PHILIPPINES – TAXES ON DISTILLED SPIRITS
Document: Reports of the Panel
Date: 15 August 2011
Document codes: WT/DS396/R; WT/DS403/R
Complainant: U.S.
Respondent: Philippines
Third parties: Australia, China, Colombia, EU, India, Mexico, Thailand, Taiwan
Dispute stage: Appellate Body
Agreements cited: Art. III:2  GATT 1994

PHILIPPINES – TAXES ON DISTILLED SPIRITS

Reports of the Panel

The present document contains the two reports of the Panel in the disputes WT/DS396 and
WT/DS403. The document comprises a common c over page, a common Descriptive Part and a
common set of Findings in relation to the complainants' claims. This document also contains
Conclusions and Recommendations that, unlike the Descriptive Part and the Findings, are separate for
each of the complainants. Specifically, in the Conclusions and Recommendations, separate document
numbers/symbols have been used for each of the complainants (WT/DS396 for the complaint brought
by the European Union and WT/DS403 for the complaint brought by the United States).

I. INTRODUCTION
A. REQUEST FOR CONSULTATIONS
1.1 On 29 July 2009, the European Uni on (then the European Communities 1), and on
14 January 2010, the United States, separately re quested consultations with the Philippines pursuant
to Article XXII of the General Agreement on Ta riffs and Trade 1994 ("GATT 1994") and Article 4 of
the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") with
respect to the taxation of imported distilled spirits by the Philippines. 2 The United States and the
European Union each requested to be joined in the consultations requested by the other Member. The
Philippines accepted the requests of both the United States and the European Union to join the
consultations.3
1.2 Consultations were held between each co mplaining party and the Philippines. The
European Union and the Philippines held their co nsultations on 8 October 2009 in Manila. The
United States and the Philippines held their c onsultations on 23 February 2010 in Geneva. The
United States and the European Union each atte nded the consultations requested by the other
Member. These consultations did not lead to a mutually satisfactory resolution of the dispute.4
B. ESTABLISHMENT AND COMPOSITION OF THE PANEL
1.3 On 10 December 2009, the European Union, and on 26 March 2010, the United States,
requested the Dispute Settlement Body ("DSB") to establish a panel pursuant to Articles 4 and 6 of
the DSU, with standard terms of referen ce as set out in Article 7.1 of the DSU. 5 At its meetings on

1 The European Union's request for consultations was filed before the entry into force of the Treaty of
Lisbon amending the Treaty on European Union and the Treaty establishing the European Community (done at
Lisbon, 13 December 2007). On 30 November 2009, the World Trad e Organization received a Verbal Note
(WT/L/779) from the Council of the European Union and the Commission of the European Communities stating
that, by virtue of the Treaty of Lisbon, as of 1 December 2009, the "European Union" replaces and succeeds the
"European Community". On 13 July 2010, the World Trade Organization received a Verbal Note (WT/Let/679)
from the Council of the European Union confirming that , with effect from 1 D ecember 2009, the European
Union replaced the European Community and assumed all the rights and obliga tions of the European
Community in respect of all Agreements for which the Di rector-General of the World Trade Organization is the
depositary and to which the European Community is a si gnatory or a contracting party. We understand the
reference in the Verbal Notes to the "European Communi ty" to be a reference to the "European Communities".
Thus, we will refer to the European Union in these reports.
2 Philippines – Distilled Spirits, Request for Consultations by the European Communities
(WT/DS396/1), 30 July 2009; and Request for Consultations by the United States (WT/DS403/1), 18 January
2010. In addition to Article 4 of the DSU, the European Union also cited Article 1 of the DSU as a basis for its
request for consultations.
3 See Philippines – Distilled Spirits, Request to Join Consultations: Communication from the United
States (WT/DS396/2), 12 August 2009 ; Acceptance by the Philippines of the Request to Join Consultations
(WT/DS396/3), 27 August 2009: Request to Join Consultations: Communication from the European Union
(WT/DS403/2), 29 January 2010; and, Acceptance by the Philippines of the Request to Join Consultations
(WT/DS403/3), 3 February 2010.
4 Philippines – Distilled Spirits, Request for the Establishment of a Panel by the European Union
(WT/DS396/4), 11 December 2009, attached as Annex G-1 of the reports; and Request for the Establishment of
a Panel by the United States (WT/DS403/4), 29 March 2010, attached as Annex G-2 of the reports. See also
European Union's first written submission, paras. 4-5 and 7; United States' first written submission, para. 4;
United States' comments on the draft descriptive sections of the Panel Reports (6 April 2011).
5 Philippines – Distilled Spirits, Request for the Establishment of a Panel by the European Union
(WT/DS396/4), 11 December 2009; an d Request for the Establishment of a Panel by the United States
(WT/DS403/4), 29 March 2010.

19 January and 20 April 2010, the DSB established a single Panel for both complaints in accordance
with Articles 6 and 9 of the DSU.
6
1.4 The Panel's terms of reference are the following:
"To examine, in the light of the relevant provisions of the covered agreements cited
by the parties to the dispute, the matter referred to the DSB by the European Union
and the United States in documents WT/DS396/4 and WT/DS403/4 and to make such
findings as will assist the DSB in making the recommendations or in giving the
rulings provided for in those agreements."7
1.5 On 25 June 2010, pursuant to Article 8.7 of the DSU, the European Union and the
United States requested the Director-General to de termine the composition of the panel. On 5 July,
the Director-General composed the Panel as follows:
 Chairman: Mr Eirik Glenne

 Members: Mr Minn Naing Oo
 Ms Claudia Orozco

1.6 Australia, China, Colombia, the European Uni on, India, Mexico, Chinese Taipei, Thailand,
and the United States, reserved their rights to participate in the Panel proceedings as third parties.
8
C. PANEL PROCEEDINGS
1.7 On 14 July 2010, the Panel held its organizational meeting with the parties to seek their views
on the proposed timetable and working procedures. At this meeting, the Philippines proposed
language to be added to the draft working pr ocedures with respect to the protection of
business confidential information ("BCI"). The comp lainants made a number of comments on this
proposal.
1.8 On 28 July 2010, taking into consideration the comments made by the parties both during and
after the organizational meeting, the Panel adopt ed its timetable and working procedures. On
31 August, the Panel also adopted additional working procedures concerning BCI.9
1.9 The Panel received written submissions from the complainants and the Philippines on
2 September and 14 October 2010, respectively. In accordance with the Panel's working procedures,
each party submitted an executive summary of its written submission. Australia and Mexico filed
third-party written submissions on 25 October. Au stralia submitted an exec utive summary of its
third-party written submission.

6 See minutes of DSB meetings held on 19 January 2010 and on 20 April 2010 (documents
WT/DSB/M/278 and WT/DSB/M/282, respectively).
7 Philippines – Distilled Spirits, Constitution of the Panel Established at the Requests of the European
Union and the United States: Note by the Secretariat (WT/DS396/5 and WT/DS403/5).
8 The European Union and the United States reserved their rights to participate as third parties with
respect to each other's complaints; Colombia is a third party with respect to the dispute brought by the
United States (WT/DS403). See Philippines – Distilled Spirits, Constitution of the Panel Established at the
Requests of the European Union and the United Stat es: Note by the Secr etariat (WT/DS396/5 and
WT/DS403/5).
9 The Panel's working procedures and the Panel's a dditional working procedures concerning business
confidential information are attached as Annexes G-3 and G-4, respectively, of the reports.

1.10 The Panel held its first substantive meeting w ith the parties on 17 and 18 November 2010. It
met with the third parties on 18 November; in th is meeting, Australia, India, and Chinese Taipei
delivered oral statements. On 23 November, the Pa nel sent written questions to the parties and the
third parties. On 8 December, the Panel recei ved responses to the questions from the European
Union, the United States, the Philippines, Australia, India, and Mexico.
1.11 Parties filed their written rebuttals on 22 Dece mber 2010. In accordance with the Panel's
working procedures, each party submitted an executive summary of its written rebuttal.
1.12 The Panel held its second substantive mee ting with the parties on 9 February 2011. 10 O n
15 February, the Panel sent written questions to the pa rties. On the same date, the Philippines sent a
written question to the European Union. On 24 February, the Panel received responses to the
questions from the European Union, the United States and the Philippines. On 3 March, the European
Union and the United States submitted comments on the Philippines' replies, and the Philippines
submitted comments on the European Union's and the United States' replies.11
1.13 On 23 March 2011, the Panel issued the draft descriptive (factual and arguments) sections of
its reports. On the same date, Australia, India, Mexico and Chinese Taipei were sent excerpts from
the descriptive sections containing the summary of th eir respective arguments. On 6 April, the Panel
received comments from the European Union, the United States and the Philippines on the draft
descriptive sections of the reports. It also r eceived comments from Australia on the summary of its
own arguments.
1.14 The Panel issued its interim reports to the parties on 4 May 2011. On 25 May, the European
Union, the United States and the Philippines request ed the Panel to review precise aspects of the
interim reports. On 8 June, the parties subm itted written comments on each other's comments and
requests for interim review. Neither party requested an interim review meeting with the Panel.
1.15 The Panel issued its final reports to the parties on 27 June 2011.

10 At the second substantive meeting, the European Union and the United States requested the Panel to
issue separate reports for each of the disputes in a single document. They further suggested that this document
should contain the conclusions and recommendations for each of the disputes on separate pages, with each page
bearing only the report symbol relating to that dispute. The Philippines did not object to such request. The
Panel's findings are therefore issued in the form of a single document, containing two separate reports. The
Panel's conclusions and recommendations for each of the di sputes are set out on separate pages, with each page
bearing only the report symbol relating to that dispute.
11 In its comments on the Philippines' responses to Panel questions, the European Union submitted
exhibit EU-118, and asserted the existence of "good cause", pursuant to paragraph 12 of the Panel's working
procedures, for submitting this document at that stage. On 4 March 2011, the Panel invited the Philippines and
the United States to comment on the submission of exhibit EU-118 by the European Union. In response to the
Panel's invitation, on 9 March the Philippines and the United States provided comments on exhibit EU-118. In
their respective comments, the Philippines and the United States did not object to the filing of the document in
exhibit EU-118.

II. FACTUAL ASPECTS
12
A. THE EXCISE TAX
2.1 The measure at issue in the present case is de fined by the European Union as "the excise tax
regime in force in the Philippines with respect to distilled spirits", or simply the "excise tax regime". 13
Similarly, the United States refers to the measure at issue as the "Philippines tax system for distilled
spirits."14 For ease of reference, we will refer to th e measure at issue as the "excise tax". As
described by the complainants in their respective panel requests, the "excise tax" is regulated through
the following instruments:
(a) Section 141 of the National Internal Revenue Code of 1997, Republic Act No. 842415,
as subsequently amended, particularly by Section 1 of Republic Act No. 933416;
(b) Republic Act No. 8240, an Act amending Sections 138, 139, 140 and 142 of the
National Internal Revenue Code, as amended, and for other Purposes17;
(c) Revenue Regulations No. 02-97 Governing Excise Taxation on Distilled Spirits,
Wines and Fermented Liquors, implementing the relevant provisions of Republic Act
No. 824018;
(d) Revenue Regulations No. 17-99, Implemen ting Sections 141, 142, 143 and 145(A)
and (C) (1), ( 2), (3) and (4) of the Nati onal Internal Revenue Code of 1997 relative
to the Increase of the Excise Tax on Dis tilled Spirits, Wines, Fermented Liquors and
Cigars and Cigarettes Packed by Machine by Twelve Per Cent (12%) on 1 January
200019;
(e) Revenue Regulations No. 9-2003 Amendi ng Certain Provisions of Revenue
Regulations No. 1-97 and Revenue Regula tions No. 2-97 Relative to the Excise
Taxation of Alcohol Products, Cigars and Cigarettes for the Purpose of Prescribing
the Rules and Procedures To Be Observed in the Establis hment of the Current Net
Retail Price of New Brands and Variants of New Brands of Alcohol and Tobacco
Products20;
(f) Revenue Regulations No. 23-2003 Implementing the Revised Tax Classification of
New Brands of Alcohol Products and Variants Thereof Based on the Current Net

12 This section describes the evidence before the Panel. It includes uncontested facts, as well as factual
arguments presented by one or more of the parties that are contested, with the Panel's assessment of those
arguments. The Panel used these facts and its factual findings to draw legal conclusions on the claims before it.
Those legal conclusions are set forth in Section VII of these reports.
13 Philippines – Distilled Spirits, Request for the Establishment of a Panel by the European Union
(WT/DS396/4), 11 December 2009, p. 1. See also European Union's first written submission, para. 11.
14 See e.g. United States' first written submission, para. 8.
15 Exhibits EU-1 and US-1.
16 Exhibits EU-2, US-2 and PH-4.
17 Exhibits EU-3, US-3 and PH-31.
18 Exhibits EU-4 and US-4.
19 Exhibits EU-5 and US-5.
20 Exhibits EU-6 and US-6.

Retail Prices Thereof as Determined in the Survey Conducted Pursuant to Revenue
Regulations No. 9-200321;
(g) Revenue Regulations No. 12-2004 Providing for the Revised Tax Rates on Alcohol
and Tobacco Products introduced on or before 31 December 1996, and for those
Alcohol and Tobacco Products Covered by Revenue Regulations No. 22-2003 and
23-2003, Implementing Republic Act No. 933422; and,
(h) Revenue Regulations No. 3-2006 Prescribing the Implementing Guidelines on the
Revised Tax Rates on Alcohol and Tobacco Products Pursuant to the Provisions of
Republic Act No. 9334, and Clarifying Cert ain Provisions of Existing Revenue
Regulations Relative Thereto.23
2.2 Under the excise tax, taxes are collected on di stilled spirits in accordance with the criteria
set out in Section 141 of the Philippines' National Internal Re venue Code of 1997 (the "NIRC"), as
amended.24 In essence, the excise tax creates a system that combines specific and ad valorem taxes.25
2.3 Distilled spirits produced from the sap of the nipa, coconut, cassava, camote, or buri palm, or
from juice, syrup or sugar of the cane (the designated raw materials) fall under Section 141(a) of the
NIRC, and are subject to a flat tax rate. 26 Section 141(a) also requires that the "designated raw
materials" be "produced commercially in the country where they ar e processed into distilled spirits".27
The excise tax rates under Section 141 have been periodically increased since this provision was

21 Exhibits EU-7 and US-7.
22 Exhibits EU-8 and US-8.
23 Exhibits EU-9 and US-9.
24 Section 141 of the NIRC was enacted by Republic Act 8424 of 1997, as amended by Republic Act
9334 of 2004, which gives this provision its current text. See exhibits EU-1, US-1 and EU-3, US-3, PH-4,
respectively.
25 Until 1996, and with the exception of a brief period between 1985 and 1987 (when an ad valorem tax
applied to "compounded liquor"), the Philippines always had a pure specific tax system for distilled spirits. In
1996, when Republic Act 8240 introduced for the first time the three-tiered tax rates based on the net retail price
of spirits made from "other raw materials" , the current system combining a specific and ad valorem tax was
created. European Union's first written submission, pa ras. 18–19; Philippines' first written submission,
paras. 30-33. But see Philippines' comments on the draft descriptive sections of the Panel Reports
(6 April 2011).
26 European Union's first written submission, para. 15; United States' first written submission, para. 11;
Philippines' first written submission, para. 22. The Philippines has generally referred in its submissions to these
spirits as "sugar-based spirits". It has referred to distilled spirits produced from other raw materials as
"non-sugar-based spirits". We note, however, that all distilled spirits, irrespective of the raw material on which
they are based, are made from the fermentation of sugars. See 2.23 below. See also European Union's response
to Panel question No. 11, paras. 1-2; United States' opening statement at second substantive meeting, paras. 7-8;
United States' response to Panel question No. 11, paras. 1-2; Philippines' first written submission, footnote 8 to
para. 10; Philippines' response to Panel question No. 11. Accordingly, we will refer to distilled spirits made
from the "designated raw materials" and to distilled spirits made from "other raw materials". Parties have also
referred to sugar cane molasses, which is a juice or syru p of the cane and would therefore be a designated raw
material.
27 European Union's first written submission, para. 12; United States' first written submission, para. 11;
United States' second written submission, para. 47; Ph ilippines' response to Panel question Nos. 60 and 68.
Unlike the "raw material" requirement, which has existe d under Philippine law as far back as 1914 (with the
enactment of Act 2339 – exhibit PH-9), the "commercially produced" requirement was introduced for the first
time in 1983 (with the enactment of Executive Order 923 – Exhibit PH-3). European Union's first written
submission, para. 17; Philippines' first written submission, footnote 13 to para. 19 and paras. 26-29.

enacted in 1997.
28 As from 1 January 2011, spirits falling under Section 141(a) are subject to a flat
tax rate of Philippine Pesos (PHP) 14.68 per proof litre ("ppl").
2.4 Distilled spirits produced from raw materials ot her than those indicated above (other raw
materials) fall under Section 141(b) of the NIRC, which provides for three tax rates that apply
depending on the "net retail price" ("NRP") 29 of a 750 millilitres (ml) bottle of the spirit. 30 As from
1 January 201131, spirits falling under Section 141(b) are subject to a tax of:
(a) PHP 158.73 ppl, if their NRP is less than PHP 250.00;
(b) PHP 317.44 ppl, if their NRP is PHP 250.00 up to PHP 675.00; or,
(c) PHP 634.90 ppl, if their NRP is more than PHP 675.00.
2.5 All the rates under Section 141 are set in "proof litres". 32 Because distilled spirits have
different alcohol contents (proof) and bottle volum es, the appropriate excise tax applicable to a
particular spirit will vary depending on these factors.33

28 Republic Act 8424 of 1997 determined that the tax rates under Section 141 were to be increased
12 per cent as from January 2000. Subsequently, Republic Act 9334 of 2004 increased the tax rates by between
30 per cent (for spirits from "designated raw materials") and 50 per cent (for spirits from "other raw materials")
compared to the previous year. Republic Act 9334 also determined that the tax rates were to be increased
8 per cent "every two years starting on January 1, 2007 until January 1, 2011." See also Revenue Regulations
3-2006, pp. 7-8 (exhibits EU-9 and US-9), which contains a table indicating all the Section 141 tax rate
increases for 2005, 2007, 2009, as well as the current rates for 2011. European Union's first written submission,
paras. 13, 14 and 19; United States' first written submission, para. 12.
29 The NRP is determined by the Philippines' Bureau of Internal Revenue ("BIR") through a
price survey conducted by itself or by the National Statistics Office. For brands marketed within Metro Manila,
the NRP is the price at which the distilled spirit is sold on retail in at least 10 major supermarkets in Metro
Manila, excluding any applicable excise and value-added taxes. For brands marketed outside Metro Manila, the
NRP is that at which the distilled spirit is sold in at least 5 major supermarkets in the region, excluding any
applicable excise and value-added taxes. See Republic Act 9334 of 2004, Sec. 1, page 3, in exhibits EU-2, US-
2 and PH-4. See European Union's first written submission, para. 20; United States' first written submission,
30 European Union's first written submission, para. 15; United States' first written submission, para. 11;
31 The excise tax rates under Section 141 have been periodically incr eased since this provision was
enacted in 1997. See footnote 28, above.
32 Under Philippine law, a "proof litre" is defined as a "liquor containing one-half (½) of its volume of
alcohol of a specific gravity of seven thousand nine hundred and thirty-nine ten thousandths (0.7939) at fifteen
degrees centigrade (15 C)." Republic Act 9334, Sec. 1, page 3, in exhibits EU-2, US-2 and PH-4. See also
European Union's first written submission, footnote 18 to para. 15.
33 This means that the more alcohol content and volume a bottle of a given distilled spirit has, the
higher the applicable tax will be. The applicable tax of a particular bottle can be determined by using the
following formula:

Tax Rate x % of alcohol x 2 x Bottle Volume = Tax

So, for example, under the current Section 141(a) rate of PHP 14.68 per proo f litre, the excise tax on a
750 ml bottle of local White Castle Whisky, made from designated raw materials (in this case, cane sugar),
80 per cent proof (or 40 per cent alcohol), would be calculated as follows:

14.68 x (40/100) x 2 x (750/1000) = PHP 8.81

2.6 With respect to the requirement in Section 141(a) that the "designated raw materials" be
"produced commercially in the country where they are processed into distilled spirits", the Philippines
explained that "there should be no restriction as to the origin of the raw materials used in production,
so long as they are also produced commercially in the country where the distilled spirit is
manufactured."34 This means that under the measure , imported distilled spirits made from
"designated raw materials" may fall under Section 141(a) or Section 141(b) depending on the country
where the distilled spirit (the ethyl alcohol or the finished product, as the case may be) is
manufactured.
35
2.7 More specifically, distilled spirits (including ethyl alcohol) made from "designated raw
materials" and imported from c ountries where these raw materi als are "produced commercially"
would be subject to the flat tax rate under Section 141(a). This is the case even if the "designated raw
material" used to produce the sp irit came from a third country. 36 Likewise, a distilled spirit made
from "designated raw materials" and imported into the Philippines from a country which does not
produce the designated raw materials commercially w ould still be subject to the flat tax rate under
Section 141(a) if the ethyl alcohol on which the spirit is based was distilled in a third country where
the designated raw materials are produced commercially.37
2.8 The transformation of the designated raw materi als into distilled spirits (including ethyl
alcohol) in countries where these raw materials are not "produced commercially" would not allow the
resulting spirits to enjoy the flat tax rate under Section 141(a); these spirits are instead subject to one
of the three tax rates under Section 141(b).38 This will be the case even if the "designated raw
material" used to produce the sp irit came from a third country where the material is indeed
"produced commercially".39
2.9 Based on the above criteria, each brand of distille d spirit sold in the Philippines is classified
as falling under Section 141(a) or (b) by the Philippine Bureau of Internal Revenue ("BIR") according
to its constituent raw material and, if applicable, its NRP. Spirits that are not made from "designated
raw materials", or that are made in countries where these materials are not "produced commercially",

The excise tax on a 750 ml bottle of imported Jim Beam Black Whiskey , made from other raw
materials, 86 per cent proof (or 43 per cent alcohol), would be calculated as follows:

317.44 x (43/100) x 2 x (750/1000) = PHP 204.75

See United States' first written submission, para. 14 (submitting identical examples, but based on the
2009 applicable tax rates).
34 Philippines' response to Panel question No. 60. S ee also European Union's first written submission,
para. 20; European Union's second written submission, paras. 15-17.
35 See Philippines' response to Panel question Nos. 60 and 68.
36 See e.g. United States' second written submission, para. 46. See Philippines' response to Panel
question No. 60 (submitting two BIR rulings: a 1997 BIR ruling with respect to rum imported from Trinidad
and Tobago, in which this country was considered to be a sugar cane producer, and a 2007 BIR ruling with
respect to rum imported from France, which was also considered to be a sugar cane producer country because
the rum came from Martinique, a French territory in the We st Indies). See exhibits PH-62 and PH-71. See also
European Union's second written submission, footnote 14 to para. 16.
37 See Philippines' response to Panel question No. 68. See also the European Union's comments on the
Philippines' response to Panel question No. 68, para. 5.
38 See European Union's second written submission, para. 16; European Union's comments on
Philippines' response to Panel question No. 68, paras. 4-9; Philippines' response to Panel question No. 60.
39 Philippines' response to Panel question Nos. 60 and 68. See also European Union's comments on
Philippines' response to Panel question No. 68, paras. 4-9.

need to have their NRP established so as to be cl assified under one of the three rates indicated in
Section 141(b).
40
2.10 With respect to the payment of Section 141 excise taxes, the following situations may arise.
If a domestic producer buys ethyl alcohol made from "designated raw materials" from a domestic
supplier in order to manufacture spirits, the latter is liable to pay the Section 141(a) tax on the ethyl
alcohol. Alternatively, if a domestic producer im ports such ethyl alcohol (made from the designated
raw materials in a country where these ma terials are produced commercially), the Section 141(a) tax
on this product has to be paid to Customs by the "owner or importer" before the good can be
released.41 Finally, with respect to certain spirits that contain more than one material, Section 141
provides that the excise tax is paid on the component of the mixture, and not on the mixture itself. 42
The Philippines explains that:
"If the beverage producer imports non-sugar based ethyl alcohol or distilled spirits for
blending to make into a whisky or brandy for instance, whether straight, blended or
compound spirits, the excise tax under 141 (b) is paid before the goods can be
released from the Philippine customhouse.
Hence, the amount of excise tax on a par ticular product depends on the ratio of
sugar-based to non-sugar based spirit (whe ther 99:1, 90:10; 60:40, 10:90, etc.)
contained in the blend or the compound of a distilled spirits product."
43
2.11 The classification and applicable tax of "existi ng brands" and "new brands" of distilled spirits
is generally indicated in the anne xes to relevant acts and regulations. These annexes are presented in
the form of separate tables for spirits made from "designated raw materials" and for spirits made from
other raw materials. These tables contain inter alia the following information: the brand name of the
spirit, its bottle size (in ml), its proof litre, its NRP.44
2.12 "Existing brands" include those brands that were registered before 1 January 1997, the
classification of which, if applicable, was based on the NRP of these products as of 1 October 1996. 45
Many, but not all, of the "existing brands" are listed in Annex A to Republic Act No. 8240 46 and

40 United States' first written submission, para. 15; Philippines' response to Panel question No. 47.
41 Philippines' response to Panel question Nos. 59 and 69(a)-(c). See Sections 130 and 131 of the
NIRC, in exhibit PH-79.
42 Section 141 states that "... the tax should attach to [the] substance as soon as is in existence as such,
whether it be subsequently separated as pure or impure spirits, or transformed into any other substance either in
the process of original production or by any subsequent process." So, for example, a whisky from 90 per cent
straight whisky and 10 per cent sugar cane neutral spirit would be taxed as follows: the 90 per cent straight
whisky component would be subject to one of the three Section 141(b) taxes, while the 10 per cent sugar cane
neutral spirit component would fall under the Section 141(a) flat tax. See Philippines' response to Panel
question Nos. 24 and 25.
43 Philippines' response to Panel question No. 69(a).
44 The Annexes that contain the classification of spirits falling under Section 141(b) are further divided
into three sub-categories of spirits: "Premium" (high-pr iced); "De Luxe" (medium priced); and, "Standard"
(Low-priced). See European Union's first written submissi on, para. 20; Philippines' response to Panel question
No. 65.
45 Philippines' response to Panel question No. 65. See also Republic Act 8240 in exhibits EU-1 and
US-1.
46 Republic Act 8240 in exhibits EU-1 and US-1, in which the taxation of distilled spirits was based on
Section 138 (later replaced by Section 141).

Revenue Regulations 2-97.47 "New brands" refer to those brands that were registered and classified
after 1 January 1997.48
2.13 Revenue Regulations 23-200349 and Revenue Regulations 12-2004 50 are the two most recent
public listings of "existing brands" and "new brands". Revenue Regulations 23-2003 implemented the
revised tax classifications of certain "new brands", including variants thereof. 51 Revenue
Regulations 12-2004 set out the new revised tax rates (based on Republic Act 9334) of all "existing
brands" that were classified under Section 141(a)52 and also include the rates for a number of
additional "existing brands" that were not published before.53 There is no updated, comprehensive list
of brands which were introduced after 31 December 2003.54
2.14 In the case of "new brands" of imported distilled spirits, the "suggested" NRP of spirits falling
under Section 141(b) is ascertained based on a "sworn statemen t" by the importer. Such "suggested"
NRP is later analysed and validated by the BIR.55

47 Revenue Regulations 2-97 in exhibits EU-1 and US-1. According to Republic Act 9334, "existing
brands" are not only those set forth in "Annex A" of that Act, but also those that "were registered and were
being commercially produced and marketed on or after October 1, 1996, and which continue to be commercially
produced and marketed after the effectivity of this Ac t ..." See Republic Act 9334, in exhibits EU-2, US-2
and PH-4.
48 The effective date of Republic Act 8240 is 1 January 1997. "New brands" are defined in Republic
Act 9334 (exhibits EU-2, US-2 and PH-4) and Revenue Regulations 3-2006 (exhibits EU-9 and US-9).
49 Revenue Regulations 23-2003 in exhibits EU-7 and US-7.
50 Revenue Regulations 12-2004 in exhibits EU-8 and US-8. See also United States' first written
submission, paras. 68-69.
51 Such revision was based on a nationwide survey of current NRP conducted by the BIR pursuant to
Revenue Regulations No. 9-2003. See Philippines' first written submission, para. 173; Philippines' response to
Panel question No. 65.
52 These 24 brands were originally listed in "Annex A" of Republic Act No. 8240.
53 See Philippines' response to Panel question No. 65.
54 Ibid.
55 Philippines' response to Panel question Nos. 47 and 66. Revenue Regulations 3-2006, in exhibits
EU-9 and US-9, set out the procedure for the submission of the importer's sworn statement and the
determination of the NRP. More specifically, as explained by the Philippines, Section 23 of said regulations:

" ... provides that prior to the importation of a ne w brand or a variant of an existing brand, an
application for registration thereof must be filed with th e office of the BIR where the importer is registered or
required to be registered as an excise taxpayer. Th e application must be accompanied by, inter alia, a duly
notarized importer's sworn statement for each brand an d variant of the brand showing, among others, the
following information: Name, address, tax identification number and assessment number of the importer;
Complete root name of the brand as well as the comple te brand name with modifiers, if any; Complete
specifications of the brand detailing the specific measurements, weights, manner of packaging, etc.; Name(s) of
the region(s) where the brand is/are to be marketed; Wh olesale price per case, gross and net of value added tax
(VAT) and excise tax; Suggested retail price, gross and net of VAT and excise tax, per bottle; Detailed
importation costs and all other expenses incurred or to be incurred until the product is finally sold (e.g.
materials, labor, overhead, selling and administrative expenses) per case; Applicable rate of excise tax per unit
of measure or value, as the case may be; and Corresponding excise and VAT per case. The importer must
submit thereafter an updated sworn statement of the brand on or before the end of the months of June and
December of the year. Within 45 days immediately afte r the end of 3 months from the product launch, the BIR
or the National Statistics Office (NSO), when deputized by the BIR for the purpose, shall conduct a price survey
to validate the suggested net retail price of the new brand as declared in the importer’s sworn statement, against
the surveyed net retail price. Based on the results of the price survey, the BIR sha ll determine the correct tax
bracket to which such brand of alcohol shall be classified. A further review is conducted after the end of 18
months from the initial validation, in order to determine the proper tax bracket to which such brand shall be
classified."

2.15 Once a specific brand is classified as falling under Section 141(a) or (b), the reclassification
of that brand is not foreseen and therefore may not occur, except through an Act of Congress.
56 With
respect to spirits falling under Section 141(b) , reclassification in a different tax tier is not foreseen,
even when the NRP of the spirit concerned changes after the original classification has been made.57
2.16 In case an importer of a spirit falling under Section 141 considers that the classification of
such spirit has not been made correctly, the Philippines explains that:
"The affected taxpayer may request a ruling from the Commissioner of Internal
Revenue (the head of the Bureau of Internal Revenue) for the proper tax treatment of
the product. Section 4 of the NIRC provides that the 'power to interpret the
provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner [of Internal Revenue], subject to review by the
Secretary of Finance.' Rulings interpreting the provisions of the NIRC are issued by
the Commissioner of Internal Revenue unde r the power granted to the Commissioner
pursuant to this section. In case of an adverse ruling by the Commissioner, the
taxpayer may seek the review of such ruling by the Secretary of Finance."
58
2.17 According to the evidence, all distilled spirits produced in the Philippines are made from
designated raw materials and the base spirit has been processed from the designated raw materials
either in the Philippines or in other countries wh ere those raw materials are produced commercially.
More specifically, and as it will be further described below 59, most of the distilled spirits produced in
the Philippines are made from one particular designated raw material: sugar cane molasses. 60
Accordingly, all distilled spirits produced in the Philippines are s ubject to the current Section 141(a)
flat tax rate of PHP 14.68 ppl. In contrast, the vast majority of distilled spirits imported into the
Philippines are made from other raw materials and are thus subject to one of the three current tax rates

56 See Sections 4 and 5 of Revenue Regulations 3-2006. See also European Union's first written
submission, para. 20; United States' first written submi ssion, para. 16; Philippines' first written submission,
para. 306; Philippines' response to Panel question No. 66.
57 Philippines' first written submission, para. 306; Philippines' response to Panel question No. 66.
58 Philippines' response to Panel question No. 67 (also submitting exhibit PH-78, containing
Department Order 7-02, which provides for implementing rules for the relevant part of Section 4 of the NIRC).
See also European Union's comments on Philippines' response to Panel question No. 67, paras. 1-3;
United States' comments on Philippines' response to Panel question No. 67, paras. 1-2.
59 See paras. 2.61, 2.68, 2.74, 2.80, 2.86 and 2.92 below.
60 There are however domestic distilled spirits that are made from designated raw materials other than
sugar cane molasses (i.e. from the sap of the nipa, coconut, cassava, camote, or buri palm) One example of
such a product is " lambanog", a local spirit made from coconut. European Union's first written submission,
footnote 19 to para. 15; European Union's first written submission, para. 20; European Union's opening
statement at first substantive meeting, para. 58; Philippi nes' first written submission, para. 51; exhibits EU-41,
EU-81 and PH-8. According to an estimate provided by the United States, sales of lambanog represented
approximately 0.011 per cent by volume, and 0.004 per cent by value, of total sales of distilled spirits in the
Philippines in the year 2008. See tables 1 and 2 in exhibit US-40. Spirits made from the sap of the nipa,
camote, or buri palm are not produced in the Philippines in commercial quantities and are only limited to
artisanal producers. Philippines' response to Panel question No. 20; European Union's opening statement at
second substantive meeting, para. 68; exhibit EU-81. Pointing to exhibits EU-45 and EU-105, the European
Union suggests that there is evidence that other raw materials (such as camote) are currently used by Philippine
manufacturers in the production of distilled spirits. S ee European Union's comments on the draft descriptive
sections of the Panel Reports (6 April 2011). Exhibits EU-45 and EU-105 contain excerpts from the 2008 and
2009 annual reports of a local manufact urer. The excerpts suggest that the manufacturer is exploring options to
produce alcohol from agricultural raw materials other than sugar cane molasses and is showcasing opportunities
for local farmers. There is no evid ence in any of these exhibits that raw materials other than sugar cane
molasses are currently used by Philippine distilled spirits producers in commercial quantities.

under Section 141(b): PHP 158.73 ppl, PHP 317.44 ppl or PHP 634.90 ppl, depending on their
NRP.61
B. PRODUCTS AT ISSUE
1. Products at issue
2.18 In both the European Union's and the United St ates' panel requests the relevant products are
defined as "distilled spirits".62
2.19 The European Union provides further details on the products at issue:
"[D]istilled spirits falling within the headi ng 2208 of the Harmonised System (the
'HS'), including, among others, whisky, gin, brandy, rum, vodka, tequila, liqueurs.
These products will be collectively referred to as 'distilled spirits' or as 'spirits'."63
2.20 In turn, the United States describes the products at issue thus:
"Distilled spirits are alcoholic beverages made 'from wine or other fermented fruit or
plant juice or from a starchy material (suc h as various grains) that has first been
brewed.' By heating the fermented or brew ed material, the alcohol is evaporated and
captured. This alcohol is the 'distilled spir it.' Distilled spirits are distinguished from
other alcoholic beverages, such as beer a nd wine, by the higher alcohol content.
Exhibit US-12, Encyclopedia Britannica Artic le on Distilled Spirits. Distilled spirits
fall under Heading 2208 of the Harmonized Tariff System, and they include many
types of spirits, such as gin, vodka, brandy, whiskey, tequila, rum, and liqueurs. See,
e.g., Exhibit US-13, Harmonized Tariff System."64
2.21 For the purpose of this dispute, we will refer to "distilled spirits" generally, or to specific
types of distilled spirits, such as gin, brandy, ru m, vodka, whisky, and tequila or tequila-flavoured
spirits. The Philippines has issued Standards Administrative Orders (SAOs) for brandy, rum, vodka,

61 European Union's first written submission, paras. 105 and 161; European Union's opening statement
at first substantive meeting, para. 81; United States' fi rst written submission, paras. 73 and 99; United States'
opening statement at first substantive meeting, para. 43-46; United States' opening statement at second
substantive meeting, para. 48; United States' response to Panel question No. 56, para. 56. According to the last
list of brand classification, contained in Revenue Regulation 12-2004, Annexes A and B (based on the 2011
Section 141 rates and adjusted ppl and bottle volume), the current amount of ex cise tax applicable to certain
brands of "local distilled spirits" made from designated raw materials in 750 ml bottles can range from PHP 6.86
(for Tanduay ESQ) to PHP 9.98 (for domestically-produced Gordon gin and Oxford gin). Conversely, the
current amount of excise tax applicable to certa in brands of "imported distilled spirits" made from
other raw materials in 750 ml bottles can range from PHP 85.71 ( Fundador and Veterano Osborne, both
brandies) to a maximum of PHP 409.51 (for Johnny Walker Blue Label, Johnny Walker, Old Parr, Swing and
Glenlivet, all whiskies). See exhibits EU-8 and US-8. See also United States' first written submission,
62 Philippines – Distilled Spirits , Request for the Establishment of a Panel by the European Union
(WT/DS396/4), 11 December 2009, p. 3. See also Eur opean Union's first written submission, para. 122.
Philippines – Distilled Spirits , Request for the Establishment of a Panel by the United States (WT/DS403/4),
29 March 2010, p. 1.
63 European Union's first written submission, para. 10 . See also European Union's response to Panel
question No. 64, paras. 1-3.
64 United States' first written submission, footnote 1 to para. 1.

and whisky detailing the standards that these products must meet to be sold in the Philippines under
each of these designations.
65
2. Characteristics of distilled spirits
2.22 In terms of physical characteristics, distilled spirits relevant in the present dispute are
concentrated forms of potable alcohol (suitable for human consumption) obtained through the process
of distillation.66 Combined, ethyl alcohol and water account for more than 99 per cent of the content
of all distilled spirits.67 The average alcohol content for distille d spirits relevant in the present dispute
ranges from around 25 per cent to 40 per cent by volume (or 50 to 80 US proof). Spirits of the same
category tend to have similar alcohol content.68
2.23 The production of distilled spirits starts with the fermentation of feedstock. Fermentation
results in the breakdown of sugars and the production of ethyl alc ohol (ethanol), carbon dioxide and
small amounts of other by-products. Feedstock for the production of ethyl alcohol can consist of any
raw material that contains natural sugar or other car bohydrates that can be converted into sugars (such
as sugar-cane, molasses, sugar beet, roots, juice of grapes, or mash of grains or cereals). 69 A f t e r
fermentation, the elaboration of spirits involves th e distillation of ethyl alcohol by boiling the product
and separating its components based on the differe nces in their respective volatilities. When the
different components evaporate, they are captured in separate containers. 70 Depending on the raw
material used, different congeners are naturally formed during the process of fermentation.
Congeners are chemical compounds associated with the flavour and aroma characteristic of specific
alcoholic beverages, such as acetal, acetaldehyde , ethyl acetate, isoamyl acetate, isoamyl alcohol,
isobutanol, methanol and n-propanol.71 Levels and combinations of various congeners vary according
to the type of spirit, and even according to the br and of the same spirit. As noted by the parties,
congeners may make up less than one per cent of the volume of the final product.72
2.24 In certain cases, the flavour and aroma of specific distilled spirits may depend on the raw
materials used in their production. The flavour and aroma may also be affected by post-distillation
processes such as ageing, blending, filtering, d iluting with water and incorporating additional

