products are substitutable with all 
domestic products) was incorrect and went against est ablished jurisprudence. In fact, for a breach of 
Article III:2 GATT is enough that some  foreign products are like or substitutable with some  domestic 
products and are not treated equally. This meant that  the EU would not need necessarily to prove that 
e.g. a nipa liqueur competes with "Hennessy Cogn ac" or "Talisker Scotch Whisky". The EU would 
have made its case and established a violation of Article III:2 if it proves that, e.g., Gran Matador 
Brandy competes with Fundador Brandy.  
  WT/DS396/R 
 WT/DS403/R 
 Page F-15 
 
 
 ANNEX F-5 
 
EXECUTIVE SUMMARY OF THE OPEN ING ORAL STATEMENT OF THE  
UNITED STATES AT THE SECOND SUBSTANTIVE MEETING 
 
 1. We are now in the later stages of the litigation process, and the issues are clear.  As the 
Philippines stated in its second written submission, it is indeed a moment to reflect. 
A. T
HE UNITED STATES CLAIMS CONCERN PARTICULAR MEASURES OF THE PHILIPPINES , NOT 
ITS FISCAL POLICIES OR ECONOMIC DEVELOPMENT  
2. The United States requested this Panel to  examine two specific claims under the General 
Agreement on Tariffs and Trade 1994  ("GATT 1994"), with respect to particular tax measures of the 
Philippines.  The question before the Panel is whethe r the Philippine tax system for distilled spirits is 
inconsistent with the Philippines' WTO oblig ations under the first and second sentences of 
Article III:2 of the GATT 1994. 
3. The US claims make no statement on the Philippi nes' broader fiscal policies, its needs, or 
what specific changes the Philippines should adopt to its  tax system.  All the parties to this dispute – 
including the Philippines – recognize that, as the Appellate Body in Japan – Alcohol  stated: 
"Members of the WTO are free to pursue their own domestic goals through internal 
taxation or regulation so long as they do not do so in a way that violates Article III or 
any of the other commitments they have made in the WTO Agreement."  
4. However, the Philippines' defense of its measure neglects the second part of that citation – the 
one which is critical to the parties' claims: so long as they do not do so in a way that violates 
Article III or any of the other commitmen ts they have made in  the WTO Agreement . 
5. In the first paragraph of its most recent submi ssion, the Philippines states that the "central 
issue" before the Panel is "whether Article III of  the GATT 1994 should be inte rpreted and applied in 
a way that prohibits the Philippines from following a fi scal policy that best fits its needs."  To the 
contrary, that is not the central issue in this di spute:  the central issue is whether the Philippine 
measures are consistent with its WTO commitments. 
6. In our statement today, the United States will di scuss several specific aspects of the Philippine 
arguments: 
 First, the Philippines' grouping of distilled sp irits into "sugar based" and "non sugar based" 
does not accurately reflect its measures or its own arguments; 
 
 Second, Article III of the GATT 1994 does not require a showing of discrimination in a 
"majority" market segment; 
 
 Finally, the size of the tax differential between  imported and domestic pr oducts is sufficient to 
determine whether the differential is "de minimis".   
 WT/DS396/R 
WT/DS403/R Page F-16 
 
 
 B. T
HE PHILIPPINES ' "SUGAR -BASED " AND "NON-SUGAR -BASED " TERMS DO NOT ACCURATELY 
REFLECT ITS MEASURES OR ITS OWN ARGUMENTS  
1. The measures favor alcohol produced from several typical Philippine raw materials – 
not just "sugar" 
7. From its very first submission to this Panel,  the Philippines has used the terms "sugar based" 
and "non sugar based" broadly to describe two groups of distilled spirits sold in the Philippines.  But 
these terms not only are very rough shorthand for pr oducts of the different raw materials favored by 
the Philippine measures, they also are mislea ding in the context of the Philippine economic 
arguments.  
8. The Philippines acknowledges that "sugar-based" is  not a precise description of the criteria its 
measures use to distinguish between products.  That much is true.   
9. Section 141 of the Philippines' Internal Revenue  Code neatly divides the universe of distilled 
spirits into two categories "A" and "B".  "A " describes lower-taxed products and "B" includes 
everything else. 
10. The measures do not define the products eligib le for inclusion in Category "A" and therefore 
entitled to the lower tax rate as "low cost" or "suga r-based."  Rather, it has two specific requirements. 
11. First, a category A product must be manufactured from one of six different raw materials – 
nipa, coconut, cassava, camote, buri palm, or sugar ca ne.  As the complainants have shown, about the 
only thing these materials have in common is th at they are produced in the Philippines.  
12. Second, the raw material must be commercially produced in the country where the distilled 
spirit is manufactured.  The Philippines has described how this does not require that the raw material 
actually be produced in the Philippines; yet the Unite d States is not claiming that it does.  Rather, as 
the United States has explained, this requirement furt her limits the imported distilled spirits that might 
qualify for favorable tax treatment and prevents producers in many Members from being able to 
qualify for the lower tax rate even if they use one  of the favored raw materials.  For example, a 
distilled spirit made from palm or camote fails to qua lify for the low tax rate if the producer is unable 
to show that it is located in a country that co mmercially produces palm or camote.  Any Philippine 
producer, on the other hand, need not worry about this requirement because all the favored raw 
materials are produced in the Philippines. 
13. In short, category "A" is a proxy,  not for "sugar based," but for "lo cal."  In fact, this is evident 
from the annexes in the Philippines' own regulations , which repeatedly refer to products classified 
under category "A" as "local".  It is important to ta ke a step back from the submissions and consider 
this terminology, because the Philippines' defens e of its measures depends on accepting the premise 
that its measures are designed to provide more favorable tax rates to preserve the affordability of 
certain distilled spirits – in fact, its measures are designed to provide lower taxes to local products, i.e. 
protect domestic production. 
2. Notwithstanding differences in raw material s, imported and domestic products are 
"like" or "directly competitive or substitutable"  
14. When the Philippines examines physical differences between imported and domestic 
products, it focuses almost exclusively on attributes of the raw materials.  Yet even as it claims that 
products made from different raw materials are distin guishable because there is  an "inextricable link" 
between a product and its raw materials, it acknowle dges that there is "some comparability" between  WT/DS396/R 
 WT/DS403/R 
 Page F-17 
 
