UKRAINE – TAXES ON DISTILLED SPIRITS
Document: Request for the Establishment of a Panel by Moldova
Date: 7 June 2011
Document codes: WT/DS423/4
Complainant: Moldova
Respondent: Ukraine
Third parties: China, Colombia, EU, Taiwan, U.S.
Dispute stage: Panel
Agreements cited: Art. III:2  GATT 1994

UKRAINE – TAXES ON DISTILLED SPIRITS

Request for the Establishment of a Panel by Moldova

 The following communication, dated 1 June 2011, from the delegation of Moldova to the
Chairperson of the Dispute Settlement Body, is circulated pursuant to Article 6.2 of the DSU.

The Permanent Mission of the Republic of Moldova to the UN Office in Geneva presents its
compliments to the Dispute Settlement Body of the (WTO) and has the
honour to communicate the following.

On 2 March 2011, the Republic of Moldova re quested consultations with Ukraine under
Article XXII of the General Agreement on Tariffs and Trade 1994 ("GATT 1994") and Article 4 of
the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") with
respect to discriminatory taxation applied on imported alcoholic beverages by the Ukraine

The Republic of Moldova and Ukraine held cons ultations in Kiev on 13 April 2011 with a
view to reach a mutually satisfactory solution. Un fortunately, the consultati ons failed to settle the
dispute.

The Republic of Moldova hereby request that a panel be established at the next meeting of the
Dispute Settlement Body ("DSB") pursuant to Ar ticle XXIII:2 of GATT 1994 and Article 6 of the
DSU.

The Republic of Moldova claims that:

- Ukraine had acted inconsistently with Artic le III:2, first sentence, of the GATT 1994 by
applying a lower tax rate on the domestic dis tilled spirits, namely ”Cognac”, than on certain
other imported like distilled spirits, thereby nullifying or impairing the benefits accrued to the
Republic of Moldova under the GATT 1994;

In the event that the beverages falling within the category of "spirits" were found by the Panel
not to be "like products" to domestic "Cognac" within the meaning of the first sentence of
Article III:2, the Republic of Moldova further claims that:

- Ukraine has acted inconsistently with Artic le III:2, second sentence, of the GATT 1994 by
applying a lower tax rate on domestic distille d spirits, namely "Cognac", than on certain
other imported directly competitive or substitutabl e distilled spirits, so as to afford protection
to the domestic production, thereby nullifying or impairing the benefits accrued to the
Republic of Moldova under the GATT 1994.

The above claims are set out in detail in the following paragraphs.

The Republic of Moldova requests that the pane l be established with the standard terms of
reference as set out in Article 7 of the DSU.

(1) Article III:2, first sentence

Under, the amendments made to the Law No. 178 from 07.05.1996 "On rates of excise duty
on ethyl alcohol and alcoholic beverages" in 2008, (provisions further included in the new Ukrainian
Tax Code nr. 2755 from 02.12.2010), different excise tax rates are applied to "spirits" falling under
HS 2208 20 12 00 and HS 2208 20 62 00, namely "Cognac", and to the rest of the alcoholic beverages
falling under HS 2208.

This difference in tax burden is made even more dramatic by a systemic postponement of the
term of equalization of the mentioned rates. Thus , the tax burden on some Moldavian distilled spirits
reached a value almost four times greater than th e tax burden on Ukrainian "like products", named
"Cognac".

The Republic of Moldova considers that the "Cognac" and all alcoholic beverages falling with
the category of "spirits" are "like products" within th e meaning of the first sentence of Article III:2 of
the GATT 1994.

Therefore, the Republic of Moldova claims that by levying a tax on the alcoholic beverages
falling within the category of "spirits" which is in excess of the tax applied to domestic "Cognac",
Ukraine violates Article III:2, first sentence, of the GATT 1994.

(2) Article III:2, second sentence

In case that any of the beverages falling within the category of "spirits" will be found by the
Panel not to be a "like product" to domestic "Cogn ac", the Republic of Moldova claims that, at the
very least, they would still be "directly competitive or substitutable" products. Moreover, the Republic
of Moldova believes that the above-mentioned tax di fferentials between the "Cognac" and the rest of
the alcoholic beverages falling under HS 2208 cannot be regarded as "de minimis".

Nevertheless, the Republic of Moldova notes th at most of the alcoholic beverages falling
within the category of "spirits”, which is exported in substantial quantities to Ukraine, is classified
under different from "Cognac" tariff position. In contrast, so called "Cognac" is primarily
manufactured in Ukraine and almost all of the consumed "Cognac" in Ukraine is domestically
produced.

For the above reasons, the Republic of Moldova claims that, by applying a higher tax on
distilled spirits (to the extent that they are not "like products" to "Cognac", but still "directly
competitive or substitutable" products) than on the "Cognac", Ukraine affords protection to its
domestic production of so called "C ognac", thereby violating Article III:2, second sentence, of the
GATT 1994.