65 United States' first written submission, paras. 27-30.
66 European Union's first written submission, paras. 79 and 121; Philippines' response to Panel
question No. 11; exhibit EU-99.
67 European Union's first written submission, para. 79.
68 Ibid., para. 84. See also exhib its EU-55 and EU-79. Referring to an argument in its first written
submission, the Philippines contests our conclusion that spirits of the same category tend to have similar alcohol
content. See Philippines' first written submission, para . 136; Philippines' comments on the draft descriptive
sections of the Panel Reports (6 April 2011). The Philippines' argument, however, refers to differences in
alcohol content between a particular domestic whisky and imported whiskies. In our view, it does not affect our
general conclusion.
69 European Union's response to Panel question No. 11, paras. 1-2; European Union's second written
submission, para. 19; United States' response to Panel que stion Nos. 11 and 31, paras. 1-2 and 18; Philippines'
first written submission, paras. 100-101; Philippines' response to Panel question No. 11. See also exhibits
EU-84, US-12, PH-26 and PH-28.
70 United States' response to Panel question No. 11, paras. 1-2; Philippines' first written submission,
paras. 106-107; exhibit PH-28.
71 Philippines' first written submission, paras. 102-10 5, 138, 149 and 164; Philippines' response to
Panel question No. 11. See exhibits PH-26, PH-40 and PH-80.
72 European Union's second written submission, paras. 60-65; European Union's comments on
Philippines' response to Panel question No. 70, paras. 10-13; Philippines' opening statement at second
substantive meeting, para. 13; Philippines' response to Panel question No. 70; exhibits EU-92, PH-40 and
PH-80.

flavourings.73 Indeed, the trace of the original raw materi als in the taste of the final product may be
altered by the addition of natural or artificial flavourings.74
2.25 As explained below, the colour, odour and taste normally associated with certain types of
spirits, such as brandy, rum, whisky or tequila, are natural results of the distillation of ethyl alcohol
from certain raw materials, such as wine or fortified wine, sugar molasses, wheat, barley or malt, or
agave, respectively, and their respective process of production. For other types of spirits, such as gin
and vodka, the ethyl alcohol is normally stripped of its congeners, so as to obtain a neutral spirit. In
the Philippines, most types of spirits (such as gin, brandy, rum, vodka, whisky and tequila or
tequila-flavoured spirits) are distilled from s ugar cane molasses (one of the designated raw
materials).75 In the case of Philippine brandy, vodka, wh isky and tequila or tequila-flavoured spirits,
the ethyl alcohol is stripped of its congeners to pr oduce a neutral spirit. Sp ecial additives are then
incorporated into the cane sugar-based spirit in order to ensure, as much as possible, that it has the
colour, odour and taste traditionally associated with brandy, whisky or tequila.76
2.26 Different brands of spirits of the same type may have differences in taste and aroma, and a
consumer may prefer one product ove r another. However, there is no evidence to suggest that a
non-expert consumer would be able to distinguish between imported and domestic spirits of the same
type based only on the different raw ma terials used in their respective production. 77 Distilled spirits
relevant in the present dispute have colours that range from clear (transparent) to golden or
mahogany.
2.27 Many of the physiological effects on humans as sociated with the consumption of distilled
spirits, such as intoxication, are due to the pr esence of ethyl alcohol. These effects may vary
according to many factors, including the type and qua ntity of spirit consumed, the weight, gender and
age of the consumer, body chemistry, food in the stomach and drinking experience. There is no

73 European Union's first written submission, pa ra. 82; Philippines' first written submission,
paras. 108-110. But see Philippines' comments on the dr aft descriptive sections of the Panel Reports (6 April
2011).
74 Philippines' first written submission, paras. 108 and 112; exhibits PH-26 and PH-34.
75 The ethyl alcohol distilled from one of the designa ted raw materials and used by Philippine spirits
producers may be made in the Philippines or imported from another country. Philippines' first written
submission, para. 301.
76 European Union's second written submission, paras. 5-6; United States' response to Panel question
Nos. 21 and 23, paras. 11 and 13; Philippines' first written submission, paras. 11, 98, 118-119, 134, 141, 143
and 169; Philippines' response to Panel question Nos. 17, 20, 31 and 32. According to the Philippines, these
additives include "nature-identical flavourings", which ar e "chemically identical to natural flavourings but are
prepared or extracted using chemical methods. They are identical to the molecules found in nature and the body
cannot distinguish between them. Natu re identical flavouring substances include: ethyl acetate (identical in
nature to many fruits) and decanal (nature identical to orange)." Philippines' first written submission,
footnote 129 to para. 108.
77 European Union's response to Panel question Nos. 29 and 31, paras. 27-28 and 36-38; exhibits
EU-86 and PH-43. The Philippines refers to a statement in the Euromonitor International survey ("Consumer
perceptions regarding substitutability in the Philippines di stilled spirits market", in exhibits EU-41 and US-41,
p. 19), as evidence that non-expert consumers may be able to distinguish between imported and domestic spirits
based on the different raw materials used in their respective production. See Philippines' first written
submission, para. 130; Philippines' second written submi ssion, paras. 34-38; Philippines' response to Panel
question Nos. 29, 31 and 32; Philippines' comments on the draft descriptive sections of the Panel Reports
(6 April 2011). In our view, however, the consumers responses cited in the Euromonitor International survey
do not disprove our conclusion. Consumers consulted in this survey were not subject to a blind test, but were
rather expressing personal preferences, based on pe rceptions, between more-expensive imported spirits and
less-expensive domestic spirits.

evidence of any difference in this regard between imported and domes tic spirits, nor between spirits
made from the designated materials and those made from other materials.
78
2.28 Distilled spirits are normally bottled. Freque nt bottle presentations are 750 ml and 700 ml,
but also 375 ml, and 1,000 ml. 79 Bottles carry labels, which have d esigns that tend to be similar for
specific types of distilled spirits.80
2.29 The cost of the raw materials used in the pr oduction of the base spirit may bear little relation
with the price of the final product. Depending on the specific product, bottling, packaging, aging,
marketing and promotion can have a significant impact on the total cost.81
2.30 With respect to domestic regulations on distille d spirits in the Philippines, local ordinances
against drunk driving do not distinguish between im ported and domestic spirits, nor between spirits
made from the designated materials and those made fr om other materials. Nor is any such distinction
made in local ordinances with respect to "the sal e, dispensation and/or distribution of alcoholic
beverages".82
3. Distilled spirits market in the Philippines
2.31 According to figures submitted by the European Union, the population in the Philippines was
about 91,983,102 for the year 2009. 83 The Philippines has provided information on the income and
expenditure of Philippine households. By 2006, 45 per cent of the population earned less than
2 United States dollars a day. 84 In the same year, the poorest 30 per cent of the Philippine population
would have received 10 per cent of the total in come, while the richest 10 per cent would have
received 34 per cent of the income. 85 Food and non-alcoholic beverages would account for
42 per cent of household expenditures in the Philip pines; alcoholic beverages would account for
1.2 per cent.86

78 European Union's first written submission, para. 88; Philippines' first written submission, para. 175.
See also exhibit EU-50.
79 European Union's first written submission, para. 83. International Wine and Spirit Research (IWSR)
report in exhibits EU-15 and US-15, and exhibits EU-80 and PH-19.
80 European Union's first written submission, para. 83. See exhibits EU-55, EU-79 and US-38.
81 European Union's response to Panel question No. 77, paras. 19-20; European Union's comments on
the Philippines' response to Panel question No. 77, para s. 39-40; United States' response to Panel question
No. 77, paras. 9-13; Philippines' response to Panel question Nos. 76 and 77; Philippines' comments on the
European Union's and on the United States' responses to Panel question No. 77, paras. 14-16. Referring to its
response to questions 76 and 77 and to its comments on the European Union's and on the United States'
responses to question 77, the Philippines contests our conclusion that the cost of raw materials may bear little
relation with the price of the final product. See Phili ppines' comments on the draft descriptive sections of the
Panel Reports (6 April 2011). The Philippines' arguments regarding alleged differences in cost between spirits
made from the designated materials and those made from other materials, however, do not affect our general
conclusion regarding the price of final products, which depends also on other factors.
82 European Union's first written submission, paras. 90-91; European Union's opening statement at
second substantive meeting, para. 62; United States' firs t written submission, paras. 53-55. See also exhibits
EU-51, EU-52, EU-53, US-28, US-29.
83 European Union's first written submission, para. 4.
84 Philippines' first written submission, para. 42 ; exhibits PH-8 and PH-21 (figures in 2005
international prices, adjusted at purchasing power parity).
85 Philippines' first written submission, para. 42; exhibit PH-8.
86 Philippines' first written submission, para. 44; exhibit PH-8.

2.32 The following table, provided by the Philippines, divides the population in five on monthly
household expenditures. The bottom two classes, spending less than PHP 45 per week on alcoholic
beverages, would make up 72.7 per cent of the total Philippine population:87
Class by Household monthly income % of population Total monthly
expenditure (PHP)
Weekly expenditure on
alcoholic beverages (PHP)
AB (PHP 50,000 and more) 2.1 50,007 – 353,512 150 – 1,061
Upper C (PHP 30,001 – 50,000 5.5 30,022 – 49,979 90 – 150
Lower C (PHP 15,001 – 30,000) 19.7 15,001 – 29,997 45 – 90
D (PHP 8,001 – 15,000) 29.9 8,001 – 14,995 24 – 45
E (less than 8,000) 42.8 343 – 8,000 1 – 24

2.33 According to figures submitted by the United St ates, annual sales of distilled spirits in the
Philippines have risen "from just over 400 million lit ers to just under 600 million liters over the past
ten years [2000-2009], with the highest figures (in value as well as volume) in 2009". 88 As shown
below, in 2009 three types of distilled spirits (gin , brandy and rum) constituted 97.4 per cent of these
sales: gin represented some 36.8 per cent, brandy some 34.2 per cent and rum some 26.4 per cent.
The remaining 2.6 per cent of the Philippines' sal es were split between vodka, whisky, tequila or
tequila-flavoured spirits, and assorted local spirits.89

87 Philippines' response to Panel question No. 72; exhibits PH-8, PH-18 and PH-22. See also
Philippines' first written submission, pa ras. 44-46 and 181; Philippines' second written submission, paras. 50-
54. But see European Union's comments on the Philippines' response to Panel question No. 72, paras. 19-20;
United States' comments on the Philippines' response to Panel question No. 72, para. 12.
88 United States' first written submission, para. 31. See Euromonitor International , "Consumer
perceptions regarding substitutability in the Philippines di stilled spirits market", in exhibits EU-41 and US-41,
p. 11. See also United States' first written submission, para. 32, as well as the estimates in International Wine
and Spirit Research (IWSR) report in exhibits EU-15 and US-15.
89 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15. See also
Euromonitor International, "Country Sector Briefing" (March 2009), in exhibit US-40; European Union's first
written submission, para. 35; United States' first writte n submission, paras. 31-33; United States' second
written submission, para. 49; United States' response to Pa nel question No. 85, paras. 29-32; Philippines' first
written submission, para. 298. Referring to its comme nts on the European Union's and on the United States'
responses to Panel question No. 83, paras. 19-23, the Phil ippines contests our estimations on the relative shares
of the different spirits in its market. Philippines' comments on the draft descriptive sections of the Panel Reports
(6 April 2011). The Philippines, however, has not submitted alternative estimations on the relative shares of the
different spirits in its market. Furthermore, the Philip pines comments on responses to Panel question 83, refer
to the Euromonitor International study in exhibits EU-41 and US-41, and not to the International Wine and
Spirit Research (IWSR) report in exhibits EU-15 and US-1 5, on which our estimations are based. Indeed, in its
comments on responses to Panel question 83, the Philippines stated that the IWSR figures are "closer to the
Philippine industry figures than the Euromonitor's figures." Philippines' comments on the European Union's and
on the United States' responses to Panel question No. 83, para. 22.

Percentage distribution of distilled spirits sales in the Philippines in the year 2009
90

Gin (36.8%)
Brandy (34.2%)
Rum (26.4%)
Other spirits (2.6%)

2.34 According to estimates submitted by the Eur opean Union and the United States, domestic
products accounted for 97.7 per cent of spirits c onsumption in the Philippines during the year 2009,
while imported spirits accounted for the remaining 2.3 per cent of consumption.91
2.35 The European Union and the United States provi ded the following estimates to the Panel,
regarding the domestic consumption of distilled spirits in the Philippines during the year 2009, as well
as the percentage of imported spirits:92
 Gin Brandy Rum Vodka Whisky Tequila 93
Domestic consumption in 2009
(in thousands of 9-litre cases) 18,075 16,802 12,972 132 85 24
Percentage of imports 0.01% 5.4% 0.02% 28.44% 100% 94 100% 95

90 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15.
91 Ibid., p. 7. See also European Union's first written submission, para. 24; and United States' first
written submission, para. 33. But see Abrenica & Ducanes, "On Substitutability between Imported and Local
Distilled Spirits" (University of Philippines School of Economics Foundation), in exhibit PH-49, p. 14
(estimating that imported spirits would account for a 9.4 per cent market share in the Philippines in April 2010).
The Philippines contests our estimations on the relative sh ares of domestic and imported distilled spirits in its
market, referring to the impact that smuggling may have on the market share of imported spirits. Philippines'
comments on the draft descriptive sections of the Panel Reports (6 April 2011). See e.g. Philippines' first
written submission, para. 41. The Philippines, however, has not submitted alternative estimations on the relative
shares of domestic and imported dis tilled spirits in its market, nor on th e impact that smuggling may have on
those shares.
92 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15. See also
European Union's first written submission, para. 36. Refe rring to its response to Panel question No. 86, as well
as to its comments on the European Union's and on th e United States' responses to Panel question Nos. 83,
paras. 19-23, and 86, the Philippines contested our estimat ions on the domestic consumption of distilled spirits
in the Philippines, as well as the percentage of importe d spirits. Philippines' comments on the draft descriptive
sections of the Panel Reports (6 April 2011). The Philippines, however, has not submitted alternative
estimations. Furthermore, the Philippines comments on responses to Panel question No. 83, refer to the
Euromonitor International study in exhibits EU-41 and US-41, and not to the International Wine and Spirit
Research (IWSR) report in exhibits EU-15 and US-15, on which our estimations are based. Indeed, in its
comments on responses to Panel question 83, the Philippines stated that the IWSR figures are "closer to the
Philippine industry figures than the Euromonitor's figures." Philippines' comments on the European Union's and
on the United States' responses to Panel question No. 83, para. 22.
93 Includes tequila and tequila-flavoured spirits.
94 Imports represented almost 100 per cent of whisky consumption in the Philippines in the year 2009.
95 Imports represented almost 100 per cent of the consumption of tequilas and tequila-flavoured spirits
in the Philippines in the year 2009.

2.36 Generally speaking, imported brands tend to be more expensive in the Philippines (even
before taxes) than the corresponding domestic brands of the same type of spirit.96 However, as will be
noted below with respect to specific types of sp irits, there are a number of high-priced domestic
spirits, as well as less expensive imports.97
2.37 All gins, brandies, rums, vodkas, whiskies and te quilas or tequila-flavoured spirits made in
the Philippines are subject to the lower excise tax ra te as they are produced from sugar cane molasses,
one of the designated raw materials. 98 In contrast, imported gins, brandies, vodkas, whiskies and
tequilas sold in the Philippines are produced with raw materials ot her than those designated in the
challenged measure and are subject to higher tax rates. 99 In the case of imported rums, some products
such as Bacardí Superior (which represented 80 per cent of the imported rum consumed in the
Philippines in the year 2009) and Bardinet, are subject to the lower excise tax rate applicable to spirits
produced with designated raw materials 100, while some others, such as Havana Club and Myers's, are
subject to the higher excise tax rates applicable to spirits produced with other than the designated raw
materials.101

96 See Euromonitor International, "Consumer perceptions regarding substitutability in the Philippines
distilled spirits market", in exhibits EU-41 and US-41, p. 9; exhibits PH-19 (original), PH-19 (amended) and
PH-77. See also Philippines' first written submission, para. 227; and exhibits EU-103, PH-51 and PH-83.
97 See exhibits PH-19 (original), PH-19 (amended) and PH-77. See also exhibits EU-80 and EU-118;
European Union's first written submission, paras. 154- 157; European Union's opening statement at first
substantive meeting, paras. 34-54; European Union's second written submission, paras. 3-4, 35-52; European
Union's opening statement at second su bstantive meeting, paras. 51-60; European Union's response to Panel
question Nos. 30, paras. 29-30, 33, paras. 39-43, 49, para. 78, and 73, paras. 13-18; European Union's response
to Philippines' question, paras. 54-60; European Union's comments on Philippines' response to Panel question
No. 75, paras. 23-31; United States' second written submission, paras. 29-31; United States' opening statement
at second substantive meeting, paras. 28-29; United States' response to Panel question Nos. 33, paras. 19-21,
57, para. 64, and 73, paras. 4-6; United States' comments on Philippines' response to Panel question Nos. 74-75,
paras 13-14; Philippines' first written submission, paras. 14, 36-39, 177, 226-251; Philippines' opening
statement at first substantive meeting, paras. 9, 27 -30 and 34-35; Philippines' second written submission,
paras. 16-17 and 28; Philippines' opening statement at second substantive meeting, paras. 9, 27-30 and 34-35;
Philippines' response to Panel question Nos. 17, 35, 53, 54, 74 and 75; Philippines' comments on the European
Union's and on the United States' responses to Panel question No. 73, paras. 6-13; Philippines' comments on the
European Union's response to Philippines' question, pa ra. 29. In its first written submission, the Philippines
provided information on the net retail prices (before excise tax and value-added tax) for September 2010 of a
number of distilled spirits, both domestic and imported, in exhibit PH-19 (original). During the first meeting of
the Panel with the parties, the Philippines amended the price information in exhibit PH-19 (amended). In its
second written submission, the Philippines provided yet further new price information, in exhibit PH-77, to
replace the one previously submitted.
98 European Union's first written submission, paras. 36, 39, 40 and 42.
99 Ibid., paras. 37, 38 and 43.
100 Ibid., para. 41; United States' opening statement at second substantive meeting, para. 42;
Philippines' first written submission, para. 39; Philippine s' opening statement at second substantive meeting,
paras. 36-37; Philippines' closing statement at second substantive mee ting, para. 6(d); Philippines' response to
Panel question Nos. 60 and 67. See also exhibits PH-62 and PH-71.
101 European Union's first written submission, paras. 41, 70 and 177; European Union's opening
statement at first substantive meeting, paras. 52-54; European Union's second written submission, paras. 7 and
110-116; European Union's opening statement at second substantive meeting, para. 70; European Union's
response to Panel question No. 34, para. 48; United Stat es' first written submission, paras. 30 and 89; United
States' second written submissi on, paras. 46-49; Philippines' first wr itten submission, paras. 94, 171-174 and
303; Philippines' opening statement at second substantive meeting, para. 37; Philippines' response to Panel
question No. 17. See also para. 2.74 below.

2.38 As noted by the European Union, "distilled spirits in general have the same end uses ... All of
them are drunk with the same purpose: thirst quenching, socialization, relaxation, pleasant
intoxication."
102 Those end uses do not depend on the origin of the spirits (domestic or imported), nor
on the raw materials used in their respective production.
2.39 Distilled spirits can be drunk straight or with i ce, diluted with soft drinks or fruit juices or
used in the preparation of cocktails. 103 The promotional materials prepared by manufacturers and
distributors of both domestic and imported spirits sold in the Philippines suggest almost identical uses
for each category of spirit. In other words, for pr oducts such as gin, brandy, rum, vodka, whisky and
tequila or tequila-flavoured spirits, whether the spirit is drunk straight, with ice, mixed or used in the
preparation of specific cocktails does not depend on th e origin of the spirit, nor on the raw materials
used in its production.104
2.40 Distilled spirits, regardless of their respective origin or the raw materials used in their
production, are drunk at home, in the homes of family or friends or in public places, such as
restaurants, bars, pubs, clubs and discotheques. The evidence suggests that premium distilled spirits
are largely consumed on premise (in restaurant s, bars, pubs, clubs and discotheques), while
less-expensive spirits may be proportionally mo re consumed off premise (in private homes).
105 They
can be consumed before, during or after meals. The occasions and the manner of consuming a
specific spirit, for example, whether it is consum ed as an aperitif or after a meal, depend on the
particular tastes of the consumer and on the type of spirit and not on the spirit's origin or on the raw
materials used in its production. 106 As noted in the promotional materials prepared by manufacturers
and distributors of both domestic and imported spir its sold in the Philippines, these products can be
consumed on a number of occasions, such as parties, reunions, celebrations and romantic
encounters.107 Consumers tend to drink more expensive spirits on special occasions.108

102 European Union's first written submission, para. 64. See also ibid., para. 125; European Union's
103 European Union's first written submission, paras. 64-70 and 125; European Union's second written
submission, paras. 89 and 104-107; United States' first written submission, para. 61; Euromonitor
International, "Consumer perceptions regarding substitutability in the Philippines distilled spirits market", in
exhibits EU-41 and US-41, p. 8; and exhibits EU-27 and US-46.
104 European Union's first written submission, paras. 65-70; European Union's response to Panel
question No. 49, para. 79. See exhibits EU-26, EU-27, EU-28, EU-29, EU-30, EU-31, EU-32, EU-33, EU-34,
EU-35, EU-36, EU-37, videos in EU-38, US-40 and US-46. The Philippines suggests that there is evidence that
less-expensive domestic distilled spirits are largely used as mixers, while more expensive (premium) spirits may
be consumed by shots. See Philippines' comments on the draft descriptive sections of the Panel Reports (6 April
2011). The evidence indicated by the Philippines, however, refers only to vodka. Furthermore, the evidence
suggests a difference in the mode of consumption of more-expensive (premium) spirits compared to
less-expensive spirits. This does not imply a difference in the mode of consumption of imported and domestic
spirits, nor between spirits made from the designated materials and those made from other materials.
105 Philippines' first written submission, paras. 263- 266; International Wine and Spirit Research
(IWSR) report in exhibits EU-15 and US-15.
106 European Union's first written submission, paras. 73 and 125; European Union's response to Panel
question No. 49, para. 79; United States' first written submission, para. 61, Euromonitor International ,
"Consumer perceptions regarding substitutability in the Ph ilippines distilled spirits market", in exhibits EU-41
and US-41, pp. 8-9. See also exhibits US-26 and US-32.
107 European Union's first written submission, paras. 74-75. See exhibits EU-39, EU-40, EU-62, as
well as videos in EU-38 and Euromonitor International, "Consumer perceptions regarding substitutability in the
Philippines distilled spirits market", in exhibits EU-41 and US-41.
108 See Euromonitor International, "Consumer perceptions regarding substitutability in the Philippines
distilled spirits market", in exhibits EU-41 and US-41, p. 8. See also European Union's response to Panel

2.41 Evidence submitted by the parties suggests that the same outlets where imported spirits are
sold either for consumption on the premises (restau rants, bars, pubs, clubs, discotheques, hotels, etc.)
or off the premises (stores or supermarkets) also offer domestic spirits. 109 The opposite is not always
the case: many establishments (especially, small reta il stores) that offer domestic spirits do not carry
imported spirits.110
2.42 The evidence suggests that the marketing campaigns of all di stilled spirits, whether imported
or domestic, and irrespective of the specific type of spirit and the raw materials used in their
respective production, are very similar. Adver tising campaigns, including printed material and
videos, tend to associate consumption of spirits with the enjoyment of friendship and romantic
moments by young people, or the celebration of import ant events, in parties, in bars or clubs, or in
houses or parks. In the case of premium spirits, na mely those that are priced relatively higher, the
campaigns also emphasize an image of class and glamour.111
2.43 A survey of consumer perceptions produced by Euromonitor International and submitted by
the European Union and the United States suggests th at local consumers in the Philippines would be
"more willing to purchase [imported spirits]" when the price of those spirits decreases and the price of
domestic spirits increases, even if "import prices continued to be at least twice as expensive as
domestics".112 According to this survey, "[o]n averag e, at an import price decrease of 25% and
domestic increase of 50%, consumers were 4.9% mo re willing to purchase imports and 4.0% less

question No. 35, para. 55; United States' opening statement at first substantive meeting, para. 34; and United
States' response to Panel question No. 35, para. 27.
109 European Union's first written submission, para s. 72, and 141-143; European Union's second
written submission, para. 109; European Union's response to Panel question Nos. 51, paras. 82-84, and 71,
para. 8; United States' first written submission, paras. 56-58, 62 and 96; United States' opening statement at
Philippines' first written submission, paras. 260-262; Philippines' response to Panel question No. 71. See
exhibits EU-66, EU-67, EU-68, EU-69, EU-70, EU-71, EU-104, US-30, US-31, US-42 and US-43. But see
Philippines' first written submission, paras. 260-270; exhibits PH-19, PH-57 and PH-60.
110 European Union's opening statement at first substantive meeting, paras. 70-72; European Union's
second written submission, para. 98; European Union's opening statement at second substantive meeting,
paras. 39-41; European Union's response to Panel qu estion Nos. 49, para. 83, and 71, paras. 9-12; United
States' response to Panel question No. 71, para. 3; Philippines' first written submission, paras. 253-255 and 257-
259; Philippines' response to Panel question Nos. 71 and 76. See exhibits PH-19, PH-53, PH-54, PH-55,
PH-56, PH-58 and PH-59.
111 European Union's first written submission, paras. 64-70, 74-75, 77-78, 126-127 and 136; European
Union's second written submission, paras. 90-94, United States' first written submission, para. 48; exhibits
EU-27, EU-28, EU-29, EU-30, EU-31, EU-32, EU-33, EU-34, EU-36, EU-37, EU-38, EU-39, EU-40, EU-44,
EU-45, EU-46, EU-56, EU-57, EU-58, EU-59, EU-60, EU-62, EU-63, EU-64, EU-65. But see Philippines' first
written submission, paras. 184-187 and 283. The Philippi nes suggests that there is evidence of substantial
differences in the marketing campaigns of imported an d domestic spirits. See Philippines' comments on the
draft descriptive sections of the Panel Reports (6 April 2011); Philippines' response to Panel question No. 76.
The evidence indicated by the Philippines, however, suggests that differences in marketing campaigns, if any,
would be between more-expensive (premium) spirits and less-expensive spirits. This does not necessarily imply
differences between imported and domestic spirits, nor between spirits made from the designated materials and
those made from other materials.
112 See Euromonitor International, "Consumer perceptions regarding substitutability in the Philippines
distilled spirits market", in exhibits EU-41 and US-41, p. 9. See also European Union's response to Panel
question No. 83, paras. 35-35; United States' opening statement at first substantive meeting, paras. 21-26;
United States' response to Panel question No. 83, paras. 21-25; Philippines' first written submission, paras. 180-
182, 240-241 and 268; Philippines' comments on the European Union's and on the United States' responses to
Panel question No. 83, paras. 19-23; exhibit US-52.

likely to purchase domestics."
113 Moreover, "[o]n average, at an import price decrease of 40% to 60%
and domestic increase of 100% to 200%, consumers were 10.1% more willing to purchase imports
and 6.5% less likely to purchase domestics." 114 The survey concludes that , "[i]f price were no issue,
on average, consumers were 43% more likely [to] purchase local brands and 86.2% more likely to
purchase imported ones."115
2.44 In turn, the Philippines has submitted a survey by Abrenica & Ducanes from the University of
Philippines School of Economics that concludes that distilled spirits have lo w own- and cross-price
elasticity in the Philippine market and that "local and imported brands [of spirits are]
non-substitutable".116 According to this survey, a narrowing of price differentia ls between imported
and domestic spirits would only result in a sma ll change in their respective market shares. 117 T h e
same survey concludes that if excise taxes were completely removed thereby reducing prices for all
distilled spirits, the market share of imported di stilled spirits would increase from around 9.4 per cent
to around 11.7 per cent.118
2.45 Both the survey of consumer perceptions subm itted by the European Union and the United
States and the Abrenica & Ducanes survey subm itted by the Philippines suggest that certain
constraints (such as price, information, distributio n and brand recognition) affect consumer choices in
the Philippines' distilled spirits market. The Abreni ca & Ducanes survey notes that custom and tastes
also create a brand loyalty that prevents many consumers from switching brands. 119 As noted by this
survey, the characteristics of specific spirits are known to consumers through product reputation or
personal experience.120 The Euromonitor International survey points out availability, in addition to
price, as one of the most cited reasons why Philippine consumers select domestic, as opposed to
imported spirits; domestic products are often the only option available. 121 Despite their
shortcomings122, both studies suggest that, within the Phili ppines' market, a simultaneous increase in
the price of domestic spirits and decrease in the price of imported spirits, such as that which would

113 See Euromonitor International, "Consumer perceptions regarding substitutability in the Philippines
distilled spirits market", in exhibits EU-41 and US-41, p. 9.
114 Ibid.
115 Ibid.
116 See Abrenica & Ducanes, "On Substitutability between Imported and Local Distilled Spirits"
(University of Philippines School of Economics Foundation), in exhibit PH-49, pp. 2 and 20. The survey used
23 distilled spirits brands, of which 14 domestic and 9 im ported. The distilled spirits brands selected include:
6 gins (4 domestic, 2 imported); 6 brandies (3 domestic, 3 imported); 2 rums (1 domestic, 1 imported);
5 vodkas (4 domestic, 1 imported); and, 4 whiskies (2 domestic, 2 imported). See also European Union's
second written submission, paras. 85-89 and 97-102; United States' opening statement at first substantive
meeting, paras. 27-29; United States' second written submission, para. 51, and KPMG for The Scotch Whisky
Association, "The substitutability of imported and locally produced spirits in the Philippines" (December 2010),
in exhibits EU-102 and US-48.
117 See Abrenica & Ducanes, "On Substitutability between Imported and Local Distilled Spirits"
(University of Philippines School of Economics Foundation), in exhibit PH-49, p. 14. See also Philippines' first
written submission, para. 235.
118 See Abrenica & Ducanes, "On Substitutability between Imported and Local Distilled Spirits"
(University of Philippines School of Economics Foundation), in exhibit PH-49, p. 14. See also European
Union's comments on Philippines' response to Panel question No. 89, paras. 44-46; Philippines' first written
submission, para. 236; Philippines' response to Panel question No. 89.
119 Abrenica & Ducanes, "On Substitutability be tween Imported and Local Distilled Spirits"
(University of Philippines School of Economics Foundation), in exhibit PH-49, pp. 7, 10, 12 and 20.
120 Ibid., p. 2.
121 Euromonitor International , "Consumer perceptions regarding substitutability in the Philippines
distilled spirits market", in exhibits EU-41 and US-41, pp. 8-9 and 17-18.
122 See paras. 7.62, 7.76 and 7.112 below.

result from an equalization in the respective level of the excise tax, could result in the substitution of
the consumption of imported spirits in lieu of domestic spirits.123
4. Tariff classification
2.46 The "Harmonized Commodity Description and Coding System" ("Harmonized System" or
"HS") was established under the "Internationa l Convention on the Harmonized Commodity
Description and Coding System" ("HS Convention") a nd entered into force on 1 January 1988. Since
its entry into force, the HS has been partially am ended every four to six years. These amendments
entered into force on 1 January 1992 (HS1992), 1 January 1996 (HS1996), 1 January 2002 (HS2002)
and 1 January 2007 (HS2007).124 The HS2007 is the current version of the HS.125
2.47 As explained by a previous panel:
"The preamble of the HS Convention sets out the objectives of the HS including 'to
facilitate international trade', 'to facilitate the collection, comparison and analysis of
statistics', 'to reduce the expense incurred by re-describing, reclassifying and recoding
goods as they move from one classification system to another in the course of
international trade', and 'to facilitate the standardisation of trade documentation and
the transmission of data'. The HS C onvention aims to achieve these objectives
through the HS, which establishes an inte rnational standard for product nomenclature
for more than 5,000 commodity groups, and includes approximately 1,200 headings
that are grouped into 21 sections compri sing 99 chapters. Product groups are
organized systematically and each group is identified by a 'heading', represented as a
four-digit code. The first two digits indicate the chapter to which they correspond,
while the two subsequent digits indicat e the position within the heading of a
particular chapter. HS headings are so metimes further divided into subheadings,
which are identified by a six-digit code, which is the maximum level of
disaggregation permitted by the HS. The last two digits then indicate the relevant
HS subheading.
The HS Convention requires contracting parties to the HS to ensure that their laws are
in conformity with the HS. Article 3.1(a)(i) of the HS Convention provides in
particular that HS contracting parties shall use, in respect of their customs tariff and

123 See for example United States' opening statement at first substantive meeting, para. 28; United
States' second written submission, para. 52; United States' comments on Philippines' response to Panel question
No. 89, paras 26-28; Philippines' response to Panel ques tion No. 89. See also exhibit PH-51. The Philippines
contests our conclusions regarding the Euromonitor International and the Abrenica & Ducanes surveys.
Philippines' comments on the draft descriptive sections of the Panel Reports (6 April 2011). While in our view
the surveys have significant limitations, we believe our statement is a fair characterization of conclusions that
can be inferred from both.
124 For an explanation by the WCO Secretariat of the list of the amendments, see: TAR/W/91
(HS1996), G/MA/W/26 (HS2002), G/MA/W/76 (HS2007).
125 In their respective responses to Panel question No. 41, the parties have confirmed that the text of the
HS they have referred to in the present dispute correspon ds to that of HS2007. The European Union, however,
has qualified its response stating that the alleged inconsistencies of the measure at issue started before the 2007
version of the HS came into effect. Accordingly, unless otherwise noted, a ll references in these reports to any
HS material (chapters, headings, subheadings, etc.) should be understood as references to the 2007 version of
the HS (HS2007).

statistical nomenclatures, all the HS head ings and subheadings 'without addition or
modification, together with their related numerical codes'. ... "
126
2.48 Article 6 of the HS Convention establishes an HS Committee composed of representatives
from each of the Contracting Parties that meets at least twice annually. Unde r Article 7(1)(b) of the
HS Convention, the HS Committee prepares HS Explanatory Notes (HSEN), classification opinions
and other advice as guidance to secure uniformity in the interpretation of the HS. The HSEN provide
guidance for interpreting the terms of a specific HS heading; pursuant to Article 3.1(a) of the
HS Convention, the HSEN are not binding.
127
2.49 Distilled spirits at issue in this di spute fall within the HS heading 2208 128, which refers to
"undenatured ethyl alcohol of an alcoholic strength by volume of less than 80% vol; spirits, liqueurs
and other spirituous beverages".129
2.50 Heading 2208 comes under Chapter 22 of the HS, which is entitled "Beverages, spirits and
vinegar". Besides the product descriptions for he adings 2207 and 2208, Ch apter 22 also contains
descriptions for the following products: various ki nds of "waters" and certain "other non-alcoholic
beverages" (headings 2201 and 2202); "beer made from malt" (heading 2203); various kinds of
"wine", including "fortified wine" and "vermout h" (headings 2204 and 2205); "other fermented
beverages", such as "cider" (2206); and "vinegar" (2209).130
2.51 Under the HS, certain spirits can fall within heading 2207, which has the following structure:
Heading HS 6-digit Code Description
22.07 Undenatured ethyl alcohol of an alcoholic strength by volume
of 80% vol or higher; ethyl alcohol and other spirits,
denatured, of any strength
2207.10 - Undenatured ethyl alcohol of an alcoholic strength by volume
of 80% vol or higher
2207.20 - Ethyl alcohol and other spirits, denatured, of any strength

126 Panel Report, EC – IT Products, paras. 7.32-7.33 (original footnotes omitted).
127 See e.g. Appellate Body Report, EC – Chicken Cuts , para. 224, and Panel Reports, China – Auto
Parts, para. 7.410. See also European Union's response to Panel question Nos. 42, paras. 62-66, and 78,
para. 25; United States' response to Panel question Nos. 42, paras. 31-33, and 78, para. 14; Philippines'
response to Panel question No. 42.
128 The text of HS heading 2208 has been provided in exhibit US-13.
129 European Union's first written submission, para. 192; European Union's opening statement at first
substantive meeting, para. 76; European Union's first written submission, para. 96; European Union's response
to Panel question No. 64, para. 3; United States' first written submission, para. 65; United States' opening
statement at first substantive meeting, para. 41; United States' second written submission, footnote 27 to
para. 27; United States' response to Panel question No. 64, para. 1; Philippines' first written submission,
paras. 194, 196-200; Philippines' opening statement at first substantive meeting, para. 19.
130 The entire text of Chapter 22 of the HS, including its headings and subheadings, was provided in
exhibit US-13.

2.52 At the 6-digit code level, HS heading 2208, which refers to the distilled spirits at issue in this
dispute, divides spirits into different subheadings:
Heading HS 6-digit Code Description
22.08 Undenatured ethyl alcohol of an alcoholic strength by volume
of less than 80% vol; spirits, liqueurs and other spirituous
beverages
2208.20 - Spirits obtained by distilling grape wine or grape marc
2208.30 - Whiskies
2208.40 - Rum and other spirits obtained by distilling fermented
sugarcane products
2208.50 - Gin and Geneva
2208.60 - Vodka
2208.70 - Liqueurs and cordials
2208.80 - Other

2.53 In relevant part, the HSEN to heading 2208131 reads as follows:
"The heading covers, whatever their alcoholic strength:
(A) Spirits produced by distilling wine, cider or other fermented
beverages or fermented grain or other vegetable products, without
adding flavouring; they retain, wholly or partly, the secondary
constituents (esters, aldehydes, acids, higher alcohols, etc.) which
give the spirits their peculiar individual flavours and aromas.
(B) Liqueurs and cordials, being spirituous beverages to which
sugar, honey or other natural sweet eners and extracts or essences
have been added (e.g., spirituous be verages produced by distilling, or
by mixing, ethyl alcohol or distilled spirits, with one or more of the
following : fruits, flowers or other parts of plants, extracts, essences,
essential oils or juices, whether or not concentrated). ...
(C) All other spirituous beverages not falling in any preceding
heading of this Chapter.
Provided that their alcoholic strength by volume is less than 80% vol , the heading
also covers undenatured spirits (ethyl alc ohol and neutral spirits) which, contrary to
those at (A), (B) and (C) above, are ch aracterised by the absence of secondary
constituents giving a flavour or aroma. These spirits remain in the heading whether
intended for human consumption or for industrial purposes.
In addition to undenatured ethyl alcohol of an alcoholic strength by volume of less
than 80 % vol, the heading includes, inter alia:

131 The HSEN to heading 2208 has been provided in exhibit PH-46. See also European Union's
response to Panel question Nos. 42, paras. 62-66; an d 78, paras. 21-26; United States' response to Panel
question Nos. 42, paras. 31-33, and 78, paras. 14-17; Philippines' first written submission, para. 191;
Philippines' response to Panel question No. 78. See para. 2.48 above.