 
 products made from different raw materials, and that  additives may be added to sugar cane products to 
"create a flavor comparable to the flavor of a non-sugar-based spirit."   
15. Indeed, in the Philippines, raw materials are re duced to ethyl alcohol, a "neutral spirit" for 
which the attributes of the raw material have been eliminated as much as possible.  Ethyl alcohol can 
be made from the sugars of any raw material , as pointed out by the responses to the Panel's first 
question to the parties.  In the Philippines, this stripped down, neutral product is transformed into 
more recognizable consumer products  through the use of additives.  As the Philippines noted with 
regard to whiskey in its first written submission, "the original flavour of the sugar material is 
extinguished as much as possible" and "local distillers  add the relevant flavouri ngs and ingredients" to 
neutral spirits "to generate the taste of whiskey". 
16. Unlike the products at issue in Japan – Alcohol , which were not reduced to a neutral spirit 
only to have flavors added to produ ce the final product, in the case of the Philippines, the products are 
reduced to a neutral ethyl alcohol, which is then u sed to produce a variety of products that are like or 
directly competitive or substitutable with imported pr oducts.  To the extent there is a link between a 
distilled spirit and its raw material, Philippine pr oducers have done their best to break it.  
17. The nature of the Philippine products at issue also informs the structure of the particular 
measures at issue.  Unlike measures such as tho se examined in earlier alcohol tax disputes that 
protected one "type" of distilled spirit such as so chu or pisco, the Philippine tax system enables 
Philippine producers to make essentially any type of end product and enjoy favora ble tax treatment, as 
long as they start with a stripped down, neutral spir it made from the right kind of raw material.  The 
examples provided by the complainants – including information regarding labels, store displays, end 
use, etc. – show that the types of  products that Philippine producers create from neutral spirits made 
from local raw materials ar e essentially the same type of products that importers offer to Philippine 
consumers.  
18. The United States has presented evidence to th e Panel demonstrating the similarities between 
imported and domestic products in the Philippine market.  The United States has also provided 
evidence demonstrating how the measures apply to these products.  The measures cover all types of 
distilled spirits, and group together products from lo cal raw materials in one category, and all other 
products in another.  Accordingly, the United Stat es has provided evidence with respect to different 
types of products (such as whiskey and gin) from both categories, demonstrating that imported and 
domestic products are like and directly competitive or  substitutable and that th e measures accord less 
favorable treatment to imported products.   
3. The Philippine measures do not distinguish between products based on price  
19. The Philippines uses the term "sugar based" not only as shorthand for the longer list of six 
local raw materials named in its measures, but also in its arguments concerning the purported lack of 
competition between domestic and imported products due to differences in pr ice.  These arguments 
are equally flawed. 
20. As an example, at paragraph 53 of its second written submission, the Philippines asserts that 
the "price differential between non-sugar-based di stilled spirits and sugar-based distilled spirits 
compared to the income of the great majority of  Filipinos prevents consumers from the majority 
market from considering non-sugar-based distilled sp irits as an 'alternative way[] of satisfying a 
particular need or taste.'"  Yet the Philippine measures discriminate on the basis of raw material, not 
price.  In fact, the only differentiation by valu e included in the Philippine measures is the three 
progressively higher rates applied to products not made from local types of raw materials.   WT/DS396/R 
WT/DS403/R Page F-18 
 
 
 21. Indeed, if the measures were designed to favo r consumers of a certain income level or 
purchasing power, there would be no reason to st ructure the tax around the raw material used to 
manufacture the distilled spirit – the measure could just distinguish between products based on their 
price without regard to raw material. 
22. Two things are clear: the Philippines applies lo wer taxes to products made from local raw 
materials, and Philippine producers go to great le ngths to obscure the differences between products 
manufactured from different raw material sources.  The raw materials that make products eligible for favorable treatment under the Phili ppine measures do not distinguish between products that are not 
like, but distinguish between products that are domestic and imported.  The measures "afford 
protection to domestic production". 
4. The Philippine tax measures are difficult to administer  
23. The Philippines has made several points about administrative capacity – suggesting that the 
current system may be justified or necessary as a matter of what is feasible for its government in order to meet its objectives.  These assertions, when one looks at the measures themselves, simply do not 
ring true. 
24. The tax system imposed through the Philippine measures is actually extremely complicated.  
The system is set out not only in the basic provisions of the Internal Revenue Code, but also in a 
number of regulations predating a nd subsequent to the 2004 law, as well as implementing annexes.  
These measures set out in detail, brand by brand, applicable tax information involving assessments of 
raw material, price, and alcohol content.  In add ition, to maintain currentness, the Philippine measures 
provide for regular surveys.   
25. It is not particularly obvious how the system  works, and the Philippine differentiation of 
products based on raw materials – when the price info rmation is also collected and employed – adds 
an additional layer with no apparent purpose except the protection of its domestic industry. 
26. Moreover, the repeated updates to one of the Ph ilippines' key exhibits bears scrutiny in light 
of its assertions about administrative capacity.  The Philippines has updated Exhibit PH-19 twice, 
once of its own accord and then, at least in part, appa rently in reaction to specific data highlighted by 
the complainants. 
27. The data in the exhibit are the kind of inform ation the Philippine government is apparently 
supposed to keep track of simply in  order to maintain its current system.  Yet in the context of the 
current dispute, the exhibit with this cross section of products – not even all products as listed in the 
multiple regulations and annexes of the Philippine m easures – has been beset with problems.  Plainly 
it is not a simple task to keep all this straight. 
28. We would like to make one additional point a bout the "corrected" exhibit.  The Philippine 
correction changes the information that the United St ates used to identify a product that – but for the 
discriminatory taxation imposed by the Philippines – would be less expensive than a domestic product 
of the same type.  Even setting aside this one example does not disturb the larger point the United 
States was making: the Philippine "sugar based" a nd "non-sugar based" categories are not reasonable 
proxies for affordable versus expe nsive products, nor are its markets so segmented as to prevent 
competition between imported and domestic products.   
29. There are domestic products in the Philippine market at higher costs, and also a range of 
prices for imported products.  Even the "correct ed" Exhibit-77 includes relatively higher-priced 
domestic brands ( e.g. Napoleon VSOP) and relatively lower priced imports ( e.g. Myers Rum Original  WT/DS396/R 
 WT/DS403/R 
 Page F-19 
 
 
 Dark).  The range of prices in the Philippines own regulations also is revealing.  For example, 
Revenue Regulations 23-2 003 lists net retail prices for a long list of imported brands, including low-
price ( e.g., Cherry Brandy Walsh at 61.43 pesos, net of  taxes, for 750 mililiters and Jose de Soto 
Brandy de Jerez Solera, at 185 pesos, net of tax es, for 700 mililiters) along with high-price brands like 
Hennessy cognacs.  The regulations also reflect higher-priced domestic brands such as Napoleon 
VSOP (with a  price net of tax for 750 mililiters of 127.98 in Revenue Regul ation 02-07 of 1997).  
C. A FINDING OF WTO-I NCONSISTENCY UNDER ARTICLE  III OF THE GATT 1994  DOES NOT 
REQUIRE A SHOWING OF DISCRIMINATION IN A "MAJORITY " MARKET SEGMENT  
30. The United States would now like to draw the Panel's attention to another aspect of the 
Philippine approach that is not consistent with the GATT 1994.  The Philippines argues, particularly 
in its most recent submission, that the United States must show competition among imported and 
domestic products in the "majority" of the Philippine  market in order to demonstrate that imported 
products are directly competitive or substitutable with local products. 
31. There is no such requirement in Article III of the GATT 1994, nor is the Philippine position 
supported by the reasoning of prior panels or the Appe llate Body.  First, prior panels have been clear 
that latent, or potential, demand is a consider ation in determining whether goods are directly 
competitive or substitutable.  Thus, the fact that a ma jority of Filipinos – or any Filipinos – might not 
currently purchase imported distilled spirits does not mean that the products are not directly 
competitive or substitutable.  Further, the factor s for whether goods are directly competitive or 
substitutable focus on the goods themselves – par ticularly attributes like end-use.  Under the 
Philippine proposed interpretation, a Panel would discount the attributes of the goods themselves, 
whether they are substitutes and how they would be used by consumers.  
32. The United States notes that a measure may be WT O-inconsistent even where the products in 
question are only substitutes for a subset of consum ers.  For example, suppose only 10% of Filipinos 
drink distilled spirits at all – for those 9 million-plus consumers, WTO rules obligate the Philippines not to discriminate against imported distilled spirits sold in the Philippines.  As such, the Philippine 
arguments about the "majority" market would not change  the appropriate findings in this dispute, even 
if they were valid.  And even under the Philippi ne proposed approach, the Philippines implicitly 
concedes that the imported and domestic distilled spir its compete in at least "part" of the Philippine 
market since the Philippine references to a "major ity" market concedes that there is a "minority" 
market. 
33. In understanding how the Philippine proposed approach proceeds from the wrong basis not 
only legally but also economically, it may be helpful to consider the distilled spirits market in the 
Philippines generally as it is affected by the ta x measures.  In response to the Philippines' 
characterization of its majority market as lower-income consumers, and, by assumption, consumers of 
lower-taxed local brands, the United States would like to offer some further analysis of the Philippine 
market.  
34. The Philippine market is dominated by less expe nsive domestic brands.  Imported brands are 
largely absent at any price point.  According to the Philippines, the reason for this is the low 
purchasing power of the majority of Filipino consumers.   However, a closer look at the brands sold in 
the Philippines bears out the significant barrier that  the Philippine taxes present to importers seeking 
to sell products at a lower price point in the Philippin es.  The lack of imported brands at the lower end 
of the price spectrum should not signify that they do not have potential to do so. WT/DS396/R 
WT/DS403/R Page F-20 
 
 
 35. The top five brands (all domestic) accounted fo r 86% of the Philippine market in 2010.  
While price, as measured in cost per liter, will vary according to package size, brand and retail outlet, 
the mid-point of each brand was be tween 80 and 116 Pesos per liter. 
36. With 86% of all volume selling well below 250 Pe sos per liter, the low end segment of the 
Philippine market is clearly important.   
37. As of 2011 the excise tax on spirits produced  from favored raw materials was only 14.68 
Pesos per proof liter, while the lowest possible excise tax on other products was 158.73 Pesos per 
proof liter. 
38. For almost every individual brand in the top 86 percent of sales, the difference between the 
domestic tax and the tax that would be paid on a comp arable imported brand is more than 50% of the 
retail price.  For 13 of the 23 brands the differe nce between the tax on domestic and imported distilled 
spirits is more than 80% of the retail price.  The simple average is 73%. 
39. The impact of the tax on imported products is clearly a barrier to imported products seeking 
to sell at a lower price point.  For example, if a brand were imported at the same supplier price as 
Ginebra San Miguel, it would sell for 86 Pesos per liter if the domestic tax were  applied.  However, 
the higher tax rate would add 115 Pesos to the retail  price.  Thus, an impor ted product would have a 
retail price of 201 Pesos per liter – 133% higher than the domestic brand.   
40. Clearly, the excise tax on imports currently pr ecludes imported products from competing with 
domestic brands in this segment of the market.  The Philippine measures create significant price 
differences for these products.  On the Philippines' theory of showing competitiveness in the majority 
market, imported products would n eed to have made further progress in market penetration already, 
simply to make a case under the national treatment provisions of the GATT 1994. 
41. The United States offers this information to demonstrate the challenge that the Philippine 
taxes present to importers whose products are s ubject to higher taxes.  Beyond these taxes, the 
Philippine market presents significant opportunities fo r imports.  There is a generally well-developed 
market for distilled spirits in the Philippines.  Consumer choices have ch anged over time, showing 
dynamism in the market.  For example, Philippi ne consumers switched from gin to brandy in 
significant volumes between 1999 and 2009, even though brandy was consistently priced at levels 
much higher than that of gin.  And Philippine producers continue to introduce new vodkas and 
whiskies into the market, including premium brands.   
D. T
HE SIZE OF THE TAX DIFFERENTIAL BETWEEN IMPORTED AND DOMESTIC PRODUCTS IS 
SUFFICIENT TO DETERMINE WHETHER THE DIFFERENTIAL IS "DE MINIMIS " 
42. Finally, the United States would like to make a few comments on the Philippine proposed 
approach to "de minimis" and "direct competition".  
43. A finding that a measure is WTO-inconsistent under the second sentence of Article III:2 of 
the GATT 1994 requires a showing that the differen ce in taxation between directly competitive or 
substitutable products is more than "de minimis."  The Philippines argues that "de minimis" is a 
market-based concept. 
44. By this, the Philippines means that the Pane l should examine whether the difference in 
taxation between the so-called "sugar based" and "non sugar based" distilled spirits affect consumers' 
choices.  This reading could lead to extreme results  – for example, a Member could have an explicitly 
discriminatory measure and, so long as the measu re was put in place before there was significant  WT/DS396/R 
 WT/DS403/R 
 Page F-21 
 