(1) Spirits obtained by distilling grape wine or grape marc (Cognac,
Armagnac, brandy, grappa, pisco, singani, etc.).
(2) Whiskies and other spirits obtained by distilling fermented mash
of cereal grains (barley, oats, rye, wheat, corn, etc.).
(3) Spirits obtained exclusively by distilling fermented products of
the sugar cane (sugar-cane juice, sugar-cane syrup, sugar-cane
molasses), e.g., rum, tafia, cachaça.
(4) Spirituous beverages known as gin or Geneva, containing the
aromatic principles of juniper berries.
(5) Vodka obtained by distilling fermented mash of agricultural
origin (e.g., cereals, potatoes) and sometimes further treated with
activated charcoal or carbon."
132
2.54 As seen above, the HSEN describes certain types of distilled spirits falling within
heading 2208 in various ways. With respect to the spirits at issue in this dispute, the HSEN makes the
following clarifications:
(a) "Gin and Geneva" are described as spir ituous beverages "containing the aromatic
principles of juniper berries"133;
(b) "Brandy" is cited as an example of a spirit "obtained by distilling grape wine or grape
marc";
(c) "Rum" is cited as an example of a spirit obtained "exclusively by distilling fermented
products of the sugar cane"134;
(d) "Vodka" is described as a spirit that is obtained by distilling "fermented mash of
agriculture origin (e.g., cereals, potatoes) and sometimes further treated with
activated charcoal or carbon"135; and,
(e) "Whiskies" are described as types of spirits made from a "mash of cereal grains"
(such as barley, oats, rye, wheat, corn, etc.).
5. Gin
2.55 Gin is traditionally produced by redistilling a high proof neutral spirit with juniper berries and
other botanicals; indeed, the characteristic flavour of gin is associated with the presence of juniper

132 The HSEN's list goes on to include other spirits, such as liqueurs, 'crèmes', ratafias, aquavit, arrack,
alcoholic aperitives alcoholic lemonade, and spirituous food supplements.
133 See European Union's response to Panel question No. 78, paras. 22-24; United States' response to
Panel question No. 78, para. 17; Philippines' response to Panel question No. 78.
134 See European Union's response to Panel question No. 79, paras. 27-30; United States' response to
Panel question No. 79, para. 18; Philippines' response to Panel question Nos. 78, 79 and 80.
135 See European Union's response to Panel question Nos. 78, para. 25, and 80, para. 31; United States'
response to Panel question Nos. 78, para. 17, and 80, para . 19; Philippines' response to Panel question Nos. 78
and 80.

berries.136 Regardless of the raw materials used in thei r production, and whether they are domestic or
imported, gins have a similar clear (transparent) colour. 137 When gin is made from a non-cane sugar
based spirit, as is traditionally the case, the original spirit is stripped of its congeners so as to result in
a more neutral taste; in contrast, when a cane suga r-based spirit is used, it is allowed to retain its
congeners.138 As explained by the Philippines, domestic gin is produced "using a 'cold compounding'
method, which is essentially mixing sugar-based alc ohol with water, flavours and essences. The
product is not redistilled with ... j uniper berries and other botanicals" 139, but has "the organoleptic
characteristics of [traditional] gin". 140 Gin can be drunk straight or with ice, diluted with soft drinks
or fruit juices or used in the preparation of cocktails, such as "gin and tonic".141
2.56 There is no standards administrative order (SAO) or other internal regulation that defines
what can be considered gin in the Philippines. 142 HS subheading 2208.50 covers "Gin and Geneva",
which are described in the HSEN to heading 2208 as spirituous beverages "containing the aromatic
principles of juniper berries".143
2.57 The domestic gin most sold in the Philippines is Ginebra San Miguel; its sales in 2009 were
equivalent to almost a 100 per cent of domestic consumption of gin in the Philippines.144 Ginebra San
Miguel has a 40 per cent alcohol content and is so ld in bottles of 250 ml, 350 ml, 700 ml and
1,500 ml.145 Other domestic gins sold in the Philippines are Britannia London Dry Gin , which has a
45 per cent alcohol content and is sold in bottles of 50 ml and 750 ml 146, and Gilbey's.147 As noted
above, the domestic gin most sold in the Philippines ( Ginebra San Miguel) has a Spanish name; the
other domestic gins most sold in the Philippines ha ve English or English-associated names, such as

136 European Union's first written submission, paras. 82 and 87; European Union's response to Panel
question No. 78, paras. 22-24; United States' response to Panel question Nos. 43, para. 35, and 78, para. 17;
Philippines' first written submission, pa ra. 162; Philippines' response to Panel question No. 78. See exhibits
EU-22, EU-28, EU-55, US-22, US-26, US-38, US-45, PH-28, PH-36 and PH-37. See also Philippines' response
to Panel question No. 26; Philippines' comments on the European Union's response to Panel question No. 78,
paras. 17-18.
137 European Union's first written submission, para. 85; United States' opening statement at first
substantive meeting, para. 18. See also exhibits EU-55, US-22, US-38 and PH-32.
138 Philippines' first written submission, para. 165. See also ibid., footnote 131 to para. 109 (stating that
Philippine gin is "intentionally not neutral") and exhibit EU-99.
139 Philippines' response to Panel question No. 26. See also Philippines' comments on the European
Union's response to Panel question No. 78, para. 18.
140 Philippines' comments on the European Union's response to Panel question No. 78, para. 18.
[[XXXX]] The Philippines defines "organoleptic properties" as the "properties perceived by the senses".
141 European Union's first written submission, paras. 64-70 and 125; exhibits EU-26, EU-28, EU-30,
EU-32, EU-35, EU-41, EU-46 and US-41.
142 Philippines' response to Panel question No. 26.
143 See paras. 2.52 to 2.54 above. The European Union and the United States have stated that, under
their respective domestic classification systems, a spirit that has the "organoleptic characteristics of gin" would
be classified as gin, irrespective of the raw material from which it is made. See European Union's response to
Panel question No. 78, paras. 22-24; United States' response to Panel question No. 43, paras. 34-35.
144 See International Wine and Spirit Research (IW SR) report in exhibits EU-15 and US-15, and
exhibits EU-26 and US-51. See also United States' response to Panel question No. 23, para. 13; European
Union's response to Panel question No. 88, paras. 38-40; United States' response to Panel question Nos. 83,
para. 25, and 88, paras. 33-34; Philippines' response to Panel question No. 35. In promotional materials,
Ginebra San Miguel refers to its product as "the world's largest selling gin". Exhibit EU-26.
145 See exhibit EU-22. See also European Union's response to Panel question No. 88, para. 39;
figure 3 in United States' first written submission; Philippines' response to Panel question No. 88;
exhibit PH-32.
146 See exhibit EU-28.
147 See exhibits EU-55 and US-38.

London, Gilbey's, Oxford or Brittania.
148 Domestic gins made in the Philippines display the words
Gin or Ginebra, or both words, on their labels.149
2.58 The imported gin most sold in the Philippines is Bombay Sapphire, an English gin that has a
47 per cent alcohol content; its sales represented 40 per cent of the imported gins consumed in the
Philippines in 2009. 150 Another imported gin is Tanqueray, an English gin that has a 47.3 per cent
alcohol content.151
2.59 The information on the net retail prices (before excise tax and value-added tax) for
September 2010 provided by the Philippines for four of the imported gin products most sold in the
Philippines (Bombay Sapphire, Tanqueray, Gordon's and Plymouth)152 is summarized below:153
 Exhibit PH-19
(original)
Exhibit PH-19
(amended) Exhibit PH-77154
Bombay Sapphire PHP 620.00 Idem Idem
Tanqueray PHP 583.00 Idem Idem
Gordon's PHP 501.00 Idem Idem
Plymouth PHP 292.50 ---- ----

All prices are for 750 ml bo ttles, except in the case of Plymouth, for 700 ml bottles. No information was
provided by the Philippines in exhibit PH-19 (amended) or in exhibit PH-77 on the net retail price of Plymouth.

2.60 The information on the net retail prices (before excise tax and value-added tax) for
September 2010 provided by the Philippines for four of the domestic gin products most sold in the
Philippines (Gilbey's London Dry Gin, Brittania London Dry Gin, Ginebra Especial and Gin Kapitan)
is summarized below:155

148 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15 and
Philippines' first written submission, para. 37. See also exhibit EU-55.
149 See exhibits EU-22, EU-26, EU-28, EU-55, EU-68, US-22 and US-38 . See also Philippines'
response to Panel question No. 39.
150 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15. See also
figure 3 in United States' first written submission.
151 See figure 3 in United States' first written submission.
152 The products chosen are among the gins most so ld in the Philippines, according to information
contained in the International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15. The
Philippines argues that "[i]t is unclear on what basis the Panel is characterizing these gins as the four 'most sold'
products." See Philippines' comments on the draft descriptive sections of the Panel Reports (6 April 2011). We
have not suggested that these are the four most sold imported gins in the Philippines, but that they are among the
most sold, according to the IWSR report in exhibits EU-15 and US-15. The Philippines also objects to similar
statements in other paragraphs in this section (see paras. 2.60, 2.66, 2.67, 2.72, 2.73, 2.78, 2.79, 2.84, 2.85, 2.90
and 2.91 below). The Philippines has not provided rebutting evidence that would suggest that these spirits are
not among the most sold in the Philippines.
153 See also exhibit EU-80; Euro pean Union's second written submissi on, paras. 43-52; European
Union's response to Panel question No. 73, paras. 13-18; United States' response to Panel question No. 73,
paras. 4-8.
154 Exhibit PH-77 in the Philippines' second written submission replaces exhibits PH-19 (original) and
PH-19 (amended).
155 See also exhibit EU-80; Euro pean Union's second written submissi on, paras. 43-52; European
Union's response to Panel question No. 73, paras. 13-18; United States' response to Panel question No. 73,
paras. 4-8; footnote 86 in Philippines' response to Panel question No. 53.

 Exhibit PH-19
(original)
Exhibit PH-19
(amended) Exhibit PH-77156
Gilbey's London Dry Gin PHP 150 Idem Idem
Brittania London Dry Gin PHP 115 Idem Idem
Ginebra Especial San Miguel PHP 43 Idem Idem
Gin Kapitan PHP 17 Idem Idem

Prices for Gilbey's London Dry Gin in 1,000 ml bottles, Britannia London Dry Gin in 700 ml bottles, Ginebra
Especial in 750 ml bottles, and Gin Kapitan in 350 ml bottles.

2.61 All gins made in the Philippines are produ ced from sugar cane molasses, one of the
designated raw materials, and are subject to the Section 141(a) flat excise tax rate of 14.68 PHP ppl.
Imported gins sold in the Philippines are subject to one of the three excise tax rates of
PHP 158.73 ppl, PHP 317.44 ppl or PHP 634.90 ppl applicable under Section 141(b) to spirits
produced with other than the designated raw materials, depending on their NRP.
157
6. Brandy
2.62 Brandy is traditionally produced from th e fermentation of grapes or other fruit. 158 In Europe
it is traditionally made from the distillation of wine or fortified wine. 159 The colour, odour and taste
normally associated with brandy is a natural result of the distillation of ethyl alcohol from wine or
fortified wine (in some cases, caramel may be added to provide a deeper colour 160); in this case, the
alcohol is not stripped of its specific congeners. 161 In contrast, brandy is produced in the Philippines
by stripping the ethyl alcohol made from sugar can e molasses of the congeners that provide its
original aroma and taste, and subsequently adding flavouring and other ingredients (including, in
some cases, brandy) to the resulting neutral spirit, so that the final product has the taste normally
associated with brandy. 162 Most of the higher-priced brandies have a similar alcohol content, of
around 40 per cent.163 Regardless of the raw materials used in their production, and whether they are
domestic or imported, brandi es have a similar colour that goes from golden to mahogany. 164 H S
subheading 2208.20 covers "Spirits obtained by disti lling grape wine or grape marc"; the HSEN to
heading 2208 cites "brandy" as an example of such spirits. 165 Brandy can be drunk straight or with
ice, diluted with soft drinks or fruit juices or used in the preparation of cocktails, such as " sidecar" or
"stinger".166
2.63 The Philippines' Standards Administrati ve Order (SAO) No. 358 of 1978 defines brandy as
"an alcoholic distillate obtained sole ly from the fermented juice of fresh, ripe and sound grapes. The

156 Exhibit PH-77 in the Philippines' second written submission replaces exhibits PH-19 (original) and
PH-19 (amended).
157 European Union's first written submission, paras. 36-37 and 38-39.
158 Philippines' first written submissi on, paras. 11, 98 and 141-142. See also exhibits EU-99, PH-27
and PH-36; and United States' response to Panel question No. 43, para. 35.
159 Philippines' first written submission, para. 141. See also exhibits EU-99, PH-26, PH-27, PH-37 and
PH-41.
160 Philippines' first written submission, para. 148; exhibits PH-26 and PH-27.
161 Philippines' first written submission, paras. 11 and 141.
162 Ibid., paras. 11, 98, 141 and 143. See also exhibit PH-26.
163 European Union's first written submission, para. 84. See exhibits EU-99 and PH-27.
164 European Union's first written submission, para. 85; United States' opening statement at first
substantive meeting, para. 18. See exhibits EU-55, US-22, US-38 and PH-27.
165 See paras. 2.52 to 2.54 above.
166 European Union's first written submission, paras. 64-70 and 125; Exhibits EU-32, EU-35, EU-41,
EU-43, US-41 and PH-61.

distillation shall be carried out in such a way th at the spirit possesses the na tural [...] principles
already present in grapes or [...] fermentation".
167 SAO No. 358 of 1978 refers to four different types
of "brandies": (i) Brandy (made "from the fermented juice of fresh, ripe and sound grapes");
(ii) Fruit Brandy ("made from wine or from fermented juice of peaches, apples, cherries, other fruits
and other [...] materials"); (iii) Blended Brandy ("A mixture of at least 5 percent grape brandy with
other brandies or neutral spirits"); and (iv) Compounded Brandy ("A product obtained by mixing
neutral spirits or alcohol with brandy essences, w ith permissible coloring and flavoring materials"). 168
SAO No. 358 of 1978 adds that "[t]he minimum ethyl alcohol content in brandies shall be
32.5 percent by volume", that brandy "shall be free from added coloring matter except caramel
prepared from sugar" and that brandies "sha ll possess the characteristic aroma and taste". 169 All
brandies made in the Philippines are made from cane-sugar-based alcohol and would correspond to
the definition of Blended Brandy or that of Compounded Brandy in SAO No. 358 of 1978.170
2.64 Spanish brandies represented some 99.6 per cent of the imported brandies consumed in the
Philippines in 2009; indeed the sales of three Spanish brandies ( Fundador, Alfonso I and Tres
Cepas), represented 88.8 per cent of the total consumption of imported brandies in the Philippines that
year.171 Fundador brandy has a 36 per cent alcohol content. 172 The labels of the Spanish brandies
Fundador, Alfonso I and Tres Cepas contain coats of arms and heraldic symbols; the labels
prominently display the word " Solera" immediately under the name of the respective brand; the
labels also separately claim that each of the brandies was produced using the Solera method.173
2.65 The domestic brandies most sold in the Philippines have Spanish names, such as Emperador,
Gran Matador, Generoso, and Barcelona; as noted on the labels of the bottles, these brandies claim
to have been made following the Spanish Solera method. 174 Emperador brandy has a 36 per cent
alcohol content and is sold in bottles of 375 ml, 750 ml and 1,750 ml. 175 Generoso brandy has a
32.5 per cent alcohol content and is sold in bottles of 375 ml and 700 ml. 176 Gran Matador has a 32.5
to 36 per cent alcohol content and is sold in bottles of 350 ml and 700 ml. 177 The labels in the bottles
of Emperador, Gran Matador, Generoso and Barcelona brandies carry images of coats of arms; the
labels of " Emperador" and " Gran Matador " additionally carry images of bullfighters. 178 O t h e r
domestic brandies sold in the Philippi nes have French names, such as Napoleon or Bouchard.179

167 See SAO No. 358 of 1978, in exhibits EU-24 and US-24, para. 2.1.1. See also Philippines' first
written submission, paras. 144-145.
168 See SAO No. 358 of 1978, in exhibits EU-24 and US-24, paras. 2.1.1 to 2.1.4. See also Philippines'
first written submission, para. 144.
169 See SAO No. 358 of 1978, in exhibits EU-24 and US-24, para. 4. See also United States' first
written submission, paras. 47 and 50.
170 Philippines' first written submission, para. 145. See also European Union's first written submission,
footnote 38 to para. 38.
171 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15.
172 See figure 3 in United States' first written submission.
173 See exhibits EU-55, US-34 and US-38.
174 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15 and
exhibits EU-48, EU-55, EU-65, EU-79, EU-94, US-34 and US-38. See also European Union's first written
submission, para. 128.
175 See exhibit EU-19. But see figure 3 in United States' first written submission.
176 See exhibit EU-19.
177 See figure 3 in United States' first written submission and exhibit PH-32.
178 See exhibits EU-48, EU-55, EU-57, EU-65, EU-79, EU-94, US-34, US-38 and PH-32. See also
European Union's first written submission, para. 128, and exhibit EU-45.
179 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15. See also
European Union's first written submission, para. 128; Philippines' comments on the European Union's response
to Panel question No. 91, paras. 27-28; exhibits EU-39 and EU-56.

Napoleon brandy has a 36 to 40 per cent alcohol content. 180 Domestic brandies made in the
Philippines display the word Brandy on their labels.181 At least one of the Philippine brandy products
uses the acronym VSOP in its label, which is tr aditionally used for some types of French aged
brandies (cognacs).182 Labels of brandies made in the Philippines do not use the expressions Blended
Brandy or Compounded Brandy; nor does the Philippines' SAO No. 358 of 1978 require that they do
so.183
2.66 The information on the net retail prices (before excise tax and value-added tax) for September
2010 provided by the Philippines for seven of the imported brandy products most sold in the
Philippines ( Hennessy VSOP in two different presentations, Carlos I , Fundador, Alfonso I , Tres
Cepas and Carlos II) is summarized below:184
 Exhibit PH-19
(original)
Exhibit PH-19
(amended) Exhibit PH-77185
Hennessy VSOP (1) PHP 6,400 Idem Idem
Hennessy VSOP (2) PHP 1,677 Idem Idem
Carlos I PHP 742 Idem Idem
Fundador PHP 255 Idem Idem
Alfonso I PHP 166 Idem Idem
Tres Cepas PHP 159 Idem PHP 140
Carlos II PHP 16 Idem ----

All prices for 700 ml bottles. No information was provided in exhibit PH-19 (amended) or in exhibit PH-77 on
the net retail price of Carlos II.

2.67 The information on the net retail prices (before excise tax and value-added tax) for September
2010 provided by the Philippines for seven of the do mestic brandy products most sold in the
Philippines ( Napoleon VSOP in two different presentations, Gran Matador , Emperador, Generoso,
Barcelona, and Maximo) is summarized below:186

180 See figure 3 in United States' first written submission; exhibit EU-39.
181 See exhibits EU-39, EU-48, EU-55, EU-56, EU-57, EU-65, EU-79, US-22, US-34 and US-38.
182 European Union's first written submission, para. 128; exhibits EU-39, EU-56 and EU-99.
183 See exhibits EU-48, EU-55, EU-57, EU-65, EU-79, EU-94 and US-38. See also United States'
opening statement at first substantive meeting, para. 16; European Union's opening statement at first
substantive meeting, para. 65; Philippines' response to Panel question Nos. 37 and 38.
184 See also exhibits EU-67 and EU-80; European Union's first written submission, para. 154;
European Union's second written submission, paras. 43-52; European Union's response to Panel question No.
73, paras. 13-18; United States' response to Panel question Nos. 57, para. 64, and 73, paras. 4-8; Philippines'
response to Panel question Nos. 54 and 62.
185 Exhibit PH-77 in the Philippines' second written submission replaces exhibit PH-19 (original) and
PH-19 (amended).
186 See also exhibits EU-67 and EU-80; European Union's first written submission, para. 154;
European Union's second written submission, paras. 43-52; European Union's response to Panel question No.
73, paras. 13-18; United States' response to Panel question Nos. 57, para. 64, and 73, paras. 4-8; Philippines'
response to Panel question Nos. 54 and 62.

 Exhibit PH-19
(original)
Exhibit PH-19
(amended) Exhibit PH-77187
Napoleon VSOP (tin can) PHP 212 ---- Idem
Napoleon VSOP (regular presentation) PHP 182 ---- Idem
Gran Matador PHP 53 ---- Idem
Emperador PHP 53 ---- Idem
Generoso PHP 46 ---- Idem
Barcelona PHP 37 PHP 24 PHP 48
Maximo PHP 26 ---- Idem

Prices in PH-19 (original) and PH-77 for Gran Matador, Generoso, Barcelona, and Maximo in 700 ml bottles;
Napoleon VSOP in its two different presentations and Emperador in 750 ml bottles. The only net retail price of
domestic brandies provided in exhibit PH-19 (amended) was that of Barcelona in 350 ml bottles.

2.68 All brandies made in the Philippines are produ ced from sugar cane molasses, one of the
designated raw materials, and are subject to the Section 141(a) flat tax rate of 14.68 PHP ppl.
Imported brandies sold in the Philippines are subject to one of the three excise tax rates of
PHP 158.73 ppl, PHP 317.44 ppl or PHP 634.90 ppl applicable under Section 141(b) to spirits
produced with other than the designated raw materials, depending on their NRP.188
7. Rum
2.69 Rum is traditionally produced from the fermentation of sugar cane molasses. 189 In this
respect, there is no difference between rum produced in the Philippines and imported rum. 190 More
generally, parties agree that rum produced in the Philippines and imported rum are "like products". 191
HS subheading 2208.40 covers "Rum and other sp irits obtained by distillin g fermented sugarcane
products"; rum is described in the HSEN to heading 2208 as an example of a spirit obtained
"exclusively by distilling fermen ted products of the sugar cane". 192 Depending on the brand and
presentation, rum can have a colour that ranges from clear (transparent) to golden or mahogany. 193
Rum can be drunk straight or with ice, diluted with soft drinks or fruit juices or used in the
preparation of cocktails, such as "Cuba libre", "Daiquirí", "Mojito" or "piña colada".194
2.70 The Philippines' Standards Administrative Order (SAO) No. 257 of 1976 defines rum as "the
alcoholic distillate obtained solely from fermented juice of sugarcan e, sugarcane molasses or other
sugarcane by-products distilled at less than 190 US proof whether or not such proof is further reduced
to not less than 60 proof prior to bottling, in such a manner that the distillate possesses the taste,

187 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and
PH-19 (amended).
188 European Union's first written submission, paras. 36-37 and 38-39.
189 Philippines' first written submission, para. 171. See also exhibits EU-99, PH-26, PH-28, PH-36 and
PH-37. Parties use the words "rum" or sometimes "rhum"; we will generally use the word "rum".
190 Philippines' first written submission, para. 171. See also exhibit PH-26.
191 See for example European Union's first written su bmission, para. 97; United States' first written
192 See paras. 2.52 to 2.54 above. The United States has stated th at, under its domestic system, an
imported rum with added flavour enhancers, which constitu ted less than 5.5 per cent of the volume of the spirit,
was still classified under subheading 2208.40. See United States' response to Panel question No. 79, para. 18.
See also European Union's response to Panel question No. 79, paras. 27-29; European Union's comments on the
Philippines' response to Panel question No. 78, para. 41.
193 See exhibits EU-55, US-22, US-38 and PH-28.
194 European Union's first written submission, paras. 64-70 and 125; Exhibits EU-29, EU-32, EU-34,
EU-35, EU-36, EU-37, EU-41, US-41 and PH-61.

aroma and characteristics generally attributed to rum and known to the trade as such and includes
mixtures solely of such distillates."195 SAO No. 257 of 1976 notes that rum can be classified as either
"white rum" or "colored rum"; that it "shall po ssess the color derived from wood during maturation";
that "[o]ther coloring substances may be adde d provided it is approved by the Food and Drug
Administration"; that "[r]um possess[es] the characteristic taste and aroma associated with rum"; that
it "shall be matured in wood" a nd "when labelled as 'matured', sh all be matured for the period
specified in the label".196
2.71 The domestic rum most sold in the Philippines is Tanduay; its sales in 2009 were equivalent
to 94 per cent of domestic consumption of rum in the Philippines. 197 Tanduay has a 40 per cent
alcohol content.198 Tanduay rum is sold in several presentations, including Tanduay Centennial Dark
Rhum, Tanduay Rhum Extra Strong , Tanduay 5 years Dark Rhum and Tanduay White Rum .199 The
imported rum most sold in the Philippines is Bacardí, with a 40 per cent alcohol content; its sales
represented 80 per cent of the imported rum consumed in the Philippines in 2009.200
2.72 The information on the net retail prices (before excise tax and value-added tax) for September
2010 provided by the Philippines for five of the imported rum products most sold in the Philippines
(Captain Morgan , Bacardí 151 Proof , Bacardí White , Myers's Rum Original Dark and Bacardí
Superior) is summarized below:201
 Exhibit PH-19
(original)
Exhibit PH-19
(amended) Exhibit PH-77202
Captain Morgan PHP 470 ---- ----
Bacardí 151 Proof PHP 270 PHP 587 Idem
Bacardí White PHP 252 PHP 420 Idem
Myers's Rum Original Dark PHP 212 PHP 388 PHP 212
Bacardí Superior PHP 131 PHP 420 Idem

All prices for 750 ml bottles. No information was provided in exhibit PH-19 (amended) or in exhibit PH-77 on
the net retail price of Captain Morgan.

2.73 The information on the net retail prices (before excise tax and value-added tax) for
September 2010 provided by the Philippines for five of the domestic rum products most sold in the

195 See SAO No. 257 of 1976, in exhibit US-27, para. 2.1.1.
196 Ibid., para. 4.
197 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15.
198 See figure 3 in United States' first written submission.
199 See exhibits EU-93, PH-19 (original), PH-19 (amended), PH-52 and PH-77. See also European
Union's response to Panel question No. 90, paras. 41-46; European Union's comments on the Philippines'
response to Panel question No. 90, paras. 47-50; United States' response to Panel question No. 90, paras. 35-36;
United States' comments on Philippines' response to Panel question No. 90, paras 29-30; Philippines' response
to Panel question No. 90; Philippines' comments on the European Union's response to Panel question No. 90,
paras. 25-26.
200 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15 and
figure 3 in United States' first written submission.
201 See also exhibits EU-29, EU-73 and EU-80; Eu ropean Union's first written submission, paras. 152
and 154; European Union's second written submission, paras. 43-52; European Union's response to Panel
question No. 73, paras. 13-18; United States' response to Panel question No. 73, paras. 4-8; Philippines'
response to Panel question No. 54.
202 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and
PH-19 (amended).

Philippines (Paradise Mango Rum , Tanduay Rhum Extra Strong , Tanduay 5 years Dark Rhum and
Tanduay White Rum) is summarized below:
203
 Exhibit PH-19
(original)
Exhibit PH-19
(amended) Exhibit PH-77204
Paradise Mango Rum (tin can) PHP 256 PHP 342 PHP 352
Paradise Mango Rum (regular presentation) PHP 526 PHP 350 PHP 334
Tanduay Rhum Extra Strong PHP 138 PHP 125 Idem
Tanduay 5 Years Dark Rhum PHP 62 Idem PHP 49
Tanduay White Rhum PHP 27 PHP 38 PHP 39

Prices for Paradise Mango Rum in its two presentations and for Tanduay Rhum Extra Strong in 700 ml bottles;
prices for Tanduay White Rum and Tanduay 5 years Dark Rhum in 750 ml bottles.

2.74 All rums made in the Philippines are produ ced from sugar cane molasses, one of the
designated raw materials, and are subject to the Section 141(a) flat excise tax rate of 14.68 PHP ppl.205
Some imported rums, such as Bacardí (the brand that represents 80 per cent of the imported rum in
the year 2009) and Bardinet, are also subject to the Section 141(a) flat excise tax rate applicable to
spirits produced with designated raw materials. 206 Other imported rums sold in the Philippines,
despite being produced from the designated raw materi als, are subject to one of the three excise tax
rates of PHP 158.73 ppl, PHP 317.44 ppl or PHP 634.90 ppl applicable under Section 141(b) to
spirits produced with other than the designa ted raw materials, depending on their NRP. 207 T h e
following are some of the imported rums subject to the excise tax rates in Section 141(b): Havana
Club Añejo Reserva , Lemon Hart Jamaica Rum , Lemon Hart White Rum , Malibu Caribbean White
Rum w/ coco, Malibu Rum, Myers's Rum, and Myers's Rum Planters Punch.208 The Philippines states
that, if the importers of the latter imported rums were to file the proper sworn declarations and excise
tax returns, the products would receive the tax treatment set out in Section 141(a).209
8. Vodka
2.75 Vodka is a neutral spirit that can be produced from the distillation of many different products,
such as wheat, beets, corn, rye, potatoes, grapes or sugar cane. 210 It is commonly obtained by
stripping the ethyl alcohol from its congeners and often filtering it through activated charcoal or

203 See also exhibits EU-29, EU-73 and EU-80; Eu ropean Union's first written submission, paras. 152
and 154; European Union's second written submission, paras. 43-52; European Union's response to Panel
question No. 73, paras. 13-18; Unite d States' response to Panel question No. 73, paras. 4-8; Philippines'
response to Panel question No. 54.
204 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and
PH-19 (amended).
205 European Union's first written submission, para. 40.
206 Ibid., paras. 41 and 177; exhibits PH-45, PH-62 and PH-71.
207 European Union's first written submission, para. 41; European Union's second written submission,
para. 7.
208 European Union's first written submission, para. 176; European Union's second written submission,
paras. 110-116. See exhibits EU-96, US-7 and PH-64.
209 Philippines' first written submission, para. 174. Response by the European Union in its second
written submission, para. 110-116.
210 Philippines' first written submission, paras. 153-157. See also European Union's response to Panel
question No. 43, para. 69; exhibits EU-90, EU-99, PH-28, PH-37, PH-42 and PH-43.

carbon.211 Regardless of the raw materials used in thei r production, and whether they are domestic or
imported, vodkas have a simila r clear (transparent) colour. 212 HS subheading 2208.60 covers
"Vodka"; vodka is described in the HSEN to h eading 2208 as a spirit that is obtained by distilling
"fermented mash of agriculture origin (e.g., cerea ls, potatoes) and sometimes further treated with
activated charcoal or carbon". 213 Vodka can be drunk straight or with ice, diluted with soft drinks or
fruit juices or used in the prep aration of cocktails, such as " black Russian ", " bloody Mary ",
"screwdriver" and "white Russian".214 Evidence suggests that premium vodkas may be consumed by
shots, while less less-expensive vodkas may be largely used as mixers.215
2.76 The Philippines' Standards Administrative Order (SAO) No. 258 of 1976 defines vodka as
"the distilled liquor obtained from neutral spirit filte red through activated carbon (charcoal) so as to
render the product without distinctive character, aroma or taste". 216 SAO No. 258 of 1976 adds that
"[v]odka shall be the distilled alcoholic beverage ... which may be obtained from fermented grain,
potato, or any other source of fermentable carbohydra tes in such a manner that the distillate is free
from color and odor and possess the characteristics gene rally attributed to vodka" and that its "ethyl
alcohol content shall be 42.85, 40.01, or 37.15 percent by volume (25, 30 or 35 degrees under
proof)".217
2.77 Domestic products represented 71.6 per cent of the vodka consumed in the Philippines in
2009.218 Antonov, a domestic brand that represented 16.6 per cent of the vodka sold in the Philippines
in the year 2009, has a 40 per cent alcohol content. 219 The imported vodka most sold in the
Philippines is Absolut, with a 40 per cent alcohol content. 220 Finlandia, another imported vodka, also
has a 40 per cent alcohol content. 221 Domestic vodkas made in the Philippines display the word
Vodka on their labels; some of these vodkas use names with Slavic or Russian connotations, such as
Antonov, Cossack or Toska.222

211 European Union's first written submission, para. 82; Philippines' first written submission, para. 109.
See exhibits EU-33, EU-46, EU-99 and PH-26. See also United States' response to Panel question No. 43,
para. 35.
212 European Union's first written submission, pa ra. 85; United States' first written submission,
para. 46. See also exhibits EU-55, EU-100, US-22 and US-38.
213 See paras. 2.52 to 2.54 above. The European Union and the United States have stated that, under
their respective domestic classifica tion systems, an imported vodka made from any agricultural material
(including cane sugar) would be classified under subheading 2208.60. See European Union's response to Panel
question Nos. 43, paras. 67-69, 79, para. 30, and 80, para. 31; United States' response to Panel question
Nos. 43, paras. 34-35, and 80, para. 19.
214 European Union's first written submission, paras. 64-70 and 125; Philippines' comments on the
draft descriptive sections of the Panel Reports (6 April 2011); Exhibits EU-27, EU-31, EU-32, EU-33, EU-34,
EU-35, EU-41, EU-110, US-40, US-41, PH-43 and PH-61.
215 Philippines' comments on the draft descriptive sections of the Panel Reports (6 April 2011); Exhibit
US-40.
216 See SAO No. 258 of 1976, in exhibit US-23, para. 2.1.1. See also Philippines' response to Panel
question No. 27.
217 See SAO No. 258 of 1976, in exhibit US-23, paras. 3.1 and 3.3. See also United States' first written
submission, paras. 47 and 50.
218 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15.
219 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15 and
figure 3 in United States' first written submission.
220 Ibid.
221 Ibid.
222 See exhibits EU-21, EU-27, EU -33, EU-34, EU-44, EU-46, EU-55, EU-60, EU-61, US-22 and
US-38. See also Philippines' response to Panel question No. 39.

2.78 The information on the net retail prices (before excise tax and value-added tax) for
September 2010 provided by the Philippines for eight of the imported vodka products most sold in the
Philippines ( Millenium, Stolichnaya in its regular and flavoured presentations, Finlandia, Absolut
Blue, Arkan, Skyy and Vodka Cruiser in different presentations) is summarized below:
223
 Exhibit PH-19
(original)
Exhibit PH-19
(amended) Exhibit PH-77224
Millenium PHP 1,004 ---- ----
Stolichnaya PHP 635 Idem PHP 367
Finlandia PHP 392 Idem Idem
Absolut Blue PHP 335 Idem Idem
Arkan PHP 260 Idem Idem
Skyy PHP 232 Idem Idem
Stolichnaya (5 flavours) PHP 203 Idem Idem
Vodka Cruiser (275 ml bottles) PHP 71 PHP 67 Idem

Prices for Stolichnaya in its flavoured presentations, Finlandia, Absolut Blue, and Skyy all in 750 ml bottles,
Arkan in 1,000 ml bottles, Stolichnaya in 700 ml bottles and Vodka Cruiser in 275 ml bottles; no information
on size was provided by the Philippines in exhibit PH-19 (amended) or in exhibit PH-77 on the net retail price
for Millenium.

2.79 The information on the net retail prices (before excise tax and value-added tax) for September
2010 provided by the Philippines for six of the domestic vodka products most sold in the Philippines
(Gilbey's 1857, Gilbey's Premium, Toska, Antonov, The Bar and Cossack) is summarized below:225
 Exhibit PH-19
(original)
Exhibit PH-19
(amended) Exhibit PH-77226
Gilbey's 1857 PHP 258 Idem PHP 116
Gilbey's Premium PHP 119 Idem Idem
Toska PHP 94 Idem Idem
Antonov PHP 82 Idem Idem
The Bar PHP 56 Idem Idem
Cossack PHP 46 Idem Idem

All prices for 700 ml bottles.

2.80 All vodkas made in the Philippines are produ ced from sugar cane molasses, one of the
designated raw materials, and are subject to the Section 141(a) flat tax rate of 14.68 PHP ppl. 227
Imported vodkas sold in the Philippines are subj ect to one of the three excise tax rates of

223 See also exhibit EU-80; Euro pean Union's second written submissi on, paras. 43-52; European
Union's response to Panel question No. 73, paras. 13-18; United States' response to Panel question No. 73,
paras. 4-8.
224 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and
PH-19 (amended).
225 See also exhibit EU-80; Euro pean Union's second written submissi on, paras. 43-52; European
Union's response to Panel question No. 73, paras. 13-18; United States' response to Panel question No. 73,
paras. 4-8.
226 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and
PH-19 (amended).
227 European Union's first written submission, para. 42.

PHP 158.73 ppl, PHP 317.44 ppl or PHP 634.90 ppl applicable under Section 141(b) to spirits
produced with other than the designated raw materials, depending on their NRP.228
9. Whisky
2.81 Whisky is traditionally produced from the distillation of a mash of cereals or grains. The
production of whisky in each country tends to be based on the raw materials that are grown most
efficiently in that region. 229 Whisky is normally made from wheat, barley or malt in Scotland and
Ireland, from corn in the United States, from ry e in Canada, and from sugar molasses in the
Philippines.230 The colour, odour and taste normally associated with whisky is a natural result of the
distillation of ethyl alcohol from products such as wheat , barley or malt; in this case, the alcohol is
not stripped of its specific congeners. 231 In contrast, whisky is produced in the Philippines by
stripping the ethyl alcohol made from sugar molasses of the congeners that provide its original aroma
and taste, and subsequently adding flavouring an d other ingredients (including, in some cases,
whisky) to the resulting neutral spirit, so that th e final product has the taste normally associated with
whisky.232 Regardless of the raw materials used in thei r production, and whether they are domestic or
imported, whiskies have a similar golden colour. 233 HS subheading 2208.30 covers "Whiskies",
which are described in the HSEN to heading 2208 as types of spirits made from a "mash of cereal
grains" (such as barley, oats, rye, wheat, corn). 234 Whisky can be drunk straight or with ice, diluted
with soft drinks or fruit juices or used in the preparation of cocktails, such as " Irish coffee ",
"Manhattan" or "whisky sour".235
2.82 The Philippines' Standards Administrative Order (SAO) No. 259 of 1976 defines whisky as "a
spirit suitably aged in wood, obtained from th e distillation of a fermented mash of grain". 236 SAO
No. 259 of 1976 refers to four different types of " whiskies": (i) Straight Whisky ("distilled off at a
proof not exceeding 160, aged in a new charred white oak barrel for at least two years and reduced by
the addition of water at the time of bottling to not lower than 80 proof. Nothing may be added other
than the water); (ii) Malt Whisky ("produced from the fermented mash of malted or unmalted cereals
or a mixture of both"); (iii) Blended Whisky ("A mixture containing at least 20 percent by volume of

228 Ibid., para. 43.
229 Philippines' first written submission, para. 118. Pa rties use the words "whisky" or "whiskey"; we
will generally use the word "whisky".
230 Ibid., paras. 11, 98 and 118-119; European Union's second written submission, para. 66. See also
exhibits EU-99, PH-24, PH-26, PH-28, PH-35, PH-36, PH-37, PH-38 and PH-39.
231 Philippines' first written submission, paras. 11 and 135. See also exhibits EU-92, EU-99, PH-26 and
PH-36.
232 Philippines' first written submission, paras. 11, 98, 118-119 and 134. See also exhibits EU-58,
EU-59, EU-98 and PH-26.
233 See exhibits EU-55, US-22 and US-38. See also United States' first written submission, para. 46;
United States' opening statement at first substantive meeting, para. 18.
234 See paras. 2.52 to 2.54 above. The United States has stated that, under its domestic classification
system, a whisky made from sugar cane spirit would not be classified under subheading 2208.30 (whiskies),
unless it was blended with grain-based whisky. Such a cane sugar-based whisky could instead fall under
2208.90 (other spirits). See United States' response to Panel question No. 43, paras. 34-35. The Philippines has
stated that, under its domestic classifi cation system, blended whiskies containing at least 20 per cent volume of
100 proof straight whisky and neutral spirits would likely be classified under subheading 2208.90 (other), while
compound whiskies would likely be classified under either 2208.90 (other), or, if the neutral spirit is made from
sugar-cane and no grain-based whisky is added to the compound whisky, under 2208.40 (spirits obtained by
distilling fermented sugar-cane products). See Philippines' response to Panel question No. 46.
235 European Union's first written submission, paras. 64-70 and 125; Exhibits EU-32, EU-34, EU-35,
EU-41, US-41 and PH-61.
236 See SAO No. 259 of 1976, in exhibit US-25, para. 2.1.1. SAO No. 259 of 1976 uses the variant
spelling "whiskey".