 
 import penetration, the Member could with impunity use that measure to prevent imports from 
competing on an equal footing and gaining market share. 
45. The Philippines claims that one cannot use th e size of the tax differential to determine 
whether it is "de minimis" – but this plainly does no t make sense.  The tax rates concerned are at the 
heart of its measures, and indeed, past panels have  found that the size of the tax differential alone may 
be sufficient to show that the discriminati on under a measure is more than de minimis.102 
46. Accordingly, the US suggestion that the Panel fo cus on the size of the differential is sound.  
Here, again, focusing on the specific Philippine meas ures, the tax per proof liter for products not made 
from local types of raw materials is from ten to forty times higher than that applied to local raw 
materials and dwarfs the price differentials found  to be over "de minimis" in other disputes on 
Article III:2 of the GATT 1994.   
47. The Philippine approach is similar to a "trade ef fects" test, as the United States described in 
its response to questions from the Panel and in spite of the Philippine claims to the contrary.  In this, it 
is similar to the Philippine approach on the i ssues of like product and directly competitive or 
substitutable products – that is, if  consumers might not purchase more imports in the absence of the 
discriminatory tax, the products are not substitutes or like for the purposes of GATT Article III.   
E. CONCLUSION  
48. To conclude our remarks this morning, the Unite d States would ask the Panel to reflect on the 
interpretation of the measures which makes the mo st sense.  The Philippine approach would present 
its measures as an easily administrable, progressive tax system for low-cost distilled spirits.  The 
United States sees a complex tax structure which effectively distinguishes between local and imported 
products and taxes the imported products at much higher rates.  The United States sees a group of 
measures that afford protection to domestic production in breach of Article III of the GATT 1994.   
 
_______________ 
 
 
 
                                                      
102 Japan – Alcohol  (AB), p. 29-30.  See also Korea – Alcohol (Panel) , para. 10.101.  WT/DS396/R 
 WT/DS403/R 
 Page G-1 
 
 
 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 Procedures C oncerning Business Confidential 
Information (31 August 2010) G-10 
 WT/DS396/R 
WT/DS403/R Page G-2 
 
 
 ANNEX G-1 
 
 
WORLD TRADE  
ORGANIZATION   
WT/DS396/4 
11 December 2009 
 
 ( 09-6455 ) 
 Original:   English 
  
 
PHILIPPINES – TAXES ON DISTILLED SPIRITS 
 
Request for the Establishment of a Panel by the European Union 
 
 
 The following communication, dated 10 December 2009, from the delegation of the European Union to the Chairman of the Dispute Settlement Bo dy, is circulated pursuant to Article 6.2 of the 
DSU.  
_______________ 
 
  The European Union (the "EU") hereby requ ests the establishment of a panel pursuant to 
Articles 4.7 and 6 of the Understanding on Rules and Procedures Governing the Settlement of 
Disputes ("DSU") and Article XXIII of the General Agreement on Tariffs and Trade  ("GATT 1994"). 
 
 This request concerns the excise tax regime in force in the Philippines w ith respect to distilled 
spirits and more particularly the measures evidenced inter alia  by the following legal provisions, as 
such and as applied, in law and in fact, in sofar as they relate to distilled spirits:  
 
– Section 141 of the National Internal Revenue Code of 1997  (Republic Act No. 8424, 
an Act amending the National Internal R evenue Code as amended and for other 
purposes , Official Gazette 1 June 1998, as subsequently amended, particularly by 
Section 1 of Republic Act No. 9334, an Act increasing the excise tax rates imposed 
on alcohol and tobacco products, amending for the purpose Sections 131, 141, 142, 
143, 144, 145 and 288 of the National Inter nal Revenue Code of 1997, as amended ); 
and, to the extent relevant with respect to the implementing measures set out below, 
Section 1 of the preceding a nd related Republic Act No. 8240, an Act amending 
Sections 138, 139, 140 and 142 of the Nati onal Internal Revenue Code, as amended 
and for other purposes (Republic Act No. 8240); 
 
– Sections 3.I, 4 and 5 of  the preceding and related Revenue Regulations No.  02-97 
Governing Excise Taxation on Distilled Spirits, Wines and Fermented Liquors , 
implementing the relevant provisi ons of Republic Act No. 8240;  
 
– Section 1 of Revenue Regulations No. 17-99, Implementing Sections 141, 142, 143 
and 145(A) and (C) (1),( 2), (3) and (4) of  the National Internal Revenue Code of 
1997 relative to the Increase or  the Excise Tax on Distilled Spirits, Wines, Fermented  WT/DS396/R 
 WT/DS403/R 
 Page G-3 
 
 
 Liquors and Cigars and Cigarettes Packed by Machine by Twelve Per Cent (12%) on 
1 January 2000 ; 
 
– Section 3 of Revenue Regulations No. 9-2003 Am ending Certain Provisions of 
Revenue Regulations No. 1-978 and Revenue Regulations 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 Establishment of the 
Current Net Retail Price of New Brands and Va riants of New Brands of Alcohol and 
Tobacco Products ; 
 
– Section 2 of Revenue Regulations No. 23-2003 Implementing the Revised Tax 
Classification of New Brands of Alcohol Products and Variants Thereof Based on the 
Current Net Retail Prices Thereof as Dete rmined in the Survey Conducted Pursuant 
to Revenue Regulations No. 9-2003 ; 
 
– Sections A, B and C(2)(a) of 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 Act No. 9334 ; and 
 
– Sections 1 to 9 of 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 Certain Provisions of 
Existing Revenue Regulations Relative Thereto . 
 
 For each of the measures referred to above, this request also covers any amendments, 
replacements, extensions, implementing measures or other related measures.   Section 141 of the National Internal Revenue Code of 1997 as amended and implemented, 
provides in part as follows
103: 
 
"Distilled Spirits. – On distilled spirits, there shall be collected (…) excise taxes as 
follows: 
(a) If produced from the sap of nipa, coconut, cassava, camote , or buri palm or from 
the juice, syrup or sugar of the cane,  provided such materials are produced 
commercially in the country where they are processed into distilled spirits, per proof 
liter, Eleven pesos and sixty-five centavos (P11.65). 
(b) If produced from raw materials other th an those enumerated in the preceding 
paragraph, the tax shall be in accordance w ith the net retail price per bottle of seven 
hundred and fifty milliliter (750 ml.) volume capacity (excluding the excise tax and 
the value-added tax) as follows: 
(1) Less than Two hundred and fifty peso s (P250) – One hundred twenty-six pesos 
(P126), per proof liter; 
(2) Two hundred and fifty pesos (P250) up to Six hundred and Seventy-five pesos 
(P675) – Two hundred and fifty-two pesos (P252), per proof liter; and 
                                                      
103 National Internal Revenue Code of 1997 as amended and consolidated up to 1 March 2009. WT/DS396/R 
WT/DS403/R Page G-4 
 
 
 (3) More than Six hundred and seventy-five pesos (P675) – Five hundred and four 
pesos (P504), per proof liter."  
 The Revenue Regulations referred to above, when  setting out the excise tax rate applicable to 
each brand of spirits introduced into the Philippi nes market, distinguish between "local distilled 
spirits" (see, for example, Section A of Revenue  Regulations No. 12-2004, referring to "Local 
Distilled spirits Brands Produced from Sap of Nipa , Coconut, etc. covered by Section 141 … ") and 
"imported distilled spirits" (see, for example Se ction B of Revenue Re gulations No. 12-2004, 
referring to "Imported Distilled Spirits Brands Pr oduced from Grains, Cereals, and Grains covered by 
Section 141 …"). The EU claims relate to the diffe rent excise tax rates applicable by the Philippines 
to local and imported whisky, gin, brandy, rum or rhum, vodka and other distilled spirits. 
  Under Section 141 of the National Internal Revenue Code of 1997 , and the other measures 
referred to above, the Philippines establishes and a pplies a discriminatory excise tax regime that 
adversely affects imports of distilled spirits (code 22.08) of the Harmonised System to the Philippines. 
In essence, under this regime, distilled spirits produc ed from the sap of nipa, coconut, cassava, camote 
or buri palm, or from the juice, syrup or sugar of the cane, provided that such materials are produced 
commercially in the country where they are processed in to distilled spirits, are subject to a flat tax rate 
(of 11.65 Pesos in 2009). These raw materials are i ndigenous to the Philippines. At the same time, 
imported spirits produced from other raw materials are subject to a system of price bands at 
substantially higher tax rates (between 126 Pesos and 504 Pesos in 2009).    These measures, individually and in any combina tion, as such and as applied, in law and in 
fact, are inconsistent with the Philippines' obligations under the GATT 1994 and are therefore 
presumed to (and do) nullify or impair the benefits ot herwise accruing, directly or indirectly, to other 
WTO Members, including the EU. In particular, the Philippines has acted inconsistently with the first 
sentence of Article III:2 of the GATT 1994, by making distilled spirits imported from other WTO 
Members, including the EU, subject, directly or indir ectly, to internal taxes or other internal charges 
in excess of those applied, directly or indirectly , to like domestic products. Moreover, separately and 
in combination with the first sentence of Article III: 2, by applying internal taxes or other internal 
charges to imported and/or domestic products in a manner contrary to the principles set forth in 
paragraph 1 of Article III of the GATT 1994, the Philippines has acted inconsistently with the second 
sentence of Article III:2 of the GATT 1994.    On 29 July 2009, the EU requested consultations  with the Philippines with a view to reaching 
a mutually satisfactory solution to the matter. Th e request was circulated in document WT/DS396/1 
dated 30 July 2009. The consultations were he ld in Manila on 8 October 2009 on the above-
mentioned measures. They have not led to a satisfactory resolution of the matter.  
  Therefore, the EU respectfully requests that a panel be established, with standard terms of 
reference under Article 7 paragraph 1 of the DSU, to  consider the above complaint with a view to 
finding that the above measures adopted or maintain ed by the Philippines are inconsistent with the 
first and second sentences of Article III:2 of the GA TT 1994, as such and as applied, in law and in 
fact, and are therefore presumed to (and do) nullify or  impair the benefits otherwise accruing, directly 
or indirectly, to other WTO Members, including the EU. 
 