100 proof straight [whisky] and separately or in co mbination, [whisky] or neutral spirits, if such
mixture at the time of bottling is not less than 65 proof"); and (iv) Compound Whisky ("The product
obtained by mixing neutral spirits or alcohol dis tilled from any material at above 190º proof, with
[whisky] or [whisky] essence, permissible flavoring and coloring materials, and reduced at the time of
bottling to not less than 65 proof").
237 SAO No. 259 of 1976 adds that "[t]he ethyl alcohol in whiskies
shall not be less than 32.5 percent by volume", that whisky "shall be free from added coloring
materials except caramel prepared from sugar" and that "[i]t shall have the characteristic taste and
aroma".238 All whiskies made in the Philippines are made from cane-sugar-based alcohol and would
correspond to the definition of Compound Whiskey in SAO No. 259 of 1976. 239 Domestic whiskies
made in the Philippines display the word Whisky on their labels. 240 Labels of whiskies made in the
Philippines do not use the expression Compound Whisky; nor does the Philippines' SAO No. 259 of
1976 require that they do so.241
2.83 Scotch whiskies represented 73.9 per cent of the whiskies consumed in the Philippines in
2009; indeed the sales of two Scotch whiskies ( Johnnie Walker Black Label and Chivas Regal
12 years), represented 55.7 per cent of the total consump tion of whisky in the Philippines that year. 242
Jack Daniel's , an imported whisky from the United States with a 40 per cent alcohol content,
represented 16.4 per cent of the whiskies consumed in the Philippines in 2009. 243 White Castle
Calibre 69 , the domestic whisky most sold in the Phili ppines in the year 2009, has a 34.5 per cent
alcohol content and is sold in bottles of 187.5 ml, 375 ml and 700 ml. 244 The domestic whiskies most
sold in the Philippines have English names, such as Embassy, St George, and White Castle.245
2.84 The information on the net retail prices (before excise tax and value-added tax) for
September 2010 provided by the Philippines for six of the imported whisky products most sold in the
Philippines ( Johnnie Walker Blue Label , Johnnie Walker Black Label , Cutty Sark , J&B, Benmore
4 Casks and Benmore Blended) is summarized below:246

237 SAO No. 259 of 1976, in exhibit US-25, paras. 2.1.2 to 2.1.6. See also Philippines' first written
submission, para. 121.
238 See SAO No. 259 of 1976, in exhibit US-25, para. 4. See also United States' first written
submission, paras. 47 and 50.
240 See exhibits EU-21, EU-47, EU-55, EU-58, EU-59, EU-79, US-22 and US-38.
241 See exhibits EU-47, EU-55, EU-58, EU-79 and US-38. See also European Union's opening
statement at first substantive meeting, para. 65; United States' opening statement at first substantive meeting,
para. 16; Philippines' response to Panel question Nos. 37 and 38.
242 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15.
243 See ibid. and figure 3 in United States' first written submission.
244 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15; figure 3 in
United States' first written submission; and exhibit PH-32.
245 Exhibits EU-47, EU-55, EU-58, EU-79, US-34, US-36 and US-38.
246 See also exhibit EU-80; Euro pean Union's second written submissi on, paras. 43-52; European
Union's response to Panel question No. 73, paras. 13-18; United States' response to Panel question No. 73,
paras. 4-8.

 Exhibit PH-19
(original)
Exhibit PH-19
(amended) Exhibit PH-77247
Johnnie Walker Blue Label PHP 5,690 Idem Idem
Johnnie Walker Black Label PHP 864 PHP 699 Idem
Cutty Sark PHP 649 PHP 560 PHP 649
J&B PHP 505 Idem Idem
Benmore 4 Casks PHP 150 ---- ----
Benmore Blended PHP 153 Idem Idem

All prices for 700 ml bottles, except in the case of J&B, for 750 ml bottles. No information was provided in
exhibit PH-19 (amended) nor in exhibit PH-77 on the net retail price of Benmore 4 Casks, allegedly because this
price "could not be verified".

2.85 The information on the net retail prices (before excise tax and value-added tax) for September
2010 provided by the Philippines for four of the domestic whisky products most sold in the
Philippines (Embassy, St George, White Castle 5 Years and White Castle Calibre 69 ) is summarized
below:248
 Exhibit PH-19
(original)
Exhibit PH-19
(amended) Exhibit PH-77249
Embassy PHP 130 Idem Idem
St George PHP 123 PHP 108 Idem
White Castle 5 Years PHP 121 Idem Idem
White Castle Calibre 69 PHP 58 Idem Idem

All prices for 700 ml bottles.

2.86 All whiskies made in the Philippines are pr oduced from sugar cane molasses, one of the
designated raw materials, and are subject to the Section 141(a) flat excise tax rate of 14.68 PHP ppl.250
Imported whiskies sold in the Philippines are subj ect to one of the three excise tax rates of
PHP 158.73 ppl, PHP 317.44 ppl or PHP 634.90 ppl applicable under Section 141(b) to spirits
produced with other than the designated raw materials, depending on their NRP.251
10. Tequila
2.87 Tequila is traditionally produced in Mexico from the fermentation of the agave plant. 252 The
colour, odour and taste normally associated with tequ ila is a natural result of the distillation of ethyl
alcohol from agave; in this case, the alcohol is no t stripped of its specific congeners. In contrast,
tequila or tequila-flavoured spirits are produced in the Philippines by stripping the ethyl alcohol made
from sugar molasses of the congeners that provide its original odour and taste, and subsequently

247 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and
PH-19 (amended).
248 See also exhibit EU-80; Euro pean Union's second written submissi on, paras. 43-52; European
Union's response to Panel question No. 73, paras. 13-18; United States' response to Panel question No. 73,
paras. 4-8.
249 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and
PH-19 (amended).
250 European Union's first written submission, para. 42.
251 Ibid., para. 43.
252 Philippines' first written submission, paras. 168- 169. See also United States' response to Panel
question No. 43, para. 35; exhibits PH-28 and PH-36.

adding flavouring and other ingredients to the resulti ng neutral spirit, so that the final product has the
taste normally associated with tequila.
253 Regardless of the raw materi als used in their production,
and whether they are domestic or im ported, tequila or tequila-flavoured spirits have a similar colour
that can be either clear (transparent) or pale gold. 254 HS heading 2208 does not contain a subheading
for "tequila", nor is there is any specific me ntion to tequila in the HSEN to heading 2208. 255 Tequila
is protected in some countries as a geographical indication. 256 There is no standards administrative
order or other internal regulation that defines wh at can be considered as tequila in the Philippines. 257
Tequilas or tequila-flavoured spirits can be drunk strai ght or with ice, diluted with soft drinks or fruit
juices or used in the preparation of cocktails, such as "Margarita", "tequila sunrise".258
2.88 The main domestic tequilas or tequila-flavoured spirits sold in the Philippines have Spanish
names, such as Don Enrique , Mojitos and El Hombre.259 Some of the domestic tequilas or
tequila-flavoured spirits made in the Philippines display the word Tequila on their labels, either alone
or in combination with other words. The label of Don Enrique describes the product as a "Mixkila
Distilled Spirit"; Mojitos is described in its label as "Gold Tequ ila" or "Silver Tequila"; and the label
of El Hombre describes the product as a "Tequila Flavored Spirit" (the word "Tequila" in the phrase
being displayed in larger letters ) and carries the image of a man wearing what appears to be a
Mexican-hat.260
2.89 The most-sold imported brand, José Cuervo, with a 38 per cent alcohol content, represented
70.1 per cent of the tequilas consumed in the Philippines in 2009. 261 The domestic product
El Hombre has a 40 per cent alcohol content.262
2.90 The information on the net retail prices (before excise tax and value-added tax) for September
2010 provided by the Philippines for six of the importe d tequila products most sold in the Philippines
(Añejo Patrón Gold , Tequila Rose, José Cuervo Gold (in 1,000 ml and 700 ml bottles), José Cuervo
Clásico, Sombrero Negro and Sombrero Gold) is summarized below:263

253 Philippines' first written submission, paras. 98 and 169; exhibits EU-63 and PH-44.
254 See exhibits EU-55, US-38, PH -28 and PH-44. See also United States' first written submission,
para. 46.
255 See paras. 2.52 to 2.54 above. See also Philippines' response to Panel question No. 78. The
European Union and the United States have stated that, under their respec tive domestic classification systems,
an imported tequila would be classified under subheading 2208.90 (other spirits). The United States has added
that a tequila or tequila-flavoured spirit made from materials other than agave would not be covered by the
tequila 8-digit subheading 2208.90.50 in the United St ates' domestic nomenclature. See European Union's
response to Panel question No. 78, para. 21; United States' response to Panel question Nos. 43, para. 35, and 78,
para. 17.
256 See European Union's response to Panel question No. 78, para. 21. See also exhibit PH-36.
257 Philippines' response to Panel question No. 27.
258 European Union's first written submission, paras. 64-70 and 125; Exhibits EU-32, EU-35, EU-41,
EU-63, US-41, PH-44 and PH-61.
259 Philippines' first written submission, para. 37; exhibits EU-49, EU-55, EU-63, EU-79 and PH-44.
260 See exhibits EU-21, EU-25, EU-49, EU-55, EU-63, EU-79, US-34, US-38 and PH-44. See also
Philippines' response to Panel question No. 39.
261 See International Wine and Spirit Research (IWSR) report in exhibits EU-15 and US-15 and
figure 3 in United States' first written submission.
262 See figure 3 in United States' first written submission.
263 See also exhibit EU-80; Euro pean Union's second written submissi on, paras. 43-52; European
Union's response to Panel question No. 73, paras. 13-18; United States' response to Panel question No. 73,
paras. 4-8.

 Exhibit PH-19
(original)
Exhibit PH-19
(amended) Exhibit PH-77264
Añejo Patrón Gold PHP 2,655 ---- ----
Tequila Rose PHP 587 Idem Idem
José Cuervo Gold (1,000 ml bottles) PHP 479 Idem Idem
José Cuervo Gold (700 ml bottles) PHP 444 Idem Idem
José Cuervo Clásico PHP 363.5 Idem Idem
Sombrero Negro / Sombrero Gold PHP 282 ---- ----

Prices for Añejo Patrón Gold and Tequila Rose in 750 ml bottles; José Cuervo Clasico , Sombrero Negro and
Sombrero Gold in 700 ml bottles. No information was provided in exhibit PH-19 (amended) nor in exhibit
PH-77 on the net retail price of Añejo Patrón Gold, Sombrero Negro and Sombrero Gold, because these prices
"could not be verified".

2.91 The information on the net retail prices (before excise tax and value-added tax) for
September 2010 provided by the Philippines for five of the domestic tequilas and tequila-flavoured
spirits products most sold in the Philippines ( El Hombre Gold , Mojitos Gold , El Hombre Silver ,
Mojitos Silver and Don Enrique Mixkila) is summarized below:265
 Exhibit PH-19
(original)
Exhibit PH-19
(amended) Exhibit PH-77266
El Hombre Gold PHP 208 Idem Idem
Mojitos Gold PHP 198 Idem PHP 206
El Hombre Silver PHP 152 Idem PHP 114
Mojitos Silver PHP 134 Idem Idem
Don Enrique Mixkila PHP 129 Idem Idem

All prices for 700 ml bottles.

2.92 All tequilas or tequila-flavoured spirits made in the Philippines are produced from sugar cane
molasses, one of the designated raw materials and are subject to the Section 141(a) flat excise tax rate
of 14.68 PHP ppl. 267 Imported tequilas are subject to one of the three excise tax rates of
PHP 158.73 ppl, PHP 317.44 ppl or PHP 634.90 ppl applicable under Section 141(b) to spirits
produced with other than the designated raw materials, depending on their NRP.268
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
3.1 The provisions of the WTO covered agreements raised by the complainants are Article III:1
and Article III:2, first and second sentences, of GATT 1994. The complainants have made the
following claims:

264 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and
PH-19 (amended).
265 See also exhibit EU-80; Euro pean Union's second written submissi on, paras. 43-52; European
Union's response to Panel question No. 73, paras. 13-18; United States' response to Panel question No. 73,
paras. 4-8.
266 Exhibit PH-77 in Philippines' second written submission replaces exhibit PH-19 (original) and
PH-19 (amended).
267 European Union's first written submission, para. 42.
268 Ibid., para. 43.

(a) That the excise tax imposed by the Philippin es constitutes an internal tax applied to
imported distilled spirits "in excess" of those a pplied, directly or indirectly, to "like"
domestic products and is, therefore, inc onsistent with the first sentence of
Article III:2 of GATT 1994; and,
(b) That the Philippines does not apply the excise tax to imported distilled spirits and
"directly competitive or substitutable" domes tic distilled spirits "similarly", and such
tax is applied "so as to afford protecti on to domestic production". This tax is,
therefore, inconsistent with the second sentence of Article III:2 of GATT 1994.
3.2 The Philippines argues that the claims under Articles III:1 and III:2 should be rejected
because the imported and domestic products at issue are neither like nor directly competitive or
substitutable. With respect to the claim based on the second sentence of Article III:2, the Philippines
argues further that, even if the products at issue we re directly competitive or substitutable, the claim
should nevertheless be rejected because: (1) domes tic and imported products are in fact similarly
taxed; and, (2) even if they are not similarly taxed, the excise tax at issue is not being applied so as to
afford protection to domestic production.
3.3 The Philippines has additionally stated that:
"The claims by the European Union and th e United States in this dispute threaten a
fundamental right enjoyed by each WTO Member: the right to determine its own tax
policy. The claims thus have potentially significant ramifications that go far beyond
the specific facts of this dispute. This case involves the right of a developing country
WTO Member to impose a tax regime that is best suited to achieve the fiscal
objectives set out in its Constitution in light of the administrative and enforcement
constraints it faces with respect to tax collection."
269
3.4 The Philippines states that the fiscal objectives in its legislation are linked to achieving a
progressive system of taxation that imposes higher taxes on "higher-priced goods, typically bought by
wealthier consumers" and lower taxes on "lower-p riced goods, typically bought by less affluent
consumers."270 The constraints with respect to tax colle ction identified by the Philippines include the
fact that the country "possesses a large informal economy, widespread poverty, a large geographical
area and an extensive coast line to administer and monitor... and limited taxation resources".271
3.5 In response to a question from the Panel, the Philippines has explicitly clarified that the
statements it has made:
"[Are] not a reference to any of the provi sions of Article XX of GATT 1994. The
Philippines believes that its excise tax system embodied in Section 141 of the
National Internal Revenue Code is not inc onsistent with Article III, and therefore
there is no need to invoke the provisions of Article XX."
272

270 Ibid., para. 2. See also ibid., paras. 32 and 296; Philippines' opening statement at first substantive
meeting, paras. 5-9; Philippines' opening statement at second substantive meeting, paras. 3-5; Philippines'
response to Panel question Nos. 16 and 62.
271 Philippines' response to Panel question No. 62. See also Philippines' opening statement at first
substantive meeting, para. 4; Philippines' closing statement at first substantive meeting, para. 4; Philippines'
opening statement at second substantive meeting, paras. 3 and 38; Philippines' response to Panel question
Nos. 16 and 63.
272 Philippines' response to Panel question No. 16.

IV. ARGUMENTS OF THE PARTIES
4.1 The arguments of the parties, as set fort h in the executive summa ries of their written
submissions and oral statements to the Panel, are attached to these reports as Annexes (A, C, E and F)
(see List of Annexes, pages iv and v). 273 The replies of the parties to questions and the parties'
comments on each other's replies to questions are not attached to these reports as annexes. They are,
however, reflected in the findings section of these reports where relevant. 274
V. ARGUMENTS OF THE THIRD PARTIES
5.1 The arguments of the third parties, as set fo rth in the executive summaries of their written
submissions and oral statements to the Panel, are at tached to these reports as Annexes (B and D) (see
List of Annexes, pages iv and v). 275 The replies of the third parties to questions are not attached to
these reports as annexes. They are however reflec ted in the findings section of these reports where
relevant.276
VI. INTERIM REVIEW
6.1 The Panel issued its interim reports to the parties on 4 May 2011. 277 On 25 May, as
foreshadowed in item (l) of the Timetable for the Panel Proceedings and in accordance to Article 15
of the DSU as well as paragraph 16 of the Worki ng Procedures, the European Union, the United
States and the Philippines requested the Panel to re view precise aspects of the interim reports. On
8 June, as foreshadowed in item (m) of the Timetabl e for the Panel Proceedings, the parties submitted
written comments on each other's comments and requests for interim review. Neither party requested
an interim review meeting with the Panel.
6.2 Where appropriate, the Panel has modified certain aspects of its interim reports, in the light of
the parties' comments and requests, as explained be low. The Panel has also made certain revisions
and corrections for the purposes of clarity and accuracy. Section VI of these reports summarizes these
changes. References to paragra ph numbers and footnote numbers used in Section VI are to those in
the interim reports, except as otherwise noted.
A. INTERIM REVIEW CHANGES TO THE DESCRIPTIVE SECTIONS
6.3 The United States requests the inclusion of a new paragraph before paragraph 2.1 of the
interim reports so as to clarify the relationship be tween the descriptive and findings sections of the
reports and "how the Panel has based its legal conclusions on the facts before it." 278 The Philippines
and the European Union did not comment on this re quest. The Panel has included the United States'
proposed text, with a minor change, as a footnote to paragraph 2.1.

273 The Annexes may contain instead an actual subm ission or statement when no executive summary
was provided because that submission or statement did not exceed the page limit established in paragraph 13 of
the Panel's working procedures.
274 As established by paragraph 9 of the Panel's working procedures.
275 Only Australia and Mexico made third party written submissions, and only Australia, India and
Chinese Taipei made third party oral statements. Th e annexes may contain instead an actual submission or
statement when no execu tive summary was provided because that submission did not ex ceed the page limit
established in paragraph 13 of the Panel's working procedures.
276 As established by paragraph 9 of the Panel's working procedures.
277 See also para. 1.14 above.
278 United States' request for review of the interim reports (25 May 2011), para. 3.

6.4 The European Union requests the deletion of th e word "normally" in the first sentence of
paragraph 2.8 of the interim reports because "there is no evidence on the record that a spirit distilled
from one of the designated raw materials in a country where such a raw material is not produced on a
commercial scale has ever been taxe d at the low and flat rate provided for in Section 141(a) of the
NIRC."
 279 The Philippines and the United States did not comment on this request. The Panel has
made the change requested by the European Union.
6.5 The European Union requests adding to foot note 66 to paragraph 2.22 references to
paragraph 13 of the Philippines' opening stat ement at second substantive meeting and to the
Philippines' response to Panel question No. 70. 280 The Philippines and the United States did not
comment on this request. The reference request ed by the European Union has been added to
paragraph 2.23, since it relates to the factual description of congeners.
6.6 The European Union requests adding to footnote 67 to paragraph 2.22 a reference to exhibits
EU-55 and EU-79. 281 The Philippines and the United States did not comment on this request. The
Panel has added the reference to the exhibits requested by the European Union.
6.7 The European Union requests replacing the word s "may depend" with the word "depends" in
footnote 80 to paragraph 2.29. 282 The Philippines and the United States did not comment on this
request. The Panel has made the change requested by the European Union.
6.8 The European Union suggests adding to footnot e 101 to paragraph 2.38 a reference to a
finding by the panel report in Chile – Alcoholic Beverages II .283 While the United States did not
comment on this request, the Philippines rejects it because the proposed addition refers to the
summary of arguments by the parties and to findings made by another panel in another case. 284 In the
Panel's view, the findings of the report cited by the European Union, which refer to a different market,
are not relevant to the specific factual finding cont ained in this paragraph. Accordingly, the Panel
sees no reason to make the proposed addition.
B. INTERIM REVIEW CHANGES TO THE FINDINGS SECTION
6.9 The United States requests inserting the expression "4-digit" before "HS tariff heading" in
paragraph 7.23 because "although the distilled spirits at issue are all classifiable under HS 2208, they
fall under different classifications at the six digit level." 285 The Philippines and the European Union
did not comment on this request. The Panel has made the change requested by the United States.
6.10 The United States requests replacing the word s "determinations made" with the words
"reasoning used" in the first sentence of paragraph 7.32 because the original wording "could be read
to suggest that the panel is applying the specific le gal findings in another dispute to this dispute." 286
The Philippines and the European Union did not comment on this request. The Panel has made the
change requested by the United States.

279 European Union's request for review of the interim reports (25 May 2011), para. 1.
280 Ibid., para. 2.
281 European Union's request for review of the interim reports (25 May 2011), para. 3.
282 Ibid., para. 4.
283 Ibid., para. 5.
284 Philippines' comments on the European Union's and the United States' requests for review of the
interim reports (8 June 2011), para. 1.
285 United States' request for review of the interim reports (25 May 2011), para. 4.
286 Ibid., para. 5.

6.11 The European Union requests adding a footnote to the fourth sentence of paragraph 7.32 with
a reference to the panel report on Japan – Alcoholic Beverages II .287 The Philippines and the
United States did not comment on this request. The Panel does not consider that it would be
appropriate to include the reference requested by the European Union.
6.12 The European Union requests adding a new last sentence in paragraph 7.37 noting that "the
production processes employed to manufacture spirits from the designated raw materials are largely
similar to those used to produce sp irits from the other raw materials." 288 The European Union further
requests the addition of a footnote making referenc e to some submissions by it and the Philippines
that would support such a statement. 289 The Philippines rejects the inclusion of the references to the
Philippines' submissions as they do not support the additional statement requested by the
European Union's.
290 The United States did not comment on this request. In paragraph 7.37, the
Panel notes that it would focus on the physical qualiti es and characteristics of the distilled spirits as
final products, and not on those of the raw materi als or production processes used to make the final
products. Accordingly, the Panel sees no need to make the addition requested by the European Union.
6.13 The Philippines requests the text of footnote 341 to paragraph 7.38 to be modified to reflect
the fact that the Philippines did not concede that imported and domestic rums are like products within
the meaning of the first sentence of Article III:2. 291 While the United States did not comment on this
request, the European Union rejects it because the footnote correctly reflects the position of the
Philippines on this issue. 292 The Panel sees no reason to make the proposed change, as the text
accurately reflects the position expressed by the Philippines on this issue.
6.14 The European Union requests adding to foot note 344 to paragraph 7.40 references to
paragraphs 63-65 of the European Union's second written submission and to exhibit EU-92. 293
The Philippines and the United States did not comment on this request. The Panel has added the
references requested by the European Union to its second written submission. The Panel sees no
reason, however, to add the reference to exhibit EU-92, as it concerns only whiskies made from other
than the designated raw materials.
6.15 The Philippines requests footnote 344 to paragraph 7.40 to be modified, so as to reflect the
fact that it provided concentration data in gas chro matography results in whiskies for eight congeners.
The European Union and the United States did not co mment on this request. The Panel has made the
change requested by the Philippines and has inserted a clarification in the footnote with respect to
congener concentration data reported as "Not Detectable".
6.16 The Philippines considers that the statement in paragraph 7.40 is incorrect as the Philippines
has presented evidence on the sign ificance of the raw materials used on the final organoleptic
properties of the particular type of distilled spirit and on how such differenc es were perceptible to
consumers. The Philippines thus requests the Pane l to either address such evidence or modify the
sentence that there is no evidence. 294 European Union and the Unite d States reject this request
because, in their view, the Panel considered all rele vant evidence with respect to the relevance of the

287 European Union's request for review of the interim reports (25 May 2011), para. 6.
288 Ibid., para. 7.
289 Ibid.
290 Philippines' comments on the European Union's and the United States' requests for review of the
interim reports (8 June 2011), para. 2.
291 Philippines' request for review of the interim reports (25 May 2011), p. 1.
292 European Union's comments on the Philippines' and the United States' requests for review of the
interim reports (8 June 2011), para. 1.
293 European Union's request for review of the interim reports (25 May 2011), para. 8.
294 Philippines' request for review of the interim reports (25 May 2011), p. 1.

alleged differences between the or ganoleptic properties between impor ted and local distilled spirits
and concluded that such differences do not support the division of these spirits into "two separate and
identifiable groups".
295 Noting the evidence on record, in paragraph 7.40 the Panel states that
different types of distilled spirits have specific or ganoleptic properties. As stated in the same
paragraph, however, there is no evidence that thes e differences in organoleptic properties create a
distinction between two separate and identifiable groups: distilled spirits made from the designated
materials and distilled spirits made from other mate rials. Accordingly, the Panel sees no reason to
make the proposed change.
6.17 The European Union requests adding a footnot e to paragraph 7.43 making reference to
paragraph 143 of the Philippines' first written submission. 296 The Philippines and the United States
did not comment on this request. The Panel sees no reason to make the requested change as the
citation to the Philippines' submission is already co ntained in footnotes to paragraphs 2.25 and 2.62,
which are cross-referenced in footnote 348 to paragraph 7.43.
6.18 The European Union requests adding a footnot e to paragraph 7.45 making reference to
paragraph 36 of the Philippi nes' second written submission. 297 The Philippines considers that the
reference, in fact, contradicts the statement made by the Panel in paragraph 7.45 and should be
referenced as such. The United States did not comment on this request. Having considered the
statement made by the Philippines in its second wr itten submission, in para graph 2.26 the Panel
concluded that, although different brands of spirits of the same type may have differences in taste and
aroma, there is no evidence to suggest that a n on-expert consumer would be able to distinguish
between imported and domestic spirits of the same type based only on the different raw materials used
in their respective production. Accordingly, the Panel sees no need to make the proposed change.
6.19 The European Union requests adding a footnot e to paragraph 7.46 making reference to
paragraph 119 of the Philippines' first written submission. 298 The Philippines and the United States
did not comment on this request. The Panel sees no reason to make the requested change as the
citation to the Philippines' submission is already co ntained in footnotes to paragraphs 2.25 and 2.81,
which are cross-referenced in footnote 351 to paragraph 7.46.
6.20 The Unites States requests the deletion of the second sentence of paragraph 7.49 so as to
avoid the possible implication that the section on "Consumers' tastes and habits", under which this
paragraph belongs, be un derstood as the only one relevant one for the issue of "the competitive
relationship between th e relevant products." 299 The Philippines and the European Union did not
comment on this request. In order to avoid the possible confusion identified by the United States, the
Panel has deleted the sentence.
6.21 The Philippines requests that paragraph 7.50 be amended to state that, in addition to brand
loyalty, price is an important factor with respect to consumers' choice. The Philippines adds that the
Abrenica & Ducanes study "shows that price exerts the most significant influence on consumers'
choice".300 The European Union and the United States re ject this request becau se the issue of price
and consumer's choice was adequately and extensivel y addressed by the Panel in various parts of the

295 European Union's comments on the Philippines' and the United States' requests for review of the
interim reports (8 June 2011), para. 2; United States' comments on the Philippines' request for review of the
interim reports (8 June 2011), para. 4.
296 European Union's request for review of the interim reports (25 May 2011), para. 9.
297 Ibid., para. 10.
298 Ibid., para. 9.
299 United States' request for review of the interim reports (25 May 2011), para. 6.
300 Philippines' request for review of the interim reports (25 May 2011), p. 2.

reports.301 In the Panel's view, the role of price in c onsumers' decisions is adequately discussed in the
reports, including in the first sentence of paragraph 7.50. Accordingly, the Panel sees no need to
make the proposed change.
6.22 Regarding distribution channels, the Phili ppines requests that paragraph 7.51, and
consequently also paragraph 7. 123, be amended so as to adequately address distribution of
"non-sugar-based spirits" in the Philippines, in partic ular with respect to sari-sari stores as well as the
evidence that these products are put to different use when sold in outlets that sell both imported and
local spirits.302 The European Union and the United States reject this request because in their view the
Panel adequately dealt with the issue of the distribution channels in various passages of its reports and
the Philippines has offered no evidence for its asserti on that domestic spirits are put to different use
when sold side-by-side with imported spirits. 303 In the Panel's view, the importance of distribution
channels is adequately discussed in the reports. Accordingly, the Panel sees no need to make the
proposed change.
6.23 Regarding marketing campaigns, the Philippi nes requests that paragraph 7.51, and
consequently also paragraph 7. 131, be amended so as to address the evidence submitted by the
European Union that "importers have had to h eavily distinguish their brands from local brands." 304
The European Union and the United States reject this request because the Panel reviewed all the
evidence submitted by the parties on this matter a nd concluded that the marketing campaigns of both
imported and domestic sprit producers are "largely the similar". 305 The European Union adds that the
evidence referred to by the Philippines, a paper pr oduced by Dr. Parplies, was merely pointing out
that the Abrenica & Ducanes report failed to take in to account the influence that the long application
of the discrimination against imported spirits had to c onsumers' perception. In this context, the paper
indicates that, as a result of such tax discrimination, "the only chance of surviving for many importers
was to try to present their products to potential cu stomers as somewhat different from the (sometimes
cheaper) local ones." 306 In the Panel's view, the importance of marketing campaigns is adequately
discussed in the reports. Based on the evidence on record, including that referred to in paragraph
2.42, the Panel concluded that "marketing campaigns for distilled spirits are very similar". The fact
that through these marketing campa igns, each producer may attempt to achieve differentiation for its
respective brands does not affect this conclusion. Accordingly, the Panel sees no need to make the
proposed change.
6.24 The Philippines requests paragraph 7.55 to be amended to reflect the fact that in their view the
Abrenica & Ducanes study is an "econometric study" rather than a "marketing analysis".307 While the
United States did not comment on this request, the European Union does not consider this change

301 European Union's comments on the Philippines' and the United States' requests for review of the
interim reports, para. 4 (8 June 2011); United States' comments on the Philippines' request for review of the
interim reports (8 June 2011), para. 5.
302 Philippines' request for review of the interim reports (25 May 2011), p. 2.
303 European Union's comments on the Philippines' and the United States' requests for review of the
interim reports (8 June 2011), para. 3; United States' comments on the Philippines' and the European Union's
requests for review of the interim reports (8 June 2011), para. 6.
304 Philippines' request for review of the interim reports (25 May 2011), p. 2.
305 European Union's comments on the Philippines' and the United States' requests for review of the
interim reports (8 June 2011), para. 11. See also Unite d States' comments on the Philippines' request for review
of the interim reports(8 June 2011), para. 7.
306 European Union's comments on the Philippines' and the United States' requests for review of the
interim reports (8 June 2011), paras. 6-7.
307 Philippines' request for review of the interim reports (25 May 2011), p. 3.

necessary as the "crucial input data" of this stu dy was generated by a marketing analysis, i.e. a
"conjoint analysis".
308 The Panel has made the change requested by the Philippines.
6.25 The European Union suggests that a reference be added at the end of paragraph 7.57 to certain
findings made by the panel in Chile – Alcoholic Beverages, which the European Union considers to be
useful despite the fact that they were made in th e context of an analysis under the second sentence of
Article III:2.309 The Philippines and the United States did not comment on this request. The Panel
sees no need to make the proposed change.
6.26 The European Union suggests adding a new pa ragraph between para graphs 7.57 and 7.58
recalling statements made in the Abrenica & Du canes survey suggesting the existence, among
Filipino consumers, of traditional habits and tast es which might create brand loyalty that can limit
their propensity to switch brand. Additionally, the new paragraph could state, citing in support a
GATT case, that the large tax defere ntial applied to the products at issue contribute to reinforce or
"freeze" such habits and tastes. The Philippin es and the United States did not comment on this
request. In the Panel's view, the discussion of br and loyalty in the Abrenica & Ducanes survey is
adequately addressed in the reports, including in paragraph 7.50 in the same section. Accordingly, the
Panel sees no need to make the proposed change.
6.27 The European Union requests adding a sentence at the end of paragraph 7.61 noting that,
according to the evidence in the record, imported spirits share the same shelving space of domestic
spirits in most outlets, and that previous panels found this to be an indication of substitutability
between these products. 310 The Philippines and the United States did not comment on this request.
The Panel has noted elsewhere in the reports, incl uding in paragraph 7.51, that some outlets where
imported spirits are sold also offer domestic Phili ppine spirits. Some evidence on record, including
that identified by the European Union 311, suggests that, in at least some of those outlets, imported
spirits share the same shelving space of domestic sp irits. The Panel does not find, however, enough
evidence on record to suggest that this is the situation of "most outlets" in the Philippines.
Accordingly, the Panel sees no need to make the proposed change.
6.28 The Philippines requests paragraph 7.62 to be am ended "to reflect the fact that, despite their
willingness, the vast majority of consum ers cannot afford non-sugar-based spirits." 312 T h e
European Union and the United States reject this re quest because in their view a contrary conclusion
regarding the affordability of imported spirits was al ready reached by the Panel in several passages of
the interim reports. 313 In the Panel's view, the issue of the income and expenditure constraints faced
by the Philippines' consumers is adequately discussed in the reports. As noted by the Panel, the
evidence on record suggests that because of those constraints a large proportion of the Philippine
population has a limited ability to purchase distilled sp irits beyond certain price levels. The Panel has
found, however, no evidence of two separate distilled spirit markets in the Philippines that reflect
different levels of purchasing power, i.e. one that would consume distilled spirits made from
designated raw materials, and another that woul d consume distilled spirits made from other raw
materials. Accordingly, the Panel sees no need to make the proposed change.

308 European Union's request for review of the interim reports (25 May 2011), para. 14.
309 Ibid., para. 12.
310 European Union's request for review of the interim reports (25 May 2011), para. 14.
311 See exhibits EU-66, EU-67, EU-68, EU-69, EU-71 and EU-104.
312 Philippines' request for review of the interim reports (25 May 2011), pp. 2-3.
313 European Union's comments on the Philippines' and the United States' requests for review of the
interim reports (8 June 2011), para. 13; United States ' comments on the Philippines' request for review of the
interim reports (8 June 2011), para. 8.

6.29 The European Union requests a clarification in paragraph 7.77 by rephrasing "distilled spirits
at issue" to "distilled spirits made from the desi gnated raw materials and distilled spirits made from
other raw materials". 314 The United States supports the proposed change. 315 The Philippines did not
comment on this request. In the Panel's view, the language of the paragraph is clear. The Panel's
finding covers the distilled spirits at issue in the dispute, whether imported or domestic, and
irrespective of the raw materials from which they are made; i.e., whether made from the designated
raw materials or from other raw materials. Accordingly, the Panel sees no need to make the requested
change.
6.30 The European Union requests adding a footnote at the end of paragraph 7.80 referring to
paragraphs 2.25 and 7.38 of the interim reports. 316 Neither the Philippines nor the United States made
comments on this request. The Panel has made the change requested by the European Union.
6.31 The United States requests changing the phrase "m ore specifically sugar cane molasses" to
the more general term "designated raw materials" throughout paragraph 7.85 so as to more accurately
reflect the fact that the Excise Tax divides spirits between those made from designated raw materials
and those made from other raw materials. 317 The Philippines does not object to the change, but
requests that should changes be made that they also include references to the specific factual evidence
the Panel relied upon.318 The European Union did not comment on this request. The United States is
correct that the measure at issue creates a dis tinction between spirits made from designated raw
materials and those made from other raw material s. As the Panel notes in paragraph 2.17, "all
distilled spirits produced in the Philippines are made from designated raw materials". At the same
time, the domestic spirits that were relevant in the dispute were all made from sugar cane molasses.
As noted by the Panel in paragraph 2.17 and footno te 59, "most of the distilled spirits produced in the
Philippines are made from one particular designated raw material: sugar cane molasses." Indeed,
"[t]here is no evidence … that raw materials other than sugar cane molasses are currently used by
Philippine distilled spirits producers in commercial qua ntities." Accordingly, the Panel has made the
change requested by the United States.
6.32 The European Union requests adding a refe rence to exhibits EU-101 and EU-102 in
footnote 448 to paragraph 7.110.
319 The Philippines and the United States did not comment on this
request. The Panel has added the reference requested by the European Union.
6.33 The European Union requests amending paragr aph 7.118 to mention the fact that the
Philippines mostly referred to average prices rather than to actual prices of single products, and that
similar arguments were discarded by the panel on Korea – Alcoholic Beverages.320 The Philippines
and the United States have not made comments on this request. The Panel reports note elsewhere that
the Philippines has often referred to average prices of distilled spirits in its market.321 The Philippines'
argument noted in paragraph 7.118 "that instances of price overlap between domestic and imported
distilled spirits are 'exceptions and aberrations'", however, does not refer to average prices but to
prices of single products. Accordingly, the Panel sees no need to make the requested change.

314 European Union's request for review of the interim reports (25 May 2011), para. 15.
315 United States' comments on the Philippines' request for review of the interim reports (8 June 2011),
para. 2.
316 European Union's request for review of the interim reports (25 May 2011), para. 16.
317 United States' request for review of the interim reports (25 May 2011), para. 7.
318 Philippines' comments on the European Union's and United States' request for review of the interim
reports (8 June 2011), para. 4.
319 European Union's request for review of the interim reports (25 May 2011), para. 17.
320 Ibid., para. 18.
321 See, for example, paras. 7.143 and 7.162-7.163.

6.34 The European Union requests adding a footnote to the third sentence of paragraph 7.121 by
making reference to the Appellate Body report in Korea – Alcoholic Beverages .
322 The Philippines
and the United States did not comment on this request. The Panel sees no reason to make the
requested change as the citation to the Appellate Body report is already contained in footnotes 426
and 427 to paragraph 7.100, which is mentioned in the first sentence of paragraph 7.121.
6.35 The European Union requests adding a new pa ragraph after paragraph 7.121 to include
statements from domestic Philippine companies stating that their products face competition from
imported spirits, and that their marketing strategies convey an image of their products as drinks that
can and do compete with the best imported distilled sp irits. The European Union considers this to be
additional evidence supporting the existence of a competitive relationship between the products at
issue and additionally requests that a footnote be inser ted at the end of this new paragraph referencing
the panel report in Chile – Alcoholic Beverages .323 The Philippines and the United States did not
comment on this request. In the Panel's view, th e statements from domestic Philippine companies
referred to by the European Union relate to act ual competition discussed in paragraph 7.120, rather
than to potential competition discussed in paragra ph 7.121. Accordingly, the Panel has added a
reference to the statements from domestic Philippine companies, to certain EU exhibits and to the
panel report on Chile – Alcoholic Beverages to footnote 472 to paragraph 7.120.
6.36 The European Union requests adding a sentence at the end of paragraph 7.123 noting that in
most outlets the products at issue share the same shelving space, and that previous panels (such as
Chile – Alcoholic Beverages ) found this to be an indication of substitutability between the different
products.324 The Philippines and the United States did not comment on this request. The Panel has
already rejected a similar request made by the Eu ropean Union regarding paragraph 7.61. For the
same reasons, the Panel sees no need to make the proposed change.
6.37 The European Union requests adding either in th e text of paragraph 7.127 or in footnote 485
references to the panel reports on Chile – Alcoholic Beverages and Korea – Alcoholic Beverages .325
The Philippines and the United States did not comment on this request. The Panel has added
references to the panel reports on Chile – Alcoholic Beverages (paragraph 7.53) and Korea –
Alcoholic Beverages (paragraph 10.67) to footnote 486. The Panel does not consider that it would be
appropriate to include a reference to paragraph 7.83 of the panel report on Chile – Alcoholic
Beverages.
6.38 The European Union suggests adding in footnote 494 to paragraph 7.131 references to
paragraphs 10.65, 10.79 and 10.80 of the panel report in Korea – Alcoholic Beverages .326
The Philippines and the United States did not co mment on this request. The Panel has added a
reference to the panel report on Korea – Alcoholic Beverages (paragraph 10.65) in a new footnote at
the end of paragraph 7.131. The Panel does not cons ider that it would be appropriate to include a
reference to paragraphs 10.79 and 10.80 of the panel report on Korea – Alcoholic Beverages.
6.39 The United States requests amending paragraph 7.14 7 to clarify that the approach advanced
by the United States is specific to the present dis pute by adding the phrase "in this case" following the

322 European Union's request for review of the interim reports (25 May 2011), para. 19.
323 European Union's request for review of the interim reports (25 May 2011), para. 20.
324 Ibid., para. 21.
325 Ibid., para. 22.
326 Ibid., para. 23.

words "the correct approach". 327 The Philippines and the European Union did not comment on this
request. The Panel has made the change proposed by the United States.
6.40 The Philippines requests amending paragraph 7.159 to note that the Excise Tax on
"non-sugar-based" spirits "is also a specific tax, not an ad valorem tax", although these products are
tiered according to their NRP. 328 The United States disagrees and finds that the term " ad valorem" is
appropriate to describe the Excise Tax, because the ti ered tax rates depend on the net retail price. The
United States does not object, however, an additi onal clarification by the Panel on this issue. 329 The
European Union did not comment on this request. The Panel has described the Excise Tax rates in
paragraphs 2.2 to 2.5 of the reports. This factua l description was not contested by the parties. As
noted in those paragraphs, spirits made from designated raw materials are subject to a flat tax rate. In
contrast, spirits made from other raw materials are subject to three different tax rates, depending on
their net retail price (NRP). While these three tax rates are not imposed as a percentage of the NRP of
the products, the tax ultimately depends on the valu e of the spirit. In this sense, it is an ad valorem
tax. With this clarification, the Panel sees no reason to make the requested change.
C. INTERIM REVIEW CHANGES TO THE CONCLUSIONS AND RECOMMENDATIONS SECTION
6.41 The United States requests amending paragraph 8.1 to clarify the fact that the reports contain
common finding sections, but separate conclusions and recommendations for each complainant. 330
The Philippines and the European Union did not comment on this request. The Panel has made the
change proposed by the United States.
D. M
INOR CORRECTIONS AND ADDITION OF REFERENCES
6.42 As a result of comments from the parties, minor typographical corrections were made to
paragraphs 7.50, 7.101, 7.105 and 7.185. The Pane l also made a clerical correction to footnote 210 to
paragraph 2.75.
VII. FINDINGS
A. CLAIMS AND ORDER OF ANALYSIS
1. The complainants' claims
7.1 The complainants present their respective clai ms under the two sentences of Article III:2 of
GATT 1994 differently. The European Union genera lly starts its argumentation with the first
sentence of Article III:2. 331 It articulates its claim under the second sentence as an alternative, in the
event that it does not succeed, either partially or tota lly, in its claim under the first sentence. Indeed,
in its first submission, the European Union explains that:
"[I]f this Panel were not persuaded that some or all of those spirits are 'like' within the
meaning of GATT Article III:2, first sentence, subordinately, the EU submits that

327 United States' request for review of the interim reports (25 May 2011), para. 8.
328 Philippines request for review of the interim reports (25 May 2011), p. 3.
329 United States' comments on the Philippines' request for review of the interim reports (8 June 2011),
para. 9.
330 United States' request for review of the interim report (25 May 2011), para. 9.
331 See European Union's first written submission, para. 50.

they are 'directly competitive or substitutable' pursuant to GATT Article III:1 and
III:2, second sentence."
332 (emphasis added)
7.2 In contrast, the United States presents its claims under each of the two sentences as
independent claims; it specifically requests finding s that would cover all distilled spirits under both
the first and the second sentences of Article III:2.333
7.3 The Philippines generally responds to the co mplainants' arguments under Article III:2 by
starting with the first sentence. 334 The Philippines submits that each of the two sentences of
Article III:2 establishes independent and distinct obligations and, consequently, a separate and distinct
analysis is required for each.335
7.4 Concerning the products covered by the dispute, the European Union indicates that its claim
under the first sentence of Article III:2 is that for each type of distilled spirit relevant in the present
dispute (gin, brandy, rum, vodka, whisky and te quila), products made from the designated raw
materials are "like" imported products that are ma de from other materials and are being taxed "in
excess".336 The European Union states that it "does no t necessarily claim that all spirits under HS
code 2208 are 'like products' within the meaning of Article III:2, first sentence, of the GATT", but
that:
"[A]t the very least – and irrespective of the type and origin of the raw materials used
for their production, all gins sold in the Philippines are like products, all brandies sold
in the Philippines are like products, all wh iskies sold in the Philippines are like
products, all vodkas sold in the Philippines are like products, all rums sold in the
Philippines are like products, and so on."337
7.5 With respect to its alternative claim under th e second sentence of Article III:2, the European
Union argues that all distilled spirits falling unde r HS heading 2208 are "directly competitive and
substitutable", irrespective of the raw materials from which they are distilled. 338 The European Union
submits, to illustrate the point, "that imported gi n is directly competitive and substitutable with
Filipino vodka, that imported brandy is directly competitive and substitutable with domestic whisky,
etc."339 However, the European Union subordinately argues that, if the Panel were to conclude that all
or some distilled spirits are not "directly competitiv e and substitutable", then "for each type of spirit
(e.g. gin, vodka, whisky, rum, brandy, tequila et c.), the products distilled from the designated raw
materials are 'directly competitive and substitutable' with those distilled from the non-designated raw
materials".340 In other words, the European Union s ubmits that "a whisky produced from the

332 Ibid., para. 49. The European Union adds that "if the Panel were to establish that the Philippines
violate Article III:2, first sentence, it would not necessarily need to anal yze a breach of the second sentence of
the same provision". European Union's first written submission, para. 52. See also European Union's response
to Panel question Nos. 18, paras. 9-12, and 64, paras. 4-5.
333 See, e.g. United States' first written submission, paras. 37 and 100, where it claims, without any
qualifications, that the measures violate both sentences of Article III:2. See also United States' second written
submission, paras. 3-4 and 24; United States' response to Panel question No. 64, para. 2.
334 See for example Philippines' first written submi ssion, paras. 73-204 and 205-314; Philippines'
second written submission, paras. 19-45 and 46-82.
335 Philippines' first written submission, paras. 56-58.
336 See European Union's first written submission, para. 62; European Union's response to Panel
337 European Union's first written submission, para. 62.
338 European Union's response to Panel question No. 18, para. 11.
339 Ibid. (footnote omitted).
340 European Union's response to Panel question No. 18, para. 12.

designated raw materials is directly competitive a nd substitutable with a whisky produced from other
raw materials; a gin produced from the designated raw materials is directly competitive and
substitutable with a gin produced from other raw materials; a vodka produced from the designated
raw materials is directly competitive and subs titutable with a vodka produced from other raw
materials; etc."341
7.6 With respect to product coverage, the United States suggests that the Panel may compare
"Philippine and imported brands of each type of spirit, in order to evaluate whether the measure itself
… is consistent with the Philippines' obligations." On that basis, the Pa nel could conc lude "that
domestic spirits of all types made from protected ra w materials are not only 'directly competitive or
substitutable' with imported distilled spirits, but would indeed be 'like products' with certain of their
imported counterparts."342 Specifically, with respect to the fi rst sentence of Article III:2, the United
States asks the Panel to "review the evidence of Philippine domestic bran ds and their imported
counterparts to confirm that Philippine 'brandy' is like imported 'brandy,' Philippine 'gin' is like
imported 'gin,' etc."343
2. Applicable provisions
7.7 Parties have brought claims under the two sentences of Article III:2 of the GATT 1994.
7.8 We recall that the first sentence of Article III:2 of the GATT 1994 reads:
"The products of the territory of any contr acting party imported into the territory of
any other contracting party shall not be subject, directly or indirectly, to internal taxes
or other internal charges of any kind in ex cess of those applied, di rectly or indirectly,
to like domestic products."
7.9 The second sentence of Article III:2 of the GATT 1994 provides that:
"Moreover, no contracting party shall otherw ise apply internal taxes or other internal
charges to imported or domestic products in a manner contrary to the principles set
forth in paragraph 1 [of Article III]."
7.10 In turn, Article III:1 of the GATT states that:
"The contracting parties recognize that intern al taxes and other internal charges, and
laws, regulations and requirements affecting the internal sale, offering for sale,
purchase, transportation, distribution or use of products, and internal quantitative
regulations requiring the mixture, processing or use of products in specified amounts
or proportions, should not be applied to imported or domestic products so as to afford
protection to domestic production." (emphasis added).
7.11 Finally, we observe that the Ad Note to Article III:2 of the GATT provides that:
"A tax conforming to the requirements of th e first sentence of paragraph 2 would be
considered to be inconsistent with the provisions of the second sentence only in cases
where competition was involved between, on the one hand, the taxed product and, on

341 Ibid.
342 United States' response to Panel question No. 18, para. 7.
343 United States' second written submission, para. 24 (footnote omitted). See also United States' first
written submission, paras. 82 and 90; United States' response to Panel question No. 64, para. 2.

the other hand, a directly competitive or substitutable product which was not similarly
taxed." (emphasis added).
3. Order of analysis
7.12 Previous panels have approached the order of analysis of simultaneous claims under the first
and second sentences of Article III:2 differently.
7.13 Most panels faced with claims under both senten ces of Article III:2 have started their analysis
with the first sentence. The panels in Japan – Alcoholic Beverages II and Mexico – Taxes on Soft
Drinks (with respect to the claims concerning Mexico 's treatment for sweeteners) considered first
whether the challenged measures were inconsistent with the first sentence of Article III:2, and
subsequently went on to consider whether they were also inconsistent with the second sentence.
344
7.14 The panel in Korea – Alcoholic Beverages, however, began its analysis with the second
sentence, noting that it found it logical to examin e "the broader category [of directly competitive or
substitutable products] first." 345 That panel found that the challe nged measure was inconsistent with
Article III:2, second sentence, but made no findings under Article III:2, first sentence, as it found
insufficient evidence that the relevant products were "like products".346
7.15 In some instances, claims under the two senten ces in Article III:2 have been presented by the
complainants as alternativ es. Such was the case in Canada – Periodicals , in Mexico - Taxes on Soft
Drinks (with respect to claims regarding taxes on soft drinks and syrups) and in China - Auto Parts .
The three panels were faced with primary claims under Article III:2, first sentence, and alternative
claims under Article III:2, second sentence. Once th e panels concluded that the challenged measures
were inconsistent with the first sentence, they fo und no need to make additional findings with respect
to the second sentence.347
7.16 In Indonesia – Autos, even though the claims were not presented as alternatives, the panel was
of the view that, having found that the tax pr ovisions of the Indonesian car programmes were
inconsistent with Article III:2, first sentence, it was unnecessary to examine the same programmes
under the second sentence.
348
7.17 In the current case, as explained in paragraphs 7.1 to 7.6, we have two different sets of
complaints. First, a complaint presented by the European Union, which includes a principal claim
under the first sentence of Article III:2 of the GAT T 1994 and an alternative claim concerning the
second sentence of Article III:2. Second, two inde pendent claims presented by the United States
under the first and second sentences of Article III:2. We will start our analysis with the first sentence
of Article III:2 and subsequently assess the claims under the second sentence.

344 Panel Report, Japan – Alcoholic Beverages II , paras. 6.27, 6.33 and 7.1; Panel Report, Mexico –
Taxes on Soft Drinks, paras. 8.59 and 8.96.
345 Panel Report, Korea – Alcoholic Beverages, para. 10.36.
346 Ibid., para. 10.104.
347 Panel Report, Canada – Periodicals, paras. 3.111, 5.27 and 5.30; Panel Report, Mexico – Taxes on
Soft Drinks , para. 8.161; and Panel Reports, China – Auto Parts , para. 7.226. In the case of Canada –
Periodicals, the claim under the second sentence of Article III:2 was eventually analysed by the
Appellate Body, which found it necessary to "complete th e analysis" after it had reve rsed the panel's finding
under the first sentence (Appellate Body Report, Canada – Periodicals, DSR 1997:I, 449, at 468).
348 Panel Report, Indonesia – Autos, paras. 14.115-14.117.

B. BURDEN OF PROOF
7.18 The general rule is that the burden of proof rests upon the party, whether complaining or
defending, who asserts the affirmative of a particular claim or defence. 349 Following this principle,
the Appellate Body has explained that the comp laining party in any given case should establish a
prima facie case of inconsistency of a measure with a provision of the WTO covered agreements,
before the burden of showing consistency with th at provision or defending it under an exceptional
provision is passed to the defending party. 350 According to the Appellate Body, a prima facie case is
"one which, in the absence of effective refutation by the defending party, requires a panel, as a matter
of law, to rule in favour of the complaining party presenting the prima facie case."351 To establish a
prima facie case, the party asserting a particular claim must adduce evidence sufficient to raise a
presumption that what is claimed is true. In this regard, precisely how much and what kind of
evidence will be required to establish a presumption th at a claim is valid will necessarily vary from
case to case.352
7.19 The Philippines argues that both the European Union and the United States have failed to
discharge their burden of proof. 353 The Philippines submits that th e European Union inappropriately
assumes that the finding of a breach of the first sentence of Article III:2 of the GATT 1994 inevitably
entails a breach of the second sentence; in the Philippines' view, the obligations in each of the
sentences are separate and distinct and each requires a separate and distinct analysis. 354 T h e
Philippines adds that the United States appears to re ly on findings made by panels and the Appellate
Body in previous cases involving alcoholic beve rages. Such precedents would constitute "an
inadequate evidentiary basis" for the determinati ons to be made in the present case, which should be
based instead on the circumstan ces of the Philippines market. 355 The Philippines also argues that the
complainants have failed to provide a complete anal ysis regarding the likeness of each distilled spirit
"on a product-by-product basis". 356 In the Philippines' view, the co mplainants have instead produced
limited evidence regarding a limited number of dis tilled spirits, which would be insufficient to
establish a violation of Article III:2 of the GATT 1994.357 The Philippines submits that "[i]f the Panel
pursues a 'grouping' approach in this case [for all distilled spirits in HS heading 2208], it must
exercise great care to ensure that the categories of products they are grouping together are 'sufficiently
similar' in terms of 'composition, quality, function and price'."
358 Finally, the Philippines argues that it
has "presented evidence to rebut the complainants' assertions, including the types of evidence that
previous panels have required in their Article III:2 analysis".359

349 Appellate Body Report, US – Wool Shirts and Blouses , p. 14, DSR 1997:I, p. 323 at p. 335. Panel
Report, US – Shrimp, para. 7.14.
350 Appellate Body Report, EC – Hormones, para. 104.
351 Ibid.
352 Appellate Body Report, US – Wool Shirts and Blouses, p. 14, DSR 1997:I, p. 323 at p. 335.
353 Philippines' first written submission, para. 70. See also Philippines' opening statement at first
substantive meeting, paras. 11-13; Philippines' second written submission, paras. 6-18; Philippines' opening
statement at second substantive meeting, paras. 7-9; Philippines' response to Panel question Nos. 17 and 51.
354 Philippines' first written submission, paras. 56-58.
355 Ibid., paras. 59-60. See also Philippines' second written submission, paras. 11-12 and 15-18.
357 Ibid., paras. 61-71. See also Philippines' second written submission, paras. 7-10.
359 Philippines' opening statement at second substantive meeting, para. 10. See also Philippines' second
written submission, para. 18; Philippines' response to Panel question No. 51.

7.20 The European Union and the United States reject the Philippines' arguments and submit that
they have produced sufficient eviden ce to support their respective cases.
360 The complainants argue
that they have produced "a very extensive and thorough examination of why distilled spirits made
from designated raw materials are similar to dist illed spirits made from the non-designated raw
materials."361 This examination demonstrates that, irresp ective of the raw materials used in their
production, the relevant distilled spirits are "like", or, "at the very least", directly competitive and
substitutable.362 The European Union adds that:
"[G]iven that both like and directly compe titive and substitutable products are part of
the same broad category of similar products , all evidence advanced with respect to
each element of the similarity assessment (concerning physical characteristics, end
uses, consumer tastes and preferences, channels of distribution, prices, etc.) is
relevant to the consideration of the products as either like, or as directly competitive
and substitutable."
363
7.21 In this dispute, the initial burden of proof rests upon each complainant to establish a prima
facie case that the measure at issue is inconsistent with Article III:2 of the GATT 1994. If we were to
find that the complainants have established a prima facie case of inconsistency of the challenged
measure with the relevant provisions, the burden will then fall on the Philippines to rebut such claims.
C. CLAIMS UNDER THE FIRST SENTENCE OF ARTICLE III:2 OF GATT 1994
1. The complainants' claims
7.22 The European Union and the United States cl aim that the Philippines' excise tax is
inconsistent with the first sentence of Article III:2.
7.23 The European Union and the United States argue that domestic Philippine distilled spirits
produced from the raw materials designated in the excise tax law are "like" imported spirits produced
with other raw materials. 364 In the complainants' view, the basi c physical properties of all distilled
spirits, irrespective of the raw materials from whic h they are produced, are "essentially the same" 365;
distilled spirits in general have the same end uses 366; the consumers' tastes and habits are not affected

360 See European Union's opening statement at first substantive meeting, paras. 7 and 13-18; United
States' opening statement at first substantive meeting, paras. 35-48.
361 European Union's second written submission, para. 23. See also European Union's opening
statement at first substantive meeting, paras. 14 and 17; European Union's second written submission,
paras. 26-34.
362 European Union's second written submission, para. 23. See also European Union's opening
statement at first substantive meeti ng, paras. 17-18; United States' opening statement at first substantive
meeting, paras. 31-45; United States' second written su bmission, paras. 3-11; United States' opening statement
363 European Union's second written submission, para. 25. See also European Union's opening
statement at first substantive meeting, para. 15; United States' opening statement at first substantive meeting,
paras. 36-38.
364 See for example European Union's first written submission, paras. 49 and 58-99; United States' first
written submission, paras. 37 and 80-98; United States' opening statement at first substantive meeting, para. 42.
365 See for example European Union's first written submission, paras. 79-88; European Union's second
written submission, paras. 28 and 78-84; European Unio n's opening statement at second substantive meeting,
paras. 20-24; United States' first written submission, paras. 90-94.
366 See for example European Union's first written submission, paras. 64-70; European Union's second
written submission, paras. 28 and 104-107; United States' first written submission, para. 95.

by the different raw materials used in their production 367; all distilled spirits fall under the same
4-digit HS tariff heading and the classification of different types of spirit into sub-groups does not
depend on the raw material used in their production 368; and internal regulations in the Philippines as
well as other countries do not distinguish between spir its on the basis of the raw material from which
they are distilled.369
7.24 The complainants add that imported distilled sp irits produced with raw materials other than
those designated in the excise tax law are being taxed "in excess" of domestic Philippine distilled
spirits produced from the designated raw materials.370
7.25 The European Union and the United States concl ude that the Philippines' excise tax imposed
on distilled spirits is inconsistent with the first sentence of Article III:2 of the GATT 1994.371
2. The Philippines' response
7.26 The Philippines responds that the complainants have failed to provide the required evidence
to allow the Panel to conclude that the products in the dispute are "like".372
7.27 In addition, the Philippines states that dis tilled spirits produced from the raw materials
designated in the excise tax law ar e not "like" distilled spirits produced with other raw materials. In
the Philippines' view, there are significant physical differences between both categories of spirits 373;
distilled spirits produced from the raw materials desi gnated in the excise tax law do not compete in
the market with distilled spirits produced with othe r raw materials because of market segmentation in
the Philippines374; and tariff classification based on the Harmonized System groups distilled spirits on
the basis of the raw materials used in their respective production. 375 The Philippines adds that,
although all distilled spirits have the same end uses, this does not mean that they are like products.376

367 See for example European Union's first written submission, paras. 71-78; European Union's second
written submission, paras. 28 and 85-95, 97-103 and 108-109; United States' first written submission, paras. 96-
98.
368 See for example European Union's first written submission, paras. 92-96; European Union's second
written submission, para. 96.
369 See for example European Union's first written submission, paras. 89-91; United States' first written
submission, paras. 37 and 83-89.
370 See for example European Union's first written submission, paras. 100-106; European Union's
second written submission, para. 127; United States' fi rst written submission, para. 99; United States' opening
statement at first substantive meeting, para. 43; United States' second written submission, para. 13.
371 See for example European Union's first written submission, paras. 48-49 and 106; United States'
first written submission, paras. 37 and 79-99; United States' opening statement at first substantive meeting,
paras. 36-43; United States' second written submission, para. 56.
372 Philippines' first written submissi on, paras. 62-72 and 81; Philippi nes' opening statement at first
substantive meeting, para. 13; Philippines' second written submission, paras. 7-9.
373 See for example Philippines' first written submission, paras. 10-13, 85-88 and 94-175; Philippines'
opening statement at first substantive meeting, para s. 12-24; Philippines' second written submission,
paras. 19-33.
374 See for example Philippines' first written submission, paras. 89-90 and 176-188; Philippines'
opening statement at first substantive meeting, paras. 21 -22; Philippines' second written submission, paras. 34-
42 and 50-75; Philippines' response to Panel question Nos. 35 and 36.
375 See for example Philippines' first written submission, paras. 189-200; Philippines' opening
statement at first substantive meeting, para. 19; Philippines' second written submission, paras. 43-45.
376 Philippines' first written submission, paras. 201- 203; Philippines' opening statement at first
substantive meeting, para. 23.

7.28 The Philippines considers that, because the releva nt products are not "like", there is no need
for the Panel to proceed to consider whether one gr oup of distilled spirits is being taxed "in excess of"
another group of distilled spirits.
377
7.29 Finally, the Philippines states that the distincti on in its legislation between distilled spirits
made from designated raw materials and those made from other raw materials does not seek to protect
domestic production, but rather to enforce "a tax re gime that is best suited to achieve the fiscal
objectives set out in [the Philippines'] Constitution in light of the administrative and enforcement
constraints [the Philippines] faces with respect to tax collection." 378 The fiscal objectives in its
legislation are linked to achieving a "progressive" system of taxation that imposes higher taxes on
"higher-priced goods, typically bought by wealthie r consumers" and lower taxes on "lower-priced
goods, typically bought by less affluent consumers." 379 The constraints with respect to tax collection
identified by the Philippines include the fact that the country "possesses a large informal economy,
widespread poverty, a large geographical area and an extensive coast line to administer and monitor ...
and limited taxation resources".380
3. Panel's analysis
7.30 As articulated by the Appellate Body in its report in Canada – Periodicals , the analysis of
whether a measure is inconsistent with the firs t sentence of Article III:2 of the GATT 1994 requires a
two-step test:
"[T]here are two questions which need to be answered to determine whether there is a
violation of Article III:2 of the GATT 199 4: (a) whether imported and domestic
products are like products; and (b) whethe r the imported products are taxed in excess
of the domestic products. If the answers to both questions are affirmative, there is a
violation of Article III:2, first sentence."381
7.31 The consistent interpretation by disput e settlement bodies under the GATT 1947 and the
WTO is that whether products are "like" under Article III:2, first sentence382 must be determined "on a
case-by-case basis, by examining relevant factors". 383 These factors include "the product's properties,
nature and quality"; "the product's end-uses in a gi ven market"; and "consumers' tastes and habits,
which change from country to country". 384 Another relevant factor id entified by the Appellate Body
is the tariff classification, which, if sufficiently deta iled, "can be a helpful sign of product similarity",

377 Philippines' first written submission, para. 204; Philippines' opening statement at first substantive
meeting, para. 24. See also European Union's second written submission, para. 127; United States' second
378 Philippines' first written submission, para. 1. See also Philippines' response to Panel question
No. 16.
379 Philippines' first written submission, para. 2. See also Philippines' first written submission,
paras. 32 and 296; Philippines' opening statement at firs t substantive meeting, paras. 5-9; Philippines' opening
statement at second substantive meeting, paras. 3-5; Philippines' response to Panel question Nos. 16 and 62.
380 Philippines' response to Panel question No. 62. See also Philippines' opening statement at first
substantive meeting, para. 4; Philippines' closing statement at first substantive meeting, para. 4; Philippines'
opening statement at second substantive meeting, paras. 3 and 38; Philippines' response to Panel question
Nos. 16 and 63.
381 Appellate Body Report, Canada – Periodicals, pp. 22-23, DSR 1997:I, p. 449, at p. 465-66.
382 In the French and Spanish versions of the GATT 1994, the equivalent expressions to "like products"
are "produits similaires" and "productos similares", respectively.
383 Appellate Body Report, Canada – Periodicals , p. 21, DSR 1997:I, p. 449, at p. 466. See also,
Appellate Body Report, Japan – Alcoholic Beverages II, p. 20, DSR 1996:I, p. 97, at p. 113.
384 GATT Report of the Working Party on Border Tax Adjustments, BISD 18S/97, para. 18, as quoted
in Appellate Body Report, Japan – Alcoholic Beverages II, p. 20, DSR 1996:I, p. 97, at p. 113.

and has been used to assess likeness in several adopted panel reports. 385 In addition to the tariff
classification, previous panels have looked at other internal regulations as a useful indicator of the
degree to which a Member would tend to re gard different products as being similar. 386 The Appellate
Body has noted that a panel should examine the ev idence relating to each of these four criteria and,
then, weigh all of that evidence, along with an y other relevant evidence, in making an overall
determination of whether the products at issue may be characterized as "like".387
7.32 We will take into account the reasoning used by other panels and the Appellate Body in
previous cases, including those made in cases invol ving challenges against internal taxes on distilled
spirits. Our analysis will focus on the relevant mark et in the present case; namely, the Philippines'
market.388 We will keep in mind the Appellate Body's st atement that the definition of "like products"
under Article III:2, first sentence, must be construed narrowly. 389 We understand this to mean that
likeness under the first sentence of Article III:2 is not limited to products that are identical. Indeed,
had this sentence intended to cover only identical pr oducts, the agreement would have used the word
"identical", instead of using the expression "like products" (and the expressions " productos similares"
and "produits similaires" in the corresponding texts in Spanish and French, respectively). Likewise
the Appellate Body, in describing like products, has ne ver indicated that the first sentence covers only
identical products.
7.33 In order to address the likeness requirement of the first sentence of Article III:2, we will
consider the evidence presented by the parties regard ing the products' properties, nature and quality;
their end uses, with reference to the Philippine mark et; Philippine consumers' tastes and habits; the
tariff classification of the products based on the Ha rmonized System; and other relevant internal
regulations in the Philippines. We will construe the likeness test in a narrow manner in accordance
with previous interpretations of the first sentence of Article III:2 of the GATT 1994.390
(i) Products' properties, nature and quality
7.34 As noted by the Appellate Body, "properties, nature and quality" may be seen "as intended to
cover the physical qualities and characteristics of the products".391
7.35 All distilled spirits relevant in the present di spute (gin, brandy, rum, vodka, whisky, tequila
and tequila-flavoured spirits) are concentrated form s of potable alcohol obtained through the process
of distillation. Ethyl alcohol and water combined acc ount for almost all of their content. The average
alcohol content for distilled spirits relevant to the present dispute ranges from around 25 per cent to
40 per cent (50 to 80 degrees under proof). Distilled sp irits of the same type tend to have similar
alcohol content.392 They are all translucent, with colours th at range from clear (transparent) to golden

385 Appellate Body Report, Japan – Alcoholic Beverages II, pp. 21-22, DSR 1996:1, p. 97, at p. 114.
386 See for example Panel Report, Thailand – Cigarettes (Philippines) , paras. 7.441-7.442. See also
European Union's opening statement at second substantive meeting, para. 62.
387 Appellate Body Report, EC – Asbestos, para. 109.
388 See Panel Report, Japan – Alcoholic Beverages II , para. 6.22; Panel Report, Korea – Alcoholic
Beverages, para. 10.57. See also Philippines' first written submission, para. 59; Philippines' second written
submission, paras. 16-17.
389 Appellate Body Report, Japan – Alcoholic Beverages II, pp. 19-21, DSR 1996:1, p. 97, at 112-114.
390 Appellate Body Report, Canada – Periodicals , p. 21, DSR 1997:I, p. 449, at p. 468. See also,
Appellate Body Report, Japan – Alcoholic Beverages II, pp. 19-21, DSR 1996:1, p. 97, at pp. 112-114.
391 Appellate Body Report, EC – Asbestos , para. 110 (the reference in that case was to the likeness
analysis under Article III:4 of the GATT 1994, rather th an under Article III:2. We find no reason, however,
why the statement should not also be applicable to Article III:2).
392 See paras. 2.22, 2.57, 2.58, 2.62, 2.63, 2.64, 2.65, 2.70, 2.71, 2.76, 2.77, 2.82, 2.83 and 2.89 above.

or mahogany.
393 Consumption of distilled spirits may cau se similar physiological effects on humans,
due to the presence of ethyl alcohol.394
7.36 Traditionally, the colour, flavour and aroma a ssociated with specific distilled spirits are a
result of the particular distillation of ethyl alcohol from certain raw materials, such as wine or fortified
wine, sugar molasses, wheat, barley or malt, or agave, and of its production process.
7.37 Alternative processes involve the use of non- traditional raw materials in creating final
products that closely mimic traditional products. In these circumstances, a panel should focus its
"likeness" analysis on the physical qualities and ch aracteristics of the final product, and not on the
different raw materials used. The difference in raw materials would only be relevant to the extent that
it results in final products that are not similar. This approach was followed by the panel on Mexico –
Taxes on Soft Drinks , when comparing beet sugar with cane sugar, and when comparing soft drinks
and syrups sweetened with non-cane sugar sweeteners (including high-fructose corn syrup) with soft
drinks and syrups sweetened with cane sugar. 395 We consider that this is the approach we should use
in the present case. We will therefore focus on the physical qualities and characteristics of the
distilled spirits as final products, and not on those of the raw materials or production processes used to
make the final products.
7.38 The evidence suggests that distilled spirits pr oduced in the Philippines from the designated
raw materials (specifically, sugar cane molasses) closely replicate, in terms of physical characteristics,
including colour, flavour and aroma, the distilled sp irits, such as gin, brandy, vodka, whisky or
tequila, produced from other raw ma terials through traditional methods. 396 Producers of distilled
spirits from designated raw materials achieve such similarity through the production process.
Depending on the specific spirit being produced, this process may involve stripping the ethyl alcohol
made from designated raw materials from its natura l congeners, and/or adding natural or artificial
flavourings.
7.39 With respect to these physical qualities and characteristics – colour, flavour and aroma – on
the basis of the evidence before us, we conclude that there is no difference between imported and
domestic Philippine distilled spirits, nor between di stilled spirits made from the designated materials
and those made from other materials.
7.40 The Philippines refers to differences in the ch emical composition of different brands of
spirits, as well as in the organoleptic properties of different spirits. 397 In terms of chemical
composition, the Philippines compares the congener content of a number of "sugar-based spirits" with
that of a number of "non sugar-based spirits" of the same type (gins, brandies and whiskies). The gas
chromatography studies indeed show evidence of differences in the chemical composition between
the brands. 398 However, we do not consider that this evidence assists us in our likeness analysis
because the differences in chemical composition be tween spirits made from the same raw materials,
as reported in these gas chromatography studies, are in most cases greater than those between spirits

393 See paras. 2.25, 2.26, 2.55, 2.62, 2.69, 2.70, 2.75, 2.76, 2.81 and 2.87 above.
394 See para. 2.27 above.
395 Panel Report, Mexico – Taxes on Soft Drinks, paras. 8.30-8.31 and 8.131.
396 See paras. 2.25, 2.55, 2.62, 2.75, 2.81 and 2.87 above. For the purpose of the current dispute, this
point is irrelevant in the case of rum. As will be not ed below, rum is produced through the traditional method,
from the fermentation of sugar cane molasses, both in the Philippines and abroad. Moreover, the parties agree
that imported and domestic rums should be considered "like products". See para. 7.44 below.
397 See Philippines' first written submission, paras. 105, 138, 149 and 164; exhibit PH-80.
398 See European Union's second written submission, paras. 60-67; United States' opening statement at
first substantive meeting, para. 12.

made from different raw materials. 399 Consequently, the difference in chemical composition does not
show a distinction between spirits made from desi gnated raw materials and those made from other
raw materials. We also find evidence that each of the different types of distilled spirits has specific
organoleptic properties. Furthermore, within each t ype of distilled spirit, di fferent brands, and even
subproducts within each brand, may have differences in colour, flavour and aroma. There is,
however, no evidence that these differences in orga noleptic properties create a distinction between
distilled spirits made from the designated material s and distilled spirits made from other materials
such that they could be divided into two separate and identifiable groups.400
7.41 We now address the physical properties of specific types of distilled spirits relevant for this
dispute.
7.42 With respect to gin, all gins are transparent a nd all have the characteri stic flavour and aroma
associated with the presence of juniper berries. Th e spirit can also have traces of other botanical
products. Irrespective of the raw materials from which they are made, all the gins at issue share the
same organoleptic characteristics, which are common to traditional gins. 401 This is so, even though
gas chromatography indicates that there may be diffe rences in the chemical composition of different
brands of gins, which may not necessarily result from the use of different raw materials. Accordingly,
there is no evidence of perceptible differences between the physical qualities and characteristics of
imported gins and domestic Philippine gins, nor between those of gins made from the designated raw
materials and gins made from other raw materials.402
7.43 Turning to brandy, according to the evidence, all the brandies at issue have an alcohol content
of between 32.5 and 40 per cent and a colour that, depending on the specific brand, ranges from
golden to mahogany, regardless of the raw materials used in their production, and whether the brandy
is domestic Philippine or imported. Traditional brandies retain the el ements that naturally result from
their distillation process. In contrast, domestic Philippine brandies are produced by stripping the ethyl
alcohol made from sugar cane molasses of the conge ners that provide its original colour, odour and
taste and subsequently adding flavouring and other i ngredients to the resulting neutral spirit, so that
the final product has the taste normally associated with brandy. This is so, even though gas
chromatography indicates that there may be diffe rences in the chemical composition of different
brands of brandies, which may not necessarily result from the use of different raw materials.
Therefore, irrespective of the raw materials from wh ich they are made, all the brandies in the current
dispute share the same organoleptic characteristics. Accordingly, there is no evidence of perceptible

399 For example, in the case of the gas chromatography results provided by the Philippines on whiskies,
the differences in five of the eight identified congeners (acetal, acetaldehy de, isoamyl alcohol, methanol and
n-propanol) are reported to be greater between two "non-sugar based" whiskies, than between one "non-sugar
based" and one "sugar-based" whisky. In the case of the gas chromatography results provided by the
Philippines on brandies, the differences in five of th e seven identified congeners (acetal, acetaldehyde, isoamyl
alcohol, isobutanol and methanol) are reported to be greater between two "non-sugar based" brandies, than
between one "non-sugar based" and one "sugar-based" bra ndy. Finally, in the case of the gas chromatography
results provided by the Philippines on gins, the differences in four of the five identified congeners (isoamyl
alcohol, isobutanol, methanol and n-propanol) are reported to be greater between two "sugar based" gins, than
between one "non-sugar based" and one "sugar-based" gi n. See European Union's second written submission,
paras. 63-65; Philippines' first written submission, paras. 138, 149 and 164. See also exhibit PH-80. For the
purpose of comparing the congener concentrations reported by the Philippines, the Panel assumed that the
values identified as "Not Detectable" (ND) are equal or close to zero.
400 See para. 2.26 above.
401 As noted above, the Philippines agrees that domestic gins have "the organoleptic characteristics of
[traditional] gin". See para. 2.55 above; Philippines' comments to European Union's response to Panel question
No. 78, para. 18.
402 See paras. 2.25 and 2.55 above.

differences between the physical qualities and characteristics of imported brandies and domestic
Philippine brandies, nor between brandies made from the designated raw materials and brandies made
from other raw materials.
403
7.44 With regard to rum, all rums, both importe d and domestic Philippine, are made from the
fermentation of sugar cane molasses. Depending on their brand and presentation, rums have a colour
that ranges from transparent to go lden or mahogany. All parties ag ree that there is no difference
between the physical qualities and characteristics of imported rums and domestic Philippine rums and
that both should be considered "like products".404
7.45 In the case of vodka, all vodkas are neutral spir its. Irrespective of the raw materials from
which they are made, all relevant vodkas in th e current dispute share the same organoleptic
characteristics, including the fact that they are tr ansparent. Accordingly, there is no evidence of
perceptible differences between the physical qua lities and characteristics of imported vodkas and
domestic Philippine vodkas, nor between those of vodkas made from the designated raw materials and
vodkas made from other raw materials.405
7.46 In the case of whisky, irrespective of the raw materials from which they are made, all the
whiskies at issue share the same organoleptic charact eristics, including the fact that all have a golden
colour. Traditional whiskies retain the elements that naturally result from their distillation process. In
contrast, domestic Philippine whiskies are produced by stripping the ethyl alcohol made from sugar
cane molasses of the congeners th at provide its original colour, odour and taste, and subsequently
adding flavouring and other ingredients to the resulti ng neutral spirit, so that the final product has the
taste normally associated with whisky. This is so, even though gas chromatography indicates that
there may be differences in the chemical composition of different brands of whiskies, which may not
necessarily result from the use of different raw material s. Therefore, irrespective of the raw materials
from which they are made, all the whiskies in th e current dispute share the same organoleptic
characteristics. Accordingly, there is no evidence of perceptible differences between the physical
qualities and characteristics of imported whiskies and domestic Philippine whiskies, nor between
whiskies made from the designated raw materials and whiskies made from other raw materials.406
7.47 Finally, all tequilas and tequila-flavoured spirits , irrespective of the raw materials from which
they are made, share the same organoleptic charac teristics, including the fact that all are either
transparent or pale gold in colour. Traditional tequi las retain the elements that naturally result from
their distillation process from agave. In contrast , domestic Philippine tequilas and tequila-flavoured
spirits are produced by stripping the ethyl alcohol made from sugar cane molasses of the congeners
that provide its original colour, odour and tast e, and subsequently addi ng flavouring and other
ingredients to the resulting neutral spirit, so that the final product has the taste normally associated
with tequila. Accordingly, there is no evidence of perceptible differences between the physical
qualities and characteristics of imported tequi las and domestic Philippine tequilas and
tequila-flavoured spirits, nor between tequilas or tequila-flavoured spirits made from the designated
raw materials and traditional tequilas made from agave.407

403 See paras. 2.25 and 2.62 above.
404 See para. 2.69 above.
405 See paras. 2.25 and 2.75 above.
406 See paras. 2.25 and 2.81 above.
407 See paras. 2.25 and 2.87 above.