  WT/DS396/R 
 WT/DS403/R 
 Page G-5 
 
 
 ANNEX G-2 
  
WORLD TRADE  
ORGANIZATION   
WT/DS403/4 
29 March 2010 
 
 ( 10-1710 ) 
 Original:   English 
  
 
PHILIPPINES – TAXES ON DISTILLED SPIRITS 
 
Request for the Establishment of a Panel by the United States 
 
 
 The following communication, dated 26 March 2010, from the delegation of the United States 
to the Chairman of the Dispute Settlement Body, is  circulated pursuant to Article 6.2 of the DSU. 
 
_______________ 
  
 On 14 January 2010, the United States request ed consultations with the Philippines pursuant 
to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes  
("DSU") and Article XXII of the General Agreement on Tariffs and Trade 1994  ("GATT 1994") with 
regard to the taxation of distilled spirits by the Philippines (WT/DS403/1).  Consultations were held 
on 23 February 2010, but have failed to resolve the dispute. 
  The Philippines taxes distilled spirits at rat es that differ depending on the product from which 
the spirit is distilled.  Distilled spirits produced from certain materials that are typically produced in 
the Philippines are taxed at a low rate.  Other distille d spirits are taxed at significantly higher rates (for 
example at a rate that is approximately from 10 to 40 times higher than the rate for the domestic 
product).  The tax rate also depends on whether the product from which the spirit is distilled is 
produced commercially in the country where it is pr ocessed into distilled spirits.  The Philippine taxes 
on distilled spirits do not appear to tax importe d distilled spirits and directly competitive or 
substitutable domestic distilled spirits similarly.  The taxes appear to be applie d in a way that affords 
protection to domestic production.  In addition, the taxes appear to subject imported distilled spirits to 
internal taxes in excess of those applied to like domestic products.  
  The United States understands that the instrume nts reflecting the Philippine measures include: 
 
– Section 141 of the National Internal Revenue Code of 1997  (Republic Act No. 8424, 
an Act amending the National Internal R evenue Code as amen ded and for other 
purposes , as subsequently amended, particular ly by Republic Act No. 9334, an Act 
increasing the excise tax rates imposed on alcohol and tobacco products, amending 
for the purpose Sections 131, 141, 142, 143, 144, 145 and 288 of the National 
Internal Revenue Code of 1997, as amended ); 
 WT/DS396/R 
WT/DS403/R Page G-6 
 
 
 – Republic Act No. 8240, an Act amending Sections 138, 139, 140 and 142 of the 
National Internal Revenue Code, as amended and for other purposes ; 
 
– Revenue Regulations No.  02-97, Governing Excise Taxation on Distilled Spirits, 
Wines and Fermented Liquors ;  
 
– Revenue Regulations No. 17-99, Implemen ting Sections 141, 142, 143 and 145(A) 
and (C) (1),( 2), (3) and (4) of the National In ternal Revenue Code of 1997 relative to 
the Increase of the Excise Tax on Distille d Spirits, Wines, Fermented Liquors and 
Cigars and Cigarettes Packed by Machine by Twelve Per Cent (12%) on 
1 January 2000 ; 
 
– Revenue Regulations No. 9-2003, Ame nding 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 
Products ; 
 
– Revenue Regulations No. 23-2003, Implemen ting the Revised Tax Classification of 
New Brands of Alcohol Products and Variants Thereof Based on the Current Net 
Retail Prices Thereof as Determined in  the Survey Conducted Pursuant to Revenue 
Regulations No. 9-2003 ; 
 
– Revenue Regulations No. 12-2004, Providi ng for the Revised Tax Rates on Alcohol 
and Tobacco Products introduced on or before December 31, 1996, and for those 
Alcohol and Tobacco Products Covered by  Revenue Regulations No. 22-2003 and 
23-2003, Implementing Act No. 9334 ; and 
 
– 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 ; 
 
as well as any amendments, replacements, related measures or implementing measures.  
 The Philippine measures appear to be incons istent with the first and second sentences of 
Article III:2 of the GATT 1994.   Accordingly, the United States respectfully requ ests, pursuant to Article 6 of the DSU, that 
the Dispute Settlement Body establish a panel, with  standard terms of re ference as set out in 
Article 7.1 of the DSU, to ex amine the matter described above. 
 
  WT/DS396/R 
 WT/DS403/R 
 Page G-7 
 
 
 ANNEX G-3 
 
WORKING PROCEDURES FOR THE PANEL 
 
28 July 2010 
 1. In its proceedings the Panel shall follow the relevant provisions of the Dispute Settlement 
Understanding (DSU).  In addition, the following Working Procedures shall apply. 
2. The Panel will provide the parties
1 and third parties2 with a timetable for its proceedings.  The 
timetable may be modified by the Panel as a ppropriate, after having consulted the parties. 
3. The panel shall conduct its internal deliberations in closed session.  The parties to the dispute, 
and interested third parties, shall be present at the meetings only when invited by the Panel to appear 
before it. 
4. The deliberations of the Panel and the documents submitted to it shall be kept confidential.  
Nothing in the DSU shall preclude a party to a dis pute from disclosing statements of its own positions 
to the public.  Members shall treat  as confidential information submitted by another Member to the 
Panel which that Member has designated as confiden tial.  As provided in Article 18.2 of the DSU, 
where a party to a dispute submits a confidential ve rsion of its written submissions to the Panel, it 
shall also, upon request of a Member, provide a non-confidential summary of the information 
contained in its submissions that could be di sclosed to the public.  Non-confidential summaries  shall 
be normally submitted no later than one week afte r the written submission is presented to the Panel, 
unless a different deadline is granted by the Panel upon a showing of good cause.  The Panel may 
adopt additional procedures for the protection of business confidential information (BCI) submitted 
by the parties in the course of the proceedings. 
5. Before the first substantive meeting of the Pane l with the parties, and in accordance with the 
timetable approved by the Panel, the parties to the dispute shall transmit to the Panel written 
submissions in which they present the facts of the case and their arguments.  Third parties may 
transmit to the Panel written submissions after the firs t submissions of the parties have been filed, and 
in accordance with the timetable approved by the Panel. 
6. At its first substantive meeting with the parti es, the Panel shall ask the European Union and 
the United States, in that order, to present their respective cases.  Subsequently, and still at the same 
meeting, the Philippines will be asked to present its poi nt of view.  Parties will then be allowed an 
opportunity for final statements, in the same order. 
7. All third parties shall be invited in writing to present their views during a session of the first 
substantive meeting of the panel set aside for that  purpose.  All such third parties may be present 
during the entirety of this session. 
8. Formal rebuttals shall be made at a second subs tantive meeting of the Panel.  The Philippines 
shall have the right to take the floor first to be followed by the European Un ion and the United States.  
                                                      