(ii) End uses
7.48 We will now focus on the extent to which the diffe rent types of spirits at issue are capable of
serving the same, or similar, end uses. In this resp ect, the evidence suggests that all distilled spirits
relevant in the present dispute share the same e nd uses, namely "thirst quenching, socialization,
relaxation, pleasant intoxication".408 In addition, all distilled spirits ma y be drunk straight or with ice,
diluted with soft drinks or fruit juices or used in the preparation of cocktails. 409 The end uses of each
distilled spirit, and the manner in which each is dr unk, does not depend on the origin of the spirit
(domestic or imported), nor on the ra w materials used in its production. 410 In other words, there is no
evidence of any differences between the end uses of the relevant imported spirits and domestic
Philippine distilled spirits, nor between the end uses of spirits made from the designated raw materials
and those made from other raw materials.
(iii) Consumers' tastes and habits
7.49 We now turn to consider the extent to wh ich consumers are willing to use the different
products to perform the same, or similar, functions ("consumers' tastes and habits").411
7.50 We have noted above that the evidence suggests that in the Philippines' market for distilled
spirits certain factors, such as price, but also info rmation, distribution, brand recognition, habits and
tastes, limit the ability or willingness of consumers to switch brands. As indicated in the survey by
Abrenica & Ducanes from the University of Philippines School of Economics provided by the
Philippines, the characteristics of specific distilled spirits are known to consumers through personal
experience or product reputation. Even if consumer s have information about specific products, habits
and tastes may create brand loyalty that can limit their propensity to switch brands.
412 Furthermore, a
large proportion of households in the Philippines have significant income and expenditure constraints,
which in turn limit the ability of certain consumers to purchase distilled spirits.413
7.51 We have also noted that, generally speaking, im ported brands tend to be more expensive in
the Philippines (even before taxes) than the co rresponding domestic brands of the same type of
distilled spirit. However, there are a number of high-priced domestic Philippine distilled spirits, as
well as less expensive imports. 414 Although some establishments (especi ally small retail stores) that
offer domestic Philippine distilled spirits do not ca rry imported distilled spirits, other outlets where
imported spirits are sold either for consumption on the premises (such as bars or restaurants) or off the
premises also offer domestic Philippine spirits. 415 Marketing campaigns for distilled spirits are very
similar; there is no indication that those campaigns are different for imported distilled spirits than for
domestic Philippine distilled spirits, nor for spirits made from the designated raw materials than for
those made from other raw materials.416
7.52 With regard to the competitive relationship be tween the relevant products, parties have
provided different studies of consumers' perceptions in the Philippines' distilled spirits market. The
complainants submitted a survey by Euromonitor International suggesting that consumers in the
Philippines would be more willing to purchase importe d distilled spirits if the price of those spirits

409 See para. 2.39 above.
410 See paras. 2.38 and 2.39 above.
411 Appellate Body Report, EC – Asbestos, para. 117.
412 See para. 2.45 above.
413 See paras. 2.31-2.32 above.
414 See para. 2.36 above.
415 See para. 2.41 above.
416 See para. 2.42 above.

decreases and the price of domestic Philippine spirits increases, even if the prices of imported spirits
remains higher than those of domestic spirits.
417 In turn, the Philippines submitted a survey by
Abrenica & Ducanes that concludes that there is low price elasticity in the Philippine domestic
distilled spirits market and, therefore, local and imported brands of distilled spirits are
non-substitutable. The same survey suggests that narrowing price differentials between imported
distilled spirits and domestic Philippine distilled spir its would only result in a small change in their
respective market shares.418
7.53 The Philippines and the complainants have criti cized the methodology and the conclusions of
the studies on consumers perceptions submitted by the opposing party. 419 The Philippines questions,
for example, whether the Euromonitor International survey can serve as an indication of price
elasticity of substitution between distilled spirits made from the designated raw materials and those
made from other raw materials.420 Likewise, the complainants raise doubts about the "validity of [the]
findings on cross-price elasticities" contained in the Abrenica & Ducanes survey.421
7.54 The Euromonitor International survey is described as an evaluation on "consumers'
price-based purchase preferences for different distilled spirit types across consumers in the
Philippines that consume distilled spirits at least one time per month".422 It states that it is based on "a
quantitative online survey, carried out by a struct ured standard questionnaire with closed-end
questions applied to individuals of a represen tative sample of the population under review". 423 The
survey report contains a section on "price elasticity", which concludes that "[o]verall, the closer the
price between imported and domestic spirits, the more likely consumers are to increase their
consumption of imports while decreasing their consumption of domestics."424 In the same section, the
report adds that:
"On average, at an import price decrease of 25% and domestic increase of 50%,
consumers were 4.9% more willing to purchase imports and 4.0% less likely to
purchase domestics"; "On average, at an import price decrease of 40% to 60% and
domestic increase of 100% to 200%, consumers were 10.1% more willing to purchase
imports and 6.5% less likely to purchase domestics"
425; and, "If price were no issue,
on average, consumers were 43% more likely [to] purchase local brands and 86%
more likely to purchase imported ones."426

417 Euromonitor International survey in exhibits EU-41 and US-41. See para. 2.43 above.
418 Abrenica & Ducanes survey from the University of Philippines School of Economics in exhibit
PH-49. See para. 2.44 above.
419 See for example European Union's second written submission, paras. 97-103; United States' second
written submission, paras. 51-52; Philippines' first written submission, paras. 180-182, 240-241 and 268;
Philippines' second written submission, paras. 66-67; Philippines' opening statement at second substantive
meeting, paras. 25, 29 and 33; Philippines' comments to European Union's and United States' responses to
Panel question No. 83, paras. 19-23; and exhibits EU-101, EU-102 and US-48.
421 See for example European Union's second written submission, para. 101. See also United States'
second written submission, paras. 51-52.
422 Euromonitor International, "Consumer perceptio ns regarding substitutability in the Philippines
distilled spirits market", in exhibits EU-41 and US-41, p. 5.
423 Euromonitor International, "Consumer perceptio ns regarding substitutability in the Philippines
distilled spirits market", in exhibits EU-41 and US-41, p. 6.
424 Ibid., p. 9.
425 Ibid.
426 Ibid., pp. 30 and 33.

7.55 The survey by Abrenica & Du canes is an econometric study based on a marketing analysis
that attempts to estimate cross-price elasticity for imported distilled spirits and domestic Philippine
distilled spirits. It states that it is based on a "conjoint choice experiment" "using stated preferences of
consumers in response to hypothetical adjustments in prices". 427 According to this survey, a
narrowing of price differentials between imported distilled spirits and domestic Philippine distilled
spirits results in a small change in their respective market shares. 428 The same survey also concludes
that, if the excise tax is imposed at a uniform rate on all distilled spirits in the Philippines, the share of
imported spirits would increase between 16 and 17 per cent (from a current level of 9.4 per cent to
between 10.9 to 11 per cent). Likewise, if the excise tax is imposed at similar ad valorem rates on all
distilled spirits in the Philippines, the share of imported spirits would increase to between 13 and
19 per cent (from a current level of 9.4 per cent to be tween 10.6 to 11.2 per cent). Finally, the survey
concludes that if the excise tax is completely rem oved on all distilled spirits, the market share of
imported spirits would increase by about 24.5 per cen t (from a current level of 9.4 per cent to around
11.7 per cent).429 Similar variations are reported in the survey to occur in the market shares of
specific imported distilled spirits such as gin, br andy, vodka and whisky. In contrast, no significant
variation is reported to occur in the shares of imported rum in these scenarios. 430 The Abrenica &
Ducanes survey estimates cross-price elasticities fo r imported and domestic distilled spirits in the
Philippines market to range between -0.01 and 0.07, which it considers "low". The authors then
conclude that "local and imported brands [of distilled spirits are] non-substitutable".431
7.56 The Euromonitor International report is not an attempt to estimate and provide figures for the
cross-price elasticity for imported distilled spir its and domestic Philippine distilled spirits.
Furthermore, the conclusions in both the Euromonitor International report and the Abrenica &
Ducanes survey with respect to variations in the quantities consumed of imported distilled spirits and
domestic Philippine distilled spirits are based on scen arios where the prices of imported and domestic
spirits are both said to change at the same time. 432 Accordingly, it is not possible to conclude from
either the Euromonitor International survey or the Abrenica & Ducanes survey whether the
hypothetical increase in consumption of imported distille d spirits would be attributable to the increase
in price of domestic Philippine spirits, or to the reduction in price of imported spirits, or to some
combination of both factors.
7.57 We will consider the studies of consumers' percep tions provided by the parties in more detail
when looking at the issue of the competitive rela tionship in the Philippines' market between the
distilled spirits relevant in the present dispute, u nder the second sentence of Article III:2. For now, it
is sufficient to recall that we have already noted 433 that both studies suggest that a simultaneous

427 Abrenica & Ducanes, "On Substitutability be tween Imported and Local Distilled Spirits"
(University of Philippines School of Economics Foundation), in exhibit PH-49, p. 2.
428 See Ibid., p. 14.
429 See Ibid., p. 14.
430 See Abrenica & Ducanes, "On Substitutability between Imported and Local Distilled Spirits"
(University of Philippines School of Economics Foundation), in exhibit PH-49, pp. 13-14. The survey
considered selected distilled spirits brands of gin, brandy , rum, vodka and whisky. It did not include brands of
tequila or tequila-flavoured spirits. The lack of significant variation in the market share of imported rum
reported in the survey may be related to th e fact that the imported rum brand selected ( Bacardí) enjoys the
Section 141(a) flat tax rate applicable to spirits produced with designated raw materials. See para. 2.74 above.
431 See Abrenica & Ducanes, "On Substitutability between Imported and Local Distilled Spirits"
(University of Philippines School of Economics Foundation), in exhibit PH-49, pp. 2 and 20. It is worth noting
that the same study concludes that "beer and liquor [distilled spirits] are substitutes." Ibid., p. 16.
432 For example, the structure of the choices given to respondents creates a starting point bias, as well
as some shortcomings associated with the regression model used for the calculations (a mixed logit model). See
exhibits EU-101, EU-102 and US-48.
433 See para. 2.45 above.

increase in the price of domestic Philippine dis tilled spirits and decrease in the price of imported
spirits, such as that which would result from an equali zation in the respective levels of the excise tax,
could result in the substitution of the consumption of domestic spirits for imported spirits in the
Philippines market. This refers both to distilled spirits as a general category, as well as to specific
spirits such as gin, brandy, vodka and whisky.
7.58 The Philippines has also argued that, because of the difference in the purchasing power of its
population, the Philippine domestic market is se gmented into two groups. According to the
Philippines, one of these segments, corresponding to the majority of the Philippine population, would
only be able to consume distilled spirits made from designated raw materials. In contrast, the other
segment, which would represent a minority of the po pulation, would consume distilled spirits made
from other raw materials.
434 The Philippines suggests that the market segmentation "reflects the
existence of at least two different groups of 'consumers' in the Philippines, each with a different set of
tastes, habits, perceptions and behaviour." 435 This market segmentation would be a result of the
purchasing power disparity in the Philippine popul ation, as well as the "significantly different"
attributes offered by imported spirits and domestic spirits.436
7.59 The evidence suggests that, becau se of their income and expenditure constraints, a large
proportion of the Philippine population has a limited ability to purchase distilled spirits beyond certain
price levels. The Philippines' argument on market segmentation, however, assumes the existence of
two separate population groups, with distinct consumption patterns. The Philippines has not provided
any evidence to substantiate this assertion. While , generally speaking, imported brands tend to be
more expensive than the corresponding domestic brands of the same type of distilled spirit, there are a
number of high-priced domestic Philippine sp irits, as well as less expensive imports. 437 Further, in
terms of income, the population in the Philippines do es not appear to be divided into two separate
groups, but is rather distributed along a continuum of income brackets. A large proportion of
Philippine consumers may not have access to high- priced spirits, including those made from other
than designated raw materials. Many consumer s, however, may be able to purchase high-priced
spirits, at least on special occasions. The situation in this respect is similar to that examined by the
panel on Korea – Alcoholic Beverages, when considering the argument of whether high-priced spirits
are akin to luxury automobiles:
"Korea offers an analogy between the alcoho lic beverage market and the automobile
market which we do not find particularly useful. Korea argues that the imported
products are Ferraris compared to soju's Renault Clio. However, the analogy is inapt.
Automobiles are durable goods of great va lue relative to income that are only
purchased periodically, generally only once ever y several years. It is probable that
the purchaser of a Renault Clio has no optio n to purchase a Ferrari which might cost
considerably more than the Clio purchaser 's annual salary. Alcoholic beverages, on
the other hand, are consumer goods which are purchased frequently, and even the
Clio purchaser can afford to purchase a bottle of a more expensive beverage at least
occasionally. The ratios between $10 and $100 products may be the same as between

434 See for example Philippines' first written submissi on, paras. 177-188; Philippines' second written
submission, paras. 3, 40 and 42.
435 Philippines' first written submission, para. 178. See also Philippines' response to Panel question
No. 17, paras. 19-23.
436 Philippines' first written submission, para. 178. As noted below, this argument was not raised as a
request for differential and more-favourable treatment as a developing country Member under the WTO
Agreements. See para. 7.195 below.
437 See paras. 2.36 and 7.51 above.

$10,000 and $100,000 products, but the purch asing decisions of ordinary consumers
in the two situations are quite distinct."438
7.60 We find no evidence of the existence of two separate distilled spirit markets in the Philippines
that reflect different levels of purchasing power, i.e. one that would consume distilled spirits made
from designated raw materials, and another that w ould consume distilled spirits made from other raw
materials.
7.61 As an additional point related to consumer perceptions, we not e that the domestic distilled
spirits in the Philippines, irrespec tive of the raw materials from which they are made, are labelled as
either gin, brandy, rum, vodka, whisky, tequila or tequila-flavoured spirits. In the case of brandy and
whisky, for example, the domestic Philippine prod ucts are labelled as "brandy " or "whisky", and not
as "blended brandy", "compounded brandy" or " com pound whisky". Generally speaking, labels of
domestic Philippine distilled spirits made from the designated raw materials tend to mimic or replicate
the names of products and designs of the similar impo rted spirits made from other raw materials. The
raw materials used in the manufacture of domestic Philippine distilled spirits are not mentioned on the
labels. Thus, there is nothing that would suggest to the consumer that these products are different
from imported spirits made from other raw materials.439
7.62 In conclusion, the evidence suggests that, with r espect to their tastes and habits, consumers in
the Philippines are willing to consume distilled spir its, whether imported or domestic, irrespective of
the raw materials from which they are made, to perform similar functions. In other words, despite the
shortcomings of the studies submitted by the par ties with regard to the competitive relationship
between the relevant products, we consider that there is enough evidence to suggest a significant
degree of competitiveness or substitutability for those distilled spirits in the Philippines market.
(iv) Tariff classification
7.63 All distilled spirits at issue in this dispute, whether imported or domestic, and irrespective of
the raw materials from which they are made, fall wi thin the Harmonized System (HS) heading 2208,
which refers to "undenatured ethyl alcohol of an alcoholic strength by volume of less than 80% vol;
spirits, liqueurs and other spirituous beverages".440 We consider that the fact that all distilled spirits at
issue in this dispute, irrespective of the raw ma terials from which they are made, fall within the
Harmonized System (HS) heading 2208 provides an indication of similarity.
7.64 With respect to specific distilled spirits, at the six-digit code level there are differences for
each type of distilled spirit relevant in the present dispute, namely, gin, brandy, rum, vodka, whisky,
tequila and tequila-flavoured spirits. We consider, not only the descrip tion of the relevant products in
the HS subheadings, but also the text of the HS Explanatory Notes (HSEN). Although the HSEN are
not binding, for the reasons explained below we find them to be useful for our analysis.441
7.65 In the case of gin, HS subheading 2208.50 covers "Gin and Geneva", irrespective of the raw
materials from which they are made, as spirituous beverages "containing the aromatic principles of
juniper berries". 442 In other words, the six-digit subheading for gin does not distinguish between
spirits based on the raw materials from which they are made.

438 Panel Report, Korea – Alcoholic Beverages, para. 10.74.
439 See paras. 2.57, 2.63, 2.64, 2.65, 2.77, 2.82, 2.83 and 2.88 above.
440 See para. 2.49 above.
441 See Appellate Body Report, EC – Chicken Cuts , para. 224; Panel Reports, China – Auto Parts ,
442 See para. 2.52-2.54 and 2.56 above.

7.66 In the case of brandy, HS subheading 2208.20 covers "brandy" as a "[Spirit] obtained by
distilling grape wine or grape marc"; accordingly, brandies made from sugar cane molasses (or other
designated raw materials) would not fall under this subheading.
443 In other words, brandies may be
classified in different six-digit subheadings, de pending on the raw materials from which they are
made. This is confirmed by the statements of all the parties and Australia.444
7.67 In the case of rum, HS subheading 2208.40 covers all rums relevant in this dispute, whether
imported or domestic, as they are all "[S]pirits obtained by distilling fermented sugarcane products"
(more specifically, sugar cane molasses).445
7.68 In the case of vodka, HS subheading 2208.60 covers "Vodka", irrespective of the raw
materials from which it is made. 446 In other words, the six-digit subheading for vodka does not
distinguish between spirits based on the raw materials from which they are made.447
7.69 In the case of whisky, subheading 2208.30 covers "Whiskies", as spirits made from a "mash
of cereal grains" (such as barley, oats, rye, wheat, corn); accordingly, whiskies made from sugar cane
molasses (or other designated raw material s) would not fall under this subheading.
448 In other words,
it seems that whiskies may be classified in diffe rent six-digit subheadings, depending on the raw
materials from which they are made. This is confirmed by the statements of the parties and
Australia.449
7.70 Finally, there is no specific six-digit subheadi ng for "tequila" or "tequila-flavoured spirits". 450
In other words, tariff classification provides no additional guidance at this level to determine
similarity among tequila and tequila-flavoured spirits.
7.71 The review above indicates that at a six-digit level the HS is not conclusive. The product
description in the HS subheadings for brandy, rum a nd, to a lesser extent, whisky, in light of the
applicable HSEN, takes into account the raw material used for the production of the distilled spirit.
At the same time, for other relevant distilled spirits such as gin, vodka and tequila the distilled spirit is
classified irrespective of the raw material used fo r the production of the ethyl alcohol used for the
spirit. Consequently, we take note that, at the six- digit level, the HS classification does not give us a
conclusive guidance.

443 See para. 2.52-2.54 and 2.62 above.
444 European Union's first written submission, footnote 109 to para. 94; European Union's response to
Panel question No. 43, paras. 67-69; United States' response to Panel question No. 43, paras. 34-35;
Philippines' first written submission, paras. 190-200; Philippines' response to Panel question No. 43;
Australia's response to Panel question No. 1. But see India's response to Panel question No. 1.
445 See para. 2.52-2.54 and 2.69 above.
446 See para. 2.52-2.54 and 2.75 above.
447 European Union's response to Panel question No. 43, paras. 67-69; United States' response to Panel
question No. 43, paras. 34-35; Philippines' first written submission, paras. 190-200; Philippines' response to
Panel question No. 43; India's response to Panel question No. 1. But see Australia's response to Panel question
No. 1.
448 See para. 2.52-2.54 and 2.81 above.
449 United States' response to Panel question No. 43, paras. 34-35; Philippines' first written submission,
paras. 190-200; Philippines' response to Panel question No. 43; Australia's response to Panel question No. 1.
But see European Union's response to Panel question No. 43, paras. 67-69; India's response to Panel question
No. 1.
450 See para. 2.52-2.54 and 2.87 above.

(v) Internal regulations
7.72 With respect to domestic regulations on distilled spirits in the Philippines, we have noted that
local ordinances against drunk driving do not dis tinguish between imported and domestic spirits, nor
between spirits made from the designated materials and those made from other materials. Nor is a
distinction made in local ordinances with respect to "the sale, dispensation and/or distribution of
alcoholic beverages".
451
7.73 We find further confirmation of similarity in th e language used in the Philippines' domestic
legislation. Republic Act No. 9334, one of the re levant instruments in the present dispute, defines
"Spirits or distilled spirits" as "the substance kno wn as ethyl alcohol, ethanol or spirits of wine,
including all dilutions, purifications and mixtures thereof, from whatever source, by whatever process
produced, and shall include whisky, brandy, rum, gin and vodka, and other similar products or
mixtures."452 In other words, Republic Act No. 9334 refers to distilled spirits as "similar", without
distinguishing between spirits made from differe nt raw materials or through different production
processes.
7.74 We note the Philippines' argument that whisky and brandy made from the designated raw
materials would be prohibited by law from being ma rketed as whisky or brandy in the European
Union and the United States, as those products would not meet the applicable standards. 453 Even if
this is the case, however, we find this to be irrele vant for our analysis. As the Philippines argues, the
relevant market in which to make the determina tion of "likeness" is the Philippines market, and not
others. In the words of the Philippines, "[t]he Pa nel must ... examine whether the evidence shows that
the products are 'like' products and/or 'directly competitive or substitutable' in the Philippines
market."454 The important issue for us is that the Ph ilippines allows whisky and brandy made from
the designated raw materials to be marketed as whisky or brandy.
(vi) Conclusions on "likeness"
7.75 Based on the above analysis, we find that, with respect to the physical qualities and
characteristics of the products, as well as with regard to their end uses, there is similarity between all
the relevant imported and domestic distilled spirits, irrespective of whether they are made from the
designated raw materials or from other raw materials.
7.76 With respect to consumers' tastes and habits , some elements, such as the manufacturers'
marketing campaigns, suggest similarity between all distilled spirits relevant in the present dispute.
Despite the shortcomings of the studies submitted by the parties with regard to the competitive
relationship between the releva nt products, we have also found enough evidence to suggest a
significant degree of competitiveness or substitutability for those distilled spirits in the Philippines
market. Moreover, the labels of domestic distille d spirits made from designated raw materials do not
suggest to the consumer that these products are di fferent from imported spirits made from other raw
materials. With respect to tariff classification, the fact that all distilled spirits at issue in this dispute,
irrespective of the raw materials from which they are made, fall within the HS heading 2208 is a
further indication of their similarity. Finally, domestic regulations on distilled spirits in the
Philippines do not distinguish between imported a nd domestic spirits, nor between spirits made from
the designated raw materials and those made from other raw materials.

451 See para. 2.30 above.
452 See exhibits EU-2, US-2 and PH-4, p. 3 (emphasis added).
453 Philippines' first written submission, paras. 11-12, 125-128, 131-133, 141-143; Philippines' opening
statement at first substantive meeting, para. 16.

7.77 Having considered all these factors, we conclude that the distilled spirits at issue in the
present dispute, whether imported or domestic, and irrespective of the raw materials from which they
are made, are "like products" within the meanin g of the first sentence of Article III:2 of the
GATT 1994.
7.78 In addition, since the complainants have asked for determinations concerning specific types of
distilled spirits, we now turn to each type of sp irit (gin, brandy, rum, vodka, whisky, tequila and
tequila-flavoured spirits), in order to consider whether those spirits, imported or domestic and
irrespective of the raw materials from which they are distilled, are "like products".
7.79 Specifically, in the case of rum, all parties agr ee that both domestic and imported spirits are
made from the same raw material (namely, sugar cane molasses) and are like products.
455
7.80 With regard to the physical qualities and char acteristics of the remaining distilled spirits
relevant in the present dispute (gin, brandy, vodka , whisky, tequila and tequila-flavoured spirits),
there is similarity between imported spirits and do mestic Philippine spirits, irrespective of the raw
materials from which they are made. We consid er it particularly important that the production
process for each type of distilled spirit in the Philippi nes is designed to ensure, as far as possible, that
the final product has similar physical characteristics, in terms of its colour, flavour and aroma, to
distilled spirits made from other raw materials. In other words, the process of production is such that
the organoleptic physical qualities and characteristics of imported gin are similar to those of domestic
Philippine gin, irrespective of the raw materials fr om which they are made; those of imported brandy
are similar to those of domestic Philippine brandy, irrespective of the raw materials from which they
are made; those of imported vodka are similar to those of domestic Philippine vodka, irrespective of
the raw materials from which they are made; those of imported whisky are similar to those of
domestic Philippine whisky, irrespective of the raw materials from which they are made; and those of
imported tequila are similar to those of domestic Philippine tequila or tequila-flavoured spirits,
irrespective of the raw materials from which they are made.456
7.81 With regard to the end uses of specific types of distilled spirits, there is similarity between
imported and domestic spirits, irrespective of the raw materials from which they are made. Specific
types of distilled spirits share the same end u ses common to all distilled spirits, namely "thirst
quenching, socialization, relaxation, pleasant intoxication".
457 Additionally, each specific type of
distilled spirit, imported or domestic, is normally consumed in a similar manner (straight or with ice,
diluted with soft drinks or fruit juices or used in the preparation of the same type of cocktails)
irrespective of the raw materials from which it is made.458
7.82 With regard to the consumers' tastes and habits for specific types of distilled spirits, there is
enough evidence to suggest similar ity between imported spirits a nd domestic Philippine spirits,
irrespective of the raw materials from which they are made. Manufacturers' marketing campaigns
make no distinction among the specific types of spirits , which suggests a closer similarity than the
general similarity we have already found between all distilled spirits relevant in the present dispute.
We have already found that the evidence submitte d by the parties suggests a significant degree of
competitiveness or substitutability for those distilled sp irits in the Philippines market. We have also
noted that the Abrenica & Ducanes survey submitte d by the Philippines notes how a change in the
rates of the excise tax on distilled spirits could lead to an increase in the share of specific imported

455 See para. 2.69 above.
456 See paras. 2.25and 7.38 above.
457 See paras. 2.38 and 7.48 above.
458 See paras. 2.39 and 7.48 above.

spirits such as gin, brandy, vodka and whisky. 459 Moreover, as noted above, the labels of domestic
Philippine distilled spirits made from designated raw materials do not suggest to the consumer that
these products are different from imported spirits made from other raw materials.
7.83 With respect to tariff classification, the ev idence suggests that the respective six-digit
subheadings for gin and vodka (2208.50 and 2208. 60, respectively) make no distinction between
different distilled spirits based only on th e raw materials from which they are made. 460 Tariff
classification provides no guidance at this level to de termine similarity in the case of tequila and
tequila-flavoured spirits. 461 The evidence suggests that brandi es and whiskies may be classified in
different six-digit subheadings, depending on the ra w materials from which they are made. In other
words, only brandy based on grape wine or grape marc (and not brandy made from the designated raw
materials, including sugar cane molasses) would be covered by HS subheading 2208.20 and only
whisky made from cereal grains, such as barley, oa ts, rye, wheat and corn (and not whisky made from
the designated raw materials, including sugar can e molasses) would be covered by HS subheading
2208.30.462 Based on the totality of the evidence, we consider that tariff classification does not
exclude the similarity between domestic and im ported distilled spirits, made respectively from the
designated materials or from other raw materials.
7.84 Finally, we have noted that domestic regulations on distilled spirits in the Philippines do not
distinguish between imported sp irits and domestic spirits, nor between spirits made from the
designated materials and those made from other materials.463
7.85 Having considered all these factors, we conclude that the specific distilled spirits at issue in
the present dispute – namely, gin, brandy, rum, vo dka, whisky, tequila and tequila-flavoured spirits –
whether imported or domestic, and irrespective of the raw materials from which they are made, are
"like products" within the meaning of the fi rst sentence of Article III:2 of the GATT 1994.
Specifically:
(a) Gin made in the Philippines from the designate d raw materials is "like" imported gin
made from other raw materials, within the meaning of the first sentence of
Article III:2 of the GATT 1994;
(b) Brandy made in the Philippines from the desi gnated raw materials is "like" imported
brandy made from other raw materials, with in the meaning of the first sentence of
Article III:2 of the GATT 1994;
(c) Rum made in the Philippines is "like" impor ted rum, within the meaning of the first
sentence of Article III:2 of the GATT 1994;
(d) Vodka made in the Philippines from the designated raw materials is "like" imported
vodka made from other raw materials, within the meaning of the first sentence of
Article III:2 of the GATT 1994;
(e) Whisky made in the Philippines from the desi gnated raw materials is "like" imported
whisky made from other raw materials, with in the meaning of the first sentence of
Article III:2 of the GATT 1994; and,

459 See Abrenica & Ducanes, "On Substitutability between Imported and Local Distilled Spirits"
(University of Philippines School of Economics Foundation), in exhibit PH-49, pp. 13-14.
460 See paras. 7.65 and 7.68 above.
461 See para. 7.70 above.
462 See paras. 7.66 and 7.69 above.
463 See paras. 2.30 and 7.72 above.

(f) Tequila and tequila-flavoured spirits made in the Philippines from the designated raw
materials are "like" imported tequila ma de from other raw materials, within the
meaning of the first sentence of Article III:2 of the GATT 1994.
(vii) Excess taxation
7.86 As noted above, the European Union and the United States argue that the excise tax on
imported distilled spirits made from raw materials other than those designated in the Philippines'
legislation is "in excess" of that imposed on th e like domestic spirits made from designated raw
materials.
464 The Philippines does not dispute this. The Philippines argues only that, because the
relevant products are not "like", there is no need for the Panel to proceed to consider whether one
group of distilled spirits is being taxed "in excess of" another group of distilled spirits.465
7.87 Past panels have interpreted the term "in excess of" to encompass even the slightest difference
in the levels of taxation imposed on imported and domestic products. Indeed, the Appellate Body has
noted that, under Article III:2, first sentence:
"Even the smallest amount of 'excess' is t oo much. 'The prohibition of discriminatory
taxes in Article III:2, first sentence, is not conditional on a "trade effects test" nor is it
qualified by a de minimis standard.'"466
7.88 The excise tax imposed on imported distilled spir its made from raw materials other than the
designated raw materials is well "in excess of" th at applied to domestic spirits made from the
designated raw materials. As noted above, this diffe rence in taxation may be as much as between ten
and forty times the rate imposed on the domestic spirits, depending on the specific tax bracket for
imported spirits.467
7.89 De jure, the Philippines' excise tax is in principle origin-neutral as the lower tax for spirits
made from designated raw materials (currently, PHP 14.68 ppl) and the much higher tax rates for
spirits made from other raw materials (currently, from PHP 158.73 ppl to up to PHP 634.90 ppl) apply
irrespective of where the spirits originate. De facto , however, as noted above, all distilled spirits
produced in the Philippines enjoy the lower tax rate, wh ile the vast majority of spirits imported into
the Philippines are made from other raw materials a nd are thus subject to one of the three higher tax
rates.468
(viii) Conclusions regarding the claims under the first sentence of Article III:2 of GATT 1994
7.90 In the light of the above, we conclude that, through its excise tax, the Philippines subjects
imported distilled spirits made from raw materials ot her than those designated in its legislation to

464 See for example European Union's first written submission, para. 106; United States' first written
submission, paras. 37 and 79 and 99; United States' opening statement at first substantive meeting, para. 43.
465 Philippines' first written submission, para. 204; Philippines' opening statement at first substantive
meeting, para. 24. See also European Union's second written submission, para. 127; United States' second
466 Appellate Body Report, Japan – Alcoholic Beverages II , p.23, DSR 1996:I, p. 115. See also Panel
Report, Argentina – Hides and Leather, para. 11.243.
467 See para. 2.17 above. See also United States' first written submission, paras. 73 and 99; United
States' second written submission, paras. 13 and 56; EU's first written submission, paras. 21 and 159; European
Union's opening statement at first substantive meeting, para. 81.
468 See para. 2.17 above. This is confirmed by the Philippines' own statement that "[a]ll distilled spirits
currently commercially produced in the Philippines market are sugar-based distilled spirits." Philippines' first

internal taxes in excess of those applied to lik e domestic spirits made from the designated raw
materials, and is thus acting in a manner inconsis tent with Article III:2, first sentence, of the
GATT 1994.
D. CLAIMS UNDER THE SECOND SENTENCE OF ARTICLE III:2 OF THE GATT 1994
1. Complainants' claims
7.91 The European Union and the United States cl aim that the Philippines' excise tax is
inconsistent with the second sentence of Article III:2 of the GATT 1994 be cause it is dissimilarly
applied to domestic distilled spirits, which ar e produced from designated raw materials, and to
"directly competitive or substitutable" imported di stilled spirits, which are produced with other raw
materials, in a manner "so as to afford protection to domestic production".469
7.92 As mentioned in paragraphs 7. 1 and 7.2, the complainants present their respective claims
under the two sentences of Article III:2 of GATT 1994 differently. The European Union articulates
its claim under the second sentence as an alternative, in the event that it does not succeed, partially or
totally, in its claim under the first sentence. In contrast, the United States presents its claims under
each of the two sentences independently.
7.93 In its claim under the second sen tence of Article III:2, the United States specifically requests
findings that would cover all distilled spirits. In its alternative claim under the second sentence of
Article III:2, the European Union argues as its principal argument that all distilled spirits falling under
HS heading 2208 are "directly competitive and subs titutable", irrespective of the raw materials from
which they are distilled. Within this alternativ e claim under the second sentence, the European Union
advances a subordinate claim in case the Panel were to conclude that all or some distilled spirits are
not "directly competitive and substitutable". In such case, the European Union asks the Panel to
consider subordinately "that, for each type of spirit (e.g. gin, vodka, whisky, rum, brandy, tequila
etc.), the products distilled from the designate d raw materials are 'directly competitive and
substitutable' with those distilled from the non-designated raw materials".470
2. The Philippines' response
7.94 The Philippines submits that the complainants claims under Article III:2, second sentence,
should be rejected because the imported and domestic products at issue are not directly competitive or
substitutable.471 The Philippines further argues that, even if the products at issue were directly
competitive or substitutable, the claim should neve rtheless be rejected because (i) domestic and
imported products are in fact similarly taxed; and, (i i) even if they are not similarly taxed, the excise
tax at issue is not being applied so as to afford protection to domestic production.472
3. Panel's analysis
7.95 We recall our findings in paragraph 7.90 that, through its excise tax, the Philippines subjects
imported distilled spirits made from raw materials ot her than those designated in its legislation to
internal taxes in excess of tho se applied to like domestic distilled spirits made from the designated

469 See for example European Union's first written submission, paras. 48-49 and 107-189; United
States' first written submission, paras. 37-78; United States' opening statement at first substantive meeting,
paras. 44-48; United States' second written submission, paras. 6 and 14-16.
470 European Union's response to Panel question No. 18, para. 12. See also para. 7.5 above.
471 See for example Philippines' first written submission, paras. 14-15, 210-285; Philippines' second
written submission, paras. 7, 18, 46-82.
472 See for example Philippines' first written submission, paras. 16-17, 286-314.

raw materials, and is thus acting in a manner inconsistent with Artic le III:2, first sentence, of the
GATT 1994. We also note that the European Union's claim under the second sentence of Article III:2
was only made in the alternative, in case we had not found that the Philippines' excise tax at issue is
inconsistent with the first sentence of Article III: 2. At the same time, the United States' claim
concerning the second sentence of Article III:2 was ma de as a separate and independent claim. We
will therefore proceed with our analysis of the co mpatibility of the Philippines' excise tax with the
second sentence of Article III:2 with respect to the Un ited States' claim. Our consideration of this
issue will take account of all the arguments and evidence on record, including those submitted by the
European Union and third parties
473, where relevant.
7.96 For a panel to find that a tax measure is incons istent with the second sentence of Article III:2
of the GATT 1994, three issues have to be consider ed and established separately by a complainant.
As explained by the Appellate Body, these issues are the following: (i) whether the imported and
domestic products at issue are " directly competitive or substitutable " with respect to each other;
(ii) whether these directly competitive or substitutable products are " not similarly taxed "; and,
(iii) whether the dissimilar taxation of these dir ectly competitive or substitutable products is " applied
... so as to afford protection to domestic production".474
7.97 We will start our analysis with the first issue, which in this dispute is whether the imported
and domestic distilled spirits at issue are "directly competitive or substitutable products."
(a) "Directly competitive or substitutable products"
(i) Introduction
7.98 In Korea – Alcoholic Beverages the Appellate Body observed that:
"'Like' products are a subset of directly competitive or substitutable products: all like
products are, by definition, directly competitive or substitutable products, whereas not
all 'directly competitive or substitutable' products are 'like'."475
7.99 We have found at paragraph 7. 77 that the imported and domestic distilled spirits at issue in
the present dispute are "like products" within the meaning of the first sentence of Article III:2. 476
Nonetheless, as noted by the Philippines, a breach of the first sentence of Article III:2 does not
automatically imply a breach of the second senten ce, as these two sentences establish "separate and
distinct obligations." 477 In effect, the question of whether the relevant products are directly
competitive or substitutable is only the first of the th ree elements we will consider when assessing the
consistency of the Philippine excise tax with the second sentence of Article III:2. If the imported and
domestic distilled spirits at issue in the present disp ute are "like" under the first sentence, it follows
that, in principle, they would also be "directly co mpetitive or substitutable" within the meaning of the
second sentence of Article III:2.478 However, we will consider the issue of "direct competitiveness or

473 We also recall that the European Union is a third party in this dispute with respect to the complaint
brought by the United States. See para. 1.6 above.
474 See Appellate Body Report, Japan – Alcoholic Beverages II , DSR 1996:1, p. 97, at p. 116;
Appellate Body Report, Korea – Alcoholic Beverages , para. 107; Appellate Body Report, Chile – Alcoholic
Beverages, para. 47; and Appellate Body Report, Canada – Periodicals, DSR 1997:1, p. 449, at p. 470.
475 Appellate Body Report, Korea – Alcoholic Beverages, para. 118.
476 We have also additionally found above at para. 7.85 that the specific distilled spirits at issue in the
present dispute – namely, gin, brandy, rum, vodka, whisky, tequila and tequila-flavoured spirits – are also "like
products".
478 See also United States' opening statement at first substantive meeting, para. 45.

substitutability" under the second sentence of Article III:2 as if arguendo we had found that the
products at issue were not like.
7.100 We recall that the Appellate Body has clarified that products are " directly competitive or
substitutable" within the meaning of the second sentence of Article III:2 if these products are
interchangeable or if they offer "alternative wa ys of satisfying a particular need or taste". 479 The term
"directly competitive or substitutable" implies a relationship between th e imported and domestic
products at issue that can essentially be d escribed as "in competition" in the marketplace. 480 This is a
"dynamic, evolving process" 481, which means that "the competitiv e relationship between products is
not to be analyzed exclusively by reference to current consumer preferences". 482 Thus, the expression
"competitive or substitutable" in Ad Note to Article III:2, second sentence, "indicates that the requisite
relationship may exist between products that are not, at a given moment, considered by consumers to
be substitutes but which are, nonetheless, capable of being substituted for one another".483
7.101 The question before us under Article III of th e GATT 1994 is not so much what the "degree
of competition" between the products at issue is, but what is the "nature" or "quality" of their
"competitive relationship".484 The term "directly", as used in the Ad Note to Article III:2, "suggests a
degree of proximity in the competitive relations hip between the domestic and imported products." 485
However, we disagree with the Philippines that this means that the imported and domestic
distilled spirits at issue will only be directly comp etitive or substitutable if they are in "'complete,
absolute or exact' competition with one another." 486 We consider that the Philippines' reading of the
word "directly" is too narrow and does not co nform with a proper interpretation of the
second sentence of Article III:2 as clarified by the A ppellate Body and by other panels. We agree
with the complainants that requiring "complete, absolute or exact" competition between the products
at issue as a condition to be considered direc tly competitive or substitutable would "blur" the
distinction between this categor y of products under the second sentence of Article III:2 of the
GATT 1994 and that of "like products" under the first sentence of that provision. 487 It would also go
against the understanding that the competitive relatio nship under the second sentence of Article III:2,
as stated above, deals not only with actual, but also with potential competition.488

479 Appellate Body Report, Korea – Alcoholic Beverages , para. 115. See also Appellate Body Report,
US – Cotton Yarn, para. 91, and the Panel Report, Mexico – Taxes on Soft Drinks, para. 8.68.
480 See Appellate Body Report, Korea – Alcoholic Beverages , para. 118. See also Appellate Body
Report, US – Cotton Yarn, para. 91, and Panel Report, Mexico – Taxes on Soft Drinks, para. 8.68.
481 Appellate Body Report, Korea – Alcoholic Beverages , para. 114. See also Appellate Body Report,
US – Cotton Yarn, para. 91.
482 Appellate Body Report, Korea – Alcoholic Beverages, para. 114 (emphasis original).
483 Ibid., para. 114. See also Appellate Body Report, US – Cotton Yarn, para. 91.
484 Appellate Body Report, Korea – Alcoholic Beverages , paras. 128-131 and 132-134. But see ibid.,
paras. 127-131.
485 Appellate Body Report, Korea – Alcoholic Beverages , para. 116 (adding that this term "does not,
however, prevent a panel from considering both latent and extant demand."). See also Appellate Body Report,
US – Cotton Yarn, paras. 97-98.
486 Philippines' first written submission, para. 214 (a lso stating that "the relationship described in
Article III:2 second sentence is one that requires a very high degree of proximity."). See also Philippines'
opening statement at first substantive meeting, para. 26; Philippines' second written submission, paras. 46-49;
Philippines' opening statement at second substantive meeting, para. 24.
487 European Union's response to Panel question No. 48, para. 74. The European Union additionally
states that "... not even under the first sentence of Article III:2 can one always describe the competitive
relationship between products as ' complete, absolute, or exact '..."). (emphasis original). Ibid. See also the
United States' response to Panel question No. 48, paras. 36-41; Australia's response to Panel question No. 2.
488 See also the European Union's response to Panel question No. 48, para. 75-77.

7.102 To assess whether the imported and domestic products are directly competitive or
substitutable, we will examine several of the factor s considered under the analysis of "like products"
of Article III:2, i.e. consumers' tastes and habits , in terms of the competitive relationship between the
products; channels of distribution; the products' properties, nature and quality; their end uses in a
given market; the tariff classification of the products based on the HS system; and relevant internal
regulations in the Philippines.
489
7.103 Parties have discussed extensively the issue of the competitive relationship between the
products at issue (domestic and im ported distilled spirits, made from different raw materials) in the
relevant market (the Philippines' market). Therefore, we will start our analysis with this factor. This
does not mean however that the other factors listed a bove, in particular the physical characteristics of
the products, are not relevant, or even less important. As the panel in Korea – Alcoholic Beverages
stated:
"It would be an incorrect reading of the law to argue that products' physical
similarities were somehow less relevant fo r the category of directly competitive or
substitutable products than for the subcategor y of like products. To put it another
way, if two products are physically identical or nearly so, it is highly probable that
they are 'like.' They should not then be found to be not directly competitive or
substitutable because marketing campaigns (or government tax regimes) have created
a distinction in consumer perceptions. Su ch consumer perception distinctions are
relevant but not determinative when the question is the nature of an actual or potential
competitive relationship rather than merely a quantitative analysis of the current
extent of competition. To find otherwise might allow allegedly discriminatory
government measures to create self-justifying product distinctions between identical
or nearly identical products."
490
(ii) The competitive relationship between the products at issue
7.104 We start by looking at the direct competitive re lationship between the re levant products, i.e.
the extent to which consumers are willing to use the di fferent products to satisfy the same, or similar,
needs ("consumers' tastes and habits"). 491 We will focus our analysis on how those products relate to
each other in the market. Although at some level al l products may be said to be "at least indirectly
competitive," given that consumers have limited di sposable income for competing needs, the second
sentence of Article III:2 only regulates situations where products compete directly.492
7.105 As stated at paragraph 7.101, the question before us under Article III of the GATT 1994 is not
so much what the "degree of competition" between the products at issue is, but what is the "nature" or
"quality" of their "competitive relationship".493 Therefore, as noted by previous panels, we should not
place too much emphasis on quantitative analyses wh ere "systems of government tax policies may

489 See e.g. Appellate Body Report, Japan – Alcoholic Beverages II, DSR 1996:1, p. 97, at p. 117;
Panel Report, Korea – Alcoholic Beverages , para. 10.61; Panel Report, Mexico – Taxes on Soft Drinks ,
para. 8.68. See also Panel Report, Chile – Alcoholic Beverages , paras. 7.14 and 7.30; and United States'
opening statement at first substantive meeting, para. 38.
490 Panel Report, Korea – Alcoholic Beverages, para. 10.66.
491 See Appellate Body Report, EC – Asbestos, para. 117; Appellate Body Report, Korea – Alcoholic
Beverages, para. 115.
492 Panel Report, Korea – Alcoholic Beverages , para. 10.40. But see above at para. 7.101, where we
disagreed with the narrow interpretation of "directly" advanced by the Philippines.
493 Appellate Body Report, Korea – Alcoholic Beverages, paras. 128-131.

have the effect of freezing consumer preferences in place of or in favour of the domestic product"
because such policies tend to understate the competitive relationship.494
7.106 Additionally, as stated at paragraph 7.100, the second sentence of Article III:2 protects both
actual and potential competition in a given market. In this respect, even in cases where there is no
actual competition, a complainant may satisfy the requirements of the second sentence of Article III:2
by showing that the products potentially have a directly competitive relationship. This is especially so
if there are indications that the challenged measure may have the effect of freezing consumer
preferences for certain products.
495
7.107 The Philippines argues that a competitive relations hip can only be analysed in the context of
the market realities of each country and whethe r a competitive relationship exists depends on the
market that exists for the majority of consumers. 496 To support its argument, the Philippines points to
the panel report on Chile – Alcoholic Beverages , which stated that, although the products do not
necessarily have to be substitutable all the time, th ere still must be a pattern of substitutability for
some consumers . Some consumers , the Philippines argues, must be a representative sample of the
entire market. Therefore, isolated and excep tional competition, such as that resulting from
"occasional substitutability on special occasions", s hould be ignored when it contradicts general
market trends.497
7.108 The competitive relationship between relevant products may be assessed through cross-price
elasticity studies, which can be a useful analytical tool to determine the degree of substitutability
between two goods or if they are in a competitive relationship. 498 The Appellate Body has noted that,
while cross-price elasticity is not necessarily a "decisi ve criterion" when looking at the conditions of
competition between products at issue in the relevant market, it is not inappropriate to consider it "as
one means of examining those relevant markets".499
7.109 With regard to the competitive relationship between the products at issue, we have noted that
parties have provided different studies of consumers' perceptions in the Philippines' distilled spirits
market. The complainants submitted a survey by Euromonitor International suggesting that
consumers in the Philippines would be more willing to purchase imported distilled spirits if the price
of those spirits decreases and the price of domestic Philippine spirits increases, even if the prices of
imported spirits remains higher than those of domestic spirits. 500 In turn, the Philippines submitted a
survey by Abrenica & Ducanes fro m the University of Philippin es School of Economics that
concludes there is low price elasticity in the Philippine domestic distilled spirits market and, therefore,
local and imported brands of distilled spirits are non-substitutable. The same survey suggests that

494 Panel Report, Japan – Alcoholic Beverages II, para. 6.28. See also Panel Report, Korea – Alcoholic
Beverages, para. 10.44; Appellate Body Report, Japan – Alcoholic Beverages II , p. 25, DSR: 1996:I, p. 97, at
p. 117; Panel Report, Chile – Alcoholic Beverages, para. 7.15.
495 Appellate Body Report, Korea – Alcoholic Beverages , paras. 119-120. For example, potential
competition was particular relevant in Chile – Alcoholic Beverages because the evidence showed the existence
of a substantial tax differential betwee n the relevant products, as well as other measures that greatly influenced
market conditions. Panel Report, Chile – Alcoholic Beverages, para. 7.25.
496 See generally Philippines' first written submission, paras. 210-219; Philippines' oral statement at the
first substantive meeting, para. 10; and Philippines' response to Panel question No. 17.
497 Philippines' second written submission, paras. 65-68.
498 See for example Panel Report, Japan – Alcoholic Beverages II, para. 6.22. See also Appellate Body
Report, Japan – Alcoholic Beverages II, p. 25, DSR 1996:1, p. 117; Appellate Body Report, Korea – Alcoholic
499 Appellate Body Report, Japan – Alcoholic Beverages II, p. 25, DSR 1996:1, p. 117.
500 Euromonitor International survey in exhibits EU-41 and US-41. See para. 2.43 above.

narrowing price differentials betw een imported and domestic distilled spirits would only result in a
small change in their respective market shares.
501
7.110 Both the Philippines and the complainants have criticized the methodology and the
conclusions of the studies on consumers pe rceptions submitted by the opposing party. 502 The
Philippines questions, for example, whether the Euromonitor International survey can serve as an
indication of price elasticity of substitution be tween distilled spirits made from the designated
raw materials and those made from other raw materials. 503 Likewise, the complainants raise doubts
about the "validity of [the] findings on cross-pri ce elasticities" contained in the Abrenica & Ducanes
survey from the University of Philippines School of Economics.504
7.111 In principle, the estimation of cross-price elasticity requires the use of an econometric
analysis of historical quantity and price data of the goods at issue in a given market. In the absence of
historical data, it is possible to estimate cross-price elasticity through the use of survey data, that is,
data collected by means of questionnaires. To prod uce reliable results, the su rvey would have to be
based on an appropriate methodology and be conduct ed on a sample that is representative of the
consumer population. However, an estimate of cross-price elasticity on the basis of surveys has
limitations, when compared to traditional estimates made using historical data. This is primarily
because the data on quantities consumed would not reflect actual choices of consumers, but only
hypothetical choices, which may not match consumer behaviour when faced with real life situations.
7.112 Neither the Euromonitor International survey, nor the Abrenica & Ducanes survey, is based
on historical quantity and price data. The Euromonitor International survey is described as an
evaluation on "consumers' price-based purchase pr eferences for different distilled spirit types across
consumers in the Philippines that consume di stilled spirits at least one time per month". 505 T h i s
survey is not, in our view, an attempt to estimate and provide figures for the cross-price elasticity for
imported and domestic distilled spirits. The Abrenica & Ducanes survey, in turn, estimates
cross-price elasticities for imported and domestic dis tilled spirits in the Philippines market to range
between -0.01 and 0.07, which the authors consider "low". The authors then conclude that "local and
imported brands [of distilled spirits are] non-substitutable".
506 Furthermore, the conclusions in both
the Euromonitor International report and the Abrenica & Ducanes su rvey, with respect to variations
in the quantities consumed of imported and domestic distilled spirits, are based on scenarios where the
prices of imported and domestic distilled spirits are both said to change at the same time. 507 T h e

501 Abrenica & Ducanes survey from the University of Philippines School of Economics in exhibit
PH-49. See para. 2.44 above.
502 See for example European Union's second written submission, paras. 97-103; United States' second
written submission, paras. 51-52; Philippines' first written submission, paras. 180-182, 240-241 and 268;
Philippines' second written submission, paras. 66-67; Philippines' opening statement at second substantive
meeting, paras. 25, 29 and 33; Philippines' comments to European Union's and United States' responses to
Panel question No. 83, paras. 19-23; and exhibits EU-101, EU-102 and US-48.
504 See for example European Union's second written submission, para. 101. See also United States'
second written submission, paras. 51-52; and exhibits EU-101 and EU-102.
505 Euromonitor International , "Consumer perceptions regarding substitutability in the Philippines
distilled spirits market", in exhibits EU-41 and US-41, p. 5.
506 See Abrenica & Ducanes, "On Substitutability between Imported and Local Distilled Spirits"
(University of Philippines School of Economics Foundation), in exhibit PH-49, pp. 2, 11, 12 and 20. It is worth
noting that the same study concludes that in the Philippine market "beer and liquor [distilled spirits] are
substitutes." Ibid., p. 16.
507 For example, the structure of the choices given to respondents creates a starting point bias, as well
as some shortcomings associated with the regression model used for the calculations (a mixed logit model). See
exhibits EU-101, EU-102 and US-48.

conclusions in both studies regarding the compe titiveness or substitutability between imported and
domestic products in the Philippines distilled spirits market would have been clearer had the studies
attempted to isolate the effects of an increase in the price of domestic spirits on the quantities
consumed of imported spirits (for example, by leaving the price of imported spirits fixed).
7.113 Nonetheless, the studies support the proposition that there is a significant degree of
competitiveness or substitutability in the Philippines' market between the distilled spirits at issue in
the present dispute. This refers both to distilled spirits as a general category, as well as to specific
types of distilled spirits such as gin, brandy, vodka and whisky.508
7.114 The Philippines states that its domestic distilled sp irits market is different from those of other
countries involved in previous alcoholic beverages cases (Japan, Chile and Korea) 509, because of the
impact that price and income play on consum ers' ability to purchase both domestic and imported
spirits.510 The Philippines argues that there is a huge gap in its market between the prices of
"non-sugar based spirits" and "sugar-based spirits", which results from market forces and not from the
excise tax 511, and is compounded by the huge discrepancy in incomes indicated by the economic
profiles of Philippine consumers. 512 The income disparity, together with the general gap in prices,
prevents most consumers from purchasing distilled spirits irrespective of the raw materials from
which they are made, thus creating two market segments: one for distilled spirits made from
designated raw materials and another for distille d spirits made from all other raw materials. 513 F o r
this reason, the Philippines concludes that distille d spirits made from designated raw materials and
spirits made from other raw materials are not directly competitive or substitutable.514
7.115 The European Union and the United States disag ree with the notion that income distribution
is a valid distinction for determining whether products are directly competitive or substitutable. 515
The United States argues:
"If income distribution could affect whet her goods are 'substitutable' for the purposes
of GATT Article III:2, it would draw emphasis away from the goods themselves and

508 See also para. 7.57 above.
509 Philippines' first written submission, paras. 220 and 221. See also Philippines' oral statement at the
second substantive meeting, para. 7.
510 Philippines' oral statement at the second substantive meeting, paras. 8-9 and 17.
511 Philippines' first written submission, paras. 36-37 and 231; Philippines response to Panel question
No. 53; Philippines' oral statement at the second substantive meeting, para. 17. See also Philippines' oral
statement at the second substantive meeting, paras. 4-5.
512 Philippines' first written submission, paras. 42-44, 224 and 233; Philippines' oral statement at the
first substantive meeting, para. 26; Philippines' second written submission, paras. 50-54; Philippines' response
to Panel question No. 72. See also para. 2.31 above. But see United States' comments on the Philippines'
response to Panel question No. 72; and European Uni on's comment on Philippines’ response to Panel question
No. 72.
513 Philippines' second written submission, para. 66. See also exhibits PH-22 and PH-18; Philippines'
oral statement at the first substantive meeting, paras. 20-21 and 27; Philippines' response to Panel question
Nos. 17 and 50; Philippines' oral statement at the seco nd substantive meeting, para. 6; and Philippines' oral
statement at the second substantive meeting, para. 18.
514 Philippines' first written submission, para. 46, 226-227, 233-234, 248; Philippines' oral statement at
the first substantive meeting, para. 28; Philippines' res ponse to Panel question Nos. 35 and 89; Philippines'
second written statement, para. 42.
515 See European Union's oral statement at the first substantive meeting, para. 77; United States'
response to Panel question No. 30; United States' second written submission, para. 35. But see Philippines' oral
statement at the second substantive meeting, para. 19.

whether they may be substituted, where it belongs, and allow purchasing power or
affordability to affect whether such goods are substitutes."
516
7.116 The complainants argue that, although distilled spirits made from other raw materials are
generally more expensive than distilled sp irits made from designated raw materials 517, there is no
clear gap in prices between them. 518 Rather, any notion that the mark et is segmented is defeated by
the fact that both groups of distilled spirits are priced on a continuum, resulting in a significant
amount of overlap. 519 Further, both complainants argue that any comparison of the relevant distilled
spirits' current prices should take into account the fact that the measure at issue significantly raises the
final prices of imported distilled spirits. Conse quently, the measure masks a significant amount of
latent demand and prevents importers from real izing economies of scale in the Philippine market
because they are unable to sell at efficient quantities.520
7.117 Finally, the United States stresses that even if the market is indeed segmented, imported and
domestic distilled spirits are directly competitive and substitutable for those consumers who compose
the market segment where impor ted products are affordable. 521 Both the United States and the
European Union argue that it is not accurate to conc lude that just because some Philippine consumers
can afford expensive distilled spirits, the rest of consumers can never afford them.522
7.118 We have found at paragraph 2.36 that, generally speaking, impor ted brands of distilled spirits
tend to be more expensive in the Philippines, ev en before taxes, than the corresponding domestic
brands of the same type of distilled spirit. At the same time, in the Philippine market there are a
number of high-priced domestic distilled spirits, as well as less expensive imports. The Philippines
contends that instances of price overlap be tween domestic and importe d distilled spirits are
"exceptions and aberrations".523 However, evidence shows that the overlap in prices of imported and
domestic distilled spirits is not exceptional and that it occurs for both high- and low-priced
products.524 In this regard, we note the statement of the panel on Chile – Alcoholic Beverages that
"[p]roducts do not have to be substitutable fo r all purposes at all times to be considered
competitive."525 Therefore, we find that the overlap in prices between imported and domestic
distilled spirits in the Philippine market, irrespec tive of the raw materials from which they are made,

516 United States' second written submission, para. 37.
517 European Union's first written submission, para. 157.
518 European Union's first written submission, para. 15 1; European Union's response to Panel question
Nos. 30, 33, 35 and 49; European Union's oral statement at the second substantive meeting, paras. 55-58;
United States' second written submission, paras. 30-31; United States' response to Panel question Nos. 30
and 33. See e.g. exhibit EU-80. European Union's second written submission, para. 38.
519 European Union's first written submission, paras. 152 and 154-157; European Union's oral
statement at the first substantive meeting, paras. 26 and 37-40. See also exhibits EU-15, EU-26, EU-29, EU-43,
EU-72 and EU-80.
520 European Union's first written statement, paras. 148-150; European Union's oral statement at the
first substantive meeting, para. 67; European Union's oral statement at the second substantive meeting,
paras. 48-49; United States' oral statement at the second substantive meeting, paras. 20-21 and 28-29.
521 European Union's first written submission, paras. 114 and 123; European Union's oral statement at
the first substantive meeting, para 17; European Union's response to Panel question No. 48; United States' first
written submission, para. 64; United States' oral statement at the first substantive meeting, paras. 32-33; United
States' second written submission, paras. 32-33; exhibit US-40.
522 United States' response to Panel question Nos. 35, paras. 25-27, and 54, paras. 51-52. See also
European Union's second written submission, paras. 39-41; United States' oral statement at the second
substantive meeting, para. 32; United States' oral statem ent at the second substantive meeting, paras. 20-21 and
28-29.
524 See e.g. paras. 2.36, 2.66, 2.67, 2.72 and 2.73.
525 Panel Report, Chile – Alcoholic Beverages, para. 7.43.

suggests that the market is not segmented and th at in some cases imported and domestic products
compete with respect to price.
7.119 With regard to the argument advanced by th e Philippines concerning the purchasing power of
Philippine consumers 526, we have already found at paragraph 7.59 that, while a large proportion of
Philippine consumers may not currently have access to high-priced distilled spirits, including those
made from raw materials other than those designated in the measure, many others may be able to
purchase high-priced distilled spirits, at least on special occasions.
7.120 The Philippines asserts that distilled spirits made from other raw materials are out of reach for
"most" or a "majority" of its population, or are only available to a "narrow segment" of the population.
It argues that "the capacity of a limited segmen t of the population to purchase non-sugar-based spirits
should not be used as the basis for determining that these products are directly competitive or
substitutable."527 In our view, the Philippines' statement im plies that, at least a narrow segment of the
market has access to both groups of spirits. 528 Article III of GATT 1994 does not protect just some
instances or most instances, but rather, it protects all instances of direct competition.529 It follows that
the competitive relationship does not need to occur throughout the whole market for a panel to find
that a measure is inconsistent with the second senten ce of Article III. We thus conclude that, even if
the Philippine distilled spirits market were segmented, actual direct competition exists within at least a
segment of that market. We consider that th is is enough for us to find a direct "competitive
relationship" for the purpose of the second sentence of Article III:2 of the GATT 1994.530
7.121 Finally, as indicated at paragraph 7.100, th e competitive relationship protected under the
second sentence of Article III:2 includes not only actual, but also potential competition between the
products at issue. Therefore, the alleged absence of actual competition within the majority of the
market cannot decide the issue. Rather, one must look at whether the products are capable of being
competitive. The Philippines argues that since ther e is no evidence that the income distribution will
drastically change in the near future, distilled spirits made from raw materials other than those
designated in the measure will still be out of reach for the majority of the Philippine population. 531 In
our view, an Article III analysis should not depe nd on predicting income distribution patterns, but
rather on whether there is evidence that consumers ar e willing, or may be willing, to use the different
products to satisfy the same or similar needs. In this respect, the instances of actual competition we

526 See para. 7.114 above.
527 Philippines' first written submission, para. 249; Philippines' oral statement at the first substantive
528 See Philippines' first written statement, paras. 43, 46, 226, 230, 233 244, 248; Philippines' oral
statement at the first substantive meeting, para. 29; Philippines' response to Panel question No. 52; and
Philippines' second written submission, para 55. See also Philippines' oral statement at the first substantive
meeting, para. 27. The existence of at least some degree of a competitive relationship between the relevant
products seems to be confirmed by the statements fro m domestic Philippine companies that their products face
competition from imported spirits, and that their marketing strategies convey an image of their products as
drinks that compete with the imported distilled spirits. See European Union's first written submission,
paras. 127-136 and exhibits EU-22, EU-25, EU-29, EU-4 3, EU-58, EU-59, EU-60, EU-63, EU-64, EU-65 and
EU-87. See also Panel Report, Chile – Alcoholic Beverages, para. 7.85. The European Union notes that the top
15 per cent of the population amounts to over 13.7 million citizens. European Union's second written
submission, para. 4; European Union's opening statement at second substantive meeting, para. 34.
529 Panel Report, Chile – Alcoholic Beverages, para. 7.43.
530 See also the European Union's oral statement at the first substantive meeting, para. 77.
Philippines' response to Panel question No. 52. See also Philippines' oral statement at the second substantive
meeting, para. 24.

noted in paragraph 7.118 are a clear indication that the imported and domestic products at issue in this
dispute are indeed capable of being directly competitive or substitutable in the future.
(iii) Products' channels of distribution
7.122 The complainants assert that in the Philippines, all distilled spirits at issue use the same
channels of distribution and sale. For them, this is an indication that these products compete with
each other in the Philippine market and are thus directly competitive or substitutable within the
meaning of the second sentence of Article III:2.
532 The Philippines states in response that the fact that
distilled spirits made from designated raw materi als and distilled spirits made from other raw
materials "operate in different markets, and are not directly competitive or substitutable, is also
reflected in their manner of distribution. In the Philippines, non-sugar-based distilled spirits and
sugar-based spirits are sold thro ugh distribution channels that are almost entirely different – through
'sari-sari' stores.533"534
7.123 We note that the evidence shows that some estab lishments (especially small retail stores) that
offer domestic Philippine distilled spirits do not carry imported distilled spirits. However, all outlets
where imported spirits are sold either for consumpti on on the premises (such as bars or restaurants) or
off the premises also offer domestic Philippine spirits. 535 We consider that this is an indication of
similarity between the products at issue.
(iv) Products' properties, nature and quality
7.124 The United States argues that "based on physical attributes such as appearance, taste, color
and alcohol content, distilled spirits made of i ndigenous materials in the Philippines are directly
competitive or substitutable with imported distilled spirits."536
7.125 In turn, the European Union submits that:
"[T]he basic physical properties of all distilled spirits – irrespective of the raw
materials used for distillation – are essentiall y the same. All spirits are concentrated
forms of alcohol produced by the process of distillation. At the point of distillation,
all spirits are nearly identical, which means that raw materials used in this process
have almost no impact [on] the final product."537

532 European Union's first written submission, paras. 137-144; European Union's opening statement at
first substantive meeting, paras. 69-72; European Union's second written submission, paras. 108-109;
European Union's opening statement at second substantiv e meeting, paras. 38-42; United States' first written
submission, paras. 53-58; United States' opening statement at first substantive meeting, para. 41; United States'
second written submission, paras. 8 and 11; United States' comments on the Philippines' response to Panel
question No. 76, para. 19.
533 (footnote original) "Sari-sari" is a Philippine word that means "variety".
534 Philippines' first written submission, para. 253 (em phasis original). See also Philippines' opening
statement at first substantive meeting, para. 29; Ph ilippines' second written submission, paras. 72-75;
Philippines' opening statement at second substantive meeting, para. 23; Philippines' response to Panel question
Nos. 71 and 76.
535 See para. 2.41 above.
536 United States' first written submission, para. 52. See also United States' opening statement at first
substantive meeting, paras. 10-18; United States' sec ond written submission, paras. 7 and 11; United States'
opening statement at second substantive meeting, paras. 14-16.
537 European Union's first written submission, para. 120. See also European Union's first written
submission, paras. 121-122; European Union's second written submission, paras. 78-84; European Union's
opening statement at second substantive meeting, paras. 18-37.

7.126 The Philippines responds that "the different phy sical characteristics" between the relevant
products "are substantial"538, in particular given the fact that they are respectively made from different
raw materials and using distinct distillation processes. For many of the spirits at issue in the present
dispute, the producers of distilled spirits from desi gnated raw materials strip the ethyl alcohol made
(normally sugar cane molasses) of its natural congeners and add natural or artificial flavourings. In
contrast, distilled spirits made from other raw material are allowed to retain their natural congeners in
order to distinguish the products.539
7.127 In our discussion on the issue of the products' properties, nature and quality, as part of the
"likeness" analysis under the first sentence of Article III:2, we stated that, according to the
Appellate Body, such elements may be seen as c overing the physical qualities and characteristics of
the products at issue. 540 We concluded there, as we concl ude here, that the various elements
associated with the properties, nature and quality of the products at issue (such as alcohol content,
colour, physiological effects on humans, process of production, organoleptic properties) suggest that
there is a close similarity between these products. 541 We consider that those various elements are also
relevant to our inquiry under the second sentence. As stated by the panel in Chile – Alcoholic
Beverages, "the closer the physical similarity [between the products at issue] the greater the likelihood
of a directly competitive or substitutable relationship [between them]."542
(v) End uses and marketing
7.128 The complainants argue that the products at issue have common end uses, as they are
inter alia drunk in the same way, place and occasions.543 The Philippines responds that any overlap in
end uses "cannot by itself overcome the clear ph ysical differences in the products, or, more
significantly, market segmentation caused by price differences." 544 The Philippines further claims that
given the market segmentation in the Philippines, ev en though the products at issue may satisfy the
same needs (such as thirst quenching, relaxatio n, socialization), "they do so for different,
non-interchangeable audiences." 545
7.129 In our discussion on the issue of the relevant products' end uses as part of the "likeness"
analysis under the first sentence of Article III:2, we stated that we would focus on the extent to which
the different types of spirits relevant for the present dispute are capable of serving the same, or
similar, end uses. We found no evidence of any differences between the end uses of imported and
domestic distilled spirits at issue in the present dis pute, nor between the end uses of distilled spirits
made from the designated materials and those made from other materials. 546 We concluded there, as
we conclude here, that the various elements asso ciated with the relevant products' end-uses suggest
that there is similarity between these products.547

539 Philippines' first written submission, para. 274. See also Philippines' second written submission,
paras. 19-32.
540 See para. 7.34 above.
541 See paras. 7.75 and 7.80 above. See also paras. 7.35 to 7.47 above.
542 Panel Report, Chile – Alcoholic Beverages , para. 7.48. See also Panel Reports, Chile – Alcoholic
543 European Union's first written submission, paras. 123-125; European Union's second written
submission, paras. 104-107; United States' first writte n submission, paras. 59-63, United States' opening
statement at first substantive meeting, para. 41; United States' second written submission, paras. 9 and 11.
545 Ibid., para. 282.
546 See para. 7.48 above.
547 See paras. 7.75 and 7.81 above.

7.130 The complainants also argue that the fact that all distilled spirits producers use similar
marketing strategies to advertise their products in the Philippines indicates that the imported and
domestic spirits at issue compete with each other in that market.
548 The Philippines responds that any
overlap in advertising or marketing strategies is of "limited relevance", and that "different marketing
techniques" are a result of the physical differen ces between the products at issue and the market
segmentation caused by price differences. 549
7.131 When addressing the "likeness" is sue under the first sentence of Article III:2, we noted that
marketing campaigns for distilled spirits are very si milar and that there is no indication that those
campaigns are different for imported distilled spirits and domestic Philippine distilled spirits, nor for
spirits made from the designated material s and those made from other materials. 550 We also noted
that the domestic distilled spirits in the Philippines, irrespective of the raw materials from which they
are made, are labelled as either gin, brandy, rum, vodka, whisky, tequila or tequila-flavoured spirits.551
Further, generally speaking, labe ls of domestic Philippine distilled spirits made from the designated
raw materials tend to either mimic or replicate the names of products and designs of the similar
imported spirits made from other raw materials. 552 All these factors, we believe, are additional
elements that suggest that the products at issue are directly competitive and substitutable.553
(vi) Tariff classification
7.132 The complainants argue that another indication that the imported and domestic distilled spirits
at issue are directly competitive or substitutable is the fact that these products fall within the same
HS heading, i.e. HS heading 2208. 554 The Philippines responds that the tariff classification at the
HS four-digit level is not "detailed enough" to su pport the complainants' view. The Philippines notes
that at the six-digit level the HS separates spirits between those made with sugar cane and those that
are not made with sugar cane. It argues that this demonstrates that the products at issue are not
directly competitive or substitutable.555
7.133 In our discussion with respect to the questi on of "likeness" under the first sentence of
Article III:2 we considered the product descriptions under the HS at both the four-digit level and
six-digit level. We consider, however, that the six-digit subheadings descriptions under the HS are
relevant only for the discussion of the similarity of specific types of distilled spirits, rather than for the
whole category of distilled spirits. Accordingly, the f our-digit level of HS heading 2208 is the
appropriate level for the purpose of the issue of "direct competitiveness or substitutability" of the
whole category of distilled spirits in the present case under the second sentence of Article III:2.

548 European Union's first written submission, paras. 126-136; European Union's second written
submission, paras. 90-94; European Union's opening statement at second substantive meeting, paras. 43-47;
United States' first written submission, paras. 48-49; United States' second written submission, para. 8 and 11;
United States' comments on the Philippines' response to Panel question No. 76, para. 19.
549 Philippines' second written submission, paras. 25 and 37. See also Philippines' response to Panel
question No. 76.
550 See paras. 7.51, 7.76 and 7.82 above.
551 See para. 7.61 above.
552 See para. 7.61 above.
553 See Panel Report, Korea – Alcoholic Beverages, para. 10.65.
554 European Union's opening statement at first substantive meeting, para. 76; European Union's
second written submission, para. 96; United States' first written submission, paras. 44 and 65-66; United States'
opening statement at first substantive meeting, para. 41; United States' second written submission, paras. 10, 11
and 27. See also United States' response to Panel question No. 42, para. 33.

7.134 In our discussion under the first sentence of Article III:2 for the whole category of
distilled spirits, we concluded, as we conclude here, that the fact that all distilled spirits at issue fall
within the HS heading 2208 is an indication of their similarity.556
(vii) Internal regulations
7.135 With respect to domestic regulations on distille d spirits in the Philippines, we have noted
above in our "likeness" analysis that certain local ordinances against drunk driving do not distinguish
between imported and domestic spirits, nor between spirits made from the designated materials and
those made from other materials. Nor is any such di stinction made in local ordinances with respect to
"the sale, dispensation and/or distribution of alcoholic beverages". 557 We also found further
confirmation of similarity in the language used in Republic Act No. 9334, one of the relevant
instruments in the present dispute. 558 We consider that such determinations are also relevant here in
that they constitute additional indications that th e products at issue may be considered directly
competitive and substitutable.
(viii) Conclusions on "directly competitive or substitutable"
7.136 We found at paragraph 7.77 that the imported a nd domestic distilled spirits at issue in the
present dispute are "like products" within the meani ng of the first sentence of Article III:2. If the
imported and domestic distilled spirits at issue in the present dispute are "like" under the
first sentence, it follows that, in principle, they w ould also be "directly competitive or substitutable"
within the meaning of the second sentence of Article III:2. However, as explained above 559, we
decided to consider the issue of "direct compe titiveness or substitutability" under the second sentence
of Article III:2 as if arguendo we had found that the products at issue were not like.
7.137 Based on the above analysis, we find that ther e is a direct competitive relationship between
domestic and imported distilled spirits, made from di fferent raw materials, for the purpose of the
second sentence of Article III:2 of the GATT 1994. We also recall our conclusions above on the
following elements: (i) the products' channels of dist ribution; (ii) the products' properties, nature and
quality; (iii) the products' end uses and marketing; (iv) the product descriptions under HS heading
2208; and (v) certain domestic regula tions on distilled spirits in the Philippines. We concluded that
each of these elements constitute an indication of th e similarity between the products at issue. We
therefore consider that, together, these conclusions suggest that those products may be directly
competitive and substitutable.
7.138 Having considered all the above factors and elemen ts, we conclude that the distilled spirits at
issue in the present dispute, whether imported or do mestic, and irrespective of the raw materials from
which they are made, are "directly competitive or substitutable" within the meaning of the second
sentence of Article III:2 of the GATT 1994.
(b) "Not similarly taxed"
(i) Introduction
7.139 Now that we have found that the domestic and im ported products at issue, irrespective of the
raw materials from which they are made, are "direc tly competitive or substitutable", we continue our

556 See para. 7.63 and 7.76 above.
557 See para. 7.72 above.
558 See para. 7.73 above.
559 See para. 7.99 above.

inquiry into the second question under the second sen tence of Article III:2 of the GATT 1994, i.e.
whether these products are "not similarly taxed."
(ii) Arguments of the parties
7.140 The complainants assert that the tax differen tial applied to domestic and imported distilled
spirits is "enormous"
560, with imported spirits being charged a pproximately 10 to 40 times the excise
tax applied to directly competitive or substituta ble domestic products. They submit that such a
differential is much greater than the ta x differentials found to be more than de minimis in previous
similar disputes. Consequently, they argue that the imported and domestic distilled spirits at issue are
"not similarly taxed" within the meaning of the second sentence of Article III:2.561
7.141 The Philippines responds that, even if the distille d spirits at issue were considered to be
directly competitive or substitutable, any differen ce between the excise tax applied to them will only
be de minimis and, as a consequence, permissible under the second sentence of Article III:2. 562 The
Philippines argues that, in order to assess whether the taxation at issue is de minimis, the appropriate
comparison is not between the nominal tax rates applied to distilled spirits made from designated raw
materials and those made from other raw materials, but rather between the relative tax burdens of
those products.563 The Philippines further elaborates on this view by articulating what it believes to
be the correct "de minimis test" under the second sentence of Article III:2, as follows:
"[T]he concept of de minimis for the purposes of Article III:2, second sentence, is
defined by the extent to which the tax burden affects the competition of products in
the market in question. If the taxation rate has little or no impact on consumer
choice, it will be deemed to be de minimis."
564
7.142 Applying the above standard to the facts of this case and borrowing from its previous
arguments made under the first el ement of the Article III:2 second sentence analysis, the Philippines
asserts that the evidence indicates th at the average net retail price of distilled spirits made from raw
materials other than those designated in the Philippines legislation is such that "the vast majority of
consumers will not be able to afford these products ", irrespective of the amount of excise tax applied
to them.565

560 European Union's second written submission, para. 129.
561 European Union's first written submission, paras. 105, 158-165 and 170; European Union's opening
statement at first substantive meeting, paras. 81 and 83; European Union's response to Panel question No. 56,
para. 86; European Union's second written submission, para. 129; European Union's opening statement at
second substantive meeting, para. 75; United States' first written submission, paras. 67-70, 73 and 79; United
States' opening statement at first substantive meeting, paras. 43-46; United States' response to Panel question
Nos. 56, paras 56-57, and 57, para. 60; United States' second written submission, para. 56; United States'
opening statement at second substantive meeting, para. 48 . See also Australia's third party written submission,
para. 42, and Australia's response to Panel question No. 5.
563 Ibid., paras. 287 and 309. See also Australia's response to Panel question No. 5; and India's
response to Panel question No. 5.
564 Philippines' first written submission, para. 289; Philippines' opening statement at first substantive
meeting, para. 33; Philippines' sec ond written submission, paras. 77-79. See also India's response to Panel
question No. 4.
565 Philippines' first written submission, paras. 286 a nd 289, referring to Euromonitor International,
"Consumer perceptions regarding substitutability in the Ph ilippines distilled spirits market", in exhibits EU-41
and US-41, and to Abrenica & Ducanes, "On Substituta bility between Imported and Local Distilled Spirits"
(University of Philippines School of Economics Foundation) , in exhibit PH-49). See also Philippines' opening

7.143 The Philippines also claims that the difference in the relative tax burden imposed on distilled
spirits produced from designated raw materials as compared to that imposed on distilled spirits
produced from other raw materials is a "minor differen ce, particularly in light of the significant price
differences between non-sugar-based and sugar-based spirits".566 In support of its contention that the
difference in the relative tax burden is "minor", the Philippines estimates that the "average tax
burden" on distilled spirits produced from designate d raw materials and that on distilled spirits
produced from other raw materials, as provided by a sample of spirits in Republic Act 8240, would be
13 per cent and 22 per cent, respectively. The Ph ilippines asserts that this "difference of only
9 percentage points" is "certainly not the degree of higher taxation found to exist" in previous similar
cases.567
7.144 Finally, because in the Philippines' view de minimis taxation is to be ascertained in light of
the facts of each case, it asks the Panel to take in to consideration the particularities of the Philippine
domestic market (composed mostly of low income consumers). The Philippines also asks the Panel to
take into consideration the mandate enshrined in the Philippine Constitutio n requiring a "progressive
system of taxation", which, in the case of the exci se tax on distilled spirits, is aimed at taxing those
who can afford "luxury goods" more than those who cannot.568
7.145 Based on the foregoing considerations, the Phili ppines claims that because the excise tax at
issue "has no effect in the [Philippine] mark et" it results in a tax burden that is only de minimis.569
Consequently, directly competitive and substituta ble imported and domestic distilled spirits are
"similarly taxed" and the excise tax at i ssue is permissible under the second sentence of
Article III:2.570
7.146 The complainants disagree that this is the appropr iate standard applicable to an analysis under
the second sentence of Article III:2.
7.147 The United States argues that the correct approach in this case should focus on the "size of the
tax differential" betwee n the products at issue. 571 In its view, the Philippines' approach is akin to a
"trade effects" test. Requiring that a measure must affect trade and consumer' choices for it to meet
the more than de minimis requirement is, therefore, incorrect. Such an approach would read
Article III:2 backwards by requiring one to look first at the trade effects before ascertaining if there is
a difference in tax treatment. Further, the United States argues that the standard advanced by the
Philippines "could lead to extreme results" as it could allow a Member to have an explicitly
discriminatory measure as long as this measure was put in place "before there was significant import
penetration" in that market.572

statement at first substantive meeti ng, para. 34; Philippines' opening stat ement at second substantive meeting,
para. 6(c).
567 Ibid., paras. 290-291; Philippines' opening statement at first substantive meeting, para. 33.
568 Philippines' first written submission, para. 291. S ee also the Philippines' opening statement at first
substantive meeting, para. 33.
569 Philippines' first written submission, paras. 16 and 289.
570 Ibid., paras. 286 and 290.
571 United States' response to Panel question No. 56, para. 56.
572 Ibid., paras. 56-59; United States' opening statement at second substantive meeting, paras. 45-49.
The complainants also argu e that, in any event, they have alread y demonstrated that eliminating the tax
difference would indeed affect the market and that they have shown that the different tax rates at issue in this
dispute have resulted in a "dramatic impact" on products that are "clearly competing in the Filipino market".
European Union's response to Panel question No. 56, para. 86. See also United States' opening statement at first
substantive meeting, para. 47.