1 Throughout this document, the term "party" refers to the European Union, the United States or the 
Philippines, as appropriate.  The te rm "parties" refers to the European  Union, the United States and the 
Philippines. 
2 Throughout the document, the term "third parties" refers to Australia, China, Colombia (for DS403), 
the European Union (for DS403), India, Mexico, Thaila nd, Chinese Taipei and the United States (for DS396). WT/DS396/R 
WT/DS403/R Page G-8 
 
 
 The parties shall submit, prior to that meeting, and in accordance with the timetable approved by the 
Panel, written rebuttals to the Panel. 
9. The Panel may at any time put questions to the pa rties and ask them for explanations either in 
the course of a meeting with the parties or in writing.   In addition, the parties shall be permitted to ask 
questions to each other and to third parties.  Repli es to questions shall be submitted in writing by the 
date specified by the Panel.  Third parties shall not be permitted to ask questions to the parties or to 
other third parties.  Replies of the parties and th ird parties to questions, and parties' comments on each 
other's replies to questions, will not be attached to the Panel report as annexes.  They will be reflected 
in the findings section of the Panel report where relevant. 
10. The parties to the dispute and any third part y that presents its views orally shall make 
available to the Panel and the other party a written ve rsion of their oral statements, preferably at the 
end of the meeting, and in any event not later than  the working day following the meeting.  Parties 
and third parties are encouraged to provide the Pa nel and other participants in the meeting with a 
provisional written version of their oral statements  at the time the oral statement is presented. 
11. All oral presentations of any party shall be made in the presence of the other parties. 
Moreover, each party's written submissions, includi ng any comments on the descriptive part of the 
report, responses to questions put by the Panel and comments on responses made by other parties, 
shall be made available to the other parties.  Third parties shall receive copies of the parties' first written submissions. 
12. Parties shall submit all factual evidence to the Panel as early as possible and no later than 
during the first substantive meeting, except with  respect to evidence necessary for purposes of 
rebuttals, answers to questions or comments on an swers provided by others.  Exceptions may be 
granted by the Panel upon a showing of good cause.  In such cases, the other parties shall be accorded 
a period of time for commenting, as appropriate. 
13. Within seven (7) calendar days following the submission of a written submission or oral 
statement to the Panel, each party and third party shall provide the Panel with an executive summary 
of the respective submission or statement.  These executive summaries will be used only for the 
purpose of assisting the Panel in drafting a concise factual and arguments section of the Panel Report 
so as to facilitate timely translation and circula tion of the Panel report to the Members.  Executive 
summaries shall not serve in any way as a substitute  for the submissions of the parties.  Each 
summary to be provided by each party shall not exceed ten (10) pages in length.  Third parties' 
executive summaries shall not exceed th ree (3) pages in length.  The Panel may, in light of further 
developments, allow the parties or th ird parties to submit longer summaries. 
14. To facilitate the maintenance of the record of th e dispute, and for ease of reference to exhibits 
submitted by the parties, parties are requested to  number their exhibits sequentially throughout the 
stages of the dispute. For example, exhibits s ubmitted by the European Union should be numbered 
EU-1, EU-2, etc.  If the last exhibit in connecti on with the first submission was numbered EU-5, the 
first exhibit of the next submission thus would be  numbered EU-6.  Exhibits submitted by the United 
States should be numbered US-1, US-2, etc.  Those submitted by the Philippi nes, PH-1, PH-2, etc. 
15. The parties to the dispute have the right to de termine the composition of their own delegation.  
The parties shall have the responsibility for all me mbers of their respective delegations and shall 
ensure that all members of their delegations act  in accordance with the ru les of the DSU and the 
Working Procedures of this Panel, particularly in re gard to confidentiality of the proceedings.  Parties 
shall provide a list of the participants of their de legation to the Secretary of the Panel and to each 
other no later than 5:30 pm, local Geneva time, th e working day before any meeting with the Panel.  WT/DS396/R 
 WT/DS403/R 
 Page G-9 
 
 
 16. Following issuance of the interim report, the parties shall have two (2) weeks to submit 
written requests to review precise aspects of the inte rim report and to request a further meeting with 
the Panel.  The right to request such a meeting must  be exercised no later than at that time.  Following 
receipt of any written requests for review, in c ases where no further meeting with the Panel is 
requested, the parties shall have the opportunity to submit written comments on the other parties' 
written requests for review.  Such comments shall be strictly limited to commenting the other parties' 
written requests for review. 
17. Any request for a preliminary ruling (including ru lings on jurisdictional issues) to be made by 
the Panel shall be submitted no later than in a part y's first written submission.  Exceptions to this may 
be granted by the Panel upon a showing of good cause.  Should there be a request from any of the parties for a a preliminary ruling, the Panel will cons ult the views of the other parties, within a time 
period to be specified.  The Panel shall inform the parties promptly of any preliminary rulings it might 
make in the course of the proceedings.  In addition,  the Panel may also choose to inform third parties 
of such preliminary rulings, if appropriate. 
18. The following procedures regarding service of documents will apply: 
(a) Each party and third party shall serve any document submitted to the panel directly 
on all other parties, and on third parties as appropriate and confirm that it has done so 
at the time it provides its document to the Secretariat. 
(b) Each party and third party shall provide its doc uments to be filed with the panel to the 
Secretariat by 5:30 p.m., Geneva time, on the deadlines established by the Panel, unless a different time is set by the Panel. 
(c) The parties and third parties shall provide th e Secretariat with seven (7) paper copies 
of each of their written submissions.  These copies shall be filed with the Dispute 
Settlement Registrar, ******* ** ******** (Office 3178) by 5:30 p.m. on the due 
dates established by the Panel.  The Pane l may allow the submission of exhibits in 
less than eight hard copies, as in the case of exhibits that do not lend themselves to being submitted on paper, upon a reasoned request by a party made with a notice of at 
least three WTO working days in advance of the respective deadline, copying the 
other parties. 
(d) Each party and third party shall also provide electronic copies of any document 
submitted to the Panel at the time it provid es the document to the Secretariat, in a 
format compatible with the WTO Secretaria t's text-editing software.  If the electronic 
version is provided by e-mail, it should be addressed to DSRegistry@wto.org, and 
copied to *****.******@wto.org and *****.*****@wto.org.  If a CD-ROM is 
provided, it should be delivered to Mr. Fe rdinand Ferranco at the WTO Secretariat 
DS Registry. 
19. These working procedures may be modified by  the Panel as appropriate, after having 
consulted the parties. 
 
 WT/DS396/R 
WT/DS403/R Page G-10 
 
 
 ANNEX G-4 
 
WORKING PROCEDURES FOR THE PANEL 
 
Annex 
 
Additional Working Procedures Concerning Business Confidential Information 
 
31 August 2010 
 
 The following procedures apply to business confiden tial information (BCI) submitted in the course of 
the Panel proceedings.  
20. For the purposes of these proceedings, business confidential information (BCI) means any 
financially or commercially sensitive information, that  is:  (a) clearly designated as such by the party 
submitting it;  and, (b) not otherwise accessible to the general public. 
21. As required by Article 18.2 of the DSU, a pa rty having access to BCI submitted in these Panel 
proceedings shall treat it as confidential and shall not  disclose that information other than to those 
persons authorized to receive it pursuant to these working procedures.  Any information submitted as 
BCI under these working procedures shall only be used  for the purposes of this dispute and for no 
other purpose.  Each party is responsible for en suring that its employees and/or outside advisors 
comply with these working procedures to protect BCI. 
22. Employees of the European Union, of the G overnments of EU member States, of the 
Government of the United States and of the Government of the Philippines, who are directly involved in their official capacity in DS396 or DS403 proceed ings, shall have access to BCI submitted in these 
Panel proceedings.  Parties may give access to BCI to  outside advisors acting on behalf of the parties 
in these proceedings and their clerical staff.  Empl oyees, officers or agents of enterprises engaged in 
the production, export or import of the products con cerned in this dispute shall not be given access to 
BCI. 
23. Without prejudice to the provisions on non-confidential summaries in paragraph 4 of the 
Working Procedures, third parties to these Panel pr oceedings shall receive non-confidential versions 
of the first submissions of the Parties to the Pa nel.  Employees of the Governments of Australia, 
China, Colombia (for DS403), India, Mexico, Tha iland, and Chinese Taipei, and outside advisors 
under the terms set forth in paragraphs 21 and 22, above, may request access to BCI contained in the 
first submissions of the parties to the Panel for th e purpose of participating effectively in the Panel 
proceeding.  The Panel shall decide whether to grant access to such BCI in consultation with the 
parties.  In the absence of a showing of good cause, any such third party access to BCI will take place 
on the premises of the WTO Secretariat.  Third parti es shall be entitled to review, but not to copy, the 
BCI accessed on the premises of the WTO Secretariat.   Third parties granted access to BCI through 
this paragraph will be given an additional period, if needed, to allow them to comment on BCI. 
24. Panel Members and employees of the WTO Secretariat assigned to the present dispute shall 
have access to BCI submitted in these proceedings. 
25. A party submitting BCI in any written submission (i ncluding in any exhi bits) shall mark the 
cover and the first page of the document containi ng any such information with the words "Contains 
Business Confidential Information".  The specific in formation in question shall be enclosed in double 
brackets, as follows: [[xx.xxx.xx]] and the notation "Contains Business Confidential Information"  WT/DS396/R 
 WT/DS403/R 
 Page G-11 
 
 
 shall be marked at the top of each page contai ning the BCI.  A non-confidential version, clearly 
marked as such, of any written submission (including any exhibits) containing BCI shall be submitted 
to the Panel no later than the next working day after the submission of the confidential version 
containing the BCI.  In the case of an oral statement containing BCI, the party making such a statement shall inform the Panel before making it that the statement will contain BCI, and the Panel 
will ensure that only persons authorized to have ac cess to BCI pursuant to th ese procedures are in the 
room to hear that statement.  A written non-confid ential version of an oral statement containing BCI 
shall be submitted no later than the working da y following the meeting where the statement was 
made.  Non-confidential versions of both oral a nd written statements shall be redacted in such a 
manner as to convey a reasonable understanding of th e substance of the BCI deleted therefrom. 
26. Any BCI information that is submitted in binary -encoded form shall be clearly marked with 
the statement "Business Confidential Information"  on a label on the storage medium, and clearly 
marked with the statement "Business Confidentia l Information" in the binary-encoded files. 
27. The Panel will not disclose in its report any information designated as BCI under these 
working procedures.  The Panel may, however, make statements of conclusion based on such 
information. 
28. After the circulation of the Panel Report to WTO Members, and within a period fixed by the 
Panel, each party shall return all documents in its possession submitted as BCI in the Panel 
proceedings to the party that originally submitted the BCI.  Alternatively, within the above-mentioned 
period fixed by the Panel, a party may certify in writi ng to the Panel and the other parties that all such 
documents have been destroyed, consistent with  the party's record-keeping obligations under its 
domestic laws.  The WTO Secretariat shall have the right to retain copy of the documents containing 
the BCI for the archives of the WTO. 
29. Submissions containing information designa ted as BCI under these working procedures will 
be included in the record forwarded to the Appellate  Body in the event of any appeal of the Panel's 
report. 
30. At the request of a party, the Panel may apply these working procedures or an amended form 
of these working procedures to protect informati on that does not fall within the scope of the 
information set out in paragraph 20. 
 
__________