7.148 The European Union asserts that a de minimis tax differential is one that is so small that it is
"negligible" from the perspective of both the consumers and producers.
573 Noting that the Appellate
Body has not developed a specific list of criteria for analysing whether a given level of tax differential
is more than de minimis, the European Union submits that a panel facing such a question could look at
the following elements: (i) the actual impact of the tax on the final price of the products; (ii) the
degree of proximity and similarity of the products; and (iii) the degree of competition in the market
and the relative strength of the companies producing the goods which are subject to different taxes.574
7.149 The complainants also claim that comparing the average tax burdens of all imported spirits
with the average tax burden of all domestic products is not appropri ate. The United States considers
that such an approach would "mask [the] tax discrimination among the same types of spirits." 575 The
European Union argues that the Philippines' approach is particularly problematic because the averages
used are based on a very restricted sample of products. 576 The European Union further states that
because under the second sentence of Article III:2 it is unnecessary to find that all imported and
domestic products are similar, it follows that using average prices or average tax burdens is "quite
irrelevant" to assess the claims in this dispute. 577 The European Union claims that instead of looking
at the "average" tax burdens, the Panel should look at the "actual" tax burdens on the competing
products at issue.578 The United States further asserts that ev en if one were to accept the Philippines'
own averaged numbers, they would still show that the average excise tax applied to imported
distilled spirits is "almost double" the average excise tax applied to domestic distilled spirits.579
(iii) Consideration by the Panel
7.150 We start by recalling that in Chile – Alcoholic Beverages, developing its reasoning on this
issue, the Appellate Body explained:
"In Japan – Alcoholic Beverages, we stated that 'to be "not similarly taxed", the tax
burden on imported products must be heav ier than on "directly competitive or
substitutable" domestic products, and that burden must be more than de minimis in
any given case.' (...) we consider that this is the appropriate le gal standard to apply
under the second issue of 'not similarly taxed'. We must, therefore, assess the relative
tax burden imposed on directly competitive or substitutable domestic and imported
products."580
7.151 We will follow the Appellate Body's guidance mindf ul that a determination of what is or is
not more than de minimis can only be made on a case-by-case basis.581

573 European Union's response to Panel question No. 56, paras. 89, 90 and 94.
574 European Union's response to Panel question No. 56, paras. 88, 91-93. See also Australia's response
to Panel question No. 4.
575 United States' response to Panel question No. 57, para. 64.
576 European Union's opening statement at first substantive meeting, para. 82. See also United States'
response to Panel question No. 57, paras. 62-64; European Union's response to Panel question No. 57, paras. 95-
97; European Union's second written submission, para. 131.
577 European Union's response to Panel question Nos. 57, paras. 96-97, and 92, paras. 51-53.
578 European Union's opening statement at first substantive meeting, para. 82.
579 United States' response to Panel question No. 57, para. 61.
580 Appellate Body Report, Chile – Alcoholic Beverages, para. 49 (footnotes omitted) (citing the
Appellate Body Report, Japan – Alcoholic Beverages II, DSR 1996:1, p. 97, at p. 119).
581 Appellate Body Report, Japan – Alcoholic Beverages II, DSR 1996:1, p. 97, at p. 119. See also the
European Union's first written submission, para. 158 and European Union's response to Panel question No. 57,

7.152 We note that the Philippines relies on th e following passage from the panel report on
Chile - Alcoholic Beverages to support its interpretation of the de minimis test:
"In our view this means that panels should look at the particular market in question
and the products themselves. That is, ther e is no set level of tax differential which
can be considered de minimis in all cases. This follows from the Appellate Body's
observation that with respect to 'like pr oducts' the similarities between the products
are so strong that it can be presumed that any differential in taxation will have an
impact on the market. However, when products are somewhat different, but are still
directly competitive or substitutable, then de minimis differences in taxation are
permissible because it is not necessarily true that small differences in tax levels will
have an effect in the market."
582
7.153 We agree with the above statement by the panel in Chile – Alcoholic Beverages. We note,
however, that the differences in tax levels which, in that panel's view, would not necessarily have an
effect in the market were only those considered to be "small". This is in line with the accepted
meaning of the term de minimis, which is a "legal term describing that something is of little or no
importance in the matter concerned." 583 This is also how the term has been used by the Appellate
Body. Further, we note that in previous similar disputes significantly smaller tax differentials than
those in the present case were nevertheless consid ered sufficient to support a finding of dissimilar
taxation.584
7.154 As we have already indicated above, all distille d spirits produced in the Philippines are made
from the raw materials designated in the legi slation and thus subject to the current Section 141(a) flat
tax rate of PHP 14.68 ppl. In contrast, the vast majority 585 of distilled spirits imported into the
Philippines are made from other raw materials and are thus subject to one of the three current tax rates
under Section 141(b): PHP 158.73 ppl, PHP 317.44 ppl or PHP 634.90 ppl, depending on their
NRP.586 This results in imported distilled spirits being subject to approximately 10, 20 or 40 times the
excise tax applied to directly competitive or substituta ble domestic spirits. We consider therefore that
we are not presented here with "small differences in tax levels" but rather, with large ones.587

582 Panel Report, Chile – Alcoholic Beverages , para. 7.90. See also Philippines' first written
583 Dictionary of Trade Policy Terms , W. Goode, CICS/WTO, fifth edition, 2007, p. 121 (emphasis
added). The term de minimis comes from the Latin maxim " de minimis non curat lex ", which means "the law
does not care for, or take notice of, very small or trifling matters." ( Black's Law Dictionary , abridged sixth
edition, 1991, p. 297 – emphasis added). See also The Shorter Oxford English Dictionary, sixth edition, 2007,
Volume 1 (A-M), p. 640 (defining de minimis as"[t]oo minor or trivial to merit consideration by the law."). See
further European Union's response to Panel question No. 56, para. 89.
584 In Japan – Alcoholic Beverages II , the tax differential that was considered more than de minimis
ranged from 1.3 to 9.6 times; in Korea – Alcoholic Beverages , the tax differential that was considered more
than de minimis ranged from 1.4 to 2.8 times; and in Chile – Alcoholic Beverages, the tax differential that was
considered more than de minimis was an overall differential of 1.75 times between the lowest ad valorem rate
(27 per cent) and the highest (47 per cent). Further, in Chile – Alcoholic Beverages , even the incremental
4 percentage point difference between each of the tax sub-categories of the New Chilean System, ranging from
the 27 per cent and 47 per cent ad valorem rates, was considered per se as more than de minimis.
585 As indicated in paras. 2.37 and 2.74 above, some imported distilled spirits produced from
designated raw materials (rums) are subj ect to the lower flat tax rate under Section 141(a) . These imports
represent less than 0.1 per cent of total imported distilled spirits. See exhibits EU-15, pp. 7 and 57 and US-15,
pp. 7 and 57.
586 See para. 2.17 above.
587 See also para. 7.140 above. We further note that a similar magnitude of tax differential can be seen
when looking at the actual amount of excise tax that is currently levied on certain imported and domestic

7.155 The Philippines does not contest that the nominal tax differential identified above is large.
The Philippines argues instead that under the second sen tence of Article III:2, the dissimilar taxation
must be assessed not in absolute but rather in re lative terms, i.e. based on the relative tax burden
applied to the products at issue. The Philippines calculates a relative tax burden by dividing the NRP
of the distilled spirits brands listed in the a nnexes of Republic Act 8240 by the amount of the tax
applicable to each of those brands. It then aver ages the resulting relative tax burdens of each brand
classified under Section 141(a) and each brand classified under Section 141(b). The result, claims the
Philippines, is an average tax burden of 13 per cent for distilled spirits made from
designated raw materials and an average tax burden of 22 per cent for distilled spirits made from
other raw materials. The Philippines argues that the 9 percentage point difference between these
average tax burdens is "minor" and, thus, a de minimis one.
7.156 We stated above that we would follow the Appellate Body's guidance that a finding of
dissimilar taxation under the second sentence of Article III:2 would include an assessment whether
the tax burden on imported products is "heavier" th an on the domestic products, and whether such
burden is "more than de minimis in any given case." We understand that the Appellate Body
considered that in making such an analysis, a panel ipso facto would be undertaking an assessment of
the "relative tax burden" imposed on these products.
7.157 We have already concluded that, in nominal terms, the tax differential applicable to the vast
majority of imported distilled spirits is larger (and, thus, imposes a "heavier" burden) than that
applicable to all domestic directly competitive or su bstitutable distilled spirits. Therefore, from this
perspective, we consider that such differential is more than de minimis within the meaning of
Article III:2 of the GATT.
7.158 We further believe that, in relative terms, the tax burdens of the products at issue are also
more than de minimis.
7.159 We recall again that, given the structure of the Philippine excise tax system, all domestic
spirits are subject to a specific tax, whereas the vast majority of imported spirits is subject to an
ad valorem tax. This means that no matter what the NRP of domestic distilled spirits are, these
products will always pay a flat rate tax of PH P 14.68 ppl. As a result, the more expensive a
domestic distilled spirit is, the lower the relative tax bur den of that spirit. Even if we were to agree
with the Philippines' description of its market as segmented, this would mean that the
domestic distilled spirits that are in greater competition with most imported products enjoy the lowest
tax burden under Section 141 (a).
7.160 The evidence before us shows that, as applie d to specific imported and domestic brands of
distilled spirits, the Philippine excise tax results in differences of relative tax burdens that are
significantly more than de minimis.
588 The table below illustrates this very clearly:589

brands. As indicated above in footnote 61 to para. 2.17 , the current amount of excise tax applicable to certain
brands of "local distilled spirits" made from designated raw materials in 750 ml bottles can range from PHP 6.86
to PHP 9.98. Conversely, the current amount of excise tax applicable to certain brands of "imported distilled
spirits" made from other raw materials in 750 ml bottles can range from PHP 85.71 to a maximum of
PHP 409.51. This corresponds to an actual tax differential of between 12 and 40 times for comparable spirits.
588 See also United States' opening statement at firs t substantive meeting, para. 47 and United States'
response to Panel question No. 57, paras. 62-63 (comparing the average tax burden of 9 imported and 14
domestic spirits using information from the Abrenica and Ducanes Report (Exhibit PH-49), and claiming that
such data reveal that the highest tax burden faced by an imported spirit in the sample is almost 62 per cent (Jack
Daniel’s Tennessee Sour Mash Whiskey), while the highest tax burden faced by a domestic spirit in the sample
was 18 per cent ( Tanduay Rhum ESQ ). See further the United States' second written submission, para. 54;

Brand/Origin Type of spirit Volume
bottle
Relative tax burden
(NRP/tax)
Bombay Sapphire (imported) gin 750 ml 33 per cent
Ginebra Especial (domestic) gin 750 ml 19 per cent
Alfonso I (imported) brandy 700 ml 45 per cent
Maximo (domestic) brandy 700 ml 27 per cent
Stolichnaya (imported) vodka 1,000 ml 47 per cent
Gilbey's 1857 (domestic) vodka 1,000 ml 7 per cent
Benmore Blended (imported) whisky 700 ml 108 per cent
White Castle 5 Years (domestic) whisky 700 ml 6 per cent
José Cuervo Gold (imported) tequila 700 ml 35 per cent
El Hombre Gold (domestic) tequila-flavoured 700 ml 3.5 per cent

7.161 It is clear therefore that the relative tax burdens imposed on imported and domestic
distilled spirits, when calculated as a ratio of their statutory NRP and the applicable tax rate, reveal tax
differentials that are significantly more than de minimis.
7.162 We now turn to the "averaging" approach a dvanced by the Philippines. We recall the
statement of the panel in Chile – Alcoholic Beverages that for a finding of dissimilar taxation, "it is
sufficient to find that certain of the imports are taxed dissimilarly compared to certain of the domestic
substitutable products."590 Thus, there is no need to find that all domestic and im ported products are
dissimilarly taxed.591 For the same reason, the fact that under the Philippine excise tax some brands
of imported distilled spirits (specifica lly, some brands of imported rum 592) are similarly taxed is
irrelevant to the present analysis.
7.163 Furthermore, if the "averaging" approach propo sed by the Philippines were to be used, it
could result in a situation where the dissimilar taxa tion imposed on certain groups of products would
be compensated or diluted when compared to the tax treatment received by other groups of products.
7.164 For the foregoing reasons, we consider that the "averaging" of re lative tax burdens, as
proposed by the Philippines, is not the appropriate standard applicable to an analysis under the second
sentence of Article III:2.
7.165 Even assuming that a de minimis analysis could be based on a comparison of average relative
tax burdens of imported and domestic products, and accepting arguendo the figures proposed by the

European Union's first written submission, para. 164; European Union's opening statement at first substantive
meeting, paras. 43-46; European Union's response to Panel question No. 56, para. 86.
589 The examples correspond to some important domestic and imported distilled spirits sold in the
Philippines, as listed above in the tables in paras. 2.59-2.60 (for gins); 2.66-2.67 (for brandies); 2.78-2.79 (for
vodkas); 2.84-2.85] (for whiskies); and 2.90-2.91 (for tequila and tequila-favoured spirits). See also exhibit
PH-77 (which uses the 2009 excise tax rates).
590 Panel Report, Chile – Alcoholic Beverages, para. 7.97 (emphasis added) (also citing the Appellate
Body Report, Canada – Periodicals , DSR 1997:1, p. 449, at p. 474 and the Panel Report, Korea – Alcoholic
Beverages, para. 10.100 (fn. 412)). See also the European Union's first written submission, para. 177.
591 Further, as stated by the Appellate Body in Japan – Alcoholic Beverages, the tax differential must
be more than de minimis "in any given case." Appellate Body Report, Japan – Alcoholic Beverages II ,
DSR 1996:1, p. 97, at p. 11.

Philippines, the tax differential would still be more than de minimis. The Philippines claims that the
9 percentage point difference between these averages is "minor". However, an average tax burden of
22 per cent imposed on imported distilled spirits made from other raw materials is almost 70 per cent
more that an average tax burden of 13 per cent imposed on domestic spirits made from designated raw
materials. We note that in Chile – Alcoholic Beverages, an incremental 4 percentage point difference
between the tax sub-categories of the Chilean tax system was considered per se t o b e m o r e t h a n
de minimis.
593
7.166 Finally, the Philippines argues that the tax differential is de minimis because imported and
domestic distilled spirits do not compete against each other in the Philippine market, given that the
average domestic consumer cannot afford imports with or without taxes, so that the "taxation rate has
little or no impact on consumer choice". This however is a question that more properly falls under the
first issue under Article III:2, second sentence; i. e. whether the products at issue are directly
competitive or substitutable.
7.167 For all the foregoing reasons, we find that unde r the Philippine excise tax imported distilled
spirits and directly competitive or substitutable domestic distilled spirits are not similarly taxed within
the meaning of the second sentence of Article III:2 of the GATT 1994.
(c) "So as to afford protection to domestic production"
(i) Introduction
7.168 Now that we have found that the domestic and imported products at issue are "not similarly
taxed", we continue our inquiry into the third and final question under the second sentence of
Article III:2, i.e. whether such dissimilar taxation is being applied "so as to afford protection" to
Philippine domestic production of distilled spirits.
(ii) Arguments of the parties
7.169 The complainants argue that the following fact s and circumstances regarding the structure,
overall application and aim of the excise tax at issu e demonstrate that such measure is applied "so as
to afford protection" to the Philippine production of distilled spirits.
7.170 First, the magnitude of the tax differential a pplied to domestic and imported spirits is such
that it alone would support the claim that the excise tax is applied "so as to afford protection".594
7.171 Second, the structure of the excise tax reveals that it has been designed to favour the domestic
distilled spirits industry, as indicated by the following elements: (i) the "lack of rationality" of the
product differentiation used by the measure, as there is no "objective reason" for applying a lower rate
to distilled spirits made from a certain set of raw materials (all grown in the Philippines) and much
higher rates to spirits made from other raw materials (all grown outside the Philippines)
595; (ii) the

594 European Union's first written submission, paras. 167-170; United States' first written submission,
paras. 72-75; United States' opening statement at first substantive meeting, paras. 46-47; United States' second
written submission, para. 15; United States' comments on the Philippines' response to Panel question
Nos. 68-69, para. 7.
595 European Union's first written submission, paras. 171-173. See also United States' opening
statement at second substantive meeting, para. 25. The complainants also claim that the Philippine excise tax,
based on the type of raw material rather than on pri ce or alcoholic content of the distilled spirits, is neither
necessary to attain nor capable of attaining the objectives enshrined in the Philippine Constitution of having a
uniform, equitable and progressive tax system. The complainants further note in this regard that the Philippines

fact that the measure is de facto discriminatory (although it is, in principle, origin-neutral) with
respect to imported products. This is so because mo st (if not all) domestic distilled spirits are made
from designated raw materials, thus benefiting from the lower flat tax rate, while the vast majority of
imported distilled spirits, which are not made from t hose designated raw materials, are subject to one
of the three higher tax rates 596; and (iii) the additional requirement that distilled spirits made from
designated raw materials must come from countries where these materials are "produced
commercially", which further reduces the scope of application of the lower tax rate under the
measure.597 The European Union adds th at the "protectionist application" of the measure is also
evidenced by the fact that even some imported rums produced from the designated raw materials (like
Malibu Caribbean White Rum with Coco , Malibu Rum, Havana Club Anejo Reserva , Lemon Heart
Jamaica Rhum , Lemon Heart White Rhum , Myers's Rhum and Myers's Rhum Planters Punch ) are
subject to the same higher rates applicable to distilled spirits made from other raw materials.598
7.172 Finally, as some Philippine authorities were "aware" of the WTO incompatibility of the
measures599 as well as that some domestic legislati on distinguishes between domestic ("local") and
imported products600, these constitute further evidence of the protective application of the measure.

has not invoked any defence under Article XX of the GATT 1994. European Union's opening statement at first
substantive meeting, paras. 90-95; European Union's response to Panel question No. 16, para. 5;
European Union's second written submission, paras. 117-126; European Union's opening statement at second
substantive meeting, paras. 71-72; United States' second written submission, paras. 38-45; United States'
opening statement at second substantive meeting, paras. 3-5 and 23-27.
596 European Union's first written submission, paras. 174-175; European Union's opening statement at
first substantive meeting, paras. 85-86; European Union's second writte n submission, paras. 7 and 13;
European Union's opening statement at second substantive meeting, para. 76; European Union's closing
statement at second substantive meeting, para. 3; United States' first written submission, para. 76 and 78;
United States' second written submission, para. 16.
597 European Union's first written submission, paras. 14-17; European Union's opening statement at
second substantive meeting, paras. 64-70; European Union's comments on the Philippines' response to Panel
question No. 68, paras. 4-9, United States' first writte n submission, para. 77; United States' second written
submission, para. 47; United States' opening statement at second substantive meeting, paras. 12-13.
598 European Union's first written submission, paras. 176-177 and footnotes 195-197 (citing the Panel
Report, Chile – Alcoholic Beverages , footnote 438). See also European Union's second written submission,
paras. 9-13 and 111-116; European Union's opening statement at first substantive meeting, paras. 87-89;
European Union's comments on the Philippines' response to Panel question No. 67, para. 2; United States'
second written submission, paras. 48-49.
599 European Union's first written submission, para. 178-185. The European Union submits the
following evidence in this regard: December 2004 Statement of Senator Ralph G. Recto , sponsor of Republic
Act 9334 (which constitutes one of the instruments containi ng the measure at issue), explaining that under the
bill that later became this legislation, while local spir its would enjoy lower taxes, imported spirits would face
"much higher" ones; and also stating that the separate provision providing for a lower tax rate for spirits made
from designated raw materials should be maintained as it " ... would be to the interest of the nation if we protect
our local manufacturers" (Exhibit EU-74, at p. 30); September 2007 Statement of the President of the Filipino
Senate, Mr. Enrile, before the Ways and Means Committ ee of the country's House of Representatives,
explaining that the purpose of subjecting spirits made from designated raw materials to a lower tax rate was "to
protect the domestic people" (exhibit EU-77); December 2007 Letter from the Philippines Department of
Finance to the Spanish ambassador to the Philippines, ackno wledging that the current excise tax system needed
to be reformed so as "to make it consistent with the [Philippines'] commitments under the WTO agreement;"
(exhibit EU-75); March 2009 Letter from the Philippines Department of Finance to the "Consejo Regulador del
Brandy de Jerez", acknowledging that the current excise tax sy stem disfavours imported spirits made from raw
materials other than indigenous ones (exhibit EU-76); May 2009 Letter from the Philippines Department of
Trade and Industry to the Chairman of the Ways and Me ans Committee of the country's House of
Representatives, supporting an amendment of Republic Act 9334 (one of the instruments containing the
measure at issue) because it is "inc onsistent with GATT 1994 as it give s preferential treatment to domestic

7.173 The Philippines responds that the excise tax is not applied "so as to afford protection" for the
following reasons.
7.174 First, because the magnitude of the tax differentials applied to domestic and imported distilled
spirits is de minimis.
601
7.175 Second, because the structure of the excise tax does not indicate any protectionist intent. The
Philippines contends that its measure does not "lac k rationality" as it is "rooted in the historical
association between liquor made from the designated raw materials and the average Filipino", who is
a low income person. Subjecting these consumers of mostly cane sugar-based spirits to a tax burden
lower than that for the most affluent consumers of spirits made from other raw materials is not only a
"legitimate tax policy" but also one that is mandated by the Philippine Constitution. 602 Additionally,
the fact that none of the raw materials indicated in the measure is grown exclusively in the
Philippines, and are instead found all over the world, means that the lower tax rate is accessible to any
country. The Philippines argues that this demonstrat es that its excise tax is origin-neutral and does
not discriminate, even on a de facto basis. 603 The Philippines also argues that the
"produced commercially" requirement in the measure is not discriminatory as the distilled spirits of
any country can be entitled to the lower rate of Section 141(a) when they are made with ethyl alcohol
from a designated raw material producing country. 604 The Philippines further asserts that with regard
to any instance in which imported distilled spirits made from designated raw materials (like in the
case of Malibu rum and other imported rums) were classified as under the provision providing for
higher taxes (i.e. Section 141(b)), such a classification is illegal and thus "null and void."605
7.176 Third, the purpose of Article III:2 is "the protection of competitive opportunities." The
Philippines argues that, given the low purchasing power of the vast majority of the Philippine
population as well as the pre-tax pr ice differences between imported and domestic distilled spirits, it
follows that the measure "is unable to impact on competitive conditions" an d thus cannot violate
Article III:2.606

products produced from indigenous or locally sourced raw materials." (exhibit EU-11). See also
European Union's first written submission, paras. 22-23 (ref erring to statements made in the context of certain
draft bills proposed at the Philippine Parliament to chan ge the current excise tax system for distilled spirits –
exhibits EU-11, EU-12, EU-13 and EU-14); European Union's response to Panel question No. 61, paras. 99-104;
United States' response to Panel question No. 61, paras. 65-67.
600 European Union's first written submission, para s. 186-189. The European Union refers to
Revenue Regulation 2-97 (exhibits EU-4 and US-4), pointing out the fact that Table A-1 of that legislation,
which lists certain brands classified under the lower ta x rate for designated raw material spirits, is entitled
"Local Distilled Spirits Brands Produced From Sap of Nipa, Coconut etc. covered by Section 138(b)." See also
United States' first written submission, paras. 24-26.
602 Ibid., paras. 1-5, 7, 26, 31-32 and 296; Philippines' opening statement at first substantive meeting,
paras. 46-47; Philippines' closing statement at first substantive meeting, paras. 2-4; Philippines' response to
Panel question Nos. 62 and 63; Philippines' second writte n submission, para. 1; Philippines' opening statement
at second substantive meeting, para. 3; Philippines' closing statement at second substantive meeting, para. 7.
603 Philippines' first written submission, paras. 8-9, 24-26, 29, 297-302; Philippines' opening statement
at first substantive meeting, paras. 37-38; Philippines' second written submission, paras. 80-82; Philippines'
opening statement at second substantive meeting, para. 4.
604 Philippines' response to Panel question No. 68(c).
605 Philippines' first written submission, paras. 172-174, 303; Philippines' opening statement at second
substantive meeting, para. 37.
606 Philippines' first written submission, paras. 310- 314; Philippines' opening statement at first
substantive meeting, para. 40; Philippines' opening statement at second substantive meeting, para. 39.

7.177 Fourth, the statements from some government offi cials are irrelevant as those statements are
simply the personal opinions of such individuals, who are not experts in WTO law. The Philippines
contends that none of the statements reflects the official position of the government, which is reflected
in the Philippines' submissions in this dispute.607
7.178 Finally, the use of the term "local" in Revenue Regulation 2-97 does not demonstrate the
existence of an intentional legal distinction between domestic and imported products as the use of this
term in Annexes A-1 and A-2 of the regulation was merely a "technical error". The Philippines
considers that, in any case, the tables contained in this and other Philippines regulations are just
"illustrative" in nature and serve "an administrativ e purpose only: to provide a clear and transparent
description of how the excise tax will be calculate d and applied to those existing brands" listed
therein.
608
(iii) Consideration by the Panel
7.179 We start by recalling that, as explained by the Appellate Body:
"[A]n examination in any case of whether di ssimilar taxation has been applied so as
to afford protection requires a comprehensiv e and objective analysis of the structure
and application of the measure in question on domestic as compared to imported
products. We believe it is possible to examine objectively the underlying criteria
used in a particular tax measure, its struct ure, and its overall application to ascertain
whether it is applied in a way that affords protection to domestic products.
Although it is true that the aim of a measure may not be easily ascertained,
nevertheless its protective application can most often be discerned from the design,
the architecture, and the revealing structure of a measure."
609
7.180 Therefore, whether the dissimilar taxation afford s protection is not a question of intent or
aim610, but rather one of the protective application of the measure. 611 This means that we should
ascertain the protective application of the Philippine excise tax by examining its design, architecture,
and revealing structure. 612 The Appellate Body has explained that in some cases the dissimilar
taxation may be so much more than de minimis that "it will be clear from that very differential that the
dissimilar taxation was applied 'so as to afford protection'."613 In such cases, such differential "may be

607 Philippines' first written submission, para. 308. See also Philippines' response to Panel question
No. 61; exhibit PH-65.
608 Philippines' first written submission, paras. 304-307.
609 Appellate Body Report, Japan – Alcoholic Beverages II, p. 29, DSR 1996:I, p. 97, at p. 120.
610 See ibid., p. 27, DSR 1996:I, 97, at p 119.
611 See ibid., p. 29, DSR 1996:I, 97, at p. 120.
612 This does not mean however that we cannot ta ke into consideration any other elements when
considering this final question under the second sentence of Article III:2, if not to ascertain, at least to confirm
the protective application of a measure. See, e.g., Appellate Body Report on Canada – Periodicals, pp. 31-32
DSR 1997:I, 449, p. 475-476 (finding that statements made by public officials that the very design of the
measure in question was to afford protection to domestic industry were probative); Appellate Body Report,
Chile – Alcoholic Beverages, para. 62 (considering that the "statutory purposes of objectives – that is, the
purpose or objectives of a Member's legislature and gover nment as a whole – to the extent that they are given
objective expression in the statute itsel f" are pertinent) and Panel Report on Mexico – Taxes on Soft Drinks,
para. 8.91 (considering that "the declared intention of legislators and regulators of the Member adopting the
measure should not be totally disregarded, particularly when the explicit objective of the measure is that of
affording protection to domestic production.").
613 Appellate Body Report, Japan – Alcoholic Beverages II, DSR 1996:1, p. 97, at p. 122.

enough to show a violation."
614 The Appellate Body also stated, however, that in "other cases, there
may be other factors that will be just as relevant or more relevant to demonstrating that the dissimilar
taxation at issue was applied 'so as to afford protection.'"615
7.181 We now turn to the facts and arguments before us.
7.182 Concerning the design, architecture and structure of the measure, we recall that the excise tax
at issue creates a system th at combines specific and ad valorem taxes. Under this system, distilled
spirits produced from certain designated raw materials (i.e. the sap of the nipa, coconut, cassava,
camote, or buri palm, or from juice, syrup or sugar of the cane) are subject to a low flat tax rate of
PHP 14.68 ppl. In contrast, distilled spirits produc ed from raw materials other than those designated
in the measure are subject to taxes that can vary between PHP 158.73 ppl to PHP 634.90 ppl,
depending on their NRP. All designated raw materials are grown in the Philippines
616 and all
domestic distilled spirits are produ ced from designated raw materials. 617 Conversely, the
vast majority of imported distilled spirits are not made from designated raw materials. This means
that de facto the measure results in all domestic distilled spirits enjoying the favourable low tax, while
the vast majority of the imported spirits are subject to higher taxes.618
7.183 As we have concluded at para graph 7.154, under the Philippine excise tax, the vast majority
of imported distilled spirits is subject to taxes that are, in nominal terms, approximately 10 to 40 times
that applicable to all domestic spirits. This resu lts in a dissimilar level of taxation between imported
and domestic distilled spirits that is nominally large.619

614 Ibid. See also Appellate Body Report, Canada – Periodicals , DSR 1997:1, p. 449, at pp. 475-476
(considering that the design and structure of the measure, including the magnitude of the differential taxation,
demonstrated that the measure was applied so as to af ford protection to domestic production); Appellate Body
Report, Korea – Alcoholic Beverages , para. 150 (upholding the panel's finding that the magnitude of the tax
difference alone was sufficient to show the protective nature of the measures, although the panel still went on to
look at, and based its decision on, other factors); Appellate Body Report, Chile – Alcoholic Beverages, para. 66
(considering that since, among other factors, the magnitude of the tax difference was "considerable", it followed
that "the application of dissimilar taxation of directly competitive or substitutable products will 'afford
protection to domestic production.'"); and Panel Report, Mexico – Taxes on Soft Drinks, para. 8.87 (finding that
the "magnitude of the tax differential between imported and domestic products, resulting from the application of
the soft drink tax and the distribution tax, is additional evidence of the protective effect of the measure on
Mexican domestic production of sugar.").
615 Appellate Body Report, Japan – Alcoholic Beverages II, DSR 1996:1, p. 97, at p. 122.
616 So Philippine distilled spirits producers always qualify under the other requirement of the excise tax,
i.e. that the "designated raw materials" be "produced co mmercially in the country where they are processed into
distilled spirits". This may not necessarily be the cas e of producers from other countries. See above at
para. 2.17. In this regard, we recall that the measure ha s been challenged by the complainants "as such", so we
consider that the very existence of this additional requ irement in the measure, regardless of how or whether it
has been applied in practice, is per se another indication of its protective nature.
617 More specifically, all domestic distilled spirits use ethyl alcohol as a base for their production. The
ethyl alcohol can be either distilled from sugar cane molasses produced in the Philippines or imported from, and
distilled in, countries where sugar cane molasses are "produced commercially."
618 As indicated above in footnote 585 to para. 7.154, some, but not all, rums imported into the
Philippines are subject to the lower flat tax rate under Section 141(a) . We also recall that imported rums
represent less than 0.1 per cent of total imported dis tilled spirits. See also United States' second written
submission, para. 49. In any case, we consider that just because some few imported products are subject to the
same tax treatment as domestic products cannot change the protective nature of the measure overall.
619 We have also concluded above at paras. 7.158 and 7.161 that even in relative terms the dissimilar
level of taxation between these products is significantly more than de minimis.

7.184 With regard to the statements of various Philippine government offi cials submitted by the
complainants as evidence of the protective nature of the measure 620, we bear in mind the Appellate
Body's statement that it is not necessary "to sort through the many reasons legislators and regulators
often have for what they do and weigh the rela tive significance of those reasons to establish
legislative or regulatory intent" for "it is irre levant that protectionism was not an intended
objective."621 Therefore, we will not review the statem ents submitted by the complainants in the
present dispute.
7.185 Finally, we understand the Philippines to be arguing that the measure cannot violate
Article III:2 because it "is unable to impact on competitive conditions" in the Philippine market given
the low purchasing power of the vast majority of th e Philippine population as well as the pre-tax price
differences between the imported and domestic distilled spir its at issue. In this respect, we note that
the Appellate Body dealt with a very si milar argument in a previous case. In Korea –
Alcoholic Beverages, Korea claimed that the panel erred in failing to take into consideration the
argument that the pre-tax price differences between diluted soju and impor ted alcoholic beverages
were so large that the Korean tax could not affect the competitive relationship between these
products.622 The Appellate Body stated that in making these arguments, Korea seemed "to be
revisiting the question whether the products can be treated as directly competitive or substitutable." 623
The Appellate Body then added that:
"... Korea overlooks the fact that the two products have already been found to be
directly competitive or substitutable. Its arguments are, therefore, misplaced at this
stage of the analysis and do not cast doubt on the Panel's finding that the contested
measures afford protection to domestic production.
Korea also seems to be insisting that a fi nding that a measure affords protection must
be supported by proof that the tax difference has some identifiable trade effect. But,
as we have said above, Article III is not concerned with trade volumes. It is,
therefore, not incumbent on a complaining party to prove that tax measures are
capable of producing any particular trade effect." 624
7.186 We dismiss the Philippines' arguments for th ese same reasons. We have already decided
above that the products at issue are directly competitive and substitutable and, like the Appellate Body
in Korea – Alcoholic Beverages, we also consider that the Philippine's arguments "are, therefore,
misplaced at this stage of the analysis and do not cast doubt on the Panel's finding that the contested
measures afford protection to domestic production."
7.187 In light of the foregoing considerations, we find that the design, architecture, and structure of
the measure, including the magnitude of the tax differential applicable to imported and domestic
products, reveal the protective nature of the measure . In conclusion, the dissimilar taxation imposed
by the Philippine excise tax on imported distilled sp irits and on directly competitive or substitutable
domestic spirits is applied "so as to afford prot ection" to Philippine domes tic production of distilled
spirits.

620 See a full description of these statements in footnote 599 to para. 7.172 above.
621 Appellate Body Report, Japan – Alcoholic Beverages II, p. 27, DSR 1996:I, 97, at p 119.
622 Appellate Body Report, Korea – Alcoholic Beverages, para. 151.
623 Ibid., para. 152.
624 Ibid., paras. 152-153 (footnotes omitted).

(d) Conclusions regarding the claim under the second sentence of Article III:2 of GATT 1994
7.188 For the reasons stated above, we conclude that , through its excise tax, the Philippines applies
dissimilar internal taxes on domestic distilled sp irits made from designated raw materials and to
directly competitive or substitutable imported disti lled spirits made from other raw materials in a
manner so as to afford protection to the Philippine domestic production of dis tilled spirits and is thus
acting in a manner inconsistent with Article III:2, second sentence, of the GATT 1994.
E. S
PECIAL AND DIFFERENTIAL TREATMENT
7.189 Pursuant to Article 12.11 of the DSU:
"[W]here one or more of the parties is a developing country Member, the panel's
report shall explicitly indicate the form in which account has been taken of relevant
provisions on differential and more-favour able treatment for developing country
Members that form part of the covered ag reements which have been raised by the
developing country Member in the course of the dispute settlement procedures."
7.190 In addition, the DSU provides in Article 12.10 that:
"[I]n examining a complaint against a de veloping country Member, the panel shall
accord sufficient time for the developing c ountry Member to prepare and present its
argumentation."
7.191 During the proceedings, we took into account th e respondent's status as a developing country
Member, particularly when preparing the timetable for the process after having heard the views of the
parties.
7.192 We have also noted that the Philippines has stated that the present dispute:
"[I]nvolves the right of a developing country WTO Member to impose a tax regime
that is best suited to achieve the fiscal obj ectives set out in its Constitution in light of
the administrative and enforcement constraints it faces with respect to tax
collection."
625
7.193 The Philippines clarified that the fiscal objectiv es in its legislation to which it referred are
linked to achieving a progressive system of ta xation that imposes higher taxes on "higher-priced
goods, typically bought by wealthier consumers" and lower taxes on "lower-priced goods, typically
bought by less affluent consumers." 626 The constraints with respect to tax collection identified by the
Philippines include that the country "possesses a larg e informal economy, widespread poverty, a large
geographical area and an extensive coast line to administer and monitor... and limited taxation
resources".627

626 Philippines' first written submission, para. 2. See also ibid., paras. 32 and 296; Philippines' opening
statement at first substantive meeting, paras. 5-9; Philip pines' opening statement at second substantive meeting,
paras. 3-5; Philippines' response to Panel question Nos. 16 and 62.
627 Philippines' response to Panel question No. 62. See also Philippines' opening statement at first
substantive meeting, para. 4; Philippines' closing statement at first substantive meeting, para. 4; Philippines'
opening statement at second substantive meeting, paras. 3 and 38; Philippines' response to Panel question
Nos. 16 and 63. See also para. 3.4 above.

7.194 In response to a question from the Panel, the Philippines did not refer to any provision in the
WTO agreements on special and differential treatment for developing countries and clarified that the
statements it made:
"[Are] not a reference to any of the provi sions of Article XX of GATT 1994. The
Philippines believes that its excise tax system embodied in Section 141 of the
National Internal Revenue Code is not inc onsistent with Article III, and therefore
there is no need to invoke the provisions of Article XX."
628
7.195 In conclusion, the Philippines did not rais e any specific provisions on differential and
more-favourable treatment for developing countr y Members that would require particular
consideration by the Panel.
VIII. CONCLUSIONS AND RECOMMENDATIONS
8.1 We recall the complainants' request that the Pa nel issue its findings in the form of a single
document containing two separate reports with common sections but separate conclusions and
recommendations for each complaining party. 629 In accordance with the requests by the complaining
parties, we therefore provide two separate sets of conclusions and recommendations.

628 Philippines' response to Panel question No. 16. See also para. 3.5 above.
629 See para. 1.12 and its footnote 10 above.

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 C
OMPLAINT BY THE EUROPEAN UNION (DS396): CONCLUSIONS OF THE PANEL

8.2 With respect to the claims advanced by the Eu ropean Union, we find that, through its excise
tax, the Philippines subjects imported distilled spirits made from raw materials other than those
designated in its legislation to internal taxes in excess of those applied to like domestic spirits made
from the designated raw materials, and is thus acting in a manner inconsistent with Article III:2, first
sentence, of the GATT 1994.
8.3 We abstain from making findings with respect to the European Union's claim under the
second sentence of Article III:2 of GATT 1994, because this claim was advanced as an alternative,
only in the event that the Panel had not found that th e measure at issue is inconsistent with the first
sentence of the same provision.
8.4 Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations
assumed under a covered agreement, the action is considered prima facie to constitute a case of
nullification or impairment. We conc lude that, to the extent that the measure at issue is inconsistent
with the GATT 1994, it has nullified or impaired bene fits accruing to the European Union under that
agreement.
8.5 Pursuant to Article 19.1 of the DSU, we recommend that the Dispute Settlement Body request
the Philippines to bring its measure into conformity with its obligations under the GATT 1994.

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 C OMPLAINT BY THE UNITED STATES (DS403): CONCLUSIONS OF THE PANEL

8.2 With respect to the claims advanced by the United States, we find that:
(a) Through its excise tax, the Philippines subj ects imported distilled spirits made from
raw materials other than those designated in its legislation to internal taxes in excess
of those applied to like domestic spirits made from the designated raw materials, and
is thus acting in a manner inconsistent with Article III:2, first sentence, of the
GATT 1994.
(b) Through its excise tax, the Philippines app lies dissimilar internal taxes on domestic
distilled spirits made from designated raw ma terials and to directly competitive or
substitutable imported distilled spirits made from other raw materials in a manner so
as to afford protection to the Philippine dom estic production of distilled spirits and is
thus acting in a manner inconsistent w ith Article III:2, second sentence, of the
GATT 1994.
8.3 Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations
assumed under a covered agreement, the action is considered prima facie to constitute a case of
nullification or impairment. We conc lude that, to the extent that the measure at issue is inconsistent
with the GATT 1994, it has nullified or impaired be nefits accruing to the United States under that
agreement.
8.4 Pursuant to Article 19.1 of the DSU, we recommend that the Dispute Settlement Body request
the Philippines to bring its measure into conformity with its obligations under the GATT 1994.